Court of Appeal for Ontario
Date: October 2, 2019 Docket: C65744
Judges: Tulloch, Roberts and Miller JJ.A.
Between
Potentia Renewables Inc. Applicant (Respondent)
and
Deltro Electric Ltd. Respondent (Appellant)
Counsel
Fred Platt and Michael Mazzuca, for the appellant
George Benchetrit and Aryan Ziaie, for the respondent
Heard: June 5, 2019
On appeal from: The order of Justice Thomas J. McEwen of the Superior Court of Justice, dated July 27, 2018, with reasons reported at 2018 ONSC 3437.
ROBERTS J.A.:
[1] Introduction
[1] The appellant, Deltro Electric Ltd., appeals from the order that it repay to the respondent, Potentia Renewables Inc., the amount in Canadian currency sufficient to purchase $2 million USD and that, failing repayment, a receiver be appointed over the appellant's assets, undertakings and property.
[2] For the reasons that follow, I would dismiss the appeal.
A. Background Facts and Procedural History
[3] As this appeal turns on the application judge's interpretation of documents exchanged between the parties and the procedural underpinnings of the proceedings initiated by them, it is useful to set out a brief summary of the background facts and procedural history.
[4] The respondent's application was one of three proceedings arising out of the parties' failed business relationship in relation to the development of a ground-mount solar project in Barbados ("the Barbados project") and an unrelated renewable energy project in the Dominican Republic. The other two proceedings were actions that the respondent and appellant instigated against each other. The application judge was appointed to case manage these proceedings on the Commercial List of the Superior Court of Justice in Toronto.
[5] The application judge determined that the appellant, as part of a group of related companies controlled by Mr. Del Mastro, referenced as the "Deltro Group of Companies", had entered into a number of obligations with the respondent to finance and complete the Barbados project, as largely memorialized in the letter of intent ("LOI") dated May 15, 2016, and the amendment to the letter of intent ("ALOI") and General Security Agreement ("GSA") dated November 15, 2016. In accordance with those agreements, the respondent advanced $2 million USD in two tranches to the appellant: $500,000 USD under the LOI and $1.5 million USD pursuant to the ALOI and GSA.
[6] By its counsel's letter on behalf of the "Deltro Group of Companies", dated January 28, 2017, the appellant advised the respondent that as a result of the latter's alleged misconduct in relation to an unrelated solar project in the Dominican Republic, "Deltro is no longer under any contractual or other obligation to sell, assign, transfer, notify or deliver any interests in any project under any agreement between the parties." In its counsel's responding letter of February 6, 2017, the respondent denied the allegations of misconduct but accepted the appellant's repudiation of all agreements, including the Barbados project, and demanded repayment of the $2 million USD that it had advanced.
[7] In its counsel's subsequent correspondence of February 23, 2017, the appellant advised that it had obtained final approval of the Barbados project, as required under the parties' agreements, and demanded that the GSA be discharged. Responding by its counsel's letter of February 28, 2017, the respondent did not accept that the appellant provided proper proof of the requisite final approval and advised that, in any event, it was not obligated to discharge the GSA in light of the appellant's repudiation that the respondent had accepted.
[8] Taking the position that final approval had not been achieved and that the appellant had repudiated the LOI and ALOI, the respondent brought an application seeking the appointment of a receiver, as well as a declaration of the appellant's indebtedness and corresponding judgment.
The Application Judge's Decisions
[9] The application judge rejected the appellant's argument that final approval of the Barbados project had been obtained and concluded that the appellant had breached and repudiated its obligations and was therefore required to repay the respondent the equivalent of $2 million USD. In the event that the appellant failed to make payment within 30 days, the application judge appointed KSV Kofman Inc. ("KSV") as an interim receiver over the appellant's assets and undertakings for 30 days to determine if "a sensible plan of repayment" could be made, failing which, the respondent would be entitled to have KSV appointed as receiver of all the appellant's property. The appellant did not repay the amounts ordered and KSV became receiver to ensure payment was made.
