Harbert Distressed Investment Master Fund Ltd. et al. v. Calpine Canada Energy Finance II ULC et al.,

• Jurisdiction: Nova Scotia
• Judge: Smith
• Neutral Citation: 2005 NSSC 211
• Citation: (2005), 235 N.S.R.(2d) 297 (SC),2005 NSSC 211,235 NSR(2d) 297,(2005), 235 NSR(2d) 297 (SC),235 N.S.R.(2d) 297
• Date: 02 August 2005
• Court: Supreme Court of Nova Scotia (Canada)

Harbert Distressed Inv. v. Calpine Can. (2005), 235 N.S.R.(2d) 297 (SC);

    747 A.P.R. 297

MLB headnote and full text

Temp. Cite: [2005] N.S.R.(2d) TBEd. AU.011

Harbert Distressed Investment Master Fund Ltd. and Wilmington Trust Company (applicants) v. Calpine Canada Energy Finance II ULC, Calpine Canada Resources Company, Calpine European Funding (Jersey) Limited, Calpine (Jersey) Limited and Calpine Corporation (respondents)

(S.H. 245975; 2005 NSSC 211)

Indexed As: Harbert Distressed Investment Master Fund Ltd. et al. v. Calpine Canada Energy Finance II ULC et al.

Nova Scotia Supreme Court

Smith, A.C.J.S.C.

August 2, 2005.

Summary:

Harbert was an investment fund in the business of purchasing or acquiring interests in distressed companies or investments. An international company (Calpine) raised funds to purchase a British power facility by using two subsidiary Nova Scotia companies to issue bonds. Harbert purchased millions of dollars of the bonds below face value, with the expectation that certain assets (sale proceeds of the facility) would be used to redeem the bonds at par value. Calpine purportedly sought to transfer the value of the facility to itself, prejudicing the interest of Harbert by making the sale proceeds unavailable to redeem the bonds. Harbert applied under the Companies Act for an oppression remedy, submitting that the defendants' actions prejudiced it as a creditor. The bond trustee was added as an applicant on behalf of all bondholders. At issue was (1) whether Nova Scotia courts had jurisdiction simpliciter over Calpine (no objection to jurisdiction over the two Nova Scotia companies); (2) whether Harbert had standing to apply for an oppression remedy; and (3) if there was jurisdiction and standing, whether Harbert was entitled to an oppression remedy.

The Nova Scotia Supreme Court held that it had jurisdiction simpliciter over Calpine on the basis of the "real and substantial connection" test. It was unnecessary to resolve the standing issue in light of the bond trustee's involvement as a party on behalf of all bondholders, including Harbert. Although finding that the conduct of Calpine and the two Nova Scotia companies was oppressive in unfairly disregarding the interests of bond holders, Harbert was not entitled to an oppression remedy where it chose to purchase all of its bonds with knowledge of the conduct now complained of. Other unidentified bond holders, who purchased prior to knowledge of the conduct complained of, would be entitled to an oppression remedy.

Company Law - Topic 9781

Actions against corporations and directors - Action for oppressive conduct - When available - Harbert was in the business of purchasing or acquiring interests in distressed companies or investments - An international company (Calpine) raised monies to purchase a British power facility by using two subsidiary Nova Scotia companies that issued bonds - Harbert purchased millions of dollars of the bonds below face value, hoping that certain assets (sale proceeds of the facility) would be used to redeem the bonds at par value - When Calpine sought to transfer the value of the facility to itself, Harbert complained that its interests were prejudiced by the sale proceeds being unavailable to redeem the bonds - Harbert (and the bond trustee on behalf of the other bond holders) applied under the Companies Act for an oppression remedy, submitting that the interests of all bond holders were prejudiced - The Nova Scotia Supreme Court held that all bond holders were proper "complainants" under s. 7(5) of the Act, as bonds were included in "security" - Further, an oppression remedy was available against Calpine as an "affiliate" under the Act - The transactions were oppressive and unfairly prejudicial to Harbert and other bond holders on the basis of their objectively determined reasonable expectations - Their interests were unfairly disregarded, where they were put in a vulnerable position - However, bond purchases made after knowledge of the conduct complained of (all of Halbert's purchases) would not give rise to an oppression remedy - An oppression remedy was available only to those bond holders who purchased prior to knowledge of the questioned transactions - See paragraphs 95 to 193.

