Court File No. CV-18-610236-00CL ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST IN THE MATTER OF THE RECEIVERSHIP OF 2423402 ONTARIO INC. BETWEEN: BANK OF MONTREAL Applicant - and - 2423402 ONTARIO INC. Respondent MOTION RECORD (Motion for Relief re Appointment Order) October 21, 2019 McCarthy Tétrault LLP Suite 5300, Toronto Dominion Bank Tower Toronto, ON M5K 1E6 Fax: 416-868-0673 Heather L. Meredith LSO#: 48354R Tel: 416-601-8342 Email: [email protected] Geoff R. Hall LSO#: 34710O Tel: 416-601-7856 E-mail: [email protected] Trevor Courtis LSO#: 76615A Tel: 416-601-7643 E-mail: [email protected] Lawyers for the applicant, Bank of Montreal, in its capacity as Administrative Agent under the Credit Agreement TO: THE SERVICE LIST Index Tab Court File No. CV-18-610236-00CL ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST IN THE MATTER OF THE RECEIVERSHIP OF 2423402 ONTARIO INC. BETWEEN: BANK OF MONTREAL Applicant - and - 2423402 ONTARIO INC. Respondent MOTION RECORD (Motion for Relief re Appointment Order) INDEX TAB DOCUMENT 1. Notice of Motion 2. Affidavit of Eden Orbach, sworn October 21, 2019 A. Exhibit “A” – Performance Bond (with Multiple Obligee Rider) B. Exhibit “B” – Appointment Order, December 6, 2018 C. Exhibit “C” – Letter from Receiver to Zurich, December 7, 2018 D. Exhibit “D” – Letter from Receiver to Bondfield, December 7, 2019 E. Exhibit “E” – Order of Justice Conway, September 25, 2019 F. Exhibit “F” – Reasons of Justice Conway, September 25, 2019 G. Exhibit “G” – Notice of Appeal (Zurich), October 4, 2019 H. Exhibit “H” – Notice of Motion (BMO), October 10, 2019 TAB DOCUMENT I. Exhibit “I” – Notice of Motion (Zurich), October 17, 2019 J. Exhibit “J” – Endorsement of Justice Hainey, July 12, 2019 K. Exhibit “K” – Letter from Lerner to Meredith, July 16, 2019 L. Exhibit “L” – Letter from Shalviri to Lerner, July 16, 2019 M. Exhibit “M” – Letter from Meredith to Lerner, July 17, 2019 N. Exhibit “N” – Letter from Mahar to Meredith, October 4, 2019 O. Exhibit “O” – Letter from Meredith to Lerner, October 8, 2019 P. Exhibit “P” – Letter from Lerner to Meredith, October 10, 2019 Q. Exhibit “Q” – Letter from Meredith to Lerner, October 17, 2019 R. Exhibit “R” – Affidavit of Steven Aquino, sworn March 5, 2019 (without exhibits) S. Exhibit “S” – Corporate Profile Report – 2423402 Ontario Inc. T. Exhibit “T” – Corporate Profile Report – Bondfield Construction Company Limited U. Exhibit “U” – Purported Release V. Exhibit “V” – Transcript of the Cross-Examination of Adrian Braganza, May 31, 2019 W. Exhibit “W” – 20 Day Notice to Interim Completion 3. Draft Stay Enforcement Order 4. Draft Appointment Amending Order 5. Comparison to Appointment Order 1 Court File No. CV-18-610236-00CL ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST IN THE MATTER OF THE RECEIVERSHIP OF 2423402 ONTARIO INC. BETWEEN: THE BANK OF MONTREAL Applicant - and - 2423402 ONTARIO INC. Respondent NOTICE OF MOTION (Motion for Relief re Appointment Order) Bank of Montreal, in its capacity as administrative agent (the “Administrative Agent”) pursuant to the credit agreement dated as of August 28, 2014, as amended (the “Credit Agreement”) between 2423402 Ontario Inc. (“Project Co”) as borrower, each of the financial institutions and other entities from time to time parties thereto, as lenders, and the Administrative Agent, will make a motion before a judge of the Ontario Superior Court of Justice (Commercial List) on a date to be set at a 9:30 Chambers appointment at 330 University Avenue, Toronto, Ontario. THE MOTION IS FOR: 1. An order, substantially in form attached to the Motion Record at Tab 3 (the “Stay Enforcement Order”), among other things, declaring that the stated intention of Zurich Insurance Company Ltd. (“Zurich”) to cease all further involvement with the Project after Interim Completion is achieved is in breach of the Appointment Order, which prevents Zurich from discontinuing, altering, interfering with or terminating the Contractor Bonds or funding of the Project Costs thereunder without consent of the Receiver or leave of the Court; - 2 - 2 2. An order, substantially in the form attached to the Motion Record at Tab 4 (the “Appointment Amending Order”), among other things, amending and restating the Appointment Order to: (a) clarify that the Appointment Order authorizes, empowers and directs the Receiver, to the exclusion of all others, to calculate the cost to complete the Project, which figure shall be used to calculate the amount to be paid by Zurich to Project Co pursuant to the Performance Bond, and (b) establish a process for the Receiver to provide notice of its calculation to interested parties and a mechanism to resolve any disputes with respect to that calculation; and 3. Such other relief as this Honourable Court may allow. 