Royal Bank of Canada v. Cow Harbour Construction Ltd., 2011 ABQB 96

Court of Queen ’ s Bench of Alberta Citation: Royal Bank of Canada v. Cow Harbour Construction Ltd., 2011 ABQB 96 Date: 20110301 Docket: 1003 11241, 1003 05560 Registry: Edmonton Between: Royal Bank of Canada Plaintiff - and - Cow Harbour Construction Ltd. and 1134252 Alberta Ltd. Defendant ’ s And Between: Docket: 1003 05560 BKCY Action No: 24-115359 In the Matter of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 , as amended In the Matter of 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 Cow Harbour Construction Ltd. _______________________________________________________

Memorandum of Decision of the Honourable Mr. Justice K.D. Yamauchi _______________________________________________________ I. Introduction [ 1 ] On April 7, 2010, Cow Harbour Construction Ltd. (“Cow Harbour”) applied to this Court for, and was granted, an initial order (the “Initial Order”) under the Companies’ Creditors Arrangement Act, RSC 1985, c. C-36 (“ CCAA ” ) . Part of that Initial Order appointed Mr. Patrick Ross as Cow Harbour’s chief restructuring advisor (“CRA”). [ 2 ] Mr.

Ross applies to this Court for an order that he be paid for his role as CRA in accordance with the terms of an agreement with Cow Harbour (the “Agreement”) dated April 6, 2010, and that this remuneration be secured against Cow Harbour’s property or proceeds under an administrative charge granted under the Initial Order. II. Facts [ 3 ] Cow Harbour applied for the Initial Order under the CCAA , with the support of the Royal Bank of Canada (“RBC”), its primary secured creditor. One of RBC’s conditions for its support was that Cow Harbour retain a CRA to oversee its restructuring.

The hearing to consider Cow Harbour’s application for the Initial Order took place over two days, April 6, 2010 and April 7, 2010. [ 4 ] PriceWaterhouseCooper (“PWC”) and Mr. Don MacLean, one of its Senior Vice -Presidents, were closely involved in the lead-up to this Court granting the Initial Order. PWC was also actively involved in the CCAA proceedings. It was also eventually appointed Cow Harbour’s receiver, when Cow Harbour’s creditors concluded that restructuring was not a viable option. PWC and Mr. MacLean continue to be involved in these proceedings. In fact, Mr.

MacLean filed an affidavit in opposition to Mr. Ross’s application. [ 5 ] Mr. Ross is an independent affiliate partner of Lindsey Goldberg LLP, a private equity fund based in New York. He has extensive high-level business experience, including roles involving business turn-around consulting and acting as the president and chief executive officer of a number of companies in which he steered their economic recovery. [ 6 ] Mr. MacLean provided the initial draft of the Agreement, in the form of a template engagement letter, to Cow Harbour’s chief financial officer, Mr. Demetri Koumarelas. Mr.

Koumarelas was instrumental in negotiating the terms of the Agreement with Mr. Ross. The draft form of the Agreement was tailored to meet the arrangement between Cow Harbour and Mr. Ross. Cow Harbour and Mr. Ross signed the Agreement on April 6, 2010. [ 7 ] The following provisions of the Agreement are relevant to the application before this Court (Mr. Koumarelas changed some portions of the Agreement through handwritten insertions or changes, which are indicated by italics. Strikeouts represent strikeouts from the original document that PWC provided to Mr. Koumarelas): 3.

Fees PR’s [Patrick Ross] compensation for the service referred to above will be as follows:

4.1 Work Fee * A daily work fee of $2,000.00 payable weekly; * A completion fee of $500,000 (the “Completion Fee”) payable at the completion of this mandate. “Completion of this mandate” will be defined as 3 months from the date a plan of arrangement is sanctioned by the Court. 4.2 Success Fee (

a) Financing and sales approved by RBC: * 1% of any additional or replacement financing raised or sourced by PR , with new or existing lenders (only for a new loan) payable from closing proceeds; or * 1% of any proceeds from a sale of equity or assets sourced by PR (other than the sale-leaseback transactions entered into by CHC [Cow Harbour]), payable from closing proceeds; or * 1% of any combination of financing and sale proceeds sourced by PR ; 4.3 Termination Fees and success Fees Earned (

a) in the event that PR is terminated without cause prior to CHC emerging from CCAA protection completion of this mandate , PR will be paid the greater of

i) Success Fees Earned as detailed above and defined below; or ii) a break fee in lieu of success fees calculated as $10,000.00 per week multiplied by the number of weeks worked, in addition to the weekly work fee. In the event of a termination by either party, the Success Fees Earned will be calculated as follows:

