ontario superior court of justice …...12 there are 34 mortgage lenders and some have charges on...

Court File No. CV-19-00633392-00CL

ONTARIO SUPERIOR COURT OF JUSTICE

(Commercial List)

IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED

AND IN THE MATTER OF A PROPOSED PLAN OF COMPROMISE OR ARRANGEMENT OF LYDIAN INTERNATIONAL LIMITED, LYDIAN CANADA VENTURES CORPORATION AND LYDIAN U.K. CORPORATION

LIMITED

BRIEF OF AUTHORITIES OF CATERPILLAR FINANCIAL SERVICES (UK) LIMITED

January 22, 2020 McCarthy Tétrault LLPSuite 5300, Toronto Dominion Bank Tower Toronto ON M5K 1E6 Fax: 416-868-0673

Heather Meredith LSO#: 48354R Tel: 416-601-8342 Email: [email protected]

Trevor Courtis LSO#: 67715A [email protected]: 416-601-7643

Alexander Steele LSO#: 75719P [email protected]: 416-601-8370

Lawyers for Caterpillar Financial Services (UK) Limited

Index Tab


ONTARIO SUPERIOR COURT OF JUSTICE

(Commercial List)

IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED

AND IN THE MATTER OF A PROPOSED PLAN OF COMPROMISE OR ARRANGEMENT OF LYDIAN INTERNATIONAL LIMITED, LYDIAN CANADA VENTURES CORPORATION AND LYDIAN U.K. CORPORATION

LIMITED


Tab. Documents

1. League Assets Corp., Re, 2013 BCSC 2043

2. Lehndorff General Partner Ltd., Re, [1993] O.J. No. 14

3. U.S. Steel Canada Inc., Re, 2016 ONSC 3106

4. Worldspan Marine Inc. (Re), 2011 BCSC 1758

5. Re Nortel Networks Corporation et al, 2015 ONSC 1354

6. Canwest Global Communications Corp., Re, 2011 ONSC 2215

7. ICR Commercial Real Estate (Regina) Ltd. v. Bricore Land Group Ltd. 2007 SKCA 72

8. Essar Steel Algoma Inc. (Re), 2016 ONCA 138

9. Alberta-Pacific Terminals Ltd., Re, [1991] B.C.J. No. 1065

10. Humber Valley Resort Corp., Re, 2008 NLTD 174

11. Shire International Real Estates Investments Ltd., Re, 2010 ABQB 84

12. PSInet Ltd. (Re) (2002), 33 CBR (4th) 284

League Assets Corp., Re, 2013 BCSC 2043, 2013 CarswellBC 34082013 BCSC 2043, 2013 CarswellBC 3408, [2013] B.C.W.L.D. 9463...

Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved. 1

2013 BCSC 2043British Columbia Supreme Court

League Assets Corp., Re

2013 CarswellBC 3408, 2013 BCSC 2043, [2013] B.C.W.L.D. 9463,[2013] B.C.W.L.D. 9464, 234 A.C.W.S. (3d) 837, 7 C.B.R. (6th) 74

In the Matter of the Companies' CreditorsArrangement Act, R.S.C., 1985,c. C-36, As Amended

In the Matter of the Business Corporations Act, S.B.C. 2002, c. 57, As Amended

In the Matter of the Canada Business Corporations Act, R.S.C. 1985, c. C-44, As Amended

In the Matter of A Plan of Compromise and Arrangement of LeagueAssets Corp. and Those Parties Listed on Schedule "A" Petitioners

Fitzpatrick J.

Heard: October 25, 2013Judgment: November 8, 2013Docket: Vancouver S137743

Counsel: D.E. Gruber, T.M. Tomchak, R. Morse, T.C. Louman-Gardiner for PetitionersJ.R. Sandrelli, T.R.M. Jeffries for PricewaterhouseCoopers Inc. as MonitorC.D. Brousson for Quest Mortgage Corp., Quest Capital Management Corp.K.E. Siddall for BCMP Mortgage Investment Corporation and Interior Savings Credit UnionGeoffrey Thompson, R.B. Dawkins for TCC Mortgage Holdings Inc. FCC Mortgage Associates Inc., Citizens Bank of Canada,First Calgary Financial Credit Union Limited, Firm Capital Mortgage Fund Inc.A. Frydenlund for Canadian Western BankS.H. Stephens for Romspen Investment CorporationD.B. Hyndman for Business Development Bank of CanadaWilliam C. Kaplan, Q.C., H. Sevenoaks, for Timbercreek Mortgage Investment CorporationW.E.J. Skelly for Ad Hoc Committee of Convertible Promissory Noteholders of League Opportunity Fund Ltd.H. Ferris for Export Development Canada, Bank of Montreal and Churchill Real Estate Inc.G.J. Gehlen for Whil Concepts Inc., NWM Private Equity LP and NWM Balanced Mortgage Fund (Proposed DIP Lenders)P.J. Reardon for Maxium Financial ServicesD.K. Fitzpatrick for Roynat Inc.J. Grieve for Proposed Representative / Investors

Subject: Insolvency; Corporate and Commercial

APPLICATION by group of companies for debtor in possession financing; APPLICATION by monitor for appointment ofrepresentative counsel for investor group.

Fitzpatrick J.:

Introduction

1 This proceeding was recently commenced, on October 17, 2013, under the Companies' Creditors Arrangement Act,R.S.C. 1985, c. C-36 (the "CCAA"). On October 18, 2013, an Initial Order (the "Initial Order") was granted by Madam Justice



Brown of this court. That Initial Order included an Administration Charge of $750,000 and a Directors' Charge of $500,000.PricewaterhouseCoopers Inc. was appointed as Monitor (the "Monitor").

2 The organization of the petitioner group of companies (the "League Group") is exceedingly complex, as I will describein more detail below. In broad terms, there is a complicated corporate structure comprised of real estate investment trusts,limited partnerships and corporations involved in the development and/or management of various real estate projects in BritishColumbia, Alberta, Ontario and Quebec. The assets of the League Group include certain securities and income producing anddevelopment properties which have been said to have an "implied" equity of over $210 million. Liabilities of the League Groupare in excess of $410 million, including claims from approximately 3,200 investors who paid approximately $352 million forvarious interests.

3 The comeback hearing has been scheduled for November 18, 2013. Following the granting of the Initial Order, varioussecured creditors on individual projects have consolidated their opposition to these proceedings. It is expected that they willraise substantial issues at the comeback hearing.

4 In the meantime, the League Group has brought this application for debtor in possession or "DIP" financing, given itscontention that it urgently needs interim funding until the comeback hearing. The Monitor has also brought an application toappoint representative counsel for the investor group.

5 On October 25, 2013, I heard both applications and granted both orders, although on somewhat different terms than thosesought. I indicated at that time that my reasons would follow. These are those reasons.

Background

6 Emanuel Arruda and Adam Gant started the League Group in 2005 with two projects. Further properties were acquired onthe same basis as before, namely using traditional bank financing and individual investor contributions.

7 At present, the majority of the League Group entities are owned by IGW Assets Limited Partnership ("LALP"). The generalpartner of this limited partnership is owned by two numbered companies, which are owned or controlled by Mr. Arruda andMr. Gant's family trusts respectively.

8 The League Group, which has sought and obtained protection under the CCAA and related entities, and their generalbusiness activities can be generally summarized as follows:

a) IGW Real Estate Investment Trust ("IGW REIT"): IGW REIT does business mainly through the IGW REIT LimitedPartnership ("IGW LP") which undertakes certain project development directly or through separate limited partnershipslocated in B.C., Alberta, Quebec and Ontario. IGW REIT has issued various notes totalling approximately $10 million. Inaddition, there are numerous unsecured loans outstanding and outstanding mortgages in respect of various projects;

b) LALP project specific limited partnerships: LALP also operates another set of such limited partnerships designed forshort term investments, located in B.C., Alberta and Ontario. Each project general partner is owned by LALP with investorsbuying units in the limited partnership. Some of the project entities are said to be solvent and not financially tied to thefiling petitioners (such as through guarantees) and are therefore not filing parties themselves;

c) League Assets Corp. ("LAC"): LAC owns various general partners of a number of limited partnerships which areinvolved in various projects, the main ones being Redux Duncan, Colwood Development and Fort St. John, all locatedin B.C. There are other entities owned by LAC with diverse, but it seems mostly inactive, operations. As with LALP, anumber of LAC related entities (and hence projects) are said to be solvent and not financially tied to the filing petitioners.They are therefore not filing parties themselves;

d) "Other" project limited partnerships: these have a similar structure to that of LAC and LALP, save that Mr. Gant andMr. Arruda own the general partners for the project specific limited partnerships in B.C., Quebec and Ontario. This is said



to be an oversight and in any event, these "other" limited partnerships are managed within the League Group, with LACproviding management services for these projects;

e) League Opportunity Fund ("LOF"): LOF is wholly owned by LALP. It is a vehicle for investors and it has issuedpromissory notes of approximately $13.5 million. The money was loaned by LOF to other members of the League Group.IGW LP(majority owned by IGW REIT) and LAC have guaranteed these notes;

f) investment and wealth management: there are a number of entities within the League Group's investment division whichrelate to investment and wealth management, including the Harris Fraser Group Limited which was recently acquired inJuly 2013; and

g) asset management: LAC is retained by IGW REIT, IGW LP and various project limited partnerships to provide assetmanagement, for which it charges fees.

9 The causes of the League Group's financial difficulties have been attributed to a number of factors. Firstly, the 2008worldwide financial crisis caused a number of delays to certain projects; reduced demand resulted in increased borrowing costsin the long term. Secondly, the recovery from the financial downturn has resulted in many investors seeking to redeem theirinvestments with the League Group to look for higher risk/higher return investments. Thirdly, financing difficulties have beenexperienced on some projects, such as Redux Duncan and Colwood Development. Generally speaking, Mr. Gant states that theLeague Group has outgrown both its current corporate structure, which is too complex, and also its project by project fundingmodel.

10 The League Group currently has approximately 105 employees in various roles in Victoria, Vancouver, Toronto andCalgary. The fairly recent acquisition of the Harris Group is adding a further 20 employees in Hong Kong.

11 There has been substantial evidence introduced in Mr. Gant's affidavits regarding the value of the various assets andprojects and the secured debt against them. Aside from some Marketable Securities, there are 17 income producing propertiesand four development properties, for a total of 21 properties.

12 There are 34 mortgage lenders and some have charges on multiple properties. Exhibit "E" to Mr. Gant's affidavit #2 sets outa summary of the various properties or projects, including the appraised values ($395.6 million), the outstanding mortgage debt($184.6 million) and the "implied equity" in those properties or projects. I will revisit the reliability of this document in furtherdetail below, but it will suffice at this stage to refer to the indicated "implied equity" in the Marketable Securities ($5.8 million),Income Producing Properties ($76.2 million) and Development Properties ($128.9), for a total of approximately $211 million.

13 Unsecured creditors include the note holders in the various project limited partnerships and IGW REIT, inter-corporate debtprimarily between IGW LP and other members of the League Group, trade creditors (mostly relating to Colwood Development)and professional service firms (although some of them recently obtained security for their debts just before the filing).

14 Mr. Gant indicates that government remittances are substantially up to date, including those owed to Canada RevenueAgency and the British Columbia government. Income taxes are paid in full for 2012. All of these amounts continue to be paidin the ordinary course of business. However, property taxes are substantially in arrears.

15 Finally, the investor group is comprised mostly of individuals and Mr. Gant believes that some of them have invested asignificant portion of their net worth in the League Group. There are also some institutional investors. As of September 2013,IGW REIT ceased making distributions to its investors.

16 Mr. Gant states that the League Group has already taken steps to attempt a restructuring but has been hampered by the lackof funds. He states that any restructuring would likely involve: simplifying the corporate structure, divesting underperformingprojects, seeking a stable and comprehensive funding for the various projects, changing the IGW loan process and finally, apotential public offering to increase equity and reduce credit requirements.

Secured Creditor's Objections



17 It quickly became apparent during this hearing that a substantial number of the secured creditors were opposed tothese proceedings generally and also specifically opposed to the relief sought on these applications. The secured creditorsappearing on these applications included BCMP Mortgage Investment Corporation, Interior Savings Credit Union, Firm CapitalMortgage Fund Inc., Citizens Bank of Canada, First Calgary Financial Credit Union Limited, Canadian Western Bank, RomspenInvestment Corporation, Business Development Bank of Canada, Timbercreek Mortgage Investment Corporation, ExportDevelopment Canada, Bank of Montreal, Churchill Real Estate Inc., Maxium Financial Services and Roynat Inc.

18 I will not address the complaints or arguments of each individual secured creditor. Many of the arguments are interrelated.Those arguments can be generally summarized in the broad categories as follows:

a) Service/notice: despite the preamble to the Initial Order stating that the court was advised "that the secured creditorsand others who are likely to be affected by the charges created herein were given notice", many of the secured creditorsstate that they did not receive any notice of that hearing or that notice was sent directly to the general offices of thesecured creditors which inevitably meant that it was not addressed by them after the hearing had taken place.

No evidence was before me concerning service/notice to the secured creditors. It is apparent that many of the securedcreditors intend to argue at the comeback hearing that the Initial Order was granted on an ex parte basis and is thereforesubject to being set aside for material non-disclosure, including that there was no true urgency in hearing the matteron an ex parte basis. It is now generally agreed that the comeback hearing will be heard on a de novo basis withthe League Group having the onus of justifying to the court the continuation of the provisions in the Initial Order inaccordance with the CCAA, s. 11.02(3).

b) Statutory Prerequisites: it is argued that individual entities within the League Group do not meet the definition of"debtor company" in s. 2 of the CCAA (i.e. they are not "insolvent") and therefore, those entities do not qualify tofile for protection under s. 3. I note, however, that this particular issue was addressed before Brown J. prior to thegranting of the Initial Order.

In addition, at least one secured creditor intends to argue that the Initial Order should be set aside because the planof arrangement was doomed to fail (see for example, Hongkong Bank of Canada v. Chef Ready Foods Ltd., [1990]B.C.J. No. 2384 (B.C. C.A.));

c) The Enforcing Mortgagees: The secured creditors argue that there was no justification for two of the securedcreditors, being TCC Mortgage Holdings Inc. ("TCC") and Quest Mortgage Corp. ("Quest"), being exempted fromthe stay under the Initial Order (para. 18).

TCC had commenced foreclosure proceedings in May 2013 in respect of the Redux Duncan property. An Order Nisiof foreclosure was granted in August 2013 with the redemption period due to expire in January 2014. Apparently,TCC had brought an application for the appointment of a receiver about the time that the Initial Order was granted.In addition, Quest's mortgages over the Colwood Development property were in default and demands for paymentwere served in early October 2013. The time for enforcement of those demands would have expired just before thegranting of the Initial Order. It is my understanding that Quest has now also commenced a foreclosure proceedingagainst the Colwood Development.

Unfortunately, the exclusion of these "Enforcing Mortgagees" has engendered a response by the other securedcreditors who, not surprisingly, wish to be treated in the same fashion. The fact that they are being treated differentlyhas given rise to the other secured creditors taking the position that these proceedings are, unfairly, affecting onlythem in terms of their ability to enforce their security. In addition, it is only their security which is being primed by thevarious charges granted in these proceedings, since the security of the Enforcing Mortgagees has been exempted fromthe Administration Charge and the Directors' Charge and it is also proposed to be exempted from any DIP Lender'sCharge or Representative Counsel Charge.

http://nextcanada.westlaw.com/Link/Document/FullText?findType=Y&pubNum=6407&serNum=1990318737&originationContext=document&transitionType=DocumentItem&vr=3.0&rs=cblt1.0&contextData=(sc.Default)


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In many CCAA proceedings, foreclosing mortgagees are stayed in a variety of circumstances including when theyhave already begun enforcement proceedings. Although it was described as an"Enforcing Mortgagee" in the InitialOrder, Quest had not yet commenced any foreclosure proceeding or at best, had only recently filed the action. Reasonsfor the exclusion of these parties were said to be not only that there were monetary defaults under their security, butalso to avoid arguments by them as to the appropriateness of this CCAA proceeding, based on well-known BritishColumbia authorities such as Cliffs Over Maple Bay Investments Ltd. v. Fisgard Capital Corp., 2008 BCCA 327 (B.C.C.A.). Accordingly, while the League Group may have avoided that argument from the Enforcing Mortgagees, thedecision to exempt them has resulted in the other secured creditors now being resolved to make those same arguments,in addition to arguing that the League Group was not acting in good faith by agreeing to that exemption.

My only preliminary comment on the issue at this point is that while the court strives to achieve fairness in theproceedings, the task of the court in imposing the stay is in part to ensure that it is "appropriate": CCAA, s. 11.02(3)(a). As Deschamps J. stated in Ted Leroy Trucking Ltd., Re, 2010 SCC 60 (S.C.C.), appropriateness in part extendsto treating stakeholders "as advantageously and fairly as the circumstances permit": para. 70. Often there are goodreasons to depart from a blanket stay affecting various stakeholders, as is evidenced from the provisions of themodel order. Typical examples would include payment of employees and critical suppliers. However, in respect ofstakeholders having what seems to be a commonality of interest (and commonality of potential prejudice), I wouldexpect that there would be cogent and compelling evidence to support an order that treated them differently.

d) The "White Boxes" Entities: The secured creditors also make certain arguments in respect of certain membersof the League Group who are not part of the petitioning group. I have already referred to the extremely complexstructure of the League Group. The organizational chart includes various entities marked in yellow which are part ofthe League Group and who are also petitioning debtors. Many other entities are identified in what have been calledthe "white boxes" on the organization chart which include those entities that were not part of the petitioning debtorgroup. I have already referred to some of these "white box" entities above, but it is said by Mr. Gant that they alsogenerally include firstly, shell companies where there are no assets and secondly, entities where the sole liability isto investors and as such, they are not insolvent.

The secured creditors argue that the exclusion of these "white box" entities is suspicious in that there has beeninadequate disclosure of the financial circumstances relating to them. In particular, the suggestion has been madethat there may be sufficient income or assets in those other entities to support the operations of the League Group inthese proceedings without the necessity of priming charges which prejudice their security. If these entities are indeedsolvent, then this argument would appear to be diametrically opposed to the other argument of some secured creditors(discussed above) that only insolvent entities should be petitioning debtors.

Despite these objections, and for the purposes of these applications, I am satisfied that the materials generallydisclose the circumstances relating to these "white box" entities and why these entities have not been included inthe CCAAfiling. I do, however, appreciate that the stakeholders, including the secured creditors, may require furtherinformation about these "white box" entities beyond what is contained in Mr. Gant's affidavits. I expect that theLeague Group, possibly with the assistance of the Monitor, can provide reasonable and relevant material to them sothat they might explore this matter. At present, I simply acknowledge that this may be the basis for arguments to beadvanced by the secured creditors at the comeback hearing in respect of whether the League Group is operating ina bona fide manner.

e) Conflicts: Last, but not least, the secured creditors have raised a number of conflicts on the part of counsel involvedin these proceedings. It is clear to me that these conflicts have significantly coloured the perceived fairness of theseproceedings from the outset. The original counsel for the League Group (who has since withdrawn) disclosed, afterthe Initial Order was granted, that she has also acted in the past for Quest. Some of the secured creditors intend to argueat the comeback hearing that there was material nondisclosure of this conflict to Brown J. and that this relationshipbetween the law firm and Quest may have affected the League Group's decision to exclude Quest from the stay.



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In addition, in the days following the granting of the Initial Order and in the face of the League Group's application forDIP financing, it was disclosed that the law firm acting for the Monitor (who ceased to act at the end of this hearing)had also undertaken to act for the DIP Lenders in respect of the preparation of financing documents. The explanationis that the DIP Lenders urgently required counsel to address the League Group's pressing need for this DIP financing.Although screens were put in place between the individual lawyers at the law firm, it has unfortunately resulted inthe perception that the Monitor's support of the DIP financing, or at least the legal advice relating to the Monitor'ssupport, has been influenced by that relationship. This turn of events was extremely unfortunate, particularly in lightof the unquestioned duties of the Monitor as an officer of this court and its overriding duty to act fairly in respect ofall stakeholders, whether they are in support of or opposed to the DIP financing.

Finally, current counsel for the League Group has disclosed that his law firm is an unsecured creditor. I am not awareof any objections arising from this fact. However, it does appear that the law firm was giving legal advice to the DIPLenders at one point.

19 I am advised that all of the issues above may be raised at the comeback hearing. In addition, the secured creditors raisedthese issues on this application arguing that, in these circumstances, the court should be extremely reluctant to authorize DIPfinancing and grant a DIP charge or any other charge based on the substantial attacks that will be made on the Initial Orderand on the continuation of this proceeding. It is no doubt the strategy of the secured creditors at this time to attempt to injectsufficient uncertainty into these proceedings such that any DIP lender will be reluctant to advance monies to the League Group.

20 It not my intention or role at this time to revisit the basis upon which the Initial Order was granted. Presumably, the InitialOrder was granted having regard to the statutory requirements under the CCAA and based on well-known principles applicableon such applications, including those set out in Century Services Inc. at paras.15-18, 57-71. I appreciate that the issues raised bythe secured creditors are significant and if substantiated, may have serious consequences. Nevertheless, I am not convinced thatthese arguments are sufficient to dissuade the court from granting interim relief at this time, simply to see the League Groupthrough to the comeback hearing, some 24 days away at the time of this hearing.

21 Accordingly, it is my intention to proceed to hear and decide these applications before me based on the Initial Order beingextant and based on the updated and current circumstances of the League Group. I have specifically rejected the suggestion ofone of the secured creditors to grant these orders on a "without prejudice" basis.

DIP Financing

22 In its application materials, the League Group sought approval of a DIP facility in the amount of $31.5 million from WhilConcepts Inc., NWM Private Equity LP and NWM Balanced Mortgage Fund (whom I will collectively call the "DIP Lenders").This proposed facility was not only for what was said to be operating funding for the next 13 weeks ($5 million), but for otherpurposes such as payment of tax arrears ($3.5 million), mortgage payments for 13 weeks($5 million) and to payout one of theexisting mortgage lenders, TCC ($18 million).

23 Despite this, the League Group only sought a DIP Lender's Charge of $1.6 million which was said to be the amountof emergency funding that was urgently needed to get to the comeback hearing on November 18. The DIP Lenders supportedthis restricted charge, based on their submissions that they had no intention of funding, save and except with a DIP Lender'sCharge. I understand that given the urgency, and despite the objections of the secured creditors, the DIP Lenders are prepared toimmediately fund this amount and in doing so, waive the following conditions: that advances would only be made after expiryof the appeal period and that certain administrative matters, such as insurance, be in place.

24 The test for DIP funding is now mandated by the CCAA, s. 11.2:

Interim financing


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11.2 (1) On application by a debtor company and on notice to the secured creditors who are likely to be affected by thesecurity or charge, a court may make an order declaring that all or part of the company's property is subject to a securityor charge — in an amount that the court considers appropriate — in favour of a person specified in the order who agreesto lend to the company an amount approved by the court as being required by the company, having regard to its cash-flowstatement. The security or charge may not secure an obligation that exists before the order is made.

Priority — secured creditors

(2) The court may order that the security or charge rank in priority over the claim of any secured creditor of the company.

Priority — other orders

(3) The court may order that the security or charge rank in priority over any security or charge arising from a previousorder made under subsection (1) only with the consent of the person in whose favour the previous order was made.

Factors to be considered

(4) In deciding whether to make an order, the court is to consider, among other things,

(a) the period during which the company is expected to be subject to proceedings under this Act;

(b) how the company's business and financial affairs are to be managed during the proceedings;

(c) whether the company's management has the confidence of its major creditors;

(d) whether the loan would enhance the prospects of a viable compromise or arrangement being made in respect ofthe company;

(e) the nature and value of the company's property;

(f) whether any creditor would be materially prejudiced as a result of the security or charge; and

(g) the monitor's report referred to in paragraph 23(1)(b), if any.

25 In accordance with the CCAA, s. 11.2(1), the League Group has filed a cash flow forecast to the date of the comebackhearing.

26 As a preliminary matter, no one has challenged the adequacy of the efforts by the League Group to obtain satisfactoryinterim financing. Nor is there any challenge to the appropriateness of the business terms arranged with the DIP Lenders,including the term, interest rate and level of various fees for monitoring the commitment itself and professionals. The Monitorcomments favourably on the process by which the DIP financing was sought by the League Group and the reasonableness ofthe terms proposed by the DIP Lenders.

27 It is proposed that the DIP Lender's Charge would rank after the Administration Charge but before the Directors' Chargeand any Representative Counsel Charge.

28 Notice of this application for DIP financing has been given to secured creditors likely to be affected, as required bythe CCAA, s. 11.2(1). The secured creditors attending on this application object to the financing for a variety of reasons (asdiscussed above), and also on the basis that this funding is not urgent, there is an insufficient evidentiary basis for the reliefsought and that they will be prejudiced by the DIP Lender's Charge ranking ahead of their security.

29 I will address each of the factors identified in CCAA, s.11.2(4).

(a) The period during which the League Group is expected to be subject to proceedings under the CCAA



30 The DIP financing that is sought today is simply to allow the League Group to continue its operations until the comebackhearing on November 18 by allowing it to make certain core payments.

(b) How the League Group's business and financial affairs are to be managed during the proceedings

31 Mr. Gant states in his affidavit that the League Group has been working closely with the Monitor regarding its financialaffairs, including reviewing all payments made by the League Group. The Monitor similarly says that it has been workingcooperatively with the League Group in terms of preparing the cash flow forecast and other financial documentation.

32 In addition, the League Group had already made certain efforts to reduce operating expenses in anticipation of the CCAAfiling.

(c) Whether the League Group's management has the confidence of its major creditors

33 Not surprisingly, most of the counsel for the secured creditors appearing on this application voiced their clients' lack ofconfidence in the League Group's management. However, these types of bald assertions, without more, and without evidence,do little to provide the court with a satisfactory basis upon which to assess this factor. In addition, the position of the securedcreditors must be considered in the context of other evidence that suggests that they are fully secured and that payments owedto them by the League Group are current: Pacific Shores Resort & Spa Ltd., Re, 2011 BCSC 1775 (B.C. S.C. [In Chambers])at para. 49(c).

34 Counsel for certain noteholders of LOF raised the matter of governance of the League Group during his submissions.While supporting the application for DIP financing, it appears that those stakeholders are considering whether an applicationfor a chief restructuring officer (CRO) might be appropriate in the circumstances. I do not wish or need to predict what mighthappen at the comeback hearing or any later court application but presumably, if an application for such relief is brought, itwill be based on evidence as to the willingness and/or ability of the current management of the League Group to proceed withits restructuring efforts.

(d) Whether the loan would enhance the prospects of a viable compromise or arrangement being made by the League Group

35 Substantial arguments were advanced, by a number of the secured creditors, that the DIP funding was not necessary orurgent. With respect, I disagree.

36 The cash flow forecast indicates that in the period leading up to November 18, approximately $1.6 million will be requiredin respect of corporate operating expenses. A large portion of that amount, $1.1 million, will be required for payroll, with thefirst payroll of approximately $550,000 due the very date of the hearing and the second payroll being due on November 8,2013. The cash flow forecast indicates proposed payments of $339,000 for "project funding" which I am advised relates tosupporting certain income producing properties which are operating on a negative cash flow basis. Notwithstanding that theevidence on the project operating expenditures is somewhat thin, in my view, it is reasonable to expect that the League Grouphas some ongoing operations in the specific projects that require support in this interim period. Again, I would emphasize thatit is the overarching intention of the League Group to conduct business in the ordinary course, at least in the initial period ofthe restructuring until a longer term strategy can be formulated.

37 The anticipated cash receipts of approximately $1.9 million over this time frame are clearly not sufficient to fund theanticipated costs of approximately $3.5 million. Nor is the timing of some of those receipts during the week of October 28certain in terms of making the payroll as soon as possible after it was due on October 25.

38 Finally, the cash flow forecast anticipates restructuring and financing costs of $1.45 million until the comeback hearing.There are strenuous objections to payment of these amounts; however, it cannot be argued that professionals who are assisting inthe restructuring of these proceedings should be denied payment of their reasonable remuneration on an ongoing basis, if suchpayments are possible: Timminco Ltd., Re, 2012 ONSC 506 (Ont. S.C.J. [Commercial List]) at para. 66. The amounts are largebut not unusual given the complexity of these proceedings and the issues raised. These professionals should not be required to





simply rely on a court ordered charge to protect their outstanding fees. The Administration Charge in any event would not havebeen sufficient to cover the amounts expected to be incurred to the date of the comeback hearing.

39 Further, if they wish, the stakeholders will have the opportunity to review all professional fees at the end of this matter.In particular, paragraph 34 of the Initial Order provides that the Monitor and its legal counsel will pass their accounts beforethis court. Paragraphs 6 and 7 of the Initial Order provide for the payment of reasonable fees and disbursements to the LeagueGroup's counsel.

40 Without the proposed DIP funding, the League Group readily admits that it will be unable to continue. The Monitor states:

... If the financing is not approved, the current liquidity situation is such that League will not be able to fund payroll onFriday, October 25th, which will require an immediate cessation of operations and the accompanying liquidation of itsassets in a forced and distressed manner.

41 I am satisfied that the DIP financing sought on this application is urgently needed in order to fund operations within theseproceedings until the comeback hearing. Accordingly, I agree that such funding will enhance the prospects of an arrangementby the League Group to its creditors.

(e) The nature and value of the League Group's property

42 As I have stated numerous times, many of the secured creditors oppose the continuation of this proceeding and wishto take steps to realize on their security.

43 Most of the assets owned by the League Group are complex real estate holdings including income producing propertiesand development properties, some of which are not yet completed.

44 The Monitor points out what might be said to be fairly obvious; namely, that such a realization scenario is not in theinterests of the creditors, including even these secured creditors, or the numerous other stakeholders in these proceedings:

A forced and distressed liquidation is clearly not in the interests of the creditors or Investors, nor is it in the interests of manyof the mortgage lenders who do not enjoy first mortgage security and whose security is spread across multiple propertiesand assets. Such lenders will then be compelled to deal with complicated scenarios where their recovery on one propertywill determine the extent to which they must rely on another property for the recovery of their loans. If a liquidation ofLeague's assets is to occur, it is imperative that such a liquidation should occur on an orderly and controlled basis.

45 In addition, as pointed out by counsel for the League Group, the nature of the assets is such that even if the securedcreditors were to take steps to realize on their security, they would inevitably be incurring some of the same types of expenses,including professional fees, as are currently being proposed to be paid in accordance with the cash flow forecast: Pacific ShoresResort & Spa Ltd. at para. 49(f).

(f) Whether any creditor would be materially prejudiced as a result of the DIP Lender's Charge

46 The issue of material prejudice to the secured creditors was largely focused on the evidence as to the value of the securedassets and the "implied equity" which was calculated based on certain mortgage amounts stated to be outstanding.

47 Again, I do not intend to focus on each individual secured creditor. Many of the secured creditors take issue with whathas been described as the appraised value of the various projects over which they hold security and also with what is calculatedto be the mortgage debt outstanding on those projects.

48 The League Group and the Monitor do not dispute that this calculation of $210.9 million of "implied equity" is not acertain calculation. In particular, the Monitor emphasizes that it has only, to this time, performed a "high level review" of thecalculation of equity in the various projects. The Monitor notes:





a) Marketable Securities: those amounts are based on recent trading prices of units in the Partners REIT, which arepublicly traded;

b) The Income Producing Properties: the ascribed values of these properties are supported by appraisals, although itis apparent that some of those appraisals are dated. In addition, the Monitor notes that most of the appraisals havebeen prepared for financing purposes which in their experience, tend to be higher than values recoverable in themarket. Nevertheless, the Monitor concludes that there appears to be "significant positive equity available in theseproperties"; and

c) The Development Properties: the values ascribed are based on book values which represent the monies the LeagueGroup has spent to date to develop the properties. Again, based on the Monitor's experience, if the development is notcompleted, the recovery for these projects will be substantially less than the costs incurred to date. With respect to theColwood Development specifically, the Monitor is of the view that even if the League Group completes the project,it is unlikely that the project costs will be fully recovered. Accordingly, the Monitor states that the $129.9 million"implied" equity in the development properties is overstated, although it is unclear at this time to what degree.

49 I agree that the exact financial position of the League Group in the income producing and development properties isunknown to some extent. These proceedings have only begun and the Monitor is no doubt continuing its investigation andanalysis of the various projects. I anticipate that the equity position in these properties will be further clarified in the nearfuture and that this further information can be communicated to the stakeholders. The Monitor points to the fact that after thegranting of the Initial Order, the mortgage lenders needed "time and a better understanding of League's complexity and possiblerestructuring plan to consider supporting this refinancing".

50 In the meantime, despite the shortcomings in the financial calculations, there appears to be substantial equity in thoseproperties. Most of the secured creditors appearing on the application did not have any more reliable information towards acalculation of the equity in the projects. When asked about their own specific secured positions, most were not able to stateconvincingly or conclusively that their loans were in jeopardy, although some submissions were made that certain loan positionswere "on the bubble". Even if any of the secured creditors are in or close to a deficit position, the intention of the League Groupis to continue funding the mortgage payments, subject to obtaining further DIP financing to do so. In that event, any furtherprejudice will be lessened. None of the secured creditors were able to say that their loans were subject to any financial defaults,although I am assuming that given the CCAA filing, there are likely to be many non-financial defaults in accordance with theusual security documentation.

51 As I noted in Pacific Shores Resort & Spa Ltd. atpara. 49(f), material prejudice to secured creditors is only one factor tobe considered in equal measure with the others listed in the CCAA, s. 11.2(4).

52 On the basis of the evidence presented, I am satisfied that at the very least, the secured creditors will suffer some prejudicein terms of delays in realization of their security in the event of a failure to restructure by the League Group. Beyond that, Iam not satisfied that there is material prejudice to the secured creditors given the asset/debt levels disclosed to date. Furtherprejudice may arise in the event that the "implied equity" amounts are reduced or perhaps eliminated.

53 Based on the current values disclosed, it is, as Mr. Gant suggests, really the unsecured creditors and the investor groupwho are facing the material prejudice at this time and any prejudice to the secured creditors must also be considered in light ofthat material prejudice. As I have noted above, there are also a substantial number of employees.

54 In light of the concerns expressed by the secured creditors, the League Group, with the support of the Monitor, hasproposed certain allocation provisions in the order authorizing DIP financing, should an allocation issue arise in the future. Inaccordance with these provisions, costs that may be specifically attributed to a certain asset shall be allocated to that asset. Coststhat are not attributable to any asset are to be allocated as follows: firstly, to unencumbered or not fully encumbered assets andsecondly, to assets generally based on a pro rata allocation based on the actual value of an asset.




55 I agree that this allocation provision should alleviate many of the secured creditors concerns as to how the DIP Lender'sCharge may be borne. It remains to be seen, of course, whether any allocation issues will in fact arise as that will be dependenton the success of the restructuring.

(g) The Monitor's report

56 The Monitor's first report to the court is dated October 23, 2013. The Monitor supports the proposed DIP financing andthe granting of a DIP Lender's Charge, having reviewed the financial terms of the DIP Lenders and being satisfied that thoseare reasonable terms and the bestavailable in the marketplace.

57 The Monitor is also satisfied that the restriction of the DIP Lender's Charge to $1.6 million will allow for the minimum cashrequirements for the League Group to meet its operating and restructuring obligations until the time of the comeback hearing.

58 Finally, the Monitor has expressed the view that it supports both the DIP Lender's Charge and the RepresentativeCounsel Charge referred to below to a total of $1.85 million notwithstanding that those charges would prime the existing securedcreditors, other than the Enforcing Mortgagees. The Monitor states that it is sensitive to concerns being raised by the mortgagelenders as a result of the priming but that it supports the priming on the basis that there appears to be equity in the propertiessuch that it is unlikely the mortgage lenders will ultimately be impacted by these priority charges.

59 As the Monitor notes, it is usual in these types of cases that a DIP Lender will advance monies into those proceedings onlywhere the loans are supported by a court ordered priority charge over existing charge holders. All of the parties who submittedoffers to the League Group to provide DIP financing required such a priority charge. In Timminco Ltd., Re, 2012 ONSC 948(Ont. S.C.J. [Commercial List]), aff'd 2012 ONCA 552 (Ont. C.A.), Mr. Justice Morawetz stated:

[49] In the absence of the court granting the requested super priority, the objectives of the CCAA would be frustrated. It isneither reasonable nor realistic to expect a commercially motivated DIP lender to advance funds in a DIP facility withoutsuper priority. The outcome of a failure to grant super priority would, in all likelihood, result in the Timminco Entitieshaving to cease operations, which would likely result in the CCAA proceedings coming to an abrupt halt, followed bybankruptcy proceedings. Such an outcome would be prejudicial to all stakeholders ...

60 The same considerations discussed in Timminco Ltd. are at play here. It is unreasonable to expect that any DIP lenderwould advance the required DIP financing, save and except with a charge having priority over existing creditors. As statedby the League Group and as confirmed by the Monitor, this DIP financing is necessary and urgently required to continue theoperations of the League Group for a very short period of time until the comeback hearing. Failure to obtain that financing willresult in a liquidation scenario - one which, given the different stakeholder groups and the complexity of the assets, will nodoubt result in a multiplicity of realization proceedings at great cost. In that liquidation scenario, there will likely be prejudiceto those who are said, at this time, to be the stakeholders who have significant equity in the assets.

61 It is a fundamental objective of the CCAA to avoid such an outcome if at all possible.

62 In conclusion, the DIP financing is urgently required by the League Group and is necessary to fund the operations fora very short period of time to the comeback hearing. The order approving the DIP facility is granted. However, in my view,there is no need to approve any DIP facility beyond the $1.6 million financing needed to the time of the comeback hearing. TheLeague Group is at liberty to bring a further application in respect of any further DIP financing.

Representative Counsel

63 The Monitor applies for the appointment of Fasken Martineau DuMoulin LLP ("Faskens") as representative counselfor the investor group. In addition, the Monitor seeks an order that Faskens be granted a charge in the amount of $250,000 inrespect of its fees and disbursements. The proposed ranking of that charge is that it will stand in priority to all of the securityand charges (including the Director's Charge) but be subordinate to the Administration Charge, the DIP Lender's Charge andthe security of the Enforcing Mortgagees.






64 As noted above, the investor group has been identified as comprising approximately 3,200 individuals and someinstitutional investors who have supplied approximately $352 million to the League Group to fund its real estate propertiesand business operations. Generally speaking, these investors have contributed funds in the form of secured notes, unsecurednotes and equity to IGW REIT, LOF and to individual project limited partnerships, either directly or through an RRS Peligibleinvestment vehicle. I understand that the various investment vehicles have different conversion, redemption or retractionfeatures.

65 The Monitor advises that while there are certain common attributes amongst the investor group, there are othercircumstances relating to the various investments that would suggest that some individuals or sub-groups may have positionsthat may differ from others within the overall group. For example, it may be such that different project specific investmentshave equity, while others do not.

66 The Monitor has already fielded over 100 enquiries from various investors. On October 23, 2013, the Monitor scheduledand held a conference call for the purpose of informing investors of the CCAAproceedings and the anticipated process and alsoto answer any questions. I am advised that over 460 investors participated in that call. At that time, the investors were introducedto counsel from Faskens and the concept of a representative counsel was discussed.

