DATE: 20031210

DOCKET: C39737

COURT OF APPEAL FOR ONTARIO

RE: THE BANK OF NOVA SCOTIA (Plaintiff/Respondent in Appeal) –and– NORPAK MANUFACTURING INC. (Defendant)

BEFORE: LABROSSE, SHARPE and ARMSTRONG JJ.A.

COUNSEL: Harvey G. Chaiton for the appellant Business Development Bank of Canada

William J. Burden for the respondent Bank of Nova Scotia

HEARD: December 8, 2003

RELEASED ORALLY: December 8, 2003

On appeal from the order of Justice James M. Farley of the Superior Court of Justice dated March 7, 2003.

E N D O R S E M E N T

[1] This is a dispute between the Bank of Nova Scotia (“BNS”) and the Business Development Bank of Canada (“BDC”), two secured lenders to Norpak Manufacturing Inc. (“Norpak”), as to what proportion of the receiver’s costs each should bear.

[2] The order of Farley J. is closely related to the earlier order of Himel J. which appointed the receiver over all assets of Norpak. BDC originally appealed that order, but subsequently abandoned the appeal.

[3] To some extent, BDC is challenging the orders of Himel J. by questioning the appropriateness of the receivership (which it originally supported). It is inappropriate for BDC to challenge that decision now. Given the disastrous situation found by the monitor, without the receiver’s report, BDC would not have been in a position to properly assess Norpak’s financial status and the prospects for obtaining payment of its debt.

[4] BDC originally agreed with BNS that a receiver should be appointed but changed its position and opposed the appointment of the receiver after it entered into a side deal to sell the security to Web Pack International Inc. (“Web Pack”), a company controlled by Norpak’s principals. As found by both Himel J. and Farley J., this was not a situation where a secured creditor could just pull out its security. That agreement had the effect of preferring BDC over other creditors and creating a situation of unfairness. Himel J. specifically rejected BDC’s position that the agreement was the best way to deal with the security and also that a receiver should not be appointed over all assets of Norpak.

[5] Web Pack’s revised bid was ultimately selected and the receiver believed that the sale was in the best interests of all creditors, including BDC. The process undertaken by the receiver was fair and took into account the interests of all creditors. The receiver always acted on the direction of the court.

[6] There is no valid reason for BDC to avoid paying its fair share of the receivership costs. The receiver was clearly appointed for the benefit of all interested parties to ensure that all creditors were treated fairly and to ensure a fair process to deal with the assets.

[7] Given that the indebtedness of BDC and BNS was approximately equal, it was appropriate for Farley J., in the exercise of his discretion, to equally allocate the receiver’s costs and to make BDC pay a portion of the legal costs associated with the appointment of the receiver.

[8] Accordingly, the appeal is dismissed with costs payable to the respondent and fixed at $10,000.00, all inclusive.

Signed: “J.-M. Labrosse J.A.” “Robert J. Sharpe J.A.” “Robert P. Armstrong J.A.”