Court File and Parties

COURT FILE NO.: 09-CL-7950 DATE: 2018-02-06 SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: 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 OR ARRANGEMENT OF NORTEL NETWORKS CORPORATION, NORTEL NETWORKS LIMITED, NORTEL NETWORKS GLOBAL CORPORATION, NORTEL NETWORKS INTERNATIONAL CORPORATION AND NORTEL NETWORKS TECHNOLOGY CORPORATION, Applicants

BEFORE: Regional Senior Justice G.B. Morawetz

COUNSEL: Peter Ruby, Peter Kolla and Carlie Fox, for Ernst & Young Inc., Monitor Brett Harrison and Jeffrey Levine, for Wireless (TX) LP

Reasons for Decision

[1] Ernst & Young Inc., in its capacity as Monitor (“Monitor”) of Nortel Networks Limited (“NNL”) and the other Canadian debtors, brings this motion in the nature of an appeal from the Direction of Claims Officer Andrew M. Diamond (“Claims Officer”) dated May 24, 2017 (“Direction”), which allowed a claim against NNL by Wireless (TX) L.P. (“Wireless”) in the amount of U.S. $43,647,744.07.

[2] All monetary amounts, unless stated otherwise, are expressed in U.S. dollars.

[3] The Monitor seeks an order setting aside the allowance of the claim in the amount of $43,647,744.07, and ordering that the claim be allowed in the amount of $17,915,025.60 plus costs to NNL of this appeal. (This quantum is consistent with a damage award under Texas common law, which the Monitor submits is appropriate given the remedies available in the original Lease.)

[4] Wireless also brings a motion in the nature of an appeal from the Direction. Wireless seeks an order overturning certain findings of fact and law contained in the Direction regarding the claim of Wireless. In particular, Wireless asks this court to find that the Claims Officer erred by rejecting the invoices totaling $548,989.72 billed by Willkie Farr & Gallagher LLP, its U.S. counsel (“Willkie”). Wireless also submits that the Claims Officer was wrong to find that Wireless had a duty to be forthright in its dealings with the Monitor and that it breached that duty.

[5] For the reasons set out below, the motion of the Monitor is granted, in part, and the motion of Wireless is dismissed.

Facts

[6] The claim at issue concerns Nortel Network Inc.’s (“NNI”) lease of a building and property in Texas and the quantum owing by NNL to the landlord, Wireless, under NNL’s guarantee of, essentially, NNI’s unpaid rent obligations under the lease.

[7] The Claimant, Wireless, is a Delaware Limited Partnership created in 2001. It is a special purpose entity, existing only to own and rent out the property and building at issue.

[8] The Monitor is the court-appointed Monitor of, among others, NNI in this insolvency proceeding under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA”).

[9] The Monitor disallowed Wireless’s claim and Wireless disputed the Monitor’s disallowance. The claim dispute was referred to the Claims Officer for adjudication.

Factual Background to the Claim

(i) The Guarantee of the Lease

[10] Wireless claims against NNL for amounts allegedly payable under a Guarantee Agreement made December 19, 2001 between NNL and Wireless (the “Guarantee”). The Guarantee is in respect of a lease agreement also dated December 19, 2001 between Wireless and NNI (the “Lease”) for a building and property in Texas (the “Property”).

[11] The Guarantee, governed by New York law, provided a guarantee by NNL of amounts payable by NNI as specified in the Lease. The Guarantee also provided that NNL’s obligations were not released, discharged or otherwise affected by specified matters (including certain defences).

[12] In December 2001, Wireless purchased the Property from NNI and leased it back to NNI under the Lease. Wireless financed its purchase of the Property in part by a $30-million promissory note granted to Morgan Stanley Bank (the “Bank”). (In 2010, the relevant bank became the Bank of America, but for simplicity’s sake I refer to both as the “Bank” in these reasons). This note was secured by, among other security agreements, a deed of trust and security agreement (“Deed of Trust”).

[13] The Bank’s security included, among other things, the Property, Lease and Guarantee.

Section 1.1 Property Mortgaged

Borrower does hereby irrevocably mortgage, grant, bargain, sell, pledge, assign, warrant, transfer and convey to Trustee, its successors and assigns, for the benefit of the Lender and, grant a security interest to Lender and Trustee in, the following Property, rights, interest and estates now owned, or hereafter acquired by Borrower (collectively, the “Property”):

(f) Leases and Rents. All leases, subleases and other agreements affecting the use, enjoyment or occupancy of the Land… (the “Leases”) and all right, title and interest of Borrower, its successors and assigns therein and thereunder, including, without limitation, any guarantees of the lessees’ obligations thereunder …

[14] Concurrently, by assignment of Leases and Rents, Wireless assigned to the Bank its rights under the Lease and the Guarantee:

Section 2.1 Present Assignment and Licence Back

It is intended by Borrower that this Assignment constitute a present, absolute assignment of the Leases, Rents, Lease Guaranties and Bankruptcy Claims, and not an assignment for additional security only.

[15] The initial term of the Lease was to run to December 19, 2016 or such shorter period as resulted from earlier termination of the Lease. The Lease was governed by Texas law.

(ii) Events Flowing from NNI’s Insolvency

[16] After NNL and NNI entered insolvency proceedings in January 2009, pursuant to an order of the U.S. Bankruptcy Court (the “U.S. Court”), NNI rejected the Lease effective February 28, 2009.

[17] In March 2009, Wireless filed a claim in NNI’s Chapter 11 proceedings that was allowed by the U.S. Court in the amount of $3,373,392.31.

[18] On September 23, 2009, in the CCAA proceedings, Wireless filed a proof of claim against NNL for $60,137,123.28 under the Guarantee.

(iii) The Bank Enforced its Security over the Property, Bought It and then Resold It

[19] Wireless stopped making its mortgage payments to the Bank and by March 2010 the Bank enforced its security over the Property. The Property was transferred to the Bank at a public sale for credit in the amount of $16 million. The $16 million was credited against Wireless’s indebtedness to the Bank. In July 2010, the Bank sold the Property to a third-party for $17 million.

[20] Wireless did not disclose to the Monitor the fact of the transfer of the Property, either at the time of the transfer in 2010 or when Wireless filed a Dispute Notice in June 2012.

[21] After making inquiries of Wireless, the Monitor came to the conclusion that the Guarantee (and therefore the claim of Wireless) had passed to the Bank and that Wireless had no title to the Guarantee claim. On August 22, 2013, the Monitor disallowed the Guarantee claim in its entirety. Wireless disputed. Subsequently, Wireless purchased the Guarantee claim back from the Bank in exchange for an agreement to pay 50 percent of the net proceeds on the claim to the bank. (The August 22, 2013 disallowance was the Amended Notice of Disallowance. On June 19, 2012, the Monitor issued the first Notice of Disallowance, which partially disallowed the claim, as discussed in paras. 81 to 99 below.)

