0001
Distributed to Duty Judge COURT OF APPEAL OF ALBERTA
COURT OF APPEAL FILE 2101-0004AC Registrar's Stamp NUMBER FILEDFILED TRIAL COURT FILE NUMBER 25-26679073 0405 Feb Feb 2021 2021
REGISTRY OFFICE CALGARY KHKH
APPLICANTS BEHROKH AZARIAN, HOMAYOUN HODAIE, MANDANA REZAIE, MEHRAN POOLADI- DARVISH, MEYSAM OVAICI, FIROOZ ABBASZADEH, MEHRAN JOOZDANI, LAYLA AMJADI, MEER TAHER SHABANI-RAD, ZAHRA Memorandum of Argument AHMADI-NAGHDEHI, AFSHIN SHAMELI, MARYAM MOHSEN ZADEH, PARHAM MINOO, HALEH PEIRAVI, MOHAMMAD AHADZADEH Memorandum of Argument ARDEBILI, RAMIN JALALPOOR, ELHAM VAKILI AZGHANDI, TARIQ MAHMOOD ROSHAN, AMIN Laurie Baptiste JALALPOOR, FAISAL KHAN, POONAM DHARMANI AND ALI NILFOROUSH February 5, 2021 STATUS ON APPEAL APPELLANTS
STATUS ON APPLICATION APPLICANTS Laurie Baptiste RESPONDENTS GREENFIRE OIL & GAS LTD. and GREENFIRE HANGINGSTONE OPERATING CORPORATION February 5, 2021 STATUS ON APPEAL RESPONDENTS
STATUS ON APPLICATION RESPONDENTS
NON-PARTY ALVAREZ & MARSAL CANADA INC., IN ITS CAPACITY AS PROPOSAL TRUSTEE OF GREENFIRE OIL & GAS LTD. AND GREENFIRE HANGINGSTONE OPERATING CORPORATION
NON-PARTY TRAFIGURA CANADA GENERAL PARTNERSHIP
NON-PARTY GREENFIRE ACQUISITION CORPORATION 0002
COURT OF APPEAL FILE 2101-0002AC NUMBER
TRIAL COURT FILE NUMBER 25-2679073
REGISTRY OFFICE CALGARY
APPLICANTS ATHABASCA WORKFORCE SOLUTIONS INC.
STATUS ON APPEAL APPELLANT
STATUS ON APPLICATION APPLICANT RESPONDENTS GREENFIRE OIL & GAS LTD. and GREENFIRE HANGINGSTONE OPERATING CORPORATION
STATUS ON APPEAL RESPONDENTS
STATUS ON APPLICATION RESPONDENTS
NON-PARTY ALVAREZ & MARSAL CANADA INC., IN ITS CAPACITY AS PROPOSAL TRUSTEE OF GREENFIRE OIL & GAS LTD. AND GREENFIRE HANGINGSTONE OPERATING CORPORATION
NON-PARTY TRAFIGURA CANADA GENERAL PARTNERSHIP
NON-PARTY GREENFIRE ACQUISITION CORPORATION
DOCUMENT MEMORANDUM OF ARGUMENT OF GREENFIRE OIL & GAS LTD. and GREENFIRE HANGINGSTONE OPERATING CORPORATION ADDRESS FOR SERVICE AND Burnet, Duckworth & Palmer LLP CONTACT INFORMATION OF 2400, 525 – 8th Avenue SW PARTY FILING THIS Calgary, Alberta T2P 1G1 DOCUMENT: Lawyers: David LeGeyt/Ryan Algar Phone Number: 403.260.0210/0126 Fax Number: 403.260.0332 Email Address: [email protected] / [email protected] File No. 77186-4 0003
CONTACT INFORMATION OF ALL OTHER PARTIES:
Field LLP MLT Aikins LLP 400, 444 – 7th Avenue SW 222 3rd Avenue SW Calgary, AB T2P 0X8 Calgary, AB T2P 0B4 Attention: Douglas S. Nishimura Attention: Ryan Zahara/ Phone: 403.260.8500 Jonathan J. Bourchier Fax: 403.264.7084 Phone: 403.693.5420/4310 Email: [email protected] Facsimile: 403.508.4349 Email: [email protected] /
McMillan LLP Torys LLP 1700, 421 – 7 Avenue SW 4600, 525 – 8th Avenue SW Calgary, Alberta T2P 4K9 Calgary, AB T2P 1G1 Phone: 403.215.2752 Attention: Kyle Kashuba Fax: 403.531.4720 Phone: 403.776.3744 Attention: Adam Maerov /Kourtney Rylands Fax: 403.776.3800 Email: [email protected] Email: [email protected] [email protected]
Stikeman Elliott LLP 4300 - 888 3rd Street SW Attention: Karen Fellowes, Q.C. Calgary, AB T2P 5C5 Phone: 403.724.9469 Fax: 403.266.9034 Email: [email protected]
0004
TABLE OF CONTENTS
I. INTRODUCTION ...... 1 II. STATEMENT OF FACTS ...... 3 III. LAW AND ARGUMENT ...... 5 A. Provisions Granting Appeals as of Right Ought to be Interpreted Narrowly ...... 6 B. 193(a) – The Orders Do Not Involve Future Rights ...... 7 C. 193(c) – The Appeals Do Not Directly Involve Property Exceeding $10,000...... 8 (i) The Orders Are Procedural in Nature ...... 8 (ii) The Orders Do Not Directly Bring the Value of Greenfire's Property into Play ...... 9 (iii) The Orders Do Not Result in A Loss ...... 9 D. The Appellants Do Not Meet the Test for Leave to Appeal ...... 11 (i) The Appeals are not Significant to the Bankruptcy Practice ...... 11 (ii) The Appeal is Not Significant to the Proposal Proceedings ...... 12 (iii) The Appeals are not Prima Facie Meritorious ...... 13 (iv) The Appeals Will Unduly Hinder the Proposal Proceedings ...... 16 (v) The Orders are not Contrary to the Law ...... 18 IV. THE NEW SHABANI-RAD AFFIDAVIT SHOULD NOT BE ADMITTED...... 19 V. RELIEF SOUGHT ...... 20 TABLE OF AUTHORITIES ...... 21
CHRONOLOGY...... 22
0005 1
I. INTRODUCTION
1. This memorandum of argument is submitted on behalf of the Respondents, Greenfire Oil
& Gas Ltd. ("GOGL") and its wholly owned subsidiary, Greenfire Hangingstone Operating
Corporation ("GHOPCO" and collectively, "Greenfire") in opposition to:
(a) an Application filed by the Investors1 in Action No. 2101-0004AC (the "Investor
Appeal") seeking a declaration that the Investors have a right to appeal pursuant to
subsections 193(a) and (c) of the BIA2 or, in the alternative, leave to appeal
pursuant to subsection 193(e) of the BIA; and
(b) an Application filed by Athabasca Workforce Solutions Inc. ("AWS" and together
with the Investors, the "Appellants") in Action No. 2101-0002AC (the "AWS
Appeal" and together with the Investor Appeal, the "Appeals"), seeking a
declaration that AWS has a right to appeal pursuant to subsection 193(c) or, in the
alternative, leave to appeal pursuant to subsection 193(e), both with respect to discretionary Orders granted by Justice D.B. Nixon on December 17, 2020, namely a sale approval and vesting order (the "SAVO") and an interim financing approval order
(the "Interim Financing Order", and collectively the "Orders") granted pursuant to an application served by Greenfire on December 2, 2020 (the "Chambers Application").
2. The Appellants seek leave to appeal on the basis that Justice Nixon made palpable and overriding errors, incorrectly applied the test and the factors set out in subsections 50.6(5) and
1 As defined in the Memorandum of Argument filed in the Investor Appeal on January 4, 2021. 2 Bankruptcy and Insolvency Act, RSC 1985, c B-3 ("BIA"), of the Book of Authorities (the "BOA") at TAB 1. 0006 2
65.13(4) of the BIA, and incorrectly applied the well-established Soundair3 principles. Greenfire
disputes that the Appellants have an appeal as of right, and disputes that Leave Applications have
merit.
3. At the Chambers application, Justice Nixon considered all evidence available to him and
the totality of the circumstances before applying the legal tests prescribed for in the BIA. The
totality of the circumstances where such that, absent the Interim Lender, Greenfire had no ability
to obtain adequate interim financing, and the Hangingstone Facility (Greenfire's sole material asset
located near Fort McMurray) was at risk of suffering, and did suffer, material adverse damage due
to the freezing temperatures.
4. The purposes of Canada's insolvency statutes include saving failing businesses,
rehabilitating unproductive assets, and preserving value for a broad array of stakeholders. This
has been accomplished via the Orders granted by Justice Nixon: at the time of the Chambers
Application, the Hangingstone Facility was shut in "wet" and unproductive, its value was eroding
due to accruing damage from freezing, and was subject to orders issued by the AER. As a direct result of the Interim Financing Facility, Greenfire has re-hired dozens of Albertans, including employees, consultants and field contractors, is addressing the environmental issues as required by the AER Orders, and the Hangingstone Facility is undergoing repairs as it is in the process of becoming productive again.
5. The Appellants bring the Appeals with the benefit of the protections and safeguards that the Orders provided the Hangingstone Facility. The Appellants seek to re-argue the merits of the
3 Royal Bank of Canada v Soundair (1991), 83 DLR (4th) 76 (Ont CA) ("Soundair"), BOA TAB 2. 0007 3
Orders after the Interim Lender has made significant advances (consistent with Greenfire's
projected cash flow statements) and without a viable source of funding to replace the Interim
Financing Facility. As a result of the Orders, the Hangingstone Facility no longer faces the risk of
material damage that it did at the time of the Chambers Application.
6. There is no basis for this Court to interfere with the Orders.
II. STATEMENT OF FACTS
7. As permitted by Rule 14.54(c), Greenfire has attached a chronology of key dates and steps
relevant to the Leave Applications.4
8. On August 20, 2020, AWS filed an application in Action No. 2001-02887 seeking a
declaration that Greenfire be adjudged bankrupt. On September 17, 2020, Greenfire filed a Notice of Dispute of Bankruptcy Application in the AWS Action, and provided its position that AWS was
not a creditor of Greenfire, but rather Greenfire was in fact a creditor of AWS in the amount of
approximately $188,000. AWS is a shareholder in GOGL (i.e. an equity claimant) and, with
respect to any trade debt, Greenfire disputes that AWS is in fact a creditor of Greenfire as the debt
owed by AWS to Greenfire exceeds any amounts owing by Greenfire to AWS.
9. The Investors hold unsecured debentures issued by GOGL, the parent company of
GHOPCO. GHOPCO's assets were sold pursuant to the SAVO.
4 Alberta Rules of Court, Alta Reg 124/2010, Rule 14.54 (c), BOA Tab 3. Greenfire's chronology is based on that appended to AWS's Memorandum of Argument and Greenfire's amendments and additions are reflected in blue. 0008 4
10. On October 8, 2020, Greenfire filed a Notice of Intention to Make a Proposal (the "NOI") pursuant s. 50.4(1) the BIA. Alvarez & Marsal Canada Inc. is the proposal trustee of Greenfire
(the "Proposal Trustee").5 The BIA Form 33s filed by GHOPCO and GOGL list liabilities of
approximately $17.8 million and $8.3 million respectively.6
11. Greenfire served the Chambers Application on December 2, 2020 together with Affidavit
No. 6 of Robert B. Logan. The Application filed on December 11, 2020 was strictly in respect of the Fourth Stay Extension to Greenfire's Proposal Proceedings under the BIA, which was
necessary as a result of the adjournment of the Chambers Application from December 8, 2020 to
December 14, 2020. Also on December 11, 2020, Greenfire served Affidavit No. 7 of Mr. Logan
for the limited purposes of:
(a) supporting the Fourth Stay Extension;
(b) supporting an increase to the Administration Charge in the event that the Orders
were not granted;
(c) responding to the Supplemental Affidavit of Meer Taher Shabani-Rad sworn
December 9, 2020 submitted on behalf of the Investors; and
(d) confirming the damage estimate to the Hangingstone Facility that was already
before the Court.
5 Capitalized terms not otherwise defined herein shall have the meaning given to them in the Affidavits of Robert B. Logan sworn in Action No. 25-2679073, which are appended to the Affidavit of Joy Mutuku sworn December 28, 2020 (the "Mutuku Affidavit") or the reports of the Proposal Trustee. 6 First Report of the Proposal Trustee, Appendix B. 0009 5
12. Nearly all of the evidence relied upon by Greenfire in support of the Chambers Application
was found in Mr. Logan's 6th Affidavit or those previously filed. Mr. Logan's 7th Affidavit
responded to the Investors' evidence and, rather than adducing new evidence supporting the
Chambers Application, only served to confirm evidence already before the Court. Further, the
Appellants had the opportunity to cross-examine Mr. Logan on his 7th Affidavit during the two- day break during the Chambers Application but did not request to do so.
13. Contrary to the Appellants' assertions, the sale price was determinable through the review
of the Interim Financing Term Sheet appended to Mr. Logan's 6th Affidavit as well as the 5th Report
of the Proposal Trustee.7
14. As at January 26, 2021, the Interim Lender has advanced at least $8.5 million to Greenfire.8
On January 29, 2021, Greenfire and GAC completed the Escrowing Closing of the APA.
III. LAW AND ARGUMENT
15. The Investors take the position that they have an appeal as of right pursuant to s.193(a) of
the BIA. Both Appellants take the position that they have an appeal as of right pursuant s.193(c),
or, in the alternative, that they should be granted leave to appeal pursuant to section 193(e).
Greenfire submits that:
(a) the provisions in the BIA granting an appeal as of right ought to be interpreted
narrowly and the Appeals do not fit within the requirements thereof;
7 Fifth Report of the Proposal Trustee, at paragraph 57-63; Mutuku Affidavit, Exhibit 16, Bates No. 792-794. 8 Seventh Report of the Proposal Trustee, at paragraph 17. 0010 6
(b) the Appellants require leave to appeal pursuant to section 193(e); and
(c) the Leave Applications should not be granted and the Appeals ought to be
dismissed.
16. Notably, the Appellants have not provided a single case granting either an appeal as of
right under ss. 193(a) or (c) or leave under s.193(e) regarding a SAVO or Interim Financing Order.
A. Provisions Granting Appeals as of Right Ought to be Interpreted Narrowly
17. As stated by the Ontario Court of Appeal in Harmony Village, there is a:
…clear direction in recent case law in favour of a narrow construal of the rights to appeal in ss. 193(a) to (d) of the BIA…As Brown J.A. explained in his chambers decision in [Bending Lake]… these automatic rights of appeal create disharmony between the [CCAA] and the BIA because s. 13 of the CCAA imposes a leave requirement for all appeals from orders made under that statute. Therefore, the goal of regulatory harmony between these two major insolvency statutes favours narrow construal of the BIA’s automatic rights of appeal. 9 [citations omitted]
18. In addition to harmonizing the principles under the BIA and the CCAA,10 "…given the
broad nature of the stay imposed by s. 195 of the BIA, the right of appeal without leave… must be clearly applicable…"11 Accordingly, unless the Appellants clearly have an appeal as of right, they require leave to pursue the Appeals.
9 Downing Street Financial Inc. v Harmony Village-Sheppard Inc., 2017 ONCA 611 ("Harmony Village"), at para 20, BOA TAB 4. 10 Companies' Creditors Arrangement Act, RSC 1985, c C-36 (the "CCAA"). 11 Crate Marine Sales Limited (Re), 2016 ONCA 140, at para 6, BOA TAB 5. 0011 7
B. 193(a) – The Orders Do Not Involve Future Rights
19. The Investors have misinterpreted s.193(a), which provides an appeal as of right where
"the point at issue involves future rights". As confirmed in Pine Tree:
"Future rights" are future legal rights, not procedural rights or commercial advantages or disadvantages that may accrue from the order challenged on appeal. They do not include rights that presently exist but that may be exercised in the future.12
20. Further, in Bending Lake, the Ontario Court of Appeal, clearly stated:
…to the extent that the Approval and Vesting Order affects the rights of those with an economic interest in the Debtor, it affects the present, existing rights of the Debtor's creditors and shareholders, not their future rights.
...it is clear…that the Debtor's real complaint about the effect of the Approval and Vesting Order is one concerning the "commercial advantages or disadvantages "that may accrue from the order challenged on appeal". Mr. Wetelainen objected to the Sale Agreement because its approval would wipe out shareholder equity and preclude efforts by the shareholders to raise financing to pay out the Debtor's secured creditors. This has nothing to do with "future rights" within the meaning of s.193(a)."13 [emphasis added]
21. This case is identical. To the extent that the Orders affect the Investors' rights, they are rights that currently exist, not legal rights that may come into existence in the future. This fact, coupled with the narrow interpretation of the provisions granting an appeal as of right, requires that this Court conclude that the Investors do not have an appeal as of right pursuant to s.193(a).
12 Business Development Bank of Canada v Pine Tree Resorts Inc., 2013 ONCA 282 ("Pine Tree"), at para 15, BOA TAB 6. 13 2403177 Ontario Inc. v Bending Lake Iron Group Ltd., 2016 ONCA 225 ("Bending Lake"), at paras 27-28, BOA TAB 7. 0012 8
C. 193(c) – The Appeals Do Not Directly Involve Property Exceeding $10,000
22. The Appellants have also misinterpreted 193(c). As in Bending Lake, there is no dispute
that the consideration in the transaction significantly exceeds $10,000 and that Greenfire's
creditors, including its secured lender, will suffer a significant shortfall.14 While the Orders involve the sale of property and charges exceeding $10,000, the Orders do not directly involve property
exceeding that threshold:
...if one were to accept the Debtor's argument that whenever the value of the property transferred by a sales approval and vesting order exceeding $10,000 an appeal as of right exists to this court exists, then, as the Manitoba Court of Appeal noted at para. 7, in Dominion Foundry Co. an appeal as of right would exist in almost every case because very few insolvency cases would involve property that did not exceed the statutory threshold.15
23. Further, as acknowledged by the Appellants, subsection 193(c) does not provide an appeal
as of right where the underlying appeal relates to: (i) procedural orders, (ii) orders that do not bring into play the value of the debtor's property, or (iii) orders that do not result in a loss.
(i) The Orders Are Procedural in Nature
24. Orders that are procedural in nature include orders "…concerning the methods by which a
receiver or trustees realize an estate's assets"16 and no principled basis exists to distinguish the
treatment of a sale by a court officer from that in a debtor-in-possession restructuring as both
require consideration of the Soundair principles.17
14 Bending Lake, at para 44, BOA TAB 7. 15 Bending Lake, at para 51, BOA TAB 7. 16 Bending Lake, at para 54, BOA TAB 7. 17 Bending Lake, at para 52, BOA TAB 7. 0013 9
25. The Court's comments in Bending Lake apply directly to the current circumstances:
In the present case, the overwhelming majority of the Debtor’s grounds of appeal are process-related, involving issues concerning the Debtor’s dealings with Legacy Hill following the Receivership Order, the Receiver’s disclosure of information about the Sale Agreement, the negotiation process it followed with Legacy Hill, [and] its treatment of persons affected by the Sale Agreement …Those grounds of appeal are procedural in nature and do not fall within s. 193(c).18 [emphasis added]
(ii) The Orders Do Not Directly Bring the Value of Greenfire's Property into Play
26. With respect to whether or not the SAVO brings into play the value of Greenfire's property, the Court's comments in Bending Lake are again informative, as the Appellants similarly ask this
Court to overturn the Orders while offering and relying instead on an inferior alternative:
…the Approval and Vesting Order marked the final step in the Receiver’s monetization of the Debtor’s assets. The property of the Debtor is to be converted through the Sale Agreement into a pool of cash and, as stated in the Approval and Vesting Order, “the net proceeds from the sale of the Purchased Assets shall stand in the place and stead of the Purchased Assets.” The ground of appeal advanced by the Debtor to the effect that the sale process should be postponed to let shareholders re-finance the company does not bring into play the value of the Debtor’s property, so s. 193(c) does not apply.19 [emphasis added]
(iii) The Orders Do Not Result in A Loss
27. The Orders do not include a determination with respect to the amounts owing to the
Appellants or any of Greenfire's other creditors nor do they include a proposed scheme of distribution. With respect to whether or not the Orders resulted in a gain or loss, the Court in
Bending Lake added:
18 Bending Lake, at para 58, BOA TAB 7. 19 Bending Lake, at para 60, BOA TAB 7. 0014 10
The Approval and Vesting Order did not determine the entitlement of any party with an economic interest in the Debtor to the sale proceeds. In that sense, no interested party gained or lost as a result of the order.
However, one ground of appeal set out in the Debtor’s notice of appeal is that the motion judge erred in law in finding that the Receiver had not acted improvidently. In its factum, the Debtor contends that the Receiver’s sale of its property is improvident because it would result in a loss of $125 million to its shareholders. …
I do not accept the Debtor’s submission. The determination of whether “the property involved in the appeal exceeds ten thousand dollars” is a fact-specific one. In order to bring itself within s. 193(c), the Debtor must do more than make a bald allegation of improvident sale. This is real-time insolvency litigation in which delays in the proceeding can prejudice the amounts fetched by a receiver on the realization process. The Debtor must demonstrate some basis in the evidentiary record considered by the motion judge that the property involved in the appeal would exceed in value $10,000, in the sense that the granting of the Approval and Vesting Order resulted in a loss of more than $10,000 because the Receiver could have obtained a higher sales price for the Debtor’s property. Bald assertion is not sufficient, otherwise a mere bald allegation of improvident sale in a notice of appeal could result in an automatic stay of a sale approval order under BIA s. 195 as the appellant pursues its appeal.20 [emphasis added]
28. In summary, the Investor Appeal does not fit within s.193(a) as it does not impact future
legal rights and neither of the Appeals fit within 193(c) as the Orders do not directly involve property over $10,000, and they are procedural in nature, do not bring into play the value of
Greenfire's property and do not result in a loss. As such, the Appellants require leave to appeal pursuant to s.193(e).
20 Bending Lake, at paras 62-64, BOA TAB 7. 0015 11
D. The Appellants Do Not Meet the Test for Leave to Appeal
29. The suite of insolvency legislation is to be read harmoniously and courts' comments with
respect to the deference afforded to discretionary decisions made in CCAA proceedings are equally
applicable to proposal proceedings under the BIA, particularly where leave is required. The
Appellants have accurately described the test for leave to appeal pursuant to s.193(e) (the "Leave
Test"). However, the Appellants fail to satisfy all factors of the Leave Test.
(i) The Appeals are not Significant to the Bankruptcy Practice
30. As stated in Pine Tree "[t]hese discretionary considerations are all entitled to great deference and, in any event, are purely factual and case specific, and do not give rise to any matters of general significance to the practice in bankruptcy/insolvency matters or to the administration of justice as a whole."21 Similarly, the Appellants' submissions with respect to the derogation of the
Soundair test are unfounded as the Orders represent the exercise of Justice Nixon's discretion based
on the unique circumstances of Greenfire's Proposal Proceedings.
31. Justice Nixon's decision was made based on his thorough consideration of all of the
evidence before him, including the potential deterioration of the Hangingstone Facility, the
ongoing erosion of value, the related environmental damage, and Greenfire's longstanding
challenges in obtaining interim financing, including from Greenfire's senior secured lender and the
Investors themselves. These considerations relate only to this case and not to the bankruptcy
practice generally. In Enroute Imports, the Ontario Court of Appeal stated that:
21 Pine Tree, at para 35, BOA TAB 6. 0016 12
We are not satisfied that the issues raised on the proposed appeal are of significance beyond the interests of the parties. The appeal is focused on fact-specific issues of procedural fairness and the reasonableness and good faith of the Amended Proposal. The discretionary considerations of the motion judge do not give rise to any matters of general significance to bankruptcy/insolvency matters or to the administration of justice as a whole…We are also of the view that there is no merit to the proposed appeal. The decision of the motion judge not to grant an adjournment is highly discretionary and will not be lightly interfered with by this court.22
32. As confirmed by the British Columbia Court of Appeal in Tasci, "[a]n appeal is not significant to the practice where there is an abundance of law on the point and where it would not settle the law on a substantive or procedural issue",23 which is unquestionably the case for insolvency sales pursuant to Soundair.
33. Contrary to AWS's assertion, Greenfire and its stakeholders have obtained the benefits from the Interim Financing Facility, absent which, the Hangingstone Facility was at risk of being irreparably damaged and surrendered to the Orphan Well Association. Further, the fact that GAC as purchaser intends to take an assignment of the amounts owing by Greenfire to the Interim
Lender is no different than the Interim Lender utilizing such funds by way of credit bid to purchase
Greenfire's assets, a common practice in insolvency proceedings.
(ii) The Appeal is Not Significant to the Proposal Proceedings
34. As stated by the Court in Pine Tree, there is less emphasis placed on this factor:
… I would not rule out the application of that consideration altogether … However, it seems to me that this particular consideration is likely to be of lesser assistance in the leave to appeal context because most proposed appeals to this Court raise issues that are important to the action itself, or at least to one of the parties in
22 Enroute Imports Inc. (Re), 2016 ONCA 247 ("Enroute Imports"), at paras 8-9, BOA TAB 8. 23 Tasci (Re), 2020 BCCA 317 ("Tasci"), at para 45, BOA TAB 9. 0017 13
the action, and if that consideration were to prevail there would be an appeal in almost every case.24
35. However, not even this factor was met in Temple City, where, as is the case here, interim
financing had been advanced and utilized:
Moreover, the point may not be of significance to the action itself… The DIP Lender has advanced $300,000 to Temple in reliance on the November 23 order and, in particular, on the lack of a stay of that order. The proceeds have been paid to Temple's employees and suppliers. It is now virtually impossible to "unscramble the egg"…25
36. AWS alleges that the within appeal is significant because Greenfire's creditors, other than its senior-secured creditor, opposed the transaction (a common occurrence in insolvency proceedings) and there was no formal sales process conducted in the Proposal Proceedings.
37. However, AWS ignores the fact that Greenfire was, despite significant efforts by both Greenfire and the Proposal Trustee, unable to source interim financing to conduct such a process. Further, the Investors' last minute offer for interim financing was (i) non-binding, (ii) made by parties who had previously rejected the opportunity to provide such interim financing and (iii) insufficient to properly safeguard the Hangingstone Facility from the impending weather-related damage.
38. As was the case in Temple City, the Interim Lender has made advances in reliance on the Interim Financing Order and Greenfire has utilized those funds. There is no credible proposal to repay those amounts and no way to "unscramble the egg".
(iii) The Appeals are not Prima Facie Meritorious
39. The Appeals are not prima facie meritorious. Nixon J. considered the requirements under
the BIA and the entirety of the evidence based on the circumstances before him over two days of
hearings and did not make palpable and overriding errors. As stated by this Honourable Court in
24 Pine Tree, at para 30, BOA TAB 6. 25 Canada v Temple City Housing Inc., 2008 ABCA 1 ("Temple City"), at para 14, BOA TAB 10. 0018 14
Temple City, "this is real time litigation. The [BIA] judge makes discretionary decisions in a
constantly changing situation. [His] decision is owed a high degree of deference."26
40. With respect to the valuation of the Hangingstone Facility, AWS has misconstrued the
evidence before Nixon J. at the Chambers Application. AWS incorrectly submits that the only true
value was the AER's valuation of approximately $86 million in spite of:
(a) the fact that such value is in no way reflected to the fair market value of the
Hangingstone Facility;
(b) evidence that Greenfire purchased the Hangingstone Facility in 2018 for $1.00 at a
time when oil prices were substantially higher; and
(c) recent evidence of an insolvency transaction for a similar steam-assisted gravity
drainage (SAGD) facility that is approximately 15 years newer with 20% greater
maximum production potential.27
41. At the Chambers' Application, counsel to the Alberta Energy Regulator (the "AER") stated:
…as the regulator, our immediate concern is, given the absence of protection from winter temperatures at the site, to ensure that appropriate steps are taken with respect to Greenfire's oil and gas assets to avoid impairment or damage to the site that could result in the release of substances to the environment.28
26 Temple City, at para 14, BOA TAB 10. 27Affidavit No.6 of Robert B. Logan at paras 17-30; Mutuku Affidavit, Exhibit 10, Bates No. 218- 221. Additionally, Greenfire granted a sliding-scale, gross overriding royalty to the vendor where WTI exceeds USD $50. 28 Combined Chambers Application Transcript, P 60, L 39- P61 L 6. 0019 15
42. It was reasonable for Nixon J. to make assumptions and draw inferences where the Orders were clearly the only way to address the environmental and safety issues contained in the AER
Order and the Amended AER Direction, which required Greenfire to, among other things, ensure that all substances were safely contained or removed within the facility during winter weather conditions.29
43. Finally, the Orders were a valid exercise of Nixon J's discretion and, as stated by the
Ontario Court of Appeal in Pine Tree, are "…entitled to great deference…"30 As such, "[a]n appeal court will only interfere with such an order where the judge has erred in law, seriously misapprehended the evidence, or exercised his or her discretion based upon irrelevant or erroneous considerations or failed to give any or sufficient weight to relevant considerations."31
44. It is clear that Justice Nixon made no such errors in granting the Orders and this Court ought to follow the direction set forth in Dynamic Transport:
The judge's decision was discretionary in nature. Where the impugned order is the product of an exercise of judicial discretion, it may be interfered with on appeal only if it is founded upon an error of law, an error in the application of the governing principles or a palpable and overriding error in the assessment of the evidence … or if it is unreasonable, in the sense that nothing in the record can justify it. …
A review of the application judge’s decision indicates he took into consideration all of the evidence available to him by affidavit before applying it to the legal test prescribed by s. 50.4(9) of the Act … As the motion judge made no palpable and overriding error and applied
29 Affidavit No. 6 of Robert B. Logan, at paras 35-39; Mutuku Affidavit, Exhibit 10, Bates No. 222-223 30 Pine Tree, at para 35, BOA TAB 6 of the BOA. 31 Regal Constellation Hotel Ltd., Re, 242 DLR (4th) 689 (ON CA) ("Regal"), at para 22, BOA Tab 11. 0020 16
the correct legal principles, we see no basis for intervention. Accordingly, the appeal is dismissed.32
45. It is clear that the Appeals are not prima facie meritorious and the Leave Application should
not be granted on that basis.
(iv) The Appeals Will Unduly Hinder the Proposal Proceedings
46. As a result of the Appellants simply filing the Appeals, the Proposal Proceedings have already been hindered and it is clear that granting the Leave Applications will do so unduly as a result of the stay provided for in s.195 of the BIA. Firstly, as was the case in Bending Lake 2, it would unduly hinder the closing of the APA pursuant to the SAVO:
…the motions judge's reasons reveal that he approved the Sale Agreement based on the totality of the circumstances and application of the factors set out in Soundair…Finally, the proposed appeal would unduly hinder the insolvency proceedings, as Legacy Hill is not prepared to close the Sale Agreement until BLIG has exhausted its appeal rights in this court.33
47. Greenfire is unable to close the transaction subject to the SAVO in the face of the Appeals
and, as a result, Greenfire and GAC entered into the Second Amending Agreement. Subject to an
earlier granting of the Leave Applications, the APA provides a right to walk away on April 1, 2021
(the Outside Date) and, absent the filing of a proposal, Greenfire will be deemed to make an
assignment in bankruptcy on April 8, 2021.34 Due to the uncertainty caused by the Appeals and
the need to enter into the Second Amending Agreement to address the Appeals and proceed to
Escrow Closing, the transaction has already been significantly delayed. This delay has already
32 Dynamic Transport Corp. and Dynamic Transport Inc., 2016 NBCA 70 ("Dynamic Transport"), at paras 4 and 8, BOA TAB 12 of the BOA. 33 2403177 Ontario Inc. v Bending Lake Iron Group Ltd., 2016 ONCA 485 ("Bending Lake 2"), at paras 28-29, BOA TAB 13.. 34 Seventh Report of the Proposal Trustee dated January 26, 2021 at para 24. 0021 17 hindered the Proposal Proceedings given the lengthy timelines required as part of the AER License
Transfer process.
48. Secondly, granting the Leave Applications would unduly hinder the Interim Financing
Order, as was the case in Temple City:
…an appeal would hinder the CCAA proceedings because without an order giving the DIP Lender first priority over the applicant's claim, the DIP Lender would not advance funds and without the current and future loans…35
49. The Appellants' statements with respect to alternative interim financing are simply untrue.
No party, including the Investors, is in a position to "provide or replace the Interim Financing
Funds that has been funded to Greenfire to date", which now exceed $8.5 million. As stated below, the Investor Term Sheet (defined below) has not been accepted by Greenfire, remains questionable, is not properly before the Court and, in any event, remains in an amount that is insufficient to repay the amounts currently owing to the Interim Lender.
50. Further, pursuant to s.50.6(4) of the BIA, the Court cannot not grant a second Interim
Lender Charge in priority to that in favour of the Interim Lender without the Interim Lender's consent. Specifically, the Investor Term Sheet, among other things:
(a) does not include the existing Interim Lender Charge as a Permitted Priority Lien
(which it would unquestionably be by virtue of s.50.6(4)) and contains a negative
covenant not to create any charge senior to that in favour of that intended to be in
favour of the proposed lender other than the Permitted Priority Liens; and
35 Temple City, at para 15, BOA TAB 10. 0022 18
(b) in effect, provides that existing Interim Lender Charge constitutes an Event of
Default,
(as such terms are defined in the Investor Term Sheet).
51. As acknowledged by AWS, it is only upon granting of leave that the Orders would be
stayed by virtue of s.195 of the BIA. All funds advanced under the Interim Financing Facility to
date would still be afforded the protections of the Interim Financing Order. As such, granting the
Leave Applications would place Greenfire in the untenable position of being unable to source
further funding in these proceedings, which unquestionably hinders the Proposal Proceedings as it
would prevent further advances under the Interim Financing Facility, the closing of the APA and
the Hangingstone Facility would again be subjected to risks associated with freezing temperatures.
(v) The Orders are not Contrary to the Law
52. With respect to Nixon J's refusal to grant the adjournment, the Court in Enroute Imports
confirmed that the "decision of the motion judge not to grant an adjournment is highly
discretionary and will not be lightly interfered with by [an appellate] court".36 Nixon J. was entitled
to decline to grant that relief, particularly where nearly all of Greenfire's evidence was served
nearly two weeks prior to the Chambers Application.
53. AWS's last minute request to cross-examine Mr. Logan was not refused by Greenfire and
AWS did not even request to cross-examine Mr. Logan on his 7th Affidavit during the two-day
break in between the hearings of the Chambers Application, despite the opportunity to do so.
36 Enroute Imports at paras 8-9, BOA Tab 8. 0023 19
IV. THE NEW SHABANI-RAD AFFIDAVIT SHOULD NOT BE ADMITTED
54. The Investors seek to adduce fresh evidence at the Leave Application by way of the
Affidavit of Meer Taher Shabani-Rad, sworn December 28, 2020 (the "New Shabani-Rad
Affidavit") for the purposes of putting an incomplete interim financing term sheet before this
Court (the "Investor Term Sheet"). In Roswell, this Court recited the test for an application to
admit new evidence on appeal and such evidence:
(a) should not generally be admitted if, by due diligence, it could have been adduced
at trial;
(b) must bear upon a decisive or potentially decisive issue in the trial;
(c) must be credible in the sense that it is reasonably capable of belief; and
(d) if believed could reasonably, when taken with other evidence adduced at trial, be
expected to have affected the result. 37
55. Respectfully, the Investors fail each stage of the Roswell test. Firstly, the Investor Term
Sheet could have been admitted at the Chambers Application if the Investors had taken the time to
prepare it. The Investors simply is a revised that sent by Greenfire to the Investors in October 2020.
56. Secondly, the New Shabani-Rad Affidavit does not bear on a decisive issue and the
Investor Term Sheet is insufficient to repay the Interim Lender. Thirdly, the Investor Term Sheet
is not reasonably capable of belief as it remains incomplete, is conditional, and critically, does not
37 Roswell Group Inc. v 1353141 Alberta Ltd., 2020 ABCA 428 ("Roswell") at para 31, at TAB 14 of the BOA. 0024 20
even include a proposed lender. Finally, even if it is to be believed, taken with all other evidence,
the Investor Term Sheet would not have effected the result. Justice Nixon correctly concluded that
the objecting parties "have not put anything definitive before the Court" and that the alternative proposal "has not crystalized into an actual commitment."38 Even with the additional time afforded
to the Investors, this remains the case today.
V. RELIEF SOUGHT
57. For the reasons set out above, Greenfire respectfully requests that this Honourable Court:
(a) declare that the Appellants do not have an appeal as of right pursuant to ss. 193(a)
or (c) of the BIA;
(b) dismiss the Leave Applications;
(c) dismiss the Investors' application to rely on the New Shabani-Rad Affidavit;
(d) grant costs in favour of Greenfire.
ALL OF WHICH IS RESPECTFULLY SUBMITTED THIS 4TH DAY OF FEBRUARY
2021.
BURNET, DUCKWORTH & PALMER LLP
Per: David LeGeyt / Ryan Algar Solicitors for the Respondents, Greenfire Oil & Gas Ltd. and Greenfire Hangingstone Operating Corporation
38 Combined Chambers Application Transcript, P128 L6-8; P133 L36-40 0025 21
TABLE OF AUTHORITIES
TAB 1 Bankruptcy and Insolvency Act, RSC 1985, c B-3, at sections 50.4, 50.6, 65.13, 193 and 195. http://canlii.ca/t/543rx TAB 2 Royal Bank of Canada v Soundair (1991), 83 DLR (4th) 76 (Ont CA). http://canlii.ca/t/1p78p TAB 3 Alberta Rules of Court, Alta Reg 124/2010, at Rules 14.54 TAB 4 Downing Street Financial Inc. v Harmony Village-Sheppard Inc., 2017 ONCA 611. https://canlii.ca/t/h4xx2 TAB 5 Crate Marine Sales Limited (Re), 2016 ONCA 140. https://canlii.ca/t/gndzb TAB 6 Business Development Bank of Canada v Pine Tree Resorts Inc., 2013 ONCA 282. https://canlii.ca/t/fx7fp TAB 7 2403177 Ontario Inc. v Bending Lake Iron Group Ltd., 2016 ONCA 225. http://canlii.ca/t/gp079 TAB 8 Enroute Imports Inc. (Re), 2016 ONCA 247. https://canlii.ca/t/gp412 TAB 9 Tasci (Re), 2020 BCCA 317. https://canlii.ca/t/jbnxg TAB 10 Canada v Temple City Housing Inc., 2008 ABCA 1. https://canlii.ca/t/1v9zg TAB 11 Regal Constellation Hotel Ltd., Re, 242 DLR (4th) 689 (ON CA). https://canlii.ca/t/1hd0l TAB 12 Dynamic Transport Corp. and Dynamic Transport Inc., 2016 NBCA 70. https://canlii.ca/t/h1s8w TAB 13 2403177 Ontario Inc. v Bending Lake Iron Group Ltd., 2016 ONCA 485. https://canlii.ca/t/gs3qc TAB 14 Roswell Group Inc. v 1353141 Alberta Ltd., 2020 ABCA 428. https://canlii.ca/t/jbxxn 0026 22
CHRONOLOGY
DATE EVENT DESCRIPTION
April 3, Greenfire purchases Purchase Price of $1.00 plus sliding scale
2018 Hangingstone Facility from royalty
Japan Canada Oil Sands
Limited
August 20, Athabasca Workforce Solutions AWS files an application seeking that
2020 Inc. ("AWS") files application Greenfire Oil & Gas Ltd. ("GOGL") and
for bankruptcy in Court of Greenfire Hangingstone Operating
Queen's Bench Action No. 2001 Corporation ("GHOPCO"; together with
02887 (the "AWS Action"). GOGL collectively "Greenfire") be declared
bankrupt, and a Bankruptcy Order pursuant
to sections 42 and 43 of the Bankruptcy and
Insolvency Act ("BIA")
September Greenfire files Notice of Greenfire files a Notice of Dispute to AWS's
17, 2020 Dispute of bankruptcy (the application for bankruptcy. Greenfire
"Dispute Notice") in the AWS disputes AWS's status as a creditor of
Action. Greenfire and asserts that Greenfire is a
creditor of AWS in the approximately
amount of a 188,000 0027 23
DATE EVENT DESCRIPTION
September Greenfire files Affidavit of Details in support of Greenfire's
17, 2020 Robert Logan in the AWS Counterclaim against AWS in an amount
Action that exceeds AWS' claim against Greenfire.
October 8, Greenfire files Notice of Greenfire files a Notice of Intention to make
2020 Intention a Proposal ("NOI") pursuant to subsection
50.4(1) of the BIA
October 13, Greenfire files application for Greenfire files application for consolidation
2020 procedural consolidation, of the bankruptcy estates of GOGL and
administrative charge and GHOPCO, for Greenfire's legal counsel and
authorization of interim Proposal trustee to be granted a first ranking
financing facility administrative charge not to exceed
$500,000, and authorization of an interim
financing facility pursuant to section 50.6 of
the BIA
October 16, Alvarez & Marsal ("A&M" or Notice sent to Greenfire's creditors informing
2020 "Proposal Trustee") issue them that, among other things, Greenfire
Notice to Creditors regarding filed an NOI and A&M was appointed
Greenfire's NOI Proposal Trustee 0028 24
DATE EVENT DESCRIPTION
October 16, Order approving procedural The Honourable Justice D.R. Mah grants an
2020 consolidation and Order which consolidates the bankruptcy
administrative charge granted estates of GOGL and GHOPCO; Greenfire's
legal counsel and Proposal Trustee granted
first ranking administrative charge not to
exceed $500,000
October 19, Greenfire correspondence to the Mr. Logan provides copy of Greenfire's
2020 Investors requirements for interim financing and
provided draft term sheet which the Investors
ultimately used to create the Investor Term
Sheet
November Greenfire serves first Greenfire files an application requesting that
2, 2020 application for an extension of the deadline for filing a proposal to creditors
the proposal period and is extended to December 21, 2020, and
authorization of Asset Sale authorizing Greenfire to enter into an APA
Agreement ("APA") with Greenfire Acquisition Company Ltd.
November A&M files First Report of A&M filed its first report as Proposal
4, 2020 Proposal Trustee Trustee stating, among other things, that
Greenfire and A&M were speaking with
multiple interested parties about possible 0029 25
DATE EVENT DESCRIPTION
interim financing; A&M indicated its support
of an extension to the deadline for a proposal
to November 20, 2020, to allow Greenfire to
facilitate interim financing. The BIA Form
33s filed by GHOPCO and GOGL list
liabilities of approximately $17.8 million and
$8.3 million respectively
November First Order extending the The Honourable Justice K.M. Horner grants
6, 2020 proposal period is granted order extending Greenfire's deadline to file
proposal to creditors, pursuant to section
50.4 of the BIA, to November 20, 2020
November Greenfire files application Greenfire files an application seeking a court
9, 2020 seeking declaration declaration that a marketing agreement (the
"Marketing Agreement") between it and
another entity ("Warner") was validly
terminated, or in the alternative, a disclaimer
notice over the marketing agreement
November A&M files Second Report of A&M filed its second report as Proposal
12, 2020 Proposal Trustee Trustee providing its reasons for approving
the disclaimer of the Marketing Agreement 0030 26
DATE EVENT DESCRIPTION
November Warner files application for Warner files application sealing certain
13, 2020 sealing order confidential and commercially sensitive
information
November Warner files application seeking Warner files application seeking direction
16, 2020 declaration that the Marketing Agreement has not been
and is not to be disclaimed or resiliated
November Greenfire files second Greenfire files an application requesting that
16, 2020 application for an extension of the deadline for filing a proposal to creditors
the proposal period is extended to December 8, 2020
November A&M files Third Report of A&M filed its third report as Proposal
17, 2020 Proposal Trustee Trustee indicating its support of an extension
to the deadline for a proposal to December 8,
2020, to allow Greenfire to facilitate interim
financing
November Second Order extending the The Honourable Justice J.S. Little grants
17, 2020 proposal period is granted order further extending Greenfire's deadline
to file proposal to December 8, 2020 0031 27
DATE EVENT DESCRIPTION
November Order for disclaimer of The Honourable Justice J.S. Little grants
17, 2020 Marketing Agreement and order that a marketing agreement between
restricted court access granted Greenfire and Warner is disclaimed or
resiliated and grants sealing order over
certain confidential materials
November Warner files notice of appeal Warner and another appellant ("Liberator")
27, 2020 and application for permission file both a civil notice of appeal and an
to appeal application seeking permission to appeal the
Order for disclaimer of Marketing
Agreement with this Honourable Court
December Greenfire files third application Greenfire files an application requesting that
2, 2020 for an extension of the proposal the deadline for filing a proposal to creditors
period as well as approval of an is extended to January 22, 2021, and seeking
interim financing facility and approval of an interim financing facility and
Sale and Vesting Order sale and vesting arrangement with Greenfire
("SAVO") Acquisition Corporation (the "Purchaser").
December Greenfire sends letter to the Greenfire withdraws the relief it is seeking
4, 2020 Service List on December 8, 2020, in respect of both the
approval of the interim financing term sheet 0032 28
DATE EVENT DESCRIPTION
and the approval of the asset purchase
agreement with the Purchaser.
December A&M files Fourth Report of A&M filed its fourth report as Proposal
7, 2020 Proposal Trustee Trustee indicating its support of an extension
to the deadline for a proposal to December
14, 2020, to allow Greenfire to facilitate
interim financing. The Fourth Report does
not provide any comments on the proposed
form of the asset purchase agreement or the
interim financing because the interim
financing term sheet has not been executed.
December Third Order extending the time The Honourable Justice M.J. Lema grants
8, 2020 for filing a proposal period is order further extending Greenfire's deadline
granted to file proposal to December 15, 2020
December Investor Group files and serves Addresses the Investor Group's position with
9, 2020 Supplemental Affidavit of Meer respect to the comparable transaction of the
Taher Shabani-Rad (the McKay Facility, the Interim Financial
"Supplemental Shabani-Rad Facility and the APA, and the Investor
Affidavit") Group's initial $1,000,000 proposal; 0033 29
DATE EVENT DESCRIPTION
December Greenfire files fourth As a direct result of the adjournment of the
11, 2020 application for an extension of Chambers Application from December 8,
the proposal period 2020 to December 14, 2020, Greenfire is
required to file an application on Friday
afternoon prior to a Monday hearing
requesting that the deadline for filing a
proposal to creditors is extended to January
28, 2021, and in the event that the interim
financing and SAVO is not granted, an
increase to the administrative charge
previously issued
December A&M files Fifth Report of A&M filed its Fifth Report as Proposal
11, 2020 Proposal Trustee Trustee on Friday afternoon indicating its
support of an extension to the deadline for a
proposal to January 28, 2021, and indicating
its support of the SAVO and and Interim
Financing Order
December Greenfire files and serves Sworn in support of Fourth Stay Extension,
11, 2020 Affidavit No. 7 of Robert B. provided a copy of the executed (but
Logan unchanged) Term Sheet by the Interim 0034 30
DATE EVENT DESCRIPTION
Lender, response to the Supplemental
Shabani-Rad Affidavit, verified the
previously-provided damages to the
Hangingstone Facility and supported the
alternative increase to the Administration
Charge.
December First Amending Agreement to (a) amended the definitions of Escrow
13, 2020 APA Closing Date and Outside Date; and (b)
included two additional wells/licenses which
were inadvertently omitted from the original
well/license listing
December Fourth order extending the The Honourable Justice D.B. Nixon grants
14, 2020 proposal period is granted order further extending Greenfire's deadline
to file proposal to January 28, 2021, the
remainder of the relief was adjourned over to
December 17, 2020 to complete arguments
in respect of the approval of the interim
financing term sheet and the approval of the
asset purchase agreement 0035 31
DATE EVENT DESCRIPTION
December SAVO granted The Honourable Justice D.B. Nixon grants
17, 2020 order approving the sale transaction
contemplated by an asset purchase
agreement between GHOPCO and the
Purchaser and vesting GHOPCO right, title
and interest in the associated assets in the
Purchaser.
December Interim Financing Order The Honourable Justice D.B. Nixon grants
17, 2020 granted order approving an interim financing facility
whereby Greenfire is authorized to borrow
up to $20,000,000 from Trafigura Canada
General Partnership, to be secured by a
priority charge against all present and after-
acquired assets, property and undertakings of
Greenfire; sealing order over certain
confidential information also granted
December Greenfire request for $4.0 $1.0 million received December 18, 2020,
18, 2020 million under Interim Financing $3.0 million received December 21, 2020
Facility 0036 32
DATE EVENT DESCRIPTION
December Warner and Liberator Warner and Liberator discontinue their
23, 2020 discontinue appeal appeal with this Honourable Court of the
order for disclaimer of the Marketing
Agreement
December Greenfire request for $2.0 Received December 29, 2020
24, 2020 million
January 14, Greenfire request for $2.5 Received on January 19, 2021
2021 million
January 22, Order of Justice R.A. Graesser Greenfire obtains Order extending Proposal
2021 Proceedings to March 15, 2021 and Directors
and Officers Charge in the amount of
$250,000
January 25, Second Amending Agreement (a) the addition and amendment of certain
2021 to APA definitions, in particular: (i) the addition of
"Extension Approval" and certain others
matters in relation to the Appeals; (ii) the
amendment of "Escrow Conditions" and
"Outside Date"; and (b) the amendment to
the terms of Final Closing and Termination. 0037 33
DATE EVENT DESCRIPTION
January 29, Escrow Closing under APA " means the delivery of the Escrowed
2021 Documents and the Escrowed Funds to
Escrow Agent to be held in escrow for the
Escrow Period."
April 1, Outside Date under APA If the Escrow Conditions are not satisfied on
2021 or prior to the Outside Date or if the AER
closes the LTA prior to the Outside Date,
Final Closing shall not be completed and
each Party, the Lender and the Proposal
Trustee shall immediately thereafter sign and
deliver a Termination Joint Direction to the
Escrow Agent, in which event the
Agreement shall terminate, and the Escrow
Agent shall within two (2) Business Days, in
accordance with the terms of the Escrow
Agreement
April 8, NOI Sixth Month Parameter The date after which the time period in
2020 which to extend the time to file a proposal
will exceed the six month parameters
pursuant to s. 50.4(9) of the BIA absent 0038 34
DATE EVENT DESCRIPTION
which Greenfire will be deemed to make an
assignment into bankruptcy
0039
TAB 1 0040
CANADA
CONSOLIDATION CODIFICATION
Bankruptcy and Insolvency Act Loi sur la faillite et l’insolvabilité
R.S.C., 1985, c. B-3 L.R.C. (1985), ch. B-3
Current to January 28, 2021 À jour au 28 janvier 2021
Last amended on November 1, 2019 Dernière modification le 1 novembre 2019
Published by the Minister of Justice at the following address: Publié par le ministre de la Justice à l’adresse suivante : http://laws-lois.justice.gc.ca http://lois-laws.justice.gc.ca 0041 Bankruptcy and Insolvency Faillite et insolvabilité PART III Proposals PARTIE III Propositions concordataires DIVISION I General Scheme for Proposals SECTION I Dispositions d’application générale Sections 50.2-50.4 Articles 50.2-50.4
Excluded secured creditor Le cas des autres créanciers garantis 50.2 A secured creditor to whom a proposal has not 50.2 Le créancier garanti à qui aucune proposition n’a been made in respect of a particular secured claim may été faite relativement à une réclamation garantie en par- not file a proof of secured claim in respect of that claim. ticulier n’est pas admis à produire une preuve de récla- 1992, c. 27, s. 19. mation garantie à cet égard. 1992, ch. 27, art. 19.
Rights in bankruptcy Droits en cas de faillite 50.3 On the bankruptcy of an insolvent person who 50.3 En cas de faillite d’une personne insolvable ayant made a proposal to one or more secured creditors in re- fait une proposition à un ou plusieurs créanciers garantis spect of secured claims, any proof of secured claim filed relativement à des réclamations garanties, les preuves de pursuant to section 50.1 ceases to be valid or effective, réclamations garanties déposées aux termes de l’article and sections 112 and 127 to 134 apply in respect of a 50.1 sont sans effet, et les articles 112 et 127 à 134 s’ap- proof of claim filed by any secured creditor in the pliquent aux preuves de réclamations déposées par des bankruptcy. créanciers garantis dans le cadre de la faillite. 1992, c. 27, s. 19. 1992, ch. 27, art. 19.
Notice of intention Avis d’intention 50.4 (1) Before filing a copy of a proposal with a li- 50.4 (1) Avant de déposer copie d’une proposition au- censed trustee, an insolvent person may file a notice of près d’un syndic autorisé, la personne insolvable peut, en intention, in the prescribed form, with the official receiv- la forme prescrite, déposer auprès du séquestre officiel er in the insolvent person’s locality, stating de sa localité un avis d’intention énonçant :
(a) the insolvent person’s intention to make a propos- a) son intention de faire une proposition; al, b) les nom et adresse du syndic autorisé qui a accepté, (b) the name and address of the licensed trustee who par écrit, les fonctions de syndic dans le cadre de la has consented, in writing, to act as the trustee under proposition; the proposal, and c) le nom de tout créancier ayant une réclamation (c) the names of the creditors with claims amounting s’élevant à au moins deux cent cinquante dollars, ainsi to two hundred and fifty dollars or more and the que le montant de celle-ci, connu ou indiqué aux livres amounts of their claims as known or shown by the du débiteur. debtor’s books, L’avis d’intention est accompagné d’une copie de l’accep- and attaching thereto a copy of the consent referred to in tation écrite du syndic. paragraph (b).
