Document 2536632

Tab 1
ScoZinc Ltd., Re, 2009 NSSC 136, 2009 CarswellNS 229
2009 NSSC 136, 2009 CarswellNS 229, 177 A.C.W.S. (3d) 293, 277 N.S.R. (2d) 251...
2009 NSSC 136
Nova Scotia Supreme Court
ScoZinc Ltd., Re
2009 CarswellNS 229, 2009 NSSC 136, 177 A.C.W.S. (3d)
293, 277 N.S.R. (2d) 251, 53 C.B.R. (5th) 96, 882 A.P.R. 251
In the Matter of The Companies' Creditors
Arrangement Act, R.S.C. 1985, c.C-36, as amended
And In the Matter of A Plan of Compromise or Arrangement of ScoZinc Ltd. (Applicant)
D.R. Beveridge J.
Heard: April 3, 2009
Judgment: April 3, 2009
Written reasons: April 28, 2009
Docket: Hfx. 305549
Counsel: John G. Stringer, Q.C., Mr. Ben R. Durnford for Applicant
Robert MacKeigan, Q.C. for Grant Thornton
Subject: Insolvency
Headnote
Bankruptcy and insolvency --- Proposal — Companies' Creditors Arrangement Act — Miscellaneous issues
Company was granted protection pursuant to s. 11 of Companies' Creditors Arrangement Act ("CCAA") — Monitor was
appointed pursuant to s. 11.7 of CCAA — Determination of creditors' claims was set by claims procedure order ("order")
— Three creditors submitted proofs of claim by claims bar date set out in order and then submitted revised proofs of claim
after claims bar date, but before date set for monitor to complete assessment of claims — Monitor determined errors in
proofs of claims were due to inadvertence and issued notice of revision or disallowance, allowing claims as revised if it
was determined monitor had power to do so — Monitor brought motion for directions on whether it had authority to allow
revision of claim by increasing it after claim's bar date but before date set for monitor to complete assessment of claims
— Monitor had necessary authority — Court creates claims process by court order — Determination that claims had to
initially be identified and assessed by monitor, and heard first by claims officer, was valid exercise of court's inherent
jurisdiction — Logical and practical that monitor, as officer of court, be directed to fulfil analogous role to that of trustee
under Bankruptcy and Insolvency Act, and order accomplished this — Provision in order mandated monitor to review all
proofs of claim filed on or before claims bar date and accept, revise or disallow them — While normally monitor's revision
would be to reduce proof of claim, nothing in order so restricted monitor's authority — It did not matter that revised claims
were submitted after claims bar date — In essence, monitor simply acted to revise proofs of claim already submitted to
conform with evidence elicited by monitor or submitted to it.
Table of Authorities
Cases considered by D.R. Beveridge J.:
Air Canada, Re (2004), 2 C.B.R. (5th) 23, 2004 CarswellOnt 3320 (Ont. S.C.J. [Commercial List]) — referred to
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1
ScoZinc Ltd., Re, 2009 NSSC 136, 2009 CarswellNS 229
2009 NSSC 136, 2009 CarswellNS 229, 177 A.C.W.S. (3d) 293, 277 N.S.R. (2d) 251...
Blue Range Resource Corp., Re (2000), 2000 CarswellAlta 30, (sub nom. Blue Range Resources Corp., Re) 250 A.R.
239, (sub nom. Blue Range Resources Corp., Re) 213 W.A.C. 239, 15 C.B.R. (4th) 192, 2000 ABCA 16 (Alta. C.A.
[In Chambers]) — referred to
Blue Range Resource Corp., Re (2000), 2000 ABCA 285, 2000 CarswellAlta 1145, [2001] 2 W.W.R. 477, (sub nom.
Enron Canada Corp. v. National-Oilwell Canada Ltd.) 193 D.L.R. (4th) 314, 271 A.R. 138, 234 W.A.C. 138, 87
Alta. L.R. (3d) 352 (Alta. C.A.) — followed
Carlen Transport Inc. v. Juniper Lumber Co. (Monitor of) (2001), 21 C.B.R. (4th) 222, (sub nom. Juniper Lumber
Co., Re) 233 N.B.R. (2d) 111, (sub nom. Juniper Lumber Co., Re) 601 A.P.R. 111, 2001 CarswellNB 21 (N.B. Q.B.)
— referred to
Federal Gypsum Co., Re (2007), 2007 NSSC 384, 2007 CarswellNS 630, 261 N.S.R. (2d) 314, 835 A.P.R. 314, 40
C.B.R. (5th) 39 (N.S. S.C.) — referred to
Freeman, Re (1922), 55 N.S.R. 545, [1923] 1 D.L.R. 378, 1922 CarswellNS 57 (N.S. C.A.) — considered
Laidlaw Inc., Re (2002), 2002 CarswellOnt 790, 34 C.B.R. (4th) 72 (Ont. S.C.J. [Commercial List]) — referred to
Muscletech Research & Development Inc., Re (2006), 25 C.B.R. (5th) 231, 2006 CarswellOnt 6230 (Ont. S.C.J.) —
referred to
Olympia & York Developments Ltd. v. Royal Trust Co. (1993), 17 C.B.R. (3d) 1, (sub nom. Olympia & York
Developments Ltd., Re) 12 O.R. (3d) 500, 1993 CarswellOnt 182 (Ont. Gen. Div.) — referred to
Pine Valley Mining Corp., Re (2008), 2008 CarswellBC 579, 2008 BCSC 356, 41 C.B.R. (5th) 43 (B.C. S.C.) —
referred to
Siscoe & Savoie v. Royal Bank (1994), 1994 CarswellNB 14, 29 C.B.R. (3d) 1, 157 N.B.R. (2d) 42, 404 A.P.R. 42
(N.B. C.A.) — considered
Skeena Cellulose Inc., Re (2003), 2003 CarswellBC 1399, 2003 BCCA 344, 184 B.C.A.C. 54, 302 W.A.C. 54, 43
C.B.R. (4th) 187, 13 B.C.L.R. (4th) 236 (B.C. C.A.) — considered
Stelco Inc., Re (2005), 253 D.L.R. (4th) 109, 75 O.R. (3d) 5, 2 B.L.R. (4th) 238, 9 C.B.R. (5th) 135, 2005 CarswellOnt
1188, 196 O.A.C. 142 (Ont. C.A.) — considered
Triton Tubular Components Corp., Re (2005), 2005 CarswellOnt 4439, 14 C.B.R. (5th) 264 (Ont. S.C.J.) — referred to
Statutes considered:
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3
Generally — referred to
s. 135(2) — referred to
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36
Generally — referred to
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2
ScoZinc Ltd., Re, 2009 NSSC 136, 2009 CarswellNS 229
2009 NSSC 136, 2009 CarswellNS 229, 177 A.C.W.S. (3d) 293, 277 N.S.R. (2d) 251...
s. 4 — considered
s. 5 — considered
s. 6 — considered
s. 11 — pursuant to
s. 11.7 [en. 1997, c. 12, s. 124] — considered
s. 11.7(1) [en. 1997, c. 12, s. 124] — considered
s. 11.7(2) [en. 1997, c. 12, s. 124] — considered
s. 11.7(3) [en. 1997, c. 12, s. 124] — considered
s. 11.7(3)(d) [en. 1997, c. 12, s. 124] — considered
s. 12 — considered
s. 12(1) "claim" — considered
s. 12(2) — considered
Probate Act, R.S.N.S. 1900, c. 158
Generally — referred to
MOTION by monitor appointed under Companies' Creditors Arrangement Act for directions on whether it had authority to
allow revision of claim after claim's bar date but before date set for monitor to complete its assessment of claims.
D.R. Beveridge J. (orally):
1 On December 22, 2008 ScoZinc Ltd. was granted protection by way of a stay of proceedings of all claims against it pursuant
to s.11 of the Companies' Creditors Arrangement Act R.S.C. 1985, c. C-36. The stay has been extended from time to time.
Grant Thornton was appointed as the Monitor of the business and financial affairs of ScoZinc pursuant to s.11.7 of the CCAA.
2
The determination of creditors' claims was set by a Claims Procedure Order. This order set dates for the submission of
claims to the Monitor, and for the Monitor to assess the claims. The Monitor brought a motion seeking directions from the court
on whether it has the necessary authority to allow a revision of a claim after the claim's bar date but before the date set for the
Monitor to complete its assessment of claims.
3
The motion was heard on April 3, 2009. At the conclusion of the hearing of the motion I concluded that the Monitor did
have the necessary authority. I granted the requested order with reasons to follow. These are my reasons.
Background
4
The procedure for the identification and quantification of claims was established pursuant to my order of February 18,
2009. Any persons asserting a claim was to deliver to the Monitor a Proof of Claim by 5:00 p.m. on March 16, 2009, including
a statement of account setting out the full details of the claim. Any claimant that did not deliver a Proof of Claim by the claims
bar date, subject to the Monitor's agreement or as the court may otherwise order, would have its claim forever extinguished
and barred from making any claim against ScoZinc.
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3
ScoZinc Ltd., Re, 2009 NSSC 136, 2009 CarswellNS 229
2009 NSSC 136, 2009 CarswellNS 229, 177 A.C.W.S. (3d) 293, 277 N.S.R. (2d) 251...
5 The Monitor was directed to review all Proofs of Claim filed on or before March 16, 2009 and to accept, revise or disallow
the claims. Any revision or disallowance was to be communicated by Notice of Revision or Disallowance, no later than March
27, 2009. If a creditor disagreed with the assessment of the Monitor, it could dispute the assessment before a Claims Officer
and ultimately to a judge of the Supreme Court.
6 The three claims that have triggered the Monitor's motion for directions were submitted by Acadian Mining Corporation,
Royal Roads Corp., and Komatsu International (Canada) Inc.
7
ScoZinc is 100% owned by Acadian Mining Corp. Theso two corporations share office space, managerial staff, and
have common officers and directors. Acadian Mining is a substantial shareholder in Royal Roads and also have some common
officers and directors.
8 Originally Royal Roads asserted a claim as a secured creditor on the basis of a first charge security held by it on ScoZinc's
assets for a loan in the amount of approximately $2.3 million. Acadian Mining also claimed to be a secured creditor due to a
second charge on ScoZinc's assets securing approximately $23.5 million of debt. Both Royal Roads and Acadian Mining have
released their security. Each company submitted Proofs of Claim dated March 4, 2009 as unsecured creditors.
9 Royal Roads claim was for $579, 964.62. The claim by Acadian Mining was for $23,761.270.20. John Rawding, Financial
Officer for Acadian Mining and ScoZinc, prepared the Proofs of Claim for both Royal Roads and Acadian Mining. It appears
from the affidavit and materials submitted, and the Monitor's fifth report dated March 31, 2009 that there were errors in each
of the Proofs of Claim.
10
Mr. Rawding incorrectly attributed $1,720,035.38 as debt by Acadian Mining to Royal Roads when it should have
been debt owed by ScoZinc to Royal Roads. In addition, during year end audit procedures for Royal Roads, Acadian Mining
and ScoZinc, other erroneous entries were discovered. The total claim that should have been advanced by Royal Roads was
$2,772,734.19.
11
The appropriate claim that should have been submitted by Acadian Mining was $22,041,234.82, a reduction of
$1,720,035.38. Both Royal Roads and Acadian Mining submitted revised Proofs of Claim on March 25, 2009 with supporting
documentation.
12
The third claim is by Komatsu. Its initial Proof of Claim was dated March 16, 2009 for both secured and unsecured
claims of $4,245,663.78. The initial claim did not include a secured claim for the equipment that had been returned to Komatsu,
nor include a claim for equipment that was still being used by ScoZinc. A revised Proof of Claim was filed by Komatsu on
March 26, 2009.
13
The Monitor, sets out in its fifth report dated March 31, 2009, that after reviewing the relevant books and records, the
errors in the Proofs of Claim by Royal Roads, Acadian Mining and Komatsu were due to inadvertence. For all of these claims
it issued a Notice of Revision or Disallowance on March 27, 2009, allowing the claims as revised "if it is determined by the
court that the Monitor has the power to do so".
14
The request for directions and the circumstances pose the following issue:
Issue
15
Does the Monitor have the authority to allow the revision of a claim by increasing it based on evidence submitted by a
claimant within the time period set for the monitor to carry out its assessment of claims?
Analysis
16 The jurisdiction of the Monitor stems from the jurisdiction of the court granted to it by the CCAA. Whenever an order is
made under s.11 of the CCAA the court is required to appoint a monitor. Section 11.7 of the CCAA provides:
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ScoZinc Ltd., Re, 2009 NSSC 136, 2009 CarswellNS 229
2009 NSSC 136, 2009 CarswellNS 229, 177 A.C.W.S. (3d) 293, 277 N.S.R. (2d) 251...
11.7(1) When an order is made in respect of a company by the court under section 11, the court shall at the same time
appoint a person, in this section and in section 11.8 referred to as "the monitor", to monitor the business and financial
affairs of the company while the order remains in effect.
(2) Except as may be otherwise directed by the court, the auditor of the company may be appointed as the monitor.
(3) The monitor shall
(a) for the purposes of monitoring the company's business and financial affairs, have access to and examine the
company's property, including the premises, books, records, data, including data in electronic form, and other
financial documents of the company to the extent necessary to adequately assess the company's business and
financial affairs;
(b) file a report with the court on the state of the company's business and financial affairs, containing prescribed
information,
(i) forthwith after ascertaining any material adverse change in the company's projected cash-flow or
financial circumstances,
(ii) at least seven days before any meeting of creditors under section 4 or 5, or
(iii) at such other times as the court may order;
(c) advise the creditors of the filing of the report referred to in paragraph (b) in any notice of a meeting of
creditors referred to in section 4 or 5; and
(d) carry out such other functions in relation to the company as the court may direct.
...
17 It appears that the purpose of the CCAA is to grant to an insolvent company protection from its creditors in order to permit
it a reasonable opportunity to restructure its affairs in order to reach a compromise or arrangement between the company and its
creditors. The court has the power to order a meeting of the creditors or class of creditors for them to consider a compromise or
arrangement proposed by the debtor company ( s. 4, 5 ). Where a majority of the creditors representing two thirds value of the
creditors or class of creditors agree to a compromise or arrangement, the court may sanction it and thereafter such compromise
or arrangement is binding on all creditors, or class of creditors (s. 6).
18 Section 12 of the Act defines a claim to mean "any indebtedness, liability or obligation of any kind that, if unsecured, would
be a debt provable in bankruptcy within the meaning of the Bankruptcy and Insolvency Act." However, as noted by McElcheran
in Commercial Insolvency in Canada (LexisNexis Canada Inc., Markham, Ontario, 2005 at p. 279-80) the CCAA does not set
out a process for identification or determination of claims; instead, the Court creates a claims process by court order.
19 The only guidance provided by the CCAA is that in the event of a disagreement the amount of a claim shall be determined
by the court on summary application by the company or by the creditor. Section 12(2) of the Act provides:
Determination of amount of claim
(2) For the purposes of this Act, the amount represented by a claim of any secured or unsecured creditor shall be
determined as follows:
(a) the amount of an unsecured claim shall be the amount
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ScoZinc Ltd., Re, 2009 NSSC 136, 2009 CarswellNS 229
2009 NSSC 136, 2009 CarswellNS 229, 177 A.C.W.S. (3d) 293, 277 N.S.R. (2d) 251...
(i) in the case of a company in the course of being wound up under the Winding-up and Restructuring Act,
proof of which has been made in accordance with that Act,
(ii) in the case of a company that has made an authorized assignment or against which a bankruptcy order
has been made under the Bankruptcy and Insolvency Act, proof of which has been made in accordance
with that Act, or
(iii) in the case of any other company, proof of which might be made under the Bankruptcy and Insolvency
Act, but if the amount so provable is not admitted by the company, the amount shall be determined by the
court on summary application by the company or by the creditor; and
(b) the amount of a secured claim shall be the amount, proof of which might be made in respect thereof under
the Bankruptcy and Insolvency Act if the claim were unsecured, but the amount if not admitted by the company
shall, in the case of a company subject to pending proceedings under the Winding-up and Restructuring Act or
the Bankruptcy and Insolvency Act, be established by proof in the same manner as an unsecured claim under
the Winding-up and Restructuring Act or the Bankruptcy and Insolvency Act, as the case may be, and in the
case of any other company the amount shall be determined by the court on summary application by the company
or the creditor.
20
The only parties who appeared on this motion were the Monitor, ScoZinc and Komatsu. No specific submissions were
requested nor made by the parties with respect to the nature of the court's jurisdiction to determine the mechanism and time
lines to classify and quantify claims against the debtor company.
21 Under the Bankruptcy and Insolvency Act the Trustee is the designated gatekeeper who first determines whether a Proof
of Claim submitted by a creditor is valid. The trustee may admit the claim or disallow it in whole or in part (s.135(2) BIA). A
creditor who is dissatisfied with a decision by the trustee may appeal to a judge of the Bankruptcy Court.
22
In contrast, the CCAA does not set out the procedure beyond the language in s.12. The language only accomplishes two
things. The first is that the debtor company can agree on the amount of a secured or unsecured claim; and secondly, if there
is a disagreement, then on application of either the company or the creditor, the amount shall be determined by the court on
"summary application".
23 The practice has arisen for the court to create by order a claims process that is both flexible and expeditious. The Monitor
identifies, by review of the debtor's records, all potential claimants and sends to them a claim package. To ensure that all
creditors come forward and participate on a timely basis, there is a provision in the claims process order requiring creditors to
file their claims by a fixed date. If they do not, subject to further relief provided by the claims process order, or by the court,
the creditor's claim is barred.
24 If the Monitor disagrees with the claim, and the disagreement cannot be resolved, then a claimant can present its case to
a claims officer who is usually given the power to adjudicate disputed claims, with the right of appeal to a judge of the court
overseeing the CCAA proceedings.
25
The establishment of a claims process utilizing the monitor and or a claims officer by court order appears to be a well
accepted practice ( See for example Federal Gypsum Co., Re, 2007 NSSC 384 (N.S. S.C.); Olympia & York Developments Ltd.
v. Royal Trust Co. (1993), 17 C.B.R. (3d) 1 (Ont. Gen. Div.); Air Canada, Re (2004), 2 C.B.R. (5th) 23 (Ont. S.C.J. [Commercial
List]); Triton Tubular Components Corp., Re, [2005] O.J. No. 3926 (Ont. S.C.J.); Muscletech Research & Development Inc.,
Re, [2006] O.J. No. 4087 (Ont. S.C.J.); Pine Valley Mining Corp., Re, 2008 BCSC 356 (B.C. S.C.); Blue Range Resource
Corp., Re, 2000 ABCA 285 (Alta. C.A.); Carlen Transport Inc. v. Juniper Lumber Co. (Monitor of) (2001), 21 C.B.R. (4th)
222 (N.B. Q.B.).)
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6
ScoZinc Ltd., Re, 2009 NSSC 136, 2009 CarswellNS 229
2009 NSSC 136, 2009 CarswellNS 229, 177 A.C.W.S. (3d) 293, 277 N.S.R. (2d) 251...
26
I could find no reported case that doubt the authority of the court to create a claims process. Kenneth Kraft in his article
"The CCAA and the Claims Bar Process", (2000), 13 Commercial Insolvency Reporter 6, endorsed the utilization of a claims
process on the basis of reliance on the court's inherent jurisdiction, provided the process adhered to the specific mandates of
the CCAA. In unrelated contexts, caution has been expressed with respect to reliance on the inherent jurisdiction of the superior
court as the basis for dealing with the myriad issues that can arise under the CCAA (See: Skeena Cellulose Inc., Re (2003), 43
C.B.R. (4th) 187 (B.C. C.A.)) and Stelco Inc., Re, [2005] O.J. No. 1171 (Ont. C.A.)).
27
Sir J.H. Jacob, Q.C. in his seminal article "The Inherent Jurisdiction of the Court", (1970) Current Legal Problems 23,
concluded that it has been clear law from the earliest times that superior courts of justice, as part of their inherent jurisdiction,
have the power to control their own proceedings and process. He wrote:
Under its inherent jurisdiction, the court has power to control and regulate its process and proceedings, and it exercises
this power in a great variety of circumstances and by many different methods. Some of the instances of the exercise of
this power have been of far-reaching importance, others have dealt with matters of detail or have been of transient value.
Some have involved the exercise of administrative powers, others of judicial powers. Some have been turned into rules of
law, others by long usage or custom may have acquired the force of law, and still others remain mere rules of practice. The
exercise of this power has been pervasive throughout the whole legal machinery and has been extended to all stages of
proceedings, pre-trial, trial and post-trial. Indeed, it is difficult to set the limits upon the powers of the court in the exercise
of its inherent jurisdiction to control and regulate its process, for these limits are coincident with the needs of the court to
fulfil its judicial functions in the administration of justice.
p. 32-33
28 The CCAA gives no specific guidance to the court on how to determine the existence, nature, validity or extent of a claim
against a debtor company. As noted earlier, the only reference is in s. 12 of the Act that if there is a dispute as to the amount
of a claim, then the amount shall be determined by the court "on summary application". In Freeman, Re, [1922] N.S.J. No. 15,
[1923] 1 D.L.R. 378 (N.S. C.A.) (en banc) the court considered the words "on summary application" as they appeared in the
Probate Act R.S.N.S. 1900 c.158. Harris C.J. wrote:
[17] The words "summary application" do not mean without notice, but simply imply that the proceedings before the
Court are not to be conducted in the ordinary way, but in a concise way.
[18] The Oxford Dictionary p. 140 gives as one of the meanings of "summary" dispensing with needless details or
formalities — done with despatch.
[19] In the case of the Western &c R. Co. v. Atlanta (1901), 113 Ga. 537, the meaning of the words "summary
proceeding" is discussed at some length and the Court held at pp. 543-544: —
"In a summary manner does not at all mean that they may be abated without notice or hearing, but simply that
it may be done without a trial in the ordinary forms prescribed by law for a regular judicial procedure."
[20] I cite this not because it is a binding authority, but because its reasoning commends itself to my judgment and
I adopt it.
29
In my opinion, whatever process may be appropriate and necessary to adjudicate disputed claims that ultimately end up
before a judge of the superior court, the determination by the court that claims must initially be identified and assessed by the
Monitor, and heard first by a Claims Officer, is a valid exercise of the court's inherent jurisdiction.
30 The CCAA gives to the court the express and implied jurisdiction to do a variety of things. They need not all be enumerated.
The court is required to appoint a monitor (s.11.7). Once appointed, the monitor is required to monitor the company's business
and financial affairs. The Act mandates that the monitor have access to and examine the company's property including all
records. The monitor must file a report with the court on the state of the company's business and financial affairs and contain
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ScoZinc Ltd., Re, 2009 NSSC 136, 2009 CarswellNS 229
2009 NSSC 136, 2009 CarswellNS 229, 177 A.C.W.S. (3d) 293, 277 N.S.R. (2d) 251...
prescribed information. In addition, the monitor shall carry out such other functions in relation to the company as the court
may direct (s.11.7(3)(d)).
31 In these circumstances, it is not only logical, but eminently practical that the monitor, as an officer of the court, be directed
by court order to fulfil the analogous role to that of the trustee under the BIA. The Claims Procedure Order of February 18,
2009 accomplishes this.
Power of the Monitor
32 The Monitor was required by the Order to publish a notice to claimants in the newspaper regarding the claims procedure.
It was also required to send a claims package to known potential claimants identified by the Monitor through its review of the
books and records of ScoZinc. The claims bar date was set as March 16, 2009, or such later date as may be ordered by the court.
33 The duties of the Monitor, once a claim was received by it, were set out in paragraphs 9 and 10 of the Claims Procedure
Order. They provide as follows:
9. Upon receipt of a Proof of Claim:
a. The Monitor is hereby authorized and directed to use reasonable discretion as to the adequacy of compliance
as to the manner in which Proofs of Claim are completed and executed and may, where it is satisfied that a Claim
has been adequately proven, waive strict compliance with the requirements of this Order as to the completion and
the execution of a Proof of Claim. A Claim which is accepted by the Monitor shall constitute a Proven Claim;
b. the Monitor and ScoZinc may attempt to consensually resolve the classification and amount of any Claim
with the claimant prior to accepting, revising or disallowing such Claim; and
...
10. The Monitor shall review all Proofs of Claim filed on or before the Claims Bar Date. The Monitor shall accept,
revise or disallow such Proofs of Claim as contemplated herein. The Monitor shall send a Notice of Revision or
Disallowance and the form of Notice of Dispute to the Claimant as soon as the Claim has been revised or disallowed
but in any event no later than 11:59 p.m. (Halifax time) on March 27, 2009 or such later date as the Court may order.
Where the Monitor does not send a Notice of Revision or Disallowance by the aforementioned date to a Claimant
who has submitted a Proof of Claim, the Monitor shall be deemed to have accepted such Claim.
34 Any person who wished to dispute a Notice of Revision or Disallowance was required to file a notice to the monitor and
to the Claims Officer no later than April 6, 2009. The Claims Officer was designated to be Richard Cregan, Q.C., serving in
his personal capacity and not as Registrar in Bankruptcy. Subject to the direction of the court, the Claims Officer was given the
power to determine how evidence would be brought before him and any other procedural matters that may arise with respect
to the claim. A claimant or the Monitor may appeal the Claims Officer's decision to the court.
35 The Monitor suggests that the power given to it under paragraph 9(a) and 10 is sufficient to permit it to accept the revised
Proofs of Claim filed after the claim's bar date of March 16, 2009, but before its assessment date of March 27, 2009.
36
Reliance is also placed on the decision of the Alberta Court of Appeal in Blue Range Resource Corp., Re, 2000 ABCA
285 (Alta. C.A.). As noted by the Monitor, the decision in Blue Range did not directly deal with the issue on which the Monitor
here seeks directions. In Blue Range, the claims procedure established by the court set the claims bar date of June 15, 1999.
Claims of creditors not proven in accordance with the procedures set out were deemed to be forever barred. Some creditors filed
their Notice of Claim after the claims bar date. The monitor disallowed their claims. There were a second group of creditors
who filed their Notice of Claim prior to the applicable claims bar date, but then sought to amend their claims after the claims
bar date had passed. The monitor also disallowed these claims as late. What is not clear from the reported decisions is whether
this second group of creditors requested amendments of their claims during the time period granted to the Monitor to carry
out its assessment.
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8
ScoZinc Ltd., Re, 2009 NSSC 136, 2009 CarswellNS 229
2009 NSSC 136, 2009 CarswellNS 229, 177 A.C.W.S. (3d) 293, 277 N.S.R. (2d) 251...
37
The chambers judge allowed the late and amended claims to be filed. Enron Capital Corp. and the creditor's committee
sought leave to appeal that decision. Leave to appeal was granted on January 14, 2000 with respect to the following question:
What criteria in the circumstances of these cases should the Court use to exercise its discretion in deciding whether to allow
late claimants to file claims which, if proven, may be recognized, notwithstanding a previous claims bar order containing
a claims bar date which would otherwise bar the claim of the late claimants, and applying the criteria to each case, what
is the result?
Blue Range Resource Corp., Re, 2000 ABCA 16 (Alta. C.A. [In Chambers])
38
Wittmann J.A. delivered the judgment of the court. He noted that all counsel conceded that the court had the authority
to allow the late filing of claims and that the appeal was really a matter of what criteria the court should use in exercising that
power. Accordingly, a Claims Procedure Order that contains a claims bar date should not purport to forever bar a claim without
a saving provision. Wittmann J.A. set out the test for determining when a late claim may be included to be as follows:
[26] Therefore, the appropriate criteria to apply to the late claimants is as follows:
1. Was the delay caused by inadvertence and if so, did the claimant act in good faith?
2. What is the effect of permitting the claim in terms of the existence and impact of any relevant prejudice caused
by the delay?
3. If relevant prejudice is found can it be alleviated by attaching appropriate conditions to an order permitting
late filing?
4. If relevant prejudice is found which cannot be alleviated, are there any other considerations which may
nonetheless warrant an order permitting late filing?
[27] In the context of the criteria, "inadvertent" includes carelessness, negligence, accident, and is unintentional. I
will deal with the conduct of each of the respondents in turn below and then turn to a discussion of potential prejudice
suffered by the appellants.
2000 ABCA 285 (Alta. C.A.)
39 The appellants claimed that they would be prejudiced if the late claims were allowed because if they had known the late
claims would be allowed they would have voted differently. This assertion was rejected by the chambers judge. With respect
to what is meant by prejudiced, Wittmann J.A. wrote:
40 In a CCAA context, as in a BIA context, the fact that Enron and the other Creditors will receive less money if
late and late amended claims are allowed is not prejudice relevant to this criterion. Re-organization under the CCAA
involves compromise. Allowing all legitimate creditors to share in the available proceeds is an integral part of the
process. A reduction in that share can not be characterized as prejudice: Re Cohen (1956), 36 C.B.R. 21 (Alta. C.A.)
at 30-31. Further, I am in agreement with the test for prejudice used by the British Columbia Court of Appeal in
312630 British Columbia Ltd. It is: did the creditor(s) by reason of the late filings lose a realistic opportunity to do
anything that they otherwise might have done? Enron and the other creditors were fully informed about the potential
for late claims being permitted, and were specifically aware of the existence of the late claimants as creditors. I find,
therefore, that Enron and the Creditors will not suffer any relevant prejudice should the late claims be permitted.
40
In considering how the Monitor should carry out its duties and responsibilities under the Claims Procedure Order it is
important to note that the Monitor is an officer of the court and is obliged to ensure that the interests of the stakeholders are
considered including all creditors, the company and its shareholders ( See Laidlaw Inc., Re (2002), 34 C.B.R. (4th) 72 (Ont.
S.C.J. [Commercial List]).
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
9
ScoZinc Ltd., Re, 2009 NSSC 136, 2009 CarswellNS 229
2009 NSSC 136, 2009 CarswellNS 229, 177 A.C.W.S. (3d) 293, 277 N.S.R. (2d) 251...
41
In a different context Turnball J.A. in Siscoe & Savoie v. Royal Bank (1994), 29 C.B.R. (3d) 1 (N.B. C.A.) commented
that the monitor is an agent of the court and as a result is responsible and accountable to the court, owing a fiduciary duty to
all of the parties (para. 28).
42
In my opinion, para. 9(a) is not of assistance in determining the authority of the Monitor to revise upward a claim filed
after the claim's bar date but before the assessment date. Paragraph 9(a) authorizes the Monitor to use reasonable discretion
as to the adequacy of compliance as to the manner to which Proofs of Claim are completed and executed. If it satisfied that
the claim has been adequately proven it may waive strict compliance with the requirements of the order as to completion and
the execution of a Proof of Claim.
43 Paragraph 10 of the Claims Procedure Order mandates the Monitor shall review all Proofs of Claim filed on or before the
claims bar date. It shall "accept, revise or disallow such Proofs of Claim as contemplated herein". While normally a monitor's
revision would be to reduce a Proof of Claim, there is in fact nothing in the Claims Procedure Order that so restricts the Monitor's
authority. It is obviously contemplated by para. 10 that the monitor is to carry out some assessment of the claims that are
submitted.
44
In my view, the Proofs of Claim that are filed act both as a form of pleading and an opportunity for the claimant to
provide supporting documents to evidence its claim. In the case before me, the creditors discovered that the claims they had
submitted were inaccurate and further evidence was tendered to the Monitor to demonstrate. The Monitor, after reviewing the
evidence, accepted the validity of the claims.
45 Courts in a general way are engaged in dispensing justice. They do so by setting up and applying procedural rules to ensure
that litigants are afforded a fair hearing. The resolution of disputes through the litigation process, including the ultimate hearing,
is fundamentally a truth-seeking process to determine the facts and to apply the law to those facts. Can it be any different where
the process is not in the court but under its supervision pursuant to a claims process under the CCAA.?
46
To suggest that the monitor does not have the authority to receive evidence and submissions and to consider them is to
say that it does not have any real authority to carry out its court appointed role to assess the claims that have been submitted.
The notion that the monitor cannot look at documentary evidence on its own initiative or at the instance of a claimant, and even
consider submissions, is to deny it any real power to consider and make a preliminary determination of the merits of a claim.
47
The Claims Procedure Order contains a number of provisions that anticipate the exchange of information between the
Monitor, the company and a creditor. Paragraph 9(b) authorizes the Monitor and ScoZinc to attempt to consensually resolve the
classification and the amount of any claim with a claimant prior to accepting, revising or disallowing such claim. Paragraph 17
of the Claims Procedure Order directs that the Monitor shall at all times be authorized to enter into negotiations with claimants
and settle any claim on such terms as the Monitor may consider appropriate.
48
In my opinion, it does not matter that revised claims were submitted after the claims bar date. In essence, the Monitor
simply acted to revise the Proofs of Claim already submitted to conform with the evidence elicited by the Monitor, or submitted
to it. The Monitor had the necessary authority to revise the claims, either as to classification or amount.
49 If a claimant seeks to revise or amend its claim after the assessment date set out in the Claims Procedure Order, different
considerations may come into play. The appropriate procedure will depend on the provisions of the Claims Procedure Order.
In addition, the court, as the ultimate arbiter of disputed claims under s. 12 of the CCAA, should always be viewed as having
the jurisdiction to permit appropriate revision of claims.
Order accordingly.
End of Document
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reserved.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
10
Tab 2
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
Most Negative Treatment: Distinguished
Most Recent Distinguished: Vesnaver, Re | 2015 QCCS 3357, 2015 CarswellQue 11729, 2015 CarswellQue 6930, J.E.
2015-1261, EYB 2015-254595, 258 A.C.W.S. (3d) 666 | (C.S. Qué., Jul 16, 2015)
2010 SCC 60
Supreme Court of Canada
Ted Leroy Trucking [Century Services] Ltd., Re
2010 CarswellBC 3419, 2010 CarswellBC 3420, 2010 SCC 60, [2010] 3 S.C.R. 379, [2010]
G.S.T.C. 186, [2011] 2 W.W.R. 383, [2011] B.C.W.L.D. 533, [2011] B.C.W.L.D. 534, 12
B.C.L.R. (5th) 1, 196 A.C.W.S. (3d) 27, 2011 D.T.C. 5006 (Eng.), 2011 G.T.C. 2006 (Eng.), 296
B.C.A.C. 1, 326 D.L.R. (4th) 577, 409 N.R. 201, 503 W.A.C. 1, 72 C.B.R. (5th) 170, J.E. 2011-5
Century Services Inc. (Appellant) and Attorney General of Canada on
behalf of Her Majesty The Queen in Right of Canada (Respondent)
Deschamps J., McLachlin C.J.C., Binnie, LeBel, Fish, Abella, Charron, Rothstein, Cromwell JJ.
Heard: May 11, 2010
Judgment: December 16, 2010
Docket: 33239
Proceedings: reversing Ted Leroy Trucking Ltd., Re (2009), 2009 CarswellBC 1195, 2009 G.T.C. 2020 (Eng.), 2009 BCCA
205, 270 B.C.A.C. 167, 454 W.A.C. 167, [2009] 12 W.W.R. 684, 98 B.C.L.R. (4th) 242, [2009] G.S.T.C. 79 (B.C. C.A.);
reversing Ted Leroy Trucking Ltd., Re (2008), 2008 CarswellBC 2895, 2008 BCSC 1805, [2008] G.S.T.C. 221, 2009 G.T.C.
2011 (Eng.) (B.C. S.C. [In Chambers])
Counsel: Mary I.A. Buttery, Owen J. James, Matthew J.G. Curtis for Appellant
Gordon Bourgard, David Jacyk, Michael J. Lema for Respondent
Subject: Estates and Trusts; Goods and Services Tax (GST); Tax — Miscellaneous; Insolvency
Headnote
Tax --- Goods and Services Tax — Collection and remittance — GST held in trust
Debtor owed Crown under Excise Tax Act (ETA) for unremitted GST — Debtor sought relief under Companies' Creditors
Arrangement Act (CCAA) — Under order of BC Supreme Court, amount of GST debt was placed in trust account and
remaining proceeds of sale of assets paid to major secured creditor — Debtor's application for partial lifting of stay of
proceedings to assign itself into bankruptcy was granted, while Crown's application for payment of tax debt was dismissed
— Crown's appeal to BC Court of Appeal was allowed — Creditor appealed to Supreme Court of Canada — Appeal
allowed — Analysis of ETA and CCAA yielded conclusion that CCAA provides that statutory deemed trusts do not apply,
and that Parliament did not intend to restore Crown's deemed trust priority in GST claims under CCAA when it amended
ETA in 2000 — Parliament had moved away from asserting priority for Crown claims under both CCAA and Bankruptcy
and Insolvency Act (BIA), and neither statute provided for preferred treatment of GST claims — Giving Crown priority
over GST claims during CCAA proceedings but not in bankruptcy would reduce use of more flexible and responsive
CCAA regime — Parliament likely inadvertently succumbed to drafting anomaly — Section 222(3) of ETA could not
be seen as having impliedly repealed s. 18.3 of CCAA by its subsequent passage, given recent amendments to CCAA —
Court had discretion under CCAA to construct bridge to liquidation under BIA, and partially lift stay of proceedings to
allow entry into liquidation — No "gap" should exist when moving from CCAA to BIA — Court order segregating funds
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
1
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
did not have certainty that Crown rather than creditor would be beneficiary sufficient to support express trust — Amount
held in respect of GST debt was not subject to deemed trust, priority or express trust in favour of Crown — Excise Tax
Act, R.S.C. 1985, c. E-15, ss. 222(1), (1.1).
Tax --- General principles — Priority of tax claims in bankruptcy proceedings
Debtor owed Crown under Excise Tax Act (ETA) for unremitted GST — Debtor sought relief under Companies' Creditors
Arrangement Act (CCAA) — Under order of BC Supreme Court, amount of GST debt was placed in trust account and
remaining proceeds of sale of assets paid to major secured creditor — Debtor's application for partial lifting of stay of
proceedings to assign itself into bankruptcy was granted, while Crown's application for payment of tax debt was dismissed
— Crown's appeal to BC Court of Appeal was allowed — Creditor appealed to Supreme Court of Canada — Appeal
allowed — Analysis of ETA and CCAA yielded conclusion that CCAA provides that statutory deemed trusts do not apply,
and that Parliament did not intend to restore Crown's deemed trust priority in GST claims under CCAA when it amended
ETA in 2000 — Parliament had moved away from asserting priority for Crown claims under both CCAA and Bankruptcy
and Insolvency Act (BIA), and neither statute provided for preferred treatment of GST claims — Giving Crown priority
over GST claims during CCAA proceedings but not in bankruptcy would reduce use of more flexible and responsive
CCAA regime — Parliament likely inadvertently succumbed to drafting anomaly — Section 222(3) of ETA could not
be seen as having impliedly repealed s. 18.3 of CCAA by its subsequent passage, given recent amendments to CCAA —
Court had discretion under CCAA to construct bridge to liquidation under BIA, and partially lift stay of proceedings to
allow entry into liquidation — No "gap" should exist when moving from CCAA to BIA — Court order segregating funds
did not have certainty that Crown rather than creditor would be beneficiary sufficient to support express trust — Amount
held in respect of GST debt was not subject to deemed trust, priority or express trust in favour of Crown.
Taxation --- Taxe sur les produits et services — Perception et versement — Montant de TPS détenu en fiducie
Débitrice devait à la Couronne des montants de TPS qu'elle n'avait pas remis, en vertu de la Loi sur la taxe d'accise (LTA)
— Débitrice a entamé des procédures judiciaires en vertu de la Loi sur les arrangements avec les créanciers des compagnies
(LACC) — En vertu d'une ordonnance du tribunal, le montant de la créance fiscale a été déposé dans un compte en fiducie
et la balance du produit de la vente des actifs a servi à payer le créancier garanti principal — Demande de la débitrice visant
à obtenir la levée partielle de la suspension de procédures afin qu'elle puisse faire cession de ses biens a été accordée, alors
que la demande de la Couronne visant à obtenir le paiement des montants de TPS non remis a été rejetée — Appel interjeté
par la Couronne a été accueilli — Créancier a formé un pourvoi — Pourvoi accueilli — Analyse de la LTA et de la LACC
conduisait à la conclusion que le législateur ne saurait avoir eu l'intention de redonner la priorité, dans le cadre de la LACC,
à la fiducie réputée de la Couronne à l'égard de ses créances relatives à la TPS quand il a modifié la LTA, en 2000 —
Législateur avait mis un terme à la priorité accordée aux créances de la Couronne sous les régimes de la LACC et de la
Loi sur la faillite et l'insolvabilité (LFI), et ni l'une ni l'autre de ces lois ne prévoyaient que les créances relatives à la TPS
bénéficiaient d'un traitement préférentiel — Fait de faire primer la priorité de la Couronne sur les créances découlant de la
TPS dans le cadre de procédures fondées sur la LACC mais pas en cas de faillite aurait pour effet de restreindre le recours
à la possibilité de se restructurer sous le régime plus souple et mieux adapté de la LACC — Il semblait probable que le
législateur avait par inadvertance commis une anomalie rédactionnelle — On ne pourrait pas considérer l'art. 222(3) de la
LTA comme ayant implicitement abrogé l'art. 18.3 de la LACC, compte tenu des modifications récemment apportées à la
LACC — Sous le régime de la LACC, le tribunal avait discrétion pour établir une passerelle vers une liquidation opérée
sous le régime de la LFI et de lever la suspension partielle des procédures afin de permettre à la débitrice de procéder à la
transition au régime de liquidation — Il n'y avait aucune certitude, en vertu de l'ordonnance du tribunal, que la Couronne
était le bénéficiaire véritable de la fiducie ni de fondement pour donner naissance à une fiducie expresse — Montant perçu
au titre de la TPS ne faisait l'objet d'aucune fiducie présumée, priorité ou fiducie expresse en faveur de la Couronne.
Taxation --- Principes généraux — Priorité des créances fiscales dans le cadre de procédures en faillite
Débitrice devait à la Couronne des montants de TPS qu'elle n'avait pas remis, en vertu de la Loi sur la taxe d'accise (LTA)
— Débitrice a entamé des procédures judiciaires en vertu de la Loi sur les arrangements avec les créanciers des compagnies
(LACC) — En vertu d'une ordonnance du tribunal, le montant de la créance fiscale a été déposé dans un compte en fiducie
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
2
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
et la balance du produit de la vente des actifs a servi à payer le créancier garanti principal — Demande de la débitrice visant
à obtenir la levée partielle de la suspension de procédures afin qu'elle puisse faire cession de ses biens a été accordée, alors
que la demande de la Couronne visant à obtenir le paiement des montants de TPS non remis a été rejetée — Appel interjeté
par la Couronne a été accueilli — Créancier a formé un pourvoi — Pourvoi accueilli — Analyse de la LTA et de la LACC
conduisait à la conclusion que le législateur ne saurait avoir eu l'intention de redonner la priorité, dans le cadre de la LACC,
à la fiducie réputée de la Couronne à l'égard de ses créances relatives à la TPS quand il a modifié la LTA, en 2000 —
Législateur avait mis un terme à la priorité accordée aux créances de la Couronne sous les régimes de la LACC et de la
Loi sur la faillite et l'insolvabilité (LFI), et ni l'une ni l'autre de ces lois ne prévoyaient que les créances relatives à la TPS
bénéficiaient d'un traitement préférentiel — Fait de faire primer la priorité de la Couronne sur les créances découlant de la
TPS dans le cadre de procédures fondées sur la LACC mais pas en cas de faillite aurait pour effet de restreindre le recours
à la possibilité de se restructurer sous le régime plus souple et mieux adapté de la LACC — Il semblait probable que le
législateur avait par inadvertance commis une anomalie rédactionnelle — On ne pourrait pas considérer l'art. 222(3) de la
LTA comme ayant implicitement abrogé l'art. 18.3 de la LACC, compte tenu des modifications récemment apportées à la
LACC — Sous le régime de la LACC, le tribunal avait discrétion pour établir une passerelle vers une liquidation opérée
sous le régime de la LFI et de lever la suspension partielle des procédures afin de permettre à la débitrice de procéder à la
transition au régime de liquidation — Il n'y avait aucune certitude, en vertu de l'ordonnance du tribunal, que la Couronne
était le bénéficiaire véritable de la fiducie ni de fondement pour donner naissance à une fiducie expresse — Montant perçu
au titre de la TPS ne faisait l'objet d'aucune fiducie présumée, priorité ou fiducie expresse en faveur de la Couronne.
The debtor company owed the Crown under the Excise Tax Act (ETA) for GST that was not remitted. The debtor
commenced proceedings under the Companies' Creditors Arrangement Act (CCAA). Under an order by the B.C. Supreme
Court, the amount of the tax debt was placed in a trust account, and the remaining proceeds from the sale of the debtor's
assets were paid to the major secured creditor. The debtor's application for a partial lifting of the stay of proceedings
in order to assign itself into bankruptcy was granted, while the Crown's application for the immediate payment of the
unremitted GST was dismissed.
The Crown's appeal to the B.C. Court of Appeal was allowed. The Court of Appeal found that the lower court was bound
by the ETA to give the Crown priority once bankruptcy was inevitable. The Court of Appeal ruled that there was a deemed
trust under s. 222 of the ETA or that an express trust was created in the Crown's favour by the court order segregating
the GST funds in the trust account.
The creditor appealed to the Supreme Court of Canada.
Held: The appeal was allowed.
Per Deschamps J. (McLachlin C.J.C., Binnie, LeBel, Charron, Rothstein, Cromwell JJ. concurring): A purposive and
contextual analysis of the ETA and CCAA yielded the conclusion that Parliament could not have intended to restore the
Crown's deemed trust priority in GST claims under the CCAA when it amended the ETA in 2000. Parliament had moved
away from asserting priority for Crown claims in insolvency law under both the CCAA and Bankruptcy and Insolvency
Act (BIA). Unlike for source deductions, there was no express statutory basis in the CCAA or BIA for concluding that
GST claims enjoyed any preferential treatment. The internal logic of the CCAA also militated against upholding a deemed
trust for GST claims.
Giving the Crown priority over GST claims during CCAA proceedings but not in bankruptcy would, in practice, deprive
companies of the option to restructure under the more flexible and responsive CCAA regime. It seemed likely that
Parliament had inadvertently succumbed to a drafting anomaly, which could be resolved by giving precedence to s. 18.3
of the CCAA. Section 222(3) of the ETA could no longer be seen as having impliedly repealed s. 18.3 of the CCAA by
being passed subsequently to the CCAA, given the recent amendments to the CCAA. The legislative context supported
the conclusion that s. 222(3) of the ETA was not intended to narrow the scope of s. 18.3 of the CCAA.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
3
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
The breadth of the court's discretion under the CCAA was sufficient to construct a bridge to liquidation under the BIA,
so there was authority under the CCAA to partially lift the stay of proceedings to allow the debtor's entry into liquidation.
There should be no gap between the CCAA and BIA proceedings that would invite a race to the courthouse to assert
priorities.
The court order did not have the certainty that the Crown would actually be the beneficiary of the funds sufficient to support
an express trust, as the funds were segregated until the dispute between the creditor and the Crown could be resolved. The
amount collected in respect of GST but not yet remitted to the Receiver General of Canada was not subject to a deemed
trust, priority or express trust in favour of the Crown.
Per Fish J. (concurring): Parliament had declined to amend the provisions at issue after detailed consideration of the
insolvency regime, so the apparent conflict between s. 18.3 of the CCAA and s. 222 of the ETA should not be treated
as a drafting anomaly. In the insolvency context, a deemed trust would exist only when two complementary elements
co-existed: first, a statutory provision creating the trust; and second, a CCAA or BIA provision confirming its effective
operation. Parliament had created the Crown's deemed trust in the Income Tax Act, Canada Pension Plan and Employment
Insurance Act and then confirmed in clear and unmistakable terms its continued operation under both the CCAA and
the BIA regimes. In contrast, the ETA created a deemed trust in favour of the Crown, purportedly notwithstanding any
contrary legislation, but Parliament did not expressly provide for its continued operation in either the BIA or the CCAA.
The absence of this confirmation reflected Parliament's intention to allow the deemed trust to lapse with the commencement
of insolvency proceedings. Parliament's evident intent was to render GST deemed trusts inoperative upon the institution
of insolvency proceedings, and so s. 222 of the ETA mentioned the BIA so as to exclude it from its ambit, rather than
include it as the other statutes did. As none of these statutes mentioned the CCAA expressly, the specific reference to the
BIA had no bearing on the interaction with the CCAA. It was the confirmatory provisions in the insolvency statutes that
would determine whether a given deemed trust would subsist during insolvency proceedings.
Per Abella J. (dissenting): The appellate court properly found that s. 222(3) of the ETA gave priority during CCAA
proceedings to the Crown's deemed trust in unremitted GST. The failure to exempt the CCAA from the operation of this
provision was a reflection of clear legislative intent. Despite the requests of various constituencies and case law confirming
that the ETA took precedence over the CCAA, there was no responsive legislative revision and the BIA remained the only
exempted statute. There was no policy justification for interfering, through interpretation, with this clarity of legislative
intention and, in any event, the application of other principles of interpretation reinforced this conclusion. Contrary to
the majority's view, the "later in time" principle did not favour the precedence of the CCAA, as the CCAA was merely
re-enacted without significant substantive changes. According to the Interpretation Act, in such circumstances, s. 222(3)
of the ETA remained the later provision. The chambers judge was required to respect the priority regime set out in s.
222(3) of the ETA and so did not have the authority to deny the Crown's request for payment of the GST funds during
the CCAA proceedings.
La compagnie débitrice devait à la Couronne des montants de TPS qu'elle n'avait pas remis, en vertu de la Loi sur la
taxe d'accise (LTA). La débitrice a entamé des procédures judiciaires en vertu de la Loi sur les arrangements avec les
créanciers des compagnies (LACC). En vertu d'une ordonnance du tribunal, le montant de la créance fiscale a été déposé
dans un compte en fiducie et la balance du produit de la vente des actifs de la débitrice a servi à payer le créancier garanti
principal. La demande de la débitrice visant à obtenir la levée partielle de la suspension de procédures afin qu'elle puisse
faire cession de ses biens a été accordée, alors que la demande de la Couronne visant à obtenir le paiement immédiat des
montants de TPS non remis a été rejetée.
L'appel interjeté par la Couronne a été accueilli. La Cour d'appel a conclu que le tribunal se devait, en vertu de la LTA, de
donner priorité à la Couronne une fois la faillite inévitable. La Cour d'appel a estimé que l'art. 222 de la LTA établissait
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
4
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
une fiducie présumée ou bien que l'ordonnance du tribunal à l'effet que les montants de TPS soient détenus dans un compte
en fiducie créait une fiducie expresse en faveur de la Couronne.
Le créancier a formé un pourvoi.
Arrêt: Le pourvoi a été accueilli.
Deschamps, J. (McLachlin, J.C.C., Binnie, LeBel, Charron, Rothstein, Cromwell, JJ., souscrivant à son opinion) : Une
analyse téléologique et contextuelle de la LTA et de la LACC conduisait à la conclusion que le législateur ne saurait
avoir eu l'intention de redonner la priorité, dans le cadre de la LACC, à la fiducie réputée de la Couronne à l'égard de ses
créances relatives à la TPS quand il a modifié la LTA, en 2000. Le législateur avait mis un terme à la priorité accordée
aux créances de la Couronne dans le cadre du droit de l'insolvabilité, sous le régime de la LACC et celui de la Loi sur la
faillite et l'insolvabilité (LFI). Contrairement aux retenues à la source, aucune disposition législative expresse ne permettait
de conclure que les créances relatives à la TPS bénéficiaient d'un traitement préférentiel sous le régime de la LACC ou
celui de la LFI. La logique interne de la LACC allait également à l'encontre du maintien de la fiducie réputée à l'égard
des créances découlant de la TPS.
Le fait de faire primer la priorité de la Couronne sur les créances découlant de la TPS dans le cadre de procédures fondées
sur la LACC mais pas en cas de faillite aurait pour effet, dans les faits, de priver les compagnies de la possibilité de
se restructurer sous le régime plus souple et mieux adapté de la LACC. Il semblait probable que le législateur avait par
inadvertance commis une anomalie rédactionnelle, laquelle pouvait être corrigée en donnant préséance à l'art. 18.3 de la
LACC. On ne pouvait plus considérer l'art. 222(3) de la LTA comme ayant implicitement abrogé l'art. 18.3 de la LACC
parce qu'il avait été adopté après la LACC, compte tenu des modifications récemment apportées à la LACC. Le contexte
législatif étayait la conclusion suivant laquelle l'art. 222(3) de la LTA n'avait pas pour but de restreindre la portée de l'art.
18.3 de la LACC.
L'ampleur du pouvoir discrétionnaire conféré au tribunal par la LACC était suffisant pour établir une passerelle vers une
liquidation opérée sous le régime de la LFI, de sorte qu'il avait, en vertu de la LACC, le pouvoir de lever la suspension
partielle des procédures afin de permettre à la débitrice de procéder à la transition au régime de liquidation. Il n'y avait
aucune certitude, en vertu de l'ordonnance du tribunal, que la Couronne était le bénéficiaire véritable de la fiducie ni de
fondement pour donner naissance à une fiducie expresse, puisque les fonds étaient détenus à part jusqu'à ce que le litige
entre le créancier et la Couronne soit résolu. Le montant perçu au titre de la TPS mais non encore versé au receveur général
du Canada ne faisait l'objet d'aucune fiducie présumée, priorité ou fiducie expresse en faveur de la Couronne.
Fish, J. (souscrivant aux motifs des juges majoritaires) : Le législateur a refusé de modifier les dispositions en question
suivant un examen approfondi du régime d'insolvabilité, de sorte qu'on ne devrait pas qualifier l'apparente contradiction
entre l'art. 18.3 de la LACC et l'art. 222 de la LTA d'anomalie rédactionnelle. Dans un contexte d'insolvabilité, on ne
pourrait conclure à l'existence d'une fiducie présumée que lorsque deux éléments complémentaires étaient réunis : en
premier lieu, une disposition législative qui crée la fiducie et, en second lieu, une disposition de la LACC ou de la LFI
qui confirme l'existence de la fiducie. Le législateur a établi une fiducie présumée en faveur de la Couronne dans la Loi
de l'impôt sur le revenu, le Régime de pensions du Canada et la Loi sur l'assurance-emploi puis, il a confirmé en termes
clairs et explicites sa volonté de voir cette fiducie présumée produire ses effets sous le régime de la LACC et de la LFI.
Dans le cas de la LTA, il a établi une fiducie présumée en faveur de la Couronne, sciemment et sans égard pour toute
législation à l'effet contraire, mais n'a pas expressément prévu le maintien en vigueur de celle-ci sous le régime de la
LFI ou celui de la LACC. L'absence d'une telle confirmation témoignait de l'intention du législateur de laisser la fiducie
présumée devenir caduque au moment de l'introduction de la procédure d'insolvabilité. L'intention du législateur était
manifestement de rendre inopérantes les fiducies présumées visant la TPS dès l'introduction d'une procédure d'insolvabilité
et, par conséquent, l'art. 222 de la LTA mentionnait la LFI de manière à l'exclure de son champ d'application, et non de l'y
inclure, comme le faisaient les autres lois. Puisqu'aucune de ces lois ne mentionnait spécifiquement la LACC, la mention
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5
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
explicite de la LFI n'avait aucune incidence sur l'interaction avec la LACC. C'était les dispositions confirmatoires que
l'on trouvait dans les lois sur l'insolvabilité qui déterminaient si une fiducie présumée continuerait d'exister durant une
procédure d'insolvabilité.
Abella, J. (dissidente) : La Cour d'appel a conclu à bon droit que l'art. 222(3) de la LTA donnait préséance à la fiducie
présumée qui est établie en faveur de la Couronne à l'égard de la TPS non versée. Le fait que la LACC n'ait pas été soustraite
à l'application de cette disposition témoignait d'une intention claire du législateur. Malgré les demandes répétées de divers
groupes et la jurisprudence ayant confirmé que la LTA l'emportait sur la LACC, le législateur n'est pas intervenu et la
LFI est demeurée la seule loi soustraite à l'application de cette disposition. Il n'y avait pas de considération de politique
générale qui justifierait d'aller à l'encontre, par voie d'interprétation législative, de l'intention aussi clairement exprimée
par le législateur et, de toutes manières, cette conclusion était renforcée par l'application d'autres principes d'interprétation.
Contrairement à l'opinion des juges majoritaires, le principe de la préséance de la « loi postérieure » ne militait pas en
faveur de la présance de la LACC, celle-ci ayant été simplement adoptée à nouveau sans que l'on ne lui ait apporté de
modifications importantes. En vertu de la Loi d'interprétation, dans ces circonstances, l'art. 222(3) de la LTA demeurait la
disposition postérieure. Le juge siégeant en son cabinet était tenu de respecter le régime de priorités établi à l'art. 222(3)
de la LTA, et il ne pouvait pas refuser la demande présentée par la Couronne en vue de se faire payer la TPS dans le cadre
de la procédure introduite en vertu de la LACC.
Table of Authorities
Cases considered by Deschamps J.:
Air Canada, Re (2003), 42 C.B.R. (4th) 173, 2003 CarswellOnt 2464 (Ont. S.C.J. [Commercial List]) — referred to
Air Canada, Re (2003), 2003 CarswellOnt 4967 (Ont. S.C.J. [Commercial List]) — referred to
Alternative granite & marbre inc., Re (2009), (sub nom. Dep. Min. Rev. Quebec v. Caisse populaire Desjardins de
Montmagny) 2009 G.T.C. 2036 (Eng.), (sub nom. Quebec (Revenue) v. Caisse populaire Desjardins de Montmagny)
[2009] 3 S.C.R. 286, 312 D.L.R. (4th) 577, [2009] G.S.T.C. 154, (sub nom. 9083-4185 Québec Inc. (Bankrupt), Re)
394 N.R. 368, 60 C.B.R. (5th) 1, 2009 SCC 49, 2009 CarswellQue 10706, 2009 CarswellQue 10707 (S.C.C.) —
referred to
ATB Financial v. Metcalfe & Mansfield Alternative Investments II Corp. (2008), 2008 ONCA 587, 2008 CarswellOnt
4811, (sub nom. Metcalfe & Mansfield Alternative Investments II Corp., Re) 240 O.A.C. 245, (sub nom. Metcalfe &
Mansfield Alternative Investments II Corp., Re) 296 D.L.R. (4th) 135, (sub nom. Metcalfe & Mansfield Alternative
Investments II Corp., Re) 92 O.R. (3d) 513, 45 C.B.R. (5th) 163, 47 B.L.R. (4th) 123 (Ont. C.A.) — considered
Canadian Airlines Corp., Re (2000), [2000] 10 W.W.R. 269, 20 C.B.R. (4th) 1, 84 Alta. L.R. (3d) 9, 9 B.L.R. (3d)
41, 2000 CarswellAlta 662, 2000 ABQB 442, 265 A.R. 201 (Alta. Q.B.) — referred to
Canadian Red Cross Society / Société Canadienne de la Croix Rouge, Re (2000), 2000 CarswellOnt 3269, 19 C.B.R.
(4th) 158 (Ont. S.C.J.) — referred to
Doré c. Verdun (Municipalité) (1997), (sub nom. Doré v. Verdun (City)) [1997] 2 S.C.R. 862, (sub nom. Doré v.
Verdun (Ville)) 215 N.R. 81, (sub nom. Doré v. Verdun (City)) 150 D.L.R. (4th) 385, 1997 CarswellQue 159, 1997
CarswellQue 850 (S.C.C.) — distinguished
Dylex Ltd., Re (1995), 31 C.B.R. (3d) 106, 1995 CarswellOnt 54 (Ont. Gen. Div. [Commercial List]) — considered
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6
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
First Vancouver Finance v. Minister of National Revenue (2002), [2002] 3 C.T.C. 285, (sub nom. Minister of National
Revenue v. First Vancouver Finance) 2002 D.T.C. 6998 (Eng.), (sub nom. Minister of National Revenue v. First
Vancouver Finance) 2002 D.T.C. 7007 (Fr.), 288 N.R. 347, 212 D.L.R. (4th) 615, [2002] G.S.T.C. 23, [2003] 1
W.W.R. 1, 45 C.B.R. (4th) 213, 2002 SCC 49, 2002 CarswellSask 317, 2002 CarswellSask 318, [2002] 2 S.C.R.
720 (S.C.C.) — considered
Gauntlet Energy Corp., Re (2003), 30 Alta. L.R. (4th) 192, 2003 ABQB 894, 2003 CarswellAlta 1735, [2003]
G.S.T.C. 193, 49 C.B.R. (4th) 213, [2004] 10 W.W.R. 180, 352 A.R. 28 (Alta. Q.B.) — referred to
Hongkong Bank of Canada v. Chef Ready Foods Ltd. (1990), 51 B.C.L.R. (2d) 84, 1990 CarswellBC 394, 4 C.B.R.
(3d) 311, (sub nom. Chef Ready Foods Ltd. v. Hongkong Bank of Canada) [1991] 2 W.W.R. 136 (B.C. C.A.) —
referred to
Ivaco Inc., Re (2006), 2006 C.E.B. & P.G.R. 8218, 25 C.B.R. (5th) 176, 83 O.R. (3d) 108, 275 D.L.R. (4th) 132,
2006 CarswellOnt 6292, 56 C.C.P.B. 1, 26 B.L.R. (4th) 43 (Ont. C.A.) — referred to
Komunik Corp., Re (2010), 2010 CarswellQue 686, 2010 QCCA 183 (C.A. Que.) — referred to
Komunik Corp., Re (2009), 2009 QCCS 6332, 2009 CarswellQue 13962 (C.S. Que.) — referred to
Nova Metal Products Inc. v. Comiskey (Trustee of) (1990), 1990 CarswellOnt 139, 1 C.B.R. (3d) 101, (sub nom. Elan
Corp. v. Comiskey) 1 O.R. (3d) 289, (sub nom. Elan Corp. v. Comiskey) 41 O.A.C. 282 (Ont. C.A.) — considered
Ottawa Senators Hockey Club Corp., Re (2005), 2005 G.T.C. 1327 (Eng.), 6 C.B.R. (5th) 293, 2005 D.T.C. 5233
(Eng.), 2005 CarswellOnt 8, [2005] G.S.T.C. 1, 193 O.A.C. 95, 73 O.R. (3d) 737 (Ont. C.A.) — not followed
Pacific National Lease Holding Corp., Re (1992), 72 B.C.L.R. (2d) 368, 19 B.C.A.C. 134, 34 W.A.C. 134, 15 C.B.R.
(3d) 265, 1992 CarswellBC 524 (B.C. C.A. [In Chambers]) — referred to
Philip's Manufacturing Ltd., Re (1992), 9 C.B.R. (3d) 25, 67 B.C.L.R. (2d) 84, 4 B.L.R. (2d) 142, 1992 CarswellBC
542 (B.C. C.A.) — referred to
Quebec (Deputy Minister of Revenue) c. Rainville (1979), (sub nom. Bourgeault, Re) 33 C.B.R. (N.S.) 301, (sub nom.
Bourgeault's Estate v. Quebec (Deputy Minister of Revenue)) 30 N.R. 24, (sub nom. Bourgault, Re) 105 D.L.R. (3d)
270, 1979 CarswellQue 165, 1979 CarswellQue 266, (sub nom. Quebec (Deputy Minister of Revenue) v. Bourgeault
(Trustee of)) [1980] 1 S.C.R. 35 (S.C.C.) — referred to
Reference re Companies' Creditors Arrangement Act (Canada) (1934), [1934] 4 D.L.R. 75, 1934 CarswellNat 1, 16
C.B.R. 1, [1934] S.C.R. 659 (S.C.C.) — referred to
Royal Bank v. Sparrow Electric Corp. (1997), 193 A.R. 321, 135 W.A.C. 321, [1997] 2 W.W.R. 457, 208 N.R. 161,
12 P.P.S.A.C. (2d) 68, 1997 CarswellAlta 112, 1997 CarswellAlta 113, 46 Alta. L.R. (3d) 87, (sub nom. R. v. Royal
Bank) 97 D.T.C. 5089, 143 D.L.R. (4th) 385, 44 C.B.R. (3d) 1, [1997] 1 S.C.R. 411 (S.C.C.) — considered
Skeena Cellulose Inc., Re (2003), 2003 CarswellBC 1399, 2003 BCCA 344, 184 B.C.A.C. 54, 302 W.A.C. 54, 43
C.B.R. (4th) 187, 13 B.C.L.R. (4th) 236 (B.C. C.A.) — referred to
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7
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
Skydome Corp., Re (1998), 16 C.B.R. (4th) 118, 1998 CarswellOnt 5922 (Ont. Gen. Div. [Commercial List]) —
referred to
Solid Resources Ltd., Re (2002), [2003] G.S.T.C. 21, 2002 CarswellAlta 1699, 40 C.B.R. (4th) 219 (Alta. Q.B.) —
referred to
Stelco Inc., Re (2005), 253 D.L.R. (4th) 109, 75 O.R. (3d) 5, 2 B.L.R. (4th) 238, 9 C.B.R. (5th) 135, 2005 CarswellOnt
1188, 196 O.A.C. 142 (Ont. C.A.) — referred to
United Used Auto & Truck Parts Ltd., Re (1999), 12 C.B.R. (4th) 144, 1999 CarswellBC 2673 (B.C. S.C. [In
Chambers]) — referred to
United Used Auto & Truck Parts Ltd., Re (2000), 2000 BCCA 146, 135 B.C.A.C. 96, 221 W.A.C. 96, 2000
CarswellBC 414, 73 B.C.L.R. (3d) 236, 16 C.B.R. (4th) 141, [2000] 5 W.W.R. 178 (B.C. C.A.) — referred to
Cases considered by Fish J.:
Ottawa Senators Hockey Club Corp., Re (2005), 2005 G.T.C. 1327 (Eng.), 6 C.B.R. (5th) 293, 2005 D.T.C. 5233
(Eng.), 2005 CarswellOnt 8, [2005] G.S.T.C. 1, 193 O.A.C. 95, 73 O.R. (3d) 737 (Ont. C.A.) — not followed
Cases considered by Abella J. (dissenting):
Canada (Attorney General) v. Canada (Public Service Staff Relations Board) (1977), [1977] 2 F.C. 663, 14 N.R. 257,
74 D.L.R. (3d) 307, 1977 CarswellNat 62, 1977 CarswellNat 62F (Fed. C.A.) — referred to
Doré c. Verdun (Municipalité) (1997), (sub nom. Doré v. Verdun (City)) [1997] 2 S.C.R. 862, (sub nom. Doré v.
Verdun (Ville)) 215 N.R. 81, (sub nom. Doré v. Verdun (City)) 150 D.L.R. (4th) 385, 1997 CarswellQue 159, 1997
CarswellQue 850 (S.C.C.) — referred to
Ottawa Senators Hockey Club Corp., Re (2005), 2005 G.T.C. 1327 (Eng.), 6 C.B.R. (5th) 293, 2005 D.T.C. 5233
(Eng.), 2005 CarswellOnt 8, [2005] G.S.T.C. 1, 193 O.A.C. 95, 73 O.R. (3d) 737 (Ont. C.A.) — considered
R. v. Tele-Mobile Co. (2008), 2008 CarswellOnt 1588, 2008 CarswellOnt 1589, 2008 SCC 12, (sub nom. Tele-Mobile
Co. v. Ontario) 372 N.R. 157, 55 C.R. (6th) 1, (sub nom. Ontario v. Tele-Mobile Co.) 229 C.C.C. (3d) 417, (sub nom.
Tele-Mobile Co. v. Ontario) 235 O.A.C. 369, (sub nom. Tele-Mobile Co. v. Ontario) [2008] 1 S.C.R. 305, (sub nom.
R. v. Tele-Mobile Company (Telus Mobility)) 92 O.R. (3d) 478 (note), (sub nom. Ontario v. Tele-Mobile Co.) 291
D.L.R. (4th) 193 (S.C.C.) — considered
Statutes considered by Deschamps J.:
Bank Act, S.C. 1991, c. 46
Generally — referred to
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3
Generally — referred to
s. 67(2) — referred to
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Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
s. 67(3) — referred to
s. 81.1 [en. 1992, c. 27, s. 38(1)] — considered
s. 81.2 [en. 1992, c. 27, s. 38(1)] — considered
s. 86(1) — considered
s. 86(3) — referred to
Bankruptcy Act and to amend the Income Tax Act in consequence thereof, Act to amend the, S.C. 1992, c. 27
Generally — referred to
s. 39 — referred to
Bankruptcy and Insolvency Act, the Companies' Creditors Arrangement Act and the Income Tax Act, Act to amend the,
S.C. 1997, c. 12
s. 73 — referred to
s. 125 — referred to
s. 126 — referred to
Canada Pension Plan, R.S.C. 1985, c. C-8
Generally — referred to
s. 23(3) — referred to
s. 23(4) — referred to
Cités et villes, Loi sur les, L.R.Q., c. C-19
en général — referred to
Code civil du Québec, L.Q. 1991, c. 64
en général — referred to
art. 2930 — referred to
Companies' Creditors Arrangement Act, Act to Amend, S.C. 1952-53, c. 3
Generally — referred to
Companies' Creditors Arrangement Act, 1933, S.C. 1932-33, c. 36
Generally — referred to
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36
Generally — referred to
s. 11 — considered
s. 11(1) — considered
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Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
s. 11(3) — referred to
s. 11(4) — referred to
s. 11(6) — referred to
s. 11.02 [en. 2005, c. 47, s. 128] — referred to
s. 11.09 [en. 2005, c. 47, s. 128] — considered
s. 11.4 [en. 1997, c. 12, s. 124] — referred to
s. 18.3 [en. 1997, c. 12, s. 125] — considered
s. 18.3(1) [en. 1997, c. 12, s. 125] — considered
s. 18.3(2) [en. 1997, c. 12, s. 125] — considered
s. 18.4 [en. 1997, c. 12, s. 125] — referred to
s. 18.4(1) [en. 1997, c. 12, s. 125] — considered
s. 18.4(3) [en. 1997, c. 12, s. 125] — considered
s. 20 — considered
s. 21 — considered
s. 37 — considered
s. 37(1) — referred to
Employment Insurance Act, S.C. 1996, c. 23
Generally — referred to
s. 86(2) — referred to
s. 86(2.1) [en. 1998, c. 19, s. 266(1)] — referred to
Excise Tax Act, R.S.C. 1985, c. E-15
Generally — referred to
s. 222(1) [en. 1990, c. 45, s. 12(1)] — referred to
s. 222(3) [en. 1990, c. 45, s. 12(1)] — considered
Fairness for the Self-Employed Act, S.C. 2009, c. 33
Generally — referred to
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
s. 227(4) — referred to
s. 227(4.1) [en. 1998, c. 19, s. 226(1)] — referred to
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Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
Interpretation Act, R.S.C. 1985, c. I-21
s. 44(f) — considered
Personal Property Security Act, S.A. 1988, c. P-4.05
Generally — referred to
Sales Tax and Excise Tax Amendments Act, 1999, S.C. 2000, c. 30
Generally — referred to
Wage Earner Protection Program Act, S.C. 2005, c. 47, s. 1
Generally — referred to
s. 69 — referred to
s. 128 — referred to
s. 131 — referred to
Statutes considered Fish J.:
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3
Generally — referred to
s. 67(2) — considered
s. 67(3) — considered
Canada Pension Plan, R.S.C. 1985, c. C-8
Generally — referred to
s. 23 — considered
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36
Generally — referred to
s. 11 — considered
s. 18.3(1) [en. 1997, c. 12, s. 125] — considered
s. 18.3(2) [en. 1997, c. 12, s. 125] — considered
s. 37(1) — considered
Employment Insurance Act, S.C. 1996, c. 23
Generally — referred to
s. 86(2) — referred to
s. 86(2.1) [en. 1998, c. 19, s. 266(1)] — referred to
Excise Tax Act, R.S.C. 1985, c. E-15
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11
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
Generally — referred to
s. 222 [en. 1990, c. 45, s. 12(1)] — considered
s. 222(1) [en. 1990, c. 45, s. 12(1)] — considered
s. 222(3) [en. 1990, c. 45, s. 12(1)] — considered
s. 222(3)(a) [en. 1990, c. 45, s. 12(1)] — considered
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
Generally — referred to
s. 227(4) — considered
s. 227(4.1) [en. 1998, c. 19, s. 226(1)] — considered
s. 227(4.1)(a) [en. 1998, c. 19, s. 226(1)] — considered
Statutes considered Abella J. (dissenting):
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3
Generally — referred to
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36
Generally — referred to
s. 11 — considered
s. 11(1) — considered
s. 11(3) — considered
s. 18.3(1) [en. 1997, c. 12, s. 125] — considered
s. 37(1) — considered
Excise Tax Act, R.S.C. 1985, c. E-15
Generally — referred to
s. 222 [en. 1990, c. 45, s. 12(1)] — considered
s. 222(3) [en. 1990, c. 45, s. 12(1)] — considered
Interpretation Act, R.S.C. 1985, c. I-21
s. 2(1)"enactment" — considered
s. 44(f) — considered
Winding-up and Restructuring Act, R.S.C. 1985, c. W-11
Generally — referred to
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12
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
APPEAL by creditor from judgment reported at 2009 CarswellBC 1195, 2009 BCCA 205, [2009] G.S.T.C. 79, 98 B.C.L.R.
