



COURT OF APPEAL FOR ONTARIO

CITATION: 2403177 Ontario Inc. v. Bending Lake Iron Group
    Limited,

2016 ONCA 485

DATE: 20160616

DOCKET: M46301 (C61637)

CV-14-274

Weiler, Cronk and Benotto JJ.A.

BETWEEN

2403177 Ontario Inc.

Applicant (Respondent)

and

Bending Lake Iron Group Limited

Respondent

(Appellant/Moving
    Party)

Robert MacRae, for the moving party, Bending Lake Iron
    Group Limited

Kenneth Kraft, John Salmas and Jordan Schultz, for the
    responding party, A. Farber & Partners Inc., in its capacity as
    court-appointed receiver of Bending Lake Iron Group Limited

Heard: In writing

On motion for leave to appeal from the order of Justice D.C.
    Shaw of the Superior Court of Justice, dated January 8, 2016, with reasons
    reported at 2016 ONSC 199.

BY THE COURT:


A.

Overview

[1]

On September 11, 2014, Bending Lake Iron Group Limited (BLIG) went
    into receivership (the Receivership Order). A. Farber & Partners Inc. was
    appointed receiver over BLIGs property (the Receiver) pursuant to s. 243(1)
    of the
Bankruptcy and Insolvency Act
, R.S.C. 1985, c. B-3 (the 
BIA
).
    On November 27, 2014, the court approved a Sales and Investor Solicitation
    Process for BLIGs property (the SISP Order). BLIG consented to the SISP
    Order.

[2]

In December 2015, the Receiver moved for court approval of an asset
    purchase agreement with Legacy Hill Resources Ltd. (Legacy Hill) for the sale
    to Legacy Hill of substantially all BLIGs assets (the Sale Agreement). BLIG
    opposed the motion and brought its own cross-motion seeking various relief,
    including the postponement of the sale. On January 8, 2016, the motions judge
    approved the Sale Agreement and ordered the vesting of BLIGs property in
    Legacy Hill upon the filing of a receivers certificate (the Approval and
    Vesting Order).

[3]

BLIG filed a notice of appeal dated January 13, 2016, seeking to set
    aside the Approval and Vesting Order. By order of this court dated March 22,
    2016, Brown J.A. (In Chambers) ruled that BLIG required leave to appeal under
    s. 193(e) of the
BIA
.
Accordingly, he quashed BLIGs notice of
    appeal and set a timetable for the filing of BLIGs leave materials.

[4]

BLIG now seeks leave to appeal the Approval and Vesting Order.  Should
    leave be granted, it proposes to argue on appeal that the motions judge erred:
    i) in finding that the Receiver had acted reasonably and fairly in negotiating
    the sale of BLIGs property, and that the actions of BLIG in undertaking
    parallel negotiations with Legacy Hill contravened the Receivership and the
    SISP Orders; and ii) in failing to consider whether the Receiver discharged its
    obligation to consult with affected Aboriginal communities in approving the
    Sale Agreement. BLIG submits that the proposed appeal is of general significance
    to insolvency practice, is
prima facie

meritorious and would
    not unduly delay the insolvency proceedings.

[5]

For the reasons that follow, we are not satisfied that the test for
    granting leave to appeal has been met.  Accordingly, the leave application is
    dismissed.

B.

Facts

[6]

BLIG is an iron ore mining development company with its major asset
    being a mine site in Thunder Bay, Ontario. While BLIG was initially successful
    in raising equity financing to develop the mine site, it was unable to arrange
    any major financing in 2011 and 2012. In 2012, BLIG engaged in negotiations
    with a foreign company to raise significant debt and equity financing.  In
    anticipation of successful financing, 2403177 Ontario Inc. advanced a series of
    loans to BLIG to fund development of the mine. Unfortunately, the financing
    fell through and development of the mine was suspended in 2013.

[7]

At the date of its receivership in September 2014, BLIG owed in excess
    of $3.5 million to secured creditors, more than $8 million to unsecured
    creditors and approximately $450,000 to the Canada Revenue Agency.  Pursuant to
    the SISP Order, the Receiver compiled a list of interested parties, through
    consultation with BLIG and the Receivers network of investors in the mining
    and investment communities.  In excess of 120 interested parties were contacted
    by the Receiver and 12 signed confidentiality agreements. However, no offers or
    proposals for purchasing, refinancing or restructuring BLIG were received by
    the extended deadline of March 27, 2015.

