Court File and Parties

COURT FILE NO.: CV-19-00628115-00CL ESTATE FILE NO.: 35-2635168 DATE: 20200618 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

CERBERUS BUSINESS FINANCIAL, LLC Applicant – and – B & W HEAT TREATING CANADA, ULC Respondent – and – IN THE MATTER OF THE BANKRUPTCY OF B & W HEAT TREATING CANADA, ULC OF THE CITY OF WATERLOO, IN THE PROVINCE OF ONTARIO

Counsel:

No one appearing for the Applicant Maya Poliak, for the Respondent and BlueWater as Guarantor Fred Tayar and Colby Linthwaite, for 2428076 Ontario Inc. Kenneth Kraft and Mark Freake, for A. Farber & Partners Inc., in its capacity as Trustee

HEARD: June 11, 2020

Application Under Section 243(1) of the Bankruptcy and Insolvency Act, R.S.C., 1985, C. B-3, as Amended and Section 101 of the Courts of Justice Act, R.S.O. 1990, C. C.43

Endorsement

MCEWEN J.

[1] I am releasing my reasons by way of short endorsement given the time-sensitive nature of this dispute.

[2] The motion was brought by A. Farber & Partners Inc., in its capacity as Trustee, on short notice. It was heard by way of videoconference in accordance with the Notices to the Profession created by Morawetz C.J. in light of the COVID-19 crisis.

[3] The dispute, primarily, concerns whether A. Farber & Partners Inc., in its capacity as Trustee (“Farber as Trustee” or “Trustee”), can access the premises of the bankrupt, B&W Heat Treating Canada, ULC (“B&W”), located at 60 Steckle Place, Kitchener, Ontario (the “Premises”) and whether it can extend or suspend the three-month limitation period provided for in s. 38(2) of the Commercial Tenancies Act, R.S.O. 1990, c. L.7 (“CTA”), which provides that a trustee must elect to disclaim, retain or assign a lease within that time period.

[4] 2428076 Ontario Inc. (the “Landlord”) submits that the Trustee has no right to access the Premises or assign the Lease, nor is there any basis in law to extend or suspend the three-month period provided for in the CTA.

[5] By way of brief background, Farber was originally appointed as Receiver (“Farber as Receiver” or “Receiver”) pursuant to s. 243(1) of the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3 (the “BIA”) and s. 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43 over all of the assets, undertakings and properties of B&W in September 2019.

[6] The Receivership Order provided that Farber as Receiver could file an assignment in bankruptcy on behalf of B&W. On March 31, 2020 the Receiver filed an assignment in bankruptcy on behalf of B&W and appointed Farber as the Trustee. Thereafter, on March 31, 2020 counsel for Farber as Receiver wrote to the Landlord stating that the Receiver would no longer occupy the Premises or pay rent and later delivered the keys to the Premises to the Landlord. Farber as Trustee, on the same day, wrote directly to the Landlord advising that the First Meeting of Creditors would be held via teleconference on April 21, 2020. At the meeting, the Trustee was instructed not to occupy the Premises and that at the Trustee’s discretion, it was to retain or disclaim the Lease at any time within 90 days of the assignment in bankruptcy, which, as noted, occurred on March 31, 2020.

[7] Thereafter, the Trustee, through its real estate agent, CBRE, sought to assign the Lease to a new tenant. The Trustee also sought to access the Premises. The Landlord has refused the Trustee access. By letter dated May 7, 2020, counsel for the Landlord advised the Trustee’s counsel, who acts for both the Receiver and Trustee, that the Landlord would not grant access to the Premises to “Farber”. The Landlord took the position that “Farber” surrendered possession of the Premises and surrendered the Lease on March 31, 2020. It further asserted that given the COVID-19 pandemic, the Premises were not essential and must remain closed to the public pending further action by the Ontario government.

The Issues

[8] The dispute between the Trustee and the Landlord raises two issues:

(1) Can the Landlord refuse to grant the Trustee and its agents access to the Premises for the purpose of showing the Premises to potential assignees of the Lease? (2) Does this court have jurisdiction to grant the extension sought by the Trustee?

[9] For the reasons that follow, I have found that Farber as Trustee has the right to access the Premises and that, subject to the conditions I have imposed, this court has jurisdiction to grant the extension sought by the Trustee.

[10] I will now deal with each issue in turn.