(4th) 242, [2009] 12 W.W.R. 684, 270 B.C.A.C. 167, 454 W.A.C. 167, 2009 G.T.C. 2020 (Eng.) (B.C. C.A.), allowing Crown's
appeal from dismissal of application for immediate payment of tax debt.
Deschamps J.:
1
For the first time this Court is called upon to directly interpret the provisions of the Companies' Creditors Arrangement
Act, R.S.C. 1985, c. C-36 ("CCAA"). In that respect, two questions are raised. The first requires reconciliation of provisions
of the CCAA and the Excise Tax Act, R.S.C. 1985, c. E-15 ("ETA"), which lower courts have held to be in conflict with one
another. The second concerns the scope of a court's discretion when supervising reorganization. The relevant statutory provisions
are reproduced in the Appendix. On the first question, having considered the evolution of Crown priorities in the context of
insolvency and the wording of the various statutes creating Crown priorities, I conclude that it is the CCAA and not the ETA that
provides the rule. On the second question, I conclude that the broad discretionary jurisdiction conferred on the supervising judge
must be interpreted having regard to the remedial nature of the CCAA and insolvency legislation generally. Consequently, the
court had the discretion to partially lift a stay of proceedings to allow the debtor to make an assignment under the Bankruptcy
and Insolvency Act, R.S.C. 1985, c. B-3 ("BIA"). I would allow the appeal.
1. Facts and Decisions of the Courts Below
2 Ted LeRoy Trucking Ltd. ("LeRoy Trucking") commenced proceedings under the CCAA in the Supreme Court of British
Columbia on December 13, 2007, obtaining a stay of proceedings with a view to reorganizing its financial affairs. LeRoy
Trucking sold certain redundant assets as authorized by the order.
3 Amongst the debts owed by LeRoy Trucking was an amount for Goods and Services Tax ("GST") collected but unremitted
to the Crown. The ETA creates a deemed trust in favour of the Crown for amounts collected in respect of GST. The deemed
trust extends to any property or proceeds held by the person collecting GST and any property of that person held by a secured
creditor, requiring that property to be paid to the Crown in priority to all security interests. The ETA provides that the deemed
trust operates despite any other enactment of Canada except the BIA. However, the CCAA also provides that subject to certain
exceptions, none of which mentions GST, deemed trusts in favour of the Crown do not operate under the CCAA. Accordingly,
under the CCAA the Crown ranks as an unsecured creditor in respect of GST. Nonetheless, at the time LeRoy Trucking
commenced CCAA proceedings the leading line of jurisprudence held that the ETA took precedence over the CCAA such that
the Crown enjoyed priority for GST claims under the CCAA, even though it would have lost that same priority under the BIA.
The CCAA underwent substantial amendments in 2005 in which some of the provisions at issue in this appeal were renumbered
and reformulated (S.C. 2005, c. 47). However, these amendments only came into force on September 18, 2009. I will refer to
the amended provisions only where relevant.
4 On April 29, 2008, Brenner C.J.S.C., in the context of the CCAA proceedings, approved a payment not exceeding $5 million,
the proceeds of redundant asset sales, to Century Services, the debtor's major secured creditor. LeRoy Trucking proposed to
hold back an amount equal to the GST monies collected but unremitted to the Crown and place it in the Monitor's trust account
until the outcome of the reorganization was known. In order to maintain the status quo while the success of the reorganization
was uncertain, Brenner C.J.S.C. agreed to the proposal and ordered that an amount of $305,202.30 be held by the Monitor in
its trust account.
5
On September 3, 2008, having concluded that reorganization was not possible, LeRoy Trucking sought leave to make an
assignment in bankruptcy under the BIA. The Crown sought an order that the GST monies held by the Monitor be paid to the
Receiver General of Canada. Brenner C.J.S.C. dismissed the latter application. Reasoning that the purpose of segregating the
funds with the Monitor was "to facilitate an ultimate payment of the GST monies which were owed pre-filing, but only if a
viable plan emerged", the failure of such a reorganization, followed by an assignment in bankruptcy, meant the Crown would
lose priority under the BIA (2008 BCSC 1805, [2008] G.S.T.C. 221 (B.C. S.C. [In Chambers])).
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13
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
6
The Crown's appeal was allowed by the British Columbia Court of Appeal (2009 BCCA 205, [2009] G.S.T.C. 79, 270
B.C.A.C. 167 (B.C. C.A.)). Tysoe J.A. for a unanimous court found two independent bases for allowing the Crown's appeal.
7 First, the court's authority under s. 11 of the CCAA was held not to extend to staying the Crown's application for immediate
payment of the GST funds subject to the deemed trust after it was clear that reorganization efforts had failed and that bankruptcy
was inevitable. As restructuring was no longer a possibility, staying the Crown's claim to the GST funds no longer served a
purpose under the CCAA and the court was bound under the priority scheme provided by the ETA to allow payment to the
Crown. In so holding, Tysoe J.A. adopted the reasoning in Ottawa Senators Hockey Club Corp. (Re), [2005] G.S.T.C. 1, 73
O.R. (3d) 737 (Ont. C.A.), which found that the ETA deemed trust for GST established Crown priority over secured creditors
under the CCAA.
8 Second, Tysoe J.A. concluded that by ordering the GST funds segregated in the Monitor's trust account on April 29, 2008, the
judge had created an express trust in favour of the Crown from which the monies in question could not be diverted for any other
purposes. The Court of Appeal therefore ordered that the money held by the Monitor in trust be paid to the Receiver General.
2. Issues
9
This appeal raises three broad issues which are addressed in turn:
(1) Did s. 222(3) of the ETA displace s. 18.3(1) of the CCAA and give priority to the Crown's ETA deemed trust during
CCAA proceedings as held in Ottawa Senators?
(2) Did the court exceed its CCAA authority by lifting the stay to allow the debtor to make an assignment in bankruptcy?
(3) Did the court's order of April 29, 2008 requiring segregation of the Crown's GST claim in the Monitor's trust account
create an express trust in favour of the Crown in respect of those funds?
3. Analysis
10 The first issue concerns Crown priorities in the context of insolvency. As will be seen, the ETA provides for a deemed trust
in favour of the Crown in respect of GST owed by a debtor "[d]espite ... any other enactment of Canada (except the Bankruptcy
and Insolvency Act)" (s. 222(3)), while the CCAA stated at the relevant time that "notwithstanding any provision in federal or
provincial legislation that has the effect of deeming property to be held in trust for Her Majesty, property of a debtor company
shall not be [so] regarded" (s. 18.3(1)). It is difficult to imagine two statutory provisions more apparently in conflict. However,
as is often the case, the apparent conflict can be resolved through interpretation.
11
In order to properly interpret the provisions, it is necessary to examine the history of the CCAA, its function amidst the
body of insolvency legislation enacted by Parliament, and the principles that have been recognized in the jurisprudence. It will
be seen that Crown priorities in the insolvency context have been significantly pared down. The resolution of the second issue
is also rooted in the context of the CCAA, but its purpose and the manner in which it has been interpreted in the case law are
also key. After examining the first two issues in this case, I will address Tysoe J.A.'s conclusion that an express trust in favour
of the Crown was created by the court's order of April 29, 2008.
3.1 Purpose and Scope of Insolvency Law
12
Insolvency is the factual situation that arises when a debtor is unable to pay creditors (see generally, R. J. Wood,
Bankruptcy and Insolvency Law (2009), at p. 16). Certain legal proceedings become available upon insolvency, which typically
allow a debtor to obtain a court order staying its creditors' enforcement actions and attempt to obtain a binding compromise
with creditors to adjust the payment conditions to something more realistic. Alternatively, the debtor's assets may be liquidated
and debts paid from the proceeds according to statutory priority rules. The former is usually referred to as reorganization or
restructuring while the latter is termed liquidation.
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14
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
13
Canadian commercial insolvency law is not codified in one exhaustive statute. Instead, Parliament has enacted multiple
insolvency statutes, the main one being the BIA. The BIA offers a self-contained legal regime providing for both reorganization
and liquidation. Although bankruptcy legislation has a long history, the BIA itself is a fairly recent statute — it was enacted
in 1992. It is characterized by a rules-based approach to proceedings. The BIA is available to insolvent debtors owing $1000
or more, regardless of whether they are natural or legal persons. It contains mechanisms for debtors to make proposals to their
creditors for the adjustment of debts. If a proposal fails, the BIA contains a bridge to bankruptcy whereby the debtor's assets are
liquidated and the proceeds paid to creditors in accordance with the statutory scheme of distribution.
14
Access to the CCAA is more restrictive. A debtor must be a company with liabilities in excess of $5 million. Unlike
the BIA, the CCAA contains no provisions for liquidation of a debtor's assets if reorganization fails. There are three ways of
exiting CCAA proceedings. The best outcome is achieved when the stay of proceedings provides the debtor with some breathing
space during which solvency is restored and the CCAA process terminates without reorganization being needed. The second
most desirable outcome occurs when the debtor's compromise or arrangement is accepted by its creditors and the reorganized
company emerges from the CCAA proceedings as a going concern. Lastly, if the compromise or arrangement fails, either the
company or its creditors usually seek to have the debtor's assets liquidated under the applicable provisions of the BIA or to
place the debtor into receivership. As discussed in greater detail below, the key difference between the reorganization regimes
under the BIA and the CCAA is that the latter offers a more flexible mechanism with greater judicial discretion, making it more
responsive to complex reorganizations.
15 As I will discuss at greater length below, the purpose of the CCAA — Canada's first reorganization statute — is to permit
the debtor to continue to carry on business and, where possible, avoid the social and economic costs of liquidating its assets.
Proposals to creditors under the BIA serve the same remedial purpose, though this is achieved through a rules-based mechanism
that offers less flexibility. Where reorganization is impossible, the BIA may be employed to provide an orderly mechanism for
the distribution of a debtor's assets to satisfy creditor claims according to predetermined priority rules.
16 Prior to the enactment of the CCAA in 1933 (S.C. 1932-33, c. 36), practice under existing commercial insolvency legislation
tended heavily towards the liquidation of a debtor company (J. Sarra, Creditor Rights and the Public Interest: Restructuring
Insolvent Corporations (2003), at p. 12). The battering visited upon Canadian businesses by the Great Depression and the
absence of an effective mechanism for reaching a compromise between debtors and creditors to avoid liquidation required
a legislative response. The CCAA was innovative as it allowed the insolvent debtor to attempt reorganization under judicial
supervision outside the existing insolvency legislation which, once engaged, almost invariably resulted in liquidation (Reference
re Companies' Creditors Arrangement Act (Canada), [1934] S.C.R. 659 (S.C.C.), at pp. 660-61; Sarra, Creditor Rights, at pp.
12-13).
17 Parliament understood when adopting the CCAA that liquidation of an insolvent company was harmful for most of those
it affected — notably creditors and employees — and that a workout which allowed the company to survive was optimal (Sarra,
Creditor Rights, at pp. 13-15).
18 Early commentary and jurisprudence also endorsed the CCAA's remedial objectives. It recognized that companies retain
more value as going concerns while underscoring that intangible losses, such as the evaporation of the companies' goodwill,
result from liquidation (S. E. Edwards, "Reorganizations Under the Companies' Creditors Arrangement Act" (1947), 25 Can.
Bar Rev. 587, at p. 592). Reorganization serves the public interest by facilitating the survival of companies supplying goods or
services crucial to the health of the economy or saving large numbers of jobs (ibid., at p. 593). Insolvency could be so widely
felt as to impact stakeholders other than creditors and employees. Variants of these views resonate today, with reorganization
justified in terms of rehabilitating companies that are key elements in a complex web of interdependent economic relationships
in order to avoid the negative consequences of liquidation.
19
The CCAA fell into disuse during the next several decades, likely because amendments to the Act in 1953 restricted its
use to companies issuing bonds (S.C. 1952-53, c. 3). During the economic downturn of the early 1980s, insolvency lawyers
and courts adapting to the resulting wave of insolvencies resurrected the statute and deployed it in response to new economic
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Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
challenges. Participants in insolvency proceedings grew to recognize and appreciate the statute's distinguishing feature: a grant
of broad and flexible authority to the supervising court to make the orders necessary to facilitate the reorganization of the
debtor and achieve the CCAA's objectives. The manner in which courts have used CCAA jurisdiction in increasingly creative
and flexible ways is explored in greater detail below.
20 Efforts to evolve insolvency law were not restricted to the courts during this period. In 1970, a government-commissioned
panel produced an extensive study recommending sweeping reform but Parliament failed to act (see Bankruptcy and Insolvency:
Report of the Study Committee on Bankruptcy and Insolvency Legislation (1970)). Another panel of experts produced more
limited recommendations in 1986 which eventually resulted in enactment of the Bankruptcy and Insolvency Act of 1992 (S.C.
1992, c. 27) (see Proposed Bankruptcy Act Amendments: Report of the Advisory Committee on Bankruptcy and Insolvency
(1986)). Broader provisions for reorganizing insolvent debtors were then included in Canada's bankruptcy statute. Although
the 1970 and 1986 reports made no specific recommendations with respect to the CCAA, the House of Commons committee
studying the BIA's predecessor bill, C-22, seemed to accept expert testimony that the BIA's new reorganization scheme would
shortly supplant the CCAA, which could then be repealed, with commercial insolvency and bankruptcy being governed by
a single statute (Minutes of Proceedings and Evidence of the Standing Committee on Consumer and Corporate Affairs and
Government Operations, Issue No. 15, October 3, 1991, at pp. 15:15-15:16).
21
In retrospect, this conclusion by the House of Commons committee was out of step with reality. It overlooked
the renewed vitality the CCAA enjoyed in contemporary practice and the advantage that a flexible judicially supervised
reorganization process presented in the face of increasingly complex reorganizations, when compared to the stricter rulesbased scheme contained in the BIA. The "flexibility of the CCAA [was seen as] a great benefit, allowing for creative and
effective decisions" (Industry Canada, Marketplace Framework Policy Branch, Report on the Operation and Administration of
the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act (2002), at p. 41). Over the past three decades,
resurrection of the CCAA has thus been the mainspring of a process through which, one author concludes, "the legal setting for
Canadian insolvency restructuring has evolved from a rather blunt instrument to one of the most sophisticated systems in the
developed world" (R. B. Jones, "The Evolution of Canadian Restructuring: Challenges for the Rule of Law", in J. P. Sarra, ed.,
Annual Review of Insolvency Law 2005 (2006), 481, at p. 481).
22
While insolvency proceedings may be governed by different statutory schemes, they share some commonalities. The
most prominent of these is the single proceeding model. The nature and purpose of the single proceeding model are described
by Professor Wood in Bankruptcy and Insolvency Law:
They all provide a collective proceeding that supersedes the usual civil process available to creditors to enforce their claims.
The creditors' remedies are collectivized in order to prevent the free-for-all that would otherwise prevail if creditors were
permitted to exercise their remedies. In the absence of a collective process, each creditor is armed with the knowledge that
if they do not strike hard and swift to seize the debtor's assets, they will be beat out by other creditors. [pp. 2-3]
The single proceeding model avoids the inefficiency and chaos that would attend insolvency if each creditor initiated
proceedings to recover its debt. Grouping all possible actions against the debtor into a single proceeding controlled in a single
forum facilitates negotiation with creditors because it places them all on an equal footing, rather than exposing them to the
risk that a more aggressive creditor will realize its claims against the debtor's limited assets while the other creditors attempt
a compromise. With a view to achieving that purpose, both the CCAA and the BIA allow a court to order all actions against a
debtor to be stayed while a compromise is sought.
23
Another point of convergence of the CCAA and the BIA relates to priorities. Because the CCAA is silent about what
happens if reorganization fails, the BIA scheme of liquidation and distribution necessarily supplies the backdrop for what will
happen if a CCAA reorganization is ultimately unsuccessful. In addition, one of the important features of legislative reform
of both statutes since the enactment of the BIA in 1992 has been a cutback in Crown priorities (S.C. 1992, c. 27, s. 39; S.C.
1997, c. 12, ss. 73 and 125; S.C. 2000, c. 30, s. 148; S.C. 2005, c. 47, ss. 69 and 131; S.C. 2009, c. 33, ss. 25 and 29; see
also Alternative granite & marbre inc., Re, 2009 SCC 49, [2009] 3 S.C.R. 286, [2009] G.S.T.C. 154 (S.C.C.); Quebec (Deputy
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Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
Minister of Revenue) c. Rainville (1979), [1980] 1 S.C.R. 35 (S.C.C.); Proposed Bankruptcy Act Amendments: Report of the
Advisory Committee on Bankruptcy and Insolvency (1986)).
24
With parallel CCAA and BIA restructuring schemes now an accepted feature of the insolvency law landscape, the
contemporary thrust of legislative reform has been towards harmonizing aspects of insolvency law common to the two statutory
schemes to the extent possible and encouraging reorganization over liquidation (see An Act to establish the Wage Earner
Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies' Creditors Arrangement Act and to
make consequential amendments to other Acts, S.C. 2005, c. 47; Gauntlet Energy Corp., Re, 2003 ABQB 894, [2003] G.S.T.C.
193, 30 Alta. L.R. (4th) 192 (Alta. Q.B.), at para. 19).
25
Mindful of the historical background of the CCAA and BIA, I now turn to the first question at issue.
3.2 GST Deemed Trust Under the CCAA
26 The Court of Appeal proceeded on the basis that the ETA precluded the court from staying the Crown's enforcement of the
GST deemed trust when partially lifting the stay to allow the debtor to enter bankruptcy. In so doing, it adopted the reasoning
in a line of cases culminating in Ottawa Senators, which held that an ETA deemed trust remains enforceable during CCAA
reorganization despite language in the CCAA that suggests otherwise.
27
The Crown relies heavily on the decision of the Ontario Court of Appeal in Ottawa Senators and argues that the later
in time provision of the ETA creating the GST deemed trust trumps the provision of the CCAA purporting to nullify most
statutory deemed trusts. The Court of Appeal in this case accepted this reasoning but not all provincial courts follow it (see, e.g.,
Komunik Corp., Re, 2009 QCCS 6332 (C.S. Que.), leave to appeal granted, 2010 QCCA 183 (C.A. Que.)). Century Services
relied, in its written submissions to this Court, on the argument that the court had authority under the CCAA to continue the stay
against the Crown's claim for unremitted GST. In oral argument, the question of whether Ottawa Senators was correctly decided
nonetheless arose. After the hearing, the parties were asked to make further written submissions on this point. As appears evident
from the reasons of my colleague Abella J., this issue has become prominent before this Court. In those circumstances, this
Court needs to determine the correctness of the reasoning in Ottawa Senators.
28
The policy backdrop to this question involves the Crown's priority as a creditor in insolvency situations which, as I
mentioned above, has evolved considerably. Prior to the 1990s, Crown claims largely enjoyed priority in insolvency. This was
widely seen as unsatisfactory as shown by both the 1970 and 1986 insolvency reform proposals, which recommended that
Crown claims receive no preferential treatment. A closely related matter was whether the CCAA was binding at all upon the
Crown. Amendments to the CCAA in 1997 confirmed that it did indeed bind the Crown (see CCAA, s. 21, as am. by S.C. 1997,
c. 12, s. 126).
29
Claims of priority by the state in insolvency situations receive different treatment across jurisdictions worldwide. For
example, in Germany and Australia, the state is given no priority at all, while the state enjoys wide priority in the United States
and France (see B. K. Morgan, "Should the Sovereign be Paid First? A Comparative International Analysis of the Priority for
Tax Claims in Bankruptcy" (2000), 74 Am. Bank. L.J. 461, at p. 500). Canada adopted a middle course through legislative reform
of Crown priority initiated in 1992. The Crown retained priority for source deductions of income tax, Employment Insurance
("EI") and Canada Pension Plan ("CPP") premiums, but ranks as an ordinary unsecured creditor for most other claims.
30
Parliament has frequently enacted statutory mechanisms to secure Crown claims and permit their enforcement. The two
most common are statutory deemed trusts and powers to garnish funds third parties owe the debtor (see F. L. Lamer, Priority
of Crown Claims in Insolvency (loose-leaf), at § 2).
31
With respect to GST collected, Parliament has enacted a deemed trust. The ETA states that every person who collects
an amount on account of GST is deemed to hold that amount in trust for the Crown (s. 222(1)). The deemed trust extends to
other property of the person collecting the tax equal in value to the amount deemed to be in trust if that amount has not been
remitted in accordance with the ETA. The deemed trust also extends to property held by a secured creditor that, but for the
security interest, would be property of the person collecting the tax (s. 222(3)).
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Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
32
Parliament has created similar deemed trusts using almost identical language in respect of source deductions of income
tax, EI premiums and CPP premiums (see s. 227(4) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) ("ITA"), ss. 86(2) and
(2.1) of the Employment Insurance Act, S.C. 1996, c. 23, and ss. 23(3) and (4) of the Canada Pension Plan, R.S.C. 1985, c.
C-8). I will refer to income tax, EI and CPP deductions as "source deductions".
33
In Royal Bank v. Sparrow Electric Corp., [1997] 1 S.C.R. 411 (S.C.C.), this Court addressed a priority dispute between
a deemed trust for source deductions under the ITA and security interests taken under both the Bank Act, S.C. 1991, c. 46,
and the Alberta Personal Property Security Act, S.A. 1988, c. P-4.05 ("PPSA"). As then worded, an ITA deemed trust over
the debtor's property equivalent to the amount owing in respect of income tax became effective at the time of liquidation,
receivership, or assignment in bankruptcy. Sparrow Electric held that the ITA deemed trust could not prevail over the security
interests because, being fixed charges, the latter attached as soon as the debtor acquired rights in the property such that the ITA
deemed trust had no property on which to attach when it subsequently arose. Later, in First Vancouver Finance v. Minister of
National Revenue, 2002 SCC 49, [2002] G.S.T.C. 23, [2002] 2 S.C.R. 720 (S.C.C.), this Court observed that Parliament had
legislated to strengthen the statutory deemed trust in the ITA by deeming it to operate from the moment the deductions were
not paid to the Crown as required by the ITA, and by granting the Crown priority over all security interests (paras. 27-29) (the
"Sparrow Electric amendment").
34
The amended text of s. 227(4.1) of the ITA and concordant source deductions deemed trusts in the Canada Pension
Plan and the Employment Insurance Act state that the deemed trust operates notwithstanding any other enactment of Canada,
except ss. 81.1 and 81.2 of the BIA. The ETA deemed trust at issue in this case is similarly worded, but it excepts the BIA in
its entirety. The provision reads as follows:
222. (3) Despite any other provision of this Act (except subsection (4)), any other enactment of Canada (except the
Bankruptcy and Insolvency Act), any enactment of a province or any other law, if at any time an amount deemed by
subsection (1) to be held by a person in trust for Her Majesty is not remitted to the Receiver General or withdrawn in
the manner and at the time provided under this Part, property of the person and property held by any secured creditor of
the person that, but for a security interest, would be property of the person, equal in value to the amount so deemed to
be held in trust, is deemed ....
35
The Crown submits that the Sparrow Electric amendment, added by Parliament to the ETA in 2000, was intended to
preserve the Crown's priority over collected GST under the CCAA while subordinating the Crown to the status of an unsecured
creditor in respect of GST only under the BIA. This is because the ETA provides that the GST deemed trust is effective "despite"
any other enactment except the BIA.
36 The language used in the ETA for the GST deemed trust creates an apparent conflict with the CCAA, which provides that
subject to certain exceptions, property deemed by statute to be held in trust for the Crown shall not be so regarded.
37
Through a 1997 amendment to the CCAA (S.C. 1997, c. 12, s. 125), Parliament appears to have, subject to specific
exceptions, nullified deemed trusts in favour of the Crown once reorganization proceedings are commenced under the Act. The
relevant provision reads:
18.3 (1) Subject to subsection (2), notwithstanding any provision in federal or provincial legislation that has the effect of
deeming property to be held in trust for Her Majesty, property of a debtor company shall not be regarded as held in trust
for Her Majesty unless it would be so regarded in the absence of that statutory provision.
This nullification of deemed trusts was continued in further amendments to the CCAA (S.C. 2005, c. 47), where s. 18.3(1) was
renumbered and reformulated as s. 37(1):
37. (1) Subject to subsection (2), despite any provision in federal or provincial legislation that has the effect of deeming
property to be held in trust for Her Majesty, property of a debtor company shall not be regarded as being held in trust for
Her Majesty unless it would be so regarded in the absence of that statutory provision.
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Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
38 An analogous provision exists in the BIA, which, subject to the same specific exceptions, nullifies statutory deemed trusts
and makes property of the bankrupt that would otherwise be subject to a deemed trust part of the debtor's estate and available
to creditors (S.C. 1992, c. 27, s. 39; S.C. 1997, c. 12, s. 73; BIA, s. 67(2)). It is noteworthy that in both the CCAA and the BIA,
the exceptions concern source deductions (CCAA, s. 18.3(2); BIA, s. 67(3)). The relevant provision of the CCAA reads:
18.3 (2) Subsection (1) does not apply in respect of amounts deemed to be held in trust under subsection 227(4) or (4.1) of
the Income Tax Act, subsection 23(3) or (4) of the Canada Pension Plan or subsection 86(2) or (2.1) of the Employment
Insurance Act....
Thus, the Crown's deemed trust and corresponding priority in source deductions remain effective both in reorganization and
in bankruptcy.
39
Meanwhile, in both s. 18.4(1) of the CCAA and s. 86(1) of the BIA, other Crown claims are treated as unsecured.
These provisions, establishing the Crown's status as an unsecured creditor, explicitly exempt statutory deemed trusts in source
deductions (CCAA, s. 18.4(3); BIA, s. 86(3)). The CCAA provision reads as follows:
18.4 (3) Subsection (1) [Crown ranking as unsecured creditor] does not affect the operation of
(a) subsections 224(1.2) and (1.3) of the Income Tax Act,
(b) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2)
of the Income Tax Act and provides for the collection of a contribution ....
Therefore, not only does the CCAA provide that Crown claims do not enjoy priority over the claims of other creditors (s. 18.3(1)),
but the exceptions to this rule (i.e., that Crown priority is maintained for source deductions) are repeatedly stated in the statute.
40
The apparent conflict in this case is whether the rule in the CCAA first enacted as s. 18.3 in 1997, which provides that
subject to certain explicit exceptions, statutory deemed trusts are ineffective under the CCAA, is overridden by the one in the
ETA enacted in 2000 stating that GST deemed trusts operate despite any enactment of Canada except the BIA. With respect
for my colleague Fish J., I do not think the apparent conflict can be resolved by denying it and creating a rule requiring both
a statutory provision enacting the deemed trust, and a second statutory provision confirming it. Such a rule is unknown to the
law. Courts must recognize conflicts, apparent or real, and resolve them when possible.
41 A line of jurisprudence across Canada has resolved the apparent conflict in favour of the ETA, thereby maintaining GST
deemed trusts under the CCAA. Ottawa Senators, the leading case, decided the matter by invoking the doctrine of implied repeal
to hold that the later in time provision of the ETA should take precedence over the CCAA (see also Solid Resources Ltd., Re
(2002), 40 C.B.R. (4th) 219, [2003] G.S.T.C. 21 (Alta. Q.B.); Gauntlet
42
The Ontario Court of Appeal in Ottawa Senators rested its conclusion on two considerations. First, it was persuaded
that by explicitly mentioning the BIA in ETA s. 222(3), but not the CCAA, Parliament made a deliberate choice. In the words
of MacPherson J.A.:
The BIA and the CCAA are closely related federal statutes. I cannot conceive that Parliament would specifically identify the
BIA as an exception, but accidentally fail to consider the CCAA as a possible second exception. In my view, the omission
of the CCAA from s. 222(3) of the ETA was almost certainly a considered omission. [para. 43]
43
Second, the Ontario Court of Appeal compared the conflict between the ETA and the CCAA to that before this Court in
Doré c. Verdun (Municipalité), [1997] 2 S.C.R. 862 (S.C.C.), and found them to be "identical" (para. 46). It therefore considered
Doré binding (para. 49). In Doré, a limitations provision in the more general and recently enacted Civil Code of Québec, S.Q.
1991, c. 64 ("C.C.Q."), was held to have repealed a more specific provision of the earlier Quebec Cities and Towns Act, R.S.Q.,
c. C-19, with which it conflicted. By analogy, the Ontario Court of Appeal held that the later in time and more general provision,
s. 222(3) of the ETA, impliedly repealed the more specific and earlier in time provision, s. 18.3(1) of the CCAA (paras. 47-49).
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Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
44 Viewing this issue in its entire context, several considerations lead me to conclude that neither the reasoning nor the result
in Ottawa Senators can stand. While a conflict may exist at the level of the statutes' wording, a purposive and contextual analysis
to determine Parliament's true intent yields the conclusion that Parliament could not have intended to restore the Crown's deemed
trust priority in GST claims under the CCAA when it amended the ETA in 2000 with the Sparrow Electric amendment.
45 I begin by recalling that Parliament has shown its willingness to move away from asserting priority for Crown claims in
insolvency law. Section 18.3(1) of the CCAA (subject to the s. 18.3(2) exceptions) provides that the Crown's deemed trusts have
no effect under the CCAA. Where Parliament has sought to protect certain Crown claims through statutory deemed trusts and
intended that these deemed trusts continue in insolvency, it has legislated so explicitly and elaborately. For example, s. 18.3(2)
of the CCAA and s. 67(3) of the BIA expressly provide that deemed trusts for source deductions remain effective in insolvency.
Parliament has, therefore, clearly carved out exceptions from the general rule that deemed trusts are ineffective in insolvency.
The CCAA and BIA are in harmony, preserving deemed trusts and asserting Crown priority only in respect of source deductions.
Meanwhile, there is no express statutory basis for concluding that GST claims enjoy a preferred treatment under the CCAA or
the BIA. Unlike source deductions, which are clearly and expressly dealt with under both these insolvency statutes, no such
clear and express language exists in those Acts carving out an exception for GST claims.
46 The internal logic of the CCAA also militates against upholding the ETA deemed trust for GST. The CCAA imposes limits
on a suspension by the court of the Crown's rights in respect of source deductions but does not mention the ETA (s. 11.4). Since
source deductions deemed trusts are granted explicit protection under the CCAA, it would be inconsistent to afford a better
protection to the ETA deemed trust absent explicit language in the CCAA. Thus, the logic of the CCAA appears to subject the
ETA deemed trust to the waiver by Parliament of its priority (s. 18.4).
47
Moreover, a strange asymmetry would arise if the interpretation giving the ETA priority over the CCAA urged by the
Crown is adopted here: the Crown would retain priority over GST claims during CCAA proceedings but not in bankruptcy.
As courts have reflected, this can only encourage statute shopping by secured creditors in cases such as this one where the
debtor's assets cannot satisfy both the secured creditors' and the Crown's claims (Gauntlet, at para. 21). If creditors' claims
were better protected by liquidation under the BIA, creditors' incentives would lie overwhelmingly with avoiding proceedings
under the CCAA and not risking a failed reorganization. Giving a key player in any insolvency such skewed incentives against
reorganizing under the CCAA can only undermine that statute's remedial objectives and risk inviting the very social ills that
it was enacted to avert.
48 Arguably, the effect of Ottawa Senators is mitigated if restructuring is attempted under the BIA instead of the CCAA, but it
is not cured. If Ottawa Senators were to be followed, Crown priority over GST would differ depending on whether restructuring
took place under the CCAA or the BIA. The anomaly of this result is made manifest by the fact that it would deprive companies
of the option to restructure under the more flexible and responsive CCAA regime, which has been the statute of choice for
complex reorganizations.
49
Evidence that Parliament intended different treatments for GST claims in reorganization and bankruptcy is scant, if
it exists at all. Section 222(3) of the ETA was enacted as part of a wide-ranging budget implementation bill in 2000. The
summary accompanying that bill does not indicate that Parliament intended to elevate Crown priority over GST claims under
the CCAA to the same or a higher level than source deductions claims. Indeed, the summary for deemed trusts states only
that amendments to existing provisions are aimed at "ensuring that employment insurance premiums and Canada Pension Plan
contributions that are required to be remitted by an employer are fully recoverable by the Crown in the case of the bankruptcy of
the employer" (Summary to S.C. 2000, c. 30, at p. 4a). The wording of GST deemed trusts resembles that of statutory deemed
trusts for source deductions and incorporates the same overriding language and reference to the BIA. However, as noted above,
Parliament's express intent is that only source deductions deemed trusts remain operative. An exception for the BIA in the
statutory language establishing the source deductions deemed trusts accomplishes very little, because the explicit language
of the BIA itself (and the CCAA) carves out these source deductions deemed trusts and maintains their effect. It is however
noteworthy that no equivalent language maintaining GST deemed trusts exists under either the BIA or the CCAA.
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Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
50 It seems more likely that by adopting the same language for creating GST deemed trusts in the ETA as it did for deemed
trusts for source deductions, and by overlooking the inclusion of an exception for the CCAA alongside the BIA in s. 222(3)
of the ETA, Parliament may have inadvertently succumbed to a drafting anomaly. Because of a statutory lacuna in the ETA,
the GST deemed trust could be seen as remaining effective in the CCAA, while ceasing to have any effect under the BIA, thus
creating an apparent conflict with the wording of the CCAA. However, it should be seen for what it is: a facial conflict only,
capable of resolution by looking at the broader approach taken to Crown priorities and by giving precedence to the statutory
language of s. 18.3 of the CCAA in a manner that does not produce an anomalous outcome.
51 Section 222(3) of the ETA evinces no explicit intention of Parliament to repeal CCAA s. 18.3. It merely creates an apparent
conflict that must be resolved by statutory interpretation. Parliament's intent when it enacted ETA s. 222(3) was therefore far
from unambiguous. Had it sought to give the Crown a priority for GST claims, it could have done so explicitly as it did for
source deductions. Instead, one is left to infer from the language of ETA s. 222(3) that the GST deemed trust was intended to
be effective under the CCAA.
52 I am not persuaded that the reasoning in Doré requires the application of the doctrine of implied repeal in the circumstances
of this case. The main issue in Doré concerned the impact of the adoption of the C.C.Q. on the administrative law rules with
respect to municipalities. While Gonthier J. concluded in that case that the limitation provision in art. 2930 C.C.Q. had repealed
by implication a limitation provision in the Cities and Towns Act, he did so on the basis of more than a textual analysis. The
conclusion in Doré was reached after thorough contextual analysis of both pieces of legislation, including an extensive review of
the relevant legislative history (paras. 31-41). Consequently, the circumstances before this Court in Doré are far from "identical"
to those in the present case, in terms of text, context and legislative history. Accordingly, Doré cannot be said to require the
automatic application of the rule of repeal by implication.
53
A noteworthy indicator of Parliament's overall intent is the fact that in subsequent amendments it has not displaced the
rule set out in the CCAA. Indeed, as indicated above, the recent amendments to the CCAA in 2005 resulted in the rule previously
found in s. 18.3 being renumbered and reformulated as s. 37. Thus, to the extent the interpretation allowing the GST deemed
trust to remain effective under the CCAA depends on ETA s. 222(3) having impliedly repealed CCAA s. 18.3(1) because it is
later in time, we have come full circle. Parliament has renumbered and reformulated the provision of the CCAA stating that,
subject to exceptions for source deductions, deemed trusts do not survive the CCAA proceedings and thus the CCAA is now the
later in time statute. This confirms that Parliament's intent with respect to GST deemed trusts is to be found in the CCAA.
54 I do not agree with my colleague Abella J. that s. 44(f) of the Interpretation Act, R.S.C. 1985, c. I-21, can be used to interpret
the 2005 amendments as having no effect. The new statute can hardly be said to be a mere re-enactment of the former statute.
Indeed, the CCAA underwent a substantial review in 2005. Notably, acting consistently with its goal of treating both the BIA
and the CCAA as sharing the same approach to insolvency, Parliament made parallel amendments to both statutes with respect
to corporate proposals. In addition, new provisions were introduced regarding the treatment of contracts, collective agreements,
interim financing and governance agreements. The appointment and role of the Monitor was also clarified. Noteworthy are the
limits imposed by CCAA s. 11.09 on the court's discretion to make an order staying the Crown's source deductions deemed
trusts, which were formerly found in s. 11.4. No mention whatsoever is made of GST deemed trusts (see Summary to S.C.
2005, c. 47). The review went as far as looking at the very expression used to describe the statutory override of deemed trusts.
The comments cited by my colleague only emphasize the clear intent of Parliament to maintain its policy that only source
deductions deemed trusts survive in CCAA proceedings.
55
In the case at bar, the legislative context informs the determination of Parliament's legislative intent and supports the
conclusion that ETA s. 222(3) was not intended to narrow the scope of the CCAA's override provision. Viewed in its entire
context, the conflict between the ETA and the CCAA is more apparent than real. I would therefore not follow the reasoning in
Ottawa Senators and affirm that CCAA s. 18.3 remained effective.
56 My conclusion is reinforced by the purpose of the CCAA as part of Canadian remedial insolvency legislation. As this aspect
is particularly relevant to the second issue, I will now discuss how courts have interpreted the scope of their discretionary powers
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Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
in supervising a CCAA reorganization and how Parliament has largely endorsed this interpretation. Indeed, the interpretation
courts have given to the CCAA helps in understanding how the CCAA grew to occupy such a prominent role in Canadian
insolvency law.
3.3 Discretionary Power of a Court Supervising a CCAA Reorganization
57 Courts frequently observe that "[t]he CCAA is skeletal in nature" and does not "contain a comprehensive code that lays out
all that is permitted or barred" (ATB Financial v. Metcalfe & Mansfield Alternative Investments II Corp., 2008 ONCA 587, 92
O.R. (3d) 513 (Ont. C.A.), at para. 44, per Blair J.A.). Accordingly, "[t]he history of CCAA law has been an evolution of judicial
interpretation" (Dylex Ltd., Re (1995), 31 C.B.R. (3d) 106 (Ont. Gen. Div. [Commercial List])), at para. 10, per Farley J.).
58
CCAA decisions are often based on discretionary grants of jurisdiction. The incremental exercise of judicial discretion
in commercial courts under conditions one practitioner aptly describes as "the hothouse of real-time litigation" has been the
primary method by which the CCAA has been adapted and has evolved to meet contemporary business and social needs (see
Jones, at p. 484).
59
Judicial discretion must of course be exercised in furtherance of the CCAA's purposes. The remedial purpose I referred
to in the historical overview of the Act is recognized over and over again in the jurisprudence. To cite one early example:
The legislation is remedial in the purest sense in that it provides a means whereby the devastating social and economic
effects of bankruptcy or creditor initiated termination of ongoing business operations can be avoided while a courtsupervised attempt to reorganize the financial affairs of the debtor company is made.
(Nova Metal Products Inc. v. Comiskey (Trustee of) (1990), 41 O.A.C. 282 (Ont. C.A.), at para. 57, per Doherty J.A.,
dissenting)
60
Judicial decision making under the CCAA takes many forms. A court must first of all provide the conditions under
which the debtor can attempt to reorganize. This can be achieved by staying enforcement actions by creditors to allow the
debtor's business to continue, preserving the status quo while the debtor plans the compromise or arrangement to be presented to
creditors, and supervising the process and advancing it to the point where it can be determined whether it will succeed (see, e.g.,
Hongkong Bank of Canada v. Chef Ready Foods Ltd. (1990), 51 B.C.L.R. (2d) 84 (B.C. C.A.), at pp. 88-89; Pacific National
Lease Holding Corp., Re (1992), 19 B.C.A.C. 134 (B.C. C.A. [In Chambers]), at para. 27). In doing so, the court must often
be cognizant of the various interests at stake in the reorganization, which can extend beyond those of the debtor and creditors
to include employees, directors, shareholders, and even other parties doing business with the insolvent company (see, e.g.,
Canadian Airlines Corp., Re, 2000 ABQB 442, 84 Alta. L.R. (3d) 9 (Alta. Q.B.), at para. 144, per Paperny J. (as she then was);
Air Canada, Re (2003), 42 C.B.R. (4th) 173 (Ont. S.C.J. [Commercial List]), at para. 3; Air Canada, Re [2003 CarswellOnt
4967 (Ont. S.C.J. [Commercial List])], 2003 CanLII 49366, at para. 13, per Farley J.; Sarra, Creditor Rights, at pp. 181-92
and 217-26). In addition, courts must recognize that on occasion the broader public interest will be engaged by aspects of the
reorganization and may be a factor against which the decision of whether to allow a particular action will be weighed (see, e.g.,
Canadian Red Cross Society / Société Canadienne de la Croix Rouge, Re (2000), 19 C.B.R. (4th) 158 (Ont. S.C.J.), at para. 2,
per Blair J. (as he then was); Sarra, Creditor Rights, at pp. 195-214).
61
When large companies encounter difficulty, reorganizations become increasingly complex. CCAA courts have been
called upon to innovate accordingly in exercising their jurisdiction beyond merely staying proceedings against the debtor to
allow breathing room for reorganization. They have been asked to sanction measures for which there is no explicit authority in
the CCAA. Without exhaustively cataloguing the various measures taken under the authority of the CCAA, it is useful to refer
briefly to a few examples to illustrate the flexibility the statute affords supervising courts.
62
Perhaps the most creative use of CCAA authority has been the increasing willingness of courts to authorize post-filing
security for debtor in possession financing or super-priority charges on the debtor's assets when necessary for the continuation
of the debtor's business during the reorganization (see, e.g., Skydome Corp., Re (1998), 16 C.B.R. (4th) 118 (Ont. Gen. Div.
[Commercial List]); United Used Auto & Truck Parts Ltd., Re, 2000 BCCA 146, 135 B.C.A.C. 96 (B.C. C.A.), aff'g (1999),
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Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
12 C.B.R. (4th) 144 (B.C. S.C. [In Chambers]); and generally, J. P. Sarra, Rescue! The Companies' Creditors Arrangement Act
(2007), at pp. 93-115). The CCAA has also been used to release claims against third parties as part of approving a comprehensive
plan of arrangement and compromise, even over the objections of some dissenting creditors (see Metcalfe & Mansfield). As well,
the appointment of a Monitor to oversee the reorganization was originally a measure taken pursuant to the CCAA's supervisory
authority; Parliament responded, making the mechanism mandatory by legislative amendment.
63
Judicial innovation during CCAA proceedings has not been without controversy. At least two questions it raises are
directly relevant to the case at bar: (1) what are the sources of a court's authority during CCAA proceedings? (2) what are the
limits of this authority?
64
The first question concerns the boundary between a court's statutory authority under the CCAA and a court's residual
authority under its inherent and equitable jurisdiction when supervising a reorganization. In authorizing measures during CCAA
proceedings, courts have on occasion purported to rely upon their equitable jurisdiction to advance the purposes of the Act or
their inherent jurisdiction to fill gaps in the statute. Recent appellate decisions have counselled against purporting to rely on
inherent jurisdiction, holding that the better view is that courts are in most cases simply construing the authority supplied by
the CCAA itself (see, e.g., Skeena Cellulose Inc., Re, 2003 BCCA 344, 13 B.C.L.R. (4th) 236 (B.C. C.A.), at paras. 45-47, per
Newbury J.A.; Stelco Inc. (Re) (2005), 75 O.R. (3d) 5 (Ont. C.A.), paras. 31-33, per Blair J.A.).
65
I agree with Justice Georgina R. Jackson and Professor Janis Sarra that the most appropriate approach is a hierarchical
one in which courts rely first on an interpretation of the provisions of the CCAA text before turning to inherent or equitable
jurisdiction to anchor measures taken in a CCAA proceeding (see G. R. Jackson and J. Sarra, "Selecting the Judicial Tool to
get the Job Done: An Examination of Statutory Interpretation, Discretionary Power and Inherent Jurisdiction in Insolvency
Matters", in J. P. Sarra, ed., Annual Review of Insolvency Law 2007 (2008), 41, at p. 42). The authors conclude that when
given an appropriately purposive and liberal interpretation, the CCAA will be sufficient in most instances to ground measures
necessary to achieve its objectives (p. 94).
66 Having examined the pertinent parts of the CCAA and the recent history of the legislation, I accept that in most instances
the issuance of an order during CCAA proceedings should be considered an exercise in statutory interpretation. Particularly
noteworthy in this regard is the expansive interpretation the language of the statute at issue is capable of supporting.
67 The initial grant of authority under the CCAA empowered a court "where an application is made under this Act in respect
of a company ... on the application of any person interested in the matter ..., subject to this Act, [to] make an order under this
section" (CCAA, s. 11(1)). The plain language of the statute was very broad.
68
In this regard, though not strictly applicable to the case at bar, I note that Parliament has in recent amendments changed
the wording contained in s. 11(1), making explicit the discretionary authority of the court under the CCAA. Thus in s. 11 of
the CCAA as currently enacted, a court may, "subject to the restrictions set out in this Act, ... make any order that it considers
appropriate in the circumstances" (S.C. 2005, c. 47, s. 128). Parliament appears to have endorsed the broad reading of CCAA
authority developed by the jurisprudence.
69
The CCAA also explicitly provides for certain orders. Both an order made on an initial application and an order on
subsequent applications may stay, restrain, or prohibit existing or new proceedings against the debtor. The burden is on the
applicant to satisfy the court that the order is appropriate in the circumstances and that the applicant has been acting in good
faith and with due diligence (CCAA, ss. 11(3), (4) and (6)).
70
The general language of the CCAA should not be read as being restricted by the availability of more specific orders.
However, the requirements of appropriateness, good faith, and due diligence are baseline considerations that a court should
always bear in mind when exercising CCAA authority. Appropriateness under the CCAA is assessed by inquiring whether the
order sought advances the policy objectives underlying the CCAA. The question is whether the order will usefully further
efforts to achieve the remedial purpose of the CCAA — avoiding the social and economic losses resulting from liquidation of
an insolvent company. I would add that appropriateness extends not only to the purpose of the order, but also to the means
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Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
it employs. Courts should be mindful that chances for successful reorganizations are enhanced where participants achieve
common ground and all stakeholders are treated as advantageously and fairly as the circumstances permit.
71
It is well-established that efforts to reorganize under the CCAA can be terminated and the stay of proceedings against
the debtor lifted if the reorganization is "doomed to failure" (see Chef Ready, at p. 88; Philip's Manufacturing Ltd., Re (1992),
9 C.B.R. (3d) 25 (B.C. C.A.), at paras. 6-7). However, when an order is sought that does realistically advance the CCAA's
purposes, the ability to make it is within the discretion of a CCAA court.
72
The preceding discussion assists in determining whether the court had authority under the CCAA to continue the stay of
proceedings against the Crown once it was apparent that reorganization would fail and bankruptcy was the inevitable next step.
73
In the Court of Appeal, Tysoe J.A. held that no authority existed under the CCAA to continue staying the Crown's
enforcement of the GST deemed trust once efforts at reorganization had come to an end. The appellant submits that in so holding,
Tysoe J.A. failed to consider the underlying purpose of the CCAA and give the statute an appropriately purposive and liberal
interpretation under which the order was permissible. The Crown submits that Tysoe J.A. correctly held that the mandatory
language of the ETA gave the court no option but to permit enforcement of the GST deemed trust when lifting the CCAA stay
to permit the debtor to make an assignment under the BIA. Whether the ETA has a mandatory effect in the context of a CCAA
proceeding has already been discussed. I will now address the question of whether the order was authorized by the CCAA.
74 It is beyond dispute that the CCAA imposes no explicit temporal limitations upon proceedings commenced under the Act
that would prohibit ordering a continuation of the stay of the Crown's GST claims while lifting the general stay of proceedings
temporarily to allow the debtor to make an assignment in bankruptcy.
75 The question remains whether the order advanced the underlying purpose of the CCAA. The Court of Appeal held that it
did not because the reorganization efforts had come to an end and the CCAA was accordingly spent. I disagree.
76 There is no doubt that had reorganization been commenced under the BIA instead of the CCAA, the Crown's deemed trust
priority for the GST funds would have been lost. Similarly, the Crown does not dispute that under the scheme of distribution in
bankruptcy under the BIA, the deemed trust for GST ceases to have effect. Thus, after reorganization under the CCAA failed,
creditors would have had a strong incentive to seek immediate bankruptcy and distribution of the debtor's assets under the
BIA. In order to conclude that the discretion does not extend to partially lifting the stay in order to allow for an assignment
in bankruptcy, one would have to assume a gap between the CCAA and the BIA proceedings. Brenner C.J.S.C.'s order staying
Crown enforcement of the GST claim ensured that creditors would not be disadvantaged by the attempted reorganization under
the CCAA. The effect of his order was to blunt any impulse of creditors to interfere in an orderly liquidation. His order was
thus in furtherance of the CCAA's objectives to the extent that it allowed a bridge between the CCAA and BIA proceedings. This
interpretation of the tribunal's discretionary power is buttressed by s. 20 of the CCAA. That section provides that the CCAA
"may be applied together with the provisions of any Act of Parliament... that authorizes or makes provision for the sanction of
compromises or arrangements between a company and its shareholders or any class of them", such as the BIA. Section 20 clearly
indicates the intention of Parliament for the CCAA to operate in tandem with other insolvency legislation, such as the BIA.
77
The CCAA creates conditions for preserving the status quo while attempts are made to find common ground amongst
stakeholders for a reorganization that is fair to all. Because the alternative to reorganization is often bankruptcy, participants will
measure the impact of a reorganization against the position they would enjoy in liquidation. In the case at bar, the order fostered
a harmonious transition between reorganization and liquidation while meeting the objective of a single collective proceeding
that is common to both statutes.
78
Tysoe J.A. therefore erred in my view by treating the CCAA and the BIA as distinct regimes subject to a temporal gap
between the two, rather than as forming part of an integrated body of insolvency law. Parliament's decision to maintain two
statutory schemes for reorganization, the BIA and the CCAA, reflects the reality that reorganizations of differing complexity
require different legal mechanisms. By contrast, only one statutory scheme has been found to be needed to liquidate a bankrupt
debtor's estate. The transition from the CCAA to the BIA may require the partial lifting of a stay of proceedings under the CCAA
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Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
to allow commencement of the BIA proceedings. However, as Laskin J.A. for the Ontario Court of Appeal noted in a similar
competition between secured creditors and the Ontario Superintendent of Financial Services seeking to enforce a deemed trust,
"[t]he two statutes are related" and no "gap" exists between the two statutes which would allow the enforcement of property
interests at the conclusion of CCAA proceedings that would be lost in bankruptcy Ivaco Inc. (Re) (2006), 83 O.R. (3d) 108
(Ont. C.A.), at paras. 62-63).
79
The Crown's priority in claims pursuant to source deductions deemed trusts does not undermine this conclusion. Source
deductions deemed trusts survive under both the CCAA and the BIA. Accordingly, creditors' incentives to prefer one Act over
another will not be affected. While a court has a broad discretion to stay source deductions deemed trusts in the CCAA context,
this discretion is nevertheless subject to specific limitations applicable only to source deductions deemed trusts (CCAA, s. 11.4).
Thus, if CCAA reorganization fails (e.g., either the creditors or the court refuse a proposed reorganization), the Crown can
immediately assert its claim in unremitted source deductions. But this should not be understood to affect a seamless transition
into bankruptcy or create any "gap" between the CCAA and the BIA for the simple reason that, regardless of what statute the
reorganization had been commenced under, creditors' claims in both instances would have been subject to the priority of the
Crown's source deductions deemed trust.
80
Source deductions deemed trusts aside, the comprehensive and exhaustive mechanism under the BIA must control the
distribution of the debtor's assets once liquidation is inevitable. Indeed, an orderly transition to liquidation is mandatory under
the BIA where a proposal is rejected by creditors. The CCAA is silent on the transition into liquidation but the breadth of the
court's discretion under the Act is sufficient to construct a bridge to liquidation under the BIA. The court must do so in a manner
that does not subvert the scheme of distribution under the BIA. Transition to liquidation requires partially lifting the CCAA stay
to commence proceedings under the BIA. This necessary partial lifting of the stay should not trigger a race to the courthouse
in an effort to obtain priority unavailable under the BIA.
81
I therefore conclude that Brenner C.J.S.C. had the authority under the CCAA to lift the stay to allow entry into liquidation.
3.4 Express Trust
82
The last issue in this case is whether Brenner C.J.S.C. created an express trust in favour of the Crown when he ordered
on April 29, 2008, that proceeds from the sale of LeRoy Trucking's assets equal to the amount of unremitted GST be held back
in the Monitor's trust account until the results of the reorganization were known. Tysoe J.A. in the Court of Appeal concluded
as an alternative ground for allowing the Crown's appeal that it was the beneficiary of an express trust. I disagree.
83
Creation of an express trust requires the presence of three certainties: intention, subject matter, and object. Express or
"true trusts" arise from the acts and intentions of the settlor and are distinguishable from other trusts arising by operation of
law (see D. W. M. Waters, M. R. Gillen and L. D. Smith, eds., Waters' Law of Trusts in Canada (3rd ed. 2005), at pp. 28-29
especially fn. 42).
84 Here, there is no certainty to the object (i.e. the beneficiary) inferrable from the court's order of April 29, 2008, sufficient
to support an express trust.
85 At the time of the order, there was a dispute between Century Services and the Crown over part of the proceeds from the
sale of the debtor's assets. The court's solution was to accept LeRoy Trucking's proposal to segregate those monies until that
dispute could be resolved. Thus there was no certainty that the Crown would actually be the beneficiary, or object, of the trust.
86 The fact that the location chosen to segregate those monies was the Monitor's trust account has no independent effect such
that it would overcome the lack of a clear beneficiary. In any event, under the interpretation of CCAA s. 18.3(1) established
above, no such priority dispute would even arise because the Crown's deemed trust priority over GST claims would be lost
under the CCAA and the Crown would rank as an unsecured creditor for this amount. However, Brenner C.J.S.C. may well
have been proceeding on the basis that, in accordance with Ottawa Senators, the Crown's GST claim would remain effective if
reorganization was successful, which would not be the case if transition to the liquidation process of the BIA was allowed. An
amount equivalent to that claim would accordingly be set aside pending the outcome of reorganization.
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Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
87
Thus, uncertainty surrounding the outcome of the CCAA restructuring eliminates the existence of any certainty to
permanently vest in the Crown a beneficial interest in the funds. That much is clear from the oral reasons of Brenner C.J.S.C.
on April 29, 2008, when he said: "Given the fact that [CCAA proceedings] are known to fail and filings in bankruptcy result, it
seems to me that maintaining the status quo in the case at bar supports the proposal to have the monitor hold these funds in trust."
Exactly who might take the money in the final result was therefore evidently in doubt. Brenner C.J.S.C.'s subsequent order
of September 3, 2008, denying the Crown's application to enforce the trust once it was clear that bankruptcy was inevitable,
confirms the absence of a clear beneficiary required to ground an express trust.
4. Conclusion
88
I conclude that Brenner C.J.S.C. had the discretion under the CCAA to continue the stay of the Crown's claim for
enforcement of the GST deemed trust while otherwise lifting it to permit LeRoy Trucking to make an assignment in bankruptcy.
My conclusion that s. 18.3(1) of the CCAA nullified the GST deemed trust while proceedings under that Act were pending
confirms that the discretionary jurisdiction under s. 11 utilized by the court was not limited by the Crown's asserted GST priority,
because there is no such priority under the CCAA.
89
For these reasons, I would allow the appeal and declare that the $305,202.30 collected by LeRoy Trucking in respect of
GST but not yet remitted to the Receiver General of Canada is not subject to deemed trust or priority in favour of the Crown.
Nor is this amount subject to an express trust. Costs are awarded for this appeal and the appeal in the court below.
Fish J. (concurring):
I
90
I am in general agreement with the reasons of Justice Deschamps and would dispose of the appeal as she suggests.
91 More particularly, I share my colleague's interpretation of the scope of the judge's discretion under s. 11 of the Companies'
Creditors Arrangement Act, R.S.C. 1985, c. C-36 ("CCAA"). And I share my colleague's conclusion that Brenner C.J.S.C. did
not create an express trust in favour of the Crown when he segregated GST funds into the Monitor's trust account (2008 BCSC
1805, [2008] G.S.T.C. 221 (B.C. S.C. [In Chambers])).
92
I nonetheless feel bound to add brief reasons of my own regarding the interaction between the CCAA and the Excise
Tax Act, R.S.C. 1985, c. E-15 ("ETA").
93
In upholding deemed trusts created by the ETA notwithstanding insolvency proceedings, Ottawa Senators Hockey Club
Corp. (Re) (2005), 73 O.R. (3d) 737, [2005] G.S.T.C. 1 (Ont. C.A.), and its progeny have been unduly protective of Crown
interests which Parliament itself has chosen to subordinate to competing prioritized claims. In my respectful view, a clearly
marked departure from that jurisprudential approach is warranted in this case.
94
Justice Deschamps develops important historical and policy reasons in support of this position and I have nothing to
add in that regard. I do wish, however, to explain why a comparative analysis of related statutory provisions adds support to
our shared conclusion.
95 Parliament has in recent years given detailed consideration to the Canadian insolvency scheme. It has declined to amend
the provisions at issue in this case. Ours is not to wonder why, but rather to treat Parliament's preservation of the relevant
provisions as a deliberate exercise of the legislative discretion that is Parliament's alone. With respect, I reject any suggestion
that we should instead characterize the apparent conflict between s. 18.3(1) (now s. 37(1)) of the CCAA and s. 222 of the ETA
as a drafting anomaly or statutory lacuna properly subject to judicial correction or repair.
II
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Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
96
In the context of the Canadian insolvency regime, a deemed trust will be found to exist only where two complementary
elements co-exist: first, a statutory provision creating the trust; and second, a CCAA or Bankruptcy and Insolvency Act, R.S.C.
1985, c. B-3 ("BIA") provision confirming — or explicitly preserving — its effective operation.
97 This interpretation is reflected in three federal statutes. Each contains a deemed trust provision framed in terms strikingly
similar to the wording of s. 222 of the ETA.
98
The first is the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) ("ITA") where s. 227(4) creates a deemed trust:
227 (4) Trust for moneys deducted — Every person who deducts or withholds an amount under this Act is deemed,
notwithstanding any security interest (as defined in subsection 224(1.3)) in the amount so deducted or withheld, to hold
the amount separate and apart from the property of the person and from property held by any secured creditor (as defined
in subsection 224(1.3)) of that person that but for the security interest would be property of the person, in trust for Her
Majesty and for payment to Her Majesty in the manner and at the time provided under this Act. [Here and below, the
emphasis is of course my own.]
99
In the next subsection, Parliament has taken care to make clear that this trust is unaffected by federal or provincial
legislation to the contrary:
(4.1) Extension of trust — Notwithstanding any other provision of this Act, the Bankruptcy and Insolvency Act (except
sections 81.1 and 81.2 of that Act), any other enactment of Canada, any enactment of a province or any other law, where
at any time an amount deemed by subsection 227(4) to be held by a person in trust for Her Majesty is not paid to Her
Majesty in the manner and at the time provided under this Act, property of the person ... equal in value to the amount so
deemed to be held in trust is deemed
(a) to be held, from the time the amount was deducted or withheld by the person, separate and apart from the property
of the person, in trust for Her Majesty whether or not the property is subject to such a security interest, ...
...
... and the proceeds of such property shall be paid to the Receiver General in priority to all such security interests.
100
The continued operation of this deemed trust is expressly confirmed in s. 18.3 of the CCAA:
18.3 (1) Subject to subsection (2), notwithstanding any provision in federal or provincial legislation that has the effect of
deeming property to be held in trust for Her Majesty, property of a debtor company shall not be regarded as being held in
trust for Her Majesty unless it would be so regarded in the absence of that statutory provision.
(2) Subsection (1) does not apply in respect of amounts deemed to be held in trust under subsection 227(4) or (4.1) of
the Income Tax Act, subsection 23(3) or (4) of the Canada Pension Plan or subsection 86(2) or (2.1) of the Employment
Insurance Act....
101
The operation of the ITA deemed trust is also confirmed in s. 67 of the BIA:
67 (2) Subject to subsection (3), notwithstanding any provision in federal or provincial legislation that has the effect of
deeming property to be held in trust for Her Majesty, property of a bankrupt shall not be regarded as held in trust for Her
Majesty for the purpose of paragraph (1)(a) unless it would be so regarded in the absence of that statutory provision.
(3) Subsection (2) does not apply in respect of amounts deemed to be held in trust under subsection 227(4) or (4.1) of
the Income Tax Act, subsection 23(3) or (4) of the Canada Pension Plan or subsection 86(2) or (2.1) of the Employment
Insurance Act....
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27
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
102
Thus, Parliament has first created and then confirmed the continued operation of the Crown's ITA deemed trust under
both the CCAA and the BIA regimes.
103
The second federal statute for which this scheme holds true is the Canada Pension Plan, R.S.C. 1985, c. C-8 ("CPP").
At s. 23, Parliament creates a deemed trust in favour of the Crown and specifies that it exists despite all contrary provisions
in any other Canadian statute. Finally, and in almost identical terms, the Employment Insurance Act, S.C. 1996, c. 23 ("EIA"),
creates a deemed trust in favour of the Crown: see ss. 86(2) and (2.1).
104
As we have seen, the survival of the deemed trusts created under these provisions of the ITA, the CPP and the EIA is
confirmed in s. 18.3(2) the CCAA and in s. 67(3) the BIA. In all three cases, Parliament's intent to enforce the Crown's deemed
trust through insolvency proceedings is expressed in clear and unmistakable terms.
105
The same is not true with regard to the deemed trust created under the ETA. Although Parliament creates a deemed
trust in favour of the Crown to hold unremitted GST monies, and although it purports to maintain this trust notwithstanding any
contrary federal or provincial legislation, it does not confirm the trust — or expressly provide for its continued operation — in
either the BIA or the CCAA. The second of the two mandatory elements I have mentioned is thus absent reflecting Parliament's
intention to allow the deemed trust to lapse with the commencement of insolvency proceedings.
106
The language of the relevant ETA provisions is identical in substance to that of the ITA, CPP, and EIA provisions:
222. (1) [Deemed] Trust for amounts collected — Subject to subsection (1.1), every person who collects an amount
as or on account of tax under Division II is deemed, for all purposes and despite any security interest in the amount, to
hold the amount in trust for Her Majesty in right of Canada, separate and apart from the property of the person and from
property held by any secured creditor of the person that, but for a security interest, would be property of the person, until
the amount is remitted to the Receiver General or withdrawn under subsection (2).
...
(3) Extension of trust — Despite any other provision of this Act (except subsection (4)), any other enactment of Canada
(except the Bankruptcy and Insolvency Act), any enactment of a province or any other law, if at any time an amount deemed
by subsection (1) to be held by a person in trust for Her Majesty is not remitted to the Receiver General or withdrawn
in the manner and at the time provided under this Part, property of the person and property held by any secured creditor
of the person that, but for a security interest, would be property of the person, equal in value to the amount so deemed
to be held in trust, is deemed
(a) to be held, from the time the amount was collected by the person, in trust for Her Majesty, separate and apart from
the property of the person, whether or not the property is subject to a security interest, ...
...
... and the proceeds of the property shall be paid to the Receiver General in priority to all security interests.
107
Yet no provision of the CCAA provides for the continuation of this deemed trust after the CCAA is brought into play.
108 In short, Parliament has imposed two explicit conditions, or "building blocks", for survival under the CCAA of deemed
trusts created by the ITA, CPP, and EIA. Had Parliament intended to likewise preserve under the CCAA deemed trusts created
by the ETA, it would have included in the CCAA the sort of confirmatory provision that explicitly preserves other deemed trusts.
109
With respect, unlike Tysoe J.A., I do not find it "inconceivable that Parliament would specifically identify the BIA as
an exception when enacting the current version of s. 222(3) of the ETA without considering the CCAA as a possible second
exception" (2009 BCCA 205, 98 B.C.L.R. (4th) 242, [2009] G.S.T.C. 79 (B.C. C.A.), at para. 37). All of the deemed trust
provisions excerpted above make explicit reference to the BIA. Section 222 of the ETA does not break the pattern. Given the
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28
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
near-identical wording of the four deemed trust provisions, it would have been surprising indeed had Parliament not addressed
the BIA at all in the ETA.
110 Parliament's evident intent was to render GST deemed trusts inoperative upon the institution of insolvency proceedings.
Accordingly, s. 222 mentions the BIA so as to exclude it from its ambit — rather than to include it, as do the ITA, the CPP,
and the EIA.
111
Conversely, I note that none of these statutes mentions the CCAA expressly. Their specific reference to the BIA has no
bearing on their interaction with the CCAA. Again, it is the confirmatory provisions in the insolvency statutes that determine
whether a given deemed trust will subsist during insolvency proceedings.
112 Finally, I believe that chambers judges should not segregate GST monies into the Monitor's trust account during CCAA
proceedings, as was done in this case. The result of Justice Deschamps's reasoning is that GST claims become unsecured under
the CCAA. Parliament has deliberately chosen to nullify certain Crown super-priorities during insolvency; this is one such
instance.
III
113
For these reasons, like Justice Deschamps, I would allow the appeal with costs in this Court and in the courts below
and order that the $305,202.30 collected by LeRoy Trucking in respect of GST but not yet remitted to the Receiver General of
Canada be subject to no deemed trust or priority in favour of the Crown.
Abella J. (dissenting):
114
The central issue in this appeal is whether s. 222 of the Excise Tax Act, R.S.C. 1985, c. E-15 ("EIA"), and specifically
s. 222(3), gives priority during Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 ("CCAA"), proceedings to the
Crown's deemed trust in unremitted GST. I agree with Tysoe J.A. that it does. It follows, in my respectful view, that a court's
discretion under s. 11 of the CCAA is circumscribed accordingly.
115
Section 11 1 of the CCAA stated:
11. (1) Notwithstanding anything in the Bankruptcy and Insolvency Act or the Winding-up Act, where an application is
made under this Act in respect of a company, the court, on the application of any person interested in the matter, may,
subject to this Act, on notice to any other person or without notice as it may see fit, make an order under this section.
To decide the scope of the court's discretion under s. 11, it is necessary to first determine the priority issue. Section 222(3), the
provision of the ETA at issue in this case, states:
222 (3) Extension of trust — Despite any other provision of this Act (except subsection (4)), any other enactment of
Canada (except the Bankruptcy and Insolvency Act), any enactment of a province or any other law, if at any time an
amount deemed by subsection (1) to be held by a person in trust for Her Majesty is not remitted to the Receiver General or
withdrawn in the manner and at the time provided under this Part, property of the person and property held by any secured
creditor of the person that, but for a security interest, would be property of the person, equal in value to the amount so
deemed to be held in trust, is deemed
(a) to be held, from the time the amount was collected by the person, in trust for Her Majesty, separate and apart from
the property of the person, whether or not the property is subject to a security interest, and
(b) to form no part of the estate or property of the person from the time the amount was collected, whether or not
the property has in fact been kept separate and apart from the estate or property of the person and whether or not the
property is subject to a security interest
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29
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
and is property beneficially owned by Her Majesty in right of Canada despite any security interest in the property or in the
proceeds thereof and the proceeds of the property shall be paid to the Receiver General in priority to all security interests.
116 Century Services argued that the CCAA's general override provision, s. 18.3(1), prevailed, and that the deeming provisions
in s. 222 of the ETA were, accordingly, inapplicable during CCAA proceedings. Section 18.3(1) states:
18.3 (1) ... [N]otwithstanding any provision in federal or provincial legislation that has the effect of deeming property to
be held in trust for Her Majesty, property of a debtor company shall not be regarded as held in trust for Her Majesty unless
it would be so regarded in the absence of that statutory provision.
117
As MacPherson J.A. correctly observed in Ottawa Senators Hockey Club Corp. (Re) (2005), 73 O.R. (3d) 737, [2005]
G.S.T.C. 1 (Ont. C.A.), s. 222(3) of the ETA is in "clear conflict" with s. 18.3(1) of the CCAA (para. 31). Resolving the conflict
between the two provisions is, essentially, what seems to me to be a relatively uncomplicated exercise in statutory interpretation:
does the language reflect a clear legislative intention? In my view it does. The deemed trust provision, s. 222(3) of the ETA,
has unambiguous language stating that it operates notwithstanding any law except the Bankruptcy and Insolvency Act, R.S.C.
1985, c. B-3 ("BIA").
118
By expressly excluding only one statute from its legislative grasp, and by unequivocally stating that it applies despite
any other law anywhere in Canada except the BIA, s. 222(3) has defined its boundaries in the clearest possible terms. I am in
complete agreement with the following comments of MacPherson J.A. in Ottawa Senators:
The legislative intent of s. 222(3) of the ETA is clear. If there is a conflict with "any other enactment of Canada (except
the Bankruptcy and Insolvency Act)", s. 222(3) prevails. In these words Parliament did two things: it decided that s. 222(3)
should trump all other federal laws and, importantly, it addressed the topic of exceptions to its trumping decision and
identified a single exception, the Bankruptcy and Insolvency Act .... The BIA and the CCAA are closely related federal
statutes. I cannot conceive that Parliament would specifically identify the BIA as an exception, but accidentally fail to
consider the CCAA as a possible second exception. In my view, the omission of the CCAA from s. 222(3) of the ETA was
almost certainly a considered omission. [para. 43]
119
MacPherson J.A.'s view that the failure to exempt the CCAA from the operation of the ETA is a reflection of a clear
legislative intention, is borne out by how the CCAA was subsequently changed after s. 18.3(1) was enacted in 1997. In 2000,
when s. 222(3) of the ETA came into force, amendments were also introduced to the CCAA. Section 18.3(1) was not amended.
120
The failure to amend s. 18.3(1) is notable because its effect was to protect the legislative status quo, notwithstanding
repeated requests from various constituencies that s. 18.3(1) be amended to make the priorities in the CCAA consistent with those
in the BIA. In 2002, for example, when Industry Canada conducted a review of the BIA and the CCAA, the Insolvency Institute
of Canada and the Canadian Association of Insolvency and Restructuring Professionals recommended that the priority regime
under the BIA be extended to the CCAA (Joint Task Force on Business Insolvency Law Reform, Report (March 15, 2002), Sch.
B, proposal 71, at pp. 37-38). The same recommendations were made by the Standing Senate Committee on Banking, Trade and
Commerce in its 2003 report, Debtors and Creditors Sharing the Burden: A Review of the Bankruptcy and Insolvency Act and
the Companies' Creditors Arrangement Act; by the Legislative Review Task Force (Commercial) of the Insolvency Institute
of Canada and the Canadian Association of Insolvency and Restructuring Professionals in its 2005 Report on the Commercial
Provisions of Bill C-55; and in 2007 by the Insolvency Institute of Canada in a submission to the Standing Senate Committee
on Banking, Trade and Commerce commenting on reforms then under consideration.
121
Yet the BIA remains the only exempted statute under s. 222(3) of the ETA. Even after the 2005 decision in Ottawa
Senators which confirmed that the ETA took precedence over the CCAA, there was no responsive legislative revision. I see
this lack of response as relevant in this case, as it was in R. v. Tele-Mobile Co., 2008 SCC 12, [2008] 1 S.C.R. 305 (S.C.C.),
where this Court stated:
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30
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
While it cannot be said that legislative silence is necessarily determinative of legislative intention, in this case the silence
is Parliament's answer to the consistent urging of Telus and other affected businesses and organizations that there be
express language in the legislation to ensure that businesses can be reimbursed for the reasonable costs of complying with
evidence-gathering orders. I see the legislative history as reflecting Parliament's intention that compensation not be paid
for compliance with production orders. [para. 42]
122
All this leads to a clear inference of a deliberate legislative choice to protect the deemed trust in s. 222(3) from the
reach of s. 18.3(1) of the CCAA.
123
Nor do I see any "policy" justification for interfering, through interpretation, with this clarity of legislative intention.
I can do no better by way of explaining why I think the policy argument cannot succeed in this case, than to repeat the words
of Tysoe J.A. who said:
I do not dispute that there are valid policy reasons for encouraging insolvent companies to attempt to restructure their
affairs so that their business can continue with as little disruption to employees and other stakeholders as possible. It is
appropriate for the courts to take such policy considerations into account, but only if it is in connection with a matter
that has not been considered by Parliament. Here, Parliament must be taken to have weighed policy considerations when
it enacted the amendments to the CCAA and ETA described above. As Mr. Justice MacPherson observed at para. 43 of
Ottawa Senators, it is inconceivable that Parliament would specifically identify the BIA as an exception when enacting
the current version of s. 222(3) of the ETA without considering the CCAA as a possible second exception. I also make
the observation that the 1992 set of amendments to the BIA enabled proposals to be binding on secured creditors and,
while there is more flexibility under the CCAA, it is possible for an insolvent company to attempt to restructure under the
auspices of the BIA. [para. 37]
124
Despite my view that the clarity of the language in s. 222(3) is dispositive, it is also my view that even the application
of other principles of interpretation reinforces this conclusion. In their submissions, the parties raised the following as being
particularly relevant: the Crown relied on the principle that the statute which is "later in time" prevails; and Century Services
based its argument on the principle that the general provision gives way to the specific (generalia specialibus non derogani).