67 If representative counsel is to be appointed, there is no opposition to the appointment of Faskens given their extensiveexperience in insolvency matters and in particular, matters involving large and disparate stakeholder groups where representativecounsel were appointed, such as in the Eron Mortgage Corporation proceedings.

68 The Monitor states that it is unlikely that many of the individual investors will either have the financial wherewithalor means to engage legal counsel to provide for their meaningful participation in these insolvency proceedings. In addition, ifa number of separate law firms are retained by investors, a multiplicity of representation by those having a commonality ofinterest will add to the cost and therefore the complexity of the proceedings. Finally, the Monitor notes that these investors arethe stakeholders to be "most keenly affected by this restructuring" and representation of their interests may be beneficial so asto ensure that all stakeholders have adequate input into the course of these proceedings.

69 I am satisfied that the Monitor is not in a position to assist any further in alerting the investors to these proceedings,organizing the investor group and advising them of issues that may affect them either as a group or individually.

70 The statutory jurisdiction upon which such representative charges are considered is found in the CCAA, s. 11, whichprovides that the court may make any order that it considers "appropriate" in the circumstances:

General power of court

11. Despite anything in the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act, if an application ismade under this Act in respect of a debtor company, the court, on the application of any person interested in the matter,may, subject to the restrictions set out in this Act, on notice to any other person or without notice as it may see fit, makeany order that it considers appropriate in the circumstances.

71 The appropriateness of such orders has been considered numerous times by the Ontario Superior Court of Justice(Commercial List): see Nortel Networks Corp., Re (2009), 53 C.B.R. (5th) 196, 2009 CarswellOnt 3028 (Ont. S.C.J.[Commercial List]), Fraser Papers Inc., Re, 2009 CarswellOnt 6169 (Ont. S.C.J. [Commercial List]), Canwest GlobalCommunications Corp., Re, 2009 CarswellOnt 9398 (Ont. S.C.J. [Commercial List]), and TBS Acquireco Inc., Re, 2013 ONSC4663 (Ont. S.C.J. [Commercial List]) and by this court: Catalyst Paper Corp., Re, 2012 BCSC 451 (B.C. S.C.).

72 In Canwest Publishing Inc./Publications Canwest Inc., Re, 2010 ONSC 1328 (Ont. S.C.J. [Commercial List]), Pepall J.(as she then was) summarized many of the factors that have been considered in granting these types of order:

[21] Factors that have been considered by courts in granting these orders include:










• the vulnerability and resources of the group sought to be represented;

• any benefit to the companies under CCAA protection;

• any social benefit to be derived from representation of the group;

• the facilitation of the administration of the proceedings and efficiency;

• the avoidance of a multiplicity of legal retainers;

• the balance of convenience and whether it is fair and just including to the creditors of the Estate;

• whether representative counsel has already been appointed for those who have similar interests to the group seekingrepresentation and who is also prepared to act for the group seeking the order; and

• the position of other stakeholders and the Monitor.

73 The stakeholder groups for which representative counsel were appointed in Nortel Networks Corp., Fraser Papers Inc.,Canwest Global Communications Corp. and Canwest Publishing Inc. were current and former employees of the debtors. Inthose cases, the Ontario court noted the particular vulnerability of certain of those stakeholders. The vulnerability of the investorgroup here has not yet been fully investigated, but the Monitor and Mr. Gant certainly suggest that similar concerns arise inrelation to the individuals who have invested a significant portion of their net worth in the League Group. In addition, theindications of equity in the League Group's assets would also suggest that their interests in these proceedings are real and notmerely illusory.

74 In First Leaside Wealth Management Inc., Re, 2012 ONSC 1299 (Ont. S.C.J. [Commercial List]), Mr. Justice D.M. Brownappointed representative counsel in those CCAA proceedings for some 1,200 clients who were investors in one of the debtorcompanies (para. 38). Representative counsel were also appointed in the Eron Mortgage Corporation proceedings for certaininvestor groups: see Eron Mortgage Corp., Re (1998), [1999] 4 W.W.R. 375 (B.C. S.C.) at para. 3.

75 I am satisfied that the appointment of representative counsel in this case is appropriate for the reasons stated by theMonitor. As matters stand, the investor group is a significant one and it is important that they be properly represented so thatthey can take appropriate positions in these insolvency proceedings. From a timing perspective, it is somewhat imperative thatthe investors obtain some legal representation in respect of the comeback hearing which, as I have alluded to, is expected to behighly contentious principally from the perspective of the secured creditors.

76 At this point in time, the investor group has a sufficient "commonality of interest" that can be best served by one counsel:Nortel Networks Corp. at paras. 62-63, Fraser Papers Inc. at paras. 11-12. The appointment of representative counsel will allowtheir positions to be advanced in an efficient manner, to the benefit of all stakeholders. Separate representation may be requiredat a later time once Faskens has had an opportunity to investigate the claims of the investors and determine what positions mightbe advanced in these proceedings. That matter can be addressed if and when it arises.

77 The statutory jurisdiction to order that the fees and disbursements of any representative counsel be secured by a chargeis found in the CCAA, s. 11.52(1)(c):

Court may order security or charge to cover certain costs

11.52 (1) On notice to the secured creditors who are likely to be affected by the security or charge, the court may make anorder declaring that all or part of the property of a debtor company is subject to a security or charge — in an amount thatthe court considers appropriate — in respect of the fees and expenses of

. . .











(c) any financial, legal or other experts engaged by any other interested person if the court is satisfied that the securityor charge is necessary for their effective participation in proceedings under this Act.

Priority

(2) The court may order that the security or charge rank in priority over the claim of any secured creditor of the company.

78 Having forecast to the secured creditors my conclusions with respect to the DIP financing, I encouraged the partiesto discuss what interim accommodations could be agreed upon in order that representative counsel could be retained for theinvestors in the short period of time leading up to the comeback hearing.

79 As a result of those discussions, it was generally agreed and subsequently ordered that Faskens would be appointed asrepresentative counsel with authorized fees of $125,000. The League Group was authorized to pay a retainer of $75,000. Itwas also recognized that a charge would be necessary in order to allow for Faskens' "effective participation" in the proceedingsand a Representative Counsel Charge was ordered to the extent of $50,000, with priority save and except with respect to theAdministration Charge, the DIP Lender's Charge and the security of the Enforcing Mortgagees.

80 This modest cost for representative counsel at this stage is fair and reasonable and is intended to benefit the proceedingsgenerally. Therefore, the Representative Counsel Charge is properly borne by stakeholders based on the proposed priority:Canwest Publishing Inc./Publications Canwest Inc., Re, 2010 ONSC 222 (Ont. S.C.J. [Commercial List]) at para. 54.

81 It is anticipated that the Representative Counsel will have met at least to some degree with the investor group prior tothe comeback hearing and will be in a position to report to the court on what efforts have been made to organize the group.It is also hoped that by then, the Representative Counsel will have assessed the investor group's interests so as to be able toadvise, if possible, what issues might be raised by the investor group. Finally, it is anticipated that Faskens will make effortsto determine whether it is possible to raise retainer funds within the investor group itself for any representation beyond thecomeback hearing, rather than securing further amounts from the League Group.

Disposition

82 The Initial Order is amended and restated on the terms proposed with respect to the DIP financing and the DIP Lender'sCharge, save and except that the authorized credit facility shall not exceed $1.6 million. The League Group and the DIP Lendersare to file a copy of the amended commitment letter in this court once that is signed.

83 The order is granted appointing Faskens as Representative Counsel for the investor group on the terms proposed. Theauthorized fees for the Representative Counsel will be $125,000, to be secured by a retainer of $75,000 paid by the LeagueGroup and a Representative Counsel Charge of $50,000 with the indicated priority.

84 The remainder of the applications, including the applications of FCC Mortgage Associates Inc. and Export DevelopmentCanada, are adjourned to November 18, 2013 to be heard at the same time as the comeback hearing.

Order accordingly.

End of Document Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.


Lehndorff General Partner Ltd., Re, 1993 CarswellOnt 1831993 CarswellOnt 183, [1993] O.J. No. 14, 17 C.B.R. (3d) 24, 37 A.C.W.S. (3d) 847...


1993 CarswellOnt 183Ontario Court of Justice (General Division — Commercial List)

Lehndorff General Partner Ltd., Re

1993 CarswellOnt 183, [1993] O.J. No. 14, 17 C.B.R. (3d) 24, 37 A.C.W.S. (3d) 847, 9 B.L.R. (2d) 275

Re Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36; Re Courtsof Justice Act, R.S.O. 1990, c. C-43; Re plan of compromise in respect ofLEHNDORFF GENERAL PARTNER LTD. (in its own capacity and in its

capacity as general partner of LEHNDORFF UNITED PROPERTIES (CANADA),LEHNDORFF PROPERTIES (CANADA) and LEHNDORFF PROPERTIES

(CANADA) II) and in respect of certain of their nominees LEHNDORFF UNITEDPROPERTIES (CANADA) LTD., LEHNDORFF CANADIAN HOLDINGS LTD.,

LEHNDORFF CANADIAN HOLDINGS II LTD., BAYTEMP PROPERTIESLIMITED and 102 BLOOR STREET WEST LIMITED and in respect of

THG LEHNDORFF VERMÖGENSVERWALTUNG GmbH (in its capacityas limited partner of LEHNDORFF UNITED PROPERTIES (CANADA))

Farley J.

Heard: December 24, 1992Judgment: January 6, 1993

Docket: Doc. B366/92

Counsel: Alfred Apps, Robert Harrison and Melissa J. Kennedy , for applicants.L. Crozier , for Royal Bank of Canada.R.C. Heintzman , for Bank of Montreal.J. Hodgson, Susan Lundy and James Hilton , for Canada Trustco Mortgage Corporation.Jay Schwartz , for Citibank Canada.

Stephen Golick , for Peat Marwick Thorne * Inc., proposed monitor.John Teolis , for Fuji Bank Canada.Robert Thorton , for certain of the advisory boards.

Subject: Corporate and Commercial; Insolvency

Application under Companies' Creditors Arrangement Act to file consolidated plan of compromise and for stay of proceedings.

Farley J.:

1 These are my written reasons relating to the relief granted the applicants on December 24, 1992 pursuant to their applicationunder the Companies' Creditors Arrangement Act , R.S.C. 1985, c. C-36 ("CCAA") and the Courts of Justice Act , R.S.O. 1990,c. C.43 ("CJA"). The relief sought was as follows:

(a) short service of the notice of application;

(b) a declaration that the applicants were companies to which the CCAA applies;

(c) authorization for the applicants to file a consolidated plan of compromise;



(d) authorization for the applicants to call meetings of their secured and unsecured creditors to approve the consolidatedplan of compromise;

(e) a stay of all proceedings taken or that might be taken either in respect of the applicants in their own capacity or onaccount of their interest in Lehndorff United Properties (Canada) ("LUPC"), Lehndorff Properties (Canada) ("LPC") andLehndorff Properties (Canada) II ("LPC II") and collectively (the "Limited Partnerships") whether as limited partner, asgeneral partner or as registered titleholder to certain of their assets as bare trustee and nominee; and

(f) certain other ancillary relief.

2 The applicants are a number of companies within the larger Lehndorff group ("Group") which operates in Canada andelsewhere. The group appears to have suffered in the same way that a number of other property developers and managers whichhave also sought protection under the CCAA in recent years. The applicants are insolvent; they each have outstanding debenturesissues under trust deeds; and they propose a plan of compromise among themselves and the holders of these debentures as wellas those others of their secured and unsecured creditors as they deemed appropriate in the circumstances. Each applicant exceptTHG Lehndorff Vermögensverwaltung GmbH ("GmbH") is an Ontario corporation. GmbH is a company incorporated underthe laws of Germany. Each of the applicants has assets or does business in Canada. Therefore each is a "company" within thedefinition of s. 2 of the CCAA. The applicant Lehndorff General Partner Ltd. ("General Partner Company") is the sole generalpartner of the Limited Partnerships. The General Partner Company has sole control over the property and businesses of theLimited Partnerships. All major decisions concerning the applicants (and the Limited Partnerships) are made by managementoperating out of the Lehndorff Toronto Office. The applicants aside from the General Partner Company have as their solepurpose the holding of title to properties as bare trustee or nominee on behalf of the Limited Partnerships. LUPC is a limitedpartnership registered under the Limited Partnership Act , R.S.O. 1990, c. L.16 ("Ontario LPA"). LPC and LPC II are limitedpartnerships registered under Part 2 of the Partnership Act , R.S.A. 1980, c. P-2 ("Alberta PA") and each is registered in Ontarioas an extra provincial limited partnership. LUPC has over 2,000 beneficial limited partners, LPC over 500 and LPC II over 250,most of whom are residents of Germany. As at March 31, 1992 LUPC had outstanding indebtedness of approximately $370million, LPC $45 million and LPC II $7 million. Not all of the members of the Group are making an application under theCCAA. Taken together the Group's indebtedness as to Canadian matters (including that of the applicants) was approximately$543 million. In the summer of 1992 various creditors (Canada Trustco Mortgage Company, Bank of Montreal, Royal Bank ofCanada, Canadian Imperial Bank of Commerce and the Bank of Tokyo Canada) made demands for repayment of their loans. OnNovember 6, 1992 Funtanua Investments Limited, a minor secured lendor also made a demand. An interim standstill agreementwas worked out following a meeting of July 7, 1992. In conjunction with Peat Marwick Thorne Inc. which has been acting asan informal monitor to date and Fasken Campbell Godfrey the applicants have held multiple meetings with their senior securedcreditors over the past half year and worked on a restructuring plan. The business affairs of the applicants (and the LimitedPartnerships) are significantly intertwined as there are multiple instances of intercorporate debt, cross-default provisions andguarantees and they operated a centralized cash management system.

3 This process has now evolved to a point where management has developed a consolidated restructuring plan which planaddresses the following issues:

(a) The compromise of existing conventional, term and operating indebtedness, both secured and unsecured.

(b) The restructuring of existing project financing commitments.

(c) New financing, by way of equity or subordinated debt.

(d) Elimination or reduction of certain overhead.

(e) Viability of existing businesses of entities in the Lehndorff Group.

(f) Restructuring of income flows from the limited partnerships.



(g) Disposition of further real property assets aside from those disposed of earlier in the process.

(h) Consolidation of entities in the Group; and

(i) Rationalization of the existing debt and security structure in the continuing entities in the Group.

Formal meetings of the beneficial limited partners of the Limited Partnerships are scheduled for January 20 and 21, 1993 inGermany and an information circular has been prepared and at the time of hearing was being translated into German. Thisapplication was brought on for hearing at this time for two general reasons: (a) it had now ripened to the stage of proceedingwith what had been distilled out of the strategic and consultative meetings; and (b) there were creditors other than senior securedlenders who were in a position to enforce their rights against assets of some of the applicants (and Limited Partnerships) whichif such enforcement did take place would result in an undermining of the overall plan. Notice of this hearing was given tovarious creditors: Barclays Bank of Canada, Barclays Bank PLC, Bank of Montreal, Citibank Canada, Canada Trustco MortgageCorporation, Royal Trust Corporation of Canada, Royal Bank of Canada, the Bank of Tokyo Canada, Funtauna InvestmentsLimited, Canadian Imperial Bank of Commerce, Fuji Bank Canada and First City Trust Company. In this respect the applicantshave recognized that although the initial application under the CCAA may be made on an ex parte basis (s. 11 of the CCAA;Re Langley's Ltd., [1938] O.R. 123, [1938] 3 D.L.R. 230 (C.A.) ; Re Keppoch Development Ltd. (1991), 8 C.B.R. (3d) 95 (N.S.T.D.) . The court will be concerned when major creditors have not been alerted even in the most minimal fashion (Re InduconDevelopment Corp. (1992), 8 C.B.R. (3d) 306 (Ont. Gen. Div.) at p. 310). The application was either supported or not opposed.

4 "Instant" debentures are now well recognized and respected by the courts: see Re United Maritime Fishermen Co-operative(1988), 67 C.B.R. (N.S.) 44 (N.B. Q.B.) , at pp. 55-56, varied on reconsideration (1988), 68 C.B.R. (N.S.) 170 (N.B. Q.B.) ,reversed on different grounds (1988), 69 C.B.R. (N.S.) 161 (N.B. C.A.) , at pp. 165-166; Re Stephanie's Fashions Ltd. (1990),1 C.B.R. (3d) 248 (B.C. S.C.) at pp. 250-251; Nova Metal Products Inc. v. Comiskey (Trustee of) (sub nom. Elan Corp. v.Comiskey ) (1990), 1 O.R. (3d) 289, 1 C.B.R. (3d) 101 (C.A.) per Doherty J.A., dissenting on another point, at pp. 306-310(O.R.); Ultracare Management Inc. v. Zevenberger (Trustee of) (sub nom. Ultracare Management Inc. v. Gammon ) (1990), 1O.R. (3d) 321 (Gen. Div.) at p. 327. The applicants would appear to me to have met the technical hurdle of s. 3 and as defineds. 2) of the CCAA in that they are debtor companies since they are insolvent, they have outstanding an issue of debenturesunder a trust deed and the compromise or arrangement that is proposed includes that compromise between the applicants andthe holders of those trust deed debentures. I am also satisfied that because of the significant intertwining of the applicants itwould be appropriate to have a consolidated plan. I would also understand that this court (Ontario Court of Justice (GeneralDivision)) is the appropriate court to hear this application since all the applicants except GmbH have their head office or theirchief place of business in Ontario and GmbH, although it does not have a place of business within Canada, does have assetslocated within Ontario.

5 The CCAA is intended to facilitate compromises and arrangements between companies and their creditors as an alternativeto bankruptcy and, as such, is remedial legislation entitled to a liberal interpretation. It seems to me that the purpose of thestatute is to enable insolvent companies to carry on business in the ordinary course or otherwise deal with their assets so as toenable plan of compromise or arrangement to be prepared, filed and considered by their creditors and the court. In the interim, ajudge has great discretion under the CCAA to make order so as to effectively maintain the status quo in respect of an insolventcompany while it attempts to gain the approval of its creditors for the proposed compromise or arrangement which will be to thebenefit of both the company and its creditors. See the preamble to and sections 4, 5, 6, 7, 8 and 11 of the CCAA; Reference reCompanies' Creditors Arrangement Act, [1934] S.C.R. 659 at p. 661, 16 C.B.R. 1, [1934] 4 D.L.R. 75 ; Meridian DevelopmentsInc. v. Toronto Dominion Bank, [1984] 5 W.W.R. 215 (Alta. Q.B.) at pp. 219-220; Norcen Energy Resources Ltd. v. OakwoodPetroleums Ltd. (1988), 72 C.B.R. (N.S.) 1, 63 Alta. L.R. (2d) 361 (Q.B.) , at pp. 12-13 (C.B.R.); Quintette Coal Ltd. v. NipponSteel Corp. (1990), 2 C.B.R. (3d) 303 (B.C. C.A.) , at pp. 310-311, affirming (1990), 2 C.B.R. (3d) 291, 47 B.C.L.R. (2d)193 (S.C.) , leave to appeal to S.C.C. dismissed (1991), 7 C.B.R. (3d) 164 (S.C.C.) .; Nova Metal Products Inc. v. Comiskey(Trustee of) , supra, at p. 307 (O.R.); Fine's Flowers v. Fine's Flowers (Creditors of) (1992), 7 O.R. (3d) 193 (Gen. Div.) ,at p. 199 and "Reorganizations Under The Companies' Creditors Arrangement Act", Stanley E. Edwards (1947) 25 Can. BarRev. 587 at p. 592.






















6 The CCAA is intended to provide a structured environment for the negotiation of compromises between a debtor companyand its creditors for the benefit of both. Where a debtor company realistically plans to continue operating or to otherwise dealwith its assets but it requires the protection of the court in order to do so and it is otherwise too early for the court to determinewhether the debtor company will succeed, relief should be granted under the CCAA. see Nova Metal Products Inc. v. Comiskey(Trustee of) , supra at pp. 297 and 316; Re Stephanie's Fashions Ltd. , supra, at pp. 251-252 and Ultracare Management Inc.v. Zevenberger (Trustee of) , supra, at p. 328 and p. 330. It has been held that the intention of the CCAA is to prevent anymanoeuvres for positioning among the creditors during the period required to develop a plan and obtain approval of creditors.Such manoeuvres could give an aggressive creditor an advantage to the prejudice of others who are less aggressive and wouldundermine the company's financial position making it even less likely that the plan will succeed: see Meridian DevelopmentsInc. v. Toronto Dominion Bank , supra, at p. 220 (W.W.R.). The possibility that one or more creditors may be prejudiced shouldnot affect the court's exercise of its authority to grant a stay of proceedings under the CCAA because this affect is offset bythe benefit to all creditors and to the company of facilitating a reorganization. The court's primary concerns under the CCAAmust be for the debtor and all of the creditors: see Quintette Coal Ltd. v. Nippon Steel Corp. , supra, at pp. 108-110; HongkongBank of Canada v. Chef Ready Foods Ltd. (1990), 4 C.B.R. (3d) 311, 51 B.C.L.R. (2d) 84 (C.A.) , at pp. 315-318 (C.B.R.) andRe Stephanie's Fashions Ltd. , supra, at pp. 251-252.

7 One of the purposes of the CCAA is to facilitate ongoing operations of a business where its assets have a greater valueas part of an integrated system than individually. The CCAA facilitates reorganization of a company where the alternative, saleof the property piecemeal, is likely to yield far less satisfaction to the creditors. Unlike the Bankruptcy Act , R.S.C. 1985, c.B-3, before the amendments effective November 30, 1992 to transform it into the Bankruptcy and Insolvency Act ("BIA"), itis possible under the CCAA to bind secured creditors it has been generally speculated that the CCAA will be resorted to bycompanies that are generally larger and have a more complicated capital structure and that those companies which make anapplication under the BIA will be generally smaller and have a less complicated structure. Reorganization may include partialliquidation where it is intended as part of the process of a return to long term viability and profitability. See Hongkong Bank ofCanada v. Chef Ready Foods Ltd. , supra, at p. 318 and Re Associated Investors of Canada Ltd. (1987), 67 C.B.R. (N.S.) 237(Alta. Q.B.) at pp. 245, reversed on other grounds at (1988), 71 C.B.R. (N.S.) 71 (Alta. C.A.) . It appears to me that the purposeof the CCAA is also to protect the interests of creditors and to enable an orderly distribution of the debtor company's affairs. Thismay involve a winding-up or liquidation of a company or simply a substantial downsizing of its business operations, providedthe same is proposed in the best interests of the creditors generally. See Re Associated Investors of Canada Ltd. , supra, at p.318; Re Amirault Fish Co., 32 C.B.R. 186, [1951] 4 D.L.R. 203 (N.S. T.D.) at pp. 187-188 (C.B.R.).

8 It strikes me that each of the applicants in this case has a realistic possibility of being able to continue operating, althougheach is currently unable to meet all of its expenses albeit on a reduced scale. This is precisely the sort of circumstance in whichall of the creditors are likely to benefit from the application of the CCAA and in which it is appropriate to grant an order stayingproceedings so as to allow the applicant to finalize preparation of and file a plan of compromise and arrangement.

9 Let me now review the aspect of the stay of proceedings. Section 11 of the CCAA provides as follows:

11. Notwithstanding anything in the Bankruptcy Act or the Winding-up Act , whenever an application has been made underthis Act in respect of any company, the court, on the application of any person interested in the matter, may, on notice toany other person or without notice as it may see fit,

(a ) make an order staying, until such time as the court may prescribe or until any further order, all proceedings taken orthat might be taken in respect of the company under the Bankruptcy Act and the Winding-up Act or either of them;

(b ) restrain further proceedings in any action, suit or proceeding against the company on such terms as the court sees fit; and

(c ) make an order that no suit, action or other proceeding shall be proceeded with or commenced against the companyexcept with the leave of the court and subject to such terms as the court imposes.







10 The power to grant a stay of proceeding should be construed broadly in order to permit the CCAA to accomplish itslegislative purpose and in particular to enable continuance of the company seeking CCAA protection. The power to grant astay therefore extends to a stay which affected the position not only of the company's secured and unsecured creditors, but alsoall non-creditors and other parties who could potentially jeopardize the success of the plan and thereby the continuance of thecompany. See Norcen Energy Resources Ltd. v. Oakwood Petroleums Ltd. , supra, at pp. 12-17 (C.B.R.) and Quintette CoalLtd. v. Nippon Steel Corp. , supra, at pp. 296-298 (B.C. S.C.) and pp. 312-314 (B.C. C.A.) and Meridian Developments Inc.v. Toronto Dominion Bank , supra, at pp. 219 ff. Further the court has the power to order a stay that is effective in respect ofthe rights arising in favour of secured creditors under all forms of commercial security: see Hongkong Bank of Canada v. ChefReady Foods Ltd. , supra, at p. 320 where Gibbs J.A. for the court stated:

The trend which emerges from this sampling will be given effect here by holding that where the word "security" occursin the C.C.A.A., it includes s. 178 security and, where the word creditor occurs, it includes a bank holding s. 178 security.To the extent that there may be conflict between the two statutes, therefore, the broad scope of the C.C.A.A. prevails.

11 The power to grant a stay may also extend to preventing persons seeking to terminate or cancel executory contracts,including, without limitation agreements with the applying companies for the supply of goods or services, from doing so: seeGaz Métropolitain v. Wynden Canada Inc. (1982), 44 C.B.R. (N.S.) 285 (C.S. Que.) at pp. 290-291 and Quintette Coal Ltd. v.Nippon Steel Corp. , supra, at pp. 311-312 (B.C. C.A.). The stay may also extend to prevent a mortgagee from proceeding withforeclosure proceedings (see Re Northland Properties Ltd. (1988), 73 C.B.R. (N.S.) 141 (B.C. S.C.) or to prevent landlordsfrom terminating leases, or otherwise enforcing their rights thereunder (see Feifer v. Frame Manufacturing Corp. (1947), 28C.B.R. 124 (C.A. Que.) ). Amounts owing to landlords in respect of arrears of rent or unpaid rent for the unexpired portion oflease terms are properly dealt with in a plan of compromise or arrangement: see Sklar-Peppler Furniture Corp. v. Bank of NovaScotia (1991), 8 C.B.R. (3d) 312 (Ont. Gen. Div.) especially at p. 318. The jurisdiction of the court to make orders under theCCAA in the interest of protecting the debtor company so as to enable it to prepare and file a plan is effective notwithstandingthe terms of any contract or instrument to which the debtor company is a party. Section 8 of the CCAA provides:

8. This Act extends and does not limit the provisions of any instrument now or hereafter existing that governs the rightsof creditors or any class of them and has full force and effect notwithstanding anything to the contrary contained in thatinstrument.

The power to grant a stay may also extend to prevent persons from exercising any right of set off in respect of the amounts owedby such a person to the debtor company, irrespective of whether the debtor company has commenced any action in respect ofwhich the defense of set off might be formally asserted: see Quintette Coal Ltd. v. Nippon Steel Corp. , supra, at pp. 312-314(B.C.C.A.).

12 It was submitted by the applicants that the power to grant a stay of proceedings may also extend to a stay of proceedingsagainst non-applicants who are not companies and accordingly do not come within the express provisions of the CCAA.In support thereof they cited a CCAA order which was granted staying proceedings against individuals who guaranteed theobligations of a debtor-applicant which was a qualifying company under the terms of the CCAA: see Re Slavik , unreported,[1992] B.C.J. No. 341 [now reported at 12 C.B.R. (3d) 157 (B.C. S.C.) ]. However in the Slavik situation the individualguarantors were officers and shareholders of two companies which had sought and obtained CCAA protection. Vickers J. inthat case indicated that the facts of that case included the following unexplained and unamplified fact [at p. 159]:

5. The order provided further that all creditors of Norvik Timber Inc. be enjoined from making demand for payment uponthat firm or upon any guarantor of an obligation of the firm until further order of the court.

The CCAA reorganization plan involved an assignment of the claims of the creditors to "Newco" in exchange for cash andshares. However the basis of the stay order originally granted was not set forth in this decision.






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13 It appears to me that Dickson J. in International Donut Corp. v. 050863 N.D. Ltd. , unreported, [1992] N.B.J. No. 339(N.B. Q.B.) [now reported at 127 N.B.R. (2d) 290, 319 A.P.R. 290 ] was focusing only on the stay arrangements of the CCAAwhen concerning a limited partnership situation he indicated [at p. 295 N.B.R.]:

In August 1991 the limited partnership, through its general partner the plaintiff, applied to the Court under the Companies'Creditors Arrangement Act , R.S.C., c. C-36 for an order delaying the assertion of claims by creditors until an opportunitycould be gained to work out with the numerous and sizable creditors a compromise of their claims. An order was obtainedbut it in due course expired without success having been achieved in arranging with creditors a compromise. That effort mayhave been wasted, because it seems questionable that the federal Act could have any application to a limited partnershipin circumstances such as these . (Emphasis added.)

14 I am not persuaded that the words of s. 11 which are quite specific as relating as to a company can be enlarged to encompasssomething other than that. However it appears to me that Blair J. was clearly in the right channel in his analysis in Campeau v.Olympia & York Developments Ltd. unreported, [1992] O.J. No. 1946 [now reported at 14 C.B.R. (3d) 303 (Ont. Gen. Div.) ]at pp. 4-7 [at pp. 308-310 C.B.R.].

The Power to Stay

The court has always had an inherent jurisdiction to grant a stay of proceedings whenever it is just and convenient to doso, in order to control its process or prevent an abuse of that process: see Canada Systems Group (EST) Ltd. v. AllendaleMutual Insurance Co. (1982), 29 C.P.C. 60, 137 D.L.R. (3d) 287 (Ont. H.C.) , and cases referred to therein. In the civilcontext, this general power is also embodied in the very broad terms of s. 106 of the Courts of Justice Act , R.S.O. 1990,c. C.43, which provides as follows:

106. A court, on its own initiative or on motion by any person, whether or not a party, may stay any proceeding inthe court on such terms as are considered just.

Recently, Mr. Justice O'Connell has observed that this discre tionary power is "highly dependent on the facts of eachparticular case": Arab Monetary Fund v. Hashim (unreported) [(June 25, 1992), Doc. 24127/88 (Ont. Gen. Div.)], [1992]O.J. No. 1330.

Apart from this inherent and general jurisdiction to stay proceedings, there are many instances where the court isspecifically granted the power to stay in a particular context, by virtue of statute or under the Rules of Civil Procedure .The authority to prevent multiplicity of proceedings in the same court, under r. 6.01(1), is an example of the latter. Thepower to stay judicial and extra-judicial proceedings under s. 11 of the C.C.A.A., is an example of the former. Section 11of the C.C.A.A. provides as follows.

The Power to Stay in the Context of C.C.A.A. Proceedings

By its formal title the C.C.A.A. is known as "An Act to facilitate compromises and arrangements between companies andtheir creditors". To ensure the effective nature of such a "facilitative" process it is essential that the debtor company beafforded a respite from the litigious and other rights being exercised by creditors, while it attempts to carry on as a goingconcern and to negotiate an acceptable corporate restructuring arrangement with such creditors.

In this respect it has been observed that the C.C.A.A. is "to be used as a practical and effective way of restructuring corporateindebtedness.": see the case comment following the report of Norcen Energy Resources Ltd. v. Oakwood Petroleums Ltd.(1988), 72 C.B.R. (N.S.) 1, 63 Alta. L.R. (2d) 361, 92 A.R. 81 (Q.B.) , and the approval of that remark as "a perceptiveobservation about the attitude of the courts" by Gibbs J.A. in Quintette Coal Ltd. v. Nippon Steel Corp. (1990), 51 B.C.L.R.(2d) 105 (C.A.) at p. 113 [B.C.L.R.].

Gibbs J.A. continued with this comment:

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To the extent that a general principle can be extracted from the few cases directly on point, and the others in whichthere is persuasive obiter, it would appear to be that the courts have concluded that under s. 11 there is a discretionarypower to restrain judicial or extra-judicial conduct against the debtor company the effect of which is, or would be,seriously to impair the ability of the debtor company to continue in business during the compromise or arrangementnegotiating period .

(emphasis added)

I agree with those sentiments and would simply add that, in my view, the restraining power extends as well to conductwhich could seriously impair the debtor's ability to focus and concentrate its efforts on the business purpose of negotiatingthe compromise or arrangement. [In this respect, see also Sairex GmbH v. Prudential Steel Ltd. (1991), 8 C.B.R. (3d) 62(Ont. Gen. Div.) at p. 77.]

I must have regard to these foregoing factors while I consider, as well, the general principles which have historicallygoverned the court's exercise of its power to stay proceedings. These principles were reviewed by Mr. Justice Montgomeryin Canada Systems Group (EST) Ltd. v. Allendale Mutual Insurance , supra (a "Mississauga Derailment" case), at pp. 65-66[C.P.C.]. The balance of convenience must weigh significantly in favour of granting the stay, as a party's right to haveaccess to the courts must not be lightly interfered with. The court must be satisfied that a continuance of the proceedingwould serve as an injustice to the party seeking the stay, in the sense that it would be oppressive or vexatious or an abuseof the process of the court in some other way. The stay must not cause an injustice to the plaintiff.

It is quite clear from Empire-Universal Films Limited v. Rank, [1947] O.R. 775 (H.C.) that McRuer C.J.H.C. considered thatThe Judicature Act [R.S.O. 1937, c. 100] then [and now the CJA] merely confirmed a statutory right that previously had beenconsidered inherent in the jurisdiction of the court with respect to its authority to grant a stay of proceedings. See also McCordicv. Bosanquet (1974), 5 O.R. (2d) 53 (H.C.) and Canada Systems Group (EST) Ltd. v. Allen-Dale Mutual Insurance Co. (1982),29 C.P.C. 60 (H.C.) at pp. 65-66.

15 Montgomery J. in Canada Systems , supra, at pp. 65-66 indicated:

Goodman J. (as he then was) in McCordic v. Bosanquet (1974), 5 O.R. (2d) 53 in granting a stay reviewed the authoritiesand concluded that the inherent jurisdiction of the Court to grant a stay of proceedings may be made whenever it is justand reasonable to do so. "This court has ample jurisdiction to grant a stay whenever it is just and reasonable to do so." (PerLord Denning M.R. in Edmeades v. Thames Board Mills Ltd., [1969] 2 Q.B. 67 at 71, [1969] 2 All E.R. 127 (C.A.) ). LordDenning's decision in Edmeades was approved by Lord Justice Davies in Lane v. Willis; Lane v. Beach (Executor of Estateof George William Willis), [1972] 1 All E.R. 430, (sub nom. Lane v. Willis; Lane v. Beach) [1972] 1 W.L.R. 326 (C.A.) .

. . . . .In Weight Watchers Int. Inc. v. Weight Watchers of Ont. Ltd. (1972), 25 D.L.R. (3d) 419, 5 C.P.R. (2d) 122 , appeal allowedby consent without costs (sub nom. Weight Watchers of Ont. Ltd. v. Weight Watchers Inc. Inc.) 42 D.L.R. (3d) 320n, 10C.P.R. (2d) 96n (Fed. C.A.) , Mr. Justice Heald on an application for stay said at p. 426 [25 D.L.R.]:

The principles which must govern in these matters are clearly stated in the case of Empire Universal Films Ltd. etal. v. Rank et al., [1947] O.R. 775 at p. 779, as follows [quoting St. Pierre et al. v. South American Stores (Gath &Chaves), Ltd. et al., [1936] 1 K.B. 382 at p. 398]:

(1.) A mere balance of convenience is not a sufficient ground for depriving a plaintiff of the advantages ofprosecuting his action in an English Court if it is otherwise properly brought. The right of access to the King'sCourt must not be lightly refused. (2.) In order to justify a stay two conditions must be satisfied, one positiveand the other negative: (a) the defendant must satisfy the Court that the continuance of the action would workan injustice because it would be oppressive or vexatious to him or would be an abuse of the process of the Courtin some other way; and (b) the stay must not cause an injustice to the plaintiff. On both the burden of proof ison the defendant.







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16 Thus it appears to me that the inherent power of this court to grant stays can be used to supplement s. 11 of the CCAAwhen it is just and reasonable to do so. Is it appropriate to do so in the circumstances? Clearly there is jurisdiction under s. 11of the CCAA to grant a stay in respect of any of the applicants which are all companies which fit the criteria of the CCAA.However the stay requested also involved the limited partnerships to some degree either (i) with respect to the applicants actingon behalf of the Limited Partnerships or (ii) the stays being effective vis-à-vis any proceedings taken by any party against theproperty assets and undertaking of the Limited Partnerships in respect of which they hold a direct interest (collectively the"Property") as set out in the terms of the stay provisions of the order paragraphs 4 through 18 inclusive attached as an appendixto these reasons. [Appendix omitted.] I believe that an analysis of the operations of a limited partnership in this context would bebeneficial to an understanding of how there is a close inter-relationship to the applicants involved in this CCAA proceedings andhow the Limited Partnerships and their Property are an integral part of the operations previously conducted and the proposedrestructuring.

17 A limited partnership is a creation of statute, consisting of one or more general partners and one or more limitedpartners. The limited partnership is an investment vehicle for passive investment by limited partners. It in essence combines theflow through concept of tax depreciation or credits available to "ordinary" partners under general partnership law with limitedliability available to shareholders under corporate law. See Ontario LPA sections 2(2) and 3(1) and Lyle R. Hepburn, LimitedPartnerships , (Toronto: De Boo, 1991), at p. 1-2 and p. 1-12. I would note here that the limited partnership provisions of theAlberta PA are roughly equivalent to those found in the Ontario LPA with the interesting side aspect that the Alberta legislationin s. 75 does allow for judgment against a limited partner to be charged against the limited partner's interest in the limitedpartnership. A general partner has all the rights and powers and is subject to all the restrictions and liabilities of a partner in apartnership. In particular a general partner is fully liable to each creditor of the business of the limited partnership. The generalpartner has sole control over the property and business of the limited partnership: see Ontario LPA ss. 8 and 13. Limited partnershave no liability to the creditors of the limited partnership's business; the limited partners' financial exposure is limited to theircontribution. The limited partners do not have any "independent" ownership rights in the property of the limited partnership.The entitlement of the limited partners is limited to their contribution plus any profits thereon, after satisfaction of claims of thecreditors. See Ontario LPA sections 9, 11, 12(1), 13, 15(2) and 24. The process of debtor and creditor relationships associatedwith the limited partnership's business are between the general partner and the creditors of the business. In the event of thecreditors collecting on debt and enforcing security, the creditors can only look to the assets of the limited partnership togetherwith the assets of the general partner including the general partner's interest in the limited partnership. This relationship isrecognized under the Bankruptcy Act (now the BIA) sections 85 and 142.

18 A general partner is responsible to defend proceedings against the limited partnership in the firm name, so in procedurallaw and in practical effect, a proceeding against a limited partnership is a proceeding against the general partner. See OntarioRules of Civil Procedure , O. Reg. 560/84, Rules 8.01 and 8.02.

