



COURT OF APPEAL FOR ONTARIO

CITATION: Essar Steel Algoma Inc. (Re), 2017 ONCA 478

DATE: 20170608

DOCKET: M47815/M47846

Cronk, Blair and van Rensburg 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 ESSAR STEEL ALGOMA INC., ESSAR TECH ALGOMA
    INC., ALGOMA HOLDINGS B.V., ESSAR STEEL ALGOMA (ALBERTA) ULC, CANNELTON IRON
    ORE COMPANY AND ESSAR STEEL ALGOMA INC. USA

Peter H. Griffin, Matthew B. Lerner, Kim Nusbaum and
    Robert Trenker, for the Moving Parties, GIP Primus LP and Brightwood Loan
    Services LLC

Patricia D.S. Jackson, Andrew Gray, Jeremy Opolsky and
    Alexandra Shelley, for the Moving Party, Port of Algoma Inc.

Ashley Taylor, Eliot Kolers and Sanja Sopic, for the
    Applicants/Respondents

Clifton P. Prophet, Nicholas Kluge and Delna Contractor,
    for the Monitor Ernst & Young Inc.

Heard: June 2, 2017 (In Writing)

Motions for leave to appeal from the order of Justice Frank
    Newbould of the Superior Court of Justice, dated April 28, 2017.

Reasons for
    Decision

Background

[1]

GIP Primus LP and Brightwood Loan Services LLC (collectively GIP) and
    Port of Algoma Inc. (Portco) apply for leave to appeal the order of Newbould
    J. dated April 28, 2017.  The order was made in the context of insolvency
    proceedings under the CCAA
[1]
involving Essar Steel Algoma Inc. (Algoma) and related companies.  Newbould
    J. is the supervising CCAA judge in those proceedings.

[2]

Algoma and its predecessors are no strangers to restructuring
    proceedings.  The first CCAA proceedings were commenced in 1991.  A second CCAA
    restructuring took place in 2001.  By 2014 Algoma was in further need of a cash
    injection and an attempt was made to address the problem through a solvent
    restructuring under the
Canada Business Corporations Act
.
[2]
This resulted in a complex transaction in the course of which GIP advanced $150
    million which was then paid to Algoma as the major portion of the purchase
    price in what is referred to by the parties as the Port Transaction.  That
    overall transaction involved four basic components:

(i) the sale by Algoma to Portco of
    the port facilities at Sault Ste. Marie, Ontario;

(ii) a lease of the port lands to
    Portco for a period of 50 years;

(iii) a Cargo Handling Agreement,
    whereby Algoma was to pay Portco US$36 million annually, in monthly
    instalments, for use of the port and cargo-handling facilities; and

(iv) a Shared Services Agreement that required
    Portco to pay Algoma US$11 million annually, in monthly instalments, in exchange
    for Algoma providing operation and maintenance services at the port.

[3]

At the end of the day, Algoma received a total purchase price of
    US$171.5 million.  Of that amount, US$150 million was advanced by GIP to Portco
    which, in turn, used it to pay Algoma.  Portco paid a small further amount
    itself and the balance of the purchase price was paid by way of a US$19.8
    million promissory note from Portco to Algoma (the Note).  Portcos
    obligation under the Note was subsequently assumed by Essar Global Fund Ltd.
    (EGFL), the indirect parent company of both Portco and Algoma.  The structure
    of the Cargo Handling Agreement and the Shared Services Agreement was designed
    to provide Portco with a net stream of payments that would enable it to service
    the GIP loan.

[4]

Unfortunately, the restructuring was unsuccessful.  Algoma filed for
    protection under the CCAA in November, 2015.  DIP lenders provided financing
    during the proceedings.

[5]

Under the Initial CCAA Order, Algoma was required to pay post-filing
    expenses as set out in a cash-flow budget approved by the DIP lenders, and for
    a period of time after the filing Algoma continued to make regular payments
    under the Cargo Handling Agreement.  These payments stopped in May, 2016,
    however, when the DIP lenders refused to approve cash-flow budgets providing
    for those payments so long as the $19.8 million Note remained outstanding.

[6]

This triggered proceedings that have ultimately led to these motions for
    leave to appeal.

