



COURT OF APPEAL FOR ONTARIO

CITATION: Potentia Renewables Inc. v. Deltro
    Electric Ltd., 2019 ONCA 779

DATE: 20191002

DOCKET: C65744

Tulloch, Roberts and Miller JJ.A.

BETWEEN

Potentia Renewables Inc.

Applicant (Respondent)

and

Deltro
    Electric Ltd.

Respondent (Appellant)

Fred Platt and
    Michael Mazzuca
, for the appellant

George Benchetrit and Aryan Ziaie, for
    the respondent

Heard:  June 5, 2019

On appeal from the order of Justice Thomas
    J. McEwen of the Superior Court of Justice, dated July 27, 2018, with reasons
    reported at 2018 ONSC 3437.

ROBERTS J.A.:

[1]

The appellant, Deltro Electric Ltd., appeals
    from the order that it repay to the respondent, Potentia Renewables Inc., the
    amount in Canadian currency sufficient to purchase $2 million USD and that, failing
    repayment, a receiver be appointed over the appellants assets, undertakings
    and property.

[2]

For the reasons that follow, I would dismiss the
    appeal.

A.

Background facts and procedural history

[3]

As this appeal turns on the application judges
    interpretation of documents exchanged between the parties and the procedural
    underpinnings of the proceedings initiated by them, it is useful to set out a
    brief summary of the background facts and procedural history.

[4]

The respondents application was one of three
    proceedings arising out of the parties failed business relationship in
    relation to the development of a ground-mount solar project in Barbados (the
    Barbados project) and an unrelated renewable energy project in the Dominican
    Republic. The other two proceedings were actions that the respondent and
    appellant instigated against each other. The application judge was appointed to
    case manage these proceedings on the Commercial List of the Superior Court of
    Justice in Toronto.

[5]

The application judge determined that the appellant,
    as part of a group of related companies, controlled by Mr. Del Mastro,
    referenced as the Deltro Group of Companies, had entered into a number of
    obligations with the respondent to finance and complete the Barbados project,
    as largely memorialized in the letter of intent (LOI) dated May 15, 2016, and
    the amendment to the letter of intent (ALOI) and General Security Agreement
    (GSA) dated November 15, 2016. In accordance with those agreements, the
    respondent advanced $2 million USD in two tranches to the appellant: $500,000
    USD under the LOI and $1.5 million USD pursuant to the ALOI and GSA.

[6]

By its counsels letter on behalf of the Deltro
    Group of Companies, dated January 28, 2017, the appellant advised the
    respondent that as a result of the latters alleged misconduct in relation to
    an unrelated solar project in the Dominican Republic, Deltro is no longer under
    any contractual or other obligation to sell, assign, transfer, notify or
    deliver any interests in any project under any agreement between the parties.
    In its counsels responding letter of February 6, 2017, the respondent denied
    the allegations of misconduct but accepted the appellants repudiation of all
    agreements, including the Barbados project, and demanded repayment of the $2
    million USD that it had advanced.

[7]

In its counsels subsequent correspondence of
    February 23, 2017, the appellant advised that it had obtained final approval of
    the Barbados project, as required under the parties agreements, and demanded
    that the GSA be discharged. Responding by its counsels letter of February 28,
    2017, the respondent did not accept that the appellant provided proper proof of
    the requisite final approval and advised that, in any event, it was not
    obligated to discharge the GSA in light of the appellants repudiation that the
    respondent had accepted.

[8]

Taking the position that final approval had not
    been achieved and that the appellant had repudiated the LOI and ALOI, the
    respondent brought an application seeking the appointment of a receiver, as
    well as a declaration of the appellants indebtedness and corresponding
    judgment.

The application judges
    decisions

[9]

The application judge rejected the appellants
    argument that final approval of the Barbados project had been obtained and concluded
    that the appellant had breached and repudiated its obligations and was
    therefore required to repay the respondent the equivalent of $2 million USD. In
    the event that the appellant failed to make payment within 30 days, the
    application judge appointed KSV Kofman Inc. (KSV) as an interim receiver over
    the appellants assets and undertakings for 30 days to determine if a sensible
    plan of repayment could be made, failing which, the respondent would be
    entitled to have KSV appointed as receiver of all the appellants property. The
    appellant did not repay the amounts ordered and KSV became receiver to ensure
    payment was made.

