Walter Energy Canada Holdings, Inc. (Re)

2017 BCSC 709 Walter Energy Canada Holdings, Inc. (Re)

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Walter Energy Canada Holdings, Inc. (Re), 2017 BCSC 709 Date: 20170501 Docket: S1510120 Registry: Vancouver In the Matter of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 as Amended And In the Matter of the Business Corporations Act, S.B.C. 2002, c. 57, as Amended And In the Matter of a Plan of Compromise or Arrangement of Walter Energy Canada Holdings, Inc. and the Other Petitioners Listed on Schedule "A" The text of the judgment was corrected on page 2 and in paragraph 5 on May 5, 2017. Before: The Honourable Madam Justice Fitzpatrick Reasons for Judgment Counsel for the Petitioners: M. Paterson M.I.A. Buttery P. Riesterer M.A. Rowe K. Sachar Counsel for United Mine Workers of America 1974 Pension Plan and Trust: C. Dennis, Q.C. J. Sandrelli T. Jeffries O. James Counsel for the United Steelworkers, Local 1-424: C.D. Bavis J. Sanders Counsel for KPMG Inc., Monitor: P.J. Reardon Place and Date of Hearing: Vancouver, B.C. January 9-13, 16, 18-20, 2017 Place and Date of Written Reasons: Vancouver, B.C. May 1, 2017 I INTRODUCTION. 3 II PROCEDURAL BACKGROUND. 4 III ISSUES. 6 IV IS A SUMMARY HEARING APPROPRIATE?. 6 V BACKGROUND FACTS. 12 (1) The Walter Energy Group and U.S. Operations. 14 (2) Acquisition leading to Creation of Walter Canada Group. 14 (3) Walter Resources and the 1974 Plan. 16 (4) Walter Canada Group Corporate Structure. 18 (5) The U.S. Chapter 11 Proceedings. 19 (6) Estimated Recoveries. 22 VI ERISA's PROVISIONS. 22 VII THE CHOICE OF LAW QUESTION. 25 (1) What is the Characterization of the 1974 Plan's Claim?. 28 (2) What Choice of Law Rule Applies?. 44 VIII THE SECOND AND THIRD QUESTIONS. 51 IX CONCLUSION. 51

I INTRODUCTION [1] These are proceedings brought by the petitioners pursuant to the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the "CCAA"). The petitioner companies are part of what I will describe as the "Walter Canada Group" which includes other entities, as I will discuss below. [2] This application is brought by the Walter Canada Group to determine the validity of a claim filed in these proceedings by the UMWA 1974 Pension Plan and Trust (the "1974 Plan"). [3] The 1974 Plan's claim is asserted as a liability of the Walter Canada Group based on the provisions of U.S. legislation, namely the Employee Retirement and Income Security Act of 1974, 29 U.S.C. § 1001, as amended ("ERISA"). The amount of the claim arises from certain unfunded pension liabilities owed to former employees of a U.S. entity within the larger international Walter Energy Group. For context, the Walter Canada Group is the Canadian part of the international "Walter Energy Group". ERISA is sometimes referred to as "long arm" legislation in that the 1974 Plan asserts that this U.S. legislation applies to the Walter Canada Group even though they were all Canadian corporations or entities conducting their mining businesses only in Canada and not in the U.S. [4] As far as I'm aware, and all counsel agree on this point, this is the first time that a Canadian court will have considered whether

ERISA applies in Canada and in these circumstances. It also appears to be the case that no U.S. court has yet considered whether ERISA applies to entities outside of the U.S. [5] The 1974 Plan's claim is extremely large - approximately $1.25 billion. If the 1974 Plan's claim is valid, it will swamp all other valid claims that have been filed in the estate against the Walter Canada Group. The result would be that the vast majority of the realizations from the estate assets - estimated by mid-2017 to be approximately $63 million - would be paid to the 1974 Plan and not in respect of the claims of other creditors. These other creditors include the Walter Canada Group's former employees, which in turn include union members represented by the United Steelworkers, Local 1-424 (the "Union"), to whom substantial amounts are owed.

II PROCEDURAL BACKGROUND [6] The Claims Process Order that was granted on August 16, 2016 (see Walter Energy Canada Holdings, Inc. (Re), 2016 BCSC 1746 at paras. 86-87) put in place a specific claims process designed to address the 1974 Plan's claim. Pursuant to the Claims Process Order, and with the objective of clarifying the issues as between the parties, the 1974 Plan filed a notice of civil claim on August 26, 2016 in this action. Responsive pleadings were filed by the Walter Canada Group and the Union shortly thereafter. [7] Paragraph 30 of the Claims Process Order provided that, upon the filing of the pleadings, the 1974 Plan's claim was to be adjudicated by the Court "under a procedure to be determined more fully by subsequent Order of this Court". [8] There were various disagreements between the Walter Canada Group, the Union and the 1974 Plan as to whether pre-hearing discovery procedures were required or necessary prior to a determination of certain preliminary issues raised by the Walter Canada Group. Since at least the fall of 2016, the 1974 Plan has taken the position that it is inappropriate to determine these preliminary issues on a summary basis without allowing it to conduct discovery of the Walter Canada Group. [9] This disagreement led the Monitor to apply for directions on the procedure to adjudicate the 1974 Plan's claim, as was expressly directed under

paragraph 31 of the Claims Process Order. I denied the oral and document discovery sought by the 1974 Plan arising from two hearings: firstly, on October 26, 2016 (Walter Energy Canada Holdings, Inc. (Re) (Unreported; October 26, 2016) and secondly, on November 28/December 2, 2016 (Walter Energy Canada Holdings, Inc. (Re), 2016 BCSC 2470). Those decisions were made in light of the Walter Canada Group's position that the preliminary issues could be resolved on a summary basis, consistent with the legislative objective under the CCAA to determine claims in that manner. [10] After the October 26, 2016 hearing, the parties agreed to a Case Plan Order which set out various deadlines for the delivery of the applications and responses, evidence and written arguments, all in advance of the January 2017 hearing. [11] In November 2016, the Walter Canada Group filed their application for a summary hearing to decide these issues. Although described as a "summary hearing", the nature of the hearing can be described as a hybrid one. In addition to the pleadings, applications and responses, the evidence before the Court consisted of various affidavits, the Walter Canada Group's notice to admit and the 1974 Plan's response to the notice to admit. In addition, as the answer to one of the issues - namely, whether ERISA applies exterritorialy to the Walter Canada Group - is a matter of U.S. law, the Walter Canada Group and the 1974 Plan both filed expert reports from U.S. attorneys. All three of these experts were cross examined on their reports at this hearing.

III ISSUES [12] The Walter Canada Group seeks the following declaratory relief: a) under Canadian conflict of laws rules, the 1974 Plan's claim as against the Walter Canada Group is governed by Canadian substantive law and not U.S. substantive law (including ERISA); b) in the alternative, if the 1974 Plan's claim against the Walter Canada Group is governed by U.S. substantive law (including ERISA), then as a matter of U.S. law, "controlled group" liability for withdrawal liability related to a multiemployer pension plan under ERISA does not extend extraterritorially; and c) in the further alternative, if the 1974 Plan's claim against the Walter Canada Group is governed by U.S. substantive law (including ERISA), and ERISA applies extraterritorially, that law is unenforceable in Canada because it conflicts with Canadian public policy. [13] It is common ground that if the Walter Canada Group succeeds on any one of the above arguments, the 1974 Plan's claim is not a valid claim against the estate. While I have referred to the arguments below as that of the Walter Canada Group, I have considered the similar arguments advanced by the Union even if they are not specifically referenced as such. IV IS A SUMMARY HEARING APPROPRIATE? [14] The 1974 Plan argues that the hearing should not proceed summarily and has brought a cross application to dismiss the Walter Canada Group's application.

Consistent with Rule 9-7 of the Supreme Court Civil Rules, B.C. Reg. 168/2009 (the "Rules") regarding summary trials, the 1974 Plan argues: a) the matter is not suitable for a summary hearing: Rule 9-7(11)(b)(i); b) a summary hearing on the preliminary issues will not assist in the efficient resolution of the validity of its claim: Rule 9-7(11)(b)(ii); c) the Court will be unable to find the necessary facts to determine the issues: Rule 9-7(15)(a)(i); d) the Court should find it unjust to determine the preliminary issues in the circumstances: Rule 9-7(15)(a)(ii); and e) the Walter Canada Group is "litigating in slices" by attempting to obtain a decision on only some of the issues. [15] The CCAA mandates that any dispute about claims will be determined, if possible, in a summary manner. Specifically, the CCAA provides for a summary determination of the validity of a disputed unsecured claim, such as that asserted here by the 1974 Plan: Determination of amount of claims 20 (1) For the purposes of this Act, the amount represented by a claim of any secured or unsecured creditor is to be determined as follows: (a) the amount of an unsecured claim is the amount (iii) in the case of any other company, proof of which might be made under the Bankruptcy and Insolvency Act, but if the amount so provable is not admitted by the company, the amount is to be determined by the court on summary application by the company or by the creditor; [Emphasis added] [16] The requirement for a summary determination of claims in a CCAA proceeding is similar to that found in the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3: see San Juan Resources Inc. (Re), 2009 ABQB 55 at para.

30. Both recognize the need to determine claims as quickly as possible to allow for a timely distribution to creditors, as creditors will suffer more prejudice if there is delay in receipt of whatever recovery they can expect from an insolvent estate. In addition, proceeding by summary application respects the need to resolve claims without undue cost, which would exacerbate the already insolvent circumstances and lessen the recovery of the parties. [17] Other than directing a "summary" determination of the issue, the CCAA provides no further guidance as to how a claim is to be determined. In this legislative vacuum, courts across Canada have drawn upon their statutory jurisdiction under the CCAA to fashion a process to do just that. This typically takes the form of a claims process order, as was granted in this proceeding on August 16, 2016. [18] There was agreement that the process typically found in a claims process order, allowing for review by the monitor and a revision/disallowance process, was not appropriate in these circumstances. The 1974 Plan's claim raised unique issues and it was recognized early in these proceedings that a resolution of that claim would likely require a more complex procedure. [19] There are examples where the courts in CCAA proceedings have fashioned a process that was "summary" in the sense of not requiring full pre-trial and trial procedures,

but still allowed for certain appropriate pre-hearing steps. [20] A similar issue was before the Court in the CCAA proceedings in Pine Valley Mining Corporation (Re), 2008 BCSC 356. A substantial claim had been advanced and the Court addressed how the claim should be resolved and the format of the summary trial. Justice Garson (as she then was) said: [16] The second issue I have been asked to determine is the question of the format of this trial. Section 12 of the CCAA [now s. 20] requires a summary trial. I recognize that in some cases, courts have held that that does not preclude a conventional trial. (See Algoma Steel Corporation v. Royal Bank of Canada (1992), 8 O.R. (3d) 449 (C.A.). I do not understand Mr. McLean to object in principle to an order that this matter be determined in a summary way but, rather, I think he reserves his right to object to the suitability of such a procedure depending on how the evidence unfolds. It is my view that s.12 [now s. 20] of the CCAA informs any decision the court must make as to the format of a trial and that trial must surely be as the section dictates, a summary trial, unless to do otherwise would be unjust, or there is some other compelling reason against a summary trial. I am not persuaded that this claim cannot be tried summarily on the date reserved in May of this year. The parties have one week to work out an agreement as to a

time line for the necessary steps to prepare for that trial, including the exchange of pleadings, disclosure of documents as requested by Tercon, agreed facts, delivery of affidavits, expert reports (including notice of reliance on all or part of the Monitor's reports), delivery and responses to notices to admit, examination for discovery if consented to, and delivery of written arguments. I acknowledge that many of these steps are underway. [17] Either party has leave to apply to cross-examine the deponent of an affidavit out of court or in court. Either party has leave to apply to convert this summary trial to a conventional trial but I expect the parties to make their best efforts to manage this generally as a summary trial. [Emphasis added] [21] Similarly, in Jameson House Properties Ltd. (Re), 2011 BCSC 965 at paras. 13-14, Justice Adair departed from the strict terms of a claims process order and ordered the filing of pleadings and oral discovery after the filing of affidavits. An agreed statement of facts was also later filed although some facts remained in dispute. At para. 15, the Court stated that it was approaching the summary hearing as in a conventional trial; in other words, if the party bearing the onus of proof failed to establish the necessary facts, that party's case would fail. [22] In Coast Capital Savings Credit Union v. The Symphony Development Corp., 2011

