



COURT OF APPEAL FOR ONTARIO

CITATION: Laurentian University of Sudbury
(Re), 2021 ONCA 448

DATE:  20210623

DOCKET: M52471

Hoy, Pepall and Zarnett 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 Laurentian University of Sudbury



Andrew J. Hatnay, Demetrios Yiokaris, and
Sydney Edmonds, for the moving party, Thorneloe University

D.J. Miller, Scott McGrath and Derek
Harland, for the responding party, Laurentian University of Sudbury

Vern W. DaRe, for the responding party,
Firm Capital Mortgage Fund Inc.

Heard: in writing

Motion for leave to appeal from the order
of Chief Justice Geoffrey B. Morawetz of the Superior Court of Justice, dated May
2, 2021, with reasons reported at 2021 ONSC 3272 and 2021 ONSC 3545.

REASONS FOR DECISION

[1]

Laurentian University of Sudbury (Laurentian) is a publicly funded,
bilingual and tricultural post-secondary institution, serving domestic and
international undergraduate and graduate students.

[2]

On February 1, 2021, it sought and obtained protection under the
Companies Creditors Arrangement Act
, R.S.C. 1985, c. C-36
(CCAA), to permit it to restructure, financially and operationally, in order
to emerge as a sustainable university for the benefit of all stakeholders.

[3]

When it sought CCAA protection, Laurentian, with the assistance of the
Monitor, identified a number of areas in which a financial restructuring was
required. These included a downsizing of the number of programs being

offered by Laurentian, and new, sustainable collective
agreements with the association and the union representing Laurentian faculty
and staff. Laurentian also identified, at the outset of the CCAA proceeding,
that it would be necessary to have a fundamental readjustment or realignment of
its arrangements with the three Federated Universities:
Thorneloe
University (Thorneloe), Huntington University (Huntington) and University
of Sudbury (USudbury).

[4]

A court-ordered mediation facilitated Laurentian reaching
agreements with parties to the collective agreements; however, Laurentian was
not successful in reaching what it considered to be the required readjustments
with the Federated Universities.

[5]

On April 1, 2021, Laurentian sent notices of disclaimer
of the agreements later described in these reasons to the Federated Universities.
The Monitor approved the disclaimer notices.

[6]

Thorneloe brought a motion pursuant to s. 32(2) of the
CCAA challenging its disclaimer notice. (USudbury brought a similar motion,
which was heard by a different judge.) Thorneloe and USudbury also brought a
joint cross-motion, seeking an order to amend the Loan Amendment Agreement
dated April 20, 2021 (DIP Amendment Agreement) by deleting the
condition that further financing and the extension of the DIP loan maturity
date was conditional on disclaimer of agreements with the Federated
Universities.

[7]

The CCAA judge dismissed Thorneloes motion and the
cross-motion. Thorneloe now seeks leave to appeal both decisions. At the heart
of its submissions is its contention that allowing the disclaimer will result
in Thorneloes insolvency and yet provide only
de minimis
financial
benefit to Laurentian, and that the motive for the disclaimer is the elimination
of competition, which is inconsistent with the duty to act in good faith.

[8]

Thorneloe also seeks leave to admit fresh evidence
consisting of an affidavit of its President. No opposition was taken by the responding
parties to the fresh evidence and, in the circumstances, leave to admit the
fresh evidence is granted.

[9]

For the reasons that follow, we dismiss Thorneloes
leave motion.

A.

BACKGROUND

Relationship between Laurentian and
Federated Universities

[10]

In 1960, Thorneloe, Huntington and USudbury were established by the
Anglican, United and Roman Catholic churches, respectively. As religiously affiliated
institutions, they were not eligible for government funding.

[11]

The Province of Ontario passed
An Act to Incorporate Laurentian
University of Sudbury
, S.O. 1960, c. 151, and Laurentian was established.

