COURT OF APPEAL FOR ONTARIO

DATE: 20000413

DOCKET: C33021

RE: MONTREAL TRUST COMPANY OF CANADA, in its capacity
as trustee for the senior debentureholders of
Bramalea Inc. and in its capacity as assignee of
all choses in action of Bramalea Inc.
(Plaintiff/Responent) and KPMG (Defendant/Appellant)

BEFORE: LABROSSE, DOHERTY AND AUSTIN JJ.A.

COUNSEL: J.L. McDougall, Q.C.
Norman J. Emblem
For the appellant

W.A. Kelly, Q.C.
P. Band
For the respondent

HEARD: April 11, 2000

On appeal from the decision of Spence J. dated December 3, 1999.

E N D O R S E M E N T

[1] KPMG appeals from the decision of Spence J. made December 3,
1999 dismissing the motion of KPMG for a variety of relief with
respect to the statement of claim. Included in that relief were:

(a) dismissal of the action upon the basis that the
plaintiff had no capacity to bring it;
(b) dismissal of the action for failure to get the leave of
the court to commence it; and,
(c) in the alternative, the senior debenture holders
should be added as parties to the action.

[2] The plaintiff, Montreal Trust, brings this action as trustee
for the ôsenior debentureholders of Bramalea Inc. and in its
capacity as assignee of all choses in action of Bramalea Inc.ö

[3] Bramalea was a large developer, manager and holder of real
estate in Canada and the United States. From December 22, 1992
to March 22, 1993 and from March 1, 1995 to April 26, 1995, it
was under the protection of two orders made under the CompaniesÆ
Creditors Arrangements Act. On April 26, 1995 Bramalea went into
bankruptcy.

[4] KPMG was at all material times the auditor of Bramalea Inc.
The first protection order appointed KPMG as monitor. The order
provided inter alia that KPMG was to:

incur no liability or obligation as a result of its
appointment or the fulfilment of its duties . . . .
save and except that it shall be liable for gross
negligence or wilful misconduct on its part.

[5] While under the protection of this order a plan of
compromise or arrangement was proposed by Bramalea Inc. and
accepted by its creditors pursuant to which the protection of the
Act was to end on March 22, 1993. KPMG, however, was to continue
as monitor in accordance with terms set out in an engagement
letter from Bramalea Inc. to KPMG. When the second order of
protection was made on March 1, 1995 the monitorship was renewed
or continued by that order.

[6] KPMGÆs position briefly is that a monitor is a court
appointed officer and like a receiver or receiver and manager,
action cannot be brought against a monitor without first
obtaining leave.

[7] As to capacity to bring the action, KPMGÆs position is that
the trust indenture only provides remedies as against Bramalea
and its assets, not against KPMG. KPMG says that in any event,
if action is to be brought against it, it must be by the senior
debentureholders themselves and not by Montreal Trust.

[8] Spence J. held against KPMG on all counts. With respect to
leave, he noted that Montreal TrustÆs claim against KPMG is
limited to the period from March 22, 1993 to April 25, 1995, i.e.
between the two periods during which the protection orders were
in effect. The monitorship would exist by virtue of the
engagement letter, i.e. by private agreement, and would be
governed by its terms.

[9] As to capacity, by means of the trust indenture Bramalea
charged in favour of the trustee (by way of a floating charge)
all the property and assets of the company now and in the future,
including choses in action. On bankruptcy that charge
crystallized.

[10] If, as alleged by the trustee, KPMG failed to carry out the
duties undertaken by it pursuant to the engagement letter,
Bramalea would have a cause of action against it. By reason of
the charge and crystallization, the right to bring that action
would devolve upon the trustee.

[11] In our view, it has not been demonstrated that Montreal
Trust cannot succeed at trial. Spence J.Æs analysis and
conclusions on the issue of capacity are persuasive in this
regard. We are also inclined to the view that his disposition of
the question of leave is correct. However, it is not necessary
to decide this issue. Assuming, without deciding, that leave is
required, the absence of leave is only an irregularity. In the
circumstances there is a proper basis for the claim and no
prejudice has been demonstrated. Leave should be granted nunc
pro tunc to the trustee to bring this action.

[12] We also agree with Spence J. that, thus far, no reason has
been shown why, if there is a right of action, it must be
exercised by the senior debentureholders in person.

[13] Leave is therefore granted to Montreal Trust to bring this
action. The appeal is dismissed with costs.

Apr. 13, 2000

ôJ.M. Labrosse J.A.ö

ôD.H. Doherty J.A.ö

ôAustin J.A.ö