Docket: CACV2443 Lemare Lake Logging Ltd. Prospective Appellant (Applicant) - v. -, 2013 SKCA 90

THE COURT OF APPEAL FOR SASKATCHEWAN Citation: 2013 SKCA 90 Date: 2013-08-29 Between: Docket: CACV2443 Lemare Lake Logging Ltd. Prospective Appellant (Applicant) - and - 3L Cattle Company Ltd. and the Attorney General for Saskatchewan Prospective Respondents (Respondents) - and - Concentra Financial Services Association, Farm Credit Canada and Ministry of Environment (Saskatchewan) Non-Parties (Respondents) Before: Caldwell J.A., in chambers Counsel: Jeffrey M. Lee, Q.C. for the prospective appellant Joel A. Hesje, Q.C. and Rebecca J. Wood for 3L Cattle Company Ltd. Katherine M.

Roy for the Attorney General for Saskatchewan No one appearing for the non-parties Application: From: 2013 SKQB 278

Heard: August 14, 2013 Disposition: Leave Granted Written Reasons: August 29, 2013 By: The Honourable Mr. Justice Caldwell Caldwell J.A. [ 1 ] The applicant, Lemare Lake Logging Ltd., applies for leave to appeal from the fiat of the Court of Queen’s Bench chamber judge, sitting in bankruptcy and insolvency, which dismissed its application for the appointment of a receiver and manager of certain property of the respondent, 3L Cattle Company Ltd. (fiat indexed as: 2013 SKQB 278 ). The applicant had sought to avoid complying with

Part II of The Saskatchewan Farm Security Act , S.S. 1988-89, c. S-17.1, on grounds that provisions of that Part were in conflict with s. 243(1) of the Bankruptcy and Insolvency Act , R.S.C. 1985, c. B-3, and were thereby rendered inoperative by the doctrine of federal paramountcy. The chambers judge rejected the constitutional argument [1] and dismissed the application for failure to comply with the requirements of

Part II of The Saskatchewan Farm Security Act . Moreover, the chambers judge concluded that, even if

Part II of The Saskatchewan Farm Security Act were rendered inoperative, the circumstances did not merit the court appointment of a receiver. The applicant now seeks leave to appeal from the whole of the chambers judge’s fiat. [ 2 ] The respondent carries on the business of farming and ranching in Saskatchewan. It has defaulted on two obligations owed by it to the applicant, namely: its assumption of the primary obligation to repay a $10,000,000 loan owing by the applicant to the non-party Concentra Financial Services Association, and a $1,690,106.04 debt it owes directly to the applicant.

These obligations are secured by a mortgage of land and a specific security agreement charging equipment. [ 3 ] The applicant served the respondent with a formal written demand for payment together with a notice of intention to enforce security under s. 244 of the Bankruptcy and Insolvency Act . After expiry of the ten day notice period, the applicant sought to enforce the mortgage and specific security agreement against the land and equipment charged thereby by seeking an order pursuant to s. 243(1) of the Bankruptcy and Insolvency Act appointing a receiver of that property.

Section 243 provides: 243

(1) Subject to subsection (1.1), on application by a secured creditor, a court may appoint a receiver to do any or all of the following if it considers it to be just or convenient to do so: (

a) take possession of all or substantially all of the inventory, accounts receivable or other property of an insolvent person or bankrupt that was acquired for or used in relation to a business carried on by the insolvent person or bankrupt; (

b) exercise any control that the court considers advisable over that property and over the insolvent person’s or bankrupt’s business; or (

c) take any other action that the court considers advisable.

(1.1) In the case of an insolvent person in respect of whose property a notice is to be sent under subsection 244(1), the court may not appoint a receiver under subsection (1) before the expiry of 10 days after the day on which the secured creditors sends the notice unless (

a) the insolvent person consents to an earlier enforcement under section 244(2); or (

b) the court considers it appropriate to appoint a receiver before then. [ 4 ] In the hearing before the chambers judge, the respondent took the position that because it is a “farmer” within the meaning of

Part II of The Saskatchewan Farm Security Act , the applicant is required to comply with the provisions of that Part before it may apply for an order appointing a receiver under s. 243(1) of the Bankruptcy and Insolvency Act . The relevant provisions of

Part II prohibit actions with respect to farm land (s. 9(1)(d)) without a court order (s. 11), but require that 150 days’ notice of the intention to seek such an order be given to the farmer and the farm land security board (s. 12), during which time the parties must participate in mediation (s. 12).

