DATE: 20030321

DOCKET: M29617

COURT OF APPEAL FOR ONTARIO

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

AND IN THE MATTER OF SECTION 47 OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, c. B-3, AS AMENDED

AND IN THE MATTER OF A PLAN OR PLANS OF COMPROMISE OR ARRANGEMENT OF FANTOM TECHNOLOGIES INC., FANTOM TECHNOLOGIES INTELLECTUAL PROPERTY, INC., FANTOM TECHNOLOGIES DIRECT, INC., FANTOM TECHNOLOGIES U.S.A., INC. AND FANTOM TECHNOLOGIES U.S.A. HOLDINGS INC.

(Applicants)

RE: SIGMA MOULDERS and NORDICA PLASTICS LTD. (Appellants) – and – PRICEWATERHOUSECOOPERS INC., IN ITS CAPACITY AS INTERIM RECEIVER FOR FANTOM TECHNOLOGIES INC., FANTOM TECHNOLOGIES INTELLECTUAL PROPERTY, INC., FANTOM TECHNOLOGIES DIRECT, INC., FANTOM TECHNOLOGIES U.S.A., INC. AND FANTOM TECHNOLOGIES U.S.A. HOLDINGS INC., AND THE BANK OF NOVA SCOTIA (Respondents)

BEFORE: GILLESE J.A. (In chambers)

COUNSEL: Earl Altman for the appellants Sigma Moulders and Nordica Plastics Ltd.

Daniel V. MacDonald for the respondent, the Interim Receiver

Monica Creery for the respondent the Bank of Nova Scotia

HEARD: March 18, 2003

GILLESE J.A. (endorsement):

[1] Sigma Moulders and Nordica Plastics Ltd. seek leave to appeal the order of Ground J. dated January 28, 2003 in which Ground J. refused to set aside the ex parte dismissal of their motion claiming entitlement to certain funds held by the Interim Receiver.

BACKGROUND

[2] Fantom Technologies Inc. (and its affiliates) is an insolvent manufacturer of floor care products that was granted protection under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c.C-36, as amended, on October 25, 2001.

[3] Sigma and Nordica (“the moulders”) are plastics moulders who made moulds and, from the moulds, produced parts for Fantom.

[4] The initial order granted under the CCAA was obtained without notice to the moulders. The order required suppliers in possession of moulds or tooling to deliver the items to Fantom or the Interim Receiver.

[5] At the time that the order was made, the moulders were holding certain of Fantom’s parts and moulds to which they laid claim pursuant to the terms of their agreements with Fantom.

[6] The Interim Receiver entered into an agreement to sell certain of Fantom’s assets including various items in the moulders’ possession. Of the $3 million (U.S.) purchase price for Fantom’s assets, $1 million (U.S.) was allocated to the moulds and tooling.

[7] The moulders turned over the items that they held to the Interim Receiver for sale. The Interim Receiver was to hold the proceeds of sale of the goods pending determination of priorities.

[8] The market value of the moulds and parts delivered by Sigma and Nordica to the Interim Receiver was estimated to be $3.3 million and $1.7 million respectively.

[9] The moulders brought a motion in Fantom’s insolvency proceeding claiming approximately $4 million and asserting a security interest in the moulds that they had manufactured for Fantom (“the moulders motion”).

[10] On September 3, 2002, Ground J. made an order with a schedule for filing material by the moulders in support of their motion. The moulders failed to comply with the schedule.

[11] The Bank of Nova Scotia is Fantom’s principal secured creditor. It brought a motion returnable on December 11, 2002 to set a new schedule to be followed by the parties. The supporting documentation sets out the previous timetables agreed to by the parties and the fact that the moulders had failed to meet the scheduled requirements. The motion was settled on December 11, 2002 by way of a consent order. The December 11, 2002 order contained a new schedule and a provision that the Interim Receiver would be at liberty to move ex parte for dismissal of the moulders motion should Sigma and Nordica fail to meet any deadline in the schedule.

[12] The first deadline in the December 11, 2002 order was delivery by the moulders of its expert report by January 3, 2003. The moulders failed to meet the deadline.

[13] On January 7, 2003, the Interim Receiver obtained an ex parte order from Farley J. dismissing the moulders’ motion.

[14] The moulders moved to have Farley J.’s order set aside. At the return of the motion on January 23, 2003, the moulders had the expert’s report and were ready to deliver it.