[8]

While the SISP was underway, and without informing the Receiver, the
    President and CEO of BLIG, Henry Wetelainen, commenced separate discussions
    with an interested party, Legacy Hill.  Mr. Wetelainen claimed in a subsequent affidavit
    that he pursued these discussions as part of his continued effort on behalf of
    BLIG and its creditors, stakeholders, shareholders and affected Aboriginal
    communities to rescue BLIG from receivership. On March 12, 2015, BLIG and
    Legacy Hill entered into a Confidentiality Agreement and BLIG subsequently
    provided confidential documents to Legacy Hill.  The Receiver was unaware that
    the parties had signed a Confidentiality Agreement, and of the existence of
    many of the confidential documents BLIG provided to Legacy Hill.

[9]

When the Receiver learned of the discussions between Mr. Wetelainen and
    Legacy Hill, it notified Mr. Wetelainen that all negotiations with Legacy Hill
    would be conducted by the Receiver pursuant to the Receivership and the SISP
    Orders.  The Receiver then commenced its own discussions with Legacy Hill and
    entered into a Confidentiality Agreement with it.  It also undertook due diligence
    on Legacy Hill and provided the results of that due diligence in its Third
    Report, filed with the court in the insolvency proceedings.

[10]

From April to September 2015, the Receiver received no firm proposals or
    expressions of interest for the restructuring of BLIG or the purchase of its
    assets.  However, on September 30, 2015, Legacy Hill executed a non-binding
    letter of intent to purchase the assets of BLIG. The sale concluded on November
    27, 2015, with the Receiver and Legacy Hill signing the Sale Agreement.

[11]

On December 10, 2015, the Receiver moved for approval of the Sale
    Agreement.  It argued that the purchase price represented the best and highest
    offer for BLIGs assets in a depressed iron ore market.  It further argued that
    the actions of Mr. Wetelainen and BLIG, in undertaking a parallel sales process,
    failing to provide confidential documents to the Receiver, and negotiating
    agreements with Legacy Hill directly, contravened the Receivership Order.

[12]

BLIGs secured creditors approved the proposed sale.

[13]

BLIG opposed approval of the sale, arguing that the Receiver had shown a
    lack of impartiality in its conduct with Legacy Hill, that the Receiver had
    become an advocate for Legacy Hill, and that the Receiver should have made
    inquiries as to why there had been a parting of the ways between Legacy Hill and
    BLIG (in a movement away from refinancing/restructuring and toward sale of the
    assets). BLIG also maintained that, by agreeing to purchase BLIGs assets, Legacy
    Hill had breached its fiduciary duty to BLIG, its shareholders, stakeholders
    and Aboriginal communities under the Confidentiality Agreement.

[14]

In defence of its conduct, BLIG further argued that, because the
    Receiver had not been appointed manager of BLIG and did not take possession or
    control of BLIGs property, Mr. Wetelainen was entitled, on behalf of BLIG, to
    enter into the Confidentiality Agreement with Legacy Hill and provide the
    confidential documents in furtherance of a joint venture/restructuring and
    refinancing of BLIG.

[15]

Before the motions judge, BLIG did not pursue its argument that the
    Receiver had breached its duty to consult with affected Aboriginal
    communities. Rather, it argued that the sale should be postponed and that the
    Receiver should be required to develop a process to inform creditors,
    shareholders, stakeholders and affected Aboriginal communities of
    opportunities to participate in the funding of the amount set out in the Sale
    Agreement.

[16]

All parties agreed on the principles to be applied when reviewing a proposed
    sale by a court-appointed receiver, as set out in
Royal Bank of Canada v.
    Soundair Corp.
,

[1991] O.J. No. 1137 (C.A.).  Those principles
    require that a reviewing court should consider:

(a)   whether the receiver made a
    sufficient effort to obtain the best price and has not acted improvidently;

(b)   the interests of all parties;

(c)   the efficacy and integrity of the
    process by which the offers are obtained; and

(d)   whether there has been unfairness
    in the working out of the process.

[17]

Applying this framework to the facts of this case, the motions judge
    granted the Approval and Vesting Order.  He made the following critical
    findings:

(a)

the
    Receiver had made adequate effort at marketing the property and continued to
    market the property after the expiry of the bid deadline. The Receiver received
    no concrete proposals or expressions of interest for a restructuring or sale of
    BLIG, in what continued to be very depressed market conditions for the mining
    sector. Legacy Hills offer was the only offer made on the property;



(b)

although the Receiver owed a duty to all stakeholders, its primary duty
    was to maximize the return for the secured creditors. Even with the sale, the
    secured creditors stood to incur a shortfall on their security. Nevertheless,
    they supported the sale and did not want to hold out in the hopes of attracting
    a better offer. While the interest of the debtor must be taken into account, approval
    of the sale should not be denied, and the modest recovery by the secured
    lenders jeopardized, on the mere possibility that BLIG could match the Legacy Hill
    offer. BLIG presented no evidence on the motions that it was able to refinance
    or restructure the company;

