Re: SemCanada Crude Company (Celtic Exploration Ltd. #2), 2012 ABQB 489

Court of Queen ’ s Bench of Alberta Citation: Re: SemCanada Crude Company (Celtic Exploration Ltd. #2), 2012 ABQB 489 Date: 20120731 Docket: 0801 08510 Registry: Calgary In the Matter of the Companies ’ Creditors Arrangement Act , R.S.C. 1985 c. C-36, as amended and In the Matter of a Plan of Compromise or Arrangement of SemCanada Crude Company, SemCAMS ULC, SemCanada Energy Company, A.E. Sharp Ltd., CEG Energy Options Inc. and 1380331 Alberta ULC (Re: Celtic Exploration Ltd.#2) _______________________________________________________ Reasons for Decision of the Honourable Madam Justice B.E.

Romaine _______________________________________________________ Introduction [ 1 ] Celtic Exploration Ltd. applies for relief arising from the suspension of an inlet gas purchase agreement (the “IGPA”) that it had entered into with SemCAMS ULC. The IGPA was suspended in July, 2008 in connection with SemCAMS’ filing for protection under the Companies ’ Creditors Arrangement Act , R.S.C. 1985, c. C-36, as amended, and was the subject of reasons for decision dated August 27, 2010, cited as 2010 ABQB 531 (the “IGPA decision”).

Leave to appeal the IGPA decision was denied on December 17, 2010. [ 2 ] Celtic seeks an order (

i) permitting it to file a late amended claim for damages arising from the suspension of the IGPA for the period from July 22, 2008 (the date of the Initial Order in the CCAA proceedings) to and including November 30, 2009 when the Plan of Arrangement (the “Plan”) came into effect and SemCAMS emerged from the protection of the CCAA (the “CCAA Period”), and (ii) declaring that its claims for suspension damages for the periods from December 1, 2009 to and including September 30, 2009 (the “Post Plan Implementation Period”) and from October 1, 2010 onwards (the “Post October 2010 Period”) are not Affected Claims compromised, barred and released by the Plan or otherwise. [ 3 ] Alternatively, in the event that the Court finds that the suspension damages claims for the Post Plan Implementation Period and the Post October 2010 Period are subject to the claims process established under the CCAA proceedings (the “Claims Process”) and are therefore Affected Claims as defined in the Plan, Celtic seeks an order permitting it to file a late amended claim for those damages.

[ 4 ] SemCAMS objects to Celtic’s application and, in response, has brought an application pursuant to which it seeks an order declaring that (

i) Celtic’s proposed damages claim, including its claim for suspension damages arising from the CCAA Period, the Post Plan Implementation Period and the Post October 2010 Period, is subject to the Claims Process, (ii) the proposed damages claim is an Affected Claim within the meaning of the Plan that was comprised, released and barred by the Plan and the order approving and sanctioning the Plan dated October 27, 2009 (the “Sanction Order”), and (iii) Celtic is precluded from filing a late or amended claim.

SemCAMS also seeks an order declaring the Statement of Claim filed by Celtic with respect to the proposed damages claim to be a breach of the Plan and the Sanction Order, and directing that it be struck out. [ 5 ] The Bank of America (the “BA”) as Agent on behalf of the Secured Lenders of SemCAMS (as defined in the Plan) supports SemCAMS’ application in so far that it submits that, if the proposed damages claim by Celtic is an Affected Claim, it should be declared to be barred, extinguished and released by the Plan and Sanction Order and Celtic should not be allowed to file any late or amended claim.

Issues [ 6 ] The main issues arising from these applications are as follows:

a) Are Celtic’s claims for suspension damages for the Post Plan Implementation Period and/or the Post October 2010 Period “Affected Claims” under the CCAA proceedings, and therefore subject to the Claims Process?

b) Should Celtic be allowed to file a late amended claim for suspension damages during the CCAA Period? If Celtic’s claims for suspension damages for the Post Plan Implementation Period and/or the Post October 2010 Period are “Affected Claims”, should Celtic be allowed to file a late claim for these damages?

c) Should Celtic’s Statement of Claim be struck out? Analysis

a) Are Celtic ’s claims for suspension damages for the Post Plan Implementation Period and/or the Post October 2010 Period “Affected Claims ” under the CCAA proceedings and therefore subject to the Claims Process? [ 7 ] As part of a Settlement Agreement dated March 18, 2011 and approved by the Court, Celtic agreed that, if its claim for suspension damages for the CCAA Period was found not to be barred by the Claims Process Order, it would not take the position that this portion of its damages claim would be other than an unsecured claim compromised by the Plan.

Thus, the only issue with respect to any damages that Celtic submits it may have a claim to during the CCAA Period is whether Celtic should be allowed to amend its previously filed Proof of Claim to include damages arising from the suspension of the IGPA during this period. This issue will be discussed later in this decision. [ 8 ] However, Celtic submits that its claims for damages arising from the suspension of the IGPA for the Post Plan Implementation Period and/or the Post October 2010 Period are not subject to compromise under the Plan.

