Ford Credit Canada Limited v. Welcome Ford Sales Ltd., 2010 ABQB 798

Court of Queen ’ s Bench of Alberta Citation: Ford Credit Canada Limited v.

Welcome Ford Sales Ltd., 2010 ABQB 798 Date: 20101210 Docket: 1003 00638, BK03 115383 Registry: Edmonton Between: Ford Credit Canada Limited Plaintiff - and - Welcome Ford Sales Ltd. and Royle Smith Defendants _______________________________________________________ Corrected judgment: A corrigendum was issued on December 13, 2010; the corrections have been made to the text and the corrigendum is appended to this judgment. _______________________________________________________ _______________________________________________________ Memorandum of Decision on Various Applications of the Honourable Mr.

Justice D.R.G. Thomas _______________________________________________________

I Background Facts .............................................................................................. Page: 3 II Issues ..................................................................................................................... Page: 4 (

A) Has the DSSA been terminated by fundamental breach? ............ Page: 5

(1) The appointment of the Receiver on January 14, 2010 ..... Page: 5

(2) The ‘ shuttering ’ of the Welcome Ford premises ................ Page: 6

(3) Improper conduct by Smith and senior employees of Welcome Ford ............................................................................. Page: 7

(4) Conclusion on alleged fundamental breach ........................ Page: 8 (

B) Can and should the Trustee be allowed to assign the DSSA pursuant to s. 84.1 of the BIA ? ............................................................ Page: 8

(1) Introduction .................................................................................. Page: 8

(2) The new legislation ..................................................................... Page: 9

(3) Legal sources to aid in interpreting and applying s. 84.1 of the BIA .................................................................................... Page: 10

(4) Positions of the parties on the approach to interpreting and applying s. 84.1 of the BIA .............................................. Page: 10

(5) Approach to be taken .............................................................. Page: 12

(6) Whether the assignment of the DSSA will benefit creditors by protecting and enhancing the value of the Estate of Welcome Ford ?......................................................................... Page: 12

(7) Whether the rights and obligations under the DSSA are assignable pursuant to s. 84.1 of the BIA ? ........................ Page: 13 (

a) Ford Motor position ...................................................... Page: 13 (

b) BMO position ................................................................. Page: 14 (

c) Analysis ........................................................................... Page: 15 (

d) Conclusion on assignability of the DSSA .............. Page: 17

(8) Whether the Trustee should be allowed to assign the DSSA pursuant to s. 84.1 of the BIA ? .............................................. Page: 17 (

a) Introduction .................................................................... Page: 17 (

b) Trustee position ............................................................ Page: 17 (

c) BMO position ................................................................. Page: 18 (

d) Ford Motor position ...................................................... Page: 19 (

e) Analysis ........................................................................... Page: 20

(9) Ford Motor request to lift the stay ....................................... Page: 21 III Relief .................................................................................................................... Page: 21

IV. Costs .................................................................................................................... Page: 22 I Background Facts [ 1 ] The background facts on these applications are found in my Memorandum of Decision , 2010 ABQB 199 ("Decision No. 1") and several facts and defined terms are restated here for ease of reference. [ 2 ] On January 14, 2010 Ford Credit Canada Limited (“Ford Credit”) applied for the appointment of Meyers Norris Penny Ltd. as Receiver/Manager (“Receiver”) of Welcome Ford Sales Ltd. (“Welcome Ford”) and an order (“Receivership Order”) was made in Q.B.

Action No. 1003 00638 (“Receivership Proceedings”). [ 3 ] Welcome Ford had operated a vehicle dealership (“dealership”) in the City of Fort Saskatchewan for many years.

The most recent Dealership Sales and Services Agreement between Welcome Ford and the Ford Motor Company of Canada Ltd. (“Ford Motor”) is dated August 20, 2007 (“ Dealership Agreement”) and it incorporates the “Standard Provisions.” These two documents govern the relationship between Ford Motor and Welcome Ford and are collectively described as “the DSSA”. [ 4 ] The Defendant Royle Smith (“Smith”) is the principal shareholder of Welcome Ford and his involvement in this litigation has been very limited. [ 5 ] Ford Motor manufactures and sells motor vehicles through a network of dealers across Canada, including the dealership operated by Welcome Ford. [ 6 ] Ford Credit provides financing to Ford dealerships, including Welcome Ford, to enable the franchisees to acquire and sell Ford vehicles. [ 7 ] The Bank of Montreal (“BMO”) is the operating lender to Welcome Ford.

From the outset BMO has argued that the assets of Welcome Ford, including all of the vehicles financed by Ford Credit and the DSSA, should be sold en bloc . After several applications the fate of the inventory claimed by Ford Credit has been resolved and the Receiver is content with those arrangements. The resolution of that issue has occurred since the initial application by Ford Motor requesting that the stay imposed in the Receivership Order be lifted.

That application was refused in Decision No. 1. [ 8 ] By Orders of the Court granted March 23 and 25, 2010 in the Receivership Proceedings, the Receiver was authorized and directed to finalize an information package and to circulate it to prospective purchasers with a call for tenders for the assets of Welcome Ford. [ 9 ] The Receiver has received four bids for the assets of Welcome Ford, but two of those bids were not recommended for further consideration.

