2014 QCCS 2268, 2014 QCCS 2268

Ibex Technologies Inc. c. Garvinci Inc. 2014 QCCS 2268 JB3976 SUPERIOR COURT CANADA PROVINCE OF QUEBEC DISTRICT OF MONTRÉAL No: 500-17-061597-103 DATE: June 3 rd , 2014 ______________________________________________________________________ IN THE PRESENCE OF: THE HONOURABLE MARC-ANDRE BLANCHARD, J.S.C. ______________________________________________________________________ IBEX TECHNOLOGIES INC. Plaintiff v.

GARVINCI INC. -and- JEAN-FRANÇOIS GAREAU Defendants ______________________________________________________________________ JUDGMENT (PLAINTIFF'S MOTION FOR RECTIFICATION OF JUDGMENT) ______________________________________________________________________ [ 1 ] CONSIDERING that the Court rendered judgment on May 23 rd , 2014; [ 2 ] CONSIDERING that IBEX Technologies inc. filed a motion for rectification of judgment on May 27 th , 2014; [ 3 ] CONSIDERING that the parties pleaded in writing on said motion and did not require a formal hearing at Court [1] ; [ 4 ] CONSIDERING that it appears obvious that there exists a lack of concordance between the reasons expressed in the judgment [2] , more particularly at paragraphs 85 to 98 and the conclusion at paragraph 100; [ 5 ] CONSIDERING that the conclusion at paragraph 100 lacks inadvertently the words " save recourse " and that this constitute a " lapsus " [3] ; FOR THESE REASONS, THE COURT : [ 6 ] GRANTS IBEX Technologies inc.'s motion for rectification of judgment; [ 7 ] RECTIFIES its judgment of May 23 rd , 2014 at paragraph 100 so that it now reads: [100] DISMISSES IBEX Technologies inc's claim, save recourse ; [ 8 ] WITHOUT costs. __________________________________ MARC-ANDRÉ BLANCHARD, J.S.C.

Me Yves Robillard Miller Thomson Attorney for Plaintiff Me Alexander De Zordo Me Marc L. Unger Borden Ladner Gervais Attorneys for Respondents Ibex Technologies Inc. c. Garvinci Inc. 2014 QCCS 2268 JB3976 SUPERIOR COURT CANADA PROVINCE OF QUEBEC DISTRICT OF MONTRÉAL No: 500-17-061597-103 DATE: May 23 rd , 2014 ______________________________________________________________________ IN THE PRESENCE OF: THE HONOURABLE MARC-ANDRE BLANCHARD, J.S.C. ______________________________________________________________________ IBEX TECHNOLOGIES INC. Plaintiff v.

GARVINCI INC. -and- JEAN-FRANÇOIS GAREAU Defendants ______________________________________________________________________ JUDGMENT ______________________________________________________________________ [1] A research and development firm for the pharmaceutical industry, IBEX Technologies inc. claims $2 396 021 from Garvinci inc., a distributor of pharmaceutical products and Jean-François Gareau, its director president and principal shareholder, for a series of loans made in the view of a contemplated share purchase .

The facts [2] On September 12, 2006, the parties entered into a Standstill and Option Agreement [4] (« SOA ») during the negotiations of the purchase by IBEX of all the shares of Garvinci held by Gareau, IBEX loaned Garvinci $125 000.

The company and Gareau signed a promissory note [5] . [3] On October 3 and 4, they amended the SOA to extend the exclusivity period for a period of ninety days [6] . [4] On October 12, IBEX loaned an additional $125 000 to Garvinci who signed, with Gareau, a promissory note [7] . [5] On November 10, the parties extended the exclusivity period [8] and IBEX loaned an additional $125 000 for which Garvinci and Gareau signed a promissory note on November 12, 2006 [9] .

[6] On November 17, the parties agreed to modify the execution of the Share Purchase Agreement (« SPA ») [10] . [7] On December 12, IBEX loaned an additional $125 000.

Gareau and Garvinci signed a promissory note acknowledging same [11] . [8] On January 12, 2007, Garvinci received an additional loan of $125 000 from IBEX and signed with Gareau a promissory note for said amount [12] . [ 9 ] On January 29, the parties finalized the SPA [13] . [ 10 ] On February 9, they entered into a loan and debenture agreement amended and restated on March 12, 2007 [14] , whereby IBEX loaned Garvinci a further sum of $375 000 in three (3) instalments of $125 000. [ 11 ] On February 10, March 13 and April 11, IBEX loaned Garvinci $125 000, thus totalling $375 000 for which Garvinci and Gareau signed promissory notes [15] . [ 12 ] On March 15, pursuant to the first five (5) promissory notes [16] , IBEX obtained a moveable hypothec on Garvinci's receivables and inventory [17] . [ 13 ] On April 13, the parties amended the SPA [18] . [ 14 ] On May 7, IBEX published a moveable hypothec for the $375 000 loan [19] .

On the same day, IBEX terminated the SPA because it was dissatisfied with its due diligence of Garvinci's affairs and the existence of serious material changes in Garvinci [20] . [ 15 ] On June 12, IBEX wrote to Gareau and Garvinci to specify, notably, that the $1 000 000 loaned was to be repaid on or before May 7, 2008 [21] . [ 16 ] On April 8, 2008, IBEX wrote to remind them of the upcoming due date for repaying the loans [22] . [ 17 ] From April 20 until May 6, the parties attempted to agree upon the terms of an agreement governing the refinancing of the debt [23] . [ 18 ] On May 9 and 29, the attorney of IBEX forwarded requests for payment [24] .

At the latter date, they formulated a proposition in the hope of avoiding legal proceedings. [ 19 ] On July 7, Garvinci accepted an agreement outlined in a July 3 letter [25] , addressed also to Gareau as guarantor. [ 20 ] On November 14, an escrow agreement (« the EA ») was arrived at [26] , but same was completed in its definite written form on January 14, 2009 [27] .

