CITATION: The Trustees of the Labourers’ Pension Fund of Central and Eastern Canada v. Sino-Forest Corporation (Re), 2016 ONSC 1156

COURT FILE NO.: CV-12-9667-00CL

DATE: 2016-02-19

ONTARIO SUPERIOR COURT OF JUSTICE

COMMERCIAL LIST

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

AND IN THE MATTER OF A PLAN OF COMPROMISE AND ARRANGEMENT OF SINO-FOREST CORPORATION

Court File No. CV-11-431153-00CP

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

THE TRUSTEES OF THE LABOURER’S PENSION FUND OF CENTRAL AND EASTERN CANADA, THE TRUSTEES OF THE INTERNATIONAL UNION OF OPERATING ENGINEERS LOCAL 793 PENSION PLAN FOR OPERATING ENGINEERS IN ONTARIO, SJUNDE AP-FONDEN, DAVID GRANT and ROBERT WONG

Plaintiffs

• and -

SINO-FOREST CORPORATION, ERNST & YOUNG LLP, BDO LIMITED (formerly known as BDO MCCABE LO LIMITED), ALLEN T.Y. CHAN, W. JUDSON MARTIN, KAI KIT POON, DAVID J. HORSLEY, WILLIAM E. ARDELL, JAMES P. BOWLAND, JAMES M.E. HYDE, EDMUND MAK, SIMON MURRAY, PETER WANG, GARRY J. WEST, PÖYRY (BEIJING) COLSULTING COMPAMY LIMITED, CREDIT SUISSE SECURITIES (CANADA), INC., TD SECURITIES INC., DUNDEE SECURITIES CORPORATION, RBC DOMINION SECURITIES INC., SCOTIA CAPITAL INC., CIBC WORLD MARKETS INC., MERRILL LYNCH CANADA INC., CANACCORD FINANCIAL LTD., MAISON PLACEMENTS CANADA INC., CREDIT SUISSE SECURITIES (USA) LLC AND MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED (successor by merger to Banc of America Securities LLC)

Defendants

Proceeding under the Class Proceedings Act, 1992

BEFORE: Regional Senior Justice Morawetz

COUNSEL: Simon Bieber and Terrence Liu for the Moving Party, David Horsley

Brian P. Bellmore and Paul Farley for the Responding Party, Chartered Professional Accountants of Ontario

RELEASED: February 19, 2016

ENDORSEMENT

Overview:

[1] The Defendant, David J. Horsley, brings this Motion for an Order declaring the following:

(a) The Chartered Professional Accountants of Ontario (“CPAO”) constitutes a “Person” as defined by the Sino-Forest Plan of Compromise and Reorganization (“Plan”);

(b) Any allegations that may be made the CPAO against Mr. Horsley constitutes a “Horsley Claim” as defined by the Plan;

(c) Any allegations that may made by the CPAO against Mr. Horsley have been fully, finally, irrevocably and forever released and discharged pursuant to the Order dated July 24, 2014;

(d) The CPAO is enjoined from commencing or continuing any disciplinary proceeding against Mr. Horsley, including the allegations set out in its Notice of Allegations, dated May 21, 2015.

[2] This Motion involves the interpretation of the Plan sanctioned by order dated December 10, 2012 (the “Plan Sanction Order”) pursuant to the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (the “CCAA”).

[3] This Motion also involves references to the Claims Procedure Order dated May 12, 2012 (the “CPO”), the Notice Approval – Horsley Settlement Order dated June 5, 2014 (the “Notice Order”) and the Horsley Class Settlement Approval Order dated July 24, 2014 (the “Settlement Order”). The relevant parts of these orders are attached as Schedules A, B and C, respectively.

[4] Mr. Horsley, the former Chief Financial Officer of Sino-Forest Corporation (“SFC”), entered into a settlement pursuant to the Plan in May 2014 (the “Horsley Settlement”). The parties to the Horsley Settlement are the Class Action Plaintiffs, the Litigation Trust and Mr. Horsley. The Horsley Settlement was approved by the Horsley Settlement Order.