Company Law - Topic 9783

Actions against corporations and directors - Action for oppressive conduct - Persons entitled - [See Company Law - Topic 9781 ].

Company Law - Topic 9785

Actions against corporations and directors - Action for oppressive conduct - Oppression, prejudice or disregard of interests - [See Company Law - Topic 9781 ].

Conflict of Laws - Topic 603

Jurisdiction - General principles - Jurisdiction simpliciter - The Nova Scotia Supreme Court considered the following factors in determining whether it would assume jurisdiction simpliciter over a foreign party: "(1) The connection between the forum and the plaintiff's claim; (2) The connection between the forum and the defendant; (3) Unfairness to the defendant in assuming jurisdiction; (4) Unfairness to the plaintiff in not assuming jurisdiction; (5) The involvement of other parties to the suit; (6) The court's willingness to recognize and enforce an extra-provincial judgment rendered on the same jurisdictional basis; (7) Whether the case is interprovincial or international in nature; and (8) Comity and the standards of jurisdiction, recognition and enforcement prevailing elsewhere." - The court also noted that the "real and substantial connection" test "required only a real and substantial connection, not the most real and substantial connection" - See paragraphs 82 to 83.

Conflict of Laws - Topic 603

Jurisdiction - General principles - Jurisdiction simpliciter - An international company (Calpine) financed the purchase of a British power facility by using two subsidiary Nova Scotia companies to issue bonds - An investment fund (Harbert) purchased millions of dollars of the bonds below face value, with the expectation that certain assets (sale proceeds of the facility) would be used to redeem the bonds at par value - Calpine purportedly sought to transfer the value of the facility to itself, prejudicing the interest of Harbert by making the sale proceeds unavailable to redeem the bonds - Harbert applied under the Companies Act for an oppression remedy, submitting that Calpine's actions prejudiced it as a creditor - At issue was whether the Nova Scotia courts had jurisdiction simpliciter over the dispute (i.e. whether the real and substantial connection test was satisfied) - The Nova Scotia Supreme Court held that it had jurisdiction simpliciter over Calpine - Absent assuming jurisdiction, the action would proceed in Nova Scotia against the two subsidiaries, forcing Harbert to commence a separate action against Calpine in another jurisdiction - Given the involvement of the Nova Scotia companies, there was a real and substantial connection with Nova Scotia - See paragraphs 60 to 91.

Cases Noticed:

Morguard Investments Ltd. et al. v. De Savoye, [1990] 3 S.C.R. 1077; 122 N.R. 81; [1991] 2 W.W.R. 217; 76 D.L.R.(4th) 256; 52 B.C.L.R.(2d) 160, refd to. [para. 65].

Hunt v. Lac d'Amiante du Québec ltée et al., [1993] 4 S.C.R. 289; 161 N.R. 81; 37 B.C.A.C. 161; 60 W.A.C. 161, refd to. [para. 65].

Hunt v. T & N plc - see Hunt v. Lac d'Amiante du Québec ltée et al.

Tolofson v. Jensen and Tolofson, [1994] 3 S.C.R. 1022; 175 N.R. 161; 77 O.A.C. 81; 51 B.C.A.C. 241; 84 W.A.C. 241, refd to. [para. 65].

Oakley v. Barry et al. (1998), 166 N.S.R.(2d) 282; 498 A.P.R. 282 (C.A.), leave to appeal refused (1998), 233 N.R. 397; 175 N.S.R.(2d) 400; 530 A.P.R. 400 (S.C.C.), refd to. [para. 80].

O'Brien v. Canada (Attorney General) et al. (2002), 201 N.S.R.(2d) 338; 692 A.P.R. 338 (C.A.), refd to. [para. 81].

Muscutt et al. v. Courcelles et al. (2002), 160 O.A.C. 1; 60 O.R.(3d) 20 (C.A.), refd to. [para. 82].

