



COURT OF APPEAL FOR ONTARIO

CITATION:
DEL
    Equipment Inc. (Re), 2020 ONCA 555

DATE: 20200908

DOCKET: M51568

Lauwers, Brown and Nordheimer
    JJ.A.

In the Matter of the
Companies
    Creditors Arrangement Act
, R.S.C. 1985, c. C-36, as amended

And In the Matter of a Plan of Compromise
    or Arrangement of DEL Equipment Inc.

Applicant (Respondent/Responding Party)

Rahul
    Shastri and David Winer, for the moving party Gin-Cor Industries Inc.

Jason
    Wadden, Christopher Armstrong and Andrew Harmes, for the responding party DEL
    Equipment Inc.

Heard: in writing

Motion for leave to
    appeal from the order of Justice Glenn A. Hainey of the Superior Court of
    Justice, dated May 7, 2020.

REASONS FOR DECISION

OVERVIEW

[1]

Gin-Cor Industries Inc. (GCI) seeks leave to
    appeal, pursuant to s. 13 of the
Companies Creditors Arrangement Act
,
    R.S.C. 1985, c. C-36 (
CCAA
), from the order of Hainey J. dated May
    7, 2020, which required GCI to pay DEL Equipment Inc. (DEL) the amount of
    $874,107.08 (the Funds) then being held in trust pursuant to an earlier court
    order.

[2]

We refuse GCI leave to appeal. In accordance
    with the practice of this court on motions for leave to appeal under the
CCAA
,
    these brief reasons explain our refusal.

THE DISPUTE

[3]

DEL manufactures special truck bodies and
    equipment. GCI also manufactures and customizes trucks. In June 2017, DEL and
    GCI entered into a management agreement under which GCI assumed management
    control of DEL and ultimately could earn a 100% equity interest in DEL if
    certain milestones were reached. However, the parties terminated the agreement
    on July 18, 2019, at which time GCI ceased to manage DELs business.

[4]

In 2018, DEL received two purchase orders from
    Mack Defense LLC (Mack Defense) for certain trucks. In May and June 2019, DEL
    delivered the trucks. In June 2019, DEL issued invoices totaling $874,107.08 to
    Mack Defense, which made two payments totaling that amount in late August and
    early September2019.

[5]

However, Mack Defense mistakenly sent the
    payments to GCI, instead of to DEL. It appears the mistake originated when Mack
    Defense sought to confirm payment instructions for the trucks back in April
    2019, when GCI was managing DEL. A GCI representative answered Mack Defenses
    inquiry and mistakenly provided instructions to direct payment to GCIs
    account. Although a DEL representative later provided Mack Defense with the
    proper payment instructions, Mack Defense ended up mistakenly paying the DEL
    invoiced amounts to GCI.

[6]

In mid-September 2019, DEL followed up with Mack
    Defense and learned about the mistaken payments. DEL asked GCI to transfer the $874,107.08
    to it. Although GCI acknowledged that the payments by Mack Defense were
    intended to satisfy DELs invoices, GCI refused to transfer the Funds. GCI took
    the position that it was entitled to retain the Funds as a set-off against
    other obligations of DEL to GCI, including those that arose under the
    management agreement.

[7]

Mack Defense viewed the matter as a dispute
    between DEL and GCI.

[8]

On October 22, 2019, DEL was granted protection
    under the
CCAA
. As of that date, DEL owed GCI and related companies
    approximately $1.5 million.

[9]

The motion judge then granted a preservation
    order requiring that GCI transfer the Funds to its lawyers pending further
    order of the court.

[10]

Subsequently, DEL and GCI brought competing
    motions asserting entitlement to the Funds. The motion judge ordered the Funds
    be paid to DEL and that, pending payment of the Funds to DEL, the Funds are
    subject to a constructive trust in favour of DEL. GCI now seeks leave to appeal
    that order.

[11]

By order dated June 24, 2020, Thorburn J.A.
    directed that this motion for leave to appeal be expedited and, if leave was
    not granted, the Funds be paid out to DEL within two business days of the order
    refusing leave to appeal.

ANALYSIS

The governing test

[12]

This court will only sparingly grant leave to
    appeal in the context of a
CCAA
proceeding. Leave will be granted only
    where there are serious and arguable grounds that are of real and significant
    interest to the parties, determined by considering whether: (i) the proposed
    appeal is
prima facie
meritorious or frivolous; (ii)
the issue on the proposed appeal is of significance to the
    practice; (iii) the issue on the proposed appeal is of significance to the
    proceeding; and (iv) the proposed appeal will unduly hinder the progress of the
    proceeding:

Stelco Inc., (Re)
(2005), 75 O.R. (3d) 5 (C.A.), at
    para. 24.

Whether the
    proposed appeal is
prima facie
meritorious or frivolous

[13]

The motion judge concluded that: (i) GCI
    unjustly enriched itself by retaining the Funds and refusing to pay them to DEL
    or return them to Mack; and (ii) GCIs retention of the Funds constitutes an
    improper preference over DELs other creditors. In dealing with the issue of
    whether a juristic reason existed for GCIs receipt and retention of the Funds,
    the motion judge stated:

I have also concluded that there is no
    juristic reason for GCIs enrichment of receiving and retaining the Funds
    because,

(a) the Funds were never intended for GCI;

(b) GCI cannot rely on set off as a
    juristic reason for its enrichment because the Supreme Court of Canada made
    this clear at para. 114 of its decision in
Kerr v. Baranow,
2011 SCC 10,
    [2011] 1 S.C.R. 269;

(c) GCI has acknowledged that it received
    the Funds by mistake which is not a juristic reason for its enrichment;

(d) GCI is not an innocent recipient of
    the Funds because its own employees were at least, in part, the cause of the
    mistaken payment; and

(e) GCIs retention of the Funds
    constitutes an improper preference over DELs other creditors.

