OpenHydro Technology Canada Ltd. (Re), 2018 NSSC 283

SUPREME COURT OF Nova Scotia IN BANKRUPTCY AND INVOLVENCY Citation: OpenHydro Technology Canada Ltd. (Re) , 2018 NSSC 283 Date: 2018-11-07 Docket: HFX480604 (B-42615) Registry: Halifax IN THE MATTER OF: The Proposal of OpenHydro Technology Canada Ltd. Decision Judge: The Honourable Justice Michael J. Wood Heard: November 5, 2018, in Halifax, Nova Scotia Counsel: Gavin MacDonald and Devon Cassidy for OpenHydro Technology Canada Ltd. Eric Machum for RMI Marine Limited Jakub Vodsedalek for DP World Saint John Inc. Marc Isaacs for BBC Chartering Carriers GmbH & Co. K.G.

Ryan Brothers for the Province By the Court : [ 1 ] OpenHydro Technology Canada Limited (“OpenHydro”) is insolvent. On September 24, 2018, the company filed a notice of intention to make a proposal pursuant to the Bankruptcy and Insolvency Act (Canada) . On October 23, 2018, it filed a motion requesting that the proceeding be converted to an application pursuant to the Companies’ Creditors Arrangement Act (“ CCAA” ) with the issuance of an Initial Order and a Charging Order.

That motion was heard on November 5, 2018. [ 2 ] OpenHyro is a Canadian subsidiary of an Irish energy technology company involved in the business of design and manufacture of marine turbines for electrical generation. [ 3 ] In July 2018 OpenHydro deployed two turbines in the Minas Basin near Parrsboro, Nova Scotia, as part of a demonstration project exploring the generation of electricity through tidal energy. By September 2018 the turbines had been damaged beyond repair and were incapable of generating electricity.

[ 4 ] In August 2018 a number of creditors of OpenHydro commenced proceedings in the Federal Court of Canada against the “Scotia Tide”, a vessel owned by the company. On August 2, 2018, the Scotia Tide was arrested pursuant to a Federal Court warrant. Seven creditors have advanced in rem claims against the vessel in Federal Court. [ 5 ] Also in August 2018 another creditor of OpenHydro, BBC Chartering Carriers GmbH & Co. K.G. (“BBC”), began in rem proceedings in the Federal Court asserting a claim against the Turbine Control Centre, which was associated with the submerged turbines.

That equipment was also arrested pursuant to a Federal Court warrant. On November 1, 2018, the Federal Court granted default judgement in favour of BBC and ordered the sale of the Turbine Control Centre. [ 6 ] OpenHydro provided notice of its motion to HSBC, a secured creditor, and all creditors who had commenced legal proceedings against the company in Federal Court or the Nova Scotia Supreme Court.

The only parties who responded were RMI Marine Limited, BBC, DP World Saint John Inc., SGS Saint John Diving, and Spar Marine Limited, all of whom were making in rem claims against the Scotia Tide or the Turbine Control Centre in Federal Court. [ 7 ] None of the responding parties objected to the issuance of the Initial Order or the Charging Order on the terms proposed by OpenHydro, except with respect to the scope and application of the proposed stay of proceedings. [ 8 ] A stay of proceedings is a common element of an Initial CCAA Order.

The purpose is to give some breathing room to the debtor company so that they can begin formulating a plan of arrangement for presentation to creditors. The statutory authority for the stay is found in s. 11.02(1) of the CCAA , which reads as follows: 11.02

(1) A court may, on an initial application in respect of a debtor company, make an order on any terms that it may impose, effective for the period that the court considers necessary, which period may not be more than 30 days, (

a) staying, until otherwise ordered by the court, all proceedings taken or that might be taken in respect of the company under the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act ; (

b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against the company; and (

c) prohibiting, until otherwise ordered by the court, the commencement of any action, suit or proceeding against the company. [ 9 ] The stay of proceedings requested by OpenHydro is for a 30 day period and reads as follows: No Proceedings Against the Applicant or the Property 11.

Until and including the day December __, 2018, or such later date as this Court may order (the “Stay Period”), no claim, grievance, application, action, suit, right or remedy, or proceeding or enforcement process in any court, tribunal, or arbitration association (each, a “Proceeding”) shall be commenced, continued, or enforced against or in respect of any of the Applicant or the Monitor, or affecting the Business or the Property, except with the written consent of the Applicant and the Monitor, or with leave of this Court, and any and all Proceedings currently under way against or in respect of the Applicant or affecting the Business or the Property are hereby stayed and suspended pending further order of this Court.

No Exercise of Rights or Remedies 12.

