DATE: 20030613

DOCKET: C39470

COURT OF APPEAL FOR ONTARIO

O’CONNOR A.C.J.O., SIMMONS and ARMSTRONG JJ.A.

B E T W E E N:

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 CONSUMERS PACKAGING INC., CONSUMERS INTERNATIONAL INC. and 164489 CANADA INC.

APPLICATION UNDER THE COMPANIES CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36

Peter Griffin and Craig Martin for the appellant

Paul MacDonald and Brett Harrison for the respondent, KPMG Inc.

David Gruber for the respondent, KPMG Inc.

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ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST IN BANKRUPTCY

IN THE MATTER OF THE BANKRUPTCY OF CONSUMERS PACKAGING INC.

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IN THE MATTER OF CERTAIN TRIALS OF ISSUES DIRECTED BY ORDERS MADE OCTOBER 31, 2002

B E T W E E N:

MOLSON CANADA

Court appointed monitor

Heard: May 21, 2003

Plaintiff/Appellant

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O-I CANADA CORP. and KPMG INC. in its capacity as Trustee in Bankruptcy of Consumers Packaging Inc.

Defendants/Respondents

On appeal from the decision of Justice James M. Farley of the Superior Court of Justice dated January 15, 2003.

BY THE COURT:

[1] The only issue that needs to be addressed in this appeal is whether the motion judge, Farley J., erred in holding that the Molson bottle claim did not qualify as a “CCAA claim”, as that term was defined in his Order of April 3, 2002. The relevant portion of the definition of a “CCAA claim” reads as follows:

any right or claim of any person against CPI that CPI is obligated to pay pursuant to paragraph 15 … of the Initial Order.

[2] Paragraph 15 of the Initial Order, which was made on May 23, 2001 by the motion judge, reads as follows:

THIS COURT ORDERS that during the Stay Period, Persons having written or oral agreements with the Applicants or statutory or regulatory mandates for the supply of goods and/or services or insurance, including without limitation, all computer software, communication and other data services, centralized and other banking services, accounts and facilities, payroll servicing, insurance including directors’ and officers’ insurance, natural gas, sand, soda ash, limestone, crushed recycled glass, packaging materials, pallets, electricity, supply contracts, service contracts, transportation contracts, transportation services, utility or other required services by or to the Applicants or any of the Property are hereby restrained until further order of this Court from discontinuing, dishonouring, failing to renew on reasonable terms, altering, interfering with, suspending, delaying, cancelling, interrupting, or terminating the supply of such goods, services or facilities so long as the normal prices or charges for such goods, services and facilities received after the date of this Order are paid in accordance with present payment practices or as may be hereafter agreed to by the Applicants from time to time and that the existing directors’ and officers’ insurance, provided the Applicants pay the premiums at the current rates required under such policies of insurance, shall hereby be deemed to be extended by a period of time equal to the duration of the stay of proceedings effected by this Order and any further order of this Court unless the applicable insurer for such directors’ and officers’ insurance, on 7 days notice to the Monitor and the Applicants, obtains leave of this Court not to renew such director’s and officer’s insurance.

[3] The dispute over what qualifies as a “CCAA claim” arises because literally read, paragraph 15 of the Initial Order did not create any obligations on CPI to pay amounts to third parties.

[4] The Initial Order, which was made under the Companies Creditors Arrangement Act (“CCAA”) stayed legal proceedings against CPI for a specified period of time (“the stay period”). Paragraph 15 directed that during the stay period, persons with certain specified types of agreements with CPI would be restrained from discontinuing, delaying, interrupting or terminating the supply of goods, services and facilities so long as normal prices were paid in accordance with existing payment practices.

[5] In setting out the types of agreements to which the restraining order applied, paragraph 15 referred to agreements for the supply of goods and/or services, including supply contracts by or to CPI.

[6] After the Initial Order, CPI continued to supply Molson with bottles pursuant to a pre-existing agreement, and Molson paid CPI in full for the bottles supplied. Molson’s bottle claim is based on an allegation that CPI breached the agreement with Molson by designing defective bottles during the stay period. As a result, Molson alleges that CPI is liable for approximately $4 million in unliquidated damages in relation to bottles that were produced and sold by O-I Canada Corp., which purchased CPI’s glass producing assets.

