Court File No. CV-19-625200-00CL

ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST

IN THE MATTER OF THE COMPANIES’ ARRANGEMENT ACT, R.S.C. 1985, C. C-36, AS AMENDED

AND IN THE MATTER OF JACK COOPER VENTURES, INC., JACK COOPER DIVERSIFIED, LLC, JACK COOPER ENTERPRISES, INC., JACK COOPER HOLDINGS CORP., JACK COOPER TRANSPORT COMPANY, INC., AUTO HANDLING CORPORATION, CTEMS, LLC, JACK COOPER LOGISTICS, LLC, AUTO & BOAT RELOCATION SERVICES, LLC, AXIS LOGISTIC SERVICES, INC., JACK COOPER CT SERVICES, INC., JACK COOPER RAIL AND SHUTTLE, INC., JACK COOPER INVESTMENTS, INC., NORTH AMERICAN AUTO TRANSPORTATION CORP., JACK COOPER TRANSPORT INC., JACK COOPER CANADA GP 1 INC., JACK COOPER CANADA GP 2 INC., JACK COOPER CANADA 1 , JACK COOPER CANADA 2 LIMITED PARTNERSHIP

APPLICATION OF JACK COOPER VENTURES, INC. UNDER SECTION 46 OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED APPLICANT

BOOK OF AUTHORITIES OF THE APPLICANT (Motion returnable October 18, 2019) October 17, 2019 OSLER, HOSKIN & HARCOURT LLP Box 50, 1 First Canadian Place , , Canada M5X 1B8

Marc Wasserman (LSO# 44066M) Tel: 416.862.4908 [email protected]

Shawn T. Irving (LSO# 50035U) Tel: 416.862.4733 [email protected]

Andrea Lockhart (LSO# 55444K) Tel: 416.862.6829 [email protected]

Lawyers for the Applicant TO: THE SERVICE LIST INDEX LIST OF AUTHORITIES

Tab Case Law

1. Babcock & Wilcox Canada Ltd (Re), 2000 CarswellOnt 704 (SCJ [Commercial List]) 2. Caesars Entertainment Operating Co (Re), 2015 ONSC 712

3. Digital Domain Media Group Inc, (Re), 2012 BCSC 1567 4. Hartford Computer Hardware Inc, (Re), 2012 ONSC 964 5. Hartford Computer Hardware, Inc (Re), (March 9, 2012), Ont SCJ [Commercial List], Court File No CV-11-9514-00CL (Recognition, Approval and Vesting Order) 6. Jack Cooper Ventures, Inc et al (Re), (August 9, 2019), Ont SCJ [Commercial List], Court File No CV-19-625200-00CL (Initial Recognition Order) 7. Lightsquared Inc (Re), 2015 ONSC 2309 8. Massachusetts Elephant & Castle Group Inc (Re), 2011 ONSC 4201 9. Olympia & York Developments Ltd v Royal Trust Co, 1993 CarswellOnt 212 (Ct J [Gen Div]) 10. Payless Holdings Inc LLC, (Re), 2017 ONSC 2242 11. Royal Bank v Soundair Corp, 1991 CarswellOnt 205 (CA) 12. Ultra Petroleum Corp (Re), 2017 YKSC 23 13. Walter Energy Canada Holdings, Inc (Re), 2017 BCSC 709 14. Xerium Technologies Inc (Re), 2010 ONSC 3974 TAB 1 2000 CarswellOnt 704 Ontario Superior Court of Justice [Commercial List]

Babcock & Wilcox Canada Ltd., Re

2000 CarswellOnt 704, [2000] O.J. No. 786, 18 C.B.R. (4th) 157, 5 B.L.R. (3d) 75, 95 A.C.W.S. (3d) 608 In the Matter of Section 18.6 of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended In the Matter of Babcock & Wilcox Canada Ltd.

Farley J.

Heard: February 25, 2000 Judgment: February 25, 2000 Docket: 00-CL-3667

Counsel: Derrick Tay, for Babcock & Wilcox Canada Ltd. Paul Macdonald, for Citibank Inc., Lenders under the Post-Petition Credit Agreement.

Farley J.:

1 I have had the opportunity to reflect on this matter which involves an aspect of the recent amendments to the legislation of Canada, which amendments have not yet been otherwise dealt with as to their substance. The applicant, Babcock & Wilcox Canada Ltd. ("BW Canada"), a solvent company, has applied for an interim order under s. 18.6 of the Companies' Creditors Arrangement Act ("CCAA"):

(a) that the proceedings commenced by BW Canada's parent U.S. corporation and certain other U.S. related corporations (collectively "BWUS") for protection under Chapter 11 of the U.S. Code in connection with mass asbestos claims before the U.S. Bankruptcy Court be recognized as a "foreign proceeding" for the purposes of s. 18.6;

(b) that BW Canada be declared a company which is entitled to avail itself of the provisions of s. 18.6;

(c) that there be a stay against suits and enforcements until May 1, 2000 (or such later date as the Court may order) as to asbestos related proceedings against BW Canada, its property and its directors;

1 (d) that BW Canada be authorized to guarantee the obligations of its parent to the DIP Lender ( in possession lender) and grant security therefor in favour of the DIP Lender; and

(e) and for other ancillary relief.

2 In Chapter 11 proceedings under the U.S. Bankruptcy Code, the U.S. Bankruptcy Court in New Orleans issued a temporary restraining order on February 22, 2000 wherein it was noted that BW Canada may be subject to actions in Canada similar to the U.S. asbestos claims. U.S. Bankruptcy Court Judge Brown's temporary restraining order was directed against certain named U.S. resident plaintiffs in the asbestos litigation:

. . . and towards all plaintiffs and potential plaintiffs in Other Derivative Actions, that they are hereby restrained further prosecuting Pending Actions or further prosecuting or commencing Other Derivative Actions against Non-Debtor Affiliates, until the Court decides whether to grant the ' request for a preliminary injunction.

Judge Brown further requested the aid and assistance of the Canadian courts in carrying out the U.S. Bankruptcy Court's orders. The "Non-Debtor Affiliates" would include BW Canada.

3 Under the 1994 amendments to the U.S. Bankruptcy Code, the concept of the establishment of a trust sufficient to meet the court determined liability for a mass torts situations was introduced. I am advised that after many years of successfully resolving the overwhelming majority of claims against it on an individual basis by settlement on terms BWUS considered reasonable, BWUS has determined, as a result of a spike in claims with escalating demands when it was expecting a decrease in claims, that it is appropriate to resort to the mass tort trust concept. Hence its application earlier this week to Judge Brown with a view to eventually working out a global process, including incorporating any Canadian claims. This would be done in conjunction with its joint pool of which covers both BWUS and BW Canada. Chapter 11 proceedings do not require an applicant thereunder to be insolvent; thus BWUS was able to make an application with a view towards the 1994 amendments (including s. 524(g)). This subsection would permit the U.S. Bankruptcy Court on confirmation of a plan of reorganization under Chapter 11 with a view towards rehabilitation in the sense of avoiding insolvency in a mass torts situation to:

. . . enjoin entities from taking legal action for the purpose of directly or indirectly collecting, recovering, or receiving payment or recovery with respect to any claims or demand that, under a plan of reorganization, is to be paid in whole or in part by a trust.

4 In 1997, ss. 267-275 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, as amended ("BIA") and s. 18.6 of the CCAA were enacted to address the rising number of international ("1997 Amendments"). The 1997 Amendments were introduced after a lengthy

2 consultation process with the insolvency profession and others. Previous to the 1997 Amendments, Canadian courts essentially would rely on the evolving common law principles of comity which permitted the Canadian court to recognize and enforce in Canada the judicial acts of other jurisdictions.

5 La Forest J in Morguard Investments Ltd. v. De Savoye (1990), 76 D.L.R. (4th) 256 (S.C.C.), at p. 269 described the principle of comity as:

"Comity" in the legal sense, is neither a matter of absolute obligation, on hand, nor of mere courtesy and goodwill, upon the other. But it is the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation, having due regard both to international duty and convenience, and to the rights of its own citizens or of other persons who are under the protections of its laws . . .

6 In ATL Industries Inc. v. Han Eol Ind. Co. (1995), 36 C.P.C. (3d) 288 (Ont. Gen. Div. [Commercial List]), at pp. 302-3 I noted the following:

Allow me to start off by stating that I agree with the analysis of MacPherson J. in Arrowmaster Inc. v. Unique Forming Ltd. (1993), 17 O.R. (3d) 407 (Gen. Div.) when in discussing Morguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077, 76 D.L.R. (4th) 256, 52 B.C.L.R. (2d) 160, 122 N.R. 81, [1991] 2 W.W.R. 217, 46 C.P.C. (2d) 1, 15 R.P.R. (2d) 1, he states at p.411:

The leading case dealing with the enforcement of "foreign" judgments is the decision of the Supreme Court of Canada in Morguard Investments, supra. The question in that case was whether, and the circumstances in which, the judgment of an Alberta court could be enforced in British Columbia. A unanimous court, speaking through La Forest J., held in favour of enforceability and, in so doing, discussed in some detail the doctrinal principles governing inter-jurisdictional enforcement of orders. I think it fair to say that the overarching theme of La Forest J.'s reasons is the necessity and desirability, in a mobile global society, for governments and courts to respect the orders made by courts in foreign jurisdictions with comparable legal systems, including substantive laws and rules of procedure. He expressed this theme in these words, at p. 1095:

Modern states, however, cannot live in splendid isolation and do give effect to judgments given in other countries in certain circumstances. Thus a judgment in rem, such as a decree of divorce granted by the courts of one state to persons domiciled there, will be recognized by the courts of other states. In certain circumstances, as well, our courts will enforce personal judgments given in other states. Thus, we saw, our courts will enforce an action for breach of contract given by the courts of another country if the defendant was present there at the time of the action or has agreed to the foreign court's exercise of jurisdiction. This, it was

3 thought, was in conformity with the requirements of comity, the informing principle of private international law, which has been stated to be the deference and respect due by other states to the actions of a state legitimately taken within its territory. Since the state where the judgment was given has power over the litigants, the judgments of its courts should be respected. (emphasis added in original)

Morguard Investments was, as stated earlier, a case dealing with the enforcement of a court order across provincial boundaries. However, the historical analysis in La Forest J.'s judgment, of both the United Kingdom and Canadian jurisprudence, and the doctrinal principles enunciated by the court are equally applicable, in my view, in a situation where the judgment has been rendered by a court in a foreign jurisdiction. This should not be an absolute rule - there will be some foreign court orders that should not be enforced in Ontario, perhaps because the substantive law in the foreign country is so different from Ontario's or perhaps because the legal process that generates the foreign order diverges radically from Ontario's process. (my emphasis added)

Certainly the substantive and procedural aspects of the U.S. Bankruptcy Code including its 1994 amendments are not so different and do not radically diverge from our system.

7 After reviewing La Forest J.'s definition of comity, I went on to observe at p. 316:

As was discussed by J.G. Castel, Canadian Conflicts of Laws, 3rd ed. (Toronto: Butterworths, 1994) at p. 270, there is a presumption of validity attaching to a foreign judgment unless and until it is established to be invalid. It would seem that the same type of evidence would be required to impeach a foreign judgment as a domestic one: fraud practiced on the court or : see Sun Alliance Insurance Co. v. Thompson (1981), 56 N.S.R. (2d) 619, 117 A.P.R. 619 (T.D.), Sopinka, supra, at p. 992.

La Forest J. went on to observe in Morguard at pp. 269-70:

In a word, the rules of private international law are grounded in the need in modern times to facilitate the flow of wealth, skills and people across state lines in a fair and orderly manner...... Accommodating the flow of wealth, skills and people across state lines has now become imperative. Under these circumstances, our approach to the recognition and enforcement of foreign judgments would appear ripe for reappraisal.

See also Hunt v. T & N plc (1993), 109 D.L.R. (4th) 16 (S.C.C.), at p. 39.

8 While Morguard was an interprovincial case, there is no doubt that the principles in that case are equally applicable to international matters in the view of MacPherson J. and myself in Arrowmaster (1993), 17 O.R. (3d) 407 (Ont. Gen. Div.), and ATL respectively. Indeed the analysis

4 by La Forest J. was on an international plane. As a country whose well-being is so heavily founded on international trade and investment, Canada of necessity is very conscious of the desirability of invoking comity in appropriate cases.

9 In the context of cross-border insolvencies, Canadian and U.S. Courts have made efforts to complement, coordinate and where appropriate accommodate the proceedings of the other. Examples of this would include Olympia & York Developments Ltd., Ever fresh Beverages Inc. and Loewen Group Inc. v. Continental Insurance Co. of Canada (1997), 48 C.C.L.I. (2d) 119 (B.C. S.C.). Other examples involve the situation where a multi-jurisdictional proceeding is specifically connected to one jurisdiction with that jurisdiction's court being allowed to exercise principal control over the insolvency process: see Roberts v. Picture Butte Municipal Hospital (1998), 23 C.P.C. (4th) 300 (Alta. Q.B.), at pp. 5-7 [[1998] A.J. No. 817]; Microbiz Corp. v. Classic Software Systems Inc. (1996), 45 C.B.R. (3d) 40 (Ont. Gen. Div.), at p. 4; Tradewell Inc. v. American Sensors Electronics, Inc., 1997 WL 423075 (S.D.N.Y. 1997).

10 In Roberts, Forsythe J. at pp. 5-7 noted that steps within the proceedings themselves are also subject to the dictates of comity in recognizing and enforcing a U.S. Bankruptcy Court stay in the Dow Corning litigation [Taylor v. Dow Corning Australia Pty. Ltd. (December 19, 1997), Doc. 8438/95 (Australia Vic. Sup. Ct.)] as to a debtor in Canada so as to promote greater efficiency, certainty and consistency in connection with the debtor's efforts. Foreign claimants were provided for in the U.S. corporation's plan. Forsyth J. stated:

Comity and cooperation are increasingly important in the bankruptcy context. As internationalization increases, more parties have assets and carry on activities in several jurisdictions. Without some coordination there would be multiple proceedings, inconsistent judgments and general uncertainty.

. . . I find that common sense dictates that these matters would be best dealt with by one court, and in the interest of promoting international comity it seems the forum for this case is in the U.S. Bankruptcy Court. Thus, in either case, whether there has been an attornment or not, I conclude it is appropriate for me to exercise my discretion and apply the principles of comity and grant the Defendant's stay application. I reach this conclusion based on all the circumstances, including the clear wording of the U.S. Bankruptcy Code provision, the similar philosophies and procedures in Canada and the U.S., the Plaintiff's attornment to the jurisdiction of the U.S. Bankruptcy Court, and the incredible number of claims outstanding . . . (emphasis added)

11 The CCAA as remedial legislation should be given a liberal interpretation to facilitate its objectives. See Hongkong Bank of Canada v. Chef Ready Foods Ltd. (1990), 4 C.B.R. (3d) 311 (B.C. C.A.), at p. 320; Lehndorff General Partner Ltd., Re (1993), 17 C.B.R. (3d) 24 (Ont. Gen. Div. [Commercial List]).

5 12 David Tobin, the Director General, Corporate Governance Branch, Department of Industry in testifying before the Standing Committee on Industry regarding Bill C-5, An Act to amend the BIA, the CCAA and the Income Tax Act, stated at 1600:

Provisions in Bill C-5 attempt to actually codify, which has always been the practice in Canada. They include the Court recognition of foreign representatives; Court authority to make orders to facilitate and coordinate international insolvencies; provisions that would make it clear that foreign representatives are allowed to commence proceedings in Canada, as per Canadian rules - however, they clarify that foreign stays of proceedings are not applicable but a foreign representative can apply to a court for a stay in Canada; and Canadian creditors and assets are protected by the bankruptcy and insolvency rules.

The philosophy of the practice in international matters relating to the CCAA is set forth in Olympia & York Developments Ltd. v. Royal Trust Co. (1993), 20 C.B.R. (3d) 165 (Ont. Gen. Div.), at p. 167 where Blair J. stated:

The Olympia & York re-organization involves proceedings in three different jurisdictions: Canada, the United States and the United Kingdom. Insolvency disputes with international overtones and involving property and assets in a multiplicity of jurisdictions are becoming increasingly frequent. Often there are differences in legal concepts - sometimes substantive, sometimes procedural - between the jurisdictions. The Courts of the various jurisdictions should seek to cooperate amongst themselves, in my view, in facilitating the trans-border resolution of such disputes as a whole, where that can be done in a fashion consistent with their own fundamental principles of jurisprudence. The interests of international cooperation and comity, and the interests of developing at least some degree of certitude in international business and commerce, call for nothing less.

Blair J. then proceeded to invoke inherent jurisdiction to implement the Protocol between the U.S. Bankruptcy Court and the Ontario Court. See also my endorsement of December 20, 1995, in Everfresh Beverages Inc. where I observed: "I would think that this Protocol demonstrates the 'essence of comity' between the Courts of Canada and the United States of America." Everfresh was an example of the effective and efficient use of the Cross-Border Insolvency Concordat, adopted by the Council of the International Bar Association on May 31, 1996 (after being adopted by its Section on Business Law Council on September 17, 1995), which Concordat deals with, inter alia, principal of a debtor's reorganization and ancillary jurisdiction. See also the UNCITRAL Model Law on Cross-Border Insolvency.

13 Thus it seems to me that this application by BW Canada should be reviewed in light of (i) the doctrine of comity as analyzed in Morguard, Arrowmaster and ATL, supra, in regard to its international aspects; (ii) inherent jurisdiction; (iii) the aspect of the liberal interpretation of the CCAA generally; and (iv) the assistance and codification of the 1997 Amendments.

6 "Foreign proceeding" is defined in s. 18.6(1) as:

In this section,

"foreign proceeding" means a judicial or administrative proceeding commenced outside Canada in respect of a debtor under a law relating to bankruptcy or insolvency and dealing with the collective interests of creditors generally; . . .

Certainly a U.S. Chapter 11 proceeding would fit this definition subject to the question of "debtor". It is important to note that the definition of "foreign proceeding" in s. 18.6 of the CCAA contains no specific requirement that the debtor be insolvent. In contrast, the BIA defines a "debtor" in the context of a foreign proceeding (Part XIII of the BIA) as follows:

s. 267 In this Part,

"debtor" means an insolvent person who has property in Canada, a bankrupt who has property in Canada or a person who has the status of a bankrupt under foreign law in a foreign proceeding and has property in Canada; . . . (emphasis added)

I think it a fair observation that the BIA is a rather defined code which goes into extensive detail. This should be contrasted with the CCAA which is a very short general statute which has been utilized to give flexibility to meet what might be described as the peculiar and unusual situation circumstances. A general categorization (which of course is never completely accurate) is that the BIA may be seen as being used for more run of the mill cases whereas the CCAA may be seen as facilitating the more unique or complicated cases. Certainly the CCAA provides the flexibility to deal with the thornier questions. Thus I do not think it unusual that the draftees of the 1997 Amendments would have it in their minds that the provisions of the CCAA dealing with foreign proceedings should continue to reflect this broader and more flexible approach in keeping with the general provisions of the CCAA, in contrast with the corresponding provisions under the BIA. In particular, it would appear to me to be a reasonably plain reading interpretation of s. 18.6 that recourse may be had to s. 18.6 of the CCAA in the case of a solvent debtor. Thus I would conclude that the aspect of insolvency is not a condition precedent vis-a-vis the "debtor" in the foreign proceedings (here the Chapter 11 proceedings) for the proceedings in Louisiana to be a foreign proceeding under the definition of s. 18.6. I therefore declare that those proceedings are to be recognized as a "foreign proceeding" for the purposes of s. 18.6 of the CCAA.

14 It appears to me that my conclusion above is reinforced by an analysis of s. 18.6(2) which deals with concurrent filings by a debtor under the CCAA in Canada and corresponding bankruptcy or insolvency legislation in a foreign jurisdiction. This is not the situation here, but it would be applicable in the Loewen case. That subsection deals with the coordination of proceedings as to a "debtor company" initiated pursuant to the CCAA and the foreign legislation.

7 s. 18.6(2). The court may, in respect of a debtor company, make such orders and grant such relief as it considers appropriate to facilitate, approve or implement arrangements that will result in a coordination of proceedings under the Act with any foreign proceeding. (emphasis added)

15 The definition of "debtor company" is found in the general definition section of the CCAA, namely s. 2 and that definition incorporates the concept of insolvency. Section 18.6(2) refers to a "debtor company" since only a "debtor company" can file under the CCAA to propose a compromise with its unsecured or secured creditors: ss. 3, 4 and 5 CCAA. See also s. 18.6(8) which deals with currency concessions "[w]here a compromise or arrangement is proposed in respect of a debtor company . . . ". I note that "debtor company" is not otherwise referred to in s. 18.6; however "debtor" is referred to in both definitions under s. 18.6(1).

16 However, s. 18.6(4) provides a basis pursuant to which a company such as BW Canada, a solvent corporation, may seek judicial assistance and protection in connection with a foreign proceeding. Unlike s. 18.6(2), s. 18.6(4) does not contemplate a full filing under the CCAA. Rather s. 18.6(4) may be utilized to deal with situations where, notwithstanding that a full filing is not being made under the CCAA, ancillary relief is required in connection with a foreign proceeding.

s. 18.6(4) Nothing in this section prevents the court, on the application of a foreign representative or any other interested persons, from applying such legal or equitable rules governing the recognition of foreign insolvency orders and assistance to foreign representatives as are not inconsistent with the provisions of this Act. (emphasis added)

BW Canada would fit within "any interested person" to bring the subject application to apply the principles of comity and cooperation. It would not appear to me that the relief requested is of a nature contrary to the provisions of the CCAA.

17 Additionally there is s. 18.6(3) whereby once it has been established that there is a foreign proceeding within the meaning of s. 18.6(1) (as I have concluded there is), then this court is given broad powers and wide latitude, all of which is consistent with the general judicial analysis of the CCAA overall, to make any order it thinks appropriate in the circumstances.

s. 18.6(3) An order of the court under this Section may be made on such terms and conditions as the court considers appropriate in the circumstances.

This subsection reinforces the view expressed previously that the 1997 Amendments contemplated that it would be inappropriate to pigeonhole or otherwise constrain the interpretation of s. 18.6 since it would be not only impracticable but also impossible to contemplate the myriad of circumstances arising under a wide variety of foreign legislation which deal generally and

8 essentially with bankruptcy and insolvency but not exclusively so. Thus, the Court was entrusted to exercise its discretion, but of course in a judicial manner.

18 Even aside from that, I note that the Courts of this country have utilized inherent jurisdiction to fill in any gaps in the legislation and to promote the objectives of the CCAA. Where there is a gap which requires bridging, then the question to be considered is what will be the most practical common sense approach to establishing the connection between the parts of the legislation so as to reach a just and reasonable solution. See Westar Mining Ltd., Re (1992), 14 C.B.R. (3d) 88 (B.C. S.C.), at pp. 93-4; Pacific National Lease Holding Corp. v. Sun Life Trust Co. (1995), 34 C.B.R. (3d) 4 (B.C. C.A.), at p. 2; Lehndorff General Partner Ltd. at p. 30.

19 The Chapter 11 proceedings are intended to resolve the mass asbestos related tort claims which seriously threaten the long term viability of BWUS and its subsidiaries including BW Canada. BW Canada is a significant participant in the overall Babcock & Wilcox international organization. From the record before me it appears reasonably clear that there is an interdependence between BWUS and BW Canada as to facilities and services. In addition there is the fundamental element of financial and business stability. This interdependence has been increased by the financial assistance given by the BW Canada guarantee of BWUS' obligations.

20 To date the overwhelming thrust of the asbestos related litigation has been focussed in the U.S. In contradistinction BW Canada has not in essence been involved in asbestos litigation to date. The 1994 amendments to the U.S. Bankruptcy Code have provided a specific regime which is designed to deal with the mass tort claims (which number in the hundreds of thousands of claims in the U.S.) which appear to be endemic in the U.S. litigation arena involving asbestos related claims as well as other types of mass torts. This Court's assistance however is being sought to stay asbestos related claims against BW Canada with a view to this stay facilitating an environment in which a global solution may be worked out within the context of the Chapter 11 proceedings trust.

21 In my view, s. 18.6(3) and (4) permit BW Canada to apply to this Court for such a stay and other appropriate relief. Relying upon the existing law on the recognition of foreign insolvency orders and proceedings, the principles and practicalities discussed and illustrated in the Cross- Border Insolvency Concordat and the UNCITRAL Model Law on Cross-Border Insolvencies and inherent jurisdiction, all as discussed above, I would think that the following may be of assistance in advancing guidelines as to how s. 18.6 should be applied. I do not intend the factors listed below to be exclusive or exhaustive but merely an initial attempt to provide guidance:

(a) The recognition of comity and cooperation between the courts of various jurisdictions are to be encouraged.

(b) Respect should be accorded to the overall thrust of foreign bankruptcy and insolvency legislation in any analysis, unless in substance generally it is so different from the

9 bankruptcy and insolvency law of Canada or perhaps because the legal process that generates the foreign order diverges radically from the process here in Canada.

(c) All stakeholders are to be treated equitably, and to the extent reasonably possible, common or like stakeholders are to be treated equally, regardless of the jurisdiction in which they reside.

(d) The enterprise is to be permitted to implement a plan so as to reorganize as a global unit, especially where there is an established interdependence on a transnational basis of the enterprise and to the extent reasonably practicable, one jurisdiction should take charge of the principal administration of the enterprise's reorganization, where such principal type approach will facilitate a potential reorganization and which respects the claims of the stakeholders and does not inappropriately detract from the net benefits which may be available from alternative approaches.

(e) The role of the court and the extent of the jurisdiction it exercises will vary on a case by case basis and depend to a significant degree upon the court's nexus to that enterprise; in considering the appropriate level of its involvement, the court would consider:

(i) the location of the debtor's principal operations, undertaking and assets;

(ii) the location of the debtor's stakeholders;

(iii) the development of the law in each jurisdiction to address the specific problems of the debtor and the enterprise;

(iv) the substantive and procedural law which may be applied so that the aspect of undue prejudice may be analyzed;

(v) such other factors as may be appropriate in the instant circumstances.

(f) Where one jurisdiction has an ancillary role,

(i) the court in the ancillary jurisdiction should be provided with information on an ongoing basis and be kept apprised of developments in respect of that debtor's reorganizational efforts in the foreign jurisdiction;

(ii) stakeholders in the ancillary jurisdiction should be afforded appropriate access to the proceedings in the principal jurisdiction.

(g) As effective notice as is reasonably practicable in the circumstances should be given to all affected stakeholders, with an opportunity for such stakeholders to come back into the court to review the granted order with a view, if thought desirable, to rescind or vary the granted order or to obtain any other appropriate relief in the circumstances.

10 22 Taking these factors into consideration, and with the determination that the Chapter 11 proceedings are a "foreign proceeding" within the meaning of s. 18.6 of the CCAA and that it is appropriate to declare that BW Canada is entitled to avail itself of the provisions of s. 18.6, I would also grant the following relief. There is to be a stay against suits and enforcement as requested; the initial time period would appear reasonable in the circumstances to allow BWUS to return to the U.S. Bankruptcy Court. Assuming the injunctive relief is continued there, this will provide some additional time to more fully prepare an initial draft approach with respect to ongoing matters. It should also be recognized that if such future relief is not granted in the U.S. Bankruptcy Court, any interested person could avail themselves of the "comeback" clause in the draft order presented to me and which I find reasonable in the circumstances. It appears appropriate, in the circumstances that BW Canada guarantee BWUS' obligations as aforesaid and to grant security in respect thereof, recognizing that same is permitted pursuant to the general corporate legislation affecting BW Canada, namely the Business Corporations Act (Ontario). I note that there is also a provision for an "Information Officer" who will give quarterly reports to this Court. Notices are to be published in the Globe & Mail (National Edition) and the National Post. In accordance with my suggestion at the hearing, the draft order notice has been revised to note that persons are alerted to the fact that they may become a participant in these Canadian proceedings and further that, if so, they may make representations as to pursuing their remedies regarding asbestos related claims in Canada as opposed to the U.S. As discussed above the draft order also includes an appropriate "comeback" clause. This Court (and I specifically) look forward to working in a cooperative judicial way with the U.S. Bankruptcy Court (and Judge Brown specifically).

23 I am satisfied that it is appropriate in these circumstances to grant an order in the form of the revised draft (a copy of which is attached to these reasons for the easy reference of others who may be interested in this area of s. 18.6 of the CCAA).

24 Order to issue accordingly. Application granted.

APPENDIX

Court File No. 00-CL-3667 SUPERIOR COURT OF JUSTICE COMMERCIAL LIST THE HONOURABLE FRIDAY, THE 25{TH} DAY OF MR. JUSTICE FARLEY FEBRUARY, 2000 IN THE MATTER OF S. 18.6 OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED AND IN THE MATTER OF BABCOCK & WILCOX CANADA LTD.

11 INITIAL ORDER

THIS MOTION made by the Applicant Babcock & Wilcox Canada Ltd. for an Order substantially in the form attached to the Application Record herein was heard this day, at 393 University Avenue, Toronto, Ontario.

ON READING the Notice of Application, the Affidavit of Victor J. Manica sworn February 23, 2000 (the "Manica Affidavit"), and on notice to the counsel appearing, and upon being advised that no other person who might be interested in these proceedings was served with the Notice of Application herein.

SERVICE

1. THIS COURT ORDERS that the time for service of the Notice of Application and the Affidavit in support of this Application be and it is hereby abridged such that the Application is properly returnable today, and, further, that any requirement for service of the Notice of Application and of the Application Record upon any interested party, other than the parties herein mentioned, is hereby dispensed with.

RECOGNITION OF THE U.S. PROCEEDINGS

2. THIS COURT ORDERS AND DECLARES that the proceedings commenced by the Applicant's United States corporate parent and certain other related corporations in the United States for protection under Chapter 11 of the U.S. Bankruptcy Code in connection with asbestos claims before the U.S. Bankruptcy Court (the "U.S. Proceedings") be and hereby is recognized as a "foreign proceeding" for purposes of Section 18.6 of the Companies' Creditors Arrangement Act, R.S.C. 1985, c.C-36, as amended, (the "CCAA").

APPLICATION

3. THIS COURT ORDERS AND DECLARES that the Applicant is a company which is entitled to relief pursuant to s. 18.6 of the CCAA.

PROTECTION FROM ASBESTOS PROCEEDINGS

4. THIS COURT ORDERS that until and including May 1, 2000, or such later date as the Court may order (the "Stay Period"), no suit, action, enforcement process, extra-judicial proceeding or other proceeding relating to, arising out of or in any way connected to damages or loss suffered, directly or indirectly, from asbestos, asbestos contamination or asbestos related diseases ("Asbestos Proceedings") against or in respect of the Applicant, its directors or any property of the Applicant, wheresoever located, and whether held by the Applicant in whole or in part,

12 directly or indirectly, as principal or nominee, beneficially or otherwise shall be commenced, and any Asbestos Proceedings against or in respect of the Applicant, its directors or the Applicant's Property already commenced be and are hereby stayed and suspended.

5. THIS COURT ORDERS that during the Stay Period, the right of any person, firm, corporation, governmental authority or other entity to assert, enforce or exercise any right, option or remedy arising by law, by virtue of any agreement or by any other means, as a result of the making or filing of these proceedings, the U.S. Proceedings or any allegation made in these proceedings or the U.S. Proceedings be and is hereby restrained.

DIP FINANCING

6. THIS COURT ORDERS that the Applicant is hereby authorized and empowered to guarantee the obligations of its parent, The Babcock & Wilcox Company, to Citibank, N.A., as Administrative Agent, the Lenders, the Swing Loan Lender, and Issuing Banks (as those terms are defined in the Post-Petition Credit Agreement (the "Credit Agreement")) dated as of February 22, 2000 (collectively, the "DIP Lender"), and to grant security (the "DIP Lender's Security") for such guarantee substantially on the terms and conditions set forth in the Credit Agreement.

7. THIS COURT ORDERS that the obligations of the Applicant pursuant to the Credit Agreement, the DIP Lender's Security and all the documents delivered pursuant thereto constitute legal, valid and binding obligations of the Applicant enforceable against it in accordance with the terms thereof, and the payments made and security granted by the Applicant pursuant to such documents do not constitute fraudulent preferences, or other challengeable or reviewable transactions under any applicable law.

8. THIS COURT ORDERS that the DIP Lender's Security shall be deemed to be valid and effective notwithstanding any negative covenants, prohibitions or other similar provisions with respect to incurring debt or the creation of or security contained in any existing agreement between the Applicant and any lender and that, notwithstanding any provision to the contrary in such agreements,

(a) the execution, delivery, perfection or registration of the DIP Lender's Security shall not create or be deemed to constitute a breach by the Applicant of any agreement to which it is a party, and

(b) the DIP Lender shall have no liability to any person whatsoever as a result of any breach of any agreement caused by or resulting from the Applicant entering into the Credit Agreement, the DIP Lender's Security or other document delivered pursuant thereto.

REPORT AND EXTENSION OF STAY

13 9. As part of any application by the Applicant for an extension of the Stay Period:

(a) the Applicant shall appoint Victor J. Manica, or such other senior officer as it deems appropriate from time to time, as an information officer (the "Information Officer");

(b) the Information Officer shall deliver to the Court a report at least once every three months outlining the status of the U.S. Proceeding, the development of any process for dealing with asbestos claims and such other information as the Information Officer believes to be material (the "Information Reports"); and

(c) the Applicant and the Information Officer shall incur no liability or obligation as a result of the appointment of the Information Officer or the fulfilment of the duties of the Information Officer in carrying out the provisions of this Order and no action or other proceedings shall be commenced against the Applicant or Information Officer as an result of or relating in any way to the appointment of the Information Officer or the fulfilment of the duties of the Information Officer, except with prior leave of this Court and upon further order securing the solicitor and his own client costs of the Information Officer and the Applicant in connection with any such action or proceeding.

SERVICE AND NOTICE

10. THIS COURT ORDERS that the Applicant shall, within fifteen (15) business days of the date of entry of this Order, publish a notice of this Order in substantially the form attached as Schedule "A" hereto on two separate days in the Globe & Mail (National Edition) and the National Post.

11. THIS COURT ORDERS that the Applicant be at liberty to serve this Order, any other orders in these proceedings, all other proceedings, notices and documents by prepaid ordinary mail, courier, personal delivery or electronic transmission to any interested party at their addresses as last shown on the records of the Applicant and that any such service or notice by courier, personal delivery or electronic transmission shall be deemed to be received on the next business day following the date of forwarding thereof, or if sent by ordinary mail, on the third business day after mailing.

MISCELLANEOUS

12. THIS COURT ORDERS that notwithstanding anything else contained herein, the Applicant may, by written consent of its counsel of record herein, agree to waive any of the protections provided to it herein.

13. THIS COURT ORDERS that the Applicant may, from time to time, apply to this Court for directions in the discharge of its powers and duties hereunder or in respect of the proper execution of this Order.

14 14. THIS COURT ORDERS that, notwithstanding any other provision of this Order, any interested person may apply to this Court to vary or rescind this order or seek other relief upon 10 days' notice to the Applicant and to any other party likely to be affected by the order sought or upon such other notice, if any, as this Court may order.

15. THIS COURT ORDERS AND REQUESTS the aid and recognition of any court or any judicial, regulatory or administrative body in any province or territory of Canada (including the assistance of any court in Canada pursuant to Section 17 of the CCAA) and the Federal Court of Canada and any judicial, regulatory or administrative tribunal or other court constituted pursuant to the Parliament of Canada or the legislature of any province and any court or any judicial, regulatory or administrative body of the United States and the states or other subdivisions of the United States and of any other nation or state to act in aid of and to be complementary to this Court in carrying out the terms of this Order.