[10]

The appellant asked the application judge to
    re-open the application, arguing that the appellant could not have repudiated
    the LOI because it was not a party to it; and the appellant had not breached
    the ALOI because final approval of the Barbados project had been obtained, in
    support of which the appellant tendered as fresh evidence the affidavits of two
    former Barbadian ministerial officials.

[11]

The application judge refused to re-open the
    application. He precluded the appellant from raising the new argument that it
    was not a party to the LOI. He also rejected the fresh evidence, holding that
    it was, at best, equivocal as to whether final approval had been obtained, and
    would not therefore have changed the outcome of the application.

B.

Issues

[12]

The appellant pursued the following issues on
    the hearing of the appeal:

1.

The application judge had no jurisdiction to grant any of the relief
    requested on the application and should have directed it proceed to trial with
    the other two actions that were ordered to be heard together.

2.

The application judge erred in finding that the appellant had failed
    to obtain final approval of the Barbados project and had repudiated the ALOI,
    and in failing to admit fresh evidence and re-open the application on this
    issue.

3.

The application judge erred in finding that the appellant had
    repudiated and breached the LOI to which it was not a party, and in failing to
    re-open the application on this issue.

[13]

The appellant relied on its factum for the other
    discrete issues raised on this appeal, namely: the application judge erred in
    appointing KSV as receiver and in limiting KSVs liability as receiver to gross
    negligence or wilful misconduct.

C.

Analysis

(i)

The application judges jurisdiction

[14]

The appellant submits that the application judge
    should not have allowed the proceeding to be commenced by application as it was
    not authorized under r. 14 of the
Rules of Civil Procedure
, R.R.O.
    1990, Reg. 194. The appellant also argued that the application judge lacked
    jurisdiction to appoint a receiver under s. 101 of the
Courts of Justice
    Act
, R.S.O. 1990, c. C.43 that allows only for interlocutory orders to be
    granted. Moreover, no recourse could be had to s. 243 of the
Bankruptcy and
    Insolvency Act
, R.S.C. 1985, c. B-3 that permits the appointment of a
    receiver where the debtor is insolvent because, as the application judge found,
    the appellant was not insolvent.

[15]

I would not accept these submissions.

[16]

The application was properly brought under r. 14
    of the
Rules of Civil Procedure.
While, in accordance with r. 14.06(3),
    the respondent should have stated the rule or statute under which the
    application is brought, this is a procedural, not a substantive, requirement.
    Its omission does not invalidate an application that otherwise complies in
    substance with r. 14.02: see r. 2.01 of the
Rules of Civil Procedure
.

[17]

Here, the substance of the application was in
    respect of a matter under r. 14.05(3)(d): the determination of rights that
    depend on the interpretation of a  contract or other instrument. This included
    the interpretation of the LOI, ALOI and GSA, about which there were no issues
    of credibility that required a trial to resolve. Rule 14.05(3)(g) permitted the
    respondents request for a declaration, the appointment of a receiver and
    damages, as other consequential relief when ancillary to relief claimed in a
    proceeding properly commenced by a notice of application.

[18]

Moreover, there was no need for the respondent
    or the application judge to resort to s. 101 of the
Courts of Justice Act
or s. 243 of the
Bankruptcy and Insolvency Act
, for authority to
    appoint a receiver. Article 6.1(l) of the GSA specifically allows the
    respondent to appoint, by an instrument in writing delivered to the
    [appellant], a receiver, manager or a receiver and manager (a Receiver)  or
    institute proceedings in any court of competent jurisdiction for the
    appointment of a Receiver, upon the appellants default.

[19]

As a result, the application judge had
    jurisdiction to hear and determine the respondents application and to grant
    the requested relief.

(ii)

Final approval of the Barbados project

[20]

It is common ground that according to the LOI,
    the second progress payment of $1.5 million USD was payable by the respondent
    when the final formal zoning and site approval by the Barbados Town and Country
    Planning for the Barbados project was obtained. The dispute between the parties
    as to whether final approval had been obtained led them to enter into the ALOI
    and the GSA to secure the second progress payment.

[21]

There is also no dispute that the ALOI provided
    that the appellant could keep the second progress payment if, within 12 months
    of the date of the disbursement, final approval was granted by the Barbados
    Town and Country Planning Office or any other Barbados governmental body with
    the authority to grant the final approval. But, if final approval was not
    obtained within this 12-month period, the ALOI stipulated that the respondent
    shall have the right (but not the obligation) to demand full and immediate
    repayment of the $1.5 million USD progress payment. Following full repayment,
    the GSA would be discharged.

