Does a CCAA court in one province have jurisdiction to hear a motion under the CBCA when CBCA proceedings have been commenced in another province?
On June 29, 2018, the Quebec CCAA Court issued an Order sanctioning the Joint Plan of Compromise and Arrangement that was submitted by the two groups of CCAA Parties, Bloom Lake and Wabush. The CCAA Parties, with the assistance of the Monitor, had been working to wind down their estates so that the net proceeds could finally be distributed to their creditors. However, a final distribution could not occur until the realization or collection of all material assets of the CCAA Parties, specifically their interest in Twinco.
Twinco was an incorporated joint venture formed under the CBCA among, inter alia, Wabush and Churchill Falls. Wabush owned 17% of Twinco, while Churchill Falls owned 33.3%. In 1961, Churchill Falls licensed to Twinco the rights to develop a hydroelectric generating plant in Labrador (the “Twinco Plant”). In 1974, Churchill Falls took over the Twinco Plant and its assets, undertook comprehensive maintenance obligations, and indemnified Twinco in respect of those obligations (including environmental liabilities).
The Twinco Plant was placed into an extended shutdown in 1974. Since that time, various potential environmental liabilities may have occurred at the site. The CCAA Parties argued that Churchill Falls bore responsibility for such environmental liability. Following failures to reach a resolution with Twinco and Churchill Falls, the CCAA Parties brought a motion in the CCAA Court seeking an Order confirming, inter alia, Churchill Falls’ liability for Twinco’s environmental liabilities, and directing the winding up and dissolution of Twinco.
The purpose of the motion was to finally bring about the realization of the CCAA Parties’ shares in Twinco, which had been essentially inactive since 1974, in order to distribute the realized proceeds to their creditors. Twinco, with the support of Churchill Falls, sought the dismissal of the motion on the basis that the CCAA Court lacked jurisdiction as Twinco was based in Newfoundland with no place of business or any assets in Québec. Concurrently, Twinco filed a Liquidation Application under the CBCA in the Supreme Court of Newfoundland and Labrador.
The Quebec CCAA Court found that, as a “national court”, it had jurisdiction to hear and dispose of the CCAA Parties’ motion. The “single-control” model that applies to insolvency proceedings, which favours litigation to be dealt within a single jurisdiction as opposed to fragmentation among several courts, also applies to CCAA proceedings. Thus, the CCAA court has jurisdiction to deal with all of the issues that arise in the context of the CCAA proceedings. This rule is based on the “public interest in the expeditious, efficient and economical clean-up of the aftermath of a financial collapse”.
Twinco alleged that it and its shareholder Churchill Falls were strangers to the present CCAA Proceedings. A creditor who cannot claim to be a “stranger to the bankruptcy” but wishes to fragment the proceedings, in spite of the single-control model, has the burden of demonstrating sufficient cause to send the “trustee scurrying to multiple jurisdictions.” Such cause may be demonstrated where the dispute relates to a matter that is outside even a generous interpretation of the administration of the bankruptcy.
The CCAA Court rejected Twinco’s assertion. Twinco filed a proof of claim against Wabush for approximately $780,000, which claim was allowed by the Monitor. Twinco even received a partial distribution in respect of its claim under the Plan and was likely to participate in the final distribution. By filing a proof of claim with the Monitor, Twinco has already attorned and consented to the jurisdiction of this CCAA Court. The Court concluded that it had jurisdiction to hear the motion.
The CCAA Court agreed with the CCAA Parties that it was not appropriate to decline jurisdiction and transfer the motion to the Newfoundland and Labrador Court because, inter alia:
- the parties would incur additional expenses in transferring the motion;
- transferring the motion would result in a multiplicity of proceedings;
- the CCAA Court, as case manager, was seized of and already familiar with the details of the CCAA proceedings and the CCAA Parties; and
- except for the interpretation of certain contractual provisions where the laws of Newfoundland are elected as applicable law, none of the issues in the motion were related to Newfoundland law.
Accordingly, the CCAA Court dismissed Twinco’s motion to dismiss.
Counsel: Bernard Boucher and Milly Chow of Blakes for the CCAA Parties; Sylvain Rigaud of Woods for FTI as Monitor; Douglas Mitchell of IMK for the Twin Falls Power Corporation; Guy P. Martel and Nathalie Nouvet of Stikeman Elliott for Churchill Falls (Labrador) Corporation Limited; Marie-Laure Sallah-Linteau of Langlois for the Québec North Shore & Labrador Railway Company and Iron Ore Company of Canada; Nicolas Brochu of Fishman Flanz Meland Paquin for the salaried/non-union employees and retirees
Judge: Michel A. Pinsonnault, J.S.C.