Executive Summary: Key Legal and Evidentiary Issues

• Validity of the Agency Agreement was the central issue, specifically whether it constituted a "Management Loan Document" requiring two authorized signatures to bind Thornridge.
   
• Even if the Agency Agreement required two signatures, the indoor management rule under s. 30 of the Nova Scotia Companies Act prevented Thornridge from relying on that formal deficiency against the defendants.
   
• Settlement agreements executed by Michael Ryan and Michael Tringali under the Agency Agreement were found valid and binding on Thornridge, as an Event of Default had already occurred as of February 25, 2020.
   
• Thornridge's unjust enrichment claim failed because the Agency Agreement itself constituted the juristic reason for any benefit received by the defendants.
   
• Representations made by Nick Betts on Thornridge's behalf — that employees' liability would be limited to the value of their pledged shares — were held to be admissible as parol evidence, either as part of an incomplete agreement or as a collateral contract.
   
• Claims of breach of fiduciary duty, negligence, and breach of contract against Michael Ryan and Michael Tringali were dismissed, as the court found no evidence of gross negligence or bad faith.

Facts of the case

Thornridge Holdings Limited is a holding company whose shares are indirectly owned by various members of the Hennigar family. From 2010 until February 2015, Thornridge owned 100% of the shares of Envirosystems Inc. ("Envirosystems"), a provider of specialized waste-management and environmental solutions to industrial sectors including petrochemical facilities, refineries, and mining operations. In February 2015, Thornridge sold the majority of its shares in Envirosystems to 3287166 Nova Scotia Limited, a holding company of TorQuest Partners Fund III ("TorQuest"), a private equity company, in what the court referred to as the "Envirosystems Transaction." The sale closed on February 26, 2015. At the time, defendant Michael Gordon Ryan was President and CEO of Envirosystems, and defendant Michael Anthony Tringali was CFO. The remaining eight defendants were all employees of Envirosystems or a related company.

As a condition of TorQuest's acquisition, key employees — including Ryan and Tringali — were required to purchase shares of Envirosystems to demonstrate an "at-risk" financial commitment to the company's continued success. To facilitate this, Thornridge agreed to lend the employees the funds needed to purchase shares. As part of the closing on February 26, 2015, Thornridge loaned the defendants a total principal sum of $2,154,888, secured by promissory notes and share pledges on a full recourse basis. The individual amounts ranged from $103,333 to $520,800 per defendant.

Policy terms and contractual clauses at issue

The key documents at issue were the promissory notes, the share pledge agreements, and the Agency Agreement (formally entitled the "Appointment of Agent Agreement"), all dated February 26, 2015. The promissory notes required repayment of principal and accrued interest upon: (a) the direction of dividends to repay the principal; (b) the sale of the subject shares; or (c) the fifth anniversary of the note, being February 25, 2020 (the "Maturity Date").

The Agency Agreement identified Thornridge as the "Creditor," Michael G. Ryan as the "Primary Agent," and Michael A. Tringali as the "Secondary Agent." Under clause 2, the Creditor irrevocably appointed each of the Agents to act on its behalf upon an Event of Default to exercise any and all of the Creditor's rights under the notes and pledge agreements, including the right to settle, extend, or compromise any obligations on behalf of the Creditor. Clause 6 provided that the Agents had no duties other than those expressly set out in the agreement, and that no implied duties or obligations would be read in against them. Clause 9 required the parties to keep the agreement and its surrounding circumstances confidential. Clause 10 shielded the Agents from liability for actions taken in good faith, except where they were proved to have been grossly negligent or to have acted intentionally in bad faith.

The genesis of the Agency Agreement lay in Thornridge's need to satisfy TorQuest's requirement that key employees have an "at-risk" financial commitment to Envirosystems. TorQuest expected the employees to bear downside risk. To protect the employees while still appearing to satisfy TorQuest, Nick Betts — then-President and COO of Thornridge — proposed that the promissory notes be drafted on a full recourse basis on their face, while the Agency Agreement, kept confidential from TorQuest, would give Ryan and Tringali discretion to settle the notes for no more than the net proceeds of the pledged shares if those shares declined in value. Betts explicitly stated in a January 7, 2015 email that TorQuest expected "an at risk commitment from employees" and that the non-recourse nature of the arrangement would "probably cause issues." He accordingly directed that no reference to non-recourse be made in the note, and instead proposed appointing Ryan and Tringali as irrevocable agents with power to administer collection and accept settlement. The Agency Agreement was not disclosed to TorQuest and did not form part of the Closing Book.