The Receiver also recommended that the Court direct that the remaining two bidders be offered the opportunity to submit a further bid for the assets of Welcome Ford on an extremely short timeline, with the highest bid to be recommended by the Receiver for acceptance. That has now been done. [ 10 ] The bids presently under consideration by the Receiver are conditional upon the granting of an order which would assign the DSSA to the successful bidder. [ 11 ] On May 17, 2010, on the application of BMO an order was granted declaring Welcome Ford to be bankrupt and appointing

the Receiver as the Trustee of the Estate of Welcome Ford (“Bankruptcy Order”). [ 12 ] The Trustee has applied pursuant to s. 84.1 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA”) for an order assigning the rights and obligations of Welcome Ford under the DSSA to the party that is ultimately the successful bidder for the assets of Welcome Ford in the Receivership Proceedings. [ 13 ] This decision deals with three outstanding motions, namely: (

a) The application by the Receiver for an order approving the en bloc sale of the assets of the Welcome Ford dealership, including the DSSA; (

b) The application by the Trustee pursuant to s. 84.1 of the BIA for an order assigning the rights and obligations of Welcome Ford under the DSSA to the successful bidder for the assets of Welcome Ford in the Receivership Proceedings; and (

c) The outstanding applications by Ford Motor for, inter alia , declarations that the DSSA is a ‘personal contract’ not capable of being assigned without the consent of Ford Motor and also for an order lifting the stay of proceedings imposed by the Receivership Order to allow Ford Motor to terminate the DSSA. BMO supports the applications by the Trustee/Receiver and continues its opposition to the Ford Motor positions that the DSSA has been terminated by fundamental breach, is incapable of assignment because of its personal nature and should not be assigned without the consent of Ford Motor.

II Issues [ 14 ] The outstanding issues arising here are addressed in a sequence which flows from the position taken by Ford Motor that the resolution of the “fundamental breach” question is a threshold issue. In the event that no fundamental breach is found, then Ford contends that the DSSA is a personal contract which is incapable of assignment and should not, in any event, be assigned. Given those positions by Ford Motor, I have decided to address the issues arising from the various applications as follows: (

A) Has the DSSA been terminated by fundamental breach? (

B) Can and should the Trustee assign the DSSA pursuant to s. 84.1 of the BIA ? (

A) Has the DSSA been terminated by fundamental breach? [ 15 ] Ford Motor takes the position that the DSSA has been “fundamentally breached” with the legal consequence that the franchise agreement represented by the DSSA between Ford Motor and Welcome Ford has been terminated. Ford Motor argues that this is a threshold issue. [ 16 ] Three fundamental breaches of the DSSA are alleged including:

(1) The appointment of the Receiver on January 14, 2010;

(2) The ‘shuttering’ of the Welcome Ford premises on January 13, 2010; and

(3) The ‘improper conduct’ of Smith and senior employees of Welcome Ford prior to and leading up to the closure of the dealership on January 13, 2010.

(1) The appointment of the Receiver on January 14, 2010 [ 17 ] This point was not strenuously advanced by Ford Motor during oral argument but was touched on in its written materials. [ 18 ] The notion of fundamental breach in relation to a franchise agreement such as the DSSA has been recognized by superior courts in Canada. In Shelanu Inc. v. Three Print Franchising Corp . , 2003 CanLII 52151 (ON CA) , 2003 CarswellOnt 2038 , 38 B.L.R. (3d) 42 (Ont.

C.A.) at paras. 113 and 114 summarizes the test for fundamental breach and its application to a franchise arrangement. [ 19 ] In this case the Receiver stands in the place of Welcome Ford and from the outset has sought to honour the DSSA and to sell the assets of Welcome Ford en bloc including the asset represented by the DSSA.

The Receiver has been unable to achieve that goal because of positions taken by Ford Motor that there is no DSSA to assign and that the Fort Saskatchewan franchise area has become an ‘open point’ in Ford Motor parlance. [ 20 ] On the evidence before me, I find that the Receiver has at all times has been willing to honour the DSSA and its commercial purpose but has not been able to do so primarily because of the conduct of and the positions taken by Ford Motor.

I adopt the reasoning expressed in Shelanu that because the franchisee in that case was able to carry on the commercial purpose of the franchise after the bankruptcy the franchise agreement was not terminated. Similarly here, I conclude that no fundamental breach has been made out because the Receiver, which stands in the place of Welcome Ford, has always been willing and has done its best to maintain the value of the dealership, including the DSSA.

(2) The ‘shuttering’ of the Welcome Ford premises [ 21 ] Ford Motor argues a second fundamental breach arising from the ‘shuttering’ of the Welcome Ford premises on January 13, 2010, thereby depriving Ford Motor of the benefit of the DSSA. Ford Motor argues further that the DSSA and the dealer network of Ford Motor (a collective of all DSSA’

s) are all premised on a Ford dealer operating in the particular franchise areas. In essence, it argues that the performance of the DSSA through the full-time operation of a dealership is at the core of the commercial arrangement represented by the DSSA and that this has been lost to Ford Motor since the closure of the physical premises of Welcome Ford. [ 22 ] In support of this instance of fundamental breach Ford Motor relies on the case of Canadian Western Bank v. 702348 Alberta Ltd. and Guild Developments Inc . , 2009 ABQB 271 ( “ Guild ” ) .

That case involved termination of real property leases in a receivership context. [ 23 ] Both the Receiver and BMO reject these arguments and BMO in particular questions the applicability of the Guild case. [ 24 ] While I accept that the Welcome Ford dealership has not been operating since mid-January 2010 that is not for lack of effort on the part of the Receiver which has been trying from the outset to effect a sale of the assets of Welcome Ford en bloc . The Receiver has been met at every step by resistance from Ford Motor.

Welcome Ford can only operate as an active business if the Receiver can receive new product and support from the manufacturer of that product. By its conduct Ford Motor has made it clear that that would not be facilitated. I agree with the position of the Receiver and BMO that the proposed sale of the Welcome Ford dealership including the DSSA would substantially (if not entirely) cure all of the alleged defaults under the DSSA and that it is the opposition by Ford Motor that has prevented a timely sale from going forward.

[ 25 ] In respect to the Guild case, I repeat that Ford Motor has at all times resisted any further operation of Welcome Ford as a franchise. This is a different situation from the Guild case where the receiver made a decision not to remedy the lease breaches through completion of a building. In this case Ford Motor informed the Receiver early in the Receivership Proceedings that it did not wish to have a Ford dealership operating at the Welcome Ford premises and that it would not consent to the assignment of the DSSA.

