Romspen Investment Corporation v. Courtice Auto Wreckers Limited et al.

COURT FILE NO.: CV-15-00011129-00CL

DATE: 20180308

SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: rOMSPEN INVESTMENT CORPORATION, Applicant

AND:

courtice auto wreckers limited, northwood recycling & energy inc., 800619 ontario limited, power grow systems inc., courtice energy corp., les rebuts de pates et papiers de L’outaouais ltee, les amenagements guirard inc., courtice auto industries inc., 2254066 ontario inc. lakes terminals & warehousing ltd, kawartha downs limited and harvey ambrose, Respondents

BEFORE: S.F. Dunphy J.

COUNSEL: Michael Brzezinski, for Rosen Goldberg Inc, Court-Appointed Receiver of the Respondents

HEARD at Toronto: March 6, 2018

REASONS FOR DECISION

[1] This motion came on before me as an unopposed motion to approve a sale by the Receiver of certain real estate assets. I approved the sale with reasons to follow as there were issues with the manner in which this routine sale approval were handled that warrant correction in future. These are those reasons.

[2] The issues raised on this motion on which I feel comment is required are (i) timing of the notice of motion and service, (ii) lateness in filing of motion record with the court; and (iii) excessive sealing of evidence. All of these operate to impair the ability of stakeholders to assess their position on a pending motion and deprive the court of their input or the comfort of knowing their lack of objection represents an informed decision.

(i) Timing of Motion Record and service

[3] The motion date was secured from the Commercial List office by a request form dated March 1, 2018. The Motion Record was finalized and served the next day (Friday March 2, 2018), but minus almost all of the information that might be required for a stakeholder to make an informed decision about their position on the matter.

[4] The Agreement of Purchase and Sale was signed by the Receiver on January 17, 2018 and was subsequently amended on February 8, 2018. The Agreement of Purchase and Sale was subject to a condition requiring court approval to be secured by March 7, 2018. I have highlighted those two dates out of astonishment. Given one month to obtain court approval, the Receiver waited until the last possible second (or beyond) to seek it.

[5] The Receiver was unable to explain to me why the motion to approve a transaction signed back almost two months prior and amended almost one month prior was not served on the Service List until the Friday before a Tuesday morning motion (and I shall refrain from guessing at what time on Friday service was actually effected). I cannot expect that stakeholders had more than a single business day to review the material and decide what if anything to do.

[6] Absent exceptional circumstances, and none were offered to me or suggested in the evidence, a court-appointed receiver (or any party to a proceeding) should strive to give all stakeholders as much notice of an intended motion as is reasonably practicable. Short notice is reserved for truly urgent matters where it cannot be avoided. Even then, there is no harm in advising the service list that a motion is coming and of its general nature even before the motion is ready to be served if time is legitimately short. Neither the court nor stakeholders should be jammed with last-minute motions when there is no legitimate urgency. There was none here.

[7] What urgency there was when the matter came before me was entirely a product of the leisurely pace taken to prepare it.

[8] This court’s approval of a transaction is not to be presumed. Rubber stamps are not used here. Stakeholders should be given as much notice as the circumstances reasonably permit to assess and react to transactions the court is asked to approve. Their input – or silence – is often a very valuable and useful circumstance for judges who are asked to review complex transactions in very short time lines.

[9] As shall be seen, not only were stakeholders given much less notice than the circumstances allowed, but the Motion Record they received excluded almost every detail of the transaction to be approved that might enable them to form a view about it.

[10] This was inexcusable and I do not excuse it.

(ii) Lateness in filing motion record

[11] The follow-on effect of late service on the service list was late filing with the court. The motion materials were not filed until Monday afternoon before a Tuesday morning motion. This ensured that the motion record did not find its way to my desk in time to be reviewed prior to the hearing. Tuesday March 6, 2018 happened to be a very charged day and there were a great number of 9:30 a.m. appointments in addition to the usual complement of 10:00 a.m. motions.

[12] The Commercial List works when the professionals who use it don’t take it for granted.

