2019 QCCA 1397, 2019 QCCA 1397

Source: Court of Appeal of Québec

Date: 2019-04-25

Jurisdiction: Quebec

Citation: 2019 QCCA 1397

Opinion

Arrangement relatif à 9323-7055 Québec inc. 2019 QCCA 1397 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-028436-194 , 500-09-028474-195, 500-09-028476-190 (500-11-049838-150) DATE: August,20 2019 BEFORE THE HONOURABLE STEPHEN W. HAMILTON, J.A. IN THE MATTER OF THE COMPANIES‘ CREDITORS ARRANGEMENT ACT 500-09-028436-194 HOME DEPOT OF CANADA INC. APPLICANT – Impleaded party v. 9323-7055 QUEBEC INC. RESPONDENT – Debtor RAYMOND CHABOT INC. RESPONDENT – Applicant and RONA INC. ROYAL & SUN ALLIANCE INSURANCE COMPANY OF CANADA CATHAY CENTURY INSURANCE CO. LTD JING YUDH INDUSTRIAL CO.

LTD GROUPE BMR INC. GROUPE PATRICK MORIN INC. MATÉRIAUX LAURENTIENS INC. INTACT COMPAGNIE D’ASSURANCE INC. DEJARDINS GENERAL INSURANCE INC. THE PERSONNAL GENERAL INSURANCE INC. INTACT INSURANCE COMPANY L’UNIQUE GENERAL INSURANCE INC. LA CAPITAL GENERAL INSURANCE INC.

PROMUTUEL INSURANCE BAGOT PROMUTUEL INSURANCE BORÉALE PROMUTUEL INSURANCE BOIS-FRANCS PROMUTUEL INSURANCE CHAUDIÈRE-APPALACHES PROMUTUEL INSURANCE L’ESTUAIRE PROMUTUEL INSURANCE DEUX-MONTAGNES PROMUTUEL INSURANCE LAC AU FLEUVE PROMUTUEL INSURANCE OUTAOUAIS PROMUTUEL INSURANCE LA VALLÉE PROMUTUEL INSURANCE MONTMAGNY-L’ISLET PROMUTUEL INSURANCE PORTNEUF-CHAMPLAIN PROMUTUEL INSURANCE RÉASSURANCE PROMUTUEL INSURANCE RIVE-SUD PROMUTUEL INSURANCE VALLÉE DU ST-LAURENT PROMUTUEL INSURANCE VAUDREUIL-SOULANGES PROMUTUEL INSURANCE VERCHÈRES-LES-FORGES PROMUTUEL INSURANCE LANAUDIÈRE HOME HARDWARE STORES LIMITED AIG TAIWAN INSURANCES CO.

GEAREX CORPORATION SEAN MURPHY, in his capacity as Canada’s attorney for Lloyd’s underwriters. IMPLEADED PARTIES 500-09-028474-195 GROUPE BMR INC. GROUPE PATRICK MORIN INC. MATÉRIAUX LAURENTIENS INC. INTACT COMPAGNIE D’ASSURANCE INC. APPLICANTS – Impleaded party v. 9323-7055 QUEBEC INC. RESPONDENT - Debtor RAYMOND CHABOT INC. RESPONDENT - Applicant and CATHAY CENTURY INSURANCE CO., LTD JING YUDH INDUSTRIAL CO., LTD DESJARDINS GENERAL INSURANCE INC. THE PERSONNAL GENERAL INSURANCE INC. INTACT INSURANCE COMPANY L’UNIQUE GENERAL INSURANCE INC. LA CAPITAL GENERAL INSURANCE INC.

PROMUTUEL INSURANCE BAGOT PROMUTUEL INSURANCE BORÉALE PROMUTUEL INSURANCE BOIS-FRANCS PROMUTUEL INSURANCE CHAUDIÈRE-APPALACHES PROMUTUEL INSURANCE L’ESTUAIRE PROMUTUEL INSURANCE DEUX-MONTAGNES PROMUTUEL INSURANCE LAC AU FLEUVE PROMUTUEL INSURANCE OUTAOUAIS PROMUTUEL INSURANCE LA VALLÉE PROMUTUEL INSURANCE MONTMAGNY-L’ISLET PROMUTUEL INSURANCE PORTNEUF-CHAMPLAIN PROMUTUEL INSURANCE RÉASSURANCE PROMUTUEL INSURANCE RIVE-SUD PROMUTUEL INSURANCE VALLÉE DU SAINT-LAURENT PROMUTUEL INSURANCE VAUDREUIL-SOULANGES PROMUTUEL INSURANCE VERCHÈRES-LES-FORGES PROMUTUEL INSURANCE LANAUDIÈRE RONA INC.

