Court File and Parties

COURT FILE NO.: CV-21-00661458-00CL

DATE: 2021-08-12

SUPERIOR COURT OF JUSTICE – ONTARIO

IN THE MATTER OF AN APPLICATION UNDER SECTION 129 OF THE SECURITIES ACT (ONTARIO), R.S.O. 1990, c. S. 5, AS AMENDED

RE: ONTARIO SECURITIES COMMISSION, Applicant

AND

BRIDGING FINANCE INC., BRIDGING INCOME FUND LP, BRIDGING MID-MARKET DEBT FUND LP, SB FUND GP INC., BRIDGING FINANCE GP INC., BRIDGING INCOME RSP FUND, BRIDGING MID-MARKET DEBT RSP FUND, BRIDGING PRIVATE DEBT INSTITUTIONAL LP, BRIDGING REAL ESTATE LENDING FUND LP, BRIDGING SMA 1 LP, BRIDGING INFRASTRUCTURE FUND LP, BRIDGING MJ GP INC., BRIDGING INDIGENOUS IMPACT FUND, BRIDGING FERN ALTERNATIVE CREDIT FUND, BRIDGING SMA 2 LP, BRIDGING SMA 2 GP INC., and BRIDGING PRIVATE DEBT INSTITUTIONAL RSP FUND, Respondents

BEFORE: Chief Justice G.B. Morawetz

COUNSEL: John Finnigan, Grant Moffat and Adam Driedger, for the Receiver Lawrence Thacker, for Natasha Sharpe David Bish, for The Coco Group, 2693600 Ontario Inc., Rocky Coco and Jenny Coco Justine Erickson and Marc Wasserman, for BlackRock Financial Management, Inc. Steve Graff, for Investors in various Bridging Funds Sharon Kour and Andrew Kent, for the Ad-Hoc Group of Retail Investors David T. Ullmann, for the Respondents, Thomas Canning (Maidstone) Limited, William Thomas, Robert Thomas, and 2190330 Ontario Ltd.

HEARD and DETERMINED: August 6, 2021

REASONS: August 12, 2021

ENDORSEMENT

[1] At the conclusion of the hearing on August 6, 2021, I granted this motion with reasons to follow. These are the reasons.

[2] The Receiver seeks an order (the “SISP Order”) approving the Receiver’s proposed sale and investment solicitation process (the “SISP”) and authorizing the Receiver to disclose Borrower Information to Qualified Bidders, (defined terms are referenced in the Receiver’s Factum) during the SISP in accordance with the provisions of the SISP Order.

[3] The evidentiary basis for the requested relief is set out in the Fifth Report of the Receiver dated July 29, 2021 (the “Fifth Report”). The support for the legal basis is provided in the factum submitted by counsel to the Receiver.

[4] There was no opposition to the requested relief.

[5] The issues on the motion are as follows:

(a) whether the SISP should be approved; and

(b) whether the Court should authorize the Receiver to disclose Borrower Information to Qualified Bidders during the SISP notwithstanding any express or implied prohibition on such disclosure.

[6] The Receiver seeks approval of the SISP as the next step in its broader strategy of maximizing value for Unitholders and the other stakeholders of Bridging. The Receiver proposes that the process commence with a Notice and Solicitation of Interest, followed by a Phase 1 process to identify Qualified Bidders and a Phase 2 process to select the most favourable Qualified Bid, subject to court approval.

[7] The test for approval of a SISP in a receivership proceeding was set out by D. Brown J. (as he then was) in CCM Master Qualified Fund v. bluetip Power Technologies, 2012 ONSC 1750 at para. 6. When reviewing a sales and marketing process proposed by a receiver, the court should assess the following:

(a) the fairness, transparency and integrity of the proposed process;

(b) the commercial efficacy of the proposed process in light of the specific circumstances facing the receiver; and

(c) whether the sales process will optimize the chances, in the particular circumstances, of securing the best possible price for the assets up for sale.

[8] Counsel for the Receiver submits that the foregoing factors are based on, and should be assessed in light of, the factors for the approval of a proposed sale transaction set out by the Court of Appeal for Ontario in Royal Bank of Canada v. Soundair Corp., 1991 CanLII 2727 (ONCA).

[9] At paragraph [8] of the factum, counsel for the Receiver details the reasons why the proposed SISP satisfies the test set out in CCM. Specific reference is made to the marketing process, the two-phase process, the proposed timing of the SISP, the flexibility of the SISP, the discretion of the Receiver, the fact that borrowers are protected and that the Receiver, in its business judgement, is of the view that the proposed SISP represents the best option in the circumstances to maximize the value of the Business and Property of Bridging.

[10] In my view, the test as outlined in CCM has been satisfied.

