2018 MBCA 71, 2018 MBCA 71

Citation: PricewaterhouseCoopers Inc v Ramdath , Date: 20180710 2018 MBCA 71 Docket: AI18-30-09007 IN THE COURT OF APPEAL OF MANITOBA ) K. D. Toyne IN THE MATTER OF THE BANKRUPTCY ) for the Applicant OF: ) ) D. R. M. Jackson R. LITZ & SONS COMPANY LIMITED ) for the Respondent ) BETWEEN : ) C. E. Howden ) for R. Litz & Sons PETER RAMDATH ) Company Limited ) Applicant ) J. M. J.

Dow ) for the Creditor - and - ) Canadian Western Bank ) PRICEWATERHOUSECOOPERS INC. ) Chambers motion heard: ) May 24, 2018 Respondent ) ) Decision pronounced: ) July 10, 2018 Cameron JA Introduction [ 1 ] This is an application for leave to appeal an order of the bankruptcy judge approving the amended proposal of R Litz & Sons Company Limited (Litz Crane) made pursuant to

section 59 of the Bankruptcy and Insolvency Act , RSC 1985, c B-3 (the BIA ) (the approval order). PricewaterhouseCoopers Inc. (PWC) applied for the approval order in its capacity as proposal trustee for Litz Crane. Peter Ramdath, Litz Crane’s former chief financial officer, seeks leave to appeal on the basis that he opposes the inclusion of

article 8 of the amended proposal in the approval order.

Article 8 allows PWC to continue to exercise its investigative powers as a proposal trustee to complete its investigation of the financial circumstances of Litz Crane despite the fact that the proposal has been approved. The investigatory powers described in

article 8 were approved by the bankruptcy judge at para 9 of his approval order. Background [ 2 ] The background of this application is set out in the reasons for decision of Mainella JA in PricewaterhouseCoopers Inc v Ramdath , 2018 MBCA 41 (in chambers). In that proceeding, Mainella JA found that Mr. Ramdath did not have an automatic right of appeal of the approval order and that, pursuant to

section 193 (

e) of the BIA , he was required to file the application for leave to appeal that is the subject of this proceeding. Mainella JA summarized the facts as follows (at paras 3-5): In August 2017, as result of financial difficulties, Litz Crane, a Winnipeg crane company, filed for creditor protection under the BIA . Subsequently, Litz Crane identified financial irregularities in the form of the possible misappropriation of over $3 million by Mr. Ramdath, its former chief financial officer.

In October 2017, by order of the Court of Queen’s Bench, PWC was appointed the interim receiver and a Mareva injunction ( Mareva Compania Naviera SA v International Bulkcarriers SA , [1980] 1 All ER 213 (CA) ) was granted against Mr. Ramdath to restrain him from disposing of his assets. PWC worked with Litz Crane to restructure the business and prepare a proposal for its creditors. PWC also prepared and filed with the Court several investigative reports as the interim receiver.

Part of the proposal prepared by PWC and Litz Crane for the consideration of the creditors was that PWC would be authorized to complete its investigation of financial irregularities as the proposal trustee because PWC’s investigative powers as an interim receiver would expire once any proposal received court approval (see

section 47.1(1) (1.1) of the BIA ).

At a creditors’ meeting on December 22, 2017, an amended form of the proposal received the approval of 90 percent of the creditors representing 98.2 percent of the proven claims. [ 3 ]

Article 3 of the amended proposal set out a payment

schedule pursuant to which Litz Crane was to make payments over a period of 48 months to PWC in its capacity as the proposal trustee (the basket amount). PWC was then obligated to distribute the funds in a specified manner. [ 4 ] In the supplemental report filed on January 26, 2018 by PWC in anticipation of the approval order hearing, it noted that the primary risk associated with the amended proposal “would be [Litz Crane’s] inability to fund the proposal payments over time.” [ 5 ] The supplemental report explains

article 8 of the amended proposal as follows: The provisions set out in this paragraph provide that the Proposal Trustee is authorized to continue to assist Litz with the current Investigation into financial irregularities and that the Trustee shall have such powers as are available to the Proposal Trustee under the BIA . This