ROYAL & SUN ALLIANCE INSURANCE COMPANY OF CANADA HOME DEPOT OF CANADA INC. HOME HARDWARE STORES LIMITED AIG TAIWAN INSURANCE CO. LTD AVIVA INSURANCE COMPANY OF CANADA SOVEREIGN GENERAL INSURANCE COMPANY INTERNATIONAL ASSOCIATION OF PLUMBING AND MECHANICAL OFFICIALS JYIC INDUSTRIAL CORPORATION INSURANCE COMPANY OF NORTH AMERICA IAPMO RESEARCH AND TESTING INC. FUBON INSURANCE CO. LTD GEAREX CORPORATION SEAN MURPHY, in his capacity as Canada’s attorney for Lloyd’s underwriters. IMPLEADED PARTIES 500-09-028476-190 RONA INC.

ROYAL & SUN ALLIANCE INSURANCE COMPANY OF CANADA APPLICANTS – Impleaded parties v. 9323-7055 QUEBEC INC. RESPONDENT– Debtor RAYMOND CHABOT INC. RESPONDENT – Applicant

and HOME HARDWARE STORES LIMITED HOME DEPOT OF CANADA INC. CATHAY CENTURY INSURANCE CO. LTD JING YUDH INDUSTRIAL CO. LTD GROUPE BMR INC. GROUPE PATRICK MORIN INC. MATÉRIAUX LAURENTIENS INC. DESJARDINS GENERAL INSURANCE INC. THE PERSONNAL GENERAL INSURANCE INC. INTACT INSURANCE COMPANY L’UNIQUE GENERAL INSURANCE INC. LA CAPITALE GENERAL INSURANCE INC.

LTD AVIVA INSURANCE COMPANY OF CANADA SOVEREIGN GENERAL INSURANCE COMPANY INTERNATIONAL ASSOCIATION OF PLUMBING AND MECHANICAL OFFICIALS JYIC INDUSTRIAL CORPORATION INSURANCE COMPANY OF NORTH AMERICA IAPMO RESEARCH AND TESTING INC. FUBON INSURANCE CO. LTD GEAREX CORPORATION SEAN MURPHY, in his capacity as Canada’s attorney for Lloyd’s underwriters. IMPLEADED PARTIES JUDGMENT [ 1 ] The Petitioners in these three files seek leave to appeal from a judgment and an order rendered on July 4, 2019, by the Honourable David R.

Collier of the Superior Court of Quebec, District of Montreal, which judgment sanctioned and approved the Amended Plan of Compromise and Arrangement dated April 25, 2019 filed by the Respondent Raymond Chabot Inc. (hereinafter “the Monitor”) in its capacity as monitor in the proceedings pertaining to the Respondent 9323-7055 Quebec inc. (formerly known as Aquadis International Inc., hereinafter “Aquadis”) pursuant to the Companies’ Creditors Arrangement Act . [1] [ 2 ] In the event that leave to appeal is granted, the Petitioners seek the issuance of a safeguard order pending the judgment on the appeals. *** [ 3 ] Aquadis is the debtor under CCAA proceedings filed before the Superior Court in December 2015.

Aquadis was a wholesale seller of plumbing fixtures, purchasing plumbing fixtures manufactured in Taiwan from a Taiwanese distributor and reselling them to Canadian distributors and retailers, including the Petitioners, [2] which in turn sold them to consumers. A large number of the faucets sold between 2006 and 2010 were defective, and the failure of those faucets caused significant property damage. Many consumers made claims against their insurers, who were then subrogated into the consumers’ rights.

The remaining consumers and the subrogated insurers made claims against various persons involved in the manufacture, distribution or sale of the defective faucets, including Aquadis. As a result, Aquadis faces over 800 claims in the total amount of almost $22 million. Other persons involved in the manufacture, distribution or sale of the defective faucets are co-defendants in some of those claims.

All of this litigation was suspended by the CCAA proceedings. [ 4 ] In November 2016, the Superior Court granted the Monitor’s request for the power to institute legal proceedings, on behalf of Aquadis’ creditors, against the other persons involved in the manufacture, distribution or sale of the defective faucets. No one contested that judgment.

[ 5 ] Accordingly, in December 2016, the Monitor instituted legal proceedings against the Taiwanese manufacturers and distributor and their insurers, for the payment of $22.4 million in damages and insurance proceeds.

