Stelco Inc. (Re)

Stelco Inc. (Re) Collection Decisions of the Court of Appeal Date 2005-04-12 Docket numbers M32289, M32379 Judges Feldman, Kathryn N. Subject Civil Decision Content DATE: 20050412 DOCKET: M32289 & M32379 COURT OF APPEAL FOR ONTARIO FELDMAN J.A. (In Chambers) IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C‑36, AS AMENDED AND IN THE MATTER OF A PROPOSED PLAN OF COMPROMISE OR ARRANGEMENT WITH RESPECT TO STELCO INC., AND OTHER APPLICANTS LISTED IN SCHEDULE “A” Murray Gold and Andrew J. Hatnay, for the applicants, Retired Salaried Beneficiaries of Stelco Inc., CHT Steel Company Inc., Stelpipe Ltd., Stelwire Ltd. And Welland Pipe Ltd. John R. Varley, for the applicants, Active Salaried Employee Representative Richard B. Swan, for the respondents, Michael Woollcombe and Roland Keiper Michael Barrack, for Stelco Inc. Lawrence Thacker for the respondent the Board of Directors of Stelco Inc. Kyla Mahar, for the Monitor Heard: April 7, 2005 FELDMAN J.A.: [1] The applicants representing the retired salaried employees and the active salaried employees of Stelco Inc. (the “Company”) have sought leave to appeal the judgment of this court, ([2005] O.J. No. 1171 (C.A.)) dated March 31, 2005, to the Supreme Court of Canada. In that judgment, this court reversed the decision of the supervising judge in the CCAA proceedings where he ordered the removal of two directors from the board of the Company. This court held that the judge had no jurisdiction under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the CCAA) to remove directors of a company unless the oppression remedy applied, which it did not in the case. [2] The applicants now move for an order under s. 65.1(1) of the Supreme Court Act, R.S.C. 1985, c. S-26 staying the execution of the order of this court pending the decision of the Supreme Court on the leave application. They intend to join with their application for leave to appeal an application for an expedited determination of the leave motion. The effect of any stay would be to reinstate the order of the supervising judge until such time as the Supreme Court determines whether it will grant leave to appeal the judgment of this court. [3] The motion for a stay is opposed by the two directors, by the company and by the board of directors of the company. The monitor appeared on the motion but took no position on it. One of the unions that had sought the original order and responded on the appeal, the United Steelworkers of America, did not appear or take a position on the stay motion. [4] The first issue raised by the respondents in their material is the jurisdiction of this court to grant a stay. Section 65.1(1) of the Supreme Court Act provides: 65.1(1) The Court, the court appealed from or a judge of either of those courts may, on the request of the party who has served and filed a notice of application for leave to appeal, order that proceedings be stayed with respect to the judgment from which leave to appeal is being sought, on the terms deemed appropriate. [5] The Supreme Court’s jurisprudence since the amendment of the section in 1994 makes it clear that when leave to appeal to the Supreme Court is sought, applications for a stay of the decision being appealed are to be brought routinely at first instance to the court appealed from rather than to the Supreme Court. See Richter & Partners v. Ernst & Young, [1997] 2 S.C.R. 5. That was done in this case. The respondent’s factum, however, referred to s. 15(3) of the CCAA, suggesting that that section may have the effect of conferring exclusive jurisdiction on the Supreme Court to grant stays on applications for leave to appeal under the CCAA. The matter was clarified to my satisfaction in oral argument. [6] Section 15(3) of the CCAA provides: 15(3) No appeal to the Supreme Court of Canada shall operate as a stay of proceedings unless and to the extent ordered by that Court. That section does not refer to applications for leave to appeal but only to appeals. [7] Under s. 65(1) of the Supreme Court Act, when a notice of appeal is served and filed along with security as required, there is, with some exceptions, an automatic stay of execution in the cause. Section 15(3) of the CCAA states that under that Act there is no stay of execution on an appeal, “unless and to the extent ordered by that Court [the Supreme Court of Canada].” These sections deal only with stays actually on appeal. Once leave has been granted, s. 58(1)(b) of the Supreme Court Act provides that a notice of appeal shall be served and filed. By my reading, it is only when that step is taken that s. 15(3) of the CCAA applies. [8] I conclude, therefore, that this court does have jurisdiction under s. 65.1(1) of the Supreme Court Act to consider this application for a stay pending the Supreme Court’s decision whether to grant leave to appeal. [9] The next issue is the application of the three-pronged test from RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311: (1) whether there is a serious question to be tried, (2) whether the applicant will suffer irreparable harm if the stay is not granted, (3) the balance of convenience. [10] The threshold for the first prong of the test, a serious issue to be tried, is normally set fairly low, in that it is often described as a question that is not frivolous. However, counsel for the respondent Company relied on paragraph 51 of the RJR MacDonald judgment, which describes two exceptions to that rule, one of which is where the effect of the stay will be tantamount to a final determination of the