COURT
    OF APPEAL FOR BRITISH COLUMBIA

Citation:

Caterpillar
          Financial Services v. 360networks corporation et al,

2007
          BCCA 14

Date: 20070109

Docket: CA32259

Between:

Caterpillar
    Financial Services Limited

Appellant

(Plaintiff)

And

360networks
    corporation, 360fiber ltd., 360finance ltd.,

Carrier
    Centers (Canada) Ltd.,

360Urbanlink
    Ltd., 360networks (cdn fiber) Ltd.,

360networks
    services ltd., 360cayer ltée

Respondents

(Defendants)

And

JPMorgan Chase Bank

Respondent

(Intervenor)

- and -

Docket: CA32286

In the Matter of the
Companies Creditors Arrangement
    Act
,

R.S.C. 1985, c. C-36

In the Matter of the
Nova Scotia Companies
    Act
, S.C., c. 81

In the Matter of the
Companies Act
,
    R.S.B.C. 1996, c. 62

In the Matter of the
Canada
Business Corporations Act
,

R.S.C. 1985, c. C-44

Between:

Caterpillar
    Financial Services Limited

Appellant

And

360networks inc., 360networks (holdings) ltd., 360fiber
    ltd.,

360finance ltd., Carrier Centers (Canada) Ltd.,

360 Urbanlink Ltd., 360Networks (Cdn Fiber) Ltd.,

360networks services ltd., 360cayer ltée

360engineering ltd., 360pacific (canada) inc.,

360networks sub inc., Threesixty Atlantic (Barbados)
    Inc.,

360atlantic (canada) inc., 360atlantic (usa
) inc.,

360atlantic sales (usa
) inc.

Petitioners

(Respondents)

Before:

The
          Honourable Madam Justice Prowse

The
          Honourable Madam Justice Saunders

The
          Honourable Madam Justice Kirkpatrick

D.A.
          Garner and J.A. Rost

Counsel for the Appellants

R.A.
          Millar and K. Robertson

Counsel for the Respondents

Place
          and Date of Hearing:

Vancouver
,
British Columbia

November 17, 2006

Place
          and Date of Judgment:

Vancouver
,
British Columbia

January 09, 2007

Written
          Reasons by
:

The
          Honourable Madam Justice Kirkpatrick

Concurred
          in by:

The
          Honourable Madam Justice Prowse

The
          Honourable Madam Justice Saunders

Reasons for Judgment of the Honourable Madam Justice
    Kirkpatrick:

[1]

The appellant, Caterpillar Financial Services Limited (Caterpillar)
    appeals from the 11 August 2004 order of the Supreme Court that, with one
    relatively modest exception, denied Caterpillars claim to recover the amounts
    owed to it under its equipment leases to the respondents, the 360 group of
    companies (360).  Caterpillars claims were determined in the context of
    proceedings under the
Companies Creditors Arrangement Act
,
    R.S.C. 1985, c. C-36 (
CCAA
), in which 360 sought to reorganize
    its affairs.

BACKGROUND

[2]

The background facts to this appeal are deceptively straightforward
    because, as it will become evident, application of the law to these facts
    is complex.  The essential facts are as follows.

[3]

At all material times in question, 360 was involved in the development
    and construction of a worldwide fibre optic communications network.  The work
    was initially undertaken by Ledcor Industries Limited.  Ledcor Industries
    Limited subsequently transferred the fibre optic portion of its business to
    Ledcor Communications Ltd. in 1999.  The trial judge found that Ledcor Communications
    Ltd. changed its name to 360fiber ltd. no later than on 28 June 2000.

[4]

Caterpillar is in the business of leasing heavy duty construction equipment.
    On 14 February 1997, 360fibers pre-predecessor company, Ledcor Industries
    Limited, entered into a Master Finance Lease with Caterpillar.  The lease
    contemplated that each piece of equipment (referred to as a unit) leased
    by Caterpillar would be documented by a subsequently issued schedule.  Essentially,
    each schedule constituted a separate lease agreement, but the provisions of
    the Master Finance Lease applied to each lease agreement.

[5]

On 30 March 1999, 360fibers predecessor company, Ledcor Communications
    Ltd., entered into a new Master Finance Lease.  Under the terms of that lease,
    360fiber had the option at the end of the term of each lease agreement to
    purchase the equipment, return the equipment, or agree with Caterpillar to
    extend the term of the lease.

[6]

The governing Master Finance Lease provided:

4.1       Lessee shall not  (f) sell, assign or transfer, or directly
    or indirectly create, incur or suffer to exist any lien, claim, security interest
    or encumbrance on any of its rights hereunder or in any Unit.

4.6       The Units are and shall remain the personal property of Lessor
    irrespective of their use or manner of attachment to realty, unless such units
    are purchased by the Lessee at the end of the lease term or at such time as
    Lessee has paid to Lessor the Balance Due (as hereinafter defined).

11.       Unless assigned by Lessor or applicable law provides otherwise,
    title to and ownership of the Units shall remain in Lessor as security for
    the obligations of Lessee hereunder until Lessee has fulfilled all of such
    obligations.  Lessee hereby grants to Lessor a continuing security interest
    in the Units  and all proceeds of all of the foregoing, to secure the payment
    of all sums due hereunder.

Balance
    Due was defined under each Master Finance Lease as the sum of:

(i)         all amounts then due or accrued under this Lease with respect
    to such Unit, (ii) the present value of the entire unpaid balance of all rental
    for such Unit, and (iii) the present value of the  Purchase Option Price
     of such Unit set forth on the applicable Schedule, (iv) less any insurance
    proceeds

Each
    of the schedules issued pursuant to the Master Finance Leases contained the
    following option:

At
    the end of the Lease term with respect to the Units, provided this Lease has
    not been earlier terminated with respect to such Units, Lessee may by written
    notice to Lessor no more than 60 days prior to the end of the Lease Term with
    respect to any Unit, elect to purchase at the end of such term such Unit for
    the Purchase Price of $  If Lessee does not elect to purchase such Unit at
    the end of such term, Lessee shall return such Unit to Lessor as provided
    in Section 4 of the Master Finance Lease

[7]

This appeal centers on six units:

(a)        Unit 1 was leased for four years
    commencing April 1997.  Financing statements were registered for this unit
    under s. 43 of the
Personal Property Security Act
, R.S.B.C.
    1996, c. 359 (
PPSA
).  However, Caterpillar did not file a
    financing change statement under s. 51 of the
PPSA
when Ledcor
    Communications Limited changed its name to 360fiber.

(b)        Unit 2 was leased for three years
    commencing August 1999.  The trial judge found, and Caterpillar does not contest
    this finding on appeal, that Caterpillar failed to register a financing statement
    for this unit under the
PPSA
.

(c)        Unit 3 was leased for three years
    commencing August 1999.  No financing statement was registered for this unit.

