GMAC Commercial Credit Corporation - Canada v. T.C.T. Logistics Inc.

GMAC Commercial Credit Corporation - Canada v. T.C.T. Logistics Inc.
Collection
Supreme Court Judgments
Date
2006-07-27
Neutral citation
2006 SCC 35
Report
[2006] 2 SCR 123
Case number
30391
Judges
McLachlin, Beverley; Major, John C.; Bastarache, Michel; Binnie, William Ian Corneil; LeBel, Louis; Deschamps, Marie; Fish, Morris J.; Abella, Rosalie Silberman; Charron, Louise
On appeal from
Ontario
Subjects
Bankruptcy and insolvency
Notes
SCC Case Information: 30391
Decision Content
SUPREME COURT OF CANADA
Citation: GMAC Commercial Credit Corporation – Canada v. T.C.T. Logistics Inc., [2006] 2 S.C.R. 123, 2006 SCC 35
Date: 20060727
Docket: 30391
Between:
Industrial Wood & Allied Workers of Canada, Local 700
Appellant / Respondent on cross‑appeal
and
GMAC Commercial Credit Corporation – Canada
Respondent / Appellant on cross‑appeal
and
T.C.T. Logistics Inc., T.C.T. Warehousing Logistics Inc.,
KPMG Inc., the Interim Receiver and Trustee in Bankruptcy
of T.C.T. Logistics Inc., T.C.T. Warehousing Logistics Inc.,
TCT Logistics Inc., TCT Acquisition No. 1 Ltd., Atomic TCT
Logistics Inc., Atomic TCT (Alberta) Inc., TCT Canada
Logistics Inc., Inter-Ocean Terminals (B.C.) Ltd., Atomic
Transport Inc., TCT Warehousing Logistics Inc., TCT Warehousing
Logistics No. 2 Inc., R.R.S. Transport (1998) Inc., TCT Acquisition
No. 2 Ltd., Tri-Line Expressways Ltd. (a successor to Tri-Line
Expressways Ltd. and TCT Acquisition No. 3 Ltd.), Tri-Line
Expressways, Inc., 2984008 Canada Inc., High-Tech Express
& Distribution Inc., 606965 British Columbia Ltd. and 606966
British Columbia Ltd.
Respondents
Official English Translation: Reasons of Deschamps J.
Coram: McLachlin C.J. and Major,* Bastarache, Binnie, LeBel, Deschamps, Fish, Abella and Charron JJ.
Reasons for Judgment:
(paras. 1 to 84)
Dissenting Reasons on Appeal:
(paras. 85 to 167)
Abella J. (McLachlin C.J. and Bastarache, Binnie, LeBel, Fish and Charron JJ. concurring)
Deschamps J.
* Major J. took no part in the judgment.
______________________________
GMAC Commercial Credit Corp. — Canada v. T.C.T. Logistics Inc., [2006] 2 S.C.R. 123, 2006 SCC 35
Industrial Wood & Allied Workers of
Canada, Local 700 Appellant/Respondent on cross‑appeal
v.
GMAC Commercial Credit Corporation —
Canada Respondent/Appellant on cross‑appeal
and
T.C.T. Logistics Inc., T.C.T. Warehousing Logistics Inc.,
KPMG Inc., the Interim Receiver and Trustee in Bankruptcy
of T.C.T. Logistics Inc. and T.C.T. Warehousing Logistics Inc., and
TCT Logistics Inc., TCT Acquisition No. 1 Ltd., Atomic TCT
Logistics Inc., Atomic TCT (Alberta) Logistics Inc., TCT Canada
Logistics Inc., Inter‑Ocean Terminals (B.C.) Ltd., Atomic
Transport Inc., TCT Warehousing Logistics Inc., TCT Warehousing
Logistics No. 2 Inc., R.R.S. Transport (1998) Inc., TCT Acquisition
No. 2 Ltd., Tri‑Line Expressways Ltd. (a successor to Tri‑Line
Expressways Ltd. and TCT Acquisition No. 3 Ltd.), Tri‑Line
Expressways, Inc., 2984008 Canada Inc., High‑Tech Express
& Distribution Inc., 606965 British Columbia Ltd. and 606966
British Columbia Ltd. Respondents
Indexed as: GMAC Commercial Credit Corp. — Canada v. T.C.T. Logistics Inc.
Neutral citation: 2006 SCC 35.
File No.: 30391.
2005: November 16; 2006: July 27.
Present: McLachlin C.J. and Major,* Bastarache, Binnie, LeBel, Deschamps, Fish, Abella and Charron JJ.
on appeal from the court of appeal for ontario
Bankruptcy and insolvency — Bankruptcy court — Jurisdiction — Whether bankruptcy judge lacks jurisdiction to determine whether interim receiver is successor employer under provincial labour relations legislation — Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3, ss. 47 , 72(1) .
