Thornridge Holdings Limited v. Ryan, 2023 NSSC 108

SUPREME COURT OF Nova Scotia Citation: Thornridge Holdings Limited v. Ryan , 2023 NSSC 108 Date: 20230328 Docket: 509722 Registry: Halifax Between: Thornridge Holdings Limited Plaintiff v. Michael Gordon Ryan Defendant Judge: The Honourable Justice Darlene Jamieson Heard: January 20, 2023, in Halifax, Nova Scotia Counsel: Christopher W. Madill and Sarah A. Walsh, for the Plaintiff Victor Goldberg, KC; Matt McEwen and Sarah Dobson for the Defendant The original text of this decision has been corrected according to the erratum dated March 29, 2023. By the Court: Introduction [ 1 ] This is a motion for

summary judgment on the evidence brought by Thornridge Holdings Limited (“Thornridge”). [ 2 ] In February 2015, Thornridge was the sole shareholder of Envirosystems Incorporated (“Envirosystems”). On February 26, 2015, Thornridge sold the majority of its shares in Envirosystems to a third-party company, 3287166 Nova Scotia Limited (the “Envirosystems Transaction”). [ 3 ] As part of a series of corporate transactions relating to the Envirosystems Transaction, on the same date, Thornridge advanced $2,677,519 to the Defendant, Michael Ryan (“Mr. Ryan”). [ 4 ] Mr.

Ryan executed a promissory note in favour of Thornridge on February 26, 2015 in the “Principal Amount” of $3,667,819 (the “Large Note”). The Principal Amount of $3,667,819 is made up of the $2,677,519, plus $399,200 advanced in 2013, and $591,100 advanced in 2014. Mr. Ryan also executed a General Release on the same date. Additionally, Mr. Ryan entered into an Option Agreement dated February 26, 2015, whereby 3287166 Nova Scotia Limited (“3287166” or “the Numbered Company”) provided an option to Mr. Ryan to purchase various numbers of Class A, B and E shares.

Further, as part of the Envirosystems Transaction, an Envirosystems Stock Option Plan, dated February 26, 2015 (the "ESOP"), was made available to employees, executive officers and directors of Envirosystems, including Mr. Ryan. [ 5 ] Thornridge says the Large Note matured in mid-August 2021 and the Principal Amount of $3,667,819 became due and payable. It says this matter is appropriate for

summary judgment because there are no material facts in dispute and it is clear on the reading of the Large Note that the entirety of the funds are due and owing.

[ 6 ] Mr. Ryan says

summary judgment is inappropriate because the court will not only have to assess but also weigh the evidence to resolve the controversies between the parties. He says there are genuine disputes about material facts which prevent

summary judgment from issuing. Evidence on the Motion: [ 7 ] Thornridge filed an affidavit of Mr. Robert Gillis sworn on September 1, 2022. Mr. Ryan filed an affidavit sworn on September 8, 2022. Thornridge then filed a rebuttal affidavit sworn by Mr. Gillis on September 13, 2022, and a motion challenging the admissibility of portions of Mr. Ryan’s affidavit. The admissibility motion was set down for November 28, 2022. It was supported by an affidavit of Mr. Gillis sworn on November 15, 2022. My decision on the motion resulted in Mr. Ryan filing a revised version of his September 8, 2022 affidavit.

This new affidavit was sworn on January 16, 2023. [ 8 ] On November 10, 2022, Mr. Ryan filed a motion seeking leave to file a supplemental affidavit. That motion was heard together with the admissibility motion. Mr. Ryan was successful on his motion and filed a supplemental affidavit sworn on January 16, 2023. Background [ 9 ] Mr. Ryan was formerly the Chief Executive Officer (“CEO”) of Envirosystems, a Nova Scotia Limited Company that provided industrial, environmental, and waste management services. Mr. Ryan was the CEO of Envirosystems from approximately 2009 until December 31, 2017. [ 10 ] Mr.

Ryan and other senior executives of Thornridge and its subsidiaries (including Envirosystems) were part of a Long Term Incentive ("LTI") plan. Mr. Ryan’s entitlement under the LTI was to be equal to 3.5% of the increase in value of Envirosystems above a valuation of $39,380,000. The LTI was to be valued annually and to accumulate over a five-year period, at which time it could be distributed on a reasonable basis. Mr. Ryan had the option to take advances against his LTI entitlement during the five-year period. He took an advance of $399,200 on July 30, 2013. Mr.

Ryan signed a promissory note in this amount in favour of Thornridge at that time. The maturity date of this promissory note was January 2, 2016 – five years plus one day from the date of Mr. Ryan’s enrollment in the LTI plan. [ 11 ] On May 27, 2014, Thornridge advised Mr. Ryan that his entitlement “under the long-term equity plan as calculated at December 31, 2013 based on 3.5% of the gain on Envirosystems over the Rubicon base was $4,890,425, as approved by the Thornridge Board of Directors on May 5, 2014.” Mr. Ryan took a second advance on his LTI entitlement in the amount of $591,100 on July 21, 2014.

A new promissory note in favour of Thornridge, replacing the one executed in 2013, in the cumulative amount of $990,300, was executed by Mr. Ryan. The maturity date of this note remained January 2, 2016. [ 12 ] In 2014, Torquest Partners (“Torquest”) entered negotiations to purchase a controlling interest in Envirosystems. On December 5, 2014, Mr. Ryan received a letter of interest from Torquest which stated: Purchase price and Shares Acquired.

Torquest (the “Purchaser”) contemplates purchasing 62.9% of the equity value of the Company, with members of the Executive Team purchasing the remaining portion of the shares to be sold by Thornridge Holdings (2.1% of the equity value of the Company) at a purchase price that reflects an enterprise value of $… This enterprise value assumes a debt-free, cash- free business with a normal level of working capital delivered at closing… [ 13 ] In February 2015, Thornridge sold the majority of its shares in Envirosystems to 3287166. The Numbered Company appears to be a Torquest holding company.

The Envirosystems Transaction closed on or about February 26, 2015. [ 14 ] There were a number of agreements relating to the Envirosystems Transaction involving Mr. Ryan personally, which I will review. February 26, 2015 Agreements between Mr. Ryan and Thornridge [ 15 ] As part of the Envirosystems Transaction, Thornridge advanced funds to Mr. Ryan. Mr. Ryan signed the “Large Note” in favour of Thornridge, which states: $3,667,819​​​______________________ __________DATED: February 26, 2015 FOR VALUE RECEIVED , MICHAEL G.

RYAN (“Debtor”) promises to pay on the Maturity Date (as defined below) to or to the order of THORNRIDGE HOLDINGS LIMITED (“Creditor”) the sum of $3,667,819 (the “Principal Amount”), in lawful money of Canada, without interest.

This sum is comprised of three advances: Advance # 1 July 30, 2013 $399,200 Advance # 2 July 21, 2014 $591,100 Advance # 3 February 26, 2015 $2,677,519 This promissory note (this “Note”) is cumulative and replaces the promissory note between the parties dated July 21, 2014 in the amount of $990,300 which promissory note was also cumulative and issued in respect of both Advance #1 and Advance #2 and replaced the promissory note between the parties dated July 30, 2013 in the amount of $399,200. Place and Time of Payment .

All amounts shall be paid to Creditor at its registered office or designated location on the date and to the extent that the Debtor, or his personal representative or heirs, receives any amounts owing to the Debtor in respect of the sale of the

Debtor’s shares of Envirosystems Incorporated, or any successor thereof pledged as security for this Note, upon a “Liquidity Event”, as such term is defined in the Envirosystems Incorporated Stock Option Plan adopted as of February 26, 2015 as amended from time to time (the “Plan”) or any other liquidation in which the Debtor receives any alternative consideration. Proceeds shall not include dividends for purposes hereof and the date of the receipt of such proceeds on a Liquidity Event shall be the “Maturity Date”. … Set-off .

On the Maturity Date, the Creditor will, by written notice to the Debtor, set off the Principal Amount against any amounts otherwise owing by the Creditor to the Debtor in satisfaction of this Note, prior to seeking any other remedies or recourse against the Debtor. Severability: If any provision of this Note is held to be invalid, illegal or unenforceable by any court, that provision shall be deleted from this Note and the balance of this Note shall be interpreted as if the deleted provision never existed. … [ 16 ] There was no share pledge made by Mr.

Ryan to Thornridge under the Large Note. [ 17 ] A General Release was executed by Mr. Ryan dated February 26, 2015. It refers to the advance of $2,677,519 under the Large Note: IN CONNECTION WITH the long term incentive plan ( the “LTI”) of Thornridge Holdings Limited (“THL”) for Michael G.

