2017 QCCA 138, 2017 QCCA 138

Bridging Finance Inc. c. Béton Brunet 2001 inc. 2017 QCCA 138 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL MINUTES OF THE HEARING DATE: January 27, 2017 THE HONOURABLE NICHOLAS KASIRER, J.A. No: 500-09-026460-162 (500-11-050680-160, 500-11-050681-168, 500-11-050682-166) APPLICANT COUNSEL BRIDGING FINANCE INC. Mtre LUC BÉLIVEAU ( Fasken Martineau DuMoulin SENCRL, 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

GROUPE HEXAGONE S.E.C. INVESTISSEMENTS HEXAGONE INC. LOCATION HEXAGONE S.E.C. LES ENTREPRISES COMMERCIALES HEXAGONE INC. 9324-9928 QUÉBEC INC. 9328-5021 QUÉBEC INC. 9325-0041 QUÉBEC INC. Mtre BERTRAND GIROUX Mtre MARC-ETIENNE BOUCHER ( BCF s.e.n.c.r.l. ) AVIVA COMPAGNIE D’ASSURANCE DU CANADA Mtre MARC DUCHESNE ( Borden Ladner Gervais, s.e.n.c.r.l., s.r.l. ) PRICEWATERHOUSECOOPERS INC. Mtre MICHEL LA ROCHE ( Miller Thomson SENCRL / LLP ) No: 500-09-026464-164 (500-11-050680-160, 500-11-050681-168, 500-11-050682-166) APPLICANTS COUNSEL GROUPE HEXAGONE S.E.C. INVESTISSEMENTS HEXAGONE INC. LOCATION HEXAGONE S.E.C.

Mtre BERTRAND GIROUX Mtre MARC-ETIENNE BOUCHER ( BCF s.e.n.c.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 LES ENTREPRISES COMMERCIALES HEXAGONE INC. 9324-9928 QUÉBEC INC. 9328-5021 QUÉBEC INC. 9325-0041 QUÉBEC INC. Mtre BERTRAND GIROUX Mtre MARC-ETIENNE BOUCHER ( BCF s.e.n.c.r.l. )

AVIVA COMPAGNIE D’ASSURANCE DU CANADA Mtre MARC DUCHESNE ( Borden Ladner Gervais, s.e.n.c.r.l., s.r.l. ) PRICEWATERHOUSECOOPERS INC. Mtre MICHEL LA ROCHE ( Miller Thomson SENCRL / LLP ) BRIDGING FINANCE INC.

Mtre LUC BÉLIVEAU ( Fasken Martineau DuMoulin SENCRL, s.r.l. ) DESCRIPTION : 500-09-026460-162 Application for leave to appeal of a judgment rendered on October 28, 2016 by the Honourable Brian Riordan of the Superior Court, District of Montreal (section 13 of the Companies’ Creditors Arrangement Act ) 500-09-026464-164 Application for leave to appeal of a judgment rendered on October 28, 2016 by the Honourable Brian Riordan of the Superior Court, District of Montreal (section 13 of the Companies’ Creditors Arrangement Act ) Clerk: Adam Scott Courtroom: RC.18 HEARING Continuation of January 24, 2017 hearing. 16:32 Commencement of the hearing.

Counsel had been advised that judgment would be rendered on the minutes of the hearing and their presence in Court was not required. 16:33 BY THE JUDGE: Judgment – see page 5. Conclusion of the hearing. (

s) Adam Scott Clerk

BY THE JUDGE JUDGMENT [ 1 ] I am seized of two applications for leave to appeal from a judgment rendered in the course of proceedings by the Superior Court, District of Montreal, (the Honourable Brian Riordan), on October 28, 2016, in a matter relating to the Companies’ Creditors Arrangement Act . [1] The judge granted a motion pursuant to sections 11 and 11.52(1)(

c) CCAA brought by the respondents, subcontractors of the debtors, asking that they be named representatives of the whole group of subcontractors, that their fees and disbursements for legal counsel as representatives be paid from the patrimonies of the debtors, and that those fees and disbursements be secured by a first-ranking charge up to an amount of $100,000. [ 2 ] Virtually identical in substance, the applications for leave have been filed, respectively, by Bridging Finance Inc., the lender, and by Les Investissements Hexagone inc., Location Hexagone inc. and Groupe Hexagone s.e.c., the debtors, and are governed by

section 13 CCAA. *** [ 3 ] In his reasons, the judge provided a useful account of the debtors’ restructuring proceedings for which he is the named supervising judge under section 9(2) CCAA. For present purposes, it is sufficient to note that the debtors are construction companies that undertook contracts with government entities, including the cities of Montreal and Laval. The debtors have been unable to collect amounts receivable and, as a result, have not paid certain of their subcontractors. The latter have no real security against the clients’ property because that property forms part of the public domain.