In addition, in the application for a court order to commence an action, the mortgagee bears the burden of proving, in the face of statutory presumptions to the contrary (s. 13), that the farmer has no reasonable possibility of meeting his obligations under the mortgage (s. 18(1)(a)) or that the farmer is not making a sincere and reasonable effort to meet his obligations under the mortgage (s. 18(1)(b)). [ 5 ] The applicant responded by serving a Notice of Constitutional Question to challenge the constitutional operability of ss. 9 and 11 of The Saskatchewan Farm Security Act in the context of an application to appoint a receiver pursuant to s. 243(1) of the Bankruptcy and Insolvency Act .

The applicant submitted to the chambers judge that the doctrine of federal paramountcy rendered the provincial law inoperable to the extent it conflicted with the Bankruptcy and Insolvency Act . The applicant said that the chambers judge could immediately appoint a receiver over the respondent’s land and equipment and permit the receiver to sell same and provide the purchaser with clear title by way of a vesting order, all notwithstanding

Part II of The Saskatchewan Farm Security Act . The respondent and the Attorney General for Saskatchewan each said there is no operational conflict between the two Acts. [ 6 ] The chambers judge found the applicant had failed to prove that the purpose of s. 243(1) of the Bankruptcy and Insolvency Act would be frustrated by compliance with

Part II of The Saskatchewan Farm Security Act . She therefore dismissed the applicant’s application seeking a declaration that

Part II of The Saskatchewan Farm Security Act is constitutionally inoperative under the doctrine of

paramountcy. [ 7 ] As to the merits of the application for the appointment of a receiver, the chambers judge concluded the applicant had failed to prove the insolvency of the respondent, which is a condition precedent to the appointment of a receiver. She also noted that the mortgage narrowly contemplated the appointment of a receiver over rents and profits only. She concluded that even if the court could appoint a receiver to sell the respondent’s land, the court would not grant a vesting order in the circumstances before the court.

Finally, the chambers judge concluded that the foreclosure procedure was the appropriate legal remedy available to the applicant in the circumstances. In the result, the chambers judge held that it was neither just nor convenient to appoint a receiver in the circumstances before the court. [ 8 ]

Section 193 of the Bankruptcy and Insolvency Act sets out the right of appeal from an order or decision of a judge of the Court of Queen’s Bench sitting in Bankruptcy and Insolvency: 193. Unless otherwise expressly provided, an appeal lies to the Court of Appeal from any order or decision of a judge of the court in the following cases: (

a) if the point at issue involves future rights; (

b) if the order or decision is likely to affect other cases of a similar nature in the bankruptcy proceedings; (

c) if the property involved in the appeal exceeds in value ten thousand dollars; (

d) from the grant of or refusal to grant a discharge if the aggregate unpaid claims of creditors exceed five hundred dollars; and (

e) in any other case by leave of a judge of the Court of Appeal. [ 9 ] As is evident, if an appeal falls within ss. 193 (

a) to (

d) there is no need to apply for leave to appeal. Here, the applicant has elected to proceed on the basis that the prospective appeal falls under s. 193 (e), and so this matter will proceed on that basis. [ 10 ] In Paulsen & Son Excavating Ltd. v. Royal Bank of Canada , 2012 SKCA 101 , 399 Sask. R. 283, Richards J.A. (now C.J.S.) confirmed that the principles laid out by Cameron J.A. in Rothmans, Benson & Hedges Inc. v. Saskatchewan , 2002 SKCA 119 , 227 Sask. R. 121, apply in applications for leave to appeal in bankruptcy and insolvency matters.