Certain things to be filed Documents à déposer (2) Within ten days after filing a notice of intention un- (2) Dans les dix jours suivant le dépôt de l’avis d’inten- der subsection (1), the insolvent person shall file with the tion visé au paragraphe (1), la personne insolvable dé- official receiver pose les documents suivants auprès du séquestre officiel :
(a) a statement (in this section referred to as a “cash- a) un état établi par la personne insolvable — appelé flow statement”) indicating the projected cash-flow of « l’état » au présent article — portant, projections au the insolvent person on at least a monthly basis, pre- moins mensuelles à l’appui, sur l’évolution de son en- pared by the insolvent person, reviewed for its reason- caisse, et signé par elle et par le syndic désigné dans ableness by the trustee under the notice of intention l’avis d’intention après que celui-ci en a vérifié le ca- and signed by the trustee and the insolvent person; ractère raisonnable;
(b) a report on the reasonableness of the cash-flow b) un rapport portant sur le caractère raisonnable de statement, in the prescribed form, prepared and l’état, établi, en la forme prescrite, par le syndic et si- signed by the trustee; and gné par lui;
(c) a report containing prescribed representations by c) un rapport contenant les observations — prescrites the insolvent person regarding the preparation of the par les Règles générales — de la personne insolvable
Current to January 28, 2021 62 À jour au 28 janvier 2021 Last amended on November 1, 2019 Dernière modification le 1 novembre 2019 0042 Bankruptcy and Insolvency Faillite et insolvabilité PART III Proposals PARTIE III Propositions concordataires DIVISION I General Scheme for Proposals SECTION I Dispositions d’application générale Sections 50.4-50.6 Articles 50.4-50.6
(a) the insolvent person has acted, and is acting, in a) la personne insolvable a agi — et continue d’agir — good faith and with due diligence; de bonne foi et avec toute la diligence voulue;
(b) the insolvent person would likely be able to make b) elle serait vraisemblablement en mesure de faire a viable proposal if the extension being applied for une proposition viable si la prorogation demandée were granted; and était accordée;
(c) no creditor would be materially prejudiced if the c) la prorogation demandée ne saurait causer de pré- extension being applied for were granted. judice sérieux à l’un ou l’autre des créanciers.
Court may not extend time Non-application du paragraphe 187(11) (10) Subsection 187(11) does not apply in respect of time (10) Le paragraphe 187(11) ne s’applique pas aux délais limitations imposed by subsection (9). prévus par le paragraphe (9).
Court may terminate period for making proposal Interruption de délai (11) The court may, on application by the trustee, the in- (11) À la demande du syndic, d’un créancier ou, le cas terim receiver, if any, appointed under section 47.1, or a échéant, du séquestre intérimaire nommé aux termes de creditor, declare terminated, before its actual expiration, l’article 47.1, le tribunal peut mettre fin, avant son expira- the thirty day period mentioned in subsection (8) or any tion normale, au délai de trente jours — prorogé, le cas extension thereof granted under subsection (9) if the échéant — prévu au paragraphe (8), s’il est convaincu court is satisfied that que, selon le cas :
(a) the insolvent person has not acted, or is not acting, a) la personne insolvable n’agit pas — ou n’a pas agi — in good faith and with due diligence, de bonne foi et avec toute la diligence voulue;
(b) the insolvent person will not likely be able to make b) elle ne sera vraisemblablement pas en mesure de a viable proposal before the expiration of the period in faire une proposition viable avant l’expiration du dé- question, lai;
(c) the insolvent person will not likely be able to make c) elle ne sera vraisemblablement pas en mesure de a proposal, before the expiration of the period in ques- faire, avant l’expiration du délai, une proposition qui tion, that will be accepted by the creditors, or sera acceptée des créanciers;
(d) the creditors as a whole would be materially preju- d) le rejet de la demande causerait un préjudice sé- diced were the application under this subsection re- rieux à l’ensemble des créanciers. jected, Si le tribunal acquiesce à la demande qui lui est présen- and where the court declares the period in question ter- tée, les alinéas (8)a) à c) s’appliquent alors comme si le minated, paragraphs (8)(a) to (c) thereupon apply as if délai avait expiré normalement. that period had expired. 1992, ch. 27, art. 19; 1997, ch. 12, art. 32; 2004, ch. 25, art. 33(F); 2005, ch. 47, art. 35; 2007, ch. 36, art. 17; 2017, ch. 26, art. 6(A). 1992, c. 27, s. 19; 1997, c. 12, s. 32; 2004, c. 25, s. 33(F); 2005, c. 47, s. 35; 2007, c. 36, s. 17; 2017, c. 26, s. 6(E).
Trustee to help prepare proposal Préparation de la proposition 50.5 The trustee under a notice of intention shall, be- 50.5 Le syndic désigné dans un avis d’intention doit, tween the filing of the notice of intention and the filing of entre le dépôt de l’avis d’intention et celui de la proposi- a proposal, advise on and participate in the preparation tion, participer, notamment comme conseiller, à la pré- of the proposal, including negotiations thereon. paration de celle-ci, y compris aux négociations perti- 1992, c. 27, s. 19. nentes. 1992, ch. 27, art. 19.
Order — interim financing Financement temporaire 50.6 (1) On application by a debtor in respect of whom 50.6 (1) Sur demande du débiteur à l’égard duquel a été a notice of intention was filed under section 50.4 or a pro- déposé un avis d’intention aux termes de l’article 50.4 ou posal was filed under subsection 62(1) and on notice to une proposition aux termes du paragraphe 62(1), le tri- the secured creditors who are likely to be affected by the bunal peut par ordonnance, sur préavis de la demande
Current to January 28, 2021 65 À jour au 28 janvier 2021 Last amended on November 1, 2019 Dernière modification le 1 novembre 2019 0043 Bankruptcy and Insolvency Faillite et insolvabilité PART III Proposals PARTIE III Propositions concordataires DIVISION I General Scheme for Proposals SECTION I Dispositions d’application générale Section 50.6 Article 50.6
security or charge, a court may make an order declaring aux créanciers garantis qui seront vraisemblablement that all or part of the debtor’s property is subject to a se- touchés par la charge ou sûreté, déclarer que tout ou par- curity or charge — in an amount that the court considers tie des biens du débiteur sont grevés d’une charge ou appropriate — in favour of a person specified in the order sûreté — d’un montant qu’il estime indiqué — en faveur who agrees to lend to the debtor an amount approved by de la personne nommée dans l’ordonnance qui accepte the court as being required by the debtor, having regard de prêter au débiteur la somme qu’il approuve compte te- to the debtor’s cash-flow statement referred to in para- nu de l’état — visé à l’alinéa 50(6)a) ou 50.4(2)a), selon le graph 50(6)(a) or 50.4(2)(a), as the case may be. The se- cas — portant sur l’évolution de l’encaisse et des besoins curity or charge may not secure an obligation that exists de celui-ci. La charge ou sûreté ne peut garantir qu’une before the order is made. obligation postérieure au prononcé de l’ordonnance.
Individuals Personne physique (2) In the case of an individual, (2) Toutefois, lorsque le débiteur est une personne phy- sique, il ne peut présenter la demande que s’il exploite (a) they may not make an application under subsec- une entreprise et, le cas échéant, seuls les biens acquis ou tion (1) unless they are carrying on a business; and utilisés dans le cadre de l’exploitation de l’entreprise peuvent être grevés. (b) only property acquired for or used in relation to the business may be subject to a security or charge.
Priority Priorité — créanciers garantis (3) The court may order that the security or charge rank (3) Le tribunal peut préciser, dans l’ordonnance, que la in priority over the claim of any secured creditor of the charge ou sûreté a priorité sur toute réclamation des debtor. créanciers garantis du débiteur.
Priority — previous orders Priorité — autres ordonnances (4) The court may order that the security or charge rank (4) Il peut également y préciser que la charge ou sûreté in priority over any security or charge arising from a pre- n’a priorité sur toute autre charge ou sûreté grevant les vious order made under subsection (1) only with the con- biens du débiteur au titre d’une ordonnance déjà rendue sent of the person in whose favour the previous order en vertu du paragraphe (1) que sur consentement de la was made. personne en faveur de qui cette ordonnance a été rendue.
Factors to be considered Facteurs à prendre en considération (5) In deciding whether to make an order, the court is to (5) Pour décider s’il rend l’ordonnance, le tribunal prend consider, among other things, en considération, entre autres, les facteurs suivants :
(a) the period during which the debtor is expected to a) la durée prévue des procédures intentées à l’égard be subject to proceedings under this Act; du débiteur sous le régime de la présente loi;
(b) how the debtor’s business and financial affairs are b) la façon dont les affaires financières et autres du to be managed during the proceedings; débiteur seront gérées au cours de ces procédures;
(c) whether the debtor’s management has the confi- c) la question de savoir si ses dirigeants ont la dence of its major creditors; confiance de ses créanciers les plus importants;
(d) whether the loan would enhance the prospects of a d) la question de savoir si le prêt favorisera la présen- viable proposal being made in respect of the debtor; tation d’une proposition viable à l’égard du débiteur;
(e) the nature and value of the debtor’s property; e) la nature et la valeur des biens du débiteur;
(f) whether any creditor would be materially preju- f) la question de savoir si la charge ou sûreté causera diced as a result of the security or charge; and un préjudice sérieux à l’un ou l’autre des créanciers du débiteur; (g) the trustee’s report referred to in paragraph 50(6)(b) or 50.4(2)(b), as the case may be. 2005, c. 47, s. 36; 2007, c. 36, s. 18.
Current to January 28, 2021 66 À jour au 28 janvier 2021 Last amended on November 1, 2019 Dernière modification le 1 novembre 2019 0044 Bankruptcy and Insolvency Faillite et insolvabilité PART III Proposals PARTIE III Propositions concordataires DIVISION I General Scheme for Proposals SECTION I Dispositions d’application générale Sections 65.12-65.13 Articles 65.12-65.13
Order to disclose information Ordonnance visant la communication de renseignements (5) On the application of the bargaining agent and on (5) Sur demande de l’agent négociateur partie à la notice to the person to whom the application relates, the convention collective et sur avis aux personnes intéres- court may, subject to any terms and conditions it speci- sées, le tribunal peut ordonner à celles-ci de communi- fies, make an order requiring the person to make avail- quer au demandeur, aux conditions qu’il précise, tous able to the bargaining agent any information specified by renseignements qu’elles ont en leur possession ou à leur the court in the person’s possession or control that re- disposition — sur les affaires et la situation financière de lates to the insolvent person’s business or financial af- la personne insolvable — qui ont un intérêt pour les né- fairs and that is relevant to the collective bargaining be- gociations collectives. Le tribunal ne peut rendre l’ordon- tween the insolvent person and the bargaining agent. The nance qu’après l’envoi à l’agent négociateur de l’avis de court may make the order only after the insolvent person négociations collectives visé au paragraphe (1). has been authorized to serve a notice to bargain under subsection (1).
Unrevised collective agreements remain in force Maintien en vigueur des conventions collectives (6) For greater certainty, any collective agreement that (6) Il est entendu que toute convention collective que la the insolvent person and the bargaining agent have not personne insolvable et l’agent négociateur n’ont pas agreed to revise remains in force. convenu de réviser demeure en vigueur.
Parties Parties (7) For the purpose of this section, the parties to a collec- (7) Pour l’application du présent article, les parties à la tive agreement are the insolvent person and the bargain- convention collective sont la personne insolvable et ing agent who are bound by the collective agreement. l’agent négociateur liés par elle. 2005, c. 47, s. 44. 2005, ch. 47, art. 44.
Restriction on disposition of assets Restriction à la disposition d’actifs 65.13 (1) An insolvent person in respect of whom a no- 65.13 (1) Il est interdit à la personne insolvable à tice of intention is filed under section 50.4 or a proposal l’égard de laquelle a été déposé un avis d’intention aux is filed under subsection 62(1) may not sell or otherwise termes de l’article 50.4 ou une proposition aux termes du dispose of assets outside the ordinary course of business paragraphe 62(1) de disposer, notamment par vente, unless authorized to do so by a court. Despite any re- d’actifs hors du cours ordinaire de ses affaires sans l’au- quirement for shareholder approval, including one under torisation du tribunal. Le tribunal peut accorder l’autori- federal or provincial law, the court may authorize the sale sation sans qu’il soit nécessaire d’obtenir l’acquiescement or disposition even if shareholder approval was not ob- des actionnaires, et ce malgré toute exigence à cet effet, tained. notamment en vertu d’une règle de droit fédérale ou pro- vinciale.
Individuals Personne physique (2) In the case of an individual who is carrying on a busi- (2) Toutefois, lorsque l’autorisation est demandée par ness, the court may authorize the sale or disposition only une personne physique qui exploite une entreprise, elle if the assets were acquired for or used in relation to the ne peut viser que les actifs acquis ou utilisés dans le cadre business. de l’exploitation de celle-ci.
Notice to secured creditors Avis aux créanciers (3) An insolvent person who applies to the court for an (3) La personne insolvable qui demande l’autorisation au authorization shall give notice of the application to the tribunal en avise les créanciers garantis qui peuvent vrai- secured creditors who are likely to be affected by the pro- semblablement être touchés par le projet de disposition. posed sale or disposition.
Current to January 28, 2021 87 À jour au 28 janvier 2021 Last amended on November 1, 2019 Dernière modification le 1 novembre 2019 0045 Bankruptcy and Insolvency Faillite et insolvabilité PART III Proposals PARTIE III Propositions concordataires DIVISION I General Scheme for Proposals SECTION I Dispositions d’application générale Section 65.13 Article 65.13
Factors to be considered Facteurs à prendre en considération (4) In deciding whether to grant the authorization, the (4) Pour décider s’il accorde l’autorisation, le tribunal court is to consider, among other things, prend en considération, entre autres, les facteurs sui- vants : (a) whether the process leading to the proposed sale or disposition was reasonable in the circumstances; a) la justification des circonstances ayant mené au projet de disposition; (b) whether the trustee approved the process leading to the proposed sale or disposition; b) l’acquiescement du syndic au processus ayant me- né au projet de disposition, le cas échéant; (c) whether the trustee filed with the court a report stating that in their opinion the sale or disposition c) le dépôt par celui-ci d’un rapport précisant que, à would be more beneficial to the creditors than a sale son avis, la disposition sera plus avantageuse pour les or disposition under a bankruptcy; créanciers que si elle était faite dans le cadre de la faillite; (d) the extent to which the creditors were consulted; d) la suffisance des consultations menées auprès des (e) the effects of the proposed sale or disposition on créanciers; the creditors and other interested parties; and e) les effets du projet de disposition sur les droits de (f) whether the consideration to be received for the tout intéressé, notamment les créanciers; assets is reasonable and fair, taking into account their market value. f) le caractère juste et raisonnable de la contrepartie reçue pour les actifs compte tenu de leur valeur mar- chande.
Additional factors — related persons Autres facteurs (5) If the proposed sale or disposition is to a person who (5) Si la personne insolvable projette de disposer d’actifs is related to the insolvent person, the court may, after en faveur d’une personne à laquelle elle est liée, le tribu- considering the factors referred to in subsection (4), nal, après avoir pris ces facteurs en considération, ne grant the authorization only if it is satisfied that peut accorder l’autorisation que s’il est convaincu :
(a) good faith efforts were made to sell or otherwise a) d’une part, que les efforts voulus ont été faits pour dispose of the assets to persons who are not related to disposer des actifs en faveur d’une personne qui n’est the insolvent person; and pas liée à la personne insolvable;
(b) the consideration to be received is superior to the b) d’autre part, que la contrepartie offerte pour les ac- consideration that would be received under any other tifs est plus avantageuse que celle qui découlerait de offer made in accordance with the process leading to toute autre offre reçue dans le cadre du projet de dis- the proposed sale or disposition. position.
Related persons Personnes liées (6) For the purpose of subsection (5), a person who is re- (6) Pour l’application du paragraphe (5), les personnes lated to the insolvent person includes ci-après sont considérées comme liées à la personne in- solvable : (a) a director or officer of the insolvent person; a) le dirigeant ou l’administrateur de celle-ci; (b) a person who has or has had, directly or indirectly, control in fact of the insolvent person; and b) la personne qui, directement ou indirectement, en a ou en a eu le contrôle de fait; (c) a person who is related to a person described in paragraph (a) or (b). c) la personne liée à toute personne visée aux alinéas a) ou b).
Current to January 28, 2021 88 À jour au 28 janvier 2021 Last amended on November 1, 2019 Dernière modification le 1 novembre 2019 0046 Bankruptcy and Insolvency Faillite et insolvabilité PART VII Courts and Procedure PARTIE VII Tribunaux et procédure Powers of Registrar Pouvoirs du registraire Sections 192-193 Articles 192-193
(m) to perform all necessary administrative duties re- l) de régler et de signer toutes ordonnances et juge- lating to the practice and procedure in the courts; and ments des tribunaux qu’un juge n’a pas réglés ou si- gnés, et d’émettre toutes ordonnances, tous juge- (n) to hear and determine appeals from the decision ments, mandats ou autres procédures des tribunaux; of a trustee allowing or disallowing a claim. m) d’exercer toutes les fonctions administratives né- cessaires relativement à la pratique et à la procédure devant les tribunaux;
n) d’entendre et de décider les appels de la décision d’un syndic accordant ou refusant une réclamation.
May be exercised by judge Peuvent être exercés par un juge (2) The powers and jurisdiction conferred by this section (2) Les pouvoirs et la juridiction, conférés à un regis- or otherwise on a registrar may at any time be exercised traire par le présent article ou autrement, peuvent être by a judge. exercés par un juge.
Registrar may not commit Mandat de dépôt (3) A registrar has no power to commit for contempt of (3) Un registraire n’a pas le pouvoir de délivrer un man- court. dat de dépôt pour outrage au tribunal.
Appeal from registrar Appel du registraire (4) A person dissatisfied with an order or decision of a (4) Toute personne mécontente d’une ordonnance ou registrar may appeal therefrom to a judge. d’une décision du registraire peut en interjeter appel à un juge.
Order of registrar Ordonnance du registraire (5) An order made or act done by a registrar in the exer- (5) Toute ordonnance rendue ou tout acte fait par un re- cise of his powers and jurisdiction shall be deemed the gistraire dans l’exercice de ses pouvoirs et de sa juridic- order or act of the court. tion est réputé être une ordonnance ou un acte du tribu- nal.
Reference to judge Renvoi à un juge par un registraire (6) A registrar may refer any matter ordinarily within his (6) Un registraire peut renvoyer toute affaire qui relève jurisdiction to a judge for disposition. ordinairement de sa compétence à un juge pour qu’il en dispose.
Judge may hear Renvoi à un juge (7) A judge may direct that any matter before a registrar (7) Un juge peut ordonner que toute affaire devant un be brought before the judge for hearing and determina- registraire soit portée devant le juge pour audition et dé- tion. cision.
Registrars to act for each other Peuvent agir l’un pour l’autre (8) Any registrar in bankruptcy may act for any other (8) Tout registraire en matière de faillite peut agir pour registrar. tout autre registraire. R.S., 1985, c. B-3, s. 192; 1992, c. 27, s. 67; 2004, c. 25, s. 88. L.R. (1985), ch. B-3, art. 192; 1992, ch. 27, art. 67; 2004, ch. 25, art. 88. Appeals Appels
Court of Appeal Cour d’appel 193 Unless otherwise expressly provided, an appeal lies 193 Sauf disposition expressément contraire, appel est to the Court of Appeal from any order or decision of a recevable à la Cour d’appel de toute ordonnance ou déci- judge of the court in the following cases: sion d’un juge du tribunal dans les cas suivants :
Current to January 28, 2021 219 À jour au 28 janvier 2021 Last amended on November 1, 2019 Dernière modification le 1 novembre 2019 0047 Bankruptcy and Insolvency Faillite et insolvabilité PART VII Courts and Procedure PARTIE VII Tribunaux et procédure Appeals Appels Sections 193-197 Articles 193-197
(a) if the point at issue involves future rights; a) le point en litige concerne des droits futurs;
(b) if the order or decision is likely to affect other cas- b) l’ordonnance ou la décision influera vraisemblable- es of a similar nature in the bankruptcy proceedings; ment sur d’autres causes de nature semblable en ma- tière de faillite; (c) if the property involved in the appeal exceeds in value ten thousand dollars; c) les biens en question dans l’appel dépassent en va- leur la somme de dix mille dollars; (d) from the grant of or refusal to grant a discharge if the aggregate unpaid claims of creditors exceed five d) la libération est accordée ou refusée, lorsque la to- hundred dollars; and talité des réclamations non acquittées des créanciers dépasse cinq cents dollars; (e) in any other case by leave of a judge of the Court of Appeal. e) dans tout autre cas, avec la permission d’un juge de R.S., 1985, c. B-3, s. 193; 1992, c. 27, s. 68. la Cour d’appel. L.R. (1985), ch. B-3, art. 193; 1992, ch. 27, art. 68.
Appeal to Supreme Court Cour suprême du Canada 194 The decision of the Court of Appeal on any appeal is 194 La décision de la Cour d’appel sur tout appel est dé- final and conclusive unless special leave to appeal there- finitive et sans appel, sauf autorisation spéciale, accordée from to the Supreme Court of Canada is granted by that par la Cour suprême du Canada, d’en appeler à ce tribu- Court. nal.
R.S., c. B-3, s. 164; R.S., c. 44(1st Supp.), s. 10. S.R., ch. B-3, art. 164; S.R., ch. 44(1er suppl.), art. 10.
Stay of proceedings on filing of appeal Suspension d’instance sur un appel 195 Except to the extent that an order or judgment ap- 195 Sauf dans la mesure où le jugement dont il est inter- pealed from is subject to provisional execution notwith- jeté appel est sujet à exécution provisoire malgré l’appel, standing any appeal therefrom, all proceedings under an toutes les procédures exercées en vertu d’une ordon- order or judgment appealed from shall be stayed until nance ou d’un jugement dont il est appelé sont suspen- the appeal is disposed of, but the Court of Appeal or a dues jusqu’à ce qu’il soit disposé de l’appel; mais la Cour judge thereof may vary or cancel the stay or the order for d’appel, ou un juge de ce tribunal, peut modifier ou an- provisional execution if it appears that the appeal is not nuler la suspension ou l’ordonnance d’exécution provi- being prosecuted diligently, or for such other reason as soire s’il apparaît que l’appel n’est pas poursuivi avec dili- the Court of Appeal or a judge thereof may deem proper. gence, ou pour toute autre raison qui peut être jugée R.S., 1985, c. B-3, s. 195; 1992, c. 27, s. 69. convenable. L.R. (1985), ch. B-3, art. 195; 1992, ch. 27, art. 69.
No stay of proceedings unless ordered Aucune suspension de procédures, à moins d’ordonnance 196 An appeal to the Supreme Court of Canada does not 196 Un appel à la Cour suprême du Canada ne peut operate as a stay of proceedings, except to the extent or- avoir pour effet de suspendre les procédures, sauf dans la dered by that Court. mesure où celle-ci l’ordonne.
R.S., c. B-3, s. 166; R.S., c. 44(1st Supp.), s. 10. S.R., ch. B-3, art. 166; S.R., ch. 44(1er suppl.), art. 10. Legal Costs Frais judiciaires
Costs in discretion of court Frais à la discrétion du tribunal 197 (1) Subject to this Act and to the General Rules, the 197 (1) Sous réserve des autres dispositions de la pré- costs of and incidental to any proceedings in court under sente loi et des Règles générales, les frais de toutes procé- this Act are in the discretion of the court. dures judiciaires intentées sous le régime de la présente loi, ou les frais s’y rapportant, sont laissés à la discrétion du tribunal.
Current to January 28, 2021 220 À jour au 28 janvier 2021 Last amended on November 1, 2019 Dernière modification le 1 novembre 2019 0048
TAB 2 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0049 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...
Most Negative Treatment: Distinguished Most Recent Distinguished: PCAS Patient Care Automation Services Inc., Re | 2012 ONSC 3367, 2012 CarswellOnt 7248, 91 C.B.R. (5th) 285, 216 A.C.W.S. (3d) 551 | (Ont. S.C.J. [Commercial List], Jun 9, 2012)
1991 CarswellOnt 205 Ontario Court of Appeal
Royal Bank v. Soundair Corp.
1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321, 4 O.R. (3d) 1, 7 C.B.R. (3d) 1, 83 D.L.R. (4th) 76
ROYAL BANK OF CANADA (plaintiff/respondent) v. SOUNDAIR CORPORATION (respondent), CANADIAN PENSION CAPITAL LIMITED (appellant) and CANADIAN INSURERS' CAPITAL CORPORATION (appellant)
Goodman, McKinlay and Galligan JJ.A.
Heard: June 11, 12, 13 and 14, 1991 Judgment: July 3, 1991 Docket: Doc. CA 318/91
Counsel: J. B. Berkow and S. H. Goldman , for appellants Canadian Pension Capital Limited and Canadian Insurers' Capital Corporation. J. T. Morin, Q.C. , for Air Canada. L.A.J. Barnes and L.E. Ritchie , for plaintiff/respondent Royal Bank of Canada. S.F. Dunphy and G.K. Ketcheson , for Ernst & Young Inc., receiver of respondent Soundair Corporation. W.G. Horton , for Ontario Express Limited. N.J. Spies , for Frontier Air Limited.
Subject: Corporate and Commercial; Insolvency Related Abridgment Classifications Debtors and creditors VII Receivers VII.6 Conduct and liability of receiver VII.6.a General conduct of receiver Headnote Receivers --- Conduct and liability of receiver — General conduct of receiver Court considering its position when approving sale recommended by receiver. S Corp., which engaged in the air transport business, had a division known as AT. When S Corp. experienced financial difficulties, one of the secured creditors, who had an interest in the assets of AT, brought a motion for the appointment of a receiver. The receiver was ordered to operate AT and to sell it as a going concern. The receiver had two offers. It accepted the offer made by OEL and rejected an offer by 922 which contained an unacceptable condition. Subsequently, 922 obtained an order allowing it to make a second offer removing the condition. The secured creditors supported acceptance of the 922 offer. The court approved the sale to OEL and dismissed the motion to approve the 922 offer. An appeal was brought from this order. Held: The appeal was dismissed.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 1 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0050 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...
Per Galligan J.A.: When a court appoints a receiver to use its commercial expertise to sell an airline, it is inescapable that it intends to rely upon the receiver's expertise and not upon its own. The court should be reluctant to second-guess, with the benefit of hindsight, the considered business decisions made by its receiver. The conduct of the receiver should be reviewed in the light of the specific mandate given to him by the court. The order appointing the receiver did not say how the receiver was to negotiate the sale. The order obviously intended, because of the unusual nature of the asset being sold, to leave the method of sale substantially to the discretion of the receiver. To determine whether a receiver has acted providently, the conduct of the receiver should be examined in light of the information the receiver had when it agreed to accept an offer. On the date the receiver accepted the OEL offer, it had only two offers: that of OEL, which was acceptable, and that of 922, which contained an unacceptable condition. The decision made was a sound one in the circumstances. The receiver made a sufficient effort to obtain the best price, and did not act improvidently. The court must exercise extreme caution before it interferes with the process adopted by a receiver to sell an unusual asset. It is important that prospective purchasers know that, if they are acting in good faith, bargain seriously with a receiver and enter into an agreement with it, a court will not lightly interfere with the commercial judgment of the receiver to sell the assets to them. Per McKinlay J.A. (concurring in the result): It is most important that the integrity of procedures followed by court-appointed receivers be protected in the interests of both commercial morality and the future confidence of business persons in their dealings with receivers. In all cases, the court should carefully scrutinize the procedure followed by the receiver. While the procedure carried out by the receiver in this case was appropriate, given the unfolding of events and the unique nature of the asset involved, it may not be a procedure that is likely to be appropriate in many receivership sales. Per Goodman J.A. (dissenting): It was imprudent and unfair on the part of the receiver to ignore an offer from an interested party which offered approximately triple the cash down payment without giving a chance to the offeror to remove the conditions or other terms which made the offer unacceptable to the receiver. The offer accepted by the receiver was improvident and unfair insofar as two creditors were concerned. Table of Authorities Cases considered: Beauty Counsellors of Canada Ltd., Re (1986), 58 C.B.R. (N.S.) 237 (Ont. S.C.) — referred to British Columbia Development Corp. v. Spun Cast Industries Ltd. (1977), 26 C.B.R. (N.S.) 28, 5 B.C.L.R. 94 (S.C.) — referred to Cameron v. Bank of Nova Scotia (1981), 38 C.B.R. (N.S.) 1, 45 N.S.R. (2d) 303, 86 A.P.R. 303 (C.A.) — referred to Crown Trust Co. v. Rosenburg (1986), 67 C.B.R. (N.S.) 320n, 60 O.R. (2d) 87, 22 C.P.C. (2d) 131, 39 D.L.R. (4th) 526 (H.C.) — applied Salima Investments Ltd. v. Bank of Montreal (1985), 59 C.B.R. (N.S.) 242, 41 Alta. L.R. (2d) 58, 65 A.R. 372 , 21 D.L.R. (4th) (C.A.) — referred to Selkirk, Re (1986), 58 C.B.R. (N.S.) 245 (Ont. S.C.) — referred to Selkirk, Re (1987), 64 C.B.R. (N.S.) 140 (Ont. S.C.) — referred to Statutes considered: Employment Standards Act, R.S.O. 1980, c. 137.
Environmental Protection Act, R.S.O. 1980, c. 141.
Appeal from order approving sale of assets by receiver.
Galligan J.A. :
1 This is an appeal from the order of Rosenberg J. made on May 1, 1991. By that order, he approved the sale of Air Toronto to Ontario Express Limited and Frontier Air Limited, and he dismissed a motion to approve an offer to purchase Air Toronto by 922246 Ontario Limited.
2 It is necessary at the outset to give some background to the dispute. Soundair Corporation ("Soundair") is a corporation engaged in the air transport business. It has three divisions. One of them is Air Toronto. Air Toronto operates a scheduled airline from Toronto to a number of mid-sized cities in the United States of America. Its routes serve as feeders to several of Air
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 2 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0051 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...
Canada's routes. Pursuant to a connector agreement, Air Canada provides some services to Air Toronto and benefits from the feeder traffic provided by it. The operational relationship between Air Canada and Air Toronto is a close one.
3 In the latter part of 1989 and the early part of 1990, Soundair was in financial difficulty. Soundair has two secured creditors who have an interest in the assets of Air Toronto. The Royal Bank of Canada (the "Royal Bank") is owed at least $65 million dollars. The appellants Canadian Pension Capital Limited and Canadian Insurers' Capital Corporation (collectively called "CCFL") are owed approximately $9,500,000. Those creditors will have a deficiency expected to be in excess of $50 million on the winding up of Soundair.
4 On April 26, 1990, upon the motion of the Royal Bank, O'Brien J. appointed Ernst & Young Inc. (the "receiver") as receiver of all of the assets, property and undertakings of Soundair. The order required the receiver to operate Air Toronto and sell it as a going concern. Because of the close relationship between Air Toronto and Air Canada, it was contemplated that the receiver would obtain the assistance of Air Canada to operate Air Toronto. The order authorized the receiver:
(b) to enter into contractual arrangements with Air Canada to retain a manager or operator, including Air Canada, to manage and operate Air Toronto under the supervision of Ernst & Young Inc. until the completion of the sale of Air Toronto to Air Canada or other person.
Also because of the close relationship, it was expected that Air Canada would purchase Air Toronto. To that end, the order of O'Brien J. authorized the Receiver:
(c) to negotiate and do all things necessary or desirable to complete a sale of Air Toronto to Air Canada and, if a sale to Air Canada cannot be completed, to negotiate and sell Air Toronto to another person, subject to terms and conditions approved by this Court.
5 Over a period of several weeks following that order, negotiations directed towards the sale of Air Toronto took place between the receiver and Air Canada. Air Canada had an agreement with the receiver that it would have exclusive negotiating rights during that period. I do not think it is necessary to review those negotiations, but I note that Air Canada had complete access to all of the operations of Air Toronto and conducted due diligence examinations. It became thoroughly acquainted with every aspect of Air Toronto's operations.
6 Those negotiations came to an end when an offer made by Air Canada on June 19, 1990, was considered unsatisfactory by the receiver. The offer was not accepted and lapsed. Having regard to the tenor of Air Canada's negotiating stance and a letter sent by its solicitors on July 20, 1990, I think that the receiver was eminently reasonable when it decided that there was no realistic possibility of selling Air Toronto to Air Canada.
7 The receiver then looked elsewhere. Air Toronto's feeder business is very attractive, but it only has value to a national airline. The receiver concluded reasonably, therefore, that it was commercially necessary for one of Canada's two national airlines to be involved in any sale of Air Toronto. Realistically, there were only two possible purchasers, whether direct or indirect. They were Air Canada and Canadian Airlines International.
8 It was well known in the air transport industry that Air Toronto was for sale. During the months following the collapse of the negotiations with Air Canada, the receiver tried unsuccessfully to find viable purchasers. In late 1990, the receiver turned to Canadian Airlines International, the only realistic alternative. Negotiations began between them. Those negotiations led to a letter of intent dated February 11, 1990. On March 6, 1991, the receiver received an offer from Ontario Express Limited and Frontier Airlines Limited, who are subsidiaries of Canadian Airlines International. This offer is called the OEL offer.
9 In the meantime, Air Canada and CCFL were having discussions about making an offer for the purchase of Air Toronto. They formed 922246 Ontario Limited ("922") for the purpose of purchasing Air Toronto. On March 1, 1991, CCFL wrote to the receiver saying that it proposed to make an offer. On March 7, 1991, Air Canada and CCFL presented an offer to the receiver in the name of 922. For convenience, its offers are called the "922 offers."
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 3 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0052 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...
10 The first 922 offer contained a condition which was unacceptable to the receiver. I will refer to that condition in more detail later. The receiver declined the 922 offer and on March 8, 1991, accepted the OEL offer. Subsequently, 922 obtained an order allowing it to make a second offer. It then submitted an offer which was virtually identical to that of March 7, 1991, except that the unacceptable condition had been removed.
11 The proceedings before Rosenberg J. then followed. He approved the sale to OEL and dismissed a motion for the acceptance of the 922 offer. Before Rosenberg J., and in this court, both CCFL and the Royal Bank supported the acceptance of the second 922 offer.
12 There are only two issues which must be resolved in this appeal. They are:
(1) Did the receiver act properly when it entered into an agreement to sell Air Toronto to OEL?
(2) What effect does the support of the 922 offer by the secured creditors have on the result?
13 I will deal with the two issues separately.
1. Did the Receiver Act Properly in Agreeing to Sell to OEL?
14 Before dealing with that issue, there are three general observations which I think I should make. The first is that the sale of an airline as a going concern is a very complex process. The best method of selling an airline at the best price is something far removed from the expertise of a court. When a court appoints a receiver to use its commercial expertise to sell an airline, it is inescapable that it intends to rely upon the receiver's expertise and not upon its own. Therefore, the court must place a great deal of confidence in the actions taken and in the opinions formed by the receiver. It should also assume that the receiver is acting properly unless the contrary is clearly shown. The second observation is that the court should be reluctant to second- guess, with the benefit of hindsight, the considered business decisions made by its receiver. The third observation which I wish to make is that the conduct of the receiver should be reviewed in the light of the specific mandate given to him by the court.
15 The order of O'Brien J. provided that if the receiver could not complete the sale to Air Canada that it was "to negotiate and sell Air Toronto to another person." The court did not say how the receiver was to negotiate the sale. It did not say it was to call for bids or conduct an auction. It told the receiver to negotiate and sell. It obviously intended, because of the unusual nature of the asset being sold, to leave the method of sale substantially in the discretion of the receiver. I think, therefore, that the court should not review minutely the process of the sale when, broadly speaking, it appears to the court to be a just process.
16 As did Rosenberg J., I adopt as correct the statement made by Anderson J. in Crown Trust Co. v. Rosenberg (1986), 60 O.R. (2d) 87, 67 C.B.R. (N.S.) 320n, 22 C.P.C. (2d) 131, 39 D.L.R. (4th) 526 (H.C.) , at pp. 92-94 [O.R.], of the duties which a court must perform when deciding whether a receiver who has sold a property acted properly. When he set out the court's duties, he did not put them in any order of priority, nor do I. I summarize those duties as follows:
1. It should consider whether the receiver has made a sufficient effort to get the best price and has not acted improvidently.
2. It should consider the interests of all parties.
3. It should consider the efficacy and integrity of the process by which offers are obtained.
4. It should consider whether there has been unfairness in the working out of the process.
17 I intend to discuss the performance of those duties separately.
1. Did the Receiver make a sufficient effort to get the best price and did it act providently?
18 Having regard to the fact that it was highly unlikely that a commercially viable sale could be made to anyone but the two national airlines, or to someone supported by either of them, it is my view that the receiver acted wisely and reasonably when it
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 4 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0053 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321... negotiated only with Air Canada and Canadian Airlines International. Furthermore, when Air Canada said that it would submit no further offers and gave the impression that it would not participate further in the receiver's efforts to sell, the only course reasonably open to the receiver was to negotiate with Canadian Airlines International. Realistically, there was nowhere else to go but to Canadian Airlines International. In do ing so, it is my opinion that the receiver made sufficient efforts to sell the airline.
19 When the receiver got the OEL offer on March 6, 1991, it was over 10 months since it had been charged with the responsibility of selling Air Toronto. Until then, the receiver had not received one offer which it thought was acceptable. After substantial efforts to sell the airline over that period, I find it difficult to think that the receiver acted improvidently in accepting the only acceptable offer which it had.
20 On March 8, 1991, the date when the receiver accepted the OEL offer, it had only two offers, the OEL offer, which was acceptable, and the 922 offer, which contained an unacceptable condition. I cannot see how the receiver, assuming for the moment that the price was reasonable, could have done anything but accept the OEL offer.
21 When deciding whether a receiver had acted providently, the court should examine the conduct of the receiver in light of the information the receiver had when it agreed to accept an offer. In this case, the court should look at the receiver's conduct in the light of the information it had when it made its decision on March 8, 1991. The court should be very cautious before deciding that the receiver's conduct was improvident based upon information which has come to light after it made its decision. To do so, in my view, would derogate from the mandate to sell given to the receiver by the order of O'Brien J. I agree with and adopt what was said by Anderson J. in Crown Trust Co. v. Rosenberg , supra, at p. 112 [O.R.]:
Its decision was made as a matter of business judgment on the elements then available to it . It is of the very essence of a receiver's function to make such judgments and in the making of them to act seriously and responsibly so as to be prepared to stand behind them.
If the court were to reject the recommendation of the Receiver in any but the most exceptional circumstances, it would materially diminish and weaken the role and function of the Receiver both in the perception of receivers and in the perception of any others who might have occasion to deal with them. It would lead to the conclusion that the decision of the Receiver was of little weight and that the real decision was always made upon the motion for approval. That would be a consequence susceptible of immensely damaging results to the disposition of assets by court-appointed receivers.
[Emphasis added.]
22 I also agree with and adopt what was said by Macdonald J.A. in Cameron v. Bank of Nova Scotia (1981), 38 C.B.R. (N.S.) 1, 45 N.S.R. (2d) 303, 86 A.P.R. 303 (C.A.) , at p. 11 [C.B.R.]:
In my opinion if the decision of the receiver to enter into an agreement of sale, subject to court approval, with respect to certain assets is reasonable and sound under the circumstances at the time existing it should not be set aside simply because a later and higher bid is made. To do so would literally create chaos in the commercial world and receivers and purchasers would never be sure they had a binding agreement.
[Emphasis added.]
23 On March 8, 1991, the receiver had two offers. One was the OEL offer, which it considered satisfactory but which could be withdrawn by OEL at any time before it was accepted. The receiver also had the 922 offer, which contained a condition that was totally unacceptable. It had no other offers. It was faced with the dilemma of whether it should decline to accept the OEL offer and run the risk of it being withdrawn, in the hope that an acceptable offer would be forthcoming from 922. An affidavit filed by the president of the receiver describes the dilemma which the receiver faced, and the judgment made in the light of that dilemma:
24. An asset purchase agreement was received by Ernst & Young on March 7, 1991 which was dated March 6, 1991. This agreement was received from CCFL in respect of their offer to purchase the assets and undertaking of Air Toronto. Apart from financial considerations, which will be considered in a subsequent affidavit, the Receiver determined that it would not
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 5 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0054 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...
be prudent to delay acceptance of the OEL agreement to negotiate a highly uncertain arrangement with Air Canada and CCFL . Air Canada had the benefit of an 'exclusive' in negotiations for Air Toronto and had clearly indicated its intention take itself out of the running while ensuring that no other party could seek to purchase Air Toronto and maintain the Air Canada connector arrangement vital to its survival. The CCFL offer represented a radical reversal of this position by Air Canada at the eleventh hour. However, it contained a significant number of conditions to closing which were entirely beyond the control of the Receiver. As well, the CCFL offer came less than 24 hours before signing of the agreement with OEL which had been negotiated over a period of months, at great time and expense.
[Emphasis added.] I am convinced that the decision made was a sound one in the circumstances faced by the receiver on March 8, 1991.
24 I now turn to consider whether the price contained in the OEL offer was one which it was provident to accept. At the outset, I think that the fact that the OEL offer was the only acceptable one available to the receiver on March 8, 1991, after 10 months of trying to sell the airline, is strong evidence that the price in it was reasonable. In a deteriorating economy, I doubt that it would have been wise to wait any longer.
25 I mentioned earlier that, pursuant to an order, 922 was permitted to present a second offer. During the hearing of the appeal, counsel compared at great length the price contained in the second 922 offer with the price contained in the OEL offer. Counsel put forth various hypotheses supporting their contentions that one offer was better than the other.
26 It is my opinion that the price contained in the 922 offer is relevant only if it shows that the price obtained by the receiver in the OEL offer was not a reasonable one. In Crown Trust Co. v. Rosenberg , supra, Anderson J., at p. 113 [O.R.], discussed the comparison of offers in the following way:
No doubt, as the cases have indicated, situations might arise where the disparity was so great as to call in question the adequacy of the mechanism which had produced the offers. It is not so here, and in my view that is substantially an end of the matter.
27 In two judgments, Saunders J. considered the circumstances in which an offer submitted after the receiver had agreed to a sale should be considered by the court. The first is Re Selkirk (1986), 58 C.B.R. (N.S.) 245 (Ont. S.C.) , at p. 247:
If, for example, in this case there had been a second offer of a substantially higher amount, then the court would have to take that offer into consideration in assessing whether the receiver had properly carried out his function of endeavouring to obtain the best price for the property.
28 The second is Re Beauty Counsellors of Canada Ltd. (1986), 58 C.B.R. (N.S.) 237 (Ont. S.C.) , at p. 243:
If a substantially higher bid turns up at the approval stage, the court should consider it. Such a bid may indicate, for example, that the trustee has not properly carried out its duty to endeavour to obtain the best price for the estate.
29 In Re Selkirk (1987), 64 C.B.R. (N.S.) 140 (Ont. S.C.) , at p. 142, McRae J. expressed a similar view:
The court will not lightly withhold approval of a sale by the receiver, particularly in a case such as this where the receiver is given rather wide discretionary authority as per the order of Mr. Justice Trainor and, of course, where the receiver is an officer of this court. Only in a case where there seems to be some unfairness in the process of the sale or where there are substantially higher offers which would tend to show that the sale was improvident will the court withhold approval. It is important that the court recognize the commercial exigencies that would flow if prospective purchasers are allowed to wait until the sale is in court for approval before submitting their final offer. This is something that must be discouraged.
[Emphasis added.]
30 What those cases show is that the prices in other offers have relevance only if they show that the price contained in the offer accepted by the receiver was so unreasonably low as to demonstrate that the receiver was improvident in accepting it. I
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 6 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0055 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321... am of the opinion, therefore, that if they do not tend to show that the receiver was improvident, they should not be considered upon a motion to confirm a sale recommended by a court-appointed receiver. If they were, the process would be changed from a sale by a receiver, subject to court approval, into an auction conducted by the court at the time approval is sought. In my opinion, the latter course is unfair to the person who has entered bona fide into an agreement with the receiver, can only lead to chaos, and must be discouraged.
31 If, however, the subsequent offer is so substantially higher than the sale recommended by the receiver, then it may be that the receiver has not conducted the sale properly. In such circumstances, the court would be justified itself in entering into the sale process by considering competitive bids. However, I think that that process should be entered into only if the court is satisfied that the receiver has not properly conducted the sale which it has recommended to the court.
32 It is necessary to consider the two offers. Rosenberg J. held that the 922 offer was slightly better or marginally better than the OEL offer. He concluded that the difference in the two offers did not show that the sale process adopted by the receiver was inadequate or improvident.
33 Counsel for the appellants complained about the manner in which Rosenberg J. conducted the hearing of the motion to confirm the OEL sale. The complaint was that when they began to discuss a comparison of the two offers, Rosenberg J. said that he considered the 922 offer to be better than the OEL offer. Counsel said that when that comment was made, they did not think it necessary to argue further the question of the difference in value between the two offers. They complain that the finding that the 922 offer was only marginally better or slightly better than the OEL offer was made without them having had the opportunity to argue that the 922 offer was substantially better or significantly better than the OEL offer. I cannot understand how counsel could have thought that by expressing the opinion that the 922 offer was better, Rosenberg J. was saying that it was a significantly or substantially better one. Nor can I comprehend how counsel took the comment to mean that they were foreclosed from arguing that the offer was significantly or substantially better. If there was some misunderstanding on the part of counsel, it should have been raised before Rosenberg J. at the time. I am sure that if it had been, the misunderstanding would have been cleared up quickly. Nevertheless, this court permitted extensive argument dealing with the comparison of the two offers.
34 The 922 offer provided for $6 million cash to be paid on closing with a royalty based upon a percentage of Air Toronto profits over a period of 5 years up to a maximum of $3 million. The OEL offer provided for a payment of $2 million on closing with a royalty paid on gross revenues over a 5-year period. In the short term, the 922 offer is obviously better because there is substantially more cash up front. The chances of future returns are substantially greater in the OEL offer because royalties are paid on gross revenues, while the royalties under the 922 offer are paid only on profits. There is an element of risk involved in each offer.
35 The receiver studied the two offers. It compared them and took into account the risks, the advantages and the disadvantages of each. It considered the appropriate contingencies. It is not necessary to outline the factors which were taken into account by the receiver because the manager of its insolvency practice filed an affidavit outlining the considerations which were weighed in its evaluation of the two offers. They seem to me to be reasonable ones. That affidavit concluded with the following paragraph:
24. On the basis of these considerations the Receiver has approved the OEL offer and has concluded that it represents the achievement of the highest possible value at this time for the Air Toronto division of SoundAir.
36 The court appointed the receiver to conduct the sale of Air Toronto, and entrusted it with the responsibility of deciding what is the best offer. I put great weight upon the opinion of the receiver. It swore to the court which appointed it that the OEL offer represents the achievement of the highest possible value at this time for Air Toronto. I have not been convinced that the receiver was wrong when he made that assessment. I am, therefore, of the opinion that the 922 offer does not demonstrate any failure upon the part of the receiver to act properly and providently.
37 It follows that if Rosenberg J. was correct when he found that the 922 offer was in fact better, I agree with him that it could only have been slightly or marginally better. The 922 offer does not lead to an inference that the disposition strategy of the receiver was inadequate, unsuccessful or improvident, nor that the price was unreasonable.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 7 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0056 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...
38 I am, therefore, of the opinion the the receiver made a sufficient effort to get the best price, and has not acted improvidently.
2. Consideration of the Interests of all Parties
39 It is well established that the primary interest is that of the creditors of the debtor: see Crown Trust Co. v. Rosenberg , supra, and Re Selkirk , supra (Saunders J.). However, as Saunders J. pointed out in Re Beauty Counsellors , supra at p. 244 [C.B.R.], "it is not the only or overriding consideration."
40 In my opinion, there are other persons whose interests require consideration. In an appropriate case, the interests of the debtor must be taken into account. I think also, in a case such as this, where a purchaser has bargained at some length and doubtless at considerable expense with the receiver, the interests of the purchaser ought to be taken into account. While it is not explicitly stated in such cases as Crown Trust Co. v. Rosenberg , supra, Re Selkirk (1986), supra, Re Beauty Counsellors , supra, Re Selkirk (1987), supra, and (Cameron ), supra, I think they clearly imply that the interests of a person who has negotiated an agreement with a court-appointed receiver are very important.
41 In this case, the interests of all parties who would have an interest in the process were considered by the receiver and by Rosenberg J.
3. Consideration of the Efficacy and Integrity of the Process by which the Offer was Obtained
42 While it is accepted that the primary concern of a receiver is the protecting of the interests of the creditors, there is a secondary but very important consideration, and that is the integrity of the process by which the sale is effected. This is particularly so in the case of a sale of such a unique asset as an airline as a going concern.
43 The importance of a court protecting the integrity of the process has been stated in a number of cases. First, I refer to Re Selkirk , supra, where Saunders J. said at p. 246 [C.B.R.]:
In dealing with the request for approval, the court has to be concerned primarily with protecting the interest of the creditors of the former bankrupt. A secondary but important considera tion is that the process under which the sale agreement is arrived at should be consistent with commercial efficacy and integrity.
In that connection I adopt the principles stated by Macdonald J.A. of the Nova Scotia Supreme Court (Appeal Division) in Cameron v. Bank of N.S. (1981), 38 C.B.R. (N.S.) 1, 45 N.S.R. (2d) 303, 86 A.P.R. 303 (C.A.) , where he said at p. 11:
In my opinion if the decision of the receiver to enter into an agreement of sale, subject to court approval, with respect to certain assets is reasonable and sound under the circumstances at the time existing it should not be set aside simply because a later and higher bid is made. To do so would literally create chaos in the commercial world and receivers and purchasers would never be sure they had a binding agreement. On the contrary, they would know that other bids could be received and considered up until the application for court approval is heard — this would be an intolerable situation.
While those remarks may have been made in the context of a bidding situation rather than a private sale, I consider them to be equally applicable to a negotiation process leading to a private sale. Where the court is concerned with the disposition of property, the purpose of appointing a receiver is to have the receiver do the work that the court would otherwise have to do.
44 In Salima Investments Ltd. v. Bank of Montreal (1985), 59 C.B.R. (N.S.) 242, 41 Alta. L.R. (2d) 58, 65 A.R. 372, 21 D.L.R. (4th) 473 at p. 476 [D.L.R.], the Alberta Court of Appeal said that sale by tender is not necessarily the best way to sell a business as an ongoing concern. It went on to say that when some other method is used which is provident, the court should not undermine the process by refusing to confirm the sale.
45 Finally, I refer to the reasoning of Anderson J. in Crown Trust Co. v. Rosenberg , supra, at p. 124 [O.R.]:
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 8 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0057 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...
While every proper effort must always be made to assure maximum recovery consistent with the limitations inherent in the process, no method has yet been devised to entirely eliminate those limitations or to avoid their consequences. Certainly it is not to be found in loosening the entire foundation of the system. Thus to compare the results of the process in this case with what might have been recovered in some other set of circumstances is neither logical nor practical .
[Emphasis added.]
46 It is my opinion that the court must exercise extreme caution before it interferes with the process adopted by a receiver to sell an unusual asset. It is important that prospective purchasers know that, if they are acting in good faith, bargain seriously with a receiver and enter into an agreement with it, a court will not lightly interfere with the commercial judgment of the receiver to sell the asset to them.
47 Before this court, counsel for those opposing the confirmation of the sale to OEL suggested many different ways in which the receiver could have conducted the process other than the way which he did. However, the evidence does not convince me that the receiver used an improper method of attempting to sell the airline. The answer to those submissions is found in the comment of Anderson J. in Crown Trust Co. v. Rosenberg , supra, at p. 109 [O.R.]:
The court ought not to sit as on appeal from the decision of the Receiver, reviewing in minute detail every element of the process by which the decision is reached. To do so would be a futile and duplicitous exercise.
48 It would be a futile and duplicitous exercise for this court to examine in minute detail all of circumstances leading up to the acceptance of the OEL offer. Having considered the process adopted by the receiver, it is my opinion that the process adopted was a reasonable and prudent one.
4. Was there unfairness in the process?
49 As a general rule, I do not think it appropriate for the court to go into the minutia of the process or of the selling strategy adopted by the receiver. However, the court has a responsibility to decide whether the process was fair. The only part of this process which I could find that might give even a superficial impression of unfairness is the failure of the receiver to give an offering memorandum to those who expressed an interest in the purchase of Air Toronto.
50 I will outline the circumstances which relate to the allegation that the receiver was unfair in failing to provide an offering memorandum. In the latter part of 1990, as part of its selling strategy, the receiver was in the process of preparing an offering memorandum to give to persons who expressed an interest in the purchase of Air Toronto. The offering memorandum got as far as draft form, but was never released to anyone, although a copy of the draft eventually got into the hands of CCFL before it submitted the first 922 offer on March 7, 1991. A copy of the offering memorandum forms part of the record, and it seems to me to be little more than puffery, without any hard information which a sophisticated purchaser would require in or der to make a serious bid.
