Re Pope & Talbot Ltd.

2009 BCSC 1823 Re Pope & Talbot Ltd. IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Re Pope & Talbot Ltd., 2009 BCSC 1823 Date: 20091217 Docket: S077839 Registry: Vancouver IN BANKRUPTCY AND INSOLVENCY IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 1985, C. C-36 AND IN THE MATTER OF THE RECEIVERSHIP OF POPE & TALBOT LTD. AND THE PETITIONERS LISTED IN SCHEDULE "A" Corrected Judgment: The text of this judgment was corrected at para.14 on Jan. 21, 2010 Before: The Honourable Mr. Justice Walker Oral Reasons for Judgment Counsel for PricewaterhouseCoopers (Receiver): K. Jackson, R. Berrow Counsel for CEP 1092: D. Rogers Counsel for Ableco Financial: P. Rubin Counsel for PPWC Local 8: S. Anderson Counsel for Former Employees at Harmac: P. Roberts Counsel for Certain Former Directors: Z. Ansley Counsel for Certain Former Directors: J. McLean, M. Adlem Counsel for Federal Insurance Company: D. Edinger Counsel for National Union Fire Insurance Company: G. Nijman Counsel for XL Specialty Insurance Company: D. Harris, Q.C. Counsel for Steelworkers, Local 1-423: S. Banister Place and Date of Trial/Hearing: Vancouver, B.C. December 17, 2009 Place and Date of Judgment: Vancouver, B.C. December 17, 2009 [1] THE COURT: Let me provide my remarks on the settlement. Yesterday I said that the proposed settlement was a tremendous settlement; by tremendous, I meant excellent in respect of the interests of all of the parties of interest. [2] The proposed settlement, if accepted, sees money put in the hands of the many salaried employees and union members of the Communications, Energy and Paperworkers Union of Canada, Local 1092 ("CEP") and the United Steel, Paper and Forestry, Rubber Manufacturing, Energy, Allied Industrial and Service Workers International Union, Local 1-423 ("Steelworkers"), who have been waiting for some two years to be paid for their work for Pope & Talbot Ltd. ("P&T Ltd."). The funds they receive are at least 60.4 percent of their claims for vacation pay, and may be more depending on whether or not they are eligible to receive payment from the federal Wage and Protection Program. In addition, members of the Steelworkers' Union will receive a substantial payment of approximately $1 million towards their severance claim. [3] The settlement funds payable under the proposed settlement to this group of employees and union members range from (what I am told) is a low of about $5,000 to a potential high of $25,000 or $28,000 or $30,000 per employee, the variable arising due to the fact specific nature of each employee's claim. It is important to emphasize that these are net payments so that each employee will receive settlement funds without having to account for legal fees or expenses and without having to prove their claims before the Court or a court appointed officer. [4] The insurers, Federal Insurance Company ("Federal"), National Union Fire Insurance Company of Pittsburgh, PA ("National Union"), and XL Specialty Insurance Company ("XL"), are contributing substantially to the settlement even though their coverage obligations are far from certain. [5] Federal is contributing the bulk of the settlement proceeds from the group of insurers despite the exclusion in its policy for statutory and common law wage claims. Federal's contribution benefits the non-settling group, who are the members of the union at the Harmac Pulp Mill near Nanaimo, BC ("The Pulp, Paper and Woodworkers of Canada, Local 8") and any salaried employees who choose to opt out of the proposed settlement, since if that exclusion were found to apply, coverage from Federal's policy and the $15 million tower sitting above it would be lost to that group. That would leave XL's Cornerstone Policy (which does not contain that exclusion) as the only possible source of insurance funds. The limit under that policy is only $5 million, which would be divided pro-rata amongst all of the creditors (assuming coverage is found). [6] If coverage is found against the group of insurers, then Federal's contribution leaves available for the non-settling group and any opt-outs, substantial insurance of approximately US $17 million (depending on how much Federal pays out for the defence costs of the directors and officers, which is discussed below). [7] The directors and officers ("Ds & Os") are protected in the proposed settlement since the claims of the parties (and the groups whom they represent) to the settlement are released and forever barred against the Ds & Os of P & T Ltd. as well as its parent company, Pope and Talbot Inc. ("P & T Inc.") and related companies (whom I have referred to in prior reasons for judgment as the "Pope and Talbot group of companies"). The Ds & Os receive an additional benefit since Federal has agreed that the costs the Ds & Os incur to defend the claims of the non-settling group and any opt-outs are covered under its policy; even though that coverage is said by Federal to be provided on a reservation of rights basis, Federal agrees all payments it makes on account of those costs is without recourse regardless of the outcome of the coverage issue. [8] The proposed settlement also provides funds for the Ds & Os of the petitioners to pursue coverage against the insurers. A fund of $400,000 will be set aside for the direct benefit of the Ds & Os. This fund also benefits the non-settling group (and opt-outs) who stand to benefit from a declaration of coverage in favour of the Ds & Os without having to incur those costs directly. [9] The settling insurers benefit from the settlement since they save significant legal expense in pursuing an appeal from my decision concerning choice of law and National Union's stay application, as well as the costs associated with a lengthy coverage application insofar as the settling group is concerned. Contributions from National Union and XL are minimal. Those two insurers have also been saved from paying out most of their