As such, to obtain leave, the applicant must satisfy a judge that the proposed appeal is of sufficient merit to warrant the attention of the Court and of sufficient importance to the proceedings before the Court, to the field of practice, to the state of the law, or to the administration of justice generally to warrant determination by the Court. The applicant must show that these two criteria, each having its own subset of considerations, on balance weigh decisively in favour of leave being granted.

Any assessment of the merits of a proposed appeal in this analysis is relevant only to the extent it pertains to the Rothmans criteria. [ 11 ] In this application, the analysis with respect to sufficient merit is simplified by the fact it is common ground that the proposed appeal is not prima facie frivolous or vexatious, is not apt to unduly delay the proceedings or to be overcome by them and rendered moot, and is not apt to add unduly or disproportionately to the cost of the proceedings.

As such, the merit analysis largely falls to considerations of whether the proposed appeal is prima facie destined to fail in any event, having regard to the nature of the issues, the state of the law, and the nature of the adjudicative framework, the last chiefly in that the proposed appeal would involve challenges to findings of fact and the exercise of discretionary power in relation thereto. [ 12 ] The respondent has, with respect to the analysis of importance under Rothmans , conceded that the proposed appeal transcends the particular in its implications because it raises issues which are no doubt of general interest to bankruptcy and insolvency practitioners in Saskatchewan; but, the respondent questions whether an appeal would raise a new or controversial or unusual issue of practice or raise a new or uncertain or unsettled point of law.

In this respect, the importance analysis is largely encompassed by the same considerations which arise, at least in this application, under the merit analysis. I would turn then to consider whether the proposed appeal is prima facie destined to fail. [ 13 ] In

summary, the chambers judge dismissed the applicant’s application for three independent reasons, but any one of them would have been sufficient:

(1) The Saskatchewan Farm Security Act prohibited the applicant’s application without compliance with

Part II of that Act ; (2) the preconditions to the appointment of a receiver under the Bankruptcy and Insolvency Act had not been met; and (3) it was neither just nor convenient to grant a receivership order in the circumstances.

As such, the applicant’s appeal must successfully address reviewable errors with respect to each of these findings. [ 14 ] In addressing the Rothmans criteria, the applicant made complete and cogent submissions with respect to the merit of the proposed appeal and has alleged and particularised a number of material errors with respect to each of the chambers judge’s findings which are germane to its appeal. [ 15 ] As to the first leg of the appeal, the respondent says the proposed appeal is destined to fail because, as the chambers judge found (and as everyone knows), a mortgagee can and must comply with

Part II of The Saskatchewan Farm Security Act and the Bankruptcy and Insolvency Act since there is simply no operational conflict between the two. It says, notwithstanding the relative newness of s. 243 of the Bankruptcy and Insolvency Act , this case still involves a “farmer” within the meaning of

Part II of The Saskatchewan Farm Security Act and, therefore, the applicant must comply with that Part; this is understood in the practice. The respondent more particularly says there is no error in the chambers judge’s analysis or in her findings on the constitutional issue. [ 16 ] I need not delve into each of the errors of law and fact which are alleged by the applicant with respect to the paramountcy issue. While I acknowledge that the respondent’s characterisation of the state of the law is the prevailing understanding of the practice in

Saskatchewan, neither party could provide any jurisprudence directly addressing the issue of the interplay between the two statutes here in question; rather, it seems to be received knowledge. While it seems everyone has played by the same rule book until recently, the courts have not passed upon those rules until now.

This is notwithstanding that The Saskatchewan Farm Security Act may be “the most judicially considered legislation in the Province’s history”. [2] Moreover, the applicant has submitted that on at least six occasions since 2009 the Court of Queen’s Bench has granted receivership orders with respect to insolvent farms, ranches and livestock operations in Saskatchewan in the absence of compliance with

Part II of The Saskatchewan Farm Security Act (as examples: National Bank of Canada v. Hillsburgh Stock Farm

(1997) Ltd. , Q.B. No. 1562 of 2012, Judicial Centre of Saskatoon; and The Bank of Nova Scotia v. Big Sky Farms Inc. et al. , Q.B.G. No. 1305 of 2012, Judicial Centre of Saskatoon).