The
    First Motion

[7]

In June, 2016, Portco brought a motion  supported by GIP  for an order
    requiring Algoma to resume payments under the Cargo Handling Agreement, relying
    on the provisions of s. 11.01(a) of the CCAA as the basis for the order. 
    Section 11.01(a) permits a company under CCAA protection to make payment for
    post-filing goods and services provided to it.  Portco argued it was providing
    post-filing services under the Cargo Handling Agreement.

[8]

There was also an issue raised by the Monitor and the DIP lenders as to
    whether there was a right, on the part of Algoma, to set off payments due under
    the Cargo Handling Agreement against the amount outstanding on the Note.

[9]

The CCAA Judge dismissed the motion.  He held that s. 11.01(a) was not
    applicable because, in fact, it was Algoma and its employees, and not Portco, who
    were providing all the services necessary for Portco to fulfill its obligations
    under the Cargo Handling Agreement.  He concluded that it was premature to deal
    with the set-off issue.  In dismissing the motion, he said that the dismissal
    was without prejudice to it being brought back on after the set-off issue [had
    been] determined.

[10]

No steps were taken to seek leave to appeal from this decision.

The
    Second Motion

[11]

Not to be deterred, however, Portco  again supported by GIP  brought a
    second motion in October, 2016, seeking the same relief. Again Portco and GIP
    relied on s. 11.01(a).  But this time, they presented a different argument. 
    The Cargo Handling Agreement was in reality a licensing agreement, they
    submitted, and Algoma was not entitled to enter onto the premises without
    paying under the license.

[12]

The CCAA Judge dismissed the motion again.  First, he held that the
    issue of s. 11.01(a)s applicability had been decided on the previous motion 
    from which no leave to appeal had been sought  and could not be re-litigated
    under the guise of a different argument which could have been raised on the
    First Motion.  In holding that the s. 11.01(a) issue had already been finally
    decided against Portco, and with respect to the without prejudice aspect of
    the first order, he was very clear:
[3]

I must say that when I stated that the first Portco motion was
    dismissed without prejudice to it being brought back on after the set-off issue
    was determined, it was not intended to enable Portco to raise anew those issues
    that had been decided against it.  It was intended to permit Portco to come
    back if it succeeded on the set-off point or the issues raised by the Monitor. 
    Portco however continues to raise issues already decided against it.

[13]

Secondly, and in any event, the CCAA Judge rejected the licensing
    argument. He further concluded that even if Portco were free to raise the s.
    11.01(a) issue  which it was not free to do  he would not have ordered
    payment of amounts due under the Cargo Handling Agreement at that stage in the face
    of related oppression remedy proceedings involving the Port Transaction that
    were pending before him as well.

[14]

No steps were taken to seek leave to appeal from this second order.

The
    Oppression Proceedings


[15]

In September, 2016, the CCAA Judge had authorized the Monitor to
    commence oppression remedy proceedings on behalf of Algoma with regard to the
    Port Transaction.  EGFL (the obligor under the Note) asserted a counterclaim in
    those proceedings, arguing that the amounts owing to Portco under the Cargo
    Handling Agreement could be set off against the $19.8 million Note and that
    that amount had then been exceeded, with the result that payments should resume
    under the Cargo Handling Agreement.

[16]

The oppression remedy proceedings were heard by Newbould J. as well, in
    early 2017.  On March 6, 2017, he released his reasons.  He found the Port
    Transaction was oppressive and unfairly disregarded the interests of Algomas
    trade creditors, employees, pensioners and retirees, but did not set aside the
    transaction.  Instead, he ordered that the transaction documents be amended in
    various ways, the particulars of which are not important to the leave to appeal
    issues.  He declined to deal with the set-off issue in those proceedings,
    however, concluding instead that the appropriate place to make this claim is
    in the CCAA proceedings.