Bankruptcy and insolvency — Procedure — Action against interim receiver — Bankruptcy legislation precluding proceedings against interim receiver without leave of court – Union seeking leave to bring “successor employer” application against interim receiver — Whether Mancini test applicable — Whether test different when dispute relates to receiver’s obligations to debtors’ employees represented by union — Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3, s. 215 .
The company TCT became insolvent and its largest secured creditor applied for an order appointing an interim receiver. The order appointing KPMG states that the receiver’s employment‑related actions could not be considered those of a “successor employer”, and prohibits proceedings being taken against the interim receiver unless the court grants leave. After TCT was assigned in bankruptcy, KPMG sold most of the assets of the warehousing business to a new company. All unionized employees at the Toronto warehouse were terminated by KPMG, but some of them were later hired by the new company. Except for a change in location, the only major difference between TCT’s operations and those of the new company was the absence of the union as representative of TCT’s former employees.
The union applied to the Ontario Labour Relations Board seeking, in particular, a declaration that, as a successor employer to TCT or KPMG, the new company was bound by the collective agreement pursuant to s. 69 of the Labour Relations Act, 1995 (“LRA”). After a stay was granted on the basis that s. 215 of the Bankruptcy and Insolvency Act (“BIA ”) precludes proceedings against an interim receiver or trustee without leave of the court, the union sought the necessary court approval. The bankruptcy judge amended the paragraph relating to the “successor employer” protection in the order appointing the interim receiver, but denied leave. The Court of Appeal unanimously concluded that only the labour board had jurisdiction to determine who was a successor employer, but divided over the test under s. 215 for granting leave to bring successor employer applications. The majority was of the view that the traditional Mancini test represented too low a threshold when the proposed proceedings were successor employer applications, and that other factors should be considered to take account to a greater extent of the impact of such litigation on the bankruptcy process. Accordingly, the majority set aside the bankruptcy judge’s refusal to grant leave and remitted the leave application back to him for reconsideration based on the enhanced enumerated factors. The union appealed the Court of Appeal’s order denying leave, and the secured creditor cross‑appealed on the issue of the bankruptcy judge’s jurisdiction.
Held (Deschamps J. dissenting on the appeal): The appeal should be allowed and the cross‑appeal dismissed.
Per McLachlin C.J. and Bastarache, Binnie, LeBel, Fish, Abella and Charron JJ.: The bankruptcy court does not have jurisdiction to decide whether an interim receiver is a successor employer within the meaning of the LRA. The powers given to the bankruptcy court under s. 47(2) BIA are powers to direct the interim receiver’s conduct. That section does not, explicitly or implicitly, confer authority on the bankruptcy court to make unilateral declarations about the rights of third parties affected by other statutory schemes. Further, s. 72(1) BIA declares that unless there is a conflict, any legislation relating to property and civil rights is deemed to be supplemental to, not abrogated by the Act. The right to seek a successor employer declaration pursuant to the LRA does not conflict with the bankruptcy court’s authority under s. 47(2) . If the s. 47 net were interpreted widely enough to permit interference with all rights which, though protected by law, represent an inconvenience to the bankruptcy process, it could be used to extinguish all rights. Explicit language would be required before such a sweeping power could be attached to s. 47 . [4] [43‑51]
The bankruptcy judge erred in not granting leave to the union to bring a successor employer application against the interim receiver. Under the Mancini test, the threshold for granting leave under s. 215 BIA is not a high one. The question under s. 215 is whether the evidence provides the required support for the cause of action sought to be asserted. If the evidence discloses a prima facie case, leave should be granted. The focus of the inquiry is not a determination of the merits. The threshold of the Mancini test strikes the appropriate balance between the protection of trustees and receivers from frivolous suits, while preserving to the maximum extent possible the rights of creditors and others as against a trustee or receiver. As a result, Mancini is consistent with the requirement that there be explicit statutory language before the BIA is interpreted so as to deprive persons of rights conferred under provincial law. Where Parliament has intended to confer immunity on trustees or receivers from certain claims, it has done so explicitly. In the absence of such express protection, the bankruptcy court should not convert the leave mechanism in s. 215 into blanket insulation for court‑appointed officers. There is no reason to create a more stringent test to be applied only to claims by employees represented by unions. To impose a higher s. 215 threshold in a case involving a labour board issue is to read into the BIA a lower tolerance for the rights of employees represented by unions than for other creditors. Nothing in the Act suggests this dichotomy. Finally, the Mancini test does not in any way interfere with the protections that Parliament has deemed necessary to preserve the ability of trustees and receivers to discharge their duties flexibly and efficiently. In this case, since it cannot be said that the Union’s claim is frivolous or without an evidentiary foundation, it should be allowed to proceed. [7] [55‑61] [67‑72] [80]