125 The "later in time" principle gives priority to a more recent statute, based on the theory that the legislature is presumed
to be aware of the content of existing legislation. If a new enactment is inconsistent with a prior one, therefore, the legislature
is presumed to have intended to derogate from the earlier provisions (Ruth Sullivan, Sullivan on the Construction of Statutes
(5th ed. 2008), at pp. 346-47; Pierre-André Côté, The Interpretation of Legislation in Canada (3rd ed. 2000), at p. 358).
126 The exception to this presumptive displacement of pre-existing inconsistent legislation, is the generalia specialibus non
derogant principle that "[a] more recent, general provision will not be construed as affecting an earlier, special provision" (Côté,
at p. 359). Like a Russian Doll, there is also an exception within this exception, namely, that an earlier, specific provision may
in fact be "overruled" by a subsequent general statute if the legislature indicates, through its language, an intention that the
general provision prevails (Doré c. Verdun (Municipalité), [1997] 2 S.C.R. 862 (S.C.C.)).
127 The primary purpose of these interpretive principles is to assist in the performance of the task of determining the intention
of the legislature. This was confirmed by MacPherson J.A. in Ottawa Senators, at para. 42:
[T]he overarching rule of statutory interpretation is that statutory provisions should be interpreted to give effect to the
intention of the legislature in enacting the law. This primary rule takes precedence over all maxims or canons or aids
relating to statutory interpretation, including the maxim that the specific prevails over the general (generalia specialibus
non derogant). As expressed by Hudson J. in Canada v. Williams, [1944] S.C.R. 226, ... at p. 239 ...:
The maxim generalia specialibus non derogant is relied on as a rule which should dispose of the question, but the
maxim is not a rule of law but a rule of construction and bows to the intention of the legislature, if such intention can
reasonably be gathered from all of the relevant legislation.
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31
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
(See also Côté, at p. 358, and Pierre-Andre Côté, with the collaboration of S. Beaulac and M. Devinat, Interprétation des lois
(4th ed. 2009), at para. 1335.)
128
I accept the Crown's argument that the "later in time" principle is conclusive in this case. Since s. 222(3) of the ETA
was enacted in 2000 and s. 18.3(1) of the CCAA was introduced in 1997, s. 222(3) is, on its face, the later provision. This
chronological victory can be displaced, as Century Services argues, if it is shown that the more recent provision, s. 222(3) of
the ETA, is a general one, in which case the earlier, specific provision, s. 18.3(1), prevails (generalia specialibus non derogant).
But, as previously explained, the prior specific provision does not take precedence if the subsequent general provision appears
to "overrule" it. This, it seems to me, is precisely what s. 222(3) achieves through the use of language stating that it prevails
despite any law of Canada, of a province, or "any other law" other than the BIA. Section 18.3(1) of the CCAA, is thereby
rendered inoperative for purposes of s. 222(3).
129
It is true that when the CCAA was amended in 2005, 2 s. 18.3(1) was re-enacted as s. 37(1) (S.C. 2005, c. 47, s. 131).
Deschamps J. suggests that this makes s. 37(1) the new, "later in time" provision. With respect, her observation is refuted
by the operation of s. 44(f) of the Interpretation Act, R.S.C. 1985, c. I-21, which expressly deals with the (non) effect of reenacting, without significant substantive changes, a repealed provision (see Canada (Attorney General) v. Canada (Public
Service Staff Relations Board), [1977] 2 F.C. 663 (Fed. C.A.), dealing with the predecessor provision to s. 44(f)). It directs that
new enactments not be construed as "new law" unless they differ in substance from the repealed provision:
44. Where an enactment, in this section called the "former enactment", is repealed and another enactment, in this section
called the "new enactment", is substituted therefor,
...
(f) except to the extent that the provisions of the new enactment are not in substance the same as those of the former
enactment, the new enactment shall not be held to operate as new law, but shall be construed and have effect as a
consolidation and as declaratory of the law as contained in the former enactment;
Section 2 of the Interpretation Act defines an enactment as "an Act or regulation or any portion of an Act or regulation".
130 Section 37(1) of the current CCAA is almost identical to s. 18.3(1). These provisions are set out for ease of comparison,
with the differences between them underlined:
37.(1) Subject to subsection (2), despite any provision in federal or provincial legislation that has the effect of deeming
property to be held in trust for Her Majesty, property of a debtor company shall not be regarded as being held in trust for
Her Majesty unless it would be so regarded in the absence of that statutory provision.
18.3 (1) Subject to subsection (2), notwithstanding any provision in federal or provincial legislation that has the effect of
deeming property to be held in trust for Her Majesty, property of a debtor company shall not be regarded as held in trust
for Her Majesty unless it would be so regarded in the absence of that statutory provision.
131
The application of s. 44(f) of the Interpretation Act simply confirms the government's clearly expressed intent, found
in Industry Canada's clause-by-clause review of Bill C-55, where s. 37(1) was identified as "a technical amendment to reorder
the provisions of this Act". During second reading, the Hon. Bill Rompkey, then the Deputy Leader of the Government in the
Senate, confirmed that s. 37(1) represented only a technical change:
On a technical note relating to the treatment of deemed trusts for taxes, the bill [sic] makes no changes to the underlying
policy intent, despite the fact that in the case of a restructuring under the CCAA, sections of the act [sic] were repealed
and substituted with renumbered versions due to the extensive reworking of the CCAA.
(Debates of the Senate, vol. 142, 1st Sess., 38th Parl., November 23, 2005, at p. 2147)
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Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
132 Had the substance of s. 18.3(1) altered in any material way when it was replaced by s. 37(1), I would share Deschamps J.'s
view that it should be considered a new provision. But since s. 18.3(1) and s. 37(1) are the same in substance, the transformation
of s. 18.3(1) into s. 37(1) has no effect on the interpretive queue, and s. 222(3) of the ETA remains the "later in time" provision
(Sullivan, at p. 347).
133
This means that the deemed trust provision in s. 222(3) of the ETA takes precedence over s. 18.3(1) during CCAA
proceedings. The question then is how that priority affects the discretion of a court under s. 11 of the CCAA.
134
While s. 11 gives a court discretion to make orders notwithstanding the BIA and the Winding-up Act, R.S.C. 1985, c.
W-11, that discretion is not liberated from the operation of any other federal statute. Any exercise of discretion is therefore
circumscribed by whatever limits are imposed by statutes other than the BIA and the Winding-up Act. That includes the ETA.
The chambers judge in this case was, therefore, required to respect the priority regime set out in s. 222(3) of the ETA. Neither
s. 18.3(1) nor s. 11 of the CCAA gave him the authority to ignore it. He could not, as a result, deny the Crown's request for
payment of the GST funds during the CCAA proceedings.
135
Given this conclusion, it is unnecessary to consider whether there was an express trust.
136
I would dismiss the appeal.
Appeal allowed.
Pourvoi accueilli.
Appendix
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 (as at December 13, 2007)
11. (1) Powers of court — Notwithstanding anything in the Bankruptcy and Insolvency Act or the Winding-up Act, where
an application is made under this Act in respect of a company, the court, on the application of any person interested in
the matter, may, subject to this Act, on notice to any other person or without notice as it may see fit, make an order under
this section.
...
(3) Initial application court orders — A court may, on an initial application in respect of a company, make an order on
such terms as it may impose, effective for such period as the court deems necessary not exceeding thirty days,
(a) staying, until otherwise ordered by the court, all proceedings taken or that might be taken in respect of the company
under an Act referred to in subsection (i);
(b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against the
company; and
(c) prohibiting, until otherwise ordered by the court, the commencement of or proceeding with any other action, suit
or proceeding against the company.
(4) Other than initial application court orders — A court may, on an application in respect of a company other than an
initial application, make an order on such terms as it may impose,
(a) staying, until otherwise ordered by the court, for such period as the court deems necessary, all proceedings taken
or that might be taken in respect of the company under an Act referred to in subsection (1);
(b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against the
company; and
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Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
(c) prohibiting, until otherwise ordered by the court, the commencement of or proceeding with any other action, suit
or proceeding against the company.
...
(6) Burden of proof on application — The court shall not make an order under subsection (3) or (4) unless
(a) the applicant satisfies the court that circumstances exist that make such an order appropriate; and
(b) in the case of an order under subsection (4), the applicant also satisfies the court that the applicant has acted, and
is acting, in good faith and with due diligence.
11.4 (1) Her Majesty affected — An order made under section 11 may provide that
(a) Her Majesty in right of Canada may not exercise rights under subsection 224(1.2) of the Income Tax Act or any
provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of
the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or
an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related
interest, penalties or other amounts, in respect of the company if the company is a tax debtor under that subsection or
provision, for such period as the court considers appropriate but ending not later than
(i) the expiration of the order,
(ii) the refusal of a proposed compromise by the creditors or the court,
(iii) six months following the court sanction of a compromise or arrangement,
(iv) the default by the company on any term of a compromise or arrangement, or
(v) the performance of a compromise or arrangement in respect of the company; and\
(b) Her Majesty in right of a province may not exercise rights under any provision of provincial legislation in respect
of the company where the company is a debtor under that legislation and the provision has a similar purpose to
subsection 224(1.2) of the Income Tax Act, or refers to that subsection, to the extent that it provides for the collection
of a sum, and of any related interest, penalties or other amounts, where the sum
(i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar
in nature to the income tax imposed on individuals under the Income Tax Act, or
(ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing
a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial
legislation establishes a "provincial pension plan" as defined in that subsection,
for such period as the court considers appropriate but ending not later than the occurrence or time referred to in whichever
of subparagraphs (a)(i) to (v) may apply.
(2) When order ceases to be in effect — An order referred to in subsection (1) ceases to be in effect if
(a) the company defaults on payment of any amount that becomes due to Her Majesty after the order is made and
could be subject to a demand under
(i) subsection 224(1.2) of the Income Tax Act,
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34
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
(ii) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection
224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada
Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act,
and of any related interest, penalties or other amounts, or
(iii) under any provision of provincial legislation that has a similar purpose to subsection 224(1.2) of the Income
Tax Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any
related interest, penalties or other amounts, where the sum
(A) has been withheld or deducted by a person from a payment to another person and is in respect of a tax
similar in nature to the income tax imposed on individuals under the Income Tax Act, or
(B) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province
providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and
the provincial legislation establishes a "provincial pension plan" as defined in that subsection; or
(b) any other creditor is or becomes entitled to realize a security on any property that could be claimed by Her Majesty
in exercising rights under
(i) subsection 224(1.2) of the Income Tax Act,
(ii) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection
224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada
Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act,
and of any related interest, penalties or other amounts, or
(iii) any provision of provincial legislation that has a similar purpose to subsection 224(1.2) of the Income Tax
Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related
interest, penalties or other amounts, where the sum
(A) has been withheld or deducted by a person from a payment to another person and is in respect of a tax
similar in nature to the income tax imposed on individuals under the Income Tax Act, or
(B) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province
providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and
the provincial legislation establishes a "provincial pension plan" as defined in that subsection.
(3) Operation of similar legislation — An order made under section 11, other than an order referred to in subsection (1)
of this section, does not affect the operation of
(a) subsections 224(1.2) and (1.3) of the Income Tax Act,
(b) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2)
of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or
an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related
interest, penalties or other amounts, or
(c) any provision of provincial legislation that has a similar purpose to subsection 224(1.2) of the Income Tax Act,
or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest,
penalties or other amounts, where the sum
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
35
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
(i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar
in nature to the income tax imposed on individuals under the Income Tax Act, or
(ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing
a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial
legislation establishes a "provincial pension plan" as defined in that subsection,
and for the purpose of paragraph (c), the provision of provincial legislation is, despite any Act of Canada or of a province
or any other law, deemed to have the same effect and scope against any creditor, however secured, as subsection 224(1.2)
of the Income Tax Act in respect of a sum referred to in subparagraph (c)(i), or as subsection 23(2) of the Canada Pension
Plan in respect of a sum referred to in subparagraph (c)(ii), and in respect of any related interest, penalties or other amounts.
18.3 (1) Deemed trusts — Subject to subsection (2), notwithstanding any provision in federal or provincial legislation that
has the effect of deeming property to be held in trust for Her Majesty, property of a debtor company shall not be regarded
as held in trust for Her Majesty unless it would be so regarded in the absence of that statutory provision.
(2) Exceptions — Subsection (1) does not apply in respect of amounts deemed to be held in trust under subsection 227(4)
or (4.1) of the Income Tax Act, subsection 23(3) or (4) of the Canada Pension Plan or subsection 86(2) or (2.1) of the
Employment Insurance Act (each of which is in this subsection referred to as a "federal provision") nor in respect of amounts
deemed to be held in trust under any law of a province that creates a deemed trust the sole purpose of which is to ensure
remittance to Her Majesty in right of the province of amounts deducted or withheld under a law of the province where
(a) that law of the province imposes a tax similar in nature to the tax imposed under the Income Tax Act and the
amounts deducted or withheld under that law of the province are of the same nature as the amounts referred to in
subsection 227(4) or (4.1) of the Income Tax Act, or
(b) the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada
Pension Plan, that law of the province establishes a "provincial pension plan" as defined in that subsection and
the amounts deducted or withheld under that law of the province are of the same nature as amounts referred to in
subsection 23(3) or (4) of the Canada Pension Plan,
and for the purpose of this subsection, any provision of a law of a province that creates a deemed trust is, notwithstanding
any Act of Canada or of a province or any other law, deemed to have the same effect and scope against any creditor,
however secured, as the corresponding federal provision.
18.4 (1) Status of Crown claims — In relation to a proceeding under this Act, all claims, including secured claims, of
Her Majesty in right of Canada or a province or any body under an enactment respecting workers' compensation, in this
section and in section 18.5 called a "workers' compensation body", rank as unsecured claims.
...
(3) Operation of similar legislation — Subsection (1) does not affect the operation of
(a) subsections 224(1.2) and (1.3) of the Income Tax Act,
(b) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2)
of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or
an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related
interest, penalties or other amounts, or
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
36
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
(c) any provision of provincial legislation that has a similar purpose to subsection 224(1.2) of the Income Tax Act,
or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest,
penalties or other amounts, where the sum
(i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar
in nature to the income tax imposed on individuals under the Income Tax Act, or
(ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing
a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial
legislation establishes a "provincial pension plan" as defined in that subsection,
and for the purpose of paragraph (c), the provision of provincial legislation is, despite any Act of Canada or of a province
or any other law, deemed to have the same effect and scope against any creditor, however secured, as subsection 224(1.2)
of the Income Tax Act in respect of a sum referred to in subparagraph (c)(i), or as subsection 23(2) of the Canada Pension
Plan in respect of a sum referred to in subparagraph (c)(ii), and in respect of any related interest, penalties or other amounts.
...
20. [Act to be applied conjointly with other Acts] — The provisions of this Act may be applied together with the
provisions of any Act of Parliament or of the legislature of any province, that authorizes or makes provision for the sanction
of compromises or arrangements between a company and its shareholders or any class of them.
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 (as at September 18, 2009)
11. General power of court — Despite anything in the Bankruptcy and Insolvency Act or the Winding-up and
Restructuring Act, if an application is made under this Act in respect of a debtor company, the court, on the application
of any person interested in the matter, may, subject to the restrictions set out in this Act, on notice to any other person or
without notice as it may see fit, make any order that it considers appropriate in the circumstances.
...
11.02 (1) Stays, etc. — initial application — A court may, on an initial application in respect of a debtor company, make
an order on any terms that it may impose, effective for the period that the court considers necessary, which period may
not be more than 30 days,
(a) staying, until otherwise ordered by the court, all proceedings taken or that might be taken in respect of the company
under the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act;
(b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against the
company; and
(c) prohibiting, until otherwise ordered by the court, the commencement of any action, suit or proceeding against
the company.
(2) Stays, etc. — other than initial application — A court may, on an application in respect of a debtor company other
than an initial application, make an order, on any terms that it may impose,
(a) staying, until otherwise ordered by the court, for any period that the court considers necessary, all proceedings
taken or that might be taken in respect of the company under an Act referred to in paragraph (1)(a);
(b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against the
company; and
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
37
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
(c) prohibiting, until otherwise ordered by the court, the commencement of any action, suit or proceeding against
the company.
(3) Burden of proof on application — The court shall not make the order unless
(a) the applicant satisfies the court that circumstances exist that make the order appropriate; and
(b) in the case of an order under subsection (2), the applicant also satisfies the court that the applicant has acted, and
is acting, in good faith and with due diligence.
...
11.09 (1) Stay — Her Majesty — An order made under section 11.02 may provide that
(a) Her Majesty in right of Canada may not exercise rights under subsection 224(1.2) of the Income Tax Act or any
provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2) of
the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or
an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related
interest, penalties or other amounts, in respect of the company if the company is a tax debtor under that subsection or
provision, for the period that the court considers appropriate but ending not later than
(i) the expiry of the order,
(ii) the refusal of a proposed compromise by the creditors or the court,
(iii) six months following the court sanction of a compromise or an arrangement,
(iv) the default by the company on any term of a compromise or an arrangement, or
(v) the performance of a compromise or an arrangement in respect of the company; and
(b) Her Majesty in right of a province may not exercise rights under any provision of provincial legislation in respect
of the company if the company is a debtor under that legislation and the provision has a purpose similar to subsection
224(1.2) of the Income Tax Act, or refers to that subsection, to the extent that it provides for the collection of a sum,
and of any related interest, penalties or other amounts, and the sum
(i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar
in nature to the income tax imposed on individuals under the Income Tax Act, or
(ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing
a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial
legislation establishes a "provincial pension plan" as defined in that subsection,
for the period that the court considers appropriate but ending not later than the occurrence or time referred to in whichever
of subparagraphs (a)(i) to (v) that may apply.
(2) When order ceases to be in effect — The portions of an order made under section 11.02 that affect the exercise of
rights of Her Majesty referred to in paragraph (1)(a) or (b) cease to be in effect if
(a) the company defaults on the payment of any amount that becomes due to Her Majesty after the order is made
and could be subject to a demand under
(i) subsection 224(1.2) of the Income Tax Act,
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
38
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
(ii) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection
224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada
Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act,
and of any related interest, penalties or other amounts, or
(iii) any provision of provincial legislation that has a purpose similar to subsection 224(1.2) of the Income Tax
Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related
interest, penalties or other amounts, and the sum
(A) has been withheld or deducted by a person from a payment to another person and is in respect of a tax
similar in nature to the income tax imposed on individuals under the Income Tax Act, or
(B) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province
providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and
the provincial legislation establishes a "provincial pension plan" as defined in that subsection; or
(b) any other creditor is or becomes entitled to realize a security on any property that could be claimed by Her Majesty
in exercising rights under
(i) subsection 224(1.2) of the Income Tax Act,
(ii) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection
224(1.2) of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada
Pension Plan, or an employee's premium, or employer's premium, as defined in the Employment Insurance Act,
and of any related interest, penalties or other amounts, or
(iii) any provision of provincial legislation that has a purpose similar to subsection 224(1.2) of the Income Tax
Act, or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related
interest, penalties or other amounts, and the sum
(A) has been withheld or deducted by a person from a payment to another person and is in respect of a tax
similar in nature to the income tax imposed on individuals under the Income Tax Act, or
(B) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province
providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and
the provincial legislation establishes a "provincial pension plan" as defined in that subsection.
(3) Operation of similar legislation — An order made under section 11.02, other than the portions of that order that affect
the exercise of rights of Her Majesty referred to in paragraph (1)(a) or (b), does not affect the operation of
(a) subsections 224(1.2) and (1.3) of the Income Tax Act,
(b) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2)
of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or
an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related
interest, penalties or other amounts, or
(c) any provision of provincial legislation that has a purpose similar to subsection 224(1.2) of the Income Tax Act,
or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest,
penalties or other amounts, and the sum
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
39
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
(i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar
in nature to the income tax imposed on individuals under the Income Tax Act, or
(ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing
a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial
legislation establishes a "provincial pension plan" as defined in that subsection,
and for the purpose of paragraph (c), the provision of provincial legislation is, despite any Act of Canada or of a province
or any other law, deemed to have the same effect and scope against any creditor, however secured, as subsection 224(1.2)
of the Income Tax Act in respect of a sum referred to in subparagraph (c)(i), or as subsection 23(2) of the Canada Pension
Plan in respect of a sum referred to in subparagraph (c)(ii), and in respect of any related interest, penalties or other amounts.
37. (1) Deemed trusts — Subject to subsection (2), despite any provision in federal or provincial legislation that has the
effect of deeming property to be held in trust for Her Majesty, property of a debtor company shall not be regarded as being
held in trust for Her Majesty unless it would be so regarded in the absence of that statutory provision.
(2) Exceptions — Subsection (1) does not apply in respect of amounts deemed to be held in trust under subsection 227(4)
or (4.1) of the Income Tax Act, subsection 23(3) or (4) of the Canada Pension Plan or subsection 86(2) or (2.1) of the
Employment Insurance Act (each of which is in this subsection referred to as a "federal provision"), nor does it apply in
respect of amounts deemed to be held in trust under any law of a province that creates a deemed trust the sole purpose
of which is to ensure remittance to Her Majesty in right of the province of amounts deducted or withheld under a law
of the province if
(a) that law of the province imposes a tax similar in nature to the tax imposed under the Income Tax Act and the
amounts deducted or withheld under that law of the province are of the same nature as the amounts referred to in
subsection 227(4) or (4.1) of the Income Tax Act, or
(b) the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada
Pension Plan, that law of the province establishes a "provincial pension plan" as defined in that subsection and
the amounts deducted or withheld under that law of the province are of the same nature as amounts referred to in
subsection 23(3) or (4) of the Canada Pension Plan,
and for the purpose of this subsection, any provision of a law of a province that creates a deemed trust is, despite any Act
of Canada or of a province or any other law, deemed to have the same effect and scope against any creditor, however
secured, as the corresponding federal provision.
Excise Tax Act, R.S.C. 1985, c. E-15 (as at December 13, 2007)
222. (1) [Deemed] Trust for amounts collected — Subject to subsection (1.1), every person who collects an amount
as or on account of tax under Division II is deemed, for all purposes and despite any security interest in the amount, to
hold the amount in trust for Her Majesty in right of Canada, separate and apart from the property of the person and from
property held by any secured creditor of the person that, but for a security interest, would be property of the person, until
the amount is remitted to the Receiver General or withdrawn under subsection (2).
(1.1) Amounts collected before bankruptcy — Subsection (1) does not apply, at or after the time a person becomes a
bankrupt (within the meaning of the Bankruptcy and Insolvency Act), to any amounts that, before that time, were collected
or became collectible by the person as or on account of tax under Division II.
...
(3) Extension of trust — Despite any other provision of this Act (except subsection (4)), any other enactment of Canada
(except the Bankruptcy and Insolvency Act), any enactment of a province or any other law, if at any time an amount deemed
by subsection (1) to be held by a person in trust for Her Majesty is not remitted to the Receiver General or withdrawn
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
40
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
in the manner and at the time provided under this Part, property of the person and property held by any secured creditor
of the person that, but for a security interest, would be property of the person, equal in value to the amount so deemed
to be held in trust, is deemed
(a) to be held, from the time the amount was collected by the person, in trust for Her Majesty, separate and apart from
the property of the person, whether or not the property is subject to a security interest, and
(b) to form no part of the estate or property of the person from the time the amount was collected, whether or not
the property has in fact been kept separate and apart from the estate or property of the person and whether or not the
property is subject to a security interest
and is property beneficially owned by Her Majesty in right of Canada despite any security interest in the property or in the
proceeds thereof and the proceeds of the property shall be paid to the Receiver General in priority to all security interests.
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (as at December 13, 2007)
67. (1) Property of bankrupt — The property of a bankrupt divisible among his creditors shall not comprise
(a) property held by the bankrupt in trust for any other person,
(b) any property that as against the bankrupt is exempt from execution or seizure under any laws applicable in the
province within which the property is situated and within which the bankrupt resides, or
(b.1) such goods and services tax credit payments and prescribed payments relating to the essential needs of an
individual as are made in prescribed circumstances and are not property referred to in paragraph (a) or (b),
but it shall comprise
(c) all property wherever situated of the bankrupt at the date of his bankruptcy or that may be acquired by or devolve
on him before his discharge, and
(d) such powers in or over or in respect of the property as might have been exercised by the bankrupt for his own
benefit.
(2) Deemed trusts — Subject to subsection (3), notwithstanding any provision in federal or provincial legislation that
has the effect of deeming property to be held in trust for Her Majesty, property of a bankrupt shall not be regarded as
held in trust for Her Majesty for the purpose of paragraph (1)(a) unless it would be so regarded in the absence of that
statutory provision.
(3) Exceptions — Subsection (2) does not apply in respect of amounts deemed to be held in trust under subsection 227(4)
or (4.1) of the Income Tax Act, subsection 23(3) or (4) of the Canada Pension Plan or subsection 86(2) or (2.1) of the
Employment Insurance Act (each of which is in this subsection referred to as a "federal provision") nor in respect of amounts
deemed to be held in trust under any law of a province that creates a deemed trust the sole purpose of which is to ensure
remittance to Her Majesty in right of the province of amounts deducted or withheld under a law of the province where
(a) that law of the province imposes a tax similar in nature to the tax imposed under the Income Tax Act and the
amounts deducted or withheld under that law of the province are of the same nature as the amounts referred to in
subsection 227(4) or (4.1) of the Income Tax Act, or
(b) the province is a "province providing a comprehensive pension plan" as defined in subsection 3(1) of the Canada
Pension Plan, that law of the province establishes a "provincial pension plan" as defined in that subsection and
the amounts deducted or withheld under that law of the province are of the same nature as amounts referred to in
subsection 23(3) or (4) of the Canada Pension Plan,
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
41
Ted Leroy Trucking [Century Services] Ltd., Re, 2010 SCC 60, 2010 CarswellBC 3419
2010 SCC 60, 2010 CarswellBC 3419, 2010 CarswellBC 3420, [2010] 3 S.C.R. 379...
and for the purpose of this subsection, any provision of a law of a province that creates a deemed trust is, notwithstanding
any Act of Canada or of a province or any other law, deemed to have the same effect and scope against any creditor,
however secured, as the corresponding federal provision.
86. (1) Status of Crown claims — In relation to a bankruptcy or proposal, all provable claims, including secured claims,
of Her Majesty in right of Canada or a province or of any body under an Act respecting workers' compensation, in this
section and in section 87 called a "workers' compensation body", rank as unsecured claims.
...
(3) Exceptions — Subsection (1) does not affect the operation of
(a) subsections 224(1.2) and (1.3) of the Income Tax Act;
(b) any provision of the Canada Pension Plan or of the Employment Insurance Act that refers to subsection 224(1.2)
of the Income Tax Act and provides for the collection of a contribution, as defined in the Canada Pension Plan, or
an employee's premium, or employer's premium, as defined in the Employment Insurance Act, and of any related
interest, penalties or other amounts; or
(c) any provision of provincial legislation that has a similar purpose to subsection 224(1.2) of the Income Tax Act,
or that refers to that subsection, to the extent that it provides for the collection of a sum, and of any related interest,
penalties or other amounts, where the sum
(i) has been withheld or deducted by a person from a payment to another person and is in respect of a tax similar
in nature to the income tax imposed on individuals under the Income Tax Act, or
(ii) is of the same nature as a contribution under the Canada Pension Plan if the province is a "province providing
a comprehensive pension plan" as defined in subsection 3(1) of the Canada Pension Plan and the provincial
legislation establishes a "provincial pension plan" as defined in that subsection,
and for the purpose of paragraph (c), the provision of provincial legislation is, despite any Act of Canada or of a province
or any other law, deemed to have the same effect and scope against any creditor, however secured, as subsection 224(1.2)
of the Income Tax Act in respect of a sum referred to in subparagraph (c)(i), or as subsection 23(2) of the Canada Pension
Plan in respect of a sum referred to in subparagraph (c)(ii), and in respect of any related interest, penalties or other amounts.
Footnotes
1
Section 11 was amended, effective September 18, 2009, and now states:
11. Despite anything in the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act, if an application is made under
this Act in respect of a debtor company, the court, on the application of any person interested in the matter, may, subject to the
restrictions set out in this Act, on notice to any other person or without notice as it may see fit, make any order that it considers
appropriate in the circumstances.
2
The amendments did not come into force until September 18, 2009.
End of Document
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reserved.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
42
Tab 3
Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
2015 ONSC 1354
Ontario Superior Court of Justice [Commercial List]
Nortel Networks Corp., Re
2015 CarswellOnt 2936, 2015 ONSC 1354, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
In the Matter of the Companies' Creditors
Arrangement Act, R.S.C. 1985, c. c-36, as Amended
In the Matter of a Plan of Compromise or Arrangement of Nortel Networks Corporation,
Nortel Networks Limited, Nortel Networks Global Corporation, Nortel Networks
International Corporation and Nortel Networks Technology Corporation Application
under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as Amended
Newbould J.
Heard: February 27, 2015
Judgment: March 4, 2015
Docket: 09-CL-7950
Proceedings: full reasons to Nortel Networks Corp., Re (2015), 2015 CarswellOnt 3019, Newbould J. (Ont. S.C.J. [Commercial
List])
Counsel: Harvey G. Chaiton, George Benchetrit for SNMP Research International, Inc. and SNMP Research, Inc.
Joseph Pasquariello, Christopher G. Armstrong for Monitor, Ernst & Young Inc.
Alan Merskey, Vasuda Sinha for Nortel applicants
Scott A. Bomhoff for U.S. Debtors
Shayne Kukulowicz for US Unsecured Creditors' Committ
Jonathan Bell for Ad Hoc Group of Bondholders
Aubrey E. Kauffman for Avaya Inc.
Subject: Insolvency
Headnote
Bankruptcy and insolvency --- Companies' Creditors Arrangement Act — Initial application — Lifting of stay
Creditor company licensed its software to debtor companies pursuant to licence agreement — License agreement contained
forum and choice of law clause providing that New York law would apply and that venue for disputes was Tennessee —
Debtors became insolvent — Creditor filed proofs of claim in Companies' Creditors Arrangement Act (CCAA) proceedings
and U.S. Chapter 11 proceedings for pre-filing claims against debtors — Creditor filed complaint in U.S. alleging postfiling unauthorized use of its software by debtors — Creditor brought motion to lift stay of CCAA proceedings to permit
post-filing claims against Canadian debtors to be tried via jury trial in U.S. District Court for Delaware — Motion dismissed
— Creditor did not show sufficient reason to displace present court's jurisdiction to keep all of creditor's claims against
Canadian debtors within single proceeding — If claim against Canadian debtors for its post-filing conduct was tried in
separate U.S. jury proceeding, there would be multiplicity of proceedings against Canadian debtors — Overlap between
pre- and post-filing claims regarding unauthorized use of software created risk of inconsistent findings of fact — CCAA
court should not lightly lose control of process for determining claims against debtor — There was nothing to indicate
Delaware District Court would have interest in controlled process that would take into account insolvency of Canadian
debtors and need for timely resolution of all claims and preserving debtors' resources.
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1
Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
Table of Authorities
Cases considered by Newbould J.:
Eagle River International Ltd., Re (2001), (sub nom. Sam Lévy & Associés Inc. v. Azco Mining Inc.) 2001 SCC 92,
2001 CarswellQue 2725, 2001 CarswellQue 2726, (sub nom. Sam Lévy & Associés Inc. v. Azco Mining Inc.) [2001]
3 S.C.R. 978, 30 C.B.R. (4th) 105, (sub nom. Sam Lévy & Associates Inc. v. Azco Mining Inc.) 207 D.L.R. (4th) 385,
(sub nom. Lévy (Sam) & Associés Inc. v. Azco Mining Inc.) 280 N.R. 155, 2001 CSC 92 (S.C.C.) — followed
Expedition Helicopters Inc. v. Honeywell Inc. (2010), 319 D.L.R. (4th) 316, 70 B.L.R. (4th) 60, 87 C.P.C. (6th) 210,
262 O.A.C. 195, 2010 CarswellOnt 3091, 2010 ONCA 351, 100 O.R. (3d) 241 (Ont. C.A.) — considered
ICR Commercial Real Estate (Regina) Ltd. v. Bricore Land Group Ltd. (2007), 2007 SKCA 72, 2007 CarswellSask
324, [2007] 9 W.W.R. 79, (sub nom. Bricore Land Group Ltd., Re) 299 Sask. R. 194, (sub nom. Bricore Land Group
Ltd., Re) 408 W.A.C. 194, 33 C.B.R. (5th) 50 (Sask. C.A.) — considered
Stewart v. LePage (1916), 29 D.L.R. 607, 53 S.C.R. 337, 1916 CarswellPEI 1 (S.C.C.) — referred to
Ted Leroy Trucking Ltd., Re (2010), (sub nom. Century Services Inc. v. Canada (A.G.)) [2010] 3 S.C.R. 379, [2010]
G.S.T.C. 186, 12 B.C.L.R. (5th) 1, (sub nom. Century Services Inc. v. A.G. of Canada) 2011 G.T.C. 2006 (Eng.),
(sub nom. Century Services Inc. v. A.G. of Canada) 2011 D.T.C. 5006 (Eng.), (sub nom. Leroy (Ted) Trucking Ltd.,
Re) 503 W.A.C. 1, (sub nom. Leroy (Ted) Trucking Ltd., Re) 296 B.C.A.C. 1, 2010 SCC 60, 2010 CarswellBC 3419,
2010 CarswellBC 3420, 409 N.R. 201, (sub nom. Ted LeRoy Trucking Ltd., Re) 326 D.L.R. (4th) 577, 72 C.B.R.
(5th) 170, [2011] 2 W.W.R. 383 (S.C.C.) — considered
Z.I. Pompey Industrie v. ECU-Line N.V. (2003), 2003 SCC 27, 2003 CarswellNat 1031, 2003 CarswellNat 1032,
2003 A.M.C. 1280, (sub nom. Pompey (Z.I.) Industrie v. Ecu-Line N.V.) 303 N.R. 201, 2003 CSC 27, 30 C.P.C. (5th)
1, [2003] 1 S.C.R. 450, 240 F.T.R. 318 (note), 224 D.L.R. (4th) 577 (S.C.C.) — followed
Statutes considered:
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3
Generally — referred to
s. 187(7) — considered
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36
Generally — referred to
s. 11(1) — considered
s. 11.02(1) [en. 2005, c. 47, s. 128] — considered
s. 11.02(2) [en. 2005, c. 47, s. 128] — considered
FULL REASONS to judgment reported at Nortel Networks Corp., Re (2015), 2015 CarswellOnt 3019 (Ont. S.C.J. [Commercial
List]) dismissing motion to lift stay of proceedings under Companies' Creditors Arrangement Act to permit post-filing claims
against Canadian debtors to be tried in United States.
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2
Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
Newbould J.:
1 SNMP Research International, Inc. and SNMP Research, Inc. moved for an order to lift the stay of proceedings contained
in the Initial Order to permit an action in the United States to proceed against a number of Nortel entities, including NNC and
NNL. At the conclusion of the hearing I dismissed the motion for reasons to follow. These are my reasons.
Background to this litigation
2
SNMP Research, Inc. and SNMP Research International, Inc. (together "SNMPRI") are corporations in the business of
producing and distributing software for the simple network management protocol ("SNMP"). The basic purpose of the SNMP
is to manage and monitor network-attached devices.
3
Prior to the commencement of the CCAA Proceedings on January 14, 2009, SNMPRI licensed its software to Nortel for
use in a number of Nortel products and from which Nortel purchased SNMP technologies and products. This relationship was
governed by a license agreement between Nortel Network Corporation and SNMP Research International, Inc. dated December
23, 1999 together with certain schedules.
4
Following Nortel's insolvency filings, SNMPRI filed proofs of claim in the CCAA proceedings and the U.S Chapter 11
proceedings for pre-filing claims.
5 In the spring of 2011, SNMPRI indicated that it also intended to file a complaint for alleged post-filing unauthorized use,
distribution, license and sale of SNMPRI software by certain of the Nortel entities after January 14, 2009 (the "Complaint").
The Complaint also asserted claims against certain parties who purchased assets from Nortel in the CCAA and chapter 11
proceedings, including Avaya Inc. SNMPRI seeks to recover at least $86 million from the Canadian and U.S. Debtors on
an "administrative expense" basis, including damages based on the proceeds of the sales of certain Nortel lines of business
approved by this Court and the U.S. Bankruptcy Court. By the administrative expense claim, SNMPRI seeks to collect 100
cents on the dollar as it is a post-filing claim.
6
On September 21, 2011, SNMPRI filed this motion for relief from the stay imposed by the Initial Order to permit the
Complaint to proceed in the U.S. Bankruptcy Court against the Canadian Debtors and the U.S. Debtors. In the circumstances,
because there was some risk of the Complaint becoming statute barred, SNMPRI and Nortel entered into a letter agreement
on October 25, 2011 under which Nortel permitted SNMPRI to initiate the Complaint in the U.S. Bankruptcy Court on the
condition that the proceeding be immediately stayed. The letter agreement provided that the parties would mediate the issues in
the SNMPRI claims and that the stay of proceedings would continue until the parties had completed mediation. It also provided
that if the mediation was not successful, SNMPRI could not to proceed with its Complaint until its motion to lift the stay was
decided. An order was made on consent permitting the stay in the Initial Order to be lifted for the limited purpose as agreed.
7 On December 27, 2013, SNMPRI filed an amended complaint (the "First Amended Complaint") with the U.S. Bankruptcy
Court. The First Amended Complaint contains additional allegations arising from the post-filing sales of Nortel's assets and
of copyright infringement by Nortel.
8 As with the original Complaint, in the First Amended Complaint SNMPRI seeks to pursue all of its claims, including those
against the Canadian Debtors, by way of a jury trial in the U.S. Shortly before amending the Complaint, SNMPRI filed notice of
its intent to "withdraw the reference" from the U.S. Bankruptcy Court, meaning that it would seek to have the Complaint heard
not by the U.S. Bankruptcy Court but by the United States Court for the District of Delaware. Thus on this record, SNMPRI
seeks a jury trial in the U.S. District Court for Delaware.
9
The mediation failed. It concluded on March 14, 2014.
The SNMPRI claims
10
In the SNMPRI claim made in this CCAA proceeding for pre-filing claims, SNMPRI claims:
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3
Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
(a) A claim for approximately $22,000 for certain stayed royalty payments owing for Q4 2008.
(b) A claim for $3.6 million for fees and pre-filing interest resulting from an alleged unauthorized and illegal usage
by the Nortel debtors of SNMPRI's EMANATE software in its MG9000 software.
(c) A claim for $3.8 million for fees and pre-filing interest resulting from an alleged unauthorized and illegal usage
by the Nortel debtors of SNMPRI's EMANATE software used in Nortel's Bay Software.
(d) SNMPRI claims further amounts to be determined under the U.S. Copyright Act, applicable trade secret law, and
other intellectual property law for unauthorized use and distribution of SNMPRI software with the MG9000 software
and Bay Software and other products of the Canadian Debtors.
11 In the Complaint that SNMPRI filed in the U.S. Bankruptcy Court, SNMPRI sues to recover from the Canadian and U.S.
Debtors damages and post-petition profits from Nortel's alleged unauthorized post-petition use, distribution, license or sale of
SNMPRI software and Nortel's post-petition asset sale to Aveya. Pleaded is an alleged improper use by Nortel of SNMPRI's
EMANATE software in Nortel's MG9000 software and in its MG9000 Bay Software. SNMPRI claims to recover from Aveya
damages and profits from Aveya's alleged unauthorized possession, use, distribution, license or sale of SNMPRI software,
including the SNMPRI Bay Software.
12
The nub of the claims asserted in the Complaint is that Nortel post-filing improperly used or sold SNMPRI software
that was not licensed to Nortel and that Aveya purchased a line of business which contained the SNMPRI software and has
not paid anything for it. It is essentially a claim for the same alleged illegal activity as claimed in the pre-filing claim against
the Canadian Debtors in this CCAA proceeding.
Analysis
13
A court has wide powers under the CCAA. Section 11(1) of the CCAA provides that a court may make any order it
considers appropriate in the circumstances. Section 11.02(1) and (2) grants jurisdiction in an Initial Order or a later order to
stay any action already commenced against a debtor and to stay any proposed action for any period that the court considers
necessary. It is a discretionary matter. The onus is on the party applying to lift the stay of proceedings.
14
There is little authority in how the court's consideration of a request to lift a stay should be dealt with in a liquidating
insolvency. In one such case, ICR Commercial Real Estate (Regina) Ltd. v. Bricore Land Group Ltd. (2007), 33 C.B.R. (5th)
50 (Sask. C.A.), the supervising trial judge refused to lift the stay to permit an action to proceed against the debtor because the
claimant failed to establish that it had a tenable claim. That order was upheld on appeal. In the Court of Appeal, Jackson J.A.
stated that there ought not to be rigid requirements on how a supervising judge is to exercise his or her discretion. She stated:
66 Given the broad discretion granted to a supervisory judge under the CCAA, as well as the knowledge and experience he
or she gains from the ongoing dealings with the parties under the proceedings, it would be contrary to the purpose of the
CCAA for the law under it to develop in a restrictive way. Having regard for this, there ought not to be rigid requirements
imposed on how a supervising CCAA judge must exercise his or her discretion with respect to lifting the stay.
15
Jackson J.A. went on to discuss guidance from previous decisions. She stated:
68 In determining what constitutes "sound reasons," much is left to the discretion of the judge. However, previous decisions
on this point provide some guidance as to factors that may be considered:
(a) the balance of convenience;
(b) the relative prejudice to the parties;
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4
Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
(c) the merits of the proposed action, where they are relevant to the issue of whether there are "sound reasons" for
lifting the stay (i.e., as was said in Ma, Re, if the action has little chance of success, it may be harder to establish
"sound reasons" for allowing it to proceed).
16 In this case, no one raises the point that the merits of the proposed action against the Canadian Nortel are so lacking that
the motion should be decided on that ground. The issue is whether the action should proceed in this Court or in a U.S. court.
17
SNMPRI contends that the parties agreed to a trial in the U.S., albeit Knoxville Tennessee. Section 9.11 of the License
Agreement between Nortel and SNMPRI contains a forum and choice of law clause providing that New York law is to apply
to the license and for disputes to be heard in Knoxville, Tennessee. It states:
This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without
reference to its choice of law provisions, and the federal laws of the United States applicable therein. The venue for any
disputes arising under or in respect to this Agreement shall be Knoxville, Tennessee, U.S.A. All proceedings shall be
conducted in English.
18
SNMPRI contends that as the parties have agreed on a forum to resolve their disputes, the onus lies on the Monitor
and the Canadian Nortel debtors to displace the forum chosen by the parties. It relies on Z.I. Pompey Industrie v. ECU-Line
N.V., [2003] 1 S.C.R. 450 (S.C.C.) as authority for the proposition that to displace a forum selection clause in a commercial
agreement, strong cause must be shown.
19 SNMPRI also relies on a statement of Jurianz J.A. in Expedition Helicopters Inc. v. Honeywell Inc., 2010 ONCA 351 (Ont.
C.A.) that a departure from a forum selection clause should only be permitted in exceptional circumstances. He went on to state:
24. A forum selection clause in a commercial contract should be given effect. The factors that may justify departure from
that general principle are few. The few factors that might be considered include the plaintiff was induced to agree to the
clause by fraud or improper inducement or the contract is otherwise unenforceable, the court in the selected forum does not
accept jurisdiction or otherwise is unable to deal with the claim, the claim or the circumstances that have arisen are outside
of what was reasonably contemplated by the parties when they agreed to the clause, the plaintiff can no longer expect a
fair trial in the selected forum due to subsequent events that could not have been reasonably anticipated, or enforcing the
clause in the particular case would frustrate some clear public policy. Apart from circumstances such as these, a forum
selection clause in a commercial contract should be enforced.
20
I note that included in the factors referred to by Jurianz J.A. that might justify a departure from a forum selection clause
was if the circumstances that have arisen are outside of what was reasonably contemplated by the parties when they agreed to
the clause or that enforcing the clause would frustrate some clear public policy.
21 The Monitor and the Canadian Debtors say that because of the insolvency of Nortel, the onus lies on the SNMPRI to justify
lifting the stay of proceedings. They say that all matters involving the Canadian Debtors should be dealt with in the CCAA
court in Toronto. They rely on Eagle River International Ltd., Re, [2001] 3 S.C.R. 978 (S.C.C.) [hereinafter Sam Lévy]. That
case involved a Quebec bankrupt company under bankruptcy administration in Quebec. The Trustee commenced a petition in
Quebec to recover assets against a British Columbia company, which moved to transfer the matter to B.C. under section 187(7)
of the BIA which permitted the transfer if there was "sufficient cause". The B.C. company relied on a type of forum selection
clause, although Binnie J. held it to be only a choice of law clause.
22
In Sam Lévy, Binnie J. referred to and adopted a "single control" model that favours litigation involving an insolvent
company to be dealt with in one jurisdiction. He stated that a choice of forum clause in an insolvency situation should be taken
into account but it is not binding or controlling. He stated in particular:
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Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
26 The trustees will often (and perhaps increasingly) have to deal with debtors and creditors residing in different parts of
the country. They cannot do that efficiently, to borrow the phrase of Idington J. in Stewart v. LePage (1916), 53 S.C.R.
337, at p. 345, "if everyone is to be at liberty to interfere and pursue his own notions of his rights of litigation"....
27 Stewart was, as stated, a winding-up case, but the legislative policy in favour of "single control" applies as well to
bankruptcy. There is the same public interest in the expeditious, efficient and economical clean-up of the aftermath of a
financial collapse....
63 Leaving aside, then, the inapplicable directives of the Civil Code of Québec, the question is whether a choice of forum
clause would amount to "sufficient cause" for the purpose of s. 187(7) to the extent that it would be an error of law for
the motions judge to have declined to give it effect in the circumstances of this case. In my view a choice of forum clause
(where there really is one) ought to be taken into careful consideration by a motions judge but it is not binding: [authorities
omitted].
64 It could be argued that the public policy favouring a "single control" of bankruptcy proceedings and opposition to their
fragmentation demands that a choice of forum clause receive lesser effect in bankruptcy than in the context of ordinary
commercial litigation: Industrial Packaging Products Co. v. Fort Pitt Packaging International, Inc., 161 A.2d 19 (Pa.
1960); In re Treco, 239 B.R. 36 (S.D.N.Y. 1999), aff'd 240 F.3d 148 (2d Cir. 2001).
67 The implementation of these public policies might be expected to take priority over private "choice of forum"
agreements where the two come into conflict, as indeed Robert J.A. concluded in the Quebec Court of Appeal. A similar
position is expressed in I. F. Fletcher, Insolvency in Private International Law (1999), at p. 47, fn. 73:
[P]rivate contractual arrangements between parties cannot prevail over the exercise of bankruptcy jurisdiction, which
belongs to the realm of public policy, serving a wider spread of interests including, ultimately, those of society at large.
In the United States, however, there is a competing body of judicial opinion that a trustee in bankruptcy who sues on
an agreement containing a forum selection clause should, as a general rule, be bound by that clause to the same extent
as the parties thereto: see Coastal Steel Corp. v. Tilghman Wheelabrator Ltd., 709 F.2d 190 (3d Cir. 1983); In re Diaz
Contracting, Inc., 817 F.2d 1047 (3d Cir. 1987), and Hays and Co. v. Merrill Lynch, 885 F.2d 1149 (3d Cir. 1989).
68 In my view, for the reasons previously mentioned, the choice of forum clause would be a significant factor under s.
187(7) but not, in the context of the public policies expressed in the Act, a controlling factor.
23
Justice Binnie stated that a creditor who was not a stranger to the bankruptcy had the onus to establish that multiple
jurisdictions should be available for claims. He said:
76 ...Single control is not necessarily inconsistent with transferring particular disputes elsewhere, but a creditor (or debtor)
who wishes to fragment the proceedings, and who cannot claim to be a "stranger to the bankruptcy", has the burden of
demonstrating "sufficient cause" to send the trustee scurrying to multiple jurisdictions....
24
Sam Lévy involved a BIA proceeding. In it, Binnie J. referred to Stewart v. LePage [1916 CarswellPEI 1 (S.C.C.)], a
winding-up application. I see no reason why the principles in Sam Lévy should not be applicable in a CCAA proceeding. In
Ted Leroy Trucking Ltd., Re, 2010 SCC 60, [2010] 3 S.C.R. 379 (S.C.C.) [hereinafter Century Cities], it was noted that the
CCAA offers more flexibility and greater judicial discretion than the rules-based mechanism under the BIA and the principle
was enunciated that the harmonization of insolvency law common to the BIA and CCAA is desirable to the extent possible. The
central nature of insolvency and the resolution of issues caused by insolvency are common to both BIA and CCAA proceedings
and so too should the underlying principles.
25
In Century Cities, nearly 10 years after Sam Lévy, Deschamps J. made clear why public policy prefers the resolution of
all claims against a debtor to be determined in a single proceeding model. She stated:
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Nortel Networks Corp., Re, 2015 ONSC 1354, 2015 CarswellOnt 2936
2015 ONSC 1354, 2015 CarswellOnt 2936, 23 C.B.R. (6th) 264, 250 A.C.W.S. (3d) 196
22 While insolvency proceedings may be governed by different statutory schemes, they share some commonalities. The
most prominent of these is the single proceeding model. The nature and purpose of the single proceeding model are
described by Professor Wood in Bankruptcy and Insolvency Law:
They all provide a collective proceeding that supersedes the usual civil process available to creditors to enforce their
claims. The creditors' remedies are collectivized in order to prevent the free-for-all that would otherwise prevail if
creditors were permitted to exercise their remedies. In the absence of a collective process, each creditor is armed
with the knowledge that if they do not strike hard and swift to seize the debtor's assets, they will be beat out by other
creditors. [pp. 2-3]
The single proceeding model avoids the inefficiency and chaos that would attend insolvency if each creditor initiated
proceedings to recover its debt. Grouping all possible actions against the debtor into a single proceeding controlled in a
single forum facilitates negotiation with creditors because it places them all on an equal footing, rather than exposing them
to the risk that a more aggressive creditor will realize its claims against the debtor's limited assets while the other creditors
attempt a compromise. With a view to achieving that purpose, both the CCAA and the BIA allow a court to order all actions
against a debtor to be stayed while a compromise is sought.
26 Justice Jurianz in Expedition Helicopters listed as one of the factors that might justify a departure from a forum selection
clause is if the circumstances that have arisen are outside of what was reasonably contemplated by the parties when they agreed
to the clause. The license agreement between SNMPRI and Nortel Networks Corporation was made on December 23, 1999. It
is inconceivable that an insolvency of NNC, the parent company of all of the Nortel entities, was within the contemplation of
the parties at that time. If it were, the license agreement presumably would not have been made. That is a significant change
in circumstances.
27 Another factor referred to by Justice Jurianz was if enforcing the forum selection clause would frustrate some clear public
policy. I think it follows from Sam Lévy that public policy in this country at least precludes a forum selection clause from being
controlling in an insolvency situation. A CCAA insolvency proceeding serves a wider spread of interests than the parties to
the agreement, including in this case the interests of pension and other claims asserted by the former employees of Nortel. A
method that results in the most expeditious and fair determination of the claims of SNMPRI is clearly in the interests of all
stakeholders in this CCAA process.
28
It is to be noted that whereas the forum selection clause provides for Knoxville, Tennessee to be the venue for any
dispute, SNMPRI has stated in its filings that it wishes a jury trial in Delaware. Thus SNMPRI is not following the clause.
During argument counsel for SNMPRI said that if successful in having the case sent from the U.S. Bankruptcy Court to the
Delaware District Court, it then might seek a transfer to Tennessee. Whether that could be done I do not know, but it would
not bode well for a timely disposition of the action. The prospect of the Nortel Debtors being dragged around in different U.S.
courts is not an appealing one. For them to become entangled in a drawn-out, foreign litigation process that will likely have
no regard for the practical concerns of this insolvency, including the importance of resolving all remaining unresolved claims
against the Canadian Debtors in a timely and efficient manner so that these proceedings, already pending for six years, can be
brought to their conclusion, is a situation that should be avoided.
29
So far as the forum selection clause providing that the license is to be governed by and construed in accordance with
New York law and the federal laws of the United States applicable therein, no evidence has been filed as to what those laws
are or to indicate that those laws are in any substantial way different from the laws of this country. Even if they were, Canadian
courts can and often have applied foreign law. The recent UKPC claims against NNC and NNL is but one such example. I do
not consider this much of a factor, if any, in favour of lifting the stay of proceedings.
30
I also do not think that the location of witnesses in the U.S. or in Canada is a compelling factor, as contended for by
SNMPRI. In any event, material was not provided in any detail as to expected witnesses and where they reside.
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31
SNMPRI says that the claims against the Canadian Debtors arise from common issues of fact and law as in the claim
against the U.S. Debtors and against Aveya. Therefore SNMPRI says these claims should be heard together in the U.S. with
the claims against the U.S. Debtors and against Aveya. This is particularly so, it asserts, because of its right to a jury trial in
the U.S. in its claim against Avaya.
32 There would appear to be nothing to stop SNMPRI from claiming against the U.S. Debtors and Aveya in Canada, although
it might be that Aveya would attempt to challenge the claim against it being tried in Canada. There would certainly be nothing
to stop SNMPRI from claiming against the Canadian Debtors in this CCAA proceeding and against the U.S. Debtors in the
U.S. Bankruptcy Court and having a joint trial under the protocols established between the two courts. SNMPRI could make
Aveya a defendant in the action in the U.S. Bankruptcy Court, and Mr. Kauffman who appeared for Aveya said it would be
content to have the claim against it dealt with in the U.S. Bankruptcy Court.
33
I agree with all of those opposing SNMPRI's motion to lift the stay that the supposed difficulties that may be caused by
its rights to a jury trial in its claim against Aveya are of its own choosing. SNMPRI may want to have the claim against Aveya
tried together with the claims against Nortel, and try to have them all tried by a jury, but should that require the claim against
the Canadian Debtors to be tried that way? It could be said, as one counsel did, that the tail is wagging the dog.
34
If the claim against the Canadian Debtors for its post-filing conduct is tried in a separate U.S. jury proceeding, it means
that there will be a multiplicity of proceedings against the Canadian Debtors. The pre-filing claim must be determined in the
CCAA proceedings. The post-filing claims would be tried before a jury. It is quite evident that there is overlap between these
claims. Indeed the issues are the same except as to the timing of the alleged unauthorized use of SNMPRI software, one claim
being for pre-filing unauthorized use and the other being for post-filing unauthorized use. The risk of inconsistent findings of
fact is obvious.
35
A CCAA court should not lightly lose control of the process whereby claims against the debtor are to be determined. I
agree that procedures should be imposed to ensure that the process for resolving the Canadian SNMPRI claims does not become
more expensive or complicated than the circumstances permit or the claims merit. Such an approach would be consistent with
this Court's earlier orders in these proceedings. The allocation and inter-estate claims trials were, among other things, ordered
to proceed on an accelerated timetable, with a controlled process for documentary and oral discovery. There is nothing in the
materials that would indicate that a Delaware District Court would have any interest in a controlled process that would take into
account the insolvency of the Canadian Debtors and the need for a timely resolution of all claims and preserving the debtors'
resources as much as is reasonably possible.
36
Is SNMPRI a stranger to the bankruptcy in the sense articulated by Binnie J. in Sam Lévy? I think not. SNMPRI
has participated in and objected to the sales of Nortel's lines of business and it has filed a CCAA proof of claim against the
Canadian Debtors. It has not met its burden of demonstrating sufficient reason to displace this Court's jurisdiction to keep all
of the SNMPRI claims against the Canadian Debtors within a single proceeding. Even if the onus were on the Monitor and the
Canadian Debtors to prevent the stay from being listed, I am of the view that they would have met that onus.
37
In the circumstances, the motion by SNMPRI to lift the stay of proceedings to permit the post-filing claims against the
Canadian Debtors to be tried in the U.S. was dismissed.
Order accordingly.
End of Document
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8
Tab 4
Court File No. CV-15-000011169-OOCL
ONTARIO
SUPERIOR COURT OF JUSTICE
COMMERCIAL LIST
THE HONOURABLE MR.
THURSDAY, THE 14TH
JUSTICE NEWBOULD
DAY OF JANUARY, 2016
LIRT 0,
IN-THEAVIATTER
OF THE COMPANIES' CREDITORS ARRANGEMENT ACT,
vor
R.S.C. 1985, c. C-36, AS AMENDED
to
THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT
OF ESSAR STEEL ALGOMA INC., ESSAR TECH ALGOMA INC.,
ALGOMA HOLDINGS B.V., ESSAR STEEL ALGOMA (ALBERTA) ULC,
CANNELTON IRON ORE COMPANY AND ESSAR STEEL ALGOMA INC. USA
Applicants
CLAIMS PROCEDURE ORDER
THIS MOTION, made by Essar Steel Algoma Inc., Essar Tech Algoma Inc.,
Algoma Holdings B.V., Essar Steel Algoma (Alberta) ULC, Cannelton Iron Ore
Company and Essar Steel Algoma Inc. USA (together, the "Applicants") pursuant to
the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (the
"CCAA") for an order approving a claims procedure for the identification and
quantification of Claims (as this term is defined below) against, inter alia, (a) the
Applicants, and (b) any or all of the Directors and Officers of the Applicants, in
accordance with the Claims Procedure (as this term is defined below), was heard on
Wednesday, January 13, 2016 at 330 University Avenue, Toronto, Ontario.
ON READING the affidavit of Rajat Marwah sworn January 6, 2016 (the
"Marwah Affidavit"), and the Exhibits attached thereto, and the Fifth Report of Ernst &
Young Inc., in its capacity as the Court-appointed Monitor (the "Fifth Report"), the
Notice of Objection of the United Steelworkers together with its Local 2724 and its local
United Steelworkers Union Local 2251 (collectively, the "USW") and on behalf of the
Applicants' retirees (the "Retirees") and the Notice of Objection of The Cleveland-Cliffs
Iron Company, Cliffs Mining Company and Northshore Mining Company ("Cliffs"),
and on hearing the submissions of counsel for the Applicants, the Monitor, Cliffs, the
USW, the Retirees, the DIP Lenders, the Senior Secured Noteholders, the Junior Secured
Noteholders, and the Directors (as that term is defined below), no one else appearing
although served as appears from the affidavit of Kathryn Esaw, filed,
SERVICE
1.
THIS COURT ORDERS that the time for service of the Notice of Motion and
Motion Record in respect of this Motion is hereby abridged so that this Motion is
properly returnable today and hereby dispenses with further service thereof.
DEFINITIONS AND INTERPRETATION
2.
THIS COURT ORDERS that, for purposes of this Claims Procedure Order
establishing a procedure for the submission of Claims against the Applicants and the
Directors and Officers of the Applicants, in addition to terms defined elsewhere herein,
the following terms shall have the following meanings:
(a)
"ABL Agent" means Deutsche Bank AG (acting through its Canada
Branch) in its capacity as administrative and collateral agent pursuant to
the ABL Credit Agreement;
(b)
"ABL Credit Agreement" means the Revolving Credit Agreement among
the Applicants, the ABL Agent and the various lenders party thereto
dated as of November 14, 2014, as amended, restated, supplemented
and/or modified from time to time;
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(c)
"ABL Indebtedness" means all indebtedness, liabilities and obligations
owing to the ABL Agent and/or any of the ABL Lenders arising out of or
relating to the ABL Credit Agreement or any other Credit Document or
Lender Hedging Agreement (as each such term is defined in the ABL
Credit Agreement);
(d)
"ABL Lenders" means those lenders party to the ABL Credit Agreement
from time to time;
(e)
"Assessments" means Claims of Her Majesty the Queen in Right of
Canada or of any Province or Territory or Municipality or any other
taxation authority in any Canadian or foreign jurisdiction, including,
without limitation, amounts which may arise or have arisen under any
notice of assessment, notice of reassessment, notice of appeal, audit,
investigation, demand or similar request from any taxation authority;
(f)
"Business Day" means a day, other than a Saturday, Sunday or a
statutory holiday, on which banks are generally open for business in
Toronto, Ontario;
(g)
"CCAA Proceedings" means the proceedings commenced by the
Applicants in the Court under Court File No. CV-15-000011169-00CL;
(h)
"Chapter 15 Cases" means the proceedings commenced on November 9,
2015 in the U.S. Bankruptcy Court under chapter 15 of title 11 of the
United States Code, by Essar Steel Algoma Inc., in its capacity as the
foreign representative of the Applicants, jointly administered under Case
No. 15-12271 (BLS);
(i)
"Chief Restructuring Officer" means any Person named as such by order
of the Court in respect of the CCAA Proceedings;
0)
"Claim" includes:
(i)
Any right of claim of any Person against any of the Applicants,
whether or not asserted, in connection with any indebtedness,
liability or obligation of any kind whatsoever of any such Applicant
in existence on the Filing Date, whether or not such right or claim is
reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable,
secured, unsecured, perfected, unperfected, present, future, known,
or unknown, by guarantee, surety or otherwise, and whether or not
such right is executory or anticipatory in nature, including any
Intercompany Claim, Assessments and any right or ability of any
Person to advance a claim for contribution or indemnity or
otherwise against any of the Applicants with respect to any matter,
action, cause or chose in action, but subject to any counterclaim,
set-off or right of compensation in favour of the Applicants which
may exist, whether existing at present or commenced in the future,
which indebtedness, liability or obligation is based in whole or in
part on facts that existed prior to the Filing Date, including for
greater certainty any claim against any of the Applicants for
indemnification by any Directors or Officer in respect of a D&O
Claim (but excluding any such claim for indemnification that is
covered by the D&O Charge (as defined in the Initial Order)) (each,
a "Prefiling Claim");
(ii)
Any right of claim of any Person against any of the Applicants in
connection with any indebtedness, liability or obligation of any
kind whatsoever owed by any such Applicant to such Person
arising out of the restructuring, disclaimer, resiliation, termination
or breach by such Applicant on or after the Filing Date of any
contract, lease, other agreement or obligation whether written or
oral, including any Intercompany Claim (each, a "Restructuring
Claim"); and
(iii)
Any right or claim of any Person against one or more of the
Directors or Officers of one or more of the Applicants or any of
them, howsoever arising and whether:
(A)
based on facts that existed prior to the Filing Date (a "D&O
Prefiling Claim"); or
(B)
based on facts that arose in connection with any
indebtedness, liability or obligation of any kind whatsoever
owed by any such Applicant to such Person arising out of
the restructuring, disclaimer, resiliation, termination or
breach by such Applicant on or after the Filing Date of any
contract, lease, other agreement or obligation whether
written or oral (a "D&O Restructuring Claim"),
for which the Directors or Officers are by statute or otherwise by law
liable to pay in their capacity as Directors or Officers or in any other
capacity (each, a "D&O Claim");
provided, however, that in any case "Claim" shall not include an
Excluded Claim;
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(k)
"Claim Instruction Letter" means the letter containing instructions for
completing the Proof of Claim form, substantially in the form attached as
Schedule "2," to this Claims Procedure Order;
(1)
"Claimant" means a Person asserting a Claim and includes without
limitation the transferee or assignee of a Claim transferred and recognized
as a Claimant in accordance with paragraph 38 hereof;
(m)
"Claims Officer" means any individuals designated by the Court as such
pursuant to paragraph 32 of this Claims Procedure Order;
(n)
"Claims Package" means the Proof of Claim form, the Notice to
Claimants, the Claim Instruction Letter, and any other documentation the
Applicants, in consultation with the Monitor, may deem appropriate;
(o)
"Claims Procedure" means the procedures outlined in this Claims
Procedure Order, including the Schedules hereto;
(p)
"Court" means the Ontario Superior Court of Justice (Commercial List) in
the City of Toronto, in the Province of Ontario;
(q)
"DIP Lenders" means the syndicate of lenders under the Senior Secured,
Priming and Superpriority Debtor-In-Possession Revolving Credit
Agreement dated November 9, 2015, as may be amended and restated
from time to time;
(r)
"Directors" means the directors and former directors of each of the
Applicants or any Person deemed to be a director or former director of
any of the Applicants by any Laws, and "Director" means any one of
them;
(s)
"Directors' Counsel" means Norton Rose Fulbright Canada LLP;
(t)
"Employee" means the Applicants' current and former employees;
(u)
"Excluded Claim" means:
(I)
Claims secured by any of the Charges (as that term is defined in the
Initial Order);
(ii)
Claims enumerated in sections 5.1(2) and 19(2) of the CCAA; and
(iii)
Any claim of the RBC Royal Bank or Bank of America Canada NA
in connection with the Cash Management System (as that term is
defined in the Initial Order);
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(v)
"Filing Date" means November 9, 2015, as of 12:01 a.m. Toronto time;
(w)
"Grievance" means any grievance (or part of such grievance) by an
Employee or Union against any Applicant whether arising before or after
the date of this Order, where that grievance (or part of such grievance) is
made pursuant to a collective agreement with such Applicant;
(x)
"Initial Order" means the Initial Order of the Honourable Mr. Justice
Newbould dated November 9, 2015, as amended and restated on
November 20, 2015 and as may be further amended and restated from
time to time;
(y)
"Intercompany Claim" means any Claim against an Applicant by another
Applicant;
(z)
"Junior Secured Note Indenture" means the indenture dated as of
November 14, 2014, in respect of the Junior Secured Notes, between Essar
Steel (Alberta) ULC and the Junior Secured Notes Trustee;
(aa)
"Junior Secured Noteholders" means holders of the Junior Secured
Notes;
(bb)
"Junior Secured Notes" means the junior secured notes dated as of
November 14, 2014, issued by Essar Steel Algoma (Alberta) ULC in the
principal amount of approximately US$252 million bearing interest at a
rate of 14%;
(cc)
"Junior Secured Notes Trustee" means UMB Bank, N.A. as trustee under
the Junior Secured Note Indenture;
(dd)
"Laws" means any and all applicable laws including all statutes, codes,
ordinances, decrees, rules, regulations, municipal by-laws, judicial or
arbitral or administrative or ministerial or departmental or regulatory
judgments, orders, decisions, rulings or awards, policies, guidelines and
general principles of common and civil law and equity, binding on or
affecting the Person referred to in the context in which the word is used;
(ee)
"Meeting" means a meeting of the creditors of the Applicants called for
the purpose of considering and voting in respect of a Plan;
(ff)
"Monitor" means Ernst & Young Inc., in its capacity as the Courtappointed Monitor of the Applicants;
(gg) "Monitor's Website" means www.ey.com/ca/essaralgoma;
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(hh) "Notice to Claimants" means the notice for publication substantially in
the form attached as Schedule "1";
(ii)
"Notice of Revision or Disallowance" means the document substantially
in the form attached as Schedule "4";
OD
"Notice of Dispute" means the document substantially in the form
attached as Schedule "5";
(kk) "Officers" means the officers (including, solely for the purpose of this
Claims Procedure Order, the CRO) and former officers of each of the
Applicants and any Person deemed to be an officer or former officer of
any of the Applicants by any Laws, and "Officer" means any one of them;
(11)
"Orders" means any and all orders issued by the Court within the CCAA
Proceeding, including the Initial Order;
(mm) "Pension Plans" means the three defined benefit pension plans sponsored
by Essar Steel Algoma Inc., being the Essar Steel Algoma Inc. Pension Plan
for Hourly Employees, the Essar Steel Algoma Inc. Pension Plan for
Salaried Employees, and the Essar Steel Algoma Inc. Wrap Pension Plan,
and the defined contribution pension plan sponsored by Essar Steel
Algoma Inc., being the Essar Steel Algoma Inc. Money Purchase Pension
Plan for Exempt Employees;
(nn)
"Person" means any individual, partnership, firm, joint venture, trust,
entity, corporation, unincorporated organization, trade union, pension
plan administrator, pension plan regulator, governmental authority or
agency, employee or other association, or similar entity, howsoever
designated or constituted and wherever located;
(oo)
"Plan" means a plan of compromise or arrangement contemplated by the
Initial Order;
(pp)
"Prefiling Claims Bar Date" means 5:00 p.m. (Toronto Time) on February
26, 2016;
(qq)
"Prime Clerk Website" means https:/ /cases.primeclerk.com/essarsteel/
(rr)
"Proof of Claim" means the aggregate of the documentation submitted by
a Claimant pursuant to the Claims Procedure to evidence its Prefiling
Claim, Restructuring Claim or D&O Claim which shall include the Proof
of Claim form attached hereto as Schedule "3";
(ss) "Restructuring Claims Bar Date" means the later of:
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(i)
5:00 p.m. (Toronto time) on February 26, 2016; and
(ii)
The date that is 20 Business Days after the Monitor sends a Claims
Package with respect to a Restructuring Claim in accordance with
paragraph 15 hereof;
(tt) "Senior Secured Note Indenture" means the indenture dated as of
November 14, 2014, in respect of the Senior Secured Notes, among certain
of the Applicants and the Senior Secured Notes Trustee;
(uu) "Senior Secured Noteholders" means holders of the Senior Secured
Notes;
(vv) "Senior Secured Notes" means the senior secured notes dated as of
November 14, 2014, issued by certain of the Applicants in the principal
amount of US$375 million bearing interest at a rate of 9.50%;
(ww) "Senior Secured Notes Trustee" means Wilmington Trust, National
Association as trustee under the Senior Secured Notes Indenture;
(xx) "Term Loan Agent" means Deutsche Bank AG New York Branch, in its
capacity as administrative and collateral agent pursuant to the Term Loan
Credit Agreement;
(yy)
"Term Loan Credit Agreement" means the Term Loan Credit Agreement
among the Applicants, the Term Loan Agent and the various lenders
party thereto dated as of November 14, 2014, as amended, restated,
supplemented and/or modified from time to time;
(zz) "Term Loan Indebtedness" means all indebtedness, liabilities and
obligations owing to the Term Loan Agent and/or any of the Term Loan
Lenders arising out of or relating to the Term Loan Credit Agreement or
any other Credit Document or Term Lender Hedging Agreement (as each
such term is defined in the Term Loan Credit Agreement);
(aaa) "Term Loan Lenders" means those lenders party to the ABL Credit
Agreement from time to time;
(bbb) "U.S. Bankruptcy Court" means the United States Bankruptcy Court for
the District of Delaware; and
(ccc) "U.S. Creditor Matrix" means the Consolidated List Pursuant to Rule
1007(A)(4) filed with the U.S. Bankruptcy Court in respect of the
Applicants' Chapter 15 Cases, as may be amended from time to time.
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3.
THIS COURT ORDERS that all references as to time herein shall mean local
time in Toronto, Ontario, Canada, and any references to an event occurring on a
Business Day shall mean prior to 5:00 p.m. on such Business Day, unless otherwise
indicated herein.
4.
THIS COURT ORDERS that all references to the word "including" shall mean
"including without limitation".
5.
THIS COURT ORDERS that all references to the singular herein include the
plural, the plural include the singular, and any gender includes the other gender.
GENERAL PROVISIONS
6.
THIS COURT ORDERS that the Applicants, with the assistance of the Monitor,
are hereby authorized to (a) use reasonable discretion as to the adequacy of compliance
with respect to the manner in which any forms delivered hereunder are completed and
executed, and may waive strict compliance with the requirements of this Claims
Procedure Order as to the completion and execution of such forms, and (b) request such
further documentation from a Claimant that may reasonably be required in order to
determine the validity of a Claim.
7.
THIS COURT ORDERS that notwithstanding any other provisions of this
Claims Procedure Order, the solicitation by the Applicants or the Monitor of Claims
and the filing by any Claimant of any Claims shall not, for that reason only, grant any
Person any standing in these proceedings.
8.
THIS COURT ORDERS that any Claims denominated in a foreign currency
shall be converted to Canadian dollars for the purposes of this Claims Procedure on the
basis of the Bank of Canada noon spot exchange rate on the Filing Date.
9.
THIS COURT ORDERS that amounts claimed in Assessments issued after the
Filing Date shall be subject to this Claims Procedure Order and there shall be no
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presumption of validity or deeming of the amount due in respect of the Claim set out in
any Assessment where such Assessment was issued after the Filing Date.
MONITOR'S ROLE
10.
THIS COURT ORDERS that the Monitor, in addition to its prescribed rights,
duties, responsibilities and obligations under the CCAA and under the Orders, shall
assist the Applicants in connection with the administration of the Claims Procedure,
including the determination of Claims and the referral of any particular Claim to a
Claims Officer, as requested by the Applicants from time to time, and is hereby directed
and empowered to take such other actions and fulfill such other roles as are
contemplated by this Claims Procedure Order.
11.