[10] The appellant asked the application judge to re-open the application, arguing that the appellant could not have repudiated the LOI because it was not a party to it; and the appellant had not breached the ALOI because final approval of the Barbados project had been obtained, in support of which the appellant tendered as fresh evidence the affidavits of two former Barbadian ministerial officials.
[11] The application judge refused to re-open the application. He precluded the appellant from raising the new argument that it was not a party to the LOI. He also rejected the fresh evidence, holding that it was, at best, equivocal as to whether final approval had been obtained, and would not therefore have changed the outcome of the application.
B. Issues
[12] The appellant pursued the following issues on the hearing of the appeal:
The application judge had no jurisdiction to grant any of the relief requested on the application and should have directed it proceed to trial with the other two actions that were ordered to be heard together.
The application judge erred in finding that the appellant had failed to obtain final approval of the Barbados project and had repudiated the ALOI, and in failing to admit fresh evidence and re-open the application on this issue.
The application judge erred in finding that the appellant had repudiated and breached the LOI to which it was not a party, and in failing to re-open the application on this issue.
[13] The appellant relied on its factum for the other discrete issues raised on this appeal, namely: the application judge erred in appointing KSV as receiver and in limiting KSV's liability as receiver to gross negligence or wilful misconduct.
C. Analysis
(i) The Application Judge's Jurisdiction
[14] The appellant submits that the application judge should not have allowed the proceeding to be commenced by application as it was not authorized under r. 14 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194. The appellant also argued that the application judge lacked jurisdiction to appoint a receiver under s. 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43 that allows only for interlocutory orders to be granted. Moreover, no recourse could be had to s. 243 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 that permits the appointment of a receiver where the debtor is insolvent because, as the application judge found, the appellant was not insolvent.
[15] I would not accept these submissions.
[16] The application was properly brought under r. 14 of the Rules of Civil Procedure. While, in accordance with r. 14.06(3), the respondent should have stated the rule or statute under which the application is brought, this is a procedural, not a substantive, requirement. Its omission does not invalidate an application that otherwise complies in substance with r. 14.02: see r. 2.01 of the Rules of Civil Procedure.
[17] Here, the substance of the application was in respect of a matter under r. 14.05(3)(d): "the determination of rights that depend on the interpretation of a … contract or other instrument". This included the interpretation of the LOI, ALOI and GSA, about which there were no issues of credibility that required a trial to resolve. Rule 14.05(3)(g) permitted the respondent's request for a "declaration", "the appointment of a receiver" and damages, as "other consequential relief when ancillary to relief claimed in a proceeding properly commenced by a notice of application".
[18] Moreover, there was no need for the respondent or the application judge to resort to s. 101 of the Courts of Justice Act or s. 243 of the Bankruptcy and Insolvency Act, for authority to appoint a receiver. Article 6.1(l) of the GSA specifically allows the respondent to "appoint, by an instrument in writing delivered to the [appellant], a receiver, manager or a receiver and manager (a "Receiver") … or institute proceedings in any court of competent jurisdiction for the appointment of a Receiver", upon the appellant's default.
[19] As a result, the application judge had jurisdiction to hear and determine the respondent's application and to grant the requested relief.
(ii) Final Approval of the Barbados Project
[20] It is common ground that according to the LOI, the second progress payment of $1.5 million USD was payable by the respondent when the final formal zoning and site approval by the Barbados Town and Country Planning for the Barbados project was obtained. The dispute between the parties as to whether final approval had been obtained led them to enter into the ALOI and the GSA to secure the second progress payment.
[21] There is also no dispute that the ALOI provided that the appellant could keep the second progress payment if, within 12 months of the date of the disbursement, final approval was granted by the Barbados Town and Country Planning Office or any other Barbados governmental body with the authority to grant the final approval. But, if final approval was not obtained within this 12-month period, the ALOI stipulated that the respondent "shall have the right (but not the obligation) to demand full and immediate repayment" of the $1.5 million USD progress payment. Following full repayment, the GSA would be discharged.
