SUPERIOR COURT OF JUSTICE – ONTARIO
(COMMERCIAL LIST)
COURT FILE NO.: 07-CL-7120
DATE: 20121213
IN THE MATER OF THE COMPANIES CREDITORS ARRANGEMENT ACT , R.S.C. 1985, c. C-36, AS AMENDED
AND IN THE MATTER OF A PROPOSED PLAN OF COMPROMISE OR ARRANGEMENT WITH RESPECT TO HOLLINGER INC., 4322525 CANADA INC. and SUGRA LIMITED, Applicants
AND CREDITORS OF DOMGROUP LTD., 10 TORONTO STREET INC., HOLCAY HOLDINGS LTD., and 191173 N.B. LIMITED a.k.a. WILLET FOODS f/k/a Willet Food, Non-Applicants/Respondents
AND IN THE MATTER OF THE PROOF OF CLAIM OF BURNAC LEASEHOLDS LIMITED dated September 10, 2008, The Notice of Revision or Disallowance dated July 13, 2009, and the Non-Applicant’s Claims Order dated Wednesday the 27 th day of August, 2008, Appellants
BEFORE: C. CAMPBELL J.
COUNSEL:
Peter-Paul E. DuVernet , for Crystalline Investments Limited and Burnac Leaseholds Ltd.
Matthew Milne-Smith , for Domgroup
HEARD: November 28, 2012
REASONS FOR DECISION
[ 1 ] Two appeals from the decision of a Claims Officer were heard together since they involved essentially the same parties were represented by one Council on each side.
[ 2 ] The underlying issues had a long history going back to leases entered into in 1979 by Dominion Stores essentially a subsidiary of Hollinger Inc. which is now in CCAA .
[ 3 ] The history includes a summary judgment decision of the Supreme Court of Canada in 2003 which proceeded the insolvency of Hollinger Inc.
[ 4 ] As a result, the claims of the landlords Crystalline and Burnac were dealt with in respect of the CCAA proceeding of Hollinger and the claims procedure set out in the Orders of this Court, the first dated August 1, 2007 being the Initial Order and the Claims Order of August 27, 2008 (as amended).
[ 5 ] The latter order set out the claims procedure and the further Order of this Court dated December 2, 2011 directed the matters now under appeal to the Claims Officer.
[ 6 ] Following a hearing, extensive reasons and a further ruling, the Claims Officer disallowed the claim of Burnac, allowed the amended claim of Crystalline in the sum of $1,482,459.16 with interest at 3% or six years plus a disposition of costs in favor of each successful party.
[ 7 ] Domgroup appeals from the order in respect of Crystalline and Burnac appeals from the order dismissing its claim
[ 8 ] Counsel are agreed that the standard of review on this appeal is correctness in respect of matters of law and in respect of matters of mixed fact and law the test is palpable and overriding error.
[ 9 ] It is to be noted that the Claims Officer is a senior, a very experienced insolvency practitioner. In this respect his findings of fact are entitled to deference.
[ 10 ] For reasons that will be apparent below it is important to note that the Non-Applicants Claims Order first envisaged a determination of a claim by the Monitor appointed under the Initial CCAA Order dated August 1, 2007 and further proceeding by way of appeal to the Claims Officer.
[ 11 ] The Claims Officer is given wide powers under paragraph 10 of the order to “determine all procedural matters that may arise in respective its determination, including the manner in which any evidence may be adduced.”
[ 12 ] The Burnac claim was initiated as a civil action in the Superior Court prior to the Initial CCAA Order in respect of Hollinger and in effect the process before the Claims Officer was a consolidated trial of the issues in the two claims.
[ 13 ] For the reasons that follow, I am satisfied following review of the written and oral submissions of counsel that both appeals be dismissed.
[ 14 ] I do not propose to deal in detail with the factual background to the dispute since it is set out at length in the reasons of the Claims Officer and is largely agreed to by the parties.
[ 15 ] In brief, Dominion Stores a predecessor of Domgroup which is a subsidiary of Hollinger leased space from Crystalline in April 30, 1979 for a period of 25 years.
[ 16 ] In 1985 as part of corporate restructuring Domgroup assigned both the Crystalline and Burnac leases to a company which ultimately became “The Food Group Inc.” without an objection by the landlords.
[ 17 ] The Food Group went into bankruptcy and both of the leases were terminated by Notice of Repudiation without notice at the time to Domgroup.
[ 18 ] After the filing into bankruptcy of Food Group, Crystalline as landlord advised Domgroup, as assignor of the lease of Crystalline’s intention to “exercise its remedies under the lease which may include termination and an action for repudiation and damages for the predetermination of the lease”.
