



COURT OF APPEAL FOR ONTARIO

CITATION:
Aircell
    Communications Inc. v. Bell Mobility Cellular Inc.,  2013 ONCA
    95

DATE: 20130214

DOCKET: C54587

Armstrong, LaForme and Hoy JJ.A.

BETWEEN

Scott & Pichelli Limited, Trustee in
    Bankruptcy for the Estate of Aircell Communications Inc.

Plaintiff (Respondent)

and

Bell Mobility Cellular Inc. and Bell Distribution
    Inc.

Defendants (Appellants)

Brent Arnold, for the appellants

David J. Jackson, for the respondent

Heard: February 8, 2013

On appeal from the judgment of Justice David S. Crane of
    the Superior Court of Justice, dated October 14, 2011.

ENDORSEMENT

[1]

This appeal considers whether a clause in an Independent Dealer
    Agreement between the appellant, Bell Distribution Inc., and Aircell
    Communications Inc. relieving Bell of its obligation to pay unpaid commissions
    to Aircell on termination of the Agreement is void as against Aircells trustee
    in bankruptcy.

[2]

For the reasons below, we agree with the trial judge that the clause is
    not enforceable as against the trustee, and accordingly dismiss this appeal.

[3]

Briefly, the relevant facts are as follows.

[4]

Bell appointed Aircell as an independent dealer of Bells
    telecommunications products and services.  As such, Aircell purchased inventory
    from Bell and was entitled to commissions in relation to services Aircell sold.

[5]

Aircell experienced financial difficulty; it owed Bell $64,000 for
    inventory.

[6]

The Agreement contained a provision entitling Bell to terminate it on
    notice to Aircell if Aircell commenced any proceedings related to Aircell under
    the
Bankruptcy and Insolvency Act
, R.S.C. 1985, c. B-3 (the Act).

[7]

In a meeting at which a representative of Bell was present, Aircell
    explored restructuring options. Unbeknownst to Bell, at the time of the
    meeting, Aircell had filed a Notice of Intention to make a proposal under the
    Act. After the meeting, Bell gave notice to Aircell that it would terminate the
    Agreement if Aircell did not pay the outstanding amount within 30 days.

[8]

Aircell was deemed a bankrupt before the expiry of the 30-day notice period,
    and therefore before the effective date of termination of the Agreement.  At
    the time, Bell owed Aircell $188,981 for commissions.  The Agreement provides
    that upon its expiry, or if Bell terminates the Agreement as a result of
    Aircells failure to remedy a default in payment within 30 days after notice of
    default, or otherwise in accordance with the Agreement, all of  Bells
    obligations to pay commissions shall cease immediately.  Bell relied on this
    clause to withhold payment of commissions to Aircells trustee in bankruptcy. 
    The trustee brought an action to recover the amount by which the commissions
    owing by Bell exceeded the amounts owing to Bell in respect of inventory.

[9]

The trial judge found that Aircells failure to pay Bell was due to its
    insolvency and that, as against the claim of Aircells trustee in bankruptcy,
    the clause at issue is void both pursuant to
CIBC v. Bramalea Inc.,
1995 CanLII 7420 (ON SC), and under ss. 65.1 and s. 95 of the Act.  He ordered
    Bell to pay the trustee the amount by which the unpaid commissions exceeded the
    amounts owing by Aircell.

[10]

In
CIBC v. Bramalea
, Blair J. considered a clause that permitted a
    non-insolvent partner to purchase an insolvent partners interest at a price
    less than fair market value.  He concluded that a contractual provision
    triggered only in the event of insolvency or bankruptcy which would deprive
    creditors of value otherwise available to them, and effectively divert the
    value to an unsecured creditor, is void.  This principle  sometimes referred
    to as fraud upon the bankruptcy law  violates the public policy of equitable
    and fair distribution among unsecured creditors in an insolvency.  Justice
    Blair determined that the clause at issue was void.

[11]

We
    see no basis for interfering with the trial judges finding of fact that
    Aircells failure to pay Bell was due to Aircells insolvency.

[12]

While
    the clause at issue in this case is triggered upon termination of the agreement
    for any number of reasons, and not only upon insolvency or bankruptcy, it was
    in fact triggered as a consequence of Aircells insolvency.  The clause
    provides a windfall to one of Aircells creditors:  Bell.  In the context of an
    insolvency, the clause is in
equitable.  We agree with the
    trial judge that the principle in
CIBC v. Bramalea
should be extended
    to declare the clause unenforceable as against Aircells trustee in bankruptcy
    as contrary to the overriding public policy that requires equitable and fair
    distribution among a bankrupts creditors.

[13]

Having
    determined that the trial judge did not err in declaring the clause
    unenforceable as against the trustee on the foregoing basis, it is unnecessary
    for us to address the trial judges alternative conclusion that the clause is
    void pursuant to ss. 65.1 and 95(1) of the Act. We note, however, that the
    trustee concedes that these provisions do not apply in the circumstances.

[14]

The
    appeal is accordingly dismissed. The trustee shall be entitled to costs,
    inclusive of disbursements and HST, in the amount of $15,000.

Robert P. Armstrong J.A.

H.S. LaForme J.A.

Alexandra Hoy J.A.