(iv) The Claims Officer’s Decision

[22] In accordance with para. 20 of the Claims Resolution Order dated September 16, 2010, the Monitor referred Wireless’s claim against NNL to the Claims Officer.

[23] On May 24, 2017, the Claims Officer issued his decision, allowing Wireless’s claim in the amount of U.S. $43,647,744.07 grounded essentially in s. 17.1(e) of the Lease on liquidated damages.

[24] The Monitor asserts that the following questions are at issue in this appeal:

(a) What is the applicable standard of review?

(b) Did the Claims Officer err in quantifying Wireless’s Claim under the s. 17.1(e) Liquidated Damages provision of the Lease?

(c) If the Claims Officer so erred, what is the quantum of damages under the common law of Texas guaranteed by NNL?

(d) If the Claims Officer did not err in quantifying the Guarantee under s. 17.1(e) of the Lease, did the Claims Officer err in failing to address whether that provision, as interpreted by the Claims Officer, can form the basis of a CCAA award that is fair to all creditors?

Standard of Review

[25] The applicable standard of review is described in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at paras. 8 and 10 (“Housen”). Findings of fact are not to be reversed absent a palpable and overriding error and issues of law must be decided correctly.

[26] The standard of review described in Housen is applicable to a review of decisions of a Claims Officer in CCAA proceedings (General Motors Corporation v. Tiercon Industries Inc. (2009), 62 CBR (5th) 90 (Ont. Sup. Ct.) (Commercial List) at para. 12 (“General Motors”), aff’d 2010 ONCA 666, 70 C.B.R. (5th)223).

[27] The Monitor submits that, for the purposes of this appeal, extricable legal errors made in the course of interpreting a contract are reviewable on a correctness standard. The Supreme Court of Canada has described extricable questions of law as including “the application of an incorrect principle, the failure to consider a required element of a legal test, or a failure to consider a relevant factor” (Sattva Capital Corp. v. Creston Moly Corp.¸ 2014 SCC 53, [2014] 2 S.C.R. 633, at paras. 53 and 57 (“Sattva”)).

[28] The Monitor further submits that in Sattva, the Supreme Court at para. 64 recognized as one such extricable question the “fundamental principle of contractual interpretation … that a contract must be construed as a whole,” such that the interpretation of any provision cannot take place while the other specific and relevant provisions of the agreements are ignored. The Court of Appeal for Ontario, following Sattva, held that “it is an extricable error of law to read a provision of a contract in isolation rather than construe the contract as a whole.” As such, contractual interpretation must remain grounded in the text of the contract (1298417 Ontario Ltd. v. Lakeshore (Town), 2014 ONCA 802, 122 O.R. (3d) 401, at paras. 7-8, leave to appeal to SCC refused, 2015 Carswell Ont. 10068; see also Richcraft Homes Ltd. v. Urbandale Corporation, 2016 ONCA 622, at para. 59).

[29] The Monitor contends that the quantification of Wireless’s claim turns on the words of the agreement at issue, i.e. guarantee of the Lease. I agree. It is, indeed, a fundamental principle which governs this appeal.

[30] Pursuant to the Guarantee, NNL guarantees “all amounts payable to the Landlord by (NNI) pursuant to the Lease Agreement, as such obligations are specified in the Lease Agreement.” The Monitor argues, quite properly in my view, that in order to determine the quantum of the amount guaranteed, and by extension, the amount to be allowed as a claim, one must look to the Lease.

[31] The Claims Officer correctly adopted this approach. He held that “I agree that the parties must look to the Lease to determine what the obligations are of (NNL) under the Guarantee.”

[32] Wireless pursued a claim for liquidated damages under s. 17.1 of the Lease, and the Claims Officer found that “the parties agree that the insolvency filings of [NNL] and [NNI] and the subsequent rejection of the Lease constitutes an event of default under the Lease.” The Claims Officer started his analysis with s. 17 of the Lease dealing with liquidated damages.

[33] The opening language of s. 17.1 gave Wireless the option of choosing, with notice, among several forms of liquidated damages:

Upon the occurrence of any Lease Event of Default and at any time thereafter so long as the same shall be continuing, [Wireless] may, at its option, by notice to [NNI] do one or more of the following as Lessor in its sole discretion shall determine.

[34] Subsection 17.1(e) of the Lease was the liquidated damages option pursued by Wireless under which the Claims Officer allowed Wireless’s claim. Subsection 17.1(e) provided for a liquidated damages formula derived from unpaid rent to the end of the term of the Lease, with a discount for the time value of money.

[35] The Monitor takes the position that s. 17.1(e) was not actionable in the circumstances because of the self-limiting language of s. 17.1(e) that provided that if the Property were sold, liquidated damages were not available to Wireless under s. 17.1(e):

17.1(e) [Wireless] may, whether or not [Wireless] shall have exercised or shall thereafter at any time exercise any of its rights under Section 17.1 (b) or 17.1 (d) but only if the Property shall not have been sold under section 17.1(c) …

[36] The Monitor contends that while the Claims Officer quoted this provision, he did not focus on or apply this clear language (“but only if”) which limits the circumstances in which s. 17.1(e) applies and he failed to give effect to the word that was (c) applies, then (e) cannot apply. The Monitor submits that the Claims Officer did not analyze this language in s. 17.1(e) at all, nor the language of s. 17.1(c) and consequently, the Claims Officer erred in law by not construing the Lease as a whole, by not rooting his analysis in the last words of the Agreement, and by rendering meaningless ss. (c) and the “but for” language in s. 17.1(e).

[37] The Monitor further contends that the Claims Officer did not address or consider at all that the Property had been sold under s. 17.1(c). The Monitor contends that the record in this proceeding enables the court to make such a finding and that s. 17.1(c) addressed directly the situation of a sale of the Property and the effect of the 2010 Property sale on the allowable value of Wireless’s claim (the net proceeds of the sale had to be taken into account):

Section 17.1 Remedies.

(c) Lessor may sell the Property at public or private sale, as Lessor may determine, free and clear of any rights of Lessee and without any duty to account to Lessee with respect to such action or inaction or any proceeds with respect thereto (except to the extent required by (d) below). If the Lessor shall have sold any of the Property pursuant to the above terms of this Section 17.1(c), Lessor may demand that Lessee pay to Lessor, and Lessee shall promptly pay to Lessor, on the date of such sale, as liquidated damages for loss of a bargain and not as a penalty (the parties agreeing that Lessor’s actual damages would be difficult to predict, but the liquidated damages described below represent a reasonable approximation of such amount), in lieu of Base Rent in respect of the Property, an amount equal to the sum of:

(1) all unpaid Rent with respect to the Property due on or prior to, and (without duplication) all unpaid Rent accruing but unpaid through the date of such sale; plus

(2) an amount equal to the present value of the amount of the Base Rent payments payable to the balance of the then unexpired Term (excluding all unexercised renewal Terms), discounted monthly at the applicable Reference Rate; provided, that such discount rate will not exceed the interest rate on the secured note; plus

(3) the Pre-Payment Premiums which Lessor will be required to pay in pre-paying the Secured Note; and

(4) interest at the Default Rate on any of the forgoing amounts from the date due until the date of actual payment;

to the extent that such amount exceeds the net proceeds of such sale.

