2016 QCCA 1306, 2016 QCCA 1306

Bluberi Gaming Technologies Inc. (Arrangement relatif à) 2016 QCCA 1306 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-026217-166 (500-11-049737-154) DATE: AUGUST 17, 2016 PRESIDING: THE HONOURABLE NICHOLAS KASIRER, J.A. IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT , R.S.C. 1985, c C-36, AS AMENDED: BLUBERI GAMING TECHNOLOGIES INC. BLUBERI GROUP INC. BLUBERI USA, INC. RESPONDENTS – debtors and CALLIDUS CAPITAL CORPORATION PETITIONER – petitioner and ERNST & YOUNG INC.

IMPLEADED PARTY – monitor and THE REGISTRAR OF THE REGISTER OF PERSONAL AND MOVABLE REAL RIGHTS IMPLEADED PARTY – impleaded party CORRECTED JUDGMENT [ 1 ] In the judgment rendered on August 12, 2016, a clerical error was made at paragraph [33]. Thus, said judgment must be corrected by replacing paragraph [33] with the following paragraph: [33] DISMISSES the motion, with legal costs against the petitioner. NICHOLAS KASIRER, J.A. Mtre Ari Yan Sorek (absent) Dentons Canada LLP For the respondents – debtors Mtre François Viau (absent) Mtre Denis St-Onge (absent) Gowling WLG (Canada) S.E.N.C.R.L., s.r.l.

For the petitioner – petitioner Mtre Joseph Reynaud (absent) Stikeman Elliott s.e.n.c.r.l., s.r.l. For the impleaded party – monitor

Bluberi Gaming Technologies Inc. (Arrangement relatif à) 2016 QCCA 1306 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-026217-166 (500-11-049737-154) DATE: AUGUST 12, 2016 PRESIDING: THE HONOURABLE NICHOLAS KASIRER, J.A. IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT , R.S.C. 1985, c C-36, AS AMENDED: BLUBERI GAMING TECHNOLOGIES INC. BLUBERI GROUP INC. BLUBERI USA, INC. RESPONDENTS – debtors and CALLIDUS CAPITAL CORPORATION PETITIONER – petitioner and ERNST & YOUNG INC.

IMPLEADED PARTY – monitor and THE REGISTRAR OF THE REGISTER OF PERSONAL AND MOVABLE REAL RIGHTS IMPLEADED PARTY – impleaded party JUDGMENT [1] Sitting as judge in chambers pursuant to sections 13 and 14 of the Companies’ Creditors Arrangement Act [1] (“CCAA”), I am seized of an application for leave to appeal from a judgment of the Superior Court, District of Montreal (the Honourable Jean-François Michaud), rendered on June 23, 2016, granting an “Application for the issuance of an approval and vesting order and for an extension of the stay of proceedings” presented by the respondents (“Bluberi”).

The CCAA Judge approved a transaction whereby the petitioner (“Callidus”) would acquire the assets of Bluberi pursuant to an Asset Purchase Agreement (“APA”), based on a credit bid from Callidus, following a sale solicitation process put in place with the approval of the Superior Court. Callidus is the primary secured creditor of Bluberi.

The Callidus offer was made for an amount of the entirety of its claim against Bluberi, minus $3M. [ 2 ] In so doing, the CCAA Judge issued the following order in paragraph [35] of the judgment in appeal: WHEREFORE THE COURT […] [35] DECLARES and ORDERS that any and all forms of interest, costs, penalties, fees or other additional amounts shall cease to accrue and be accounted for as of and from the Risk Shifting Date, as such terms are defined in the APA. [ 3 ] The petitioner submits that the declaration and order in paragraph [35] amounts to a misuse of the CCAA Judge’s discretionary power and should be corrected.

On the merits of the appeal for which leave is sought, Callidus seeks only that paragraph [35] be struck and the remainder of the judgment be left unchanged. [ 4 ] To that end, the petitioner asks me to grant leave and to suspend the order that the judgment be susceptible of provisional execution notwithstanding appeal. [ 5 ] For the reasons that follow, I am of the view that leave should not be granted. *** [ 6 ] In its motion for leave, the petitioner observes that the terms of the APA were the subject of intense negotiations following the conditional acceptance of the Callidus Bid. [2] The purchase price, set out in

Article 5, is the amount of the “Callidus Debt” less the “Undischarged portion of the Callidus Debt” (defined, as the motion notes, to be $3M). The parties agreed to conduct the sale in two

stages between the date of the execution of the APA on June 13, 2016, and the date of closing. The purchasers designated Callidus’ representative Mr Mike Starzynski to act as manager of Bluberi during the two periods. During the first period, while the purchasers verify certain authorizations, Mr Gérald Duhamel, one of Bluberi’s principals, would continue to act as both an officer and director of Bluberi.