action because of timing issues. It is submitted that that is the case in this matter, because the restructuring process is proceeding and the board of directors is meeting to develop a plan of arrangement with the target date for presentation of the plan being May 30, 2005. By granting a stay, the effect would be to reinstate the order of the supervising judge and to exclude the two directors from the board while the process is proceeding. [11] The respondent Company submits that in assessing the potential merit of the proposed appeal, for the purposes of determining whether to grant a stay in these circumstances, this court must be of the view both that leave to appeal is likely to be granted by the Supreme Court, and also that the appeal will be successful and the Supreme Court will reverse the decision of this court. I cannot accept this submission. Clearly, it would be anomalous indeed for this court, and particularly for a member of the panel that heard and decided the appeal, to be of the view that the decision is likely to be reversed on appeal. Nor can this court know or assess whether this will be one of the relatively few cases in which the Supreme Court will decide to grant leave to appeal, given that many factors go into its decisions on leave with the relative importance of the question at issue in the case being only one of them. [12] Having said that, in CCAA proceedings this court, following other appellate courts, has said that leave will be granted only sparingly where there are “serious and arguable grounds that are of real and significant interest to the parties”: Re Country Style Food Services Inc. (2002), 158 O.A.C. 30 at para. 15; Re Multitech Warehouse Direct Inc. (1995), 32 Alta. L.R. (3d) 62 (C.A.) at para. 3; Re Steinberg Inc., [1993] Q.J. No. 860 (C.A.). In its decision of March 31, 2005, this court granted leave to appeal because the case involved the court’s jurisdiction in CCAA proceedings to intervene in corporate governance decisions, a matter of importance in the conduct of CCAA restructuring proceedings and a matter on which there was little appellate authority. The issue remains an important one, and therefore qualifies under the ordinary test as a serious issue to be tried. [13] I next turn to the question of irreparable harm to the applicants. The applicants claim that the denial of a stay “threatens the successful restructuring of Stelco.” They say that the two disputed directors, who are or represent substantial shareholders of the company, are motivated to boost share prices in the short term rather than seek a viable long-term restructuring plan. They raise the spectre of the eventual bankruptcy of Stelco, even if it emerges from the current CCAA protection, if the restructuring plan is not viable for the long term. Finally, they say that the reinstatement of the two directors “has caused a return of the lack of confidence in Stelco’s CCAA restructuring process among the Salaried Retirees and other key stakeholders.” They conclude that if the stakeholders are distrustful, they will negotiate not for a good faith plan but instead for remedies that maximize their own positions, which will result in a flawed plan and, eventually, the future bankruptcy of the company. [14] These concerns about the alleged selfish motivation of the two directors and the “poisoned atmosphere” of the restructuring process were also raised by the applicants as the basis for upholding the decision of the supervising judge to remove the two directors. On the issue of the potential misconduct of the directors in carrying out their duties during the restructuring, this court in its March 31, 2005 decision, observed that on the record there was no evidence of improper conduct of the two directors, and that the supervising judge concluded only that there was a risk that they would not live up to their obligations in the future. This court then held at para. 61 that: “[i]n determining whether directors have fallen foul of those obligations, however, more than some risk of anticipated misconduct is required before the court can impose the extraordinary remedy of removing a director from his or her duly elected or appointed office” and “[t]he record does not support a finding that there was a sufficient risk of sufficient misconduct to warrant a conclusion of oppression.” [15] This court also addressed the concern that the process would now become flawed and tainted by observing, at paras. 71 and 72, that the CCAA court retains its supervisory power and jurisdiction over both the ultimate approval of the plan as well as the ongoing CCAA process itself, to ensure fairness and approval of the best plan possible for the future viability of the company. [16] The applicants essentially say that they retain the same fear for the future of the process and of the Company that they have felt and expressed since the two new directors were elected to the board. Although this court has addressed these concerns by pointing out that they are only speculative, it is understandable that if the applicants continue to perceive a concern with the ongoing fairness of the process as it goes forward while they await the decision of the Supreme Court on the leave motion, that they would view that concern as irreparable harm to them, as stakeholders in that process. [17] The third criterion for a stay is the balance of convenience. The applicants say that the balance of convenience favours a stay. First, they say that the stay will be of relatively short duration as they expect a decision