(iii) Excessive sealing of evidence

[13] I recognize that opinions vary as to the degree to which it is appropriate to seal commercially sensitive documents in court filings. In the Commercial Court where a large number of motions are actually urgent and necessarily presented on relatively short notice, the practice has developed of redacting exhibits a moving party intends to ask the court to seal while the copy sent to the judge includes the un-redacted exhibits in a pre-sealed envelope the parties mark with self-drafted warnings enjoining they not be opened except by the judge.

[14] While not strictly according to the letter or spirit of the Open Court principle or the guidelines contained in Sierra Club of Canada v. Canada (Minister of Finance), [2002] 2 SCR 522, 2002 SCC 41 this practice is a reasonable way of balancing the need to give notice against the potential impracticability of getting a sealing order in advance of service of the motion material. However, where this work-around is employed, the party doing so should do so (i) only where necessary; and (ii) only to the extent necessary.

[15] In the present case, the Receiver adhered to neither of these requirements. An excessive number of documents were unilaterally “sealed” by exclusion, the descriptions of them were minimal in the Receiver’s Ninth Report and the practice of filing redacted copies of documents intended to be sealed was not followed.

[16] Four “Confidential Exhibits” to the Ninth Receiver’s Report were withheld from the material served upon the Service List. In my view, this was excessive. The four exhibits were (i) two appraisals of the subject land that had been commissioned by the principal of one of the debtors more than three years ago; (ii) a summary of all offers received; and (iii) the actual Agreement of Purchase and Sale.

[17] There was little reason to have sought to seal the appraisals. They were self-evidently dated. They also estimated a value that was materially higher than the values at which the Receiver listed the property for sale in 2016 and then again in 2017. Where, as here, the Receiver was relying upon its own sales efforts to justify the price obtained (i.e. in the absence of a pre-approved sales process order), it would be material for stakeholders to know that the Receiver listed the property at values below the appraised values and why. These facts were not disclosed nor were enough general details about them disclosed to enable stakeholders to know that there was even a possible issue they may wish to consider.

[18] The summary of rejected offers was not described or summarized in any meaningful way in the Receiver’s Report. How many? When? Is there any informative description of the reason for rejection that might help stakeholders assess the adequacy of the Receiver’s marketing efforts without compromising possible a future sales process should this sale fail to be approved or to be completed?

[19] In this case, the Receiver did consult the secured creditor Romspen. Even so, the interests of other stakeholders cannot be assumed to be nil. They are entitled to be served with sufficient information to enable them to make an informed decision about their position. This is not a private receivership and ought not to be conducted as if it were.

[20] While there was some rationale for withholding evidence of the actual purchase price, there was none for withholding the entire Agreement of Purchase and Sale. I recognize that knowledge of the price accepted by the Receiver might adversely impact a future sale process if this sale fails to be completed for any reason. However, this does not fully absolve the Receiver from the obligation to make disclosure to stakeholders. The practice of filing a redacted copy of commercial agreements has long been employed in the Commercial List where a sealing order is intended to be sought. This, along with a general description of the excluded information or even an offer to enable stakeholders to access the information via a non-disclosure undertaking for example, would go a long way to mitigating the departure from Sierra Club.

[21] Sierra Club is the law of this land. The open court principle is not a trifling obstacle to be honoured in the breach. It is a fundamental and basic principle underlying our system of justice and the rule of law itself.

(iv) Conclusion

[22] In the result, I did not authorize the sealing of the two appraisals. I did agree to seal the summary of prior offers and the Agreement of Purchase and Sale but only until further order or closing on March 31, 2018. If there is a reason to seal them thereafter, a separate order will have to be sought. I approved the Agreement of Purchase and Sale, but I trust these reasons make clear that I did so with misgivings.

[23] The condition requiring court approval by the following day left little room to manoeuvre. The lack of any objecting stakeholders, the support of the largest secured creditor, the recommendation of the Receiver and the duration and extent of the Receiver’s sales efforts satisfied me that it was in the interests of the estate to do so.

S.F. Dunphy J.

Date: March 8, 2018