Notwithstanding this objection Ford Motor now criticizes the Receiver’s failure to operate the dealership and relies on such failure in support of its argument that the DSSA ought to be terminated. [ 26 ] There are other differences between this case and the Guild scenario, particularly the observation that unlike Guild the Receiver here is in a position to quantify the value of the dealership property because it has received one offer to purchase the Welcome Ford real estate assets independently of the DSSA.

BMO argues that this constitutes incontrovertible evidence that any sale of the Welcome Ford real estate independent of the DSSA would result in a significantly reduced realization. I agree that this response by a bidder in an open tendering process is convincing evidence that splitting the DSSA away from the empty premises of Welcome Ford would result in a much lower realization for the creditors. [ 27 ] In

summary, the consistent efforts by Ford Motor to block any sale of Welcome Ford, including the DSSA, leads me to conclude that no fundamental breaches exist here which would lead to the termination of this contract.

(3) Improper conduct by Smith and senior employees of Welcome Ford [ 28 ] Finally, Ford Motor alleges a fundamental breach because Welcome Ford has engaged in conduct unbecoming a reputable business person which in the reasonable opinion of Ford Motor adversely affects the operation and business of Welcome Ford and the good name, goodwill and reputation of Ford Motor. [ 29 ] Because of the alleged misconduct and the failure to operate the dealership Ford Motor commissioned a ‘Special Analysis’ to assess the need for direct representation in the Fort Saskatchewan area in the future.

I had commented on the weight to be given to the ‘Special Analysis’ in Decision No. 1 (see paras. 20 & 21, 2010 ABQB 199 ). Since issuing Decision No. 1, Ford Motor has presented further evidence in the April 22, 2010 Turgeon Affidavit in what appears to be an effort to shore up the ‘Special Analysis’. I have reviewed that Affidavit and the cross-examination of Mr. Turgeon and conclude that the ‘Special Analysis’ has no greater weight now than I had earlier assigned to it in my Decision No. 1.

Consequently, I continue to give little weight to the ‘Special Analysis’ in this decision. [ 30 ] Ford Motor argues it is apparent that, even prior to the closure of Welcome Ford and the appointment of the Receiver, the franchisee was in fundamental breach of the DSSA as a result of improper conduct. [ 31 ] Since filing its supplemental brief on these applications Ford Motor now states that it has received a copy of a statement of claim (no action number given) containing allegations of fraud against a former manager of Welcome Ford. [ 32 ] The statement of claim is said to show that a manager of Welcome Ford misappropriated funds in the amount of approximately $1,279,525.12 by way of a fraud against Welcome Ford.

Ford Motor points out that an attachment order has been granted by this Court in respect to this claim and argues that Welcome Ford was in breach of provisions of the DSSA as a result. [ 33 ] It is trite to say that allegations of misconduct in a statement of claim are just that. In any event they are made against a senior officer of Welcome Ford, not Welcome Ford or Smith.

It is true that the Court has issued an attachment order but the persons affected or at least some of them have retained lawyers and appeared through counsel before the Court, including the application on June 29. [ 34 ] There is no evidence that Smith has ever been involved in fraudulent conduct. What little evidence exists on this point suggests it is more likely that Smith is an absentee owner who may have been victimized by some of the ex-employees of Welcome Ford.

The allegations of misconduct are serious and require strict proof. [ 35 ] There is no evidence presented on these applications in the form of additional affidavits by Mr. Turgeon or in his cross- examinations on these depositions which show definitively and to my satisfaction any damage to the good reputation of Ford Motor which is yet another reason for rejecting this alleged instance of a fundamental breach. [ 36 ] At this stage of this litigation I am not satisfied that Ford Motor has brought sufficient evidence to establish fraud or anything close to fraud on the part of Welcome Ford and Smith.

Further, I do not see any convincing evidence of damage to the reputation of Ford Motor. In the result, I am not prepared to find a fundamental breach in respect to this set of assertions.

(4) Conclusion on alleged fundamental breach es [ 37 ] After considering all of the evidence and argument as a whole in relation to the allegations of fundamental breaches I am not prepared to make such findings. As I have noted Ford Motor has taken the position from the outset that it did not want a Ford dealership operating in the Fort Saskatchewan area. It has effectively prevented the Receiver from operating the Welcome Ford dealership and it should not now be allowed to benefit from that resistance.

These arguments individually and collectively are rejected and I now proceed to deal with the other major issues in this litigation which are whether there can and should be an assignment of the DSSA in these circumstances. (

B) Can and should the Trustee be allowed to assign the DSSA pursuant to s. 84.1 of the BIA ?

(1) Introduction [ 38 ] The issues raised on these applications require a determination of the scope of the recently enacted s. 84.1 of the BIA in relation to the assignability of an agreement such as the DSSA. [ 39 ] The approach to be taken here will first outline the relevant provisions of the new legislation, enumerate the various legal sources which have been referred to the Court as being pertinent to the

interpretation of s. 84.1 and then come to a general conclusion on the purpose and scope of this new provision. [ 40 ] I then turn to review whether the DSSA is legally capable of being assigned by the Trustee. In the course of that discussion I deal with a core issue raised by Ford Motor as to whether the DSSA is a 'personal contract' which by its 'nature' cannot be assigned. I turn finally to the other major question of whether, in these circumstances, the DSSA should be assigned to the preferred assignee put forward by the Trustee.

(2) The new legislation [ 41 ] The BIA was recently amended by the addition of s. 84.1 which came into effect on December 15, 2009. Those additions are reproduced below with some emphasis added to the particularly pertinent provisions: 84.1

(1) On application by a trustee and on notice to every party to an agreement, a court may make an order assigning the rights and obligations of a bankrupt under the agreement to any person who is specified by the court and agrees to the assignment.

[...] (3) Subsection (1) does not apply in respect of rights and obligations that are not assignable by reason of their nature or that arise under (

a) an agreement entered into on or after the date of the bankruptcy; (

b) an eligible financial contract; or (

c) a collective agreement.

(4) In deciding whether to make the order, the court is to consider, among other things, (

a) whether the person to whom the rights and obligations are to be assigned is able to perform the obligations ; and (

b) whether it is appropriate to assign the rights and obligations to that person.