From the time Callidus obtained the authorizations, which is likely to coincide with the defined “Risk Shifting Date” prior to closing, Mr Starzynski would have more substantial management responsibilities over Bluberi. (The petitioner describes these responsibilities as “effective operational control of Bluberi” in the application for leave). Mr Duhamel would step down as an officer but would stay on as a director and retain, with the Monitor, a right to be consulted on material decisions. [ 7 ] A reserve clause was included in

Article 2.2(2) of the APA in the

section entitled “Callidus Debt”: the Bluberi companies, as vendors, reserved the right to include in the CCAA vesting order a declaration from the CCAA court that the “Callidus Debt shall not accrue any additional interests, costs, penalties, fees or other additional amounts as of and from the Risk Shifting Date”. *** [ 8 ] In the minutes of the hearing of June 22, 2016 giving rise to the judgment on appeal, the CCAA Judge explained that three issues were in dispute in respect of the “Application for the Issuance of an Approval and Vesting Order and for the Extension of the Stay of Proceedings”.

The first of these turned on whether interest on the Callidus’ claims against Bluberi should continue to run after the Risk Shifting Date as defined in in the APA. The CCAA Judge outlined the disagreement: Callidus took the position that because the purchase price represents essentially the amount of its claim, there was no reason that interest should not continue to accrue until closing. Bluberi argued that

Article 2.2(

A) allowed them to ask the CCAA Judge to declare that interest should not run after the Risk Shifting Date. Pointing to the wording in the APA, Bluberi argued that Callidus will “uncontrovertibly” have complete control of the debtor at that time, before closing, which justified its request that interest should not run thereafter. [ 9 ] The CCAA Judge considered the parties’ opposing positions in light of the two-stage sale process put in place by the APA.

He noted that during the second period, Callidus’ designate Starzynski “aura les pleins pouvoirs de gestion de l’entreprise, ce qui signifie qu’il contrôlera les revenus et dépenses”. From that time, Callidus would have the control of the debtors’ business. “D’ailleurs”, he reasoned, “le APA prévoit à la clause 10.8 que les risques de l’entreprise cessent d’être à la charge des débitrices à compter du Risk shifting date ”.

He concluded: “Puisant dans ses pouvoirs discrétionnaires en vertu de la LACC, le Tribunal conclut que les intérêts doivent cesser de courir à compter du Risk shifting date , même si le transfert de propriété ne s’effectuera que quelques mois plus tard”. [ 10 ] The CCAA Judge noted that the parties had to arrive at a compromise in order to finalize the Callidus purchase. This resulted in a two-stage process bearing on the management and the conduct of business during each of the two periods.

He took the view that it was reasonable to conclude, in the “contexte particulier de cette affaire”, that Callidus be precluded from accumulating interest on its claim from the moment at which it controlled the income and expenses of the business. *** [ 11 ] The petitioner argues that the CCAA Judge erred in deciding that interest would not accrue after the Risk Shifting Date. It says that the decision is based on an erroneous presumption that as of that date, Callidus would have control of Bluberi.

In fact, under the APA, Mr Starzynski will have operational control as a representative of Bluberi along with all the obligations that entails to Bluberi stakeholders. Contrary to what the CCAA Judge suggested in the minutes of the hearing, Callidus in no way has control of Bluberi’s assets prior to closing. [ 12 ] Counsel for the petitioner points to language in the Callidus’ “Credit Bid”, which the CCAA Judge is said to have failed to consider. This was the offer that was selected at the end of the sales solicitation process.

In the view of coursel, various provisions of the Credit Bid indicate that the debt owed to Callidus would be considered to be paid at the “Closing Date”. On this basis, counsel says, interest should accrue until that date. [ 13 ] Moreover, the CCAA Judge is said to have erred when he suggested that allowing interest to continue accruing would somehow provide Callidus with an advantage at the expense of Bluberi. While there is a negative impact for Callidus, the CCAA Judge’s decision has no real effect on Bluberi.

Instead, says the petitioner, it benefits Bluberi’s principal, Mr Duhamel, who has personally guaranteed a relevant portion of Bluberi’s debt. [ 14 ] Callidus submits that leave should be granted because the question is one of capital importance. The CCAA Judge is said to have exercised his discretion unreasonably, contrary to what is permissible under the statute, by amending pre-existing loan agreements.