Ryan (“MGR”) and the discharge of all obligations of THL to MGR in respect of the LTI, MGR, THL and Envirosystems Incorporated have executed a stock option agreement and related documentation (collectively, the “Option”) for the issuance to MGR of 3.5% of the shares of Envirosystems Incorporated or its successor to satisfy in full of any obligations pursuant to the LTI; AND IN CONSIDERATION OF the sum of one dollar and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged: a.

MGR together with MGR’s heirs, executors, administrators and assigns does hereby irrevocably release, remise, quit claim and forever discharge THL’s direct and indirect subsidiaries, including Envirosystems Incorporated… b.

MGR together with MGR’s heirs, executors, administrators, and assigns does hereby irrevocably release, remise, quit claim and forever discharge THL and its partners, directors, officers… This general release is conditional upon the closing of the transaction pursuant to which THL is selling a portion of its interest in Envirosystems Incorporated by no later than February 28, 2015 and the payment of the amount payable pursuant to a promissory note executed by MGR in favour of THL dated the date hereof of $2,667,519 … [ 18 ] The “stock option agreement and related documentation” referred to in the General Release executed by Mr.

Ryan are not in the record before the court. [ 19 ] On February 26, 2015, a further promissory note (the “Small Note”) plus a Share Pledge Agreement were executed by Mr. Ryan. The Small Note indicates that it is intended to finance the subscription of shares in 3287166 Nova Scotia Limited. It states, in part: WHEREAS Michael G.

Ryan (the “ Debtor ”) has subscribed for 52080 Class A shares and 468720 Class B shares (collectively, the “ Subject Shares ”) in the capital stock of 3287166 NOVA SCOTIA LIMITED (the “ Company ”) for a total price of $520,800 (the “ Subscription Price ”) pursuant to a subscription agreement dated February 26, 2015 (the “ Subscription Agreement ”). AND WHEREAS THORNRIDGE HOLDINGS LIMITED (the “Creditor”) is lending an amount equal to the Subscription Price to the Debtor to finance a subscription of the Subject Shares.

FOR THE VALUE RECEIVED the Debtor promises to pay to the order of the Creditor $520,800 in lawful money of Canada (the “Principal Amount”), together with interest on the terms set out below, as follows: (

a) all dividends paid on the Subject Shares shall be directed by the Debtor to be paid to the Creditor and apply directly to the Principal Amount until such time as it is fully paid down; (

b) in the event of the sale by the Debtor of the Subject Shares, the Debtor shall repay the Creditor all amounts owing under this Promissory Note, including the Principal Amount owing and any accrued and unpaid interest; and (

c) on the fifth anniversary of the date of this Promissory Note, the Debtor shall repay the Creditor the balance of all amounts then owing under this Promissory Note, including the Principal Amount owing and any accrued and unpaid interest.

The Principal Amount outstanding from time to time shall bear interest from the date hereof, as well after as before demand and both before and after default or judgment thereon, at Prime Rate plus 0.5% per annum… It is the intent of the parties that the Principal Amount be equivalent to the aggregate of the Subscription Price and the Commitment Amount of the Debtor under the commitment letter executed by the Debtor in favour of the Company, dated February 26, 2015 (the “ Commitment Letter ”).

Upon the determination of the Debtor’s Commitment Amount, the principal amount shall be increased by an amount equal to the commitment amount and the Debtor shall execute a replacement note or amendment of this Note, at the Creditor’s discretion, to reflect such adjustment.

The Debtor or further agrees with the Creditor as follows: (

a) the Debtor shall pledge the subject shares as security for its obligation under this note pursuant to a share pledge agreement (the “pledge agreement”) in favour of the creditor; and (

b) the debtor shall deliver proxy in favour of the creditor in connection with the voting rights of the subject shares, such proxy to remain in force for as long as any of the principal amount or any accrued interest remains outstanding and payable to the creditor. … [ 20 ] The Share Pledge Agreement in relation to the Small Note subject shares is also dated February 26, 2015, and states, in part: FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, the Securities and all renewals thereof, substitutions therefore, proceeds thereof, accretions thereto and all interest, dividends, income and revenue therefrom (collectively, the “Collateral”) are hereby assigned to and will be held by the Creditor as continuing collateral security for the fulfilment of all obligations of the Pledgor to the Creditor under the promissory note delivered by the Pledgor to the Creditor dated February 26, 2015 … Attached to the Share Pledge Agreement is a Power of Attorney to Sell and Transfer Common Shares and also an Irrevocable Proxy.

The referenced commitment letter, noted as executed by Mr. Ryan in favour of 3287166, dated February 26, 2015, is not in evidence, nor is the subscription agreement. [ 21 ] On February 26, 2015, an Appointment of Agent Agreement was executed as between Thornridge as creditor, Michael G. Ryan as primary agent, and Michael A. Tringali as secondary agent. The Appointment of Agent Agreement states: WHEREAS the Creditor has lent funds to each of Michael G. Ryan, Michael A.

Tringali, … (each a “ Debtor ” and collectively, the “ Debtors ”) to assist with the financing of the purchase of shares in the capital stock of 3287166 Nova Scotia Limited. AND WHEREAS each of the Debtors has executed a promissory note of even date hereof in favour of the Creditor (each a “ Note ” and collectively, the “ Notes ”).

AND WHEREAS each of the Debtors has executed a share pledge agreement in favour of the Creditor as security for each of the Debtor’s obligations under the Notes… AND WHEREAS the Creditor wishes to appoint each of the Agents to act on its behalf in the event of default under any of the notes. THEREFORE in consideration of the sum of $2.00 paid by each party to each of the other parties and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties agree as follows: … 2.

Subject to paragraph 3 below, the Creditor hereby irrevocably appoints each of the Agents to act as its agent upon an Event of Default to exercise any and all of the rights of the Creditor under the Note and the Pledge Agreement, including without limiting the generality of the foregoing, the right to settle, extend or compromise any of the Obligations on behalf of the Creditor. The Agents shall have authority in respect of all matters related to any Event of Default. 3. The Secondary Agent shall be entitled to act and shall act as Agent for the Creditor only in the following circumstances: (

i) if and while the Primary Agent is unable or unwilling to act as an Agent of the Creditor pursuant to this agreement; or (ii) an Event of Default has occurred under the Primary Agent’s Pledge Agreement, in which case the Secondary Agent shall act as Agent for the Creditor only in respect of the Primary Agent in his capacity as a Debtor. 4. The Creditor undertakes not to revoke the authority of the Agents under this Agreement and if, for any reason, either of the Agents ceases to be able to act as an Agent, the Creditor shall be entitled to appoint a replacement Agent. … 8.

The parties agree that this Agreement and the facts surrounding it are confidential and shall not be disclosed or discussed in any way unless disclosure is reasonably required in the course of or as a result of the Agents or either one of them exercising their authority in performing their duties pursuant … February 26, 2015 Agreements between Mr.

Ryan and 3287166 Nova Scotia Limited / Envirosystems [ 22 ] As part of the Envirosystems Transaction, an Envirosystems Stock Option Plan, dated February 26, 2015 (the "ESOP"), was made available to employees, executive officers and directors of Envirosystems, including Mr. Ryan.

It states that the purpose of the ESOP is to advance the interests of the company by providing eligible persons with additional incentives, encouraging share ownership by eligible persons, increasing the proprietary interest of the eligible persons in the success of the company, encouraging eligible persons to remain with the company or its subsidiaries, and attracting new employees, executive officers and directors to the company or its subsidiaries. The ESOP defines the term “Liquidity Event” found in the Large Note, along with associated words, as follows: “Liquidity Event” is defined in

Section 1.2(

q) as follows: (q) “Liquidity Event” means the completion of a Merger Transaction, an IPO or a liquidation of the Company;

(Article 3.1 also deals with Liquidity Events) “Merger Transaction” is defined in

Section 1.2(

s) as follows: (s) “Merger Transaction” means a transaction, whether by way of a take-over bid, amalgamation, plan of arrangement, sale of securities, sale of all or substantially all of the assets or otherwise and whether for cash or non-cash consideration, pursuant to which (

a) in the case of any transaction other than a sale of all or substantially all of the assets of the Company, (

x) all of the Interests are, directly or indirectly, disposed of by the Investors, or (

y) all of the Interests held by TorQuest Fund are, directly or indirectly, disposed of by TorQuest fund, in each case, save and except for any Interests of the Management Shareholders if agreed to by the Management Shareholders and any continuing interest arising as a result of the receipt of non-cash consideration, or (

b) in the case of a sale of assets, the offeror acquires all or substantially all of the assets of the Company; “Interest” is defined in

