General Editor: Adam M. Slavens, B.A., LL.B.
VOLUME 30, NUMBER 4
Cited as (2013), Nat. Insol. Review
AUGUST 2013
• RE BOCK INC.: REVIVING A TERMINATED CONTRACT
FOR THE BENEFIT OF ALL STAKEHOLDERS •
Gerry Apostolatos and Pascal Archambault
Langlois Kronström Desjardins, LLP
Courts frequently observe that the Companies’
Creditors Arrangement Act [CCAA]1 is skeletal
in nature and tasks the supervising judge with
having to make a great number of procedural
• In This Issue •
RE BOCK INC.: REVIVING A TERMINATED
CONTRACT FOR THE BENEFIT OF ALL
STAKEHOLDERS
Gerry Apostolatos and Pascal Archambault ....... 45
AN UNEXPECTED EXPANSION OF THE
COMMON LAW ANTI-DEPRIVATION RULE
Anthony Alexander ............................................. 51
ENVIRONMENTAL CLAIMS: ARE THEY
DIFFERENT FROM OTHER CLAIMS?
Sara-Ann Van Allen, Kenneth Kraft,
and John Salmas ................................................ 53
and substantive decisions during proceedings
conducted thereunder. These decisions are
“often based on discretionary grants of jurisdiction.”2 In that respect, s. 11 of the CCAA
plainly grants very broad and discretionary authority to the supervising judge who “may,
subject to the restrictions set out in this Act
[…] make any order that it considers appropriate in the circumstances.”3 Accordingly, CCAA
courts have been called upon to innovate “beyond merely staying proceedings against the
debtor to allow breathing room for reorganization” and “have been asked to sanction
measures for which there is no explicit authority in the CCAA.”4
As such, there is a growing trend in CCAA proceedings that sees Canadian courts issuing orders
that directly affect third parties. But what is the
extent of the powers vested in the courts to reengineer the contractual relationships of a debtor
company? For instance, can a judge acting under
s. 11 of the CCAA order the suspension or cancellation of a notice of termination and order the
specific performance of the (otherwise terminated) agreement, even as a safeguard measure?
National Insolvency Review
August 2013 Volume 30, No. 4
Apparently so: on April 19, 2013, in the matter
of Re Bock inc.,5 the Honourable Jean-Yves
Lalonde J.S.C., of the Superior Court of Québec
(District of Montréal, Commercial Division),
rendered an unprecedented safeguard order
wherein he suspended a notice of termination
and ordered specific performance of a distribution contract, which represented the bulk of the
debtor company’s sales. From a practical point
of view, Lalonde J.S.C.’s order was an attempt
to give “artificial respiration” to the debtor’s
business—in line with the rescue objectives of
the CCAA. This is a prime example of the pragmatic approach judges take when called upon to
issue remedial orders under s. 11 of the CCAA.
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Summary of the Case
The Facts
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CNH Canada Ltd. (“Case”) is a maker of heavy
machinery. Case and Bock inc. (“Bock”) were
parties to a distribution agreement pursuant to
which Bock was an authorized dealer of Case’s
construction equipment in Quebec—the relationship between the parties, including their
predecessors, going back over 50 years. As
amended in 2009, the agreement established that
Case could immediately terminate the contract if
Bock did not comply with any of the provisions
therein, one of which required Bock to meet certain sales and market share targets. As a result
of Bock having failed to meet the annual market
share targets for three consecutive years, Case
sent four notices of default during the course of
2012, stating that the agreement would be terminated on or about February 28, 2013.
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EDITORIAL BOARD
GENERAL EDITOR
Adam M. Slavens, B.A., LL.B.
