Mercy Falls BC Inc. (Re)

2025 BCSC 2492 Mercy Falls BC Inc. (Re)

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Mercy Falls BC Inc. (Re), 2025 BCSC 2492 Date: 20251023 Docket: S253718 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 the Compromise or Arrangement of Mercy Falls BC Inc. Before: The Honourable Justice Basran Oral Reasons for Judgment In Chambers Counsel for Mercy Falls BC Inc.: J. Ensom E. Chen J. Stokes B.S. Khatra Counsel for MNP Ltd.: A. Bowron Counsel for National Bank of Canada: M. Bakan Kline Place and Date of Hearing: Vancouver, B.C. October 23, 2025 Place and Date of Judgment: Vancouver, B.C. October 23, 2025 THE COURT: [1] Mercy Falls BC Inc. is the petitioner in this matter. It seeks default judgment against Mercy Falls LLC ("Studio"). If granted, the petitioner also seeks an order that the damages to be paid under the default judgment be summarily assessed; and an order that those damages are $4,736,455 as of September 30, 2025. [2] The petitioner further seeks an order that it be at liberty to apply for a further summary assessment of damages to be paid under the default judgment for amounts from and after October 1, 2025, including amounts not yet known to or not yet incurred by the petitioner. Finally, the petitioner seeks an order that

it be entitled to pre- and post-judgment interest, pursuant to the Court Order Interest Act in an amount to be assessed. [3] Based principally on the petitioner's notice of application and its written submissions, I am granting the orders as sought. Background Facts [4] The petitioner is a special purpose entity that was incorporated to produce and complete a film adaptation of the novel "Shiver" (the "Film"). [5] Studio is a limited liability company incorporated under the laws of the state of Wyoming, USA. According to an affidavit filed in this proceeding by Mr. Hamilton, a director of Studio, it owns the copyright, and motion picture rights and licences required to produce the Film. [6] On or about July 25, 2024, the petitioner and Studio entered into a production services agreement for production of the Film (the "Production Services Agreement"). Pursuant to this Agreement, the petitioner agreed to provide production services to Studio and Studio agreed to advance funds necessary to complete the production of the Film with those funds to be advanced to the petitioner. [7] On or about August 19, 2024, Studio also provided a guarantee letter to the petitioner (the "Guarantee"), whereby Studio agreed to honour and guarantee payment of all approved amounts owed by the petitioner to fund their production and assured that there would be "no issue in regard to paying the credit

balance incurred by [the petitioner]". [8] By November of 2024, Studio had fallen several million dollars behind on its funding obligations pursuant to the Production Services Agreement and the Guarantee. This stalled the production of the Film and resulted in numerous enforcement and/or collection actions against the petitioner by a large number of Canadian and American trade creditors. Accordingly, the petitioner sought protection from its creditors under the CCAA. [9] The petitioner has a breach of contract claim against Studio for loss and damage (the "Contract Claim"). A judgment against Studio pursuant to the Contract Claim is probably the only way for the petitioner to satisfy its obligations to its many creditors in the CCAA proceeding. Procedural History [10] On May 16, 2025, the Court granted the petitioner the initial order in the CCAA proceeding. [11] On May 26, 2025, the court granted an amended and restated initial order (the "ARIO") in the CCAA proceeding. Notably, Mr. Hamilton swore an affidavit and Studio filed an application response for the comeback hearing that resulted in the ARIO. [12] On August 12, 2025, the stay was extended to September 8, 2025. [13] On September 8, 2025, the Court granted three orders to the petitioner: a) an order extending the stay period to December 5, 2025; b) an order increasing the limit of the interim facility to $1.1 million

with an equivalent increase to the interim lender's charge; and c) an order that the Contract Claim against Studio be heard and determined within the CCAA proceeding and setting a corresponding procedural schedule for the determination of that claim (the "Procedural Order"). [14] Although duly served, Studio did not respond to or participate in the hearings on August 12, 2025 or September 8, 2025. [15] The Procedural Order included a term that, by September 9, 2025, the petitioner file and serve a notice of application in the CCAA petition to stand in the place of the notice of civil claim, setting out the factual and legal basis for its claim against Studio. It also required that Studio file and serve an application response to stand in place of a response to civil claim, setting out its response to the petitioner's Contract Claim by September 19, 2025. [16] I note that, by September 9, 2025, Studio had already been served with the draft unfiled Contract Claim application on two prior occasions: a) On July 29, 2025, the draft Contract Claim was enclosed in a notice of application returnable on August 12, 2025; and b) on August 18, 2025, the petitioner filed and served on Studio a notice of application returnable on September 8, 2025, which also included the draft Contract Claim. [17] Studio's representatives were emailed in respect of two requests to appear in respect of this

