



COURT OF APPEAL FOR ONTARIO

CITATION: Northstar Aerospace Inc. (Re), 2013 ONCA 600

DATE: 20131003

DOCKET: C56518

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 Northstar Aerospace Inc., Northstar
    Aerospace (Canada) Inc., 2007775 Ontario Inc. and 3024308 Nova Scotia Company

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

Steven J. Weisz and Jenna Willis, for the respondent Fifth
    Third Bank

Paul D. Guy and Scott McGrath, for the Former Directors and
    Officers Group

Craig J. Hill, for the Monitor Ernst & Young Inc.

Heard: June 19, 2013

On appeal from the order of Justice Geoffrey B. Morawetz
    of the Superior Court of Justice, dated July 24, 2012, with reasons reported at
    2012 ONSC 4423.

Juriansz J.A.:

[1]

The appellant, Her Majesty the Queen in right of Ontario as represented
    by the Ministry of the Environment (the MOE), appeals from the order of the
    CCAA judge dated July 24, 2012, with written reasons released on July 30, 2012.

[2]

In his decision, the CCAA judge granted the motion of the insolvent
    respondents, Northstar Aerospace Inc., Northstar Aerospace (Canada) Inc.
    (Northstar Canada), 2007775 Ontario Inc. and 3024308 Nova Scotia Company
    (collectively, Northstar), for approval of an agreement for the sale of Northstars
    assets, and dismissed the MOEs motion for a declaration that a remediation
    order issued by the MOE under the
Environmental Protection Act
, R.S.O.
    1990, c. E-19 (EPA), was not subject to the stay of proceedings previously
    ordered, or, in the alternative, an order lifting the stay in respect of that
    remediation order.

[3]

Leave to appeal the CCAA judges order was granted only from the
    dismissal of the MOEs motion.

[4]

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

A.

Facts

[5]

Northstar Canada operated a manufacturing and processing facility in
    Cambridge, Ontario from around 1981 to 2009. The chemical trichloroethylene, a carcinogen,
    was used in these operations, and the operations produced waste containing heavy
    metals. Since 2004, Northstar Canada has been actively involved in monitoring the
    contamination at the site and in the surrounding community, a part of which is
    residential, and subsequently began remediation activities. In 2012, the MOE,
    due to a concern that Northstar would be unable to continue its voluntary remediation
    because of financial problems, issued two remediation orders against it, dated
    March 15, 2012 and May 31, 2012 (the MOE Orders).

[6]

On June 14, 2012, Northstar sought and obtained protection under the
Companies
    Creditors Arrangement Act
, R.S.C. 1985, c. C-36 (CCAA). The usual
    initial order staying all rights and remedies against the insolvent company was
    issued that same date (the Initial Order). The Initial Order does not affect regulatory
    proceedings as contemplated by s.11.1(2) of the CCAA.

[7]

On July 24, 2012, the CCAA judge approved the agreement for the sale of
    substantially all of Northstars assets. The contaminated site at Cambridge was
    not included in the sale. The debtor-in-possession lenders advised Northstar
    that they would not continue to fund its remediation efforts after the
    agreement for sale of assets closed on August 3, 2012. Northstar advised the
    MOE that if the sale of assets were approved, its intention was to abandon the
    site and terminate the remediation work. Also on July 24, 2012, the CCAA judge
    dismissed the MOEs motion. He found that the remediation orders were subject
    to the stay of proceedings granted in the Initial Order. Northstar has made no
    provision to continue its remediation activities after the close of the sale of
    assets transaction.

B.

The decision under appeal

[8]

In his reasons, the CCAA judge noted that the Initial Order excepted
    regulatory proceedings as permitted by s. 11.1 of the CCAA. He referred to his
    earlier decision in
Re Nortel Networks Corp.
, 2012 ONSC 1213, 88
    C.B.R. (5th) 111, quoting his remarks that if the insolvent company was not
    carrying on operations at the property, it is necessary to consider the
    substance of the MOEs actions (at para. 105). If the MOE orders require the
    debtor to act in a certain way, it is inevitable that the debtor would incur
    financial obligations to comply. Where there is no going-forward business, the
    debtor has no option but to pay money to comply. The clear result would be that
    [t]he MOE would be, in reality, enforcing a payment obligation, which the
    Initial Order prohibited (at para. 105).

[9]

The CCAA judge noted that the Cambridge facility had been shut down in
    2010 and only remediation activities have been carried on there since that
    time. In the court-supervised sales process, no bidder was willing to purchase (or
    expressed any interest in purchasing) the Cambridge facility, either alone or
    together with the other assets of Northstar.

