I. Factual Background and Overview

This application concerns the provisions of the Bulk Sales Act, R.S.O. 1990, c. B.14 (“the BSA”), and specifically the consequences of failing to comply with its mandatory requirements. Even though the application appears to have a narrow focus on the request for an extension to file particulars of a sale, its impact on other ongoing litigation demonstrates the folly of deliberately ignoring statutory provisions.

Outfront’s Action Against Cieslok

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Outfront’s Action Against Cieslok

Between May 2009 and May 2010, CBS Canada Holdings supplied outdoor advertising space to Clarity Outdoor Media for which it invoiced invoicing them the amount of $545,581.05. This sum, which CBS maintains was never paid, is the subject of an action launched to recover the monies. On 30 March 2012, CBS assigned the title and interest in the property, the subject matter of this action, to Outfront. As a result, Outfront is a named plaintiff in that separate action.

3On 8 May 2014, Cieslok Media Ltd. agreed to purchase Clarity’s assets. Under s. 4 of the BSA, Cieslok was obliged to demand and receive a statement disclosing the identity of any secured and unsecured creditors. The statement was also to disclose the amount of debt owing to each of the creditors and the date upon which the debt became payable. In the case of secured creditors, it was necessary for the statement to identify the nature of the security, the date the claims were due, and whether a sale of Clarity’s assets triggered the payment of debt on the sale date.

4In order to “facilitate timely completion” of the sale, Cieslok agreed to “waive” compliance with s. 4 of the BSA. The required statement ended up being delivered after the sale completed. According to Cieslok, arrangements to pay its trade creditors - with the exception of those secured creditors who agreed to waive their rights under the BSA - were in place.

5In June 2014, a press release announced Clarity’s sale to Cieslok, after which CBS wrote to Cieslok informing them that, in its view, Cieslok’s failure to abide by the BSA rendered Clarity’s sale voidable and made Cieslok liable for Clarity’s debt to CBS.

6On 21 August 2014, CBS (now Outfront) began its action against Cieslok alleging a violation of various sections of the BSA. CBS’ motivation in bringing the action is its claim that Cieslok failed to list CBS as a creditor and deprived Outfront of the protection it was guaranteed under the BSA.

Cieslok’s Section 11(3) Application

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Cieslok’s Section 11(3) Application

In addition to not formally complying with the requirements of s. 4 of the BSA, Cieslok also failed to fulfil its obligations under subsection 11(1) of the BSA, which mandated the filing of an affidavit setting out the particulars of the Clarity sale. In order to remedy this inaction, Cieslok now applies under subsection 11(3)(b) of the BSA asking this court to exercise its discretion to extend the time period for compliance.

The Position of the Parties

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The Position of the Parties

Cieslok insists that failure to file under section 11 of the BSA was inadvertent but is also a frequent practice in the industry. Cieslok’s reasons for seeking the extension are understandable: a section 11 filing triggers the limitation period under s. 19 of the BSA and restricts the rights of parties to seek to have a bulk sale set aside or voided. Cieslok argues that the law in Canada gives the court a wide latitude in discretion when deciding whether to extend the time limit for filing. They further argue that doing so would not prejudice Outfront.

9Outfront seeks dismissal of the application. They argue that Cieslok has demonstrated a wilful disregard of its obligations under the BSA. Moreover, they point out that there is no right to waive compliance with the statute and argue that Cieslok’s real motive in bringing the application is to eliminate Outfront’s arguments in its efforts to have the Clarity sale set aside. In the alternative, Outfront requests that, should the court see fit to grant Cieslok’s application, any order should explicitly state that the section 11 filing does not affect Outfront’s rights in that ongoing proceeding.

II. THE STATUTORY PROVISIONS

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II. The Statutory Provisions

The BSA was developed to protect creditors from a debtor selling all of their assets and leaving those creditors unprotected and unpaid. It applies to all transactions involving the purchase of all or the majority of a business in Ontario. Other provinces have repealed their BSA-equivalent legislation as alternative mechanisms now exist that achieve the same result but with a less onerous burden. In Ontario, however, the legislation remains in place.

11The relevant sections of the BSA are set out as follows:

Statement of Creditors

(1) The buyer, before paying or delivering to the seller any part of the proceeds of the sale, other than the part mentioned in section 6, shall demand of and receive from the seller, and the seller shall deliver to the buyer, a statement verified by the affidavit of the seller in Form 1.