[22] The appellant does not dispute that if final approval were not obtained within the stipulated period, it would be obliged to make the $1.5 million USD repayment. However, it maintains that the application judge made palpable and overriding errors in his interpretation of the various letters and affidavits of the former Barbadian ministers which, according to the appellant, established that final approval had been granted. The application judge erred, according to the appellant, in failing to admit the fresh evidence of the ministers' affidavits and in failing to reopen the application. As a result, the appellant argues, the GSA should have been discharged and there was no obligation to repay the $1.5 million USD progress payment.
[23] I disagree.
[24] First, it was open to the application judge to conclude that the documents proffered by the appellant, including the proposed fresh evidence, fell far short of demonstrating that final approval had been granted. His interpretation was reasonable and is owed deference on appeal. Moreover, he was not obliged to accept the fresh affidavits of the former Barbadian ministers or re-open the application.
[25] It has long been established that, absent an error of law, an appellate court should not interfere with the exercise by a trial judge of his or her discretion in the conduct of a trial. Appellate courts should defer to the trial judge who is in the best position to decide whether, at the expense of finality, fairness dictates that the trial be reopened. Further, the case law dictates that the trial judge must exercise his discretion to reopen the trial "sparingly and with the greatest care" so that "fraud and abuse of the Court's processes" do not result: 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, [2001] 2 S.C.R. 983, at paras. 60-61.
[26] I see no error in the application judge's refusal to re-open the application based on the fresh evidence of the former ministers' affidavits. As already noted, his conclusion that the fresh evidence would not have affected the outcome was reasonable. There is no basis to interfere with it.
[27] Further and in any event, as the application judge found, regardless if final approval were ultimately obtained, that approval came too late because it followed the appellant's clear repudiation of the ALOI by its counsel's January 28, 2017 letter and the respondent's equally clear acceptance of its repudiation. Upon the respondent's acceptance of the appellant's repudiation, the appellant's obligation to obtain final approval, among other obligations, came to an end but its obligation to repay $1.5 million USD arose.
[28] I would therefore reject this ground of appeal.
(iii) Did the Appellant Repudiate the LOI?
[29] Nor do I accept the appellant's argument that the application judge erred in finding that the appellant had repudiated the LOI when, according to the appellant, it was not a party to that agreement. Accordingly, the application judge was not required, as the appellant submits, to re-open the application to correct any error or to prevent a miscarriage of justice.
[30] With respect to the appellant's request to re-open the application, the application judge concluded:
The argument now advanced by Deltro was available when the matter first appeared before me. I have, however, reviewed my Reasons, the documents Deltro produced for this motion, and considered Deltro's argument. I see no basis to change the relevant findings in my Reasons. This is particularly so in light of Deltro's admission at this motion that the January 28, 2017, letter sent by counsel for the "Deltro Group of Companies" to Potentia included both/either Deltro and DGL.
[31] As the application judge correctly observed, prior to its request to re-open the application, the appellant had never advanced the position that it was not a party to the LOI. Indeed, the artificial and technical distinction that the appellant now advocates for is not supported by the evidence or its pleadings. Rather, the appellant's correspondence with the respondent, its pleadings, and the appellant's supporting affidavits on the application establish that the appellant consistently represented itself and operated as part of an integrated group of related companies of which Mr. Del Mastro is the directing mind and will, and which was a party to the LOI.
[32] In particular, in its statement of defence and counterclaim to the action commenced by the respondent, the appellant does not differentiate itself from the other members of the "Deltro Group of Companies". Instead, the appellant describes itself in para. 4 as a company that "together with its related companies, conducts business development, financing, construction, and operations of renewable energy projects … throughout the Caribbean". Importantly, in para. 6 of its statement of defence and counterclaim, the appellant expressly admits that it entered into the LOI:
In response to Paragraphs 4 and 5 of the Statement of Claim, [the appellant] admits that it entered into … the [LOI] … with [the respondent], the former with respect to the Barbados Project.
