• Post category:Court Cases

Sears Canada Inc., et al. (Re), 2018 ONSC 5852

Can a claims officer also act as an arbitrator in the same insolvency proceedings?

Sears Canada Inc. (“Sears”) previously operated the property located at 17600 Yonge Street, Newmarket, Ontario (the “Newmarket Property”) as a department store in the Upper Canada Mall, which is owned by Oxford Properties Group (“Oxford”). Pursuant to an option agreement between Sears and Oxford dated January 21, 1994 (the “Option Agreement”), Oxford had the right to purchase the Newmarket Property. The parties entered into a binding agreement of purchase and sale. The purchase price was to be equal to the “Current Value” of the Newmarket Property as defined in the Option Agreement.

The Option Agreement contemplated a three-step process for determining the Current Value: negotiation, valuation and arbitration. Oxford and Sears attempted to reach an agreement on the Newmarket Property’s value but were not successful. They then each appointed an appraiser to provide an opinion as to the value. The Option Agreement provided that if the two appraisals were within 5% of each other, the Current Value would be the average of the two appraisals. The appraisals were not within 5%. Finally, the Option Agreement provided for a single arbitrator to determine the Current Value, whose decision would be final and binding. If the parties could not agree on an arbitrator within 15 days, one would be appointed by the Court.

Oxford brought a motion for an order appointing John A. Keefe (“Keefe”) as arbitrator. Sears and the Monitor brought a cross-motion for an order appointing the Honourable James Farley (“Farley”). Farley had already been appointed to determine Oxford’s two claims in relation to the Newmarket Property in the Companies’ Creditors Arrangement Act (“CCAA“) proceedings. The two claims totaled approximately $7.4MM and related to alleged site work and repair costs and the present value of the alleged lost annual common area maintenance and promotion fund contributions from Sears. The Monitor rejected Oxford’s claims. Oxford then submitted a notice of dispute, which were to be determined by Farley in accordance with the CCAA Claims Procedure Order.

Oxford submitted that the determination of the Current Value and the determination of Oxford’s other claims should proceed separately but simultaneously. Sears and the Monitor argued that a single process whereby Farley determines all of the outstanding issues between Oxford and Sears would be the most “efficient, fair, expedient and cost-effective path”.

The parties agreed, and the Court was satisfied, that both Farley and Keefe were qualified to arbitrate the Current Value of the Newmarket Property. However, the Court held that the outstanding issues relating to the Newmarket Property were inextricably linked and should not be determined in a piecemeal fashion. Separate proceedings involving both Keefe and Farley to determine such interrelated issues would result in additional costs and delay, which was especially undesirable since Sears already incurs monthly carrying costs of approximately $107,000 in relation to the Newmarket Property.

The Court noted that under s. 11 of the CCAA the court has authority to “make any order that it considers appropriate in the circumstances and concluded that the quickest and most cost-effective way to determine the amount of cash to be paid on the closing of the sale transaction is to appoint Farley as the arbitrator to determine the Current Value of the Newmarket Property and Oxford’s claims in one proceeding. This conclusion was in line with the Monitor’s recommendations on this issue.

The Court dismissed Oxford’s motion and granted Sears’ cross-motion.

Counsel: Marc WassermanTracy SandlerJeremy Dacks and Shawn Irving of Osler for the Applicants, Orestes PasparakisVirginie GauthierAlan Merskey and Evan Cobb of Norton Rose Fulbright for the Monitor, David Ullmann of Blaney McMurtry for the Moving Landlords, Susan Ursel and Katy O’Rourke of Ursel Phillips Fellows Hopkinson for the Employees, D.J. Miller and Paul Guy of TGF for Oxford Properties, Lily Harmer of Paliare Roland Rosenberg Rothstein for Superintendent of Financial Services, Natalie Levine of Cassels Brock for Certain Former Directors and Officers, Sandy Lockhart of Polley Faith for ESL Parties, Gustavo Camelino of Camelino Galessiere for Ivanhoe Cambridge, Andrew Hatnay and Amy Tang of Koskie Minsky for Pension Representatives and Pamela Huff of Blakes for Morneau Shepell, Plan Administrator