[14]

GCIs primary submission is that the motion
    judge erred in holding that GCI could not rely on set-off as a juristic reason
    to defend a claim of unjust enrichment. GCI contends that set-off can
    constitute a juristic reason in a commercial law context and
CCAA
s.
    21 creates a statutory right of set-off available in
CCAA
proceedings.

[15]

We are not persuaded that the proposed appeal is
prima facie
meritorious. In our view, GCI has not raised any arguments
    that provide good reason to doubt the motion judges decision.

[16]

In particular, we are not persuaded GCIs
    submission on juristic reason is
prima facie
meritorious.
Kerr
remains the leading authority on the elements of a claim for unjust enrichment.
    On the issue of juristic reason,
Kerr
drew upon the two-step juristic
    reason analysis described in the Supreme Court of Canadas earlier decision in
Garland
    v. Consumers Gas Co.
, 2004 SCC 25, [2004] 1 S.C.R. 629. As the motion
    judge correctly noted, that two-step analysis is summarized at para. 114 of
Kerr
,
    where the Supreme Court stated, in part:

The juristic reason analysis is intended to
    reveal whether there is a reason for the defendant to retain the enrichment,
not to determine its value or whether the enrichment should be
    set off against reciprocal benefits
:
Wilson
, at para. 30.
Garland
established that claimants must show that there is no juristic reason falling
    within any of the established categories, such as whether the benefit was a
    gift or pursuant to a legal obligation. If that is established, it is open to
    the defendant to show that a different juristic reason for the enrichment
    should be recognized, having regard to the parties reasonable expectations and
    public policy considerations. [Emphasis added.]

[17]

While the fact that the parties have conferred
    benefits on each other may be considered at the juristic reasons stage, it can
    only be considered for the limited purpose of providing evidence of the
    parties reasonable expectations that could support the existence of a juristic
    reason outside the settled categories:
Kerr
, at para. 115.

[18]

The motion judges reasons reveal that he
    applied
Kerr
s two-step juristic reason analysis to the specific facts
    of this case. There was no evidence that GCIs receipt of a benefit of
    $874,107.08 from Mack Defense was pursuant to a legal obligation. On the contrary,
    GCI mistakenly received the Funds from Mack Defense, which should have sent the
    Funds to DEL to satisfy the invoices for DELs delivery of trucks to Mack
    Defense.
CCAA
s. 21
[1]
recognizes
    that a creditor may raise the common law defence of set-off when sued by a
    company under
CCAA
protection. However, this does not alter the fact
    that, in this case, the Funds were mistakenly paid to and received by GCI.

[19]

Further, the fact that DEL was indebted to GCI
    at the time of Mack Defenses mistaken payments was not, in the circumstances,
    evidence of any reasonable expectation by DEL and GCI that a juristic reason
    existed for GCI to retain the mistakenly paid Funds. Indeed, the evidence was
    to the contrary. As soon as DEL discovered that Mack Defense had mistakenly
    paid the Funds to GCI, DEL demanded that GCI transfer the Funds to it.

The
    remaining factors: the significance of the issue to the proceeding;
    significance to the practice; and the impact on the progress of the
CCAA
proceeding

[20]

While the issue of the entitlement to the Funds
    is of significance to the parties to the proceeding, we are not persuaded that
    the proposed appeal raises any issues of significance to the practice. The proposed
    appeal turns on applying well-established principles of law to the unique facts
    of this case, which include the existence of a management agreement in effect between
    DEL and GCI at the time Mack Defense sought instructions for the payment of the
    Funds.

[21]

The final factor to consider is whether the proposed
    appeal will unduly hinder the progress of the proceeding. We regard this factor
    as neutral. On the one hand, DEL submits that the only remaining task in the
CCAA
proceeding is to distribute funds to unsecured creditors, which cannot occur
    until the amount available to unsecured creditors is determined. That, in turn,
    would depend upon the outcome of the proposed appeal. On the other hand, GCI
    argues that there is no evidence in the record of any prejudice to the
CCAA
proceeding in the event leave were to be granted. As well, GCI submits
    that the appeal could be expedited, as was the hearing of this motion for leave
    to appeal.

Conclusion

[22]

Leave to appeal is only sparingly granted in
CCAA
proceedings. In our view, the proposed appeal is neither
prima facie
meritorious nor does it raise issues of significance to the practice. Therefore,
    we are not persuaded that GCIs motion merits granting leave to appeal.

DISPOSITION

[23]

For the reasons set out above, the motion is
    dismissed.

P.
    Lauwers J.A.

David
    Brown J.A.

I.V.B.
    Nordheimer J.A.





[1]

CCAA
s. 21 states: 
The law of set-off or compensation applies
    to all claims made against a debtor company and to all actions instituted by it
    for the recovery of debts due to the company in the same manner and to the same
    extent as if the company were plaintiff or defendant, as the case may be.


