Royal Bank of Canada v. Eastern Infrastructure Inc., 2019 NSSC 297

SUPREME COURT OF Nova Scotia Citation: Royal Bank of Canada v. Eastern Infrastructure Inc., 2019 NSSC 297 Date: 20191010 Docket: 483616 Registry: Halifax Between: Royal Bank of Canada Plaintiff v. Eastern Infrastructure Inc. and Allcrete Restoration Limited Defendant Decision Judge: The Honourable Justice Peter P. RosinskiHeard: September 19, 2019, in Halifax, Nova Scotia Counsel: Gavin MacDonald, for Royal Bank of Canada Stephen Kingston, for the Receiver By the Court: Introduction [1] The companies herein have previously been placed into receivership.

The Receiver has requested that, inter alia, I authorize anApproval and Vesting Order (Auction) to allow it to sell assets of the companies that are encumbered.

While it appears that such ordershad been granted by this court as recently as 2011 (re-Scanwood Canada Limited, Halifax number 342377, per John Murphy, J.), morerecent decisions have concluded that, absent legislation providing this court the authority to do so, this court has no jurisdiction to grantsuch vesting orders. [2] Speaking only for myself on this issue and with the greatest of respect to those holding contrary opinions, I am satisfied that,although there is no distinctly expressed basis in Nova Scotian legislation to do so, this court does have jurisdiction pursuant to s.243(1)(

c) the Bankruptcy and Insolvency Act (BIA) to grant such vesting orders. I find it appropriate to do so in the circumstances ofthis case[1]. The authority for vesting orders pursuant to s. 243(1)(

c) BIA [3] Regarding the concern that such orders should no longer be granted on the basis of the authority provided by section 243(1)(

c) BIA, based on decisions by Justices Michael Wood (as he then was) and Moir, wherein they concluded there was no suchjurisdiction to do so (Enterprise Cape Breton Corp. v Crown Jewel Resort Ranch Inc., 2014 NSSC 420 and Royal Bank of Canada v 2MFarms Ltd., 2017 NSSC 105), I note that Justice Wood relied on an Ontario Court of Appeal decision, Regal Constellation Hotel Ltd.,Re, (ON CA), [2004] O.J. No. 2744, in making his obiter dicta (para 22) comment regarding jurisdiction.

That decisionsuggested that such vesting orders must be grounded in legislation, such as the Ontario legislation, the Courts of Justice Act (para. 31Regal). [4] As Justice Blair stated for the court in Regal: [23] Underlying these considerations are the principles the courts apply when reviewing a sale by a court-appointed receiver. Theyexercise considerable caution when doing so, and will interfere only in special circumstances -- particularly when the receiver has beendealing with an unusual or difficult asset.

Although the courts will carefully scrutinize the procedure followed by a receiver, they relyupon the expertise of their appointed receivers, and are reluctant to second-guess the considered business decisions made by the receiverin arriving at its recommendations. The court will assume that the receiver is acting properly unless the contrary is clearly shown. See

Royal Bank of Canada v. Soundair Corp. (1991), (ON CA), 4 O.R. (3d) 1, 83 D.L.R. (4th) 76 (C.A.). [24] In Soundair, at p. 6 O.R., Galligan J.A. outlined the duties of a court when deciding whether a receiver who has sold a property hasacted properly. Those duties, in no order of priority, are to consider and determine: (

a) whether the receiver has made a sufficient effort to get the best price and has not acted improvidently; (b)the interests of the parties; (

c) the efficacy and integrity of the process by which offers are obtained; and (

d) whether there has been unfairness in the working out of the process. [25] In Soundair as well, McKinlay J.A. emphasized [at p. 19 O.R.] the importance of protecting the integrity of the procedures followedby a court-appointed receiver "in the interests of both commercial morality and the future confidence of business persons in their dealingswith receivers". [26] A court-appointed receiver is an officer of the court.

It has a fiduciary duty to act honestly and fairly on behalf of all claimants withan interest in the debtor's property, including the debtor (and, where the debtor is a corporation, its shareholders). It must make candidand full disclosure to the court of all material facts respecting pending applications, whether favourable or unfavourable. See Toronto-Dominion Bank v. Usarco Ltd. (2001), (ON CA), 196 D.L.R. (4th) 448, 17 M.P.L.R. (3d) 57 (Ont. C.A.), per AustinJ.A. at paras. 28-31, and the authorities referred to by him, for a more elaborate outline of these principles.