Relevant Facts [ 9 ] To understand the submissions that have been made on this issue, it is necessary to refer to some of the long and complicated history of this claim and the prior litigation between the parties. I described in paragraphs 3 through 53 of the IGPA decision the nature of the contractual relationship between SemCAMS and Celtic and what occurred between July 22, 2008, the date of the Initial Order under the CCAA, and February, 2010 when the application that resulted in that decision was heard, and those paragraphs are

incorporated into this decision for clarity. [ 10 ] I found in the IGPA decision that an agreement had been reached between SemCAMS and Celtic to suspend the IGPA because of SemCAMS’ inability to market sales gas and related product as a result of the CCAA proceedings: para. 103. I found that parties to a contract may by mutual agreement suspend a contract even if the contract itself does not specifically provide for suspension: para. 110.

Specifically, I found that Celtic purported to suspend the IGPA, given SemCAMS’ anticipatory breach of its obligations to market the sales gas and products, and that SemCAMS agreed to the suspension. [ 11 ] Celtic submits that I made a finding of fact in the IGPA decision that Celtic had exercised a right under the IGPA to suspend delivery of natural gas, and identifies that right as arising from

Section 10.2 of the Gas EDI Base Contract for Sale and Purchase of Natural Gas that forms part of the IGPA. This is an out-of-context

interpretation of paragraph 111 of the IGPA decision.

Section 10.2 of the Gas EDI Base Contract was not in issue before me at the time of the IGPA decision, and I made no finding that the mutual agreement to suspend the contract arose from any right specifically referred to in the IGPA. At any rate, as SemCAMS notes, the precondition of notice of the intention to exercise

Section 10.2 required by the contract was never given by Celtic to SemCAMS at the time of suspension. There was only an anticipatory, and not an actual, breach of the IGPA at the point of suspension. In its submissions on this point, Celtic ignores the fact that Section10.2 of the Gas EDI Base Contract only allows a short-term suspension, and not the lengthy suspension that I found the parties had agreed to.

This provision has no connection or application to the finding of suspension I made in the IGPA decision. [ 12 ] Celtic submits that it had a unilateral right to reinstate performance under the IGPA effective October 1, 2010 for various reasons.

SemCAMS disagrees, but submits that whether or not Celtic had that unilateral right makes no difference to the issue of whether the damages claims for either the Post Plan Implementation Period or the Post October 2010 Period are subject to the CCAA proceedings and should have been part of the Claims Process, or whether these claims were released and discharged by the Plan and the Plan Sanction Order.

I agree that, given the decisions I have reached on these issues, it is not necessary that I make any findings with respect to the merits of the reinstatement issue, other than the comments I have made with respect to the applicability of

Section 10.2 of the Gas EDI Base Contract and comments made in the IGPA decision. [ 13 ] Prior to the Claims Bar Date of December 1, 2008 set out in the Claims Process Order, Celtic filed a Proof of Claim against SemCAMS that did not include a contingent or other claim for suspension damages arising from the IGPA. [ 14 ] SemCAMS held a meeting of its creditors to consider the Plan on October 8, 2009. It received the requisite creditor support and applied for, and was granted, the Sanction Order on October 26, 2009. Celtic voted on the Plan and was served with a copy of the Sanction Order.

The Plan Implementation Date was November 30, 2009. [ 15 ] After the application that resulted in the IGPA decision was heard, but before a decision was released, Celtic purchased an interest in the KA Plant and became a party to the CO & O Agreement with SemCAMS and the other joint owners of the KA Plant. In July, 2010, correspondence was exchanged between SemCAMS and Celtic on the issue of whether gas delivered by Celtic to the KA Plant would thenceforth be processed pursuant to the CO & O Agreement or the IGPA.

Celtic advised SemCAMS on September 7, 2010 that it proposed to reinstate deliveries under the IGPA effective October 1, 2010 for all of its gas other than gas that was dedicated to the KA Plant by reason of the CO & O Agreement. On September 30, 2010, SemCAMS advised Celtic that Celtic’s change in status to a joint owner of the KA Plant and a counterparty to the CO & O Agreement made it impossible to reinstate the IGPA unless it was first amended to address certain issues, including exclusion of Plant Area Gas.

Further correspondence followed. [ 16 ] On October 15, 2010, SemCAMS set out the terms of an amended IGPA that at the time SemCAMS was willing to execute. Celtic did not accept these offered terms. [ 17 ] On February 14, 2011, Celtic advised SemCAMS that it took the position that it had unilaterally reinstated performance of the IGPA effective October 1, 2010, and that SemCAMS was therefore in breach of the agreement.

The following day, it filed a Statement of Claim alleging that the granting of the Initial Order under the CCAA Proceedings was an event of default under the IGPA, and that Celtic, as the non-defaulting party, suspended performance of all transactions under the IGPA with the agreement of SemCAMS. Celtic claims damages arising from this suspension. [ 18 ] SemCAMS advised Celtic on March 17, 2011 that, in its opinion, the IGPA could not be reinstated unilaterally, and restated

[ 18 ] SemCAMS advised Celtic on March 17, 2011 that, in its opinion, the IGPA could not be reinstated unilaterally, and restated its pervious position.

