Court File No. C39988

COURT OF APPEAL FOR ONTARIO


IN THE MATTER OF THE BANKRUPTCY OF T.C.T. LOGISTICS INC.,
T.C.T. WAREHOUSING LOGISTICS INC.
(and THE COMPANIES LISTED ON SCHEDULE "A" HERETO)

AND IN THE MATTER OF AN INTENDED PROCEEDING BEFORE
THE ONTARIO LABOUR RELATIONS BOARD

BETWEEN:

GMAC COMMERCIAL CREDIT CORPORATION OF CANADA

Applicant
(Respondent in Appeal)

- and -
T.C.T. LOGISTICS INC., T.C.T. WAREHOUSING LOGISTICS INC.,
KPMG INC., the Interim Receiver and Trustee in Bankruptcy of
T.C.T. Logistics Inc. and T.C.T. Warehousing Logistics Inc.
(and the Companies listed on Schedule "A" hereto)

Respondents
(Respondents in Appeal)

FACTUM OF THE INDUSTRIAL WOOD & ALLIED WORKERS OF CANADA, LOCAL 700 (the "Union")

(Motion for leave to appeal, returnable December 11, 2003)

PART I - NATURE OF THE MOTION

1. The Union brings this motion for leave to appeal from the Oral Reasons of Ground, J. dated April 29, 2003. Ground, J. dismissed the Union's motion for leave to continue proceedings it instituted before the Ontario Labour Relation Board (the "OLRB") against the Interim Receiver. for breaches of ss. 70, 72 and 76 (unfair labour practices) of the Labour Relations Act, 1999 (Ontario) (the "LRA"), and a declaration that the Interim Receiver is a "successor employer" or "related employer". Ground, J. also refused to delete paragraph 15 of the initial receivership order that states, inter alia, that the Interim Receiver is not to be deemed a "successor employer" or "related employer" under ss. 69 and 1(4) respectively of the LRA and other employment statutes.

2. The Union submits that Ground, J. erred in refusing to grant leave and not deleting paragraph 15. He also focused his entire decision on the "successor employer" aspect and did not even consider granting leave to enable the OLRB proceedings to proceed in respect of the breaches of ss. 70, 72 and 79 of the LRA or the "related employer" applications under s. 1(4) of the LRA which also form part of the Union's request for relief before the OLRB.

3. Ground, J. acted contrary to law by misinterpreting and misapplying the applicable statutes and legal principles. His decision constitutes an abuse of power and contains obvious errors for which there is no other remedy to the Union but to appeal. Ground, J.'s decision permits the Interim Receiver to breach provincial employment and labour statutes with impunity.

4. The Union states that the Interim Receiver breached the LRA because it employed the employees of T.C.T. Warehousing Logistics Inc. to continue running the warehousing business but did not pay the employees in accordance with the terms of the Collective Agreement, in particular, failing to pay full vacation pay, health benefits, make pension contributions to the pension plan and for failing to provide termination pay when the Interim Receiver terminated the employees on May 16, 2002 when the Interim Receiver sold the warehouse. The Union asserts that the Interim Receiver became the successor employer or related employer of the employees under ss. 69 or 1(4) of the LRA and is therefore required to abide by the terms of the collective agreement.

5. Secondly, after operating T.C.T. Warehousing for several months, the Interim Receiver sold T.C.T. Warehousing to Spectrum Supply Chain Solutions Inc. ("Spectrum"), a company founded by a former executive of T.C.T. Warehousing (Gordon Crowther) on terms that stipulated that Spectrum not adopt the Collective Agreement. Spectrum then moved the warehousing business to Mississauga and currently operates the business without the Union servicing the same clientele. The Union asserts that the circumstances of the sale were manipulated by the Interim Receiver and Spectrum to eliminate the Union from the Spectrum workforce and that the Interim Receiver thus breached sections 70, 72 and 76 of the LRA (unfair labour practices) which state:

70. No employer or employers' organization and no person acting on behalf of an employer or an employers' organization shall participate in or interfere with the formation, selection or administration or a trade union or the representation of employees by a trade union or contribute financial or other support to a trade union, but nothing in this section shall be deemed to deprive an employer of the employer's freedom to express views so long as the employer does not use coercion, intimidation, threats, promises or undue influence.

. . .

72. No employer, employers' organization or person acting on behalf of an employer or an employers' organization,

(a) shall refuse to employer or to continue to employ a person, or discriminate against a person in regard to employment or any term of condition of employment because the person was or is a member of a trade union or was or is exercising any other rights under this Act;

(b) shall impose any condition in a contract of employment or propose the imposition of any condition in a contract of employment that seeks to restrain an employee or a person seeking employment from becoming a member of a trade union or exercising any other rights under this Act; or

(c) shall seek by threat of dismissal, or by any other kind of threat, or by the imposition of a pecuniary or other penalty, or by any other means to compel an employee to become or refrain from becoming or to continue to be or to cease to be a member or officer or representative of a trade union or to cease to exercise any other rights under this Act.

. . .

76. No person, trade union or employers' organization shall seek by intimidation or coercion to compel any person to become or refrain from becoming or to continue to be or to cease to be a member of a trade union or of an employers' organization or to refrain from exercising any other rights under this Act or from performing any obligations under this Act.

6. This appeal raises very significant issues for stakeholders in the insolvency practice in Ontario (and the rest of Canada) in respect of the applicability of provincial labour and employment statutes in insolvency proceedings where a receiver or trustee continues to employ employees to carry on the business.

7. This court urgently needs to settle the law and give direction to the bankruptcy practice. The current practice of Commercial List judges appointing interim receivers by issuing lengthy, "boiler plate"-style orders on ex parte motions that contain blanket exemptions for receivers (and trustees) from the application of provincial employment laws (which, as the Court held in Big Sky, infra, a court has no legal authority to do) leaves employees vulnerable to abuse, such as what occurred in the case at bar, because provincial employment laws need no longer be abided, collective agreements can be ignored and pension plan contributions no longer made yet employee continue to do the exact same job they were doing prior to the insolvency.

8. This is a proper and important case for a review by this Court. This Court should grant leave to appeal. The circumstances of this case and the breaches of the LRA by the Interim Receiver need to be adjudicated before the OLRB which the Union presently cannot do without obtaining leave of the Court to continue proceedings against the interim receiver.