[5] The Horsley Settlement required a payment by or on behalf of Mr. Horsley of $5.6 million for the benefit of SFC’s stakeholders.

[6] In exchange, Mr. Horsley received the release and injunction contemplated by the Plan.

[7] The CPAO seeks to commence regulatory proceedings against Mr. Horsley alleging that he breached the Rules of Professional Conduct (the “Rules”) established by the Institute of Chartered Accountants of Ontario (“ICAO”). The ICAO now operates as the CPAO. The ICAO and the CPAO are collectively referred to as “CPAO”.

[8] All members of the CPAO are governed by the Chartered Accountants Act, S.O. 2010, c.6 (“Chartered Accountants Act”), and the by-laws, regulations and Rules enacted pursuant to the Chartered Accountants Act.

[9] In the Notice of Allegations, May 21, 2015 (the “Allegations”), the CPAO alleged that Mr. Horsley breached the Rules as follows:

1. THAT, the said David J. Horsley, in or about the period of October 1, 2005 through April 30, 2012, while employed as Senior Vice President and Chief Financial Officer of Sino-Forest Corporation, failed to maintain the good reputation of the profession and its ability to serve the public interest, contrary to Rule 201.1 of the Rules of the Professional Conduct, in that he conducted himself in a fashion which contravened the Securities Act RSO 1990, C. S.5 as described in the [OSC] Settlement Agreement attached as “Schedule A”.

2. That, the said David J. Horsley, in or about the period of October 1, 2005 through April 30, 2012, while employed as Senior Vice President and Chief Financial Officer of Sino-Forest Corporation, failed to perform his professional services with due care, contrary to Rule 202.1 of the Rules of Professional Conduct in that he did not exercise the skill, care and diligence reasonably expected of a person in his position as described in the [OSC] Settlement Agreement attached to Schedule A.

[10] The CPAO seeks, among other things, a $75,000 fine from Mr. Horsley and a two year suspension from the practice of accounting.

Background:

[11] On July 20, 2011, a group of shareholders and debtholders commenced a class action proceeding against SFC and, others, including Mr. Horsley.

[12] On March 30, 2012, SFC filed a CCAA application.

[13] On May 14, 2012, the CPO was granted.

[14] The CPO sets out a procedure for all persons to file proofs of “Claims” or “D&O Claims” against the “Applicants”, namely SFC.

[15] The CPAO did not file a proof of claim.

[16] The CPAO received no notice of the CCAA proceedings from Mr. Horsley until July 28, 2015.

[17] The Plan contained similar definitions of “Claims” and “D&O Claims” as in the CPO.

[18] When the Plan was sanctioned, Mr. Horsley was not Named Third Party Defendant, nor a Named Director or Officer.

[19] In May 2014, Mr. Horsley entered into the Horsley Settlement. On June 5, 2014, the court granted the Notice Order to be published to advise “Securities Claimants” of the proposed Horsley Settlement.

[20] The Notice Order contained the defined terms “Horsley Settlement” and “Securities Claimant”.

[21] The Notice was directed to “Securities Claimants” as follows:

To: All persons and entities, wherever they may reside, who acquired any securities of Sino-Forest Corporation including Securities acquired in the primary, secondary and over-the-counter markets (“Securities Claimants”).

[22] “Securities Claimants” means all Person and entities wherever they may reside, who acquired any Securities of Sino-Forest Corporation including Securities acquired in the primary, secondary, and over-the-counter markets.

[23] The CPAO is not a Securities Claimant.

[24] The CPAO had no knowledge of the hearing scheduled for June 5, 2014 nor did it receive the Notice Order.

[25] On June 16, 2014, counsel for Mr. Horsley wrote, for the first time, to the CPAO advising that Mr. Horsley was negotiating a settlement with the Ontario Securities Commission (“OSC”) in which Mr. Horsley was admitting certain facts which might be relevant to the CPAO so it could “…consider whether to take disciplinary proceedings against Mr. Horsley…”. The June 16, 2014 letter stated in part:

Mr. Horsley is currently a respondent in regulatory proceedings brought by Enforcement Staff of the Ontario Securities Commission (“OSC”) which allege that he failed to exercise the skill, care and diligence required of him as CFO of Sino-Forest when he certified the annual and interim filings of Sino-Forest during his tenure as Chief Financial Officer….