Section 1.2(

m) as follows: (m) “Interest” the direct or indirect economic interest in the Company held by each Investor; “Company” is defined in

Section 1.2(

c) as follows: (c) “Company” means Envirosystems Incorporated, or any successor thereof; “Investors” is defined in

Section 1.2(

o) as follows: (o) “Investors” means, collectively, TorQuest Fund, certain Management Shareholders, Thornridge Holdings Limited, BMO Capital Partners, New Brunswick Investment Management Corp., GoldPoint Partners and Manulife Capital, and any Person to whom an Investor transfers any shares of the Company, or to whom shares of the Company are issued or transferred, in accordance with the terms of the Shareholders Agreement or pursuant to the exercise of options granted in connection with any stock option or compensation or similar plan; and “Investor” means, individually, any one of them; “Management Shareholders” is defined in

Section 1.2(

r) as follows: (r) “Management Shareholders” means any Person to whom securities and/or options to acquire securities of the Company are issued while that Person was or is an employee or consultant of the Company or any Subsidiary of the Company; [ 23 ] There is also an Option Agreement dated February 26, 2015 whereby 3287166 Nova Scotia Limited provided an option to Mr. Ryan to purchase various numbers of Class A, B and E shares. Mr. Ryan is noted to be the Optionee with the recital indicating that Mr. Ryan agreed to sell his option to acquire 3.5% of the common shares of Envirosystems to 3287166.

This option is referenced as being pursuant to an agreement between Mr. Ryan, Thornridge and Envirosystems. [ 24 ] The Option Agreement between Mr. Ryan and 3287166 states: WHEREAS Pursuant to a Option Acquisition Agreement dated as of February 26, 2015, the Company has agreed to purchase and the Optionee has agreed to sell, the Optionee’s option (the “ Original Option”) to acquire 3.5% of the common shares of Envirosystems Incorporated (“ Envirosystems ”) pursuant to an option agreement among the Optionee, Envirosystems and Thornridge Holdings Limited (“ Thornridge ”).

The Company has acquired all of the outstanding shares of Envirosystems pursuant to share purchase agreement of even date herewith between the Company and Thornridge. As consideration for the purchase of the Original Option, the Company has agreed to grant an option to the Optionee upon the terms and conditions contained in this Agreement. NOW THEREFORE THIS AGREEMENT WITNESSETH that for good and valuable consideration, the receipt and sufficiency whereof is hereby acknowledged by each party, the Company and the Optionee agree, each with the other, as follows: 1.

The Company hereby grants to the optionee effective as of the date hereof, subject to the terms and conditions hereinafter set out, irrevocable options to purchase 366,559 Class A shares (Series 3), 3299027 Class B shares (Series 3), 76,859 Class E shares and 691732 Class F shares of the Company (the “ Optioned Shares ”) at the aggregate price of $1 Canadian funds for all Optioned Shares, exercisable during the period (the “ Exercise Period ”) commencing on the date hereof to and including March 31, 2015 (the “ Option Expiry Date ”) . 2.

The Optionee shall, subject to the terms of this Agreement, have the right to exercise the options with respect to all or any part of the Optioned Shares at any time or from time to time during the Exercise Period by submitting an exercise notice in the form attached hereto as

Schedule “A”. … [ 25 ] There is no copy of the above referenced Option Acquisition Agreement dated February 26, 2015, nor the option agreement between Mr. Ryan, Envirosystems and Thornridge, in evidence on this motion. [ 26 ] Mr. Ryan says the Exercise Notice relating to the option for shares in the Numbered Company was executed on February 26, 2015. [ 27 ] In short, on February 26, 2015, Mr. Ryan executed a number of agreements in his personal capacity. However, it would appear

that not all of the agreements are in evidence on this motion. The following documents are part of the record: 1. A promissory note in the amount of $3,667,819 (the “Large Note”) in favour of Thornridge. 2. A General Release in favour of Thornridge. 3. A promissory note in the amount of $520,800 (the "Small Note") in favour of Thornridge for the purchase of shares of Envirosystems. 4. A Share Pledge Agreement for the shares purchased with funds from the Small Note. 5. An Appointment of Agency Agreement. 6. An Option Agreement with 3287166. 7. An Exercise Notice.

In addition, the February 26, 2015 ESOP was made available to Mr. Ryan. [ 28 ] Mr. Ryan exercised the option given by 3287166 and received the following shares of Envirosystems: • 366,559 Class A shares • 3,299,027 Class B shares • 76,859 Class E shares • 691,752 Class F shares [ 29 ] As a result of the Small Note, Mr.

Ryan received the following shares of Envirosystems: • 52,080 Class A Shares • 468,720 Class B Shares [ 30 ] By July 2017, Torquest, as the party holding a controlling interest in Envirosystems following February 2015, began discussions about merging Envirosystems' Canadian operations with Terrapure Environmental ("Terrapure"). [ 31 ] In June 2018, prior to the merger with Terrapure, all shareholders in Envirosystems were issued shares in Maviro Holdings L.P. ("Maviro"). These shares were issued on a pro rata basis to all shareholders in Envirosystems, and not as consideration for any Envirosystems shares.

As a result of the Envirosystems shares issued to Mr. Ryan via the Option, those acquired and pledged under the Small Note, and those personally acquired, Mr. Ryan was issued 669,104 shares in Maviro in June 2018. As of the date of his affidavit filed on this motion, Mr. Ryan still held the 669,104 shares in Maviro. [ 32 ] In June 2018, Terrapure acquired Envirosystems and the shares of the investors in Envirosystems were exchanged for shares in Terrapure. This included the shares in Envirosystems held by Mr.

Ryan. [ 33 ] In August 2021, GFL Environmental Inc. ("GFL"), a waste management company with headquarters in Toronto, acquired all of the shares of Terrapure pursuant to a Share Purchase Agreement (the "GFL Acquisition"). The GFL Acquisition closed on August 17, 2021. [ 34 ] For the shares of Terrapure which can be traced to the option, Mr. Ryan says that he received a total of $1,643,123. Mr. Gillis believes the amount that Mr.

Ryan received on the GFL Acquisition was $1.9 million, but does not indicate whether this number is the amount traced to the optioned shares. [ 35 ] Prior to August 17, 2021, a battery recycling business formed a component of Terrapure Environmental Ltd. Terrapure BR LP (“BatteryCo.”), the battery recycling business, was carved out of the above transaction with GFL and retained by the existing shareholders. BatteryCo.’s existence dates back to January 19, 2015. Issues [ 36 ] The following question must be determined by this court: 1. Should

summary judgment be granted, allowing Thornridge’s claim against Mr. Ryan? (

a) Does the challenged pleading disclose a genuine issue of material fact, either pure or mixed with a question of law? (

b) If the answer to (

a) is No, then does the challenged pleading require the determination of a question of law, either pure or mixed with a question of fact? Positions of the Parties Thornridge

[ 37 ] Thornridge says it loaned Mr. Ryan $3,667,819 and that Mr. Ryan exchanged his LTI plan entitlement of $4,890,425 for the stock option. Thornridge says Mr. Ryan then signed a General Release in which he released any and all obligations that Thornridge had to him under the LTI plan. [ 38 ] Thornridge says the GFL Acquisition in 2021 resulted in a “Liquidity Event” which triggered the Maturity Date under the Large Note. It says that Terrapure, a successor of Envirosystems, was bought by GFL. Thornridge says the interests of all the investors in Terrapure were sold.

It argues this amounts to a Liquidity Event triggering the Maturity Date and Mr. Ryan’s obligation to pay the entire amount advanced under the Large Note. [ 39 ] Thornridge submits that under the Large Note, a Liquidity Event occurs in the event of a sale of securities pursuant to which all of the direct or indirect economic interest held by the investors in Envirosystems, or any successor, are disposed of by those investors.

It says “company” is defined to mean “Envirosystems Incorporated, or any successor thereof.” Thornridge says this means that if the investors dispose of all of their direct or indirect interest in any successor to Envirosystems, a Liquidity Event has occurred. It says the wording is “any” not “the” successor and Terrapure was a successor to Envirosystems. It says it does not matter and is not relevant whether Battery Co. is a successor or not. The issue on the motion is simply whether any successor to Envirosystems was sold, not whether the successor was sold. Thornridge says Mr.

Ryan admitted in his defence that Terrapure was a successor to Envirosystems. At paragraph two of his defence, Mr.

