



COURT OF APPEAL FOR ONTARIO

CITATION: Nortel Networks Corporation (Re), 2013 ONCA
    599

DATE: 20131003

DOCKET: C55682

Goudge, MacPherson and Juriansz 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

Leonard F. Marsello and William R. MacLarkey, for the
    appellant Her Majesty the Queen in right of Ontario as represented by the
    Ministry of the Environment

David W. DeMille, for the City of Belleville and the Algonquin
    and Lakeshore Catholic District School Board

Alan B. Merskey and Vasuda Sinha, for the respondents
    Nortel Networks Corp., Nortel Networks Ltd., Nortel Networks Global Corp.,
    Nortel Networks International Corp. and Nortel Networks Technology Corp.

Joseph Pasquariello, for the Monitor Ernst & Young
    Inc.

Adam Hirsh, for Former Directors and Officers of Nortel
    Networks Corp. and Nortel Networks Ltd.

Jane Dietrich, for Unsecured Creditors Committee of
    Nortel Networks Inc.

Adam Slavens, for Nortel Networks Inc.

Gavin H. Finlayson, for Informal Committee of
    Noteholders

Heard: June 19, 2013

On appeal from the order of Justice Geoffrey B. Morawetz
    of the Superior Court of Justice, dated March 9, 2012, with reasons reported at
    2012 ONSC 1213.

Juriansz J.A.:

A.

Overview

[1]

The CCAA judge, whose decision is the subject of this appeal, aptly
    described the issues as arising from the untidy intersection of the
Companies'
    Creditors Arrangement Act
, R.S.C. 1985, c. C-36, (CCAA) and the powers
    of the provincial Minister of the Environment (MOE) to make orders with
    respect to the remediation of real property in Ontario.

[2]

After the usual order staying proceedings (the Initial Order) was
    granted to the insolvent respondents, Nortel Networks Corporation, Nortel Networks
    Limited, Nortel Networks Global Corporation, Nortel Networks International
    Corporation and Nortel Networks Technology Corporation (collectively, Nortel
    or the respondents), the MOE issued orders pursuant to the
Environmental
    Protection Act
, R.S.O. 1990, c. E-19, (EPA) requiring Nortel Networks
    Limited to remediate environmental contamination remaining on properties it
    once or currently owned.

[3]

In his order dated March 9, 2012, the CCAA judge declared that the MOEs
    remediation orders were subject to the stay granted by the Initial Order.
    Ancillary to that declaration, he granted certain other relief. He declared
    that all proceedings against the respondents or the Former Directors and
    Officers before the Ontario Environmental Review Tribunal in relation to the
    EPA orders were subject to the stay of proceedings; he authorized the respondents
    to cease performing remediation of property; he declared that any claims in
    relation to current or future remediation requirements imposed by orders under
    the EPA against the respondents or the Former Directors and Officers were
    subject to the insolvency claims process; and he authorized the respondents to
    repudiate all contractual obligations to carry out remediation at the
    properties.

[4]

The MOE appeals.

[5]

For the reasons that follow, I would allow the appeal.

B.

Facts

[6]

Nortel is engaged in a liquidating insolvency and has no
    operations. The sites where Nortel and its predecessors once conducted
    manufacturing operations were largely disposed of in the late 1990s. At that
    time Nortel identified environmental impacts that arose from its past
    operations at Brampton, Brockville, Kingston, Belleville, and London (the
    Impacted Sites) and was conducting remediation at those sites on a voluntary
    or contractual basis.

[7]

On January 14, 2009, Nortel filed for protection under the CCAA. At that
    time, Nortel maintained only a partial interest in the London site. It had disposed
    of its interests in the other Impacted Sites. As well, the MOE had not issued
    any remediation orders against Nortel. Nortel says that it spent some $28.5
    million on remediation of the sites before filing under the CCAA. After
    Nortels CCAA filing, the MOE issued remediation orders (the MOE Orders) that
    Nortel estimates would require further expenditures of approximately $18
    million.

