Romspen Investment Corp. v. Courtice Auto Wreckers Ltd., 2018 ONSC 1591

To what extent should commercially sensitive documents be sealed in court filings?

A court-appointed receiver (the “Receiver“) of the debtors brought an unopposed motion to approve the sale of certain real estate assets of the debtors. The Court approved the sale, but raised several issues with the way the routine sale approval was handled. Among other issues, the Court commented on the Receiver’s excessive sealing of evidence.

There are differing opinions on the degree to which it is appropriate to seal commercially sensitive documents in court filings. The practice in the Commercial Court is to redact exhibits that a moving party intends to ask the court to seal, and provide to the judge the un-redacted exhibits in a pre-sealed envelope containing the warning that it not be opened except by the judge. Although the practice does not strictly accord with the spirit of the guidelines set out in Sierra Club of Canada v Canada (Minister of Finance), it reasonably balances the need to give notice against the impracticability of getting a sealing order in advance of service of the motion materials. Still, the practice should be employed only when necessary and to the extent necessary.

The Court found that the Receiver unilaterally “sealed” an excessive number—four—of documents by excluding them from the materials served on the Service List. Two of the documents were appraisals of the subject land that had been commissioned more than three years prior. The other two documents were a summary of all offers received and the Agreement of Purchase and Sale.

The Court held that the appraisals were self-evidently dated and there was little reason to have sought to seal them. They estimated a value that was materially higher than the values at which the Receiver listed the property for sale in 2016 and 2017. The fact that the Receiver listed the property at values below the appraised values and its reasons for doing so were material to the stakeholders and ought to have been disclosed to them.

The Court also held that there was no acceptable rationale for withholding the entire Agreement of Purchase and Sale. Although disclosure of the price accepted by the Receiver may have adversely impacted a future sale process if this sale failed to be completed, that, alone, did not absolve the Receiver from the obligation to make disclosure to stakeholders. The Receiver ought to have filed a redacted copy of the Agreement of Purchase and Sale, as is the longstanding practice of the Commercial List with respect to commercial agreements.

Further deficiencies by the Receiver included minimal descriptions of the excluded documents in the Receiver’s report, and the fact that the Receiver did not follow the practice of filing redacted copies of documents intended to be sealed. The Court pointed out that the Receiver did not disclose enough general details about the excluded appraisals to the stakeholders, from which they could glean whether there was an issue regarding property values in the first place. The Receiver also did not disclose any informative description of the reasons for rejecting previous offers, which may have helped stakeholders assess the adequacy of the Receiver’s marketing efforts without compromising a future sales process.

Stakeholders are entitled to be served with sufficient information to enable them to make an informed decision about their position. A receiver cannot conduct a public receivership as though it were a private one.

The Receiver ought to have taken steps to mitigate its departure from Sierra Club. It could have provided a general description of the excluded information or offered to allow the stakeholders to access the information via a non-disclosure undertaking.

The Court approved the sales process but noted that it did so with misgivings. It did not authorize the sealing of the two appraisals, but agreed to seal the two remaining documents only until further order or closing on March 31, 2018.

Counsel: Michael Brzezinski of Dickinson Wright for the Court-Appointed Receiver of the Respondents

Full case: http://canlii.ca/t/hqwtq