Executive summary: key legal and evidentiary issues

• Dispute centers on whether the May 2023 Financing constituted a "Subsequent Financing" under s. 5 of two promissory notes, triggering full repayment obligations

• Contractual interpretation of "gross proceeds" was pivotal, with the court finding the term unambiguously means total proceeds without deductions, rejecting the defendant's "new money" or "surplus funds" argument

• Defendant's affidavit evidence from Mr. Krogh was found to be unsupported and misleading, as his conclusory statements about the plaintiff's alleged concessions misrepresented the actual email correspondence attached as exhibits

• Subjective intentions of Mr. Ganschow regarding the Notes and Mr. Krogh regarding the Undertaking were ruled prima facie inadmissible

• Suitability for summary trial was confirmed despite the defendant's objections, as no material evidentiary gaps, credibility concerns, or need for expert accounting evidence existed

• The plaintiff's continued assistance in sourcing investors under a separate Consultant Agreement could not reasonably be construed as an admission or concession

The background and the parties involved

Dane McQueen, a businessman experienced in investment funding, advanced funds to Playgon Interactive Inc. ("PI") between November and December 2018 to cover the company's operating costs while PI was developing a gaming product to enable a user to play online games with a live dealer. According to Mr. Ganschow's evidence, the funds were advanced based on a mutual understanding between Mr. McQueen and Mr. Ganschow that, when PI obtained investment funds, Mr. McQueen would participate in PI's "upside." When the search for investors did not pan out, PI resumed discussions with Global Daily Fantasy Sports Inc. ("GDFSI"), which had previously made an offer to Mr. Ganschow under which GDFSI would buy PI's shares and take PI public. On November 29, 2019, PI and GDFSI executed a share purchase agreement, and on June 19, 2020, GDFSI announced by press release that the share purchase had been completed, making PI a wholly-owned subsidiary. On July 29, 2020, GDFSI announced that it had changed its name to Playgon Games Inc. ("PG").

The promissory notes and the payment clause at issue

On or about June 19, 2020, under Mr. Ganschow's signature, PI issued two promissory notes in favour of Mr. McQueen: a CAD Note for $133,659.73 and a USD Note for $25,973.61 (USD). The notes were sent to Mr. McQueen by PI's legal counsel, Osler, Hoskin & Harcourt LLP, for his signature. Mr. McQueen's uncontested evidence is that he did not ask for any revisions and did not speak with anyone representing PI before signing. Section 5 of the notes established two mechanisms for repayment. The first clause required quarterly repayments of the holder's pro rata interest of "Available Cash Flow" on account of the obligations until paid in full. The second clause provided that if, after the closing of the Transaction, the Issuer or GDFSI completed a "subsequent financing for gross proceeds of $5,000,000 or greater" (defined as the "Subsequent Financing"), PI was required to repay in full the outstanding obligations within five business days following the closing of that financing. The notes also carried an interest rate of 5.0 percent per annum, calculated quarterly in arrears, and provided that no waiver of any provision would be binding unless in writing.

The May 2023 financing and the allegation of default

By a press release dated May 3, 2023, PG announced two financing transactions: the completion of a brokered private placement of unsecured convertible debentures for aggregate gross proceeds of $2,550,000, and an anchor investment of CAD$6,000,000 from shareholder Kathleen Crook by way of additional unsecured convertible debentures. On May 17, 2023, Mr. McQueen emailed Mr. Krogh and Mr. Ganschow stating that the May 2023 Financing was "Subsequent Financing" for purposes of the notes and that PI was in default accordingly. He sought immediate repayment under the notes.