The purpose of this letter is to advise you that Mr. Horsley intends to enter into a settlement with Enforcement Staff of the OSC which will involve him making certain admissions regarding the allegations made by staff….

We are bringing these matters to your attention now so that the Institute can consider whether to take discipline proceedings against Mr. Horsley in connection with these matters, and to fulfill his obligation to self-report matters of this kind to the Institute.

[26] The June 16th letter did not advise CPAO that there was a proposed Horsley Settlement or that Mr. Horsley was negotiating a release of claims against him in the CCAA Proceedings which was scheduled for hearing on July 24, 2014, nor was a copy the Notice Order or the Notice itself enclosed. The June 16, 2014 letter made no reference to the Sino-Forest CCAA or Class Proceedings.

[27] On July 24, 2014, the Motion to approve the Horsley Settlement proceeded without notice to the CPAO. The Court approved the Horsley Settlement, including the “Horsley Release”. Appendix “A” of the Settlement Order defined the terms “Horsley Release” and “Horsley Claims”.

[28] The CPAO was not a party to, nor was it a member of, the class in the Class Proceeding against, inter alia, SFC and Mr. Horsley.

[29] The Settlement Order contained the following notice provision:

30. THIS COURT ORDERS AND DECLARES that all persons and entities provided with notice of this Motion shall be bound by the declarations made in, and the terms of, this Horsley Settlement Order.

[30] The Settlement Order contained, at paragraph 36, a provision pertaining to the jurisdiction of the court to determine any disputes regarding the Horsley Release.

[31] On July 28, 2014, counsel for Mr. Horsley wrote to the CPAO advising that Mr. Horsley has reached a settlement with the OSC (“July 28 Letter”). The July 28 Letter also referred to settlement of the “civil claims” and the approval of same by the court.

[32] Although the July 28 Letter referred to the Settlement Order, a copy of same was not enclosed.

[33] Between July 28, 2014 and March 30, 2015, Mr. Horsley and his counsel engaged in discussions and correspondence with CPAO regarding the disciplinary steps and proceedings being considered and undertaken by the CPAO in connection with the admissions and misconduct made by Mr. Horsley to the OSC, which gave rise to potential disciplinary proceedings in relation to Mr. Horsley’s membership in the CPAO. No issue was raised by Mr. Horsley or his counsel regarding the effect of the Horsley Settlement on the CPAO, until March 30, 2015, when counsel for Mr. Horsley advised the CPAO of a possible “jurisdictional issue”.

[34] On June 8, 2015, counsel to Mr. Horsley wrote to the CPAO advising of Mr. Horsley’s position that the CPAO could not commence or continue disciplinary proceedings against Mr. Horsley and that to do so “would be in breach of a Court Order”. The June 8, 2015 letter was also the first time the CPAO was advised that it was Mr. Horsley’s position that “the combined effect of the Plan and Settlement Order is to permanently bar the [ICAO] from initiating any proceedings or imposing any sanctions against Mr. Horsley”. This was also the first time Mr. Horsley provided the CPAO a copy of the Plan, or a copy of the Settlement Order.

[35] Thereafter, Mr. Horsley brought this motion.

[36] The issue on this motion is whether the Plan and Settlement Order bar the CPAO from bringing regulatory proceedings against Mr. Horsley.

[37] Both Mr. Horsley and the CPAO agree that there was no intention to mislead or misdirect the CPAO about the Horsley Settlement.

Position of Mr. Horsley:

[38] Counsel for Mr. Horsley submits that the language of the Settlement Order and the Plan is clear and unequivocal: all proceedings regarding Mr. Horsley’s conduct at SFC including, those of regulatory bodies, are forever barred as against Mr. Horsley.

[39] Counsel submits that the Settlement Order and the Plan provide broad releases to directors and officers that have effected a settlement through the Plan. Further, the Plan has a specific mechanism to compromise claims against Third Party Defendants, such as Mr. Horsley.