The Monitor, in carrying out the terms of this Claims Procedure Order, shall
have all of the protections given it by the CCAA and the Initial Order or as an officer of
this Court, including the stay of proceedings in its favour and shall incur no liability or
obligation as a result of the carrying out of its obligations under this Claims Procedure
Order.
CLAIMS PROCEDURE
Notice to Claimants
12.
THIS COURT ORDERS that:
(a)
The Monitor shall send a Claims Package to each of the known potential
Claimants listed in the books and records of the Applicants by prepaid
ordinary mail to the last known address of the known potential Claimants
within five (5) Business Days of the date of this Claims Procedure Order;
(b)
The Monitor shall cause the Notice to Claimants to be published, for at
least one (1) Business Day, in The Globe and Mail (national edition), Sault
This Week, SooToday.com and The Wall Street Journal as soon as
practicable after the date of this Claims Procedure Order;
(c)
The Monitor shall cause the Notice to Claimants and the Claims Package
to be posted on the Monitor's Website as soon as practicable after the date
of this Claims Procedure Order and cause it to remain posted thereon
until its discharge as Monitor of the Applicants; and
(d)
The Monitor shall direct Prime Clerk LLC, the noticing agent in the
Chapter 15 Cases, to post the Notice to Claimants and the Claims Package
on the Prime Clerk Website as soon as practicable after the date of this
Claims Procedure Order and cause it to remain posted thereon until
directed by the Monitor to remove such posting.
13.
THIS COURT ORDERS that Essar Steel Algoma Inc., in its capacity as foreign
representative of the Applicants, shall cause notice of the entry of this Claims Procedure
Order to be sent to each party listed on the U.S. Creditor Matrix.
14.
THIS COURT ORDERS that upon request by a Claimant for a Claims Package
or documents or information relating to the Claims Procedure prior to the Prefiling
Claims Bar Date or Restructuring Claims Bar Date, as applicable, the Monitor shall
forthwith send a Claims Package, direct such Person to the documents posted on the
Monitor's Website or the Prime Clerk Website, or otherwise respond to the request for
information or documents as the Monitor considers appropriate in the circumstances.
15.
THIS COURT ORDERS that with respect to Restructuring Claims arising from
the restructuring, disclaimer, resiliation, termination or breach of any lease, contract, or
other agreement or obligation, on or after the date of this Claims Procedure Order, the
Monitor shall send to the counterparty(ies) to such lease, contract or other agreement or
obligation a Claims Package no later than five (5) Business Days following the date of
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the restructuring, disclaimer, resiliation, termination or breach of any lease, contract, or
other agreement or obligation.
16.
THIS COURT ORDERS that the form and substance of each of the Notice to
Claimants, Proof of Claim form, Claim Instruction Letter, Notice of Revision or
Disallowance and Notice of Dispute, substantially in the forms attached as schedules
hereto, are hereby approved. Despite the foregoing, the Applicants, in consultation
with the Monitor, may from time to time make such minor changes to such forms as the
Applicants deem necessary or desirable.
Proofs of Claim
17.
THIS COURT ORDERS that any Person that wishes to assert a Prefiling Claim
must deliver to the Monitor on or before the Prefiling Claims Bar Date a completed
Proof of Claim, including all relevant supporting documentation in respect of such
Claim, in the manner set out in this Claims Procedure Order.
18.
THIS COURT ORDERS that any Person that wishes to assert a Restructuring
Claim must deliver to the Monitor on or before the Restructuring Claims Bar Date a
completed Proof of Claim form, together with all relevant supporting documentation in
respect of such Claim, in the manner set out in this Claims Procedure Order.
19.
THIS COURT ORDERS that any Person that wishes to assert a Dez0 Claim
must deliver to the Monitor on or before the Prefiling Claims Bar Date or the
Restructuring Claims Bar Date, as applicable, a completed Proof of Claim form, together
with all relevant supporting documentation in respect of such Claim, in the manner set
out in this Claims Procedure Order.
20.
THIS COURT ORDERS that the Monitor shall deliver to the Applicants all
Proofs of Claim filed with the Monitor as soon as practicable, and shall deliver to the
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Directors' Counsel any Proof of Claim in respect of a D&O Claim filed with the Monitor
as soon as practicable.
21.
THIS COURT ORDERS that any Person wishing to assert a Claim shall include
any and all Claims it asserts against an Applicant or a Director or Officer of that
Applicant in a single Proof of Claim.
22.
THIS COURT ORDERS that, notwithstanding anything else in this Claims
Procedure Order, the following Persons are not required to file a Proof of Claim,
pending further order of the Court:
a) Persons asserting a Claim in respect of the Pension Plans;
b) Persons asserting a Claim in respect of a Grievance;
c) Persons asserting a Claim in respect of the ABL Indebtedness;
d) Persons asserting a Claim in respect of the Term Loan Indebtedness;
e) Persons asserting a Claim in respect of the Senior Secured Notes; and
f) Persons asserting a Claim in respect of the Junior Secured Notes.
23.
THIS COURT ORDERS that any Person who does not file a Proof of Claim in
accordance with this Claims Procedure Order with the Monitor by the Prefiling Claims
Bar Date or Restructuring Claims Bar Date, as applicable, shall:
a) Not be entitled to receive further notice with respect to the Claims Procedure or
the CCAA Proceedings;
b) With respect to a Prefiling Claim or a Restructuring Claim, be forever barred,
estopped and enjoined from asserting or enforcing such Claim against any of the
Applicants and the Applicants shall not have any liability whatsoever in respect
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of such Claim and such Claim shall be extinguished without any further act or
notification by the Applicants;
c) With respect to a D&O Claim, be forever barred, estopped and enjoined from
asserting or enforcing such Claim against any of the Directors and Officers and
the Directors and Officers shall not have any liability whatsoever in respect of
such Claim and such Claim shall be extinguished without any further act or
notification by the Applicants;
d) Not be permitted to vote at any Meeting on account of such Claim; and
e) Not be permitted to participate in any distribution under any Plan related to
such Claim.
Adjudication of Claims
24.
THIS COURT ORDERS that the Applicants, with the assistance of the Monitor,
shall review all Proofs of Claim filed in respect of Prefiling Claims received by the
Prefiling Claims Bar Date and shall accept, revise or disallow the amount of each Claim
set out therein for voting and/or distribution purposes. In accepting, revising or
disallowing any Claim, the Applicants, with the assistance of the Monitor, shall take
account of and determine the presence and amount, if any, of any set-off or
counterclaim relating to such Claim. If the Applicants, with the assistance of the
Monitor, determine to revise or disallow a Prefiling Claim, a Notice of Revision or
Disallowance and a Notice of Dispute form will be sent to the Claimant as soon as
practicable in the manner set forth in this Claims Procedure Order.
25.
THIS COURT ORDERS that the Applicants, with the assistance of the Monitor,
shall review all Proofs of Claim filed in respect of Restructuring Claims received by the
Restructuring Claims Bar Date and shall accept, revise or disallow the amount of each
Claim set out therein for voting and/or distribution purposes. If the Applicants, with
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the assistance of the Monitor, determine to revise or disallow a Restructuring Claim, a
Notice of Revision or Disallowance and a Notice of Dispute form will be sent to the
Claimant in the manner set forth in this Claims Procedure Order.
26.
THIS COURT ORDERS that, notwithstanding paragraph 24 and 25, Proofs of
Claim relating to Intercompany Claims filed by the Prefiling Claims Bar Date or the
Restructuring Claims Bar Date, as applicable, shall be reviewed solely by the Monitor.
The Monitor, in its sole discretion, shall accept, revise or disallow the amount of each
Intercompany Claim set out in the Proof of Claim for voting and/or distribution
purposes. If the Monitor determines to revise or disallow an Intercompany Claim, a
Notice of Revision or Disallowance will be sent to the Claimant in the manner set forth
in this Claims Procedure Order.
27.
THIS COURT ORDERS that the Applicants and Directors' Counsel, with the
assistance of the Monitor, shall review all Proofs of Claim filed in respect of D&O
Claims received by the Prefiling Claims Bar Date or the Restructuring Claims Bar Date,
as applicable, and shall accept, revise or disallow the amount of each Claim set out
therein. If the Applicants or the Directors' Counsel, with the assistance of the Monitor,
determine to revise or disallow a D&O Claim, a Notice of Revision or Disallowance and
a Notice of Dispute form will be sent to the Claimant in the manner set forth in this
Claims Procedure Order.
28.
THIS COURT ORDERS that any Person asserting a Prefiling Claim, a
Restructuring Claim or a D&O Claim who intends to dispute a Notice of Revision or
Disallowance sent pursuant to paragraph 24-27 shall, within ten (10) Business Days of
receiving such Notice of Revision or Disallowance, deliver a Notice of Dispute to the
Monitor. If any Person who received a Notice of Revision or Disallowance does not
return a Notice of Dispute to the Monitor within ten (10) Business Days, the value of
such Claim shall be deemed to be as set out in the Notice of Revision or Disallowance
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for voting and distribution purposes (and, in the case of a D&O Claim, for all purposes),
and the Claimant will be barred from disputing or appealing same.
29.
THIS COURT ORDERS that in the event that an Applicant is unable to resolve a
dispute with a Claimant regarding any Prefiling Claim or Restructuring Claim, the
Applicant shall notify the Monitor, and such Claim shall be adjudicated by either a
Claims Officer or the Court. The decision as to whether the Court or a Claims Officer
Claim shall adjudicate the Claim shall be determined by agreement of the Applicants
and the Monitor, or by order of this Court.
30.
THIS COURT ORDERS that, notwithstanding paragraph 29, in the event that
the Monitor is unable to resolve a dispute with a Claimant regarding an Intercompany
Claim, such Claim shall be adjudicated by either a Claims Officer or the Court. The
decision as to whether the Court or a Claims Officer Claim shall adjudicate the
Intercompany Claim shall be determined by the Monitor.
31.
THIS COURT ORDERS that in the event that an Applicant or Directors'
Counsel are unable to resolve a dispute with a Claimant regarding any D&O Claim, the
Applicant or Director or Officer, as applicable, shall notify the Monitor, and such D&O
Claim shall be adjudicated by a Claims Officer or the Court. The decision as to whether
the Court or a Claims Officer Claim shall adjudicate the D&O Claim shall be
determined by agreement of the Applicants and the Monitor, in consultation with the
Directors' Counsel, or by order of this Court.
Claims Officers
32.
THIS COURT ORDERS that the Applicants or the Monitor may apply to the
Court at any time to appoint one or more Persons to be a Claims Officer for the Claims
Procedure described herein.
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33.
THIS COURT ORDERS that where the Applicants have determined that a
disputed Claim will be heard by a Claims Officer, the Claims Officer shall determine the
validity and amount of the disputed Claims as well as any claim of set off and/or any
counterclaim by an Applicant against the Claimant relating to the Claim. A Claims
Officer shall determine all procedural matters which may arise in respect of his or her
determination of these matters, including the manner in which any evidence may be
adduced. A Claims Officer shall have the discretion to determine by whom and to what
extent the costs of any hearing before a Claims Officer shall be paid.
Appeals from Claims Officer Determination
34.
THIS COURT ORDERS that either an Applicant or a Claimant may, within ten
(10) Business Days of notification of a Claims Officer's determination of the value of a
Prefiling Claim or Restructuring Claim, appeal such determination to the Court by
filing a notice of appeal, and the appeal shall be initially returnable within ten (10)
Business Days of the filing of such notice of appeal, such appeal to be an appeal based
on the record before the Claims Officer and not a hearing de novo.
35.
THIS COURT ORDERS that, notwithstanding paragraph 34, a Claimant
asserting an Intercompany Claim or the Monitor may, within ten (10) Business Days of
notification of a Claims Officer's determination of the value of an Intercompany Claim,
appeal such determination to the Court by filing a notice of appeal, and the appeal shall
be initially returnable within ten (10) Business Days of the filing of such notice of
appeal, such appeal to be an appeal based on the record before the Claims Officer and
not a hearing de novo.
36.
THIS COURT ORDERS that either an Applicant, a Director, an Officer or a
Claimant may, within ten (10) Business Days of notification of a Claims Officer's
determination of the value of a D&O Claim, appeal such determination to the Court by
filing a notice of appeal, and the appeal shall be initially returnable within ten (10)
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Business Days of the filing of such notice of appeal, such appeal to be an appeal based
on the record before the Claims Officer and not a hearing de novo.
37.
THIS COURT ORDERS that if no party appeals the determination of value of
a Claim by a Claims Officer within the time set out in paragraphs 34-36 above, the
decision of the Claims Officer in determining the value of the Claim shall be final and
binding upon the relevant Applicant and the Claimant for voting and distribution
purposes (and, in the case of D&O Claims, for all purposes) and there shall be no
further right of appeal, review or recourse to the Court from the Claims Officer's final
determination.
NOTICE OF TRANSFEREES
38.
THIS COURT ORDERS that if, after the Filing Date, the holder of a Claim
transfers or assigns the whole of such Claim to another Person, neither the Applicants
nor the Monitor shall be obligated to give notice or otherwise deal with the transferee or
assignee of such Claim in respect thereof unless and until actual notice of the transfer or
assignment, together with satisfactory evidence of the existence and validity of such
transfer or assignment, shall have been received and acknowledged by the Applicants
and the Monitor in writing. Thereafter, such transferee or assignee shall for the
purposes hereof constitute the "Claimant" in respect of such Claim. Any such transferee
or assignee of a Claim shall be bound by any notices given or steps taken in respect of
such Claim in accordance with this Claims Procedure Order prior to the receipt and
acknowledgment by the Applicants and the Monitor of satisfactory evidence of such
transfer or assignment. A transferee or assignee of a Claim takes the Claim subject to
any right of set-off to which the Applicants may be entitled with respect to such Claim.
For greater certainty, a transferee or assignee of a Claim is not entitled to set off, apply,
merge, consolidate or combine any Claims assigned or transferred to it against or on
account or in reduction of any amounts owing by such Person to any of the Applicants.
- 19 -
39.
THIS COURT ORDERS that if a Claimant or any subsequent holder of a Claim,
who in any such case has previously been acknowledged by the Applicants and the
Monitor as the holder of the Claim, transfers or assigns the whole of such Claim to more
than one Person or part of such Claim to another Person, such transfers or assignments
shall not create separate Claims and such Claims shall continue to constitute and be
dealt with as a single Claim notwithstanding such transfers or assignments. The
Applicants and the Monitor shall not, in each case, be required to recognize or
acknowledge any such transfers or assignments and shall be entitled to give notices to
and to otherwise deal with such Claim only as a whole and then only to and with the
Person last holding such Claim, provided such Claimant may, by notice in writing
delivered to the Monitor, direct that subsequent dealings in respect of such Claim, but
only as a whole, shall be dealt with by a specified Person and in such event, such Person
shall be bound by any notices given or steps taken in respect of such Claim with such
Claimant or in accordance with the provisions of this Order.
SERVICE AND NOTICES
40.
THIS COURT ORDERS that the forms of notice to be provided in accordance
with this Claims Procedure Order shall constitute good and sufficient service and
delivery of notice of this Claims Procedure Order, the Prefiling Claims Bar Date and
Restructuring Claims Bar Date on all Persons who may be entitled to receive notice and
who may assert a Claim and no other notice or service need be given or made and no
other documents or material need be sent to or served upon any Person in respect of
this Claims Procedure Order.
41.
THIS COURT ORDERS that the Applicants and the Monitor may serve and
deliver, or cause to be served and delivered, the Claims Package, and any letters,
notices or other documents, to the Claimants or any other interested Person by
forwarding true copies thereof by prepaid ordinary mail, registered mail, courier,
personal delivery, facsimile transmission or email to such Persons at the physical or
-20-
electronic address, as applicable, last shown on the books and records of the Applicants
or set out in such Claimant's Proof of Claim. Any such service and delivery shall be
deemed to have been received: (a) if sent by ordinary mail or registered mail, on the
third Business Day after mailing within Ontario, the fifth Business Day after mailing
within Canada (other than within Ontario), and the tenth Business Day after mailing
internationally; (b) if sent by courier or personal delivery, on the next Business Day
following dispatch; and (c) if delivered by facsimile transmission or email by 5:00 p.m.
on a Business Day, on such Business Day and if delivered after 5:00p.m. or other than
on a Business Day, on the following Business Day.
42.
THIS COURT ORDERS that any notice, notification or communication required
to be provided or delivered to the Monitor under this Claims Procedure Order will be
sufficiently given only if delivered by prepaid ordinary mail, registered mail, courier,
personal delivery, facsimile transmission or email addressed to:
Ernst & Young Inc.
Court-appointed Monitor of Essar Steel Algoma Inc. & others
222 Bay Street, Suite 1600
Toronto, Ontario
Canada M5K 1J7
Attention: Essar Steel Algoma Inc. Claims
Telephone: 1-855-941-1820 or 416-941-1820
E-mail:
essaralgomaTIta.ey.com
Fax:
416-943-2865
43.
THIS COURT ORDERS that if during any period during which notices or other
communications are being given pursuant to this Claims Procedure Order, a postal
strike or postal work stoppage of general application should occur, such notices,
notifications or other communications sent by ordinary or registered mail and then not
received shall not, absent further Order of this Court, be effective and notices and other
communications given hereunder during the course of any such postal strike or work
-21stoppage of general application shall only be effective if given by courier, personal
delivery, facsimile transmission or email in accordance with this Claims Procedure
Order.
44.
THIS COURT ORDERS that in the event that this Claims Procedure Order is
amended by further Order of the Court, the Monitor shall post such further Order on
the Monitor's Website and direct Prime Clerk to post such further Order on the Prime
Clerk Website, and such posting shall constitute adequate notice to Claimants of such
amended claims procedure.
DIRECTIONS
45.
THIS COURT ORDERS that notwithstanding the terms of this Claims
Procedure Order, the Monitor and the Applicants may apply to this Court from time to
time for directions from this Court with respect to this Claims Procedure Order, or for
such further Order or Orders as any of them may consider necessary or desirable to
amend, supplement or clarify the terms of this Claims Procedure Order.
MISCELLANEOUS
46.
THIS COURT HEREBY REQUESTS the aid and recognition of any court,
tribunal, regulatory or administrative body having jurisdiction in Canada or in the
United States or any other jurisdiction to give effect to this Claims Procedure Order and
to assist the Applicants, the Monitor and their respective agents in carrying out the
terms of this Claims Procedure Order, including the U.S. Bankruptcy Court. All courts,
tribunals, regulatory and administrative bodies are hereby respectfully requested to
make such orders and to provide such assistance to the Applicants and the Monitor, as
an officer of this Court, as may be necessary or desirable to give effect to this Claims
Procedure Order or to assist the Applicants and the Monitor and their respective agents
in carrying out the terms of this Claims Procedure Order.
- 22 -
•
ENTERED AT / INSCRIT A TORONTO
ON / BOOK NO.
LE / DANS LE REGISTRE NO..
JAN 15 2016
SCHEDULE 1: NOTICE TO CLAIMANTS
RE: NOTICE OF CLAIMS PROCESS FOR ESSAR STEEL ALGOMA INC., ESSAR
TECH ALGOMA INC., ALGOMA HOLDINGS B.V., ESSAR STEEL ALGOMA
(ALBERTA) ULC, CANNELTON IRON ORE COMPANY AND ESSAR STEEL
ALGOMA INC. USA (COLLECTIVELY, THE "APPLICANTS") PURSUANT TO
THE COMPANIES' CREDITORS ARRANGEMENT ACT (THE "CCAA")
By Order of the Ontario Superior Court of Justice (Commercial List) (the "Court") dated
November 9, 2015 (the "Initial Order"), the Applicants filed for and obtained relief
from their creditors under the Companies' Creditors Arrangement Act (the "CCAA").
Pursuant to the Initial Order, Ernst & Young Inc. was appointed by the Court as
monitor in the Applicants' CCAA proceeding (the "Monitor").
PLEASE TAKE NOTICE that on January 13, 2016, the Court issued an order (the
"Claims Procedure Order"), a copy of which can be found on the Monitor's Website:
http:/ /www.ey.com/ca/essaralzoma, requiring that all Persons who assert:
• a Prefiling Claim and/or a D&O Prefiling Claim (capitalized terms used in this
notice and not otherwise defined have the meaning given to them in the Claims
Procedure Order) against the Applicants and/or the Directors and/or the
Officers of the Applicants must file a Proof of Claim with the Monitor on or
before 5:00 p.m. (Toronto time) on February 26, 2016 (the "Prefiling Claims Bar
Date"); or
• a Restructuring Claim and/or a D&O Restructuring Claim against the
Applicants and/or the Directors and/or the Officers of the Applicants must file
a Proof of Claim with the Monitor by the later of:
(i)
5:00 p.m. (Toronto time) on February 26, 2016; and
(ii)
The date that is 20 Business Days after the Monitor sends a
Claims Package with respect to a Restructuring Claim in
accordance with the Claims Procedure Order (the "Restructuring
Claims Bar Date").
by sending the Proof of Claim to the Monitor by prepaid ordinary mail,
registered mail, courier, personal delivery or electronic transmission at the
address of the Monitor listed below.
Claims Packages including the Proof of Claim may be obtained from the Monitor's
website, the Prime Clerk website or by contacting the Monitor by prepaid ordinary
mail, registered mail, courier or by telephone or email at the address of the monitor
listed below.
IF YOUR PROOF OF CLAIM IS NOT RECEIVED BY THE MONITOR BY THE
PREFILING CLAIMS BAR DATE OR THE RESTRUCTURING CLAIMS BAR
DATE, AS APPLICABLE, YOUR CLAIM AGAINST THE APPLICANTS OR THE
OFFICERS AND DIRECTORS WILL BE BARRED AND EXTINGUISHED
FOREVER.
Address of the Monitor:
Ernst & Young Inc.
Court-appointed Monitor of Essar Steil Algoma Inc. & others
277 Bay Street, Suite 1600
Toronto, Ontario
Canada M5K 1J7
Attention: Essar Steel Algoma Inc. Claims
Telephone: 1-855-941-1820 or 416-941-1820
E-mail:
essaralgomgka.ey.com
Fax:
416-943-2865
Dated at
this
day of
, 2016.
SCHEDULE 2: CLAIM INSTRUCTION LETTER
Pursuant to an Order of the Ontario Superior Court of Justice dated January [13],
2016, (the "Claims Procedure Order"), the Debtors listed in section 1 below have
been authorized to conduct a claims procedure. A copy of the Claims Procedure
Order is available on the Monitor's website at www.ey.com/ca/essaralgoma.
This Guide has been prepared to assist Claimants in filling out the Proof of Claim
form with respect to the Debtors listed in Section 1 below. If you have any additional
questions regarding completion of the Proof of Claim form, please consult the
Monitor's website or contact the Monitor at the coordinates shown below.
In the event of any inconsistency between the terms of this guide and the terms of the
Claims Procedure Order, the terms of the Claims Procedure Order will govern.
Additional copies of the Proof of Claim form may be found at the Monitor's website
address noted above.
Section 1- Name of Debtor:
• A separate Proof of Claim form must be filed for each Debtor against whom a
claim is being asserted.
• The following is a list of Debtor companies against whom a claim may be
asserted in this claims process:
• ESSAR STEEL ALGOMA INC.
• ESSAR TECH ALGOMA INC.
• ALGOMA HOLDINGS B.V.
• ESSAR STEEL ALGOMA (ALBERTA) ULC
• CANNELTON IRON ORE COMPANY
• ESSAR STEEL ALGOMA INC. USA.
• Please note that these procedures apply ONLY to claims filed against the six
Debtor companies listed above and any of their current or previous officers
and directors.
Section 2 - Original Claimant
•
A separate Proof of Claim form must be filed by each legal entity or person
asserting a claim against a Debtor listed in Section 1.
• The Claimant shall include any and all Claims it asserts against a single
Debtor in a single Proof of Claim.
• The full legal name of the Claimant must be provided.
■ If the Claimant operates under a different name, or names, please indicate this
in a separate schedule in the supporting documentation.
■ If the Claim has been assigned or transferred to another party, Section 3 must
also be completed.
• Unless the Claim is assigned or transferred, all future correspondence, notices,
etc. regarding the Claim will be directed to the address and contact indicated
in this section.
• Certain Claimants are exempted from the requirement to file a Proof of Claim.
Please consult the Claims Procedure Order made on January •, 2016 for
details with respect to these exemptions.
Section 3 - Assignee
• If the Claimant has assigned or otherwise transferred its Claim, then Section 3
must be completed.
• The full legal name of the assignee must be provided.
• If the assignee operates under a different name, or names, please indicate this
in a separate schedule in the supporting documentation.
• If the Monitor is satisfied that an assignment or transfer has occurred, all
future correspondence, notices, etc. regarding the Claim will be directed to the
assignee at the address and contact indicated in this section.
Section 4 - Amount of Claim of Claimant against Debtor
•
Indicate the amount the Debtor / Officer(s) or Director(s) was and still is
indebted to the Claimant.
Currency, Original Currency Amount
•
•
•
The amount of the Claim must be provided in the currency in which it
arose.
Indicate the appropriate currency in the Currency column.
If the Claim is denominated in multiple currencies, use a separate line to
indicate the Claim amount in each such currency. If there are insufficient
lines to record these amounts, attach a separate schedule indicating the
required information.
• Claims denominated in a currency other than Canadian dollars will be
converted into Canadian dollars by the Monitor using the Bank of Canada
noon spot exchange rate on the Filing Date.
Secured
• Check the Secured box ONLY if the Claim recorded on that line is secured.
Do not check this box if your Claim is unsecured.
• If the value of the collateral securing your Claim is less than the amount of
your Claim, enter the shortfall portion on a separate line as an unsecured
claim.
• Evidence supporting the security you hold must be submitted with the
Proof of Claim form. Provide full particulars of the nature of the security,
including the date on which the security was given and the value you
attribute to the collateral securing your Claim. Attach a copy of all related
security documents.
S. 136 Priority
• Check this box ONLY if the amount of your Claim has a right to priority
pursuant to Section 136 of the Bankruptcy and Insolvency Act (Canada)
(the "BIA") or would be entitled to claim such a priority if this Proof of
Claim were being filed in accordance the provisions of the BIA.
• If a priority claim is being asserted, please provide details as to the nature
of the claim being asserted, and the basis for priority on which you rely.
Restructuring
• Check this box ONLY if the amount of the Claim against the Debtor arose
out of the restructuring, disclaimer, resiliation, termination or breach by
such Applicant on or after the Filing Date of any contract, lease, other
agreement or obligation.
Officers and Directors
• Check this box only if the Claim you are making is being asserted against
an Officer or Director of the Debtor.
• You must identify the individual Officer(s) or Director(s) against whom
you are asserting the Claim.
Section 5 Documentation
• Attach to the claim form all particulars of the Claim and supporting
documentation, including amount, description of transaction(s) or
agreement(s) giving rise to the Claim, name of any guarantor which has
guaranteed the Claim and amount of invoices, particulars of all credits,
discounts, etc. claimed, description of the security, if any, granted by the
debtor or any officer or director to the Claimant and estimated value of such
security and particulars of any restructuring claim.
-
Section 6 - Certification
• The person signing the Proof of Claim form should
c, be the Claimant, or authorized Representative of the Claimant.
c have knowledge of all the circumstances connected with this Claim.
• By signing and submitting the Proof of Claim, the Claimant is asserting the
claim against the Debtor and / or the indicated Officer(s) or Director(s)
Section 7 - Filing of Claim
• For Persons wishing to assert a Prefiling Claim and/or a D&O Claim, this
Proof of Claim must be received by the Monitor by no later than 5:00 p.m.
(Toronto time) on s, 2016. For Persons wishing to assert a Restructuring
Claim, this Proof of Claim must be received by the Monitor by the later of:
(i)
5:00 p.m. (Toronto time) on February 26, 2016; and
(ii)
The date that is 20 Business Days after the Monitor sends a
Claims Package with respect to a Restructuring Claim in
accordance with the Claims Procedure Order.
• Proofs of Claim should be send by prepaid ordinary mail, registered mail,
courier, personal delivery or electronic or digital transmission to the following
address:
Ernst & Young Inc.
Court-appointed Monitor of Essar Steel Algoma Inc. & others
222 Bay Street, Suite 1600
Toronto, Ontario
Canada M5K 1J7
Attention: Essar Steel Algoma Inc. Claims
Telephone: 1-855-941-1820 or 416-941-1820
E-mail:
[email protected]
Fax:
416-943-2865
Failure to file your Proof of Claim so that it is received by the Monitor by
5:00 p.m. Toronto time on the applicable claims bar date will result in your
claim being barred and you will be prevented from making or enforcing a
Claim against the Debtors or any current or former officer or director of any
of the Debtors. In addition, you shall not be entitled to further notice in
and shall not be entitled to participate as a Claimant in these proceedings.
SCHEDULE 3: PROOF OF CLAIM FORM
CCAA Proof of Claim
(0
...,
re Esser Steel Algoma Inc. and others
Nam a of Debtor (the 'Debtor")
Debtor
—
(19
Original Creditor Identification (the "Creditor")
Legal Name of Creditor
Name of Contact
Address
Phone #
—I.
._
t
I
--t -.---.— --
1
Fax #
I
— --L— ,
—
i
Pray / Slate
City
PostaUZIp code
e-mail
- -1----
Assignee, If claim has been assigned
%II
Full Legal Name of Assignee
Name of Contact
Address
Phone if
—
-,
-
1I
— —t-- ------ —
!
Fax #
Prov / Stale
City
-- -
PostaVZip code
e-mail
__
>....0 ..— Amount of Claim
The Debtor! Office (s)/ Director(s) w as/w ere and still is/are indebted to the Creditor as follows
Claims wig be recorded as %Yuma-ad' vane* the '5edured' boer ce:e, ked
Currency
>0
`
Original Currenc y Amount
(Check anlyd ambulate.)
.I ll y zu are making a claim against an Offceror
Directtrcheas the box belDwand Nst the Officer(s) _.
Secured
S 136 Priority
Restructuring
3 n d Direct° r:sl
n
■
o
■
n
n
❑
o--
•
n
■
❑
■
❑
❑
❑
❑
against whum you assert your claim
❑ - -0❑ - -o- - - - -_.__
❑
❑
■
Documentation
Rovide all particulars of the Claim and supporting documentation including amount, description of transaction(s) or agreement(s) giving rise to
the Claim, narre of any guarantor w tech has guaranteed the Claim and amount of Invoices, particulars of aN credits discounts, etc claimed,
description of the security, if any, granted by the affected Debtor to the Creditor and estimated value of such security. particulars of any
0
Certification
I hereby certify that:
_ _ __ 1___
• lamthe Creditor, or authortzed Representatke of the Creditor
it this Claim.
ow ledge of al the circumstances connected w h
• I have know
1
1
• The Creditor asserts this claim against the Debtor and the Ott Icer(s) and Diector(s) as indicated above
• Complete documentation in support of this claim is attached
Name
Signature
Tale
- --- -1, - - Dated at
Signed at
1
>.0
Filing of Claim
This Proof of.Claim must be. received by the Monitor
by no later than 5:00 p.m. (prevailing Eastern Time)
prepaid ordinary mail, registered mail,
on • 2016,
courier, personal delivery or electronic or digital
transmission
at the talowing acidrew
—_. _ _
1..
Ernst 8. Young Inc
222 Bay St, PO Box 251
To ro
ronn t o -Dorninkin Centre
CA NA DA
Attention Es sar Steel Algoma Inc
Clams
Fax: 416.943.2865
- Tel: 1-855-941 - 1820 or 416 - 941 . 1820
. e-n
essaralgomaaca.ey coin
.
.
.1
SCHEDULE 4: NOTICE OF REVISION OR DISALLOWANCE
NOTICE OF REVISION OR DISALLOWANCE
IN RESPECT OF CLAIMS AGAINST
ESSAR STEEL ALGOMA INC., ESSAR TECH ALGOMA INC., ALGOMA
HOLDINGS B.V., ESSAR STEEL ALGOMA (ALBERTA) ULC, CANNELTON
IRON ORE COMPANY AND ESSAR STEEL ALGOMA INC. USA
(COLLECTIVELY, THE "APPLICANTS")
Claims Reference Number:
To:
Pursuant to the Claims Procedure Order, the Monitor hereby gives you notice that
the Applicant [and Directors' Counsel, if applicable], with the assistance of the
Monitor, has reviewed your Proof of Claim and has revised or disallowed all or part
of your purported Claim. Subject to further dispute by you in accordance with the
Claims Procedure Order, your Proven Claim will be as follows:
Currency
Unsecured Claim
Secured Claim
D&O Claim
Total Claim
Amount as
Submitted
$
$
,$
$
Amount Allowed
$
$
$
Reasons for Revision or Disallowance:
SERVICE OF DISPUTE NOTICES
If you intend to dispute this Notice of Revision or Disallowance, you must, no
later than 5:00 p.m. (prevailing time in Toronto) on the day that is • Business Days
after this Notice of Revision or Disallowance is deemed to have been received by
you (in accordance with paragraph • of the Claims Procedure Order), deliver a
Notice of Dispute to the Monitor by ordinary prepaid mail, registered mail,
courier, personal delivery or facsimile transmission or email to the address below.
Ernst & Young Inc.
Court-appointed Monitor of Essar Steel Algoma Inc. & others
222 Bay Street, Suite 1600
Toronto, Ontario
Canada M5K 1J7
Attention: Essar Steel Algoma Inc. Claims
Telephone: 1-855-941-1820 or 416-941-1820
E-mail:
[email protected]
Fax:
416-943-2865
In accordance with the Claims Procedure Order, notices shall be deemed to be
received by the Monitor upon actual receipt thereof by the Monitor during normal
business hours on a Business Day, or if delivered outside of normal business hours,
on the next Business Day. The form of Notice of Dispute is enclosed and can also be
accessed on the Monitor's website at: www.ey.com/ca/ecssaralgoma.
IF YOU FAIL TO FILE A NOTICE OF DISPUTE NOTICE WITHIN THE
PRESCRIBED TIME PERIOD, THIS NOTICE OF REVISION OR
DISALLOWANCE WILL BE BINDING UPON YOU.
DATED this 0 day of 0,0.
Ernst & Young Inc., solely in its capacity as Court-appointed Monitor of the
Applicants, and not in its personal or corporate capacity
Per:
SCHEDULE 5: NOTICE OF DISPUTE
NOTICE OF DISPUTE
IN RESPECT OF CLAIMS AGAINST
ESSAR STEEL ALGOMA INC., ESSAR TECH ALGOMA INC., ALGOMA
HOLDINGS B.V., ESSAR STEEL ALGOMA (ALBERTA) ULC, CANNELTON
IRON ORE COMPANY AND ESSAR STEEL ALGOMA INC. USA
(COLLECTIVELY, THE "APPLICANTS")
Claims Reference Number:
1. Particulars of Claimant:
Full Legal Name of Claimant (include
trade name, if different)
(the "Claimant")
Full Mailing Address of the Claimant
Telephone Number of the Claimant
Email Address of the Claimant
Facsimile Number of the Claimant
Attention (Contact Person)
2. Particulars of original Claimant from whom the Claim was acquired, if
applicable:
Full Legal Name of original Claimant
(include trade name, if different)
(the "Claimant")
Full Mailing Address of the Claimant
Telephone Number of the original
Claimant
Email Address of the original Claimant
Facsimile Number of the original
Claimant
Attention (Contact Person)
Have you acquired this purported Claim by assignment?
Yes: [
]
No: [_]
If yes and if not already provided, attach documents evidencing assignment.
3. Dispute of Revision or Disallowance of Claim:
The Claimant hereby disagrees with the value of its Claim as set out in the Notice of
Revision or Disallowance and asserts a Claim as follows:
Currency
Unsecured Claim
Secured Claim
D&O Claim
Total Claim
Amount Allowed
Amount Claimed
by the Claimant
IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT,
R.S.C. 1985, c. C-36, AS AMENDED
Court File No. CV-15-000011169-00CL
AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF
ESSAR STEEL ALGOMA INC., ESSAR TECH ALGOMA INC., ALGOMA HOLDINGS B.V., ESSAR STEEL
ALGOMA (ALBERTA) ULC, CANNELTON IRON ORE COMPANY AND
ESSAR STEEL ALGOMA INC. USA
ONTARIO
SUPERIOR COURT OF JUSTICE
Proceeding commenced at Toronto
CLAIMS PROCEDURE ORDER
STIKEMAN ELLIOTT LLP
Barristers & Solicitors
5300 Commerce Court West
199 Bay Street
Toronto, Canada M5L 1B9
Ashley Taylor LSUC#: 39932E
Tel: (416) 869-5236
E-mail: [email protected]
Maria Konyukhova LSUC#: 52880V
Tel: (416) 869-5230
E-mail: [email protected]
Kathryn Esaw LSUC#: 58264F
Tel: (416) 869-6820
Email: [email protected]
Fax: (416) 947-0866
Lawyers for the Applicants
Tab 5
Labourers' Pension Fund of Central and Eastern Canada..., 2013 ONSC 1078,...
2013 ONSC 1078, 2013 CarswellOnt 3361, 100 C.B.R. (5th) 30, 227 A.C.W.S. (3d) 930...
2013 ONSC 1078
Ontario Superior Court of Justice [Commercial List]
Labourers' Pension Fund of Central and Eastern Canada v. Sino-Forest Corp.
2013 CarswellOnt 3361, 2013 ONSC 1078, 100 C.B.R. (5th) 30, 227 A.C.W.S. (3d) 930, 37 C.P.C. (7th) 135
In the Matter of the Companies' Creditors
Arrangement Act, R.S.C. 1985, c. C-36, as Amended
In the Matter of a Plan of Compromise or Arrangement of Sino-Forest Corporation, Applicant
The Trustees of the Labourers' Pension Fund of Central and Eastern Canada, The Trustees of the International
Union of Operating Engineers Local 793 Pension Plan for Operating Engineers in Ontario, Sjunde ApFonden, David Grant and Robert Wong, Plaintiffs and Sino-Forest Corporation, Ernst & Young LLP,
BDO Limited (Formerly Known as BDO McCabe Lo Limited), Allen T.Y. Chan, W. Judson Martin, Kai
Kit Poon, David J. Horsley, William E. Ardell, James P. Bowland, James M.E. Hyde, Edmund Mak,
Simon Murray, Peter Wang, Garry J. West, Pöyry (Beijing) Consulting Company Limited, Credit Suisse
Securities (Canada) In., TD Securities Inc., Dundee Securities Corporation, RBC Dominion Securities
Inc., Scotia Capital Inc., CIBC World Markets Inc., Merrill Lunch Canada Inc., Canaccord Financial
Ltd., Maison Placements Canada Inc., Credit Suisse Securities (USA) LLC and Merrill Lynch, Pierce,
Fenner & Smith Incorporated (Successor by Merger to Banc of America Securities LLC), Defendants
Morawetz J.
Heard: February 4, 2013
Judgment: March 20, 2013
Docket: CV-12-9667-00CL, CV-11-431153-00CP
Counsel: Kenneth Rosenberg, Max Starnino, A. Dimitri Lascaris, Daniel Bach, Charles M. Wright, Jonathan Ptak, for Ad Hoc
Committee of Purchasers including the Class Action Plaintiffs
Peter Griffin, Peter Osborne, Shara Roy, for Ernst & Young LLP, John Pirie and David Gadsden, for Pöyry (Beijing) Consulting
Company Ltd.
Robert W. Staley for Sino-Forest Corporation
Won J. Kim, Michael C. Spencer, Megan B. McPhee for Objectors, Invesco Canada Ltd., Northwest & Ethical Investments LP
and Comité Syndical National de Retraite Bâtirente Inc.
John Fabello Rebecca Wise, for Underwriters
Ken Dekker, Peter Greene for BDO Limited
Emily Cole, Joseph Marin for Allen Chan
James Doris for U.S. Class Action
Brandon Barnes for Kai Kit Poon
Robert Chadwick, Brendan O'Neill for Ad Hoc Committee of Noteholders
Derrick Tay, Cliff Prophet for Monitor, FTI Consulting Canada Inc.
Simon Bieber for David Horsley
James Grout for Ontario Securities Commission
Miles D. O'Reilly, Q.C. for Junior Objectors, Daniel Lam and Senthilvel Kanagaratnam
Subject: Insolvency; Civil Practice and Procedure; Corporate and Commercial; Securities
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
1
Labourers' Pension Fund of Central and Eastern Canada..., 2013 ONSC 1078,...
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Headnote
Bankruptcy and insolvency --- Bankruptcy and insolvency jurisdiction — Jurisdiction of courts — Jurisdiction of
general courts
To approve settlement in class proceedings — Representative plaintiffs were some of stakeholders who claimed defendant
forestry company and other defendants misstated its financial results, misrepresented its timber rights, overstated value of
its assets and concealed material information about its business operations from investors, causing collapse of artificially
inflated share price — Representative plaintiffs began class proceedings against forestry company, which was comprised of
components related to shareholders and noteholders — Forestry company entered protection under Companies' Creditors
Arrangement Act — Settlement reached between representative plaintiffs and particular defendant — Representative
plaintiffs brought motion for approval of settlement — Motion granted — Proceedings were appropriate for approval of
settlement, and court had jurisdiction in respect of both Companies' Creditors Arrangement Act and Class Proceeding Act
— CCAA proceedings could not be ignored despite any ill-effect on opt-out rights in class proceedings — Claim fell within
the Companies' Creditors Arrangement Act, and could be subject of settlement and could include claims of all creditors in
class — Until settlement was concluded and proceeds paid, there could be no distribution of settlement proceeds to parties
entitled to receive them, and approval of release in settlement was necessary to effect any distribution.
Bankruptcy and insolvency --- Proposal — Approval by court — General principles
Where class proceedings ongoing — Representative plaintiffs were some of stakeholders who claimed defendant forestry
company and other defendants misstated its financial results, misrepresented its timber rights, overstated value of its
assets and concealed material information about its business operations from investors, causing collapse of artificially
inflated share price — Representative plaintiffs began class proceedings against forestry company, which was comprised of
components related to shareholders and noteholders — Forestry company entered protection under Companies' Creditors
Arrangement Act — Settlement reached between representative plaintiffs and particular defendant — Representative
plaintiffs brought motion for approval of settlement — Motion granted — Claims in release were rationally related to
purpose of the plan in Companies' Creditors Arrangement Act and were necessary for it — Without approval of settlement,
objectives of plan remained unfulfilled due to practical inability to distribute settlement proceeds — Defendant made
significant monetary contribution to plan -- Plan benefited claimants in form of tangible distribution -- Release was fair
and reasonable and not overly broad or offensive to public policy — Clear that claims asserted against forestry company
had to be addressed as part of restructuring — Unencumbered participation of forestry company's subsidiaries is crucial
to restructuring.
Civil practice and procedure --- Parties — Representative or class proceedings under class proceedings legislation
— Orders, awards and related procedures — Termination of proceedings
Settlement — Representative plaintiffs were some of stakeholders who claimed defendant forestry company and other
defendants misstated its financial results, misrepresented its timber rights, overstated value of its assets and concealed
material information about its business operations from investors, causing collapse of artificially inflated share price —
Representative plaintiffs began class proceedings against forestry company, which was comprised of components related
to shareholders and noteholders — Forestry company entered protection under Companies' Creditors Arrangement Act
— Settlement reached between representative plaintiffs and particular defendant — Representative plaintiffs brought
motion for approval of settlement — Motion granted — Claims in release were rationally related to purpose of the plan
in Companies' Creditors Arrangement Act and were necessary for it — Without approval of settlement, objectives of plan
remained unfulfilled due to practical inability to distribute settlement proceeds — Defendant made significant monetary
contribution to plan -- Plan benefited claimants in form of tangible distribution -- Release was fair and reasonable and not
overly broad or offensive to public policy — Clear that claims asserted against forestry company had to be addressed as
part of restructuring — Unencumbered participation of forestry company's subsidiaries is crucial to restructuring.
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Table of Authorities
Cases considered by Morawetz J.:
Allen-Vanguard Corp., Re (2011), 2011 ONSC 5017, 2011 CarswellOnt 8984, 81 C.B.R. (5th) 270 (Ont. S.C.J.
[Commercial List]) — referred to
ATB Financial v. Metcalfe & Mansfield Alternative Investments II Corp. (2008), 2008 ONCA 587, 2008 CarswellOnt
4811, (sub nom. Metcalfe & Mansfield Alternative Investments II Corp., Re) 240 O.A.C. 245, (sub nom. Metcalfe &
Mansfield Alternative Investments II Corp., Re) 296 D.L.R. (4th) 135, (sub nom. Metcalfe & Mansfield Alternative
Investments II Corp., Re) 92 O.R. (3d) 513, 45 C.B.R. (5th) 163, 47 B.L.R. (4th) 123 (Ont. C.A.) — considered
Canadian Red Cross Society / Société Canadienne de la Croix-Rouge, Re (1998), 1998 CarswellOnt 3346, 5 C.B.R.
(4th) 299, 72 O.T.C. 99 (Ont. Gen. Div. [Commercial List]) — referred to
Durling v. Sunrise Propane Energy Group Inc. (2011), 2011 ONSC 266, 2011 CarswellOnt 77, 10 C.P.C. (7th) 188
(Ont. S.C.J.) — referred to
Eidoo v. Infineon Technologies AG (2012), 2012 CarswellOnt 16498, 2012 ONSC 7299 (Ont. S.C.J.) — referred to
Fischer v. IG Investment Management Ltd. (2012), 2012 ONCA 47, 2012 CarswellOnt 635, 287 O.A.C. 148, 109
O.R. (3d) 498, 346 D.L.R. (4th) 598, 15 C.P.C. (7th) 81 (Ont. C.A.) — referred to
Grace Canada Inc., Re (2008), 50 C.B.R. (5th) 25, 2008 CarswellOnt 6284 (Ont. S.C.J. [Commercial List]) — referred
to
Mangan v. Inco Ltd. (1998), 1998 CarswellOnt 801, 16 C.P.C. (4th) 165, 38 O.R. (3d) 703, 27 C.E.L.R. (N.S.) 141
(Ont. Gen. Div.) — referred to
Muscletech Research & Development Inc., Re (2007), 30 C.B.R. (5th) 59, 2007 CarswellOnt 1029 (Ont. S.C.J.
[Commercial List]) — referred to
Nortel Networks Corp., Re (2010), 63 C.B.R. (5th) 44, 81 C.C.P.B. 56, 2010 CarswellOnt 1754, 2010 ONSC 1708
(Ont. S.C.J. [Commercial List]) — considered
Osmun v. Cadbury Adams Canada Inc. (2009), 85 C.P.C. (6th) 148, 2009 CarswellOnt 8132 (Ont. S.C.J.) — referred
to
Robertson v. ProQuest Information & Learning Co. (2011), 2011 ONSC 1647, 2011 CarswellOnt 1770 (Ont. S.C.J.
[Commercial List]) — followed
Sammi Atlas Inc., Re (1998), 1998 CarswellOnt 1145, 3 C.B.R. (4th) 171 (Ont. Gen. Div. [Commercial List]) —
referred to
Sino-Forest Corp., Re (2012), 2012 ONSC 4377, 2012 CarswellOnt 9430, 92 C.B.R. (5th) 99 (Ont. S.C.J.
[Commercial List]) — referred to
Sino-Forest Corp., Re (2012), 2012 ONCA 816, 2012 CarswellOnt 14701 (Ont. C.A.) — referred to
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Ted Leroy Trucking Ltd., Re (2010), (sub nom. Century Services Inc. v. Canada (A.G.)) [2010] 3 S.C.R. 379, [2010]
G.S.T.C. 186, 12 B.C.L.R. (5th) 1, (sub nom. Century Services Inc. v. A.G. of Canada) 2011 G.T.C. 2006 (Eng.),
(sub nom. Century Services Inc. v. A.G. of Canada) 2011 D.T.C. 5006 (Eng.), (sub nom. Leroy (Ted) Trucking Ltd.,
Re) 503 W.A.C. 1, (sub nom. Leroy (Ted) Trucking Ltd., Re) 296 B.C.A.C. 1, 2010 SCC 60, 2010 CarswellBC 3419,
2010 CarswellBC 3420, 409 N.R. 201, (sub nom. Ted LeRoy Trucking Ltd., Re) 326 D.L.R. (4th) 577, 72 C.B.R.
(5th) 170, [2011] 2 W.W.R. 383 (S.C.C.) — considered
Statutes considered:
Class Proceedings Act, 1992, S.O. 1992, c. 6
Generally — referred to
s. 9 — referred to
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36
Generally — referred to
s. 2(1) "equity claim" — considered
MOTION by representative plaintiffs for approval of settlement in class proceeding.
Morawetz J.:
Introduction
1 The Ad Hoc Committee of Purchasers of the Applicant's Securities (the "Ad Hoc Securities Purchasers' Committee" or the
"Applicant"), including the representative plaintiffs in the Ontario class action (collectively, the "Ontario Plaintiffs"), bring this
motion for approval of a settlement and release of claims against Ernst & Young LLP [the "Ernst & Young Settlement", the
"Ernst & Young Release", the "Ernst & Young Claims" and "Ernst & Young", as further defined in the Plan of Compromise
and Reorganization of Sino-Forest Corporation ("SFC") dated December 3, 2012 (the "Plan")].
2
Approval of the Ernst & Young Settlement is opposed by Invesco Canada Limited ("Invesco"), Northwest and Ethical
Investments L.P. ("Northwest"), Comité Syndical National de Retraite Bâtirente Inc. ("Bâtirente"), Matrix Asset Management
Inc. ("Matrix"), Gestion Férique and Montrusco Bolton Investments Inc. ("Montrusco") (collectively, the "Objectors"). The
Objectors particularly oppose the no-opt-out and full third-party release features of the Ernst & Young Settlement. The Objectors
also oppose the motion for a representation order sought by the Ontario Plaintiffs, and move instead for appointment of the
Objectors to represent the interests of all objectors to the Ernst & Young Settlement.
3 For the following reasons, I have determined that the Ernst & Young Settlement, together with the Ernst & Young Release,
should be approved.
Facts
Class Action Proceedings
4
SFC is an integrated forest plantation operator and forest productions company, with most of its assets and the majority
of its business operations located in the southern and eastern regions of the People's Republic of China. SFC's registered office
is in Toronto, and its principal business office is in Hong Kong.
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5 SFC's shares were publicly traded over the Toronto Stock Exchange. During the period from March 19, 2007 through June
2, 2011, SFC made three prospectus offerings of common shares. SFC also issued and had various notes (debt instruments)
outstanding, which were offered to investors, by way of offering memoranda, between March 19, 2007 and June 2, 2011.
6
All of SFC's debt or equity public offerings have been underwritten. A total of 11 firms (the "Underwriters") acted as
SFC's underwriters, and are named as defendants in the Ontario class action.
7
Since 2000, SFC has had two auditors: Ernst & Young, who acted as auditor from 2000 to 2004 and 2007 to 2012, and
BDO Limited ("BDO"), who acted as auditor from 2005 to 2006. Ernst & Young and BDO are named as defendants in the
Ontario class action.
8
Following a June 2, 2011 report issued by short-seller Muddy Waters LLC ("Muddy Waters"), SFC, and others, became
embroiled in investigations and regulatory proceedings (with the Ontario Securities Commission (the "OSC"), the Hong Kong
Securities and Futures Commission and the Royal Canadian Mounted Police) for allegedly engaging in a "complex fraudulent
scheme". SFC concurrently became embroiled in multiple class action proceedings across Canada, including Ontario, Quebec
and Saskatchewan (collectively, the "Canadian Actions"), and in New York (collectively with the Canadian Actions, the "Class
Action Proceedings"), facing allegations that SFC, and others, misstated its financial results, misrepresented its timber rights,
overstated the value of its assets and concealed material information about its business operations from investors, causing the
collapse of an artificially inflated share price.
9
The Canadian Actions are comprised of two components: first, there is a shareholder claim, brought on behalf of
SFC's current and former shareholders, seeking damages in the amount of $6.5 billion for general damages, $174.8 million in
connection with a prospectus issued in June 2007, $330 million in relation to a prospectus issued in June 2009, and $319.2
million in relation to a prospectus issued in December 2009; and second, there is a noteholder claim, brought on behalf of
former holders of SFC's notes (the "Noteholders"), in the amount of approximately $1.8 billion. The noteholder claim asserts,
among other things, damages for loss of value in the notes.
10
Two other class proceedings relating to SFC were subsequently commenced in Ontario: Smith et al. v. Sino-Forest
Corporation et al., which commenced on June 8, 2011; and Northwest and Ethical Investments L.P. et al. v. Sino-Forest
Corporation et al., which commenced on September 26, 2011.
11 In December 2011, there was a motion to determine which of the three actions in Ontario should be permitted to proceed
and which should be stayed (the "Carriage Motion"). On January 6, 2012, Perell J. granted carriage to the Ontario Plaintiffs,
appointed Siskinds LLP and Koskie Minsky LLP to prosecute the Ontario class action, and stayed the other class proceedings.
CCAA Proceedings
12
SFC obtained an initial order under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 ("CCAA") on
March 30, 2012 (the "Initial Order"), pursuant to which a stay of proceedings was granted in respect of SFC and certain of its
subsidiaries. Pursuant to an order on May 8, 2012, the stay was extended to all defendants in the class actions, including Ernst
& Young. Due to the stay, the certification and leave motions have yet to be heard.
13
Throughout the CCAA proceedings, SFC asserted that there could be no effective restructuring of SFC's business, and
separation from the Canadian parent, if the claims asserted against SFC's subsidiaries arising out of, or connected to, claims
against SFC remained outstanding.
14 In addition, SFC and FTI Consulting Canada Inc. (the "Monitor") continually advised that timing and delay were critical
elements that would impact on maximization of the value of SFC's assets and stakeholder recovery.
15 On May 14, 2012, an order (the "Claims Procedure Order") was issued that approved a claims process developed by SFC,
in consultation with the Monitor. In order to identify the nature and extent of the claims asserted against SFC's subsidiaries,
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the Claims Procedure Order required any claimant that had or intended to assert a right or claim against one or more of the
subsidiaries, relating to a purported claim made against SFC, to so indicate on their proof of claim.
16
The Ad Hoc Securities Purchasers' Committee filed a proof of claim (encapsulating the approximately $7.3 billion
shareholder claim and $1.8 billion noteholder claim) in the CCAA proceedings on behalf of all putative class members in the
Ontario class action. The plaintiffs in the New York class action filed a proof of claim, but did not specify quantum of damages.
Ernst & Young filed a proof of claim for damages and indemnification. The plaintiffs in the Saskatchewan class action did not
file a proof of claim. A few shareholders filed proofs of claim separately. No proof of claim was filed by Kim Orr Barristers
P.C. ("Kim Orr"), who represent the Objectors.
17 Prior to the commencement of the CCAA proceedings, the plaintiffs in the Canadian Actions settled with Pöyry (Beijing)
Consulting Company Limited ("Pöyry") (the "Pöyry Settlement"), a forestry valuator that provided services to SFC. The class
was defined as all persons and entities who acquired SFC's securities in Canada between March 19, 2007 to June 2, 2011, and
all Canadian residents who acquired SFC securities outside of Canada during that same period (the "Pöyry Settlement Class").
18
The notice of hearing to approve the Pöyry Settlement advised the Pöyry Settlement Class that they may object to the
proposed settlement. No objections were filed.
19 Perell J. and Émond J. approved the settlement and certified the Pöyry Settlement Class for settlement purposes. January
15, 2013 was fixed as the date by which members of the Pöyry Settlement Class, who wished to opt-out of either of the Canadian
Actions, would have to file an opt-out form for the claims administrator, and they approved the form by which the right to
optout was required to be exercised.
20
Notice of the certification and settlement was given in accordance with the certification orders of Perell J. and Émond
J. The notice of certification states, in part, that:
IF YOU CHOOSE TO OPT OUT OF THE CLASS, YOU WILL BE OPTING OUT OF THE ENTIRE PROCEEDING.
THIS MEANS THAT YOU WILL BE UNABLE TO PARTICIPATE IN ANY FUTURE SETTLEMENT OR
JUDGMENT REACHED WITH OR AGAINST THE REMAINING DEFENDANTS.
21
The opt-out made no provision for an opt-out on a conditional basis.
22
On June 26, 2012, SFC brought a motion for an order directing that claims against SFC that arose in connection with
the ownership, purchase or sale of an equity interest in SFC, and related indemnity claims, were "equity claims" as defined
in section 2 of the CCAA, including the claims by or on behalf of shareholders asserted in the Class Action Proceedings. The
equity claims motion did not purport to deal with the component of the Class Action Proceedings relating to SFC's notes.
23
In reasons released July 27, 2012 [Sino-Forest Corp., Re, 2012 ONSC 4377 (Ont. S.C.J. [Commercial List])], I granted
the relief sought by SFC (the "Equity Claims Decision"), finding that "the claims advanced in the shareholder claims are clearly
equity claims". The Ad Hoc Securities Purchasers' Committee did not oppose the motion, and no issue was taken by any party
with the court's determination that the shareholder claims against SFC were "equity claims". The Equity Claims Decision was
subsequently affirmed by the Court of Appeal for Ontario on November 23, 2012 [Sino-Forest Corp., Re, 2012 ONCA 816
(Ont. C.A.)].
Ernst & Young Settlement
24
The Ernst & Young Settlement, and third party releases, was not mentioned in the early versions of the Plan. The
initial creditors' meeting and vote on the Plan was scheduled to occur on November 29, 2012; when the Plan was amended on
November 28, 2012, the creditors' meeting was adjourned to November 30, 2012.
25 On November 29, 2012, Ernst & Young's counsel and class counsel concluded the proposed Ernst & Young Settlement.
The creditors' meeting was again adjourned, to December 3, 2012; on that date, a new Plan revision was released and the Ernst
& Young Settlement was publicly announced. The Plan revision featured a new Article 11, reflecting the "framework" for the
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proposed Ernst & Young Settlement and for third-party releases for named third-party defendants as identified at that time as
the Underwriters or in the future.
26 On December 3, 2012, a large majority of creditors approved the Plan. The Objectors note, however, that proxy materials
were distributed weeks earlier and proxies were required to be submitted three days prior to the meeting and it is evident that
creditors submitting proxies only had a pre-Article 11 version of the Plan. Further, no equity claimants, such as the Objectors,
were entitled to vote on the Plan. On December 6, 2012, the Plan was further amended, adding Ernst & Young and BDO to
Schedule A, thereby defining them as named third-party defendants.
27
Ultimately, the Ernst & Young Settlement provided for the payment by Ernst & Young of $117 million as a settlement
fund, being the full monetary contribution by Ernst & Young to settle the Ernst & Young Claims; however, it remains subject
to court approval in Ontario, and recognition in Quebec and the United States, and conditional, pursuant to Article 11.1 of the
Plan, upon the following steps:
(a) the granting of the sanction order sanctioning the Plan including the terms of the Ernst & Young Settlement and
the Ernst & Young Release (which preclude any right to contribution or indemnity against Ernst & Young);
(b) the issuance of the Settlement Trust Order;
(c) the issuance of any other orders necessary to give effect to the Ernst & Young Settlement and the Ernst & Young
Release, including the Chapter 15 Recognition Order;
(d) the fulfillment of all conditions precedent in the Ernst & Young Settlement; and
(e) all orders being final orders not subject to further appeal or challenge.
28
On December 6, 2012, Kim Orr filed a notice of appearance in the CCAA proceedings on behalf of three Objectors:
Invesco, Northwest and Bâtirente. These Objectors opposed the sanctioning of the Plan, insofar as it included Article 11, during
the Plan sanction hearing on December 7, 2012.
29 At the Plan sanction hearing, SFC's counsel made it clear that the Plan itself did not embody the Ernst & Young Settlement,
and that the parties' request that the Plan be sanctioned did not also cover approval of the Ernst & Young Settlement. Moreover,
according to the Plan and minutes of settlement, the Ernst & Young Settlement would not be consummated (i.e. money paid
and releases effective) unless and until several conditions had been satisfied in the future.
30 The Plan was sanctioned on December 10, 2012 with Article 11. The Objectors take the position that the Funds' opposition
was dismissed as premature and on the basis that nothing in the sanction order affected their rights.
31 On December 13, 2012, the court directed that its hearing on the Ernst & Young Settlement would take place on January
4, 2013, under both the CCAA and the Class Proceedings Act, 1992, S.O. 1992, c. 6 ("CPA"). Subsequently, the hearing was
adjourned to February 4, 2013.
32
On January 15, 2013, the last day of the opt-out period established by orders of Perell J. and Émond J., six institutional
investors represented by Kim Orr filed opt-out forms. These institutional investors are Northwest and Bâtirente, who were two
of the three institutions represented by Kim Orr in the Carriage Motion, as well as Invesco, Matrix, Montrusco and Gestion
Ferique (all of which are members of the Pöyry Settlement Class).
33 According to the opt-out forms, the Objectors held approximately 1.6% of SFC shares outstanding on June 30, 2011 (the
day the Muddy Waters report was released). By way of contrast, Davis Selected Advisors and Paulson and Co., two of many
institutional investors who support the Ernst & Young Settlement, controlled more than 25% of SFC's shares at this time. In
addition, the total number of outstanding objectors constitutes approximately 0.24% of the 34,177 SFC beneficial shareholders
as of April 29, 2011.
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Law and Analysis
Court's Jurisdiction to Grant Requested Approval
34
The Claims Procedure Order of May 14, 2012, at paragraph 17, provides that any person that does not file a proof of
claim in accordance with the order is barred from making or enforcing such claim as against any other person who could claim
contribution or indemnity from the Applicant. This includes claims by the Objectors against Ernst & Young for which Ernst
& Young could claim indemnity from SFC.
35
The Claims Procedure Order also provides that the Ontario Plaintiffs are authorized to file one proof of claim in respect
of the substance of the matters set out in the Ontario class action, and that the Quebec Plaintiffs are similarly authorized to file
one proof of claim in respect of the substance of the matters set out in the Quebec class action. The Objectors did not object
to, or oppose, the Claims Procedure Order, either when it was sought or at any time thereafter. The Objectors did not file an
independent proof of claim and, accordingly, the Canadian Claimants were authorized to and did file a proof of claim in the
representative capacity in respect of the Objectors' claims.
36
The Ernst & Young Settlement is part of a CCAA plan process. Claims, including contingent claims, are regularly
compromised and settled within CCAA proceedings. This includes outstanding litigation claims against the debtor and third
parties. Such compromises fully and finally dispose of such claims, and it follows that there are no continuing procedural or
other rights in such proceedings. Simply put, there are no "opt-outs" in the CCAA.
37 It is well established that class proceedings can be settled in a CCAA proceeding. See Robertson v. ProQuest Information
& Learning Co., 2011 ONSC 1647 (Ont. S.C.J. [Commercial List]) [Robertson].
38
As noted by Pepall J. (as she then was) in Robertson, para. 8:
When dealing with the consensual resolution of a CCAA claim filed in a claims process that arises out of ongoing litigation,
typically no court approval is required. In contrast, class proceedings settlements must be approved by the court. The notice
and process for dissemination of the settlement agreement must also be approved by the court.
39
In this case, the notice and process for dissemination have been approved.
40 The Objectors take the position that approval of the Ernst & Young Settlement would render their opt-out rights illusory;
the inherent flaw with this argument is that it is not possible to ignore the CCAA proceedings.
41
In this case, claims arising out of the class proceedings are claims in the CCAA process. CCAA claims can be, by
definition, subject to compromise. The Claims Procedure Order establishes that claims as against Ernst & Young fall within
the CCAA proceedings. Thus, these claims can also be the subject of settlement and, if settled, the claims of all creditors in
the class can also be settled.
42 In my view, these proceedings are the appropriate time and place to consider approval of the Ernst & Young Settlement.
This court has the jurisdiction in respect of both the CCAA and the CPA.
Should the Court Exercise Its Discretion to Approve the Settlement
43 Having established the jurisdictional basis to consider the motion, the central inquiry is whether the court should exercise
its discretion to approve the Ernst & Young Settlement.
CCAA Interpretation
44
The CCAA is a "flexible statute", and the court has "jurisdiction to approve major transactions, including settlement
agreements, during the stay period defined in the Initial Order". The CCAA affords courts broad jurisdiction to make orders
and "fill in the gaps in legislation so as to give effect to the objects of the CCAA." [Nortel Networks Corp., Re, 2010 ONSC
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1708 (Ont. S.C.J. [Commercial List]), paras. 66-70 ("Re Nortel")); Canadian Red Cross Society / Société Canadienne de la
Croix-Rouge, Re (1998), 5 C.B.R. (4th) 299, 72 O.T.C. 99 (Ont. Gen. Div. [Commercial List]), para. 43]
45
Further, as the Supreme Court of Canada explained in Ted Leroy Trucking Ltd., Re, 2010 SCC 60 (S.C.C.), para. 58:
CCAA decisions are often based on discretionary grants of jurisdiction. The incremental exercise of judicial discretion
in commercial courts under conditions one practitioner aptly described as "the hothouse of real time litigation" has been
the primary method by which the CCAA has been adapted and has evolved to meet contemporary business and social
needs (internal citations omitted). ...When large companies encounter difficulty, reorganizations become increasingly
complex. CCAA courts have been called upon to innovate accordingly in exercising their jurisdiction beyond merely
staying proceedings against the Debtor to allow breathing room for reorganization. They have been asked to sanction
measures for which there is no explicit authority in the CCAA.
46
It is also established that third-party releases are not an uncommon feature of complex restructurings under the CCAA
[ATB Financial v. Metcalfe & Mansfield Alternative Investments II Corp., 2008 ONCA 587 (Ont. C.A.) ("ATB Financial");
Nortel Networks Corp., Re, supra; Robertson, supra; Muscletech Research & Development Inc., Re (2007), 30 C.B.R. (5th)
59, 156 A.C.W.S. (3d) 22 (Ont. S.C.J. [Commercial List]) ("Muscle Tech"); Grace Canada Inc., Re (2008), 50 C.B.R. (5th) 25
(Ont. S.C.J. [Commercial List]); Allen-Vanguard Corp., Re, 2011 ONSC 5017 (Ont. S.C.J. [Commercial List])].
47 The Court of Appeal for Ontario has specifically confirmed that a third-party release is justified where the release forms
part of a comprehensive compromise. As Blair J. A. stated in ATB Financial, supra:
69. In keeping with this scheme and purpose, I do not suggest that any and all releases between creditors of the debtor
company seeking to restructure and third parties may be made the subject of a compromise or arrangement between the
debtor and its creditors. Nor do I think the fact that the releases may be "necessary" in the sense that the third parties or
the debtor may refuse to proceed without them, of itself, advances the argument in favour of finding jurisdiction (although
it may well be relevant in terms of the fairness and reasonableness analysis).
70. The release of the claim in question must be justified as part of the compromise or arrangement between the debtor
and its creditors. In short, there must be a reasonable connection between the third party claim being compromised in the
plan and the restructuring achieved by the plan to warrant inclusion of the third party release in the plan ...
71. In the course of his reasons, the application judge made the following findings, all of which are amply supported on
the record:
a) The parties to be released are necessary and essential to the restructuring of the debtor;
b) The claims to be released are rationally related to the purpose of the Plan and necessary for it;
c) The Plan cannot succeed without the releases;
d) The parties who are to have claims against them released are contributing in a tangible and realistic way to the
Plan; and
e) The Plan will benefit not only the debtor companies but creditor Noteholders generally.
72. Here, then — as was the case in T&N — there is a close connection between the claims being released and the
restructuring proposal. The tort claims arise out of the sale and distribution of the ABCP Notes and their collapse in value,
just as do the contractual claims of the creditors against the debtor companies. The purpose of the restructuring is to stabilize
and shore up the value of those notes in the long run. The third parties being released are making separate contributions to
enable those results to materialize. Those contributions are identified earlier, at para. 31 of these reasons. The application
judge found that the claims being released are not independent of or unrelated to the claims that the Noteholders have
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against the debtor companies; they are closely connected to the value of the ABCP Notes and are required for the Plan
to succeed ...
73. I am satisfied that the wording of the CCAA — construed in light of the purpose, objects and scheme of the Act and
in accordance with the modern principles of statutory interpretation — supports the court's jurisdiction and authority to
sanction the Plan proposed here, including the contested third-party releases contained in it.
...
78. ... I believe the open-ended CCAA permits third-party releases that are reasonably related to the restructuring at issue
because they are encompassed in the comprehensive terms "compromise" and "arrangement" and because of the doublevoting majority and court sanctioning statutory mechanism that makes them binding on unwilling creditors.
...
113. At para. 71 above I recited a number of factual findings the application judge made in concluding that approval of the
Plan was within his jurisdiction under the CCAA and that it was fair and reasonable. For convenience, I reiterate them here
— with two additional findings — because they provide an important foundation for his analysis concerning the fairness
and reasonableness of the Plan. The application judge found that:
a) The parties to be released are necessary and essential to the restructuring of the debtor;
b) The claims to be released are rationally related to the purpose of the Plan and necessary for it;
c) The Plan cannot succeed without the releases;
d) The parties who are to have claims against them released are contributing in a tangible and realistic way to the Plan;
e) The Plan will benefit not only the debtor companies but creditor Noteholders generally;
f) The voting creditors who have approved the Plan did so with knowledge of the nature and effect of the releases;
and that,
g) The releases are fair and reasonable and not overly broad or offensive to public policy.
48 Furthermore, in ATB Financial, supra, para. 111, the Court of Appeal confirmed that parties are entitled to settle allegations
of fraud and to include releases of such claims as part of the settlement. It was noted that "there is no legal impediment to
granting the release of an antecedent claim in fraud, provided the claim is in the contemplation of the parties to the release
at the time it is given".
Relevant CCAA Factors
49
In assessing a settlement within the CCAA context, the court looks at the following three factors, as articulated in
Robertson, supra:
(a) whether the settlement is fair and reasonable;
(b) whether it provides substantial benefits to other stakeholders; and
(c) whether it is consistent with the purpose and spirit of the CCAA.
50
Where a settlement also provides for a release, such as here, courts assess whether there is "a reasonable connection
between the third party claim being compromised in the plan and the restructuring achieved by the plan to warrant inclusion of
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the third party release in the plan". Applying this "nexus test" requires consideration of the following factors: [ATB Financial,
supra, para. 70]
(a) Are the claims to be released rationally related to the purpose of the plan?
(b) Are the claims to be released necessary for the plan of arrangement?
(c) Are the parties who have claims released against them contributing in a tangible and realistic way? and
(d) Will the plan benefit the debtor and the creditors generally?
Counsel Submissions
51 The Objectors argue that the proposed Ernst & Young Release is not integral or necessary to the success of Sino-Forest's
restructuring plan, and, therefore, the standards for granting thirdparty releases in the CCAA are not satisfied. No one has
asserted that the parties require the Ernst & Young Settlement or Ernst & Young Release to allow the Plan to go forward; in
fact, the Plan has been implemented prior to consideration of this issue. Further, the Objectors contend that the $117 million
settlement payment is not essential, or even related, to the restructuring, and that it is concerning, and telling, that varying the
end of the Ernst & Young Settlement and Ernst & Young Release to accommodate opt-outs would extinguish the settlement.
52
The Objectors also argue that the Ernst & Young Settlement should not be approved because it would vitiate opt-out
rights of class members, as conferred as follows in section 9 of the CPA: "Any member of a class involved in a class proceeding
may opt-out of the proceeding in the manner and within the time specified in the certification order." This right is a fundamental
element of procedural fairness in the Ontario class action regime [Fischer v. IG Investment Management Ltd., 2012 ONCA 47
(Ont. C.A.), para. 69], and is not a mere technicality or illusory. It has been described as absolute [Durling v. Sunrise Propane
Energy Group Inc., 2011 ONSC 266 (Ont. S.C.J.)]. The opt-out period allows persons to pursue their self-interest and to preserve
their rights to pursue individual actions [Mangan v. Inco Ltd. (1998), 16 C.P.C. (4th) 165, 38 O.R. (3d) 703 (Ont. Gen. Div.)].
53
Based on the foregoing, the Objectors submit that a proposed class action settlement with Ernst & Young should be
approved solely under the CPA, as the Pöyry Settlement was, and not through misuse of a third-party release procedure under
the CCAA. Further, since the minutes of settlement make it clear that Ernst & Young retains discretion not to accept or recognize
normal opt-outs if the CPA procedures are invoked, the Ernst & Young Settlement should not be approved in this respect either.
54
Multiple parties made submissions favouring the Ernst & Young Settlement (with the accompanying Ernst & Young
Release), arguing that it is fair and reasonable in the circumstances, benefits the CCAA stakeholders (as evidenced by the broadbased support for the Plan and this motion) and rationally connected to the Plan.
55
Ontario Plaintiffs' counsel submits that the form of the bar order is fair and properly balances the competing interests of
class members, Ernst & Young and the non-settling defendants as:
(a) class members are not releasing their claims to a greater extent than necessary;
(b) Ernst & Young is ensured that its obligations in connection to the Settlement will conclude its liability in the
class proceedings;
(c) the non-settling defendants will not have to pay more following a judgment than they would be required to pay
if Ernst & Young remained as a defendant in the action; and
(d) the non-settling defendants are granted broad rights of discovery and an appropriate credit in the ongoing litigation,
if it is ultimately determined by the court that there is a right of contribution and indemnity between the co-defendants.