The Landlord Cannot Refuse to Grant the Trustee and its Agents Access to the Premises for the Purpose of Showing the Premises to Potential Assignees of the Lease

[11] The Landlord submits that the fact Farber acted both as Trustee and Receiver is significant and that the Receiver could have surrendered the keys to the Trustee. Since it did not, the Landlord submits that the Trustee had knowledge of the Receiver’s surrender and “at least” tacitly acquiesced to the surrender of possession and the keys to the Landlord. The Landlord therefore submits that Farber as Trustee cannot claim that it is not bound by an act which it took itself, as Farber as Receiver.

[12] I do not accept the Landlord’s argument that Farber as Trustee surrendered possession of the Premises and has lost the right to retain and assign the Lease. First, as noted above, Farber as Receiver and Farber as Trustee provided two distinct letters to the Landlord on March 31, 2020. This clearly distinguished the Trustee’s role from the Receiver’s role with each taking different and distinct positions concerning its obligations and rights.

[13] Second, s. 38(2) of the CTA provides the Trustee with specific rights to assign the Lease. I do not accept the Landlord’s proposition that Farber as Receiver could prejudice the right of Farber as Trustee under the CTA. Surely this could not be the case if there were two separate companies acting as Receiver and Trustee. I fail to see how a different analysis should apply when Farber acted in both capacities and given the specific rights afforded to Farber as Trustee pursuant to s. 38(2) of the CTA which are not afforded to a Receiver. As I have noted above, each of the Receiver and Trustee wrote to the Landlord on March 31, 2020 outlining their respective positions. The fact that Farber as Trustee had knowledge of Farber as Receiver’s position is immaterial.

[14] I acknowledge that Farber as Receiver did not help matters when it wrote to the Landlord on May 5, 2020 requesting access to the Premises so its real estate broker could conduct a tour. In my view, however, Farber’s conflation of its roles on this occasion does not preclude Farber as Trustee from exercising its rights provided for in s. 38(2) of the CTA.

This Court has Jurisdiction to Grant the Extension Sought by the Trustee

[15] Since the 90-day period expires on June 29, 2020 the Trustee is seeking an extension to allow it to continue to market the Lease for a further three-month period from the date of this order. Alternatively, the Trustee argues that the three-month period during which the Trustee must make an election is suspended for the duration of the emergency by virtue of the provisions of Ontario Regulation 73/20, ordered under s. 7.1(2) of the Emergency Management and Civil Protection Act, R.S.O. 1990, c. E.9 (the “Suspension Order”), which was passed by the Ontario legislature in response to the COVID-19 pandemic.

[16] First, the Trustee submits that I have inherent jurisdiction to extend the three-month time period set out in s. 38(2) of the CTA. In this regard, it argues that there is “a gap in the legislation that ought to be filled to allow Trustees relief when dealing with the landlord that wrongfully denies access”.

[17] In support of its argument, the Trustee relies upon the following case law that, it submits, provides jurisdiction to this court to extend the three-month time period: Third Eye Capital Corporation v. Ressources Dianor Inc./Dianor Resources Inc., 2019 ONCA 508, 70 C.B.R. (6th) 181 and Yukon (Government of) v. Yukon Zinc Corporation, 2020 YKSC 16. The Trustee also relies upon the learned article of Justice Georgina Jackson and Dr. Janis Sarra, “Selecting the Judicial Tool to Get the Job Done: An Examination of Statutory Interpretation, Discretionary Power and Inherent Jurisdiction in Insolvency Matters” in Janis P. Sarra, ed., Annual Review of Insolvency Law 2007 (Toronto: Thomson Carswell, 2008), p. 94.

[18] The case law, while not directly on point, generally stands for the proposition that courts ought to adopt practical, pragmatic and flexible approaches to problem solving and that the courts’ jurisdiction in insolvency proceedings includes the ability to direct a Trustee to do what is practical. The aforementioned article speaks of the ability to assert inherent jurisdiction in specific cases.

[19] I do not accept the Trustee’s submission that the aforementioned case law and article stand for the proposition that I have the jurisdiction to extend the time period prescribed in s. 38(2) of the CTA in this case.

[20] First, there is no jurisprudence directly on point which, in my view, does not assist the Trustee. Second, courts have held that inherent jurisdiction does not operate where Parliament or the legislature has acted and cannot be used so as to contradict a statute or rule: see Baxter Student Housing Ltd. v. College Housing Co-operative Ltd., [1976] 2 S.C.R. 475, at p. 480 and Stephen Francis Podgurski (Re), 2020 ONSC 2552, at para. 69. I do not see a functional gap or vacuum in s. 38(2) of the CTA. The three-month period is clearly set out.

