Pine Valley Mining Corporation (Re)

2008 BCSC 368 Pine Valley Mining Corporation (Re)

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Pine Valley Mining Corporation (Re), 2008 BCSC 368 Date: 20080327 Docket: S066791 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 Business Corporations Act, S.C.C. 2002, c. 57, as amended In the Matter of Pine Valley Mining Corporation, Falls Mountain Coal Inc., Pine Valley Coal Inc., and Globaltex Gold Mining Corporation Petitioners In Respect to the Claim of a Creditor, Neptune Bulk Terminals (Canada) Ltd. Before: The Honourable Mr. Justice Masuhara Reasons for Judgment In Chambers Counsel for the Applicant Neptune Bulk Terminals (Canada Ltd.): J.G. Shatford Counsel for Petitioners: M. Buttery Date and Place of Hearing: February 27, 2008 Vancouver, B.C. Introduction [1] Falls Mountain Coal Inc. ("Falls Mountain") is under protection, along with the other petitioners, from creditors pursuant to the Companies' Creditors Arrangement Act ("CCAA"). On October 20, 2006 an initial CCAA order was granted by Madam Justice Garson (the "Initial Order"). Ernst & Young Inc. was appointed Monitor under her order. Subsequently, a Plan of Compromise and Arrangement (the "Plan") was filed on May 24, 2007, approved by creditors on June 19, 2007 by ninety-eight percent and sanctioned by Garson J. on June 25, 2007. [2] Neptune Bulk Terminals (Canada) Ltd.

("Neptune") is a creditor and applies for the following: 1. A declaration that the claim of Neptune for payment of the 2006 "Take or Pay" liability of Falls Mountain pursuant to a five-year Spot Contract, effective July 1, 2004 between Falls Mountain and Neptune in the amount of $629,083 is a post filing claim as defined under the Plan; 2. An order that the petitioners pay to Neptune the sum of $629,083 from the initial net sale proceeds received by the Petitioner Pine Valley Mining Corporation ("Pine Valley") under the terms of the Agreement between Pine Valley, Falls Mountain and Cambrian Mining PLC ("Cambrian"); and 3. A declaration that the claim of Neptune for damages in the amount of $4,452,281 arising from the termination Falls Mountain of the Spot Contract be admitted as a Claim under the Plan. [3] The petitioners oppose the application and seek an order upholding the Monitor's revision of Neptune's claim, namely, that: 1. Neptune is a general creditor in respect of the Take or Pay Claim under the Plan; and 2. the correct amount of Neptune's damages arising from the termination of the Spot Contract is $2,528,298. Background [4] Falls Mountain operated the Willow Creek coal mine in north eastern B.C. It was a wholly-owned subsidiary of Pine Valley Mining Corporation. [5] Neptune operates a terminal facility in North Vancouver and provides services for unloading, storage

and re-loading of bulk commodities from rail cars to ships. [6] Under the Spot Contract, Falls Mountain agreed to deliver a minimum tonnage of coal each year (500,000 tonnes) to Neptune over the term of the contract. In the event that the minimum tonnage was not delivered in a given year, Falls Mountain was required to pay the difference between the amount actually delivered and the minimum required tonnage for that year multiplied by a rate set in the contract. This is called a "Take or Pay" obligation. [7] Coal has not been delivered to Neptune under the Spot Contract since the commencement of these CCAA proceedings October 20, 2006. [8] As at December 2006, Falls Mountain had failed to ship the minimum contracted tonnage to Neptune for the 2006 contract year. As a result of the shortfall in tonnage, a Take or Pay obligation became due and payable. The amount as at the end of December 2006 was $629,083 (the "2006 Take or Pay Obligation"). Falls Mountain does not take issue with this figure, but agrees with the Monitor that this amount is compromised by the Plan. [9] Significant to Neptune's position are the negotiations regarding the payment of the 2006 Take or Pay Obligation that ensued in early January 2007 between Mr. Bell the president of Falls Mountain and Mr. Benitez, vice-president finance and administration of Neptune. An agreement was reached under which Falls