PART II - THE FACTS

9. T.C.T. Logistics Inc. ("T.C.T.") was a conglomerate of companies, one of which was T.C.T. Warehousing Logistics Inc. which operated a third-party warehousing facility at 137 Horner Avenue in Etobicoke, Ontario.

10. The warehouse facility at 137 Horner Avenue was previously owned and operated by Livingston Distribution Centres Inc. On or about November 1, 1998, T.C.T. acquired Livingston and took over the warehousing business. The Union had a collective agreement with Livingston effective from May 1, 1997 to April 30, 2000 and, following the acquisition, with T.C.T. Warehousing effective from May 1, 2000 to April 30, 2004. The Union was therefore the exclusive bargaining agent for the employees at the warehouse at 137 Horner Avenue.

Affidavit of Raymond Lewis, sworn October 22, 2002 ("Lewis Affidavit"), Motion Record of the Union, Tab 1, paragraphs 3, 4 and 5.

11. In January 2002, T.C.T. became insolvent. On January 24, 2002, the secured creditor of T.C.T., General Motors Acceptance Corporation ("GMAC") applied to court under section 101 of the Courts of Justice Act (Ontario) and section 47 of the BIA to appoint an interim receiver over all T.C.T. companies, including T.C.T. Warehousing. Ground, J. issued an Order appointing KPMG Inc. the Interim Receiver over T.C.T.

12. The motion was brought by GMAC without notice to most interested parties and without notice to the Union or the employees. The Order appointing the Interim Receiver is a lengthy, pre-drafted, "boiler plate" style order that contains many provisions that directly impact the rights of the employees of T.C.T., in particular, paragraph 15 which states:

15. THIS COURT ORDERS that the employment of employees of the Debtors, including employees on maternity leave, disability leave and all other forms of approved absence is hereby terminated effective immediately prior to the appointment of the Receiver. Notwithstanding the appointment of the Receiver or the exercise of its powers or the performance of any of its duties hereunder, or the use or employment by the Receiver of any person in connection with its appointment and the performance of its powers and duties hereunder, the Receiver is not and shall not be deemed or considered to be a successor employer, related employer, sponsor or payer with respect to any of the employees or any of the Debtors or any former employees within the meaning of the Labour Relations Act (Ontario), the Employment Standards Act (Ontario), the Pension Benefits Act (Ontario), Canada Labour Code, Pension Benefits Standards Act (Ontario) or any other provincial, federal or municipal legislation or common law governing employment or labour standards, (the "Labour Laws") or any other statute, regulation or rule of law or equity for any purpose whatsoever, or any collective agreement or other contract between any of the Debtors and any of their present or former employees, or otherwise. In particular, the Receiver shall not be liable to any of the employees of any of the Debtors for any wages (as "wages" are defined in the Employment Standards Act (Ontario)), including severance pay, termination pay and vacation pay, except for such wages as the Receiver may specifically agree to pay. The Receiver shall not be liable for any contribution or other payment to any pension or benefit fund.

Motion Record of the Union, Tab 4

13. In his decision of April 29, 2003 that is the subject of this appeal, Ground, J. did not delete paragraph 15 as requested by the Union, but amended it to insert the words "for the purpose of preserving, protecting and realizing the upon the assets of the Debtors by effecting a sale or sae of the assets or of the business of the Debtors as a going concern or otherwise or for the purpose of effecting an orderly liquidation of the assets of the Debtors." after the word "hereunder" in the seventh line of the order. That revision makes no material difference to the effect of the order whatsoever.

14. After being appointed, the Interim Receiver did not tell the employees of T.C.T. Warehousing that they were terminated, nor did the Interim Receiver tell the employees that the receivership order contained a provision that their employment was terminated. Instead, the Interim Receiver told the employees that operations were continuing "business as usual" and asked for their continuing support and loyalty. The memo provided to the employees states:

This memo is to advise you that KPMG Inc. ("KPMG") has been appointed Interim Receiver of T.C.T. Logistics Inc. and its affiliated companies by the Supreme Court of Ontario.

At this time, it is the intention of KPMG Inc. to continue operations in order to evaluate potential sales of various lines of business.

. . .

Your wages and payments to contract operators will be paid when due. Legitimate expenses should be submitted as usual, for reimbursement. While we appreciate that this will be a difficult time for employees and lease operators, your loyalty and support during this period is important to allow us to maximise the enterprise value for all stakeholders.

KPMG Inc. Guy Odhams, Marc Kelly and Darren Yausie

Memo from KPMG to employees dated January 24, 2002, Lewis Affidavit, supra, Motion Record of the Union, Tab 1(C).

Supplementary Lewis Affidavit sworn January 13, 2003 ("Supplementary Lewis Affidavit"), Motion Record of the Union, Tab 2(A), paragraph 1.

15. The Union consulted with its legal counsel. On February 1, 2002, counsel to the Union wrote to Guy Odhams, Marc Kelly and Darren Yausie of KPMG and also to Donald W. Turple and Robert Linkilde, executives of T.C.T., advising that it is the Union's position that:

• the Collective Agreement remains operative and in full force and effect during the period of continued employment of the employees in the warehouse; and

• if any sale of the warehousing business occurred, the purchaser is to be bound by the Collective Agreement.

Letter from Stephen Wahl to T.C.T. and KPMG, dated February 1, 2002, Lewis Affidavit, supra, Motion Record of the Union, Tab 1(D), paragraphs 2 and 3.

16. There was no response from the Interim Receiver or counsel to the Interim Receiver to the February 1, 2002 correspondence from Union's counsel.

17. On February 22, 2002, the Interim Receiver brought a motion for an order authorizing it to file an assignment in bankruptcy on behalf of T.C.T., including T.C.T. Warehousing. Lax, J. issued the Order. The Union did not receive prior notice of this motion and thus did not attend at the motion.

Order of Madam Justice Lax dated February 22, 2002, Lewis Affidavit, supra, Motion Record of the Union, Tab 1(E).

18. On February 25, 2002, the Interim Receiver (and now also the trustee in bankruptcy) told the employees that a bankruptcy filing had been made but that operations were still continuing on a business-as-usual basis. In a memo to employees, the Interim Receiver stated:

Effective today, T.C.T. Logistics Inc. and its subsidiaries have filed for bankruptcy. This has no effect on existing operations and the ongoing sales process.

