DATE: 20030926

DOCKET: C39779

COURT OF APPEAL FOR ONTARIO

BORINS, SHARPE and CRONK JJ.A.

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

AND IN THE MATTER OF S. 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.

B E T W E E N:

SIGMA MOULDERS and NORDICA PLASTICS LTD.

Earl Atlman, for the appellants, Sigma Moulders and Noridca Plastics Ltd.

Appellants (Applicants)

• 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

Daniel V. MacDonald and Ajay Singh, for the respondent, PricewaterhouseCoopers Inc., in its capacity as Interim Receiver for Fantom Technologies Inc., et al

Monica Creery, for the respondent, The Bank of Nova Scotia

Respondents (Respondents)

Heard: September 18, 2003

On appeal from the order of Justice John D. Ground of the Superior Court of Justice (Commercial List) dated January 23, 2003.

CRONK J.A.:

I. Background

[1] By order of Farley J. of the Superior Court of Justice (Commercial List) dated October 25, 2001, Fantom Technologies Inc. and related companies (the “Fantom Group”) obtained protection under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (the “CCAA Order”). By the CCAA Order, the appellants and other suppliers of the Fantom Group were required to deliver to the Fantom Group or to the respondent, PricewaterhouseCoopers Inc., in its capacity as interim receiver for the Fantom Group (the “Interim Receiver”), forthwith on demand therefor, such moulds or tooling belonging to the Fantom Group as were in their possession.

[2] On the date of the CCAA Order, the appellants were in possession of various parts, moulds and tools belonging to the Fantom Group in respect of some of which they claimed vendors’ liens for amounts allegedly owing to them by the Fantom Group. The appellants delivered the property in question to the Interim Receiver on condition that any proceeds of sale of the property be held in court pending determination of the parties entitled thereto. On May 1, 2002, following court-approved sales of the property by the Interim Receiver, the appellants moved for an order determining their entitlement to the sale proceeds and approving the payment to them of any funds to which they were found entitled. The Bank of Nova Scotia disputes the appellants’ entitlement to any portion of the sale proceeds in part on the ground that, under a general security agreement held by the bank, its entitlement to the proceeds ranks in priority to that of the appellants. The appellants’ motion was originally returnable on May 7, 2002.

[3] Subsequently, in September 2002 and December 2002, the appellants consented to two different scheduling orders which detailed the nature and the timing of the procedural steps necessary to enable their motion to be heard. The second scheduling order provided that, if the appellants failed to meet any deadline specified in the order, the Interim Receiver would be at liberty to move ex parte for an order dismissing the appellants’ motion.

[4] Both scheduling orders required the appellants to deliver any expert material by a set date. It is undisputed that the appellants failed to comply with that term of both scheduling orders. That non-compliance continues to date.

[5] On January 7, 2003, approximately three and one-half months after the date originally set in the first scheduling order and four days after the date set in the second scheduling order for the delivery of the appellants’ expert material, Farley J. granted the Interim Receiver an ex parte order dismissing the appellants’ motion consequent upon their failure to meet the specified deadline for delivery of their expert material. By order dated January 23, 2003, Ground J. of the Superior Court of Justice (Commercial List) dismissed the appellants’ motion to set aside the January 7, 2003 ex parte order. The appellants now appeal the dismissal order of Ground J. to this court.

2. Discussion

[6] Although the appellants asserted before the motions judge and argue before this court that valid reasons exist for their non-compliance with both scheduling orders, the motions judge held that a pattern of non-compliance by the appellants had been demonstrated and that they had failed to adduce evidence of a valid explanation for such non-compliance. In our view, on the evidentiary record before him, the motions judge was entitled to make those findings. Further, before this court, the appellants failed to provide any cogent explanation, based on admissible evidence, for their delay in providing on a timely basis the information that they committed to provide under both scheduling orders.

[7] The failure of the appellants to comply with the scheduling orders to which they consented is most troublesome. On the record before this court, it is unclear where responsibility lies, as between the appellants and their agents, for the appellants’ persistent non-compliance. Nonetheless, as the moving parties before the court, the appellants are ultimately responsible for the consequences of their failure to honour scheduling commitments voluntarily undertaken by them or on their behalf.

[8] The courts are always reluctant to foreclose a possibly meritorious claim without an adjudication on the merits. In this case, however, notwithstanding request therefor by the respondents since at least September 2002 and the appellants’ undertakings to provide same, to date the appellants have still not produced the documentation and information necessary to establish the priority of their claimed liens over the security interest asserted by the Bank of Nova Scotia. As well, although the appellants argued in this proceeding that they held valid and enforceable security interests in property of the Fantom Group on the date of the CCAA Order entitling them to the funds now held in court, no evidence establishing the priority of their claims forms part of the record or of any fresh evidence application before us.

[9] The motions judge's order was made by him in the exercise of his supervisory discretion concerning the receivership of the Fantom Group. We are satisfied that in making his order he gave sufficient weight to all relevant considerations, including the need to foster the administration of justice both by permitting access to the courts and requiring compliance by litigants with court orders. In our view, it is important to preserve the integrity of the Commercial List, particularly in voluntarily undertaken scheduling matters, where expeditious and fair adjudication is necessary in the oversight of the conduct of proceedings to avoid unnecessary cost and delay and to advance the interests of all affected parties. The appellants in this case were afforded ample opportunity to proceed with their motion in accordance with procedures and deadlines agreed upon and, in some instances, sought by them.

3. Disposition

[10] For the reasons given, the appellants have failed to demonstrate any error by the motions judge in the exercise of his discretion. Accordingly, the appeal is dismissed. The respondents are entitled to their costs of the appeal and of the motion for leave to appeal to this court. In our view, this is not a proper case for an award of costs on a substantial indemnity scale. Accordingly, PricewaterhouseCoopers Inc., in its capacity as Interim Receiver, is entitled to its costs of the appeal and the leave motion on a partial indemnity scale, fixed in the total amount of $12,000, inclusive of disbursements and Goods and Services Tax. The Bank of Nova Scotia is entitled to its costs of the appeal and the leave motion on a partial indemnity scale, fixed in the total amount of $10,000, inclusive of disbursements and Goods and Services Tax.

RELEASED: “SEP 26 2003”

“S.B.” “E.A. Cronk J.A.”

“I agree S. Borins J.A.”

“I agree Robert J. Sharpe J.A.”