It appears important to quote the recitals of same : WHEREAS during the period from September 12, 2006 to April 12, 2007, IBEX loaned to Garvinci an amount of ONE MILLION DOLLARS ($1,000,000) bearing interest at a rate of 12% per annum (the « Loan »); AND WHEREAS , on July 3, 2008 Garvinci and IBEX agreed that the amount outstanding on the Loan in principal and interest was ONE MILLION ONE HUNDRED AND SEVENTY-FIVE THOUSAND DOLLARS ($1,175,000); AND WHEREAS , Garvinci and IBEX agreed that as of July 3, 2008, interest on the amount outstanding on the Loan in principle and interest would be the prime rate of the Bank of Canada plus one percent (1%); AND WHEREAS Garvinci has agreed that all amounts outstanding on the Loan are to be paid to IBEX out of amounts received from Bayer Inc. (« Bayer ») for all Levonorgestrel containing products (the « NorLevo Products ») that it supplies to Bayer pursuant to a distribution agreement between Garvinci and Bayer, dated on or about December 17, 2007 (the « Bayer Agreement ») and that all such amounts shall be deposited in an Escrow Account (Garvinci) with the Escrow Agent to be remitted pursuant to the terms hereof; AND WHEREAS the parties hereto wish to set forth their agreement concerning the repayment of the Loan to IBEX in principal and interest; [ 21 ] It is noteworthy to point out that the EA contains a clause concerning the disclosure to IBEX of any shipment by Garvinci of NorLevo Products to Bayer.

It reads: 3. Shipment Disclosure . Upon each shipment of NorLevo Products to Bayer, Garvinci shall send to IBEX a copy of its invoice to Bayer's for such products and shall include details and supporting documents regarding the cost of NorLevo Products so shipped (« Invoice Notice »), along with Garvinci's calculation of the amount due and payable to HRA. [ 22 ] It is also essential to refer specifically to the content of the EA in regards to how the funds collected by the Escrow Agent would be distributed and the way the parties intented to terminate the agreement : 4. IBEX Instructions .

Upon receipt of each Invoice Notice, and Garvinci's calculation of the amount due and payable to HRA, IBEX shall deliver instructions to the Escrow Agent (with a copy to Garvinci), setting out the cost of the NorLevo Products supplied to Bayer as well as the interest outstanding on the principal amount of the Loan and setting forth the manner in which the funds to be received by the Escrow Agent are to be disbursed (the « IBEX Instructions »), which shall be based in accordance with the following : (

a) first, to Laboratoire HRA Pharma (HRA) in payment for the cost of the NorLevo Products supplied to Bayer; (

b) second to Seal Seidman in payment of all reasonable expenses (a fix fee of $6000.00 per year plus GST/PST; revised yearly),

incurred in the discharge of its duties hereunder; and (

c) third, to IBEX in payment of all interest outstanding on the amount of $1,175,000 (the Loan), including, without limitation, any accrued and unpaid interest, and (

d) fourth, from the Escrowed Funds after the disbursement specified above, sixty percent (60%) of such remaining amount shall be remitted to IBEX in repayment of the principal amount of the Loan, and forty percent (40%) of any such remaining amount shall be remitted to Garvinci, until such time as the full amount of the Loan in principle and interest is paid to IBEX, following which, thirty five percent (35%) of such remaining amount shall be remitted to IBEX, and sixty five percent (65%) of any such remaining amount shall be remitted to Garvinci. (

e) At the end of the Bayer Agreement, the first seven (7) year term, any balance of principal or interest outstanding would be due and payable at that time. 5. Disbursement of Funds . The Escrow Agent shall allocate all NorLevo Amounts received from Bayer in respect of each Invoice Notice (the « Escrowed Funds ») in accordance with the IBEX Direction. GST/PST on the Seal Seidman invoice shall be charged to Garvinci.

The Escrow Agent shall promptly deliver notice of receipt of the Escrowed Funds from Bayer to all parties and shall remit such amounts to each payee in accordance herewith within ten (10) business days of receipt thereof. 10. Term of Agreement .

This Agreement shall terminate and be of no further effect only upon the Escrow Agent's receipt of a joint notice signed by each of IBEX and Garvinci informing the Escrow Agent that this Agreement has terminated. [ 23 ] In as much as it appears necessary to underline it, it bears noting that Gareau is not a party to this EA. [ 24 ] On February 12, 2009, IBEX sent Garvinci an agreement, dated February 10, regarding the limitation of its securities [28] to the universality of all present and future claims and account receivable payable to Garvinci by Bayer or HR Pharma. [ 25 ] On April 29 and May 4, Garvinci invoiced [29] Bayer for orders made December 29, 2008, to be shipped «Rush» since the delivery date requested was April 30, 2009.

The invoices total $148,894.20. It is important to note that Garvinci did not send a copy of those invoices to IBEX. [ 26 ] At the end of the summer of 2009 and no later than September 2, 2009, Gareau advises René Calfat, one of Garvinci's intermediaries, that Bayer would not have directed its payment into the account of the Escrow Agent [30] . [ 27 ] On September 4, Calfat called and e-mailed Paul Baehr, president of IBEX, to inform him of the situation.

Baehr replied that Gareau « was in default of his agreement and that he would take the necessary measures to protect IBEX's interest» [31] . [ 28 ] On September 22, IBEX issued a Notice of Withdrawal of authorization to collect claims under

section 2745 C.c.Q. [32] . [ 29 ] On September 23, Baehr informed Calfat by email [33] that IBEX was going to step in and serve Bayer with notice that they must send any further monies to its attorneys.

He adds : (…) We do not seek to increase our share of the pie beyond the agreement that was reached, but we can no longer leave anything in Gareau's hands. - He has failed to notify us that Bayer placed an order. - He failed to supply us with a copy of the invoice to Bayer. - He failed to have the funds deposited into the trust account by Bayer. - Having received the money in a separate account he failed to cure the problem by immediately transferring the money into the escrow account. - He has failed to send us any proof that HRA has been paid. - Assuming that he has paid HRA, he has failed to transfer the residual funds into the escrow account.