SemCAMS also advised Celtic that, if it was found that Celtic could unilaterally reinstate the IGPA effective October 1, 2010 (which SemCAMS denied was the case), SemCAMS gave notice of termination of the IGPA effective March 31, 2013. [ 19 ] Pursuant to the Settlement Agreement, SemCAMS and Celtic jointly instructed the Monitor to hold the amount of $900,000 of surplus funds in the SemCAMS’ Ordinary Creditors Pool under the Plan as a reserve for the damages claims.

The Settlement Agreement also provides that in the event the damages claims, or any portion of such claims, are determined to be Affected Claims compromised by the Plan and that such Affected Claims are not determined to be barred by the Claims Process Order, the Plan or the Plan Sanction Order, Celtic will only be entitled to a distribution from the damages reserve of the lesser of 4% of such proven damages claim and the amount in the damages reserve, if any. The Monitor is currently holding the damages reserve.

Analysis [ 20 ] On the issue of whether the damages claims for the Post Plan Implementation Period and the Post October 2010 Period are compromised or otherwise affected by the CCAA proceedings, Celtic references

Section 19 of the CCAA, the Plan itself, the Plan Sanction Order and what it refers to as the purpose of the CCAA. [ 21 ] The relevant portions of Section 19(1) of the CCAA are as follows: 19.

(1) Subject to subsection (2), the only claims that may be dealt with by a compromise or arrangement in respect of a debtor company are (

a) claims that relate to debts or liabilities, present or future, to which the company is subject on the earlier of (

i) the day on which proceedings commenced under this Act, and . . . (

b) claims that relate to debts or liabilities, present or future, to which the company may become subject before the compromise or arrangement is sanctioned by reason of any obligation incurred by the company before the earlier of the days referred to in subparagraphs (a)(i) . . . [emphasis added] Section 19(2) does not apply in this case. [ 22 ] As noted by SemCAMS, Section 19(1) was not proclaimed in force until September 18, 2009, which was after the Initial Order was granted, but prior to the Sanction Order. It may thus be argued that Section 19(1) does not apply to this issue, but I am satisfied that it would not make a difference to Celtic’s application if former

Section 12 was the applicable statutory provision, and I have conducted the analysis under

Section 19. [ 23 ] Celtic submits that Section 19(1) permits the compromise of debts and liabilities in respect of two time periods: the period up to commencement of proceedings under the CCAA and claims that relate to debts or liabilities to which the debtor may become subject before the Sanction Order in respect of obligations incurred by the debtor before the commencement of proceedings. [ 24 ] This

interpretation of Section 19(1) ignores the words “that relate to liabilities, present or future” that modify the term “claims”. It is clear that SemCAMS was subject to the possibility of liability under the IGPA before the CCAA proceedings commenced. The claims for suspension damages are claims that relate to the IGPA and to the suspension of the IGPA that occurred as a result of the CCAA proceedings. Section 19(1) does not limit the claims that may be dealt with by a Plan under the CCAA to presently existing liabilities. This is made clear by the addition of the word “future” in both Section 19(1)(

a) and Section 19(1)(b).

[25] The claims relating to the suspension of the IGPA during the CCAA Period and beyond are exactly the kind of anticipatory,future claims that are referenced in Section 19(1). A “claim” for the purpose of the CCAA includes any indebtedness, liability orobligation that would be provable under the Bankruptcy and Insolvency Act, R.S.C. 1985, c.

B-3, as amended: Section 2(1) of the CCAA.Section 121(1) of the BIA defines “provable claims” as being: . . . (a)ll debts and liabilities, present and future, to which the bankrupt is subject on the day on which the bankrupt becomes bankrupt, orto which the bankrupt may become subject before the bankrupt’s discharge by reasons of any obligation incurred before the day onwhich the bankrupt becomes bankrupt . . . [26] Section 121(2) of the BIA makes it clear that this includes contingent or unliquidated claims, with the procedure forevaluating contingent or unliquidated claims described in

Section 135. Section 20(1)(

a) of the CCAA describes how the amount of anunsecured claim that is a provable claim under the BIA may be determined by a court on

summary application if it is not admitted by thedebtor company. [27] It may well have been difficult to value a contingent claim for future suspension damages that was filed before the Claims BarDate, but that is often the nature of a contingent or future claim. In particular, there may have been issues relating to when the IGPAcould reasonably be reinstated. As noted by SemCAMS, contingent claims are routinely filed in CCAA proceedings and in proceedingsunder the BIA. [28] In Abacus Cities Ltd. (Trustee of) v.

AMIC Mortgage Investment Corp, 1992 ABCA 57 , [1992] 4 WWR 309(AltaCA), a fact scenario that occurred after the date of bankruptcy based on a pre-bankruptcy contract was held to give rise to a claimprovable in the bankruptcy.