Schedule "A"

NOTICE

RE: IN THE MATTER OF S. 18.6 OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED (the "CCAA")

AND IN THE MATTER OF BABCOCK & WILCOX CANADA LTD.

PLEASE TAKE NOTICE that this notice is being published pursuant to an Order of the Superior Court of Justice of Ontario made February 25, 2000. The corporate parent of Babcock & Wilcox Canada Ltd. and certain other affiliated corporations in the United States have filed for protection in the United States under Chapter 11 of the Bankruptcy Code to seek, as the result of recent, sharp increases in the cost of settling asbestos claims which have seriously threatened the Babcock & Wilcox Enterprise's long term health, protection from mass asbestos claims to which they are or may become subject. Babcock & Wilcox Canada Ltd. itself has not filed under Chapter 11 but has sought and obtained an interim order under Section 18.6 of the CCAA affording it a stay against asbestos claims in Canada. Further application may be made to the Court by Babcock & Wilcox Canada Ltd. to ensure fair and equal access for Canadians with asbestos claims against Babcock & Wilcox Canada Ltd. to the process established in the United States. Representations may also be made by parties who would prefer to pursue their remedies in Canada.

Persons who wish to be a party to the Canadian proceedings or to receive a copy of the order or any further information should contact counsel for Babcock & Wilcox Canada Ltd., Derrick C. Tay at Meighen Demers (Telephone (416) 340-6032 and Fax (416) 977-5239).

DATED this day of, 2000 at Toronto, Canada

15 TAB 2 2015 ONSC 712 Ontario Superior Court of Justice

Caesars Entertainment Operating Co., Re

2015 CarswellOnt 3284, 2015 ONSC 712, [2015] O.J. No. 1201, 23 C.B.R. (6th) 154, 251 A.C.W.S. (3d) 553 In the Matter of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C 36, as Amended In the Matter of the Caesars Entertainment Operating Company, Inc. and the Debtors Listed on Schedule "A" (Collectively, the "Chapter 11 Debtors") Application of Caesars Entertainment Windsor Limited under Section 46 of the Companies' Creditors Arrangement Act

G.B. Morawetz R.S.J.

Heard: January 19, 2015 Judgment: January 19, 2015 Docket: CV-15-10837

Counsel: Katherine McEachern, Matthew Kanter for Caesars Entertainment Operating Company, Inc. et al. Robin B. Schwill for Ontario Lottery and Gaming Corporation

G.B. Morawetz R.S.J.:

Introduction and Facts

1 On January 15, 2015, Caesars Entertainment Operating Company Inc. ("CEOC") and certain of its subsidiaries (collectively, the "Chapter 11 Debtors") commenced voluntary reorganization proceedings (the "Chapter 11 Proceeding") in the United States Bankruptcy Court for the Northern District of Illinois (the "Illinois Court") by each filing a voluntary petition for relief under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101 — 1532 (the "Bankruptcy Code").

2 Caesars Windsor Entertainment Limited ("CEWL" or the "Applicant"), an Ontario corporation, is an indirect subsidiary of CEOC. CEWL is a Chapter 11 Debtor.

3 Pursuant to a written resolution (the "Foreign Representation Resolution") of its sole shareholder, Caesars World, Inc. ("Caesars World") CEWL has been authorized to act as the foreign

1 representative of all of the Chapter 11 Debtors for the purposes of recognizing the Chapter 11 Proceeding in Canada, and has been authorized to commence this Application for recognition of the Chapter 11 Proceeding as a foreign proceeding. CEOC has confirmed its authorization of CEWL to act as foreign representative on behalf of the Chapter 11 Debtors.

4 CEWL manages Caesars Windsor Hotel and Casino in Windsor, Ontario (the "Windsor Casino"), for and on behalf of the Ontario Lottery and Gaming Corporation ("OLG").

5 In order to (a) ensure the protection of the Chapter 11 Debtors' Canadian assets and (b) enable the Chapter 11 Debtors, including CEWL, to operate their businesses in the ordinary course during the Chapter 11 Proceeding, CEWL seeks the following orders pursuant to sections 44 and 49 of the Companies' Creditors Arrangement Act, R.S.C., 1985 c. C-36 (the "CCAA"):

a. an "Initial Recognition Order," inter alia: (i) declaring that CEWL is a "foreign representative" pursuant to section 45 of the CCAA; (ii) declaring that the Chapter 11 Proceeding is recognized as a "foreign main proceeding" under the CCAA; and (iii) granting a stay of proceedings against the Chapter 11 Debtors; and

b. a "Supplemental Order" pursuant to section 49 of the CCAA, inter alia: (i) recognizing in Canada and enforcing certain "first day" orders of the Illinois Court made in the Chapter 11 Proceeding (the "First Day Orders"); (ii) staying any claims, rights, liens or proceedings against or in respect of the Chapter 11 Debtors, the business and property of the Chapter 11 Debtors and the directors and officers of the Chapter 11 Debtors; and (iii) restraining the right of any person or entity to, among other things, discontinue or terminate any supply of products or services to the Chapter 11 Debtors.

6 CEWL submits that the requested orders are necessary and appropriate in the circumstances of this case.

7 On January 12, 2015, a competing involuntary petition in respect of CEOC was filed in the United States Bankruptcy Court for the District of Delaware (the "Delaware Court"). By order of the Delaware Court, the Chapter 11 Proceeding in the Illinois Court has been stayed pending a determination of the proper venue for the Chapter 11 case of CEOC and its subsidiaries (the "Delaware Stay Order"). However, as more fully detailed below, the Delaware Stay Order has permitted the Illinois Court to enter the First Day Orders. CEWL seeks recognition of these First Day Orders in order to ensure stability and the status quo pending the outcome of the venue dispute, and will return to this Court to advise of the outcome of that dispute and to seek any further orders as may be advisable or appropriate in the circumstances.

8 The Chapter 11 Debtors are part of a geographically diversified casino-entertainment group of companies (collectively, "Caesars") headed by Caesars Entertainment Corporation ("CEC"), a U.S. publicly traded company that owns, operates or manages 50 casinos in five countries in three

2 continents, with properties in the United States, Canada, the United Kingdom, South Africa, and Egypt. CEC is not a Chapter 11 Debtor.

9 CEC is the majority shareholder of CEOC, a Chapter 11 Debtor. The remaining Chapter 11 Debtors, including CEWL, are direct and indirect subsidiaries of CEOC. The Chapter 11 Debtors are the primary operating units of the Caesars gaming enterprise.

10 On January 12, 2015, certain petitioning creditors filed an involuntary petition against CEOC under Chapter 11 of the Bankruptcy Code (but not as against the other Chapter 11 Debtors, including CEWL). That involuntary petition has not been resolved.

11 Meanwhile, the Chapter 11 Debtors commenced their own voluntary proceedings in the Illinois Court on January 15, 2015. Hearings were conducted in both the Delaware Court and the Illinois Court on January 15, 2015, which have culminated in the entering of the Delaware Stay Order, and the First Day Orders.

12 Notwithstanding the stay, the Delaware Court has permitted CEOC to obtain the First Day Orders from the Illinois Court, which are currently in effect pending litigation over the appropriate venue for the Chapter 11 case of CEOC and its subsidiaries. As such, while any further steps in the Chapter 11 Proceeding in the Illinois Court beyond the First Day Orders are currently stayed, the Applicant submits it is necessary to obtain recognition of the First Day Orders in Canada pending further developments in the Delaware Court. CEWL will advise the Court of any further developments in respect of the venue litigation, and will seek such further orders as may be advisable in the circumstances.

13 CEWL is the only one of the 173 Chapter 11 Debtors that is not incorporated in the United States. It is a wholly-owned indirect subsidiary of CEOC.

14 The almost exclusive function of CEWL is to manage the Windsor Casino pursuant to an operating agreement dated as of December 14, 2006 (the "Operating Agreement") between Caesars Entertainment Windsor Holding, Inc. (now CEWL) and the Ontario Lottery and Gaming Corporation ("OLG").

15 CEWL supplies the management services set out in the Operating Agreement to OLG, in consideration for an operating fee. CEWL does not have an ownership interest in the Windsor Casino.

16 CEWL operates the Windsor Casino under Caesars' trademarks and branding. The trademarks have been licenced to OLG by Caesars World, a U.S.-based Chapter 11 Debtor and, in turn, sublicensed by OLG.

3 17 CEWL's primary assets in Canada consist of (a) its rights under the Operating Agreement and (b) cash on deposit from time to time in its corporate bank accounts.

18 Windsor Casino Limited ("WCL") is a wholly-owned subsidiary of CEWL. WCL employs the approximately 2,800 employees who work at the Windsor Casino. Certain of the WCL employees are unionized members of Unifor Local 444 (the "Union"). Neither CEWL nor WCL administers a defined benefit pension plan although WCL does administer a defined contribution pension plan. WCL is not a Chapter 11 Debtor and as such is not a subject of this Application.

19 CEWL intends to operate the Windsor Casino pursuant to the Operating Agreement in the normal course through the Chapter 11 Proceeding. It is not currently contemplated that the Chapter 11 Debtors will restructure any of the business or operations of CEWL or WCL, or compromise any of their obligations.

20 The Record establishes that the Chapter 11 Debtors, including CEWL, are managed from the United States as an integrated group from a corporate, strategic, financial, and management perspective. In particular:

a. pursuant the USD, CEWL's corporate decision-making (including with respect to the Operating Agreement and the Chapter 11 Proceeding) is done by its sole shareholder, Caesars World, a Florida corporation;

b. the Chief Executive Officer and President of CEWL (who is resident in Windsor, Ontario), reports to the Chairman of the Board of CEWL (the "Chairman"). The Chairman, who is also an officer of CEOC, resides in the United States and works from the Caesars head office in Las Vegas, Nevada;

c. certain centralized services critical to CEWL's functioning, including the administration of the Caesars brand and intellectual property rights, services related to online hotel booking, and administration of the loyalty "Total Rewards" program for customers are administered and handled from the United States;

d. the majority of the strategic marketing and communications decisions regarding the brand and loyalty programs are made, and related functions taken, on behalf of all Chapter 11 Debtors, including CEWL, in the United States;

e. management fees earned by CEWL under the Operating Agreement may be paid by way of dividend from time to time to CEWL's U.S. corporate partners; and

f. strategic and directional decisions for CEWL are ultimately made in the United States.

21 CEWL is party to a unanimous shareholder declaration (the "USD") that grants CEWL's sole shareholder, Caesar's World, all the rights, powers and liabilities of the directors of CEWL.

4 The Foreign Representation Resolution authorized CEWL to file as a Chapter 11 Debtor and to act as the foreign representative of all of the Chapter 11 Debtors for the purposes of recognizing the Chapter 11 Proceeding in Canada. By letter dated January 16, 2015, CEOC confirmed CEWL's authorization to act as foreign representative for the Chapter 11 Debtors.

Issues

22 The issues on this Application are:

a. Should this Court recognize the Chapter 11 Proceeding as a foreign main proceeding pursuant to sections 46 through 48 of the CCAA and grant the Initial Recognition Order sought by the Applicant?

b. Should this Court grant the Supplemental Order sought by the Applicant under section 49 of the CCAA?

Analysis

23 Subsection 46(1) of the CCAA provides that a foreign representative may apply to the Court for recognition of a foreign proceeding in respect of which he or she is a foreign representative.

24 CEWL has been authorized to act as foreign representative of the Chapter 11 Debtors pursuant to the Foreign Representative Resolution executed by CEWL's sole shareholder. CEOC, for itself and on behalf of its subsidiaries, has written to CEWL confirming its authorization to act as foreign representative of the Chapter 11 Debtors. It is CEWL's position that this authorization is sufficient for purposes of subsection 45(1) of the CCAA.

25 There is no language in Part IV of the CCAA that requires a foreign representative to be appointed by order of the court in the foreign proceeding.

26 I accept that for the purposes of this application that CEWL is a "foreign representative".

27 In response to an application brought by a foreign representative under subsection 46(1) of the CCAA, subsection 47(1) of the CCAA provides that the Court shall grant an order recognizing the foreign proceeding if the proceeding is a foreign proceeding and the applicant is a foreign representative in respect of that proceeding.

28 Canadian courts have consistently held that court proceedings under chapter 11 of the Bankruptcy Code constitute "foreign proceedings" for the purposes of the CCAA (see: Digital Domain Media Group Inc., Re, 2012 BCSC 1565 (B.C. S.C. [In Chambers]) at para. 15; and Lightsquared LP, Re, 2012 ONSC 2994, 92 C.B.R. (5th) 321 (Ont. S.C.J. [Commercial List]) at para. 18). I am satisfied that the Chapter 11 Proceeding is a "foreign proceeding".

5 29 CEWL submits that it is appropriate for this Court to recognize the Chapter 11 Proceeding as a foreign main proceeding.

30 If the foreign proceeding is recognized as a foreign main proceeding, there is an automatic stay provided in section 48(1) of the CCAA against proceedings concerning the debtor's property, debts, liabilities or obligations and prohibitions against selling or disposing of property in Canada.

31 Subsection 45(1) of the CCAA provides that a "foreign main proceeding" is a foreign proceeding in the jurisdiction of the debtor company's centre of main interests ("COMI")."

32 For the purposes of Part IV of the CCAA, in the absence of proof to the contrary, a debtor company's registered office is deemed to be the COMI.

33 In Lightsquared, the Court found that the following principal factors, considered as a whole, will tend to indicate whether the location in which the proceeding has been filed is the debtor's COMI:

a. the location is readily ascertainable by creditors;

b. the location is one in which the debtor's principal assets or operations are found; and

c. the locations where the management of the debtor takes place.

(see: Lightsquared LP, Re, supra at para. 25; and MtGox Co., Re, 2014 ONSC 5811, 245 A.C.W.S. (3d) 280 (Ont. S.C.J. [Commercial List]) at para. 21)

34 While CEWL is incorporated in Ontario and has its registered head office in Ontario, the Applicant submits that Ontario is not its centre of main interests.

35 I am satisfied that the COMI for the Chapter 11 Debtors is the United States. In arriving at this decision, I have taken into account that CEWL is the only Chapter 11 Debtor that is not incorporated in a U.S. jurisdiction. All of the other 172 Chapter 11 Debtors have their head office or headquarters located in the United States. In addition:

a. the Chapter 11 Debtors operate as an functionally integrated group from a corporate, strategic, financial and management perspective;

b. pursuant to the USD, CEWL's corporate decisions are made by its sole shareholder, Caesars World, a Florida corporation;

c. CEWL's Chief Executive Officer and President report to the Chairman, who resides in the United States and works from the Caesars head office in Las Vegas, Nevada;

6 d. centralized services critical to CEWL's operations, including the administration of the Caesars brand and intellectual property rights, services related to online hotel booking, the Windsor Casino website, and administration of the "Total Rewards" loyalty program are operated from the United States;

e. strategic and directional decisions for CEWL are ultimately made in the United States.

36 In the result, I am satisfied that the Chapter 11 Proceeding should be recognized as a "foreign main proceeding".

37 The relief requested in the Initial Recognition Order is granted.

38 In the context of cross-border insolvencies, Canadian courts have consistently encouraged comity and cooperation between courts in various jurisdictions in order to enable enterprises to restructure on a cross-border basis (see: Lear Canada, Re (2009), 55 C.B.R. (5th) 57, 2009 CarswellOnt 4232 (Ont. S.C.J. [Commercial List]) at paras. 11 and 17; and Babcock & Wilcox Canada Ltd., Re (2000), 18 C.B.R. (4th) 157, 2000 CarswellOnt 704 (Ont. S.C.J. [Commercial List]) at para. 9).

39 Having reviewed the Record, I am satisfied, based on the facts in Mr. James Smith's affidavit and for the reasons set out in the Applicant's factum, that it is appropriate for the Court in this case to exercise its authority under sections 49(1) and 50 of the CCAA to grant the relief sought in the Supplemental Order, in order to maintain the status quo and protect the assets of the Chapter 11 Debtors, while permitting CEWL to continue operating its business as usual in Canada during the Chapter 11 Proceeding.

Disposition

40 In the result, the Application is granted. The Initial Recognition Order and the Supplemental Order have been signed, with the Supplemental Order having been modified to exclude a stay of actions against directors and officers of the Chapter 11 Debtors, as I consider such requested relief to be beyond the scope of appropriate relief in the Supplemental Order at this time.

Schedule "A" — List of Chapter 11 Debtors

Legal Name State of Formation CZL Development Company, LLC Delaware Harrah's Iowa Arena Management, LLC Delaware PHW Manager, LLC Nevada 190 Flamingo, LLC Nevada AJP Holdings, LLC Delaware AJP Parent, LLC Delaware B I Gaming Corporation Nevada Bally's Midwest Casino, Inc. Delaware

7 Bally's Park Place, Inc. New Jersey Benco, Inc. Nevada Biloxi Hammond, LLC Delaware Biloxi Village Walk Development, LLC Delaware BL Development Corp. Minnesota Boardwalk Regency Corporation New Jersey Caesars Entertainment Canada Holding, Inc. Nevada Caesars Entertainment Finance Corp. Nevada Caesars Entertainment Golf, Inc. Nevada Caesars Entertainment Retail, Inc. Nevada Caesars India Sponsor Company, LLC Nevada Caesars Marketing Services Corporation (f/k/a Harrah's Marketing Services Nevada Corporation) Caesars New Jersey, Inc. New Jersey Caesars Palace Corporation Delaware Caesars Palace Realty Corporation Nevada Caesars Palace Sports Promotions, Inc. Nevada Caesars Riverboat Casino, LLC Indiana Caesars Trex, Inc. Delaware Caesars United Kingdom, Inc. Nevada Caesars World Marketing Corporation New Jersey Caesars World Merchandising, Inc. Nevada Caesars World, Inc. Florida California Clearing Corporation California Casino Computer Programming, Inc. Indiana Chester Facility Holding Company, LLC Delaware Consolidated Supplies, Services and Systems Nevada DCH Exchange, LLC Nevada DCH Lender, LLC Nevada Desert Palace, Inc. Nevada Durante Holdings, LLC Nevada East Beach Development Corporation Mississippi GCA Acquisition Subsidiary, Inc. Minnesota GNOC, Corp. New Jersey Grand Casinos of Biloxi, LLC (f/k/a Grand Casinos of Mississippi, Inc. - Minnesota Biloxi) Grand Casinos of Mississippi, LLC — Gulfport Mississippi Grand Casinos, Inc. Minnesota Grand Media Buying, Inc. Minnesota Harrah South Shore Corporation California Harrah's Arizona Corporation Nevada Harrah's Bossier City Investment Company, L.L.C. Louisiana Harrah's Bossier City Management Company, LLC Nevada Harrah's Chester Downs Investment Company, LLC Delaware Harrah's Chester Downs Management Company, LLC Nevada Harrah's Illinois Corporation Nevada Harrah's Interactive Investment Company Nevada Harrah's International Holding Company, Inc. Delaware Harrah's Investments, Inc. (f/k/a Harrah's Wheeling Corporation) Nevada Harrah's Management Company Nevada Harrah's MH Project, LLC Delaware Harrah's NC Casino Company, LLC North Carolina Harrah's North Kansas City LLC (f/k/a Harrah's North Kansas City Missouri Corporation) Harrah's Operating Company Memphis, LLC Delaware Harrah's Pittsburgh Management Company Nevada Harrah's Reno Holding Company, Inc. Nevada Harrah's Shreveport Investment Company, LLC Nevada

8 Harrah's Shreveport Management Company, LLC Nevada Harrah's Shreveport/Bossier City Holding Company, LLC Delaware Harrah's Shreveport/Bossier City Investment Company, LLC Delaware Harrah's Southwest Michigan Casino Corporation Nevada Harrah's Travel, Inc. Nevada Harrah's West Warwick Gaming Company, LLC Delaware Harveys BR Management Company, Inc. Nevada Harveys C.C. Management Company, Inc. Nevada Harveys Iowa Management Company, Inc. Nevada Harveys Tahoe Management Company, Inc. Nevada H-BAY, LLC Nevada HBR Realty Company, Inc. Nevada HCAL, LLC Nevada HCR Services Company, Inc. Nevada HEI Holding Company One, Inc. Nevada HEI Holding Company Two, Inc. Nevada HHLV Management Company, LLC Nevada Hole in the Wall, LLC Nevada Horseshoe Entertainment Louisiana Horseshoe Gaming Holding, LLC Delaware Horseshoe GP, LLC Nevada Horseshoe Hammond, LLC Indiana Horseshoe Shreveport, L.L.C. Louisiana HTM Holding, Inc. Nevada Koval Holdings Company, LLC Delaware Koval Investment Company, LLC Nevada Las Vegas Golf Management, LLC Nevada Las Vegas Resort Development, Inc. Nevada Martial Development Corp. New Jersey Nevada Marketing, LLC Nevada New Gaming Capital Partnership Nevada Ocean Showboat, Inc. New Jersey Players Bluegrass Downs, Inc. Kentucky Players Development, Inc. Nevada Players Holding, LLC Nevada Players International, LLC Nevada Players LC, LLC Nevada Players Maryland Heights Nevada, LLC Nevada Players Resources, Inc. Nevada Players Riverboat II, LLC Louisiana Players Riverboat Management, LLC Nevada Players Riverboat, LLC Nevada Players Services, Inc. New Jersey Reno Crossroads LLC Delaware Reno Projects, Inc. Nevada Rio Development Company, Inc. Nevada Robinson Property Group Corp. Mississippi Roman Entertainment Corporation of Indiana Indiana Roman Holding Corporation of Indiana Indiana Showboat Atlantic City Mezz 1, LLC Delaware Showboat Atlantic City Mezz 2, LLC Delaware Showboat Atlantic City Mezz 3, LLC Delaware Showboat Atlantic City Mezz 4, LLC Delaware Showboat Atlantic City Mezz 5, LLC Delaware Showboat Atlantic City Mezz 6, LLC Delaware Showboat Atlantic City Mezz 7, LLC Delaware Showboat Atlantic City Mezz 8, LLC Delaware Showboat Atlantic City Mezz 9, LLC Delaware

9 Showboat Atlantic City Operating Company, LLC New Jersey Showboat Atlantic City Propco, LLC Delaware Showboat Holding, Inc. Nevada Southern Illinois Riverboat/Casino Cruises, Inc. Illinois Tahoe Garage Propco, LLC Delaware TRB Flamingo, LLC Nevada Trigger Real Estate Corporation Nevada Tunica Roadhouse Corporation (f/k/a Sheraton Tunica Corporation) Delaware Village Walk Construction, LLC Delaware Winnick Holdings, LLC Delaware Winnick Parent, LLC Delaware 3535 LV Corp. (f/k/a Harrah's Imperial Palace) Nevada Caesars License Company, LLC (f/k/a Harrah's License Company, LLC) Nevada FHR Corporation Nevada FHR Parent, LLC Delaware Flamingo-Laughlin Parent, LLC Delaware Flamingo-Laughlin, Inc. (f/k/a Flamingo Hilton-Laughlin, Inc.) Nevada Harrah's New Orleans Management Company Nevada LVH Corporation Nevada Parball Corporation Nevada Caesars Escrow Corporation (f/k/a Harrah's Escrow Corporation) Delaware Caesars Operating Escrow LLC (f/k/a Harrah's Operating Escrow LLC) Delaware Corner Investment Company Newco, LLC Delaware Harrah's Maryland Heights Operating Company Nevada BPP Providence Acquisition Company, LLC Delaware Caesars Air, LLC Delaware Caesars Baltimore Development Company, LLC Delaware Caesars Massachusetts Acquisition Company, LLC Delaware Caesars Massachusetts Development Company, LLC Delaware Caesars Massachusetts Investment Company, LLC Delaware Caesars Massachusetts Management Company, LLC Delaware CG Services, LLC Delaware Christian County Land Acquisition Company, LLC Delaware CZL Management Company, LLC Delaware HIE Holdings Topco, Inc. Delaware PH Employees Parent LLC Delaware PHW Investments, LLC Delaware Caesars Entertainment Operating Company, Inc. (f/k/a Harrah's Operating Delaware Company, Inc.) Caesars Entertainment Windsor Limited (f/k/a Caesars Entertainment Canada Windsor Holding, Inc.) Octavius Linq Holding Co., LLC Delaware Caesars Baltimore Acquisition Company, LLC Delaware Caesars Baltimore Management Company, LLC Delaware PHW Las Vegas, LLC Nevada 3535 LV Parent, LLC Delaware Bally's Las Vegas Manager, LLC Delaware Cromwell Manager, LLC Delaware JCC Holding Company II Newco, LLC Delaware Laundry Parent, LLC Delaware LVH Parent, LLC Delaware Parball Parent, LLC Delaware The Quad Manager, LLC Delaware Des Plaines Development Limited Partnership Delaware

10 Application granted.

11 TAB 3

2012 BCSC 1567 British Columbia Supreme Court [In Chambers]

Digital Domain Media Group Inc., Re

2012 CarswellBC 3245, 2012 BCSC 1567, [2013] B.C.W.L.D. 675, 222 A.C.W.S. (3d) 13 In the Matter of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended In the Matter of certain proceedings taken in the United States Bankruptcy Court for the District of Delaware with respect to the companies listed on Schedule "A" hereto (the "Debtors") Application of Digital Domain Media Group, Inc. under Part IV of the Companies' Creditors Arrangement Act (Cross-Border Insolvencies) Petitioner

Fitzpatrick J.

Heard: September 25, 2012 Oral reasons: September 25, 2012 * Docket: Vancouver S126501

Counsel: D. Grieve, D. Ward, K. Gerra, D. Grassgreen, R. Feinstein, J. Rosell for Petitioner K. Lenz for Respondent, Galloping Horse America, LLC T. Jeffries for Respondent, Searchlight Capital LP P. Rubin for Respondent, Tenor Opportunity Master Fund, Ltd., others M. Buttery for Information Officer

Fitzpatrick J.:

I. Background

1 This is a proceeding under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the "CCAA"). The proceedings with respect to the petitioner, Digital Domain Media Group, Inc. ("Digital Domain"), and other members of its corporate group began by way of Chapter 11 proceedings in the United States commencing September 11, 2012. At that time, Digital Domain and various other members of the corporate group filed petitions with the United States Bankruptcy Court for the District of Delaware.

2 On September 12, 2012, the United States court granted various First Day Orders which included orders relating to a very quick sale of the assets. Included in those First Day Orders

1 was one approving certain debtor-in-possession ("DIP") financing, and another appointing Digital Domain as a foreign representative for the purpose of bringing an application before this Court.

3 On September 18, 2012, Digital Domain applied for various relief under the CCAA. On that day, I granted two orders: firstly, an order recognizing Digital Domain as a "foreign representative" and recognizing the Chapter 11 proceedings as a "foreign main proceeding" in accordance with Part IV of the CCAA; and secondly, an order granting various ancillary relief, including expanding the stay provisions and appointing Alvarez & Marsal Canada Inc. as the Information Officer in these proceedings: see Digital Domain Media Group Inc., Re, 2012 BCSC 1565 (B.C. S.C.).

4 Since September 18, 2012, the sale proceedings in the U.S. have continued to evolve very quickly, as was anticipated at the outset. Again, that sale was arranged on an urgent basis so as to bring some certainty and structure to the quite serious financial circumstances of Digital Domain and the other parties. The evidence before both the United States court and this Court suggested that if such a sale could not be concluded quickly in order to regularize the operations of the corporate group, then much of the enterprise value of the group could possibly disappear, to the detriment of all stakeholders.

5 Returning to the United States proceedings, the Bid Procedure Order that had been granted by the United States court on September 12, and recognized by my order on September 18, was later confirmed on September 20. The bid procedures called for an auction to be held on September 21. As part of the sales process, the Bid Procedures Order approved a stalking-horse bid of approximately US$15 million.

6 A significant factor on this application is that on September 18, an Unsecured Creditors' Committee was appointed in the United States proceedings in accordance with the United States Bankruptcy Code. Part of the Committee's mandate was, of course, to review the background of this matter and attempt to understand the contention that there was a need for urgency in selling the assets. The Committee was also asked to provide its opinion on the proposed process by which a sale of the group's assets would be sought.

7 Importantly, the Committee, presumably understanding the urgency of the situation, filed a document with the United States Bankruptcy Court confirming that it had completed certain due diligence and that it was fully supportive of the proposed sales process going forward.

8 The auction was held in on September 21, 2012. The results were wildly successful. There were a number of significant parties prior to that date who had expressed interest in purchasing the assets, and who had signed various non-disclosure agreements and had completed certain due diligence. In all, five bidders participated in the auction, including the stalking-horse bidder.

2 9 The successful bidder at the auction was Galloping Horse America, LLC, whose bid was in the amount of US$30.2 million. It is plain to see that the amount of the stalking-horse bid was exceeded, and that a sale to Galloping Horse will result in a substantially greater recovery for the stakeholders.

10 As anticipated by the process put in place under the Chapter 11 proceedings, a motion was brought before Judge Shannon of the United States Bankruptcy Court on September 24, 2012 to approve the sale to Galloping Horse. Counsel has provided me with a certified copy of that extensive order; suffice it to say that the order appears to be substantially in accordance with previous orders granted by the United States Bankruptcy Court. Of particular note is paragraph 40, where the United States Bankruptcy Court has requested that this Court recognize the sale approval order and give full force and effect to the terms of that order. I would also note paragraph five, which provides that the sale proceeds are to be held in trust in place of the assets being sold and are not to be distributed to the DIP lender or the senior secured creditors until after a "Challenge Period". It is somewhat unclear as to who is to independently review the validity of the security of the secured creditors and possibly take up any "challenge", although I expect that the Committee would likely be the entity to undertake that. I also expect that the Information Officer may take some role in ensuring that this is done, but I do not direct that the Information Officer take any action in that regard; it appears that others, including the Committee, will look at that issue.

11 I am advised that the sale to Galloping Horse includes the assets of Digital Domain Productions (Vancouver) Ltd. ("Digital Vancouver"), which is the only Canadian company in this group, and which assets are located in this jurisdiction. I am advised that the Galloping Horse sale will provide certain benefits to Canadian stakeholders. In particular, there will be an assumption of various contracts. The Information Officer also advises that cure payments of Cdn$1 million will be made to thirty of Digital Vancouver's creditors. Various obligations in the amount of Cdn $425,000 owed by Digital Vancouver to its employees are to be assumed by Galloping Horse. Approximately 220 Canadian jobs will be saved.

12 Unfortunately, what is not addressed by reason of this sale, at least in the Canadian proceedings, is approximately Cdn$245,000 of unsecured claims, together with approximately Cdn$675,000 owed for HST. I am also advised that there may be certain equipment lease issues that have not yet been sorted out, given the speed with which these proceedings have taken place.

II. Issue

13 This application is for an order recognizing and implementing in Canada the order of the United States Bankruptcy Court, as pronounced by Judge Shannon yesterday. The order sought also includes additional provisions with respect to vesting the Canadian assets in Galloping Horse in accordance with the asset purchase agreement dated September 24, 2012.

3 III. Discussion

14 The applicable statutory provision on this application is s. 49(1) of the CCAA, the same provision I considered on the earlier application. This provision provides that having recognized a foreign proceeding, I may make further orders as I consider appropriate if I am satisfied that it is necessary for the protection of the debtor company's property or the interests of a or creditors.

15 It is well taken that this Court and other Canadian courts have recognized sale orders granted within United States Chapter 11 proceedings, particularly where those proceedings have been found to be foreign main proceedings. Counsel for Digital Domain has referred me to the leading authority in Canada with respect to sales of assets: Royal Bank v. Soundair Corp. (1991), 4 O.R. (3d) 1 (Ont. C.A.). In that case, in assessing the reasonableness of a proposed sale of assets, the court considered various factors: whether the party conducting the sale had made sufficient efforts to get the best price and had not acted improvidently; the interests of all parties; the efficacy and integrity of the process by which offers were obtained; and whether there had been any unfairness in the sales process.

16 As I have already stated, the bid procedures were dictated by the exigent circumstances of the Digital Domain group. Nevertheless, it appears that many of the stakeholders, both in Canada and in the United States, have worked very hard to implement a process that, while expedited, fully canvassed the market for appropriate offers. Again, those bid procedures were approved in the Bid Procedures Order granted by Judge Shannon and were recognized by me earlier this month. The Information Officer in its report to the court sets out the sales process; it concludes that the auction was conducted in a fair manner and that the sale and vesting order is appropriate under the circumstances. The evidence indicates, and I find, that the approved sales process which resulted in the Galloping Horse sale was in compliance with those orders.

17 It remains a consideration as to whether recognition of the sale order is necessary for the protection of the Digital Domain group's property or the interests of a creditor or creditors. I would note that the net sale proceeds are to be held in trust pending a potential review of the security held by the DIP lender and the pre-petition . The Information Officer also points out that it understands that the distribution of the net sale proceeds will be subject to further consideration within the Chapter 11 proceedings.

18 It appears that if that security is valid, then the entirety of the sale proceeds will be required to repay both the DIP facility and some portion of the pre-petition debt. To that extent, unsecured creditors, both in Canada and in the United States, will find that there is no recovery for them. There is, of course, some recovery for those parties who will remain within the context of the business operations, to the extent that they are to be satisfied by Galloping Horse, and they continue to do business with the new entity.

4 19 Nevertheless, Canadian creditors will be fully able to participate in the United States proceedings. Accordingly, they will not suffer any prejudice by reason of the sale process having been concluded in this manner.

IV. Disposition

20 Having considered all of these circumstances, I am satisfied that recognition of the sale order is appropriate. It appears to me, as I stated on the earlier application, that a coordinated approach is one that best serves the interests of all the stakeholders which would, of course, include the Canadian creditors. It appears that the parties again have acted quickly to deal with the corporate group's property and assets, with great success.

Schedule "A" — Debtors

Digital Domain Media Group, Inc.

Digital Domain

DDH Land Holdings, LLC

Digital Domain Institute, Inc.

Digital Domain Stereo Group, Inc.

DDH Land Holdings II, LLC

Digital Domain International, Inc.

Tradition Studios, Inc.

Digital Domain Tactical, Inc.

Digital Domain Productions, Inc.

Mothership Media, Inc.

D2 Software, Inc.

Digital Domain Productions (Vancouver) Ltd.

Tembo Productions, Inc. Application granted.

5 Footnotes * Corrigenda issued by the court on November 9, 2012 and December 6, 2012 have been incorporated herein.

6 TAB 4 2012 ONSC 964 Ontario Superior Court of Justice [Commercial List]

Hartford Computer Hardware Inc., Re

2012 CarswellOnt 2143, 2012 ONSC 964, 212 A.C.W.S. (3d) 315, 94 C.B.R. (5th) 20 In the Matter of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C 36, as Amended Application of Hartford Computer Hardware, Inc. Under Section 46 of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C 36, as Amended

And In the Matter of Certain Proceedings Taken in the United States Bankruptcy Court for the Northern District of Illinois Eastern Division with Respect to

Re: Hartford Computer Hardware, Inc., Nexicore Services, LLC, Hartford Computer Group, Inc. and Hartford Computer Government, Inc., (Collectively, the "Chapter 11 Debtors"), Applicants

Morawetz J.

Heard: February 1, 2012 Judgment: February 1, 2012 Written reasons: February 15, 2012 Docket: CV-11-9514-00CL

Counsel: Kyla Mahar, John Porter for Chapter 11 Debtors Adrienne Glen for FTI Consulting Canada, Inc., Information Officer Jane Dietrich for Avnet Inc.