[8]

Nortel brought a motion before the CCAA judge seeking an order declaring
    that the relief the MOE Orders sought was financial and monetary in nature;
    that the Initial Order stayed the MOE Orders; and an order staying all related
    proceedings before the Ontario Environmental Review Tribunal. Nortel also
    sought authorization and direction that it cease performing remediation at the
    Impacted Sites and a declaration that any claims in relation to current or
    future remediation by the MOE or any other person against Nortel were stayed
    and had to be dealt with according to the CCAA claims procedure. In
    addition, Nortel sought an order repudiating or disclaiming any contractual
    obligations to carry out remediation at the Impacted Sites; and finally, advice
    and direction with respect to the London site where Nortel maintained a partial
    interest in the property.

[9]

On March 9, 2012, the CCAA judge determined that, where operations had
    ceased on a particular property and a company could only comply with the EPA or
    MOE Orders by expending funds, the environmental liabilities involved amount to
    financial obligations to pay. Therefore, they were subject to the Initial Order
    and had to be addressed as claims in the CCAA process.

[10]

On
    June 22, 2012, the MOE was granted leave to appeal the CCAA judges order.

[11]

While
    the MOEs appeal was pending, the Supreme Court released its decision in
Newfoundland
    and Labrador v. AbitibiBowater Inc.
, 2012 SCC 67, [2012] 3 S.C.R. 443, on
    December 7, 2012. On March 28, 2013, the parties were given leave to file
    fresh factums and fresh evidence.

[12]

The
    parties dispute the interpretation of the Supreme Courts decision, and how it
    should be applied to the case under appeal.

C.

Supreme Courts Decision In AbitibiBowater

[13]

AbitibiBowater
    Inc. (Abitibi) had carried on industrial activities in the Province of
    Newfoundland and Labrador for over 100 years. In 2009, Abitibi sought
    protection under the CCAA.

[14]

Subsequently,
    the Minister of Environment and Conservation of Newfoundland and Labrador
    issued five ministerial orders against Abitibi under the provinces
    environmental legislation. These orders required Abitibi to remediate several
    sites, most of which had been expropriated by the province. The province also
    brought a motion for a declaration that the CCAA claims process did not bar the
    province from enforcing the orders. The province argued, among other things,
    that the remediation orders were regulatory orders, not "claims"
    under the CCAA, and therefore they could not be stayed or subjected to
    compromise in the CCAA restructuring process.

[15]

The
Supreme Court decided that a CCAA court could
    determine whether an environmental order that is not framed in monetary terms
    is in fact a provable claim. Justice Deschamps, writing for the majority, held
    that [a] finding that a claim of an environmental creditor is monetary in
    nature does not interfere in any way with the creditor's activities. Its claim
    is simply subjected to the insolvency process (at para. 18). The CCAA court
    should consider the substance of an order rather than its form: [i]f the
    Province's actions indicate that, in substance, it is asserting a provable
    claim within the meaning of federal legislation, then that claim can be
    subjected to the insolvency process (at para. 19).

[16]

The
    CCAA, informed by the
Bankruptcy and Insolvency Act
, R.S.C. 1985, c.
    B-3 (BIA), establishes three requirements for establishing a provable claim.
    First, there must be a debt, liability or obligation to a creditor. This
    requirement is satisfied simply by the regulatory body exercising its enforcement
    power against a debtor: at paras. 26-27.

[17]

Second,
    a claim must be founded on an obligation that falls within the time limit for
    claims. Section 11.8(9) of the CCAA provides temporal flexibility for environmental
    claims by providing that

[a] claim against a debtor company for costs of
    remedying any environmental condition or environmental damage affecting real property
    of the company shall be a claim under this Act, whether the condition arose or
    the damage occurred before or after the date on which proceedings under this
    Act were commenced.

However, statutory environmental obligations relating
    to polluting activities that continue after the reorganization will not satisfy
    the time limits: at paras. 28-29.

[18]

Both
    the first and second requirements were easily satisfied in the Abitibi case.

[19]

The
    third requirement is that it be possible to attach a monetary value to the
    obligation; that is, the question is whether orders that are not expressed in
    monetary terms can be translated into such terms (at para. 30). A court must
    look at the substance of the order not its form and apply its usual approach in
    dealing with future or contingent claims.