The issue was whether mortgagees could claim in the bankruptcy for costs incurred after the date ofbankruptcy, where the claims for costs were based on indemnities by the bankrupt found in pre-bankruptcy mortgages. [29] The trustee in Abacus Cities submitted that future claims had to be limited to those that could be valued before they arise, andthat a future liability that could not be calculated in advance could not be a provable claim. The Court commented as follows at page 318: I agree that this rule can limit future claims that otherwise fall within the scope of entitlement.

In fact, some may not be provable whenthe trustee calls for proof . . . One must take care not to overstate the rule. It does not eliminate contingent or future claims. It merely subjects them to a valuationprocess: . . . [30] SemCAMS concedes that Celtic would not have known by the Claims Bar Date if and when the IGPA would be reinstated,but argues that Celtic could have claimed damages on the assumption that the IGPA would not be reinstated. There could have been asummary determination of the claim or a reservation for the full amount of claimed damages.

Or, the Court may have determined thatthe contingent claim was too remote or speculative to be properly considered a contingent claim and thus not a provable claim: ReConfederation Treasury Services Ltd. 1997 CarswellOnt 31 43 CBR (3d) 4, (sub nom. Confederation Treasury Services Ltd. (Bankrupt),Re) (ON CA), 96 OAC 75 at para. 4. [31] Celtic submits that, if this was an ordinary action alleging breach of contract, it could not claim continuing damages for anyfuture period of time in the absence of a repudiation of the contract.

It therefore submits that it would not have a claim for the allegedsuspension damages after the Plan Implementation Date that could be subject to compromise. While it may be true that a creditor cannotsue for contingent damages in the ordinary course, the legislative framework of the CCAA and the BIA allows debtor companies to dealwith contingent claims in insolvency proceedings.

There was no reason why Celtic could not have filed such a claim. [32] In a similar argument, Celtic submits that, in order for its claim for suspension damages to be a claim that arises prior to thePlan Implementation Date, it must be an amount of damages that Celtic would have been entitled to recover within the CCAA Period.Again, this ignores the fact that the provisions of the CCAA and the BIA allow the debtor to deal with future and contingent claimswithin the ambit of the CCAA proceedings.

[ 33 ] Celtic also submits that its claim for suspension damages does not fall within the type of claim that can be compromised as set out in Section 19(1) because it is not a “debt”. That is true, but a provable claim may be a “debt” or a “liability”.

As noted by the British Columbia Court of Appeal in Re West Bay SonShip Yachts Ltd. , 2009 Carswell BC 139, 2009 BCCA 31 , [2009] BCWLD 1230, 71 CCEL (3d) 45, 49 CBR (5 th ) 159, [2009] 4 WWR 415, 89 BCLR (4 th ) 82, 265 BCAC 203, 446 WAC 203, 306 DLR (4 th ) 294 at para. 22 , “liability” is a broad term that is most often used to describe an unliquidated or unspecified legal obligation, and “debt” is a narrower term that means a specific kind of obligation for a liquidated or certain sum.

The definition of “claim” under the CCAA includes both. [ 34 ] Celtic relies in its submissions on the fact that the IGPA was not repudiated. Section 19(1) does not restrict the type of claims that may be compromised under CCAA proceedings to claims arising solely from repudiated contracts. Section 19(1)(

b) anticipates that claims may arise by virtue of the CCAA proceedings themselves, and allows the debtor company to put forward for approval by its creditors an arrangement that would compromise those claims. The claim for damages for suspension of the IGPA is that type of claim.

It arises from and relates to the suspension of the IGPA that occurred by reason of the CCAA filing, and the inability of SemCAMS as a result of such filing to continue to market the Celtic gas. [ 35 ] Celtic itself concedes that there is no basis in the IGPA itself to distinguish its right to damages before the Plan Implementation Date of November 30, 2009 and after.

The obligation to pay damages arising from the suspension is not a a new breach of the IGPA that occurred after the Plan Implementation Date, but a claim of continuing damages that arise from the suspension of the IGPA, whether or not Celtic has the right to unilaterally reinstate the agreement. [ 36 ] I find that the claim for suspension damages as it relates to the Post Plan Implementation Period is a claim that may be dealt with by a compromise under Section 19(1) of the CCAA. [ 37 ] Celtic seeks to distinguish its claim for suspension damages for the Post October 2010 Period onward on the basis that SemCAMS’ alleged refusal to accept deliveries under the IGPA after Celtic unilaterally purported to reinstate the agreement was a “distinct” breach of the IGPA, and not the same as either the failure to make payments under the IGPA which precipitated the suspension, or the suspension itself which gives rise to an obligation to pay damages as long as it remains in effect. [ 38 ] I cannot agree that this alleged refusal to reinstate the IGPA was a fresh breach, even if Celtic was entitled to act unilaterally.

