2017 NLCA 35, 2017 NLCA 35

Wabush Hotel Limited (first appellant) and L.H. Service Center Limited (second appellant) and D.P.B. Holdings Limited (third appellant) v. Business Development Bank of Canada (respondent) (16/68) Indexed As: Wabush Hotel Limited v. Business Development Bank of Canada 2017 NLCA 35 1 C.A.N.L.R. 783 Court of Appeal of Newfoundland and Labrador Green C.J.N.L., Harrington and Hoegg JJ.A. May 25, 2017

Summary: The appellant debtors appealed a court appointment of a receiver, PricewaterhouseCoopers Inc. (PWC), obtained by the respondent, Business Development Bank of Canada (BDC), pursuant to

section 243 of the Bankruptcy and Insolvency Act , RSC 1985, c. B-3 ( BIA ), to manage the assets, undertakings, and property of the debtors following default on business loans made to them primarily by BDC and Bank of Montreal. Leave to appeal had previously been granted. The two issues on appeal were (

i) whether the receiver ought to have been precluded from acting due to an alleged conflict of interest; and (ii) whether the form of receivership order was appropriate. Held: Appeal dismissed. Harrington J.A. (Green C.J.N.L. and Hoegg J.A. concurring): The standard of review is correctness for questions of law. Findings of fact, however, are not to be reversed unless it can be established that the trial judge made a ‘palpable and overriding error’.

The appellants argue that PWC could not be appointed as receiver, because PWC was in a conflict of interest resulting from its previous acceptance of a mandate from BDC to assist the appellants in financial restructuring efforts which were unsuccessful.

PWC’s engagement letter, signed on behalf of the debtors, provided that “PricewaterhouseCoopers Inc. [was] not precluded from accepting any other mandate in respect of the Company, including but not limited to appointments under statute or by court order should circumstances so warrant.” It is clear from the mandate set forth in PWC’s engagement letter that PWC could not be found to be in a conflict of interest position. No attempt was made by the appellants to challenge the validity of the engagement letter on the basis of non est factum, duress, unconscionability or otherwise.

The applications judge did not err in appointing PWC as receiver. The second issue raised before the Court was whether the applications judge erred in failing to include a realization or claims plan in the receivership order given that there were alleged to be multiple creditors.

The realization and claims plan outlined in the Court’s previous case law, was appropriate for a procedure related to a large and complex bankruptcy proceeding involving significant numbers of secured and unsecured creditors and complicated by the fact that many of the same assets were claimed to be security for debt by multiple creditors.

This was not the situation in the case at bar and a more detailed and complex plan would not have been appropriate to this receivership proceeding given that the assets of the three related companies were all located in Labrador West and financing for the debtors was provided principally by BDC, the creditor seeking the receivership

order, and the Bank of Montreal. Furthermore, in this case, it was not appropriate for the appellant to raise these arguments on appeal since it was not a matter in dispute at the time the matter came before the applications judge. There were no errors by the applications judge and the appeal was dismissed. Cases cited: Midnight Marine Ltd. v. Lloyd’s Underwriters , 2010 NLCA 64 , 302 Nfld. & P.E.I.R. 85 620320 Saskatchewan Ltd. v. PricewaterhouseCoopers Inc., 2003 SKQB 175 , 235 Sask. R. 239 Hickman Equipment

(1985) Ltd. (Receivership), Re. , 2004 NLSCTD 164 , 241 Nfld. & P.E.I.R. 294 R. v. O’Keefe (No. 2), 2012 NLCA 25 R. v. R. (K.) , 2009 ONCA 156 Counsel: Ernest Gittens and Leah Grouchy, for the appellants; Darren D. O’Keefe and Megan Taylor, for the respondent; Neil Jacobs Q.C. and Joe Thorne, for PricewaterhouseCoopers Inc. The appeal was heard on March 8, 2017 before Green C.J.N.L., Harrington and Hoegg JJ.A.