[20]

The
    usual test courts use to decide if a contingent claim will be included in
    insolvency proceedings is whether it is too remote or speculative: at para.
    36, citing
Confederation Treasury Services Ltd. (Re)
(1997), 96 O.A.C.
    75, leave to appeal to S.C.C. refused, [1997] S.C.C.A. No. 229. This means that
    there must be sufficient indications that the regulatory body that made the
    remediation order will ultimately perform remediation work itself, thus
    entitling it to seek reimbursement by means of a monetary claim:
AbitibiBowater
,
    at para 36.

[21]

Accordingly,
    Deschamps J. concluded that the CCAA court must assess whether it is
    sufficiently certain that the regulatory body will perform the remediation work
    and, as a result, have a monetary claim (at para. 46).

[22]

The
    CCAA judges discretion will govern the assessment, but several considerations
    may be relevant, depending on the circumstances of the case. Justice Deschamps
    identified four potential factors: whether the [polluting] activities are
    ongoing, whether the debtor is in control of the property, whether the debtor
    has the means to comply with the order, and the effect that requiring the
    debtor to comply with the order would have on the insolvency process (at para.
    38).

[23]

In
    the circumstances of
AbitibiBowater
, Deschamps J. acknowledged that
    the CCAA judge had not addressed whether it was sufficiently certain that the
    Province would remediate the property and seek reimbursement, but she concluded
    that his reasons rested on the implicit finding that the Province would do so
    (at para. 51). The CCAA judge explicitly referred to the facts that supported
    this finding, at paras. 53-55:

·

Abitibi was not in a position to carry out the remediation
    because it was no longer in possession of most of the sites;

·

Abitibis operations were funded through debtor-in-possession
    financing and its access to funds would limited to ongoing operations;

·

the timetable set by the Province in the remediation orders
    suggested that the Province never truly expected Abitibi to perform the
    remediation work;

·

and the surrounding facts suggested that the Province had
    intentionally targeted Abitibi.

[24]

On
    this reasoning, Deschamps J., writing for the majority, deferred to the CCAA
    judges implicit conclusion it was sufficiently certain that the Province would
    perform the remediation work. Therefore, the Province fell within the
    definition of a creditor with a monetary claim.

[25]

McLachlin
    C.J. and LeBel J. dissented.

D.

The respondents effort to distinguish AbitibiBowater

[26]

The
    respondents submit that it is an oversimplification of the
AbitibiBowater
decision to read it as requiring all future courts to examine environmental
    remediation orders through the exclusive and binary test of determining
    whether it is sufficiently certain that the province would perform the
    remediation and claim reimbursement. The respondents suggest that in
AbitibiBowater
the court used this language because it was particularly apt for the
    circumstances in the case. They claim that a careful reading of the reasons
    makes evident that the test the court established is less specific.

[27]

The
    respondents point to the more general language in Deschamps J.s reasons. They
    highlight the various factors that Deschamps J. indicated could be relevant
    depending on the circumstances of each case to determine whether remediation
    orders will be subject to a CCAA stay: at para. 38. They argue that as long as
    the order requires an expenditure of funds its nature is monetary. In setting
    out the three basic requirements to determine whether an environmental order is
    a claim, Deschamps J. said with respect to the third requirement, that it be
    possible to attach a monetary value to the obligation, the question is whether
    orders that are not expressed in monetary terms can be translated into such
    terms (at para. 30).

[28]

Instead,
    the respondents posit that in
AbitibiBowater
, the Supreme Court set
    out the policy approach to be followed in determining whether nonmonetary
    orders can be translated into monetary terms. This approach, as Deschamps J. emphasized,
    concerns: the importance of the single proceeding model of insolvency in Canada;
    the necessity of examining the substance, not only the form, of an
    environmental remediation order; the balance struck by Parliament between
    enforcement of environmental regulation and the interests of insolvency
    stakeholders; and the need to have regard to the interests of third-party
    creditors.