section also makes it clear that the Company is responsible for the costs associated with the Investigation and that such costs are not payable from the Basket Amount. [ 6 ] In October 2017, Litz Crane commenced an action against Mr. Ramdath in the Court of Queen’s Bench (the civil proceeding). [ 7 ] In January 2018, PWC applied for the approval order pursuant to

section 59 of the BIA . Claiming that he was a person affected by

article 8 of the amended proposal, Mr. Ramdath applied to the bankruptcy court for standing to oppose the approval of that article. It was his position that the bankruptcy court should delete it from the amended proposal. In his view, the power of the trustee to investigate expired when the creditors of Litz Crane and the bankruptcy court approved the amended proposal. [ 8 ] Mr. Ramdath also argued that the powers to investigate conferred on PWC as the proposal trustee would be greater than those Litz Crane would have against him in the civil proceeding.

He stated that PWC should not be allowed to use its powers as a proposal trustee to assist Litz Crane in its action against him. Thus, Mr. Ramdath’s position was that, if

article 8 was not deleted from the amended proposal, it should be amended to effectively limit the investigatory powers of PWC to those that Litz Crane would have in the civil proceeding and prohibit Litz Crane from relying on any of PWC’s proposal trustee reports in the civil proceeding. He also requested the entire file regarding PWC’s investigation and the right to examine representatives of PWC. [ 9 ] The bankruptcy judge granted Mr. Ramdath standing at the approval hearing on the basis that

article 8 could affect him. After considering Mr. Ramdath’s position, the bankruptcy judge refused to delete or amend

article 8. In his view, the continuing investigative powers in

article 8 were “justified and reasonable” and that they were required in the circumstances of this case. The Test for Leave to Appeal [ 10 ] In Manitoba, there is a general test for deciding applications for leave to appeal to this Court. The traditional criteria for granting leave to appeal are that the question raised must be one of law or jurisdiction that is of sufficient importance to warrant consideration by this Court and that the question have arguable merit.

See Winnipeg Airports Authority Inc v EllisDon Corp , 2011 MBCA 51 (in chambers) at para 1 . [ 11 ] Additionally, if the refusal to grant leave might result in an injustice, leave may be granted. See Harder v Manitoba Public Insurance Corp et al , 2012 MBCA 20 (in chambers) at para 13 . [ 12 ] In Moss (Re) , 2005 MBCA 59 (in chambers), Monnin JA applied the traditional criteria in a decision involving an application for leave to appeal pursuant to

section 193 (

e) of the BIA . [ 13 ] Since Moss , courts of appeal in other provinces have considered the criteria to be applied in applications pursuant to

section 193 (

e) of the BIA , arriving at different formulations of the test. For examples of the different tests advanced see Fiber Connections Inc v SVCM Capital Ltd , 2005 CarswellOnt 1834 (CA (in chambers)) at paras 15-19; and Weddell Estate v Institute of Chartered Accountants of Alberta , 2016 ABCA 169 at para 2 . [ 14 ] In Business Development Bank of Canada v Pine Tree Resorts Inc , 2013 ONCA 282 (in chambers), Blair JA analysed the varying jurisprudence concluding that the criteria to be considered in an application for leave to appeal pursuant to

section 193 (

e) are whether the proposed appeal (at para 29):

a) raises an issue that is of general importance to the practice in bankruptcy/insolvency matters or to the administration of justice as a whole, and is one that this Court should therefore consider and address;

b) is prima facie meritorious, and

c) would unduly hinder the progress of the bankruptcy/insolvency proceedings.

[ 15 ] In his view, the test was in keeping with the formulation of the previously accepted test as set out by McLachlin JA (as she then was) in Power Consolidated (China) Pulp Inc v British Columbia Resources Investment Corp , 1988 CarswellBC 615 (CA (in chambers)). He also found support for his enunciation of the criteria by noting that they are similar to “the criteria applied by this Court in determining whether leave to appeal should be granted in restructuring cases under the [ Companies’ Creditors Arrangement Act , RSC 1985, c C-36]” (the CCAA ).