Ryan admits to the following allegation found at paragraph nine of the Statement of Claim: On August 17, 2021, Thornridge states that the shares of the investors in Terrapure, as the successor of Envirosystem’s Inc., were sold to GFL Environmental Inc. in the course of GFL’s acquisition of Terrapure. [ 40 ] In relation to the Large Note wording that states “to the extent that the Debtor…receives any amounts owing to the Debtor in respect of the sale of the Debtor’s shares of Envirosystems Incorporated, or any successor thereof pledged as security for this note…”(emphasis added), Thornridge says Mr. Ryan’s

interpretation that a share pledge was necessary in order to engage his obligations under the Large Note is not sustainable. [ 41 ] Thornridge says there are no facts in dispute around this issue. Both parties acknowledge that Thornridge did not take a pledge of the shares. Thornridge argues this wording does not raise an ambiguity. Thornridge says Mr. Ryan’s

interpretation fails to give meaning to the words and context of the Large Note. The first paragraph of the Large Note states that the Defendant Ryan “promises to pay” the Principal Amount on the Maturity Date. If the Defendant Ryan’s

interpretation is preferred, payment can never be made to Thornridge and the fundamental intent of the note, as reflected in its words and context, is completely undermined. [ 42 ] Thornridge says Mr. Ryan’s proposed

interpretation would create a commercial absurdity. The commercial objective of the Large Note is to advance payment to the Defendant Ryan until the Maturity Date, when it becomes payable to Thornridge. It makes no commercial sense that Thornridge would “gift” Mr. Ryan $3,667,819 with no guarantee or expectation that it would be repaid at a future date, but still go through the exercise of obtaining a promissory note setting out terms for repayment.

Thornridge says the court must give effect to the intent of the parties and reach a commercially reasonable result. [ 43 ] Thornridge says that, looking at the surrounding circumstances, it was clear that when the shares were sold, payment was to be made to Thornridge. To conclude otherwise would completely undermine the promissory note under the Bills of Exchange Act , as there would be no payment obligation absent a pledge of the shares. Thornridge says that under Mr. Ryan’s

interpretation, the principal amount would never be due and payable, resulting in unfairness to Thornridge. It says the more logical

interpretation, and the one that gives meaning to the purpose of the Large Note and the context in which it was made, is that the Maturity Date occurs on the happening of a Liquidity Event, regardless of whether there was a share pledge. [ 44 ] Thornridge further says the Large Note must be read as a whole. If Mr. Ryan’s

interpretation is preferred, the court would be required to disregard fundamental aspects of the contract, such as the express statement that Mr. Ryan “promises to pay” (in the first paragraph of the Large Note), and the concept that the “Maturity Date” as defined, could ever be reached. [ 45 ] In the alternative, Thornridge submits that even if the triggering event for the Maturity Date could only occur if there was security pledged for the Large Note, a reasonable

interpretation of this language within the context of the note as a whole does not support Mr. Ryan’s proposed

interpretation. This is because any share pledge would have been security for the benefit of Thornridge (as creditor), not Mr. Ryan (as debtor). Thornridge bears the risk of having no security for the Large Note; it provides no benefit to Mr. Ryan, and certainly caused no prejudice whatsoever to his position under the Large Note. [ 46 ] In relation to the wording “and to extent that …”, Thornridge says this means that to the extent that Mr. Ryan received any amounts for the sale of shares in Envirosystems or in any successor, he was obligated to pay those amounts to Thornridge.

For example, if he sold 10% of his shares, he was obliged to pay the amount received for that 10% to Thornridge. Thornridge says there are no facts in dispute in relation to these words and their

interpretation is solely a question of determining the meaning of the words in view of the surrounding circumstances. Mr. Ryan [ 47 ] Mr. Ryan says this is anything but a simple debt claim – it is a complex commercial transaction with material facts in dispute, and over 900 documents produced by Thornridge, thus far, in the litigation. [ 48 ] Mr. Ryan says Thornridge is asking the court to accept that he exchanged his $4,890,425 LTI plan entitlement for a repayable promissory note in the amount of $3,667,819 and some shares. Mr. Ryan says this makes no sense.

He says the Large Note was part of the transaction because of the tax advantages for both parties, and that it was a non-recourse note or, alternatively, a limited recourse note. [ 49 ] Mr. Ryan says there are a number of material facts in dispute. First of all, he says there is no agreement as to the purpose of the transaction between himself and Thornridge. Mr. Ryan says the purpose was to replace his LTI entitlement while simultaneously cutting his tax liability. He says there is total disagreement as to the objective intent of the parties for the transaction, including the Large Note.

[ 50 ] Mr. Ryan says various terms in the Large Note give rise to disputes of material fact between the parties. He says these disputed material facts relate to the following:

(1) A “Liquidity Event” being a required prior condition before Thornridge may seek any amount at all;

(2) The sale of shares “pledged as security” being a required prior condition before Thornridge may seek repayment; and, (3) “To the extent” referring to the amount which Thornridge may collect if, and only if, the necessary preconditions have been met. [ 51 ] In relation to whether there was a Liquidity Event, Mr. Ryan submits that because he continues to hold shares in successors to Envirosystems (Maviro and BatteryCo.), it is impossible for Thornridge to say that “all of the Interests of the Investors” have been disposed of.

As such, a Liquidity Event, a necessary precondition to Thornridge seeking any amounts under the Large Note, has not occurred. He says the disagreement between the parties regarding this material fact means that Thornridge’s motion must be denied. [ 52 ] Mr. Ryan says it makes no commercial sense to interpret the Large Note to mean that if shares in any one successor are sold, then there is a Liquidity Event. For example, this would mean that if Mr. Ryan sold only one share in a successor company, then the whole of the note would be due and payable.

He points to the definition of a Merger Transaction (a Liquidity Event), which includes a transaction where “all of the Interests are, directly or indirectly, disposed of by the Investors”. He submits that because the word “interests” is plural, it must mean all successors and not any one successor. [ 53 ] In relation to the use of the words “shares… pledged as security”, Mr. Ryan says the result is that the note is a non recourse note. He says the plain wording of the Large Note is that it is only payable to the extent that Mr.

Ryan received amounts due to him on the sale of his shares of Envirosystems or any successors pledged as security upon a “Liquidity Event”. As there was no pledge of shares required by Thornridge, the note is a non recourse note. He says Thornridge clearly turned its mind to pledges of shares because, on the same date, shares were pledged on the Small Note. Further, he says that Thornridge was contemplating as late as January 6, 2015, whether or not there would be recourse under the Large Note. In a memo to Mr. Nick Betts (“Mr. Betts”) prepared by Mr.

Gillis with the subject line “Mike Ryan – LTI Plan / Employee Stock Option Plan” (the “Steps Memo”), Mr. Gillis states, “Provided that at the end of the process (sale of the shares) Mike Ryan repays any advances made by Thornridge I’m not sure of the risk to Thornridge – assuming there is some sort of recourse on the advances made by Thornridge.” [ 54 ] With regard to the wording “to the extent”, Mr. Ryan says there is no similar language in any other promissory notes he executed, including the Small Note. It is only the Large Note that uses this language, and its effect is to limit recourse. Mr.

Ryan says this highlights the dispute as to what is owing under the Large Note. He says there are at least five possibilities: (1) zero, if it is a non- recourse note due to no shares being pledged, or if it requires that all shares in all successors be disposed of before there is a Liquidity Event; (2) everything, being the $3.667 million claimed by Thornridge; (3) under Mr. Ryan’s alternate argument, $1.6 million, being the gross amount Mr.

Ryan says he received traceable to the shares ; (4) the net amount of roughly $1.2 million, being the proceeds he received traceable to the shares, but not including proceeds from the Small Note or his personal shares (approximately $1.6 million gross amount less capital gains taxes); or (5) the amount received traceable to the shares which Mr. Gillis says in his affidavit is $1.9 million. In numbers 3 and 4 above, Mr. Ryan’s Maviro and BatteryCo. shares would figure into the amounts when sold. [ 55 ] Mr. Ryan takes the position that the Large Note is not ambiguous and that his

interpretation is the correct

interpretation having regard to the objective intentions of the parties. However, he says that if both his and Thornridge’s

interpretations are found to be reasonable, then there is an ambiguity. At that point, the identity of the drafter of the Large Note becomes important for the purposes of Mr. Ryan’s plea of contra proferentem . He says there is a dispute of fact as to who drafted the Large Note. Mr. Ryan says it was drafted by Mr. Gillis, while Mr. Gillis says it was drafted by Mr. Blois Colpitts (“Mr. Colpitts”), counsel for Mr. Ryan. [ 56 ] Mr. Ryan disputes Thornridge’s suggestion that the reference to pledged shares can be severed pursuant to the terms of the note. Mr.

