Full indemnity costs in CCAA proceedings

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In a recent case out of the BC Supreme Court, BuildDirect.com Technologies Inc. (Re.) 2018 BCSC 210, the Court was asked to award full indemnity costs to the monitor, the senior lenders and the interim lenders against a party who had been unsuccessful in an application in CCAA proceedings. 

In an application brought on an expedited basis, the court was asked for a determination as to whether the petitioning debtor company in the CCAA proceedings had entered into an exclusive licensing agreement of its IP in India with In Colour Capital Limited Partnership (“ICC”). If the petitioning debtor had granted such exclusive licensing agreement of its IP, it would greatly affect the petitioning debtor’s ability to restructure so a quick determination was necessary. The court ruled that the existence of the exclusive licensing agreement hadn’t been established. It also made no findings of bad faith or improper motive on the part of ICC.

The petitioning debtor company thereafter sought an order of the court for the legal costs of the monitor, the senior lenders and the interim lenders on a full indemnity basis. The petitioning debtor company argued that: a. the remedial objectives of the CCAA would be best advanced by an award on a full indemnity basis; b. the application had been unmeritorious; and c. the stakeholders of the insolvent company should not be burdened by the costs of the unmeritorious application.

The court held that there must be some special circumstance for an order to be made requiring a participant to pay the other party’s actual legal costs in CCAA proceedings. The court should also be cautious about making such an order in the absence of a contractual right to such costs. Further, there must be specific evidence that full indemnity costs are necessary to prevent material harm to the process of re-organization.

In the end, the court held that an award for full indemnity costs was not appropriate in these circumstances and that party and party costs should be awarded to the petitioning debtor company and to the monitor but not to the lenders (who the court held hadn’t been necessary participants in the application).

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