Ford Credit Canada Limited (plaintiff) v. Welcome Ford Sales Ltd. and Royle Smith (defendants) ( , BK ; 2010 ABQB 798)

Transcription

1 Ford Credit Canada Limited (plaintiff) v. Welcome Ford Sales Ltd. and Royle Smith (defendants) ( , BK ; 2010 ABQB 798) Indexed As: Ford Credit Canada Ltd. v. Welcome Ford Sales Ltd. et al. Alberta Court of Queen's Bench Judicial District of Edmonton Thomas, J. December 10, Summary: Welcome Ford Sales Ltd. operated a Ford vehicle dealership under a Dealership Sales and Services Agreement (DSSA) with Ford Motor Company of Canada. In May 2010, an order was granted declaring Welcome Ford to be bankrupt and a receiver/trustee was appointed. The trustee applied pursuant to s of the Bankruptcy and Insolvency Act (BIA) for an order assigning the rights and obligations of Welcome Ford under the DSSA to the party that was ultimately the successful bidder for the assets of Welcome Ford in the Receivership Proceedings. This decision dealt with three outstanding motions, namely: (a) the application by the trustee for an order approving the en bloc sale of the assets of the Welcome Ford dealership, including the DSSA; (b) the application by the trustee pursuant to s of the BIA for an order assigning the rights and obligations of Welcome Ford under the DSSA to the successful bidder for the assets of Welcome Ford in the Receivership Proceedings; and (c) the outstanding applications by Ford Motor for, inter alia, declarations that the DSSA was a "personal contract" not capable of being assigned without the consent of Ford Motor and also for an order lifting the stay of proceedings imposed by the Receivership Order to allow Ford Motor to terminate the DSSA. The Alberta Court of Queen's Bench resolved the applications as follows: (a) the Ford Motor application for a declaration that the trustee did not have any right, title and interest in or to the DSSA was refused; (b) the Ford Motor application for a declaration that the DSSA was a "personal contract" and was not capable of being assigned was refused; (c) the alternative application by Ford Motor for an order declaring that the trustee could not assign the DSSA or transfer the assets of Welcome Ford to any prospective purchaser without the consent of Ford Motor was dismissed; (d) the renewed applications for an order lifting the stay of proceedings imposed by the Receivership Order and s. 69.3(1) of the BIA, and to allow Ford Motor to terminate the DSSA between it and Welcome Ford in accordance with its terms were dismissed; (e) the application by the Trustee pursuant to s of the BIA for an order assigning the rights and obligations of Welcome Ford under the DSSA to the successful bidder for the assets of Welcome Ford in the Receivership proceedings was directed, and (f) the trustee's application / recommendation for the en bloc sale of the Welcome Ford dealership was granted and confirmed. Bankruptcy - Topic Property of bankrupt - Particular property - Contracts to which bankrupt is a party (incl. assignment of) - The Alberta Court of Queen's Bench discussed the recently amended s of the Bankruptcy and Insolvency Act - The court held that "the intention of the recently adopted s is to protect and enhance the assets of the estate of a bankrupt by

2 allowing the assignment of existing agreements to third parties for value.... Section 84.1 is remedial legislation and should be interpreted in that context." - See paragraphs 38 to 49. Bankruptcy - Topic Property of bankrupt - Particular property - Contracts to which bankrupt is a party (incl. assignment of) - Welcome Ford Sales Ltd. operated a Ford vehicle dealership under a Dealership Sales and Services Agreement (DSSA) with Ford Motor Company of Canada - In May 2010, an order was granted declaring Welcome Ford to be bankrupt and a receiver/trustee was appointed - The trustee applied pursuant to s of the Bankruptcy and Insolvency Act (BIA) for an order assigning the rights and obligations of Welcome Ford under the DSSA to the party that was ultimately the successful bidder for the assets of Welcome Ford in the Receivership Proceedings - Ford Motor asserted that the DSSA was a personal contract which was not capable of assignment - Ford Motor further asserted that the