Arguing a full trial in a CCAA proceeding?

What is the test for determining whether litigation should be tried in a full or summary trial in a CCAA proceeding?

Alderbridge Way GP Ltd. (Re), 2024 BCSC 382
What is the test for determining whether litigation should be tried in a full or summary trial in a CCAA proceeding?

Overview: In this case, the Court considered whether a more summary process or a full trial was required to determine a dispute between the CCAA petitioners and a secured creditor on the one hand, and the lender on the other. The seminal issue to be decided was one of contract law, being whether the lender was entitled to cease funding of the building project being developed by the petitioners. Although the amounts involved were substantial and there was some complexity, the Court found that a full trial was not necessary, and that a more summary, bespoke trial process was appropriate in the circumstances.

The Petitioners were developers of a building project in Richmond, British Columbia, which became insolvent and obtained protection under the Companies’ Creditors Arrangement Act. The Monitor was appointed to conduct a sales and investment solicitation process (SISP) to move reasonably quickly to sell the development. A significant factor relevant to the marketing of the development was that the building permit had expired. By December 2022, the Monitor had still not received any bids under the SISP. Accordingly, the Monitor terminated the SISP until the issue relating to the building permit was resolved.

Throughout 2023, the Monitor continued its efforts to obtain a new building permit. In the fall of 2023, the Monitor anticipated being in receipt of the permit from the City by March 2024. The Monitor also advised that, once the City responded, it would be necessary to bring a further application to re-institute the SISP and address how the City’s costs would be funded. The costs payable to the City were substantial, estimated at $18 million. If and when the building permit is issued, it will remain valid for only six months, subject to the City granting a further six-month extension in its discretion. Therefore, assuming that the permit is issued in mid-March 2024, the SISP would have to be completed and the new purchaser would have to commence construction activity by mid-September 2024.

The consequences of the anticipated building permit expiring were significant. Any new application would have to be compliant with the City’s new building code, which would require a new development permit. The Monitor argued that this would cause delays of up to four years, loss of density, increased amounts payable to the City and a forfeiture of amounts already paid to the City. The value of the development would be severely depressed as a result. In addition, the monthly holdings costs of the development were in excess of $200,000 per month, not including interest on the secured loans.

Significant disputes arose between the CCAA Petitioners and GEC (a secured creditor), on the one hand, and another secured creditor, Romspen Investment Corporation (“Romspen”), on the other. Those disputes crystallized in various actions filed against Romspen and an action by Romspen against the CCAA Petitioners and Guarantors of that debt (collectively, the “Related Actions”). Romspen sought an order: (a) providing that the Related Actions would be tried together in the context of the CCAA proceedings; and (b) setting various deadlines for the filing of pleadings, listing of documents and examinations for discovery. The Petitioners and other respondents to the motion opposed the motion, arguing that the Related Actions should be resolved in the fullness of time and in the usual civil trial process outside of the CCAA proceeding without the CCAA court imposing any case management deadlines at any time.

The Court granted the Order sought by Romspen (the “Procedural Order”). This hearing was essentially a case planning conference to address the resolution of certain issues arising from the Procedural Order, and in particular, how and when the trial of those issues will proceed. GEC proposed a four-week, “full trial”—beginning May 7, 2024—arguing that a trial based solely on affidavits was not suitable. The CCAA Petitioners/Guarantors also wanted a “full trial”, asserting that there were “serious credibility issues” that required a viva voce trial. Their preferred time for trial is July/August 2024.

The Court already determined that it had the jurisdiction to decide the issues in the Related Actions under both ss. 11 and 20 of the CCAA. Both of those sections, particularly s. 11, provide the Court with a broad jurisdiction to manage the proceedings and make directions toward a determination of the issues. That includes imposing a trial process that includes more summary procedures yet allow for an expeditious and fair determination of the issues, which would be consistent with the statutory objectives of the CCAA that were at play in this case. This allows the Court to fashion a “bespoke” trial process that makes sense in the circumstances.

The amounts involved were substantial and there was some complexity. That said, these factors did not necessarily point to a full trial. The seminal issue to be decided is one of contract law, being whether Romspen was, as lender, entitled to cease funding of the development. GEC and the CCAA Petitioners/Guarantors emphasized that evidence of “surrounding circumstances” will be necessary for the presider, however, these types of issues do not foreclose a more summary determination.

The CCAA Petitioners/Guarantors objected to proceeding with affidavits for the evidence in chief, arguing that there was a risk that the evidence would improperly become the product of leading questions. If this argument was taken to its fullest, no summary trial could take place based on affidavit evidence, as is usually the case. Moreover, no significant credibility issues were identified to the Court. Rather, as would be expected in this scenario, the Court anticipated that the dealings between the parties would be documented to a very large degree by sophisticated agreements and email correspondence.

None of the relief sought by Romspen, in terms of circumscribing and expediting the trial process, contravened the applicable Supreme Court Civil Rules. As provided for in the Procedural Order, GEC and the CCAA Petitioners/Guarantors have been provided with a full opportunity to engage in pre-trial procedures which have conformed with the “usual” trial process, albeit with abbreviated timelines.

Judge: Justice Fitzpatrick

Counsel: Peter Bychawski, Roy Lou and Peter Rubin of Blakes for Romspen; Howard Shapray, K.C., Shane Coblin and Nikhil Pandey of Kornfeld and Valerie Cross of Dentons for the Petitioners; and John Sullivan and Salman Bhura of Harper Grey for GEC