[33] This admission formed the basis for the appellant's claim for damages in paras. 25 to 28 of its counterclaim "related to [the respondent's] breach of contract of the [LOI] … for the greater of the expectation interest that [the appellant] would have reasonably expected to receive under the [LOI] but for [the respondent's] breach or in the alternative [the appellant's] reliance interest for funds it has expended in reliance of the said agreement".
[34] The appellant has never sought to withdraw its admission, amend its pleadings or withdraw its counterclaim.
[35] As a result, I see no error in the application judge's refusal to re-open the application.
[36] Given the application judge's finding that the appellant had repudiated the LOI, it was reasonable for him to determine that ss. 7 and 12 of the LOI are of no assistance to the appellant. As the application judge stated: "Deltro cannot accept Potentia's money, repudiate the agreement, and then rely on a clause from the very same agreement as justification for keeping the money". I see no error in the application judge's conclusion.
(iv) KSV's Appointment as Receiver and the Exclusion of Liability
[37] The appellant submits that the application judge erred in appointing KSV as receiver because it has a conflict of interest given its ongoing professional relationship with the respondent's counsel in other receivership matters. Further, the appellant submits that the application judge erred in limiting the receiver's liability to gross negligence or wilful misconduct in the formal order.
[38] I would not give effect to these submissions. In my view, both these decisions represented a reasonable exercise of the application judge's discretion as a case management judge of the Commercial List of the Ontario Superior Court of Justice in Toronto.
[39] Absent reviewable error, deference must be shown to the reasonable case management decisions of the highly specialized judges who sit on the Commercial List: see Western Larch Limited v. Di Poce Management Limited, 2013 ONCA 722, 117 O.R. (3d) 561, at para. 16. Established in 1991, the Commercial List of the Ontario Superior Court of Justice specializes in the hearing and case management of only commercial law cases, including receiverships. Matters on the Commercial List are governed by a Practice Direction that sets out special procedures specifically adopted for the hearing of matters on the Commercial List. The Practice Direction anticipates that the same judge who determines a substantive component of a proceeding will continue to hear all substantive matters. It is also expected that the proceeding shall be subject to a form of case management. See: Consolidated Practice Direction Concerning the Commercial List, effective July 1, 2014.
[40] With that context in mind, I turn first to the appointment of KSV as receiver. I see no error in the exercise of the application judge's discretion to appoint KSV. There is no dispute that KSV was qualified to act as receiver. Moreover, KSV was independent; it had no connection with the respondent or the appellant. The fact that KSV has worked professionally with the respondent's counsel on other unrelated matters does not raise a disqualifying conflict or prevent it from complying with its professional obligations to the court. As the application judge reasonably observed, it is not unusual for professional law and accounting firms specializing in insolvency matters to have had previous or ongoing professional relationships. Finally, it must be recalled that KSV, as the court-appointed receiver, is an officer of the court, accountable to the court and all interested parties, including the appellant: see Jethwani v. Damji, 2017 ONSC 1702, at para. 8.
[41] With respect to the application judge's limitation of the receiver's liability in the receivership order, I similarly see no basis for appellate intervention.
[42] The provisions of the receivership order, with which the appellant takes issue, are standard provisions that form part of the model receivership order prescribed by the Commercial List Users' Committee for the use of practitioners and the court. While not bound by them, counsel is expected to use the model orders developed by the Users' Committee as templates for the draft orders they put before the Court, appropriately adapted as the particular circumstances of each case require, with suggested revisions black-lined. This follows the direction in para. 57 of Part XVIII of the Practice Direction: "[t]he prior preparation of draft orders for consideration by the court at the end of a hearing will greatly expedite the issuance of orders. Where relevant model orders have been approved by the Commercial List Users' Committee, a copy of the draft order blacklined to the model order and indicating all variations sought from the model order must be filed."