This is the case not only by reason of the harm it suffers, but also “because of the potential impact on the stability of commercial lending in Quebec and Canada resulting from the unilateral modification of contractual terms of loan agreements by the court”. *** [ 15 ] The test for leave under the CCAA is well known.

In Re Stomp Pork Farm Ltd ., [3] Jackson, J.A. wrote for the Saskatchewan Court of Appeal: [15] In a series of cases emanating first from British Columbia and then from Quebec, Alberta and Ontario, there has developed a consensus among the Courts of Appeal that leave to appeal an order or decision made under the CCRA should be granted only where there are serious and arguable grounds that are of real significance and interest to the parties and to the practice in general.

The test is often expressed as a four-part one: 1. whether the issue on appeal is of significance to the practice; 2. whether the issue raised is of significance to the action itself; 3. whether the appeal is prima facie meritorious or, on the other hand, whether it is frivolous; and,

4. whether the appeal will unduly hinder the progress of the action. [ 16 ] Judges sitting in chambers of this Court have consistently applied this four-part test. The four criteria are understood to be cumulative, with the result that if a petitioner fails to establish any one of them, the motion for leave will be dismissed.

In Statoil Canada Ltd. (Arrangement relative à) , [4] my colleague Hilton, J.A. alluded to the oft-repeated injunction that a petitioner seeking leave to appeal faces a heavy burden given the role of a CCAA judge, given the discretionary character of the decisions he or she must make and the nature of the proceedings. He recalled the longstanding cautionary note that motions for leave should only be granted “sparingly”. [5] [ 17 ] The grounds upon which a stay of provisional execution notwithstanding appeal may be granted by a judge in chambers are also well known.

Applying the principles developed in the law of civil procedure to this case, I note that the petitioner must show that the judgment suffers from a plain weakness; that failing to grant the stay would cause it serious harm (sometimes characterized as irreparable harm); and that the balance of inconvenience favours granting a stay. *** [ 18 ] The first of the four criteria for leave is the decisive one here: what is the importance of the question to the practice? [ 19 ] Callidus argues that the point on appeal – the power of the CCAA Judge to modify the terms of loan agreements in place between the parties – is of significance to the practice in that the recognition of such a power would undermine the stability of commercial lending in the country.

It contends that

section 34 CCAA should be read as a limit on the power of a judge in like circumstances to “amend” existing agreements.

Section 34 provides that no person may amend an agreement with a debtor by reason only that the debtor has commenced CCAA proceedings. [ 20 ] I disagree that the question is an important one for the practice as this criterion is understood in the cases. [ 21 ] It should first be recalled that the CCAA Judge was seized of the application for approval of the transaction and vesting order pursuant to sections 9 , 11 and 36 CCAA .

His task was to consider whether the proposed transaction for the sale of assets met with the objectives of the CCAA and was appropriate given, inter alia , the factors set out in subs. 36(4) CCAA. The CCAA Judge was exercising the discretion afforded to him by statute in order to see to the orderly progress of the action for all stakeholders.

As this Court has observed, such exercise of discretion is deserving of deference on appeal. [6] While that discretion is not unfettered, the petitioner has the burden of showing that it was done so unreasonably or beyond the vast powers accorded to the CCAA judge to oversee the dynamic process of arrangement put in place by statute. [ 22 ] In order to determine whether the sale of assets should be approved, the CCAA Judge had to interpret the APA, which agreement, as noted above, had been subject to intense negotiations between sophisticated parties in a fact-specific context.

As part of the exercise of approval, he had to decide whether Bluberi could invoke the right it claimed, based on

Article 2.2(2) of the APA, given the competing interests of the various stakeholders in the CCAA process. To do so, he read the APA as a whole in an effort to discern whether it would be appropriate to stop the accrual of interest considering matters relating to ownership and control of the assets. [ 23 ] The issue before the CCAA Judge in deciding whether or not interest would run from the Risk Shifting Date was understood by all to be one in which an understanding of the two-stage process put in place by the parties in the APA was central. As is plain from the minutes of the hearing, the parties argued the case as one rooted essentially in contractual

interpretation. Callidus founded its

interpretation for continued accrual of the interest based on Articles 5.1 and 5.6 of the APA, provisions dealing with the terms of payment of the purchase price. On the other hand, Bluberi insisted that

Article 2.2(2) of the APA gave it the right to ask for an order that interest not run after the “Risk Shifting Date”, as defined in the APA. [ 24 ] The CCAA Judge wrote: Le APA est construit de manière à ce que les parties aient avantage à ce que les deux périodes se déroulent rondement. Si les intérêts sur la créance de Callidus devaient continuer à courir après le Risk shifting date , Callidus se verrait avantagée au détriment des débitrices qui ont accepté de céder le contrôle de l'entreprise avant le transfert de propriété afin que la transaction se réalise, et ce, principalement dans l'intérêt des employés.