56 SFC argues that Ernst & Young's support has simplified and accelerated the Plan process, including reducing the expense
and management time otherwise to be incurred in litigating claims, and was a catalyst to encouraging many parties, including
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the Underwriters and BDO, to withdraw their objections to the Plan. Further, the result is precisely the type of compromise
that the CCAA is designed to promote; namely, Ernst & Young has provided a tangible and significant contribution to the
Plan (notwithstanding any pitfalls in the litigation claims against Ernst & Young) that has enabled SFC to emerge as Newco/
NewcoII in a timely way and with potential viability.
57
Ernst & Young's counsel submits that the Ernst & Young Settlement, as a whole, including the Ernst & Young Release,
must be approved or rejected; the court cannot modify the terms of a proposed settlement. Further, in deciding whether to reject
a settlement, the court should consider whether doing so would put the settlement in "jeopardy of being unravelled". In this
case, counsel submits there is no obligation on the parties to resume discussions and it could be that the parties have reached
their limits in negotiations and will backtrack from their positions or abandon the effort.
Analysis and Conclusions
58
The Ernst & Young Release forms part of the Ernst & Young Settlement. In considering whether the Ernst & Young
Settlement is fair and reasonable and ought to be approved, it is necessary to consider whether the Ernst & Young Release can
be justified as part of the Ernst & Young Settlement. See ATB Financial, supra, para. 70, as quoted above.
59
In considering the appropriateness of including the Ernst & Young Release, I have taken into account the following.
60 Firstly, although the Plan has been sanctioned and implemented, a significant aspect of the Plan is a distribution to SFC's
creditors. The significant and, in fact, only monetary contribution that can be directly identified, at this time, is the $117 million
from the Ernst & Young Settlement. Simply put, until such time as the Ernst & Young Settlement has been concluded and the
settlement proceeds paid, there can be no distribution of the settlement proceeds to parties entitled to receive them. It seems to me
that in order to effect any distribution, the Ernst & Young Release has to be approved as part of the Ernst & Young Settlement.
61
Secondly, it is apparent that the claims to be released against Ernst & Young are rationally related to the purpose of the
Plan and necessary for it. SFC put forward the Plan. As I outlined in the Equity Claims Decision, the claims of Ernst & Young
as against SFC are intertwined to the extent that they cannot be separated. Similarly, the claims of the Objectors as against Ernst
& Young are, in my view, intertwined and related to the claims against SFC and to the purpose of the Plan.
62
Thirdly, although the Plan can, on its face, succeed, as evidenced by its implementation, the reality is that without the
approval of the Ernst & Young Settlement, the objectives of the Plan remain unfulfilled due to the practical inability to distribute
the settlement proceeds. Further, in the event that the Ernst & Young Release is not approved and the litigation continues, it
becomes circular in nature as the position of Ernst & Young, as detailed in the Equity Claims Decision, involves Ernst & Young
bringing an equity claim for contribution and indemnity as against SFC.
63
Fourthly, it is clear that Ernst & Young is contributing in a tangible way to the Plan, by its significant contribution of
$117 million.
64 Fifthly, the Plan benefits the claimants in the form of a tangible distribution. Blair J.A., at paragraph 113 of ATB Financial,
supra, referenced two further facts as found by the application judge in that case; namely, the voting creditors who approved
the Plan did so with the knowledge of the nature and effect of the releases. That situation is also present in this case.
65
Finally, the application judge in ATB Financial, supra, held that the releases were fair and reasonable and not overly
broad or offensive to public policy. In this case, having considered the alternatives of lengthy and uncertain litigation, and the
full knowledge of the Canadian plaintiffs, I conclude that the Ernst & Young Release is fair and reasonable and not overly
broad or offensive to public policy.
66
In my view, the Ernst & Young Settlement is fair and reasonable, provides substantial benefits to relevant stakeholders,
and is consistent with the purpose and spirit of the CCAA. In addition, in my view, the factors associated with the ATB Financial
nexus test favour approving the Ernst & Young Release.
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67 In Nortel Networks Corp., Re, supra, para. 81, I noted that the releases benefited creditors generally because they "reduced
the risk of litigation, protected Nortel against potential contribution claims and indemnity claims and reduced the risk of delay
caused by potentially complex litigation and associated depletion of assets to fund potentially significant litigation costs". In this
case, there is a connection between the release of claims against Ernst & Young and a distribution to creditors. The plaintiffs in
the litigation are shareholders and Noteholders of SFC. These plaintiffs have claims to assert against SFC that are being directly
satisfied, in part, with the payment of $117 million by Ernst & Young.
68
In my view, it is clear that the claims Ernst & Young asserted against SFC, and SFC's subsidiaries, had to be addressed
as part of the restructuring. The interrelationship between the various entities is further demonstrated by Ernst & Young's
submission that the release of claims by Ernst & Young has allowed SFC and the SFC subsidiaries to contribute their assets to
the restructuring, unencumbered by claims totalling billions of dollars. As SFC is a holding company with no material assets
of its own, the unencumbered participation of the SFC subsidiaries is crucial to the restructuring.
69 At the outset and during the CCAA proceedings, the Applicant and Monitor specifically and consistently identified timing
and delay as critical elements that would impact on maximization of the value and preservation of SFC's assets.
70
Counsel submits that the claims against Ernst & Young and the indemnity claims asserted by Ernst & Young would,
absent the Ernst & Young Settlement, have to be finally determined before the CCAA claims could be quantified. As such,
these steps had the potential to significantly delay the CCAA proceedings. Where the claims being released may take years to
resolve, are risky, expensive or otherwise uncertain of success, the benefit that accrues to creditors in having them settled must
be considered. See Nortel Networks Corp., Re, supra, paras. 73 and 81; and Muscletech, supra, paras. 19-21.
71 Implicit in my findings is rejection of the Objectors' arguments questioning the validity of the Ernst & Young Settlement
and Ernst & Young Release. The relevant consideration is whether a proposed settlement and third-party release sufficiently
benefits all stakeholders to justify court approval. I reject the position that the $117 million settlement payment is not essential,
or even related, to the restructuring; it represents, at this point in time, the only real monetary consideration available to
stakeholders. The potential to vary the Ernst & Young Settlement and Ernst & Young Release to accommodate opt-outs is
futile, as the court is being asked to approve the Ernst & Young Settlement and Ernst & Young Release as proposed.
72
I do not accept that the class action settlement should be approved solely under the CPA. The reality facing the parties
is that SFC is insolvent; it is under CCAA protection, and stakeholder claims are to be considered in the context of the CCAA
regime. The Objectors' claim against Ernst & Young cannot be considered in isolation from the CCAA proceedings. The claims
against Ernst & Young are interrelated with claims as against SFC, as is made clear in the Equity Claims Decision and Claims
Procedure Order.
73
Even if one assumes that the opt-out argument of the Objectors can be sustained, and optout rights fully provided, to
what does that lead? The Objectors are left with a claim against Ernst & Young, which it then has to put forward in the CCAA
proceedings. Without taking into account any argument that the claim against Ernst & Young may be affected by the claims
bar date, the claim is still capable of being addressed under the Claims Procedure Order. In this way, it is again subject to the
CCAA fairness and reasonable test as set out in ATB Financial, supra.
74 Moreover, CCAA proceedings take into account a class of creditors or stakeholders who possess the same legal interests.
In this respect, the Objectors have the same legal interests as the Ontario Plaintiffs. Ultimately, this requires consideration of
the totality of the class. In this case, it is clear that the parties supporting the Ernst & Young Settlement are vastly superior to
the Objectors, both in number and dollar value.
75 Although the right to opt-out of a class action is a fundamental element of procedural fairness in the Ontario class action
regime, this argument cannot be taken in isolation. It must be considered in the context of the CCAA.
76
The Objectors are, in fact, part of the group that will benefit from the Ernst & Young Settlement as they specifically
seek to reserve their rights to "opt-in" and share in the spoils.
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77 It is also clear that the jurisprudence does not permit a dissenting stakeholder to opt-out of a restructuring. [Sammi Atlas
Inc., Re (1998), 3 C.B.R. (4th) 171 (Ont. Gen. Div. [Commercial List])).] If that were possible, no creditor would take part in
any CCAA compromise where they were to receive less than the debt owed to them. There is no right to opt-out of any CCAA
process, and the statute contemplates that a minority of creditors are bound by the plan which a majority have approved and
the court has determined to be fair and reasonable.
78
SFC is insolvent and all stakeholders, including the Objectors, will receive less than what they are owed. By virtue of
deciding, on their own volition, not to participate in the CCAA process, the Objectors relinquished their right to file a claim
and take steps, in a timely way, to assert their rights to vote in the CCAA proceeding.
79
Further, even if the Objectors had filed a claim and voted, their minimal 1.6% stake in SFC's outstanding shares when
the Muddy Waters report was released makes it highly unlikely that they could have altered the outcome.
80 Finally, although the Objectors demand a right to conditionally opt-out of a settlement, that right does not exist under the
CPA or CCAA. By virtue of the certification order, class members had the ability to opt-out of the class action. The Objectors
did not opt-out in the true sense; they purported to create a conditional opt-out. Under the CPA, the right to opt-out is "in the
manner and within the time specified in the certification order". There is no provision for a conditional opt-out in the CPA, and
Ontario's single opt-out regime causes "no prejudice...to putative class members". [CPA, section 9; Osmun v. Cadbury Adams
Canada Inc. (2009), 85 C.P.C. (6th) 148 (Ont. S.C.J.), paras. 43-46; and Eidoo v. Infineon Technologies AG, 2012 ONSC 7299
(Ont. S.C.J.).]
Miscellaneous
81 For greater certainty, it is my understanding that the issues raised by Mr. O'Reilly have been clarified such that the effect
of this endorsement is that the Junior Objectors will be included with the same status as the Ontario Plaintiffs.
Disposition
82 In the result, for the foregoing reasons, the motion is granted. A declaration shall issue to the effect that the Ernst & Young
Settlement is fair and reasonable in all the circumstances. The Ernst & Young Settlement, together with the Ernst & Young
Release, is approved and an order shall issue substantially in the form requested. The motion of the Objectors is dismissed.
Motion granted.
End of Document
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reserved.
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14
Tab 6
Canwest Global Communications Corp., Re, 2011 ONSC 2215, 2011 CarswellOnt 2392
2011 ONSC 2215, 2011 CarswellOnt 2392, [2011] O.J. No. 1590...
2011 ONSC 2215
Ontario Superior Court of Justice [Commercial List]
Canwest Global Communications Corp., Re
2011 CarswellOnt 2392, 2011 ONSC 2215, [2011] O.J. No. 1590, 200 A.C.W.S. (3d) 1023, 75 C.B.R. (5th) 156
In the Matter of the Companies' Creditors
Arrangement Act, R.S.C. 1985, C-36, as Amended
And In the Matter of a Plan of Compromise or Arrangement of
Canwest Global Communications Corp. and Other Applicants
Pepall J.
Judgment: April 7, 2011
Docket: CV-09-8396-00CL
Counsel: Douglas J. Wray, Jesse B. Kugler for Applicant, Communications, Energy and Paperworkers Union of Canada
David Byers, Maria Konyukhova for Monitor
Subject: Insolvency; Labour; Public
Headnote
Bankruptcy and insolvency --- Companies' Creditors Arrangement Act — Initial application — Lifting of stay
C Entities obtained initial order under Companies' Creditors Arrangement Act (CCAA) staying all proceedings against
them — As part of CCAA proceedings, claims procedure order was granted which established procedure for identification
and quantification of claims against C Entities — B was dismissed after having been employed by division of one of C
Entities for 20 years — Union filed claims pursuant to claims procedure order in respect of certain outstanding grievances
— Claim with respect to B's grievances was not resolved — Plan was implemented, at which time all operating assets
of C Entities were transferred and C Entities ceased operations — Stay with respect to employer was terminated — Stay
with respect to remaining C Entities was extended — Union brought motion for order lifting stay of proceedings in respect
of B's grievances and directing that they be adjudicated in accordance with collective agreement — Motion granted —
Generally speaking, grievances should be adjudicated along with other claims pursuant to provisions of claims procedure
order within context of CCAA proceedings — Present case was unique — Employer emerged from CCAA protection and
was currently operating under different name — B was 20 year employee — Given stage of CCAA proceedings, fact that
stay relating to employer had been lifted, and B's employment tenure, B ought to be given opportunity to pursue his claim
for reinstatement rather than being compelled to have that entitlement monetized by claims officer if so ordered — No
meaningful prejudice would ensue to any stakeholder — Balance of convenience and interests of justice favoured lifting
stay to permit grievances to proceed through arbitration rather than before claims procedure officer.
Table of Authorities
Cases considered by Pepall J.:
Canadian Airlines Corp., Re (2000), 19 C.B.R. (4th) 1, 2000 CarswellAlta 622 (Alta. Q.B.) — referred to
Canwest Global Communications Corp., Re (2009), 2009 CarswellOnt 7882, 61 C.B.R. (5th) 200 (Ont. S.C.J.
[Commercial List]) — followed
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1
Canwest Global Communications Corp., Re, 2011 ONSC 2215, 2011 CarswellOnt 2392
2011 ONSC 2215, 2011 CarswellOnt 2392, [2011] O.J. No. 1590...
Canwest Global Communications Corp., Re (2010), 321 D.L.R. (4th) 561, 2010 ONSC 1746, 2010 CarswellOnt
3948, 82 C.C.E.L. (3d) 180 (Ont. S.C.J. [Commercial List]) — considered
Health Services & Support-Facilities Subsector Bargaining Assn. v. British Columbia (2007), 2007 C.L.L.C. 220-035,
363 N.R. 226, 400 W.A.C. 1, [2007] 7 W.W.R. 191, D.T.E. 2007T-507, 65 B.C.L.R. (4th) 201, 283 D.L.R. (4th) 40,
137 C.L.R.B.R. (2d) 166, 242 B.C.A.C. 1, 164 L.A.C. (4th) 1, 157 C.R.R. 21, 2007 SCC 27, 2007 CarswellBC 1289,
2007 CarswellBC 1290, [2007] 2 S.C.R. 391 (S.C.C.) — followed
Lehndorff General Partner Ltd., Re (1993), 17 C.B.R. (3d) 24, 9 B.L.R. (2d) 275, 1993 CarswellOnt 183 (Ont. Gen.
Div. [Commercial List]) — considered
Nortel Networks Corp., Re (2009), 256 O.A.C. 131, 2009 CarswellOnt 7383, 2009 ONCA 833, 59 C.B.R. (5th) 23,
77 C.C.P.B. 161, (sub nom. Sproule v. Nortel Networks Corp.) 2010 C.L.L.C. 210-005, (sub nom. Sproule v. Nortel
Networks Corp., Re) 99 O.R. (3d) 708 (Ont. C.A.) — considered
Smoky River Coal Ltd., Re (1999), 12 C.B.R. (4th) 94, 1999 ABCA 179, 71 Alta. L.R. (3d) 1, 175 D.L.R. (4th) 703,
237 A.R. 326, 197 W.A.C. 326, [1999] 11 W.W.R. 734, 1999 CarswellAlta 491 (Alta. C.A.) — followed
White Birch Paper Holding Co., Re (2010), 2010 CarswellQue 14255, [2010] R.J.Q. 1518, [2010] R.J.D.T. 887,
2010 CarswellQue 6229, 2010 QCCS 2590, D.T.E. 2010T-443, 65 C.B.R. (5th) 186, 82 C.C.P.B. 192 (C.S. Que.)
— considered
Statutes considered:
Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982, being Schedule B to the Canada Act
1982 (U.K.), 1982, c. 11
Generally — referred to
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36
Generally — referred to
s. 11 — considered
s. 11.02 [en. 2005, c. 47, s. 128] — considered
s. 33 [en. 2005, c. 47, s. 131] — referred to
s. 33(1) [en. 2005, c. 47, s. 131] — referred to
s. 33(8) [en. 2005, c. 47, s. 131] — referred to
MOTION by union for order lifting stay of proceedings in respect of certain grievances and ordering adjudication pursuant
to collective agreement.
Pepall J.:
Introduction
1 The Communications, Energy and Paperworkers Union of Canada ("CEP") requests an order lifting the stay of proceedings
in respect of certain grievances and directing that they be adjudicated in accordance with the provisions of the applicable
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collective agreement. In the alternative, CEP requests an order amending the claims procedure order so as to permit the subject
claim to be adjudicated in accordance with the provisions of the collective agreement.
Background Facts
2
On October 6, 2009, the CMI Entities obtained an initial order pursuant to the CCAA staying all proceedings and claims
against them. Specifically, paragraphs 15 and 16 of that order stated:
NO PROCEEDINGS AGAINST THE CMI ENTITIES OR THE CMI PROPERTY
15. THIS COURT ORDERS that until and including November 5, 2009, or such later date as this Court may order (the
"Stay Period"), no proceeding or enforcement process in any court or tribunal (each, a "Proceeding") shall be commenced
or continued against or in respect of the CMI Entities, the Monitor or the CMI CRA or affecting the CMI Business or the
CMI Property, except with the written consent of the applicable CMI Entity, the Monitor and the CMI CRA (in respect of
Proceedings affecting the CMI Entities, the CMI Property or the CMI Business), the CMI CRA (in respect of Proceedings
affecting the CMI CRA), or with leave of this Court, and any and all Proceedings currently under way against or in respect
of the CMI Entities or the CMI CRA or affecting the CMI Business or the CMI Property are hereby stayed and suspended
pending further Order of this Court. In the case of the CMI CRA, no Proceeding shall be commenced against the CMI
CRA or its directors and officers without prior leave of this Court on seven (7) days notice to Stonecrest Capital Inc.
NO EXERCISE OF RIGHTS OR REMEDIES
16. THIS COURT ORDERS that during the Stay Period, all rights and remedies of any individual, firm, corporation,
governmental body or agency, or any other entities (all of the foregoing, collectively being "Persons" and each being a
"Person") against or in respect of the CMI Entities, the Monitor and/or the CMI CRA, or affecting the CMI Business or the
CMI Property, are hereby stayed and suspended except with the written consent of the applicable CMI Entity, the Monitor
and the CMI CRA (in respect of rights and remedies affecting the CMI Entities, the CMI Property or the CMI Business),
the CMI CRA (in respect of rights or remedies affecting the CMI CRA), or leave of this Court, provided that nothing in
this Order shall (i) empower the CMI Entities to carry on any business which the CMI entities are not lawfully entitled to
carry on, (ii) exempt the CMI Entities from compliance with statutory or regulatory provisions relating to health, safety
or the environment, (iii) prevent the filing of any registration to preserve or perfect a security interest, or (iv) prevent the
registration of claim for lien.
3
On October 14, 2009, as part of the CCAA proceedings, I granted a claims procedure order which established a claims
procedure for the identification and quantification of claims against the CMI Entities. In that order, "Claim" is defined as any
right or claim of any Person against one or more of the CMI Entities in existence on the Filing Date 1 (a "Prefiling Claim") and
any right or claim of any Person against one or more of the CMI Entities arising out of the restructuring on or after the Filing
Date (a "Restructuring Claim"). Claims arising prior to certain dates had to be asserted within the claims procedure failing
which they were forever extinguished and barred. Pursuant to the claims procedure order, subject to the discretion of the Court,
claims of any person against one or more of the CMI Entities were to be determined by a claims officer who would determine
the validity and amount of the disputed claim in accordance with the claims procedure order. The Honourable Ed Saunders,
The Honourable Jack Ground and The Honourable Coulter Osborne were appointed as claims officers. Other persons could
also be appointed by court order or on consent of the CMI Entities and the Monitor. This order was unopposed. It was amended
on November 30, 2009 and again the motion was unopposed. As at October 29, 2010, over 1,800 claims asserted against the
CMI Entities had been finally resolved in accordance with and pursuant to the claims procedure order.
4
On October 27, 2010, CEP was authorized to represent its current and former union members including pensioners
employed or formerly employed by the CMI Entities to the extent, if any, that it was necessary to do so.
5
On the date of the initial order, CEP had a number of outstanding grievances. CEP filed claims pursuant to the claims
procedure order in respect of those grievances. The claim that is the subject matter of this motion is the only claim filed by CEP
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that has not been resolved and therefore is the only claim filed by CEP that requires adjudication. There is at least one other
claim in Western Canada that may require adjudication.
6 John Bradley had been employed for 20 years by Global Television, a division of Canwest Television Limited Partnership
("CTLP"), one of the CMI Entities. Mr. Bradley is a member of CEP. On February 24, 2010, CTLP suspended Mr. Bradley
for alleged misconduct. On March 8, 2010, CEP filed a grievance relating to his suspension under the applicable collective
agreement. On March 25, 2010, CTLP terminated his employment. On March 26, 2010, CEP filed a grievance requesting full
redress for Mr. Bradley's termination. This would include reinstatement to his employment. On June 23, 2010 a restructuring
period claim was filed with respect to the Bradley grievances on the following basis:
The Union has filed this claim in order to preserve its rights. Filing this claim is without prejudice to the Union's
ability to pursue all other remedies at its disposal to enforce its rights, including any other statutory remedies available.
Notwithstanding that the Union has filed the present claim, the Union does not agree that this claim is subject to compromise
pursuant [to the CCAA] 2 . The Union reserves its right to make further submissions in this regard.
7
In spite of the parties' good faith attempts to resolve the Bradley grievances and the Bradley claim, no resolution was
achieved.
8
The Plan was sanctioned on July 28, 2010 and implemented on October 27, 2010. At that time, all of the operating assets
of the CMI Entities were transferred to the Plan Sponsor and the CMI Entities ceased operations. The CTLP stay was also
terminated. The stay with respect to the Remaining CMI Entities (as that term is defined in the Plan) was extended until May
5, 2011. Pursuant to an order dated September 27, 2010, following the Plan implementation date the Monitor shall be:
(a) empowered and authorized to exercise all of the rights and powers of the CMI Entities under the Claims Procedure
Order, including, without limitation, revise, reject, accept, settle and/or refer for adjudication Claims (as defined in the
Claims Procedure Order) all without (i) seeking or obtaining the consent of the CMI Entities, the Chief Restructuring
Advisor or any other person, and (ii) consulting with the Chief Restructuring Advisor in the CMI Entities; and
(b) take such further steps and seek such amendments to the Claims Procedure Order or additional orders as the
Monitor considers necessary or appropriate in order to fully determine, resolve or deal with any Claims.
9 The Monitor has taken the position that if the Bradley matter is not resolved, the claim should be referred to a claims officer
for determination. It is conceded that a claims officer would have no jurisdiction to reinstate Mr. Bradley to his employment.
10 CEP now requests an order lifting the stay of proceedings in respect of the Bradley grievances and directing that they be
adjudicated in accordance with the provisions of the collective agreement. In the alternative, CEP requests an order amending
the claims procedure order so as to permit the Bradley claim to be adjudicated in accordance with the provisions of the collective
agreement.
11 For the purposes of this motion and as is obvious from the motion seeking to lift the stay, both CEP and the Monitor agree
that the stay did catch the Bradley claim and that it is encompassed by the definition of claim found in the claims procedure order.
12 Since the commencement of the CCAA proceedings, CEP has only sought to lift the stay in respect of one other claim, that
being a claim relating to a grievance filed by CEP on behalf of Vicky Anderson. The CMI Entities consented to lifting the stay
in respect of Ms. Anderson's claim because at the date of the initial order, there had already been eight days of hearing before
an arbitrator, all evidence had already been called, and only one further date was scheduled for final argument. Ultimately, the
arbitrator ordered that Ms. Anderson be reinstated but made no order for compensation.
13 Pursuant to Article 12.3 of the applicable collective agreement, discharge grievances are to be heard by a single arbitrator.
All other grievances are to be heard by a three person Board of Arbitration unless the parties consent to submit the grievance
to a single arbitrator. The single arbitrator is to be selected within 10 days of the notice of referral to arbitration from a list
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of 5 people drawn by lot. An award is to be given within 30 days of the conclusion of the hearing. The list of arbitrators was
negotiated and included in the collective agreement. The arbitrator has the power to reinstate with or without compensation.
14
The evidence before me suggests that adjudications of grievances under collective agreements are typically much more
costly and time consuming than adjudications before a claims officer as the latter may determine claims in a summary manner
and there is more control over scheduling. The Monitor takes the position that additional cost and delay would arise if the claims
were adjudicated pursuant to the terms of the collective agreement rather than pursuant to the terms of the claims procedure
order.
Issues
15
Both parties agree that the following two issues are to be considered:
(a) Should this court lift the stay of proceedings in respect of the Bradley grievances and direct that the Bradley
grievances be adjudicated in accordance with the provisions of the collective agreement?
(b) Should this court amend the claims procedure order so as to permit the Bradley claim to be adjudicated in
accordance with the provisions of the collective agreement?
Positions of the Parties
16
In brief, dealing firstly with the stay, CEP submits that the balance of convenience favours pursuit of the grievances
through arbitration. CEP is seeking to compel the employer to comply with fundamental obligations that flow from the collective
agreement. This includes the appointment of an arbitrator on consent who has jurisdiction to award reinstatement if he or she
determines that there was no just cause to terminate Mr. Bradley's employment. Requiring that the claim and the grievances
be adjudicated in a manner that is inconsistent with the collective agreement would have the effect of depriving the griever
of some of the most fundamental rights under a collective agreement. Furthermore, permitting the grievances to proceed to
arbitration would prejudice no one.
17
Alternatively, CEP submits that the claims procedure order ought to be amended. It is in conflict with the terms of
the collective agreement. Pursuant to section 33 of the CCAA, the collective agreement remains in force during the CCAA
proceedings. The claims procedure order must comply with the express requirements of the CCAA. Lastly, orders issued under
the CCAA should not infringe upon the right to engage in associational activities which are protected by the Charter of Rights
and Freedoms.
18
The Monitor opposes the relief requested. On the issue of the lifting of the stay, it submits that the CCAA is intended to
provide a structured environment for the negotiation of compromises between a debtor company and its creditors for the benefit
of both. The stay of proceedings permits the CCAA to accomplish its legislative purpose and in particular enables continuance
of the company seeking CCAA protection.
19 The lifting of a stay is discretionary. Mr. Bradley is no more prejudiced than any other creditor and the claims procedure
established under the order has been uniformly applied. The claims officer has the power to recognize Mr. Bradley's right to
reinstatement and monetize that right. The efficacy of CCAA proceedings would be undermined if a debtor company was forced
to participate in an arbitration outside the CCAA proceedings. This would place the resources of an insolvent CCAA debtor
under strain. The Monitor submits that CEP has not satisfied the onus to demonstrate that the lifting of the stay is appropriate
in this case.
20
As for the second issue, the Monitor submits that the claims procedure order should not be amended. Courts regularly
affect employee rights arising from collective agreements during CCAA proceedings and recent amendments to the CCAA do
not change the existing case law in this regard. Furthermore, amending the claims procedure order would undermine the purpose
of the CCAA. Lastly, relying on the Supreme Court of Canada's statements in Health Services & Support-Facilities Subsector
Bargaining Assn. v. British Columbia 3 , the claims procedure order does not interfere with freedom of association.
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21
Following argument, I requested additional brief written submissions on certain issues and in particular, to what
employment Mr. Bradley would be reinstated if so ordered. I have now received those submissions from both parties.
Discussion
1. Stay of Proceedings
22
The purpose of the CCAA has frequently been described but bears repetition. In Lehndorff General Partner Ltd., Re 4 ,
Farley J. stated:
The CCAA is intended to provide a structured environment for the negotiation of compromises between a debtor company
and its creditors for the benefit of both.
23
The stay provisions in the CCAA are discretionary and very broad. Section 11.02 provides that:
(1) A court may, on an initial application in respect of the debtor company, make an order on any terms that it may
impose, effective for the period that the court considers necessary, which period may not be more than 30 days,
(a) staying, until otherwise ordered by the court, all proceedings taken or that might be taken in respect of the
company under the Bankruptcy and Insolvency Act or the Winding Up and Restructuring Act;
(b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against
the company; and
(c) prohibiting, until otherwise ordered by the court, the commencement of any action, suit or proceeding against
the company.
(2) A court may, on an application in respect of a debtor company other than an initial application, make an order,
on any terms that it may impose,
(a) staying, until otherwise ordered by the court, for any period that the court considers necessary, all proceedings
taken or that might be taken in respect of the company under an Act referred to in paragraph (1)(a);
(b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against
the company; and
(c) prohibiting, until otherwise ordered by the court, the commencement of any action, suit or proceeding against
the company.
24 As the Court of Appeal noted in Nortel Networks Corp., Re 5 , the discretion provided in section 11 is the engine that drives
this broad and flexible statutory scheme. The stay of proceedings in section 11 should be broadly construed to accomplish the
legislative purpose of the CCAA and in particular to enable continuance of the company seeking CCAA protection: Lehndorff
General Partner Ltd. 6 .
25
Section 11 provides an insolvent company with breathing room and by doing so, preserves the status quo to assist the
company in its restructuring or arrangement and prevents any particular stakeholder from obtaining an advantage over other
stakeholders during the restructuring process. It is anticipated that one or more creditors may be prejudiced in favour of the
collective whole. As stated in Lehndorff General Partner Ltd. 7 :
The possibility that one or more creditors may be prejudiced should not affect the court's exercise of its authority to grant
a stay of proceedings under the CCAA because this effect is offset by the benefit to all creditors and to the company of
facilitating a reorganization. The court's primary concerns under the CCAA must be for the debtor and all of the creditors.
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26 In Canwest Global Communications Corp., Re 8 , I had occasion to address the issue of lifting a stay in a CCAA proceeding.
I referred to situations in which a court had lifted a stay as described by Paperny J. (as she then was) in Canadian Airlines
Corp., Re. 9 and by Professor McLaren in his book, "Canadian Commercial Reorganization: Preventing Bankruptcy" 10 . They
included where:
a) a plan is likely to fail;
b) the applicant shows hardship (the hardship must be caused by the stay itself and be independent of any pre-existing
condition of the applicant creditor);
c) the applicant shows necessity for payment;
d) the applicant would be significantly prejudiced by refusal to lift the stay and there would be no resulting prejudice
to the debtor company or the positions of creditors;
e) it is necessary to permit the applicant to take steps to protect a right that could be lost by the passage of time;
f) after the lapse of a significant period, the insolvent debtor is no closer to a proposal than at the commencement
of the stay period;
g) there is a real risk that a creditor's loan will become unsecured during the stay period;
h) it is necessary to allow the applicant to perfect a right that existed prior to the commencement of the stay period;
i) it is in the interests of justice to do so.
The lifting of a stay is discretionary. As I wrote in Canwest Global Communications Corp., Re 11 :
27
There are no statutory guidelines contained in the Act. According to Professor R.H. McLaren in his book "Canadian
Commercial Reorganization: Preventing Bankruptcy", an opposing party faces a very heavy onus if it wishes to apply
to the court for an order lifting the stay. In determining whether to lift the stay, the court should consider whether there
are sound reasons for doing so consistent with the objectives of the CCAA, including a consideration of the balance of
convenience, the relative prejudice to parties, and where relevant, the merits of the proposed action: ICR Commercial Real
Estate (Regina) Ltd. v. Bricore Land Group Ltd. (2007), 33 C.B.R. (5 th ) 50 (Sask. C.A.) at para. 68. That decision also
indicated that the judge should consider the good faith and due diligence of the debtor company.
28
There appears to be no real issue that the grievances are caught by the stay of proceedings. In Smoky River Coal Ltd.,
12
Re , the issue was whether a judge had the discretion under the CCAA to establish a procedure for resolving a dispute between
parties who had previously agreed by contract to arbitrate their disputes. The question before the court was whether the dispute
should be resolved as part of the supervised reorganization of the company under the CCAA or whether the court should stay
the proceedings while the dispute was resolved by an arbitrator. The presiding judge was of the view that the dispute should be
resolved as expeditiously as possible under the CCAA proceedings. The Alberta Court of Appeal upheld the decision stating:
The above jurisprudence persuades me that "proceedings" in section 11 includes the proposed arbitration under the B.C.
Arbitration Act. The Appellants assert that arbitration is expeditious. That is often, but not always, the case. Arbitration
awards can be appealed. Indeed, this is contemplated by section 15(5) of the Rules. Arbitration awards, moreover, can
be subject to judicial review, further lengthening and complicating the decision making process. Thus, the efficacy of
CCAA proceedings (many of which are time sensitive) could be seriously undermined if a debtor company was forced to
participate in an extra-CCAA arbitration. For these reasons, having taken into account the nature and purpose of the CCAA,
I conclude that, in appropriate cases, arbitration is a "proceeding" that can be stayed under section 11 of the CCAA. 13
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29
I do recognize that the Smoky River decision did not involve a collective agreement but an agreement to arbitrate. That
said, the principles described also apply to an arbitration pursuant to the terms of a collective agreement.
30
In considering balance of convenience, CEP's primary concerns are that the claims procedure order does not accord
with the rights and obligations contained in the collective agreement. Firstly, a claims officer is the adjudicator rather than an
arbitrator chosen pursuant to the terms of the collective agreement and secondly, reinstatement is not an available remedy before
a claims officer. Thirdly, an arbitration imports rules of natural justice and procedural fairness whereas the claims procedure
is summary in nature.
31
The claims officers who were identified in the claims procedure order are all former respected and experienced judges
who are well suited and capable of addressing the issues arising from the Bradley claim. Furthermore, had this been a real issue,
CEP could have raised it earlier and identified another claims officer for inclusion in the claims procedure order. Indeed, an
additional claims officer still could be appointed but no such request was ever advanced by CEP.
32 Should the claims officer find that CTLP did not have just cause to terminate Mr. Bradley's employment, he can recognize
Mr. Bradley's right to reinstatement by monetizing that right. This was done for a multitude of other claims in the CCAA
proceedings including claims filed by CEP on behalf of other members. I note that Mr. Bradley would not be receiving treatment
different from that of any other creditor participating in the claims process.
33 The claims process is summary in nature for a reason. It reduces delay, streamlines the process, and reduces expense and
in so doing promotes the objectives of CCAA. Indeed, if grievances were to customarily proceed to arbitration, potential exists
to significantly undermine the CCAA proceedings. Arbitration of all claims arising from collective agreements would place the
already stretched resources of insolvent CCAA debtors under significant additional strain and could divert resources away from
the restructuring. It is my view that generally speaking, grievances should be adjudicated along with other claims pursuant to
the provisions of a claims procedure order within the context of the CCAA proceedings.
34
That said, it seems to me that this case is unique. While the claims procedure order and the meeting order of June 23,
2010 provide that all claims against CTLP and others arising prior to certain dates must be asserted within the claims procedure
failing which they are forever extinguished and barred, the stay relating to CTPL was terminated on October 27, 2010. CTLP has
emerged from CCAA protection and is currently operating in the normal course having changed its name to Shaw Television
Limited Partnership ("STLP"). If the grievance relating to Mr. Bradley's termination is successful, he could be reinstated to his
employment at STLP. The position of CEP, Mr. Bradley and the Monitor is that reinstatement, if ordered, would be to STLP.
Counsel for CEP advised the court that notice of the motion was given to STLP and that a representative was present in court for
the argument of the motion although did not appear on the record. The Monitor has also confirmed that Shaw Communications
Inc., the parent of STLP, was aware of the motion and its counsel has confirmed its understanding that any reinstatement of
Mr. Bradley, if ordered, would be to STLP.
35 As mentioned, Mr. Bradley was a 20 year employee. While I do not consider the identity of the arbitrator and the natural
justice arguments of CEP to be persuasive, given the stage of the CCAA proceedings, the fact that the stay relating to CTLP has
been lifted, and Mr. Bradley's employment tenure, I am persuaded that he ought to be given the opportunity to pursue his claim
for reinstatement rather than being compelled to have that entitlement monetized by a claims officer if so ordered. Counsel for
the Monitor has confirmed that the timing of the distributions would not appear to be affected by the outcome of this motion.
No meaningful prejudice would ensue to any stakeholder. It seems to me that the balance of convenience and the interests of
justice favour lifting the stay to permit the grievances to proceed through arbitration rather than before the claims procedure
officer. Therefore, CEP's motion to lift the stay is granted and the Bradley grievances may be adjudicated in accordance with
the terms of the collective agreement.
2. Amendment of the Claims Procedure Order
36
In light of my decision on the stay, it is not strictly necessary to consider whether the claims procedure order should be
amended as requested by CEP as alternative relief. As this issue was argued, however, I will address it.
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37
Section 33 of CCAA was added to the statute in September, 2009. The relevant sub-sections now provide:
33(1) If proceedings under this Act have been commenced in respect of a debtor company, any collective agreement that
the company has entered into as the employer remains in force, and may not be altered except as provided in this section
or under the laws of the jurisdiction governing collective bargaining between the company and the bargaining agent.
33(8) For greater certainty, any collective agreement that the company and the bargaining agent have not agreed to revise
remains in force, and the court shall not alter its terms.
38
Justice Mongeon of the Québec Superior Court had occasion to address the effect of section 33 of the CCAA in White
Birch Paper Holding Co., Re 14 . He stated that the fact that a collective agreement remains in force under a CCAA proceeding
does not have the effect of "excluding the entire collective labour relations process from the application of the CCAA." 15 He
went on to write that:
It would be tantamount to paralyzing the employer with respect to reducing its costs by any means at all, and to providing
the union with a veto with regard to the restructuring process. 16
39
In Canwest Global Communications Corp., Re. 17 , I wrote that section 33 of the CCAA "maintains the terms and
obligations contained in the collective agreement but does not alter priorities or status." 18 In that case when dealing with the
issue of immediate payment of severance payments, I wrote:
There are certain provisions in the amendments that expressly mandate certain employee related payments. In those
instances, section 6(5) dealing with a sanction of a plan and section 36 dealing with a sale outside the ordinary course of
business being two such examples, Parliament specifically dealt with certain employee claims. If Parliament had intended
to make such a significant amendment whereby severance and termination payments (and all other payments under a
collective agreement) would take priority over secured creditors, it would have done so expressly. 19
40
I agree with the Monitor's position that if Parliament had intended to carve grievances out of the claims process, it
would have done so expressly. To do so, however, would have undermined the purpose of the CCAA and in particular, the
claims process which is designed to streamline the resolution of the multitude of claims against an insolvent debtor in the most
time sensitive and cost efficient manner. It is hard to imagine that it was Parliament's intention that grievances under collective
agreements be excluded from the reach of the stay provisions of section 11 of the CCAA or the ancillary claims process. In my
view, such a result would seriously undermine the objectives of the Act.
41
Furthermore, I note that over 1,800 claims have been processed and dealt with by way of the claims procedure order,
many of them involving claims filed by CEP on behalf of its members. CEP was provided with notice of the motion wherein the
claims procedure order and the claims officers were approved. CEP did not raise any objection to the claims procedure order,
the claims officers or the inclusion of grievances in the claims procedure at the time that the order was granted. The claims
procedure order was not an order made without notice and none of the prerequisites to variation of an order has been met. Had
I not lifted the stay, I would not have amended the claims procedure order as requested by CEP.
42
CEP's last argument is that the claims procedure order interferes with Mr. Bradley's freedoms under the Canadian
Charter of Rights and Freedoms. In this regard I make the following observations. Firstly, this argument was not advanced when
the claims procedure order was granted. Secondly, CEP is not challenging the validity of any section of the CCAA. Thirdly,
nothing in the statute or the claims procedure inhibits the ability to collectively bargain. In Health Services & Support-Facilities
Subsector Bargaining Assn. v. British Columbia 20 , the Supreme Court of Canada stated:
We conclude that section 2(d) of the Charter protects the capacity of members of labour unions to engage, in association,
in collective bargaining on fundamental workplace issues. This protection does not cover all aspects of "collective
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bargaining", as that term is understood in the statutory labour relations regimes that are in place across the country. Nor
does it ensure a particular outcome in a labour dispute or guarantee access to any particularly statutory regime. ...
In our view, it is entirely possible to protect the "procedure" known as collective bargaining without mandating
constitutional protection for the fruits of that bargaining process. 21
43
In my view, nothing in the claims procedure or the CCAA impacts the procedure known as collective bargaining.
Conclusion
44
Under the circumstances, the request to lift the stay as requested by CEP is granted. Had it been necessary to do so, I
would have dismissed the alternative relief requested.
Motion granted.
Footnotes
1
The Filing Date was October 6, 2009, the date of the initial order.
2
The words in brackets were omitted but presumably this was the intention.
3
(S.C.C.).
4
(1993), 17 C.B.R. (3d) 24 (Ont. Gen. Div. [Commercial List]) at para. 6.
5
(Ont. C.A.) at para. 33.
6
Supra, note 4 at para. 10.
7
Ibid, at para. 6.
8
(Ont. S.C.J. [Commercial List]).
9
(2000), 19 C.B.R. (4th) 1 (Alta. Q.B.)
10
(Aurora: Canada Law Book, looseleaf) at para. 3.3400.
11
Supra, note 8 at para. 32.
12
(Alta. C.A.)
13
Ibid, at para. 33.
14
2010 QCCS 2590 (C.S. Que.)
15
Ibid, at para. 31.
16
Ibid, at para. 35.
17
(Ont. S.C.J. [Commercial List])
18
Ibid, at para. 32.
19
Ibid, at para. 33.
20
Supra, note 3.
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2011 ONSC 2215, 2011 CarswellOnt 2392, [2011] O.J. No. 1590...
21
Ibid, at at paras. 19 and 29.
End of Document
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reserved.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
11
Tab 7
Nortel Networks Corp., Re, 2009 CarswellOnt 4467
2009 CarswellOnt 4467, [2009] O.J. No. 3169, 179 A.C.W.S. (3d) 265...
2009 CarswellOnt 4467
Ontario Superior Court of Justice [Commercial List]
Nortel Networks Corp., Re
2009 CarswellOnt 4467, [2009] O.J. No. 3169, 179 A.C.W.S. (3d) 265, 55 C.B.R. (5th) 229
IN THE MATTER OF THE COMPANIES' CREDITORS
ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED
AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF
NORTEL NETWORKS CORPORATION, NORTEL NETWORKS LIMITED, NORTEL
NETWORKS GLOBAL CORPORATION, NORTEL NETWORKS INTERNATIONAL
CORPORATION AND NORTEL NETWORKS TECHNOLOGY CORPORATION (Applicants)
APPLICATION UNDER THE COMPANIES' CREDITORS
ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED
Morawetz J.
Heard: June 29, 2009
Written reasons: July 23, 2009
Docket: 09-CL-7950
Counsel: Derrick Tay, Jennifer Stam for Nortel Networks Corporation, et al
Lyndon Barnes, Adam Hirsh for Board of Directors of Nortel Networks Corporation, Nortel Networks Limited
J. Carfagnini, J. Pasquariello for Monitor, Ernst & Young Inc.
M. Starnino for Superintendent of Financial Services, Administrator of PBGF
S. Philpott for Former Employees
K. Zych for Noteholders
Pamela Huff, Craig Thorburn for MatlinPatterson Global Advisors LLC, MatlinPatterson Global Opportunities Partners III
L.P., Matlin Patterson Opportunities Partners (Cayman) III L.P.
David Ward for UK Pension Protection Fund
Leanne Williams for Flextronics Inc.
Alex MacFarlane for Official Committee of Unsecured Creditors
Arthur O. Jacques, Tom McRae for Felske & Sylvain (de facto Continuing Employees' Committee)
Robin B. Schwill, Matthew P. Gottlieb for Nortel Networks UK Limited
A. Kauffman for Export Development Canada
D. Ullman for Verizon Communications Inc.
G. Benchetrit for IBM
Subject: Insolvency; Estates and Trusts
Headnote
Bankruptcy and insolvency --- Proposal — Companies' Creditors Arrangement Act — Miscellaneous issues
Telecommunication company entered protection under Companies' Creditors Arrangement Act ("Act") — Company
decided to pursue "going concern" sales for various business units — Company entered into sale agreement with respect
to assets in Code Division Multiple Access business and Long-Term Evolution Access assets — Company was pursuing
sale of its other business units — Company brought motion for approval of bidding procedures and asset sale agreement
— Motion granted — Court has jurisdiction to authorize sales process under Act in absence of formal plan of compromise
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1
Nortel Networks Corp., Re, 2009 CarswellOnt 4467
2009 CarswellOnt 4467, [2009] O.J. No. 3169, 179 A.C.W.S. (3d) 265...
or arrangement and creditor vote — Sale by company which preserved its business as going concern was consistent with
objectives of Act — Unless sale was undertaken at this time, long-term viability of business would be in jeopardy.
Bankruptcy and insolvency --- Administration of estate — Sale of assets — Jurisdiction of court to approve sale
Telecommunication company entered protection under Companies' Creditors Arrangement Act ("Act") — Company
decided to pursue "going concern" sales for various business units — Company entered into sale agreement with respect
to assets in Code Division Multiple Access business and Long-Term Evolution Access assets — Company was pursuing
sale of its other business units — Company brought motion for approval of bidding procedures and asset sale agreement
— Motion granted — Court has jurisdiction to authorize sales process under Act in absence of formal plan of compromise
or arrangement and creditor vote — Sale by company which preserved its business as going concern was consistent with
objectives of Act — Unless sale was undertaken at this time, long-term viability of business would be in jeopardy.
Table of Authorities
Cases considered by Morawetz J.:
Asset Engineering LP v. Forest & Marine Financial Ltd. Partnership (2009), 2009 BCCA 319, 2009 CarswellBC
1738 (B.C. C.A.) — followed
ATB Financial v. Metcalfe & Mansfield Alternative Investments II Corp. (2008), 2008 ONCA 587, 2008 CarswellOnt
4811, (sub nom. Metcalfe & Mansfield Alternative Investments II Corp., Re) 240 O.A.C. 245, (sub nom. Metcalfe &
Mansfield Alternative Investments II Corp., Re) 296 D.L.R. (4th) 135, (sub nom. Metcalfe & Mansfield Alternative
Investments II Corp., Re) 92 O.R. (3d) 513, 45 C.B.R. (5th) 163, 47 B.L.R. (4th) 123 (Ont. C.A.) — considered
ATB Financial v. Metcalfe & Mansfield Alternative Investments II Corp. (2008), 2008 CarswellOnt 5432, 2008
CarswellOnt 5433 (S.C.C.) — referred to
Boutiques San Francisco Inc., Re (2004), 2004 CarswellQue 10918, 7 C.B.R. (5th) 189 (C.S. Que.) — referred to
Calpine Canada Energy Ltd., Re (2007), 2007 CarswellAlta 1050, 2007 ABQB 504, 35 C.B.R. (5th) 1, 415 A.R.
196, 33 B.L.R. (4th) 68 (Alta. Q.B.) — referred to
Canadian Red Cross Society / Société Canadienne de la Croix-Rouge, Re (1998), 1998 CarswellOnt 3346, 5 C.B.R.
(4th) 299, 72 O.T.C. 99 (Ont. Gen. Div. [Commercial List]) — considered
Caterpillar Financial Services Ltd. v. Hard-Rock Paving Co. (2008), 2008 CarswellOnt 4046, 45 C.B.R. (5th) 87
(Ont. S.C.J.) — referred to
Cliffs Over Maple Bay Investments Ltd. v. Fisgard Capital Corp. (2008), 2008 BCCA 327, 2008 CarswellBC 1758, 83
B.C.L.R. (4th) 214, 296 D.L.R. (4th) 577, 434 W.A.C. 187, 258 B.C.A.C. 187, 46 C.B.R. (5th) 7, [2008] 10 W.W.R.
575 (B.C. C.A.) — distinguished
Consumers Packaging Inc., Re (2001), 150 O.A.C. 384, 27 C.B.R. (4th) 197, 2001 CarswellOnt 3482, 12 C.P.C. (5th)
208 (Ont. C.A.) — considered
Lehndorff General Partner Ltd., Re (1993), 17 C.B.R. (3d) 24, 9 B.L.R. (2d) 275, 1993 CarswellOnt 183 (Ont. Gen.
Div. [Commercial List]) — referred to
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2
Nortel Networks Corp., Re, 2009 CarswellOnt 4467
2009 CarswellOnt 4467, [2009] O.J. No. 3169, 179 A.C.W.S. (3d) 265...
PSINET Ltd., Re (2001), 28 C.B.R. (4th) 95, 2001 CarswellOnt 3405 (Ont. S.C.J. [Commercial List]) — considered
Residential Warranty Co. of Canada Inc., Re (2006), 2006 ABQB 236, 2006 CarswellAlta 383, (sub nom. Residential
Warranty Co. of Canada Inc. (Bankrupt), Re) 393 A.R. 340, 62 Alta. L.R. (4th) 168, 21 C.B.R. (5th) 57 (Alta. Q.B.)
— referred to
Royal Bank v. Soundair Corp. (1991), 7 C.B.R. (3d) 1, 83 D.L.R. (4th) 76, 46 O.A.C. 321, 4 O.R. (3d) 1, 1991
CarswellOnt 205 (Ont. C.A.) — considered
Stelco Inc., Re (2004), 2004 CarswellOnt 4084, 6 C.B.R. (5th) 316 (Ont. S.C.J. [Commercial List]) — referred to
Tiger Brand Knitting Co., Re (2005), 2005 CarswellOnt 1240, 9 C.B.R. (5th) 315 (Ont. S.C.J.) — referred to
Winnipeg Motor Express Inc., Re (2008), 2008 CarswellMan 560, 2008 MBQB 297, 49 C.B.R. (5th) 302 (Man. Q.B.)
— referred to
Statutes considered:
Bankruptcy Code, 11 U.S.C.
s. 363 — referred to
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36
Generally — referred to
s. 11 — referred to
s. 11(4) — considered
MOTION by company for approval of bidding procedures for sale of business and asset sale agreement.
Morawetz J.:
Introduction
1 On June 29, 2009, I granted the motion of the Applicants and approved the bidding procedures (the "Bidding Procedures")
described in the affidavit of Mr. Riedel sworn June 23, 2009 (the "Riedel Affidavit") and the Fourteenth Report of Ernst &
Young, Inc., in its capacity as Monitor (the "Monitor") (the "Fourteenth Report"). The order was granted immediately after
His Honour Judge Gross of the United States Bankruptcy Court for the District of Delaware (the "U.S. Court") approved the
Bidding Procedures in the Chapter 11 proceedings.
2
I also approved the Asset Sale Agreement dated as of June 19, 2009 (the "Sale Agreement") among Nokia Siemens
Networks B.V. ("Nokia Siemens Networks" or the "Purchaser"), as buyer, and Nortel Networks Corporation ("NNC"), Nortel
Networks Limited ("NNL"), Nortel Networks, Inc. ("NNI") and certain of their affiliates, as vendors (collectively the "Sellers")
in the form attached as Appendix "A" to the Fourteenth Report and I also approved and accepted the Sale Agreement for the
purposes of conducting the "stalking horse" bidding process in accordance with the Bidding Procedures including, the BreakUp Fee and the Expense Reimbursement (as both terms are defined in the Sale Agreement).
3 An order was also granted sealing confidential Appendix "B" to the Fourteenth Report containing the schedules and exhibits
to the Sale Agreement pending further order of this court.
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3
Nortel Networks Corp., Re, 2009 CarswellOnt 4467
2009 CarswellOnt 4467, [2009] O.J. No. 3169, 179 A.C.W.S. (3d) 265...
4
The following are my reasons for granting these orders.
5
The hearing on June 29, 2009 (the "Joint Hearing") was conducted by way of video conference with a similar motion
being heard by the U.S. Court. His Honor Judge Gross presided over the hearing in the U.S. Court. The Joint Hearing was
conducted in accordance with the provisions of the Cross-Border Protocol, which had previously been approved by both the
U.S. Court and this court.
6
The Sale Agreement relates to the Code Division Multiple Access ("CMDA") business Long-Term Evolution ("LTE")
Access assets.
7 The Sale Agreement is not insignificant. The Monitor reports that revenues from CDMA comprised over 21% of Nortel's
2008 revenue. The CDMA business employs approximately 3,100 people (approximately 500 in Canada) and the LTE business
employs approximately 1,000 people (approximately 500 in Canada). The purchase price under the Sale Agreement is $650
million.
Background
8 The Applicants were granted CCAA protection on January 14, 2009. Insolvency proceedings have also been commenced
in the United States, the United Kingdom, Israel and France.
9
At the time the proceedings were commenced, Nortel's business operated through 143 subsidiaries, with approximately
30,000 employees globally. As of January 2009, Nortel employed approximately 6,000 people in Canada alone.
10
The stated purpose of Nortel's filing under the CCAA was to stabilize the Nortel business to maximize the chances of
preserving all or a portion of the enterprise. The Monitor reported that a thorough strategic review of the company's assets and
operations would have to be undertaken in consultation with various stakeholder groups.
11
In April 2009, the Monitor updated the court and noted that various restructuring alternatives were being considered.
12
On June 19, 2009, Nortel announced that it had entered into the Sale Agreement with respect to its assets in its CMDA
business and LTE Access assets (collectively, the "Business") and that it was pursuing the sale of its other business units. Mr.
Riedel in his affidavit states that Nortel has spent many months considering various restructuring alternatives before determining
in its business judgment to pursue "going concern" sales for Nortel's various business units.
13
In deciding to pursue specific sales processes, Mr. Riedel also stated that Nortel's management considered:
(a) the impact of the filings on Nortel's various businesses, including deterioration in sales; and
(b) the best way to maximize the value of its operations, to preserve jobs and to continue businesses in Canada and
the U.S.
14
Mr. Riedel notes that while the Business possesses significant value, Nortel was faced with the reality that:
(a) the Business operates in a highly competitive environment;
(b) full value cannot be realized by continuing to operate the Business through a restructuring; and
(c) in the absence of continued investment, the long-term viability of the Business would be put into jeopardy.
15
Mr. Riedel concluded that the proposed process for the sale of the Business pursuant to an auction process provided the
best way to preserve the Business as a going concern and to maximize value and preserve the jobs of Nortel employees.
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4
Nortel Networks Corp., Re, 2009 CarswellOnt 4467
2009 CarswellOnt 4467, [2009] O.J. No. 3169, 179 A.C.W.S. (3d) 265...
16 In addition to the assets covered by the Sale Agreement, certain liabilities are to be assumed by the Purchaser. This issue is
covered in a comprehensive manner at paragraph 34 of the Fourteenth Report. Certain liabilities to employees are included on
this list. The assumption of these liabilities is consistent with the provisions of the Sale Agreement that requires the Purchaser
to extend written offers of employment to at least 2,500 employees in the Business.
17
The Monitor also reports that given that certain of the U.S. Debtors are parties to the Sale Agreement and given the
desire to maximize value for the benefit of stakeholders, Nortel determined and it has agreed with the Purchaser that the Sale
Agreement is subject to higher or better offers being obtained pursuant to a sale process under s. 363 of the U.S. Bankruptcy
Code and that the Sale Agreement shall serve as a "stalking horse" bid pursuant to that process.
18
The Bidding Procedures provide that all bids must be received by the Seller by no later than July 21, 2009 and that the
Sellers will conduct an auction of the purchased assets on July 24, 2009. It is anticipated that Nortel will ultimately seek a final
sales order from the U.S. Court on or about July 28, 2009 and an approval and vesting order from this court in respect of the
Sale Agreement and purchased assets on or about July 30, 2009.
19 The Monitor recognizes the expeditious nature of the sale process but the Monitor has been advised that given the nature
of the Business and the consolidation occurring in the global market, there are likely to be a limited number of parties interested
in acquiring the Business.
20
The Monitor also reports that Nortel has consulted with, among others, the Official Committee of Unsecured Creditors
(the "UCC") and the bondholder group regarding the Bidding Procedures and is of the view that both are supportive of the
timing of this sale process. (It is noted that the UCC did file a limited objection to the motion relating to certain aspects of
the Bidding Procedures.)
21
Given the sale efforts made to date by Nortel, the Monitor supports the sale process outlined in the Fourteenth Report
and more particularly described in the Bidding Procedures.
22
Objections to the motion were filed in the U.S. Court and this court by MatlinPatterson Global Advisors LLC,
MatlinPatterson Global Opportunities Partners III L.P. and Matlin Patterson Opportunities Partners (Cayman) III L.P.
(collectively, "MatlinPatterson") as well the UCC.
23
The objections were considered in the hearing before Judge Gross and, with certain limited exceptions, the objections
were overruled.
Issues and Discussion
24 The threshold issue being raised on this motion by the Applicants is whether the CCAA affords this court the jurisdiction
to approve a sales process in the absence of a formal plan of compromise or arrangement and a creditor vote. If the question is
answered in the affirmative, the secondary issue is whether this sale should authorize the Applicants to sell the Business.
25 The Applicants submit that it is well established in the jurisprudence that this court has the jurisdiction under the CCAA
to approve the sales process and that the requested order should be granted in these circumstances.
26
Counsel to the Applicants submitted a detailed factum which covered both issues.
27
Counsel to the Applicants submits that one of the purposes of the CCAA is to preserve the going concern value of
debtors companies and that the court's jurisdiction extends to authorizing sale of the debtor's business, even in the absence of
a plan or creditor vote.
28
The CCAA is a flexible statute and it is particularly useful in complex insolvency cases in which the court is required
to balance numerous constituents and a myriad of interests.
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5
Nortel Networks Corp., Re, 2009 CarswellOnt 4467
2009 CarswellOnt 4467, [2009] O.J. No. 3169, 179 A.C.W.S. (3d) 265...
29
The CCAA has been described as "skeletal in nature". It has also been described as a "sketch, an outline, a supporting
framework for the resolution of corporate insolvencies in the public interest". ATB Financial v. Metcalfe & Mansfield Alternative
Investments II Corp. (2008), 45 C.B.R. (5th) 163 (Ont. C.A.) at paras. 44, 61, leave to appeal refused [2008] S.C.C.A. No. 337
(S.C.C.). ("ATB Financial").
30
The jurisprudence has identified as sources of the court's discretionary jurisdiction, inter alia:
(a) the power of the court to impose terms and conditions on the granting of a stay under s. 11(4) of the CCAA;
(b) the specific provision of s. 11(4) of the CCAA which provides that the court may make an order "on such terms
as it may impose"; and
(c) the inherent jurisdiction of the court to "fill in the gaps" of the CCAA in order to give effect to its objects.
Canadian Red Cross Society / Société Canadienne de la Croix-Rouge, Re (1998), 5 C.B.R. (4th) 299 (Ont. Gen. Div.
[Commercial List]) at para. 43; PSINET Ltd., Re (2001), 28 C.B.R. (4th) 95 (Ont. S.C.J. [Commercial List]) at para.
5, ATB Financial, supra, at paras. 43-52.
31
However, counsel to the Applicants acknowledges that the discretionary authority of the court under s. 11 must be
informed by the purpose of the CCAA.
Its exercise must be guided by the scheme and object of the Act and by the legal principles that govern corporate law
issues. Re Stelco Inc. (2005), 9 C.B.R. (5 th ) 135 (Ont. C.A.) at para. 44.
32
In support of the court's jurisdiction to grant the order sought in this case, counsel to the Applicants submits that Nortel
seeks to invoke the "overarching policy" of the CCAA, namely, to preserve the going concern. Residential Warranty Co. of
Canada Inc., Re (2006), 21 C.B.R. (5th) 57 (Alta. Q.B.) at para. 78.
33
Counsel to the Applicants further submits that CCAA courts have repeatedly noted that the purpose of the CCAA is to
preserve the benefit of a going concern business for all stakeholders, or "the whole economic community":
The purpose of the CCAA is to facilitate arrangements that might avoid liquidation of the company and allow it to continue
in business to the benefit of the whole economic community, including the shareholders, the creditors (both secured and
unsecured) and the employees. Citibank Canada v. Chase Manhattan Bank of Canada (1991), 5 C.B.R. (3 rd ) 167 (Ont.
Gen. Div.) at para. 29. Re Consumers Packaging Inc. (2001) 27 C.B.R. (4th) 197 (Ont. C.A.) at para. 5.
34 Counsel to the Applicants further submits that the CCAA should be given a broad and liberal interpretation to facilitate its
underlying purpose, including the preservation of the going concern for the benefit of all stakeholders and further that it should
not matter whether the business continues as a going concern under the debtor's stewardship or under new ownership, for as
long as the business continues as a going concern, a primary goal of the CCAA will be met.
35
Counsel to the Applicants makes reference to a number of cases where courts in Ontario, in appropriate cases,
have exercised their jurisdiction to approve a sale of assets, even in the absence of a plan of arrangement being tendered to
stakeholders for a vote. In doing so, counsel to the Applicants submits that the courts have repeatedly recognized that they
have jurisdiction under the CCAA to approve asset sales in the absence of a plan of arrangement, where such sale is in the best
interests of stakeholders generally. Canadian Red Cross Society / Société Canadienne de la Croix-Rouge, Re, supra, Re PSINet,
supra, Consumers Packaging Inc., Re [2001 CarswellOnt 3482 (Ont. C.A.)], supra, Stelco Inc., Re (2004), 6 C.B.R. (5th) 316
(Ont. S.C.J. [Commercial List]) at para. 1, Tiger Brand Knitting Co., Re (2005), 9 C.B.R. (5th) 315 (Ont. S.C.J.), Caterpillar
Financial Services Ltd. v. Hard-Rock Paving Co. (2008), 45 C.B.R. (5th) 87 (Ont. S.C.J.) and Lehndorff General Partner Ltd.,
Re (1993), 17 C.B.R. (3d) 24 (Ont. Gen. Div. [Commercial List]).
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6
Nortel Networks Corp., Re, 2009 CarswellOnt 4467
2009 CarswellOnt 4467, [2009] O.J. No. 3169, 179 A.C.W.S. (3d) 265...
36 In Re Consumers Packaging, supra, the Court of Appeal for Ontario specifically held that a sale of a business as a going
concern during a CCAA proceeding is consistent with the purposes of the CCAA:
The sale of Consumers' Canadian glass operations as a going concern pursuant to the Owens-Illinois bid allows the
preservation of Consumers' business (albeit under new ownership), and is therefore consistent with the purposes of the
CCAA.
...we cannot refrain from commenting that Farley J.'s decision to approve the Owens-Illinois bid is consistent with previous
decisions in Ontario and elsewhere that have emphasized the broad remedial purpose of flexibility of the CCAA and have
approved the sale and disposition of assets during CCAA proceedings prior to a formal plan being tendered. Re Consumers
Packaging, supra, at paras. 5, 9.
37
Similarly, in Canadian Red Cross Society / Société Canadienne de la Croix-Rouge, Re, supra, Blair J. (as he then was)
expressly affirmed the court's jurisdiction to approve a sale of assets in the course of a CCAA proceeding before a plan of
arrangement had been approved by creditors. Canadian Red Cross Society / Société Canadienne de la Croix-Rouge, Re, supra,
at paras. 43, 45.
38
Similarly, in PSINet Limited, supra, the court approved a going concern sale in a CCAA proceeding where no plan was
presented to creditors and a substantial portion of the debtor's Canadian assets were to be sold. Farley J. noted as follows:
[If the sale was not approved,] there would be a liquidation scenario ensuing which would realize far less than this going
concern sale (which appears to me to have involved a transparent process with appropriate exposure designed to maximize
the proceeds), thus impacting upon the rest of the creditors, especially as to the unsecured, together with the material
enlarging of the unsecured claims by the disruption claims of approximately 8,600 customers (who will be materially
disadvantaged by an interrupted transition) plus the job losses for approximately 200 employees. Re PSINet Limited, supra,
at para. 3.
39
In Re Stelco Inc., supra, in 2004, Farley J. again addressed the issue of the feasibility of selling the operations as a
going concern:
I would observe that usually it is the creditor side which wishes to terminate CCAA proceedings and that when the
creditors threaten to take action, there is a realization that a liquidation scenario will not only have a negative effect upon a
CCAA applicant, but also upon its workforce. Hence, the CCAA may be employed to provide stability during a period of
necessary financial and operational restructuring - and if a restructuring of the "old company" is not feasible, then there is
the exploration of the feasibility of the sale of the operations/enterprise as a going concern (with continued employment)
in whole or in part. Re Stelco Inc, supra, at para. 1.
40
I accept these submissions as being general statements of the law in Ontario. The value of equity in an insolvent debtor
is dubious, at best, and, in my view, it follows that the determining factor should not be whether the business continues under
the debtor's stewardship or under a structure that recognizes a new equity structure. An equally important factor to consider is
whether the case can be made to continue the business as a going concern.
41 Counsel to the Applicants also referred to decisions from the courts in Quebec, Manitoba and Alberta which have similarly
recognized the court's jurisdiction to approve a sale of assets during the course of a CCAA proceeding. Boutiques San Francisco
Inc., Re (2004), 7 C.B.R. (5th) 189 (C.S. Que.), Winnipeg Motor Express Inc., Re (2008), 49 C.B.R. (5th) 302 (Man. Q.B.) at
paras. 41, 44, and Calpine Canada Energy Ltd., Re (2007), 35 C.B.R. (5th) 1 (Alta. Q.B.) at para. 75.
42 Counsel to the Applicants also directed the court's attention to a recent decision of the British Columbia Court of Appeal
which questioned whether the court should authorize the sale of substantially all of the debtor's assets where the debtor's plan
"will simply propose that the net proceeds from the sale...be distributed to its creditors". In Cliffs Over Maple Bay Investments
Ltd. v. Fisgard Capital Corp. (2008), 46 C.B.R. (5th) 7 (B.C. C.A.) ("Cliffs Over Maple Bay"), the court was faced with a
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7
Nortel Networks Corp., Re, 2009 CarswellOnt 4467
2009 CarswellOnt 4467, [2009] O.J. No. 3169, 179 A.C.W.S. (3d) 265...
debtor who had no active business but who nonetheless sought to stave off its secured creditor indefinitely. The case did not
involve any type of sale transaction but the Court of Appeal questioned whether a court should authorize the sale under the
CCAA without requiring the matter to be voted upon by creditors.
43 In addressing this matter, it appears to me that the British Columbia Court of Appeal focussed on whether the court should
grant the requested relief and not on the question of whether a CCAA court has the jurisdiction to grant the requested relief.
44
I do not disagree with the decision in Cliffs Over Maple Bay. However, it involved a situation where the debtor had no
active business and did not have the support of its stakeholders. That is not the case with these Applicants.
45
The Cliffs Over Maple Bay decision has recently been the subject of further comment by the British Columbia Court of
Appeal in Asset Engineering LP v. Forest & Marine Financial Ltd. Partnership, 2009 BCCA 319 (B.C. C.A.).
46
At paragraphs 24 - 26 of the Forest and Marine decision, Newbury J.A. stated:
24. In Cliffs Over Maple Bay, the debtor company was a real estate developer whose one project had failed. The
company had been dormant for some time. It applied for CCAA protection but described its proposal for restructuring
in vague terms that amounted essentially to a plan to "secure sufficient funds" to complete the stalled project (Para. 34).
This court, per Tysoe J.A., ruled that although the Act can apply to single-project companies, its purposes are unlikely
to be engaged in such instances, since mortgage priorities are fully straight forward and there will be little incentive for
senior secured creditors to compromise their interests (Para. 36). Further, the Court stated, the granting of a stay under
s. 11 is "not a free standing remedy that the court may grant whenever an insolvent company wishes to undertake a
"restructuring"...Rather, s. 11 is ancillary to the fundamental purpose of the CCAA, and a stay of proceedings freezing
the rights of creditors should only be granted in furtherance of the CCAA's fundamental purpose". That purpose has
been described in Meridian Developments Inc. v. Toronto Dominion Bank (1984) 11 D.L.R. (4 th ) 576 (Alta. Q.B.):
The legislation is intended to have wide scope and allow a judge to make orders which will effectively maintain
the status quo for a period while the insolvent company attempts to gain the approval of its creditors for a
proposed arrangement which will enable the company to remain in operation for what is, hopefully, the future
benefit of both the company and its creditors. [at 580]
25. The Court was not satisfied in Cliffs Over Maple Bay that the "restructuring" contemplated by the debtor would
do anything other than distribute the net proceeds from the sale, winding up or liquidation of its business. The debtor
had no intention of proposing a plan of arrangement, and its business would not continue following the execution of
its proposal - thus it could not be said the purposes of the statute would be engaged...
26. In my view, however, the case at bar is quite different from Cliffs Over Maple Bay. Here, the main debtor, the
Partnership, is at the centre of a complicated corporate group and carries on an active financing business that it hopes
to save notwithstanding the current economic cycle. (The business itself which fills a "niche" in the market, has
been carried on in one form or another since 1983.) The CCAA is appropriate for situations such as this where it is
unknown whether the "restructuring" will ultimately take the form of a refinancing or will involve a reorganization of
the corporate entity or entities and a true compromise of the rights of one or more parties. The "fundamental purpose"
of the Act - to preserve the status quo while the debtor prepares a plan that will enable it to remain in business to
the benefit of all concerned - will be furthered by granting a stay so that the means contemplated by the Act - a
compromise or arrangement - can be developed, negotiated and voted on if necessary...
47
It seems to me that the foregoing views expressed in Forest and Marine are not inconsistent with the views previously
expressed by the courts in Ontario. The CCAA is intended to be flexible and must be given a broad and liberal interpretation
to achieve its objectives and a sale by the debtor which preserves its business as a going concern is, in my view, consistent
with those objectives.
48
I therefore conclude that the court does have the jurisdiction to authorize a sale under the CCAA in the absence of a plan.
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8
Nortel Networks Corp., Re, 2009 CarswellOnt 4467
2009 CarswellOnt 4467, [2009] O.J. No. 3169, 179 A.C.W.S. (3d) 265...
49
I now turn to a consideration of whether it is appropriate, in this case, to approve this sales process. Counsel to the
Applicants submits that the court should consider the following factors in determining whether to authorize a sale under the
CCAA in the absence of a plan:
(a) is a sale transaction warranted at this time?
(b) will the sale benefit the whole "economic community"?
(c) do any of the debtors' creditors have a bona fide reason to object to a sale of the business?
(d) is there a better viable alternative?
I accept this submission.
50
It is the position of the Applicants that Nortel's proposed sale of the Business should be approved as this decision is to
the benefit of stakeholders and no creditor is prejudiced. Further, counsel submits that in the absence of a sale, the prospects
for the Business are a loss of competitiveness, a loss of value and a loss of jobs.
51 Counsel to the Applicants summarized the facts in support of the argument that the Sale Transaction should be approved,
namely:
(a) Nortel has been working diligently for many months on a plan to reorganize its business;
(b) in the exercise of its business judgment, Nortel has concluded that it cannot continue to operate the Business
successfully within the CCAA framework;
(c) unless a sale is undertaken at this time, the long-term viability of the Business will be in jeopardy;
(d) the Sale Agreement continues the Business as a going concern, will save at least 2,500 jobs and constitutes the
best and most valuable proposal for the Business;
(e) the auction process will serve to ensure Nortel receives the highest possible value for the Business;
(f) the sale of the Business at this time is in the best interests of Nortel and its stakeholders; and
(g) the value of the Business is likely to decline over time.
52
The objections of MatlinPatterson and the UCC have been considered. I am satisfied that the issues raised in these
objections have been addressed in a satisfactory manner by the ruling of Judge Gross and no useful purpose would be served
by adding additional comment.
53 Counsel to the Applicants also emphasize that Nortel will return to court to seek approval of the most favourable transaction
to emerge from the auction process and will aim to satisfy the elements established by the court for approval as set out in Royal
Bank v. Soundair Corp. (1991), 7 C.B.R. (3d) 1 (Ont. C.A.) at para. 16.
Disposition
54 The Applicants are part of a complicated corporate group. They carry on an active international business. I have accepted
that an important factor to consider in a CCAA process is whether the case can be made to continue the business as a going
concern. I am satisfied having considered the factors referenced at [49], as well as the facts summarized at [51], that the
Applicants have met this test. I am therefore satisfied that this motion should be granted.
55
Accordingly, I approve the Bidding Procedures as described in the Riedel Affidavit and the Fourteenth Report of the
Monitor, which procedures have been approved by the U.S. Court.
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9
Nortel Networks Corp., Re, 2009 CarswellOnt 4467
2009 CarswellOnt 4467, [2009] O.J. No. 3169, 179 A.C.W.S. (3d) 265...
56
I am also satisfied that the Sale Agreement should be approved and further that the Sale Agreement be approved
and accepted for the purposes of conducting the "stalking horse" bidding process in accordance with the Bidding Procedures
including, without limitation the Break-Up Fee and the Expense Reimbursement (as both terms are defined in the Sale
Agreement).
57 Further, I have also been satisfied that Appendix B to the Fourteenth Report contains information which is commercially
sensitive, the dissemination of which could be detrimental to the stakeholders and, accordingly, I order that this document be
sealed, pending further order of the court.