nature and character of the DSSA was such that it could not be assigned and s was of no assistance to the trustee - The Alberta Court of Queen's Bench held that the DSSA was not a personal contract, which by its nature could not usefully be performed by another - It was a rather standard commercial franchise which could be performed by virtually any business person and entity with some capital and experience in automotive retailing - The DSSA was capable of assignment and the exclusion in s. 84.1(3) of the BIA did not apply - See paragraphs 50 to 73. Bankruptcy - Topic Property of bankrupt - Particular property - Contracts to which bankrupt is a party (incl. assignment of) - Welcome Ford Sales Ltd. operated a Ford vehicle dealership under a Dealership Sales and Services Agreement (DSSA) with Ford Motor Company of Canada - In May 2010, an order was granted declaring Welcome Ford to be bankrupt and a receiver/trustee was appointed - The trustee applied pursuant to s of the Bankruptcy and Insolvency Act for an order assigning the rights and obligations of Welcome Ford under the DSSA to the party that was ultimately the successful bidder for the assets of Welcome Ford in the Receivership Proceedings - Ford Motor asserted that the DSSA should not be assigned at all, and in any event, without its consent - The Alberta Court of Queen's Bench held that the DSSA was capable of being assigned and that the exemption found in s. 84.1(3) was not applicable - The outstanding questions were whether the proposed assignee, particularly the preferred assignee, was "able to perform the obligations" contained in the DSSA (s. 84.1(4)(a)) and whether it was appropriate to "assign the rights and obligations to that person" (s.84.1(4)(b)) - The answer to both questions was yes - Ford Motor had unreasonably refused its consent - The preferred assignee would be capable of performing the obligations imposed in the DSSA - Further, the rights and remedies of Ford Motor under the DSSA would be preserved and for that reason it was appropriate to order the assignment - See paragraphs 74 to 96. Contracts - Topic 3730 Performance or breach - Fundamental breach - What constitutes a fundamental breach - Welcome Ford Sales Ltd. operated a Ford vehicle dealership under a Dealership Sales and Services Agreement (DSSA) with Ford Motor Company of Canada - In May 2010,

3 an order was granted declaring Welcome Ford to be bankrupt and a receiver/trustee was appointed - The trustee applied pursuant to s of the Bankruptcy and Insolvency Act for an order assigning the rights and obligations of Welcome Ford under the DSSA to the party that was ultimately the successful bidder for the assets of Welcome Ford in the Receivership Proceedings - Ford Motor asserted that the DSSA had been "fundamentally breached" with the legal consequence that the franchise agreement represented by the DSSA between Ford Motor and Welcome Ford had been terminated - Accordingly, the DSSA could not be assigned to a third party - Ford Motor asserted that the appointment of a receiver in January 14 was a fundamental breach - The Alberta Court of Queen's Bench rejected the assertion - The receiver had at all times been willing to honour the DSSA and its commercial purpose but had not been able to do so primarily because of the conduct of and the positions taken by Ford Motor - There was no fundamental breach because the receiver, which stood in the place of Welcome Ford, had always been willing and had done its best to maintain the value of the dealership, including the DSSA - See paragraphs 17 to 20. Contracts - Topic 3730 Performance or breach - Fundamental breach - What constitutes a fundamental breach - Welcome Ford Sales Ltd. operated a Ford vehicle dealership under a Dealership Sales and Services Agreement (DSSA) with Ford Motor Company of Canada - In May 2010, an order was granted declaring Welcome Ford to be bankrupt and a receiver/trustee was appointed - The trustee applied pursuant to s of the Bankruptcy and Insolvency Act for an order assigning the rights and obligations of Welcome Ford under the DSSA to the party that was ultimately the successful bidder for the assets of Welcome Ford in the Receivership Proceedings - Ford Motor asserted that the DSSA