19 It appears that the preponderance of case law supports the contention that contention that a partnership including alimited partnership is not a separate legal entity. See Lindley on Partnership , 15th ed. (London: Sweet & Maxwell, 1984), atpp. 33-35; Seven Mile Dam Contractors v. R. (1979), 13 B.C.L.R. 137 (S.C.) , affirmed (1980), 25 B.C.L.R. 183 (C.A.) and"Extra-Provincial Liability of the Limited Partner", Brad A. Milne, (1985) 23 Alta. L. Rev. 345, at pp. 350-351. Milne in thatarticle made the following observations:

The preponderance of case law therefore supports the contention that a limited partnership is not a separate legal entity.It appears, nevertheless, that the distinction made in Re Thorne between partnerships and trade unions could not beapplied to limited partnerships which, like trade unions, must rely on statute for their validity. The mere fact that limitedpartnerships owe their existence to the statutory provision is probably not sufficient to endow the limited partnership withthe attribute of legal personality as suggested in Ruzicks unless it appeared that the Legislature clearly intended that thelimited partnership should have a separate legal existence. A review of the various provincial statutes does not revealany procedural advantages, rights or powers that are fundamentally different from those advantages enjoyed by ordinarypartnerships. The legislation does not contain any provision resembling section 15 of the Canada Business Corporation





Act [S.C. 1974-75, c. 33, as am.] which expressly states that a corporation has the capacity, both in and outside of Canada,of a natural person. It is therefore difficult to imagine that the Legislature intended to create a new category of legal entity.

20 It appears to me that the operations of a limited partnership in the ordinary course are that the limited partners take acompletely passive role (they must or they will otherwise lose their limited liability protection which would have been theirsole reason for choosing a limited partnership vehicle as opposed to an "ordinary" partnership vehicle). For a lively discussionof the question of "control" in a limited partnership as contrasted with shareholders in a corporation, see R. Flannigan, "TheControl Test of Investor Liability in Limited Partnerships" (1983) 21 Alta. L. Rev. 303; E. Apps, "Limited Partnerships andthe 'Control' Prohibition: Assessing the Liability of Limited Partners" (1991) 70 Can. Bar Rev. 611; R. Flannigan, "LimitedPartner Liability: A Response" (1992) 71 Can. Bar Rev. 552. The limited partners leave the running of the business to thegeneral partner and in that respect the care, custody and the maintenance of the property, assets and undertaking of the limitedpartnership in which the limited partners and the general partner hold an interest. The ownership of this limited partnershipproperty, assets and undertaking is an undivided interest which cannot be segregated for the purpose of legal process. It seemsto me that there must be afforded a protection of the whole since the applicants' individual interest therein cannot be segregatedwithout in effect dissolving the partnership arrangement. The limited partners have two courses of action to take if they aredissatisfied with the general partner or the operation of the limited partnership as carried on by the general partner — the limitedpartners can vote to (a) remove the general partner and replace it with another or (b) dissolve the limited partnership. HoweverFlannigan strongly argues that an unfettered right to remove the general partner would attach general liability for the limitedpartners (and especially as to the question of continued enjoyment of favourable tax deductions) so that it is prudent to providethis as a conditional right: Control Test , (1992), supra, at pp. 524-525. Since the applicants are being afforded the protection ofa stay of proceedings in respect to allowing them time to advance a reorganization plan and complete it if the plan finds favour,there should be a stay of proceedings (vis-à-vis any action which the limited partners may wish to take as to replacement ordissolution) through the period of allowing the limited partners to vote on the reorganization plan itself.

21 It seems to me that using the inherent jurisdiction of this court to supplement the statutory stay provisions of s. 11 ofthe CCAA would be appropriate in the circumstances; it would be just and reasonable to do so. The business operations of theapplicants are so intertwined with the limited partnerships that it would be impossible for relief as to a stay to be granted to theapplicants which would affect their business without at the same time extending that stay to the undivided interests of the limitedpartners in such. It also appears that the applicants are well on their way to presenting a reorganization plan for considerationand a vote; this is scheduled to happen within the month so there would not appear to be any significant time inconvenienceto any person interested in pursuing proceedings. While it is true that the provisions of the CCAA allow for a cramdown of acreditor's claim (as well as an interest of any other person), those who wish to be able to initiate or continue proceedings againstthe applicants may utilize the comeback clause in the order to persuade the court that it would not be just and reasonable tomaintain that particular stay. It seems to me that in such a comeback motion the onus would be upon the applicants to showthat in the circumstances it was appropriate to continue the stay.

22 The order is therefore granted as to the relief requested including the proposed stay provisions.Application allowed.

Footnotes

* As amended by the court.


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U.S. Steel Canada Inc., Re, 2016 ONSC 3106, 2016 CarswellOnt 74002016 ONSC 3106, 2016 CarswellOnt 7400, 266 A.C.W.S. (3d) 295, 36 C.B.R. (6th) 269


2016 ONSC 3106Ontario Superior Court of Justice

U.S. Steel Canada Inc., Re

2016 CarswellOnt 7400, 2016 ONSC 3106, 266 A.C.W.S. (3d) 295, 36 C.B.R. (6th) 269

In the Matter of the Companies' CreditorsArrangement Act, R.S.C. 1985, c. C-36, as amended

In the Matter of a Proposed Plan of Compromise or Arrangement With Respect to U.S. Steel Canada Inc.

H. Wilton-Siegel J.

Heard: April 29, 2016Judgment: May 10, 2016

Docket: CV-14-10695-00CL

Counsel: Paul Steep, Stephen Fulton, for Applicant, U.S. Steel Canada Inc.Alan Mark, Gale Rubenstein, for Province of OntarioLily Harmer, Kris Borg-Olivier, for USW, Local 1005 and Local 8782Andrew Hatnay, James Sayce, Barbara Walancik, for non-unionized active employees and retireesMichael E. Barrack, Jeff Galway, Kiran Patel, Max Shapiro, for United States Steel CorporationRobert Staley, for Monitor, Ernst & Young Inc.Mike Kovacevic, for City of HamiltonPatrick Riesterer, for Brookfield Partners

Subject: Civil Practice and Procedure; Insolvency

APPLICATION by debtor company for extension of stay of proceedings.

H. Wilton-Siegel J.:

1 The applicant, U.S. Steel Canada Inc. (the "applicant" or "USSC"), sought an extension of the stay of proceedings underthe Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the "CCAA") to July 28, 2016, as the previous stay expiredon April 29, 2016. At the conclusion of the hearing, the Court advised that the extension would be granted for written reasonsto follow. This Endorsement sets out the written reasons for the Court's determination.

2 Section 11.02(3) of the CCAA provides that a court shall not make an order of the nature sought unless the applicantsatisfies the court that circumstances exist that make the order appropriate and that "the applicant has acted, and is acting, ingood faith and with due diligence."

3 These requirements are satisfied in the present circumstances. A sales and investment process (the "SISP") is underway inPhase II, with a deadline for binding offers of May 13, 2016. There is reason to expect that one or more offers for the applicantto continue on a going-concern basis will be received. There is little doubt that the applicant is acting in good faith and withdue diligence.

4 The request for an extension of the stay under the CCAA to July 28, 2016 is supported by the chief restructuring officer of theapplicant, the Monitor and the principal stakeholders of the applicant, save for United States Steel Corporation ("USS") whichseeks a shorter extension on conditions described below. Accordingly, there is no objection before the Court to an extensionof the stay. The only issue is whether the extension should be to July 28 or May 26, as USS argues, and whether it should beon the terms sought by USS.

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5 USS argues that the stay should not be extended beyond a reasonable period for evaluation of the bids received on Phase IIof the SISP. In addition, USS argues that the Court should mandate disclosure of the Phase II bids to all stakeholders, includingUSS, upon receipt. It also seeks an order that USSC prepare an updated liquidation analysis, based on the Phase II bids, toenable a comparison of the options available to the applicant after receipt of any offers under the SISP.

6 The applicant has indicated that it proposes to develop a plan for disclosure of the bids received in the Phase II process ofthe SISP after the deadline. Clearly, such a plan will be necessary to reach a restructuring plan, given that the successful bidderwill need to address the positions of the major stakeholders. It will also be necessary to address stakeholder concerns, includingUSS, regarding the impact of continuation of the SISP process on their positions. However, USSC opposes the imposition atthis time of any requirement to provide USS with summaries, or copies, of any bids received on Phase II of the SISP, or of anyrequirement to prepare an updated liquidation analysis based on such bids.

7 The Court's determination to grant the extension of the stay requested by USSC to July 28, 2016 was based on the followingconsiderations.

8 First, in USSC's estimation, the SISP currently underway will require a more extended period of time than isproposed by USS to complete negotiations with any successful bidder and to permit satisfaction of any conditions, includingnegotiations between such bidder and other affected stakeholders. This view is shared by the Union, the Province of Ontarioand Representative Counsel. The applicant is proceeding under the CCAA. It is entitled to manage the restructuring processwithout restrictions which could jeopardize the prospects for a successful outcome.

9 Second, there can be little doubt that a longer stay extension also furthers the prospect of a successful, going-concernrestructuring, insofar as it provides greater certainty to USSC's suppliers, its customers and its employees regarding thecontinued operations of the applicant.

10 Third, as the Monitor points out, even if a going-concern restructuring were not feasible, a longer stay would be requiredto implement other arrangements to satisfy the claims of the creditors of the applicant, whether under the CCAA or otherwise.

11 Fourth, USS submits that the Court should impose a shorter extension period to enable the Court to monitor the potentialfor value destruction to the detriment of the applicant's creditors during the extension period. In particular, USS suggests thatthere is a serious, ongoing material deterioration in its position both as a secured creditor as well as an unsecured creditor ofUSSC. I am not persuaded, however, that the evidence before the Court on this issue is sufficient to require a shorter extensionperiod for the following three reasons.

12 First, USS places considerable emphasis on EBITDA losses of the applicant since October 1, 2015 as evidence of thedeterioration of its secured position. However, the evidence before the Court — in the form of the current liquidation analysis,which has been provided to the parties on a confidential basis — evidences a fully secured position to the extent of USS' securedclaim.

13 Second, USS argues that such historical EBITDA losses are suggestive of further losses that should be projected duringthe extension period. However, the Monitor's Twenty-Fifth Report, dated April 22, 2016, addresses the EBITDA situation intwo respects which indicate a reasonable possibility that there will be no material adverse change in that position over theperiod of the proposed extension. In paragraph 34 of that Report, the Monitor indicates that the preliminary forecast EDITBA isestimated to be positive for Q2 2016. It also states that cumulative EBITDA at the end of Q2 2016 is estimated to be consistentwith, or slightly exceed, the Independent Business Plan the applicant implemented in October 2015 and substantially betterby the end of fiscal 2016.

14 Third, while USS is also a substantial unsecured creditor, it will not be the only significant unsecured creditor affectedby the applicant's failure to achieve a successful restructuring if that were to occur. The other significant unsecured creditors insuch event — principally, the Province of Ontario, the Union and the non-unionized employees and retirees — will have verysubstantial claims as well. As noted above, these creditors support the extension and oppose the additional relief sought by USS.



Moreover, in the event of an unsuccessful restructuring, it is not realistic to expect that there will be an expeditious process forsatisfying the claims of the applicant's creditors given the issues of quantum and priority of security that will be disputed.

15 For the foregoing reasons, I conclude that a stay to July 28, 2016 is appropriate in the circumstances. I also conclude thatit is not appropriate to impose the conditions sought by USS requiring the delivery of information by USSC for the followingfour principal reasons.

16 First, and most important, at the present time, as mentioned, there is no clarity regarding the nature and number of bidsfor USSC or its assets that may be received under the SISP. That information will drive a determination not only of the mannerin which USSC proceeds with respect to a restructuring plan, but also of the appropriate involvement of the other stakeholders,including USS, and the nature of disclosure that should be made to those stakeholders. It is therefore premature and unwise tomandate any particular disclosure at this time without being able to assess the consequences of such disclosure for the applicant'sprospects for a successful restructuring

17 Second, as mentioned above, the applicant has indicated that it proposes to develop a plan for disclosure of the bidsreceived in the Phase II process of the SISP that is consistent with furthering the prospects for a successful restructuring. Giventhat intention, I think it is more appropriate to address disclosure issues after the parties have reviewed, and if possible informallynegotiated, a proposed USSC plan for the involvement of stakeholders that USSC has developed based on the actual results ofthe SISP rather than to impose conditions based on speculation as to the likely outcome of the SISP.

18 Third, for the reasons set out above, the USS concern for the potential for value destruction during the stay extensionperiod is not a sufficient basis for ordering the immediate preparation of a new liquidation analysis.

19 Fourth, USS is effectively seeking to amend the SISP order of the Court, dated January 12, 2016 (the "SISP Order"), tomandate disclosure of the Phase II bids that was not provided for in that Order. Instead, the SISP Order effectively left it to theapplicant to fashion appropriate disclosure based on the results of the Phase II process, as the applicant's obligations are limitedto consultation with the stakeholders. In particular, there is no obligation on USSC to disclose offers received under Phase II,unlike the obligation to disclose letters of interest received under Phase I of the SISP. Any motion to amend the SISP Ordershould be brought on a basis that is informed by changed circumstances from those contemplated at the time of the SISP Order.At a minimum, that requires completion of Phase II of the SISP.

20 Based on the foregoing, the relief sought by USS in its Notice of Objection dated April 15, 2016, in particular the reliefsought in paragraph 24 thereof, is denied.

Application granted.


Worldspan Marine Inc., Re, 2011 BCSC 1758, 2011 CarswellBC 36672011 BCSC 1758, 2011 CarswellBC 3667, [2012] B.C.W.L.D. 2061...


2011 BCSC 1758British Columbia Supreme Court

Worldspan Marine Inc., Re

2011 CarswellBC 3667, 2011 BCSC 1758, [2012] B.C.W.L.D. 2061, 211 A.C.W.S. (3d) 557, 86 C.B.R. (5th) 119

In the Matter of the Companies' CreditorsArrangement Act, R.S.C. 1985, c. C-36, as amended

And In the Matter of the Canada Business Corporations Act, R.S.C.1985, c. C-44 and the Business Corporations Act, S.B.C. 2002, c. 57

And In the Matter of Worldspan Marine Inc., Crescent Custom Yachts Inc., Queenship MarineIndustries Ltd., 27222 Developments Ltd. and Composite FRP Products Ltd. (Petitioners)

Pearlman J.

Heard: December 16, 2011Judgment: December 21, 2011

Docket: Vancouver S113550

Counsel: J.R. Sandrelli, J.D. Schultz for Petitioners, Worldspan Marine Inc., Crescent Custom Yachts Inc., Queenship MarineIndustries Ltd., 27222 Developments Ltd. and Composite FRP ProductsK. Jackson, V. Tickle for Wolrige Mahon (the "VCO"):K.E. Siddall for Respondent, Harry Sargeant IIIJ. Leathley, Q.C. for Ontrack Systems Ltd.D. Rossi for Mohammed Al-SalehG. Wharton, P. Mooney for Offshore Interiors Inc., Paynes Marine Group, Restaurant Design and Sales LLC, ArrowTransportation Systems and CCY Holdings Inc.N. Beckie for Canada Revenue AgencyJ. McLean, Q.C. for Comerica BankG. Dabbs for The Monitor

Subject: Insolvency; Corporate and Commercial

APPLICATION by debtor companies for extension of stay under Companies' Creditors Arrangement Act.

Pearlman J.:

Introduction

1 On December 16, 2011, on the application of the petitioners, I granted an order confirming and extending the InitialOrder and stay pronounced June 6, 2011, and subsequently confirmed and extended to December 16, 2011, by a further 119days to April 13, 2012. When I made the order, I informed counsel that I would provide written Reasons for Judgment. Theseare my Reasons.

Positions of the Parties

2 The petitioners apply for the extension of the Initial Order to April 13, 2012 in order to permit them additional time to worktoward a plan of arrangement by continuing the marketing of the Vessel "QE014226C010" (the "Vessel") with Fraser Yachts, to



explore potential Debtor In Possession ("DIP") financing to complete construction of the Vessel pending a sale, and to resolvepriorities among in rem claims against the Vessel.

3 The application of the petitioners for an extension of the Initial Order and stay was either supported, or not opposed, byall of the creditors who have participated in these proceedings, other than the respondent, Harry Sargeant III.

4 The Monitor supports the extension as the best option available to all of the creditors and stakeholders at this time.

5 These proceedings had their genesis in a dispute between the petitioner Worldspan Marine Inc. and Mr. Sargeant. OnFebruary 29, 2008, Worldspan entered into a Vessel Construction Agreement with Mr. Sargeant for the construction of the Vessel,a 144-foot custom motor yacht. A dispute arose between Worldspan and Mr. Sargeant concerning the cost of construction. InJanuary 2010 Mr. Sargeant ceased making payments to Worldspan under the Vessel Construction Agreement.

6 The petitioners continued construction until April 2010, by which time the total arrears invoiced to Mr. Sargeant totalledapproximately $4.9 million. In April or May 2010, the petitioners ceased construction of the Vessel and the petitioner Queenshiplaid off 97 employees who were then working on the Vessel. The petitioners maintain that Mr. Sargeant's failure to pay moniesdue to them under the Vessel Construction Agreement resulted in their insolvency, and led to their application for relief underthe Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, ("CCAA") in these proceedings.

7 Mr. Sargeant contends that the petitioners overcharged him. He claims against the petitioners, and against the as yetunfinished Vessel for the full amount he paid toward its construction, which totals $20,945,924.05.

8 Mr. Sargeant submits that the petitioners are unable to establish that circumstances exist that make an order extendingthe Initial Order appropriate, or that they have acted and continue to act in good faith and with due diligence. He says thatthe petitioners have no prospect of presenting a viable plan of arrangement to their creditors. Mr. Sargeant also contends thatthe petitioners have shown a lack of good faith by failing to disclose to the Court that the two principals of Worldspan, Mr.Blane, and Mr. Barnett are engaged in a dispute in the United States District Court for the Southern District of Florida whereMr. Barnett is suing Mr. Blane for fraud, breach of fiduciary duty and conversion respecting monies invested in Worldspan.

9 Mr. Sargeant drew the Court's attention to Exhibit 22 to the complaint filed in the United States District Court by Mr.Barnett, which is a demand letter dated June 29, 2011 from Mr. Barnett's Florida counsel to Mr. Blane stating:

Your fraudulent actions not only caused monetary damage to Mr. Barnett, but also caused tremendous damage toWorldSpan. More specifically, your taking Mr. Barnett's money for your own use deprived the company of much neededcapital. Your harm to WorldSpan is further demonstrated by your conspiracy with the former CEO of WorldSpan, LeeTaubeneck, to overcharge a customer in order to offset the funds you were stealing from Mr. Barnett that should have goneto the company. Your deplorable actions directly caused the demise of what could have been a successful and innovativenew company" (underlining added)

10 Mr. Sargeant says, and I accept, that he is the customer referred to in the demand letter. He submits that the allegationscontained in the complaint and demand letter lend credence to his claim that Worldspan breached the Vessel ConstructionAgreement by engaging in dishonest business practices, and over-billed him. Further, Mr. Sargeant says that the petitioner'sfailure to disclose this dispute between the principals of Worldspan, in addition to demonstrating a lack of good faith, revealsan internal division that diminishes the prospects of Worldspan continuing in business.

11 As yet, there has been no judicial determination of the allegations made by Mr. Barnett in his complaint against Mr. Blane.

Discussion and Analysis

12 On an application for an extension of a stay pursuant to s. 11.02(2) of the CCAA, the petitioners must establish that theyhave met the test set out in s. 11.02(3):

(a) whether circumstances exist that make the order appropriate; and

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(b) whether the applicant has acted, and is acting, in good faith and with due diligence.

13 In considering whether "circumstances exist that make the order appropriate", the court must be satisfied that an extensionof the Initial Order and stay will further the purposes of the CCAA.

14 In Ted Leroy Trucking Ltd., Re, [2010] 3 S.C.R. 379 (S.C.C.) at para. 70, Deschamps J., for the Court, stated:

... Appropriateness under the CCAA is assessed by inquiring whether the order sought advances the policy objectivesunderlying the CCAA. The question is whether the order will usefully further efforts to achieve the remedial purpose ofthe CCAA — avoiding the social and economic losses resulting from liquidation of an insolvent company. I would add thatappropriateness extends not only to the purpose of the order, but also to the means it employs. Courts should be mindfulthat chances for successful reorganizations are enhanced where participants achieve common ground and all stakeholdersare treated as advantageously and fairly as the circumstances permit.

15 A frequently cited statement of the purpose of the CCAA is found in Hongkong Bank of Canada v. Chef Ready FoodsLtd. (1990), 51 B.C.L.R. (2d) 84, [1990] B.C.J. No. 2384 (B.C. C.A.), at p. 3 where the Court of Appeal held:

The purpose of the C.C.A.A. is to facilitate the making of a compromise or arrangement between an insolvent debtorcompany and its creditors to the end that the company is able to continue in business. It is available to any companyincorporated in Canada with assets or business activities in Canada that is not a bank, a railway company, a telegraphcompany, an insurance company, a trust company, or a loan company. When a company has recourse to the C.C.A.A. thecourt is called upon to play a kind of supervisory role to preserve the status quo and to move the process along to the pointwhere a compromise or arrangement is approved or it is evident that the attempt is doomed to failure. Obviously time iscritical. Equally obviously, if the attempt at compromise or arrangement is to have any prospect of success there must bea means of holding the creditors at bay, hence the powers vested in the court under s. 11.

16 In Pacific National Lease Holding Corp., Re, [1992] B.C.J. No. 3070 (B.C. S.C.) Brenner J. (as he then was) summarizedthe applicable principles at para. 26:

(1) The purpose of the C.C.A.A. is to allow an insolvent company a reasonable period of time to reorganize its affairsand prepare and file a plan for its continued operation subject to the requisite approval of the creditors and the Court.

(2) The C.C.A.A. is intended to serve not only the company's creditors but also a broad constituency which includesthe shareholders and the employees.

(3) During the stay period the Act is intended to prevent manoeuvres for positioning amongst the creditors of thecompany.

(4) The function of the Court during the stay period is to play a supervisory role to preserve the status quo and tomove the process along to the point where a compromise or arrangement is approved or it is evident that the attemptis doomed to failure.

(5) The status quo does not mean preservation of the relative pre-debt status of each creditor. Since the companiesunder C.C.A.A. orders continue to operate and having regard to the broad constituency of interests the Act is intendedto serve, preservation of the status quo is not intended to create a rigid freeze of relative pre-stay positions.

(6) The Court has a broad discretion to apply these principles to the facts of a particular case.

17 In Cliffs Over Maple Bay Investments Ltd. v. Fisgard Capital Corp., 2008 BCCA 327 (B.C. C.A.), the Court of Appealset aside the extension of a stay granted to the debtor property development company. There, the Court held that the CCAAwas not intended to accommodate a non-consensual stay of creditors' rights while a debtor company attempted to carry out a





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restructuring plan that did not involve an arrangement or compromise on which the creditors could vote. At para. 26, TysoeJ.A., for the Court said this:

In my opinion, the ability of the court to grant or continue a stay under s. 11 is not a free standing remedy that the court maygrant whenever an insolvent company wishes to undertake a "restructuring", a term with a broad meaning including suchthings as refinancings, capital injections and asset sales and other downsizing. Rather, s. 11 is ancillary to the fundamentalpurpose of the CCAA, and a stay of proceedings freezing the rights of creditors should only be granted in furtherance ofthe CCAA's fundamental purpose.

18 At para. 32, Tysoe J.A. queried whether the court should grant a stay under the CCAA to permit a sale, winding up orliquidation without requiring the matter to be voted upon by the creditors if the plan or arrangement intended to be made by thedebtor company simply proposed that the net proceeds from the sale, winding up or liquidation be distributed to its creditors.

19 In Cliffs Over Maple Bay Investments Ltd. at para. 38, the court held:

... What the Debtor Company was endeavouring to accomplish in this case was to freeze the rights of all of its creditorswhile it undertook its restructuring plan without giving the creditors an opportunity to vote on the plan. The CCAA wasnot intended, in my view, to accommodate a non-consensual stay of creditors' rights while a debtor company attempts tocarry out a restructuring plan that does not involve an arrangement or compromise upon which the creditors may vote.

20 As counsel for the petitioners submitted, Cliffs Over Maple Bay Investments Ltd. was decided before the current s. 36 ofthe CCAA came into force. That section permits the court to authorize the sale of a debtor's assets outside the ordinary courseof business without a vote by the creditors.

21 Nonetheless, Cliffs Over Maple Bay Investments Ltd. is authority for the proposition that a stay, or an extension of astay should only be granted in furtherance of the CCAA's fundamental purpose of facilitating a plan of arrangement betweenthe debtor companies and their creditors.

22 Other factors to be considered on an application for an extension of a stay include the debtor's progress during the previousstay period toward a restructuring; whether creditors will be prejudiced if the court grants the extension; and the comparativeprejudice to the debtor, creditors and other stakeholders in not granting the extension: Federal Gypsum Co., Re, 2007 NSSC347, 40 C.B.R. (5th) 80 (N.S. S.C.) at paras. 24-29.

23 The good faith requirement includes observance of reasonable commercial standards of fair dealings in the CCAAproceedings, the absence of intent to defraud, and a duty of honesty to the court and to the stakeholders directly affected by theCCAA process: San Francisco Gifts Ltd., Re, 2005 ABQB 91 (Alta. Q.B.) at paras. 14-17.

Whether circumstances exist that make an extension appropriate

24 The petitioners seek the extension to April 13, 2012 in order to allow a reasonable period of time to continue their effortsto restructure and to develop a plan of arrangement.

25 There are particular circumstances which have protracted these proceedings. Those circumstances include the following:

(a) Initially, Mr. Sargeant expressed an interest in funding the completion of the Vessel as a Crescent brand yacht atWorldspan shipyards. On July 22, 2011, on the application of Mr. Sargeant, the Court appointed an independent VesselConstruction Officer to prepare an analysis of the cost of completing the Vessel to Mr. Sargeant's specifications. TheVessel Construction Officer delivered his completion cost analysis on October 31, 2011.

(b) The Vessel was arrested in proceedings in the Federal Court of Canada brought by Offshore Interiors Inc., acreditor and a maritime lien claimant. As a result, The Federal Court, while recognizing the jurisdiction of this Courtin the CCAA proceedings, has exercised its jurisdiction over the vessel. There are proceedings underway in the FederalCourt for the determination of in rem claims against the Vessel. Because this Court has jurisdiction in the CCAA









proceedings, and the Federal Court exercises its maritime law jurisdiction over the Vessel, there have been applicationsin both Courts with respect to the marketing of the Vessel.

(c) The Vessel, which is the principal asset of the petitioner Worldspan, is a partially completed custom built superyacht for which there is a limited market.

26 All of these factors have extended the time reasonably required for the petitioners to proceed with their restructuring,and to prepare a plan of arrangement.

27 On September 19, 2011, when this court confirmed and extended the Initial Order to December 16, 2011, it also authorizedthe petitioners to commence marketing the Vessel unless Mr. Sargeant paid $4 million into his solicitor's trust account on orbefore September 29, 2011.

28 Mr. Sargeant failed to pay the $4 million into trust with his solicitors, and subsequently made known his intention notto fund the completion of the Vessel by the petitioners.

29 On October 7, 2011, the Federal Court also made an order authorizing the petitioners to market the Vessel and to retaina leading international yacht broker, Fraser Yachts, to market the Vessel for an initial term of six months, expiring on April7, 2012. Fraser Yachts has listed the Vessel for sale at $18.9 million, and is endeavouring to find a buyer. Although its effortshave attracted little interest to date, Fraser Yachts have expressed confidence that they will be able to find a buyer for the Vesselduring the prime yacht buying season, which runs from February through July. Fraser Yachts and the Monitor have advisedthat process may take up to 9 months.

30 On November 10, 2011, this Court, on the application of the petitioners, made an order authorizing and approving the saleof their shipyard located at 27222 Lougheed Highway, with a leaseback of sufficient space to enable the petitioners to completethe construction of the Vessel, should they find a buyer who wishes to have the Vessel completed as a Crescent yacht at itscurrent location. The sale and leaseback of the shipyard has now completed.

31 Both this Court and the Federal Court have made orders regarding the filing of claims by creditors against the petitionersand the filing of in rem claims in the Federal Court against the Vessel.

32 The determination of the in rem claims against the Vessel is proceeding in the Federal Court.

33 After dismissing the in rem claims of various creditors, the Federal Court has determined that the creditors having inrem claims against the Vessel are:

Sargeant $20,945.924.05Capri Insurance Services $ 45,573.63Cascade Raider $ 64,460.02Arrow Transportation and CCY $ 50,000.00Offshore Interiors Inc. $659,011.85Continental Hardwood Co. $ 15,614.99Paynes Marine Group $ 35,833.17Restaurant Design and Sales LLC $254,383.28

34 The petitioner, Worldspan's, in rem claim in the amount of $6,643,082.59 was dismissed by the Federal Court and iscurrently subject to an appeal to be heard January 9, 2012.

35 In addition, Comerica Bank has asserted an in rem claim against the Vessel for $9,429,913.86, representing the amount itadvanced toward the construction of the Vessel. Mr. Mohammed Al-Saleh, a judgment creditor of certain companies controlledby Mr. Sargeant has also asserted an in rem claim against the Vessel in the amount of $28,800,000.



36 The Federal Court will determine the validity of the outstanding in rem claims, and the priorities amongst the in remclaims against the Vessel.

37 The petitioners, in addition to seeking a buyer for the Vessel through Fraser Yachts are also currently in discussionswith potential DIP lenders for a DIP facility for approximately $10 million that would be used to complete construction ofthe Vessel in the shipyard they now lease. Fraser Yachts has estimated that the value of the Vessel, if completed as a Crescentbrand yacht at the petitioners' facility would be $28.5 million. If the petitioners are able to negotiate a DIP facility, resumptionof construction of the Vessel would likely assist their marketing efforts, would permit the petitioners to resume operations, togenerate cash flow and to re-hire workers. However, the petitioners anticipate that at least 90 days will be required to obtain aDIP facility, to review the cost of completing the Vessel, to assemble workers and trades, and to bring an application for DIPfinancing in both this Court and the Federal Court.

38 An extension of the stay will not materially prejudice any of the creditors or other stakeholders. This case is distinguishablefrom Cliffs Over Maple Bay Investments Ltd., where the debtor was using the CCAA proceedings to freeze creditors' rights inorder to prevent them from realizing against the property. Here, the petitioners are simultaneously pursuing both the marketingof the Vessel and efforts to obtain DIP financing that, if successful, would enable them to complete the construction of theVessel at their rented facility. While they do so, a court supervised process for the sale of the Vessel is underway.

39 Mr. Sargeant also relies on Encore Developments Ltd., Re, 2009 BCSC 13 (B.C. S.C.), in support of his submission thatthe Court should refuse to extend the stay. There, two secure creditors applied successfully to set aside an Initial Order and staygranted ex parte to the debtor real estate development company. The debtor had obtained the Initial Order on the basis that ithad sufficient equity in its real estate projects to fund the completion of the remaining projects. In reality, the debtor companyhad no equity in the projects, and at the time of the application the debtor company had no active business that required theprotection of a CCAA stay. Here, when the petitioners applied for and obtained the Initial Order, they continued to employa skeleton workforce at their facility. Their principal asset, aside from the shipyard, was the partially constructed Vessel. Allparties recognized that the CCAA proceedings afforded an opportunity for the completion of the Vessel as a custom Crescentbrand yacht, which represented the best way of maximizing the return on the Vessel. On the hearing of this application, all ofthe creditors, other than Mr. Sargeant share the view that the Vessel should be marketed and sold through and orderly processsupervised by this Court and the Federal Court.

40 I share the view of the Monitor that in the particular circumstances of this case the petitioners cannot finalize a restructuringplan until the Vessel is sold and terms are negotiated for completing the Vessel either at Worldspan's rented facility, or elsewhere.In addition, before the creditors will be in a position to vote on a plan, the amounts and priorities of the creditors' claims,including the in rem claims against the Vessel, will need to be determined. The process for determining the in rem claims andtheir priorities is currently underway in the Federal Court.

41 The Monitor has recommended the Court grant the extension sought by the petitioners. The Monitor has raised oneconcern, which relates to the petitioners' current inability to fund ongoing operating costs, insurance, and professional feesincurred in the continuation of the CCAA proceedings. At this stage, the landlord has deferred rent for the shipyard for sixmonths until May 2012. At present, the petitioners are not conducting any operations which generate cash flow. Since the lastcome back hearing in September, the petitioners were able to negotiate an arrangement whereby Mr. Sargeant paid for insurancecoverage on the Vessel. It remains to be seen whether Mr. Sargeant, Comerica Bank, or some other party will pay the insurancefor the Vessel which comes up for renewal in January, 2012.

42 Since the sale of the shipyard lands and premises, the petitioners have no assets other than the Vessel capable of protectingan Administration Charge. The Monitor has suggested that the petitioners apply to the Federal Court for an AdministrationCharge against the Vessel. Whether the petitioners do so is of course a matter for them to determine.

43 The petitioners will need to make arrangements for the continuing payment of their legal fees and the Monitor's feesand disbursements.





44 The CCAA proceedings cannot be extended indefinitely. However, at this stage, a CCAA restructuring still offers the bestoption for all of the stakeholders. Mr. Sargeant wants the stay lifted so that he may apply for the appointment of Receiver andexercise his remedies against the Vessel. Any application by Mr. Sargeant for the appointment of a Receiver would be resistedby the other creditors who want the Vessel to continue to be marketed under the Court supervised process now underway.

45 There is still the prospect that through the CCAA process the Vessel may be completed by the petitioners either as a resultof their finding a buyer who wishes to have the Vessel completed at its present location, or by negotiating DIP financing thatenables them to resume construction of the Vessel. Both the marine surveyor engaged by Comerica Bank and Fraser Yachtshave opined that finishing construction of the Vessel elsewhere would likely significantly reduce its value.

46 I am satisfied that there is a reasonable possibility that the petitioners, working with Fraser Yachts, will be able to find apurchaser for the Vessel before April 13, 2012, or that alternatively they will be able to negotiate DIP financing and then proceedwith construction. I find there remains a reasonable prospect that the petitioners will be able to present a plan of arrangementto their creditors. I am satisfied that it is their intention to do so. Accordingly, I find that circumstances do exist at this timethat make the extension order appropriate.

Good faith and due diligence

47 Since the last extension order granted on September 19, 2011, the petitioners have acted diligently by completing thesale of the shipyard and thereby reducing their overheads; by proceeding with the marketing of the Vessel pursuant to ordersof this Court and the Federal Court; and by embarking upon negotiations for possible DIP financing, all in furtherance of theirrestructuring.

48 Notwithstanding the dispute between Mr. Barnett and Mr. Blane, which resulted in the commencement of litigation inthe State of Florida at or about the same time this Court made its Initial Order in the CCAA proceedings, the petitioners havebeen able to take significant steps in the restructuring process, including the sale of the shipyard and leaseback of a portionof that facility, and the applications in both this Court and the Federal Court for orders for the marketing of the Vessel. Thedispute between Mr. Barnett and his former partner, Mr. Blane has not prevented the petitioners from acting diligently in theseproceedings. Nor am I persuaded on the evidence adduced on this application that dispute would preclude the petitioners fromcarrying on their business of designing and constructing custom yachts, in the event of a successful restructuring.

49 While the allegations of misconduct, fraud and misappropriation of funds made by Mr. Barnett against Mr. Blane areserious, at this stage they are no more than allegations. They have not yet been adjudicated. The allegations, which are as yetunproven, do not involve dishonesty, bad faith, of fraud by the debtor companies in their dealings with stakeholders in thecourse of the CCAA process.

50 In my view, the failure of the petitioners to disclose the dispute between Mr. Barnett and Mr. Blane does not constitutebad faith in the CCAA proceedings or warrant the exercise of the Court's discretion against an extension of the stay.

51 This case is distinguishable from San Francisco Gifts Ltd., where the debtor company had pleaded guilty to 9 counts ofcopyright infringement, and had received a large fine for doing so.

52 In San Francisco Gifts Ltd., at paras 30 to 32, the Alberta Court of Queen's Bench acknowledged that a debtor company'sbusiness practices may be so offensive as to warrant refusal of a stay extension on public policy grounds. However, the courtdeclined to do so where the debtor company was acting in good faith and with due diligence in working toward presenting aplan of arrangement to its creditors.

53 The good faith requirement of s. 11.02(3) is concerned primarily with good faith by the debtor in the CCAA proceedings.I am satisfied that the petitioners have acted in good faith and with due diligence in these proceedings.

Conclusion





54 The petitioners have met the onus of establishing that circumstances exist that make the extension order appropriate andthat they have acted and are acting in good faith and with due diligence. Accordingly, the extension of the Initial Order and stayto April 13, 2012 is granted on the terms pronounced on December 16, 2011.

Application granted.


Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 29362015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196


2015 ONSC 1354Ontario Superior Court of Justice [Commercial List]

Nortel Networks Corp., Re

2015 CarswellOnt 2936, 2015 ONSC 1354, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196

In the Matter of the Companies' CreditorsArrangement Act, R.S.C. 1985, c. c-36, as Amended

In the Matter of a Plan of Compromise or Arrangement of Nortel Networks Corporation,Nortel Networks Limited, Nortel Networks Global Corporation, Nortel Networks

International Corporation and Nortel Networks Technology Corporation Applicationunder the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as Amended

Newbould J.

Heard: February 27, 2015Judgment: March 4, 2015

Docket: 09-CL-7950

Proceedings: full reasons to Nortel Networks Corp., Re (2015), 2015 CarswellOnt 3019, Newbould J. (Ont. S.C.J. [CommercialList])

Counsel: Harvey G. Chaiton, George Benchetrit for SNMP Research International, Inc. and SNMP Research, Inc.Joseph Pasquariello, Christopher G. Armstrong for Monitor, Ernst & Young Inc.Alan Merskey, Vasuda Sinha for Nortel applicantsScott A. Bomhoff for U.S. DebtorsShayne Kukulowicz for US Unsecured Creditors' CommittJonathan Bell for Ad Hoc Group of BondholdersAubrey E. Kauffman for Avaya Inc.

Subject: Insolvency

FULL REASONS to judgment reported at Nortel Networks Corp., Re (2015), 2015 CarswellOnt 3019 (Ont. S.C.J. [CommercialList]) dismissing motion to lift stay of proceedings under Companies' Creditors Arrangement Act to permit post-filing claimsagainst Canadian debtors to be tried in United States.

Newbould J.:

1 SNMP Research International, Inc. and SNMP Research, Inc. moved for an order to lift the stay of proceedings containedin the Initial Order to permit an action in the United States to proceed against a number of Nortel entities, including NNC andNNL. At the conclusion of the hearing I dismissed the motion for reasons to follow. These are my reasons.

Background to this litigation

2 SNMP Research, Inc. and SNMP Research International, Inc. (together "SNMPRI") are corporations in the business ofproducing and distributing software for the simple network management protocol ("SNMP"). The basic purpose of the SNMPis to manage and monitor network-attached devices.

3 Prior to the commencement of the CCAA Proceedings on January 14, 2009, SNMPRI licensed its software to Nortel foruse in a number of Nortel products and from which Nortel purchased SNMP technologies and products. This relationship was





governed by a license agreement between Nortel Network Corporation and SNMP Research International, Inc. dated December23, 1999 together with certain schedules.

4 Following Nortel's insolvency filings, SNMPRI filed proofs of claim in the CCAA proceedings and the U.S Chapter 11proceedings for pre-filing claims.