Once again, we would like to thank each of you for your continued support and co-operation.

Notice from KPMG to employees dated February 25, 2002, Supplementary Lewis Affidavit, Motion Record of the Union, Tab 2(D), paragraph 5.

19. On April 12, 2002, the Interim Receiver/Trustee entered into a sale agreement with Spectrum to sell T.C.T. Warehousing. The Asset Purchase Agreement provides that the Interim Receiver/Trustee will terminate all employees prior to the closing of the transaction, and that Spectrum would re-hire certain non-unionized employees only. Section 2.2 of the Asset Purchase Agreement states:

[O]n or before the Closing Date, the Vendor shall terminate the employment or continued retainer of all Employees whose employment is not subject to the terms of a Collective Agreement (the "Non-unionized employees") and shall deliver notices of lay-off prior to the Closing Date to those Employees whose employment is subject to the terms of a Collective Agreement (the "Unionized Employees") and the Vendor shall be responsible for delivering notices of lay-off in accordance with the terms of the Collective Agreements and applicable law. All Non-Unionized Employees listed on Schedule "H" attached hereto will be offered employment with the Purchaser on the basis that each Non-Unionized Employee who accepts the Purchaser's offer of employment shall be deemed to be a "new hire" of the Purchaser.

(Emphasis added)

Asset Purchase Agreement, dated April 12, 2002, Lewis Affidavit, supra, Motion Record of Union, Tab 1(I), at 68.

20. The Interim Receiver received five offers from five different interested purchasers and selected Spectrum.

21st Report of KPMG, December 30, 2002, para. 46

21. According to the sale agreement, Spectrum would continue the warehousing business at a new location in Mississauga, not at 137 Horner Avenue. The 137 Horner Avenue warehouse therefore needed to be shut down. The Interim Receiver then retained Spectrum to manage the wind down of the warehousing operations at 137 Horner Avenue and move the business to Mississauga. The Union asserts that the Interim Receiver/Trustee and Spectrum manipulated the move of the warehousing business to Mississauga to deliberately circumvent the application of the Collective Agreement which is clearly location-specific to the 137 Horner Avenue warehouse. Such manipulation is a contravention of sections 70, 72 and 76 of the LRA.

Notice to Employees dated April 16, 2002, Lewis Affidavit, supra, Motion Record of the Union, Tab 1(F), para. 2.

22. The sale agreement between KPMG and Spectrum was executed on April 12, 2002. KPMG did not tell the employees until April 16, 2002 that T.C.T. Warehousing had been sold and that it would be seeking court approval of the sale two days later. Counsel to the Union was not given notice of the sale nor of the court motion scheduled for April 18, 2002 for approval of the sale, which would have been short service under the Rules of Civil Procedure in any event. Without any knowledge of the sale or the motion, counsel to the Union did not attend the motion. The motion proceeded unbeknownst to counsel to the Union before Greer, J. who on April 19, 2002 issued an Order approving the sale. The speed of seeking court approval combined with the lack of notice to Union's counsel combined so that the offensive terms of the sale ousting the Union only became known to the Union and Union's counsel after the sale had been approved by the court.

Lewis Affidavit, supra, Motion Record of the Union, Tab 1, para. 10.

Twenty-First Report of KPMG, December 30, 2002.

23. Having concluded the sale of the warehouse to Spectrum, on May 9, 2002 the Interim Receiver announced for the first time that all unionized employees at the 137 Horner Avenue location would be terminated as of May 16, 2002.

Supplementary Lewis Affidavit, supra, Motion Record of Union, Tab 2, para. 2.

24. Spectrum subsequently handpicked and hired a number of managers and certain, formerly unionized employees from the 137 Horner Avenue warehouse to work at the new Mississauga warehouse, without any regard to the Collective Agreement or the Union seniority list. Spectrum operates the same business as T.C.T. Warehousing without the Union and has set up operations at 6099 McLaughlin Road in Mississauga, Ontario, serving essentially the same clientele as T.C.T. Warehousing. The President of Spectrum is Gordon Crowther, a former executive of T.C.T. who is fully aware that the warehouse employees at 137 Horner Avenue were unionized.

Lewis Affidavit, supra, Motion Record of the Union, para. 13.

25. It is the Union's submission that the sale to Spectrum was clearly manipulated by the Interim Receiver/Trustee and Spectrum to eliminate the Union. The sale has resulted in the loss of jobs for all unionized employees at the 137 Horner Avenue location (except for those few later hand-picked by Spectrum) and the elimination of the Union from the workforce of Spectrum.

26. Upon learning of the terms of the sale that operate to oust the Union from the Spectrum warehouse, the Union immediately instructed its counsel to file applications with the OLRB against the Interim Receiver/Trustee and Spectrum for, inter alia, breaches of sections 70, 72 and 76 of the OLRA. The Union also filed applications with the OLRB seeking a declaration that the Interim Receiver and/or Spectrum is the "successor employer" and/or "related employer" pursuant to sections 69 and 1(4) of the LRA, and an Order for the certification of the Union as the exclusive bargaining agent for the employees of the Spectrum warehouse. The application was filed on May 13, 2002.

27. The OLRB hearings proceeded on July 2, 2002. On August 27, 2002, the Board released its decision and held that it could not hear the applications because leave of the Court must be first obtained under the initial receivership order for applications against the Interim Receiver. The Union subsequently brought a motion before Ground, J. on October 24, 2002 for such leave, an order to delete the requirement to post security for costs, and an order to delete paragraph 15 of the Order. The motion was heard on January 23 and 24, 2003. Ground, J. released his Oral Reasons on April 29, 2003.

Decision of O.L.R.B. dated August 27, 2002, Lewis Affidavit, supra, Motion Record of the Union, Tab 1(M).

28. In his Oral Reasons, Ground, J. did not grant leave, and refused to even consider the applicable tests for leave. Ground, J. did not delete paragraph 15 from the receivership order immunizing the Interim Receiver and concluded that as a result, any hearing before the OLRB would be moot.

29. On May 9, 2003, the Union served a Notice of Appeal to this Court of Ground, J.'s Oral Reasons. The Union perfected its appeal on July 16, 2003 and a date for the appeal hearing was set by the Registrar of this Court for January 28, 2004. The Interim Receiver/Trustee has not filed any responding materials to date.

