2013 ONSC 286
COURT FILE NOS.: 4082-11 & 08-141
DATE: 2013/01/14
SUPERIOR COURT OF JUSTICE - ONTARIO
BETWEEN: BUSINESS DEVELOPMENT BANK OF CANADA (Plaintiff)
- and –
1673747 ONTARIO INC. and 2045227 ONTARIO LTD. (Defendants)
AND BETWEEN: 1673747 ONTARIO INC. c.o.b. as GREW MFG. (Plaintiff)
- and –
GOODFELLOW INC. (Defendant)
BEFORE: JUSTICE I. F. LEACH
COUNSEL: Michael Cassone, for the Plaintiff, Business Development Bank of Canada and Receiver, BDO Canada Limited
James R. Fisher, for the Defendant, Goodfellow Inc.
Allen Wilford, for the Plaintiff 1673747 Ontario Inc.
HEARD: January 11, 2013
E N D O R S E M E N T
[1]. Formally, there were two motions before me when I began hearing this special appointment matter. In particular:
i. In 1673747 Ontario Inc. cob as Grew Mfg. v. Goodfellow Inc., the defendant (“Goodfellow”) had brought a motion for, inter alia, dismissal of the action against it on the basis of alleged prejudicial delay, primarily on the basis that no one had completed measures pursuant to Rule 11 of the Rules of Civil Procedure to obtain an “Order to Continue”, following the plaintiff corporation, (“Grew”), being placed in formal receivership on or about May 10, 2011; and
ii. In Business Development Bank of Canada v. 1673747 Ontario Inc. and 2045227 Ontario Ltd., (the formal proceeding dealing with Grew’s insolvency), BDO Canada limited, the court appointed receiver for Grew brought a motion for approval of its latest report, conduct and activities, including a request for approval of the receiver’s proposed assignement of Grew’s action against Goodfellow Inc. (“Goodfellow”) to Jessica Cameron, (daughter of Grew’s now deceased former principal, David Cameron).
[2]. During the course of oral submissions, counsel for Goodfellow indicated his client’s ongoing opposition to court approval of the proposed assignment of the civil action against it, but also indicated that Goodfellow’s motion to dismiss effectively was being abandoned.
[3]. As noted below, Goodfellow nevertheless maintained that the delay alleged in its motion, and the Receiver’s failure to obtain an Order to Continue in particular, was a relevant consideration militating in favour of rejecting the proposed assignment of the action to Ms Cameron.
[4]. Opposition to approval of the proposed assignment to Ms Cameron, and the sealing of certain documentation proposed by the receiver, were the only objections raised in relation to the receiver’s motion. In particular, the fees and disbursements submitted by the receiver were not otherwise challenged or questioned.
Background - Facts
[5]. The developments leading to the present motions are best explained by way of a chronology, in respect of which I note the following, from the evidence before me:
• May 9, 2008: Grew issued a statement of claim against Goodfellow claiming $20 million in damages based on alleged breach of contract, the Sale of Goods Act, loss of reputation, and misrepresentation. The pleading indicated that Grew, (whose principal was David Cameron), manufactured fibreglass boats in Owen Sound. Goodfellow was said to be a wholesale supplier of plywood and other products. Grew alleged that Goodfellow had supplied it with inferior non-marine grade plywood used in the construction of some 1750 boats over a five year period. In the result, Grew allegedly had been put to substantial expense retrieving, repairing and replacing the boats, while its previous sterling reputation and profitable business effectively were destroyed.
• August 28, 2008: Goodfellow delivered a statement of defence, in which it denied all of Grew’s allegations. It acknowledged having supplied wood product to Grew between October of 2003 to November of 2005, but alleged, inter alia, that all wood sold conformed to samples provided, that Grew had relied on its own testing and knowledge in its search for less expensive plywood, and that Grew inappropriately used the wood supplied in a manner that inappropriately exposed it to the elements in various ways.
• December 10-11, 2008: The litigation proceeded to the point of oral discovery examinations, including an examination of David Cameron. At the time, the plaintiff indicated uncertainty and complications regarding its advancement of a claim for business interruption and economic loss; e.g., owing to complications with its bank. Defence counsel requested particulars of any such claim, and reserved the right to carry out a further oral discovery examination if necessary.
• December 9, 2009: Defence counsel wrote to plaintiff counsel, requesting confirmation of whether the defendant was advancing a claim for economic loss, in which case the defendant would want further productions and oral discovery examination.
• On dates unknown, the matter was assigned a pre-trial hearing date of February 10, 2010, and put on the trial list for March 22, 2010.
• March 10, 2010: Counsel attended at court, and the case was removed from the trial list. (The reasons for this were not made explicit in the evidence before me, but indications regarding later events suggest it was because the plaintiff had indicated intended pursuit of an economic loss claim, and various undertakings and requests for particulars were outstanding.)
• March 11, 2010: Through its counsel, Goodfellow offered to settle the claim by way of a dismissal without costs, failing which it would continue to press for satisfaction of undertakings and particulars of the claim for economic loss.