[43] The theory and approach behind the recommended model orders promote the Commercial List's purposes of efficiency, expediency and uniformity in commercial law matters, while recognizing that any model order serves only as a guide and must be tailored to suit the circumstances of each case before the court. While model orders are extremely useful to parties and the court, they are only tools and must be treated with care. They are not mandatory. Not every provision in the model orders will be suitable in every case. A judge must always appropriately exercise discretion to determine what provisions are reasonable in the circumstances.
[44] For ease of reference, I have highlighted the impugned provisions in the text of para. 20 of the order, reproduced below:
THIS COURT ORDERS that the Receiver shall incur no liability or obligation as a result of its appointment or the carrying out the provisions of this Order, save and except for any gross negligence or wilful misconduct on its part, or in respect of its obligations under sections 81.4(5) or 81.6(3) of the BIA or under the Wage Earner Protection Program Act. Nothing in this Order shall derogate from the protections afforded the Receiver by section 14.06 of the BIA or by any other applicable legislation. [Emphasis added.]
[45] The appellant objected to these provisions on the basis that there was no reason to limit the receiver's liability beyond negligence as the ordinary standard of liability to gross negligence or wilful misconduct. The application judge did not accept this submission and determined, in the circumstances of this case, that it was appropriate to include the standard limiting provisions of the model order.
[46] In my view, the application judge's decision was reasonable. The application judge understood that he was not obliged to limit the receiver's liability to gross negligence or wilful misconduct. He did not indicate that he was obliged to follow the model order or that the model order was determinative. Rather, he properly exercised his discretion to include the impugned provisions based on the circumstances of the case before him.
[47] Why then was it reasonable in this case to include the limited liability shield for the receiver?
[48] It is a fair inference, in my view, that, without it, KSV may have refused to act as receiver in the circumstances of this case. A qualified receiver considering accepting an appointment can legitimately take into account whether the limited liability shield will be in place, as contemplated in the model order, to allow for the proper and orderly conduct of the receivership and avoid unnecessary and unjustified proceedings. As observed in the explanatory notes for the 2004 version of the model receivership order:
the Receiver is not a legitimate target for the competing creditors…. [A] gross negligence floor has been continued as the standard of culpability in order to limit the ability of creditors or the debtor from seeking to mount a challenge to the reasonableness of every exercise of the Receivers' discretion.
[49] The reasonable expectation of a limited liability shield is also reflected in the respondent's engagement letter to BDO, the proposed predecessor receiver, which provided that it would indemnify the receiver for all liabilities incurred in connection with the receivership, "excepting only any liabilities … that arise out of a wrongful act of [the receiver] which is proven to have been committed by it wilfully or out of gross negligence".
[50] While it may not be appropriate or required in all cases, KSV's limited liability permits the orderly execution of its duties without the concern that it will be subject to needless litigation, especially in the circumstances of this case, with a recalcitrant debtor who has already objected to KSV's appointment. Recall KSV's mandate in this case: while the scope of its powers is broad, its narrow purpose is to ensure payment of the $2 million USD debt to the respondent, which the appellant has steadfastly refused to pay notwithstanding its liability under the LOI, ALOI and GSA. The limitation of KSV's liability to gross negligence and wilful misconduct lessens the likelihood that the appellant will interfere with the completion of the receiver's mandate.
[51] That said, the limitation of its liability does not mean that KSV can act with impunity. KSV is a court-appointed receiver whose conduct of the receivership is subject to the court's scrutiny in which process the appellant will actively participate.
[52] As a result, I see no basis to interfere with the provisions of the application judge's order that limit the receiver's liability to gross negligence and wilful misconduct.
D. Disposition
[53] For these reasons, I would dismiss the appeal.
[54] In accordance with the provisions of the GSA, the respondent is entitled to its full indemnity costs that I would fix in the amount of $50,000, inclusive of disbursements and applicable taxes.
Released: October 2, 2019
"L.B. Roberts J.A." "I agree. M. Tulloch J.A." "I agree. B.W. Miller J.A."