30. On October 31, 2003, the Interim Receiver/Trustee brought a motion before a panel of this Court to quash the appeal. This Court did not quash but stayed the appeal, and directed the Union to seek leave to appeal before a single judge.

Endorsements of the Ontario Court of Appeal, October 31, 2003 (O'Connor, A.C.J.O., Moldaver, Gillese J.J.A.), Motion Record of the Union, Tab 3

PART III - ISSUES AND THE LAW

The Test for Leave to Appeal

31. The test for leave to appeal under the s. 193 of the BIA is as follows:

The factors to be considered on an application for leave to appeal are: (a) whether the point of appeal is of significance to the practice; (b) whether the point raised is of significance to the action itself; (c) whether the appeal is prima facie meritorious or, on the other hand, whether it is frivolous; and (d) whether the appeal will unduly hinder the progress of the action: Power Consolidated (China) Pulp Inc. v. British Columbia Resources investment Corp. (1988), 19 C.P.C. (3d) 396 (B.C. C.A.); Med Finance Co. S.A. v. Bank of Montreal (1993), 22 C.B.R. (3d) 279, 24 B.C.A.C. 318, 40 W.A.C. 318 (C.A.).

Section 193(e) gives a judge of the Court of Appeal a discretion, but leave should only be granted if the judgment appears to be contrary to law, amounts to an abuse of judicial power, or involves an obvious error, causing prejudice, for which there is no remedy: MacNab v. B.S. & B. Enterprises Ltd. (1951), 32 C.B.R. 53 (Que. K.B.); Re Leard (1994), 25 C.B.R. (3d) 210, 114 D.L.R. (4th) 135 (Ont. C.A.). If the order sought to be appealed from is discretionary, leave will not be granted unless the matter is of importance either to the administration of justice generally or to the respective rights of the parties to litigation: Zurich Indemnity Co. of Canada v. Reemark Rideau Developments Ltd. (1992), 22 C.B.R. (3d) 291, 84 B.C.L.R. (2d) 283, 18 B.C.A.C. 221, 31 W.A.C. 221 (C.A.).

R.J. Nicol Construction Ltd. (1995) 30 C.B.R. 95 (Ont. C.A.)

West Edmonton Mall Property Inc. v. Duncan & Craig, [2001] A.J. No. 158 (Alta C.A.) paras. 8-9

(a) The point(s) of the appeal is of significance to the practice

32. An issue that affects a large number of insolvencies and is not limited to the case at bar is clearly an issue of significance to the practice. There are a number of points in this appeal that are of significance to the practice that affect all insolvencies and bankruptcies where employees are employed to keep operating the business until it is sold. This is an area of great concern to employees, labour counsel and should also be to receivers and trustees. Thus court needs to settle the law and clarify the rules for the practice.

Re Baker (1995) 22 O.R. (3d) 376 (C.A.)

33. First, the current practice that exists in the Ontario Commercial List is that judges routinely issue lengthy "boiler plates" style orders pre-drafted by counsel to a secured creditor and receiver or trustee and presented to the Court on ex parte motions. Such orders are replete with provisions that suspend the operation of provincial statutes, in particular, statutes whose sole purpose is to protect employees. The Court in Re Big Sky comprehensively reviewed precisely such an order and ruled that it contained numerous illegal and inappropriate provisions (such as those contained in paragraph 15 of the January 24, 2002 receivership order) and ordered that such provisions be removed. The Big Sky case is a subject of a front page article in the Ontario Bar Association's Insolvency News (October 2002). The Ontario Commercial List has not adopted the decision in Big Sky. Clearly, the practice of the Ontario Commercial List issuing Orders on ex parte motions which contains provisions that another Bankruptcy Court has ruled are illegal and inappropriate is an issue of great importance to the practice upon which this Court needs to rule.

Re Big Sky Living Inc. (2002) A.J. No. 886 (Alta. Q. B.)

Ontario Bar Association Insolvency News, Volume 18, No. 1 (October 2002)

34. The OLRB in the case at bar also expresses confusion over how Ground, J. can issue the type of order he did. In referring to the initial receivership order of Ground, J. of January 24, 2002, the OLRB states:

There is no doubt that the Board has jurisdiction to deal with applications of the kind before us. . . . The order does not on its face explain, how, despite what appears to be the Board's exclusive statutory jurisdiction, the Ontario Superior Court of Justice has the authority to determine that KPMG is not a successor employer or related employer within the meaning of the Act, or that the appointment of KPMG as interim receiver does not constitute a sale of the business of any of the debtors pursuant to the Act.

Decision of the OLRB, August 27, 2002, para. 12, Lewis Affidavit, Tab "M"

The Cases Dealing with the Status of Collective Agreements in a bankruptcy are Conflicting, Contradictory and Incorrect.

35. Bankruptcy does not terminate a collective agreement A collective agreement is a creature of statute, the LRA. It can only be brought to life under the LRA and similarly can only be terminated under the provisions of the LRA. Section 58(3) of the LRA states:

Early Termination of Collective Agreements

(3) A collective agreement shall not be terminated by the parties before it ceases to operate in accordance with its provisions or this Act without the consent of the Board on the joint applications of the parties.

LRA, ss. 16, 17 and 58(3)

The current confused state of the law on this point does not reflect the clear provisions of the LRA. Rather the courts have recently held that:

a) bankruptcy terminates collective agreements (St. Mary's Paper (dissent) 588872 Ontario Limited, Associated Freezers Ltd, infra.)

b) bankruptcy does not terminate collective agreements (Saan Stores, Re Jeffrey Mines CCAA proceedings, infra);

c) bankruptcy places collective agreements into a state of "suspended animation" (Re Royal Crest Lifecare, infra).

The confused state of the caselaw originates from the dissent of Abella, J.A. of this Court in St. Mary's Paper where she stated in one sentence:

Contracts of employment with employees, including collective agreements, terminate with bankruptcy.