Torys LLP
EDITORIAL BOARD MEMBERS
Gerald N. Apostolatos, Langlois Kronström
Desjardins S.E.N.C.R.L./LLP, Montréal  Patrick
Shea, Gowling Lafleur Henderson LLP, Toronto 
Christopher W. Besant, Baker & McKenzie LLP,
Toronto  Joseph Marin, Miller Thomson LLP,
Toronto  Hubert Sibre, Davis LLP, Montréal 
Steven Graff, Aird & Berlis LLP, Toronto  David
R.M. Jackson, Taylor McCaffrey LLP, Winnipeg 
Chris D. Simard, Bennett Jones LLP, Calgary 
Robert P.W. Sloman, Farris Vaughan, Wills &
Murphy, Vancouver  John R. Sandrelli, Dentons,
Vancouver
In the meantime, Bock tried to sell its business
and assets, the most important of which was the
distribution agreement with Case (representing
70 per cent of its revenues). Case consented to a
process whereby offers would be solicited in the
marketplace with the assistance of an insolvency
consultant previously retained by Bock (who
later became the court-appointed Monitor). Two
offers were made by third parties, one by Longus,
and one by Strongco. Strongco’s offer was by
far superior: it would have allowed Bock to pay
Note: This newsletter solicits manuscripts for consideration
by the General Editor, who reserves the right to reject any
manuscript or to publish it in revised form. The articles
included in National Insolvency Review reflect the views of
the individual authors. This newsletter is not intended to
provide legal or other professional advice and readers
should not act on the information contained in this report
without seeking specific independent advice on the
particular matters with which they are concerned.
46
National Insolvency Review
August 2013 Volume 30, No. 4
of the debtor and its creditors.9 Seeing as the
CCAA need not be employed specifically to revitalize a corporation but can also involve a liquidation scenario, Bock’s sale process was “not
incompatible” with the purpose of the CCAA.10
all of its creditors and distribute approximately
$3 million to its shareholders. However, Case
refused to accept this potential purchaser, because Strongco did not satisfy Case’s equity ratio requirements for new dealers.6 This was a
non-negotiable point for Case, which consequently declined to consent to the transfer of the
agreement (such consent being specifically required under the terms of the agreement).
Nevertheless, Lalonde J.S.C. was faced with an
unprecedented issue under the CCAA. With that
in mind, he decided that the criteria for the issuance of a safeguard order in civil matters—
urgency, appearance of right, irreparable harm,
balance of inconvenience—should apply to determine whether the suspension of the termination notice should be ordered.11
Considering that Bock was unable to remedy its
defaults under the agreement, Case sent a notice
of immediate termination of the agreement
on March 28, 2013. That was the death knell
for Bock, which produced a notice of intention
to file a proposal under the Bankruptcy and
Insolvency Act [BIA]7 a few days later and
applied for relief under the CCAA shortly
thereafter.
There was, according to the judge, a serious appearance of right to Bock’s claim that Case’s
termination of the agreement was abusive. He
said that “it is certainly not frivolous to claim
that Case acted abusively by setting the bar too
high in its negotiations with Strongco”12 and
that “one can infer from [this] that Case simply
did not want the continuation of business in
Quebec in the way it was run under Bock’s administration.”13 Moreover, Lalonde J.S.C. found
that Bock would suffer serious and irreparable
harm if the safeguard order was not granted.
That is, the critical importance of the agreement
to Bock’s operations meant that the sudden end
of its relationship with Case would inevitably
result in the shutdown of Bock, which in turn
meant not only heavy losses for its creditors and
shareholders but also the loss of roughly 60
jobs.14 The balance of inconvenience clearly
favoured the issuance of a safeguard order: Case
could put into operation a new dealer within
months, while Bock stood to lose everything.15
Justice Lalonde felt that for all intents and purposes, Case had been dictating Bock’s conduct,
and it was timely and urgent to intervene to level the playing field between the parties.16
Decision of the Superior Court of Québec
(District of Montréal, Commercial
Division)
Under the CCAA, the continuation of the proceedings commenced under the BIA was not an
issue, Bock being insolvent and having not yet
filed a proposal. The main issue was the safeguard order that Bock was seeking: that the effect of the termination notice be suspended in
order to allow Bock to resume its operations and
continue the process it had initiated to sell its
business as a going-concern. In other words,
Bock wished to be able to present itself to potential buyers as an authorized Case dealer.
