



COURT OF APPEAL FOR ONTARIO

CITATION: Nortel
    Networks Corporation (Re), 2015 ONCA 681

DATE: 20151013

DOCKET: C59703

Simmons, Gillese and Rouleau JJ.A.

In
    the Matter of the
Companies Creditors Arrangement Act
,

R.S.C. 1985, c. C-36, as
    amended

And in the Matter of a Plan of Compromise or
    Arrangement of Nortel Networks Corporation, Nortel Networks Limited, Nortel
    Networks Global Corporation, Nortel Networks International Corporation and
    Nortel Networks Technology Corporation

Richard B. Swan, S. Richard Orzy and Gavin H. Finlayson,
    for the appellant
Ad Hoc
Group of Bondholders

Andrew Kent and Brett Harrison, for the respondent The
    Bank of New York Mellon

Edmond Lamek, for the respondent Law Debenture Trust
    Company of New York

Benjamin Zarnett and Graham D. Smith, for the Monitor
    and the respondent Canadian Debtors

Kenneth D. Kraft and John J. Salmas, for the respondent Wilmington
    Trust, National Association

Kenneth T. Rosenberg and Ari N. Kaplan, for the respondent
    Canadian Creditors Committee

Tracy Wynne, for the Joint Administrators (EMEA)

Scott A. Bomhof and Adam M. Slavens, for Nortel Networks
    Inc./U.S. Debtors

Heard: April 29, 2015

On appeal from the order of Justice Frank J.C. Newbould of
    the Superior Court of Justice, dated August 19, 2014, with reasons reported at
    2014 ONSC 4777, 121 O.R. (3d) 228.

Rouleau J.A.:

A.

overview

[1]

This appeal represents another chapter in the Nortel proceeding under
    the
Companies Creditors Arrangement Act
, R.S.C. 1985, c. C-36 (
CCAA
),
    which has been on-going since January 2009. A parallel proceeding under Chapter
    11 of the United States
Bankruptcy Code
has also been on-going in
    Delaware since that time.

[2]

The
Ad Hoc
Group of Bondholders (the appellant) brings this
    appeal with leave. The group represents substantial holders of crossover bonds,
    which are unsecured bonds either issued or guaranteed by certain of the Canadian
    Nortel entities. The relevant indentures provide for the continuing accrual of
    interest until payment, at contractually specified interest rates, as well as
    other post-filing payment obligations, such a make-whole provisions and trustee
    fees.

[3]

In contrast, the claims of other claimants, such as Nortel pensioners
    and former employees, do not have a provision for interest on amounts owing to
    them.

[4]

Holders of the crossover bonds have filed claims for principal and
    pre-filing interest in the amount of US$4.092 billion against each of the
    Canadian and U.S. Nortel estates. They also claim they are entitled to
    post-filing interest and related claims under the terms of the crossover bonds.
    As of December 31, 2013, the amount of this claim was approximately US$1.6
    billion. The total of these two amounts represents a significant portion of the
    proceeds generated from the worldwide sale of Nortels business lines and other
    Nortel assets, totalling approximately $7.3 billion. This latter amount is
    apparently not growing at any appreciable rate because of the conservative
    nature of the investments made with it pending the outcome of the insolvency proceedings.

[5]

In the context of a joint allocation trial, the
CCAA
judge
    directed that two issues be argued:

1. whether the holders of the crossover
    bond claims are legally entitled  to claim or receive any amounts under the
    relevant indentures above and beyond the outstanding principal debt and
    pre-petition interest (namely, above and beyond US$4.092 billion); and

2. if it is determined that the crossover
    bondholders are so entitled, what additional amounts are such holders entitled
    to so claim and receive.

[6]

The
CCAA
judge answered the first question in the negative and
    so he did not need to answer the second question. In reaching that conclusion,
    he accepted that the common law interest stops rule, which has been held to
    be a fundamental tenet of insolvency law, applies in the
CCAA
context.
    He disagreed with the appellants submission that the Supreme Court of Canadas
    decision in
Canada 3000 (Re)
;
Inter-Canadian (1991) Inc. (Trustee
    of)
, 2006 SCC 24, [2006] 1 S.C.R. 865, and this courts subsequent
    decision in
Stelco (Re)
, 2007 ONCA 483, 35 C.B.R. (5th) 174, are
    binding authority that the interest stops rule does not apply in the
CCAA
context.

[7]

On appeal, the appellant raises two related issues  whether the
CCAA
judge erred in concluding that an interest stops rule applies in
CCAA
proceedings and, if not, whether he erred in concluding that the holders of
    Crossover Bond Claims are not legally entitled to claim or receive any amounts
    under the relevant indentures above and beyond the outstanding principal debt
    and pre-petition interest.

[8]

I would dismiss the appeal. As I will explain, there are sound legal and
    policy reasons for applying the interest stops rule in the
CCAA
context, and as I read
Stelco
and
Canada 3000,
they do not
    preclude such a result. Nor do I see a basis for varying the order that he
    made.

B.

background

[9]

In the
CCAA
courts initial order of January 14, 2009, the
    Canadian Debtors
[1]
were directed, subject to certain exceptions, to make no payments of principal
    or interest on account of amounts owing by the Canadian Debtors to any of their
    creditors as of the filing date, unless approved by the Monitor. Further, all
    proceedings and enforcement processes, and all rights and remedies of any
    person against the Canadian Debtors were stayed absent consent of the Canadian Debtors
    and the Monitor, or leave of the court.

[10]

In
    accordance with a claims procedure order dated July 30, 2009, claims against
    the Canadian Debtors were required to be filed by a claims bar date. Under a
    subsequent claims resolution order dated September 16, 2010, a disputed claim
    could be brought before the
CCAA
court for final determination.

[11]

As
    previously noted, holders of the crossover bonds filed proofs of claim that
    included not only the principal amount of the debt and interest accrued to the
    date of insolvency but also contractual claims for interest and other amounts
    post-filing.