• August 17, 2010: A scheduled further oral discovery examination of David Cameron, in relation to the plaintiff’s economic loss claim, was cancelled because the parties were waiting on a report from the plaintiff’s accountant.
• January 10, 2011: The report from the plaintiff accountant was received.
• February 22, 2011: David Cameron took his own life.
• May 10, 2011: On motion of one of its secured creditors, (the Business Development Bank of Canada, “BDB”), an order was made placing Grew in receivership pursuant to the Bankruptcy and Insolvency Act. The court appointed BDO Canada Limited (“BDO” or “the receiver”) as receiver and manager of all Grew’s current and future assets, including the chose in action represented by Grew’s ongoing litigation against Goodfellow. Powers expressly conferred on the receiver by the relevant court order included the ability to “settle, extend or compromised any indebtedness owing” to Grew, and the ability to “initiate, prosecute & continue prosecution of any and all proceedings”. However, the receiver also expressly was ordered not to settle or compromise the existing litigation commenced on Grew’s behalf without obtaining a further order from the court, obtained “on notice to the family of David Cameron” via their solicitor. Generally, the court also imposed a formal stay, whereby “all rights and remedies” against Grew or the receiver, or affecting Grew’s property, were “stayed or suspended except with the written consent of the Receiver or leave of this Court”. Evidence filed by Jessica Cameron emphasized that the Cameron family had agreed to the proposed receivership only after the reaching of another agreement, (reflected in the terms of the receivership order outlined above), that the proposed receiver would and could not deal with Grew’s outstanding litigation claims without the knowledge and participation of the Cameron family.
• June 24, 2011: The receiver obtained an order approving the suggested sale of certain Grew assets, (not including the lawsuit against Goodfellow), and distribution of corresponding proceeds. BDO’s report to the court included reference to the litigation. In particular, BDO indicated that it had reviewed Grew’s pleading, and requested copies of Goodfellow’s statement of defence, as well as expert reports, with a view to having all that documentation reviewed by the receiver’s counsel. BDO’s report to the court also indicated that numerous offers to settle extended by Grew, (offering to settle the claim for amounts “substantially less” than the amounts claimed), had not been accepted by Goodfellow. The report also indicated an intention to make a recommendation to the court about the lawsuit at a later date, once all relevant documentation had been reviewed and assessed. (Goodfellow and its counsel were not initially served with this report, or BDO’s subsequent reports to the court. However, documentation in the court file indicates that Goodfellow’s counsel requested and received a copy of the relevant supporting affidavit from the court on or about June 9, 2011. Goodfellow’s counsel confirmed this during oral submissions before me. Goodfellow’s counsel also obtained copies of BDO’s subsequent reports in preparation for the hearing before me.)
• July 18, 2011: Goodfellow’s counsel wrote to counsel for the receiver, noting that it now was responsible for carriage of the action against Goodfellow, and asking whether the receiver and its clients intended to obtain an “Order to Continue” pursuant to Rule 11 of the Rules of Civil Procedure. (To overcome the position at common law that claims often terminated with various developments concerning a claimant, Rule 11 formally and automatically stays claims upon the effective transfer or transmission of a party’s interest in a claim until “any interested person” obtains an “Order to Continue” by way of a requisition tendered with a supporting affidavit.) Counsel for Goodfellow also noted that, if an Order to Continue was not obtained “within a reasonable period of time”, Goodfellow would be “at liberty to move for an order requesting that the action be dismissed for delay.
• August 8, 2011: Pursuant to Rule 48.14(2), a formal status notice was issued by the court registrar, indicating that, because the action had been struck from trial list and not restored to the list within 180 days, it would be dismissed for delay with costs unless restored to the list within 90 days.
• August 22, 2011: Goodfellow’s counsel wrote to counsel for the receiver, referring to the recent status notice from the court, and asking again whether the receiver intended to obtain an Order to Continue.
• September 8, 2011: Goodfellow’s counsel wrote again to counsel for the receiver, requesting an answer to its earlier correspondence, and asking again about the receiver’s intentions.
• October 12, 2011: Goodfellow’s counsel wrote again to counsel for the receiver, referring to the status hearing notice, the continued absence of any Order to Continue pursuant to Rule 11, and Goodfellow’s intention to resist any requested extension of the applicable court deadlines for action to be taken in response to the Status Notice. Goodfellow’s counsel also confirmed its continued recommendation to Goodfellow that it accept a dismissal of the action without costs.
• October 20, 2011: Counsel for the receiver wrote to the court registrar, (copying his correspondence to counsel for Goodfellow), indicating its position that the stay ordered by the court on May 10, 2011, precluded an administrative dismissal “unless/until an Order to Continue the action is obtained by a party to the proceeding pursuant to Rule 11.02 and further steps taken”.
• October 21, 2011: Counsel representing Grew prior to the stay wrote to Goodfellow’s counsel indicating that he was prepared to restore the action to the trial list by way of a motion on November 4, 2011. However, no such motion record was ever delivered by Grew’s counsel, (perhaps because he realized his inability to take such steps, having regard to the order made by the court putting Grew into receivership.)
