CLERK'S STAMP COM Oct 30 2020 J. Eidsvik COURT FILE NUMBER 2001-05630 COURT COURT OF QUEEN'S BENCH OF ALBERTA JUDICIAL CENTRE CALGARY APPLICANTS IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF DOMINION DIAMOND MINES ULC, DOMINION DIAMOND DELAWARE COMPANY LLC, DOMINION DIAMOND CANADA ULC, WASHINGTON DIAMOND INVESTMENTS, LLC, DOMINION DIAMOND HOLDINGS, LLC, and DOMINION FINCO INC. DOCUMENT BENCH BRIEF OF CREDIT SUISSE AG DDMI APPLICATION FOR REALIZATION PROCEDURE ADDRESS FOR SERVICE AND OSLER, HOSKIN & HARCOURT LLP CONTACT INFORMATION OF Suite 2500, 450 – 1 Street SW PARTY FILING THIS Calgary, AB T2P 5H1 DOCUMENT Attention: Marc Wasserman / Michael De Lellis / Emily Paplawski Telephone: 416.862.4908 / 416.862.5997 / 403.260.7071 Facsimile: 403.260.7024 Email: [email protected] / [email protected] / [email protected] Matter: 1210529 - 1 - PART I - INTRODUCTION 1. This Brief is filed by Credit Suisse AG, Cayman Islands Branch, as agent (the “Agent”) for the first secured lenders (the “First Lien Lenders”) to Dominion Diamond Mines ULC (“Dominion”), Washington Diamond Investments, LLC and various of their direct and indirect subsidiaries (together, the “Debtor”) in response to the Application filed by Diavik Diamond Mines (2012) Inc. (“DDMI”). 2. The Agent opposes the relief sought by DDMI. The “comeback” clause in the Second Amended and Restated Initial Order (the “SARIO”) is not available to DDMI to assist it in obtaining a “leg up” relative to other creditors in a manner contrary to fundamental CCAA principles. No circumstances have changed that could possibly justify revisiting or otherwise seeking to override paragraph 16 of the SARIO or to expand DDMI’s rights beyond those that were granted based on this Court’s view of the appropriate balancing of interests in this proceeding. In fact, paragraph 16(e) was designed, based on DDMI’s own submissions, to protect it against the “real and material” risk1 of the very circumstance that has now occurred. Absent “changing circumstances”, this Court has no jurisdiction to revisit or vary the SARIO. It is a final, entered, non-appealable order of this Court on which parties are entitled to rely and which, in the words of Justice Morawetz, must “be respected.”2 3. Contrary to the fundamental purposes of section 11 of the Companies’ Creditors Arrangement Act (“CCAA”),3 which require a careful balancing of interests among all stakeholders in furtherance of the objectives of the CCAA,4 DDMI is seeking to obtain an 1 Transcript of Proceedings, June 19, 2020 (the “June 19 Transcript”) at p. 85:30-34. 2 Target Canada Co. (Re), 2016 ONSC 316 (“Target”) at para 81. [TAB 2] 3 Companies' Creditors Arrangement Act, RSC 1985, c C-36 (“CCAA”) at s. 11 [TAB 1] 4 9354-9186 Quebec inc v Callidus Capital Corp, 2020 SCC 10 (“Callidus”) at para 49. [TAB 3] - 2 - advantage purely in its own interests based on its entirely unsubstantiated claims that it might, at some point in the future, be under-secured. This is this contrary to evidence, to CCAA principles, and it fundamentally mischaracterizes the legal rights held by DDMI. Moreover, these CCAA proceedings are ongoing and no other creditors, including the First Lien Lenders, are entitled to enforce on their security, let alone take enforcement steps in relation to security held by another party. 4. This Court is being asked to allow DDMI to realize against Dominion’s property (not just property secured in favour of DDMI). This property is subject to a priority security interest in favour of the First Lien Lenders. DDMI proposes a fundamentally flawed realization process designed by DDMI to favour its own interests. DDMI effectively seeks to confer power on itself to appropriate value that rightly belongs to Dominion, the First Lien Lenders, and other stakeholders, while providing no transparency and no accountability to these stakeholders, to their material prejudice. 5. The Agent therefore submits that DDMI’s requested relief should be denied. Alternatively, if this Court determines that it is appropriate to approve a realization process to monetize Dominion’s share of diamond production (the “Dominion Products”) held by DDMI as security for the Cover Payments, this Court should not approve the one-sided process proposed by DDMI. Both the Agent and Dominion have proposed alternate realization processes that appropriately balance the rights of all stakeholders. - 3 - PART II - FACTS 6. On April 22, 2020, Dominion and various related companies obtained an Initial Order under the CCAA (the “Initial Order”).5 7. At the hearing of Dominion’s comeback application, DDMI sought: (a) a modification to the stay of proceedings in the Initial Order to permit DDMI to make Cover Payments on behalf of Dominion; and (b) authorization to hold a portion of Dominion’s production from the Divaik mine (the “Diavik Mine”) to secure Dominion’s