It has been said with respectto a court-appointed receiver's standard of care that the receiver "must act with meticulous correctness, but not to a standard ofperfection": Bennett on Receiverships, 2nd ed. (Toronto: Carswell, 1999) at p. 181, cited in Toronto-Dominion Bank v. Usarco, supra, atp. 459 D.L.R. [27] The foregoing principles must be kept in mind when considering the exercise of discretion by the motions judges in thecontext of these proceedings. … [31] In Ontario, the power to grant a vesting order is conferred by the Courts of Justice Act, R.S.O. 1990, c. C.43, s. 100, whichprovides as follows: 100.

A court may by order vest in any person an interest in real or personal property that the court has authority to order be disposed of,encumbered or conveyed. [32] The vesting order itself is a creature of statute, although it has its origins in equitable concepts regarding the enforcement ofremedies granted by the Court of Chancery. Vesting orders were discussed by this court in Chippewas of Sarnia Band v.

Canada(Attorney General) (2000), (ON CA), 51 O.R. (3d) 641 195, D.L.R. (4th) 135 (C.A.) at pp. 726-27 O.R., p. 227D.L.R., where it was observed that: Vesting orders are equitable in origin and discretionary in nature. The Court of Chancery made in personam orders, directing parties todeal with property in accordance with the judgment of the court. Judgments of the Court of Chancery were enforced on proceedings forcontempt, followed by imprisonment or sequestration.

The statutory power to make a vesting order supplemented the contempt power byallowing the court to effect the change of title directly: see McGhee, Snell's Equity, 30th ed., (London: Sweet and Maxwell, 2000) at pp.41-42. (Emphasis added) [33] A vesting order, then, has a dual character. It is on the one hand a court order ("allowing the court to effect the change of titledirectly"), and on the other hand a conveyance of title (vesting "an interest in real or personal property" in the party entitled thereto underthe order).

This duality has important ramifications for an appeal of the original court decision granting the vesting order because, in myview, once the vesting order has been registered on title, its attributes as a conveyance prevail and its attributes as an order are spent; thechange of title has been effected. Any appeal from it is therefore moot. [34] I reach this conclusion for the following reasons. … [45] Vesting orders properly registered on title, then -- like other conveyances -- are not immune from attack.

However, any such attackis limited to the remedies provided under the Land Titles Act and no longer may lie by way of appeal from the original decision grantingthe vesting order. Title has effectively been changed and innocent third parties are entitled to rely upon that change. The effect of thevesting order qua order has been spent.” [5] Notably, the BIA has changed since the issuance of the Regal decision, however it does not appear that that factor was broughtto Justice Wood’s attention.

As a result of the legislative change the Ontario Court of Appeal itself has given a much morecomprehensive decision recently that comes to the opposite result, namely, in Third Eye Capital Corporation v Ressources Dianor Inc.,2019 ONCA 508 per Pepall JA: “(

e) Section 243 of the BIA 43 The BIA is remedial legislation and should be given a liberal

interpretation to facilitate its objectives: Ford Motor Company ofCanada, Limited v. Welcome Ford Sales Ltd., 2011 ABCA 158, 505 A.R. 146, at para. 43; Nautical Data International Inc., Re, 2005NLTD 104, 249 Nfld. & P.E.I.R. 247, at para. 9; Re Bell, 2013 ONSC 2682, at para. 125; and Scenna v. Gurizzan (1999), 1999

15005 (ON SC) , 11 C.B.R. (4th) 293 (Ont. S.C.) , at para. 4 . Within this context, and in order to understand the scope of s. 243 , it is helpful to review the wording, purpose, and history of the provision. The Wording and Purpose of s. 243 44

Section 243 was enacted in 2005 and came into force in 2009. It authorizes the court to appoint a receiver where it is "just or convenient" to do so. As explained by the Supreme Court in Saskatchewan (Attorney General) v. Lemare Lake Logging Ltd. , 2015 SCC 53 , [2015] 3 S.C.R. 419 , prior to 2009, receivership proceedings involving assets in more than one province were complicated by the simultaneous proceedings that were required in different jurisdictions. There had been no legislative provision authorizing the appointment of a receiver with authority to act nationally.

Rather, receivers were appointed under provincial statutes, such as the CJA, which resulted in a requirement to obtain separate appointments in each province or territory where the debtor had assets. "Because of the inefficiency resulting from this multiplicity of proceedings, the federal government amended its bankruptcy legislation to permit their consolidation through the appointment of a national receiver": Lemare Lake Logging , at para.