Dans le cadre d'un dossier standard, le transfert de propriété aurait eu lieu en même temps que le transfert du risque. Ce n'est pas possible ici en raison de la nature des activités de Bluberi. Dans les circonstances, le Tribunal juge que les intérêts doivent cesser de courir à compter du transfert des risques, soit à compter du Risk shifting date , tel que défini au APA. [ 25 ] The outcome thus turned on the CCAA Judge’s evaluation of the parties’ intention, as expressed in large measure in the APA, in the highly-regulated context in which Bluberi operated leading to the exceptional two-stage sale process.

To my mind, the matter in dispute raises a question relating primarily to contractual

interpretation of an agreement – the APA of June 13, 2016 – signed by the parties after the CCAA process commenced.

This is understood to be of fact or, at best, a mixed question of fact and law. [7] It is a well- established principle that the exercise of discerning the parties’ intention is a discretionary matter on which appellate courts show deference because of its highly factual dimension. [8] Additionally, as the CCAA Judge noted, the issue arises in a highly particular, fact- specific context which further limits the possibilities of extrapolating general principles of CCAA law from this case. [ 26 ] Calludus’ argument that the CCAA Judge misconstrued the Credit Bid is based on the idea that this offer from Callidus, which pre-dated the APA, is more relevant to determining to whether interest should cease prior to the Closing Date than the subsequent agreement.

Whether or not this was argued in first instance, it seems to me that it was reasonable for the CCAA Judge to conclude that the APA explained how the parties understood the relationship between control and ownership of the assets over the two-stage acquisition process. Moreover, the parties agreed to include the reserve in

Article 2.2(2) in the APA as part of the CCAA process. The petitioner’s position would seem to strip that provision of all meaning. The CCAA Judge’s

interpretation of the arrangement that the parties had agreed to separate control and ownership of the assets of Bluberi as of the Risk Shifting Date, and that this date was key to determining whether interest should accrue, is reasonable.

[27] In any event, given the discretionary character of the decision the CCAA Judge was called on to make under the statute, andgiven the fact-specific nature of the considerations relevant to arriving at the decision, I am of the view that the questions raised by themotion for leave are of primary interest to the parties. A pronouncement on appeal in this setting would have little precedential value andfew if any lessons for the practice.

Nothing in the motion suggests to me that the CCAA Judge’s discretion was exercised in anunreasonable manner or that by deciding to stop the accrual of interest on the Risk Shifting Date he violated any limit on hisdiscretionary powers set forth in the CCAA. [28] I would add that I fail to see an issue relating to the proper ambit of a judge’s discretion in respect of the limit in

section 34CCAA. The key issue here is the meaning to be given to the APA, to which both parties agreed with the benefit of input from theMonitor, after the commencement of the CCAA process. [29] My finding that the point at issue is not of importance to the practice is sufficient to dismiss the application for leave. [30] I recognize that the point raised is not insignificant to the action, and that an appeal might not unduly hinder the progress of theaction. I am harder pressed to conclude that the proposed appeal is prima facie meritorious: while it is of course possible for an appealcourt to reverse a CCAA Judge on a matter of contractual

interpretation, it would take at the least the demonstration of a palpable andoverriding error. Considering all the grounds set forth in the application for leave, I fail to see the germ of such an argument. [31] In the circumstances, the request for a stay is without further object. [32] FOR THE FOREGOING REASONS, the undersigned: [33] DISMISSES the motion, with legal costs against the respondent. NICHOLAS KASIRER, J.A.

Mtre Ari Yan SorekDentons Canada LLPFor the respondents – debtors Mtre François Viau Mtre Denis St-OngeGowling WLG (Canada) S.E.N.C.R.L., s.r.l.For the petitioner – petitioner Mtre Joseph ReynaudStikeman Elliott s.e.n.c.r.l., s.r.l.For the impleaded party – monitor Date of hearing: August 10, 2016 [5] L’interprétation d’un contrat est une affaire de fait ou, au mieux, mixte de fait et de droit, s’agissant dans chaque cas de découvrir lacommune intention des parties (art. 1425 C.c.Q.). La norme d’intervention en appel est donc celle de l’erreur manifeste et déterminante(Sattva Capital Corp. c.

Creston Moly Corp., 2014 SCC 53 , [2014] 2 R.C.S. 633, paragr. 49-53).