Mountain would immediately pay ten percent of the Take or Pay Component to Neptune with the balance being deferred over the term of the Spot Contract. The agreement is dated December 21, 2006 (the "Deferred Payment Agreement"). [10] This agreement required 90 days written notice prior to Falls Mountain recommencing coal deliveries to Neptune. [11] Mr. Benitez deposes that at the time of the Deferred Payment Agreement he requested and received confirmation from Mr. Bell that the 2006 Take or Pay obligation was a post-filing claim and that steps would not be taken to converted it to a pre-filing claim. The emails evidencing this discussion are set out below: From Benitez, Gonzalo Sent: January 2, 2007 2:32 PM To: bbell@pinevalleycoal.com; Martin Rip Cc: Belsheim, Jim Subject: Take or Pay Neptune Settlement Agreement Bob; I have reviewed the revised draft agreement and I have made one single change to it; in Clause 6 (formerly clause 7). As agreed during our conversations last Friday, I have changed the notice period to 90 days from 120 days. Neptune will execute it once you confirm your agreement to this change. Neptune values it relationship with Falls Mountain Coal (FMC) and it is for this reason that we proposed the payment/postponement mechanism with respect to FMC's 2006 take-or-pay obligation. We did so on the understanding both FMC and Neptune acknowledge that the 2006

take-or-pay obligation is a post filing obligation of FMC. Further, that once this agreement is executed, FMC will not seek to repudiate the Spot Contract and thereby convert the take-or-pay component into the equivalent of a pre-filing claim under any Plan of Arrangement which is subsequently filed. To this end Neptune would like a formal acknowledgement from FMC and the CCAA monitor that the 2006 take-or-pay is post filing obligation of FMC. From: Bob Bell Sent: Wednesday, January 03, 2007 10:52 AM To: Benitez, Gonzalo Subject: RE: Take or Pay Neptune Settlement Agreement Gonzalo, I have attached the executed copy of the final revision that you sent, including the change to 90 days. This also acknowledges that any claim arising from Neptune regarding this 2006 take or pay agreement is a post-filing obligation and that FMC will take no steps to attempt to change the status. Regarding the Monitor, I suggest you talk to Mr. Craig Munro of EY (604-891-8264), who has been kept up to date regarding these discussions, and who will confirm the post-filing status although we cannot compel him to do so in writing. [12] On June 1, 2007, Falls Mountain issued a notice of termination to Neptune formally terminating the Spot Contract and the Deferred Payment Agreement as part of the restructuring of the petitioners. This date is between the May 24, 2007 filing date of the plan of

compromise and arrangement and the June 19, 2007 creditor's approval of the plan as amended. [13] In a letter dated June 4, 2007, counsel for Pine Valley wrote to counsel for Neptune confirming that Neptune did not have a Post Filing Claim in respect of its Take or Pay claim under the CCAA Plan, and was to be treated as a General Creditor. [14] On June 11, 2007 Neptune submitted a Revised Proof of Claim and broke its claim down between what it viewed as general creditor claims and post-filing claims in the following way: (a) General Creditor Claim for pre-filing liabilities $ 220,296.13 (b) Post-Filing Claim for 2006 "Take or Pay" 629,083.00 (c) General Creditor Claim for Termination of Spot Contract 4,452,281.00 Total $ 5,301,660.13 [15] Neptune attended the creditors meeting on June 19, 2007, and voted in favour of the Plan. The Plan was sanctioned by the Court on June 25, 2007. [16] On June 29, 2007, as contemplated under the Plan, Pine Valley sold its interest in Falls Mountain to Cambrian. The consideration included some $15 million in cash, $11 million (face value) in debentures of Western Canadian Coal Corp, and future payment of up to $26 million based on future volumes processed through the Falls Mountain facilities, which could exceed over ten years. [17] On July 4, 2007, Mr. Shatford, on behalf of Neptune, wrote to Ms. Milton, counsel for the petitioner, and demanded

