9354-9186 Québec inc. (Bluberi Gaming Technologies Inc.) c. Callidus Capital Corporation, 2022 QCCS 1999

What is the limitation period in a case where it is alleged that a creditor is liable for a debtor’s insolvency?

Bluberi is a Canadian gaming company that specialized in the development and sale of casino games. From 1994 to 2012, Bluberi focused on selling its technology and gaming content to third parties. These parties would incorporate Bluberi’s technology into their own gaming cabinets for use in casinos across North America.

The casino gaming industry is highly competitive and requires constant and significant investments in technology. In 2012, Bluberi decided to evolve from a content and technology provider to a full-service gaming manufacturer. The change would allow Bluberi to provide casinos with “turn-key” products and services in exchange for a share of the revenue generated by the machines. Profit margins would be higher.

To implement the change in its business model, Bluberi sought financing. In early 2012, Callidus was introduced to Bluberi. On April 24, 2012, the parties signed a term sheet pursuant to which Callidus would provide $24 million to Bluberi in the form of a demand loan carrying interest at 18% per annum.

Right from the start, the parties had disagreements with regard to the timing of the loan disbursements. Bluberi assumed that, upon closing, it would receive the major part of the negotiated loan (approximately $20 million). However, on July 26, 2012, Callidus advised that disbursements would be made incrementally in accordance with certain milestones pertaining to the deployment of gaming machines. On August 1, 2012, Callidus’ attorneys advised Bluberi that only $11.3 million would be disbursed. Negotiations ensued. On August 15, 2012, Callidus proposed that it distribute $18.5 million on closing.

Between 2013 and 2015, Bluberi asked Callidus for additional advances which had the effect of increasing the total loan amount. Bluberi alleged that Callidus took too long to approve such disbursements, and by the time the approvals were made, Bluberi had depleted the funds in its operating account creating an overdraft situation which triggered an additional 3% interest to Callidus over the entire amount of the loan. Bluberi alleged that it was forced into an overdraft position triggering additional interest, and the late approvals led to conflicts with some critical suppliers as a result of them being paid late.

In November 2015, the differences between Callidus and Bluberi came to a head, and Bluberi filed proceedings under the Companies’ Creditors Arrangement Act. In its petition, Bluberi alleged that its liquidity issues were the result of Callidus taking de facto control of the corporation and dictating a number of purposefully detrimental business decisions. According to Bluberi, Callidus engaged in this conduct in order to deplete Bluberi’s equity value with a view to owning Bluberi and, ultimately, selling it.

In June 2016, the court approved Callidus’s bid to acquire almost all of Bluberi Gaming’s assets, which were then integrated into Callidus’s own existing casino operations. The court allowed Bluberi to retain its litigation rights against Callidus. In its proceedings filed in November 2018, Bluberi and certain other plaintiffs alleged that Callidus and its directors and officers engaged in predatory lending practices which forced Bluberi to seek protection under the CCAA. In short, the plaintiffs suggested that Callidus was not so much interested in allowing Bluberi to repay its loan, but preferred to keep Bluberi indebted until repayment was impossible, at which point Callidus could acquire Bluberi and exploit an otherwise valuable business for itself.

Callidus and the other defendants brought motions seeking to dismiss the application on the basis that, among other things, it was brought outside of the limitation period.

The Court found that caution is warranted where a motion to dismiss alleges that the claim is barred on the basis of a limitation period. The determination of the day on which a right of action arises (i.e., the day that the limitation period begins to run) is a question of fact (or of mixed fact and law) that often, if not always, depends on an assessment of the circumstances of each case. Thus, while dismissal of an action on the basis of an expired limitation period remains possible, the situation must be unequivocal.

Here, Bluberi and the other plaintiffs first filed their proceedings on November 7, 2018. Given the three-year limitation period applicable to their case, the plaintiffs’ claim would be time barred if the cause of action arose before November 7, 2015. The Court concluded that the defendants were correct that many of the alleged faults occurred prior to this date. However, this was not determinative, as the limitation period does not begin running until the damage occurs.

The plaintiffs argued that this date was February 2017, when the sale to Callidus via credit bid closed. The Court noted that in Bluberi’s initial application materials filed in mid-November 2015, it stated that a restructuring remained possible, and that the defendants themselves contested the CCAA filing on the basis that Bluberi was not cash flow insolvent. For this and other reasons, the Court found that, “had Bluberi’s restructuring efforts been successful, it is possible that no damages would have been incurred”. As a result, while the alleged damages were certainly a possibility in November 2015, it could not be established with certainty at this stage that they had materialized at that time.

Judge:  The Honourable Martin F. Sheehan, J.S.C.

Counsel: Christian Lachance, Léon Moubayed and Amélie Lehouillier of Davies Ward Phillips & Vineberg for the Plaintiffs; Billy Katelanos, Geneviève Cloutier, Mary-Pier Marcheterre and Samuel Maheu Savard of Gowling WLG for the Defendants

Fullcase: https://mcusercontent.com/a3e2039936cbf8a31bda45ab3/files/02f99cba-b00f-1e9e-95ba-98efe9f86828/2022qccs1999_1_.pdf

By Matilda Lici