Clemmer Steelcraft Technologies Inc. v. Bangor Metals Corp., 2009 ONCA 534

CITATION: Clemmer Steelcraft Technologies Inc. v. Bangor Metals Corp., 2009 ONCA 534

DATE: 20090720

DOCKET: C49463

COURT OF APPEAL FOR ONTARIO

Feldman, Juriansz and MacFarland 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 A PROPOSED PLAN OF COMPROMSIE FOR ARRANGEMENT WITH RESPECT TO BRUTE MANUFACTURING LIMITED

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

BETWEEN:

Clemmer Steelcraft Technologies Inc. and 2175033 Ontario Inc.

Appellants

and

Bangor Metals Corp., Bangor Metals Inc. and Northgate Properties Inc.

Respondents

Christopher J. Staples for the appellants

Ronald J. McCloskey for the respondents Bangor Metals Inc. and Bangor Metals Corp.

Jonathan F. Lancaster for the respondent Northgate Properties Inc.

Heard: May 25, 2009

On appeal from the order of Justice Frank Newbould of the Superior Court of Justice dated September 15, 2008.

By the Court:

[1] At the time of the order under appeal, Brute Manufacturing Ltd. (“Brute”), a manufacturer and assembler of large component pieces of heavy equipment, was a corporation subject to the Companies’ Creditors Arrangement Act, R.S.C. 1985, c.C-36, as amended (“CCAA”). As part of the CCAA process, Brute sold its assets to the appellant, Clemmer Steelcraft Technologies Inc. (“Clemmer”), by way of an asset purchase agreement. Title to all of the assets was transferred pursuant to a vesting order dated June 27, 2008, made by Morawetz J. within the CCAA process. The asset purchase agreement closed on July 23, 2008.

[2] Among the scheduled assets covered by the vesting order is a large spray booth and racking that Brute installed in premises it leased from the respondent, Northgate Properties Inc. (“Northgate”). On July 31, 2008, Clemmer advised the president of Brute that it wished to remove the spray booth from the Northgate premises. Later that day, a newly incorporated subsidiary of Brute, which intended to continue Brute’s business, entered into a new lease with Northgate for the express purpose of retaining the use of the spray booth and racking. Northgate then took the position that the spray booth and racking were its property as landlord.

[3] In response, the appellant Clemmer brought a motion for an order declaring that the equipment belongs to it, that it be permitted to enter the Northgate premises to remove the equipment and that neither Brute nor Northgate had any interest in the equipment. There was no cross-motion for an order setting aside the vesting order in respect of the disputed equipment.

[4] The motion judge took the view that the vesting order did not restrict his ability to consider the question of who owned the assets. He noted that the order vested only Brute’s title and interest in the assets in Clemmer. He observed that “[i]f Brute did not have any title to the assets in dispute, the vesting order does not assist Clemmer.”

[5] The motion judge examined the original lease between Brute and Northgate and in particular s. 21 which provides:

All … Leasehold Improvements and fixtures upon the Demised Premises and which in any manner are or shall be attached to the floors, walls, ceiling or roof of the Demised Premises shall, upon the Commencement Date, become the sole property of the Landlord and, for purposes of greater certainty, provided that the Tenant shall be entitled to remove any fixtures or other Leasehold Improvements at or after the expiry or termination of this Lease in the Landlord’s and Tenant’s agreed discretion, and shall repair any damage occasioned by such installation or removal.

[6] The motion judge concluded that although the disputed equipment was a trade or tenant’s fixture, title to it had passed to the landlord under s. 21 of the lease. Consequently, he reasoned that because Brute did not have title to the equipment at the time of the vesting order, the vesting order could not pass title to Clemmer. He also specifically found that Northgate’s interest in the equipment under para. 21 was not a security interest, but that full title had passed to the landlord.

[7] Shortly before the oral argument of this appeal, the court was advised by counsel for the respondents that they would not be filing respondents’ factums, and that while they did not consent to the court allowing the appeal, they did not oppose the appeal. Counsel for the respondents attended the hearing and advised the court that they were taking no position on the appeal because there was no longer an interest in continuing with the manufacturing business of Brute. Therefore, they were no longer concerned about the disputed equipment.

[8] In our view, this appeal must be allowed, and the order of the motion judge set aside.

[9] We do not agree with the motion judge’s reading of the vesting order. The purpose of a vesting order made in the context of a CCAA proceeding is to effectively deal with the assets of the corporation and to obtain funds to pay creditors in accordance with the plan of arrangement, so that the corporation and all creditors can move forward. The vesting order, read purposively as a whole, vested title to the assets in schedule 1.1 of the asset purchase agreement, including the spray booth and racking, in Clemmer.

[10] The effect of the order under appeal is to give rise to two inconsistent orders of the Superior Court, both of which remain outstanding. One vests the disputed equipment in the appellant and one declares that the appellant has no interest in the disputed equipment. These two orders cannot stand together.

[11] With respect, the motion judge could not have dismissed the motion without setting aside or varying the vesting order, nor should he have entertained the respondents’ arguments on the motion in the absence of a motion to set aside or vary the vesting order.

[12] Even if the motion judge could consider setting aside or varying the vesting order without a motion that he do so, the record before him was inadequate for that purpose. At the very least, the reports of the Monitor in the CCAA process should have been before the court and the Monitor and its counsel should have been made parties to the motion. The record did not indicate what was provided to Morawetz J. when the original vesting order was made regarding Brute’s interest in the equipment or Northgate’s interest. Counsel advised the court that the Monitor provided Northgate with a notice to all creditors in October, 2007, but not with the CCAA application record or the motion for the vesting order. We do know that Northgate received notice of the vesting order from Clemmer, but took no steps to set it aside. Rather, it refused to allow Clemmer to enforce the order.

[13] Therefore, in any event, the motion judge could not have set aside or varied the vesting order on the record that was before him.

[14] The order of the motion judge dismissing the motion is set aside. The vesting order remains in full force and effect. The motion is remitted to the Commercial List for rehearing on a full record, if the parties wish to proceed. On the rehearing, the respondents may bring a cross motion to set aside or vary the vesting order. If they do so and the matter is considered afresh, nothing in these reasons should be taken as approving of the motion judge’s conclusion that s. 21 of the lease should not be read as granting the landlord nothing more than a security interest in the property.

[15] Costs of the appeal to the appellant fixed at $7,500, inclusive of GST and disbursements, and payable jointly and severally by the respondents.

“K. Feldman J.A.”

“R.G. Juriansz J.A.”

“J. MacFarland J.A.”

RELEASED: July 20, 2009