Morawetz J.:

1 Hartford Computer Hardware, Inc. ("Hartford"), on its own behalf and in its capacity as foreign representative of Chapter 11 Debtors (the "Foreign Representative") brought a motion under s. 49 of the Companies' Creditors Arrangement Act (the "CCAA") for recognition and implementing in Canada the following Orders of the United States Bankruptcy Court for the Northern District of Illinois Eastern Division (the "U.S. Court") made in the proceedings commenced by the Chapter 11 Debtors:

(i) the Final Utilities Order;

1 (ii) the Bidding Procedures Order;

(iii) the Final DIP Facility Order.

(collectively, the U.S. Orders")

2 On December 12, 2011, the Chapter 11 Debtors commenced the Chapter 11 proceeding. The following day, I made an order granting certain interim relief to the Chapter 11 Debtors, including a stay of proceedings. On December 15, 2011, the U.S. Court made an order authorizing Hartford to act as the Foreign Representative of the Chapter 11 Debtors. On December 21, 2011, I made two orders, an Initial Recognition Order and a Supplemental Order that, among other things:

(i) declared the Chapter 11 proceedings to be a "foreign main proceeding" pursuant to Part IV of the CCAA;

(ii) recognized Hartford as the Foreign Representative of the Chapter 11 Debtors;

(iii) appointed FTI as Information Officer in these proceedings;

(iv) granted a stay of proceedings;

(v) recognized and made effective in Canada certain "First Day Orders" of the U.S. Court including an Interim Utilities Order and Interim DIP Facility Order.

3 On January 26, 2012, the U.S. Court made the U.S. Orders.

4 The Foreign Representative is of the view that recognition of the U.S. Orders is necessary for the protection of the Chapter 11 Debtors' property and the interest of their creditors.

5 The affidavit of Mr. Mittman and First Report of the Information Officer provide details with respect to the hearings in the U.S. Court on January 26, 2012 which resulted in the U. S. Court granting the U.S. Orders. The Utilities Order and the Bidding Procedures Order are relatively routine in nature and it is, in my view, appropriate to recognize and give effect to these orders.

6 With respect to the Final DIP Facility Order, it is noted that paragraph 6 of this Order contains a partial "roll up" provision wherein all Cash Collateral in the possession or control of Chapter 11 Debtors on December 12, 2011 (the "Petition Date") or coming into their possession after the Petition Date is deemed to have been remitted to the Pre-petition Secured Lender for application to and repayment of the Pre-petition revolving debt facility with a corresponding borrowing under the DIP Facility.

7 In making the Final DIP Facility Order, the Information Officer reports that the U.S. Court found that good cause had been shown for entry of the Final DIP Facility Order, as the Chapter

2 11 Debtors' ability to continue to use Cash Collateral was necessary to avoid immediate and irreparable harm to the Chapter 11 Debtors and their estates.

8 The granting of the Final DIP Facility Order was supported by the Unsecured Creditors' Committee. Certain objections were filed but the Order was granted after the U.S. Court heard the objections.

9 The Information Officer reports that Canadian unsecured creditors will be treated no less favourably than U.S. unsecured creditors. Further, since a number of Canadian unsecured creditors are employees of the Chapter 11 Debtors, these creditors benefit from certain priority claims which they would not be entitled to under Canadian insolvency proceedings.

10 The Information Officer and Chapter 11 Debtors recognize that in CCAA proceedings, a partial "roll up" provision would not be permissible as a result of s. 11.2 of the CCAA, which expressly provides that a DIP charge may not secure an obligation that exists before the Initial Order is made.

11 Section 49 of the CCAA provides that, in recognizing an order of a foreign court, the court may make any order that it considers appropriate, provided the court is satisfied that it is necessary for the protection of the debtor company's property or the interests of the creditor or creditors.

12 It is necessary, in my view, to emphasize that this is a motion to recognize an order made in the "foreign main proceeding". The Final DIP Facility Order was granted after a hearing in the U.S. Court. Further, it appears from the affidavit of Mr. Mittman that, as of the end of December 2011, the Chapter 11 Debtors had borrowed $1 million under the Interim DIP Facility. The Cash Collateral on hand as of the Petition Date was effectively spent in the Chapter 11 Debtors' operations and replaced with advances under the Interim DIP Facility in December 2011 such that all cash in the Chapter 11 Debtors' accounts as of the date of the Final DIP Facility Order were proceeds from the Interim DIP Facility.

13 The Information Officer has reported that, in the circumstances, there will be no material prejudice to Canadian creditors if this court recognizes the Final DIP Facility, and that nothing is being done that is contrary to the applicable provisions of the CCAA. The Information Officer is of the view that recognition of the Final DIP Facility Order is appropriate in the circumstances.

14 A significant factor to take into account is that the Final DIP Facility Order was granted by the U.S. Court. In these circumstances, I see no basis for this court to second guess the decision of the U.S. Court.

15 Based on the foregoing, I have concluded that recognition of the Final DIP Facility Order is necessary for the protection of the debtor company's property and for the interests of the creditors.

3 16 In making this determination, I have also taken into account the provisions of s. 61(2) of the CCAA which is the public policy exception. This section reads: "Nothing in this Part prevents the court from refusing to do something that would be contrary to public policy".

17 The public policy exception has its origins in the UNCITRAL Model Law on Cross-Border Insolvency. Article 6 of the Model Law provides: "Nothing in this Law prevents the court from refusing to take an action governed by this Law if the action would be manifestly contrary to the public policy of this State". It is also important to note that the Guide to Enactment of the UNCITRAL Model Law on Cross-Border Insolvency (paragraphs 86-89) makes specific reference to the fact that the public policy exceptions should be interpreted restrictively.

18 I am in agreement with the commentary in the Guide to Enactment to the effect that s. 61(2) should be interpreted restrictively. The Final DIP Facility Order does not, in my view, raise any public policies issues.

19 I am satisfied that it is appropriate to grant the requested relief. The motion is granted and an order has been signed in the form requested to give effect to the foregoing. Motion granted.

4 TAB 5

TAB 6

TAB 7

TAB 8 2011 ONSC 4201 Ontario Superior Court of Justice

Massachusetts Elephant & Castle Group Inc., Re

2011 CarswellOnt 6610, 2011 ONSC 4201, 205 A.C.W.S. (3d) 25, 81 C.B.R. (5th) 102 In the Matter of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as Amended And In the Matter of Certain Proceedings Taken in the United States Bankruptcy Court for the District of Massachusetts Eastern Division with Respect to the Companies Listed on Schedule "A" Hereto (The "Chapter 11 Debtors") Under Section 46 of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as Amended

MASSACHUSETTS ELEPHANT & CASTLE GROUP, INC. (Applicant)

Morawetz J.

Heard: July 4, 2011 Oral reasons: July 4, 2011 Written reasons: July 11, 2011 Docket: CV-11-9279-00CL

Counsel: Kenneth D. Kraft, Sara-Ann Wilson for Applicant Heather Meredith for GE Canada Equipment Financing GP

Morawetz J.:

1 Massachusetts Elephant & Castle Group, Inc. ("MECG" or the "Applicant") brings this application under Part IV of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, ("CCAA"). MECG seeks orders pursuant to sections 46 — 49 of the CCAA providing for:

(a) an Initial Recognition Order declaring that:

(i) MECG is a foreign representative pursuant to s. 45 of the CCAA and is entitled to bring its application pursuant s. 46 of the CCAA;

(ii) the Chapter 11 Proceeding (as defined below) in respect of the Chapter 11 Debtors (as set out in Schedule "A") is a "foreign main proceeding" for the purposes of the CCAA; and

1 (iii) any claims, rights, liens or proceedings against or in respect of the Chapter 11 Debtors, the directors and officers of the Chapter 11 Debtors and the Chapter 11 Debtors' property are stayed; and

(b) a Supplemental Order:

(i) recognizing in Canada and enforcing certain orders of the U.S. Court (as defined below) made in the Chapter 11 Proceeding (as defined below);

(ii) granting a super-priority change over the Chapter 11 Debtors' property in respect of administrative fees and expenses; and

(iii) appointing BDO Canada Limited ("BDO") as Information Officer in respect of these proceedings (the "Information Officer").

2 On June 28, 2011, the Chapter 11 Debtors commenced proceedings (the "Chapter 11 Proceeding") in the United States Bankruptcy Court for the District of Massachusetts Eastern Division (the "U.S. Court"), pursuant to Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. § 1101-1174 ("U.S. Bankruptcy Code").

3 On June 30, 2011, the U.S. Court made certain orders at the first-day hearing held in the Chapter 11 Proceeding, including an order appointing the Applicant as foreign representative in respect of the Chapter 11 Proceeding.

4 The Chapter 11 Debtors operate and franchise authentic, full-service British-style restaurant pubs in the United States and Canada.

5 MECG is the lead debtor in the Chapter 11 Proceeding and is incorporated in Massachusetts. All of the Chapter 11 Debtors, with the exception of Repechage Investments Limited ("Repechage"), Elephant & Castle Group Inc. ("E&C Group Ltd.") and Elephant & Castle Canada Inc. ("E&C Canada") (collectively, the "Canadian Debtors") are incorporated in various jurisdictions in the United States.

6 Repechage is incorporated under the Canada Business Corporations Act, R.S.C. 1985, c. C-44, ("CBCA") with its registered office in Toronto, Ontario. E&C Group Ltd. is also incorporated under the CBCA with a registered office located in Halifax, Nova Scotia. E&C Canada Inc. is incorporated under the Business Corporations Act, R.S.O. 1990, c. B. 16, and its registered office is in Toronto. The mailing office for E&C Canada Inc. is in Boston, Massachusetts at the location of the corporate head offices for all of the debtors, including Repechage and E&C Group Ltd.

7 In order to comply with s. 46(2) of the CCAA, MECG filed the affidavit of Ms. Wilson to which was attached certified copies of the applicable Chapter 11 orders.

2 8 MECG also included in its materials the declaration of Mr. David Dobbin filed in support of the first-day motions in the Chapter 11 Proceeding. Mr. Dobbin, at paragraph 19 of the declaration outlined the sale efforts being entered into by MECG. Mr. Dobbin also outlined the purpose of the Chapter 11 Proceeding, namely, to sell the Chapter 11 Debtors' businesses as a going concern on the most favourable terms possible under the circumstances and keep the Chapter 11 Debtors' business intact to the greatest extent possible during the sales process.

9 The issues for consideration are whether this court should grant the application for orders pursuant to ss. 46 — 49 of the CCAA and recognize the Chapter 11 Proceeding as a foreign main proceeding.

10 The purpose of Part IV of the CCAA is set out in s. 44:

44. The purpose of this Part is to provide mechanisms for dealing with cases of cross-border insolvencies and to promote

(a) cooperation between the courts and other competent authorities in Canada with those of foreign jurisdictions in cases of cross-border insolvencies;

(b) greater legal certainty for trade and investment;

(c) the fair and efficient administration of cross-border insolvencies that protects the interests of creditors and other interested persons, and those of debtor companies;

(d) the protection and the maximization of the value of debtor company's property; and

(e) the rescue of financially troubled businesses to protect investment and preserve employment.

11 Section 46(1) of the CCAA provides that "a foreign representative may apply to the court for recognition of the foreign proceeding in respect of which he or she is a foreign representative."

12 Section 47(1) of the CCAA provides that there are two requirements for an order recognizing a foreign proceeding:

(a) the proceeding is a foreign proceeding, and

(b) the applicant is a foreign representative in respect of that proceeding.

13 Canadian courts have consistently recognized proceedings under Chapter 11 of the U.S. Bankruptcy Code to be foreign proceedings for the purposes of the CCAA. In this respect, see: Babcock & Wilcox Canada Ltd., Re (2000), 5 B.L.R. (3d) 75 (Ont. S.C.J. [Commercial List]); Magna Entertainment Corp., Re (2009), 51 C.B.R. (5th) 82 (Ont. S.C.J.); Lear Canada, Re (2009), 55 C.B.R. (5th) 57 (Ont. S.C.J. [Commercial List]).

3 14 Section 45(1) of the CCAA defines a foreign representative as:

a person or body, including one appointed on an interim basis, who is authorized, in a foreign proceeding in respect of a debtor company, to

(a) monitor the debtor company's business and financial affairs for the purpose of reorganization; or

(b) act as a representative in respect of the foreign proceeding.

15 By order of the U.S. Court dated June 30, 2011, the Applicant has been appointed as a foreign representative of the Chapter 11 Debtors.

16 In my view, the Applicant has satisfied the requirements of s. 47(1) of the CCAA. Accordingly, it is appropriate that this court recognize the foreign proceeding.

17 Section 47(2) of the CCAA requires the court to specify in its order whether the foreign proceeding is a foreign main proceeding or a foreign non-main proceeding.

18 A "foreign main proceeding" is defined in s. 45(1) of the CCAA as "a foreign proceeding in a jurisdiction where the debtor company has the centre of its main interest" ("COMI").

19 Part IV of the CCAA came into force in September 2009. Therefore, the experience of Canadian courts in determining the COMI has been limited.

20 Section 45(2) of the CCAA provides that, in the absence of proof to the contrary, the debtor company's registered office is deemed to be the COMI. As such, the determination of COMI is made on an entity basis, as opposed to a corporate group basis.

21 In this case, the registered offices of Repechage and E&C Canada Inc. are in Ontario and the registered office of E&C Group Ltd. is in Nova Scotia. The Applicant, however, submits that the COMI of the Chapter 11 Debtors, including the Canadian Debtors, is in the United States and the recognition order should be granted on that basis.

22 Therefore, the issue is whether there is sufficient evidence to rebut the s. 45(2) presumption that the COMI is the registered office of the debtor company.

23 In this case, counsel to the Applicant submits that the Chapter 11 Debtors have their COMI in the United States for the following reasons:

(a) the location of the corporate head offices for all of the Chapter 11 Debtors, including the Canadian Debtors, is in Boston, Massachusetts;

4 (b) the Chapter 11 Debtors including the Canadian Debtors function as an integrated North American business and all decisions for the corporate group, including in respect to the operations of the Canadian Debtors, is centralized at the Chapter 11 Debtors head office in Boston;

(c) all members of the Chapter 11 Debtors' management are located in Boston;

(d) virtually all human resources, accounting/finance, and other administrative functions associated with the Chapter 11 Debtors are located in the Boston offices;

(e) all information technology functions of the Chapter 11 Debtors, with the exception of certain clerical functions which are outsourced, are provided out of the United States; and

(f) Repechage is also the parent company of a group of restaurants that operate under the "Piccadilly" brand which operates only in the U.S.

24 Counsel also submits that the Chapter 11 Debtors operate a highly integrated business and each of the debtors, including the Canadian Debtors, are managed centrally from the United States. As such, counsel submits it is appropriate to recognize the Chapter 11 Proceeding as a foreign main proceeding.

25 On the other hand, Mr. Dobbin's declaration discloses that nearly one-half of the operating locations are in Canada, that approximately 43% of employees work in Canada, and that GE Canada Equipment Financing G.P. ("GE Canada") is a substantial lender to MECG. GE Canada does not oppose this application.

26 Counsel to the Applicant referenced Angiotech Pharmaceuticals Inc., Re, 2011 CarswellBC 124 (B.C. S.C. [In Chambers]) where the court listed a number of factors to consider in determining the COMI including:

(a) the location where corporate decisions are made;

(b) the location of employee administrations, including human resource functions;

(c) the location of the debtor's marketing and communication functions;

(d) whether the enterprise is managed on a consolidated basis;

(e) the extent of integration of an enterprise's international operations;

(f) the centre of an enterprise's corporate, banking, strategic and management functions;

(g) the existence of shared management within entities and in an organization;

5 (h) the location where cash management and accounting functions are overseen;

(i) the location where pricing decisions and new business development initiatives are created; and

(j) the seat of an enterprise's treasury management functions, including management of accounts receivable and accounts payable.

27 It seems to me that, in considering the factors listed in Re Angiotech, the intention is not to provide multiple criteria, but rather to provide guidance on how the single criteria, i.e. the centre of main interest, is to be interpreted.

28 In certain circumstances, it could be that some of the factors listed above or other factors might be considered to be more important than others, but nevertheless, none is necessarily determinative; all of them could be considered, depending on the facts of the specific case.

29 For example:

(a) the location from which financing was organized or authorized or the location of the debtor's primary bank would only be important where the bank had a degree of control over the debtor;

(b) the location of employees might be important, on the basis that employees could be future creditors, or less important, on the basis that protection of employees is more an issue of protecting the rights of interested parties and therefore is not relevant to the COMI analysis;

(c) the jurisdiction whose law would apply to most disputes may not be an important factor if the jurisdiction was unrelated to the place from which the debtor was managed or conducted its business.

30 However, it seems to me, in interpreting COMI, the following factors are usually significant:

(a) the location of the debtor's headquarters or head office functions or nerve centre;

(b) the location of the debtor's management; and

(c) the location which significant creditors recognize as being the centre of the company's operations.

31 While other factors may be relevant in specific cases, it could very well be that they should be considered to be of secondary importance and only to the extent they relate to or support the above three factors.

6 32 In this case, the location of the debtors' headquarters or head office functions or nerve centre is in Boston, Massachusetts and the location of the debtors' management is in Boston. Further, GE Canada, a significant creditor, does not oppose the relief sought. All of this leads me to conclude that, for the purposes of this application, each entity making up the Chapter 11 Debtors, including the Canadian Debtors, have their COMI in the United States.

33 Having reached the conclusion that the foreign proceeding in this case is a foreign main proceeding, certain mandatory relief follows as set out in s. 48(1) of the CCAA:

48. (1) Subject to subsections (2) to (4), on the making of an order recognizing a foreign proceeding that is specified to be a foreign main proceeding, the court shall make an order, subject to any terms and conditions it considers appropriate,

(a) staying, until otherwise ordered by the court, for any period that the court considers necessary, all proceedings taken or that might be taken against the debtor company under the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act;

(b) restraining, until otherwise ordered by the court, further proceedings in any action, suit or proceeding against the debtor company;

(c) prohibiting, until otherwise ordered by the court, the commencement of any action, suit or proceeding against the debtor company; and

(d) prohibiting the debtor company from selling or otherwise disposing of, outside the ordinary course of its business, any of the debtor company's property in Canada that relates to the business and prohibiting the debtor company from selling or otherwise disposing of any of its other property in Canada.

34 The relief provided for in s. 48 is contained in the Initial Recognition Order.

35 In addition to the mandatory relief provided for in s. 48, pursuant to s. 49 of the CCAA, further discretionary relief can be granted if the court is satisfied that it is necessary for the protection of the debtor company's property or the interests of a creditor or creditors. Section 49 provides:

49. (1) If an order recognizing a foreign proceeding is made, the court may, on application by the foreign representative who applied for the order, if the court is satisfied that it is necessary for the protection of the debtor company's property or the interests of a creditor or creditors, make any order that it considers appropriate, including an order

(a) if the foreign proceeding is a foreign non-main proceeding, referred to in subsection 48(1);

7 (b) respecting the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor company's property, business and financial affairs, debts, liabilities and obligations; and

(c) authorizing the foreign representative to monitor the debtor company's business and financial affairs in Canada for the purpose of reorganization.

36 In this case, the Applicant applies for orders to recognize and give effect to a number of orders of the U.S. Court in the Chapter 11 Proceeding (collectively, the "Chapter 11 Orders") which are comprised of the following:

(a) the Foreign Representative Order;

(b) the U.S. Cash Collateral Order;

(c) the U.S. Prepetition Wages Order;

(d) the U.S. Prepetition Taxes Order;

(e) the U.S. Utilities Order;

(f) the U.S. Cash Management Order;

(g) the U.S. Customer Obligations Order; and

(h) the U.S. Joint Administration Order.

37 In addition, the requested relief also provides for the appointment of BDO as an Information Officer; the granting of an Administration Charge not to exceed an aggregate amount of $75,000 and other ancillary relief.

38 In considering whether it is appropriate to grant such relief, portions of s. 49, s. 50 and 61 of the CCAA are relevant:

50. An order under this Part may be made on any terms and conditions that the court considers appropriate in the circumstances...... 61. (1) Nothing in this Part prevents the court, on the application of a foreign representative or any other interested person, from applying any legal or equitable rules governing the recognition of foreign insolvency orders and assistance to foreign representatives that are not inconsistent with the provisions of this Act.

(2) Nothing in this Part prevents the court from refusing to do something that would be contrary to public policy.

8 39 Counsel to the Applicant advised that he is not aware of any provision of any of the U.S. Orders for which recognition is sought that would be inconsistent with the provisions of the CCAA or which would raise the public policy exception as referenced in s. 61(2). Having reviewed the record and having heard submissions, I am satisfied that the supplementary relief, relating to, among other things, the recognition of Chapter 11 Orders, the appointment of BDO and the quantum of the Administrative charge, all as set out in the Supplemental Order, is appropriate in the circumstances and is granted.

40 The requested relief is granted. The Initial Recognition Order and the Supplemental Order have been signed in the form presented.

Schedule "A"

1. Massachusetts Elephant & Castle Group Inc.

2. Repechage Investments Limited

3. Elephant & Castle Group Inc.

4. The Elephant and Castle Canada Inc.

5. Elephant & Castle, Inc. (a Texas Corporation)

6. Elephant & Castle Inc. (a Washington Corporation)

7. Elephant & Castle International, Inc.

8. Elephant & Castle of Pennsylvania, Inc.

9. E & C Pub, Inc.

10. Elephant & Castle East Huron, LLC

11. Elephant & Castle Illinois Corporation

12. E&C Eye Street, LLC

13. E & C Capital, LLC

14. Elephant & Castle () Corporation Application granted.

9 TAB 9 1993 CarswellOnt 212 Ontario Court of Justice (General Division)

Olympia & York Developments Ltd. v. Royal Trust Co.

1993 CarswellOnt 212, 20 C.B.R. (3d) 165, 41 A.C.W.S. (3d) 992 Re Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36; Re plan of arrangement of OLYMPIA & YORK DEVELOPMENTS LIMITED and all other companies set out in Schedule "A" attached hereto R.A. Blair J.

Judgment: July 26, 1993 Docket: Doc. B125/92

Counsel: Frank J.C. Newbould, Q.C., and Geoffrey B. Morawetz, for Coopers & Lybrand, OYDL Inc., administrator of Olympia & York Developments Limited. I. Berl Nadler, for O&Y 25 Realty Company, L.P. and O&Y Realty Company. Peter F.C. Howard, for Citibank N.A. Jack B. Berkow and Melvyn P. Rubinoff, Q.C., for Cyrus R. Vance, examiner. A.J. Kent and Paul G. Macdonald, for monitoring committee.

R.A. Blair J. (orally):

1 In this Hearing the parties seek the approval of this Court to a Protocol negotiated amongst them, and initiated by Order of the Honourable Judge James L. Garrity of the United States Bankruptcy Court (Southern District of New York). The purpose of the Protocol, in Judge Garrity's words, is "to bridge the gap between [the] U.S. creditors and [the] Canadian equity [holders]", and "to harmonize" matters arising in the Canadian CCAA proceedings, on the one hand, and the U.S. "Chapter 11" proceedings, on the other hand, respecting the corporate governance of the Olympia & York group of companies. Exercising his powers under the U.S. Bankruptcy Code, he appointed an "Examiner" with a mandate to conduct negotiations between the parties for the purpose of implementing such a Protocol.

2 Cyrus R. Vance was subsequently chosen as the Examiner, and under the skilful guidance of Mr. Vance, a Protocol has been successfully — and no doubt tortuously — negotiated by the parties. It has now been approved by Mr. Vance, as Examiner, by the Administrator and the Monitoring Committee — each established under the CCAA Plan and Sanctioning Order of this

1 Court — , by Citibank, N.A., and by the Debtor companies. On July 15, 1993, Judge Garrity gave final approval to the Protocol in the U.S. Court.

3 The Protocol deals with issues concerning the "corporate governance" of three corporations, known as the "Tier One Corporations" and certain other corporations which hold assets directly or indirectly in real estate located in the United States. The issues deal primarily with matters concerning the directors of such corporations, including:

i) the appointment of boards of directors;

ii) procedures governing the functioning of the boards;

iii) indemnity and immunity protections afforded to such directors and certain officers;

iv) judicial review procedures in connection with removal of directors;

v) the replacement of directors; and

vi) recognition and confirmation of certain rights of the Administrator including the right to receive information in respect of corporations.

4 Like most other accomplishments in this multi-national corporate re-organization of the Olympia & York companies, the Protocol is the product of intense — even herculean — efforts on the part of all concerned. Mr. Vance and everyone involved are to be commended for what is yet another triumph in these proceedings of the oldest of all "alternative dispute resolution" techniques: negotiation.

5 The Olympia & York re-organization involves proceedings in three different jurisdictions: Canada, the United States, and the United Kingdom. Insolvency disputes with international overtones and involving property and assets in a multiplicity of jurisdictions are becoming increasingly frequent. Often there are differences in legal concepts — sometimes substantive, sometimes procedural — between the jurisdictions. The Courts of the various jurisdictions should seek to co-operate amongst themselves, in my view, in facilitating the trans-border resolution of such disputes as a whole, where that can be done in a fashion consistent with their own fundamental principles of jurisprudence. The interests of international co-operation and comity, and the interests of developing at least some degree of certitude in international business and commerce, call for nothing less.

6 Like Judge Garrity, I am satisfied that the Protocol represents a hard fought, but fair and reasonable resolution of a number of very contentious issues arising because of a clash, or at least a potential clash, between the corporate governance provisions of the CCAA Plan, as sanctioned by this Court, and the legitimate concerns of U.S. creditors regarding real estate assets located in the United States. The Protocol is a creative way, as Judge Garrity said, of "bridging the gap

2 between U.S. Creditors and Canadian equity" and of "harmonizing" the proceedings between the two jurisdictions. It fulfills his criterion, set out in his Reasons establishing the position of Examiner, of "[being] faithful to the corporate governance provisions of the CCAA Plan while striking the balance necessary to achieving a Board of Directors that will be able to function independently".

7 I have no hesitation in concluding, as I do, that this Court has the jurisdiction to approve a vehicle such as the Protocol, negotiated and agreed to by all of the affected parties, and designed to facilitate the implementation of a re-organization Plan by providing some certainty regarding cross-jurisdictional issues. Such jurisdiction can be founded on the principles of international comity between nations, or, if necessary upon the Court's inherent jurisdiction "to ensure the observance of the due process of law ... [and] ... to do justice between the parties": see Montreal Trust Co. v. Churchill Forest Industries (Man.) Ltd. (1971), 21 D.L.R. (3d) 75 (Man. C.A.), at p. 81. As Mr. Justice B.D. Macdonald put it, in Re Westar Mining Ltd. (1992), 14 C.B.R. (3d) 88 (B.C. S.C.), at p. 93:

Proceedings under the C.C.A.A. are a prime example of the kind of situations where the court must draw upon such powers to "flesh out" the bare bones of an inadequate and incomplete statutory provision in order to give effect to its objects.

8 There are two provisions in the Protocol which cause me some concern from a jurisdictional perspective, however.

9 Firstly, paragraph 3 deals with the Implementation of the Protocol. Directors are to have immunity from liability in certain respects in their capacity as directors. Para. 3(c) provides for such immunity, and concludes with the following passage:

... It is understood that the actions of the Directors and officers of the Debtors in the course of performance of their roles in the management of the U.S. Operations are, as between the Bankruptcy Court and the Court of Justice, the primary concern of the Bankruptcy Court and, therefore, in any proceeding involving a determination of the entitlement of any Director or officer of a Debtor to the immunity contemplated by this section 3(a), the Court of Justice shall, on grounds of comity, defer to the decision of the Bankruptcy Court. (emphasis added)

10 The references to the "Bankruptcy Court" and to the "Court of Justice" in the foregoing quotation are to the U.S. Bankruptcy Court and to this Court, respectively.

11 The Protocol is, in essence, an agreement between the parties, and binding upon them. It requires the approvals of this Court and the U.S. Bankruptcy Court, by its terms, but, in spite of the use of the word "shall", I do not take its approval to be binding upon the Court in the sense of committing it unequivocally to an ouster of its jurisdiction in the future without regard to the circumstances. The "understanding" expressed in the passage quoted above is sensible,

3 understandable, and indeed commendable, and I should think that in the circumstances envisaged therein, the Canadian Court would likely be inclined to defer to the jurisdiction and decision of the U.S. Bankruptcy Court. I do not think that I have the jurisdiction, however, to bind this Court to an ouster of its jurisdiction in the future.

12 Paragraph 6 of the Protocol deals with the removal of directors, a particularly contentious issue between the parties. The Administrator is entitled to remove a director, but subject to a number of stringent requirements and procedures. Para. 6(d) raises the second concern to which I have referred. Under that provision, a creditor of OYDL or any other party in interest has the right to appear before this Court on any matter related to the decision of the Administrator to seek the removal of a director. It also provides for the eventuality that in that context an issue may arise as to "whether the Administrator's decision to seek removal is in accordance with United States law related to the duties of controlling shareholders acknowledged in the Acknowledgement and this Protocol". In those circumstances, the Protocol says, "then the Court of Justice shall consult with and defer to the decision of the Bankruptcy Court" (emphasis added). This language is repeated several times, and, indeed, there is a similar reciprocal provision, should the reverse situation arise involving the U.S. Court.

13 The very sensible purpose of the provision is stated at the end of para. 6(d), as follows:

... Given the foregoing provisions which contemplate deference to the Bankruptcy Court on matters of United States law and deference to the Court of Justice on matters of Canadian law, parties in interest are urged in connection with matters related to removal to institute in the Bankruptcy Court with respect to matters of United States law and the Court of Justice with respect to matters of Canadian law.

14 The mechanism for the resolution of such issues is not clearly set out in the Protocol, however. The concept of this Court and the U.S. Bankruptcy Court "consulting" with each other raises awkward and difficult questions. It is not an exercise which is generally undertaken. How it should be accomplished is not articulated explicitly, although there is a passage that suggests that there will be some sort of a hearing. That passage states:

... If either the Bankruptcy Court or the Court of Justice is consulted on a matter in accordance with this Section 6(d), the party having requested a hearing before the Court seeking such consultation shall provide notice to all parties in interest of the hearing to be held before such consulted Court so that such parties in interest shall have an opportunity to be heard at such hearing.

15 This does not answer the question of what role the "consulting" Court is to play. Is it contemplated that there will be written or telephonic communication between the Courts? What about the input of the parties in that process? What about the rights of the parties if there is no such input? Is the consulting Court to hire counsel in the other jurisdiction and "move for directions", in

4 effect, from the "consulted court"? These and other questions arise. I have serious reservations that the provisions of para. 6(d) are workable as between the two Courts in this respect, and I am not prepared to approve the "mechanics" of that provision, to the extent they exist, if approval means that this Court is to assume some sort of pro-active role in the process.

16 The intent of para. 6(d) is relatively clear, I think. It is to require that matters involving U.S. law and U.S. assets and U.S. creditors and (probably) U.S. directors, be determined in the U.S. Courts, and that any decision in that regard be applied in the contemplated Canadian proceedings regarding the removal of the director. I am satisfied the concept makes sense in this context, even though it may involve "farming out" a portion of the Court's decision making functions to another Court and the application of that other Court's decision within this Court's proceedings. In essence, all that will be happening under the proposed scheme, is that the "foreign law" question — normally determined in the domestic forum on the basis of evidence regarding the foreign law — will be determined by the foreign court which is familiar with that law. In the context of the kind of international trans-border insolvencies such as this O & Y re-organization, I see nothing wrong in principle with that process, for the reasons articulated earlier. I am not satisfied with the mechanism proposed, however.

17 In argument, I suggested that the problem might be addressed by creating a mechanism analogous to the "stated case" or "special case" provisions of the Ontario Rules of Civil Procedure. That is, the parties, in conjunction with an order of this Court, would articulate the issue of foreign law to be determined by the U.S. Court; there would then be a hearing before the U.S. Court (or the Canadian Court, if the situation were reversed), on proper notice to all concerned and on the basis of whatever evidence and materials are appropriate. The results of that determination would then be brought back to the Canadian (or U.S.) Court for application. Counsel expressed some agreement with this concept, but there were some reservations because, apparently, there may not be the equivalent kind of "stated case" procedure in the U.S. Court. Nevertheless, perhaps it could be implemented on the basis of the same "sua sponte" jurisdiction to which Judge Garrity resorted in appointing the Examiner in the first place.

18 I do not propose to require that such a procedure be adopted as a condition of approval of the Protocol. In the end, the provision in the Order to be granted whereby the two Courts retain jurisdiction in aid of the implementation of the Protocol will leave open the ability for an appropriate procedure to be worked out when, and if, the need arises.

19 Subject to the foregoing reservations, and for the foregoing reasons, the Protocol is approved and the Order sought granted. Once again, I congratulate the parties and Mr. Vance in their successful negotiation of this most useful vehicle for the harmonization of proceedings between the two international jurisdictions.

R.A. Blair J. (Order):

5 20 THIS MOTION made by Coopers & Lybrand OYDL Inc., the Administrator (the "Administrator") of Olympia & York Developments Limited ("OYDL") appointed pursuant to the provisions of the Sanction Order (the "Sanction Order") of this Court dated February 5, 1993 was heard this day at Toronto, Ontario.

21 ON READING the affidavit of Paul Currie sworn July 9, 1993 and the supplementary affidavit of Paul Currie sworn July 21, 1993 and on hearing submissions of counsel for the Administrator,

22 1. THIS COURT ORDERS that the corporate governance protocol among: is hereby approved in its entirety substantially in the form attached hereto as Exhibit "A" (the "Protocol").

23 2. THIS COURT ORDERS that the Administrator is hereby authorized to enter into and to take all steps necessary or advisable to immediately implement and give effect to the Protocol and to take all steps necessary or advisable to cause OYDL, as shareholder of Realty, Development and Equity, to cause each of Realty, Development and Equity to immediately implement and give effect to the Protocol.

24 3. THIS COURT ORDERS that further to the Orders of this Court dated June 1, 1992 and December 23, 1992, US$16,000,000 of the Net Proceeds (within the meaning of the aforesaid Orders) received and held by or on behalf of SF Holdings from the sale of Santa Fe Pacific Corporation shares and Santa Fe Energy Corporation shares, shall be pledged by SF Holdings as collateral security to secure the indemnification obligations of Realty, SF Holdings, Development, Equity, O&Y (U.S.) Development General Partners Corp., O&Y Equity General Partner Corp. and Olympia & York Real Estate (U.S.A.) Inc. under indemnification agreements to be delivered by the, all in the manner and to the extent set forth in the Protocol and the schedules and exhibits thereto and the Administrator, Realty and SF Holdings and hereby authorized and directed to take all steps which are necessary or advisable to authorize and to give effect thereto.

25 4. THIS COURT ORDERS that each Director (as identified in the Protocol) and the senior officers listed on Schedule 2 to the Protocol and their respective successors shall have the benefit of the immunities set forth in the Protocol and the schedules and exhibits thereto all in the manner and to the extent provided therein.

26 5. THIS COURT ORDERS that in entering into, implementing and giving effect to the Protocol, the Administrator, its officers and directors shall, subject to the terms of the Protocol, have all the powers, protections, and duties of the Administrator, its officers and directors under the Sanction Order and the plan of arrangement and compromise (the "Plan") sanctioned thereunder and that the Administrator may apply to this Court from time to time during the Plan Period (within

6 the meaning of the Plan) for advice and direction concerning the aforesaid powers and duties or any other relevant matter.

27 6. THIS COURT ORDERS that in entering into, implementing and giving effect to the Protocol, the Monitoring Committee and its members shall, subject to the terms of the Protocol, have all the powers, protections, and duties of the Monitoring Committee and its members under the Sanction Order and the plan of arrangement and compromise (the "Plan") sanctioned thereunder.