[38] The Monitor takes the position that each of the prerequisites for applying s. 17.1(c) is present and, therefore, the Property was “sold under s. 17.1(c)” within the meaning of s. 17.1(e):

a) There was a “public or private sale.” The Monitor contends that there were, in fact, two sales. The Property was sold to the bank expressly as a “public sale” in return for U.S. $16 million for which Wireless received credits against its mortgage balance at the bank. A few months later, when the bank held the rights under the Lease and Guarantee (including the related claim against NNL in the CCAA proceedings), and stood in the shoes of the original landlord, the bank sold the Property to an arms-length third party for $17 million;

b) With respect to the sale to the bank, Wireless demanded that it preferred to walk away from the Property, which inevitably led to its sale after Wireless ceased making mortgage payments. With respect to the sale to the third party, once the bank owned the Property and held the rights under both the Lease and the Guarantee, it was determined to sell the Property to a third party and did so.

c) The Property was sold free and clear of any rights of NNI and without any duty to account to NNI.

[39] The Monitor also relies on s. 23 of the Lease in support of its argument that the Property was sold under s. 17.1(c).

[40] Section 23 provides:

Section 23.1 Permitted Transfer. Subject to Article 4, Lessor may transfer all, but not less than all, of its right, title and interest in and to the Property and its rights under this Lease and the other documents relating thereto with respect to such Property other than to Prohibited Transferees, on the following terms and conditions, each of which shall be satisfied prior to the effective date of the transfer (other than a transfer by a deed-in-lieu of foreclosure or similar transfer made in connection with an exercise of remedies under the Debt Documents):

(a) such transfer shall be in compliance with Applicable Laws and shall not create a relationship which would violate Applicable Laws;

(b) the transferor shall have given at least ten (10) days prior notice to Lessee of such transfer, with notice shall contain such information and evidence as shall be reasonably necessary to establish compliance with this Article 23 and the name and address of the transferee for notices; and

(c) The transferor and the transferee shall each have delivered to Lessee an Officer’s Certificate to the effect that the condition to the proposed transfer prescribed by this Article 23 to be met by the transferor or the transferee, respectively, have, been satisfied.

Section 23.2 Effects of Transfer. From and after transfer effected in accordance with this Article 23, the transferor shall be released, to the extent of the interest transferred and the obligations assumed by the transferee, from its liability hereunder and under the other documents to which it is a party relating to the interests being transferred. Such release shall be in respect of obligations (that are assumed by the transferee) arising on or after the date of such transfer. Upon any transfer by Lessor as above provided, any such transferee shall be deemed the “Lessor” for all purposes of such documents and each reference herein to Lessor shall thereafter be deemed a reference to such transferee for all purposes, except as provided in the preceding sentence. Lessee agrees to execute any and all documents reasonably appropriate to effectuate the contemplated transfer by Lessor, including, without limitation, an amendment to this Lease providing that the new Lessor shall be Lessor and the existing Lessor shall be released from its liabilities.

[41] The Monitor submits that the effect of s. 23.2 of the Lease is that the Bank, after the assignment of Leases and Rents, was deemed to be Lessor and Lessor is referenced in s. 17.1(c).

[42] Thus, the Monitor submits that there was a sale under s. 17.1(c) and, consequently, s. 17.1(e) could not in law be relied upon by the Claims Officer. The Monitor concludes that it was an error of law for the Claims Officer to ground his allowance of Wireless’s claim under s. 17.1(e).

[43] Counsel to the Monitor points out that even Wireless’s Texas law expert characterized the transfer of the Property to Wireless as a “sale,” noting that “the Property was ultimately sold through foreclosure.”

[44] Counsel to the Monitor submits that the approach to reading and applying together ss. 17.1(c) and (e) is consistent with a commercially reasonable approach in a situation where the property has been sold and it is also the only approach that recognizes that (e) itself refers to (c). Further, both subsections account for unpaid rent, but in the event of a sale of the Property, it is only s. 17.1(c) that is actionable and its formula for liquidated damages accounts for the net proceeds from the sale. The Lease, construed as a whole, provides that where there has been a sale, s. 17.1(e) is not available as a remedy and if liquidated damages were to be claimed under s. 17.1(c) they must account for the net proceeds from that sale. Counsel to the Monitor submits that this interpretation of the Lease precludes the results at which the Claims Officer arrived.

[45] The Monitor argues that Wireless made a strategic choice not to pursue liquidated damages under s. 17.1(c) at the hearing before the Claims Officer and it adduced no evidence of what its liquidated damages might have been under this provision nor the exact manner in which they could have been calculated. This lead counsel to the Monitor to the submission that, since s. 17.1(e) is inapplicable in light of the sale of the Property and Wireless did not pursue a claim under s. 17.1(c) before the Claims Officer, its only remedy for default under the Lease is common law damages calculated in accordance with the law of the Lease, i.e., Texas common law, as it is that amount that was guaranteed by NNL.

[46] However, as I will explain below, Wireless provided a credible explanation for its decision not to call evidence or pursue argument on this point.

[47] The Monitor takes the position that while the Claims Officer addressed certain aspects of the common law of Texas with respect to damages flowing from the breach of a Lease, he did not quantify the Texas common law damages in this case. Accordingly, the Monitor requests that I determine the Texas common law damages and make a final ruling on Wireless’s claim under the Guarantee in the amount of $17,915,025.60 plus costs to NNL.

[48] The Monitor references that both experts concerning Texas law had the same opinion about the correct way to calculate liability under the Lease pursuant to the common law of Texas: the Monitor references the decision of the Claims Officer at p. 19, the First Goodman Memorandum at p. 3 and the Baggett Report at para. 9. The Monitor is of the view that Wireless can recover: (a) the present value of the fall future rentals, minus (b) the reasonable cash market value of the Property for the unexpired Lease Term at the time of the rejection.

[49] The calculation of damages flowing from the breach of the Lease as calculated under s. 17.1(c), was based on the evidence of Mr. Berenblut, the Monitor’s Texas law expert. Mr. Berenblut was the only damages expert who provided evidence in this proceeding. He calculated the damages to Wireless under the Texas common law formula using various assumptions and discount rates. Ultimately, the Claims Officer determined the discount rate to apply was 3.34 percent.