i) the full amount of the success fee referred to in 4.2(

a) if an agreement is entered into during or after termination, for a transaction contemplated in 4.2(

a) with a party who had reviewed information regarding CHC and declared that they had an interest, prior to termination, identified in writing by PR, and only if an agreement is entered into within three months of termination and transaction closes within six months of executing an agreement, plus ii) any other success fees earned during the period prior to our termination which remain unpaid (the “Success Fees Earned) [ 8 ] The Initial Order: (

a) required Cow Harbour to hire Mr. Ross as the CRA (Initial Order para.11); (

b) directed Cow Harbour to pay the CRA in accordance with the Agreement (Initial Order para. 31); and (

c) included the CRA’s fees and disbursements in the definition of an “Administrative Charge” (Initial Order para. 34), which was given a priority as described more fully in the Initial Order paras. 58 and 60. [ 9 ] At the hearing on April 7, 2010, Ms. Kelly Bourassa, counsel for one of Cow Harbour’s creditors, raised the question and contested the appointment of a CRA. Ms. Bourassa argued that it was inappropriate for this Court to appoint a CRA, when the terms of his engagement and, in particular, the contingent fees payable to him, were unknown. This Court invited Mr. McCabe, Cow Harbour’s

counsel, to advise it of the Agreement’s terms. Mr. McCabe consulted with Mr. Ross and then advised this Court that the terms of the Agreement were as follows: The CRA is in the courtroom, he advises me that it’s $2,000 per day, that’s for working days. And he has negotiated a $500,000 success fee. I would point out that the success fee kicks in only if it is a success, it can’t - - - it cannot, I submit, Sir, come out of the pocket of the creditors, and it cannot be something that can be detrimentally affected by the charge. (Transcript of Proceedings, April 7, 2010, p. 43, ll. 20-34) [ 10 ] Mr.

Ross’s evidence, in cross-examination on his affidavit, is that he told Mr. McCabe during a break in the April 7, 2010 proceedings, that his fees under the Agreement were: · a $2,000 a day fee; · a $190 day allowance for living expenses; · a completion fee of $500,000 if Cow Harbour had a plan of arrangement approved by the Court; and · a 1% success fee on any new financing or equity sale. (Cross-examination on Affidavit of Mr. Ross, October 28, 2010, p. 21, ll. 1-8) (the completion fee and success fee are referred to in these reasons as the “Completion Fee” and “Success Fee,” respectively). [ 11 ] Ms.

Bourassa further objected to the Success Fee and to the securing of the CRA’s remuneration under the Administrative Charge. Mr. McCabe responded by saying that the CCAA process would be sidetracked by delaying Mr. Ross’s appointment and that Mr. Ross was needed to add value to Cow Harbour immediately. This Court indicated that it was premature to discuss a contingent Success Fee (Transcript of Proceedings, April 7, 2010, p. 43, ll. 39-41; p. 44, ll. 1-37).

Further submissions were made on April 7, 2010, but none in reference to the CRA, and this Court granted the Initial Order under the terms that Cow Harbour sought. These terms included the appointment of Mr. Ross according to the terms of the Agreement and a provision that his fees and disbursements would be secured by the Administrative Charge. The Initial Order was entered on April 9, 2010. [ 12 ] The Agreement was the subject of portions of the following further hearings: (

a) On April 28, 2010, Cow Harbour sought an extension of the Initial Order’s stay of proceedings. Before this hearing, the court- appointed monitor under the Initial Order, Deloitte & Touche Inc. (the “Monitor”), filed its third report, which provided, among other things, information about the terms of the CRA’s retainer, indicating that if Cow Harbour’s restructuring were successful, the CRA would receive “considerable” contingent compensation, but if not, the CRA would be restricted to his daily work fee. The Agreement was not put before this Court. (

b) At the May 28, 2010 hearing, there was a shift from Cow Harbour’s attempt to restructure by refinancing or finding equity, to the CRA’s application to hire Ernst & Young Corporate Finance (Canada) Inc. (“E & Y”) to sell Cow Harbour or its assets. During this hearing, this Court was advised that the information it was given as to the terms of the Agreement was inaccurate. The Monitor’s seventh report raised the issue of whether the CRA would be entitled to a 1% Success Fee on an asset sale. Some of the creditors argued that this Court could not approve the 1% Success Fee, because Mr.

McCabe had not fully disclosed the terms of the Agreement to this Court before it granted the Initial Order. (

c) The May 28, 2010 hearing was continued on June 1, 2010, when this Court approved the hiring of E & Y to fulfill a sales mandate that the CRA outlined in his first report, including soliciting purchasers and finding sources within 30 days (the “May 28 Order”). The CRA’s counsel advised this Court that E & Y’s fees would be paid out of the Completion Fee or the Success Fee, if Mr.