The
    Third Motion

[17]

Very quickly  in April, 2017  the s. 11.01(a) issue was brought back
    again, this time by way of a GIF motion, supported by Portco.  In an April 28
th
endorsement, Newbould J. once again dismissed the motion.  This time he said:
[4]

This is the third time that this argument has been advanced. It
    was unsuccessfully argued by Portco on two previous motions requesting orders
    that the payments under the Cargo Handling Agreement resume. On the first
    occasion, it was argued that Portco was providing services to Algoma on the
    Port facilities and that section 11.01(a) required immediate payment. I held
    that Portco was not providing the services but rather Algoma personnel who were
    doing all of the work. On the second occasion Portco added the argument that
    Portco was licensing the Port facilities to Algoma and that the payments under
    the Cargo Handling Agreement were for that purpose and therefore had to be
    made. I held that it was not open to Portco to make that new argument but that
    in any event I did not accept it

Portco adds another argument why the access of Algoma to the
    Port facilities is a licence. Again, that should have been argued in the first
    go-around on the point. It says that under the Cargo Handling Agreement, Algoma
    can enter the property only if it makes payment under that agreement. I do not
    agree. What the Cargo Handling Agreement provides in section 3.3 is that
    notwithstanding that Algoma's access to the Port is non-exclusive, Algoma shall
    have priority access so long as it makes its payments due under the Cargo
    Handling Agreement. That in no way can be construed to be a licence. That
    section recognizes Algoma's right to access to the Port facilities as provided
    for in the Lease.

In short, even if it were permissible for Portco or GIP to
    again raise section 11.01(a), which it is not, I cannot find that there was a
    licence relationship between Algoma and Portco regarding the Port assets.

[18]

It is this order that is the subject of these motions for leave to
    appeal.

Analysis

[19]

Leave to appeal is to be granted sparingly in CCAA proceedings.  This is
    because of the real time dynamic of CCAA matters and the generally
    discretionary character underlying many of the orders made by supervising
    judges in such proceedings and the deference to be accorded to those
    decisions.  In considering whether to grant leave, the court will consider
    whether:

(i) the proposed appeal is
prima
    facie
meritorious or frivolous;

(ii) the point on the proposed appeal
    is of significance to the practice;

(iii) the point on the proposed appeal
    is of significance to the proceeding; and

(iv) whether the proposed appeal will
    unduly hinder the progress of the action.

See
Re Stelco Inc.
, [2005] O.J. No.
    4883 (C.A.), at paras. 15-20;
Nortel Networks Corporation (Re)
, 2016
    ONCA 332, 130 O.R. (3d) 481, at para. 34.

[20]

In our view, the leave motions fail on the first two of these factors.

The Merits

[21]

GIP and Portco propose identical questions to be determined on the
    appeal if leave is granted:

(i) Did the motion judge err in
    concluding that [GIP and Portco were] precluded from arguing that Algoma is
    required by section 11.01(a) of the CCAA to make payments under the Cargo
    Handling Agreement?

(ii) Did the motion judge err in his
    interpretation of section 11.01(a) of the CCAA?

[22]

The application and interpretation of s. 11.01(a) of the CCAA are
    precisely the issues that were addressed by the motion judge in the First
    Motion, and in the Second Motion (in addition to whether those issues were
res
    judicata
), and in the Third Motion (which led to the order from which
    leave to appeal is now sought).  In spite of the moving parties attempts on
    the Second and Third Motions to wrap their arguments in different packaging,
    the issues remained the same: the interpretation of s. 11.01(a) and its
    application in the particular circumstances of this CCAA proceeding.

[23]

Those issues have now been determined adversely against the moving parties
    three times.  No steps were taken to obtain leave to appeal from the motion
    judges orders on the First Motion or the Second Motion.  We are not persuaded
    there is
prima facie
merit in the attempt now to seek leave to appeal
    from a third unsuccessful attempt to invoke s. 11.01(a) of the CCAA.

[24]

The moving parties argue that the landscape has changed since Newbould
    J.s determination of the oppression remedy proceedings.
[5]
They submit that, in declining to deal with the set-off issue in those proceedings
    and determining that the appropriate place to make [that] claim is in the CCAA
    proceedings, he opened the door for a re-consideration of the s. 11.01(a)
    issue.  The record does not support that submission.