had been "fundamentally breached" with the legal consequence that the franchise agreement represented by the DSSA between Ford Motor and Welcome Ford had been terminated - Accordingly, the DSSA could not be assigned to a third party - Ford Motor asserted that the "shuttering" of the Welcome Ford premises on January 13, 2010, deprived Ford Motor of the benefit of the DSSA - The Alberta Court of Queen's Bench rejected the assertion - While the Welcome Ford dealership had not been operating since mid-january 2010 that was not for lack of effort on the part of the receiver which had been trying from the outset to effect a sale of the assets of Welcome Ford en bloc - The Receiver had been met at every step by resistance from Ford Motor - The consistent efforts by Ford Motor to block any sale of Welcome Ford, including the DSSA, led the court to conclude that no fundamental breaches existed here which would lead to the termination of the contract - See paragraphs 21 to 27. Contracts - Topic 3730 Performance or breach - Fundamental breach - What constitutes a fundamental breach - Welcome Ford Sales Ltd. operated a Ford vehicle dealership under a Dealership Sales and Services Agreement (DSSA) with Ford Motor Company of Canada - In May 2010, an order was granted declaring Welcome Ford to be bankrupt and a receiver/trustee was appointed - The trustee applied pursuant to s of the Bankruptcy and Insolvency Act for an order assigning the rights and obligations of Welcome Ford under the DSSA to the party that was ultimately the successful bidder for the assets of Welcome Ford in the

4 Receivership Proceedings - Ford Motor asserted that the DSSA had been "fundamentally breached" with the legal consequence that the franchise agreement represented by the DSSA between Ford Motor and Welcome Ford had been terminated - Accordingly, the DSSA could not be assigned to a third party - Ford Motor asserted that Welcome Ford had engaged in conduct unbecoming a reputable business person which in the opinion of Ford Motor adversely affected the operation and business of Welcome Ford and the good name, goodwill and reputation of Ford Motor - The Alberta Court of Queen's Bench rejected the assertion - The court was not satisfied that Ford Motor had brought sufficient evidence to establish fraud or anything close to fraud on the part of Welcome Ford - Further, there was no convincing evidence of damage to the reputation of Ford Motor - In the result, the court was not prepared to find a fundamental breach in respect to this set of assertions - See paragraphs 28 to 36. Franchises - Topic 2022 Franchise agreement - Breach of agreement - What constitutes - [See all Contracts - Topic 3730]. Franchises - Topic 2201 Franchise agreement - Termination - General - [See all Contracts - Topic 3730]. Franchises - Topic 7011 Transfer of franchises - General - By assignment - [See all Bankruptcy - Topic 427.1]. Statutes - Topic 8506 Remedial statutes - General principles - Interpretation - [See first Bankruptcy - Topic 427.1]. Cases Noticed: Shelanu Inc. v. Print Three Franchising Corp. (2003), 172 O.A.C. 78; 38 B.L.R.(3d) 42; 2003 CarswellOnt 2038 (C.A.), refd to. [para. 18]. Canadian Western Bank v Alberta Ltd. et al. (2009), 472 A.R. 297; 2009 ABQB 271, refd to. [para. 22]. Pioneer Ford Sales Inc., Re (1983), 26 B.R. 116, refd to. [para. 44]. Pioneer Ford Sales Inc., Re (1983), 30 B.R. 458, refd to. [para. 44]. Pioneer Ford Sales Inc., Re (1983), 729 F.2d 27 (U.S.C.A., 1st Cir.), refd to. [para. 44]. Wills Motors Inc., Re (1991), 133 B.R. 303 (U.S. Bktcy. Ct. N.Y.), refd to. [para. 46]. Adelphia Communications Corp. et al., Re (2007), 359 B.R. 65 (N.Y.), refd to. [para. 47]. Royal Bank of Canada et al. v. Fracmaster Ltd. (1999), 245 A.R. 138; 1999 ABQB 425, refd to. [para. 51]. Blackhawk Mining Inc. v. Provincial Assessor (Man.) et al. (2002), 163 Man.R.(2d) 215; 269 W.A.C. 215; 2002 MBCA 51, refd to. [para. 56]. Devon Canada Corp. v. Canadian Pacific Railway Co. et al., [2009] A.R. Uned. 233; 2009 ABQB 143, refd to. [para. 60]. Rodaro et al. v. Royal Bank of Canada et al. (2002), 157 O.A.C. 203; 59 O.R.(3d) 74 (C.A.), refd to. [para. 60]. Struik v. Dixie Lee Food Systems Ltd., [2006] O.T.C. 749; 2006 CarswellOnt 4932 (Sup.