He leaves us no choice. [ 30 ] On October 29, the attorneys for IBEX served letters of demand upon Garvinci and Gareau to obtain reimbursement for the total outstanding amount of $1,364,139 plus additional interest, adjustments and cost on or before November 21, 2009 and terminated the EA. [34] [ 31 ] On November 20, the attorneys for Garvinci responded by stating [35] : (…) Our client has advised us that the failure to deposit the first account receivable from Bayer into the Escrow Account, in accordance with the Escrow Agreement dated January 14, 2009, was nothing more than an administrative error by the procurement department of the payer.

Moreover, our client's representative took the initiative to advise your client of this mix-up and would have undertaken to remedy

same promptly. In fact, our client's representative took all reasonable actions to resolve the payment issue with its customer and needed to fully resolve before redirecting the full payment to the Escrow Account. (…) More specifically, it is false to state that « payments are being made to Garvinci Inc. outside this account ». Moreover, a simple discussion with our client's representative would have provided your client with the necessary details and reassurances as to why the single payment received was not immediately redirected to the escrow account.

In the circumstances, your Notice of Withdrawal of Authorization to Collect Claims is completely unwarranted and prejudicial to our client's financial survival. With respect to your letter of demand dated October 29, 2009, we consider this also to be abusive in the circumstances. Your client's unilateral termination of the Escrow Agreement , and declaration that « the agreement is null and void » is contrary to the provisions of the Escrow Agreement and is illegal.

If your client is interested in discussing the cancellation of the Escrow Agreement and ancillary documents, it will be our pleasure to review the effects thereof on its various loans, if required. Notwithstanding all of the foregoing, and the serious prejudice caused to our client, our client might be prepared to resolve this misunderstanding, now that it has cleared up the payment issue with its customer.

Without any admission whatsoever, our client would be prepared to transfer the full sum of its first order from Bayer Inc. into the Escrow Account in consideration for you cancellation of the Notice of Withdrawal of Authorization to Collect Claims and confirmation that any breach of the Escrow Agreement , if breach there was, has been remedied. Under these conditions, our client will ensure that future orders will be deposited directly to the Escrow Account, as agreed. Absent of such an agreement, our client will not be in any position to guarantee further orders.

Alternatively, if your client is looking for a payout of its various loans, our client might be prepared to negotiate same in short order. (…) [ 32 ] On April 23, 2010, Garvinci's attorney sought a reply from IBEX's counsel [36] . [ 33 ] On June 9, IBEX's attorneys responded by stating [37] : (…) We refer to our last conversation on May 27, 2010 and subsequent messages with respect to the captioned-matter during which we discussed a possible way to resolve the impasse between our clients.

Specifically, you informed us that your client had in fact received payment of Norlevo Amounts from Bayer inc. and that same were still available. Your client claims this payment was made directly to it due to a certain amount of confusion within Bayer Inc.'s payables department, which confusion has since been dissipated. Our client might be willing to consider reinstatement of the Escrow Agreement so long as :

a) Your client accounts for all Norlevo Amounts received to date;

b) Confirms that the Norlevo Amounts were still available, and had not been consumed by your client;

c) Your client would deposit same into the Escrow Account forthwith; and

d) Would take all reasonable steps, in conjunction with our client, to ensure that any future Norlevo Amounts were made by Bayer Inc., directly into the Escrow Account. In exchange, our client would advise Bayer Inc. that its Notice of Withdrawal of Authorization to Collect Claims was rescinded. The timing of these various steps remains to be discussed, but we understood that the foregoing would likely be acceptable to your client. Since our conversation, you were to confirm to us the Norlevo Amounts received by your client and provide us with its accounting of same.

We have yet to receive this information, though we have left you a few voicemails in this regard. Consequently, could you please provide us with your client's responses to the foregoing, within the next five (5) days. (…) [ 34 ] On June 21, Garvinci's counsel responded [38] : (…) Further to your correspondence of June 9, 2010 our client has instructed us to confirm the following to you.

a) There has only been one order to date. This order was for 40 000 units of which 600 units were shipped initially and a week later, 29 700 units were shipped. Our client will fully account from the funds received from this order;

b) The funds are available;

c) Our client is prepared to deposit same into the escrow account promptly upon agreement as between the parties;

d) There have been no further orders yet. However, our client will ensure that all receivables from future orders will be deposited in accordance with the Escrow Agreement. Kindly provide us with a draft of your Notice to Bayer Inc. to the effect that your Notice of withdrawal of authorization to collect claims is rescinded.

We will provide you with our comments thereupon promptly. [ 35 ] On July 14, the attorneys for IBEX sent a letter of demand, with copy to Gareau, requesting payment of $1 480,178 on or before July 26 [39] . [ 36 ] On July 16, the attorney for Garvinci sent IBEX's attorneys the two invoices of April 29 and May 4, 2009 addressed to Bayer [40] . [ 37 ] On July 23, Garvinci's attorneys refuted the alleged unilateral termination of the EA and stated that the attempt to collect from Gareau was akin to intimidation since IBEX would have specifically renounced to this security [41] . [ 38 ] On August 2, IBEX's counsel answered [42] : (…) Based on the forgoing, without admission or waiver, and solely for the purpose of avoiding the costs, inconvenience, and delays related to litigation the dispute between our parties, we confirm IBEX would be willing to resolve the issue in the following manner :

a) The Initial Amount, which we understand to be somewhere between $35,000 and $45,000 would be deposited in our trust account, by no later than August 13, 2010. At least three (3) days prior to that date, Garvinci will have provided its calculation of the precise value of the Initial Amount, along with all supporting documentation, and IBEX shall be satisfied that such calculation is accurate.

b) A revised escrow agreement will be entered into between IBEX, Garvinci and Jean-François Gareau, as guarantor, and an escrow agent to be chosen by the parties, such as Seal Seidman, s.e.n.c., which shall provide that all NorLevo Amounts will be treated in accordance with terms essentially identical to those provided for under the terminated Escrow Agreement, however :

i) the agreement will provide for payment milestones, where the amounts owing to IBEX must have been reduced by at least $100,000 every six months, beginning January 1, 2011, failing which the entire balance will become immediately due and owing at such date; and ii) all amounts owing to IBEX shall be repaid in full by no later than December 31, 2013.

c) Upon execution of the aforementioned agreement, the Initial Amount would be released to IBEX, and IBEX would concurrently rescind its Notice of Withdrawal of Authorization to Collect Claims which was previously served on Bayer inc. Finally, our client might be willing to consider a lump sum payout in lieu of the aforementioned arrangement. However, the amount offered would need to be substantial. Please let us have your client's position on the forgoing by August 3, 2010.