The issue of reinstatement of the IGPA and whether it could be accomplished unilaterally or required the consent of both parties is an issue that arises from the suspension, and is not a new issue under the IGPA. Celtic seeks to distinguish the IGPA as an executory contract, the non-performance of which can give rise to new breaches, but it is not the non-performance of a properly reinstated executory contract that is at issue here, but when and how the IGPA is to be reinstated.

The damages claimed for the alleged breach in the Post October 2010 Period are the same type of damages claimed for the preceding periods. It is not necessary for the analysis of the issue before me that I decide whether Celtic was entitled to unilaterally reinstate the IGPA, and I do not do so.

However, I find that the claim for suspension damages in the Post October 2010 Period also is a “claim” that may be dealt with by a compromise under Section 19(1) as this claim does not arise from a fresh breach. [ 39 ] I turn next to the portions of the Plan that may be relevant to the issue of whether the damages claim for the Post Plan Implementation Period and the Post October 2010 Period were compromised;

Section 8.1 of the Plan states as follows: On the Plan Implementation Date . . . the Company . . .shall be released and discharged from any and all demands, claims, actions, causes of action, counterclaims, suits, debts, sums of money, accounts, covenants, damages . . .on account of any liability, obligation, demand or cause of action of whatever nature which any Creditor or other Person may be entitled to assert . . .whether known or unknown, matured or unmatured, foreseen or unforeseen, existing or hereafter arising, based in whole or in part on any act or omission, transaction, duty, responsibility, indebtedness, liability, obligation, dealing or other occurrence existing or taking place on or prior to the Plan Implementation Date in any way relating to, arising out of or in connect with the Claims, the business and affairs of the Company whenever or however conducted, . . the Plan, the CCAA Proceedings, any Claim that has been barred or extinguished by the Claims Process Order and all Claims arising out of such actions or omissions shall be forever waived and released, all to the full extent permitted by Law; . . . [ 40 ] As I have found that the claim for suspension damages during the Post Implementation Period and the Post October 2010 Period are claims that may be subject to compromise under Section 19(1) of the CCAA, it is clear that they are caught by

Section 8.1 of

the Plan. Paragraphs 28 and 45 of the Sanction Order give effect to

Section 8.1 as follows: 28. Pursuant to and in accordance with the Plan, any and all Affected Claims of any nature against the Company, . . . shall be forever compromised, discharged and released, and the ability of any Person to proceed against the Company in respect of or relating to any Affected Claims shall be forever discharged and restrained, and all proceedings with respect to, in connection with or relating to such Affected Claims are hereby permanently stayed, subject only to the right of Affected Creditors to receive the distributions pursuant to the Plan and this Plan Sanction Order in respect of their Affected Claims. . . . 45. Pursuant to and in accordance with

Section 8.1 of the Plan, on the Plan Implementation Date the Released Parties shall be released and discharged from any and all demands, claims, actions, causes of action . . .on account of any liability, obligation, demand or cause of action of whatever nature which any Creditor or other Person may be entitled to assert. . .whether known or unknown, matured or unmatured, foreseen or unforeseen, existing or hereafter arising, based in whole or in part on any act or omission, transaction, duty, responsibility, indebtedness, liability, obligation, dealing or other occurrence existing or taking place on or prior to the Plan Implementation Date in any way relating to, arising out of or in connection with the Claims, the business and affairs of the Company whenever or however conducted . . .any Claim that has been barred or extinguished by the Claims Process Order and all Claims arising out of such actions or omissions shall be forever waived and released, all to the full extent permitted by Law: . . . [ 41 ] As noted by SemCAMS, the only potential events of default under the IGPA at the time it was suspended were SemCAMS’ insolvency and its commencement of CCAA proceedings.

Any claim for damages arising from the suspension constitute an Affected Claim. Those potential events of default were cured by the stay imposed under the Initial Order and by the Sanction Order, which provided for a waiver of all defaults. The Affected Claims are caught by the release and discharge contained in

section 8.1 of the Plan, which was given effect by the Sanction Order. [ 42 ] Celtic submits that it would be inconsistent with the general purposes of the CCAA if SemCAMS and its counterparties remained bound by existing contracts, but SemCAMS could not be compelled to fully perform its obligations as they arise as a result of the Sanction Order. That would certainly be true if it was in fact the case.

However, while Celtic and SemCAMS have not been able to resolve their difference over what is required or necessary to reinstate the IGPA, that does not mean that SemCAMS has been relieved of its obligations under the agreement, or relieved from a claim for damages arising from the suspension. [ 43 ] The fact that the IGPA was suspended by mutual agreement and not terminated implies an obligation to reinstate the agreement when the impediment to performance, here the CCAA proceedings, has ceased to exist.