[50] Mr. Berenblut tracked formulas provided by the Texas law experts, Messrs. Goodman and Baggett and employed values for re-renting the Property that had been provided by Mr. Henley, a witness Wireless put forward as an expert. Using those figures and the 3.34 percent discount rate, Mr. Berenblut’s calculation demonstrated common law damages for breach of the Lease by NNI, guaranteed by NNL of $18,075,069.00. Based on a concern about the operating costs evidenced, at p. 23 of his Direction, the Claims Officer adjusted downward one component of his figure, with the net result that the Texas common law damages actually totalled U.S. $17,661,191.86.

[51] Wireless takes the position that I should not even entertain the Monitor’s ground of appeal concerning s. 17.1(c) because the argument was not advanced during the seven year-long claim resolution process culminating in the Direction dated May 24, 2017. Had the Monitor done so, Wireless contends that different facts would have been proven and different arguments would have been made at trial.

[52] Specifically, Wireless argues that:

(a) The courts should not entertain the Monitor’s argument, because the argument is a new one, and all the facts necessary to address the point are not before the court as they would be had the issue been raised at trial;

(b) Even if this court does entertain s. 17.1(c) argument, it should not apply that section because it was never triggered;

(c) Even if this court does entertain s. 17.1(c) argument, it should not apply the section as the damages crystallized over a year before any purported sale; and,

(d) Even if s. 17.1(c) were applied, the liquidated damages calculation would not change as there were no “net proceeds of such sale.”

[53] Wireless submits that, in its pleadings, the Monitor argued that Wireless had failed to comply with the terms of the Lease. Now the Monitor does not rely on non-compliance with the Lease, but rather that Wireless’s alleged election made at trial invalidates Wireless’s claim.

[54] Further, Wireless contends that in both its written opening and closing for the trial, the Monitor argued that Wireless could not rely on s. 17.1(e) of the Lease because the calculation under that section turned, according to the Monitor, on a “final payment date” that Wireless never expressly specified. Further, until this appeal, the Monitor never advanced an argument that Wireless’s election to pursue recovery under s. 17.1(e) rather, in some other section in the Lease, was fatal to Wireless’s claim.

[55] As a result, Wireless contends that substantial additional evidence would now be before the courts had the Monitor advanced before trial the argument it now asks me to entertain. Had the Monitor advanced this argument before trial, Wireless submits that it would have marshalled expert evidence of Texas law concerning the interpretation of two phrases found in ss. 17.1(c) and (e), respectively:

(c) “If Lessor shall have sold any of the Property pursuant to the above-terms of this s. 17.1(c)”; and,

(e) “… but only if the Property shall not have been sold under section 1(c).”

[56] In other words, Wireless submits that it would have adduced expert evidence of Texas law as to whether the Mortgagees Foreclosure Sale in 2010 ought to have been classified as a “sale by the Lessor (Wireless) for the purposes of s. 17.1(c) of the Lease.”

[57] In addition, Wireless contends that had it known of the Monitors argument that s. 17.1(c) and not s. 17.1(e) applied, Wireless would have adduced evidence as to what the “net proceeds” of the Foreclosure Sale and sale by the Mortgagee were. Wireless contends that the “net proceeds” of those transactions must be determined as a fact, because s. 17.1(c) measures liquidated damages as the sum of various figures “to the extent such amount exceeds the net proceeds of such sale.”

[58] Wireless submits that as the Monitor’s argument is new, and the facts before the court would be different had the argument been adduced at the appropriate time, it should not now be entertained.

[59] In its August 21, 2017 reply factum the Monitor takes the position that Wireless misstated the essence of the first ground of appeal of the Monitor, creating a strawman against which Wireless makes its submissions, including that the Monitor is making a new argument that should not be considered by the court. The Monitor contends that there is no new argument and submits that:

(a) Because the Property was sold under s. 17.1(c) of the Lease, liquidated damages under s. 17.1(e) are not available in light of the express wording of s. 17.1(e), so that the Claims Officer erred in making an award with respect to s. 17.1(e);

(b) Because Wireless did not argue or prove that the claims try out any claims under s. 17.1(c), an award cannot be made under that provision; and,

(c) Wireless is not left without a remedy because under the common law of Texas, damages are available in the amount of $17,915,025.60 that is the amount guaranteed by NNL.

[60] The Monitor submits that it is not suggesting that the claim should have been allowed under s. 17.1(c). Instead, the Monitor submits that since the facts of the case fit s. 17.1(c) the basis Wireless finally chose for its claim, s. 17.1(e) is not available.

[61] A consequence of Wireless having pursued at trial a remedy related to s. 17.1(e), but not s. 17.1(c), is that the quantum of Wireless’s claim is confined to common law damages.

[62] At para. 9 of the reply factum dated September 12, 2017, the Monitor states:

Since no one is proposing, and no one can propose at this stage, that a claim be allowed in an amount grounded in s. 17.1(c), Wireless’ arguments at paragraphs 23 to 28 of the Wireless responding factum – that the quantum of liquidated damages under that provision are the same as under s. 17.1(e) because there were no net proceeds of the sale of the Property taking into account Wireless’s financing arrangements – are beside the point.

[63] The Monitor also points out that Wireless asserted that “there was no sale by the Lessor/Wireless as required by s. 17.1(c),” yet Wireless does not challenge:

(a) The Monitor’s description of the underlying facts in this matter;

(b) The fact that the Claims Officer did not address in his ruling whether any sale under s. 17.1(c) had occurred;

(c) The standard of review in this matter being correctness with respect to the interpretation of the Lease; and

(d) The applicable principles of statutory interpretation submitted by the Monitor, including that the Lease be read as a whole.

Analysis

[64] In my view, it is an understatement to observe that there has been a fundamental disconnect between the parties with respect to the way in which they prepared for and conducted the hearing before the Claims Officer in contrast to the content of the factums on this hearing.

[65] The standard of review in this matter is correctness with respect to the interpretation of the Lease. The failure of the Claims Officer, to address whether any sale under s. 17.1(c) occurred, is, in my view, a reviewable error that necessitates correction.

[66] In arriving at this conclusion, I do not fault the Claims Officer.

[67] The record before the Claims Officer contains references to s. 17.1(c) as fitting the facts of this case and s. 17.1(e) not being applicable. However, it is clear that these references were not specifically identified in the Monitor’s written materials or in argument.

[68] The Monitor contends that its submissions in this appeal concerning the reading as a whole of s. 17.1(c) and (e) are not precluded and that Wireless was not taken by surprise that one of the Monitor’s concerns with Wireless’s claim against NNL was that s. 17.1(c) was the applicable liquidated damages provision and not s. 17.1(e). The Monitor submits that there is no entirely new issue and that Wireless had the opportunity to adduce all relevant evidence.

[69] In my view, although the record before the Claims Officer contains certain references to s. 17.1(c), the s. 17.1(c) argument was not clearly identified by the Monitor as being a “bedrock” or “cornerstone” position, in contrast to its argument on its appeal.