[12]

In September 1960, Laurentian entered into Federation Agreements
with Huntington and USudbury. Two years later, Thorneloe also entered into a federation
agreement with Laurentian (1962 Federation Agreement).

[13]

In its Third Report, dated April 26, 2021, the Monitor described the
relationship that existed between the Federated Universities and Laurentian
prior to the disclaimers:

The Federated Universities do not admit or
register their own students, nor do they grant their own degrees (with the
exception of Theology at Huntington and Thorneloe). All Federated University
programs and courses are offered through [Laurentian], and all students apply to
[Laurentian]. Students who enroll in a program at [Laurentian] may take
elective courses at any or all of the three Federated Universities as well as [Laurentian],
which are all physically located on [Laurentians] campus. Students enrolled in
programs, courses, majors and minors that are administered by the Federated
Universities are students of [Laurentian] and these courses are credited
towards a degree from [Laurentian], which has the sole authority to confer
degrees upon students (with the exception of Theology at Huntington and
Thorneloe).



[A]s all students are students of [Laurentian]
regardless of whether they are enrolled in programs or take courses at one of
the Federated Universities, the Federated Universities do not directly bill or
collect tuition.

[14]

The Monitors Third Report also described the financial arrangements
between Laurentian and the Federated Universities under Financial Distribution
Notices sent by Laurentian to each of the Federated Universities in May 2019, amending
the Proposed Grant Distribution and Service Fees agreement between Laurentian, USudbury,
Thorneloe, and Huntington, dated November 10, 1993:

[Laurentian] and the Federated Universities
have certain financial agreements in place pursuant to which [Laurentian]
receives, allocates and distributes a portion of [Laurentians] revenue to the
Federated Universities in accordance with a funding formula (the 
Federated Funding Formula
).
Through this Federated Funding Formula, [Laurentian] compensates the Federated
Universities for delivering programs and services to [Laurentian] students. The
key terms of the Federated Funding Formula include the following:

a. A portion of provincial grants received by [Laurentian]
are distributed to the Federated Universities based on the proportion of
students enrolled in the Federated Universities programs;

b. A portion of tuition fees received by [Laurentian]
are distributed to the Federated Universities based upon student enrolment in
courses offered through the Federated Universities; and

c. An offsetting charge for service fees
charged by [Laurentian] to the Federated Universities in exchange for [Laurentian]
providing certain support services to the Federated Universities (calculated as
15% of grant and tuition revenues distributed to the Federated Universities).
[Bold in original.]

CCAA Proceeding

[15]

Under the Amended and Restated Initial Order dated February 11, 2021,
the CCAA judge approved a debtor-in-possession (DIP) interim financing
agreement in the principal amount of $25 million.

[16]

After the commencement of the CCAA proceeding, Laurentian participated
in a mediation with some stakeholders. As a result of mediation, Laurentian entered
into term sheets for new agreements with both the Laurentian University Faculty
Association and the Laurentian University Staff Union, which have been approved
by the CCAA judge. The new agreements are expected to generate an estimated
annual savings of approximately $30.3 million, growing to $33.5 million over
the next few years.

[17]

Laurentian delivered disclaimer notices to each of the Federated
Universities on April 1, 2021. The notices disclaim the Federation Agreements
and Financial Distribution Notices with each of the Federated Universities.

[18]

Huntington
accepted its disclaimer and entered into the Huntington Transition Agreement
with Laurentian. Among other things, it was agreed that Huntington would no
longer deliver courses or programs as credit toward Laurentian degrees and
Laurentian would no longer transfer funding to Huntington. The Huntington
Transition Agreement contained a most favoured nation clause, whereby if
Thorneloe or USudbury are permitted to continue to receive funding from
Laurentian to teach courses or programs, Huntington will be similarly entitled.

[19]

USudbury
announced on March 12, 2021 that it would change to a francophone-only
university. USudburys motion to oppose its disclaimer was dismissed by Gilmore
J.: see
Laurentian University of Sudbury v. University of
Sudbury
, 2021 ONSC 3392. USudbury is not seeking leave to appeal
that decision.

