Friday 1 February 2019

Canada: insolvency and the common law anti-deprivation rule

Earlier this week the Court of Appeal of Alberta gave judgment in Capital Steel Inc v Chandos Construction Ltd, 2019 ABCA 32. The case provided the court with the opportunity to consider the existence and application of important principles of insolvency law.

At issue was a provision in a construction contract under which Capital Steel agreed to forfeit, on its insolvency, a sum of money to Chandos. The majority (Rowbotham and Veldhuis JJA) held that the provision was unenforceable because it offended the anti-deprivation rule that formed part of the common law of Canada. The rule was, the majority held, effects based. The minority, Wakeling JA, held that if such a rule existed at common law (which his honour doubted) a purpose-based approach ought to be adopted (as in the UK Supreme Court decision Belmont Park Investments PTY Ltd v BNY Corporate Trustee Services Ltd & Anor [2011] UKSC 38, the application of which the majority had explicitly rejected).

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