The subcontractors subsequently claimed payment from the debtors’ sureties who have been slow or refused to pay. [ 4 ] Some 140 subcontractors are owed what the judge estimated to be a total amount of $25 million. [ 5 ] The respondents Béton Brunet 2001 inc., Béton Brunet ltée and Bruneau électrique inc. filed the application before the judge to be appointed representatives of all unpaid subcontractors, including subcontractors who had filed claims with certain of the debtors’ sureties.

They argued that it was neither practical nor fair to oblige all of the subcontractors to retain separate legal counsel in order to attend each CCAA hearing when, in most respects, their position in the proceedings was similar if not identical. The respondents described the group as dispersed and vulnerable.

Furthermore, they asked that, after verification by the monitor, the debtors pay reasonable fees and disbursements of their legal counsel and that those amounts be secured by a $100,000 charge with priority over all other hypothecs and securities, including that of the lender, Bridging Finance Inc., which has the first-ranking charge, with the exception of the administrative charge granted by the initial order. [ 6 ] The debtors and the sureties opposed the respondents’ motion on the grounds that the request was premature and, as the dossier evolved, might well not be necessary.

Moreover, they contended that the applicable criteria for granting a charge on the debtors’ assets were not satisfied. The monitor also took the view that the order sought by the respondents was premature. [ 7 ] The judge granted the respondents’ request to be named representatives of the subcontractor and to have their legal fees and disbursements paid by the debtors as part of the restructuring, on conditions.

He also granted a first-ranking security for the legal fees up to a fixed amount. [ 8 ] Citing the leading case of Canwest , [2] he set out the factors that courts have considered in deciding motions for representation and payment. The judge rejected arguments brought by the debtor and the sureties that the criterion of vulnerability of the group seeking representation had not been satisfied.

He noted that it was plain, considering the amounts of their respective claims and the costs of legal fees, that each subcontractor was not likely to invest the time and money to retain individual counsel through the proceedings. It was, however, in the interest of justice that they participate in the file, especially given that the subcontractors are likely to be the most affected by the outcome. He saw representation by the subcontractors as advantageous to the debtors.

He found the balance of inconvenience favoured granting the order. [ 9 ] The judge went on to consider whether it was necessary to order a charge to protect payment of the legal fees. [ 10 ] After noting that such a measure was only ordered when essential to the success of the proceedings, the judge concluded that there were aspects of the file that justified granting the priority in the circumstances. These include the fact that one of the goals of the CCAA process here was, by the debtors’ own account, that the subcontractors be paid as much as possible.

Moreover, he was of the view that the presence of the representatives would save time and money for all parties, including the debtors. [ 11 ] After weighing factors considered by the courts in the jurisprudence, he decided that the priority would be justified if the questions which the representatives would take up and the amount of the priority were limited.

He also indicated that the fees would be limited to what was reasonable in the circumstances, and charged the monitor with reviewing the amounts, subject to oversight by the court. *** [ 12 ] Firstly, the petitioners argue that the judge erred in law in issuing the order under

section 11 CCAA. Specifically, they submit

that there was no proof presented to establish the vulnerability or limited resources of the subcontractors and no evidence was adduced to show of any benefit to the debtors resulting from the representation and payment order. In the petitioners’ view, the lack of evidence in respect of the factors identified as relevant to this kind of order means the judgment should be reversed. [ 13 ] Secondly, in respect of the first-ranking security of $100,000 ordered by the judge pursuant to

section 11.52(1)(c), the petitioners say that no evidence was adduced to show that the representatives’ priority charge was, for the subcontractors, “necessary for the effective participation in the proceedings / nécessaire pour assurer [leur] participation efficace aux procedures”. Indeed, in the petitioners’ view, the judge justified his decision to grant the representatives’ priority charge based on the wrong criteria. *** [ 14 ] The parties agree that test to be applied by a judge in chambers in deciding whether to exercise his or her discretion to grant leave pursuant to

section 13 CCAA is four-pronged and that each of the four factors must be satisfied for leave to be granted. [3] They are: (

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 proceedings. [ 15 ] In applying this test, judges in this Court and elsewhere in Canada have underscored that leave is granted sparingly given the nature of the powers afforded the judge presiding over the CCAA matter. [4] *** [ 16 ] I turn immediately to the third criterion for leave, which was the principal point of disagreement before me.