Section 243 was the outcome. 45 Under s. 243, the court may appoint a receiver to, amongst other things, take any other action that the court considers advisable. Specifically, s. 243(1) states: 243(1).

Subject to subsection (1.1), on application by a secured creditor, a court may appoint a receiver to do any or all of the following if it considers it to be just or convenient to do so: (a)take possession of all or substantially all of the inventory, accounts receivable or other property of an insolvent person or bankrupt that was acquired for or used in relation to a business carried on by the insolvent person or bankrupt; (b)exercise any control that the court considers advisable over that property and over the insolvent person's or bankrupt's business; or, (c)take any other action that the court considers advisable. 46 "Receiver" is defined very broadly in s. 243(2), the relevant portion of which states: 243(2) [I]n this Part, receiver means a person who (a)is appointed under subsection (1); or (b)is appointed to take or takes possession or control -- of all or substantially all of the inventory, accounts receivable or other property of an insolvent person or bankrupt that was acquired for or used in relation to a business carried on by the insolvent person or bankrupt -- under (i)an agreement under which property becomes subject to a security (in this Part referred to as a "security agreement"), or (ii)a court order made under another Act of Parliament, or

an Act of a legislature of a province, that provides for or authorizes the appointment of a receiver or a receiver -- manager. [Emphasis in original.] 47 Lemare Lake Logging involved a constitutional challenge to Saskatchewan's farm security legislation. The Supreme Court concluded, at para. 68, that s. 243 had a simple and narrow purpose: the establishment of a regime allowing for the appointment of a national receiver and the avoidance of a multiplicity of proceedings and resulting inefficiencies.

It was not meant to circumvent requirements of provincial laws such as the 150 day notice of intention to enforce requirement found in the Saskatchewan legislation in issue. … 71 In contrast, as I will discuss further, typically the nub of a receiver's responsibility is the liquidation of the assets of the insolvent debtor. There is much less debate about the objectives of a receivership, and thus less of an impetus for legislative guidance or codification. In this respect, the purpose and context of the sales provisions in s. 65.13 of the BIA and s. 36 of the CCAA are distinct from those of s. 243 of the BIA .

Due to the evolving use of the restructuring powers of the court, the former demanded clarity and codification, whereas the law governing sales in the context of receiverships was well established. Accordingly, rather than providing a detailed code governing sales, Parliament utilized broad wording to describe both a receiver and a receiver's powers under s. 243 .

In light of this distinct context and legislative purpose, I do not find that the absence of the express language found in s. 65.13 of the BIA and s. 36 of the CCAA from s. 243 forecloses the possibility that the broad wording in s. 243 confers jurisdiction to grant vesting orders.

Section 243 -- Jurisdiction to Grant a Sales Approval and Vesting Order 72 This brings me to an analysis of the broad language of s. 243 in light of its distinct legislative history, objective and purposes. As I have discussed, s. 243 was enacted by Parliament to establish a receivership regime that eliminated a patchwork of provincial proceedings. In enacting this provision, Parliament imported into s. 243(1)(

c) the broad wording from the former s. 47(2)(

c) which courts

had interpreted as conferring jurisdiction to direct an interim receiver to do not only what "justice dictates" but also what "practicalitydemands". Thus, in interpreting s. 243, it is important to elaborate on the purpose of receiverships generally. 73 The purpose of a receivership is to "enhance and facilitate the preservation and realization of the assets for the benefit of creditors":Hamilton Wentworth Credit Union Ltd. v. Courtcliffe Parks Ltd. (1995), (ON SC), 23 O.R. (3d) 781 (Gen. Div.), at p.787. Such a purpose is generally achieved through a liquidation of the debtor's assets: Wood, at p. 515.

As the Appeal Division of theNova Scotia Supreme Court noted in Bayhold Financial Corp. v. Clarkson Co. Ltd. and Scouler (1991), 108 N.S.R. (2d) 198(N.S.C.A.), at para. 34, "the essence of a receiver's powers is to liquidate the assets". The receiver's "primary task is to ensure thatthe highest value is received for the assets so as to maximise the return to the creditors": 1117387 Ontario Inc. v. National TrustCompany, 2010 ONCA 340, 262 O.A.C. 118, at para. 77. 74 This purpose is reflected in commercial practice.