(d)        Unit 4 was leased for three years
    commencing December 1997.  The term was extended for two years by a modification
    agreement.  Caterpillar registered financing statements and financing change
    statements for this unit.

(e)        Unit 7 was leased for three years
    commencing April 2000.  Financing statements and financing change statements
    were registered for this unit.

(f)         Unit 8 was leased for one year
    commencing June 2000.  The term was extended for three years by a modification
    agreement.  Financing statements and financing change statements were registered
    for this unit.

[8]

The total amount claimed by Caterpillar in respect of these units was
    $785,392.27.

Disposition of the Units and Use of Sale Proceeds

[9]

By February 2001, 360 was experiencing financial difficulties.  Consequently,
    360 sought to dispose of its leased equipment.  The trial judge accepted that,
    in late January or early February 2001, Caterpillar consented to 360fibers
    sale of about 60 of Caterpillars leased units during the currency of the
    applicable leases and subsequent retention of the equity.

[10]

On 16 February 2001, 360fiber provided Caterpillar with a list of 66
    units that were to be auctioned.  The list did not include the six units that
    are the subject of this appeal.

[11]

In April 2001, 360fiber sold units 7 and 8 directly to a U.S. railroad
    company.  The sale proceeds of $231,902.79 (U.S.) were deposited into 360s
    U.S. bank account on 9 May 2001.  At the time of the deposit, the account
    had a credit balance.  However, it went into an overdraft position by the
    close of business on 29 June 2001.

[12]

360 concedes that the sale of units 7 and 8, and the deposit of the
    proceeds therefrom into its U.S. account, was in breach of its covenant to
    pay Caterpillar under the Master Lease Agreement.  However, Caterpillar recognizes
    its inability to trace the sale proceeds because 360 deposited the proceeds
    into an account that became overdrawn at the material time.

[13]

On 12 June 2001, Ritchie Bros. Auctioneers (Ritchie) wrote two letters
    to Caterpillar.  One letter was from Ritchie in Richmond, B.C., advising Caterpillar
    that on or about 26 June 2001, it was selling in Canada, the equipment described
    in two schedules attached to the letter.  The letter requested Caterpillar
    to confirm if it had an interest in any of the pieces of equipment and, if
    so, to confirm that it would release its interest upon receipt of either a
    buyout amount indicated by Caterpillar as of 18 July 2001 or the net sale
    proceeds.

[14]

The second letter was from Ritchie in Portland, Oregon, advising Caterpillar
    that on or about 22 June 2001, Ritchie was selling in the U.S., the equipment
    described in the schedule attached to the letter.  It similarly requested
    Caterpillar to confirm if it had an interest in any of the pieces of equipment
    and, if so, to confirm that it would release its interest upon receipt of
    either a buyout amount indicated by Caterpillar as of 16 July 2001 or the
    net sale proceeds.

[15]

In faxed responses to Ritchie, Caterpillar indicated a buyout figure
    beside each description of equipment in which it claimed an interest.  Caterpillar
    indicated that it would release its interest in the equipment upon receipt
    of the buyout amounts.

[16]

Units 1, 3 and 4 were included in the schedule attached to the Canadian
    letter.  Caterpillar failed to quote a figure or otherwise indicate an interest
    in those units.

[17]

Unit 2 was included in the schedule attached to the U.S. letter.  Again,
    Caterpillar failed to quote a figure or otherwise indicate an interest in
    this unit.

[18]

The U.S. auction was held on or about 22 June 2001.  The net proceeds,
    including those from the sale of unit 2, were $863,563.34 (U.S.).  On or about
    11 July 2001, Ritchie distributed the net sale proceeds by forwarding $760,470
    (U.S.) to Caterpillar and $103,093.34 (U.S.) to 360.  360 deposited the cheque
    into its U.S. current account in Vancouver
on
15 August 2001, at
    which time the account was in an overdraft position.

[19]

The Canadian auction was held on or about 26 June 2001.  The net proceeds,
    including those from the sale of units 1, 3 and 4, were $827,365.94.  On or
    about 13 July 2001, Ritchie distributed the net sale proceeds by forwarding
    $178,556.89 to another equipment lessor and $648,809.05 to 360.  360 deposited
    the cheque into its current account in Vancouver on 15 August 2001, at which
    time the account was in an overdraft position.

360s
CCAA
Proceedings

[20]

During the period 360 was disposing of the leased equipment, it was
    also planning to restructure its affairs under the
CCAA
.  On
    28 June 2001 (the Filing Date), 360 commenced proceedings under the
CCAA
.
    The initial stay order was obtained on the Filing Date.  The confirmation
    order granted on 20 July 2001 contained,
inter alia
, a stay of all
    proceedings against 360.  Most significantly, the initial stay order and the
    confirmation order restricted 360 to payment of obligations incurred only
    after the Filing Date to persons who advance or supply goods after the Filing
    Date.  360 could make no payments on account of amounts owed by it to its
    creditors as of the Filing Date.

[21]

Approximately one year later, on 24 July 2002 (the strongest candidate
    for the Plan Filing Date), the trial judge (who managed the case from the
    commencement of the
CCAA
proceedings) granted the procedural
    order that authorized 360 to file a plan of arrangement (the Plan) substantially
    in the form of a plan dated 18 July 2002 and that set out the mechanisms for
    the filing of proofs of claim by creditors, the disallowance of claims by
    360, and appeals from disallowances.

[22]

Caterpillar submitted its proof of claim on or about 19 September 2002
    and when 360 disallowed the claim, Caterpillar appealed the disallowance.

[23]

On 27 August 2002, the requisite majorities of 360s creditors approved
    the Plan.  The Supreme Court sanctioned the Plan on 4 September 2002.

[24]

The Plan contained numerous conditions precedent, including the resolution
    of Caterpillars claims.  It established two classes of creditors: the Senior
    Lenders and the General Creditors.  The Senior Lenders, of which JPMorgan
    Chase Bank was the agent, were to receive $135 million in cash, new secured
    notes in the amount of $215 million, and 80.5% of the equity of 360networks
    corporation.  The Senior Lenders underwrote the
CCAA
proceedings
    by providing funding to 360 during the restructuring process.  The amount
    owed to the Senior Lenders as of the Filing Date was $1.176 billion (U.S.).
    The Plan specified that it did not affect or compromise the claims of certain
    specified creditors, including:

3.3
    Unaffected Creditors

This
    Plan does not affect or compromise the Claims of the following Creditors and
    other Persons:

(a)
    Post-Filing Claims of any Person;

(g)
    Claims of Secured Creditors (including Lien Creditors but excluding the Senior
    Lenders) to the extent that the Charge of such Secured Creditors against any
    affected assets, property and undertaking of any one of the Canadian Companies
was properly registered or perfected on the Filing Date, up to the realizable
    value of such assets as determined pursuant to the Procedural Order
, except
    to the extent provided for in section 3.4 hereof.