[70] Wireless submits that this was a new issue and the court ought not to entertain this issue on appeal, to which the Monitor has responded that the general rule is that appellate courts will not entertain entirely new issues on appeal. The rationale for the rule is that it is unfair to spring a new argument upon a party at the hearing of an appeal in circumstances in which evidence might have been led at trial if it had been known that the matter would be raised (Ontario Energy Shavings LP v. 767269 Ontario Ltd., 2008 ONCA 350).

[71] I am satisfied that this was not an entirely new issue. The evidence was placed before the Claims Officer and was referenced in the pleadings. Rather, it is an issue that was not adequately argued by either party.

[72] In my view, the applicability of s. 17.1(c) to the facts in this case as well as the proper interpretation of this section are fundamental issues that have to be determined in order to arrive at a proper determination of the claim of Wireless.

[73] Had the Monitor identified s. 17.1(c) as the focal point of its position, Wireless would have had the opportunity to call evidence in response, as referenced in paras. 51 to 58 above.

[74] The Monitor urges me to conclude that as a result of s. 17.1(c), s. 17.1(e) is not available and as a consequence Wireless’s claim is limited to common law damages.

[75] Wireless urges me to conclude that the s. 17.1(c) argument is a new issue which I ought not to entertain on appeal.

[76] The positions taken by the Monitor and Wireless are diametrically opposite, and leave unresolved what I consider to be the fundamental issues in this dispute, namely the applicability and interpretation of s. 17.1(c). In order to reach a fair and just result, these issues have to be determined. If s. 17.1(c) applies, it could yield a vastly different result than the one reached by the Claims Officer.

[77] In my view, in order to do justice to the parties, and indeed to all creditors of NNL, it is necessary to set aside the decision of the Claims Officer on the basis that he did not consider issues relating to s. 17.1(c) of the Lease. This was an error in law. The matter is to be remitted back to the Claims Officer for a hearing on these issues. The parties will be permitted to call evidence on issues relating to s. 17.1(c). With the benefit of a thorough evidentiary record and argument from both sides on s. 17.1(c), the trier of fact will be in the position to render a just result. This approach is also preferable to this court determining issues related to s. 17.1(c) based on expert evidence that was heard, but not referenced, in the Direction. The award of costs, on this portion of the appeal, is also remitted back to the Claims Officer.

[78] In view of my determination, it is not appropriate to comment further on the other issues raised in the Monitor’s appeal.

Wireless Appeal

[79] Wireless seeks an order overturning certain findings of fact and law in the Direction. Specifically, Wireless takes the position that the Claims Officer erred in holding that Wireless had an obligation to be forthright with the Monitor, which he interpreted as an obligation to provide information that was irrelevant to the determination of Wireless’s claim, and that Wireless had breached that obligation.

[80] In arriving at his decision, the Claims Officer had an extensive record. The timeline of events is important and is summarized below.

Factual Background to the Wireless Appeal

[81] In December 2001, when Wireless leased the Property to NNI, NNL’s U.S. subsidiary, it mortgaged the Property and entered into a security agreement. The Bank’s security included, among other things, the Guarantee.

[82] Concurrently, by an assignment of Leases and Rents, Wireless assigned to the Bank its rights under the Lease and the Guarantee.

[83] On September 23, 2009, Wireless filed a proof of claim against NNL.

[84] In March 2010, the Bank enforced its security and acquired the Property that was its collateral. In July 2010, the Bank sold the Property to a third party.

[85] As of March 2010, documentation makes it clear that the right to assert the claim under the Guarantee as against NNL was owned by the Bank. Wireless did not disclose to the Monitor in March 2010 that documentation, namely the right under the Guarantee which the claim against NNL was based, was no longer held by Wireless—or even that the foreclosure and sale of the Property had taken place.

[86] On June 19, 2012, the Monitor issued a Notice of Disallowance to Wireless, partially disallowing the Guarantee claim.

[87] On June 28, 2012, Wireless delivered a Dispute Notice to the Monitor (the “First Dispute Notice”) reasserting the Guarantee claim in full. No mention was made of the foreclosure or sale of the Property. It was specifically noted in para. 2 of the Dispute Notice that the claim of Wireless had not been acquired by assignment.

[88] On August 27, 2012, following receipt of the First Dispute Notice, counsel to the Monitor wrote to counsel to Wireless requesting that Wireless provide factual information that the Monitor considered to be relevant resolving the Guarantee claim. At the time, the Monitor had no knowledge of the sale of the Property. On October 9, 2012, counsel to Wireless responded to the August 27, 2012 letter and disclosed that the Property had been sold to the Bank in 2010 following Wireless’s default on its mortgage. The October 9, 2012 letter also disclosed that the Bank had then sold the Property to a third party in late 2010. Copies of the security or the sale documentation were not provided at the time.

[89] On May 9, 2013, counsel to Wireless advised the Monitor that the Bank acquired the Lease Claim against NNI but that there was no assignment of Wireless’s Guarantee claim against NNL which consequently remained with Wireless.

[90] On July 16, 2013, counsel to Wireless affirmed Wireless’s position that it maintained ownership of the Guarantee claim.

[91] On August 22, 2013, the Monitor delivered an Amended Notice of Disallowance to Wireless disallowing the Guarantee claim in full on the basis that Wireless had no right, title or interest in the Guarantee.

[92] On September 5, 2013, Wireless delivered a Dispute Notice, which again reasserted a claim for $60,137,123.28.

[93] On December 13, 2013, counsel to Wireless wrote to counsel to the Monitor enclosing a letter from CWCapital Asset Management LLC (“CW”). CW reported that it was the holder (“Holder”) of the Deed of Trust and Security on the premises in question, which was assigned to the Holder by way of an assignment from the original holder, Morgan Stanley Bank. CW advised that the “Holder” did not claim an interest in any rights under the Guarantee.

[94] The Monitor continued to request an explanation from Wireless as to how a foreclosure sale did not result in the Guarantee claim passing from Wireless to the Bank. The Monitor contends that no explanation was provided by Wireless.

[95] On March 9, 2015, Wireless delivered a second letter to the Monitor from CW, enclosing an assignment and assumption of interest between the Bank and Wireless dated January 1, 2015 (the “Assignment Agreement”). The Assignment Agreement provided that:

I. Notwithstanding any action taken by the Lender [the Bank], including without limitation its enforcement and foreclosure, it is and was always the intent of the parties that the Lease Guaranty and the Guaranty claim remain the sole and exclusive property of Wireless […]

1. As further assurances, the Lender assigns to Wireless all of the Lender’s right, title and interest in the Lease Guaranty, including all rights of action or other rights accruing to the Lender or which might accrue to the Lender under the Lease Guaranty.