[11] The second issue to consider is whether the Receiver should be authorized to disclose Borrower Information to Qualified Bidders in the context of the SISP notwithstanding any express or implied confidentiality obligations of Bridging under the applicable credit agreement or similar documentation setting out the terms of each Loan.

[12] As described in the Fifth Report, the Receiver notified each borrower of the proposed disclosure pursuant to the SISP and requested that any concerns with respect to such disclosure be communicated to the Receiver. In its submission, counsel to the Receiver advised that all concerns with respect to this issue have been resolved.

[13] Counsel to the Receiver submits that it is well-established at common law that a contract between the borrower and the lender includes an implied contractual term imposing upon the lender an obligation not to disclose information concerning the borrower and the lender’s dealings with the borrower (see Murano v. Bank of Montréal, 1998 CanLII 5633 (ON CA), [1998] O.J. No. 2897 (ONCA) at para 13; Canadian Imperial Bank of Commerce v. Sayani, 1993 CanLII 937 (BC CA), [1993] BCJ No 1898 (BCCA) at para. 21; and Tournier v. National Provincial and Union Bank of England [1924] 1 KB 461 at 473).

[14] Counsel to the Receiver submits, however, whether express or implied, a lender’s contractual duty of confidentiality to a borrower is not unqualified and is subject to the following four exceptions (collectively, the “Tournier Exceptions”):

(a) where disclosure is required by law;

(b) where there is a duty to the public to disclose;

(c) where the interests of the lender require disclosure; and

(d) where the borrower provides its express or implied consent.

[15] Counsel to the Receiver submits that the Tournier Exceptions have been adopted under Canadian law by the Supreme Court of Canada in Royal Bank of Canada v. Trang, 2016 SCC 50 at para 40, as well as the Court of Appeal for Ontario in Murano and the British Columbia Court of Appeal Sayani at para 21.

[16] As such, in order to disclose Borrower Information, the Receiver must establish that a least one of the Tournier Exceptions applies.

[17] Counsel to the Receiver submits that the third Tournier Exception (where the interests of the lender require disclosure) is satisfied in these circumstances.

[18] Counsel to the Receiver advised that there appears to be only two reported decisions in Canada in which the third Tournier Exception is addressed. The first is Royal Bank of Canada v. Vincenzi, 1994 CanLII 1823. The second is Rodaro v. Royal Bank of Canada, 2002 CanLII 41834 (ON CA), [2002] O.J. No. 1365 (ONCA).

[19] Counsel to the Receiver submits that the case law with respect to the third Tournier Exception is not well developed nor is it particularly helpful in determining the scope of the exception or the circumstances in which it applies. However, counsel submits that the case law and general receivership principles suggest that the disclosure of borrower information is permitted where the lender is taking steps to recover the amount owing to the lender by the borrower, whether in the context of a court proceeding or private transaction to assign the indebtedness and security held by the lender.

[20] The Receiver is of the view that, absent sufficient access to Borrower Information, parties that did not obtain information regarding the Loans and Borrowers through the SISP process will likely not have the information required to make a competitive bid. The Receiver submits that the best interests of investors may be jeopardized if the Receiver is unable to properly market the Business and Property by making reasonable disclosure of Borrower Information to a limited number of Qualified Bidders.

[21] In my view, given the communication to borrowers and the affirmation by counsel that all concerns have been resolved, it is not necessary to address this issue in detail, other than to comment that I accept the Receiver’s submission that the best interests of investors may be jeopardized if the Receiver is unable to properly market the Business and Property by making reasonable disclosure of Borrower Information to a limited number of Qualified Bidders. I have also taken into account that the Receiver is well aware of the issues of confidentiality surrounding the disclosure of Borrower Information and further that Qualified Bidders in both Phase 1 and Phase 2 of the SISP will be subject to certain confidentiality obligations.

[22] In submissions on the timetable accompanying the SISP, certain parties requested that the Phase 1 process be extended from four weeks to six weeks. Having considered the impact of the summer schedule, including holidays, I expressed the view that five weeks would be more appropriate. No party expressed concerns with this proposed timeline, which is now reflected in the SISP Order.

[23] In the result, the SISP is approved and the Receiver is authorized to disclose Borrower Information to Qualified Bidders during the SISP in accordance with the provisions of the SISP Order.

[24] The activities of the Receiver as described in the Fifth Report are also approved on the terms set out in the SISP Order. There was no opposition to this relief.

[25] I also note that counsel to the Receiver indicated that it is likely that the Receiver will be recommending that representative counsel be appointed for certain investors. In a previous endorsement I indicated that the appointment of representative counsel should be reviewed 60 days after the date of that endorsement, which I understand is August 22, 2021. In my view, it would be helpful if the Receiver takes a proactive approach in identifying the proposed scope of the retainer for representative counsel and to identify interested counsel for this appointment, when it files its next Report.

Chief Justice G.B. Morawetz

Date: August 12, 2021