2013 QCCA 851, 2013 QCCA 851

Bock inc. (Arrangement relatif à) 2013 QCCA 851 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-023545-130 (500-11-044467-138) DATE: May 10, 2013 PRESIDING: THE HONOURABLE MARIE-FRANCE BICH, J.A. IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED: BOCK INC. RESPONDENT – petitioner and RAYMOND CHABOT INC.

RESPONDENT – monitor and CNH CANADA LTD (CASE) PETITIONER – opposing creditor and NATIONAL BANK OF CANADA IMPLEADED PARTY JUDGMENT [ 1 ] The debtor company, Bock inc., applied for relief under the Companies' Creditors Arrangement Act , R.S.C. 1985, c. C-36 ( CCAA ). On April 19, 2013, the Superior Court (Lalonde, J.) granted its “Motion to Take Up and Continue under the Companies' Creditors Arrangement Act Proceedings Commenced Under

Part III of the Bankruptcy and Insolvency Act and for the Issuance of an Initial Order and Other Reliefs”. The petitioner is unsatisfied with the following orders and seeks leave to appeal in this respect only: [150] ORDONNE que l’avis de résiliation transmis par CNH Canada Ltd. (« CASE ») le 28 mars 2013 (l’ «

Avis de résiliation ») en relation avec le Case Construction Equipment Sales and Service Agreement daté du 22 juin 1992 (tel qu’amendé le 18 décembre 2009 par le Addendum to Case Construction Equipment Sales and Service Agreement , le « Contrat ») est suspendu par la présente Ordonnance jusqu’à ce qu’il en soit décidé autrement par la cour. [151] ORDONNE à CASE de respecter toutes et chacune de ses obligations aux termes du Contrat et de se conformer à chacune des ordonnances rendues aux présentes, tant que la présente ordonnance sera en vigueur (incluant tout renouvellement de la présente ordonnance) et jusqu’à ce qu’il en soit décidé autrement par la cour. [ 2 ] The petitioner also seeks the suspension of provisional execution of these orders. [ 3 ] In Statoil Canada Ltd. (Arrangement relatif à) , [1] my colleague Hilton, J.A. recently summarized the four cumulative conditions that must be fulfilled before leave to appeal may be granted in such matters, according to s. 13 CCAA : [3] A threshold issue is the criteria to be considered upon such an application for leave.

Based on the judgment of Wittman, J.A., as he then was, in Resurgence Asset Management LLC v.

Canadian Airlines Corp ., [reference omitted] there are four such criteria: • whether the point on appeal is of significance to the practice; • whether the point raised is of significance to the action itself; • whether the appeal is prima facie meritorious, or, on the other hand, whether it is frivolous, and; • whether the appeal will unduly hinder the progress of the action. [4] Judges of this Court to whom such applications have been addressed have held unanimously that the four criteria are cumulative; with the result that an applicant's failure to establish any one of them will result in the dismissal of the application. [reference omitted] In addition, it is also generally understood that an applicant carries a heavy burden in order to obtain leave, and that appellate courts will only grant such applications sparingly.

[ 4 ] The motion for leave to appeal raises the following questions : 39. Case seeks leave to appeal on the following questions in connection with the Judgment: A. Did the Motion Judge have the power and jurisdiction to grant the Safeguard Provisions? B. Did the Motion Judge err in ordering the specific performance of the Contract and forcing its “revival” after its termination? C. Did the Motion Judge err in considering that the status quo for the purposes of the order sought by Bock is the situation existing prior to the issuance of the Notice of Termination? D.

Did the Motion Judge err in his application of the safeguard order criteria to the evidence in the present case. [ 5 ] The last of these four grounds of appeal would not justify that leave be granted: it is a mere question of fact and the Court, considering the deferential standard of appellate review in such matters, would not intervene. [ 6 ] These three other grounds, however, which can be considered together, do raise an interesting question of law. [ 7 ] The situation, indeed, is unusual.

The debtor company and the petitioner were both parties to a distribution agreement entered into in 1992 (which renewed prior agreements of the same kind) and which had no determinate term. This agreement contained the following provision (the debtor company is the “Concessionaire” and the petitioner is the “Société”): 13. Le présent contrat demeurera en vigueur jusqu'à ce que l'une des parties ou les deux le résilient, conformément à ce qui suit : (

a) le présent contrat peut être résilié en tout temps pour quelque raison que ce soit sur préavis écrit de trente (30) jours par le Concessionnaire à la Société, de quatre-vingt-dix (90) jours par la Société au Concessionnaire, ou par entente mutuelle écrite des deux parties; ou (

b) la Société peut mettre fin immédiatement au présent contrat lors de la réalisation de l'un ou l'autre des événements suivants : […] viii) le défaut du Concessionnaire de se conformer à l'une ou l'autre des dispositions du présent contrat. [ 8 ] The debtor company having failed for three years to meet its annual market-share targets under the agreement, the petitioner, during the course of 2012, sent four notices of default, stating the agreement would be terminated or on about February 28, 2013.

In the meantime, the debtor company, with the help of the firm which is now its monitor, tried to sell its business and/or assets, the most important of which is the distribution agreement with the petitioner. [ 9 ] The petitioner was kept informed at all times of the efforts of the debtor company. Two offers were made by third parties, one of which was much more lucrative than the other and would have allowed the debtor company to pay all or most of its creditors, and also to reimburse its shareholders (at least in part).