2. As further assurances, to the extent that the Lender has any interest in the Guaranty claim, the Lender assigns to Wireless all the Lender’s right, title and interest in the Guaranty Claim, including all rights of action or other rights accruing to the Lender or which might accrue to the Lender under a Guaranty Claim.

[96] The Monitor points out that no document explains how CW knew in 2015 what were the intentions of the relevant Bank in 2001 (Morgan Stanley) and in 2010 (Bank of America).

[97] Further, the only reference to any consideration being given by Wireless to the Bank under the Assignment Agreement is that the Agreement is entered into “for value received.” During examination for discovery of Wireless’s witness, Mr. Brooks Gordon, held September 2, 2015, counsel to the Monitor sought production of documents relating to the negotiation of the Assignment Agreement and the Payment Agreement. Following a refusals motion heard September 29, 2016, Wireless produced a copy of a Payment and Mutual Release Agreement between it and CW (the “Payment Agreement”).

[98] Correspondence produced by Wireless shows the following:

(a) On September 20, 2013, Mr. Darren Postel of WP Carey, Wireless’s “point person” with respect to the Property, and the individual who signed the original 2009 proof of claim, contacted CW to discuss the “possibility of a further significant recovery related to this loan.”

(b) On November 11, 2013, CW, on behalf of the bank, proposed that it should receive 60 percent of any potential recovery in respect of the Guarantee Claim, given it had suffered “a loss of over $10 million” and “the prospect of evenly splitting proceeds with the ‘Borrower’ will raise quite a few eyebrows.”

(c) Also on November 11, 2013, WP Carey wrote to CW and argued that the potential recovery should be split 50/50, in part because the period in which the bank could have made a claim in the CCAA proceedings has long since expired. Mr. Postal also wrote that “there is a very real risk that there will be no recovery.”

[99] The Payment Agreement provides that in the event Wireless recovers any amounts in respect of the Guarantee Claim, it is to pay 50 percent of such amount (after deducting reasonable legal and other expenses) to CW. The Monitor contends that thus, Wireless bought back the Claim.

Argument on the Wireless Appeal

[100] Wireless submits that, as applied by the Claims Officer, the obligation of forthrightness would include an obligation to provide any information to the Monitor that the Monitor considers relevant, even when the Monitor is wrong.

[101] Wireless submits that the Claims Officer’s finding that Wireless breached some obligation to be forthright was a palpable and overriding error, based on a finding that Wireless gave the impression to the Monitor that Wireless continued to own the Property in 2012 even though Wireless had lost the Property in foreclosure in 2010.

[102] Wireless submits that this finding ignored evidence in the record that:

(a) Any mistaken impression was based on the fact that initially Wireless inadvertently failed to update its claims; and,

(b) Wireless had expressly informed the Monitor of the foreclosure in October 2012 so the Monitor could not reasonably have been left with the impression that Wireless continue to own the Property after that time.

[103] Wireless also submits that it also ignores that the Claims Officer ultimately determined that the foreclosure was irrelevant to quantify the Wireless claim, which is the position of Wireless and articulated to the Monitor since 2012.

[104] Regarding the foreclosure-related complaint (the “Foreclosure Disclosure”), the Claims Officer stated as follows:

Lastly, the Monitor encourages me to reduce the amount of Wireless’s claim because it believes Wireless did not cooperate in the process. At the root of this was Wireless’s failure to voluntarily advise the Monitor about the foreclosure of the property…

Having been involved in supervising this claim from its early days, I think it is fair to say that Wireless took an adversarial approach to the process. Much of the Monitor’s concerns, and perhaps mistrust, could have been eliminated if Wireless had volunteered in March of 2010 that the building had been foreclosed on. However, that was not the case in September of 2009 when Wireless filed is proof of claim, but it did not take the opportunity in June of 2012 when it filed its dispute notice. In fact, a reading of the dispute notice could leave one with the impression that Wireless continues to own the building; for example, s. 4C and D where Wireless submits that:

[Wireless’] claim is based on the following general calculations. There were 7.8 years left in the term of the Lease at the time it was rejected. The annual losses to [Wireless] for the empty building (expressed in USD) are as follows:

(a) basic rent – approximately $6 million;

(b) insurance - $135,00.00 [sic];

(c) taxes - $705,000; and

(d) basic utilities and operating expenses for a vacant building - $850,000 for a total of $7,690,000 per year of $59,982,000.00 […]

While a claim’s dispute process is adversarial, I do believe that Wireless failed in its obligation to be forthright with the Monitor. When asked during closing how I could compensate the Monitor if I found that Wireless had not lived up to its responsibilities of forthrightness, the Monitor’s counsel was of the view that as the lack of trust had added to the Monitor’s costs in assessing Wireless’s claim, I should take those costs into consideration in my cost award. [Emphasis in original.]

Analysis of the Wireless Appeal

[105] The standard of review, errors of law or a question of mixed fact and law are reviewed on a standard of correctness. Findings of fact or inferences of fact should not be interfered with unless a palpable and overriding error is shown (Triton Tubular Components Corp. v. Steelcase Inc. (2005), 2005 CanLII 33299 (ON SC), 14 C.B.R. (5th) 264).

[106] Wireless submits that the Claims Officer’s holding that Wireless had an obligation to the Monitor to be forthright is a legal holding that is subject to the standard of correctness and that no authority was cited for this point.

[107] At the same time, Wireless submits that it is not advocating that creditors should be allowed to act in bad faith. It submits that the court needs to be careful in imposing new duties on creditors in a CCAA proceeding.

[108] Wireless also submitted that if I were to find that creditors do owe a duty of good faith to the Monitor, and that this duty includes a duty to be forthright, Wireless contends that it cannot be said that this duty includes an obligation to provide information to the Monitor, which not only the creditor deems to be irrelevant, but that the ultimate trier of fact determines to be irrelevant, particularly where it appears the information was not provided due to inadvertent error.

[109] The Monitor takes the position that claimants in a CCAA proceeding are obliged to make accurate and full disclosure with respect to their claims. They point out that Monitors make decisions of substance based on the claim materials put forward by a claimant, and they rely on claimants to be forthright. If a claim is improperly allowed based on non-forthright materials, the other creditors are prejudiced and the administration of justice is brought into disrepute.

[110] The Monitor takes the position that Wireless did not meet its duty to be forthright. Instead, it failed to volunteer information and documents relevant to the value and ownership of the claim, causing the Monitor to undertake its own investigations into these matters. The Monitor is of the view that the claims officer made no palpable and overriding error in holding that Wireless failed to be forthright with the Monitor, and its decision in this regard should be upheld.

[111] Counsel to the Monitor also points out that contrary to the Wireless assertion that the Monitor “might have been misinformed regarding the foreclosure” for “a 3.5 month period,” it appears that up to October 2012, Wireless maintained a claim against NNL that it did not own and did not disclose even the fact of the foreclosure and sale of the Property.