During the Stay Period, all rights and remedies of any individual, firm, corporation, governmental body or agency, or any other entities (all of the foregoing, collectively being “Persons” and each being a “Person”) against or in respect of the Applicant or the Monitor, or affecting the Business or the Property, are hereby stayed and suspended except with the written consent of the Applicant and the Monitor, or leave of this Court, provided that nothing in this Order shall: i. empower the Applicant to carry on any business which the Applicant is not lawfully entitled to carry on; ii. affect such investigations, actions, suits or proceedings by a regulatory body as are permitted by

section 11.1 of the CCAA; iii. exempt the Applicant from compliance with statutory or regulatory provisions relating to health, safety, or the environment; iv. prevent the filing of any registration to preserve or perfect a security interest; or v. prevent the registration of a claim for lien and the related filing of an action to preserve the right of a lien holder, provided that the Applicant shall not be required to file a defence during the stay period. [ 10 ] I have reviewed the material filed and am prepared to grant the Initial Order and Charging Order on the terms proposed, subject to my decision on the scope of the temporary stay.

OpenHydro has satisfied me that it should have a short period to consider whether a reasonable plan of arrangement might be developed and that is why a stay of proceedings is appropriate. The 30 day maximum period found in s. 11.02(1) of the CCAA should allow the company and monitor to carry out an initial feasibility assessment. Whether the stay should be extended beyond that will obviously require a further motion and evidentiary basis. [ 11 ] The respondents say that the Court should not issue an order which purports to stay the Federal Court in rem proceedings.

If there is to be such a stay, they argue that it should be decided by the Federal Court on the motion of OpenHydro and not the Nova Scotia Supreme Court. [ 12 ] The respondents rely on the companion decisions of the Supreme Court of Canada in Holt Cargo Systems Inc. v. ABC Containerline N.V. (Trustees of) , 2001 SCC 90 , and Antwerp Bulkcarriers, N.V. (Re) , 2001 SCC 91 . Those decisions arose out of the bankruptcy of a Belgian ship owner, whose vessels were arrested and subject to in rem proceedings in the Federal Court of Canada.

In Holt the issue was whether the Federal Court should have deferred to the Quebec Superior Court (in Bankruptcy) and stayed the Federal Court proceedings. The Supreme Court held that Federal Court had jurisdiction to deal with the claims and, after carrying out a forum

non conveniens analysis, concluded that the Federal Court was correct in not issuing the stay. [13] In the Antwerp case, the Quebec Court issued an injunction restraining the Federal Court from proceeding in rem against thevessels.

The Supreme Court concluded that the Quebec Court had no power to issue the order because the Federal Court had jurisdictionover the claims and the asset in question (i.e. the vessel) had been captured by the Federal Court orders. [14] Although those cases dealt with the relationship between superior courts exercising bankruptcy jurisdiction and the FederalCourt’s maritime law jurisdiction, I am satisfied that the principles apply to some extent in proceedings under the CCAA.

On the basis ofthese decisions, it is clear that the Federal Court continues to have jurisdiction over the in rem claims advanced by the respondents. Onthe basis of the Antwerp decision, I am also satisfied that this Court should not issue the equivalent of an anti-suit injunction preventingthe Federal Court from dealing with those claims. [15] In deciding how to address the interaction between the CCAA proceeding and the Federal Court actions, I would take theapproach found in two recent British Columbia Supreme Court decisions. In Sargeant III v.

Worldspan Marine Inc., 2011 BCSC 767, thecircumstances were virtually identical to those before me. The Court was dealing with a request for an Initial Order under the CCAA andthe accompanying temporary stay. Creditors had started proceedings in the Federal Court and obtained in rem judgements against thecompany’s vessel. The Court concluded that it should not issue an order directing the Federal Court to take any particular action, butrather the courts should exercise their respective jurisdictions cooperatively.

The Court explained the issue this way: 40 In my view, as a matter of comity between two Canadian superior courts each exercising its own jurisdiction, an order by thiscourt directing the Federal Court to stay its proceedings is neither appropriate nor necessary. 41 In Antwerp Bulkcarriers, N.V. (Re), 2001 SCC 91 , [2001] 3 S.C.R. 951 at para. 51, the Court referred to the faith andcredit owed by Canadian courts to each other when acting appropriately within their respective jurisdictions. 42 In Always Travel Inc. v. Air Canada, 2003 FCT 707 , 2003 F.C.J.

No. 933, a case decided subsequent to Antwerp and itscompanion case, Holt Cargo Systems Inc. v. ABC Containerline N.V. (Trustee of), 2001 SCC 90, Mr. Justice Hugessen of the FederalCourt Trial Division granted an application for a stay of proceedings in the Federal Court brought by Air Canada, which had previouslyobtained an order for protection under the CCAA in the Ontario Superior Court of Justice. 43 Mr. Justice Hugessen expressed the view that an order made under sections 11.3 and 11.4 of the CCAA does not have the effectof automatically staying proceedings in the Federal Court.

In reaching that conclusion, he referred to the relevant provisions of theCCAA, including those provisions defining courts to include the superior courts of each province, and s. 16 of the CCAA, which provides: Every order made by the court in any province in the exercise of jurisdiction conferred by this Act in respect of any compromise orarrangement shall have full force and effect in all the other provinces and shall be enforced in the court of each of the other provinces inthe same manner in all respects as if the order had been made by the court enforcing it. 44 At para. 9 Mr.