Per Deschamps J. (dissenting on the appeal): A judge who must decide whether to grant leave to bring proceedings against a trustee under s. 215 BIA must determine the actual scope of the remedy being sought, identify potential conflicts and tailor the leave so as to avoid a situation in which proceedings based on provincial law have the effect of hindering the discharge of the trustee’s duties and responsibilities under the BIA . Since conflicts of jurisdiction are not tolerated in constitutional law, proceedings that lead to a constitutional conflict have no basis in law and the judge must therefore deny leave to bring them. [154]
The decision to continue operating the business is central to the trustee’s role under the BIA and, in principle, a trustee should not be bound by obligations that interfere with the resolution of the bankruptcy. The provisions of the BIA that protect trustees against proceedings are a clear indication of Parliament’s intent to give trustees the flexibility they need to discharge the duties imposed on them by the BIA . The successor employer declaration is not free of pitfalls when it applies to a trustee. The effect of such a declaration is that the trustee becomes a party to the collective agreement and becomes liable to perform all the obligations set out in that agreement, including those that were binding on the former employer before the business was transferred. Although it is common ground that the LRA confers the exclusive power to decide who is a “successor employer” on the Ontario Labour Relations Board, the LRA cannot frustrate the purpose of the BIA . It is therefore important to strike a balance between the trustee’s duties and immunities under the BIA and the employees’ rights under the LRA. In the event of conflict, the parties must refer to constitutional principles. Courts that hear disputes relating to the difficulty of applying federal and provincial statutes concurrently must attempt to reconcile the application of those statutes in a manner consistent with the respective jurisdictions of the two levels of government. Where conflict is unavoidable, however, the federal statute is paramount to the provincial statute. Hence the importance of the screening mechanism of s. 215 BIA , which serves the purpose of ensuring that provincial and federal statutes do not conflict with each other. Since the bankruptcy of a business affects the interests of all the creditors, not just of the employees, the bankruptcy judge is in a better position to evaluate the interests at stake and prevent conflicts. [91] [101] [103] [111‑112] [116‑117] [123] [127‑128]
Although the criteria established in Mancini for applying s. 215 are easy to apply to a simple action in damages based on wrongdoing by the trustee, they must, in other cases, be tailored to the specific nature of each application for leave. The judge must assess the nature and scope of the proceeding in light of the evidence. This review does not have the effect of giving special or different treatment to successor employer declarations. When reviewing the seriousness of the cause of action, the bankruptcy judge must be vigilant and make provision for conflicts. By ensuring that the conclusions being sought do not impair the application of the BIA and, if need be, limiting the scope of proceedings based on a provincial statute, the bankruptcy judge permits the federal statute and provincial legislation to be applied simultaneously. A judge who denies leave to bring proceedings merely avoids a conflict by relying on the paramountcy doctrine in a preventive manner. However, the bankruptcy judge must take care not to supplant the court or tribunal that will rule on the merits. The judge’s first task is to enquire into the actual effect of the application, not a vaguely defined effect on the administration of the bankruptcy. The judge will be justified in limiting the scope of proceedings or denying leave to bring them only if the proceedings would genuinely hinder the trustee’s work. An approach that focussed too much on the management flexibility required by the trustee could all too easily lead the judge to find that a conflict exists and would hardly be in keeping with s. 72 BIA , which makes express provision for the application of provincial legislation that is compatible with the federal statute. [124] [135] [143‑153]
In the instant case, the unqualified conclusions sought by the union are likely to result in direct conflicts with the application of the BIA . Neither the facts in the record nor the positions advanced by the parties are sufficient for this Court to engage in the review that is the Superior Court’s responsibility. The matter must therefore be remitted not only for a review from the constitutional standpoint, but also for a review of the seriousness of the cause of action and the sufficiency of the evidence. [162] [166]
Cases Cited
By Abella J.
Applied: Mancini (Bankrupt) v. Falconi (1993), 61 O.A.C. 332; referred to: General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641; Global Securities Corp. v. British Columbia (Securities Commission), [2000] 1 S.C.R. 494, 2000 SCC 21; Kitkatla Band v. British Columbia (Minister of Small Business, Tourism and Culture), [2002] 2 S.C.R. 146, 2002 SCC 31; Royal Crest Lifecare Group, Re (2003), 40 C.B.R. (4th) 146, aff’d (2004), 46 C.B.R. (4th) 126; Crystalline Investments Ltd. v. Domgroup Ltd., [2004] 1 S.C.R. 60, 2004 SCC 3; Randfield v. Randfield (1861), 3 De G. F. & J. 766, 45 E.R. 1075; In re Diehl v. Carritt (1907), 15 O.L.R. 202; Danny’s Cabaret Ltd. v. Horner, [1980] B.C.J. No. 1293 (QL); Virden Credit Union Ltd. v. Dunwoody Ltd. (1982), 45 C.B.R. (N.S.) 84; Re New Alger Mines Ltd. (1986), 59 C.B.R. (N.S.) 113; RoyNat Inc. v. Allan (1988), 61 Alta. L.R. (2d) 165; B.N.R. Holdings Ltd. v. Royal Bank (1992), 14 C.B.R. (3d) 233; Toronto Dominion Bank v. Alex L. Clark Ltd. (1993), 22 C.B.R. (3d) 6; Nicholas v. Anderson (1996), 40 C.B.R. (3d) 32; Burton v. Kideckel (1999), 13 C.B.R. (4th) 9; Society of Composers, Authors and Music Publishers of Canada v. Armitage (2000), 50 O.R. (3d) 688; Vanderwoude v. Scott and Pichelli Ltd. (2001), 143 O.A.C. 195; Sam Lévy & Associés Inc. v. Azco Mining Inc., [2001] 3 S.C.R. 978, 2001 SCC 92; Lester (W.W.) (1978) Ltd. v. United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry, Local 740, [1990] 3 S.C.R. 644; Wallace v. United Grain Growers Ltd., [1997] 3 S.C.R. 701.