Should the aforementioned dates be truly problematic, our client may be flexible on those dates, so long as your suggestions are reasonable, and that it is clearly understood that no extension will be granted.

As mentioned, the forgoing is of course without prejudice to our client's rights and recourses, is only being submitted to you in an attempt to settle the dispute between our respective clients, and may not be relied upon in any proceedings between the parties. [ 39 ] On September 15, Garvinci's counsel wrote as follows [43] : Further to our previous correspondence, you will find attached a copy of the cheque that we have drawn to the order of your client in the above-captioned file.

Upon receipt of your draft Notice to Bayer regarding rescission of your Notice of withdrawal of authorization to collect claims, once we agree on the terms thereof and upon receipt of the issuance of this Notice, we will send your our trust cheque promptly. (…) [ 40 ] On October 29, IBEX served its proceeding claiming solidarily from Garvinci and Gareau $1,000,000 together with interest at the rate of 12% per annum since May 8, 2008. The position of the parties [ 41 ] IBEX's position is quite straight forward: it made two loans to Garvinci, guaranted by Gareau.

The first for $625,000, from September 2006 to January 2007 by way of five amounts of $125,000 bearing interest of 12% per annum for which Garvinci and Gareau signed promissory notes.

The second for $375,000 from February to April 2007 by way of three amounts of $125,000 bearing interest of 12% per annum with the relevant promissory notes being signed. [ 42 ] Garvinci and Gareau contend that the EA constitutes a new contract related to a consolidated debt thus creating a new loan which effected novation, thereby releasing Gareau as guarantor. [ 43 ] They plead also that the EA was illegally terminated whether by virtue of its own provisions or by virtue of the Civil Code .

Analysis Novation - The Law concerning novation [ 44 ]

Article 1660 describes the types of novation that can be effected : 1660 . Novation is effected where the debtor contracts towards his creditor a new debt which is substituted for the existing debt, which is extinguished, or where a new debtor is substituted for the former debtor, who is discharged by the creditor; in such a case, novation may be effected without the consent of the former debtor. Novation is also effected where, by the effect of a new contract, a new creditor is substituted for the former creditor, towards whom the debtor is discharged. [ 45 ] In Lalonde v.

Sun Life Assurance Co. of Canada [44] , the Supreme Court states the conditions required for novation by quoting the author Faribault : In his Traité de droit civil du Québec , vol. 8 bis , 1959, No. 677, at p. 507, Faribault states that : [Translation] For there to be novation five conditions must be met : 1. there must be a prior obligation, 2. a new obligation must be created, 3. these two obligations must be different from each other, 4. the parties must have indicated their intention to novate, and 5. they must have the capacity to enter into a contract. [ 46 ] In this regards, the onus of proving that a new agreement was contracted, that it is different from the previous one and that the parties intended to effect novation, rests on the shoulders of Garvinci and Gareau. [ 47 ] It is important to keep in mind what

section 1661 C.c.Q. states concerning the intent to novate : 1661 . Novation is not presumed; it is effected only where the intention to effect it is evident. [ 48 ] Professor Jobin opines : 1002 – Intention de nover – Le Code civil exige que l'intention d'effectuer la novation (ou animus novandi ) soit évidente et précise que la novation ne se présume pas ( art. 1661 C.c.Q.).

On ne saurait, en effet, supposer que les parties désirent nover et donc éteindre une obligation existante, d'autant plus qu'en posant des gestes presque identiques, les parties peuvent avoir voulu accomplir une opération juridique tout à fait différente.

Selon l'interprétation qu'on peut lui donner, un même acte peut, en effet, révéler le désir d'éteindre la dette purement et simplement, de faire une délégation ou une indication de paiement, ou encore de confirmer, par un second acte, une obligation déjà existante et qui n'est pas éteinte, en se contentant d'y ajouter certains compléments. ( …) L'intention de nover n'est pas toujours expresse. Elle peut aussi être tacite et s'inférer des circonstances.

Le tribunal peut ainsi déduire l'intention de nover de l'analyse de la conduite des parties, ou encore en constatant l'incompatibilité des deux obligations ou des recours qui en résultent pour le créancier. Dans un arrêt de principe, la Cour d'appel a néanmoins été amenée à rappeler que, pour trouver une novation tacite dans la conduite ou le comportement du créancier, l'intention d'effectuer une telle novation doit être claire et non équivoque.

Cette prudence, qui s'impose quant à toute forme de novation, se justifie d'autant plus dans le contexte d'une substitution de créancier ou de débiteur, puisqu'il n'est pas dans l'ordre normal des choses qu'un créancier abandonne son droit de créance au profit d'un autre, ou encore qu'il se prive de recours contre son débiteur initial malgré l'ajout d'un nouveau débiteur. (…) [45] [ 49 ] In the present circumstances, Garvinci and Gareau claim that the EA effected novation by way of consolidation and replacement of debts [46] .

The doctrine describes same as follows : 998 – Novation par changement de dette – La novation par changement de dette se produit lorsque, entre les mêmes personnes, une nouvelle dette comportant un élément neuf est substituée à l'ancienne ( art. 1660 , al. 1 C.c.Q. ).