5 Ct.), refd to. [para. 64]. Playdium Entertainment Corp. et al., Re, [2001] O.T.C. 828; 31 C.B.R.(4th) 302, additional reasons (2001), 31 C.B.R.(4th) 309 (Sup. Ct.), refd to. [para. 76]. Bakerview Trout Farm (1983) Ltd. v. Petgus Holding Ltd. et al., [1996] B.C.T.C. Uned. 698; [1996] B.C.W.L.D (S.C.), refd to. [para. 81]. Statutes Noticed: Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, sect [para. 41]. Authors and Works Noticed: Houlden, Lloyd W., Morawetz, Geoffrey B., and Sarra, Janis P., Bankruptcy and Insolvency Law of Canada (4th Ed.), vol. 2, p [para. 48]. Counsel: Jeremy H. Hockin and Bryan Maruyama (Parlee McLaws LLP), for the receiver of Welcome Ford, Myers, Norris, Penny Ltd.; Ken Mills and Kelly J. Bourassa (Blake, Cassels & Graydon LLP), for Ford Motor Company; Darren R. Bieganek (Duncan & Craig LLP), for the plaintiff, Ford Credit Canada; Ray C. Rutman (Fraser Milner Casgrain LLP), for Bank of Montreal. These applications were heard on June 29, 2010, before Thomas, J., of the Alberta Court of Queen's Bench, Judicial District of Edmonton, who delivered the following memorandum of judgment on December 10, Editor: Anick Ouellette-Levesque Order accordingly. Franchises - Topic 2022 Franchise agreement - Breach of agreement - What constitutes - Welcome Ford Sales Ltd. operated a Ford vehicle dealership under a Dealership Sales and Services Agreement (DSSA) with Ford Motor Company of Canada - In May 2010, an order was granted declaring Welcome Ford to be bankrupt and a receiver/trustee was appointed - The trustee applied pursuant to s of the Bankruptcy and Insolvency Act for an order assigning the rights and obligations of Welcome Ford under the DSSA to the party that was ultimately the successful bidder for the assets of Welcome Ford in the Receivership Proceedings - Ford Motor asserted that the DSSA had been "fundamentally breached" with the legal consequence that the franchise agreement represented by the DSSA between Ford Motor and Welcome Ford had been terminated - Accordingly, the DSSA could not be assigned to a third party - Ford Motor asserted that the appointment of a receiver in January 14 was a fundamental breach - The Alberta Court of Queen's Bench rejected the assertion - The receiver had at all times been willing to honour the DSSA and its commercial purpose but had not been able to do so primarily because of the conduct of and the positions taken by Ford Motor - There was no fundamental breach because the

6 receiver, which stood in the place of Welcome Ford, had always been willing and had done its best to maintain the value of the dealership, including the DSSA - See paragraphs 17 to 20. Franchises - Topic 2022 Franchise agreement - Breach of agreement - What constitutes - Welcome Ford Sales Ltd. operated a Ford vehicle dealership under a Dealership Sales and Services Agreement (DSSA) with Ford Motor Company of Canada - In May 2010, an order was granted declaring Welcome Ford to be bankrupt and a receiver/trustee was appointed - The trustee applied pursuant to s of the Bankruptcy and Insolvency Act for an order assigning the rights and obligations of Welcome Ford under the DSSA to the party that was ultimately the successful bidder for the assets of Welcome Ford in the Receivership Proceedings - Ford Motor asserted that the DSSA had been "fundamentally breached" with the legal consequence that the franchise agreement represented by the DSSA between Ford Motor and Welcome Ford had been terminated - Accordingly, the DSSA could not be assigned to a third party - Ford Motor asserted that the "shuttering" of the Welcome Ford premises on January 13, 2010, deprived Ford Motor of the benefit of the DSSA - The Alberta Court of Queen's Bench rejected the assertion - While the Welcome Ford dealership had not been operating since mid-january 2010 that was not for lack of effort on the part of the receiver which had been trying from the outset to effect a sale of the assets of Welcome Ford en bloc - The Receiver had been met at every step by resistance from Ford Motor - The consistent efforts by Ford Motor to block any sale of Welcome Ford, including the DSSA, led the court to conclude that no fundamental breaches existed here which would lead to the termination of the contract - See paragraphs 21 to 27. Franchises - Topic 2022 Franchise agreement - Breach of agreement - What constitutes - Welcome Ford Sales Ltd. operated a Ford vehicle dealership under a Dealership Sales and Services Agreement (DSSA) with Ford Motor Company of Canada - In May 2010, an order was granted declaring Welcome Ford to be bankrupt and a receiver/trustee was appointed - The trustee applied pursuant to s of the Bankruptcy and Insolvency Act for an order assigning the rights and obligations of Welcome Ford under the DSSA to the party that was ultimately the successful bidder for the assets of Welcome Ford in the Receivership Proceedings - Ford Motor asserted that the DSSA had been "fundamentally breached" with the legal consequence that the franchise agreement represented by the DSSA between Ford Motor and Welcome Ford had been terminated - Accordingly, the DSSA could not be assigned to a third party - Ford Motor asserted that Welcome Ford had engaged in conduct unbecoming a reputable business person which in the opinion of Ford Motor adversely affected the operation and business of Welcome Ford and the good name, goodwill and reputation of Ford Motor - The Alberta Court of Queen's Bench rejected the assertion - The court was not satisfied that Ford Motor had brought sufficient evidence to establish fraud or anything close to fraud on the part of Welcome Ford - Further, there was no convincing evidence of damage to the reputation of Ford Motor - In the result, the court was not prepared to find a fundamental breach in respect to this set of assertions - See paragraphs 28 to 36.