Ross received them, or from Cow Harbour if he did not. [ 13 ] Pursuant to the May 28 Order, E & Y compiled a list of prospective buyers, including Aecon Group Inc. (“Aecon”), and sent out teasers to them. Aecon did not respond, so Mr. Ross contacted Mr. Scott Balfour, Aecon’s president, asking that Aecon consider this opportunity. In June, Aecon submitted a bid to purchase Cow Harbour’s assets for $165 million (“First Aecon Offer”). [ 14 ] At the July 6, 2010 hearing, the CRA sought this Court’s approval of the First Aecon Offer, which the CRA had accepted.

Certain creditors strenuously objected to this Court approving the First Aecon Offer, because the offer did not provide for an allocation of purchase price proceeds among the creditors. This Court did not approve the First Aecon Offer. [ 15 ] As a result of submissions by certain of Cow Harbour’s secured creditors, this Court suspended Mr. Ross from his role as CRA and appointed PWC as a “transaction facilitator,” assuming the CRA’s duties in connection with any further dealing with prospective purchasers, including Aecon, and negotiations with Cow Harbours’s creditors.

PWC worked with the prospective purchasers and the creditors to secure an offer to purchase Cow Harbour’s assets that was acceptable to the creditors. Aecon submitted a further offer (the “Second Aecon Offer”), which contained a purchase price of $180 million and an allocation of purchase price among the creditors. [ 16 ] On August 25, 2010, this Court approved the Second Aecon Offer. III. Issues [ 17 ] RBC and PWC oppose Mr.

Ross’s application, arguing that because this Court received misinformation about the terms of the Agreement, the Success Fee is not payable, and even if it is payable, it cannot be secured by the Administration Charge. Further, they argue that the Completion Fee is not payable under the clear language of the Agreement. [ 18 ] Thus, the issues before this Court are: 1. Is Mr. Ross entitled to the Completion Fee? 2. Is Mr. Ross entitled to the 1% Success Fee? 3. If Mr. Ross is entitled to the Success Fee, is it secured by the Administration Charge? 4.

Are E & Y’s fees are payable from the Completion Fee or the Success Fee, or must Cow Harbour pay them? IV. Analysis 1. Is Mr. Ross entitled to the Completion Fee? a. Mr. Ross’s submissions

[ 19 ] Mr. Ross submits that these issues are questions of

interpretation of a contract and not a question of redrawing or revising the Agreement. He argues that his substantial performance of the terms of the Agreement is sufficient for payment of the Completion Fee, citing Herron v. Hunting Chase Inc. , 2003 ABCA 219 , 330 A.R. 53 at paras. 19-23 . Conceding that this Court has not sanctioned a plan of arrangement, he argues that, in any event, the CCAA ’s policy objectives have been accomplished by an equivalent means, the sale of Cow Harbour’s assets. [ 20 ] Mr. Ross cites the following from Janis P. Sarra, Rescue!

The Companies’ Creditors Arrangement Act (Toronto: Thomson Carswell, 2007) at p. 9: The CCAA has a broad remedial purpose, permitting compromises or arrangements to be made between an insolvent company and its creditors. The courts have held that the CCAA allows the debtor company to avoid bankruptcy, to continue operating, and to find a business strategy that enables it to meet the demands of creditors. The CCAA is to be given a large and liberal

interpretation so as best to meet its policy objectives. [ 21 ] Dr. Sarra goes on to explain that those objectives include: (

a) avoiding where possible, the devastating social and economic consequences of the cessation of business operations; (

b) allowing a transition period for debtors in which they can adjust to difficult markets in unsettled times and emerge competitive and innovative, and (

c) balancing the costs of the process with the benefits of potential success and the protection of many interests. [ 22 ] The Supreme Court of Canada in Century Services Inc. v. Canada (Attorney General), 2010 SCC 60 , recently discussed the purpose of the CCAA : 15 As I will discuss at greater length below, the purpose of the CCAA – Canada's first reorganization statute – is to permit the debtor to continue to carry on business and, where possible, avoid the social and economic costs of liquidating its assets .

Proposals to creditors under the BIA serve the same remedial purpose, though this is achieved through a rules-based mechanism that offers less flexibility. Where reorganization is impossible, the BIA may be employed to provide an orderly mechanism for the distribution of a debtor's assets to satisfy creditor claims according to predetermined priority rules. [Emphasis added] [ 23 ] This Court, in its October 5, 2010 decision, noted: 4 It became clear that Cow Harbour was not going to be able to restructure its affairs through a refinancing, compromise or an equity restructuring.