At the same time, the Monitor was negotiating with the Canadian distributors and retailers, including the Petitioners. [ 6 ] On June 20, 2018, the judge authorized settlements between the Monitor and the Taiwanese distributor and its insurers in the total amount of $7.2 million. [3] [ 7 ] The Monitor filed a plan of arrangement on January 8, 2019, and amended the plan (the “Amended Plan”) at the meeting of the creditors on April 25, 2019.

Essentially, the Amended Plan provides for the constitution of a litigation pool, which includes the balance of the settlement funds in the amount of $4.7 million, to which will be added the proceeds of the Monitor’s actions against the Taiwanese manufacturers and against the Canadian distributors and retailers, including the Petitioners.

The Amended Plan provides for an interim distribution to the creditors of $4.6 million within 30 days of the implementation of the Amended Plan and a final distribution to the creditors once all of the litigation is terminated or settled. [ 8 ] The Amended Plan was submitted to a meeting of the creditors on April 25, 2019, and was unanimously accepted. The Petitioners were not invited to the meeting and did not participate. The Monitor filed an action against certain Canadian distributors and retailers, including the Petitioners, and their insurers on May 23, 2019.

The Amended Plan was approved by the Superior Court on July 4, 2019, over the objections of the Petitioners.

It is that judgment which is under appeal. *** [ 9 ] Leave to appeal in CCAA matters is to be granted sparingly and only if the proposed appeal is not frivolous, is of importance for the file and the practice and would not unduly delay the progress of the matter. [4] The Court of Appeal will typically show deference to the exercise of discretion by the judge managing the CCAA proceedings. [ 10 ] The Petitioners submit that the issue that they wish to raise in the present appeal is whether the judge can approve a plan of arrangement that provides for the institution of legal proceedings by the Monitor, on behalf of the creditors, against third parties in connection with rights that belong to the creditors and not to Aquadis.

They argue that this issue meets the test for leave to appeal. [ 11 ] The issue is not frivolous. There are a number of CCAA cases where the debtor is a party to significant litigation in which there are a number of third parties who may be solidarily liable with the debtor to its creditors.

In those cases, in order to reach a global settlement of all of the litigation relating to the debtor, the plan may allow third parties to contribute to a litigation pool with the debtor for the benefit of the creditors and to obtain a release. [5] However, this case goes one step further and authorizes the Monitor to sue, on behalf of the creditors, third parties who decline to contribute to the litigation pool.

There does not appear to be any precedent on this issue. [6] [ 12 ] The issue is crucial to the file because the proceedings by the Monitor against the Canadian distributors and retailers, including the Petitioners, are a key feature of the Amended Plan and the validity of those proceedings goes to the acceptance of the plan by the creditors and the approval of the plan by the judge. [ 13 ] It is also important to the practice because it goes to the serious issue as to the role and neutrality of the monitor in CCAA proceedings and the scope of the powers that can be granted to a monitor.

More specifically, the issue of whether the court can approve a plan that provides for the monitor instituting legal proceedings, on behalf of the creditors, against third parties who do not owe anything to the debtor is a novel issue and is of particular relevance in CCAA proceedings used to reach a global settlement of significant litigation involving third party co-defendants. [ 14 ] The Monitor argues that the issue of the institution of legal proceedings by the Monitor against third parties cannot be raised on appeal from the approval order because the Monitor had been authorized in the earlier November 2016 judgment to institute such proceedings and no one objected at that time.

The Monitor argues that leave to appeal should be refused because the proposed appeal is a collateral attack on the November 2016 judgment. The Petitioners advance several arguments why this is not so, in particular that the November 2016 judgment was obtained without notice and that the parties have been involved in negotiations since then. [ 15 ] It would be premature to conclude that the collateral attack argument is fatal to the Petitioners’ proposed appeal. That issue is better left to the bench hearing the appeal on the merits.

It is sufficient for purposes of the motion for leave to appeal to note that even if the Petitioners are precluded from attacking the November 2016 judgment, there is still an issue as to whether the judge had jurisdiction to approve the Amended Plan that gives the Monitor a power that the Petitioners argue it should not have. [ 16 ] Finally, it is clear that granting leave to appeal will delay the progress of the matter. Specifically, if I grant leave to appeal, the Respondents ask that I issue a safeguard order which will order the Monitor to refrain from (

i) issuing and filing the Implementation Certificate, (ii) issuing and filing the Final Distribution Certificate, and (iii) distributing any and all amounts provided for in the Amended Plan. It is clear that such a safeguard order is necessary to avoid having the appeal become moot, as was the case when the Petitioners sought leave to appeal from the judgment approving the settlements in June 2018. The Monitor does not object to the safeguard order. [ 17 ] This delay is necessary to allow the resolution of an important issue.