However, changes in the status and positions of the parties in the interim must also be taken into consideration, and it is on that issue that the parties are unable to agree. If SemCAMS failed to agree to the reinstatement of the IGPA on terms that adequately reflected the changed circumstances, the continued suspension would give rise to a damages claim. [ 44 ] However, such a claim would be an Affected Claim within the meaning of the CCAA proceeding that could be, and was, compromised by the Plan and the Sanction Order.

b) Should Celtic be allowed to file a late amended claim for suspension damages during the CCAA Period? If Celtic ’s claims for suspension damages for the Post Plan Implementation Period and/or the Post October 2010 Period are “Affected Claims ”, should Celtic be allowed to file a late claim for these damages? [ 45 ] Celtic submits that, in the event its claims for suspension damages are found to be Affected Claims under the CCAA proceedings, it should be permitted to amend its previously-filed Proof of Claim to claim such damages.

While Celtic divides its claims into three periods: the period it characterizes as the “CCAA Period”, the Post Plan Implementation Period and the Post October 2010 Period, I have found that the claims for damages for suspension of the IGPA for all of these periods fall within the definition of “claims” for the purpose of

Section 19 and were thus subject to compromise by the Plan and the Sanction Order. [ 46 ] The only distinction that may be made among these three periods of time with respect to a late filing application relates to whether the claim for suspension damages for the CCAA Period would be an amendment to the Proof of Claim filed by Celtic on November 28, 2008 or a new claim.

[ 47 ] I find that the claims for suspension damages for all three periods of time are new claims. The previously filed Proof of Claim related to amounts owing for the delivery of raw gas to the KA Plant in the months prior to the Initial Order. The proposed claims for suspension damages relate to losses incurred as a result of the suspension of the IGPA after the Initial Order was granted, arising from Celtic’s inability to sell its gas to third parties at the same price it would have received under the IGPA.

Thus, there is no reason to distinguish among the three periods of time with respect to the question of whether Celtic should be allowed to file a late claim. [ 48 ] I must agree with the BA and SemCAMS that Celtic’s application to file a claim or claims for suspension damages at this late date is extraordinary.

Celtic did not file its application until April, 2011, approximately two and a half years after the Claims Bar Date of December 1, 2008 and approximately one and a half years after the Plan Implementation Date of November 30, 2009. [ 49 ] In para. 26 of Re Blue Range Resources Corp , 2000 ABCA 285 , the Court of Appeal set out the appropriate criteria to apply to late claims in CCAA proceedings: 1. Was the delay caused by inadvertence and if so, did the claimant act in good faith? 2. What is the effect of permitting the claim in terms of the existence and impact of any relevant prejudice caused by the delay? 3.

If relevant prejudice is found, can it be alleviated by attaching appropriate conditions to an order permitting late filing? 4. If relevant prejudice is found that cannot be alleviated, are there any other considerations that may nonetheless warrant an order permitting late filing? [ 50 ] As I noted in Re BA Energy Inc. , 2010 ABQB 507 at para. 34 : . . .in identifying these criteria and applying them to specific late claims, Wittmann, J.A. favoured a “blended approach”, taking into consideration both the standards set out under the Bankruptcy and Insolvency Act , and the U. S.

Bankruptcy Rules, and informed by concepts drawn from the approaches taken in a variety of areas of law when dealing with late notice or delays in process. It is clear from the nature of the criteria that the question of whether a late claim should be accepted is an equitable consideration, taking into account the specific circumstances of each case. 1. Inadvertence and Good Faith [ 51 ] Celtic submits that “inadvertence” should not be taken too literally.

However, Wittmann, J.A. noted at para. 27 of Blue Range that “inadvertence” in the context of the first criterion includes carelessness, negligence or accident and is unintentional. [ 52 ] Celtic’s failure to make a timely claim was not unintentional. It submits that it “simply” did not perceive it had a right to damages because it did not believe that the IGPA had been suspended. Celtic was aware of the CCAA proceedings from the time of the Initial Order and retained counsel with respect to the proceedings throughout. It filed a Proof of Claim for a different kind of claim.

It cannot argue that its failure to file a claim was careless, negligent or accidental: it was Celtic’s deliberate choice, acting with the advice of counsel, to maintain its position that the IGPA had not been suspended, but amended, without providing for the possibility that this position would be found to be incorrect and that it may have a claim for damages arising from a suspension. The financial implications to Celtic if the IGPA was found to be suspended were made clear to it when it received draft third party gas processing agreements from SemCAMS on August 26, 2008.

In fact, Celtic itself calculated its suspension losses for the period from July 22, 2008 to September 30, 2009 in an affidavit filed in response to the application that resulted in the IGPA decision.

[ 53 ] Celtic submits that the possibility of suspension damages must also have been apparent to SemCAMS and the BA before the Plan was negotiated and presented to creditors. That is beside the point: the Claims Process in CCAA proceedings requires creditors to identify and to file their claims or be barred from pursuing them. It is not up to the debtor company to guess at potential claims, or whether creditors will decide to pursue them. [ 54 ] Celtic also submits that its claims for suspension damages are not claims for a “debt”.

