2016 QCCA 1837, 2016 QCCA 1837

Aviva compagnie d'assurances du Canada c. Béton Brunet 2001 inc. 2016 QCCA 1837 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-026427-161 (500-11-050682-166, 500-11-050681-168, 500-11-050680-160) MINUTES OF THE HEARING DATE : November 11, 2016 THE HONOURABLE MARK SCHRAGER, J.A. APPLICANTS COUNSEL AVIVA COMPAGNIE D’ASSURANCE DU CANADA ZURICH COMPAGNIE D’ASSURANCES SA Mtre MARC DUCHESNE ( Borden Ladner Gervais, s.e.n.c.r.l., s.r.l. ) RESPONDENTS COUNSEL BÉTON BRUNET 2001 INC. BÉTON BRUNET LTÉE BRUNEAU ÉLECTRIQUE INC. Mtre ALAIN TARDIF ( McCarthy Tétrault s.e.n.c.r.l., s.r.l. ) IMPLEADED PARTIES COUNSEL

VILLE DE MONTRÉAL VILLE DE LAVAL BRIDGING FINANCE INC. GROUPE HEXAGONE S.E.C. INVESTISSEMENTS HEXAGONE INC. LOCATION HEXAGONE S.E.C. LES ENTREPRISES COMMERCIALES HEXAONE INC. 9324-9928 QUÉBEC INC. 9328-5021 QUÉBEC INC. 9325-0041 QUÉBEC INC. PRICEWATERHOUSECOOPERS INC.

Mtre ELENI YIANNAKIS ( Irving Mitchell Kalichman SENCRL/LLP ) Mtre ELIZABETH FERLAND Mtre LUC BÉLIVEAU ( Fasken Martineau DuMoulin SENCRL, s.r.l. ) Mtre BERTRAND GIROUX ( BCF s.e.n.c.r.l. ) Mtre MICHEL LA ROCHE ( Miller Thomson SENCRL / LLP ) DESCRIPTION : Motion for leave to appeal of a rectified judgment rendered on October 12, 2016 by the honourable Brian Riordan of the Superior Court, District of Montreal (art. 13 of the Companies’ Creditors Arrangement Act ) Clerk : Annabel David Courtroom : RC-18 HEARING 9 : 34 Roll call and identification of counsel.

Suspension of the hearing. 10 : 10 Resumption of the hearing. 10 : 12 Representations by Mtre Duchesne. 10 : 34 Mtre Tardif files a book of authorities and begins his representations.

11 : 05 Representations by Mtre Yiannakis. 11 : 06 Reply by Mtre Duchesne. 11 : 09 Judgment – see page 3. 11 : 17 Conclusion of the hearing. (

s) Annabel David Greffière d'audience BY THE JUDGE JUDGMENT [ 1 ] The Applicants seek leave to appeal the judgment of the Superior Court, District of Montreal (the Honourable Brian Riordan), of October 12, 2016 rendered on a motion for declaratory judgment. Because the judgment was rendered in a Companies’ Creditors Arrangement Act matter, Applicants seek leave to appeal pursuant to

Section 13 of the CCAA . [1] [ 2 ] There is no issue that the test to be applied in deciding whether to exercise the discretion to grant leave is fourfold as follows:

i) Whether the point on appeal is of significance to the practice; ii) Whether the point is of significance to the action or proceedings; iii) Whether the appeal is prima facie meritorious or frivolous ; iv) Whether the appeal will unduly hinder the progress of the action or proceedings. [2] There is also no dispute that the test is cumulative in that each of the four criteria must be satisfied in order that leave be granted. [ 3 ] The debtors in the three CCAA files are related entities in the Hexagone group of companies (“Hexagone Group”).

The details of the corporate distinctions do not matter for present purposes. The companies are in the construction business and have numerous contracts with public entities, including the two under examination with the mises en cause (impleaded parties) Ville de Montréal and Ville de Laval, respectively. Bonds or guarantees (contrat de cautionnement) were issued in 2014 by the Applicants at the behest of the Hexagone Group for the benefit of the sub-trades.

This is business as usual given that an unpaid supplier of work or materials would not be able to protect itself against non-payment by the registration of a legal hypothec against the immoveable property in the public domain – i.e. that belonging to the two cities where the work was done and the materials incorporated. [ 4 ] Notwithstanding the acceptance of the work by the two mises en cause cities, they have refused to pay considerable sums to the Hexagone Group claiming the possibility of compensation, or set-off, regarding the behavior of Hexagone Group with respect to other construction contracts entered into with the cities.