51 The offering memorandum had not been completed by February11, 1991. On that date, the receiver entered into the letter of intent to negotiate with OEL. The letter of intent contained a provision that during its currency the receiver would not negotiate with any other party. The letter of intent was renewed from time to time until the OEL offer was received on March 6, 1991.
52 The receiver did not proceed with the offering memorandum because to do so would violate the spirit, if not the letter, of its letter of intent with OEL.
53 I do not think that the conduct of the receiver shows any unfairness towards 922. When I speak of 922, I do so in the context that Air Canada and CCFL are identified with it. I start by saying that the receiver acted reasonably when it entered into exclusive negotiations with OEL. I find it strange that a company, with which Air Canada is closely and intimately involved, would say that it was unfair for the receiver to enter into a time-limited agreement to negotiate exclusively with OEL. That is precisely the arrangement which Air Canada insisted upon when it negotiated with the receiver in the spring and summer of 1990. If it was not unfair for Air Canada to have such an agreement, I do not understand why it was unfair for OEL to have a
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 9 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0058 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321... similar one. In fact, both Air Canada and OEL in its turn were acting reasonably when they required exclusive negotiating rights to prevent their negotiations from being used as a bargaining lever with other potential purchasers. The fact that Air Canada insisted upon an exclusive negotiating right while it was negotiating with the receiver demonstrates the commercial efficacy of OEL being given the same right during its negotiations with the receiver. I see no unfairness on the part of the receiver when it honoured its letter of intent with OEL by not releasing the offering memorandum during the negotiations with OEL.
54 Moreover, I am not prepared to find that 922 was in any way prejudiced by the fact that it did not have an offering memorandum. It made an offer on March 7, 1991, which it contends to this day was a better offer than that of OEL. 922 has not convinced me that if it had an offering memorandum, its offer would have been any different or any better than it actually was. The fatal problem with the first 922 offer was that it contained a condition which was completely unacceptable to the receiver. The receiver, properly, in my opinion, rejected the offer out of hand because of that condition. That condition did not relate to any information which could have conceivably been in an offering memorandum prepared by the receiver. It was about the resolution of a dispute between CCFL and the Royal Bank, something the receiver knew nothing about.
55 Further evidence of the lack of prejudice which the absence of an offering memorandum has caused 922 is found in CCFL's stance before this court. During argument, its counsel suggested as a possible resolution of this appeal that this court should call for new bids, evaluate them and then order a sale to the party who put in the better bid. In such a case, counsel for CCFL said that 922 would be prepared to bid within 7 days of the court's decision. I would have thought that, if there were anything to CCFL's suggestion that the failure to provide an offering memorandum was unfair to 922, that it would have told the court that it needed more information before it would be able to make a bid.
56 I am satisfied that Air Canada and CCFL have, and at all times had, all of the information which they would have needed to make what to them would be a commercially viable offer to the receiver. I think that an offering memorandum was of no commercial consequence to them, but the absence of one has since become a valuable tactical weapon.
57 It is my opinion that there is no convincing proof that if an offering memorandum had been widely distributed among persons qualified to have purchased Air Toronto, a viable offer would have come forth from a party other than 922 or OEL. Therefore, the failure to provide an offering memorandum was neither unfair, nor did it prejudice the obtaining of a better price on March 8, 1991, than that contained in the OEL offer. I would not give effect to the contention that the process adopted by the receiver was an unfair one.
58 There are two statements by Anderson J. contained in Crown Trust Co. v. Rosenberg , supra, which I adopt as my own. The first is at p. 109 [O.R.]:
The court should not proceed against the recommendations of its Receiver except in special circumstances and where the necessity and propriety of doing so are plain. Any other rule or approach would emasculate the role of the Receiver and make it almost inevitable that the final negotiation of every sale would take place on the motion for approval.
The second is at p. 111 [O.R.]:
It is equally clear, in my view, though perhaps not so clearly enunciated, that it is only in an exceptional case that the court will intervene and proceed contrary to the Receiver's recommendations if satisfied, as I am, that the Receiver has acted reasonably, prudently and fairly and not arbitrarily.
In this case the receiver acted reasonably, prudently, fairly and not arbitrarily. I am of the opinion, therefore, that the process adopted by the receiver in reaching an agreement was a just one.
59 In his reasons for judgment, after discussing the circumstances leading to the 922 offer, Rosenberg J. said this:
They created a situation as of March 8th, where the Receiver was faced with two offers, one of which was in acceptable form and one of which could not possibly be accepted in its present form. The Receiver acted appropriately in accepting the OEL offer.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 10 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0059 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...
I agree.
60 The receiver made proper and sufficient efforts to get the best price that it could for the assets of Air Toronto. It adopted a reasonable and effective process to sell the airline which was fair to all persons who might be interested in purchasing it. It is my opinion, therefore, that the receiver properly carried out the mandate which was given to it by the order of O'Brien J. It follows that Rosenberg J. was correct when he confirmed the sale to OEL.
II. The effect of the support of the 922 offer by the two secured creditors.
61 As I noted earlier, the 922 offer was supported before Rosenberg J., and in this court, by CCFL and by the Royal Bank, the two secured creditors. It was argued that, because the interests of the creditors are primary, the court ought to give effect to their wish that the 922 offer be accepted. I would not accede to that suggestion for two reasons.
62 The first reason is related to the fact that the creditors chose to have a receiver appointed by the court. It was open to them to appoint a private receiver pursuant to the authority of their security documents. Had they done so, then they would have had control of the process and could have sold Air Toronto to whom they wished. However, acting privately and controlling the process involves some risks. The appointment of a receiver by the court insulates the creditors from those risks. But, insulation from those risks carries with it the loss of control over the process of disposition of the assets. As I have attempted to explain in these reasons, when a receiver's sale is before the court for confirmation, the only issues are the propriety of the conduct of the receiver and whether it acted providently. The function of the court at that stage is not to step in and do the receiver's work, or change the sale strategy adopted by the receiver. Creditors who asked the court to appoint a receiver to dispose of assets should not be allowed to take over control of the process by the simple expedient of supporting another purchaser if they do not agree with the sale made by the receiver. That would take away all respect for the process of sale by a court-appointed receiver.
63 There can be no doubt that the interests of the creditor are an important consideration in determining whether the receiver has properly conducted a sale. The opinion of the creditors as to which offer ought to be accepted is something to be taken into account. But if the court decides that the receiver has acted properly and providently, those views are not necessarily determinative. Because, in this case, the receiver acted properly and providently, I do not think that the views of the creditors should override the considered judgment of the receiver.
64 The second reason is that, in the particular circumstances of this case, I do not think the support of CCFL and the Royal Bank of the 922 offer is entitled to any weight. The support given by CCFL can be dealt with summarily. It is a co-owner of 922. It is hardly surprising and not very impressive to hear that it supports the offer which it is making for the debtor's assets.
65 The support by the Royal Bank requires more consideration and involves some reference to the circumstances. On March 6, 1991, when the first 922 offer was made, there was in existence an inter-lender agreement between the Royal Bank and CCFL. That agreement dealt with the share of the proceeds of the sale of Air Toronto which each creditor would receive. At the time, a dispute between the Royal Bank and CCFL about the interpretation of that agreement was pending in the courts. The unacceptable condition in the first 922 offer related to the settlement of the inter-lender dispute. The condition required that the dispute be resolved in a way which would substantially favour CCFL. It required that CCFL receive $3,375,000 of the $6 million cash payment and the balance, including the royalties, if any, be paid to the Royal Bank. The Royal Bank did not agree with that split of the sale proceeds.
66 On April 5, 1991, the Royal Bank and CCFL agreed to settle the inter-lender dispute. The settlement was that if the 922 offer was accepted by the court, CCFL would receive only $1 million, and the Royal Bank would receive $5 million plus any royalties which might be paid. It was only in consideration of that settlement that the Royal Bank agreed to support the 922 offer.
67 The Royal Bank's support of the 922 offer is so affected by the very substantial benefit which it wanted to obtain from the settlement of the inter-lender dispute that, in my opinion, its support is devoid of any objectivity. I think it has no weight.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 11 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0060 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...
68 While there may be circumstances where the unanimous support by the creditors of a particular offer could conceivably override the proper and provident conduct of a sale by a receiver, I do not think that this is such a case. This is a case where the receiver has acted properly and in a provident way. It would make a mockery out of the judicial process, under which a mandate was given to this receiver to sell this airline if the support by these creditors of the 922 offer were permitted to carry the day. I give no weight to the support which they give to the 922 offer.
69 In its factum, the receiver pointed out that, because of greater liabilities imposed upon private receivers by various statutes such as the Employment Standards Act , R.S.O. 1980, c. 137, and the Environmental Protection Act , R.S.O. 1980, c. 141, it is likely that more and more the courts will be asked to appoint receivers in insolvencies. In those circumstances, I think that creditors who ask for court-appointed receivers and business people who choose to deal with those receivers should know that if those receivers act properly and providently, their decisions and judgments will be given great weight by the courts who appoint them. I have decided this appeal in the way I have in order to assure business people who deal with court-appointed receivers that they can have confidence that an agreement which they make with a court-appointed receiver will be far more than a platform upon which others may bargain at the court approval stage. I think that persons who enter into agreements with court-appointed receivers, following a disposition procedure that is appropriate given the nature of the assets involved, should expect that their bargain will be confirmed by the court.
70 The process is very important. It should be carefully protected so that the ability of court-appointed receivers to negotiate the best price possible is strengthened and supported. Because this receiver acted properly and providently in entering into the OEL agreement, I am of the opinion that Rosenberg J. was right when he approved the sale to OEL and dismissed the motion to approve the 922 offer.
71 I would, accordingly, dismiss the appeal. I would award the receiver, OEL and Frontier Airlines Limited their costs out of the Soundair estate, those of the receiver on a solicitor-client scale. I would make no order as to the costs of any of the other parties or intervenors.
McKinlay J.A. :
72 I agree with Galligan J.A. in result, but wish to emphasize that I do so on the basis that the undertaking being sold in this case was of a very special and unusual nature. It is most important that the integrity of procedures followed by court- appointed receivers be protected in the interests of both commercial morality and the future confidence of business persons in their dealings with receivers. Consequently, in all cases, the court should carefully scrutinize the procedure followed by the receiver to determine whether it satisfies the tests set out by Anderson J. in Crown Trust Co. v. Rosenberg (1986), 67 C.B.R. (N.S.) 320n, 60 O.R. (2d) 87, 22 C.P.C. (2d) 131, 39 D.L.R. (4th) 526 (H.C.) . While the procedure carried out by the receiver in this case, as described by Galligan J.A., was appropriate, given the unfolding of events and the unique nature of the assets involved, it is not a procedure that is likely to be appropriate in many receivership sales.
73 I should like to add that where there is a small number of creditors who are the only parties with a real interest in the proceeds of the sale (i.e., where it is clear that the highest price attainable would result in recovery so low that no other creditors, shareholders, guarantors, etc., could possibly benefit therefore), the wishes of the interested creditors should be very seriously considered by the receiver. It is true, as Galligan J.A. points out, that in seeking the court appointment of a receiver, the moving parties also seek the protection of the court in carrying out the receiver's functions. However, it is also true that in utilizing the court process, the moving parties have opened the whole process to detailed scrutiny by all involved, and have probably added significantly to their costs and consequent shortfall as a result of so doing. The adoption of the court process should in no way diminish the rights of any party, and most certainly not the rights of the only parties with a real interest. Where a receiver asks for court approval of a sale which is opposed by the only parties in interest, the court should scrutinize with great care the procedure followed by the receiver. I agree with Galligan J.A. that in this case that was done. I am satisfied that the rights of all parties were properly considered by the receiver, by the learned motions court judge, and by Galligan J.A.
Goodman J.A. (dissenting):
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 12 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0061 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...
74 I have had the opportunity of reading the reasons for judgment herein of Galligan and McKinlay JJ.A. Respectfully, I am unable to agree with their conclusion.
75 The case at bar is an exceptional one in the sense that upon the application made for approval of the sale of the assets of Air Toronto, two competing offers were placed before Rosenberg J. Those two offers were that of OEL and that of 922, a company incorporated for the purpose of acquiring Air Toronto. Its shares were owned equally by CCFL and Air Canada. It was conceded by all parties to these proceedings that the only persons who had any interest in the proceeds of the sale were two secured creditors, viz., CCFL and the Royal Bank of Canada. Those two creditors were unanimous in their position that they desired the court to approve the sale to 922. We were not referred to, nor am I aware of, any case where a court has refused to abide by the unanimous wishes of the only interested creditors for the approval of a specific offer made in receivership proceedings.
76 In British Columbia Developments Corp. v. Spun Cast Industries Ltd. (1977), 26 C.B.R. (N.S.) 28, 5 B.C.L.R. 94 (S.C.) , Berger J. said at p. 30 [C.B.R.]:
Here all of those with a financial stake in the plant have joined in seeking the court's approval of the sale to Fincas. This court does not have a roving commission to decide what is best for investors and businessmen when they have agreed among themselves what course of action they should follow. It is their money.
77 I agree with that statement. It is particularly apt to this case. The two secured creditors will suffer a shortfall of approximately $50 million. They have a tremendous interest in the sale of assets which form part of their security. I agree with the finding of Rosenberg J. that the offer of 922 is superior to that of OEL. He concluded that the 922 offer is marginally superior. If by that he meant that mathematically it was likely to provide slightly more in the way of proceeds, it is difficult to take issue with that finding. If, on the other hand, he meant that having regard to all considerations it was only marginally superior, I cannot agree. He said in his reasons:
I have come to the conclusion that knowledgeable creditors such as the Royal Bank would prefer the 922 offer even if the other factors influencing their decision were not present. No matter what adjustments had to be made, the 922 offer results in more cash immediately. Creditors facing the type of loss the Royal Bank is taking in this case would not be anxious to rely on contingencies especially in the present circumstances surrounding the airline industry.
78 I agree with that statement completely. It is apparent that the difference between the two offers insofar as cash on closing is concerned amounts to approximately $3 million to $4 million. The bank submitted that it did not wish to gamble any further with respect to its investment, and that the acceptance and court approval of the OEL offer in effect supplanted its position as a secured creditor with respect to the amount owing over and above the down payment and placed it in the position of a joint entrepreneur, but one with no control. This results from the fact that the OEL offer did not provide for any security for any funds which might be forthcoming over and above the initial down payment on closing.
79 In Cameron v. Bank of Nova Scotia (1981), 38 C.B.R. (N.S.) 1, 45 N.S.R. (2d) 303, 86 A.P.R. 303 (C.A.) , Hart J.A., speaking for the majority of the court, said at p. 10 [C.B.R.]:
Here we are dealing with a receiver appointed at the instance of one major creditor, who chose to insert in the contract of sale a provision making it subject to the approval of the court. This, in my opinion, shows an intention on behalf of the parties to invoke the normal equitable doctrines which place the court in the position of looking to the interests of all persons concerned before giving its blessing to a particular transaction submitted for approval. In these circumstances the court would not consider itself bound by the contract entered into in good faith by the receiver but would have to look to the broader picture to see that that contract was for the benefit of the creditors as a whole. When there was evidence that a higher price was readily available for the property the chambers judge was, in my opinion, justified in exercising his discretion as he did. Otherwise he could have deprived the creditors of a substantial sum of money.
80 This statement is apposite to the circumstances of the case at bar. I hasten to add that in my opinion it is not only price which is to be considered in the exercise of the judge's discretion. It may very well be, as I believe to be so in this case, that the
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 13 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0062 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321... amount of cash is the most important element in determining which of the two offers is for the benefit and in the best interest of the creditors.
81 It is my view, and the statement of Hart J.A. is consistent therewith, that the fact that a creditor has requested an order of the court appointing a receiver does not in any way diminish or derogate from his right to obtain the maximum benefit to be derived from any disposition of the debtor's assets. I agree completely with the views expressed by McKinlay J.A. in that regard in her reasons.
82 It is my further view that any negotiations which took place between the only two interested creditors in deciding to support the approval of the 922 offer were not relevant to the determination by the presiding judge of the issues involved in the motion for approval of either one of the two offers, nor are they relevant in determining the outcome of this appeal. It is sufficient that the two creditors have decided unanimously what is in their best interest, and the appeal must be considered in the light of that decision. It so happens, however, that there is ample evidence to support their conclusion that the approval of the 922 offer is in their best interests.
83 I am satisfied that the interests of the creditors are the prime consideration for both the receiver and the court. In Re Beauty Counsellors of Canada Ltd. (1986), 58 C.B.R. (N.S.) 237 (Ont. S.C.) , Saunders J. said at p. 243:
This does not mean that a court should ignore a new and higher bid made after acceptance where there has been no unfairness in the process. The interests of the creditors, while not the only consideration, are the prime consideration.
84 I agree with that statement of the law. In Re Selkirk (1986), 58 C.B.R. (N.S.) 245 (Ont. S.C.) , Saunders J. heard an application for court approval of the sale by the sheriff of real property in bankruptcy proceedings. The sheriff had been previously ordered to list the property for sale subject to approval of the court. Saunders J. said at p. 246:
In dealing with the request for approval, the court has to be concerned primarily with protecting the interests of the creditors of the former bankrupt. A secondary but important consideration is that the process under which the sale agreement is arrived at should be consistent with commercial efficacy and integrity.
85 I am in agreement with that statement as a matter of general principle. Saunders J. further stated that he adopted the principles stated by Macdonald J.A. in Cameron , supra, quoted by Galligan J.A. in his reasons. In Cameron , the remarks of Macdonald J.A. related to situations involving the calling of bids and fixing a time limit for the making of such bids. In those circumstances the process is so clear as a matter of commercial practice that an interference by the court in such process might have a deleterious effect on the efficacy of receivership proceedings in other cases. But Macdonald J.A. recognized that even in bid or tender cases where the offeror for whose bid approval is sought has complied with all requirements, a court might not approve the agreement of purchase and sale entered into by the receiver. He said at pp. 11-12 [C.B.R.]:
There are, of course, many reasons why a court might not approve an agreement of purchase and sale, viz., where the offer accepted is so low in relation to the appraised value as to be unrealistic; or, where the circumstances indicate that insufficient time was allowed for the making of bids or that inadequate notice of sale by bid was given (where the receiver sells property by the bid method); or, where it can be said that the proposed sale is not in the best interest of either the creditors or the owner. Court approval must involve the delicate balancing of competing interests and not simply a consideration of the interests of the creditors.
86 The deficiency in the present case is so large that there has been no suggestion of a competing interest between the owner and the creditors.
87 I agree that the same reasoning may apply to a negotiation process leading to a private sale, but the procedure and process applicable to private sales of a wide variety of businesses and undertakings with the multiplicity of individual considerations applicable and perhaps peculiar to the particular business is not so clearly established that a departure by the court from the process adopted by the receiver in a particular case will result in commercial chaos to the detriment of future receivership
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 14 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0063 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321... proceedings. Each case must be decided on its own merits, and it is necessary to consider the process used by the receiver in the present proceedings and to determine whether it was unfair, improvident or inadequate.
88 It is important to note at the outset that Rosenberg J. made the following statement in his reasons:
On March 8, 1991 the trustee accepted the OEL offer subject to court approval. The Receiver at that time had no other offer before it that was in final form or could possibly be accepted. The Receiver had at the time the knowledge that Air Canada with CCFL had not bargained in good faith and had not fulfilled the promise of its letter of March 1st. The Receiver was justified in assuming that Air Canada and CCFL's offer was a long way from being in an acceptable form and that Air Canada and CCFL's objective was to interrupt the finalizing of the OEL agreement and to retain as long as possible the Air Toronto connector traffic flowing into Terminal 2 for the benefit of Air Canada.
89 In my opinion there was no evidence before him or before this court to indicate that Air Canada, with CCFL, had not bargained in good faith, and that the receiver had knowledge of such lack of good faith. Indeed, on his appeal, counsel for the receiver stated that he was not alleging Air Canada and CCFL had not bargained in good faith. Air Canada had frankly stated at the time that it had made its offer to purchase, which was eventually refused by the receiver, that it would not become involved in an "auction" to purchase the undertaking of Air Canada and that, although it would fulfil its contractual obligations to provide connecting services to Air Toronto, it would do no more than it was legally required to do insofar as facilitating the purchase of Air Toronto by any other person. In so doing, Air Canada may have been playing "hardball," as its behaviour was characterized by some of the counsel for opposing parties. It was nevertheless merely openly asserting its legal position, as it was entitled to do.
90 Furthermore, there was no evidence before Rosenberg J. or this court that the receiver had assumed that Air Canada and CCFL's objective in making an offer was to interrupt the finalizing of the OEL agreement and to retain as long as possible the Air Toronto connector traffic flowing into Terminal 2 for the benefit of Air Canada. Indeed, there was no evidence to support such an assumption in any event, although it is clear that 922, and through it CCFL and Air Canada, were endeavouring to present an offer to purchase which would be accepted and/or approved by the court in preference to the offer made by OEL.
91 To the extent that approval of the OEL agreement by Rosenberg J. was based on the alleged lack of good faith in bargaining and improper motivation with respect to connector traffic on the part of Air Canada and CCFL, it cannot be supported.
92 I would also point out that rather than saying there was no other offer before it that was final in form, it would have been more accurate to have said that there was no unconditional offer before it.
93 In considering the material and evidence placed before the court, I am satisfied that the receiver was at all times acting in good faith. I have reached the conclusion, however, that the process which he used was unfair insofar as 922 is concerned, and improvident insofar as the two secured creditors are concerned.
94 Air Canada had been negotiating with Soundair Corporation for the purchase from it of Air Toronto for a considerable period of time prior to the appointment of a receiver by the court. It had given a letter of intent indicating a prospective sale price of $18 million. After the appointment of the receiver, by agreement dated April 30, 1990, Air Canada continued its negotiations for the purchase of Air Toronto with the receiver. Although this agreement contained a clause which provided that the receiver "shall not negotiate for the sale ... of Air Toronto with any person except Air Canada," it further provided that the receiver would not be in breach of that provision merely by receiving unsolicited offers for all or any of the assets of Air Toronto. In addition, the agreement, which had a term commencing on April 30, 1990, could be terminated on the fifth business day following the delivery of a written notice of termination by one party to the other. I point out this provision merely to indicate that the exclusivity privilege extended by the receiver to Air Canada was of short duration at the receiver's option.
95 As a result of due negligence investigations carried out by Air Canada during the months of April, May and June of 1990, Air Canada reduced its offer to $8.1 million conditional upon there being $4 million in tangible assets. The offer was made on June 14, 1990, and was open for acceptance until June 29, 1990.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 15 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0064 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...
96 By amending agreement dated June 19, 1990, the receiver was released from its covenant to refrain from negotiating for the sale of the Air Toronto business and assets to any person other than Air Canada. By virtue of this amending agreement, the receiver had put itself in the position of having a firm offer in hand, with the right to negotiate and accept offers from other persons. Air Canada, in these circumstances, was in the subservient position. The receiver, in the exercise of its judgment and discretion, allowed the Air Canada offer to lapse. On July 20, 1990, Air Canada served a notice of termination of the April 30, 1990 agreement.
97 Apparently as a result of advice received from the receiver to the effect that the receiver intended to conduct an auction for the sale of the assets and business of the Air Toronto division of Soundair Corporation, the solicitors for Air Canada advised the receiver by letter dated July 20, 1990, in part as follows:
Air Canada has instructed us to advise you that it does not intend to submit a further offer in the auction process.
98 This statement, together with other statements set forth in the letter, was sufficient to indicate that Air Canada was not interested in purchasing Air Toronto in the process apparently contemplated by the receiver at that time. It did not form a proper foundation for the receiver to conclude that there was no realistic possibility of selling Air Toronto [to] Air Canada, either alone or in conjunction with some other person, in different circumstances. In June 1990, the receiver was of the opinion that the fair value of Air Toronto was between $10 million and $12 million.
99 In August 1990, the receiver contacted a number of interested parties. A number of offers were received which were not deemed to be satisfactory. One such offer, received on August 20, 1990, came as a joint offer from OEL and Air Ontario (an Air Canada connector). It was for the sum of $3 million for the good will relating to certain Air Toronto routes, but did not include the purchase of any tangible assets or leasehold interests.
100 In December 1990, the receiver was approached by the management of Canadian Partner (operated by OEL) for the purpose of evaluating the benefits of an amalgamated Air Toronto/Air Partner operation. The negotiations continued from December of 1990 to February of 1991, culminating in the OEL agreement dated March 8, 1991.
101 On or before December 1990, CCFL advised the receiver that it intended to make a bid for the Air Toronto assets. The receiver, in August of 1990, for the purpose of facilitating the sale of Air Toronto assets, commenced the preparation of an operating memorandum. He prepared no less than six draft operating memoranda with dates from October 1990 through March 1, 1991. None of these were distributed to any prospective bidder despite requests having been received therefor, with the exception of an early draft provided to CCFL without the receiver's knowledge.
102 During the period December 1990 to the end of January 1991, the receiver advised CCFL that the offering memorandum was in the process of being prepared and would be ready soon for distribution. He further advised CCFL that it should await the receipt of the memorandum before submitting a formal offer to purchase the Air Toronto assets.
103 By late January, CCFL had become aware that the receiver was negotiating with OEL for the sale of Air Toronto. In fact, on February 11, 1991, the receiver signed a letter of intent with OEL wherein it had specifically agreed not to negotiate with any other potential bidders or solicit any offers from others.
104 By letter dated February 25, 1991, the solicitors for CCFL made a written request to the receiver for the offering memorandum. The receiver did not reply to the letter because he felt he was precluded from so doing by the provisions of the letter of intent dated February 11, 1991. Other prospective purchasers were also unsuccessful in obtaining the promised memorandum to assist them in preparing their bids. It should be noted that, exclusivity provision of the letter of intent expired on February 20, 1991. This provision was extended on three occasions, viz., February 19, 22 and March 5, 1991. It is clear that from a legal standpoint the receiver, by refusing to extend the time, could have dealt with other prospective purchasers, and specifically with 922.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 16 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0065 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...
105 It was not until March 1, 1991, that CCFL had obtained sufficient information to enable it to make a bid through 922. It succeeded in so doing through its own efforts through sources other than the receiver. By that time the receiver had already entered into the letter of intent with OEL. Notwithstanding the fact that the receiver knew since December of 1990 that CCFL wished to make a bid for the assets of Air Toronto (and there is no evidence to suggest that at that time such a bid would be in conjunction with Air Canada or that Air Canada was in any way connected with CCFL), it took no steps to provide CCFL with information necessary to enable it to make an intelligent bid, and indeed suggested delaying the making of the bid until an offering memorandum had been prepared and provided. In the meantime, by entering into the letter of intent with OEL, it put itself in a position where it could not negotiate with CCFL or provide the information requested.
106 On February 28, 1991, the solicitors for CCFL telephoned the receiver and were advised for the first time that the receiver had made a business decision to negotiate solely with OEL and would not negotiate with anyone else in the interim.
107 By letter dated March 1, 1991, CCFL advised the receiver that it intended to submit a bid. It set forth the essential terms of the bid and stated that it would be subject to customary commercial provisions. On March 7, 1991 CCFL and Air Canada, jointly through 922, submitted an offer to purchase Air Toronto upon the terms set forth in the letter dated March 1, 1991. It included a provision that the offer was conditional upon the interpretation of an inter-lender agreement which set out the relative distribution of proceeds as between CCFL and the Royal Bank. It is common ground that it was a condition over which the receiver had no control, and accordingly would not have been acceptable on that ground alone. The receiver did not, however, contact CCFL in order to negotiate or request the removal of the condition, although it appears that its agreement with OEL not to negotiate with any person other than OEL expired on March 6, 1991.
108 The fact of the matter is that by March 7, 1991, the receiver had received the offer from OEL which was subsequently approved by Rosenberg J. That offer was accepted by the receiver on March 8, 1991. Notwithstanding the fact that OEL had been negotiating the purchase for a period of approximately 3 months, the offer contained a provision for the sole benefit of the purchaser that it was subject to the purchaser obtaining "a financing commitment within 45 days of the date hereof in an amount not less than the Purchase Price from the Royal Bank of Canada or other financial institution upon terms and conditions acceptable to them. In the event that such a financing commitment is not obtained within such 45 day period, the purchaser or OEL shall have the right to terminate this agreement upon giving written notice of termination to the vendor on the first Business Day following the expiry of the said period." The purchaser was also given the right to waive the condition.
109 In effect, the agreement was tantamount to a 45-day option to purchase, excluding the right of any other person to purchase Air Toronto during that period of time and thereafter if the condition was fulfilled or waived. The agreement was, of course, stated to be subject to court approval.
110 In my opinion, the process and procedure adopted by the receiver was unfair to CCFL. Although it was aware from December 1990 that CCFL was interested in making an offer, it effectively delayed the making of such offer by continually referring to the preparation of the offering memorandum. It did not endeavour during the period December 1990 to March 7, 1991, to negotiate with CCFL in any way the possible terms of purchase and sale agreement. In the result, no offer was sought from CCFL by the receiver prior to February 11, 1991, and thereafter it put itself in the position of being unable to negotiate with anyone other than OEL. The receiver then, on March 8, 1991, chose to accept an offer which was conditional in nature without prior consultation with CCFL (922) to see whether it was prepared to remove the condition in its offer.
111 I do not doubt that the receiver felt that it was more likely that the condition in the OEL offer would be fulfilled than the condition in the 922 offer. It may be that the receiver, having negotiated for a period of 3 months with OEL, was fearful that it might lose the offer if OEL discovered that it was negotiating with another person. Nevertheless, it seems to me that it was imprudent and unfair on the part of the receiver to ignore an offer from an interested party which offered approximately triple the cash down payment without giving a chance to the offeror to remove the conditions or other terms which made the offer unacceptable to it. The potential loss was that of an agreement which amounted to little more than an option in favour of the offeror.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 17 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0066 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...
112 In my opinion the procedure adopted by the receiver was unfair to CCFL in that, in effect, it gave OEL the opportunity of engaging in exclusive negotiations for a period of 3 months, notwithstanding the fact that it knew CCFL was interested in making an offer. The receiver did not indicate a deadline by which offers were to be submitted, and it did not at any time indicate the structure or nature of an offer which might be acceptable to it.
113 In his reasons, Rosenberg J. stated that as of March 1, CCFL and Air Canada had all the information that they needed, and any allegations of unfairness in the negotiating process by the receiver had disappeared. He said:
They created a situation as of March 8, where the receiver was faced with two offers, one of which was acceptable in form and one of which could not possibly be accepted in its present form. The Receiver acted appropriately in accepting the OEL offer.
If he meant by "acceptable in form" that it was acceptable to the receiver, then obviously OEL had the unfair advantage of its lengthy negotiations with the receiver to ascertain what kind of an offer would be acceptable to the receiver. If, on the other hand, he meant that the 922 offer was unacceptable in its form because it was conditional, it can hardly be said that the OEL offer was more acceptable in this regard, as it contained a condition with respect to financing terms and conditions "acceptable to them ."
114 It should be noted that on March 13, 1991, the representatives of 922 first met with the receiver to review its offer of March 7, 1991, and at the request of the receiver, withdrew the inter-lender condition from its offer. On March 14, 1991, OEL removed the financing condition from its offer. By order of Rosenberg J. dated March 26, 1991, CCFL was given until April 5, 1991, to submit a bid, and on April 5, 1991, 922 submitted its offer with the inter-lender condition removed.
115 In my opinion, the offer accepted by the receiver is improvident and unfair insofar as the two creditors are concerned. It is not improvident in the sense that the price offered by 922 greatly exceeded that offered by OEL. In the final analysis it may not be greater at all. The salient fact is that the cash down payment in the 922 offer con stitutes proximately two thirds of the contemplated sale price, whereas the cash down payment in the OEL transaction constitutes approximately 20 to 25 per cent of the contemplated sale price. In terms of absolute dollars, the down payment in the 922 offer would likely exceed that provided for in the OEL agreement by approximately $3 million to $4 million.
116 In Re Beauty Counsellors of Canada Ltd. , supra, Saunders J. said at p. 243 [C.B.R.]:
If a substantially higher bid turns up at the approval stage, the court should consider it. Such a bid may indicate, for example, that the trustee has not properly carried out its duty to endeavour to obtain the best price for the estate. In such a case the proper course might be to refuse approval and to ask the trustee to recommence the process.
117 I accept that statement as being an accurate statement of the law. I would add, however, as previously indicated, that in determining what is the best price for the estate, the receiver or court should not limit its consideration to which offer provides for the greater sale price. The amount of down payment and the provision or lack thereof to secure payment of the balance of the purchase price over and above the down payment may be the most important factor to be considered, and I am of the view that is so in the present case. It is clear that that was the view of the only creditors who can benefit from the sale of Air Toronto.
118 I note that in the case at bar the 922 offer in conditional form was presented to the receiver before it accepted the OEL offer. The receiver, in good faith, although I believe mistakenly, decided that the OEL offer was the better offer. At that time the receiver did not have the benefit of the views of the two secured creditors in that regard. At the time of the application for approval before Rosenberg J., the stated preference of the two interested creditors was made quite clear. He found as fact that knowledgeable creditors would not be anxious to rely on contingencies in the present circumstances surrounding the airline industry. It is reasonable to expect that a receiver would be no less knowledgeable in that regard, and it is his primary duty to protect the interests of the creditors. In my view, it was an improvident act on the part of the receiver to have accepted the conditional offer made by OEL, and Rosenberg J. erred in failing to dismiss the application of the receiver for approval of the OEL offer. It would be most inequitable to foist upon the two creditors, who have already been seriously hurt, more unnecessary contingencies.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 18 Royal Bank v. Soundair Corp., 1991 CarswellOnt 205 0067 1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321...
119 Although in other circumstances it might be appropriate to ask the receiver to recommence the process, in my opinion, it would not be appropriate to do so in this case. The only two interested creditors support the acceptance of the 922 offer, and the court should so order.
120 Although I would be prepared to dispose of the case on the grounds stated above, some comment should be addressed to the question of interference by the court with the process and procedure adopted by the receiver.
121 I am in agreement with the view expressed by McKinlay J.A. in her reasons that the undertaking being sold in this case was of a very special and unusual nature. As a result, the procedure adopted by the receiver was somewhat unusual. At the outset, in accordance with the terms of the receiving order, it dealt solely with Air Canada. It then appears that the receiver contemplated a sale of the assets by way of auction, and still later contemplated the preparation and distribution of an offering memorandum inviting bids. At some point, without advice to CCFL, it abandoned that idea and reverted to exclusive negotiations with one interested party. This entire process is not one which is customary or widely accepted as a general practice in the commercial world. It was somewhat unique, having regard to the circumstances of this case. In my opinion, the refusal of the court to approve the offer accepted by the receiver would not reflect on the integrity of procedures followed by court- appointed receivers, and is not the type of refusal which will have a tendency to undermine the future confidence of business persons in dealing with receivers.
122 Rosenberg J. stated that the Royal Bank was aware of the process used and tacitly approved it. He said it knew the terms of the letter of intent in February 1991, and made no comment. The Royal Bank did, however, indicate to the receiver that it was not satisfied with the contemplated price, nor the amount of the down payment. It did not, however, tell the receiver to adopt a different process in endeavouring to sell the Air Toronto assets. It is not clear from the material filed that at the time it became aware of the letter of intent that it knew that CCFl was interested in purchasing Air Toronto.
123 I am further of the opinion that a prospective purchaser who has been given an opportunity to engage in exclusive negotiations with a receiver for relatively short periods of time which are extended from time to time by the receiver, and who then makes a conditional offer, the condition of which is for his sole benefit and must be fulfilled to his satisfaction unless waived by him, and which he knows is to be subject to court approval, cannot legitimately claim to have been unfairly dealt with if the court refuses to approve the offer and approves a substantially better one.
124 In conclusion, I feel that I must comment on the statement made by Galligan J.A. in his reasons to the effect that the suggestion made by counsel for 922 constitutes evidence of lack of prejudice resulting from the absence of an offering memorandum. It should be pointed out that the court invited counsel to indicate the manner in which the problem should be resolved in the event that the court concluded that the order approving the OEL offer should be set aside. There was no evidence before the court with respect to what additional information may have been acquired by CCFL since March 8, 1991, and no inquiry was made in that regard. Accordingly, I am of the view that no adverse inference should be drawn from the proposal made as a result of the court's invitation.
125 For the above reasons I would allow the appeal one set of costs to CCFL-922, set aside the order of Rosenberg J., dismiss the receiver's motion with one set of costs to CCFL-922 and order that the assets of Air Toronto be sold to numbered corporation 922246 on the terms set forth in its offer with appropriate adjustments to provide for the delay in its execution. Costs awarded shall be payable out of the estate of Soundair Corporation. The costs incurred by the receiver in making the application and responding to the appeal shall be paid to him out of the assets of the estate of Soundair Corporation on a solicitor-client basis. I would make no order as to costs of any of the other parties or intervenors. Appeal dismissed.
End of Document Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 19 0068
TAB 3 0069
0070 Alberta Rules of Court Rule 14.53
Subdivision 5 Format of Applications and Responses
Format of applications 14.53 An application to a single appeal judge or a panel of the Court of Appeal must be in Form AP-3 and must (a) state briefly the grounds for filing the application, (b) identify the material or evidence intended to be relied on, (c) refer precisely to any applicable provision of an enactment or rule, and (d) state the remedy sought. AR 41/2014 s4
Format of memorandum 14.54 A memorandum filed on an application (a) must be formatted in the same manner as a factum under rule 14.26(1) [Format of factums], (b) must not be longer than (i) 10 double-spaced pages for an application for permission to appeal, or (ii) 5 double-spaced pages for any other application, (c) may in addition attach a chronology, where that is relevant to the application, and (d) in an application for permission to appeal, must (i) include a copy of the reasons for the decision proposed to be appealed, and (ii) state the exact questions of law on which permission to appeal is requested. AR 41/2014 s4;85/2016;36/2020
Division 5 Managing the Appeal Process
Subdivision 1 Responsibilities of the Parties and Court Assistance
Responsibility of parties to manage an appeal 14.55(1) The parties to an appeal are responsible for managing the appeal and for planning its resolution in a timely and cost-effective way.
Part 14: Appeals 14–30 September, 2020 0071
TAB 4 Downing Street Financial Inc. v. Harmony Village-Sheppard Inc., 2017 ONCA 611, 2017... 0072 2017 ONCA 611, 2017 CarswellOnt 11087, 281 A.C.W.S. (3d) 19, 49 C.B.R. (6th) 173
2017 ONCA 611 Ontario Court of Appeal
Downing Street Financial Inc. v. Harmony Village-Sheppard Inc.
2017 CarswellOnt 11087, 2017 ONCA 611, 281 A.C.W.S. (3d) 19, 49 C.B.R. (6th) 173
Downing Street Financial Inc., in Trust (Applicant / Respondent in Appeal) and Harmony Village-Sheppard Inc., as General Partner of Harmony Village-Sheppard LP, and City Core Developments Inc. (Respondents / Respondents in Appeal)
M. Tulloch J.A., In Chambers
Heard: June 29, 2017 Judgment: June 29, 2017 Written reasons: July 20, 2017 Docket: CA M48044 (C63937)
Counsel: David P. Preger, Michael J. Brzezinski, for Moving Party, Court-appointed Receiver, Rosen Goldberg Inc. Barbara Green, for Responding Parties, Fortress Shepard (2016) Inc., Fortress Real Developments and Derek Sorrenti Raymond M. Slattery, for Responding Party, Purchasers Mitchell Wine, for Responding Party, Jozef Zubrzycki Sean Zweig, for Responding Party, Successful Bidders David T. Ullmann, for Responding Party, Downing Street Financial Inc., in Trust
Subject: Civil Practice and Procedure; Estates and Trusts; Insolvency Related Abridgment Classifications Bankruptcy and insolvency XIV Administration of estate XIV.6 Sale of assets XIV.6.g Procedure on opposition to sale Headnote Bankruptcy and insolvency --- Administration of estate — Sale of assets — Procedure on opposition to sale Receiver was appointed to administer estate of bankrupt real estate developer which had been developing residential condo project — Successful bidder on receiver's stalking horse sale process, F Inc., repudiated bid which would have required it to assume agreements of purchase and sale with condo purchasers and would have seen highest-ranking secured creditor of project, D Inc., paid in full — Motions judge approved receiver's sale of subject property to P Inc. — F Inc. appealed under s. 193 of Bankruptcy and Insolvency Act without seeking leave — Receiver brought motion for order dismissing appeal — Motion granted — Section 193(c) did not grant F Inc. right to appeal as order did not result in loss or gain in relevant sense — P Inc.'s deposit was higher, was entirely in cash, and was supported by D Inc. — F Inc.'s offer would not have involved assuming unit purchasers' contracts — Nor did F Inc. show basis arguable case that receiver could have obtained better deal than P Inc.'s. Table of Authorities Cases considered by M. Tulloch J.A., In Chambers: Business Development Bank of Canada v. Pine Tree Resorts Inc. (2013), 2013 ONCA 282, 2013 CarswellOnt 5026, 100 C.B.R. (5th) 91, 115 O.R. (3d) 617, 307 O.A.C. 1 (Ont. C.A.) — considered Enroute Imports Inc., Re (2016), 2016 ONCA 247, 2016 CarswellOnt 5045, 35 C.B.R. (6th) 1 (Ont. C.A.) — referred to Royal Bank v. Soundair Corp. (1991), 7 C.B.R. (3d) 1, 83 D.L.R. (4th) 76, 46 O.A.C. 321, 4 O.R. (3d) 1, 1991 CarswellOnt 205 (Ont. C.A.) — followed
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 1 Downing Street Financial Inc. v. Harmony Village-Sheppard Inc., 2017 ONCA 611, 2017... 0073 2017 ONCA 611, 2017 CarswellOnt 11087, 281 A.C.W.S. (3d) 19, 49 C.B.R. (6th) 173
2403177 Ontario Inc. v. Bending Lake Iron Group Ltd. (2016), 2016 ONCA 225, 2016 CarswellOnt 4553, 35 C.B.R. (6th) 102, 396 D.L.R. (4th) 635, 347 O.A.C. 226 (Ont. C.A.) — considered Statutes considered: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 Generally — referred to
s. 193(a)-193(d) — referred to
s. 193(c) — considered
s. 193(e) — considered Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 s. 13 — considered Rules considered: Bankruptcy and Insolvency General Rules, C.R.C. 1978, c. 368 R. 31 — considered
MOTION by receiver for order dismissing bidder's appeal of order approving sale of bankrupt's property to another.
M. Tulloch J.A., In Chambers (orally):
A. INTRODUCTION
1 The moving party on this motion was Rosen Goldberg Inc., the receiver in the underlying insolvency proceedings (the "Receiver"). The Debtor is Harmony Village-Sheppard LP. The responding parties on the motion were Fortress Shepard (2016) Inc., Fortress Real Developments and Derek Sorrenti (collectively, "Fortress").
2 The Receiver's purpose in bringing this motion was to defeat Fortress' appeal from a court order approving an asset sale (the "Approval Order") and thereby to secure that sale, for which the closing date was June 30, 2017. Fortress had filed a Notice of Appeal in this court, dated June 21, 2017, in which it had sought to appeal the Approval Order, asserting that this court had jurisdiction solely based on s. 193(c) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the "BIA").
3 I heard the motion on June 29, 2017, and, given its urgency, I granted the motion orally and notified the parties that written reasons would follow. These are my written reasons.
B. BACKGROUND
(1) The Property and the Stakeholders
4 Before its insolvency proceedings, the Debtor had been developing some real estate in Toronto (the "Property") as a residential condominium project, marketed to seniors. At the time of the Receiver's appointment, the Debtor had pre-sold 223 units in this project to various purchasers (the "Unit Purchasers"), although construction had not yet begun.
5 The Property is subject to three encumbrances. Downing Street Financial Inc. ("DSFI") holds the first in priority, securing payment of approximately $20 million. The second in priority, held by JYR Capital Mortgage Investment Corp. and Li Ruixia as tenants in common, secures payment of approximately $1,395,000. The third encumbrance is a syndicated mortgage involving 542 investors. According to Fortress, Sorrenti and a related company are the trustees of this syndicated mortgage.
(2) The Approval Order
6 The Superior Court judge who reviewed the sale (the "motions judge") made the Approval Order on June 19, 2017, and issued a brief endorsement on the same date. The Approval Order, granted in response to a motion by the Receiver, approved the Receiver's sale of the Property to Pinnacle International One Lands Inc. ("Pinnacle").
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 2 Downing Street Financial Inc. v. Harmony Village-Sheppard Inc., 2017 ONCA 611, 2017... 0074 2017 ONCA 611, 2017 CarswellOnt 11087, 281 A.C.W.S. (3d) 19, 49 C.B.R. (6th) 173
7 The sale to Pinnacle was the culmination of a court-approved sale process under the Receiver's supervision in which Pinnacle and Fortress had competed for the Property.
(3) The "Stalking Horse Bid"
8 Pursuant to the Receiver's appointment order, dated January 20, 2017, the Receiver conducted a "stalking horse" sale process, in which a sale agreement between the Receiver and Fortress would constitute the "stalking horse bid" (the "Stalking Horse Bid"). The Stalking Horse Bid would have required Fortress to assume the Debtor's agreements of purchase and sale with the Unit Purchasers. The Stalking Horse Bid also was a credit bid. On closing, the first mortgagee, DSFI, would have been paid in full, while the purchaser would have assumed the existing debt secured under the second and third charges.
9 The Receiver and Fortress each provided different explanations for why Fortress repudiated the Stalking Horse Bid. However, the parties agreed in their submissions that, beyond the deal discussed in the next paragraph, the "stalking horse" process did not attract any offers for the Property.
10 According to Fortress, Fortress always had intended to find a developer to build the condo project, and it ultimately had negotiated a sale of the Property to Pinnacle (the "Pinnacle-Fortress APS"). The Pinnacle-Fortress APS required Pinnacle to assume the terms of the Stalking Horse Bid. Fortress advised the Receiver of its deal with Pinnacle, and the Receiver acquiesced on the condition that the sale price of the Pinnacle-Fortress APS would not exceed the Stalking Horse Bid's sale price, so that Fortress' intermediary role would not cost the Debtor's estate any value.
11 However, in Fortress' narrative, the Stalking Horse Bid failed because, on April 4, 2017, only three days before the court-approval hearing for the Pinnacle-Fortress APS, Pinnacle informed Fortress that it no longer was willing to assume the contracts with the Unit Purchasers. Fortress informed the Receiver of this problem, and the Receiver refused to save the deal by amending the requirements of the Stalking Horse Bid.
12 In the Receiver's version, Fortress told the Receiver on April 6, 2017, the day before the hearing to approve the Pinnacle- Fortress APS, that Fortress would not complete the purchase of the Property pursuant to the Stalking Horse Bid because Fortress no longer was willing to assume the Unit Purchasers' contracts.
(4) Subsequent Offers and Negotiations
13 According to the Receiver, its subsequent efforts produced three offers for the Property. One of them, from an offeror whom the Receiver does not identify, which involved a price that the Receiver found unacceptably low. The other two offers were from Fortress and from Pinnacle, respectively. Fortress' offer, dated April 13, 2017, involved the same price as the Stalking Horse Bid and similar financial terms. The important differences were that Fortress would not assume the contracts with the Unit Purchasers, but that Fortress' deposit would be slightly higher. Pinnacle communicated its offer to the Receiver several days later. The Receiver accepted Pinnacle's offer on May 2, 2017, and informed Fortress of this acceptance on May 3, 2017.
14 The Receiver asserts that it had legitimate concerns regarding Fortress' financial capacity. The Receiver's motion record includes some e-mail correspondence raising such concerns. The correspondence suggests that Fortress was unwilling to provide a deposit large enough to satisfy the Receiver.
(5) Fortress' Opposition to Pinnacle's Offer
15 Fortress advised the Receiver on April 28, 2017 that it would oppose any deal between the Receiver and Pinnacle. Fortress alleged that Pinnacle had improperly exploited its earlier negotiations with Fortress to develop its own direct offer to the Receiver.
16 On June 16, 2017, several days before the scheduled hearing of the Receiver's motion for approval of Pinnacle's bid, Fortress submitted to the Receiver a new, third, offer to purchase the Property. This offer relied on a financing commitment from another party, MarshallZehr, to cover the cash component of Fortress' offer, all closing costs, and the costs of the financing.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 3 Downing Street Financial Inc. v. Harmony Village-Sheppard Inc., 2017 ONCA 611, 2017... 0075 2017 ONCA 611, 2017 CarswellOnt 11087, 281 A.C.W.S. (3d) 19, 49 C.B.R. (6th) 173
During the hearing of this motion, counsel for Fortress conceded that the Receiver had correctly identified several conditions of the MarshallZehr financing that would limit Fortress' ability to obtain additional financing from other parties. However, counsel for Fortress asserted that such formal conditions would not be a practical obstacle to the Fortress offer's feasibility.
C. FORTRESS' APPEAL
17 After the granting of the Approval Order on June 19, 2017, Fortress filed a Notice of Appeal in this court, dated June 21, 2017. The relief that Fortress seeks from this court is the following: an order setting aside the Approval Order, and an order directing the Receiver to accept Fortress' June 16, 2017 offer that would also serve as an approval and vesting order for a sale on that offer's terms.
18 Based on the Notice of Appeal and Fortress' submissions on this motion, the essence of Fortress' planned argument on appeal would seem to be that the motions judge did not apply the right legal test when making the Approval Order; his brief endorsement said that he approved Pinnacle's bid because it was "the best offer to purchase the Property from the point of view of the majority of stakeholders." In oral argument for this motion, counsel for Fortress suggested that this language in the motions judge's endorsement demonstrates that the motions judge did not correctly apply the relevant principles from Royal Bank v. Soundair Corp. (1991), 4 O.R. (3d) 1 (Ont. C.A.).
19 The Notice of Appeal relies only on s. 193(c) of the BIA in support of this court's jurisdiction to hear the Appeal. Fortress explicitly disclaims reliance on s. 193(e), the provision for leave to appeal, by asserting in the Notice that it does not require leave to appeal. Rule 31 of the Bankruptcy and Insolvency General Rules, C.R.C., c. 368, precludes reliance by an appellant on s. 193(e) of the BIA when that appellant's Notice of Appeal does not include the relevant application for leave to appeal. Therefore, jurisdiction pursuant to s. 193(e) is unavailable in this case.
20 Fortress chose to rely exclusively on s. 193(c) despite the clear direction in recent case law in favour of narrow construal of the rights to appeal in ss. 193(a) to (d) of the BIA: Enroute Imports Inc., Re, 2016 ONCA 247, 35 C.B.R. (6th) 1 (Ont. C.A.), at para. 5. As Brown J.A. explained in his chambers decision in 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 225, 396 D.L.R. (4th) 635 (Ont. C.A.), at paras. 50-53, these automatic rights of appeal create disharmony between the Companies Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the "CCAA") and the BIA because s. 13 of the CCAA imposes a leave requirement for all appeals from orders made under that statute. Therefore, the goal of regulatory harmony between these two major insolvency statutes favours narrow construal of the BIA's automatic rights of appeal. This jurisprudential context, along with Fortress' strategic decision not to seek leave to appeal, informed my decision on s. 193(c).
D. ANALYSIS
(1) Subsection 193(c) of the BIA
21 Subsection 193(c) of the BIA provides a right to appeal to the Court of Appeal "if the property involved in the appeal exceeds in value ten thousand dollars". As Blair J.A., in chambers, noted in Business Development Bank of Canada v. Pine Tree Resorts Inc., 2013 ONCA 282, 115 O.R. (3d) 617 (Ont. C.A.), at para. 17, a narrow construal of "property involved in the appeal" is necessary because otherwise the low quantum of this automatic right to appeal would make s. 193(e) practically redundant.
22 In Bending Lake, at para. 53, Brown J.A., summarizing prior case law, identified three kinds of order from which s. 193(c) would not grant a right to appeal: (i) orders that are procedural in nature; (ii) orders that do not bring into play the value of the debtor's property; and (iii) orders that do not result in a loss. I will consider only the third category because doing so will suffice to resolve the s. 193(c) analysis.
(2) Does the Approval Order "Result in a Loss?"
23 As Brown J.A. explained at para. 61 of Bending Lake, for an order to "result in a loss" in the relevant sense, "the order in question must contain some element of a final determination of the economic interests of a claimant in the debtor."
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 4 Downing Street Financial Inc. v. Harmony Village-Sheppard Inc., 2017 ONCA 611, 2017... 0076 2017 ONCA 611, 2017 CarswellOnt 11087, 281 A.C.W.S. (3d) 19, 49 C.B.R. (6th) 173
24 Fortress is correct that, in Bending Lake, Brown J.A. relied on the fact that there was no competing bid for the disputed property, as well as the fact that there was an absence of any valuation of the debtor's estate in the record before the motions judge: Bending Lake, at paras. 63-66. In contrast, in this case, there were competing bids with different purchase prices.