Justice Lalonde granted Bock’s wish. He noted
that the CCAA is a remedial statute entitled to a
liberal interpretation and that the breadth of an
insolvency court’s jurisdiction under s. 11 of the
CCAA means that it can validly be used to interfere with third-party contractual relationships in
circumstances that threaten a company’s existence. Accordingly, the CCAA confers upon
courts the authority to alter the legal rights of
parties other than the debtor company without
their consent.8 What mattered most was to promote the purpose of the CCAA and to facilitate
the emergence of an arrangement for the benefit
Justice Lalonde further found that even though
Case had stated its intention to terminate the
agreement well in advance, it gave no notice
period to Bock when it finally did. This deprived Bock of any chance to react and apply to
the court for a safeguard order to preserve the
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National Insolvency Review
August 2013 Volume 30, No. 4
status quo (which would maximize the chances
of a successful restructuring or sale process) to
the sole detriment of Bock’s estate.17
Despite her refusal to grant leave, the peculiarity
and novelty of the issue was not lost on Bich
J.A. She agreed that the “situation, indeed, is
unusual” and went on to ponder:
In short, Bock’s insolvency was directly caused
by the immediate termination of the agreement;
without the safeguard order sought, bankruptcy
was inescapable. In order to preserve the status
quo and give Bock a reasonable prospect of survival, Lalonde J.S.C. decided it was necessary
to suspend the effect of the unilateral termination notice until such time as the court rules upon whether such a termination was abusive or
not. Justice Lalonde ordered Case to abide by
the agreement.
The termination may well have been abusive […], the
prejudice caused to the debtor company by this immediate termination irreparable, the matter urgent and the
petitioner not inconvenienced by the “revival” of the
agreement, but the basic question remains: can a judge
acting under s. 11 CCAA order the cancellation of a notice
of termination and order the specific performance of such
an agreement, even as a safeguard measure? Considering
the judgments of the Court [of Appeal] in BMW Canada
inc. v. Automobiles Jalbert inc.[22] and 9077-0801 Québec
inc. v. Société des loteries vidéo du Québec inc.[23] this would
appear to be a debatable proposition under the Civil Code
of Quebec (and also at common law).[24] Can it be otherwise under the CCAA, especially when the notice of
termination is considered to be invalid?25
Decision of the Court of Appeal of
Québec on the Leave Application
Case sought leave to appeal from the judgment
on the issue of the “revival” of the distribution
agreement. The Honourable Marie-France Bich
J.A., sitting alone, dismissed the motion as she
found that the point raised was not of significance to the action and that an appeal would unduly hinder the progress thereof.18 She stated:
This question, she found, was of significance to
the practice, and the appeal prima facie meritorious.26 She further noted that “[i]t is also a
question that has never been addressed by our
court nor, apparently, by other courts of appeal
in Canada.”27
The Broad Discretionary Power of the
Court under s. 11 of the CCAA
Granting leave to appeal would indeed most likely jeopardize the course of the action and cause irreparable
harm to the debtor company and, consequently, all other
stakeholders (creditors, employees, etc.).
As expected, there are not many precedents of
safeguard orders reviving contracts terminated
pursuant to a unilateral termination clause.
Justice Lalonde cited two cases in which orders
similar to what Bock asked for were granted;
however, one was rendered outside the insolvency context,28 and the other, apparently, in the
absence of any contestation.29 As Bich J.A.
pointed out (with references to appellate jurisprudence), it is actually debatable in civil law
whether a judge can order the “cancellation” of
a notice of termination and order the specific
performance of such an agreement even as a
safeguard measure. The same is just as doubtful
at common law, but the question is whether it
can be otherwise for a judge acting under s. 11
of the CCAA. While Bich J.A. believed that such
scenario was also arguable, leave to appeal was
denied for essentially pragmatic reasons. At the
[…]
Granting leave to appeal of [the] order, which expires
next week, could mean either that the appeal will have
become moot by the time of the hearing or that the
Court will find itself confronted with a factual situation
which will have evolved considerably. Neither is
desirable.19
Justice Bich also noted that Bock and the courtappointed Monitor were actively engaged in the
process of selling the business and that, should a
suitable offer be made, the matter would then be
resolved amicably—and profitably—for all.20
She also considered that if Bock and the Monitor
sought the renewal of the order, Case would
then get another chance to convince the CCAA
supervising judge that ordering specific performance of the distribution agreement would be
impossible or inappropriate at that time.21
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National Insolvency Review
August 2013 Volume 30, No. 4
Superior Court level, it is easy to see how
Lalonde J.S.C.’s analysis was driven by the fact
that the inconvenience caused to Case by the
safeguard order was significantly outweighed by
the hardship that Bock, its creditors, and many
other stakeholders would suffer if it were not
granted.
