Penn Central Transportation Co., Debtor, and
George P. Baker, Richard C. Bond, Willard
Wirtz, Jervis Langdon, Jr. (Applicants)
v.
Banque Canadienne Nationale and Microsystems
International Ltd. (Respondents)
and
Canadian National Railway Co., Central Ver-
mont Railway Inc. and Duluth, Winnipeg and
Pacific Railroad Co. (Mises -en-cause)
Trial Division, Noël A.C.J.—Montreal, May 30;
Ottawa, June 7, 1972.
Railways—Scheme of arrangement—Actions by creditors
in Quebec Superior Court—Motion for restraining order—
Railway Act, R.S.C. 1970, c. R-2, s. 95.
On April 15, 1971, Microsystems brought action in the
Quebec Superior Court against the Penn Central and the
trustees of its property, and garnisheed before judgment
moneys held by the C.N.R. The Banque Canadienne Natio-
nale intervened in that action on March 10, 1972, with the
request, inter alia, that the sum garnisheed be paid into
court and held for distribution to the Penn Central's credi
tors. On March 8, 1972, the Bank commenced an action in
the Quebec Superior Court against the Penn Central and its
trustees. On July 13, 1971, the Penn Central filed in this
Court a scheme of arrangement pursuant to section 95 of
the Railway Act, R.S.C. 1970, c. R-2.
The Penn Central and its trustees applied under section
95(4) of the Railway Act to restrain the Bank until final
adjudication on the scheme of arrangement from proceeding
with its action and its intervention in the Microsystems
action and also for an order restraining Microsystems from
applying to the Quebec Superior Court for an order of
execution against the garnisheed money before judgment in
its action.
Held, Microsystems and the Bank should be restrained
from requesting the Quebec Superior Court for execution
against the garnisheed moneys, but the Bank should not be
restrained at this stage from proceeding with its action in
the Quebec Superior Court.
APPLICATION.
John Claxton for Penn Central Transportation
Co.
W. Tyndale for Banque Canadienne
Nationale.
Alphonse Giard for Canadian National Rail
way Co.
Peter Mackell for Microsystems International
Ltd.
Noa. A.C.J.—This is an application for an
order of restraint under section 95(4) of the
Railway Act of Canada, R.S.C. 1970, c. R-2,
whereby the applicants Penn Central Transpor
tation Company, debtor, and George P. Baker,
Richard C. Bond, Willard Wirtz, Jervis Lang-
don, Jr., trustees of the property of Penn Cen
tral Transportation Company, request that
Banque Canadienne Nationale (BCN), a
respondent herein, refrain from proceeding with
its action against the debtor and its trustees
taken before the Superior Court of the Province
of Quebec on March 8, 1972, and with its
intervention of March 10, 1972, in the action
taken by Microsystems International Ltd.
(Microsystems) (another respondent herein) on
April 15, 1971 in the Superior Court of Quebec
against the debtor and to which action the Tat
ter's trustees are a party by another
intervention.
A further order is also applied for by the
applicants to restrain Microsystems from apply
ing to the Superior Court of the Province of
Quebec for any order for execution or other
process against that property affected by the
seizure by garnishment before judgment in the
hands of Canadian National Railway Company
in the action taken April 15, 1971, by Microsys-
tems, pursuant to any final judgment of the
Superior Court in such action. The orders of
restraint are prayed for until such time as the
scheme of arrangement filed in this Court shall
have been adjudicated upon by final judgment
of this Court or until this Court shall otherwise
order. The restraint order prayed for against
Microsystems is to assure that the property so
seized and placed in the hands of justice shall
so remain for pro rata distribution amongst the
ordinary creditors of the debtor who prove their
claims to the satisfaction of this Court. The
applicants finally request that the Court issue
such orders or conditions and such further
relief as the Court shall determine.
Two actions and one intervention are now
pending before the Superior Court of the Prov
ince of Quebec whereby in one case, Microsys-
tems sued Penn Central Transportation Compa
ny, the debtor, for the sum of $1,712,263.72
accompanied by a seizure by garnishment
before judgment and a sum of $1,800,000 is
now seized in the hands of Canadian National
Railway Company; the BCN was permitted to
intervene in this cause on March 29, 1972, and
by its intervention requests that the Superior
Court order the money seized before judgment
in the Microsystems action be paid into the
Superior Court, that all creditors of the debtor
be called in to such action by public notice and
that the proceeds of the seizure be distributed
to the debtor's creditors pro rata; on March 8,
1972, BCN sued the applicants in the Superior
Court of Quebec for the sum of $3,000,000
with interest thereon. The debtor and the trus
tees of the property of the debtor have contest
ed the action taken by Microsystems as well as
the seizure by the production, respectively, of a
plea and intervention in such action. On July
13, 1971, a scheme of arrangement for the
creditors in Canada of Penn Central Transporta
tion Company and for the continued operation
of its railway business in Canada by the trustees
of its property was filed in this Court pursuant
to section 95(1) of the Railway Act and the
Rules constituting Appendix III to the scheme
of arrangement as approved by this Court by
order dated July 9, 1971. By orders of this
Court dated October 12, 1971, and February 9,
1972, the delays within which a petition for
confirmation of the scheme may be filed pursu
ant to section 97(1) of the Railway Act were
extended to May 31, 1972 and subsequently on
May 29, 1972 to September 30, 1972. On
March 1, 1972, respondent BCN filed a docu
ment entitled "Appearance" in the proceedings
before this Court with regard to the scheme.