payment in full of the 2006 Take or Pay Obligation. [18] On July 5, 2007, Ms. Buttery, independent counsel for the petitioners, responded to Mr. Shatford and referred to her office's June 4, 2007 letter to Mr. Shatford that advised that the 2006 Take or Pay Obligation was not a post-filing claim. [19] On July 25, 2007, the Monitor, Ernst & Young Inc., issued a Notice of Revision or Disallowance of Claim to Neptune. With respect to the claim for termination of the Spot Contract, the Monitor stated that Neptune had a duty to mitigate its claim. The Monitor recognized the difficulty in finding a replacement in the short term but was of the view that Neptune could find a long term customer if it could offer a long term contract to "potential replacement customers". The Monitor believed that this could be achieved within twelve months of the termination by Falls Mountain and as a consequence, Falls Mountain "should not be held accountable for the lack of mitigation opportunities arising from Neptune's business decision to make available the FMC capacity for only a limited period of time." As a result, the Monitor reduced Neptune's claim of $4,452,281 with respect to the contractual minimum quantity to be processed through the Neptune facility in 2007, 2008, and 2009 to $2,528,298. The Initial Order [20] The Initial Order of October 20, 2006 included the following standard term: the

Petitioners shall remain in possession of the Property and Business, provided that: * (b) they shall have the right, subject to the consent of the Monitor, to proceed with an orderly downsizing of the Business and operations, including without limitation, the right to: * (vi) terminate or repudiate such of its arrangements or agreements of any nature whatsoever as the Petitioners deem appropriate, on such terms as may be agreed upon between the Petitioners and such counter-parties, or failing such agreement, to deal with the consequences thereof in the Plan. The Plan [21] The following are the definitions contained in the Plan that are relevant to the applications before me: "Claim" means any right of any Person against the Petitioners, or any of them, in connection with any indebtedness, liability or obligation of any kind owed by the Petitioners or any of them and any interest accrued thereon or costs payable in respect thereof, whether liquidated, unliquidated, fixed, contingent, matured, not matured, disputed, undisputed, legal, equitable, secured, unsecured, present, future, known or unknown, by guarantee, surety or otherwise, and whether or not such right is executory or anticipatory in nature, including the right or ability or any Person to advance a claim of contribution or indemnity or otherwise with respect to any matter, action, cause or chose in action, whether

existing at present or commenced in the future, which indebtedness, liability or obligation is based in whole or in part on facts existing prior to October 20, 2006, and any indebtedness, liability or obligation of any kind arising out of the repudiation, restructuring or termination of any contract, lease, employment agreement or other agreement after October 20, 2006. Without limiting the foregoing and for greater certainty, "Claim" means any indebtedness, liability or obligation of any kind that, if unsecured, would be a debt provable in bankruptcy within the meaning of the BIA, as set out in section 12(1) of the CCAA and shall also include the claim of PVM against FMC. "Filing Date" means October 20, 2006. "Post Filing Claim" means the amount due to a Person for any goods or services supplied to the Petitioners subsequent to the Filing Date and/or for any sales or excise taxes, source deductions or assessments and premiums due from the Petitioners and arising subsequent to the Filing Date but does not include any person having a Claim as a result of the Petitioners repudiating or terminating any contractual relationship, including without limitation any employment or leasehold relationship. "Post Filing Creditor" means a person with a Post Filing Claim "Unaffected Creditors" means the Post filing Creditors and the CCAA Creditors. "Initial Net Sale Proceeds" means the

aggregate net cash consideration to be received by PVM (Pine Valley Mining Corporation) as a result of the completion of the Agreement including the net sale proceeds from the sale of the WCC Debenture but excluding the royalty proceeds. "Agreement" means the agreement between PVM (Pine Valley Mining Corporation), FMV (Falls Mountain Coal Limited) and Cambrian dated April 26, 2007 pursuant to which Cambrian is to purchase the purchase shares and the debt for the consideration set forth in the Agreement [22] Article 2 Purpose and Effect of the Plan reads as follows: 2.2 Summary of Plan The proceeds generated from the Agreement will be used: (i) to pay the Agreement transaction costs, the Holdback under the Agreement and the KERP amounts; (ii) to satisfy in full the obligations of the Petitioners to the Unaffected Creditors; (iii) to satisfy in full the Petitioners' obligations to the Secured Creditors; and (iv) the balance shall be received by PVM which shall continue under the CCAA against which the Replacement Claims of General Creditors, including PVM, shall continue and be enforceable. 2.4 Persons Not Compromised by the Plan The Unaffected Creditors will not be compromised by this Plan on the basis that their Claims, if any, will be paid in full pursuant to this Plan from the Initial Net Sales Proceeds. Position of the Parties [23] The position of Neptune is that since the