[22]

The appellant does not dispute that if final
    approval were not obtained within the stipulated period, it would be obliged to
    make the $1.5 million USD repayment. However, it maintains that the application
    judge made palpable and overriding errors in his interpretation of the various
    letters and affidavits of the former Barbadian ministers which, according to
    the appellant, established that final approval had been granted. The application
    judge erred, according to the appellant, in failing to admit the fresh evidence
    of the ministers affidavits and in failing to reopen the application.  As a
    result, the appellant argues, the GSA should have been discharged and there was
    no obligation to repay the $1.5 million USD progress payment.

[23]

I disagree.

[24]

First, it was open to the application judge to
    conclude that the documents proffered by the appellant, including the proposed
    fresh evidence, fell far short of demonstrating that final approval had been
    granted. His interpretation was reasonable and is owed deference on appeal. Moreover,
    he was not obliged to accept the fresh affidavits of the former Barbadian
    ministers or re-open the application.

[25]


It has long been
    established that, absent an error of law, an appellate court should not
    interfere with the exercise by a trial judge of his or her discretion in the
    conduct of a trial.  Appellate courts should defer to the trial judge who is in
    the best position to decide whether, at the expense of finality, fairness
    dictates that the trial be reopened.  Further, the case law dictates that the
    trial judge must exercise his discretion to reopen the trial "sparingly
    and with the greatest care"
so that "fraud and abuse of the Court's processes" do not result:
671122 Ontario Ltd. v. Sagaz Industries Canada Inc.
, 2001 SCC 59, [2001] 2 S.C.R. 983, at paras. 60-61.

[26]

I see no error in the application judges refusal
    to re-open the application based on the fresh evidence of the former ministers
    affidavits. As already noted, his conclusion that the fresh evidence would not
    have affected the outcome was reasonable. There is no basis to interfere with
    it.

[27]

Further and in any event, as the application
    judge found, regardless if final approval were ultimately obtained, that
    approval came too late because it followed the appellants clear repudiation of
    the ALOI by its counsels January 28, 2017 letter and the respondents equally
    clear acceptance of its repudiation. Upon the respondents acceptance of the
    appellants repudiation, the appellants obligation to obtain final approval,
    among other obligations, came to an end but its obligation to repay $1.5
    million USD arose.

[28]

I would therefore reject this ground of appeal.

(iii)

Did the appellant repudiate the LOI?

[29]

Nor do I accept the appellants argument that
    the application judge erred in finding that the appellant had repudiated the
    LOI when, according to the appellant, it was not a party to that agreement. Accordingly,
    the application judge was not required, as the appellant submits, to re-open
    the application to correct any error or to prevent a miscarriage of justice.

[30]

With respect to the appellants request to
    re-open the application, the application judge concluded:

The argument now advanced by Deltro was
    available when the matter first appeared before me. I have, however, reviewed
    my Reasons, the documents Deltro produced for this motion, and considered
    Deltros argument. I see no basis to change the relevant findings in my Reasons.
    This is particularly so in light of Deltros admission at this motion that the
    January 28, 2017, letter sent by counsel for the Deltro Group of Companies to
    Potentia included both/either Deltro and DGL.

[31]

As the application judge correctly observed,
    prior to its request to re-open the application, the appellant had never
    advanced the position that it was not a party to the LOI. Indeed, the
    artificial and technical distinction that the appellant now advocates for is
    not supported by the evidence or its pleadings. Rather, the appellants correspondence
    with the respondent, its pleadings, and the appellants supporting affidavits
    on the application establish that the appellant consistently represented itself
    and operated as part of an integrated group of related companies of which Mr.
    Del Mastro is the directing mind and will, and which was a party to the LOI.

[32]

In particular, in its statement of defence and
    counterclaim to the action commenced by the respondent, the appellant does not
    differentiate itself from the other members of the Deltro Group of Companies.
    Instead, the appellant describes itself in para. 4 as a company that together
    with its related companies, conducts business development, financing,
    construction, and operations of renewable energy projects  throughout the
    Caribbean.  Importantly, in para. 6 of its statement of defence and
    counterclaim, the appellant expressly admits that it entered into the LOI:

In response to Paragraphs 4 and 5 of the
    Statement of Claim, [the appellant] admits that it entered into  the [LOI] 
    with [the respondent], the former with respect to the Barbados Project.

