Court of Appeal Decision of the Week

Interpreting S.13 of the Companies’ Creditors Arrangement Act: Towards a “Purpose-Focused” Approach

Case: Essar Steel Algoma Inc. (Re), 2016 ONCA 138 (CanLII)

Keywords: Leave to Appeal; Stay Pending Appeal; Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36; Sandvik Mining & Construction Canada Inc. v. Redcorp Ventures Ltd., 2011 BCCA 333 (CanLII); Monarch Land Ltd. v. Sanderson of Fish Creek (Calgary) Developments Ltd., 2014 ABCA 143 (CanLII)

Synopsis:

Essar Steel Algoma Inc. and related companies (collectively referred to as “Essar”) manufacture steel in Sault Ste. Marie, Ontario. Iron ore pellets are critical to the manufacturing process. Cleveland-Cliffs Iron Company, Cliffs Mining Company, and Northshore Mining Company (collectively, “Cliffs”) enter into an iron ore pellet supply contract which obligates Essar to purchase exclusively from Cliffs until 2016, and thereafter to purchase a share of its iron ore pellets from Cliffs between 2017 to 2024.

Cliffs files a complaint in the U.S. District Court for the Northern District of Ohio; allege Essar has breached the contract by failing to take timely delivery of the required amount of pellets. The Court dismisses Cliffs’ motion for summary judgment.

Cliffs terminates its contract with Essar, alleging multiple breaches. Essar seeks and obtains an initial order under the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 (CCAA). Also, Essar’s foreign representation seeks and obtains orders pursuant to Chapter 15 of the U.S. Bankruptcy Code, 11 U.S.C. (2010) which recognize and enforce orders granted in the CCAA proceeding.

Essar moves in the CCAA proceeding for a declaration that Cliffs’ termination of the contract is not effective – that Cliffs must supply Essar with iron ore pellets at the contract price; orders directing Cliffs to comply with the terms of the contract and pay damages resulting from its purported termination.

Cliffs serves a motion seeking to dismiss Essar’s contract dispute motion on the basis Ontario lacks jurisdiction, or Ontario is not the convenient forum. Newbould J., conducting CCAA proceedings, dismisses Cliffs’ motion.

Cliffs brings a motion in the Court of Appeal both for directions and a stay of Newbould J.’s order pending exercise of its appeal rights. Essar brings a cross-motion, seeking an order expediting the hearing of Cliffs’ leave to appeal motion (if necessary) or the hearing of the appeal.

S. 13 of the CCAA requires that “…any person dissatisfied with an order or a decision made under this Act may appeal from the order or decision on obtaining leave of the judge appealed from or of the court or a judge of the court to which the appeal lies and on such terms as to security and in other respects as the judge or court directs.”

The sole issue for determination is whether CCAA judge’s order (which resulted from Essar’s motion) was “made under” the CCAA.

On hearing these motions, the Court of Appeal releases an endorsement concluding that Cliffs requires leave to appeal (based on the finding that Newbould J.’s order was made under the CCAA), expediting its leave to appeal motion, and staying Essar’s contract dispute motion pending determination of the leave to appeal motion.

Importance:

Leave to Appeal

This case provides insight from the Court of Appeal as to the proper way to interpret s. 13 of the CCAA – marking the Court’s endorsement of a “purpose-focused” approach. The Court of Appeal distinguished Sadvik Mining and Monarch Land as cases which involved circumstances which “lay beyond the boundaries of the usual CCAA proceeding”.

For the Court of Appeal, in Sandvik Mining, the CCAA proceeding had effectively “run its course” and in Monarch Land, the issue between two secured creditors had been “tacked on” to a trial of an issue in the CCAA proceeding. Accordingly, these did not offer much guidance.

Citing Century Services Inc. v. Canada (Attorney General), 2010 SCC 60 (CanLII), at para. 59, the Court of Appeal held that, where an appellate court is asked to determine whether an order requires leave to appeal pursuant to s. 13 of the CCAA, the Court should “ascertain whether the order was made in a CCAA proceeding in which the judge was exercising his or her discretion in furtherance of the purposes of the CCAA”.

Where the order results from an exercise of judicial decision-making in furtherance of the purposes of the CCAA, it is an order “made under” the CCAA as per s. 13.

The Court provides further guidance by identifying the following indicia to aid in determining whether an order is “made under” the CCAA (see para. 34 of the judgment):

  • The underlying order was “necessarily incidential to the proceedings under the CCAA” (see Sandvik Mining);
  • The order was “incidental to any order made under the CCAA” (see Sandvik Mining);
  • The order required the interpretation of a previous order made in the CCAA proceeding (see Monarch Land);
  • The matter involves an issue that has an impact on the restructuring organization of insolvent companies (see Monarch Land);
  • CCAA considerations informed the decision of and exercise of discretion by the chambers judge (see Concrete Equities, 2012 ABCA 91);
  • The claim is being prosecuted by virtue of or as a result of the CCAA (see Concrete Equities);
  • The Notice of motion and reasons of the motion judge explicitly state the matter is a CCAA proceeding (see Re Hemosol Corp., 2007 ONCA 124).

Considering the indicia identified above, the Court of Appeal concluded the underlying order was indeed “made under” the CCAA.

Counsel for the moving parties/responding parties by way of cross-motion, The Cleveland-Cliffs Iron Company, Cliffs Mining Company and Northshore Mining Company: Markus Koehnen & Jeffrey Levine (McMillan LLP, Toronto)

Counsel for the responding parties/moving parties by way of cross-motion, 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: Eliot Kolers & Maria Konyukhova (Stikeman Elliott LLP, Toronto)

Counsel for the Monitor, Ernst & Young Inc.: Nicholas Kluge & Delna Contractor (Gowling Lafleur Henderson LLP, Toronto)

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Posted: Wednesday, February 24, 2016