obligations in respect of the Cover Payments.6 DDMI requested that a provision be included in the Initial Order providing that: … DDMI be and is hereby authorized to hold an amount of Dominion Diamond’s share of production from the Diavik Mine equal to the total value of JVA Cover Payments made by DDMI. The share of production shall be held at the Diavik Production Splitting Facility in Yellowknife, Northwest Territories (the “PSF”) and the value of the Dominion Diamond’s share of production to held at the PSF shall be determined based on royalty valuations performed from time to time at the PSF by the GNWT. DDMI shall release Dominion Diamond’s share of production upon receiving payment of the indebtedness owing to it on account of JVA Cover Payments made by DDMI on or after the Filing Date.7 [Emphasis added] 8. On May 8, 2020, this Court determined that the relief sought by DDMI was premature and granted an Order providing that Dominion would not call for delivery of any diamonds, and DDMI would maintain possession of all diamonds located at the Diavik Production Splitting Facility (“PSF”), “until the Court rendered its decision in respect of DDMI’s response to the proposed amended and restated initial order.”8 9. On May 15, 2020, this Court granted a further order permitting DDMI to hold Dominion’s share of production from the Diavik mine scheduled to be delivered on May 20, 2020, and declaring that the Order was “made on a temporary, without prejudice basis pending determination 5 Initial Order of the Honourable Madam Justice Eidsvik, granted April 22, 2020. 6 Bench Brief of Diavik Diamond Mines (2012) Inc., dated May 6, 2020 (the “May DDMI Bench Brief”) at para 2. 7 May DDMI Bench Brief at Tab 1. 8 Order of the Honourable Madam Justice K. Eidsvik, granted May 8, 2020 at para 3. - 4 - by this Court whether the next scheduled deliveries of Dominion Diamond's proportionate share of diamonds produced from the Diavik Mine as set out on the Delivery Schedule are to remain at the PSF or whether they are to be delivered by DDMI to Dominion Diamond.”9 10. On June 19, 2020 – after three days of hearings and extensive oral argument, the filing of three additional affidavits and two separate bench briefs by DDMI, a bench brief by the Agent, and significant application materials by Dominion – this Honourable Court granted the SARIO. Section 16 of the SARIO provided, among other things, that: DDMI, in its capacity as manager under the Diavik JVA, be and is hereby authorized to hold an amount of Dominion Diamond's share of production from the Diavik Mine equal to the total value of the JVA Cover Payments made by DDMI (the "Dominion Products") at the Diavik Production Splitting Facility in Yellowknife, Northwest Territories (the "PSF") and the value of the Dominion Products shall be determined based on royalty valuations performed from time to time at the PSF by the Government of the Northwest Territories.10 [Emphasis added] 11. Section 16(e) of the SARIO provided that upon the happening of certain defined occurrences, DDMI would be entitled to apply to the Court to seek an Order allowing it to exercise rights and remedies as against the Dominion Products. Such triggering events included where no Phase 2 Qualified Bid existed which included Dominion’s interest in the Diavik Joint Venture.11 12. On October 19, 2020, in accordance with section 16(e) of the SARIO, DDMI filed an application seeking an order permitting it to realize on the Dominion Products. However, in addition to such relief, DDMI also requested a variance of paragraph 16 of the SARIO to eliminate the limitation that permitted DDMI to hold only the Dominion Products sufficient to satisfy the outstanding Cover Payments, as determined on the basis of the DICAN valuation. DDMI now 9 Order of the Honourable Madam Justice K. Eidsvik, granted May 15, 2020 at paras 3-4. 10 Second Amended and Restated Initial Order of the Honourable Madam Justice Eidsvik, granted June 19, 2020 (“SARIO”) at para 16. 11 SARIO at section 16(e). - 5 - seeks to withhold the entirety of Dominion’s share of the products from the Diavik Mine, and to appoint itself to sell those products under a flawed realization process. 13. In requesting this relief DDMI improperly purports to rely on the “comeback clause” in the SARIO to revisit and vary the otherwise final, non-appealable order of this Court. PART III - ISSUE 14. There are two issues before this Court for determination: (a) whether section 16 of the SARIO should be varied to permit DDMI to hold all of Dominion’s share of production from the Diavik Mine, including that portion in excess of the value required to secure the outstanding Cover Payments made by DDMI, as determined on the basis of the monthly DICAN valuation; and (b) whether DDMI’s proposed Realization Process should be approved? PART IV - LAW AND ARGUMENT A.