5 In the spring of 2011, SNMPRI indicated that it also intended to file a complaint for alleged post-filing unauthorized use,distribution, license and sale of SNMPRI software by certain of the Nortel entities after January 14, 2009 (the "Complaint").The Complaint also asserted claims against certain parties who purchased assets from Nortel in the CCAA and chapter 11proceedings, including Avaya Inc. SNMPRI seeks to recover at least $86 million from the Canadian and U.S. Debtors on an"administrative expense" basis, including damages based on the proceeds of the sales of certain Nortel lines of business approvedby this Court and the U.S. Bankruptcy Court. By the administrative expense claim, SNMPRI seeks to collect 100 cents on thedollar as it is a post-filing claim.

6 On September 21, 2011, SNMPRI filed this motion for relief from the stay imposed by the Initial Order to permit theComplaint to proceed in the U.S. Bankruptcy Court against the Canadian Debtors and the U.S. Debtors. In the circumstances,because there was some risk of the Complaint becoming statute barred, SNMPRI and Nortel entered into a letter agreementon October 25, 2011 under which Nortel permitted SNMPRI to initiate the Complaint in the U.S. Bankruptcy Court on thecondition that the proceeding be immediately stayed. The letter agreement provided that the parties would mediate the issues inthe SNMPRI claims and that the stay of proceedings would continue until the parties had completed mediation. It also providedthat if the mediation was not successful, SNMPRI could not to proceed with its Complaint until its motion to lift the stay wasdecided. An order was made on consent permitting the stay in the Initial Order to be lifted for the limited purpose as agreed.

7 On December 27, 2013, SNMPRI filed an amended complaint (the "First Amended Complaint") with the U.S. BankruptcyCourt. The First Amended Complaint contains additional allegations arising from the post-filing sales of Nortel's assets andof copyright infringement by Nortel.

8 As with the original Complaint, in the First Amended Complaint SNMPRI seeks to pursue all of its claims, including thoseagainst the Canadian Debtors, by way of a jury trial in the U.S. Shortly before amending the Complaint, SNMPRI filed notice ofits intent to "withdraw the reference" from the U.S. Bankruptcy Court, meaning that it would seek to have the Complaint heardnot by the U.S. Bankruptcy Court but by the United States Court for the District of Delaware. Thus on this record, SNMPRIseeks a jury trial in the U.S. District Court for Delaware.

9 The mediation failed. It concluded on March 14, 2014.

The SNMPRI claims

10 In the SNMPRI claim made in this CCAA proceeding for pre-filing claims, SNMPRI claims:

(a) A claim for approximately $22,000 for certain stayed royalty payments owing for Q4 2008.

(b) A claim for $3.6 million for fees and pre-filing interest resulting from an alleged unauthorized and illegal usageby the Nortel debtors of SNMPRI's EMANATE software in its MG9000 software.

(c) A claim for $3.8 million for fees and pre-filing interest resulting from an alleged unauthorized and illegal usageby the Nortel debtors of SNMPRI's EMANATE software used in Nortel's Bay Software.

(d) SNMPRI claims further amounts to be determined under the U.S. Copyright Act, applicable trade secret law, andother intellectual property law for unauthorized use and distribution of SNMPRI software with the MG9000 softwareand Bay Software and other products of the Canadian Debtors.

11 In the Complaint that SNMPRI filed in the U.S. Bankruptcy Court, SNMPRI sues to recover from the Canadian and U.S.Debtors damages and post-petition profits from Nortel's alleged unauthorized post-petition use, distribution, license or sale of



SNMPRI software and Nortel's post-petition asset sale to Aveya. Pleaded is an alleged improper use by Nortel of SNMPRI'sEMANATE software in Nortel's MG9000 software and in its MG9000 Bay Software. SNMPRI claims to recover from Aveyadamages and profits from Aveya's alleged unauthorized possession, use, distribution, license or sale of SNMPRI software,including the SNMPRI Bay Software.

12 The nub of the claims asserted in the Complaint is that Nortel post-filing improperly used or sold SNMPRI softwarethat was not licensed to Nortel and that Aveya purchased a line of business which contained the SNMPRI software and has notpaid anything for it. It is essentially a claim for the same alleged illegal activity as claimed in the pre-filing claim against theCanadian Debtors in this CCAA proceeding.

Analysis

13 A court has wide powers under the CCAA. Section 11(1) of the CCAA provides that a court may make any order itconsiders appropriate in the circumstances. Section 11.02(1) and (2) grants jurisdiction in an Initial Order or a later order tostay any action already commenced against a debtor and to stay any proposed action for any period that the court considersnecessary. It is a discretionary matter. The onus is on the party applying to lift the stay of proceedings.

14 There is little authority in how the court's consideration of a request to lift a stay should be dealt with in a liquidatinginsolvency. In one such case, ICR Commercial Real Estate (Regina) Ltd. v. Bricore Land Group Ltd. (2007), 33 C.B.R. (5th)50 (Sask. C.A.), the supervising trial judge refused to lift the stay to permit an action to proceed against the debtor because theclaimant failed to establish that it had a tenable claim. That order was upheld on appeal. In the Court of Appeal, Jackson J.A.stated that there ought not to be rigid requirements on how a supervising judge is to exercise his or her discretion. She stated:

66 Given the broad discretion granted to a supervisory judge under the CCAA, as well as the knowledge and experience heor she gains from the ongoing dealings with the parties under the proceedings, it would be contrary to the purpose of theCCAA for the law under it to develop in a restrictive way. Having regard for this, there ought not to be rigid requirementsimposed on how a supervising CCAA judge must exercise his or her discretion with respect to lifting the stay.

15 Jackson J.A. went on to discuss guidance from previous decisions. She stated:

68 In determining what constitutes "sound reasons," much is left to the discretion of the judge. However, previous decisionson this point provide some guidance as to factors that may be considered:

(a) the balance of convenience;

(b) the relative prejudice to the parties;

(c) the merits of the proposed action, where they are relevant to the issue of whether there are "sound reasons" forlifting the stay (i.e., as was said in Ma, Re, if the action has little chance of success, it may be harder to establish"sound reasons" for allowing it to proceed).

16 In this case, no one raises the point that the merits of the proposed action against the Canadian Nortel are so lacking thatthe motion should be decided on that ground. The issue is whether the action should proceed in this Court or in a U.S. court.

17 SNMPRI contends that the parties agreed to a trial in the U.S., albeit Knoxville Tennessee. Section 9.11 of the LicenseAgreement between Nortel and SNMPRI contains a forum and choice of law clause providing that New York law is to applyto the license and for disputes to be heard in Knoxville, Tennessee. It states:

This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without referenceto its choice of law provisions, and the federal laws of the United States applicable therein. The venue for any disputesarising under or in respect to this Agreement shall be Knoxville, Tennessee, U.S.A. All proceedings shall be conductedin English.



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18 SNMPRI contends that as the parties have agreed on a forum to resolve their disputes, the onus lies on the Monitorand the Canadian Nortel debtors to displace the forum chosen by the parties. It relies on Z.I. Pompey Industrie v. ECU-LineN.V., [2003] 1 S.C.R. 450 (S.C.C.) as authority for the proposition that to displace a forum selection clause in a commercialagreement, strong cause must be shown.

19 SNMPRI also relies on a statement of Jurianz J.A. in Expedition Helicopters Inc. v. Honeywell Inc., 2010 ONCA 351 (Ont.C.A.) that a departure from a forum selection clause should only be permitted in exceptional circumstances. He went on to state:

24. A forum selection clause in a commercial contract should be given effect. The factors that may justify departure fromthat general principle are few. The few factors that might be considered include the plaintiff was induced to agree to theclause by fraud or improper inducement or the contract is otherwise unenforceable, the court in the selected forum does notaccept jurisdiction or otherwise is unable to deal with the claim, the claim or the circumstances that have arisen are outsideof what was reasonably contemplated by the parties when they agreed to the clause, the plaintiff can no longer expect afair trial in the selected forum due to subsequent events that could not have been reasonably anticipated, or enforcing theclause in the particular case would frustrate some clear public policy. Apart from circumstances such as these, a forumselection clause in a commercial contract should be enforced.

20 I note that included in the factors referred to by Jurianz J.A. that might justify a departure from a forum selection clausewas if the circumstances that have arisen are outside of what was reasonably contemplated by the parties when they agreed tothe clause or that enforcing the clause would frustrate some clear public policy.

21 The Monitor and the Canadian Debtors say that because of the insolvency of Nortel, the onus lies on the SNMPRI to justifylifting the stay of proceedings. They say that all matters involving the Canadian Debtors should be dealt with in the CCAAcourt in Toronto. They rely on Eagle River International Ltd., Re, [2001] 3 S.C.R. 978 (S.C.C.) [hereinafter Sam Lévy]. Thatcase involved a Quebec bankrupt company under bankruptcy administration in Quebec. The Trustee commenced a petition inQuebec to recover assets against a British Columbia company, which moved to transfer the matter to B.C. under section 187(7)of the BIA which permitted the transfer if there was "sufficient cause". The B.C. company relied on a type of forum selectionclause, although Binnie J. held it to be only a choice of law clause.

22 In Sam Lévy, Binnie J. referred to and adopted a "single control" model that favours litigation involving an insolventcompany to be dealt with in one jurisdiction. He stated that a choice of forum clause in an insolvency situation should be takeninto account but it is not binding or controlling. He stated in particular:

26 The trustees will often (and perhaps increasingly) have to deal with debtors and creditors residing in different parts ofthe country. They cannot do that efficiently, to borrow the phrase of Idington J. in Stewart v. LePage (1916), 53 S.C.R.337, at p. 345, "if everyone is to be at liberty to interfere and pursue his own notions of his rights of litigation"....

27 Stewart was, as stated, a winding-up case, but the legislative policy in favour of "single control" applies as well tobankruptcy. There is the same public interest in the expeditious, efficient and economical clean-up of the aftermath of afinancial collapse....

63 Leaving aside, then, the inapplicable directives of the Civil Code of Québec, the question is whether a choice of forumclause would amount to "sufficient cause" for the purpose of s. 187(7) to the extent that it would be an error of law forthe motions judge to have declined to give it effect in the circumstances of this case. In my view a choice of forum clause(where there really is one) ought to be taken into careful consideration by a motions judge but it is not binding: [authoritiesomitted].

64 It could be argued that the public policy favouring a "single control" of bankruptcy proceedings and opposition to theirfragmentation demands that a choice of forum clause receive lesser effect in bankruptcy than in the context of ordinarycommercial litigation: Industrial Packaging Products Co. v. Fort Pitt Packaging International, Inc., 161 A.2d 19 (Pa.1960); In re Treco, 239 B.R. 36 (S.D.N.Y. 1999), aff'd 240 F.3d 148 (2d Cir. 2001).





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67 The implementation of these public policies might be expected to take priority over private "choice of forum" agreementswhere the two come into conflict, as indeed Robert J.A. concluded in the Quebec Court of Appeal. A similar position isexpressed in I. F. Fletcher, Insolvency in Private International Law (1999), at p. 47, fn. 73:

[P]rivate contractual arrangements between parties cannot prevail over the exercise of bankruptcy jurisdiction, whichbelongs to the realm of public policy, serving a wider spread of interests including, ultimately, those of society at large.

In the United States, however, there is a competing body of judicial opinion that a trustee in bankruptcy who sues on anagreement containing a forum selection clause should, as a general rule, be bound by that clause to the same extent as theparties thereto: see Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190 (3d Cir. 1983); In re Diaz Contracting,Inc., 817 F.2d 1047 (3d Cir. 1987), and Hays and Co. v. Merrill Lynch, 885 F.2d 1149 (3d Cir. 1989).

68 In my view, for the reasons previously mentioned, the choice of forum clause would be a significant factor under s.187(7) but not, in the context of the public policies expressed in the Act, a controlling factor.

23 Justice Binnie stated that a creditor who was not a stranger to the bankruptcy had the onus to establish that multiplejurisdictions should be available for claims. He said:

76 ...Single control is not necessarily inconsistent with transferring particular disputes elsewhere, but a creditor (or debtor)who wishes to fragment the proceedings, and who cannot claim to be a "stranger to the bankruptcy", has the burden ofdemonstrating "sufficient cause" to send the trustee scurrying to multiple jurisdictions....

24 Sam Lévy involved a BIA proceeding. In it, Binnie J. referred to Stewart v. LePage [1916 CarswellPEI 1 (S.C.C.)], awinding-up application. I see no reason why the principles in Sam Lévy should not be applicable in a CCAA proceeding. InTed Leroy Trucking Ltd., Re, 2010 SCC 60, [2010] 3 S.C.R. 379 (S.C.C.) [hereinafter Century Cities], it was noted that theCCAA offers more flexibility and greater judicial discretion than the rules-based mechanism under the BIA and the principlewas enunciated that the harmonization of insolvency law common to the BIA and CCAA is desirable to the extent possible. Thecentral nature of insolvency and the resolution of issues caused by insolvency are common to both BIA and CCAA proceedingsand so too should the underlying principles.

25 In Century Cities, nearly 10 years after Sam Lévy, Deschamps J. made clear why public policy prefers the resolution ofall claims against a debtor to be determined in a single proceeding model. She stated:

22 While insolvency proceedings may be governed by different statutory schemes, they share some commonalities. Themost prominent of these is the single proceeding model. The nature and purpose of the single proceeding model aredescribed by Professor Wood in Bankruptcy and Insolvency Law:

They all provide a collective proceeding that supersedes the usual civil process available to creditors to enforce theirclaims. The creditors' remedies are collectivized in order to prevent the free-for-all that would otherwise prevail ifcreditors were permitted to exercise their remedies. In the absence of a collective process, each creditor is armedwith the knowledge that if they do not strike hard and swift to seize the debtor's assets, they will be beat out by othercreditors. [pp. 2-3]

The single proceeding model avoids the inefficiency and chaos that would attend insolvency if each creditor initiatedproceedings to recover its debt. Grouping all possible actions against the debtor into a single proceeding controlled in asingle forum facilitates negotiation with creditors because it places them all on an equal footing, rather than exposing themto the risk that a more aggressive creditor will realize its claims against the debtor's limited assets while the other creditorsattempt a compromise. With a view to achieving that purpose, both the CCAA and the BIA allow a court to order all actionsagainst a debtor to be stayed while a compromise is sought.

26 Justice Jurianz in Expedition Helicopters listed as one of the factors that might justify a departure from a forum selectionclause is if the circumstances that have arisen are outside of what was reasonably contemplated by the parties when they agreed















to the clause. The license agreement between SNMPRI and Nortel Networks Corporation was made on December 23, 1999. Itis inconceivable that an insolvency of NNC, the parent company of all of the Nortel entities, was within the contemplation ofthe parties at that time. If it were, the license agreement presumably would not have been made. That is a significant changein circumstances.

27 Another factor referred to by Justice Jurianz was if enforcing the forum selection clause would frustrate some clear publicpolicy. I think it follows from Sam Lévy that public policy in this country at least precludes a forum selection clause from beingcontrolling in an insolvency situation. A CCAA insolvency proceeding serves a wider spread of interests than the parties tothe agreement, including in this case the interests of pension and other claims asserted by the former employees of Nortel. Amethod that results in the most expeditious and fair determination of the claims of SNMPRI is clearly in the interests of allstakeholders in this CCAA process.

28 It is to be noted that whereas the forum selection clause provides for Knoxville, Tennessee to be the venue for any dispute,SNMPRI has stated in its filings that it wishes a jury trial in Delaware. Thus SNMPRI is not following the clause. Duringargument counsel for SNMPRI said that if successful in having the case sent from the U.S. Bankruptcy Court to the DelawareDistrict Court, it then might seek a transfer to Tennessee. Whether that could be done I do not know, but it would not bodewell for a timely disposition of the action. The prospect of the Nortel Debtors being dragged around in different U.S. courts isnot an appealing one. For them to become entangled in a drawn-out, foreign litigation process that will likely have no regardfor the practical concerns of this insolvency, including the importance of resolving all remaining unresolved claims against theCanadian Debtors in a timely and efficient manner so that these proceedings, already pending for six years, can be brought totheir conclusion, is a situation that should be avoided.

29 So far as the forum selection clause providing that the license is to be governed by and construed in accordance withNew York law and the federal laws of the United States applicable therein, no evidence has been filed as to what those lawsare or to indicate that those laws are in any substantial way different from the laws of this country. Even if they were, Canadiancourts can and often have applied foreign law. The recent UKPC claims against NNC and NNL is but one such example. I donot consider this much of a factor, if any, in favour of lifting the stay of proceedings.

30 I also do not think that the location of witnesses in the U.S. or in Canada is a compelling factor, as contended for bySNMPRI. In any event, material was not provided in any detail as to expected witnesses and where they reside.

31 SNMPRI says that the claims against the Canadian Debtors arise from common issues of fact and law as in the claimagainst the U.S. Debtors and against Aveya. Therefore SNMPRI says these claims should be heard together in the U.S. withthe claims against the U.S. Debtors and against Aveya. This is particularly so, it asserts, because of its right to a jury trial inthe U.S. in its claim against Avaya.

32 There would appear to be nothing to stop SNMPRI from claiming against the U.S. Debtors and Aveya in Canada, althoughit might be that Aveya would attempt to challenge the claim against it being tried in Canada. There would certainly be nothingto stop SNMPRI from claiming against the Canadian Debtors in this CCAA proceeding and against the U.S. Debtors in the U.S.Bankruptcy Court and having a joint trial under the protocols established between the two courts. SNMPRI could make Aveyaa defendant in the action in the U.S. Bankruptcy Court, and Mr. Kauffman who appeared for Aveya said it would be contentto have the claim against it dealt with in the U.S. Bankruptcy Court.

33 I agree with all of those opposing SNMPRI's motion to lift the stay that the supposed difficulties that may be caused byits rights to a jury trial in its claim against Aveya are of its own choosing. SNMPRI may want to have the claim against Aveyatried together with the claims against Nortel, and try to have them all tried by a jury, but should that require the claim againstthe Canadian Debtors to be tried that way? It could be said, as one counsel did, that the tail is wagging the dog.

34 If the claim against the Canadian Debtors for its post-filing conduct is tried in a separate U.S. jury proceeding, it meansthat there will be a multiplicity of proceedings against the Canadian Debtors. The pre-filing claim must be determined in theCCAA proceedings. The post-filing claims would be tried before a jury. It is quite evident that there is overlap between these




claims. Indeed the issues are the same except as to the timing of the alleged unauthorized use of SNMPRI software, one claimbeing for pre-filing unauthorized use and the other being for post-filing unauthorized use. The risk of inconsistent findings offact is obvious.

35 A CCAA court should not lightly lose control of the process whereby claims against the debtor are to be determined. Iagree that procedures should be imposed to ensure that the process for resolving the Canadian SNMPRI claims does not becomemore expensive or complicated than the circumstances permit or the claims merit. Such an approach would be consistent withthis Court's earlier orders in these proceedings. The allocation and inter-estate claims trials were, among other things, orderedto proceed on an accelerated timetable, with a controlled process for documentary and oral discovery. There is nothing in thematerials that would indicate that a Delaware District Court would have any interest in a controlled process that would take intoaccount the insolvency of the Canadian Debtors and the need for a timely resolution of all claims and preserving the debtors'resources as much as is reasonably possible.

36 Is SNMPRI a stranger to the bankruptcy in the sense articulated by Binnie J. in Sam Lévy? I think not. SNMPRIhas participated in and objected to the sales of Nortel's lines of business and it has filed a CCAA proof of claim against theCanadian Debtors. It has not met its burden of demonstrating sufficient reason to displace this Court's jurisdiction to keep allof the SNMPRI claims against the Canadian Debtors within a single proceeding. Even if the onus were on the Monitor and theCanadian Debtors to prevent the stay from being listed, I am of the view that they would have met that onus.

37 In the circumstances, the motion by SNMPRI to lift the stay of proceedings to permit the post-filing claims against theCanadian Debtors to be tried in the U.S. was dismissed.

Order accordingly.



Canwest Global Communications Corp., Re, 2011 ONSC 2215, 2011 CarswellOnt 23922011 ONSC 2215, 2011 CarswellOnt 2392, [2011] O.J. No. 1590...


2011 ONSC 2215Ontario Superior Court of Justice [Commercial List]

Canwest Global Communications Corp., Re

2011 CarswellOnt 2392, 2011 ONSC 2215, [2011] O.J. No. 1590, 200 A.C.W.S. (3d) 1023, 75 C.B.R. (5th) 156

In the Matter of the Companies' CreditorsArrangement Act, R.S.C. 1985, C-36, as Amended

And In the Matter of a Plan of Compromise or Arrangement ofCanwest Global Communications Corp. and Other Applicants

Pepall J.

Judgment: April 7, 2011Docket: CV-09-8396-00CL

Counsel: Douglas J. Wray, Jesse B. Kugler for Applicant, Communications, Energy and Paperworkers Union of CanadaDavid Byers, Maria Konyukhova for Monitor

Subject: Insolvency; Labour; Public

MOTION by union for order lifting stay of proceedings in respect of certain grievances and ordering adjudication pursuantto collective agreement.

Pepall J.:

Introduction

1 The Communications, Energy and Paperworkers Union of Canada ("CEP") requests an order lifting the stay of proceedingsin respect of certain grievances and directing that they be adjudicated in accordance with the provisions of the applicablecollective agreement. In the alternative, CEP requests an order amending the claims procedure order so as to permit the subjectclaim to be adjudicated in accordance with the provisions of the collective agreement.

Background Facts

2 On October 6, 2009, the CMI Entities obtained an initial order pursuant to the CCAA staying all proceedings and claimsagainst them. Specifically, paragraphs 15 and 16 of that order stated:

NO PROCEEDINGS AGAINST THE CMI ENTITIES OR THE CMI PROPERTY

15. THIS COURT ORDERS that until and including November 5, 2009, or such later date as this Court may order (the"Stay Period"), no proceeding or enforcement process in any court or tribunal (each, a "Proceeding") shall be commencedor continued against or in respect of the CMI Entities, the Monitor or the CMI CRA or affecting the CMI Business or theCMI Property, except with the written consent of the applicable CMI Entity, the Monitor and the CMI CRA (in respect ofProceedings affecting the CMI Entities, the CMI Property or the CMI Business), the CMI CRA (in respect of Proceedingsaffecting the CMI CRA), or with leave of this Court, and any and all Proceedings currently under way against or in respectof the CMI Entities or the CMI CRA or affecting the CMI Business or the CMI Property are hereby stayed and suspendedpending further Order of this Court. In the case of the CMI CRA, no Proceeding shall be commenced against the CMICRA or its directors and officers without prior leave of this Court on seven (7) days notice to Stonecrest Capital Inc.



NO EXERCISE OF RIGHTS OR REMEDIES

16. THIS COURT ORDERS that during the Stay Period, all rights and remedies of any individual, firm, corporation,governmental body or agency, or any other entities (all of the foregoing, collectively being "Persons" and each being a"Person") against or in respect of the CMI Entities, the Monitor and/or the CMI CRA, or affecting the CMI Business or theCMI Property, are hereby stayed and suspended except with the written consent of the applicable CMI Entity, the Monitorand the CMI CRA (in respect of rights and remedies affecting the CMI Entities, the CMI Property or the CMI Business),the CMI CRA (in respect of rights or remedies affecting the CMI CRA), or leave of this Court, provided that nothing inthis Order shall (i) empower the CMI Entities to carry on any business which the CMI entities are not lawfully entitled tocarry on, (ii) exempt the CMI Entities from compliance with statutory or regulatory provisions relating to health, safetyor the environment, (iii) prevent the filing of any registration to preserve or perfect a security interest, or (iv) prevent theregistration of claim for lien.

3 On October 14, 2009, as part of the CCAA proceedings, I granted a claims procedure order which established a claimsprocedure for the identification and quantification of claims against the CMI Entities. In that order, "Claim" is defined as any

right or claim of any Person against one or more of the CMI Entities in existence on the Filing Date 1 (a "Prefiling Claim") andany right or claim of any Person against one or more of the CMI Entities arising out of the restructuring on or after the FilingDate (a "Restructuring Claim"). Claims arising prior to certain dates had to be asserted within the claims procedure failingwhich they were forever extinguished and barred. Pursuant to the claims procedure order, subject to the discretion of the Court,claims of any person against one or more of the CMI Entities were to be determined by a claims officer who would determinethe validity and amount of the disputed claim in accordance with the claims procedure order. The Honourable Ed Saunders, TheHonourable Jack Ground and The Honourable Coulter Osborne were appointed as claims officers. Other persons could also beappointed by court order or on consent of the CMI Entities and the Monitor. This order was unopposed. It was amended onNovember 30, 2009 and again the motion was unopposed. As at October 29, 2010, over 1,800 claims asserted against the CMIEntities had been finally resolved in accordance with and pursuant to the claims procedure order.

4 On October 27, 2010, CEP was authorized to represent its current and former union members including pensioners employedor formerly employed by the CMI Entities to the extent, if any, that it was necessary to do so.

5 On the date of the initial order, CEP had a number of outstanding grievances. CEP filed claims pursuant to the claimsprocedure order in respect of those grievances. The claim that is the subject matter of this motion is the only claim filed by CEPthat has not been resolved and therefore is the only claim filed by CEP that requires adjudication. There is at least one otherclaim in Western Canada that may require adjudication.

6 John Bradley had been employed for 20 years by Global Television, a division of Canwest Television Limited Partnership("CTLP"), one of the CMI Entities. Mr. Bradley is a member of CEP. On February 24, 2010, CTLP suspended Mr. Bradleyfor alleged misconduct. On March 8, 2010, CEP filed a grievance relating to his suspension under the applicable collectiveagreement. On March 25, 2010, CTLP terminated his employment. On March 26, 2010, CEP filed a grievance requesting fullredress for Mr. Bradley's termination. This would include reinstatement to his employment. On June 23, 2010 a restructuringperiod claim was filed with respect to the Bradley grievances on the following basis:

The Union has filed this claim in order to preserve its rights. Filing this claim is without prejudice to the Union'sability to pursue all other remedies at its disposal to enforce its rights, including any other statutory remedies available.Notwithstanding that the Union has filed the present claim, the Union does not agree that this claim is subject to compromise

pursuant [to the CCAA] 2 . The Union reserves its right to make further submissions in this regard.

7 In spite of the parties' good faith attempts to resolve the Bradley grievances and the Bradley claim, no resolution wasachieved.



8 The Plan was sanctioned on July 28, 2010 and implemented on October 27, 2010. At that time, all of the operating assetsof the CMI Entities were transferred to the Plan Sponsor and the CMI Entities ceased operations. The CTLP stay was alsoterminated. The stay with respect to the Remaining CMI Entities (as that term is defined in the Plan) was extended until May5, 2011. Pursuant to an order dated September 27, 2010, following the Plan implementation date the Monitor shall be:

(a) empowered and authorized to exercise all of the rights and powers of the CMI Entities under the Claims ProcedureOrder, including, without limitation, revise, reject, accept, settle and/or refer for adjudication Claims (as defined in theClaims Procedure Order) all without (i) seeking or obtaining the consent of the CMI Entities, the Chief RestructuringAdvisor or any other person, and (ii) consulting with the Chief Restructuring Advisor in the CMI Entities; and

(b) take such further steps and seek such amendments to the Claims Procedure Order or additional orders as theMonitor considers necessary or appropriate in order to fully determine, resolve or deal with any Claims.

9 The Monitor has taken the position that if the Bradley matter is not resolved, the claim should be referred to a claims officerfor determination. It is conceded that a claims officer would have no jurisdiction to reinstate Mr. Bradley to his employment.

10 CEP now requests an order lifting the stay of proceedings in respect of the Bradley grievances and directing that they beadjudicated in accordance with the provisions of the collective agreement. In the alternative, CEP requests an order amendingthe claims procedure order so as to permit the Bradley claim to be adjudicated in accordance with the provisions of the collectiveagreement.

11 For the purposes of this motion and as is obvious from the motion seeking to lift the stay, both CEP and the Monitor agreethat the stay did catch the Bradley claim and that it is encompassed by the definition of claim found in the claims procedure order.

12 Since the commencement of the CCAA proceedings, CEP has only sought to lift the stay in respect of one other claim, thatbeing a claim relating to a grievance filed by CEP on behalf of Vicky Anderson. The CMI Entities consented to lifting the stayin respect of Ms. Anderson's claim because at the date of the initial order, there had already been eight days of hearing beforean arbitrator, all evidence had already been called, and only one further date was scheduled for final argument. Ultimately, thearbitrator ordered that Ms. Anderson be reinstated but made no order for compensation.

13 Pursuant to Article 12.3 of the applicable collective agreement, discharge grievances are to be heard by a single arbitrator.All other grievances are to be heard by a three person Board of Arbitration unless the parties consent to submit the grievanceto a single arbitrator. The single arbitrator is to be selected within 10 days of the notice of referral to arbitration from a listof 5 people drawn by lot. An award is to be given within 30 days of the conclusion of the hearing. The list of arbitrators wasnegotiated and included in the collective agreement. The arbitrator has the power to reinstate with or without compensation.

14 The evidence before me suggests that adjudications of grievances under collective agreements are typically much morecostly and time consuming than adjudications before a claims officer as the latter may determine claims in a summary mannerand there is more control over scheduling. The Monitor takes the position that additional cost and delay would arise if the claimswere adjudicated pursuant to the terms of the collective agreement rather than pursuant to the terms of the claims procedure order.

Issues

15 Both parties agree that the following two issues are to be considered:

(a) Should this court lift the stay of proceedings in respect of the Bradley grievances and direct that the Bradleygrievances be adjudicated in accordance with the provisions of the collective agreement?

(b) Should this court amend the claims procedure order so as to permit the Bradley claim to be adjudicated inaccordance with the provisions of the collective agreement?

Positions of the Parties



16 In brief, dealing firstly with the stay, CEP submits that the balance of convenience favours pursuit of the grievancesthrough arbitration. CEP is seeking to compel the employer to comply with fundamental obligations that flow from the collectiveagreement. This includes the appointment of an arbitrator on consent who has jurisdiction to award reinstatement if he or shedetermines that there was no just cause to terminate Mr. Bradley's employment. Requiring that the claim and the grievancesbe adjudicated in a manner that is inconsistent with the collective agreement would have the effect of depriving the grieverof some of the most fundamental rights under a collective agreement. Furthermore, permitting the grievances to proceed toarbitration would prejudice no one.

17 Alternatively, CEP submits that the claims procedure order ought to be amended. It is in conflict with the terms ofthe collective agreement. Pursuant to section 33 of the CCAA, the collective agreement remains in force during the CCAAproceedings. The claims procedure order must comply with the express requirements of the CCAA. Lastly, orders issued underthe CCAA should not infringe upon the right to engage in associational activities which are protected by the Charter of Rightsand Freedoms.

18 The Monitor opposes the relief requested. On the issue of the lifting of the stay, it submits that the CCAA is intended toprovide a structured environment for the negotiation of compromises between a debtor company and its creditors for the benefitof both. The stay of proceedings permits the CCAA to accomplish its legislative purpose and in particular enables continuanceof the company seeking CCAA protection.

19 The lifting of a stay is discretionary. Mr. Bradley is no more prejudiced than any other creditor and the claims procedureestablished under the order has been uniformly applied. The claims officer has the power to recognize Mr. Bradley's right toreinstatement and monetize that right. The efficacy of CCAA proceedings would be undermined if a debtor company was forcedto participate in an arbitration outside the CCAA proceedings. This would place the resources of an insolvent CCAA debtorunder strain. The Monitor submits that CEP has not satisfied the onus to demonstrate that the lifting of the stay is appropriatein this case.

20 As for the second issue, the Monitor submits that the claims procedure order should not be amended. Courts regularlyaffect employee rights arising from collective agreements during CCAA proceedings and recent amendments to the CCAA donot change the existing case law in this regard. Furthermore, amending the claims procedure order would undermine the purposeof the CCAA. Lastly, relying on the Supreme Court of Canada's statements in Health Services & Support-Facilities Subsector

Bargaining Assn. v. British Columbia 3 , the claims procedure order does not interfere with freedom of association.

21 Following argument, I requested additional brief written submissions on certain issues and in particular, to whatemployment Mr. Bradley would be reinstated if so ordered. I have now received those submissions from both parties.

Discussion

1. Stay of Proceedings

22 The purpose of the CCAA has frequently been described but bears repetition. In Lehndorff General Partner Ltd., Re 4 ,Farley J. stated:

The CCAA is intended to provide a structured environment for the negotiation of compromises between a debtor companyand its creditors for the benefit of both.

23 The stay provisions in the CCAA are discretionary and very broad. Section 11.02 provides that:

(1) A court may, on an initial application in respect of the debtor company, make an order on any terms that it mayimpose, effective for the period that the court considers necessary, which period may not be more than 30 days,






(a) staying, until otherwise ordered by the court, all proceedings taken or that might be taken in respect of thecompany under the Bankruptcy and Insolvency Act or the Winding Up and Restructuring Act;

(b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding againstthe company; and

(c) prohibiting, until otherwise ordered by the court, the commencement of any action, suit or proceeding againstthe company.

(2) A court may, on an application in respect of a debtor company other than an initial application, make an order,on any terms that it may impose,

(a) staying, until otherwise ordered by the court, for any period that the court considers necessary, all proceedingstaken or that might be taken in respect of the company under an Act referred to in paragraph (1)(a);


(c) prohibiting, until otherwise ordered by the court, the commencement of any action, suit or proceeding againstthe company.

24 As the Court of Appeal noted in Nortel Networks Corp., Re 5 , the discretion provided in section 11 is the engine that drivesthis broad and flexible statutory scheme. The stay of proceedings in section 11 should be broadly construed to accomplish thelegislative purpose of the CCAA and in particular to enable continuance of the company seeking CCAA protection: Lehndorff

General Partner Ltd. 6 .

25 Section 11 provides an insolvent company with breathing room and by doing so, preserves the status quo to assist thecompany in its restructuring or arrangement and prevents any particular stakeholder from obtaining an advantage over otherstakeholders during the restructuring process. It is anticipated that one or more creditors may be prejudiced in favour of the

collective whole. As stated in Lehndorff General Partner Ltd. 7 :

The possibility that one or more creditors may be prejudiced should not affect the court's exercise of its authority to granta stay of proceedings under the CCAA because this effect is offset by the benefit to all creditors and to the company offacilitating a reorganization. The court's primary concerns under the CCAA must be for the debtor and all of the creditors.

26 In Canwest Global Communications Corp., Re 8 , I had occasion to address the issue of lifting a stay in a CCAA proceeding.I referred to situations in which a court had lifted a stay as described by Paperny J. (as she then was) in Canadian Airlines

Corp., Re. 9 and by Professor McLaren in his book, "Canadian Commercial Reorganization: Preventing Bankruptcy" 10 . Theyincluded where:

a) a plan is likely to fail;

b) the applicant shows hardship (the hardship must be caused by the stay itself and be independent of any pre-existingcondition of the applicant creditor);

c) the applicant shows necessity for payment;

d) the applicant would be significantly prejudiced by refusal to lift the stay and there would be no resulting prejudiceto the debtor company or the positions of creditors;

e) it is necessary to permit the applicant to take steps to protect a right that could be lost by the passage of time;










f) after the lapse of a significant period, the insolvent debtor is no closer to a proposal than at the commencementof the stay period;

g) there is a real risk that a creditor's loan will become unsecured during the stay period;

h) it is necessary to allow the applicant to perfect a right that existed prior to the commencement of the stay period;

i) it is in the interests of justice to do so.

27 The lifting of a stay is discretionary. As I wrote in Canwest Global Communications Corp., Re 11 :

There are no statutory guidelines contained in the Act. According to Professor R.H. McLaren in his book "CanadianCommercial Reorganization: Preventing Bankruptcy", an opposing party faces a very heavy onus if it wishes to applyto the court for an order lifting the stay. In determining whether to lift the stay, the court should consider whether thereare sound reasons for doing so consistent with the objectives of the CCAA, including a consideration of the balance ofconvenience, the relative prejudice to parties, and where relevant, the merits of the proposed action: ICR Commercial Real

Estate (Regina) Ltd. v. Bricore Land Group Ltd. (2007), 33 C.B.R. (5 th ) 50 (Sask. C.A.) at para. 68. That decision alsoindicated that the judge should consider the good faith and due diligence of the debtor company.

28 There appears to be no real issue that the grievances are caught by the stay of proceedings. In Smoky River Coal Ltd.,

Re 12 , the issue was whether a judge had the discretion under the CCAA to establish a procedure for resolving a dispute betweenparties who had previously agreed by contract to arbitrate their disputes. The question before the court was whether the disputeshould be resolved as part of the supervised reorganization of the company under the CCAA or whether the court should staythe proceedings while the dispute was resolved by an arbitrator. The presiding judge was of the view that the dispute should beresolved as expeditiously as possible under the CCAA proceedings. The Alberta Court of Appeal upheld the decision stating:

The above jurisprudence persuades me that "proceedings" in section 11 includes the proposed arbitration under the B.C.Arbitration Act. The Appellants assert that arbitration is expeditious. That is often, but not always, the case. Arbitrationawards can be appealed. Indeed, this is contemplated by section 15(5) of the Rules. Arbitration awards, moreover, canbe subject to judicial review, further lengthening and complicating the decision making process. Thus, the efficacy ofCCAA proceedings (many of which are time sensitive) could be seriously undermined if a debtor company was forced toparticipate in an extra-CCAA arbitration. For these reasons, having taken into account the nature and purpose of the CCAA,

I conclude that, in appropriate cases, arbitration is a "proceeding" that can be stayed under section 11 of the CCAA. 13

29 I do recognize that the Smoky River decision did not involve a collective agreement but an agreement to arbitrate. Thatsaid, the principles described also apply to an arbitration pursuant to the terms of a collective agreement.

30 In considering balance of convenience, CEP's primary concerns are that the claims procedure order does not accordwith the rights and obligations contained in the collective agreement. Firstly, a claims officer is the adjudicator rather than anarbitrator chosen pursuant to the terms of the collective agreement and secondly, reinstatement is not an available remedy beforea claims officer. Thirdly, an arbitration imports rules of natural justice and procedural fairness whereas the claims procedureis summary in nature.

31 The claims officers who were identified in the claims procedure order are all former respected and experienced judgeswho are well suited and capable of addressing the issues arising from the Bradley claim. Furthermore, had this been a real issue,CEP could have raised it earlier and identified another claims officer for inclusion in the claims procedure order. Indeed, anadditional claims officer still could be appointed but no such request was ever advanced by CEP.

32 Should the claims officer find that CTLP did not have just cause to terminate Mr. Bradley's employment, he can recognizeMr. Bradley's right to reinstatement by monetizing that right. This was done for a multitude of other claims in the CCAA


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proceedings including claims filed by CEP on behalf of other members. I note that Mr. Bradley would not be receiving treatmentdifferent from that of any other creditor participating in the claims process.

33 The claims process is summary in nature for a reason. It reduces delay, streamlines the process, and reduces expense andin so doing promotes the objectives of CCAA. Indeed, if grievances were to customarily proceed to arbitration, potential existsto significantly undermine the CCAA proceedings. Arbitration of all claims arising from collective agreements would place thealready stretched resources of insolvent CCAA debtors under significant additional strain and could divert resources away fromthe restructuring. It is my view that generally speaking, grievances should be adjudicated along with other claims pursuant tothe provisions of a claims procedure order within the context of the CCAA proceedings.