BCSC 333 at paras. 23-27, the Court referred to a "principled" approach to the determination of claims, albeit in a receivership context, which respected the summary claims process while also ensuring that the claim was adjudicated in a just manner. [23] Accordingly, although the CCAA requires that, presumptively, claims be determined on a summary basis, the court has the discretion to order another procedure where it is appropriate. That other procedure may, but will not usually, involve a full trial procedure. One possible approach is to conduct a hybrid hearing, such as occurred here. [24] Needless to say, the exercise of the court's discretion will be guided by the statutory objectives of the CCAA toward a timely and inexpensive resolution of claims and distribution to creditors, while also ensuring that the determination of claims is made in a manner that is just and fair to all the stakeholders, including the debtor company, the claimant and other creditors: 0487826 B.C. Ltd. (Re), 2012 BCSC 1501 at para.

38. These objectives are consistent with Rule 1-3(1) which states that the object of the Rules is to secure the "just, speedy and inexpensive determination of every proceeding on its merits". These objectives are also consistent with the Supreme Court of Canada's recent exhortation to the legal profession and the courts to embrace more summary forms of adjudication where appropriate, as found in Hryniak v. Mauldin, 2014 SCC 7. [25] In exercising the court's discretion to move beyond a pure summary determination in accordance with s. 20 of the CCAA, factors to be considered by the court will vary from case to case depending on the circumstances, but may include: the nature and complexity of the claim or issues arising; the amount in issue; the nature of the evidence (including whether credibility is in issue); the importance of the claim to the creditor and the estate; the cost and delay of further procedures; and what prejudice, if any, may arise from a summary hearing. [26] There is no "one size fits all" solution as to how any claim can be determined; ideally, the answer will no doubt be driven by the willingness of the parties to streamline the process and the creativity of the parties, and their counsel, in fashioning an efficient and expeditious means of obtaining the necessary evidence to put before the court. If agreement can't be reached, then it will fall to the court

to consider the issue. [27] Procedural issues that may be considered include: a) whether pre-trial oral or document discovery is truly necessary and if so, whether limits can be put on such discovery; b) whether affidavits should be filed as opposed to viva voce evidence at a full trial; c) whether cross-examinations on affidavits or expert reports are necessary and whether that can be done ahead of the hearing or at the hearing itself; d) whether timelines for delivery of materials, such as affidavits, or any pre-hearing procedures, can be fixed so to expedite the determination of the issues; e) whether other means of establishing the evidentiary record can be ordered, such as through notices to admit, agreed statement of facts and common documents so as to minimize or eliminate any conflict as to the facts; and f) whether written arguments can be exchanged in advance of the hearing. [28] The 1974 Plan continues to take the position that the issues raised in the Walter Canada Group's application cannot and should not be determined at this hearing without providing it the opportunity to undertake the discovery that it earlier sought. It specifically seeks to examine William G. Harvey, the former executive vice-president and chief financial officer of the Canadian holding company within the Walter Canada Group, who was also the person who gave evidence in support of the initial

CCAA filing. That evidence was accepted by this Court and various orders were made based on that evidence. [29] In substance, the 1974 Plan advocated for a reversal of what I consider to be the proper approach (and onus) here, as discussed above. The 1974 Plan submits that a full trial is required, unless the Walter Canada Group can successfully argue in favour of abbreviated procedures. Consistent with its goal of embarking upon a full scale litigation process, the 1974 Plan prepared its list of documents dated December 23, 2016. The Walter Canada Group has not yet provided any discovery, either oral or documentary. [30] I intend to address the 1974 Plan's objection to the lack of discovery from the Walter Canada Group in the context of the individual issues discussed below. It will suffice at this point to note that I reject the approach advocated by the 1974 Plan, although I will consider its arguments in the context of the relevant and material evidence needed to decide the issues raised on this application.

V BACKGROUND FACTS [31] In support of its overall position that this summary hearing is inappropriate, the 1974 Plan has steadfastly refused to admit to most facts as proposed by the Walter Canada Group. It insists on what it calls "trial quality" evidence on all issues and says that there remain "disputed facts" which are relevant to the determination of these issues, principally relating to the degree of integration between the Walter Canada Group and the entities within the U.S. arm of the Walter Energy Group. [32] The stridency of this position is particularly puzzling given the 1974 Plan's refusal to acknowledge even its own "facts" and documents, as found in its evidence filed in the course of this proceeding. [33] The 1974 Plan has shown absolutely no willingness to consider and co-operate in the development of a streamlined process which would have allowed the Walter Canada Group to put what I consider uncontroversial facts before the court. The more extreme examples of this obdurate position are found in the 1974 Plan's refusal to admit that: the Canadian mine operations and assets in this jurisdiction were governed by Canadian and British Columbian environment and mining legislation; and, that the Walter Canada Group's relationship with its Canadian employees (both unionized and non-unionized) were governed by Canadian and British Columbian labour and employment laws.

To suggest otherwise is a confounding proposition and needless to say, the 1974 Plan never did explain how it could not be so. The 1974 Plan would only admit that the mines were located in British Columbia and that the Walter Canada Group employed persons working in British Columbia, matters that were in evidence at the beginning of this proceeding and as I said, uncontroversial. [34] The 1974 Plan has raised virtually every possible objection toward blocking a summary or even hybrid hearing on these preliminary issues, presumably toward the end game of avoiding this hearing and engaging in an extensive and expensive full-scale litigation process with corresponding discovery. In my view, the objections of the 1974 Plan can more accurately be described as angling for a "fishing expedition" so as to search for facts that may conceivably provide some basis for their claim. [35] I would also note that the 1974 Plan appears to have made no effort to obtain what it describes as relevant evidence from various U.S. sources, including speaking to Mr. Harvey and also obtaining documentation in the hands of the U.S. debtors within the Walter Energy Group: see Tassone v. Cardinal, 2014 BCCA 149 at paras. 38-39. As such, the 1974 Plan has not provided any foundation upon which to argue that further relevant facts may exist in order to prove its claim. [36] I have concluded that the approach

advocated by the 1974 Plan is neither warranted nor appropriate in the circumstances and I am exercising my discretion to proceed otherwise. [37] Accordingly, I have taken the facts from various sources: the facts asserted by the 1974 Plan which are admitted or which are not contested by the Walter Canada Group or the Union for the purpose of this application; evidence filed by the 1974 Plan in these proceedings generally or in direct response to this application; and, what I consider to be the uncontroverted facts introduced by the Walter Canada Group in its evidence in this proceeding which have been the foundation for numerous orders granted by me. I also rely on the findings in my earlier reasons for judgment in these proceedings (including Walter Energy Canada Holdings, Inc. (Re), 2016 BCSC 107; 2016 BCSC 1413; 2016 BCSC 1746); and, evidence introduced in other proceedings before this court and filed in this action. See Petrelli v. Lindell Beach Holiday Resort Ltd., 2011 BCCA 367 at paras. 36-37; British Columbia (Attorney General) v. Malik, 2011 SCC 18 at paras. 46-48. [38] In my view, there is little, if any, controversy about the following facts which are more accurately described as simply background facts. [39] Below are my findings of fact. It will become clear from the analysis below that most of the following background facts only provide context for the specific

determination of the issues raised by the Walter Canada Group. I will also address any further facts relevant to the analysis in the separate discussion of the issues. (1) The Walter Energy Group and U.S. Operations [40] The Walter Energy Group operated its international coal production and export business in two distinct segments: (a) the U.S. operations, and (b) the Canadian and United Kingdom (U.K.) operations. [41] The parent corporation of all of entities within the Walter Energy Group is Walter Energy, Inc. ("Walter Energy U.S."), which is a public company incorporated under the laws of Delaware and headquartered in Birmingham, Alabama. The U.S. coal mining operations of the Walter Energy Group were conducted in Alabama and West Virginia through a variety of U.S. corporations. [42] The Walter Energy Group's U.S. entities included a wholly owned subsidiary of Walter Energy U.S., Jim Walter Resources, Inc. ("Walter Resources"). Walter Resources was incorporated in Alabama and conducted its coal production business in Alabama. (2) Acquisition leading to Creation of Walter Canada Group [43] Before 2011, Walter Energy U.S. did not have any operations or subsidiaries in Canada or the U.K. [44] In October 2010, Walter Energy U.S. and Western Coal Corp. ("Western") began negotiating the acquisition of Western's coal mining operations in British Columbia, the U.K. and the U.S.