CCAA proceeding. [18] Studio did not file and serve its application response to the Contract Claim by September 19, 2025. In its subsequent communications with the Court seeking to have the matter set down, the petitioner continued to copy Studio at the email addresses provided for service. [19] On September 23, 2025, a registrar confirmed that Studio had not filed an application response. In addition, as of today's date, Studio has not served an application response. [20] In seeking to set down a three‑day hearing of the Contract Claim on its merits in November 2025, Mr. Hamilton replied to an email from Supreme Court Scheduling, asking, "can we please move this to a later date when we would be available". This brief utterance constitutes the only response from Studio in respect of this proceeding since May 26, 2025. Studio has not been in contact with counsel for the petitioner since October 3, 2025, and it did not appear at today's hearing. [21] Default judgments may be obtained without notice to the defaulting party: Ibrahim v. Hashemi, 2024 BCCA 383 at para. 10. [22] Similarly, an application to assess damages against the defaulting party under Rule 3‑8(13) does not require notice to that party: National Home Warranty Group Inc. v. Red Rose Appliances & Plumbing Ltd., 2018 BCSC 234 at paras. 35-39; McHugh v. Cameron, 2022 BCWSC 2405 at para. 50; Ibrahim. [23] Although not

required, as of October 3, 2025, Studio has been provided with actual notice of today's default judgment hearing. It has also been provided with a courtesy copy of the notice of application and two affidavits filed by Cheryl Callihoo, a production accountant. Default Judgment [24] The Procedural Order granted on September 8, 2025 specifically noted that the petitioner may proceed against Studio, under Rule 3‑8 for default judgment if Studio failed to file an application response by September 19, 2025. [25] Rule 3‑8(2) provides the following requirements for a plaintiff to obtain a default judgment: Filings required (2) A plaintiff who wishes to proceed against a defendant under this rule must file (a) proof of service of the notice of civil claim on that defendant, (b) proof that the defendant has failed to serve a response to civil claim, (c) a requisition endorsed by a registrar with a notation that no response to civil claim has been filed by that defendant, and (d) a draft default judgment order in Form 8. [26] Rule 3‑8(5) provides: Claim for damages to be assessed (5) If the plaintiff's action against a defendant includes a claim for damages in an amount that is neither specified nor ascertainable, the plaintiff may (a) on that claim, obtain judgment in Form 8 against that defendant for damages to be assessed and costs, and (b) proceed against one or more of the

defendants, including the defendant against whom judgment was obtained, on any other claims brought in the action that are not barred as a result of the judgment referred to in paragraph (a). [27] I am satisfied that the petitioner is entitled to a default judgment in respect of the Contract Claim. Studio has defaulted by failing to file an application response by September 19, 2025. The petitioner has submitted all necessary documents required under Rule 3‑8(2). [28] The petitioner's claim is for damages for breach of contract. The damages are in an amount "that is neither specified nor ascertainable". This means that the appropriate form of the order under Rule 3‑8(5) is for default judgment damages, interest, and costs to be assessed. [29] I am prepared to modify the wording of Rule 3‑8 to suit the circumstances of this case, for example, by substituting "application response" for "response to civil claim" based on the broad authority provided by s. 11 of the CCAA. In my view, appropriate modifications advance the policy and remedial objectives of the CCAA because this Court has already determined that resolving the Contract Claim application pursuant to the Procedural Order advances the objectives of the CCAA proceedings. This is because the Contract Claim is the primary asset of the petitioner. [30] In my view, it is in the interest of the creditors that this matter