[33]

This admission formed the basis for the
    appellants claim for damages in paras. 25 to 28 of its counterclaim
related to [the respondents] breach of contract of the [LOI]  for
    the greater of the expectation interest that [the appellant] would have
    reasonably expected to receive under the [LOI] but for [the respondents]
    breach or in the alternative [the appellants] reliance interest for funds it
    has expended in reliance of the said agreement.

[34]

The appellant has never sought to withdraw its
    admission, amend its pleadings or withdraw its counterclaim.

[35]

As a result, I see no error in the application
    judges refusal to re-open the application.

[36]

Given the application judges finding that the
    appellant had repudiated the LOI, it was reasonable for him to determine that ss.
    7 and 12 of the LOI are of no assistance to the appellant. As the application
    judge stated: Deltro cannot accept Potentias money, repudiate the agreement,
    and then rely on a clause from the very same agreement as justification for
    keeping the money. I see no error in the application judges conclusion.


(iv)

KSVs appointment as Receiver and the exclusion
    of liability

[37]

The appellant submits that the application judge
    erred in appointing KSV as receiver because it has a conflict of interest given
    its ongoing professional relationship with the respondents counsel in other receivership
    matters. Further, the appellant submits that the application judge erred in
    limiting the receivers liability to gross negligence or wilful misconduct in
    the formal order.

[38]

I would not give effect to these submissions. In
    my view, both these decisions represented a reasonable exercise of the application
    judges discretion as a case management judge of the Commercial List of the
    Ontario Superior Court of Justice in Toronto.

[39]

Absent reviewable error, deference must be shown
    to the reasonable case management decisions of the highly specialized judges who
    sit on the Commercial List: see
Western Larch Limited v. Di Poce Management
    Limited
, 2013 ONCA 722, 117 O.R. (3d) 561, at para. 16. Established in
    1991, the
Commercial List of the Ontario Superior Court
    of Justice specializes in the hearing and case management of only commercial
    law cases, including receiverships. Matters on the Commercial List are governed
    by a Practice Direction that sets out special procedures specifically adopted
    for the hearing of matters on the Commercial List.
The
    Practice Direction anticipates that the same judge who determines a substantive
    component of a proceeding will continue to hear all substantive matters. It is
    also expected that the proceeding shall be subject to a form of case
    management.
See:
Consolidated
    Practice Direction Concerning the Commercial List
,
    effective July 1, 2014.

[40]

With that context in mind, I turn first to the
    appointment of KSV as receiver. I see no error in the exercise of the application
    judges discretion to appoint KSV. There is no dispute that KSV was qualified
    to act as receiver. Moreover, KSV was independent; it had no connection with
    the respondent or the appellant. The fact that KSV has worked professionally
    with the respondents counsel on other unrelated matters does not raise a
    disqualifying conflict or prevent it from complying with its professional
    obligations to the court. As the application judge reasonably observed, it is
    not unusual for professional law and accounting firms specializing in
    insolvency matters to have had previous or ongoing professional relationships.
    Finally, it must be recalled that KSV, as the court-appointed receiver, is an
    officer of the court, accountable to the court and all interested parties,
    including the appellant
: see
Jethwani v. Damji
, 2017 ONSC 1702, at para. 8.

[41]

With respect to the application judges limitation
    of the receivers liability in the receivership order, I similarly see no basis
    for appellate intervention.

[42]

The provisions of the receivership order, with
    which the appellant takes issue, are standard provisions that form part of the
    model receivership order prescribed by the Commercial List Users Committee for
    the use of practitioners and the court.
While not bound by them, counsel is expected to use
    the model orders developed by the Users Committee as templates for the draft
    orders they put before the Court, appropriately adapted as the particular
    circumstances of each case require, with suggested revisions black-lined. This
    follows the direction in para. 57 of Part XVIII of the Practice Direction: 
[t]he prior preparation of draft orders for
    consideration by the court at the end of a hearing will greatly expedite the
    issuance of orders. Where relevant model orders have been approved by the Commercial
    List Users Committee, a copy of the draft order blacklined to the model order
    and indicating all variations sought from the model order must be filed.