In addition to the proceedings taken in the
Superior Court and the "Appearance" before
this Court, BCN filed a proof of claim in the
reorganization proceedings of the applicants
before the District Court of the United States
for the Eastern District of Pennsylvania (the
"Reorganization Court"). According to the
applicants, the filing of such claim in the United
States by a Canadian creditor is deemed to be
the filing of such a claim under the scheme and
any such creditor is thereby exempted from
filing another proof of claim in Canada pursuant
to the scheme.
Applicants submit that the purpose of a
scheme filed under section 95 of the Railway
Act is to permit the continued operation of an
insolvent railway free from harassment by its
creditors pending the maturing of and adjudica
tion upon a scheme of arrangement or proposal
for the orderly treatment of creditors of such
railway under the protection and equitable juris
diction of this Court. Section 95(4) of the Rail
way Act provides that this Court has the power
to restrain any action taken against a railway
which has filed a scheme of arrangement on
such terms as this Court shall think fit to apply.
The applicants say that the action taken by
BCN in the Superior Court constitutes an invi
tation to creditors of the debtor, both within
Canada (estimated to exceed 524 in number)
and elsewhere (estimated to exceed 26,000 in
number) to take similar actions against the
debtor or the trustees in Canada. The applicants
urge that the power of this Court to restrain any
action pending the maturing of the scheme
should be exercised to prevent the railway and
its operation from being torn asunder, ham
pered, impaired or destroyed by litigation.
There will, they say, be no prejudice to the
Bank because the Bank has the right to raise all
issues raised by it in its action before this
Court. They consider the intervention by the
Bank in the Microsystems case as an attempt to
frustrate the orderly process of maturity of the
scheme as contrary to the intent and purpose of
section 95 et seq. of the Railway Act and as
contrary to the interests of creditors, the appli
cants and the interests of justice. Should the
Bank be permitted to proceed with its interven
tion in the above mentioned case, it will,
according to the applicants, achieve indirectly
what it is prohibited by law from doing directly,
namely to effect execution against applicants'
property pending maturity of the scheme with
out leave of this Court in contravention of the
provisions of section 95(6) of the Railway Act.
They also submit that to permit the Bank to
prosecute either of the procedures it has taken
in the Superior Court would prejudice the
public of Canada by impairing the trustees' abil
ity to carry on the railway business of the
debtor in Canada and to perform its obligations
as a common carrier under the laws of, Canada
and it is, they say, just and equitable that this
Court exercise its discretion under sections
95(4) and 95(6) of the Railway Act and restrain
the Bank from proceeding with its action as
well as with its intervention, until such time as
the scheme shall have been adjudicated upon by
final judgment of this Court or until this Court
shall otherwise order. The applicants point out
that the action taken by Microsystems against
the debtor and the seizure by garnishment
before judgment antedates the effective date of
the filing of the scheme before this Court and
involves serious and contentious issues between
the parties thereto and it is right and proper,
they say, that the Superior Court of the Prov
ince of Quebec should try such issues. They
also say that the Superior Court and the Federal
Court are Courts of concurrent jurisdiction with
respect to certain matters involving interprovin-
cial or international railways of which the
debtor is one but that the principle of concur
rent jurisdiction does not permit an issue or
issues between the same parties to be tried in
both Courts nor does it permit one creditor who
has selected one jurisdiction to obtain payment
in preference to other creditors who are subject
to the other jurisdiction where the debtor in
both jurisdictions is one and the same and is
insolvent. The seizure by garnishment, they
point out, is provisional and conservatory and
intended solely to place the property seized in
the hands of justice pending final adjudication
of the issues between the parties and, therefore,
the disposition of the property subject to such
seizure requires a further order of the Superior
Court before it becomes executory and consti
tutes definitive process against the property of
the debtor. Such an order of the Superior Court
is not however, according to the applicants,
necessary to a judgment of such Court deter
mining the legal issues with respect to the exigi-
bility of the claim of Microsystems against the
debtor and the trustees and should the Superior
Court by final judgment in the Microsystems
action adjudicate in favour of Microsystems
and should such adjudication include an order
for execution of such judgment prior to adjudi
cation on the scheme by this Court, the inter
ests of the creditors of the debtor and the
trustees in Canada generally and the Bank in
particular and the interests of justice generally,
they claim, would be prejudiced. It is just and
equitable, they say, that this Court exercise its
discretion under section 95(6) of the Railway
Act and restrain Microsystems from applying to
the Superior Court for any order for execution
or other process against the property affected
by the seizure by garnishment before judgment
in the hands of Canadian National Railway
Company in the action taken April 15, 1971, by
Microsystems until such time as the scheme
shall have been adjudicated upon by final judg
ment of this Court or until this Court shall
otherwise order.