2006 Take or Pay obligation arises after October 20, 2006 it is not a Claim as defined in the Plan. The Neptune position is reliant upon the calculation date for the annual take or pay amount under the Spot Contract; namely, December 31, 2006. Neptune submits that since this date is after October 20, 2006, its 2006 Take or Pay Obligation is a Post Filing Claim as defined in the Plan. Neptune refers to the provision that states that such claims are amounts due to persons for goods or services supplied subsequent to the filing date and specifically excludes person having claims as a result of the repudiation or termination of any contractual relationship. Since a Post Filing Creditor (a person holding a Post Filing Claim) is included in the definition of Unaffected Creditors, and that the Plan calls for Unaffected Creditors to be paid in full from the Initial Net Sales Proceeds from the sale of the shares to Cambrian; Neptune argues that it is entitled to be paid out of these proceeds. [24] Neptune also submits that Falls Mountain is estopped from taking the position that the claim of Neptune was compromised under the Plan when notice of termination was given. Neptune points to the negotiations that took place between Neptune and Falls Mountain at the time the 2006 Take or Pay Obligation arose in December 2006. Those negotiations took place in circumstance under which Falls

Mountain agreed that the claim of Neptune was a Post Filing Obligation and was not to be negatively affected by the Plan. Neptune relied upon that representation by Falls Mountain in entering into the agreement to defer payment. Neptune relies upon two cases to support its estoppel argument: Re: Air Canada [2004] O.J. No. 576 (Sup. C.J.); and Re: Stelco Inc. [2005] O.J. No. 4310 (Sup. C.J.). [25] With respect to mitigation, Neptune submits that no evidence has been adduced to support the assertion that the loss from the termination of the Spot Contract could have been mitigated. Further, Neptune points to its evidence that shows there is an over capacity/supply in the three coal terminals located in British Columbia. It states that all of the existing coal suppliers in the marketplace have entered into contractual arrangements to ship coal through competitors of Neptune and that the likelihood of Neptune finding either a short or long term replacement for Falls Mountain prior to expiry of the Spot contract on July 1, 2009 is unlikely. [26] The petitioners submit that the application of Neptune is an attempt to gain an advantage over the general body of creditors. They note that if Neptune's position is accepted, it will receive 100 cents per dollar of its take or pay claim and will have leaped ahead of other similar creditors. The petitioners refer to the caution of Newbury

J.A. in Re Skeena Cellulose Inc. (2003), 13 B.C.L.R. (4th) 236 (C.A.) at ¶ 20: In these circumstances, the Chief Justice correctly recognized that, as stated by Rowles J.A. for the Court in Cam-Net Communications v. Vancouver Telephone Co. (1999), 71 B.C.L.R. (3d) 226 (C.A.), a supervising court under the CCAA must be alert to the incentive for creditors to 'avoid the reorganization compromise' and must 'scrutinize carefully any action by a creditor which would have the effect of giving in an advantage over the general body of creditors'. [27] The petitioners submit that by virtue of the Initial Order, Neptune was stayed from pursuing Falls Mountain for payment of any amount owing to it under the Spot Contract or otherwise. [28] The petitioners reject the assertion that Neptune's claim is a Post Filing Claim under the Plan. They point to the explicit language of the Plan that provides that any Claim resulting from the repudiation or termination of a contract by the petitioners will not be a Post Filing Claim. They note that Neptune voted in favour of the Plan with full knowledge of how it would be treated under the Plan. They further note that at the sanction hearing Neptune did not argue that the classification of creditors was incorrect, nor that creditors with claims that arose after the filing date should be considered Unaffected Creditors. [29] The petitioners argue that

