Saskatchewan Court of Appeal Case ‘Hot’ on CanLII

October 3, 2014

By Melanie Hodges Neufeld

Each Wednesday, Slaw posts which three English-language cases have been most viewed on CanLII. This week, Lemare Lake Logging Ltd. V. 3L Cattle Company Ltd, 2014 SKCA 35, made the top three. Here is a summary prepared by one of our case digesters that appeared in vol. 16, no. 14 of Case Mail:

The respondent company had financial obligations to the appellant that were secured by a mortgage. The respondent also granted the appellant a security interest in all non-inventory goods and equipment, including machinery, fixtures and tools. The respondent defaulted on the obligations and the appellant applied unsuccessfully to the Court of Queen’s Bench for an order appointing a receiver pursuant to s. 243(1) of the Bankruptcy and Insolvency Act (“BIA”). The Chambers judge found that Part II of The Saskatchewan Farm Security Act (“SIA”) applied, so the respondent was required to have leave before an action could be commenced. The appellant’s argument that federal paramountcy rendered the SIA requirements inoperative was not successful. The Chambers judge also found that a receiver would not have been appointed in any event because the respondent was not insolvent and that it would not have been just and convenient to appoint one. The appellant was also having financial difficulties and had protection from its creditors under the Companies’ Creditors Arrangement Act (“CCAA”) in British Columbia. The appellant owed creditors $34.8 million; $10 million was the amount owed by the respondent to the appellant.

HELD: The appeal was dismissed. The appeal court agreed with the appellant that Part II of the SIA was inoperative due to federal paramountcy and that the respondent was insolvent; however, they also found that the Chambers judge did not err in deciding that a receiver should not be appointed in the circumstances of the case. The appeal court held that there was no operational conflict between the BIA and SFSA; an order for leave could be obtained prior to appointment of a receiver under the BIA. The appeal court did find, however, that Part II of the SFSA frustrated the purpose of s. 243 of the BIA so as to bring paramountcy into play. The only time requirements in the BIA with respect to the appointment of receivers is the 10-day notice period in s. 243(1.1). Parliament recognized that the proceedings were time sensitive and therefore only a 10-day notice period was granted. Part II of the SFSA requires waiting at least 150 days, which would frustrate the purpose of the BIA in moving quickly. The purpose of the BIA would also be frustrated by Part II of the SFSA because the leave application in the SFSA requires that more criteria be met. The Chambers judge was found to have erred because she did not conclude that the respondent was insolvent. The BIA does not require that a debtor be unable to meet each and every obligation in order to be considered insolvent. The respondent did not pay obligations to two of three major creditors and was unable to pay them. The appeal court also noted that a debtor needs only to fail to meet one obligation even though the BIA uses the word obligations. The Interpretation Act makes it clear that plural also includes singular. Whether a receiver is granted is discretionary and therefore a discretionary standard of review was required. The appeal court reviewed the Chambers judge’s analyses on whether to appoint a receiver as follows: 1) the Chambers judge’s comments regarding the scope of a receiver’s authority were incorrect. However, the appeal court found that they did not affect the Chambers judge’s decision regarding whether to order a receiver; 2) the Chambers judge concluded that a vesting order for the debtor’s land would not be granted because there were not exceptional circumstances. The Court of Appeal found that the Chambers judge misinterpreted the case she was relying on to make her determination and also found that her determination did not go to the core of her decision on the receiver issue; 3) the appeal court agreed with the appellant that the Chambers judge did not take into account all of the factors in deciding not to appoint a receiver. She only focused on a receiver collecting rents and the vesting order. The appeal court therefore reviewed all of the factors to decide whether it was just and convenient to appoint a receiver and concluded that the Chambers judge did not err in her decision not to grant an order for a receiver. The appellants were instructed to proceed against the respondent in the usual process of foreclosure.