[15] Ground J. refused to set aside the ex parte order. He held that he had jurisdiction to hear the motion because the law on setting aside ex parte orders made pursuant to an earlier order obtained on notice was not settled. He found that there was a dispute as to whether the moulders had complied with their obligations in respect of the undertakings portion of the order of December 11th.

[16] At paragraph 3 of the endorsement, Ground J. dismisses the motion to set aside, on the basis of the moulders’ failure to comply with court orders, in these words:

[T]he moving parties are not, in my view, in the circumstances of this case, entitled to the relief sought. There has been a pattern of failure by these parties to comply with previous orders of this court with no valid explanation for such failure. They consented to the September 2002 timetabling order, sought and obtained an extension of certain dates in such order and then failed to comply with the order. They then consented to the December 11, 2002 timetabling order and to the provision of such order that the interim Receiver could move ex parte to dismiss their motion if any dates in such order were not complied with, the most crucial date being the delivery of the Valuator’s Report by January 3, 2003. They do not appear to have discussed this date with the Valuator before agreeing to it or even to have informed him of this date until December 16 or 20, 2002. Even when advised by him on December 23, 2002 that the date could not be met, they failed to inform the Interim Receiver of this until January 7, 2003. This behaviour to me demonstrates a cavalier attitude toward compliance with the orders of this court which should not be condoned by this court. This is clearly, in my view, in the words of Laforme, J. in Pesah v. Grosz, an “enough is enough” situation.

The Test for Leave to Appeal

[17] In determining whether to grant leave to appeal in CCAA matters, appellate courts are to be cautious about interfering with a discretionary order of a judge exercising his or her supervisory function. See Algoma Steel Inc., [2001] O.J. No. 1943 (Ont. C.A.). At para. 8 of that decision, this court quoted with approval the following passage from MacFarlane J.A. of the British Columbia Court of Appeal in Re Pacific National Lease Holding Corp. (1992), 15 C.B.R. (3d) 265 at 272:

[T]here may be an arguable case for the petitioners to present to a panel of this court on discrete questions of law. But I am of the view that this court should exercise its powers sparingly when it is asked to intervene with respect to questions which arise under the C.C.C.A. The process of management which the Act has assigned to the trial court is an ongoing one. …

A colleague has suggested that a judge exercising a supervisory function under the C.C.A.A. is more like a judge hearing a trial, who makes orders in the course of that trial, than a chambers judge who makes interlocutory orders in proceedings for which he has no further responsibility.

… In supervising a proceeding under the C.C.A.A. orders are made, and orders are varied as changing circumstances require. Orders depend upon a careful and delicate balancing of a variety of interests and of problems. In that context appellant proceedings may well upset the balance, and delay or frustrate the process under the C.C.A.A. I do not say that leave will never be granted in a C.C.A.A. proceeding. But the effect upon all parties concerned will be an important consideration in deciding whether leave ought to be granted. [emphasis added]

[18] Before me, all counsel agreed that the four factors listed by McLachlin J.A. (as she then was) in Power Consolidated (China) Pulp Inc. v. British Columbia Resources Investment Corp., [1988] B.C.J. No. 1403 (B.C.C.A.) are to be considered when determining whether to grant leave to appeal. The factors are:

(a) whether the point on appeal is of significance to the practice;

(b) whether the point raised is of significance to the action itself;

(c) whether the appeal is prima facie meritorious or, on the other hand, whether it is frivolous; and

(d) whether the appeal will unduly hinder the progress of the action.

ANALYSIS

[19] The parties differ in their characterisation of the issue on appeal. In my view, it is unclear whether Ground J. had jurisdiction to set aside an ex parte order made pursuant to an earlier order made on notice. This is a matter of significance to the practice.

[20] The issue is of obvious significance to the parties. The order below has the effect of finally determining the moulders’ motion without an adjudication on the merits and the amounts in question are substantial.

[21] It cannot be said that the appeal is frivolous. If the judge below had jurisdiction, it is unclear at this stage whether all relevant considerations were brought to bear in the exercise of his discretion.

[22] The granting of leave to appeal may slow the process. On the evidence before me, it is unclear how much of a hindrance will be caused. In view of the significance of the issues involved, however, in my view any hindrance will not be undue especially if the hearing of the appeal is expedited.

CONCLUSION

[23] Accordingly, leave to appeal is granted. The appeal is to be expedited to a date to be set by the Registrar. If the parties are unable to agree on costs, they may make brief written submissions within ten days of the date of release of this decision.

“E.E. Gillese J.A.”