The following judgment was delivered on May 25, 2017 by Harrington J.A. for the Court. ______________________________________________________________ Harrington J.A.: INTRODUCTION [ 1 ] The appellants (debtors) appeal the court appointment of a receiver, PricewaterhouseCoopers Inc. (PWC), obtained by the respondent, Business Development Bank of Canada (BDC), pursuant to

section 243 of the Bankruptcy and Insolvency Act , RSC 1985, c. B-3 ( BIA ), to manage the assets, undertakings, and property of the debtors following default on business loans made to them primarily by BDC and Bank of Montreal. Leave to appeal was granted by this Court ( 2016 NLCA 47 ). [ 2 ] When the proceeding seeking court appointment of a receiver came before the applications judge, BDC claimed that it was owed an aggregate amount of $7.2 million including interest (the debt) by the appellants. BDC sent letters of demand for payment to each of the debtors.

The demands for payment and the notices of intention to enforce security were served by registered mail on March 31, 2016. The debtors failed to make any payments to BDC on the debt and were six months in arrears by the time BDC referred the matter to the Trial Division. [ 3 ] BDC filed an originating application in the Trial Division on April 13, 2016 seeking an order for a court-appointed receiver to manage the assets, undertakings, and property of the debtors.

In a reply to the application dated April 25, 2016 the appellants admitted that they were in arrears with respect to mortgage payments to BDC and Bank of Montreal. The receivership order was granted on June 29, 2016 and PWC was named as the receiver. ISSUES [ 4 ] The two issues on appeal are (

i) whether the receiver ought to have been precluded from acting due to an alleged conflict of interest; and (ii) whether the form of receivership order issued by the applications judge at the request of BDC and the receiver was appropriate. BDC further submits that the issues raised by the appellants were brought forward for the first time on appeal, are without merit and should be dismissed. STANDARD OF REVIEW [ 5 ] The appropriate standard of review in appeals of this nature was summarized in this Court’s decision in Midnight Marine Ltd. v. Lloyd’s Underwriters, 2010 NLCA 64 , 302 Nfld. & P.E.I.R. 85 at para. 26 :

The appropriate standard of review to be applied by an appellate court was set out in Housen v. Nikolaisen , 2002 SCC 33 , [2002] 2 S.C.R. 235 . Iacobucci and Major JJ. stated for the majority, at paras. 8 and 10: On a pure question of law, the basic rule with respect to the review of a trial judge’s findings is that an appellate court is free to replace the opinion of the trial judge with its own.

Thus the standard of review on a question of law is that of correctness… . … The standard of review for findings of fact is that such findings are not to be reversed unless it can be established that the trial judge made a ‘palpable and overriding error’ … .

ANALYSIS Conflict of Interest [ 6 ] The appellants seek to set aside the order of the applications judge appointing PWC as receiver for BDC on the basis that PWC was in a conflict of interest resulting from its previous acceptance of a mandate from BDC to assist the appellants in financial restructuring efforts which were unsuccessful. [ 7 ] The evidence before the applications judge was that PWC at the request of BDC had signed an engagement letter with the debtors on December 23, 2015.

The engagement letter acknowledged the mandate to PWC in the following terms: The Company, at the request of BDC, has asked PWC to review restructuring and cost reduction activities to date, and assist the Company in developing a business plan that moves the Company towards sustainability, without jeopardizing the Company’s future operations. (Emphasis added.) [ 8 ] In the

section entitled “Scope of Our Services” at page 2 of the engagement letter, the following text appears: The Company will grant us full access to its business operation, all assets, and books and records. We will have no management responsibility or control over the Company’s operations and will take no responsibility for any decisions or actions by or on the part of the Company ; such responsibilities remain with the Company. (Emphasis added.) [ 9 ] Finally, the

section of the engagement letter entitled “Confirmation of Terms of Engagement – Company” and signed by Mr. Enault on behalf of the three debtor companies, confirmed that Mr.

Enault was aware of and agreed to the appointment of PWC which would not be in a conflict of interest as outlined: The undersigned further understands that PricewaterhouseCoopers Inc. is not precluded from accepting any other mandate in respect of the Company, including but not limited to appointments under statute or by court order , should circumstances so warrant. (Emphasis added.) [ 10 ] It is also significant that the engagement letter signed by BDC and accepted by the appellants precluded seeking to revoke the mandate given to PWC. [ 11 ] In the case of 620320 Saskatchewan Ltd. v.

PricewaterhouseCoopers Inc., 2003 SKQB 175 , 235 Sask. R. 239 , PWC was in a similar relationship to a debtor, having been appointed as a monitor to assess and report on the bank’s security position with respect to loans made to a third party. The engagement letter in that case provided that PWC would not be conflicted out as receiver or trustee in bankruptcy if those matters subsequently arose.