The general language of the CCAA should not be read as
being restricted by the availability of more specific orders.
However, the requirements of appropriateness, good
faith, and due diligence are baseline considerations that a
court should always bear in mind when exercising CCAA
authority. Appropriateness under the CCAA is assessed by
inquiring whether the order sought advances the policy
objectives underlying the CCAA. The question is whether
the order will usefully further efforts to achieve the remedial purpose of the CCAA—avoiding the social and
economic losses resulting from liquidation of an insolvent
company. I would add that appropriateness extends not
only to the purpose of the order, but also to the means it
employs. Courts should be mindful that chances for successful reorganizations are enhanced where participants
achieve common ground and all stakeholders are treated
as advantageously and fairly as the circumstances permit
[emphasis added].34
The sale process continued, and the courtappointed Monitor eventually filed a motion for
authorization to sell assets outside the ordinary
course of business, which went uncontested by
Case and the other interested parties. As a result,
Lalonde J.S.C. rendered an order on June 12,
2013, authorizing the Monitor to accept, on behalf of Bock, a second offer by Longus to purchase assets from Bock.30 Justice Lalonde
further ordered that upon the completion of this
transaction, the suspension of the notice of termination and the order of specific performance
of the distribution agreement between Case and
Bock would cease to have effect.31 This order
effectively put the debate to rest in this particular matter, but the overriding issue remains unsettled. It is also noteworthy that, strictly
speaking, Lalonde J.S.C. did not actually see the
initial order as reviving the distribution contract.
Justice Lalonde stated that the issue was not the
“resuscitation” of a terminated contract. Rather
the issue was whether, according to the criteria
of the appearance of right, the contract was abusively terminated. As Lalonde J.S.C. saw it, the
contract would then be deemed to have never
been terminated in the first place, and the status
quo would therefore be the one that existed prior
to the notice of termination.32
The Supreme Court ruled that “[w]hen an order
is sought that does realistically advance the
CCAA’s purposes, the ability to make it is within the discretion of a CCAA court.”35 This is especially true, considering that the primary
policy instrument of the CCAA is the ability to
create “conditions for preserving the status quo
while attempts are made to find common ground
amongst stakeholders for a reorganization that is
fair to all.”36
Of course, no one would suggest that the extent
of the discretionary powers vested in courts pursuant to s. 11 of the CCAA and the extent to
which specific performance can be ordered in
that context are unlimited. So what is the permissible extent? In other words, at what point
do the ends no longer justify the means? While
the authors of this article believe that the safeguard order rendered in Re Bock inc. was appropriate in the circumstances, courts should
consider this precedent carefully going forward.
One thing is for sure: the limits of these powers
remain to be truly challenged and will continue
to be the focus of reflection and debate.
In any event, the key point is that suspending
the notice of termination of the agreement was
ultimately in the best interests of Bock’s estate
and all other stakeholders. It was ordered with a
view to facilitate a sale of Bock’s business that
would yield a fair outcome for all.
In Century Services,33 the Supreme Court of
Canada provided guidance on the sources of a
court’s authority under the CCAA and the limits
thereof:
For now, in spite of the unusual circumstances
of this case, the rationale for the decision is potentially applicable to a range of other situations
involving various types of distributors and
dealers. At the very least, Re Bock inc. sets a
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National Insolvency Review
August 2013 Volume 30, No. 4
precedent for an insolvent debtor wishing to revive a contract fundamental to its business that
was terminated before the formal insolvency
proceedings commenced, provided the debtor
can present a prima facie case that the termination was abusive. As a result, contractual parties
and their counsel should tread carefully when
considering the termination of a contract that
may be fundamental to the continuation of the
debtor’s business.