[12]

In
    May 2014, a joint allocation trial, conducted by way of video-link by the
CCAA
judge in Ontario and Judge Gross in Delaware, commenced on the issue of the
    allocation of the sale proceeds among the debtor estates, including the
    Canadian and U.S. estates. In his 2015 decision, the
CCAA
judge, citing
    the fundamental tenet of insolvency law that all debts shall be paid
pari
    passu
 and that all unsecured creditors receive equal treatment held
    that the $7.3 billion in funds generated from the Nortel liquidation should be
    allocated on a
pro rata
basis as among the estates: 2015 ONSC 2987, 23
    C.B.R. (6th) 249, at para. 209. He ordered, at para. 258, that the funds be
    allocated among the debtor estates in accordance with a number of principles,
    including the principle that each debtor estate is to be allocated that
    percentage of the [liquidation proceeds] that the total allowed claims against
    that Estate bear to the total allowed claims against all Debtor Estates. A
    number of parties have sought leave to appeal that decision.

[13]

It
    was on June 24, 2014, while the joint allocation trial was proceeding, that the
CCAA
judge directed that the two issues set out above be decided.

C.

DECISION BELOW

[14]

The
CCAA
judge began his analysis with a review of cases applying the
    interest stops rule in the bankruptcy and winding-up context. He noted the
    relationship between the interest stops rule and the
pari passu
principle, which he described as a fundamental tenet of insolvency law that requires
    equal treatment of unsecured creditors. He found there was no reason to not apply
    the [common law] interest stops rule to a CCAA proceeding because the CCAA does
    not expressly provide for its application. The issue was whether the rule
    should apply to this CCAA proceeding.

[15]

He
    went on to conclude that [t]here is no controlling authority in Canada in a
    case such as this in which there is a contested claim being made by bondholders
    for post-filing interest against an insolvent estate under the CCAA, let alone
    under a liquidating CCAA process, or in which the other creditors are mainly
    pensioners with no contractual right to post-filing interest. In reaching this
    conclusion, he distinguished
Stelco
and
Canada 3000
and found
    that the application of the interest stops rule was supported by the more
    recent decisions in
Century Services Inc. v. Canada (Attorney General)
,
    2010 SCC 60, [2010] 3 S.C.R. 379, and
Sun Indalex Finance, LLC v. United
    Steelworkers
, 2013 SCC 6, [2013] 1 S.C.R. 271.

[16]

The
CCAA
judge thus ordered that holders of Crossover Bond Claims are not
    legally entitled to claim or receive any amounts under the relevant indentures
    above and beyond the outstanding principal debt and pre-petition interest
    (namely, above and beyond US$4.092 billion).

D.

issues on appeal

[17]

The
    appellant raises two related issues:

1.

Did the
CCAA
judge err in concluding that an interest stops rule applies in
CCAA
proceedings?

2.

If the
CCAA
judge did not err in concluding that an interest stops rule applies in
CCAA
proceedings, did he err in holding that holders of Crossover Bonds Claims are
    not legally entitled to claim or receive any amounts under the relevant
    indentures above and beyond the outstanding principal debt and pre-petition
    interest?

E.

analysis

(1)

Did the
CCAA
judge err in concluding that an interest stops
    rule applies in
CCAA
proceedings?

[18]

The
    appellant, supported by the Bank of New York Mellon and the Law Debenture Trust
    Company of New York as indenture trustees, submits that the
CCAA
judge
    erred in concluding that the interest stops rule applies.

[19]

First,
    the appellant submits he applied inapplicable case law and misinterpreted case
    law in concluding that the rule did and should apply. Among other things, the
    appellant criticizes the
CCAA
judges application of the Supreme Court
    of Canadas decisions in
Century Services
and
Indalex
, which
    deal with the inter-play between the
CCAA
and the
Bankruptcy and
    Insolvency Act
, R.S.C. 1985, c. B-3 (the 
BIA
).

[20]

The
    appellant also submits that the application of the interest stops rule in the
CCAA
context is inconsistent with the
CCAA
and would have negative
    practical consequences.

[21]

Finally,
    the appellant submits that
Canada 3000
and
Stelco
are binding
    authority that preclude the application of the interest stops rule in the
CCAA
context and that the
CCAA
judge violated the principle of
stare
    decisis
in refusing to follow them.

[22]

I
    will deal with these submissions in turn, beginning with a discussion of the
    interest stops rule and the related
pari passu
principle.

(a)

Should the interest stops rule apply in
CCAA
proceedings?

(i)

Origin and scope of the interest stops rule

[23]

It
    is well settled that the
pari passu
principle applies in insolvency
    proceedings. This principle, to the effect that the assets of the insolvent
    debtor are to be distributed amongst classes of creditors rateably and equally,
    as those assets are found at the date of insolvency is said to be one of the
    governing principles of insolvency law in Canada:
Canada (Attorney
    General) v. Confederation Life Insurance Co.
, [2001] O.T.C. 486, at para.
    20 (S.C.),
per
Blair J.
[2]
In fact, the
pari passu
principle has been said to be the foremost
    principle in the law of insolvency not just in Canada but around the world:
    Rizwaan J. Mokal Priority as Pathology: The
Pari Passu
Myth (2001)
    60:3 Cambridge L.J. 581, at p. 581. According to an article in the Cambridge
    Law Journal, [c]ommentators claim to have found [the
pari passu
]
    principle entrenched in jurisdictions far removed  in geography and time: Mokal,
    at pp. 581-582.

[24]

The
pari passu
principle is rooted in the need to treat all creditors
    fairly and to ensure an orderly distribution of assets.