The February 22, 2015 Special Purpose Board of Directors Meeting passed the "Authorized Persons Resolution," which amended the definition of "Authorized Persons" to require any two directors, or one director and one officer, to execute Transaction Documents on behalf of Thornridge. The Agency Agreement bore only one signature on behalf of Thornridge — that of Nick Betts. Thornridge later argued this single signature rendered the agreement invalid.

Reasoning and analysis

The court identified four issues: (1) whether the Agency Agreement was invalid for want of corporate authority; (2) whether the settlement agreements were valid and binding on Thornridge; (3) whether the defendants were unjustly enriched; and (4) whether Ryan and Tringali were liable for breach of fiduciary duty, negligence, or breach of contract.

On the first issue, the court found that the Agency Agreement was not a "Management Loan Document" within the meaning of the Authorized Persons Resolution. The court applied contractual interpretation principles and found that the Board's intent in defining "Management Loan Documents" was clearly to capture the promissory notes and share pledge agreements — the instruments of security executed in favour of Thornridge — not the Agency Agreement, which was deliberately concealed from TorQuest and excluded from the Closing Book. Expanding the definition to include the Agency Agreement would have required the surrounding circumstances to overwhelm the plain meaning of the Resolution's text, which is inconsistent with the interpretive direction in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 45.

Even on the assumption that the Agency Agreement was a Transaction Document requiring two signatures, the court held that the indoor management rule under s. 30 of the Companies Act, R.S.N.S. 1989, c. 81, prevented Thornridge from relying on the signature deficiency. The indoor management rule protects third parties who deal with a corporation in good faith and without knowledge of any internal irregularity. The court found that Ryan was entitled to rely on Betts's apparent authority and on the email from Thornridge's own corporate counsel, Christine Pound, directing Blois Colpitts to "Please have Nick sign" — directions that did not require a second signature line. Thornridge's argument that Ryan ought to have known about the two-signature requirement because he attended the Special Purpose Board Meeting was rejected: no one at that meeting — including Robert Gillis, Thornridge's corporate secretary, and Ms. Pound, its corporate counsel — concluded that the Authorized Persons Resolution applied to the Agency Agreement at the time of contracting.

On the validity of the settlement agreements, the court found that an Event of Default had occurred as of February 25, 2020, the Maturity Date under the promissory notes. Ryan and Tringali, acting under their authority as Primary and Secondary Agents respectively, entered into settlement agreements with each of the defendants on behalf of Thornridge following Thornridge's default notice of August 19, 2021. The settlement methodology was intended to reflect the spirit of the original arrangement: recovering for Thornridge what it would have received had it always held the pledged shares itself. The Held Funds from the sale of Terrapure shares to GFL Environmental in August 2021 were paid into court by Birch Hill Equity Partners in June 2022 and subsequently released to Thornridge in or about October 2022. The settlement agreements were found to be valid and binding on Thornridge.

On unjust enrichment, the court noted that Thornridge's claim depended on a finding that the Agency Agreement was invalid — a finding the court did not make. Because the Agency Agreement constituted the juristic reason for any benefit the defendants received, the unjust enrichment claim could not succeed.

On breach of fiduciary duty, negligence, and breach of contract, the court considered the representations made by Nick Betts on Thornridge's behalf, including his statement that the Agency Agreement was intended to give Ryan "wiggle room" to settle the notes without personal liability if the share values declined. The court admitted this parol evidence as admissible either to establish a collateral agreement or on the basis that the Agency Agreement was not intended to reflect the entire arrangement between the parties. The Agency Agreement expressly limited the agents' duties to those set out in the agreement itself, prohibited implied duties or obligations being read in against them, and shielded them from liability absent gross negligence or intentional bad faith. The court found that Ryan and Tringali acted in good faith and consistently with the limited fiduciary duties they owed. There was no evidence of gross negligence or bad faith; indeed, the court observed that the only party who had acted in bad faith in this case was Thornridge.

Ruling and overall outcome

Justice Glen G. McDougall of the Nova Scotia Supreme Court dismissed all of Thornridge's claims against the defendants. The Agency Agreement was found to be valid, the settlement agreements executed under it were binding on Thornridge, and no liability was established against any defendant for breach of fiduciary duty, negligence, or breach of contract. The court left the question of costs to be resolved by the parties and their counsel, with written submissions to be filed within 30 calendar days from the date of release of the decision if agreement could not be reached. No specific monetary award was ordered in favour of any party; the defendants were the successful parties, and the exact costs figure was not determined in this decision.