7
[Editor’s note: Gerry Apostolatos is a litigation
partner at Langlois Kronström Desjardins
(LKD) in Montreal. His practice principally
focuses on corporate/commercial, insolvency,
class action, and arbitration matters. He has
served the profession as President of the Quebec
Branch of the Canadian Bar Association (CBA),
as National and Quebec Chair of the Bankruptcy
and Insolvency Sections of the CBA, and
as Chair of the Liaison Committee of the
Montreal Bar with the Commercial Division
of the Superior Court of Montreal. Like
Mr. Apostolatos, Pascal Archambault graduated from the Faculty of Law of McGill University
with degrees in civil law and common law. He is
an associate in the litigation group at LKD.
19
8
9
10
11
12
13
14
15
16
17
18
20
21
22
23
24
25
26
27
28
29
The authors thank Mr. Raphaël Buruiana,
a student at law at LKD, for his assistance
and wish him well in his LL.M. studies at the
University of Cambridge.]
1
2
3
4
5
6
30
CCAA, R.S.C. 1985, c. C-36.
Century Services Inc. v. Canada (Attorney General),
[2010] S.C.J. No. 60, 2010 SCC 60, at para. 58
[Century Services].
CCAA, supra note 1, s. 11.
Century Services, supra note 2 at para. 61.
Bock inc. (Arrangement relatif à), [2013] J.Q.
no 3925, 2013 QCCS 1723 [Bock (Trial)].
The potential purchaser, Strongco, was already a
dealer for Case, but in Ontario.
31
32
33
34
35
36
50
BIA, R.S.C. 1985, c. B-3.
Bock (trial), supra note 5 at paras. 66, 69, and 72.
Ibid. at para. 71.
Ibid. at para 74.
Ibid. at para. 63.
Ibid. at para. 104 (authors’ translation).
Ibid. at para. 106 (authors’ translation).
Ibid. at paras. 114–121.
Ibid. at para. 123.
Ibid. at para. 127.
Ibid. at paras. 90 and 112.
Bock inc. (Arrangement relatif à), [2013] Q.J.
No. 4614, 2013 QCCA 851 [Bock (Appeal)].
Ibid. at paras. 12 and 18.
Ibid. at para. 13.
Ibid. at para. 15.
[2006] J.Q. no 8803, 2006 QCCA 1068.
[2012] J.Q. no 4430, 2012 QCCA 885; motion for
leave to appeal to the Supreme Court dismissed
(December 6, 2012) [2012] S.C.C.A. No. 320,
File No. 34924 and [2012] S.C.C.A. No. 328,
File No. 34923.
See BMW Canada inc. v. Jalbert, supra note 22 at
para. 104; Robert J. Sharpe, Injunctions and Specific
Performance, 4th ed. (looseleaf) (Aurora: Canada Law
Book, November 2012), 7-1ff. and 9-10ff.
Bock (Appeal), supra note 18 at para. 10.
Ibid. at paras. 3 and 11.
Ibid. at para. 11.
De Bonis c. Boulangeries Weston Québec ltée,
[2007] J.Q. no 8141, 2007 QCCS 3761.
Dans l’affaire de CT-Paiement Inc., unreported,
Superior Court, District of Montréal,
500-11-042173-126, February 23, 2012 (Auclair J.).
Unreported, Superior Court, District of Montréal,
500-11-044467-138, June 12, 2013 (Lalonde J.S.C.).
Justice Lalonde also authorized the Monitor to accept,
on behalf of Bock, an offer by Garage Pierre Lessard
Inc. to purchase Bock’s real property in St-Hyacinthe,
Québec. This offer and the Longus offer were confidential, and the terms thereof were placed under seal.
Ibid. at para. 30.
Bock (trial), supra note 5 at paras. 87–89.
Supra note 2 at paras. 57–81.
Ibid. at para. 70.
Ibid. at para. 71.
Ibid. at para. 77.