(the "Western Acquisition"). [45] Walter Energy U.S. publicly announced the Western Acquisition in November 2010, when Walter Energy U.S. issued a press release and filed both the press release and a Form 8-K with the SEC on its publicly available EDGAR system. The press release referred to Walter Energy U.S.'s intention to complete a "business combination" with Western. [46] In December 2010, Walter Energy U.S. announced that (admitted for the purpose of these statements having only been made, and not for the truth of the contents): a) it had entered into an arrangement agreement with Western whereby Walter Energy U.S. would acquire all of the outstanding common shares of Western; b) the "transaction will be implemented by way of a court-approved plan of arrangement under British Columbia law"; and c) in connection with the arrangement, Walter Energy U.S. intended to borrow $2.725 million of senior secured credit facilities, "the proceeds of which will be used (i) to fund the cash consideration for the transaction, (ii) to pay certain fees and expenses in connection with the transaction, (iii) to refinance all existing indebtedness of the Company and Western Coal and their respective subsidiaries and (iv) to provide for the ongoing working capital of [Walter Energy U.S.] and its subsidiaries". [47] On March 9, 2011, Walter Energy U.S. incorporated Walter Energy Canada

Holdings, Inc. ("Canada Holdings") and became its sole shareholder. Canada Holdings was incorporated specifically to hold the shares of Western and therefore, indirectly, its subsidiaries. [48] On March 10, 2011, Justice McEwan of this Court approved the proposed plan of arrangement through which the Western Acquisition was accomplished. [49] On April 1, 2011, Canada Holdings acquired all outstanding common shares of Western for an estimated total consideration of approximately US$3.7 billion. [50] After completing the Western Acquisition, the Walter Energy Group engaged in a series of internal restructurings to rationalize operations and organize the Walter Energy Group into geographical business segments: the Walter U.S. group, the Walter Canada Group and the Walter U.K. Group. As a result, the U.S. assets previously held by Western were transferred from Canada Holdings to Walter Energy U.S. and no longer formed part of the Canadian assets. (3) Walter Resources and the 1974 Plan [51] The 1974 Plan is a pension plan and irrevocable trust established in 1974 in accordance with section 302(c)(5) of the Labour Management Relations Act of 1947, 29 U.S.C. § 186(c)(5). It is a multiemployer, defined benefit pension plan under section 3(2), (3), (35), (37)(A) of ERISA. [52] The 1974 Plan is resident in Washington, D.C. and administered there. The trustees are resident in the U.S. and

all participating employers in the 1974 Plan are resident in the U.S. [53] The 1974 Plan was established pursuant to a collectively bargained National Bituminous Coal Wage Agreement of 1974 negotiated between the United Mine Workers of America and the Bituminous Coal Operators' Association, Inc., a multiemployer bargaining association. This agreement has been amended from time to time since 1974. [54] ERISA requires that the 1974 Plan be administered in accordance with the most recently negotiated collective bargained agreement and other related documentation, such as the pension plan document and pension trust document. These documents set out, among other things, the contribution obligations of contributing employers to the 1974 Plan, which include: a) monthly pension contributions for as long as there were operations covered by the 1974 Plan; and b) a "withdrawal liability" accruing upon a partial or complete withdrawal from participation in the 1974 Plan. [55] The participants and beneficiaries in the 1974 Plan are retired or disabled former hourly coal production employees and their eligible surviving spouses. There are approximately 88,000 such participants and beneficiaries. [56] All signatories to the collective bargaining agreements are "participating employers". All such "participating employers" are resident in the U.S. [57] Only one of the U.S. entities, namely

Walter Resources (or a predecessor entity), was a signatory to various National Bituminous Coal Wage Agreements from 1978 forward and was therefore, a "participating employer" in the 1974 Plan. The last of such agreements signed by Walter Resources was the one negotiated in 2011 (the "2011 CBA"). [58] No member of the Walter Canada Group is or ever was a signatory to any National Bituminous Coal Wage Agreement, including the 2011 CBA. The 1974 Plan does not suggest that the Walter Canada Group ever contributed to the 1974 Plan; nor does the 1974 Plan suggest that the Walter Canada Group entities had any obligation to contribute to the 1974 Plan. [59] At the time of the Western Acquisition in 2011, the 1974 Plan had an unfunded liability of more than US$4 billion. Its status at that time was said to be "Seriously Endangered Status", meaning that the 1974 Plan's funded percentage was less than 80%. If Walter Resources had withdrawn from the 1974 Plan around that time, the estimated withdrawal liability was approximately US$426 million. There is no indication that the 1974 Plan took any position in this court in respect of the Western Acquisition. [60] Walter Resources and the 1974 Plan entered into the 2011 CBA after the Walter Acquisition was completed. [61] As with many pension plans, the fortunes of the 1974 Plan (and hence its beneficiaries) have not escaped the brunt of

global market forces over the last decade or so. The global financial crisis in 2008/2009 resulted in declining assets held by such plans. In addition, the demographics of an aging population combined with declining coal mining operations (and hence fewer participating employers) have resulted in added financial pressures on less resources. As of September 2015, the 1974 Plan was certified as being in "Critical and Declining Status", meaning that it is expected to become insolvent by 2025/2026. The 1974 Plan now asserts that the insolvency is expected to occur in six to seven years. [62] Beyond benefits available to the beneficiaries of the 1974 Plan under these private contractual arrangements, there is some governmental support. A U.S. government sponsored entity, the Pension Benefits Guaranty Corporation, guarantees payment of a portion of the 1974 Plan's benefits, but at a reduced level. (4) Walter Canada Group Corporate Structure [63] All of the Walter Canada Group entities are organized in Canada and for the most part, in British Columbia. The Canadian business operations principally consisted of the operation of three coal mines in British Columbia, being the Brule, Willow Creek and Wolverine mines. These mining properties have since been sold to a purchaser, as approved in these proceedings last year: Walter Energy Canada Holdings, Inc. (Re), 2016 BCSC 1746 at para.

80. [64] In particular, the petitioner companies, being Walter Canadian Coal ULC and Canada Holdings, with the latter's wholly owned subsidiary corporations, being Wolverine Coal ULC, Brule Coal ULC, Willow Creek Coal ULC, Cambrian Energybuild Holdings ULC (which in turn owns the Walter Energy Group's U.K. assets) and 0541237 BC Ltd., are all incorporated under the laws of British Columbia. The lone exception is Pine Valley Coal Ltd., a company incorporated under the laws of Alberta. [65] Similarly, the partnerships in the Walter Canada Group, which are wholly owned by Canada Holdings, being Walter Canadian Coal Partnership, Wolverine Coal Partnership, Brule Coal Partnership, and Willow Creek Coal Partnership, are all organized under the laws of British Columbia. [66] As I earlier noted in my reasons (Walter Energy Canada Holdings, Inc. (Re), 2016 BCSC 107 at para. 4), "[t]he timing of the Canadian acquisition could not have been worse". In 2011, the market for metallurgical coal fell dramatically, affecting operations of the entire Walter Energy Group in the U.S., Canada and the U.K. One can only assume that other coal producers in those jurisdictions, including signatories to the 1974 Plan in the U.S., similarly suffered the same fate and are struggling or have struggled with this economic downturn in the coal industry. (5) The U.S. Chapter 11 Proceedings [67] On July 15,

2015, Walter Energy U.S. and some or all of its U.S. subsidiaries, including Walter Resources, commenced proceedings under Chapter 11 of Title 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of Alabama (the "Chapter 11 Proceedings"). [68] On October 8, 2015, the 1974 Plan filed proofs of claim in the Chapter 11 Proceedings against all of the U.S. debtors, including Walter Resources and Walter Energy U.S., claiming what was anticipated to be the withdrawal liability of Walter Resources if it withdrew from the 1974 Plan. It appears to be the case that everyone anticipated that Walter Resources would seek to withdraw from the 1974 Plan through the Chapter 11 Proceedings. The unsecured claim was for not less than approximately US$904 million. [69] The Proofs of Claim filed by the 1974 Plan do not refer to any entity within the Walter Canada Group as having any potential liability for this claim. [70] The U.S. insolvency filing in turn sparked the need for the corporations within the Walter Canada Group to seek creditor protection in Canada. [71] On December 7, 2015, this Court granted an Initial Order in this proceeding in favour of the petitioners. Protection was also granted in favour of the partnerships (see Walter Energy Canada Holdings, Inc. (Re), 2016 BCSC 107 at para. 3). The Walter Canada Group did not seek recognition of the CCAA

Proceedings in the U.S.; similarly, the Walter Energy Group's U.S. debtors did not seek recognition of the Chapter 11 Proceedings in Canada. [72] At the time of the Canadian CCAA filing, Mr. Harvey indicated that efforts were underway in the Chapter 11 Proceedings to implement a sales process to sell all of Walter Energy U.S.'s Alabama assets. A stalking horse agreement was part of that sales process, as is typical in those proceedings. [73] It quickly became apparent to the U.S. stakeholders that the stalking horse purchaser in the Chapter 11 Proceedings had no interest in assuming what the U.S. Bankruptcy Court would later describe as Walter Resources' "legacy and current labour costs", including that owing under the 2011 CBA. The asset purchase agreement later signed by the U.S. debtors and the purchaser expressly provided that the sale was subject to the U.S. Bankruptcy Court issuing an order allowing the U.S. debtors to reject the 2011 CBA, in accordance with the U.S. Bankruptcy Code provisions. It is common ground that upon such rejection, the withdrawal liability under the 1974 Plan would arise. [74] Arising from opposition to the stalking horse process from some factions, including the unsecured creditors committee (the "UCC"), a settlement was reached. On December 22, 2015, the U.S. Bankruptcy Court entered an order approving a Settlement Term Sheet between the Walter

Energy group's U.S. debtors, a steering committee, the stalking horse purchaser and the UCC. The Settlement Term Sheet entitles unsecured creditors, which includes the 1974 Plan, to receive 1% of the common equity issued in the stalking horse purchaser on closing, as well as the right to participate in any exit financing. Later documentation filed in March 2016 by the Walter Energy Group's U.S. debtors and the UCC in the Chapter 11 Proceedings confirms that this settlement was intended to establish the extent of any recovery by unsecured creditors, such as the 1974 Plan, from the Chapter 11 estates. [75] The Walter Canada Group entities were not involved in the Chapter 11 Proceedings and were not parties to the Settlement Term Sheet. [76] On December 28, 2015, the U.S. Bankruptcy Court granted an order allowing Walter Resources to reject the 2011 CBA, over the objections of labour related stakeholders, including the 1974 Plan. The order (the "1113/1114 Order") authorized Walter Energy U.S. and its U.S. affiliates to reject the 2011 CBA and declared that any sale to the stalking horse purchaser was free and clear or any encumbrance or liabilities under the 2011 CBA. The U.S. Bankruptcy Court also declared that upon such sale, Walter Resources had no further contribution obligations under the 2011 CBA. [77] The Walter Canada Group did not participate in the hearing which gave

rise to the 1113/1114 Order. The reasons of the U.S. Bankruptcy Court which led to the granting of the 1113/1114 Order do not refer at all to the Walter Canada Group entities or any assets or operations in Canada held by those entities. [78] The 1974 Plan appealed the 1113/1114 Order, although that appeal was later withdrawn in February 2016. At that time, the 1113/1114 Order became final. [79] By early January 2016, the 1974 Plan clearly anticipated that Walter Resources' withdrawal from the 2011 CBA was imminent. Around that time, the 1974 Plan began filing materials in these CCAA proceedings asserting that the Walter Canada Group entities were jointly and severally liable for the withdrawal liability under the 1974 Plan. [80] The sale of the U.S. assets, as approved by the U.S. Bankruptcy Court, closed on April 1, 2016. Accordingly, immediately before that date, all contributions by Walter Resources to the 1974 Plan ceased and the withdrawal liability arose. The 1974 Plan now estimates that the withdrawal liability is in excess of US$933 million. [81] The 1974 Plan introduced the evidence of Dale Stover, the Director of Finance and General Services employed with the 1974 Plan. He indicates that by reason of Walter Resources' withdrawal, the status of the 1974 Plan has been further jeopardized even beyond that recognized in September 2015. He indicates that the other

