Goldenkey Oil Inc (Re), 2023 ABKB 365

Court of King’s Bench of Alberta Citation: Goldenkey Oil Inc (Re), 2023 ABKB 365 Date: 20230616 Docket: B201 906009 Registry: Calgary In the Matter of the Notice of Intention to Make a Proposal of Goldenkey Oil Inc. _______________________________________________________ Endorsement of the Honourable Justice M. J. Lema _______________________________________________________ I.

Introduction [ 1 ] This is a costs decision following the dismissal in 2023 ABKB 263 of Goldenkey’s application for approval of a proposed litigation trust and financing arrangement as part of a potential BIA proposal. [ 2 ] For the reasons below, I find that each party shall bear its own costs. II.

Analysis [ 3 ] The parties provided written submissions on costs, responding to the invitation at para 30 of the decision. [ 4 ] I first note that Indepth is seeking costs from Goldenkey alone i.e. the company that filed a notice of intention to make a proposal i.e. is not seeking costs against the proposal trustee. [ 5 ] I have decided that no costs are payable here i.e. each side shall bear its own costs, for these reasons: A. per Manitok Energy Inc (Re) , 2018 ABQB 488 (Horner J.), there is “an established practice in insolvency cases of having the parties bear their own costs” (para 28).

See also BA Energy Inc (Re) , 2010 ABQB 507 (Romaine J.) – “the usual practice with respect to costs in commercial insolvency applications [is that the parties] bear their own costs.” Manitok Energy was a receivership; BA Energy was a CCAA matter; B. both decisions acknowledge that costs may be awarded, depending on the circumstances i.e. the “bear own costs” practice is not an inviolable rule ( Manitok Energy – “no basis [in this case] to deviate from the established practice ...” (para 28); BA Energy – “not an

appropriate case [here] to depart from the usual practice ...” (para 66), which squares with s. 197 BIA (in part): “Subject to this Act and to the General Rules, the costs of and incidental to any proceedings in court under this Act are in the discretion of the court”; C. in SemCanada Crude Company (Orleans Energy Ltd) (Re) , 2013 ABQB 102 (para 5 ), Romaine J. referred again to the established approach to costs in commercial insolvencies. She emphasized the compulsory nature of a claims-adjudication process (there, in a CCAA proceeding) and the typical disposition of “applications that are heard in a

summary manner during the course of negotiations leading to a plan of arrangement.” She found that the litigation in question fell outside the scope of such (standard-drill) applications, warranting a costs award (paras 6 and 7); D. in Canada North Group Inc (CCAA) , 2020 ABQB 12 , Hillier J. stated that “[t]he starting point on CCAA insolvency matters is that, as a matter of practice, as distinct from substantive law, each party will often bear its own costs” (para 10).

He noted that, however, “[t]he Court does ... consider cost awards where appropriate,” giving as examples of justifying circumstances “unusual applications, unreasonable positions, unnecessary steps, or misconduct which impacts the timing or costs associated with winding up [an] estate” (paras 10 and 11).

Hillier J. awarded costs against a party asserting ownership of certain assets, finding its conduct “was blameworthy enough to merit some [costs-based] deterrence” (para 26); E. this CanLII search --“ Bankruptcy and Insolvency Act ” and “notice of intention” or proposal and “proposal trustee” and costs -- yielded 45 Alberta decisions, only one of which featured a costs award in a proposal or NOI context, namely, Re Gagnon , 2021 ABQB 583 (my decision), which I decided without any awareness of the established or usual approach to costs in insolvency or restructuring settings and on which I did not invite submissions from the parties. (I acknowledge that, in many of the 45 cases, costs submissions were invited if the parties could not agree on costs; however, as far as I can tell, none of them led to further decisions (or at least published decisions) on costs); F. in YG Limited Partnership and YSL Residences (Re) , 2021 ONSC 5478 , Dunphy J. elaborated helpfully on what appears to be a similar bear-own-costs practice for restructuring matters in Ontario: There is a practice in our Commercial Court of not awarding costs in restructuring matters – be they under the CCAA or under the BIA – except in relatively narrow circumstances.