[112] Counsel to the Monitor contends that for the last 3 months of this period, Wireless actively misrepresented the situation to the Monitor and for the entire 31 months, Wireless was not forthright about its claims.

[113] The Monitor contends that following receipt of the October 9, 2012 letter, the Monitor made efforts to access and review publically available documents in Texas as well as other publically available documents relevant to the Guarantee claim. The documents collected and reviewed by the Monitor included:

(a) The Deed of Trust, pursuant to which Wireless mortgaged, sold, assigned, transferred and conveyed to the bank, and granted the bank a security interest in, the Property, the Lease, and the Guarantee;

(b) The assignment of leases and rents pursuant to which Wireless absolutely and unconditionally assigned and granted to the bank all existing and future leases relating the Property and all of Wireless’s rights, title and interest in, and claims under, all guarantees relating to such leases; and,

(c) The substitute trustee deed which had effected the sale of the Property and related collateral to the bank on March 2, 2010, approximately five months after Wireless filed its proof of claim and more than a year prior to the filing of the First Dispute Notice.

[114] After reviewing the documents, the Monitor formed the view that after the foreclosure, all rights under the Guarantee had passed to the Bank. The Monitor questioned whether Wireless had a standing to assert the Guarantee claim as it lacked any right, title and interest in the Guarantee.

[115] The Monitor submits that the Claims Officer found on the facts before him and “having been involved with supervising this claim from its early days” that “Wireless failed in obligations to be forthright with the Monitor.”

[116] The Claims Officer found that it was appropriate to sanction Wireless’s conduct by taking into account the additional costs incurred by the Monitor in assessing costs of the claims proceeding.

[117] The Monitor contends that from the beginning of the proceeding, it had to take additional steps and incur additional fees to address Wireless’s failure to be forthright, which cannot be easily quantified.

[118] In response to the Supplementary Direction dated July 28, 2017, the Monitor takes the position that the Claims Officer erred in awarding Wireless CAD$1,010,078.38 and $91,454.17 for costs and disbursements of its Canadian counsel, and only reducing that by $1.00 to sanction Wireless’s conduct. The Monitor contends that the Claims Officer was required to impose a material sanction reflecting both the NNL estate’s extra costs and an inducement for claimants to be forthright in the claims process.

[119] The Monitor also appeals the legal fees and expenses awarded to Wireless. Because these costs and expenses were awarded under s. 17.2 of the Lease (i.e., “Recoverable Reasonable Legal Fees”)—not as costs of the proceeding in the normal course for civil litigation—the Monitor appeals this award so that the court can address that award in the context of its decision concerning the main appeal.

[120] Given that I have determined in the main appeal that the matter has to be remitted to the Claims Officer for further adjudication, including the issue of costs, it is not appropriate to comment on this aspect of the Monitor’s appeal, other than the reduction of $1.00 to sanction Wireless’s conduct.

[121] There is no prescribed claims process set out in the CCAA. However, what cannot be questioned is that the process must be fair to all parties. A CCAA claims process does not just involve two parties—the claimant and the monitor. The impact of claims adjudication affects all creditors. To the extent that a claimant is not forthright in putting forth its claim and succeeds in obtaining an adjudication of its claim at a higher than appropriate amount, remaining creditors suffer by definition.

[122] In virtually all CCAA proceedings the claims process is prescribed by court order. A claims process involves a mechanism by which creditors’ claims are reviewed. Often the process involves the claimant putting forth information to support its claim to the court appointed monitor who then assesses the merits of the claim. Alternatively, after reviewing a debtor’s records, the monitor could issue a statement outlining which claims are accepted. Either way, the court-appointed monitor generally has the responsibility to assess all claims. Disputes are often referred to a claims officer (as was done in this case), with appeals to be heard by the court. In this proceeding, the claims process involved the assessment of hundreds, if not thousands, of claims. If there is no duty to be forthright and accurate in the preparation of the claim, the process would come to a grinding halt. If there is no duty to be forthright and accurate in the preparation of a claim, the resources that would have to be expended by the monitor in verifying the accuracy and enforceability of each and every claim would be astronomical. The fees associated with such a review would also be astronomical.

[123] The character of a claim under the CCAA is expressly drawn from the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (the “BIA”). The “claim” is defined in s. 12(1) of the CCAA as “any indebtedness, liability, or obligation that would be a debt provable in a bankruptcy under the BIA.”

[124] In addition, s. 12(2)(a)(iii) of the CCAA into force in 2009 when these proceedings began. The subsection, now s. 20(2)(a)(iii) of the CCAA, provides that:

20(2) For the purposes of this Act, the amount represented by a claim of any secured or unsecured creditor shall be determined as follows:

(a) the amount of an unsecured claim shall be the amount […]

(iii) in the case of any other company, proof of which might be made under the Bankruptcy and Insolvency Act, but if the amount so provable is not admitted by the company, the amount shall be determined by the court on summary application by the company or by the creditor […]

[125] There is no doubt that a creditor must make full and frank disclosure about the facts and circumstances relevant to its claim in a BIA proceeding. As stated by Pepall J. (as she then was), in the BIA context, “a creditor’s proof of claim should be truthful and accurate and as a matter of principle, full disclosure should be made by the claimant” (I. Waxman & Sons Limited (Re), 2010 ONSC 2369, 67 CBR (5th) 248, at para. 18).

[126] In BA Energy Inc., (Re), 2010 ABQB 507, 70 CBR (5th) 24, Romaine J., in dealing with a late claim in a CCAA case, also commented on the importance of the integrity of the claims process and endorsed the proposition that it is appropriate for a creditor who attempts to gain an advantage to be sanctioned:

[42] The claims procedure process was developed to give creditors a level playing field with respect to their claims and to discourage tactics that would give some creditors an unjustified advantage. Situations that give rise to concerns of improper manipulation of the process by a creditor must be carefully considered.

[52] In Lindsay v. Transtec Canada Limited (1994), 1994 CanLII 1539 (BC SC), 28 CBR (3d) 110 (BCSC) at para. 74, Huddart J. held, in a case where there would have been no effect on other creditors if a late claim was accepted as it would be paid from post-arrangement revenue, that it was fair to refuse to grant leave to the late creditor to commence an action against the debtor company for a number of reasons, noting that “(a) CCAA proceeding is not a stage for an individual creditor to try to ensure the best possible position for himself… as in bankruptcy proceedings, it is not unfair that a creditor who attempts to gain an advantage for himself should find himself disentitled to recover anything.”

[127] In my view, the fact that there has been no specific CCAA case to specifically comment on this issue, does not give rise to the conclusion that there is no duty to be forthright. Rather, it merely reflects the obvious, namely, that there is such a duty to be forthright in filing a claim. The absence of jurisprudence likely reflects the fact that any argument to the contrary is simply not credible.