By Deschamps J. (dissenting on the appeal)
Ex parte James, In re Condon (1874), L.R. 9 Ch. App. 609; Parsons v. Sovereign Bank of Canada, [1913] A.C. 160; L’Heureux (Syndic de), [1999] R.J.Q. 945; Caisse populaire de Pontbriand v. Domaine St‑Martin Ltée, [1992] R.D.I. 417; Azco Mining Inc. v. Sam Lévy & Associés Inc., [2000] R.J.Q. 392; Re Reed (1980), 34 C.B.R. (N.S.) 83; Lester (W.W.) (1978) Ltd. v. United Association of Journeymen and Apprentices of the Plumbing and Pipefitting Industry, Local 740, [1990] 3 S.C.R. 644; Metropolitan Parking Inc., [1980] 1 Can. L.R.B.R. 197; Lincoln Hydro Electric Commission, [1999] O.L.R.B. Rep. May/June 397; Adam v. Daniel Roy Ltée, [1983] 1 S.C.R. 683; Man of Aran (1974), 6 L.A.C. (2d) 238; Woodbridge Hotel (1976), 13 L.A.C. (2d) 96; Uncle Ben’s Industries, [1979] 2 Can. L.R.B.R. 126; Re United Brotherhood of Carpenters & Joiners of America, Local 3054 and Cassin‑Remco Ltd. (1979), 105 D.L.R. (3d) 138; Radio CJYQ‑930 Ltd. (1978), 34 di 617; Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27; Hodge v. The Queen (1883), 9 App. Cas. 117; Reference re Employment Insurance Act (Can.), ss. 22 and 23, [2005] 2 S.C.R. 669, 2005 SCC 56; Multiple Access Ltd. v. McCutcheon, [1982] 2 S.C.R. 161; Law Society of British Columbia v. Mangat, [2001] 3 S.C.R. 113, 2001 SCC 67; Rothmans, Benson & Hedges Inc. v. Saskatchewan, [2005] 1 S.C.R. 188, 2005 SCC 13; Deputy Minister of Revenue v. Rainville, [1980] 1 S.C.R. 35; Deloitte Haskins and Sells Ltd. v. Workers’ Compensation Board, [1985] 1 S.C.R. 785; Federal Business Development Bank v. Quebec (Commission de la santé et de la sécurité du travail), [1988] 1 S.C.R. 1061; British Columbia v. Henfrey Samson Belair Ltd., [1989] 2 S.C.R. 24; Husky Oil Operations Ltd. v. Minister of National Revenue, [1995] 3 S.C.R. 453; D.I.M.S. Construction inc. (Trustee of) v. Quebec (Attorney General), [2005] 2 S.C.R. 564, 2005 SCC 52; Tranchemontagne v. Ontario (Director, Disability Support Program), [2006] 1 S.C.R. 513, 2006 SCC 14; Sam Lévy & Associés Inc. v. Azco Mining Inc., [2001] 3 S.C.R. 978, 2001 SCC 92; Alamo Linen Rentals Ltd. v. Spicer Macgillivry Inc. (1986), 63 C.B.R. (N.S.) 38; Beatty Limited Partnership (Re) (1991), 1 O.R. (3d) 636; Chastan Ventures Ltd., Re (1993), 23 C.B.R. (3d) 115; Willows Golf Corp. (Bankrupt), Re (1994), 119 Sask. R. 208; McKyes, Re, 1996 CarswellQue 2575; Nicholas v. Anderson (1998), 5 C.B.R. (4th) 256; Gallo v. Beber (1998), 7 C.B.R. (4th) 170; Kearney v. Feldman, [1998] O.J. No. 5109 (QL); Burton v. Kideckel (1999), 13 C.B.R. (4th) 9; Society of Composers, Authors & Music Publishers of Canada v. Armitage (2000), 20 C.B.R. (4th) 160; Mann v. KPMG Inc. (2000), 197 Sask. R. 181, 2000 SKQB 460; Vanderwoude v. Scott & Pichelli Ltd. (2001), 25 C.B.R. (4th) 127; Caswan Environmental Services Inc., Re (2001), 24 C.B.R. (4th) 191, 2001 ABQB 240; K.D.N. Distribution & Warehousing Ltd., Re (2002), 33 C.B.R. (4th) 77; Canada 3000 Inc. (Re), [2002] O.J. No. 3266 (QL); MacLean v. Morash (2003), 219 N.S.R. (2d) 83, 2003 NSSC 219; Down, Re (2003), 46 C.B.R. (4th) 58, 2003 BCSC 1286; Jiwani v. Devgan, [2005] O.J. No. 2868 (QL); 105497 Ontario Inc. v. Schwartz Levinsky Feldman Inc. (2005), 12 C.B.R. (5th) 122; 477470 Alberta Ltd., Re (2005), 12 C.B.R. (5th) 125, 2005 ABQB 430; 588871 Ontario Ltd., Re (1995), 33 C.B.R. (3d) 28; Royal Crest Lifecare Group, Re (2003), 40 C.B.R. (4th) 146, aff’d (2004), 46 C.B.R. (4th) 126; Mancini (Bankrupt) v. Falconi (1989), 76 C.B.R. (N.S.) 90, aff’d (1993), 61 O.A.C. 332; Syndicat national de l’amiante d’Asbestos inc. v. Jeffrey Mines Inc., [2003] Q.J. No. 264 (QL).