proceeds efficiently in order to maximize their recovery. Default judgment is granted against Studio on the terms sought by the petitioner. Assessment of Damages [31] I turn next to the assessment of damages. [32] If a plaintiff obtained judgment in default with damages to be assessed, the defendant is deemed to have admitted the facts pleaded in the notice of civil claim, including those facts relevant to the defendant's liability: Leibenzeder Estate v. McIntyre, 2025 BCSC 189 at para. 191. [33] The method for assessing damages under Rule 3‑8 is set out in subrules 12 and 13: Method of Assessment (12) Subject to subrule (13), if a plaintiff has obtained judgment for damages to be assessed or value to be assessed, (a) the plaintiff may set the assessment down for trial, and (b) if the assessment is set for trial, unless the court otherwise orders, the assessment must be tried at the same time as the trial of the action or issues against any other defendant. Alternative Methods of Assessment (13) If a plaintiff has obtained judgment under subrule (5) or (6), the plaintiff may, instead of proceeding to trial to assess the damages or the value of the goods, apply to the court, and, on that application, the court may (a) assess the damages or value of the goods summarily on affidavit or other evidence, (b) order an assessment, an inquiry or an accounting, (c) give directions as to

the trial or hearing of the assessment or determination of value, or (d) make any other order the court considers will further the object of these Supreme Court Civil Rules. [34] In determining if a summary determination of damages is appropriate, the court must be satisfied that its judgment will not be patently unjust: Leibenzeder Estate at para. 11. [35] In the circumstances of this case, I am satisfied that the assessment of damages should be conducted summarily. This is because this matter is taking place in the context of a broader CCAA proceeding, which is presumptively determined on a summary basis. [36] The interests of justice are served by proceeding in this manner because the creditors are more likely to recover amounts owed to them with the timely entry of a judgment for specific damages. I also note that in the court's previous order, it contemplated the Contract Claim application proceeding on its merits, including the assessment of damages, by way of a summary trial. If that had become necessary, the issue of damages would have been determined on affidavit evidence. Accordingly, I have no hesitation in relying on affidavit evidence for the purpose of summarily assessing damages in this case. [37] In my view, the test for a summary assessment of damages is met because although the amount claimed is significant, the relevant calculations are straightforward and

supported by detailed documentary evidence, most notably affidavit #1 and affidavit # 2 of Cheryl Callihoo, as noted, a production accountant. The damages assessment in issue does not require matters of opinion and judgment. Accordingly, in the circumstances, it is my view that it would not be patently unjust to proceed with a summary assessment of damages. [38] The underlying legal principle for the assessment of damages for breach of contract is that "the party complaining should, so far as can be done by money, be placed in the same position as he would have been in if the contract had been performed": Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30 at paras. 27-29 and 44. [39] However, the plaintiff is obligated to mitigate their loss and may not recover losses which would have been avoided by taking reasonable steps. This principle applies in the context of a default judgment: Cassidy v. Smith, 2008 BCSC 1778 at para.

25. Discussion [40] In this case, the Contract Claim application is the relevant pleading. Accordingly, I can rely on the facts set out therein, including paragraphs 8 to 30 of the Contract Claim application because they are deemed to be admitted: 8. In or around July 2024, the Petitioner and Studio entered into a contract titled "Canadian Production Services Agreement Relating to the Production Tentatively Entitled "Shiver", dated as of July 25, 2024 (the "Production Services Agreement').

9. The material terms of the Production Services Agreement include that: (a) Studio engaged the Petitioner to provide the production services (the "Production Services') in respect of the Film in British Columbia; (b) in providing the Production Services the Petitioner agreed to enter into contracts and incur millions of dollars of production expenses on behalf of Studio, in accordance with the "Production Budget'; (c) Studio would fund the production of the Film by advancing funding to the Petitioner in accordance with a detailed cash flow appended as Schedule "B" to the Production Services Agreement (the "Production Funding Schedule'); (d) the Production Funding Schedule sets forth the amounts the Petitioner anticipated it would require to fund the Production Services in each week from August 2024 to July 2025 (each, an "Estimated Weekly Amount'); (e) Studio was required to pay the Petitioner each week the Estimated Weekly Amount for the following week; (f) if the funds advanced from time to time by Studio were insufficient to cover the Petitioner's obligations to pay Production Expenses, "the Petitioner may give written notice to Studio requesting such further advances ... consistent with the Production Budget or changes approved therein by Studio and Studio promptly deposit such funds' into the Petitioner's account; (g) Studio represented and warranted that it "is not