25 Nevertheless, I do not accept that the Approval Order "resulted in a loss" in the relevant sense.
26 Although some of the factors on which Brown J.A. relied do not apply in this case, these distinctions do not defeat the broader reasoning of Bending Lake. I quote from para. 64 of Bending Lake at length:
The determination of whether "the property involved in the appeal exceeds ten thousand dollars" is a fact-specific one. In order to bring itself within s. 193(c), the [appellant] must do more than make a bald allegation of improvident sale. This is real-time insolvency litigation in which delays in the proceeding can prejudice the amounts fetched by a receiver on the realization process. The [appellant] must demonstrate some basis in the evidentiary record considered by the motion judge that the property involved in the appeal would exceed in value $10,000, in the sense that the granting of the Approval and Vesting Order resulted in a loss of more than $10,000 because the Receiver could have obtained a higher sales price for the Debtor's property. Bald assertion is not sufficient, otherwise a mere bald allegation of improvident sale in a notice of appeal could result in an automatic stay of a sale approval order under BIA s. 195 as the appellant pursues its appeal. [Emphasis added.]
27 I focus here on the requirement for "some basis in the evidentiary record" to support an assertion that the impugned sale would cause a loss to the Debtor's estate, as opposed to a "bald assertion" to that effect. In its submissions before me, the primary basis for Fortress' assertion that the impugned order might "result in a loss" is the fact that the nominal purchase price in Fortress' offer was higher than the nominal purchase price in Pinnacle's offer.
28 The passage that I have quoted from Bending Lake casts the issue as whether "the Receiver could have obtained a higher sales price for the Debtor's property." However, given the diversity among financing structures for commercial sale agreements, I do not think that I betray the spirit of Brown J.A.'s reasons by reading his comments to contemplate a more substantive assessment of competing offers than a mere comparison of formal prices.
29 On this motion, Pinnacle presented compelling evidence to suggest that the practical value of its offer exceeded that of Fortress' offer.
30 First, the deposit in Pinnacle's offer was much higher than the deposit in Fortress' offer. This factor gains salience from the correspondence that demonstrates that, during the sale process, Fortress resisted the Receiver's demands to increase the deposit in its offer substantially.
31 Second, the Pinnacle offer was entirely in cash, whereas only approximately 40% of the Fortress offer was in cash. Fortress planned to fund the rest of its offer through credit. This factor gains salience from the structure of the Debtor's pre-existing secured debt. Fortress explains in its submissions that Fortress (more specifically, Sorrenti), along with a related company, is trustee for the 542 investors who collectively hold the beneficial interest in the Debtor's third encumbrance, a syndicated mortgage. Fortress further submits that its ordinary business is in "real estate consulting and arranging financing for real estate development projects". Fortress' submissions before me did not assuage the concern that the effect of the Fortress offer, if accepted, would have been to allow Fortress to preserve its business interest in the Property as a development project at the risk of providing less recovery for other creditors, including the investors for whom Sorrenti acts as trustee. Indeed, Fortress explained in its submissions that it entered into a Joint Venture Agreement with another firm in the hope, based on "anticipated profits", of providing full repayment of the second and third mortgages on the Property.
32 Third, Fortress conceded in its submissions that its offer would not have involved assuming the Unit Purchasers' contracts. Instead, it promised a "friends and family VIP event" for the Unit Purchasers and opportunities for first access and special pricing. This concession undermines Fortress' assertion that the Stalking Horse Bid would have succeeded had it not been for Pinnacle's refusal to assume the Unit Purchasers' contracts.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 5 Downing Street Financial Inc. v. Harmony Village-Sheppard Inc., 2017 ONCA 611, 2017... 0077 2017 ONCA 611, 2017 CarswellOnt 11087, 281 A.C.W.S. (3d) 19, 49 C.B.R. (6th) 173
33 Fourth, the Receiver's Report states that the highest-ranking secured creditor, DSFI, supported Pinnacle's bid over Fortress', despite the fact that both offers purported to provide full recovery to DSFI.
34 Fifth, Fortress does not dispute the Receiver's assertions that the "stalking horse" process attracted no bidders other than Fortress and Pinnacle and that the Receiver's subsequent efforts procured only one other offeror, who offered a price that was unacceptably low and that caused concern that the market's valuation of the Property might be much lower than Pinnacle's.
35 Although Fortress' argument for the application of s. 193(c) is slightly more plausible than that of the appellant in Bending Lake, Fortress has not demonstrated a sufficient basis in the record that was before the motions judge for me to conclude that there is an arguable case that the Receiver could have obtained a better deal than Pinnacle's.
36 Therefore, s. 193(c) did not grant a right of appeal to Fortress because the impugned order did not "result in a loss or gain" in the relevant sense.
(3) Leave to Appeal (s. 193(e))
37 As I noted earlier in these reasons, Fortress did not meet the procedural requirements for consideration of an application for leave to appeal. Therefore, what follows is obiter dicta. However, since both parties made alternative submissions on s. 193(e), I will address the issue briefly.
38 Although leave to appeal pursuant to s. 193(e) is discretionary and "must be exercised in a flexible and contextual way", the prevailing considerations are whether the proposed appeal:
(i) raises an issue of general importance to the practice in insolvency matters or the administration of justice as a whole;
(ii) Is it prima facie meritorious; and
(iii) Would it unduly hinder the progress of the insolvency proceedings: Enroute, at para. 7.
39 I will address the second criterion, i.e., the prima facie merit, first. As I mentioned above, the Notice of Appeal and Fortress' submissions on this motion suggested that the primary ground for Fortress' appeal was that the motions judge applied the law incorrectly when he approved Pinnacle's bid because it was "the best offer to purchase the Property from the point of view of the majority of stakeholders."
40 The allegation was that the motions judge misapplied the criteria from Soundair for judicial review of a receiver's sale of property. Soundair, at p. 6, identifies four duties of a judge reviewing a receiver's sale. Those duties are to:
(1) "consider whether the receiver has made sufficient effort to get the best price and has not acted improvidently";
(2) "consider the interests of all parties";
(3) "consider the efficacy and integrity of the process by which offers are obtained"; and
(4) "consider whether there has been unfairness in the working out of the process." [Emphasis added.]
Furthermore, at p. 7, Soundair prescribes a deferential standard of review in this court.
41 Given this framework and the facts of the sale process that I summarized above, the argument that the motions judge misinterpreted or misapplied the Soundair test is implausible. The motions judge's comment that the Pinnacle offer was best "from the point of view of the majority of stakeholders" does not indicate a failure to have considered Fortress' interests. Therefore, the appeal was prima facie meritless.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 6 Downing Street Financial Inc. v. Harmony Village-Sheppard Inc., 2017 ONCA 611, 2017... 0078 2017 ONCA 611, 2017 CarswellOnt 11087, 281 A.C.W.S. (3d) 19, 49 C.B.R. (6th) 173
42 I will address the other factors more briefly. This appeal did not raise any issue of general importance to insolvency practice or the broader administration of justice; it was a fact-specific dispute about the propriety of a receiver's sale. Additionally, given the difficulty that the Receiver had faced in finding prospective purchasers other than Pinnacle and Fortress, a hearing of the appeal probably would have unduly hindered the Debtor's insolvency proceedings.
E. DISPOSITION
43 These are my reasons for my granting of the Receiver's motion on June 29, 2017. The Receiver did not seek an order for costs of the motion. Motion granted; appeal dismissed.
End of Document Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 7 0079
TAB 5 Crate Marine Sales Ltd., Re, 2016 ONCA 140, 2016 CarswellOnt 2491 0080 2016 ONCA 140, 2016 CarswellOnt 2491, 264 A.C.W.S. (3d) 27, 33 C.B.R. (6th) 169
2016 ONCA 140 Ontario Court of Appeal
Crate Marine Sales Ltd., Re
2016 CarswellOnt 2491, 2016 ONCA 140, 264 A.C.W.S. (3d) 27, 33 C.B.R. (6th) 169
In the Matter of the Receivership of Crate Marine Sales Limited F.S. Crate & Sons Limited, 1330732 Ontario Limited, 1328559 Ontario Limited, 1282648 Ontario Ltd., and 1382416 Ontario Ltd.
C.W. Hourigan J.A., In Chambers
Heard: February 18, 2016 Judgment: February 22, 2016 Docket: CA M46103, C61243
Counsel: Harvey G. Chaiton, Doug Bourassa, for Moving Party, Crawmet Corp. James P. McReynolds, for Appellant, 2124915 Ontario Inc. R. Brendan Bissell, for Receiver, A Farber & Partners Inc.
Subject: Civil Practice and Procedure; Insolvency Related Abridgment Classifications Bankruptcy and insolvency XX Miscellaneous Headnote Bankruptcy and insolvency --- Miscellaneous Parties were involved in bankruptcy proceedings — Debtor's motion for order that receiver occupied marina property at issue in proceedings was dismissed — Debtor sought to appeal — Hearing held regarding need for leave — Leave not required, appeal to proceed without requiring leave — Central to appeal was issue of liability for fixed sum far in excess of $10,000 — Threshold issue was whether value of property involved in appeal exceeded ten thousand dollars, as if it did not leave was required under s. 193(c) of Bankruptcy and Insolvency Act — Right of appeal is to be narrowly construed and property must be involved directly — Appeal was only of decision that receiver did not occupy marina, and there was no appeal from contingent finding regarding occupation rent — If appeal was successful and receiver was liable for occupation rent, amount in question was final without further recourse to court action. Table of Authorities Cases considered by C.W. Hourigan J.A., In Chambers: Business Development Bank of Canada v. Pine Tree Resorts Inc. (2013), 2013 ONCA 282, 2013 CarswellOnt 5026, 100 C.B.R. (5th) 91, 115 O.R. (3d) 617, 307 O.A.C. 1 (Ont. C.A.) — considered Dominion Foundry Co., Re (1965), 8 C.B.R. (N.S.) 74, 51 W.W.R. 679, 52 D.L.R. (2d) 79, 1965 CarswellMan 7 (Man. C.A.) — referred to Ontario Wealth Management Corp. v. Sica Masonry and General Contracting Ltd. (2014), 2014 ONCA 500, 2014 CarswellOnt 8586, 17 C.B.R. (6th) 91, 323 O.A.C. 101, 37 C.L.R. (4th) 191 (Ont. C.A.) — considered Robson, Re (2002), 2002 CarswellOnt 1052, 33 C.B.R. (4th) 86 (Ont. C.A. [In Chambers]) — considered Statutes considered: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 s. 193(c) — considered
s. 193(e) — considered
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 1 Crate Marine Sales Ltd., Re, 2016 ONCA 140, 2016 CarswellOnt 2491 0081 2016 ONCA 140, 2016 CarswellOnt 2491, 264 A.C.W.S. (3d) 27, 33 C.B.R. (6th) 169
s. 195 — considered
HEARING regarding leave in bankruptcy proceedings.
C.W. Hourigan J.A., In Chambers:
1 At issue on this motion is whether the appellant requires leave to appeal the order of Justice Penny, dated October 14, 2015, pursuant to s. 193(e) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the "BIA") or if it has an automatic right of appeal pursuant to s. 193(c) of the BIA. The appellant submits that it has an automatic right of appeal. Crawmet Corp., the moving party, submits that leave is required.
2 The appellant's motion below sought a declaration that the receiver occupied Lagoon City Marina for a specified period and sought an order that the receiver pay occupation rent in the amount of $319,016.
3 The motion was dismissed. The motion judge held that the receiver did not occupy the marina. He further held that if occupation rent were owing, it should be valued at $319,016, less whatever the receiver paid for utilities.
4 On appeal, the threshold question that arises is whether under s. 193(c) of the BIA "the property involved in the appeal exceeds in value ten thousand dollars". If it does not then leave is required under s. 193(c).
5 There have been a number of cases from this court that have established the parameters for the interpretation of s. 193(c): see e.g., Robson, Re [2002 CarswellOnt 1052 (Ont. C.A. [In Chambers])], 2002 CanLII 53241, Business Development Bank of Canada v. Pine Tree Resorts Inc., 2013 ONCA 282 (Ont. C.A.), and Ontario Wealth Management Corp. v. Sica Masonry and General Contracting Ltd., 2014 ONCA 500 (Ont. C.A.). See also Dominion Foundry Co., Re (1965), 8 C.B.R. (N.S.) 74 (Man. C.A.).
6 Two principles emerge from this case law:
(i) given the broad nature of the stay imposed by s. 195 of the BIA, the right of appeal without leave under s. 93(c) must be clearly applicable. In other words, it must be narrowly construed; and
(ii) the appeal must directly involve property exceeding $10,000 in value.
7 The moving party relies on the above-noted cases in support of its submission that leave is required. However, when the cases are reviewed carefully it is clear that in each case the appeals did not directly involve property exceeding $10,000 in value.
8 For example, in Robson the appeal was from a procedural order (i.e., a dismissal of a motion declaring an action a nullity and beyond the jurisdiction of the Bankruptcy Court). In Ontario Wealth Management Corporation the issue was not about the payment of money, but a question of priorities. In Business Development Bank of Canada the issue was the appointment of a receiver.
9 In my view, these cases are distinguishable from the present case. Here the appeal is only of the decision of the motion judge that the receiver did not occupy the marina. There is no appeal taken from the finding that if occupation rent is owing then the proper amount payable is $319,016.00 less utility costs. Therefore, if the appeal is successful and the receiver is liable for occupation rent, then the amount in question is final without further recourse to court action.
10 This is not a situation, like in the cases cited by the moving party, where the property is secondary to the appeal. To the contrary, central to this appeal is the issue of liability for a fixed sum far in excess of $10,000. I find that property with a value in excess of $10,000 is directly involved on this appeal. Accordingly, I would dismiss the motion and order that the appeal proceed without the requirement of leave of this court. The respondents shall have until March 18, 2016 to file their factum.
11 Costs of the motion inclusive of fees, disbursements and applicable taxes are payable to the appellant by the moving party in the amount of $2,500 within 30 days.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 2 Crate Marine Sales Ltd., Re, 2016 ONCA 140, 2016 CarswellOnt 2491 0082 2016 ONCA 140, 2016 CarswellOnt 2491, 264 A.C.W.S. (3d) 27, 33 C.B.R. (6th) 169
Order accordingly.
End of Document Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 3 0083
TAB 6 Business Development Bank of Canada v. Pine Tree..., 2013 ONCA 282, 2013... 0084 2013 ONCA 282, 2013 CarswellOnt 5026, [2013] O.J. No. 1918, 100 C.B.R. (5th) 91...
Most Negative Treatment: Check subsequent history and related treatments. 2013 ONCA 282 Ontario Court of Appeal [In Chambers]
Business Development Bank of Canada v. Pine Tree Resorts Inc.
2013 CarswellOnt 5026, 2013 ONCA 282, [2013] O.J. No. 1918, 100 C.B.R. (5th) 91, 115 O.R. (3d) 617, 227 A.C.W.S. (3d) 611, 307 O.A.C. 1
Business Development Bank of Canada Applicant (Respondent) and Pine Tree Resorts Inc. and 1212360 Ontario Limited Respondents (Appellants)
R.A. Blair J.A., In Chambers
Heard: April 22, 2013 Judgment: April 29, 2013 Docket: CA M42401, M42383, M42395 (C56856)
Proceedings: refused leave to appeal Business Development Bank of Canada v. Pine Tree Resorts Inc. (2013), 2013 CarswellOnt 12749 ((Ont. S.C.J. [Commercial List]))
Counsel: Milton A. Davis for Appellants, Pine Tree Resorts Inc., 1212360 Ontario Limited David Preger for Appellant, Romspen Investment Corporation Harvey Chaiton for Respondent, Business Development Bank of Canada
Subject: Civil Practice and Procedure; Insolvency; Corporate and Commercial; Property Related Abridgment Classifications Bankruptcy and insolvency XVII Practice and procedure in courts XVII.7 Appeals XVII.7.b To Court of Appeal XVII.7.b.ii Availability XVII.7.b.ii.C Leave by judge Headnote Bankruptcy and insolvency --- Practice and procedure in courts — Appeals — To Court of Appeal — Availability — Leave by judge Respondent P Inc. owned and operated hotel — Business development bank (applicant) was owed approx. $2.6 million by P Inc., and held first security for that indebtedness by way of mortgage on hotel lands and general security agreements over land and chattels — Second mortgage was also in default, and second mortgagee was owed approx. $4.2 million — Applicant brought successful application for appointment of receiver over assets of respondents — P Inc. and second mortgagee brought motion for leave, if required, to appeal — Motion dismissed — There was no automatic right to appeal from order appointing receiver, and leave was required — Neither s. 193(a) nor (c) of Bankruptcy and Insolvency Act applied in circumstances — This was not appropriate case in which to grant leave — P Inc. and second mortgagee raised number of grounds relating to exercise of application judge's discretion which were entitled to deference and were purely factual and case specific and not of general significance — There were serious reservations about likelihood of success on appeal with respect to legal issue raised — Success on appeal would require creative interpretation of s. 22 of Mortgages Act, one that would potentially create element of uncertainty in field of mortgage enforcement — Serious reservations about merits, together with need for timely sale process, led to conclusion that leave ought not be granted — As such, receivership order was not to be stayed. Table of Authorities Cases considered by R.A. Blair J.A., In Chambers:
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 1 Business Development Bank of Canada v. Pine Tree..., 2013 ONCA 282, 2013... 0085 2013 ONCA 282, 2013 CarswellOnt 5026, [2013] O.J. No. 1918, 100 C.B.R. (5th) 91...
Alternative Fuel Systems Inc. v. Edo (Canada) Ltd. (Trustee of) (1997), 48 C.B.R. (3d) 171, (sub nom. Edo (Canada) Ltd. (Bankrupt), Re) 206 A.R. 295, 1997 CarswellAlta 737, (sub nom. Edo (Canada) Ltd. (Bankrupt), Re) 156 W.A.C. 295 (Alta. C.A. [In Chambers]) — referred to Baker, Re (1995), 1995 CarswellOnt 58, 31 C.B.R. (3d) 184, (sub nom. Baker (Bankrupt), Re) 83 O.A.C. 351, 22 O.R. (3d) 376 (Ont. C.A. [In Chambers]) — considered Blue Range Resource Corp., Re (1999), 244 A.R. 103, 209 W.A.C. 103, 1999 CarswellAlta 809, 12 C.B.R. (4th) 186, 1999 ABCA 255 (Alta. C.A.) — referred to Country Style Food Services Inc., Re (2002), 158 O.A.C. 30, 2002 CarswellOnt 1038 (Ont. C.A. [In Chambers]) — referred to Ditchburn Boats & Aircraft (1936) Ltd., Re (1938), [1938] O.W.N. 241, 1938 CarswellOnt 74, 19 C.B.R. 240, [1938] 3 D.L.R. 751 (Ont. C.A.) — referred to Dominion Foundry Co., Re (1965), 1965 CarswellMan 7, 8 C.B.R. (N.S.) 74, 51 W.W.R. 679, 52 D.L.R. (2d) 79 (Man. C.A.) — considered Fiber Connections Inc. v. SVCM Capital Ltd. (2005), 2005 CarswellOnt 1834, 10 C.B.R. (5th) 201, 198 O.A.C. 27 (Ont. C.A. [In Chambers]) — considered GMAC Commercial Credit Corp. - Canada v. TCT Logistics Inc. (2003), 2003 CarswellOnt 6652 (Ont. C.A. [In Chambers]) — considered Leard, Re (1994), 25 C.B.R. (3d) 210, 114 D.L.R. (4th) 135, (sub nom. Leard (Bankrupt), Re) 71 O.A.C. 56, 1994 CarswellOnt 274 (Ont. C.A.) — referred to Power Consolidated (China) Pulp Inc. v. British Columbia Resources Investment Corp. (1988), 19 C.P.C. (3d) 396, 1988 CarswellBC 615 (B.C. C.A.) — followed R.J. Nicol Homes Ltd. (Trustee of) v. Nicol (1995), 30 C.B.R. (3d) 90, 77 O.A.C. 395, 1995 CarswellOnt 42 (Ont. C.A.) — followed Ravelston Corp., Re (2005), 24 C.B.R. (5th) 256, 2005 CarswellOnt 9058 (Ont. C.A.) — referred to Theodore Daniels Ltd. v. Income Trust Co. (1982), 135 D.L.R. (3d) 76, 25 R.P.R. 97, 1982 CarswellOnt 659, 37 O.R. (2d) 316 (Ont. C.A.) — referred to Statutes considered: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 Generally — referred to
s. 193 — considered
s. 193(a) — considered
s. 193(c) — considered
s. 193(e) — considered Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 Generally — referred to Mortgages Act, R.S.O. 1990, c. M.40 s. 22 — considered
s. 22(1) — considered Words and phrases considered: future rights
The portions of s. 193 of the BIA [Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3] relied upon by [the second mortgagee and one of the respondents] are the following:
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 2 Business Development Bank of Canada v. Pine Tree..., 2013 ONCA 282, 2013... 0086 2013 ONCA 282, 2013 CarswellOnt 5026, [2013] O.J. No. 1918, 100 C.B.R. (5th) 91...
Unless otherwise expressly provided, an appeal lies to the Court of Appeal from any order or decision of a judge of the court in the following cases:
(a) if the point at issue involves future rights;
. . .
(c) if the property involved in the appeal exceeds in value ten thousand dollars;
. . .
(e) in any other case by leave of a judge of the Court of Appeal.
. . . . .
"Future rights" are future legal rights, not procedural rights or commercial advantages or disadvantages that may accrue from the order challenged on appeal. They do not include rights that presently exist but that may be exercised in the future: see Ravelston Corp., Re, [2005] O.J. No. 5351 (Ont. C.A.), at para. 17. See also Ditchburn Boats & Aircraft (1936) Ltd., Re (1938), 19 C.B.R. 240 (Ont. C.A.); Dominion Foundry Co., Re (1965), 52 D.L.R. (2d) 79 (Man. C.A.); and Fiber Connections Inc. v. SVCM Capital Ltd. (2005), 10 C.B.R. (5th) 201 (Ont. C.A. [In Chambers]).
MOTION for leave to appeal from granting of receivership order.
R.A. Blair J.A., In Chambers:
Overview
1 On April 2, 2013, Justice Mesbur granted the application of Business Development Bank of Canada ("BDC") for the appointment of a receiver over the assets of the respondents, Pine Tree Resorts Inc. and 1212360 Ontario Limited (together, "Pine Tree"). Pine Tree owns and operates the Delawana Inn in Honey Harbour, Ontario.
2 Pine Tree and the second mortgagee, Romspen Investment Corporation ("Romspen"), seek to appeal from Mesbur J.'s order. At the heart of this motion is whether the order should be stayed pending the appeal if there is an appeal. Collateral issues include whether the appeal is as of right under s. 193 of the Bankruptcy Act, R.S.C. 1985, c. B-3 ("BIA"). If the answer to that question is yes, should the automatic stay be lifted? If leave to appeal is required, should it be granted and, if so, should the order be stayed pending the disposition of the appeal?
3 For the reasons that follow, I conclude that the appeal is not as of right, that leave to appeal is required and that in the circumstances here leave ought not to be granted. It is therefore unnecessary to deal with the specific question of whether a stay should be ordered pending appeal.
Background and Facts
4 BDC is owed approximately $2.6 million by Pine Tree and holds first security for that indebtedness by way of a mortgage on the Delawana Inn lands and, additionally, by way of general security agreements covering both land and chattels. Romspen is the second mortgagee. Its mortgage, too, is in default. Romspen is owed approximately $4.3 million.
5 The Inn has been in financial difficulties for several years and finally, after a number of negotiated extensions and forbearances, BDC demanded payment under both the mortgage and the general security agreements.
6 Under its security documents, BDC is contractually entitled to the appointment of a receiver. Instead of appointing a private receiver, however, BDC chose to apply for a court-appointed receiver. Romspen chose to initiate power of sale proceedings but,
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 3 Business Development Bank of Canada v. Pine Tree..., 2013 ONCA 282, 2013... 0087 2013 ONCA 282, 2013 CarswellOnt 5026, [2013] O.J. No. 1918, 100 C.B.R. (5th) 91... at the time the order was made, was not in a position to proceed with the sale because three days remained under the period prescribed in the Notice of Power of Sale for redemption.
7 Pine Tree and Romspen opposed BDC's application. That said, all parties agree the property must be sold immediately. Pine Tree does not have the financial ability to keep the Inn operating. In essence, the dispute is over which secured creditor will have control over the sale of the property and which plan for sale will be implemented.
8 Pine Tree supports Romspen's plan because it involves re-opening the Inn for the upcoming summer season and attempting to sell the property on a going concern basis. BDC rejects this option as unrealistic because it views the Inn's operations as being an irretrievably losing proposition.
9 Romspen argued before the application judge — and argues here as well — that it was entitled to exercise its rights as a subsequent mortgagee under s. 22 of the Mortgages Act, R.S.O. 1990, c. M.40, to put BDC's mortgage in good standing and take over the sale of the property. It proposes to put the mortgage in good standing by paying all arrears of principal and interest, together with all of BDC's costs, expenses, and outstanding realty taxes. However, it does not propose to repay approximately $250,000 in HST arrears. Those arrears constitute a default under the BDC security documents.
10 In seeking to appeal the order, Romspen and Pine Tree assert a number of grounds relating to the exercise of the application judge's discretion in granting the receivership order, but the centre piece of their legal argument on appeal concerns the exercise of a subsequent mortgagee's rights under s. 22 of the Mortgages Act. They submit that the arrears of HST do not jeopardize BDC's security in any way because they are a subsequent encumbrance, and therefore it is not necessary for them to comply with that covenant in order to be able to take advantage of a subsequent mortgagee's rights under s. 22. Whether that view is correct is the question of law they wish to have determined on appeal.
11 On behalf of BDC, Mr. Chaiton submits that there is nothing in s. 22 that permits a subsequent mortgagee to exercise its s. 22 rights unless it brings the prior mortgage into good standing, which involves both paying the amount due under the mortgage and — where there are unperformed covenants — performing those covenants as well.
Is Leave to Appeal Necessary?
12 In my view, there is no automatic right to appeal from an order appointing a receiver: see Century Services Inc. v. Brooklin Concrete Products Inc. (11 March 2005), Court File No. M32275 (Ont. C.A., in Chambers), Catzman J.A.; Alternative Fuel Systems Inc. v. Edo (Canada) Ltd. (Trustee of) (1997), 206 A.R. 295 (Alta. C.A. [In Chambers]).
13 The portions of s. 193 of the BIA relied upon by Romspen and Pine Tree are the following:
Unless otherwise expressly provided, an appeal lies to the Court of Appeal from any order or decision of a judge of the court in the following cases:
(a) if the point at issue involves future rights;
. . .
(c) if the property involved in the appeal exceeds in value ten thousand dollars;
. . .
(e) in any other case by leave of a judge of the Court of Appeal.
14 Neither (a) nor (c) applies in these circumstances, in my view. I will address whether leave to appeal should be granted later in these reasons.
15 "Future rights" are future legal rights, not procedural rights or commercial advantages or disadvantages that may accrue from the order challenged on appeal. They do not include rights that presently exist but that may be exercised in the future: see
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 4 Business Development Bank of Canada v. Pine Tree..., 2013 ONCA 282, 2013... 0088 2013 ONCA 282, 2013 CarswellOnt 5026, [2013] O.J. No. 1918, 100 C.B.R. (5th) 91...
Ravelston Corp., Re, [2005] O.J. No. 5351 (Ont. C.A.), at para. 17. See also Ditchburn Boats & Aircraft (1936) Ltd., Re (1938), 19 C.B.R. 240 (Ont. C.A.); Dominion Foundry Co., Re (1965), 52 D.L.R. (2d) 79 (Man. C.A.); and Fiber Connections Inc. v. SVCM Capital Ltd. (2005), 10 C.B.R. (5th) 201 (Ont. C.A. [In Chambers]).
16 Here, Romspen's legal rights are its right to exercise its power of sale remedy and its right to put the first mortgage in good standing under s. 22 of the Mortgages Act. The first crystallized on the default under the Romspen mortgage, the second on the default under the BDC mortgage. Both rights were therefore triggered before the order of Mesbur J. They were at best rights presently existing but exercisable in the future.
17 Nor do I accept the argument that the property in the appeal exceeds in value $10,000 for purposes of s. 193(c). As noted by the Manitoba Court of Appeal in Dominion Foundry Co., Re, at para. 7, to allow an appeal as of right in these circumstances would require doing so in almost every case because very few bankruptcy cases would go to appeal where the value of the bankrupt's property did not exceed that amount. More importantly, though, an order appointing a receiver does not bring into play the value of the property; it simply appoints an officer of the court to preserve and monetize those assets, subject to court approval.
18 In my view, leave to appeal is required in the circumstances of this case.
Should Leave to Appeal Be Granted?
The Test
19 In Fiber Connections Inc., Armstrong J.A. (in Chambers) reviewed extensively the jurisprudence surrounding the test to be applied for granting leave to appeal under s. 193(e). As he noted at para. 15, there is some confusion as to what that test is. Two articulations of the test have emerged, and each has its support in the case law.
20 One formulation is that set out by McLachlin J.A. (as she then was) in Power Consolidated (China) Pulp Inc. v. British Columbia Resources Investment Corp. (1988), 19 C.P.C. (3d) 396 (B.C. C.A.). It asks the following questions:
(i) Is the point appealed of significance to the practice as a whole?
(ii) Is the point raised of significance in the action itself?
(iii) Is the appeal prima facie meritorious?
(iv) Will the appeal unduly hinder the progress of the action?
21 These are the criteria generally applied when considering whether to grant leave to appeal from orders made in restructuring proceedings under the Companies' Creditors Arrangement Act R.S.C. 1985, c. C-36 ("CCAA"), although their application has not been confined to those types of cases.
22 A second approach to the test was adopted by Goodman J.A. in R.J. Nicol Homes Ltd. (Trustee of) v. Nicol, [1995] O.J. No. 48 (Ont. C.A.), at para. 6. Through this lens, the court is to determine whether the decision from which leave to appeal is sought (a) appears to be contrary to law; (b) amounts to an abuse of judicial power; or (c) involves an obvious error, causing prejudice for which there is no remedy.
23 Ontario decisions have traditionally leaned toward the R.J. Nicol factors when determining whether to grant leave to appeal under s. 193(e) of the BIA: see, in addition to R.J. Nicol Homes Ltd. (Trustee of), for example, Leard, Re (1994), 114 D.L.R. (4th) 135 (Ont. C.A.); and Century Services Inc.
24 This view has evolved in recent years, however, and three decisions in particular have added nuances to the R.J. Nicol Homes Ltd. (Trustee of) approach by considering such factors as whether there is an arguable case for appeal and whether the issues sought to be raised are significant to the bankruptcy practice in general and ought to be addressed by this Court: see Fiber
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 5 Business Development Bank of Canada v. Pine Tree..., 2013 ONCA 282, 2013... 0089 2013 ONCA 282, 2013 CarswellOnt 5026, [2013] O.J. No. 1918, 100 C.B.R. (5th) 91...
Connections Inc., at paras. 16-20; GMAC Commercial Credit Corp. - Canada v. TCT Logistics Inc., [2003] O.J. No. 5761 (Ont. C.A. [In Chambers]); and Baker, Re (1995), 22 O.R. (3d) 376 (Ont. C.A. [In Chambers]). These factors echo the criteria set out in Power Consolidated (China) Pulp Inc..
25 In Baker, Re, Osborne J.A. acknowledged the two alternative approaches to determining whether leave to appeal should be granted. He concluded at p. 381 that the R.J. Nicol Homes Ltd. (Trustee of) criteria were "generally relevant" but observed that all factors need not be given equal weight in every case. For that particular case, he emphasized the factor that the issue sought to be appealed was "a matter of considerable general importance in bankruptcy practice". In TCT Logistics Inc., at para. 9, Feldman J.A. listed all of the R.J. Nicol Homes Ltd. (Trustee of) and the Power Consolidated (China) Pulp Inc. criteria — without apparently distinguishing between them — as matters to be taken into account. She granted leave holding that the issues in that case were significant to the commercial practice regulating bankruptcy and receivership and ought to be considered by this court.
26 Finally, in Fiber Connections Inc., Armstrong J.A. reviewed all of the foregoing authorities and, at para. 20, granted leave to appeal because he was satisfied in that case that there were arguable grounds of appeal (although it was not necessary for him to determine whether the appeal would succeed) and because the issues raised were significant to bankruptcy practice and ought to be considered by this Court.
27 I take from this brief review of the jurisprudence that, while judges of this Court have tended to favour the R.J. Nicol Homes Ltd. (Trustee of) test in the past, there has been a movement towards a more expansive and flexible approach more recently — one that incorporates the Power Consolidated (China) Pulp Inc. notions of overall importance to the practice area in question or the administration of justice as well as some consideration of the merits.
28 That being the case, it is perhaps time to attempt to clarify the "confusion" that arises from the co-existence of the two streams of criteria in the jurisprudence. I would adopt the following approach.
29 Beginning with the overriding proposition that the exercise of granting leave to appeal under s. 193(e) is discretionary and must be exercised in a flexible and contextual way, the following are the prevailing considerations in my view. The court will look to whether the proposed appeal,
a) raises an issue that is of general importance to the practice in bankruptcy/insolvency matters or to the administration of justice as a whole, and is one that this Court should therefore consider and address;
b) is prima facie meritorious, and
c) would unduly hinder the progress of the bankruptcy/insolvency proceedings.
30 It is apparent these considerations bear close resemblance to the Power Consolidated (China) Pulp Inc. factors. One is missing: the question whether the point raised is of significance to the action itself. I would not rule out the application of that consideration altogether. It may be, for example, that in some circumstances the parties will need to have an issue determined on appeal as a step toward dealing with other aspects of the bankruptcy/insolvency proceeding. However, it seems to me that this particular consideration is likely to be of lesser assistance in the leave to appeal context because most proposed appeals to this Court raise issues that are important to the action itself, or at least to one of the parties in the action, and if that consideration were to prevail there would be an appeal in almost every case.
31 I have not referred specifically to the three R.J. Nicol Homes Ltd. (Trustee of) criteria in the factors mentioned above. That is because those factors are caught by the "prima facie meritorious" criterion in one way or another. A proposed appeal in which the judgment or order under attack (a) appears to be contrary to law, (b) amounts to an abuse of judicial power, or (c) involves an obvious error causing prejudice for which there is no remedy, will be a proposed appeal that is prima facie meritorious. I recognize that the Power Consolidated (China) Pulp Inc. "prima facie meritorious" criterion is different than the "arguable point" notion referred to by Osborne J.A. in Baker, Re and by Armstrong J.A. in Fiber Connections Inc.. In my view,
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 6 Business Development Bank of Canada v. Pine Tree..., 2013 ONCA 282, 2013... 0090 2013 ONCA 282, 2013 CarswellOnt 5026, [2013] O.J. No. 1918, 100 C.B.R. (5th) 91... however, the somewhat higher standard of a prima facie meritorious case on appeal is more in keeping with the incorporation of the R.J. Nicol Homes Ltd. (Trustee of) factors into the test.
32 As I have explained above, however, the jurisprudence has evolved to a point where the test for leave to appeal is not simply merit-based. It requires a consideration of all of the factors outlined above.
33 The Power Consolidated (China) Pulp Inc. criteria are the criteria applied by this Court in determining whether leave to appeal should be granted in restructuring cases under the CCAA: see Country Style Food Services Inc., Re, [2002] O.J. No. 1377 (Ont. C.A. [In Chambers]), Feldman J.A., at para 15; and Blue Range Resource Corp., Re (1999), 244 A.R. 103 (Alta. C.A.). The criteria I propose are quite similar. There is something to be said for having similar tests for leave to appeal in both CCAA and BIA insolvency proceedings. Proposed appeals in each area often arise from discretionary decisions made by judges attuned to the particular dynamics of the proceeding. Those decisions are entitled to considerable deference. In addition, both types of appeal often involve circumstances where delays inherent in appellate review can have an adverse effect on those proceedings.
Application of the Test in the Circumstances
34 I am not prepared to grant leave to appeal on the basis of the foregoing criteria in the circumstances of this case.
35 First, Romspen and Pine Tree raise a number of grounds relating to the exercise of the application judge's discretion. These include her consideration and treatment of: the relative expenses involved in BDC's and Romspen's plans for the sale of the property; the impact of shutting down the Inn on employees and others and upon the potential sale prospects of the property; and her concern for "the usual unsecured creditors". These discretionary considerations are all entitled to great deference and, in any event, are purely factual and case specific, and do not give rise to any matters of general significance to the practice in bankruptcy/insolvency matters or to the administration of justice as a whole.
36 I would not grant leave to appeal on those grounds.
37 The legal issue raised by Romspen is this: did the application judge err by relying on a covenant default that could not prejudice BDC or erode its firstranking security as the basis for her conclusion that Romspen had not complied with the requirements for the exercise of a subsequent mortgagee's rights under s. 22 of the Mortgages Act? The basis for that submission is the argument that the outstanding HST arrears — although a default in the observance of a covenant under the BDC mortgage — could not in any circumstances constitute a claim that would have priority over BDC's security, and therefore Romspen, as a subsequent mortgagee, is not required to cure the default by performing that covenant in order to be able to exercise its s. 22 rights.
38 I have serious reservations about the likelihood of success of this submission on appeal.
39 Romspen relies upon the jurisprudence of this Court establishing that a mortgagor — and therefore, a subsequent mortgagee — is entitled as of right, upon tendering the arrears or performing the covenant in default, to be relieved of the consequence of default: see Theodore Daniels Ltd. v. Income Trust Co. (1982), 37 O.R. (2d) 316 (Ont. C.A.). The problem is that Romspen has not offered to put the BDC mortgage in good standing, but has only offered to do so partially. It proposes to leave unperformed a $250,000 covenant — payment of the outstanding HST arrears.
40 For Romspen to succeed on appeal would require a very creative interpretation of s. 22 of the Mortgages Act 1 , and one that would potentially create an undesirable element of uncertainty in the field of mortgage enforcement, because no one would know which covenants could be left unperformed and which could not, without litigating the issue in each case.
41 I am not persuaded that the s. 22 point crosses the prima facie meritorious threshold. In any event, given my serious reservations about the merits, that factor together with the need for a timely sale process leads me to conclude that leave to appeal ought not to be granted.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 7 Business Development Bank of Canada v. Pine Tree..., 2013 ONCA 282, 2013... 0091 2013 ONCA 282, 2013 CarswellOnt 5026, [2013] O.J. No. 1918, 100 C.B.R. (5th) 91...
42 Interfering with the timeliness of that process could potentially impact on the success of the sale. All parties agree the property must be sold. They only differ over who will conduct the sale and how it will be done. The application judge considered the alternative plans at length, and her decision to accept the BDC plan was not dependent on her rejection of Romspen's s. 22 argument.
43 There is some need for the sale to proceed expeditiously. The experienced application judge chose between BDC's and Romspen's two proposals and favoured that of BDC. Any further delay resulting from an appeal could well impact the potential sale, since the Inn is a seasonal business that only operates in the warm months of the year and those warm months are fast approaching.
44 For the foregoing reasons, I decline to grant leave to appeal.
Disposition
45 There is no appeal as of right from the receivership order granted by Mesbur J. under s. 193 of the BIA. Leave to appeal is required, but Romspen and Pine Tree have not met the test for leave to be granted in these circumstances. The motions of Romspen and Pine Tree are therefore dismissed. It follows that the receivership order is not stayed and that BDC's motion, to the extent it is necessary to deal with it, is successful.
46 No order as to costs is required, since I am advised that BDC is entitled to add the costs of this proceeding to its debt under the mortgage. Motion dismissed.
Footnotes 1 Section 22(1) provides: Despite any agreement to the contrary, where default has occurred in making any payment of principal or interest due under a mortgage or in the observance of any covenant in a mortgage and under the terms of the mortgage, by reason of such default, the whole principal and interest secured thereby has become due and payable, (a) at any time before sale under the mortgage: or
(b) before the commencement of an action for the enforcement of the rights of the mortgagee or of any person claiming through or under the mortgagee,
the mortgagor may perform such covenant or pay the amount due under the mortgage, exclusive of the money not payable by reason merely of lapse of time, and pay any expenses necessarily incurred by the mortgagee, and thereupon the mortgagor is relieved from the consequences of such default.
[Emphasis added] It is not disputed that a subsequent mortgagee is a "mortgagor" for purposes of this provision.
End of Document Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 8 0092
TAB 7 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 225, 2016... 0093 2016 ONCA 225, 2016 CarswellOnt 4553, 264 A.C.W.S. (3d) 26, 347 O.A.C. 226...
Most Negative Treatment: Check subsequent history and related treatments. 2016 ONCA 225 Ontario Court of Appeal
2403177 Ontario Inc. v. Bending Lake Iron Group Ltd.
2016 CarswellOnt 4553, 2016 ONCA 225, 264 A.C.W.S. (3d) 26, 347 O.A.C. 226, 35 C.B.R. (6th) 102, 396 D.L.R. (4th) 635
2403177 Ontario Inc., Applicant (Respondent/Responding Party) and Bending Lake Iron Group Limited, Respondent (Appellant/Responding Party)
David Brown J.A., In Chambers
Heard: March 8, 2016 Judgment: March 22, 2016 Docket: CA M46061 (C61637)
Counsel: Kenneth Kraft, for Moving Party, A. Farber & Partners Inc. Robert MacRae, for Responding Party, Bending Lake Iron Group Limited
Subject: Civil Practice and Procedure; Insolvency Related Abridgment Classifications Bankruptcy and insolvency XVII Practice and procedure in courts XVII.7 Appeals XVII.7.b To Court of Appeal XVII.7.b.ii Availability XVII.7.b.ii.A Future rights Headnote Bankruptcy and insolvency --- Practice and procedure in courts — Appeals — To Court of Appeal — Availability — Future rights Debtor went into receivership with one major asset, undeveloped iron ore mine site, and consented to Sales and Investor Solicitation Process — Debtor opposed receiver's motion for court approval of asset purchase agreement with LH and sought postponement of sale — Motion judge approved sale and ordered vesting of property in LH upon filing of receiver's certificate — Debtor filed notice of appeal — Debtor did not perfect appeal within required time, and LH would not close sale agreement until debtor exhausted appeals — Receiver brought motion for declaration that debtor required leave to appeal — Motion granted — Issue was whether approval and vesting order (AVO) fell under s. 193 of Bankruptcy and Insolvency Act or if debtor required leave — Receiver submitted AVO was matter of procedure not falling within s. 193(c) — For order to involve future rights, it must involve future rights of those with economic interest in debtor company and there was no evidence that any affected Aboriginal community had such an interest — AVO affected present, existing rights of debtor's creditors and shareholders, not future rights — Debtor did not raise issue about receiver's constitutional duty to consult until appeal — Debtor's argument that sale process should be postponed to let shareholders re-finance company did not bring into play value of property — Debtor's secured lenders supported sale agreement, notwithstanding they would suffer significant shortfall — Debtor required leave to appeal AVO. Table of Authorities Cases considered by David Brown J.A., In Chambers: Alternative Fuel Systems Inc. v. Edo (Canada) Ltd. (Trustee of) (1997), 1997 CarswellAlta 737, 48 C.B.R. (3d) 171, (sub nom. Edo (Canada) Ltd. (Bankrupt), Re) 206 A.R. 295, (sub nom. Edo (Canada) Ltd. (Bankrupt), Re) 156 W.A.C. 295, 1997 ABCA 273 (Alta. C.A. [In Chambers]) — considered
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 1 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 225, 2016... 0094 2016 ONCA 225, 2016 CarswellOnt 4553, 264 A.C.W.S. (3d) 26, 347 O.A.C. 226...
Bell ExpressVu Ltd. Partnership v. Rex (2002), 2002 SCC 42, 2002 CarswellBC 851, 2002 CarswellBC 852, 100 B.C.L.R. (3d) 1, [2002] 5 W.W.R. 1, 212 D.L.R. (4th) 1, 287 N.R. 248, 18 C.P.R. (4th) 289, 166 B.C.A.C. 1, 271 W.A.C. 1, 93 C.R.R. (2d) 189, [2002] 2 S.C.R. 559, 2002 CSC 42 (S.C.C.) — referred to Business Development Bank of Canada v. Pine Tree Resorts Inc. (2013), 2013 ONCA 282, 2013 CarswellOnt 5026, 100 C.B.R. (5th) 91, 115 O.R. (3d) 617, 307 O.A.C. 1 (Ont. C.A.) — considered Clarke v. Union Fire Insurance Co. (1886), 13 O.A.R. 268 (Ont. C.A.) — referred to Ditchburn Boats & Aircraft (1936) Ltd., Re (1938), 19 C.B.R. 240, [1938] 3 D.L.R. 751, [1938] O.W.N. 241, 1938 CarswellOnt 74 (Ont. C.A.) — considered Dominion Foundry Co., Re (1965), 8 C.B.R. (N.S.) 74, 51 W.W.R. 679, 52 D.L.R. (2d) 79, 1965 CarswellMan 7 (Man. C.A.) — referred to Elias v. Hutchison (1981), 14 Alta. L.R. (2d) 268, 37 C.B.R. (N.S.) 149, 27 A.R. 1, (sub nom. Catalina Exploration & Development Ltd., Re) 121 D.L.R. (3d) 95, 1981 CarswellAlta 183 (Alta. C.A.) — considered Galaxy Sports Inc. v. Galaxy Sports Inc. (Trustee of) (2003), 2003 BCCA 322, 2003 CarswellBC 1305, (sub nom. Galaxy Sports Inc. (Bankrupt), Re) 183 B.C.A.C. 192, (sub nom. Galaxy Sports Inc. (Bankrupt), Re) 301 W.A.C. 192, 44 C.B.R. (4th) 218 (B.C. C.A. [In Chambers]) — referred to Global Royalties Ltd. v. Brook (2016), 2016 ONCA 50, 2016 CarswellOnt 517, 33 C.B.R. (6th) 1 (Ont. C.A.) — referred to Kaiman v. Graham (2009), 2009 ONCA 77, 2009 CarswellOnt 378, 75 R.P.R. (4th) 157, 45 E.T.R. (3d) 163, (sub nom. Kaiman Estate v. Graham Estate) 245 O.A.C. 130 (Ont. C.A.) — referred to Kern Agencies Ltd., Re (1931), 12 C.B.R. 279, [1931] 1 W.W.R. 629, [1931] 2 D.L.R. 614, 1931 CarswellSask 2 (Sask. C.A.) — considered Moulton Contracting Ltd. v. British Columbia (2013), 2013 SCC 26, 2013 CarswellBC 1158, 2013 CarswellBC 1159, 357 D.L.R. (4th) 236, 43 B.C.L.R. (5th) 1, [2013] 7 W.W.R. 1, 443 N.R. 303, (sub nom. Behn v. Moulton Contracting Ltd.) [2013] 3 C.N.L.R. 125, 333 B.C.A.C. 34, 571 W.A.C. 34, (sub nom. Behn v. Moulton Contracting Ltd.) [2013] 2 S.C.R. 227 (S.C.C.) — considered Newfoundland & Labrador Refining Corp. v. IJK Consortium (2009), 2009 NLCA 23, 2009 CarswellNfld 76, 52 C.B.R. (5th) 8, 284 Nfld. & P.E.I.R. 53, 875 A.P.R. 53 (N.L. C.A.) — referred to Norbourg Gestion d'actifs inc., Re (2006), 2006 CarswellQue 4985, 33 C.B.R. (5th) 144, 2006 QCCA 752 (C.A. Que.) — considered Perez v. Salvation Army in Canada (1998), 1998 CarswellOnt 4750, (sub nom. Perez v. Salvation Army) 115 O.A.C. 328, (sub nom. Perez (Litigation Guardian of) v. Salvation Army in Canada) 42 O.R. (3d) 229, (sub nom. Perez (Litigation Guardian of) v. Salvation Army in Canada (Governing Council)) 171 D.L.R. (4th) 520, 28 C.P.C. (4th) 11, 58 C.R.R. (2d) 320, 72 O.T.C. 80 (Ont. C.A.) — referred to Ravelston Corp., Re (2005), 2005 CarswellOnt 9058, 24 C.B.R. (5th) 256 (Ont. C.A.) — considered Rizzo & Rizzo Shoes Ltd., Re (1998), 1998 CarswellOnt 1, 1998 CarswellOnt 2, 154 D.L.R. (4th) 193, 36 O.R. (3d) 418 (headnote only), (sub nom. Rizzo & Rizzo Shoes Ltd. (Bankrupt), Re) 221 N.R. 241, (sub nom. Adrien v. Ontario Ministry of Labour) 98 C.L.L.C. 210-006, 50 C.B.R. (3d) 163, (sub nom. Rizzo & Rizzo Shoes Ltd. (Bankrupt), Re) 106 O.A.C. 1, [1998] 1 S.C.R. 27, 33 C.C.E.L. (2d) 173 (S.C.C.) — referred to Royal Bank v. Soundair Corp. (1991), 7 C.B.R. (3d) 1, 83 D.L.R. (4th) 76, 46 O.A.C. 321, 4 O.R. (3d) 1, 1991 CarswellOnt 205 (Ont. C.A.) — considered Stelco Inc., Re (2005), 2005 CarswellOnt 829, 8 C.B.R. (5th) 150, 195 O.A.C. 74 (Ont. C.A. [In Chambers]) — referred to Trimor Mortgage Investment Corp. v. Fox (2015), 2015 ABCA 44, 2015 CarswellAlta 121, 26 Alta. L.R. (6th) 291 (Alta. C.A.) — considered United Fuel Investments Ltd., Re (1962), [1962] S.C.R. 771, (sub nom. Fallis v. United Fuel Investments Ltd.) 4 C.B.R. (N.S.) 209, (sub nom. Fallis v. United Fuel Investments Ltd.) 34 D.L.R. (2d) 175, 1962 CarswellOnt 54 (S.C.C.) — considered Wong v. Luu (2013), 2013 BCCA 547, 2013 CarswellBC 3824, [2014] 4 W.W.R. 504, 10 C.B.R. (6th) 318, 55 B.C.L.R. (5th) 129, (sub nom. Luu (Bankrupt), Re) 348 B.C.A.C. 155, (sub nom. Luu (Bankrupt), Re) 595 W.A.C. 155 (B.C. C.A.) — referred to
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 2 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 225, 2016... 0095 2016 ONCA 225, 2016 CarswellOnt 4553, 264 A.C.W.S. (3d) 26, 347 O.A.C. 226...
2403177 Ontario Inc. v. Bending Lake Iron Group Ltd. (2016), 2016 ONSC 199, 2016 CarswellOnt 2673 (Ont. S.C.J.) — referred to Statutes considered: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 Generally — referred to
s. 193 — considered
s. 193(a) — considered
s. 193(a)-193(d) — referred to
s. 193(b) — considered
s. 193(c) — considered
s. 193(e) — considered
s. 195 — considered
s. 243(1) — considered Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 Generally — referred to
s. 13 — considered Constitution Act, 1982, being Schedule B to the Canada Act 1982 (U.K.), 1982, c. 11, reprinted R.S.C. 1985, App. II, No. 44 s. 35 — considered Supreme Court Act, R.S.C. 1985, c. S-26 Generally — referred to Winding-up and Restructuring Act, R.S.C. 1985, c. W-11 Generally — referred to
s. 103 — referred to Rules considered: Rules of Civil Procedure, R.R.O. 1990, Reg. 194 Generally — referred to
MOTION by receiver for declaration that debtor required leave to appeal sale approval and vesting order.
David Brown J.A., In Chambers:
I. Overview
1 This motion considers the somewhat awkward and anachronistic appeal provisions contained in s. 193 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the "BIA"). A. Farber & Partners Inc. was appointed receiver of the property of Bending Lake Iron Group Limited (the "Debtor") pursuant to s. 243(1) of the BIA. The Receiver moves for directions whether the Debtor requires leave to appeal under s. 193(e) of the BIA from the approval and vesting order made by the motion judge on January 8, 2016, 2016 ONSC 199 (Ont. S.C.J.), transferring all the Debtor's property to an unrelated purchaser, Legacy Hill Resources Ltd. ("Legacy Hill"). At the conclusion of the hearing, I held that the Debtor did require leave to appeal and set a timetable for its leave motion. These are my reasons for so ordering.
II. History of the Receivership
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 3 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 225, 2016... 0096 2016 ONCA 225, 2016 CarswellOnt 4553, 264 A.C.W.S. (3d) 26, 347 O.A.C. 226...
2 The Debtor went into receivership on September 11, 2014 on the application of its secured creditor, 2403177 Ontario Inc. (the "Receivership Order"). The Debtor's major asset is an undeveloped iron ore mine site located northwest of Thunder Bay, Ontario.
3 By order dated November 27, 2014, the court approved a Sales and Investor Solicitation Process for the Debtor's property (the "SISP Order"). Significantly, the Debtor consented to the SISP Order.
4 In November 2015, the Receiver moved for court approval of an asset purchase agreement it had entered into with Legacy Hill for substantially all of the Debtor's property (the "Sale Agreement"). The Debtor opposed the motion and, in turn, brought its own motion seeking a variety of relief, including the postponement of the sale of its property.
5 The motion judge approved the Sale Agreement and ordered the vesting of the Debtor's property in Legacy Hill upon the filing of a receiver's certificate (the "Approval and Vesting Order"). As well, the motion judge dismissed the Debtor's motion to postpone the sale and for other relief.
