1057863 B.C. Ltd. (Re), 2022 BCSC 759

June 08, 2022

Can a party be forced to mediate its claim as part of a CCAA proceeding?

The Petitioners owned and operated a pulp mill in Pictou County, Nova Scotia. On January 31, 2020, the Petitioners were required to shut down the mill, resulting in a complete cessation of their business activities. The reason for the shutdown was an Effluent Treatment Facility (“ETF”) that became inoperable by virtue of Nova Scotia’s Boat Harbour Act. The Petitioners had sought to establish a replacement ETF (“REFT”), which entailed an approval process and environmental assessment, but were unsuccessful by January 2020, despite years of effort and significant cost spent.

The Province of Nova Scotia had denied the Petitioners’ request for an extension of time, and the Petitioners argued that they were not afforded sufficient time to undertake the necessary environment approval process to complete a REFT to avoid the shutdown of the pulp mill.

The Petitioners asserted compensation claims against Nova Scotia arising from the closure of the mill. Throughout the CCAA proceedings, the Petitioners have sought to engage Nova Scotia in discussions to address their claims against the Province, but Nova Scotia has refused to engage with the Petitioners.

By September 2021, the Province’s position in relation to any settlement had substantially hardened. Nova Scotia advised that it was opposed to any mediation, and that any settlement discussions were premature since a claim had not been filed.

On December 16, 2021, the Petitioners filed a notice of action in the Nova Scotia Supreme Court against the Province in HFX Action No. 511473 (the “Action”). Nova Scotia has yet to file a statement of defence. The Petitioners contend that the value of their claims in the Action could exceed $450 million. They advised Nova Scotia of their intention to seek the Mediation Order in November 2021, and filed materials in connection with the proposed Order in February 2022.

In their materials, the Petitioners described the primary purpose of the proposed Mediation Order as being “to facilitate a global resolution to all their claims against Nova Scotia, together with any other claims as determined by the Mediator that should be included.”

The Province opposed the proposed Mediation Order, arguing that, among other things, it did not want to participate in any mediation, and it would be unfair to force it to do so. Nova Scotia also argued that a mediation in these circumstances would not be useful or productive.

The Court acknowledged that bringing an unwilling participant into what is essentially a voluntary process is unusual and that, ideally, all parties should be ready, willing and able to approach the mediation and engage in meaningful dialogue toward the goal of a settlement. Having said that, the Court noted that government- or court-imposed mandatory mediation processes can be found across Canada, and that Nova Scotia’s objection to the proposed mediation must be viewed through the same lens as a creditor protesting its participation in the CCAA process.

The Court agreed with the Province that an order that is appropriate will involve a consideration and balancing of the interests of the various stakeholders in the CCAA proceeding. Having considered the interests of various stakeholders (including Nova Scotia, the interim lender and employees), and weighing the potential benefits of the proposed mediation (a full settlement of the claims) against the likely costs, the Court granted the Mediation Order.

The Court noted that attendance at the mediation is mandatory, but no agreement is to be dictated by the Court, any party or the mediator. As such, Nova Scotia suffers little, if any prejudice by its participation in the mediation. In the meantime, the parties can direct their focus and resources on the mediation and a potential settlement, rather than launch into protracted and costly litigation that may serve to only deepen the distrust and discord that currently exists between the Petitioners and Nova Scotia. The Court concluded that if no settlement emerges from the mediation, the Petitioners and Nova Scotia will be in the substantially the same position they presently find themselves in.

Judge: Justice Fitzpatrick

Counsel: Harvey Morrison, Q.C. and John Roberts of McInnes Cooper and Sean Collins, Lance Williams and Nathan Stewart of McCarthy Tétrault for the Petitioners; Robert Grant, Q.C., and Maurice Chiasson, Q.C. of Stewart McKelvey and Sean Foreman, Q.C. for the Province of Nova Scotia; P.J. Reardon of Nathanson Schachter & Thompson for Paper Excellence Canada Holdings Corporation; Elizabeth Pillon and Lee Nicholson of Stikeman Elliott for the Monitor, Ernst & Young Inc.; Brendan Brammall of Chernos Flaherty Svonki for Pacific Harbor North American Resources Ltd.; Brian Hebert of McKiggan Hebert for Pictou Landing First Nation; Jeremy Smith and Daniel Boyle for the Nova Scotia Superintendent of Pensions

By Matilda Lici