Rather, this matter evolved into a liquidation. This Court approved a process that would permit Cow Harbour to restructure by way of a sale of its assets ... The intent behind this process was to effect a sale of Cow Harbour as a going concern. [ 24 ] Mr. Ross argues that the result of the CCAA proceedings was a sale to Aecon of a substantial portion of Cow Harbour’s assets and business, and that Aecon continues to operate the business as a going concern. He argues that although this was accomplished through a receivership, this was merely a mechanism that expedited the CCAA ’s intended outcome.

He notes that virtually all of Cow Harbour’s employees have continued employment, Syncrude Canada Ltd. (Cow Harbour’s primary customer) will have its contract with Cow Harbour completed, and Cow Harbour’s business continues as a viable business with additional capital resources and management strength from Aecon.

[25] Mr. Ross concludes that he has substantially performed his obligation to obtain Court sanction of a plan of arrangement andtherefore, he has earned the Completion Fee. b. PWC’s submissions [26] PWC argues that Mr.

Ross has not earned the Completion Fee according to the Agreement’s plain wording, since theCompletion Fee was only payable “at the completion of [the CRA’s] mandate.” The Agreement expressly defined this term as “3 monthsfrom the date a plan of arrangement is sanctioned by the Court.” Noting that this Court has not sanctioned any plan of arrangement, andthat in fact there was no “plan of arrangement” since restructuring was not accomplished, PWC concludes that the CRA has not earnedthe Completion Fee. c.

RBC’s submissions [27] RBC supports PWC’s submissions and its written submissions were limited to the question of the Success Fee. d. Conclusion [28] This Court has some sympathy for Mr. Ross’s functional analysis.

However, the Agreement expressly defined the conditionsunder which he would earn the Completion Fee: A completion fee of $500,000 (the “Completion Fee”) payable at the completion of this mandate. “Completion of this mandate” will bedefined as 3 months from the date a plan of arrangement is sanctioned by the Court. [29] The handwritten addition of this clause makes it clear that the Completion Fee would be payable 3 months after this Courtapproves a plan of arrangement. This Court agrees with the CRA that this is a question of interpreting the terms of the contract. TheSupreme Court of Canada in Eli Lilly & Co. v.

Novopharm Ltd.; Eli Lilly & Co. v. Apotex Inc., (SCC), [1998] 2S.C.R. 129 said: 54 ... The contractual intent of the parties is to be determined by reference to the words they used in drafting the document,possibly read in light of the surrounding circumstances which were prevalent at the time ... 55 Indeed, it is unnecessary to consider any extrinsic evidence at all when the document is clear and unambiguous on its face. In thewords of Lord Atkinson in Lampson v.

City of Quebec (1920), (UK JCPC), 54 D.L.R. 344 (P.C.), at p. 350: . . . the intention by which the deed is to be construed is that of the parties as revealed by the language they have chosen to use in thedeed itself ... [I]f the meaning of the deed, reading its words in their ordinary sense, be plain and unambiguous it is not permissiblefor the parties to it, while it stands unreformed, to come into a Court of justice and say: "Our intention was wholly different from thatwhich the language of our deed expresses. . . ." [Emphasis added] [30] The plain language of the Agreement sets out a specific condition that must be met before the CRA is entitled to be paid theCompletion Fee.

That specific condition has not been met. [31] Mr. Ross raised the question of whether substantial performance of the condition would be sufficient performance. In Herron,the Alberta Court of Appeal discussed the issue of substantial performance as follows:

19 In earlier days, contractual performance was an all or nothing proposition that could result in one party receiving a substantial windfall. For example, when a contractor carried out his obligations under the contract, but some of his work was defective, the principle of dependency absolved the other party from his obligation to pay anything, even though that party received something of value. To mitigate these harsh consequences, courts developed the notion of "substantial performance".

Under the current law, when a contract has been substantially though not perfectly completed, the guilty party is entitled to payment under the contract, less the cost of making good the deficiencies, unless the contract provides otherwise ... 21 The principles of dependency and substantial performance most often apply in situations in which there is a straight-forward contract for goods or services. [G.H.L.

Fridman in The Law of Contract in Canada , (4th ed.) (Scarborough: Carswell, 1999)] at 570 suggests that “a party is not relieved from payment for what has actually been done, unless: (1) he has obtained no benefit at all; (2) the work done is totally different from the work contracted to be done; or (3) the contractor abandoned the work before completion.” [Footnotes omitted] [ 32 ] The structure of the Agreement does not lend itself to an application of the notion of substantial performance. Either the condition is satisfied or it is not. Mr.