Ryan says there can be no severance, as one cannot say the words “pledged shares” are “invalid, illegal or unenforceable”. He says none of these terms are applicable. Analysis The Applicable Law: [ 57 ] There is no discretion under Civil Procedure Rule 13.04 where a judge is satisfied that there is no genuine issue of material fact, and where the claim or defence does not require determination of a question of law. The Rule states that a judge must grant

summary judgment. [ 58 ] Rule 13.04 states: 13.04(1) A judge who is satisfied on both of the following must grant

summary judgment on a claim or a defence in an action: (

a) there is no genuine issue of material fact, whether on its own or mixed with a question of law, for trial of the claim or defence; (

b) the claim or defence does not require determination of a question of law, whether on its own or mixed with a question of fact, or the claim or defence requires determination only of a question of law and the judge exercises the discretion provided in this Rule 13.04 to determine the question. 13.04(2) When the absence of a genuine issue of material fact for trial and the absence of a question of law requiring determination are established,

summary judgment must be granted without distinction between a claim and a defence and without further inquiry into

chances of success. 13.04(3) The judge may grant judgment, dismiss the proceeding, allow a claim, dismiss a claim, or dismiss a defence. 13.04(4) On a motion for

summary judgment on evidence, the pleadings serve only to indicate the issues, and the subjects of a genuineissue of material fact and a question of law depend on the evidence presented. 13.04(5) A party who wishes to contest the motion must provide evidence in favour of the party's claim or defence by affidavit filed bythe contesting party, affidavit filed by another party, cross-examination, or other means permitted by a judge. 13.04(6) A judge who hears a motion for

summary judgment on evidence has discretion to do either of the following: (

a) determine a question of law, if there is no genuine issue of material fact for trial; (

b) adjourn the hearing of the motion for any just purpose including to permit necessary disclosure, production, discovery, presentationof expert evidence, or collection of other evidence. [59] The parties agree that the analytical framework applicable on a motion for

summary judgment on the evidence is set out inShannex Inc. v. Dora Construction Ltd., 2016 NSCA 89: [34] I interpret the amended Rule 13.04 to pose five sequential questions: First Question: Does the challenged pleading disclose a “genuine issue of material fact”, either pure or mixed with a question oflaw? [Rules 13.04(1), (2) and (4)] If Yes, it should not be determined by

summary judgment. It should either be considered for conversion to an application under Rules13.08(1)(

b) and 6 as discussed below [paras. 37-42] or go to trial. The analysis of this question follows Burton’s first step. A “material fact” is one that would affect the result. A dispute about an incidental fact - i.e., one that would not affect the outcome - willnot derail a

summary judgment motion: 2420188 Nova Scotia Ltd. v. Hiltz, 2011 NSCA 74 , para. 27, adopted by Burton, para.41, and see also para. 87 (#8). The moving party has the onus to show by evidence there is no genuine issue of material fact. But the judge’s assessment is based on allthe evidence from any source. If the pleadings dispute the material facts, and the evidence on the motion fails to negate the existence of agenuine issue of material fact, then the onus bites and the judge answers the first question Yes. [Rules 13.04(4) and (5)] Burton, paras. 85-86, said that, if the responding party reasonably requires time to marshal his evidence, the judge should adjourn themotion for

summary judgment.

Summary judgment isn’t an ambush. Neither is the adjournment permission to procrastinate. Theamended Rule 13.04(6)(

b) allows the judge to balance these factors. Second Question: If the answer to #1 is No, then: Does the challenged pleading require the determination of a question of law,either pure, or mixed with a question of fact? If the answers to #1 and #2 are both No,

summary judgment “must” issue: Rules 13.04(1) and (2). This would be a nuisance claim withno genuine issue of any kind — whether material fact, law, or mixed fact and law. Third Question: If the answers to #1 and #2 are No and Yes respectively, leaving only an issue of law, then the judge “may” grant ordeny

summary judgment: Rule 13.04(3). Governing that discretion is the principle in Burton’s second test:” Does the challengedpleading have a real chance of success?” Nothing in the amended Rule 13.04 changes Burton’s test. It is difficult to envisage any other principled standard for a

summaryjudgment. To dismiss summarily, without a full merits analysis, a claim or defence that has a real chance of success at a later trial orapplication hearing, would be a patently unjust exercise of discretion. It is for the responding party to show a real chance of success. If the answer is no, then

summary judgment issues to dismiss the ill-fatedpleading. Fourth Question: If the answer to #3 is yes, leaving only an issue of law with a real chance of success, then, under Rule 13.04(6)(a):Should the judge exercise the “discretion” to finally determine the issue of law? If the judge does not exercise this discretion, then: (1) the judge dismisses the motion for

summary judgment, and (2) the matter with a“real chance of success” goes onward either to a converted application under Rules 13.08(1)(

b) and 6, as discussed below [paras. 37-42]or to trial. If the judge exercises the discretion, he or she determines the full merits of the legal issue once and for all. Then the judge’sconclusion generates issue estoppel, subject to any appeal. This is not the case to catalogue the principles that will govern the judge’s discretion under Rule 13.04(6)(a). Those principles willdevelop over time. Proportionality criteria, such as those discussed in Hryniak v. Mauldin, 2014 SCC 7 , [2014] 1 S.C.R. 87, willplay a role. A party who wishes the judge to exercise discretion under Rule 13.04(6)(

a) should state that request, with notice to the other party. Thejudge who, on his or her own motion, intends to exercise the discretion under Rule 13.04(6)(

a) should notify the parties that the point isunder consideration. Then, after the hearing, the judge’s decision should state whether and why the discretion was exercised. The reasonsfor this process are obvious: (1) fairness requires that both parties know the ground rules and whether the ruling will generate issue

estoppel ; (2) the judge’s standard differs between

summary mode ("real chance of success") and full-merits mode; (3) the judge’s choice may affect the standard of review on appeal. [35] "Discretion": The judge’s “discretion” under the amended Rule 13.04(6)(

a) governs the option whether or not to determine the full merits — i.e . the Fourth Question. I disagree with Mr. Upham’s factum that Rule 13.04(6)(

a) gives the judge “unfettered” discretion to just dismiss Shannex’s

summary judgment motion. The Civil Procedure Rules do not authorize judges to allow or dismiss

summary judgment motions on an unprincipled or arbitrary basis. [36] "Best foot forward": Under the amended Rule, as with the former Rule, the judge’s assessment of issues of fact or mixed fact and law depends on evidence, not just pleaded allegations or speculation from the counsel table. Each party is expected to “put his best foot forward” with evidence and legal submissions on all these questions, including the “genuine issue of material fact”, issue of law, and “real chance of success”: Rules 13.04(4) and (5); Burton , para. 87. . . . [42] Rule 13.08(1) says that a judge who dismisses the motion for

summary judgment “must”

schedule a hearing to consider conversion or directions. Accordingly, a dismissed motion under Rule 13.04 triggers the supplementary question: Fifth Question : If the motion under Rule 13.04 is dismissed, should the action be converted to an application and, if not, what directions should govern the conduct of the action? [ 60 ] In SystemCare Cleaning & Restoration Limited v. Kaehler , 2019 NSCA 29 , Bourgeois J.A. summarized the five sequential questions from Shannex as follows: [34] In Shannex , Justice Fichaud set out five sequential questions to be asked when

summary judgment is sought pursuant to Rule 13.04 (paras. [34] through [42]): 1. Does the challenged pleading disclose a genuine issue of material fact, either pure or mixed with a question of law? 2. If the answer to above is No, then: does the challenged pleading require the determination of a question of law, either pure, or mixed with a question of fact? 3. If the answers to the above are No and Yes respectively, does the challenged pleading have a real chance of success? 4. If there is a real chance of success, should the judge exercise the discretion to finally determine the issue of law? 5. If the motion for

summary judgment is dismissed, should the action be converted to an application, and if not, what directions should govern the conduct of the action? [ 61 ] In Burton Canada Co. v. Coady , 2013 NSCA 95 the court commented on the purpose of

summary judgment: [22] In my respectful opinion this process has become needlessly complicated and cumbersome.

Summary judgment should be just that.

Summary. “Summary” is intended to mean quick and effective and less costly and time consuming than a trial. The purpose of

summary judgment is to put an end to claims or defences that have no real prospect of success. Such cases are seen by an experienced judge as being doomed to fail . These matters are weeded out to free the system for other cases that deserve to be heard on their merits. That is the objective.