4. All terms used but not otherwise defined herein shall have the meanings ascribed thereto in the affidavit of Eden Orbach, sworn October 21, 2019. THE GROUNDS FOR THE MOTION ARE: The Project and the Contractor Bonds 1. The Cambridge Memorial Hospital (“CMH”) is currently under-going a major construction and redevelopment project (the “Project”) pursuant to a P3 (Public-Private Partnership) development contract awarded to Project Co dated August 14, 2014 (the “Project Agreement”). Bondfield Construction Company Limited (the “Construction Contractor” or “Bondfield”) is the lead contractor on the Project and its obligations are pursuant to a construction contract dated August 14, 2014 (the “Construction Contract”) as between Project Co and Bondfield. 2. The Project is funded by a senior secured credit facility (the “Credit Facility”) provided to Project Co pursuant to the Credit Agreement. The Credit Facility is currently in default. - 3 - 3 3. Zurich acted as surety for the Project and, as required by the Credit Facility, issued three bonds in respect of the Project (collectively the “Contractor Bonds”): the Performance Bond in the amount of $87,377,250 (the “Performance Bond”), the Labour and Materials Payment Bond in the amount of $87,377,250 and the Demand Bond in the amount of $8,737,725. Appointment of Receiver 4. On December 6, 2018, the Honourable Mr. Justice Hainey issued an Appointment Order (the “Appointment Order”) appointing Alvarez & Marsal Inc. as receiver (the “Receiver”), on a limited basis, over all of the assets, undertakings and properties of Project Co. 5. The Appointment Order imposed a broad stay of proceedings including an order restraining all Persons having oral or written agreements with Project Co from discontinuing, altering, interfering with or terminating the supply of goods and services required by Project Co. including insurance. 6. The Appointment Order also empowered and authorized the Receiver to execute, issue, and endorse any agreements or documentation for and on behalf of the Project Co as the Receiver considered necessary or advisable to facilitate making such demand. The Appointment Order provides that, in each case where the Receiver takes any such actions or steps, it shall be exclusively authorized and empowered to do so, to the exclusion of all other Persons (as defined in the Appointment Order) and without interference from any other Person. 7. On the day following the issuance of the Appointment Order, the Receiver sent a letter to Zurich demanding that Zurich promptly select and carry out one of the four options listed in the Performance Bond (the “Performance Bond Demand”). Zurich refused to recognize the Performance Bond Demand and refused to perform its obligations under the Performance Bond. - 4 - 4 The Motion and Zurich’s Failure to Comply 8. On May 6, 2019, the Administrative Agent commenced a motion (the “Motion”) seeking, among other things, declarations that (i) the Performance Bond Demand by the Receiver was a proper demand under the Performance Bond on behalf of Project Co, and (ii) Zurich was obligated to promptly select and carry out one of the four options listed in the Performance Bond (the “Declarations”). 9. On September 25, 2019, the Honourable Madam Justice Conway issued the Declarations sought by the Administrative Agent (the “Conway Decision”). Zurich appealed the Conway Decision (the “Appeal”) and has to date failed to select and carry out one of the four options listed in the Performance Bond. 10. The Appeal alleges an appeal as of right that does not exist. Accordingly, the Conway Decision is not stayed pending the Appeal and by failing to “promptly” select an option under the Performance Bond, Zurich is in breach of the Performance Bond, the Conway Decision and the Appointment Order. Zurich’s Threats to Walk Away From the Project 11. After Zurich initially threatened to walk away from the Project after Interim Completion, counsel to the Administrative Agent sought assistance of the Court at a July 12, 2019 chambers’ appointment before Justice Hainey. Zurich’s counsel clarified Zurich’s position to the Court and the parties, including by stating that he expected Zurich to continue expending funds and taking steps prior to Interim Completion in respect of post-Interim Completion work such as making arrangements with a completion contractor for Phase 3 of the Project. Justice Hainey endorsed the record that “Mr. Kolenda has clarified Zurich’s position to the satisfaction of the other parties.” 12. On July 16, 2019, counsel to Zurich sent a letter advising that Zurich would cease all further involvement with the Project after Interim Completion is achieved. The Administrative Agent took the position that Zurich was not entitled to do so in the face of the Appointment Order without seeking consent of the Receiver or leave of the Court. - 5 - 5 13. During the hearing of the Motion on September 24, 2019, Zurich again stated that regardless of the outcome of the motion, it would cease funding all work and would cease all further involvement on the Project after Interim Completion.