8640025 Canada Inc. (Re)

2018 BCSC 1259 8640025 Canada Inc. (Re)

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: 8640025 Canada Inc. (Re), 2018 BCSC 1259 Date: 20180613 Docket: S1610905 Registry: Vancouver In the Matter of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as Amended And In the Matter of the Canada Business Corporations Act, R.S.C. 1985, c. C-44, as Amended And In the Matter of a Plan of Compromise and Arrangement of 8640025 Canada Inc. and Teliphone Data Centres Inc. Petitioners Before: The Honourable Mr. Justice Sewell Oral Ruling Re Application for Injunction Counsel for Navigata Communications Limited: P.J. Roberts Counsel for the Monitor: S.J. Nelligan Counsel for 9151-4877 Quebec Inc. dba Dialek Telecom: G. Gregory Counsel for Teliphone Corp: R. Clark, Q.C. F. Kang Appearing for the Petitioners, 8640025 Canada Inc. and Teliphone Data Centres Inc.: Sandeep Panesar Place and Date of Hearing: Vancouver, B.C. June 8, 2018 Place and Date of Judgment: Vancouver, B.C. June 13, 2018 [1] THE COURT: This is an application by 9151‑4877 Quebec Inc. doing business as Dialek Telecom (Dialek) for an injunction restraining Navigata Communications Limited ("Navigata") from discontinuing services on its network that relate to any of what have been referred to in these proceedings as the Dialek Customers until: (1) The Monitor has released to Dialek all funds it has collected for services billed through the Dialek billing

system for services provided after September 27, 2017; and (2) The appeal from the Monitor's decision respecting the Claiming Parties' proofs of claim has been finally determined. [2] The evidence filed in support of this application was somewhat sparse and consisted mainly of correspondence exchanged between counsel for the applicants and counsel for the Monitor. [3] However, the Monitor filed its 17th Report on June 7, 2018. That Report contains useful background information. I have relied on the factual matters set out in it in considering this application. I am aware that the applicant takes issue with some aspects of the Report. In these reasons I will endeavour to refer to the position of the applicant on any dispute that I consider to be relevant to the issues I must decide. [4] The petitioners were internet service providers to customers in Canada. The customers relevant to this application are located on Vancouver Island and in the Province of Quebec. The customers in Quebec received television services through the internet and are referred to as the "IPTV customers", and the Vancouver Island customers received cable services. [5] The background leading up to this application was set out in the Monitor's 17th Report, and I will not refer to it in detail in these reasons. [6] In summary, however, there have been lengthy court proceedings involving the key question of

what assets belong to the petitioners in this CCAA proceeding and were therefore available to maximize recovery from the petitioners' business. [7] An important reason for these disputes is the manner in which the corporate structure of the petitioners was organized. The business of the petitioners was carried on through a number of corporate entities which were related in some way which was not made clear to me in the evidence. The ownership of the assets used to operate the petitioners' global business continues to be in dispute. [8] At an early stage of these proceedings it became apparent that a restructuring of the petitioners was not practical, and the Monitor was charged with the responsibility of conducting a sale of the assets on, as I understand it, preferably a going‑concern basis. [9] In 2017, the Monitor identified an arm's length party who expressed interest in the assets used in the business. In September 2017, this Court approved a sale of a number of the assets and in the same order approved a process for determining ownership of assets whose ownership was disputed. [10] The September order established a claims procedure which required entities claiming assets in the possession of the Monitor to make claims to those assets in the first instance to the Monitor. The Monitor was charged with the responsibility of deciding what claims should be accepted. Along with

a number of entities, the applicant Dialek claimed a substantial portion of the assets formerly used in the petitioners' business. [11] In 2017, the Monitor disallowed all or substantially all of the claims of what have been referred to as the Claiming Parties, which included the applicant. [12] On December 14, 2017, Justice Affleck dismissed the Claiming Parties' appeals from the Monitor's disallowance of their claims. On that date Justice Affleck also approved the sale of a second tranche of assets to Navigata. I have already referred to that tranche of assets in my previous reasons. In these reasons I will refer to the order as the December Vesting Order. Many of those assets, that is, the assets sold in the December Vesting Order, were the subject of the disallowed claims. [13] The Claiming Parties obtained leave to appeal the dismissal of their appeals against the Monitor's disallowance of their claims. In reasons delivered on March 14, 2018, the Court of Appeal allowed an appeal of Justice Affleck's dismissal of the appeals from the Monitor's disallowance. The Court found that Justice Affleck had not applied the correct standard of review on the appeal of the Monitor's decisions. It referred the appeal from the Monitor's disallowance back to this Court to be dealt in accordance with the proper standard of review. [14] However, the Claiming Parties did not obtain leave to