[10]

The
    CCAA judge therefore adopted his reasoning in
Nortel
and concluded
    that, in the circumstances of this case, any financial activity the debtor is
    required to undertake to comply with environmental orders is stayed by the Initial
    Order. He went on to remark that in this case it was quite clear that the
    March 15 [MOE] Order seeks to enforce a payment obligation (
Northstar
,
    at para. 61). He concluded that while the MOE was entitled to file a claim for any
    costs of remedying the environmental conditions at the Cambridge facility, it
    was not entitled to use the remediation order to create a priority that it
    otherwise does not have access to under the legislation (at para. 66).

[11]

On
    this reasoning, the CCAA judge dismissed the MOEs motion.

C.

Analysis

[12]

On
    August 1, 2012, the MOE brought a motion for a partial stay of the CCAA judges
    order permitting distribution of the sales proceeds. The motion was dismissed and
    leave to appeal that denial was refused. Thus, this appeal may have some
    jurisprudential significance but will be of no practical consequence.

[13]

While
    the motion for leave to appeal was pending, the Supreme Court of Canada
    released its decision in
Newfoundland and Labrador v. AbitibiBowater
,
    2012 SCC 67, [2012] 3 S.C.R. 443. That the CCAA judge did not have the benefit
    of the Supreme Courts decision must be kept in mind in reviewing his reasons.
    The same situation arose in
Nortel Networks Corp. (Re)
, 2013 ONCA 599,
    and the two appeals were heard together.

[14]

I
    adopt my review of the
AbitibiBowater
decision as set out in
Nortel
.
    Briefly stated, the Supreme Court decided that ongoing environmental
    remediation obligations may be reduced to monetary claims that can be
    compromised in CCAA proceedings in two circumstances: (1) where the province
    has performed the remediation work and advances a claim for reimbursement, or
    (2) 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.

[15]

This
    court, in reviewing a decision of a CCAA judge rendered before the Supreme
    Courts decision in
AbitibiBowater
, may attempt to glean from the
    reasons how he or she would have answered the question had the law been available;
    and it may consider the evidence in the record and answer the question in his
    or her stead.

[16]

It
    seems to me, the CCAA judges reasons show that he was of the view the MOE had
    no realistic alternative but to remediate the property. The property had been
    contaminated during Northstars operations while Northstar owned it, and there
    was no subsequent purchaser whom the MOE could order to undertake the
    remediation. The CCAA judge said that it seemed quite clear to him that the
    remediation order sought to enforce a payment obligation.

[17]

In
    my view, the CCAA judge implicitly found it was sufficiently certain the MOE
    would remediate the lands.

[18]

A
    review of the fresh evidence supports his conclusion.

[19]

Northstar
    went bankrupt and the trustee abandoned the Cambridge property. The MOE therefore
    commenced remediation activities at the site. The Ministers Direction
    permitting the MOE to perform work at the site provides: [u]ntil such time as
    any other person assumes responsibility for the work required by the [MOE] Order,
    it is in the public interest to cause some or all of the work required by the [MOE]
    Order to be done by the [MOE].

[20]

The
    affidavit supporting the MOEs fresh evidence motion states that [t]he MOE has
    undertaken the Preventive Work without prejudice to its position in this
    appeal. The MOE also filed a claim with the Monitor for the costs incurred,
    again on the basis that doing so was without prejudice to the MOEs position
    that the two Directors Orders are not pre-filing claims The MOE is currently
    seeking to compel a group of former directors and officers of Northstar to
    continue remediating the property. The directors and officers appeared on the
    appeal to submit that they will be able to successfully resist the MOEs
    efforts.

[21]

The
    issues between the MOE and the directors will be decided elsewhere. As far as
    this proceeding is concerned, in my view, the fact that the MOE has undertaken
    remediation activities makes it sufficiently certain that it will do so. I am
    unsure what the MOE hoped to achieve by its unilateral assertion of having
    undertaken the work on a without prejudice basis.

[22]

It
    is certainly conceivable that the MOE, after commencing remediation work, is
    able to compel other responsible parties to take over the work and complete it.
    If the MOE is successful in doing so, the work will be done without the MOE
    expending funds. As far as the other responsible parties are concerned, the MOE
    will be acting in a purely regulatory capacity. However, as far as the MOE
    Orders against Northstar are concerned, its commencement of the work in the
    circumstances of this case establishes that the MOE Orders are in substance a
    claim provable in the insolvency.

D.

Conclusion

[23]

For
    these reasons, I would dismiss the appeal.

[24]

Given
    the distribution order, the Fifth Third Bank had no stake in the outcome of
    this appeal and appeared to assist the court by addressing the creditors
    perspective. The issues between the directors and officers and the MOE are
    being dealt with elsewhere. This is not a case for costs.

R.G. Juriansz J.A.

I agree S.T. Goudge
    J.A.

I agree J.C.
    MacPherson J.A.

Released: October 03, 2013