[ 19 ] In the case of Burnac the notice was not given to Domgroup. Until after the repudiation of the lease and 18 months after the premises had been vacated and at least four months after Burnac entered into a lease with Sobey’s and a substantial change in configuration in the premises.
[ 20 ] The Crystalline re-leasing took the form of re-demising (breaking the space up) without notice to or involvement of Domgroup.
[ 21 ] The Crystalline and Burnac leases became the subject of a summary judgment motion brought by Domgroup, the issue being whether the rights as between the landlords and Domgroup was unaffected by the bankruptcy proposal of the assignee tenant Food Group.
[ 22 ] In a decision delivered January 29, 2004 being 2004 SCC 3 , [2004] 1 SCR 60 the Supreme Court of Canada allowed the landlords appeal holding that the covenant of Domgroup as assigned from it or original tenant survived the bankruptcy of the assignee tenant.
CRYSTALLINE APPEAL
[ 23 ] In the Crystalline appeal the objection of Domgroup is 1) to the holding by the Claims Officer that he had jurisdiction to permit Crystalline to amend its Proof of Claim and 2) Crystalline did not give timely notice of its intention with respect to remedy.
[ 24 ] As to the amendment to Proof of Claim, in the written decision of the Claims Officer dated February 26, 2012 the Claims Officer concluded that the Claims Order wording and the case law relating to claims under the CCAA did give him jurisdiction to authorize an amendment to the claim which he otherwise concluded has been filed in a timely manner.
[ 25 ] The basic position of Domgroup takes a restrictive view of the powers of the Claims Officer asserting that unless the power to amend can be explicitly found within the terms of the Claims Order the Claims Officer had no jurisdiction.
[ 26 ] Counsel for Domgroup makes reference to the broad powers granted to the Monitor or in various paragraphs of the Claims Order and contrasts that with what he suggests are more restricted powers to the Claims Officer.
[ 27 ] In my view the powers and duties of the Claims Officer are wider. Under paragraph 10 of the order in question the Claims Officer has the power “to determine the validity and amount of Disputed Claims in accordance with this Non-Applicant Claims Order.”
[ 28 ] The order goes on to provide that the Claims Officer is to conduct a hearing and by virtue of the power in paragraph 34 to “decide any procedural or evidentiary matters that may arise in the hearing of a Disputed Claim”.
[ 29 ] Domgroup submits that the Claims Officer can only deal with a claim that is “disputed by any of the Non-Applicants or the Monitor” and since the amendment was not before the Monitor the Claims Officer is not empowered to consider it.
[ 30 ] I am of the view that the Claims Officer was invested, by the Court, with the authority and jurisdiction to determine the validity and amount and value of the Crystalline claim and all procedural matters associated therewith.
[ 31 ] Indeed for practical purposes the power of the Claims Officer was wider than that of the Monitor. He was entitled to and indeed held a full and complete evidentiary hearing for which the parties were entitled to put forward the full evidence and argument.
[ 32 ] The procedure before the Monitor did not involve a hearing. There was no suggestion by Domgroup that the matter should first have gone back to the Monitor before any hearing before the Claims Officer.
[ 33 ] I am satisfied that the Claims Officer did have jurisdiction and that it was within his power correctly exercised to allow the amendment.
TIMELY NOTICE
[ 34 ] The argument of Domgroup is that the Claims officer erred in law in concluding that the January 20, 1995 letter of Crystalline was notice of its intent to claim prospective damages and further that the notice was not timely.
[ 35 ] Domgroup urges that the letter did not provide the clear, unequivocal notice of Crystalline’s intentions as required by the case law.
[ 36 ] I accept and adopt the following conclusion of the Claims Officer from his reasons:
Domgroup submits that the claims should be dismissed in their entirety as a result of the claimants failing to give Domgroup clear and timely notice of their intention to pursue claims for damages resulting from the premature termination of the Leases.
In support of this position, Domgroup relies on the judgment of the Supreme Court of Canada in the case of Highway Properties Ltd. v. Kelly, Douglas Co. Ltd ., 1971 DLR (3d) 710 1971 , [1971] SCR 562 [1972] 2 WWR 28. In that case, also dealing with a defaulting tenant in a shopping centre, Laskin J. outlined the remedies of a landlord when there was a repudiation of a lease and an abandonment of the premises by the tenant. They are as follows.
(a) the landlord may do nothing to alter the relationship of landlord and tenant, and insist on the performance of a the terms of the lease and sue for rent on the basis that the lease remains in force;
(b) the landlord may elect to terminate the lease while retaining the right to sue for rent accrued due or for damaged, in each case up until the date of termination;
(c) the landlord may advise the tenant that he proposes to re-let the property on the tenant’s behalf and take possession of the premises on that basis; or
(d) the landlord may elect to terminate the lease and sue for rent accrued due and prospective damages, as long as notice is provided to the defaulting tenant that the prospective damages will be claimed on the basis of a present recovery of damages for losing the benefit of the lease over its unexpired term.