employers in the 1974 Plan will be further burdened by this loss. [82] Despite the extensive proceedings before the U.S. Bankruptcy Court, at no time has that Court expressed any opinion on the validity of the 1974 Plan's claim as asserted in the Chapter 11 Proceedings. In addition, at no time did the U.S. Bankruptcy Court address the ability of the 1974 Plan to assert joint and several liability for the withdrawal liability against the other U.S. debtors. Certainly, that court did not address the core (and second) issue before me on this application; namely, whether the entities within the Walter Canada Group are liable under ERISA's provisions. (6) Estimated Recoveries [83] In my view, the evidence and submissions on this point are substantially irrelevant, and completely irrelevant to the determination of some issues. I understand that the parties all agree as to this irrelevancy although they also all saw fit to ensure that I knew the consequences of a win/loss to each side. Accordingly, to round out the narrative, the consequences arising from this application are as follows. [84] If the 1974 Plan's claim is found to be invalid as against the Walter Canada Group entities, it is anticipated that all other unsecured claims filed against the Canadian estates will be paid in full, including in relation to substantial amounts (approximately $12.8 million) owed to the Canadian

unionized employees who worked in the British Columbia coal mines. In that event, it is also expected that the remaining funds will likely flow to Walter Energy U.S. arising from intercompany claims that have been filed. [85] I am advised by the 1974 Plan that, if this happens, no funds will be paid to it in respect of its unsecured claim. This appears to arise from the Settlement Term Sheet, discussed above, and which appears to limit recovery for the U.S. unsecured creditors (including the 1974 Plan) to equity in the stalking horse purchaser and participation in exit financing, which I gather provided little or no recovery in the U.S. Accordingly, the 1974 Plan asserts that without recovery from the Walter Canada Group's assets, it will fail to have achieved any recovery, either here in Canada or in the U.S. VI ERISA's PROVISIONS [86] A review of the legislative provisions found in ERISA is helpful at this point. It is certainly required in order to consider and decide the second question, namely whether the Walter Canada Group is liable under ERISA as a matter of U.S. law. However, an understanding of those provisions is also necessary in order to answer the first question, namely being whether U.S. law (i.e. ERISA) even applies here. [87] The following, which I have largely adopted from the expert report of one of the Walter Canada Group's expert on U.S. law, Marc Abrams,

summarizes the relevant legislative provisions under ERISA (or Title 29). Some of these provisions have already been generally described above: a) a "multiemployer plan" is a collectively bargained pension plan maintained and funded by more than one unrelated employer, typically within the same or related industries: 29 U.S.C. § 1301(a)(3). As stated above, the 1974 Plan is a multiemployer defined benefit pension plan: see 29 U.S.C. § 1002(2), (3), (35) and (37)(A); b) if one of the contributing employers withdraws from a multiemployer plan, either partially or completely, ERISA requires the "employer" to pay to the plan its share of any unfunded vested benefits, generally determined as of the end of the plan year preceding the plan year in which the withdrawal occurs: 29 U.S.C. § 1386 and § 1391. The withdrawing employer's liability is referred to as the "withdrawal liability": 29 U.S.C. § 1381; and c) the plan sponsor has a statutory duty to calculate and collect the withdrawal liability from the withdrawing employer: 29 U.S.C. § 1382. ERISA appears to contemplate that payments may be made over time in accordance with a schedule; however, if the withdrawing employer defaults in paying the withdrawal liability, the entire amount of the withdrawal liability becomes subject to collection: 29 U.S.C. § 1399(c)(5). [88] The key ERISA provisions which are said by the 1974 Plan to

give rise to its claim against the Walter Canada Group entities are: a) withdrawal liability is the joint and several obligation of not only the withdrawing "employer" (as a contributing employer) but also each member of the employer's "controlled group": 29 U.S.C. § 1301(a)(2)(B); b) a contributing sponsor's "controlled group" consists of the contributing employer and others who are under "common control" (29 U.S.C. § 1301(a)(14)(A) and 29 U.S.C. § 1002(40)(B)); c) for a determination as to whether two persons are under "common control" where there is a single-employer plan, ERISA then refers to regulations "consistent and coextensive" with regulations under section 414 of Title 26 (also known as the Internal Revenue Code): 29 U.S.C. § 1301(a)(14)(B); d) with respect to multiemployer plans, two or more trades or businesses are deemed to be a single employer if they are within the same "control group" and "control group" means a group of trades or businesses under "common control" with the employer: 29 U.S.C. § 1002(40)(B); and e) for the purposes of ERISA, the three principal types of "controlled groups" are found in Internal Revenue Code regulations: (i) parent-subsidiary controlled groups; (ii) brother-sister controlled groups; and (iii) combined groups: 26 C.F.R. § 1.1563-1(a)(1)(i). [89] The 1974 Plan asserts that the corporations within the Walter Canada Group are part of

Walter Resources' parent-subsidiary "controlled group". Under ERISA, a parent-subsidiary "controlled group" is a group consisting of entities connected through a controlling interest with a common parent where stock ownership of at least 80% of the voting power or value (other than the parent) is owned by one or more corporations and the common parent corporation owns stock with at least 80% of the voting power of at least one of the corporations: 29 U.S.C. § 1301(b)(1); 26 U.S.C. § 414(b); 26 U.S.C. § 1563(a)(1); 26 C.F.R. § 1.1414(c). [90] The 1974 Plan also relies on other provisions of the Internal Revenue Code and its regulations which refers to treating partnerships which are under common control as a single employer: 26 U.S.C. § 414(c); 29 U.S.C. § 1301(b)(1); 26 U.S.C. § 1563(a)(1); 26 C.F.R. § 1.1414(c)-2. [91] For purposes of this application, the Walter Canada Group and the Union agree that it can be assumed that under the above provisions, the Walter Canada Group entities were under common control and within the "controlled group" of the Walter Energy Group given the level of stock ownership held by Walter Energy U.S. in Canada Holdings and Walter Canadian Coal ULC. Further, as stated above, 100% ownership of all of the Canadian operating entities is held through Canada Holdings. All of the expert witnesses were similarly asked to make this assumption. [92] Accordingly, prima facie, ERISA purports to impose joint and several absolute liability on the entities within the Walter Canada Group based on the 1974 Plan having met the numerical (80%) test for stock ownership or voting control with respect to a "controlled group" under ERISA. In addition, no issue arises given that some of the entities are partnerships.

VII THE CHOICE OF LAW QUESTION [93] The first issue posed by the Walter Canada Group is: Under Canadian conflict of laws rules, is the 1974 Plan's claim as against the Walter Canada Group governed by Canadian substantive law or U.S. substantive law (including ERISA)? [94] Accordingly, the question for this Court to consider is what choice of law - Canada or the U.S. (ie. ERISA) - governs the 1974 Plan's claim. Since the 1974 Plan has chosen to assert its claim in these Canadian proceedings, it is common ground that Canadian choice of law principles govern the analysis of what law applies to the 1974 Plan's claim: Janet Walker, Castel & Walker Canadian Conflicts of Laws, (Toronto, LexisNexis, 2005) (loose-leaf, 6th ed.) ch. 1 at 1-2. [95] The overall aim or purpose of the choice of law exercise is to identify the most appropriate law to govern a particular issue: A.V. Dicey, J.H.C. Morris & Lawrence Collins, The Conflict of Laws, vol. 1, 15th ed. (London, Sweet & Maxwell, 2012) at 51. [96] The authorities are clear that determining choice of law is a two-step process: firstly, the Court characterizes the claim to determine which choice of law rule applies; and secondly, the Court applies the proper choice of law rule to the claim. This process was described in Castel & Walker at 3-1 as follows: In an action involving legally relevant foreign elements, a court may be asked to

apply foreign law. To decide whether to do so, the court must ascertain the legal nature of the questions or issues that require adjudication and then apply its appropriate conflict of laws rules to them. For instance, do the facts raise a question of succession or of matrimonial property, or a question of capacity or of form? This analytical process is called the characterization or classification. Its purpose is to enable the court to find legal categories with which the forum is familiar. In other words, the court must allocate each question or issue to the appropriate legal category. The application of the forum's conflict of laws rule to each legal question or issue will indicate which legal system governs that question or issue. That legal system is called the lex causae. Once the court has characterized the issue, it will consider the connecting factor - a fact or element connecting a legal question or issue with a particular legal system. Finally, the court will apply the law identified as the governing law. In doing so it must separate the rules of substance from the rules of procedure of the legal systems involved, because questions of procedure are governed by the lex fori. [97] The first step therefore requires that the court ascertain or characterize the "legal nature of the questions or issues". Typical legal categories used for characterization include: property

law, the law of obligations, family law, the law of corporations and insolvency. Other categories, or sub-categories, include the law of contract (an "obligation"), tort and equitable remedies, such as unjust enrichment. [98] In Stephen G.A. Pitel and Nicholas S. Rafferty, Conflict of Laws, 2nd ed. (Toronto: Irwin Law Inc., 2016) at 223-226, the authors discuss the somewhat perplexing question as to just what is to be characterized. They conclude that facts are not to be characterized, but the courts have variously referred to both "issues" and "causes of action" as being characterized. At 224, the authors highlight, citing Macmillan Inc. v. Bishopsgate Investment Trust and Others (No. 3), [1996] 1 W.L.R. 387 (C.A.), the possible differences that may arise in that respect and that claimants may attempt to characterize their claims to support their choice of law. [99] In this case, I see no material difference whether one characterizes the 1974 Plan's claim in terms of a "cause of action" or "issue". Fundamentally, the claim arises from the express legislative provisions of ERISA. As noted by the Walter Canada Group, there is no equivalent provision of ERISA here in Canada or British Columbia. In that event, the claim is to be characterized "as its closest functional equivalent under that [forum's] law", namely Canada and British Columbia: Pitel and Rafferty at 227. [100] The

Walter Canada Group and the Union, on one hand, and the 1974 Plan, on the other, present starkly different approaches to the characterization of the 1974 Plan's claim. As I will describe below, the answer to this first step or question in turn leads to a distinct path or set of considerations as to the choice of law issue. The answers to each of the analytical steps also lead to different considerations in relation to most, if not all, of the evidentiary issues and objections raised by the 1974 Plan. [101] Accordingly, the statement found in Pitel and Rafferty at 222 that the characterization of the issue is "central to the choice of law process" is particularly apt here. [102] This two-step process is illustrated by this Court's decision in Minera Aquiline Argentina SA v. IMA Exploration Inc., 2006 BCSC 1102, aff'd 2007 BCCA 319, upon which both parties rely. At paras. 160-181, this Court addressed the characterization issue, which arose from the competing positions of the parties. The defendant asserted that the claim related to a foreign immovable (in which case Argentina law applied) and the plaintiff asserted that the claim was an in personam claim for appropriation through a breach of confidence (in which case British Columbia law applied). [103] This Court in Minera determined that the claim was more appropriately characterized as an equitable claim for unjust enrichment

arising from a breach of confidence, with the consequence that the relevant choice of law rule was the "proper law of the obligation" (see paras. 181-184). (1) What is the Characterization of the 1974 Plan's Claim? [104] Turning to the first step, there is no disagreement that the 1974 Plan's claim does not arise as a result of the Walter Canada Group's conduct. The Walter Canada Group entities did not employ any beneficiaries of the 1974 Plan or have any direct relationship, contractual or otherwise, with the 1974 Plan. Nor did the Walter Canada Group contribute to or have any obligation to contribute to the 1974 Plan. No other conduct that may be relevant to the Walter Canada Group's liability in that regard has been raised. Simply put, the Walter Canada Group had nothing to do with either the 1974 Plan or Walter Resources' participation in it. [105] The Walter Canada Group contends that the 1974 Plan's claim is properly characterized as an issue under the law of corporations or as an issue of legal corporate or partnership status or personality. They say that the basis for the claim simply arises under ERISA and as a result of Walter Resources' withdrawal from the 1974 Plan. Further, they say that the only basis for the claim against the Walter Canada Group arises from ERISA's "common control" provisions, discussed above, and are said to apply solely from the fact that the