[40] Counsel submits that Mr. Horsley followed that mechanism and reached a settlement which is consistent with the Plan and contains a comprehensive release. In particular, sections 14 (a) – (b) of the Settlement Order state:

(a) any and all Horsley Claims shall be fully, finally, irrevocably and forever compromised, released, discharged, cancelled, barred and deemed satisfied and extinguished as against Mr. Horsley and in accordance with section 11.2 (c) of the Plan; [and]

(b) The Horsley Release [as set out in section 11.2 (c) Plan] shall be binding according to its terms on any Person.

[41] Counsel submits that these provisions define what types of proceedings are released and who the release applies to.

[42] In this case, counsel submits that the CPAO Proceeding is barred because (a) the CPAO Proceeding is a “Horsley Claim”; and (b) CPAO is a “person” as defined by the Settlement Order and the Plan.

[43] Mr. Horsley takes the position that the term “Horsley Claim” is defined in the Settlement Order to include “any and all demands, claims, actions, Causes of Actions (as defined in the Plan)”. This applies to Mr. Horsley’s conduct as a director and officer of SFC, including “any statutory or common-law duties he may have owed”.

[44] The term “Causes of Action” is defined by the Plan to include any and all “claims”, “actions”, “demands”, “litigation”, “proceeding”, “hearing”, “complaint”, “judgments” and “orders”.

[45] Counsel submits that the CPAO is now seeking to bring a proceeding against Mr. Horsley to sanction him on the basis of his conduct “while employed as Senior Vice President and Chief Financial Officer of Sino-Forest”, is alleged to contravene the Rules.

[46] With respect to the submission that the CPAO is a “person”, counsel referenced the Settlement Order as defining the term “person” as having the “same meaning ascribed to it by the Plan”. The Plan defines the term “person” broadly to include “all corporations”, and “Government Entities”, (i.e. “regulatory authority, commission, court, board, tribunal, dispute settlement panel, or other law, rule or regulation making organization”).

[47] Counsel submits that pursuant to the Chartered Accountants Act, 2010, the CPAO is a “corporation” that has the ability to make regulations (e.g. Rules) and to convene tribunals to adjudicate complaints made against its members. Thus, the CPAO falls within the definition of a “person” and it is therefore bound by the Plan and Settlement Order.

[48] Mr. Horsley also takes the position that CPAO is enjoined from initiating a CPAO Proceeding against him and that the court has the jurisdiction to release the CPAO proceeding under section 11 of the CCAA.

[49] Counsel takes the position that the issue of notice is a “red herring”. It is acknowledged that CPAO did not receive actual direct notice of the motion to approve Horsley Settlement, but counsel submits that it is irrelevant for two reasons. First, notice was provided in rem through publication in the popular media. Second, the Monitor gave notice to the world.

Analysis:

[50] I have not been persuaded by the submissions put forward on behalf of Mr. Horsley.

Do the CPAO allegations give rise to a claim within the meaning of the CCAA?

[51] The Supreme Court of Canada in Newfoundland and Labrador v. AbitibiBowater Inc., 2012 SCC 67 addressed the issue of “claim” under the CCAA and the application of same to regulatory bodies. In Abitibi, the Province of Newfoundland and Labrador (the “Province”) issued various orders against Abitibi, pursuant to provincial environmental legislation. The Province then brought a motion for an order that it was not barred from enforcing its orders against Abitibi.

[52] Deschamps J. for the Majority stated:

1 The question in this appeal is whether orders issued by a regulatory body with respect to environmental remediation work can be treated as monetary claims under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 ("CCAA").

2 Regulatory bodies may become involved in reorganization proceedings when they order the debtor to comply with statutory rules. As a matter of principle, reorganization does not amount to a licence to disregard rules. Yet there are circumstances in which valid and enforceable orders will be subject to an arrangement under the CCAA. One such circumstance is where a regulatory body makes an environmental order that explicitly asserts a monetary claim.