• October 25, 2011: BDO tendered its second report to the court, outlining its activities as receiver. The report made reference to Grew’s action against Goodfellow. In particular, it confirmed that the receiver’s counsel had advised against pursuit of lawsuit, having regard to the inherent risk of adverse cost awards that might then be imposed on the receiver. The report outlined the attempts that then had been made to elicit financial support from Grew’s secured creditors, (BDB and The Canadian Imperial Bank of Commerce, “CIBC”), for continued prosecution of the action against Goodfellow; e.g., by their provision of appropriate indemnities, or their “purchase” of the lawsuit. However, these attempts had been unsuccessful. The report then went on to confirm that, on the advice of counsel, the receiver had approached the Cameron family to see if they were interested in financially supporting or purchasing the lawsuit.
• October 31, 2011: Jessica Cameron, (David Cameron’s daughter), made an initial offer to purchase an assignment of Grew’s lawsuit against Goodfellow from the Receiver. For reasons outlined below, precise information concerning this offer, particularly in relation to quantum, has been and will remain sealed pending resolution of the litigation. Generally, however, Ms Chapman offered to purchase an assignment of the lawsuit for a specific sum, subject to certain conditions, including an indication that the offer was time-limited and only open for acceptance within a certain period. The offer was not accepted according to its terms, but apparently prompted a request by the receiver to its counsel for a formal report assessing the claim’s value, which in turn prompted requests by the receiver’s counsel for further information and documentation from plaintiff counsel and defence counsel.
• December 20, 2011: BDO delivered its third report to the court on its activities as receiver, once again making reference to the lawsuit. In particular, BDO indicates that it approached the Cameron family through their solicitor to determine if they were interested in purchasing the cause of action from the receiver. As there had been “a favourable response”, the receiver was “obtaining further information to facilitate negotiations and support a potential sale of the cause of action”.
• February 8, 2012: Counsel for the receiver, (as part of its efforts to review the claim and prepare an evaluation of the lawsuit for use by the receiver), asked Goodfellow’s counsel to supply copies of the affidavits of documents exchanged in the litigation.
• February 15 and 24, 2012: Copies of the affidavits of documents were supplied to the receiver by Goodfellow’s counsel, as requested.
• March 19, 2012: BDO delivered its fourth report to the court on its activities as receiver. As far as the lawsuit was concerned,
• March 30, 2012: Counsel for the receiver provided it with an extended report, (some 38 pages in length, accompanied by attached documentation approximately one inch thick), evaluating the lawsuit and providing the receiver with recommendations. For the reasons noted below, this report also has been and shall remain sealed pending resolution of the litigation. Generally, however, the report confirmed that it was intended to facilitate the receiver’s valuation of the cause of action because there was a potential purchaser, (identified as estate representatives of David Cameron).
• July 4, 2012: There was a telephone conversation between Mr Dillon (representing Goodfellow) and Mr Robson (representing the receiver), concerning the lawsuit. According to Mr Dillon, Mr Robson indicated that neither the receiver nor the creditors were prepared to fund the action, but that the Cameron family “had indicated they would take over if the Receiver or creditors did not”. Mr Robson added that, although it now “appeared the family was not prepared to so proceed”, he was going to make further inquiries and “confirm in about three weeks”.
• July 26, 2012: Counsel for Goodfellow served its motion record, asking that the action be dismissed for delay, owing to Grew being placed in receivership in May of 2010 and the absence of any subsequent Order to Continue pursuant to Rule 11. (The receiver’s evidence indicates the motion record was received on July 30, 2012.) The supporting affidavit sworn by Mr Dillon includes the following statement at paragraph 18: “It appears the only reason for the delay in the Receiver complying with the mandatory requirements of Rule 11 is the attempt to extract some form of settlement, or alternatively, finding a party that is prepared to accept an assignment of this litigation and indemnify the Receiver”.
• August 16, 2012: Correspondence from counsel for the receiver, (which for reasons set out below has been and will remain sealed, pending resolution of the litigation), confirmed an arrangement whereby the receiver had agreed to assign Grew’s action against Goodfellow to Ms Cameron in exchange for payment of a specified amount and on specified terms, including court approval of the assignment. The content of the latter makes it clear that the confirmation followed a period of earlier communication and negotiation, but the letter itself contains no details in that regard.
• August 17, 2012: BDO served its motion delivering its fifth report to the court on its activities as receiver. The motion sought formal approval of that report and the proposed assignment of the lawsuit to Ms Cameron pursuant to the negotiated arrangement. In support of its request, BDO reiterated its unsuccessful efforts to elicit financial support for the action from the BDB and CIBC, and reliance on the extended report from its counsel, evaluating the lawsuit.
• September 12, 2012: Following service of the receiver’s motion, Goodfellow served the receiver with a formal offer to settle the lawsuit. For reasons noted below, that offer also has been and shall remain sealed pending resolution of the litigation. For present purposes, Goodfellow’s offer proposed resolution of the litigation by way of Goodfellow paying the receiver a specified amount conditional upon certain terms, including BDO obtaining an appropriate Order to Continue pursuant to Rule 11.