Lawyers and judges should apply the Rules to ensure that such an outcome is achieved. [Emphasis added] Question number one: Is there a "genuine issue of material fact, either pure or mixed, with a question of law?" [ 62 ] The first issue for the court to resolve is whether Thornridge has met its burden of showing by evidence that there is no genuine issue of material fact, whether on its own or mixed with a question of law.

As Fichaud J.A. stated in Shannex , supra : "Each party is expected to 'put his best foot forward' with evidence and legal submissions on all these questions, including the 'genuine issue of material fact' ...” (para. 36). Material Fact [ 63 ] What is a material fact? This question has been answered in various cases, including Burton, supra, where Saunders J.A. described material facts as “important factual matters that anchor the cause of action or defence” (para. 42).

Further, at para. 87, the court defined a “material fact” as “a fact that is essential to the claim or defence”, and a “genuine issue” as “an issue that arises from or is relevant to the allegations associated with the cause of action, or the defences pleaded.” In Shannex , supra , Fichaud J.A. described a “material fact” as “one that would affect the result” (para. 34). As Fichaud J.A. noted in 2420188 Nova Scotia Ltd. v. Hiltz , 2011 NSCA 74 , “[a] dispute over an incidental fact will not derail a

summary judgment motion at Stage 1” (para. 27).

[ 64 ] In Halifax Regional Municipality v. Annapolis Group Inc. 2021 NSCA 3 , reversed but not on this point, 2022 SCC 26 , Farrar J.A. proposed a two-step approach to determining whether there is a genuine issue of material fact: [35] First question: Is there a genuine issue of material fact? [36] To decide whether an allegation of fact is material, a court must consider whether the allegation is essential to establish a pleaded cause of action. The first step in the analysis, therefore, is to identify the essential elements of that cause of action.

The second step is to consider whether the allegations of fact in support of those elements are the subject of a genuine dispute. [ 65 ] The moving party has the onus to show by evidence that there is no genuine issue of material fact. Thornridge says there are no material facts in issue and that I am in the same position to decide the matter as a trial judge would be after hearing evidence at trial. [ 66 ] In Tri-County Regional School Board v. 3021386 Nova Scotia Limited , 2021 NSCA 4 , Hamilton J.A. said : [21] It is agreed there are facts in dispute.

The question is whether any of these disputed facts are material as found by the judge. This requires us to consider the disputed facts in the context of the pleadings, the evidence presented and the applicable legal principles—to determine whether their resolution could affect the outcome of the trial; Shannex, supra , at paras. 34, 36; SystemCare Cleaning and Restoration Limited v. Kaehler , 2019 NSCA 29 at paras. 35 , 37 and 39 . [Emphasis added] [ 67 ] As the earlier recitation of the parties’ positions reveals, there are factual matters in dispute.

But are any of the disputed facts material? [ 68 ] Thornridge claims that the money advanced under the Large Note was a loan, and that, pursuant to the terms of the note, the funds are due and owing. However, in my view, the Large Note must not be interpreted in isolation; it is part of a series of transactions that have context. The interpretive exercise is not simply a matter of interpreting words in a vacuum. I am also to look at the words in light of the surrounding circumstances to determine the objective intent of the parties.

It is in this context that I must consider whether there are any genuine issues of material fact in dispute. I start with reference to the principles of contractual

interpretation. Contractual

interpretation and surrounding circumstances [ 69 ] The aim of contractual

interpretation is to determine the intentions of the parties in accordance with the language used, having regard to the context in which the contract was signed. As I stated in my prior decision in this matter on admissibility ( 2023 NSSC 11 ), the words of the agreement are always the starting point. The Supreme Court of Canada said in Sattva Capital Corp. v. Creston Moly Corp ., 2014 SCC 53 , that the overriding concern is to determine the objective intent of the parties, through the application of legal principles of

interpretation and consistent with the surrounding circumstances: 47 Regarding the first development, the

interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine "the intent of the parties and the scope of their understanding" ( Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada , 2006 SCC 21 , [2006] 1 S.C.R. 744 (S.C.C.) , at para. 27 per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Minister of Transportation & Highways) , 2010 SCC 4 , [2010] 1 S.C.R. 69 (S.C.C.) , at paras. 64-65 per Cromwell J.).

To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning : No contracts are made in a vacuum: there is always a setting in which they have to be placed....

In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating. ( Reardon Smith Line , at p. 574, per Lord Wilberforce) 48 The meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement (see Geoffrey L. Moore Realty Inc. v. Manitoba Motor League , 2003 MBCA 71 , 173 Man. R. (2d) 300 (Man.

C.A.) , at para. 15 , per Hamilton J.A.; see also Hall, at p. 22; and McCamus, at pp. 749-50). As stated by Lord Hoffmann in Investors Compensation Scheme Ltd. v. West Bromwich Building Society (1997), [1998] 1 All E.R. 98 (U.K. H.L.) : The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. [p. 115] … 49. Yet in contractual

interpretation, the goal of the exercise is to ascertain the objective intent of the parties — a fact-specific goal — through the application of legal principles of

interpretation… [Emphasis added] [ 70 ] The Supreme Court of Canada confirmed in Corner Brook (City) v. Bailey, 2021 SCC 29 , that Sattva “explicitly directs decision-makers to consider the meaning of the words in the surrounding circumstances when interpreting any contract” (para. 28). In The Law of Contracts, 8 th ed. (Toronto: Thomson Reuters, 2022), at ¶334, S.M. Waddams notes that this approach elevates the factual

matrix to a central place in contractual

interpretation: The court concluded that “contractual

interpretation involves issues of mixed fact and law as it is an exercise in which the principles ofcontractual

interpretation are applied to the words of the written contract, considered in light of the factual matrix”. This approachelevates the “factual matrix” to a central place in contractual

interpretation. The court quoted with approval Lord Hoffman’s statementthat the factual matrix includes “absolutely anything which would have affected the way in which the language of the document wouldhave been understood by a reasonable man”. The approval of this statement was said to be subject to the “parol evidence rule discussedbelow”, and to the requirement that only objective evidence of the background facts was admissible, but it is doubtful that thesereservations will often operate in practice to exclude otherwise relevant evidence. .. [71] Sattva, supra, confirmed that contractual

interpretation is a fact-specific exercise that involves issues of mixed fact and law. InCorner Brook, supra, the Supreme Court of Canada also noted that “[w]hether something was or should have been within the commonknowledge of the parties at the time the contract was entered into is a question of fact” (para. 44). [72] While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed tooverwhelm the words of the agreement.

The court said in Sattva, supra: 57 While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed tooverwhelm the words of that agreement (Hayes Forest Services, at para. 14; and Hall, at p. 30). The goal of examining such evidence isto deepen a decision-maker's understanding of the mutual and objective intentions of the parties as expressed in the words of the contract.The

interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract (Hall, atpp. 15 and 30-32). While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviatefrom the text such that the court effectively creates a new agreement (Glaswegian Enterprises Inc. v. BC Tel Mobility Cellular Inc.(1997), (BC CA), 101 B.C.A.C. 62 (B.C. C.A.)). 58 The nature of the evidence that can be relied upon under the rubric of "surrounding circumstances" will necessarily vary from case tocase.

It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution ofthe contract (King, at paras. 66 and 70), that is, knowledge that was or reasonably ought to have been within the knowledge of bothparties at or before the date of contracting. Subject to these requirements and the parol evidence rule discussed below, this includes, inthe words of Lord Hoffmann, "absolutely anything which would have affected the way in which the language of the document wouldhave been understood by a reasonable man" (Investors Compensation Scheme, at p. 114).

Whether something was or reasonably ought tohave been within the common knowledge of the parties at the time of execution of the contract is a question of fact. [Emphasis added] [73] Contracts are not made in a vacuum. The case law is clear that the surrounding circumstances are critical to ascertaining theobjective intention of the parties, as expressed in the words they have chosen. In short, it is perfectly proper, and indeed necessary, tolook at surrounding circumstances to assist in determining what the parties were contracting about.

Evidence of the surroundingcircumstances is admissible even if there is no ambiguity in the wording of the agreement. However, the subjective intent of the partiesis not a consideration. It is of no value to the

interpretation process, where there is no ambiguity alleged, for a party to give evidence asto what the terms of the contract mean to them. [74] Whether simple or complex, the background to a contract is essential in determining its intended meaning. The factual matrixincludes more than simply the purpose of the contract. It is the background of relevant facts that the parties must be taken to have knownand to have had in mind when they drafted their agreement. Of course, the surrounding circumstances must be assessed objectively.