[7] Pursuant to the Order of April 3, 2002, CPI made an assignment in bankruptcy. At the same time, the motion judge ordered, that there be established an Administration Fund of $5 million to satisfy “CCAA claims” as defined in the Order.

[8] Molson asserted that its bottle claim qualified as a “CCAA claim” arguing that pursuant to paragraph 15 of the Initial Order, it was restrained from withdrawing from its contract with CPI, and that pursuant to that contract, CPI is obliged to pay Molson the damages incurred as a result of the design of the defective bottles.

[9] The motion judge did not accept this argument. In his reasons, the motion judge properly recognized that the intention of the monitor who sought the Order of April 3, 2002, was not relevant to the interpretation of what constitutes a “CCAA claim” pursuant to that Order. However, the motion judge implicitly considered his own intent when he made the Order of April 3, 2002.

[10] The motion judge held that “CCAA claims” were limited to claims of suppliers who continued to supply CPI during the stay period, who extended credit and who had unpaid accounts at the time of the assignment into bankruptcy. Accordingly, the Molson bottle claim, a claim for unliquidated damages, did not qualify.

[11] In his reasons, the motion judge stated the following:

This Administration Fund was to provide protection – on a fairness basis – as to any supplier who would have supplied on credit and a bankruptcy having occurred (as it did) before the credit had been fully discharged by payment. This Administration Fund was in essence a gratuitous arrangement designed to provide fairness.

[12] We see no basis on which to interfere with the motion judge’s denial of the Molson’s bottle claim. Although the language used to define a “CCAA claim”, particularly the reference to paragraph 15 of the Initial Order is not as clear as it might be, the motion judge’s interpretation is nonetheless reasonable.

[13] Even if one accepts that paragraph 15 of the Initial Order restrained Molson from withdrawing from its agreement with CPI because paragraph 15 referred to supply contracts both by or to CPI (CPI was supplying to Molson), it is reasonable to interpret paragraph 15 as specifically restraining parties to agreements from terminating or otherwise interfering with the supply of goods, services or facilities to CPI. Accordingly, in interpreting what was meant by the reference to paragraph 15 in the April 3, 2002 Order, it was open for the motion judge to conclude that the reference was only to monies owing as a result of the supply of goods, services or facilities to CPI and nothing else.

[14] In addition, it should be kept in mind that the creation of the Administration Fund was voluntary. The Fund was created after the obligations it was designed to satisfy had been incurred. The creation of the Fund had the effect of conferring a preference on those claims that qualified by elevating them to a preferred status in the CPI bankruptcy. The intent was that CCAA claims would be paid in full in priority to unsecured claims. From a practical and commercial standpoint, it seems unlikely that the intent in creating the Fund would have been to establish a preference for what could be unknown, potentially large, unliquidated claims.

[15] Finally, it is important to recognize that the issue on this appeal is the motion judge’s interpretation of his own Order. His interpretation deserves deference from this court. The motion judge, who is experienced in insolvency matters, had been involved throughout the CCAA proceeding. He was in an ideal position to assess what would be fair in the context of the CPI insolvency and to interpret what constitutes a “CCAA claim” as defined in his Order of April 3, 2002.

[16] We see no reason to interfere with the decision of the motion judge.

[17] Molson brought this matter before this court by way of a notice of appeal or, if necessary, by way of a motion for leave to appeal. The parties made submissions about whether, given the procedural background of the Molson bottle claim, leave to appeal was required. It is not necessary for us to address that issue. Even if leave is required and were to be granted, we would dismiss the appeal. Accordingly, we will treat this as an appeal and order that the appeal be dismissed.

[18] The appellant shall pay the respondents’ costs of this appeal, fixed in the amount of $15,000, inclusive of disbursements and GST.

RELEASED: “DOC”

“JUN 13 2003”

“Dennis O’Connor A.C.J.O.”

“Janet Simmons J.A.”

“Robert P. Armstrong J.A.”