There are multiple reasons for that practice . Restructuring litigation is quintessentially “real-time litigation.” It takes place in tight time-lines often with very large stakes. It relies on the integrity of the professionals involved and on the application by all of them of the “three C’s” of the Commercial List: cooperation, communication and common sense. Diverting scarce court time and resources to side-battles about costs is distracting and seldom productive . More importantly, the process is not a classic adversarial civil proceeding.

The procedure is not primarily aimed at finding who is right and who is wrong. Many if not most of the stakeholders are involuntary participants. They did not ask for their debtor to become insolvent. They and all other stakeholders are ultimately reacting to a restructuring process made available to debtors by Parliament. The process is one whose very existence and proper unfolding is in the public interest.

The process benefits from having a forum for stakeholder views to be brought forward, considered and taken into account in moving from the first steps in the process to its conclusion as swiftly and economically as possible. In most cases, the risks of deterioration of value are significant and grow with time. Unlike fine wines, restructuring transactions seldom improve with age. There is a very real risk that the process would suffer from costs being used as a form of sanction to discourage stakeholders from bringing their perspectives to the fore .

The common thread in these cases is usually the common desire to maximize outcomes for as many stakeholder groups as can reasonably be accommodated consistent with the various public policy and statutory requirements that must be considered. Regardless of the outcome on a particular issue, the goal is that as many stakeholders as possible are able to “win” as much as reasonably possible by reason of a fairly conducted process. This is ultimately what happened here.

Various stakeholders brought their divergent perspectives to the fore and these were taken into account as the debtors moved from the initial filing of a Notice of Intention through the filing of an initial Proposal, the holding of a meeting to vote upon that proposal and then hearings to consider whether to approve it in its original form or as subsequently amended in accordance with its terms . The result was a greatly improved Proposal that benefitted secured and unsecured creditors as well as equity holders.

At no point in the process have I questioned the good faith or propriety of the actions of the Proposal Sponsor. The Proposal Sponsor was a third party who was invited to consider a commercial opportunity and did so. It had the institutional stomach for enduring the rough and tumble dynamic of a restructuring process whose uncertain course would deter many less steady hands. The process ultimately benefitted from the involvement of the Proposal Sponsor. There is nothing in the behaviour of the Proposal Sponsor during the unfolding of this process that warrants sanction or punishment of some kind .

While it is true that I disregarded a late-breaking affidavit filed by the Proposal Sponsor at a single hearing, that was a discrete event affecting one part only of the process as it unfolded in real time. The sanction of disregarding the affidavit was adequate and neither called nor calls for anything beyond that. The Proposal Sponsor has itself been successful in obtaining what it wanted in a time frame it was prepared to tolerate and on terms that benefitted the broad classes of stakeholders necessary to secure court approval.

While I have questioned aspects of the behaviour of the general partner in the process leading up to the filing of the NOI and Proposal, there is nothing in the manner in which the bankruptcy process itself unfolded thereafter that attracts special sanction or attention . The process was ultimately successful in that the Proposal was finally approved with the benefits noted for the unsecured creditors. At the end of the day the system worked. Stakeholder interests were brought forward and accommodated as far as could reasonably be done in a manner that secured Parliament’s ultimate goals .

I referred earlier to the practice of the Commercial Court in relation to costs. I do not wish to be taken as establishing this as a hardand fast rule or creating some sort of de facto onus on a party claiming costs that must be overcome. Costs are a matter ofdiscretion and it would be wrong for me to fetter my discretion in advance. Nevertheless, it is useful to examine particular casesin light both of precedent and a consideration of the reasons underlying those established practices.

In my view, this is not a case where a departure from the common practice in the Commercial List of having each party bear itsown costs is appropriate. The common sense policy considerations that have led to the practice I have referred to appear to me tobe quite strongly applicable here.

I would not make any order as to costs of the bankruptcy proceeding. [paras 7-18] [emphasis added] G. the annotation “Costs in a Proposal” in Bankruptcy and Insolvency Law of Canada (4th edition – online) (title 8.133) features only ahandful of cases exploring costs as between parties in proposal matters (otherwise focusing, for example, on the proposal trustee’s right(or otherwise) to be paid out of estate assets). While some of the annotated cases go the other way (albeit without detailed reasons forawarding costs), the weight of the “costs between parties” cases appears to reflect a “bear own costs” approach.