Is the proposed appeal prima facie meritorious? [ 17 ] The question should be addressed in respect both of the representation and payment order, issued under

section 11 CCAA, and the order that the fees be secured by a first-ranking charge under

section 11.52(1)(c). [ 18 ] The petitioners insist that the judge misapplied the relevant factors to the subcontractors’ motion brought under

section 11. They do not suggest that he erred in his identification of the relevant factors, but contend that he wrongly concluded that the subcontractors were vulnerable in the absence of any evidence to that end. [ 19 ] A careful examination of the reasons for judgment suggests the judge made no such mistake. [ 20 ] The judge had in hand, as he noted in paragraphs [18] and [19], a list of the subcontractors’ claims in order of their importance. He explained that they ranged from $1,011.78 to over $3 million and that they benefitted from no security over the assets of the debtors or the governmental clients.

On that basis, he concluded that the vulnerability of the subcontractors was “apparent” when one compared the cost, for most of them, of participating in the proceedings and the benefit that, individually, they might secure through being present. [ 21 ] It cannot therefore be said that there was no evidence of vulnerability. It is true that the specifics of each subcontractor’s patrimonial circumstances were not alleged. But it seems reasonable to consider that, in some cases, the vulnerability of a stakeholder, as this factor is relevant to a representation and payment order, cannot be reduced to impecuniosity.

Section 11 representation orders are not limited to widows and orphans; indeed stakeholders in a variety of circumstances, with different kinds of claims and resources – employees, retirees, investors, subcontractors and others – are possible beneficiaries of such an order. It was not unreasonable for the judge to consider that the subcontractors’ claims were vulnerable, given the cost of individual participation, as opposed to a focus on the wherewithal of each of the 140 subcontractors.

Moreover, the fact that the judge chose not to insist that the subcontractors band together to engage counsel to represent them, appropriate in some cases, [5] does not impugn his decision here. As he explained, requiring them to agree on such an arrangement would have been impractical. [ 22 ] In any event, “vulnerability” is only one of a series of factors to be weighed in deciding whether representation is appropriate.

As noted, the judge took into account the benefit of representation to the efficiency of the proceedings and found, as well, that the debtors too would be helped by the subcontractors’ representation. Contrary to what the petitioners argued before me, the judge did cite evidence of this advantage in paragraphs [27] to [31].

The relevance and weight attributed to other factors were carefully explained. [ 23 ] The order appointing representatives and order payment is indeed one that required the judge to weigh the relevant factors and decide which of them, based on the facts at hand, justified or not the order. [6] As such, the order is discretionary in nature. Judges seized of applications for leave under

section 13 CCAA have regularly refused leave given that discretionary decisions of this type are understood to deserve a high degree of deference on appeal.

As Newbury, J.A. wrote for the British Columbia Court of Appeal in one case, “an appellate court should not interfere with the exercise of discretion in the present context where the question is one of weight or degree of importance to be given to particular factors, rather than a failure such factors or the correctness, in the legal sense, of the conclusion”. [7] Similarly, the Court of Appeal for Ontario has explained that, once it has been determined that factors have been properly identified by a CCAA judge in respect of a discretionary decision, an appeal court should not intervene, noting that “[t]he weight to be assigned to these various factors was a matter for the motion judge”. [8] In this light, considering the discretionary character of the order, an appeal on this point would have no reasonable prospect of success. [ 24 ] It bears mentioning that the judge not only placed a cap on the amount of the security but, no doubt mindful that fees and disbursements can be substantial in contentious proceedings, he took care to limit the questions in respect for which the representatives could seek advice that would be paid by the debtors.

As noted, he placed the reasonability of the fees under the watch of the monitor. If the event of disputes, the judge retained the final word. The petitioners were wrong to complain before me that the judge had

incautiously approved “unlimited” fees – he consciously did not give a blank cheque to the representative, but took care, after balancing interests, to create a regime for payment of fees that he felt was fair in the circumstances.