28 7. THIS COURT ORDERS that this Court shall retain jurisdiction in aid of the implementation of the Protocol and this Court seeks and requests the recognition and aid of any court or administrative body in any Province of Canada and any Canadian Federal Court and any Federal or State Court in the United States of America, including the United States Bankruptcy Court (Southern District of New York) which shall also retain jurisdiction in aid of implementation of the Protocol, to act in aid of and to be complementary to this Court in the carrying out of the terms of the Protocol and this Order.

29 8. THIS COURT ORDERS that all those served with Notice of this Hearing are to be served with a copy of this Order by facsimile transmission, such service to be effective 72 hours after such transmission.

Exhibit "A"

Examiner's Governance Protocol

30 The governance of the Corporations listed on Schedule 1 (each herein called a "Corporation") and their corporate subsidiaries, which together with O & Y (U.S.) Development Company, L.P. ("Devco"), O & Y Equity Company, L.P. ("Equityco") and entities that are wholly owned, directly or indirectly, by any one or more of the Corporations, Devco, Equityco, their corporate subsidiaries or O & Y (US) Holdings Company, constitute the United States operations of the Olympia & York enterprise (the "U.S. Operations") shall be established in accordance with the following:

1. Composition of Board of Directors

31 a. Upon approval of this Protocol by the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") on motion by Cyrus Vance, as Examiner (the "Examiner") appointed in the Chapter 11 cases of Olympia & York Realty Corp., Olympia & York SF Holdings Corporation ("SF Holdings"), O&Y (U.S.) Development Canada Ltd. and O&Y Equity (Canada) Ltd. (collectively sometimes herein called the "Debtors") and the Ontario Court of Justice (the "Court of Justice") on motion by Coopers & Lybrand OYDL, Inc., as Administrator pursuant to the Revised Plans of Compromise and Arrangement pursuant to the Companies' Creditors Arrangement Act (Canada) of Olympia & York Developments Limited

7 and Other Corporations (the "CCAA Plan") (Coopers & Lybrand OYDL, Inc., together with its successors, if any, appointed by the Court of Justice under the CCAA Plan or otherwise succeeding to the powers of the present Administrator in accordance with the CCAA Plan being herein called the "Administrator"), the Board of Directors of each Corporation shall be reconstituted in accordance with this Protocol.

32 b. The Directors of each Corporation will be as follows:

33 c. The term of each member of the Board of Directors of each Corporation shall be three (3) years, subject to Sections 6 and 7(a) hereof. The Administrator, as agent for the controlling shareholder of the Debtors excluding SF Holdings (such three Debtors being herein called the "Tier One Corporations") shall, at the annual meetings of the Tier One Corporations in 1994 and 1995, elect the foregoing nine Directors, subject to any changes effected pursuant to Sections 6, 7(a) or 8 hereof, as the Board of Directors of each Tier One Corporation. Immediately upon the election in 1994 and 1995 of the Boards of Directors of the Tier One Corporations, each such Board, as the controlling shareholder of one or more of the remaining Corporations, shall elect the foregoing nine Directors, subject to any changes effected pursuant to Sections 6, 7(a) or 8 hereof, as the Board of Directors of each such Corporation.

34 d. In order to permit the Board of Directors described above to be elected, the Corporations currently incorporated under the laws of Ontario shall be continued under the laws of New Brunswick immediately upon approval of this Protocol by the Bankruptcy Court and the Court of Justice.

Execution of the Acknowledgement; Status of U.S. Operations

35 a. The Administrator shall have executed and filed with the Bankruptcy Court and the Court of Justice an Acknowledgement in the form of Exhibit A annexed hereto.

36 b. The parties whose signatures appear at the end of this Protocol hereby stipulate and agree, solely for purposes of establishing the nature of the duties of the Directors and controlling shareholder of the Corporations and not to constitute a judicial admission that may be used in any other context in the Debtors' proceedings pending before the Bankruptcy Court or the Court of Justice or otherwise, that the entities constituting the U.S. Operations are either in bankruptcy proceedings or insolvent or operating in the vicinity of insolvency.

Implementation

37 a. Immediately upon approval of this Protocol by the Bankruptcy Court and the Court of Justice, the Boards of Directors of each Tier One Corporation described above shall be elected by the Administrator and each Board of Directors of the Tier One Corporations so elected shall elect the same nine (9) Directors as the Board of Directors of the remaining Corporation or Corporations

8 of which such Tier One Corporation is the controlling shareholder. The Directors and certain officers of the Corporations and their successors in such Directorships and officerships shall each have the indemnity and immunity protections that are contemplated by this Section 3.

38 b. Immediately upon approval of this Protocol by the Bankruptcy Court and the Court of Justice, each Corporation shall execute in favor of each Director and each officer listed on Schedule 2 (and their successors) an Indemnification Agreement, substantially in the form of Exhibit B annexed hereto (an "Indemnification Agreement").

39 c. Immediately upon approval of this Protocol by the Bankruptcy Court and the Court of Justice, each Director and each officer listed on Schedule 2 (and their successors) shall have immunity from any liability which may otherwise attach to any Director or any such officer in exercising such Director's or officer's power and authority as a Director or officer of a Corporation and any direct or indirect subsidiaries to which they are elected or appointed; provided that (i) the immunity being extended hereby by the Court of Justice with respect to actions in that Court shall be limited to Directors and officers in their capacities as Directors and officers of the Debtors, (ii) the immunity being extended hereby by the Bankruptcy Court with respect to actions in that Court shall cover Directors and officers in their capacities as Directors and officers of the Corporations and other corporations constituting a part of the U.S. Operations, and (iii) with respect to any challenged action in either such Court, the immunity granted hereby shall only attach if such Director or officer is disinter ested under law applicable to directors or officers of corporations and has acted in good faith, and for all purposes such Director or such officer shall be presumed to be so disinterested and acting in good faith absent a finding by the Bankruptcy Court or the Court of Justice to the contrary. It is understood that the actions of the Directors and officers of the Debtors in the course of performance of their roles in the management of the U.S. Operations are, as between the Bankruptcy Court and the Court of Justice, the primary concern of the Bankruptcy Court and, therefore, in any proceeding involving a determination of the entitlement of any Director or officer of a Debtor to the immunity contemplated by this Section 3(a), the Court of Justice shall, on grounds of comity, defer to the decision of the Bankruptcy Court.

40 d. Immediately upon approval of this Protocol by the Bankruptcy Court and the Court of Justice, the Administrator shall have immunity from any liability for money damages which may otherwise attach to the Administrator acting as agent for the controlling shareholder of the entities constituting the U.S. Operations; provided that with respect to any challenged action, such immunity shall only attach if the Administrator has acted in good faith and in a manner consistent with its fiduciary duties, and for purposes of any such action seeking to impose liability for money damages (and not for any other purpose) the Administrator shall be presumed to be acting in good faith and in a manner consistent with its fiduciary duties absent a finding to the contrary by the Bankruptcy Court as to its fiduciary duties and by a court of competent jurisdiction as to its good faith. Nothing contained in this Section 3(d) shall be construed to limit, increase or otherwise affect (i) the right of any party to seek to enjoin or obtain other equitable or non-monetary relief with

9 respect to any action proposed to be taken or already taken by the Administrator on any cognizable legal or equitable ground or (ii) any right of the Corporations to sue in a court of competent jurisdiction OYDL, O&Y 25 Realty Company or O&Y 25 Realty Co. L.P. for any purpose at any time and adding the Administrator as a necessary named party, as the agent for OYDL; it being understood that the only limitation intended to be effected hereby is a prohibition on monetary recovery against the assets of the Administrator, its shareholders, officers and directors.

41 e. Each Corporation will use reasonable efforts to obtain such D&O insurance as may be available on commercially reasonable terms.

42 f. Each Debtor shall execute and deliver to each Director (and his successors), each officer listed on Schedule 3 (and their successors) and the Administrator, as agent for the controlling shareholder, and the Administrator, as agent for the controlling shareholder, shall execute and deliver to each Director and each such officer (and their successors), a covenant not to sue, substantially in the form of Exhibit C annexed hereto [omitted by the court], which shall not preclude any legal proceedings in the Bankruptcy Court or the Court of Justice contemplated under Section 6 hereof or any legal proceedings against the Administrator as to which the Administrator has not been granted immunity as contemplated by Section 3(d) hereof. Execution by creditors of the U.S. Operations and by creditors of OYDL of a covenant not to sue shall be encouraged. The Monitoring Committee shall have authorized the Administrator to execute the foregoing covenants not to sue and it is understood that the Monitoring Committee has no independent right as such Committee to commence legal actions of the type limited by such covenants not to sue.

43 g. The use of $16 million of the cash on hand at SF Holdings as collateral security for the indemnity obligations described above in the manner described in Exhibit D annexed hereto [omitted by the court] is approved. Immediately upon approval of this Protocol by the Bankruptcy Court and the Court of Justice, the parties thereto shall execute the agreements constituting said Exhibit D. The U.S. Operations will use its good faith efforts to cause the Outside Directors to become Additional Indemnitees under the existing trust established in the original amount of $2 million for the purpose of providing indemnity to the officers of the U.S. Operations, it being understood that the claims of the Outside Directors against such trust will be subordinated to the claims of the Existing Indemnitees under such trust.

44 h. The entitlement of any officer of a Corporation to the indemnity and immunity protections set forth in Sections 3(b), (c) and (f) hereof shall be conditioned upon the execution by such officer of a certificate in the form of Exhibit E annexed hereto [omitted by the court] and the delivery of such certificate to the Corporations and each party who executes and delivers to such officer a covenant not to sue, provided that the execution and delivery of such certificate shall not provide an independent basis for litigation against the executing officer or otherwise expand the exceptions to the indemnity, immunity and non-suit protections set forth in this Section 3.

10 45 i. Among the matters that the Examiner believes that the Boards of Directors should address upon their election are (i) the initial composition of the boards of directors of corporations comprising the U.S. Operations that are not Corporations, (ii) the employment arrangements for John Zuccotti, in his capacity as the Chief Executive Officer of the U.S. Operations, and of other senior officers as the Board of Directors shall determine as contemplated by Section 5(b) hereof, and (iii) continued implementation of the restructuring of the U.S. Operations in accordance with the best interests of the U.S. Operations taken as a whole.

4. Action and Procedures by a Board of Directors

46 a. A quorum for action by the Board of Directors of a Corporation shall be five of its members.

47 b. Action by the Board shall be by majority vote except as required by applicable law or as provided in Sections 6 or 7 hereof, provided that (i) any action must have the affirmative vote of at least five (5) Directors and (ii) any determination of the composition of the respective boards of directors of corporations comprising the U.S. Operations that are not Corporations must have the affirmative vote of at least six (6) Directors.

48 c. All Directors will receive six (6) days written notice of all meetings (unless all Directors agree that a shorter notice period is either generally appropriate or appropriate with regard to a particular category of items to be considered by the Board), and all action items must be listed on an agenda distributed with such notice or distributed no later than four (4) days prior to the related meeting unless such requirement is waived by all Directors. In addition to agenda items proposed by management, there shall be added to any meeting agenda any item proposed for Board consideration by a Director in a written notice delivered to the other Directors at least four (4) days prior to the meeting to which such agenda relates, provided that the Board may consider any emergency matter on less than four (4) days notice if the majority of Directors so determine. Delivery of notices shall be by hand or facsimile transmission.

49 d. During the first twelve (12) months after implementation of this Protocol, the Board of Directors shall hold meetings at least monthly, unless this requirement is waived by unanimous vote of all of the Directors. The Board of Directors shall establish procedures to hold telephonic meetings and to allow members to participate in meetings by telephone to facilitate full participation of members in Board activity.

5. Shareholder/Management and Shareholder/Board Relations and Information Flow

50 a. The Administrator, as agent for the controlling shareholder of the U.S. Operations, shall have the rights to information and the status ordinarily enjoyed by a controlling shareholder; provided that if any such right or status is in conflict with an express provision of this Section 5, this Section 5 shall be deemed to control.

11 51 b. Upon approval of this Protocol by the Bankruptcy Court and the Court of Justice and the election of the Boards of Directors of each Corporation as provided in Section 3(a) hereof, the Administrator confirms that the U.S. Operations will continue to be managed exclusively by a management team headed by John Zuccotti, Chief Executive Officer, which management team shall be subject to the direction and control, including dismissal powers, of the Board of Directors. Nothing contained in this Section 5(b) shall be deemed to limit the authority of the Board of Directors to negotiate employment arrangements satisfactory to the Board with Mr. Zuccotti and other members of the management team or to dismiss any member of the management team with whom such arrangements cannot be negotiated.

52 c. The Board of Directors being ultimately responsible for the direction and control of the U.S. Operations, the Administrator shall not, subject to the second sentence of this Section 5(c), use its position as agent or a holder of a power of attorney for OYDL or any other person or entity that is not part of the U.S. Operations where OYDL or such other person or entity is a minority shareholder in, or a general partner or limited partner having a minority economic interest of, entities constituting a part of the U.S. Operations (for example, the Administrator's position as holder of a power of attorney for a general partner with a 20% economic interest in Olympia & York (US) Holdings Company ("Holdings")) to block action relating to the restructuring of the U.S. Operations that has been approved by the Board of Directors. The restriction contained in the preceding sentence of this Section 5(c) is intended only to prevent the use by the Administrator of special contractual voting provisions applicable to, or contractual provisions requiring unanimous general partner action of, minority economic positions to block corporate governance decisions properly taken in accordance with this Protocol, but such restriction on the powers of the Administrator is specifically not intended, and may not be utilized in any way, (i) to affect the ratable economic treatment any such minority economic position is otherwise entitled to receive pursuant to any restructuring of the U.S. Operations or (ii) without the prior written consent of the Family Corporations (as defined in the CCAA Plan), to (A) require O&Y 25 Realty Company, L.P. or O&Y 25 Realty Company (collectively, "25 Realty") to provide credit support by way of guarantee, indemnity or otherwise of any financing extended to Holdings (or any other person or entity subject to a power of attorney in favor of the Administrator) by the other partners or by any third party lender or to contribute any financing to Holdings (or such other person or entity) or (B) require 25 Realty to suffer any dilution or penalty in relation to its partnership interests in Holdings (or such other person or entity). In furtherance of the foregoing, it is expressly recognized that the fiduciary duty of the Directors and the controlling shareholder of the Corporations that extends to creditors and equity of the entities constituting the U.S. Operations shall extend to the benefit of any such minority economic position. It is understood that if the Administrator determines that its intention to vote the 25 Realty posi tion with respect to a proposed restructuring of, or other proposed transaction involving, the U.S. Operations would conflict with either clause (A) or (B) above, the Administrator shall promptly notify the Board of Directors of its determination that the Administrator cannot, without obtaining the prior consent of the Family Corporations,

12 exercise its rights under the applicable power of attorney to vote its interest in Holdings (or such other person or entity) with respect to such proposed restructuring or transaction. In such event, the Board of Directors shall provide the Family Corporations with information and financial data (on a confidential basis if such information or financial data is not otherwise publicly available) relating to such proposed restructuring or transaction in order to afford the Family Corporations an opportunity to review and discuss the proposed restructuring or transaction and any available alternatives thereto with the Board of Directors.

53 d. The Administrator, as agent for the controlling shareholder, shall be entitled to receive promptly from management all information and reports (including back up data) reasonably requested by the Administrator; provided, however, that:

54 The foregoing information rights of the Administrator, as agent for the controlling shareholder, are in addition to the right of the Administrator's Chief Executive Officer, as a Director, to receive material furnished to members of the Board of Directors. When information is provided to the Administrator, as agent for the controlling shareholder, pursuant to the foregoing, the Directors shall be advised thereof and any Director requesting all or any part of such information shall be entitled to receive it. It shall not constitute sufficient grounds to refuse a request of the Administrator, as agent for the controlling shareholder, for information that is otherwise reasonable that creditors have not yet received the requested information.

55 e. During the first six months after implementation of this Protocol any dispute arising between the Administrator, as agent for the controlling shareholder, and the management of the U.S. Operations with respect to access to information by the Administrator, as agent for the controlling shareholder, may be presented to the Examiner for resolution. The Examiner's resolution of any such dispute, after hearing the positions of each of the parties, shall be final and conclusive with respect to the subject matter of such dispute. At the end of the foregoing six month period the Examiner shall review with the Bankruptcy Court the need to continue such arbitration procedure or a modification thereof in effect for a further period; any party in interest in the Debtors' Chapter 11 cases may be heard at such review hearing.

6. Removal of Directors

56 a. A Director may be removed from the Boards of the Tier One Corporations by the action of the Administrator, as agent for the controlling shareholder, in accordance with the law applicable to the relevant Corporation and as permitted by the CCAA Plan and in accordance with this Protocol and United States law relating to the duties of controlling shareholders as set forth in the Acknowledgement; provided that such removal is subject to (i) not less than five (5) business days prior written notice delivered (1) by hand or by facsimile transmission to the Bankruptcy Court, the Court of Justice and each party listed on Schedule 4 and (2) delivered by overnight mail service to all other parties who filed a notice of appearance and remain on the service list in the

13 Chapter 11 cases of the Debtors at the date of such notice and (ii) the right of the subject Director, any other Director, any party in interest listed on Schedule 4 and any other such party in interest to request within such five (5) business day period a hearing conducted in accordance with Section 6(d) hereof before the Bankruptcy Court or the Court of Justice to review such removal. Nothing in this Protocol shall affect the burden of going forward or the burden of proof otherwise applicable in any such hearing concerning removal.

57 b. During the aforesaid notice period, and if a request for a hearing is made, during the extended period until a decision is made in accordance with Section 6(d) hereof with respect to the subject matter of such hearing, the subject Director will remain in place and no action shall be taken by the Board of Directors except (i) with the approval of the Bankruptcy Court on application seeking such approval authorized by a majority of the Directors or (ii) upon the unanimous consent of the Directors, including the subject Director.

58 c. If no hearing conducted in accordance with Section 6(d) hereof by the Bankruptcy Court or the Court of Justice is requested by such Director, any other Director or any such party in interest, removal of the subject Director shall be effective five (5) business days after such notice is served by the Administrator, as agent for the controlling shareholder.

59 d. Any creditor of OYDL or any other party in interest shall have the right to appear before the Court of Justice on any matter related to the decision of the Administrator, as agent for the controlling shareholder, to seek the removal of a Director, provided that such creditor or other party in interest shall provide notice in the manner and to the parties set forth in Section 6(a) of the hearing to be held before the Court of Justice, and such notice shall state whether any matter of United States law will be raised before the Court of Justice. If recourse to the Court of Justice is had before the Administrator gives the notice of removal referred to in clause (i) of Section 6(a), the Court of Justice shall have the right to determine whether the decision of the Administrator, as agent for the controlling shareholder, to seek removal was proper as a matter of Canadian law or otherwise in accordance with the CCAA Plan, and the Bankruptcy Court in any subsequent proceeding before it related to such removal shall defer to the Court of Justice's decision on such matters; but if in such proceeding before the Court of Justice, the Court of Justice is presented with the issue of whether the Administrator's decision to seek removal is in accordance with United States law related to the duties of controlling shareholders acknowledged in the Acknowledgement and this Protocol, then the Court of Justice shall consult with and defer to the decision of the Bankruptcy Court thereon. If the Court of Justice determines after consultation with the Bankruptcy Court, if appropriate, that the decision of the Administrator, as agent for the controlling shareholder, to seek removal of such Director was not proper then the proposed removal of such Director will not be effectuated. If no creditor or other party in interest requests such a determination by the Court of Justice, or the Court of Justice determines that the decision of the Administrator, as agent for the controlling shareholder, to seek the removal of such Director was proper, and notice of removal is given as provided in Section 6(a) hereof and a hearing is

14 requested before the Bankruptcy Court in accordance with the procedures set forth above, then (i) the Bankruptcy Court shall dismiss such petition if the Canadian Court has already issued a ruling based on the Bankruptcy Court's decision under United States law; (ii) in any other case, the Bankruptcy Court shall have the right to determine whether the proposed removal will be effectuated in accordance with United States law relating to duties of controlling shareholders acknowledged in the Acknowledgement and this Protocol but shall consult with and defer to the decision of the Court of Justice with respect to any question presented as to whether such removal is proper as a matter of Canadian law or in accordance with the CCAA Plan; and (iii) in any hearing commenced in the Court of Justice after such notice of removal is given that presents the issue of whether the attempted removal is in accordance with United States law relating to duties of controlling shareholders, the Court of Justice shall consult with and defer to the decision of the Bankruptcy Court thereon. If either the Bankruptcy Court or the Court of Justice is consulted on a matter in accordance with this Section 6(d), the party having requested a hearing before the Court seeking such consultation shall provide notice to all parties in interest of the hearing to be held before such consulted Court so that such parties in interest shall have an opportunity to be heard at such hearing. If the Bankruptcy Court's or the Court of Justice's decision is that the proposed removal of a Director is not to be disturbed, then the removal of such Director shall be effective upon entry of the Court's order to such effect, unless each Court has rendered a decision regarding removal based solely on the law within its primary competence, in which case, if either decision is that the proposed removal is to be disturbed, such removal will not be effectuated. Given the foregoing provisions which contemplate deference to the Bankruptcy Court on matters of United States law and deference to the Court of Justice on matters of Canadian law, parties in interest are urged in connection with matters related to removal to institute proceedings in the Bankruptcy Court with respect to matters of United States law and the Court of Justice with respect to matters of Canadian law.

60 e. If any Director is removed from the Boards of the Tier One Corporations in accordance with the foregoing provisions of this Section 6, such director shall simultaneously be removed from the Boards of each remaining Corporation by appropriate action of the Board of Directors of the Tier One Corporation that is the controlling shareholder of such Corporation.

7. Filling of Vacancies; Reelection of Directors

61 a. In the event of a vacancy on the Board of a Tier One Corporation, such vacancy shall be filled by an Outside Director (i) proposed by the Administrator (who shall consult with the Directors regarding suitable candidates and shall submit for consideration any candidate proposed by at least three (3) Directors) and (ii) acceptable to each member of the Board of Directors of such Tier One Corporation or approved by the Bankruptcy Court, provided, that if such vacancy results from the departure of Mr. Lowe or Mr. Zuccotti, a senior officer of the Administrator (in the case of Mr. Lowe) or of the U.S. Operations (in the case of Mr. Zuccotti), who is reasonably acceptable to the other members of the Board, shall be designated to fill such vacancy. Immediately upon the

15 filling of such vacancy, the Board of Directors of each Tier One Corporation shall elect the same individual to fill the comparable vacancy on the Board of each remaining Corporation controlled by such Tier One Corporation.

62 b. Commencing with the Annual Meeting of Shareholders in 1966, an incumbent Director of a Corporation may be reelected and the controlling shareholder of each Corporation may elect an individual other than an incumbent Director if such individual is an Outside Director.

63 c. From and after the departure of a Director from the Board, such Director shall not (i) become an officer of any entity constituting a part of the U.S. Operations, (ii) invest in the U.S. Operations or (iii) unless the Board of Directors otherwise approves, enter into a business transaction with any entity constituting a part of the U.S. Operations for a period of one (1) year after such departure.

8. Modification of this Protocol

64 The provisions of this Protocol may be modified upon approval of such modification, after notice and hearing, by the Bankruptcy Court and the Court of Justice. It is understood that such modification may take the form of a provision of a confirmed plan of reorganization or a sanctioned plan of arrangement of the Debtors in connection with the proceedings pending before the Bankruptcy Court or the Court of Justice, but such modification shall not be effective as a modification of this Protocol unless it is approved by the Bankruptcy Court and the Court of Justice. No approval of a modification of this Protocol agreed to by the Corporations that are currently Debtors and the Administrator shall be required by the Bankruptcy Court or the Court of Justice, as the case may be, if at the time such modification is agreed to no Chapter 11 case or CCAA proceedings involving the Debtors is pending before such Court; provided, that approval of the Court of Justice will be required if the modification is contained in a plan of reorganization that provides for OYDL, acting through the Administrator, to remain the holder of an equity interest in the reorganized Debtors covered by such plan of reorganization only to the extent that the modification relates to the Administrator's corporate governance roles in such reorganized Debtors; it being understood that the foregoing acknowledgement of the Court of Justice's right to approve modifications of the Administrator's corporate governance role shall not be used to block confirmation of a plan of reorganization for any Debtor so long as the equity interest retained by OYDL, acting through the Administrator, is afforded voting rights under such plan of reorganization on a ratable basis with any other equity interests issued pursuant to such plan of reorganization. No modification may adversely affect any rights to indemnification, immunity or other protection contemplated by Section 3 hereof with respect to service prior to such modification. Application allowed.

APPENDIX "A"

16 List of Applicants

(i) Olympia & York Developments Limited,

(ii) Olympia & York First Canadian Place Limited,

(iii) Olympia & York ET Limited,

(iv) Olympia & York Limited,

(v) Olympia & York SP Corporation,

(vi) SPE Operations Ltd.,

(vii) Olympia & York ACC Limited,

(viii) Olympia & York AMCC Limited,

(ix) Olympia & York FAP Limited,

(x) Olympia & York (Fifth Avenue Place) Limited,

(xi) Olympia & York GCS Limited,

(xii) Olympia & York (Gulf Canada Square) Limited,

(xiii) Olympia & York (Shell Centre) Limited,

(xiv) Olympia & York 240 Sparks Street Limited,

(xv) O & Y (CPI) Credit Corp.,

(xvi) Olympia & York Commercial Paper II Inc.,

(xvii) Olympia & York Eurocreditco Limited,

(xviii) Olympia & York European Holdings Limited,

(xix) Olympia & York Realty Credit Corp.,

(xx) Olympia & York Resources Credit Corp.,

(xxi) Olympia & York Resources Corporation,

(xxii) O & Y Energy Holdings Limited,

(xxiii) O & Y Forest Products Holdings Limited,

(xxiv) Olympia & York Realty Corp.,

17 (xxv) O & Y Equity (Canada) Ltd.,

(xxvi) O & Y (U.S.) Development Canada Ltd.,

(xxvii) Olympia & York SF Holdings Corporation,

(xxviii) GWU Investments Limited, and

(xxix) 857408 Ontario Inc. (formerly Olympia & York CC Limited).

(i) Cyrus Vance as examiner appointed by order of the United States Bankruptcy Court, Southern District of New York;

(ii) Olympia & York Realty Corp. ("Realty");

(iii) Olympia & York SF Holdings Corporation ("SF Holdings");

(iv) O & Y (U.S.) Development Canada Ltd. ("Development");

(v) O & Y Equity (Canada) Ltd. ("Equity");

(vi) the Administrator;

(vii) the Monitoring Committee appointed pursuant to the provisions of the Sanction Order; and

(viii) Citibank, N.A.,

(i) Robert Lowe, the Chief Executive Officer of the Administrator. This seat should always be held by a senior officer of the Administrator.

(ii) John E. Zuccotti, the Chief Executive Officer of the U.S. Operations. This seat should always be held by the Chief Executive Officer of the U.S. Operations.

(iii) Seven Directors (the "Outside Directors") who (1) are not affiliated with or are otherwise beholden to any of the creditors or management of Olympia & York Developments Ltd. ("OYDL") or the entities constituting the U.S. Operations, (2) are not actively engaged in or affiliated with any business that is in material competition with the U.S. Operations and (3) are persons of independence, integrity and stature who will be recognized as such by the New York City business and civic communities, it being understood that no such individual need be a resident of New York City.

Upon approval of this Protocol by the Bankruptcy Court and the Court of Justice, the Outside Directors shall be the following, each of whom is disinterested under law applicable to directors of corporations and each of whom, together with Messrs. Lowe and Zuccotti, will have the fiduciary duty of a corporate director to the entities on whose Boards he serves and

18 their subsidiary corporations, and thus, in the event of bankruptcy, insolvency or in the vicinity of insolvency, to the creditors and equity holders alike of such entities and their subsidiary corporations, including to any creditors who have or may have claims against entities in which the Debtors are partners or whose debts the Debtors have guaranteed or agreed to pay in any way:

1. Willard C. Butcher

2. William G. Davis

3. William D. Hassett

4. Richard Ravitch

5. Frederick P. Rose

6. Richard R. Shinn

7. John C. Whitehead

The foregoing persons shall continue to meet the standards of an "Outside Director" at all times during their term as Directors of the Corporations.

(i) With respect to information and reports relating to the restructuring of the U.S. Operations, the Administrator may not share with any creditor of the U.S. Operations or any creditor of OYDL (including any member of the Monitoring Committee, unless such member has delivered to the Corporations certifications satisfactory to the Board of Directors to the effect that (1) such individual will not share any such information with the institution employing such individual or any affiliate of such institution and (2) such individual will utilize such information solely in the course of its responsibilities as a member of the Monitoring Committee under the CCAA Plan; provided that the Board of Directors may determine with respect to particular items of information or reports to waive the foregoing certification requirement), any information that has not been generally made available to the creditors of the U.S. Operations; and

(ii) The Administrator shall exercise its right to receive the foregoing information and reports and to have access to the premises of the U.S. Operations in connection therewith in a manner consistent with the orderly conduct of the business of the U.S. Operations.

19 TAB 10 2017 ONSC 2242 Ontario Superior Court of Justice

Payless Holdings Inc. LLC, Re

2017 CarswellOnt 5926, 2017 ONSC 2242, 278 A.C.W.S. (3d) 234, 47 C.B.R. (6th) 106 IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED IN THE MATTER OF PAYLESS HOLDINGS INC LLC, PAYLESS SHOESOURCE CANADA INC., PAYLESS SHOESOURCE CANADA GP INC. AND THOSE OTHER ENTITES LISTED ON SCHEDULE "A" HERETO

APPLICATION OF PAYLESS HOLDINGS LLC UNDER SECTION 46 OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED

G.B. Morawetz R.S.J.

Heard: April 7, 2017 Judgment: April 7, 2017 * Docket: CV-17-11758-00CL

Proceedings: reasons in full Payless Holdings Inc. LLC, Re (2017), 2017 ONSC 2321, 2017 CarswellOnt 5925, G.B. Morawetz R.S.J. (Ont. S.C.J.)

Counsel: John MacDonald, Patrick Reisterer, for Applicant Clifton Prophet, Mark Crane, for Ivanhoe Cambridge Inc. Ashley Taylor, Lee Nicholson, for Alvarez & Marsal Inc., Proposed Information Officer David Bish, for Cadillac Fairview Corporation Ltd. Tony Reyes, for Wells Fargo, ABL DIP Lender (Agent) Linda Galessiere, for 20 Vic, Morguard, SmartREIT, Oxford, RioCan, Triovest, Springwood, Crombie REIT, Blackwood, Southridge Mall

G.B. Morawetz R.S.J.:

1 At the conclusion of the hearing, the record was endorsed:

The requested relief for an Interim Recognition Order proceeded on an unopposed basis. Initial Recognition Order granted, with the exception of paragraph 6 of the Draft Order.

1 Paragraphs 6-10 and 12 of the Supplemental Order also granted. The remaining issues - in particular the remaining requested relief in the form of the Supplemental Order - are adjourned to Monday, April 10, 2017 at 2:15 p.m. Reasons with respect to Initial Recognition Order will follow.

2 These are the reasons.

3 Payless Holdings LLC (the "Applicant"), in its capacity as foreign representative (the "Foreign Representative") of itself, as well as those entities listed in Schedule "A" that filed the voluntary petitions for relief pursuant to Chapter 11 of the U.S. Bankruptcy Code (collectively, with the Applicant, the "Chapter 11 Debtors", and with their non-debtor affiliated companies "Payless"), applied for Orders pursuant to sections 46 through 49 of the Companies' Creditors Arrangement Act ("CCAA"), inter alia:

(a) recognizing the Chapter 11 Cases as foreign main proceedings pursuant to Part IV of the CCAA;

(b) recognizing certain First Day Orders;

(c) appointing Alvarez & Marsal Canada Inc. ("A&M") as Information Officer in this proceeding; and

(d) granting the DIP ABL Lenders' Charge, Canadian Unsecured Creditors' Charge, and Administration Charge.

4 The matter proceeded on an unopposed basis. At the conclusion of the hearing, I granted the Initial Recognition Order, save and except for the portion of the draft order that related to the Information Officer. The appointment of the Information Officer was deferred. I also granted certain stay provisions which were contained in the draft Supplemental Order. The remaining issues, including recognition of certain First Day Orders, the granting of the DIP ABL Lenders' Charge, Canadian Unsecured Creditors' Charge, and Administration Charge were all adjourned to be addressed at a subsequent hearing scheduled for April 10, 2017.

5 Payless is an American footwear retailer, founded in 1956 in Topeka, Kansas, where it is still headquartered today. Payless markets its brand through retail locations and e-commerce internet sites. There are nearly 4,400 Payless stores in more than 30 countries and Payless employs nearly 22,000 people. Payless global sourcing networks include more than 90 manufacturing partners that produce over 110 million pairs of shoes annually. Payless's integrated supply chain, together with the remainder of the buying and logistics functions, are managed out of Payless's head office in Kansas.

2 6 On April 4, 2017, each of the Chapter 11 Debtors filed voluntary petitions for relief (the "Petitions") pursuant to Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the Eastern District of Missouri (the "U.S. Court").

7 The Chapter 11 Debtors filed several motions with the U.S. Court and on April 5, 2017 the U.S. Court heard motions (the "First Day Motions") for various interim or final orders (collectively, the "First Day Orders") including:

(a) Joint Administration Motion;

(b) Cash Management Motion;

(c) Critical Vendors and Shippers Motion;

(d) Customer Programs Motion;

(e) DIP Motion;

(f) Employee Wages Motion;

(g) Foreign Representative Motion;

(h) Insurance Motion;

(i) Surety Bond Motion; and

(j) Tax Motion.

8 The Chapter 11 Debtors operate on an integrated basis. The Applicant is the ultimate parent of the Chapter 11 Debtors. The Chapter 11 Debtors consist of:

(a) The Applicant and 25 of its wholly-owned subsidiaries that are incorporated under the laws of the United States;

(b) Two (2) wholly-owned subsidiary entities incorporated under the laws of Canada — Payless ShoeSource Canada Inc. and Payless ShoeSource GP Inc.; and

(c) One (1) limited partnership established under the laws of Ontario - Payless ShoeSource Canada LP.

9 The three Canadian entities are collectively referred to as the "Payless Canada Group".

10 For the fiscal year 2016, Payless generated approximately $2.28 billion in net revenues on a consolidated basis. Canadian sales accounted for approximately 7% of those net revenues; U.S. sales amounted to almost 75%.

3 11 The Applicant takes the position that the Payless Canada Group's operations are fully integrated with Payless US operations. The affidavit of Michael Schwindle, Senior Vice-President and CFO of the Applicant, establishes that all corporate and other major decision-making occurs in the U.S., and the Payless Canada Group is entirely reliant on U.S. managerial functions for all overhead services including accounting and finance, buying, logistics, marketing, strategic direction, IT and other functions.

12 Payless Canada Group employs approximately 2100 employees, all of whom work in the stores except for five who work at the regional office in Toronto, and another 15 who work in field management functions throughout Canada. There is no union representation for the Canadian employees.

13 Payless currently operates 258 leased stores in Canada, with almost half of them in Ontario. Approximately 56 leases are subject to an indemnity with cross provisions such that an event of default under the lease will occur if the "Indemnifier" becomes bankrupt or insolvent, or takes the benefit of any statute for bankrupt or insolvent debtors. The "Indemnifier" of those leases is Payless ShoeSource, Inc. (incorporated under the laws of Missouri), which is a Chapter 11 Debtor.

14 Mr. Schwindle also states that Payless Canada Group's assets consists principally of merchandise, much of which is stored at Payless stores in Canada and other warehouses and distribution facilities across Canada. The Payless Canada Group does not independently design or source its own merchandise. Mr. Schwindle also states that the Payless Canada Group relies entirely on the buying power and sourcing relationships of the entire Payless enterprise.

