



COURT OF APPEAL FOR ONTARIO

CITATION: Crystallex International Corporation (Re), 2018
    ONCA 778

DATE: 20180925

DOCKET: M49312

Sharpe, Juriansz and Pepall JJ.A.

BETWEEN

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 CRYSTALLEX INTERNATIONAL CORPORATION

Applicants

Clifton P. Prophet and Nicholas Kluge, for the Moving
    Party, The Ad Hoc Committee of Shareholders of Crystallex International
    Corporation

Timothy Pinos, Ryan C. Jacobs and Shayne Kukulowicz,
    for the Respondent, the DIP Lender

Jay A. Swartz, James Doris and Robin Schwill for the
    Respondent, Crystallex International Corporation

Aubrey E. Kauffman for the Respondents, Robert Fung and
    Marc Oppenheimer

Heard: In Writing

Application for leave
    to appeal from the order of Justice Glenn A. Hainey of the Superior Court of
    Justice, dated May 22, 2018.

REASONS FOR DECISION

[1]

The Ad Hoc Committee of Shareholders of Crystallex International
    Corporation (the Committee) seeks leave to appeal the order of the motion
    judge dated May 22, 2018, which was made in the context of proceedings relating
    to Crystallex International Corporation (Crystallex) under the
Companies
    Creditors Arrangement Act,
R.S.C. 1985, c. C-36, as amended (CCAA).

[2]

The Committee represents the interests of over 200 shareholders who
    together hold approximately 30% of Crystallexs common shares. The motion judge
    dismissed the Committees motion for an order lifting the stay of proceedings,
    imposed by the Initial Order granted in the CCAA proceedings, to allow the
    shareholders to commence an action. The Committee wished to vary Debtor in
    Possession (DIP) financing orders that had received court approval four to
    five years ago. The proposed action alleged oppression and breach of the
    criminal interest rate provisions in the
Criminal Code
.

[3]

When Crystallex sought CCAA protection in December 2011, its assets
    consisted of an arbitral claim for US$3.8 billion against the Bolivarian
    Republic of Venezuela for breach of an exclusive mining contract relating to
    the Las Cristinas gold mine.

[4]

Following an auction process supervised by the Monitor, Tenor KRY
    Cooperatief U.A., Tenor Special Situation 1, LLC, and Luxembourg Investment
    Company 31 S.a.r.l. (the DIP Lender) were selected to provide the DIP
    financing. Pursuant to an initial credit agreement, the DIP Lender proposed to
    provide US$36 million to Crystallex to fund its arbitral claim against
    Venezuela in exchange for a 35% interest in Crystallexs potential recovery in
    that proceeding (the Net Arbitration Proceeds or NAP). An agreement
    containing a management incentive plan also provided for the discretionary
    compensation of Crystallex management who would receive a percentage of the NAP
    if the arbitration was successful. Management included Robert Fung and Marc
    Oppenheiner, both directors of Crystallex (the individual respondents). Fung
    is now the Chairman and CEO of Crystallex and Oppenheimer was previously the
    companys CEO. On April 16, 2012, Newbould J. granted orders approving both
    agreements.

[5]

The Trustee of the Noteholders unsuccessfully appealed the April 16,
    2012 orders to this court:
Crystallex International Corp. (Re)
, 2012
    ONCA 404, 293 O.A.C. 102. Hoy J.A., as she then was, concluded, at paras.
    71-72, that there was no basis to interfere with Newbould J.s discretionary
    decision to approve the DIP financing and the management incentive plan.

[6]

On June 5, 2013, April 14, 2014, and December 18, 2014, Newbould J.
    granted orders amending the initial credit agreement. Those amendments
    collectively increased Crystallexs indebtedness to US$75 million and gave the
    DIP Lender an increasingly higher percentage interest in the NAP. The funding
    was primarily to enable the continuation of the arbitral proceedings. In the
    December 18, 2014 order, Newbould J. also approved a NAP transfer agreement
    which gave the individual respondents a further percentage of the NAP.

[7]

On April 4, 2016, Crystallex obtained an arbitral award of approximately
    US$1.4 billion against Venezuela. Subsequently, Venezuela and Crystallex
    entered into a settlement agreement which was approved by the motion judge on
    November 29, 2017.

[8]

The shareholders allege in their proposed action that the DIP financing
    amendments and the NAP transfer agreement severely diluted their interest in
    the arbitral award by assigning all but a small percentage of the proceeds to
    the DIP Lender and the individual respondents. They claim that these amendments
    were entered into in unfair disregard of and to the prejudice of the interests
    of the shareholders.

[9]

In its May 2018 motion, the Committee sought to vary the amending
    orders but did not impugn the initial orders approving the DIP financing and
    the management incentive plan. The Committee contended that the amending orders
    in 2013 and 2014 were granted without prior notice to the shareholders.

[10]

On
    May 22, 2018, the motion judge dismissed the shareholders motion to lift the
    stay of proceedings, thus precluding the Committee from commencing the proposed
    action. He concluded that the orders granted by Newbould J. approving the DIP
    financing amendments and the NAP transfer agreement were final in nature and
    constituted a complete bar to the relief requested.

[11]

The
    motion judge concluded that there was no basis in law to vary the impugned
    amending orders. He noted that the limited circumstances for varying a final,
    issued and entered order are: the courts inherent jurisdiction to correct
    slips or errors in expression: r. 59.06(2) of the
Rules of Civil Procedure
;
    and r. 37.14 of the
Rules of Civil Procedure
.

[12]

He
    concluded that the Committee was not seeking to correct a slip or error but to
    overturn key provisions of the orders. He noted that the fairness and
    reasonableness of the terms had been determined at the time the orders were
    approved and at a time before the DIP Lender and Crystallex relied and acted
    upon them. Accordingly, he was not prepared to vary the orders on the basis of his
    inherent jurisdiction. Nor was he persuaded that the limited circumstances
    under r. 59.06(2) had been established. He concluded that this was not a case
    of fraud or newly discovered facts.