the email exchange between Mr. Benitez and Mr. Bell in early January 2007 is more properly characterized as an agreement to agree on how Neptune's claim would be treated under the then yet to be drafted plan of arrangement. It is further submitted that Mr. Benitez's request that the Monitor also agree to the treatment of the Take or Pay Claim, indicates that it was a condition precedent to any ultimate agreement that the Monitor consent to the proposed treatment of Neptune's claim. There is no evidence of such agreement from the Monitor or that such agreement was even sought. They note, as well, that the Deferred Payment Agreement does not include any terms referencing the treatment of the 2006 Take or Pay Obligation in this proceeding; and that while Mr. Bell acknowledged that the Take or Pay amount was a post-filing obligation, he did not offer any assurance that Neptune would not repudiate the Spot Contract. The petitioners add that Mr. Bell indicated in his email that he could not speak for the Monitor and suggested Mr. Benitez to contact the Monitor directly. [30] Alternatively, the petitioners argue that even if there was a binding agreement regarding Neptune's claim, that nonetheless Neptune accepted the repudiation of the Spot Contract and has included in its Revised Proof of Claim a General Creditor Claim for damages arising from the repudiation. [31] The petitioners

note that the 2006 Take or Pay Obligation was said by Neptune to have been deferred to future years. The petitioners argue that Neptune's assertion is akin to seeking a claim for specific performance, that such relief should not be available indirectly in a CCAA proceeding and that it should only be available when the non-repudiating party cannot be adequately compensated in damages for the breach. The petitioners point to the absence of evidence that a damages claim as provided under the Plan would be inadequate in the circumstances. Further, it is argued that equitable relief is not appropriate where it causes an injustice to other unsecured creditors, by permitting one unsecured creditor to elevate its claim above the claims of all other unsecured creditors. [32] The petitioners counter Neptune's estoppel argument by noting the obvious - that a restructuring is a fluid process. An assurance by a representative of a company under CCAA protection that a creditor's claim will not be compromised by a plan of arrangement does not necessarily prohibit the company from later filing a plan of arrangement that compromises that creditor's claim. This reality was recognized in the petitioner's view when Mr. Benitez in his email exchange with Mr. Bell, expressly pointed out that repudiation of the Spot Contract would convert the Take or Pay Claim into the equivalent of a pre-filing

claim under any plan of arrangement which might be subsequently filed. [33] The petitioners also note that Neptune does not dispute that Falls Mountain was permitted to terminate the Spot Contract within these CCAA proceedings. [34] The petitioners submit that a party relying on the doctrine of estoppel must establish that the other party has, by words or conduct, made a promise or assurance which was to affect their legal relationship and to be acted on; and, that the representee acted on it or in some way changed his or her position: Synik Capital Corp. v. Faris 2007 BCSC 527 at 114; and Re Westar Mining Ltd. (1997) 25 B.C.L.R. (3d) 297 at ¶ 49. [35] In regard to mitigation, the petitioners submit that Neptune took no steps in this regard. It took no steps to ascertain if there was ability for any of the province's coal producers to ship more coal through their terminal. Neptune did not advertise, make calls, or make specific requests. The petitioners argue that the general conversations that Neptune had about the availability of more coal do not amount to taking reasonable steps to mitigate damages. Further, the failure to seek an alternative commodity producer to take terminal capacity is another fact the petitioners argue demonstrates the lack of mitigation effort. [36] As a result of the lack of evidence of mitigation efforts, the petitioners submit that the court is

entitled to rely upon the findings of the Monitor. Discussion [37] Two key features of the CCAA is that all proceedings by creditors against the debtor company can be stayed and that contracts can be terminated, either before or after the initial CCAA filing, provided the creditor's right to assert a damage claim arising from the repudiation is permitted under the plan of arrangement. In this case, the Plan permits creditors to make a "Claim" for such damage. [38] In this regard, I note the comments of Cumming J. in Re Ivanco Inc. 2007 CarswellOnt 7527 (Ont. S.C.J.) at ¶ 27 and 28: First, the CCAA does not limit its embrace in respect of creditors to pre-filing creditors. Section 2 of the CCAA provides that an "unsecured creditor [like Heico] means any creditor who is not a secured creditor without any suggestion of a temporal limitation. Likewise, section 4 speaks to a compromise between a debtor company and its unsecured creditors or any class of them without any suggestion of temporal limitation. In providing for compromises to be sanctioned by the Court section 6 refers to approval by "a majority in number representing two-thirds in value of the creditors, or class of creditors present and voting " without qualification by way of a temporal limitation as to when the person became a creditor. Second, I infer from a public policy standpoint that there is not any a priori

