The Supreme Court docket of Canada (SCC) has granted go away to enchantment the choices of Ernst & Younger Inc. v. Aquino (Aquino) and Golden Oaks Enterprises Inc. v. Scott (Golden Oaks), which each deal with the company attribution doctrine within the insolvency context. Typically, the company attribution doctrine imputes the actions, intent and/or information of an organization’s “directing thoughts” to the respective company. Key variations between how Aquino and Golden Oaks apply the company attribution doctrine and preliminary intervenor arguments are mentioned in our earlier Blakes Bulletin: Company Attribution in Insolvency: Key Variations Between Aquino and Golden Oaks.
Since publishing our newest bulletin, the Insolvency Institute of Canada (IIC), a number one non-profit business affiliation selling thought management within the business insolvency observe, and the Legal professional Common for Ontario (AGO) have filed facta containing their views to the SCC in respect of the company attribution doctrine. The IIC has moreover filed go away to intervene movement supplies with respect to a discrete set-off difficulty in reference to part 97(3) of the Chapter and Insolvency Act (BIA), with such go away not too long ago granted by the SCC. This bulletin summarizes the IIC and AGO’s intervenor facta on the company attribution doctrine, in addition to the IIC’s extra factum with respect to a set-off difficulty in reference to part 97(3) of the BIA.
IIC and AGO Factum Arguments
The IIC confirms in its factum that it intervenes in Aquino to (1) make clear that the company attribution take a look at created in Canadian Dredge & Dock Co. v. The Queen (Dredge) was not meant to be all-encompassing, and (2) advocate that the SCC affirm the supply of exceptions to the “identification doctrine.”
The IIC submits that Dredge is the main authority on the identification doctrine in Canadian widespread regulation. The company identification doctrine applies the place the motion taken by the directing thoughts of an organization (i) was throughout the subject of operation assigned to the related particular person, (ii) was not completely in fraud of the company, and (iii) was by design or consequence for the good thing about the corporate. If the take a look at is happy, the actions, intent and information of the directing thoughts will be attributed to the company. The doctrine, nonetheless, acknowledges policy-driven “defenses,” in any other case known as exceptions. In Deloitte & Touche v. Livent Inc. (Livent), the SCC constructed on the reasoning in Dredge concerning exceptions to the applying of the doctrine, by refraining from making use of the company attribution doctrine.
At difficulty in Liventamongst different issues, was whether or not the auditor was negligent in gentle of fraud dedicated by Livent Inc.’s principals. The auditor defended itself within the proceedings on the premise that, amongst different grounds, the fraud carried out by the principals ought to be attributed to Livent Inc. in order to forestall Livent Inc. from recovering damages in opposition to the auditor. The SCC shunned making use of the company attribution doctrine on this circumstance because of the context and function of the statutory audit at difficulty (primarily to detect wrongdoing) and decided that it was not within the public curiosity to use the doctrine. Dredge and Livent collectively verify that exceptions to the strict utility of the identification doctrine exist based mostly on the related context wherein the company attribution doctrine arises and the aim of making use of such doctrine.
The IIC recommends in its factum that the context and function of a selected statutory provision at difficulty ought to information the company attribution evaluation. It submits that the parliamentary function for enacting a selected statutory provision shouldn’t be displaced to attain broader coverage aims. An exception to the identification doctrine would solely be warranted if the applying of the company attribution doctrine wouldn’t result in the core purpose of the availability at difficulty, which in sure circumstances could also be creditor restoration, however not in all circumstances. To additional illustrate its level, the IIC distinguishes between the needs of part 96 (creditor restoration) and sections 71 and 30(1)(d) of the BIA (collectively, to advance claims as a successor to the debtor) to point out that the company attribution evaluation is a case-specific method. In sum, the aim of a provision wants to tell any company attribution evaluation, which mustn’t merely consequence within the related court docket catering to broader public coverage issues and approving “no matter consequence most maximizes creditor restoration.”
The AGO factum gives related steering, albeit by a broader scope. The AGO views the appeals of Aquino and Golden Oaks as a chance for the SCC to make clear the applying of the company attribution doctrine to novel statutory contexts extra broadly as an alternative of limiting its ruling to the insolvency context. Within the occasion that the related laws at difficulty doesn’t comprise provisions to permit for company attribution, the AGO advocates for the same method to the IIC in that the company attribution doctrine should be utilized in a way delicate to and in furtherance of the “textual content, context, and function of the related statutory provision.” Each the AGO and IIC emphasize that their submissions to the SCC is in keeping with the UK’s jurisprudence on company attribution.
IIC Set-Off Arguments
The IIC obtained go away to intervene in Golden Oaks on August 16, 2023 in respect of the Ontario Court docket of Attraction’s (ONCA) ruling that urged permissible set-off pursuant to part 97(3) of the BIA ought to be “confined inside slender limits” to forestall a creditor from attaining the next precedence rating to a basic physique of collectors (insofar as that creditor would obtain full restoration for the set-off quantity). The IIC’s factum on this matter posits that the ONCA’s ruling erroneously privileges one authentic equitable consideration (avoiding one creditor being most well-liked vis-a-vis different collectors) over one other (stopping a creditor with each a debt to and a declare in opposition to a bankrupt as of the date of the related chapter from paying the debt whereas solely recovering a small fraction of its declare in opposition to the bankrupt), and doesn’t observe the express wording in part 97(3) that set-off applies “in the identical method and to the identical extent as if” the set-off have been occurring exterior of the insolvency regime. The IIC accordingly advocates that the SCC ought to merely observe the legislative course offered for in part 97(3) of the BIA and its personal precedent choice, Husky Oil Operations Ltd. v. Minister of Nationwide Incomethat “the celebration claiming set-off has Parliament’s blessing for the ‘reordering’ of his precedence in chapter by advantage of the operation of the regulation of set-off.”
The IIC and AGO facta shed additional gentle on the arguments every intervenor will make earlier than the SCC concerning company attribution and set-off, as relevant. The SCC’s choice on every difficulty will undoubtably present for a major impression on the insolvency regime as soon as rendered.