He continued (at para 33): There is something to be said for having similar tests for leave to appeal in both CCAA and BIA insolvency proceedings. Proposed appeals in each area often arise from discretionary decisions made by judges attuned to the particular dynamics of the proceeding. Those decisions are entitled to considerable deference. In addition, both types of appeal often involve circumstances where delays inherent in appellate review can have an adverse effect on those proceedings. [ 16 ] The test as enunciated in Pine Tree Resorts has been adopted by the Ontario Court of Appeal.

See Impact Tool & Mould Inc v Impact Tool and Mould Inc Estate , 2013 ONCA 697 at para 3 ; Enroute Imports Inc (Re) , 2016 ONCA 247 at para 7 ; and Romspen Investment Corporation v Courtice Auto Wreckers Limited , 2017 ONCA 301 at para 25 . [ 17 ] In this case, the parties agree that I should apply the criteria as enunciated in Pine Tree Resorts as opposed to Moss in my consideration of whether or not to grant leave to appeal. In their view, to do so would maintain consistency of the criteria to be applied to this federal legislation.

I agree. [ 18 ] First, in Moss , Monnin JA was not asked to consider the jurisprudence that had been developing with respect to

section 193 (

e) leave applications, and, more importantly, not asked to consider whether the test for leave should be more akin to CCAA leave applications rather than the general leave test he ultimately applied. [ 19 ] The reasoning of Blair JA is persuasive. For the reasons he stated, the criteria for leave to appeal a decision made pursuant to the BIA should be similar to that of the CCAA . In my view, it is significant that the BIA and the CCAA form part of “Canadian commercial insolvency law [which] is not codified in one exhaustive statute” ( Century Services Inc v Canada (Attorney General) , 2010 SCC 60 at para 13 ).

Thus, to the extent possible, it is preferable that these statutes be interpreted in a similar manner. [ 20 ] In Manitoba, t he factors to be considered when determining the question of leave to appeal pursuant to the CCAA are the almost the same as those enunciated in Pine Tree Resorts . See Totalline Transport Inc v Winnipeg Motor Express Inc et al , 2008 MBCA 133 (in chambers) at para 14 ; and Winnipeg Motor Express Inc et al, Re , 2009 MBCA 110 (in chambers) at para 14 .

The only difference is that the criteria in Manitoba include a consideration of whether the point raised is significant to the action itself. This factor was considered by Blair JA in Pine Tree Resorts where, after noting that his proposed criteria were similar to those in Power Consolidated , he stated that one consideration was missing, that being (at para 30): [T]he question [of] whether the point raised is of significance to the action itself. I would not rule out the application of that consideration altogether.

It may be, for example, that in some circumstances the parties will need to have an issue determined on appeal as a step toward dealing with other aspects of the bankruptcy/insolvency proceeding.

However, it seems to me that this particular consideration is likely to be of lesser assistance in the leave to appeal context because most proposed appeals to this Court raise issues that are important to the action itself, or at least to one of the parties in the action, and if that consideration were to prevail there would be an appeal in almost every case. [ 21 ] Aside from Ontario’s adoption of the criteria as set out by Blair JA, other provinces have applied similar, if not identical, criteria.

In Farm Credit Canada v Gidda , 2015 BCCA 236 (in chambers) at paras 11-12 , Goepel JA considered Pine Tree Resorts . He stated that the criteria enunciated were “functionally identical” to those stated in Power Consolidated (at para 12) . I would pause to note that the only discernable difference between the criteria listed in Power Consolidated and Pine Tree Resorts is that Power Consolidated included the additional consideration of whether the “point raised is of significance to the action itself” (at para 3).

For ease of reference, I will refer to the criteria enunciated in Power Consolidated as the four-part test. [ 22 ] In Alberta, in Smith v Pricewaterhousecoopers Inc , 2013 ABCA 288 (in chambers), Rowbotham JA relied on Alternative Fuel Systems Inc v EDO (Canada) Limited , 1997 ABCA 273 (in chambers); and Dykun v Odishaw , 1998 ABCA 220 (in chambers) to apply the four-part test.