Walter Canada Group entities and Walter Resources are both owned directly or indirectly by Walter Energy U.S. [106] It is clear that Walter Resources was the only signatory to the 2011 CBA and that Walter Resources' corporate relationship, albeit indirectly, to the Walter Canada Group, is the sole basis upon which the 1974 Plan seeks to apply the "controlled group" concept under ERISA. [107] The 1974 Plan contends that its claim concerns the law of obligations and in particular, contract, such that U.S. law is the "proper law of the obligation". The 1974 Plan asserts that its claim is one based not only on ERISA, but also the documents by which the 1974 Plan administers itself: namely, the pension plan document, the pension trust document and the 2011 CBA. [108] I will first address the arguments of the 1974 Plan. [109] The arguments of the 1974 Plan rest on the central proposition that where a statute confers a right of action in favour of an entity which is not a party to a contract to which the claim relates, the "essential nature" of the claim is to enforce the terms of that contract, such that the claim is properly characterized as one in contract. The 1974 Plan describes its claim as seeking to enforce the contractual obligations of Walter Resources against the Walter Canada Group. Three English insurance cases are cited in support. [110] The court in Youell v. Kara Mara

Shipping Company Ltd., [2000] EWHC 220 was addressing the consequences of a collision at sea between two ships. The owners of the "innocent" vessel commenced proceedings in Louisiana. In that jurisdiction, such a party was allowed, by statute, to claim directly against the "at fault" vessel owner's insurers. The insurers ultimately applied in England to restrain these proceedings on the basis that the "direct action" statutory claim was pursuant to insurance policies which required any litigation to be brought in England. The English court agreed, stating: 58. The position in the present case is that World Tanker has asserted a claim on the H&M Policies by virtue of the Direct Action Statute in the Direct Action Claim. It is true that World Tanker have not become a party to the policies by a mechanism of statutory novation or of statutory assignment. But in my view, the nature of the rights that the Direct Action Statute confers to World Tanker is contractual; it confers a statutory right to make a claim on a contract to which World Tanker was not originally a party. the rights are confined to the "terms and limits of the policy".

61. Therefore, I conclude that the nature of the claim by World Tanker against YM Insurers in the Direct Action Claim is contractual and the terms of that contract would include the English proper law clause and the [exclusive jurisdiction clause]. [111] In Through Transport Mutual Assurance Association (Eurasia) Limited v. New India Assurance Association Company Limited, [2004] EWCA Civ 1598, the court was considering Finnish legislation that gave a person a direct right to sue the defendants' insurer for losses caused by the defendant. At para. 56, the court agreed with the trial judge's approach to consider the "substance" of the claim being advanced. At para. 57, the court adopted the trial judge's comments on the characterization issue for choice of law purposes: If in substance the claim is independent of the contract of insurance and arises under the Finnish legislation simply as a result of its having a right of action against an insolvent insured, the issue would have to be characterized as one of statutory entitlement to which there may be no direct equivalent in English law. In that case the issue would in my view have to be determined in accordance with Finnish law. If, on the other hand, the claim is in substance one to enforce against the insurer the contract made by the insolvent insured, the issue is to be characterized as one of obligation. In that case the

court will resolve it by applying English law because the proper law of the contract creating the obligation is English law. [112] The Court of Appeal in Through Transport agreed with the lower court's conclusions that the claim was, in substance, to enforce the insurance contract between the responsible party and its insurer: 58. In short, the title to section 67 [of the Finnish Act] is the "insured person's entitlement to compensation under general liability insurance" and the right is defined as a right "to claim compensation in accordance with the insurance contract direct from the insurer" in certain defined circumstances. The claim under the Act is not therefore in any sense independent of the contract of insurance but under or in accordance with it. In these circumstances it seems to us that the judge was correct to hold that the issue under the Act is one of obligation under the contract. The judge noted in passing that the Finnish court itself described the Act as giving the injured party the right to claim compensation "according to the insurance policy". [Emphasis added] The Court of Appeal also noted at para. 59 that, although the Finnish Act gave the claimant a right of action directly against the insurer without the need of a formal assignment, what he obtained was "essentially a right to enforce the contract in accordance with its terms". Therefore, pursuant to

the terms of the insurance contract, that stated English law applied, English law was the proper law of the claim. [113] The third and final case cited by the 1974 Plan is The London Steam-Ship Owners' Mutual Insurance Association Ltd. v. The Kingdom of Spain, The French State, [2013] EWHC 3188 (Comm). There, the court followed the analysis in both Youell and Through Transport, stating that in deciding whether or not a direct action right under a statute is "in substance" a claim to enforce the contract or a claim to enforce an independent right of recovery, what matters most is the content of the right, rather than the derivation of its content (paras. 82-88). The Court held that the essential content of the right was provided by the insurance contract, despite the Spanish law which also created further liability for an event that would not normally be insurable. The direct action right conferred by Spanish law against the liability insurers was found to be, in substance, a right to enforce the contract rather than an independent right of recovery. [114] The 1974 Plan argues that, for choice of law purposes, its claim arises under the law of obligations - namely it is one of contract. It argues that the three English cases above all involve: (a) a plaintiff advancing a claim against another party for a liability arising under a contract where there was no privity of contract;

(b) a plaintiff claiming that the defendant's liability arose under a statute from a law other than the lex fori; and (c) a court characterizing the claim as a right to enforce a contract which only existed by reference to that contract. [115] The 1974 Plan contends that its claim is the same because, although Walter Resources was the only signatory to the 2011 CBA, ERISA (namely the foreign law) provides that the Walter Canada Group is liable in relation to Walter Resources' rejection of 2011 CBA and the withdrawal liability that arose under that contract. [116] Despite the 1974 Plan's fervent submissions on this issue, I am not convinced that the three English cases are analogous to the situation here. In my view, they are distinguishable. [117] Firstly, the foreign statutes in the English cases simply authorized a direct action against a party to the contract in question, being the insurance policy. In essence, the plaintiffs were made parties to the insurance contract between the insurer and the insured. In contrast here, ERISA does not authorize the 1974 Plan to sue the Walter Canada Group as a party to the 2011 CBA, the pension plan and trust documents. The 1974 Plan relies solely on the provisions in ERISA which only references the contractual liability as the basis upon which to monetarily determine the amount of the liability. [118] Secondly, the reasoning of and

results in the English courts was substantially influenced by the fact that even though the plaintiffs were essentially to step into the insurance contracts, the terms of the contract were, by the statutory provisions, still to govern. This meant that the plaintiffs took the insurance contracts as they found them and were subject to not only the benefits under the contracts, but also other provisions (or burdens) that might, for example, deny or limit coverage and therefore, recovery. As shown in the results found in those cases, that meant that the plaintiffs were subject to exclusive jurisdiction clauses and provisions requiring arbitration, which was the bargain struck in the insurance contracts. [119] In Through Transport, the court stated at para. 58 that the claim was not "independent of the contract of insurance but under or in accordance with it." [120] Here, ERISA's provisions are entirely devoid of any mention of the underlying contractual obligations of Walter Resources. Those provisions simply provide that if there is a "withdrawal liability", the other members of the "controlled group" are liable for that amount. I see no basis upon which one could say that, in substance, the Walter Canada Group became a party to the 2011 CBA and the other pension documents by reason of ERISA's provisions. [121] For example, there is no suggestion that the other "controlled group"

members could contest the amount of the withdrawal liability or advance any other substantive issues that Walter Resources might have raised under the terms of the 2011 CBA and the related documents. The evidence shows that the Walter Canada Group was not even notified of, let alone allowed to participate, in the contractual process by which the 1974 Plan determined the "withdrawal liability" under the 2011 CBA. The discussion of "absolute liability" of "controlled group" liability under ERISA, cited by the Union, found in Connors v. Peles, 724 F. Supp. 1538 (W.D. Pa. 1989) at 1577-8, is instructive on this point: Under certain circumstances, one member of a controlled group may be responsible for the withdrawal liability of another member of the controlled group. These principles apply only when there are two or more separate businesses that are banded or associated together in a "controlled group". Participation in the controlled group, by itself, imposes equal responsibility upon all members of the controlled group for the withdrawal liability of an "employer" member of the controlled group, i.e., even though the "employer" member of a group of trades or businesses is the only one with a pension plan. Once notice to the "employer" is given, as required by 29 U.S.C. § 1399, it is totally irrelevant as to whether actual or even constructive notice is given or imputed to the

"non-employer" members of a controlled group. The liability of the "non-employer" members of a controlled group does not rest on any notice safeguards under ERISA. The "non-employer" members of the controlled group do not even have to be engaged in the same business enterprise, or even in a similar business. A striking example is provided in Pension Benefit Guaranty Corp. v. Ouimet Corp., 630 F.2d 4, 11-13 (1st Cir.1980), where one member of a controlled group (the "non-employer") did not even have any employees! Congress built the equivalent of withdrawal liability "guaranty's" into ERISA, at the time of the enactment of the multiemployer amendments. The "guaranty's", commonly known and referred to as the "controlled group" statutes, 29 U.S.C. § 1301(b)(1), and the regulations adopted thereunder, 29 C.F.R. Part 2612, and consider the entire group as but one "employer", 29 U.S.C. § 1002(5), and impose absolute liability upon all members of a control group for the withdrawal liability of any member of a statutory group of enterprises, even though the "employer" member of a group of trades or business is the only one with a pension plan, and regardless of whether their groups have employees. Pension Benefit Guaranty Corp. v. Ouimet Corporation, 630 F.2d 4 (1st Cir.1980). Under "controlled group" statutory liability, an inquiry as to the interrelationship of the members of the

control group, with the employees of all members of the control group, as required under the "single employer" test, is totally unnecessary and irrelevant. [Emphasis added in underlining] [122] During the hearing, the 1974 Plan's counsel referred to the 1974 Plan as having certain "contractual expectations". While this may have been true in relation to Walter Resources, in my view, the 1974 Plan could only have had "statutory expectations" in relation to other "controlled group" members in the Walter Energy Group arising from ERISA. Certainly, the Walter Canada Group had no "contractual expectations" in these circumstances; this is in contradistinction to the fact that the insurers in the English cases most certainly would have had "contractual expectations" arising from the insurance contracts they issued. [123] I turn to consider the argument advanced by the Walter Canada Group that the appropriate choice of law characterization of the 1974 Plan's claim is one of the law of corporations and more specifically, one of separate legal existence or personality. [124] The 1974 Plan argues that the choice of law rule advocated by the Walter Canada Group is intended only for matters related to corporate existence, such as whether an entity has the capacity to sue or be sued. The 1974 Plan concedes that it may also apply to issues of corporate governance, such as shareholder rights,