3 In other circumstances, it is less clear whether an order can be treated as a monetary claim. The appellant and a number of interveners posit that an order issued by an environmental body is not a claim under the CCAA if the order does not require the debtor to make a payment. I agree that not all orders issued by regulatory bodies are monetary in nature and thus provable claims in an insolvency proceeding, but some may be, even if the amounts involved are not quantified at the outset of the proceeding. In the environmental context, the CCAA court must determine whether there are sufficient facts indicating the existence of an environmental duty that will ripen into a financial liability owed to the regulatory body that issued the order. In such a case, the relevant question is not simply whether the body has formally exercised its power to claim a debt. A CCAA court does not assess claims -- or orders -- on the basis of form alone. If the order is not framed in monetary terms, the court must determine, in light of the factual matrix and the applicable statutory framework, whether it is a claim that will be subject to the claims process.

[53] At paragraph 26, Deschamps J. sets out the following three requirements for determining when an order of a regulator should be seen as a “claim” within meaning of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 which is incorporated by reference into the CCAA:

(1) there must be a debt, a liability or an obligation to a creditor;

(2) the debt, liability or obligation must be incurred before the debtor becomes bankrupt; and

(3) it must be possible to attach a monetary value to the debt, liability or obligation.

[54] At paragraph 27, Deschamps J. continued:

The BIA’s definition of a provable claim, which is incorporated by reference into the CCAA, requires the identification of a creditor. Environmental statutes generally provide for the creation of regulatory bodies that are empowered to enforce the obligations the statutes impose. Most environmental regulatory bodies can be creditors in respect of monetary or non-monetary obligations imposed by the relevant statutes. At this first stage of determining whether the regulatory body is a creditor, the question whether the obligation can be translated into monetary terms is not yet relevant. This issue will be broached later. The only determination that has to be made at this point is whether the regulatory body has exercised its enforcement power against a debtor. When it does so, it identifies itself as a creditor, and the requirement of this stage of the analysis is satisfied.

[55] Counsel to the CPAO submits that the CPAO regulatory jurisdiction over Mr. Horsley does not give rise to any monetary or financial claim against SFC, and is therefore not compromisable under the CCAA.

[56] Further, counsel submits that the Chartered Accountants Act, does not give rise to any financial liability on the debtor company (SFC), nor does it impose liability on its officers and directors, in their capacities as such, for legal obligations of the debtor corporation which they manage and direct. In addition, the focus of the disciplinary process of the CPAO is on the professional conduct of the member as articulated by the Rules and it is in this capacity that the allegations of misconduct are made as against Mr. Horsley.

[57] I am in agreement with the submission of counsel to CPAO. The allegations of professional misconduct are not claims against SFC or a claim against Mr. Horsley in his capacity as officer and director. The CPAO allegations are with respect to his professional conduct as a chartered accountant.

[58] Further, even if SFC was involved, the allegations are not at the stage where they could constitute a claim as that term has been defined in Abitibi. The CPAO investigation is not at the enforcement stage. At this point, there is no debt.

[59] In my view, the Chartered Accountants Act, does not give rise to any “claims” under the CCAA which can be subject of compromise in a CCAA proceeding.

[60] Consequently, I have determined that the CPAO allegations are not claims under the CCAA.

Are the CPAO allegations claims against Mr. Horsley, in his capacity as a director of SFC under the CCAA?

[61] As noted by counsel to CPAO, under s. 5.1 of the CCAA claims against directors of a debtor company which may be compromisable as part of a plan are limited to claims against individuals, “in their capacity as directors or” for “obligations of the company where the directors are personally liable”.

[62] The allegations of professional misconduct against Mr. Horsley relate to the period of October 1, 2005 to April 30, 2012. According to the Settlement Agreement signed by Mr. Horsley with the OSC, Mr. Horsley ceased being a director of SFC on or about October 10, 2005. Therefore, with the exception of 10 days, during the period in issue, Mr. Horsley was not a director of SFC.

[63] The disciplinary proceedings which the CPAO has commenced against Mr. Horsley are not, in my view, claims against SFC of which Mr. Horsley could be “liable in his capacity as director for payment”.

[64] Counsel to the CPAO also referenced Re Terrace Bay Pulp Inc. (Re), 2013 ONSC 5111 where the court declined to impose a stay of proceeding under the Occupational Health and Safety Act, despite the fact that such proceedings were in relation to a debtor company, as it was not clear that the regulatory proceeding would give rise to a financial liability on the debtor company.