Le même débiteur s'engage donc vis-à-vis du même créancier , mais assume une nouvelle obligation (et non simplement une obligation modifiée), tout en étant libéré de l'ancienne. (…) [47] (The Court underlines) (…) On affirme traditionnellement que la novation par changement de dette peut résulter d'un changement de la cause, de l'objet ou encore des modalités de l'obligation. (…) La novation est dite « par changement de cause » lorsque les parties s'entendent pour transformer la nature de l'opération juridique en vertu de laquelle le débiteur est tenu à l'égard du créancier (l'objet du contrat, art. 1412 C.c.Q. ). (…) [48] (…) Il y a « novation par changement d'objet » lorsque la modification se rapporte à l'objet de la prestation, c'est-à-dire le bien sur lequel s'exerce la prestation due par le débiteur. (…)

Enfin, la « novation par changement de modalités » a lieu lorsque les parties apportent une modification fondamentale à l'obligation. Le changement de modalités ne doit pas toucher seulement l'exigibilité de la dette, mais la nature même de la prestation qui en est l'objet. Ainsi, la simple prorogation du terme, l'ajustement du taux d'intérêt applicable entre les parties, ou encore des modifications aux modalités de paiement n'ont pas pour effet de nover l'obligation.

De même, la concession de garanties additionnelles ou, à l'inverse, l'octroi par le créancier d'une mainlevée sur une hypothèque, modifie en quelque sorte l'obligation sans toutefois la transformer fondamentalement. (…) [49] [ 50 ] On this subject, the authors conclude : La nouvelle créance doit donc comporter un élément véritablement nouveau par rapport à l'ancienne et pas seulement un élément supplémentaire rattaché à l'ancienne dette ou une simple modification de forme.

Une telle règle se justifie d'autant mieux si l'on se rappelle que la création de la nouvelle obligation répond au désir de mettre fin à l'ancienne, ce qui implique l'idée d'abandon et d'extinction de cette dernière. Le critère fondamental permettant de conclure à la présence d'un véritable changement est donc l'incompatibilité des deux obligations. (…) [50] (The Court underlines) [ 51 ] Concerning the consent, professor Tancelin [51] writes : 1307. Consentement –

L'article 1171 C.c., 1661 C.c.Q. n'écarte pas la règle de l'article 988 C.c., 1386 C.c.Q. selon laquelle le consentement peut être implicite ou tacite. Le juge Rivard dit que l'intention du créancier doit être « clairement exprimée ou tacite ». Le juge Lesage interprétait ainsi l'article 1171 C.c.: «Si la novation ne se présume pas, il n'est tout de même pas nécessaire de dire dans l'acte qu'il s'agit d'une novation. Il suffit que l'intention de l'opérer (soit) évidente.» En remplaçant «point» par «pas», l'

article 1661 C.c.Q. ne fait guère avancer la question. «Certes, si la novation ne se présume pas, elle peut, malgré tout, être tacite (par exemple résulter du comportement ou de la conduite du créancier qui démontre clairement son intention de décharger le débiteur original ( Rémy c. Gagnon , [1971] C.A. 554, p. 557 [et cinq autres arrêts cités]). Cependant, là encore, l'intention de ce faire ne doit pas être équivoque et, en cas de doute, on doit préférer la solution contraire qui préserve les droits du créancier .

Il n'est sûrement pas nécessaire, par contre, que la novation soit formellement constatée par écrit.» Il n'y a donc aucune exigence formaliste en matière de novation, en dépit de ce que semble suggérer le juge Rinfret en parlant d'intention «formellement déclarée».

L'article 1171 C.c., 1661 C.c.Q. écarte plutôt certaines règles d'interprétation telles que celle de l'article 1014 C.c., 1428 C.c.Q. Dans le doute, le juge décidera contre la novation parce qu'elle ne se présume pas . Ce n'est pas la même règle qu'en matière de solidarité et de cautionnement, 1105, 1935 C.c., 1525, 2335 C.c.Q., où le rejet de la présomption est accompagné de l'exigence formelle du caractère exprès. Réalisant un degré de plus, la subrogation comporte certainement une exigence de formalisme, 1155 C.c., 1654 et 1655 C.c.Q.

En somme, la règle de preuve de la novation est plus laconique que celle de ces autres mécanismes juridiques du droit des obligations.

Il en résulte une excessive latitude laissée au juge, qui explique le caractère déroutant de la jurisprudence relative à cette institution archaïque, infra , no 1310. (The Court underlines) [ 52 ] It is important to note that renunciation to a right must be non ambiguous and unequivocal [52] . [ 53 ] In regards to the expression «consolidation de dettes», the Dictionnaire de droit privé et lexiques bilingues: Les Obligations [53] gives the following definition: «Opération consistant à remplacer plusieurs dettes par une seule.» [ 54 ] Defendants rely on the Court of Appeal's decision in Roy v.

Caisse Populaire de Chibougamau [54] where we read : «En principe, la consolidation des dettes opère novation» : Jean-Louis Baudouin, Les Obligations , (1989), p. 498. The facts regarding novation [ 55 ] In light of the foregoing, the Court must now determine, according to defendant's submissions, whether or not a consolidation of debts occurred which effected novation. [ 56 ] If the Court concludes that novation is effected, Gareau would be released of its obligation according to

section 1665, al. 1 C.c.Q. [ 57 ] With respect to this issue of novation it is important for the Court to carefully analyse the factual context of the relation between the parties and especially the language used by them in their agreements.

Accordingly both the words used in the EA and the elements absent from same assume great importance. [ 58 ] For the sake of clarity, it appears necessary to repeat here the recitals of the EA : WHEREAS during the period from September 12, 2006 to April 12, 2007, IBEX loaned to Garvinci an amount of ONE MILLION DOLLARS ($1,000,000) bearing interest at a rate of 12% per annum (the « Loan »); AND WHEREAS , on July 3, 2008 Garvinci and IBEX agreed that the amount outstanding on the Loan in principal and interest was ONE MILLION ONE HUNDRED AND SEVENTY-FIVE THOUSAND DOLLARS ($1,175,000); AND WHEREAS , Garvinci and IBEX agreed that as of July 3, 2008, interest on the amount outstanding on the Loan in principle and interest would be the prime rate of the Bank of Canada plus one percent (1%);

AND WHEREAS Garvinci has agreed that all amounts outstanding on the Loan are to be paid to IBEX out of amounts received from Bayer Inc. (« Bayer ») for all Levonorgestrel containing products (the « NorLevo Products ») that it supplies to Bayer pursuant to a distribution agreement between Garvinci and Bayer, dated on or about December 17, 2007 (the « Bayer Agreement ») and that all such amounts shall be deposited in an Escrow Account (Garvinci) with the Escrow Agent to be remitted pursuant to the terms hereof; AND WHEREAS the parties hereto wish to set forth their agreement concerning the repayment of the Loan to IBEX in principal and interest; [ 59 ] The Court notes that the word «Loan» is defined in the recitals and nowhere in this contract does it clearly state that a new loan is created.