15 Payless Canada Group estimates that, as of March 27, 2017, arms'-length trade creditors are owed approximately $2.6 million. The largest arms-length trade creditor Kuehne & Nagel Ltd. ("K&N"), which provides logistics and freight operation, is owed approximately $1.2 million. It is anticipated that K&N will be paid in the ordinary course as the Chapter 11 Debtors intend to pay all pre-petition amounts owing to K&N through a Critical Vendors Order.

16 Mr. Schwindle states that since early 2015, Payless has experienced a top-line sales decline, driven primarily by:

(a) a set of significant and detrimental non-recurring events;

(b) foreign exchange rate volatility; and

(c) challenging retail market conditions.

17 Mr. Schwindle also states that these pressures led to the Chapter 11 Debtors' inability to both service their pre-petition security indebtedness and remain current with their trade obligations.

4 18 Mr. Schwindle also states that the Chapter 11 Debtors have worked with a steering committee of the secured term loan lenders to develop a comprehensive financing restructuring and recapitalized plan that will be implemented through the Chapter 11 Cases.

19 The Applicant takes the position that it requires protection and coordinated relief in Canada to facilitate an effective and efficient restructuring. The Applicant takes the position that a coordinated approach provides for the best potential outcome and that a Canadian Recognition Order and Stay under the CCAA will allow the Chapter 11 Debtors to implement the pre- arranged restructuring and allow the Payless Canada Group to continue as a going concern, thereby maximizing value for all stakeholders of Payless Canada Group and the rest of the Chapter 11 Debtors.

20 The issues on this motion are:

(a) Are the Chapter 11 cases a "foreign main proceeding" under Part IV of the CCAA?

(b) Are the Chapter 11 Debtors entitled to the relief sought in the Initial Recognition Order, and Supplemental Order pursuant to sections 46 through 50 of the CCAA, including:

i. Granting the Stay of Proceedings;

ii. Recognizing certain First Day Orders;

iii. Appointing A&M as Information Officer;

iv. Granting the DIP ABL Lenders' Charge and Canadian Unsecured Creditors' Charge; and

v. Granting the Administration Charge.

21 Section 47 of the CCAA states that two requirements must be met for an order recognizing a foreign proceeding:

1. The proceeding must be a "foreign proceeding"; and

2. The applicant must be a "foreign representative" in respect of that foreign proceeding.

22 This court has consistently recognized proceedings under the U.S. Bankruptcy Code to be foreign proceedings for the purposes of the CCAA. The Applicant has been declared a "foreign representative" in the Chapter 11 case by the U.S. Court, and I am satisfied that the Chapter 11 Cases should be recognized as a "foreign proceeding" within the meaning of subsection 47(1) of the CCAA.

5 23 Having determined that the proceeding is a "foreign proceeding", section 47(2) requires the Court to specify whether the foreign proceeding is a "foreign main proceeding" or a "foreign non- main proceeding". A "foreign main proceeding" is defined as a "foreign proceeding in a jurisdiction where the debtor company has the centre of its main interest" ("COMI").

24 Section 45(2) of the CCAA provides that, in the absence of proof to the contrary, a debtor company's registered office is deemed to be the centre of its COMI. To rebut this presumption, sufficient evidence is required. Further, because Part IV of the CCAA does not take into account corporate groups, it is necessary to conduct the COMI analysis on an entity by entity basis.

25 Of the Chapter 11 Debtors:

(a) Twenty-six are incorporated or established in the U.S. and have registered assets within the U.S. The section 45(2) presumption deems the COMI of each of those entities to be in the U.S.

(b) The three entities in the Payless Canada Group are established under the laws of Canada, with their registered head office in Etobicoke, Ontario.

26 The Applicant takes the position that the COMI of each of the Payless Canada Group entities is in the U.S.

27 In determining the COMI for Canadian entities that are part of a larger corporate group, the relevant factors to consider include, among others:

(a) the location of the debtor's headquarters, head office functions, or nerve centre;

(b) the location of the debtor's management; and

(c) the location that significant creditors recognize as being the centre of the company's operations

(see: Lightsquared LP, Re, 2012 ONSC 2994 (Ont. S.C.J. [Commercial List]) and Massachusetts Elephant & Castle Group Inc., Re, 2011 ONSC 4201 (Ont. S.C.J.)).

28 A review of the foregoing factors is designed to determine that the location of the proceeding, in fact, corresponds to where the debtor's true seat or principal place of business actually is, consistent with the expectations of those who dealt with the enterprise prior to commencement of the proceedings.

29 In my view, the following factors support a finding that the COMI of the entities in the Payless Canada Group is in the United States and that the Chapter 11 cases should be recognized as a "foreign main proceeding" in Canada:

6 (a) the Payless Canada Group's operations are fully integrated with Payless U.S. operations;

(b) only one of the senior executives, and only one of the directors, of the entities in the Payless Canada Group reside in Canada;

(c) all corporate, strategic, financial, inventory sourcing and other major decision-making occurs in the U.S.;

(d) the Payless Canada Group is entirely reliant on U.S. managerial functions; and

(e) Payless Canada Group is entirely dependent on the other Chapter 11 Debtors for all of their licencing agreements, design partnerships, and company owned lands.

30 I therefore find that the COMI of each entity the Payless Canada Group is in the United States.

31 In the result, I am satisfied that Chapter 11 Cases should be recognized as a "foreign main proceeding".

32 The relief requested in the Initial Recognition Order is granted, with the exception of paragraph 6 of the Draft Order which relates to certain directions to be provided to the Information Officer.

33 The Applicant also sought a Supplemental Order, in accordance with the provisions of section 49 of the CCAA, which provides that the court may, at its discretion, make any order that it considers appropriate if it is satisfied that it is necessary for the protection of the debtor's property or the interest of one or more creditors. Section 50 provides that the Order under Part IV may be made on any terms and conditions that the court considers appropriate in the circumstances.

34 Section 52(1) provides that if an order recognizing a foreign proceeding is made, the court "shall cooperate, to the maximum extent possible, with the foreign representative and the foreign court involved in the foreign proceedings".

35 In the context of cross-border insolvencies, Canadian courts have consistently encouraged comity and cooperation between courts in various jurisdictions in order to enable enterprises to restructure on a cross-border basis (see: Lear Canada, Re (2009), 55 C.B.R. (5th) 57 (Ont. S.C.J. [Commercial List]) at paras. 11 and 11; Babcock & Wilcox Canada Ltd., Re (2000), 18 C.B.R. (4th) 157 (Ont. S.C.J. [Commercial List]) at para. 9.)

36 Counsel to the Applicant submits that, in light of the events leading up to the Chapter 11 cases and this application, it is both necessary and appropriate for the court to grant a stay of proceedings sought by the Applicant. Without the stay, the objective of the Chapter 11 cases, mainly the emergence of Payless as a going concern, cannot be achieved.

7 37 Counsel also submits that the CCAA expressly applied, by its terms, to debtor companies, but not partnerships. However, where the partnership's operations are integral and closely related to the debtor companies' operations, the court has jurisdiction to extend the protection of the stay of proceedings and related relief to those partnerships in order to ensure that the purpose of the CCAA can be achieved (see: Canwest Global Communications Corp., Re [2009 CarswellOnt 6184 (Ont. S.C.J. [Commercial List])], 2009 CanLII 55114 at paras. 28-29). Counsel submits that it is appropriate to extend relief to the partnership, which carries on operations that are integral to the business of the Payless Canada Group.

38 I accept these submissions and order the requested relief in paras. 6 — "No proceedings against the Chapter 11 Debtors or the Property", 7 — "No exercise of rights or remedies", 8 — "No interference with rights", 9, 10 and 12 — "Additional protections".

39 The remaining issues set out in the draft Supplemental Order are adjourned to April 10, 2017. Order accordingly.

Footnotes * Reasons in full reported at Payless Holdings Inc. LLC, Re (2017), 2017 CarswellOnt 5925, 2017 ONSC 2321, 47 C.B.R. (6th) 117 (Ont. S.C.J.).

8 TAB 11 1991 CarswellOnt 205 Ontario Court of Appeal

Royal Bank v. Soundair Corp.

1991 CarswellOnt 205, [1991] O.J. No. 1137, 27 A.C.W.S. (3d) 1178, 46 O.A.C. 321, 4 O.R. (3d) 1, 7 C.B.R. (3d) 1, 83 D.L.R. (4th) 76 ROYAL BANK OF CANADA (plaintiff/respondent) v. SOUNDAIR CORPORATION (respondent), CANADIAN PENSION CAPITAL LIMITED (appellant) and CANADIAN INSURERS' CAPITAL CORPORATION (appellant) Goodman, McKinlay and Galligan JJ.A.

Heard: June 11, 12, 13 and 14, 1991 Judgment: July 3, 1991 Docket: Doc. CA 318/91

Counsel: J. B. Berkow and S. H. Goldman , for appellants Canadian Pension Capital Limited and Canadian Insurers' Capital Corporation. J. T. Morin, Q.C. , for Air Canada. L.A.J. Barnes and L.E. Ritchie , for plaintiff/respondent Royal Bank of Canada. S.F. Dunphy and G.K. Ketcheson , for Ernst & Young Inc., receiver of respondent Soundair Corporation. W.G. Horton , for Ontario Express Limited. N.J. Spies , for Frontier Air Limited.

Galligan J.A. :

1 This is an appeal from the order of Rosenberg J. made on May 1, 1991. By that order, he approved the sale of Air Toronto to Ontario Express Limited and Frontier Air Limited, and he dismissed a motion to approve an offer to purchase Air Toronto by 922246 Ontario Limited.

2 It is necessary at the outset to give some background to the dispute. Soundair Corporation ("Soundair") is a corporation engaged in the air transport business. It has three divisions. One of them is Air Toronto. Air Toronto operates a scheduled airline from Toronto to a number of mid- sized cities in the United States of America. Its routes serve as feeders to several of Air Canada's routes. Pursuant to a connector agreement, Air Canada provides some services to Air Toronto and benefits from the feeder traffic provided by it. The operational relationship between Air Canada and Air Toronto is a close one.

1 3 In the latter part of 1989 and the early part of 1990, Soundair was in financial difficulty. Soundair has two secured creditors who have an interest in the assets of Air Toronto. The Royal Bank of Canada (the "Royal Bank") is owed at least $65 million dollars. The appellants Canadian Pension Capital Limited and Canadian Insurers' Capital Corporation (collectively called "CCFL") are owed approximately $9,500,000. Those creditors will have a deficiency expected to be in excess of $50 million on the winding up of Soundair.

4 On April 26, 1990, upon the motion of the Royal Bank, O'Brien J. appointed Ernst & Young Inc. (the "receiver") as receiver of all of the assets, property and undertakings of Soundair. The order required the receiver to operate Air Toronto and sell it as a going concern. Because of the close relationship between Air Toronto and Air Canada, it was contemplated that the receiver would obtain the assistance of Air Canada to operate Air Toronto. The order authorized the receiver:

(b) to enter into contractual arrangements with Air Canada to retain a manager or operator, including Air Canada, to manage and operate Air Toronto under the supervision of Ernst & Young Inc. until the completion of the sale of Air Toronto to Air Canada or other person.

Also because of the close relationship, it was expected that Air Canada would purchase Air Toronto. To that end, the order of O'Brien J. authorized the Receiver:

(c) to negotiate and do all things necessary or desirable to complete a sale of Air Toronto to Air Canada and, if a sale to Air Canada cannot be completed, to negotiate and sell Air Toronto to another person, subject to terms and conditions approved by this Court.

5 Over a period of several weeks following that order, negotiations directed towards the sale of Air Toronto took place between the receiver and Air Canada. Air Canada had an agreement with the receiver that it would have exclusive negotiating rights during that period. I do not think it is necessary to review those negotiations, but I note that Air Canada had complete access to all of the operations of Air Toronto and conducted due diligence examinations. It became thoroughly acquainted with every aspect of Air Toronto's operations.

6 Those negotiations came to an end when an offer made by Air Canada on June 19, 1990, was considered unsatisfactory by the receiver. The offer was not accepted and lapsed. Having regard to the tenor of Air Canada's negotiating stance and a letter sent by its solicitors on July 20, 1990, I think that the receiver was eminently reasonable when it decided that there was no realistic possibility of selling Air Toronto to Air Canada.

7 The receiver then looked elsewhere. Air Toronto's feeder business is very attractive, but it only has value to a national airline. The receiver concluded reasonably, therefore, that it was commercially necessary for one of Canada's two national airlines to be involved in any sale of Air

2 Toronto. Realistically, there were only two possible purchasers, whether direct or indirect. They were Air Canada and Canadian Airlines International.

8 It was well known in the air transport industry that Air Toronto was for sale. During the months following the collapse of the negotiations with Air Canada, the receiver tried unsuccessfully to find viable purchasers. In late 1990, the receiver turned to Canadian Airlines International, the only realistic alternative. Negotiations began between them. Those negotiations led to a letter of intent dated February 11, 1990. On March 6, 1991, the receiver received an offer from Ontario Express Limited and Frontier Airlines Limited, who are subsidiaries of Canadian Airlines International. This offer is called the OEL offer.

9 In the meantime, Air Canada and CCFL were having discussions about making an offer for the purchase of Air Toronto. They formed 922246 Ontario Limited ("922") for the purpose of purchasing Air Toronto. On March 1, 1991, CCFL wrote to the receiver saying that it proposed to make an offer. On March 7, 1991, Air Canada and CCFL presented an offer to the receiver in the name of 922. For convenience, its offers are called the "922 offers."

10 The first 922 offer contained a condition which was unacceptable to the receiver. I will refer to that condition in more detail later. The receiver declined the 922 offer and on March 8, 1991, accepted the OEL offer. Subsequently, 922 obtained an order allowing it to make a second offer. It then submitted an offer which was virtually identical to that of March 7, 1991, except that the unacceptable condition had been removed.

11 The proceedings before Rosenberg J. then followed. He approved the sale to OEL and dismissed a motion for the acceptance of the 922 offer. Before Rosenberg J., and in this court, both CCFL and the Royal Bank supported the acceptance of the second 922 offer.

12 There are only two issues which must be resolved in this appeal. They are:

(1) Did the receiver act properly when it entered into an agreement to sell Air Toronto to OEL?

(2) What effect does the support of the 922 offer by the secured creditors have on the result?

13 I will deal with the two issues separately.

1. Did the Receiver Act Properly in Agreeing to Sell to OEL?

14 Before dealing with that issue, there are three general observations which I think I should make. The first is that the sale of an airline as a going concern is a very complex process. The best method of selling an airline at the best price is something far removed from the expertise of a court. When a court appoints a receiver to use its commercial expertise to sell an airline, it is inescapable that it intends to rely upon the receiver's expertise and not upon its own. Therefore, the court must place a great deal of confidence in the actions taken and in the opinions formed by the receiver.

3 It should also assume that the receiver is acting properly unless the contrary is clearly shown. The second observation is that the court should be reluctant to second-guess, with the benefit of hindsight, the considered business decisions made by its receiver. The third observation which I wish to make is that the conduct of the receiver should be reviewed in the light of the specific mandate given to him by the court.

15 The order of O'Brien J. provided that if the receiver could not complete the sale to Air Canada that it was "to negotiate and sell Air Toronto to another person." The court did not say how the receiver was to negotiate the sale. It did not say it was to call for bids or conduct an auction. It told the receiver to negotiate and sell. It obviously intended, because of the unusual nature of the asset being sold, to leave the method of sale substantially in the discretion of the receiver. I think, therefore, that the court should not review minutely the process of the sale when, broadly speaking, it appears to the court to be a just process.

16 As did Rosenberg J., I adopt as correct the statement made by Anderson J. in Crown Trust Co. v. Rosenberg (1986), 60 O.R. (2d) 87, 67 C.B.R. (N.S.) 320n, 22 C.P.C. (2d) 131, 39 D.L.R. (4th) 526 (H.C.) , at pp. 92-94 [O.R.], of the duties which a court must perform when deciding whether a receiver who has sold a property acted properly. When he set out the court's duties, he did not put them in any order of priority, nor do I. I summarize those duties as follows:

1. It should consider whether the receiver has made a sufficient effort to get the best price and has not acted improvidently.

2. It should consider the interests of all parties.

3. It should consider the efficacy and integrity of the process by which offers are obtained.

4. It should consider whether there has been unfairness in the working out of the process.

17 I intend to discuss the performance of those duties separately.

1. Did the Receiver make a sufficient effort to get the best price and did it act providently?

18 Having regard to the fact that it was highly unlikely that a commercially viable sale could be made to anyone but the two national airlines, or to someone supported by either of them, it is my view that the receiver acted wisely and reasonably when it negotiated only with Air Canada and Canadian Airlines International. Furthermore, when Air Canada said that it would submit no further offers and gave the impression that it would not participate further in the receiver's efforts to sell, the only course reasonably open to the receiver was to negotiate with Canadian Airlines International. Realistically, there was nowhere else to go but to Canadian Airlines International. In do ing so, it is my opinion that the receiver made sufficient efforts to sell the airline.

4 19 When the receiver got the OEL offer on March 6, 1991, it was over 10 months since it had been charged with the responsibility of selling Air Toronto. Until then, the receiver had not received one offer which it thought was acceptable. After substantial efforts to sell the airline over that period, I find it difficult to think that the receiver acted improvidently in accepting the only acceptable offer which it had.

20 On March 8, 1991, the date when the receiver accepted the OEL offer, it had only two offers, the OEL offer, which was acceptable, and the 922 offer, which contained an unacceptable condition. I cannot see how the receiver, assuming for the moment that the price was reasonable, could have done anything but accept the OEL offer.

21 When deciding whether a receiver had acted providently, the court should examine the conduct of the receiver in light of the information the receiver had when it agreed to accept an offer. In this case, the court should look at the receiver's conduct in the light of the information it had when it made its decision on March 8, 1991. The court should be very cautious before deciding that the receiver's conduct was improvident based upon information which has come to light after it made its decision. To do so, in my view, would derogate from the mandate to sell given to the receiver by the order of O'Brien J. I agree with and adopt what was said by Anderson J. in Crown Trust Co. v. Rosenberg , supra, at p. 112 [O.R.]:

Its decision was made as a matter of business judgment on the elements then available to it . It is of the very essence of a receiver's function to make such judgments and in the making of them to act seriously and responsibly so as to be prepared to stand behind them.

If the court were to reject the recommendation of the Receiver in any but the most exceptional circumstances, it would materially diminish and weaken the role and function of the Receiver both in the perception of receivers and in the perception of any others who might have occasion to deal with them. It would lead to the conclusion that the decision of the Receiver was of little weight and that the real decision was always made upon the motion for approval. That would be a consequence susceptible of immensely damaging results to the disposition of assets by court-appointed receivers.

[Emphasis added.]

22 I also agree with and adopt what was said by Macdonald J.A. in Cameron v. Bank of Nova Scotia (1981), 38 C.B.R. (N.S.) 1, 45 N.S.R. (2d) 303, 86 A.P.R. 303 (C.A.) , at p. 11 [C.B.R.]:

In my opinion if the decision of the receiver to enter into an agreement of sale, subject to court approval, with respect to certain assets is reasonable and sound under the circumstances at the time existing it should not be set aside simply because a later and higher bid is made.

5 To do so would literally create chaos in the commercial world and receivers and purchasers would never be sure they had a binding agreement.

[Emphasis added.]

23 On March 8, 1991, the receiver had two offers. One was the OEL offer, which it considered satisfactory but which could be withdrawn by OEL at any time before it was accepted. The receiver also had the 922 offer, which contained a condition that was totally unacceptable. It had no other offers. It was faced with the dilemma of whether it should decline to accept the OEL offer and run the risk of it being withdrawn, in the hope that an acceptable offer would be forthcoming from 922. An affidavit filed by the president of the receiver describes the dilemma which the receiver faced, and the judgment made in the light of that dilemma:

24. An asset purchase agreement was received by Ernst & Young on March 7, 1991 which was dated March 6, 1991. This agreement was received from CCFL in respect of their offer to purchase the assets and undertaking of Air Toronto. Apart from financial considerations, which will be considered in a subsequent affidavit, the Receiver determined that it would not be prudent to delay acceptance of the OEL agreement to negotiate a highly uncertain arrangement with Air Canada and CCFL . Air Canada had the benefit of an 'exclusive' in negotiations for Air Toronto and had clearly indicated its intention take itself out of the running while ensuring that no other party could seek to purchase Air Toronto and maintain the Air Canada connector arrangement vital to its survival. The CCFL offer represented a radical reversal of this position by Air Canada at the eleventh hour. However, it contained a significant number of conditions to closing which were entirely beyond the control of the Receiver. As well, the CCFL offer came less than 24 hours before signing of the agreement with OEL which had been negotiated over a period of months, at great time and expense.

[Emphasis added.] I am convinced that the decision made was a sound one in the circumstances faced by the receiver on March 8, 1991.

24 I now turn to consider whether the price contained in the OEL offer was one which it was provident to accept. At the outset, I think that the fact that the OEL offer was the only acceptable one available to the receiver on March 8, 1991, after 10 months of trying to sell the airline, is strong evidence that the price in it was reasonable. In a deteriorating economy, I doubt that it would have been wise to wait any longer.

25 I mentioned earlier that, pursuant to an order, 922 was permitted to present a second offer. During the hearing of the appeal, counsel compared at great length the price contained in the second 922 offer with the price contained in the OEL offer. Counsel put forth various hypotheses supporting their contentions that one offer was better than the other.

6 26 It is my opinion that the price contained in the 922 offer is relevant only if it shows that the price obtained by the receiver in the OEL offer was not a reasonable one. In Crown Trust Co. v. Rosenberg , supra, Anderson J., at p. 113 [O.R.], discussed the comparison of offers in the following way:

No doubt, as the cases have indicated, situations might arise where the disparity was so great as to call in question the adequacy of the mechanism which had produced the offers. It is not so here, and in my view that is substantially an end of the matter.

27 In two judgments, Saunders J. considered the circumstances in which an offer submitted after the receiver had agreed to a sale should be considered by the court. The first is Re Selkirk (1986), 58 C.B.R. (N.S.) 245 (Ont. S.C.) , at p. 247:

If, for example, in this case there had been a second offer of a substantially higher amount, then the court would have to take that offer into consideration in assessing whether the receiver had properly carried out his function of endeavouring to obtain the best price for the property.

28 The second is Re Beauty Counsellors of Canada Ltd. (1986), 58 C.B.R. (N.S.) 237 (Ont. S.C.) , at p. 243:

If a substantially higher bid turns up at the approval stage, the court should consider it. Such a bid may indicate, for example, that the trustee has not properly carried out its duty to endeavour to obtain the best price for the estate.

29 In Re Selkirk (1987), 64 C.B.R. (N.S.) 140 (Ont. S.C.) , at p. 142, McRae J. expressed a similar view:

The court will not lightly withhold approval of a sale by the receiver, particularly in a case such as this where the receiver is given rather wide discretionary authority as per the order of Mr. Justice Trainor and, of course, where the receiver is an officer of this court. Only in a case where there seems to be some unfairness in the process of the sale or where there are substantially higher offers which would tend to show that the sale was improvident will the court withhold approval. It is important that the court recognize the commercial exigencies that would flow if prospective purchasers are allowed to wait until the sale is in court for approval before submitting their final offer. This is something that must be discouraged.

[Emphasis added.]

30 What those cases show is that the prices in other offers have relevance only if they show that the price contained in the offer accepted by the receiver was so unreasonably low as to demonstrate that the receiver was improvident in accepting it. I am of the opinion, therefore, that if they do

7 not tend to show that the receiver was improvident, they should not be considered upon a motion to confirm a sale recommended by a court-appointed receiver. If they were, the process would be changed from a sale by a receiver, subject to court approval, into an auction conducted by the court at the time approval is sought. In my opinion, the latter course is unfair to the person who has entered bona fide into an agreement with the receiver, can only lead to chaos, and must be discouraged.

31 If, however, the subsequent offer is so substantially higher than the sale recommended by the receiver, then it may be that the receiver has not conducted the sale properly. In such circumstances, the court would be justified itself in entering into the sale process by considering competitive bids. However, I think that that process should be entered into only if the court is satisfied that the receiver has not properly conducted the sale which it has recommended to the court.

32 It is necessary to consider the two offers. Rosenberg J. held that the 922 offer was slightly better or marginally better than the OEL offer. He concluded that the difference in the two offers did not show that the sale process adopted by the receiver was inadequate or improvident.

33 Counsel for the appellants complained about the manner in which Rosenberg J. conducted the hearing of the motion to confirm the OEL sale. The complaint was that when they began to discuss a comparison of the two offers, Rosenberg J. said that he considered the 922 offer to be better than the OEL offer. Counsel said that when that comment was made, they did not think it necessary to argue further the question of the difference in value between the two offers. They complain that the finding that the 922 offer was only marginally better or slightly better than the OEL offer was made without them having had the opportunity to argue that the 922 offer was substantially better or significantly better than the OEL offer. I cannot understand how counsel could have thought that by expressing the opinion that the 922 offer was better, Rosenberg J. was saying that it was a significantly or substantially better one. Nor can I comprehend how counsel took the comment to mean that they were foreclosed from arguing that the offer was significantly or substantially better. If there was some misunderstanding on the part of counsel, it should have been raised before Rosenberg J. at the time. I am sure that if it had been, the misunderstanding would have been cleared up quickly. Nevertheless, this court permitted extensive argument dealing with the comparison of the two offers.

34 The 922 offer provided for $6 million cash to be paid on closing with a royalty based upon a percentage of Air Toronto profits over a period of 5 years up to a maximum of $3 million. The OEL offer provided for a payment of $2 million on closing with a royalty paid on gross revenues over a 5-year period. In the short term, the 922 offer is obviously better because there is substantially more cash up front. The chances of future returns are substantially greater in the OEL offer because royalties are paid on gross revenues, while the royalties under the 922 offer are paid only on profits. There is an element of risk involved in each offer.

8 35 The receiver studied the two offers. It compared them and took into account the risks, the advantages and the disadvantages of each. It considered the appropriate contingencies. It is not necessary to outline the factors which were taken into account by the receiver because the manager of its insolvency practice filed an affidavit outlining the considerations which were weighed in its evaluation of the two offers. They seem to me to be reasonable ones. That affidavit concluded with the following paragraph:

24. On the basis of these considerations the Receiver has approved the OEL offer and has concluded that it represents the achievement of the highest possible value at this time for the Air Toronto division of SoundAir.

36 The court appointed the receiver to conduct the sale of Air Toronto, and entrusted it with the responsibility of deciding what is the best offer. I put great weight upon the opinion of the receiver. It swore to the court which appointed it that the OEL offer represents the achievement of the highest possible value at this time for Air Toronto. I have not been convinced that the receiver was wrong when he made that assessment. I am, therefore, of the opinion that the 922 offer does not demonstrate any failure upon the part of the receiver to act properly and providently.

37 It follows that if Rosenberg J. was correct when he found that the 922 offer was in fact better, I agree with him that it could only have been slightly or marginally better. The 922 offer does not lead to an inference that the disposition strategy of the receiver was inadequate, unsuccessful or improvident, nor that the price was unreasonable.

38 I am, therefore, of the opinion the the receiver made a sufficient effort to get the best price, and has not acted improvidently.

2. Consideration of the Interests of all Parties

39 It is well established that the primary interest is that of the creditors of the debtor: see Crown Trust Co. v. Rosenberg , supra, and Re Selkirk , supra (Saunders J.). However, as Saunders J. pointed out in Re Beauty Counsellors , supra at p. 244 [C.B.R.], "it is not the only or overriding consideration."

40 In my opinion, there are other persons whose interests require consideration. In an appropriate case, the interests of the debtor must be taken into account. I think also, in a case such as this, where a purchaser has bargained at some length and doubtless at considerable expense with the receiver, the interests of the purchaser ought to be taken into account. While it is not explicitly stated in such cases as Crown Trust Co. v. Rosenberg , supra, Re Selkirk (1986), supra, Re Beauty Counsellors , supra, Re Selkirk (1987), supra, and (Cameron ), supra, I think they clearly imply that the interests of a person who has negotiated an agreement with a court-appointed receiver are very important.

9 41 In this case, the interests of all parties who would have an interest in the process were considered by the receiver and by Rosenberg J.

3. Consideration of the Efficacy and Integrity of the Process by which the Offer was Obtained

42 While it is accepted that the primary concern of a receiver is the protecting of the interests of the creditors, there is a secondary but very important consideration, and that is the integrity of the process by which the sale is effected. This is particularly so in the case of a sale of such a unique asset as an airline as a going concern.

43 The importance of a court protecting the integrity of the process has been stated in a number of cases. First, I refer to Re Selkirk , supra, where Saunders J. said at p. 246 [C.B.R.]:

In dealing with the request for approval, the court has to be concerned primarily with protecting the interest of the creditors of the former bankrupt. A secondary but important considera tion is that the process under which the sale agreement is arrived at should be consistent with commercial efficacy and integrity.

In that connection I adopt the principles stated by Macdonald J.A. of the Nova Scotia Supreme Court (Appeal Division) in Cameron v. Bank of N.S. (1981), 38 C.B.R. (N.S.) 1, 45 N.S.R. (2d) 303, 86 A.P.R. 303 (C.A.) , where he said at p. 11:

In my opinion if the decision of the receiver to enter into an agreement of sale, subject to court approval, with respect to certain assets is reasonable and sound under the circumstances at the time existing it should not be set aside simply because a later and higher bid is made. To do so would literally create chaos in the commercial world and receivers and purchasers would never be sure they had a binding agreement. On the contrary, they would know that other bids could be received and considered up until the application for court approval is heard — this would be an intolerable situation.

While those remarks may have been made in the context of a bidding situation rather than a private sale, I consider them to be equally applicable to a negotiation process leading to a private sale. Where the court is concerned with the disposition of property, the purpose of appointing a receiver is to have the receiver do the work that the court would otherwise have to do.

44 In Salima Investments Ltd. v. (1985), 59 C.B.R. (N.S.) 242, 41 Alta. L.R. (2d) 58, 65 A.R. 372, 21 D.L.R. (4th) 473 at p. 476 [D.L.R.], the Alberta Court of Appeal said that sale by tender is not necessarily the best way to sell a business as an ongoing concern. It went on to say that when some other method is used which is provident, the court should not undermine the process by refusing to confirm the sale.

10 45 Finally, I refer to the reasoning of Anderson J. in Crown Trust Co. v. Rosenberg , supra, at p. 124 [O.R.]:

While every proper effort must always be made to assure maximum recovery consistent with the limitations inherent in the process, no method has yet been devised to entirely eliminate those limitations or to avoid their consequences. Certainly it is not to be found in loosening the entire foundation of the system. Thus to compare the results of the process in this case with what might have been recovered in some other set of circumstances is neither logical nor practical .

[Emphasis added.]

46 It is my opinion that the court must exercise extreme caution before it interferes with the process adopted by a receiver to sell an unusual asset. It is important that prospective purchasers know that, if they are acting in good faith, bargain seriously with a receiver and enter into an agreement with it, a court will not lightly interfere with the commercial judgment of the receiver to sell the asset to them.

47 Before this court, counsel for those opposing the confirmation of the sale to OEL suggested many different ways in which the receiver could have conducted the process other than the way which he did. However, the evidence does not convince me that the receiver used an improper method of attempting to sell the airline. The answer to those submissions is found in the comment of Anderson J. in Crown Trust Co. v. Rosenberg , supra, at p. 109 [O.R.]:

The court ought not to sit as on appeal from the decision of the Receiver, reviewing in minute detail every element of the process by which the decision is reached. To do so would be a futile and duplicitous exercise.

48 It would be a futile and duplicitous exercise for this court to examine in minute detail all of circumstances leading up to the acceptance of the OEL offer. Having considered the process adopted by the receiver, it is my opinion that the process adopted was a reasonable and prudent one.

4. Was there unfairness in the process?

49 As a general rule, I do not think it appropriate for the court to go into the minutia of the process or of the selling strategy adopted by the receiver. However, the court has a responsibility to decide whether the process was fair. The only part of this process which I could find that might give even a superficial impression of unfairness is the failure of the receiver to give an offering memorandum to those who expressed an interest in the purchase of Air Toronto.

50 I will outline the circumstances which relate to the allegation that the receiver was unfair in failing to provide an offering memorandum. In the latter part of 1990, as part of its selling

11 strategy, the receiver was in the process of preparing an offering memorandum to give to persons who expressed an interest in the purchase of Air Toronto. The offering memorandum got as far as draft form, but was never released to anyone, although a copy of the draft eventually got into the hands of CCFL before it submitted the first 922 offer on March 7, 1991. A copy of the offering memorandum forms part of the record, and it seems to me to be little more than puffery, without any hard information which a sophisticated purchaser would require in or der to make a serious bid.

51 The offering memorandum had not been completed by February11, 1991. On that date, the receiver entered into the letter of intent to negotiate with OEL. The letter of intent contained a provision that during its currency the receiver would not negotiate with any other party. The letter of intent was renewed from time to time until the OEL offer was received on March 6, 1991.

52 The receiver did not proceed with the offering memorandum because to do so would violate the spirit, if not the letter, of its letter of intent with OEL.

53 I do not think that the conduct of the receiver shows any unfairness towards 922. When I speak of 922, I do so in the context that Air Canada and CCFL are identified with it. I start by saying that the receiver acted reasonably when it entered into exclusive negotiations with OEL. I find it strange that a company, with which Air Canada is closely and intimately involved, would say that it was unfair for the receiver to enter into a time-limited agreement to negotiate exclusively with OEL. That is precisely the arrangement which Air Canada insisted upon when it negotiated with the receiver in the spring and summer of 1990. If it was not unfair for Air Canada to have such an agreement, I do not understand why it was unfair for OEL to have a similar one. In fact, both Air Canada and OEL in its turn were acting reasonably when they required exclusive negotiating rights to prevent their negotiations from being used as a bargaining lever with other potential purchasers. The fact that Air Canada insisted upon an exclusive negotiating right while it was negotiating with the receiver demonstrates the commercial efficacy of OEL being given the same right during its negotiations with the receiver. I see no unfairness on the part of the receiver when it honoured its letter of intent with OEL by not releasing the offering memorandum during the negotiations with OEL.

54 Moreover, I am not prepared to find that 922 was in any way prejudiced by the fact that it did not have an offering memorandum. It made an offer on March 7, 1991, which it contends to this day was a better offer than that of OEL. 922 has not convinced me that if it had an offering memorandum, its offer would have been any different or any better than it actually was. The fatal problem with the first 922 offer was that it contained a condition which was completely unacceptable to the receiver. The receiver, properly, in my opinion, rejected the offer out of hand because of that condition. That condition did not relate to any information which could have conceivably been in an offering memorandum prepared by the receiver. It was about the resolution of a dispute between CCFL and the Royal Bank, something the receiver knew nothing about.

12 55 Further evidence of the lack of prejudice which the absence of an offering memorandum has caused 922 is found in CCFL's stance before this court. During argument, its counsel suggested as a possible resolution of this appeal that this court should call for new bids, evaluate them and then order a sale to the party who put in the better bid. In such a case, counsel for CCFL said that 922 would be prepared to bid within 7 days of the court's decision. I would have thought that, if there were anything to CCFL's suggestion that the failure to provide an offering memorandum was unfair to 922, that it would have told the court that it needed more information before it would be able to make a bid.

56 I am satisfied that Air Canada and CCFL have, and at all times had, all of the information which they would have needed to make what to them would be a commercially viable offer to the receiver. I think that an offering memorandum was of no commercial consequence to them, but the absence of one has since become a valuable tactical weapon.