reason for excluding post-filing creditors from the reach of the CCAA. [39] The Initial Order permits termination and repudiation of arrangements or agreements of any nature whatsoever. There is no temporal limitation. [40] The Plan explicitly provides that any Claim resulting from the repudiation or termination of a contract by the petitioners will not be a Post Filing Claim. I note that the definition of Claim in the Plan is expansive and includes: "any matter, action, cause or chose in action, whether existing at present or commenced in the future, which indebtedness, liability or obligation is based in whole or in part on facts existing prior to October 20, 2006, and any indebtedness, liability or obligation of any kind arising out of the repudiation, restructuring or termination of any contract, lease, employment agreement or other agreement after October 20, 2006." [emphasis added] [41] Based on the language of the Plan, the fact that the 2006 Take or Pay amount was determined, or that the Deferred Payment Agreement came into being after October 20, 2006 does not assist Neptune in its application. What is determinative, in my view, is that the 2006 Take or Pay Obligation arose out of a contract that was in effect prior to the Initial Order and was as such subject to compromise. [42] In my view, the 2006 Take or Pay Obligation falls under this above referenced provision of

the Plan and accordingly, the claimed amount is not a Post Filing Claim. [43] In any event, though it would not be determinative, there is no language in the contract that specifies that it is to be considered a Post Filing Claim or that Neptune is an Unaffected Creditor. It does not refer to an anticipated plan of compromise and arrangement. It does not restrict Falls Mountain's ability to repudiate. The agreement contemplates the continuation of the Spot Contract. Further, the comments of Mr. Benitez in his email indicate that the understanding was subject to the approval of the Monitor. There is no evidence that such approval was sought or obtained. [44] The contract was agreed after the CCAA process had been initiated. Neptune had full knowledge of the consequences that arise from a CCAA process. The subject matter of Deferred Payment Agreement is payment of the 2006 Take or Payment obligation. It arises out of the Spot Contract that was clearly subject to compromise. As mentioned earlier, the restructuring process is fluid and is one of considerable flux. In this case, Neptune sought out a solution in its best interest to obtain payment of a claim in full. However, it did not obtain the approval of the Monitor nor did it raise the matter in the Plan approval or sanctioning process when it was known that a clear dispute regarding the 2006 Take or Pay existed. I am unable to

discern from the submissions of Neptune how it is that the matter was not raised during the Plan approval and sanctioning process. It is in the sanctioning process where the court evaluates the reasonableness and fairness in a plan of compromises and arrangement. The fairness includes whether the plan adequately balances the interests of all creditors. [45] In terms of estoppel, the cases relied upon by Neptune: Re Air Canada and Re Stelco Inc. are distinguishable. In the former case, the focal point of the case was the lease of an aircraft and the payments to be made under it. The aircraft in that case was central to the company's ongoing operations, had been in use by the airline, had remained available to the company and in fact was in possession of the aircraft. In the latter case, the petitioner's own written submissions to the court in earlier proceedings stated that the creditor had a post-filing claim and as a result was found to have opted not to compromise the creditor's claim. Further, the court noted that this creditor was the only creditor that had a history of involvement with Stelco which did not commence until after Stelco had filed for CCAA protection. I do not find these elements present in this case. More particularly, no services were provided by Neptune or required by Falls Mountain. [46] Further, it is not apparent that Neptune altered its position in

