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TABLE OF CONTENTS Page I. INTRODUCTION .......................................................................................................... 1 II. LAW ........................................................................................................................... 1 III. LIST OF CASE AUTHORITIES & STATUTES ..................................................................... 9 {02496587 v1} I. INTRODUCTION 1. This Bench Brief is submitted to this Honourable Court to set out the law in relation to the duty of good faith in the context of insolvency proceedings. 2. Further submissions and argument will be made at the hearing of the Application of Jerry Shankowski and 945441 Alberta Ltd. as it relates to relief sought against the professional advisors to JMB Crushing Systems Inc. and 2161889 Alberta Ltd., the Monitor, and the professional advisors to the Monitor. II. LAW Good Faith in Insolvency Proceedings 3. “Good faith” is not defined in the Companies’ Creditors Arrangement Act, RSC 1985, c C- 36, as amended (the “CCAA”). The duty of good faith has been referred to from time to time in the case law as part of insolvency proceedings under the CCAA, but it has only recently been enacted as a specific provision in the CCAA. Section 18.6 came into force on November 1, 2019 and provides: Good faith 18.6 (1) Any interested person in any proceedings under this Act shall act in good faith with respect to those proceedings. Good faith — powers of court (2) If the court is satisfied that an interested person fails to act in good faith, on application by an interested person, the court may make any order that it considers appropriate in the circumstances. Companies’ Creditors Arrangement Act, RSC 1985, c C-36, as amended, s 18.6 [Tab 1] 4. As a result of section 18.6, the concept of good faith will remain the same under the CCAA, but the scope has been expanded to cover all parties under all circumstances. 5. Not surprisingly, there is very little case law on section 18.6. However, the Supreme Court of Canada recently provided some commentary on section 18.6 in a decision issued on May 8, 2020. One of the principal means through which the CCAA achieves its objectives is by carving out a unique supervisory role for judges … From beginning to end, each CCAA proceeding is overseen by a single supervising judge. The supervising judge acquires extensive knowledge and insight into the stakeholder dynamics and the business realities of the proceedings from their ongoing dealings with the parties. {02496587 v1} - 2 - The CCAA capitalizes on this positional advantage by supplying supervising judges with broad discretion to make a variety of orders that respond to the circumstances of each case and “meet contemporary business and social needs” (Century Services, at para. 58) in “real-time” ... The anchor of this discretionary authority is s. 11, which empowers a judge “to make any order that [the judge] considers appropriate in the circumstances”. This section has been described as “the engine” driving the statutory scheme … The discretionary authority conferred by the CCAA, while broad in nature, is not boundless. This authority must be exercised in furtherance of the remedial objectives of the CCAA, which we have explained above (see Century Services, at para. 59). Additionally, the court must keep in mind three “baseline considerations”, which the applicant bears the burden of demonstrating: (1) that the order sought is appropriate in the circumstances, and (2) that the applicant has been acting in good faith and (3) with due diligence (para. 69). The first two considerations of appropriateness and good faith are widely understood in the CCAA context. Appropriateness “is assessed by inquiring whether the order sought advances the policy objectives underlying the CCAA” (para. 70). Further, the well-established requirement that parties must act in good faith in insolvency proceedings has recently been made express in s. 18.6 of the CCAA, which provides: Good faith 18.6 (1) Any interested person in any proceedings under this Act shall act in good faith with respect to those proceedings. Good faith — powers of court (2) If the court is satisfied that an interested person fails to act in good faith, on application by an interested person, the court may make any order that it considers appropriate in the circumstances. … {02496587 v1} - 3 - The third consideration of due diligence requires some elaboration. Consistent with the CCAA regime generally, the due diligence consideration discourages parties from sitting on their rights and ensures that creditors do not strategically manoeuver or position themselves to gain an advantage ... The procedures set out in the CCAA rely on negotiations and compromise between the debtor and its stakeholders, as overseen by the supervising judge and the monitor. This necessarily requires that, to the extent possible, those involved in the proceedings be on equal footing and have a clear understanding of their respective rights ... A party’s failure