57 It is my opinion that there is no convincing proof that if an offering memorandum had been widely distributed among persons qualified to have purchased Air Toronto, a viable offer would have come forth from a party other than 922 or OEL. Therefore, the failure to provide an offering memorandum was neither unfair, nor did it prejudice the obtaining of a better price on March 8, 1991, than that contained in the OEL offer. I would not give effect to the contention that the process adopted by the receiver was an unfair one.

58 There are two statements by Anderson J. contained in Crown Trust Co. v. Rosenberg , supra, which I adopt as my own. The first is at p. 109 [O.R.]:

The court should not proceed against the recommendations of its Receiver except in special circumstances and where the necessity and propriety of doing so are plain. Any other rule or approach would emasculate the role of the Receiver and make it almost inevitable that the final negotiation of every sale would take place on the motion for approval.

The second is at p. 111 [O.R.]:

It is equally clear, in my view, though perhaps not so clearly enunciated, that it is only in an exceptional case that the court will intervene and proceed contrary to the Receiver's recommendations if satisfied, as I am, that the Receiver has acted reasonably, prudently and fairly and not arbitrarily.

In this case the receiver acted reasonably, prudently, fairly and not arbitrarily. I am of the opinion, therefore, that the process adopted by the receiver in reaching an agreement was a just one.

59 In his reasons for judgment, after discussing the circumstances leading to the 922 offer, Rosenberg J. said this:

13 They created a situation as of March 8th, where the Receiver was faced with two offers, one of which was in acceptable form and one of which could not possibly be accepted in its present form. The Receiver acted appropriately in accepting the OEL offer.

I agree.

60 The receiver made proper and sufficient efforts to get the best price that it could for the assets of Air Toronto. It adopted a reasonable and effective process to sell the airline which was fair to all persons who might be interested in purchasing it. It is my opinion, therefore, that the receiver properly carried out the mandate which was given to it by the order of O'Brien J. It follows that Rosenberg J. was correct when he confirmed the sale to OEL.

II. The effect of the support of the 922 offer by the two secured creditors.

61 As I noted earlier, the 922 offer was supported before Rosenberg J., and in this court, by CCFL and by the Royal Bank, the two secured creditors. It was argued that, because the interests of the creditors are primary, the court ought to give effect to their wish that the 922 offer be accepted. I would not accede to that suggestion for two reasons.

62 The first reason is related to the fact that the creditors chose to have a receiver appointed by the court. It was open to them to appoint a private receiver pursuant to the authority of their security documents. Had they done so, then they would have had control of the process and could have sold Air Toronto to whom they wished. However, acting privately and controlling the process involves some risks. The appointment of a receiver by the court insulates the creditors from those risks. But, insulation from those risks carries with it the loss of control over the process of disposition of the assets. As I have attempted to explain in these reasons, when a receiver's sale is before the court for confirmation, the only issues are the propriety of the conduct of the receiver and whether it acted providently. The function of the court at that stage is not to step in and do the receiver's work, or change the sale strategy adopted by the receiver. Creditors who asked the court to appoint a receiver to dispose of assets should not be allowed to take over control of the process by the simple expedient of supporting another purchaser if they do not agree with the sale made by the receiver. That would take away all respect for the process of sale by a court-appointed receiver.

63 There can be no doubt that the interests of the creditor are an important consideration in determining whether the receiver has properly conducted a sale. The opinion of the creditors as to which offer ought to be accepted is something to be taken into account. But if the court decides that the receiver has acted properly and providently, those views are not necessarily determinative. Because, in this case, the receiver acted properly and providently, I do not think that the views of the creditors should override the considered judgment of the receiver.

14 64 The second reason is that, in the particular circumstances of this case, I do not think the support of CCFL and the Royal Bank of the 922 offer is entitled to any weight. The support given by CCFL can be dealt with summarily. It is a co-owner of 922. It is hardly surprising and not very impressive to hear that it supports the offer which it is making for the debtor's assets.

65 The support by the Royal Bank requires more consideration and involves some reference to the circumstances. On March 6, 1991, when the first 922 offer was made, there was in existence an inter-lender agreement between the Royal Bank and CCFL. That agreement dealt with the share of the proceeds of the sale of Air Toronto which each creditor would receive. At the time, a dispute between the Royal Bank and CCFL about the interpretation of that agreement was pending in the courts. The unacceptable condition in the first 922 offer related to the settlement of the inter-lender dispute. The condition required that the dispute be resolved in a way which would substantially favour CCFL. It required that CCFL receive $3,375,000 of the $6 million cash payment and the balance, including the royalties, if any, be paid to the Royal Bank. The Royal Bank did not agree with that split of the sale proceeds.

66 On April 5, 1991, the Royal Bank and CCFL agreed to settle the inter-lender dispute. The settlement was that if the 922 offer was accepted by the court, CCFL would receive only $1 million, and the Royal Bank would receive $5 million plus any royalties which might be paid. It was only in consideration of that settlement that the Royal Bank agreed to support the 922 offer.

67 The Royal Bank's support of the 922 offer is so affected by the very substantial benefit which it wanted to obtain from the settlement of the inter-lender dispute that, in my opinion, its support is devoid of any objectivity. I think it has no weight.

68 While there may be circumstances where the unanimous support by the creditors of a particular offer could conceivably override the proper and provident conduct of a sale by a receiver, I do not think that this is such a case. This is a case where the receiver has acted properly and in a provident way. It would make a mockery out of the judicial process, under which a mandate was given to this receiver to sell this airline if the support by these creditors of the 922 offer were permitted to carry the day. I give no weight to the support which they give to the 922 offer.

69 In its factum, the receiver pointed out that, because of greater liabilities imposed upon private receivers by various statutes such as the Employment Standards Act , R.S.O. 1980, c. 137, and the Environmental Protection Act , R.S.O. 1980, c. 141, it is likely that more and more the courts will be asked to appoint receivers in insolvencies. In those circumstances, I think that creditors who ask for court-appointed receivers and business people who choose to deal with those receivers should know that if those receivers act properly and providently, their decisions and judgments will be given great weight by the courts who appoint them. I have decided this appeal in the way I have in order to assure business people who deal with court-appointed receivers that they can have confidence that an agreement which they make with a court-appointed receiver will be far more

15 than a platform upon which others may bargain at the court approval stage. I think that persons who enter into agreements with court-appointed receivers, following a disposition procedure that is appropriate given the nature of the assets involved, should expect that their bargain will be confirmed by the court.

70 The process is very important. It should be carefully protected so that the ability of court- appointed receivers to negotiate the best price possible is strengthened and supported. Because this receiver acted properly and providently in entering into the OEL agreement, I am of the opinion that Rosenberg J. was right when he approved the sale to OEL and dismissed the motion to approve the 922 offer.

71 I would, accordingly, dismiss the appeal. I would award the receiver, OEL and Frontier Airlines Limited their costs out of the Soundair estate, those of the receiver on a solicitor-client scale. I would make no order as to the costs of any of the other parties or intervenors.

McKinlay J.A. :

72 I agree with Galligan J.A. in result, but wish to emphasize that I do so on the basis that the undertaking being sold in this case was of a very special and unusual nature. It is most important that the integrity of procedures followed by court-appointed receivers be protected in the interests of both commercial morality and the future confidence of business persons in their dealings with receivers. Consequently, in all cases, the court should carefully scrutinize the procedure followed by the receiver to determine whether it satisfies the tests set out by Anderson J. in Crown Trust Co. v. Rosenberg (1986), 67 C.B.R. (N.S.) 320n, 60 O.R. (2d) 87, 22 C.P.C. (2d) 131, 39 D.L.R. (4th) 526 (H.C.) . While the procedure carried out by the receiver in this case, as described by Galligan J.A., was appropriate, given the unfolding of events and the unique nature of the assets involved, it is not a procedure that is likely to be appropriate in many sales.

73 I should like to add that where there is a small number of creditors who are the only parties with a real interest in the proceeds of the sale (i.e., where it is clear that the highest price attainable would result in recovery so low that no other creditors, shareholders, guarantors, etc., could possibly benefit therefore), the wishes of the interested creditors should be very seriously considered by the receiver. It is true, as Galligan J.A. points out, that in seeking the court appointment of a receiver, the moving parties also seek the protection of the court in carrying out the receiver's functions. However, it is also true that in utilizing the court process, the moving parties have opened the whole process to detailed scrutiny by all involved, and have probably added significantly to their costs and consequent shortfall as a result of so doing. The adoption of the court process should in no way diminish the rights of any party, and most certainly not the rights of the only parties with a real interest. Where a receiver asks for court approval of a sale which is opposed by the only parties in interest, the court should scrutinize with great care the procedure followed by the receiver. I agree with Galligan J.A. that in this case that was done. I

16 am satisfied that the rights of all parties were properly considered by the receiver, by the learned motions court judge, and by Galligan J.A.

Goodman J.A. (dissenting):

74 I have had the opportunity of reading the reasons for judgment herein of Galligan and McKinlay JJ.A. Respectfully, I am unable to agree with their conclusion.

75 The case at bar is an exceptional one in the sense that upon the application made for approval of the sale of the assets of Air Toronto, two competing offers were placed before Rosenberg J. Those two offers were that of OEL and that of 922, a company incorporated for the purpose of acquiring Air Toronto. Its shares were owned equally by CCFL and Air Canada. It was conceded by all parties to these proceedings that the only persons who had any interest in the proceeds of the sale were two secured creditors, viz., CCFL and the Royal Bank of Canada. Those two creditors were unanimous in their position that they desired the court to approve the sale to 922. We were not referred to, nor am I aware of, any case where a court has refused to abide by the unanimous wishes of the only interested creditors for the approval of a specific offer made in receivership proceedings.

76 In British Columbia Developments Corp. v. Spun Cast Industries Ltd. (1977), 26 C.B.R. (N.S.) 28, 5 B.C.L.R. 94 (S.C.) , Berger J. said at p. 30 [C.B.R.]:

Here all of those with a financial stake in the plant have joined in seeking the court's approval of the sale to Fincas. This court does not have a roving commission to decide what is best for investors and businessmen when they have agreed among themselves what course of action they should follow. It is their money.

77 I agree with that statement. It is particularly apt to this case. The two secured creditors will suffer a shortfall of approximately $50 million. They have a tremendous interest in the sale of assets which form part of their security. I agree with the finding of Rosenberg J. that the offer of 922 is superior to that of OEL. He concluded that the 922 offer is marginally superior. If by that he meant that mathematically it was likely to provide slightly more in the way of proceeds, it is difficult to take issue with that finding. If, on the other hand, he meant that having regard to all considerations it was only marginally superior, I cannot agree. He said in his reasons:

I have come to the conclusion that knowledgeable creditors such as the Royal Bank would prefer the 922 offer even if the other factors influencing their decision were not present. No matter what adjustments had to be made, the 922 offer results in more cash immediately. Creditors facing the type of loss the Royal Bank is taking in this case would not be anxious to rely on contingencies especially in the present circumstances surrounding the airline industry.

17 78 I agree with that statement completely. It is apparent that the difference between the two offers insofar as cash on closing is concerned amounts to approximately $3 million to $4 million. The bank submitted that it did not wish to gamble any further with respect to its investment, and that the acceptance and court approval of the OEL offer in effect supplanted its position as a secured creditor with respect to the amount owing over and above the down payment and placed it in the position of a joint entrepreneur, but one with no control. This results from the fact that the OEL offer did not provide for any security for any funds which might be forthcoming over and above the initial down payment on closing.

79 In Cameron v. Bank of Nova Scotia (1981), 38 C.B.R. (N.S.) 1, 45 N.S.R. (2d) 303, 86 A.P.R. 303 (C.A.) , Hart J.A., speaking for the majority of the court, said at p. 10 [C.B.R.]:

Here we are dealing with a receiver appointed at the instance of one major creditor, who chose to insert in the contract of sale a provision making it subject to the approval of the court. This, in my opinion, shows an intention on behalf of the parties to invoke the normal equitable doctrines which place the court in the position of looking to the interests of all persons concerned before giving its blessing to a particular transaction submitted for approval. In these circumstances the court would not consider itself bound by the contract entered into in good faith by the receiver but would have to look to the broader picture to see that that contract was for the benefit of the creditors as a whole. When there was evidence that a higher price was readily available for the property the chambers judge was, in my opinion, justified in exercising his discretion as he did. Otherwise he could have deprived the creditors of a substantial sum of money.

80 This statement is apposite to the circumstances of the case at bar. I hasten to add that in my opinion it is not only price which is to be considered in the exercise of the judge's discretion. It may very well be, as I believe to be so in this case, that the amount of cash is the most important element in determining which of the two offers is for the benefit and in the best interest of the creditors.

81 It is my view, and the statement of Hart J.A. is consistent therewith, that the fact that a creditor has requested an order of the court appointing a receiver does not in any way diminish or derogate from his right to obtain the maximum benefit to be derived from any disposition of the debtor's assets. I agree completely with the views expressed by McKinlay J.A. in that regard in her reasons.

82 It is my further view that any negotiations which took place between the only two interested creditors in deciding to support the approval of the 922 offer were not relevant to the determination by the presiding judge of the issues involved in the motion for approval of either one of the two offers, nor are they relevant in determining the outcome of this appeal. It is sufficient that the two creditors have decided unanimously what is in their best interest, and the appeal must be considered in the light of that decision. It so happens, however, that there is ample evidence to support their conclusion that the approval of the 922 offer is in their best interests.

18 83 I am satisfied that the interests of the creditors are the prime consideration for both the receiver and the court. In Re Beauty Counsellors of Canada Ltd. (1986), 58 C.B.R. (N.S.) 237 (Ont. S.C.) , Saunders J. said at p. 243:

This does not mean that a court should ignore a new and higher bid made after acceptance where there has been no unfairness in the process. The interests of the creditors, while not the only consideration, are the prime consideration.

84 I agree with that statement of the law. In Re Selkirk (1986), 58 C.B.R. (N.S.) 245 (Ont. S.C.) , Saunders J. heard an application for court approval of the sale by the sheriff of real property in bankruptcy proceedings. The sheriff had been previously ordered to list the property for sale subject to approval of the court. Saunders J. said at p. 246:

In dealing with the request for approval, the court has to be concerned primarily with protecting the interests of the creditors of the former bankrupt. A secondary but important consideration is that the process under which the sale agreement is arrived at should be consistent with commercial efficacy and integrity.

85 I am in agreement with that statement as a matter of general principle. Saunders J. further stated that he adopted the principles stated by Macdonald J.A. in Cameron , supra, quoted by Galligan J.A. in his reasons. In Cameron , the remarks of Macdonald J.A. related to situations involving the calling of bids and fixing a time limit for the making of such bids. In those circumstances the process is so clear as a matter of commercial practice that an interference by the court in such process might have a deleterious effect on the efficacy of receivership proceedings in other cases. But Macdonald J.A. recognized that even in bid or tender cases where the offeror for whose bid approval is sought has complied with all requirements, a court might not approve the agreement of purchase and sale entered into by the receiver. He said at pp. 11-12 [C.B.R.]:

There are, of course, many reasons why a court might not approve an agreement of purchase and sale, viz., where the offer accepted is so low in relation to the appraised value as to be unrealistic; or, where the circumstances indicate that insufficient time was allowed for the making of bids or that inadequate notice of sale by bid was given (where the receiver sells property by the bid method); or, where it can be said that the proposed sale is not in the best interest of either the creditors or the owner. Court approval must involve the delicate balancing of competing interests and not simply a consideration of the interests of the creditors.

86 The deficiency in the present case is so large that there has been no suggestion of a competing interest between the owner and the creditors.

87 I agree that the same reasoning may apply to a negotiation process leading to a private sale, but the procedure and process applicable to private sales of a wide variety of businesses and

19 undertakings with the multiplicity of individual considerations applicable and perhaps peculiar to the particular business is not so clearly established that a departure by the court from the process adopted by the receiver in a particular case will result in commercial chaos to the detriment of future receivership proceedings. Each case must be decided on its own merits, and it is necessary to consider the process used by the receiver in the present proceedings and to determine whether it was unfair, improvident or inadequate.

88 It is important to note at the outset that Rosenberg J. made the following statement in his reasons:

On March 8, 1991 the trustee accepted the OEL offer subject to court approval. The Receiver at that time had no other offer before it that was in final form or could possibly be accepted. The Receiver had at the time the knowledge that Air Canada with CCFL had not bargained in good faith and had not fulfilled the promise of its letter of March 1st. The Receiver was justified in assuming that Air Canada and CCFL's offer was a long way from being in an acceptable form and that Air Canada and CCFL's objective was to interrupt the finalizing of the OEL agreement and to retain as long as possible the Air Toronto connector traffic flowing into Terminal 2 for the benefit of Air Canada.

89 In my opinion there was no evidence before him or before this court to indicate that Air Canada, with CCFL, had not bargained in good faith, and that the receiver had knowledge of such lack of good faith. Indeed, on his appeal, counsel for the receiver stated that he was not alleging Air Canada and CCFL had not bargained in good faith. Air Canada had frankly stated at the time that it had made its offer to purchase, which was eventually refused by the receiver, that it would not become involved in an "auction" to purchase the undertaking of Air Canada and that, although it would fulfil its contractual obligations to provide connecting services to Air Toronto, it would do no more than it was legally required to do insofar as facilitating the purchase of Air Toronto by any other person. In so doing, Air Canada may have been playing "hardball," as its behaviour was characterized by some of the counsel for opposing parties. It was nevertheless merely openly asserting its legal position, as it was entitled to do.

90 Furthermore, there was no evidence before Rosenberg J. or this court that the receiver had assumed that Air Canada and CCFL's objective in making an offer was to interrupt the finalizing of the OEL agreement and to retain as long as possible the Air Toronto connector traffic flowing into Terminal 2 for the benefit of Air Canada. Indeed, there was no evidence to support such an assumption in any event, although it is clear that 922, and through it CCFL and Air Canada, were endeavouring to present an offer to purchase which would be accepted and/or approved by the court in preference to the offer made by OEL.

20 91 To the extent that approval of the OEL agreement by Rosenberg J. was based on the alleged lack of good faith in bargaining and improper motivation with respect to connector traffic on the part of Air Canada and CCFL, it cannot be supported.

92 I would also point out that rather than saying there was no other offer before it that was final in form, it would have been more accurate to have said that there was no unconditional offer before it.

93 In considering the material and evidence placed before the court, I am satisfied that the receiver was at all times acting in good faith. I have reached the conclusion, however, that the process which he used was unfair insofar as 922 is concerned, and improvident insofar as the two secured creditors are concerned.

94 Air Canada had been negotiating with Soundair Corporation for the purchase from it of Air Toronto for a considerable period of time prior to the appointment of a receiver by the court. It had given a letter of intent indicating a prospective sale price of $18 million. After the appointment of the receiver, by agreement dated April 30, 1990, Air Canada continued its negotiations for the purchase of Air Toronto with the receiver. Although this agreement contained a clause which provided that the receiver "shall not negotiate for the sale ... of Air Toronto with any person except Air Canada," it further provided that the receiver would not be in breach of that provision merely by receiving unsolicited offers for all or any of the assets of Air Toronto. In addition, the agreement, which had a term commencing on April 30, 1990, could be terminated on the fifth business day following the delivery of a written notice of termination by one party to the other. I point out this provision merely to indicate that the exclusivity privilege extended by the receiver to Air Canada was of short duration at the receiver's option.

95 As a result of due negligence investigations carried out by Air Canada during the months of April, May and June of 1990, Air Canada reduced its offer to $8.1 million conditional upon there being $4 million in tangible assets. The offer was made on June 14, 1990, and was open for acceptance until June 29, 1990.

96 By amending agreement dated June 19, 1990, the receiver was released from its covenant to refrain from negotiating for the sale of the Air Toronto business and assets to any person other than Air Canada. By virtue of this amending agreement, the receiver had put itself in the position of having a firm offer in hand, with the right to negotiate and accept offers from other persons. Air Canada, in these circumstances, was in the subservient position. The receiver, in the exercise of its judgment and discretion, allowed the Air Canada offer to lapse. On July 20, 1990, Air Canada served a notice of termination of the April 30, 1990 agreement.

97 Apparently as a result of advice received from the receiver to the effect that the receiver intended to conduct an auction for the sale of the assets and business of the Air Toronto division

21 of Soundair Corporation, the solicitors for Air Canada advised the receiver by letter dated July 20, 1990, in part as follows:

Air Canada has instructed us to advise you that it does not intend to submit a further offer in the auction process.

98 This statement, together with other statements set forth in the letter, was sufficient to indicate that Air Canada was not interested in purchasing Air Toronto in the process apparently contemplated by the receiver at that time. It did not form a proper foundation for the receiver to conclude that there was no realistic possibility of selling Air Toronto [to] Air Canada, either alone or in conjunction with some other person, in different circumstances. In June 1990, the receiver was of the opinion that the fair value of Air Toronto was between $10 million and $12 million.

99 In August 1990, the receiver contacted a number of interested parties. A number of offers were received which were not deemed to be satisfactory. One such offer, received on August 20, 1990, came as a joint offer from OEL and Air Ontario (an Air Canada connector). It was for the sum of $3 million for the good will relating to certain Air Toronto routes, but did not include the purchase of any tangible assets or leasehold interests.

100 In December 1990, the receiver was approached by the management of Canadian Partner (operated by OEL) for the purpose of evaluating the benefits of an amalgamated Air Toronto/ Air Partner operation. The negotiations continued from December of 1990 to February of 1991, culminating in the OEL agreement dated March 8, 1991.

101 On or before December 1990, CCFL advised the receiver that it intended to make a bid for the Air Toronto assets. The receiver, in August of 1990, for the purpose of facilitating the sale of Air Toronto assets, commenced the preparation of an operating memorandum. He prepared no less than six draft operating memoranda with dates from October 1990 through March 1, 1991. None of these were distributed to any prospective bidder despite requests having been received therefor, with the exception of an early draft provided to CCFL without the receiver's knowledge.

102 During the period December 1990 to the end of January 1991, the receiver advised CCFL that the offering memorandum was in the process of being prepared and would be ready soon for distribution. He further advised CCFL that it should await the receipt of the memorandum before submitting a formal offer to purchase the Air Toronto assets.

103 By late January, CCFL had become aware that the receiver was negotiating with OEL for the sale of Air Toronto. In fact, on February 11, 1991, the receiver signed a letter of intent with OEL wherein it had specifically agreed not to negotiate with any other potential bidders or solicit any offers from others.

22 104 By letter dated February 25, 1991, the solicitors for CCFL made a written request to the receiver for the offering memorandum. The receiver did not reply to the letter because he felt he was precluded from so doing by the provisions of the letter of intent dated February 11, 1991. Other prospective purchasers were also unsuccessful in obtaining the promised memorandum to assist them in preparing their bids. It should be noted that, exclusivity provision of the letter of intent expired on February 20, 1991. This provision was extended on three occasions, viz., February 19, 22 and March 5, 1991. It is clear that from a legal standpoint the receiver, by refusing to extend the time, could have dealt with other prospective purchasers, and specifically with 922.

105 It was not until March 1, 1991, that CCFL had obtained sufficient information to enable it to make a bid through 922. It succeeded in so doing through its own efforts through sources other than the receiver. By that time the receiver had already entered into the letter of intent with OEL. Notwithstanding the fact that the receiver knew since December of 1990 that CCFL wished to make a bid for the assets of Air Toronto (and there is no evidence to suggest that at that time such a bid would be in conjunction with Air Canada or that Air Canada was in any way connected with CCFL), it took no steps to provide CCFL with information necessary to enable it to make an intelligent bid, and indeed suggested delaying the making of the bid until an offering memorandum had been prepared and provided. In the meantime, by entering into the letter of intent with OEL, it put itself in a position where it could not negotiate with CCFL or provide the information requested.

106 On February 28, 1991, the solicitors for CCFL telephoned the receiver and were advised for the first time that the receiver had made a business decision to negotiate solely with OEL and would not negotiate with anyone else in the interim.

107 By letter dated March 1, 1991, CCFL advised the receiver that it intended to submit a bid. It set forth the essential terms of the bid and stated that it would be subject to customary commercial provisions. On March 7, 1991 CCFL and Air Canada, jointly through 922, submitted an offer to purchase Air Toronto upon the terms set forth in the letter dated March 1, 1991. It included a provision that the offer was conditional upon the interpretation of an inter-lender agreement which set out the relative distribution of proceeds as between CCFL and the Royal Bank. It is common ground that it was a condition over which the receiver had no control, and accordingly would not have been acceptable on that ground alone. The receiver did not, however, contact CCFL in order to negotiate or request the removal of the condition, although it appears that its agreement with OEL not to negotiate with any person other than OEL expired on March 6, 1991.

108 The fact of the matter is that by March 7, 1991, the receiver had received the offer from OEL which was subsequently approved by Rosenberg J. That offer was accepted by the receiver on March 8, 1991. Notwithstanding the fact that OEL had been negotiating the purchase for a period of approximately 3 months, the offer contained a provision for the sole benefit of the purchaser that it was subject to the purchaser obtaining "a financing commitment within 45 days of the

23 date hereof in an amount not less than the Purchase Price from the Royal Bank of Canada or other financial institution upon terms and conditions acceptable to them. In the event that such a financing commitment is not obtained within such 45 day period, the purchaser or OEL shall have the right to terminate this agreement upon giving written notice of termination to the vendor on the first Business Day following the expiry of the said period." The purchaser was also given the right to waive the condition.

109 In effect, the agreement was tantamount to a 45-day option to purchase, excluding the right of any other person to purchase Air Toronto during that period of time and thereafter if the condition was fulfilled or waived. The agreement was, of course, stated to be subject to court approval.

110 In my opinion, the process and procedure adopted by the receiver was unfair to CCFL. Although it was aware from December 1990 that CCFL was interested in making an offer, it effectively delayed the making of such offer by continually referring to the preparation of the offering memorandum. It did not endeavour during the period December 1990 to March 7, 1991, to negotiate with CCFL in any way the possible terms of purchase and sale agreement. In the result, no offer was sought from CCFL by the receiver prior to February 11, 1991, and thereafter it put itself in the position of being unable to negotiate with anyone other than OEL. The receiver then, on March 8, 1991, chose to accept an offer which was conditional in nature without prior consultation with CCFL (922) to see whether it was prepared to remove the condition in its offer.

111 I do not doubt that the receiver felt that it was more likely that the condition in the OEL offer would be fulfilled than the condition in the 922 offer. It may be that the receiver, having negotiated for a period of 3 months with OEL, was fearful that it might lose the offer if OEL discovered that it was negotiating with another person. Nevertheless, it seems to me that it was imprudent and unfair on the part of the receiver to ignore an offer from an interested party which offered approximately triple the cash down payment without giving a chance to the offeror to remove the conditions or other terms which made the offer unacceptable to it. The potential loss was that of an agreement which amounted to little more than an option in favour of the offeror.

112 In my opinion the procedure adopted by the receiver was unfair to CCFL in that, in effect, it gave OEL the opportunity of engaging in exclusive negotiations for a period of 3 months, notwithstanding the fact that it knew CCFL was interested in making an offer. The receiver did not indicate a deadline by which offers were to be submitted, and it did not at any time indicate the structure or nature of an offer which might be acceptable to it.

113 In his reasons, Rosenberg J. stated that as of March 1, CCFL and Air Canada had all the information that they needed, and any allegations of unfairness in the negotiating process by the receiver had disappeared. He said:

24 They created a situation as of March 8, where the receiver was faced with two offers, one of which was acceptable in form and one of which could not possibly be accepted in its present form. The Receiver acted appropriately in accepting the OEL offer.

If he meant by "acceptable in form" that it was acceptable to the receiver, then obviously OEL had the unfair advantage of its lengthy negotiations with the receiver to ascertain what kind of an offer would be acceptable to the receiver. If, on the other hand, he meant that the 922 offer was unacceptable in its form because it was conditional, it can hardly be said that the OEL offer was more acceptable in this regard, as it contained a condition with respect to financing terms and conditions "acceptable to them ."

114 It should be noted that on March 13, 1991, the representatives of 922 first met with the receiver to review its offer of March 7, 1991, and at the request of the receiver, withdrew the inter- lender condition from its offer. On March 14, 1991, OEL removed the financing condition from its offer. By order of Rosenberg J. dated March 26, 1991, CCFL was given until April 5, 1991, to submit a bid, and on April 5, 1991, 922 submitted its offer with the inter-lender condition removed.

115 In my opinion, the offer accepted by the receiver is improvident and unfair insofar as the two creditors are concerned. It is not improvident in the sense that the price offered by 922 greatly exceeded that offered by OEL. In the final analysis it may not be greater at all. The salient fact is that the cash down payment in the 922 offer con stitutes proximately two thirds of the contemplated sale price, whereas the cash down payment in the OEL transaction constitutes approximately 20 to 25 per cent of the contemplated sale price. In terms of absolute dollars, the down payment in the 922 offer would likely exceed that provided for in the OEL agreement by approximately $3 million to $4 million.

116 In Re Beauty Counsellors of Canada Ltd. , supra, Saunders J. said at p. 243 [C.B.R.]:

If a substantially higher bid turns up at the approval stage, the court should consider it. Such a bid may indicate, for example, that the trustee has not properly carried out its duty to endeavour to obtain the best price for the estate. In such a case the proper course might be to refuse approval and to ask the trustee to recommence the process.

117 I accept that statement as being an accurate statement of the law. I would add, however, as previously indicated, that in determining what is the best price for the estate, the receiver or court should not limit its consideration to which offer provides for the greater sale price. The amount of down payment and the provision or lack thereof to secure payment of the balance of the purchase price over and above the down payment may be the most important factor to be considered, and I am of the view that is so in the present case. It is clear that that was the view of the only creditors who can benefit from the sale of Air Toronto.

25 118 I note that in the case at bar the 922 offer in conditional form was presented to the receiver before it accepted the OEL offer. The receiver, in good faith, although I believe mistakenly, decided that the OEL offer was the better offer. At that time the receiver did not have the benefit of the views of the two secured creditors in that regard. At the time of the application for approval before Rosenberg J., the stated preference of the two interested creditors was made quite clear. He found as fact that knowledgeable creditors would not be anxious to rely on contingencies in the present circumstances surrounding the airline industry. It is reasonable to expect that a receiver would be no less knowledgeable in that regard, and it is his primary duty to protect the interests of the creditors. In my view, it was an improvident act on the part of the receiver to have accepted the conditional offer made by OEL, and Rosenberg J. erred in failing to dismiss the application of the receiver for approval of the OEL offer. It would be most inequitable to foist upon the two creditors, who have already been seriously hurt, more unnecessary contingencies.

119 Although in other circumstances it might be appropriate to ask the receiver to recommence the process, in my opinion, it would not be appropriate to do so in this case. The only two interested creditors support the acceptance of the 922 offer, and the court should so order.

120 Although I would be prepared to dispose of the case on the grounds stated above, some comment should be addressed to the question of interference by the court with the process and procedure adopted by the receiver.

121 I am in agreement with the view expressed by McKinlay J.A. in her reasons that the undertaking being sold in this case was of a very special and unusual nature. As a result, the procedure adopted by the receiver was somewhat unusual. At the outset, in accordance with the terms of the receiving order, it dealt solely with Air Canada. It then appears that the receiver contemplated a sale of the assets by way of auction, and still later contemplated the preparation and distribution of an offering memorandum inviting bids. At some point, without advice to CCFL, it abandoned that idea and reverted to exclusive negotiations with one interested party. This entire process is not one which is customary or widely accepted as a general practice in the commercial world. It was somewhat unique, having regard to the circumstances of this case. In my opinion, the refusal of the court to approve the offer accepted by the receiver would not reflect on the integrity of procedures followed by court-appointed receivers, and is not the type of refusal which will have a tendency to undermine the future confidence of business persons in dealing with receivers.

122 Rosenberg J. stated that the Royal Bank was aware of the process used and tacitly approved it. He said it knew the terms of the letter of intent in February 1991, and made no comment. The Royal Bank did, however, indicate to the receiver that it was not satisfied with the contemplated price, nor the amount of the down payment. It did not, however, tell the receiver to adopt a different process in endeavouring to sell the Air Toronto assets. It is not clear from the material filed that at

26 the time it became aware of the letter of intent that it knew that CCFl was interested in purchasing Air Toronto.

123 I am further of the opinion that a prospective purchaser who has been given an opportunity to engage in exclusive negotiations with a receiver for relatively short periods of time which are extended from time to time by the receiver, and who then makes a conditional offer, the condition of which is for his sole benefit and must be fulfilled to his satisfaction unless waived by him, and which he knows is to be subject to court approval, cannot legitimately claim to have been unfairly dealt with if the court refuses to approve the offer and approves a substantially better one.

124 In conclusion, I feel that I must comment on the statement made by Galligan J.A. in his reasons to the effect that the suggestion made by counsel for 922 constitutes evidence of lack of prejudice resulting from the absence of an offering memorandum. It should be pointed out that the court invited counsel to indicate the manner in which the problem should be resolved in the event that the court concluded that the order approving the OEL offer should be set aside. There was no evidence before the court with respect to what additional information may have been acquired by CCFL since March 8, 1991, and no inquiry was made in that regard. Accordingly, I am of the view that no adverse inference should be drawn from the proposal made as a result of the court's invitation.

125 For the above reasons I would allow the appeal one set of costs to CCFL-922, set aside the order of Rosenberg J., dismiss the receiver's motion with one set of costs to CCFL-922 and order that the assets of Air Toronto be sold to numbered corporation 922246 on the terms set forth in its offer with appropriate adjustments to provide for the delay in its execution. Costs awarded shall be payable out of the estate of Soundair Corporation. The costs incurred by the receiver in making the application and responding to the appeal shall be paid to him out of the assets of the estate of Soundair Corporation on a solicitor-client basis. I would make no order as to costs of any of the other parties or intervenors. Appeal dismissed.

27 TAB 12 2017 YKSC 23 Yukon Territory Supreme Court

Ultra Petroleum Corp., Re

2017 CarswellYukon 38, 2017 YKSC 23, [2017] B.C.W.L.D. 3276, 278 A.C.W.S. (3d) 469 ULTRA PETROLEUM CORP. (Petitioner) L.F. Gower J.

Judgment: March 27, 2017 Docket: Whitehorse S.C. 16-A0023

Counsel: Paul W. Lackowicz, for Petitioner

L.F. Gower J.:

INTRODUCTION

1 This is an application by Ultra Petroleum Corp. ("Ultra Petroleum") in its capacity as a foreign representative of itself pursuant to Part IV of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (the "CCAA"), for an order recognizing and giving full force and effect to: (1) a Claims Bar Order granted by the United States Bankruptcy Court, Southern District of Texas, Houston Division (the "US Bankruptcy Court") on May 3, 2016, nunc pro tunc; and (2) a Confirmation Order granted by the US Bankruptcy Court on March 14, 2017 (the "Confirmation Order").

2 Ultra petroleum is a Yukon corporation incorporated pursuant to the laws of the Yukon Territory, with a registered office located in Whitehorse, Yukon. Through its direct and indirect wholly owned subsidiaries it owns oil and gas properties in Wyoming, Utah and Pennsylvania, in the United States.

3 On April 29, 2016, Ultra Petroleum and a number of its subsidiaries (the "Chapter 11 debtors") commenced voluntary reorganization proceedings in the US Bankruptcy Court by each filing a voluntary petition for relief under Chapter 11 of Title 11 of the United States Code. Notice of the Chapter 11 proceedings was served upon over 6000 creditors or potential creditors of the Chapter 11 debtors. Three of those potential creditors are in Canada: Emera Energy Services Inc., Mowbrey Gil LLP and Enerplus Resources (USA) Corporation. None has filed proofs of claim in the Chapter 11 proceedings.

1 4 On May 3, 2016, the US Bankruptcy Court granted a number of orders, including an order authorizing Ultra Petroleum to act as a foreign representative of itself for the purposes of the application made to this Court on May 13, 2016.