However, from the point of view of the defendants, the fact of agreeing that the amount of $1,175,000 in capital and interest is, at that time, the amount outstanding on the «Loan» and that it will, from then on, bear interest at prime plus one, shows that we are in the presence of a new loan which effected novation. [ 60 ] In order to properly assess the common intention of the parties, the Court can rely on the words used in the EA and if available, on the testimony of the parties on this element. However, Gareau choose not to testify at trial.

In these circumstances, bearing in mind that the burden of proof rests on him to prove novation, this becomes an element that carries a certain weight. Accordingly, the Court can reasonably conclude that his failure to testify does not lend credibility to the argument that the parties intended to effect novation. [ 61 ] Further, Baehr testified that the EA came about though an intermediary of Gareau and was accomplished for the purpose of delaying the execution of the repayment of Garvinci's debt in return for a percentage of the revenues generated by the sales to Bayer.

He states that the letter of July 3, 2008 [55] outlining the agreement reached concerning the outstanding IBEX loans and interest that was accepted by Garvinci on July 7, does not contain wording or refer specifically to the personal guarantee of Gareau or of his wife Vachon, because «those are separate matters». [ 62 ] In this respect, the Court notes that Gareau was copied on that letter [56] in his capacity as a guarantor.

The reasonable inference the Court can draw from this element, is that the parties, by agreeing in principle in July 2008, did not, prima facie , intend to release Gareau from his guarantees. [ 63 ] As a general rule, the language used by the parties remains the best indicator of their intent.

At the cost of being repetitive, the Court must take note the parties stated in the last recital that their agreement concerns the repayment of the Loan to IBEX in principal and interest. [ 64 ] It is true that all the relevant contracts and promissory notes were drafted by counsel for IBEX and the purpose was to obtain Gareau's personal guarantee.

However, this does not necessarily lead to the conclusion that the absence of Gareau as a party to the EA relieves him from his obligations as guarantor. [ 65 ] In a very strict sense, the language used in the EA does not show that IBEX is lending any monies to Garvinci. Obviously, it refers to the amounts already loaned but it does not state that a new loan is created. [ 66 ] Defendants plead that some notes [57] in the financial statements of IBEX support their position.

The first [58] signed on October 2, 2007 states that : In 2007, the company entered into a non-binding letter of intent for the proposed acquisition of Garvinci Inc. Pursuant to this letter, the company paid a monthly exclusivity fee of $125,000 during the negotiation period. The transaction was terminated on May 7, 2007.

The fee was paid as a loan bearing an annual interest rate of 12% to be reimbursed to the company, if the parties failed to close the transaction, at the earlier of (i) 12 months from the date discussions between the parties in connection with the transaction have been terminated, or (ii) the date the other party enters into a business combination with a third party. As of the transaction termination date, May 7, 2007, the company had made eight payments of $125,000, for a total of $1 million.

As per the terms of the agreement, Garvinci Inc. is to reimburse IBEX, at the latest on May 7, 2008, the full amount of the loan plus accrued interest, for a total of $1,060,740 as of July 31, 2007. Management has determined as per its analysis that the loan is unlikely to be collected and has written down the full amount of the loan plus accrued interest. [ 67 ] With all due respect, this does not assist the Court to determine in favor of the defendants' position.

This statement does not help the Court interpret the EA. [ 68 ] The second [59] , a note in the consolidated financial statements of July 31, 2013 and 2012 reads : During the year ended July 31, 2007, the Company entered into a non-binding letter of intent for the proposed acquisition of Garvinci inc. («Garvinci»). Pursuant to the letter, the Company paid a monthly exclusivity fee of $125,000 during the negotiating period. The transaction was terminated on May 7, 2007.

The fee was paid as a loan bearing an annual interest rate of 12% to be reimbursed to the Company if the parties failed to close the transaction at the earlier of : i) 12 months from the date discussions between the parties in connection with the transaction have been terminated; and ii) The date the other party enters into a business combination with a third party. As at the transaction termination date of May 7, 2007, the Company had made eight payments of $125,000, for a total of $1 million.

As per the agreement, Garvinci was to reimburse the Company the full amount of the loan plus accrued interest on May 7, 2008. As at July 31, 2013, no amounts had been repaid of the outstanding balance of $1,180,740. In accordance with the terms of the agreement, the Company has the right to convert $375,000 of the loan, and the related accrued

interest, into common shares of Garvinci, based on a value for Garvinci of $6 million. No amounts have been converted into shares of Garvinci as at July 31, 2013. Management determined that the loan was unlikely to be collected and wrote down the full amount of the loan plus accrued interest during the year ended July 31, 2007. In January 2009, the Company and Garvinci entered into a new agreement (the «Escrow Agreement») in which, among other things, Garvinci agreed to share in the sales revenue from its sales to a customer in return for a reduction in the interest rate from 12% to prime rate plus 1%.

In September 2009, the Company determined that Garvinci had not abided by the essential terms of the Escrow Agreement, whereupon the Company unilaterally cancelled the Escrow Agreement and reverted to the terms for its original loan agreement. In October 2010, IBEX filed an action against Garvinci and its owner in the Quebec Superior Court. In May 2011, the Quebec Superior Court allowed the IBEX claim to proceed with a trial date set for April 2014.