[25]

Newbould J. dealt with the set-off counterclaim in one paragraph at the
    end of his reasons in the oppression remedy proceedings.  He said:
[6]

Portco has made a counterclaim for a declaration that the $19.8
    million note has been paid in full as a result of set-off and for payments
    beyond that amount said to be owing under the Cargo Handling Agreement.  When
    and how the set-off occurred is not in the record and whether that could be
    affected by the stay of proceedings in the CCAA has not been argued.  Nor are
    the amounts said to be owing set out with any precision.  In my view the
    appropriate place to make this claim is in the CCAA proceedings and I do not
    intend to deal with it in this counterclaim.

[26]

We see nothing in this disposition to suggest that Newbould J. had
    somehow signalled that he was re-opening  even if he were entitled to do so 
    the s. 11.01(a) issues, which he had clearly determined against the moving
    parties interests on the First and Second Motions.  Nor is there any
    indication in his reasons provided on the Third Motion  which was heard
after
his decision in the oppression remedy proceedings
    had been released  that he intended that to be the case.  Indeed, as stated in
    the passage of his reasons on the Third Motion set out above, quite the
    opposite was the case.

[27]

The same parties have now joined issue on the same legal questions (the
    interpretation and application of s. 11.01(a) in the circumstances of the CCAA proceedings)
    three times.  The CCAA Judge, presiding in a court of competent jurisdiction,
    had finally determined those legal questions twice before the Third Motion was
    launched, and there were no attempts to appeal.  All the relevant factors for
    the application of issue estoppel are present and the decisions are binding on
    the moving parties, absent a successful appeal: see
Danyluk v. Ainsworth
    Technologies Inc.
, 2001 SCC 44, at para. 25;
Diamond v. Western Realty
    Co.
, [1924] S.C.R. 308, at para. 35.  They deprive the proposed appeal of the
    merit required for leave to appeal to be granted.

[28]

The moving parties raise an additional argument, however.  They submit
    that, even if the elements of issue estoppel have been established, the court
    retains a residual discretion to decline to apply the doctrine, and that the
    CCAA Judge failed to take that factor into consideration.

[29]

We disagree. In concluding that payments to Portco under the Cargo
    Handling Agreement should not resume, the CCAA Judge considered and weighed the
    interests of all stakeholders involved in the CCAA proceeding  including the
    fact that to allow the payments to resume would be to permit a breach of the
    DIP financing then in place, thereby jeopardizing that financing  and
    concluded that it would not be appropriate in the circumstances to lift the
    CCAA stay in respect of those payments.  In doing so, he was exercising the
    same discretion that would apply to the estoppel issue.  We see no error that
    would justify granting leave to appeal in the exercise of that discretion.

Significance
    to the Practice

[30]

We accept that the s. 11.01(a) issues have considerable significance for
    this particular CCAA proceeding, but we are not persuaded that they have
    significance for the practice in the circumstances of this proceeding.

[31]

Whether s. 11.01(a) is available to benefit the moving parties, thereby
    giving them an advantage over other stakeholders in terms of the servicing of
    the GIP loan, depends upon the interpretation and application of the particular
    agreements that underlie the Port Transaction and upon how they are being
    carried out in practice.  Thus, the proposed appeals arise out of the unique
    and inter-related agreements that formed the Port Transaction.  We see little
    of assistance to the general practice of insolvency law that would arise in the
    proposed appeals.

Undue Hindrance of the
    Proceedings

[32]

We do not think that granting leave to appeal would unduly hinder the
    progress of the CCAA proceedings, given that the appeals could be heard
    together with the pending appeal in the oppression remedy proceedings in
    August.  However, in view of the foregoing conclusions, this does not assist
    the moving parties in the circumstances.

Disposition

[33]

For the reasons set out above, the motions for leave to appeal are
    dismissed.

[34]

The Monitor and Algoma are each entitled to their costs of the leave motions,
    fixed in the amount of $3,000, as against the moving parties, jointly and
    severally.

E.A. Cronk J.A.

R.A. Blair J.A.

K. van Rensburg J.A.





[1]

Companies Creditors Arrangement Act
, R.S.C. 1985, c.
    C-36.



[2]

Canada Business Corporations Act
, R.S.C.
1985, c. C-44.



[3]

2016 ONSC 6459, at para. 9.



[4]
2017 ONSC 2585, at paras. 10-12.



[5]

An appeal from that order is scheduled to be heard in this
    Court in August of this year.



[6]
2017 ONSC 1366, at para. 147.


