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Royal Bank of Canada v. Oxford Medical Imaging Inc.

When will the Court dismiss an application to vary a consent order?

Mark Pharmaceutical Services Inc. (“Mark Pharma”) is the proposed purchaser of the assets of Oxford Medical Imaging Inc. (“OMI”). Royal Bank of Canada (“RBC”) is a creditor of OMI. Mark Pharma moved pursuant to Rule 59.06(2) and Rule 3.02 for an order amending the effective date of the order of Conway J. made on consent on August 31, 2018 (the “Appointment Order”) from September 30, 2018 to October 22, 2018. The Appointment Order provides for the appointment of Deloitte Restructuring Inc. as sales officer (“Sales Officer”) on the effective date to carry out a process for the sale of the assets of OMI. The reason given for the  requested amendment was that the sale transaction had taken longer than expected.

In her endorsement dated August 31, 2018, Conway J. noted that the Appointment Order would only become effective if the RBC indebtedness had not been paid in full by September 30, 2018. The Appointment Order provided that any interested party could apply to vary or amend the Appointment Order, on notice to the Sales Officer and RBC.

RBC, OMI and Mark Pharma entered into an Inter-Creditor Agreement made as of August 30, 2018, the day before the Consent Order. Paragraph 8 of the Inter-Creditor Agreement provided: 
  • Each of [OMI] and Mark Pharmaceutical acknowledge and agree that in the event the RBC Indebtedness is not repaid in full on or before September 30, 2018, the Appointment Order shall become effective on October 1, 2018, unless RBC, in its sole and absolute discretion, requests that the Court extend the effective date of the Appointment Order.
The Inter-Creditor Agreement was part of the bargain made by the parties that became incorporated into the Appointment Order. The matter for the Court to determine was whether the parties intended that any one of them was entitled to seek to vary the effective date of the Appointment Order or whether RBC was the sole party entitled to do so. The overriding concern was to determine the intent of the parties and the scope of their understanding. Such exercise involved considerations of the surrounding circumstances known to the parties when the Appointment Order was made.
 

OMI submitted that RBC opposed Mark Pharma’s motion because it has a commercial interest in having the proposed sale of assets to Mark Pharma fail so that it may keep and not account for the sum of $360,000 that was paid by Mark Pharma to OMI and used to reduce the indebtedness of RBC. The Court did not regard this commercial intent as improper, and held that it did not take away from RBC’s sole discretion to choose not to request an extension of the effective date of the Appointment Order.

The Court was sympathetic to the fact that the requested extension was for a short period of time, and that the appointment of a sales agent may add expenses that would not otherwise be needed and affect the ability of Mark Pharma to complete the proposed purchase. Nevertheless, the parties entered into the Inter-Creditor Agreement with their eyes open and, as sophisticated commercial parties, they must be taken to have known of their respective contractual rights and obligations. The intention of the parties was that the effective date could not be varied on a motion by Mark Pharma. Only RBC, in its sole and absolute discretion, could request that the Court extend the effective date of the Appointment Order.

The Court dismissed Mark Pharma’s motion.

Counsel: Jonathan Wigley of Gardiner Roberts for M. Haditaghi and Mark Pharmaceutical Inc., Robert Klotz of Klotz Associates for the defendants and Rachel Moses of Minden Gross for RBC.