Re St. Marys Paper Inc. (1994) 26 C.B.R. (3d) 273 (Ont. C.A.) at 291

36. About one year later, Spence, J. in Re 588871 Ontario Ltd. adopted that single sentence from the dissent of Abella, J.A. in St. Marys Paper and also wrote that collective agreements terminates on bankruptcy. Spence, J. went on to say that since the collective agreement terminated would be inconsistent to grant leave to the union to proceed against the trustee in bankruptcy before the OLRB for a declaration that the trustee is a successor employer. He dismissed the motion by the Union for leave to commence such proceedings.

Re 588871 Ontario Ltd. (1995), 33 C.B.R. (3d) 28 (Ont. Ct. Gen. Div.)

After Re 588871 Ontario Ltd., the Nova Scotia Supreme Court in Associated Freezers of Canada Inc. also adopted the dissent of Abella, J.A. in St. Mary's Paper that bankruptcy terminates a collective agreement. The decision was upheld in the Nova Scotia Court of Appeal.

Associated Freezers of Canada Inc. (Trustee of) v. Retail, Wholesale Canada, Local 1015 (1995), 36 C.B.R. (3d) (N.S.C.T.D.), aff'd (1996), 39 C.B.R. (3d) 311 (N.S.C.A.)

37. However, a soon after Associated Freezers, the Nova Scotia Court of Appeal again, this time in Saan Stores Ltd., (in dismissing a judicial review application of a decision of the Nova Scotia Labour Relations Board that found the purchaser of a business out of a bankruptcy to be a successor employer) overruled the Court's own decision in Associated Freezers on the point that collective agreements terminate in a bankruptcy. The Court in Saan states:

. . .

In my opinion, statements in the case law that bankruptcy terminates employment contracts, including collective agreements are broad and, therefore, subject to misinterpretation and misapplication when taken out of context. In my opinion, the statements in the case law stand only for the proposition that the relationship of the employer and employee is terminated as between the bankrupt employer and the employees on the bankruptcy of the employer.

A review of the decision of the Supreme Court of Canada in Rizzo and the majority decision of the Ontario Court of Appeal in St. Mary's Paper has led me to conclude that, although employment is terminated by bankruptcy, the termination of the employer/employee relationship between the bankrupt and the employee does not necessarily terminate benefits the terminated employee is entitled to by reason of statutory schemes. Statutes providing such benefits are to be given a liberal interpretation so as to achieve their objective.

Applying this reasoning I am of the opinion that the statutory scheme created by s. 31(1) of the Trade Union Act to protect employees from the loss of their rights under the collective agreement on the sale of the employer's business is not rendered inappropriate by reason of the bankruptcy of the employer.

Saan Stores Limited v. N.S. Labour Relations Board (1999), 172 D.L.R. (4th), at 151

38. In the recent case of Re Royal Crest Lifecare Group, (currently under appeal in this Court) the caselaw veers off into a third direction. Farley, J. does not follow St. Mary's, 588871 Ontario Ltd, Associated Freezers or Saan Stores. Instead he introduces a new concept that a collective agreement is not terminated in a bankruptcy "but rather it is put into suspended animation, to be revived, if, as, and when a purchaser with a personal economic interest in the operation of the business acquires the business."

Re Royal Crest Lifecare Group (2003), 40 C.B.R. (4th) (Ont. Sup. Ct. Just.), para. 30

39. The conclusion by Farley, J. in Royal Crest Lifecare that a collective agreement is put into a state of "suspended animation" in a bankruptcy is as incorrect as the statements in St. Mary's, 588871 Ontario Ltd and Associated Freezers that a collective agreements terminates on bankruptcy.

40. In the recent Quebec case of Re Jeffrey Mines the Quebec Court of Appeal ruled that a collective agreement continues in force and must be abided by the monitor of a company under CCAA protection who continues to employ employees to run the business.

Re Syndicat national de l'amiante d'Asbestos inc. v. Jeffrey Mines Inc. (2003) Carswell Que. 90 (Que. C.A.), paras. 51, 52 and 61

41. That holding in Jeffrey Mines case has prompted Quebec-based companies, such as Air Canada and Ivaco Ltd., to intentionally select the Ontario Commercial List as the court of choice to file for CCAA protection in order to avoid the ruling in Jeffrey Mines that collective agreement must be abided by if a monitor (or receiver or trustee) continues to employ employees. It is well acknowledged in the practice that the law in Ontario on this point is not clear and that the Ontario Commercial List will issue orders that suspend the application of provincial employment laws to immunize companies, receivers and trustees from the application of collective agreements and provincial employment statutes. The law and practice needs to be urgently reviewed by this Court and settled.

42. Further, the public's perception of the legitimacy and fairness of the insolvency process would certainly be questioned where employment and labour statutes, whose purpose is to protect employees, are being suspended by court orders. The Court should place significant weight upon this factor and for this reason grant leave to appeal.

43. There is also considerable confusion and ill-founded fear in the practice about whether a trustee or an interim receiver, if held to be a successor employer or related employer under the LRA, will become personally liable for amounts owing to the employees. A trustee or a receiver will not become personally liable. A finding that a trustee or an interim receiver is a successor employer by the LRA will give rise to the obligation on that trustee or interim receiver to abide by the terms of the collective agreement while it employs employees to continue running the business. and in particular, to compensate employees in accordance with a collective agreement. This result is exactly consistent with the ruling of the Quebec Court of Appeal in Re Jeffrey Mines. A trustee or an interim receiver will not become personally liable for amounts owing to employees anymore than management of a company are personally liable for debts of the company.

44. Practically speaking, if an interim receiver or trustee abides by the terms of a collective agreement while it continues to employ employees to operate a business, it will not attract an application by a union to have the interim receiver or trustee declared a successor employer or related employer.

45. The fear that a trustee or an interim receiver would become personally liable if found to be a successor employer by the OLRB undoubtedly led the court in 588871 Ontario Ltd. and more recently, Re Royal Crest Lifecare to justify the issuance of initial orders that state that they are not to be deemed a successor employer or related employer under the LRA and employment statutes. This issue also needs to be clarified by this Court in order to prevent such in terrorem arguments from being successfully used before Commercial List Judges.

