Pre-filing claims may be offset by post-filing claims in CCAA proceedings, Supreme Court Judge

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“To discharge its burden of proving that its claim relates to a debt ‘resulting from the obtaining of goods or services under false pretenses or fraudulent misrepresentation”, a creditor must establish, on a balance of probabilities , the following four elements: (i) the debtor makes a representation to the creditor; (ii) the statement was false; (iii) the debtor knew that the statement was false; (iv) the false representation was made to obtain a good or a service, ”wrote Chief Justice Richard Wagner and Justice Suzanne Côté in their majority reasons, with the agreement of Justices Michael Moldaver, Andromache Karakatsanis, Malcolm Rowe and Sheilah Martin.

“The burden on the City was certainly not negligible: it had to prove that Groupe SM had knowingly made a false representation which led to the VRP claim. However, the City deemed it sufficient for this purpose to mention the existence of the claim and did not attempt to prove or even allege any of these elements, presuming or assuming that the VRP claim was the result of fraudulent representations.

The majority also concluded that a court should generally not allow compensation before and after, unless there are exceptional circumstances, and there were none in this case.

“This right of set-off is not to be granted lightly, but there may be cases where it must be granted for the sake of fairness and to respect the rights or the balance of rights of the parties”, specifies Marc. Duchesne, partner in Borden Ladner Gervais LLP in Montreal and lead lawyer for the intervener Union des municipalities du Québec. In this case, he said, the Supreme Court said that “the rule should be that it is normal to have an initial order to suspend the right of set-off”, but it should also be open to a creditor to ask for “Lift this right of suspension,… where the compensation must be compensated.

The decision “confirms all the good principles of the CCAA”, adds Duchesne: “that the supervising judge is the right person to establish whether this assembly should be authorized or not. “

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