threatened with insolvency and it has and will continue to have the financial resources to perform its obligations under this Agreement'; (h) Studio agreed "to defend, protect, indemnify and hold harmless" the Petitioner "from and against any and all third party liabilities, actions, claims, obligations, losses, damages, penalties, actions, judgements, suits, claims, costs and expenses, of any kind whatsoever (including the fees and disbursements of the Petitioner's legal counsel)'... "arising from or in connection with any material breach [of the Agreement] by Studio, which has not rectified within five (5) business days of written notice of the occurrence of such breach"; and (i) no waiver of any right or remedy under the Agreement would be effective unless made in writing and signed by both parties. Further, "no failure or delay in exercising of any power, right or remedy shall operate as a waiver'. The Guarantee 10. In addition to the Production Services Agreement, on or about August 19, 2024, Studio provided a guarantee letter to the Petitioner (the "Guarantee") which states that: The purpose of this letter is to serve as your notification that MERCY FALLS FILMS, LLC will irrevocably honor and guarantee payment of all approved amounts owed by MERCY FALLS BC INC for the feature film project SHIVER where such orders are supported by approved purchase orders, signed by the

line producer and production accountant. We have been advised that MERCY FALLS BC INC is requesting to open an account with you in connection with purchases and/or services for SHIVER. We would appreciate your cooperation in allowing them to do so. This guarantee ensures there will be no issue in regards to paying the credit balance incurred by MERCY FALLS BC INC. Production of the Film 11. The production of the Film is made up of several stages including pre-production, principal photography, wrap, post-production and delivery (collectively referred to as the "Production').

12. In August 2024, the Petitioner commenced the pre-production phase of the Production in accordance with the timeline and budget set out in the Production Services Agreement.

13. Between October 28, 2024, and December 9, 2024, the Petitioner conducted and completed the principal photography phase of the Production in accordance with the timeline and budget set out in the Production Services Agreement.

14. The post-production phase is incomplete and is currently stalled due to a lack of funding by Studio. Third Party Vendors and Contractors 15. As a required part of the Production Services, the Petitioner entered into numerous contracts with third-party vendors and contractors (the "Trade Creditors") to obtain essential goods and services necessary to complete the Production.

16. The Petitioner relied on the terms of the Production Services Agreement, as well as the Guarantee, in entering into contracts with Trade Creditors and the Petitioner incurred financial liabilities to Trade Creditors pursuant to those contracts. Studio's Failure to Fund the Production 17. Since in or around September 2024, Studio failed to meet its funding obligations under the Production Services Agreement and the Guarantee, despite numerous requests and demands from the Petitioner and Trade Creditors.

18. By November 2024, Studio had fallen several million dollars behind on its funding obligations pursuant to the Production Services Agreement and the Guarantee.

19. On March 26, 2025, the Petitioner made a formal demand that Studio pay all amounts outstanding, which at that time were estimated to be a total of US$4,431,556.

20. Between in or around September 2024 and April 2025, Studio made numerous promises to the Petitioner and various Trade Creditors that payments would be forthcoming.

21. In breach of the Production Services Agreement and the Guarantee, and despite its promises, Studio has failed or refused to comply with its funding obligations, without explanation, and despite demand. The Nuts & Bolts Loan 22. In or around December 2024, the Petitioner ran out of cash and was unable to meet its payroll obligations. The Petitioner was forced to borrow $674,000 from its parent company, Nuts & Bolts, on an urgent basis (the "Nut & Bolts Loan').

23. As of May 8, 2025, the Petitioner's indebtedness under the Nut & Bolts Loan was approximately $341,000 plus interest and fees. Trade Creditor Actions 24. As a result of Studio's failure to fund the Production, the Petitioner does not have the funds necessary to pay the Trade Creditors.

25. Many of the Trade Creditors have had accounts outstanding since the Fall of 2024.

26. In or around January 2025, numerous Trade Creditors began to take enforcement or collection actions against the Petitioner, including sending demand letters, threatening litigation, commencing lawsuits, and threatening to commence arbitration proceedings (the "Trade Creditor Actions'). The Petitioner Seeks CCAA Protection 27. As a result of Studio's failure to fund the production, and the resulting Trade Creditor Actions, the Petitioner sought creditor protection under the Companies' Creditors Arrangement Act, R.S.C., 1985, c. C-36, in the underlying Petition (the "CCAA Petition').

28. The CCAA Petition was necessary for the Petitioner to mitigate the losses and damages it was suffering (and would continue to suffer) as a result of the failure of Studio to fund the Production in accordance with the Production Services Agreement and the Trade Creditor Actions.