As of this date, IBEX has received no payment against this debt and management considers that the full provision continues to be appropriate. (The Court underlines) [ 69 ] IBEX pleads that the sentence « a new agreement was made » (the Escrow Agreement) does not mean novation was effected. It adds that this statement should be considered, at best, as equivocal. [ 70 ] The Court agrees.

It appears delicate, to say the least, to give great weight to a statement made after the fact, (i.e. the EA), in a context that is totally different, (i.e. financial statements), that are not destined for the same public and are not drafted for the same purpose. The evidentiary weight of this statement cannot constitute an admission as to novation but can constitute, at best, one element, albeit a limited one, to help the Court.

It bears pointing out that at the time of that statement legal action was already taken by IBEX in October 2010 and that it had filed its plea to the cross-demand at the beginning of December 2011 along with its declaration under

article 274.1 C.p.c. which directly contradict the consequences of that statement that Gareau and Garvinci propose. Thus, it is only with a great deal of caution that the Court can make use of such an extra-judicial statement. [ 71 ] As for the letter of August 2, 2010 from IBEX's counsel, the Court notes that same constitutes an offer of settlement, written without prejudice.

Accordingly, it cannot serve in any interpretative process akin to the one being contemplated by defendants herein. [ 72 ] Again, for the sake of clarity, it appears important to note that Gareau is not a party to the EA and that it does not state that Gareau is released from his personal guarantees or personal liabilities. In this respect, the EA contains an entire Agreement clause, which reads : 19. Entire Agreement .

This Agreement, together with all Schedules, constitutes, with respect to the subject matter hereof, the entire agreement between the parties hereto and supercedes all prior agreements and understandings, oral or written, between the parties hereto. [60] [ 73 ] Undoubtedly, the Court can rely on this to reach its conclusion.

It constitutes another element that must be put in the balance on the side of IBEX's position. [ 74 ] Moreover, the agreement of July 7, 2008 [61] with respect to the limitation of IBEX's hypothec states : IBEX for its part will amend its first rank universal hypothec so as to limit it to only NorLevo receivables, inventory and any other assets pertaining to the commercialization of NorLevo. [ 75 ] However, the EA, more precisely its fourth recital does not give effect to this agreement since only the « receivables » are included in the EA and not the « inventory and any other assets pertaining to the commercialization of NorLevo ». [ 76 ] Thus, defendants cannot plead as they do [62] , on the one hand, that the July 7 th 2008 agreement [63] is a complete contract and, on the other hand, that the EA was executed to give it full force and effect [64] . [ 77 ] This argument begs the question as to whether or not the EA is a stand alone contract, which has the effect to novate the debts of Garvinci and Gareau, or whether it is just an agreement concerning the repayment of the Loan, as stated in its fifth recital that must be read and understood in conjuncture with other elements? [ 78 ] It appears essential to repeat that the July 7 agreement is forwarded to Gareau as Guarantor.

Why would such a copy be delivered to him in that capacity if the intention of IBEX and or Garvinci and or Gareau was to effect novation by way of another contract, in the circumstances the EA? The answer appears logical, reasonable and obvious: Gareau is still a guarantor. [ 79 ] Thus, for the Court, this constitutes one more element that does not favor the defendants's position regarding novation. [ 80 ] Also, how is one to understand the reason for the reduction of securities contained in an agreement of February 10, 2009 [65] if the EA is a complete contract which effected novation?

For the Court, again, one reasonable answer appears obvious: it was not the

intent of the parties to effect novation. They did not act in a way to do so. [ 81 ] Defendants in their plan of argument submit that : 96. As appears from the terms of both the 2008 Agreement and the Escrow Agreement the cumulative impact of the:

a) Consolidation of both the principal and interest in virtue of the Exclusivity Notes and the LDA Notes;

b) Revised Interest Rate and re-defined the Term;

c) Reduction in scope of the Exclusivity Liens and the LDA Liens, effected by way of the Lien Agreement;

d) Inclusion Extended Profit Sharing Arrangement was introduced;

e) Absence of any mention or provision in said agreements that the resulting operation was not to effect novation; and

f) Exclusion of Gareau personally, contrary to what was repeatedly done previously; collectively lead to a clear set of facts, that in and of themselves, demonstrate that IBEX sought to effect novation for the New Loan, by virtue of the provisions of the 2008 Agreement, with the Escrow Agreement henceforth governing the parties; [ 82 ] With all due respect, the Court does not agree. An escrow agreement is an accessory to another contract. It cannot « govern the parties » in the totality of their contractual relationship.

It is true that they agreed to modify the interest rate and the term and reduce the scope of security on Garvinci's assets, but this is not accomplished by the escrow agreement. The fact that a profit sharing formula was introduced is not incompatible with the pre-existing contractual relation between the parties. [ 83 ] The fact that Gareau is not a party to the escrow agreement is not conclusive. It can be reasonably stated that this is the case because he does not have to be a signator to such a document.

It can also be stated, perhaps equally reasonably, that this is so because the parties wanted to exclude him from his guarantee. Also, the absence of a stipulation concerning novation can have at least two meanings.

Consequently, at best those elements are neutral in their interpretative effect. [ 84 ] Thus, to the extent : - that the onus of proof of novation rests with Garvinci and Gareau; - that in the event there is a doubt as to the intentions of the parties it must be interpreted against novation since it is not presumed; - that Gareau did not testify; - that a renunciation to a right requires an unequivocal and non ambiguous demonstration. [ 85 ] The Court must, therefore, conclude for all the preceding reasons that they have not been able to discharge this burden. Hence,

article 1432 C.c.Q. cannot discharge defendants from this obligation. The termination of the Escrow Agreement [ 86 ] Defendants state that since the EA is the new contract that governs Garvinci and IBEX's respective rights and obligations,

article 1439 C.c.Q. precludes one party from unilaterally revoking a contract. They add that only a joint notice could terminate the EA and it is only at the end of the term provided in the EA (i.e. December 20, 2014) that any balance of principal or interest outstanding would be due and payable. They add that pursuant to

section 10 of the EA, IBEX waived its rights for recourse pursuant to

article 1590 C.c.Q.