[65] In this case, the CPAO is not investigating SFC. Further, the disciplinary committee can make no order against SFC and it is not known whether the disciplinary committee will impose a financial liability on Mr. Horsley or even whether he will be found guilty of the allegations made against him. The CPAO allegations are not, in my view, claims against Mr. Horsley in his capacity as a director of SFC under the CCAA.

Are the CPAO allegations “Claims” or “D&O Claims” which are the subject of the Plan?

[66] The definition of Claim makes it clear that it is directed to any right or claim of any person that may be asserted or made against SFC. In my view, the CPAO allegations are against Mr. Horsley and not against SFC.

[67] The term “D&O Claim” means “(1) any right or claim of any Person that may be asserted or made in whole or in part against one or more Directors or Officers of SFC that relates to a Claim for which Directors or Officers are by law liable to pay in their capacity as Directors or Officers of SFC, or to any right or claim of any Person that may be asserted or made in whole or in part against one or more Directors or Officers of SFC, in that capacity, …”.

[68] I am of the view that the disciplinary proceedings brought by CPAO do not relate to a claim against Mr. Horsley as director or officer for which he would be liable to pay in his capacity as director or officer or a right or claim of any person that may be asserted against one or more directors or officers of SFC in that capacity. The CPAO allegations relate to Mr. Horsley’s professional conduct as a chartered accountant, independent of his role as a director or Chief Financial Officer.

Are the disciplinary proceeding as instituted by CPAO against Mr. Horsley included in the definition of “Horsley Claim”?

[69] The definition of Horsley Claim requires that the claim relate to SFC or to Mr. Horsley’s conduct or performance as a director or officer of SFC. In my view, the CPAO allegations relate to Mr. Horsley’s alleged contravention of the Securities Act or his contravention of the Rules, as set out in the Notice of Allegation. The CPAO allegations are not made against SFC or relate to Mr. Horsley as a director of SFC.

[70] Further, the definition of “Horsley Claim” contained in the Settlement Order contains the following:

“For greater certainty, Horsley Claims do not include any proceeding commenced or remedy sought by the Ontario Securities Commission or the Attorney General.”

[71] Counsel for CPAO submits that this provision in the definition of “Horsley Claim” is not an exception, but rather a clarification of the general words of the definition and that the addition of these words confirms that not every possible claim or proceeding against Mr. Horsley would be caught by the definition of “Horsley Claim” and that disciplinary proceedings taken against Mr. Horsley in the public interest were not included in the Settlement Order.

[72] Counsel for CPAO further submits that the CPAO’s allegations fall within the category proceedings identified by the Settlement Order as being excluded from the definition of “Horsley Claim”. The Allegations brought by the CPAO against Mr. Horsley are not related to the Settlement Approval, but are based entirely on the facts agreed to by Mr. Horsley and the proceeding commenced by the Ontario Securities Commission, - a proceeding excluded by the Settlement Order. Counsel to CPAO points out that Mr. Horsley agreed that the facts in the OSC Settlement Agreement will not be contested in the CPAO disciplinary process.

[73] I accept these submissions and conclude that the CPAO allegations are not included in the definition of “Horsley Claim”.

[74] The weakness of Mr. Horsley’s position was underscored during argument. The proposition was put to Mr. Horsley’s counsel that, if his argument was accepted, the following fact scenario would fall within the definition of Horsley Claim and would be covered by the Horsley Release:

Assume that Mr. Horsley was driving a SFC owned automobile to his place of employment and was at fault in an automobile accident which caused personal injury to a third party.

[75] Counsel to Mr. Horsley submitted that the claim of the third party would fall within the definition of Horsley Claim and Mr. Horsley would be covered by the release. This outcome, in my view, would be absurd. The terms “Claims”, and “D&O Claims”, “Horsley Settlement”, “Securities Claimant”, “Horsley Release” and “Horsley Claim” arise out of heavily negotiated documents.