policy limits, which is a significant benefit to them, especially in light of the risk that coverage may be found in view of the very broad definitions of "Wrongful Act" contained in their policies. XL benefits further since its policy lacks the wages exclusion found in Federal's policy. [10] All parties benefit from Ableco's ex gratia contribution to the settlement proceeds, since neither the recipients of the settlement proceeds nor the insurers have any right to claim against Ableco. [11] Therefore, all the parties to the proposed settlement as well as the non-settling group (and any opt-outs) benefit financially and achieve certainty. [12] I also wish to comment upon the "first to the post" issue. Even though it is no longer a factor in view of the consents and the lack of opposition to the settlement by all the parties represented in court today, I am compelled to comment upon it in view of the advice I have received from PricewaterhouseCoopers, the receiver/monitor, that other claims might be advanced against the Ds & Os in Canada or the United States (which may or may not be covered by some or all of the insurance policies). [13] To the extent that the "first to the post issue" may ever arise in subsequent or related proceedings, if the question were to be determined by the law of Ontario, Alberta, or the United Kingdom, then the "first to the post" principle applies. In BC, the only reported case dealing with the principle in the context of non-automobile liability insurance policies, which was uncontested, is the decision of Mr. Justice Wong in Aviva Canada Inc. (Re), 2006 BCSC 1578, 277 D.L.R. (4th) 557. The case is important since it discusses in some length the philosophical underpinnings of the "first to the post" principle. [14] The decision of the Court of Appeal in Insurance Corp. of British Columbia v. Pozzi, 2004 BCCA 440, 244 D.L.R. (4th) 641, makes it clear that in an automobile liability policy setting, division of policy limits on a pro rata basis principle is applied (as opposed to "first to the post"). There is no dicta in that decision, however, suggesting that the pro rota approach applies only to automobile policies. [15] In my view, the philosophical underpinnings surrounding the "first to the post" principle are appropriate in this case. I adopt the reasoning of the decisions in Cox v. Bankside Members Agency Ltd., [1995] 2 Lloyd's Rep. 437 (C.A.), Laidlaw Inc. (Re) (2003), 46 C.C.L.I. (3rd) 263 (Ont. S.C.J.), and Commerce & Industry Insurance Co. of Canada, Inc. v. Singleton Associated Engineering Ltd., 2005 ABQB 500, 53 Alta. L.R. (4th) 391 and the decision of Mr. Justice Wong in Aviva Canada. To the extent that it could be suggested that in BC the pro rata approach applies to all liability policies, I take comfort from the remarks of Mr. Justice Donald in paras. 19 to 21 of the ICBC decision: So it is plain, in my respectful view, that I.C.B.C. never intended to blur the distinction between the two coverages. It is equally clear, contrary to the argument that I.C.B.C. has no continuing interest in the liability proceeds, that it protected itself on the UMP payout by insuring that one way or another the court would be asked to distribute the liability proceeds pro rata. It follows that I would refuse the motion to quash on the basis of standing and mootness. I do not think it is necessary to amend the style of cause in the circumstances. Much argument was addressed to the subject of discretion. The discretion is said to arise from the words in s. 21(14): "... and the money must be dealt with as the court orders ...". I.C.B.C. argues there is no discretion because the pro rata approach is the only fair and rational method, it is invariably used at common law and it governs class proceedings. The other side concedes that pro rata is the usual formula, but says it can be deviated from in special cases of which this case is an example. In my view we need not pronounce definitively on the question of discretion. Assuming without deciding that the chambers judge had the discretion to choose a formula other than pro rata, I would nevertheless hold that the distribution in this case was not a valid exercise of the discretion. [16] In my view, if pro rata is the approach that must be taken, then this is a case where special circumstances dictate a departure, so that the "first to the post" principle should be applied. I say that for the following reasons: (a) special circumstances exist due to the facts surrounding this settlement, coupled with the fact that this is an insolvency case; (b) the Claims Bar date has long since passed; (c) it is questionable whether there is any insurance coverage; (d) none of the other potential claimants who suggested that they may advance a claim have taken any steps to do so; and, (e) the proposed settlement is in the best interests of all of the parties, including the non-settling group (and any potential opt-outs). [17] All of the parties have certainty arising from the proposed settlement. The recipients of settlement funds will receive their payments without having to prove their claims and without having to incur any expense. The insurers save substantial amounts of money in defending the coverage claims in relation to the settling groups and amounts they would otherwise have to pay for their insureds' legal expense to defend against the claims of the settling groups if coverage is found. The Ds & Os receive the benefits of releases and bar orders. Although Ableco will make a small contribution towards the settlement, it will receive payment of a significant sum of money when a substantial portion of the existing D & O Charge is reduced. [18] Yesterday, I was advised by counsel for the Steelworkers union that the members of that union are ecstatic with the proposed settlement. In my view, they should be. [19] The proposed settlement is approved. "P. Walker J." The Honourable Mr. Justice Paul Walker