6 The Debtor filed a notice of appeal dated January 13, 2016 seeking to set aside the Approval and Vesting Order. Section 195 of the BIA provides that all proceedings under an order appealed from are stayed until the appeal is disposed of. However, the Debtor did not perfect its appeal within the time required by the Rules of Civil Procedure, and this court has issued a notice of intention to dismiss the appeal for delay unless it is perfected by March 22, 2016.
7 Legacy Hill is not prepared to close the Sale Agreement until the Debtor has exhausted its appeal rights in this court.
8 The Receiver moves for a declaration that the Debtor requires leave to appeal. Granting such relief would quash the Debtor's existing notice of appeal.
III. Issue on the Motion
9 The central issue on this motion is whether the Approval and Vesting Order falls into any of the categories of cases identified in s. 193 of the BIA in which an appeal lies as of right to this court, or whether the Debtor must obtain leave to appeal under s. 193(e). Section 193 of the BIA provides:
Unless otherwise expressly provided, an appeal lies to the Court of Appeal from any order or decision of a judge of the court in the following cases:
(a) if the point at issue involves future rights;
(b) if the order or decision is likely to affect other cases of a similar nature in the bankruptcy proceedings;
(c) if the property involved in the appeal exceeds in value ten thousand dollars;
(d) from the grant of or refusal to grant a discharge if the aggregate unpaid claims of creditors exceed five hundred dollars; and
(e) in any other case by leave of a judge of the Court of Appeal.
10 The Debtor submits that the Approval and Vesting Order falls within ss. 193(a), (b), and (c), and therefore an appeal lies as of right. I shall consider the Debtor's submissions on each sub-section in turn.
IV. Section 193(A): Does the Approval and Vesting Order Involve Future Rights?
A. Positions of the parties
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 4 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 225, 2016... 0097 2016 ONCA 225, 2016 CarswellOnt 4553, 264 A.C.W.S. (3d) 26, 347 O.A.C. 226...
11 The Debtor submits the point in issue in its appeal involves future rights. The Debtor makes the following submissions in its factum:
[T]here remains outstanding a Notice of Motion seeking a finding that the Receiver has violated the Crown's fiduciary duty to Aboriginal Peoples, as well as the Honour of the Crown, such duties being owed by the Receiver as an Officer of the Court. This motion has not been heard as of yet...... The future rights of the "affected Aboriginal communities" will very much be affected by the confirmation of the Vesting Order as granted by [the motion judge].
12 In order to assess this submission, some review is required of the evidence the Debtor placed before the motion judge on the sale approval motion about "affected Aboriginal communities" and of the relief the Debtor plans to seek in a further motion before the motion judge.
B. Debtor's evidence concerning "affected Aboriginal communities"
13 Mr. Henry Wetelainen, the President and CEO of the Debtor, swore an affidavit which was filed in opposition to the Receiver's motion to approve the Sale Agreement. In it, he deposed that, in early 2015, after the Receivership Order had been made, he held discussions with Legacy Hill about a possible "partnership/co-operative development in rescuing [the Debtor] from receivership." He described his discussions with Legacy Hill as attempts to attract a financial partner to assist in the refinancing of the Debtor in order to terminate the Receivership.
14 At various points in his affidavit, Mr. Wetelainen stated he had pursued those discussions as part of his "continued efforts on behalf of [the Debtor] and its creditors, shareholders, stakeholders and affected Aboriginal communities." He deposed that the termination of the receivership would have a "concurrent benefit to [the Debtor], its creditors, shareholders, stakeholders and affected Aboriginal communities."
15 Despite having pursued discussions with Legacy Hill in early 2015, Mr. Wetelainen opposed the Sale Agreement. He took the position that Legacy Hill had breached a fiduciary duty owed to the Debtor by dealing with the Receiver. Frankly, it is difficult to understand that position given that under the Receivership Order and the SISP Order, Mr. Wetelainen, as an officer of the Debtor, was not permitted to pursue the discussions he did with Legacy Hill without the knowledge and concurrence of the Receiver.
16 In any event, Mr. Wetelainen's evidence disclosed that the main reason he opposed the Sale Agreement was that he wanted more time for the Debtor to find financing to take out its secured creditors and terminate the receivership. In his affidavit, he explained why the Debtor was seeking orders to postpone approval of the Sale Agreement:
The Orders being sought from the Court will ensure that all of the creditors, shareholders, stakeholders and affected Aboriginal communities be given an appropriate period of time pursuant to Court Order to permit [the Debtor] to complete the Corporate requirement for the purpose of providing the creditors, shareholders, stakeholders and affected Aboriginal communities to invest in Special Shares in [the Debtor] in order to retire the debt that [the applicant] has agreed to reduce to the amount as reflected in the Assets Purchase Agreement...... The net result of the successful refinancing of [the Debtor] will be that all the shareholders will have their share value protected and [the Debtor] will be required to deal with unsecured creditors in a fair fashion. At all times during the financing proceedings with [Legacy Hill], I anticipated that there would be a compromise with respect to the amount of debt owed to the Applicant.
17 In Mr. Wetelainen's view, the Sale Agreement is a "disasterous agreement that will wipe out millions of dollars of shareholder value, creditor obligations to stakeholders and various Aboriginal communities."
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 5 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 225, 2016... 0098 2016 ONCA 225, 2016 CarswellOnt 4553, 264 A.C.W.S. (3d) 26, 347 O.A.C. 226...
18 A further reason given by Mr. Wetelainen for his opposition to the Receiver's sale was that an asset purchase by Legacy Hill ran "a very substantial risk of [Legacy Hill] alienating all of the affected Aboriginal communities as well as the members of the communities where a workforce would have been drawn from and whose cooperation would have been received. The Aboriginal Employment Preferences Policy identifies these clearly articulated goals."
C. The Debtor's pending motion
19 The Debtor intends to bring a motion before the motion judge at the end of May seeking an order that it be granted leave to commence an action against the Receiver "for damages as a result of the failure of the Receiver to uphold the honour of the Crown and the Crown's fiduciary duties to Aboriginal peoples including the Aboriginal communities affected by the actions of the Receiver." In its notice of motion, the Debtor asserts it had provided "continual notice" to the Receiver that Aboriginal communities were directly affected by the receivership, yet the Receiver failed to maintain the honour of the Crown by not notifying affected Aboriginal communities of its intention to seek a sale of the Debtor's assets.
D. Analysis
20 The concept of "future rights" as a category of cases appealable to this court as of right traces its origins to the late nineteenth century federal Winding-Up Act. 1 The passage of time has not improved the clarity of the concept. In Elias v. Hutchison, 2 McGillivray C.J.A. commented, at para. 20, that "the authorities leave me in a state of uncertainty as to what a future right is at all, let alone what there is about a future right that would require a treatment of cases involving future rights different from cases that do not involve future rights."
21 Although the category of "future rights" increasingly seems an anachronistic and confusing basis upon which to ground appeal rights, courts have attempted to cloak the term "future rights" with some practical meaning. In Ravelston Corp., Re, 3 Doherty J.A. stated, at para. 18:
The meaning of the phrase "future rights" is not obvious. Caselaw holds that it refers to future legal rights and not to procedural rights or commercial advantages or disadvantages that may accrue from the order challenged on appeal ... Rights that presently exist, but may be exercised in the future or altered by the order under appeal are present rights and not future rights...
[Citations omitted.]
22 Doherty J.A. went on to adopt, at para. 19, the view expressed in Elias v. Hutchison, at paras. 100-101, that s. 193(a) of the BIA "must refer to rights which could not at the present time be asserted but which will come into existence at a future time."
23 More recently, Blair J.A., in Business Development Bank of Canada v. Pine Tree Resorts Inc., 4 stated, at para. 15:
"Future rights" are future legal rights, not procedural rights or commercial advantages or disadvantages that may accrue from the order challenged on appeal. They do not include rights that presently exist but that may be exercised in the future.
24 The Debtor's argument that the Approval and Vesting Order involves the future rights of "affected Aboriginal communities" is vague and difficult to follow. Nevertheless, I do not accept it for several reasons.
25 First, for an order to involve future rights, it must involve the future rights of those with an economic interest in the debtor company - i.e. its creditors or shareholders. 5 On the sale approval motion, the Debtor did not adduce evidence that any "affected Aboriginal community" had such an economic interest in the Debtor, nor did any "affected Aboriginal community" adduce such evidence on the motion. The Receiver, in its December 21, 2015 Supplemental Report to its Third Report, informed the court that based on its review of the Debtor's creditors listing, "no Aboriginal groups are creditors of [the Debtor]."
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 6 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 225, 2016... 0099 2016 ONCA 225, 2016 CarswellOnt 4553, 264 A.C.W.S. (3d) 26, 347 O.A.C. 226...
26 Second, at this stage of the process it does not lie in the Debtor's mouth to contend that the Receiver failed to give proper notice to "affected Aboriginal communities". The time to raise such an issue was when the Receiver sought approval of the SISP Order, yet the Debtor consented to that order.
27 Third, to the extent that the Approval and Vesting Order affects the rights of those with an economic interest in the Debtor, it affects the present, existing rights of the Debtor's creditors and shareholders, not their future rights.
28 Finally, it is clear from Mr. Wetelainen's affidavit that the Debtor's real complaint about the effect of the Approval and Vesting Order is one concerning the "commercial advantages or disadvantages that may accrue from the order challenged on appeal." Mr. Wetelainen objected to the Sale Agreement because its approval would wipe out shareholder equity and preclude efforts by the shareholders to raise financing to pay out the Debtor's secured creditors. That has nothing to do with "future rights" within the meaning of s. 193(a).
29 I conclude that the point in issue in the Debtor's challenge of the Approval and Vesting Order does not involve future rights within the meaning of s. 193(a) of the BIA.
V. Section 193(B): Will The Approval and Vesting Order Affect Other Cases of a Similar Nature in This Proceeding?
A. Positions of the parties
30 The Debtor submits that the Approval and Vesting Order is likely to affect other cases of a similar nature in the receivership proceeding. In its factum, the Debtor argues that in granting the Approval and Vesting Order the motion judge failed "to deal with the rights of the affected Aboriginal communities," an issue the Debtor wishes to raise on its appeal. The Debtor argues that the same issue will lie at the heart of its motion before the motion judge later in May seeking leave to sue the Receiver. The Debtor contends that because the Approval and Vesting Order likely will affect its motion for leave to sue the Receiver, s. 193(b) of the BIA applies.
31 The Receiver disputes that the issues on appeal would impact other issues in the receivership.
B. Analysis
32 The jurisprudence under s. 193(b) of the BIA has consistently interpreted the section as meaning that a right of appeal will lie where "the decision in question will likely affect another case raising the same or similar issues in the same bankruptcy proceedings." 6 The cases have expressed different views on whether the decisions covered by s. 193(b) can only concern rights asserted against the bankrupt by parties other than the bankrupt, or whether the issue may concern rights asserted by multiple persons against the bankrupt, rather than one person's rights arising in multiple contexts. 7 Regardless, s. 193(b) must concern "real disputes" likely to affect other cases raising the same or similar issues in the same bankruptcy or receivership proceedings. 8
33 Section 193(b) possesses several anachronistic features. First, while permitting an appeal of right on an issue that likely will arise again in an insolvency proceeding might appear to foster the efficient conduct of insolvency proceedings, in reality any automatic appeal right will slow down insolvency proceedings which usually operate on a "real-time" basis. As well, the language of s. 193(b) does not measure the overall significance of the issue to the proceeding - minor issues which might arise again are treated in the same fashion as major ones. Finally, most contemporary insolvency litigation sees one judge assigned to manage the proceeding from its inception to its end. Under a "one judge" model of case management, common or repeat issues tend to get grouped together for adjudication at one time, not at different stages of the proceeding.
34 I do not accept the Debtor's submission that the Approval and Vesting Order is likely to affect other cases of a similar nature in the receivership proceedings.
35 The Receiver filed evidence on this motion which shows the Debtor did not raise any issue about a receiver's constitutional duty to consult "affected Aboriginal communities" either in its materials or during its submissions on the sale approval motion.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 7 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 225, 2016... 0100 2016 ONCA 225, 2016 CarswellOnt 4553, 264 A.C.W.S. (3d) 26, 347 O.A.C. 226...
The Debtor does not dispute this evidence. Accordingly, the Debtor will be seeking to raise the duty to consult issue for the first time on appeal.
36 In the normal course, appeals are not the proper forum in which to raise brand new issues that significantly expand or alter the landscape of the litigation. 9 The burden rests on an appellant to persuade the court that all the facts necessary to address the point are before the court as fully as if the issue had been raised in the court below. 10 It is far from clear that the Debtor would succeed in persuading this court that the interests of justice require an exception to this normal course of litigation. The Debtor faces several high hurdles.
37 First, the Debtor consented to the SISP Order which authorized the Receiver to proceed with the sales process. The Debtor did not raise the issue of a duty to consult "affected Aboriginal communities" about a sale at that time; it is difficult to conceive how it can do so now.
38 Second, it is very doubtful that the Debtor has standing to advance on appeal an argument based on the duty to consult. As the Supreme Court of Canada explained in Moulton Contracting Ltd. v. British Columbia, 11 at para. 30:
The duty to consult exists to protect the collective rights of Aboriginal peoples. For this reason, it is owed to the Aboriginal group that holds the s. 35 rights, which are collective in nature... But an Aboriginal group can authorize an individual or an organization to represent it for the purpose of asserting its s. 35 rights.
[Citations omitted.]
39 No evidence was led on this motion to suggest that any Aboriginal group had authorized the Debtor to represent it for the purpose of asserting rights under s. 35 of the Constitution Act, 1982.
40 Third, s. 193(b) of the BIA requires that the order sought to be appealed is likely to affect "other cases of a similar nature in the bankruptcy proceedings." Here, the Approval and Vesting Order disposed of all the property of the Debtor. Consequently, there will not be any other case dealing with the disposition of the Debtor's property in this receivership.
41 The final hurdle is that only after the Debtor received the January 8, 2016 reasons of the motion judge granting the Approval and Vesting Order did it launch its motion for leave to sue the Receiver for its alleged breach of the duty to consult. That sequence of events strongly suggests that, having unsuccessfully opposed the Receiver's sale, the Debtor looked for some procedural device to fit itself into s. 193(b). Its motion for leave to sue the Receiver was the result. In my view, a party cannot create a "case" after the impugned order was made in order to invoke s. 193(b). Consequently, the Debtor's pending motion for leave to sue does not qualify as a case of a similar nature in the receivership.
42 For those reasons, the Approval and Vesting Order does not fall within s. 193(b) of the BIA.
VI. Section 193(C): Does the Property Involved in the Appeal Exceed in Value $10,000?
A. Positions of the parties
43 The Debtor submits that the Approval and Vesting Order will transfer property in excess of $10,000 and, therefore, falls within s. 193(c) of the BIA because "the property involved in the appeal exceeds in value ten thousand dollars."
44 While the actual sale price is subject to a confidentiality order pending the closing of the transaction, there is no dispute that the sale price significantly exceeds $10,000. Nor is there any dispute that if the transaction closes, the Debtor's secured lenders will suffer a significant shortfall. 12
45 On its part, the Receiver submits that an approval and vesting order forms part of the methods a receiver employs to dispose of a debtor's assets and, as such, is a matter of procedure that does not fall within s. 193(c).
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 8 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 225, 2016... 0101 2016 ONCA 225, 2016 CarswellOnt 4553, 264 A.C.W.S. (3d) 26, 347 O.A.C. 226...
B. Analysis
46 The history of the interpretation of s. 193(c) is an unusual one. Under the modern approach to statutory interpretation, the words in a statute must be read in their entire context, in their grammatical and ordinary sense, and in keeping with the scheme and object of the Act. 13 By contrast, as the Manitoba Court of Appeal observed at para. 9 in Dominion Foundry Co., Re, 14 the interpretation of the phrase "the property involved in the appeal" found in s. 193(c) historically has proceeded in a different fashion, drawing heavily upon cases interpreting a similar provision in the federal Winding-Up Act, 15 as well as on the jurisprudence considering former provisions in the Supreme Court of Canada Act which linked the right to appeal to "the amount or value of the matter in controversy." 16
47 Courts have observed that the availability under s. 193(e) of a right to seek leave to appeal in circumstances falling outside those captured by automatic rights of appeal in ss. 193(a) to (d) signals the need for appeal courts to control bankruptcy proceedings in order to promote the efficient and expeditious resolution of the bankruptcy, one of the principal objectives of bankruptcy legislation. 17 However, courts across the country tend to part company on whether securing those objectives of the BIA is fostered by a "broad, generous and wide-reaching" interpretation of the appeal rights contained in BIA ss. 193(a) to (d) - with the bar set low to fall within s. 193(c) 18 - or by interpretations conducted within the context of the demands of "real time litigation" characteristic of contemporary insolvency and restructuring proceedings. 19
48 In my view, two contextual factors should inform any application of the subsection.
49 First, the predecessor section to the modern s. 193(c) was enacted in 1919, at a time when the then Bankruptcy Act did not include the right to seek leave to appeal in the event a decision did not fall within one of the categories giving automatic rights of appeal. As Doherty J.A. observed in Re Ravelston Corp., the earlier absence in s. 193 of an ability to seek leave to appeal prompted courts to give categories of appeals as of right a wide and liberal interpretation in order to avoid closing the door on meritorious appeals. The 1949 inclusion of the leave to appeal right now found in s. 193(e) removes the need for such a broad interpretative approach.
50 Second, Canada's other major insolvency statute, the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the "CCAA"), contains, in s. 13, an across-the-board requirement to obtain leave to appeal from any order made under that Act. The automatic right of appeal provisions in ss. 193(a) to (d) of the BIA do not work harmoniously with the CCAA's appeal regime.
51 For example, if one were to accept the Debtor's argument that whenever the value of the property transferred by a sales approval and vesting order exceeded $10,000 an appeal as of right to this court exists, then, as the Manitoba Court of Appeal noted, at para. 7, in Re Dominion Foundry Co., an appeal as of right would exist in almost every case because very few insolvency cases would involve property that did not exceed the statutory threshold. Blair J.A. repeated that concern in Business Development Bank of Canada v. Pine Tree Resorts Inc., at para. 17. By contrast, a challenge to a sales approval and vesting order obtained by a debtor company under the CCAA would require obtaining leave to appeal under s. 13 of that Act.
52 In my view, no principled basis exists to distinguish the treatment of a sale by a receiver or trustee, from that by a CCAA debtor company. In each case, approval of the sale would require consideration of the types of principles articulated in Royal Bank v. Soundair Corp.. 20 A need for the legislative harmonization of appeal rights in insolvencies is apparent.
53 In my view, these contextual factors militate against employing an expansive application of the automatic right of appeal contained in s. 193(c) and, instead, point to the need for an approach which is alive to and satisfies the needs of modern, "real- time" insolvency litigation. I shall employ such an approach in applying the following three principles that have emerged from the jurisprudence: s. 193(c) does not apply to (i) orders that are procedural in nature, (ii) orders that do not bring into play the value of the debtor's property, or (iii) orders that do not result in a loss.
Is the order procedural in nature?
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 9 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 225, 2016... 0102 2016 ONCA 225, 2016 CarswellOnt 4553, 264 A.C.W.S. (3d) 26, 347 O.A.C. 226...
54 The caselaw holds that s. 193(c) of the BIA does not apply to decisions or orders that are procedural in nature, including orders concerning the methods by which receivers or trustees realize an estate's assets.
55 In Re Dominion Foundry Co., the motion judge had dismissed a request to set aside a sale of assets by a trustee in bankruptcy on the grounds that the sale was improvident and the trustee had acted improperly. The Manitoba Court of Appeal held, at para. 20, that although the sale involved assets whose value exceeded the statutory threshold, an order concerning the method by which the trustee disposed of assets did not fall within s. 193(c). Consequently, where a person seeks to challenge an order on appeal by calling into question the methods employed by a trustee to dispose of the assets of the bankrupt, the order involves a matter of procedure which does not fall within s. 193(c).
56 The Alberta Court of Appeal reached a similar result in Alternative Fuel Systems Inc. v. Edo (Canada) Ltd. (Trustee of). 21 There, the trustee had invited tenders for the purchase of the bankrupt's equipment. When tenders closed, the trustee determined that Alternative's tender was the highest. Once another tenderer, Impco Technologies Inc., found out that it was not the highest bidder, it submitted a second tender offering substantially more than Alternative. The trustee sought directions from the court. The bankruptcy judge directed the trustee to accept Impco's second, higher tender. Alternative filed a notice of appeal and moved before the Alberta Court of Appeal for a determination that it could appeal as of right under s. 193(c) because the value of the property involved exceeded the statutory threshold.
57 O'Leary J.A., following Re Dominion Foundry Co., held that Alternative had no right of appeal under s. 193(c). He reasoned, at para. 12, that the bankruptcy judge's order was essentially a procedural direction to the trustee in the face of Alternative's challenge to the method by which the equipment was sold, by-passing the tender process.
58 In the present case, the overwhelming majority of the Debtor's grounds of appeal are process-related, involving issues concerning the Debtor's dealings with Legacy Hill following the Receivership Order, the Receiver's disclosure of information about the Sale Agreement, the negotiation process it followed with Legacy Hill, its treatment of persons affected by the Sale Agreement, and the adequacy of notice it gave to "affected Aboriginal communities." Those grounds of appeal are procedural in nature and do not fall within s. 193(c).
Does the order put into play the value of the Debtor's property?
59 The second principle emerging from the caselaw is that s. 193(c) is not engaged where the decision or order does not call into play the value of the debtor's property. In Business Development Bank of Canada v. Pine Tree Resorts Inc., Blair J.A. considered whether an order appointing a receiver over assets of debtor corporations that exceeded $10,000 in value fell within s. 193(c). He concluded that it did not stating, at para. 17, that "an order appointing a receiver does not bring into play the value of the property; it simply appoints an officer of the court to preserve and monetize those assets, subject to court approval."
60 In the present case, the Approval and Vesting Order marked the final step in the Receiver's monetization of the Debtor's assets. The property of the Debtor is to be converted through the Sale Agreement into a pool of cash and, as stated in the Approval and Vesting Order, "the net proceeds from the sale of the Purchased Assets shall stand in the place and stead of the Purchased Assets." The ground of appeal advanced by the Debtor to the effect that the sale process should be postponed to let shareholders re-finance the company does not bring into play the value of the Debtor's property, so s. 193(c) does not apply.
Does the order result in a gain or loss?
61 Finally, for s. 193(c) to apply, the order in question must contain some element of a final determination of the economic interests of a claimant in the debtor. In Trimor Mortgage Investment Corp. v. Fox, 22 Paperny J.A. described this aspect of s. 193(c) at para. 8:
The test to be applied under this section was originally articulated in Orpen v Roberts, [1925] SCR 364 at 367, [1925] 1 DLR 1101, and confirmed in Fallis and Deacon v United Fuel Investments Ltd., [1962] SCR 771, 4 CBR (NS) 209,
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 10 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 225, 2016... 0103 2016 ONCA 225, 2016 CarswellOnt 4553, 264 A.C.W.S. (3d) 26, 347 O.A.C. 226...
which set out that the amount or value of the matter in controversy is the loss which the granting or refusal of that right would entail.
62 The Approval and Vesting Order did not determine the entitlement of any party with an economic interest in the Debtor to the sale proceeds. In that sense, no interested party gained or lost as a result of the order.
63 However, one ground of appeal set out in the Debtor's notice of appeal is that the motion judge erred in law in finding that the Receiver had not acted improvidently. In its factum, the Debtor contends that the Receiver's sale of its property is improvident because it would result in a loss of $125 million to its shareholders. In support of that ground of appeal, on this motion the Debtor relied on a memo prepared by Broad Oak Associates dated February 3, 2014, half a year before the Receivership Order was made. Using an iron ore pellet price of US$100 per tonne, Board Oak placed the value of a fully-developed Bending Lake iron ore project in the range of US$100 million to $300 million. This, the Debtor argues, shows that the Approval and Vesting Order selling its undeveloped mine site assets resulted in a loss to shareholders of an amount exceeding $10,000 in value, giving it a right to appeal under s. 193(c).
64 I do not accept the Debtor's submission. The determination of whether "the property involved in the appeal exceeds ten thousand dollars" is a fact-specific one. In order to bring itself within s. 193(c), the Debtor must do more than make a bald allegation of improvident sale. This is real-time insolvency litigation in which delays in the proceeding can prejudice the amounts fetched by a receiver on the realization process. The Debtor must demonstrate some basis in the evidentiary record considered by the motion judge that the property involved in the appeal would exceed in value $10,000, in the sense that the granting of the Approval and Vesting Order resulted in a loss of more than $10,000 because the Receiver could have obtained a higher sales price for the Debtor's property. Bald assertion is not sufficient, otherwise a mere bald allegation of improvident sale in a notice of appeal could result in an automatic stay of a sale approval order under BIA s. 195 as the appellant pursues its appeal. 23
65 In the present case, the evidentiary record discloses that there were no competing bids for the Debtor's property for the motion judge to consider; only Legacy Hill expressed a serious enough interest to lead to a Sale Agreement with the Receiver.
66 Neither the Debtor nor its shareholders put before the motion judge a valuation of the Debtor made near in time to the execution of the Sale Agreement. Mr. Wetelainen did not attach the pre-receivership Broad Oak memo to the affidavit he placed before the motion judge. By contrast, the Receiver reported to the motion judge that the market price of iron ore had declined to the mid-US$50 per tonne range, making a court sanctioned sales process "very challenging in the current market conditions." The market price for iron ore reported by the Receiver was far below the pre-receivership assumptions used by Broad Oak.
67 Nor did Mr. Wetelainen depose on the sale approval motion that the Debtor's property was worth over $100 million. Instead, in his affidavit he stressed the need to postpone the sale to allow the Debtor's shareholders time to negotiate a compromise of the secured debt and then pay off the compromised debt.
68 Finally, the Debtor's secured lenders supported the Sale Agreement, notwithstanding that they would suffer a significant shortfall on the sale.
69 Taken together, those facts do not disclose any basis in the evidentiary record for the Debtor's assertion that the sale would result in a loss of rights greater than $10,000 because the Receiver could have obtained a higher price for the Debtor's property. Accordingly, I am not persuaded that there is any evidentiary basis to the Debtor's bald assertion in its notice of appeal that the Approval and Vesting Order sanctioned an improvident sales transaction which resulted in a loss to the Debtor within the meaning of s. 193(c).
70 I conclude that the Approval and Vesting Order does not fall within s. 193(c) of the BIA.
VII. Disposition
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 11 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 225, 2016... 0104 2016 ONCA 225, 2016 CarswellOnt 4553, 264 A.C.W.S. (3d) 26, 347 O.A.C. 226...
71 For these reasons, I granted the Receiver's motion and ordered that the Debtor requires leave to appeal from the Approval and Vesting Order. The Debtor's notice of appeal dated January 13, 2016 is quashed.
72 The parties agreed to the following timetable for the filing of materials on the Debtor's leave to appeal motion:
(i) The Debtor would file its leave materials by March 28, 2016;
(ii) The Receiver would file any responding materials by April 4, 2016;
(iii) The Debtor would file reply materials, if any, by April 11, 2016.
73 I directed that the leave materials be placed before a panel for consideration on April 12, 2016. I did so, in part, to obviate the need for Debtor's counsel to travel down to Toronto for an oral Chambers leave motion.
74 The parties may serve their leave materials electronically. Although the parties will need to file the appropriate number of hard copies of their materials in accordance with the Rules of Civil Procedure, they may file with the court an electronic copy either by email or by USB key. The date of electronic filing will be deemed the date of the filing of the materials with the court.
75 The parties agreed that the costs of this motion would be reserved to the panel hearing the leave to appeal motion. Motion granted.
Footnotes 1 Now, the Winding-up and Restructuring Act, R.S.C. 1985, c. W-11, s. 103. See Clarke v. Union Fire Insurance Co. (1886), 13 O.A.R. 268 (Ont. C.A.) at pp. 294-295.
2 (1981), 14 Alta. L.R. (2d) 268, 121 D.L.R. (3d) 95, [1981] A.J. No. 896 (Alta. C.A.).
3 (2005), 24 C.B.R. (5th) 256 (Ont. C.A.)
4 2013 ONCA 282, 115 O.R. (3d) 617 (Ont. C.A.).
5 See Ditchburn Boats & Aircraft (1936) Ltd., Re (1938), 19 C.B.R. 240 (Ont. C.A.), at p. 242 quoting with approval Kern Agencies Ltd., Re (1931), 12 C.B.R. 279 (Sask. C.A.), at p. 281.
6 Wong v. Luu, 2013 BCCA 547 (B.C. C.A.), at para. 21.
7 See Wong v. Luu, at para. 21, and the Quebec jurisprudence summarized in Norbourg Gestion d'actifs inc., Re, 2006 QCCA 752, 33 C.B.R. (5th) 144 (C.A. Que.) at paras. 9-11.
8 Global Royalties Ltd. v. Brook, 2016 ONCA 50 (Ont. C.A.), at para. 19.
9 Perez v. Salvation Army in Canada (1998), 42 O.R. (3d) 229, 171 D.L.R. (4th) 520 (Ont. C.A.), at para. 11.
10 Kaiman v. Graham, 2009 ONCA 77, 245 O.A.C. 130 (Ont. C.A.), at para. 18.
11 2013 SCC 26, [2013] 2 S.C.R. 227 (S.C.C.).
12 In its Third Report dated November 30, 2015, the Receiver informed the court that the Debtor's liabilities totaled approximately $12.4 million consisting of (i) secured loans from the applicant in excess of $3.5 million, (ii) payroll deduction and HST claims by the Canada Revenue Agency of approximately $405,000, and (iii) unsecured liabilities of close to $8.5 million.
13 Rizzo & Rizzo Shoes Ltd., Re (1998), 154 D.L.R. (4th) 193 (S.C.C.) at para. 21; Bell ExpressVu Ltd. Partnership v. Rex, 2002 SCC 42, 212 D.L.R. (4th) 1 (S.C.C.) at para. 26.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 12 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 225, 2016... 0105 2016 ONCA 225, 2016 CarswellOnt 4553, 264 A.C.W.S. (3d) 26, 347 O.A.C. 226...
14 (1965), 51 W.W.R. 679 (Man. C.A.).
15 Such as United Fuel Investments Ltd., Re, [1962] S.C.R. 771 (S.C.C.), at p. 774.
16 Trimor Mortgage Investment Corp. v. Fox, 2015 ABCA 44 (Alta. C.A.), at para. 8; Galaxy Sports Inc. v. Galaxy Sports Inc. (Trustee of), 2003 BCCA 322, 44 C.B.R. (4th) 218 (B.C. C.A. [In Chambers]) at para. 12; Newfoundland & Labrador Refining Corp. v. IJK Consortium, 2009 NLCA 23, 52 C.B.R. (5th) 8 (N.L. C.A.) at para. 18.
17 Wong v. Luu, at para. 23; Re Norbourg Gestion d'actifs inc, at para. 9.
18 Wong v. Luu, at para. 23.
19 Stelco Inc., Re (2005), 8 C.B.R. (5th) 150 (Ont. C.A. [In Chambers]), at para. 4.
20 (1991), 4 O.R. (3d) 1 (Ont. C.A.).
21 1997 ABCA 273 (Alta. C.A. [In Chambers]).
22 2015 ABCA 44 (Alta. C.A.).
23 See, for example, Faillis and Deacon v. United Fuel Investments Ltd. where, at pp. 773-774 the Supreme Court of Canada described the specific evidence of loss contained in the record.
End of Document Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 13 0106
TAB 8 Enroute Imports Inc., Re, 2016 ONCA 247, 2016 CarswellOnt 5045 0107 2016 ONCA 247, 2016 CarswellOnt 5045, 265 A.C.W.S. (3d) 287, 35 C.B.R. (6th) 1
2016 ONCA 247 Ontario Court of Appeal
Enroute Imports Inc., Re
2016 CarswellOnt 5045, 2016 ONCA 247, 265 A.C.W.S. (3d) 287, 35 C.B.R. (6th) 1
In the Matter of the Proposal of Enroute Imports Inc. of the City of Mississauga in the Province of Ontario
K.M. Weiler, C.W. Hourigan, Grant Huscroft JJ.A.
Heard: March 29, 2016 Judgment: April 5, 2016 Docket: CA C60594
Counsel: J. Dannial E.S. Baker, for Appellants, unsecured creditors, Frank Santaguida and Victor Santaguida Craig A. Mills, for Respondent, Enroute Imports Inc. R. Graham Phoenix, for Proposal Trustee
Subject: Civil Practice and Procedure; Insolvency Related Abridgment Classifications Bankruptcy and insolvency XVII Practice and procedure in courts XVII.7 Appeals XVII.7.b To Court of Appeal XVII.7.b.ii Availability XVII.7.b.ii.C Leave by judge Headnote Bankruptcy and insolvency --- Practice and procedure in courts — Appeals — To Court of Appeal — Availability — Leave by judge Unsecured creditors were awarded judgment against debtor in amount of $65,000 — Unsecured creditors recovered 52.3 per cent of their claim before debtor filed notice of intention to make proposal under Bankruptcy and Insolvency Act — Proposal was filed, amended and accepted by 92 per cent of creditors representing 87 per cent of value of outstanding debt — Unsecured creditors objected to amended proposal and conducted out of court examination of president of debtor — Unsecured creditors sought to adjourn approval motion to compel answers to undertakings, refusals and questions taken under advisement and to continue examination of president — Motion judge declined to adjourn motion, approved amended proposal, and terminated unsecured creditor's notices of garnishment — Unsecured creditor appealed — Leave to appeal denied — Given broad nature of stay imposed by s. 195 of Act, right of appeal without leave under s. 193(c) of Act must be narrowly construed and appeal must directly involve property exceeding $10,000 in value — Unsecured creditors required leave to appeal as right to conduct examination was procedural and did not directly involve property — Issues raised were not of significance beyond interests of parties — There was no merit to proposed appeal — There were ample grounds to refuse adjournment, and motion judge's conclusion that amended proposal was reasonable was also unassailable — It could not be said that granting leave would unduly delay proceedings. Table of Authorities Cases considered: Business Development Bank of Canada v. Pine Tree Resorts Inc. (2013), 2013 ONCA 282, 2013 CarswellOnt 5026, 100 C.B.R. (5th) 91, 115 O.R. (3d) 617, 307 O.A.C. 1 (Ont. C.A.) — referred to Crate Marine Sales Ltd., Re (2016), 2016 ONCA 140, 2016 CarswellOnt 2491, 33 C.B.R. (6th) 169 (Ont. C.A.) — referred to
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 1 Enroute Imports Inc., Re, 2016 ONCA 247, 2016 CarswellOnt 5045 0108 2016 ONCA 247, 2016 CarswellOnt 5045, 265 A.C.W.S. (3d) 287, 35 C.B.R. (6th) 1
Ontario Wealth Management Corp. v. Sica Masonry and General Contracting Ltd. (2014), 2014 ONCA 500, 2014 CarswellOnt 8586, 17 C.B.R. (6th) 91, 323 O.A.C. 101, 37 C.L.R. (4th) 191 (Ont. C.A.) — referred to Robson, Re (2002), 2002 CarswellOnt 1052, 33 C.B.R. (4th) 86 (Ont. C.A. [In Chambers]) — referred to Statutes considered: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 Generally — referred to
s. 193 — considered
s. 193(c) — considered
s. 193(e) — considered
s. 195 — considered
APPEAL by unsecured creditors of decision of motion judge declining to adjourn motion and approving amended proposal under Bankruptcy and Insolvency Act.
Per curiam:
1 The appellants were awarded a judgment against Enroute Imports ("Enroute") in 2003 in the amount of $65,000 plus interest and costs. They recovered 52.3% of their claim just prior to Enroute filing a notice of intention to make a proposal under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the "BIA"). The proposal was subsequently filed, amended, and accepted by 92% of the creditors representing 87% of the value of the outstanding debt more than the required majority of creditors (the "Amended Proposal").
2 The appellants, who are unsecured creditors, objected to the Amended Proposal and conducted an out of court examination of Vincent Pileggi, the president of Enroute. They sought to adjourn the approval motion to compel answers to undertakings, refusals, and questions taken under advisement, and to continue the examination of Mr. Pileggi. The motion judge declined to adjourn the motion, approved the Amended Proposal, and terminated the appellants' notices of garnishment.
3 In his factum, the appellant raises numerous grounds of appeal related to the motion judge's refusal to adjourn the approval motion. He further submits that as a result of the motion judge's refusal to adjourn the approval proceedings, he was denied the opportunity to establish that the officers and directors of Enroute had engaged in wrongful conduct, a consideration relevant to whether the proposal was reasonable and made in good faith and, ultimately, to whether approval should be granted.
4 A preliminary issue is whether leave to appeal the motion judge's order is required under s. 193 of the BIA. The appellants submit that leave is not required, relying on s. 193(c) of the BIA, which states: "Unless otherwise expressly provided, an appeal lies to the Court of Appeal from any order or decision of a judge of the court in the following cases: (c) if the property involved in the appeal exceeds in value ten thousand dollars". The respondent submits that there is no right of appeal because the primary remedy sought, continuation of the examination of Mr. Pileggi, is not quantifiable in money.
5 The case law considering s. 193(c) from this court makes clear that, given the broad nature of the stay imposed by s. 195 of the BIA, the right of appeal without leave under s. 193(c) must be narrowly construed. In addition, the appeal must directly involve property exceeding $10,000 in value: Crate Marine Sales Ltd., Re, 2016 ONCA 140 (Ont. C.A.), Robson, Re (2002), 33 C.B.R. (4th) 86 (Ont. C.A. [In Chambers]), Business Development Bank of Canada v. Pine Tree Resorts Inc., 2013 ONCA 282, 115 O.R. (3d) 617 (Ont. C.A.), and Ontario Wealth Management Corp. v. Sica Masonry and General Contracting Ltd., 2014 ONCA 500, 17 C.B.R. (6th) 91 (Ont. C.A.).
6 In our view, the appellants require leave to appeal. The right to conduct an examination is procedural and does not directly involve property. Similarly, the appellants' central argument regarding the correctness of the approval order is that the motion judge erred in finding that the proposal was reasonable and made in good faith. Again this is not a situation where property is directly in issue.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 2 Enroute Imports Inc., Re, 2016 ONCA 247, 2016 CarswellOnt 5045 0109 2016 ONCA 247, 2016 CarswellOnt 5045, 265 A.C.W.S. (3d) 287, 35 C.B.R. (6th) 1
7 In considering whether leave to appeal under s. 193 (e) of the BIA should be granted, a court will look to whether the proposed appeal: (i) raises an issue that is of general importance to the practice in bankruptcy/insolvency matters or the administration of justice as a whole; (ii) is prima facie meritorious; and (iii) would unduly hinder the progress of the bankruptcy/insolvency proceedings: Business Development Bank of Canada, at para. 29. In our view, the appellants have not established that leave to appeal should be granted under s. 193 of the BIA.
8 We are not satisfied that the issues raised on the proposed appeal are of significance beyond the interests of the parties. The appeal is focused on fact-specific issues of procedural fairness and the reasonableness and good faith of the Amended Proposal. The discretionary considerations of the motion judge do not give rise to any matters of general significance to bankruptcy/ insolvency matters or to the administration of justice as a whole.
9 We are also of the view that there is no merit to the proposed appeal. The decision of the motion judge not to grant an adjournment is highly discretionary and will not be lightly interfered with by this court. Moreover, there were ample grounds to refuse the adjournment, including the timing of the request, the fact that the appellants had failed to respond to the proposal trustee's offers to provide information and access to documents, the speculative and disproportionate nature of the ongoing information sought, and the fact that any further delay would impact Enroute's ability to operate its business.
10 The motion judge's conclusion that the Amended Proposal was reasonable is also unassailable. He carefully reviewed the Amended Proposal and concluded that it had the strong support of the creditors and its terms were calculated to benefit the general body of creditors. The motion judge also found that the proposal trustee had conducted a reasonable review and determined that there was no realistic possibility that the unsecured creditors would receive any money in a bankruptcy.
11 Further, there is no basis to interfere with the motion judge's finding that the Amended Proposal was made in good faith. He considered the appellants' concerns regarding the Amended Proposal, which were raised both on the approval motion and repeated on appeal, and dismissed them, finding that they "[were] largely based on speculation and ignore[d] the real and legitimate basis for Enroute's difficulties."
12 With respect to whether the appeal would unduly hinder the progress of the bankruptcy/insolvency proceedings, this is an artificial analysis in the circumstances since the appellants did not first move to obtain leave to appeal before a single judge of this court. Instead, they took the position that leave was not required and argued the issue of leave as part of the appeal. Thus, it cannot be said that granting leave at this stage will unduly delay the proceedings.
13 Finally, we note that the parties filed fresh evidence on consent that Enroute failed to disclose prior to the approval of the Amended Proposal a partially subrogated lawsuit, in which it and a related company sued various parties as result of an olive oil spill. The lawsuit was eventually disclosed to all creditors by the proposal trustee. Because Enroute does not have the resources to fund the litigation, it offered to assign its claim to any creditor. No creditor expressed an interest in participating in the lawsuit. We are of the view that the existence of this lawsuit (which was commenced at the behest of Enroute's insurer, is unvalued, and has not progressed beyond the pleading stage) does not change the analysis above.
14 Leave to appeal is denied. Enroute, as the successful party, is entitled to its costs of the appeal, fixed at $14,500, inclusive of fees, disbursements and applicable taxes. The proposal trustee did not file materials or make submissions. In these circumstances, we decline to make a cost award in its favour. Leave to appeal denied.
End of Document Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 3 0110
TAB 9 Tasci (Re), 2020 BCCA 317, 2020 CarswellBC 2878 0111 2020 BCCA 317, 2020 CarswellBC 2878
2020 BCCA 317 British Columbia Court of Appeal
Tasci (Re)
2020 CarswellBC 2878, 2020 BCCA 317
IN THE MATTER OF THE BANKRUPTCY OF Kris Sinan Tasci
Lynette Dianne Hebert, Just Fish-Inn Inc., Stonewater Ventures (No. 179) Ltd., Stonewater Ventures (No. 181) Ltd. (Appellants / Applicants) And Roy Sommerey (Respondent / Respondent)
Abrioux J.A., In Chambers
Heard: October 23, 2020 Judgment: November 19, 2020 Docket: Vancouver CA47030
Proceedings: Leave to appeal refused, 2020 CarswellBC 2411, 2020 BCSC 1438, 323 A.C.W.S. (3d) 463 (B.C. S.C.)
Counsel: J.D. Shields, for Appellants K. Ihas, for Respondent
Subject: Civil Practice and Procedure; Insolvency Headnote Bankruptcy and insolvency Table of Authorities Cases considered by Abrioux J.A., In Chambers: Albert v. Politano (2013), 2013 BCCA 194, 2013 CarswellBC 1383, 338 B.C.A.C. 24, 577 W.A.C. 24 (B.C. C.A.) — considered Carpenter Fishing Corp. v. Canada (2002), 2002 BCCA 104, 2002 CarswellBC 335 (B.C. C.A. [In Chambers]) — referred to Coroban Plastics Ltd., Re (1994), 52 B.C.A.C. 214, 10 B.C.L.R. (3d) 52, 34 C.B.R. (3d) 50, (sub nom. Formula Atlantic Financial Corp. v. Canada (Attorney General)) 86 W.A.C. 214, 1994 CarswellBC 1186 (B.C. C.A.) — referred to Culp v. KPMG Inc. (2006), 2006 BCSC 1599, 2006 CarswellBC 2655 (B.C. S.C. [In Chambers]) — referred to Culp v. KPMG Inc. (2006), 2006 BCCA 462, 2006 CarswellBC 2484, 26 C.B.R. (5th) 88 (B.C. C.A. [In Chambers]) — referred to Forjay Management Ltd. v. Peeverconn Properties Inc. (2018), 2018 BCCA 188, 2018 CarswellBC 1878, 61 C.B.R. (6th) 221 (B.C. C.A.) — considered Gorenshtein v. British Columbia (Employment Standards Tribunal) (2016), 2016 BCCA 457, 2016 CarswellBC 3185, 92 B.C.L.R. (5th) 343, [2017] 3 W.W.R. 703 (B.C. C.A.) — considered Jaston & Co. v. McCarthy (1998), 1998 CarswellBC 2787, 168 D.L.R. (4th) 415, (sub nom. McCarthy (Bankrupt), Re) 116 B.C.A.C. 64, (sub nom. McCarthy (Bankrupt), Re) 190 W.A.C. 64, 59 B.C.L.R. (3d) 168, 8 C.B.R. (4th) 25, [1999] 7 W.W.R. 243 (B.C. C.A.) — distinguished Lemay v. Lamarre (1934), 16 C.B.R. 189, 57 Que. K.B. 552, 1934 CarswellQue 22 (C.A. Que.) — referred to McKibbon v. BDO Canada Limited (2020), 2020 BCCA 7, 2020 CarswellBC 5, 74 C.B.R. (6th) 163, 53 C.P.C. (8th) 269 (B.C. C.A.) — considered Price v. Robson (2017), 2017 BCCA 419, 2017 CarswellBC 3335, 14 C.P.C. (8th) 20 (B.C. C.A.) — referred to R. v. Winfield (2009), 2009 YKCA 9, 2009 CarswellYukon 86, 79 M.V.R. (5th) 19, 273 B.C.A.C. 152, 461 W.A.C. 152 (Y.T. C.A.) — referred to
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 1 Tasci (Re), 2020 BCCA 317, 2020 CarswellBC 2878 0112 2020 BCCA 317, 2020 CarswellBC 2878
Shaw Estate (Trustee of) v. Nicol Island Development Inc. (2009), 2009 ONCA 276, 2009 CarswellOnt 1748, 51 C.B.R. (5th) 12, (sub nom. Shaw Estate v. Nicol Island Development Inc.) 248 O.A.C. 35 (Ont. C.A.) — referred to Smith v. Global Plastics Ltd. (2001), 2001 CarswellBC 620, 2001 BCCA 152 (B.C. C.A. [In Chambers]) — considered Smith v. Pricewaterhousecoopers Inc. (2013), 2013 ABCA 288, 2013 CarswellAlta 1520, (sub nom. Smith v. PricewaterhouseCoopers Inc.) 245 A.R. 245, 584 W.A.C. 245, 3 Alta. L.R. (6th) 341 (Alta. C.A.) — referred to Wong v. Luu (2013), 2013 BCCA 547, 2013 CarswellBC 3824, [2014] 4 W.W.R. 504, 10 C.B.R. (6th) 318, 55 B.C.L.R. (5th) 129, (sub nom. Luu (Bankrupt), Re) 348 B.C.A.C. 155, (sub nom. Luu (Bankrupt), Re) 595 W.A.C. 155 (B.C. C.A.) — referred to Statutes considered: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 s. 38 — considered
s. 38(1) — considered
s. 193 — considered
s. 193(a) — considered
s. 193(b) — considered
s. 193(c) — considered
s. 193(e) — considered Fraudulent Conveyance Act, R.S.B.C. 1996, c. 163 Generally — referred to Fraudulent Preference Act, R.S.B.C. 1996, c. 164 Generally — referred to Limitation Act, S.B.C. 2012, c. 13 s. 6 — considered
On appeal from: An order of the Supreme Court of British Columbia, dated September 29, 2020 (Tasci (Re), 2020 BCSC 1438, Vernon Docket 180676).
Abrioux J.A., In Chambers:
Introduction
1 The applicant appellants seek to appeal an order of Justice Davies (the "Order") pronounced September 29, 2020 and not yet entered, which dismissed their application to set aside (i) an order made by a Master granting the respondent permission to commence proceedings in place of the trustee pursuant to s. 38 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 [BIA]; and (ii) 16 Certificates of Pending Litigation ("CPLs") filed by the respondent against various of their properties. They seek an order that they may appeal the order as of right, or alternatively, an order granting leave to appeal.
2 The respondent opposes the application. He submits that there is no leave as of right and that the application for leave should be dismissed.
3 For the reasons that follow, I agree with the respondent that leave to appeal is required, and I would decline to grant leave.
Background
4 Mr. Kris Tasci, a businessman, made an assignment in bankruptcy on December 14, 2017. Roy Sommerey, his former lawyer, filed a proof of claim with the Trustee on February 21, 2018, pursuant to which he is a secured creditor of the bankrupt in the amount of $1,201,018.91 and an unsecured creditor in the amount of $548,829.45.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 2 Tasci (Re), 2020 BCCA 317, 2020 CarswellBC 2878 0113 2020 BCCA 317, 2020 CarswellBC 2878
5 On August 9, 2019, Mr. Sommerey emailed the Trustee requesting an update on the status of Mr. Tasci's bankruptcy. He also asked the Trustee to commence legal proceedings against Mr. Tasci, Mr. Tasci's spouse Ms. Herbert, and their respective companies in respect of alleged fraudulent preferences and fraudulent transactions. Mr. Sommerey noted that he had become aware of possible claims following review of a bailiff's report received August 30, 2017, and that the two-year limitation period pursuant to s. 6 of the Limitation Act, S.B.C. 2012, c. 13 was therefore fast approaching.
6 The Trustee replied that she was unable to respond to information requests until she returned to work on August 20, 2019 and that there were no funds in the estate with which to proceed with the proposed action. She advised Mr. Sommerey that he would either have to fund the litigation or apply under s. 38(1) of the BIA to bring proceedings at his own expense.
7 Section 38 of the BIA provides:
Proceeding by creditor when trustee refuses to act
38(1) Where a creditor requests the trustee to take any proceeding that in his opinion would be for the benefit of the estate of a bankrupt and the trustee refuses or neglects to take the proceeding, the creditor may obtain from the court an order authorizing him to take the proceeding in his own name and at his own expense and risk, on notice being given the other creditors of the contemplated proceeding, and on such other terms and conditions as the court may direct.
Transfer to creditor
(2) On an order under subsection (1) being made, the trustee shall assign and transfer to the creditor all his right, title and interest in the chose in action or subject-matter of the proceeding, including any document in support thereof.
Benefits belong to creditor
(3) Any benefit derived from a proceeding taken pursuant to subsection (1), to the extent of his claim and the costs, belongs exclusively to the creditor instituting the proceeding, and the surplus, if any, belongs to the estate.
Trustee may institute proceeding
(4) Where, before an order is made under subsection (1), the trustee, with the permission of the inspectors, signifies to the court his readiness to institute the proceeding for the benefit of the creditors, the order shall fix the time within which he shall do so, and in that case the benefit derived from the proceeding, if instituted within the time so fixed, belongs to the estate.
8 On August 19, 2019, Mr. Sommerey appeared before a Master of the Supreme Court of British Columbia and obtained short leave to proceed with the s. 38 application. The following day Master Schwartz granted the order, which authorized Mr. Sommerey to
1. . . . prosecute legal proceedings against the Bankrupt and other persons and companies . . . to be named as defendants . . . for conducting or participating in money, property or financial transactions comprising fraudulent transfers, fraudulent preferences, and/or placing property or money derived from or through the initiative and work of the . . . Bankrupt into the names of others . . .
9 The Trustee's right title and interest in the proceedings was then transferred to Mr. Sommerey. On August 23, 2019, he filed a Notice of Civil Claim with the Kelowna registry against Mr. Tasci and the applicants in this application, seeking remedies under the Fraudulent Preference Act, R.S.B.C. 1996, c. 164 and Fraudulent Conveyance Act, R.S.B.C. 1996, c. 163, among others.
10 The applicants filed a Notice of Application on July 20, 2020 to set aside Master Schwartz's order. Their arguments centered on three grounds: (i) that Mr. Sommerey, a practicing lawyer, inappropriately relied on his own affidavit; (ii) that the affidavit failed to disclose a cause of action except through reliance upon inadmissible hearsay; and (iii) that the short leave
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 3 Tasci (Re), 2020 BCCA 317, 2020 CarswellBC 2878 0114 2020 BCCA 317, 2020 CarswellBC 2878 application of August 19, 2020, was "in every way an ex parte application" and that Mr. Sommerey had failed to comply with the duty to make full and frank disclosure.
11 Justice Davies dismissed the application on September 29, 2020. In his reasons for judgment, indexed at 2020 BCSC 1438 (B.C. S.C.) (the "Reasons"), he explained that in light of Mr. Sommerey's correspondence with the Trustee and his steps in obtaining short leave, the application was not equivalent to an ex parte application. He found that Mr. Sommerey was not precluded from relying on his own affidavit since he was acting on his own behalf rather than on behalf of a client. Lastly, he decided that there was sufficient admissible evidence in Mr. Sommerey's affidavit to uphold Master Schwartz's order.
12 In light of these conclusions, the judge declined to address what the applicants submit was a threshold issue, being whether they have the standing to challenge the granting of an s. 38 order.
The Legislation
13 Recourse to this Court in this matter is governed by s. 193 of the BIA:
Court of Appeal
193 Unless otherwise expressly provided, an appeal lies to the Court of Appeal from any order or decision of a judge of the court in the following cases:
(a) if the point at issue involves future rights;
(b) if the order or decision is likely to affect other cases of a similar nature in the bankruptcy proceedings;
(c) if the property involved in the appeal exceeds in value ten thousand dollars;
(d) from the grant of or refusal to grant a discharge if the aggregate unpaid claims of creditors exceed five hundred dollars; and
(e) in any other case by leave of a judge of the Court of Appeal.