29. On May 26, 2025, Mr. Justice Basran granted an Amended and Restated Initial Order in the CCAA Petition. In the Court's reasons for decision in granting the Amended and Restated Initial Order, the Court directed that it is appropriate to use the CCAA Petition as an expedited litigation mechanism to pursue the Petitioner's only significant asset, which is its potential litigation claim against Studio in respect of the allegation that Studio failed to adhere to its funding obligations. Damages 30. As a result of Studio's breaches of the Production Services Agreement and the Guarantee, the Petitioner has suffered, and continues to suffer, significant loss and damage, including but not limited to: (a) loss of the funds owing by Studio to the Petitioner under the Production Services Agreement; (b) exposure to the amounts owing to the Trade Creditors and other third parties; (c) legal fees and expenses to defend the Trade Creditor Actions; (d) the principal, interest and fees for the Nuts and Bolts Loan; (e) all costs and expenses incurred for the purpose of the CCAA Petition, including but not limited to: (i) the Petitioner's legal fees and disbursements; (ii) the Monitor's fees and disbursements; (iii) the Monitor's counsel's fees and disbursements; (iv) interim financing fees and interest; and (f) such further and other damages as counsel may advise. [41] Specifically, Studio

is deemed to have admitted that: a) it was required to fund the production by way of weekly payments to the petitioner; b) it failed to meet its funding obligations starting in or around September 2024; and c) it is required to indemnify the petitioner for all costs and expenses arising from or in connection with any material breach of the production services agreement, including legal fees and expenses on a solicitor-client basis. [42] I accept the petitioner's theory of quantifying its damages, including its assertion that it essentially served as a flowthrough for payments to creditors, between them and Studio, who was responsible for providing the financing for the Film. [43] I am satisfied that but for Studio's breaches of the Production Services Agreement: a) all liabilities incurred to trade creditors and to third parties in the course of the production of the Film would have been fully funded by Studio; b) the petitioner would not have incurred any legal and professional fees related to the breaches; including with respect to this CCAA proceeding; and c) the petitioner would not have had to borrow funds and pay associated interest and fees related to that borrowing in order to fund legal and professional fees. [44] I accept the calculations to September 30, 2025, provided by Ms. Callihoo in her two affidavits and updated by counsel during the course of their submissions

today. The categories of damage are: a) loss of use of funds or exposure to trade creditors and other third parties. The amount owed to Canadian creditors in respect of this is $2,494,310, and to US creditors it is $833,044; b) legal and professional fees of $702,911; c) principle, interest, and fees for Nuts & Bolts Loan of $702,115; d) interim financing fees and interest of $4,075; e) total damages to September 30, 2025, of $4,736,455. [45] I am satisfied that the petitioner mitigated its damages by commencing the CCAA proceeding. Failing to do so would have incurred significantly higher costs and more time for the purpose of contesting various trade creditor actions. [46] I accept that the damages particularized at paragraph 30 of the Contract Claim application would not have been suffered but for Studio's now admitted breach of the Production Services Agreement and Guarantee. The total amount of damages to September 30, 2025, is $4,736,455. Leave to Apply for a Further Assessment [47] The petitioner seeks an order that it be at liberty to apply for a further summary assessment of damages to be paid under the default judgment for amounts after October 1, 2025, including amounts not yet known or not yet incurred by the petitioner. In my view, this is a reasonable request because Ms. Callihoo's affidavits do not include a complete quantification of the damages that will be

caused by Studio's breach of contract. In particular: a) the petitioner will incur additional legal and professional fees in pursuing enforcement of the judgment against Studio and in respect of the ongoing CCAA proceeding; b) the petitioner will incur additional fees and interest under the Nuts & Bolts Loan and interim financing until the CCAA proceeding is concluded; c) unpaid trade creditors and other third parties may charge interest and penalties on overdue amounts, and d) there may be additional trade creditors or third parties currently unknown to the petitioner who may submit unpaid invoices in the future. [48] Based on the broad authority provided by s. 11 of the CCAA and Rule 3-8(13)(d) whereby the court may "make any other order the court considers will further the object of the Supreme Court Civil Rules", I am satisfied that it is appropriate in these circumstances to grant leave to apply for a further assessment of damages in order to ensure the petitioner is placed in the same position it would have been in had Studio complied with its contractual commitments. [49] The order sought for pre- and post-judgment interest is also granted as sought. "Basran J."