The dispute resolution attempts and the undertaking

Between May 17 and May 25, 2023, Mr. McQueen and Mr. Krogh exchanged a series of emails in which both expressed a preference to avoid litigation. A Zoom conference call was then held on May 29, 2023, involving Mr. Krogh, Mr. Ganschow, and Mr. McQueen. In a summary email dated May 30, 2023, Mr. McQueen recounted that Mr. Krogh had explained the May 2023 capital raise was primarily a debt conversion exercise, that the directors had planned a subsequent capital raise roadshow in Europe seeking between CAD$5 to $10 million, and that PI's financial position precluded the ability to immediately remedy the default. Mr. McQueen also recounted that Mr. Krogh had proposed a "good faith" payment to remedy the USD Note. Mr. Krogh responded on May 31, 2023, confirming "most is accurate" but disputing the characterization of the good faith payment, stating it "was what you wanted as opposed to what I promised." The court found there was no evidence establishing that there was ever an actual agreement made on the terms of this proposed plan. On June 2, 2023, Mr. Krogh signed an "Undertaking" on PI's behalf, promising that upon consummation of PG's next financing, the full amount outstanding under the promissory notes would be repaid in full, inclusive of all applicable and accrued interest. Subsequently, Mr. McQueen signed a business consultant agreement dated August 21, 2023, which gave him a 5 percent fee on investment funds arranged through his introductions. The Consultant Agreement did not make any reference to the notes or the Undertaking.

The defendant's interpretation and the court's analysis

PI argued that "Subsequent Financing" was an ambiguous term amenable to at least two reasonable interpretations: "any financing over $5,000,000," or "any surplus financing over $5,000,000 which does not involve repayment of prior debts or coverage of 'already spent money.'" PI further argued that Mr. McQueen's continued efforts to source investors and his entry into the Consultant Agreement demonstrated his acceptance of the narrower interpretation. The court, applying the contractual interpretation principles from Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, as summarized in H.R.S. Resources Corp. v. Thompson Creek Metals Company Inc., 2024 BCSC 1847, rejected these arguments. Justice Tucker found that the term "gross proceeds" was deliberately chosen to mean the total amount without deductions, noting that "gross" is "the antithesis of 'net.'" The court emphasized that the drafter had turned their mind to restricting repayment to certain categories of funds in the first clause of s. 5 through the defined term "Available Cash Flow," but deliberately chose not to impose such restrictions in the second clause. The use of "gross proceeds" in the second clause could only reasonably be viewed as deliberately used in contrast with the first clause.

The evidentiary findings

The court found significant problems with PI's affidavit evidence. Mr. Krogh's statements that Mr. McQueen had been under a "misunderstanding" about the notes and had ultimately conceded PI's interpretation were directly contradicted by the email correspondence attached as exhibits to Mr. Krogh's own affidavit. The court concluded that Mr. McQueen consistently maintained that the May 2023 Financing was "Subsequent Financing" and that PI's failure to pay following that financing was a default under the notes. Mr. McQueen did not make the concessions attributed to him by Mr. Krogh. The court further noted that Mr. Krogh's conclusory statements regarding Mr. McQueen's conduct were "not only unsupported, but misleading in that they misrepresent the content and import of the email communications his statements purport to be based upon." Mr. McQueen's participation in the Consultant Agreement and continued investor sourcing efforts were found to be consistent with his own best interests in terms of being repaid without litigation, and could not reasonably be construed as an admission or concession. The subjective intentions of both Mr. Ganschow regarding the notes and Mr. Krogh regarding the Undertaking were ruled prima facie inadmissible.

The ruling and outcome

The court determined the matter was suitable for summary trial, finding no concerning gaps in the evidence, no material conflicts in the affidavit evidence, and that any credibility issues could be resolved on the record. The total amount at stake was between $200,000 and $300,000 (CAN). Justice Tucker held that the meaning of "Subsequent Financing" in s. 5 was clear and unambiguous: any form of financing meeting the gross proceeds threshold triggered the obligation to make full repayment. The court noted that between the Concurrent Financing and the Subsequent Financing, the notes contemplated that PI/PG would have received a total of $10 million gross before being obliged to repay a total debt in the range of $200,000–$300,000, providing PI/PG with a $9.7 million buffer. The May 2023 Financing triggered the obligation to repay the notes in full under s. 5, and when PI failed to pay Mr. McQueen within five business days of the completion of that financing, PI was in default. Mr. McQueen's claim was allowed. However, as the notice of application sought specific orders that included alternatives and no submissions were made by either party as to the suitable form of order, the court left the particular form of order for counsel to agree upon or, failing agreement, to arrange further submissions.