Positions of the Parties
14 This application raises two issues: whether leave to appeal is required; and if so, whether it should be granted.
15 The applicants' primary position is that they are entitled to appeal as of right on the basis of ss. 193(b) and 193(c) of the BIA. They submit that s. 193(b) applies because the scope of Master Schwartz's order is so broad as to leave "no limits to what cases of a similar nature [Mr.] Sommerey might bring against the current Defendants or others." They also argue that s. 193(c) applies in that the property at issue in Mr. Sommerey's Notice of Civil Claim is well in excess of $10,000.
16 Alternatively, they submit that leave should be granted under s. 193(e). They say that the proposed appeal is of general importance since it raises issues concerning the sufficiency of evidence in support of s. 38 applications, the permissible scope of s. 38 orders and the standing of similarly situated applicants to challenge these orders once made. In particular, they refer to certain case law which, they submit, reflects inconsistent approaches to the issue of standing. They add that the appeal is clearly of great importance to the applicants, since it could be dispositive of Mr. Sommerey's civil claim. The appeal, they submit, would have arguable merit.
17 In relation to the sufficiency of the affidavit evidence required on an s. 38 application, the applicants say that it is clear from Mr. Sommerey's affidavit that he seeks to commence the action against them for the purposes of conducting a speculative fishing expedition. Paragraph 31 of his affidavit states:
31. The exact nature of what Mr. Tasci did do and is doing in business, the money these activities made and what he did or directed to be done with it are all unknown to me. It is necessary to commence legal proceedings to obtain this information.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 4 Tasci (Re), 2020 BCCA 317, 2020 CarswellBC 2878 0115 2020 BCCA 317, 2020 CarswellBC 2878
18 Mr. Sommerey submits that neither ss. 193(b) nor 193(c) applies in the circumstances. He argues that s. 193(b) is inapplicable because there are no other proceedings of a similar nature in these bankruptcy proceedings. Furthermore, s. 193(c) does not apply because the proposed appeal concerns procedural matters lacking any direct monetary impact on the applicants.
19 Mr. Sommerey further argues that leave should not be granted under s. 193(e). He characterizes the points on the proposed appeal as of limited significance generally or to the action itself. He submits that an appeal would lack merit, as the applicants are seeking to "re-argue the issue[s] de novo" by raising the same arguments made before the chambers judge. Lastly, he submits that granting leave to appeal would unduly hinder the progress of his action.
Analysis
Is Leave Required?
20 The applicants base their primary submission on this issue by referring to ss. 193(b) and 193(c) of the BIA. They submit that these subsections involve rights which this Court has described as "broad, generous and wide-reaching": Wong v. Luu, 2013 BCCA 547 (B.C. C.A.) at para. 23 (Harris J.A. in Chambers) [Wong]. Following this approach, they have an appeal from the judge's order as of right.
21 In Forjay Management Ltd. v. Peeverconn Properties Inc., 2018 BCCA 188 (B.C. C.A.) at paras. 33 — 35 (in Chambers) [Forjay Management Ltd.], Justice Willcock referred to differing view points on this issue:
Construction of Section 193
[33] The respondents say s. 193(a) to (d) of the BIA should be read narrowly, relying, in part on the decision of the Ontario Court of Appeal in 2403177 Ontario Inc. v. Bending Lake Iron Group Limited, 2016 ONCA 225 (Chambers) [Bending Lake]. In that case, Brown J.A. says:
[47] Courts have observed that the availability under s. 193(e) of a right to seek leave to appeal in circumstances falling outside those captured by automatic rights of appeal in ss. 193(a) to (d) signals the need for appeal courts to control bankruptcy proceedings in order to promote the efficient and expeditious resolution of the bankruptcy, one of the principal objectives of bankruptcy legislation.[17] However, courts across the country tend to part company on whether securing those objectives of the BIA is fostered by a "broad, generous and wide-reaching" interpretation of the appeal rights contained in BIA ss. 193(a) to (d) — with the bar set low to fall within s. 193(c)[18] — or by interpretations conducted within the context of the demands of "real time litigation" characteristic of contemporary insolvency and restructuring proceedings.[19]
[Emphasis added.]
[34] Justice Brown adopted the latter approach. The former approach is that taken by my brother Harris J.A. in Wong v. Luu, 2013 BCCA 547, described at para. 23:
[23] I am not persuaded that the objects and purposes of the legislation compel such a narrow construction of the subsection so that it does not apply to the circumstances of this case. I agree that the requirement for leave to appeal in circumstances falling outside those captured by a right of appeal indicates the need to control bankruptcy proceedings in order to promote the efficient and expeditious resolution of the bankruptcy. This is clearly one of the principal objectives of bankruptcy legislation. Nonetheless, that objective cannot be taken too far in eliminating the right to appeal. The right of appeal under the Bankruptcy and Insolvency Act is broad, generous and wide-reaching. A right of appeal exists, for example, in respect of any matter if the property in question has a value greater than $10,000. This can hardly be thought of as a limited right of appeal; to the contrary, the bar is set low indeed. Interpreting s. 193(b) to confer a right of appeal in the circumstances of this case does not frustrate, nor is it inconsistent with, the purpose and objects of the bankruptcy legislation.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 5 Tasci (Re), 2020 BCCA 317, 2020 CarswellBC 2878 0116 2020 BCCA 317, 2020 CarswellBC 2878
[35] Bearing in mind that there are what appear to be differing approaches to the interpretation of the legislation, I turn to the specific provisions. For reasons that will, I hope, become obvious, it is not necessary in this case to reject the narrow approach of Brown J.A. or to expressly adopt the broader approach favoured by this Court in Wong.
22 I consider myself to be in a similar position here since whether the broad or narrow approach is followed, the result would be the same. The applicants do not have a right to an appeal; leave is required.
23 I will first consider s. 193(b), which provides that an appeal lies to the Court of Appeal from any order or decision, if the order or decision is likely to affect other cases of a similar nature in the bankruptcy proceedings.
24 Section 193(b) only applies if the other cases potentially affected by an impugned order are "in the bankruptcy proceedings," which is to say "in the same matter": Forjay Management Ltd. at para. 42, citing Wong at para. 22. Those other cases must involve a "real dispute": Wong at para. 19, citing Lemay v. Lamarre (1934), 16 C.B.R. 189 (C.A. Que.).
25 In Forjay Management Ltd., the appellants sought to appeal an order of Justice Fitzpatrick directing the court-appointed receiver of a property development to disclaim 40 pre-sale contracts for units in the development. The appellants, who were parties to those contracts, argued that they had a right to appeal the order pursuant to ss. 193(a), (b) or (c). Justice Willcock held, inter alia, that s. 193(b) was engaged because the appeal was likely to affect the resolution of disputes between purchasers and secured creditors over other pre-sale contracts in the development, many of which were "of a similar nature" to those at issue: Forjay Management Ltd. at paras. 40 and 43.
26 Here, the applicants have not identified any other cases in the bankruptcy proceedings that could be affected by the judge's order. Rather, they argue that the underlying order of Master Schwartz is so broad that it could conceivably lead Mr. Sommerey to bring further cases of a similar nature. In my view, this fails to satisfy the threshold of a "real dispute" that would bring the proposed appeal within s. 193(b) such that leave to appeal would not be required.
27 I will now turn to s. 193(c) which provides an appeal lies to the Court of Appeal from any order or decision "if the property involved in the appeal exceeds in value ten thousand dollars."
28 Forjay Management Ltd. is authority for the proposition that s. 193(c) does not apply to orders that:
(a) are procedural in nature;
(b) do not bring into play the value of the debtor's property; or
(c) do not result in a loss.
Forjay Management Ltd. at para. 47, citing Bending Lake at para. 53.
29 To "result in a loss," the order in question must contain some element of a final determination of economic interests: Forjay Management Ltd. at para. 53, citing Bending Lake at para. 61.
30 All three factors from Forjay Management Ltd. are present here.
31 No property, strictly speaking, is at issue in this appeal. The issue underlying this application and the proceedings below is whether Mr. Sommerey was entitled to bring a claim against the applicants in place of the Trustee. Even if the appeal was successful, the claims in the action would not be resolved, but would rather revert to the Trustee of the Bankrupt's estate. As such, s. 193(c) is not engaged.
32 I would therefore find that neither provision applies, and leave to appeal is required.
Should Leave Be Granted?
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 6 Tasci (Re), 2020 BCCA 317, 2020 CarswellBC 2878 0117 2020 BCCA 317, 2020 CarswellBC 2878
33 The test for leave pursuant to s. 193(e) of the BIA was recently described by Justice Garson in McKibbon v. BDO Canada Limited, 2020 BCCA 7 (B.C. C.A.):
[20] In Farm Credit Canada v. Gidda, 2015 BCCA 236at para. 11 (Chambers), Justice Goepel citing Business Development Bank of Canada v. Pine Tree Resorts Inc., 2013 ONCA 282articulated the test for granting leave under s. 193(e) of the BIA. The test inquires whether the proposed appeal:
a) raises an issue that is of general importance to the practice in bankruptcy/insolvency matters or to the administration of justice as a whole, and is one that this Court should therefore consider and address;
b) is prima facie meritorious, and
c) would unduly hinder the progress of the bankruptcy/insolvency proceedings.
[21] Justice Goepel noted that these criteria are functionally identical to the general test for leave to appeal set out in Power Consolidated (China) Pulp Inc. v. British Columbia Resources Investment Corp. (1988), 19 C.P.C. (3d) 396 (B.C.C.A.), which direct an inquiry into:
[1] whether the point on appeal is of significance to the practice;
[2] whether the point raised is of significance to the action itself;
[3] whether the appeal is prima facie meritorious or, on the other hand, whether it is frivolous; and
[4] whether the appeal will unduly hinder the progress of the action.
[22] In the general test for leave to appeal, the overarching concern is the interests of justice: Hanlon v. Nanaimo (Regional District), 2007 BCCA 538 (Chambers) at para. 2. As per Justice Goepel in Farm Credit Canada, the two tests above are functionally identical, and this includes the requirement that I consider the interests of justice in an application for leave to appeal under s. 193(e) of the BIA.
34 In my view, Justice Davies accurately summarized the framework which applies to an s. 38 application at paras. 23 — 26 of the Reasons:
[23] Although s. 38 states that notice of the contemplated proceeding is to be given to other creditors no such notice is required before an application can be made. The only party to whom notice of an application under s. 38 must be given is the trustee of the bankrupt's estate. See: Bank of British Columbia v. McCracken (1986), 4 B.C.L.R. (2d) 35 (B.C. C.A.) [McCracken] and Jaston and Co. v. McCarthy (1998), 59 B.C.L.R. (3d) 168 (C.A.) [Jaston & Co.].
[24] More specifically, there is no requirement that notice be given to the bankrupt or any other proposed defendant. See: Salloum (Re) (1990), 51 B.C.L.R. (2d) 336 [Salloum] at para. 27.
[25] It is also settled law in British Columbia that failure to comply with or incomplete procedural compliance with s. 38 of the Act is to be treated in appropriate circumstances only as an irregularity. See: Jaston and Culp v. KPMG et al., 2006 BCSC 1599[Culp] at para. 13, leave to appeal refused, 2006 BCCA 462 at para. 20.
[26] Jaston further establishes that where there is no proof of prejudice caused to a person affected by non-compliance or incomplete procedural compliance with the procedural requirements of s. 38 of the Act such an irregularity can and should be cured by the making of or amending an order made under s. 38 nunc pro tunc.
35 The power to grant an s. 38 application is discretionary: Culp v. KPMG Inc., 2006 BCCA 462 (B.C. C.A. [In Chambers]) at para. 22 (Smith J.A. in Chambers).
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 7 Tasci (Re), 2020 BCCA 317, 2020 CarswellBC 2878 0118 2020 BCCA 317, 2020 CarswellBC 2878
36 The applicants submit that the issues raised on appeal, which include who has standing to oppose an s. 38 application and the adequacy of the affidavit evidence in support of the application for an s. 38 order, are of general importance to the practice in bankruptcy/insolvency matters, and to the administration of justice as a whole. Accordingly, they require that a division of the Court address them.
37 Regarding standing, they submit that courts appear to have differed on when a bankrupt or civil defendant has standing in s. 38 proceedings.
38 In particular, they cite jurisprudence in British Columbia that appears to be divided regarding whether fraud is the sole ground upon which standing can be founded, or whether other concerns such as harm to the administration of justice or material nondisclosure may also suffice: see Coroban Plastics Ltd., Re (1994), 10 B.C.L.R. (3d) 52 (B.C. C.A.) at paras. 11 — 13 (Taylor J.A. in Chambers) and Culp v. KPMG Inc., 2006 BCSC 1599 (B.C. S.C. [In Chambers]) at paras. 28 and 36, leave to appeal ref'd 2006 BCCA 462 (B.C. C.A. [In Chambers]) at para. 21.
39 They contrast this with jurisprudence in other provinces that appears to have endorsed the broader view of standing: see Shaw Estate (Trustee of) v. Nicol Island Development Inc., 2009 ONCA 276 (Ont. C.A.) at paras. 44 — 48; Smith v. Pricewaterhousecoopers Inc., 2013 ABCA 288 (Alta. C.A.) at para. 34.
40 In this case, the applicants submit that their standing derives from procedural irregularities in the proceedings below, including Mr. Sommerey's reliance on what they assert was inadmissible evidence, and para. 31 of Mr. Sommerey's affidavit which is set out at para. 17 above.
41 In my view the applicants have not established that this issue militates in favour of leave being granted.
42 The judge, having considered many of the authorities to which I have referred on the question of standing, stated at para. 39 of the Reasons:
[39] I have concluded that the issues raised should be determined on the merits of this application rather than upon the disputed issue of whether the applicants have standing to apply to set aside the Order.
43 While there may be inconsistencies in the jurisprudence, and I make no comment on whether there are in fact any, since the issue played no part in the outcome of the proceedings below and there was no analysis by the judge on the issue, in my view the interests of justice would be better served by considering the question with the benefit of full reasons in the Court below: Gorenshtein v. British Columbia (Employment Standards Tribunal), 2016 BCCA 457 (B.C. C.A.) at paras. 45 — 46 [Gorenshtein]; Price v. Robson, 2017 BCCA 419 (B.C. C.A.) at para. 75 (Fitch J.A. in Chambers).
44 I will now turn to the applicants' other submissions.
45 An appeal is not significant to the practice where there is an abundance of law on the point and where it would not settle the law on a substantive or procedural issue: Carpenter Fishing Corp. v. Canada, 2002 BCCA 104 (B.C. C.A. [In Chambers]) (Prowse J.A. in Chambers) at para. 6.
46 In considering the merits of the application, the judge concluded that Mr. Sommerey's affidavit was sufficient to support the making of the Master's Order. He did so having carefully considered the applicants' objections to Mr. Sommerey having filed and spoken to his own affidavit together with other arguments relating to inadmissible hearsay.
47 With respect to the latter issue, the judge, having quoted from this Court's decision in Albert v. Politano, 2013 BCCA 194 (B.C. C.A.) at paras. 19 — 22 concluded:
[71] In considering the applicant's hearsay submissions it must also be noted that if evidence is not adduced to prove the truth of an out of court statement or document but is rather adduced for a non-hearsay purpose, it will not be inadmissible.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 8 Tasci (Re), 2020 BCCA 317, 2020 CarswellBC 2878 0119 2020 BCCA 317, 2020 CarswellBC 2878
[72] In this case the causes of action against the applicants and Mr. Tasci that are asserted by Mr. Sommerey (as identified by him to the Trustee in the correspondence from which I have quoted at para. 19 of these Reasons) are fraudulent preferences and fraudulent transactions contrary to the provisions of either the Act or of Provincial legislation, or both.
[73] Those causes of action are not complex.
[74] The delict in each case is the transfer of an interest in property by an insolvent debtor to avoid recovery from the sale of that property by creditors or in an attempt by an insolvent debtor to advantage one creditor (usually a related party) to the disadvantage of others.
[75] Mr. Sommerey's affidavit and the information upon which he relied in seeking authorization under s. 38 of the Act must be considered in that context.
[76] More specifically in relation to admissible evidence related to the causes of action asserted by him, Mr. Sommerey:
1) Identified from his own knowledge the assets and apparent wherewithal of the bankrupt when he and his wife loaned significant amounts of money to Mr. Tasci when compared to the bankrupt's similar lifestyle after his assignment in bankruptcy.
2) Identified from his own knowledge the existence of the applicants' corporations involved with or related to the bankrupt and his wife and the fact that Mr. Tasci granted a security interest to one of those corporations in 2014 when Mr. Sommerey and his wife were unsecured judgement creditors due to a shortfall in mortgage foreclosure proceedings against Mr. Tasci.
3) Identified with specificity the bailiff retained by Ms. Whidden to pursue collection proceedings under her GSA who reported upon assets that were seized by him and also identified assets held by either a corporation related to the bankrupt and his wife or by the bankrupt's wife. Although that evidence is not admissible to prove the truth of what the bailiff determined to be the ownership of individual items seized, it is, admissible to the extent that it records Mr. Sommerey's knowledge of the progress or lack of progress of the collection proceedings.
4) Identified from his own knowledge that the security interest granted by the bankrupt to the related company in 2014 was amended by the bankrupt in 2017 (immediately before the bankrupt's assignment bankruptcy) to provide security over two of the assets that had earlier been seized by the bailiff.
[77] The fact that Mr. Sommerey's wife was later successful in obtaining an order for the disposition of assets seized by the bailiff (a copy of which was appended to Mr. Sommerey's affidavit) notwithstanding the assertions by the related corporation that it held a security interest in some of those assets is not hearsay evidence and also affirms the truth of at least some of the contents of the information related to Mr. Sommerey by the bailiff.
[78] In all of those circumstances I am satisfied that notwithstanding some of the information contained in Mr. Sommerey's affidavit constitutes inadmissible hearsay because he did not specifically assert his belief in each piece of information to which he referred, sufficient reliable non-hearsay evidence remains after the excising of inadmissible hearsay evidence to preclude the setting aside of the Order.
48 I agree with the respondent that the sufficiency of Mr. Sommerey's affidavit evidence before Master Schwartz was a highly fact-specific exercise. Furthermore:
• the legal framework referred to by the judge does not involve any point of principle nor does it raise an issue of importance to the practice or the action itself; and
• the applicants have not identified any extricable errors of law in the judge's decision, such that granting leave is warranted.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 9 Tasci (Re), 2020 BCCA 317, 2020 CarswellBC 2878 0120 2020 BCCA 317, 2020 CarswellBC 2878
49 The applicants also submit that the Master's order was impermissibly broad and vague. This issue does not appear to have been specifically addressed before the judge and would thus constitute a new issue on appeal. As Justice Saunders explained in Gorenshtein at para. 44, this Court "generally does not consider submissions that were not advanced in the proceeding giving rise to the order appealed." The power to do so is ultimately discretionary, and is "guided by the balancing of the interests of justice as they affect all parties": R. v. Winfield, 2009 YKCA 9 (Y.T. C.A.) at para. 18.
50 The applicants cite Jaston & Co. v. McCarthy (1998), 59 B.C.L.R. (3d) 168 (B.C. C.A.). In that case, the plaintiffs had obtained an order under s. 38 of the BIA permitting them to "take this proceeding in their own names . . . ," without any further specification. On appeal, this Court observed that the order "according to its terms . . . purport[ed] to permit the appellants to take over the bankruptcy proceeding" and therefore failed to comply with s. 38: at paras. 27 — 28.
51 In my view, Jaston & Co. is distinguishable. Master Schwartz's order in this case specifies that the order applies to proceedings for fraudulent transactions, fraudulent preferences and other instances in which property derived from the Bankrupt's own efforts, and held in trust for the Bankrupt, has been transferred to others. While broadly worded, I am not persuaded that this amounts to permitting Mr. Sommerey to "take over the bankruptcy proceeding."
52 Considering the stringency of the test for permitting new issues on appeal, I am not persuaded that it would be appropriate to entertain this issue on appeal.
53 For all these reasons I would also conclude that the applicants have not established that the appeal is prima facie meritorious.
54 The final factor to be considered is whether granting leave will unduly hinder the progress of the action.
55 This factor includes an examination of potential concerns as to timing and the sufficiency of the factual matrix. As explained by Justice Hall in Smith v. Global Plastics Ltd., 2001 BCCA 152 (B.C. C.A. [In Chambers]):
[11] Concerns as to timing and possible interference with a number of matters that are important such as,
[1] the trial date which we ought not to imperil,
[2] the possibility of bringing a rule 18A application;
[3] the possibility of settlement negotiations; or
[4] matters that relate to the temporal aspect of the litigation.
must fall for consideration in making any decision relative to any order for leave, or a stay that might be granted.
56 It appears from the record that the appellants have failed to comply with document obligations and to move the underlying action forward since the application which resulted in the order under appeal was brought before the judge.
57 Accordingly, this criterion also weighs against granting leave to appeal.
58 In conclusion, when I consider all the relevant factors, it is not in my view, in the interests of justice, to grant leave.
Disposition
59 Pursuant to s. 193(3) of the BIA leave to appeal is required.
60 For the reasons I have identified, leave to appeal is denied.
End of Document Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 10 0121
TAB 10 Minister of National Revenue v. Temple City Housing Inc., 2008 ABCA 1, 2008... 0122 2008 ABCA 1, 2008 CarswellAlta 2, [2008] 2 C.T.C. 67, [2008] G.S.T.C. 2...
2008 ABCA 1 Alberta Court of Appeal
Minister of National Revenue v. Temple City Housing Inc.
2008 CarswellAlta 2, 2008 ABCA 1, [2008] 2 C.T.C. 67, [2008] G.S.T.C. 2, [2008] A.W.L.D. 582, [2008] A.W.L.D. 690, [2008] A.W.L.D. 691, 163 A.C.W.S. (3d) 508, 2008 G.T.C. 1128 (Eng.), 415 W.A.C. 4, 422 A.R. 4, 43 C.B.R. (5th) 35
In the Matter of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended
And In the Matter of Temple City Housing Inc.
The Deputy Attorney General on Behalf of Her Majesty the Queen in Right of Canada as Represented by the Minister of National Revenue (Appellant / Respondent) and Temple City Housing Inc. (Respondent / Appellant)
Rowbotham J.A.
Heard: December 20, 2007 Judgment: January 3, 2008 Docket: Calgary Appeal 0701-0335-AC
Proceedings: refused leave to appeal Temple City Housing Inc., Re (2007), 2007 CarswellAlta 1806, 2007 ABQB 7, 42 C.B.R. (5th) 274, [2008] 2 C.T.C. 61, [2007] G.S.T.C. 188, [2008] A.W.L.D. 466, [2008] A.W.L.D. 575, [2008] A.W.L.D. 576, [2008] A.W.L.D. 577, 162 A.C.W.S. (3d) 879 ((Alta. Q.B.))
Counsel: Jill Medhurst-Tivadar for Appellant Chris D. Simard for Respondent Howard A. Gorman for Proposed Debtor in Possession Lender, Echo Merchant Fund G. Scott Watson for Monitor, Hardie & Kelly Inc.
Subject: Estates and Trusts; Goods and Services Tax (GST); Insolvency; Income Tax (Federal) Related Abridgment Classifications Bankruptcy and insolvency XIX Companies' Creditors Arrangement Act XIX.5 Miscellaneous Tax II Income tax II.23 Administration and enforcement II.23.d Withholding of tax II.23.d.iii Trust for monies withheld Tax II Income tax II.23 Administration and enforcement II.23.o Collection of tax II.23.o.xii Priorities and superpriorities of Minister Headnote Tax --- Goods and Services Tax — Collection and remittance — GST held in trust Leave to appeal from debtor-in-possession order — Corporate taxpayer owed CRA approximately $973,000 in source deductions and GST — Taxpayer filed petition seeking protection under Companies' Creditors Arrangement Act ("CCAA")
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 1 Minister of National Revenue v. Temple City Housing Inc., 2008 ABCA 1, 2008... 0123 2008 ABCA 1, 2008 CarswellAlta 2, [2008] 2 C.T.C. 67, [2008] G.S.T.C. 2...
— Petition was granted, including order for debtor-in-possession ("DIP") charge to taxpayer in amount of $300,000 — CCAA judge rejected CRA submission that deemed trust created by s. 227(4.1) of Income Tax Act gave CRA's claim priority over DIP order — CRA brought application for leave to appeal — Application dismissed — CRA did not meet three of four factors for leave to appeal under CCAA — Point, which CRA sought to appeal, would not be of significance to CCAA practice given amendments to CCAA — Amendments included provision granting super-priority to DIP financing — Once this provision was proclaimed in force, jurisdiction to order DIP priorities would not be issue in future CCAA proceedings — Moreover, point might not be of significance to action itself — DIP lender had advanced $300,000 to taxpayer in reliance of CCAA judge's order, and it was virtually impossible to "unscramble the egg" by reversing order — Further, appeal would hinder proceedings in case at bar — Without order giving DIP lender first priority, no funds would be advanced and taxpayer would be unable to restructure under CCAA — Excise Tax Act, R.S.C. 1985, c. E-15, s. 222. Bankruptcy and insolvency --- Proposal — Companies' Creditors Arrangement Act — Miscellaneous issues Leave to appeal from debtor-in-possession order — Corporate taxpayer owed CRA approximately $973,000 in source deductions and GST — Taxpayer filed petition seeking protection under Companies' Creditors Arrangement Act ("CCAA") — Petition was granted, including order for debtor-in-possession ("DIP") charge to taxpayer in amount of $300,000 — CCAA judge rejected CRA submission that deemed trust created by s. 227(4.1) of Income Tax Act gave CRA's claim priority over DIP order — CRA brought application for leave to appeal — Application dismissed — CRA did not meet three of four factors for leave to appeal under CCAA — Point, which CRA sought to appeal, would not be of significance to CCAA practice given amendments to CCAA — Amendments included provision granting super-priority to DIP financing — Once this provision was proclaimed in force, jurisdiction to order DIP priorities would not be issue in future CCAA proceedings — Moreover, point might not be of significance to action itself — DIP lender had advanced $300,000 to taxpayer in reliance of CCAA judge's order, and it was virtually impossible to "unscramble the egg" by reversing order — Further, appeal would hinder proceedings in case at bar — Without order giving DIP lender first priority, no funds would be advanced and taxpayer would be unable to restructure under CCAA. Tax --- Income tax — Administration and enforcement — Collection of tax — Priorities and superpriorities of Minister Corporate taxpayer owed CRA approximately $973,000 in source deductions and GST — Taxpayer filed petition seeking protection under Companies' Creditors Arrangement Act ("CCAA") — Petition was granted, including order for debtor-in- possession ("DIP") charge to taxpayer in amount of $300,000 — CCAA judge rejected CRA submission that deemed trust created by s. 227(4.1) of Income Tax Act gave CRA's claim priority over DIP order — CRA brought application for leave to appeal — Application dismissed — CRA did not meet three of four factors for leave to appeal under CCAA — Point, which CRA sought to appeal, would not be of significance to CCAA practice given amendments to CCAA — Amendments included provision granting super-priority to DIP financing — Once this provision was proclaimed in force, jurisdiction to order DIP priorities would not be issue in future CCAA proceedings — Moreover, point might not be of significance to action itself — DIP lender had advanced $300,000 to taxpayer in reliance of CCAA judge's order, and it was virtually impossible to "unscramble the egg" by reversing order — Further, appeal would hinder proceedings in case at bar — Without order giving DIP lender first priority, no funds would be advanced and taxpayer would be unable to restructure under CCAA. Tax --- Income tax — Administration and enforcement — Withholding of tax — Trust for monies withheld Corporate taxpayer owed CRA approximately $973,000 in source deductions and GST — Taxpayer filed petition seeking protection under Companies' Creditors Arrangement Act ("CCAA") — Petition was granted, including order for debtor-in- possession ("DIP") charge to taxpayer in amount of $300,000 — CCAA judge rejected CRA submission that deemed trust created by s. 227(4.1) of Income Tax Act gave CRA's claim priority over DIP order — CRA brought application for leave to appeal — Application dismissed — CRA did not meet three of four factors for leave to appeal under CCAA — Point, which CRA sought to appeal, would not be of significance to CCAA practice given amendments to CCAA — Amendments included provision granting super-priority to DIP financing — Once this provision was proclaimed in force, jurisdiction to order DIP priorities would not be issue in future CCAA proceedings — Moreover, point might not be of significance to action itself — DIP lender had advanced $300,000 to taxpayer in reliance of CCAA judge's order, and it was virtually impossible to "unscramble the egg" by reversing order — Further, appeal would hinder proceedings in case at bar — Without order giving DIP lender first priority, no funds would be advanced and taxpayer would be unable to restructure under CCAA. Table of Authorities Cases considered by Rowbotham J.A.:
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 2 Minister of National Revenue v. Temple City Housing Inc., 2008 ABCA 1, 2008... 0124 2008 ABCA 1, 2008 CarswellAlta 2, [2008] 2 C.T.C. 67, [2008] G.S.T.C. 2...
Canadian Airlines Corp., Re (2000), 2000 CarswellAlta 919, [2000] 10 W.W.R. 314, 20 C.B.R. (4th) 46, 84 Alta. L.R. (3d) 52, 9 B.L.R. (3d) 86, 2000 ABCA 238, 266 A.R. 131, 228 W.A.C. 131 (Alta. C.A. [In Chambers]) — considered First Vancouver Finance v. Minister of National Revenue (2002), [2002] 3 C.T.C. 285, (sub nom. Minister of National Revenue v. First Vancouver Finance) 2002 D.T.C. 6998 (Eng.), (sub nom. Minister of National Revenue v. First Vancouver Finance) 2002 D.T.C. 7007 (Fr.), 288 N.R. 347, 212 D.L.R. (4th) 615, [2002] G.S.T.C. 23, [2003] 1 W.W.R. 1, 45 C.B.R. (4th) 213, 2002 SCC 49, 2002 CarswellSask 317, 2002 CarswellSask 318, [2002] 2 S.C.R. 720 (S.C.C.) — considered Smoky River Coal Ltd., Re (1999), 1999 CarswellAlta 128, (sub nom. Luscar Ltd. v. Smoky River Coal Ltd.) 237 A.R. 83, (sub nom. Luscar Ltd. v. Smoky River Coal Ltd.) 197 W.A.C. 83, 1999 ABCA 62 (Alta. C.A.) — followed Statutes considered: Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act and the Income Tax Act, Act to amend the, S.C. 1997, c. 12 Generally — referred to Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 Generally — referred to Excise Tax Act, R.S.C. 1985, c. E-15 Generally — referred to Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) Generally — referred to
s. 224(1.2) — referred to
s. 224(1.3)"security interest" — considered
s. 227(4) — referred to
s. 227(4.1) [en. 1998, c. 19, s. 226(1)] — referred to Wage Earner Protection Program Act, S.C. 2005, c. 47 Generally — referred to
APPLICATION by Canada Revenue Agency for leave to appeal from order under Companies' Creditors Arrangement Act, granting debtor-in-possession charge to corporate taxpayer.
Rowbotham J.A.:
Introduction
1 Canada Revenue Agency (CRA) seeks leave to appeal a provision in an order made under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 (CCAA), granting the Debtor in Possession Lender, Echo Merchant Fund (DIP Lender), a charge in priority over the claim of the applicant. Should leave be granted, the applicant also seeks a stay pending appeal.
Background Facts
2 The respondent, Temple City Housing Inc. (Temple) is a small private company that manufactures homes and truss beams for homes in Cardston, Alberta. Temple has almost 200 employees but has suffered from a shortage of skilled trade workers which has slowed its production and lowered its revenues. In September 2007, entire sections of production had to be shut down because of the lack of workers.
3 Temple has debts in excess of $5 million and is unable to meet its current obligations. In November 2007, the respondent sought protection under the CCAA in order to carry on business and restructure as a going concern, rather than liquidating its assets.
4 Temple's largest creditor is the applicant, who has claims for unpaid or unremitted employee source deductions for income tax, Canada Pension Plan and Employment Insurance, as well as GST for 2007, which total approximately $973,000.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 3 Minister of National Revenue v. Temple City Housing Inc., 2008 ABCA 1, 2008... 0125 2008 ABCA 1, 2008 CarswellAlta 2, [2008] 2 C.T.C. 67, [2008] G.S.T.C. 2...
5 In order to pay its employees and continue carrying on business, Temple requires additional financing. The DIP Lender made loans of $185,000 and $91,500 on the condition that it obtains a security interest in the property of Temple in first priority or super-priority over all other claims, specifically the claim by CRA.
Decision of the CCAA Judge
6 The CCAA judge considered the sections of the Income Tax Act, R.S.C. 1985, c. 1, and the Excise Tax Act, R.S.C. 1985, c. E-15, that require employers to deduct and withhold amounts from their employees' wages (source deductions) and remit them to the Receiver General. The source deductions are deemed to be separate and apart from the property of the employer in trust for Her Majesty. A deemed trust attaches to the property of the employer both when source deductions are made and if source deductions are not remitted to the Receiver General by their due date.
7 The applicant submitted to the CCAA judge and again in this application, that the deemed trust overrides all competing security interests.
8 The CCAA judge held that the Supreme Court of Canada's decision in First Vancouver Finance v. Minister of National Revenue, 2002 SCC 49, [2002] 2 S.C.R. 720, [2002] G.S.T.C. 23 (S.C.C.), was authority that the deemed trust is similar in principle to a floating charge. Thus, although the property of the employer is subject to the deemed trust, Her Majesty's interest in the property did not continue, for example, once property was sold to a third party. She also found that her interpretation was further supported by the definition in the Income Tax Act, which states that a "security interest" means "any interest in property that secures payment or performance of an obligation and includes an interest created by or arising out of a ... deemed or actual trust...". Therefore, she held that Her Majesty's security interest could be treated the same way as any other security interest under the CCAA.
9 Exercising the inherent jurisdiction of a CCAA court, the CCAA judge held that in the circumstances, particularly, given the number of employees affected and the spirit of the CCAA, which is to promote the continuation of the corporation so that it can emerge from insolvency protection, she granted the DIP Lender first priority to the extent of $300,000 over any claims by the applicant.
10 The order under which leave is sought is dated November 23, 2007 at para. 41 provides:
In particular, the DIP Charge to the extent of $300,000.00 shall have priority over any claims by CRA [Canada Revenue Agency] in relation to unpaid or unremitted employee source deductions and GST as defined pursuant to the Income Tax Act and the Excise Tax Act.
Proposed Grounds for Appeal
11 The applicant seeks leave to appeal para. 41 of the November 23, 2007 order on the basis that the CCAA judge erred in granting the DIP Lender priority over Her Majesty's deemed trust claims arising under sections 224(1.2), 227(4) and 227(4.1) of the Income Tax Act.
Test for Leave
12 The test for leave is well known. In Smoky River Coal Ltd., Re, 1999 ABCA 62 (Alta. C.A.) at para. 22, this Court stated that to obtain leave to appeal an order under the CCAA, there must be serious and arguable grounds that are of real and significant interest to the parties. The four factors used to assess whether this criterion is present are:
(1) Whether the point on appeal is of significance to the practice;
(2) Whether the point raised is of significance to the action itself;
(3) Whether the appeal is prima facie meritorious or, on the other hand, whether it is frivolous; and
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 4 Minister of National Revenue v. Temple City Housing Inc., 2008 ABCA 1, 2008... 0126 2008 ABCA 1, 2008 CarswellAlta 2, [2008] 2 C.T.C. 67, [2008] G.S.T.C. 2...
(4) Whether the appeal will unduly hinder the progress of the action.
Application
13 The applicant is unable to meet the test for leave. The point which the applicant seeks to appeal will not be of significance to CCAA practice because the legislation has been amended. Bill C-12, An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005, 39th Parliament, 2nd Session, 2007, received Royal Assent on December 14, 2007. The amendments to the CCAA include specific authority to grant super-priority to DIP financing such as the loan in this case. This provision has not yet been proclaimed in force. However, once it has been proclaimed in force, the issue of the CCAA judge's inherent jurisdiction to order such priorities will not be an issue in future CCAA proceedings. Counsel for the CRA forcefully submitted that despite the amendments, this case is of significance to the practice because, to her knowledge, it is the first time that a court has given priority to the DIP Lender over the CRA's deemed trust. She made several arguments as to why the decision of the CCAA judge was incorrect, assuming that the standard of review is correctness. It seems to me, however, that these arguments, particularly the application of Iacobucci J.'s decision in the First Vancouver case, will still have force in future cases where the matter will be largely one of statutory interpretation. I conclude therefore that this particular appeal would not be of significance to the practice.
14 Moreover, the point may not be of significance to the action itself. As counsel for Temple submitted, this is real time litigation. The CCAA judge makes discretionary decisions in a constantly changing situation. Her decision is owed a high degree of deference. The DIP Lender has advanced $300,000 to Temple in reliance on the November 23 order and, in particular, on the lack of a stay of that order. The proceeds have been paid to Temple's employees and suppliers. It is now virtually impossible to "unscramble the egg", as counsel for Temple submitted; in other words to reverse the effect of para. 41 of the November 23 order and to grant the remedy that the applicant now seeks. As was the case in Canadian Airlines Corp., Re, 2000 ABCA 238, 266 A.R. 131 (Alta. C.A. [In Chambers]) at para. 32, this appeal may well be moot.
15 Further, an appeal would hinder the CCAA proceedings because without an order giving the DIP Lender first priority over the applicant's claim, the DIP Lender would not advance funds and without the current and future loans, Temple would be unable to restructure under the CCAA and would be forced to close its business.
16 Given that three of the four factors cannot be met, even if the point on appeal is prima facie meritorious, the applicant cannot show that there are serious and arguable grounds of real and significant interest to the parties.
Conclusion
17 As the applicant is unable to meet the test for leave, the application is dismissed and therefore, the application for a stay need not be considered. Application dismissed.
End of Document Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 5 0127
TAB 11 Regal Constellation Hotel Ltd., Re, 2004 CarswellOnt 2653 0128 2004 CarswellOnt 2653, [2004] O.J. No. 2744, 132 A.C.W.S. (3d) 215, 188 O.A.C. 97...
2004 CarswellOnt 2653 Ontario Court of Appeal
Regal Constellation Hotel Ltd., Re
2004 CarswellOnt 2653, [2004] O.J. No. 2744, 132 A.C.W.S. (3d) 215, 188 O.A.C. 97, 23 R.P.R. (4th) 64, 242 D.L.R. (4th) 689, 35 C.L.R. (3d) 31, 50 C.B.R. (4th) 258, 71 O.R. (3d) 355
In the Matter of the Receivership of Regal Constellation Hotel Limited, of the City of Toronto, in the Province of Ontario
And In the Matter of s. 41 of the Mortgages Act, R.S.O. 1990 c. M.40
HSBC Bank of Canada (Applicant) and Deloitte & Touche Inc. (Receiver / Respondent in Appeal) and Regal Pacific (Holdings) Limited (Respondent / Appellant) and 2031903 Ontario Inc. (Purchaser / Respondent in Appeal) and Aareal Bank A.G. (Intervenor)
Laskin, Feldman, Blair JJ.A.
Heard: May 13, 14, 2004 Judgment: June 28, 2004 Docket: CA C41258, C41257
Proceedings: affirming Regal Constellation Hotel Ltd., Re (2004), 2004 CarswellOnt 428 (Ont. S.C.J. [Commercial List])
Counsel: J. Brian Casey, John J. Pirie for Deloitte & Touche Inc. Robert Rueter, A. Chan for Regal Pacific (Holdings) Limited Tim Gilbert, Sandra Barton for 2031903 Ontario Inc. James P. Dube for Aareal Bank A.G.
Subject: Contracts; Property; Corporate and Commercial; Insolvency Related Abridgment Classifications Debtors and creditors VII Receivers VII.6 Conduct and liability of receiver VII.6.a General conduct of receiver Real property III Sale of land III.6 Judicial sale III.6.f Vesting order Headnote Sale of land --- Judicial sale — Vesting order Vesting order is court order allowing court to effect change of title directly — Vesting order is also conveyance of title vesting interest in real or personal property in party entitled thereto under order — In its capacity as order, vesting order is in ordinary course subject to appeal — In Ontario, filing of notice of appeal does not automatically stay order and, in absence of stay, it remains effective and may be registered on title under the land titles system — Once vesting order that has not been stayed is registered on title, it is effective as registered instrument and it cannot be attacked except by means that apply to any other instrument transferring absolute title and registered under land titles system. Table of Authorities Cases considered by Blair J.A.: Boucher v. Public Accountants Council (Ontario) (2004), 2004 CarswellOnt 2521 (Ont. C.A.) — referred to
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 1 Regal Constellation Hotel Ltd., Re, 2004 CarswellOnt 2653 0129 2004 CarswellOnt 2653, [2004] O.J. No. 2744, 132 A.C.W.S. (3d) 215, 188 O.A.C. 97...
Chippewas of Sarnia Band v. Canada (Attorney General) (2000), 2000 CarswellOnt 4836, 51 O.R. (3d) 641, 195 D.L.R. (4th) 135, 139 O.A.C. 201, 41 R.P.R. (3d) 1, [2001] 1 C.N.L.R. 56 (Ont. C.A.) — considered Durrani v. Augier (2000), 2000 CarswellOnt 2807, 190 D.L.R. (4th) 183, 50 O.R. (3d) 353, 36 R.P.R. (3d) 261 (Ont. S.C.J.) — considered Foulis v. Robinson (1978), 21 O.R. (2d) 769, 92 D.L.R. (3d) 134, 8 C.P.C. 198, 1978 CarswellOnt 466 (Ont. C.A.) — referred to National Life Assurance Co. of Canada v. Brucefield Manor Ltd. (February 23, 1999), Doc. C24863, M20859 (Ont. C.A.) — followed R.A. & J. Family Investment Corp. v. Orzech (1999), 121 O.A.C. 312, 1999 CarswellOnt 1829, 44 O.R. (3d) 385, 27 R.P.R. (3d) 230 (Ont. C.A.) — referred to Regal Constellation Hotel Ltd., Re (July 4, 2003), Cumming J. (Ont. S.C.J.) — referred to Royal Bank v. Soundair Corp. (1991), 7 C.B.R. (3d) 1, 83 D.L.R. (4th) 76, 46 O.A.C. 321, 4 O.R. (3d) 1, 1991 CarswellOnt 205 (Ont. C.A.) — considered Royal Trust Corp. of Canada v. Karenmax Investments Inc. (1998), 1998 CarswellAlta 959, 231 A.R. 101, 71 Alta. L.R. (3d) 307 (Alta. Q.B. [In Chambers]) — referred to Toronto Dominion Bank v. Usarco Ltd. (2001), 2001 CarswellOnt 525, 196 D.L.R. (4th) 448, 17 M.P.L.R. (3d) 57, 142 O.A.C. 70, 24 C.B.R. (4th) 303 (Ont. C.A.) — considered Statutes considered: Courts of Justice Act, R.S.O. 1990, c. C.43 s. 100 — considered Land Titles Act, R.S.A. 2000, c. L-4 s. 191 — referred to Land Titles Act, R.S.O. 1990, c. L.5 Generally — referred to
Pt. IX — referred to
Pt. X — referred to
s. 25 — referred to
s. 57 — referred to
s. 57(13) — referred to
s. 69 — referred to
s. 69(1) — considered
s. 78 — referred to
s. 78(4) — considered
ss. 155-157 — referred to Regulations considered: Land Titles Act, R.S.O. 1990, c. L.5 General, O. Reg. 26/99
Generally
s. 4
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 2 Regal Constellation Hotel Ltd., Re, 2004 CarswellOnt 2653 0130 2004 CarswellOnt 2653, [2004] O.J. No. 2744, 132 A.C.W.S. (3d) 215, 188 O.A.C. 97...
APPEAL by company from judgment reported at Regal Constellation Hotel Ltd., Re (2004), 2004 CarswellOnt 428, 50 C.B.R. (4th) 253 (Ont. S.C.J. [Commercial List]), approving conduct of receiver.
Blair J.A.:
1 Regal Pacific (Holdings) Limited is the 100% shareholder of Regal Constellation Hotel Limited, the company that operated the Regal Constellation Hotel near Pearson Airport in Toronto. The hotel is bankrupt and in receivership. 1
2 Deloitte & Touche Inc., the receiver, has agreed to sell the assets of the hotel to 2031903 Ontario Inc. ("203"). The sale was approved, and a vesting order issued, by Sachs J. on December 19, 2003. Following a hearing on January 15, 2004, Farley J. approved the payment of $23,500,000 from the sale proceeds to the hotel's secured creditor, HSBC Bank of Canada ("HSBC"), and as well approved the conduct of the receiver in the receivership and passed its accounts.
3 This appeal involves an attempt by Regal Pacific, in its capacity as shareholder of the bankrupt hotel, to set aside the orders of Sachs J. and Farley J., and thus to set aside the sale transaction between the receiver and 203. It is based upon the argument that the receiver failed to disclose to Regal Pacific and to Sachs J. the name of one of the members of the consortium lying behind the purchaser, 203, and that this failure to disclose tainted the fairness and integrity of the receivership process to such an extent that it must be set aside. Farley J. was made aware of the information. However, his failure to grant an adjournment of the hearing respecting approval of the receiver's conduct in the face of Regal Pacific's fresh discovery of the information, and his conclusion that the information was irrelevant to the receiver's duties with respect to the sale process, are said to constitute reversible error.
4 In a separate motion 203 also seeks to quash the appeal on the ground it is moot.
5 For the reasons that follow, I would quash the appeal from the vesting order and I would otherwise dismiss the appeals.
Facts
6 The hotel has been in financial difficulties for some time. It is old and in need of repair and renovation. Because the premises no longer comply with the requisite fire code regulations, and because liability insurance is difficult to obtain, they have been closed for some time. In addition, the hotel has suffered from the decrease in air passenger traffic following the events of September 11, 2001, and the aftermath of the SARS outbreak in Toronto in early 2003. It is thus an asset of declining value.
7 At the time of the appointment of the receiver, the hotel was in default in its payments to HSBC, which was owed $33,850,000. In fact, HSBC had made demand for repayment in November 2001 and as a result Regal Pacific and the hotel had commenced searching for a purchaser. They retained Colliers International Hotels ("Colliers") to market the hotel.
8 Several bids were received, and in the fall of 2002 a share-purchase transaction was entered into between Regal Pacific and a company controlled by the Orenstein Group. The purchase price was $45 million and included the purchase of Regal Pacific's shares in the hotel together with other assets. The transaction was not completed, however, and Regal Pacific and the Orenstein Group are presently in litigation as a result. The existence of this litigation is not without significance in these proceedings.
9 When the foregoing transaction failed to close, in June 2003, the bank commenced its application for the appointment of a receiver. On July 4, 2003, Cumming J. granted the receivership order [Regal Constellation Hotel Ltd., Re (July 4, 2003), Cumming J. (Ont. S.C.J.)].
10 The receiver and Colliers continued the efforts to market the hotel. The receiver's supplemental report indicates that "an investment profile of the hotel was distributed to more than five hundred potential investors, a Confidential Information Memorandum was distributed to eighty potential purchasers, tours of the Hotel were conducted for twenty-three parties, and a Standard Offer to Purchase Form was provided to 42 purchasers". As of August 28, 2003, the deadline for the submission of binding offers, 13 offers had been received. After reviewing these offers with HSBC, the receiver accepted an offer from 203 to purchase the assets of the hotel for $25 million, subject to court approval (the "First 203 Offer").
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 3 Regal Constellation Hotel Ltd., Re, 2004 CarswellOnt 2653 0131 2004 CarswellOnt 2653, [2004] O.J. No. 2744, 132 A.C.W.S. (3d) 215, 188 O.A.C. 97...
11 A summary of the thirteen bids setting out their proposed purchase prices, the deposits made with them, and their conditions, is set out in Appendix 1 of the receiver's supplemental report. Five of the bids were not accompanied by a deposit, as required by the terms of the sale process approved by the court. The receiver went back to each of the bidders who had not provided a deposit and gave them a few more days to submit the deposit. None of them did so.
12 The First 203 Offer was for the fourth highest purchase price. It was accompanied by a $1 million deposit, as required, and it was unconditional. The second and third highest bids were not accompanied by the requisite deposit. The highest bid, by Hospitality Investors Group LLC ("HIG") was for $31 million. While the HIG bid was accompanied by a $1 million non- certified deposit cheque, however, the receiver was advised that the deposit cheque submitted could not be honoured if presented for payment, and the offer was withdrawn by HIG.
13 HIG is a company controlled by the Orenstein Group. The withdrawal of its $31 million offer is the subject of some controversy in the proceedings, and I shall return to that turn of events in a moment.
14 Of the remaining bids, one was rejected as inordinately low. Three of the remaining six were for the same $25 million purchase price as that offered by 203. They were rejected because they were subject to conditions and the First 203 Offer was not. The rest were rejected because their proposed purchase price was lower.
15 On September 9, 2003, Cameron J. approved the sale to 203. At this hearing Regal Pacific expressed a concern that 203 might be connected to the Orenstein Group. Counsel for Regal Pacific states that Cameron J. was advised by counsel for the receiver that there was no such connection. It is not clear on the record whether this statement was accurate in fact, but there is no suggestion that counsel for the receiver was at that time aware of any Orenstein Group connection to 203. Mr. Orenstein's personal involvement did not seem to come until sometime later in October, following the failure of the First 203 Offer to close.
16 At the receiver's request Cameron J. also granted an order sealing the receiver's supplemental report respecting the sale process in order to protect the confidential information regarding the pricing and terms of the other bids outlined above, in case the First 203 Offer did not close and it proved necessary for the receiver to renegotiate with the other offerors. This meant that Regal Pacific was not privy to the information contained in it.
17 The First 203 Offer did not close, as scheduled, on October 10. This led to proceedings by the receiver to terminate the agreement and for the return of the $2 million in deposit funds that had been submitted by 203. These proceedings were settled, with the commercial list assistance of Farley J. But the settled transaction did not close either. As a result of the minutes of settlement, the First 203 Offer was terminated and 203 forfeited a $2.5 million deposit plus $500,000 in carrying costs.
18 The receiver renewed its efforts to find a purchaser for the hotel. In what was intended to be a second round of bidding, it instructed Colliers to continue its search. Between Colliers and the receiver all thirteen of the original bidders referred to above, including 203, were canvassed again in an effort to generate new offers. Except for a second proposal from 203 ("the Second 203 Offer"), none was forthcoming.
19 The Second 203 Offer was for $24 million. It was again unconditional and this time was buttressed by a $20 million credit facility provided by the intervenor, Aareal Bank A.G. It was also accompanied by a certified and non-refundable deposit cheque for $2 million. The receiver was concerned that the market for the hotel was in a state of steady decline and that the creditors' positions would only worsen if a sale could not be completed expeditiously. With a purchase price of $24 million, HSBC would be suffering a shortfall on its secured debt of approximately $9 million; in addition there are unsecured creditors of the hotel with claims exceeding $2 million. As the receiver had not been able to generate any other new offers at a price comparable to the $24 million, and Colliers had not been able to identify any new purchasers, the receiver accepted the Second 203 Offer and entered into a new agreement with 203 on December 9, 2003, with a projected closing date of January 5, 2004. Given the $3 million in deposits that 203 had previously forfeited, the receiver views the purchase price as being the equivalent of $27 million.
20 On December 19, 2003, Sachs J. approved the sale of the hotel to 203. She also granted a vesting order pursuant to which title to the hotel would be conveyed to 203 on closing. The transaction closed on January 6, 2004. 203 paid the receiver $24
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 4 Regal Constellation Hotel Ltd., Re, 2004 CarswellOnt 2653 0132 2004 CarswellOnt 2653, [2004] O.J. No. 2744, 132 A.C.W.S. (3d) 215, 188 O.A.C. 97... million and registered the vesting order on title. Aareal Bank's $20 million advance is secured on title based on that vesting order. The hotel's indebtedness to HSBC Bank of Canada has been paid down by $20.5 million from the sale proceeds.
21 A few days later Regal Pacific learned from an article in the Toronto Star newspaper that the hotel had been sold "to the Orenstein Group". A motion was pending before Farley J. on January 15, 2004, for approval of the receiver's conduct and related relief. Regal sought an adjournment of that motion on the basis of the prior non-disclosure of the Orenstein Group's involvement in the 203 offers. When the adjournment request was taken under advisement, Regal Pacific opposed approval of the receiver's conduct on the basis that the failure to advise it and Sachs J. of the Orenstein Group's involvement tainted the fairness and integrity of the process. Farley J. refused the adjournment request, and approved the receiver's conduct and accounts. He concluded that the identity of the principals behind the purchaser was not material. In this regard he said:
While Mr. Rueter alludes to "the sales process was manipulated", I do not see that anything that the Receiver did was in aid of, or assisted such (as alleged). The identity of who the principals were was not in issue so long as a deal could be closed without a vendor take back mortgage.
. . . . .
It seems to me that the Receiver acted properly and within the mandate given it from time to time by the court. It fulfilled its prime purpose of obtaining as high a value [as] it could for the hotel after an approved marketing campaign. Vis-à-vis the Receiver and that duty, it does not appear to me that the identity of the principals, but more importantly that there was an overlap regarding the aborted purchaser from Holdings prior to the receivership, HIG and 203, is of any moment.