58
In approving the Bidding Procedures, I have also taken into account that the auction will be conducted prior to the sale
approval motion. This process is consistent with the practice of this court.
59 Finally, it is the expectation of this court that the Monitor will continue to review ongoing issues in respect of the Bidding
Procedures. The Bidding Procedures permit the Applicants to waive certain components of qualified bids without the consent
of the UCC, the bondholder group and the Monitor. However, it is the expectation of this court that, if this situation arises, the
Applicants will provide advance notice to the Monitor of its intention to do so.
Motion granted.
End of Document
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reserved.
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10
Tab 8
Northstar Aerospace Inc., Re, 2012 ONSC 4423, 2012 CarswellOnt 9607
2012 ONSC 4423, 2012 CarswellOnt 9607, 218 A.C.W.S. (3d) 490, 91 C.B.R. (5th) 268
Most Negative Treatment: Distinguished
Most Recent Distinguished: Terrace Bay Pulp Inc., Re | 2013 ONSC 5111, 2013 CarswellOnt 11233, 231 A.C.W.S. (3d) 118
| (Ont. S.C.J. [Commercial List], Aug 9, 2013)
2012 ONSC 4423
Ontario Superior Court of Justice [Commercial List]
Northstar Aerospace Inc., Re
2012 CarswellOnt 9607, 2012 ONSC 4423, 218 A.C.W.S. (3d) 490, 91 C.B.R. (5th) 268
In the Matter of the Companies' Creditors
Arrangement Act, R.S.C. 1985, c. C 36, as Amended
In the Matter of a Plan of Compromise or Arrangement of Northstar Aerospace, Inc., Northstar
Aerospace (Canada) Inc., 2007775 Ontario Inc. and 3024308 Nova Scotia Company (Applicants)
Morawetz J.
Heard: July 24, 2012
Judgment: July 30, 2012
Docket: CV-12-9761-00CL
Counsel: A.J. Taylor, K. Esaw for Applicants
Craig J. Hill for Court-Appointed Monitor, Ernst & Young Inc.
D.S. Grieve for Heligear Canada
A. Dale for CAW-Canada
G. Moffat for Chief Restructuring Officer
J.L. Wall for Her Majesty The Queen in Right of Ontario as represented by the Ministry of the Environment
R. Brookes for Region of Waterloo
S. Weisz, L. Rogers J. Willis for Fifth Third Bank as Pre-filing Agent and DIP Lender
W.P. Meagher for Corporation of the City of Cambridge
R.M. Slattery for 180 Market Portfolio
M. Jilesen for General Electric Canada
C. Prophet for Boeing Capital Loan Corporation
S. Pickens (by phone) for Fifth Third Bank
Subject: Insolvency; Constitutional; Corporate and Commercial; International
Headnote
Bankruptcy and insolvency --- Companies' Creditors Arrangement Act — Initial application — Proceedings subject
to stay — Crown claims
Facility owned by N group of companies was subject to orders under Environmental Protection Act due to contamination
caused by N group's prior use of industrial solvents at facility — Ministry of Environment (Ministry) issued March 15
Order requiring N group to undertake various activities related to monitoring, mitigation and remediation of environmental
contamination at facility, which was presently non-operational — N Canada Inc. and certain Canadian subsidiaries (debtor
companies) received protection of Companies' Creditors Arrangement Act (CCAA) — Initial Order was issued — Debtor
companies brought motion for approval of agreement to purchase substantially all of N group's assets, not including facility,
from N group; Ministry brought motion for declaration that March 15 Order was "regulatory order" pursuant to s. 11.1(2)
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Northstar Aerospace Inc., Re, 2012 ONSC 4423, 2012 CarswellOnt 9607
2012 ONSC 4423, 2012 CarswellOnt 9607, 218 A.C.W.S. (3d) 490, 91 C.B.R. (5th) 268
of CCAA and was not subject to stay of proceedings in Initial Order; or, in alternative, sought order lifting stay — Debtor
companies' motion granted on other grounds; Ministry's motion dismissed — Purpose of March 15 Order and Ministry's
motion was to attempt to require debtor companies to continue to comply with March 15 Order and financial obligations
associated therewith in perpetuity and in conflict with priorities enjoyed by other creditors — March 15 Order sought to
enforce payment obligation and was therefore stayed by Initial Order — Ministry was entitled to claim against N group
for costs of remedying environmental condition at facility — Ministry's request to lift stay denied on basis that Ministry
was seeking to create super priority claim by way of March 15 Order — Such priority is not recognized at law.
Bankruptcy and insolvency --- Companies' Creditors Arrangement Act — Arrangements — Approval by court
— Miscellaneous
Facility owned by N group of companies was subject to orders under Environmental Protection Act due to contamination
caused by N group's prior use of industrial solvents at facility — Ministry of Environment (Ministry) issued orders requiring
N group to fund and undertake various activities related to monitoring, mitigation and remediation of environmental
contamination at facility, which was presently non-operational — N Canada Inc. and certain Canadian subsidiaries (debtor
companies) received protection of Companies' Creditors Arrangement Act (CCAA) — Initial Order was issued — Debtor
companies brought motion for approval of agreement by purchaser to purchase substantially all of N group's assets, not
including facility, from N group vendors; Ministry brought motion for declaration — Debtor companies' motion granted;
Ministry's motion dismissed on other grounds — Having considered factors in s. 36(3) of CCAA, transaction was in
best interests of N group's stakeholders and should be approved — Debtor companies complied with terms of Sales
Process Order — Record established that creditors were adequately consulted and effects of transaction were positive —
Consideration to be received for assets was reasonable and fair in circumstances.
Table of Authorities
Cases considered by Morawetz J.:
AbitibiBowater Inc., Re (2010), 68 C.B.R. (5th) 1, 52 C.E.L.R. (3d) 17, 2010 QCCS 1261, 2010 CarswellQue 2812
(C.S. Que.) — referred to
General Chemical Canada Ltd., Re (2007), 228 O.A.C. 385, (sub nom. Harbert Distressed Investment Fund, L.P. v.
General Chemical Canada Ltd.) 2007 C.E.B. & P.G.R. 8258, 35 C.B.R. (5th) 163, 61 C.C.P.B. 266, 31 C.E.L.R. (3d)
205, 2007 ONCA 600, 2007 CarswellOnt 5497 (Ont. C.A.) — considered
Nortel Networks Corp., Re (2009), 256 O.A.C. 131, 2009 CarswellOnt 7383, 2009 ONCA 833, 59 C.B.R. (5th) 23,
77 C.C.P.B. 161, (sub nom. Sproule v. Nortel Networks Corp.) 2010 C.L.L.C. 210-005, (sub nom. Sproule v. Nortel
Networks Corp., Re) 99 O.R. (3d) 708 (Ont. C.A.) — referred to
Nortel Networks Corp., Re (2012), 88 C.B.R. (5th) 111, 2012 CarswellOnt 3153, 2012 ONSC 1213, 66 C.E.L.R. (3d)
310 (Ont. S.C.J. [Commercial List]) — considered
Northstar Aerospace Inc., Re (2012), 2012 ONSC 3974, 2012 CarswellOnt 8605 (Ont. S.C.J. [Commercial List])
— referred to
Statutes considered:
Bankruptcy Code, 11 U.S.C. 1982
Chapter 11 — referred to
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36
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Northstar Aerospace Inc., Re, 2012 ONSC 4423, 2012 CarswellOnt 9607
2012 ONSC 4423, 2012 CarswellOnt 9607, 218 A.C.W.S. (3d) 490, 91 C.B.R. (5th) 268
Generally — referred to
s. 6(5)(a) — considered
s. 11.1 [en. 1997, c. 12, s. 124] — considered
s. 11.1(2) [en. 1997, c. 12, s. 124] — considered
s. 11.1(3) [en. 1997, c. 12, s. 124] — considered
s. 11.1(4) [en. 1997, c. 12, s. 124] — considered
s. 11.8(8) [en. 1997, c. 12, s. 124] — considered
s. 11.8(9) [en. 1997, c. 12, s. 124] — considered
s. 36(3) — considered
s. 36(7) — considered
Constitution Act, 1867, (U.K.), 30 & 31 Vict., c. 3, reprinted R.S.C. 1985, App. II, No. 5
s. 91 ¶ 21 — considered
s. 92 ¶ 13 — considered
s. 92 ¶ 16 — considered
Courts of Justice Act, R.S.O. 1990, c. C.43
s. 109 — considered
Environmental Protection Act, R.S.O. 1990, c. E.19
Generally — referred to
MOTION by debtor companies for approval of asset purchase agreement and other relief; MOTION by Ministry of Environment
for declaration.
Morawetz J.:
Overview
1
Northstar Aerospace, Inc. ("Northstar Inc."), Northstar Aerospace (Canada) Inc. ("Northstar Canada"), 2007775 Ontario
Inc. and 3024308 Nova Scotia Company (collectively, the "CCAA Entities") brought this motion for:
(a) approval of an agreement dated June 14, 2012 (the "Heligear Agreement") between Northstar Inc. and Northstar
Canada (together, the "Canadian Vendors"), Northstar Aerospace (U.S.A.) Inc. ("Northstar USA") and other Northstar
U.S. entities, (collectively, the U.S. Vendors", and together with the Canadian Vendors, the "Vendors") and Heligear
Acquisition Co. (the "U.S. Purchaser") and Heligear Canada Acquisition Corporation (the "Canadian Purchaser" and,
together with the U.S. Purchaser, "Heligear") for the sale of the Purchased Assets (the "Heligear Transaction");
(b) a vesting order of all of the Canadian Purchased Assets in the Canadian Purchaser free and clear of all
encumbrances and interests, other than Canadian permitted encumbrances;
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Northstar Aerospace Inc., Re, 2012 ONSC 4423, 2012 CarswellOnt 9607
2012 ONSC 4423, 2012 CarswellOnt 9607, 218 A.C.W.S. (3d) 490, 91 C.B.R. (5th) 268
(c) if necessary, assigning the rights and obligations of the Canadian Vendors under the Canadian Assumed Contracts
to the Canadian Purchasers; and
(d) authorization and directions to the Monitor, on closing of the Heligear Transaction, to distribute cash or cash
equivalents from the proceeds of the Heligear Transaction in an amount equal to the outstanding DIP obligations
owing under the DIP Agreement to the DIP Agent for the DIP Lenders (defined below).
2 The CCAA Entities applied for and were granted protection under the Companies' Creditors Arrangement Act (the "CCAA")
pursuant to an Initial Order of this court dated June 14, 2012 [Northstar Aerospace Inc., Re, 2012 CarswellOnt 8605 (Ont. S.C.J.
[Commercial List])] (the "Initial Order"). Ernst & Young Inc. was appointed as Monitor (the "Monitor") of the CCAA Entities
and FTI Consulting Canada Inc. ("FTI Consulting") was appointed Chief Restructuring Officer ("CRO") of the CCAA Entities.
3
Certain of Northstar Canada's direct and indirect U.S. subsidiaries (the "Chapter 11 Entities") commenced insolvency
proceedings (the "Chapter 11 Proceedings") pursuant to Chapter 11 of the United States Bankruptcy Code on June 14, 2012
in the United States Bankruptcy Court for the District of Delaware (the "U.S. Court"). The CCAA Entities and the Chapter 11
Entities are sometimes collectively referred to herein as "Northstar".
4
Argument on the motion was heard in two parts. In the morning, argument was heard on Canadian only issues. In the
afternoon, argument was heard on Northstar issues in a crossborder hearing with the United States Bankruptcy Court for the
District of Delaware. The crossborder hearing was held in accordance with the provisions of the previously approved CrossBorder Protocol between the U.S. Court and this court.
5
The motion for approval of the Heligear Transaction was opposed by the Ministry of the Environment ("MOE"), GE
Canada, the Region of Waterloo and the City of Cambridge.
6
At the conclusion of argument, a brief oral endorsement was issued approving the Heligear Transaction, with reasons
to follow. These are the reasons.
Facts
7
Northstar supplies components and assemblies for the commercial and military aerospace markets, and provides related
services. Northstar provides goods and services to customers all over the world, including military defence suppliers Boeing,
Sikorsky Aircraft Corporation and AgustaWestland Ltd., as well as the U.S. army. Northstar's products are used in the Boeing
CH-47 Chinook helicopters, Boeing AH-64 Apache helicopters, Sikorsky UH-60 Blackhawk helicopters, AgustaWestland
Links/Wildcat helicopters, the Boeing F-22 Raptor Fighter aircraft and various other helicopters and aircraft.
8
Northstar owns and leases operating facilities in the United States and Canada. In addition, Northstar owns a dormant
facility located at 695 Bishop Street North in Cambridge, Ontario (the "Cambridge Facility").
9
The Cambridge Facility has been non-operational since April 2010, when Northstar Canada closed it to focus on its core
business of manufacturing aerospace gears and transmissions.
10
Operations at the Cambridge Facility historically involved the use of industrial solvents, including trichloroethylene
("TCE").
11 In 2004, Northstar Canada notified the MOE of potential environmental contamination at the Cambridge Facility including
TCE. Additional investigations determined that the contamination had migrated from beneath the Cambridge Facility to beneath
nearby homes. In response, Northstar Canada has spent in excess of $20 million for environmental testing and remediation at
and near the Cambridge Facility through April 2012.
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Northstar Aerospace Inc., Re, 2012 ONSC 4423, 2012 CarswellOnt 9607
2012 ONSC 4423, 2012 CarswellOnt 9607, 218 A.C.W.S. (3d) 490, 91 C.B.R. (5th) 268
12
A separate contamination source, not attributable to Northstar Canada or its operations, has also been identified near
the Cambridge Facility. This second source is known as the Borg-Warner Site. GE Canada is the corporate successor to BorgWarner Canada Inc.
13 Since the discovery of the environmental condition at the Cambridge Facility in 2004, Northstar has conducted remediation
activities, on a voluntary basis, including after the granting of the Initial Order, with the consent of the DIP Lenders.
14
On March 15, 2012, an Ontario MOE director (the "Director"), pursuant to powers under the Environmental Protection
Act, issued Order Number 6076-8RJRUP (the "March 15 Order") to Northstar Inc. and Northstar Canada. The March 15 Order
was issued as a direct result of the MOE's concerns regarding Northstar Canada's solvency.
15
The purpose of the March 15 Order was stated as "to ensure the potential adverse effects from TCE and hexavalent
chromium impacted groundwater to human health and the environment continues to be monitored, mitigated and remediated
where necessary".
16
The March 15 Order requires Northstar to undertake the following activities, among others:
(a) the operation of a laboratory and retention of a professional engineer to supervise the laboratory, which will operate
to prepare, complete and/or supervise the work set out in the March 15 Order;
(b) the creation and implementation of an indoor air monitoring protocol, with annual assessment reports submitted
to the MOE;
(c) continued:
(i) operation and monitoring of the indoor air mitigation systems ("IAMS") voluntarily installed by Northstar
Canada prior to the issuance of the March 15 Order;
(ii) operation and monitoring of the soil vapour extraction systems ("SVES") voluntarily installed by Northstar
prior to the issuance of the March 15 Order;
(iii) operation and maintenance of a pump and treat system;
(iv) groundwater remediation on or around the Cambridge Facility;
(v) groundwater and surface water monitoring;
(d) the submission of detailed annual assessment reports regarding the measures described above and, on the direction
of the MOE, installation of such additional systems and adoption of such additional reporting requirements as may
be required by the MOE; and
(e) submission of an updated interim remedial action plan to the MOE and, upon approval, implementation of same,
with bi-annual updated plans unless otherwise advised by the MOE.
17
These obligations and others are fully set out at pages 8-19 of the March 15 Order.
18
On May 31, 2012, the Director issued a further order, Order Number 2066-8UQP82, (the "May 31 Order", and together
with the March 15 Order, the "Director's Orders") ordering Northstar Inc. and Northstar Canada to provide financial assurance
in the amount of $10,352,906 by certified cheque payable to the Ontario Ministry of Finance or irrevocable Letter of Credit
issued by a Canadian chartered bank by June 6, 2012 to fund the measures contemplated by the March 15 Order.
19
Northstar has continued to perform monitoring, mitigation and remediation activities contemplated by the March 15
Order to the extent it was permitted to do so under the Initial Order. In addition, the CCAA Entities, with the consent of the DIP
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Lenders, have sought and obtained authorization to pay the utility payments associated with the IAMS. The CCAA Entities,
however, advised the MOE that any payment of utility payments by the CCAA Entities was without prejudice to their position
that the Director's Orders were stayed by the Initial Order and did not constitute an admission that the CCAA Entities were
obligated to make or continue to make such payments — and further that they were not committed to continue making such
payments.
20 The concerns raised by the MOE, the Region of Waterloo and the City of Cambridge are significant. TCE is a carcinogen.
The effects of TCE were described in the affidavit filed by Dr. Liana Nolan, the Medical Officer of Health ("MOH") for the
Regional Municipality of Waterloo. Chronic effects of exposure to TCE, other than cancer, are less well understood but potential
effects include those to the central nervous system, kidney, liver, respiratory, developmental and reproductive systems.
21
TCE vapour has migrated into the basements of many homes from the groundwater beneath those homes.
22 To reduce TCE vapour intrusion to more acceptable levels, there are 59 homes that have subslab depressurization systems
and 93 homes that are serviced by soil vapour extraction units. These systems were installed and are operated by Northstar. In
addition, Northstar has attempted to reduce the extent and concentration of the TCE contamination in the groundwater beneath
the Bishop Street community through the installation and operation of a groundwater pump and treat system.
23 Dr. Nolan is of the opinion that Northstar's remediation plan should continue in order to protect the health of residents of
the Bishop Street community. It is also her opinion that discontinuing the current pump and treat system will result in increased
levels and concentrations of TCE contamination. It is also her belief that discontinuing the operation and maintenance of the
indoor air mitigation systems (soil vapour extraction units and subslab depressurization systems) will result in increased levels
of TCE vapours in affected homes and will expose residents to undue and increased health risks.
24
The materials filed by the MOE describe a number of other environmental issues, which to date have been monitored:
• Ongoing groundwater monitoring by Northstar Canada
• Continued indoor air monitoring and mitigation
• Ongoing surface water monitoring — the Grand River
• Ongoing drinking water monitoring
25 The MOE is justifiably concerned about the future of the remediation efforts as Northstar Canada has made no provision
for the continuation of its investigation, monitoring, mitigation and remediation of TCE contamination after the close of the
Heligear Transaction.
26 Essentially, if the monitoring, mitigation and remediation of TCE contamination is discontinued as a result of the Heligear
Transaction, there will be, according to the MOE and Dr. Nolan, the City of Cambridge and the Region of Waterloo, a significant
public health issue.
27
The CCAA Entities take the position that the March 15 Order requires extensive further remediation steps and they
estimate that fully responding to it would require a minimum expenditure of $25 million over the next 20 years.
28
As detailed in the affidavit filed on the initial application, the CCAA Entities have been facing severe liquidity issues
for many months and are unable to meet various financial and other covenants with their secured lenders and do not have the
liquidity to meet their ongoing prefiling obligations.
29
Since late 2011, Northstar has issued press releases discussing, among things, concerns about its ability to continue as
a going concern.
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Northstar Aerospace Inc., Re, 2012 ONSC 4423, 2012 CarswellOnt 9607
2012 ONSC 4423, 2012 CarswellOnt 9607, 218 A.C.W.S. (3d) 490, 91 C.B.R. (5th) 268
30
After a comprehensive marketing process conducted with the assistance of Harris Williams Inc. ("Harris Williams"),
on June 14, 2012, the Canadian Vendors and Heligear entered into the Heligear Agreement for the sale of substantially all of
Northstar's assets (the "Heligear Transaction").
31
The assets to be purchased by Heligear do not include the Cambridge Facility and related assets. It is apparent that
during the Sales Process, no bidder that expressed an interest in the assets of Northstar was willing to purchase or expressed
any interest in purchasing the nonoperating Cambridge Facility, either on its own or together with the other assets of Northstar.
32
Two significant credit facilities have security over the property of the CCAA Entities.
33
In 2010, the CCAA Entities entered into a $66 million secured credit agreement (the "Credit Facility") between certain
of the CCAA and Chapter 11 Entities and Fifth Third Bank ("Fifth Third") and other lenders (collectively, the "Lenders").
34
The Monitor has found the security related to the Credit Facility to be valid, perfected and enforceable.
35
In the Initial Order, the court approved a Debtor-in-Possession Facility (the "DIP Facility") under which Fifth Third,
as the DIP Agent, and other lenders (together, the "DIP Lenders"), agreed to provide up to a principal amount of $3 million
to finance the CCAA Entities' working capital requirements and other general corporate purposes and capital expenditures. A
court-ordered charge over the CCAA Entities' property in favour of the DIP Lenders (the "DIP Lenders' Charge") was also
granted and was given super priority status by court order dated June 27, 2012.
36
As of August 3, 2012, the proposed closing date for the proposed Heligear Transaction, the aggregate amount owing
under the DIP Facility, the U.S. Dip Facilities (to which the CCAA Entities are guarantors) and the Credit Facility will be
approximately $75 million. Net proceeds from the Heligear Transaction are expected to be less than $65 million after transaction
costs, payment of outstanding post-filing obligations and prior ranking claims. As a result, if the Transaction is approved,
Northstar's secured creditors are expected to realize a shortfall.
37
Notwithstanding this shortfall, the secured creditors support approval of the Heligear Transaction.
38 The DIP Lenders have advised Northstar that they will not fund the continued voluntary remediation efforts after closing
of the proposed Heligear Transaction, which is scheduled for August 3, 2012.
Analysis
39
The MOE takes the position and has served a motion for a declaration that the March 15 Order is a "regulatory order"
pursuant to s. 11.1(2) of the CCAA and is not subject to the stay of proceedings provided by the Initial Order; or, in the
alternative, the MOE seeks an order lifting the stay.
40
The MOE also seeks an order that the Heligear Transaction not be approved.
41
Alternatively, if the Heligear Transaction is approved, the MOE seeks an order that no proceeds be distributed pending
the release of the decision on this motion and the hearing of further submissions on the allocation of proceeds.
42
The issues on this motion, from the standpoint of the MOE, are:
(a) is the March 15 Order subject to the stay of proceedings granted in the Initial Order?
(b) should the court declare, pursuant to s. 11.1(4) of the CCAA that the MOE is seeking to enforce its rights as a
creditor and that the enforcement of those rights is stayed?
43 In addition, the MOE takes the position that the court should not approve the sale where the effect of such an order would
so seriously prejudice the public interest.
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Northstar Aerospace Inc., Re, 2012 ONSC 4423, 2012 CarswellOnt 9607
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44
The MOE also takes the position that:
(i) the March 15 Order is regulatory in nature and not subject to the stay;
(ii) the Order is not a "claim" within the meaning of ss. 11.8(8) and 11.8(9) of the CCAA; and
(iii) any other interpretation of these provisions upsets the balance between the federal power over bankruptcy and
insolvency in s. 91(21) of the Constitution Act, 1867 and provincial regulatory authority over the environment,
founded on s. 92(13) and s. 92(16).
45 Alternatively, the MOE requests an order lifting the stay of the March 15 Order in order to permit continued enforcement
of the March 15 Order as against Northstar.
46
Turning first to the constitutional argument, the MOE acknowledged that it was not until July 23, 2012, the day before
the scheduled hearing, that notice of a constitutional question was provided to the Attorney General of Canada as required by
s. 109 of the Courts of Justice Act.
47
Counsel to the MOE advised that the Attorney General of Canada was not in a position to respond on such a short time
frame. Counsel to the MOE requested an adjournment of this aspect of the motion. This request was opposed by the CCAA
Entities and those supporting the CCAA Entities.
48
After hearing argument on the adjournment request, I denied the request for several reasons: the environmental issue
raised by the MOE has been known about since the outset of the CCAA Proceedings and, in fact, since before the issuance of
the CCAA Proceedings; a similar issue was litigated in Nortel Networks Corp., Re, 2012 ONSC 1213 (Ont. S.C.J. [Commercial
List]) ("Nortel"); and, the proposed Heligear Transaction is scheduled to close August 3, 2012 and it is not feasible to adjourn
this aspect of the motion and still comply with commercial requirements. In addition, I also accept the arguments of both counsel
to the CCAA Entities and Fifth Third that the MOE should not be permitted to bifurcate its case.
49
The first substantive issue raised by the submissions of the MOE is whether the March 15 Order is subject to the stay
of proceedings granted in the Initial Order.
50
The Initial Order grants a broad stay of proceedings in favour of the CCAA Entities, subject to certain limitations,
including investigations, acts, suits or proceedings by a regulatory body that are permitted by s. 11.1 of the CCAA.
51 Exceptions to the stay should be narrowly interpreted so as to accord with the objectives of the CCAA: Nortel Networks
Corp., Re, 2009 ONCA 833 (Ont. C.A.) at para. 17; Nortel, supra, at para. 55.
52 Subsection 11.1(2) of the CCAA provides that, subject to subsection 11.1(3), a stay of proceedings shall not affect an action,
suit or proceeding that is taken by a regulatory body, other than the enforcement of a payment ordered by the regulatory body.
53
I recently considered this issue in Nortel. Counsel to the CCAA Entities submits that the facts in this case are virtually
identical to those in Nortel. He cites as an example the fact that the March 15 Order requires, among other things, the continued
pumping and treatment of groundwater, the submission of an action plan to be reviewed and amended by the MOE, if necessary,
and additional remediation work. Counsel submits that these requirements significantly overlap with the obligations set forth
by the MOE in the orders at issue in Nortel.
54
In Nortel, at para. 104, I stated that: "[t]he Ministry has the discretion under the legislation and, if the Minister is solely
acting in is regulatory capacity, it can do so unimpeded by the stay. This is the effect of section 11.1(2) of the CCAA".
55
However, at para. 105 I stated that:
[w]hen the entity that is the subject of the MOE's attention is insolvent and not carrying on operations at the property in
question, it is necessary to consider the substance of the MOE's actions. If the result of the issuance of the MOE Orders
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is that [the debtor] is required to react in a certain way, it follows, in the present circumstances, that [the debtor] will
be required to incur a financial obligation to comply. It is not a question of altering its operational activities in order to
comply with the EPA on a going forward basis. There is no going forward business. [The debtor] is in a position where it
has no real option but to pay money to comply with any environmental issue. In my view, if the MOE moves from draft
orders to issued orders, the result is clear. The MOE would be, in reality, enforcing a payment obligation, which step is
prohibited by the Stay.
56
Counsel to the CCAA Entities pointed out one distinction between Nortel and the present scenario. In Nortel, the MOE
had not issued draft orders against Nortel until after the CCAA proceedings had already commenced, whereas in this case,
the March 15 Order was issued prefiling as a result of concern about the CCAA Entities' financial situation. As stated in the
conclusion to the provincial officer's report issued in connection with the March 15 Order:
57 While Northstar has undertaken all needed investigation, mitigation and remediation programs on a voluntary basis without
the need for a director's order, recent financial disclosures made by Northstar have revealed there is significant doubt regarding
the corporation's ability to continue as a going concern which could impact on the environmental remediation programs.
58
The record in this case is clear. The CCAA Entities are insolvent. The Cambridge Facility was shut down in 2010 and
no operations (other than environmental remediation activities) have been conducted there since that time. The CCAA Entities
have conducted a court approved Sales Process. During the Sales Process, no bidder expressed any interest in purchasing the
Cambridge Facility or was willing to assume the obligations associated with it.
59 I agree with the submission of counsel to the CCAA Entities that the purpose of the March 15 Order and the MOE's motion
is to attempt to require the CCAA Entities to continue to comply with the March 15 Order and all of the financial obligations
associated therewith in perpetuity and in conflict with the priorities enjoyed by other creditors.
60
At paragraph 127 in Nortel, I stated that, "the moment that [the debtor] is "required" to undertake such an activity, it is
"required" to expend monies in response to actions being taken by the MOE. In my view, any financial activity that [the debtor]
is required to undertake is stayed by the provisions of the Initial Order".
61
In this case, it seems to me quite clear that the March 15 Order seeks to enforce a payment obligation and it is therefore
stayed by the Initial Order: see also AbitibiBowater Inc., Re, 2010 QCCS 1261 (C.S. Que.) ("Abitibi") at para. 160.
62
Counsel to the CCAA Entities submits that the MOE is attempting to create a priority claim through the issuance of the
March 15 Order that does not exist at law and contrary to the priority scheme provided in the CCAA.
63
Counsel to the CCAA Entities cites General Chemical Canada Ltd., Re, 2007 ONCA 600 (Ont. C.A.) ("General
Chemical") at para. 46, for the proposition that federal insolvency statutes were amended to delineate the priority for the MOE in
insolvency scenarios and, thus, "giving effect to provincial environmental legislation in the face of these amendments... would
impermissibly affect the scheme of priorities in the federal legislation".
64
The scope of the MOE's security is set out in the CCAA at s. 11.8(8) which provides:
11.8(8) Any claim by Her Majesty in right of Canada or a province against a debtor company in respect of which
proceedings have been commenced under this Act for costs of remediating any environmental condition or environmental
damage affecting real property of the company is secured by a charge on the real property and on any other real property
of the company that is contiguous thereto and that is related to the activity that caused the environmental condition or
environmental damage, and the charge
(a) is enforceable in accordance with the law of the jurisdiction in which the real property is located, in the same way
as a mortgage, hypothec or other security on real property; and
(b) ranks above any other claim, right or charge against the property, notwithstanding any other provision of this Act
or anything in any other federal or provincial law.
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65
Subsection 11.8(9) of the CCAA provides:
11.8(9) A claim against a debtor company for costs of remedying any environmental condition or environmental damage
affecting real property of the company shall be a claim under this Act, whether the condition arose or the damage occurred
before or after the date on which proceedings under this Act were commenced.
66 In my view, the MOE is entitled to file a claim against Northstar for any costs of remedying the environmental condition
at the Cambridge Facility. However, the MOE is not entitled to attempt to use the March 15 Order to create a priority that it
otherwise does not have access to under the legislation.
67
This conclusion is consistent with the views that I expressed in Nortel at paras. 107 and 116 and is in accordance with
the reasoning of AbitibiBowater at paras. 132 and 148, as well as General Chemical at para. 46.
68
With respect to the Heligear Transaction, full details are contained in the affidavit filed in support of the motion.
69
I have considered the factors listed under s. 36(3) of the CCAA. I am satisfied that the record establishes that the
Heligear Agreement was the result of a broad and comprehensive marketing process conducted with the assistance of Harris
Williams. The Sales Process Order approved key elements of the Sales Process, including (a) the execution of the Heligear
Agreement, nunc pro tunc, for the purpose of establishing a stalking horse bid and (b) the Bidding Procedures which governed
the determination of the successful bid.
70
I am satisfied that the CCAA Entities complied with the terms of the Sales Process Order.
71
I am also satisfied that while Northstar conducted a broad and comprehensive marketing process prior to the
commencement of these proceedings, the Monitor has reviewed and supported the approval of the execution of the Heligear
Agreement nunc pro tunc and the approval of the Bidding Procedures as granted in the Sales Process Order.
72
The CCAA Entities take the position that the Heligear Transaction is in the best interests of Northstar's stakeholders,
including its employees, suppliers and customers.
73
I am satisfied that the record establishes that the creditors were adequately consulted and the effects of the Heligear
Transaction are positive. I am also satisfied that the consideration to be received for the Canadian Purchased Assets is reasonable
and fair in the circumstances.
74 In making these statements, I do not in any way wish to diminish the arguments put forth by the MOE and supported by
the Region of Waterloo, the City of Cambridge and GE Canada. The concerns raised by the MOE are real and serious. However,
the reality of the situation is that during the Sales Process, no bidder was willing to purchase — or expressed any interest in
purchasing — the Cambridge Facility, either alone or together with the other assets of Northstar.
75
The reality of the situation was also expressed by counsel to Fifth Third. Counsel submitted that the record is clear that,
if the Heligear Transaction is not approved, Fifth Third will proceed to enforce its rights. As a result of ss. 11.8(8) and (9) of
the CCAA, Fifth Third Bank has a superior priority position to the MOE and would be in a position to commence proceedings
to enforce its rights as such.
76
The practical result at that point would be that Northstar would have no assets available and no ability to comply with
the MOE Order.
77
The reality of the situation is that, regardless of whether the Heligear Transaction is approved, Northstar will not have
the practical ability to comply with the MOE Order. In this respect, the sale of the Canadian Purchased Assets to the Canadian
Purchaser has no real effect on the MOE or any other party with an interest in the Cambridge Facility.
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10
Northstar Aerospace Inc., Re, 2012 ONSC 4423, 2012 CarswellOnt 9607
2012 ONSC 4423, 2012 CarswellOnt 9607, 218 A.C.W.S. (3d) 490, 91 C.B.R. (5th) 268
78
The Heligear Transaction is supported by the Monitor, the CRO, Fifth Third Bank (both as DIP Agent and as Agent for
the Lenders under Northstar's existing secured facility), Boeing, Boeing Capital and the CAW.
79
In addition to the factors set out in s. 36(3), discussed above, s. 36(7) of the CCAA sets out the following restrictions
on the disposition of assets within CCAA proceedings:
36(7) The court may grant the authorization only if the court is satisfied that the company can and will make the
payments that would have been required under paragraphs 6(4)(a) and (5)(a) if the court had sanctioned the compromise
or arrangement.
80 The CCAA Entities have advised that they intend to make the payments of the amounts described in subsections 6(4)(a)
and (5)(a) of the CCAA on their normal due dates from the proceeds of the Heligear Transaction.
81
Counsel to the CAW made reference to issues of successor liability. These issues are not directly before the court today
and do not factor into this endorsement.
Disposition
82 In conclusion, I am satisfied that the Heligear Transaction is in the best interests of Northstar's stakeholders, including its
employees, suppliers and customers. The proceeds of the Transaction will be available for distribution to the CCAA Entities'
creditors in accordance with their legal priorities. The Lenders have asserted a claim against the proceeds of the Heligear
Transaction. Independent counsel to the Monitor has reviewed the Lenders' security and concluded that the security granted
under the Credit Facility is valid, perfected and enforceable.
83
In the result, I am satisfied that the Heligear Transaction should be approved.
84
An order is also made declaring that the MOE is seeking to enforce its rights as a creditor and that the enforcement
of those rights is stayed.
85
Further, MOE's request to lift the stay is denied on the basis that the MOE is seeking to create a super priority claim
by way of the March 15 Order. Such a priority is not recognized at law and, consequently, it is appropriate that the MOE's
enforcement of its rights as a creditor should be stayed.
86
An order is also granted vesting all of the Canadian Purchased Assets in the Canadian Purchaser free and clear of all
restrictions.
87
Finally, the Monitor is authorized and directed, on closing of the Heligear Transaction, to make distributions to the DIP
Agent for the DIP Lenders and to the Lenders in accordance with their legal priorities.
88
I thank counsel for their comprehensive submissions and argument in connection with this matter.
Debtor companies' motion granted; Ministry's motion dismissed.
End of Document
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11
Tab 9
AbitibiBowater, (Re), 2009 QCCS 6461, 2009 CarswellQue 14224
2009 QCCS 6461, 2009 CarswellQue 14224, 190 A.C.W.S. (3d) 678, EYB 2009-171231
2009 QCCS 6461
Quebec Superior Court
AbitibiBowater, (Re)
2009 CarswellQue 14224, 2009 QCCS 6461, 190 A.C.W.S. (3d) 678, EYB 2009-171231
AbitibiBowater Inc., Abitibi-Consolidated Inc., Bowater Canadian
Holdings Inc. and The other Petitioners listed on Schedules
"A", "B" and "C", Petitioners and Ernst & Young Inc., Monitor
Gascon J.C.S.
Heard: November 9, 2009
Judgment: November 16, 2009
Docket: C.S. Qué. Montréal 500-11-036133-094
Counsel: Me Sean Dunphy, Me Joseph Reynaud, for Petitioners
Me Robert Thornton, for the Monitor
Me Jason Dolman, for the Monitor
Me Alain Riendeau, for Wells Fargo Bank, N.A., Administrative Agent under the Credit and Guarantee Agreement Dated April
1, 2008
Me Marc Duchesne, for the Ad hoc Committee of the Senior Secured Noteholders and U.S. Bank National Association,
Indenture Trustee for the Senior Secured Noteholders
Me Frederick L. Myers, for the Ad Hoc Committee of Unsecured Noteholders of AbitibiBowater Inc. and certain of its Affiliates
Me Jean-Yves Simard, for the Ad Hoc Committee of Unsecured Noteholders of AbitibiBowater Inc. and certain of its Affiliates
Me Patrice Benoît, for Investissement Québec
Me S. Richard Orzy, for the Official Committee of Unsecured Creditors of AbitibiBowater Inc. & Al.
Me Frédéric Desmarais, for Bank of Montreal
Me Anastasia Flouris, for Alcoa
Subject: Insolvency
Gascon J.C.S.:
CORRECTED JUDGMENT, NOVEMBER 23 ON RE-AMENDED MOTION FOR THE APPROVAL OF A SECOND DIP
FINANCING AND FOR DISTRIBUTION OF CERTAIN PROCEEDS OF THE MPCo SALE TRANSACTION TO THE
TRUSTEE FOR THE SENIOR SECURED NOTES (#312)
Introduction
1
In the context of their CCAA 1 restructuring, the Abitibi Petitioners 2 present a Motion 3 for 1) the approval of a second
DIP financing and 2) the distribution of certain proceeds of the Manicouagan Power Company ("MPCo") sale transaction to
the Senior Secured Noteholders ("SSNs").
2
More particularly, the Abitibi Petitioners seek:
1) Orders authorizing Abitibi Consolidated Inc. ("ACI") and Abitibi Consolidated Company of Canada Inc. ("ACCC")
to enter into a Loan Agreement (the "ULC DIP Agreement") with 3239432 Nova Scotia Company ("ULC"), as lender,
providing for a CDN$230 million super-priority secured debtor in possession credit facility (the "ULC DIP Facility").
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The ULC DIP Facility is to be funded from the ULC reserve of approximately CDN$282.3 million (the "ULC Reserve"),
with terms that will be substantially in the form of the term sheet (the "ULC DIP Term Sheet") attached to the ULC DIP
Motion;
2) Orders authorizing the distribution to the SSNs of up to CDN$200 million upon completion of the sale of ACCC's 60%
interest in MPCo and Court approval of the ULC DIP Agreement.
The distribution is to be paid from the net proceeds of the MPCo sale transaction after the payments, holdbacks, reserves
and deductions provided for in the Implementation Agreement agreed upon in regard to that transaction; and
3) Orders amending the Second Amended Initial Order to increase the super priority charge set out in paragraph 61.3 (the
"ACI DIP Charge") in respect of the ACI DIP Facility by an amount of CDN$230 million in favour of ULC for all amounts
owing in connection with the ULC DIP Facility.
This increase in the ACI DIP Charge is to still be subordinated to any and all subrogated rights in favour of the SSNs,
the lenders under the ACCC Term Loan (the "Term Lenders") and McBurney Corporation, McBurney Power Limited and
MBB Power Services Inc. (the "Lien Holders") arising under paragraph 61.10 of the Second Amended Initial Order.
3 The SSNs and the Term Lenders, the only two secured creditor groups of the Abitibi Petitioners, do not, in the end, contest
the ULC DIP Motion. Pursuant to intense negotiations and following concessions made by everyone, an acceptable wording to
the orders sought was finally agreed upon on the eve of the hearing. The efforts of all parties and Counsel involved are worth
mentioning; the help and guidance of the Monitor and its Counsel as well.
4 Of the unsecured creditors and other stakeholders, only the Ad Hoc Unsecured Noteholders Committee (the "Bondholders")
opposes the ULC DIP Motion, and even there, just in part. At hearing, Counsel for the Official Committee of Unsecured
Creditors set up in the corresponding U.S. proceedings pending in the State of Delaware also voiced that his client shared some
of the Bondholders' concerns.
5 In short, while not contesting the request for approval of the second DIP financing, the Bondholders contend that the CDN
$200 million immediate proposed distribution to the SSNs is inappropriate and uncalled for at this time.
6
Before analyzing the various orders sought, an overview of the MPCo sale transaction and of the ULC DIP Facility that
are the subject of the debate is necessary.
The MPCo Sale Transaction
7
The MPCo sale transaction is central to the orders sought in the ULC DIP Motion.
8 Under the terms of an Implementation Agreement signed in that regard, Hydro-Québec ("HQ") agreed to pay ACCC CDN
$615 million (the "Purchase Price") for ACCC's 60% interest in MPCo.
9 Of this amount, it is expected that (i) CDN$25 million will be paid at closing to Alcoa, the owner of the other 40% interest in
MPCo, for tax liabilities; (ii) approximately CDN$31 million will be held by HQ for two years to secure various indemnifications
(the "HQ Holdback"); (iii) certain inter-party accounts will be settled; (iv) the CDN$282.3 million ULC Reserve, set up primarily
to guarantee potential contingent pension liabilities and taxes resulting from the Proposed Transactions, will be held by the
Monitor in trust for the ULC pending further Order of the Court; and (v) the ACI DIP Facility will be repaid.
10
That said, until the sale, ACCC's 60% interest in MPCo remains subject to the SSN's first ranking security. This first
ranking security interest has never been contested by any party. In fact, after their review of same, the Monitor's Counsel
concluded that it is valid and enforceable 4 .
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11
Accordingly, the proceeds of the sale less adjustments, holdbacks and reserve would normally be paid to the SSNs as
holders of valid first ranking security over this asset.
12 To that end, the SSNs' claim of US$477,545,769.53 (US$413 million in principal and US$64,545,769.53 in interest as at
October 1st, 2009) is not really contested except for a 0.5% to 2% additional default interest over the 13.75% original loan rate.
13
In that context, on September 29, 2009, the Court issued an Order approving the sale of ACCC's 60% interest in MPCo
on certain conditions. Amongst others, the Court:
a) Approved the terms and conditions of the Implementation Agreement;
b) Authorized and directed ACI and ACCC to implement and complete the Proposed Transactions with such non-material
alterations or amendments as the parties may agree to with the consent of the Monitor;
c) Declared that (i) the proceeds from the Proposed Transactions, net of certain payments, holdbacks, reserves and
deductions, and (ii) the shares of the ULC, shall constitute and be treated as proceeds of the disposition of ACCC's MPCo
shares (collectively, the "MPCo Share Proceeds");
d) Declared that the MPCo Share Proceeds extend to and include (a) ACCC's interest in the HQ Holdback and (b) ACCC's
interest in claims arising from the satisfaction of related-party claims;
e) Declared that the MPCo Share Proceeds will be subject to a replacement charge (the "MPCo Noteholder Charge") in
favour of the SSNs with the same rank and priority as the security held in respect of the ACCC's MPCo shares;
f) Declared that the ULC Reserve is subject to a charge in favour of the SSNs which is subordinate to a charge in favour
of Alcoa (the "ULC Reserve Charge"); and
g) Ordered that the cash component of the MPCo Share Proceeds and the ULC Reserve be paid to and held by the Monitor
in an interest bearing account or investment grade marketable securities pending further Order of the Court.
14 The Proposed Transactions are not expected to close until the latter part of November or early December 2009. ACI has
requested and obtained an extension from Investissement Quebec ("IQ") to December 15, 2009 for the repayment of the ACI
DIP Facility that matured on November 1st, 2009.
15
Based on the amounts of the significant payments, holdbacks, reserves and deductions from the Purchase Price, and
considering that the amount drawn under the ACI DIP Facility presently stands at CDN$54.8 million, the Net Available Proceeds
after payment of the ACI DIP Facility would be approximately CDN$173.9 million.
The Ulc DIP Facility
16 Pursuant to the Implementation Agreement, ULC is required to maintain the ULC Reserve. On the closing of the Proposed
Transactions, ULC will hold the ULC Reserve in the amount of approximately CDN$282.3 million.
17
This amount may be used for a limited number of purposes (the "Permitted Investments") that are described in the
Implementation Agreement. Such Permitted Investments include making a DIP loan to either ACI or ACCC.
18
Based on that, the ULC DIP Term Sheet provides that the ACI Group will borrow CDN$230 million from the ULC
Reserve as a Permitted Investment.
19
According to the Monitor 5 , the significant terms of the ULC DIP Term Sheet are as follows:
i) Manner of Borrowing — Initially, the ULC DIP Facility was to be available by way of an immediate draw of CDN$230
million. After negotiations with the Term Lenders, it was rather agreed that (i) a first draw of CDN$130 million will be
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advanced at closing, (ii) subsequent draws for a maximum total amount of CDN$50 million in increments of up to CDN
$25 million will be advanced upon a five (5) business day notice and in accordance with paragraph 61.11 of the Second
Amended Initial Order, and (iii) the balance of CDN$50 million shall become available upon further order of the Court.
ii) Interest Payments — No interest will be payable on the ULC DIP Facility;
iii) Fees — No fees are payable in respect of the ULC DIP Facility;
iv) Expenses — The borrowers will pay all reasonable expenses incurred by ULC and Alcoa in connection with the ULC
DIP Facility;
v) Reporting — Reporting will be similar to that provided under the ACI DIP Facility and copies of all financial information
will be placed in the data room. Reporting will include notice of events of default or maturing events of default;
vi) Use of Proceeds — The ULC DIP Facility will be used for general corporate purposes in material compliance with the
13-week cash flow forecasts to be provided no less frequently than the first Friday of each month (the "Budget");
vii) Events of Default — The events of default include the following:
(a) Substantial non-compliance with the Budget;
(b) Termination of the CCAA Stay of Proceedings;
(c) Failure to file a CCAA Plan with the Court by September 30, 2010; and
(d) Withdrawal of the existing Securitization Program unless replaced with a reasonably similar facility;
viii) Rights of Alcoa — Alcoa will receive all reporting noted above and notices of events of default. Alcoa's consent is
required for any amendments or waivers;
ix) Rights of Senior Secured Noteholders — The Senior Secured Noteholders'rights consist of:
(a) Receiving all reporting noted above and any notice of an Event of Default;
(b) Consent of Senior Secured Noteholders holding a majority of the principal amount of the Senior Secured Notes is
required for any amendments to the maximum amount of the ULC DIP Facility or any change to the Outside Maturity
Date or the interest rate;
(c) Upon an Event of Default, there is no right to accelerate payment or maturity, subject to the right to apply to Court
for the termination of the ULC DIP Facility, which right is without prejudice to the right of ACI, ACCC, the ULC
or Alcoa to oppose such application;
(d) Entitlement to review draft of documents, but final approval of such documents is in Alcoa's sole discretion; and
(e) Entitlement to request the approval of the Court to amend any monthly cash flow budget which has been filed;
x) Security — Security is similar to the existing ACI DIP Facilityand ranking immediately after the existing ACI DIP
Charge. There are no charges on the assets of the Chapter 11 Debtors (as defined in the existing ACI DIP Facility).
20 The Monitor notes that the ULC DIP Facility will provide the ACI Group with additional net liquidity (after the retirement
of the ACI DIP Facility and after the payment of the proposed distribution to the SSNs) in the amount of some CDN$167 million.
The Questions at Issue
21
In light of this background, the Court must answer the following questions:
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1) Should the ULC DIP Facility of CDN$230 million be approved?
2) Should the proposed distribution of CDN$200 million to the SSNs be authorized?
3) Is the wording of the orders sought appropriate, notably with regard to the additions proposed by the Bondholders in
terms of the future steps to be taken by the Abitibi Petitioners?
Analysis and Discussion
1) The Approval of the DIP Financing
22 In the Court's opinion, the second DIP financing, that is, the ULC DIP Facility of CDN$230 million, should be approved
on the amended terms agreed upon by the numerous parties involved.
23
In this restructuring, the Court has already approved DIP financing in respect of both the Abitibi Petitioners and the
Bowater Petitioners.
24
On April 22, 2009, it issued a Recognition Order (U.S. Interim DIP Order) recognizing an Interim Order of the U.S.
Bankruptcy Court for a DIP loan of up to US$206 million to the Bowater Petitioners. On May 6, 2009, it approved the ACI
DIP Facility, a US$100 million loan to the Abitibi Petitioners by Bank of Montreal ("BMO"), guaranteed by IQ.
25
The jurisdiction of the Court to approve DIP financing and the requirement of the Abitibi Petitioners for such were
canvassed at length in the May 6 Judgment. The requirements of the Abitibi Petitioners for liquidity and the authority of the
Court to approve agreements to satisfy those requirements have already been reviewed and ruled upon.
26 There have been no circumstances intervening since the approval of the ACI DIP Facility that can fairly be characterized
as negating the requirement of the Abitibi Petitioners for DIP financing.
27 The only issue here is whether this particular ULC DIP Facility proposal, replacing as it does the prior ACI DIP Facility,
is one that the Court ought to approve. As indicated earlier, the answer is yes.
28
At this stage in the proceedings where the phase of business stabilization is largely complete, the Court is not required
to approach the subject of DIP financing from the perspective of excessive caution or parsimony.
29
On the one hand, as highlighted notably by the Monitor 6 , the Abitibi Petitioners have presented substantial reasons to
support their need for liquidity by way of a DIP loan. Suffice it to note to that end that:
a) Without an adequate cushion, in view of potential adverse exchange rate fluctuations and further adverse price declines
in the market, the Abitibi Petitioners'liquidity could easily be insufficient to meet the requirements of its Securitization
Program (Monitor's 19th Report at paragraphs 49, 50 and chart at paragraph 61);
b) Absent a DIP loan, there is, in fact, a "high risk of default" under the Securitization Program (Monitor's 19 th Report
at paragraph 32);
c) Despite Abitibi Petitioners'best efforts at forecasting, weekly cash flow forecasts have varied by as much as US$26
million. Weekly disbursements have varied by 100%. Each 1¢ variation in the foreign exchange rate as against the US
dollar could produce a US$17 million negative cash flow variation. The ultimate cash flow requirements will be highly
dependent on variables that the Abitibi Petitioners'cannot control (Monitor's 19th Report at paragraphs 54, 60 and 61);
d) The market decline has eroded the Abitibi Petitioners'liquidity, while foreign exchange fluctuations are placing further
strain on this liquidity. Even if prices increase, the resulting need for additional working capital to increase production
will paradoxically put yet further strain on this liquidity;
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e) Without the ULC DIP Facility, the Abitibi Petitioners would lack access to sufficient operating credit to maintain normal
operations. They would be significantly impaired in their ability to operate in the ordinary course and they would face an
increase in the risk of unexpected interruptions; and
f) The Abitibi Petitioners have yet to complete their business plan and it is premature to predict the length of the proceedings
(Monitor's 19 th Report at paragraphs 47 and 48).
30 In fact, based upon its sensitivity analysis, the inter-month variability of the cash flows, the minimum liquidity requirements
under the Securitization Program, and the requirement to repay the ACI DIP Facility, the Monitor is of the view that the Abitibi
Petitioners need the new ULC DIP Facility to ensure that ACI has sufficient liquidity to complete its restructuring.
31
On the other hand, the reasonableness of the amount of the ULC DIP Facility is supported by the following facts:
a) Only about CDN$168 million of incremental liquidity is being provided and post-transaction, the Abitibi Petitioners
will have, at best, about CDN$335 million of liquidity (Monitor's 19 th Report at paragraph 68);
b) The Bowater Petitioners, a group of the same approximate size as the Abitibi Petitioners, enjoy liquidity of approximately
US$400 million (Monitor's 19th Report at paragraph 69) and a DIP facility of approximately US$200 million;
c) Even with the ULC DIP Facility, the Abitibi Petitioners will be at the low end of average relative to their peers in terms
of available liquidity relative to their size;
d) The cash flow of the Abitibi Petitioners is subject to significant intra-month variations and has risks associated with
pricing and currency fluctuations which are larger the longer the period examined; and
e) The Abitibi Petitioners are required by the Securitization Facility to maintain liquidity on a rolling basis above US
$100 million.
32
In addition, the Court and the stakeholders have all the means necessary at their disposal to monitor the use of liquidity
without, at the same time, having to ration its access at a level far below that enjoyed by the peers with whom the Abitibi
Petitioners compete.
33 In this regard, it is important to emphasize that the ULC DIP Facility includes, after all, particularly interesting conditions
in terms of interest payments and associated fees. Because ULC is the lender, none are payable.
34 Finally, the provisions of section 11.2 of the amended CCAA, and in particular the factors for review listed in subsection
11.2(4), are instructive guidelines to the exercise of the Court's discretion to approve the ULC DIP Facility.
35 Pursuant to subsection 11.2(4) of the amended CCAA, for restructurings undertaken after September 18, 2009, the judge
is now directed to consider the following factors in determining whether to exercise his or her discretion to make an order
such as this one:
a) The period during which the company is expected to be subject to CCAA proceedings;
b) How the company's business and financial affairs are to be managed during the proceedings;
c) Whether the company's management has the confidence of its major creditors;
d) Whether the loan would enhance the prospects of a viable compromise or arrangement being made;
e) The nature and value of the company's property;
f) Whether any creditor would be materially prejudiced as a result of the security or charge; and
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g) The Monitor's report.
36 Applying these criteria to this case, it is, first, premature to speculate how long the Abitibi Petitioners will remain subject
to proceedings under the CCAA.
37 The Monitor's 19 th Report has considered cash flow forecasts until December 2010. The Abitibi Petitioners are hopeful
of progressing to a plan outline by year-end with a view to emergence in the first or second quarter of 2010.
38 In considering a DIP financing proposal, the Court can take note of the fact that the time and energies ought, at this stage
in the proceedings, to be more usefully and profitably devoted to completing the business restructuring, raising the necessary
exit financing and negotiating an appropriate restructuring plan with the stakeholders.
39
Second, even if the ULC DIP Facility of CDN$230 million is a high, albeit reasonable, figure under the circumstances,
access to the funds and use of the funds remain closely monitored.
40 Based on the compromise reached with the Term Lenders, access to the funds will be progressive and subject to control. The
initial draw is limited to CDN$130 million. Subsequent additional draws up to CDN$50 million will be in maximum increments
of CDN$25 million and subject to prior notice. The final CDN$50 million will only be available with the Court's approval.
41
As well, the use of the funds is subject to considerable safeguards as to the interests of all stakeholders. These include
the following:
a) The Monitor is on site monitoring and reviewing cash flow sources and uses in real time with full access to senior
management, stakeholders and the Court;
b) Stakeholders have very close to real time access to financial information regarding sources and use of cash flow by
reason of the weekly cash flow forecasts provided to their financial advisors and the weekly calls with such financial
advisors, participated in by senior management;
c) The Monitor provides regular reporting to the Court including as to the tracking of variances in cash use relative to
forecast and as to evolution of the business environment in which the Abitibi Petitioners are operating; and
d) All stakeholders have full access to this Court to bring such motions as they see fit should a material adverse change
in the business or affairs intervene.
42
Third, there has been no suggestion that the management of the Abitibi Petitioners has lost the confidence of its major
creditors. To the contrary:
a) Management has successfully negotiated a settlement of very complex and thorny issues with both the Term Lenders
and the SSNs, which has enabled this ULC DIP Motion to be brought forward with their support;
b) While management does not agree with all positions taken by the Bondholders at all times, it has by and large enjoyed
the support of that group throughout these proceedings;
c) Management has been attentive to the suggestions and guidance of the Monitor with the result that there have been few
if any instances where the Monitor has been publicly obliged to oppose or take issue with steps taken;
d) Management has been proactive in hiring a Chief Restructuring Officer who has provided management with additional
depth and strength in navigating through difficult circumstances; and
e) The Abitibi Petitioners' management conducts regular meetings with the financial advisors of their major stakeholders,
in addition to having an "open door" policy.
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43
The Court is satisfied that, in requesting the approval of the ULC DIP Facility, management is doing so with a broad
measure of support and the confidence of its major creditor constituencies.
44
Fourth, with an adequate level of liquidity, the Abitibi Petitioners will be able to run their business as a going concern
on as normal a basis as possible, with a view to enhancing and preserving its value while the restructuring process proceeds.
45
By facilitating a level of financial support that is reasonable and adequate and of sufficient duration to enable them
to complete the restructuring on most reasonable assumptions, the Abitibi Petitioners will have the benefit of an umbrella of
stability around their core business operations.
46
In the Court's opinion, this can only facilitate the prospects of a viable compromise or arrangement being found.
47
Fifth, there are only two secured creditor groups of the Abitibi Petitioners: the SSNs and the Term Lenders. After long
and difficult negotiations, they finally agreed to an acceptable wording to the orders sought. No one argues any longer that it
is prejudiced in any way by the proposed security or charge.
48
Lastly, sixth, the Monitor has carefully considered the positions of all of the stakeholders as well as the reasonableness
of the Abitibi Petitioners' requirements for the proposed ULC DIP Facility. Having reviewed both the impact of the proposed
ULC DIP Facility on stakeholders and its beneficial impact upon the Abitibi Petitioners, the Monitor recommends approval
of the ULC DIP Facility.
49
On the whole, in approving this ULC DIP Facility, the Court supports the very large consensus reached and the fine
balance achieved between the interests of all stakeholders involved.
2) The Distribution to the SSNs
50
The approval of the terms of the ULC DIP Facility by the SSNs is intertwined with the Abitibi Petitioners' agreement
to support a distribution in their favor in the amount of CDN$200 million.
51
The Abitibi Petitioners and the SSNs consider that since the MPCo proceeds were and are subject to the security of the
SSNs, this arrangement or compromise is a reasonable one under the circumstances.
52
They submit that the proposed distribution will be of substantial benefit to the Abitibi Petitioners. Savings of at least
CDN$27.4 million per year in accruing interest costs on the CDN$200 million to be distributed will be realized based on the
13.75% interest rate payable to the SSNs.
53
Needless to say, they maintain that the costs saved will add to the potential surplus value of SSNs' collateral that could
be utilized to compensate any creditor whose security may be impaired in the future in repaying the ULC DIP Facility.
54
The Bondholders oppose the CDN$200 million distribution to the SSNs.
55 In their view, given the Abitibi Petitioners'need for liquidity, the proposed payment of substantial proceeds to one group
of creditors raises important issues of both propriety and timing. It also brings into focus the need for the CCAA process to move
forward efficiently and effectively towards the goal of the timely negotiation and implementation of a plan of arrangement.
56
The Bondholders claim that the proposed distribution violates the CCAA. From their perspective, nothing in the statute
authorizes a distribution of cash to a creditor group prior to approval of a plan of arrangement by the requisite majorities of
creditors and the Court. They maintain that the SSNs are subject to the stay of proceedings like all other creditors.
57 By proposing a distribution to one class of creditors, the Bondholders contend that the other classes of creditors are denied
the ability to negotiate a compromise with the SSNs. Instead of bringing forward their proposed plan and creating options for the
creditors for negotiation and voting purposes, the Abitibi Petitioners are thus eliminating bargaining options and confiscating
the other creditors'leverage and voting rights.
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58
Accordingly, the Bondholders conclude that the proposed distribution should not be considered until after the creditors
have had an opportunity to negotiate a plan of arrangement or a compromise with the SSNs.
59 In the interim, they suggest that the Abitibi Petitioners should provide a business plan to their legal and financial advisors
by no later than 5:00 p.m. on November 27, 2009. They submit that a restructuring and recapitalization term sheet on terms
acceptable to them and their legal and financial advisors should also be provided by no later than 5:00 p.m. on December 11,
2009.
60
With all due respect for the views expressed by the Bondholders, the Court considers that, similarly to the ULC DIP
Facility, the proposed distribution should be authorized.
61 To begin with, the position of the Bondholders is, under the circumstances, untenable. While they support the CDN$230
million ULC DIP Facility, they still contest the CDN$200 million proposed distribution that is directly linked to the latter.
62
The Court does not have the luxury of picking and choosing here. What is being submitted for approval is a global
solution. The compromise reached must be considered as a whole. The access to additional liquidity is possible because of the
corresponding distribution to the SSNs. The amounts available for both the ULC DIP Facility and the proposed distribution
come from the same MPCo sale transaction.
63
The compromise negotiated in this respect, albeit imperfect, remains the best available and viable solution to deal with
the liquidity requirements of the Abitibi Petitioners. It follows a process and negotiations where the views and interests of most
interested parties have been canvassed and considered.
64
To get such diverse interest groups as the Abitibi Petitioners, the SSNs, the Term Lenders, BMO and IQ, and ULC
and Alcoa to agree on an acceptable outcome is certainly not an easy task to achieve. Without surprise, it comes with certain
concessions.
65
It would be very dangerous, if not reckless, for the Court to put in jeopardy the ULC DIP Facility agreed upon by most
stakeholders on the basis that, perhaps, a better arrangement could eventually be reached in terms of distribution of proceeds
that, on their face, appear to belong to the SSNs.
66
The Court is satisfied that both aspects of the ULC DIP Motion are closely connected and should be approved together.
To conclude otherwise would potentially put everything at risk, at a time where stability is most required.
67 Secondly, it remains that ACCC's interest in MPCo is subject to the SSNs' security. As such, all proceeds of the sale less
adjustments, holdbacks and reserves should normally be paid to the SSNs. Despite this, provided they receive the CDN$200
million proposed distribution, the SSNs have consented to the sale proceeds being used by the Abitibi Petitioners to pay the
existing ACI DIP Facility and to the ULC Reserve being used up to CDN$230M for the ULC DIP Facility funding.
68
It is thus fair to say that the SSNs are not depriving the Abitibi Petitioners of liquidity; they are funding part of the
restructuring with their collateral and, in the end, enhancing this liquidity.
69 The net proceeds of the MPCo transaction after payment of the ACI DIP Facility are expected to be CDN$173.9 million.
Accordingly, out of a CDN$200 million distribution to the SSNs, only CDN$26.1 million could technically be said to come
from the ULC DIP Facility. Contrary to what the Bondholders alluded to, if minor aspects of the claims of the SSNs are disputed
by the Abitibi Petitioners, they do not concern the CDN$200 million at issue.
70
Thirdly, the ULC DIP Facility bears no interest and is not subject to drawdown fees, while a distribution of CDN$200
million to the SSNs will create at the same time interest savings of approximately CDN$27 million per year for the ACI Group.
There is, as a result, a definite economic benefit to the contemplated distribution for the global restructuring process.
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71
Despite what the Bondholders argue, it is neither unusual nor unheard of to proceed with an interim distribution of net
proceeds in the context of a sale of assets in a CCAA reorganization. Nothing in the CCAA prevents similar interim distribution
of monies. There are several examples of such distributions having been authorized by Courts in Canada 7 .
72 While the SSNs are certainly subject to a stay of proceedings much like the other creditors involved in the present CCAA
reorganization, an interim distribution of net proceeds from the sale of an asset subject to the Court's approval has never been
considered a breach of the stay.
73 In this regard, the Bondholders have no economic interest in the MPCo assets and resulting proceeds of sale that are subject
to a first ranking security interest in favor of the SSNs. Therefore, they are not directly affected by the proposed distribution
of CDN$200 million.
74 In Windsor Machine & Stamping Ltd. (Re), 8 Morawetz J. dealt with the opposition of unsecured creditors to an Approval
and Distribution Order as follows:
13 Although the outcome of this process does not result in any distribution to unsecured creditors, this does not give
rise to a valid reason to withhold Court approval of these transactions. I am satisfied that the unsecured creditors have
no economic interest in the assets.
75 Finally, even though the Monitor makes no recommendation in respect of the proposed distribution to the SSNs, this can
hardly be viewed as an objection on its part. In the first place, this is not an issue upon which the Monitor is expected to opine.
Besides, in its 19 th report, the Monitor notes the following in that regard:
a) According to its Counsel, the SSNs security on the ACCC's 60% interest in MPCo is valid and enforceable;
b) The amounts owed to the SSNs far exceed the contemplated distribution while the SSNs' collateral is sufficient for the
SSNs' claim to be most likely paid in full;
c) The proposed distribution entails an economy of CDN$27 million per year in interest savings; and
d) Even taking into consideration the CDN$200 million proposed distribution, the ULC DIP Facility provides the Abitibi
Petitioners with the liquidity they require for most of the coming year.
76
All things considered, the Court disagrees with the Bondholders' assertion that the proposed distribution is against the
goals and objectives of the CCAA. For some, it may only be a small step. However, it is a definite step in the right direction.
77 Securing the most needed liquidity at issue here and reducing substantially the extent of the liabilities towards a key secured
creditor group no doubt enhances the chances of a successful restructuring while bringing stability to the on-going business.
78
This benefits a large community of interests that goes beyond the sole SSNs.
79
From that standpoint, the Court is satisfied that the restructuring is moving forward properly, with reasonable diligence
and in accordance with the CCAA ultimate goals.
80 Abitibi Petitioners' firm intention, reiterated at the hearing, to shortly provide their stakeholders with a business plan and
a restructuring and recapitalization term sheet confirms it as well.
3) The Orders Sought
81
In closing, the precise wording of the orders sought has been negotiated at length between Counsel. It is the result of a
difficult compromise reached between many different parties, each trying to protect distinct interests.
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82 Nonetheless, despite their best efforts, this wording certainly appears quite convoluted in some cases, to say the least. The
proposed amendment to the subrogation provision of the Second Amended Initial Order is a vivid example. Still, the mechanism
agreed upon, however complicated it might appear to some, remains acceptable to all affected creditors.
83
The delicate consensus reached in this respect must not be discarded lightly. In view of the role of the Court in CCAA
proceedings, that is, one of judicial oversight, the orders sought will thus be granted as amended, save for limited exceptions.
To avoid potential misunderstandings, the Court felt necessary to slightly correct the specific wording of some conclusions.
The orders granted reflect this.
84 Turning to the conclusions proposed by the Bondholders at paragraphs 8 to 11 of the draft amended order (now paragraphs
6 to 9 of this Order), the Court considers them useful and appropriate. They assist somehow in bringing into focus the need for
this CCAA process to continue to move forward efficiently.
85 Minor adjustments to some of the wording are, however, required in order to give the Abitibi Petitioners some flexibility
in terms of compliance with the ULC DIP documents and cash flow forecast.
86
For the expected upcoming filing by the Abitibi Petitioners of their business plan and restructuring and recapitalization
term sheet, the Court concludes that simply giving act to their stated intention is sufficient at this stage. The deadlines indicated
correspond to the date agreed upon by the parties for the business plan and to the expected renewal date of the Initial Order
for the restructuring and recapitalization term sheet.
FOR THESE REASONS, THE COURT:
ORDERS the provisional execution of this Order notwithstanding any appeal and without the necessity of furnishing any
security.
ULC DIP Financing
1
ORDERS that the Abitibi Petitioners are hereby authorized and empowered to enter into, obtain and borrow under a
credit facility provided pursuant to a loan agreement(the "ULC DIP Agreement") among ACI, as borrower, and 3239432 Nova
Scotia Company, an unlimited liability company ("ULC"), as lender (the "ULC DIP Lender"), to be approved by Alcoa acting
reasonably, which terms will be consistent with the ULC DIP Term Sheet communicated as Exhibit R-1 in support of the ULC
DIP Motion, subject to such non-material amendments and modifications as the parties may agree with a copy thereof being
provided in advance to the Monitor and to modifications required by Alcoa, acting reasonably, which credit facility shall be in
an aggregate principal amount outstanding at any time not exceeding $230 million.
2
ORDERS that the credit facility provided pursuant to the ULC DIP Agreement (the "ULC DIP") will be subject to the
following draw conditions:
a) a first draw of $130 million to be advanced at closing;
b) subsequent draws for a maximum total amount of $50 million in increments of up to $25 million to be advanced upon
a five (5) business day notice and in accordance with paragraph 61.11 of the Second Amended Initial Order which shall
apply mutatis mutandis to advances under the ULC DIP; and
c) the balance of $50 million shall become available upon further order of the Court.
At the request of the Borrower, all undrawn amounts under the ULC DIP shall either (i) be transferred to the Monitor to be
held in an interest bearing account for the benefit of the Borrower providing that any requests for advances thereafter shall
continue to be made and processed in accordance herewith as if the transfer had not occurred, or (ii) be invested by ULC in
an interest bearing account with all interest earned thereon being for the benefit of and remitted to the Borrower forthwith
following receipt thereof.
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3
ORDERS the Petitioners to communicate a draft of the substantially final ULC DIP Agreement (the "Draft ULC DIP
Agreement") to the Monitor and to any party listed on the Service List which requests a copy of same (an "Interested Party") no
later than five (5) days prior to the anticipated closing of the MPCo Transaction, as said term is defined in the ULC DIP Motion.
4 ORDERS that any Interested Party who objects to any provisions of the Draft ULC DIP Agreement as not being substantially
in accordance with the terms of the ULC DIP Term Sheet, Exhibit R-1, or objectionable for any other reason, shall, before the
close of business of the day following delivery of the Draft ULC DIP Agreement, make a request for a hearing before this Court
stating the grounds upon which such objection is based, failing which the Draft ULC DIP Agreement shall be considered to
conform to the ULC DIP Term Sheet and shall be deemed to constitute the ULC DIP Agreement for the purposes of this Order.
5 ORDERS that the Abitibi Petitioners are hereby authorized and empowered to execute and deliver the ULC DIP Agreement,
subject to the terms of this Order and the approval of Alcoa, acting reasonably, as well as such commitment letters, fee letters,
credit agreements, mortgages, charges, hypothecs and security documents, guarantees, mandate and other definitive documents
(collectively with the ULC DIP Agreement, the "ULC DIP Documents"), as are contemplated by the ULC DIP Agreement or
as may be reasonably required by the ULC DIP Lender pursuant to the terms thereof, and the Abitibi Petitioners are hereby
authorized and directed to pay and perform all of their indebtedness, interest, fees, liabilities and obligations to the ULC DIP
Lender under and pursuant to the ULC DIP Documents as and when same become due and are to be performed, notwithstanding
any other provision of this Order.
6
ORDERS that the Abitibi Petitioners shall substantially comply with the terms and conditions set forth in the ULC DIP
Documents and the 13-week cash flow forecast (the "Budget") provided to the financial advisors of the Notice Parties (as
defined in the Second Amended Initial Order) and any Interested Party.
7 ORDERS that, in accordance with the terms and conditions of the ULC DIP Documents, the Abitibi Petitioners shall use the
proceeds of the ULC DIP substantially in compliance with the Budget, that the Monitor shall monitor the ongoing disbursements
of the Abitibi Petitioners under the Budget, and that the Monitor shall forthwith advise the Notice Parties (as defined in the
Second Amended Initial Order) and any Interested Party of the Monitor's understanding of any pending or anticipated substantial
non-compliance with the Budget and/or any other pending or anticipated event of default or termination event under any of
the ULC DIP Documents.
8
GIVES ACT to the Abitibi Petitioners of their stated intention to provide a business plan to the Notice Parties (as defined
in the Second Amended Initial Order) and any Interested Party by no later than 5:00 p.m. on November 27, 2009.
9
GIVES ACT to the Abitibi Petitioners of their stated intention to provide a restructuring and recapitalization term sheet
(the "Recapitalization Term Sheet") to the Notice Parties (as defined in the Second Amended Initial Order) and any Interested
Party by no later than 5:00 p.m. on December 15, 2009.
10
ORDERS that, notwithstanding any other provision of this Order, the Abitibi Petitioners shall pay to the ULC DIP
Lender when due all amounts owing (including principal, interest, fees and expenses, including without limitation, all fees and
disbursements of counsel and all other advisers to or agents of the ULC DIP Lender on a full indemnity basis (the "ULC DIP
Expenses") under the ULC DIP Documents and shall perform all of their other obligations to the ULC DIP Lender pursuant
to the ULC DIP Documents and this Order.
11
ORDERS that the claims of the ULC DIP Lender pursuant to the ULC DIP Documents shall not be compromised or
arranged pursuant to the Plan or these proceedings and the ULC DIP Lender, in such capacity, shall be treated as an unaffected
creditor in these proceedings and in any Plan or any proposal filed by any Abitibi Petitioner under the BIA.
12
ORDERS that the ULC DIP Lender may, notwithstanding any other provision of this Order or the Initial Order:
a) take such steps from time to time as it may deem necessary or appropriate to register, record or perfect the ACI DIP
Charge and the ULC DIP Documents in all jurisdictions where it deems it to be appropriate; and
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b) upon the occurrence of a Termination Event (as each such term is defined in the ULC DIP Documents), refuse to make
any advance to the Abitibi Petitioners and terminate, reduce or restrict any further commitment to the Abitibi Petitioners to
the extent any such commitment remains, set off or consolidate any amounts owing by the ULC DIP Lender to the Abitibi
Petitioners against any obligation of the Abitibi Petitioners to the ULC DIP Lender, make demand, accelerate payment
or give other similar notices, or to apply to this Court for the appointment of a receiver, receiver and manager or interim
receiver, or for a bankruptcy order against the Abitibi Petitioners and for the appointment of a trustee in bankruptcy of
the Abitibi Petitioners, and upon the occurrence of an event of default under the terms of the ULC DIP Documents, the
ULC DIP Lender shall be entitled to apply to the Court to seize and retain proceeds from the sale of any of the Property
of the Abitibi Petitioners and the cash flow of the Abitibi Petitioners to repay amounts owing to the ULC DIP Lender in
accordance with the ULC DIP Documents and the ACI DIP Charge.