[76] The Court of Appeal for Ontario summarized the general principles for interpreting commercial contracts in Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, where the court said a commercial contract is to be interpreted:

(a) As a whole, in a manner that gives meaning to all of its terms and avoids an

interpretation that would render one or more of its terms ineffective;

(b) By determining the intention of the parties in accordance with the language they have used in the written document and based on the “cardinal presumption” that they have intended what they have said;

(c) With regard to the objective evidence of the factual matrix underlying the negotiation of the contract, but without reference to the subjective intention of the parties, and

(d) In a fashion that accords with sound commercial principles and good business sense; and that avoids a commercial absurdity.

[77] In this case, it seems to me that to give effect to Mr. Horsley’s position and to such a broad definition of Horsley Claim and Horsley Release, would give rise to an absurdity, - an interpretation that must be avoided.

[78] I am satisfied that Mr. Horsley never intended or understood that the regulatory powers of CPAO would be barred by the settlements of the CCAA or the class proceedings. This is underscored by the fact that Mr. Horsley failed to advise the CPAO of the CCAA proceedings or the Class Proceedings, and he failed to advise the CPAO of the motion which resulted in the Settlement Order.

[79] Mr. Horsley takes the position that CPAO should have been aware of the proceedings as a result of media coverage. In addition, language in the various orders should be interpreted in such a way as to make the service and notice provision binding on CPAO. I disagree. CPAO is not a Securities Claimant – the party to whom the Notice of the June 5, 2014 hearing was directed. There was, in my view, no basis on which the CPAO would reasonably have concluded that the proposed Horsley Release would affect the CPAO allegations. If Mr. Horsley wanted the Horsley Release to be effective as against CPAO, steps could have been taken to serve CPAO. No such steps were taken.

[80] As noted above, the first time Mr. Horsley took the position that the Settlement Order and the definition of “Horsley Claim” enjoined the CPAO from commencing proceedings against him was on March 30, 2015. The inescapable conclusion is that Mr. Horsley never intended or understood that the regulatory power of the CPAO would be affected in any way by the Settlement Agreement.

[81] The foregoing is sufficient to dispose of this matter, but since Mr. Horsley takes the position that the lack of notice argument of CPAO is a red herring, it is appropriate to comment briefly on this issue.

[82] The issue of lack of notice is not, in my view, a “red herring”.

[83] I accept the submission of counsel to CPAO that had they received notice of the July 24, 2014 motion and of Mr. Horsley’s position that the definition of “Horsley Claim” contained therein enjoined CPAO from instituting regulatory proceedings against him in respect of his conduct as a chartered accountant and member of the CPAO, CPAO would have requested the same exclusion to its proceedings as was given to the OSC, which exclusion was incorporated in the definition of “Horsley Claim” in the Settlement Order. CPAO should have been provided with the opportunity to have articulated this position at the July 24, 2014 motion.

[84] Paragraph 30 of the Settlement Order is clear. The Settlement Order binds parties and entities who had notice of the motion. CPAO did not receive notice and, in my view, are not bound by it.

[85] Counsel to Mr. Horsley submitted that CPAO was attempted to undo or alter the Settlement. I disagree. The Settlement was never binding on CPAO.

[86] In conclusion, it is my view that the Allegations dated May 21, 2015 against Mr. Horsley and any sanctions which may be imposed in the event the allegations are proven, after a hearing by the disciplinary committee of the CPAO are not, and were never intended to be, the subject of the CCAA proceeding and were not, and could not, be Horsley Claims released by the Settlement Order.

Disposition:

[87] In the result, following relief is granted:

(a) an order dismissing the motion brought by Mr. Horsley;

(b) an order declaring that the Settlement Agreement and the Settlement Order does not affect the right or ability of the CPAO to bring, continue or prosecute Allegations against Mr. Horsley;

(c) an order declaring that the definition “Horsley Claim” does not include disciplinary proceedings commenced and continued by CPAO; and

[88] Costs of this motion are amended in favour of CPAO in the agreed upon amount of $10,000 inclusive of disbursements and HST.

Regional Senior Justice G.B. Morawetz

Date: February 19, 2016

“Schedule A”

“Schedule B”

“Schedule C”