[Emphasis
    added.]

[25]

Section 3.4 of the Plan reads:

3.4
    Affected Claims of Secured Creditors

Secured
    Creditors other than Senior Lenders shall have no Voting Claim or Distribution
    Claim, except to the extent of any Deficiency Claim to which they may be entitled,
    in respect of the realizable value of the collateral for which a Charge has
    been properly registered or perfected by them, which value shall be determined
    by agreement between the Canadian Companies and such Secured Creditors, or
    by Order of the Court.  The Canadian Companies shall satisfy their obligations
    to the Secured Creditors (other than in respect of that portion of the obligation
    which constitutes a Deficiency Claim) in accordance with the terms of the
    relevant security agreement

[26]

Certain definitions from the Plan are relevant to this appeal:

Charge
    means a valid and enforceable security interest, lien, charge, pledge, encumbrance,
     on any assets, property or proceeds of sale of any of the Canadian Companies
    or a right of ownership on any equipment which was leased by any of the Canadian
    Companies.

Claim
    means any right or claim of any Person against any one or more of the Canadian
    Companies whatsoever,  in connection with any indebtedness, liability or
    obligation of any kind of the Canadian Companies, which indebtedness, liability
    or obligation is in existence at the Filing Date and which is not a Post-Filing
    Claim, and any interest that may accrue thereon up to and including the Filing
    Date where there is an obligation to pay such interest, pursuant to the terms
    of any contract with such Person by operation of law or in equity, whether
    or not reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
    unmatured, disputed, undisputed, legal, equitable, secured, unsecured, perfected,
    unperfected, present, future, based in whole or in part on facts which exist
    on or before the Filing Date, together with any other claims that would have
    been claims provable in bankruptcy had the Canadian companies become bankrupt
    on the Filing Date including, without restriction, a claim arising after the
    Filing Date as a result of the termination of an executory contract or lease
    by any of the Canadian Companies as part of the restructuring of the business
    of the Canadian Companies.

Creditor
    means any Person having a Claim or a Post-Filing Claim against any one of
    the Canadian Companies

Deficiency
    Claim means that portion of the Claim of a Secured Creditor for which there
    would be no realizable value on liquidation of the Charge held by such Secured
    Creditor and which constitutes a General Creditor Claim under the Plan.

Plan
    Filing Date means the date upon which this Plan is first filed with the Court
    in the CCAA Proceedings.

Secured
    Creditors means any Creditor asserting a Charge, including the Senior Lenders
    and the Lien Creditors.

[27]

The Plan essentially provided that Secured Creditors security agreements
    would be honoured as long as the realizable value of the assets covered by
    the security agreement was equal to or greater than the amount due under the
    security agreement.  If the realizable value was less than the amount owed
    under the security agreement, the Plan treated the creditor as an unsecured
    creditor for the amount of the shortfall or deficiency and as a secured creditor
    to the extent of the realizable value of the assets.

[28]

A significant flaw in the procedural order of 24 July 2002 was the
    absence of a mechanism for determining the realizable value of assets.  Further,
    the order was silent as to the date on which that determination was to be
    made: this date came to have critical importance.

[29]

If the relevant date was the Filing Date (28 June 2001), the proceeds
    of sale of the units were traceable and exceeded the amounts owed by 360 under
    the lease agreements.  In this scenario, Caterpillar would not have a Deficiency
    Claim in respect of any of the units and would be entitled to payment in full.

[30]

However, if the relevant date was the Plan Filing Date (24 July 2002),
    the sale proceeds, having been deposited into bank accounts that were either
    overdrawn or became overdrawn by 24 July 2002, were no longer traceable and
    the realizable value of Caterpillars collateral in the units was zero.  In
    this scenario, Caterpillar would have a Deficiency Claim in the full amounts
    owed under the lease, which would be compromised under the Plan.

[31]

The Plan clarified that the treatment of claims was final and binding
    on all creditors.

The Trial Judgment

[32]

Caterpillar appealed from 360s disallowance of its claims in the
CCAA
proceeding.  In addition, Caterpillar was granted leave to commence a separate
    action in which it claimed,
inter alia
, that it had a constructive
    trust over all the sale proceeds of the units.

[33]

The trial judge heard both actions at the same time.  He framed the
    issues as follows at para. 34 of his reasons ((2004), 4 C.B.R. (5
th
)
    4, 35 B.C.L.R. (4
th
) 145 (S.C.)):

[34]
    The issues raised in the CCAA appeal and Action No. LO32238, as framed by
    counsel for Caterpillar but in my words, are as follows:

(a)
    is Caterpillar a Secured Creditor under the Plan entitled to payment under
    its lease agreements covering the Units (the Lease Agreements) pursuant
    to section 3.4 of the Plan?

(b)        does Caterpillar have Post-Filing Claims under
    the Plan as a result of breaches of constructive trusts after the Filing Date?

(c)        what is the amount owed to Caterpillar in
    respect of the Units which was not compromised by the Plan?

[34]

As the trial judge noted, Caterpillar abandoned its claim that it was
    entitled to a trust over all of 360s assets or that it could trace the proceeds
    from the sales of the units.

[35]

The trial judge concluded as follows:

(a)        Caterpillar fell within the definition
    of Secured Creditor as defined by the Plan.  However, the full amounts owing
    under the lease agreements were compromised by the Plan as Deficiency Claims.
    This conclusion was premised on the trial judges determination that the date
    for ascertaining the realizable value of Caterpillars collateral was the
    Plan Filing Date (24 July 2002).

(b)        Caterpillar was not entitled to
    a declaration of constructive trust over the sale proceeds from units 1, 2
    and 3, but was entitled to such a declaration to the extent of the buyout
    amounts under the relevant lease agreements in respect of units 4, 7 and 8.
    The trial judge noted that 360 improperly sold
the units themselves
,
    as opposed to
its rights in any units
.  Further, the trial judge concluded
    that there were two independent juristic reasons for 360s enrichment in respect
    of units 1, 2 and 3.  The first concerned Caterpillars general agreement
    that 360 could sell equipment and retain the equity.  The second concerned
    the Senior Lenders priority in respect of units 1, 2 and 3 by reason of Caterpillars
    failure to perfect its security in units 2 and 3, and its failure to register
    a financing change statement in respect of unit 1.  Consequently, Caterpillars
    claim for unjust enrichment applied only to units 4, 7 and 8.

(c)        The breach of trust relating to
    the sale proceeds from unit 4 constituted a Post-Filing Claim that was not
    compromised by the Plan.  This conclusion rested on the trial judges determination
    as to when the breach of trust occurred.  The trial judge decided that in
    respect of units 7 and 8, it was at one of two dates: either when 360 received
    the proceeds and deposited them into its bank account without remitting the
    buyout amounts to Caterpillar (9 May 2001) or when the funds were no longer
    available to 360 to reduce its indebtedness to others.  Although the trial
    judge favoured the first date, he found it unnecessary to decide the issue
    because in either case, the breach occurred before the Filing Date (28 June
    2001).  He therefore concluded that the claims in respect of units 7 and 8
    were pre-filing claims that were compromised by the Plan.  In contrast, because
    the proceeds from the sale of unit 4 were deposited into 360s overdrawn bank
    account on 15 August 2001, it constituted a Post-Filing Claim.