Re 588871 Ontario Ltd., supra, at 33

Royal Crest, supra, para. 26-28

(b) The point(s) raised are of significance to the action itself

46. There is no doubt that this appeal is significant to the action itself. The LRA is crystal clear that it has exclusive jurisdiction over matters involving labour relations. The Union can only apply to the OLRB to have these matters adjudicated. The Supreme Court of Canada confirmed in Weber that matters of labour relations should only go before the applicable labour relations board and not the courts. The proceedings filed by the Union before the OLRB can only proceed if leave is obtained under the initial receivership order, which Ground J. refused to grant. The Union has no other remedy with which to pursue the Interim Receiver for its breaches of the LRA and a declaration that the Interim Receiver is a successor employer other than to apply to the OLRB. If leave is not obtained from this Court, the result will be that the Interim Receiver will have committed clear contraventions of ss. 70, 72 and 79 of the LRA without any consequence or penalty.

Weber v. Ontario Hydro (1995), 125 D.L.R. (4th) 583 (S.C.C.)

(c) The appeal is prima facie meritorious

47. The appeal to this Court requests that this Court overturn the decision of Ground, J. of April 24, 2003 and grant leave to the Union to continue its proceedings before the OLRB against the Interim Receiver for breaches of ss. 70, 72 and 79 of the LRA (unfair labour practices) and a declaration that the interim receiver is a "successor employer" or a "related employer" and thus bound by the terms of the Collective Agreement. The decision of Ground J. in failing to even consider the applicable tests for leave, as set out in prior decisions of this Court, is already enough to demonstrate that the appeal is meritorious.

48. The appeal to this Court also asks that this Court grant the leave that was initially requested by the Union in the motion before Ground, J. The test for granting leave under a receivership order to take proceedings against an interim receiver, (such as the January 24 receivership Order), is that the court will grant leave unless the action is frivolous or vexatious. The test is not onerous and is designed to protect an interim revive r from frivolous or vexatious actions only. It is not to stop meritorious actions against an interim receiver from proceeding or to allow an interim receiver to breach provincial employment statutes with impunity. The facts of the case at bar clearly establish a prima facie case against the interim receiver. The case against the interim receiver is definitely neither frivolous nor vexatious. The appeal is entirely meritorious.

Gallo v. Beber (1981), 31 C.P.C. (4th) 60 (Ont. C.A.), para. 7

RoyNat Inc. v. Allan (1988), 69 C.B.R. (N.S.) 245 (Alta. Q.B.)

49. Further, the Court will be even more inclined grant leave to take proceedings against an interim receiver when the matter relates specifically to employees and collective bargaining, as is the case here.

I.W.A., Local 1-324 v. Wescana Inn Ltd. (1977), 82 D.L.R. (3d) 368 (Man. C.A.), para. 26

50. The test for leave under section 215 of the BIA is nearly identical to the test for leave under a receivership order. A court will grant leave to take proceedings against a trustee in bankruptcy where the proceedings are not frivolous or vexatious and there is some factual foundation for the claim. Again, the test is not onerous and readily met in this case.

Society of Composers, Authors & Music Publishers of Canada v. Armitage (2000), 50 O.R. (3d) 388 (Ont. C.A.), para. 2

Mancini (Trustee of) v. Falconi (1993), 61 O.A.C. 332 (Ont. C.A.), para. 7

51. Once this matter can proceed before the OLRB, the Union's case is entirely meritorious there as well. The OLRB has held that a plant relocation to a jurisdiction outside the geographic scope of the Collective Agreement and where the same clientele is being served constitutes an unfair labour practice under the LRA.

Adams, G. Canadian Labour Law (2 ed.), (loose-leaf, November, 2003)

United Electrical, Radio & Machine Workers of America, Local 504 v.

Westinghouse Canada Ltd., 80 C.L.L.C. 16, 053 (Ont. Div. Ct.)

Humpty Dumpty Goods Ltd. 78 C.L.L.C. 16, 136 (O.L.R.B.)

52. Labour boards have in numerous cases recognized a court-appointed receiver as a successor employer under labour standards legislation.

H&S Reliance Ltd., [1998] O.L.R.D. No. 4087

Re Wilson Place Management Ltd., [1997] B.C.L.R.B. No. 397

Vulcan Containers Ltd., [1997] O.R.L.D. No. 2662 (O.L.R.B.)

National Automobile, Aerospace and Agricultural Implement Workers' Union of Canada (CAW-CANADA) Local 2171, and Imperial Optical Company Limited and Peat Marwick Thorne Inc. (1994), B.C.L.R.B. No. B148/94

Weldco-Beales and Peat Marwick Thorne Inc. and International Union of Operating Engineers, Local 115 (May 24, 1991), No. C103/91 (B.C.I.R.C.)

12403 Holdings Ltd. (Northern Park Inn) Campbell, Saunders Ltd. and Hotel, Restaurant & Culinary Employees and Bartenders Union, Local 40, (January 25, 1998), No. C24/88 (B.C.I.R.C.)

RASL Ventures Ltd. and 289133 B.C. Ltd. c.o.b. as the Chetwynd Hotel (1986) B.C.L.R.B. No. 209/87

Maritime Life Assurance Co. v. Chateau Gardens (Hanover) Inc. et al, (1983), 2 D.L.R. (4th) 553 (Ont. H.C.J.)

(d) The Appeal will not unduly hinder the progress of action

53. The appeal will not unduly hinder progress of the action at all. There is no claims process for unsecured creditors, not will there be one due to the amounts owed by T.C.T. to the secured creditor, GMAC. The Union does not seek an order to set aside the sale of T.C.T. Warehousing by the Interim Receiver/Trustee to Spectrum. The appeal relates to the treatment of the Union representing employees of T.C.T. Warehousing by the Interim Receiver/Trustee, the failure of the Interim Receiver/Trustee to abide by the terms of the Collective Agreement and the manipulation of the sale of the warehousing business to eliminate the Union for which damages are sought.. The liquidation of the T.C.T. group of companies can certainly continue without any undue hindrance if this appeal proceeds.

Additional Factors

(e) The reasons of Ground, J. are contrary to law

54. The Court will also consider if the decision at issue in the appeal is contrary to law. The decision of Ground, J. falls easily within this requirement. In the case of West Edmonton Mall, the Alberta Court of Appeal granted leave to appeal under this test on the basis that the master "may have erred" in his application of a statute.

