3.68: Court options to deal with significant deficiencies
7.3: Summary Judgment (Application and decision)

Case Summary

The Action underlying this Application engaged the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (“BIA”). The Defendant Applicants sought to strike the Plaintiff’s Statement of Claim pursuant to Rule 3.68, or alternatively, summarily dismiss the Plaintiff’s claim pursuant to Rule 7.3.

The primary issue before the Court was whether Perpetual Energy Operating Corp. (“PEOC”), a predecessor of Sequoia Resources Corp. (“Sequoia”), who Pricewaterhouse Coopers Inc. acted as Trustee in bankruptcy for, was insolvent at the time of an asset transaction, or was rendered insolvent by it within the meaning of the BIA.

Justice Nixon analyzed the commencement documents when considering whether the Plaintiff’s Statement of Claim could be struck under Rule 3.68. The Statement of Claim pleaded that Sequoia acquired assets with associated abandonment and reclamation obligations (“ARO”) that exceeded the value of the assets.

Justice Nixon gave the Plaintiff’s allegations in the Statement of Claim a generous interpretation in relation to their novel nature and therefore erred on the side of not striking. His Lordship also considered the exceptions of whether the allegations in the commencement document were based on assumptions or speculations or were patently ridiculous or incapable of proof. His Lordship did not find that either of the exceptions applied. Ultimately, His Lordship did not strike the Plaintiff’s Statement of Claim under Rule 3.68.

Under Rule 7.3, Justice Nixon considered whether this matter, as it related to section 96 of BIA, was appropriate for Summary Dismissal. His Lordship reiterated that a Court may summarily dismiss a claim where there is no genuine issue for Trial. Justice Nixon also recognized that the only dispute at this point of the Action was the insolvency of PEOC (the “Insolvency Element”).   

Justice Nixon noted that the Insolvency Element is comprised of three financial variables: the value variable, the ARO variable, and the property tax variable. The key consideration for whether this Action was appropriate for Summary Dismissal was enumerated by His Lordship in the Decision:

“If the ARO is properly characterized as falling within the scope of “obligations, due and accruing due” for the purposes of the Insolvency Element, then this Action must proceed to a trial proper in order to deal with the Section 96 BIA Claim. On the other hand, if the ARO does not fall within the scope of “obligations, due and accruing due” for purposes of the Insolvency Element, then Section 96 BIA Claim fails because the Insolvency Element would not be satisfied.”

Given the evidence before the Court, Justice Nixon determined that the ARO did not meet the definition of “obligations, due and accruing due”, and as a result, the Defendants had met the burden in showing that there was “no merit” to the section 96 BIA claim. As a result, His Lordship summarily dismissed the Plaintiff’s Statement of Claim under Rule 7.3.

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