While this is true, the Claims Process provides for contingent claims for liabilities and that is what SemCAMS submits Celtic should have filed. [ 55 ] The Claims Process Order of October 22, 2008, which was served on Celtic and its counsel, makes it clear that “claim” includes contingent claims, defining “claim” as including: . . . any . . . claim . . . made, in connection with any indebtedness, liability or obligation of any kind whatsoever , and any interest accrued thereon or costs payable in respect thereof, including without limitation . . . by reasons of any breach of contract or other agreement (oral or written) . . . and whether or not any indebtedness, liability or obligation is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, unsecured, present, future, known or unknown . . . and whether or not any right or claim is executory or anticipatory in nature including . . . with respect to any matter, action, cause or chose in action whether existing at present or commenced in the future . . .[emphasis added] The Monitor’s Seventh Report dated October 21, 2008 provided a thorough

summary of the claims process. [ 56 ] Had Celtic filed its claim for suspension damages, current and future, such claim would have been determined during the Claims Process or there would have been a reservation for the full amount of its claimed damages. [ 57 ] The first criterian of the Blue Range analysis requires that I consider whether Celtic acted in good faith. [ 58 ] SemCAMS and the BA submit that Celtic knew it had a potential claim for damages arising from the suspension of the IGPA as early as August 28, 2008, more than three months prior to the Claims Bar Date, or at any rate, by September 22, 2008, when it sent a letter to SemCAMS asserting that it had not in fact suspended the sale of gas under the IGPA.

Celtic had by August 21, 2009 received the Plan and the Monitor’s 20 th Report, which identifies and alerts stakeholders to the fact that Affected Claims, which by definition include contingent claims, will be compromised, discharged and released under the Plan. Certainly, the question of suspension damages was a live issue during the application that led to the IGPA decision of August 27, 2010, and Celtic was well aware from submissions that were made that SemCAMS took the position that any such claim was barred by the Claims Process Order and compromised under the Plan.

Despite all this, Celtic did not bring its application to file a late claim until April, 2011. I cannot find that Celtic acted in good faith by delaying its claim. 2. Prejudice Caused by the Delay [ 59 ] Celtic submits that, since during the application that gave rise to the IGPA decision, SemCAMS has indicated that it may, under certain conditions, consider agreeing to a late - filed claim for suspension damages. It argues that this is an indication that there is in fact no prejudice to SemCAMS or the ordinary creditors from its late claims.

SemCAMS’ offer to accept a late filed claim was made at a far earlier date than this application for leave to file a late claim, and at a time when the claim was for far less than the amount now claimed. [ 60 ] SemCAMS points out that several of the conditions to this offer to accept a late claim have not been met.

The mere fact that SemCAMS considered agreeing to a late claim at an earlier time and under different circumstances does not indicate lack of prejudice now. [ 61 ] Celtic concedes that a late claim will prejudice the BA and its group of secured creditors, but submits that this should not be a factor since the BA has already agreed to an Ordinary Creditors’ Pool, and the size of that pool will not increase as a result of granting leave to Celtic to amend its Proof of Claim.

[ 62 ] As I indicated in Re BA Energy , the objective of a claims procedure order is to attempt to ensure that all legitimate creditors come forward on a timely basis. A claims procedure provides the debtor company and the Monitor with the information necessary to fashion a plan that may prove acceptable to the requisite majority of creditors, given the financial circumstances of the debtor, and that may be sanctioned by the Court.

The fact that accurate information relating to the amount and nature of claims is essential for the formulation of a successful plan requires that the specifics of a claims procedure order should generally be observed and enforced, and that the acceptance of a later claim should not be an automatic outcome.

The applicant for such an order must provide some explanation for the late filing and the reviewing court must consider any prejudice caused by the delay. [ 63 ] The claims procedure process was developed to give creditors a level playing field with respect to their claims and to discourage tactics that would give some creditors an unjustified advantage.

Situations that give rise to concerns of improper manipulation of the process by a creditor must be carefully considered. [ 64 ] Celtic’s proposed suspension damages claim would represent an approximately 22% increase in the total value of Ordinary Claims filed against SemCAMS. The new claim increases Celtic’s total claims by about 66%.

The Plan and the Monitor’s Report made it clear that the Secured Lenders represented by the BA agreed to refrain from making a claim against SemCAMS in respect of their first-ranking, fully secured claim in part because they would receive the surplus remaining in the Ordinary Creditors Pool after the claims of ordinary creditors had been satisfied.

It is a reasonable inference that this decision was made on the basis of claims that had been filed as of the Claims Bar Date, which did not include the Celtic $22.5 million suspension damages claim. [ 65 ] One of the tests for prejudice is whether a late claim causes another creditor to lose a realistic opportunity to do something it might otherwise have done: Blue Range at para. 40.

While it is true that the secured lenders as represented by the BA were likely aware that Celtic may have a potential claim for suspension damages, they were also entitled to rely on the Claims Bar Process, the release provisions of the Plan and the Sanction Order to expect some finality. [ 66 ] In Blue Range , the applications to accept late claims were made within a few months of the plan sanction order.