She added an additional factor, that being, a consideration of whether the judgment from which leave to appeal is sought appears to be contrary to law, amounts to an abuse of judicial power or involves an obvious error causing prejudice for which there is no remedy. In Pine Tree Resorts , Blair JA subsumed this factor into the consideration of the prima facie merit of the proposed appeal (see para 31). [ 23 ] On the other hand, the Saskatchewan Court of Appeal has determined that it will apply its general test, which is similar to that in Manitoba, to applications for leave to appeal pursuant to

section 193 (e). See Lemare Lake Logging Ltd. v 3L Cattle Company Ltd , 2013 SKCA 90 (in chambers). [ 24 ] In my view, the criteria for leave to appeal pursuant to

section 193 (

e) have evolved since the Moss decision. Mindful of the preference to maintain consistency of

interpretation between the BIA and the CCAA , as well as uniformity amongst the provinces, I would apply the test as enunciated in Pine Tree Resorts and Power Consolidated as opposed to the general test. Similarly, in order to remain consistent with the majority of the provinces, I would consider the significance of the point raised to the action itself as a factor in

the test. Having said that, I recognize the comments regarding this factor made by Blair JA and the fact that, in almost all cases, oneparty or the other will find the point raised of significance. Finally, I would maintain the residual discretion to grant leave to appealwhere a refusal to do so would result in an injustice. The Grounds of Appeal [25] Mr. Ramdath seeks leave on two questions of law: (

a) When does an affected third party other than a creditor have standing to object to some or all of a proposal? (

b) Can a Proposal Trustee’s broad investigatory powers continue to be exercised once a proposal has been approved by creditors andthe court and, if so, in what circumstances? Analysis and Decision Standing [26] In my view, the question of standing can be dealt with summarily. The bankruptcy judge granted standing to Mr.Ramdath. He heard and considered Mr. Ramdath’s position regarding

article 8. Although Mr. Ramdath initially argued that he was notgranted “full standing”, he failed to specify what further opportunity to advance his position he was denied. Indeed, at the hearing of thisapplication, Mr. Ramdath’s counsel conceded that this ground of appeal was intended as a pre-emptive strike regarding arguments madeby PWC to the effect that Mr. Ramdath did not have standing to object to the amended proposal at all. [27] In my view, Mr. Ramdath was successful in his application for standing and his argument that he was not givensufficient standing is not prima facie meritorious.

Article 8 [28] Mr. Ramdath argues that the investigating powers conferred on a proposal trustee under the BIA can only be used forpurposes of providing information to the creditors and the bankruptcy court so that each can decide whether to approve a proposal.

Hemaintains that, after a bankruptcy court has approved a proposal, the investigating powers expire. [29] He also submits that to allow PWC to continue its investigation into the financial affairs of Litz Crane createsunfairness in that Litz Crane will have benefits and powers available to it in its civil proceeding that are greater than the Manitoba, Courtof Queen’s Bench Rules, Man Reg 553/88, would allow for. [30] The decision of a bankruptcy judge to approve a proposal pursuant to the BIA is highly discretionary.

In suchcircumstances, leave will generally be denied when there is no misdirection by the judge and where there is no injustice in the result. See Winnipeg Motor Express at paras 24-37). [31] Mr. Ramdath relies on three arguments in support of his position that the power of the proposal trustee to investigateexpires upon court approval of a proposal. First, he maintains that

section 52 of the BIA, which allows for a meeting of creditors to beadjourned for further investigation, is the only method by which investigatory powers can be extended. Next, he argues that section47.1(1.1)(

c) of the BIA, which provides for the expiry of the appointment of an interim receiver upon court approval of a proposal,evidences intent that the powers of the proposal trustee should also expire. Finally, he asserts that, if the power of a proposal trustee toinvestigate existed beyond the date of the approval order as of right pursuant to the BIA, there would be no need for

article 8 in theamended proposal. [32] Mr. Ramdath has not provided any authority that would support his assertion that the powers of a proposal trusteeexpire with the approval of the proposal by the creditors and the court. [33] In my view, the fact that

section 52 of the BIA allows for an adjournment of the creditors meeting for furtherinvestigation does not evidence that the powers of investigation necessarily expire upon court approval.