13
ORDERS that the foregoing rights and remedies of the ULC DIP Lender shall be enforceable against any trustee in
bankruptcy, interim receiver, receiver or receiver and manager of the Abitibi Petitioners or the Property of the Abitibi Petitioners,
the whole in accordance with and to the extent provided in the ULC DIP Documents.
14
ORDERS that the ULC DIP Lender shall not take any enforcement steps under the ULC DIP Documents or the
ACI DIP Charge without providing five (5) business day (the "Notice Period") written enforcement notice of a default
thereunder to the Abitibi Petitioners, the Monitor, the Senior Secured Noteholders, Alcoa, the Notice Parties (as defined in the
Second AmendedInitial Order) and any Interested Party. Upon expiry of such Notice Period, and notwithstanding any stay of
proceedings provided herein, the ULC DIP Lender shall be entitled to take any and all steps and exercise all rights and remedies
provided for under the ULC DIP Documents and the ACI DIP Charge and otherwise permitted at law, the whole in accordance
with applicable provincial laws, but without having to send any notices under Section 244 of the BIA. For greater certainty,
the ULC DIP Lender may issue a prior notice pursuant to Article 2757 CCQ concurrently with the written enforcement notice
of a default mentioned above.
15
ORDERS that, subject to further order of this Court, no order shall be made varying, rescinding, or otherwise affecting
paragraphs 61.1 to 61.9 of the Initial Order, the approval of the ULC DIP Documents or the ACI DIP Charge unless either (a)
notice of a motion for such order is served on the Petitioners, the Monitor, Alcoa, the Senior Secured Noteholders and the ULC
DIP Lender by the moving party and returnable within seven (7) days after the party was provided with notice of this Order in
accordance with paragraph 70(a) hereof or (b) each of the ULC DIP Lender and Alcoa applies for or consents to such order.
16
ORDERS that 3239432 Nova Scotia Company is authorized to assign its interest in the ULC DIP to Alcoa pursuant to
the security agreements and guarantees to be granted pursuant to the Implementation Agreement and this Court's Order dated
September 29, 2009.
17
AMENDS the Initial Order issued by this Court on April 17, 2009 (as amended and restated) by adding the following
at the end of paragraph 61.3:
ORDERS further, that from and after the date of closing of the MPCo Transaction (as said term is defined in the Petitioners'
ULC DIP Motion dated November 9, 2009) and provided the principal, interest and costs under the ACI DIP Agreement (as
defined in the Order of this Court dated May 6, 2009), are concurrently paid in full, the ACI DIP Charge shall be increased
by the aggregate amount of $230 million (subject to the same limitations provided in the first sentence hereof in relation
to the Replacement Securitization Facility) and shall be extended by a movable and immovable hypothec, mortgage, lien
and security interest on all property of the Abitibi Petitioners (other than the property of Abitibi Consolidated (U.K.) Inc.)
in favour of the ULC DIP Lender for all amounts owing, including principal, interest and ULC DIP Expenses and all
obligations required to be performed under or in connection with the ULC DIP Documents. The ACI DIP Charge as so
increased shall continue to have the priority established by paragraphs 89 and 91 hereof provided such increased ACI DIP
Charge (being the portion of the ACI DIP Charge in favour of the ULC DIP Lender) shall in all respects be subordinate (i)
to the subrogation rights in favour of the Senior Secured Noteholders arising from the repayment of the ACI DIP Lender
from the proceeds of the sale of the MPCo transaction as approved by this Court in its Order of September 29, 2009
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and as confirmed by paragraph 11 of that Order, notwithstanding the amendment of paragraph 61.10 of this Order by the
subsequent Order dated November16,2009, as well as the further subrogation rights, if any, in favour of the Term Lenders;
and (ii) rights in favour of the Term Lenders arising from the use of cash for the payment of interest fees and accessories as
determined by the Monitor. No order shall have the effect of varying or amending the priority of the ACI DIP Charge and
the interest of the ULC DIP Lender therein without the consent of the Senior Secured Noteholders and Alcoa. The terms
"ULC DIP Lender", "ULC DIP Documents", "ULC DIP Expenses", "Senior Secured Noteholders" and "Alcoa" shall be as
defined in the Order of this Court dated November 16,2009. Notwithstanding the subrogation rights created or confirmed
herein, in no event shall the ULC DIP Lender be subordinated to more than approximately $40 million, being the aggregate
of the proceeds of the MPCo Transaction paid to the ACI DIP Lender plus the interest, fees and expenses paid to the ACI
DIP Lender as determined by the Monitor.
ACI DIP Agreement
18
ORDERS that the Abitibi Petitioners are hereby authorized to make, execute and deliver one or more amendment
agreements in connection with the ACI DIP Agreement providing for (i) an extension of the period during which any undrawn
portion of the credit facility provided pursuant to the ACI DIP Agreement shall be available and (ii) the modification of the date
upon which such credit facility must be repaid from November 1, 2009 to the earlier of the closing of the MPCo Transaction
and December 15, 2009, subject to the terms and conditions set forth in the ACI DIP Agreement, save and except for nonmaterial amendments.
Senior Secured Notes Distribution
19
ORDERS that the Abitibi Petitioners are authorized and directed to make a distribution to the Trustee of the Senior
Secured Notes in the amount of $200 million upon completion of the MPCo Transaction (as said term is defined in the ULC
DIP Motion) from the proceeds of such sale and of the ULC DIP Facility, providing always that the ACI DIP is repaid in full
upon completion of the MPCo Transaction.
20 ORDERS that, subject to completion of the ULC DIP (including the initial draw of $130 million thereunder) and providing
always that the ACI DIP is repaid in full upon completion of the MPCo Transaction, the distribution referred to in the preceding
paragraph and the flow of funds upon completion of the MPCo Transaction and the ULC DIP shall be arranged in accordance
with the following principles: (a) MPCo Proceeds shall be used, first, to fund the distribution to the Senior Secured Notes
referenced in the previous paragraph and, secondly, to fund the repayment of the ACI DIP; (b) the initial draw of $130 million
made under the ULC DIP shall fund any remaining balance due to repay in full the ACI DIP and this, upon completion of the
MPCo Transaction. The Monitor shall be authorized to review the completion of the MPCo Transaction, the ULC DIP and the
repayment of the ACI DIP and shall report to the Court regarding compliance with this provision as it deems necessary.
Amendment to the Subrogation Provision
21
ORDERS that Subsection 61.10 of the Initial Order, as amended and restated, is replaced by the following:
Subrogation to ACI DIP Charge
[61.10] ORDERS that the holders of Secured Notes, the Lenders under the Term Loan Facility (collectively,
the "Secured Creditors") and McBurney Corporation, McBurney Power Limited and MBB Power Services Inc.
(collectively, the "Lien Holder") that hold security over assets that are subject to the ACI DIP Charge and that,
as of the Effective Time, was opposable to third parties (including a trustee in bankruptcy) in accordance with
the law applicable to such security (an "Impaired Secured Creditor" and "Existing Security", respectively)
shall be subrogated to the ACI DIP Charge to the extent of the lesser of (i) any net proceeds from the Existing
Security including from the sale or other disposition of assets, resulting from the collection of accounts receivable
or other claims (other than Property subject to the Securitization Program Agreements and for greater certainty, but
without limiting the generality of the foregoing, the ACI DIP Charge shall in no circumstances extend to any assets
sold pursuant to the Securitization Program Agreements, any Replacement Securitization Facility or any assets of
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ACUSFC, the term "Replacement Securitization Facility" having the meaning ascribed to same in Schedule A of the
ACI DIP Agreement) and/or cash that is subject to the Existing Security of such Impaired Secured Creditor that is
used directly to pay (a) the ACI DIP Lender or (b) another Impaired Secured Creditor (including by any means of
realization) on account of principal, interest or costs, in whole or in part, as determined by the Monitor (subject to
adjudication by the Court in the event of any dispute) and (ii) the unpaid amounts due and/or becoming due and/
or owing to such Impaired Secured Creditor that are secured by its Existing Security. For this purpose "ACI DIP
Lender" shall be read to include Bank of Montreal, IQ, the ULC DIP Lender and their successors and assigns,
including any lender or lenders providing replacement DIP financing should same be approved by subsequent order of
this Court. No Impaired Secured Creditor shall be able to enforce its right of subrogation to the ACI DIP Charge until
all obligations to the ACI DIP Lender have been paid in full and providing that all rights of subrogation hereunder
shall be postponed to the right of subrogation of IQ under the IQ Guarantee Offer, and, for greater certainty, no
subrogee shall have any rights over or in respect of the IQ Guarantee Offer. In the event that, following the repayment
in full of the ACI DIP Lender in circumstances where that payment is made, wholly or in part, from net proceeds
of the Existing Security of an Impaired Secured Creditor (the "First Impaired Secured Creditor"), such Impaired
Secured Creditor enforces its right of subrogation to the ACI DIP Charge and realizes net proceeds from the Existing
Security of another Impaired Secured Creditor (the "Second Impaired Secured Creditor"), the Second Impaired
Secured Creditor shall not be able to enforce its right of subrogation to the ACI DIP Charge until all obligations to the
First Impaired Secured Creditor have been paid in full. In the event that more than one Impaired Secured Creditor is
subrogated to the ACI DIP Charge as a result of a payment to the ACI DIP Lender, such Impaired Secured Creditors
shall rank pari passu as subrogees, rateably in accordance with the extent to which each of them is subrogated to
the ACI DIP Charge. The allocation of the burden of the ACI DIP Charge amongst the assets and creditors shall be
determined by subsequent application to the Court if necessary.
[21.1] DECLARES that for the purposes of paragraphs 1, 5, 10, 12, 13, 17 and 18 of the present Order, the term
"Abitibi Petitioners" shall not include Abitibi-Consolidated (U.K.) Inc. added to the schedule of Abitibi Petitioners
by Order of this Court on November 10, 2009;
22
ORDERS the provisional execution of this Order notwithstanding any appeal and without the necessity of furnishing
any security.
23
WITHOUT COSTS.
Schedule "A" — Abitibi Petitioners
1. ABITIBI-CONSOLIDATED INC.
2. ABITIBI-CONSOLIDATED COMPANY OF CANADA
3. 3224112 NOVA SCOTIA LIMITED
4. MARKETING DONOHUE INC.
5. ABITIBI-CONSOLIDATED CANADIAN OFFICE PRODUCTS HOLDINGS INC.
6. 3834328 CANADA INC.
7. 6169678 CANADA INC.
8. 4042140 CANADA INC.
9. DONOHUE RECYCLING INC.
10. 1508756 ONTARIO INC.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
15
AbitibiBowater, (Re), 2009 QCCS 6461, 2009 CarswellQue 14224
2009 QCCS 6461, 2009 CarswellQue 14224, 190 A.C.W.S. (3d) 678, EYB 2009-171231
11. 3217925 NOVA SCOTIA COMPANY
12. LA TUQUE FOREST PRODUCTS INC.
13. ABITIBI-CONSOLIDATED NOVA SCOTIA INCORPORATED
14. SAGUENAY FOREST PRODUCTS INC.
15. TERRA NOVA EXPLORATIONS LTD.
16. THE JONQUIERE PULP COMPANY
17. THE INTERNATIONAL BRIDGE AND TERMINAL COMPANY
18. SCRAMBLE MINING LTD.
19. 9150-3383 QUÉBEC INC.
20. ABITIBI-CONSOLIDATED (U.K.) INC.
Schedule "B" — Bowater Petitioners
1. BOWATER CANADIAN HOLDINGS INC.
2. BOWATER CANADA FINANCE CORPORATION
3. BOWATER CANADIAN LIMITED
4. 3231378 NOVA SCOTIA COMPANY
5. ABITIBIBOWATER CANADA INC.
6. BOWATER CANADA TREASURY CORPORATION
7. BOWATER CANADIAN FOREST PRODUCTS INC.
8. BOWATER SHELBURNE CORPORATION
9. BOWATER LAHAVE CORPORATION
10. ST-MAURICE RIVER DRIVE COMPANY LIMITED
11. BOWATER TREATED WOOD INC.
12. CANEXEL HARDBOARD INC.
13. 9068-9050 QUÉBEC INC.
14. ALLIANCE FOREST PRODUCTS (2001) INC.
15. BOWATER BELLEDUNE SAWMILL INC.
16. BOWATER MARITIMES INC.
17. BOWATER MITIS INC.
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16
AbitibiBowater, (Re), 2009 QCCS 6461, 2009 CarswellQue 14224
2009 QCCS 6461, 2009 CarswellQue 14224, 190 A.C.W.S. (3d) 678, EYB 2009-171231
18. BOWATER GUÉRETTE INC.
19. BOWATER COUTURIER INC.
Schedule "C" — 18.6 CCAA Petitioners
1. ABITIBIBOWATER INC.
2. ABITIBIBOWATER US HOLDING 1 CORP.
3. BOWATER VENTURES INC.
4. BOWATER INCORPORATED
5. BOWATER NUWAY INC.
6. BOWATER NUWAY MID-STATES INC.
7. CATAWBA PROPERTY HOLDINGS LLC
8. BOWATER FINANCE COMPANY INC.
9. BOWATER SOUTH AMERICAN HOLDINGS INCORPORATED
10. BOWATER AMERICA INC.
11. LAKE SUPERIOR FOREST PRODUCTS INC.
12. BOWATER NEWSPRINT SOUTH LLC
13. BOWATER NEWSPRINT SOUTH OPERATIONS LLC
14. BOWATER FINANCE II, LLC
15. BOWATER ALABAMA LLC
16. COOSA PINES GOLF CLUB HOLDINGS LLC
Footnotes
1
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the "CCAA").
2
In this Judgment, all capitalized terms not otherwise defined have the meaning ascribed thereto in either: 1) the Second Amended
Initial Order issued by the Court on May 6, 2009; 2) the Motion for the Distribution by the Monitor of Certain Proceeds of the
MPCo Sale Transaction to U.S. Bank National Association, Indenture and Collateral Trustee for the Senior Secured Noteholders (the
"Distribution Motion") of the Ad Hoc Committee of the Senior Secured Noteholders and U.S. Bank National Association, Indenture
Trustee for the Senior Secured Notes (respectively, the "Committee" and "Trustee", collectively the "SSNs") dated October 6, 2009;
or 3) the Abitibi Petitioners' Re-Amended Motion for the Approval of a Second DIP Financing in Respect of the Abitibi Petitioners
and for the Distribution of Certain Proceeds of the MPCo Sale Transaction to the Trustee for the Senior Secured Notes (the "ULC
DIP Motion") dated November 9, 2009.
3
Re-Amended Motion for the Approval of a Second DIP Financing in Respect of the Abitibi Petitioners and for the Distribution of
Certain Proceeds of the MPCo Sale Transaction to the Trustee for the Senior Secured Notes dated November 9, 2009 (the "ULC
DIP Motion").
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17
AbitibiBowater, (Re), 2009 QCCS 6461, 2009 CarswellQue 14224
2009 QCCS 6461, 2009 CarswellQue 14224, 190 A.C.W.S. (3d) 678, EYB 2009-171231
4
See Monitor's 19 th Report dated October 27, 2009.
5
See Monitor's 19 th Report dated October 27, 2009.
6
See Monitor's 19 th Report dated October 27, 2009.
7
See Re Windsor Machine & Stamping Ltd., 2009 CarswellOnt 4505 (Ont. Sup. Ct.); Re Rol-Land Farms Limited (October 5, 2009),
Toronto 08-CL-7889 (Ont. Sup. Ct.); and Re Pangeo Pharma Inc., (August 14, 2003), Montreal 500-11-021037-037 (Que. Sup. Ct.).
8
Re Windsor Machine & Stamping Ltd., 2009 CarswellOnt 4505 (Ont. Sup. Ct.).
End of Document
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reserved.
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
18
Tab 10
Worldspan Marine Inc., Re, 2011 BCSC 1758, 2011 CarswellBC 3667
2011 BCSC 1758, 2011 CarswellBC 3667, [2012] B.C.W.L.D. 2061...
2011 BCSC 1758
British Columbia Supreme Court
Worldspan Marine Inc., Re
2011 CarswellBC 3667, 2011 BCSC 1758, [2012] B.C.W.L.D. 2061, 211 A.C.W.S. (3d) 557, 86 C.B.R. (5th) 119
In the Matter of the Companies' Creditors
Arrangement Act, R.S.C. 1985, c. C-36, as amended
And In the Matter of the Canada Business Corporations Act, R.S.C.
1985, c. C-44 and the Business Corporations Act, S.B.C. 2002, c. 57
And In the Matter of Worldspan Marine Inc., Crescent Custom Yachts Inc., Queenship Marine
Industries Ltd., 27222 Developments Ltd. and Composite FRP Products Ltd. (Petitioners)
Pearlman J.
Heard: December 16, 2011
Judgment: December 21, 2011
Docket: Vancouver S113550
Counsel: J.R. Sandrelli, J.D. Schultz for Petitioners, Worldspan Marine Inc., Crescent Custom Yachts Inc., Queenship Marine
Industries Ltd., 27222 Developments Ltd. and Composite FRP Products
K. Jackson, V. Tickle for Wolrige Mahon (the "VCO"):
K.E. Siddall for Respondent, Harry Sargeant III
J. Leathley, Q.C. for Ontrack Systems Ltd.
D. Rossi for Mohammed Al-Saleh
G. Wharton, P. Mooney for Offshore Interiors Inc., Paynes Marine Group, Restaurant Design and Sales LLC, Arrow
Transportation Systems and CCY Holdings Inc.
N. Beckie for Canada Revenue Agency
J. McLean, Q.C. for Comerica Bank
G. Dabbs for The Monitor
Subject: Insolvency; Corporate and Commercial
Headnote
Bankruptcy and insolvency --- Companies' Creditors Arrangement Act — Initial application — Grant of stay —
Extension of order
W Inc. and other debtor companies entered into agreement with S for construction of custom motor vessel — Dispute
arose over cost of construction of vessel and S ceased making payments to companies under agreement — Companies
ceased construction of vessel and laid off 97 employees who were working on it — Companies applied for relief under
Companies' Creditors Arrangement Act (CCAA), and stay of proceedings was granted — Companies applied under s.
11.02(2) of CCAA for extension of stay — S opposed companies' application, claiming that they had shown lack of good
faith by failing to disclose to Court that one of W Inc.'s principals was suing another of its principals for fraud in US
District Court (US action) — Evidence filed in US action included demand letter which referred to deliberate overcharging
of S under terms of agreement — Application for extension of stay granted — Companies had met onus of establishing
that extension order was appropriate, and that they had acted and were acting in good faith and with due diligence —
Federal Court of Canada (FCC) had exercised its jurisdiction over vessel, and in rem claims against vessel would need
to be determined before companies' creditors would be in position to vote on plan of arrangement — International yacht
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1
Worldspan Marine Inc., Re, 2011 BCSC 1758, 2011 CarswellBC 3667
2011 BCSC 1758, 2011 CarswellBC 3667, [2012] B.C.W.L.D. 2061...
broker FY had expressed confidence that it would be able to find buyer for vessel during up-coming buying season —
Companies were in discussions with potential debtors in possession (DIP) lenders for DIP facility that would be used to
complete construction of vessel — Resumption of construction of vessel by companies would permit companies to resume
operations and generate cash flow, and was best way to maximize return on vessel — Allegations against principal of W
Inc. in US action were not yet proven, and did not involve dishonesty, bad faith or fraud by companies in their dealings
with stakeholders in course of CCAA process.
Table of Authorities
Cases considered by Pearlman J.:
Cliffs Over Maple Bay Investments Ltd. v. Fisgard Capital Corp. (2008), 2008 BCCA 327, 2008 CarswellBC 1758, 83
B.C.L.R. (4th) 214, 296 D.L.R. (4th) 577, 434 W.A.C. 187, 258 B.C.A.C. 187, 46 C.B.R. (5th) 7, [2008] 10 W.W.R.
575 (B.C. C.A.) — distinguished
Encore Developments Ltd., Re (2009), 2009 BCSC 13, 2009 CarswellBC 84, 52 C.B.R. (5th) 30 (B.C. S.C.) —
considered
Federal Gypsum Co., Re (2007), 2007 NSSC 347, 2007 CarswellNS 629, 261 N.S.R. (2d) 299, 40 C.B.R. (5th) 80,
835 A.P.R. 299 (N.S. S.C.) — considered
Hongkong Bank of Canada v. Chef Ready Foods Ltd. (1990), 51 B.C.L.R. (2d) 84, 1990 CarswellBC 394, 4 C.B.R.
(3d) 311, (sub nom. Chef Ready Foods Ltd. v. Hongkong Bank of Canada) [1991] 2 W.W.R. 136 (B.C. C.A.) —
considered
Pacific National Lease Holding Corp., Re (August 17, 1992), Doc. A922870 (B.C. S.C.) — followed
San Francisco Gifts Ltd., Re (2005), 2005 ABQB 91, 2005 CarswellAlta 174, 10 C.B.R. (5th) 275, 42 Alta. L.R. (4th)
377, 378 A.R. 361 (Alta. Q.B.) — distinguished
Ted Leroy Trucking Ltd., Re (2010), (sub nom. Century Services Inc. v. Canada (A.G.)) [2010] 3 S.C.R. 379, [2010]
G.S.T.C. 186, 12 B.C.L.R. (5th) 1, (sub nom. Century Services Inc. v. A.G. of Canada) 2011 G.T.C. 2006 (Eng.),
(sub nom. Century Services Inc. v. A.G. of Canada) 2011 D.T.C. 5006 (Eng.), (sub nom. Leroy (Ted) Trucking Ltd.,
Re) 503 W.A.C. 1, (sub nom. Leroy (Ted) Trucking Ltd., Re) 296 B.C.A.C. 1, 2010 SCC 60, 2010 CarswellBC 3419,
2010 CarswellBC 3420, 409 N.R. 201, (sub nom. Ted LeRoy Trucking Ltd., Re) 326 D.L.R. (4th) 577, 72 C.B.R.
(5th) 170, [2011] 2 W.W.R. 383 (S.C.C.) — considered
Statutes considered:
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36
Generally — referred to
s. 11.02(2) [en. 2005, c. 47, s. 128] — considered
s. 11.02(3) [en. 2005, c. 47, s. 128] — considered
s. 36 — referred to
APPLICATION by debtor companies for extension of stay under Companies' Creditors Arrangement Act.
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2
Worldspan Marine Inc., Re, 2011 BCSC 1758, 2011 CarswellBC 3667
2011 BCSC 1758, 2011 CarswellBC 3667, [2012] B.C.W.L.D. 2061...
Pearlman J.:
Introduction
1
On December 16, 2011, on the application of the petitioners, I granted an order confirming and extending the Initial
Order and stay pronounced June 6, 2011, and subsequently confirmed and extended to December 16, 2011, by a further 119
days to April 13, 2012. When I made the order, I informed counsel that I would provide written Reasons for Judgment. These
are my Reasons.
Positions of the Parties
2
The petitioners apply for the extension of the Initial Order to April 13, 2012 in order to permit them additional time to
work toward a plan of arrangement by continuing the marketing of the Vessel "QE014226C010" (the "Vessel") with Fraser
Yachts, to explore potential Debtor In Possession ("DIP") financing to complete construction of the Vessel pending a sale, and
to resolve priorities among in rem claims against the Vessel.
3
The application of the petitioners for an extension of the Initial Order and stay was either supported, or not opposed, by
all of the creditors who have participated in these proceedings, other than the respondent, Harry Sargeant III.
4
The Monitor supports the extension as the best option available to all of the creditors and stakeholders at this time.
5
These proceedings had their genesis in a dispute between the petitioner Worldspan Marine Inc. and Mr. Sargeant.
On February 29, 2008, Worldspan entered into a Vessel Construction Agreement with Mr. Sargeant for the construction of
the Vessel, a 144-foot custom motor yacht. A dispute arose between Worldspan and Mr. Sargeant concerning the cost of
construction. In January 2010 Mr. Sargeant ceased making payments to Worldspan under the Vessel Construction Agreement.
6
The petitioners continued construction until April 2010, by which time the total arrears invoiced to Mr. Sargeant totalled
approximately $4.9 million. In April or May 2010, the petitioners ceased construction of the Vessel and the petitioner Queenship
laid off 97 employees who were then working on the Vessel. The petitioners maintain that Mr. Sargeant's failure to pay monies
due to them under the Vessel Construction Agreement resulted in their insolvency, and led to their application for relief under
the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, ("CCAA") in these proceedings.
7
Mr. Sargeant contends that the petitioners overcharged him. He claims against the petitioners, and against the as yet
unfinished Vessel for the full amount he paid toward its construction, which totals $20,945,924.05.
8
Mr. Sargeant submits that the petitioners are unable to establish that circumstances exist that make an order extending
the Initial Order appropriate, or that they have acted and continue to act in good faith and with due diligence. He says that the
petitioners have no prospect of presenting a viable plan of arrangement to their creditors. Mr. Sargeant also contends that the
petitioners have shown a lack of good faith by failing to disclose to the Court that the two principals of Worldspan, Mr. Blane,
and Mr. Barnett are engaged in a dispute in the United States District Court for the Southern District of Florida where Mr.
Barnett is suing Mr. Blane for fraud, breach of fiduciary duty and conversion respecting monies invested in Worldspan.
9
Mr. Sargeant drew the Court's attention to Exhibit 22 to the complaint filed in the United States District Court by Mr.
Barnett, which is a demand letter dated June 29, 2011 from Mr. Barnett's Florida counsel to Mr. Blane stating:
Your fraudulent actions not only caused monetary damage to Mr. Barnett, but also caused tremendous damage to
WorldSpan. More specifically, your taking Mr. Barnett's money for your own use deprived the company of much needed
capital. Your harm to WorldSpan is further demonstrated by your conspiracy with the former CEO of WorldSpan, Lee
Taubeneck, to overcharge a customer in order to offset the funds you were stealing from Mr. Barnett that should have gone
to the company. Your deplorable actions directly caused the demise of what could have been a successful and innovative
new company" (underlining added)
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3
Worldspan Marine Inc., Re, 2011 BCSC 1758, 2011 CarswellBC 3667
2011 BCSC 1758, 2011 CarswellBC 3667, [2012] B.C.W.L.D. 2061...
10
Mr. Sargeant says, and I accept, that he is the customer referred to in the demand letter. He submits that the allegations
contained in the complaint and demand letter lend credence to his claim that Worldspan breached the Vessel Construction
Agreement by engaging in dishonest business practices, and over-billed him. Further, Mr. Sargeant says that the petitioner's
failure to disclose this dispute between the principals of Worldspan, in addition to demonstrating a lack of good faith, reveals
an internal division that diminishes the prospects of Worldspan continuing in business.
11
As yet, there has been no judicial determination of the allegations made by Mr. Barnett in his complaint against Mr. Blane.
Discussion and Analysis
12 On an application for an extension of a stay pursuant to s. 11.02(2) of the CCAA, the petitioners must establish that they
have met the test set out in s. 11.02(3):
(a) whether circumstances exist that make the order appropriate; and
(b) whether the applicant has acted, and is acting, in good faith and with due diligence.
13 In considering whether "circumstances exist that make the order appropriate", the court must be satisfied that an extension
of the Initial Order and stay will further the purposes of the CCAA.
14
In Ted Leroy Trucking Ltd., Re, [2010] 3 S.C.R. 379 (S.C.C.) at para. 70, Deschamps J., for the Court, stated:
... Appropriateness under the CCAA is assessed by inquiring whether the order sought advances the policy objectives
underlying the CCAA. The question is whether the order will usefully further efforts to achieve the remedial purpose of the
CCAA — avoiding the social and economic losses resulting from liquidation of an insolvent company. I would add that
appropriateness extends not only to the purpose of the order, but also to the means it employs. Courts should be mindful
that chances for successful reorganizations are enhanced where participants achieve common ground and all stakeholders
are treated as advantageously and fairly as the circumstances permit.
15
A frequently cited statement of the purpose of the CCAA is found in Hongkong Bank of Canada v. Chef Ready Foods
Ltd. (1990), 51 B.C.L.R. (2d) 84, [1990] B.C.J. No. 2384 (B.C. C.A.), at p. 3 where the Court of Appeal held:
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. It is available to any company
incorporated in Canada with assets or business activities in Canada that is not a bank, a railway company, a telegraph
company, an insurance company, a trust company, or a loan company. When a company has recourse to the C.C.A.A. the
court is called upon to play a kind of supervisory role to preserve the status quo and to move the process along to the point
where a compromise or arrangement is approved or it is evident that the attempt is doomed to failure. Obviously time is
critical. Equally obviously, if the attempt at compromise or arrangement is to have any prospect of success there must be
a means of holding the creditors at bay, hence the powers vested in the court under s. 11.
16 In Pacific National Lease Holding Corp., Re, [1992] B.C.J. No. 3070 (B.C. S.C.) Brenner J. (as he then was) summarized
the applicable principles at para. 26:
(1) The purpose of the C.C.A.A. is to allow an insolvent company a reasonable period of time to reorganize its affairs
and prepare and file a plan for its continued operation subject to the requisite approval of the creditors and the Court.
(2) The C.C.A.A. is intended to serve not only the company's creditors but also a broad constituency which includes
the shareholders and the employees.
(3) During the stay period the Act is intended to prevent manoeuvres for positioning amongst the creditors of the
company.
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4
Worldspan Marine Inc., Re, 2011 BCSC 1758, 2011 CarswellBC 3667
2011 BCSC 1758, 2011 CarswellBC 3667, [2012] B.C.W.L.D. 2061...
(4) The function of the Court during the stay period is to play a supervisory role to preserve the status quo and to
move the process along to the point where a compromise or arrangement is approved or it is evident that the attempt
is doomed to failure.
(5) The status quo does not mean preservation of the relative pre-debt status of each creditor. Since the companies
under C.C.A.A. orders continue to operate and having regard to the broad constituency of interests the Act is intended
to serve, preservation of the status quo is not intended to create a rigid freeze of relative pre-stay positions.
(6) The Court has a broad discretion to apply these principles to the facts of a particular case.
17
In Cliffs Over Maple Bay Investments Ltd. v. Fisgard Capital Corp., 2008 BCCA 327 (B.C. C.A.), the Court of Appeal
set aside the extension of a stay granted to the debtor property development company. There, the Court held that the CCAA
was not intended to accommodate a non-consensual stay of creditors' rights while a debtor company attempted to carry out a
restructuring plan that did not involve an arrangement or compromise on which the creditors could vote. At para. 26, Tysoe
J.A., for the Court said this:
In my opinion, the ability of the court to grant or continue a stay under s. 11 is not a free standing remedy that the court may
grant whenever an insolvent company wishes to undertake a "restructuring", a term with a broad meaning including such
things as refinancings, capital injections and asset sales and other downsizing. Rather, s. 11 is ancillary to the fundamental
purpose of the CCAA, and a stay of proceedings freezing the rights of creditors should only be granted in furtherance of
the CCAA's fundamental purpose.
18
At para. 32, Tysoe J.A. queried whether the court should grant a stay under the CCAA to permit a sale, winding up or
liquidation without requiring the matter to be voted upon by the creditors if the plan or arrangement intended to be made by the
debtor company simply proposed that the net proceeds from the sale, winding up or liquidation be distributed to its creditors.
19
In Cliffs Over Maple Bay Investments Ltd. at para. 38, the court held:
... What the Debtor Company was endeavouring to accomplish in this case was to freeze the rights of all of its creditors
while it undertook its restructuring plan without giving the creditors an opportunity to vote on the plan. The CCAA was
not intended, in my view, to accommodate a non-consensual stay of creditors' rights while a debtor company attempts to
carry out a restructuring plan that does not involve an arrangement or compromise upon which the creditors may vote.
20 As counsel for the petitioners submitted, Cliffs Over Maple Bay Investments Ltd. was decided before the current s. 36 of
the CCAA came into force. That section permits the court to authorize the sale of a debtor's assets outside the ordinary course
of business without a vote by the creditors.
21
Nonetheless, Cliffs Over Maple Bay Investments Ltd. is authority for the proposition that a stay, or an extension of a
stay should only be granted in furtherance of the CCAA's fundamental purpose of facilitating a plan of arrangement between
the debtor companies and their creditors.
22 Other factors to be considered on an application for an extension of a stay include the debtor's progress during the previous
stay period toward a restructuring; whether creditors will be prejudiced if the court grants the extension; and the comparative
prejudice to the debtor, creditors and other stakeholders in not granting the extension: Federal Gypsum Co., Re, 2007 NSSC
347, 40 C.B.R. (5th) 80 (N.S. S.C.) at paras. 24-29.
23
The good faith requirement includes observance of reasonable commercial standards of fair dealings in the CCAA
proceedings, the absence of intent to defraud, and a duty of honesty to the court and to the stakeholders directly affected by the
CCAA process: San Francisco Gifts Ltd., Re, 2005 ABQB 91 (Alta. Q.B.) at paras. 14-17.
Whether circumstances exist that make an extension appropriate
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5
Worldspan Marine Inc., Re, 2011 BCSC 1758, 2011 CarswellBC 3667
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24 The petitioners seek the extension to April 13, 2012 in order to allow a reasonable period of time to continue their efforts
to restructure and to develop a plan of arrangement.
25
There are particular circumstances which have protracted these proceedings. Those circumstances include the following:
(a) Initially, Mr. Sargeant expressed an interest in funding the completion of the Vessel as a Crescent brand yacht at
Worldspan shipyards. On July 22, 2011, on the application of Mr. Sargeant, the Court appointed an independent Vessel
Construction Officer to prepare an analysis of the cost of completing the Vessel to Mr. Sargeant's specifications. The
Vessel Construction Officer delivered his completion cost analysis on October 31, 2011.
(b) The Vessel was arrested in proceedings in the Federal Court of Canada brought by Offshore Interiors Inc., a
creditor and a maritime lien claimant. As a result, The Federal Court, while recognizing the jurisdiction of this
Court in the CCAA proceedings, has exercised its jurisdiction over the vessel. There are proceedings underway in the
Federal Court for the determination of in rem claims against the Vessel. Because this Court has jurisdiction in the
CCAA proceedings, and the Federal Court exercises its maritime law jurisdiction over the Vessel, there have been
applications in both Courts with respect to the marketing of the Vessel.
(c) The Vessel, which is the principal asset of the petitioner Worldspan, is a partially completed custom built super
yacht for which there is a limited market.
26
All of these factors have extended the time reasonably required for the petitioners to proceed with their restructuring,
and to prepare a plan of arrangement.
27 On September 19, 2011, when this court confirmed and extended the Initial Order to December 16, 2011, it also authorized
the petitioners to commence marketing the Vessel unless Mr. Sargeant paid $4 million into his solicitor's trust account on or
before September 29, 2011.
28
Mr. Sargeant failed to pay the $4 million into trust with his solicitors, and subsequently made known his intention not
to fund the completion of the Vessel by the petitioners.
29
On October 7, 2011, the Federal Court also made an order authorizing the petitioners to market the Vessel and to retain
a leading international yacht broker, Fraser Yachts, to market the Vessel for an initial term of six months, expiring on April
7, 2012. Fraser Yachts has listed the Vessel for sale at $18.9 million, and is endeavouring to find a buyer. Although its efforts
have attracted little interest to date, Fraser Yachts have expressed confidence that they will be able to find a buyer for the Vessel
during the prime yacht buying season, which runs from February through July. Fraser Yachts and the Monitor have advised
that process may take up to 9 months.
30 On November 10, 2011, this Court, on the application of the petitioners, made an order authorizing and approving the sale
of their shipyard located at 27222 Lougheed Highway, with a leaseback of sufficient space to enable the petitioners to complete
the construction of the Vessel, should they find a buyer who wishes to have the Vessel completed as a Crescent yacht at its
current location. The sale and leaseback of the shipyard has now completed.
31 Both this Court and the Federal Court have made orders regarding the filing of claims by creditors against the petitioners
and the filing of in rem claims in the Federal Court against the Vessel.
32
The determination of the in rem claims against the Vessel is proceeding in the Federal Court.
33
After dismissing the in rem claims of various creditors, the Federal Court has determined that the creditors having in
rem claims against the Vessel are:
Sargeant
Capri Insurance Services
Cascade Raider
$20,945.924.05
$ 45,573.63
$ 64,460.02
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6
Worldspan Marine Inc., Re, 2011 BCSC 1758, 2011 CarswellBC 3667
2011 BCSC 1758, 2011 CarswellBC 3667, [2012] B.C.W.L.D. 2061...
Arrow Transportation and CCY
Offshore Interiors Inc.
Continental Hardwood Co.
Paynes Marine Group
Restaurant Design and Sales LLC
$ 50,000.00
$659,011.85
$ 15,614.99
$ 35,833.17
$254,383.28
34
The petitioner, Worldspan's, in rem claim in the amount of $6,643,082.59 was dismissed by the Federal Court and is
currently subject to an appeal to be heard January 9, 2012.
35 In addition, Comerica Bank has asserted an in rem claim against the Vessel for $9,429,913.86, representing the amount it
advanced toward the construction of the Vessel. Mr. Mohammed Al-Saleh, a judgment creditor of certain companies controlled
by Mr. Sargeant has also asserted an in rem claim against the Vessel in the amount of $28,800,000.
36
The Federal Court will determine the validity of the outstanding in rem claims, and the priorities amongst the in rem
claims against the Vessel.
37
The petitioners, in addition to seeking a buyer for the Vessel through Fraser Yachts are also currently in discussions
with potential DIP lenders for a DIP facility for approximately $10 million that would be used to complete construction of the
Vessel in the shipyard they now lease. Fraser Yachts has estimated that the value of the Vessel, if completed as a Crescent
brand yacht at the petitioners' facility would be $28.5 million. If the petitioners are able to negotiate a DIP facility, resumption
of construction of the Vessel would likely assist their marketing efforts, would permit the petitioners to resume operations, to
generate cash flow and to re-hire workers. However, the petitioners anticipate that at least 90 days will be required to obtain a
DIP facility, to review the cost of completing the Vessel, to assemble workers and trades, and to bring an application for DIP
financing in both this Court and the Federal Court.
38 An extension of the stay will not materially prejudice any of the creditors or other stakeholders. This case is distinguishable
from Cliffs Over Maple Bay Investments Ltd., where the debtor was using the CCAA proceedings to freeze creditors' rights in
order to prevent them from realizing against the property. Here, the petitioners are simultaneously pursuing both the marketing
of the Vessel and efforts to obtain DIP financing that, if successful, would enable them to complete the construction of the
Vessel at their rented facility. While they do so, a court supervised process for the sale of the Vessel is underway.
39 Mr. Sargeant also relies on Encore Developments Ltd., Re, 2009 BCSC 13 (B.C. S.C.), in support of his submission that
the Court should refuse to extend the stay. There, two secure creditors applied successfully to set aside an Initial Order and stay
granted ex parte to the debtor real estate development company. The debtor had obtained the Initial Order on the basis that it
had sufficient equity in its real estate projects to fund the completion of the remaining projects. In reality, the debtor company
had no equity in the projects, and at the time of the application the debtor company had no active business that required the
protection of a CCAA stay. Here, when the petitioners applied for and obtained the Initial Order, they continued to employ
a skeleton workforce at their facility. Their principal asset, aside from the shipyard, was the partially constructed Vessel. All
parties recognized that the CCAA proceedings afforded an opportunity for the completion of the Vessel as a custom Crescent
brand yacht, which represented the best way of maximizing the return on the Vessel. On the hearing of this application, all of
the creditors, other than Mr. Sargeant share the view that the Vessel should be marketed and sold through and orderly process
supervised by this Court and the Federal Court.
40 I share the view of the Monitor that in the particular circumstances of this case the petitioners cannot finalize a restructuring
plan until the Vessel is sold and terms are negotiated for completing the Vessel either at Worldspan's rented facility, or elsewhere.
In addition, before the creditors will be in a position to vote on a plan, the amounts and priorities of the creditors' claims,
including the in rem claims against the Vessel, will need to be determined. The process for determining the in rem claims and
their priorities is currently underway in the Federal Court.
41
The Monitor has recommended the Court grant the extension sought by the petitioners. The Monitor has raised one
concern, which relates to the petitioners' current inability to fund ongoing operating costs, insurance, and professional fees
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7
Worldspan Marine Inc., Re, 2011 BCSC 1758, 2011 CarswellBC 3667
2011 BCSC 1758, 2011 CarswellBC 3667, [2012] B.C.W.L.D. 2061...
incurred in the continuation of the CCAA proceedings. At this stage, the landlord has deferred rent for the shipyard for six
months until May 2012. At present, the petitioners are not conducting any operations which generate cash flow. Since the last
come back hearing in September, the petitioners were able to negotiate an arrangement whereby Mr. Sargeant paid for insurance
coverage on the Vessel. It remains to be seen whether Mr. Sargeant, Comerica Bank, or some other party will pay the insurance
for the Vessel which comes up for renewal in January, 2012.
42 Since the sale of the shipyard lands and premises, the petitioners have no assets other than the Vessel capable of protecting
an Administration Charge. The Monitor has suggested that the petitioners apply to the Federal Court for an Administration
Charge against the Vessel. Whether the petitioners do so is of course a matter for them to determine.
43
The petitioners will need to make arrangements for the continuing payment of their legal fees and the Monitor's fees
and disbursements.
44 The CCAA proceedings cannot be extended indefinitely. However, at this stage, a CCAA restructuring still offers the best
option for all of the stakeholders. Mr. Sargeant wants the stay lifted so that he may apply for the appointment of Receiver and
exercise his remedies against the Vessel. Any application by Mr. Sargeant for the appointment of a Receiver would be resisted
by the other creditors who want the Vessel to continue to be marketed under the Court supervised process now underway.
45 There is still the prospect that through the CCAA process the Vessel may be completed by the petitioners either as a result
of their finding a buyer who wishes to have the Vessel completed at its present location, or by negotiating DIP financing that
enables them to resume construction of the Vessel. Both the marine surveyor engaged by Comerica Bank and Fraser Yachts
have opined that finishing construction of the Vessel elsewhere would likely significantly reduce its value.
46 I am satisfied that there is a reasonable possibility that the petitioners, working with Fraser Yachts, will be able to find a
purchaser for the Vessel before April 13, 2012, or that alternatively they will be able to negotiate DIP financing and then proceed
with construction. I find there remains a reasonable prospect that the petitioners will be able to present a plan of arrangement
to their creditors. I am satisfied that it is their intention to do so. Accordingly, I find that circumstances do exist at this time
that make the extension order appropriate.
Good faith and due diligence
47
Since the last extension order granted on September 19, 2011, the petitioners have acted diligently by completing the
sale of the shipyard and thereby reducing their overheads; by proceeding with the marketing of the Vessel pursuant to orders
of this Court and the Federal Court; and by embarking upon negotiations for possible DIP financing, all in furtherance of their
restructuring.
48
Notwithstanding the dispute between Mr. Barnett and Mr. Blane, which resulted in the commencement of litigation in
the State of Florida at or about the same time this Court made its Initial Order in the CCAA proceedings, the petitioners have
been able to take significant steps in the restructuring process, including the sale of the shipyard and leaseback of a portion
of that facility, and the applications in both this Court and the Federal Court for orders for the marketing of the Vessel. The
dispute between Mr. Barnett and his former partner, Mr. Blane has not prevented the petitioners from acting diligently in these
proceedings. Nor am I persuaded on the evidence adduced on this application that dispute would preclude the petitioners from
carrying on their business of designing and constructing custom yachts, in the event of a successful restructuring.
49
While the allegations of misconduct, fraud and misappropriation of funds made by Mr. Barnett against Mr. Blane are
serious, at this stage they are no more than allegations. They have not yet been adjudicated. The allegations, which are as yet
unproven, do not involve dishonesty, bad faith, of fraud by the debtor companies in their dealings with stakeholders in the
course of the CCAA process.
50
In my view, the failure of the petitioners to disclose the dispute between Mr. Barnett and Mr. Blane does not constitute
bad faith in the CCAA proceedings or warrant the exercise of the Court's discretion against an extension of the stay.
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8
Worldspan Marine Inc., Re, 2011 BCSC 1758, 2011 CarswellBC 3667
2011 BCSC 1758, 2011 CarswellBC 3667, [2012] B.C.W.L.D. 2061...
51
This case is distinguishable from San Francisco Gifts Ltd., where the debtor company had pleaded guilty to 9 counts of
copyright infringement, and had received a large fine for doing so.
52 In San Francisco Gifts Ltd., at paras 30 to 32, the Alberta Court of Queen's Bench acknowledged that a debtor company's
business practices may be so offensive as to warrant refusal of a stay extension on public policy grounds. However, the court
declined to do so where the debtor company was acting in good faith and with due diligence in working toward presenting a
plan of arrangement to its creditors.
53 The good faith requirement of s. 11.02(3) is concerned primarily with good faith by the debtor in the CCAA proceedings.
I am satisfied that the petitioners have acted in good faith and with due diligence in these proceedings.
Conclusion
54 The petitioners have met the onus of establishing that circumstances exist that make the extension order appropriate and
that they have acted and are acting in good faith and with due diligence. Accordingly, the extension of the Initial Order and
stay to April 13, 2012 is granted on the terms pronounced on December 16, 2011.
Application granted.
End of Document
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reserved.
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9
Tab 11
Canwest Global Communications Corp., Re, 2009 CarswellOnt 7169
2009 CarswellOnt 7169, 183 A.C.W.S. (3d) 325
2009 CarswellOnt 7169
Ontario Superior Court of Justice [Commercial List]
Canwest Global Communications Corp., Re
2009 CarswellOnt 7169, 183 A.C.W.S. (3d) 325
IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT
ACT, R.S.C. 1985, C-36, AS AMENDED AND IN THE MATTER
OF A PROPOSED PLAN OF COMPROMISE OR ARRANGEMENT
OF CANWEST GLOBAL COMMUNICATIONS CORP. AND
THE OTHER APPLICANTS LISTED ON SCHEDULE "A"
Pepall J.
Judgment: November 12, 2009
Docket: CV-09-8241-OOCL
Counsel: Lyndon Barnes, Jeremy Dacks for Applicants
Subject: Insolvency; Corporate and Commercial; Civil Practice and Procedure
Headnote
Bankruptcy and insolvency --- Companies' Creditors Arrangement Act — Arrangements — Approval by court
— Miscellaneous
Whether proposal subject to s. 36 of Companies' Creditors Arrangement Act — C Inc. owned various businesses including
newspaper publisher, N Co. — In 2005, as part of income trust spin off, Limited Partnership (LP) was formed to acquire
certain C Inc. businesses — N Co. was excluded from spin off — Despite spin off, C Inc. and LP entered agreements
to share certain services (shared services agreements) — In 2007, LP became wholly owned indirect subsidiary of C
Inc. — In 2009, N Co. and certain other C Inc. entities (applicants) were granted protection under Companies' Creditors
Arrangement Act (Act) — LP did not seek protection but negotiated forbearance agreement with its lenders — Both
applicants' recapitalization transaction as well as LP's forbearance agreement contemplated restructuring that involved
disentanglement of shared services and transfer of N Co. to LP — Applicants and LP entered into Transition and
Reorganization Agreement (TRA), which addressed such restructuring — Applicants brought motion for order approving
TRA — Motion granted — Transfer of N Co. was not subject to requirements of s. 36 of Act — Section 36 applied to N
Co. despite fact that it was general partnership and was therefore not "debtor company" as defined by Act — However, s.
36 was inapplicable in specific circumstances of case at bar — Businesses of N Co. and applicants were highly integrated
and this business structure predated applicants' insolvency — TRA was internal reorganization transaction designed to
realign shared services and assets — TRA provided framework for applicants and LP entities to restructure their interentity arrangements for benefit of their respective stakeholders — It would be commercially unreasonable to require third
party sale of N Co. under s. 36 of Act before permitting realignment of shared services agreements.
Bankruptcy and insolvency --- Companies' Creditors Arrangement Act — Arrangements — Approval by court —
"Fair and reasonable"
C Inc. owned various businesses including newspaper publisher, N Co. — In 2005, as part of income trust spin off, Limited
Partnership (LP) was formed to acquire certain C Inc. businesses — N Co. was excluded from spin off — Despite spin off,
C Inc. and LP entered agreements to share certain services (shared services agreements) — In 2007, LP became wholly
owned indirect subsidiary of C Inc. — In 2009, N Co. and certain other C Inc. entities (applicants) were granted protection
under Companies' Creditors Arrangement Act (Act) — LP did not seek protection but negotiated forbearance agreement
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1
Canwest Global Communications Corp., Re, 2009 CarswellOnt 7169
2009 CarswellOnt 7169, 183 A.C.W.S. (3d) 325
with its lenders — Both applicants' recapitalization transaction as well as LP's forbearance agreement contemplated
restructuring that involved disentanglement of shared services and transfer of N Co. to LP — Applicants and LP entered
into Transition and Reorganization Agreement (TRA), which addressed such restructuring — Applicants brought motion
for order approving TRA — Motion granted — Proposed transfer of N Co. facilitated restructuring and was fair —
Recapitalization transaction was designed to restructure C Inc. into viable industry participant — This preserved value for
stakeholders and maintained employment for as many of applicants' employees as possible — TRA was entered into after
extensive negotiation and consultation among applicants, LP and their respective financial, legal advisers and restructuring
advisers — There was no prejudice to applicants' major creditors of the CMI entities — Monitor supported TRA as being
in best interests of broad range of stakeholders — In absence of TRA, it was likely that N Co. would be required to shut
down and lay off most or all its employees — Under TRA, all N Co. employees would be offered employment and it
pension obligations and liabilities would be assumed — No third party expressed any interest in acquiring N Co.
Table of Authorities
Cases considered by Pepall J.:
Millgate Financial Corp. v. BCED Holdings Ltd. (2003), 2003 CarswellOnt 5547, 47 C.B.R. (4th) 278 (Ont. S.C.J.
[Commercial List]) — considered
Pacific Mobile Corp., Re (1985), 1985 CarswellQue 106, [1985] 1 S.C.R. 290, 55 C.B.R. (N.S.) 32, 16 D.L.R. (4th)
319, 57 N.R. 63, 1985 CarswellQue 30 (S.C.C.) — considered
Stelco Inc., Re (2005), 204 O.A.C. 216, 78 O.R. (3d) 254, 2005 CarswellOnt 6283, 15 C.B.R. (5th) 288 (Ont. C.A.)
— referred to
Statutes considered:
Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3
Generally — referred to
Bulk Sales Act, R.S.O. 1990, c. B.14
Generally — referred to
Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36
Generally — referred to
s. 2(1) "company" — referred to
s. 2(1) "debtor company" — referred to
s. 36 — considered
s. 36(1) — considered
s. 36(4) — considered
s. 36(7) — considered
Pension Benefits Act, R.S.O. 1990, c. P.8
Generally — referred to
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2
Canwest Global Communications Corp., Re, 2009 CarswellOnt 7169
2009 CarswellOnt 7169, 183 A.C.W.S. (3d) 325
APPLICATION by corporations under protection of Companies' Creditors Arrangement Act for order approving Transition
and Reorganization Agreement.
Pepall J.:
Relief Requested
1
The CMI Entities move for an order approving the Transition and Reorganization Agreement by and among Canwest
Global Communications Corporation ("Canwest Global"), Canwest Limited Partnership/Canwest Societe en Commandite (the
"Limited Partnership"), Canwest Media Inc. ("CMI"), Canwest Publishing Inc./Publications Canwest Inc ("CPI"), Canwest
Television Limited Partnership ("CTLP") and The National Post Company/ La Publication National Post (the "National Post
Company") dated as of October 26, 2009, and which includes the New Shared Services Agreement and the National Post
Transition Agreement.
2
3
In addition they ask for a vesting order with respect to certain assets of the National Post Company and a stay extension order.
At the conclusion of oral argument, I granted the order requested with reasons to follow.
Backround Facts
(a) Parties
4
The CMI Entities including Canwest Global, CMI, CTLP, the National Post Company, and certain subsidiaries were
granted Companies' Creditors Arrangement Act ("CCAA") protection on Oct 6, 2009. Certain others including the Limited
Partnership and CPI did not seek such protection. The term Canwest will be used to refer to the entire enterprise.
5
The National Post Company is a general partnership with units held by CMI and National Post Holdings Ltd. (a wholly
owned subsidiary of CMI). The National Post Company carries on business publishing the National Post newspaper and
operating related on line publications.
(b) History
6
To provide some context, it is helpful to briefly review the history of Canwest. In general terms, the Canwest enterprise
has two business lines: newspaper and digital media on the one hand and television on the other. Prior to 2005, all of the
businesses that were wholly owned by Canwest Global were operated directly or indirectly by CMI using its former name,
Canwest Mediaworks Inc. As one unified business, support services were shared. This included such things as executive
services, information technology, human resources and accounting and finance.
7 In October, 2005, as part of a planned income trust spin-off, the Limited Partnership was formed to acquire Canwest Global's
newspaper publishing and digital media entities as well as certain of the shared services operations. The National Post Company
was excluded from this acquisition due to its lack of profitability and unsuitability for inclusion in an income trust. The Limited
Partnership entered into a credit agreement with a syndicate of lenders and the Bank of Nova Scotia as administrative agent.
The facility was guaranteed by the Limited Partner's general partner, Canwest (Canada) Inc. ("CCI"), and its subsidiaries, CPI
and Canwest Books Inc. (CBI") (collectively with the Limited Partnership, the "LP Entities"). The Limited Partnership and its
subsidiaries then operated for a couple of years as an income trust.
8
In spite of the income trust spin off, there was still a need for the different entities to continue to share services. CMI and
the Limited Partnership entered into various agreements to govern the provision and cost allocation of certain services between
them. The following features characterized these arrangements:
• the service provider, be it CMI or the Limited Partnership, would be entitled to reimbursement for all costs and expenses
incurred in the provision of services;
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3
Canwest Global Communications Corp., Re, 2009 CarswellOnt 7169
2009 CarswellOnt 7169, 183 A.C.W.S. (3d) 325
• shared expenses would be allocated on a commercially reasonable basis consistent with past practice; and
• neither the reimbursement of costs and expenses nor the payment of fees was intended to result in any material financial
gain or loss to the service provider.
9
The multitude of operations that were provided by the LP Entities for the benefit of the National Post Company rendered
the latter dependent on both the shared services arrangements and on the operational synergies that developed between the
National Post Company and the newspaper and digital operations of the LP Entities.
10
In 2007, following the Federal Government's announcement on the future of income fund distributions, the Limited
Partnership effected a going-private transaction of the income trust. Since July, 2007, the Limited Partnership has been a 100%
wholly owned indirect subsidiary of Canwest Global. Although repatriated with the rest of the Canwest enterprise in 2007,
the LP Entities have separate credit facilities from CMI and continue to participate in the shared services arrangements. In
spite of this mutually beneficial interdependence between the LP Entities and the CMI Entities, given the history, there are
misalignments of personnel and services.
(c) Restructuring
11 Both the CMI Entities and the LP Entities are pursuing independent but coordinated restructuring and reorganization plans.
The former have proceeded with their CCAA filing and prepackaged recapitalization transaction and the latter have entered
into a forbearance agreement with certain of their senior lenders. Both the recapitalization transaction and the forbearance
agreement contemplate a disentanglement and/or a realignment of the shared services arrangements. In addition, the term sheet
relating to the CMI recapitalization transaction requires a transfer of the assets and business of the National Post Company to
the Limited Partnership.
12 The CMI Entities and the LP Entities have now entered into the Transition and Reorganization Agreement which addresses
a restructuring of these inter-entity arrangements. By agreement, it is subject to court approval. The terms were negotiated
amongst the CMI Entities, the LP Entities, their financial and legal advisors, their respective chief restructuring advisors, the
Ad Hoc Committee of Noteholders, certain of the Limited Partnership's senior lenders and their respective financial and legal
advisors.
13
Schedule A to that agreement is the New Shared Services Agreement. It anticipates a cessation or renegotiation of the
provision of certain services and the elimination of certain redundancies. It also addresses a realignment of certain employees
who are misaligned and, subject to approval of the relevant regulator, a transfer of certain misaligned pension plan participants
to pension plans that are sponsored by the appropriate party. The LP Entities, the CMI Chief Restructuring Advisor and the
Monitor have consented to the entering into of the New Shared Services Agreement.
14
Schedule B to the Transition and Reorganization Agreement is the National Post Transition Agreement.
15
The National Post Company has not generated a profit since its inception in 1998 and continues to suffer operating
losses. It is projected to suffer a net loss of $9.3 million in fiscal year ending August 31, 2009 and a net loss of $0.9 million in
September, 2009. For the past seven years these losses have been funded by CMI and as a result, the National Post Company
owes CMI approximately $139.1 million. The members of the Ad Hoc Committee of Noteholders had agreed to the continued
funding by CMI of the National Post Company's short-term liquidity needs but advised that they were no longer prepared to
do so after October 30, 2009. Absent funding, the National Post, a national newspaper, would shut down and employment
would be lost for its 277 non-unionized employees. Three of its employees provide services to the LP Entities and ten of the LP
Entities' employees provide services to the National Post Company. The National Post Company maintains a defined benefit
pension plan registered under the Ontario Pension Benefits Act. It has a solvency deficiency as of December 31, 2006 of $1.5
million and a wind up deficiency of $1.6 million.
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4
Canwest Global Communications Corp., Re, 2009 CarswellOnt 7169
2009 CarswellOnt 7169, 183 A.C.W.S. (3d) 325
16
The National Post Company is also a guarantor of certain of CMI's and Canwest Global's secured and unsecured
indebtedness as follows:
Irish Holdco Secured Note- $187.3 million
CIT Secured Facility- $10.7 million
CMI Senior Unsecured Subordinated Notes- US$393.2 million
Irish Holdco Unsecured Note- $430.6 million
17 Under the National Post Transition Agreement, the assets and business of the National Post Company will be transferred
as a going concern to a new wholly-owned subsidiary of CPI (the "Transferee"). Assets excluded from the transfer include the
benefit of all insurance policies, corporate charters, minute books and related materials, and amounts owing to the National
Post Company by any of the CMI Entities.
18 The Transferee will assume the following liabilities: accounts payable to the extent they have not been due for more than
90 days; accrued expenses to the extent they have not been due for more than 90 days; deferred revenue; and any amounts due
to employees. The Transferee will assume all liabilities and/or obligations (including any unfunded liability) under the National
Post pension plan and benefit plans and the obligations of the National Post Company under contracts, licences and permits
relating to the business of the National Post Company. Liabilities that are not expressly assumed are excluded from the transfer
including the debt of approximately $139.1 million owed to CMI, all liabilities of the National Post Company in respect of
borrowed money including any related party or third party debt (but not including approximately $1,148,365 owed to the LP
Entities) and contingent liabilities relating to existing litigation claims.
19
CPI will cause the Transferee to offer employment to all of the National Post Company's employees on terms and
conditions substantially similar to those pursuant to which the employees are currently employed.
20
The Transferee is to pay a portion of the price or cost in cash: (i) $2 million and 50% of the National Post Company's
negative cash flow during the month of October, 2009 (to a maximum of $1 million), less (ii) a reduction equal to the amount,
if any, by which the assumed liabilities estimate as defined in the National Post Transition Agreement exceeds $6.3 million.
21 The CMI Entities were of the view that an agreement relating to the transfer of the National Post could only occur if it was
associated with an agreement relating to shared services. In addition, the CMI Entities state that the transfer of the assets and
business of the National Post Company to the Transferee is necessary for the survival of the National Post as a going concern.
Furthermore, there are synergies between the National Post Company and the LP Entities and there is also the operational
benefit of reintegrating the National Post newspaper with the other newspapers. It cannot operate independently of the services
it receives from the Limited Partnership. Similarly, the LP Entities estimate that closure of the National Post would increase
the LP Entities' cost burden by approximately $14 million in the fiscal year ending August 31, 2010.
22
In its Fifth Report to the Court, the Monitor reviewed alternatives to transitioning the business of the National Post
Company to the LP Entities. RBC Dominion Securities Inc. who was engaged in December, 2008 to assist in considering and
evaluating recapitalization alternatives, received no expressions of interest from parties seeking to acquire the National Post
Company. Similarly, the Monitor has not been contacted by anyone interested in acquiring the business even though the need
to transfer the business of the National Post Company has been in the public domain since October 6, 2009, the date of the
Initial Order. The Ad Hoc Committee of Noteholders will only support the short term liquidity needs until October 30, 2009
and the National Post Company is precluded from borrowing without the Ad Hoc Committee's consent which the latter will
not provide. The LP Entities will not advance funds until the transaction closes. Accordingly, failure to transition would likely
result in the forced cessation of operations and the commencement of liquidation proceedings. The estimated net recovery from
a liquidation range from a negative amount to an amount not materially higher than the transfer price before costs of liquidation.
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5
Canwest Global Communications Corp., Re, 2009 CarswellOnt 7169
2009 CarswellOnt 7169, 183 A.C.W.S. (3d) 325
The senior secured creditors of the National Post Company, namely the CIT Facility lenders and Irish Holdco, support the
transaction as do the members of the Ad Hoc Committee of Noteholders.
23
The Monitor has concluded that the transaction has the following advantages over a liquidation:
• it facilitates the reorganizaton and orderly transition and subsequent termination of the shared services arrangements
between the CMI Entities and the LP Entities;
• it preserves approximately 277 jobs in an already highly distressed newspaper publishing industry;
• it will help maintain and promote competition in the national daily newspaper market for the benefit of Canadian
consumers; and
• the Transferee will assume substantially all of the National Post Company's trade payables (including those owed to
various suppliers) and various employment costs associated with the transferred employees.
Issues
24
The issues to consider are whether:
(a) the transfer of the assets and business of the National Post is subject to the requirements of section 36 of the CCAA;
(b) the Transition and Reorganization Agreement should be approved by the Court; and
(c) the stay should be extended to January 22, 2010.
Discussion
(A) Section 36 of the CCAA
25 Section 36 of the CCAA was added as a result of the amendments which came into force on September 18, 2009. Counsel
for the CMI Entities and the Monitor outlined their positions on the impact of the recent amendments to the CCAA on the motion
before me. As no one challenged the order requested, no opposing arguments were made.
26
Court approval is required under section 36 if:
(a) a debtor company under CCAA protection
(b) proposes to sell or dispose of assets outside the ordinary course of business.
27
Court approval under this section of the Act 1 is only required if those threshold requirements are met. If they are met,
the court is provided with a list of non-exclusive factors to consider in determining whether to approve the sale or disposition.
Additionally, certain mandatory criteria must be met for court approval of a sale or disposition of assets to a related party.
Notice is to be given to secured creditors likely to be affected by the proposed sale or disposition. The court may only grant
authorization if satisfied that the company can and will make certain pension and employee related payments.
28
Specifically, section 36 states:
(1) Restriction on disposition of business assets - A debtor company in respect of which an order has been made under
this Act may not sell or otherwise dispose of assets outside the ordinary course of business unless authorized to do so by
a court. Despite any requirement for shareholder approval, including one under federal or provincial law, the court may
authorize the sale or disposition even if shareholder approval was not obtained.
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Canwest Global Communications Corp., Re, 2009 CarswellOnt 7169
2009 CarswellOnt 7169, 183 A.C.W.S. (3d) 325
(2) Notice to creditors - A company that applies to the court for an authorization is to give notice of the application to the
secured creditors who are likely to be affected by the proposed sale or disposition.
(3) Factors to be considered - In deciding whether to grant the authorization, the court is to consider, among other things,
(a) whether the process leading to the proposed sale or disposition was reasonable in the circumstances;
(b) whether the monitor approved the process leading to the proposed sale or disposition;
(c) whether the monitor filed with the court a report stating that in their opinion the sale or disposition would be more
beneficial to the creditors than a sale or disposition under a bankruptcy;
(d) the extent to which the creditors were consulted;
(e) the effects of the proposed sale or disposition on the creditors and other interested parties; and
(f) whether the consideration to be received for the assets is reasonable and fair, taking into account their market value.
(4) Additional factors — related persons - If the proposed sale or disposition is to a person who is related to the company,
the court may, after considering the factors referred to in subsection (3), grant the authorization only if it is satisfied that
(a) good faith efforts were made to sell or otherwise dispose of the assets to persons who are not related to the
company; and
(b) the consideration to be received is superior to the consideration that would be received under any other offer made
in accordance with the process leading to the proposed sale or disposition.
(5) Related persons - For the purpose of subsection (4), a person who is related to the company includes
(a) a director or officer of the company;
(b) a person who has or has had, directly or indirectly, control in fact of the company; and
(c) a person who is related to a person described in paragraph (a) or (b).
(6) Assets may be disposed of free and clear - The court may authorize a sale or disposition free and clear of any security,
charge or other restriction and, if it does, it shall also order that other assets of the company or the proceeds of the sale
or disposition be subject to a security, charge or other restriction in favour of the creditor whose security, charge or other
restriction is to be affected by the order.
(7) Restriction — employers - The court may grant the authorization only if the court is satisfied that the company can
and will make the payments that would have been required under paragraphs 6(4)(a) and (5)(a) if the court had sanctioned
the compromise or arrangement. 2
29
While counsel for the CMI Entities states that the provisions of section 36 have been satisfied, he submits that section
36 is inapplicable to the circumstances of the transfer of the assets and business of the National Post Company because the
threshold requirements are not met. As such, the approval requirements are not triggered. The Monitor supports this position.
30 In support, counsel for the CMI Entities and for the Monitor firstly submit that section 36(1) makes it clear that the section
only applies to a debtor company. The terms "debtor company" and "company" are defined in section 2(1) of the CCAA and
do not expressly include a partnership. The National Post Company is a general partnership and therefore does not fall within
the definition of debtor company. While I acknowledge these facts, I do not accept this argument in the circumstances of this
case. Relying on case law and exercising my inherent jurisdiction, I extended the scope of the Initial Order to encompass the
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7
Canwest Global Communications Corp., Re, 2009 CarswellOnt 7169
2009 CarswellOnt 7169, 183 A.C.W.S. (3d) 325
National Post Company and the other partnerships such that they were granted a stay and other relief. In my view, it would
be inconsistent and artificial to now exclude the business and assets of those partnerships from the ambit of the protections
contained in the statute.
31 The CMI Entities' and the Monitor's second argument is that the Transition and Reorganization Agreement represents an
internal corporate reorganization that is not subject to the requirements of section 36. Section 36 provides for court approval
where a debtor under CCAA protection proposes to sell or otherwise dispose of assets "outside the ordinary course of business".
This implies, so the argument goes, that a transaction that is in the ordinary course of business is not captured by section 36. The
Transition and Reorganization Agreement is an internal corporate reorganization which is in the ordinary course of business
and therefore section 36 is not triggered state counsel for the CMI Entities and for the Monitor. Counsel for the Monitor goes on
to submit that the subject transaction is but one aspect of a larger transaction. Given the commitments and agreements entered
into with the Ad Hoc Committee of Noteholders and the Bank of Nova Scotia as agent for the senior secured lenders to the
LP Entities, the transfer cannot be treated as an independent sale divorced from its rightful context. In these circumstances, it
is submitted that section 36 is not engaged.
32
The CCAA is remedial legislation designed to enable insolvent companies to restructure. As mentioned by me before
in this case, the amendments do not detract from this objective. In discussing section 36, the Industry Canada Briefing Book 3
on the amendments states that "The reform is intended to provide the debtor company with greater flexibility in dealing with
its property while limiting the possibility of abuse." 4
33
The term "ordinary course of business" is not defined in the CCAA or in the Bankruptcy and Insolvency Act 5 . As noted by
Cullity J. in Millgate Financial Corp. v. BCED Holdings Ltd. 6 , authorities that have considered the use of the term in various
statutes have not provided an exhaustive definition. As one author observed in a different context, namely the Bulk Sales Act 7 ,
courts have typically taken a common sense approach to the term "ordinary course of business" and have considered the normal
business dealings of each particular seller 8 . In Pacific Mobile Corp., Re 9 , the Supreme Court of Canada stated:
It is not wise to attempt to give a comprehensive definition of the term "ordinary course of business" for all transactions.
Rather, it is best to consider the circumstances of each case and to take into account the type of business carried on by
the debtor and creditor.
We approve of the following passage from Monet J.A.'s reasons discussing the phrase "ordinary course of business"...
'It is apparent from these authorities, it seems to me, that the concept we are concerned with is an abstract one and that it
is the function of the courts to consider the circumstances of each case in order to determine how to characterize a given
transaction. This in effect reflects the constant interplay between law and fact.'
34 In arguing that section 36 does not apply to an internal corporate reorganization, the CMI Entities rely on the commentary
of Industry Canada as being a useful indicator of legislative intent and descriptive of the abuse the section was designed to
prevent. That commentary suggests that section 36(4),which deals with dispositions of assets to a related party, was intended to:
...prevent the possible abuse by "phoenix corporations". Prevalent in small business, particularly in the restaurant industry,
phoenix corporations are the result of owners who engage in serial bankruptcies. A person incorporates a business and
proceeds to cause it to become bankrupt. The person then purchases the assets of the business at a discount out of the estate
and incorporates a "new" business using the assets of the previous business. The owner continues their original business
basically unaffected while creditors are left unpaid. 10
35
In my view, not every internal corporate reorganization escapes the purview of section 36. Indeed, a phoenix corporation
to one may be an internal corporate reorganization to another. As suggested by the decision in Pacific Mobile Corp. 11 ., a
court should in each case examine the circumstances of the subject transaction within the context of the business carried on
by the debtor.
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8
Canwest Global Communications Corp., Re, 2009 CarswellOnt 7169
2009 CarswellOnt 7169, 183 A.C.W.S. (3d) 325
36 In this case, the business of the National Post Company and the CP Entities are highly integrated and interdependent. The
Canwest business structure predated the insolvency of the CMI Entities and reflects in part an anomaly that arose as a result of an
income trust structure driven by tax considerations. The Transition and Reorganization Agreement is an internal reorganization
transaction that is designed to realign shared services and assets within the Canwest corporate family so as to rationalize the
business structure and to better reflect the appropriate business model. Furthermore, the realignment of the shared services and
transfer of the assets and business of the National Post Company to the publishing side of the business are steps in the larger
reorganization of the relationship between the CMI Entities and the LP Entities. There is no ability to proceed with either the
Shared Services Agreement or the National Post Transition Agreement alone. The Transition and Reorganization Agreement
provides a framework for the CMI Entities and the LP Entities to properly restructure their inter-entity arrangements for the
benefit of their respective stakeholders. It would be commercially unreasonable to require the CMI Entities to engage in the sort
of third party sales process contemplated by section 36(4) and offer the National Post for sale to third parties before permitting
them to realign the shared services arrangements. In these circumstances, I am prepared to accept that section 36 is inapplicable.
(b) Transition and Reorganization Agreement
37
As mentioned, the Transition and Reorganization Agreement is by its terms subject to court approval. The court has a broad
jurisdiction to approve agreements that facilitate a restructuring: Stelco Inc., Re 12 Even though I have accepted that in this case
section 36 is inapplicable, court approval should be sought in circumstances where the sale or disposition is to a related person
and there is an apprehension that the sale may not be in the ordinary course of business. At that time, the court will confirm or
reject the ordinary course of business characterization. If confirmed, at minimum, the court will determine whether the proposed
transaction facilitates the restructuring and is fair. If rejected, the court will determine whether the proposed transaction meets
the requirements of section 36. Even if the court confirms that the proposed transaction is in the ordinary course of business
and therefore outside the ambit of section 36, the provisions of the section may be considered in assessing fairness.
38
I am satisfied that the proposed transaction does facilitate the restructuring and is fair and that the Transition and
Reorganization Agreement should be approved. In this regard, amongst other things, I have considered the provisions of section
36. I note the following. The CMI recapitalization transaction which prompted the Transition and Reorganization Agreement
is designed to facilitate the restructuring of CMI into a viable and competitive industry participant and to allow a substantial
number of the businesses operated by the CMI Entities to continue as going concerns. This preserves value for stakeholders and
maintains employment for as many employees of the CMI Entities as possible. The Transition and Reorganization Agreement
was entered into after extensive negotiation and consultation between the CMI Entities, the LP Entities, their respective financial
and legal advisers and restructuring advisers, the Ad Hoc Committee and the LP senior secured lenders and their respective
financial and legal advisers. As such, while not every stakeholder was included, significant interests have been represented
and in many instances, given the nature of their interest, have served as proxies for unrepresented stakeholders. As noted in
the materials filed by the CMI Entities, the National Post Transition Agreement provides for the transfer of assets and certain
liabilities to the publishing side of the Canwest business and the assumption of substantially all of the operating liabilities by
the Transferee. Although there is no guarantee that the Transferee will ultimately be able to meet its liabilities as they come
due, the liabilities are not stranded in an entity that will have materially fewer assets to satisfy them.