the authority of directors, the power to make contracts or rights to issue or transfer shares. [125] I do not agree that such a narrow approach as advocated by the 1974 Plan is appropriate in characterizing the issue. The references in the cases to looking at the "substance" of the claim support a more far-ranging and holistic analysis. Indeed, although in support of its own argument, the 1974 Plan itself asserted that the characterization exercise is to be done in accordance with the rules and in a "flexible manner". [126] In Macmillan, the English court of appeal was called upon to settle a dispute about shares that were wrongly offered as security in England, when in fact they were owned by an American company. In the choice of law analysis, Auld L.J., at 407, discussed the need to look beyond the strict or narrow formulation of the claim: classification is governed by the lex fori. But characterisation or classification of what? It follows from what I have said that the proper approach is to look beyond the formulation of the claim and to identify according to the lex fori the true issue or issues thrown up by the claim and defence. This requires a parallel exercise in classification of the relevant rule of law. However, classification of an issue and rule of law for this purpose, the underlying principle of which is to strive for comity between competing legal systems,

should not be constrained by particular notions or distinctions of the domestic law of the lex fori, or that of the competing system of law, which may have no counterpart in the other's system. Nor should the issue be defined too narrowly so that it attracts a particular domestic rule under the lex fori which may not be applicable under the other system: see Cheshire & North's Private International Law, 12th ed., pp. 45-46, and Dicey & Morris, vol. 1, pp. 38-43, 45-48. Here, the "true issues" that are raised by the claim go well beyond the narrow formulation advanced by the 1974 Plan. [127] Further, the text authority cited by the 1974 Plan on this issue in fact supports the position of the Walter Canada Group. In Castel & Walker, the authors also adopt a wider view of the "law of corporations" as including questions of status, separate legal personality and the limited liability that flows from that personality. At 30-1, the authors state: Questions concerning the status of a foreign corporation, especially whether it possesses the attributes of legal personality, are, on the analogy of natural persons, governed by the law of the domicile of the corporation. This domicile is in the state, province or territory of incorporation or organization and it cannot be changed during the corporation's existence even if the corporation carries on business elsewhere. While the state,

province or territory in which the foreign corporation intends to carry on business has the right to prescribe the extent to which the corporation may exercise its corporate powers and capacity, this does not mean that proceedings may be taken in this jurisdiction to affect its status as a corporation. There is some controversy over which law determines the liability of a corporation for the obligations of a foreign subsidiary. Since the personality and status of the subsidiary is called into question, it would seem that the law applicable to the status and capacity of the subsidiary should determine whether its corporate veil can be pierced. [Emphasis added] [128] The 1974 Plan also argues that this Court should consider the rationale of the choice of law rule it is applying and also the purposes of the substantive law to be characterized and then determine if the conflict rule covers the substantive law at issue (ie. the effect of a certain characterization): Dicey at 51 citing Raiffeisen Zentralbank Osterreich AG v. An Feng Steel Co. Ltd., [2001] EWCA Civ 68 at para.

27. The 1974 Plan then says that the purpose of the substantive law (ie. ERISA) is to ensure that employees who are promised retirement benefits actually receive those benefits, citing Connolly v. Pension Benefit Guaranty Corp., 475 US 211, 214 (1986). The 1974 Plan then asserts that this purpose is entirely different than that behind the corporate choice of law rule whose purpose is the determination of corporate matters or more specifically, corporate capacity or governance. After analyzing the underlying policy purposes of the conflicts rule, that corporations are governed by the substantive law of the country of incorporation, the 1974 Plan argues that this substantive law issue is not engaged here since its claim is about employees' pension entitlements, in which case U.S. law should apply. [129] This argument is entirely without merit in that it confuses the intent or purpose behind the "controlled group" provisions found in ERISA with the effect of those provisions. I agree that ERISA has been employed by the U.S. Congress with the intention and purpose of seeking to ensure that U.S. retirees receive contracted for benefits; however, the effect of the "controlled group" provisions is to collapse the corporate structure to ensure that as many entities within a corporate group are liable for retirement plan withdrawal and that their assets are available to meet obligations

to those retirees. [130] Seen in that vein, the purpose of the choice of law rule proposed by the Walter Canada Group intersects with the substantive law under ERISA, in that both address the corporate status or the separate legal existence or personality of other persons, including the Walter Canada Group entities. ERISA ascribes liability based solely on corporate and other legal relationships. [131] As the Walter Canada Group argues, it is trite law in British Columbia and Canada that corporations have separate legal personalities from that of its shareholders and that shareholders are not prima facie liable for the debts of the corporation: Salomon v. Salomon & Co, [1897] A.C. 22 (H.L.). A corporation has the capacity and the rights, powers and privileges of an individual of full capacity: Business Corporations Act, S.B.C. 2002, c. 57, s. 30. [132] The well-known decision in B.G. Preeco I (Pacific Coast) Ltd. v. Bon Street Holdings Ltd. (1989), 37 B.C.L.R. (2d) 258 (C.A.) at 266-268 affirmed the sanctity of a corporation's existence per Salomon and discussed that the corporate veil may be pierced only in certain and exceptional circumstances. To similar effect, see Edgington v. Mulek Estate, 2008 BCCA 505 at paras. 20-25 where, following B.G. Preeco, the court stated at para. 21 that the "separate legal personality of the corporation will not be lightly disregarded". These

and other cases were recently discussed in Emtwo Properties Inc. v. Cineplex (Western Canada) Inc., 2011 BCSC 1072 beginning at para. 97 to similar effect. [133] The intention behind, purpose and effect of ERISA's "common control" or "controlled group" provisions are aided by interpretations of those provisions by the U.S. courts. In that respect, Mr. Abrams' expert report is again of assistance. He states at pp. 6-7 of his report: Courts have described the operation of ERISA's "controlled group" liability provisions as a "veil-piercing" statute that disregards formal business structures in order to impose liability on related businesses. As the U.S. Supreme Court has recognized, in place of the "subjective, case-by-case analysis that had previously prevailed," Congress purposefully adopted an "objective test" for determining whether a controlled group exists, based on a "mechanical formula" that establishes "a sharp dividing line that is crossed by incremental changes in ownership." [citing United States v. Vogel Fertilizer Co., 455 U.S. 16, 34 (1982)] Thus, the applicable regulations for withdrawal liability of "controlled groups" establish a "brightline test based purely on stock ownership," and affiliates are not required to have actually exercised control over the employer (or vice versa) or engaged in any wrongdoing or misconduct in order to be liable as a member of the

"controlled group." [134] The citations provided by Mr. Abrams for these comments amply support his summary of the U.S. courts' characterization of ERISA's "controlled group" provisions. Other comments found in the U.S. cases cited by him are equally instructive: a) the ERISA provisions were aimed at "curbing abuses of multiple incorporation": United States v. Vogel Fertilizer Co., 455 U.S.16 (1982) at 36; b) in Board of Trustees of Trucking Employees of North Jersey Welfare Fund, Inc. - Pension Fund v. Gotham Fuel Corp., 860 F. Supp. 1044 at 1050, the court stated that members of the controlled group are "deemed, by law" to constitute a single entity. At 1050-1051, the court adopted an earlier statement of the legislative intent underlying ERISA: The legislative background of ERISA makes it abundantly clear that, for the purpose of [ERISA], Congress was unconcerned with the actual corporate form of a business. Congress instructed the courts to disregard the corporate form and treat several inter-related corporations are one entity, the ERISA "employer" ... and also stated: Controlled group members are statutorily determined to be 'single entities,' without the necessity of a finding of improper motive or wrongdoing. c) in PBGC v. Smith-Morris Corp., C.A. No. 94-cv-60042-AA, 1995 US Lexis 22510 at 8 (E.D. Mich. Sept. 13, 1995), the court stated that ERISA's concern is not

whether a stockholder who has a controlling share actually exercised control over corporate affairs but simply whether it had "the ability to control," as evidenced through stock ownership; d) in Sun Cap. Partners III, LP v. New England Teamsters & Trucking Indus. Pension Fund, 724 F.3d 129 at 138, the court stated that: [ERISA's] broad definition of "employer" extends beyond the business entity withdrawing from the pension fund, thus imposing liability on related entities within the definition, which, in effect, pierces the corporate veil and disregards formal business structures. e) finally, in Cent. States, S.E. & S.W. Areas Pension Fund v. Messina Prods., LLC, 706 F.3d 874 (7th Cir. 2013), at 877-878, the court stated: When an employer participates in a multiemployer pension plan and then withdraws from the plan with unpaid liabilities, federal law can pierce corporate veils and impose liability on owners and related businesses. The [joint and several withdrawal liability] provision's purpose is to "prevent businesses from shirking their ERISA obligations by fractionalizing operations into many separate entities " (Citing: Central States, Southeast and Southwest Areas Pension Fund v. White, 258 F.3d 636, 644 (7th Cir.2001) [135] The 1974 Plan's expert witness as to U.S. law and specifically, ERISA, Judith Mazo, agrees. She describes at paragraph 37 of her report that the

"arithmetic rules" or "bright lines" under ERISA apply to determine common control. She further states there is no other relevant consideration as to whether ERISA applies: 44. Because the law uses mechanical tests and looks at highly concentrated levels of ownership, it does not matter whether the decision-makers actually exercised their control since they had the power to do so if they chose. [136] Simply put, the 1974 Plan's claim arises solely by reason of Walter Energy U.S. owning more than an 80% stake in both Walter Resources and the Walter Canada Group entities. Arising from that "arithmetic" rule, ERISA dictates that the Walter Canada Group is liable for any withdrawal liability of a signatory (ie. Walter Resources) under the 1974 Plan. [137] Accordingly, I agree with the Walter Canada Group that ERISA's "controlled group" provisions impose liability by ignoring separate corporate personalities and effectively amalgamating, consolidating or collapsing "common control" entities into a single "employer" liable for any withdrawal liability of any other entity within that group. There can be no dispute that, but for ERISA's provisions, the Walter Canada Group would not be liable for any obligations owing by Walter Resources under the 2011 CBA. It is only by reason of the Walter Canada Group's relationship with Walter Resources, through the indirect corporate ownership of