The cities rely on the provisions of

An Act to ensure mainly the recovery of amounts improperly paid as a result of fraud or fraudulent tactics in connection with public contracts , [3] which came into force in 2015. [ 5 ] This law provides the possibility for the cities to claim sums from construction companies whose contract prices may have been inflated as a result of illegal payments made in relation to those contracts.

The sums involved as alleged in the proceedings before me are in the millions of dollars. [ 6 ] As a consequence, Hexagone Group has been unable to collect accounts receivable under the contracts from each of the two mises en cause cities and is unable to pay sub-trades. The sub-trades have claimed payment from the Applicants in their capacity as guarantors.

The latter have refused to pay under the guarantees based on the legal argument that the risk described above and arising from set-off or compensation pursuant to Bill 26 was not foreseen and, as such, has increased their liability under the guarantees beyond that which was initially contracted.

They also argue, that the two mises en cause cities, are parties to the guarantee contracts so that their refusal to pay can be invoked by the Applicants in refusing to pay the beneficiaries of the guarantees. [ 7 ] The Respondents, who are sub-contractors, moved for the declaratory judgment before the CCAA judge to resolve the issue.

The judge did not accept the arguments of the Applicants finding that given their refusal to pay, the trades have a good claim against them as guarantors. [ 8 ] In my view, leave to appeal should be granted as the aforementioned four criteria have been satisfied. [ 9 ] Firstly, the points in appeal are novel and of significance to the practice. While I do not have hard evidence before me, it is

hardly inconceivable that similar situations may arise before the courts from the fallout of the findings of the Charbonneau Commission and the application of Bill 26 . The Applicants have pleaded, without contradiction, that the situation has no precedent. [ 10 ] Respondents submit that the issues relate to questions of civil law – i.e. the

interpretation of the guarantees issued by Applicants and as such are not of significance to the practice in CCAA matters. [ 11 ] In my view, Respondents are wrong.

There is no justification to restrict the opportunity to appeal to points of law that may arise strictly under the CCAA to the exclusion of questions with a component arising from the civil or other law, supplemental to the provisions of the CCAA . [ 12 ] The dicta in the cases which Respondents cite in support of their submission do not support it. [4] None of the passages support the proposition that a point of civil law decided in a CCAA case cannot qualify the case for leave to appeal.

Moreover, on analysis, at least two recent cases where leave was granted by this Court involve primarily questions of civil law. In Taberna Preferred Funding VI, Ltd. c. Stichting Homburg Bonds [5] the Court considered the effects and

interpretation of the subordination by bondholder creditors of their rights inter se . In Orford Express inc. c. Montréal, Maine & Atlantique Canada cie (Arrangement relatif à) , [6] the Court was tasked to characterize and interpret a contract as one of lease or sui generis for purposes of determining rights of resiliation, in a CCAA matter. [ 13 ] Respondents’ argument resembles one which has been unsuccessfully presented elsewhere based on the text of

Section 13 CCAA – i.e. that to be subject to appeal the “order or decision” must be “made under this Act”. In Essar Steel Algoma Inc. (Re) , [7] Mr. Justice Brown of the Ontario Court of Appeal, concluded in a contractual dispute, that an order made by a judge supervising a CCAA matter was an order made under the CCAA within the meaning of

Section 13 CCAA . He adopted a purpose focused approach [8] to the leave test saying that the motion judge should enquire whether the issue impacts on the restructuring or on creditors’ rights. In the present case a large group of creditors including Respondents are owed in the aggregate, considerable sums of money and a timely resolution of the present issue is significant. Presumably, that is why Respondents themselves moved for a declaratory judgment. [ 14 ] Mr.

Justice Brown also remarked [9] that, though the legislative purpose of the leave requirement may dictate that leave be granted sparingly, that does not mean that the phrase “made under this Act” should be restrictively interpreted. I would add that it is only the amendments to the CCAA in recent years that have added many of the substantive provisions. The nature of insolvency law is such that much of the substantive law applicable in a case is found in the law of general application, often the civil law of the province. The

interpretation suggested by Respondents to the leave process would exclude judicial discretion to grant leave where the legal issue finds it source in the civil law, irrespective of the significance of the point to the creditors and the restructuring case law generally. Accordingly, I do not accept Respondents’ argument to restrict leave to questions arising purely from the CCAA . [ 15 ] Regarding the second branch of the test, the points raised are of obvious significance to the action.