7 Franchises - Topic 2201 Franchise agreement - Termination - General - Welcome Ford Sales Ltd. operated a Ford vehicle dealership under a Dealership Sales and Services Agreement (DSSA) with Ford Motor Company of Canada - In May 2010, an order was granted declaring Welcome Ford to be bankrupt and a receiver/trustee was appointed - The trustee applied pursuant to s of the Bankruptcy and Insolvency Act for an order assigning the rights and obligations of Welcome Ford under the DSSA to the party that was ultimately the successful bidder for the assets of Welcome Ford in the Receivership Proceedings - Ford Motor asserted that the DSSA had been "fundamentally breached" with the legal consequence that the franchise agreement represented by the DSSA between Ford Motor and Welcome Ford had been terminated - Accordingly, the DSSA could not be assigned to a third party - Ford Motor asserted that the appointment of a receiver in January 14 was a fundamental breach - The Alberta Court of Queen's Bench rejected the assertion - The receiver had at all times been willing to honour the DSSA and its commercial purpose but had not been able to do so primarily because of the conduct of and the positions taken by Ford Motor - There was no fundamental breach because the receiver, which stood in the place of Welcome Ford, had always been willing and had done its best to maintain the value of the dealership, including the DSSA - See paragraphs 17 to 20. Franchises - Topic 2201 Franchise agreement - Termination - General - Welcome Ford Sales Ltd. operated a Ford vehicle dealership under a Dealership Sales and Services Agreement (DSSA) with Ford Motor Company of Canada - In May 2010, an order was granted declaring Welcome Ford to be bankrupt and a receiver/trustee was appointed - The trustee applied pursuant to s of the Bankruptcy and Insolvency Act for an order assigning the rights and obligations of Welcome Ford under the DSSA to the party that was ultimately the successful bidder for the assets of Welcome Ford in the Receivership Proceedings - Ford Motor asserted that the DSSA had been "fundamentally breached" with the legal consequence that the franchise agreement represented by the DSSA between Ford Motor and Welcome Ford had been terminated - Accordingly, the DSSA could not be assigned to a third party - Ford Motor asserted that the "shuttering" of the Welcome Ford premises on January 13, 2010, deprived Ford Motor of the benefit of the DSSA - The Alberta Court of Queen's Bench rejected the assertion - While the Welcome Ford dealership had not been operating since mid-january 2010 that was not for lack of effort on the part of the receiver which had been trying from the outset to effect a sale of the assets of Welcome Ford en bloc - The Receiver had been met at every step by resistance from Ford Motor - The consistent efforts by Ford Motor to block any sale of Welcome Ford, including the DSSA, led the court to conclude that no fundamental breaches existed here which would lead to the termination of the contract - See paragraphs 21 to 27. Franchises - Topic 2201 Franchise agreement - Termination - General - Welcome Ford Sales Ltd. operated a Ford vehicle dealership under a Dealership Sales and Services Agreement (DSSA) with Ford Motor Company of Canada - In May 2010, an order was granted declaring Welcome Ford to be bankrupt and a receiver/trustee was appointed - The trustee applied pursuant to

8 s of the Bankruptcy and Insolvency Act for an order assigning the rights and obligations of Welcome Ford under the DSSA to the party that was ultimately the successful bidder for the assets of Welcome Ford in the Receivership Proceedings - Ford Motor asserted that the DSSA had been "fundamentally breached" with the legal consequence that the franchise agreement represented by the DSSA between Ford Motor and Welcome Ford had been terminated - Accordingly, the DSSA could not be assigned to a third party - Ford Motor asserted that Welcome Ford had engaged in conduct unbecoming a reputable business person which in the opinion of Ford Motor adversely affected the operation and business of Welcome Ford and the good name, goodwill and reputation of Ford Motor - The Alberta