Walter Energy U.S., that such liability arises. [138] As the U.S. cases note, this is the essence of "lifting the corporate veil" so as to look beyond the corporate personality of Walter Resources and impose liability on other entities within the corporate group through common shareholdings. [139] My conclusions are consistent with the comments found in Pension Benefit Guaranty Corp. v. Ouimet Corp., 711 F.2d 1085, 6 (1st Cir.1983) where the Court of Appeals, First Circuit allocated a termination liability to certain solvent members of the Ouimet Group: On the surface this result may appear to disregard unduly the legal separateness of the corporate entities. There is precedent, however, for piercing the corporate veil in bankruptcy situations. Under its general equitable powers a bankruptcy court may "substantially consolidate" the assets and liabilities of various entities. Substantial consolidation will usually, but not always, involve only debtors and be granted if absolutely necessary for achieving reorganization or protecting creditors' economic interests. Some of the facts a court will look for in deciding whether to grant a substantive consolidation include the parent owning a majority of the subsidiary's stock, the entities having common officers or directors, the subsidiary being grossly undercapitalized, the subsidiary transacting business solely with the parent, and

both entities disregarding the legal requirements of the subsidiary as a separate corporation. There is no need to show that any or all of these factors are present to justify holding the solvent members of the Ouimet Group responsible for the entire liability in this case. Avon's corporate veil was, in effect, pierced by Congress when it enacted the termination liability provisions of ERISA. The corporate form is a creation of state law and states may impose stringent limitations on attempts to disregard it; the factors courts consider in deciding whether to grant substantive consolidations reflect such limitations. These limitations, however, do not constrict a federal statute regulating interstate commerce for the purpose of effectuating certain social policies Corn Products Refining Co. v. Benson, 232 F.2d 554, 565 (2d Cir.1956) (existence of separate corporate entity may be disregarded when necessary to further the purpose of a federal regulatory statute). Thus, concerns for corporate separateness are secondary to what we view as the mandate of ERISA in this case. [Emphasis added] [140] Since ERISA is a creature of the U.S. Congress, there is no similar legislation in Canada that might be considered in this characterization exercise. There is no case authority from Canada that addresses ERISA, nor any case authority involving the type of characterization exercise involved

here. Nevertheless, the Walter Canada Group argues that characterizing the 1974 Plan's claim as one implicating legal personality is consistent with at least one British Columbia authority. [141] In JTI-Macdonald Corp. v. British Columbia (Attorney General), 2000 BCSC 312, this court considered the constitutionality of the Tobacco Damages and Health Care Costs Recovery Act, S.B.C. 1997, c. 41 (the "Tobacco Act"). The Tobacco Act created a cause of action permitting the government to directly recoup medical costs from the tobacco industry. The Tobacco Act defined "manufacturer" broadly and, coupled with the group liability provisions, extended liability to affiliated (perhaps also foreign) companies (see paras. 156-158). Similar to ERISA, the Tobacco Act "imposed liability upon a foreign defendant not on the basis of wrongful conduct but on the basis of being deemed a member of a group in which another member commits a wrongful act." (para. 233). [142] I agree with the 1974 Plan that the result in JTI-Macdonald Corp. is limited since it arose in the context of a constitutional challenge which is not involved here. Nevertheless, many of the comments of Justice Holmes in respect of the Tobacco Act strike a similar chord in terms of what ERISA seeks to accomplish as against the Walter Canada Group. I have included lengthy quotes of Holmes J. here, particularly given the degree of

reliance placed on this case by the Walter Canada Group: [172] The combined effect of [provisions of the Act] purport to affect the status, structure and corporate personality of foreign corporations and the rights of their shareholders. [173] The Act has the effect of abolishing the separate corporate personalities of companies incorporated under federal or foreign law with domiciles outside British Columbia. [174] A company's registered office establishes its domicile. [Gasque v. Inland Revenue Commissioners, [1940], 2 K.B. 80; Fraser & Stewart, op. cit. at p.144; National Trust Co. Ltd. v. Ebro Irrigation & Power Co. Ltd., [1954], 3 D.L.R. 326 (Ont.H.C.); Voyage Co. Industries v. Craster, [1998] B.C.J. No. 1884 (Unreported) (B.C.S.C.)]. [175] A corporation's domicile determines the law respecting its creation and continuation (corporate personality), matters of internal management, share capital structure, and shareholder rights. [Castel, J.G., Canadian Conflict of Laws 4th ed., (Toronto: Butterworths, 1997) pp.574-575; Voyage Co. Industries v. Craster, supra; National Trust Co. Ltd. v. Ebro Irrigation & Power Co. Ltd., supra; Fraser & Stewart, op. cit. p.144; Palmer's Company Law (looseleaf ed.) Vol. I, (London: Sweet & Maxwell, 1997) pp.2105-2106]: Questions concerning the status of a foreign corporation, especially whether it possesses the attributes of legal personality,

are, on the analogy of natural persons, governed by the law of the domicile of the corporation. This domicile is in the state or province of incorporation or organization and cannot be changed during the corporation's existence even if it carries on business elsewhere. Thus, the law of the state or province under which a corporation has been incorporated or organized determines whether it has come into existence, its corporate powers and capacity to enter into any legal transaction, the persons entitled to act on its behalf, including the extent of their liability for the corporation's debts, and the rights of the shareholders. [Castel, supra, at p.574-575]. [176] It is a fundamental principle of company law that a corporation is a legal entity distinct from its shareholders. [Salomon v. Salomon & Co. Ltd., [1897] A.C. 22 (H.C.); Palmer's Company Law 24th ed., Schmitthoff, C.M. Ed., (London: Stevens & Sons, 1987) pp.200-201; Fraser & Stewart Company Law of Canada 6th ed., (Carswell, 1993) at p.17; Canada Business Corporations Act, R.S.C. 1985, c.C-44, S.15(1)]. [177] This distinction is operative in a parent and subsidiary relationship and applies to related corporations owned by a common shareholder. [Fraser & Stewart, op. cit. at p.21, Davies, P.L., Gower's Principles of Modern Company Law 6th ed. (London: Sweet & Maxwell, 1997) at pp.80, 159-163; BG Preeco I (Pacific Coast)

Ltd. v. Bon Street Developments Ltd. (1989), 60 D.L.R. (4th) 30 (B.C.C.A.)]. [178] There is a distinction in Canadian constitutional law between the power to incorporate and the power to regulate the activities of a company. The power to incorporate a company is the ability to bestow legal personality on an association of persons, regulate a corporate structure and define the rights of shareholders. [179] A company once incorporated however will be responsible to the laws of jurisdictions in which it operates. A federally incorporated company is, for example, accountable under provincial security laws. . [189] The Act therefore attempts to alter and derogate from what are clearly domiciliary rights under the law of foreign jurisdictions, [205] The Act overrides the substantive laws of extra-territorial Canadian or foreign jurisdictions in four major areas: (a) in respect of the status and corporate personalities of corporate tobacco manufacturers with domiciles outside British Columbia; . and (d) in respect of shareholder's rights and liabilities regarding shares of federal or foreign corporations. . [213] Sections [of the Tobacco Act], when they purport to govern the status, structure and corporate personality of a federally-incorporated company under the Canada Business Corporations Act are not only extra-territorial in effect they trench upon the exclusive jurisdiction of

the Parliament of Canada. [214] There is much force to the argument that a practical cumulative effect of these provisions of the Act is to "amalgamate" or "merge" defendant tobacco companies such that those "amalgamated" by the operation of the provisions of the Act incur liability for civil claims against others in the involuntary merger. That is a fundamental interference with a federal jurisdiction reserved under Part XV of the Canada Business Corporations Act. [215] The combined effect of Sections of the Act ignores the separate identities of federally-incorporated companies for the purpose of establishing a tobacco related wrong committed by a related company and for the purpose of calculating amounts assessed against them. [216] The separate legal personality conferred under s.15(1) of the Canada Business Corporations Act is removed and the corporation loses its legal status as distinct from its shareholders. [218] The provisions of the Act appear not so much designed to "pierce the corporate veil" as they are to strip away separate identities and treat them as if they had legally merged or amalgamated. The effect of provisions of the Act is not to look through the façade of a company shell; it is to deny the right to any separate corporate existence. [Emphasis added] [143] Applying these same comments to ERISA, it is clear that the "controlled group" provisions simply

disregard the separate corporate personalities of other companies within the Walter Energy Group (including those within the Walter Canada Group) by lifting their corporate veils. It does this by ignoring the separate legal existence and personality of the Walter Canada Group entities (and limited liability per Salomon), effectively amalgamating or consolidating those entities, in deeming them to be one "employer" along with Walter Resources. [144] I agree that JTI-Macdonald provides substantial support that a claim which purports to impose liability arising purely as a result of corporate relationships, such as ERISA does, are properly classified as claims concerning the status and legal personality of corporations. To use the words of Holmes J., the application of ERISA to the Walter Canada Group results in those entities' "separate legal personality" being removed or "stripped away" such that they lose their legal status as distinct from their shareholders. [145] I agree that the 1974 Plan's claim against the Walter Canada Group, being founded on ERISA's "controlled group" liability provisions, should be characterized as concerning the status and legal personality of corporations and partnerships within the Walter Canada Group. [146] In conclusion, in my view, the legal nature of the 1974 Plan's claim is appropriately characterized as one of corporate or partnership law and

specifically, a claim which results in a challenge to the status and separate legal personalities of the entities within the Walter Canada Group. (2) What Choice of Law Rule Applies? [147] Having characterized the claim, I now turn to the second step in the choice of law analysis. This involves a consideration of relevant "connecting factors". [148] At page 221, Pitel and Rafferty state: As we will see, the selection of the connecting factor is critical in formulating the choice of law rule. There are many possible connecting factors. Some are relatively certain and predictable. These include the person's domicile or habitual residence and the place where a specific act occurs, such as the commission of a tort or the making of the contract. These sorts of connecting factors have a relatively narrow focus. They are quite specific and can therefore be described as rigid connecting factors. Other connecting factors have a broader focus and are thought to be more flexible. These include the "proper law" of a contract, ascertained by weighing several factual connections to various legal systems. One of the core debates in choice of law is how rigid or how flexible the connecting factor should be for a particular rule. [149] It is worthwhile being reminded at this time of Castel & Walker's comment at 3-1, quoted above, that a "connecting factor" is a "fact or element connecting a

legal question or issue with a particular legal system" which is then identified as the governing law. [150] What then are the "connecting factors" to be considered after having characterized the 1974 Plan's claim as I have? [151] Under Canadian choice of law rules, issues concerning a person's legal personality are governed by the law of the person's domicile: Castel & Walker at 30-1, quoted above. Similarly, Pitel and Rafferty state that the "status of non-natural persons is governed by the law of the person's 'home' jurisdiction" (at 245) and that there is a "well-established principle that a corporation's domicile is the country in which it was incorporated" (at 26-27). [152] To similar effect, Dicey states at 1532-1533: Whether an entity exists as a matter of law must, in principle, depend upon the law of the country under which it was formed. That law will determine whether the entity has a separate legal existence. The law of that country will determine the legal nature of the entity so create, e.g. whether the entity is a corporation or partnership, and, if the latter, the legal incidents which attach to it. [153] Domicile was addressed in National Trust Co. v. Ebro Irrigation and Power Co. Ltd. [1954] O.R. 463 (S.C.), where the court stated at 476: It is well established that the domicile of a corporation is in the country in which it was incorporated. In Cheshire on

Private International Law, 4th ed. 1952, at pp. 193-4, it is stated that: "Questions concerning the status of a body of persons associated together for some enterprise, including the fundamental question whether it possesses the attribute of legal personality, must on principle be governed by the same law that governs the status of the individual, i.e. by the law of the domicil. In the case of the natural person it is the domicil of his father, in the case of the juristic person it is the country in which it is born, i.e. in which it is incorporated." [154] The Walter Canada Group also refers to Singer Sewing Machine Co. of Canada Ltd (Re), 2000 ABQB 116, a decision of the colourful Registrar Funduk. There, the Alberta court was considering whether to recognize an order from the U.S. Bankruptcy Court. It appears that the U.S. court has assumed jurisdiction not only over the Singer Sewing Machine entities in the U.S., but also over the Canadian subsidiary who only conducted business in Canada and whose assets were held in Canada. The intention of the U.S. court seemed to be toward assuming overall jurisdiction over the entire corporate group in terms of administering assets and presumably, claims against those assets. [155] This case was decided before amendments to Part IV of the CCAA which provides for a robust degree of comity in terms of addressing cross-border insolvencies.