Statutes and Regulations Cited
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B‑3, ss. 14.06(1.2) , (2) , (4) , 16(4) , 30 , 31 , 37 , 41(2) , (8) , 47 , 50(9) , 50.4(5) , 67 , 69.1 , 71 , 72 , 80 , 121 , 136 to 147 , 148(3) , 171(6) , 197(3) , 215 , 251 , 252 .
Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C‑36, ss. 11.7(4) , 11.8(1) , (3) , (5) .
Constitution Act, 1867, ss. 91(21) , 92(13) .
Labour Relations Act, 1995, S.O. 1995, c. 1, Sch. A, ss. 1(4), 69(2), (12), 96, 114, 116.
Winding‑up and Restructuring Act, R.S.C. 1985, c. W‑11, ss. 35.1 , 76(2) .
Authors Cited
Adams, George W. Canadian Labour Law, 2nd ed. Aurora, Ont.: Canada Law Book, 1993 (loose‑leaf updated May 2006, release 25).
Auger, Jacques, and Albert Bohémier. “The Status of the Trustee in Bankruptcy” (2003), 37 R.J.T. 57.
Bennett, Frank. Bennett on Bankruptcy, 8th ed. Toronto: CCH Canadian, 2005.
Bennett, Frank. Bennett on Receiverships, 2nd ed. Scarborough, Ont.: Carswell, 1999.
Carter, Donald D., Geoffrey England, Brian Etherington and Gilles Trudeau. Labour Law in Canada, 5th ed. The Hague: Kluwer Law International, 2002.
Houlden, L. W., G. B. Morawetz and Janis Sarra. Bankruptcy and Insolvency Law of Canada, 3rd ed., vols. 1 and 3. Toronto: Carswell, 1989 (loose‑leaf updated 2006, release 5).
Lederman, W. R. “The Concurrent Operation of Federal and Provincial Laws in Canada” (1963), 9 McGill L.J. 185.
Roman, Andrew J., and M. Jasmine Sweatman. “The Conflict Between Canadian Provincial Personal Property Security Acts and the Federal Bankruptcy Act: The War is Over” (1992), 71 Can. Bar Rev. 77.
Tay, Derrick C. A. “The Bankruptcy and Insolvency Act : Striking a Balance Between the Rights of the Debtor and its Creditors”, article VI in Implications of the New Bankruptcy and Insolvency Act. Toronto: Insight Press, 1993.
APPEAL and CROSS‑APPEAL from a judgment of the Ontario Court of Appeal (Feldman, MacPherson and Cronk JJ.A.) (2004), 71 O.R. (3d) 54, 238 D.L.R. (4th) 677, 185 O.A.C. 138, 48 C.B.R. (4th) 256, [2004] O.J. No. 1353 (QL), setting aside a decision of Ground J. (2003), 42 C.B.R. (4th) 221, [2003] O.J. No. 1603 (QL). Appeal allowed, Deschamps J. dissenting. Cross‑appeal dismissed.
Stephen Wahl and Andrew J. Hatnay, for the appellant/respondent on cross‑appeal.
Orestes Pasparakis and Susan E. Rothfels, for the respondent/appellant on cross‑appeal.
Benjamin Zarnett and Frederick L. Myers, for the respondent KPMG Inc.
The judgment of McLachlin C.J. and Bastarache, Binnie, LeBel, Fish, Abella and Charron JJ. was delivered by
1 Abella J. — Bankruptcy suspends the economic independence of an enterprise or individual. No longer can operational choices be made by the owner of a business. These become instead the responsibility of the receiver or trustee appointed by the court to salvage as much of the business’s financial remains as possible for the benefit of creditors.