[29]

Turning
    to this case, the respondents submit that it was sufficiently certain that
    compliance with the orders would require the expenditure of a minimum of $18
    million. Whether the money is paid to the MOE as reimbursement for the costs of
    performing the remediation, or paid to third parties retained to perform the
    remediation should make no difference. The environmental problems at the
    impacted sites were long-standing; the soil had been contaminated decades
    earlier. In fact, the Brockville site was already contaminated when Nortel
    bought it. Historical environmental problems, the respondents argue, should be
    distinguished from current ones, where the debtor is polluting at the time.

[30]

Finally,
    the respondents stress that the CCAA court should be mindful of the impact on
    the debtor and the stakeholders and avoid giving the MOE a super-priority it
    would not have under the BIA. Under the BIA there is no debtor-in-possession,
    only a trustee, and the trustee could abandon the contaminated property. In a
    liquidating reorganization there was no good reason why the MOE should do
    better under the CCAA than under the BIA.

E.

Analysis

[31]

I
    cannot accept the respondents proposed interpretation of
AbitibiBowater
.
    In determining whether a regulatory order is a provable claim, a CCAA court
    must apply the general rules that apply to future or contingent claims. As I
    read it, the Supreme Courts decision is clear: ongoing environmental
    remediation obligations may be reduced to monetary claims that can be
    compromised in CCAA proceedings only where the province has performed the
    remediation work and advances a claim for reimbursement, or where the
    obligation may be considered a contingent or future claim because it is
    sufficiently certain that the province will do the work and then seek
    reimbursement.

[32]

The
    respondents approach is not only inconsistent with
AbitibiBowater
, it
    is too broad. It would result in virtually all regulatory environmental orders
    being found to be provable claims. As Deschamps J. observed, a company may
    engage in activities that carry risks. When those risks materialize, the costs
    are borne by those who hold a stake in the company. A risk that results in an environmental
    obligation becomes subject to the insolvency process only when it is in
    substance monetary and is in substance a provable claim.

[33]

Parliament
    has struck a balance between the interests of the stakeholders and that of the
    public in designing the CCAA process. Parliament, in s. 11.8(8) of the CCAA,
    granted the MOE's claims with respect to remediation costs the security of a
    charge on the contaminated property. And Parliament, in s. 11.1(3), made it
    clear that a CCAA court has the discretion to stay regulatory orders on
    specified criteria.

F.

Is it implicit THAT THE CCAA JUDGE APPLIED THE CORRECT TEST?

[34]

The
    CCAA judge in this case, without the benefit of the
AbitibiBowater
decision, did not explicitly consider the question whether it was sufficiently
    certain that the MOE would perform the remediation work ordered. In these
    circumstances there are two legal approaches available to this court. This
    court could attempt to glean from the CCAA judges reasons how he would have answered
    the question had the law been available to him; and it can consider the
    evidence in the record and answer the question in his stead, as the dissenting
    judges did in
AbitibiBowater
.

[35]

I
    am unable to read the CCAA judges reasons as implicitly addressing the
    question whether it was sufficiently certain that the MOE would perform the
    remediation work. The CCAA judges analysis focused on whether Nortel would be
    required to incur a financial obligation to comply with the remediation orders,
    without regard to whom the financial obligations would be owed. He rejected the
    MOEs contention that financial obligations incurred by Nortel for the purpose
    of complying with the MOE Orders are different from obligations incurred
    directly to the Crown. He focused instead on the fact that undertaking
    remedial work would result in Nortel expending money that would be directed
    away from creditors participating in the insolvency proceedings. He held that
    the same insolvency considerations ought to apply regardless of who receives
    the money (at para. 107).

[36]

This
    analysis stands in contrast to that of Deschamps J. She made it clear, at para.
    3, that the question was whether there are sufficient facts indicating the
    existence of an environmental duty that will ripen into a financial liability
    owed
to the regulatory body that issued the order

    (emphasis added).