Here, the delay is much longer, and the decision in Blue Range is clear that the timing of the late claim with respect to the stage of proceedings is a key consideration: para. 36. [ 67 ] If Celtic is able to file a late claim for suspension damages, the Secured Lenders could receive up to $900,000 less than they otherwise would.

This is a material and significant claim, in contrast to the relatively minor value of late claims in Blue Range that were filed after that plan was implemented. [ 68 ] It is noteworthy that the Secured Lenders did not have to consent to the amount that was made available to Ordinary Creditors in the Ordinary Creditors’ Pool, as they had clear priority for their claim of approximately US $2.939 billion. [ 69 ] This application also gives rise to a potential issue of unequal treatment among creditors. There were other unsecured creditors with claims arising from inlet gas purchase agreements.

If Celtic’s application is successful, it is not impossible that such creditors would seek to file similar late claims for suspension damages. [ 70 ] I find that there is relevant prejudice to other creditors arising from the delay, and I am not satisfied that such prejudice can be alleviated by attaching any conditions to an order permitting late filing. 3. Other Considerations [ 71 ] It is relevant that Celtic brings its application to file a late claim after the Plan has been sanctioned and implemented. In Re T. Eaton Company Limited et al , May 5, 1999 98-CL-2586 (Ont.

S.C.J.), Blair J. noted, in a case where notification of the claims bar process had “fallen through the cracks” with respect to one creditor such that she had no opportunity to file a claim, that permitting a creditor to file a late claim after plan sanction and implementation “is tantamount to altering or modifying the Plan”, and that the jurisdiction to allow such a late claim should thus be “exercised sparingly and in exceptional circumstances only”, citing Algoma Steel

Corp. V. Royal Bank (1992), (ON CA), 11 C.B.R. 3d 11. While these comments pre-dated Blue Range, which is nowthe law in Alberta on this issue, the timing of such an application with reference to plan implementation is relevant to the issue ofprejudice. [72] As previously described, this claim would be paid out of the Ordinary Creditors’ Pool. It is clear that this large claim was notanticipated when the Pool was structured as part of the Plan and the BA consented to the Plan.

The Plan specifically provides that itcannot be modified without the prior consent of BA as Agent of the secured creditors, acting reasonably, and, in the circumstances, itcannot be said that BA is acting unreasonably in opposing the application. [73] SemCAMS and the BA submit that to allow a creditor with full knowledge of the CCAA Proceedings and the Claims Processto ignore the Claims Bar Date and file a significant new claim more than two years after such date would throw the entire CCAArestructuring process into disrepute. I must agree.

Celtic has no good or satisfactory reason to offer as to why it failed to file a contingentclaim for suspension damages within a reasonable time. It decided on this strategy for its own reasons, and at its own peril. None of thefactors set out in Blue Range or in BA Energy favour its application. The policy reasons that emphasize the need for certainty and finalityin an approved and sanctioned plan and fairness of treatment to all creditors outweigh the prejudice to Celtic of disallowing a late claim.The application to file a late claim for suspension damages is thus dismissed.

c) Should Celtic’s Statement of Claim be struck out? [74] Celtic alleges in its Statement of Claim that the granting of the Initial Order in the CCAA Proceedings was an event of defaultunder the IGPA and that Celtic, as non-defaulting party, suspended performance of all transactions under the IGPA with the agreement ofSemCAMS. I have found that the suspension damages claimed under the Statement of Claim are Affected Claims that may be, and were,compromised by the Plan and the Plan Sanction Order.

Paragraph 44 of the Plan Sanction Order provides as follows: Any and all Persons shall be and are hereby stayed from commencing, taking, applying for or issuing or continuing any and all steps orproceedings . . . declarations or assessments, commenced, taken or proceeded with or that may be commenced, taken or proceeded withagainst any Released Party in respect of all Claims and any other matter which is released pursuant to paragraphs 45 to 47, inclusive, ofthis Plan Sanction Order and

Article 8 of the Plan. [75] The filing of the Statement of Claim is thus a breach of the Plan Sanction Order and accordingly is struck out. Conclusion [76] In

summary, I find that Celtic’s claims for damages arising from the suspension of the IGPA, whether they arose during theCCAA Period, the Post Plan Implementation Period or the Post October 2010 Period are “Affected Claims” under the CCAAproceedings, subject to the Claims Process and to being compromised by the Plan. I dismiss Celtic’s application to file an amended ornew late claim for these damages.

I find the Statement of Claim claiming such suspension damages to be a breach of the Sanction Orderand, accordingly, I direct that it be struck out. [77] If the parties are unable to agree on costs, that issue may be addressed through written submissions filed with 45 days. Dated at the City of Calgary, Alberta this 31st day of July, 2012.

B.E. Romaine J.C.Q.B.A. Appearances: A. Robert Anderson, Q.C. Doug Schweitzer Osler, Hoskin & Harcourt LLP for SemCAMS ULC Anthony Jordan, Q.C. Gowling Lafleur Henderson LLP for Celtic Exploration Ltd. Ashley John Taylor Erica Tait Stikeman Elliott LLP for the Bank of America, N.A.