Moreover, the Petitioners state that they will consent to an application by the Monitor to make an interim distribution of the proceeds that he currently has in hand, which will have the effect of lessening the inconvenience for the creditors. [ 18 ] In my view, it is appropriate to grant leave to appeal and the safeguard order. [ 19 ] The Petitioners propose that I join the three appeals, that they be authorized to file a single brief with a maximum 50 page argument and that each side be given two hours to argue the appeal. They propose accelerated dates for the filing of the briefs.

The Monitor agrees, provided it has the same 50 pages and two hours. I will join the appeals, but it appears to me that 40 pages each and a 3 ½ hour hearing should be sufficient. I will impose the

schedule suggested by the parties.

FOR THESE REASONS, THE UNDERSIGNED: [ 20 ] ALLOWS the applications for leave to appeal and for a safeguard order in court files 500-09-028436-194, 500-09-028474-195 and 500-09-028476-190; [ 21 ] GRANTS leave to appeal from the judgment of the Superior Court, District of Montreal (the honourable David R.

Collier) dated July 4, 2019; [ 22 ] JOINS the appeals in court files 500-09-028436-194, 500-09-028474-195 and 500-09-028476-190; [ 23 ] ORDERS that the Petitioners in the three court files, after notifying the Monitor, jointly file with the Office of the Court, no later than October 4, 2019 , seven copies of their brief, including an argument of no more than 40 pages and the schedules required by

article 45 R.C.A.Q.C.M.; [ 24 ] ORDERS that the Monitor, after notifying the Petitioners, file with the Office of the Court, no later than November 18, 2019 , seven copies of their brief, including an argument of no more than 40 pages and any additional schedules; [ 25 ] REFERS the appeals to the Master of the Rolls to fix the hearing, for a duration of 3 ½ hours , with the time to be allocated by the bench; [ 26 ] As a safeguard order to remain in effect until the hearing of the appeals, ORDERS the Monitor to refrain from (

i) issuing and filing the Implementation Certificate, (ii) issuing and filing the Final Distribution Certificate, and (iii) distributing any and all amounts provided for in the Amended Plan (without prejudice to the possibility of the Superior Court authorizing an interim distribution); [ 27 ] With judicial costs to follow. STEPHEN W. HAMILTON, J.A. Mtre Hubert Sibre Mtre Rosemarie Sarrazin MILLER THOMSON For Home Depot of Canada inc. Mtre Alain Tardif Mtre Gabriel Faure MCCARTHY TÉTRAULT Mtre Antoine Melançon LAPOINTE ROSENSTEIN MARCHAND MELANÇON For Raymond Chabot inc.

Mtre Julie Himo Mtre Donimic Dupoy Mtre Arad Mojtahedi NORTON ROSE FULBRIGHT CANADA For Rona Inc. Royal & Sun Alliance Insurance Company of Canada Mtre Panagiota Kyres BORDEN LADNER GERVAIS For Cathay Century Insurance Co. LTD Jing Yudh Industrial Co. LTD Mtre Pierre Goulet For Groupe BMR Inc. Groupe Patrick Morin Inc. Matériaux Laurentiens Inc. Intact Compagnie d’Assurance inc. Mtre Charles Lapointe LANGLOIS AVOCATS For Desjardins General Insurance Inc. The Personnal General Insurance Inc. Intact Insurance Company L’Unique general Insurance Inc. La Capitale general Insurance Inc.

Promutuel Insurance Bagot Promutuel Insurance Boréale Promutuel Insurance Bois-francs Promutuel Insurance Chaudière-Appalaches Promutuel Insurance L’Estuaire

Promutuel Insurance Deux-Montagnes Promutuel Insurance Lac au Fleuve Promutuel Insurance Outaouais Promutuel Insurance La Vallée Promutuel Insurance Montmagny-L’Islet Promutuel Insurance Portneuf-Champlain Promutuel Insurance Réassurance Promutuel Insurance Rive-sud Promutuel Insurance Vallée du St-Laurent Promutuel Insurance Vaudreuil-Soulanges Promutuel Insurance Verchères-Les-Forges Promutuel Insurance Lanaudière Mtre Alexander Bayus GOWLING WLG (CANADA) For Home Hardware Stores Limited Date of hearing: August 15, 2019

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