• September 17, 2012: In a supplement to its fifth report, BDO confirmed its receipt of the Goodfellow offer, (which it characterized as having been received “at the last minute”), following service of Goodfellow’s motion record, and after delivery and conditional acceptance of Ms Cameron’s accepted offer. The receiver also emphasized that its acceptance of Ms Cameron’s offer, (subject to court approval), represented the culmination of prolonged negotiations conducted “over a period of months”, wherein the receiver had carried out “substantial due diligence”, and followed a process it regarded as “commercially reasonable”. In its view, it was unable to “simply abandon” its agreement with Ms Cameron, and felt the “integrity of the process” had to be respected.
Sealing of documents
[6]. As noted above, the material before me includes a number of documents tendered to the court by the receiver BDO in sealed format for review by the court, and mentioned (without particulars) in BDO’s material, but not otherwise revealed to counsel for Goodfellow or counsel for Ms Cameron. These include the following:
a. the report prepared by BDO’s counsel providing a candid assessment of Grew’s legal action against Goodfellow;
b. correspondence confirming the final offer to purchase an assignment of that action tendered by Ms Cameron and conditionally accepted by the receiver, (subject to court approval); and
c. the offer to settle served on the receiver by Goodfellow on September 12, 2012, (attached to the court’s copy of the supplement to BDO’s fifth report to the court).
[7]. In the course of submissions, counsel for Goodfellow formally took issue with the sealing of this documentation, suggesting that all of it be made available to all parties.
[8]. In particular, Goodfellow wanted to know whether its offer had been higher than that of Ms Cameron, so that Goodfellow could tailor its submissions accordingly. For example, if Ms Cameron’s offer had been higher, Goodfellow likely would acknowledge that its challenge to approval of the proposed assignment to Ms Cameron would be problematic and probably without merit. However, if the Cameron offer was lower than that of Goodfellow, (which Goodfellow thought probable), this would militate in favour of the Cameron offer being rejected, so that acceptance of the Goodfellow offer could be directed, or the entire process re-opened and dealt with in an alternative manner by direction of the court; e.g., by the court directing the receiver to receive and consider contemporaneous sealed competing offers from all parties.
[9]. As indicated during the course of the hearing, I disagreed with Goodfellow’s submissions on this point, and rejected its request for immediate full disclosure of the sealed material to all parties.
[10]. In that regard, I noted that both the receiver and Goodfellow argued in their written and oral submissions that approval of the proposed assignment to Ms Cameron should turn primarily on considerations of policy and process. In particular:
a) relying on authoritative appellate guidance[^1], BDO argued that integrity of the entire receiver process would be undermined substantially by the court rejecting, (without compelling reasons), the process, recommendation and conditional agreements adopted and negotiated by its appointed receiver; whereas
b) relying on tendering procedures reviewed and approved by courts in other specific cases[^2], Goodfellow argued that the process adopted by the receiver had been inherently unfair and inappropriate, (whatever the quantum of offers received through that process).
[11]. Given that reality, (and my view that this approach is correct for the reasons outlined below), it seemed to me that review of the sealed material was relevant primarily for its indication as to the process followed in relation to the offers, the timing of their receipt, and the general nature of any procedural conditions attached to them, rather than their respective quantum. After reviewing the sealed documents, I therefore shared that limited information with all counsel in open court, during the course of the hearing, without disclosing the full text of the sealed documents.
[12]. Moreover, having regard to the particular nature of the underlying asset in question, (an ongoing lawsuit which might continue depending on whether or not the proposed assignment to Ms Cameron was approved), it seemed to me that immediate full disclosure of the sealed material inherently would risk serious prejudice to both Ms Cameron and Goodfellow. In particular:
a) disclosing the amount of consideration Ms Cameron was willing to pay for the assignment might suggest to Goodfellow the value she “really” placed on the litigation, and therefore the extent to which she was intent on pursuing it; and
b) disclosure of Goodfellow’s offer would reveal the amount Goodfellow already was willing to pay, at this stage of the proceedings. in order to “buy peace”.
[13]. In my opinion, as the matter can and should be decided on policy and principle, neither litigant can or should be presented, in the possibly ongoing litigation, with an advantage unusually generated by the circumstances of the erstwhile litigant, (Grew), being placed in receivership.
Consideration of proposed assignment
[14]. Goodfellow argues that the proposed assignment of the claim against it to Ms Cameron should not be approved because the process leading to the proposal is alleged to have been inappropriate and unfair. In particular:
a) it says the receiver should not and indeed cannot come before the court seeking approval of the proposed assignment unless and until it first obtains an Order to Continue pursuant to Rule 11, (which the receiver has delayed doing despite Goodfellow’s persistent requests), and that failure to do so permits direction of a new process whereby competing simultaneous offers could be submitted and considered, (e.g., through a process analogous to the sealed tender process employed in other situations by other receivers); and
b) more generally, it says the entire process has been unfair because it never received notice of offers by Ms Cameron, and was “never given the opportunity to engage in any formal settlement discussions”.