5 On May 17, 2016, Veale J. of this Court granted an order which, among other things:

a) appointed Ultra Petroleum as foreign representative of itself pursuant to s. 45 of the CCAA in respect of the Chapter 11 proceedings;

b) recognized the Chapter 11 proceedings;

c) granted a stay of proceedings against Ultra Petroleum;

d) restrained persons with agreements with Ultra Petroleum for the supply of goods and services from discontinuing, altering or terminating the supply of such goods and services during the stay of proceedings; and

e) granted a stay of proceedings against the former, current and future officers and directors of Ultra Petroleum.

ISSUES

6 There are two issues in this application:

1) Should the Claims Bar Order be recognized and given full force and effect in Canada by this Court, nunc pro tunc?

2) Should the Confirmation Order be recognized and given full force and effect in Canada by this Court?

ANALYSIS

1. The Claims Bar Order

7 The purpose of Part IV of the CCAA is to effect cross-border insolvencies and create a system under which foreign insolvency proceedings can be recognized in Canada. Orders under this Part are intended, among other things, to promote cooperation between the courts and other competent authorities in Canada with those of foreign jurisdictions and to promote the fair and efficient administration of cross-border insolvencies. This also protects the interests of debtors, creditors and other interested persons. See: Horsehead Holding Corp., Re, 2016 ONSC 958 (Ont. S.C.J. [Commercial List]), at para. 15; and s. 44 of the CCAA.

8 In cross-border insolvencies, Canadian and US courts have made efforts to complement, coordinate and, where appropriate, accommodate the proceedings of the other in order to enable

2 cross-border enterprises to restructure. Comity and cooperation are increasingly important in the bankruptcy context. As internationalization increases, more parties have assets and carry on activities in several jurisdictions. Without some coordination, there would be multiple proceedings, inconsistent judgments and general uncertainty. See Babcock & Wilcox Canada Ltd., Re, [2000] O.J. No. 786 (Ont. S.C.J. [Commercial List]), at paras. 9 and 10.

9 When a court considers whether it will recognize a foreign order, including Chapter 11 proceeding orders, it considers the following factors:

a) The recognition of comity and cooperation between courts of various jurisdictions is to be encouraged.

b) Respect should be accorded to the overall thrust of foreign bankruptcy and insolvency legislation in any analysis, unless in substance generally it is sufficiently different from the bankruptcy and insolvency law of Canada, or perhaps because the legal process that generates the foreign order diverges radically from the process here in Canada.

c) All stakeholders are to be treated equitably and, to the extent reasonably possible, common or like stakeholders are to be treated equally, regardless of the jurisdiction in which they reside.

d) Plans that allow the enterprise to reorganize globally, especially where there is an established interdependence on a transnational basis, should be promoted. To the extent reasonably practicable, one jurisdiction should take charge of the principle administration of the enterprises organization, were such principal type approach will facilitate a potential reorganization and will respect the claims of stakeholders and does not detract from the net benefits that may be available from alternative approaches.

e) The recognition that the appropriate level of court involvement depends to a significant degree upon the court's nexus to the enterprise. Where one jurisdiction has an ancillary role, the court in the ancillary jurisdiction should be provided with information on an ongoing basis and be kept apprised of developments regarding the re-organizational efforts in the foreign jurisdiction. Further, stakeholders in the ancillary jurisdiction should be afforded appropriate access to the proceedings in the principal jurisdiction.

f) Notice as effective as is reasonably possible should be given to all affected stakeholders, with an opportunity for such stakeholders to come back into court to review the granted order and seek its variation.

See: Babcock, cited above, at para. 21; and Xerium Technologies Inc., Re, 2010 ONSC 3974 (Ont. S.C.J. [Commercial List]), at paras. 26 and 27.

3 10 The second affidavit of Garland Shaw confirms that the Claims Bar Order has been fully complied with by the Chapter 11 debtors, including Ultra Petroleum.

11 Further, as stated above, the three potential creditors of Ultra Petroleum that have addresses in Canada, have been given notice of this application.

12 As such, it is appropriate that the Claims Bar Order be recognized by this Court, notwithstanding that the recognition is nunc pro tunc. This recognition will ensure certainty with regard to the effect of the Claims Bar Order in Canada, with respect to creditors of Ultra Petroleum. Such recognition will also foster comity and cooperation between this Court and the US Bankruptcy Court, as well as supporting the global reorganization of the Chapter 11 debtors.

13 I note that the Court of Queen's Bench of Alberta also recently recognized, nunc pro tunc, a claims bar order granted by the US Bankruptcy Court in an application by C&J Energy Production Services-Canada Ltd., Court File No. 1601-08740.

2. The Confirmation Order

14 The Confirmation Order in this application satisfies the numerous factors set out in the case authorities just cited. The Order was made in good faith and in the interests of the Chapter 11 debtors, as well as the creditors and equity holders. It does not breach any applicable Canadian law. It will not likely be followed by a need for or further financial reorganization of the Chapter 11 debtors. The plan complies with US bankruptcy principles, as the US bankruptcy Court has confirmed. All holders of claims and interests in the Chapter 11 debtors, including holders of claims and interests in Ultra Petroleum who were entitled to vote on the Plan of Reorganization, have been given notice of, and the opportunity to vote on and object to, the Plan. These holders have voted overwhelmingly in support of accepting the Plan (98.84% of the Class 3 votes and 99.89% of the Class 8 votes).

15 Accordingly, it is appropriate that this Court should recognize the Confirmation Order, to ensure that the purposes of the CCAA are satisfied and that the Chapter 11 debtors have the best opportunity to restructure their affairs. In this regard, the comments of Campbell J. in Xerium, cited above, at para. 29, are appropriate:

In granting the recognition order sought, I am satisfied that the implementation of the Plan in Canada not only helps to ensure the orderly completion of the Chapter 11 Debtors' restructuring process, but avoids what otherwise might have been a time-consuming and costly process were the Canadian part of the Applicant itself to make a separate restructuring application under the CCAA in Canada.

4 16 In order to give force and effect to the Confirmation Order, the proposed Articles of Reorganization attached as Schedule "C" to the form of the order sought on this application are approved as the form of the Articles of Reorganization to be filed with the Registrar of Corporations, pursuant to s. 194(4) of the Yukon Business Corporations Act, R.S.Y. 2002, c. 20. Application granted.

5 TAB 13 IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation: Walter Energy Canada Holdings, Inc. (Re), 2017 BCSC 709 Date: 20170501 Docket: S1510120 Registry: Vancouver

In the Matter of the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 as Amended

And

In the Matter of the Business Corporations Act, S.B.C. 2002, c. 57, as Amended

And

In the Matter of a Plan of Compromise or Arrangement of Walter Energy Canada Holdings, Inc. and the Other Petitioners Listed on Schedule “A”

The text of the judgment was corrected on page 2 and in paragraph 5 on May 5, 2017.

Before: The Honourable Madam Justice Fitzpatrick

Reasons for Judgment

Counsel for the Petitioners: M. Paterson M.I.A. Buttery P. Riesterer M.A. Rowe K. Sachar

Walter Energy Canada Holdings, Inc. (Re) Page 2

Counsel for United Mine Workers of America C. Dennis, Q.C. 1974 Pension Plan and Trust: J. Sandrelli T. Jeffries O. James

Counsel for the United Steelworkers, Local 1- C.D. Bavis 424: J. Sanders

Counsel for KPMG Inc., Monitor: P.J. Reardon

Place and Date of Hearing: Vancouver, B.C. January 9-13, 16, 18-20, 2017 Place and Date of Written Reasons: Vancouver, B.C. May 1, 2017

Walter Energy Canada Holdings, Inc. (Re) Page 3

I INTRODUCTION ...... 3 II PROCEDURAL BACKGROUND ...... 4 III ISSUES...... 6 IV IS A SUMMARY HEARING APPROPRIATE? ...... 6 V BACKGROUND FACTS...... 11 (1) The Walter Energy Group and U.S. Operations ...... 14 (2) Acquisition leading to Creation of Walter Canada Group...... 14 (3) Walter Resources and the 1974 Plan ...... 16 (4) Walter Canada Group Corporate Structure ...... 18 (5) The U.S. Chapter 11 Proceedings ...... 19 (6) Estimated Recoveries ...... 22 VI ERISA’S PROVISIONS ...... 22 VII THE CHOICE OF LAW QUESTION ...... 25 (1) What is the Characterization of the 1974 Plan’s Claim? ...... 27 (2) What Choice of Law Rule Applies? ...... 44 VIII THE SECOND AND THIRD QUESTIONS ...... 51 IX CONCLUSION ...... 51

I INTRODUCTION

[1] These are proceedings brought by the petitioners pursuant to the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (the “CCAA”). The petitioner companies are part of what I will describe as the “Walter Canada Group” which includes other entities, as I will discuss below.

[2] This application is brought by the Walter Canada Group to determine the validity of a claim filed in these proceedings by the UMWA 1974 Pension Plan and Trust (the “1974 Plan”).

[3] The 1974 Plan’s claim is asserted as a liability of the Walter Canada Group based on the provisions of U.S. legislation, namely the Employee Retirement and Income Security Act of 1974, 29 U.S.C. § 1001, as amended (“ERISA”). The amount of the claim arises from certain unfunded pension liabilities owed to former Walter Energy Canada Holdings, Inc. (Re) Page 4 employees of a U.S. entity within the larger international Walter Energy Group. For context, the Walter Canada Group is the Canadian part of the international “Walter Energy Group”. ERISA is sometimes referred to as “long arm” legislation in that the 1974 Plan asserts that this U.S. legislation applies to the Walter Canada Group even though they were all Canadian corporations or entities conducting their mining businesses only in Canada and not in the U.S.

[4] As far as I’m aware, and all counsel agree on this point, this is the first time that a Canadian court will have considered whether ERISA applies in Canada and in these circumstances. It also appears to be the case that no U.S. court has yet considered whether ERISA applies to entities outside of the U.S.

[5] The 1974 Plan’s claim is extremely large - approximately $1.25 billion. If the 1974 Plan’s claim is valid, it will swamp all other valid claims that have been filed in the estate against the Walter Canada Group. The result would be that the vast majority of the realizations from the estate assets - estimated by mid-2017 to be approximately $63 million - would be paid to the 1974 Plan and not in respect of the claims of other creditors. These other creditors include the Walter Canada Group’s former employees, which in turn include union members represented by the United Steelworkers, Local 1-424 (the “Union”), to whom substantial amounts are owed.

II PROCEDURAL BACKGROUND

[6] The Claims Process Order that was granted on August 16, 2016 (see Walter Energy Canada Holdings, Inc. (Re), 2016 BCSC 1746 at paras. 86-87) put in place a specific claims process designed to address the 1974 Plan’s claim. Pursuant to the Claims Process Order, and with the objective of clarifying the issues as between the parties, the 1974 Plan filed a notice of civil claim on August 26, 2016 in this action. Responsive pleadings were filed by the Walter Canada Group and the Union shortly thereafter.

[7] Paragraph 30 of the Claims Process Order provided that, upon the filing of the pleadings, the 1974 Plan’s claim was to be adjudicated by the Court “under a procedure to be determined more fully by subsequent Order of this Court”. Walter Energy Canada Holdings, Inc. (Re) Page 5

[8] There were various disagreements between the Walter Canada Group, the Union and the 1974 Plan as to whether pre-hearing discovery procedures were required or necessary prior to a determination of certain preliminary issues raised by the Walter Canada Group. Since at least the fall of 2016, the 1974 Plan has taken the position that it is inappropriate to determine these preliminary issues on a summary basis without allowing it to conduct discovery of the Walter Canada Group.

[9] This disagreement led the Monitor to apply for directions on the procedure to adjudicate the 1974 Plan’s claim, as was expressly directed under paragraph 31 of the Claims Process Order. I denied the oral and document discovery sought by the 1974 Plan arising from two hearings: firstly, on October 26, 2016 (Walter Energy Canada Holdings, Inc. (Re) (Unreported; October 26, 2016) and secondly, on November 28/December 2, 2016 (Walter Energy Canada Holdings, Inc. (Re), 2016 BCSC 2470). Those decisions were made in light of the Walter Canada Group’s position that the preliminary issues could be resolved on a summary basis, consistent with the legislative objective under the CCAA to determine claims in that manner.

[10] After the October 26, 2016 hearing, the parties agreed to a Case Plan Order which set out various deadlines for the delivery of the applications and responses, evidence and written arguments, all in advance of the January 2017 hearing.

[11] In November 2016, the Walter Canada Group filed their application for a summary hearing to decide these issues. Although described as a “summary hearing”, the nature of the hearing can be described as a hybrid one. In addition to the pleadings, applications and responses, the evidence before the Court consisted of various affidavits, the Walter Canada Group’s notice to admit and the 1974 Plan’s response to the notice to admit. In addition, as the answer to one of the issues - namely, whether ERISA applies exterritorialy to the Walter Canada Group - is a matter of U.S. law, the Walter Canada Group and the 1974 Plan both filed expert reports from U.S. attorneys. All three of these experts were cross examined on their reports at this hearing. Walter Energy Canada Holdings, Inc. (Re) Page 6

III ISSUES

[12] The Walter Canada Group seeks the following declaratory relief:

a) under Canadian conflict of laws rules, the 1974 Plan’s claim as against the Walter Canada Group is governed by Canadian substantive law and not U.S. substantive law (including ERISA);

b) in the alternative, if the 1974 Plan’s claim against the Walter Canada Group is governed by U.S. substantive law (including ERISA), then as a matter of U.S. law, “controlled group” liability for withdrawal liability related to a multiemployer pension plan under ERISA does not extend extraterritorially; and

c) in the further alternative, if the 1974 Plan’s claim against the Walter Canada Group is governed by U.S. substantive law (including ERISA), and ERISA applies extraterritorially, that law is unenforceable in Canada because it conflicts with Canadian public policy.

[13] It is common ground that if the Walter Canada Group succeeds on any one of the above arguments, the 1974 Plan’s claim is not a valid claim against the estate. While I have referred to the arguments below as that of the Walter Canada Group, I have considered the similar arguments advanced by the Union even if they are not specifically referenced as such.

IV IS A SUMMARY HEARING APPROPRIATE?

[14] The 1974 Plan argues that the hearing should not proceed summarily and has brought a cross application to dismiss the Walter Canada Group’s application. Consistent with Rule 9-7 of the Supreme Court Civil Rules, B.C. Reg. 168/2009 (the “Rules”) regarding summary trials, the 1974 Plan argues:

a) the matter is not suitable for a summary hearing: Rule 9-7(11)(b)(i);

b) a summary hearing on the preliminary issues will not assist in the efficient resolution of the validity of its claim: Rule 9-7(11)(b)(ii); Walter Energy Canada Holdings, Inc. (Re) Page 7

c) the Court will be unable to find the necessary facts to determine the issues: Rule 9-7(15)(a)(i);

d) the Court should find it unjust to determine the preliminary issues in the circumstances: Rule 9-7(15)(a)(ii); and

e) the Walter Canada Group is “litigating in slices” by attempting to obtain a decision on only some of the issues.

[15] The CCAA mandates that any dispute about claims will be determined, if possible, in a summary manner. Specifically, the CCAA provides for a summary determination of the validity of a disputed unsecured claim, such as that asserted here by the 1974 Plan:

Determination of amount of claims 20 (1) For the purposes of this Act, the amount represented by a claim of any secured or is to be determined as follows: (a) the amount of an unsecured claim is the amount … (iii) in the case of any other company, proof of which might be made under the Bankruptcy and Insolvency Act, but if the amount so provable is not admitted by the company, the amount is to be determined by the court on summary application by the company or by the creditor; [Emphasis added]

[16] The requirement for a summary determination of claims in a CCAA proceeding is similar to that found in the Bankruptcy and Insolvency Act, R.S.C., 1985, c. B-3: see San Juan Resources Inc. (Re), 2009 ABQB 55 at para. 30. Both recognize the need to determine claims as quickly as possible to allow for a timely distribution to creditors, as creditors will suffer more prejudice if there is delay in receipt of whatever recovery they can expect from an insolvent estate. In addition, proceeding by summary application respects the need to resolve claims without undue cost, which would exacerbate the already insolvent circumstances and lessen the recovery of the parties. Walter Energy Canada Holdings, Inc. (Re) Page 8

[17] Other than directing a “summary” determination of the issue, the CCAA provides no further guidance as to how a claim is to be determined. In this legislative vacuum, courts across Canada have drawn upon their statutory jurisdiction under the CCAA to fashion a process to do just that. This typically takes the form of a claims process order, as was granted in this proceeding on August 16, 2016.

[18] There was agreement that the process typically found in a claims process order, allowing for review by the monitor and a revision/disallowance process, was not appropriate in these circumstances. The 1974 Plan’s claim raised unique issues and it was recognized early in these proceedings that a resolution of that claim would likely require a more complex procedure.

[19] There are examples where the courts in CCAA proceedings have fashioned a process that was “summary” in the sense of not requiring full pre-trial and trial procedures, but still allowed for certain appropriate pre-hearing steps.

[20] A similar issue was before the Court in the CCAA proceedings in Pine Valley Mining Corporation (Re), 2008 BCSC 356. A substantial claim had been advanced and the Court addressed how the claim should be resolved and the format of the summary trial. Justice Garson (as she then was) said:

[16] The second issue I have been asked to determine is the question of the format of this trial. Section 12 of the CCAA [now s. 20] requires a summary trial. I recognize that in some cases, courts have held that that does not preclude a conventional trial. (See Algoma Steel Corporation v. Royal Bank of Canada (1992), 8 O.R. (3d) 449 (C.A.). I do not understand Mr. McLean to object in principle to an order that this matter be determined in a summary way but, rather, I think he reserves his right to object to the suitability of such a procedure depending on how the evidence unfolds. It is my view that s.12 [now s. 20] of the CCAA informs any decision the court must make as to the format of a trial and that trial must surely be as the section dictates, a summary trial, unless to do otherwise would be unjust, or there is some other compelling reason against a summary trial. I am not persuaded that this claim cannot be tried summarily on the date reserved in May of this year. The parties have one week to work out an agreement as to a time line for the necessary steps to prepare for that trial, including the exchange of pleadings, disclosure of documents as requested by Tercon, agreed facts, delivery of affidavits, expert reports (including notice of reliance on all or part of the Monitor’s reports), delivery and responses to notices to admit, examination for discovery if consented to, and delivery of written arguments. I acknowledge that many of these steps are underway. Walter Energy Canada Holdings, Inc. (Re) Page 9

[17] … Either party has leave to apply to cross-examine the deponent of an affidavit out of court or in court. Either party has leave to apply to convert this summary trial to a conventional trial but I expect the parties to make their best efforts to manage this generally as a summary trial. [Emphasis added]

[21] Similarly, in Jameson House Properties Ltd. (Re), 2011 BCSC 965 at paras. 13-14, Justice Adair departed from the strict terms of a claims process order and ordered the filing of pleadings and oral discovery after the filing of affidavits. An agreed statement of facts was also later filed although some facts remained in dispute. At para. 15, the Court stated that it was approaching the summary hearing as in a conventional trial; in other words, if the party bearing the onus of proof failed to establish the necessary facts, that party’s case would fail.

[22] In Coast Capital Savings Credit Union v. The Symphony Development Corp., 2011 BCSC 333 at paras. 23-27, the Court referred to a “principled” approach to the determination of claims, albeit in a receivership context, which respected the summary claims process while also ensuring that the claim was adjudicated in a just manner.

[23] Accordingly, although the CCAA requires that, presumptively, claims be determined on a summary basis, the court has the discretion to order another procedure where it is appropriate. That other procedure may, but will not usually, involve a full trial procedure. One possible approach is to conduct a hybrid hearing, such as occurred here.

[24] Needless to say, the exercise of the court’s discretion will be guided by the statutory objectives of the CCAA toward a timely and inexpensive resolution of claims and distribution to creditors, while also ensuring that the determination of claims is made in a manner that is just and fair to all the stakeholders, including the debtor company, the claimant and other creditors: 0487826 B.C. Ltd. (Re), 2012 BCSC 1501 at para. 38. These objectives are consistent with Rule 1-3(1) which states that the object of the Rules is to secure the “just, speedy and inexpensive determination of every proceeding on its merits”. These objectives are also Walter Energy Canada Holdings, Inc. (Re) Page 10 consistent with the Supreme Court of Canada’s recent exhortation to the legal profession and the courts to embrace more summary forms of adjudication where appropriate, as found in Hryniak v. Mauldin, 2014 SCC 7.

[25] In exercising the court’s discretion to move beyond a pure summary determination in accordance with s. 20 of the CCAA, factors to be considered by the court will vary from case to case depending on the circumstances, but may include: the nature and complexity of the claim or issues arising; the amount in issue; the nature of the evidence (including whether credibility is in issue); the importance of the claim to the creditor and the estate; the cost and delay of further procedures; and what prejudice, if any, may arise from a summary hearing.

[26] There is no “one size fits all” solution as to how any claim can be determined; ideally, the answer will no doubt be driven by the willingness of the parties to streamline the process and the creativity of the parties, and their counsel, in fashioning an efficient and expeditious means of obtaining the necessary evidence to put before the court. If agreement can’t be reached, then it will fall to the court to consider the issue.

[27] Procedural issues that may be considered include:

a) whether pre-trial oral or document discovery is truly necessary and if so, whether limits can be put on such discovery;

b) whether affidavits should be filed as opposed to viva voce evidence at a full trial;

c) whether cross-examinations on affidavits or expert reports are necessary and whether that can be done ahead of the hearing or at the hearing itself;

d) whether timelines for delivery of materials, such as affidavits, or any pre- hearing procedures, can be fixed so to expedite the determination of the issues; Walter Energy Canada Holdings, Inc. (Re) Page 11

e) whether other means of establishing the evidentiary record can be ordered, such as through notices to admit, agreed statement of facts and common documents so as to minimize or eliminate any conflict as to the facts; and

f) whether written arguments can be exchanged in advance of the hearing.

[28] The 1974 Plan continues to take the position that the issues raised in the Walter Canada Group’s application cannot and should not be determined at this hearing without providing it the opportunity to undertake the discovery that it earlier sought. It specifically seeks to examine William G. Harvey, the former executive vice-president and chief financial officer of the Canadian holding company within the Walter Canada Group, who was also the person who gave evidence in support of the initial CCAA filing. That evidence was accepted by this Court and various orders were made based on that evidence.

[29] In substance, the 1974 Plan advocated for a reversal of what I consider to be the proper approach (and onus) here, as discussed above. The 1974 Plan submits that a full trial is required, unless the Walter Canada Group can successfully argue in favour of abbreviated procedures. Consistent with its goal of embarking upon a full scale litigation process, the 1974 Plan prepared its list of documents dated December 23, 2016. The Walter Canada Group has not yet provided any discovery, either oral or documentary.

[30] I intend to address the 1974 Plan’s objection to the lack of discovery from the Walter Canada Group in the context of the individual issues discussed below. It will suffice at this point to note that I reject the approach advocated by the 1974 Plan, although I will consider its arguments in the context of the relevant and material evidence needed to decide the issues raised on this application.

V BACKGROUND FACTS

[31] In support of its overall position that this summary hearing is inappropriate, the 1974 Plan has steadfastly refused to admit to most facts as proposed by the Walter Energy Canada Holdings, Inc. (Re) Page 12

Walter Canada Group. It insists on what it calls “trial quality” evidence on all issues and says that there remain “disputed facts” which are relevant to the determination of these issues, principally relating to the degree of integration between the Walter Canada Group and the entities within the U.S. arm of the Walter Energy Group.

[32] The stridency of this position is particularly puzzling given the 1974 Plan’s refusal to acknowledge even its own “facts” and documents, as found in its evidence filed in the course of this proceeding.

[33] The 1974 Plan has shown absolutely no willingness to consider and co- operate in the development of a streamlined process which would have allowed the Walter Canada Group to put what I consider uncontroversial facts before the court. The more extreme examples of this obdurate position are found in the 1974 Plan’s refusal to admit that: the Canadian mine operations and assets in this jurisdiction were governed by Canadian and British Columbian environment and mining legislation; and, that the Walter Canada Group’s relationship with its Canadian employees (both unionized and non-unionized) were governed by Canadian and British Columbian labour and employment laws. To suggest otherwise is a confounding proposition and needless to say, the 1974 Plan never did explain how it could not be so. The 1974 Plan would only admit that the mines were located in British Columbia and that the Walter Canada Group employed persons working in British Columbia, matters that were in evidence at the beginning of this proceeding and as I said, uncontroversial.

[34] The 1974 Plan has raised virtually every possible objection toward blocking a summary or even hybrid hearing on these preliminary issues, presumably toward the end game of avoiding this hearing and engaging in an extensive and expensive full- scale litigation process with corresponding discovery. In my view, the objections of the 1974 Plan can more accurately be described as angling for a “fishing expedition” so as to search for facts that may conceivably provide some basis for their claim.

[35] I would also note that the 1974 Plan appears to have made no effort to obtain what it describes as relevant evidence from various U.S. sources, including speaking Walter Energy Canada Holdings, Inc. (Re) Page 13 to Mr. Harvey and also obtaining documentation in the hands of the U.S. debtors within the Walter Energy Group: see Tassone v. Cardinal, 2014 BCCA 149 at paras. 38-39. As such, the 1974 Plan has not provided any foundation upon which to argue that further relevant facts may exist in order to prove its claim.

[36] I have concluded that the approach advocated by the 1974 Plan is neither warranted nor appropriate in the circumstances and I am exercising my discretion to proceed otherwise.

[37] Accordingly, I have taken the facts from various sources: the facts asserted by the 1974 Plan which are admitted or which are not contested by the Walter Canada Group or the Union for the purpose of this application; evidence filed by the 1974 Plan in these proceedings generally or in direct response to this application; and, what I consider to be the uncontroverted facts introduced by the Walter Canada Group in its evidence in this proceeding which have been the foundation for numerous orders granted by me. I also rely on the findings in my earlier reasons for judgment in these proceedings (including Walter Energy Canada Holdings, Inc. (Re), 2016 BCSC 107; 2016 BCSC 1413; 2016 BCSC 1746); and, evidence introduced in other proceedings before this court and filed in this action. See Petrelli v. Lindell Beach Holiday Resort Ltd., 2011 BCCA 367 at paras. 36-37; British Columbia (Attorney General) v. Malik, 2011 SCC 18 at paras. 46-48.

[38] In my view, there is little, if any, controversy about the following facts which are more accurately described as simply background facts.

[39] Below are my findings of fact. It will become clear from the analysis below that most of the following background facts only provide context for the specific determination of the issues raised by the Walter Canada Group. I will also address any further facts relevant to the analysis in the separate discussion of the issues. Walter Energy Canada Holdings, Inc. (Re) Page 14

(1) The Walter Energy Group and U.S. Operations

[40] The Walter Energy Group operated its international coal production and export business in two distinct segments: (a) the U.S. operations, and (b) the Canadian and United Kingdom (U.K.) operations.

[41] The parent corporation of all of entities within the Walter Energy Group is Walter Energy, Inc. (“Walter Energy U.S.”), which is a public company incorporated under the laws of Delaware and headquartered in Birmingham, Alabama. The U.S. coal mining operations of the Walter Energy Group were conducted in Alabama and West Virginia through a variety of U.S. corporations.

[42] The Walter Energy Group’s U.S. entities included a wholly owned subsidiary of Walter Energy U.S., Jim Walter Resources, Inc. (“Walter Resources”). Walter Resources was incorporated in Alabama and conducted its coal production business in Alabama.

(2) Acquisition leading to Creation of Walter Canada Group

[43] Before 2011, Walter Energy U.S. did not have any operations or subsidiaries in Canada or the U.K.

[44] In October 2010, Walter Energy U.S. and Western Coal Corp. (“Western”) began negotiating the acquisition of Western’s coal mining operations in British Columbia, the U.K. and the U.S. (the “Western Acquisition”).

[45] Walter Energy U.S. publicly announced the Western Acquisition in November 2010, when Walter Energy U.S. issued a press release and filed both the press release and a Form 8-K with the SEC on its publicly available EDGAR system. The press release referred to Walter Energy U.S.’s intention to complete a “business combination” with Western.

[46] In December 2010, Walter Energy U.S. announced that (admitted for the purpose of these statements having only been made, and not for the truth of the contents): Walter Energy Canada Holdings, Inc. (Re) Page 15

a) it had entered into an arrangement agreement with Western whereby Walter Energy U.S. would acquire all of the outstanding common shares of Western;

b) the “transaction will be implemented by way of a court-approved plan of arrangement under British Columbia law”; and

c) in connection with the arrangement, Walter Energy U.S. intended to borrow $2.725 million of senior secured credit facilities, “the proceeds of which will be used (i) to fund the cash consideration for the transaction, (ii) to pay certain fees and expenses in connection with the transaction, (iii) to refinance all existing indebtedness of the Company and Western Coal and their respective subsidiaries and (iv) to provide for the ongoing working capital of [Walter Energy U.S.] and its subsidiaries”.

[47] On March 9, 2011, Walter Energy U.S. incorporated Walter Energy Canada Holdings, Inc. (“Canada Holdings”) and became its sole shareholder. Canada Holdings was incorporated specifically to hold the shares of Western and therefore, indirectly, its subsidiaries.

[48] On March 10, 2011, Justice McEwan of this Court approved the proposed plan of arrangement through which the Western Acquisition was accomplished.

[49] On April 1, 2011, Canada Holdings acquired all outstanding common shares of Western for an estimated total consideration of approximately US$3.7 billion.

[50] After completing the Western Acquisition, the Walter Energy Group engaged in a series of internal to rationalize operations and organize the Walter Energy Group into geographical business segments: the Walter U.S. group, the Walter Canada Group and the Walter U.K. Group. As a result, the U.S. assets previously held by Western were transferred from Canada Holdings to Walter Energy U.S. and no longer formed part of the Canadian assets. Walter Energy Canada Holdings, Inc. (Re) Page 16

(3) Walter Resources and the 1974 Plan

[51] The 1974 Plan is a pension plan and irrevocable trust established in 1974 in accordance with section 302(c)(5) of the Labour Management Relations Act of 1947, 29 U.S.C. § 186(c)(5). It is a multiemployer, defined benefit pension plan under section 3(2), (3), (35), (37)(A) of ERISA.

[52] The 1974 Plan is resident in Washington, D.C. and administered there. The trustees are resident in the U.S. and all participating employers in the 1974 Plan are resident in the U.S.

[53] The 1974 Plan was established pursuant to a collectively bargained National Bituminous Coal Wage Agreement of 1974 negotiated between the United Mine Workers of America and the Bituminous Coal Operators’ Association, Inc., a multiemployer bargaining association. This agreement has been amended from time to time since 1974.

[54] ERISA requires that the 1974 Plan be administered in accordance with the most recently negotiated collective bargained agreement and other related documentation, such as the pension plan document and pension trust document. These documents set out, among other things, the contribution obligations of contributing employers to the 1974 Plan, which include:

a) monthly pension contributions for as long as there were operations covered by the 1974 Plan; and

b) a “withdrawal liability” accruing upon a partial or complete withdrawal from participation in the 1974 Plan.

[55] The participants and beneficiaries in the 1974 Plan are retired or disabled former hourly coal production employees and their eligible surviving spouses. There are approximately 88,000 such participants and beneficiaries.

[56] All signatories to the collective bargaining agreements are “participating employers”. All such “participating employers” are resident in the U.S. Walter Energy Canada Holdings, Inc. (Re) Page 17

[57] Only one of the U.S. entities, namely Walter Resources (or a predecessor entity), was a signatory to various National Bituminous Coal Wage Agreements from 1978 forward and was therefore, a “participating employer” in the 1974 Plan. The last of such agreements signed by Walter Resources was the one negotiated in 2011 (the “2011 CBA”).

[58] No member of the Walter Canada Group is or ever was a signatory to any National Bituminous Coal Wage Agreement, including the 2011 CBA. The 1974 Plan does not suggest that the Walter Canada Group ever contributed to the 1974 Plan; nor does the 1974 Plan suggest that the Walter Canada Group entities had any obligation to contribute to the 1974 Plan.

[59] At the time of the Western Acquisition in 2011, the 1974 Plan had an unfunded liability of more than US$4 billion. Its status at that time was said to be “Seriously Endangered Status”, meaning that the 1974 Plan’s funded percentage was less than 80%. If Walter Resources had withdrawn from the 1974 Plan around that time, the estimated withdrawal liability was approximately US$426 million. There is no indication that the 1974 Plan took any position in this court in respect of the Western Acquisition.

[60] Walter Resources and the 1974 Plan entered into the 2011 CBA after the Walter Acquisition was completed.

[61] As with many pension plans, the fortunes of the 1974 Plan (and hence its beneficiaries) have not escaped the brunt of global market forces over the last decade or so. The global financial crisis in 2008/2009 resulted in declining assets held by such plans. In addition, the demographics of an aging population combined with declining coal mining operations (and hence fewer participating employers) have resulted in added financial pressures on less resources. As of September 2015, the 1974 Plan was certified as being in “Critical and Declining Status”, meaning that it is expected to become insolvent by 2025/2026. The 1974 Plan now asserts that the insolvency is expected to occur in six to seven years. Walter Energy Canada Holdings, Inc. (Re) Page 18

[62] Beyond benefits available to the beneficiaries of the 1974 Plan under these private contractual arrangements, there is some governmental support. A U.S. government sponsored entity, the Pension Benefits Guaranty Corporation, guarantees payment of a portion of the 1974 Plan’s benefits, but at a reduced level.

(4) Walter Canada Group Corporate Structure

[63] All of the Walter Canada Group entities are organized in Canada and for the most part, in British Columbia. The Canadian business operations principally consisted of the operation of three coal mines in British Columbia, being the Brule, Willow Creek and Wolverine mines. These mining properties have since been sold to a purchaser, as approved in these proceedings last year: Walter Energy Canada Holdings, Inc. (Re), 2016 BCSC 1746 at para. 80.

[64] In particular, the petitioner companies, being Walter Canadian Coal ULC and Canada Holdings, with the latter’s wholly owned subsidiary corporations, being Wolverine Coal ULC, Brule Coal ULC, Willow Creek Coal ULC, Cambrian Energybuild Holdings ULC (which in turn owns the Walter Energy Group’s U.K. assets) and 0541237 BC Ltd., are all incorporated under the laws of British Columbia. The lone exception is Pine Valley Coal Ltd., a company incorporated under the laws of Alberta.

[65] Similarly, the partnerships in the Walter Canada Group, which are wholly owned by Canada Holdings, being Walter Canadian Coal Partnership, Wolverine Coal Partnership, Brule Coal Partnership, and Willow Creek Coal Partnership, are all organized under the laws of British Columbia.

[66] As I earlier noted in my reasons (Walter Energy Canada Holdings, Inc. (Re), 2016 BCSC 107 at para. 4), “[t]he timing of the Canadian acquisition could not have been worse”. In 2011, the market for metallurgical coal fell dramatically, affecting operations of the entire Walter Energy Group in the U.S., Canada and the U.K. One can only assume that other coal producers in those jurisdictions, including signatories to the 1974 Plan in the U.S., similarly suffered the same fate and are struggling or have struggled with this economic downturn in the coal industry. Walter Energy Canada Holdings, Inc. (Re) Page 19

(5) The U.S. Chapter 11 Proceedings

[67] On July 15, 2015, Walter Energy U.S. and some or all of its U.S. subsidiaries, including Walter Resources, commenced proceedings under Chapter 11 of Title 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Northern District of Alabama (the “Chapter 11 Proceedings”).