39 There is no prejudice to the major creditors of the CMI Entities. Indeed, the senior secured lender, Irish Holdco., supports
the Transition and Reorganization Agreement as does the Ad Hoc Committee and the senior secured lenders of the LP Entities.
The Monitor supports the Transition and Reorganization Agreement and has concluded that it is in the best interests of a broad
range of stakeholders of the CMI Entities, the National Post Company, including its employees, suppliers and customers, and
the LP Entities. Notice of this motion has been given to secured creditors likely to be affected by the order.
40
In the absence of the Transition and Reorganization Agreement, it is likely that the National Post Company would be
required to shut down resulting in the consequent loss of employment for most or all the National Post Company's employees.
Under the National Post Transition Agreement, all of the National Post Company employees will be offered employment and
as noted in the affidavit of the moving parties, the National Post Company's obligations and liabilities under the pension plan
will be assumed, subject to necessary approvals.
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9
Canwest Global Communications Corp., Re, 2009 CarswellOnt 7169
2009 CarswellOnt 7169, 183 A.C.W.S. (3d) 325
41 No third party has expressed any interest in acquiring the National Post Company. Indeed, at no time did RBC Dominion
Securities Inc. who was assisting in evaluating recapitalization alternatives ever receive any expression of interest from parties
seeking to acquire it. Similarly, while the need to transfer the National Post has been in the public domain since at least October
6, 2009, the Monitor has not been contacted by any interested party with respect to acquiring the business of the National Post
Company. The Monitor has approved the process leading to the sale and also has conducted a liquidation analysis that caused
it to conclude that the proposed disposition is the most beneficial outcome. There has been full consultation with creditors and
as noted by the Monitor, the Ad Hoc Committee serves as a good proxy for the unsecured creditor group as a whole. I am
satisfied that the consideration is reasonable and fair given the evidence on estimated liquidation value and the fact that there
is no other going concern option available.
42
The remaining section 36 factor to consider is section 36(7) which provides that the court should be satisfied that the
company can and will make certain pension and employee related payments that would have been required if the court had
sanctioned the compromise or arrangement. In oral submissions, counsel for the CMI Entities confirmed that they had met the
requirements of section 36. It is agreed that the pension and employee liabilities will be assumed by the Transferee. Although
present, the representative of the Superintendent of Financial Services was unopposed to the order requested. If and when a
compromise and arrangement is proposed, the Monitor is asked to make the necessary inquiries and report to the court on the
status of those payments.
Stay Extension
43 The CMI Entities are continuing to work with their various stakeholders on the preparation and filing of a proposed plan
of arrangement and additional time is required. An extension of the stay of proceedings is necessary to provide stability during
that time. The cash flow forecast suggests that the CMI Entities have sufficient available cash resources during the requested
extension period. The Monitor supports the extension and nobody was opposed. I accept the statements of the CMI Entities and
the Monitor that the CMI Entities have acted, and are continuing to act, in good faith and with due diligence. In my view it is
appropriate to extend the stay to January 22, 2010 as requested.
Application granted.
Footnotes
1
Court approval may nonetheless be required by virtue of the terms of the Initial or other court order or at the request of a stakeholder.
2
The reference to paragraph 6(4)a should presumably be 6(6)a.
3
Industry Canada "Bill C-55: Clause by Clause Analysis — Bill Clause No. 131 — CCAA Section 36".
4
Ibid.
5
R.S.C. 1985, c.C-36 as amended.
6
(2003), 47 C.B.R. (4th) 278 (Ont. S.C.J. [Commercial List]) at para.52.
7
R.S.O. 1990, c. B. 14, as amended.
8
D.J. Miller "Remedies under the Bulk Sales Act: (Necessary, or a Nuisance?)", Ontario Bar Association, October, 2007.
9
[1985] 1 S.C.R. 290 (S.C.C.).
10
Supra, note 3.
11
Supra, note 9.
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10
Canwest Global Communications Corp., Re, 2009 CarswellOnt 7169
2009 CarswellOnt 7169, 183 A.C.W.S. (3d) 325
12
(2005), 15 C.B.R. (5th) 288 (Ont. C.A.).
End of Document
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reserved.
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11
Tab 12
Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, 2002 CSC 41,...
2002 SCC 41, 2002 CSC 41, 2002 CarswellNat 822, 2002 CarswellNat 823...
Most Negative Treatment: Distinguished
Most Recent Distinguished: Canada (Procureur général) c. Contrevenant No. 10 | 2015 CAF 155, 2015 FCA 155, 2015
CarswellNat 2920, 2015 CarswellNat 4847, 476 N.R. 142, 123 W.C.B. (2d) 413, 256 A.C.W.S. (3d) 759, [2015] A.C.F. No.
873 | (F.C.A., Jun 30, 2015)
2002 SCC 41, 2002 CSC 41
Supreme Court of Canada
Sierra Club of Canada v. Canada (Minister of Finance)
2002 CarswellNat 822, 2002 CarswellNat 823, 2002 SCC 41, 2002 CSC 41, [2002] 2 S.C.R. 522, [2002] S.C.J.
No. 42, 113 A.C.W.S. (3d) 36, 18 C.P.R. (4th) 1, 20 C.P.C. (5th) 1, 211 D.L.R. (4th) 193, 223 F.T.R. 137 (note), 287
N.R. 203, 40 Admin. L.R. (3d) 1, 44 C.E.L.R. (N.S.) 161, 93 C.R.R. (2d) 219, J.E. 2002-803, REJB 2002-30902
Atomic Energy of Canada Limited, Appellant v. Sierra Club of
Canada, Respondent and The Minister of Finance of Canada, the
Minister of Foreign Affairs of Canada, the Minister of International
Trade of Canada and the Attorney General of Canada, Respondents
McLachlin C.J.C., Gonthier, Iacobucci, Bastarache, Binnie, Arbour, LeBel JJ.
Heard: November 6, 2001
Judgment: April 26, 2002
Docket: 28020
Proceedings: reversing (2000), 2000 CarswellNat 970, (sub nom. Atomic Energy of Canada Ltd. v. Sierra Club of Canada)
187 D.L.R. (4th) 231, 256 N.R. 1, 24 Admin. L.R. (3d) 1, [2000] 4 F.C. 426, 182 F.T.R. 284 (note), 2000 CarswellNat 3271,
[2000] F.C.J. No. 732 (Fed. C.A.); affirming (1999), 1999 CarswellNat 2187, [2000] 2 F.C. 400, 1999 CarswellNat 3038, 179
F.T.R. 283, [1999] F.C.J. No. 1633 (Fed. T.D.)
Counsel: J. Brett Ledger and Peter Chapin, for appellant
Timothy J. Howard and Franklin S. Gertler, for respondent Sierra Club of Canada
Graham Garton, Q.C., and J. Sanderson Graham, for respondents Minister of Finance of Canada, Minister of Foreign Affairs
of Canada, Minister of International Trade of Canada, and Attorney General of Canada
Subject: Intellectual Property; Property; Civil Practice and Procedure; Evidence; Environmental
Headnote
Evidence --- Documentary evidence — Privilege as to documents — Miscellaneous documents
Confidentiality order was necessary in this case because disclosure of confidential documents would impose serious risk
on important commercial interest of Crown corporation and there were no reasonable alternative measures to granting of
order — Confidentiality order would have substantial salutary effects on Crown corporation's right to fair trial and on
freedom of expression — Deleterious effects of confidentiality order on open court principle and freedom of expression
would be minimal — Salutary effects of order outweighed deleterious effects — Canadian Environmental Assessment
Act, S.C. 1992, c. 37, s. 5(1)(b) — Federal Court Rules, 1998, SOR/98-106, R. 151, 312.
Practice --- Discovery — Discovery of documents — Privileged document — Miscellaneous privileges
Confidentiality order was necessary in this case because disclosure of confidential documents would impose serious risk
on important commercial interest of Crown corporation and there were no reasonable alternative measures to granting of
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
1
Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, 2002 CSC 41,...
2002 SCC 41, 2002 CSC 41, 2002 CarswellNat 822, 2002 CarswellNat 823...
order — Confidentiality order would have substantial salutary effects on Crown corporation's right to fair trial and on
freedom of expression — Deleterious effects of confidentiality order on open court principle and freedom of expression
would be minimal — Salutary effects of order outweighed deleterious effects — Canadian Environmental Assessment
Act, S.C. 1992, c. 37, s. 5(1)(b) — Federal Court Rules, 1998, SOR/98-106, R. 151, 312.
Practice --- Discovery — Examination for discovery — Range of examination — Privilege — Miscellaneous
privileges
Confidentiality order was necessary in this case because disclosure of confidential documents would impose serious risk
on important commercial interest of Crown corporation and there were no reasonable alternative measures to granting of
order — Confidentiality order would have substantial salutary effects on Crown corporation's right to fair trial and on
freedom of expression — Deleterious effects of confidentiality order on open court principle and freedom of expression
would be minimal — Salutary effects of order outweighed deleterious effects — Canadian Environmental Assessment
Act, S.C. 1992, c. 37, s. 5(1)(b) — Federal Court Rules, 1998, SOR/98-106, R. 151, 312.
Preuve --- Preuve documentaire — Confidentialité en ce qui concerne les documents — Documents divers
Ordonnance de confidentialité était nécessaire parce que la divulgation des documents confidentiels menacerait gravement
l'intérêt commercial important de la société d'État et parce qu'il n'y avait aucune autre option raisonnable que celle
d'accorder l'ordonnance — Ordonnance de confidentialité aurait des effets bénéfiques considérables sur le droit de la
société d'État à un procès équitable et à la liberté d'expression — Ordonnance de confidentialité n'aurait que des effets
préjudiciables minimes sur le principe de la publicité des débats et sur la liberté d'expression — Effets bénéfiques de
l'ordonnance l'emportaient sur ses effets préjudiciables — Loi canadienne sur l'évaluation environnementale, L.C. 1992,
c. 37, art. 5(1)b) — Règles de la Cour fédérale, 1998, DORS/98-106, r. 151, 312.
Procédure --- Communication de la preuve — Communication des documents — Documents confidentiels — Divers
types de confidentialité
Ordonnance de confidentialité était nécessaire parce que la divulgation des documents confidentiels menacerait gravement
l'intérêt commercial important de la société d'État et parce qu'il n'y avait aucune autre option raisonnable que celle
d'accorder l'ordonnance — Ordonnance de confidentialité aurait des effets bénéfiques considérables sur le droit de la
société d'État à un procès équitable et à la liberté d'expression — Ordonnance de confidentialité n'aurait que des effets
préjudiciables minimes sur le principe de la publicité des débats et sur la liberté d'expression — Effets bénéfiques de
l'ordonnance l'emportaient sur ses effets préjudiciables — Loi canadienne sur l'évaluation environnementale, L.C. 1992,
c. 37, art. 5(1)b) — Règles de la Cour fédérale, 1998, DORS/98-106, r. 151, 312.
Procédure --- Communication de la preuve — Interrogatoire préalable — Étendue de l'interrogatoire —
Confidentialité — Divers types de confidentialité
Ordonnance de confidentialité était nécessaire parce que la divulgation des documents confidentiels menacerait gravement
l'intérêt commercial important de la société d'État et parce qu'il n'y avait aucune autre option raisonnable que celle
d'accorder l'ordonnance — Ordonnance de confidentialité aurait des effets bénéfiques considérables sur le droit de la
société d'État à un procès équitable et à la liberté d'expression — Ordonnance de confidentialité n'aurait que des effets
préjudiciables minimes sur le principe de la publicité des débats et sur la liberté d'expression — Effets bénéfiques de
l'ordonnance l'emportaient sur ses effets préjudiciables — Loi canadienne sur l'évaluation environnementale, L.C. 1992,
c. 37, art. 5(1)b) — Règles de la Cour fédérale, 1998, DORS/98-106, r. 151, 312.
The federal government provided a Crown corporation with a $1.5 billion loan for the construction and sale of two CANDU
nuclear reactors to China. An environmental organization sought judicial review of that decision, maintaining that the
authorization of financial assistance triggered s. 5(1)(b) of the Canadian Environmental Assessment Act. The Crown
corporation was an intervenor with the rights of a party in the application for judicial review. The Crown corporation
filed an affidavit by a senior manager referring to and summarizing confidential documents. Before cross-examining the
senior manager, the environmental organization applied for production of the documents. After receiving authorization
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2
Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, 2002 CSC 41,...
2002 SCC 41, 2002 CSC 41, 2002 CarswellNat 822, 2002 CarswellNat 823...
from the Chinese authorities to disclose the documents on the condition that they be protected by a confidentiality order,
the Crown corporation sought to introduce the documents under R. 312 of the Federal Court Rules, 1998 and requested a
confidentiality order. The confidentiality order would make the documents available only to the parties and the court but
would not restrict public access to the proceedings.
The trial judge refused to grant the order and ordered the Crown corporation to file the documents in their current form, or
in an edited version if it chose to do so. The Crown corporation appealed under R. 151 of the Federal Court Rules, 1998
and the environmental organization cross-appealed under R. 312. The majority of the Federal Court of Appeal dismissed
the appeal and the cross-appeal. The confidentiality order would have been granted by the dissenting judge. The Crown
corporation appealed.
Held: The appeal was allowed.
Publication bans and confidentiality orders, in the context of judicial proceedings, are similar. The analytical approach to
the exercise of discretion under R. 151 should echo the underlying principles set out in Dagenais v. Canadian Broadcasting
Corp., [1994] 3 S.C.R. 835 (S.C.C.). A confidentiality order under R. 151 should be granted in only two circumstances,
when an order is needed to prevent serious risk to an important interest, including a commercial interest, in the context
of litigation because reasonable alternative measures will not prevent the risk, and when the salutary effects of the
confidentiality order, including the effects on the right of civil litigants to a fair trial, outweigh its deleterious effects,
including the effects on the right to free expression, which includes public interest in open and accessible court proceedings.
The alternatives to the confidentiality order suggested by the Trial Division and Court of Appeal were problematic.
Expunging the documents would be a virtually unworkable and ineffective solution. Providing summaries was not a
reasonable alternative measure to having the underlying documents available to the parties. The confidentiality order was
necessary in that disclosure of the documents would impose a serious risk on an important commercial interest of the
Crown corporation, and there were no reasonable alternative measures to granting the order.
The confidentiality order would have substantial salutary effects on the Crown corporation's right to a fair trial and on
freedom of expression. The deleterious effects of the confidentiality order on the open court principle and freedom of
expression would be minimal. If the order was not granted and in the course of the judicial review application the Crown
corporation was not required to mount a defence under the Canadian Environmental Assessment Act, it was possible that
the Crown corporation would suffer the harm of having disclosed confidential information in breach of its obligations with
no corresponding benefit to the right of the public to freedom of expression. The salutary effects of the order outweighed
the deleterious effects.
Le gouvernement fédéral a fait un prêt de l'ordre de 1,5 milliards de dollar en rapport avec la construction et la vente par
une société d'État de deux réacteurs nucléaires CANDU à la Chine. Un organisme environnemental a sollicité le contrôle
judiciaire de cette décision, soutenant que cette autorisation d'aide financière avait déclenché l'application de l'art. 5(1)b) de
la Loi canadienne sur l'évaluation environnementale. La société d'État était intervenante au débat et elle avait reçu les droits
de partie dans la demande de contrôle judiciaire. Elle a déposé l'affidavit d'un cadre supérieur dans lequel ce dernier faisait
référence à certains documents confidentiels et en faisait le résumé. L'organisme environnemental a demandé la production
des documents avant de procéder au contre-interrogatoire du cadre supérieur. Après avoir obtenu l'autorisation des autorités
chinoises de communiquer les documents à la condition qu'ils soient protégés par une ordonnance de confidentialité, la
société d'État a cherché à les introduire en invoquant la r. 312 des Règles de la Cour fédérale, 1998, et elle a aussi demandé
une ordonnance de confidentialité. Selon les termes de l'ordonnance de confidentialité, les documents seraient uniquement
mis à la disposition des parties et du tribunal, mais l'accès du public aux débats ne serait pas interdit.
Le juge de première instance a refusé l'ordonnance de confidentialité et a ordonné à la société d'État de déposer les
documents sous leur forme actuelle ou sous une forme révisée, à son gré. La société d'État a interjeté appel en vertu de la
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3
Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, 2002 CSC 41,...
2002 SCC 41, 2002 CSC 41, 2002 CarswellNat 822, 2002 CarswellNat 823...
r. 151 des Règles de la Cour fédérale, 1998, et l'organisme environnemental a formé un appel incident en vertu de la r.
312. Les juges majoritaires de la Cour d'appel ont rejeté le pourvoi et le pourvoi incident. Le juge dissident aurait accordé
l'ordonnance de confidentialité. La société d'État a interjeté appel.
Arrêt: Le pourvoi a été accueilli.
Il y a de grandes ressemblances entre l'ordonnance de non-publication et l'ordonnance de confidentialité dans le contexte
des procédures judiciaires. L'analyse de l'exercice du pouvoir discrétionnaire sous le régime de la r. 151 devrait refléter les
principes sous-jacents énoncés dans l'arrêt Dagenais c. Société Radio-Canada, [1994] 3 R.C.S. 835. Une ordonnance de
confidentialité rendue en vertu de la r. 151 ne devrait l'être que lorsque: 1) une telle ordonnance est nécessaire pour écarter
un risque sérieux pour un intérêt important, y compris un intérêt commercial, dans le cadre d'un litige, en l'absence d'autres
solutions raisonnables pour écarter ce risque; et 2) les effets bénéfiques de l'ordonnance de confidentialité, y compris les
effets sur les droits des justiciables civils à un procès équitable, l'emportent sur ses effets préjudiciables, y compris les
effets sur le droit à la liberté d'expression, lequel droit comprend l'intérêt du public à l'accès aux débats judiciaires.
Les solutions proposées par la Division de première instance et par la Cour d'appel comportaient toutes deux des problèmes.
Épurer les documents serait virtuellement impraticable et inefficace. Fournir des résumés des documents ne constituait pas
une « autre option raisonnable » à la communication aux parties des documents de base. L'ordonnance de confidentialité
était nécessaire parce que la communication des documents menacerait gravement un intérêt commercial important de la
société d'État et parce qu'il n'existait aucune autre option raisonnable que celle d'accorder l'ordonnance.
L'ordonnance de confidentialité aurait d'importants effets bénéfiques sur le droit de la société d'État à un procès équitable
et à la liberté d'expression. Elle n'aurait que des effets préjudiciables minimes sur le principe de la publicité des débats et
sur la liberté d'expression. Advenant que l'ordonnance ne soit pas accordée et que, dans le cadre de la demande de contrôle
judiciaire, la société d'État n'ait pas l'obligation de présenter une défense en vertu de la Loi canadienne sur l'évaluation
environnementale, il se pouvait que la société d'État subisse un préjudice du fait d'avoir communiqué cette information
confidentielle en violation de ses obligations, sans avoir pu profiter d'un avantage similaire à celui du droit du public à la
liberté d'expression. Les effets bénéfiques de l'ordonnance l'emportaient sur ses effets préjudiciables.
Table of Authorities
Cases considered by Iacobucci J.:
AB Hassle v. Canada (Minister of National Health & Welfare), 1998 CarswellNat 2520, 83 C.P.R. (3d) 428, 161
F.T.R. 15 (Fed. T.D.) — considered
AB Hassle v. Canada (Minister of National Health & Welfare), 2000 CarswellNat 356, 5 C.P.R. (4th) 149, 253 N.R.
284, [2000] 3 F.C. 360, 2000 CarswellNat 3254 (Fed. C.A.) — considered
Canadian Broadcasting Corp. v. New Brunswick (Attorney General), 2 C.R. (5th) 1, 110 C.C.C. (3d) 193, [1996]
3 S.C.R. 480, 139 D.L.R. (4th) 385, 182 N.B.R. (2d) 81, 463 A.P.R. 81, 39 C.R.R. (2d) 189, 203 N.R. 169, 1996
CarswellNB 462, 1996 CarswellNB 463, 2 B.H.R.C. 210 (S.C.C.) — followed
Dagenais v. Canadian Broadcasting Corp., 34 C.R. (4th) 269, 20 O.R. (3d) 816 (note), [1994] 3 S.C.R. 835, 120
D.L.R. (4th) 12, 175 N.R. 1, 94 C.C.C. (3d) 289, 76 O.A.C. 81, 25 C.R.R. (2d) 1, 1994 CarswellOnt 112, 1994
CarswellOnt 1168 (S.C.C.) — followed
Copyright © Thomson Reuters Canada Limited or its licensors (excluding individual court documents). All rights reserved.
4
Sierra Club of Canada v. Canada (Minister of Finance), 2002 SCC 41, 2002 CSC 41,...
2002 SCC 41, 2002 CSC 41, 2002 CarswellNat 822, 2002 CarswellNat 823...
Edmonton Journal v. Alberta (Attorney General) (1989), [1990] 1 W.W.R. 577, [1989] 2 S.C.R. 1326, 64 D.L.R.
(4th) 577, 102 N.R. 321, 71 Alta. L.R. (2d) 273, 103 A.R. 321, 41 C.P.C. (2d) 109, 45 C.R.R. 1, 1989 CarswellAlta
198, 1989 CarswellAlta 623 (S.C.C.) — followed
Eli Lilly & Co. v. Novopharm Ltd., 56 C.P.R. (3d) 437, 82 F.T.R. 147, 1994 CarswellNat 537 (Fed. T.D.) — referred to
Ethyl Canada Inc. v. Canada (Attorney General), 1998 CarswellOnt 380, 17 C.P.C. (4th) 278 (Ont. Gen. Div.) —
considered
Irwin Toy Ltd. c. Québec (Procureur général), 94 N.R. 167, (sub nom. Irwin Toy Ltd. v. Quebec (Attorney General))
[1989] 1 S.C.R. 927, 58 D.L.R. (4th) 577, 24 Q.A.C. 2, 25 C.P.R. (3d) 417, 39 C.R.R. 193, 1989 CarswellQue 115F,
1989 CarswellQue 115 (S.C.C.) — followed
M. (A.) v. Ryan, 143 D.L.R. (4th) 1, 207 N.R. 81, 4 C.R. (5th) 220, 29 B.C.L.R. (3d) 133, [1997] 4 W.W.R. 1, 85
B.C.A.C. 81, 138 W.A.C. 81, 34 C.C.L.T. (2d) 1, [1997] 1 S.C.R. 157, 42 C.R.R. (2d) 37, 8 C.P.C. (4th) 1, 1997
CarswellBC 99, 1997 CarswellBC 100 (S.C.C.) — considered
N. (F.), Re, 2000 SCC 35, 2000 CarswellNfld 213, 2000 CarswellNfld 214, 146 C.C.C. (3d) 1, 188 D.L.R. (4th) 1,
35 C.R. (5th) 1, [2000] 1 S.C.R. 880, 191 Nfld. & P.E.I.R. 181, 577 A.P.R. 181 (S.C.C.) — considered
R. v. E. (O.N.), 2001 SCC 77, 2001 CarswellBC 2479, 2001 CarswellBC 2480, 158 C.C.C. (3d) 478, 205 D.L.R.
(4th) 542, 47 C.R. (5th) 89, 279 N.R. 187, 97 B.C.L.R. (3d) 1, [2002] 3 W.W.R. 205, 160 B.C.A.C. 161, 261 W.A.C.
161 (S.C.C.) — referred to
R. v. Keegstra, 1 C.R. (4th) 129, [1990] 3 S.C.R. 697, 77 Alta. L.R. (2d) 193, 117 N.R. 1, [1991] 2 W.W.R. 1, 114
A.R. 81, 61 C.C.C. (3d) 1, 3 C.R.R. (2d) 193, 1990 CarswellAlta 192, 1990 CarswellAlta 661 (S.C.C.) — followed
R. v. Mentuck, 2001 SCC 76, 2001 CarswellMan 535, 2001 CarswellMan 536, 158 C.C.C. (3d) 449, 205 D.L.R. (4th)
512, 47 C.R. (5th) 63, 277 N.R. 160, [2002] 2 W.W.R. 409 (S.C.C.) — followed
R. v. Oakes, [1986] 1 S.C.R. 103, 26 D.L.R. (4th) 200, 65 N.R. 87, 14 O.A.C. 335, 24 C.C.C. (3d) 321, 50 C.R. (3d)
1, 19 C.R.R. 308, 53 O.R. (2d) 719, 1986 CarswellOnt 95, 1986 CarswellOnt 1001 (S.C.C.) — referred to
Statutes considered:
Canadian Charter of Rights and Freedoms, Part I of the Constitution Act, 1982, being Schedule B to the Canada Act
1982 (U.K.), 1982, c. 11
Generally — referred to
s. 1 — referred to
s. 2(b) — referred to
s. 11(d) — referred to
Canadian Environmental Assessment Act, S.C. 1992, c. 37
Generally — considered
s. 5(1)(b) — referred to
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s. 8 — referred to
s. 54 — referred to
s. 54(2)(b) — referred to
Criminal Code, R.S.C. 1985, c. C-46
s. 486(1) — referred to
Rules considered:
Federal Court Rules, 1998, SOR/98-106
R. 151 — considered
R. 312 — referred to
APPEAL from judgment reported at 2000 CarswellNat 970, 2000 CarswellNat 3271, [2000] F.C.J. No. 732, (sub nom. Atomic
Energy of Canada Ltd. v. Sierra Club of Canada) 187 D.L.R. (4th) 231, 256 N.R. 1, 24 Admin. L.R. (3d) 1, [2000] 4 F.C. 426,
182 F.T.R. 284 (note) (Fed. C.A.), dismissing appeal from judgment reported at 1999 CarswellNat 2187, [2000] 2 F.C. 400,
1999 CarswellNat 3038, 179 F.T.R. 283 (Fed. T.D.), granting application in part.
POURVOI à l'encontre de l'arrêt publié à 2000 CarswellNat 970, 2000 CarswellNat 3271, [2000] F.C.J. No. 732, (sub nom.
Atomic Energy of Canada Ltd. v. Sierra Club of Canada) 187 D.L.R. (4th) 231, 256 N.R. 1, 24 Admin. L.R. (3d) 1, [2000] 4
F.C. 426, 182 F.T.R. 284 (note) (C.A. Féd.), qui a rejeté le pourvoi à l'encontre du jugement publié à 1999 CarswellNat 2187,
[2000] 2 F.C. 400, 1999 CarswellNat 3038, 179 F.T.R. 283 (C.F. (1 re inst.)), qui avait accueilli en partie la demande.
The judgment of the court was delivered by Iacobucci J.:
I. Introduction
1 In our country, courts are the institutions generally chosen to resolve legal disputes as best they can through the application
of legal principles to the facts of the case involved. One of the underlying principles of the judicial process is public openness,
both in the proceedings of the dispute, and in the material that is relevant to its resolution. However, some material can be
made the subject of a confidentiality order. This appeal raises the important issues of when, and under what circumstances, a
confidentiality order should be granted.
2
For the following reasons, I would issue the confidentiality order sought and, accordingly, would allow the appeal.
II. Facts
3 The appellant, Atomic Energy of Canada Ltd. ("AECL"), is a Crown corporation that owns and markets CANDU nuclear
technology, and is an intervener with the rights of a party in the application for judicial review by the respondent, the Sierra Club
of Canada ("Sierra Club"). Sierra Club is an environmental organization seeking judicial review of the federal government's
decision to provide financial assistance in the form of a $1.5 billion guaranteed loan relating to the construction and sale of two
CANDU nuclear reactors to China by the appellant. The reactors are currently under construction in China, where the appellant
is the main contractor and project manager.
4
The respondent maintains that the authorization of financial assistance by the government triggered s. 5(1)(b) of the
Canadian Environmental Assessment Act, S.C. 1992, c. 37 ("CEAA"), which requires that an environmental assessment be
undertaken before a federal authority grants financial assistance to a project. Failure to undertake such an assessment compels
cancellation of the financial arrangements.
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5 The appellant and the respondent Ministers argue that the CEAA does not apply to the loan transaction, and that if it does,
the statutory defences available under ss. 8 and 54 apply. Section 8 describes the circumstances where Crown corporations
are required to conduct environmental assessments. Section 54(2)(b) recognizes the validity of an environmental assessment
carried out by a foreign authority provided that it is consistent with the provisions of the CEAA.
6
In the course of the application by Sierra Club to set aside the funding arrangements, the appellant filed an affidavit of
Dr. Simon Pang, a senior manager of the appellant. In the affidavit, Dr. Pang referred to and summarized certain documents
(the "Confidential Documents"). The Confidential Documents are also referred to in an affidavit prepared by Dr. Feng, one
of AECL's experts. Prior to cross-examining Dr. Pang on his affidavit, Sierra Club made an application for the production of
the Confidential Documents, arguing that it could not test Dr. Pang's evidence without access to the underlying documents.
The appellant resisted production on various grounds, including the fact that the documents were the property of the Chinese
authorities and that it did not have authority to disclose them. After receiving authorization by the Chinese authorities to
disclose the documents on the condition that they be protected by a confidentiality order, the appellant sought to introduce the
Confidential Documents under R. 312 of the Federal Court Rules, 1998, SOR/98-106, and requested a confidentiality order
in respect of the documents.
7
Under the terms of the order requested, the Confidential Documents would only be made available to the parties and the
court; however, there would be no restriction on public access to the proceedings. In essence, what is being sought is an order
preventing the dissemination of the Confidential Documents to the public.
8 The Confidential Documents comprise two Environmental Impact Reports on Siting and Construction Design (the "EIRs"),
a Preliminary Safety Analysis Report (the "PSAR"), and the supplementary affidavit of Dr. Pang, which summarizes the contents
of the EIRs and the PSAR. If admitted, the EIRs and the PSAR would be attached as exhibits to the supplementary affidavit
of Dr. Pang. The EIRs were prepared by the Chinese authorities in the Chinese language, and the PSAR was prepared by the
appellant with assistance from the Chinese participants in the project. The documents contain a mass of technical information
and comprise thousands of pages. They describe the ongoing environmental assessment of the construction site by the Chinese
authorities under Chinese law.
9 As noted, the appellant argues that it cannot introduce the Confidential Documents into evidence without a confidentiality
order; otherwise, it would be in breach of its obligations to the Chinese authorities. The respondent's position is that its right to
cross-examine Dr. Pang and Dr. Feng on their affidavits would be effectively rendered nugatory in the absence of the supporting
documents to which the affidavits referred. Sierra Club proposes to take the position that the affidavits should therefore be
afforded very little weight by the judge hearing the application for judicial review.
10
The Federal Court of Canada, Trial Division, refused to grant the confidentiality order and the majority of the Federal
Court of Appeal dismissed the appeal. In his dissenting opinion, Robertson J.A. would have granted the confidentiality order.
III. Relevant Statutory Provisions
11
Federal Court Rules, 1998, SOR/98-106
151.(1) On motion, the Court may order that material to be filed shall be treated as confidential.
(2) Before making an order under subsection (1), the Court must be satisfied that the material should be treated as
confidential, notwithstanding the public interest in open and accessible court proceedings.
IV. Judgments below
A. Federal Court of Canada, Trial Division, [2000] 2 F.C. 400
12 Pelletier J. first considered whether leave should be granted pursuant to R. 312 to introduce the supplementary affidavit of
Dr. Pang to which the Confidential Documents were filed as exhibits. In his view, the underlying question was that of relevance,
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and he concluded that the documents were relevant to the issue of the appropriate remedy. Thus, in the absence of prejudice to
the respondent, the affidavit should be permitted to be served and filed. He noted that the respondents would be prejudiced by
delay, but since both parties had brought interlocutory motions which had contributed to the delay, the desirability of having the
entire record before the court outweighed the prejudice arising from the delay associated with the introduction of the documents.
13
On the issue of confidentiality, Pelletier J. concluded that he must be satisfied that the need for confidentiality was
greater than the public interest in open court proceedings, and observed that the argument for open proceedings in this case was
significant given the public interest in Canada's role as a vendor of nuclear technology. As well, he noted that a confidentiality
order was an exception to the rule of open access to the courts, and that such an order should be granted only where absolutely
necessary.
14
Pelletier J. applied the same test as that used in patent litigation for the issue of a protective order, which is essentially
a confidentiality order. The granting of such an order requires the appellant to show a subjective belief that the information is
confidential and that its interests would be harmed by disclosure. In addition, if the order is challenged, then the person claiming
the benefit of the order must demonstrate objectively that the order is required. This objective element requires the party to
show that the information has been treated as confidential, and that it is reasonable to believe that its proprietary, commercial
and scientific interests could be harmed by the disclosure of the information.
15
Concluding that both the subjective part and both elements of the objective part of the test had been satisfied, he
nevertheless stated: "However, I am also of the view that in public law cases, the objective test has, or should have, a third
component which is whether the public interest in disclosure exceeds the risk of harm to a party arising from disclosure" (para.
23).
16 A very significant factor, in his view, was the fact that mandatory production of documents was not in issue here. The fact
that the application involved a voluntary tendering of documents to advance the appellant's own cause as opposed to mandatory
production weighed against granting the confidentiality order.
17
In weighing the public interest in disclosure against the risk of harm to AECL arising from disclosure, Pelletier J. noted
that the documents the appellant wished to put before the court were prepared by others for other purposes, and recognized
that the appellant was bound to protect the confidentiality of the information. At this stage, he again considered the issue of
materiality. If the documents were shown to be very material to a critical issue, "the requirements of justice militate in favour
of a confidentiality order. If the documents are marginally relevant, then the voluntary nature of the production argues against
a confidentiality order" (para. 29). He then decided that the documents were material to a question of the appropriate remedy,
a significant issue in the event that the appellant failed on the main issue.
18
Pelletier J. also considered the context of the case and held that since the issue of Canada's role as a vendor of nuclear
technology was one of significant public interest, the burden of justifying a confidentiality order was very onerous. He found
that AECL could expunge the sensitive material from the documents, or put the evidence before the court in some other form,
and thus maintain its full right of defence while preserving the open access to court proceedings.
19
Pelletier J. observed that his order was being made without having perused the Confidential Documents because they
had not been put before him. Although he noted the line of cases which holds that a judge ought not to deal with the issue of
a confidentiality order without reviewing the documents themselves, in his view, given their voluminous nature and technical
content as well as his lack of information as to what information was already in the public domain, he found that an examination
of these documents would not have been useful.
20
Pelletier J. ordered that the appellant could file the documents in current form, or in an edited version if it chose to do
so. He also granted leave to file material dealing with the Chinese regulatory process in general and as applied to this project,
provided it did so within 60 days.
B. Federal Court of Appeal, [2000] 4 F.C. 426
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(1) Evans J.A. (Sharlow J.A. concurring)
21
At the Federal Court of Appeal, AECL appealed the ruling under R. 151 of the Federal Court Rules, 1998, and Sierra
Club cross-appealed the ruling under R. 312.
22
With respect to R. 312, Evans J.A. held that the documents were clearly relevant to a defence under s. 54(2)(b), which
the appellant proposed to raise if s. 5(1)(b) of the CEAA was held to apply, and were also potentially relevant to the exercise
of the court's discretion to refuse a remedy even if the Ministers were in breach of the CEAA. Evans J.A. agreed with Pelletier
J. that the benefit to the appellant and the court of being granted leave to file the documents outweighed any prejudice to the
respondent owing to delay and thus concluded that the motions judge was correct in granting leave under R. 312.
23
On the issue of the confidentiality order, Evans J.A. considered R. 151, and all the factors that the motions judge had
weighed, including the commercial sensitivity of the documents, the fact that the appellant had received them in confidence
from the Chinese authorities, and the appellant's argument that without the documents it could not mount a full answer and
defence to the application. These factors had to be weighed against the principle of open access to court documents. Evans
J.A. agreed with Pelletier J. that the weight to be attached to the public interest in open proceedings varied with context and
held that, where a case raises issues of public significance, the principle of openness of judicial process carries greater weight
as a factor in the balancing process. Evans J.A. noted the public interest in the subject matter of the litigation, as well as the
considerable media attention it had attracted.
24 In support of his conclusion that the weight assigned to the principle of openness may vary with context, Evans J.A. relied
upon the decisions in AB Hassle v. Canada (Minister of National Health & Welfare), [2000] 3 F.C. 360 (Fed. C.A.), where the
court took into consideration the relatively small public interest at stake, and Ethyl Canada Inc. v. Canada (Attorney General)
(1998), 17 C.P.C. (4th) 278 (Ont. Gen. Div.), at p. 283, where the court ordered disclosure after determining that the case was
a significant constitutional case where it was important for the public to understand the issues at stake. Evans J.A. observed
that openness and public participation in the assessment process are fundamental to the CEAA, and concluded that the motions
judge could not be said to have given the principle of openness undue weight even though confidentiality was claimed for a
relatively small number of highly technical documents.
25
Evans J.A. held that the motions judge had placed undue emphasis on the fact that the introduction of the documents
was voluntary; however, it did not follow that his decision on the confidentiality order must therefore be set aside. Evans J.A.
was of the view that this error did not affect the ultimate conclusion for three reasons. First, like the motions judge, he attached
great weight to the principle of openness. Secondly, he held that the inclusion in the affidavits of a summary of the reports
could go a long way to compensate for the absence of the originals, should the appellant choose not to put them in without a
confidentiality order. Finally, if AECL submitted the documents in an expunged fashion, the claim for confidentiality would
rest upon a relatively unimportant factor, i.e., the appellant's claim that it would suffer a loss of business if it breached its
undertaking with the Chinese authorities.
26 Evans J.A. rejected the argument that the motions judge had erred in deciding the motion without reference to the actual
documents, stating that it was not necessary for him to inspect them, given that summaries were available and that the documents
were highly technical and incompletely translated. Thus, the appeal and cross-appeal were both dismissed.
(2) Robertson J.A. (dissenting)
27 Robertson J.A. disagreed with the majority for three reasons. First, in his view, the level of public interest in the case, the
degree of media coverage, and the identities of the parties should not be taken into consideration in assessing an application for a
confidentiality order. Instead, he held that it was the nature of the evidence for which the order is sought that must be examined.
28 In addition, he found that without a confidentiality order, the appellant had to choose between two unacceptable options:
either suffering irreparable financial harm if the confidential information was introduced into evidence or being denied the right
to a fair trial because it could not mount a full defence if the evidence was not introduced.
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29
Finally, he stated that the analytical framework employed by the majority in reaching its decision was fundamentally
flawed as it was based largely on the subjective views of the motions judge. He rejected the contextual approach to the question
of whether a confidentiality order should issue, emphasizing the need for an objective framework to combat the perception that
justice is a relative concept, and to promote consistency and certainty in the law.
30 To establish this more objective framework for regulating the issuance of confidentiality orders pertaining to commercial
and scientific information, he turned to the legal rationale underlying the commitment to the principle of open justice, referring
to Edmonton Journal v. Alberta (Attorney General), [1989] 2 S.C.R. 1326 (S.C.C.). There, the Supreme Court of Canada held
that open proceedings foster the search for the truth, and reflect the importance of public scrutiny of the courts.
31
Robertson J.A. stated that, although the principle of open justice is a reflection of the basic democratic value of
accountability in the exercise of judicial power, in his view, the principle that justice itself must be secured is paramount. He
concluded that justice as an overarching principle means that exceptions occasionally must be made to rules or principles.
32
He observed that, in the area of commercial law, when the information sought to be protected concerns "trade secrets,"
this information will not be disclosed during a trial if to do so would destroy the owner's proprietary rights and expose him or
her to irreparable harm in the form of financial loss. Although the case before him did not involve a trade secret, he nevertheless
held that the same treatment could be extended to commercial or scientific information which was acquired on a confidential
basis and attached the following criteria as conditions precedent to the issuance of a confidentiality order (at para. 13):
(1) the information is of a confidential nature as opposed to facts which one would like to keep confidential; (2) the
information for which confidentiality is sought is not already in the public domain; (3) on a balance of probabilities the party
seeking the confidentiality order would suffer irreparable harm if the information were made public; (4) the information
is relevant to the legal issues raised in the case; (5) correlatively, the information is "necessary" to the resolution of those
issues; (6) the granting of a confidentiality order does not unduly prejudice the opposing party; and (7) the public interest
in open court proceedings does not override the private interests of the party seeking the confidentiality order. The onus in
establishing that criteria one to six are met is on the party seeking the confidentiality order. Under the seventh criterion, it
is for the opposing party to show that a prima facie right to a protective order has been overtaken by the need to preserve
the openness of the court proceedings. In addressing these criteria one must bear in mind two of the threads woven into the
fabric of the principle of open justice: the search for truth and the preservation of the rule of law. As stated at the outset, I
do not believe that the perceived degree of public importance of a case is a relevant consideration.
33 In applying these criteria to the circumstances of the case, Robertson J.A. concluded that the confidentiality order should
be granted. In his view, the public interest in open court proceedings did not override the interests of AECL in maintaining the
confidentiality of these highly technical documents.
34
Robertson J.A. also considered the public interest in the need to ensure that site-plans for nuclear installations were not,
for example, posted on a web-site. He concluded that a confidentiality order would not undermine the two primary objectives
underlying the principle of open justice: truth and the rule of law. As such, he would have allowed the appeal and dismissed
the cross-appeal.
V. Issues
35
A. What is the proper analytical approach to be applied to the exercise of judicial discretion where a litigant seeks a
confidentiality order under R. 151 of the Federal Court Rules, 1998?
B. Should the confidentiality order be granted in this case?
VI. Analysis
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A. The Analytical Approach to the Granting of a Confidentiality Order
(1) The General Framework: Herein the Dagenais Principles
36 The link between openness in judicial proceedings and freedom of expression has been firmly established by this Court. In
Canadian Broadcasting Corp. v. New Brunswick (Attorney General), [1996] 3 S.C.R. 480 (S.C.C.) [hereinafter New Brunswick],
at para. 23, La Forest J. expressed the relationship as follows:
The principle of open courts is inextricably tied to the rights guaranteed by s. 2(b). Openness permits public access to
information about the courts, which in turn permits the public to discuss and put forward opinions and criticisms of court
practices and proceedings. While the freedom to express ideas and opinions about the operation of the courts is clearly
within the ambit of the freedom guaranteed by s. 2(b), so too is the right of members of the public to obtain information
about the courts in the first place.
Under the order sought, public access and public scrutiny of the Confidential Documents would be restricted; this would clearly
infringe the public's freedom of expression guarantee.
37 A discussion of the general approach to be taken in the exercise of judicial discretion to grant a confidentiality order should
begin with the principles set out by this Court in Dagenais v. Canadian Broadcasting Corp., [1994] 3 S.C.R. 835 (S.C.C.).
Although that case dealt with the common law jurisdiction of the court to order a publication ban in the criminal law context,
there are strong similarities between publication bans and confidentiality orders in the context of judicial proceedings. In both
cases a restriction on freedom of expression is sought in order to preserve or promote an interest engaged by those proceedings.
As such, the fundamental question for a court to consider in an application for a publication ban or a confidentiality order is
whether, in the circumstances, the right to freedom of expression should be compromised.
38
Although in each case freedom of expression will be engaged in a different context, the Dagenais framework utilizes
overarching Canadian Charter of Rights and Freedoms principles in order to balance freedom of expression with other rights
and interests, and thus can be adapted and applied to various circumstances. As a result, the analytical approach to the exercise
of discretion under R. 151 should echo the underlying principles laid out in Dagenais, supra, although it must be tailored to
the specific rights and interests engaged in this case.
39 Dagenais, supra, dealt with an application by four accused persons under the court's common law jurisdiction requesting
an order prohibiting the broadcast of a television programme dealing with the physical and sexual abuse of young boys at
religious institutions. The applicants argued that because the factual circumstances of the programme were very similar to the
facts at issue in their trials, the ban was necessary to preserve the accuseds' right to a fair trial.
40
Lamer C.J. found that the common law discretion to order a publication ban must be exercised within the boundaries
set by the principles of the Charter. Since publication bans necessarily curtail the freedom of expression of third parties, he
adapted the pre-Charter common law rule such that it balanced the right to freedom of expression with the right to a fair trial
of the accused in a way which reflected the substance of the test from R. v. Oakes, [1986] 1 S.C.R. 103 (S.C.C.). At p. 878 of
Dagenais, Lamer C.J. set out his reformulated test:
A publication ban should only be ordered when:
(a) Such a ban is necessary in order to prevent a real and substantial risk to the fairness of the trial, because reasonably
available alternative measures will not prevent the risk; and
(b) The salutary effects of the publication ban outweigh the deleterious effects to the free expression of those affected
by the ban. [Emphasis in original.]
41 In New Brunswick, supra, this Court modified the Dagenais test in the context of the related issue of how the discretionary
power under s. 486(1) of the Criminal Code to exclude the public from a trial should be exercised. That case dealt with an
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appeal from the trial judge's order excluding the public from the portion of a sentencing proceeding for sexual assault and sexual
interference dealing with the specific acts committed by the accused on the basis that it would avoid "undue hardship" to both
the victims and the accused.
42
La Forest J. found that s. 486(1) was a restriction on the s. 2(b) right to freedom of expression in that it provided
a "discretionary bar on public and media access to the courts": New Brunswick, supra, at para. 33; however, he found this
infringement to be justified under s. 1 provided that the discretion was exercised in accordance with the Charter. Thus, the
approach taken by La Forest J. at para. 69 to the exercise of discretion under s. 486(1) of the Criminal Code, closely mirrors
the Dagenais common law test:
(a) the judge must consider the available options and consider whether there are any other reasonable and effective
alternatives available;
(b) the judge must consider whether the order is limited as much as possible; and
(c) the judge must weigh the importance of the objectives of the particular order and its probable effects against the
importance of openness and the particular expression that will be limited in order to ensure that the positive and
negative effects of the order are proportionate.
In applying this test to the facts of the case, La Forest J. found that the evidence of the potential undue hardship consisted
mainly in the Crown's submission that the evidence was of a "delicate nature" and that this was insufficient to override the
infringement on freedom of expression.
43
This Court has recently revisited the granting of a publication ban under the court's common law jurisdiction in R. v.
Mentuck, 2001 SCC 76 (S.C.C.), and its companion case R. v. E. (O.N.), 2001 SCC 77 (S.C.C.). In Mentuck, the Crown moved
for a publication ban to protect the identity of undercover police officers and operational methods employed by the officers in
their investigation of the accused. The accused opposed the motion as an infringement of his right to a fair and public hearing
under s. 11(d) of the Charter. The order was also opposed by two intervening newspapers as an infringement of their right
to freedom of expression.
44 The Court noted that, while Dagenais dealt with the balancing of freedom of expression on the one hand, and the right to a
fair trial of the accused on the other, in the case before it, both the right of the accused to a fair and public hearing, and freedom
of expression weighed in favour of denying the publication ban. These rights were balanced against interests relating to the
proper administration of justice, in particular, protecting the safety of police officers and preserving the efficacy of undercover
police operations.
45 In spite of this distinction, the Court noted that underlying the approach taken in both Dagenais and New Brunswick was
the goal of ensuring that the judicial discretion to order publication bans is subject to no lower a standard of compliance with
the Charter than legislative enactment. This goal is furthered by incorporating the essence of s. 1 of the Charter and the Oakes
test into the publication ban test. Since this same goal applied in the case before it, the Court adopted a similar approach to that
taken in Dagenais, but broadened the Dagenais test (which dealt specifically with the right of an accused to a fair trial) such
that it could guide the exercise of judicial discretion where a publication ban is requested in order to preserve any important
aspect of the proper administration of justice. At para. 32, the Court reformulated the test as follows:
A publication ban should only be ordered when:
(a) such an order is necessary in order to prevent a serious risk to the proper administration of justice because
reasonably alternative measures will not prevent the risk; and
(b) the salutary effects of the publication ban outweigh the deleterious effects on the rights and interests of the parties
and the public, including the effects on the right to free expression, the right of the accused to a fair and public trial,
and the efficacy of the administration of justice.
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46 The Court emphasized that under the first branch of the test, three important elements were subsumed under the "necessity"
branch. First, the risk in question must be a serious risk well-grounded in the evidence. Second, the phrase "proper administration
of justice" must be carefully interpreted so as not to allow the concealment of an excessive amount of information. Third, the
test requires the judge ordering the ban to consider not only whether reasonable alternatives are available, but also to restrict
the ban as far as possible without sacrificing the prevention of the risk.
47
At para. 31, the Court also made the important observation that the proper administration of justice will not necessarily
involve Charter rights, and that the ability to invoke the Charter is not a necessary condition for a publication ban to be granted:
The [common law publication ban] rule can accommodate orders that must occasionally be made in the interests of the
administration of justice, which encompass more than fair trial rights. As the test is intended to "reflect . . . the substance
of the Oakes test", we cannot require that Charter rights be the only legitimate objective of such orders any more than we
require that government action or legislation in violation of the Charter be justified exclusively by the pursuit of another
Charter right. [Emphasis added.]
The Court also anticipated that, in appropriate circumstances, the Dagenais framework could be expanded even further in order
to address requests for publication bans where interests other than the administration of justice were involved.
48
Mentuck is illustrative of the flexibility of the Dagenais approach. Since its basic purpose is to ensure that the judicial
discretion to deny public access to the courts is exercised in accordance with Charter principles, in my view, the Dagenais
model can and should be adapted to the situation in the case at bar where the central issue is whether judicial discretion should
be exercised so as to exclude confidential information from a public proceeding. As in Dagenais, New Brunswick and Mentuck,
granting the confidentiality order will have a negative effect on the Charter right to freedom of expression, as well as the
principle of open and accessible court proceedings, and, as in those cases, courts must ensure that the discretion to grant the
order is exercised in accordance with Charter principles. However, in order to adapt the test to the context of this case, it is first
necessary to determine the particular rights and interests engaged by this application.
(2) The Rights and Interests of the Parties
49 The immediate purpose for AECL's confidentiality request relates to its commercial interests. The information in question
is the property of the Chinese authorities. If the appellant were to disclose the Confidential Documents, it would be in breach
of its contractual obligations and suffer a risk of harm to its competitive position. This is clear from the findings of fact of
the motions judge that AECL was bound by its commercial interests and its customer's property rights not to disclose the
information (para. 27), and that such disclosure could harm the appellant's commercial interests (para. 23).
50
Aside from this direct commercial interest, if the confidentiality order is denied, then in order to protect its commercial
interests, the appellant will have to withhold the documents. This raises the important matter of the litigation context in which
the order is sought. As both the motions judge and the Federal Court of Appeal found that the information contained in the
Confidential Documents was relevant to defences available under the CEAA, the inability to present this information hinders
the appellant's capacity to make full answer and defence or, expressed more generally, the appellant's right, as a civil litigant,
to present its case. In that sense, preventing the appellant from disclosing these documents on a confidential basis infringes its
right to a fair trial. Although in the context of a civil proceeding this does not engage a Charter right, the right to a fair trial
generally can be viewed as a fundamental principle of justice: M. (A.) v. Ryan, [1997] 1 S.C.R. 157 (S.C.C.), at para. 84, per
L'Heureux-Dubé J. (dissenting, but not on that point). Although this fair trial right is directly relevant to the appellant, there
is also a general public interest in protecting the right to a fair trial. Indeed, as a general proposition, all disputes in the courts
should be decided under a fair trial standard. The legitimacy of the judicial process alone demands as much. Similarly, courts
have an interest in having all relevant evidence before them in order to ensure that justice is done.
51 Thus, the interests which would be promoted by a confidentiality order are the preservation of commercial and contractual
relations, as well as the right of civil litigants to a fair trial. Related to the latter are the public and judicial interests in seeking
the truth and achieving a just result in civil proceedings.
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52
In opposition to the confidentiality order lies the fundamental principle of open and accessible court proceedings. This
principle is inextricably tied to freedom of expression enshrined in s. 2(b) of the Charter: New Brunswick, supra, at para. 23.
The importance of public and media access to the courts cannot be understated, as this access is the method by which the
judicial process is scrutinized and criticized. Because it is essential to the administration of justice that justice is done and is
seen to be done, such public scrutiny is fundamental. The open court principle has been described as "the very soul of justice,"
guaranteeing that justice is administered in a non-arbitrary manner: New Brunswick, supra, at para. 22.
(3) Adapting the Dagenais Test to the Rights and Interests of the Parties
53
Applying the rights and interests engaged in this case to the analytical framework of Dagenais and subsequent cases
discussed above, the test for whether a confidentiality order ought to be granted in a case such as this one should be framed
as follows:
A confidentiality order under R. 151 should only be granted when:
(a) such an order is necessary in order to prevent a serious risk to an important interest, including a commercial
interest, in the context of litigation because reasonably alternative measures will not prevent the risk; and
(b) the salutary effects of the confidentiality order, including the effects on the right of civil litigants to a fair trial,
outweigh its deleterious effects, including the effects on the right to free expression, which in this context includes
the public interest in open and accessible court proceedings.
54
As in Mentuck, supra, I would add that three important elements are subsumed under the first branch of this test. First,
the risk in question must be real and substantial, in that the risk is well-grounded in the evidence and poses a serious threat
to the commercial interest in question.
55 In addition, the phrase "important commercial interest" is in need of some clarification. In order to qualify as an "important
commercial interest," the interest in question cannot merely be specific to the party requesting the order; the interest must be
one which can be expressed in terms of a public interest in confidentiality. For example, a private company could not argue
simply that the existence of a particular contract should not be made public because to do so would cause the company to lose
business, thus harming its commercial interests. However, if, as in this case, exposure of information would cause a breach of a
confidentiality agreement, then the commercial interest affected can be characterized more broadly as the general commercial
interest of preserving confidential information. Simply put, if there is no general principle at stake, there can be no "important
commercial interest" for the purposes of this test. Or, in the words of Binnie J. in Re N. (F.), [2000] 1 S.C.R. 880, 2000 SCC 35
(S.C.C.), at para. 10, the open court rule only yields" where the public interest in confidentiality outweighs the public interest
in openness" (emphasis added).
56 In addition to the above requirement, courts must be cautious in determining what constitutes an "important commercial
interest." It must be remembered that a confidentiality order involves an infringement on freedom of expression. Although the
balancing of the commercial interest with freedom of expression takes place under the second branch of the test, courts must
be alive to the fundamental importance of the open court rule. See generally Muldoon J. in Eli Lilly & Co. v. Novopharm Ltd.
(1994), 56 C.P.R. (3d) 437 (Fed. T.D.), at p. 439.
57
Finally, the phrase "reasonably alternative measures" requires the judge to consider not only whether reasonable
alternatives to a confidentiality order are available, but also to restrict the order as much as is reasonably possible while
preserving the commercial interest in question.
B. Application of the Test to this Appeal
(1) Necessity
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58
At this stage, it must be determined whether disclosure of the Confidential Documents would impose a serious risk
on an important commercial interest of the appellant, and whether there are reasonable alternatives, either to the order itself
or to its terms.
59 The commercial interest at stake here relates to the objective of preserving contractual obligations of confidentiality. The
appellant argues that it will suffer irreparable harm to its commercial interests if the confidential documents are disclosed. In
my view, the preservation of confidential information constitutes a sufficiently important commercial interest to pass the first
branch of the test as long as certain criteria relating to the information are met.
60
Pelletier J. noted that the order sought in this case was similar in nature to an application for a protective order which
arises in the context of patent litigation. Such an order requires the applicant to demonstrate that the information in question has
been treated at all relevant times as confidential and that on a balance of probabilities its proprietary, commercial and scientific
interests could reasonably be harmed by the disclosure of the information: AB Hassle v. Canada (Minister of National Health &
Welfare) (1998), 83 C.P.R. (3d) 428 (Fed. T.D.), at p. 434. To this I would add the requirement proposed by Robertson J.A. that
the information in question must be of a "confidential nature" in that it has been" accumulated with a reasonable expectation
of it being kept confidential" (para. 14) as opposed to "facts which a litigant would like to keep confidential by having the
courtroom doors closed" (para. 14).
61
Pelletier J. found as a fact that the AB Hassle test had been satisfied in that the information had clearly been treated
as confidential both by the appellant and by the Chinese authorities, and that, on a balance of probabilities, disclosure of the
information could harm the appellant's commercial interests (para. 23). As well, Robertson J.A. found that the information in
question was clearly of a confidential nature as it was commercial information, consistently treated and regarded as confidential,
that would be of interest to AECL's competitors (para. 16). Thus, the order is sought to prevent a serious risk to an important
commercial interest.
62
The first branch of the test also requires the consideration of alternative measures to the confidentiality order, as well
as an examination of the scope of the order to ensure that it is not overly broad. Both courts below found that the information
contained in the Confidential Documents was relevant to potential defences available to the appellant under the CEAA and
this finding was not appealed at this Court. Further, I agree with the Court of Appeal's assertion (para. 99) that, given the
importance of the documents to the right to make full answer and defence, the appellant is, practically speaking, compelled to
produce the documents. Given that the information is necessary to the appellant's case, it remains only to determine whether
there are reasonably alternative means by which the necessary information can be adduced without disclosing the confidential
information.
63
Two alternatives to the confidentiality order were put forward by the courts below. The motions judge suggested that
the Confidential Documents could be expunged of their commercially sensitive contents, and edited versions of the documents
could be filed. As well, the majority of the Court of Appeal, in addition to accepting the possibility of expungement, was of the
opinion that the summaries of the Confidential Documents included in the affidavits could go a long way to compensate for the
absence of the originals. If either of these options is a reasonable alternative to submitting the Confidential Documents under a
confidentiality order, then the order is not necessary, and the application does not pass the first branch of the test.
64
There are two possible options with respect to expungement, and, in my view, there are problems with both of these.
The first option would be for AECL to expunge the confidential information without disclosing the expunged material to the
parties and the court. However, in this situation the filed material would still differ from the material used by the affiants. It
must not be forgotten that this motion arose as a result of Sierra Club's position that the summaries contained in the affidavits
should be accorded little or no weight without the presence of the underlying documents. Even if the relevant information and
the confidential information were mutually exclusive, which would allow for the disclosure of all the information relied on in
the affidavits, this relevancy determination could not be tested on cross-examination because the expunged material would not
be available. Thus, even in the best case scenario, where only irrelevant information needed to be expunged, the parties would
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be put in essentially the same position as that which initially generated this appeal in the sense that at least some of the material
relied on to prepare the affidavits in question would not be available to Sierra Club.
65
Further, I agree with Robertson J.A. that this best case scenario, where the relevant and the confidential information
do not overlap, is an untested assumption (para. 28). Although the documents themselves were not put before the courts on
this motion, given that they comprise thousands of pages of detailed information, this assumption is at best optimistic. The
expungement alternative would be further complicated by the fact that the Chinese authorities require prior approval for any
request by AECL to disclose information.
66
The second option is that the expunged material be made available to the Court and the parties under a more narrowly
drawn confidentiality order. Although this option would allow for slightly broader public access than the current confidentiality
request, in my view, this minor restriction to the current confidentiality request is not a viable alternative given the difficulties
associated with expungement in these circumstances. The test asks whether there are reasonably alternative measures; it does
not require the adoption of the absolutely least restrictive option. With respect, in my view, expungement of the Confidential
Documents would be a virtually unworkable and ineffective solution that is not reasonable in the circumstances.
67
A second alternative to a confidentiality order was Evans J.A.'s suggestion that the summaries of the Confidential
Documents included in the affidavits" may well go a long way to compensate for the absence of the originals" (para. 103).
However, he appeared to take this fact into account merely as a factor to be considered when balancing the various interests
at stake. I would agree that at this threshold stage to rely on the summaries alone, in light of the intention of Sierra Club to
argue that they should be accorded little or no weight, does not appear to be a "reasonably alternative measure" to having the
underlying documents available to the parties.
68
With the above considerations in mind, I find the confidentiality order necessary in that disclosure of the Confidential
Documents would impose a serious risk on an important commercial interest of the appellant, and that there are no reasonably
alternative measures to granting the order.
(2) The Proportionality Stage
69
As stated above, at this stage, the salutary effects of the confidentiality order, including the effects on the appellant's
right to a fair trial, must be weighed against the deleterious effects of the confidentiality order, including the effects on the right
to free expression, which, in turn, is connected to the principle of open and accessible court proceedings. This balancing will
ultimately determine whether the confidentiality order ought to be granted.
(a) Salutary Effects of the Confidentiality Order
70 As discussed above, the primary interest that would be promoted by the confidentiality order is the public interest in the
right of a civil litigant to present its case or, more generally, the fair trial right. Because the fair trial right is being invoked in this
case in order to protect commercial, not liberty, interests of the appellant, the right to a fair trial in this context is not a Charter
right; however, a fair trial for all litigants has been recognized as a fundamental principle of justice: Ryan, supra, at para. 84.
It bears repeating that there are circumstances where, in the absence of an affected Charter right, the proper administration of
justice calls for a confidentiality order: Mentuck, supra, at para. 31. In this case, the salutary effects that such an order would
have on the administration of justice relate to the ability of the appellant to present its case, as encompassed by the broader
fair trial right.
71
The Confidential Documents have been found to be relevant to defences that will be available to the appellant in the
event that the CEAA is found to apply to the impugned transaction and, as discussed above, the appellant cannot disclose the
documents without putting its commercial interests at serious risk of harm. As such, there is a very real risk that, without the
confidentiality order, the ability of the appellant to mount a successful defence will be seriously curtailed. I conclude, therefore,
that the confidentiality order would have significant salutary effects on the appellant's right to a fair trial.
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72
Aside from the salutary effects on the fair trial interest, the confidentiality order would also have a beneficial impact on
other important rights and interests. First, as I discuss in more detail below, the confidentiality order would allow all parties and
the court access to the Confidential Documents, and permit cross-examination based on their contents. By facilitating access
to relevant documents in a judicial proceeding, the order sought would assist in the search for truth, a core value underlying
freedom of expression.
73
Second, I agree with the observation of Robertson J.A. that, as the Confidential Documents contain detailed technical
information pertaining to the construction and design of a nuclear installation, it may be in keeping with the public interest to
prevent this information from entering the public domain (para. 44). Although the exact contents of the documents remain a
mystery, it is apparent that they contain technical details of a nuclear installation, and there may well be a substantial public
security interest in maintaining the confidentiality of such information.
(b) Deleterious Effects of the Confidentiality Order
74 Granting the confidentiality order would have a negative effect on the open court principle, as the public would be denied
access to the contents of the Confidential Documents. As stated above, the principle of open courts is inextricably tied to the
s. 2(b) Charter right to freedom of expression, and public scrutiny of the courts is a fundamental aspect of the administration
of justice: New Brunswick, supra, at paras. 22-23. Although as a general principle, the importance of open courts cannot be
overstated, it is necessary to examine, in the context of this case, the particular deleterious effects on freedom of expression
that the confidentiality order would have.
75 Underlying freedom of expression are the core values of (1) seeking the truth and the common good, (2) promoting selffulfilment of individuals by allowing them to develop thoughts and ideas as they see fit, and (3) ensuring that participation in
the political process is open to all persons: Irwin Toy Ltd. c. Québec (Procureur général), [1989] 1 S.C.R. 927 (S.C.C.), at p.
976, R. v. Keegstra, [1990] 3 S.C.R. 697 (S.C.C.), per Dickson C.J., at pp. 762-764. Charter jurisprudence has established that
the closer the speech in question lies to these core values, the harder it will be to justify a s. 2(b) infringement of that speech
under s. 1 of the Charter: Keegstra, supra, at pp. 760-761. Since the main goal in this case is to exercise judicial discretion in
a way which conforms to Charter principles, a discussion of the deleterious effects of the confidentiality order on freedom of
expression should include an assessment of the effects such an order would have on the three core values. The more detrimental
the order would be to these values, the more difficult it will be to justify the confidentiality order. Similarly, minor effects of
the order on the core values will make the confidentiality order easier to justify.
76 Seeking the truth is not only at the core of freedom of expression, but it has also been recognized as a fundamental purpose
behind the open court rule, as the open examination of witnesses promotes an effective evidentiary process: Edmonton Journal,
supra, per Wilson J., at pp. 1357-1358. Clearly, the confidentiality order, by denying public and media access to documents
relied on in the proceedings, would impede the search for truth to some extent. Although the order would not exclude the public
from the courtroom, the public and the media would be denied access to documents relevant to the evidentiary process.
77 However, as mentioned above, to some extent the search for truth may actually be promoted by the confidentiality order.
This motion arises as a result of Sierra Club's argument that it must have access to the Confidential Documents in order to test
the accuracy of Dr. Pang's evidence. If the order is denied, then the most likely scenario is that the appellant will not submit the
documents, with the unfortunate result that evidence which may be relevant to the proceedings will not be available to Sierra
Club or the court. As a result, Sierra Club will not be able to fully test the accuracy of Dr. Pang's evidence on cross-examination.
In addition, the court will not have the benefit of this cross-examination or documentary evidence, and will be required to draw
conclusions based on an incomplete evidentiary record. This would clearly impede the search for truth in this case.
78
As well, it is important to remember that the confidentiality order would restrict access to a relatively small number
of highly technical documents. The nature of these documents is such that the general public would be unlikely to understand
their contents, and thus they would contribute little to the public interest in the search for truth in this case. However, in the
hands of the parties and their respective experts, the documents may be of great assistance in probing the truth of the Chinese
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environmental assessment process, which would, in turn, assist the court in reaching accurate factual conclusions. Given the
nature of the documents, in my view, the important value of the search for truth which underlies both freedom of expression
and open justice would be promoted to a greater extent by submitting the Confidential Documents under the order sought than
it would by denying the order, and thereby preventing the parties and the court from relying on the documents in the course
of the litigation.
79 In addition, under the terms of the order sought, the only restrictions on these documents relate to their public distribution.
The Confidential Documents would be available to the court and the parties, and public access to the proceedings would not be
impeded. As such, the order represents a fairly minimal intrusion into the open court rule, and thus would not have significant
deleterious effects on this principle.
80
The second core value underlying freedom of speech, namely, the promotion of individual self-fulfilment by allowing
open development of thoughts and ideas, focuses on individual expression, and thus does not closely relate to the open court
principle which involves institutional expression. Although the confidentiality order would restrict individual access to certain
information which may be of interest to that individual, I find that this value would not be significantly affected by the
confidentiality order.
81
The third core value, open participation in the political process, figures prominently in this appeal, as open justice is a
fundamental aspect of a democratic society. This connection was pointed out by Cory J. in Edmonton Journal, supra, at p. 1339:
It can be seen that freedom of expression is of fundamental importance to a democratic society. It is also essential to a
democracy and crucial to the rule of law that the courts are seen to function openly. The press must be free to comment
upon court proceedings to ensure that the courts are, in fact, seen by all to operate openly in the penetrating light of public
scrutiny.
Although there is no doubt as to the importance of open judicial proceedings to a democratic society, there was disagreement
in the courts below as to whether the weight to be assigned to the open court principle should vary depending on the nature
of the proceeding.
82
On this issue, Robertson J.A. was of the view that the nature of the case and the level of media interest were irrelevant
considerations. On the other hand, Evans J.A. held that the motions judge was correct in taking into account that this judicial
review application was one of significant public and media interest. In my view, although the public nature of the case may be
a factor which strengthens the importance of open justice in a particular case, the level of media interest should not be taken
into account as an independent consideration.
83
Since cases involving public institutions will generally relate more closely to the core value of public participation
in the political process, the public nature of a proceeding should be taken into consideration when assessing the merits of a
confidentiality order. It is important to note that this core value will always be engaged where the open court principle is engaged
owing to the importance of open justice to a democratic society. However, where the political process is also engaged by the
substance of the proceedings, the connection between open proceedings and public participation in the political process will
increase. As such, I agree with Evans J.A. in the court below, where he stated, at para. 87:
While all litigation is important to the parties, and there is a public interest in ensuring the fair and appropriate adjudication
of all litigation that comes before the courts, some cases raise issues that transcend the immediate interests of the parties
and the general public interest in the due administration of justice, and have a much wider public interest significance.
84
This motion relates to an application for judicial review of a decision by the government to fund a nuclear energy
project. Such an application is clearly of a public nature, as it relates to the distribution of public funds in relation to an issue
of demonstrated public interest. Moreover, as pointed out by Evans J.A., openness and public participation are of fundamental
importance under the CEAA. Indeed, by their very nature, environmental matters carry significant public import, and openness
in judicial proceedings involving environmental issues will generally attract a high degree of protection. In this regard, I agree
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with Evans J.A. that the public interest is engaged here more than it would be if this were an action between private parties
relating to purely private interests.
85
However, with respect, to the extent that Evans J.A. relied on media interest as an indicium of public interest, this was
an error. In my view, it is important to distinguish public interest from media interest, and I agree with Robertson J.A. that
media exposure cannot be viewed as an impartial measure of public interest. It is the public nature of the proceedings which
increases the need for openness, and this public nature is not necessarily reflected by the media desire to probe the facts of
the case. I reiterate the caution given by Dickson C.J. in Keegstra, supra, at p. 760, where he stated that, while the speech
in question must be examined in light of its relation to the core values," we must guard carefully against judging expression
according to its popularity."
86
Although the public interest in open access to the judicial review application as a whole is substantial, in my view, it is
also important to bear in mind the nature and scope of the information for which the order is sought in assigning weight to the
public interest. With respect, the motions judge erred in failing to consider the narrow scope of the order when he considered
the public interest in disclosure, and consequently attached excessive weight to this factor. In this connection, I respectfully
disagree with the following conclusion of Evans J.A., at para. 97:
Thus, having considered the nature of this litigation, and having assessed the extent of public interest in the openness
of the proceedings in the case before him, the Motions Judge cannot be said in all the circumstances to have given this
factor undue weight, even though confidentiality is claimed for only three documents among the small mountain of paper
filed in this case, and their content is likely to be beyond the comprehension of all but those equipped with the necessary
technical expertise.
Open justice is a fundamentally important principle, particularly when the substance of the proceedings is public in nature.
However, this does not detract from the duty to attach weight to this principle in accordance with the specific limitations on
openness that the confidentiality order would have. As Wilson J. observed in Edmonton Journal, supra, at pp. 1353-1354:
One thing seems clear and that is that one should not balance one value at large and the conflicting value in its context.
To do so could well be to pre-judge the issue by placing more weight on the value developed at large than is appropriate
in the context of the case.
87
In my view, it is important that, although there is significant public interest in these proceedings, open access to the
judicial review application would be only slightly impeded by the order sought. The narrow scope of the order coupled with
the highly technical nature of the Confidential Documents significantly temper the deleterious effects the confidentiality order
would have on the public interest in open courts.
88
In addressing the effects that the confidentiality order would have on freedom of expression, it should also be borne
in mind that the appellant may not have to raise defences under the CEAA, in which case the Confidential Documents would
be irrelevant to the proceedings, with the result that freedom of expression would be unaffected by the order. However, since
the necessity of the Confidential Documents will not be determined for some time, in the absence of a confidentiality order,
the appellant would be left with the choice of either submitting the documents in breach of its obligations or withholding the
documents in the hopes that either it will not have to present a defence under the CEAA or that it will be able to mount a
successful defence in the absence of these relevant documents. If it chooses the former option, and the defences under the
CEAA are later found not to apply, then the appellant will have suffered the prejudice of having its confidential and sensitive
information released into the public domain with no corresponding benefit to the public. Although this scenario is far from
certain, the possibility of such an occurrence also weighs in favour of granting the order sought.
89 In coming to this conclusion, I note that if the appellant is not required to invoke the relevant defences under the CEAA,
it is also true that the appellant's fair trial right will not be impeded, even if the confidentiality order is not granted. However,
I do not take this into account as a factor which weighs in favour of denying the order because, if the order is granted and
the Confidential Documents are not required, there will be no deleterious effects on either the public interest in freedom of
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expression or the appellant's commercial interests or fair trial right. This neutral result is in contrast with the scenario discussed
above where the order is denied and the possibility arises that the appellant's commercial interests will be prejudiced with no
corresponding public benefit. As a result, the fact that the Confidential Documents may not be required is a factor which weighs
in favour of granting the confidentiality order.
90 In summary, the core freedom of expression values of seeking the truth and promoting an open political process are most
closely linked to the principle of open courts, and most affected by an order restricting that openness. However, in the context
of this case, the confidentiality order would only marginally impede, and in some respects would even promote, the pursuit of
these values. As such, the order would not have significant deleterious effects on freedom of expression.
VII. Conclusion
91 In balancing the various rights and interests engaged, I note that the confidentiality order would have substantial salutary
effects on the appellant's right to a fair trial, and freedom of expression. On the other hand, the deleterious effects of the
confidentiality order on the principle of open courts and freedom of expression would be minimal. In addition, if the order is not
granted and in the course of the judicial review application the appellant is not required to mount a defence under the CEAA,
there is a possibility that the appellant will have suffered the harm of having disclosed confidential information in breach of its
obligations with no corresponding benefit to the right of the public to freedom of expression. As a result, I find that the salutary
effects of the order outweigh its deleterious effects, and the order should be granted.
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Consequently, I would allow the appeal with costs throughout, set aside the judgment of the Federal Court of Appeal,
and grant the confidentiality order on the terms requested by the appellant under R. 151 of the Federal Court Rules, 1998.
Appeal allowed.
Pourvoi accueilli.
End of Document
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