[15]. I reject these arguments.
[16]. In relation to the first, it seems to me that Goodfellow’s submission improperly conflates and confuses the litigation requirements of Rule 11 of Ontario’s Rules of Civil Procedure with the obligations and procedures imposed on a receiver appointed to address matters of insolvency pursuant to Rule 41 and section 100 of the Courts of Justice Act, R.S.O. 1990, c.C.43, supra, (“the CJA”). It also pays insufficient regard to the interaction of the Rules and a stay of formal proceedings against a debtor, normally granted pursuant to s.106 of the CJA upon the appointment of a receiver.
[17]. In broad terms, the appointment of a receiver and simultaneous imposition of a stay of proceedings is designed to establish a temporary oasis of relative financial calm; i.e., a period in which the receiver has an opportunity to consider, reorganize and deal with the affairs of the debtor, (by appropriate and orderly valuation and disposition of the debtor’s assets if and as necessary), for the benefit of creditors and the debtor, without facing the pressures of addressing ongoing disputes concerning the debtor. In other words, the attention of the receiver can be focused on a static situation, without having to face new challenges or aim at a “moving target”.
[18]. Imposition of a formal stay of litigation proceedings involving the debtor facilitates this; i.e., by temporarily suspending the application of other Rules which normally drive lawsuits forward to resolution one way or the other. As emphasized by Justice Goodman in 625041 Ontario Inc. v. Ford Motor Co. of Canada, [2012] O.J. No. 2217 (S.C.J.), at paragraph 27:
It matters not whether the stay of the action is statute driven, founded in a contract, arises from an arbitration clause or whether the court exercises its discretion by ordering a stay under its powers to control its proceedings or by virtue of the common law. Should a party be granted such relief, the direct effect of a stay is to place the action in suspended animation. Neither the plaintiff nor the defendant may take a further step, close pleadings, conduct examination for discoveries, raise interlocutory motions or set the matter down for trial. For all intents and purposes, the proceeding remains in limbo and the administrative clock stops.
[19]. In the case of such receiver appointments, the order making the appointment usually will include express terms formally suspending all rights and remedies vis-à-vis the debtor or the debtor’s property.[^3] In a sense, that order “stands alone” and is sufficient to freeze all claims by or against the debtor, or relating to the debtor’s property.
[20]. However, insofar as such appointments also entail an effective transfer of interest in the debtor’s assets from the debtor to the receiver, (and this applies to any chose in action belonging to the debtor), Rule 11.01 also then automatically applies to “reinforce” the court ordered period of calm by freezing all extant litigation involving the debtor:
11.01: Where at any stage of a proceeding the interest or liability of a party is transferred or transmitted to another person by assignment, bankruptcy, death or other means, the proceeding shall be stayed with respect to the party whose interest or liability has been transferred or transmitted until an order to continue the proceeding by or against the other person has been obtained.
[Emphasis added.]
[21]. Upon the appointment of such a receiver, there accordingly is a period of “calm” afforded to the receiver expressly by the appointing order, which is automatically reinforced by the automatic stay provisions of Rule 11.01.
[22]. In my view, it would be the antithesis of calm, and defeat the object of a receiver appointment and corresponding stay of proceedings involving the debtor, to suggest that such a receiver nevertheless then has an immediate and pressing obligation, pursuant to Rule 11, to obtain an order that in name and substance immediately continues litigation involving the debtor and negates the effect of any stay.
[23]. As emphasized by the Court of Appeal in Hall-Chem Inc. v. Vulcan Packaging Inc. (1994), 1994 1384 (ON CA), 21 O.R. (3d) 89 (C.A.), this is not to say that a receiver is entitled to “wash its hands” of litigation commenced by the debtor, and rely indefinitely on a stay of proceedings to leave such litigation forever in limbo. However, so long as a receiver is taking reasonable steps to address, evaluate and deal with a litigation claim advanced by the debtor, with a view to its eventual advancement or liquidation by way of assignment, the period of intended calm afforded to the receiver by the stay, to carry out that process in a responsible manner, should not be undermined by imposition of a precipitous obligation to obtain an Order to Continue pursuant to Rule 11.
[24]. Nor is obtaining such an order logically required prior to a receiver’s negotiated assignment of a debtor’s lawsuit, in exchange for consideration, or the court’s approval of such an assignment.
[25]. In that regard, it must be remembered that a claim formally advanced by litigation is an asset, (albeit a somewhat unique and inherently speculative asset), and therefore usually will fall within the mandate of a court appointed receiver charged with responsibility to value and liquidate all of the debtor’s assets for the most consideration that can be obtained from willing purchasers. Such a purchaser may be quite content to buy a temporarily “frozen” asset of this nature by way of assignment, (knowing the steps that then may be required to effect a formal “thaw” and continue prosecution of the claim), and I see no reason in policy or practice why a court may not approve such a sale in the normal course prior to formal lifting of a stay.