34 That said, it seems to me that this case is unique. While the claims procedure order and the meeting order of June 23,2010 provide that all claims against CTLP and others arising prior to certain dates must be asserted within the claims procedurefailing which they are forever extinguished and barred, the stay relating to CTPL was terminated on October 27, 2010. CTLPhas emerged from CCAA protection and is currently operating in the normal course having changed its name to Shaw TelevisionLimited Partnership ("STLP"). If the grievance relating to Mr. Bradley's termination is successful, he could be reinstated to hisemployment at STLP. The position of CEP, Mr. Bradley and the Monitor is that reinstatement, if ordered, would be to STLP.Counsel for CEP advised the court that notice of the motion was given to STLP and that a representative was present in court forthe argument of the motion although did not appear on the record. The Monitor has also confirmed that Shaw CommunicationsInc., the parent of STLP, was aware of the motion and its counsel has confirmed its understanding that any reinstatement ofMr. Bradley, if ordered, would be to STLP.

35 As mentioned, Mr. Bradley was a 20 year employee. While I do not consider the identity of the arbitrator and the naturaljustice arguments of CEP to be persuasive, given the stage of the CCAA proceedings, the fact that the stay relating to CTLP hasbeen lifted, and Mr. Bradley's employment tenure, I am persuaded that he ought to be given the opportunity to pursue his claimfor reinstatement rather than being compelled to have that entitlement monetized by a claims officer if so ordered. Counsel forthe Monitor has confirmed that the timing of the distributions would not appear to be affected by the outcome of this motion.No meaningful prejudice would ensue to any stakeholder. It seems to me that the balance of convenience and the interests ofjustice favour lifting the stay to permit the grievances to proceed through arbitration rather than before the claims procedureofficer. Therefore, CEP's motion to lift the stay is granted and the Bradley grievances may be adjudicated in accordance withthe terms of the collective agreement.

2. Amendment of the Claims Procedure Order

36 In light of my decision on the stay, it is not strictly necessary to consider whether the claims procedure order should beamended as requested by CEP as alternative relief. As this issue was argued, however, I will address it.

37 Section 33 of CCAA was added to the statute in September, 2009. The relevant sub-sections now provide:

33(1) If proceedings under this Act have been commenced in respect of a debtor company, any collective agreement thatthe company has entered into as the employer remains in force, and may not be altered except as provided in this sectionor under the laws of the jurisdiction governing collective bargaining between the company and the bargaining agent.

33(8) For greater certainty, any collective agreement that the company and the bargaining agent have not agreed to reviseremains in force, and the court shall not alter its terms.

38 Justice Mongeon of the Québec Superior Court had occasion to address the effect of section 33 of the CCAA in White

Birch Paper Holding Co., Re 14 . He stated that the fact that a collective agreement remains in force under a CCAA proceeding

does not have the effect of "excluding the entire collective labour relations process from the application of the CCAA." 15 Hewent on to write that:





It would be tantamount to paralyzing the employer with respect to reducing its costs by any means at all, and to providing

the union with a veto with regard to the restructuring process. 16

39 In Canwest Global Communications Corp., Re. 17 , I wrote that section 33 of the CCAA "maintains the terms and obligations

contained in the collective agreement but does not alter priorities or status." 18 In that case when dealing with the issue ofimmediate payment of severance payments, I wrote:

There are certain provisions in the amendments that expressly mandate certain employee related payments. In thoseinstances, section 6(5) dealing with a sanction of a plan and section 36 dealing with a sale outside the ordinary course ofbusiness being two such examples, Parliament specifically dealt with certain employee claims. If Parliament had intendedto make such a significant amendment whereby severance and termination payments (and all other payments under a

collective agreement) would take priority over secured creditors, it would have done so expressly. 19

40 I agree with the Monitor's position that if Parliament had intended to carve grievances out of the claims process, itwould have done so expressly. To do so, however, would have undermined the purpose of the CCAA and in particular, theclaims process which is designed to streamline the resolution of the multitude of claims against an insolvent debtor in the mosttime sensitive and cost efficient manner. It is hard to imagine that it was Parliament's intention that grievances under collectiveagreements be excluded from the reach of the stay provisions of section 11 of the CCAA or the ancillary claims process. In myview, such a result would seriously undermine the objectives of the Act.

41 Furthermore, I note that over 1,800 claims have been processed and dealt with by way of the claims procedure order,many of them involving claims filed by CEP on behalf of its members. CEP was provided with notice of the motion wherein theclaims procedure order and the claims officers were approved. CEP did not raise any objection to the claims procedure order,the claims officers or the inclusion of grievances in the claims procedure at the time that the order was granted. The claimsprocedure order was not an order made without notice and none of the prerequisites to variation of an order has been met. HadI not lifted the stay, I would not have amended the claims procedure order as requested by CEP.

42 CEP's last argument is that the claims procedure order interferes with Mr. Bradley's freedoms under the Canadian Charter ofRights and Freedoms. In this regard I make the following observations. Firstly, this argument was not advanced when the claimsprocedure order was granted. Secondly, CEP is not challenging the validity of any section of the CCAA. Thirdly, nothing in thestatute or the claims procedure inhibits the ability to collectively bargain. In Health Services & Support-Facilities Subsector

Bargaining Assn. v. British Columbia 20 , the Supreme Court of Canada stated:

We conclude that section 2(d) of the Charter protects the capacity of members of labour unions to engage, in association,in collective bargaining on fundamental workplace issues. This protection does not cover all aspects of "collectivebargaining", as that term is understood in the statutory labour relations regimes that are in place across the country. Nordoes it ensure a particular outcome in a labour dispute or guarantee access to any particularly statutory regime. ...

In our view, it is entirely possible to protect the "procedure" known as collective bargaining without mandating

constitutional protection for the fruits of that bargaining process. 21

43 In my view, nothing in the claims procedure or the CCAA impacts the procedure known as collective bargaining.

Conclusion

44 Under the circumstances, the request to lift the stay as requested by CEP is granted. Had it been necessary to do so, Iwould have dismissed the alternative relief requested.

Motion granted.






Footnotes

1 The Filing Date was October 6, 2009, the date of the initial order.

2 The words in brackets were omitted but presumably this was the intention.

3 (S.C.C.).

4 (1993), 17 C.B.R. (3d) 24 (Ont. Gen. Div. [Commercial List]) at para. 6.

5 (Ont. C.A.) at para. 33.

6 Supra, note 4 at para. 10.

7 Ibid, at para. 6.

8 (Ont. S.C.J. [Commercial List]).

9 (2000), 19 C.B.R. (4th) 1 (Alta. Q.B.)

10 (Aurora: Canada Law Book, looseleaf) at para. 3.3400.

11 Supra, note 8 at para. 32.

12 (Alta. C.A.)

13 Ibid, at para. 33.

14 2010 QCCS 2590 (C.S. Que.)



17 (Ont. S.C.J. [Commercial List])



20 Supra, note 3.

21 Ibid, at at paras. 19 and 29.





ICR Commercial Real Estate (Regina) Ltd. v. Bricore Land..., 2007 SKCA 72, 2007...2007 SKCA 72, 2007 CarswellSask 324, [2007] 9 W.W.R. 79, [2007] S.J. No. 313...


2007 SKCA 72Saskatchewan Court of Appeal

ICR Commercial Real Estate (Regina) Ltd. v. Bricore Land Group Ltd.

2007 CarswellSask 324, 2007 SKCA 72, [2007] 9 W.W.R. 79, [2007] S.J. No.313, 159 A.C.W.S. (3d) 671, 299 Sask. R. 194, 33 C.B.R. (5th) 50, 408 W.A.C. 194

ICR Commercial Real Estate (Regina) Ltd. (Appellant) andBricore Land Group Ltd., Bricore Investment Group Ltd., 624796

Saskatchewan Ltd. 603767 Saskatchewan Ltd.,(Respondents)

Klebuc C.J.S., Jackson, Smith JJ.A.

Heard: June 7, 2007Judgment: June 13, 2007

Docket: 1443, 1452

Proceedings: affirming ICR Commercial Real Estate (Regina) Ltd. v. Bricore Land Group Ltd. (2007), 2007 SKQB 121, 2007CarswellSask 157 (Sask. Q.B.); additional reasons at ICR Commercial Real Estate (Regina) Ltd. v. Bricore Land Group Ltd.(2007), 2007 SKQB 144, 2007 CarswellSask 264 (Sask. Q.B.); and reversing ICR Commercial Real Estate (Regina) Ltd. v.Bricore Land Group Ltd. (2007), 2007 SKQB 144, 2007 CarswellSask 264 (Sask. Q.B.)

Counsel: Fred C. Zinkhan for AppellantJeffrey M. Lee for RespondentsKim Anderson for Monitor, Ernst & Young

Subject: Civil Practice and Procedure; Insolvency; Corporate and Commercial

APPEAL by creditor from judgment reported at ICR Commercial Real Estate (Regina) Ltd. v. Bricore Land Group Ltd. (2007),2007 SKQB 121, 2007 CarswellSask 157, 33 C.B.R. (5th) 39 (Sask. Q.B.) dismissing application to lift stay against debtorunder Companies Creditors' Arrangement Act, and from judgment reported at ICR Commercial Real Estate (Regina) Ltd. v.Bricore Land Group Ltd. (2007), 2007 SKQB 144, 2007 CarswellSask 264, 33 C.B.R. (5th) 46 (Sask. Q.B.) ordering costsagainst creditor.

Jackson J.A.:

I. Introduction

1 This appeal concerns a claim arising on a "post-filing" basis after a restructuring order had been made under the Companies'

Creditors Arrangement Act 1 (the "CCAA"). The restructuring failed. The principal assets of the companies have been sold andthe net proceeds are being held for distribution. The post-filing claim is asserted against: (i) the companies, which are subjectto the CCAA order; and (ii) against the companies' Chief Restructuring Officer.

2 The post-filing claimant is ICR Commercial Real Estate (Regina) Ltd. ("ICR"). ICR claims a real estate commission withrespect to the sale of a building belonging to Bricore Land Group Ltd. Bricore Land and four related companies (collectively"Bricore") are all subject to an initial order ("Initial Order") granted by Koch J. on January 4, 2006 pursuant to s. 11(3) of theCCAA. The Chief Restructuring Officer, Maurice Duval (the "CRO"), was appointed by Koch J. on May 23, 2006 (the "CROOrder"). Koch J. has been the supervising CCAA judge since the Initial Order.










3 The Initial Order and the CRO Order impose the usual stay of proceedings against Bricore and prohibit the commencementof new actions against Bricore and the CRO, without leave of the Court.

4 ICR applied to Koch J. for directions and, in the alternative, for leave to commence actions against Bricore and theCRO. By fiats dated April 9, 2007 and April 25, 2007, Koch J. held that the Initial Order and the CRO Order prohibiting thecommencement of actions apply to ICR and that leave of the Court is required. He refused leave and also awarded substantialindemnity costs against ICR.

5 On May 23, 2007, ICR applied in Court of Appeal chambers for leave to appeal, pursuant to s. 13 of the CCAA, andreceived leave to appeal the same day. The appeal was heard on June 7, 2007 and dismissed in relation to the lifting of the stayapplication and allowed in relation to the costs order on June 13, 2007, with reasons to follow. These are those reasons.

II. Issues

6 The issues are:

1. Does the stay of proceedings imposed by the supervising CCAA judge J. under the Initial Order apply to an actioncommenced by ICR, a post-filing claimant, such that leave to commence an action against Bricore is required?

2. Does s. 11.3 of the CCAA mean that a post-filing claimant cannot be subject to the stay of proceedings imposedby the Initial Order?

3. If leave is required, did the supervising CCAA judge commit a reviewable error in refusing ICR leave to commencean action against Bricore?

4. Did the supervising CCAA judge make a reviewable error in refusing leave to commence an action against the CRO?

5. Did the supervising CCAA judge err in awarding costs on a substantial indemnity basis?

III. Background

7 ICR's claim to a real estate commission arises as a result of these brief facts. Bricore owned four commercial real estateproperties in Saskatoon and three such properties in Regina (the "Bricore Properties"). ICR argued that it had marketed one ofthe Regina properties, known as the Department of Education Building (the "Building"), to the City of Regina.

8 Bricore sold the Building, at a purchase price of $700,000, 2 to a proposed purchaser, which assigned its interest to101086849 Saskatchewan Ltd. 101086849 Saskatchewan in its turn sold the Building to the City of Regina for a price of

$1,075,000. 3 The certificate of title to the Building issued in early January, 2007 to 101086849 Saskatchewan, and the certificateof title issued to the City of Regina in late January, 2007. The Building came to be sold pursuant to a series of Court Ordersmade by Koch J., which I will now summarize.

9 As I have indicated, the Initial Order was made on January 4, 2006. On February 13, 2006 Koch J. appointed CMN CalgaryInc. as an Officer of the Court to pursue opportunities and to solicit offers for the sale or refinancing of the Bricore Properties.He also authorized Bricore to enter into an agreement with CMN Calgary dated as of January 30, 2006 entitled "ExclusiveAuthority To Solicit Offers To Purchase."

10 In May 2006, it was determined that Bricore could not be reorganized and, therefore, all the Bricore Properties shouldbe sold. On May 23, 2006, Koch J. appointed Maurice Duval, C.A., of Saskatoon, Saskatchewan as an officer of the Court toact as CRO, and to assist with the sale of the assets.

11 The CRO Order confers these powers on the CRO pertaining to the proposed sale of the Bricore Properties:



7 ...

(e) subject to the stay of proceedings in effect in these proceedings, the power to take steps for the preservation andprotection of the Bricore Properties, including, without restricting the generality of the foregoing, (i) the right to makepayments to persons, if any, having charges or encumbrances on the Bricore Properties or any part or parts thereof onor after the date of this Order, which payments shall include payments in respect of realty taxes owing in respect ofany of the Bricore Properties, (ii) the right to make repairs and improvements to the Bricore Properties or any partsthereof and (iii) the right to make payments for ongoing services in respect of the Bricore Properties;

. . . . .

(g) subject to paragraphs 7C, 7D and 7E hereof, the power to work with, consult with and assist the court-appointed selling officer (CMN Calgary Inc.) to negotiate with parties who make offers to purchase the BricoreProperties in a manner substantially in accordance with the process and proposed timeline for solicitation of such

offers to purchase the Bricore Properties recommended by the Monitor in the Monitor's Third Report. ... 4 [Emphasisadded.]

12 On June 19, 2006, Koch J. authorized the CRO to accept an offer to purchase the Bricore Properties, including theBuilding, made by an undisclosed purchaser (the "Proposed Purchaser"), which offer to purchase was filed with the Court andtemporarily sealed. The order directed that any further negotiations between the CRO and the Proposed Purchaser were to becompleted by August 1, 2006.

13 Negotiations were protracted resulting in a further series of orders:

(a) August 1, 2006: Koch J. extended the timeframe for due diligence and further negotiations to be completed by

August 15, 2006; 5

(b) August 18, 2006: Koch J. authorized the CRO to accept an Amended Offer to Purchase made the 15th day ofAugust, 2006. The Amended Offer to Purchase contemplated the sale by Bricore to the Proposed Purchaser of six of

the seven Bricore Properties including the Building; 6

(c) September 25, 2006: The closing date for the proposed sale by Bricore to the Proposed Purchaser of the six

properties was extended from October 15, 2006 to November 15, 2006; 7

(d) October 10, 2006: Koch J. approved the sale of the six properties to their respective purchasers; in the case of the

Building, it was sold to 101086849 Saskatchewan Ltd. 8

Koch J. ultimately approved the sale of the Building to 101086849 Saskatchewan Ltd. as of November 30, 2006.

14 ICR said it had introduced the City of Regina to the opportunity to purchase the Building and it was therefore entitled toa real estate commission based on the sale price to the City of Regina. Once its claim was denied by the Monitor, ICR appliedto Koch J. on March 22, 2007 contending that (a) "prior Orders of this Court requiring leave to commence action" againstBricore and the CRO "do not apply in the circumstances"; and (b) in the alternative, "it is entitled to an order granting leave tocommence the proposed proceedings." In support of its notice of motion, ICR filed a draft statement of claim and a supportingaffidavit with exhibits.

15 This is the substance of ICR's draft statement of claim against Bricore and the CRO:

4. At all material times Duval's actions in relation to the matters in issue in the within proceedings were carried out in hiscapacity as chief restructuring officer for the Bricore Group.

. . . . .



7. Duval, pursuant to Order of the Court under the Companies' Creditors Arrangement Act, was authorized in accordancein such order to market various assets of the Bricore Group, including the [Building]. [sic]

8. In the course of his efforts to market the [Building], Duval enlisted the aid of the plaintiff and its commercial realtors,licensed as brokers under The Real Estate Act.

9. The plaintiff, in its efforts to market the properties of the Bricore Group under the direction of Duval, including the[Building], introduced a prospective purchaser to Duval, namely the City of Regina.

10. By agreement dated September 27, 2006 made between the Plaintiff, the Bricore Group and Duval, it was agreed thatthe Plaintiff would be protected as the agent of record to a commission for the sale of any of the Bricore Group Propertiesfor which the Plaintiff had located a purchaser.

11. The Plaintiff says that at the time of execution of the said Agreement by Duval on September 28, 2006, the City ofRegina was in the process of doing its "due diligence" on the [Building] and it was expected that a sale of the [Building]to the City of Regina would be completed in the near future.

12. The Plaintiff says that, contrary to the Agreement entered into between the Plaintiff and the Defendants, Duval, withoutthe Plaintiff's knowledge and in bad faith, proceeded to arrange to sell the [Building] to a third party, namely 101086849

Saskatchewan ltd., which became the owner of the [Building] on or about January 3, 2007. 9 [Emphasis added.]

16 While the words "bad faith" are not repeated in the affidavit evidence, Paul Mehlsen, the principal of ICR, swore anaffidavit in support of the application for leave, stating that he had examined the statement of claim and that to the best of hisknowledge the allegations contained therein are true. His affidavit also states:

13. Insofar as the attached letter states that "ICR is protected as agent of record", this is commonly understood in theindustry as meaning that in the event a sale of the property took place in the protected period to a purchaser introduced bythe agent of record, then they would receive the usual commission for such sale, which in this case would be 5%.

14. It would appear from the attached exhibit "A" that Larry Ruf arranged to have the Respondent, Maurice Duval, agreeto the arrangement, as well as adding that the protection would extend to the closing of any sale or December 31, 2006,whichever was the earlier.

15. Attached hereto and marked as exhibit "B" to this my Affidavit is a true copy of an email dated October 31, 2006 fromLarry Ruf to Evan Hubick, Jim Kambeitz and Jim Thompson of the proposed plaintiff, ICR. Such email states in part:

I can confirm, on behalf of the CRO, that protection for the potential deals referenced in your letter of September 27,

2006 will be honoured to November 30, 2006. 10

17 Exhibit "A" is a letter dated September 27, 2006 from Mr. Jim Thompson of ICR to Mr. Larry Ruf of Horizon WestManagement Inc. It reads, in material part, as follows:

Please be advised that we have had ongoing discussions with potential buyers and tenants as follows:

1. 1500 — 4th Avenue [Department of Education Building] — we have been in regular contact with the City of ReginaReal Estate Department for over a year regarding the possibility of this site being acquired by the City. In July a largecontingent of City employees including a number from the Works and Engineering Department toured the buildingover several hours. We have had continuous follow up with a Real Estate Department official who confirmed recentlythat there still is an interest in the property and officials are in the due diligence stage. In addition, we have exposedthe property to Alfords Furniture and Flooring who have an ongoing interest.

. . . . .



The purpose of this memo is to reinforce our ongoing efforts to market and represent the Bricore assets in Regina. We areaware that the properties are under contract to sell and request that ICR be protected in the specific situations as outlined.

In the event we are not able to carry on in a formal fashion we would ask that you sign where indicated to acknowledge that

ICR is protected as the agent of record for the Tenants/Buyers noted herein for a period to extend to December 31, 2006. 11

The words "December 31, 2006" are struck out and these words are added: "Date of closing of a sale or December 31, 2006whichever is earlier." Mr. Ruf's name is crossed out and the signature of Maurice Duval, Chief Restructuring Officer is addedin its place.

18 Mr. Ruf, on behalf of Bricore, refuted ICR's claim in a sworn affidavit stating:

3. At no time did I approach ICR Regina in 2006 to initiate discussions regarding the sale or lease of the Department ofEducation Building.

4. I received two or three unsolicited telephone calls regarding the Department of Education Building in September of2006 from representatives of ICR Regina (including Paul Mehlsen, Jim Kambeitz and Evan Hubick). During those calls,representatives of ICR Regina informed me that they knew of certain parties who would be interested in purchasing theDepartment of Education Building. In response to each of these inquiries, I informed representatives of ICR:

(a) that I had no authority to participate in communications regarding a sale of the Department of EducationBuilding, and that all such inquiries should be directed to Maurice Duval, the court-appointed Chief RestructuringOfficer of Bricore Group; and

(b) that further information on the status of the restructuring of Bricore Group could be obtained on the website

of MLT. 12

19 The CRO filed a report in response to ICR:

6. At the time of my review of the September 27, 2006 letter from ICR Regina, I was working very hard to attempt tonegotiate and conclude the final closing of the sale of the Bricore Properties to the purchasers identified in the AcceptedOffer to Purchase. I fully expected that sale to close (as it ultimately did effective November 30, 2006). However, Idetermined that, in the event that such sale failed to close, Bricore Group would need to identify other potential purchasersof the Bricore Properties very quickly. I therefore decided that it would be appropriate for Bricore Group, by the CRO,to agree to protect ICR Regina for a commission in the unlikely event that the sale contemplated by the Accepted Offerto Purchase did not close, and it subsequently became necessary for Bricore Group instead to conclude a sale of theBricore Properties to one or more of the prospective purchasers of the three Bricore Properties located in Regina (asspecifically identified in Mr. Thompson's September 27, 2006 letter). For that reason, and that reason only, I agreed tosign the September 27, 2006 letter.

7. In signing the September 27, 2006 letter, my intention, as court-appointed CRO of Bricore Group, was to strike anagreement that, in the unlikely event that:

(a) the sale of the Bricore Properties identified in the Accepted Offer to Purchase fell apart; and

(b) it subsequently became necessary for Bricore Group to sell the Bricore Properties to one or more of theprospective purchasers identified in the September 27, 2006 letter;

then Bricore Group would agree to pay a commission to ICR Regina. In regard to the Department of Education Buildinglocated at 1500 — 4th Avenue in Regina (the "Department of Education Building"), the two prospective purchasers inrespect of which ICR Regina was protected for a commission were the City of Regina and Alford's Furniture and Flooring.The reference to closing date was to the closing of the Avenue Sale, which occurred effective November 30, 2006.



8. In January of 2007, after much effort and expenditure of resources, the sale of the Bricore Properties contemplated in theAccepted Offer to Purchase was unconditionally closed (effective November 30, 2006). The entity named as purchaser ofthe Department of Education Building in the final closing documents was a numbered Saskatchewan company controlledby Avenue Commercial Group of Calgary. Such entity was a nominee corporation operating entirely at arm's length fromthe City of Regina and Bricore Group. At all times after June 2006, the CRO had no authority to sell the property, as itwas already sold.

9. It was subsequently brought to my attention that the numbered company which purchased the Department of EducationBuilding had promptly "flipped" such property to the City of Regina. I knew nothing of such a proposed flip prior to

learning of it from ICR Regina. 13

20 To rebut this, Mr. Mehlsen of ICR swore a further affidavit deposing:

3. As indicated in my Affidavit sworn March 22, 2007, ICR had an ongoing relationship with the Bricore Companiesprior to 2006. This relationship continued after the Initial Order in January 2006 in that ICR continued to show BricoreProperties for lease or sale, including the [Building].

4. Attached hereto and marked as Exhibit E to this my Affidavit is a true copy of an e-mail from my contact at the City ofRegina ... dated April 13, 2006 advising that the City was interested in purchasing the [Building].

5. I immediately passed this information along to Larry Ruf, as evidenced in the e-mail dated April 13, 2006 attachedhereto and marked as Exhibit "F" to this my affidavit.

6. In reply to paras. 2 and 12 of Mr. Duval's Report, it was not known to ICR that all of the Bricore Properties were sold asclaimed; rather, it was known that some of the Bricore Properties had been sold, but not the subject property, [the Building],as it was the "ugly duckling" of the Bricore Properties and therefore had been excluded from the reported sale. ICR's effortswere directed at the sale of [the Building] and leasing the other two Regina properties.

7. In response to para. 13 of Mr. Duval's Report, it is true that there were no direct communications between ICR and Mr.Duval as all communications were with Larry Ruf, who indicated that he acted under the authority and with the knowledgeof Mr. Duval.

8. As a result of contact in early summer with Mr. Ruf, ICR actively marketed the [Building] by placing signage on theproperty, developing an "information" or "fact" sheet detailing aspects of the building, and showed the property to the Cityof Regina and other prospective purchasers.

. . . . .11. Because of delays on the part of the City of Regina in its due diligence and the fact that ICR has been working withoutany formal agreement, I caused the letter of September 27, 2006 (exhibit "A" to my Affidavit sworn March 22, 2007)to be sent.

12. At no time did either Mr. Ruf or Mr. Duval advise that the [Building] was sold and that ICR's role was merely that ofa "backup offer". The signed letter of September 27, 2006 and Mr. Ruf 's e-mail of October 31, 2006 make no mention ofthese events and this was never disclosed to myself or ICR.

. . . . .14. In hindsight, it would appear that the confidential information concerning the intention of the City of Regina to purchasethe [Building] that was provided by myself and representatives of ICR to Mr. Ruf and Mr. Duval was communicated tothe [Proposed Purchaser], who then incorporated 101086849 Saskatchewan Ltd. to take advantage of this opportunity.Attached hereto and marked as exhibit "I" to this my Affidavit is a true copy of a Profile Report from the Corporate Registryindicating that 101086849 Saskatchewan Ltd. was incorporated by solicitors as a "shelf company" on May 31, 2006, withnew Directors in the form of Garry Bobke and Steven Butt taking office on August 17, 2006.



15. My understanding is that the [Proposed Purchaser] initially excluded the [Building] from their offer to purchase theBricore Group properties and made a separate offer through 101086849 Saskatchewan Ltd. when they were made aware

of the confidential information about the City of Regina's plans to purchase the property. 14

21 In refusing ICR leave to commence action, Koch J. wrote:

[1] On January 4, 2006, I granted an initial order pursuant to the Companies' Creditors Arrangement Act, R.S.C. 1985,c. C-36, (the "CCAA") protecting the respondent corporations Bricore Land Group Ltd. et al. (collectively "Bricore"),from claims of their respective creditors. The order (paragraph 5) explicitly provides in accordance with the authorityconferred upon the Court pursuant to s. 11(3) of the CCAA that "no Person shall commence or continue any Enforcementor Proceeding of any kind against or in respect of Bricore Group or the Property". The initial period of 30 days hasbeen extended many times. The stay of proceedings continues in effect. Ernst & Young Inc. was appointed monitor. Thatappointment continues.

. . . . .[16] Although the interpretation of s. 11.3 of the CCAA is not necessarily well settled in all aspects, it appears that theimport of s. 11.3, which was introduced as an amendment to the Act in 1997, is this:

(a) An application to lift a stay of proceedings must be addressed in the context of the broad objectives of theCCAA which is to promote re-organization and restructuring of companies. If s. 11.3 is interpreted too literally,it can render the stay provisions ineffective, leaving the collective good of the restructuring process subservientto the self-interest of a single creditor. Clearly, s. 11.3 must be construed so as not to defeat the overall objectivesof the Act. See Smith Brothers Contracting Ltd. (Re) (1998), 53 B.C.L.R. (3d) 264 (B.C.S.C.).

(b) The standard for determining whether to lift the stay of proceedings is not, as ICR contends, whether theaction is frivolous, analogous to the standard which a defendant applicant under Rule 173 of The Queen's BenchRules must meet to set aside a statement of claim. Rather, to obtain an order lifting the stay ad hoc to permit thesuit to proceed, the proposed plaintiff must establish that the cause of action is tenable. I interpret that to meanthat the proposed plaintiff has a prima facie case. See Ivaco Inc. (Re), [2006] O.J. No. 5029 (Ont. S.C.J.).

(c) In determining whether to lift a stay, the Court must take into consideration the relative prejudice to theparties. See Ivaco, Inc. (Re), supra, para. 20; and Richard H. McLaren & Sabrina Gherbaz, Canadian CommercialReorganization: Preventing Bankruptcy (Toronto: Canada Law Book, 1995) at 3-18.1. Counsel have cited thecase of GMAC Commercial Credit Corporation — Canada v. T.C.T. Logistics Inc., [2006] 2 S.C.R. 123, 2006SCC 35. The circumstances in that case are somewhat analogous but it is of limited assistance because the CCAAdoes not contain a provision equivalent to s. 215 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3,which expressly provides that no action lies against the superintendent, an official receiver, an interim receiveror a trustee in certain circumstances without leave of the Court.

[17] For reasons outlined supra, I do not find the cause of action ICR asserts against Bricore to be tenable, not even asagainst Bricore Land Group Ltd. Therefore, the application to lift the stay of proceedings to permit the proposed actionagainst Bricore is dismissed.

[18] Neither is there any basis upon which to lift the stay with respect to the proposed action against Maurice Duval,the Chief Restructuring Officer. Considerations applicable to Bricore under s. 11.3 do not apply to a court-appointedrestructuring officer. Maurice Duval, as an officer of the Court, has explained his position in a cogent way. I accept hisexplanation. He did not sell the Department of Education Building to the City of Regina. He was not aware at the relevanttime that the purchaser was going to resell. Indeed, his efforts were directed toward closing a single transaction involvingall six Bricore properties. Although the proposed pleading accuses Mr. Duval of acting in "bad faith", it is not suggested onbehalf of ICR that Mr. Duval has been guilty of fraud, gross negligence or wilful misconduct; that is, any of the limitationsor exceptions expressly listed in paragraph 20(c) of the order of May 23, 2006.

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[19] As stated previously, the overriding purpose of the CCAA must also be considered. That applies in the Duval situationtoo. The statute is intended to facilitate restructuring to serve the public interest. In many cases such as the present it isnecessary for the Court to appoint officers whose expertise is required to fulfill its mandate. It is clearly in the publicinterest that capable people be willing to accept such assignments. It is to be expected that such acceptance be contingenton protective provisions such as are included in the order of May 23, 2006, appointing Mr. Duval. It is important thatthe Court exercise caution in removing such restrictions; otherwise, the ability of the Court to obtain the assistance ofneeded experts will necessarily be impaired. Qualified professionals will be less willing to accept assignments absent the

protection provisions in the appointing order. 15

IV. Issue #1: Does the Stay of Proceedings Imposed by the Supervising CCAA Judge under the Initial Order Apply toan Action Commenced by ICR, a Post-Filing Claimant, Such That Leave to Commence an Action Against Bricore IsRequired?

22 ICR argues that, as a post-filing creditor, the Initial Order does not apply to it, either as a matter of law or on the basisof a proper interpretation of the Initial Order.

23 The authority to make an order staying and prohibiting proceedings against a debtor company is contained in s. 11(3)of the CCAA:

11. (3) A court may, on an initial application in respect of a company, make an order on such terms as it may impose,effective for such period as the court deems necessary not exceeding thirty days,

(a) staying, until otherwise ordered by the court, all proceedings taken or that might be taken in respect of thecompany under an Act referred to in subsection (1);


(c) prohibiting, until otherwise ordered by the court, the commencement of or proceeding with any other action,suit or proceeding against the company.

24 Pursuant to s. 11(3) of the CCAA, Koch J. granted the Initial Order providing for a stay and prohibition of new proceedingsin these terms:

5. During the 30-day period from and after the date of filing of this application on January 4, 2006 or during the period ofany extension of such 30-day period granted by further order of the Court (the "Stay Period"), no Person shall commenceor continue any Enforcement or Proceeding of any kind against or in respect of Bricore Group or the Property. Any andall Enforcement or Proceedings already commenced (as at the date of this Order) against or in respect of Bricore Groupor the Property are hereby stayed and suspended.

6. During the Stay Period, no person shall assert, invoke, rely upon, exercise or attempt to assert, invoke, rely upon orexercise any rights:

a) against Bricore Group or the Property;

b) as a result of any default or non-performance by Bricore Group, the making or filing of this proceeding orany admission or evidence in this proceeding, or

c) in respect of any action taken by Bricore Group or in respect of any of the Property under, pursuant to or infurtherance of this Order.

. . . . .11. Notwithstanding any of the provisions of this Order:



a) no creditor of Bricore Group shall be under any obligation, by reason only of the issuance of this Order, toadvance or re-advance any monies or otherwise extend any credit to Bricore Group, except as such creditor mayagree; and

b) Bricore Group may, by written consent of its counsel of record, agree to waive any of the protections that thisOrder provides to them, whether such waiver is given in respect of a single creditor or class of creditors or isgiven in respect of all creditors generally.

. . . . .13. Any act or action taken or notice given by creditors or other Persons or their agents, from and after 12:01 a.m. (localSaskatoon time) on the date of the filing of the application for this Order to the time of the granting of this Order, tocommence or continue Enforcement or to take any Proceeding (including, without limitation, the application of funds inreduction of any debt, set-off or the consolidation of accounts) is, unless the Court orders otherwise, deemed not to havebeen taken or given.

"Proceeding" is defined in para. 22 of Schedule "A" to the Initial Order as "a lawsuit, legal action, court application, arbitration,hearing, mediation process, enforcement process, grievance, extrajudicial proceeding of any kind or other proceeding of anykind."

25 The authority to extend an initial order is contained in s. 11(4) of the CCAA:

11(4) A court may, on an application in respect of a company other than an initial application, make an order on suchterms as it may impose,

(a) staying, until otherwise ordered by the court, for such period as the court deems necessary, all proceedingstaken or that might be taken in respect of the company under an Act referred to in subsection (1);


(c) prohibiting, until otherwise ordered by the court, the commencement of or proceeding with any other action,suit or proceeding against the company.

Koch J., pursuant to this subsection, extended the stay many times and the stay continues in force.

26 As authority for the proposition that the Initial Order does not stay proceedings with respect to claims that arise after theInitial Order, ICR's counsel cites Professor Honsberger's Debt Restructuring Principles & Practice:

The scope of an order staying proceedings extends only to claims that arose prior to the order. A proceeding based on a

claim that arose after an order was made staying proceedings is not affected by the stay. 16 [Footnote omitted.]

The only case footnoted is Ramsay Plate Glass Co. v. Modern Wood Products Ltd. 17 In my respectful view, the facts in RamsayPlate Glass narrow its application.

27 In Ramsay Plate Glass Co., the initial CCAA order, dated April 12, 1951, suspended all proceedings against Modern WoodProducts Ltd. Modern Wood Products made an offer of compromise that was accepted by its existing creditors and approved bythe Court on May 21, 1951. Ramsay Glass sought to enforce a claim against Modern Wood Products that arose in 1953. ModernWood Products sought to strike Ramsay Glass's claim on the basis that its proceedings were stayed by the April 1951 order.

28 In dismissing the application to strike, Prevost J. wrote:







CONSIDERING that said claim is not provable in bankruptcy and that under The Bankruptcy Act an order stayingproceedings would not apply to such a claim: Richardson & Co. v. Storey, 23 C.B.R. 145, [1942] 1 D.L.R. 182, Abr. Con.301; In re Bolf, 26 C.B.R. 149, [1945] Que. S.C. 173, Abr. Con. 303;

CONSIDERING that s. 10 of The Companies' Creditors Arrangement Act and the judgments rendered under its authorityshould receive the same interpretation in this respect as s. 40 of The Bankruptcy Act;

CONSIDERING that the present claim is in no way affected by the judgment rendered on April 12, 1951 by Boyer J.under The Companies' Creditors Arrangement Act, ordering suspension of all proceedings against defendant companythe present claim being posterior to said date and having not been made the subject of any compromise or arrangementhomologated by this Court;

CONSIDERING that the present claim arose in 1953, two years after the judgment of Boyer J. homologating thecompromise following the non-payment by defendant company of merchandise purchased by it from plaintiff company

during said year; 18

I do not interpret Ramsay Plate Glass as permitting a post-filing claimant to commence an action against a debtor companywithout obtaining leave while the CCAA stay is in effect. In my opinion, Ramsay Plate Glass can be read as authority forthe proposition that a post-filing creditor need not apply for leave after the stay has been lifted. In that respect, it parallels

360networks Inc., Re; 19 Stelco Inc., Re; 20 and Campeau v. Olympia & York Developments Ltd. 21

29 In 360networks, a creditor (Caterpillar Financial Services Limited) had both pre-filing and post-filing claims. Caterpillarapplied, inter alia, for an order lifting the stay of proceedings. Tysoe J. wrote:

8 On the hearing of the applications, Caterpillar continued to take the position that all of its claims could properly bedetermined within the CCAA proceedings on the first of its two applications. I agree that the Deficiency Claim and theSecured Creditor Claim are properly determinable within the CCAA proceedings, but it is my view that it would not beappropriate to make determinations in respect of the Trust Claim or the Post-Filing Claim in the CCAA proceedings. Theonly remaining thing to be done in the CCAA proceedings is the determination of the validity of claims for the purposes ofthe Restructuring Plan (with Caterpillar's claims being the only unresolved ones). Neither the Trust Claim nor the Post-Filing Claim falls into this category of claim because each of these types of claim is not affected by the RestructuringPlan. Indeed, the Post-Filing Claim was not asserted in Caterpillar's proof of claim and surely cannot be adjudicated uponwithin Caterpillar's appeal of the disallowance of its proof of claim. The B.C. Court of Appeal has recently affirmed, inUnited Properties Ltd. v. 642433 B.C. Ltd., 2003 BCCA 203 (B.C.C.A.), that it is appropriate for the court to declinejurisdiction to resolve a dispute in CCAA proceedings which, although it may relate to them, is not part and parcel of theproceedings. [Emphasis added.]

. . . . .11 Counsel for Caterpillar relies for the first ground on the fact that s. 12 of the CCAA authorizes the court to deal withsecured and unsecured claims. However, s. 12 deals with the determination of claims for the purposes of the CCAA anddoes not authorize the court to determine claims which fall outside of CCAA proceedings, such as the Trust Claim and

the Post-Filing Claim. 22

In the result, Tysoe J. lifted the stay so as to permit an action to be commenced to resolve all of Caterpillar's claims. Thesignificance of the decision for our purposes is that the Court in 360networks considered the stay as applying to claims thatarose after the initial order.

30 In Stelco, Farley J., relying on 360networks, also held that the post-filing creditor's claim in that case "continues to be

stayed and is to be dealt with in the ordinary course of litigation after Stelco's CCAA protection is terminated." 23















31 Campeau does not deal with a post-filing creditor, but it does address the situation where a creditor, whose claim isnot accepted as part of the plan of arrangement, wants to commence action. Blair J. (as he then was) refused an applicationbrought by Robert Campeau and the Campeau Corporations to lift the stay of proceeding imposed by the initial order. In doingso, he wrote:

24. In making these orders, I see no prejudice to the Campeau plaintiffs. The processing of their action is not beingprecluded, but merely postponed. Their claims may, indeed, be addressed more expeditiously than might have otherwisebeen the case, as they may be dealt with — at least for the purposes of that proceeding — in the C.C.A.A. proceedingitself. On the other hand, there might be great prejudice to Olympia & York if its attention is diverted from the corporaterestructuring process and it is required to expend time and energy in defending an action of the complexity and dimensionof this one. While there may not be a great deal of prejudice to National Bank in allowing the action to proceed against it,I am satisfied that there is little likelihood of the action proceeding very far or very effectively unless and until Olympia &York — whose alleged misdeeds are the real focal point of the attack on both sets of defendants — is able to participate.