[20]

On
April 20, 2021, Laurentian and the DIP Lender, Firm Capital Mortgage Fund Inc.,
entered into a DIP Loan Amendment Agreement,
which made the
advance of an additional $10 million in DIP financing to Laurentian and the
extension of the DIP loan maturity date subject to several conditions, including
the following:

The Disclaimers of the Borrowers Federation
Agreements and Financial Distribution Notices with each of Huntington
University, Thorneloe University and the University of Sudbury (collectively,
the Federated Universities) issued on April 1, 2021 shall become effective,
binding and final on May 1, 2021.

[21]

On April 21, 2021, the CCAA judge directed that [i]f Thorneloe or
USudbury have questions in respect of the DIP Loan, they can be directed to the
Monitor: 2021 ONSC 2983, at para. 5.

[22]

In its Third Report, the Monitor stated that the notices of
disclaimer would enhance the prospects of a viable compromise and that, without
them, Laurentian was unlikely to be able to complete a viable plan.

Decision Below

[23]

Thorneloe applied for an order that the 1962 Federation Agreement,
and the 2019 Financial Distribution Notice between Laurentian and Thorneloe, not
be disclaimed.

[24]

Under s. 32(1), the debtor company may, on notice to the other
parties to an agreement and the monitor, disclaim an agreement to which the
company is a party on the day on which CCAA proceedings commence. The monitor
must approve the proposed disclaimer (otherwise, the debtor is required to make
an application to the court for an order that the agreement be disclaimed). The
counterparty has 15 days after notice is given under s. 32(1) to make an
application to the court for an order that the agreement not be disclaimed. Section
32(4) describes the factors to be considered by the court in deciding whether
to make the order:

(4)
In deciding whether to make the order, the court is to
consider, among other things,

(a)
whether the monitor approved the proposed disclaimer or
resiliation;

(b)
whether the disclaimer or resiliation would enhance the
prospects of a viable compromise or arrangement being made in respect of the
company; and

(c)
whether the disclaimer or resiliation would likely cause
significant financial hardship to a party to the agreement.

[25]

The CCAA judge noted that s. 32(4) requires a balancing of
interests. In his words, the courts discretion is exercised by weighing the
competing interests and prejudice to the parties and assessing whether the
disclaimer  is fair and reasonable. After engaging in that balancing
exercise, he concluded that the better choice, or, to put it another way, the
least undesirable choice, was to uphold the notice of disclaimer.

[26]

In reaching that conclusion, he considered, among other things, the three
itemized s. 32(4) factors. He took into account the fact the Monitor approved the
disclaimer and that the Monitors reasons for approving the disclaimer reflect[ed]
a proper balancing of the competing interests of Laurentian and all
stakeholders, including Thorneloe. Among other things, the Monitor noted in
its Third Report that Laurentian has limited opportunities to increase its
revenues and that even though some net savings have been achieved that are
significant and address Laurentians operational deficit, they are unlikely to
be sufficient to cover other items, including the repayment of the DIP Facility
and the payment of distributions to creditors pursuant to a plan of compromise
or arrangement. The Monitor concluded that the additional savings to Laurentian
that would result from the disclaimers were required for (Laurentian) to have
a reasonable opportunity to put forward a viable plan of compromise or
arrangement and effect a successful restructuring, and that despite the hardship
to the Federated Universities that it would cause, the disclaimers were
necessary.

