Interpreting a settlement agreement approved in a CCAA
How does a court interpret a settlement agreement approved as part of a company’s CCAA proceedings?
Overview: In this case, the Court considered competing interpretations of a settlement agreement approved as part of a company’s CCAA proceedings. The Court considered the words used by the parties, as well as the factual matrix, to ascertain the parties’ intentions at the time the settlement agreement was entered into.
Trevali Mining Corporation (“Trevali”), a Vancouver-headquartered mining company, obtained CCAA protection in August 2022. In October 2022, a settlement agreement was reached between Trevali and its two major secured creditors (the “Settlement Agreement”), Glencore and RCF Lenders. The Settlement Agreement was necessary in the face of uncertainty regarding Trevali’s future operations, arising from an issue raised by Glencore. A resolution was required before Trevali could obtain further financing, which Trevali urgently needed to continue its operations.
Months after the Settlement Agreement was reached, Trevali and Glencore discovered that they had very different views as to the meaning of its key financial terms. The Monitor was also surprised by Glencore’s interpretation of the Settlement Agreement. The issue before the Court was to determine the appropriate interpretation of the Settlement Agreement.
Justice Fitzpatrick prefaced her decision by stating the following about the settlement: “Real time litigation in insolvency matters often demands real time negotiations and agreements. Urgent issues can arise and threaten to derail a restructuring. Such issues must be addressed quickly towards hopefully achieving a solution that will allow a debtor time to reach its goals.”
Her Honour then considered several principles of contractual interpretation, including:
The goal of contract interpretation is to ascertain the objective intentions of the parties at the time of formation of the contract;
The exercise of contractual interpretation begins with a reading of the actual words used by the parties and a legitimate interpretation will be consistent with the language that the parties employed to express their agreement. A meaning that strays too far from the actual words fails to give effect to the way in which the parties chose to define their obligations;
The meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement. An interpretation that ignores context in which the contract was formed will not accurately discern what the parties intended to achieve, even if the interpretation is “literally correct”; and
The court is not free to imply a term that goes beyond or is inconsistent with the words of the contract, particularly to improve the bargain favour of any party. The court may only imply terms to the extent that it gives context and accuracy to the words used.
Courts have also emphasized the need to give heed to the commercial purpose of a commercial contract. In a commercial context, commercial reasonableness and efficacy is a “central consideration” in the interpretation of contracts. Surrounding circumstances to a contract—known as the “factual matrix”—play a role in the interpretation of that contract, whether or not there is any ambiguity in the text of the document.
The Court considered the entire Settlement Agreement and the words chosen by the parties to memorialize their agreement. While there was no express statement in the Settlement Agreement that the payment of the US$3 million under para. 5 was in reduction of the Glencore Facility, that was, in fact, the plain meaning and import of para. 5. The overarching intention of the parties was to allow a priority payment to Glencore of up to US$3 million in derogation of the provisions of the Interlender Agreement that provided otherwise. The sharing formula was intended to modify the priorities of the RCF Lenders and Glencore, as set out in the Interlender Agreement, to Glencore’s benefit. There was no mention of Trevali’s agreement to an additional US$3 million payment or any indication that the Settlement Agreement created an obligation on Trevali’s part to pay any additional funds to Glencore.
The overall terms between the parties make good commercial sense from the point of view that all parties exercised the leverage that they had in coming to an overall solution, which provided for concessions and benefits flowing from and to all parties. That negotiated solution allowed Trevali to continue, for the benefit of all stakeholders, but in particular, the RCF Lenders and Glencore. The RCF Lenders needed to get Glencore on side to continue the financing of Trevali. Glencore wanted a reversal of the priorities under the Interlender Agreement to the extent that it could, at least, assure itself of up to a US$3 million recovery even if the RCF Lenders did not get fully paid by the proceeds of the asset sale.
The Court also noted that all counsel were aware of the need to convince the Court that the Settlement Agreement was in Trevali’s and its stakeholders’ best interests before it could be approved and implemented. Trevali’s and the RCF Lenders’ counsel did just that in emphasizing that the financial terms set out in para. 5 were a sharing agreement between the RCF Lenders and Glencore. Glencore’s counsel did not advance any different interpretation at the hearing. Had it been disclosed to the Court that the effect of the Settlement Agreement was to burden the Trevali estate with a US$3 million “cost” in favour of Glencore to buy peace with the RCF Lenders, it would certainly have resulted in a very different calculus on the part of the Court.
The Court rejected the interpretation of the Settlement Agreement advanced by Glencore as being inconsistent with the terms of the Settlement Agreement. In addition, the surrounding circumstances here, including the negotiations leading up to the Settlement Agreement and, to a more limited extent, the circumstances in which the Settlement Agreement was approved by the Court, supported and were consistent with the Court’s interpretation of the Settlement Agreement. Accordingly, the Court granted the relief sought by Trevali, and also awarded Trevali its costs of the application as against Glencore on Scale B.
Judge: Justice Fitzpatrick
Counsel: Peter Rubin and Claire Hildebrand of Blakes for Trevali; John Sandrelli and Eamonn Watson of Dentons for FTI as monitor; Lance Williams and Ashley Bowron of McCarthy Tétrault for Glencore; and D. Boeré for the Province of New Brunswick