[25]

As
    explained in
In

re Humber Ironworks and Shipbuilding Co.
(1869), L.R. 4 Ch. App. 643, nearly 150 years ago, a necessary corollary of the
pari passu
principle is the interest stops rule. Absent the interest
    stops rule, the fairness and orderly distribution sought by the
pari passu
principle could not be achieved. Selwyn L.J. explained the rationale for the
    interest stops rule, at pp. 645-646:

In the present case we have to consider what are the positions
    of the creditors of the company, when, as here, there are some creditors who
    have a right to receive interest, and others having debts not bearing interest.

.

It is very difficult to conceive a case in which the assets of
    a company could be  immediately realized and divided; but suppose they had a
    simple account at a bank, which could be paid the next day, that would be the
    course of proceeding. Justice, I think, requires that that course of proceeding
    should be followed, and that no person should be prejudiced by the accidental
    delay which, in consequence of the necessary forms and proceedings of the
    Court, actually takes place in realizing the assets; but that, in the case of
    an insolvent estate, all the money being realized as speedily as possible,
    should be applied equally and rateably in payment of the debts as they existed
    at the date of the winding-up. I, therefore, think that nothing should be
    allowed for interest after that date.

[26]

Giffard
    L.J. similarly stated, at p. 647-648:

That rule  works with equality and fairness between the
    parties; and if we are to consider convenience, it is quite clear that, where
    an estate is insolvent, convenience is in favour of stopping all the
    computations at the date of the winding-up.



I may add another reason, that I do not see with what justice
    interest can be computed in favour of creditors whose debts carry interest,
    while creditors whose debts do not carry interest are stayed from recovering
    judgment, and so obtaining a right to interest.

[27]

Thus,
    the primary purpose behind the common law interest stops rule is fairness to
    creditors. Another purpose is to achieve the orderly administration of an
    insolvent debtors estate.

[28]

The
    common law interest stops rule has been consistently applied in proceedings
    under bankruptcy and winding-up legislation. In fact, as explained by Blair J.
    in
Confederation Life Insurance Co.
at paras. 22-23, the rule has been
    applied even when the legislation might be read to the contrary:

This common law principle has been applied consistently in
    Canadian bankruptcy and winding-up proceedings. This is so notwithstanding the
    language of subsection 71(1) of the
Winding-Up Act
and section 121 of
    the
BIA
, which might be read to the contrary, in my view.



Yet, the interest stops principle has always applied to the
    payment of post-insolvency interest, and the provisions of subsection 71(1)
    have never been interpreted to trump the common law insolvency interest stops
    rule.

[29]

I
    will now turn to the question of whether the interest stops rule should be
    applied in the
CCAA
context.

(ii)

Should the interest stops rule apply in
CCAA
proceedings?

[30]

The
    respondents
[3]
maintain that one would expect the interest stops rule to apply in
CCAA
proceedings given that
CCAA
proceedings are insolvency proceedings to
    which the common law
pari passu
principle applies. Consistent with the
pari passu
principle and the related interest stops rule, creditors in
CCAA
proceedings must surely expect to be treated fairly and not see creditors
    with interest entitlements have their claims grow, post-insolvency,
    disproportionately to those with no, or lesser, interest entitlements. In the respondents
    submission, the same reasoning used by courts to conclude that the interest
    stops rule applies in winding-up and bankruptcy proceedings leads to the
    conclusion that the interest stops rule applies in
CCAA
proceedings.

[31]

The
    appellant, on the other hand, submits that
CCAA
proceedings are
    different from other insolvency proceedings in that they do not immediately or
    permanently alter the rights of creditors. The filing is intended to give the
    debtor breathing space so that a plan of compromise or arrangement can be
    negotiated with creditors and the business can continue. The objective of a
CCAA
proceeding is a consensual, statutory compromise in the form of a
CCAA
plan. Such a
CCAA
plan can provide for any kind of distribution,
    provided it is approved by the requisite majority of creditors and the court.

[32]

In
    the appellants submission, until a plan is negotiated or the proceeding is
    converted to bankruptcy or winding-up, the rights of creditors are not altered;
    rather, their rights to execute on them are simply stayed. In the appellants
    view, therefore, unless and until this sought-after compromise of rights is
    negotiated, only the exercise of the rights is stayed. The
CCAA
filing
    does not affect the right to accrue interest; it only stays the collection of
    that interest.

[33]

The
    appellant further argues that the
CCAA
judges decision is contrary to
    the established
CCAA
practice and the reasonable expectations of the
    parties in this proceeding. In particular, the appellant notes that a
CCAA
plan may, and often does, provide for the recovery of post-filing interest. The
    appellant also submits that the application of the interest stops rule would
    allow debtors to obtain a permanent interest holiday simply by filing for
CCAA
protection, even if the filing were later withdrawn, causing a permanent
    prejudice to the creditors not contemplated by the
CCAA
. And, the
    appellant submits that an interest stops rule would create a disincentive for
    creditors to participate in
CCAA
proceedings since they would not be
    compensated for delays under the
CCAA
even if there were ultimately
    assets available to do so

[34]

I
    do not accept the appellants submissions on this point. Admittedly, there are
    differences between the
CCAA
and other insolvency schemes, including
    that the
CCAA
does not provide for a fixed scheme of distribution. Further,
    assuming a plan of compromise or arrangement under the
CCAA
is
    negotiated it may or may not result in a distribution to creditors.
    Nevertheless, in my view, the same principles that underpin the conclusion that
    the interest stops rule is necessary in bankruptcy and winding-up proceedings 
    namely, the fair treatment of creditors and the orderly administration of an
    insolvent debtors estate - apply with equal force to
CCAA
proceedings.
    I say so for several reasons.

[35]

First,
    the
CCAA
is part of an integrated insolvency regime, which also includes
    the
BIA
. The Supreme Court of Canada in
Century Services
considered
    the
CCAA
regime and opined, at para. 24, that [w]ith parallel
CCAA
and
BIA
restructuring schemes now an accepted feature of the
    insolvency landscape, the contemporary thrust of legislative reform has been
    towards harmonizing aspects of insolvency law common to the two statutory
    schemes to the extent possible and encouraging reorganization over liquidation.
    The court went on to explain, at para. 78, that the
CCAA
and
BIA
are related and no gap exists between the two statutes which would allow the
    enforcement of property interests at the conclusion of
CCAA
proceedings that would be lost in bankruptcy.