appeal the December Vesting Order, and I have already decided this morning that the December Vesting Order has vested title to the assets sold pursuant to Navigata and that the Claiming Parties no longer have the right to the return of those assets, whatever the outcome of their appeal against the disallowance of their claims may be. [15] As matters now stand, the claims of the Claiming Parties have been disallowed pending their new appeal, which presumably will be heard by Justice Affleck as soon as he can be made available to do so. [16] In late September 2017, the Monitor notified the Claiming Parties that Navigata did not wish to acquire the IPTV customers and that it was prepared to release the amounts received with respect to those customers after September 2017 to the appropriate claiming party. [17] In February 2018, the Monitor advised the Claiming Parties that Navigata had no interest in acquiring the Vancouver Island customers' accounts and that the Monitor was prepared to release the amounts it held from those accounts to the appropriate claiming party. [18] The Monitor, however, determined that it required a court order to approve the release of funds received by it in respect of the IPTV and Vancouver Island customers. On April 17, 2018, a number of Claiming Parties delivered an application for payment of the funds held in respect of the released customers to

Gregory & Gregory in trust for Dialek. Argument on that motion commenced on April 19, 2018, but could not be completed before Justice Affleck. That application remains outstanding. [19] Until the end of April 2018, Navigata provided the services and infrastructure necessary to maintain the services to the IPTV and Vancouver Island customers. However, Navigata was not being paid for those services. [20] According to the Monitor's 17th Report, Navigata first realized in early May 2018 that it was providing those services without compensation. At that time or shortly thereafter, Navigata notified the Monitor that there were some services running on its network with respect to the IPTV and Vancouver Island customers and that it intended to discontinue those services within two weeks if they were not migrated off the Navigata network. [21] As a result of further discussions among the parties, that deadline was extended until last Friday. As of the date of preparing these reasons, I am not aware if the services are still being provided. At the hearing of the application, I declined to grant an interim injunction that the services continue to be provided by Navigata, but I did ask counsel for Navigata to inform his client that it would reasonable for it to continue to provide those services pending my decision. [22] On this application no one was able to explain to me what technical

steps are necessary to migrate the services to the customers in question from the Navigata network. Instead all parties blame the other for the failures to migrate the services to another service provider. [23] While it was not expressly stated in the evidence, it is apparent to me that even if the Claiming Parties are successful in their appeals from the disallowance of their claims, they will not have the necessary infrastructure to service the Vancouver Island and IPTV customers. [24] In response to these developments, Dialek has brought this application. Position of the Parties [25] The applicant submits that it is entitled to an injunction requiring Navigata to continue to provide the infrastructure and services necessary to maintain the services until the Monitor releases all funds it has collected for services billed through the Dialek billing system to it and until its appeal from the Monitor's decision respecting the Claiming Parties' proofs of claim have been decided. [26] Navigata's position is that the applicant has not made out a case for an injunction based on the applicable test, and that the application should be dismissed. [27] For the reasons that follow I have decided that the application must be dismissed. [28] All parties argue this application on the principles applicable to an interlocutory injunction or a stay of proceedings pending an appeal. Those

principles are set out in the seminal decision of the Supreme Court of Canada in Manitoba (A.G.) v. Metropolitan Stores Ltd., [1987] 1 S.C.R. 110, reiterated in RJR‑MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311. [29] In determining whether to grant an injunction, a court must decide whether it is just and convenient to do so considering the strength of the applicant's case, the risk of irreparable harm if the injunction is granted and the balance of convenience. This has often been stated as a three‑part test as follows. The applicant must show: 1. That it has raised a fair question with respect to the right it asserts; 2. That it will suffer irreparable harm if the injunction is not granted; 3. That the balance of convenience favours the granting of the injunction. [30] With respect to the raising of a fair question, the jurisprudence makes it clear that this is usually a low threshold. Nevertheless, an applicant must demonstrate that it has at least an arguable case against the party it seeks to enjoin. This principle is set out at para. 41 of RJR‑MacDonald as follows: What then are the indicators of "a serious question to be tried"? There are no specific requirements which must be met in order to satisfy this test. The threshold is a low one. The judge on the application must make a preliminary assessment of the merits of the case. The decision of a lower court judge on the merits of the Charter claim is a relevant but not necessarily conclusive indication that the issues raised in an appeal are serious: see Metropolitan Stores, supra, at p.