Completion of sale

(1) Where the buyer has received the statement mentioned in section 4, the buyer may pay or deliver the proceeds of the sale to the seller and thereupon acquire the property of the seller in the stock in bulk,

(a) if the statement mentioned in section 4 discloses that the claims of the unsecured trade creditors of the seller do not exceed a total of $2,500 and that the claims of the secured trade creditors of the seller do not exceed a total of $2,500 and the buyer has no notice that the claims of the unsecured trade creditors of the seller exceed a total of $2,500 and that the claims of the secured trade creditors of the seller exceed a total of $2,500; or

(b) if the seller delivers a statement verified by the seller’s affidavit showing that the claims of all unsecured trade creditors and all secured trade creditors of the seller of which the buyer has notice have been paid in full; or

(c) if adequate provision has been made for the immediate payment in full of all claims of the unsecured trade creditors of the seller of which the buyer has notice and of all claims of secured trade creditors of the seller that are or become due and payable upon completion of the sale of which the buyer has notice, so long as their claims are paid in full forthwith after completion of the sale, but where any such creditor has delivered a waiver in Form 2 no provision need be made for the immediate payment of the creditor’s claim.

Filings on completion of sale

(1) Within five days after the completion of a sale in bulk, the buyer shall file in the office of the court an affidavit setting out the particulars of the sale, including the subject-matter thereof and the name and address of the trustee, if any, and exhibiting duplicate originals of the statement mentioned in section 4, the statement, if any, mentioned in clause 8 (1) (b), the waivers, if any, mentioned in clause 8 (1) (c) and the consent and affidavit, if any, mentioned in subsection 8 (2).

Where filing required

(2) The documents mentioned in subsection (1) shall be filed in the offices of the court for every county or district in which all or part of the stock in bulk is located.

Failure to file

(3) If the buyer fails to comply with subsection (1), a judge may at any time,

(a) upon the application of the trustee or a creditor, order the buyer to comply therewith; or

(b) upon the application of the buyer, extend the time for compliance therewith; or

(c) upon the application of the buyer after the lapse of one year from the date of the completion of the sale in bulk and upon being satisfied that the claims of all unsecured trade creditors and secured trade creditors of the seller existing at the time of the completion of the sale have been paid in full and that no action or proceeding is pending to set aside the sale or to have the sale declared void and that the application is made in good faith and not for any improper purpose, make an order dispensing with compliance therewith.

Limitation of Action

No action shall be brought or proceeding taken to set aside or have declared void a sale in bulk for failure to comply with this Act unless the action is brought or the proceeding is taken either before the buyer complies with section 11 or within six months after the buyer complies with section 11.

III. SHOULD THIS COURT EXTEND THE TIME FOR FILING?

The Practice of “Waiving” Compliance Under the BSA

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III. Should This Court Extend the Time for Filing?

In deciding the application, it is necessary to make some observations on the submissions made by Cieslok on the “industry practice” of “waiving” the statutory requirements of the BSA. According to these submissions, section 4 of the BSA was justifiably ignored in the interests of a timely sale. Cieslok’s position is that the “waiver” was of little significance as Cieslok sought to fulfil the BSA objectives: prior to closing, funds were set aside to pay Clarity’s trade creditors. Clarity, in any event, did deliver the required s. 4 statement after the sale in November 2015.

13I am somewhat puzzled by these submissions. Section 4 of the BSA purports to protect not only the interests of the buyer in a transaction but also the seller’s creditors who have no say in any purported waiver. A review of the BSA reveals that there is no mechanism for waiving the statutory requirements contained in section 4. Moreover, the wording of the section makes clear that compliance with the section is mandatory: the word “shall” is used in describing the conduct of the parties. The fact that companies have ignored this requirement for the sake of their own convenience should not be seen as a justification. Statutory legislation shapes and controls industry practice, not the other way round.