[21] I do, however, accept the Trustee’s second argument that s. 2 of the Suspension Order provides this court with jurisdiction to extend the time period set out in s. 38(2) of the CTA.

[22] The relevant portions of the Suspension Order read as follows:

Limitation periods

1. Any provision of any statute, regulation, rule, by-law or order of the Government of Ontario establishing any limitation period shall be suspended, and the suspension shall be retroactive to Monday, March 16, 2020.

Period of time, steps in a proceeding

2. Any provision of any statute, regulation, rule, by-law or order of the Government of Ontario establishing any period of time within which any step must be taken in any proceeding in Ontario, including any intended proceeding, shall, subject to the discretion of the court, tribunal or other decision-maker responsible for the proceeding, be suspended, and the suspension shall be retroactive to Monday, March 16, 2020.

[23] First, I do not accept the Trustee’s position that s. 1 allows me to extend or suspend the three-month time period. Notwithstanding the general language used in an oral decision by the court in Darrigo Consolidated Holdings Ltd. v. Norfinch Construction (Toronto) Ltd. (1987), 63 C.B.R. (N.S.) 216 (Ont. H.C.), which described the three-month period in s. 38(2) of the CTA as a “limitation period”, I am not of the view that the time period contained in s. 38(2) of the CTA constitutes a limitation period. In Darrigo, nothing turned on the description of the three-month period and I am satisfied that the language used by the court was merely descriptive in nature.

[24] I agree with the Landlord that the typical policy behind a limitation period is to provide a timeline under which a step in a dispute ought to be commenced and after the deadline has passed the incident is closed: see Lui v. West Granville Manor Ltd. (1985), 61 B.C.L.R. 315 (C.A.). Accordingly, I am not of the view that the three-month provision contained in s. 38(2) of the CTA constitutes a limitation period so that s. 1 of the Suspension Order would apply.

[25] In my view, however, s. 2 of the Suspension Order does provide the necessary relief to the Trustee. B&W’s bankruptcy constitutes a “proceeding” pursuant to the provisions of the BIA. The three-month time period imposed under s. 38(2) of the CTA is a period of time within which a step in the bankruptcy proceeding must be taken. Thus, s. 2 of the Suspension Order is engaged.

[26] The operation of s. 2 of the Suspension Order, however, is subject to the discretion of this court.

[27] In my view, it would be reasonable to exercise my discretion and provide the Trustee with the primary relief that it seeks – a 90-day extension of the time period contained in s. 38(2) of the CTA so that it could attempt to market the Lease for a further 90 days subject to the conditions below. I am not prepared to grant the alternative relief sought by the Trustee, which is to declare that the three-month period during which the Trustee must make an election under s. 38(2) of the CTA is suspended for the duration of the emergency. This would be unfair to the Landlord as it would leave the Landlord in an unduly vulnerable position for an unknown, extended period of time.

[28] In these circumstances, I order as follows:

(1) The three-month period by which the Trustee must elect to retain and assign the Lease pursuant to s. 38(2) of the CTA is extended for a period of three months from June 29, 2020. Although the Trustee sought an extension from the date of this order, in my view, it is reasonable to allow for the initial three-month period to expire before granting a further three-month extension. (2) The Trustee and its agents, including CBRE, shall have access to the Premises which are subject to the provisions of the Lease for the purpose of marketing the Premises to potential assignees of the Lease. (3) Given the Landlord’s past refusal to provide access, the Trustee is not obliged to pay occupation rent for the first 30 days of the extension. (4) For the remaining 60 days, however, if the Trustee wishes to continue its attempts to assign the Lease it must pay per diem occupation rent to the Landlord. (5) If the Trustee elects, within that 60-day period, to cease attempts to assign the Lease it shall provide the Landlord with seven days paid notice.

[29] At the hearing of the motion no one raised an issue as to whether the Premises were now accessible given the provincial restrictions created as a result of the COVID-19 crisis. I assume that this is no longer an issue, but if there are any difficulties complying with provincial guidelines I can be spoken to by the parties.

Disposition

[30] For the reasons above, the Trustee’s motion is granted subject to the terms and conditions I have outlined above.

[31] Since the result was mixed, the parties shall bear their own costs.

McEwen J. Released: June 18, 2020