See, for example,Alberta Western Wholesale Lumber Ltd (Re), (BCSC), where Ruttan J. held: “As to costs I am prepared to hearcounsel again. My present thought is that this was a contested matter [proposal approved over objections of some creditors] and theobjections were not frivolous but were by and large made in good faith .... The trustee should have his costs out of the estate andthere would be no other order” (para 2) (emphasis added). See also Rideau Carleton Raceway Holdings Ltd (Re) (1971) 15 CBR (NS)72 (OntHCJ).

Per Houlden J.: To sum up: On a careful review and study of all the evidence, I believe the proposal is a reasonable one and in the best interests ofunsecured creditors. There will, therefore, be an order approving the proposal. The applicant will be entitled to its costs out of thebankrupt estate. I believe the opposing creditor has acted bona fide in opposing the proposal. Some of the matters, such as the clericalerror which occurred in the proposal, gave a basis for the opposition.

For this reason, there will be no order as to costs in respect of theopposing creditor. [para 25] [emphasis added] H. for a counter-example, where costs were awarded against an unsuccessful objecting creditor, see Economopoulos (Re), (2000) (ON SC), 20 CBR (4th) 71, where Gillese J. (as she then was) emphasized that “the amount of work involved [inconsidering the proposal approval] was increased dramatically by the interventions of the objecting creditor, and his motive [found laterto be an “improper purpose”] is highly relevant in a determination of costs” (paras 139 and 140]; I. none of the costs cases cited by Indepth Energy Inc featured commercial (or other) insolvencies or, in any case, cast any doubt onthe established or usual practice described above; and J.

I do not find anything in Goldenkey’s position on, approach to, or handling of the litigation-trust issue (i.e. the central focus of themain proceedings here) to be irresponsible, careless, less than candid or otherwise blameworthy. While I found that it did not presentsufficient evidence to show that the proposed litigation trust and accompanying litigation financing arrangement was necessarily the bestmeans of recovering on the litigation receivable in question, Goldenkey acted in good faith throughout.

Here, in particular, I accept itsdescriptions of the utility of various other steps accomplished by it on the same application (e.g. SISP approval and extension of filingperiod), the potential upsides of approval of the litigation trust and financing arrangements, the without-prejudice-to-apply-again natureof my no-approval ruling, and the overall need to advance the litigation in question one way or another (Goldenkey costs brief, paras 7(a)to (d)).

As well, there was nothing inherently unorthodox or unacceptable about the core concepts of a litigation trust and litigationfinancing, instead only certain details lacking. And the application itself – for approval of those proposed mechanisms here – represented“standard operating procedure” in an NOI proceeding, in the sense of seeking approval of various preliminary steps on the way (orpotential way) to a proposal i.e. this was not an exceptional or extraordinary proceeding in an NOI context. III.

Conclusion [6] All to say: there is an established or usual (bear-own-costs) approach to costs in commercial insolvencies in Alberta, or atleast a material absence of cases featuring the awarding of inter-party costs (on whatever scale) in that context, or at least in a BIAproposal context i.e. for garden-variety or, in any case, unexceptional matters.

Cases featuring such costs awards have emphasized subparconduct or materially unusual circumstances, neither of which were present here. [7] Accordingly, in line with the established approach, or at least the weight of the Alberta case law, I direct that each party bearits own costs of the recent application for the litigation-trust and -financing relief, among other relief. [8] I thank the parties for their helpful submissions. Heard by way of written submissions received May 15th and 22nd, 2023. Dated at Calgary, Alberta this 16th day of June, 2023. M. J. Lema J.C.K.B.A.

Appearances: Keith Marlowe, KC Tom Wagner Jessica MacKinnon Blake, Cassels & Graydon LLP for Indepth Energy Inc. Sean Collins Pantelis Kyriakakis Nathan Stewart Erinn Wilson McCarthy Tetrault LLP for Goldenkey Oil Inc.