This was a highly fact-driven determination and, rightly so, judges of this court have declined to grant leave in respect of this kind of decision except in rare circumstances of palpable and overriding errors. [9] Here again, an appeal would, in my view, be destined to fail. [ 25 ] In a similar way, an appeal of the judge’s decision to order security in the amount of $100,000 would have no reasonable chance of success. [ 26 ] There is no question that the judge cited the right standard in law under

section 11.25(1)(

c) CCAA: that the court be satisfied that the charge is necessary for the effective participation of the subcontractors in the proceedings. The CCAA specifies that the charge be set “in an amount that the court considers appropriate”, signalling the discretionary character of the decision. [ 27 ] Again, the judge weighed the relevant factors and decided, based on the evidence before him and his knowledge of the file as CCAA supervising judge, that the first-ranking charge – with the $100,000 cap – was appropriate.

The petitioners’ argument that he did so without evidence of it being necessary does not address the logistical reasons that the judge invoked to explain his decision in paragraphs [43] and [44]. Those were based, in particular, on the number and diversity of the claims, and the fact that they were dispersed, all of which was made out in proof. [ 28 ] His choice to have the charge rank ahead even of the security of the lender was not manifestly wrong, and was predicated, in part, on his view that the effective participation of the subcontractors is essential to the restructuring.

His view that the order was to the advantage of all parties, who would profit from the economy of scale of dealing with one legal counsel rather than dozens of lawyers, is reasonable. Fixing the cap on the amount of the security at $100,000 was prudent, taking into account interests of others, including those of the lender. Again, this is a matter that falls within the discretionary authority of the judge who, given his on-going supervision, is best placed to make a fair order.

His decision is therefore deserving of deference. [ 29 ] The aspect of the decision relating to the charge has also been viewed as fact-driven and discretionary by judges who have been called upon to decide leave applications. In this setting too, judges have declined to see appeals on the matter as having sufficient prima facie merit to justify leave under

section 13 CCAA. [10] [ 30 ] I would add that appeals on discretionary decisions such as these, where the presiding judge made no apparent error in identifying the applicable law and weighed the appropriate factors in coming to a decision, rarely evince sufficient merit to secure leave. This is in large part because appellate courts understand that a judge who presides over a CCAA file is called on to make numerous discretionary decisions like the ones at issue here in the course of proceedings as part of the restructuring.

The courts recognize that a judge in a like position is entitled to a degree of latitude and deference. In Edgewater Casino Inc. (Re) , [11] the B.C. Court of Appeal wrote of the sufficient prima facie merit criterion as follows: [19] The third of the above factors involves a consideration of the merits of the appeal. In non-CCAA proceedings, a justice will be reluctant to grant leave where the order constitutes an exercise of discretion by the judge because the grounds for interfering with an exercise of discretion are limited: see Silver Standard Resources Inc. v. Joint Stock Co. Geolog , [1998] B.C.J.

No. 2298 (C.A. Chambers) . Most orders made in CCAA proceedings are discretionary in nature, and the normal reluctance to grant leave to appeal is heightened for two reasons alluded to in the comments of Macfarlane J.A. [20] First, one of the principal functions of the judge supervising the CCAA proceeding is to attempt to balance the interests of the various stakeholders during the reorganization process, and it will often be inappropriate to consider an exercise of discretion by the supervising judge in isolation of other exercises of discretion by the judge in endeavouring to balance the various interests.

Secondly, CCAA proceedings are dynamic in nature and the supervising judge has intimate knowledge of the reorganization process. The nature of the proceedings often requires the supervising judge to make quick decisions in complicated circumstances.

These considerations are reflected in the comment made by Madam Justice Newbury in New Skeena Forest Products that “[a]ppellate courts also accord a high degree of deference to decisions made by Chambers judges in CCAA matters and will not exercise their own discretion in place of that already exercised by the court below” (para. 20). [ 31 ] The judge here was in a similar circumstance and this dictum of the B.C. Court, transposed to the present case, suggests strongly that no viable appeal lies from the judgment a quo . [ 32 ] This is sufficient to dismiss the appeal.

I would add, in closing, that the practice would learn little from an appeal here. The dispute turns on the judge’s appreciation of facts specific to the case, the probative value of the evidence, the exercise of discretion and the peculiarities of the contractual arrangements between the parties. No point of principle is involved. This is a further reason not to grant leave.

FOR THE FOREGOING REASONS , the undersigned: [ 33 ] DISMISSES the application for leave to appeal of Bridging Finance Inc., with legal costs; [ 34 ] DISMISSES the application for leave to appeal of Les investissements Hexagone inc., Location Hexagone inc. and Groupe Hexagone, s.e.c., with legal costs. NICHOLAS KASIRER , J.A.