[26]. To the contrary, it seems to me that approval of such an assignment prior to lifting of an applicable stay, (e.g., by the assignee then taking steps pursuant to Rule 11), facilitates appropriate valuation and consideration of the “asset” by the receiver and the court, as well as an orderly transition of parties prior to the matter once again being consigned to the throes of ongoing litigation.
[27]. Moreover, a defendant to an action stayed upon appointment of a receiver is not without recourse, if it feels that it is being prejudiced by the duration of such a stay.
[28]. In the context of the proceedings placing the debtor in receivership, the court order appointing the receiver and imposing the stay usually will make express provision allowing for relaxation of the stay with leave of the court. For example, in the case before me, paragraph 9 of the order made by Justice Rady on May 10, 2010, reads in part as follows:
NO EXERCISE OF RIGHTS OR REMEDIES
- THIS COURT ORDERS that all rights and remedies against the Debtors, the Receiver, or affecting the Property, [defined in paragraph 2 of the order as including “all of the Debtors’ current and future assets, undertakings and properties of every nature and kind whatsoever, and wherever situate including all proceeds thereof”], are hereby stayed and suspended except with the written consent of the Receiver or leave of this Court …
[Emphasis in italics added.]
[29]. Had Goodfellow really been intent on the litigation against it going ahead, it therefore could have moved at any time, as an affected party, in the context of the receiver proceedings involving Grew, to lift the stay to the extent necessary.
[30]. Alternatively, Goodfellow could have moved in the context of the action against it, (as it eventually did), for leave to bring a motion addressing the situation, seeking appropriate relief to either terminate the claim or move it forward to conclusion.
[31]. In that regard, however, it bears emphasizing that the wording of Rule 11.02 of the Rules of Civil Procedure does not make it incumbent on a plaintiff to obtain an Order to Continue, confer ability to obtain such an order on plaintiffs alone, or contemplate that it necessarily must be the plaintiff serving such an order on a defendant. Rather, Rule 11.02(1) reads as follows:
11.02 (1) Where at any stage of a proceeding the interest or liability of a party takes place while a proceeding is pending, any interested person may, on filing an affidavit verifying the transfer or transmission of interest or liability, obtain on requisition from the registrar an order to continue (Form 11A), without notice to any other party.
(2) An order to continue shall be served forthwith on every other party.
[Emphasis added.]
[32]. In the case before me, it arguably would not have been appropriate for Goodfellow to unilaterally obtain an Order to Continue, relying solely upon the indicated requisition process alone, but I think the impediment in that regard stems from the separate overriding order of the court appointing the receiver and staying all proceedings involving Grew and its property. In the circumstances, a formal motion to the court was appropriate. For present purposes, however, the even-handed approach adopted by Rule 11.02, suggesting that an Order to Continue is something capable of being sought by “any interested person”, rather undermines Goodfellow’s attempt to lay blame for any delay in seeking such an order solely at the doorstep of the receiver.
[33]. This leaves Goodfellow’s more general objection to approval of the proposed assignment; i.e., that the entire process has been unfair because it never received notice of offers by Ms Cameron, and was “never given the opportunity to engage in any formal settlement discussions”. It suggests, instead, that the receiver be directed to now entertain and consider sealed offers from Ms Cameron and Goodfellow, and accept whatever bid turns out to be higher.
[34]. I reject this argument as well.
[35]. Factually, it seems to me that the suggested premise of the argument is far from accurate. In particular:
a) The evidence shows that there was nothing preventing Goodfellow from making offers to settle either before or after appointment of the receiver, and that it actually made such offers. However, until confronted with the receiver’s motion for approval of a proposed assignment of the cause of action to Ms Cameron, Goodfellow consistently offered to settle the claim for nothing more than a dismissal without costs.
b) While Goodfellow may not have been provided with details of offers made to the receiver by Ms Cameron, it clearly was on notice that the Cameron family had an ongoing interest in pursuing the litigation despite Grew being placed in receivership. There is no other reasonable inference to be drawn from the provisions of the final paragraph of the order made on May 10, 2010, appointing the receiver; (i.e., the paragraph indicating that the receiver was not to settle or compromise the existing litigation commenced on Grew’s behalf without obtaining a further order from the court, obtained “on notice to the family of David Cameron” via their solicitor). It is not clear when that order first came to the attention of Goodfellow and its counsel. However, at the latest, its counsel had a copy to hand when formally requesting further material from the relevant court file in June of 2011 – some fourteen months before the offer made by Ms Cameron and accepted by the receiver, (subject to court approval).
c) Goodfellow’s counsel also clearly had express notice, prior to the receiver’s conditional acceptance of any offer from Ms Cameron, that the receiver was engaged in discussions with the Cameron family about their possibly purchasing an assignment of Grew’s action against Goodfellow. (In affidavit evidence, counsel for Goodfellow confirmed that such information was provided by July 4, 2012, if not before; i.e., approximately six weeks prior to the receiver’s conditional acceptance of the final offer made by Ms Cameron.) However, Goodfellow’s response to such information was not the making of any offer to settle the claim by way of any positive payment, (thereby effectively “buying” the claim itself). It instead pressed forward with an attempt to secure its goal of an outright dismissal of the claim pursuant to its motion, including a claim for costs.
d) Although counsel for Goodfellow suggested that its ability to tender any effective offer of settlement was constrained by the receiver’s inability to accept or discuss such offers, (e.g., without an Order to Continue first being obtained), the suggestion is belied by Goodfellow’s making of a formal offer in any event on September 12, 2012. As indicated in that offer, any perceived limitation on the receiver’s ability to accept it could have been addressed by appropriate terms to address and overcome any necessary conditions. In that sense, the approach is not conceptually different from the tentative settlement arrangement agreed upon by the receiver and Ms Cameron, subject to the court’s approval.