[36]

Consistent
    with the notion of harmonization, because the common law interest stops rule
    applies upon bankruptcy under the
BIA
, it should follow that the
    common law rule also applies in a
CCAA
proceeding unless, of course,
    the rule is ousted by the
CCAA
. The
CCAA
does not address
    entitlement to claim post-filing interest let alone oust the common law rule
    with clear wording.

[37]

Second,
    if the interest stops rule were not to apply in
CCAA
proceedings, the
    creditors who do not have a contractual right to post-filing interest would, as
    the Supreme Court explained in
Century Services
at para. 47, have skewed
    incentives against reorganizing under the
CCAA
 and this would only
    undermine that statutes remedial objectives and risk inviting the very social
    ills that it was enacted to avert. This concern over skewed incentives was
    confirmed in
Indalex
where the Supreme Court held, at para. 51, that [i]n
    order to avoid a race to liquidation under the
BIA
, courts will favour
    an interpretation of the
CCAA
that affords creditors analogous
    entitlements to those they would receive under the
BIA
.

[38]

Without
    an interest stops rule under the
CCAA
, the creditors with no claim to
    post-filing interest would have an incentive to proceed under the
BIA
or the
Winding-up and Restructuring Act
, R.S.C. 1985, c. W-11, where
    the interest stops rule operates to prevent creditors, such as the appellant, who
    have a contractual right to interest from improving their proportionate claim
    against the debtor at the expense of other creditors.

[39]

Third,
    as recognized by the Supreme Court in
Century Services
at para. 77,
    the 
CCAA
creates conditions for preserving the
status quo
while attempts are made to find common ground amongst stakeholders for a
    reorganization that is fair to all. This is achieved through grouping all
    claims within a single proceeding and staying all actions against the debtor,
    thus putting creditors on an equal footing:
Century Services
, para.
    22.

[40]

As
    submitted by the Canadian Creditors Committee, if post-filing interest is
    available to one set of creditors while the other creditors are prevented from
    asserting their rights to sue the debtor and obtaining a judgment that bears
    interest, the
status quo
has not been preserved.

[41]

Fourth,
    if the interest stops rule were not to apply in
CCAA
proceedings, the key
    objective of that statute  to facilitate the restructuring of corporations
    through flexibility and creativity  may be undermined. This is because of the
    asymmetrical entitlement to interest that would be created. Creditors with an
    entitlement to post-filing interest may be less motivated to compromise than those
    creditors without such an entitlement. Using the case under appeal as an
    example, if post-filing interest is allowed to accrue, the delay and failure to
    reach a compromise will see the appellants proportionate claim against the
    assets of the debtors rise very significantly at the expense of other
    creditors. One could well understand that if the urgency for reaching a
    compromise and the incentive to compromise are significantly lower for one
    group of unsecured creditors than for the balance of the unsecured creditors,
    restructuring will be more difficult to achieve and the ability to reach creative
    solutions will be lessened.

[42]

Furthermore,
    if the amount of an unsecured creditors legal entitlement is constantly
    shifting as post-filing interest accrues, the ability to find a compromise that
    is acceptable to all creditors at any one point in time will pose a greater
    challenge than if the entitlements are fixed as of the date of filing.

[43]

Fifth,
    the principle of fairness supports the application of the interest stops rule.
    Insolvency proceedings are intended to be fair processes for liquidating or restructuring
    insolvent corporations. How, one may ask, is it fair if the appellant, an
    unsecured creditor, sees its claim against the assets of the debtor balloon
    from $4.092 billion to $5.692 billion (as of December 31, 2013) because of
    contractual provisions when the claims of unsecured creditors, who have no such
    contractual provisions and who have been prevented for almost seven years by
    the
CCAA
stay from converting their claims into court judgments that
    would bear interest, have seen no increase at all? Delays in liquidating the Nortel
    assets have helped the Monitor achieve the very significant recoveries made
    ($7.3 billion) and, in fairness, this achievement should be for the benefit of
    all creditors.

[44]

Finally,
    I wish to respond to the appellants concerns.

[45]

As
    to past practice and the reasonable expectations of the parties, I do not view
    the existence of an interest stops rule as being contrary to established
CCAA
practice or as preventing a
CCAA
plan from providing for post-filing
    interest. Parties may negotiate for a plan that provides for payments of more
    or less than a creditors legal entitlement in lieu of the foregone interest. Thus,
    I do not accept the appellants submission that there would be a disincentive
    to participate in
CCAA
proceedings, which is based on the premise that
    post-filing interest may not be recovered under a
CCAA
plan.

[46]

The
    appellant also raised the concern that a debtor company could obtain a
    permanent interest holiday, resulting in unfairness. The appellant says that if
    there are proceeds over and above the amounts needed to satisfy the pre-filing
    claims of creditors, those proceeds would be for the benefit of the
    shareholders of the debtor. This follows from the fact that the
CCAA
contains no provision for the payment of a surplus to creditors and the
    interest stops rule would prevent the unsecured creditors from recovering any post-filing
    interest. The debtor could therefore resort to the
CCAA
to stop
    interest from accruing and operate his business interest free.

[47]

This
    hypothetical raises the same concern about the loss of post-filing interest but
    in a somewhat different way. The concern is that a debtor may seek
CCAA
protection to avoid the obligation to pay interest.