(c)

the
    Receiver negotiated in good faith and had no reason to reject the only offer it
    received for the property. The court will not lightly interfere with the commercial
    judgment of a receiver or examine the minutiae of the circumstances leading up
    to the sale. Provided the Receiver has acted reasonably, prudently and fairly,
    its decision should be given deference. The speculative nature of BLIGs proposal
    to be given time to match or better the Legacy Hill offer would adversely
    affect the integrity of the process undertaken by the Receiver; and



(d)

the
    Receivership Order gave the Receiver broad powers, to the express exclusion of
    the debtor. Under paragraph 3(g), the Receiver alone had the right to market
    any and all of the assets, undertakings and properties of BLIG. Under the SISP
    Order, the Receiver was empowered to solicit offers to purchase, or to invest
    in, the debtor and/or the property. The SISP Order also contemplated
    confidentiality agreements between the Receiver and prospective purchasers.
    Even if the Receiver had been aware of the discussions between BLIG and Legacy
    Hill about possible refinancing or restructuring, the Receiver was not required
    to work toward restructuring or refinancing rather than an asset purchase. The
    SISP Order did not require the Receiver to consult with BLIG before finalizing
    the agreement, nor did any provision of the Receivership Order. Moreover, the
    Receiver was never presented with a refinancing/restructuring proposal from
    either BLIG or Legacy Hill, nor did BLIG present any evidence that it was able
    to refinance the company.

[18]

The motions judge also concluded that BLIGs pursuit of refinancing or
    restructuring without the knowledge or consent of the Receiver was contrary to
    the provisions of the Receivership and the SISP Orders. He rejected BLIGs submission
    that, because the Receiver was not appointed manager of BLIG and was not
    operating the business, Mr. Wetelainen had licence to engage in parallel
    negotiations with Legacy Hill.  In his view, if this submission was accepted,
    it would result in BLIG working at cross-purposes with the Receiver.

C.

proposed issues on appeal

[19]

BLIG identifies three proposed issues for argument on appeal:

(1)

Did
    the motions judge err in law in finding that representatives of BLIG acted in
    contravention of the Receivership Order?

(2)

Does
    the Receivership Order, which left the management of the company in the hands
    of existing management, deprive the existing management of the right to seek
    refinancing and/or restructuring of the company?

(3)

Did the motions judge err in approving the Sale Agreement by failing to
    address the rights of affected Aboriginal communities?

D.

test for leave to appeal in
bia

proceedings

[20]

Granting leave to appeal under s. 193(e) of the
BIA
is
    discretionary and must be approached in a flexible and contextual way. The
    threshold criterion for granting leave is whether the moving party has raised
    arguable points that create a reasonable prospect of success on appeal.  As Doherty
    J.A. of this court explained in
Ravelston Corp. (Re)
, 2005 CanLII
    63802, at paras. 28-29:

The inquiry into whether leave to appeal should be granted must
    [] begin with some consideration of the merits of the proposed appeal. If the
    appeal cannot possibly succeed, there is no point in granting leave to appeal
    regardless of how many factors might support the granting of leave to appeal.

A leave to appeal application is not the time to assess, much
    less decide, ultimate merits of a proposed appeal. However, the applicant must
    be able to convince the court that there are legitimately arguable points
    raised so as to create a realistic possibility of success on the appeal.
    Granting leave to appeal if the merits fall short of even that relatively low
    bar would be a waste of court resources and would needlessly delay and
    complicate insolvency proceedings.

[21]

In
Business Development Bank of Canada v. Pine Tree Resorts Inc.
,

2013 ONCA 282, 115 O.R. (3d) 617, at para. 29, Blair J.A. (In Chambers)
    incorporated this consideration in proposing a unified approach to granting
    leave to appeal:

Beginning with the overriding proposition that the exercise of
    granting leave to appeal under s. 193(e) is discretionary and must be exercised
    in a flexible and contextual way, the following are the prevailing
    considerations in my view. The court will look to whether the proposed appeal,

(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.

[22]

At para. 31 of
Pine Tree Resorts
,
Blair J.A. explained
    that, although the 
prima facie
meritorious criterion is different
    than the arguable point notion referred to in some other decisions of this
    court, the somewhat higher standard of a
prima facie
meritorious case
    on appeal is more in keeping with the evolution of the case law in this area.

[23]

Finally, at para. 32, Blair J.A. noted that, given the evolution in the
    applicable jurisprudence, the test for leave to appeal is not simply
    merit-based.  Rather, it requires a consideration of all the factors set out above.