14Cieslok asks me to consider the observations of Bastarache J., writing for the majority of the Supreme Court of Canada in National Trust Co. v. H & R Block Canada Inc., 2003 SCC 66, at paras. 42-44, where he suggested that the BSA had to accommodate modern commercial realities “as best it can.” I do not agree that Bastarache J.’s comments amount to a suggestion that the provisions of the BSA could be disregarded. In that case, the buyer failed to comply with section 4 and a court subsequently declared the sale void. Under subsection 16(2) of the BSA, the buyer was liable to account to the seller’s creditors for the value of the proceeds. The Supreme Court of Canada noted that, in the unique circumstances of that case, strict enforcement of subsection 16(2) would lead to an unfair advantage to a creditor and a punitive effect on the buyer. Accordingly, it interpreted subsection 16(2) in a purposive manner, looking at the substance of payments to creditors. The Supreme Court of Canada’s aim was to avoid an unfair result based on non-compliance.

15The court in National Trust simply re-affirmed that a court has a wide discretion in determining whether to set aside a bulk sale. That is a far cry from the notion that statutory legislation is to be followed only when it is expedient to do so.

16I conclude, therefore, that it is not possible or permissible to “waive” compliance of the requirements of section 4 of the BSA. Non-compliance means that the parties to a transaction run the real risk that the transaction will subsequently be declared void. Ironically, this is the position that Cieslok find themselves in with respect to the separate action brought by Outfront.

17For the purposes of this application, however, Cieslok’s breach of section 4 is a factor to consider when deciding whether to grant its application for an extension of time under section 11 of the Act.

What is the Test for Extension?

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What is the Test for Extension?

Both parties agree on one point: there is a dearth of case law on the issue of how a court should decide whether to extend the time requirement for filing a statement.

19Cieslok relies on Ruffa (Torino Shoes) Re, 1973 CarswellOnt 76, 18 C.B.R. (N.S.) 162, a Registrar’s decision that appears to indicate that any buyer seeking an extension under subsection 11(3) of the BSA has the option to apply “at any time”. In coming to that decision, the Registrar explained that he would be “loath to set aside what might otherwise be an unimpeachable transaction by an honest purchaser on the technical ground that he has failed in the filing of a document.”

20Outfront, on the other hand, argue that there must be an evaluation of the reason for the delay in applying for the extension. They ask this court to apply the test used to decide whether a default judgment should be set aside pursuant to Rule 38.11(1) of the Rules of Civil Procedure. In making this request Outfront relies on cases such as Peterbilt of Ontario Inc. v. 1565627 Ontario Ltd., 2007 ONCA 333, and HSBC Securities (Canada) Inc. v. Firestar Capital Management Corp., 2008 ONCA 894.

The Factors in Exercising Discretion Under s. 11(3) of the BSA

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The Factors in Exercising Discretion Under s. 11(3) of the BSA

I disagree with Cieslok’s position that a party may, “at any time”, apply and be granted an automatic extension under subsection 11(3). It makes very little sense for the Legislature to impose the mandatory conditions in subsection (1) and, at the same time, permit a party to ignore its obligations in the knowledge that they could, at any time of their choosing, seek an extension to file the required affidavit.

22However, I accept that there is some force to Outfront’s argument that a section 11(3) application is analogous to an application to set aside a default judgment. The difference between the two applications, however, warrants consideration of a more tailored set of factors.

23In my view, a balancing of the following list of factors is required when deciding to grant an application to extend the time for filing under s. 11(3) of the BSA:

The length of the delay in complying with the obligations set out in s. 11(1) of the BSA;
The reason for non-compliance. If the failure to file was a matter of inadvertence or error, this might weigh in favour of permitting an extension of time. If, however, the failure to file was deliberate or wilful disregard, this would weigh heavily in favour of dismissing the application. There is no power for any party to waive the requirement stipulated in s. 11(1) of the BSA. Any non-compliance with other sections of the BSA can be considered in assessing whether this factor is relevant.
The filing of an affidavit outlining the reasons for the failure to comply with s. 11(3). The applicant, in seeking the extension, is under an obligation to provide a detailed explanation as to why s. 11(1) was not complied with;
The applicant seeking the extension of time must come to court with clean hands. If any ulterior motive is found to exist in either bringing the application or the prior failure to file, an applicant should not be allowed to benefit from circumventing legislation for their own purpose;
The potential prejudice in granting or denying the extension. A court should weigh the prejudice to be suffered by any party if the application is successful or denied. In this instance, the principle is very similar to that of setting aside judgment as summarised in Marino v. Marino Estate, 2010 ONSC 5237, at para. 22.

24These factors are not exhaustive and one or a combination of factors may be determinative of the application. As is ever the case in our system of justice, each case turns on its own facts.