[48]

There
    may well be exceptional situations where, at some point in a
CCAA
proceeding, the common law interest stops rule risks working an unfairness of
    some sort. I leave for another day what orders, if any, might be made by a
CCAA
judge in cases such as the hypothetical presented by the appellant where a
    debtor might be considered to benefit unfairly as a result of the common law
    interest stops rule. I note, however, that in order to achieve the remedial
    purpose of the
CCAA
,
CCAA
courts have been innovative in
    their interpretation of their stay power and in the exercise of their authority
    in the administration of
CCAA
proceedings. This approach has been
    specifically endorsed by the Supreme Court of Canada in
Century Services
and would no doubt guide the court should the need arise: see, for example,
    paras. 61 and 70.

[49]

In
    conclusion, there are sound reasons for adopting an interest stops rule in the
CCAA
context. I now turn to the argument that
Canada 3000
and
Stelco
preclude the application of the rule.

(b)

Are
Canada 3000
and
Stelco
binding authorities to the
    effect that the interest stops rule does not apply in
CCAA
proceedings?

[50]

The
    appellant vigorously maintains that the
CCAA
judge was bound by
Canada
    3000
and
Stelco
, which both confirm that the interest stops rule
    does not apply in
CCAA
proceedings.

[51]

I
    would not give effect to this submission. As I will explain, both of these
    decisions should be read narrowly and do not constitute a precedent with
    respect to the issue raised in this appeal  whether the common law interest
    stops rule applies in
CCAA
proceedings.

(i)

Canada 3000

Background and lower court decisions

[52]

The
    decision in
Canada 3000
arose out of the collapse of three airlines 
    Canada 3000 Airlines Ltd. and Royal Aviation Inc. (collectively Canada 3000),
    and Inter-Canadian (1991) Inc. (Inter-Canadian). Canada 3000 filed for
    protection under the
CCAA
and, three days later, filed for bankruptcy.
    Inter-Canadian filed a
BIA
proposal but the proposal ultimately failed
    and so it too was placed into bankruptcy effective as of the date it filed its
    notice of intention to make a proposal.

[53]

At
    the time the airlines collapsed, they owed significant amounts in unpaid
    airport and navigation charges. As a result, various airport authorities and NAV
    Canada sought remedies under the
Airport Transfer (Miscellaneous Matters)
    Act
, S.C. 1992, c. 5 (
Airports Act
) and the
Civil Air
    Navigation Services Commercialization Act
, S.C. 1996, c. 20 (
CANSCA
).
    In particular, they sought orders seizing and detaining aircraft leased by the
    bankrupt airlines. While the lessors of the planes retained legal title to the
    aircraft, the bankrupt airlines were the registered owner for the purposes of
    the
Aeronautics Act
, R.S.C. 1985, c. A-2.

[54]

The
    airport authorities and NAV Canada brought proceedings in Ontario and Quebec.

[55]

In
    Ontario, Ground J. dismissed motions for orders permitting the airport
    authorities and NAV Canada to seize and detain the aircraft leased by Canada
    3000:
Canada 3000 (Re)
(2002), 33 C.B.R. (4th) 184 (S.C.). On the
    question of interest, he concluded, at para. 73, that the airport authorities
    and NAV Canada were entitled to charge interest on the unpaid charges up to the
    date of payment or the posting of security for payment.

[56]

On
    appeal from Ground J.s decision, this court held that the interest question
    need not be determined since the airport authorities and NAV Canada did not
    have the right to detain the aircraft:
Canada 3000 (Re)
(2004), 69
    O.R. (3d) 1, at para. 197.

Supreme Courts decision

[57]

On
    appeal to the Supreme Court of Canada, the court determined that the airport
    authorities and NAV Canada had the right to detain the aircraft leased and
    operated by the bankrupt airlines. The issue of post-filing interest was,
    therefore, an issue the court had to decide.

[58]

In
    deciding that issue, Binnie J. made the following comment at para. 96:

While a CCAA filing does not stop the
    accrual of interest
, the unpaid charges remain an unsecured claim
    provable against the bankrupt airline. The claim does not accrue interest after
    the bankruptcy: ss. 121 and 122 of the [
BIA
]. [Emphasis added.]

[59]

The
    appellant submits that the underlined words are binding
ratio
and must
    be followed in this case.

[60]

While
    I agree that Binnie J.s comment about the
CCAA
is not
obiter
,
    I am not convinced that it should be read as broadly as the appellant contends.
    In
R. v. Henry
, 2005 SCC 76, [2005] 3 S.C.R. 609, Binnie J. warned, at
    para. 57, against reading each phrase in a judgment  as if enacted in a
    statute. Rather, the question to be asked is what did the case decide?.

[61]

To
    answer what
Canada 3000
decided about post-filing interest under the
CCAA
,
    it is important to consider the context in which Binnie J. made his comment,
    including the facts of the case, the issues before the court, the structure of
    his reasons, the wording he used, and what he said as well as what he did not
    say.

[62]

At
    para. 40., Binnie J. defined the two major questions raised by the appeals as
    follows: (1) are the
legal titleholders
liable for the debt incurred
    by the registered owners and operators of the failed airlines to the service
    providers? and (2) even if they are not so liable, are
the aircraft
to which they hold title subject on the facts of this case to judicially issued
    seizure and detention orders to answer for the unpaid user charges incurred by
    Canada 3000 and Inter-Canadian? (emphasis in original). The answer to those
    two questions turned on the interpretation of the
Airports Act
and
CANSCA
.
    As Binnie J. noted at para. 36, the case was from first to last an exercise in
    statutory interpretation.

[63]

After
    engaging in a lengthy exercise of statutory interpretation, he concluded that:
    (1) under s. 55 of
CANSCA
, the legal titleholders were not jointly and
    severally liable for the charges due to NAV Canada; and (2) under s. 56 of
CANSCA
and s. 9 of the
Airports Act
, the airport authorities and NAV Canada
    were entitled to apply for an order detaining the aircraft operated by the
    failed airlines.