West Edmonton Mall, supra, para. 12

55. First, in upholding paragraph 15 of his order that the Interim Receiver/Trustee was not to be deemed a "successor employer" or "related employer" under the LRA and other employment statutes and refusing to grant leave, Ground, J.'s decision contravenes section 116 of the LRA and is thus contrary to law. Section 116 expressly bars a court from issuing any order that prohibits or restrains the activities of the OLRB:

116. No decision, order, direction, declaration or ruling of the Board shall be questioned or reviewed in any court, and no order shall be made or process entered, or proceedings taken in any court, whether by way of injunction, declaratory judgment, certiorari, mandamus, prohibition, quo warranto, or otherwise in question, review, prohibit or restrain the Board or any of its proceedings.

(Emphasis added)

LRA, ss. 114, 116

56. The Supreme Court of Canada made it clear in Weber that the courts do not have jurisdiction over disputes whose essential character arise from a collective agreement, as is the case here. In ordering that the Interim Receiver was not a successor employer under the LRA, Ground, J. acted beyond the court's jurisdiction and decided the issue himself, which the Supreme Court has held a court cannot do.

Weber v. Ontario Hydro, supra.

57. Second, Ground, J. went far beyond the provisions of sections 47 of the BIA and section 101 of the CJA, the sections that authorize a court to appoint an interim receiver.

58. There is no authority under section 47 of the BIA to permit a court to issue an order declaring that an interim receiver is not a successor employer under the LRA. The language of section 47 of the BIA is clear and only authorizes a court to issue an order to appoint an interim receiver and direct an interim receiver to do certain things. It does not authorize a Court to order that an interim receiver is not to be deemed a successor employer or related employer under the LRA and labour statutes while it continues to employee employees to continue operating the business. If Parliament wished to give the court the power to issue such an order, it could easily have inserted such language into s. 47 of the BIA. Parliament did not.

BIA, s. 47

59. Further, there is no suggestion that Parliament ever intended to grant the court any such authority, particularly considering that in other places, the BIA expressly exempts a trustee and an interim receiver from environmental statutes. There is no similar exemption for employment statutes. The conclusion is clear that the Parliament intended for employment statutes to continue to apply and operate in receivership or bankruptcy proceedings.

BIA, ss. 14.06(1.2), 47

60. Similarly, there is nothing in section 101 of the Courts of Justice Act to authorise or even suggest that a court has the power to issue an order that an interim receiver shall not be deemed to be a successor employer or related employer under labour and employment statutes.

CJA, s. 101

61. The Court in Big Sky held that an order appointing an interim receiver should only include provisions that are necessary to appoint the receiver and to enable it to accomplish its tasks of preserving and protecting the assets of the debtor. Provisions such as those contained in paragraph 15 of the initial receivership order are contrary to law and have no place in an initial receivership order.

Re Big Sky, supra

62. Further, it is settled law that a court cannot relay on inherent jurisdiction to issue an order that contravenes statute law.

Baxter Student Housing Ltd. v. College Housing Cooperative Ltd., [1975] 57 D.L.R. (3d) (S.C.C.), at p. 4

Canadian Imperial Bank of Commerce v. Wildflower Productions Inc. (2001) 197 D.L.R. (4th) 92 (B.C.C.A.)

63. Accordingly, there is absolutely no legal basis for Ground, J.'s decision to maintain paragraph 15 in the initial receivership order. The Reasons of Ground, J. are contrary to law in numerous places. Leave to appeal to this Court should be granted on this ground alone.

(f) The reasons of Ground, J. are an abuse of judicial power

64. Another factor that the Court will consider in deciding whether to grant leave to appeal is whether the decision constitutes an abuse of judicial power. The decision of Ground, J. meets this test.

65. In refusing to delete paragraph 15 of the Receivership Order, Ground J. intentionally immunizes the interim receiver from the application of the LRA, the Employment Standards Act, 2000 and the Pension Benefits Act as well as from proceedings before the OLRB and the Financial Services Commission of Ontario. The decision prohibits employees from enforcing their rights before the OLRB (or FSCO) for breaches of said employment statutes committed by the interim receiver. Without any legislative authority (as is the case here), such intentional immunization is an abuse of judicial power.

66. With respect, the disregard of provincial statute law should be of serious concern to this Court. A court should not be permitted to override statutes, which are an expression of legislative will, without specific jurisdiction to do so. This concern is heightened considering that the clear legislative purpose of such employment statutes is to protect employees.

(g) The reasons of Ground, J. involve an obvious error(s)

67. The Court will also examine whether or not the decision involves an obvious error for which there is no other remedy. Ground, J. made a number of obvious errors which cause serious prejudice to the Union and for which there is no other remedy but to appeal to this Court.

68. In addition to Ground, J.'s incorrect reliance on section 47 of the BIA, section 101 of the CJA and his disregard of section 116 of the LRA - which in and of themselves constitute serious and obvious errors - Ground, J. also made a number of additional obvious errors.

69. Ground, J. did not even consider granting leave in respect of the breaches of ss. 70, 72 and 79 of the LRA (unfair labour practices) by the interim receiver or the applications filed for a declaration that the interim receiver/trustee was a "related employer" under s. 1(4) of the LRA, which were part of the relief requested in the Union's motion. Instead, Ground, J. focussed entirely on the "successor employer" aspect. Failing to deal with other specific request for relief, which in and of itself would have justified granting leave, is an obvious error warranting appellate review.

70. Ground, J. also misapplied the "ancillary" and "necessarily incidental" doctrines of constitutional law to conclude that he has jurisdiction under section 47 of the BIA to issue an Order that that includes a provision that an interim receiver is not a successor employer. These doctrines are used in the analysis of the constitutionality of an impugned law, or aspect of a law, where a reviewing court must measure the degree of encroachment a legislative scheme has on the other government's sphere of power, and then determine how necessary the impugned provision is to the otherwise valid legislative scheme.

Hogg, P.W., Constitutional Law of Canada, Vol. 1, at pp. 15-35, 15-40

71. These constitutional law doctrines are applicable to an impugned statute or regulation, not a court order. Ground, J. made a serious error in reviewing his own court order in the context of these constitutional law doctrines and concluding in his order that an interim receiver is not a successor employer under the LRA is "necessarily incidental" to an interim receiver performing its functions in realising the debtor's assets. The reliance on these constitutional law doctrines is completely misplaced and cannot be relied on to permit the Court to neutralize the entire fabric of employment and labour statutes in insolvency proceedings.