ISSUES

[36]

Caterpillar alleges that the trial judge erred:

(a)        in law, in relation to Caterpillars
    claim for payment in full as a Secured Creditor under the Plan, in finding
    that the date for determination of the realizable value of the sale proceeds
    of the Units was to be a date after the proceeds had been wrongfully used
    by 360 to reduce its own indebtedness.

(b)        in law, in relation to Caterpillars
    claim for a constructive trust over the sale proceeds of Units 1, 2 and 3,
    in finding that the priority of the general security held by 360s bankers
    was (a) relevant to a Post Filing Claim and (b) properly a factor to be considered
    in determining whether to declare the constructive trust.

(c)        in law, in relation to Caterpillars
    claim for damages for breach of the constructive trust declared by the court
    over the proceeds of sale of Units 7 and 8, in finding that the only acts
    relevant to the claim of breach of trust occurred before the Filing Date.

(d)        in law, further in relation to
    Caterpillars claim for damages for breach of the constructive trust declared
    by the court over the proceeds of sale of Units 7 and 8, in finding that it
    was the act of writing the cheques on the trust funds bank account which
    constituted the breach of trust, rather than the actual withdrawal of funds.

[37]

Caterpillars grounds of appeal are conveniently divided into two categories:
    those that relate to its claims as a Secured Creditor (ground (a)) and those
    that relate to its claims under constructive trust principles (grounds (b),
    (c) and (d)).

DISCUSSION

Secured Creditor Claim

[38]

As I have noted, the trial judge found that Caterpillar was a Secured
    Creditor as defined by the Plan.  Caterpillar agrees with this finding.  Conversely,
    while 360 agrees with the final outcome, it takes issue with this finding.

[39]

In any event, Caterpillar submits that the Plan could have simply specified
    that the court determine the priorities of competing security interests prior
    to paying the Secured Creditors.  Caterpillar contends that the Senior Lenders,
    by approving the Plan, agreed to forego priority battles and essentially allowed
    each Secured Creditor to be paid according to the Plan.

[40]

Caterpillar thus argues that priority issues have no place in
CCAA
proceedings.  360, on the other hand, argues that priority issues are central
    to this case.

[41]

At this point, it is instructive to consider the purpose of the
CCAA
regime.  This Court in
Chef Ready Foods Ltd. v. HongKong Bank of Canada
(1990), 51 B.C.L.R. (2d) 84, [1991] 2 W.W.R. 136 (C.A.) at paras. 10 and 22
    stated:

[10] The purpose of the C.C.A.A
.
is to facilitate the making of
    a compromise or arrangement between an insolvent debtor company and its creditors
    to the end that the company is able to continue in business.

[22] The C.C.A.A. was enacted by Parliament in 1933 when the nation and
    the world were in the grip of an economic depression. When a company became
    insolvent liquidation followed because that was the consequence of the only
    insolvency legislation which then existed - the
Bankruptcy Act
and
    the
Winding-up Act
.  Almost inevitably liquidation destroyed
    the shareholders' investment, yielded little by way of recovery to the creditors,
    and exacerbated the social evil of devastating levels of unemployment.  The
    government of the day sought, through the C.C.A.A., to create a regime whereby
    the principals of the company and the creditors could be brought together
    under the supervision of the court to attempt a reorganization or compromise
    or arrangement under which the company could continue in business.

[42]

While it might be suggested that
CCAA
proceedings may
    require those with a financial stake in the company, including shareholders
    and creditors, to compromise some of their rights in order to sustain the
    business, it cannot be said that the priorities between those with a financial
    stake are meaningless.  The right of creditors to realize on any security
    may be suspended pending the final approval of the court, but this does not
    render their potential priority nugatory.  Priorities are always in the background
    and influence the decisions of those who vote on the plan.

[43]

In Reorganizations under the Companies Creditors Arrangement Act
    (1947) 25 Canadian Bar Rev.

587 at 595-97, the learned author Stanley
    E. Edwards explains the necessity of considering priorities in
CCAA
proceedings:

In order to make an equitable redistribution of the securities of a company
    and the other claims against it, it is important to classify the creditors
    and shareholders according to their contract rights.  Most important will
    be their respective rights of participation in the distribution of the companys
    income while it is operating, and its assets on liquidation.
Included
    also will be the power which secured creditors would have but for the C.C.A.A.
    to realize upon the property by foreclosure in priority to other claimants
.
    I would suggest that the aspect of these rights to be first considered should
    be not their face or nominal value, but rather what they would in reality
    be worth if the company had been liquidated rather than reorganized.  This
    would entail a valuation and estimate of what the assets would bring at a
    public sale, or be worth to the secured creditors upon foreclosure.  There
    can hardly be a dispute as to the right of each of the parties to receive
    under the proposal at least as much as he would have received if there had
    been no reorganization

The
United
    States Supreme Court
by adopting the absolute priority doctrine
    as a fixed principle,
has in effect compelled the full recognition in
    a plan of all of the former nominal participation rights of senior claimants
    in priority to any rights of junior creditors or stockholders
.  It has
    held that although the requirements of feasibility may preclude giving senior
    claimants the same type of participation as they had before, they may be compensated
    for giving up seniority or a high interest rate by giving them a larger face
    value of inferior securities or some other concession.  This rulemay well
    necessitate the exclusion of some of the junior classes from any participation
    in the reorganized company

In
England, on the other
    hand, the courts will sanction any scheme if the formal statutory requirements
    have been satisfied and
if the senior classes obtain at least what they
    would be entitled to on liquidation
, regardless of how the increase in
    value resulting from the reorganization is distributed

it would seem to me that considerations of policy point to the desirability
    of adopting the American rule [Emphasis added.]

[44]

According to Edwards (at 603), priorities are also relevant in the
    classification of creditors under the
CCAA
:

[T]he court should examine the nature of the claims of the creditors in
    order to classify them properly.  For example, no two secured creditors should
    be grouped together unless their security is on the same or substantially
    the same property and
in equal priority
.  Further divisions may be
    made on the basis of other legal preferences or according to whether the claim
    is liquidated or unliquidated, absolute or contingent.  [Emphasis added.]