[36]. However, in addition to such concerns, it seems to me that considerations of policy and law also prevent me from adopting the course urged by Goodfellow.
[37]. In Royal Bank v. Soundair, supra, our Court of Appeal emphasized a number of fundamental considerations applicable to review of conduct and recommendations of a court appointed receiver charged with disposition of a debtor’s assets. They include the following[^4]:
a) When a court appoints a receiver to use its commercial expertise in the sale of a unique asset, it inherently intends to rely upon the receiver’s expertise and not upon its own. Therefore, the court must place a great deal of confidence in the actions taken and in the opinions formed by the receiver.
b) A court also should assume that the receiver is acting properly unless the contrary is clearly shown.
c) The court should be reluctant to second-guess, with the benefit of hindsight, the considered business decisions made by its receiver.
d) The conduct of the receiver should be reviewed in the light of the specific mandate given by the court, and the information the receiver had when it agreed to accept an offer.
e) Where a court appointing a receiver does not say how the receiver is to negotiate the sale of particular assets, (e.g., by calling for bids or conducting an auction), but instructs the receiver to negotiate and sell, it obviously intends to leave the method of sale substantially in the discretion of the receiver. In such circumstances, it should not review minutely the process of the sale when, broadly speaking, it appears to the court to be a just process.
[38]. In particular, the underlying concerns and dangers involved in second-guessing a receiver’s actions and recommendations were emphasized by the Court of Appeal in the following way:
When deciding whether a receiver [has] acted improvidently, the court should examine the conduct of the receiver in light of the information the receiver had when it agreed to accept an offer. … The court should be very cautious before deciding that the receiver’s conduct was improvident based upon information which has come to light after it made its decision. To do so, in my view, would derogate from the mandate to sell given to the receiver … I agree with and adopt what was said by Anderson J. in Crown Trust Co. v. Rosenberg, [(1986), 1986 2760 (ON SC), 60 O.R. (2d) 87 (H.C.)], at p. 112…:
Its decision was made as a matter of business judgment on the elements then available to it. It is of the very essence of a receiver’s function to make such judgments and in the making of them to act seriously and responsibly so as to be prepared to stand behind them.
If the court were to reject the recommendation of the Receiver in any but the most exceptional circumstances, it would materially diminish and weaken the role and function of the Receiver both in the perception of receivers and in the perception of any others who might have occasion to deal with them. It would lead to the conclusion that the decision of the Receiver was of little weight and that the real decision was always made upon the motion for approval. That would be a consequence susceptible of immensely damaging results to the disposition of assets by court-appointed receivers.
[Emphasis added.]
I also agree with and adopt what was said by Macdonald J.A. in Cameron v. Bank of Nova Scotia (1981), 1981 4762 (NS CA), 38 C.B.R. (N.S.) 1 (C.A.), at p.11 ..:
In my opinion if the decision of the receiver to enter into an agreement of sale, subject to court approval, with respect to certain assets is reasonable and sound under the circumstances at the time existing it should not be set aside simply because a later and higher bid is made. To do so would literally create chaos in the commercial world and receivers and purchasers would never be sure they had a binding agreement.
[Emphasis added.]
[39]. In the case before me, the order appointing BDO as receiver did not direct it to market, sell or compromise any of Grew’s assets, (including Grew’s formal action against Goodfellow), in any particular manner. Rather, after taking control of Grew’s property, the receiver simply was authorized, in very general terms, “to market any or all of the Property, including advertising and soliciting offers in respect of the Property or any part or parts thereof and negotiating such terms and conditions of sale as the Receiver in its discretion may deem appropriate”.[^5]
[40]. The receiver communicated with all parties having an immediate interest in Grew’s action against Goodfellow, and effectively provided each of them with an opportunity to tender offers to purchase the lawsuit. This included Grew’s secured creditors and the Cameron family. However, in my opinion, for the reasons outlined above, it effectively included Goodfellow as well.
[41]. However, at the time it agreed to “sell” the lawsuit to Ms Cameron, after commissioning a very thorough assessment and evaluation of the claim, and months of negotiation with Ms Cameron, formal assignment of the litigation to Ms Cameron for the agreed consideration, (subject to court approval), was not only the best option available to the receiver but the only commercially sensible option on the horizon. In particular:
a) the receiver was unwilling to incur the cost risks associated with prosecuting the action itself;
b) the secured creditors had confirmed they too were unwilling to take on such risks; and
c) Goodfellow repeatedly had indicated it was prepared to settle for nothing more than a formal dismissal of the action without costs; moreover, it now was pushing, by way of its pending motion, for a formal dismissal of the action with some measure of costs.
