Bankruptcy and Insolvency Law - ONCA

Commercial landlord appealed an order limiting its entitlement to draw on a $2.5 million standby letter of credit posted by a bankrupt tenant as security for a lease.

The motion judge held that, following the trustee’s disclaimer of the lease, the landlord could draw only the statutory preferred claim for three months’ accelerated rent under the Bankruptcy and Insolvency Act.

The Court of Appeal held that the autonomy principle governing letters of credit meant the issuing bank’s obligation to honour complying presentations was independent of the underlying lease and not limited by insolvency law absent fraud.

The court also found the motion judge erred in interpreting the lease to require a reduction in the letter of credit because the tenant had not “promptly” paid rent at all times as required.

The landlord was therefore entitled to draw the full amount of the letter of credit.

The appellants appealed a trial decision finding that a termination clause in an Independent Dealer Agreement was void as against the respondent trustee in bankruptcy.

The clause relieved the appellants of their obligation to pay unpaid commissions upon termination of the agreement.

The Court of Appeal dismissed the appeal, extending the principle from CIBC v. Bramalea to hold that the clause was unenforceable because it provided a windfall to one creditor upon insolvency, violating the public policy of equitable and fair distribution among unsecured creditors.

The trustee in bankruptcy suspected the bankrupt was hiding assets using a third party.

The trustee sought an order compelling the bankrupt and his lawyer to disclose the identity of the person paying the bankrupt's legal fees for a previous motion.

The motion judge granted the order, finding the information was not privileged.

On appeal, the Court of Appeal allowed the appeal, holding that administrative information relating to the solicitor-client relationship, including the identity of the person paying the lawyer's bills, is presumptively privileged.

The court found the presumption was not rebutted because the information was relevant to the merits of the underlying dispute and its disclosure would reveal confidential communications.

The appellants, auditors and underwriters of Sino-Forest Corporation, appealed an order declaring that their claims for contribution and indemnity against Sino-Forest were 'equity claims' under the Companies' Creditors Arrangement Act (CCAA).

The claims arose from proposed shareholder class actions alleging misrepresentation.

The Court of Appeal dismissed the appeal, holding that the definition of 'equity claim' in s. 2(1) of the CCAA focuses on the nature of the claim rather than the identity of the claimant.

The court found that the appellants' claims for contribution and indemnity were clearly connected to the shareholders' equity claims and thus fell within the expansive statutory definition.

The appellants appealed a judgment setting aside their beneficial interest in a mortgage on a property owned by a bankrupt limited partnership as an unjust preference under the Assignments and Preferences Act.

The appellants argued there was no intent to give an unjust preference and that the interest was granted as security for a present actual advance of money.

The Court of Appeal dismissed the appeal, finding ample evidence of intent to prefer and agreeing with the motion judge that the surrender of existing promissory notes for new ones did not constitute a present actual advance of money.

The appellants appealed an order refusing to set aside a default judgment and refusing an adjournment.

The Court of Appeal dismissed the appeal, finding that sufficient facts were pleaded and admitted by default to establish that the appellants diverted trust funds under the Construction Lien Act.

This conduct fell within the exception to discharge under s. 178(1)(d) of the Bankruptcy and Insolvency Act for misappropriation or defalcation while acting in a fiduciary capacity.

The court-appointed Receiver brought a motion for directions on whether the Auctioneer was entitled to a Buyer's Premium on a private sale of the debtor's assets.

The motion judge denied the premium because the Offer to Purchase contained an entire agreement clause and did not mention the premium.

On appeal, the Court of Appeal reversed the decision, finding that the Auction Service Agreement between the Receiver and the Auctioneer mandated the premium, and denying it would result in commercial absurdity and a windfall to the Receiver.

The Superintendent of Bankruptcy sought to appeal a Superior Court decision that found no operational conflict between the Highway 407 Act's vehicle permit denial provisions and the Bankruptcy and Insolvency Act's discharge provisions.

The Superintendent had not been a party to the lower court proceedings. 407 ETR moved to quash the appeal for lack of standing.

The Court of Appeal held that while the Superintendent does not have an automatic right to appeal as a non-party, the court has jurisdiction under s. 193(e) of the BIA to grant leave to appeal in exceptional circumstances.

Finding that the Superintendent was deprived of notice below and raised issues of systemic importance, the Court granted an extension of time and leave to appeal.

The Court of Appeal issued a costs endorsement following an appeal in CCAA proceedings.

The appellant, Computershare Trust Company of Canada, was ordered to pay costs of the appeal to the respondent Crystallex International Corporation in the amount of $110,688.00, and to the respondent Tenor Capital Management Company, L.P. and Affiliates in the amount of $80,000.

Both amounts are inclusive of disbursements and HST.

The unions sought leave to appeal an order granting super priority to a DIP lender over provincial pension legislation in a CCAA restructuring.

The Court of Appeal denied leave, finding the proposed appeals lacked sufficient merit.

The court upheld the motion judge's application of the doctrine of paramountcy, agreeing that without the DIP financing and super priority, the objectives of the CCAA would be frustrated and the company would be forced into bankruptcy.