[45]

In
Re Stelco Inc.
(2005), 204 O.A.C. 205, 78 O.R. (3d)
    241 (C.A.), the court articulated relevant principles in determining commonality
    of interest for
CCAA
classification purposes.  The court stated
    as follows at para. 23:

In
Canadian Airlines Corp., Re
(2000), 19 C.B.R. (4
th
)
    12 (Alta. Q.B.), Paperny J. nonetheless extracted a number of principles to
    be considered by the courts in dealing with the commonality of interest test.
    At para. 31 she said:

In summary, the cases establish the following principles applicable to
    assessing commonality of interest:

2.  The interests to be considered are the legal interests that a creditor
    holds qua creditor in relationship to the debtor company prior to and under
    the plan as well as on liquidation.

[46]

The Ontario Court
    of Appeals decision in
Re 1078385 Ontario Ltd.
(2004), 206
    O.A.C. 17, 16 C.B.R. (5th) 152 [
Bob-Lo Island
] suggests that
    secured creditors may assume a leadership role in a restructuring process
    that has traditionally been directed by debtor companies to the companys
    general benefit.  Further, the decision appears to create an opportunity for
    secured creditors to use the
CCAA
as an efficacious shortcut
    to enforce their security.  Ultimately,
Bob-Lo
Island
represents the evolution of the role of secured
    creditors under the
CCAA
, and the use of the statute as a flexible
    and advantageous restructuring tool for secured creditors.
The Ontario Court of Appeal, in dismissing a motion for leave
    to appeal a decision of the Ontario Superior Court of Justice, held that the
    fact that a plan of arrangement under the
CCAA
is put forth
    by a secured creditor, which plan vests all of the debtor company's assets
    into a non-arm's length purchaser and operates exclusively for the benefit
    of secured creditors, does not, in and of itself, negate the fairness and
    reasonableness of such a plan where it can be shown that, even outside of
    the plan, the assets of the debtor company will not generate any recovery
    for unsecured creditors.  In response to the argument that the plan was a
    shortcut in the realization of assets without regard to traditional means
    of enforcing security, the Superior Court noted at para. 125: To a certain
    extent, that is true, but I think that is the nature of the CCAA ((2004),
    16 C.B.R. (5
th
) 144).

[47]

As I have said, Caterpillar agrees with the trial judges finding that
    it was a Secured Creditor as defined by the Plan.  However, Caterpillar contends
    that the trial judge erred in finding that the date for determining realizable
    value was the Plan Filing Date (24 July 2002).

[48]

The dispute arises because, contrary to s. 3.3(g) of the Plan, the
    procedural order did not contain a mechanism for determining the realizable
    value of assets.  The trial judge resolved the issue as follows at paras.
    43-47:

[43]
    The Plan does not provide any clear assistance by specifying the date on which
    the realizable value of secured assets should be determined.  Clause (g) of
    section 3.3 refers to the realizable value of the assets as determined pursuant
    to the Procedural Order, which, as mentioned above, does not contain a mechanism
    other than the proof of claim process.  Section 3.4 provides that the value
    is to be determined by agreement between the Canadian Companies and such
    Secured Creditors, or by Order of the Court.

[44]
    It is my view that, in the absence of a specific date being identified, the
    effective date of the valuation of the assets should be the date on which
    the Plan was formerly [sic] issued (namely, the Plan Filing Date).  As was
    stated at section 4.13 of The Interpretation of Contracts 2
nd
ed.
    (London: Sweet & Maxwell, 1997):

Since a contract must be interpreted as at the date when it was made,
    words must be given the meaning which they bore at that date

In
    referring to the realizable value of the assets, the Plan must be taken to
    mean the current realizable value.  It would not make sense for 360 to pay
    more for the asset than it was worth at the time 360 issued the Plan.  Put
    in the context of the present circumstances, it would not make sense for 360
    to agree to make payments under leases when it did not intend to use the leased
    equipment in its future operations.

[45]
    If it had been the intention that the realizable value of assets was to be
    determined as of a date other than the current date, it would have been very
    easy to specify an earlier date.  For example, the requirement in clause (g)
    of section 3.3 for the proper registration or perfection of the Charge was
    that it be registered or perfected on the Filing Date.  The very next phrase
    in clause (g) makes reference to the realizable value of the assets but does
    not contain the same words on the Filing Date.  The drafters mind had been
    directed to the Filing Date when drafting clause (g) and the absence of
    those words to modify the phrase the realizable value of such assets suggests
    that it was not the intention to have the assets valued as at the Filing Date.

[46]
    Support for this interpretation is found in the definition of Equipment Lessor,
    which was defined to mean a Creditor holding a title interest in relation
    to equipment in the possession of the Canadian Companies at the Filing Date
    which remains in the possession of the Canadian Companies on the Plan Filing
    Date.  Caterpillar does not actually fall within this definition because
    the units were not in the possession of 360fiber at the Filing Date, but it
    is instructive of the Plans treatment of equipment lessors generally.

[47]
    The term Equipment Lessor was used in the definition of General Creditor
    ( in the case of an Equipment Lessor, any arrears outstanding as at the
    Filing Date).  General Creditors were the creditors whose claims were compromised
    under the Plan.  The Plan demonstrates that it was the intention to require
    360 to make payments on leases only if it would be using the leased equipment
    in its future operations (but excluding arrears owing on the Filing Date,
    which would be treated as an unsecured or general claim).  The manner in which
    the definition of Equipment Lessor was drafted suggests that the full amounts
    owing under leases of equipment no longer in the possession of 360 on the
    Plan Filing Date would be compromised under the Plan.

[49]

Caterpillar submits that since the drafters of the Plan omitted to
    articulate a mechanism for determining realizable value, the Plan itself should
    be of no use in making such determination.  Ultimately, Caterpillar proposes
    that the proper date for valuation is the date on which the assets were used
    by 360 to reduce its indebtedness to others.

[50]

In my opinion, Caterpillars arguments cannot succeed.  In the absence
    of a specified date for calculating realizable value, the trial judge considered
    all other reasonable sources for determining that critical date.  To suggest
    that the Plan should not be considered in making this determination is unreasonable.
    It is true that the Plan contemplated that the procedural order would specify
    a mechanism for determining realizable value.  However, the fact that the
    expectation was never realized does not render the Plan barren of meaning
    in this regard.

[51]

Caterpillars proposition  that the proper date for valuation of the
    assets is the date on which they were used by 360 contrary to the lease
    agreements or, if they were not used and hence still in existence, the date
    of the Plan (by which I assume Caterpillar to mean the Filing Date)  ignores
    the necessity of orderliness in
CCAA
proceedings, which the
    trial judge was obviously at pains to impose in the case at bar.  It would
    make little practical sense to determine realizable value before the Plan
    had been authorized to be put to creditors unless, of course, the Plan or
    procedural order so specified.  Further, the alternative date proposed by
    Caterpillar (i.e. when the assets were used by the debtor to reduce its indebtedness
    to others) would yield unnecessary complexity and uncertainty.   When could
    it be said that assets were used?  Even if one could define when an asset
    was so used, this formula would result in different valuation dates depending
    on when each asset was used.