[13]

Finally,
    he rejected the argument that the orders should be varied under r. 37.14
    because the shareholders had insufficient or no notice of the motions to
    approve the amendments. He concluded, at para. 19, that service and notice were
    effected in compliance with the Initial Order and with s. 23 of the CCAA. Based
    on the shareholders own materials, he concluded that they had been aware of
    the CCAA proceedings since early 2012. Any one of the complaining shareholders
    could have filed a notice of appearance and been added to the service list.
    Finally, the Committee had not moved forthwith, as required by r. 37.14, to
    vary the orders that had been granted some four to five years earlier.

[14]

He
    also noted various legal barriers to variation of the orders. He observed that
    courts are loathe to vary a CCAA order if persons relying on the order would be
    materially prejudiced and that, in this case, the DIP Lender had relied in good
    faith on the court orders. Furthermore, the claims for oppression and for
    breach of the
Criminal Code
interest rate provisions were time-barred.
    He stated that the complaining shareholders had had ample opportunity to
    challenge or oppose the terms of the orders but had failed to act with
    reasonable diligence within the applicable limitation period.

[15]

Finally,
    he stated that the claims regarding the criminal interest rate were bound to
    fail because the DIP financing agreements did not require, and in fact
    prohibited, the payment of interest at a criminal interest rate.

Discussion

[16]

The
    test for leave to appeal from the decision of a judge supervising a CCAA proceeding
    is not contentious. The moving party must demonstrate serious and arguable
    grounds that justify the granting of leave. The court will consider whether the
    proposed appeal is: (i)
prima facie
meritorious and not frivolous;
    (ii) of significance to the practice; (iii) of significance to the proceeding,
    and (iv) whether the appeal will unduly hinder the progress of the action:
Nortel
    Networks Corporation (Re)
, 2016 ONCA 332
,
130 O.R. (3d) 481
, at para. 34
.

[17]

For
    the reasons that follow, we conclude that the applicants motion founders on
    the first factor, a consideration of the
prima facie
merits of the
    proposed appeal.

[18]

The
    issue to be addressed on this leave to appeal motion is the motion judges
    ability to vary the impugned orders. The motion judge was entitled to rely on
    the record before him. He fairly concluded that there was no slip or error in
    expression in the orders, nor had the shareholders alleged any fraud or newly
    discovered facts. In our view, there was no basis to vary the orders based on inherent
    jurisdiction or r. 59.06(2) of the Rules. The shareholders rely on
Clatney
    v. Quinn Thiele Mineault Grodzki LLP
, 2016 ONCA 377, 131 O.R. (3d) 511, a
    case involving variation of a consent order. Variation of such an order engages
    principles that differ from those applicable to variation based on inherent
    jurisdiction or r. 59.06(2). See
Hebditch v. Birnie
,
2017 ONCA 169, at para. 13.

[19]

Variation of an order pursuant to r. 37.14(1)(a) or (b) requires an
    absence of or insufficient notice. As the motion judge correctly observed,
    notice was effected in accordance with the Initial Order and with s. 23 of the
    CCAA. In this regard, the Monitor published notices of the CCAA proceeding and
    created a website on which it posted its reports, court orders, and motion
    materials. The Monitor issued a press release that identified the websites
    address. With one exception, all of the motion materials disclosed the amounts
    of the additional loans and the proposed percentage of the NAP to be retained
    by the respondents.

[20]

None of the shareholders now represented by the Committee took any steps
    to be placed on the service list. They took no steps to participate and failed
    to attend the hearings in 2013 and 2014 when the orders in issue were granted.
    According to their own evidence, the shareholders knew of the CCAA proceeding
    since early 2012. The motion judge concluded that the shareholders had notice.
    In our view, he made no palpable and overriding error in this regard. The
    Committee has been unable to demonstrate that the motion judge exercised his
    discretion unreasonably or made any error in principle in dismissing its
    motion.

[21]

We are also of the view that the remaining factors to be considered on a
    motion for leave to appeal a CCAA order do not favour the Committees position.
    The use of litigation funding agreements in CCAA proceedings may well be of
    importance to the insolvency bar. However, this is not the issue on which this leave
    to appeal motion turns. To challenge these agreements, the Committee must first
    overcome the hurdle of varying the orders granted by Newbould J. The issue
    regarding variation of these CCAA orders is not of public importance as the law
    on varying orders is neither new nor contentious. The motion judges conclusion
    that there was no basis to vary the orders was
a fact-specific
    determination which is
of limited significance to the practice or to the
    public.

[22]

While we agree that the appeal may be of significance to the action,
    standing alone, this factor is insufficient to warrant granting
leave to appeal:

Nortel Networks
,

at para. 95.

[23]

Lastly, the motion judge accepted that varying the final orders would
    have a serious impact on the credit arrangements and would throw the CCAA
    proceedings into chaos. We see no basis on which to interfere with his
    conclusion.

[24]

In essence, this is a case of too little too late. Potentially
    interested stakeholders cannot sit idle and await the outcome of realization
    proceedings. They must act to protect their interests or suffer the attendant
    consequences.

[25]

In closing, we note that DIP financing was originally conceived as a
    means
to fund operations while a company
    under CCAA protection restructured
. The disposition of this motion
    should not be interpreted as an endorsement or a rejection of the amendments
    approved by Newbould J.

Disposition

[26]

The
    motion for leave to appeal is dismissed. The parties are to bear their own
    costs.

Robert
    J. Sharpe J.A.

R.G.
    Juriansz J.A.

S.E.
    Pepall J.A.