(5) The court may not make the order unless it is satisfied that all monetary defaults in relation to the agreement - other than those arising by reason only of the person’s bankruptcy, insolvency or failure to perform a non-monetary obligation - will be remedied on or before the day fixed by the court. (Emphasis and underlining added)

(3) Legal sources to aid in interpreting and applying s. 84.1 of the BIA [ 42 ]

Section 84.1 does not appear to have been considered by any Canadian court. A number of legal sources have been brought to my attention to assist in interpreting this provision, including: (

a) legislative commentary with respect to Bill C-55 (An Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act and to make consequential amendments to other Acts), which formed the basis for the September 18, 2009 amendments to the BIA ; (

b) a comprehensive “Briefing Book” published by Industry Canada which sets out the departmental

interpretation of Bill C-55. Industry Canada: “Bill C-55 Clause by Clause Briefing Book” (available at http://www.ic.gc.ca/eic/site/cilp- pdci.nsf/eng/h_c100790.html) (the “Briefing Book”); (

c) Report of the Standing Senate Committee on Banking, Trade and Commerce, Debtors and Creditors sharing the Burden: a review of the Bankruptcy and Insolvency Act and the Companies Creditors Arrangement Act (November 2003),

Section J:"Executory Contracts"; (

d) a

summary of jurisprudence related to court ordered assignments of debtors executory contracts in the context of other Canadian insolvency proceedings; and

(

e) analogous provisions in American bankruptcy legislation and the relevant judicial consideration thereof.

(4) Positions of the parties on the approach to interpreting and applying s. 84.1 of the BIA [ 43 ] On this issue the Trustee and BMO stand together in asserting a broad

interpretation of s. 84.1 of the BIA which provides this Court with authority to assign the type of commercial agreement represented by the DSSA. In addition to the legal sources enumerated above these parties stress, in particular, that this Court should consider analogous U.S. law in interpreting and applying this new provision. Particular reference is made to ss. 365(f)(1) and s. 365(c)(1) of the United States Bankruptcy Code 11 U.S.C.A. § 365 (“ U.S. Bankruptcy Code ”). [ 44 ] The Trustee and BMO also make reference to decisions in U.S. courts which have considered those provisions of the U.S.

Bankruptcy Code in relation to the assignability of an identical Ford dealership agreement. Specific reference is made to the case of Re: Pioneer Ford Sales Inc. from the U.S. Bankruptcy Court for the District of Rhode Island, which considered the assignability of a Ford dealership agreement through the mechanism of S. 365 of the US Bankruptcy Code. In that litigation a number of conclusions were reached, including: (

a) That the Ford dealer sales and service agreement at issue did not create a "special personal relationship between the parties to the contract in question other than the dealer's ability to sell the vehicles and support the operations called for under the contract"; (

b) The considerations to be taken into account in an application to approve the assignment of such a contract are restricted to adequate assurance of the assignee's future performance; and (

c) There was no "applicable non-bankruptcy" law that would bar assignment.

Re: Pioneer Ford Sales Inc. ; 1983 26 B.R. 116 , Re: Pioneer Ford Sales Inc .; 1983 30 B.R. 458 , and Re: Pioneer Ford Sales Inc. ; 1983 729 F.nd 27 (US Court of Appeal, First Circuit). [ 45 ] I observe that the operative terms of the DSSA are identical to the form of agreement which was under consideration in the Re: Pioneer Ford Sales Inc. litigation. [ 46 ] Reference has also been made to the case of Re: Wills Motors Inc. from the US Bankruptcy Court for the Southern District of New York which concluded that a car manufacturer's wish to discontinue direct representation at a particular location was not a sufficient reason to withhold approval of a transfer of the dealership agreement, and that such a position was therefore unreasonable.

Re: Wills Motors Inc ., 1991133 B.R. 303. This decision is said to be pertinent to the issue of whether I should allow the Trustee to assign the DSSA. [ 47 ] Ford Motor also referred to Canadian secondary source legislative commentary and makes submissions on the extent to which the U.S. Bankruptcy Code can be of assistance in interpreting the Canadian legislation. It sought to distinguish the Pioneer Ford , (supra) , Re: Wills and in Re: Adelphia Communications Corp. et al. , 359 B.R. 65 (s. (

d) New York 2007) at 72 [ “Re: Adelphia” ] cases. It argues that it is not necessary to have reference to the U.S. case law and that this jurisprudence should not be considered by this Court as there is no existing gap in the Canadian jurisprudence such that a reference to decisions from U.S. jurisdictions are either necessary or appropriate.

(5) Approach to be taken

[ 48 ] From a general perspective, I observe that the intention of the recently adopted s. 84.1 is to protect and enhance the assets of the estate of a bankrupt by allowing the assignment of existing agreements to third parties for value. (Houlden, Morawetz, and Sarra , Bankruptcy and Insolvency Law of Canada , 4 th ed., v. 2 (looseleaf) (Toronto: Carswell, current at 3-499) .

Section 84.1 is remedial legislation and should be interpreted in that context. [ 49 ] In terms of a specific approach I conclude that an evidence based analysis which balances the interests of the Estate of the bankrupt, in this case Welcome Ford (In Bankruptcy) against those of Ford Motor as a party to the DSSA is appropriate. The following issues must be addressed by this Court in deciding whether or not an assignment pursuant to s. 84.1 should be ordered. (

a) Whether the assignment of the DSSA will benefit creditors by protecting and enhancing the value of the Estate of Welcome Ford? (

b) Whether the rights and obligations in the DSSA are assignable pursuant to s. 84.1 of the BIA ? and (

c) Whether the proposed assignee will be able to perform the obligations under the DSSA and whether it is otherwise appropriate to assign the contractual rights and obligations contained in the DSSA to the proposed assignee.?