[52]

There can be no doubt that Caterpillars security position was eroded
    between the Filing Date and the Plan Filing Date.  However, Caterpillar had
    knowledge that 360 intended to sell Caterpillars collateral.  Conceivably,
    Caterpillar could have acted promptly to protect its position.  It had sufficient
    opportunity to demand payment prior to the Filing Date.  After the Filing
    Date, 360 was prohibited by the terms of the initial order to make any payments
    to creditors holding a pre-filing claim.  Ultimately, Caterpillars inaction
    contributed to the risk that materialized.

[53]

In these circumstances, I am not persuaded that the trial judge erred
    in finding that the proper date for determining the realizable value of the
    assets was the Plan Filing Date (24 July 2002).  Accordingly, it is unnecessary
    to decide whether, as 360 contends, the trial judge was in error in concluding
    that Caterpillar was a Secured Creditor as defined by the Plan.

Constructive Trust Issues

Units 1, 2 and 3

[54]

First, Caterpillar contends that the trial judge erred in relation
    to its claim for a constructive trust over the sale proceeds of units 1, 2
    and 3 in finding that the priority of the general security held by 360s bankers
    was relevant to a Post-Filing Claim and properly a factor to be considered
    in determining whether to declare a constructive trust.

[55]

The trial judge applied the well-known test for unjust enrichment articulated
    in
Pettkus v. Becker
, [1980] 2 S.C.R. 834, 34 N.R. 384 at para.
    38.  The test features three elements: first, an enrichment; second, a corresponding
    deprivation; and third, an absence of any juristic reason for the enrichment.
    360 conceded that Caterpillar, in not receiving the sale proceeds from the
    units, suffered a deprivation.  The trial judge found an enrichment by 360
    in the form of a reduction in its indebtedness.  However, as I have noted,
    the trial judge found two independent juristic reasons for the deprivation.
     First, Caterpillar agreed to 360s sale of the leased equipment and subsequent
    retention of the equity.  Second, the Senior Lenders enjoyed priority over
    Caterpillar in respect of units 1, 2 and 3 because of the failure of the latter
    to perfect its security over these units.

[56]

Caterpillars argument rests on its assertion that constructive trust
    claims must be analyzed as Post-Filing Claims as defined by the Plan:

any right or claim of any person against the Canadian Companies  arising
    from or caused by, directly or indirectly, any action taken by the Canadian
    Companies from and after the Filing Date [28 June 2001].

[57]

However, this analysis ignores the essential question of when the claim
    to any constructive trust arose.  There is no Post-Filing Claim if the right
    to assert the claim arose prior to the Filing Date.  In my opinion, Caterpillars
    argument is unsustainable because it rests on a logical fallacy.  Caterpillar
    prematurely assumes the existence of a constructive trust.  The proper approach
    is to determine whether a constructive trust arises
before
characterizing
    it as a Post-Filing Claim.

[58]

360 opposes the imposition of a common law constructive trust as being
    inconsistent with the priority provisions of the
PPSA
.  In support
    of its contention, 360 relies on s. 68(1) of the
PPSA:

The
    principles of the common law, equity and the law merchant,
except insofar
    as they are inconsistent with the provisions of this Act
, supplement this
    Act and continue to apply.      [Emphasis added.]

360 thus argues that Caterpillar is prevented from correcting
    its own defective registration and perfection in units 1, 2 and 3 by asserting
    a constructive trust.

[59]

I recognize that Caterpillars loss did not, strictly speaking, arise
    from its failure to
register or perfect
its security.  Rather, Caterpillars
    loss was the product of its failure to
protect
its security upon receiving
    notice that 360 intended to sell the units.  The leases merely permitted 360
    to sell its
rights
to the units.  Thus, the sales intended, and in
    fact carried out, by 360 constituted a blatant breach of the leases.

[60]

The trial judge addressed this issue at paras. 53 and 54:

[53]
    The second reason proffered by counsel for 360 (as well as counsel for the
    Senior Lenders) relates to the criterion of an absence of juristic reason
    as well as the criterion of an enrichment.  Counsel for 360 and the Senior
    Lenders relies upon the following passage from Luscar Ltd. v. Pembina Resources
    Ltd. (1994), 162 A.R. 35 (C.A.):

Where there exists a contract under which parties are governed, and one
    party gains by a breach of the same, that party is not truly enriched, because
    the breaching party takes that gain subject to its liability for breach of
    contract.  If the other party does not sue within the time set out in the
    Limitations Act, then, without more, there is a juristic reason for the gain
    because the breaching party is entitled to rely on the intended limitation.
    (¶ 117)

In
    my opinion, this passage does not apply to the present circumstances.  360fiber
    already had the contractual obligation to pay the amounts owing under the
    Lease Agreements prior to the sale of the Units.  Its sale of the Units, and
    retention of the sale proceeds, was not subject to any consequential liability
    under the Lease Agreements.  It was enriched without any new offsetting liability.

[54]
    In addition, I do not believe that the sale of the Units by 360fiber was merely
    a breach of the Lease Agreements.  It was prohibited by the terms of the Lease
    Agreements from selling its rights in any Unit, but it did more than simply
    sell its rights.  It sold the Units themselves, including Caterpillars ownership
    interests, as a result of an auctioneers ability to convey title to purchasers.
    The sale of the Units constituted a wrong which cannot be properly characterized
    solely as a breach of contract.  360fiber did not have the right to sell the
    Units because Caterpillar owned them, not because the Lease Agreements prohibited
    the sale of the Units (what the Lease Agreements prohibited was the sale by
    360fiber of its rights in the Units).  It is true that I have found that Caterpillar
    gave a general consent to sales of its equipment by 360fiber.  However, the
    consent was subject to the condition that Caterpillar would be paid the buyout
    amounts under each lease agreement, and this condition was never satisfied
    in relation to the Units.

[61]

The availability of a remedial constructive trust in the commercial
    context has been the subject of considerable academic and judicial debate:
    see e.g.
Re Ellingsen
(2000), 142 B.C.A.C. 26, 190 D.L.R. (4
th
)
    47;
Atlas Cabinets & Furniture Ltd. v. National Trust Co.
(1990), 45 B.C.L.R. (2d) 99, 68 D.L.R. (4
th
) 161 (C.A.);
British
    Columbia v. National Bank of Canada
(1994), 52 B.C.A.C. 180, [1995]
    2 W.W.R. 305.  In particular, the existence of a contractual relationship
    between the plaintiff and defendant may preclude the imposition of a constructive
    trust.  The general principle is stated by David M. Paciocco in The Remedial
    Constructive Trust: A Principled Basis for Priorities and over Creditors,
    (1989) 68  Canadian Bar Rev. 315 at 341-42:

There
    is widespread agreement that a party who has accepted the role of a general
    creditor should be denied proprietary relief.  The decision in
Sinclair
    v. Brougham
is often used to make the point.  There the depositors of
    the bank entered into their transactions with the expectations that they would
    be unsecured creditors of the bank.  Allowing them to trace therefore gave
    them proprietary protection which was never expected.  Only an out of court
    settlement with the other general creditors of the bank and the condition
    imposed by the court that the depositors recognize the claims of the shareholders
    prevented this from producing an unwarranted priority.  It has therefore been
    suggested that:

As a general principle,  people who willingly choose to become unsecured
    creditors of an eventual bankrupt ought not to be given priority over other
    unsecured creditors through the extended use of the constructive trust remedy.