from the Supreme Court on the leave motion on an expedited basis within three to four months. Second, their position is that the stay will restore the status quo as it was before the two directors were appointed to the board. Third, they argue that Stelco’s board can proceed to do its work without the new directors so that there is no prejudice to the board or to the restructuring process in the interim. [18] The respondents’ position is that the applicants will suffer no irreparable harm if a stay is not granted and that the balance of convenience strongly favours denying a stay. They point to the fact that the applicants sought the original motion before the supervising judge to remove the two directors on the basis of urgency. The need to remove any uncertainty was acknowledged to be important and a cogent reason for this court to hear and decide the appeal from the order of the supervising judge on an expedited basis ([2005] O.J. No. 802 (C.A.)). They argue that it is inconsistent with the position taken all along in this proceeding to now say that a period of three to four months (or possibly longer) of further uncertainty is acceptable or fair to the parties or the restructuring process. [19] Further, the board is currently actively meeting and developing a restructuring plan, as directed by the restructuring judge in his reasons ([2005] O.J. No. 730 (S.C.J.). The respondents say that the issue of the constitution of the board of the Company during this process is the very issue that was considered of such importance that it had to be dealt with on an urgent basis by this court. They argue that if the process now proceeds at this key juncture without the two directors who have been held to be properly on the board, it will inevitably cause significant inconvenience to both the board and to the restructuring process itself. [20] It appears that the next few months will be a critical period in the restructuring process. If that is not the case, as counsel for one of the applicants suggested, then the importance of the stay is minimized. However, on the basis that the board is now going to proceed to develop a viable restructuring plan following the rejection of all bids that arose from the capital raising process, this is a crucial time. The question, therefore, is which status quo should be put in place during this time? Each side says that the balance of convenience favours the composition of the board with which that side is most comfortable during this period. [21] In applying the three-part test, the court is to balance the three factors in a way that addresses the interests of justice in all the circumstances. See: Circuit World Corporation v. Lesperance (1997), 33 O.R. (3d) 674 (C.A.); International Corona Resources Ltd. v. LAC Minerals Ltd. (1986), 21 C.P.C. (2d) 252 (Ont. C.A.). [22] In this case, the issue of the jurisdiction of the court to remove directors is a serious and important issue. Both sides say they will suffer irreparable harm if the board is not composed as they want during the next few months of the restructuring process and that the balance of convenience therefore favours their side. If the next few months are crucial, then the stay itself (or the denial of the stay) will implement the effective result of the appeal. Certainly by the time any appeal is heard in the normal course, the issue for these parties will be moot. [23] On the basis that the restructuring is proceeding and that the next few months may well be critical, I then turn to the interests of justice in all the circumstances: is it just that the applicants should be granted a stay that would effectively implement the decision of the supervising judge to remove the two directors from the board, when this court has held that the judge had no jurisdiction to make that order? Or is it just that the decision of this court, which sets aside an order made without jurisdiction, be implemented until the Supreme Court decides whether to grant leave to appeal (and if so, whether to grant a stay at that time)? Viewing the matter in this way, I am compelled to the conclusion that the interests of justice require that no stay be ordered at this time. [24] The applicants raise again in their material, as they did on the appeal, the concern that by gaining a position on the board, the two shareholder representatives have been given an unequal advantage and role in the restructuring process to the exclusion of other stakeholders, and that this causes both actual unfairness and the perception of unfairness in the current restructuring process. As was stated in this court’s March 31, 2005 decision, the supervising judge has wide powers under the CCAA to ensure that the process is fair and equitable and is structured to ensure that the sanctioned plan is fair and reasonable. The purpose is for a new viable economic entity to emerge from protection. Because the supervising judge has the power and the creative scope to craft other ways to alleviate the concerns of the applicants, as well as the ultimate power of approval of the plan, the irreparable harm that the applicants perceive in terms of the perception of a poisoned atmosphere, is potentially “reparable” within the restructuring process. [25] For the reasons set out, the motion for a stay of this court’s decision of March 31, 2005, pending the decision of the Supreme Court whether to grant leave to appeal, is dismissed. The parties advised that there should be no costs of this motion. Signed: “K. Feldman J.A.” RELEASED: “KF” April 12, 2005