(6) Whether the assignment of the DSSA will benefit creditors by protecting and enhancing the value of the Estate of Welcome Ford ? [ 50 ] Resolution of this overriding issue involves the balancing of interests as between certain creditors of Welcome Ford (who seek to maximize their recovery through an en bloc sale of the Welcome Ford assets) and Ford Motor (which argues that the DSSA cannot be assigned and must be terminated). [ 51 ] I am satisfied that the Receiver has acted properly in conducting the tendering process.

Indeed, no strong argument is advanced by Ford Motor that the factors to be considered under Royal Bank v. Fracmaster Ltd. , 1999 ABQB 425 , 1999 ABCA 178 have not been met in this case. [ 52 ] The Receiver’s Confidential Addendum to the Fourth Report confirms in paras. 71 and 72 that the en bloc sale of the assets of the Welcome Ford dealership including the DSSA will result in the full satisfaction of the indebtedness of Welcome Ford to BMO, will not prejudice the recovery by Ford Credit in respect to its secured collateral and may make funds available for the unsecured creditors of Welcome Ford.

I accept that the benefits represented to me will accrue to the secured and unsecured creditors of the Estate of Welcome Ford. [ 53 ] Accordingly, an assignment of the DSSA will benefit the creditors and enhance the value of the Estate of Welcome Ford. However, that still leaves the questions of whether the rights and obligations contained in the DSSA are assignable ‘by reason of their nature’ and whether the assignment should take place.

(7) Whether the rights and obligations under the DSSA are assignable pursuant to s. 84.1 of the BIA ? (

a) Ford Motor position [ 54 ] Ford Motor has always taken the position that the DSSA is a personal contract which is not capable of assignment. This is

also the core issue in interpreting the words “rights and obligations that are not assignable by reason of their nature” in s. 84.1(3) of the BIA as they might apply to the DSSA. [ 55 ] Ford Motor argues that the nature and character of the DSSA is such that it cannot be assigned and s. 84.1 of the BIA is of no assistance to the Trustee in seeking to assign the rights and obligations contained in that agreement. [ 56 ] It relies on Blackhawk Mining Inc. v.

Manitoba (Provincial Assessor), 2002 MBCA 51 and the discussion at paras. 79 to 82 inclusive on the elements of an agreement which make it a 'personal contract'. Particular emphasis is put on the statement of the Manitoba Court of Appeal at para. 82: In Campbell v. Morrison (1987), 28 S.C.R. 228 (S.C.C.) [a.k.a. Maloney v.

Campbell], a case dealing with the assignment of a mortgage debt, King J. succinctly summarized the principle (at p. 233): Agreements are said to be personal in this sense when they are based on confidences, or considerations applicable to special personal characteristics, and so cannot be usefully performed to or by another. [Emphasis added.] [ 57 ] Ford Motor argues that support for the characterization of the DSSA as a personal contract is found in the due diligence process which Ford Motor carries out in when evaluating a prospective dealer.

This process is said to involve the carrying out of extensive inquiries into the experience (including automotive), management, capital, knowledge, character and other qualifications of a prospective dealer, including existing Ford dealers. [ 58 ] Further, Ford Motor argues that numerous provisions in the DSSA support the conclusion that the DSSA is a personal contract and demonstrate the intention of Ford Motor to expressly reserve its rights to determine the necessary characteristics of dealers, including the provisions found in the DSSA at paras.

F, 17(b)(4) and the DSSA Standard Provisions, pgs. 1 and 2. [ 59 ] Ford Motor argues strenuously that these provisions clearly demonstrate that the DSSA is a personal contract and that the DSSA was entered into by Ford Motor on the basis of the confidence and considerations applicable to the special personal characteristics of Welcome Ford and its principal shareholder Smith. (

b) BMO position [ 60 ] BMO takes the lead in asserting that the DSSA is assignable in this case. It accepts the statement of law in Blackhawk that a personal contract is one which “cannot be usefully performed to or by another”. It also acknowledges that as a matter of law the benefits (though not the burdens) of a contract may be assigned without consent except in certain defined circumstances, including where the contract is a 'personal' one based on special personal characteristics of the parties and cites Devon Canada Corp. v. Canadian Pacific Railway , 2009 ABQB 143 at para. 24 , citing Rodaro v.

Royal Bank (2002), 2002 CanLII 41834 (ON CA) , 59 O.R. (3d) 74 (C.A.) at para. 33 . [ 61 ] BMO also acknowledges that Ford Motor reserves its right to refuse to grant a franchise to an applicant who lacks the requisite character, automotive experience, management, capital and other qualifications, but argues the DSSA is not based on "special personal characteristics" and that it can "be usefully performed by another".

It argues that there is neither evidence presented by Ford Motor of the "special personal characteristics" of Smith (the principal of Welcome Ford) nor that the obligations of the DSSA cannot be "usefully performed" by the preferred assignee proposed by the Trustee, an existing Ford dealer in the Edmonton region. [ 62 ] BMO argues strongly that the DSSA is a typical commercial franchise agreement and refers to the provisions of the Franchises Act , R.S.A. 2000, c. F-23 and particularly the definition of “franchise” in s. 1(1) (

d) as “a right to engage in a business”:

(

i) in which goods or services are sold or offered for sale or are distributed under a marketing or business plan prescribed in substantial part by the franchisor or its associate, (ii) that is substantially associated with a trademark, service mark, trade name, logotype or advertising of the franchisor or its associate or designating the franchisor or its associate, and (iii) that involves (

A) a continuing financial obligation to the franchisor or its associate by the franchisee and significant continuing operational controls by the franchisor or its associate on the operations of the franchised business, or (

B) the payment of a franchise fee, and includes a master franchise and a subfranchise. [ 63 ] BMO also points to the American counterpart to s. 84.1 of the BIA which provide that a contract cannot be assigned where "applicable law" excuses the counterparty from accepting substituted performance. BMO accepts that the "applicable law" exception precludes the forced assignment of personal service contracts, but only in situations where the contract is truly personal and is based on a special knowledge, skill, or talent.