There
    are two kinds of case where a claimant can be considered, every bit as much
    as the general creditors can, to have accepted the risk of the defendants
    insolvency: where there are contractual dealings between the plaintiff and
    defendant which anticipate that the plaintiff will assume the status of a
    general creditor; and where the plaintiffs claim rests on a
quantum meruit
or
quantum valebat
basis in situations where there has been no reasonable
    expectation by the plaintiff of acquiring a proprietary interest.

[62]

The application of this principle to the circumstances at bar is far
    from straightforward.  Nonetheless, it is clear that when Caterpillar entered
    into the leases, it intended to secure the obligations owed by 360 by retaining
    title to the units.  Pursuant to the
PPSA
, Caterpillar could
    perfect its security by registration.  The failure to register or perfect
    its security meant that, as between Caterpillar and any third parties, Caterpillar
    was a general creditor in respect of units 2 and 3.  Although Caterpillar
    had negotiated with 360 to be a secured creditor, it ultimately failed to
    protect its status as a secured creditor under the
PPSA
.  As
    such, Caterpillar must be taken to have accepted the risk posed by 360s eventual
    insolvency.  In my view, Caterpillar should not be able to invoke constructive
    trust principles to alter its reduced creditor status.

[63]

The trial judge instead adopted the analysis of the Supreme Court of
    Canada in
Garland v. Consumers Gas Co.
, [2004] 1 S.C.R. 629,
    237 D.L.R. (4
th
) 385 at paras. 44-46:

[44]
    The parties and commentators have pointed out that there is no specific authority
    that settles this question.  But recalling that this is an equitable remedy
    that will necessarily involve discretion and questions of fairness, I believe
    that some redefinition and reformulation is required.  Consequently, in my
    view, the proper approach to the juristic reasons analysis is in two parts.
    First, the plaintiff must show that no juristic reason from an established
    category exists to deny recovery.  By closing the list of categories that
    the plaintiff must canvas in order to show an absence of juristic reason,
    Smiths objection to the Canadian formulation of the test that it required
    proof of a negative is answered.  The established categories that can constitute
    juristic reasons include a contract (
Pettkus, supra
), a disposition
    of law (
Pettkus, supra
),  and other valid common law, equitable or
    statutory obligations (
Peter, supra
).  If there is no juristic reason
    from an established category, then the plaintiff has made out a
prima facie
case under the juristic reason component of the analysis.

[45]
    The
prima facie
case is rebuttable, however, where the defendant can
    show that there is another reason to deny recovery.  As a result, there is
    a de facto burden of proof placed on the defendant to show the reason why
    the enrichment should be retained.  This stage of the analysis thus provides
    for a category of residual defence in which courts can look to all of the
    circumstances of the transaction in order to determine whether there is another
    reason to deny recovery.

[46]
    As part of the defendants attempt to rebut, courts should have regard to
    two factors: the reasonable expectations of the parties and public policy
    considerations.  It may be that when these factors are considered, the court
    will find that a new category of juristic reason is established.  In other
    cases, a consideration of these factors will suggest that there was a juristic
    reason in the particular circumstance of a case but which does not give rise
    to a new category of juristic reason that should be applied in other factual
    circumstances.  In a third group of cases, a consideration of these factors
    will yield a determination that there was no juristic reason for the enrichment.
    In the latter cases, recovery should be allowed.  The point here is that this
    area is an evolving one and that further cases will add additional refinements
    and developments.

[64]

Under either analysis, Caterpillar appears to be employing the remedy
    of a constructive trust to vault its security position in respect of units
    1, 2 and 3, contrary to the provisions of the
PPSA
and the general
    framework of the
CCAA
.

[65]

In any event, I am unable to say that the trial judge erred in his
    analysis.  Caterpillar satisfied the initial burden of showing there was no
    established category of juristic reason to defeat its claim.  However, the
    trial judge proceeded to find two other juristic reasons, one of which was
    Caterpillars failure to perfect its interest and the Senior Lenders ensuing
    priority over Caterpillar with respect to units 1, 2 and 3.

[66]

Further, I respectfully agree with the trial judges alternative reason
    for refusing to declare a constructive trust in respect of units 1, 2 and
    3 (at para.68):

[68]
    If I am mistaken and the priority of the Senior Lenders over the security
    interest of Caterpillar in Units 1, 2 and 3 is not a juristic reason to prevent
    the declaration of a constructive trust, the rights of the Senior Lenders
    must still be taken into account before a constructive trust is declared.
    Lambert J.A. said the following in the Ellingsen decision:

A remedial constructive trust will be imposed only if it is required in
    order to do justice between the parties in circumstances where good commercial
    conscience determines that the enrichment has been unjust.  But a remedial
    constructive trust is a discretionary remedy.  It will not be imposed where
    an alternative, simpler remedy is available and effective.  And it will not
    be imposed without taking into account the interests of others who may be
    affected by the granting of the remedy.  In this case that would include other
    creditors of the bankrupt, (both secured creditors and general creditors,
    since the trust may defeat both), and any relevant third parties.  (¶ 71)

If
    the priority of the Senior Lenders over Caterpillar is not a juristic reason
    and Caterpillar would have met the criteria of unjust enrichment in respect
    of Units 1, 2 and 3, I would exercise my discretion to decline to order a
    constructive trust over the proceeds from the sales of Unit 1, 2 and 3 as
    a result of the priority of the Senior Lenders over Caterpillar with respect
    to these proceeds.

[67]

Before leaving this ground of appeal, I note that while Caterpillar
    concedes its failure to file a name change under s. 51 of the
PPSA
for unit 1, it cites
Re Hewstan
(1996), 42 C.B.R. (3d) 186,
    12 P.P.S.A.C. (2d) 36 (B.C.S.C. Chambers) at para. 31 to support its assertion
    that perfection is undisturbed.

[68]

Subsection 51(2) addresses the scenario in which a security interest
    is perfected by registration, but there is a subsequent change in the debtors
    name and the secured party knows of the change of name.  The subsection places
    an obligation on the secured party to either amend the registration by registering
    a financing change statement disclosing the new name of the debtor or perfect
    its security by taking possession of the collateral.  One of these measures
    must be taken within the time specified.