[64]

Binnie
    J. then addressed eight additional arguments made by the parties and just
    before his last paragraph on disposition, he included a section simply entitled
    Interest, starting at para. 93.

[65]

He
    began his analysis of the interest issue by outlining the statutory authority
    for charging interest: s. 9(1) of the
Airports Act
expressly provided
    for the payment of interest, and while
CANSCA
did not explicitly
    provide for interest, a regulation under
CANSCA
imposed interest:
    para. 93.

[66]

The
    question then, said Binnie J. at para. 95, was how long the interest can
    run. He addressed that question as follows, at paras. 95-96:

The airport authorities and NAV Canada have possession of the
    aircraft until the charge or amount in respect of which the seizure was made is
    paid. It seems to me that this debt must be understood in real terms and must
    include the time value of money.

Given the authority to charge interest, my view is that
    interest continues to run to the first of the date of payment, the posting of
    security or bankruptcy. If interest were to stop accruing before payment has
    been made, then the airport authorities and NAV Canada would not recover the
    full amount owed to them in real terms. Once the owner, operator or titleholder
    has provided security, the interest stops accruing. The legal titleholder is
    then incurring the cost of the security and losing the time value of money. It
    should not have to pay twice.
While a CCAA filing does
    not stop the accrual of interest
, the unpaid charges remain an unsecured
    claim provable against the bankrupt airline. The claim does not accrue interest
    after the bankruptcy: ss. 121 and 122 of the [
BIA
]. [Emphasis added.]

[67]

Significantly,
    Binnie J. made no mention in his reasons of the common law interest stops rule
    or the related
pari passu
principle. Nor did he cite any case law
    dealing with those issues. In fact, even though it is well established that the
    interest stops rules applies under the
BIA
, he did not rely on the
    common law rule in support of his finding that interest stopped on bankruptcy.
    Instead, he relied on ss. 121 and 122 of the
BIA
in concluding that
    the interest payable under the
Airports Act
and the regulation under
CANSCA
did not accrue post-bankruptcy.

[68]

Binnie
    J.s analysis of the issue is rooted in the factual and statutory context of
    the case. In discussing the accrual of interest under the
CCAA
, he
    specified that the interest was on unpaid charges, namely charges under
CANSCA
and the
Airports Act
. Binnie J. was not answering an abstract legal
    question but rather deciding how long interest ran in the particular factual
    and statutory context.

[69]

In
    effect, I read Binnie J. as saying that a
CCAA
filing does not stop
    the accrual of interest under
CANSCA
or the
Airports Act
but
    the statutory provisions of the
BIA
ss. 121 and 122 do. He was not
    deciding whether, in the absence of the right to interest under
CANSCA
and the
Airports Act
, interest would have accrued or been stopped by
    the common law interest stops rule.

[70]

Let
    me add that I agree with the
CCAA
judges comment that Binnie J.s
    statement in
Canada 3000
should now be construed in light of
Century
    Services
and
Indalex
. In fact, one can well imagine that the courts
    interpretation of
CANSCA
and the
Airports Act
as allowing the
    accrual of interest in a
CCAA
proceeding but not in a
BIA
proceeding might have been different had it reached the Supreme Court after
    these two more recent cases. That question, however, is for another day. For
    now, I turn to this courts decision in
Stelco
.

(ii)

Stelco

Background and motion judges decision

[71]

The
    post-filing interest issue in
Stelco
arose in the final chapter of
    the financial restructuring of Stelco under the
CCAA
:
Stelco (Re)
(2006), 24 C.B.R. (5th) 59, at para. 1 (S.C.). The final chapter involved
    competing claims to a portion of the amount payable to the holders of
    subordinated notes (the Junior Noteholders) pursuant to Stelcos plan of
    arrangement (the Plan). The claim to these funds (Turnover Proceeds) was
    made by the Senior Debentureholders.

[72]

The
    dispute over the Turnover Proceeds arose after Stelcos Plan had been
    sanctioned and Stelco had emerged from restructuring with its debt reorganized.
    The Senior Debentureholders claimed the Turnover Proceeds on the basis of
    subordination provisions contained in the Note Indenture under which Stelco had
    issued convertible unsecured subordinated debentures to the Junior Noteholders.

[73]

Under
    the terms of the Note Indenture, the Junior Noteholders expressly agreed that,
    in the event that the debtor became insolvent, they would subordinate their
    right of repayment until after repayment in full of Senior Debt.

[74]

The
    plan of arrangement that had been approved was a no interest plan, meaning
    that distribution from Stelco to the creditors did not include or account for
    post-filing interest. The Plan, however, provided that the rights as between
    the Senior Debentureholders and the Junior Noteholders were preserved. The Senior
    Debentureholders, who had not received payment of post-filing interest from
    Stelco under the Plan, demanded payment of it from the Junior Noteholders
    pursuant to the terms of the Note Indenture. The Junior Noteholders argued,
    among other things, that the subordination provisions did not survive the Plans
    implementation and that the Senior Debentureholders were not entitled to claim
    post-filing interest from them.

[75]

The
    motion judge, and on appeal, this court ruled in favour of the Senior Debentureholders.
    The courts found that the Plan was expressly drafted to preserve the
    subordination provisions and that the
CCAA
does not purport to affect
    rights as between creditors to the extent that they do not directly involve the
    debtor.

How to read
Stelco
?

[76]

The
    appellant and the respondents offer different readings of
Stelco
.

[77]

The
    appellant argues that this courts decision is binding authority for the
    proposition that the interest stops rule does not apply in the
CCAA
context. The passages relied on by the appellant include para. 67:

[T]here is no persuasive authority that supports an Interest
    Stops Rule in a
CCAA
proceeding. Indeed, the suggested rule is
    inconsistent with the comment of Justice Binnie in [
Canada 3000
]

at
    para. 96, where he said:

While a
CCAA
filing does not stop the accrual of
    interest, the unpaid charges remain an unsecured claim provable against the
    bankrupt airline. The claim does not accrue interest after the bankruptcy: ss.
    121 and 122 of the [
BIA
].