Ross did not perform the condition required for him to receive the Completion Fee, and Cow Harbour did not receive the benefits for which it contracted. As well, Mr. Ross was paid a daily work fee for the work he did perform, and therefore was not faced with the “all or nothing” proposition described by the courts. Because Cow Harbour has not been restructured and is, in fact, now bankrupt, the work Mr.

Ross performed is totally different from the work Cow Harbour contracted him to do, which was to result in Cow Harbour’s survival through a restructuring. [ 33 ] In this Court’s view, the doctrine of substantial performance is not relevant to the Completion Fee. Furthermore, from Cow Harbour’s perspective, the CRA did not complete, or even substantially complete, what he had contracted to do. [ 34 ] The Completion Fee was inserted for Cow Harbour’s benefit. Had Mr. Ross completed the mandate, he would earn the Completion Fee. Mr.

McCabe quite rightly stated that the Completion Fee would “not come out of the pockets of the creditors” and would only kick in if Mr. Ross completed his mandate. In this case, there was no completion; the condition for payment was not met. A plan of arrangement was never presented to this Court and, accordingly, this Court never sanctioned a plan of arrangement. Mr. Ross did not complete his mandate in accordance with the terms of the Agreement. Therefore, he has not earned the Completion Fee. 2. Is Mr. Ross entitled to the 1% Success Fee ? a. Mr. Ross’s submissions [ 35 ] Mr.

Ross argues that Aecon bought Cow Harbour’s assets and that RBC approved the sale. Thus, the requirements of the Success Fee contingency have been met. In particular, he notes that Mr. Koumarelas inserted the words “sourced by PR” and that if the language is ambiguous, it should be interpreted contra proferentem . Mr. Ross argues, however, that the words are not ambiguous. Although “sourced” does not have a dictionary definition, its meaning can easily be deduced. He argues that “sourced” is merely a conversion of the noun “source” to a verb. He provides some

definitions of “source” including: A person who ... is the chief or prime cause of a specified condition, The New Shorter Oxford English Dictionary , 1993, s.v. “source”; The originator or primary agent of

an act, circumstances or result ... , Black’s Law Dictionary , 9 th ed., s.v. “source”); “source” as a verb: obtain from a particular source; find out where something can be obtained, Oxford Dictionary Online (April 2010). [ 36 ] Based on these

definitions, Mr. Ross argues that “sourced by PR” may have two meanings:

(

a) he was the originator of or prime cause of or the person who obtained the sale of Cow Harbour’s assets to Aecon; or (

b) he was the person who supplied information as to or found out where to obtain Aecon as the purchaser of Cow Harbour’s assets. He further submits that even if all he did was suggest Aecon’s name as a potential buyer, this would be sufficient for him to meet the prerequisites for earning the Success Fee. [ 37 ] Mr. Ross argues that he did much more than this, however. He called Scott Balfour, Aecon’s president, after Aecon did not respond to the teaser, urging Mr. Balfour to consider the business opportunity that Cow Harbour offered.

As a result of this, and further discussions, Aecon submitted a proposal and later, a binding offer. Mr. Balfour, in his October 5, 2010 affidavit, stated that, “Aecon began to pursue the purchase of the business of Cow Harbour as a direct result of communications by Patrick Ross.” b. PWC’s submissions [ 38 ] PWC argues that Mr. Ross is not entitled to the Success Fee for three reasons: 1. the Agreement states that the Success Fee is payable for “financing and sales approved by RBC” and RBC did not approve the First Aecon Offer that Mr.

Ross presented; 2. the Success Fee described to this Court in the initial application was only in respect of new financing or equity sale, but not an asset sale, therefore only a new financing or equity sale would qualify; and 3. Aecon was contacted by the joint efforts of Mr. Ross, E & Y and the Monitor. Therefore, the sale of Cow Harbour’s assets were not “sourced by” Mr. Ross. c. RBC’s submissions [ 39 ] RBC argues that under the Agreement, the Success Fee would not be payable to Mr. Ross unless RBC approved the financing or sale, and RBC did not approve the First Aecon Offer.

It argues that the First Aecon Offer, which was the sale proposal that Mr. Ross sourced, was the $165 million offer that included conditions for the preparation of a plan of arrangement, approval of the plan of arrangement, a court order sanctioning and approving the plan of arrangement, and the requirement that the court order not be appealable.

Further, the First Aecon Offer did not provide for the allocation of the proceeds among creditors and did not provide any basis on which a creditor could calculate the sale price of the assets over which it held security. [ 40 ] By contrast, the Second Aecon Offer did not require a plan of arrangement or a non-appealable court order, was $15 million greater than the First Aecon Order, and was presented in conjunction with collateral agreements providing for the allocation of the sale proceeds among most secured creditors. [ 41 ] Not only did RBC not approve the First Aecon Offer, it applied to this Court for the appointment of a receiver, an application heard on the same date as the date Mr.