2 Those creditors include unionized employees. The issue in this appeal is the extent to which the rights of those employees must yield to the overall objective in a bankruptcy of maximizing the ability of creditors to minimize their losses. In particular, the issue is whether those employees are entitled to the same access to a remedy as other stakeholders who attempt to impugn a receiver’s or trustee’s conduct.
3 The analysis engages both the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 , and the Ontario Labour Relations Act, 1995, S.O. 1995, c. 1, Sch. A.
4 Three provisions of the Bankruptcy and Insolvency Act are engaged by the circumstances of this case. The first is s. 47 , authorizing a judge to appoint and supervise an interim receiver to take possession and control of, or otherwise deal with the debtor’s property. The second is s. 215 , which immunizes the conduct of receivers and trustees from lawsuits unless prior judicial authorization is obtained. The third is s. 72(1) , declaring that unless there is a conflict with the Act, any legislation relating to property and civil rights is deemed to be supplemental to, not abrogated by the federal Bankruptcy and Insolvency Act .
5 The relevant provisions of the Labour Relations Act, 1995 are ss. 69(2), 69(12), 114(1) and 116, the combined effect of which is to give to the Ontario Labour Relations Board exclusive and final authority to determine whether a financial transaction constitutes a sale of a business, thereby triggering the obligation, as a “successor employer”, to honour any collective agreements of the acquired business.
6 The issue which animates the interpretive interplay between these provisions is whether to endorse the current judicial approach set out in Mancini (Bankrupt) v. Falconi (1993), 61 O.A.C. 332 (C.A.), to determinations under s. 215 of the Bankruptcy and Insolvency Act granting or withholding permission to sue a receiver or trustee.
7 For over a decade, the reigning test for mediating between the protection from litigation for those administering a bankrupt estate, and the right to sue them for this very administration, has been the one set out in Mancini. In essence, the three principles summarized in Mancini preclude frivolous, vexatious or manifestly unmeritorious claims from proceeding. For the reasons that follow, unlike the majority in the Court of Appeal, I see no reason to dethrone it and create a higher test to be applied only to claims by employees represented by unions.
I. Background
8 The bankrupt, T.C.T. Logistics Inc., was one of a number of related companies (collectively “TCT”) operating a trucking, freight brokerage and warehousing business of high-tech goods in Canada and the United States. TCT operated its warehouse business from several sites, one of which was in Toronto.
9 Forty-two employees at the Toronto warehouse were represented by the Industrial Wood & Allied Workers of Canada, Local 700 (“Union”). On their behalf, the Union entered into a collective agreement with TCT. The term of the agreement was from May 1, 2000 until April 30, 2004.
10 During the course of the collective agreement, TCT became insolvent. GMAC Commercial Credit Corporation — Canada (“GMAC”), TCT’s largest secured creditor, applied under s. 47 of the Bankruptcy and Insolvency Act for an order appointing KPMG Inc. (“KPMG”) as interim receiver. The Union was not given notice of this application.
11 The order was made on January 24, 2002. It provides for the termination of all employees “effective immediately”, but it also gives KPMG authority to hire or fire any of TCT’s employees.
12 The order explicitly states that KPMG’s employment-related actions could not be considered those of a “successor employer”. The order also prohibits proceedings being taken against the interim receiver unless the court grants leave, and then only if KPMG’s solicitor/client costs in such proceedings are secured by court order.
13 The provision at the heart of this litigation is para. 15 of the order, the central provision insulating KPMG from a successor employer designation and more elaborately protecting it from employment obligations arising under either provincial or federal legislation. It states:
EMPLOYEES
. . .
15. THIS COURT ORDERS that the employment of employees of the Debtors, including employees on maternity leave, disability leave and all other forms of approved absence is hereby terminated effective immediately prior to the appointment of the Receiver. Notwithstanding the appointment of the Receiver or the exercise of any of its powers or the performance of any of its duties hereunder, or the use or employment by the Receiver of any person in connection with its appointment and the performance of its powers and duties hereunder, the Receiver is not and shall not be deemed or considered to be a successor employer, related employer, sponsor or payer with respect to any of the employees of any of the Debtors or any former employees within the meaning of the Labour Relations Act (Ontario), the Employment Standards Act (Ontario), the Pension Benefits Act (Ontario), Canada Labour Code , Pension Benefits Standards Act (Canada) or any other provincial, federal, or municipal legislation or common law governing employment or labour standards, (the “Labour Laws”) or any other statue [sic], regulation or rule of law or equity for any purpose whatsoever, or any collective agreement or other contract between any of the Debtors and any of their present or former employees, or otherwise. In particular, the Receiver shall not be liable to any of the employees of any of the Debtors for any wages (as “wages” are defined in the Employment Standards Act (Ontario)), including severance pay, termination pay and vacation pay, except for such wages as the Receiver may specifically agree to pay. The Receiver shall not be liable for an [sic] contribution or other payment to any pension or benefit fund.
