Canada: Agricultural Law NetLetter - Issue 293

Highlights

A Justice of the Manitoba Court of Appeal granted leave to appeal from a decision of a Manitoba Court of Queen's Bench Justice. The Court of Queen's Bench Justice held that feed suppliers who had supplied feed to a large commercial hog operation during the two week period prior to a CCAA application may have an unjust enrichment claim arising from an alleged fraud on the part of the processor, who allegedly ordered feed while preparing for the CCAA application with no intention of paying for it. The Appeal Court concluded that there were important issues of law and CCAA practice at stake which should be considered by the Court of Appeal. (Puratone Corp. (Re), CALN/2014-007, [2014] M.J. No. 25, Manitoba Court of Appeal)

NEW CASE LAW

Puratone Corp. (Re); CALN/2014-007, Full text: [2014] M.J. No. 25; 2014 MBCA 13, Manitoba Court of Appeal, A.D. MacInnes J.A., January 27, 2014.

Feed Suppliers -- Unjust Enrichment -- Claim for Priority Over Secured Creditors.

Farm Credit Canada ("FCC") and the Bank of Montreal ("BMO") applied for leave to appeal an Order made on July 8, 2013 by the Manitoba Court of Queen's Bench in proceedings under the Companies Creditors Arrangement Act (the "CCAA") [2013] M.J. No. 247 and CALN/2013-023. Seventeen farming operators (the "Suppliers") who had provided feed to a commercial hog conglomerate involving three corporations - The Puratone Corporation, Pembina Valley Pigs Ltd. and Niverville Swine Breeders Ltd. (collectively "Puratone") claimed priority for the cost of the feed they had supplied over Puratone's secured creditors, being FCC, BMO and the Manitoba Agricultural Services Corporation.

The initial Order under the CCAA contained a "stay" provision. The "stay" provision prevented the commencement of proceedings against Puratone, Puratone's property, and its directors during the CCAA proceedings.

As a result of the CCAA proceedings, Puratone's assets were sold to Maple Leaf Foods Inc. The sale was approved by the Court on November 8, 2012.

A Court Order was then made authorizing the payment of approximately $17.7 million to BMO, approximately $15.8 million to FCC, and approximately $1 million to Manitoba Agricultural Services Corporation.

The Suppliers requested the Court to lift a stay of proceedings so they could commence proceedings against Puratone and its directors. The Suppliers also requested that approximately $900,000.00 be held back from funds otherwise payable to FCC, BMO and the Manitoba Agricultural Services Corporation.

The Justice of of the Manitoba Court of Queen's Bench concluded that the Suppliers may have an unjust enrichment claim arising from an alleged fraud on the part of Puratone, who allegedly ordered feed while preparing for the CCAA application with no intention of paying for it.

The CCAA stay was lifted and approximately $900,000.00 was held back from the interim distribution.

Decision: MacInnes, J.A. granted FCC and BMO leave to appeal [at para. 43].

MacInness, J.A. reviewed the legal test for granting leave to appeal in CCAA matters at para. 15, and concluded [at para. 16] that, as a general rule, leave to appeal decisions given by a Judge under the CCAA are only granted "sparingly".

FCC and BMO argued, among other things that:

  • The holdback Order elevated the unproven claims of unsecured creditors above the proven secured claim of FCC and BMO and effectively elevated the unsecured claim the status ahead of, or equal to, their proven claims.
  • There was no evidence of any legal basis for the holdback claims before the Queen's Bench Justice.
  • The case was important for its precedential value, as it now appeared open for any subordinate or unsecured creditor that had supplied goods or services prior to CCAA filing to obtain an Order that funds be held back pending legal action, and that similar claims could overwhelm CCAA Courts.
  • There was insufficient evidence to establish the elements of unjust enrichment relied upon by the Suppliers and that the juristic reason for any enrichment might be found in the pre-existing legal rights of BMO and FCC - a point which was never considered by the Queen's Bench Justice.

MacInnes, J.A. concluded [at para. 45 and 47] that the leave application raised questions of important practice and questions of law which were not expressly addressed by the Queen's Bench Judge.

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