Ross applied for the order approving the First Aecon Offer. This Court refused Mr. Ross’s application and appointed PWC as the receiver of Cow Harbour. PWC then entered into negotiations with Aecon and most of Cow Harbour’s creditors and was able to secure an offer that was acceptable to RBC and most of the creditors. [ 42 ] RBC further argues that just because this Court approved an offer that Aecon made does not mean that Mr. Ross earned the Success Fee. It is the sale that RBC had to approve, not merely the identity of the offeror.

d. Conclusion i. What does “sourced by PR” mean? [ 43 ] RBC and PWC (collectively, the “Respondents”) view the Agreement para. 4.2 narrowly by suggesting that since RBC did not approve the First Aecon Offer, the contingency for the payment was not met. [ 44 ] Neither of the Respondents dealt specifically during argument with what was meant by the term “sourced by” Mr. Ross. PWC suggests that the Second Aecon Offer was not “sourced by” Mr. Ross, but was the result of joint efforts of PWC, E & Y and Mr. Ross. This argument does not take the Respondents far. There is no doubt, on the facts, that Mr.

Ross was responsible for bringing Aecon to the table, despite its initial lack of interest in the sale. On a plain reading of the clause, Mr. Ross earned the Success Fee if he was a source of the sale. There is nothing to indicate that it would only be payable if he was the sole source of the sale. In fact, it is arguable that had Mr. Ross sourced some financing and some portion of a sale, he would have been entitled to 1% of whatever he had sourced, even if further aspects of the sale or financing were sourced by someone else. [ 45 ] PWC provided the template for the Agreement and Mr.

Koumarelas of Cow Harbour “filled in the blanks.” If this Court is incorrect in its

interpretation of the Agreement, to the extent that the Agreement is vague, any vagueness would favour Mr. Ross. [ 46 ] Mr. Ross found and acquired a source to buy Cow Harbour’s assets. “Source” even its more traditional

definitions, refers to the origin, or primary originator, of

an act, circumstance, or result. Even if the Monitor, E & Y, and PWC were part of a joint effort to suggest potential buyers and eventually negotiated the Second Aecon Offer, Aecon had expressed no interest in making an offer until it was actively pursued by Mr. Ross. Aecon was “sourced by” Mr. Ross. ii. Did RBC approve the sale “sourced by” Mr. Ross [ 47 ] RBC approved the Second Aecon Offer, and not the First Aecon Offer. For the reasons given above, this Court finds that the Second Aecon Offer was “sourced by” Mr. Ross. Had the Agreement said that RBC must approve a sale “negotiated by” or “finalized by” Mr.

Ross, there might be some merit to distinguishing between the First Aecon Offer and the Second Aecon Offer. However, the Agreement refers only to “sourced by” and this Court finds that Mr.

Ross sourced the sale of Cow Harbour’s assets to Aecon, even if there were additional players involved in identifying the potential buyer and negotiating the eventual sale. [ 48 ] From a public policy perspective, it would be highly offensive to allow parties to retain an individual to accomplish a task and then once the task is partially performed, allow the parties to prevent the individual from fully performing its task and yet be able to take the fruits of the individual’s efforts without the agreed-upon, or some, remuneration.

Such an approach would send a chill through the commercial world and, in particular, the insolvency world. This Court should not countenance such an approach. iii. What is the effect of the Court’s lack of accurate knowledge of the actual terms of the Agreement? [ 49 ] PWC argues that the Agreement was not before this Court when it granted the Initial Order, and that this Court granted the Initial Order based on misinformation. It further argues that the only terms of the Agreement that this Court can enforce are those that this Court approved. Because Mr.

Ross did not clarify the terms of the Agreement at the hearing, he is not entitled to the Success Fee. He is only entitled to what was known by the Court at the time of the hearing and therefore contemplated by the Initial Order. [ 50 ] This Court does not accept this argument for several reasons. First, the Initial Order expressly refers to the Agreement and orders that the CRA be paid according to the Agreement’s terms. This Court was aware that a portion of Mr. Ross’s remuneration was contingent, but said that it was premature to address the details of Mr. Ross’s remuneration.

As importantly, RBC had made it clear at the hearing that resulted in the Initial Order, that its cooperation in Cow Harbour’s CCAA proceedings was dependent on the appointment

of a CRA. RBC was working closely with PWC throughout Cow Harbour’s CCAA proceedings and PWC provided the template for the Agreement. Because of the short time frame within which this Court had to make a determination concerning its granting of the Initial Order, and RBC’s position concerning the appointment of a CRA, this Court had to appoint the CRA and leave the discussion of its remuneration to a later date or not appoint a CRA and thereby lose RBC’s support for the proceedings.