14 Paragraph 14 of the order is also relevant:
THIS COURT ORDERS AND DECLARES that nothing in this Order shall constitute the Receiver as the employer of the employees of any of the Debtors and further orders and declares that the appointment of the Receiver will not constitute a sale of the business of any of the Debtors.
15 Pursuant to a further order, KPMG was directed to file an assignment in bankruptcy on behalf of TCT and the related companies. The assignment was filed on February 25, 2002. KPMG was appointed trustee in bankruptcy.
16 KPMG did not give notice to TCT’s employees before it had obtained the January 24 order permitting it to terminate their employment. The Union, upon learning about the order, wrote to TCT and KPMG on February 1, 2002 advising them that, in its view, any collective bargaining rights under the Ontario Labour Relations Act, 1995 remained “operative and in full force and effect”.
17 KPMG met with the employees on February 25, advising them that the business would be continuing in order to evaluate potential sales of the warehousing business. KPMG asked the employees for their loyalty and support “to allow us to maximize the enterprise value for all stakeholders”.
18 Subsequently, because of the rapid deterioration of the warehousing business, KPMG sought to sell it as a going concern as quickly as possible. On April 12, KPMG agreed to sell most of the assets of the warehousing business to Spectrum Supply Chain Solutions Inc., a newly formed company.
19 On April 16, KPMG informed the employees about the Spectrum deal and of its intention to seek court approval two days later. An order approving the transaction was obtained on April 18. The closing was scheduled to take place on April 19, 2002.
20 The leasehold interest in the Toronto warehouse was not one of the assets Spectrum purchased. As a result, KPMG decided to wind down its operations and disclaim the lease. It asked Spectrum to manage this process from April 19 until May 23, the date by which KPMG was obliged to vacate the Toronto premises. The resulting management agreement between Spectrum and KPMG entitled Spectrum to any revenues earned during that period in exchange for incurring the costs of winding down the Toronto operation.
21 All unionized employees at the Toronto warehouse were terminated by KPMG on May 9. Some of them were later hired by Spectrum. These hirings were not in accordance with the Union’s seniority list.
22 As a result, the Union applied to the Ontario Labour Relations Board on May 13, seeking the following relief under the Ontario Labour Relations Act, 1995:
· a declaration that Spectrum was the successor employer to TCT and/or KPMG, and, accordingly, bound by the Union’s collective agreement with TCT (under s. 69 of the Act);
· a declaration that TCT and Spectrum were a single employer for labour relations purposes (under s. 1(4) of the Act);
· a declaration of unfair labour practices against TCT and/or KPMG and Spectrum for entering into an agreement discriminating against unionized employees and eliminating the Union in Spectrum’s workforce (under s. 96 of the Act); and
· an order certifying the Union as the exclusive bargaining agent for Spectrum’s employees.
23 The underlying premise of the Union’s application to the Ontario Labour Relations Board was that Spectrum was incorporated for the sole purpose of acquiring TCT’s warehousing business and had colluded with KPMG to operate TCT’s business at a different location under substantially the same management. Except for the new location, the only major difference between TCT’s operations and those of Spectrum was the absence of the Union. The president of Spectrum had been the vice-president, Warehousing and Logistics, of TCT; several of the warehousing managers of TCT became managers of Spectrum; and Spectrum set up the warehousing operations in its new Toronto location with essentially the same customers as TCT.
24 Relying primarily on s. 215 of the Bankruptcy and Insolvency Act which prevents proceedings against an interim receiver or trustee in bankruptcy without leave of the court, KPMG obtained a stay of the Union’s application from the Ontario Labour Relations Board.
25 The Union accordingly sought the necessary court approval. In its motion to the bankruptcy judge, it asked for the deletion of those portions of the January 24 order which had declared KPMG’s conduct incapable of scrutiny under federal or provincial labour and employment legislation. It also sought to strike the security for costs provision.
26 The bankruptcy judge agreed that the costs requirement was unduly onerous and deleted it ((2003), 42 C.B.R. (4th) 221). He declined, however, to delete that part of the order declaring that the interim receiver could not be found to be a “successor employer” under the Labour Relations Act, 1995.
27 In the course of his analysis, the bankruptcy judge made a number of observations. Since interim receivership orders are designed to enhance the value of the bankrupt estate as much as possible, and since this objective may sometimes best be realized by continuing the operation of a debtor’s business pending a sale, the court was entitled to consider the policy implications of exposing interim receivers or trustees to the risk of being successor employers. Moreover, eliminating the risk of an obligation that might otherwise accrue from continuing a business as a going concern offers employees the possibility of employment with a subsequent purchaser.