Incorporated Broadcasters Ltd. et al. v. Canwest Global Communications Corp. et al. (2003), 169 O.A.C. 1; 223 D.L.R.(4th) 627 (C.A.), leave to appeal dismissed (2003), 327 N.R. 196; 195 O.A.C. 200, refd to. [para. 88].

Peoples Department Stores Inc. (Bankrupt) v. Wise (2004), 326 N.R. 267; 244 D.L.R.(4th) 564 (S.C.C.), refd to. [para. 105].

Ferguson and Imax Systems Corp., Re (1983), 150 D.L.R.(3d) 718 (Ont. C.A.), refd to. [para. 107].

Piller Sasusages & Delicatessens Ltd. v. Cobb International Corp. et al., [2003] O.T.C. 590; 35 B.L.R.(3d) 193 (Sup. Ct.), affd. (2003), 179 O.A.C. 290; 40 B.L.R.(3d) 88 (C.A.), refd to. [para. 108].

First Edmonton Place Ltd. v. 315888 Alberta Ltd. (1988), 40 B.L.R. 28 (Alta. Q.B.), revd. (1989), 45 B.L.R. 110 (C.A.), refd to. [para. 109].

Pente Investment Management Ltd. et al. v. Schneider Corp. et al. (1998), 113 O.A.C. 253; 44 B.L.R.(2d) 115 (C.A.), refd to. [para. 110].

SCI Systems Inc. v. Gornitzki Thompson & Little Co. et al. (1997), 29 O.T.C. 148; 36 B.L.R.(2d) 192 (Sup. Ct.), affd. (1998), 110 O.A.C. 160 (Div. Ct.), refd to. [para. 111].

Westfair Foods Ltd. v. Watt et al. (1991), 115 A.R. 34; 79 D.L.R.(4th) 48 (C.A.), refd to. [para. 134].

Ford Motor Co. of Canada Ltd. v. Municipal Employees Retirement Board (Ont.) et al., [2004] O.T.C. 53; 41 B.L.R.(3d) 74 (Sup. Ct.), refd to. [para. 138].

Palmer v. Carling O'Keefe Breweries of Canada Ltd. and Elders IXL Ltd. (1989), 32 O.A.C. 113; 67 O.R.(2d) 161 (Div. Ct.), dist. [para. 155].

347883 Alberta Ltd. v. Producers Pipelines Inc. (1991), 92 Sask.R. 81; 80 D.L.R.(4th) 359 (C.A.), dist. [para. 155].

LSI Logic Corp. of Canada et al. v. Logani et al., [2001] 11 W.W.R. 740; 296 A.R. 201 (Q.B.), refd to. [para. 156].

Royal Trust Corp. of Canada v. Hordo et al., [1993] O.J. No. 1560 (Gen. Div.), refd to. [para. 158].

Richardson Greenshields of Canada Ltd. v. Kalmacoff et al. (1995), 80 O.A.C. 98; 22 O.R.(3d) 577 (C.A.), dist. [para. 159].

Shoom v. Great-West Lifeco Inc. et al. (1998), 67 O.T.C. 345; 40 O.R.(3d) 672 (Gen. Div.), affd. (1998), 116 O.A.C. 278; 42 O.R.(3d) 732 (C.A.), dist. [para. 162].

AMCU Credit Union Inc. v. Olympia & York Development Ltd. (1992), 7 B.L.R.(2d) 103 (Ont. Gen. Div.), refd to. [para. 183].

Statutes Noticed:

Companies Act, R.S.N.S. 1989, c. 81, Third Schedule, sect. 5(1), sect. 5(2) [para. 95]; sect. 5(3) [para. 96]; sect. 7(5)(b) [para. 112].

Counsel:

John L. Finnigan, lead counsel for the applicant, Harbert Distressed Investment Master Fund Ltd.;

Elizabeth Pillon, lead counsel for the applicant, Wilmington Trust Co.;

Roderick H. Rogers, lead counsel for the respondents.

This application was heard on July 6-8 and 27, 2005, at Halifax, N.S., before Smith, A.C.J.S.C., of the Nova Scotia Supreme Court, who delivered the following judgment on August 2, 2005.