IN THIS ISSUE
- What is the latest word from the BC Court of Appeal on "liquidating" CCAA's? [click here]
- Does an arbitrator have jurisdiction to compel participation of a person who is not party to an arbitration agreement? [click here]
- Are the former members of a pension plan who bring an unsuccessful claim for benefits entitled to special costs of the trial from the pension plan? [click here]
- Can the court presume that defamatory statements posted on the Internet were published in BC? [click here]
- What is the test for a BC court to find jurisdiction over an out of province litigant? [click here]
- Is a criminal conviction against a franchisee sufficient reason for a franchisor to refuse to renew the franchise agreement? [click here]
1. What is the latest word from the BC Court of Appeal on "liquidating" CCAA's?
Cliffs Over Maple Bay Investments Ltd. (the Developer) was developing a multipurpose residential and commercial project, including a golf course. However, the project ran into problems. In particular, the Developer needed to locate a new water source for the project. The Developer then filed under the Companies' Creditors Arrangements Act ("CCAA"), seeking court protection from its creditors, a stay of proceedings and time to reorganize its affairs.
The chambers judge granted an initial stay and an extension of the stay. The Court also granted an order for Debtor in Possession ("DIP") financing, to allow the Developer to pursue an additional water source.
The creditors appealed both the order granting the stay and the order extending the stay and allowing DIP financing. They argued that the Developer was a dormant, single-purpose development company to which the CCAA ought not to apply.
The Court of Appeal, in a unanimous judgment authored by Tysoe JA (who had been an experienced insolvency practitioner, before becoming a judge), allowed the appeal. While the Developer described how it intended to restructure its affairs, there was no clear evidence that the Developer in fact intended to propose a plan of arrangement or compromise to its creditors. This was fatal for the Developer. The Court held that the nature and state of the debtor's business are simply factors to be considered when granting a stay under s.11 of the CCAA. However, a stay is not a "free-standing" remedy to be used whenever an insolvent company wishes to "restructure" its business operations. Rather, a stay is ancillary to the fundamental purpose of the CCAA: to provide the insolvent company with an opportunity to propose a compromise or arrangement with either a class of its creditors or its creditors generally, to the end that the company is able to continue in business.
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2. Does an arbitrator have jurisdiction to compel participation of a person who is not party to an arbitration agreement?
In this case, the issue was whether an action by a logging contractor (Hayes Forest Services Ltd.) against a tree farm license holder (Teal Cedar Products Ltd.) was subject to arbitration pursuant to regulations made under the Forest Act. The chambers judge held that the matter was subject to arbitration and stayed Hayes' action.
On appeal, Hayes argued that the subject matter of the dispute did not fall within the arbitrator's mandate because a necessary party, the Defendant Fraser Valley Road Builders Ltd., could not be compelled to arbitrate. Hayes also argued that the arbitrator lacked the jurisdiction to grant injunctive or declaratory relief which was sought by Hayes in the action.
The Court of Appeal rejected Hayes' arguments. Teal was entitled to a stay under s.15 of the Commercial Arbitration Act. While Fraser Valley was not party to any arbitration agreement with Hayes, the arbitrator had the jurisdiction to include Fraser Valley in the arbitration as a party necessary to the arbitration. The arbitrator also had the jurisdiction to award equitable remedies. These would include injunctive or declaratory relief, pursuant to s.22 of the Commercial Arbitration Act and Rule 29(1)(k) of the Rules of Procedure for Domestic Commercial Arbitrations.
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3. Are the former members of a pension plan who bring an unsuccessful claim for benefits entitled to special costs of the trial from the pension plan?
A group of former members of a Telus pension plan brought action against the pension plan administrator claiming entitlement to benefits or, alternatively, damages for alleged breach of fiduciary duty. The action was dismissed. However the unsuccessful plaintiffs were awarded special costs out of the plan, based on the decision in Re Buckton [1907] 2 Ch. 406 (Eng. Ch. Div.). The plaintiffs appealed the dismissal of the action, and Telus cross-appealed the award of costs.
The Court of Appeal dismissed the plaintiffs' appeal. On the question of costs, the court held that the plaintiffs' action was one by beneficiaries to establish or enforce their rights and not an action to determine a question of construction of the pension plan that was necessary for the proper administration of the plan. Therefore, the action was not brought for the benefit of all beneficiaries.
Accordingly, the unsuccessful plaintiffs ought not to have been awarded their special costs out of the plan. Telus was awarded its costs of the 14-day trial, the appeal and the cross-appeal.
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4. Can the court presume that defamatory statements posted on the Internet were published in BC?
The Plaintiff's claim was for libel or defamation for messages and statements posted on the Internet. Yahoo was the host service provider. The statements were posted such that access was only available with permission of those in charge of the discussion group. The Plaintiff failed to allege that the postings had been published in BC, and the claim against Yahoo was dismissed, on the grounds that the court lacked jurisdiction. The Plaintiff appealed, arguing that that the allegedly defamatory messages should be presumed to have been published in BC, and that the court had jurisdiction over Yahoo on the basis of a "tort committed in" BC.
The Court of Appeal held that the mere fact that a statement was posted on the Internet did not support the presumption that it had been published, or indeed, that it had been read by anyone, in BC. The Plaintiff's appeal was dismissed.
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5. What is the test for a BC court to find jurisdiction over an out of province litigant?
The Plaintiff's claim was for breach of an agreement with KCTS to broadcast, promote and market a television program. KCTS carries on business in Washington State, but actively participates in the BC market and relies on it heavily for support. The issue was whether and to what extent a BC court had jurisdiction over the dispute. The application was governed by the Court Jurisdiction and Proceedings Transfer Act, SBC 2003, c.28.
Pursuant to the Act, the court had jurisdiction if a defendant was ordinarily resident or carried on business in BC at the time of commencement of the proceeding, or if there was a real and substantial connection between BC and the facts on which the action against the defendant is based. At issue was whether the Plaintiff had to meet the test for jurisdiction on a balance of probabilities. The Court of Appeal held that the Plaintiff was only required to establish an arguable case that the B.C. court had jurisdiction. Since the Plaintiff had done this, the action was allowed to proceed.
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6. Is a criminal conviction against a franchisee sufficient reason for a franchisor to refuse to renew the franchise agreement?
The Defendant was a franchisee of the Plaintiff for more than 15 years. When the time came for renewal of the franchise agreement, the Defendant and its principals were being investigated by Canada Customs and Revenue Agency (CRA) with respect to the Defendant's quarterly GST returns.
Despite the ongoing investigation, the Plaintiff agreed to 2 renewals of the franchise agreement. Ultimately, the Defendant was convicted on 16 charges of offending the Excise Tax Act and ordered to pay substantial fines. The Defendant appealed the convictions and refused to pay the fines.
The Plaintiff advised the Defendant that, in light of the convictions, there would be no further renewals of the franchise agreement. On a summary trial, the Plaintiff sought a declaration that the franchise agreement came to an end when the current renewal term expired. The main issue was whether the franchisor had good cause not to renew the franchise agreement considering the effect of the criminal convictions of the franchisee on the franchise system as a whole.
After a lengthy review of the law in the US and Canada, the court held that the Defendant franchisor had the right not to renew the franchise agreement if the offence for which the Plaintiff had been convicted, viewed objectively, resulted in a substantial impairment of the goodwill associated with the franchise. The court concluded that a conviction for fraud necessarily taints the franchisor's reputation and amounts to good cause not to renew the franchise agreement. Moreover, the convictions amounted to a default under the franchise agreement.
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