25 In addition to the foregoing, I have considered the following factors in the exercise of my discretion:

1. Counsel for the plaintiffs argued that the Campeau claim must be dealt with, either in the action or in theC.C.A.A. proceedings and that it cannot simply be ignored. I agree. However, in my view, it is more appropriate,and in fact is essential, that the claim be addressed within the parameters of the C.C.A.A. proceedings rather thanoutside, in order to maintain the integrity of those proceedings. Were it otherwise, the numerous creditors in thatmammoth proceeding would have no effective way of assessing the weight to be given to the Campeau claim indetermining their approach to the acceptance or rejection of the Olympia & York Plan filed under the Act.

2. In this sense, the Campeau claim — like other secured, undersecured, unsecured, and contingent claims —must be dealt with as part of a "controlled stream" of claims that are being negotiated with a view to facilitatinga compromise and arrangement between Olympia & York and its creditors. In weighing "the good management"of the two sets of proceedings — i.e. the action and the CCAA proceeding — the scales tip in favour of dealingwith the Campeau claim in the context of the latter: see Attorney General v. Arthur Andersen & Co. (UnitedKingdom) (1988), [1989] E.C.C. 224 (C.A.), cited in Arab Monetary Fund v. Hashim, supra.

I am aware, when saying this, that in the initial plan of compromise and arrangement filed by the applicants withthe court on August 21, 1992, the applicants have chosen to include the Campeau plaintiffs amongst those describedas "Persons not Affected by the Plan". This treatment does not change the issues, in my view, as it is up to the applicantsto decide how they wish to deal with that group of "creditors" in presenting their plan, and up to the other creditors todecide whether they will accept such treatment. In either case, the matter is being dealt with, as it should be, within the

context of the C.C.A.A. proceedings. 24 [Emphasis added.]

Campeau is further authority for the proposition that a supervising CCAA judge can refuse a prospective creditor, who is not partof the plan of arrangement, leave to commence proceedings and that the creditor may commence action after the stay is lifted.

32 Each of 360networks 25 , Stelco 26 and Campeau 27 supports the proposition that while a stay of proceedings is extant,an application to lift the stay must be made to permit an action to be commenced against a debtor that is subject to a CCAAorder, regardless of whether the claim arises before or after the initial order, or whether the prospective creditor is able to takepart in the plan of arrangement.

33 Prevost J. in Ramsay Plate Glass points out that under the Bankruptcy and Insolvency Act 28 (the "BIA") the stay ofproceedings does not extend to a claim not provable in bankruptcy. This is so, however, because of the definition of "claimprovable in bankruptcy" and ss. 69.3(1) and s. 121. (See Houlden & Morawetz, The 2007 Annotated Bankruptcy and Insolvency

Act. 29 ) While s. 12 of the CCAA defines "claim" by reference to "claim provable in bankruptcy," it has not been interpretedas limiting the extent of the stay.











34 On the face of ss. 11(3) and (4) of the CCAA, the authority to safeguard the company is not limited to staying existingactions, but extends to "prohibiting, until otherwise ordered by the court, the commencement of ... any other action, suit orproceeding against the company." Unlike the BIA there are no words limiting this phrase to debts or claims in existence at thetime of the initial order.

35 With respect to the wording of the Initial Order, there can be no question that it applies to post-filing creditors. The broadwording of paras. 5 and 6 of the Initial Order and the definition of "proceeding" confirm this. No distinction is made betweencreditors in existence at the time of the Initial Order and those who become creditors after. Paragraph 11(b) also establishes amechanism for post-filing creditors to seek relief by obtaining an exemption from the protection afforded Bricore, which wouldinclude the prohibition of proceedings. The obvious implication is that the prohibition of proceedings applies to post-filingcreditors, subject, of course, to obtaining leave of the Court to commence action.

V. Issue #2. Does s. 11.3 of the CCAA Mean That a Post-Filing Claimant Cannot Be Subject to the Stay of ProceedingsImposed by the Initial Order?

36 ICR argued that by the addition of s. 11.3 in 1997 30 to the CCAA, Parliament intended to grant a post-filing creditorthe right to sue without obtaining leave.

37 In my respectful view, s. 11.3 cannot be interpreted in the way in which ICR contends. Indeed, a more logical and internallyconsistent reading of s. 11.3 and the other sections of the CCAA is to permit the supervising judge to determine, as a matter ofdiscretion, whether an action commenced by a post-filing creditor should be permitted to proceed.

38 Section 11.3 forms part of a comprehensive series of sections addressing the question of stays added in 1997 and 2001: 31

No stay, etc., in certain cases

11.1 (2) No order may be made under this Act staying or restraining the exercise of any right to terminate, amend orclaim any accelerated payment under an eligible financial contract or preventing a member of the Canadian PaymentsAssociation established by the Canadian Payments Act from ceasing to act as a clearing agent or group clearer for acompany in accordance with that Act and the by-laws and rules of that Association. (Added by S.C.1997, c. 12, s. 124)

No stay, etc., in certain cases

11.11 No order may be made under this Act staying or restraining

(a) the exercise by the Minister of Finance or the Superintendent of Financial Institutions of any power, duty orfunction assigned to them by the Bank Act, the Cooperative Credit Associations Act, the Insurance CompaniesAct or the Trust and Loan Companies Act;

(b) the exercise by the Governor in Council, the Minister of Finance or the Canada Deposit Insurance Corporationof any power, duty or function assigned to them by the Canada Deposit Insurance Corporation Act; or

(c) the exercise by the Attorney General of Canada of any power, assigned to him or her by the Winding-up andRestructuring Act. (Added by S.C. 2001, c. 9, s. 577.)

No stay, etc. in certain cases

11.2 No order may be made under section 11 staying or restraining any action, suit or proceeding against a person,other than a debtor company in respect of which an application has been made under this Act, who is obligated under aletter of credit or guarantee in relation to the company. (Added by S.C.1997, c. 12, s. 124)

11.3 No order made under section 11 shall have the effect of



(a) prohibiting a person from requiring immediate payment for goods, services, use of leased or licensed propertyor other valuable consideration provided after the order is made; or

(b) requiring the further advance of money or credit. (Added by S.C.1997, c. 12, s. 124)

[Emphasis added.]

39 In ss. 11.1(2), 11.11 and 11.2, Parliament uses the words "staying or restraining" to describe those circumstances limitingthe scope of the stay power, but these words are not repeated in s. 11.3. This application of the expressio unius principle supportsthe obvious implication that s. 11.3 does not limit the authority of the court to stay all proceedings.

40 While the debates of the House of Commons in Hansard do not comment on s. 11.3, several text book authors assist withthe task of interpretation. Professor Honsberger states:

A distinction is made between the compulsory supply of goods and services and the extension of credit by suppliers toa debtor company in CCAA proceedings.

Suppliers may be enjoined from cutting off services or discontinuing the supply of goods by reason of there being arrearsof payment provided the debtor commences regular payments for current deliveries.

However, no order made under s. 11 of the Act has the effect of prohibiting a person from requiring immediate paymentfor goods, services, use of leased or licensed property or other valuable consideration after the order is made.

. . . . .... A court could make a similar order after the 1997 amendments provided it stipulated that the debtor company madeimmediate payment for goods, services, use of leased or licensed property or other valuable consideration after the order

is made. 32

[Footnotes omitted.]

41 Professor McLaren similarly comments in his text "Canadian Commercial Reorganization": 33

3.800 ... Section 11.3 acts as an exemption to the stay provisions of s. 11 of the CCAA. It appears the section is meantto balance the rights of creditors with debtors. The section addresses the concern that judges had too much discretion inissuing stays. Under s. 11.3(a), if a person supplies goods or services or if the debtor continues to occupy or use leased orlicensed property, the court will not issue a stay order with respect to the payment for such goods or services or leased orlicensed property. In essence, s. 11.3(a) will not permit the court to prohibit these individuals from demanding paymentfrom the debtor for goods, services or use of leased property, after a court order is made.

42 Finally, Professor Sarra in Rescue! The Companies' Creditors Arrangement Act 34 provides this insight:

While the court cannot compel a supplier to continue to extend credit to the debtor during a CCAA proceeding, the courtcan protect trade suppliers that choose to supply goods or credit during the stay period by granting them a charge on theassets of the debtor that will rank ahead of other claims. While section 11.3 of the CCAA states that no stay of proceedingscan have the effect of prohibiting a person from requiring immediate payment for goods, services or the use of leased orlicensed property, or requiring the further advance of money or credit, trade suppliers were often continuing credit only tofind that they had lost further assets during the workout period because of their priority in the hierarchy of claims. Hence

the practice of post-petition trade credit priority charges developed, first recognized in Alberta. 35 [Footnotes omitted.]

43 Smith Brothers Contracting Ltd., Re 36 also supports a narrow reading of s. 11.3. After citing Hongkong Bank of Canada

v. Chef Ready Foods Ltd. 37 and Quintette Coal Ltd. v. Nippon Steel Corp. 38 with respect to the intention of Parliament andthe object and scheme of the CCAA, Bauman J. in Smith Brothers wrote:








45 It is interesting that Gibbs J.A. suggested that it would be unlikely that a court would exercise its s. 11 jurisdiction:

... where the result would be to enforce the continued supply of goods and services to the debtor company withoutpayment for current deliveries ...

46 Parliament has now precluded that by adding s. 11.3(a) to the CCAA. It is instructive to note, however, that the subsectionhas been added against the backdrop of jurisprudence which has underlined the very broad scope of the court's jurisdictionto stay proceedings under s. 11.

47 To repeat the relevant portion of the section:

11.3 No order made under s. 11 shall have the effect of

(a) prohibiting a person from requiring immediate payment for ... use of leased or licenced property ... providedafter the order is made;

It is noted that the remedy which is preserved for creditors is a relatively narrow one; it is the right to require immediate

payment for the use of the leased property. 39

Thus, Bauman J. interpreted s. 11.3 in accordance with Parliament's intention and the object and scheme of the CCAA as creatinga narrow right — the right to withhold services without immediate payment.

44 I agree with Bricore's counsel. When a supplier is requested to provide goods or services on a post-filing basis to acompany operating under a stay of proceedings imposed by the CCAA, s. 11.3 allows the supplier the right:

(a) to refuse to supply any such goods or services at all;

(b) to supply such goods or services on a "cash on demand" basis only;

(c) to negotiate with the insolvent corporation for the amendment of the CCAA Order to create a post-filing supplier'scharge on the assets of the insolvent corporation to secure the payment by the insolvent corporation of amounts owingby it to such post-filing suppliers; or

(d) to take the risk of supplying goods or services on credit.

Where the Initial Order imposes a stay of proceedings and prohibits further proceedings, s. 11.3 does not permit the supplierof goods or services to sue without obtaining leave of the court to do so.

VI. Issue #3: If Leave Is Required, Did the Supervising CCAA Judge Commit a Reviewable Error in Refusing ICRLeave to Commence an Action Against Bricore?

45 Having determined that the stay and prohibition of proceedings applies to ICR, notwithstanding its status as a post-filingcreditor, the next issue is whether Koch J. erred in refusing to lift the stay on the basis that the claim was not tenable.

46 The claim against Bricore is presumably against Bricore both in its own right and pursuant to its indemnification agreementwith the CRO. Paragraph 18 of the CRO Order requires Bricore to indemnify the CRO:

18. Bricore Group shall indemnify and hold harmless the CRO from and against all costs (including, without limitation,defence costs), claims, charges, expenses, liabilities and obligations of any nature whatsoever incurred by the CRO thatmay arise as a result of any matter directly or indirectly relating to or pertaining to any one or more of:

(a) the CRO's position or involvement with Bricore Group;



(b) the CRO's administration of the management, operations and business and financial affairs of Bricore Group;

(c) any sale of all or part of the Property pursuant to these proceedings;

(d) any plan or plans of compromise or arrangement under the CCAA between Bricore Group and one or moreclasses of its creditors; and/or

(e) any action or proceeding to which the CRO may be made a party by reason of having taken over the

management of the business of Bricore Group. 40

47 The authority to lift the stay imposed by the Initial Order against Bricore is contained in s. 11(4) of the CCAA:

11(4) A court may, on an application in respect of a company other than an initial application, make an order on suchterms as it may impose,

. . . . .

(c) prohibiting, until otherwise ordered by the court, the commencement of or proceeding with any otheraction, suit or proceeding against the company. [Emphasis added.]

48 This is a discretionary power, which invokes the standard of appellate review stated as follows:

[22] ... [T]he function of an appellate court is not to exercise an independent discretion of its own. It must defer to thejudge's exercise of his discretion and must not interfere with it merely on the ground that members of the appellate courtwould have exercised the discretion differently. The function of the appellate court is one of review only. It may set asidethe judge's exercise of his discretion on the ground that it was based on a misunderstanding of the law or of the evidencebefore him or on an inference that particular facts existed or did not exist, which, although it was one that might legitimatelyhave been drawn on the evidence that was before the judge, can be demonstrated to be wrong by further evidence thathas become available by the time of the appeal, or on the ground that there has been a change of circumstances after the

judge made his order. 41

It is often expressed as permitting intervention where the judge acts arbitrarily, on a wrong principle, or on an erroneous viewof the facts, or when the appeal court is satisfied that there is likely to be a failure of justice as a result of the refusal. See:

Martin v. Deutch 42

49 With respect to discretionary decisions made under the CCAA, there is a particular reluctance to intervene. The reluctanceis justified on the basis of the specialization of the judges who have carriage of complex proceedings that are often replete with

compromised solutions. 43 This does not mean that the Court of Appeal can turn a blind eye or permit an injustice, but it doesprovide the backdrop against which CCAA discretionary decisions are reviewed.

50 Unlike the BIA, 44 the CCAA contains no specific statutory test to provide guidance on the circumstances in which aCCAA stay of proceedings is to be lifted. Some guidance, nonetheless, can be found in the statute and in the jurisprudence.

51 Subsection 11(6) of the CCAA states:

11 (6) The court shall not make an order under subsection (3) or (4) unless

(a) the applicant satisfies the court that circumstances exist that make such an order appropriate; and

(b) in the case of an order under subsection (4), the applicant also satisfies the court that the applicant has acted,and is acting, in good faith and with due diligence.




While the reference to "order" in the opening clause "[t]he court shall not make an order under s. (3) or (4)" may very wellbe to the Initial Order and not to the order lifting the stay, s. 11(6) and, in particular, its legislative history, are also relevantto an application to lift the stay.

52 Subsection 11(6) was brought into effect in 1997 by Bill C-5, which enacted "An Act to amend the Bankruptcy andInsolvency Act, the Companies' Creditors Arrangement Act and the Income Tax Act." When Bill C-5 received third readingon October 23, 1996, s. 11(6) took this form:

11 (6) The court shall not make an order under subsection (3) or (4) unless


(b) in the case of an order under subsection (4), the applicant also satisfies the court that:

(i) the applicant has acted, and is acting, in good faith and with due diligence,

(ii) a viable compromise or arrangement could likely be made in respect of the company, if the order beingapplied for were made, and

(iii) no creditor would be materially prejudiced if the order being applied for were made.

After Bill C-5 received third reading, it was referred to the Standing Senate Committee on Banking, Trade and Commerce. 45

The Committee reported:

A number of insolvency experts were of the opinion that the proposed amendment would make it virtually impossible toobtain extensions of the initial 30-day stay under the CCAA and force companies to file plans of arrangement within 30days after the making of the initial stay order.

Others suggested that some CCAA reorganizations would have turned out differently if the amendment had been in place.. . . . .

Of the submissions received about proposed subsection 11(6), all but one condemned the provision. ...

The CLHIA [Canadian Life and Health Insurance Association] argued that the amendment to the bill would be a significantimprovement to the CCAA for four reasons:

(a) it would give direction to the courts as to the tests that must be met before the extension order was granted;

(b) it would more closely align the CCAA with the BIA;

(c) the tests are well-established under the BIA and have received extensive scrutiny and study; and

(d) the tests would direct the courts to consider how the stay would affect creditors. [Footnote omitted.]. . . . .

The Committee shares the concerns expressed about the potential impact of proposed subsection 11(6) of the CCAA,particularly the concern that the CCAA may no longer be a sufficiently flexible vehicle for large, complex corporatereorganizations.

While the Committee fully supports initiatives to align the provisions of the CCAA more closely with those of theBIA, these initiatives must be the subject of thorough discussion and analysis before [making] their way into legislation.

Unfortunately, such discussion did not take place prior [to] the introduction of proposed subsection 11(6). 46

Notwithstanding the submissions of the Canadian Life and Health Insurance Association, the Standing Committeerecommended that Bill C-5 be amended by striking subparagraphs 11(6)(b)(ii) and (iii).



53 The House of Commons concurred in the Amendments recommended by the Senate on April 15, 1997. 47 Bill C-5, as thus

amended, received Royal Assent on April 25, 1997 and was proclaimed in its present skeletal form on September 30, 1997. 48

Neither the amending legislation 49 nor the proposed Bill presently before the Senate 50 make any change to s. 11 in this regard.

54 The Senate's and Parliament's specific rejection of a limitation on the court's discretion is a strong indication ofParliamentary intention. The fact that Parliament did not see fit to limit the discretion in any significant manner, despite havingbeen given the opportunity to do so, confirms the broad discretion given in ss. 11(3) and (4) to the supervising CCAA judge.Discretion is never completely unfettered, but an appellate court should be reluctant to impose rigid tests, standards or criteriawhere Parliament has declined to do so. Some guidance can be taken from the jurisprudence.

55 In Canadian Airlines Corp., Re 51 Paperny J. (as she then was) indicated that the obligation of the supervising CCAA

judge is to "always have regard to the particular facts" and "to balance" the interests. As Farley J. said in Ivaco Inc., Re, 52

the supervising CCAA judge must also be concerned not to permit one creditor to mount "an indirect but devastating attack onthe CCAA stay" so as to give one creditor an inappropriate advantage over other unsecured creditors as well as over securedcreditors with priority.

56 In Ivaco Inc., Re 53 Ground J. stated this to be the criteria to determine whether a stay should be lifted:

20 It appears to me that the criteria which the court must consider in determining whether to lift a stay, being whether theproposed cause of action is tenable, the balancing of interests as between the parties, the relative prejudice to the parties,and whether the proposed action would be oppressive or vexatious or an abuse of the court process, would all be metwith respect to a trial of issues to resolve interpretation of the APAs with respect to the calculation of the working capitaladjustments.

Ground J. went on to confirm that finding a tenable or reasonable cause of action is not the only factor to be considered:

30 Even if the Statement of Claim did disclose a tenable or reasonable cause of action, there are a number of other factorswhich this court must consider which militate against the lifting of the stay in the circumstances of this case. The institutionof the Proposed Action, even if a tight timetable is imposed, would inevitably result in considerable delay and complicationwith respect to the full distribution of the estate to the detriment of many small trade creditors and individual creditors aswell as to pension claimants. In addition, it would appear from the evidence before this court that Heico has been aware ofmost of the matters alleged in the Statement of Claim for approximately 2 years and there does not appear to be any validreason given for the delay in commencing the application to lift the stay.

57 Turning back to the case before us, Koch J.'s reasons for refusing to lift the stay were:

[16] . . .

(a) An application to lift a stay of proceedings must be addressed in the context of the broad objectives of theCCAA which is to promote re-organization and restructuring of companies. ....

(b) The standard for determining whether to lift the stay of proceedings is not, as ICR contends, whether theaction is frivolous, analogous to the standard which a defendant applicant under Rule 173 of The Queen's BenchRules must meet to set aside a statement of claim. Rather, to obtain an order lifting the stay ad hoc to permit thesuit to proceed, the proposed plaintiff must establish that the cause of action is tenable. I interpret that to meanthat the proposed plaintiff has a prima facie case. See Ivaco Inc. (Re), [2006] O.J. No. 5029 (Ont. S.C.J.).

(c) In determining whether to lift a stay, the Court must take into consideration the relative prejudice to theparties. See Ivaco, Inc. (Re), supra, para. 20; and Richard H. McLaren & Sabrina Gherbaz, Canadian Commercial

Reorganization: Preventing Bankruptcy (Toronto: Canada Law Book, 1995) at 3-18.1. ... 54







He went on to find that the proposed action against Bricore was not "tenable."

58 On an application made by a post-filing creditor, a supervising CCAA judge can refuse to lift the stay on the basisthat the creditor's claim is outside the CCAA process and the action can be commenced after the CCAA order is lifted. (See

360networks 55 and Stelco 56 ). Koch J. did not exercise this option. He was no doubt motivated in part by the fact that by thetime ICR's claim could be tried, after the stay is no longer in effect, there may be no funds for it to claim as Bricore has nowliquidated all of its assets and there remains, for all intents and purposes, a pool of funds only. The funds are subject to a planof distribution, approved by the creditors, and will be distributed over this year.

59 Instead of simply rejecting the claim, Koch J. appears to have weighed the evidence to a certain extent as a means ofdeciding the next step. He concluded that the claim was not frivolous within the meaning of a Queen's Bench Rule 173 strikingmotion, but it was nonetheless an untenable claim. The question becomes whether a supervising CCAA judge can weigh a post-filing claim in this manner.

60 Professor Sarra comments on the anomalous position of liquidating CCAA proceedings:

One policy issue that has not to date been fully explored is whether the CCAA should be used to effect an organizedliquidation that should properly occur under the BIA or receivership proceedings. Increasingly, there are liquidating CCAAproceedings, whereby the debtor corporation is for all intents and purposes liquidated, but not under the supervision of atrustee in bankruptcy or in compliance with all of the requirements of the BIA. While creditors still must vote in support ofsuch plans in the requisite amounts, there may be some public policy concerns regarding the use of a restructuring statute,

under the broad scope of judicial discretion, to effect liquidation. ... 57

The issue of whether the CCAA should be used for a liquidating, as opposed to a restructuring purpose, is not before us. In thecase at bar, when the Initial Order was granted, it was thought possible that Bricore could be restructured. It was only somemonths after the Initial Order that it became clear that all of the assets would have to be sold. Our task at this point is to addressthe position of an undetermined claim arising post-filing in such a context.

61 If a claim had some reasonable prospect of success and were otherwise meritorious in the CCAA context, it seemsinappropriate to refuse simply to lift the stay on the basis that the claim is outside the CCAA process knowing that, by the timethe matter is heard in the ordinary course, there will be no assets remaining. On the other hand, it also seems inappropriate todelay distribution of the assets under a plan of arrangement, or make some other accommodation, for an action that is likely tofail. I should make it clear that I am not addressing the issue of whether a meritorious claimant can share in a proposed planof distribution as a result of the liquidation of the assets. The issue before this Court is whether a post-filing creditor shouldbe permitted to commence action, in the context of what is now a liquidating CCAA, and avail itself of whatever pre-judgmentremedies might be available to it as a result of its claim.

62 In the face of a liquidating plan of arrangement, given the broad jurisdiction conferred by the CCAA on the Court, it seemsappropriate that the supervising judge establish some mechanism to weigh the post-filing claim to determine the next step. Thenext step might entail permitting the claimant to commence action and attempt to convince a chambers judge to grant it a pre-judgment remedy in relation to the funds. It is also possible that the supervising judge may delay distribution of the funds, orsome portion thereof, with or without full security for costs, or on such other terms as seems fit. Mechanisms to test the claimcould include referral to a special claims officer, examination of the pertinent principal parties, or a settlement conference, or,as in this case, a preliminary examination by the supervising CCAA judge in chambers based on affidavit evidence.

63 In the case at bar, having determined that it was appropriate to assess ICR's claim in some way, did Koch J. err eitherin his statement of the appropriate test or in its application?

64 Koch J. used prima facie case, which he equated with tenable cause of action. "Tenable cause of action" is taken from

Ground J.'s decision in Ivaco Inc., Re, 58 but Ground J. used "reasonable cause of action" or "tenable case," as comparable






terms and as only one of four criteria to be considered. The use of "prima facie case" defined as "tenable cause of action" isnot particularly helpful as the words have been used in different contexts with different purposes in mind. Even in the contextof bankruptcy where specific guidelines are given, and the courts have had long experience with the application of the tests,the debate continues as to what is meant by prima facie case and whether it is too high of a standard to apply in determining

whether an action may be commenced. 59

65 Koch J. was clearly correct to hold that the threshold established by s. 173 of The Queen's Bench Rules is too low. On theother hand, it is also important not to decide the case. The purpose for passing on the claim is not to determine whether it will orwill not succeed, but to determine whether the plan of arrangement should be delayed or further compromised to accommodatea future claim, or some other step need be taken to maintain the integrity of the CCAA proceeding.

66 Given the broad discretion granted to a supervisory judge under the CCAA, as well as the knowledge and experience heor she gains from the ongoing dealings with the parties under the proceedings, it would be contrary to the purpose of the CCAAfor the law under it to develop in a restrictive way. Having regard for this, there ought not to be rigid requirements imposed onhow a supervising CCAA judge must exercise his or her discretion with respect to lifting the stay.

67 Nonetheless, a broad test articulated along the lines of that in Ma, Re 60 may be of assistance. The test from Ma, Re is:

3 ... As stated in Re Francisco, the role of the court is to ensure that there are "sound reasons, consistent with the schemeof the Bankruptcy and Insolvency Act" to relieve against the automatic stay. While the test is not whether there is a primafacie case, that does not, in our view, preclude any consideration of the merits of the proposed action where relevant to theissue of whether there are "sound reasons" for lifting the stay. For example, if it were apparent that the proposed actionhad little prospect of success, it would be difficult to find that there were sound reasons for lifting the stay.

While the Ma, Re test was developed for use under the BIA, a test based on sound reasons, consistent with the scheme of theCCAA, to relieve against the stay imposed by ss. 11(3) and (4) of the CCAA, may be a better way to express the task of thechambers judge faced with a liquidating CCAA than a test based simply on prima facie case. It must be kept firmly in mindthat the Court is dealing with a claimant that did not avail itself of the remedy of withholding services under s. 11.3. It is alsouseful to remind oneself that, in a case such as this, the CCAA proceeding began as a restructuring exercise with the attendantpossibility of creating s. 11.3 claimants. The threshold must be a significant one, but not insurmountable.

68 In determining what constitutes "sound reasons," much is left to the discretion of the judge. However, previous decisionson this point provide some guidance as to factors that may be considered:



(c) the merits of the proposed action, where they are relevant to the issue of whether there are "sound reasons" forlifting the stay (i.e., as was said in Ma, Re, if the action has little chance of success, it may be harder to establish"sound reasons" for allowing it to proceed).

The supervising CCAA judge should also consider the good faith and due diligence of the debtor company as referenced in s.11(6). Ultimately, it is in the discretion of the supervising CCAA judge as to whether the proposed action ought to be allowedto proceed in the face of the stay.

69 While Koch J. did not state the test as broadly as I have, I agree that ICR does not reach the necessary threshold. ICRdid not structure its affairs or establish a claim with the specificity that justifies the development of a remedy to allow it toparticipate in the liquidation of the Bricore assets. There is also no aspect of the liquidation that requires the Court in this case tobe concerned. In particular, the stay need not be lifted, and no other step need be taken in the context of the CCAA proceedingsin light of these facts:





balbert

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1. as of January 30, 2006, the Building was subject to an exclusive Selling Officer Agreement that provided CMN

Calgary with the exclusive right to sell the property and to earn a commission of 1.25% of the purchase price, 61

which is significantly less than that being claimed by ICR at a 5% commission;

2. the sale to the Proposed Purchaser was a sale of six of the seven Bricore properties;

3. the trial judge received a report dated September 25, 2006 from the CRO recommending approval of the sale, which

is two days before the alleged contract with ICR was proposed; 62

4. in the September 25 report, the CRO advised the Court that "the total aggregate purchase price for the BricoreProperties obtained by Bricore in the Accepted Offer to Purchase represented the greatest value which it would be

possible to obtain for all of the Bricore Properties;" 63

5. the September 27, 2006 letter from ICR to Bricore, states "we are aware that the properties are under contract tosell ..."; and,

6. there was no sale from Bricore to the City of Regina.

70 While ICR denies knowledge of the sale, it is important to come back to the September 27th letter from ICR to Mr.Ruf. It states:

We are aware that the properties are under contract to sell and request that ICR be protected in the specific situations

as outlined. 64 [Emphasis added]

The addition by the CRO of these words, "Date of closing of a sale or December 31, 2006 whichever is earlier," to that letteradds further support to the veracity of the CRO's report to the effect that the CRO entered into discussions with ICR to providefor the eventuality of a failed sale to the purchaser with whom Bricore already had a contractual relationship.

71 Finally, in assessing Koch J.'s decision, and in determining the deference that is owed to it, I am not unmindful thathe issued some 20 orders in 2006, pertaining to the Bricore restructuring, at least five of which dealt substantively with theBuilding and its prospective sale to the Proposed Purchaser.

72 Thus, applying the standard of review previously articulated, I cannot say that Koch J. acted arbitrarily, on a wrongprinciple, or on an erroneous view of the facts, or that a failure of justice is likely to result from the exercise of his discretionin the manner he did.

VII. Issue #4. Did the Supervising CCAA Judge Make a Reviewable Error in Refusing Leave to Commence an ActionAgainst the CRO?

73 In addition to the indemnification provided by para. 18 of the CRO Order quoted above, the Order goes on to indicatethe only circumstances in which the CRO can be sued personally:

20. For greater clarity, the CRO [sic]:. . . . .

(c) the CRO shall incur no liability or obligation as a result of his appointment or as a result of the fulfillmentof his powers and duties as CRO, except as a result of instances of fraud, gross negligence or wilful misconducton his part; and

(d) no Proceeding shall be commenced against the CRO as a result of or relating in any way to his appointmentor to the fulfillment of his powers and duties as CRO, without prior leave of the Court on at least seven days'notice to Bricore Group, the CRO and legal counsel to Bricore Group.



21. Subject to paragraph 20 hereof, nothing in this Order shall restrict an action against the CRO for acts of gross negligence,bad faith or wilful misconduct committed by him.

Setting aside the obvious ambiguity in this Order, it can be taken that to assert a claim against the CRO personally, ICR had toclaim "fraud, gross negligence, wilful misconduct or bad faith." ICR claimed "bad faith."

74 Based on para. 20(d) of the Initial Order, there is no question that ICR was required to obtain prior leave of the court. Theissue thus becomes whether the supervising CCAA judge erred in exercising his discretion in refusing to lift the stay.

75 Koch J.'s reasons for refusing to lift the stay are these:

[18] Neither is there any basis upon which to lift the stay with respect to the proposed action against Maurice Duval,the Chief Restructuring Officer. Considerations applicable to Bricore under s. 11.3 do not apply to a court-appointedrestructuring officer. Maurice Duval, as an officer of the Court, has explained his position in a cogent way. I accept hisexplanation. He did not sell the Department of Education Building to the City of Regina. He was not aware at the relevanttime that the purchaser was going to resell. Indeed, his efforts were directed toward closing a single transaction involvingall six Bricore properties. Although the proposed pleading accuses Mr. Duval of acting in "bad faith", it is not suggested onbehalf of ICR that Mr. Duval has been guilty of fraud, gross negligence or wilful misconduct; that is, any of the limitationsor exceptions expressly listed in paragraph 20(c) of the order of May 23, 2006.

[19] As stated previously, the overriding purpose of the CCAA must also be considered. That applies in the Duval situationtoo. The statute is intended to facilitate restructuring to serve the public interest. In many cases such as the present it isnecessary for the Court to appoint officers whose expertise is required to fulfill its mandate. It is clearly in the publicinterest that capable people be willing to accept such assignments. It is to be expected that such acceptance be contingenton protective provisions such as are included in the order of May 23, 2006, appointing Mr. Duval. It is important thatthe Court exercise caution in removing such restrictions; otherwise, the ability of the Court to obtain the assistance ofneeded experts will necessarily be impaired. Qualified professionals will be less willing to accept assignments absent the

protection provisions in the appointing order. 65

76 Again, Koch J. employed the same mechanism that he used to assess the claim against Bricore. He considered the status ofthe CRO as an officer of the court, noted the ambiguity in the Order and weighed the evidence to a certain extent. The questionhe was answering was the sufficiency of the claim to permit an action to be commenced against the Court's officer.

77 Again, applying the standard of review with respect to discretionary orders, there is no basis upon which the Court canintervene with Koch J.'s refusal to lift the stay so as to permit an action against the CRO in his personal capacity.

VIII. Issue #5. Did the Supervising CCAA Judge Err in Awarding Costs on a Substantial Indemnity Basis?

78 Koch J. awarded substantial indemnity costs for this reason:

[6] In my view, allegations of misconduct against a court officer are rare and exceptional. Therefore costs on this motionshould be imposed on a substantial indemnity scale, although not on the full solicitor and client basis sought. Bricore isentitled to costs on the motion of $2,000.00, and Maurice Duval is entitled to costs of $1,000.00, payable in each instance

by the applicant, ICR Commercial Real Estate (Regina) Ltd. 66

79 I note that Newbury J.A. in New Skeena Forest Products Inc., Re 67 dismissed a challenge to a costs award, holdingthat "these are the kinds of considerations which the [CCAA] Chambers judge ... was especially qualified to make." And, ofcourse, all costs orders are discretionary orders.

80 Nonetheless in this case, it would appear that the supervising CCAA judge erred. There is no basis upon which to ordersubstantial indemnity costs with respect to the application to lift the stay in relation to Bricore. Bad faith was not alleged on its




part. With respect to the CRO, the only basis upon which the stay could be lifted was to make an allegation of "bad faith." Inthe absence of some other factor, ICR cannot be faulted for making the very allegation that it was required to make in order tobring its application within the ambit of the stay of proceedings that had been granted.

81 In addition, while Koch J. indicated he was not awarding solicitor-and-client costs, there is not a sufficient distinctionbetween substantial indemnity costs and solicitor-and-client costs. An award approaching solicitor-and-client costs is still apunitive order and, as there is no authority for the awarding of substantial indemnity costs, relies upon the same jurisprudential

base as solicitor-and-client costs. As such, the award does not seem to meet the test established in Siemens v. Bawolin 68

and Hashemian v. Wilde 69 wherein it is stated that solicitor-and-client costs are generally awarded where there has beenreprehensible, scandalous or egregious conduct on the part of one of the parties in the context of the litigation.

82 If the parties are unable to agree with respect to costs in the Court of Queen's Bench and in this Court, they may speakto the Registrar to fix a time for a conference call hearing regarding costs.

Appeal allowed in part.

Footnotes

1 R.S.C. 1985, c. C-36.

2 Appeal Book, pp. 17a and 22a [Affidavit of Paul Mehlsen].

3 Ibid. at pp. 27a and 32a.

4 Order (Appointment of Chief Restructuring Officer, Extension of Stay of Proceedings; Additional DIP Financing) made May 23,2006.

5 Order (Extension of Stay of Proceedings) made August 1, 2006.

6 Order (Extension of Stay of Proceedings) made August 18, 2006.

7 Order (Extension of Stay of Proceedings, Extension of Appointment of CRO and Increase in Maximum CRO Remuneration; Increaseto Administrative Charge) made September 25, 2006.

8 Order (Approving Sale; Extending Stay of Proceedings; Extending Appointment of CRO) made October 10, 2006.

9 Appeal Book, p. 7a-8a.

10 Ibid. at p. 12a.

11 Ibid. at pp. 14a-15a.

12 Ibid. at p. 46a.

13 Ibid. at pp. 38a-39a.

14 Ibid. at p. 51a-52a.

15 ICR Commercial Real Estate (Regina) Ltd. v. Bricore Land Group Ltd., 2007 SKQB 121 (Sask. Q.B.).

16 John D. Honsberger, Debt Restructuring: Principles and Practice, looseleaf (Aurora, Ont.: Canada Law Book, 2007) at p. 9.61.

17 (1954), 34 C.B.R. 82 (C.S. Que.). There are no cases referring to Ramsay Plate Glass on the point that Prof. Honsberger raises inhis text. (Ptarmigan Airways Ltd. v. Federated Mining Corp., [1973] 3 W.W.R. 723 (N.W.T. S.C.) mentions Ramsay Plate Glass butnot in reference to the point made here.)










18 Ibid. at p. 83.

19 (2003), 45 C.B.R. (4th) 151 (B.C. S.C.), appeal dismissed [Caterpillar Financial Services Ltd. v. 360networks corp.] (2007), 27C.B.R. (5th) 115 (B.C. C.A.).

20 (2005), 15 C.B.R. (5th) 283 (Ont. S.C.J. [Commercial List]).

21 (1992), 14 C.B.R. (3d) 303 (Ont. Gen. Div.).

22 360networks, supra note 19.

23 Stelco, supra note 20 at para. 11.

24 Campeau, supra note 21.


26 Stelco, supra note 20.

27 Campeau, supra note 21.

28 R.S.C. 1985, c. B-3.

29 Lloyd W. Houlden & Geoffrey B. Morawetz, The 2007 Annotated Bankruptcy and Insolvency Act (Toronto: Thomson Carswell,2006) at pp. 562 and 789.

30 An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act and the Income Tax Act, S.C. 1997,c. 12, s. 124.

31 Financial Consumer Agency of Canada Act, S.C. 2001, c. 9, s. 577.

32 Debt Restructuring Principles and Practice, supra note 16 at p. 9-88.1.

33 Richard H. McLaren, Canadian Commercial Reorganization: Preventing Bankruptcy, looseleaf (Aurora, Ont.: Canada Law Book,2007) at p. 3-17.

34 Janis Sarra, Rescue! The Companies' Creditors Arrangement Act (Toronto: Thomson Carswell, 2007).

35 Ibid. at pp. 110-11.

36 (1998), 53 B.C.L.R. (3d) 264 (B.C. S.C.). See also Air Canada, Re (2004), 47 C.B.R. (4th) 182 (Ont. S.C.J. [Commercial List]), andMosaic Group Inc., Re (2004), 3 C.B.R. (5th) 40 (Ont. S.C.J.).

37 (1990), [1991] 2 W.W.R. 136 (B.C. C.A.).

38 (1990), 51 B.C.L.R. (2d) 105 (B.C. C.A.).

39 Smith Brothers Contracting Ltd., supra note 36.

40 Order (Appointment of Chief Restructuring Officer; Extension of Stay of Proceedings; Additional DIP Financing) made May 23,2006.

41 Bayda C.J.S., for the majority, in Smart v. South Saskatchewan Hospital Centre (1989), 75 Sask. R. 34 (Sask. C.A.), paraphrasingLord Diplock in Hadmor Productions Ltd. v. Hamilton, [1982] 1 All E.R. 1042 (U.K. H.L.) at 1046.

42 [1943] O.R. 683 (Ont. C.A.) at 698.





















43 Rescue! The Companies' Creditors Arrangement Act, supra note 34 at pp. 88-92.

44 Supra note 28.

45 Twelfth Report of the Standing Senate Committee on Banking, Trade and Commerce, February 1997, unnumbered p. 3 of theChairman's Report, and p. 18.

46 Ibid. at pp. 17-18.

47 Canada Legislative Index, 2 nd Session, 35 th Parliament, Bill C-5, S.C. 1997, c. 12, pp. 1 & 2.

48 Ibid.

49 An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies'Creditors Arrangement Act and to make consequential amendments to other Acts, S.C. 2005, c. 47, s. 128.

50 Bill C-62, An Act to amend the Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act, the Wage EarnerProtection Program Act and chapter 47 of the Statutes of Canada, 2005, 1st Sess., 39th Parl., 2006-2007.