[69]

The failure to comply with the requirement has different priority consequences
    depending on the type of interest in competition with the security interest.
    First, the security interest is subordinate to
any interest
,
other
    than a competing security interest
, arising after the expiry of 15 days
    from the date the secured party acquired knowledge as to the debtors new
    name.  Second, the security interest is subordinate to a security interest
    that is registered or perfected after the expiry of 15 days from the date
    the secured party acquired knowledge as to the new name of the debtor.  Finally,
    the security interest is subordinate to a security interest that is registered
    or perfected after the secured party acquired knowledge of the new name of
    the debtor and before the section has been complied with.  However, if the
    secured party complies with the section or takes possession of the collateral
    before the expiry of the aforementioned 15-day period, but after the competing
    security interest is registered or perfected, the perfected status of its
    security interest remains unaffected.

[70]

The underlying purpose of s. 51 is to preserve the integrity and utility
    of the registry when the debtors name has changed.  This change impacts the
    ability of a searching party to discover the existence of a security interest.
    Unless the secured party is obliged to amend its registration to reflect the
    debtors name change, a search result obtained on the basis of the name of
    the person in possession or legal control of the property will fail to disclose
    the registration.

[71]

Re Hewstan
concerns the narrow issue of whether a trustee
    in bankruptcy qualifies as a person who has an interest in collateral.
    In contrast, the instant case does not deal with the issue of a trustee in
    bankruptcys interest pursuant to s. 51(2)(c).  It centers on s. 51(2)(d):
    the priority of Caterpillar in relation to that of a competing security interest.
    In
Re Hewstan
, the chambers judge properly noted that s. 51(2)
    does not render a security interest unperfected.  Failure to file a notice
    of name change does not undermine the validity of registration of a security
    interest.  It solely impacts priority.  Application of s. 51(2) of the
PPSA
results in Caterpillars perfected security interest with respect to Unit
    1 being subordinate to the Senior Lenders perfected security interest.

[72]

For the foregoing reasons, I am not persuaded that there is any merit
    in Caterpillars second ground of appeal.

Units 7 and 8

[73]

As I have already noted, the trial judge declared constructive trusts
    in favour of Caterpillar over the proceeds of sale of units 4, 7 and 8, to
    the extent of the buyout amounts under the lease.  The trial judge found that
    the breach of trust claim over the sale proceeds from unit 4 constituted a
    Post-Filing Claim that was not released by the Plan.  The trial judge awarded
    Caterpillar damages in a sum equal to the buyout amount for unit 4.  Counsel
    for 360 advised us that he did not have instructions to appeal that order,
    which appears to have a monetary value approximating $32,000.

[74]

However, the trial judge found that the breach of trust relating to
    the sale of units 7 and 8 was not a Post-Filing Claim.  As such, it was compromised
    and released by the Plan.  This finding hinged on the timing of the breach.

[75]

The trial judge found that the breach of trust occurred at one of two
    times: first, when 360 received the sale proceeds and deposited them into
    its account without remitting the buyout amounts to Caterpillar (9 May 2001);
    or second, when 360 could no longer use the sale proceeds to pay Caterpillar
    because 360 had used the funds for other purposes.  The trial judge found
    that, under the second scenario, the breach occurred no later than 27 June
    2001.  The trial judge concluded that the breach did not occur when the bank
    account balance fell below the sale proceeds from units 7 and 8 (28 June 2001).
    Rather, it occurred when 360 made withdrawals or issued cheques on the account
    which resulted in the account entering an overdraft position.  The cheques
    that were posted to the account on 28 June 2001 dated from 6 June 2001 to
    25 June 2001.  They were date-stamped by the drawee bank on 27 June 2001.
    The trial judge rejected Caterpillars submission that 360s omission to place
    stop payments on the cheques constituted an independent breach of trust.

[76]

Caterpillar argues that the trial judge erred in finding that the only
    acts relevant to the breach occurred before the Filing Date (28 June 2001)
    and that the mere writing of a cheque would necessarily result in the payment
    of funds contrary to the trust.  In furtherance of the latter assertion, Caterpillar
    maintains that it was open to 360 to issue a stop payment on the cheques or
    otherwise prevent the funds from being used prior to the Filing Date.

[77]

Both Caterpillar and 360 agree that the holding of funds without Caterpillars
    authorization  specifically, 360s failure to remit the buyout amounts to
    Caterpillar  constitutes a breach of trust.  360 improperly treated the money
    as its own rather than that of Caterpillars.

[78]

The crux of Caterpillars argument is as follows.  If the date of breach
    is 9 May 2001, Caterpillars damages would be limited to the cost of wrongful
    holding; namely, interest or opportunity cost.  Caterpillar acknowledges that
    a claim for those damages is compromised by the Plan.

[79]

However, Caterpillar emphasizes that its claim is for the entirety
    of the sale proceeds.  It contends that only after the Filing Date (28 June
    2001) did 360 render the sale proceeds unavailable to Caterpillar.  Caterpillar
    identifies this later breach of trust as a Post-Filing Claim.

[80]

In my opinion, Caterpillars arguments cannot succeed.  Essentially,
    Caterpillar seeks to impose the date most favourable to its position in the
CCAA
reorganization.  This is exemplified by the fact that Caterpillar
    concedes that 360s initial holding of the sale proceeds without remittance
    to Caterpillar constituted a breach of trust and yet it seeks to impose a
    subsequent (and in my opinion, completely uncertain) date for what it describes
    as a later breach of trust.  In my view, this line of argument ignores the
    true nature of the breach.  360 was in breach from the moment it retained
    the sale proceeds without either remitting them to Caterpillar or Caterpillars
    authorization.  This breach continued until Caterpillars claim was either
    satisfied or compromised by the Plan.

[81]

I agree with 360s submission that the
CCAA
does not
    accord a creditor wide discretion to characterize its claim as a means of
    elevating its status.  Caterpillar, after acknowledging that there was a breach
    of trust prior to the Filing Date, cannot identify a post-Filing Date event
     the actual withdrawal of trust funds  to convert its entire claim to a
    Post-Filing Claim.

[82]

In my view, it was the act of writing cheques and delivering them to
    the payee that constituted the breach of trust.  That act is identifiable
    and unambiguous: it is the active commission of a wrongful act.  In contrast,
    the date on which funds are withdrawn is uncertain: is it when the account
    is actually reduced by the amount of the trust funds or when the drawee bank
    irrevocably loses its right to return the cheque through the clearing process?

[83]

Wherever possible, the law should favour certainty.  In my opinion,
    the trial judge did not err in fixing the date of the breach to be when the
    breach was being actively committed, as opposed to when it was allegedly being
    committed by omission.

CONCLUSION

[84]

For all of the above reasons, I would dismiss Caterpillars appeal.

The Honourable Madam Justice Kirkpatrick

I agree:

The Honourable Madam Justice Prowse

I agree:

The Honourable Madam Justice Saunders