to participate in CCAA proceedings in a diligent and timely fashion can undermine these procedures and, more generally, the effective functioning of the CCAA regime ... [emphasis added; citations omitted] 9354-9186 Québec Inc. v Callidus Capital Corp., 2020 SCC 10 at paras 47-51 [Tab 2] 6. Section 18.6 was also referred to by Justice Horner in Re Accel Canada Holdings Limited in the context of an application by a party claiming to have a valid and enforceable claim against one of the debtor companies that gave rise to a secured interest in that debtor company’s assets. The Court referred to section 11 of the CCAA, and noted that a court “must bear in mind the requirements of appropriateness, good faith, and due diligence when exercising its authority under the CCAA”. Re Accel Canada Holdings Limited, 2020 ABQB 204 at paras 21-23 [Tab 3] 7. Determining what constitutes good faith is context-specific. In the insolvency context, a useful discussion is found in Springridge Farms Ltd. (Trustee of) v Spence. Although this discussion was in the context of bankruptcy, the discussion of good faith is equally applicable in the CCAA context. … I will deal firstly with the meaning of "good faith," and I have found the following definitions or references to these words: (a) Webster's Third New International Dictionary (Unabridged): Good faith — a state of mind indicating honesty and lawfulness of purpose ... belief that one's conduct is not unconscionable or that known circumstances do not require further investigation. (b) Black's Law Dictionary, 5th ed. (St. Paul, Minn.: West Publishing Co., 1979): Good faith ... encompasses, among other things, an honest belief, the absence of malice and the absence of design to defraud or to seek an unconscionable advantage, and an individual's personal good faith is concept of his own mind and {02496587 v1} - 4 - inner spirit and, therefore, may not conclusively be determined by his protestations alone. ... Honesty of intention, and freedom from knowledge of circumstances which ought to put the holder upon inquiry. ... In common usage this term is ordinarily used to describe that state of mind denoting honesty of purpose ... … In some instances "good faith" is described as being the opposite of "bad faith." Others indicate that there can be an absence of good faith which does not amount to bad faith. In any event, I conclude that the phrase "in good faith" quite simply means to act honestly; whether failure to act honestly constitutes bad faith, is a question I need not answer. [emphasis added] Springridge Farms Ltd. (Trustee of) v Spence, 1991 CarswellSask 43 at paras 19-20 [Tab 4] 8. Good faith has been considered by the courts in the context of performance of contracts, most recently by the Supreme Court of Canada in Bhasin v Hyynew. In Bhasin, the Court held that there is a common law duty that applies to all contracts that requires the parties to act honestly in the performance of their contractual obligations. Commercial parties reasonably expect a basic level of honesty and good faith in contractual dealings. While they remain at arm's length and are not subject to the duties of a fiduciary, a basic level of honest conduct is necessary to the proper functioning of commerce. The growth of longer term, relational contracts that depend on an element of trust and cooperation clearly call for a basic element of honesty in performance, but, even in transactional exchanges, misleading or deceitful conduct will fly in the face of the expectations of the parties … … The organizing principle of good faith exemplifies the notion that, in carrying out his or her own performance of the contract, a contracting party should have appropriate regard to the legitimate contractual interests of the contracting partner. While “appropriate regard” for the other party’s interests will vary depending on the context of the contractual relationship, it does not require acting to serve those interests in all cases. It merely requires that a party not seek to undermine those interests in bad faith. This general principle has strong conceptual differences from the much higher obligations of a fiduciary. Unlike fiduciary duties, good faith performance does not engage duties of loyalty to the other contracting party or a duty to put the interests of the other contracting party first. … {02496587 v1} - 5 - The principle of good faith must be applied in a manner that is consistent with the fundamental commitments of the common law of contract which generally places great weight on the freedom of contracting parties to pursue their individual self-interest. In commerce, a party may sometimes cause loss to another — even intentionally — in the legitimate pursuit of economic self- interest … Doing so is not necessarily contrary to good faith and in some cases has actually been encouraged by the courts on the basis of economic efficiency … The development of the principle of good faith must be clear not to veer into a form of ad hoc judicial moralism or “palm treeˮ jus ce.

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