Executive Summary: Key Legal and Evidentiary Issues

• Validity of the 2024 Capital Call under the Harlo Partnership Agreement

• Whether Dream Impact’s failure to fund constituted an Event of Default

• The role of the Business Plan amendments in limiting capital calls

• Legitimacy of Dream Impact’s issuance of a Put Notice

• Impact of other partners funding Dream Impact’s portion on the status of default

• Reasonableness of indefinite default status following dilution of interest

Facts and outcome

The case concerned a real estate development project near the Scarborough GO station in Toronto. The project was funded through two limited partnerships: Harlo Scarborough Junction LP and Harlo Scarborough Junction Backstop LP, which were to provide $15 million in equity funding. The project’s debt financing came primarily from an Atrium Loan.

Dream Impact Master LP had committed to fund 45% of the initial $10 million investment in the Harlo Partnership. In 2020, an initial $7.2 million tranche was funded, with Dream Impact contributing $3.24 million and leaving a $1.2 million unfunded commitment.

The disputed capital call

By late 2024, project costs had increased and interest on the Atrium Loan had risen due to market conditions. A new capital call was issued on November 15, 2024, to cover additional costs. Dream Impact refused to contribute, arguing that the Business Plan, as amended in 2022, contemplated debt-only financing and thus precluded new capital calls.

Actions taken by the other partners

Following Dream Impact’s refusal, the remaining partners funded the shortfall under a dilution clause in the partnership agreement, reducing Dream Impact’s ownership share. On December 3, 2024, Dream Impact issued a Put Notice seeking to have its interest purchased at fair market value and filed an application for declaratory relief challenging the validity of the capital call and claiming it had not defaulted.

Court findings on the capital call and default

The court determined that the 2024 Capital Call complied with the Harlo Partnership Agreement, which expressly permitted capital calls up to each partner’s committed amount. The court found that amendments to the Business Plan did not override the contractual rights in the partnership agreement. Further, contemporaneous correspondence showed that Dream Impact had acknowledged and accepted that capital commitments remained in place.

The court held that Dream Impact committed an Event of Default by failing to fund the call. However, the partners’ decision to fund Dream Impact’s portion and dilute its interest resolved the default. The court concluded that no continuing Event of Default existed after dilution.

Ruling on the Put Notice

The court also ruled the Put Notice invalid, as there was no qualifying “Major Decision” dispute to trigger such rights under the agreement.

Conclusion

Ultimately, the court declared the capital call valid, confirmed that Dream Impact had defaulted, invalidated the Put Notice, and found that no continuing default existed after dilution. The parties were directed to resolve costs privately.