Standard of Review
22 The orders appealed from are discretionary in nature. An appeal court will only interfere with such an order where the judge has erred in law, seriously misapprehended the evidence, or exercised his or her discretion based upon irrelevant or erroneous considerations or failed to give any or sufficient weight to relevant considerations.
23 Underlying these considerations are the principles the courts apply when reviewing a sale by a court-appointed receiver. They exercise considerable caution when doing so, and will interfere only in special circumstances - particularly when the receiver has been dealing with an unusual or difficult asset. Although the courts will carefully scrutinize the procedure followed by a receiver, they rely upon the expertise of their appointed receivers, and are reluctant to second-guess the considered business decisions made by the receiver in arriving at its recommendations. The court will assume that the receiver is acting properly unless the contrary is clearly shown. See Royal Bank v. Soundair Corp. (1991), 4 O.R. (3d) 1 (Ont. C.A.).
24 In Soundair, at p. 6, Galligan J.A. outlined the duties of a court when deciding whether a receiver who has sold a property has acted properly. Those duties, in no order of priority, are to consider and determine:
(a) whether the receiver has made a sufficient effort to get the best price and has not acted improvidently;
(b) the interests of the parties;
(c) the efficacy and integrity of the process by which offers are obtained; and
(d) whether there has been unfairness in the working our of the process.
25 In Soundair as well, McKinlay J.A. emphasized the importance of protecting the integrity of the procedures followed by a court-appointed receiver "in the interests of both commercial morality and the future confidence of business persons in their dealings with receivers".
26 A court-appointed receiver is an officer of the court. It has a fiduciary duty to act honestly and fairly on behalf of all claimants with an interest in the debtor's property, including the debtor (and, where the debtor is a corporation, its shareholders). It must make candid and full disclosure to the court of all material facts respecting pending applications, whether favourable or
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 5 Regal Constellation Hotel Ltd., Re, 2004 CarswellOnt 2653 0133 2004 CarswellOnt 2653, [2004] O.J. No. 2744, 132 A.C.W.S. (3d) 215, 188 O.A.C. 97... unfavourable. See Toronto Dominion Bank v. Usarco Ltd. (2001), 196 D.L.R. (4th) 448 (Ont. C.A.), per Austin J.A. at paras. 28 - 31, and the authorities referred to by him, for a more elaborate outline of these principles. It has been said with respect to a court-appointed receiver's standard of care that the receiver "must act with meticulous correctness, but not to a standard of perfection": Bennett on Receiverships, 2 nd ed. (Toronto: Carswell, 1999) at p. 181, cited in Toronto Dominion Bank v. Usarco Ltd., supra, at p. 459.
27 The foregoing principles must be kept in mind when considering the exercise of discretion by the motions judges in the context of these proceedings.
Analysis
The Vesting Order and the Motion to Quash
28 Aareal Bank A.G. and 203 sought to quash the appeal on the basis that it is moot. They argue that once the vesting order granted by Sachs J. was registered on title - no stay having been obtained - its effect was spent, the court's power to set it aside is extinguished, and no appeal can lie from it. Because all the parties were prepared to argue the appeal, we heard the submissions on the motion to quash during the argument of the appeal on the merits.
29 In my opinion the appeal from the vesting order should be quashed because the appeal is moot.
30 Sachs J.'s order of December 19, 2003 granted a vesting order directing the land registrar at Toronto, in the land titles system, to record 203 as the owner of the hotel. The order was subject to two conditions, namely, that 203 pay the purchase price and comply with all of its obligations on closing of the transaction and that the vesting order be delivered to 203. These conditions were complied with on January 6, 2004, and the vesting order was registered on title on that date. Aareal Bank registered its $20 million mortgage against the title to the hotel property following registration of the vesting order.
31 In Ontario, the power to grant a vesting order is conferred by the Courts of Justice Act, R.S.O. 1990, c. C.43, s. 100, which provides as follows:
A court may by order vest in any person an interest in real or personal property that the court has authority to order be disposed of, encumbered or conveyed.
32 The vesting order itself is a creature of statute, although it has its origins in equitable concepts regarding the enforcement of remedies granted by the Court of Chancery. Vesting orders were discussed by this court in Chippewas of Sarnia Band v. Canada (Attorney General) (2000), 195 D.L.R. (4th) 135 (Ont. C.A.), at 227, where it was observed that:
Vesting orders are equitable in origin and discretionary in nature. The Court of Chancery made in personam orders, directing parties to deal with property in accordance with the judgment of the court. Judgments of the Court of Chancery were enforced on proceedings for contempt, followed by imprisonment or sequestration. The statutory power to make a vesting order supplemented the contempt power by allowing the Court to effect the change of title directly: see McGhee, Snell's Equity 30 th ed., (London: Sweet and Maxwell, 2000) at 41-42 [emphasis added].
33 A vesting order, then, has a dual character. It is on the one hand a court order ("allowing the court to effect the change of title directly"), and on the other hand a conveyance of title (vesting "an interest in real or personal property" in the party entitled thereto under the order). This duality has important ramifications for an appeal of the original court decision granting the vesting order because, in my view, once the vesting order has been registered on title its attributes as a conveyance prevail and its attributes as an order are spent; the change of title has been effected. Any appeal from it is therefore moot.
34 I reach this conclusion for the following reasons.
35 In its capacity as an order, a vesting order is in the ordinary course subject to appeal. In Ontario, however, the filing of a notice of appeal does not automatically stay the order and, in the absence of such a stay, it remains effective and may be
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 6 Regal Constellation Hotel Ltd., Re, 2004 CarswellOnt 2653 0134 2004 CarswellOnt 2653, [2004] O.J. No. 2744, 132 A.C.W.S. (3d) 215, 188 O.A.C. 97... registered on title under the land titles system - indeed, the land registrar is required to register it on a proper application to do so: see the Land Titles Act, R.S.O. 1990, c. L.5, ss.25 and 69. In this respect, an application for registration based on a judgment or court order need only be supported by an affidavit of a solicitor deposing that the judgment or order is still in full force and effect and has not been stayed; there is no requirement - as there is in some other jurisdictions 2 - to show that no appeal is pending and that all appeal rights have terminated: see Ontario Land Titles Regulations, O. Reg 26/99, s. 4.
36 Appeal rights may be protected by obtaining a stay, which precludes registration of the vesting order on title pending the disposition of the appeal. Do those appeal rights remain alive, however, where no stay has been obtained and the order has been registered?
37 In answering that question I start with the provisions of ss. 69 and 78 of the Land Titles Act, which deal, respectively, with vesting orders (specifically) and the effect of registration (generally). They state in part, as follows:
69(1) Where by order of a court of competent jurisdiction ... registered land or any interest therein is stated by the order ... to vest, be vested or become vested in, or belong to ... any person other than the registered owner of the land, the registered owner shall be deemed for the purposes of this Act to remain the owner thereof,
(a) until an application to be registered as owner is made by or on behalf of the ... other person in or to whom the land is stated to be vested or to belong; or
(b) until the land is transferred to the ... person by the registered owner, as the case may be, in accordance with the order or Act.
78 (4) When registered, an instrument shall be deemed to be embodied in the register and to be effective according to its nature and intent, and to create, transfer, charge or discharge, as the case requires, the land or estate or interest therein mentioned in the register [italics added].
38 Upon registration, then, a vesting order is deemed "to be embodied in the register and to be effective according to its nature and intent". Here the nature and effect of Sachs J.'s vesting order is to transfer absolute title in the hotel to 203, free and clear of encumbrances. 3 When it is "embodied in the register" it becomes a creature of the land titles system and subject to the dictates of that regime.
39 Once a vesting order that has not been stayed is registered on title, therefore, it is effective as a registered instrument and its characteristics as an order are, in my view, overtaken by its characteristics as a registered conveyance on title. In a way somewhat analogous to the merger of an agreement of purchase and sale into the deed on the closing of a real estate transaction, the character of a vesting order as an "order" is merged into the instrument of conveyance it becomes on registration. It cannot be attacked except by means that apply to any other instrument transferring absolute title and registered under the land titles system. Those means no longer include an attempt to impeach the vesting order by way of appeal from the order granting it because, as an order, its effect is spent. Any such appeal would accordingly be moot.
40 This interpretation of the effect of registration of a vesting order is consistent with the purpose of the land titles regime and the philosophy lying behind it. It ensures that disputes respecting the registered title are resolved under the rubric of that regime and within the scheme provided by the Land Titles Act. This promotes confidence in the system and enhances the certainty required in commercial and real estate transactions that must be able to rely upon the integrity of the register.
41 Donald H.L. Lamont described the purposes of the land titles system very succinctly in his text, Lamont on Real Estate Conveyancing, 2 nd ed. looseleaf (Toronto: Carswell, 1991) vol. 1 at 1-10, as follows:
The basis of the system is that the Act authoritatively establishes title by declaring, under a guarantee of indemnity, that a certain parcel of land is vested in a named person, subject to some special circumstances. Early defects are cured when the land is brought under the land titles system, and thenceforth investigation of the prior history of the title is not necessary.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 7 Regal Constellation Hotel Ltd., Re, 2004 CarswellOnt 2653 0135 2004 CarswellOnt 2653, [2004] O.J. No. 2744, 132 A.C.W.S. (3d) 215, 188 O.A.C. 97...
No transfer is effective until recorded; once recorded, however, the title cannot, apart from fraud, be upset [italics added].
42 Epstein J. elaborated further on the origins, purpose and philosophy behind the regime in Durrani v. Augier (2000), 50 O.R. (3d) 353 (Ont. S.C.J.). At paras. 40 - 42 she observed:
[40] The land titles system was established in Ontario in 1885, and was modeled on the English Land Transfer Act of 1875. It is currently known as the Land Titles Act, R.S.O. 1990, c. L.5. Most Canadian provinces have similar legislation.
[41] The essential purpose of land titles legislation is to provide the public with the security of title and facility of transfer: Di Castri, Registration of Title to Land, vol. 2 looseleaf (Toronto: Carswell, 1987) at p. 17-32. The notion of title registration establishes title by setting up a register and guaranteeing that a person named as the owner has perfect title, subject only to registered encumbrances and enumerated statutory exceptions.
[42] The philosophy of land titles system embodies three principles, namely, the mirror principle, where the register is a perfect mirror of the state of title; the curtain principle, which holds that a purchaser need not investigate the history of past dealings with the land, or search behind the title as depicted on the register; and the insurance principle, where the state guarantees the accuracy of the register and compensates any person who suffers loss as the result of an inaccuracy. These principles form the doctrine of indefeasibility of title and is the essence of the land titles system: Marcia Neave,
"Indefeasibility of Title in the Canadian Context" (1976), 26 U.T.L.J. 173 at p. 174.
43 Certainty of title and the ability of a bona fide purchaser for valuable consideration to rely upon the title as registered, without going behind it to examine the conveyance, are, therefore, the hallmarks of the land titles system. The transmogrification of a vesting order into a conveyance upon registration is consistent with these hallmarks. It does not mean that such an order, once registered on title, is absolutely immune from attack. It simply means that any such attack must be made within the parameters of the Land Titles Act.
44 That legislation does present a scheme of remedies in circumstances where there has been a wrongful entry on the registry by reason of fraud or of misdescription or because of other errors of certification of title or entry on the registry. The remedies take the form of damages or compensation from the assurance fund established under the Act or, in some instances, rectification of the register by the Director of Titles and/or the court: see, for example, s. 57 (Claims against the Fund), Part IX (Fraud) and Part X (Rectification). In this scheme, good faith purchasers or mortgagees who have taken an interest in the land for valuable consideration and in reliance on the register, are protected, 4 in keeping with the motivating principles underlying the land titles system. It has been held that there is no jurisdiction to rectify the register if to do so would interfere with the registered interest of a bona fide purchaser for value in the interest as registered: see R.A. & J. Family Investment Corp. v. Orzech (1999), 44 O.R. (3d) 385 (Ont. C.A.); and Durrani v. Augier, supra, at paras. 49, 75 and 76.
45 Vesting orders properly registered on title, then - like other conveyances - are not immune from attack. However, any such attack is limited to the remedies provided under the Land Titles Act and no longer may lie by way of appeal from the original decision granting the vesting order. Title has effectively been changed and innocent third parties are entitled to rely upon that change. The effect of the vesting order qua order has been spent.
46 Johnstone J., of the Alberta Court of Queens Bench, came to a similar conclusion -although not based upon the same reasoning - in Royal Trust Corp. of Canada v. Karenmax Investments Inc. (1998), 71 Alta. L.R. (3d) 307 (Alta. Q.B. [In Chambers]). She refused to interfere with a vesting order granted by the master in the context of a receivership sale, stating (at para. 22, as amended):
Accordingly, because the Order of Master Funduk has been entered, and no stay of execution was sought nor granted, the Order acts as a transfer of title, which having been registered at the Land Titles Office, extinguishes my ability to set aside the Order, absent any err [sic] in fact or law by the learned Master. ....
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 8 Regal Constellation Hotel Ltd., Re, 2004 CarswellOnt 2653 0136 2004 CarswellOnt 2653, [2004] O.J. No. 2744, 132 A.C.W.S. (3d) 215, 188 O.A.C. 97...
47 In a brief three-paragraph endorsement this court granted an unopposed motion to quash an appeal from an order approving a sale by a receiver in National Life Assurance Co. of Canada v. Brucefield Manor Ltd., [1999] O.J. No. 1175 (Ont. C.A.). While a vesting order was involved, it does not appear to have been the subject of the appeal. The appeal was quashed. The sale order had been made in May 1996, a motion to stay the order pending appeal had been dismissed in August, and the sale had closed and a vesting order had been granted in November of that year. The proceeds of sale had been distributed. "Against this background", Catzman J.A. noted, "we agree with [the] submission that the order under appeal is spent".
48 This decision was based on the global situation before the court, not on the narrower premise that the vesting order had been registered and the appeal was therefore moot. I am satisfied, based on the foregoing analysis, however, that the narrower premise is sound.
49 I do not mean to suggest by this analysis that a litigant's legitimate rights of appeal from a vesting order should be prejudiced simply because the successful party is able to run to the land titles office and register faster than the losing party can run to the appeal court, file a notice of appeal and a stay motion and obtain a stay. These matters ought not to be determined on the basis that "the race is to the swiftest". However, there is no automatic stay of such an order in this province, and a losing party might be well advised to seek a stay pending appeal from the judge granting the order, or at least seek terms that would enable a speedy but proper appeal and motion for a stay to be launched. Whether the provisions of s. 57 of the Land Titles Act (Remedy of person wrongfully deprived of land), or the rules of professional conduct, would provide a remedy in situations where a successful party registers a vesting order immediately and in the face of knowledge that the unsuccessful party is launching an appeal and seeking a timely stay, is something that will require consideration should the occasion arise. It may be that the appropriate authorities should consider whether the Act should be amended to bring its provisions in line with those contained in the Alberta legislation, and referred to in footnote 2 above.
50 The foregoing concerns do not change the legal analysis of the effect of registration of a vesting order outlined above, however, and I conclude that the appeal from the vesting order is moot.
The Appeals on the Merits
51 Even if I am in error respecting the mootness of the appeal from the vesting order, the appeal from it and from the approval orders must be dismissed on their merits. On behalf of Regal Pacific, Mr. Rueter highlights the facts concerning the Orenstein Group's involvement in the failed $45 million share purchase transaction, which was followed by the receivership, the sudden withdrawal by HIG (also an Orenstein company) of its $31 million bid on September 2, 2003 - just the day before the First 203 Offer for $25 million was submitted - and the involvement of the Orenstein Group in that First (and subsequent) 203 Offer. He forcefully argues that the Orenstein participation in the 203 Offers should have been disclosed to Regal Pacific and to Sachs J., and submits that had that disclosure been made Sachs J. may have declined to approve the Second 203 Offer. The non-disclosure tainted the receivership sale process to the extent that its fairness and integrity have been jeopardized, he concludes, and accordingly the sale must be set aside.
52 On behalf of the receiver, Mr. Casey acknowledges that the Orenstein involvement was not disclosed, even after the receiver became aware of it (which, he submits, was not until the time of the Second 203 Offer). He concedes that "it would have been nice" if the receiver had disclosed the information, but submits it was under no legal obligation to do so as, in its view, the information was not material to the sale process. The sale process was carried out in good faith in accordance with the duties and obligations of the receiver, and both of the 203 Offers represented the best offers available at the time of their acceptance - and, in the case of the Second 203 Offer, the only offer available. The transaction is in the best interests of all concerned, he contends. The orders should not be set aside.
53 203 and the intervenor, Aareal Bank A.G., support the receiver's position. On behalf of 203 Mr. Gilbert argues in addition that 203 is a bona fide purchaser of the hotel for value, that it has paid its deposit and purchase price and registered its interest through the vesting order on title, and that $20 million has been advanced by Aareal Bank A.G. on the strength of the registered
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 9 Regal Constellation Hotel Ltd., Re, 2004 CarswellOnt 2653 0137 2004 CarswellOnt 2653, [2004] O.J. No. 2744, 132 A.C.W.S. (3d) 215, 188 O.A.C. 97... vesting order. The transaction cannot be overturned because once the vesting order has been registered it is spent and any appeal from the order is therefore moot. Mr. Dube advanced a similar argument on behalf of Aareal Bank A.G.
54 I do not accept the argument advanced by the appellant.
55 In my view, the fact that the Orenstein Group is involved in the 203 bid is not material to the sale process conducted by the receiver. I agree with the conclusions of Farley J., recited above, in that regard.
56 Whatever may be the rights and obligations between Regal Pacific and the Orenstein Group with respect to the $45 million share purchase transaction, as determined in the pending litigation between them, the facts relating to that transaction are of little more than historical interest in the context of the receivership sale. The hotel was not bankrupt and in receivership, or closed, at that time. For the various reasons outlined earlier, the hotel is an asset progressively declining in value, and it is not surprising that the business may have attracted a higher offer in mid-2002 than it did in mid-2003. Moreover, the $45 million transaction involved the purchase of the shares of Regal Pacific rather than the assets of the hotel and, as well, the acquisition of certain other assets. None of the thirteen bids elicited by the receiver remotely approached a purchase price of $45 million. Apart from its indication that the Orenstein Group has an interest in acquiring the hotel, I do not see the significance of this earlier transaction to the sale process conducted by the receiver.
57 I turn, then, to the $31 million HIG bid. It, too, confirms an interest by the Orenstein Group in the Hotel. Mr. Rueter argues that the withdrawal of that bid the day before the First 203 Offer was presented at the lower $25 million price is suspicious, and that the court should have been apprised of what exchange of information occurred between the receiver, HIG and 203 that resulted in the HIG bid being withdrawn and the lower 203 offer going forward as the offer recommended by the receiver. In my view, however, this argument does not assist Regal Pacific.
58 First, there is not a scintilla of evidence to suggest that the receiver participated in any such discussions. Secondly, when the receiver inquired whether the deposit cheque that had been submitted with the HIG offer - and which had not been certified, as required by the court-approved bidding process - could be cashed, the receiver was told the cheque would not be honoured if presented for payment. The receiver would have been derelict in its duties if it had accepted the HIG bid in those circumstances. Finally, in the absence of some provision in an offer or the terms of the bidding process to the contrary - which was not the case here - a potential purchaser is entitled to withdraw its offer at any time prior to acceptance for any reason, including the belief that the purchaser may be able to obtain the property at a better price by another means. Mr. Rueter conceded that the receiver was not obliged to accept the HIG offer and that he was not asserting a kind of improvident-sale claim for damages based upon the difference in price between the HIG offer and the 203 bid.
59 The stark reality is that after nearly two years of marketing efforts by Colliers, and latterly by Colliers and the receiver, there were no other offers available to the receiver that were superior to the unconditional $25 million First 203 Offer at the time of its acceptance by the receiver and approval by the court. After the failure of the First 203 Offer to close, and in spite of renewed efforts by both Colliers and the receiver, there were no other offers available apart from the $24 million Second 203 Offer, which was accepted by the receiver and approved by Sachs J.
60 A persuasive measure of the realistic nature of the 203 offers is the fact that they are supported by HSBC, which stands to incur a shortfall on its security of $9 million. In addition, there are outstanding unsecured creditors with over $2 million in claims. No one except Regal Pacific has opposed the sale.
61 There is simply nothing on the record to suggest that the hotel assets are likely to fetch a price that will come anywhere close to providing any recovery for Regal Pacific in its capacity as shareholder of the hotel. Regal Pacific, therefore, has little, if anything, to gain from re-opening the sale process. Apart from a liability to make some interest payments as part of an earlier agreement in the proceedings, Regal Pacific is not liable under any guarantees for the indebtedness of the hotel. It therefore has little, if anything to lose from opposing the sale, as well. This lends some credence to the respondents' argument that Regal Pacific's opposition to the sale, and this appeal, are driven by tactical motives extraneous to these proceedings and relating to the separate litigation between it and the Orenstein Group concerning the aborted $45 million share purchase transaction.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 10 Regal Constellation Hotel Ltd., Re, 2004 CarswellOnt 2653 0138 2004 CarswellOnt 2653, [2004] O.J. No. 2744, 132 A.C.W.S. (3d) 215, 188 O.A.C. 97...
62 In the circumstances of this case, then, and given the principles courts must apply when reviewing a sale by a court- appointed receiver, as outlined above, I can find no error on the part of Sachs J. or Farley J. in the exercise of their discretion when granting the orders under appeal.
63 I would dismiss the appeals for the foregoing reasons.
Disposition
The Appeals
64 For all of the foregoing reasons, the appeal from the vesting order granted by Sachs J. is quashed, and the appeals from the orders of Sachs J. dated December 19, 2003 approving the sale, and the order of Farley J. dated January 14, 2004, are dismissed.
Costs
65 The respondents and the intervenor are entitled to their costs of the appeal, including the motion to quash, which was included in the argument of the appeal.
66 The receiver and 203 requested that costs be fixed on a substantial indemnity basis - the receiver on the ground that the allegations raised impugned its integrity in the conduct of the receivership, and 203 on the ground that the appeal was futile and brought solely for tactical purposes in an attempt to extract a settlement and at great expense to 203 in terms of uncertainty and carrying costs. I would not accede to these requests. Without in any way questioning the integrity of the receiver in the conduct of the receivership, it seems to me that some of the problems could have been avoided had the receiver revealed the involvement of the Orenstein Group in the 203 transactions when it first learned that was the case. While I understand 203's frustration at the delay in finalizing the results of the transaction, it cannot be said that the appeal was frivolous and there is nothing in the circumstances to justify an award of costs on the higher scale: see Foulis v. Robinson (1978), 21 O.R. (2d) 769 (Ont. C.A.). I would therefore award costs on a partial indemnity scale.
67 Counsel provided us with bills of costs. Regal Constellation sought $57,123.25 on a partial indemnity basis if successful. The receiver asks for $61,919.00 and Aareal Bank requests $12,224.75. These amounts are inclusive of fees, disbursements and GST and seem somewhat high to me. The draft bill submitted by 203 appears to me to be exceedingly high, given the amounts sought by other parties who carried a similar burden, and notwithstanding the importance of the case for 203. 203 asks us to fix its costs in the amount of $137,444.68. Such an award is not justified and would simply not be fair and reasonable in the circumstances, in my view, given the nature and length of the appeal and the issues involved: see Boucher v. Public Accountants Council (Ontario), [2004] O.J. No. 2634 (Ont. C.A.).
68 Costs are awarded, on a partial indemnity basis, as follows:
a) To the receiver, in that amount of $40,000;
b) To 203, in the amount of $40,000; and,
c) To Aareal Bank, in the amount of $12,225.
69 These amounts are inclusive of fees, disbursements and GST.
Laskin J.A.:
I agree.
Feldman J.A.:
I agree.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 11 Regal Constellation Hotel Ltd., Re, 2004 CarswellOnt 2653 0139 2004 CarswellOnt 2653, [2004] O.J. No. 2744, 132 A.C.W.S. (3d) 215, 188 O.A.C. 97...
Appeal dismissed.
Footnotes 1 I shall refer to Regal Constellation Hotel Limited as "the Hotel" throughout these reasons.
2 See, for example, the Alberta Land Titles Act R.S.A. 2000, c. L-4, s. 191, which precludes registration of a judgment or order in the absence of consent, an undertaking not to appeal, or proof that all appeal rights have expired.
3 Except certain encumbrances that must remain on title by virtue of the Land Titles Act.
4 For instance, where an instrument would have been absolutely void if unregistered and rectification is ordered, a person suffering by the rectification is entitled to compensation as provided: s. 57(13). Persons fraudulently procuring an entry on the registry may be convicted of an offence under the Act, and where an innocent purchaser has acquired a charge or interest in the lands while the wrongful entry was subsisting on the lands the land registrar may revest the lands in the rightful owner but subject to the interests so acquired: ss 155-157.
End of Document Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 12 0140
TAB 12 Dynamic Transport Inc., Re, 2016 NBCA 70, 2016 CarswellNB 595 0141 2016 NBCA 70, 2016 CarswellNB 595, 2016 CarswellNB 596, [2016] N.B.J. No. 312...
2016 NBCA 70 New Brunswick Court of Appeal
Dynamic Transport Inc., Re
2016 CarswellNB 595, 2016 CarswellNB 596, 2016 NBCA 70, [2016] N.B.J. No. 312, 276 A.C.W.S. (3d) 525, 45 C.B.R. (6th) 45
IN THE MATTER of a proposal of DYNAMIC TRANSPORT INC. and DYNAMIC TRANSPORT CORP., business corporations duly registered under the laws of the Province of New Brunswick carrying on business at 197 de L'Anse Street, Eel River Crossing, New Brunswick and IN THE MATTER of an Application pursuant to Section 195 of the Bankruptcy and Insolvency Act by PENSKE TRUCK LEASING CANADA INC. for an Order, inter alia, cancelling, varying or confirming the inexistence of a stay of proceedings under Section 69.1 of the Act and IN THE MATTER of an Application pursuant to Section 195 of the Bankruptcy and Insolvency Act by DAIMLER TRUCK FINANCIAL, A BUSINESS UNIT OF MERCEDES-BENZ FINANCIAL SERVICES CANADA CORPORATION for an Order, inter alia, cancelling, varying or confirming the inexistence of a stay of proceedings under Section 69.1 of the Act and IN THE MATTER of an Application pursuant to Section 195 of the Bankruptcy and Insolvency Act (the "Act") by LAURENTIAN BANK OF CANADA and LBEL INC. for an Order, inter alia, cancelling, varying or confirming that the stay of proceedings under Section 69 of the Act no longer exists
Larlee, Richard, Quigg JJ.A.
Heard: November 30, 2016 Judgment: November 30, 2016 Docket: 61-16-CA, 62-16-CA
Counsel: George Cooper, Simon-Pierre Godbout, for Dynamic Transport Inc. and Dynamic Transport Corp. Michael J. Bray, Q.C., for Penske Truck Leasing Canada Inc. Gary Makila, for Daimler Truck Financial Hugh J. Cameron, for Laurentian Bank of Canada and LBEL Inc
Subject: Civil Practice and Procedure; Insolvency Related Abridgment Classifications Bankruptcy and insolvency XVII Practice and procedure in courts XVII.7 Appeals XVII.7.e Miscellaneous Headnote Bankruptcy and insolvency --- Practice and procedure in courts — Appeals — Miscellaneous Application judge refused to grant appellants extension they sought under s. 50.4(9) of Bankruptcy and Insolvency Act — Appellants appealed — Appeal dismissed — Appellants submitted application judge erred by giving undue weight to trustee's report and by making unfavourable finding of credibility with respect to certain affidavits — Appellants also submitted that application judge misapplied applicable legal test under Act — It was apparent that appellants were actually contesting manner in which legal test was applied to facts — Sections of Act at play in this case are designed to give insolvent company opportunity to put forth proposal as long as court is satisfied that requirements of s. 50.4(9) are met — Criteria that need to be met on balance
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 1 Dynamic Transport Inc., Re, 2016 NBCA 70, 2016 CarswellNB 595 0142 2016 NBCA 70, 2016 CarswellNB 595, 2016 CarswellNB 596, [2016] N.B.J. No. 312... of probabilities are: insolvent person has acted, and is acting in good faith and with due diligence; insolvent person would likely be able to make viable proposal if extension is granted; and no creditor would be materially prejudiced if extension is granted — In considering applications under s. 50.4(9) of Act, objective standard must be applied and matters considered under this provision should be judged on rehabilitation basis rather than on liquidation basis — Review of application judge's decision indicated he took into consideration all of evidence available to him by affidavit before applying it to legal test prescribed by s. 50.4(9) of Act — Application judge made findings of fact from which he concluded appellants did not meet three statutory criteria — As application judge made no palpable and overriding error and applied correct legal principles, there was no basis for intervention. Table of Authorities Cases considered: Beaverbrook Canadian Foundation v. Beaverbrook Art Gallery (2006), 2006 NBCA 75, 2006 CarswellNB 397, 2006 CarswellNB 398, 302 N.B.R. (2d) 161, 784 A.P.R. 161 (N.B. C.A.) — referred to Bedford v. Canada (Attorney General) (2013), 2013 SCC 72, 2013 CarswellOnt 17681, 2013 CarswellOnt 17682, 303 C.C.C. (3d) 146, 366 D.L.R. (4th) 237, 7 C.R. (7th) 1, 312 O.A.C. 53, 452 N.R. 1, (sub nom. Canada (Attorney General) v. Bedford) [2013] 3 S.C.R. 1101, (sub nom. Canada (Attorney General) v. Bedford) 297 C.R.R. (2d) 334, 128 O.R. (3d) 385 (note) (S.C.C.) — referred to British Columbia (Minister of Forests) v. Okanagan Indian Band (2003), 2003 SCC 71, 2003 CarswellBC 3040, 2003 CarswellBC 3041, 313 N.R. 84, [2004] 2 W.W.R. 252, 21 B.C.L.R. (4th) 209, 233 D.L.R. (4th) 577, [2004] 1 C.N.L.R. 7, 189 B.C.A.C. 161, 309 W.A.C. 161, 43 C.P.C. (5th) 1, [2003] 3 S.C.R. 371, 114 C.R.R. (2d) 108, 2003 CSC 71 (S.C.C.) — referred to Burtt v. Boyle (2011), 2011 CarswellNB 706, 2011 CarswellNB 707, 988 A.P.R. 206, 382 N.B.R. (2d) 206 (N.B. C.A.) — considered Convergix Inc., Re (2006), 2006 NBQB 288, 2006 CarswellNB 460, 24 C.B.R. (5th) 289, 307 N.B.R. (2d) 259, 795 A.P.R. 259, 2006 NBBR 288, 2006 CarswellNB 863 (N.B. Q.B.) — referred to Doaktown Lumber Ltd., Re (1996), 39 C.B.R. (3d) 41, (sub nom. Doaktown Lumber Ltd. v. BNY Financial Corp. Canada) 174 N.B.R. (2d) 297, (sub nom. Doaktown Lumber Ltd. v. BNY Financial Corp. Canada) 444 A.P.R. 297, 1996 CarswellNB 100 (N.B. C.A.) — referred to Irving Oil Ltd. v. New Brunswick (Executive Director of Assessment) (2005), 2005 NBCA 39, 2005 CarswellNB 192, 2005 CarswellNB 193, 9 M.P.L.R. (4th) 1, 282 N.B.R. (2d) 275, 738 A.P.R. 275 (N.B. C.A.) — considered J.A. MacFarlane Engineering Co. v. Darcon Holdings Ltd. (2016), 2016 NBCA 45, 2016 CarswellNB 344, 2016 CarswellNB 345, (sub nom. Darcon Holdings Ltd. v. MacFarlane (J.A.) Engineering Co.) 1186 A.P.R. 208, (sub nom. Darcon Holdings Ltd. v. MacFarlane (J.A.) Engineering Co.) 451 N.B.R. (2d) 208 (N.B. C.A.) — referred to Royal Bank v. Belliveau (2002), 2002 NBCA 96, 2002 CarswellNB 471, 2002 CarswellNB 472, (sub nom. Belliveau (Bankrupt), Re) 254 N.B.R. (2d) 184, (sub nom. Belliveau (Bankrupt), Re) 664 A.P.R. 184 (N.B. C.A.) — considered Statutes considered: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 Generally — referred to
s. 50.4(9) [en. 1992, c. 27, s. 19] — considered
APPEAL from dismissal of application to grant extension sought under s. 50.4(9) of Bankruptcy and Insolvency Act.
Per curiam (orally):
On November 30, 2016, the appeal was dismissed with reasons to follow. These are the reasons for decision.
Per curiam (orally):
1 The appellants ask the Court to determine that a judge of the Court of Queen's Bench erred in his refusal to grant an extension sought under s. 50.4(9) of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 2 Dynamic Transport Inc., Re, 2016 NBCA 70, 2016 CarswellNB 595 0143 2016 NBCA 70, 2016 CarswellNB 595, 2016 CarswellNB 596, [2016] N.B.J. No. 312...
2 A review of the record reveals the first two grounds of appeal advanced by the appellants raise questions of mixed fact and law. Summarized, the grounds are whether the application judge erred: (1) by giving undue weight to the report filed by the trustee and (2) by making an unfavourable finding of credibility with respect to the affidavits sworn by Kevin Lee Comeau. The third issue raised by the appellants also purports that the application judge misapplied the applicable legal test under the Act. It is apparent to us that the appellants are actually contesting the manner in which the legal test was applied to the facts. In other words, the appellants are attempting to disguise, as a question of law, what are actually questions of mixed law and fact and wish us to substitute our judgment for that of the motion judge.
3 It is trite law that in order for this Court to interfere with decisions where the alleged errors are of mixed fact and law we must determine that the judge made a palpable and overriding error. This standard remains applicable notwithstanding the decision at first instance was based upon written evidence available to this Court. In Irving Oil Ltd. v. New Brunswick (Executive Director of Assessment), 2005 NBCA 39, 282 N.B.R. (2d) 275 (N.B. C.A.): Deschênes J.A is instructive in his dissent:
The reviewing court must also apply the palpable and overriding error standard in cases involving findings of fact grounded on documentary evidence filed before a motion or application judge and irrespective of the nature of the civil proceedings. Justice Robertson has cited precedents from other appellate courts which support that view. See for example Sports Villas, Gottardo Properties, Equity Waste Management of Canada v. Halton Hills (Town) (1997), 35 O.R. (3d) 321 (C.A.).
I do not take issue with the view that this Court has the right to draw inferences from established facts. I share that view, but do not agree with the appellant that no deference is owed to findings of fact or factual inferences arrived at by the original fact-finder in this case. In my opinion, unless the appellant succeeds in convincing the reviewing court that the judge of first instance has committed a palpable and overriding error, a court of appeal should not interfere with findings of fact or factual inferences made by her unless there is a clear legislative mandate to do so. Waxman v. Waxman, [2004] O.J. No. 1765 (C.A.) at para. 291. [paras. 64-65]
[Emphasis added.]
Writing for the majority in that case, Robertson J.A. did not find it necessary to determine the issue. However, it is now settled law. In Bedford v. Canada (Attorney General), 2013 SCC 72, [2013] 3 S.C.R. 1101 (S.C.C.), at para. 55, McLachlin C.J. for the Court made it clear that, absent express statutory instruction, adjudicative facts presented only in affidavit form are owed the same deference as other kinds of evidence.
4 The judge's decision was discretionary in nature. Where the impugned order is the product of an exercise of judicial discretion, it may be interfered with on appeal only if it is founded upon an error of law, an error in the application of the governing principles or a palpable and overriding error in the assessment of the evidence (see British Columbia (Minister of Forests) v. Okanagan Indian Band, 2003 SCC 71, [2003] 3 S.C.R. 371 (S.C.C.), para. 43) or if it is unreasonable, in the sense that nothing in the record can justify it: Beaverbrook Canadian Foundation v. Beaverbrook Art Gallery, 2006 NBCA 75, 302 N.B.R. (2d) 161 (N.B. C.A.), Drapeau C.J.N.B, for the Court, at para. 4.
5 Furthermore, in Burtt v. Boyle (2011), 382 N.B.R. (2d) 206, [2011] N.B.J. No. 471 (N.B. C.A.) (QL), Richard J.A., writing on the issue of adjournment requests, cited Royal Bank v. Belliveau, 2002 NBCA 96, 254 N.B.R. (2d) 184 (N.B. C.A.). In Belliveau, Drapeau J.A. (as he then was), stated at para. 10: "the exercise of the discretion [...] must be exercised according to common sense and justice and in a manner which does not occasion an injustice". Richard J.A. in Burtt added "[t]he exercise of discretion, not only in matters of bankruptcy or of adjournment, must be exercised judiciously, which certainly imports elements of common sense and justice" (para. 11). The standard of review is "stamped with deference" (para 12). (See: J.A. MacFarlane Engineering Co. v. Darcon Holdings Ltd., 2016 NBCA 45, [2016] N.B.J. No. 183 (N.B. C.A.))
6 The sections of the Act at play in this case are designed to give an insolvent company an opportunity to put forth a proposal as long as a court is satisfied that the requirements of section 50.4(9) are met: Doaktown Lumber Ltd., Re (1996), 174 N.B.R. (2d) 297, [1996] N.B.J. No. 110 (N.B. C.A.) (QL), Convergix Inc., Re, 2006 NBQB 288, 307 N.B.R. (2d) 259 (N.B. Q.B.). An extension may be granted if the insolvent party satisfies the court that it met the following criteria on the balance of probabilities:
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 3 Dynamic Transport Inc., Re, 2016 NBCA 70, 2016 CarswellNB 595 0144 2016 NBCA 70, 2016 CarswellNB 595, 2016 CarswellNB 596, [2016] N.B.J. No. 312...
(a) the insolvent person has acted, and is acting in good faith and with due diligence;
(b) the insolvent person would likely be able to make a viable proposal if the extension is granted; and
(c) no creditor would be materially prejudiced if the extension is granted.
7 In considering applications under s. 50.4(9) of the Act, an objective standard must be applied and matters considered under this provision should be judged on a rehabilitation basis rather than on a liquidation basis: Convergix supra. One must also keep in mind the provisions of s. 50.4(9) are conjunctive; the appellant must prove all three.
8 A review of the application judge's decision indicates he took into consideration all of the evidence available to him by affidavit before applying it to the legal test prescribed by s. 50.4(9) of the Act. The judge made findings of fact from which he concluded the appellant did not meet the three statutory criteria. As the motion judge made no palpable and overriding error and applied the correct legal principles, we see no basis for intervention. Accordingly, the appeal is dismissed. We award the responding parties who appeared at the hearing to oppose the appeal each one set of costs in the amount of $1,000.00. Appeal dismissed.
End of Document Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 4 0145
TAB 13 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 485, 2016... 0146 2016 ONCA 485, 2016 CarswellOnt 9527, 267 A.C.W.S. (3d) 768, 37 C.B.R. (6th) 173
2016 ONCA 485 Ontario Court of Appeal
2403177 Ontario Inc. v. Bending Lake Iron Group Ltd.
2016 CarswellOnt 9527, 2016 ONCA 485, 267 A.C.W.S. (3d) 768, 37 C.B.R. (6th) 173
2403177 Ontario Inc., Applicant (Respondent) and Bending Lake Iron Group Limited, Respondent (Appellant/Moving Party)
K.M. Weiler, E.A. Cronk, M.L. Benotto JJ.A.
Judgment: June 16, 2016 Docket: CA M46301 (C61637)
Proceedings: refusing leave to appeal 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd. (2016), 34 C.B.R. (6th) 125, 2016 CarswellOnt 2673, 2016 ONSC 199, D.C. Shaw J. (Ont. S.C.J.)
Counsel: Robert MacRae, for Moving Party, Bending Lake Iron Group Limited Kenneth Kraft, John Salmas, Jordan Schultz, for Responding Party, A. Farber & Partners Inc., in its capacity as court-appointed receiver of Bending Lake Iron Group Limited
Subject: Civil Practice and Procedure; Insolvency Related Abridgment Classifications Bankruptcy and insolvency IV Receivers IV.3 Powers, duties and liabilities Headnote Bankruptcy and insolvency --- Receivers — Powers, duties and liabilities In 2014, company went into receivership, and court approved Sales and Investor Solicitation Process (SISP order) for company's property — In 2015, receiver brought successful motion for court approval of sale of substantially all of company's assets — Company filed notice of appeal, and court ruled that company required leave to appeal under s. 193(e) of Bankruptcy and Insolvency Act — Company brought application for leave to appeal — Application dismissed — Company did not raise arguable points that created reasonable prospect of success on appeal — First two proposed grounds of appeal, which concerned findings that company contravened receivership order, were fact driven and did not require court consideration — Company did not have authority to negotiate directly with purchaser, as this power was specifically assigned to receiver — Proposed appeal would unduly hinder insolvency proceedings — Company did not raise receiver's alleged failure to consult with affected Aboriginal communities at stage of SISP order, and issue was not raised before motions judge. Table of Authorities Cases considered: Business Development Bank of Canada v. Pine Tree Resorts Inc. (2013), 2013 ONCA 282, 2013 CarswellOnt 5026, 100 C.B.R. (5th) 91, 115 O.R. (3d) 617, 307 O.A.C. 1 (Ont. C.A.) — considered Enroute Imports Inc., Re (2016), 2016 ONCA 247, 2016 CarswellOnt 5045, 35 C.B.R. (6th) 1 (Ont. C.A.) — referred to Farm Credit Canada v. Gidda (2015), 2015 BCCA 236, 2015 CarswellBC 1414, (sub nom. Farm Credit Canada v. West- Kana Farms Ltd.) 372 B.C.A.C. 285, (sub nom. Farm Credit Canada v. West-Kana Farms Ltd.) 640 W.A.C. 285 (B.C. C.A.) — referred to Global Royalties Ltd. v. Brook (2016), 2016 ONCA 50, 2016 CarswellOnt 517, 33 C.B.R. (6th) 1, 344 O.A.C. 49 (Ont. C.A.) — referred to Haida Nation v. British Columbia (Minister of Forests) (2004), 2004 SCC 73, 2004 CarswellBC 2656, 2004 CarswellBC 2657, 245 D.L.R. (4th) 33, 19 Admin. L.R. (4th) 195, 11 C.E.L.R. (3d) 1, [2005] 1 C.N.L.R. 72, 26 R.P.R. (4th) 1, [2005]
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 1 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 485, 2016... 0147 2016 ONCA 485, 2016 CarswellOnt 9527, 267 A.C.W.S. (3d) 768, 37 C.B.R. (6th) 173
3 W.W.R. 419, [2004] 3 S.C.R. 511, 36 B.C.L.R. (4th) 282, 327 N.R. 53, 206 B.C.A.C. 52, 338 W.A.C. 52, 2004 CSC 73 (S.C.C.) — considered Impact Tool & Mould Inc. (Receiver of) v. Impact Tool & Mould Inc. (Trustee of) (2013), 2013 ONCA 697, 2013 CarswellOnt 15576 (Ont. C.A.) — referred to Kaiman v. Graham (2009), 2009 ONCA 77, 2009 CarswellOnt 378, 75 R.P.R. (4th) 157, 45 E.T.R. (3d) 163, (sub nom. Kaiman Estate v. Graham Estate) 245 O.A.C. 130 (Ont. C.A.) — considered Lax Kw'alaams Indian Band v. Canada (Attorney General) (2011), 2011 SCC 56, 2011 CarswellBC 2861, 2011 CarswellBC 2862, 62 C.E.L.R. (3d) 1, [2011] 12 W.W.R. 209, (sub nom. Lax Kw'alaams Indian Band v. Canada) 338 D.L.R. (4th) 193, 23 B.C.L.R. (5th) 217, 423 N.R. 3, [2011] 3 S.C.R. 535, 313 B.C.A.C. 3, 533 W.A.C. 3, [2011] 4 C.N.L.R. 346 (S.C.C.) — considered Moulton Contracting Ltd. v. British Columbia (2013), 2013 SCC 26, 2013 CarswellBC 1158, 2013 CarswellBC 1159, 357 D.L.R. (4th) 236, 43 B.C.L.R. (5th) 1, [2013] 7 W.W.R. 1, 443 N.R. 303, (sub nom. Behn v. Moulton Contracting Ltd.) [2013] 3 C.N.L.R. 125, 333 B.C.A.C. 34, 571 W.A.C. 34, (sub nom. Behn v. Moulton Contracting Ltd.) [2013] 2 S.C.R. 227 (S.C.C.) — considered Ravelston Corp., Re (2005), 2005 CarswellOnt 9058, 24 C.B.R. (5th) 256 (Ont. C.A.) — considered Royal Bank v. Soundair Corp. (1991), 7 C.B.R. (3d) 1, 83 D.L.R. (4th) 76, 46 O.A.C. 321, 4 O.R. (3d) 1, 1991 CarswellOnt 205 (Ont. C.A.) — followed Taku River Tlingit First Nation v. British Columbia (Project Assessment Director) (2004), 2004 SCC 74, 2004 CarswellBC 2654, 2004 CarswellBC 2655, 245 D.L.R. (4th) 193, 19 Admin. L.R. (4th) 165, 11 C.E.L.R. (3d) 49, [2005] 1 C.N.L.R. 366, 26 R.P.R. (4th) 50, [2005] 3 W.W.R. 403, (sub nom. Taku River Tlingit First Nation v. Tulsequah Chief Mine Project (Project Assessment Director)) [2004] 3 S.C.R. 550, 36 B.C.L.R. (4th) 370, (sub nom. Taku River Tlingit First Nation v. Tulsequah Chief Mine Project (Project Assessment Director)) 327 N.R. 133, 206 B.C.A.C. 132, 338 W.A.C. 132, 2004 CSC 74 (S.C.C.) — considered Statutes considered: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 Generally — referred to
s. 193(a) — considered
s. 193(b) — considered
s. 193(c) — considered
s. 193(e) — considered
s. 243(1) — considered Constitution Act, 1982, being Schedule B to the Canada Act 1982 (U.K.), 1982, c. 11, reprinted R.S.C. 1985, App. II, No. 44 s. 35 — considered
s. 35(1) — considered
APPLICATION by company for leave to appeal judgment reported at 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd. (2016), 2016 ONSC 199, 2016 CarswellOnt 2673, 34 C.B.R. (6th) 125 (Ont. S.C.J.), concerning receiver's proposed sale of assets.
Per curiam:
A. Overview
1 On September 11, 2014, Bending Lake Iron Group Limited ("BLIG") went into receivership (the "Receivership Order"). A. Farber & Partners Inc. was appointed receiver over BLIG's property (the "Receiver") pursuant to s. 243(1) of the Bankruptcy and
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 2 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 485, 2016... 0148 2016 ONCA 485, 2016 CarswellOnt 9527, 267 A.C.W.S. (3d) 768, 37 C.B.R. (6th) 173
Insolvency Act, R.S.C. 1985, c. B-3 (the "BIA"). On November 27, 2014, the court approved a Sales and Investor Solicitation Process for BLIG's property (the "SISP Order"). BLIG consented to the SISP Order.
2 In December 2015, the Receiver moved for court approval of an asset purchase agreement with Legacy Hill Resources Ltd. ("Legacy Hill") for the sale to Legacy Hill of substantially all BLIG's assets (the "Sale Agreement"). BLIG opposed the motion and brought its own cross-motion seeking various relief, including the postponement of the sale. On January 8, 2016, the motions judge approved the Sale Agreement and ordered the vesting of BLIG's property in Legacy Hill upon the filing of a receiver's certificate (the "Approval and Vesting Order").
3 BLIG filed a notice of appeal dated January 13, 2016, seeking to set aside the Approval and Vesting Order. By order of this court dated March 22, 2016, Brown J.A. (In Chambers) ruled that BLIG required leave to appeal under s. 193(e) of the BIA. Accordingly, he quashed BLIG's notice of appeal and set a timetable for the filing of BLIG's leave materials.
4 BLIG now seeks leave to appeal the Approval and Vesting Order. Should leave be granted, it proposes to argue on appeal that the motions judge erred: i) in finding that the Receiver had acted reasonably and fairly in negotiating the sale of BLIG's property, and that the actions of BLIG in undertaking parallel negotiations with Legacy Hill contravened the Receivership and the SISP Orders; and ii) in failing to consider whether the Receiver discharged its obligation to consult with "affected Aboriginal communities" in approving the Sale Agreement. BLIG submits that the proposed appeal is of general significance to insolvency practice, is prima facie meritorious and would not unduly delay the insolvency proceedings.
5 For the reasons that follow, we are not satisfied that the test for granting leave to appeal has been met. Accordingly, the leave application is dismissed.
B. Facts
6 BLIG is an iron ore mining development company with its major asset being a mine site in Thunder Bay, Ontario. While BLIG was initially successful in raising equity financing to develop the mine site, it was unable to arrange any major financing in 2011 and 2012. In 2012, BLIG engaged in negotiations with a foreign company to raise significant debt and equity financing. In anticipation of successful financing, 2403177 Ontario Inc. advanced a series of loans to BLIG to fund development of the mine. Unfortunately, the financing fell through and development of the mine was suspended in 2013.
7 At the date of its receivership in September 2014, BLIG owed in excess of $3.5 million to secured creditors, more than $8 million to unsecured creditors and approximately $450,000 to the Canada Revenue Agency. Pursuant to the SISP Order, the Receiver compiled a list of interested parties, through consultation with BLIG and the Receiver's network of investors in the mining and investment communities. In excess of 120 interested parties were contacted by the Receiver and 12 signed confidentiality agreements. However, no offers or proposals for purchasing, refinancing or restructuring BLIG were received by the extended deadline of March 27, 2015.
8 While the SISP was underway, and without informing the Receiver, the President and CEO of BLIG, Henry Wetelainen, commenced separate discussions with an interested party, Legacy Hill. Mr. Wetelainen claimed in a subsequent affidavit that he pursued these discussions as part of his "continued effort on behalf of BLIG and its creditors, stakeholders, shareholders and affected Aboriginal communities" to rescue BLIG from receivership. On March 12, 2015, BLIG and Legacy Hill entered into a Confidentiality Agreement and BLIG subsequently provided confidential documents to Legacy Hill. The Receiver was unaware that the parties had signed a Confidentiality Agreement, and of the existence of many of the confidential documents BLIG provided to Legacy Hill.
9 When the Receiver learned of the discussions between Mr. Wetelainen and Legacy Hill, it notified Mr. Wetelainen that all negotiations with Legacy Hill would be conducted by the Receiver pursuant to the Receivership and the SISP Orders. The Receiver then commenced its own discussions with Legacy Hill and entered into a Confidentiality Agreement with it. It also undertook due diligence on Legacy Hill and provided the results of that due diligence in its Third Report, filed with the court in the insolvency proceedings.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 3 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 485, 2016... 0149 2016 ONCA 485, 2016 CarswellOnt 9527, 267 A.C.W.S. (3d) 768, 37 C.B.R. (6th) 173
10 From April to September 2015, the Receiver received no firm proposals or expressions of interest for the restructuring of BLIG or the purchase of its assets. However, on September 30, 2015, Legacy Hill executed a non-binding letter of intent to purchase the assets of BLIG. The sale concluded on November 27, 2015, with the Receiver and Legacy Hill signing the Sale Agreement.
11 On December 10, 2015, the Receiver moved for approval of the Sale Agreement. It argued that the purchase price represented the best and highest offer for BLIG's assets in a depressed iron ore market. It further argued that the actions of Mr. Wetelainen and BLIG, in undertaking a parallel sales process, failing to provide confidential documents to the Receiver, and negotiating agreements with Legacy Hill directly, contravened the Receivership Order.
12 BLIG's secured creditors approved the proposed sale.
13 BLIG opposed approval of the sale, arguing that the Receiver had shown a lack of impartiality in its conduct with Legacy Hill, that the Receiver had become an advocate for Legacy Hill, and that the Receiver should have made inquiries as to why there had been a parting of the ways between Legacy Hill and BLIG (in a movement away from refinancing/restructuring and toward sale of the assets). BLIG also maintained that, by agreeing to purchase BLIG's assets, Legacy Hill had breached its fiduciary duty to BLIG, its shareholders, stakeholders and Aboriginal communities under the Confidentiality Agreement.
14 In defence of its conduct, BLIG further argued that, because the Receiver had not been appointed manager of BLIG and did not take possession or control of BLIG's property, Mr. Wetelainen was entitled, on behalf of BLIG, to enter into the Confidentiality Agreement with Legacy Hill and provide the confidential documents in furtherance of a joint venture/ restructuring and refinancing of BLIG.
15 Before the motions judge, BLIG did not pursue its argument that the Receiver had breached its duty to consult with "affected Aboriginal communities". Rather, it argued that the sale should be postponed and that the Receiver should be required to develop a process to inform creditors, shareholders, stakeholders and "affected Aboriginal communities" of opportunities to participate in the funding of the amount set out in the Sale Agreement.
16 All parties agreed on the principles to be applied when reviewing a proposed sale by a court-appointed receiver, as set out in Royal Bank v. Soundair Corp., [1991] O.J. No. 1137 (Ont. C.A.). Those principles require that a reviewing court should consider:
(a) whether the receiver made a sufficient effort to obtain the best price and has not acted improvidently;
(b) the interests of all parties;
(c) the efficacy and integrity of the process by which the offers are obtained; and
(d) whether there has been unfairness in the working out of the process.