28 The bankruptcy judge concluded that it would be unduly burdensome on an interim receiver, and incompatible with its duties, to impose the requirements flowing from a successor employer designation on a receiver engaged in such temporary and limited employment relationships.
29 However, applying the “ancillary” or “necessarily incidental” doctrine crafted by Dickson C.J. in General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641 (refined by Iacobucci J. in Global Securities Corp. v. British Columbia (Securities Commission), [2000] 1 S.C.R. 494, 2000 SCC 21, and by LeBel J. in Kitkatla Band v. British Columbia (Minister of Small Business, Tourism and Culture), [2002] 2 S.C.R. 146, 2002 SCC 31), the bankruptcy judge concluded that the “successor employer provisions” of the order were only “sufficiently integrated” with the legislative scheme of the Bankruptcy and Insolvency Act if the interim receiver was carrying on the bankrupt’s business for the purpose of an orderly liquidation of the bankrupt’s assets or of effecting a sale of the bankrupt’s business as a going concern. He relied on Farley J.’s distinction in Royal Crest Lifecare Group, Re (2003), 40 C.B.R. (4th) 146 (Ont. S.C.J.), between a receiver (or trustee) acting “qua realizer” of the assets and acting “qua employer”. When acting “qua realizer”, the receiver was entitled to immunity from successor employer provisions.
30 The bankruptcy judge accordingly amended para. 15 of the order by adding language clarifying that the “successor employer” protection was only valid if KPMG was acting “qua realizer” and its conduct was for the purpose of preserving, protecting or liquidating the debtor’s assets. The specific language added to the second sentence of para. 15 was:
for the purpose of preserving, protecting and realizing upon the assets of the Debtors by effecting a sale or sales of the assets or of the business of the Debtors as a going concern or otherwise or for the purpose of effecting an orderly liquidation of the assets of the Debtors.
Since in his view KPMG was carrying on the business as a going concern for these very purposes and acting “qua realizer”, it was therefore entitled to the protection stipulated in the January 24 order.
31 Turning to s. 215 of the Bankruptcy and Insolvency Act , the bankruptcy judge denied the Union leave to bring proceedings against KPMG at the Ontario Labour Relations Board. Since he had concluded that the provisions of the order in relation to KPMG’s status as a successor employer were valid as amended, he saw no basis on which leave should be granted to bring a proceeding seeking relief contrary to the terms of the order.
32 On appeal by the Union to the Court of Appeal, there were two issues:
· Did the bankruptcy judge have jurisdiction under s. 47(2) of the Bankruptcy and Insolvency Act to make declarations about successorship?
· Did he err in the exercise of his discretion by denying leave under s. 215 of the Act?
33 The Court of Appeal unanimously concluded that only the labour board had jurisdiction to determine who was a successor employer ((2004), 71 O.R. (3d) 54). Section 47(2) of the Bankruptcy and Insolvency Act did not confer on the bankruptcy judge the jurisdiction to make declarations on this issue or to otherwise immunize KPMG from such potential declarations by the labour board. Writing for the court on this issue, Feldman J.A. observed that the federal Bankruptcy and Insolvency Act itself explicitly states in s. 72(1) that only provincial laws which conflict with the Bankruptcy and Insolvency Act can be abrogated. She did not find in s. 47(2) the authority to declare whether actions taken by KPMG make it a successor employer. Accordingly, she saw no conflict between the authority given to the bankruptcy court under s. 47(2) to supervise an interim receiver, and the successor rights provisions in s. 69(12) of the Labour Relations Act, 1995, making a paramountcy analysis unnecessary. As a result, in her view the provincial laws conferring this exclusive jurisdiction on the labour board were unaffected by the Bankruptcy and Insolvency Act .
34 Since the bankruptcy judge had no jurisdiction to make any determination relating to successor employer status, the distinction he drew in para. 15 of his January 24 order protecting the interim receiver only when it was acting “qua realizer” and not “qua employer” of the assets was immaterial.
35 On this basis, the Court of Appeal further amended para. 15 deleting the bankruptcy judge’s “qua realizer” addition, and adding the following two passages:
. . . unless and until an order is made by the OLRB, upon leave of this court under s. 215 of the BIA , declaring the interim receiver a successor employer to the debtors, and subject to the specific terms of any such order, the interim receiver is not obliged to make any payment as a successor employer . . . . For clarification, the parties have agreed that if any such amounts become payable by the interim receiver as a successor employer, in no event is the interim receiver to be liable for any amount that either became due or accrued prior to the date of its appointment.
36 The court divided, however, on the bankruptcy judge’s approach to and resolution of the Union’s application for leave to bring labour board proceedings. The disagreement was over the test under s. 215 of the Bankruptcy and Insolvency Act for granting leave to bring successor employer applications. Feldman J.A., whose analysis was endorsed in separate concurring reasons by Cronk J.A., was of the view that the traditional Mancini test represented too low a threshold when the proposed proceedings were successor employer applications. In her view, an approach was required that took more