Section 52 does not confer anypower to investigate. The investigatory powers of the proposal trustee are provided by sections 66(1) (all provisions of the BIA apply toproposals) and 101.1(1) (remedial provisions available to bankruptcy trustees apply to proposals). There is nothing in the BIA that statesthat the powers or duties of the proposal trustee automatically expire upon court approval of an order. [34] Next, Mr. Ramdath asserts that the fact that

section 47.1(1.1)(

c) of the BIA specifically provides for the expiry of theappointment of a trustee as an interim receiver upon court approval of a proposal, evidences the intent that the investigatory powers of aproposal trustee also expire at that time. Contrary to Mr. Ramdath’s argument, in my view, if Parliament had intended that the powers ofthe proposal trustee were to end at the time of acceptance of the proposal it easily could have stated such in the BIA. [35] Regarding the inclusion of

article 8 in the amended proposal, PWC contends that it is there to comply with PWC’sinterpretation of the law as set out in Bruncor Leasing Inc v Zutphen Bros Construction Ltd (Trustee of) (1994), 1994 NSCA 122, 116 DLR (4th) 692 at 705 (NS CA). PWC interprets that case to hold that the powers of a proposal trustee must be providedfor in the proposal. While it is unnecessary for me to decide the point, I see no reason to question PWC’s decision to be cautious in thisregard. [36] The substance of Mr. Ramdath’s concern with

article 8 is the possibility that the proceedings in the bankruptcy court

will create unfairness in Litz Crane’s civil action against him. However, it is faulty to simply assume that the civil process is incapable of dealing with any possible unfairness. In my view, this situation is analogous to those where a party raises a concern that to proceed with a civil proceeding ahead of a related criminal proceeding may create prejudice in the latter.

In such cases, absent exceptional circumstances, it is a “fundamental principle that the law assumes that concurrent proceedings on the same facts can be conducted fairly” ( The Director of Child and Family Services v JG and KB , 2017 MBCA 27 at para 16 ; see also paras 17-18). [ 37 ] At the end of the day, Mr Ramdath is not a creditor of, or a shareholder in Litz Crane, and does not have any financial interest in the company. The bankruptcy judge found that the creditors approved of

article 8. He found that the purpose of

article 8 was to comply with the BIA . He agreed with counsel for the largest creditor, Canadian Western Bank, that there may be more funds to be recovered that have nothing to do with Mr. Ramdath’s alleged misdoings. He noted that PWC is responsible for administering the amended proposal for the entire 48-month period that it is in effect. He stated that the more opportunity that PWC would have to aid in the recovery of funds, the more likely that Litz Crane can meet its obligations pursuant to the amended proposal. He held that the limits that Mr.

Ramdath requested be placed on PWC’s powers to investigate were not appropriate and that Mr. Ramdath’s requests made in anticipation of the civil proceedings were premature. Mr. Ramdath has not convinced me that he has a prima facie meritorious argument that the bankruptcy judge made any error in regard to his findings. General Importance to Bankruptcy Law [ 38 ] In support of his argument that both of his grounds of appeal were of general importance to the practice of bankruptcy law, Mr. Ramdath filed statistics showing that insolvency rates are on the rise in Canada.

However, as was pointed out by counsel for PWC, the statistics offered are subject to

interpretation and do not necessarily assist regarding the issue of general importance. [ 39 ] I am not convinced that the limited issue of Mr. Ramdath’s ability to participate in the hearing to approve the amended proposal or his argument regarding

article 8 are matters that raise an issue that are of general importance to the practice of bankruptcy law or the administration of justice as a whole. In my view, this case is limited to its facts. [ 40 ] Thus, for all of the above reasons, I would deny Mr. Ramdath leave to appeal. JA