150. Similarly, a decision by an appellate court to grant leave on the merits indicates that serious questions are raised, but a refusal of leave in a case which raises the same issues cannot automatically be taken as an indication of the lack of strength of the merits. [31] It is arguable that the applicant is seeking a mandatory injunction and must therefore show a strong prima facie case. In this regard, see the recent decision in R. v. Canadian Broadcasting Corp., 2018 SCC 5. However, for the purposes of this application I do not need to decide that the applicant must show a strong prima facie case. [32] I conclude that the applicant's complaints are against the Monitor rather than Navigata. The applicant has not articulated any basis on which it can make a claim against Navigata. It has no contractual relationship with it, nor has it alleged any tortious actions on its part. It is also apparent that Navigata is not obtaining any benefit from the services in question that could lead to any restitutionary remedy against it. [33] When I pressed counsel on this point in argument, he submitted that an order under the broad remedial powers found in s. 11 of the Companies' Creditors Arrangement Act provided the jurisdiction to make the order his client seeks. [34] However, the difficulty I have with that submission is that s. 11 permits me to make orders with respect to the

debtor company. However, in this case neither the applicant nor the respondent is the debtor company. In addition, the power granted under s. 11 is to further the objectives of the CCAA. I am not persuaded that the order sought by the applicant would further the orderly restructuring of the affairs of the debtor companies. [35] In my view the order sought would, if anything, be contrary to the orderly restructuring of the affairs of the debtor companies because it would establish a precedent that a third party who purchases assets pursuant to a court‑approved sale which vest those assets in that party free and clear of all encumbrances or claims might still be subject to injunctive relief at the behest of another interested party in the proceedings. In my view such a doctrine would have a deleterious effect on the efficacy of sales arranged through the CCAA process. [36] In addition, it is common ground that Navigata is not being paid for the services it provides. The order sought here would require it to continue to provide services not to the debtors but to the applicant without immediate payment. Such an order would appear to be contrary to s. 11.01 of the CCAA which provides: 11.01 No order made under section 11 or 11.02 has the effect of (a) prohibiting a person from requiring immediate payment for goods, services, use of leased or licensed property or other valuable

consideration provided after the order is made; or (b) requiring the further advance of money or credit. [37] Counsel has not provided me with any authority in which a party with a claim against someone else may obtain an injunction against a third party not implicated in the claim being made. [38] In the first decision I gave this morning, I found that the Claiming Parties have no claim in specie to any assets transferred by the September or December vesting orders. In his argument Mr. Gregory conceded that the use of at least some of the vested assets must be utilized by Navigata to continue to support the IPTV and Vancouver Island customers. [39] As I can see no ground upon which this Court could order Navigata to use its assets to benefit the Claiming Parties, I conclude that the applicant has not shown that it has raised a fair question against Navigata and the application must fail on that ground alone. [40] I am also not satisfied that the applicant has demonstrated a real risk of irreparable harm. [41] The applicant has not shown that it has any real prospect of being able to continue to service the IPTV and Vancouver Island customers. It complains that Navigata has not provided it with the technical information it needs to migrate those customers, but I have no evidence that it has the business infrastructure in place, given the effect of the two vesting orders, to

continue to provide services to them without utilizing Navigata's network. [42] In my view, given the vesting of the majority of the network assets in Navigata, damages are the sole remedy available to the Claiming Parties if they succeed in their appeal from the Monitor's orders. [43] It seems to me that those damages are assessable. I therefore find that the applicant has failed to establish a risk of harm that cannot be compensated for by an award of damages. [44] I also find that the balance of convenience does not favour the applicant. In my view, as I have already indicated, the granting of an injunction against Navigata would erode the efficacy of the vesting provisions of the sale orders and interfere with the finalization of the adjustments to the purchase price and to the December sale order. [45] On the other hand, the applicant has not demonstrated to me how granting the order sought would facilitate the continuation of its business. I was given no evidence as to how the applicant proposed to provide services to the customers in question if it wins its appeals or obtains the funds held by the Monitor in respect of the IPTV and Vancouver Island customers. [46] Finally, on the issue of balance of convenience, I take into account the unwillingness or inability of the applicant to give an undertaking as to damages in this case. While the giving of an undertaking is not

mandatory, it is a factor that the court must take into consideration in assessing the balance of convenience. The giving of an undertaking that can be enforced is usually a necessary element of the protection of a party against whom an injunction is granted. Given the paucity of evidence I have about the financial viability of the applicant, if I had been inclined to grant an injunction I would have required an undertaking and asked for submissions and evidence on the ability of the applicant to honour that undertaking and on the question of whether security for that undertaking should have been provided. [47] For the foregoing reasons, the application for an injunction is dismissed and Navigata is entitled to its costs of the application.

SUBMISSIONS OF COUNSEL ON COSTS [48] THE COURT: With respect to the injunction application, I remain of the view that costs are appropriate. The application for an injunction was between two parties who are not subject directly to this CCAA proceeding, and the relief sought was relief against Navigata specifically. I am therefore of the view that Navigata is entitled to its costs of the injunction application. In the circumstances those costs should be payable forthwith after assessment. [49] Based on Mr. Gregory's submissions and upon further reflection, I find that the costs of the application to strike should be decided by the judge who hears what is left of those applications; in other words the judge who hears the appeal. [50] It seems to me that the question of the overall merits of that application is relevant to the issue of costs on that application. So costs on the application to strike will be in the discretion of the judge who hears the balance of that application. "SEWELL J."