It chose the former and the discussion concerning the CRA’s remuneration did not commence in earnest until after this Court approved the Second Aecon Offer. [ 51 ] Second, it appears that the Respondents are conducting a collateral attack on the Initial Order. The Initial Order was entered and the Respondents did not appeal it. Thus, the Initial Order stands on its terms. As the Alberta Court of Appeal noted in Alberta (Child, Youth and Family Enhancement, Director) v.

B.M. , 2009 ABCA 258 , 460 A.R. 188: 10 It is usually impossible to open up, reconsider, or vary a decision after the formal judgment has been signed and entered. In that case, the judge simply has no jurisdiction to do so. [ 52 ] The relevant portions of the Initial Order read: 11 The Applicant is directed to immediately hire Patrick Ross as the Chief Restructuring Advisor (the “Advisor”). 31 ...

The Advisor shall be paid in accordance with the agreement between the Applicant and the Advisor as part of the costs of these proceedings... [ 53 ] Third, this Court granted the Order Amending the Initial Order on July 6, 2010 (entered on July 8, 2010). The amending order does not amend the Initial Order’s terms dealing with the CRA’s remuneration. By July 2010, all parties to these proceedings knew the terms of the Agreement, having discussed them at the May 28, 2010 / June 1, 2010 application, and the actual Agreement became part of the record on June 4, 2010. iv.

What is the Quantum of the Success Fee? [ 54 ] For the foregoing reasons, Mr. Ross is entitled to a Success Fee. The issue then becomes the quantum of the Success Fee. It is clear from these proceedings that other parties exerted efforts to obtain the Second Aecon Offer. Certainly E & Y was partially involved, as well as PWC in its role as transaction facilitator. [ 55 ] From Cow Harbour’s perspective, these proceedings were not a “success.” However, from the perspective of most of the other creditors, it was. Mr.

Ross did not accomplish what he was originally retained to accomplish, but the parties ended up with a CCAA -like result, which included satisfying some of the CCAA ’s broader policy objectives. We can speculate that this might have occurred in any event, had Mr. Ross not pursued Aecon as a potential purchaser. But that is not what is before this Court. What is before it is a purchase of the assets of Cow Harbour and a continuation of its business by a corporation, Aecon, that Mr. Ross sourced and pursued. [ 56 ] One-percent of an amount in the hundreds of millions of dollars is a large sum.

The size of the Success Fee does not, however, determine whether Mr. Ross is entitled to it. The calculation of the amount was not challenged in earnest until later in the proceedings, once it became clear that Mr. Ross might be entitled to something nearing that large sum. [ 57 ] Mr. Ross presented the First Aecon Offer of $165 million. That is the starting point for the calculation of the Success Fee. From that, we must take off an amount of effort, monetarily and otherwise, that others expended which resulted in the Second Aecon Offer. In other words, Mr.

Ross is entitled to a Success Fee based on the terms of the Agreement and quantum meruit. Had this Court given Mr. Ross, with the support of the creditors, the opportunity to finalize the transaction with Aecon, and had he finalized the transaction, he would have been entitled to the full Success Fee regardless of its amount. Quantum does not determine entitlement; the practical result of the application of the Agreement’s terms determines entitlement. [ 58 ] Using this formula, the parties are directed to attempt to negotiate Mr. Ross’s Success Fee. If they are unable to negotiate an

amount satisfactory to them, the may come back before this Court to argue this matter. 3. If Mr.

Ross is entitled to the Success Fee, is it secured by the Administration Charge? [59] Initial Order para. 34 describes the Administration Charge as follows: 34 The Applicant’s Counsel, the Monitor, counsel to the Monitor, and the Advisor, as security for the professional fees anddisbursements incurred both before and after the granting of this Order, shall be entitled to the benefits of and are hereby granted acharge (the “Administration Charge”) on the Property, which charge shall not exceed an aggregate amount of $2,000,000.00 as securityfor their professional fees and disbursements incurred of the Monitor, such counsel and the Advisor, both before and after the making ofthis order in respect of these proceedings.