51 (2000), 19 C.B.R. (4th) 1 (Alta. Q.B.) at para 15.

52 (2003), 1 C.B.R. (5th) 204 (Ont. S.C.J. [Commercial List]) at para 3.

53 [2006] O.J. No. 5029 (Ont. S.C.J.).

54 ICR Commercial Real Estate (Regina) Ltd. v. Bricore Land Group Ltd., supra note 15.


56 Stelco, supra note 20.

57 Rescue! The Companies' Creditors Arrangements Act, supra note 34 at p. 82.

58 Ivaco Inc., Re, supra note 53.

59 Ma, Re (2001), 24 C.B.R. (4th) 68 (Ont. C.A.). See Houlden & Morawetz, The 2007 Annotated Bankruptcy and Insolvency Act,supra note 29 at p. 403.

60 Ibid.

61 Order (Extension of Stay, DIP Financing, Sale Process & Shareholder Proceedings) of Koch J. in Chambers dated February 13, 2006.

62 Order made September 25, 2006, supra note 7.

63 Appeal Book, p. 37a, para. 3.

64 Supra note 11.

65 ICR Commercial Real Estate (Regina) Ltd. v. Bricore Land Group Ltd., supra note 15.

66 ICR Commercial Real Estate (Regina) Ltd. v. Bricore Land Group Ltd., 2007 SKQB 144 (Sask. Q.B.).

67 [2005] 8 W.W.R. 224 (B.C. C.A.) at para. 23.

68 2002 SKCA 84, [2002] 11 W.W.R. 246 (Sask. C.A.).















69 2006 SKCA 126, [2007] 2 W.W.R. 52 (Sask. C.A.).



Essar Steel Algoma Inc., Re, 2016 ONCA 138, 2016 CarswellOnt 24442016 ONCA 138, 2016 CarswellOnt 2444, 263 A.C.W.S. (3d) 583, 33 C.B.R. (6th) 172


2016 ONCA 138Ontario Court of Appeal

Essar Steel Algoma Inc., Re

2016 CarswellOnt 2444, 2016 ONCA 138, 263 A.C.W.S. (3d) 583, 33 C.B.R. (6th) 172

In the Matter of the Companies' CreditorsArrangement Act R.S.C. 1985, c. C-36, as amended

In the Matter of a Plan of Compromise or Arrangement of Essar Steel AlgomaInc., Essar Tech Algoma Inc., Algoma Holdings B.V., Essar Steel Algoma

(Alberta) ULC, Cannelton Iron Ore Company, and Essar Steel Algoma Inc. USA

David Brown J.A., In Chambers

Heard: February 16, 2016Judgment: February 19, 2016Docket: CA M46093, M46104

Counsel: Markus Koehnen and Jeffrey Levine, for the Moving parties / Responding parties by way of cross-motion, Cleveland-Cliffs Iron Company, Cliffs Mining Company and Northshore Mining CompanyEliot Kolers and Maria Konyukhova, for the Responding parties / Moving parties by way of cross-motion, Essar Steel AlgomaInc., Essar Tech Algoma Inc., Algoma Holdings B.V., Essar Steel Algoma (Alberta) ULC, Cannelton Iron Ore Company andEssar Steel Algoma Inc. USANicholas Kluge, Delna Contractor, for Monitor, Ernst & Young Inc.

Subject: Civil Practice and Procedure; Insolvency

MOTION by supplier for directions as to whether it was required to obtain leave to appeal, and for stay of debtor's motionpending appeal; CROSS-MOTION by debtor for order expediting motion for leave to appeal, if required, and appeal.

David Brown J.A., In Chambers:

I. The Motions

1 Essar Steel Algoma Inc., and certain related companies (collectively, "Essar"), are under the protection of the Companies'Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended ("CCAA"). The Cleveland-Cliffs Iron Company, Cliffs MiningCompany, and Northshore Mining Company (collectively, "Cliffs"), move for directions as to whether they require leave toappeal from the order of the CCAA judge, Newbould J., dated January 25, 2016 (the "Order"). Whether leave to appeal isrequired or not, Cliffs seeks a stay of the contract dispute motion Essar has brought against Cliffs before the CCAA judgepending Cliffs' exercise of its appeal rights in respect of the Order.

2 Essar brings a cross-motion for an order expediting the hearing of Cliffs' motion for leave to appeal, or its appeal.

3 At the hearing of the motions, I released an endorsement (the "Endorsement") in which I concluded that Cliffs requiredleave to appeal the Order and its leave to appeal motion should be expedited. I also granted a stay of Essar's contract disputemotion pending the determination of Cliffs' leave to appeal motion. These are my reasons for so ordering.

II. Background



4 Essar manufactures steel in Sault Ste. Marie, Ontario. Iron ore pellets are a key input in its manufacturing process. In2002, Essar's predecessor entered into a long-term iron ore pellet supply contract with Cliffs (the "Contract"). The Contractobliged Essar to purchase iron ore pellets exclusively from Cliffs until 2016 and to purchase a portion of its pellets from Cliffsfrom 2017 until 2024.

5 In recent years the business relationship between Essar and Cliffs has been a rocky one, with disputes arising over thequantities of iron ore pellets Essar was obliged to order and take up under the Contract.

6 In January 2015, Cliffs filed a complaint in the United States District Court for the Northern District of Ohio (EasternDistrict) (the "Ohio Court") alleging that Essar had breached the Contract by failing to take timely delivery of iron ore pelletsin the requisite amounts. In late July 2015, Cliffs brought a motion for partial summary judgment. The motion was decided onOctober 7, 2015. The Ohio Court dismissed Cliffs' motion for summary judgment for breach of contract relating to Essar's 2014quantity nomination, but granted its motion to dismiss Essar's counterclaim with respect to moisture content. A trial of all theissues in the Ohio litigation was scheduled to commence on December 7, 2015.

7 On October 5, 2015, Cliffs terminated the Contract alleging multiple material breaches by Essar.

8 On November 9, 2015, Essar sought and obtained an initial order under the CCAA. On November 10, 2015, Essar's foreignrepresentative sought and obtained orders under Chapter 15 of the U.S. Bankruptcy Code, 11 U.S.C (2010) recognizing andenforcing in the United States the orders granted in the CCAA proceeding, which was recognized as the foreign main proceeding.

9 On November 11, 2015, Essar filed with the Ohio Court a notice that the Ohio litigation was automatically stayed in respectof Essar. On December 3, 2015, the Ohio Court dismissed Cliffs' action without prejudice. As a result, the scheduled trial ofCliffs' action did not proceed. Cliffs has moved to vacate that dismissal, but no decision has been rendered on its motion.

10 In mid-November, Essar served a motion under s. 11.4 of the CCAA seeking an order declaring Cliffs a critical supplier;the motion did not proceed because Essar was able to find short-term alternate suppliers.

III. Proceedings Under Appeal

11 On December 8, 2015, Essar moved in the CCAA proceeding for a declaration that Cliffs' purported termination ofthe Contract was not effective and Cliffs must supply Essar with iron ore pellets at the Contract price (the "Contract DisputeMotion"). Essar also sought orders directing Cliffs to comply with the Contract and to pay damages resulting from the purportedtermination of the Contract.

12 On December 23, 2015, Cliffs served a motion seeking an order dismissing Essar's Contract Dispute Motion on theground that the Ontario court lacks jurisdiction to grant the relief sought or, alternatively, Ontario is not the convenient forumin which to adjudicate the dispute.

13 Cliffs' motion was heard on January 14, 2015 by Newbould J., the judge conducting the CCAA proceedings in respect ofEssar. The CCAA judge dismissed Cliffs' motion in an Order and Endorsement dated January 25, 2016. He held that the Ontariocourt has jurisdiction over Essar's Contract Dispute Motion and Cliffs had not demonstrated that a clearly more appropriateforum than Ontario existed in which to adjudicate the dispute.

IV. Issues

14 Cliffs moves in this court for directions and for a stay of the Order pending Cliff's exercise of its appeal rights. Cliffsargues that it is not required to obtain leave to appeal the Order. Alternatively, Cliffs submits that in the event "leave is grantedfrom a portion of the decision of" the CCAA judge, that appeal should be consolidated "with the other aspects of the appealwhich Cliffs has as of right."



15 Essar has brought a cross-motion seeking an order expediting the hearing of Cliffs' leave to appeal motion, if required,or the hearing of the appeal.

V. Whether Cliffs Requires Leave to Appeal the Order

16 Section 13 of the CCAA requires that "any person dissatisfied with an order or a decision made under this Act" obtain leaveto appeal. The sole issue on Cliffs' motion for directions is whether the Order of the CCAA judge was "made under" the CCAA.

17 The Order resulted from a motion brought in the Essar CCAA proceeding, before the judge seized with hearing all mattersin the Essar CCAA proceeding, with the judge explaining, in his reasons, how he was exercising his powers as a CCAA judge.The Order bears a style of cause stating that it was made "In the Matter of the Companies' Creditors Arrangement Act" in respectof a "Plan of Compromise or Arrangement of Essar Steel Algoma Inc." and other companies.

A. Positions of the Parties

18 Nevertheless, Cliffs submits that the Order was not "made under" the CCAA, for two reasons. First, the fact that an orderis made "in" a CCAA proceeding does not necessarily mean that it was "made under" the CCAA. Second, an order is not "madeunder" the CCAA if it is one that "could have properly been made in a normal civil action without any regard to the CCAAor the CCAA proceeding." According to Cliffs, to constitute an order "made under" the CCAA, the order must rely upon or begrounded in a specific section of the CCAA. In support of its submissions, Cliffs relies on decisions made by Tysoe J.A. inSandvik Mining & Construction Canada Inc. v. Redcorp Ventures Ltd. (Interim Receiver of), 2011 BCCA 333, 94 C.B.R. (5th)53 (B.C. C.A. [In Chambers]), and O'Brien J.A. in Monarch Land Ltd. v. Sanderson of Fish Creek (Calgary) DevelopmentsLtd., 2014 ABCA 143, 575 A.R. 46 (Alta. C.A.).

19 Essar submits that CCAA proceedings have a wide scope. Consequently, if CCAA considerations inform the decision andexercise of discretion of the judge, the decision can fairly be said to be "made under" the CCAA. Such considerations informedthe making of the Order, so leave to appeal is required.

B. Analysis

The Purpose of s. 13 of the CCAA

20 The analysis must start with an examination of the legislative purpose underlying the leave requirement contained ins. 13 of the CCAA. In Hurricane Hydrocarbons Ltd. v. Komarnicki, 2007 ABCA 361, 425 A.R. 182 (Alta. C.A.), the AlbertaCourt of Appeal observed that the requirement for leave to appeal furthers the objects and purpose of the CCAA. At paras. 14and 15, the court stated:

To further the goal of enabling a company to deal with creditors in order to continue to carry on business, the CCAAproceedings seek to resolve matters and obtain finality without undue delay...The requirement for leave to appeal similarlyreinforces the finality of orders made under a CCAA proceeding and prevents continuing litigation where there are noserious and arguable grounds of significance to the parties. As noted by numerous courts, delay and uncertainty caused byappeals is a matter of concern in a CCAA proceeding: Luscar Ltd. v. Smoky River Coal Ltd., 1999 ABCA 62, [1999] A.J.No. 185at para. 22, citing Re Pacific National Holding Corp. (1992), 15 C.B.R. (3d) 265 (B.C.C.A.).

The scope of CCAA proceedings has been interpreted expansively by the courts and may even include non- judicialproceedings because the objective is to include proceedings that may work against the interests of creditors and renderimpossible the achievement of effective arrangements: Luscar Ltd. v. Smoky River Coal Ltd., 1999 ABCA 179, 237 A.R.326at para. 31.

21 More recently, in AbitibiBowater Inc., Re, 2010 QCCA 965, 68 C.B.R. (5th) 57 (C.A. Que.), at para. 26, ChamberlandJ.A. described the purpose of the leave to appeal requirement in s. 13 of the CCAA:





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This requirement stems from a clear intention of Parliament to restrict appeal rights having regard to the nature and objectof CCAA proceedings; an appeal court should be cautious about intervening in the CCAA process. This is not to say thatleave will never be granted but it should be so only "sparingly" (In Re Pacific National Lease Holding Corp. (1992), 15C.B.R. (3d) 265 (B.C.C.A. [In Chambers]), at 272).

22 That legislative purpose for the leave requirement supports an expansive interpretation of the term "made under" the Actin s. 13: Smoky River Coal Ltd., Re, 1999 ABCA 62, 237 A.R. 83 (Alta. C.A.), at para. 20. Such an expansive interpretation wasadopted by Paperny J.A. in Concrete Equities Inc., Re, 2012 ABCA 91, [2012] A.W.L.D. 2836 (Alta. C.A.), at para. 16, whereshe held that when "CCAA considerations informed the decision of and the exercise of discretion by the chambers judge ... itcan be fairly said that the order was made 'under' the CCAA in accordance with section 13 of the Act."

The Decisions in Sandvik Mining and Monarch Lands

23 Cliffs submits that the interpretation given to "made under" the Act in Concrete Equities should be limited to the factsof that case, where there was no dispute that the notices of disallowance dealt with by the chambers judge resulted from aclaims process ordered under the CCAA. Cliffs argues that the Sandvik Mining and Monarch Lands decisions employed differentinterpretations of "made under" the Act which are more appropriate for the present case.

24 I agree that both the Sandvik Mining and Monarch Lands decisions offer guidance on the meaning of "made under" theCCAA, but I do not accept Cliffs' submission that the principles emerging from those cases would lead to the conclusion thatCliffs is not required to seek leave to appeal from the Order. Both cases involved exceptional fact situations that lay beyondthe boundaries of the usual CCAA proceeding.

25 Dealing first with the Sandvik Mining decision, Tysoe J.A. concluded that the decision of the judge below regardingthe ownership of some equipment was not an order "made under" the CCAA, notwithstanding that the order resulted from anapplication styled as brought in a CCAA proceeding involving Redcorp and related companies. Tysoe J.A. wrote, at para. 9: "itdoes not follow from the fact that the order was made in the CCAA proceeding that it was necessarily an order made under theCCAA." He continued by observing the judge below "did not rely on any provision of the CCAA, and the determination of theissue in question was not incidental to any order made under the CCAA." Tysoe J.A. went on to state, at para. 11:

It was a decision made under general law and the Sale of Goods Act, and while the decision may have been made withinthe CCAA proceeding as a matter of convenience, it was a decision that was made independently of the provisions of theCCAA and the BIA and of any order previously made under the CCAA.

26 Those statements must be understood in the specific factual context in which they were made. In Sandvik Mining, thedebtor companies had secured an initial order under the CCAA in March 2009. Two months later, a judge lifted the stay ofproceedings against certain creditors, appointed an interim receiver over some of the debtors' assets, and discharged the monitorfrom most of its duties. A month after that, the debtors were assigned into bankruptcy. Almost two years later, the receiverbrought its application seeking a declaration regarding the ownership of the equipment and styled the application as one broughtin the CCAA proceeding. It was against that background that Tysoe J.A. stated, at para. 8:

In my opinion, the order or decision of [the judge below] was not made under the CCAA. The efforts to reorganize Redcorphad come to an end, and there was no ongoing attempt to have Redcorp file a plan of arrangement. [The receiver] simplyfiled its application in the CCAA proceeding as a matter of convenience. The fact that [the receiver] was appointed inthe CCAA proceeding did not require the application to be filed in that proceeding. [The receiver] could have, and moreproperly should have, commenced a separate proceeding. [The receiver] was not appointed as interim receiver or receiverpursuant to the CCAA, but rather pursuant to the BIA and the Law and Equity Act, R.S.B.C. 1996, c. 253 (while theorder lifting the stay undoubtedly had to be made within the CCAA proceeding, there is a question in my mind about theappropriateness of appointing receivers within CCAA proceedings after the reorganization attempt has failed).














27 Sandvik Mining, therefore, involved a case where the CCAA proceedings had run their course and failed, but the CCAAcourt file had not yet been closed. The receiver, "as a matter of convenience", took advantage of that state of affairs to bring itsapplication in the CCAA court file. The message from the Sandvik Mining decision is that where the CCAA proceedings havecome to an end for all intents and purposes, an order made several years later in a dormant CCAA court file may well not bean order "made under" the CCAA.

28 Cliffs also relies on the decision in Monarch Land, which considered whether an order resulting from a trial of issues was"made under" the CCAA, and therefore required leave to appeal. Again, the context of that case explains its result.

29 Sanderson was one of a group of companies that obtained an initial order under the CCAA. In those proceedings, a trialof issues was directed. Prior to the trial, the list of issues was expanded. As a result, the trial judge considered two issues: (i)an accounting for sale proceeds as between two of the secured creditors of the debtors; and (ii) the ownership of parking stallspursuant to an agreement between the debtor and a secured creditor.

30 In respect of the first part of the trial order — dealing with the accounting between two secured creditors — O'BrienJ.A. stated, at para. 11:

It is common ground that the accounting issue arises out of a Postponement and Priority Agreement, a separate and distinctagreement between CMI and Monarch. Monarch concedes that this determination, including the limitations issue, "couldproperly have been made in a normal civil action between Monarch and CMI without any regard to the CCAA", andaccordingly that no leave is required with respect to that part of the judgment.

31 However, O'Brien J.A. concluded that the part of the trial order disposing of the second issue concerning the ownershipof the parking stalls was "made under" the CCAA. Distinguishing the case from Sandvik Mining, he wrote, at paras. 7 and 8:

Here the order of Horner J., the supervising judge in the CCAA proceedings, granted "a trial of an issue ... to determinewhether the Purchase and Sale Agreement of December 1, 2010, between [Sanderson] and [Monarch] included parkingstalls for the development of phase 3 of the Sanderson project". She lifted the stay in the CCAA proceedings specificallyfor that purpose. It is common ground that the subject Purchase and Sale Agreement was approved by an order made inthe CCAA proceedings...

In my view, it cannot be said, as it was in Sandvik, that "the determination of the issue in question was not incidental to anyorder made in the CCAA". To the contrary, the issue Horner J directed to trial required the interpretation of an agreementthat the court had expressly approved in the CCAA proceedings, and involved the need to interpret the order approving thesale. Both interpretations had a potential impact upon other Sanderson's other creditors in addition to CMI and Monarch.

32 Accordingly, Sandvik Mining and Monarch Land involved circumstances which lay beyond the boundaries of the usualCCAA proceeding: in Sandvik Mining, the CCAA proceeding had run its course long before the order was made, and in MonarchLand an issue between two secured creditors was tacked on, as a matter of procedural convenience, to a trial of an issue inthe CCAA proceeding. Consequently, I do not think that Sandvik Mining's distinction between an order "made in" a CCAAproceeding and one "made under" the CCAA or Monarch Land's reference to orders that "could properly have been made in anormal civil action" offers general guidance for considering whether leave to appeal is required under s. 13 of the CCAA.

A Purpose-Focused Approach to s. 13 of the CCAA

33 The inquiry, instead, should be purpose-focused. When asked to determine whether an order requires leave to appealunder s. 13 of the CCAA, an appellate court should ascertain whether the order was made in a CCAA proceeding in which thejudge was exercising his or her discretion in furtherance of the purposes of the CCAA by supervising an attempt to reorganizethe financial affairs of the debtor company, either by way of plan of arrangement or compromise, sale, or liquidation: Ted LeroyTrucking Ltd., Re, 2010 SCC 60 (S.C.C.) [hereinafter Century Services], at para. 59. If the order resulted from such an exerciseof judicial decision-making, then it is an order "made under" the CCAA for purposes of s. 13.















34 To aid that purpose-focused inquiry, the case law has identified some indicia about when an order is "made under" theCCAA. In Sandvik Mining, Tysoe J.A. stated a court should ask whether the order was "necessarily incidental to the proceedingsunder the CCAA" or "incidental to any order made under the CCAA": at paras. 9 and 10. In Monarch Land, O'Brien J.A. lookedat whether the order required the interpretation of a previous order made in the CCAA proceeding or involved an issue thatimpacted on the restructuring organization of the insolvent companies: at paras. 8 and 15. As mentioned, in Concrete Equities,Paperny J.A. stated that s. 13 of the CCAA would apply if "CCAA considerations informed the decision of and the exercise ofdiscretion by the chambers judge" or "if a claim is being prosecuted by virtue of or as a result of the CCAA": at paras. 16 and17. Finally, additional indicia were identified by this court in Hemosol Corp., Re, 2007 ONCA 124 (Ont. C.A.), at para. 3:

In our view, the proceeding before the motion judge and the decision under appeal were conducted and rendered underthe CCAA within the meaning of s. 13 and therefore leave to appeal is required. The notice of motion and the reasons ofthe motion judge explicitly state that the matter is a CCAA proceeding. Directions were sought, amongst other things, todetermine rights and requirements of voting in relation to the proposed plan of arrangement. There was no independentoriginating process to justify any other conclusion. The order determined rights arising under an agreement that arose outof and that was related entirely to the CCAA proceeding.

Application of the Purpose-Focused Approach

35 Applying those principles to the present case, I conclude that the Order was "made under" the CCAA. It was made by thejudge supervising an active CCAA proceeding in furtherance of the purposes of the CCAA. The evidence before the CCAA judgedisclosed that what, if any, rights Essar possesses under the Contract, which Cliffs purported to terminate on October 5, 2015,is an issue in the CCAA proceeding. In its Sixth Report dated January 11, 2016, the Monitor stated that Essar is preparing abusiness plan that will form part of the information made available to potential purchasers or investors in its Sale and InvestmentSolicitation Process ("SISP") recently approved under the CCAA. The Monitor reported: "A key component of the BusinessPlan is Algoma's raw material supply strategy, and in particular its strategy for the supply of iron ore pellets... In canvassing theiron ore pellet market and finalizing its supply strategy, Algoma needs certainty concerning the status of the Cliffs Contract."Based on that and other evidence, the CCAA judge concluded, at para. 31, that the "claim of Essar Algoma against Cliffs is anasset of the applicants to be dealt with in this Court." See also, Montreal, Maine & Atlantic Canada Co. (Montreal, Maine &Atlantique Canada Cie), Re, 2013 QCCS 5194 (C.S. Que.), at paras. 17 and 19.

36 Cliffs advances two additional reasons about why the Order was not "made under" the CCAA. I do not accept either.

37 First, Cliffs submits that the CCAA judge did not, on the face of his reasons, rely on a specific section of the CCAAto assume jurisdiction. In Sandvik Mining, Tysoe J.A. commented that the judge below had not relied on any provision of theCCAA. However, it does not follow, as Cliffs submits, that an order is not "made under" the CCAA unless the judge expresslyrelies on a section of the Act in granting the order. In Century Services, the Supreme Court of Canada recognized that a judgesupervising a CCAA proceeding will draw on both statutory authority under the CCAA and the court's residual authority underits inherent and equitable jurisdiction in order to decide specific issues that arise during the CCAA proceeding. Deschamps J.stated, at para. 65:

I agree with Justice Georgina R. Jackson and Professor Janis Sarra that the most appropriate approach is a hierarchical onein which courts rely first on an interpretation of the provisions of the CCAA text before turning to inherent or equitablejurisdiction to anchor measures taken in a CCAA proceeding...

38 In any event, the CCAA judge expressly relied on s. 11 of the CCAA in his decision on jurisdiction. He stated, at para. 28:

The CCAA provides in section 11 that a court has jurisdiction to make any order "that it considers appropriate in thecircumstances". A CCAA court clearly has the power as per Century Services to make the procedural orders of the kindsought by Essar Algoma in this case. See also Smokey River Coal Ltd., Re (1999), 12 C.B.R. (4th) 94 (Alta. C. A.) at paras.60 and 67 per Hunt J.A. in which he held that a judge has the discretion under the CCAA to permit issues to be decided inanother forum (in that case arbitration) but is under no obligation to do so. [Footnotes omitted.]











39 Whether or not the CCAA judge was correct at law in reaching that conclusion is a matter for consideration by the leaveto appeal panel, but is not relevant to the inquiry into the proper route Cliffs must follow to appeal the Order. The CCAA judgepurported to rely on s. 11 of the CCAA in making the Order, so the Order was "made under" the CCAA.

40 Second, Cliffs argues that because the contractual claim Essar seeks to assert against Cliffs could properly have been madein a normal civil action without regard to the CCAA, the Order was not "made under" the CCAA. I do not accept this submission.To decide the appeal route Cliffs must follow, the issue is not what claims Essar could have asserted in some hypotheticalproceeding; the issue is how to characterize the Order — was it "made under" the CCAA? The purpose-focused inquiry under s.13 of the CCAA must look at the order actually made, not at some order that could have been made in a hypothetical proceeding.

Conclusion

41 For these reasons, I concluded that the Order was "made under" the CCAA, and Cliffs therefore required leave to appealunder s. 13 of the CCAA.

VI. Order Expediting Leave to Appeal

42 Cliffs' motion for leave to appeal will be heard by a panel of this court on an expedited basis. In the Endorsement, I gavedirections that the parties serve and file the completed leave materials no later than Wednesday, February 24, 2016, so that thematerials could be placed before the panel on February 25, 2016.

VII. Stay Pending Appeal

43 Cliffs seeks a stay of Essar's Contract Dispute Motion before the CCAA judge pending its leave to appeal motion. Essaropposes the request for a stay.

44 As set out in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, 111 D.L.R. (4th) 385 (S.C.C.), at p.334, the three-part test for obtaining a stay pending appeal requires the moving party to demonstrate (a) there is a serious questionto be determined on the appeal, (b) the moving party will suffer irreparable harm if the stay is not granted, and (c) the balanceof convenience favours granting the stay: Yaiguaje v. Chevron Corp., 2014 ONCA 40, 315 O.A.C. 109 (Ont. C.A.), at para. 3.

A. Serious Question

45 Cliffs has demonstrated that its leave to appeal motion raises a serious question to be determined. Essar conceded as muchin its factum when it stated that this was, at best, a "neutral factor." And, at the hearing, Essar advised it was not contestingthat the serious question factor had been satisfied. In my view, that was a proper concession to make given the low thresholdto meet on this factor. Cliffs' stay motion turns on the other two factors.

B. Irreparable harm

Positions of the parties

46 Cliffs submits if a stay is not issued, it would effectively be deprived of the right to seek leave to appeal because Essar'sContract Dispute Motion would proceed before the CCAA judge in the face of Cliffs' jurisdictional challenge.

47 The parties provided an update on what has transpired in that proceeding since the Order was made. Last week, the partiesparticipated in two conference calls with the CCAA judge to discuss the procedure by which Essar's Contract Dispute Motionwould be adjudicated in the CCAA proceeding. Counsel advised that a further videoconference call was scheduled to take placeon Wednesday, February 17, 2016 before the CCAA judge at which time they expected the judge would render a decision onthe adjudication procedure. Cliffs stated it was not participating voluntarily in those scheduling calls, even though it had beenpermitted to file its procedural proposals with the CCAA judge on a without prejudice basis.





48 Cliffs submits that although Essar has undertaken not to treat Cliffs' participation in the scheduling and organizationof the Contract Dispute Motion as an attornment to the jurisdiction of the Ontario court, conflicting decisions from this courtcreate the risk that such an undertaking might not be given effect, posing a serious risk to Cliffs' ability to challenge the Ontariocourt's jurisdiction.

49 In response, Essar argues that a stay is not necessary in light of its agreement to expedite the hearing of Cliffs' motionfor leave to appeal and the undertakings it has given on the stay motion.

50 Essar filed an affidavit from its Chief Financial Officer, Rajat Marwah. He deposed that Essar wants the parties toready themselves for an adjudication of the Contract Dispute Motion. To that end, Essar has proposed to Cliffs that it deliverits responding affidavit evidence on the dispute on "an informal, without- prejudice basis outside the formal bounds of thesecourt proceedings." Essar, in turn, would complete certain documentary disclosure. Mr. Marwah provided the court with threeundertakings in order to permit Cliffs to exercise its appeal rights while enabling preparation to continue on the Contract DisputeMotion:

(i) Cliffs would not be required to file in the CCAA court any affidavit or other material delivered in preparation for thecontract dispute hearing;

(ii) Essar undertakes not to argue that the delivery of such materials by Cliffs or the taking of any steps toward a hearingof Essar's motion would amount to an act of attornment to the jurisdiction of the Ontario court; and

(iii) Essar would not invoke the jurisdiction of the Ontario court until Cliffs' appeal or motion for leave to appeal hasbeen decided.

Analysis

51 Over the past decade, judges of this court sitting in Chambers on stay motions have expressed different views aboutwhether a party risks attorning to the jurisdiction of the Ontario court by performing court-ordered procedural steps in the face ofthe party's on-going challenge to the court's jurisdiction. Some decisions have viewed such participation as risking attornment,thereby creating some risk of irreparable harm: M.J. Jones Inc. v. Kingsway General Insurance Co. (2004), 72 O.R. (3d) 68,242 D.L.R. (4th) 139 (Ont. C.A. [In Chambers]), at paras. 27-31; Stuart Budd & Sons Ltd. v. IFS Vehicle Distributors ULC,2014 ONCA 546, 122 O.R. (3d) 472 (Ont. C.A.), at paras. 29-36. On the other hand, in Van Damme v. Gelber, 2013 ONCA388, 115 O.R. (3d) 470 (Ont. C.A.), at paras. 21-23, the court minimized any such risk from court-ordered participation, and inYaiguaje v. Chevron Corp., at para. 11, MacPherson J.A. regarded any risk as a weak factor in the irreparable harm analysis.

52 I need not express a view on the effect of court-ordered participation in a proceeding on a party's ability to continue toadvance a jurisdictional challenge because decisions of this court uniformly have held that where the responding party providesthe court with undertakings of the kind given by Essar in this case, the undertakings significantly reduce or remove the riskof irreparable harm.

53 In BTR Global Opportunity Trading Ltd. v. RBC Dexia Investor Services Trust, 2011 ONCA 620, 283 O.A.C. 321 (Ont.C.A. [In Chambers]), at para. 14, Laskin J.A. described the undertakings given by BTR:

BTR wants to proceed with the Ontario action. It is content to have LBIE deliver a statement of defence without filingit with the court. It undertakes not to argue that delivery of the statement of defence or participation in examinations fordiscovery constitute acts of attornment. BTR also undertakes not to invoke the jurisdiction of the Ontario court, by, forexample, a motion for summary judgment, while LBIE's leave motion is outstanding.

[Emphasis added.]

54 Laskin J.A. did not consider the delivery of a statement of defence or participation in discoveries outside of the "formalbounds" of the court proceedings as amounting to attornment: at para. 31. Similar undertakings given in Yaiguaje v. Chevron












Corp., led MacPherson J.A., at paras. 11 and 16, to follow the decision in BTR Global and conclude that the moving partieshad made a very weak showing that they would suffer irreparable harm.

55 In light of the undertakings given by Essar to the court in the present case, I conclude that Cliffs have not demonstratedthat they would suffer irreparable harm if a stay pending appeal is not granted.

C. Balance of convenience

56 Both parties point to some "big picture" factors as tipping the balance of convenience in their favour. Cliffs contends thatEssar will not suffer any prejudice should a stay not issue because to date it has found sufficient quantities of replacement ironore pellets. As well, Essar did not pursue its critical supplier motion in the CCAA proceeding.

57 On its part, Essar stresses the need for an expedited determination of the contract dispute in light of the end of Aprildeadline for bids under the SISP process. Essar also advises that the Chapter 15 court in Delaware has deferred Cliffs' motionto lift the CCAA stay until the jurisdiction issue is resolved.

58 Although these factors are relevant to the determination of which party will suffer the greater harm from the granting orrefusal of a stay, in my view the most significant factor is much narrower in scope. While the parties did not file on this staymotion the procedural proposals they have presented to the CCAA judge, Essar advises that neither proposal contemplates Cliffsdelivering any materials over the next two weeks. Instead, during that time Essar will be required to deliver certain productions.

59 In those circumstances, the balance of convenience favours granting a stay. I have ordered Cliffs' leave to appeal motion tobe expedited. As a result, within the next two weeks the leave motion will be placed before a panel of this court for determination.If leave is not granted, the Contract Dispute Motion can proceed on the merits with little delay in preparation having occurred.If leave to appeal is granted, then the leave panel will consider whether or not to continue the stay.

D. Conclusion

60 In BTR Global, Laskin J.A. stated, at para. 16, that the three components of the stay test "are interrelated in the sense thatthe overriding question is whether the moving party has shown that it is in the interests of justice to grant a stay." In my view,the most significant factor affecting the interests of justice is the balance of convenience. It favours granting a stay. I thereforegranted a stay in the terms set out in para. 3 of the Endorsement:

As to that part of Cliffs' motion which seeks a stay of Essar's contract motion before the CCAA judge pending its exerciseof appeal rights in respect of the Order, I grant a stay of Essar's contract motion until such time as the panel of this courtdisposes of Cliffs' motion for leave to appeal. If the panel grants leave to appeal, the panel may consider whether or not tocontinue the stay based upon the stay motion materials already filed with the court.

61 Having granted a stay, I went on to state in para. 4 of the Endorsement:

Of course, nothing in this endorsement prevents Cliffs from voluntarily taking steps to prepare for an adjudication ofthe contract dispute with Essar, without prejudice to its argument that the Superior Court of Justice of Ontario lacks thejurisdiction to adjudicate that dispute. As part of such voluntary steps, it is always open to Cliffs to request, on a voluntary,without prejudice basis, the informal assistance of the CCAA judge on any hearing planning or preparation issues, and itis always open to the CCAA judge to provide any such requested informal assistance on a without prejudice basis.

VIII. Disposition

62 For the reasons set out above, I ordered (i) Cliffs to seek leave to appeal the Order under s. 13 of the CCAA, (ii) thehearing of the leave to appeal motion be expedited, and (iii) the issuance of a stay pending the disposition of the leave to appealmotion in the terms set out in para. 3 of the Endorsement.

Motion granted; cross-motion granted.




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Alberta-Pacific Terminals Ltd., Re, 1991 CarswellBC 4941991 CarswellBC 494, [1991] B.C.W.L.D. 1413, [1991] B.C.J. No. 1065...


1991 CarswellBC 494British Columbia Supreme Court

Alberta-Pacific Terminals Ltd., Re

1991 CarswellBC 494, [1991] B.C.W.L.D. 1413, [1991] B.C.J. No. 1065, 26 A.C.W.S. (3d) 958, 8 C.B.R. (3d) 99

Re COMPANY ACT, R.S.B.C. 1979, c. 59; Re BUSINESS CORPORATIONS ACT,S.A. 1981, c. B-15; Re COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C.

1985, c. C-36; Re ALBERTA-PACIFIC TERMINALS LTD., FRASER SURREYDOCKS LTD., PACIFIC TERMINALS LTD., JOHNSON MARINE TERMINALS

LIMITED and JOHNSTON INTERNATIONAL SERVICES (HONG KONG) LTD.

Huddart J. [in Chambers]

Heard: April 18-19, 1991Judgment: May 8, 1991

Docket: Doc. Vancouver A903661

Counsel: M. Copping Hollis and G. Hughes, for applicants Fraser River Harbour Commission.R. Holmes and G. Matei, for petitioners.J. Dixon and A. Perry, for Her Majesty the Queen in right of the Province of Alberta and Alberta Treasury Branch.S. Jermyn, for Rico Equipment, an unsecured creditor.


Application for order directing payment of moneys due under agreement in spite of stay under Companies' CreditorsArrangement Act.

Huddart J. [In Chambers]:

1 This application is about the right of the Fraser River Harbour Commission to be paid moneys pursuant to its agreementwith Fraser Surrey Docks Ltd. ("FSDL"), under which FSDL operates the deep-sea common user terminal of the Fraser port,while all proceedings against FSDL and its associated companies are stayed by orders made under the Companies' CreditorsArrangement Act, R.S.C. 1985, c. C-36.

2 Under the terms of the operating agreement made January 1, 1989, FSDL is the terminal agent and wharfinger forthe commission. The commission administers the Fraser port under the Harbour Commissions Act, R.S.C. 1985, c. H-1. TheJohnston Group of companies has operated the terminal for more than 20 years, but since the 1989 agreement and relatedexpansion, it has run into financial difficulties. The petitioners attribute these difficulties to a chemical spill in August 1989, andconsequential claims for damages; a very high debt/equity ratio and the refusal of the Alberta treasury branch and governmentto convert their debt to equity; a fire on November 14, 1990; and finally, the commission's threat on November 16, 1990, toterminate the operating agreement.

3 To assist FSDL with the earlier of these difficulties, the commission had agreed on July 27, 1990, to defer paymentsdue under the operating agreement for the months of June to September inclusive, the same to be paid on December 31, 1990.When FSDL defaulted on the regular payment for October due on November 15, 1990, the commission refused a request fora further deferral, advising that it would consider termination of the operating agreement if payment was not made within the7 days of grace allowed under the contract.



4 FSDL considers that the commission has the right to terminate the operating agreement only upon its insolvency.When FSDL and its related companies admitted they were insolvent and sought the protection available to them under theCompanies' Creditors Arrangement Act (the "CCAA") on November 22, 1990, FSDL owed the commission about $976,000.The commission claims that Johnston Marine Terminals Limited ("JMTL") then owed it $353,000. The total debt of thepetitioners to the Alberta government and the Alberta treasury branches ("Alberta") was $13 million, some of it secured.

5 The operating agreement is the primary asset of FSDL. Without it and the operating line of credit from the Alberta treasurybranches, the petitioners would be unable to operate the terminal.

6 The ex parte order Mr. Justice Skipp made on November 22, 1990, stayed all proceedings against the petitioners until May31, 1991, specifically enjoined the commission from taking any steps to terminate the operating agreement and the option tolease in favour of Pacific Terminals Ltd. ("Pacific") without further order, and ordered that contracts that might give a benefitto any petitioner "be maintained in full force and effect pending further order of this Court."

7 In December, the petitioners paid $28,544 to the commission, the amount attributable to the period in November followingthe CCAA order.

8 On December 18, Mr. Justice Spencer varied the order to provide for the continued provision by the Alberta treasurybranches of the "existing $1.25 million operating credit facility" to the petitioners or any of them. Included in that order wasa provision that "interest calculated on the daily outstanding principal amount under the Facility is to be paid monthly." Theorder was made with the consent of the petitioners, Alberta, and the commission. No similar provision was made with regardto the monthly payments required by the operating agreement.

9 FSDL did not make the payment due on January 15, or any subsequent payments. The payments due exceed $200,000per month. FSDL claimed that it could not afford to make the payments, that the payments were prohibited under the order,and that, in any event, to make any payment on account of the operating agreement would be to favour an equity participantover general creditors.

10 The commission interpreted the order and its relationship with FSDL differently. It considered that the order requiredpayments under the operating agreement to be continued. The matter came before Mr. Justice Arkell, who concluded on March28:

The present orders of the court require the Commission to continue and maintain the operating agreement for the benefitof the Petitioners, pending the reorganization plan, or further order of the court. The present court orders neither prohibitnor do they require the continuation of the monthly payments due under the operating agreement.

The Commission is at liberty to apply to the court to vary the present court orders for a right of preference over othercreditors and to receive continuing payments under the terms of the operating agreement. Alternatively, the Commissionmay apply to the Court for leave to commence an action against the Petitioners and sue for damages or ultimately fortermination of the operating agreement.

Because he had reached this conclusion accepting the position of the commission that it was a "creditor" within the meaningof the CCAA, Mr. Justice Arkell did not find it necessary to resolve the dispute as to the nature of the relationship betweenthe petitioners and the commission.

