Court of Appeal for Ontario

Citation: Aircell Communications Inc. v. Bell Mobility Cellular Inc., 2013 ONCA 95

Date: 20130214

Docket: C54587

Before: Armstrong, LaForme and Hoy JJ.A.

Between

Scott & Pichelli Limited, Trustee in Bankruptcy for the Estate of Aircell Communications Inc.

Plaintiff (Respondent)

and

Bell Mobility Cellular Inc. and Bell Distribution Inc.

Defendants (Appellants)

Counsel: Brent Arnold, for the appellants David J. Jackson, for the respondent

Heard: February 8, 2013

On appeal from the judgment of Justice David S. Crane of the Superior Court of Justice, dated October 14, 2011.

ENDORSEMENT

[1] This appeal considers whether a clause in an Independent Dealer Agreement between the appellant, Bell Distribution Inc., and Aircell Communications Inc. relieving Bell of its obligation to pay unpaid commissions to Aircell on termination of the Agreement is void as against Aircell’s trustee in bankruptcy.

[2] For the reasons below, we agree with the trial judge that the clause is not enforceable as against the trustee, and accordingly dismiss this appeal.

[3] Briefly, the relevant facts are as follows.

[4] Bell appointed Aircell as an independent dealer of Bell’s telecommunications products and services. As such, Aircell purchased inventory from Bell and was entitled to commissions in relation to services Aircell sold.

[5] Aircell experienced financial difficulty; it owed Bell $64,000 for inventory.

[6] The Agreement contained a provision entitling Bell to terminate it on notice to Aircell if Aircell commenced any proceedings related to Aircell under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “Act”).

[7] In a meeting at which a representative of Bell was present, Aircell explored restructuring options. Unbeknownst to Bell, at the time of the meeting, Aircell had filed a Notice of Intention to make a proposal under the Act. After the meeting, Bell gave notice to Aircell that it would terminate the Agreement if Aircell did not pay the outstanding amount within 30 days.

[8] Aircell was deemed a bankrupt before the expiry of the 30-day notice period, and therefore before the effective date of termination of the Agreement. At the time, Bell owed Aircell $188,981 for commissions. The Agreement provides that upon its expiry, or if Bell terminates the Agreement as a result of Aircell’s failure to remedy a default in payment within 30 days after notice of default, or otherwise in accordance with the Agreement, all of Bell’s obligations to pay commissions “shall cease immediately”. Bell relied on this clause to withhold payment of commissions to Aircell’s trustee in bankruptcy. The trustee brought an action to recover the amount by which the commissions owing by Bell exceeded the amounts owing to Bell in respect of inventory.

[9] The trial judge found that Aircell’s failure to pay Bell was due to its insolvency and that, as against the claim of Aircell’s trustee in bankruptcy, the clause at issue is void both pursuant to CIBC v. Bramalea Inc., 1995 CanLII 7420 (ON SC), and under ss. 65.1 and s. 95 of the Act. He ordered Bell to pay the trustee the amount by which the unpaid commissions exceeded the amounts owing by Aircell.

[10] In CIBC v. Bramalea, Blair J. considered a clause that permitted a non-insolvent partner to purchase an insolvent partner’s interest at a price less than fair market value. He concluded that a contractual provision triggered only in the event of insolvency or bankruptcy which would deprive creditors of value otherwise available to them, and effectively divert the value to an unsecured creditor, is void. This principle – sometimes referred to as “fraud upon the bankruptcy law” – violates the public policy of equitable and fair distribution among unsecured creditors in an insolvency. Justice Blair determined that the clause at issue was void.

[11] We see no basis for interfering with the trial judge’s finding of fact that Aircell’s failure to pay Bell was due to Aircell’s insolvency.

[12] While the clause at issue in this case is triggered upon termination of the agreement for any number of reasons, and not only upon insolvency or bankruptcy, it was in fact triggered as a consequence of Aircell’s insolvency. The clause provides a windfall to one of Aircell’s creditors: Bell. In the context of an insolvency, the clause is inequitable. We agree with the trial judge that the principle in CIBC v. Bramalea should be extended to declare the clause unenforceable as against Aircell’s trustee in bankruptcy as contrary to the overriding public policy that requires equitable and fair distribution among a bankrupt’s creditors.

[13] Having determined that the trial judge did not err in declaring the clause unenforceable as against the trustee on the foregoing basis, it is unnecessary for us to address the trial judge’s alternative conclusion that the clause is void pursuant to ss. 65.1 and 95(1) of the Act. We note, however, that the trustee concedes that these provisions do not apply in the circumstances.

[14] The appeal is accordingly dismissed. The trustee shall be entitled to costs, inclusive of disbursements and HST, in the amount of $15,000.

“Robert P. Armstrong J.A.”

“H.S. LaForme J.A.”

“Alexandra Hoy J.A.”