Therelevant factual matrix is broad, but it does not include evidence of negotiations leading up to the final agreement or the subjectiveintentions of the parties. As Geoff R. Hall stated in Canadian Contractual

Interpretation Law, 4th ed. (Toronto: LexisNexis Canada Inc.,2022) at 2.3.5: A further limitation on the scope of the factual matrix is the requirement that it must be assessed objectively. Since contractualinterpretation is an objective exercise, the factual matrix consists only of objective facts known to the parties at or before the date ofcontracting.

It also consists only of what is common to both parties, as opposed individualized versions of the factual matrix particular toonly one of the contracting parties. [Emphasis added] [75] Although predating Sattva, supra, the Ontario Court of Appeal in Kentucky Fried Chicken Canada v. Scott's Food Services Inc., (ON CA), [1998] O.J. No. 4368 (Ont. C.A.), said: 27 Where, as here, the document to be construed is a negotiated commercial document, the court should avoid an

interpretation thatwould result in a commercial absurdity. Rather, the document should be construed in accordance with sound commercial principles andgood business sense. Care must be taken, however, to do this objectively rather than from the perspective of one contracting party or theother, since what might make good business sense to one party would not necessarily do so for the other. [Emphasis added] [76] As noted above, the Large Note was not the only contract executed on February 26, 2015. There were a number of contractssigned by Mr.

Ryan on February 26, 2015: the Large Note; a General Release in favour of Thornridge; the Small Note; a Share PledgeAgreement for the shares purchased with funds from the Small Note; an Appointment of Agency Agreement; an Option Agreement with3287166; and an Exercise Notice. These are the contracts of which I am aware that were personally signed; however, the overalltransaction between Thornridge and the Numbered Company resulted in numerous agreements. The agreements are listed at exhibit 23 toMr. Ryan’s affidavit, and include many references to documents or agreements involving Mr.

Ryan that are not in the motion record. [77] Individual contracts that are part of a series of related contracts should not be interpreted in isolation. The doctrine of related

contracts is simply an extension of the cardinal principle that a contract is to be interpreted as a whole, in accordance with the languageused in the written document, having regard to the context in which the contract was signed. The doctrine can, where appropriate, help toachieve interpretive accuracy and give effect to the intentions of the parties. If contracts are considered in isolation from relatedcontracts, different interpretive results could ensue (See Canadian Contractual

Interpretation Law, 4th ed., supra, at 2.2.6). [78] The Ontario Court of Appeal considered the related contracts doctrine in Salah v. Timothy’s Coffees of the World Inc. 2010ONCA 673 , [2010] O.J. No. 4336 (Ont. C.A.): 16 The basic principles of commercial contractual

interpretation may be summarized as follows. When interpreting a contract, thecourt aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that theparties have intended what they have said. The court construes the contract as a whole, in a manner that gives meaning to all of its terms,and avoids an

interpretation that would render one or more of its terms ineffective. In interpreting the contract, the court must haveregard to the objective evidence of the "factual matrix" or context underlying the negotiation of the contract, but not the subjectiveevidence of the intention of the parties. The court should interpret the contract so as to accord with sound commercial principles andgood business sense, and avoid commercial absurdity. If the court finds that the contract is ambiguous, it may then resort to extrinsicevidence to clear up the ambiguity.

Where a transaction involves the execution of several documents that form parts of a largercomposite whole — like a complex commercial transaction — and each agreement is entered into on the faith of the others beingexecuted, then assistance in the

interpretation of one agreement may be drawn from the related agreements. See 3869130 Canada Inc. v.I.C.B. Distribution Inc. (2008), 2008 ONCA 396 , 66 C.C.E.L. (3d) 89 (Ont. C.A.), at paras. 30-34; Dumbrell v. RegionalGroup of Cos. (2007), 2007 ONCA 59 , 85 O.R. (3d) 616 (Ont. C.A.), at paras. 47-56; SimEx Inc. v. IMAX Corp. (2005), (ON CA), 11 B.L.R. (4th) 214 (Ont. C.A.), at paras. 19-23; Kentucky Fried Chicken Canada v. Scott's Food ServicesInc. (1998), (ON CA), 41 B.L.R. (2d) 42 (Ont. C.A.), at paras. 24-27; and Professor John D.

McCamus, The Law ofContracts (Toronto: Irwin Law Inc., 2005), at pp. 705-722. [Emphasis added] [79] Further, the Ontario Court of Appeal said in 3869130 Canada Inc. v. I.C.B. Distribution Inc., 2008 ONCA 396, that wherethere are related contracts, the court must have regard not only to the language of the particular contract being interpreted, but also to thesurrounding contracts: 33 To those principles, I would add the following in the present context. The Cyr parties and the Chenier parties entered into a series ofcontracts in order to give effect to the "deal" whereby Mr.

Cyr was to acquire both the I.C.B. and O.F.S. operations. While the MutualUndertaking was not signed at the same time as the Asset Purchase Agreement, the commitments it contains were contemplated in thelatter Agreement and formed part of the same global transaction. In these circumstances, the court must have regard not only to thelanguage of the particular contract that is being interpreted (the Mutual Undertaking or the Non-Competition covenant), taken as awhole, but to the surrounding contracts as well. As Professor John D.

McCamus notes in The Law of Contracts (Toronto: Irwin Law Inc.,2005) at 715: Many transactions, especially large commercial transactions such as the purchase and sale of a large and complex business, may involvethe execution of several agreements. In such contexts, it is an interesting question, then, whether in the

interpretation of one of theagreements, regard may be had to the others. The basic principle is that such regard may be had only where the agreements essentiallyform components of one larger transaction. Where each agreement is entered into on the faith of the others being executed and where itis intended that each agreement form part of a larger composite whole, assistance in the

interpretation of any particular agreement maybe drawn from the related agreements. [Emphasis added. Citation omitted.] 34 In Mechanical Pin Resetter, for example, the Supreme Court of Canada read four interrelated agreements together in order toascertain the geographical scope of a licence to manufacture set out in one of them.

Here, in my view, the Non-Competition covenant inthe Asset Purchase Agreement and the provisions in the Mutual Undertaking must be considered together in order to determine the trueintention of the parties as to their individual and combined meaning and effect, as expressed in the language they used. [Emphasis added] [80] Similarly, the Alberta Court of Appeal said in Samson Cree Nation v. O'Reilly & Associés, 2014 ABCA 268: 82 There is an even more fundamental rule of contractual

interpretation. Where a contract has several clauses or parts or terms, or thesame parties make two or more contracts at the same time on the same or related topics, the court interprets them together, not inisolation. They are to be interpreted, if possible, to make the parts work harmoniously to achieve the overall goal, not to make the partsclash. See Humphries v Lufkin Industries Canada, 2011 ABCA 366, 68 Alta LR (5th) 175 (para 13). … [Emphasis added] [81] In addition, in Ottawa (City) v.

ClubLink Corporation ULC, 2021 ONCA 847, the Ontario Court of Appeal stated: 54 As a result, the related contracts principle is also engaged in the interpretative process here. Under the related contracts principle,where more than one contract is entered into as part of an overall transaction, the contracts must be read in light of each other to achieveinterpretive accuracy and give effect to the parties' intentions: 3869130 Canada Inc. v. I.C.B. Distribution Inc., 2008 ONCA 396, 239O.A.C. 137, at paras. 33-34; Salah v. Timothy's Coffees of the World Inc., 2010 ONCA 673, 268 O.A.C. 279, at para. 16; Fuller v.

AphriaInc., 2020 ONCA 403, 4 B.L.R. (6th) 161, at para. 41, 51; Catalyst Capital Group Inc. v. Dundee Kilmer Developments LimitedPartnership, 2020 ONCA 272, 150 O.R. (3d) 449, at para. 50.

[Emphasis added] [ 82 ] The Large Note is not a stand-alone agreement, but is part of a larger transaction. It is clear that there are related agreements. The Large Note refers to prior advances, which the evidence indicates were made under the LTI and for which prior promissory notes were executed. The parties both agree that the Large Note relates to Mr. Ryan’s LTI entitlement. The Large Note refers to the ESOP in relation to the definition of “Liquidity Event”. The General Release references Mr. Ryan’s LTI entitlement, the Large Note and a stock option agreement.

The Release states that it is conditional upon the closing of the transaction in which Thornridge is selling a portion of its interest in Envirosystems, and the payment of the amount payable pursuant to the promissory note of $2,667,519. The Option Agreement between Mr. Ryan and the Numbered Company refers to an Option Acquisition Agreement dated February 26, 2015, as well as a prior option agreement between Mr. Ryan, Envirosystems and Thornridge. Clearly, on the wording of these agreements themselves, they are all related contracts. [ 83 ] The purpose of the overall transaction between Mr.