[42]. In the circumstances, having regard to the above policy considerations and approach mandated by the Court of Appeal, I do not think the conduct of the receiver in this case should be criticized, or its recommendation rejected.
[43]. In particular, I do not think the receiver reasonably should have been expected to forego or jeopardize its only “bird in hand”, (as far as “sale” of the lawsuit was concerned), to embark on a process of expressly inviting additional competing offers from Goodfellow; i.e., in the hope that Goodfellow would reverse its repeatedly stated position and now offer some kind of monetary payment.
[44]. At the point of accepting Ms Cameron’s offer, (subject to court approval), Goodfellow had done nothing whatsoever to suggest that such a hope would have been well founded.
[45]. To the contrary, reviewing the evidence, one is left with an objective impression that, in the wake of Grew being placed in receivership, Goodfellow itself fervently was hoping and expecting that the substantial claim against it would “go away” without its formally having to pay anything towards settlement.
[46]. Goodfellow’s hopes and expectations in that regard may have been fueled by numerous considerations. These included lapse of time, the apparent (and later confirmed) disinterest of the receiver and secured creditors in pursuing the claim, and the failure of the Cameron family to purchase the claim at an earlier date, (notwithstanding the initial expression of interest reflected in the order appointing the receiver).
[47]. However, there was always an inherent risk that someone might purchase and pursue the claim if Goodfellow failed to do so, (by way of a settlement payment).
[48]. Goodfellow nevertheless chose to accept that risk and continue its effective pursuit of a dismissal without making any payment. Now that the risk of taking such an approach has materialized, Goodfellow effectively seeks to turn back the clock, reverse strategy, and see if it now can settle the claim by making a monetary payment before the litigation is reactivated.
[49]. This seems neither fair nor appropriate.
[50]. The recommendation of the receiver should be accepted, and the proposed assignment of the claim to Ms Cameron should be approved.
Conclusion
[51]. In the result, dealing with BDO’s motion, (the only motion remaining before me for substantive determination, having regard to Goodfellow’s effective abandonment of its motion), for the above reasons:
a. an order shall go granting the relief requested in paragraphs 1 through 11 of the prayer for relief set forth in BDO’s notice of motion dated August 17, 2012; and
b. the said order also shall include additional provisions directing that Goodfellow’s offer to settle, dated September 12, 2012, similarly shall be and remain sealed until the claim against Goodfellow, (Court File No. 08-141), is finally settled or dismissed.
Costs
[52]. Because my decision was reserved, the parties were unable to make any submissions regarding costs.
[53]. My preliminary view is as follows:
a) No costs should be awarded in relation to BDO’s motion, vis-à-vis any other party, as BDO formally sought no costs in its notice of motion, apparently served on all concerned. Moreover, as the court appointed receiver, BDO would have been obliged to proceed with its motion for approval of its accounts and actions, including approval of the proposed assignment, in any case, (although the hearing obviously may have been more perfunctory had the motion been entirely unopposed).
b) Despite abandonment of its motion to dismiss for delay, and the prima facie result suggested by Rule 37.09 of the Rules of Civil Procedure, (“unless the court orders otherwise”), Goodfellow should not be obliged to pay any costs in relation to its motion served on or about July 26, 2012. I regard that motion as a bona fide effort to move the litigation against Goodfellow forward in some manner, having regard to a status quo thrust upon it that Goodfellow increasingly felt unable to tolerate. The motion may or may not have had that effect, (as it is impossible to determine from the evidence before me whether the ongoing negotiations between Ms Cameron and the receiver, commenced before service of Goodfellow’s motion, independently would have generated the same outcome). However, having regard to all the circumstances, it would seem inappropriate and unfair to penalize Goodfellow for making the effort.
[54]. However, my preliminary view will be reconsidered if the parties wish to make submissions on costs, which they may do in writing within the next 30 days, failing which there shall be no order as to costs in relation to the BDO motion, and similarly no costs payable in relation to the Goodfellow motion.
“Justice I. F. Leach”
Justice I. F. Leach
DATE: January 14, 2013
[^1]: See, for example, Royal Bank v. Soundair Corp. (1991), 1991 2727 (ON CA), 4 O.R. (3d) 1 (C.A.)
[^2]: See, for example, the tendering process followed by the receiver and subsequently approved by the court in Re Katz (1991), 6 C.B.R. (3d) 211 (O.C.J.Gen.Div).
[^3]: This is true of the order placing Grew in receivership. The relevant provisions of paragraph 9 of the order are set forth below, in paragraph 26 of these reasons.)
[^4]: See Royal Bank v. Soundair, supra, at paragraphs 14-15, and 21-22, in particular.
[^5]: See the order of May 10, 2010, appointing BDO as receiver, at paragraph 3(k). Emphasis added.