Nevertheless, the comments of the Registrar in terms of rejecting what he considered was a collapsing of the Canadian entity and its assets within the broader international group have, in my view, some relevance here: 11. Canadian law says that a corporation is a person in law. Canadian law says that a corporation has an existence separate from its shareholders. Canadian law says that a shareholder is not liable for the corporation's debts. Canadian law says that a shareholder does not own the corporation's assets. Canadian law says that a corporation's business activities are not the shareholder's business activities. [156] Similarly, amalgamation of corporations, characterized as a change of status, is governed by the law of the place of incorporation: Castel & Walker, vol. 2, at 30-5. If the merged or amalgamated corporations were incorporated in different jurisdictions, the merger must be valid under the laws of both jurisdictions: Dicey 1534. See also Concept Oil Services Ltd. v. En-Gin Group LLP, [2013] EWHC 1897 (Comm) at paras. 70-72. [157] I agree with the Walter Canada Group that the 1974 Plan's claim depends entirely on ERISA's provisions which allow the 1974 Plan to disregard the separate legal personalities of the Walter Canada Group entities as being distinct from that of Walter Resources. The 1974 Plan has not advanced any other theory of liability for its claim

under British Columbia law or any other law; rather, it relies exclusively on ERISA's "controlled group" provisions as the basis for its claim against the Walter Canada Group. Further, as I have already stated, the 1974 Plan's claim against the Walter Canada Group does not stem from any conduct by or contract with the Walter Canada Group. [158] During its submissions, the 1974 Plan did not draw any particular distinction between its claims against the corporations within the Walter Canada Group (who are the only CCAA petitioners) and the partnerships, who are not petitioners, but who were granted certain protections under the Initial Order. The claim of the 1974 Plan advanced in its pleading is only as against the "petitioners". The Walter Canada Group suggests that since the 1974 Plan chose to assert its claim only against the "petitioners", any claim against the partnerships is barred pursuant to the claims bar date set under the Claims Procedure Order. I am not sure as to the effect of such a distinction in terms of the recovery under the claims. [159] This "claims bar date" argument may have some merit, but I do not propose to base my decision as regards the partnerships solely on this basis. The simple answer is that the same analysis set out above in relation to the corporations applies equally to the partnerships, as was noted in Dicey at 1532-33, quoted above, which

refers to the law of the country in which an "entity" was formed. [160] The issue as to whether the Walter Canada Group's separate legal personalities can be ignored is subject to the Canadian choice of law rule that the status and legal personality of a corporation is governed by the law of the place in which it was incorporated, namely British Columbia and Alberta. Here, as with the corporations within the Walter Canada Group, both with limited liability and unlimited liability, it is admitted that all of the partnerships were organized under British Columbia law. Accordingly, the choice of law analysis leads to the same result in relation to the partnerships, namely British Columbia law, including under the Partnership Act, R.S.B.C. 1996, c. 348. [161] The place of incorporation or organization is a matter of public record and all persons who would do business with or otherwise deal with the Walter Canada Group entities would or should be well aware of that fact. [162] I agree that, under Canadian choice of law rules, the place of incorporation or organization of the Walter Canada Group entities is the appropriate "connecting factor" in relation to the issue arising from the 1974 Plan's claim. As a result, British Columbia and Alberta law determine whether the separate legal personalities of the Walter Canada Group entities can be ignored. [163] The 1974 Plan also made

substantial submissions concerning the choice of law rule applicable to its claim. Relying on this Court's analysis in Minera at paras. 184-207, the 1974 Plan asserts that one must consider which law has the "closest and most real connection" to the issue. Its further submissions are that the court must examine a non-exhaustive list of factors in that context (Minera at para. 200). This, of course led to the 1974 Plan's objection to this summary hearing and its positon that, since it has been denied any discovery from the Walter Energy Group, it has been hampered in its ability to put into evidence all relevant factors at this summary hearing. [164] However, the analysis in Minera was made in the context of the Court's conclusion that the choice of law rule that applied to the unjust enrichment claim was the "proper law of the obligation". In addition, contrary to the two-step approach illustrated in Minera, at the end of its submissions, the 1974 Plan's argument essentially conflated that process by suggesting that the Court should consider connecting factors (most of which it says have yet to be disclosed through discovery from the Walter Canada Group) in the characterization exercise in the first step. [165] Rejecting the 1974 Plan's contention that its claim should be characterized as one of contract inevitably leads to the further conclusion that the appropriate choice of

law rule is not the "proper law of the obligation". [166] Accordingly, I do not intend to address the 1974 Plan's detailed submissions on the second step within the choice of law issue other than to briefly comment on certain aspects. [167] The 1974 Plan argued that even if I accepted the characterization of the claim advanced by the Walter Canada Group, the Court would still need to address facts other than the place of incorporation. These facts were said to include the degree to which the Walter Canada Group was managed out of the U.S. and an understanding of the Walter Energy Group's global business. I reject these submissions on the basis of the above authorities. There is no need to look beyond the clear facts that when these Canadian entities were incorporated or organized, they were expressly created within these Canadian jurisdictions with the intention that their legal status and personality would be governed by Canadian laws. The same comment could presumably be made concerning the U.S. and English entities. [168] The 1974 Plan argued that the "proper law of the obligation" approach would allow this court to consider the connecting factors that exist between the 1974 Plan's claim and the Walter Canada Group, including the degree to which the U.S. and Canadian operations were integrated, citing Imperial Life Assurance Co. of Canada v. Colmenares, [1967] S.C.R. 443 at

448 and Minera. [169] However, my conclusions above have the effect of rendering moot the 1974 Plan's objections arising from the lack of discovery. In addition, it is clear enough that even if there was no degree of integration or management between the U.S. and Canadian entities, the 1974 Plan's position is that all "contract" factors point to the U.S. - including the contractual documents, the location of and management of the 1974 Plan, the location of Walter Resources (the only counterparty to the 2011 CBA), that the benefits under the 2011 CBA are for Walter Resources' U.S. employees and that the withdrawal by Walter Resources from the 1974 Plan arose in the U.S. As I have emphasized, as regards the choice of law analysis, there is absolutely no contractual connecting factor between the 1974 Plan and the Canadian entities. [170] In that regard, it is difficult to conceive (although I need not decide the issue) that any Canadian court would conclude that these "contractual" connecting factors pointed to anything other than the U.S. Any degree of integration or joint management could only add to such arguments; conversely, it is difficult to see that any lack of integration or joint management would detract from them. [171] On this last point (ie. the degree of integration), what emerges as crystal clear from the 1974 Plan's position, supported by Ms. Mazo's opinion, is

that ERISA expressly makes such a factual enquiry entirely irrelevant. The "bright line" or "arithmetic" test under ERISA entirely disregards anything other than the level of stock ownership: see Pension Benefit Guaranty Corp. v. Ouimet Corp., 470 F.Supp 945 (1975). [172] Other so-called "connecting factors" suggested by the 1974 Plan are bizarre to say the least. The 1974 Plan suggests that Walter Energy U.S. will be "enriched" given the potential payment of estate funds to that corporate level after payment to the Canadian creditors. This is hardly a relevant consideration. Further, any recovery available to the 1974 Plan against the U.S. entities is entirely driven by U.S. law, including ERISA, the Chapter 11 Proceedings and its participation in the Settlement Term Sheet. If the 1974 Plan obtains no recovery from the U.S. entities within the Walter Energy Group, that is of no moment as regards its claim against the Canadian entities. [173] The other "connecting factor" said to arise by the 1974 Plan is that the application of Canadian law works an injustice on the 1974 Plan "because of the removal of assets out of reach of ERISA". This proposition begs the very question as to whether ERISA applies to the Walter Canada Group at all. If ERISA does not apply to the Walter Canada Group in these circumstances, the Canadian assets were never within reach of the 1974 Plan. [174]

The 1974 Plan further argues that accepting the Walter Canada Group's argument on choice of law would result in a "blanket denial" of all ERISA claims against Canadian entities in Canadian courts. In my view, this is an exaggeration. Canadian law allows for the imposition of liability on persons in a variety of ways - including tort and fraud (see B.G. Preeco). This decision is only intended to address whether these Canadian entities are subject to ERISA which seeks to impose liability on them, not by reason of any conduct or contract, but simply by reason of a corporate relationship. [175] The 1974 Plan also suggests that a decision that ERISA does not apply to the Walter Canada Group would threaten principles of international comity in that a Canadian court could not recognize a judgment made by a U.S. court in respect of a Canadian entity for withdrawal liability under ERISA. This other "chicken little" argument is entirely speculative. Firstly, this case does not involve any judgment obtained against the Walter Canada Group. Further, in my view, my decision does not detract from the well-entrenched and long standing comity that has existed between Canada and the U.S. courts, particularly in the field of insolvency. [176] As described above, the only facts and connecting factors relevant here given my characterization of the 1974 Plan's claim are uncontroversial and have

been admitted. In these circumstances, I see no difficulty in proceeding to determine this matter in a summary fashion, based on the considerations discussed earlier in these reasons. [177] In conclusion, I find that the 1974 Plan's claim is characterized as one of corporate or partnership law and specifically, one relating to the status, legal existence and personality of corporations and partnerships. The appropriate choice of law rule is one of domicile or place of incorporation or organization. In the case of the entities within the Walter Canada Group, that is British Columbia or Alberta. [178] ERISA is not part of British Columbia or Alberta law. Accordingly, the 1974 Plan's claim must fail for that reason.

VIII THE SECOND AND THIRD QUESTIONS [179] The second and third issues posed by the Walter Canada Group are: If the 1974 Plan's claim against the Walter Canada Group is governed by United States substantive law (including ERISA), then as a matter of U.S. law, does "controlled group" liability for withdrawal liability related to a multiemployer pension plan under ERISA extend extraterritorially? If the 1974 Plan's claim against the Walter Canada Group is governed by U.S. substantive law (including ERISA), and ERISA applies extraterritorially, is that law unenforceable in Canada because it conflicts with Canadian public policy? [180] As I noted above, the Walter Canada Group only needed to succeed on one of the questions raised in this application in order to defeat the 1974 Plan's claim. [181] Accordingly, having found in favour of the Walter Canada Group on the first issue, it is not necessary to decide the other two questions. While they pose interesting issues, I see no need to delay these proceedings further in order to consider and decide those issues. A timely resolution is in the interests of justice and furthers the purposes of the CCAA.

IX CONCLUSION [182] In conclusion, I grant a declaration that, under Canadian conflict of laws rules, the 1974 Plan's claim as against the Walter Canada Group is governed by Canadian substantive law and not U.S. substantive law (including ERISA). [183] Costs are awarded against the 1974 Plan in favour of both the Walter Canada Group and the Union on the usual scale. If any party should wish to seek a different order of costs, such an application must be filed within 30 days of the release of these reasons and the hearing to determine the matter should be set as soon as possible. Failing such application(s) being filed, my costs award shall stand. "Fitzpatrick J."