SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

COURT FILE NO.: CV15-10961-00CL
DATE: 2015-06-30

IN THE MATTER OF THE COMPANIES’ LENDERS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED

AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF NELSON EDUCATION LTD. AND NELSON EDUCATION HOLDINGS LTD.

Applicants

BEFORE: Newbould J.

COUNSEL:
Robert J. Chadwick and Sydney Young,, for the Applicants

D.J. Miller and Kyla E.M. Mahar, for the Royal Bank of Canada

ENDORSEMENT

[1] RBC seeks costs resulting from my decision of May 29, 2015 in which I replaced the Monitor and provided other relief. It seeks costs on a full indemnity basis based on the lending agreement for the second liens for which it is the second lien agent. Section 10.04(b) of the Second Lien Credit Agreement states:

The Borrower agrees ... (b) to pay or reimburse the Administrative Agent, each Agent-Related Person, the Arranger and each Lender for all reasonable and documented out-of-pocket costs and expenses incurred in connection with the enforcement of any rights or remedies under this Agreement or the other Loan Documents (including all such costs and expenses incurred during any legal proceeding, including any proceeding under any Debtor Relief Law, including all Attorney Costs of counsel to the Administrative Agent).

[2] The defined term “Debtor Relief Law” includes proceedings commenced by Nelson Education under the CCAA.

[3] Normally a court will enforce contractual terms for costs although an agreement cannot oust the court’s discretion in the matter. See Bosse v. Mastercraft, 1995 931 (ON CA), [1995] O.J. No. 884 (C.A.), para. 66. In that case, the Court of Appeal stated:

As a general proposition, where there is a contractual right to costs, the court will exercise its discretion so as to reflect that right. However, the agreement of the parties cannot exclude the court’s discretion; it is open to the court to exercise its discretion contrary to the agreement. The court may refuse to enforce the contractual right where there is good reason for so doing ‑ where, for instance, the successful mortgagee has engaged in inequitable conduct or where the case presents special circumstances which render the imposition of solicitor and client costs unfair or unduly onerous in the particular circumstances.

[4] In Rompsen Investment Corp. v. 6711162 Canada Inc. (2014), 19 C.B.R. (6th) 131, Brown J. (as he then was) referred to the necessity of a party with a contractual right to full indemnity to establish that the costs are fair and reasonable. He stated:

3 While Romspen is entitled to full indemnity costs by virtue of the mortgage, a contractual right to the costs of enforcement proceedings is subject to the court's over-riding duty to ensure that costs awarded are fair and reasonable. Put another way, when a party, relying on a contractual term, seeks an award of full indemnity costs, the party must demonstrate that the costs sought are reasonable full indemnity costs.

[5] The applicants contend that it would be appropriate to defer the determination of costs until the hearing of a motion to be brought by the applicants for approval of the sale of the business to the first lien lenders. I decline to do that. The issues related to the rights of interested parties, including RBC, to see to the proper conduct of the CCAA proceedings, including the need to have a new Monitor appointed, protection for RBC regarding its role as provider of the cash management system during the CCAA proceedings and the propriety of the expenses of the first lien lenders being paid while those of the second lien lenders were not.

[6] The applicants contend that the contractual provisions relied on by RBC should not govern but rather the cost rules in the rules of practice. I see no basis for that. I recognize that under the rules, costs on a substantial or full indemnity basis are not the norm. However, it is for that reason presumably that lenders generally have contractual provisions permitting them to collect their costs on a full indemnity basis. I see no reason to depart from the basis that RBC is entitled to costs on a full indemnity scale under the second lien lending agreement so long as they are fair and reasonable.

[7] The applicants do not quarrel with the number of hours spent by Canadian counsel to RBC or to the hourly rates. This is a prudent concession. They take issue however with costs being awarded for the hearing of the initial application, contending that the order that was made was a revised pared down version settled with all counsel, including counsel for RBC. I see no basis for denying RBC its costs of this initial hearing.

[8] The application record was served on RBC only the day before the return date and RBC did not have sufficient time to consider or prepare a full response to it. Notwithstanding having had little time to prepare or to seek instructions as second lien agent, RBC prepared and served a notice of objection, which, among other things, raised the issue of the appropriateness of A&M Canada being appointed Monitor in the circumstances. At the initial hearing, Mr. Chadwick said that the applicant wanted to schedule a date 9 days hence to approve a credit bid of the first lien lenders to acquire the assets of the applicant based on pre-filing sales efforts. The draft Initial Order was a full order and not any kind of a slimmed down version more appropriate to a first day order. It was at my insistence that the Initial Order be pared down and I gave directions in that regard. Had counsel for RBC not been in attendance and taken the position that she did, matters would not have proceeded as they did. I did not schedule a date at that time for the approval of any sale and ordered that the comeback hearing was to be a true comeback with no onus on any party to demonstrate that any provision in the Initial Order should not have been made. RBC is entitled to its cost for the first attendance.

[9] The costs claimed by Canadian counsel appear fair and reasonable. RBC achieved complete success. It was an important matter to determine whether a new Monitor should be appointed, which I ordered in the face of the argument against that by the applicant. The request by RBC for protection for its role as provider of the cash management system during the CCAA proceedings was conceded during argument by Mr. Chadwick. The propriety of the expenses of the first lien lenders being paid while those of the second lien lenders were not was decided in RBC’s favour. The total costs claimed by RBC for the fees and disbursements of its Canadian counsel of $184,091.59, inclusive of H.S.T. are allowed.

[10] RBC has also requested costs for its U.S. counsel of $41,137.50. All parties have for some time had U.S. counsel advising in connection with Nelson Education. However, there is no indication in the material that U.S. counsel did much in connection with the matters being assessed. What is asserted by RBC is that the applicants put before the Court in the initial application a provision of the Intercreditor Agreement that they intended to rely on, in respect of the second lien lenders. As U.S. law governed document, it was appropriate that RBC seek guidance from U.S. counsel. The applicant says that the matter relating to the provision in the intercreditor agreement was in the context of the CCAA application and any fees of U.S. counsel would have been minimal in connection with that. I tend to agree with that. The provisions of the intercreditor agreement that I had to deal with were in plain English that one would think would not have required a great deal of input of U.S. counsel. Other aspects of the U.S. legal issues may have been involved, but I have been given no details of what is included in the amount sought to be recovered for the disbursement made to U.S. counsel. In the circumstances, I think an allowance of $10,000 for U.S. counsel would be appropriate.

[11] In the circumstances, total costs of $194,091.59 are ordered to be paid by the applicants to RBC within 10 days.

Newbould J.

Date: June 30, 2015