As such, chiefly for the reasons that some of the players may now be questioning the rules and they have never received judicial consideration at an appellate level, I find the first leg of the appeal is of sufficient merit to warrant the attention of the Court and of sufficient importance to the field of practice and the state of the law to warrant determination by the Court. [ 17 ] As to the merit of the proposed appeal from the decision not to appoint a receiver under the Bankruptcy and Insolvency Act , the applicant has alleged a number of errors of fact and law in the chambers judge’s analysis leading to her conclusion that the respondent was not an insolvent person.

On the other hand, the respondent says the chambers judge did not err in law or in principle when she concluded the applicant had failed to prove that the respondent was an insolvent person. From her fiat, it is clear that the chambers judge considered the applicable provisions of the Bankruptcy and Insolvency Act and made a finding that the respondent was not an insolvent person based upon the evidence which was before her.

In this respect, the proposed appeal would invoke two standards of review: palpable and overriding error with respect to the chambers judge’s assessment of the facts related to the respondent’s financial circumstances and correctness with respect to her legal characterisation of those facts in relation to definition of “insolvent person” under the Bankruptcy and Insolvency Act .

However, the sharp edge of the palpable and overriding error standard with respect to errors of fact is tempered somewhat because the chambers judge assessed the facts on the basis of affidavit evidence alone and, as such, issues with those facts are not beyond the effective capacity of the Court to address (see: Valley Beef Producers Co-operative Ltd. v. Farm Credit Corporation , 2002 SKCA 100 , 218 D.L.R. (4 th ) 86 at para. 117 ).

Without addressing the merits of this leg of the proposed appeal on the basis of each of the errors alleged, I am persuaded that the standards of review do not preclude a successful appeal in the circumstances.

In other words, I find there is sufficient merit in this leg of the appeal. [ 18 ] Under the third leg of the proposed appeal, the applicant acknowledges the discretionary nature of the chambers judge’s decision to decline to appoint a receiver; but the applicant alleges she committed reviewable errors by reason that she acted on a wrong principle of law, considered irrelevant factors, overlooked evidence and failed to act judicially; moreover, the applicant says the chambers judge’s decision is clearly wrong. Each of these allegations, of course, lines up with the language Cameron J.A. used in Rimmer v.

Adshead , 2002 SKCA 12 , [2002] 4 W.W.R. 119, to describe the standard of review in appeals from discretionary orders but does not add much to the merit analysis. The standard of review is also the reason the respondent says this leg of the proposed appeal is prima facie destined to fail. The respondent says the discretionary decision of the chambers judge to dismiss the applicant’s application attracts “great deference” on appellate review (see: Business Development Bank of Canada v. Pine Tree Resorts Inc. and 1212360 Ontario Ltd. , 2013 ONCA 282 , 115 O.R. (3d) 617, at para. 35 ).

The respondent’s submission is compelling. As Tallis J.A. said in Hoffman v. Monsanto Canada Inc. , 2002 SKCA 86 , 223 Sask. R. 232 (in chambers), at para. 4 : “In ordinary circumstances the standard of review governing discretionary orders would militate against the grant of leave.” However, I am satisfied that the standard of review precludes the grant of leave to appeal in this case.

I say this chiefly because, on a prima facie basis, the potential significance of the issues raised by the applicant on the whole of the proposed appeal would seem to dwarf the obstacle to the applicant’s success that is the standard of review applicable to this leg of its appeal.

In other words, while I recognise the nature of the adjudicative framework is such that the panel which hears the proposed appeal may well decide not to intervene on the basis of the standard of review applicable to this leg of the appeal, having regard to the nature of the issues and the state of the law, I am satisfied that the proposed appeal, as a whole, is of sufficient merit and sufficient importance to warrant the attention of the Court. [ 19 ] The application for leave to appeal is granted. Costs are reserved to the panel hearing the appeal.

DATED at the City of Regina, in the Province of Saskatchewan, this 29 th day of August, A.D. 2013. “Caldwell J.A.” __________________ Caldwell J.A.