17 Applying this framework to the facts of this case, the motions judge granted the Approval and Vesting Order. He made the following critical findings:
(a) the Receiver had made adequate effort at marketing the property and continued to market the property after the expiry of the bid deadline. The Receiver received no concrete proposals or expressions of interest for a restructuring or sale of BLIG, in what continued to be very depressed market conditions for the mining sector. Legacy Hill's offer was the only offer made on the property;
(b) although the Receiver owed a duty to all stakeholders, its primary duty was to maximize the return for the secured creditors. Even with the sale, the secured creditors stood to incur a shortfall on their security. Nevertheless, they supported the sale and did not want to hold out in the hopes of attracting a better offer. While the interest of the debtor must be taken into account, approval of the sale should not be denied, and the modest recovery by the secured lenders jeopardized, on
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 4 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 485, 2016... 0150 2016 ONCA 485, 2016 CarswellOnt 9527, 267 A.C.W.S. (3d) 768, 37 C.B.R. (6th) 173
the mere possibility that BLIG could match the Legacy Hill offer. BLIG presented no evidence on the motions that it was able to refinance or restructure the company;
(c) the Receiver negotiated in good faith and had no reason to reject the only offer it received for the property. The court will not lightly interfere with the commercial judgment of a receiver or examine the minutiae of the circumstances leading up to the sale. Provided the Receiver has acted reasonably, prudently and fairly, its decision should be given deference. The speculative nature of BLIG's proposal to be given time to match or better the Legacy Hill offer would adversely affect the integrity of the process undertaken by the Receiver; and
(d) the Receivership Order gave the Receiver broad powers, to the express exclusion of the debtor. Under paragraph 3(g), the Receiver alone had the right to market any and all of the assets, undertakings and properties of BLIG. Under the SISP Order, the Receiver was empowered to solicit offers to purchase, or to invest in, the debtor and/or the property. The SISP Order also contemplated confidentiality agreements between the Receiver and prospective purchasers. Even if the Receiver had been aware of the discussions between BLIG and Legacy Hill about possible refinancing or restructuring, the Receiver was not required to work toward restructuring or refinancing rather than an asset purchase. The SISP Order did not require the Receiver to consult with BLIG before finalizing the agreement, nor did any provision of the Receivership Order. Moreover, the Receiver was never presented with a refinancing/restructuring proposal from either BLIG or Legacy Hill, nor did BLIG present any evidence that it was able to refinance the company.
18 The motions judge also concluded that BLIG's pursuit of refinancing or restructuring without the knowledge or consent of the Receiver was contrary to the provisions of the Receivership and the SISP Orders. He rejected BLIG's submission that, because the Receiver was not appointed manager of BLIG and was not operating the business, Mr. Wetelainen had licence to engage in parallel negotiations with Legacy Hill. In his view, if this submission was accepted, it would result in BLIG working at cross-purposes with the Receiver.
C. Proposed Issues on Appeal
19 BLIG identifies three proposed issues for argument on appeal:
(1) Did the motions judge err in law in finding that representatives of BLIG acted in contravention of the Receivership Order?
(2) Does the Receivership Order, which left the management of the company in the hands of existing management, deprive the existing management of the right to seek refinancing and/or restructuring of the company?
(3) Did the motions judge err in approving the Sale Agreement by failing to address the rights of "affected Aboriginal communities"?
D. Test for Leave to Appeal in BIA Proceedings
20 Granting leave to appeal under s. 193(e) of the BIA is discretionary and must be approached in a flexible and contextual way. The threshold criterion for granting leave is whether the moving party has raised arguable points that create a reasonable prospect of success on appeal. As Doherty J.A. of this court explained in Ravelston Corp., Re [2005 CarswellOnt 9058 (Ont. C.A.)], 2005 CanLII 63802, at paras. 28-29:
The inquiry into whether leave to appeal should be granted must [...] begin with some consideration of the merits of the proposed appeal. If the appeal cannot possibly succeed, there is no point in granting leave to appeal regardless of how many factors might support the granting of leave to appeal.
A leave to appeal application is not the time to assess, much less decide, ultimate merits of a proposed appeal. However, the applicant must be able to convince the court that there are legitimately arguable points raised so as to create a realistic possibility of success on the appeal. Granting leave to appeal if the merits fall short of even that relatively low bar would be a waste of court resources and would needlessly delay and complicate insolvency proceedings.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 5 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 485, 2016... 0151 2016 ONCA 485, 2016 CarswellOnt 9527, 267 A.C.W.S. (3d) 768, 37 C.B.R. (6th) 173
21 In Business Development Bank of Canada v. Pine Tree Resorts Inc., 2013 ONCA 282, 115 O.R. (3d) 617 (Ont. C.A.), at para. 29, Blair J.A. (In Chambers) incorporated this consideration in proposing a unified approach to granting leave to appeal:
Beginning with the overriding proposition that the exercise of granting leave to appeal under s. 193(e) is discretionary and must be exercised in a flexible and contextual way, the following are the prevailing considerations in my view. The court will look to whether the proposed appeal,
(a) raises an issue that is of general importance to the practice in bankruptcy/insolvency matters or to the administration of justice as a whole, and is one that this Court should therefore consider and address;
(b) is prima facie meritorious, and
(c) would unduly hinder the progress of the bankruptcy/insolvency proceedings.
22 At para. 31 of Pine Tree Resorts, Blair J.A. explained that, although the "prima facie meritorious" criterion is different than the "arguable point" notion referred to in some other decisions of this court, the somewhat higher standard of a prima facie meritorious case on appeal is more in keeping with the evolution of the case law in this area.
23 Finally, at para. 32, Blair J.A. noted that, given the evolution in the applicable jurisprudence, the test for leave to appeal is not simply merit-based. Rather, it requires a consideration of all the factors set out above.
24 This articulation of the test has been affirmed on numerous occasions by this and other courts: see Enroute Imports Inc., Re, 2016 ONCA 247 (Ont. C.A.), at para. 7; Global Royalties Ltd. v. Brook, 2016 ONCA 50 (Ont. C.A.), at para. 26; Farm Credit Canada v. Gidda, 2015 BCCA 236 (B.C. C.A.), at paras. 11-12; Impact Tool & Mould Inc. (Receiver of) v. Impact Tool & Mould Inc. (Trustee of), 2013 ONCA 697 (Ont. C.A.), at para. 3.
E. Analysis
25 In our view, the first two proposed grounds of appeal identified by BLIG, which concern the motions judge's findings that BLIG contravened the Receivership Order, do not raise questions requiring consideration by this court. Both grounds involve highly fact-driven issues. The question whether particular conduct contravenes a Receivership Order will be determined by the particular facts of each case. In this case, the motions judge's interpretation and application of specific terms within the Receivership and the SISP Orders, leading him to conclude that BLIG's conduct contravened those terms, are not of general importance to bankruptcy/insolvency practice or the administration of justice as a whole. Rather, his conclusions on this issue were highly fact — and case — specific.
26 Further, BLIG's materials provide no support for its contention that the motions judge erred in concluding that BLIG's disclosure of confidential information (without the Receiver's knowledge or consent) and withholding information from the Receiver, violated the clear provisions of the Receivership Order. In reaching his conclusion on this issue, the motions judge noted and applied the well-recognized principle that a debtor has a duty to make full and frank disclosure and production of information and documents to the Receiver. We see no merit to BLIG's challenge to the motion's judge's approach to or his conclusion and reasoning on this issue.
27 We also see little, if any, merit to BLIG's argument that Mr. Wetelainen had authority to negotiate directly with Legacy Hill. BLIG's reliance on the "indoor management rule" is misplaced. BLIG's actions, in negotiating directly with Legacy Hill and disclosing confidential information to it without first notifying the Receiver, did not reflect standard practices and procedures for a company in receivership. The power to engage in negotiations regarding the company's assets was specifically assigned to the Receiver under the Receivership and the SISP Orders. As the motions judge pointed out, at para. 83, "The fact that the Receiver did not operate the business does not derogate from the exclusivity of the powers that the Receiver was given under the Receivership Order and the SISP Order." We agree.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 6 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 485, 2016... 0152 2016 ONCA 485, 2016 CarswellOnt 9527, 267 A.C.W.S. (3d) 768, 37 C.B.R. (6th) 173
28 In any event, the motions judge's reasons reveal that he approved the Sale Agreement based on the totality of the circumstances and application of the factors set out in Soundair. His findings about BLIG's conduct had no bearing on those factors and were not part of his assessment whether the Receiver had negotiated fairly and in good faith.
29 Finally, the proposed appeal would unduly hinder the insolvency proceedings, as Legacy Hill is not prepared to close the Sale Agreement until BLIG has exhausted its appeal rights in this court.
30 We reach a similar conclusion regarding BLIG's final proposed ground of appeal, namely, that the Receiver breached its duty to consult with "affected Aboriginal communities". In our view, given the history of the proceedings, it is not open to BLIG to now raise this issue on appeal.
31 There is no question that the Crown (or a Crown agent) has a duty to consult with "affected Aboriginal communities" where the Crown's actions might adversely impact potential or established Aboriginal or treaty rights. In Haida Nation v. British Columbia (Minister of Forests), 2004 SCC 73, [2004] 3 S.C.R. 511 (S.C.C.) and Taku River Tlingit First Nation v. British Columbia (Project Assessment Director), 2004 SCC 74, [2004] S.C.J. No. 69 (S.C.C.), the Supreme Court indicated that the Crown's duty to consult with Aboriginal peoples and accommodate their interests is grounded in the Honor of the Crown, which derives from the Crown's assertion of sovereignty in the face of prior Aboriginal occupation.
32 The duty to consult arises when the Crown has knowledge, real or constructive, of the potential existence of the Aboriginal right or title and contemplates conduct that might adversely affect it. The Supreme Court has also confirmed that the Honor of the Crown cannot be interpreted narrowly or technically, but must be given full effect in order to promote the process of reconciliation between the Crown and Aboriginal peoples mandated by s. 35(1) of the Constitution Act, 1982: Taku, at para. 24.
33 BLIG raised the issue of "affected Aboriginal communities" before Brown J.A. in the context of arguing that it was entitled to leave to appeal in this case as of right under ss. 193 (a), (b) and (c) of the BIA. In particular, BLIG argued that the proposed issues on appeal implicate the "future rights" of "affected Aboriginal communities" and other cases of a similar nature, namely, its motion seeking leave to commence an action against the Receiver for damages for the Receiver's alleged breach of its fiduciary duty to Aboriginal peoples.
34 In concluding that an appeal did not lie as of right under ss. 193(a), (b) or (c) of the BIA, and that leave to appeal was required, Brown J.A. comprehensively reviewed the evidence placed before the motions judge about "affected Aboriginal communities". He made a number of findings that bear on the issue of BLIG's ability to raise this issue on appeal.
35 First, and importantly, BLIG did not raise the issue of the Receiver's duty to consult in the context of the SISP proceeding and, in fact, consented to the order allowing the Receiver to proceed with the sale process. At para. 26, Brown J.A. found that the time to raise the issue of the "affected Aboriginal communities" was in the SISP process. We agree.
36 Second, Brown J.A. held, at para. 35, that BLIG did not advance the argument that the Receiver failed in its duty to consult "affected Aboriginal communities" before the motions judge on the motion to approve the sale. This finding is supported by the record.
37 Given that the issue was not raised before the motions judge, BLIG is faced with the burden of establishing that all the facts necessary to address this issue are before this court as fully as if the matter had been raised in the court below: Kaiman v. Graham, 2009 ONCA 77 (Ont. C.A.), at para. 18. BLIG has not discharged this burden.
38 Specifically, the record before this court does not clearly establish which Aboriginal communities, if any, have interests in the property affected by the sale, the extent and nature of those interests, and how the actions of the Receiver will negatively impact those interests. A clear articulation of the nature and extent of the asserted right is necessary, in the interest of balancing any Aboriginal rights at stake with the rights of others. As Binnie J. noted in Lax Kw'alaams Indian Band v. Canada (Attorney General), 2011 SCC 56, [2011] S.C.J. No. 56 (S.C.C.), at para. 12:
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 7 2403177 Ontario Inc. v. Bending Lake Iron Group Ltd., 2016 ONCA 485, 2016... 0153 2016 ONCA 485, 2016 CarswellOnt 9527, 267 A.C.W.S. (3d) 768, 37 C.B.R. (6th) 173
At this point in the evolution of Aboriginal rights litigation, the contending parties are generally well resourced and represented by experienced counsel. [...] It is true, of course, that Aboriginal law has as its fundamental objective the reconciliation of Canada's Aboriginal and non-Aboriginal communities, and that the special relationship that exists between the Crown and Aboriginal peoples has no equivalent to the usual courtroom antagonism of warring commercial entities. Nevertheless, Aboriginal rights litigation is of great importance to non-Aboriginal communities as well as to Aboriginal communities, and to the economic well-being of both. The existence and scope of Aboriginal rights protected as they are under s. 35(1) [...] must be determined after a full hearing that is fair to all the stakeholders.
[Emphasis added.]
39 In our view, it would be prejudicial and unfair to the interests of BLIG's secured creditors, and contrary to the normal rules of procedure, to permit BLIG to raise this issue at this late stage, when it elected not to raise it in the SISP proceeding or before the motions judge on the motion to approve the sale. As a result of its failure to raise the matter on a timely basis, there is no adequate evidentiary record supporting the claim. Nor does this court have the benefit of the motions judge's consideration and ruling on the issue.
40 Third, and in any event, we agree with Brown J.A.'s observation that it is doubtful whether BLIG has standing to assert this claim on behalf of Aboriginal communities. As LeBel J. indicated in Moulton Contracting Ltd. v. British Columbia, 2013 SCC 26, [2013] S.C.J. No. 26 (S.C.C.), at para. 30, the Crown's duty to consult is intended to protect the s. 35 constitutional rights of Aboriginal peoples, which are collective in nature. While an Aboriginal group can authorize an individual or organization to represent it for the purpose of asserting its s. 35 rights, there is no evidence that this occurred in this case.
41 Moreover, regardless of the standing issue, as the record does not disclose the nature and extent of any Aboriginal community's interests, if any, in BLIG's property, we are unable to conclude that this proposed ground of appeal warrants the granting of leave to appeal.
F. Disposition
42 For the reasons given, the application for leave to appeal is dismissed. The Receiver is entitled to its costs of this motion and the motion for advice and directions before Brown J.A., fixed in the total amount of $3,000, inclusive of disbursements and all applicable taxes. Application dismissed.
End of Document Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 8 0154
TAB 14 Roswell Group Inc v. 1353141 Alberta Ltd, 2020 ABCA 428, 2020 CarswellAlta 2302 0155 2020 ABCA 428, 2020 CarswellAlta 2302, [2020] A.W.L.D. 3751, [2020] A.W.L.D. 3783...
2020 ABCA 428 Alberta Court of Appeal
Roswell Group Inc v. 1353141 Alberta Ltd
2020 CarswellAlta 2302, 2020 ABCA 428, [2020] A.W.L.D. 3751, [2020] A.W.L.D. 3783, [2020] A.W.L.D. 3785, [2020] A.W.L.D. 3786, [2020] A.W.L.D. 3787, [2020] A.W.L.D. 3790, [2021] 1 W.W.R. 380, [2021] A.W.L.D. 173, [2021] A.W.L.D. 174, [2021] A.W.L.D. 177, [2021] A.W.L.D. 22, 325 A.C.W.S. (3d) 292
1353141 Alberta Ltd, Adarsh Gupta and Dervinder Gupta (Respondents / Plaintiffs / Defendants by Counterclaim) and Roswell Group Inc and Raj Kumar (Appellants / Defendants / Plaintiffs by Counterclaim)
J.D. Bruce McDonald, Frederica Schutz, Jo'Anne Strekaf JJ.A.
Heard: November 3, 2020 Judgment: December 4, 2020 Docket: Edmonton 1903-0218-AC
Proceedings: affirming 1353141 Alberta Ltd v. Roswell Group Inc (2019), 4 Alta. L.R. (7th) 128, 2019 CarswellAlta 1502, 2019 ABQB 559, Bonnie L. Bokenfohr J. (Alta. Q.B.)
Counsel: S.E. Oviatt, for Appellants M.M. Kirwin, for Respondents
Subject: Civil Practice and Procedure; Contracts; Corporate and Commercial; Property; Torts Related Abridgment Classifications Civil practice and procedure XXIII Practice on appeal XXIII.13 Powers and duties of appellate court XXIII.13.e Evidence on appeal XXIII.13.e.i New evidence Real property III Sale of land III.1 Agreement of purchase and sale III.1.a Formation of contract III.1.a.iii Requirements for validity III.1.a.iii.B Application of Statute of Frauds Real property III Sale of land III.1 Agreement of purchase and sale III.1.a Formation of contract III.1.a.iii Requirements for validity III.1.a.iii.C Certainty III.1.a.iii.C.3 Miscellaneous Remedies I Damages I.11 Damages in contract I.11.g Sale of land
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 1 Roswell Group Inc v. 1353141 Alberta Ltd, 2020 ABCA 428, 2020 CarswellAlta 2302 0156 2020 ABCA 428, 2020 CarswellAlta 2302, [2020] A.W.L.D. 3751, [2020] A.W.L.D. 3783...
Headnote Remedies --- Damages — Damages in contract — Sale of land Parties purchased property as joint venture pursuant to unwritten partnership agreement and property was later transferred into names of two corporate parties owned respectively by individual parties — Appellants deposited rent payments into personal bank accounts and respondents commenced first action against appellants — Appellants emailed respondents about them purchasing appellants' half interest — Respondents accepted offer, but appellants indicated email was for discussion only and was not offer — Respondents tendered funds and transfer of land, which appellants returned — Respondents planned to keep property for long term and had no plans to sell it, but property was sold pursuant to judicial proceedings with enhanced closing costs — Respondents brought second action against appellants alleging breach of purchase and sale agreement — Trial judge found appellants made offer which respondents validly accepted, and essential terms of parties and property for contract were clear — Although there was no reference to GST in price, trial judge found GST issue was made certain by operation of law and since respondent had GST registration, it had statutory obligation to pay GST — Trial judge concluded appellants' counsel had authority to sign as agent, and emailed signature of appellants' counsel met signature requirement of Statute of Frauds — Trial judge awarded $315,225 in favour of respondents and awarded damages for lost rental revenue — Appellants appealed — Appeal dismissed — Trial judge's finding that there was valid offer and acceptance and that all essential terms were present, disclosed no basis warranting appellate intervention — There was certainty of parties, subject matter and purchase price — Burden of paying GST was properly resolved by statutory considerations as found by trial judge — Trial judge did not err in holding closing and possession dates were not essential terms given particular nature of contract — Trial judge did not err in not recognizing closing costs to sell property or in calculation used to determine damages in lost rent by including damages for three units at property. Real property --- Sale of land — Agreement of purchase and sale — Formation of contract — Requirements for validity — Application of Statute of Frauds Parties purchased property as joint venture pursuant to unwritten partnership agreement and property was later transferred into names of two corporate parties owned respectively by individual parties — Appellants deposited rent payments into personal bank accounts and respondents commenced first action against appellants — Appellants emailed respondents about them purchasing appellants' half interest — Respondents accepted offer, but appellants indicated email was for discussion only and was not offer — Respondents tendered funds and transfer of land, which appellants returned — Respondents planned to keep property for long term and had no plans to sell it, but property was sold pursuant to judicial proceedings with enhanced closing costs — Respondents brought second action against appellants alleging breach of purchase and sale agreement — Trial judge found appellants made offer which respondents validly accepted, and essential terms of parties and property for contract were clear — Although there was no reference to GST in price, trial judge found GST issue was made certain by operation of law and since respondent had GST registration, it had statutory obligation to pay GST — Trial judge concluded appellants' counsel had authority to sign as agent, and emailed signature of appellants' counsel met signature requirement of Statute of Frauds — Trial judge awarded $315,225 in favour of respondents and awarded damages for lost rental revenue — Appellants appealed — Appeal dismissed — Trial judge's finding that there was valid offer and acceptance and that all essential terms were present, disclosed no basis warranting appellate intervention — There was certainty of parties, subject matter and purchase price — Burden of paying GST was properly resolved by statutory considerations as found by trial judge — Trial judge did not err in holding closing and possession dates were not essential terms given particular nature of contract — Trial judge did not err in not recognizing closing costs to sell property or in calculation used to determine damages in lost rent by including damages for three units at property. Real property --- Sale of land — Agreement of purchase and sale — Formation of contract — Requirements for validity — Certainty — Miscellaneous Parties purchased property as joint venture pursuant to unwritten partnership agreement and property was later transferred into names of two corporate parties owned respectively by individual parties — Appellants deposited rent payments into personal bank accounts and respondents commenced first action against appellants — Appellants emailed respondents about them purchasing appellants' half interest — Respondents accepted offer, but appellants indicated email was for discussion only and was not offer — Respondents tendered funds and transfer of land, which appellants returned — Respondents planned to keep property for long term and had no plans to sell it, but property was sold pursuant to judicial proceedings with enhanced closing costs — Respondents brought second action against appellants alleging breach of purchase and sale agreement — Trial judge
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 2 Roswell Group Inc v. 1353141 Alberta Ltd, 2020 ABCA 428, 2020 CarswellAlta 2302 0157 2020 ABCA 428, 2020 CarswellAlta 2302, [2020] A.W.L.D. 3751, [2020] A.W.L.D. 3783... found appellants made offer which respondents validly accepted, and essential terms of parties and property for contract were clear — Although there was no reference to GST in price, trial judge found GST issue was made certain by operation of law and since respondent had GST registration, it had statutory obligation to pay GST — Trial judge concluded appellants' counsel had authority to sign as agent, and emailed signature of appellants' counsel met signature requirement of Statute of Frauds — Trial judge awarded $315,225 in favour of respondents and awarded damages for lost rental revenue — Appellants appealed — Appeal dismissed — Trial judge's finding that there was valid offer and acceptance and that all essential terms were present, disclosed no basis warranting appellate intervention — There was certainty of parties, subject matter and purchase price — Burden of paying GST was properly resolved by statutory considerations as found by trial judge — Trial judge did not err in holding closing and possession dates were not essential terms given particular nature of contract — Trial judge did not err in not recognizing closing costs to sell property or in calculation used to determine damages in lost rent by including damages for three units at property. Civil practice and procedure --- Practice on appeal — Powers and duties of appellate court — Evidence on appeal — New evidence Parties purchased property as joint venture pursuant to unwritten partnership agreement and property was later transferred into names of two corporate parties owned respectively by individual parties — Appellants deposited rent payments into personal bank accounts and respondents commenced first action against appellants — Appellants emailed respondents about them purchasing appellants' half interest — Respondents accepted offer, but appellants indicated email was for discussion only and was not offer — Respondents tendered funds and transfer of land, which appellants returned — Respondents brought second action against appellants alleging breach of purchase and sale agreement — Trial judge awarded $315,225 in favour of respondents, awarded damages for lost rental revenue, and left parties to agree on mathematical calculations encouraging them to seek assistance of expert — Respondents and trial judge made repeated requests for comments from appellants on calculations without response — Appellants appealed — Respondents wished to refer to specific items of correspondence that originated subsequent to filing of judgment — Respondents brought applications to permit late filing of application to admit new evidence and to admit new evidence — Appeal dismissed; applications granted — All requirements of test for admission of new evidence on appeal were met — Proposed new evidence referred to matters that occurred after trial was concluded, given trial judge left it to parties to agree on mathematical calculations and encouraged them to seek assistance of expert — Proposed new evidence consisted of series of correspondence between two counsels and trial judge and was reasonably capable of belief — Proposed new evidence, if believed, could reasonably be expected to affect result of issues regarding calculation of damages. Table of Authorities Cases considered: Carbone v. McMahon (2015), 2015 ABCA 263, 2015 CarswellAlta 1512 (Alta. C.A.) — considered Creston Moly Corp. v. Sattva Capital Corp. (2014), 2014 SCC 53, 2014 CSC 53, 2014 CarswellBC 2267, 2014 CarswellBC 2268, 373 D.L.R. (4th) 393, 59 B.C.L.R. (5th) 1, [2014] 9 W.W.R. 427, 461 N.R. 335, 25 B.L.R. (5th) 1, 358 B.C.A.C. 1, 614 W.A.C. 1, (sub nom. Sattva Capital Corp. v. Creston Moly Corp.) [2014] 2 S.C.R. 633 (S.C.C.) — followed Ko v. Hillview Homes Ltd. (2012), 2012 ABCA 245, 2012 CarswellAlta 1759, [2013] 2 W.W.R. 52, 69 Alta. L.R. (5th) 312, 5 B.L.R. (5th) 1, 18 C.L.R. (4th) 1, 536 A.R. 93, 559 W.A.C. 93 (Alta. C.A.) — distinguished Robinson v. Williams Estate (2007), 2007 ABCA 19, 2007 CarswellAlta 31, 44 C.C.L.T. (3d) 1, 401 A.R. 262, 391 W.A.C. 262 (Alta. C.A.) — followed Santoro v. Bank of Montreal (2019), 2019 ABCA 322, 2019 CarswellAlta 1868 (Alta. C.A.) — followed Statutes considered: Excise Tax Act, R.S.C. 1985, c. E-15 Generally — referred to
s. 221 — considered
s. 228 — considered Statute of Frauds, 1677 (29 Cha. 2), c. 3 Generally — referred to
s. 4 — considered
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 3 Roswell Group Inc v. 1353141 Alberta Ltd, 2020 ABCA 428, 2020 CarswellAlta 2302 0158 2020 ABCA 428, 2020 CarswellAlta 2302, [2020] A.W.L.D. 3751, [2020] A.W.L.D. 3783...
Rules considered: Alberta Rules of Court, Alta. Reg. 124/2010 R. 14.45(1) — considered
R. 14.49 — considered
R. 14.70 — considered
R. 14.73 — considered
APPEAL from judgment reported at 1353141 Alberta Ltd v. Roswell Group Inc (2019), 2019 ABQB 559, 2019 CarswellAlta 1502, 4 Alta. L.R. (7th) 128 (Alta. Q.B.), allowing action for breach of purchase and sale agreement; APPLICATIONS by respondents to permit late filing of application to admit new evidence and to admit new evidence.
Per curiam:
Introduction
1 The appellants, Roswell Group Inc (Roswell) and Raj Kumar (Kumar), appeal the decision of the trial judge rendered on July 24, 2019 (the Judgment) in Court of Queen's Bench action numbers 1103 02638 (the First Action) and 1103 16585 (the Second Action). None of the findings in the First Action are being appealed.
2 In addition, the respondents 1353141 Alberta Ltd (135 Alta) and Adarsh Gupta and Dervinder Gupta bring two applications. The first is an application to permit the late filing of an application to admit new evidence, and second if successful, is an application to admit new evidence.
3 These two applications are required since counsel for Roswell and Kumar refused to provide written permission to allow into evidence on the appeal nine items of correspondence exchanged between counsel and the trial judge subsequent to the Judgment.
4 For the reasons that follow, both applications are granted and the appeal dismissed.
Background Facts
5 Kumar is the brother of Adarsh Gupta. In 2006, the individual parties purchased a business condominium (the Condominium Property) which they intended to develop. There was no dispute that they had an agreement to be partners in a joint venture but the agreement was unwritten.
6 In 2018, the Condominium Property was transferred into the names of the two corporate parties: 135 Alta, owned by Adarsh Gupta and Devinder Gupta and Roswell, owned by Kumar. The corporations thereby became parties to the unwritten partnership agreement. Renovations were made to the Condominium Property and portions rented to tenants. The rental payments went into the joint bank account used by the partnership.
7 Sometime in 2009, Adarsh Gupta became suspicious regarding some withdrawals paid to Roswell from the joint account. Consequently, in December 2010, the Guptas changed the signing authority for the joint account. At trial, they testified that they had intended to change the signing authority to require that withdrawals be signed by Kumar and either Adarsh or Devinder Gupta. However, the bank mistakenly changed the signing authority for the joint account so that any two of the three partners could sign. The Guptas returned to the bank to rectify the error. However, Kumar claimed that the Guptas were trying to defraud him and would not accept their explanation for the mistake.
8 Indeed, on December 20, 2010, Kumar sent the Guptas the following email:
Thank you for changing the bank profile Be prepared to pay for all the auto withdraw! payments to bounce, checks I have written to bounce. I will not deposit any money to the account from here on wards. I will be billing the partnership $130,000 for services rendered so far I will not lease both units upstairs. The subdivision process will stop in its tracks.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 4 Roswell Group Inc v. 1353141 Alberta Ltd, 2020 ABCA 428, 2020 CarswellAlta 2302 0159 2020 ABCA 428, 2020 CarswellAlta 2302, [2020] A.W.L.D. 3751, [2020] A.W.L.D. 3783...
The interest will mount at of all monies owed to Roswell Group Inc. I will not put a cent for Jan 1, 2011 payments They will bounce and you will be held responsible due to the fact that you. I took money out of the account without considering that all accounts payables have to be dealt with first.
I was making money for you but too much greed got you. Now you will see nothing coming in. Watch me in action to destroy everything I built for you so far. [emphasis added]
9 Commencing late December 2010 onwards, Kumar and Roswell began to deposit rent payments from the Condominium Property tenants into their personal bank accounts rather than the partnership joint account.
10 On February 15, 2011, 135 Alta and the Guptas commenced the First Action naming Roswell and Kumar as defendants. In the First Action, 135 Alta and the Guptas alleged that Roswell and Kumar wrongfully paid themselves monies that neither were entitled to and sought special damages in the amount of $83,476.60 and further punitive damages in the amount of $100,000.
11 During the course of the First Action, counsel for Roswell and Kumar sent an email dated September 23, 2011 (the September 23 email) to counsel for 135 Alta and the Guptas which provided as follows:
From: Gary Zimmerman [mail to:[email protected]]
Sent: September-23-11 11:48 AM
To: Stew Baker
Subject: Gupta v. Roswell - Offer
Stewart, please find attached documents supporting my client's assessment and forming the background to the multi- faceted offer.
Option 1. Raj can buy their one half share for the price of $315,225. The offer is fully supported with factual sources of data. The data is most current, in the same area of the subject property, similar in quality and amenities. The subject property has less parking spaces than the properties compared with. See all seven sheets attached herewith.
Option 2. They can buy Raj's share for the same price and terms.
Option 3. They can divide the property in an amicable manner. Then, your clients can list their one half share in MLS and sell it or keep it.
Option 4. Connected to number 3 (above). There are two identical floors. Each partner can take one floor, however the main floor will cost $45000 to whoever takes it Raj can take the main floor and pay them $45000 or they can take the main floor and pay me $45,000. This is again based on the main floor costs $20/sq ft more than the upper floor.
Further, I can advise that Raj applied for a first mortgage with Royal bank of Canada on Sept 7, 2011. Further, he applied to Canada Mortgage on Sept 8, 2011
The offers to buy is [sic] subject for raising first mortgage within 90 days. He will offer the same to them should they decide to buy his share.
Please note that the property has four titles, however the four titles are no longer legal as the City has revoked the Permit to Build and subdivide. (See Page A1 and A2 attached herewith). As such, splitting the property seems like a viable option.
The court should be notified that it is pointless to appoint a receiver as Raj has managed the property without compensation professionally and he is ready to defend and account for every penny collected as rent. There are no outstanding debts at this time and there is no money in the bank account to be disbursed. The expenses made were to ensure that the owner
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 5 Roswell Group Inc v. 1353141 Alberta Ltd, 2020 ABCA 428, 2020 CarswellAlta 2302 0160 2020 ABCA 428, 2020 CarswellAlta 2302, [2020] A.W.L.D. 3751, [2020] A.W.L.D. 3783...
comply with City's requirement to obtain an occupancy permit. There are a few small things that still need to be done and only then can the City officers attend for a final inspection to obtain an occupancy permit.
Of course, this is all premised on the fact that the litigation will continue, regardless of the state of ownership of the property.
I look forward to your reply. Please feel free to contact me at your convenience and preferably before Monday at noon.
[emphasis added]
12 On Monday, September 26, 2011, 135 Alta's counsel by letter accepted option 2 to purchase Roswell's half interest and in so doing stated:
I wish to confirm that my client has accepted your client's offer to sell his share of the lands and building for the sum of $315,225. Our client's purchase of your client's interest can be carried out very quickly. We would expect to be in a position to close the transaction by October 15, or October 31, 2011, at the latest. Your client is to vacate the premises and provide all keys to the building and internal offices.
13 However, on October 5, 2011, counsel for Roswell and Kumar replied stating in part:
I have been advised and instructed to notify you that the correspondence forwarded on September 23, 2011 did not constitute an offer. It was forwarded for discussion purposes only. Additional terms for discussion purposes, as listed by Mr. Kumar include . . .
14 On October 7, 2011 by letter of even date, 135 Alta tendered $315,225 to Roswell's counsel along with the transfer of land for Roswell's signature. Roswell refused to sign and returned the monies and transfer documents instead.
15 On October 20, 2011, 135 Alta commenced the Second Action alleging breach of the purchase and sale agreement and seeking specific performance as well as punitive damages. An application for specific performance was brought by 135 Alta but dismissed by the Master in May 2012. Thereafter, 135 Alta amended its Statement of Claim in the Second Action to seek, in the alternative to specific performance, general damages for loss of profit from the rentals or resale.
16 On August 2017, the Condominium Property was sold by court order and the monies held in trust until further court order. It was sold for more than twice its original purchase price of $500,000.
Decision of the Trial Judge
17 Regarding the First Action, the trial judge found the parties contributed equally in compliance with their unwritten partnership agreement. She accepted the testimony of the Guptas regarding changing the signing authority for the joint bank account. She found Kumar and Roswell comingled partnership monies with personal accounts and in the result awarded judgment in favour of 135 Alta in the amount of $149,646.31. In addition, she concluded that Kumar's misconduct justified an award of punitive damages in the further amount of $50,000.
18 Regarding the Second Action, the primary issue at trial was whether there was a binding agreement as a result of the exchange of correspondence between the parties' counsel. The trial judge further identified at para 155 of the Judgment the following sub-issues:
i. Was there a valid Offer and Acceptance between the parties in this case?
ii. Are the three essential terms present?
iii. Are the requirements of the Statute of Frauds met in this case? and
iv. Is a formal memorandum — Transfer of Land — required in Alberta for a valid transfer of interest in land?
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 6 Roswell Group Inc v. 1353141 Alberta Ltd, 2020 ABCA 428, 2020 CarswellAlta 2302 0161 2020 ABCA 428, 2020 CarswellAlta 2302, [2020] A.W.L.D. 3751, [2020] A.W.L.D. 3783...
19 The trial judge rejected Roswell's argument that the September 23, 2011 email was only a starting point for discussion and that the price tag of $315,225 was for raw, undeveloped land. She found nothing referred to raw land as opposed to the Condominium Property; in particular there was reference to the main floor costs. She found the email clearly was referring to the Condominium Property.
20 The trial judge found the September 23 email was structured in a "buy and sell, shotgun" manner. She found it was not a misconstrued proposal as Roswell had argued as there was nothing to misconstrue. She also found that Roswell's counsel did not require written authorization to act as agent for Roswell as the authorization was implicit in the circumstances of the case.
21 Additionally, Kumar testified that he instructed his counsel and there was no evidence suggesting any limitation on the authority of Roswell's counsel to 135 Alta's counsel. She concluded that Roswell intended to and did make an initial offer to 135 Alta as the receiving party. She further found that 135 Alta validly accepted the offer and once accepted, it could not be withdrawn by Roswell.
22 The trial judge also found that Roswell's counsel had the lawful authority to sign on Roswell's behalf as its agent. She concluded that the emailed signature of Roswell's counsel, appended to the September 23 email, satisfactorily met the signature requirement under section 4 of the Statute of Frauds since the purpose of the signature requirement was met as the source and authenticity of the document was clear. She also found that a formal contract for transfer of an interest in land is not required as long as there is compliance with the Statute of Frauds.
23 The trial judge found that the first two of the three essential terms for a contract were clear: the parties were Roswell and 135 Alta and the property was the Condominium Property. Whether the price was certain because there was no reference to GST, the trial judge found that the GST issue was made certain by operation of law. Since 135 Alta had a GST registration, it is the party with the statutory obligation to pay the GST, citing section 221 and 228 of the Excise Tax Act (Canada). Specifically, the trial judge found that the purchase price was $315,225 with GST payable by the purchaser 135 Alta being a registrant under the Excise Tax Act (Canada). Therefore, she found the three essential terms for a valid contract were present. She further found that in the context of a transfer of an interest in land in relation to a jointly owned commercial property, the terms of payment, closing date and possession date were not essential.
24 The trial judge rejected Roswell's argument as it relates to the "subject to financing" provisions. She pointed out that 135 Alta did not seek to finance the purchase of Roswell's interest in the Condominium Property; it was Roswell that potentially required financing and sought to extend that same optional condition to 135 Alta. She held that in the circumstances, financing was neither an essential term for a transfer of land nor a mandatory condition for all and every real estate transaction. In any event, she found that even if it had been a condition of sale, it was available to 135 Alta to waive that condition by paying the purchase price in cash, which is what it did.
25 In the result, she found that 135 Alta was entitled to the ultimate sale price of $1,003,280 less the email price tag offer of $315,225. She also awarded damages for lost rental revenue from October 2011 to August 2017, which she calculated at paras 242 to 246 of the Judgment to be as follows:
Unit 102 was occupied October 2011 to August 2014 at a constant rental rate of $3,728.33. Unit 102 was unoccupied September 2014 to August 2017. 135 Alta is entitled to lost rental revenue for the time period that Unit 102 was unoccupied. Given that the rental rate was constant for a three year period, it is appropriate and fair to use that rental rate ($3,728.33) for that period. The Unit did have a historical vacancy rate of 20% therefore it is appropriate and fair to adjust the damages awarded for lost rental revenue for this Unit to account for a 20% vacancy rate.
Unit 201 was unoccupied October 2011 to August 2017. The Unit had an actual historical average rental rate of $2,075.00. Lost rental revenue is awarded using the actual historical average rental rate. The pattern of occupancy does not lend itself to calculating a historical vacancy rate; however, some vacancy rate is appropriate. Therefore, the 20% vacancy rate of Unit 102 shall be used.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 7 Roswell Group Inc v. 1353141 Alberta Ltd, 2020 ABCA 428, 2020 CarswellAlta 2302 0162 2020 ABCA 428, 2020 CarswellAlta 2302, [2020] A.W.L.D. 3751, [2020] A.W.L.D. 3783...
In [the First Action], I found that Unit 202 was occupied by the Defendants — Roswell Group Inc and Raj Kumar — and held that the Defendants owe the Partnership for unpaid rents for the period between August 2009 and August 2017.
The damages awarded to 135 Alta for lost rental revenue in [the Second Action] must be offset by the actual amount of rent received in [the First Action] during the time period.
The damages awarded for lost rental revenue must be adjusted to take into account the condo fees, property taxes and utilities that 135 Alta would have been required to pay.
26 The trial judge then directed at para 247 that the parties were to prepare the mathematical calculations that resulted from these findings and to seek assistance of the expert if necessary. She also gave leave to the parties to come back before her for resolution of any issues that might arise.
Respondents' Application to Adduce New Evidence
27 As indicated above, the trial judge left it to the parties to prepare the mathematical calculations of the damages and encouraged them to seek the assistance of an expert if necessary. Gregory M. Bendall, CPA, CA of SVC Group LLP had been previously retained as an expert with agreement of the parties. Counsel for 135 Alta and the Guptas and the trial judge made repeated requests for comments from Roswell and Kumar with respect to the calculations and the draft Judgment Roll over a period of five weeks. Roswell and Kumar choose not to respond.
28 There are nine specific items of correspondence that counsel for 135 Alta and the Guptas wished to refer to. The correspondence originated subsequent to the filing of the Judgment. Counsel for Roswell and Kumar refused to give the requisite written consent to permit the correspondence to be referred to on appeal and accordingly, 135 Alta and the Guptas were required to bring two applications, that being an application to permit the late filing of the application to admit new evidence and the actual application to admit new evidence. Counsel were advised by the Case Management Officer that both applications would be heard in conjunction with the appeal itself.
29 Counsel for Roswell and Kumar were advised of rule 14.49 which provides that "A respondent who fails to respond to an application or who elects not to file a memorandum in response to the application may not present oral argument at the hearing of the application unless the single appeal judge, or the panel of the Court of Appeal otherwise permits." Notwithstanding this however, counsel for Roswell and Kumar declined to provide any written submissions in opposition to the applications. At the commencement of oral argument, counsel for Roswell and Kumar was advised that in keeping with this Court's practice in Carbone v. McMahon, 2015 ABCA 263 (Alta. C.A.), he would not be allowed to make oral submissions opposing the two applications.
30 The Guptas and 135 Alta rely upon rules 14.45(1), 14.70, and 14.73. They concede that they failed to file an application to adduce new evidence in a timely manner. However, they assert that Roswell and Kumar had received notice of the new evidence when they filed their factum in May and thus were not prejudiced.
31 The test to be met in order to succeed on an application to admit new evidence on appeal was stated by this Court in Santoro v. Bank of Montreal, 2019 ABCA 322 (Alta. C.A.) at para 23 as follows:
The test for the admission of fresh evidence on appeal, as set out in Palmer v The Queen, [1980] 1 SCR 759 at 775, and Public School Boards' Assn. of Alberta v Alberta (Attorney General), 2000 SCC 2 at para 6, is as follows:
(a) the evidence should not generally be admitted if, by due diligence, it could have been adduced at trial;
(b) the evidence must bear upon a decisive or potentially decisive issue in the trial;
(c) the evidence must be credible in the sense that it is reasonably capable of belief; and
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 8 Roswell Group Inc v. 1353141 Alberta Ltd, 2020 ABCA 428, 2020 CarswellAlta 2302 0163 2020 ABCA 428, 2020 CarswellAlta 2302, [2020] A.W.L.D. 3751, [2020] A.W.L.D. 3783...
(d) the evidence, if believed could reasonably, when taken with other evidence adduced at trial, be expected to have affected the result.
In our view all four requirements of the test for the admission of new evidence on appeal have been met and accordingly, the application is granted.
32 First, the proposed new evidence refers to matters that occurred after the trial was concluded. Second, at para 247 of the Judgment, the trial judge left it to the parties to agree on the mathematical calculations and encouraged them to seek the assistance of an expert.
33 Third, the new evidence consists of a series of correspondence between the two counsel and the trial judge and as a result, the new evidence is reasonably capable of belief. Fourth, the new evidence, if believed, could reasonably be expected to affect the result of the issues raised by Kumar and Roswell regarding the calculation of damages.
Grounds of Appeal
34 The first ground of appeal raised by Roswell and Kumar was that the trial judge erred in law in finding that there was a binding contract to transfer Roswell's interest in the Condominium Property to 135 Alta.
35 In the alternative, Roswell and Kumar raise the following three grounds of appeal:
a) The trial judge erred in calculating damages for breach of contract by failing to account for the closing costs incurred to liquidate the Condominium Property and the calculation of the damages for breach of contract;
b) The trial judge erred by awarding damages for lost rent for units 102 and 201 when the Guptas and 135 Alta's failed to prove damages; and
c) The calculation used to determine damages for lost rent in the Judgment Roll mistakenly included damages for lost rent for unit 202 when the trial judge did not award such damages.
Standard of Review
36 Contractual interpretation involves issues of mixed fact and law and it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix: Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53 (S.C.C.) at para 50.
37 Nevertheless, it may be possible to identify an extricable question of law from within what was initially characterized as a question of mixed fact and law. Legal errors made in the course of contractual interpretation include "the application of an incorrect principle, the failure to consider a required element of a legal test, or the failure to consider a relevant factor". Moreover, there are many questions that do engage substantive rules of law: Sattva Capital at para 53.
38 The standard of review for damage awards is high and assessment of damages should only be interfered with when a wrong principle of law was applied or the overall amount was a wholly erroneous estimate: Robinson v. Williams Estate, 2007 ABCA 19 (Alta. C.A.) at para 10.
Analysis
39 No appeal has been taken from the findings with respect to the First Action. As a result, the damages awarded in the First Action, being in the amount of $149,646.31 for general damages is not being challenged nor is the award of punitive damages in the further amount of $50,000.
40 That being so, the only issues to consider are those being raised with respect to the Second Action.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 9 Roswell Group Inc v. 1353141 Alberta Ltd, 2020 ABCA 428, 2020 CarswellAlta 2302 0164 2020 ABCA 428, 2020 CarswellAlta 2302, [2020] A.W.L.D. 3751, [2020] A.W.L.D. 3783...
Did the trial judge err in law by finding that there was a binding contract to transfer Roswell's interest in the property to 135 Alta?
41 In their factum, Roswell and Kumar argue there was no binding agreement because there was no agreement on the price (whether GST was included or not), adjustment date for rents, closing date and possession date.
42 They argue that whether or not GST is included in the sale price is not determined by statute as the trial judge found. There was a tenant paying rent in Unit 102, which would have to be adjusted. There was no reference to a closing or possession date, which they submit are essential terms. They further argue that the trial judge's reasons for departing from the traditional law that the adjustments of rent, the closing date and the possession date are material terms, was because the parties were business partners, the offer was in a "shot gun" format, and the purchase price was tendered within a reasonable time, did not constitute principled reasons for ruling that these were not essential terms.
43 For their part, the Guptas and 135 Alta point to the fact that the subject line of the September 23 email read "Gupta v Roswell - Offer" and that there were repeated references in the September 23 email to it being an offer. In addition, there was no wording that it was not to be construed as an offer. They further submit that the essential terms were found and the other terms were not essential. Lastly, they submit that Kumar and Roswell rely on arm's length real estate purchase contract cases, which the trial judge found inapplicable in the circumstances of this case.
44 Counsel for Roswell and Kumar cite this Court's decision in Ko v. Hillview Homes Ltd., 2012 ABCA 245 (Alta. C.A.) at para 101, for the proposition that "Even uncertainty in other important matters beyond parties, property or price renders the supposed contract void."
45 However, the facts in Ko were very different from the facts of this case. Ko contracted Hillview Homes Ltd (Hillview) to build a house. The house was never built. The written agreement between the parties contained several documents that included a one-page Addendum A which listed some 16 extra items. There was no issue with respect to 15 of those items and the lawsuit devolved to the other item which simply read: add 1666 x 80.
46 It was agreed (and stated in Addendum A) that the house to be built was Hillview's existing standard plan "Los Cabos II" which plan was introduced into evidence. However, the effect of the item in Addendum A was that the agreement did not call for the construction of the standard 2834 square foot "Los Cabos II" house but rather one that was 1666 square feet bigger. The matter proceeded to trial and Ko was successful against Hillview. The relief granted, however, was rather unusual and included: a declaration in the abstract that the contract was valid and enforceable; a second declaration that Hillview had unilaterally breached the agreement; specific performance of only the part of the agreement calling for the sale of the lot and payment at an unspecified price; an award of damages to be assessed at a second trial; and a declaration of a caveatable interest.
47 This Court allowed the appeal and declared that the agreement failed for lack of a material term. This Court noted specifically at para 91 that what terms are essential depends upon the type of contract so that what may be sufficient specificity to make a valid contract to purchase an existing lawnmower may not be enough for a contract to construct a new house. In our opinion, Ko does not assist Roswell and Kumar. This case does not involve the construction of a new building but rather a non- arm's length offer made by one partner/co-owner to another to acquire the other's interest in the pre-existing building.
48 The September 23 email was prepared and sent in the context of the First Action by the counsel/agent for one co-owner of the Condominium Property (Roswell) to the counsel/agent of the other co-owner (135 Alta). It was described to be an offer both in its subject line and also in the body of the email itself. There was certainty of parties, namely, Roswell as offeror and 135 Alta as offeree; and there was certainty of the subject matter, namely, the Condominium Property. The argument that the September 23 email somehow pertained to raw property is clearly untenable. Furthermore, there was certainty of the purchase price and the burden of paying the GST was properly resolved by statutory considerations as found by the trial judge, i.e. sections 221 and 228 of the Excise Tax Act (Canada).
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 10 Roswell Group Inc v. 1353141 Alberta Ltd, 2020 ABCA 428, 2020 CarswellAlta 2302 0165 2020 ABCA 428, 2020 CarswellAlta 2302, [2020] A.W.L.D. 3751, [2020] A.W.L.D. 3783...
49 The argument that the contract was void because there was no condition dealing with adjustments for rent was not raised in the court below nor was it even pleaded by Roswell and Kumar. Accordingly, it will not be considered on appeal.
50 The trial judge's holding that neither the closing date nor possession date were essential terms given the rather particular nature of this contract represents no error in our opinion. This after all was not an arm's length transaction between third parties; rather an offer extended by Roswell in the context of the existing litigation in the First Action.
51 We therefore conclude that the trial judge's finding that there was a valid offer and acceptance and that all essential terms were present, discloses no basis warranting appellate intervention.
Did the trial judge err in calculating damages for breach of contract by failing to account for the closing costs incurred in the sale of the Condominium Property and the calculation of damages for breach of contract?
52 Roswell and Kumar submit there was an error made by the trial judge in not recognizing the closing costs to sell the Condominium Property, which totalled $113,070.37. These costs were incurred for the benefit of 135 Alta but have not been accounted for. The costs were largely incurred due to the fact that the Condominium Property had to be sold pursuant to a judicial sale.
53 For their part, the Guptas and 135 Alta argue that if Roswell had not breached the contract for sale, the Condominium Property would have been transferred with only nominal costs and the $113,070.37 closing costs would not have been incurred.
54 The testimony of the Guptas was that they intended to keep the Condominium Property for the long term and had no plans to sell it. The fact that 135 Alta elected to purchase Roswell's interest in the Condominium Property rather than selling its interest to Roswell, underscores this point. Furthermore, there was no evidence as to what closing costs would be in any future sale. It is noteworthy that the Condominium Property was sold pursuant to judicial proceedings and the closing costs greatly enhanced as a result. We agree with the trial judge's treatment of this item.
55 There is no merit to this ground of appeal and it is dismissed.
Did the trial judge err in the calculation used to determine damages in the lost rent in the Judgment Roll by mistakenly including damages for units 102 and 201?
56 Roswell and Kumar submit that the Guptas and 135 Alta failed to prove damages for loss of rent for units 102 and 201. Roswell and Kumar submit that the evidence at trial confirmed 135 Alta took no steps to find tenants and adduced no evidence to support this claim for damages.
57 The Guptas and 135 Alta submit that entitlement to damages for rental revenue is a finding of fact, and the appellants have not shown palpable and overriding error. Further, evidence establishing the units could or should have been rented is a mitigation issue, the onus of which lies upon Roswell and Kumar to establish and which they failed to do.
58 We note that the trial judge had previously held (at para 142), that subsequent to his email of September 20, 2010, Kumar was "grinding the partnership business to a halt". Given this fact finding, it is hardly surprising that the trial judge did not make any finding that the Guptas and 135 Alta failed to mitigate their damages. To the contrary, it was due to Kumar's actions that the business virtually ceased to exist.
59 In the result, we see no merit to this argument and it is dismissed.
Did the trial judge err in calculations used to determine damages for lost rent in the Judgment Roll by mistakenly including damages for unit 202?
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 11 Roswell Group Inc v. 1353141 Alberta Ltd, 2020 ABCA 428, 2020 CarswellAlta 2302 0166 2020 ABCA 428, 2020 CarswellAlta 2302, [2020] A.W.L.D. 3751, [2020] A.W.L.D. 3783...
60 Roswell and Kumar claim that the Judgment Roll improperly added damages for lost rent on unit 202. These were not ordered but were included in the SVS calculations and erroneously relied upon by the trial judge when signing off on the Judgment Roll.
61 The Guptas and 135 Alta submit that the trial judge did award damages for lost rent for unit 202 and refer to paragraphs 240-246 of the Judgment (reproduced at para 25 supra). The Guptas and 135 Alta further submit the actual calculation of damages was left to the parties who were to be assisted by the expert from SVS Group LLP. Despite repeated requests from the Guptas and 135 Alta and the trial judge for Roswell and Kumar to comment on the draft form of the Judgment Roll and proposed calculations of damages, they chose not to.
62 Given their decision not to respond, it ill-behooves Roswell and Kumar for the first time on appeal to argue what should be the proper calculation of damages in this matter. Be that as it may, it is clear from paragraphs 244 and 245 of the Judgment that the trial judge found in the First Action that Roswell and Kumar owed the partnership for unpaid rents for the period August 2009-August 2017. This had been previously calculated by her to be in the amount of $152,755 (para 144(f)). She then went on to award 135 Alta for lost revenue with respect to unit 202 in the Second Action but directed that it must be off set by the actual amount of rent received during the same time period. In any event, despite extensive arguments advanced during oral argument, we find there to have been no palpable and overriding error made by the trial judge in her assessment of damages on this matter. Therefore, appellate intervention is not warranted.
63 We therefore dismiss this ground of appeal.
Conclusion
64 For the reasons set out above, the applications brought by 135 Alta and the Guptas are allowed and the appeal itself is dismissed. Appeal dismissed; applications granted.
End of Document Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 12