I shall deal first with the order of restraint
requested against Microsystems to prevent the
latter from applying to the Superior Court of
the Province of Quebec for any order for exe
cution or other process against that property
affected by the seizure by garnishment before
judgment in the hands of Canadian National
Railway Company in the action taken April 15,
1971, by Microsystems pursuant to any final
judgment of the Superior Court in such action.
Having regard to section 95(6) of the Railway
Act, it appears that after the publication of
notice of the scheme provided for under the
Act, no execution, attachment or other process
against the property of the company is available
without leave of the Court to be obtained on
summons or motion in a summary way which
should mean that if one wishes to execute or
attach the property of the company, leave
should be obtained from the Court and anyone
who wishes to do so should proceed under that
subsection. Microsystems would, therefore,
have to proceed in this manner if it wanted to
execute or attach the property of the company.
The situation here is, however, somewhat dif
ferent in that the debtor's property seized in the
above action may not require a further order of
the Superior Court before it becomes executory
and constitutes definitive process as the judg
ment which will decide the legal issues with
respect to the exigibility of the claim of
Microsystems against the debtors and the trus
tees may also include, or may result in, as
prayed for, an order for execution of such judg
ment prior to adjudication on the scheme by
this Court although such an order may also
adopt the conclusions prayed for by the BCN in
their intervention in the case which, as we have
seen, requests the Superior Court to order the
money seized before judgment in the Microsys-
tems action be paid into the Superior Court,
that all creditors of the debtor be called in to
such action by public notice and that proceeds
of the seizure be distributed to the debtor's
creditors pro rata.
There is indeed no need to request leave to
execute against the property as f tke proceedings,
as constituted in the Superior Court of the
Province, already contain conclusions for the
execution on the property; counsel for
Microsystems stated during argument that a
request for execution under section 95(6)
would, in any event, be made by him but as
such execution may not be in his hands but in
that of his client, little would be gained by such
an assurance.
It appears to me, therefore, that Microsys-
tems should be restrained from requesting the
Superior Court, or the prothonotary, to give
effect to the conclusions of its action with
respect to the seizure having regard to the
manner in which the execution against the prop
erty of the debtor can be dealt with in the action
as well as in the intervention of the Bank. The
same, indeed, should apply to the Bank in so far
as the conclusions of its intervention in the
Microsystems action is concerned. These con
clusions are that the garnishees pay into Court
for distribution according to law pro rata to the
defendant's creditors, including the Bank, in
proportion to their rights. Now although such
conclusions would appear to be more equitable
in the sense that the amount would be distribut
ed amongst the creditors of the debtor, this
could also mean any creditor, foreign or domes
tic and such a distribution could be contrary in
some respects to the collocation to be made to
the creditors under the scheme filed with this
Court. Such orders of restraint are, in my view,
indicated in order to permit the orderly process
and maturity of the scheme and to assure the
protection of the creditors in general as well as
the rights of the trustees and the debtor.
The applicants also request that an order be
issued restraining the Bank from proceeding
with its action against the debtor and its trus
tees taken before the Superior Court of Quebec
on March 8, 1972. This action was taken long
after the scheme of arrangement was filed in
this Court and is subject to being stayed under
section 95(4) of the Railway Act. The decision
to restrain, however, is discretionary and I do
not feel that a restraining order to this action
should issue at this time. This does not mean,
however, that the Bank (or for that matter any
creditor) will never be restrained by order of
this Court from pursuing an action against the
debtor as the present refusal to restrain is
merely due to the fact that for the time being,
there would appear to be no urgency to do so
nor, of course, does it mean that at some future
date, the Bank's claim will not be allowed to
proceed for determination before this Court.
It therefore follows that Microsystems and
Banque Canadienne Nationale as intervenant,
are hereby ordered to refrain from applying to
the Superior Court of the Province of Quebec,
District of Montreal, in action bearing number
807,263 of the files of that Court, taken on
April 15, 1971 by Microsystems, for any order
for execution or other process against the prop
erty affected by the seizure by garnishment
before judgment in the hands of Canadian
National Railway Company, pursuant to any
final judgment of the Superior Court in such
action until such time as the scheme of arrange
ment filed in this Court shall have been
adjudicated upon by final judgment of this
Court or until this Court shall otherwise order.
Costs of this application shall be in the cause.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.