The petitioner, however, refused to accept this potential purchaser, who did not satisfy its requirements, and declined to acquiesce to the transfer of the agreement.

Shortly thereafter, on March 28, 2013, the petitioner, considering that the debtor company was unable to remedy its defaults under the agreement (which is indeed the case), sent a notice of immediate termination of the agreement. [ 10 ] The termination may well have been abusive (and this is indeed what Lalonde, J. concluded), the prejudice caused to the debtor company by this immediate termination irreparable, the matter urgent and the petitioner not inconvenienced by the “revival” of the agreement, but the basic question remains: can a judge acting under s. 11 CCAA order the cancellation of a notice of termination and order the specific performance of such an agreement, even as a safeguard measure?

Considering the judgments of the Court in BMW Canada inc. v. Automobiles Jalbert inc. , 2006 QCCA 1068 , J.E. 2006-1694, and 9077-0801 Québec inc. v.

Société des loteries vidéo du Québec inc. , 2012 QCCA 885 , J.E. 2012-1050 (motion for leave to appeal to the Supreme Court dismissed, 2012-12-06, 34924 and 34923), this would appear to be a debatable proposition under the Civil Code of Quebec (and also at common law). [2] Can it be otherwise under the CCAA , especially when the notice of termination is considered to be invalid? [ 11 ] The question is undoubtedly interesting as it deals directly with the nature and extent of s. 11 CCAA and the powers vested in the courts to reengineer the contractual relationships of a debtor company.

It is also a question that has never been addressed by our court nor, apparently, by other courts of appeal in Canada. I am of the view that it satisfies the first and third criteria set out in Statoil Canada Ltd. [ 12 ] I am also of the view, however, that, considering the particular circumstances of this case, the other two criteria are not satisfied.

Granting leave to appeal would indeed most likely jeopardize the course of the action and cause irreparable harm to the debtor company and, consequently, all other stakeholders (creditors, employees, etc.). [ 13 ] The debtor company and its monitor are actively engaged in the process of selling the business. A call for tender has been issued and preliminary offers are to be opened on May, 14, 2013. Should a suitable offer be made, that would satisfy the petitioner's transfer requirements, the matter would then be resolved amicably, and profitably, for all interested parties.

The debate – and the appeal, if leave were to be granted – would become moot. [ 14 ] Moreover, the initial order itself expires on May 17, 2013, and has to be renewed at that time. At the hearing of the motion for leave to appeal, the debtor company, the monitor and one of the creditors, the National Bank of Canada (who is financing the current operations of the debtor company), have indicated that, in the absence of a potentially interesting buyer on May 14, 2013, bankruptcy was the most probable outcome, and that the action would not be left to linger indefinitely. Most likely, the order will not be renewed if

the opening of the preliminary offers shows no prospect of a sale, and if it were renewed, it could only be for a short time, in order to facilitate a transition towards bankruptcy. [ 15 ] A few days after the hearing, I was informed that the debtor company and its monitor apparently intend to ask for renewal of the initial order, for a duration of 30 to 45 days.

In my opinion, this does not change the situation: the debtor company and its monitor may well seek the renewal of the order, but they might not obtain it and the petitioner may convince the judge, this time around, that forcing specific performance of the distribution agreement is impossible or inappropriate. [ 16 ] At worst (for petitioner), were Lalonde, J's order be renewed and the petitioner not only forced to abide by the distribution agreement but then forced to accept a transfer to a third party, the situation could be brought anew to the attention of the Court of Appeal, under s. 13 CCAA .

One may of course wonder why a third party would be interested in acquiring rights under a contract that is subject to termination at will, being without a term, and considering clause 13 of the agreement. In any event, should such an order be issued, the matter would most likely be of interest to the Court, pursuant to s. 13 CCAA . [ 17 ] In addition, the initial order rendered in the present case by Lalonde, J. is in the nature of a safeguard order.

The Court, whether acting under the CCAA or not, is ordinarily reluctant to grant leave to appeal of such orders, that are by nature temporary, can easily be modified and are not res judicata . [ 18 ] Granting leave to appeal of Lalonde, J's order, which expires next week, could mean either that the appeal will have become moot by the time of the hearing or that the Court will find itself confronted with a factual situation which will have evolved considerably. Neither is desirable. [ 19 ] Is the suspension of the proceedings before the Superior Court the answer to this problem? In my opinion, it is not.

Staying the proceedings would cause irreparable harm to the debtor company and render bankruptcy unavoidable. At the very least, it would cause delays that will put its survival at risk and, consequently, jeopardize the interests of all other stakeholders. On the other hand, not granting leave to appeal is not prejudicial to the petitioner, who has not convinced me that it will suffer because of the continuation, for a few weeks (or even a few months), of the contractual relationship with the debtor company (which was the petitioner's distributor for over 50 years).

FOR THESE REASONS, I : [ 20 ] DISMISS the motion for leave to appeal, with costs. MARIE-FRANCE BICH, J.A. Mtre Simon-Luc Dallaire Mtre Mathieu Lévesque BORDEN LADNER GERVAIS For the petitioner Mtre Guy Paul Martel Mtre Danny Duy Vu STIKEMAN ELLIOTT For the respondent Bock inc. Mtre Luc Béliveau FASKEN MARTINEAU DUMOULIN For the respondent Raymond Chabot inc. Mtre Philippe Henri Bélanger McCARTHY TÉTRAULT For the impleaded party Date of hearing: May 6, 2013