[78]

The
    respondents, for their part, read the case more narrowly as a resolution of an
    inter-creditor dispute. They submit that the
ratio
of the case is that
    there was no rule that prohibited giving effect to the agreed upon inter-creditor
    postponement. To the extent that this court discussed the interest stops rule
    in the abstract, its comments are
obiter
.

[79]

I
    agree with the respondents. In my view, the court in
Stelco
did not
    need to decide whether the interest stops rule applies in
CCAA
proceedings for it to decide the inter-creditor dispute before the court and so
    its statements about the rules application are not binding.

[80]

This
    court expressly noted, at para. 44, that it was dealing with an inter-creditor
    dispute. The Junior Noteholders had accepted the subordination terms in the
    Note Indenture. They had agreed not to be paid anything, in the event of
    insolvency, until those who held Senior Debt were paid principal and interest
    in full. The court affirmed, at para. 44, that the
CCAA
does not
    change the relationship among creditors where it does not directly involve the
    debtor.

[81]

As
    noted, this was a no interest plan, meaning that the Senior Debentureholders
    received no post-filing interest from Stelco. Rather, they sought and
    eventually received payment of post-filing interest from the Junior
    Noteholders share of the proceeds. The court found that the Stelco Plan
    contemplated the continued accrual of interest to Senior Debentureholders for
    the purpose of their rights as against the Junior Noteholders after the
CCAA
filing date: paras. 59 and 70. It noted that
CCAA
plans can and 
    sometimes do provide for payments in excess of claims filed in
CCAA
proceedings. There was no rule precluding the payment of post-filing interest
    to the Senior Debentureholders in accordance with the Stelco Plan: para. 70.

[82]

The
    courts conclusion that the Junior Noteholders could not rely on the interest
    stops rule is consistent with the traditional interest stops rule. The interest
    stops rule relates to claims by creditors against the debtor. It does not deal
    with arrangements as between creditors. In other words, whether or not the
    interest stops rule applies in
CCAA
proceedings did not need to be
    decided because the agreement between creditors fell outside the scope of that
    rule.

[83]

The
    appellant makes two further submissions based on its interpretation of s.
    6.2(1) of the Note Indenture. That paragraph reads as follows:

6.2     Distribution on Insolvency or
    Winding-up.



(1) the holders of all Senior Debt will first be entitled to
    receive payment in full of the principal thereof, premium (or any other amount
    payable under such Senior Debt), if any, and interest
due
    thereon
, before the Debentureholders will be entitled to receive any
    payment or distribution of any kind or character, whether in cash, property or
    securities,
which may be payable or deliverable in any
    such event in respect of any of the Debentures
; [Emphasis added.]

[84]

The
    first argument is that the Senior Debentureholders were only entitled to
    receive principal, premium and interest which may be payable or deliverable in
    any such event, the event being insolvency or bankruptcy proceedings. Therefore,
    the court must have concluded, at least implicitly, that the Senior
    Debentureholders would have been entitled to maintain their claim for
    post-filing interest against Stelco.

[85]

The
    second argument is that, by the terms of s. 6.2(1), the Senior Debentureholders
    were only entitled to interest due thereon and so they could not claim
    post-filing interest from the Junior Noteholders unless they could claim
    post-filing interest from Stelco.

[86]

I
    would not give effect to either submission.

[87]

In
Stelco
, the court did not address either argument and we do not have a
    copy of the entire agreement nor do we have the other agreements that form part
    of the factual matrix. Without that context, this court is not in the position
    to interpret s. 6.2(1).

[88]

In
    my view, the key question for this court is not how to properly interpret s. 6.2(1)
    but, rather, how we should read the reasons in
Stelco
. What did the
Stelco
court decide, and specifically, should we read the panel as implicitly deciding
    that the Senior Debentureholders could not recover post-filing interest from
    the Junior Noteholders unless they could claim post-filing interest against
    Stelco?

[89]

In discussing post-filing interest, the courts only mention of
    the Senior Debentureholders claim as against Stelco is found at paras. 57-59,
    where the panel expressly rejected the argument that 
any
    claim the Senior [Debentureholders] have for interest must be based on a
    claim [as defined in the Plan] they have against Stelco for such interest
    and that [i]f the Senior Debt does not include post-filing interest, there can
    be no claim against the [Junior] Noteholders for such amounts: see paras. 58-59.

[90]

Admittedly, the panel made this comment in
    discussing the effect of the Stelco Plan as opposed to the effect of the
    interest stops rule. However, as I read the section on post-filing interest as a
    whole, the court is saying that the Junior Noteholders agreed to be bound by
    the deal they made. They had agreed to the subordination provisions that
    guaranteed full payment to the Senior Debentureholders in the event of
    insolvency, and the Plan affirmed that the Senior Noteholders could claim the
    full amount that would have been owing had there been no
CCAA
filing. In this courts words at para. 70, there is no interest
    stops rule that precludes such a result. In my view, therefore, this court did
    not make an implicit finding that the Senior Debentureholders had to be able to
    claim post-filing interest from Stelco in order to claim post-filing interest
    from the Junior Noteholders.

[91]

In conclusion, I consider the comment that there
    is no persuasive authority that supports an interest stops rule in
CCAA
proceedings to be
obiter
.
Stelco
dealt with the effect of an agreement as between creditors as to
    how, between them, they would share distributions. Whether or not interest
    stops upon a
CCAA
filing was of no import in
    answering that question.

(2)

If the
CCAA
judge did not err in concluding that an interest
    stops rule applies in
CCAA
proceedings, did he err in holding that
    holders of Crossover Bonds Claims are not legally entitled to claim or receive
    any amounts under the relevant indentures above and beyond the outstanding
    principal debt and pre-petition interest?