Section 10 reads : 10. Term of Agreement. This Agreement shall terminate and be of no further effect only upon the Escrow Agent's receipt of a joint notice signed by each of IBEX and Garvinci informing the Escrow Agent that this Agreement has terminated. [ 87 ]

Article 1590 C.c.Q. provides : 1590. An obligation confers on the creditor the right to demand that the obligation be performed in full, properly and without delay.

Where the debtor fails to perform his obligation without justification on his part and he is in default, the creditor may, without prejudice to his right to the performance of the obligation in whole or in part by equivalence, (1) force specific performance of the obligation; (2) obtain, in the case of a contractual obligation, the resolution or resiliation of the contract or the reduction of his own correlative obligation; (3) take any other measure provided by law to enforce his right to the performance of the obligation. [ 88 ] This

article must be read in conjunction with

section 1604 C.c.Q. : 1604. Where the creditor does not avail himself of the right to force the specific performance of the contractual obligation of the debtor in cases which admit of it, he is entitled either to the resolution of the contract, or to its resiliation in the case of a contract of successive performance.

However and notwithstanding any stipulation to the contrary, he is not entitled to resolution or resiliation of the contract if the default of the debtor is of minor importance, unless, in the case of an obligation of successive performance, the default occurs repeatedly, but he is then entitled to a proportional reduction of his correlative obligation. All the relevant circumstances are taken into consideration in assessing the proportional reduction of the correlative obligation.

If the obligation cannot be reduced, the creditor is entitled to damages only. [ 89 ] Garvinci pleads that it was never formally in default and IBEX did not permit it to execute its obligation under sections 1590 and 1595 C.c.Q. The latter reads: 1595. The extrajudicial demand by which a creditor puts his debtor in default shall be made in writing.

If the demand does not allow the debtor sufficient time for performance, having regard to the nature of the obligation and the circumstances, the debtor may perform the obligation within a reasonable time after the demand. [ 90 ] In any event, its default would either be justified or be of minor importance or it would not have occurred repeatedly. It claims that it was not in default by virtue of the terms of the contract by law or by extrajudicial demand i.e. a letter of demand. [ 91 ] IBEX submits that it terminated the EA on October 29, 2009 [66] .

The cause of termination is the failure to have the Bayer receivables paid in trust under the EA. It argues that since the EA is a contract of successive performance it could act as it did pursuant to articles 1604 to 1606 C.c.Q. [ 92 ] It is clear from the exchange of emails between Baehr and Calfat [67] in September 2009 and the letters of demand addressed to Gareau and Garvinci on October 29, 2009 [68] that IBEX does not give any time to cure the default. It simply declares that the EA is terminated and requests payment of the total amount of the loans.

Obviously, in these circumstances, IBEX cannot claim that it respected

article 1605 C.c.Q. and thus obtain the extra-judicial cancellation of the EA. No judicial claim of a similar nature was ever made either in the original judicial demand of November 2010, in its particularized one of December 2010 or in the answer to plea and plea to the cross-demand of December 2011. The Court cannot conclude ultra petita in this regards. [ 93 ] It bears noting that in regards to the alleged default and the cancellation of the EA after the letter of October 22, 2009, there was an exchange of correspondence between the parties' counsels starting November 20, 2009 [69] through July 2010.

IBEX proposed a settlement on August 2, 2010 [70] . On September 15, 2010 [71] , the defendants sent a copy of a check, presumably for the amounts that should have been deposited in the escrow account, along with the demand for rescission of the Notice of Withdrawal of authorization to collect claims of September 22, 2009 [72] . [ 94 ] This all leads to the conclusions of Defendants plea and cross-demand where they request that this Court : C. DECLARE that the […] escrow agreement, entered into by Garvinci inc. and IBEX Technologies Inc. on January 14, 2009, remains in full force and effect; E.

ACKNOWLEDGE the tender and payment into the trust account of Borden Ladner Gervais LLP, undertaken by Garvinci Inc. in the amount of $36,242.00; [ 95 ] This being said, the Court concludes that IBEX has not obtained the extra-judicial cancellation of the EA and it is not seeking a judicial termination of same but only the payment of the amounts loaned to Garvinci and guaranteed by Gareau.

Thus, the Court considers that the EA is still in force between the parties and it is unnecessary to determine whether or not the alleged default of Garvinci is justified, be it by a superior force, or was of minor importance or, subsidiarily, did not occur repeatedly. [ 96 ] This conclusion may seem redundant in light of the fact that Garvinci has not sent IBEX any notices related to orders or shipments of products made since September 2009 or that Bayer has not paid any amounts after receiving the notice of September 22, 2009, but it's importance lies in the fact that the EA provides that this method of repayment of the monies owed shall be in place for a period of seven (7) years, starting on December 17, 2007 and ending on the same date in 2014. [ 97 ] Finally, it is unnecessary for the Court to address more specifically the demand of defendants regarding an abuse of contractual rights by IBEX since the present judgment resolves the question of the termination of the EA. [ 98 ] The parties have agreed that if it comes to that, the Court could acknowledge that the monies held in trust by the attorneys for Defendants satisfy the legal requirements for tender. [ 99 ] In regards to costs, the Court will use its discretion to declare that each party shall pay its own, since they were both successful on a part of their claim.

FOR THESE REASONS, THE COURT : [ 100 ] DISMISSES IBEX Technologies inc.'s claim; [ 101 ] DECLARES that the Escrow Agreement, exhibit P-20 of January 14, 2009, remains in full force and effect; [ 102 ] ACKNOWLEDGES that the tender and payment into the trust account of Borden Ladner Gervais LLP undertaken by Garvinci inc. in the amount of $36,242.08 is legally valid; [ 103 ] EACH PARTY paying its own costs.

__________________________________ MARC-ANDRÉ BLANCHARD, J.S.C. Me Yves Robillard Miller Thomson Attorney for Plaintiff Me Alexander De Zordo Me Marc L. Unger Borden Ladner Gervais Attorneys for Respondents Date of hearing: April 8 and 9, 2014