The quantum of indebtedness of the debtors in the CCAA files may not ultimately be altered because the insurance companies, when and if they pay, may assert claims by way of subrogation. However, the sub-contractors will potentially obtain quick and substantial payments if the judgment of first instance is confirmed. There are a large number of sub-contractors potentially affected in addition to Respondents. [ 16 ] Thirdly, on a prima facie basis the appeal is meritorious, in that it is not frivolous. The arguments presented to eventually induce this Court to conclude that the motion judge erred, are arguable.

I believe that this is the proper

interpretation and application of the third criteria for leave to appeal. In other words, given that the point is novel, not frivolous and involves a point of principle which can be seriously argued on the merits before the Court, the appeal should be considered meritorious and the third branch of the leave test satisfied. [10] It would be wrong for a judge sitting alone to say more as the actual evaluation of the merits belongs to the Court and not a judge sitting alone. [ 17 ] Concerning the last criterion, I do not believe that this appeal will hinder the progress of the CCAA file.

It may even accelerate it as the issue will potentially resolve the claims of many ordinary creditors in the CCAA matter. I also note that the CCAA process has been ongoing since March 2016.

I am informed that Hexagone Group is collecting accounts receivable and operating in a reduced capacity to complete and correct work so as to enhance receivable collection. [ 18 ] Given the number of parties involved, the potential ripple economic effects of unblocking (or not) payments to the various sub- trade creditors, and the suggestion by the Applicants, the case should proceed on an accelerated basis and I will so order. The record is comprised of documents and affidavits; there are no witness transcripts to prepare.

THEREFORE, THE UNDERSIGNED: [ 19 ] GRANTS the motion for leave to appeal; [ 20 ] GRANTS leave to appeal; [ 21 ] ORDERS that the proceedings in first instance other than those between the instant parties and directly related to the present appeal are not suspended; [ 22 ] PLACES the case on the role of April 7 th , 2017 in room Pierre-Basile-Mignault at 9:30am, for a 150 minute (45 minutes for the Applicants and Respondents/30 minutes for the Ville de Montréal and Ville de Laval) hearing; [ 23 ] ORDERS the Applicants, after having notified a copy upon the Respondents, to file in the Office of the Court, no later than December 16, 2016 five copies of a written argument not exceeding 25 pages .

All documents necessary for the adjudication of the appeal (judgment under appeal, pleadings, excerpts from depositions, etc.) shall be attached; [ 24 ] ORDERS the Respondents, after having notified a copy upon the Applicants, to file in the Office of the Court, no later than February 3 , 2017 five copies of a written argument not exceeding 25 pages and of their supplementary documents; [ 25 ] ORDERS the Impleaded parties (Ville de Montréal and Ville de Laval), after having notified a copy upon the Applicants and

Respondents, to file in the Office of the Court, no later than February 3 , 2017 five copies of a written argument not exceeding 25 pages and of his supplementary documents; [ 26 ] TAKES COGNIZANCE that no other party in the style of cause and appearing through counsel on the leave application wishes to be heard in the appeal; [ 27 ] DIRECTS the parties’ attention to

section 376 C.C.P . and

article 55 of the Civil Practice Regulation , which read as follows: 376. The appeal lapses if the appellant does not file a brief or a memorandum within the time limit for filing. The appellate clerk issues a certificate of lapse of appeal, unless an appellate judge is seized of an application for an extension. A respondent or any other party that does not make a timely filing of its brief or memorandum is precluded from filing and cannot be heard at the hearing unless so authorized by the Court of Appeal. 55. Format. The memorandum shall include a title page, a table of contents and be paginated consecutively.

The provisions relating to briefs (including the final requirements) apply to memoranda with the necessary adaptations. [ 28 ] DIRECTS the parties’ attention to the Practice Direction G-3 of May 20, 2016, encouraging the filing with their paper version documents a technologic version that must be in PDF or Word format to enable key-word search and stored on a CD/DVD ROM or USB- key; [ 29 ] THE WHOLE , with legal costs to follow. MARK SCHRAGER , J.C.A.