Typically, the order appointing a receiver includes a power to sell: see for examplethe Commercial List Model Receivership Order, at para. 3(k). There is no express power in the BIA authorizing a receiver to liquidate orsell property. However, such sales are inherent in court-appointed receiverships and the jurisprudence is replete with examples: see e.g.bcIMC Construction Fund Corp. v. Chandler Homer Street Ventures Ltd., 2008 BCSC 897, 44 C.B.R. (5th) 171 (in Chambers), RoyalBank v. Fracmaster Ltd., 1999 ABCA 178, 11 C.B.R. (4th) 230, Skyepharma PLC v. Hyal Pharmaceutical Corp. (1999), 12 C.B.R. (4th)87 (Ont.

S.C.), aff'd (2000), (ON CA), 47 O.R. (3d) 234 (C.A.). 75 Moreover, the mandatory statutory receiver's reports required by s. 246 of the BIA direct a receiver to file a "statement of all propertyof which the receiver has taken possession or control that has not yet been sold or realized" during the receivership (emphasis added):Bankruptcy and Insolvency General Rules, C.R.C. c. 368, r. 126 ("BIA Rules"). 76 It is thus evident from a broad, liberal, and purposive

interpretation of the BIA receivership provisions, including s. 243(1)(c), that implicitly the court has the jurisdiction to approve a sale proposed by a receiver and courts have historically acted onthat basis. There is no need to have recourse to provincial legislation such as s.100 of the CJA to sustain that jurisdiction. 77 Having reached that conclusion, the question then becomes whether this jurisdiction under s. 243 extends to theimplementation of the sale through the use of a vesting order as being incidental and ancillary to the power to sell. In my view itdoes. I reach this conclusion for two reasons.

First, vesting orders are necessary in the receivership context to give effect to thecourt's jurisdiction to approve a sale as conferred by s. 243. Second, this

interpretation is consistent with, and furthers thepurpose of, s. 243. I will explain.” [6] Thus, the obiter dicta in Crown Jewel has been superseded by legislative change. Justice Moir did not cite any other authoritythan Crown Jewel. [7] Lemare Logging was released one year after Justice Wood made his comments in Crown Jewel. Although Nova Scotia doesnot have express provincial legislation giving the court jurisdiction to make such vesting orders, it is clear that in appropriatecircumstances courts can rely on s 243(1)(

c) BIA to do so. In Dianor, the court cited Crown Jewel at para. 78, noting that “…the caselaw on vesting orders in the insolvency context is limited.” [8] Regarding what are the appropriate circumstances to make such orders, I keep in mind Justice Duncan’s list of considerationsset out in Bank of Montréal v. Sportsclick Inc., 2009 NSSC 354 at paras 32-33, which the court will eventually apply to all such sales: “Law 32 In Royal Bank of Canada v.

Soundair Corp., supra, Galligan J.A. set out at paragraph 16, the duties which a court must performwhen deciding whether a Receiver who has sold a property acted properly, which duties he summarized as follows: 1.It should consider whether the Receiver has made a sufficient effort to get the best price and has not acted improvidently. 2.It should consider the interests of all parties. 3.It should consider the efficacy and integrity of the process by which offers are obtained. 4.It should consider whether there has been unfairness in the working out of the process. 33 Certain principles have been enunciated by the courts in consideration of these points: The decision must be assessed as a matter of business judgment on the elements then available to the Receiver.

That is the function ofReceiver and "... to reject [such] recommendation ... in any but the most exceptional circumstances ... would materially diminish andweaken the role and function of the Receiver both in the perception of receivers and in the perception of any others who might haveoccasion to deal with them." see, Anderson J. in Crown Trust v. Rosenberg (1986), (ON SC), 60 O.R. (2d) 87 at112; the primary interest is that of the creditors of the debtor although that is not the only nor the overriding consideration. The interests ofthe debtor must be taken into account.

Where a purchaser has bargained at some expense in time and money to achieve the bargainthen their interest too should be taken into account. see, Soundair at para. 40; the process by which the sale of a unique asset is achieved should be consistent with commercial efficacy and integrity. In Crown TrustCo. v. Rosenberg, supra, at page 124, Anderson J. said:

While every proper effort must always be made to assure maximum recovery consistent with the limitations inherent in the process, no method has yet been devised to entirely eliminate those limitations or to avoid their consequences. Certainly it is not be found in loosening the entire foundation of the system.

Thus to compare the results of the process in this case with what might have been recovered in some other set of circumstances is neither logical nor practical. a court should not reject the recommendation of Receiver except in special circumstances where the necessity and propriety of doing so is plain. see, Crown Trust Co. , supra .” Conclusion [ 9 ] As a matter of law, and on the circumstances in this case, I am prepared to grant the Approval and Vesting Order (Auction) as drafted. Rosinski, J Appendix “A”

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