[24]

This articulation of the test has been affirmed on numerous occasions by
    this and other courts: see
Enroute Imports Inc., Re
, 2016 ONCA 247, at
    para. 7;
Global Royalties Ltd. v. Brook
,
2016 ONCA 50, at para.
    26;
Farm Credit Canada v. Gidda
,
2015 BCCA 236, at paras. 11-12;
Impact Tool & Mould Inc. (Receiver of) v. Impact Tool & Mould
    (Trustee of)
,
2013 ONCA 697, at para. 3.

E.

ANALYSis

[25]

In our view, the first two proposed grounds of appeal identified by
    BLIG, which concern the motions judges findings that BLIG contravened the
    Receivership Order, do not raise questions requiring consideration by this court. 
    Both grounds involve highly fact-driven issues. The question whether particular
    conduct contravenes a Receivership Order will be determined by the particular
    facts of each case. In this case, the motions judges interpretation and
    application of specific terms within the Receivership and the SISP Orders,
    leading him to conclude that BLIGs conduct contravened those terms, are not of
    general importance to bankruptcy/insolvency practice or the administration of
    justice as a whole.  Rather, his conclusions on this issue were highly fact 
    and case  specific.

[26]

Further, BLIGs materials provide no support for its contention that the
    motions judge erred in concluding that BLIGs disclosure of confidential
    information (without the Receivers knowledge or consent) and withholding
    information from the Receiver, violated the clear provisions of the Receivership
    Order.  In reaching his conclusion on this issue, the motions judge noted and
    applied the well-recognized principle that a debtor has a duty to make full and
    frank disclosure and production of information and documents to the Receiver. 
    We see no merit to BLIGs challenge to the motions judges approach to or his
    conclusion and reasoning on this issue.

[27]

We also see little, if any, merit to BLIGs argument that Mr. Wetelainen
    had authority to negotiate directly with Legacy Hill. BLIGs reliance on the
    indoor management rule is misplaced. BLIGs actions, in negotiating directly
    with Legacy Hill and disclosing confidential information to it without first
    notifying the Receiver, did not reflect standard practices and procedures for a
    company in receivership. The power to engage in negotiations regarding the
    companys assets was specifically assigned to the Receiver under the Receivership
    and the SISP Orders. As the motions judge pointed out, at para. 83, The fact
    that the Receiver did not operate the business does not derogate from the
    exclusivity of the powers that the Receiver was given under the Receivership
    Order and the SISP Order. We agree.

[28]

In any event, the motions judges reasons reveal that he approved the
    Sale Agreement based on the totality of the circumstances and application of the
    factors set out in
Soundair
. His findings about BLIGs conduct had no
    bearing on those factors and were not part of his assessment whether the
    Receiver had negotiated fairly and in good faith.

[29]

Finally, the proposed appeal would unduly hinder the insolvency
    proceedings, as Legacy Hill is not prepared to close the Sale Agreement until
    BLIG has exhausted its appeal rights in this court.

[30]

We reach a similar conclusion regarding BLIGs final proposed ground of
    appeal, namely, that the Receiver breached its duty to consult with affected
    Aboriginal communities.  In our view, given the history of the proceedings, it
    is not open to BLIG to now raise this issue on appeal.

[31]

There is no question that the Crown (or a Crown agent) has a duty
    to consult with affected Aboriginal communities where the Crowns actions
    might adversely impact potential or established Aboriginal or treaty rights. In
Haida Nation v. British Columbia (Minister of Forests)
, 2004 SCC 73, [2004] 3 S.C.R. 511 and
Taku River
    Tlingit First Nation v. British Columbia (Project Assessment Director)
,
2004 SCC 74, [2004] S.C.J. No. 69,
the Supreme
    Court indicated that the Crown's duty to consult with Aboriginal peoples and
    accommodate their interests is grounded in the Honor of the Crown, which
    derives from the Crown's assertion of sovereignty in the face of prior
    Aboriginal occupation.

[32]

The duty to consult arises when the Crown has
    knowledge, real or constructive, of the potential existence of the Aboriginal
    right or title and contemplates conduct that might adversely affect it. The Supreme
    Court has also confirmed that the Honor of the Crown cannot be interpreted
    narrowly or technically, but must be given full effect in order to promote the
    process of reconciliation between the Crown and Aboriginal peoples mandated by
    s. 35(1) of the
Constitution Act, 1982
:
Taku
, at para. 24.