[27]

The CCAA judge noted that Laurentian had identified that if the
disclaimers involving Thorneloe and USudbury were upheld, together with the
Huntington Transition Agreement, it would result in $7.7 million of additional
funds remaining with Laurentian on an annual basis. That represented a real
source of annual financial relief for Laurentian. He addressed Thorneloes
argument that its relationship with Laurentian has only a minor financial
impact on Laurentian:

Thorneloe counters by indicating that it is only one of three
Federated Universities; the $7.7 million figure cannot be attributed, in total,
to Thorneloe. At first glance, this is an attractive and persuasive argument.
It does not, however, take into account that Huntington, in negotiating its
settlement with Laurentian, has included what is known colloquially as a
"most favoured nation" clause. Quite simply, if Thorneloe is able to
negotiate a better alternative than the agreement negotiated by Huntington,
Huntington is in a position to reopen negotiations with Laurentian to obtain
similar treatment. Therefore, it seems to me that although there are three Federated
Universities involved, their positions are interlinked and interrelated to such
a degree that the $7.7 million calculation is relevant to take into account on
this motion.

The Notices of Disclaimer are, in my view,
central to the Applicant's restructuring. The Disclaimer will result in
millions of dollars of additional tuition and grant revenue remaining within
Laurentian. As noted in both the affidavit of Dr. Haché and the Monitor's
Report, each time a Laurentian student takes an elective course offered through
Thorneloe, revenue associated with that course is transferred from Laurentian
to Thorneloe. Because the Applicant has the capacity to independently offer
students the vast majority of all necessary programs and electives within its
existing cost structure, each course taken by a Laurentian student through
Thorneloe represents lost revenue for Laurentian.

[28]

The CCAA judge also took into account the position of the DIP Lender,
which Thorneloe challenged on a number of grounds. In his view, there was no
basis to question the legitimacy of the DIP Lender or the conditions it put
forward. The DIP Lender was entitled to take into account commercial reality in
assessing its options. The DIP Lender was approved in February 2021, after a
competitive process, with no party objecting and no appeals being filed.

[29]

As for Thorneloes objection to the reluctance of the DIP Lender to
be cross-examined (which Thorneloe renews before this court), he noted that no
affidavit had been filed by a representative of the DIP Lender and that there
was no evidence that the DIP Lender had any ulterior motive in negotiating the
condition to extend additional financing and extend the term.
[1]


[30]

The CCAA judge rejected Thorneloes argument that Laurentian acted
in bad faith, contrary to s. 18.6 of the CCAA.

[31]

The CCAA judge found that the disclaimer would enhance the prospects
of a viable restructuring and also noted the significant compromise and
hardship experienced by other stakeholders.

[32]

Lastly, he considered the third itemized factor (whether the
disclaimer would likely cause significant financial hardship to a party to the
agreement). He recognized the significant financial impact of the disclaimer on
Thorneloe, acknowledging that it could lead to the cessation of its operations.
However, if the disclaimer was not effective, it could lead to an unraveling of
Laurentians restructuring and the collapse of Laurentian, which would have a
significant impact on all faculty, students, the greater community and
Thorneloe. In other words, it could lead to the collapse of not just Laurentian
but of Thorneloe as well. At the end of the day, the least undesirable choice
was to uphold the notice of disclaimer.

[33]

In
separate reasons, he also concluded that the criteria for approving the DIP
Amendment Agreement were met. In reaching that conclusion, he adopted his earlier
reasons for rejecting Thorneloes arguments relating to the DIP financing.

B.

ANALYSIS

Leave Test

[34]

Section
13 of the CCAA provides that any person dissatisfied with an order or a
decision made under the CCAA may appeal from the order or decision with leave.
Leave to appeal in CCAA proceedings is to be granted sparingly
and
only where there are serious and arguable grounds that are of real and
significant interest to the parties.
As this court recently
explained in
Laurentian University of Sudbury (Re)
, 2021 ONCA 199, at
paras. 20-22, this cautious approach is a function of several factors:

First, a high degree of deference is owed to
discretionary decisions made by judges supervising CCAA proceedings, who are
steeped in the intricacies of the
CCAA
proceedings they oversee. 
Appellate intervention is justified only where the supervising judge erred in
principle or exercised their discretion unreasonably:
9354-9186 Qu
é
bec inc. v. Callidus Capital Corp.
, 2020 SCC 10, 78 C.B.R. (6th) 1, at paras. 53 to 54.