[92]

The appellant objects to the wording of the
CCAA
judges order.
It provides that holders of Crossover Bond
    Claims are not legally entitled to claim
or receive
any amounts under
    the relevant indentures above and beyond the outstanding principal debt and
    pre-petition interest (emphasis added). While the appellant asked the
CCAA
judge to amend his order to delete or receive, he refused. The appellant
    submits that, to the extent this precludes the bondholders from receiving
    post-filing interest under a
CCAA
plan, the
CCAA
judge erred.
    The appellant notes that all the parties in this proceeding agree that a
CCAA
plan may provide for post-filing interest.

[93]

As
    I explained above, the interest stops rule does not preclude the payment of
    post-filing interest under a plan of compromise or arrangement.

[94]

As
    I read the
CCAA
judges reasons and order, he did not decide
    otherwise. His decision confirms that the common law interest stops rule
    applies in
CCAA
proceedings. If a plan of compromise or arrangement is
    concluded, it should not, for example, be read as limiting any right to recover
    post-filing interest creditors may have as amongst themselves, as existed in
Stelco,
or from non-parties. Nor does it dictate what any creditor may seek in
    bargaining for a fair plan of compromise or arrangement. In that regard, I do
    not interpret the
CCAA
judges use of the words or receive as
    preventing the appellant from seeking and obtaining such a result in a
    negotiated plan. In particular, I note the
CCAA
judges comment at
    para. 35 of his reasons that the parties would of course be free to include
    post-filing interest payments in a plan of arrangement, as is sometimes done.

[95]

The
    appellant also seeks clarification as to the effect of the words 
any
    amounts
under the relevant indentures above and beyond the outstanding principal
    debt and pre-petition interest (emphasis added). The appellant notes that,
    without clarification, the wording of the order could potentially preclude the
    recovery of other contractual entitlements under the relevant indentures, such
    as costs and make-whole provisions, even though no arguments were advanced
    before the
CCAA
judge with respect to any amounts other than
    post-filing interest.

[96]

The
    issue the
CCAA
judge was directed to answer was whether the holders
    of the crossover bond claims  [were] legally entitled  to claim or receive any
    amounts under the relevant indentures above and beyond the outstanding principal
    debt and pre-petition interest. As indicated in the appellants factum, the
    only arguments advanced before the
CCAA
judge related to post-filing
    interest and not any other amounts under the indentures. The appellant does not
    appear to have made submissions to the
CCAA
judge with respect to the
    costs and make-whole fees it now raises in its factum. This court is in no
    position to deal with the new argument raised by the appellant. Further, beyond
    making the broad submission noted above, the appellant did not expand on that
    submission and direct the court to the specific claims or indenture provisions
    it relies on in support of its argument or explain why the claims should not be
    caught by the order.

[97]

As
    I have already indicated, the
CCAA
judges order confirms that the
    interest stops rule, and the limits imposed by the rule, apply in
CCAA
proceedings.
    To the extent that the appellant maintains that there are other contractual
    entitlements under the relevant indentures not covered by the interest stops
    rule, it is up to the
CCAA
court to decide if those can now be raised
    and ruled upon.

F.

FINAL COMMENTS

[98]

I
    acknowledge that the Nortel
CCAA
proceedings are exceptional, particularly
    with respect to the length of the delay. The amount the appellant claims for
    post-filing interest and related claims under the indentures, and the resulting
    impact on other unsecured creditors is so great because of the length of that
    process. The principle, however, is the same whether the
CCAA
process
    is short or long. After the imposition of a stay in
CCAA
proceedings,
    allowing one group of unsecured creditors to accumulate post-filing interest,
    even for a relatively short period of time, would constitute unfair treatment vis-à-vis
    other unsecured creditors whose right to convert their claim into an
    interest-bearing judgment is stayed.

[99]

This
    decision does not purport to change or limit the powers of
CCAA
judges.
    Although the decision clearly settles at the outset of a
CCAA
proceeding whether there is a legal entitlement to post-filing interest, it
    does not dictate how the proceeding will progress thereafter until a plan of compromise
    or arrangement is approved, or the
CCAA
proceeding is otherwise
    brought to an end.

[100]

The
    determination of legal entitlement is important as it clearly establishes the
    starting point in a
CCAA
proceeding. It tells creditors, debtors and
    the court what legal claim a particular creditor has. Its significance is not
    only for purposes of setting the voting rights of creditors on any proposed
    plan of compromise or arrangement, it also ensures that, in assessing any such
    proposed plan, the parties will know what they are or are not compromising and
    the court will be equipped to consider the fairness of such a plan.

G.

DISPOSITION

[101]

For these
    reasons, I would dismiss the appeal. Pursuant to the agreement of the parties,
    I would award the respondent Monitor, as successful party, costs as against the
    appellant fixed in the amount of $40,000, inclusive of disbursements and
    applicable taxes. I would make no other order as to costs.

Released: October 13, 2015

(EEG)

Paul
    Rouleau J.A.

I
    agree Janet Simmons J.A.

I
    agree E.E. Gillese J.A.





[1]
There are five Canadian Debtors: Nortel Networks Corporation, Nortel Networks
    Limited, Nortel Networks Technology Corporation, Nortel Networks International
    Corporation and Nortel Networks Global Corporation.



[2]
As explained in Roderick J. Woods text on bankruptcy and insolvency law,
    insolvency law is the wider concept, encompassing bankruptcy law but also
    including non-bankruptcy insolvency systems.: Roderick J. Wood,
Bankruptcy
    & Insolvency Law
(Toronto: Irwin Law Inc., 2009), at p. 1.



[3]
The respondents are the Monitor, the Canadian Debtors, the Canadian Creditors
    Committee and the Wilmington Trust, National Association. While technically The
    Bank of New York Mellon and the Law Debenture Trust Company of New York are
    also respondents, they support the appellants position and so my use of the
    term respondents excludes them.