The Administration Charge shall have the priority set out in paragraphs 58 and 60 hereof. a. Mr. Ross’s Submissions [60] Mr. Ross argues that a broad and liberal

interpretation of the Initial Order para. 34 indicates that the Success Fee is coveredby the Administration Charge. He notes that Mossip J. of the Ontario Superior Court of Justice in Royal Bank of Canada v. 1542563Ontario Inc., (ON SC), [2006] O.J. No. 3811 at para. 4, 152 A.C.W.S. (3d) 150 (Ont. Sup. Ct. Just.) said that courtsshould take this type of approach when interpreting court orders. He concluded: 4 In other words, a defendant cannot hide behind a restrictive and literal

interpretation to circumvent the order and make a mockeryof it and of the administration of justice ... b. PWC’s Submissions [61] PWC argues, for many of the same reasons it argued against payment of the Success Fee, that the Success Fee is not securedby the Administration Charge. It submits that because the Court was misinformed, securing the Success Fee under the AdministrationCharge would be contrary to the intent of the Initial Order.

It notes that Cow Harbour has not been restructured, there was no plan ofarrangement and the Success Fee will come out of monies that would otherwise be payable to the creditors. [62] PWC further argues that the Administration Charge could not possibly secure the Success Fee under the Initial Order becauseat the time of the Initial Order the Court knew nothing about the terms of the Agreement. Moreover, PWC argues, to find that theSuccess Fee is secured under the Administration Charge would require the Court to find that: (

a) the Success Fee is owing, even though the only offer brought forward by Mr. Ross was unacceptable to RBC and the othercreditors; (

b) the Success Fee ought to be calculated on the basis of the Second Aecon Offer, even though the Second Aecon Offer was theresult of PWC’s efforts, and Mr. Ross played no role “whatsoever” in this; (

c) the Success Fee is owing even though Cow Harbour was not successfully restructured, and all of Cow Harbour’s assets havebeen, or will be, liquidated and it is no longer carrying on business; and (

d) the Court inadvertently secured the Success Fee under the Administration Charge without knowing anything about the SuccessFee when it granted the Initial Order.

c. Conclusion [ 63 ] The only question is whether the contingent fees, in particular the Success Fee, are part of the Administration Charge. As this Court has also already determined, the Agreement provided that the Success Fee was contingent on approval by RBC of a sale “sourced by” Mr. Ross. Thus, Mr. Ross was involved in the Second Aecon Offer. [ 64 ] PWC suggests that securing the Success Fee under the Administration Charge is contrary to the intent of the Initial Order.

With respect, the ordinary meaning of the words used in the Initial Order are clear; the CRA (Advisor) is entitled to have its fees and disbursements secured by the Administration Charge. Even if there is some vagueness in the meaning of those words, 1542563 Ontario indicates that a broad and liberal

interpretation should be applied to achieve the Court’s objectives. This Court finds that the purpose of an Administration Charge is to ensure the efficacy of the CCAA process by assuring professionals that they will be paid. Otherwise, those professionals will be reluctant to accept assignments or contracts with corporations in financial difficulty. A broad and liberal

interpretation of the Initial Order is that the fees and disbursements payable to Mr. Ross and secured by the Administration Charge are those contained in the Agreement, including the Success Fee. [ 65 ] The Success Fee to which Mr. Ross is entitled is secured by the Administration Charge. 4. Are E & Y’s fees payable from the Completion Fee, the Success Fee, or must Cow Harbour pay them? [ 66 ] E & Y’s fees are payable from the Success Fee under the terms of this Court’s order of June 1, 2010, which provided: 2.

The engagement of Ernst & Young pursuant to the terms set out in the First Report of the Chief Restructuring Advisor (“the Advisor”) and the engagement letter of Ernst & Young dated May 26, 2010 is hereby approved as provided therein. [ 67 ] The First Report of the CRA provided at para. 8: (iii) The CRA offered to cover the cost of E & Y from his “success fee” if such was earned and paid to the CRA. The “success fee” is described in paragraph 8 of the Monitor’s Third Report.

If no fee is earned and paid to the CRA, the cost associated with E& Y would be borne by the Company. [ 68 ] Thus, E & Y’s fees are payable by Mr. Ross from the Success Fee, as finally negotiated. V. Conclusion [ 69 ] Mr. Ross’s application for payment of the Completion Fee is denied, while his application for payment of the Success Fee is granted. The Success Fee to which Mr. Ross is entitled will be negotiated among the parties or determined by this Court. The Success Fee will be secured by the Administration Charge. E & Y’s fees will be payable by Mr. Ross from the Success Fee.

Heard on the 11 th day of January, 2010.

Dated at the City of Edmonton, Alberta this 1 st day of March, 2011. K.D. Yamauchi J.C.Q.B.A. Appearances: Howard Gorman and Randall Van de Mosselaer for PWC Macleod Dixon LLP Daniel Carroll, Q.C. for Patrick Felix Ross Field LLP Ray Rutman for RBC Fraser Milner Casgrain LLP