In Urbancorp Toronto Management Inc. (Re) 2021 ONCA 613, Justice Miller refused to grant a stay pending appeal of an order in a CCAA proceeding authorizing the sale of an interest in a property development. The moving party unsuccessfully argued that the sale should be postponed until the conclusion of an ongoing parallel arbitration, the outcome of which would materially impact the value of the interest. If the sale process was not postponed, the moving party argued, the ongoing arbitration would chill the sale process and it would be impossible to know if a higher sale price could be achieved. Justice Miller held that he could not substitute his own evaluation of the efficacy of the sale process over that of the lower court judge, who had dismissed as speculative the argument that the sale process would suffer a chilling effect.
The dispute arose in the context of a long-running proceeding under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA”) of a group of property companies ultimately owned by Urbancorp Inc. One of its subsidiaries, Urbancorp Downsview Park Development Inc. (“Downsview”), owned a 51% interest in a real estate development project. Mattamy Homes Limited (“Mattamy”) owned the remaining 49%. The CCAA supervising judge ordered a process for the sale of Downview’s interest in the project.
Mattamy also claimed it was entitled to a substantial payment from Downsview under a co-ownership agreement. The dispute over the payment was proceeding by way of arbitration. The supervising judge considered whether the outcome of the arbitration would have a material impact on the value of Downsview’s interest in the project to be sold.
Downsview asked the supervising judge to postpone the sale process until after the arbitration was concluded. It claimed the arbitration created uncertainty regarding the value of the interest and therefore would have a chilling effect on the sale process. The supervising judge did not accept this argument. Among other things, the supervising judge held that the sale process could be conducted without the parties knowing the outcome of the arbitration because the process included bidders submitting two offers – one based on Mattamy being entitled to the payments under the co-ownership agreement and one based on Mattamy not being so entitled. The supervising judge agreed with the court-appointed monitor that Downsview’s concerns were speculative. The potential bidders would be sophisticated enough to conduct due diligence and assess both possible outcomes of the arbitration.
Downsview appealed the supervising judge’s order and sought a stay pending the appeal. Downsview argued, among other things, that if a stay was not granted, Downsview would suffer irreparable harm. According to Downsview, if the sale process was not deferred until after the arbitration, and Downsview’s interest was sold, it would be impossible to know if a higher price could be achieved.
Justice Miller rejected this argument. He held that since the supervising judge had dismissed as speculative the argument that the sale process would be under a chill and result in a lower price, as an appellate court hearing a motion for a stay, Justice Miller could not reverse this factual finding. In resisting the stay, Mattamy also presented evidence that it had approached eight potential bidders and was concerned that they will lose interest and faith in the sale process if it were bogged down in litigation.
This decision is an interesting example of the interaction between an arbitration and a court-supervised CCAA restructuring process. In this case, the arbitration and the court-ordered sale process will proceed in parallel regarding interconnected but separate issues (unless or until Downsview is successful on appeal). The arbitration and the restructuring process in the court co-exist relatively harmoniously. This can be contrasted with the situation in Petrowest Corporation v. Peace River Hydro Partners, 2020 BCCA 339 (currently under appeal to the Supreme Court of Canada), where the parties are in a dispute about the extent to which a receiver under the Bankruptcy and Insolvency Act, RSC 1985, c B-3 can avoid an arbitration clause in favour of litigation in the court. For the earlier Arbitration Matters note on that decision, see Case Note #399: Doctrine of separability allows receiver to disclaim agreement to arbitrate while litigating main contract.
The decision of Justice Miller also demonstrates confidence in sophisticated parties’ abilities to assess the risk of an ongoing arbitration and price that risk for their own purposes when valuing, buying and selling an asset.