[33]

BLIG raised the issue of affected Aboriginal
    communities before Brown J.A. in the context of arguing that it was entitled
    to leave to appeal in this case as of right under ss. 193 (a), (b) and (c) of
    the
BIA
.
In
    particular, BLIG argued that the proposed issues on appeal implicate the
    future rights of affected Aboriginal communities and other cases of a
    similar nature, namely, its motion seeking leave to commence an action against
    the Receiver for damages for the Receivers alleged breach of its fiduciary
    duty to Aboriginal peoples.

[34]

In concluding that an appeal did not lie as of right under ss. 193(a),
    (b) or (c) of the
BIA
,
and that

leave to appeal was
    required
,
Brown J.A. comprehensively reviewed the evidence placed before
    the motions judge about affected Aboriginal communities. He made a number of
    findings that bear on the issue of BLIGs ability to raise this issue on
    appeal.

[35]

First, and importantly, BLIG did not raise the issue of the Receivers
    duty to consult in the context of the SISP proceeding and, in fact, consented
    to the order allowing the Receiver to proceed with the sale process. At para.
    26, Brown J.A. found that the time to raise the issue of the affected
    Aboriginal communities was in the SISP process. We agree.

[36]

Second, Brown J.A. held, at para. 35, that BLIG did not advance the
    argument that the Receiver failed in its duty to consult affected Aboriginal
    communities before the motions judge on the motion to approve the sale.  This
    finding is supported by the record.

[37]

Given that the issue was not raised before the motions judge, BLIG is
    faced with the burden of establishing that all the facts necessary to address this
    issue are before this court as fully as if the matter had been raised in the
    court below:
Kaiman v. Graham,
2009 ONCA 77, at para. 18. BLIG has not
    discharged this burden.

[38]

Specifically, the record before this court does not clearly establish
    which Aboriginal communities, if any, have interests in the property affected
    by the sale, the extent and nature of those interests, and how the actions of
    the Receiver will negatively impact those interests. A clear articulation of
    the nature and extent of the asserted right is necessary, in the interest of
    balancing any Aboriginal rights at stake with the rights of others.  As Binnie
    J. noted in
Lax Kw'alaams Indian Band v. Canada (Attorney General)
,
2011 SCC
56, [2011] S.C.J. No. 56, at para. 12:

At this point in the evolution
    of Aboriginal rights litigation, the contending parties are generally well
    resourced and represented by experienced counsel. [] It is true, of course, that
    Aboriginal law has as its fundamental objective the reconciliation of Canadas
    Aboriginal and non-Aboriginal communities, and that the special relationship
    that exists between the Crown and Aboriginal peoples has no equivalent to the
    usual courtroom antagonism of warring commercial entities. Nevertheless,
    Aboriginal rights litigation is of great importance to non-Aboriginal
    communities as well as to Aboriginal communities, and to the economic well-being
    of both.
The existence and scope of Aboriginal rights protected as
    they are under s. 35(1) [] must be determined after a full hearing that is
    fair to all the stakeholders
.  [Emphasis
    added.]

[39]

In our view, it would be prejudicial and unfair to the interests of
    BLIGs secured creditors, and contrary to the normal rules of procedure, to
    permit BLIG to raise this issue at this late stage, when it elected not to
    raise it in the SISP proceeding or before the motions judge on the motion to
    approve the sale.  As a result of its failure to raise the matter on a timely
    basis, there is no adequate evidentiary record supporting the claim. Nor does
    this court have the benefit of the motions judges consideration and ruling on
    the issue.

[40]

Third, and in any event, we agree with Brown J.A.s observation that it
    is doubtful whether BLIG has standing to assert this claim on behalf of
    Aboriginal communities. As LeBel J. indicated in
Behn v. Moulton
    Contracting Ltd.
, 2013 SCC 26, [2013] S.C. J. No. 26, at para. 30, the
    Crowns duty to consult is intended to protect the s. 35 constitutional rights
    of Aboriginal peoples, which are collective in nature. While an Aboriginal
    group can authorize an individual or organization to represent it for the
    purpose of asserting its s. 35 rights, there is no evidence that this occurred
    in this case.


[41]

Moreover, regardless of the standing issue, as the record does not
    disclose the nature and extent of any Aboriginal communitys interests, if any,
    in BLIGs property, we are unable to conclude that this proposed ground of
    appeal warrants the granting of leave to appeal.

F.

disposition

[42]

For the reasons given, the application for leave to appeal is dismissed. 
    The Receiver is entitled to its costs of this motion and the motion for advice
    and directions before Brown J.A., fixed in the total amount of $3,000,
    inclusive of disbursements and all applicable taxes.

K.M. Weiler J.A.

E.A. Cronk J.A.

M.L. Benotto J.A.