Court of Queen's Bench rejected the assertion - The court was not satisfied that Ford Motor had brought sufficient evidence to establish fraud or anything close to fraud on the part of Welcome Ford - Further, there was no convincing evidence of damage to the reputation of Ford Motor - In the result, the court was not prepared to find a fundamental breach in respect to this set of assertions - See paragraphs 28 to 36. Franchises - Topic 7011 Transfer of franchises - General - By assignment - The Alberta Court of Queen's Bench discussed the recently amended s of the Bankruptcy and Insolvency Act - The court held that "the intention of the recently adopted s is to protect and enhance the assets of the estate of a bankrupt by allowing the assignment of existing agreements to third parties for value.... Section 84.1 is remedial legislation and should be interpreted in that context." - See paragraphs 38 to 49. Franchises - Topic 7011 Transfer of franchises - General - By assignment - Welcome Ford Sales Ltd. operated a Ford vehicle dealership under a Dealership Sales and Services Agreement (DSSA) with Ford Motor Company of Canada - In May 2010, an order was granted declaring Welcome Ford to be bankrupt and a receiver/trustee was appointed - The trustee applied pursuant to s of the Bankruptcy and Insolvency Act (BIA) for an order assigning the rights and obligations of Welcome Ford under the DSSA to the party that was ultimately the successful bidder for the assets of Welcome Ford in the Receivership Proceedings - Ford Motor asserted that the DSSA was a personal contract which was not capable of assignment - Ford Motor further asserted that the nature and character of the DSSA was such that it could not be assigned and s was of no assistance to the trustee - The Alberta Court of Queen's Bench held that the DSSA was not a personal contract, which by its nature could not usefully be performed by another - It was a rather standard commercial franchise which could be performed by virtually any business person and entity with some capital and experience in automotive retailing - The DSSA was capable of assignment and the exclusion in s. 84.1(3) of the BIA did not apply - See paragraphs 50 to 73. Franchises - Topic 7011 Transfer of franchises - General - By assignment - Welcome Ford Sales Ltd. operated a Ford vehicle dealership under a Dealership Sales and Services Agreement (DSSA) with Ford Motor Company of Canada - In May 2010, an order was granted declaring

9 Welcome Ford to be bankrupt and a receiver/trustee was appointed - The trustee applied pursuant to s of the Bankruptcy and Insolvency Act for an order assigning the rights and obligations of Welcome Ford under the DSSA to the party that was ultimately the successful bidder for the assets of Welcome Ford in the Receivership Proceedings - Ford Motor asserted that the DSSA should not be assigned at all, and in any event, without its consent - The Alberta Court of Queen's Bench held that the DSSA was capable of being assigned and that the exemption found in s. 84.1(3) was not applicable - The outstanding questions were whether the proposed assignee, particularly the preferred assignee, was "able to perform the obligations" contained in the DSSA (s. 84.1(4)(a)) and whether it was appropriate to "assign the rights and obligations to that person" (s.84.1(4)(b)) - The answer to both questions was yes - Ford Motor had unreasonably refused its consent - The preferred assignee would be capable of performing the obligations imposed in the DSSA - Further, the rights and remedies of Ford Motor under the DSSA would be preserved and for that reason it was appropriate to order the assignment - See paragraphs 74 to 96. Statutes - Topic 8506 Remedial statutes - General principles - Interpretation - The Alberta Court of Queen's Bench discussed the recently amended s of the Bankruptcy and Insolvency Act - The court held that "the intention of the recently adopted s is to protect and enhance the assets of the estate of a bankrupt by allowing the assignment of existing agreements to third parties for value.... Section 84.1 is remedial legislation and should be interpreted in that context." - See paragraphs 38 to 49.