When the debtor later sought determination of whether the fees charged by the receiver were fair and reasonable in the circumstances, the question of whether PWC was in a conflict due to its monitor role was raised and dismissed by the court. Registrar Herauf concluded, at paragraph 4: I mention the point relating to PWC as both a “monitor” and receiver to show that it was specifically recognized that there would be no conflict if PWC was appointed receiver.

In fact, even without the acknowledgement in the engagement letter, it would appear logical and cost effective to ensure that the monitor would be the receiver if that eventuality occurred.

This would avoid the potential for duplication and increased fees by the appointment of an entity that had not already become familiar with the debtor companies through the previous work carried out as a monitor. (Emphasis added.) [ 12 ] In the proceeding before this Court, BDC submits that the debtors knew about and consented to the potential possibility that PWC could be appointed receiver and cannot now claim PWC should be discharged due to conflict of interest. BDC also submits that the debtors have failed to establish any negative effects relating to the allegation of conflict.

There is no evidence to suggest that PWC in any way contributed to the default on the borrowings from BDC and it is clear from the evidence that the receivership application was inevitable. [ 13 ] It is clear from the terms of the engagement letter, signed on behalf of the debtors, that PWC could not be found to be in a conflict of interest position given the clear mandate set forth in the engagement letter. No attempt was made by the appellants to challenge the validity of the engagement letter on the basis of non est factum, duress, unconscionability or otherwise.

I would reject the argument that PWC was in a conflict of interest in acting as receiver. Accordingly, the applications judge did not err in appointing PWC

as receiver. Failure to Include Realization Plan and Claims Plan [ 14 ] The second issue raised before this Court was whether the applications judge erred in failing to include a realization or claims plan in the receivership order given that there were alleged to be multiple creditors and that BDC and Bank of Montreal were not the sole creditors. The appellants relied on a decision of Justice Hall in Hickman Equipment

(1985) Ltd.(Receivership), Re. , 2004 NLSCTD 164 , 241 Nfld. & P.E.I.R. 294 , where a claims plan was developed by the receiver in conjunction with the bankruptcy court. [ 15 ] The respondent submits the nature of the realization plan set forth in Hickman Equipment is reflective of a detailed plan and procedure related to a large and complex bankruptcy proceeding involving significant numbers of secured and unsecured creditors and complicated by the fact that many of the same assets were claimed to be security for debt by multiple creditors. This was not the situation here.

I am satisfied that the realization and claims plan outlined in Hickman Equipment would not have been appropriate to this receivership proceeding given that the assets of the three related companies were all located in Labrador West and financing for the debtors was provided principally by BDC and Bank of Montreal. [ 16 ] BDC and the receiver contend that the appellant should be prohibited from raising the arguments on appeal since it was not a matter in dispute at the time the matter came before the applications judge. [ 17 ] Counsel for the debtors referred to this Court’s reasons in R. v.

O’Keefe (No. 2), 2012 NLCA 25 regarding the Court’s jurisdiction to allow new issues on appeal. This Court declined to intervene regarding matters not properly raised in the Court citing, at paragraph 27, the following reasons of Doherty J.A. in R. v. R. (K.) , 2009 ONCA 156 : … While appeal courts do resolve evidentiary disputes from time to time in the course of deciding appeals, appellate procedures are not designed for that purpose. The appellate forum and its procedures are not adapted to the weighing of evidence and the finding of facts. Appeal courts review decisions made at trial.

The appeal process is premised on the issues under appeal having been vetted in the trial court and subjected to the reasoned analysis of the trial court.

If a new argument put forward on appeal can only be effectively and fairly resolved by conducting what amounts to the trial of an issue or several issues in the appellate court, the appellate court should, absent exceptional circumstances where the interests of justice require otherwise, decline to resolve the new issue raised on appeal . (Emphasis added.) [ 18 ] Finally, I find that in the circumstances of this case, it is not necessary for the Court to revisit the receivership management plan that was agreed upon by the parties and ordered by the Court.

I would therefore reject this submission by the appellants. CONCLUSION AND DISPOSITION [ 19 ] In the result, I would dismiss the appeal with costs to the respondent at column 3 of the Scale of Costs. Appeal dismissed .