reliance of the agreement. The evidence of Neptune indicates that no opportunity was lost as a result of its agreement. Certainly, no alternative customers were turned away as a result of the agreement. In this regard, s. 11 of the CCAA provides that: No order made under section 11 shall have the effect of (a) prohibiting a person from requiring immediate payment for goods, services, use of a leased or licensed property or other valuable consideration provided after the order is made; or (b) requiring the further advance of money or credit. [47] Had an alternate avenue of business been open to Neptune, the above provision could have been invoked. The considerable evidence of Neptune as to limitations of the market in which it operates does not assist it case. Further, as a result of the stay established under the Initial Order, Neptune did not forgo any immediate right to collect on its take or pay claim. The equities of the case do not support the contention of Neptune. Conclusions [48] In the circumstances of this case, given the knowledge of Neptune regarding the CCAA proceedings and the potential outcome from the restructuring process; the flexibility and broad scope of the Initial Order and the Plan; the absence of the matter being raised at the creditors meeting or before the sanctioning judge when it was clear that the petitioners and Monitor believed the Spot Contract

and Deferred Payment Agreement were compromised under the Plan; the absence in the language of the Deferred Payment Agreement as to its treatment; the focus of this agreement being an amount that arose during the 2006 year of the contract; the absence of a lack of change in position on the part of Neptune as a result of the agreement; the declaration sought by Neptune regarding the 2006 Take or Pay Obligation being a Post Filing Claim is denied. [49] As a consequence, it follows that Neptune's application for payment of the 2006 Take or Pay Obligation out of the Initial Net Proceeds is denied. [50] With respect to mitigation, the onus is on the party asserting the failure to mitigate to establish this fact. The petitioners point to the Monitor's Notice of Revision or Disallowance of Claim dated July 25, 2007 and the Monitor's 10th Report dated August 22, 2007. [51] The petitioners submit that Neptune took no steps to ascertain if there was ability for any of the province's coal producers to ship more coal through their terminal. They point out that Neptune did not advertise, make calls, or make specific requests. They say that Neptune did not seek an alternative commodity producer to take the terminal capacity that arose as a result of Fall Mountain's termination of the Spot Contract. It did not offer long term contracts. They submit that Neptune's reliance on the assertion of

excess capacity is not sufficient. [52] Neptune points to its evidence that there is an over capacity in the three coal terminals located in B.C. All of the existing coal suppliers in the marketplace have entered into multi-year contractual arrangements to ship coal through competitors of Neptune. As a result, they submit the likelihood of Neptune finding either a short or long term replacement for Falls Mountain prior to the expiry of the Spot Contract on July 1, 2009 is unlikely. I note that Neptune provided responses to the petitioner regarding discussions with other prospective customers. The responses indicate ongoing communications. The community of coal producers and service providers is relatively tightly knit. Given the lack of prospective customers for the use of its terminal facilities, Neptune submits that there is no basis upon which its claim should be reduced. I note that Mr. Benitez provided a significant review of the capacities and contractual arrangements of the terminals and coal producers in the Neptune market. He was further cross-examined on his affidavit. Further, information was provided by Mr. Nardi, vice-president of marketing, to the petitioners arising from the cross-examination of Mr. Benitez regarding discussions with prospective customers. [53] There was no direct evidence from the petitioners to contradict the evidence of Neptune. The

petitioners relied upon was that of the Monitor and the critique of Neptune's evidence via counsel's submissions. [54] The Monitor is an officer of the court and the duty of the Monitor is to act independently and to act in the interests of all stakeholders in the proceedings. The courts have approached the opinion of monitors with significant deference. [55] However, the evidence relied upon by the petitioners is found in a brief summary in the Monitor's claim revision and 10th report, wherein a discussion between the Monitor and Neptune representatives is referenced which is the basis of the Monitor's opinion. In my view, in the absence of further details as to the content of the discussions, as well as facts upon which the Monitor's opinion is based, I cannot conclude on balance that Neptune has failed to mitigate its loss when the direct evidence adduced by Neptune is considered. In my view, Neptune has taken reasonable steps in the context of the prevailing conditions. [56] As result, the petitioners' application to have Neptune's damages assessed at $2,528,298 is denied and Neptune's application for an order that its claim for damages from the termination of the Spot Contract is $4,452,281 is granted. "The Honourable Mr. Justice Masuhara"