The appellant appealed the dismissal of its action brought pursuant to s. 38(1) of the Bankruptcy and Insolvency Act to set aside alleged fraudulent conveyances.

The motion judge had dismissed the action as an abuse of process and barred by res judicata due to the bankrupt's discharge and the dismissal of a prior action.

The Court of Appeal allowed the appeal, holding that under s. 38(1), the appellant was advancing the Trustee's claim, not its own personal claim, meaning the action was not a collateral attack on the discharge order or barred by res judicata.

The Court also dismissed the respondents' motion to review a decision refusing to order security for costs against the appellant's counsel, who was acting on a contingency fee basis.

The appellants, a debtor and his employer (the garnishee), appealed an order requiring the garnishee to remit funds to the Sheriff pursuant to a notice of garnishment.

The debtor had made an assignment in bankruptcy after the notice was issued and was subsequently discharged.

The Court of Appeal dismissed the appeals, finding that the judgment debt survived the bankruptcy under s. 178(1) of the Bankruptcy and Insolvency Act because it arose from the debtor's misappropriation of funds while acting in a fiduciary capacity.

The Court also held that the stay of execution ceased when the trustee was discharged, and no leave was required to enforce the unconditional judgment.

The appellant Noteholders appealed orders approving a bridge loan, a $36 million DIP financing facility, and a Management Incentive Plan (MIP) for the respondent debtor under the CCAA.

The debtor's principal asset was a $3.4 billion arbitration claim against Venezuela.

The Noteholders argued the DIP financing, which could outlast the CCAA protection period and granted the lender a 35% interest in the arbitration proceeds, was effectively an arrangement requiring creditor approval.

The Court of Appeal dismissed the appeal, finding that the supervising judge reasonably exercised his broad discretion under s. 11.2 of the CCAA to approve the financing necessary to pursue the arbitration, and that the financing did not constitute a plan of arrangement.

Skyservice Airlines Inc. went into receivership leaving unpaid airport and air navigation charges.

The airport authorities and NAV Canada obtained orders to seize and detain aircraft leased by Skyservice to recover the amounts owed.

The aircraft lessors appealed, arguing that Skyservice no longer 'owned or operated' the aircraft at the time of the applications due to the receivership, suspension of its air operator certificate, and the lessors' attempts to terminate the leases.

The Court of Appeal dismissed the appeal, applying the Supreme Court of Canada's decision in Canada 3000, holding that Skyservice remained the registered owner and operator in possession of the aircraft at the relevant time, and the statutory detention remedy takes priority over the lessors' property interests.

The appellants appealed a Superior Court decision that set aside an arbitrator's interlocutory orders, an order striking statements of defence, a final arbitral award, and removed the arbitrator.

The Court of Appeal allowed the appeal in part, holding that the application judge erred in setting aside the interlocutory orders, as the Arbitration Act does not permit judicial intervention for procedural decisions.

However, the Court upheld the setting aside of the order striking the pleadings and the final award, finding that the respondents were treated unfairly because their bankruptcy made compliance with the interlocutory orders legally impossible.

The removal of the arbitrator was also upheld.

The appellants appealed a motion judge's approval of a sale by a court-appointed receiver, alleging judicial bias.

The Court of Appeal dismissed the appeal, finding no evidence to support the serious allegations of bias.

Furthermore, the court noted the appeal was moot as the properties had already been sold and the proceeds distributed to the major creditor.

The bankrupts appealed a Superior Court decision that lifted an automatic stay under s. 69.4 of the Bankruptcy and Insolvency Act, allowing the respondent bank to proceed with an action for fraudulent misrepresentation.

The bankrupts had continued to draw on a line of credit after the collateral mortgage securing it was discharged.

The Court of Appeal dismissed the appeal, agreeing with the appeal judge that the background circumstances could support an inference that the bankrupts' use of the line of credit amounted to a false representation or false pretence.

The appellant appealed a summary judgment finding her personally liable to the respondent bank under section 100 of the Bankruptcy and Insolvency Act.

The motion judge found that the appellant's company and her father's bankrupt company engaged in a non-arm's length transaction for less than fair market value, and that the appellant was privy to the transaction.

The Court of Appeal dismissed the appeal, holding that the appellant, as the sole principal and controlling mind of her company, was privy to the transaction because she had knowledge of it and benefited from it.

The respondent's cross-appeal for substantial indemnity costs was also dismissed.

The moving parties, officers and directors of the Gandi Group, sought leave to appeal a motion judge's order in CCAA proceedings.

The motion judge had limited their indemnity claims to specific corporate entities, subordinated one claim to a major creditor, and characterized the indemnity claims as 'equity claims' under the CCAA, thereby subordinating them to unsecured creditors.

The Court of Appeal applied the Stelco test and denied leave to appeal, finding the issues were either factual, not of significance to the practice, or lacked prima facie merit.

The appellant appealed a bankruptcy court judge's refusal to annul his bankruptcy or stay it pending the outcome of his damages action against the Canada Revenue Agency in the Federal Court.

The Court of Appeal dismissed the appeal, finding no error by the bankruptcy judge.

The Court noted that the CRA exercised its statutory right to vote down the appellant's proposal, and the Federal Court action would not affect the legal validity of the bankruptcy.