BMO points out that the U.S. courts have on several occasions held that franchise agreements (including motor vehicle dealership franchise agreements) do not constitute personal service contracts for the purposes of the "applicable law" exception. [ 64 ] In support of its argument that the DSSA should be characterized as a standard form of commercial franchise agreement, BMO relies on the Ontario Superior Court of Justice decision in Struik v.

Dixie Lee Food Systems Ltd., 2006 CarswellOnt. 4932 (S.C.J.) at para. 69 which distinguishes a commercial relationship arising from a restaurant franchise agreement from an employment or "personal service arrangement". [ 65 ] Finally, BMO notes that the exception in s. 84.1(3) for contracts which are not assignable "by reason of their nature" does not imply an adoption of the common law with respect to the assignment of 'personal contracts'.

Reference is made to the discussion in the Industry Canada Briefing Book, ( supra ), to the effect that the exception was meant to provide a court with flexibility to review "each agreement in light of the circumstances" to determine whether or not it would be appropriate to allow the assignment. As such, BMO submits that even if this Court finds that the DSSA constitutes a 'personal contract' at common law, this would not preclude the agreement's assignment pursuant to s. 84.1(3) . (

c) Analysis [ 66 ] Both Ford Motor and BMO rely on or acknowledge similar statements of the law on the subject of what elements present in a contract may lead to the characterization of an agreement as being a ‘personal’ contract. I accept the principles stated in both Blackhawk and Devon in relation to characteristics which qualify a contract as being of a personal nature.

However, that leaves the question of how those legal principles might apply to the DSSA in this case. [ 67 ] I also agree with Ford Motor that it is not necessary to place reliance on the decisions from the U.S. courts to determine the issues in this case. While those decisions are interesting, I want to make it clear that I am not adopting the reasoning from those decisions in deciding this case. Instead, I see the

interpretation of s. 84.1 as requiring the application of basic principles of Canadian law to the evidence presented in this case.

[ 68 ] There are terms in the DSSA which state that it is of a "personal nature" (Para. F of the DSSA.) However, merely stating that to be the case is not conclusive. The circumstances surrounding the entering into of the contract and the performance of the contractual relationship over time must be examined. The conduct of Ford Motor under the DSSA in relation to Welcome Ford and Smith are subjects which must be looked at. [ 69 ] In very simple terms the nature of the contractual relationship reflected in the DSSA is a purely commercial one.

Ford Motor, as a manufacturer, agrees to provide automobiles to Welcome Ford. Welcome Ford agrees to purchase and pay for Ford automobiles, promote their sale and provide after market services. There does not appear to be much, if any, of a personal services flavour to this commercial relationship. Indeed, there is no evidence presented to me that Welcome Ford or Smith provided to Ford Motor any sort of personal services, such as advisory or consulting services, or any other type of typical personal service.

There is no commitment by Smith in the DSSA and certainly no evidence that Smith was to devote any of his full time and attention to the business, which is a typical feature of a personal services contract.

The DSSA is not an agreement involving Ford Motor paying for ‘personal services’: it is all about the sale and purchase and re-sale by Welcome Ford of goods manufactured by Ford Motor. [ 70 ] When one views the terms of the DSSA through the prism of the definition of “franchise” contained in the Alberta Franchises Act , the DSSA represents a classic commercial franchise agreement and apart from the words asserting that it is of a "personal nature" has very little of a personal flavour to it. [ 71 ] Going to the due diligence point raised by Ford Motor there is no clear evidence presented to me of any inquiries being carried out by Ford Motor in respect to Smith at the time of entering into the original DSSA (whenever that was).

The DSSA was most recently renewed on August 20, 2007 after the carrying out of what I would characterize as a rather perfunctory review of the Welcome Ford dealership as reflected in the 2007 Market Representation Study (the “2007 Study”). There is no evidence that Ford Motor carried out any further surveys or inquiries in relation to the Welcome Ford dealership after the 2007 Study up to the time of the issuance of the Receivership Order. There is no evidence of any inquiry about the character of Smith prior to the renewal of the DSSA in 2007.

There is no evidence of a credit check having been conducted in relation to Smith or confirmation from his bankers as to his financial status, let alone that of the dealership.

In short, there is no evidence shown to me that Ford Motor carried out even the most elementary due diligence at the time of renewing the most recent DSSA. [ 72 ] In respect to the performance of the specific provisions of the DSSA referred to in argument by Ford Motor, I do not see any evidence that Ford Motor entered into the DSSA with Welcome Ford with confidence in Welcome Ford’s integrity, ability and intention to carry out its responsibilities set forth in the DSSA.

There is no evidence that Ford Motor, which claims that it is important to ensure that dealerships are owned and operated by qualified individuals of good reputation, and who were able to meet the requirements of the DSSA and the challenges of the marketplace, ever did anything to take such measures. As I have noted, it did not make any investigation of Smith prior to renewing the DSSA. Ford Motor was unaware that he had relocated to the Dominican Republic until after the Receivership Order had been granted.

In conclusion, it appears that there was little, if any, effort to monitor what was going on at Welcome Ford or in relation to Smith up to the time that the dealership slid into insolvency. (

d) Conclusion on assignability of the DSSA [ 73 ] When all of the legal and evidentiary considerations present here are taken into account I conclude that the DSSA is not a 'personal contract', which by its 'nature' cannot usefully be performed by another. Instead, it is a rather standard commercial franchise which could be performed by virtually any business person and entity with some capital and experience in automotive retailing. I find that the DSSA is capable of assignment and therefore the exclusion in s. 84.1(3) of the BIA does not apply.

However, that still leaves the question of whether the DSSA should be assigned to the assignee proposed by the Trustee and whether the consent of Ford Motor is required or has unreasonably been withheld.