Justice Hugessen said this: It seems to me to be quite clear from the statutory provisions that Parliament did not intend that orders made by the superior courts of theprovinces in the exercise of their CCAA jurisdiction should extend so as to oblige this Court to suspend its proceedings in any matterproperly belonging to its jurisdiction. There are examples, and

section 16 of the CCAA is one of them, where Parliament has givenspecific jurisdiction to one superior court to stay proceedings in another superior court. In my view, such a disposition requires expresslanguage. 45 Mr. Justice Hugessen continued at para. 10: Superior courts do not order each other about or make orders interfering with each other's process. Rather, it is essential that they shouldcooperate. Conflicts between courts, or other bodies having ultimate judicial power, may well have serious results, including perhapseven loss of liberty. In Canada, superior courts do not compete with one another.

They accord to one another "full faith and credit," aswas said in Morguard Investments Ltd. v. De Savoye, (SCC), [1990] 3 S.C.R. 1077, and repeated in the Brusseldecisions. Justice Farley's order specifically requests that this Court, in comity, and more than that, in recognition of the fact that bothcourts are engaged in a single legal system in the administration of Canadian justice, should lend its aid to the order of the OntarioSuperior Court of Justice staying proceedings. 46 Mr.

Justice Hugessen went on to discuss what he described as the proper attitude of respectful cooperation which the FederalCourt should have, and does have, to judgments of a provincial superior court, and stated that: ... as a matter of course, in virtually every case where an order is given by a provincial superior court in the exercise of its CCAAjurisdiction, and that order requests the Federal Court's aid, the Federal Court will give such aid on proper application being made. 47 I respectively agree with Mr.

Justice Hugessen's statement of the principles of comity which should apply between a provincialsuperior court exercising jurisdiction under the CCAA and a Federal Court exercising its jurisdiction, in this case, its maritime lawjurisdiction. In my view, for reasons I shall shortly explain, this court and the Federal Court of Canada, working cooperatively and eachexercising its own jurisdiction, should be able to avoid any insuperable conflicts between their respective jurisdictions. [16] The Court summarized its conclusion on the issue as follows:

58 Here, again at this preliminary stage in the proceedings, in my view the appropriate course is that this court, as a matter of comity, requests the recognition and aid of the Federal Court with respect to an initial order under the CCAA . The Federal Court, of course, has jurisdiction under s. 50 of the Federal Courts Act to grant a stay. … 60 The petitioners should have the opportunity to present a viable plan for restructuring and for the orderly payment of their creditors.

I am satisfied that this is an appropriate case for the court to make an initial order containing terms for a temporary stay to June 23, 2011 in the standard terms of the model order and a request which specifically requests the assistance of the Federal Court to recognize the initial stay. Questions of priority will arise, including the priority of any financial charge for monies that may be advanced to complete the construction of the vessel, as well as the priorities of the maritime lien claimants. Again, none of those are matters which I am required to resolve, or which require resolution at this stage.

All of those matters are, in my view, capable of resolution by the two courts working cooperatively. [ 17 ] In Hanjin Shipping Co. (Re) , 2016 BCSC 2213 , the Court was asked to recognize a foreign proceeding under ss. 46-49 of the CCAA , which included a request for a stay of proceedings. As here, there were existing in rem proceedings in the Federal Court. The Court adopted the comments of Justice Pearlman in Sargeant III quoted above, and included an additional clause in the order to address the Federal Court proceedings.

That clause read as follows: 19. … In recognition that in rem proceedings are before the Federal Court in respect of the vessels, Hanjin Vienna , Hanjin Scarlet , and Hanjin Marine , this order shall not apply to those proceedings (including caveators) unless and to the extent the Federal Court of Canada may determine in the exercise of its own unfettered jurisdiction and discretion. [ 18 ] Six weeks after the Initial Order, the Court issued another order setting out a claims procedure. It specifically exempted the in rem claims from that process, which were to be determined through the Federal Court.

The order included a clause requesting the aid and recognition of that Court. [ 19 ] These decisions make it clear to me that the proper outcome is to exempt the in rem claims of the respondents being advanced in Federal Court from the stay created by the Initial Order with a request to the Federal Court for aid and recognition. It would be up to that Court to determine whether it should stay the in rem claims and, if so, on what terms.

To give effect to this decision, I direct that the Initial Order include a clause as follows: In recognition that in rem proceedings are before the Federal Court in respect of the vessel, Scotia Tide, and the OTC03 Turbine Control Centre, this order shall not apply to those proceedings (including caveators) unless and to the extent the Federal Court of Canada may determine in the exercise of its own unfettered jurisdiction and direction. This Court specifically requests the aid and recognition of the Federal Court in carrying out the terms of this order as required. [ 20 ] I would ask Mr.

MacDonald to revise the Initial Order accordingly, following which I will issue both orders on the terms proposed. Wood, J.