[128] By ensuring that proofs of claim are prepared carefully, accurately and with full disclosure of relevant information serves two of the core purposes of the CCAA: firstly, to ensure a fair vote by creditors, and secondly, to ensure a fair distribution of the debtor’s assets among the estate’s creditors.

[129] In this case, the record establishes that for 28 months Wireless failed to advise the Monitor that the Property had been sold. Wireless made statements in the First Dispute Notice which the Claims Officer found “could leave one with the impression” Wireless still owned the Property when, in fact, it had been sold to the Bank more than two years prior and had already been sold to a third party.

[130] In addition, the argument that the Guarantee was alleged to have remained with Wireless, but that the rest of the security package—the Property, the Lease, the Lease Claim against NNI and even the litigation claim by Wireless against a sub-tenant who had abandoned the Property—became property of the Bank is inconsistent with the clear terms of the Deed of Trust and Substitute Trustees Deed that sold all the Bank’s collateral.

[131] Counsel for the Monitor also submits that while it was open to Wireless to disagree with the Monitor’s conclusion regarding the impact of the foreclosure sale on title to the Guarantee claim and the impact of the two sales of the Property on the valuation of the Guarantee claim, it was not open to Wireless to be anything less than forthright with the Monitor with respect to these matters. I agree. Further, its point that Wireless failed to disclose the Payment Agreement—the document which shows that it agreed to pay 50 percent of the net recovery on the Guarantee claim to the Bank and therefore supports the Monitor’s view that title to the Guarantee claim had in fact passed to the bank—is another instance in which Wireless failed in its duty to be forthright leading to the Claims Officer’s finding in this regard.

[132] The Monitor also submits that Wireless was incorrect in its assertion that the Claims Officer found the foreclosure of the Property in 2010 was “irrelevant,” in an attempt to claim that therefore Wireless should be excused for not having volunteered to the Monitor information about the foreclosure and sale. Counsel to the Monitor contends that the Claims Officer did nothing of the sort and references p. 18 of the Claims Officer’s decision which it says deals with the narrow issue of whether under Texas law, the foreclosure in 2010 capped Wireless’s claim for unpaid rent beyond that date. While the Claims Officer found it did not, counsel to the Monitor submits that nowhere did he suggest the foreclosure was “irrelevant.”

[133] In my view the sale of the Property is highly relevant to the quantification of the Guarantee claim, and further that timely and fulsome disclosure of this information could have resulted in a more focused claim being submitted by Wireless and a more focused response by the Monitor.

[134] Finally, on the issue of determining whether certain facts are relevant or irrelevant, the Claims Officer was not assisted by what he referenced as the adversarial approach to the process taken by Wireless.

[135] In my view, the finding of the Claims Officer that there is a duty to be forthright in the claims process is correct and further, there was ample foundation for the evidentiary conclusions that he made that Wireless had not been forthright and breached this duty. In my view, the Claims Officer made no palpable or overriding error when he decided that Wireless had not been forthright during the claims resolution process.

[136] Wireless’s appeal on this issue is dismissed with costs.

[137] The Monitor contends that it was also an error of the Claims Officer to reduce the legal fees awarded by only $1.00 on account of Wireless’s failure to be forthright and that the Claims Officer made a palpable and overriding error when he held that the Monitor’s only position was that additional fees could not easily be quantified.

[138] The Claims Officer at p. 8 of the Supplementary Direction stated:

I believe I am not in a position to assess these additional costs which the Monitor incurred, as I believe even if all of the information had been volunteered by Wireless, the Monitor would probably still have undertaken some of the investigation it did. As a result, I will reduce the amount of Wireless’s claim by U.S. one dollar ($1.00) in recognition of the extra work that had to be done by the Monitor and its counsel as a result of the conduct of Wireless for its lack of candor that “cannot be easily quantified”.

[139] Although I may have come to a different conclusion on this point, the finding of the Claims Officer was discretionary in nature and is entitled to deference. I am not prepared to interfere with his conclusion.

[140] Wireless also sought $548,989.72 in legal costs of the claims proceeding of Willkie. Wireless submits that, in error, the Claims Officer denied 100 percent of those legal costs because he erroneously held that he could not determine what services and advice of Willkie related to the claims proceeding and whether the services and advice were reasonable.

[141] Wireless submits that it was a palpable and overriding error to conclude that none of the Willkie legal costs were reasonable. Further, even if the Claims Officer could not determine whether the costs were related to the claims proceeding, it was a palpable and overriding error to conclude that they were not incurred by reason of a lease event of default, and therefore comprising of a portion of Wireless’s proper claim pursuant to the applicable provisions of the Lease and Guarantee.

[142] On this issue, the Claims Officer was quite clear. At p. 6 of his Supplementary Direction he states:

I agree the fees charged by Goodmans, Canadian counsel to the Monitor and, McMillan are so close that I find McMillan’s legal fees for the litigation to be reasonable and McMillan’s legal fees should be added to the value of the claim. However, it is the difference in the legal fees charged by U.S. counsel that causes me concern. The Monitor paid U.S. counsel U.S. $78,369.80 plus U.S. $112,491.68 in U.S. disbursements, compared to Wireless’s submission that it paid U.S. $548,989.72 for services from Willkie Farr & Gallagher LLP. Furthermore, the Monitor indicates that the U.S. $78,369.80 was primarily to investigate the issues of the foreclosure as discussed in more detail below.

I have several difficulties with the accounts from Willkie Farr & Gallagher LLP, the first is that all of the invoices provided to me for the period from February 12, 2009 to May 11, 2017 (63 invoices in total), each read:

FOR SERVICES RENDERED from [date X] through [date Y], in connection with representation of W.P. Carey landlord in tenant’s chapter 11 case and guarantors Canadian and U.S. chapter 15 cases…

None of Willkie Farr & Gallagher’s invoices refer to the CCAA proceeding, or give details of the services or advice provided making it impossible to determine what exactly that firm was engaged to do. As a result, I find it impossible to determine what services and advice related to the claim for me and if they were reasonable or not.

[143] The Claims Officer found that the evidence provided by Wireless in respect of the Willkie amount was insufficient and that, in fact, resulted in it being “impossible to determine” whether the services related to the claim in the CCAA proceeding and whether they were reasonable.

[144] The onus is on the party seeking approval of its fees to establish the evidentiary basis for its requested remuneration. The Claims Officer concluded that Willkie had not produced the required evidence.

[145] In my view, there is no basis to overturn this finding of fact or the Claims Officer’s decision not to include the Willkie amount in his award.

[146] In the result, the appeal of Wireless on this issue is dismissed with costs.

[147] If the parties are unable to agree on the quantum of costs, then written submissions, to a maximum of three pages, may be submitted within 30 days.

Regional Senior Justice Morawetz

Date: February 6, 2018