(8) Whether the Trustee should be allowed to assign the DSSA pursuant to s. 84.1 of the BIA ? (

a) Introduction [ 74 ] I approach this final set of questions in a somewhat different fashion. I begin by stating the position of the Trustee which

argues for the assignment of the DSSA to the preferred bidder. I then review the points raised by BMO in support of such an assignment, followed by an attempt to summarize the many arguments advanced by Ford Motor as to why no assignment should take place without its consent. I then proceed to an analysis which is particularly focused on the application of s. 84.1(4)(

a) and (

b) to the circumstances present in this case. (

b) Trustee position [ 75 ] The very succinct position of the Trustee is that the DSSA provides the criteria by which Ford Motor can exercise its discretion to approve or disapprove of any proposed purchaser of the dealership assets. Those criteria are stated to be "character, automotive experience, management, capital and other qualifications". The Trustee argues that the two bidders recommended by the Receiver for further consideration are both well established, award winning Ford dealers.

It says the evidence contained in affidavits filed by representatives of those bidders confirm that either one of them meets all of the requirements of Ford Motor. The preferred bidder is said to have particularly strong credentials on all of these criteria. (

c) BMO position [ 76 ] BMO relies on the decision in Playdium Entertainment Corp. (Re) (2001, 2001 CanLII 28281 (ON SC) , 31 C.B.R. (4th) 302 at paras. 2 - 3 , 16, 19 and 22 and additional reasons (2001) 2001 CanLII 28282 (ON SC) , 31 C.B.R. (4th) 309 Ont. S.C.J.). It submits that, as in Playdium , the overall remedial purpose of the BIA and of s. 84.1 in particular, should be considered in deciding whether to order an assignment of the DSSA.

BMO asserts that many of the factual circumstances supporting the assignment of the Playdium contract (no viable alternative other than liquidation, potential benefit to creditors and other stakeholders, impossibility that the assignee will remedy any alleged defaults, etc.) are also present in this case. [ 77 ] It argues that there is evidence before the Court that the proposed assignee is capable of performing the DSSA, but Ford Motor has declined to consider the Trustee’s proposed assignee or conduct any investigations as to that assignee’s suitability. [ 78 ] BMO submits that that all of Ford Motor's rights and remedies pursuant to the DSSA will be preserved in the event that an assignment is ordered.

It observes that such rights and remedies include, inter alia , the right of first refusal to purchase the Welcome Ford dealership and the right to take steps to terminate the DSSA in accordance with its terms and conditions. BMO argues that the preservation of the rights of Ford Motor and remedies under the DSSA support a conclusion that an assignment is appropriate. [ 79 ] BMO notes that Ford Motor asserts a number of acts of default under the DSSA, but argues that defaults do not preclude an assignment of the DSSA pursuant to s. 84.1.

It says that whether a contract is in default is but one factor which should be considered a court in deciding whether or not to order the assignment of an agreement pursuant to s. 84.1. BMO notes that the specific wording of s. 84.1(5) of the BIA clearly contemplates the possibility that an agreement sought to be assigned may be in default. [ 80 ] BMO also states that it is not necessary for the Court in conducting the s. 84.1 analysis to assess the reasonableness of Ford Motor withholding its consent.

It says that even if the reasonableness of Ford Motor is to be considered by the Court then whether Ford Motor's withholding of consent is reasonable or unreasonable is still not determinative. [ 81 ] BMO argues that declining to consider a bona fide request for consent is not reasonable and relies on Bakerview Trout Farm (1983) ltd. v.

Petgus Holding Ltd. , [1996] B.C.W.L.D. 1480 (S.C.) at para. 92 . [ 82 ] Finally, based on the evidence contained in the April 22 Turgeon affidavit BMO argues that Ford Motor has unreasonably refused its consent because it has taken the position that it need not consider the merits of the proposed assignee and will not consent to any assignment or transfer of the DSSA where a dealership has ceased operating.

(

d) Ford Motor position [ 83 ] Ford Motor advances many arguments and counter arguments as to why the DSSA should not be assigned at all and, in any event, not without its consent. Ford Motor's arguments and responses fall into a number of categories. [ 84 ] The first bundle of arguments put forward by Ford Motor rely on terms in the DSSA which specifically state that it is not transferable, assignable or saleable by Welcome Ford (DSSA, paras. F and 17(b)(1)).

Further, it says that Welcome Ford has specifically acknowledged in the DSSA that Ford Motor has the right to approve or decline to approve any transfer or change in voting control based on the character, automotive experience, management, capital and other qualifications of the acquirer of the voting control, the equity or beneficial interest of the dealership business or its main assets. [ 85 ] Another bundle of evidence based arguments rely on the Special Analysis as support for the position of Ford Motor that it does not need any direct representation in the Fort Saskatchewan region and that taking this position is compliant with the provisions of the DSSA.

Further, the Fort Saskatchewan region is an ‘open point’ and Ford Motor is entitled to decide, based on the Special Analysis and other research data in respect to Ford vehicle registrations in that area, as to whether it needs to open and operate a franchise. [ 86 ] Ford Motor argues that Bakerview should be distinguished on its facts. [ 87 ] A series of arguments around the absence of information about the proposed assignees is advanced, including an argument that any determination of whether Ford Motor should consent to any assignment or transfer of the DSSA cannot be made because Ford Motor has not received a recommendation with respect to a potential assignee.

Ford Motor states that it would require some period of time, 6 to 8 weeks, to make such a determination. It argues that the affidavit evidence filed by the Trustee in respect to the proposed assignee should be ignored. [ 88 ] Finally, Ford Motor argues that Welcome Ford is in default of many obligations under the DSSA. In response to a number of arguments put forward by the Trustee and BMO, Ford Motor observes that they seek strict compliance with the DSSA but neither Welcome Ford or the Receiver have been in compliance with the DSSA since January 10, 2010. (

e) Analysis [ 89 ] I have determined that the DSSA is capable of being assigned and that the exemption found in s. 84.1(3) is not applicable to this contract in these circumstances.