Should the Application be Dismissed?

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Should the Application be Dismissed?

Turning to the circumstances of this case, the delay in bringing this application approximates 16 months. No affidavit evidence has been filed explaining the failure to comply with the requirements of subsection 11(1) of the BSA. Cieslok’s counsel simply argues that the section was not followed rigidly, as this was the industry practice.

26Outfront argues that the timing of the application is premised on the basis that, by fulfilling the subsection 11(1) conditions, Cieslok will be able to eliminate Outfront’s forthcoming action to void the sale of Clarity’s assets. They also argue that the delay in bringing the application and the lack of co-operation in providing particulars of the sale suggest that Cieslok does not come to court with clean hands.

27I am not prepared to speculate on the motivation for Cieslok’s application at this juncture: that may well be an issue in the forthcoming action to void the Clarity sale.

28Based on the factors set out above, I would normally have no difficulty in dismissing Cieslok’s application.

29I am, however, prepared to make an exception in this case. I do so only because of the following two reasons. First, Outfront themselves acknowledge that a vacuum in the case law existed on the issue. Secondly, in the circumstances of this case, it is possible to fashion an order that ensures no prejudice is occasioned to Outfront in its outstanding action against Cieslok.

30I am prepared, in this instance, to forgive the length of the delay and lack of explanation because of the lack of prior guiding case law. It may well have been the case that “industry practice” promoted the notion that the BSA could be ignored. That, however, was incorrect in both principle and law. In future cases, this type of conduct will not be ignored or condoned: a party to a BSA transaction cannot ignore their statutory obligations with impunity.

31For the purposes of this case only, I am of the view that it is appropriate that the determinative is the extent to which either party will be prejudiced if the application is granted or denied. On the one hand, if the application is denied, Cieslok will lose the protection of the limitation period contained in section 19 of the BSA. On the other, if Cieslok is successful, Outfront may lose a powerful argument in its action to declare the Clarity transaction void.

32The answer to this dilemma is to craft an order which allows the s. 11(3) limitation period to commence but also ensures that Outfront’s litigation against Cieslok is unaffected by the granting of this application.

IV. FINAL ORDER

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IV. Final Order

For the reasons set out above, I am of the view that Cieslok’s application should be granted in a manner that minimises prejudice to both parties.

34I therefore order that:

(1) The time for filing the affidavit setting out the particulars of sale as required by section 11(1) of the Bulk Sales Act be extended to 31 March 2016 pursuant to section 11(3)(b), and;

(2) This order shall be without prejudice to any claim by Outfront Media Canada LP and CBS Canada Holdings Co. for invalidity pursuant to filing an affidavit as required by section 11 of the Bulk Sales Act or any other violation of the Act.

35I am guided in the wording of the order by the comments of Ground J. in Skor Food Group Inc. v. 1338086 Ontario Ltd, [2007] O.J. No. 1336 (S.C.J.). I also thank counsel for their assistance in drafting the same.

36Such an order triggers the limitation period desired by Cieslok and, at the same time, permits Outfront to continue its related action against Cieslok without prejudice. Nothing in this judgment should be seen as affecting Outfront’s argument in that action.

37I take this opportunity to repeat my earlier comments that the outcome of this case is unique and based on factors not likely to exist in the future.

V. COSTS

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V. Costs

With respect to costs, I am aware of the principles enunciated in Rule 57.01 of the Rules of Civil Procedure and the overriding test that costs must be fair and reasonable: Boucher v. Public Accountants Council (Ontario) (2004), 71 O.R. (3d) 291 (C.A.), 2004 CanLII 14579.

39Bearing in mind the unusual nature of this case, the fact that the application was brought as a result of Cieslok’s non-compliance with the BSA, and the absence of explanation by Cieslok of the failure to file, I am of the view that no costs should be awarded.

40I thank both counsel for their submissions.

S.A.Q. Akhtar J.

Released: 1 March 2016

CITATION: Cieslok v. Clarity, 2016 ONSC 1427

COURT FILE NO.: CV-15-538679

DATE: 20160301

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Cieslok Media Ltd.

Applicant

and -

Clarity Outdoor Media Inc.

Respondent

-and -

Outfront Media Canada LP

Intervenor

REASONS FOR JUDGMENT

S.A.Q. Akhtar J.