The first question this raises is whether the requirement to give notice as set out in the Highway Properties case applies in this situation where there were repudiations pursuant to Section 65.2(1) of the BIA .
In this case, all four of these mutually exclusive courses of action were no longer available to the claimants. The provisions of the BIA prevented the claimants from exercising any of the first three courses of action since the leases had been terminated in accordance with the provisions of the statue.
Only part of the fourth course of action was available to the claimants. That was the right to sue for prospective damages as long as notice is provided to the defaulting tenant that the prospective damages will be claimed on the basis of a present recovery of damages for losing the benefit of the lease over its unexpired term.
[ 37 ] In my view the point missed by Domgroup is that the repudiation of the lease was tenant induced by virtue of the bankruptcy proposal and not initiated by the landlord.
[ 38 ] In other words as argued on the behalf of the landlord Domgroup did not have control and options as to its remedies since they were preempted by the statutory scheme and court order under the BIA .
[ 39 ] In my view the Claims Officer was correct in reaching the following conclusions contained in page 12 of the Reasons:
“The fact that there is no evidence that Domgroup took any steps that could have resulted in the mitigation of its damages does not render the purpose of the notice moot. At any time after receiving the notice Domgroup had the right to introduce prospective tenants for the vacant space to the Claimants.
Domgroup argued that the only expressed notice of the claim was given when the Statement of Claim was issued a full two years later on January 27, 1997, almost 3 years after the repudiations of the Leases.
Although the language in the letters was not completely accurate since the Leases had already been repudiated, I think the sense of the letters should have made it clear to Domgroup that the Claimants were making claims for both arrears of rent and damages for the premature termination of the Leases.”
[ 40 ] The Claims Officer noted that no clarification was sought by counsel for Domgroup in responding to the letter from the landlord.
[ 41 ] What distinguishes this case from some of the decisions relied on by counsel for Domgroup is that the company had assigned all of its rights as a tenant, had disposed of its active business and for practical purposes had no means of dealing with the premises nor took any steps to do so.
[ 42 ] Instead it appears that Domgroup relying on the BIA repudiation as having discharged its obligation litigated that matter to the Supreme Court of Canada.
[ 43 ] For the above reasons the appeal of Domgroup in respect of Notice under the Crystalline lease is dismissed.
BURNAC APPEAL
[ 44 ] Burnac asserts that the decision of the Claims Officer was misdirected and erred in principle in disallowing the claim of Burnac on the sole basis that the notice given by Burnac of its intention to pursue Domgroup field to give Domgroup a reasonable opportunity to assist in the mitigation of damages, in the circumstances.
[ 45 ] The facts relating to the issue or not in dispute. The BIA Trustee of Food Group gave notice of repudiation of the leases to take effect on March 31, 1994. In mitigation Burnac entered into a lease arrangement with Sobeys dated as of September 30, 1994 but not commencing until July 10, 1995.
[ 46 ] Burnac submits that by reason of the BIA repudiation, the only remedy available to Burnac was to sue Domgroup as original covenantor for damages resulting from the premature termination of the lease.
[ 47 ] Burnac relies on the complete lack of any evidence that Domgroup took any steps or intended to take any steps, or could have taken any steps, that could have resulted in the mitigation of its damages.
[ 48 ] Burnac asserts that Domgroup had, by its own choice and for its own reasons, divested its operation, had no leased premises, no business operations, and no interest in any business operation. It is urged that the circumstances of this case, no notice, whatever it might have been and when ever given, would have made any difference, and there was no prejudice at law to Domgroup.
[ 49 ] I agree with the conclusion of the Claims Officer that Burnac by entering into an Offer to Lease with Sobeys in mitigation of damages for months before the notice, “was prejudicial to Domgroup since it prevented Domgroup from introducing to Burnac a tenant who will be prepared to pay a higher rent for the premises”.
[ 50 ] There was no case reference put forward to the Claims Officer or in submission before me in some support of the proposition that it was relevant and appropriate considering mitigation to take into account what might have happened if appropriate notice had been given.
[ 51 ] In the absence of authority I concur with the Claims Officer that the agreement between Burnac and Sobeys in the circumstances which was beneficial to the landlord precluded Domgroup from introducing a tenant at a higher rent. Whether it would have done so or not had notice been given, is in the absence of case law authority, irrelevant.
[ 52 ] For the above reasons the appeal of Burnac is dismissed.
CONCLUSION
[ 53 ] Since both appeals are dismissed and success divided it would not appear necessary to award costs. If counsel feel differently they may address the issue of costs in writing.
C. CAMPBELL J.
Date: December 13, 2012