The outstanding questions are whether the proposed assignee, particularly the preferred assignee, is "able to perform the obligations" contained in the DSSA [s. 84.1(4)(a)] and whether it is appropriate to assign the rights and obligations to that person " (Emphasis added.) [s.84.1(4)(b)]. [ 90 ] These are factual questions which will be determined on the evidence present in this case. [ 91 ] On the first question related to s. 84.1(4)(a), it is clear from the May 28 affidavit made by a senior officer of another Ford dealer in the Edmonton region that that preferred assignee has an excellent track record in terms of operating a profitable Ford dealership and has received many national awards from Ford Motor over the years.

It carries on business in premises that meet the Millennium Standards in contrast to the dismal facilities of the bankrupt. It is reasonable to infer from this evidence that the preferred assignee has both capital and relevant experience in automotive retailing, which would enable it to operate the Welcome Ford franchise.

I conclude that the preferred assignee, including its principal shareholder of that assignee, will be able to perform the obligations of the DSSA. [ 92 ] Moving on to the second question related to s. 84.1(4)(b), I must determine whether it is appropriate to order an assignment to the preferred assignee and must decide whether 'that person' is suitable. This involves a limited inquiry and I have already indicated that there is evidence in the affidavits filed here to support the selection of the preferred assignee.

However, I must also deal with the question of whether Ford Motor must consent and whether Ford Motor is unreasonably withholding its consent in respect to the assignment of the DSSA to the preferred assignee.

[ 93 ] For the purposes of this decision, I am assuming that the consent of Ford Motor to the proposed assignee is required. That said, as I have observed on other occasions in this decision, it has been clear from the outset that Ford Motor would never consent to the DSSA being assigned and maintains its refusal to consent to the specific assignment proposed by the Trustee.

Indeed Ford Motor has taken the position that it need not consider the merits of the proposed assignee as it will not consent to any assignment or transfer of the DSSA where a dealership has ceased operating. [ 94 ] Ford Motor has unreasonably refused its consent. The proposed assignee has been shown to be capable of performing obligations under the DSSA and the Trustee has made a bona fide request for assignment, but Ford Motor has refused to even consider that request.

In refusing to consider any request for assignment of the DSSA on account of the ceasing of operations of the dealership, Ford Motor has sought to do indirectly what it has not, (because of the stay) been able to do directly, namely, to treat its obligations under the DSSA (including an obligation not to unreasonably withhold its consent to an assignment), as being at an end. [ 95 ] Finally, in respect to the questions of default, I am satisfied on the affidavit evidence and the inferences which I have drawn from the evidence about the financial strength of the proposed assignee that any monetary defaults may be remedied by that proposed assignee.

I am comfortable that the proposed sale of the Welcome Ford dealership will substantially cure the breaches of the DSSA, of which Ford Motor complains. [ 96 ] I have found as a fact that the preferred assignee will be capable of performing the obligations imposed in the DSSA. Further, on the basis of all of the evidence present here, I conclude that the rights and remedies of Ford Motor under the DSSA will be preserved and for that reason it is appropriate to order the assignment.

Such rights and remedies include among others the right of first refusal and the right to take steps to terminate the DSSA in accordance with its terms. This preservation of the rights and remedies of Ford Motor is important to me in deciding that an assignment is appropriate in these circumstances.

(9) Ford Motor request to lift the stay [ 97 ] Ford Motor has an outstanding application to lift the stay which had been imposed when I granted the Receivership Order. [ 98 ] In Decision No. 1 I had analyzed that question and refused to grant the remedy requested at that time. I have now reviewed additional evidence and commented on its weight in other parts of this decision. I have also dealt with the outstanding questions on which I had reserved decision in March.

Ford Motor has not made a case for the lifting of the stay and I have commented above on Ford Motor's position that it would not consider an assignment under any circumstances. A decision to lift the stay is a discretionary remedy and no new evidence has been drawn to my attention which would justify the lifting of the stay and therefore I decline to do so. III Relief [ 99 ] The outstanding applications are resolved as follows: (

a) The Ford Motor application for a declaration that neither the Receiver nor the Trustee has any right, title and interest in or to the DSSA is refused; (

b) The Ford Motor application for a declaration that the DSSA is a ‘personal contract’ and is not capable of being assigned is refused; (

c) The alternative application by Ford Motor for an order declaring that neither the Receiver nor the Trustee can assign the DSSA or transfer the assets of Welcome Ford to any prospective purchaser without the consent of Ford Motor is dismissed;

(

d) The renewed applications for an order lifting the stay of proceedings imposed by the Receivership Order and s. 69.3(1) of the BIA , and to allow Ford Motor to terminate the DSSA between it and Welcome Ford in accordance with its terms is dismissed, (

e) The application by the Trustee pursuant to s. 84.1 of the BIA for an order assigning the rights and obligations of Welcome Ford under the DSSA to the successful bidder for the assets of Welcome Ford in the Receivership proceedings is directed, and (

f) The Receiver’s application/ recommendation to this Court for the en bloc sale of the Welcome Ford dealership is granted and confirmed. IV. Costs [ 100 ] Costs may be spoken to within 45 days of the issuance of this decision. Heard on the 29 th day of June, 2010. Dated at the City of Edmonton, Alberta this 10 th day of December, 2010. __________________________________ D.R.G. Thomas J.C.Q.B.A. Appearances: Mr. Jeremy H. Hockin Mr. Bryan Maruyama (Parlee McLaws LLP) for the Receiver of Welcome Ford, Myers, Norris, Penny Ltd. Mr. Ken Mills Ms. Kelly J. Bourassa (Blake, Cassels & Graydon LLP)

for Ford Motor Company Mr. Darren R. Bieganek (Duncan & Craig LLP) for the Plaintiff - Ford Credit Canada Mr. Ray C. Rutman (Fraser Milner Casgrain LLP) for Bank of Montreal _______________________________________________________ Corrigendum of the Memorandum of Decision on Various Applications of The Honourable Mr. Justice D.R.G. Thomas _______________________________________________________ The database citation number has been changed from: 2010 ABQB 199 (which is the number on the March 23, 2010 Ford Judgment) to 2010 ABQB 798.