[43]

The theory and approach behind the recommended
    model orders promote the Commercial Lists purposes of efficiency, expediency
    and uniformity in commercial law matters, while recognizing that any model order
    serves only as a guide and must be tailored to suit the circumstances of each
    case before the court.
While model orders are extremely
    useful to parties and the court, they are only tools and must be treated with
    care. They are not mandatory. Not every provision in the model orders will be
    suitable in every case. A judge must always appropriately exercise discretion
    to determine what provisions are reasonable in the circumstances.

[44]

For ease of reference, I have highlighted the
    impugned provisions in the text of para. 20 of the order, reproduced below:

THIS COURT ORDERS that the Receiver shall
    incur no liability or obligation as a result of its appointment or the carrying
    out the provisions of this Order,
save and except for any gross negligence
    or wilful misconduct on its part
, or in respect of its obligations under sections
    81.4(5) or 81.6(3) of the BIA or under the
Wage Earner Protection Program
    Act
. Nothing in this Order shall derogate from the protections afforded
    the Receiver by section 14.06 of the BIA or by any other applicable
    legislation. [Emphasis added.]

[45]

The appellant objected to these provisions on
    the basis that there was no reason to limit the receivers liability beyond negligence
    as the ordinary standard of liability to gross negligence or wilful misconduct.
    The application judge did not accept this submission and determined, in the
    circumstances of this case, that it was appropriate to include the standard
    limiting provisions of the model order.

[46]

In my view, the application judges decision was
    reasonable. The application judge understood that he was not obliged to limit
    the receivers liability to gross negligence or wilful misconduct. He did not
    indicate that he was obliged to follow the model order or that the model order
    was determinative.  Rather, he properly exercised his discretion to include the
    impugned provisions based on the circumstances of the case before him.

[47]

Why then was it reasonable in this case to
    include the limited liability shield for the receiver?

[48]

It is a fair inference,
    in my view, that, without it, KSV may have refused to act as receiver in the
    circumstances of this case. A qualified receiver considering accepting an
    appointment can legitimately take into account whether the limited liability
    shield will be in place, as contemplated in the model order, to allow for
    the proper and orderly conduct of the receivership and avoid unnecessary and
    unjustified proceedings. As observed in the explanatory notes for the 2004
    version of the model receivership order:

the Receiver is not a legitimate target for
    the competing creditors. [A] gross negligence floor has been continued as the
    standard of culpability in order to limit the ability of creditors or the
    debtor from seeking to mount a challenge to the reasonableness of every
    exercise of the Receivers discretion.

[49]

The reasonable expectation of a limited
    liability shield is also reflected in the respondents engagement letter to BDO,
    the proposed predecessor receiver, which provided that it would indemnify the
    receiver for all liabilities incurred in connection with the receivership,
    excepting only any liabilities  that arise out of a wrongful act of [the
    receiver] which is proven to have been committed by it wilfully or out of gross
    negligence.

[50]

While it may not be appropriate or required in
    all cases, KSVs limited liability permits the orderly execution of its duties
    without the concern that it will be subject to needless litigation, especially in
    the circumstances of this case, with a recalcitrant debtor who has already
    objected to KSVs appointment. Recall KSVs mandate in this case: while the
    scope of its powers is broad, its narrow purpose is to ensure payment of the $2
    million USD debt to the respondent, which the appellant has steadfastly refused
    to pay notwithstanding its liability under the LOI, ALOI and GSA. The
    limitation of KSVs liability to gross negligence and wilful misconduct lessens
    the likelihood that the appellant will interfere with the completion of the
    receivers mandate.

[51]

That said, the limitation of its liability does
    not mean that KSV can act with impunity. KSV is a court-appointed receiver
    whose conduct of the receivership is subject to the courts scrutiny in which
    process the appellant will actively participate.

[52]

As a result, I see no basis to interfere with the
    provisions of the application judges order that limit the receivers liability
    to gross negligence and wilful misconduct.

D.

Disposition

[53]

For these reasons, I would dismiss the appeal.

[54]

In accordance with the provisions of the GSA, the
    respondent is entitled to its full indemnity costs that I would fix in the
    amount of $50,000, inclusive of disbursements and applicable taxes.

Released: MT OCT 02, 2019

L.B. Roberts J.A.
I agree. M. Tulloch J.A.
I agree. B.W. Miller J.A.