Second, CCAA proceedings are dynamic. It is
often inappropriate to consider an exercise of discretion by the supervising
judge in isolation of other exercises of discretion by the judge in
endeavouring to balance the various interests:
Edgewater Casino Inc. (Re)
,
2009 BCCA 40, 51 C.B.R. (5th) 1, at para 20.

Third, CCAA restructurings can be time sensitive.
The existence of, and delay involved in, an appeal can be counterproductive to
a successful restructuring.

[35]

In
addressing whether leave should be granted, the court will consider four
factors, specifically whether:

(a)

the proposed appeal is
prima facie
meritorious or frivolous;

(b)

the points on the proposed appeal
are of significance to the practice;

(c)

the points on the proposed
appeal are of significance to the action; and

(d)

whether the proposed appeal will
unduly hinder the progress of the action.

See:
Nortel Networks Corp. (Re)
,
2016 ONCA 332, 130 O.R. (3d) 481, at para. 34.

Leave is Not Warranted

[36]

As we will explain, we refuse to grant leave because the proposed
appeal is not
prima facie
meritorious, it is
not of significance to the practice and granting leave would unduly hinder the
progress of the action. While we agree that the proposed appeal is of
significance to the action, that factor alone is not a sufficient basis on
which to grant leave.

Leave not Prima Facie Meritorious

[37]

Thorneloe proposes that five questions be answered should leave be
granted:

1.

Can the CCAA, a statute whose purpose is to
prevent
bankruptcies, be used by a debtor to eliminate competition and
cause
the bankruptcy of another solvent entity (in this case, another university)?

2.

Should section 32 of the CCAA be interpreted so broadly that it
allows the disclaimer of an agreement that will result in the bankruptcy of the
counter-party, for the purpose of eliminating competition,
and
where
the potential financial gain to the debtor is both uncertain and immaterial?

3.

What inferences should be drawn by the CCAA court where a DIP lender
demands the disclaimer of an agreement that will cause the bankruptcy of the
counter-party or else it will refuse to extend a loan maturity date and advance
further funds, yet the DIP lender refuses to attend an oral examination and
refuses to produce documents and answer questions as to why it demands the
disclaimer?

4.

What is the role of the CCAA Court when confronted with a
transaction condition that calls for the disclaimer of an agreement which the
debtor admits is motivated to eliminate competition, and then presented as a
threat that if the CCAA Court does not uphold the disclaimer, the debtor may
not be able to restructure?

5.

What are the factors applicable on persons to act in good faith
under section 18.6 of the CCAA, and in particular where Laurentian and/or the
DIP lender seek to close down Thorneloe for the admitted motive of eliminating
Thorneloe as a competitor?
[Italics in original.]

[38]

We are not satisfied that the proposed appeal, challenging the CCAA
judges discretionary decision to approve the disclaimer and to refuse to
delete the condition in the DIP Amendment Agreement, is
prima facie
meritorious. In reaching that conclusion we are cognizant that factual findings
are owed considerable deference as are discretionary decisions, absent an
extricable legal error. Each of Thorneloes proposed questions has embedded in it
factual assertions that run contrary to the CCAA judges factual findings and
each challenges the way he exercised his discretion.

[39]

For example, Thorneloes first two proposed appeal questions, about
whether a disclaimer can be used if its effect is to eliminate competition and cause
the bankruptcy of a solvent party, do not raise an extricable legal point,
given the CCAA judges findings.

[40]

On those findings, Laurentian and Thorneloe were not truly competitors.
They were working in a federated arrangement. Thorneloes course offerings
could only be taken up by Laurentian students, and they could compete with course
offerings of Laurentian, only because the parties had entered into the
federated arrangement. Contrary to Thorneloes assertion, there was no
admission by Laurentian that its motive was to eliminate Thorneloe as the
competition. The evidence of Laurentians President, Dr. Haché, was simply that
Laurentian had the capacity itself and the need to provide the courses that the
Federated Universities were providing to Laurentian students.