Ryan and Thornridge can only be gleaned by looking at all of the related agreements and the surrounding circumstances. I am not suggesting that all of the agreements forming part of the Envirosystems Transaction are related contracts for the purpose of interpreting the Large Note, but certainly those referenced above are related. So what was the purpose of the transaction that included advances totaling $3,667,819 to Mr.

Ryan, his execution of the Large Note, his execution of a General Release, his being provided with an option to purchase various shares in Envirosystems by the Numbered Company, etc.? [ 84 ] There are many facts not in dispute, as I set out in the background

section of this decision. For example, there is no dispute that

(1) Mr. Ryan executed the various agreements noted above;

(2) Mr. Ryan received the third advance of $2.6 million pursuant to the Large Note;

(3) Mr. Ryan’s shares in Envirosystems were exchanged for shares in Terrapure; and that

(4) Mr. Ryan’s shares in Terrapure, a s successor of Envirosystems, were sold to GFL. In addition, Mr. Ryan filed a Statement of Defence on December 1, 2022 in which he specifically admitted paragraphs 1, 2, 4 through 9, inclusive, and 11 of the Statement of Claim. The relevant admitted paragraphs are as follows: 4. As part of a series of corporate transactions in February 2015, Thornridge agreed to advance the sum of $3,667,819 to Ryan. 5. In consideration for Thornridge advancing the sum of $3,667,819, Ryan executed a Promissory Note dated February 26, 2015 in favour of Thornridge in the amount of $3,667,819… 6. Pursuant to the terms of the Promissory Note : (

a) Ryan agreed to pay the sum of $3,667,819 to Thornridge on the “Maturity Date” as defined in the Promissory Note; (

b) All amounts were to be paid to Thornridge on the date and to the extent that Ryan received any amounts owing to him in respect of the sale of shares in Envirosystems Incorporated, or any successor thereof pledged as security for the Promissory Note; (

c) All amounts were to be paid to Thornridge upon a “Liquidity Event,” as such term was defined in the Envirosystems Incorporated Stock Option Plan adopted as of February 26, 2015; (

d) all amounts were to be paid to Thornridge on any other liquidation in which Ryan received any alternative consideration; and (

e) The “Maturity Date” was defined to be the date of the receipt of proceeds on a “Liquidity Event”. 7. Under the Envirosystems Incorporated Stock Option Plan, Thornridge states that a “Liquidity Event” occurred in the event of a sale of securities pursuant to which all of the direct or indirect economic interest held by the investors in Envirosystems Incorporated., or any successor, were disposed of by these investors. 8.

In June 2018, Thornridge states that the shares of the investors in Envirosystems Incorporated were exchanged for shares of Terrapure Environmental Ltd… Following Terrapure’s acquisition of Envirosystems Incorporated. 9. On August 17, 2021, Thornridge states that the shares of the investors in Terrapure, as the successor of Envirosystems Incorporated, were sold to GFL Environmental Inc. in the course of GFL’s acquisition of Terrapure. 11.

By correspondence dated August 24, 2021, Thornridge issued a formal demand for payment on the Promissory Note… [ 85 ] While many facts are not in dispute, there is a fundamental disagreement on the intent of the overall agreement between Mr. Ryan and Thornridge in relation to what would happen to his LTI entitlement on the sale by Thornridge of the majority of its shares in Envirosystems to the Numbered Company.

If, in reading the Large Note wording in light of the related agreements and the surrounding circumstances, I am able to determine the objective intent of the parties without weighing evidence, then, in my view, there is unlikely to be a genuine issue of material fact in the current circumstances.

However, if I am unable to determine the parties’ objective intent without weighing evidence and drawing inferences from that evidence, then I must conclude that there is a genuine issue of material fact. [ 86 ] I now turn to a consideration of what was objectively contemplated or intended by the parties in relation to the terms of the Large Note. I will first look at the context in which these agreements were entered. The context includes Mr.

Ryan’s LTI plan with Envirosystems and his entitlement thereunder, as well as the lead up to the overall transaction whereby Thornridge was selling the majority of its shares in Envirosystems to the Numbered Company. [ 87 ] The initial evidence filed by Thornridge dealt solely with the Large Note. Thornridge did not address the LTI plan, the General

Release, the Option Agreement, etc. The affidavit evidence of Mr. Gillis, filed in support of Thornridge’s

summary judgment motion, simply indicated that as part of the Envirosystems Transaction, Thornridge agreed to advance the sum of $3,667,819 to Mr. Ryan and that, in consideration for Thornridge advancing that sum, Mr. Ryan executed the Large Note. Although Mr. Gillis attached the General Release with the Large Note, he did not refer to it. The only other agreement provided was the ESOP which contained the definition of the term “Liquidity Event” for the purposes of the Large Note. [ 88 ] Mr.

Ryan then filed his affidavit, which gave rise to objections by Thornridge that it included subjective intention, hearsay evidence, etc. When Mr. Gillis filed a rebuttal affidavit sworn on September 13, 2022, he referenced the General Release, which he said eliminated Mr. Ryan’s entitlement under the LTI plan. Mr. Gillis further said that Thornridge proposed that the LTI plan would be exchanged for an ESOP, which would be treated differently for tax purposes. He said the benefit to Mr.

Ryan in the result would be the potential to access the stock option deduction that would otherwise not be available under the LTI plan. He said that Thornridge loaned Mr. Ryan $3,667,819, that Mr. Ryan exchanged his LTI plan for the ESOP, and that Mr. Ryan signed a General Release in which he released any and all obligations that Thornridge had to him under the LTI plan. [ 89 ] In his affidavit filed in response to the

summary judgment motion, Mr. Ryan pointed to the January 6, 2015 Steps Memo which outlined a plan to allow him to collect his LTI owing while still satisfying Torquest’s requirement that he hold 3.5% actual equity in Envirosystems following the transaction. Mr. Ryan said that under this proposal, he would receive $2,667,519 on closing, which, when combined with his earlier advances, meant that he would be advanced $3,667,819 of the total $4,890,425 owing under his LTI plan. Mr.

Ryan’s evidence is that the Large Note is tied directly to both his LTI entitlement and the execution of the option giving him 3.5% of the shares of Envirosystems. [ 90 ] The background e-mail correspondence provided to the court includes the following. On January 7, 2015, Mr. Gillis sent an email to Mr. Betts with the subject line “Stock Option for Mike Ryan”. He said: Have a look at the attached memo and see if you have any objection to the process - I think it is a nice clean option for Mike. It costs Thornridge a little bit more but works in Mike’s favour and leaves a nice clean slate with Torquest.

I see the one issue as Mike wanting his LTI Plan advance/loan on a pre-tax basis but John Roy doesn’t think that really has much benefit to Mike and this Plan in the long run benefits Mike much more so it’s a trade-off.

John is now working on revising the Steps Memo for Thornridge/EI pre transaction and that should be ready tomorrow sometime . [ 91 ] Attached to this email is the January 6, 2015 Steps Memo, which included the following: I met with John Roy this afternoon to discuss potential options to deal with Torquest’s expectation that Mike Ryan will “roll-over” his Phantom equity into Newco - as part of the partial sale of Thornridge’s interest in Envirosystems. Facts & assumptions: 1. It has been represented to Torquest that Mike Ryan has Equity or Phantom Equity of 3.5% in Envirosystems. … 3.

Mike Ryan does not want to rollover his LTI Plan balance as equity in Newco and would like the balance due to him paid out or advanced as a loan. 4. The accrued pre-tax bonus value of Mike Ryan’s LTI Plan based on the December 31, 2013 calculations was $4,890,000 and he has received advances of $990,000 against that and has a pre-tax balance owing of $3,900,000. 5. Mike Ryan agrees that if he is required to hold 3.5%, it would be held “In Trust” for Thornridge and he is not entitled to any gain on those shares. 6.

Thornridge has agreed to create a new LTI Plan for Mike that would entitle him to 7% of the appreciation in the value of Thornridge’s interest in EI over the Torquest valuation at closing. 7. Thornridge’s beneficial interest would be 35% (31.5% plus 3.5%) – at 7% that is an effective interest for Mike Ryan of 2.45%. … 12. The potential benefit to Mike Ryan of this plan is roughly 1.2 million – without adversely affecting Thornridge. This benefit is a result of the potential to access a stock option deduction that would otherwise not be available under the LTI Plan currently in place. See Chart 1 below.

Summary of Proposed Steps 1. Envirosystems grants an ESOP for 3.5% to Mike Ryan in replacement of his LTI Plan. 2. Mike Ryan immediately exercises the option. 3. Mike is advanced the balance of his LTI Plan net of any taxes, which per John Roy should be

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