11 This application is a sequel to the application before Mr. Justice Arkell. It revisits the issue as to the nature of therelationship between the petitioners and the commission, and it asks this court to direct the payment by the petitioners of theamounts that fall due monthly under the operating agreement.

12 I find that I need consider only the second issue. The authorities cited by both counsel persuade me that the categorizationof any commercial relationship will vary with the issue before the court. If and when a determination of the rights and obligationsof the parties to the operating agreement is required, the court may be called upon to determine the nature of their relationship.



If and when the court is called upon to fix the classes of creditors for the purpose of voting on a reorganization plan, the courtmay be required to determine whether or not the commission is a "creditor" within the meaning of the CCAA. Until some suchoccasion arises, I can see no reason for saying anything about their relationship.

13 It may be that the commission is anxious that the court determine the nature of its relationship with FSDL, JMTL, andAlberta-Pacific Terminals Ltd., before the fixing of the classes of creditors. If so, it did not say so.

14 There is no doubt that the commission is concerned at the hint in the petitioners' argument that they may be seeking thecourt's and the creditors' approval of a reorganization plan that will restructure their "revenue sharing arrangements" with thecommission without the approval of the commission. A question about the judicial nature of the relationship might arise if thepetitioners successfully exclude the commission from voting as a creditor, then seek to have it bound by any reorganizationplan. From the information available to me on this application and from my understanding of the purpose and scheme of theCCAA, I consider such an idea so far-fetched as not to require further comment.

15 It may be that the commission considers the nature of the relationship material to the issue as to whether or not it should bepaid the moneys that have fallen due since November 30 or that will fall due before May 31, or any later termination of the stay.I do not find it to be so because I have not had recourse to the arguments put forward by the petitioners based on joint venture,debt or equity contribution, or equitable subordination, in reaching the conclusion that I should not order the petitioners or anyof them to pay moneys pursuant to the operating agreement pending the termination of the stay orders.

16 I have come to that conclusion having regard to the purpose and scheme of the CCAA, the terms of the operatingagreement, and the financial circumstances of the petitioners as revealed in the monitor's report.

17 The purpose of the CCAA is to facilitate a compromise between an insolvent corporate debtor and its creditors so thatthe company is able to continue in business, said Mr. Justice Gibbs in Hongkong Bank of Canada v. Chef Ready Foods Ltd.(1990), 4 C.B.R. (3d) 311, 51 B.C.L.R. (2d) 84, [1991] 2 W.W.R. 136 (C.A.), at p. 88 [B.C.L.R.]. No creditor is exempted. Butneither is anyone who is not a creditor included within its ambit.

18 At p. 90 of the Chef Ready case, Mr. Justice Gibbs said of the effect of the CCAA on the property interest acquired bya bank under s. 178 [Bank Act, R.S.C. 1985, c. B-1] security:

But, it must be asked, in what respect does the preservation of the status quo qua creditors under the C.C.A.A. for atemporary period infringe upon the rights of the bank under ss. 178 and 179? It does not detract from the bank's title; itdoes not distort the mechanics of realization of the security in the sense of the steps to be taken; ... it does not breachthe 'complete code'. All that it does is postpone the exercise of the right to seize and sell. And here the bank had alreadyallowed at least five days to expire between the accrual of the right and the taking of a step to exercise.

19 From a similar perspective, it can be said that all that the orders pursuant to the CCAA do with regard to the commission'srights under the operating agreement is to postpone the exercise of the right to terminate the agreement on insolvency or tosue for payments not made as they fall due. The commission had already allowed a 4-month postponement. So the petitionersargue. However, the commission seeks neither to sue nor to terminate the agreement. It does not wish to prevent FSDL fromcarrying on business. It recognizes the purpose of the stay of proceedings.

20 Rather, it says that the orders requiring it to continue to provide its land and facilities without current recompense andwithout any guarantee of future recompense make it unique among the creditors of the petitioners, unlike the Alberta treasurybranches, who are to continue the line of credit facility, but who are to receive current interest on the credit advanced under it,and unlike those creditors who are paid for current supply of goods and services. In effect, it says that the monthly paymentsshould be made in the ordinary course of business for the continued use of the land and facilities, because if they are not, thecommission's position is eroding relative to other creditors. Its debt is growing each month, not only by accrual of interest, butby an additional $200,000, on average. It is providing the land and facilities from the use of which income is being derivedwithout any compensation from that income. Thus it seeks an order for payment of the moneys as they accrue due to "preservethe status quo."




21 The petitioners say that to accede to the commission's request to be paid would be to give it a preference over generalcreditors to which it is not entitled, given the terms of the operating agreement and particularly the way in which the paymentsare structured. The commission disagrees, saying that the operating agreement is valid and enforceable, there being neither anagreement nor an order suspending or prohibiting payments under it, and that to require current payments to be made wouldnot be to prefer one creditor over another with regard to debt accumulated before the stay orders.

22 In Chef Ready, supra, Mr. Justice Gibbs described the court's function on applications such as these at pp. 88 and 89,in these words:

When a company has recourse to the C.C.A.A. the court is called upon to play a kind of supervisory role to preserve thestatus quo and to move the process along to the point where a compromise or arrangement is approved or it is evident thatthe attempt is doomed to failure. Obviously time is critical. Equally obviously, if the attempt at compromise or arrangementis to have any prospect of success, there must be a means of holding the creditors at bay, hence the powers vested in thecourt under s. 11.

23 The status quo is not always easy to find. It is difficult to freeze any ongoing business at a moment in time long enoughto make an accurate picture of its financial condition. Such a picture is at best an artist's view, more so if the real value of thebusiness, including goodwill, is to be taken into account. Nor is the status quo easy to define. The preservation of the statusquo cannot mean merely the preservation of the relative pre-stay debt status of each creditor. Other interests are served by theCCAA. Those of investors, employees, and landlords among them, and in the case of the Fraser Surrey terminal, the public too,not only of British Columbia, but also of the prairie provinces. The status quo is to be preserved in the sense that manoeuvresby creditors that would impair the financial position of the company while it attempts to reorganize are to be prevented, not inthe sense that all creditors are to be treated equally or to be maintained at the same relative level. It is the company and all theinterests its demise would affect that must be considered.

24 Obviously, the commission is one of the most important of those interests, because it holds and administers the public'sinterest in the land and facilities.

25 When I have regard to all of the materials put before me by the commission, I find no proof of hardship or even of need.For example, I see no suggestion that the commission is incurring expenses related to the Fraser Surrey dock that it must payfrom other sources of revenue. Its only concern is that its position not be eroded relative to the position of other creditors. Ifthe reorganization is successful, it is unlikely the commission will suffer any loss in the value of its position to which it has notagreed. If the reorganization turns out not to be possible, the commission's loss because of the stay may be substantial. Or itmay not be. The owner of land and facilities is not in the same position as a creditor owed a fixed sum of money, easily valued.

26 When I have regard to the monitor's cash flow statements, I do not find the money to make the payments sought. Theoriginal ex parte order and the subsequent consent order left to management of the petitioners a considerable area of discretionin the application of its current cash flow. Given the terms of the operating agreement, the history of the relationship betweenthe commission and the petitioners, the nature of the terminal operation, the nature of the line of credit facility, and those cashflow statements, I have decided that it is inappropriate for the court to intervene in management's exercise of that discretionwithout some reason, perhaps evidence of hardship to the commission or of erosion of its property value.

27 I have reached that conclusion despite some considerable reservations about the way in which management has exercisedthat discretion, as revealed in the monitor's reports. Those reports suggest that payments have been made to other creditorsfrom the petitioners' cash flows, contrary to this court's orders. I do not consider that I should discuss this matter further inthese reasons. I advised counsel at the hearing of this application that such matters should be considered on another occasionon notice to all interested parties. On this hearing, only one unsecured creditor appeared. That creditor did not suggest that ithad reason to remain after ascertaining the nature of the application and that its presentation would require the disclosure ofinformation contained in the monitor's reports, sealed by order of Mr. Justice Spencer. It may be that unsecured creditors willwish to request further information if they receive notice of an application authorizing other payments.

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Application dismissed.


TAB 10

Humber Valley Resort Corp., Re, 2008 NLTD 174, 2008 CarswellNfld 2912008 NLTD 174, 2008 CarswellNfld 291, 172 A.C.W.S. (3d) 290, 280 Nfld. & P.E.I.R. 268...


2008 NLTD 174Newfoundland and Labrador Supreme Court (Trial Division)

Humber Valley Resort Corp., Re

2008 CarswellNfld 291, 2008 NLTD 174, 172 A.C.W.S. (3d) 290,280 Nfld. & P.E.I.R. 268, 50 C.B.R. (5th) 137, 859 A.P.R. 268

IN THE MATTER OF The Companies' CreditorsArrangement Act, R.S.C. 1985, c. C-36 as amended

And IN THE MATTER OF A Plan of Compromise of Arrangement of HumberValley Resort Corporation, Newfoundland Travel and Tourism Corporation,Humber Valley Construction Limited and Humber Valley Interiors Limited

And IN THE MATTER OF An Application of Maxium Financial ServicesInc. for an Order lifting the Stay of Proceedings provided in the Initial Orderdated September 5, 2008, as amended by the Order dated October 14, 2008

R.M. Hall J.

Heard: October 31, 2008Judgment: November 4, 2008

Docket: 2008 01T 3743

Counsel: Geoffrey L. Spencer for ApplicantJohn Stringer, Q.C., Stephen Kingston, Douglas B. Skinner for RespondentsDean A. Porter for Home Construction LimitedNeil L. Jacobs for Her Majesty the Queen in right of Newfoundland and Labrador

Subject: Insolvency; Civil Practice and Procedure

APPLICATION by creditor for order lifting stay of proceedings pursuant to Companies' Creditors Arrangement Act.

R.M. Hall J.:

Background

1 Humber Valley Corporation, Newfoundland Travel and Tourism Corporation, Humber Valley Construction Limited, andHumber Valley Interiors (collectively referred to as the "Resort") were granted protection pursuant to the Companies' CreditorsArrangement Act, R.S.C. 1985, c. C-36 as amended (the "CCAA") by an Initial Order issued by this Court on September 5, 2008.

2 The Initial Order provided for a Stay of Proceedings with respect to the Resort from the date of the Initial Order up toand including October 6, 2008, and this Stay of Proceedings was extended to December 5, 2008, by an Order of the Courtdated October 14, 2008 [Humber Valley Resort Corp., Re, 2008 CarswellNfld 262 (N.L. T.D.)]. The extension of the Stay ofProceedings was subject to the right of creditors of the Resort to request a review and reconsideration of the extension.

3 The Applicant, Maxium Financial Services Inc. ("Maxium") seeks to have the Stay of Proceedings lifted as it pertains toMaxium and in particular seeks an order requiring the Resort to deliver up possession to Maxium of various pieces of equipmentleased under certain capital leases made between Maxium and the Resort (the "Equipment").




4 Maxium is in the business of providing lease financing and asset management services to, inter alia, customers in the golfcourse industry. It began its relationship with the Resort in 2003 when it leased various pieces of the Equipment to the Resortfor the operation of a golf course on the Resort property at Humber Valley, Newfoundland. Security was given to Maxium byHumber Valley Resort Corporation by way of a Master Lease Agreement. The validity and enforceability of the Master LeaseAgreement is not contested nor is it contested that payment thereunder is presently in arrears and Maxium is entitled, save andexcept for the effect of the Stay of Proceedings granted herein, to enforce its security.

5 The Equipment leased under the Master Lease Agreement is still in the possession of Humber Valley Resort Corporation. Itis agreed that most of the Equipment has been winterized and stored and there are no concerns about its physical diminishmentas a result thereof. Only a few pieces of the Equipment are currently being used to maintain the golf course and to prepare it forwinterization. With the advent of snow conditions, that work will cease also and is expected to cease in a few weeks.

The Present Application

6 Maxium contends it is being severely prejudiced by the Stay of Proceedings on the basis that its security position is beingeroded. In Affidavits filed with the Court, Maxium contends that the buying season for golf course equipment of the nature

leased to the Resort is presently ongoing. It contends that 50% of Canadian golf courses shut down from December 1 st to

February 1 st of each year. Those courses which close on December 1 st , Maxium contends, will make their equipment purchasedecisions in October and November. Maxium contends that in order to have an opportunity to sell the Equipment to anothergolf course prior to the commencement of the 2009 golf season (which Maxium says would commence in or around April 1,2009), Maxium would have to proceed to market the Equipment by November at the latest. If Maxium is unable to market theEquipment during this short window of opportunity, it contends that the value of the Equipment will deteriorate with the lossincreasing as the next golf season approaches.

7 Maxium produced a table showing its anticipated realizations on the sale of the golf Equipment at various times. It contendsthat if the Equipment was sold in November 2008 the realization would be $808,286. However, if the sale was held off and madeduring the period of December 2008 to April 2009, that realization would be reduced by $135,556 to a total of $672,730. Afurther delay of the sale to take place during the summer of 2009 would see that reduction in value being to the level $585,100.Maxium points out that even if it were to proceed to sell the Equipment immediately it is anticipated that it will incur deficiencywith respect to the indebtedness owed to it by the Resort.

8 Maxium has noted that the Resort had previously indicated that it hoped to attract an operator for the golf course for the 2009golf season and that such operator would hopefully negotiate lease terms with Maxium in order to secure the continued use ofthe Equipment. However, Maxium points out that it may not approve financing for such a prospective operator and that Maxiumshould not be forced to let the Equipment sit idle while it depreciates in value in the interim. It points out that the golf courseis no longer in operation and the Equipment is, for the most part, not in use. It contends that the Equipment can be removedwithout detrimentally affecting the Resort. In the event that the Resort is able to attract a new operator for the golf course,Maxium contends that the new operator can obtain golf course equipment from other sources in time for the 2009 golf season.

The Response of the Resort

9 The Resort, on its part, contends that a functioning golf course is key to a successful restructuring of the Resort's financialaffairs. Key to that operation of the golf course is the existence of the Equipment, leased by Maxium to the Resort, saidEquipment being in place and ready for the use at the commencement of the golf season in the spring of 2009. Implicit in thisargument is the suggestion that if the Equipment is not available, the purchase from new sources of new equipment will be moreexpensive, more time-consuming, and likely to delay the opening of the golf course and that collectively these complicationswill make the restructuring of the financial affairs of the Resort more difficult. In addition, the Resort argues that if the Stay ofProceedings is lifted as against Maxium, such action by the Court is likely to encourage a veritable stampede of applications byother creditors seeking to have their equipment repossessed. The Resort has not received applications from any other creditorsseeking a lifting of the Stay of Proceedings. However, a review of the registered PPSA security against the Resort, tendered



as an exhibit to the Maxium affidavits, indicates security issued by the Resort to numerous creditors governing various motorvehicles, heavy construction equipment and computer equipment. No evidence was presented by the Resort to show that the lossof this Equipment would prejudice the restructuring, albeit where construction for the completion of approximately 130 chaletswill need to recommence after the restructuring, the presence of the heavy equipment would seem to be logically required.Similarly, the loss of computer equipment might impact the restructuring through loss of the financial records and other recordsof the Resort.

Law and Argument

10 The Court has authority to lift a Stay of Proceedings granted under the CCAA by virtue of section 11(4) of the CCAA.That section provides:

11.(4) A court may, on an application in respect of a company other than an initial application, make an order on suchterms as it may impose,

(a) staying, until otherwise ordered by the court, for such period as the court deems necessary, all proceedings takenor that might be taken in respect of the company under an Act referred to in subsection (1);

(b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against thecompany; and

(c) prohibiting, until otherwise ordered by the court, the commencement of or proceeding with any other action, suitor proceeding against the company.

11 It is to be noted that this power is discretionary but the CCAA does not set out any specific tests with respect to the liftingof a Stay or Proceedings. Section 11(6) of the CCAA does however provide a minimal amount of guidance. It states:

11.(6) The court shall not make an order under subsection (3) or (4) unless


(b) in the case of an order under subsection (4), the applicant also satisfies the court that the applicant has acted, andis acting, in good faith and with due diligence.

12 The Saskatchewan Court of Appeal in ICR Commercial Real Estate (Regina) Ltd. v. Bricore Land Group Ltd. (2007),33 C.B.R. (5th) 50 (Sask. C.A.) held that the test for lifting the Stay of Proceedings under the CCAA should be based on soundreasons consistent with the scheme of the CCAA:

68. In determining what constitutes "sound reasons", much is left to the discretion of the judge. However, previous decisionson this point provide some guidance as to factors that may be considered:



(c) the merits of the proposed action, where they are relevant to the issue of whether there are "sound reasons"for lifting the stay (i.e., as was said in Ma, Re, if the action has little chance of success, it may be harder toestablish "sound reasons" for allowing it to proceed).

The supervising CCAA judge should also consider the good faith and due diligence of the debtor company as referencedin s. 11(6). Ultimately, it is in the discretion of the supervising CCAA judge as to whether the proposed action ought tobe allowed to proceed in the face of the stay.





13 In Canadian Airlines Corp., Re (2000), 19 C.B.R. (4th) 1 (Alta. Q.B.) at paragraph 20 the Court outlined various situationsin which courts have lifted a Stay or Proceedings. At paragraph 20 the Court stated:

20. At pages 342 and 343 of this text, Canadian Commercial Reorganization:

Preventing Bankruptcy (Aurora: Canada Law Book, looseleaf), R.H. McLaren describes situations in which the courtwill lift a stay:

1. When the plan is likely to fail;

2. The applicant shows hardship (the hardship must be caused by the stay itself and be independent of any pre-existing condition of the applicant creditor);

3. The applicant shows necessity for payment (where the creditors' financial problems are created by the order orwhere the failure to pay the creditor would cause it to close and thus jeopardize the debtor's company's existence);

4. The applicant would be severely prejudiced by refusal to lift the stay and there would be no resulting prejudiceto the debtor company or the positions of creditors;

5. It is necessary to permit the applicant to take steps to protect a right which could be lost by the passage of time;

6. After the lapse of a significant time period, the insolvent is no closer to a proposal than at the commencementof the stay period

14 In Canadian Airlines (supra) the Court dismissed the application to lift the Stay of Proceedings on the basis that the valueof the applicant's security was well in excess of what they were owed and that the applicants had not established that they wouldsuffer any material prejudice in having to wait three weeks for the creditors' meeting to vote on the plan or arrangement.

15 In dealing with the issue of the balance of convenience, Maxium contends that if it is permitted to repossess its Equipmentthe Resort will not be inconvenienced as much as Maxium would be by the refusal to allow repossession. It emphasizes that theEquipment is not in use and is in storage and that the golf course is no longer in operation and that, if the Resort is successfulin finding a new operator, that new operator will be able to acquire equipment on its own for the commencement of the golfseason in 2009. On the other hand, Maxium will be severely prejudiced by leaving the Equipment idle with the Resort while itssecurity erodes with the passage of time decreasing as much as 28% in value by summer 2009.

16 Maxium contends there would be no prejudice to the other creditors of the Resort, as the Resort would still be in a positionto seek an operator of the golf course and that courts generally recognize that a reduction in the value of inventory during a stayperiod is an important decision and a factor to be considered by a court to lift a Stay for an inventory financier.

17 The Resort, on the other hand, urges that the Court should consider that it continues to work diligently and in goodfaith to restructure its affairs and that that restructuring ought to be allowed to proceed without interruption by reason of therepossession of the Maxium Equipment.

Conclusion

18 In considering the six tests set out by the Alberta Queens Bench in Canadian Airlines (supra), the single most importanttest is whether Maxium would be severely prejudiced by the refusal to lift the Stay of Proceedings and that there would beno resulting prejudice to the Resort or to its creditors. It is interesting to note the strong language of this particular condition.Maxium is required to be "severally" prejudiced by the refusal to lift the Stay of Proceedings. On the other hand, there must be"no resulting prejudice" to the Resort or to the position of its creditors if the Stay is lifted. It is difficult to reconcile this extremelystrong statement with the requirement set out by the Saskatchewan Court of Appeal in ICR Commercial Real Estate (supra)that the Court has to consider a "balance of convenience". It is difficult to conceive how there can be any consideration of a







balance of convenience where the Canadian Airlines (supra) decision requires that there be no prejudice to the debtor companyor to the position of its creditors. If there is no prejudice, what is there to be balanced against the impact upon Maxium if it isnot to repossess? I am not satisfied that the tests which I should apply should be as stringent as that set out in condition numbersix, paragraph 20 of the Canadian Airlines (supra) decision. Rather, I am satisfied that there merely should be a balancing ofthe levels of prejudice to the creditor, Maxium, or to the Resort, depending upon whether the application to lift the Stay orProceedings is allowed or not. This consideration needs to be made in light of the stated purpose of the CCAA, which is to allowa corporation sufficient time to restructure itself and that the Stay of Proceedings is not intended to maintain an absolute Stayof Proceedings at the positions existing before the Initial Order, insofar as they relate to either the Corporation or to creditors.

19 With these principles in mind, I conclude that Maxium has not demonstrated that the level of prejudice, which it mightsuffer, outweighs the difficulties that the removal and sale of its leased Equipment will cause to the Resort and to its restructuringefforts. Firstly, the stated debt owing to Maxium is overstated by the amount of the goods and services tax of over $100,000.Obviously, if the Equipment is repossessed, that goods and services tax is not payable. Therefore, the initial loss at least ofMaxium is overstated. Additionally, Maxium has confined its research and opinion as to its prospective losses solely to thesituation that would pertain if the Equipment was to be sold in Canada. Maxium deposes that it does not carry on businessin the United States and has no knowledge of the United States market. That ignorance on its part, however, should not be afactor in causing this Court to accept that the only market for the Equipment is a Canadian market. It is logical that brokerswould be available in the United States who could provide Maxium with evidence as to the market value of this Equipment ina U.S. market. With U.S. golf courses generally being open for a longer season, it is probable that there would be many morepurchasers of this Equipment looking year-round for equipment to purchase. Additionally, the recent decline in value of theCanadian dollar versus the U.S. dollar would give a selling advantage to Maxium, if it were selling in to the United States.

20 Therefore, I am not satisfied that the prejudice to Maxium would substantially outweigh the prejudice to the Resort. Inaddition, I am not satisfied that Maxium has conducted sufficient investigations to market this Equipment widely and thereforehas not used best efforts in its own interest or in the interest of the Resort.

21 IT IS THEREFORE ORDERED that the application of Maxium is dismissed. There shall be no order as to costs.Application dismissed.




TAB 11

Shire International Real Estate Investments Ltd., Re, 2010 ABQB 84, 2010 CarswellAlta...2010 ABQB 84, 2010 CarswellAlta 234, [2010] A.W.L.D. 1788, [2010] A.W.L.D. 1789...


2010 ABQB 84Alberta Court of Queen's Bench

Shire International Real Estate Investments Ltd., Re

2010 CarswellAlta 234, 2010 ABQB 84, [2010] A.W.L.D. 1788,[2010] A.W.L.D. 1789, 184 A.C.W.S. (3d) 597, 64 C.B.R. (5th) 92

IN THE MATTER OF THE Companies' Creditors Arrangements Act, R.S.C. 1985,c.C-36, AS AMENDED, THE Judicature Act, R.S.A. 2000, c. J-2, AS AMENDED

AND THE Business Corporations Act, R.S.A. 2000, c. B-9, AS AMENDED

AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF SHIRE INTERNATIONALREAL ESTATE INVESTMENTS LTD., SHIRE CAPITAL LTD., HALAMA GARDENS LLC, SHIRE ASSETMANAGEMENT LTD., WINN RIVER RESORT LTD., FOR MCMONEY PROPERTIES II LTD., HALAMA

GARDENS LTD., MAPLES AND WHITE SANDS INVESTMENT LTD., FORT MCMONEY DEVELOPMENT LTD.,TSEHUM HARBOUR LTD., BEARSPAW AT 144TH AVENUE LTD., BEARSPAW AT 144TH EQUITIES LTD.,BEARSPAW AT 144TH BONDS INC., TSEHUM HARBOUR EQUITIES LTD., TSE HARBOUR BONDS LTD.

and ORILLIA INVESTMENTS LTD., 0726028 B.C. LTD., 0475816 B.C. LTD. and BOSUN'S HOLDINGS LTD.

C.A. Kent J.

Heard: December 4, 2009Judgment: February 3, 2010Docket: Calgary 0901-11866

Counsel: Bud Steen for Charles & Meridel GravesG. Tucker, S. Stephens for RomspenDavid McLellan for Lofgren and other investorsRobert Kennedy for EchoKen Lenz for ShireSean Collins for Ernst & YoungTrevor Batty for 1206354 AB.Peter Leveque for 1533021 ONTJohn McLean for Invest ItDerek Vermette for Alberta Securities Commission

Subject: Insolvency

HEARING concerning various issues relating to Companies' Creditors Arrangement Act proceedings.

C.A. Kent J.:

1 I granted a CCAA Order on August 29, 2009. The first comeback application was heard by another judge on October 82009. He extended the Order until December 8. 2009. Counsel for Shire, supported by the Monitor/Receiver of Shire seeksan extension to the Order, permission to draw on all of the DIP financing previously ordered and approval of a RFP ProjectAgreement with Foxbridge Asset Management Ltd.

2 Shire is comprised of 21 companies involved in the land acquisition business. Their business was to purchase property,financed by way of mortgages and private investors. There are about 2800 private investors. At the time the original Order wasgranted, information about the value of the properties was scant. The Monitor undertook an analysis of the companies' assets



and liabilities and in its Third Report, provided his best estimate of the financial circumstances of Shire. It was the Monitor'sconclusion that on a consolidated basis there was about $17,000,000 in excess of the secured debt. It was on the basis of thatestimate that the October 8th order was granted. The October 8th Order contained more. In addition to extending the stay,the Chambers judge increased the DIP facility to $2.5 million and set priorities with respect to the DIP charge and other fees,including a receiver's charge of $250,000. Because of the apparent lack of confidence that investors had in Shire management,the Chambers judge ordered that the Monitor in the CCAA proceedings also become the receiver manager of Shire.

3 Subsequent to granting the October 8th Order, the Monitor realized that there was an error in the Third Report such that theapparent equity on a consolidated basis was closer to $12 million. Counsel approached the Chambers judge to determine whetherit was appropriate that he reconsider the matter to determine whether he would have made the same order. The Chambers judgedetermined that I should make the decision as part of the application to extend the stay.

4 Also after the October 8th Order, Fisgard Capital Corporation who is a secured lender on one of the Shire propertiesobtained an order from another judge who lifted the stay of proceedings with respect to the companies in which Fisgard had aninterest and declared that the DIP charge did not charge the properties held by those companies. He did that because there wasno equity in the property. As well, two secured lenders of other properties appealed the October 8th Order. An application to

stay the Order was refused. In applying the tripartite test, Madam Justice Paperny, like the October 8 th Chambers judge wasunder the impression that there was $17 million of equity. Her decision indicates to me that her reason for denying the staywas because the risk to the secured lenders was minimal. The final fact which is important to note is that of the DIP facilityapproved, only the original $1 million has been advanced with the balance held in trust by counsel for the Monitor.

5 Shire argues that the stay ought to be extended even though the amount of equity available is $12 million, not $17 millionas originally thought. It acknowledges that much of the information on value is estimated. There has been no money availableto obtained up-to-date appraisals because of the several legal proceedings in the past two months. It points out that there is nowa plan or at least a schedule to put a plan into place. The RFP Plan is intended to find a candidate or candidates who would bidon the properties which would in turn maximize value for both the secured lenders and the private investors. The Monitor saysthat the process up to court approval of the successful bidder(s) would be completed by mid-March.

6 Shire says that the RFP Plan is realistic and that because of the equity in the properties, the secured lenders are protected.Shire is supported in its application by counsel for 800 of the investors who have collectively advanced $70 million.

7 There was vigorous opposition to Shire's application by several of the secured lenders. They argue that this is a liquidatingCCAA and while sometimes a liquidating CCAA makes sense this is not an appropriate case. There is nothing about the propertiesin these companies that would attract new investors. These are "bits and pieces" of land geographically spread out that do notlend themselves to being sold as a package. In these circumstances, there is nothing that makes CCAA proceedings more likelyto achieve the best result for the most parties than allowing the foreclosure proceedings to run their course. They argue thatthere is no equity in the properties when you consider them on a consolidated basis. The reason for the lack of equity is thatthe amounts used by the Monitor as value for the property are too high because the information is out of date or otherwisesuspect, there is no accounting for any unpaid taxes, liens or other expenses and no recognition that selling these propertieswould involve real estate commissions and other expenses. Further, they say that on an unconsolidated basis, there is no equityin some properties and those properties should not be primed with the DIP financing. They argue that the RFP Plan is no planat all. It is at best a plan to make a plan and at worst is proposing to do things some of the secured lenders have been alreadydoing in their foreclosure proceedings.

8 The secured lenders cited several cases where CCAA proceedings have either been denied or the stay not extended, includingCliffs Over Maple Bay Investments Ltd. v. Fisgard Capital Corp., [2008] B.C.J. No. 1587 (B.C. C.A.), Encore DevelopmentsLtd., Re, [2009] B.C.J. No. 62 (B.C. S.C.) and Octagon Properties Group Ltd., Re, 2009 ABQB 500 (Alta. Q.B.). Specificallyaddressing Octagon, a decision of this court, counsel said that the only difference between Octagon and Shire is the large numberof private investors in Shire.






9 Having regard to the objectives of the CCAA, the large number of unsecured investors is, or more properly, was anappropriate consideration in granting CCAA protection. However, that cannot trump the interests of secured creditors when thefacts show that continuing CCAA proceedings is putting their security at risk. That is so particularly in circumstances wherethere is a strong likelihood that continuing CCAA proceedings will do nothing to enhance the value of the properties and therebyincrease the potential for return to the investors. I find that this is the situation here. A realistic estimate of value indicates thatthe equity available may be approaching the amount of DIP financing, the plan is really not a plan and even as a plan, is unlikelyto produce any result more attractive than foreclosure proceedings.

10 In the result, I decline to extend the CCAA stay. With respect to the DIP financing, as I understand it, only $1 million hasbeen advanced and that work done by the Monitor, his counsel and counsel for Shire in the last while has not been paid for. Thosebills should not remain unpaid. While there may be instances where upon review of the original ex parte order causes the judgeto conclude that the DIP should never have been granted because there was inaccurate information provided, that is not the casehere. Rather, against the background of a large number of private investors, it was appropriate to grant the initial order to permitthe Monitor to look at the state of affairs of Shire so that the court could determine if CCAA proceedings were appropriate. Thathas been done. It has not turned out well, but that does not mean that the professionals who assisted the court should not be paid.

11 Finally, there is the allocation of the DIP financing. From the beginning, the CCAA proceedings were based upon theunderstanding that the secured lenders' security was not in jeopardy. As a result, the DIP financing, the receiver's charge andthe administration fee should be paid first out of equity in the company and its properties.

Order accordingly.


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TAB 12

PSINet Ltd., Re, 2002 CarswellOnt 12612002 CarswellOnt 1261, [2002] O.J. No. 1156, 113 A.C.W.S. (3d) 760...


2002 CarswellOnt 1261Ontario Superior Court of Justice [Commercial List]

PSINet Ltd., Re

2002 CarswellOnt 1261, [2002] O.J. No. 1156, 113 A.C.W.S. (3d) 760, 33 C.B.R. (4th) 284

In the Matter of the Companies' CreditorsArrangement Act, R.S.C. 1985, c. C-36, as Amended

In the Matter of a Plan of Compromise or Arrangement of PSINet Limited, PSINet RealtyCanada Limited, PSINetworks Canada Limited and Toronto Hosting Centre Limited, Applicants

Farley J.

Heard: March 14, 2002Judgment: March 14, 2002

Docket: 01-CL-4155

Counsel: Lyndon A.J. Barnes, Monica Creery, for ApplicantsGeoffrey B. Morawetz, for the Monitor, PricewaterhouseCoopers Inc.Peter H. Griffin, for PSINet Inc.Edmond F.B. Lamek, for 360Networks Services Ltd.


MOTION by corporations to sanction consolidated plan of arrangement or compromise.

Farley J.:

1 This motion was for the sanctioning of the consolidated plan of arrangement or compromise of the four Canadian applicantsunder the Companies' Creditors Arrangement Act ("CCAA"). The consolidated plan was approved by the creditors of theapplicants at meetings held February 28, 2002. Since that time and as permitted by the consolidated plan there have been ongoingnegotiations concerning various aspects of the plan. It is a tribute to the expertise and experience of the parties involved andtheir counsel that they have been able to negotiate resolutions of the various points in issue with the result that this sanctionmotion is unopposed. I also think it commendable that the Monitor so amply demonstrated the objectivity and neutrality whichis the hallmark of a court-appointed officer.

2 I am advised that while the applicants initially considered an unconsolidated plan which had the support of PSINet Inc.("Inc."), their parent and major creditor, it was considered that the consolidated route was the way to go. The consolidated planavoids the complex and likely litigious issues surrounding the allocation of the proceeds from the sale of substantially all of theassets of the applicants to Telus Corporation. The consolidated plan also reflected the intertwined nature of the applicants andtheir business operations, which businesses in essence operated as a single business and with only one of the applicants havingemployees. I have previously alluded to the incomplete and deficient record keeping of the applicants. While shooting oneselfin the foot should not be endorsed, this is another factor favouring consolidation and the elimination of expensive allocation(amongst the four Canadian applicants) litigation.

3 I note that the consolidated plan also provides that Inc. valued its charge against the assets of PSINet Limited ("Ltd.") oneof the applicants to $55 million. The Monitor, PricewaterhouseCoopers Inc. found this to be a reasonable amount and withinthe range of values which might reasonably be anticipated. Again however I would repeat my observation about incompleteand deficient record keeping.



4 At the February 28 th meeting of creditors, a single class of creditors, namely the unsecured creditors, voted on theconsolidated plan as it then existed. Secured creditors were not affected by the plan, but were of course characterized asunsecured creditors to the extent that their claim exceeded the expected deficiency in the deemed realization of their security.92.7% of the creditors voting, representing 98.8% in value of the claims, voted in favour of the plan. Had the votes of Inc.and other creditors affiliated with the applicants been ignored, then 92.5% of the class, representing 87.2% in value voted infavour of the plan.

5 Since the vote, 360Network Services Ltd. (and other affiliates) ("360Networks") have reached agreement with the applicantsand Inc. to resolve a motion brought by 360Networks in respect of its concerns regarding the consolidation of the estates ofthe applicants in the plan of arrangement.

6 Similarly Inc. has made certain concessions as to the plan with an eye to making good on the condition imposed on it tomake a material (albeit modest) adjustment so as to compensate the other creditors for the "frustration cost" associated withInc.'s late blooming discovery of its security vis-à-vis Ltd. and its motion to reperfect this security.

7 The three part test for sanctioning a plan is laid out in Northland Properties Ltd., Re (1988), 73 C.B.R. (N.S.) 175 (B.C. S.C.),affirmed (1989), 73 C.B.R. (N.S.) 195 (B.C. C.A.); Sammi Atlas Inc., Re, 3 C.B.R. (4th) 171 (Ont. Gen. Div. [Commercial List]):

(a) There must be strict compliance with all statutory requirements and adherence to the previous orders of the court;

(b) All material filed and procedures carried out are to be examined to determine if anything has been done or purportedto be done which is not authorized by the CCAA or other orders of the court; and

(c) The plan must be fair and reasonable.

8 It appears to me that parts (a) and (b) have been accomplished, now that Inc. has made the further concessions. Thecreditors have had sufficient time and information to make a reasoned decision. They have voted in favour of the consolidatedplan by a significant margin over the statutory requirement, even where one eliminates the related vote of Inc. and its affiliates.In reviewing the fairness and reasonableness of a plan, the court does not require perfection. As discussed in Sammi at p. 173:

A Plan under the CCAA is a compromise; it cannot be expected to be perfect. It should be approved if it is fair, reasonableand equitable. Equitable treatment is not necessarily equal treatment... One must look to the creditors as a whole (i.e.generally) and to the objecting creditors (specifically), and see if rights are compromised in an attempt to balance interests(and have the pain of the compromise equitably shared) as opposed to a confiscation of rights...

9 There is a heavy onus on parties seeking to upset a plan that the required majority have supported: See Sammi at p. 174citing Central Guaranty Trustco Ltd., Re, 21 C.B.R. (3d) 139 (Ont. Gen. Div. [Commercial List])

10 The fairness and reasonableness of a plan are shaped by the unique circumstances of each case, within the context ofthe CCAA. In Canadian Airlines Corp., Re, [2000] 10 W.W.R. 269 (Alta. Q.B.), leave to appeal refused [2000] 10 W.W.R.314 (Alta. C.A. [In Chambers]) Paperny J. at p. 294 considered factors such as the composition of the unsecured vote, whatcreditors would receive on liquidation or bankruptcy as opposed to the plan, alternatives available (to the plan and bankruptcy)and the public interest. I have already discussed the first element; the third and fourth do not appear germane here. As to thesecond, it is clear that the creditors generally are receiving more than in a bankruptcy and to the extent that Inc. is impacted,it has consented to such impact.

11 In the circumstances of this case, the filing of a consolidated plan is appropriate given the intertwining elements discussedabove. See Northland Properties Ltd., Re, 69 C.B.R. (N.S.) 266 (B.C. S.C.), affirmed (B.C.C.A.), supra, at p. 202; LehndorffGeneral Partner Ltd., Re, 17 C.B.R. (3d) 24 (Ont. Gen. Div. [Commercial List]) at p. 31. While consolidation by its very naturewill benefit some creditors and prejudice others, it is appropriate to look at the overall general effect. Here as well the concessionsof Inc. have ameliorated that prejudice. Further I am of the view if consolidation is appropriate (and not proceeded with by












any applicant for tactical reasons of minimizing valid objections), then it could be inappropriate to segregate the creditors intoclasses by corporation which would not naturally flow with the result that one or more is given a veto, absent very unusualcircumstances (and not present here). I would also note that Associated Freezers of Canada Inc., Re, 36 C.B.R. (3d) 227 (Ont.Bktcy.) and J.P. Capital Corp., Re, 31 C.B.R. (3d) 102 (Ont. Bktcy.) which referred to prejudice to one creditor were not CCAAcases, but rather Bankruptcy and Insolvency Act cases; secondly Associated Freezers merely kept the door open for the objectingparty to reconsider its position given the short notice and provided that if on reflection it wished to come back to make itssubmissions, it was entitled to do so for a period of time.

12 In the end result (and with no creditors objecting), I approve and sanction the consolidated plan as amended. Order toissue accordingly as per my fiat.

Motion granted.




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 LYDIAN INTERNATIONAL LIMITED, LYDIAN CANADA VENTURES CORPORATION AND LYDIAN U.K. CORPORATION LIMITEDApplicant


ONTARIOSUPERIOR COURT OF JUSTICE

COMMERCIAL LIST

Proceeding commenced at Toronto


McCarthy Tétrault LLPSuite 5300, Toronto Dominion Bank Tower Toronto ON M5K 1E6 Fax: 416-868-8772

Heather Meredith LSO#: 48354R Tel: 416-601-8342 Email: [email protected]

Trevor Courtis LSO#: 67715A Tel: 416-601-7643 Email: [email protected]

Alexander Steele LSO#: 75719P Tel: 416-601-8370 Email: [email protected]

Lawyers for Caterpillar Financial Services (UK) Limited