72. Second, Ground, J. also made an obvious error in failing to even consider the applicable tests for leave which are clearly set out in the caselaw. The Union would have readily have met the tests for leave had they been granted.

73. There is no other remedy for these errors other than to appeal to this court to set aside the decision of Ground, J. The Order of Ground, J. completely shuts down the application of employment and labour statutes and immunizes the Interim Receiver/Trustee from being called to task for its breaches of the LRA.

74. This is an area where the law is in a confused and unsettled and urgently needs to be clarified by this Court. The decision of Ground, J. is contrary to law, an abuse of judicial power and involves obvious errors for which there is no other remedy to the Union. Leave to appeal to this court should be granted.

PART IV - ORDER REQUESTED

75. The Union respectfully requests that leave to appeal from the Order of Ground, J. dated April 29, 2003 to this Court be granted.

76. The Union requests its costs of this motion on a substantial indemnity scale.

ALL OF WHICH IS RESPECTFULLY SUBMITTED

December 8, 2003 KOSKIE MINSKY
Barristers & Solicitors
20 Queen Street West, Suite 900, Box 52
Toronto, ON M5H 3R3

_____________________________
Stephen Wahl (LSUC#: 17201O)


_____________________________
Andrew J. Hatnay (LSUC#: 31885W)

Tel: 416-977-8353
Fax: 416-977-3316

Counsel to the Union (Appellant)

SCHEDULE “A”
LIST OF AUTHORITIES

1. R.J. Nicol Construction Ltd. (Trustee of) v. Nicol, [1995] O.J. No. 48 (Ont. C.A.)

2. West Edmonton Mall Property Inc. v. Duncan & Craig, [2001] A.J.
No. 158 (Alta. C.A.)

3. Baker (Re) (1995), 22 O.R. (3d) 376 (Ont. C.A.)

4. Re Big Sky Living Inc., [2002] Carswell Alta. 875 (Alta. Q.B.)

5. Ontario Bar Association Insolvency News, Volume 18, No. 1 (October, 2002)

6. Re St. Marys Paper Inc. (1994), 26 C.B.R. (3d) 273 (Ont. C.A.)

7. Re 588871 Ontario Ltd. (1995), 33 C.B.R. (3d) 28 (Ont. Ct. Gen. Div.)

8. Associated Freezers of Canada Inc. (Trustee of) v. Retail, Wholesale Canada,
Local 1015 (1995), 36 C.B.R. (3d) (N.S.C.T.D.), aff'd (1996), 39 C.B.R.
(3d) 311 (N.S.C.A.)

9. Saan Stores Limited v. N.S. Labour Relations Board (1999), 172 D.L.R. (4th)

10. Re Royal Crest Lifecare Group (2003), 40 C.B.R. (4th) (Ont.S.C.J.)

11. Re Syndicat national de l'amiante d'Asbestos inc. v. Jeffrey Mines Inc. (2003),
Carswell Que. 90 (Que. C.A.)

12. Weber v. Ontario Hydro (1995), 125 D.L.R. (4th) 583 (S.C.C.)

13. Gallo v. Beber (1981), 31 C.P.C. (4th) 60 (Ont. C.A.)

14. RoyNat Inc. v. Allan (1988), 69 C.B.R. (N.S.) 245 (Alta. Q.B.)

15. I.W.A., Local 1-324 v. Wescana Inn Ltd. (1977), 82 D.L.R. (3d) 368 (Man. C.A.)

16. Society of Composers, Authors & Music Publishers of Canada v. Armitage (2000),
50 O.R. (3d) 388 (Ont. C.A.)

17. Mancini (Trustee of) v. Falconi (1993), 61 O.A.C. 332 (Ont. C.A.)

18. Adams, G. Canadian Labour Law (2ed), (loose-leaf, November, 2003)

19. United Electrical, Radio & Machine Workers of America, Local 504 v.
Westinghouse Canada Ltd., 80 C.L.L.C. 16, 053 (Ont. Div. Ct.)

20. Humpty Dumpty Goods Ltd., 78 C.L.L.C. 16, 136 (O.L.R.B.)

21. H&S Reliance Ltd., [1998] O.L.R.D. No. 4087

22. Re Wilson Place Management Ltd., [1997] B.C.L.R.B. No. 397

23. Vulcan Containers Ltd., [1997] O.R.L.D. No. 2662

24. National Automobile, Aerospace and Agricultural Implement Workers' Union of
Canada (CAW-CANADA) Local 2171, and Imperial Optical Company Limited and
Peat Marwick Thorne Inc. (1994), B.C.L.R.B. No. B148/94

25. Weldco-Beales and Peat Marwick Thorne Inc. and International Union of Operating

Engineers, Local 115 (May 24, 1991), No. C103/91 (B.C.I.R.C.)
26. 12403 Holdings Ltd. (Northern Park Inn) Campbell, Saunders Ltd. and Hotel,
Restaurant & Culinary Employees and Bartenders Union, Local 40,
(January 25, 1998), No. C24/88 (B.C.I.R.C.)

27. RASL Ventures Ltd. and 289133 B.C. Ltd. c.o.b. as the Chetwynd Hotel (1986)
B.C.L.R.B. No. 209/87

28. Maritime Life Assurance Co. v. Chateau Gardens (Hanover) Inc. et al, (1983),
2 D.L.R. (4th) 553 (Ont. H.C.J.)

29. Baxter Student Housing Ltd. v. College Housing Cooperative Ltd., [1975]
57 D.L.R. (3d) (S.C.C.)

30. Canadian Imperial Bank of Commerce v. Wildflower Productions Inc. (2001),
197 D.L.R. (4th) 92 (B.C.C.A.)

31. Hogg, P.W., Constitutional Law of Canada, Vol. 1

32. Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 47, 14.06, 193 and 215

33. Labour Relations Act, 1995 (Ontario), S.O. 1995, c.1

34. Courts of Justice Act, R.S.O. 1990, c. C.43, s. 101(1)

SCHEDULE “B”
LIST OF STATUTES

1. Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 47, 14.06, 193 and 215;

2. Labour Relations Act, 1995 (Ontario), S.O. 1995, c. 1;

3. Courts of Justice Act, R.S.O. 1990, c. C.43, s. 101(1).

 

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