[37]

The
    CCAA judge was well aware that in this case, unlike
AbitibiBowater
, it
    could not be said that the regulatory body had no realistic alternative but to
    perform the remediation work itself. Nortel no longer owns most of the
    properties, and the MOE Orders are directed to Nortel and the subsequent owners.
    In fact, the CCAA judge specifically discussed Nortels contractual
    arrangements with some of the subsequent purchasers and in his order permitted
    Nortel to repudiate some of those arrangements.

[38]

In
    my view, this court lacks the basis to conclude, as did the majority in
AbitibiBowater
,
    that the CCAA judge

s decision rests on an implicit
    finding that the MOE will most likely perform the work.

G.

Is it sufficiently certain the MOE will undertake the remediation?

[39]

Considering
    the matter afresh, I would conclude that it is not sufficiently certain that
    the MOE will perform the remediations ordered. The MOE orders respecting in the
    Belleville, Brockville and Kingston sites are directed to Nortel together with other
    current and former owners of the properties. In fact with respect to the
    Kingston site, the other current and former owners named in the orders are
    jointly and severally liable with Nortel to carry out the activities required
    by the orders. Under s. 18 of the EPA, the MOE clearly has the power to make
    orders against subsequent (or past) owners for anything it ordered Nortel to
    do.

[40]

In
AbitibiBowater
, the province had expropriated most of the properties
    and remained the owner. It would seem reasonable to expect that the MOE would enforce
    the orders against other parties instead of undertaking the remediation itself.
    Indeed, the CCAA judge observed that subsequent purchasers of the properties
    may have unsecured contractual claims against Nortel.

[41]

Matters
    at the London site are not so clear. Evidently, in 1997 and 1998 Nortel
    subdivided and sold three parts of the London site to others, but retained the
    fourth part. The MOE order respecting the London site is directed to Nortel and
    the three entities who own the other parts and imposes joint responsibilities
    as well as some individual responsibilities on them. After the insolvency there
    will be no going-forward entity. Evidently Nortels retained portion of the
    land is worth less than the cost of remediating it and it seems probable that
    the retained portion will eventually be abandoned. There is no one to carry out
    Nortels responsibilities under the MOE Order. As a result, I consider it
    sufficiently certain that MOE will ultimately undertake Nortels obligations
    under the order, and may seek to claim the security provided by s. 11.8(8).

H.

Conclusion

[42]

I
    would conclude that the MOE Orders in relation to the Impacted Sites other than
    the retained portion of the London property have not been established to be
    provable claims that must be included in the insolvency process.

[43]

In
    paragraph 2 of his order, the CCAA judge declared that the MOEs remediation
    orders are subject to the stay of proceedings granted in the initial order
    and stayed thereunder. This declaration cannot stand. Paragraph 15 of the
    initial order contains the caveat that nothing in this Order shall(ii) exempt
    the [respondents] from compliance with statutory or regulatory provisions
    relating to health, safety or the environment. The conclusion that the
    remediation orders are regulatory rather than provable claims brings them
    within the ambit of this caveat.

[44]

The
    CCAA judge himself acknowledged, at para. 104 that if the Minister is solely
    acting in its regulatory capacity, it can do so unimpeded by the Stay. This is
    the effect of s. 11.1(2) of the CCAA. Section 11.1(2) provides:

(2) Subject to subsection (3), no order made
    under section 11.02 affects a regulatory bodys investigation in respect of the
    debtor company or an action, suit or proceeding that is taken in respect of the
    company by or before the regulatory body, other than the enforcement of a
    payment ordered by the regulatory body or the court.

[45]

I
    would therefore allow the appeal and modify the CCAA judges declaration that the
    MOE Orders are stayed by the Initial Order so that it applies only to the retained
    London lands. I would also modify paragraphs 3, 4, 5, and 6 of his order, which
    are premised on the finding that MOE Orders are claims and are not regulatory, so
    that they apply only to the retained London lands.

[46]

If
    the MOE is seeking costs, it may make written submissions through the courts senior
    legal counsel, John Kromkamp.

R.G. Juriansz J.A.

I agree S.T. Goudge
    J.A.

I agree J.C.
    MacPherson J.A.

Released: October 03, 2013