[41]

Moreover, Laurentian is insolvent and the CCAA judge found that if
Laurentian collapses, Thorneloe will collapse. Thorneloe could only be an
ongoing solvent entity if Laurentian could successfully restructure while
keeping the agreements with Thorneloe in place. But that option was not
available, as the CCAA judge accepted the Monitors view that the disclaimer of
the agreements was necessary for a viable restructuring of Laurentian to
occur.

[42]

As for Thorneloes other proposed appeal questions, the CCAA judge engaged
in a serious and carefully considered exercise that required him to balance the
proposed disclaimer for Laurentian against the detrimental impact on Thorneloe.
He clearly explained what factors he was taking into account in making a
determination under s. 32 and how he weighed competing considerations. He
recognized the serious financial impact that approving the disclaimer could
have on Thorneloe. He addressed Thorneloes argument, which is repeated before
this court, that the financial impact of not disclaiming the Thorneloe
agreements, would be minimal for Laurentian and explained why he disagreed. He
also considered and rejected allegations of bad faith. As the CCAA judge
supervising the proceeding, he was aware of the bigger picture, including the
savings that had already been achieved by Laurentian through the CCAA process. He
addressed Thorneloes arguments relating to the DIP Lender and found that there
was no need to question its legitimacy or the conditions it put forward.

[43]

Fundamentally, he found that the disclaimer would enhance the
prospects of a viable plan of compromise or arrangement, while disallowing it
could lead to the inability of Laurentian to restructure and to Laurentians collapse,
which would also entail the collapse of Thorneloe. The CCAA judge expressed the
choice succinctly and accuratelyit was between allowing the disclaimer, recognizing
the hardship it would cause Thorneloe, and disallowing the disclaimer,
recognizing the hardship it could cause Laurentian and Thorneloe. In our view,
the choice he made cannot be faulted. We would also observe that this
conclusion was available in the absence of any consideration of the position of
the DIP Lender.


[44]

In conclusion, while we recognize the serious financial implications
of the disclaimer for Thorneloe, we are simply not persuaded that there is an
arguable basis for interfering with the CCAA judges factual findings or legal conclusions.

Significance to the Action

[45]

We accept that the proposed appeal is of significance to the action given
the significant implications of the disclaimer for Thorneloe and for
Laurentian. However, the significance of the proposed appeal to the action is
insufficient to justify leave. This courts comment in
Nortel
,

at
para. 95, is apt:

[S]tanding alone, this factor is insufficient
to warrant granting leave to appeal.  To perhaps state the obvious,
typically parties tend to seek leave to appeal a decision that is of
significance to an action.

No Significance to the Practice

[46]

We
are not satisfied that the proposed appeal is of significance to the practice
as the issues raised turn on the application of the law to the particular facts
of the case.

Appeal Would Hinder Progress of the Action

[47]

In our view, there is a risk that an appeal would be a distraction
from the real-time restructuring efforts. Laurentian and the DIP Lender also
raise legitimate concerns that attempting to unscramble the egg through an
appeal would unduly hinder the progress of the CCAA proceeding.

C.

DISPOSITION

[48]

Leave to admit the fresh evidence is granted and leave to appeal is
refused. In the circumstances, there shall be no order for costs.


Alexandra
Hoy J.A.

S.E.
Pepall J.A.

B.
Zarnett J.A.





[1]

In its reply factum on the leave motion, Thorneloe argues
that r. 39.03 of the
Rules of Civil Procedure
, R.R.O. 1990, Reg. 194,
would have been available to elicit information from the DIP Lender.  It is
unclear whether Thorneloe pursued that procedural route.  That said, and in any
event, it was reasonable for the CCAA judge to propose that written questions
be posed to the Monitor.