[68] On October 8, 2015, the 1974 Plan filed proofs of claim in the Chapter 11 Proceedings against all of the U.S. debtors, including Walter Resources and Walter Energy U.S., claiming what was anticipated to be the withdrawal liability of Walter Resources if it withdrew from the 1974 Plan. It appears to be the case that everyone anticipated that Walter Resources would seek to withdraw from the 1974 Plan through the Chapter 11 Proceedings. The unsecured claim was for not less than approximately US$904 million.

[69] The Proofs of Claim filed by the 1974 Plan do not refer to any entity within the Walter Canada Group as having any potential liability for this claim.

[70] The U.S. insolvency filing in turn sparked the need for the corporations within the Walter Canada Group to seek creditor protection in Canada.

[71] On December 7, 2015, this Court granted an Initial Order in this proceeding in favour of the petitioners. Protection was also granted in favour of the partnerships (see Walter Energy Canada Holdings, Inc. (Re), 2016 BCSC 107 at para. 3). The Walter Canada Group did not seek recognition of the CCAA Proceedings in the U.S.; similarly, the Walter Energy Group’s U.S. debtors did not seek recognition of the Chapter 11 Proceedings in Canada.

[72] At the time of the Canadian CCAA filing, Mr. Harvey indicated that efforts were underway in the Chapter 11 Proceedings to implement a sales process to sell all of Walter Energy U.S.’s Alabama assets. A stalking horse agreement was part of that sales process, as is typical in those proceedings. Walter Energy Canada Holdings, Inc. (Re) Page 20

[73] It quickly became apparent to the U.S. stakeholders that the stalking horse purchaser in the Chapter 11 Proceedings had no interest in assuming what the U.S. Bankruptcy Court would later describe as Walter Resources’ “legacy and current labour costs”, including that owing under the 2011 CBA. The asset purchase agreement later signed by the U.S. debtors and the purchaser expressly provided that the sale was subject to the U.S. Bankruptcy Court issuing an order allowing the U.S. debtors to reject the 2011 CBA, in accordance with the U.S. Bankruptcy Code provisions. It is common ground that upon such rejection, the withdrawal liability under the 1974 Plan would arise.

[74] Arising from opposition to the stalking horse process from some factions, including the unsecured creditors committee (the “UCC”), a settlement was reached. On December 22, 2015, the U.S. Bankruptcy Court entered an order approving a Settlement Term Sheet between the Walter Energy group’s U.S. debtors, a steering committee, the stalking horse purchaser and the UCC. The Settlement Term Sheet entitles unsecured creditors, which includes the 1974 Plan, to receive 1% of the common equity issued in the stalking horse purchaser on closing, as well as the right to participate in any exit financing. Later documentation filed in March 2016 by the Walter Energy Group’s U.S. debtors and the UCC in the Chapter 11 Proceedings confirms that this settlement was intended to establish the extent of any recovery by unsecured creditors, such as the 1974 Plan, from the Chapter 11 estates.

[75] The Walter Canada Group entities were not involved in the Chapter 11 Proceedings and were not parties to the Settlement Term Sheet.

[76] On December 28, 2015, the U.S. Bankruptcy Court granted an order allowing Walter Resources to reject the 2011 CBA, over the objections of labour related stakeholders, including the 1974 Plan. The order (the “1113/1114 Order”) authorized Walter Energy U.S. and its U.S. affiliates to reject the 2011 CBA and declared that any sale to the stalking horse purchaser was free and clear or any encumbrance or liabilities under the 2011 CBA. The U.S. Bankruptcy Court also declared that upon Walter Energy Canada Holdings, Inc. (Re) Page 21 such sale, Walter Resources had no further contribution obligations under the 2011 CBA.

[77] The Walter Canada Group did not participate in the hearing which gave rise to the 1113/1114 Order. The reasons of the U.S. Bankruptcy Court which led to the granting of the 1113/1114 Order do not refer at all to the Walter Canada Group entities or any assets or operations in Canada held by those entities.

[78] The 1974 Plan appealed the 1113/1114 Order, although that appeal was later withdrawn in February 2016. At that time, the 1113/1114 Order became final.

[79] By early January 2016, the 1974 Plan clearly anticipated that Walter Resources’ withdrawal from the 2011 CBA was imminent. Around that time, the 1974 Plan began filing materials in these CCAA proceedings asserting that the Walter Canada Group entities were jointly and severally liable for the withdrawal liability under the 1974 Plan.

[80] The sale of the U.S. assets, as approved by the U.S. Bankruptcy Court, closed on April 1, 2016. Accordingly, immediately before that date, all contributions by Walter Resources to the 1974 Plan ceased and the withdrawal liability arose. The 1974 Plan now estimates that the withdrawal liability is in excess of US$933 million.

[81] The 1974 Plan introduced the evidence of Dale Stover, the Director of Finance and General Services employed with the 1974 Plan. He indicates that by reason of Walter Resources’ withdrawal, the status of the 1974 Plan has been further jeopardized even beyond that recognized in September 2015. He indicates that the other employers in the 1974 Plan will be further burdened by this loss.

[82] Despite the extensive proceedings before the U.S. Bankruptcy Court, at no time has that Court expressed any opinion on the validity of the 1974 Plan’s claim as asserted in the Chapter 11 Proceedings. In addition, at no time did the U.S. Bankruptcy Court address the ability of the 1974 Plan to assert joint and several liability for the withdrawal liability against the other U.S. debtors. Certainly, that court did not address the core (and second) issue before me on this application; namely, Walter Energy Canada Holdings, Inc. (Re) Page 22 whether the entities within the Walter Canada Group are liable under ERISA’s provisions.

(6) Estimated Recoveries

[83] In my view, the evidence and submissions on this point are substantially irrelevant, and completely irrelevant to the determination of some issues. I understand that the parties all agree as to this irrelevancy although they also all saw fit to ensure that I knew the consequences of a win/loss to each side. Accordingly, to round out the narrative, the consequences arising from this application are as follows.

[84] If the 1974 Plan’s claim is found to be invalid as against the Walter Canada Group entities, it is anticipated that all other unsecured claims filed against the Canadian estates will be paid in full, including in relation to substantial amounts (approximately $12.8 million) owed to the Canadian unionized employees who worked in the British Columbia coal mines. In that event, it is also expected that the remaining funds will likely flow to Walter Energy U.S. arising from intercompany claims that have been filed.

[85] I am advised by the 1974 Plan that, if this happens, no funds will be paid to it in respect of its unsecured claim. This appears to arise from the Settlement Term Sheet, discussed above, and which appears to limit recovery for the U.S. unsecured creditors (including the 1974 Plan) to equity in the stalking horse purchaser and participation in exit financing, which I gather provided little or no recovery in the U.S. Accordingly, the 1974 Plan asserts that without recovery from the Walter Canada Group’s assets, it will fail to have achieved any recovery, either here in Canada or in the U.S.

VI ERISA’s PROVISIONS

[86] A review of the legislative provisions found in ERISA is helpful at this point. It is certainly required in order to consider and decide the second question, namely whether the Walter Canada Group is liable under ERISA as a matter of U.S. law. Walter Energy Canada Holdings, Inc. (Re) Page 23

However, an understanding of those provisions is also necessary in order to answer the first question, namely being whether U.S. law (i.e. ERISA) even applies here.

[87] The following, which I have largely adopted from the expert report of one of the Walter Canada Group’s expert on U.S. law, Marc Abrams, summarizes the relevant legislative provisions under ERISA (or Title 29). Some of these provisions have already been generally described above:

a) a “multiemployer plan” is a collectively bargained pension plan maintained and funded by more than one unrelated employer, typically within the same or related industries: 29 U.S.C. § 1301(a)(3). As stated above, the 1974 Plan is a multiemployer defined benefit pension plan: see 29 U.S.C. § 1002(2), (3), (35) and (37)(A);

b) if one of the contributing employers withdraws from a multiemployer plan, either partially or completely, ERISA requires the “employer” to pay to the plan its share of any unfunded vested benefits, generally determined as of the end of the plan year preceding the plan year in which the withdrawal occurs: 29 U.S.C. § 1386 and § 1391. The withdrawing employer’s liability is referred to as the “withdrawal liability”: 29 U.S.C. § 1381; and

c) the plan sponsor has a statutory duty to calculate and collect the withdrawal liability from the withdrawing employer: 29 U.S.C. § 1382. ERISA appears to contemplate that payments may be made over time in accordance with a schedule; however, if the withdrawing employer defaults in paying the withdrawal liability, the entire amount of the withdrawal liability becomes subject to collection: 29 U.S.C. § 1399(c)(5).

[88] The key ERISA provisions which are said by the 1974 Plan to give rise to its claim against the Walter Canada Group entities are:

a) withdrawal liability is the joint and several obligation of not only the withdrawing “employer” (as a contributing employer) but also each member of the employer’s “controlled group”: 29 U.S.C. § 1301(a)(2)(B); Walter Energy Canada Holdings, Inc. (Re) Page 24

b) a contributing sponsor’s “controlled group” consists of the contributing employer and others who are under “common control” (29 U.S.C. § 1301(a)(14)(A) and 29 U.S.C. § 1002(40)(B));

c) for a determination as to whether two persons are under “common control” where there is a single-employer plan, ERISA then refers to regulations “consistent and coextensive” with regulations under section 414 of Title 26 (also known as the Internal Revenue Code): 29 U.S.C. § 1301(a)(14)(B);

d) with respect to multiemployer plans, two or more trades or businesses are deemed to be a single employer if they are within the same “control group” and “control group” means a group of trades or businesses under “common control” with the employer: 29 U.S.C. § 1002(40)(B); and

e) for the purposes of ERISA, the three principal types of “controlled groups” are found in Internal Revenue Code regulations: (i) parent-subsidiary controlled groups; (ii) brother-sister controlled groups; and (iii) combined groups: 26 C.F.R. § 1.1563-1(a)(1)(i).

[89] The 1974 Plan asserts that the corporations within the Walter Canada Group are part of Walter Resources’ parent-subsidiary “controlled group”. Under ERISA, a parent-subsidiary “controlled group” is a group consisting of entities connected through a controlling interest with a common parent where stock ownership of at least 80% of the voting power or value (other than the parent) is owned by one or more corporations and the common parent corporation owns stock with at least 80% of the voting power of at least one of the corporations: 29 U.S.C. § 1301(b)(1); 26 U.S.C. § 414(b); 26 U.S.C. § 1563(a)(1); 26 C.F.R. § 1.1414(c).

[90] The 1974 Plan also relies on other provisions of the Internal Revenue Code and its regulations which refers to treating partnerships which are under common control as a single employer: 26 U.S.C. § 414(c); 29 U.S.C. § 1301(b)(1); 26 U.S.C. § 1563(a)(1); 26 C.F.R. § 1.1414(c)-2. Walter Energy Canada Holdings, Inc. (Re) Page 25

[91] For purposes of this application, the Walter Canada Group and the Union agree that it can be assumed that under the above provisions, the Walter Canada Group entities were under common control and within the “controlled group” of the Walter Energy Group given the level of stock ownership held by Walter Energy U.S. in Canada Holdings and Walter Canadian Coal ULC. Further, as stated above, 100% ownership of all of the Canadian operating entities is held through Canada Holdings. All of the expert witnesses were similarly asked to make this assumption.

[92] Accordingly, prima facie, ERISA purports to impose joint and several absolute liability on the entities within the Walter Canada Group based on the 1974 Plan having met the numerical (80%) test for stock ownership or voting control with respect to a “controlled group” under ERISA. In addition, no issue arises given that some of the entities are partnerships.

VII THE CHOICE OF LAW QUESTION

[93] The first issue posed by the Walter Canada Group is:

Under Canadian conflict of laws rules, is the 1974 Plan’s claim as against the Walter Canada Group governed by Canadian substantive law or U.S. substantive law (including ERISA)?

[94] Accordingly, the question for this Court to consider is what choice of law - Canada or the U.S. (ie. ERISA) - governs the 1974 Plan’s claim. Since the 1974 Plan has chosen to assert its claim in these Canadian proceedings, it is common ground that Canadian choice of law principles govern the analysis of what law applies to the 1974 Plan’s claim: Janet Walker, Castel & Walker Canadian Conflicts of Laws, (Toronto, LexisNexis, 2005) (loose-leaf, 6th ed.) ch. 1 at 1-2.

[95] The overall aim or purpose of the choice of law exercise is to identify the most appropriate law to govern a particular issue: A.V. Dicey, J.H.C. Morris & Lawrence Collins, The Conflict of Laws, vol. 1, 15th ed. (London, Sweet & Maxwell, 2012) at 51.

[96] The authorities are clear that determining choice of law is a two-step process: firstly, the Court characterizes the claim to determine which choice of law rule Walter Energy Canada Holdings, Inc. (Re) Page 26 applies; and secondly, the Court applies the proper choice of law rule to the claim. This process was described in Castel & Walker at 3-1 as follows:

In an action involving legally relevant foreign elements, a court may be asked to apply foreign law. To decide whether to do so, the court must ascertain the legal nature of the questions or issues that require adjudication and then apply its appropriate conflict of laws rules to them. For instance, do the facts raise a question of succession or of matrimonial property, or a question of capacity or of form? This analytical process is called the characterization or classification. Its purpose is to enable the court to find legal categories with which the forum is familiar. In other words, the court must allocate each question or issue to the appropriate legal category. The application of the forum’s conflict of laws rule to each legal question or issue will indicate which legal system governs that question or issue. That legal system is called the lex causae. Once the court has characterized the issue, it will consider the connecting factor – a fact or element connecting a legal question or issue with a particular legal system. Finally, the court will apply the law identified as the governing law. In doing so it must separate the rules of substance from the rules of procedure of the legal systems involved, because questions of procedure are governed by the lex fori.

[97] The first step therefore requires that the court ascertain or characterize the “legal nature of the questions or issues”. Typical legal categories used for characterization include: property law, the law of obligations, family law, the law of corporations and insolvency. Other categories, or sub-categories, include the law of contract (an “obligation”), tort and equitable remedies, such as unjust enrichment.

[98] In Stephen G.A. Pitel and Nicholas S. Rafferty, Conflict of Laws, 2nd ed. (Toronto: Irwin Law Inc., 2016) at 223-226, the authors discuss the somewhat perplexing question as to just what is to be characterized. They conclude that facts are not to be characterized, but the courts have variously referred to both “issues” and “causes of action” as being characterized. At 224, the authors highlight, citing Macmillan Inc. v. Bishopsgate Investment Trust and Others (No. 3), [1996] 1 W.L.R. 387 (C.A.), the possible differences that may arise in that respect and that claimants may attempt to characterize their claims to support their choice of law.

[99] In this case, I see no material difference whether one characterizes the 1974 Plan’s claim in terms of a “cause of action” or “issue”. Fundamentally, the claim arises from the express legislative provisions of ERISA. As noted by the Walter Walter Energy Canada Holdings, Inc. (Re) Page 27

Canada Group, there is no equivalent provision of ERISA here in Canada or British Columbia. In that event, the claim is to be characterized “as its closest functional equivalent under that [forum’s] law”, namely Canada and British Columbia: Pitel and Rafferty at 227.

[100] The Walter Canada Group and the Union, on one hand, and the 1974 Plan, on the other, present starkly different approaches to the characterization of the 1974 Plan’s claim. As I will describe below, the answer to this first step or question in turn leads to a distinct or set of considerations as to the choice of law issue. The answers to each of the analytical steps also lead to different considerations in relation to most, if not all, of the evidentiary issues and objections raised by the 1974 Plan.

[101] Accordingly, the statement found in Pitel and Rafferty at 222 that the characterization of the issue is “central to the choice of law process” is particularly apt here.

[102] This two-step process is illustrated by this Court’s decision in Minera Aquiline Argentina SA v. IMA Exploration Inc., 2006 BCSC 1102, aff’d 2007 BCCA 319, upon which both parties rely. At paras. 160-181, this Court addressed the characterization issue, which arose from the competing positions of the parties. The defendant asserted that the claim related to a foreign immovable (in which case Argentina law applied) and the plaintiff asserted that the claim was an in personam claim for appropriation through a breach of confidence (in which case British Columbia law applied).

[103] This Court in Minera determined that the claim was more appropriately characterized as an equitable claim for unjust enrichment arising from a breach of confidence, with the consequence that the relevant choice of law rule was the “proper law of the obligation” (see paras. 181-184).

(1) What is the Characterization of the 1974 Plan’s Claim?

[104] Turning to the first step, there is no disagreement that the 1974 Plan’s claim does not arise as a result of the Walter Canada Group’s conduct. The Walter Walter Energy Canada Holdings, Inc. (Re) Page 28

Canada Group entities did not employ any beneficiaries of the 1974 Plan or have any direct relationship, contractual or otherwise, with the 1974 Plan. Nor did the Walter Canada Group contribute to or have any obligation to contribute to the 1974 Plan. No other conduct that may be relevant to the Walter Canada Group’s liability in that regard has been raised. Simply put, the Walter Canada Group had nothing to do with either the 1974 Plan or Walter Resources’ participation in it.

[105] The Walter Canada Group contends that the 1974 Plan’s claim is properly characterized as an issue under the law of corporations or as an issue of legal corporate or partnership status or personality. They say that the basis for the claim simply arises under ERISA and as a result of Walter Resources’ withdrawal from the 1974 Plan. Further, they say that the only basis for the claim against the Walter Canada Group arises from ERISA’s “common control” provisions, discussed above, and are said to apply solely from the fact that the Walter Canada Group entities and Walter Resources are both owned directly or indirectly by Walter Energy U.S.

[106] It is clear that Walter Resources was the only signatory to the 2011 CBA and that Walter Resources’ corporate relationship, albeit indirectly, to the Walter Canada Group, is the sole basis upon which the 1974 Plan seeks to apply the “controlled group” concept under ERISA.

[107] The 1974 Plan contends that its claim concerns the law of obligations and in particular, contract, such that U.S. law is the “proper law of the obligation”. The 1974 Plan asserts that its claim is one based not only on ERISA, but also the documents by which the 1974 Plan administers itself: namely, the pension plan document, the pension trust document and the 2011 CBA.

[108] I will first address the arguments of the 1974 Plan.

[109] The arguments of the 1974 Plan rest on the central proposition that where a statute confers a right of action in favour of an entity which is not a party to a contract to which the claim relates, the “essential nature” of the claim is to enforce the terms of that contract, such that the claim is properly characterized as one in Walter Energy Canada Holdings, Inc. (Re) Page 29 contract. The 1974 Plan describes its claim as seeking to enforce the contractual obligations of Walter Resources against the Walter Canada Group. Three English insurance cases are cited in support.

[110] The court in Youell v. Kara Mara Shipping Company Ltd., [2000] EWHC 220 was addressing the consequences of a collision at sea between two ships. The owners of the “innocent” vessel commenced proceedings in Louisiana. In that jurisdiction, such a party was allowed, by statute, to claim directly against the “at fault” vessel owner’s insurers. The insurers ultimately applied in England to restrain these proceedings on the basis that the “direct action” statutory claim was pursuant to insurance policies which required any litigation to be brought in England. The English court agreed, stating:

58. The position in the present case is that World Tanker has asserted a claim on the H&M Policies by virtue of the Direct Action Statute in the Direct Action Claim. It is true that World Tanker have not become a party to the policies by a mechanism of statutory novation or of statutory assignment. But in my view, the nature of the rights that the Direct Action Statute confers to World Tanker is contractual; it confers a statutory right to make a claim on a contract to which World Tanker was not originally a party. … the rights are confined to the “terms and limits of the policy”. … 61. Therefore, I conclude that the nature of the claim by World Tanker against YM Insurers in the Direct Action Claim is contractual and the terms of that contract would include the English proper law clause and the [exclusive jurisdiction clause].

[111] In Through Transport Mutual Assurance Association (Eurasia) Limited v. New India Assurance Association Company Limited, [2004] EWCA Civ 1598, the court was considering Finnish legislation that gave a person a direct right to sue the defendants’ insurer for losses caused by the defendant. At para. 56, the court agreed with the trial judge’s approach to consider the “substance” of the claim being advanced. At para. 57, the court adopted the trial judge’s comments on the characterization issue for choice of law purposes:

… If in substance the claim is independent of the contract of insurance and arises under the Finnish legislation simply as a result of its having a right of action against an insolvent insured, the issue would have to be characterized as one of statutory entitlement to which there may be no direct equivalent in Walter Energy Canada Holdings, Inc. (Re) Page 30

English law. In that case the issue would in my view have to be determined in accordance with Finnish law. If, on the other hand, the claim is in substance one to enforce against the insurer the contract made by the insolvent insured, the issue is to be characterized as one of obligation. In that case the court will resolve it by applying English law because the proper law of the contract creating the obligation is English law.

[112] The Court of Appeal in Through Transport agreed with the lower court’s conclusions that the claim was, in substance, to enforce the insurance contract between the responsible party and its insurer:

58. … In short, the title to section 67 [of the Finnish Act] is the “insured person’s entitlement to compensation under general liability insurance” and the right is defined as a right “to claim compensation in accordance with the insurance contract direct from the insurer” in certain defined circumstances. The claim under the Act is not therefore in any sense independent of the contract of insurance but under or in accordance with it. In these circumstances it seems to us that the judge was correct to hold that the issue under the Act is one of obligation under the contract. The judge noted in passing … that the Finnish court itself described the Act as giving the injured party the right to claim compensation “according to the insurance policy”. [Emphasis added]

The Court of Appeal also noted at para. 59 that, although the Finnish Act gave the claimant a right of action directly against the insurer without the need of a formal assignment, what he obtained was “essentially a right to enforce the contract in accordance with its terms”. Therefore, pursuant to the terms of the insurance contract, that stated English law applied, English law was the proper law of the claim.

[113] The third and final case cited by the 1974 Plan is The London Steam-Ship Owners’ Mutual Insurance Association Ltd. v. The Kingdom of Spain, The French State, [2013] EWHC 3188 (Comm). There, the court followed the analysis in both Youell and Through Transport, stating that in deciding whether or not a direct action right under a statute is “in substance” a claim to enforce the contract or a claim to enforce an independent right of recovery, what matters most is the content of the right, rather than the derivation of its content (paras. 82-88). The Court held that the essential content of the right was provided by the insurance contract, despite the Spanish law which also created further liability for an event that would not normally Walter Energy Canada Holdings, Inc. (Re) Page 31 be insurable. The direct action right conferred by Spanish law against the liability insurers was found to be, in substance, a right to enforce the contract rather than an independent right of recovery.

[114] The 1974 Plan argues that, for choice of law purposes, its claim arises under the law of obligations - namely it is one of contract. It argues that the three English cases above all involve: (a) a plaintiff advancing a claim against another party for a liability arising under a contract where there was no privity of contract; (b) a plaintiff claiming that the defendant’s liability arose under a statute from a law other than the lex fori; and (c) a court characterizing the claim as a right to enforce a contract which only existed by reference to that contract.

[115] The 1974 Plan contends that its claim is the same because, although Walter Resources was the only signatory to the 2011 CBA, ERISA (namely the foreign law) provides that the Walter Canada Group is liable in relation to Walter Resources’ rejection of 2011 CBA and the withdrawal liability that arose under that contract.

[116] Despite the 1974 Plan’s fervent submissions on this issue, I am not convinced that the three English cases are analogous to the situation here. In my view, they are distinguishable.

[117] Firstly, the foreign statutes in the English cases simply authorized a direct action against a party to the contract in question, being the insurance policy. In essence, the plaintiffs were made parties to the insurance contract between the insurer and the insured. In contrast here, ERISA does not authorize the 1974 Plan to sue the Walter Canada Group as a party to the 2011 CBA, the pension plan and trust documents. The 1974 Plan relies solely on the provisions in ERISA which only references the contractual liability as the basis upon which to monetarily determine the amount of the liability.

[118] Secondly, the reasoning of and results in the English courts was substantially influenced by the fact that even though the plaintiffs were essentially to step into the insurance contracts, the terms of the contract were, by the statutory provisions, still Walter Energy Canada Holdings, Inc. (Re) Page 32 to govern. This meant that the plaintiffs took the insurance contracts as they found them and were subject to not only the benefits under the contracts, but also other provisions (or burdens) that might, for example, deny or limit coverage and therefore, recovery. As shown in the results found in those cases, that meant that the plaintiffs were subject to exclusive jurisdiction clauses and provisions requiring arbitration, which was the bargain struck in the insurance contracts.

[119] In Through Transport, the court stated at para. 58 that the claim was not “independent of the contract of insurance but under or in accordance with it.”

[120] Here, ERISA’s provisions are entirely devoid of any mention of the underlying contractual obligations of Walter Resources. Those provisions simply provide that if there is a “withdrawal liability”, the other members of the “controlled group” are liable for that amount. I see no basis upon which one could say that, in substance, the Walter Canada Group became a party to the 2011 CBA and the other pension documents by reason of ERISA’s provisions.

[121] For example, there is no suggestion that the other “controlled group” members could contest the amount of the withdrawal liability or advance any other substantive issues that Walter Resources might have raised under the terms of the 2011 CBA and the related documents. The evidence shows that the Walter Canada Group was not even notified of, let alone allowed to participate, in the contractual process by which the 1974 Plan determined the “withdrawal liability” under the 2011 CBA. The discussion of “absolute liability” of “controlled group” liability under ERISA, cited by the Union, found in Connors v. Peles, 724 F. Supp. 1538 (W.D. Pa. 1989) at 1577-8, is instructive on this point:

… Under certain circumstances, one member of a controlled group may be responsible for the withdrawal liability of another member of the controlled group. These principles apply only when there are two or more separate businesses that are banded or associated together in a "controlled group". Participation in the controlled group, by itself, imposes equal responsibility upon all members of the controlled group for the withdrawal liability of an "employer" member of the controlled group, i.e., even though the "employer" member of a group of trades or businesses is the only one with a pension plan. Once notice to the "employer" is given, as required by 29 U.S.C. § 1399, it is totally irrelevant as to whether actual or even constructive notice is Walter Energy Canada Holdings, Inc. (Re) Page 33

given or imputed to the "non-employer" members of a controlled group. The liability of the "non-employer" members of a controlled group does not rest on any notice safeguards under ERISA. The "non-employer" members of the controlled group do not even have to be engaged in the same business enterprise, or even in a similar business. A striking example is provided in Pension Benefit Guaranty Corp. v. Ouimet Corp., 630 F.2d 4, 11-13 (1st Cir.1980), where one member of a controlled group (the "non-employer") did not even have any employees! Congress built the equivalent of withdrawal liability "guaranty's" into ERISA, at the time of the enactment of the multiemployer amendments. The "guaranty's", commonly known and referred to as the "controlled group" statutes, 29 U.S.C. § 1301(b)(1), and the regulations adopted thereunder, 29 C.F.R. Part 2612, and consider the entire group as but one "employer", 29 U.S.C. § 1002(5), and impose absolute liability upon all members of a control group for the withdrawal liability of any member of a statutory group of enterprises, even though the "employer" member of a group of trades or business is the only one with a pension plan, and regardless of whether their groups have employees. Pension Benefit Guaranty Corp. v. Ouimet Corporation, 630 F.2d 4 (1st Cir.1980). Under "controlled group" statutory liability, an inquiry as to the interrelationship of the members of the control group, with the employees of all members of the control group, as required under the "single employer" test, is totally unnecessary and irrelevant. [Emphasis added in underlining]

[122] During the hearing, the 1974 Plan’s counsel referred to the 1974 Plan as having certain “contractual expectations”. While this may have been true in relation to Walter Resources, in my view, the 1974 Plan could only have had “statutory expectations” in relation to other “controlled group” members in the Walter Energy Group arising from ERISA. Certainly, the Walter Canada Group had no “contractual expectations” in these circumstances; this is in contradistinction to the fact that the insurers in the English cases most certainly would have had “contractual expectations” arising from the insurance contracts they issued.

[123] I turn to consider the argument advanced by the Walter Canada Group that the appropriate choice of law characterization of the 1974 Plan’s claim is one of the law of corporations and more specifically, one of separate legal existence or personality.

[124] The 1974 Plan argues that the choice of law rule advocated by the Walter Canada Group is intended only for matters related to corporate existence, such as Walter Energy Canada Holdings, Inc. (Re) Page 34 whether an entity has the capacity to sue or be sued. The 1974 Plan concedes that it may also apply to issues of corporate governance, such as shareholder rights, the authority of directors, the power to make contracts or rights to issue or transfer shares.

[125] I do not agree that such a narrow approach as advocated by the 1974 Plan is appropriate in characterizing the issue. The references in the cases to looking at the “substance” of the claim support a more far-ranging and holistic analysis. Indeed, although in support of its own argument, the 1974 Plan itself asserted that the characterization exercise is to be done in accordance with the rules and in a “flexible manner”.

[126] In Macmillan, the English court of appeal was called upon to settle a dispute about shares that were wrongly offered as security in England, when in fact they were owned by an American company. In the choice of law analysis, Auld L.J., at 407, discussed the need to look beyond the strict or narrow formulation of the claim:

…classification is governed by the lex fori. But characterisation or classification of what? It follows from what I have said that the proper approach is to look beyond the formulation of the claim and to identify according to the lex fori the true issue or issues thrown up by the claim and defence. This requires a parallel exercise in classification of the relevant rule of law. However, classification of an issue and rule of law for this purpose, the underlying principle of which is to strive for comity between competing legal systems, should not be constrained by particular notions or distinctions of the domestic law of the lex fori, or that of the competing system of law, which may have no counterpart in the other’s system. Nor should the issue be defined too narrowly so that it attracts a particular domestic rule under the lex fori which may not be applicable under the other system: see Cheshire & North’s Private International Law, 12th ed., pp. 45-46, and Dicey & Morris, vol. 1, pp. 38-43, 45-48.

Here, the “true issues” that are raised by the claim go well beyond the narrow formulation advanced by the 1974 Plan.

[127] Further, the text authority cited by the 1974 Plan on this issue in fact supports the position of the Walter Canada Group. In Castel & Walker, the authors also adopt a wider view of the “law of corporations” as including questions of status, separate Walter Energy Canada Holdings, Inc. (Re) Page 35 legal personality and the limited liability that flows from that personality. At 30-1, the authors state:

Questions concerning the status of a foreign corporation, especially whether it possesses the attributes of legal personality, are, on the analogy of natural persons, governed by the law of the domicile of the corporation. This domicile is in the state, province or territory of incorporation or organization and it cannot be changed during the corporation’s existence even if the corporation carries on business elsewhere. … While the state, province or territory in which the foreign corporation intends to carry on business has the right to prescribe the extent to which the corporation may exercise its corporate powers and capacity, this does not mean that proceedings may be taken in this jurisdiction to affect its status as a corporation. … There is some controversy over which law determines the liability of a corporation for the obligations of a foreign subsidiary. Since the personality and status of the subsidiary is called into question, it would seem that the law applicable to the status and capacity of the subsidiary should determine whether its corporate veil can be pierced. [Emphasis added]

[128] The 1974 Plan also argues that this Court should consider the rationale of the choice of law rule it is applying and also the purposes of the substantive law to be characterized and then determine if the conflict rule covers the substantive law at issue (ie. the effect of a certain characterization): Dicey at 51 citing Raiffeisen Zentralbank Osterreich AG v. An Feng Steel Co. Ltd., [2001] EWCA Civ 68 at para. 27. The 1974 Plan then says that the purpose of the substantive law (ie. ERISA) is to ensure that employees who are promised retirement benefits actually receive those benefits, citing Connolly v. Pension Benefit Guaranty Corp., 475 US 211, 214 (1986). The 1974 Plan then asserts that this purpose is entirely different than that behind the corporate choice of law rule whose purpose is the determination of corporate matters or more specifically, corporate capacity or governance. After analyzing the underlying policy purposes of the conflicts rule, that corporations are governed by the substantive law of the country of incorporation, the 1974 Plan argues that this substantive law issue is not engaged here since its claim is about employees’ pension entitlements, in which case U.S. law should apply. Walter Energy Canada Holdings, Inc. (Re) Page 36

[129] This argument is entirely without merit in that it confuses the intent or purpose behind the “controlled group” provisions found in ERISA with the effect of those provisions. I agree that ERISA has been employed by the U.S. Congress with the intention and purpose of seeking to ensure that U.S. retirees receive contracted for benefits; however, the effect of the “controlled group” provisions is to collapse the corporate structure to ensure that as many entities within a corporate group are liable for retirement plan withdrawal and that their assets are available to meet obligations to those retirees.

[130] Seen in that vein, the purpose of the choice of law rule proposed by the Walter Canada Group intersects with the substantive law under ERISA, in that both address the corporate status or the separate legal existence or personality of other persons, including the Walter Canada Group entities. ERISA ascribes liability based solely on corporate and other legal relationships.

[131] As the Walter Canada Group argues, it is trite law in British Columbia and Canada that corporations have separate legal personalities from that of its shareholders and that shareholders are not prima facie liable for the debts of the corporation: Salomon v. Salomon & Co, [1897] A.C. 22 (H.L.). A corporation has the capacity and the rights, powers and privileges of an individual of full capacity: Business Corporations Act, S.B.C. 2002, c. 57, s. 30.

[132] The well-known decision in B.G. Preeco I (Pacific Coast) Ltd. v. Bon Street Holdings Ltd. (1989), 37 B.C.L.R. (2d) 258 (C.A.) at 266-268 affirmed the sanctity of a corporation’s existence per Salomon and discussed that the corporate veil may be pierced only in certain and exceptional circumstances. To similar effect, see Edgington v. Mulek Estate, 2008 BCCA 505 at paras. 20-25 where, following B.G. Preeco, the court stated at para. 21 that the “separate legal personality of the corporation will not be lightly disregarded”. These and other cases were recently discussed in Emtwo Properties Inc. v. Cineplex (Western Canada) Inc., 2011 BCSC 1072 beginning at para. 97 to similar effect. Walter Energy Canada Holdings, Inc. (Re) Page 37

[133] The intention behind, purpose and effect of ERISA’s “common control” or “controlled group” provisions are aided by interpretations of those provisions by the U.S. courts. In that respect, Mr. Abrams’ expert report is again of assistance. He states at pp. 6-7 of his report:

Courts have described the operation of ERISA’s “controlled group” liability provisions as a “veil-piercing” statute that disregards formal business structures in order to impose liability on related businesses. … As the U.S. Supreme Court has recognized, in place of the “subjective, case- by-case analysis that had previously prevailed,” Congress purposefully adopted an “objective test” for determining whether a controlled group exists, based on a “mechanical formula” that establishes “a sharp dividing line that is crossed by incremental changes in ownership.” [citing United States v. Vogel Fertilizer Co., 455 U.S. 16, 34 (1982)] Thus, the applicable regulations for withdrawal liability of “controlled groups” establish a “brightline test based purely on stock ownership,” and affiliates are not required to have actually exercised control over the employer (or vice versa) or engaged in any wrongdoing or misconduct in order to be liable as a member of the “controlled group.”

[134] The citations provided by Mr. Abrams for these comments amply support his summary of the U.S. courts’ characterization of ERISA’s “controlled group” provisions. Other comments found in the U.S. cases cited by him are equally instructive:

a) the ERISA provisions were aimed at “curbing abuses of multiple incorporation”: United States v. Vogel Fertilizer Co., 455 U.S.16 (1982) at 36;

b) in Board of Trustees of Trucking Employees of North Jersey Welfare Fund, Inc. – v. Gotham Fuel Corp., 860 F. Supp. 1044 at 1050, the court stated that members of the controlled group are “deemed, by law” to constitute a single entity. At 1050-1051, the court adopted an earlier statement of the legislative intent underlying ERISA:

The legislative background of ERISA … makes it abundantly clear that, for the purpose of [ERISA], Congress was unconcerned with the actual corporate form of a business. …Congress instructed … the Walter Energy Canada Holdings, Inc. (Re) Page 38

courts to disregard the corporate form and treat several inter-related corporations are one entity, the ERISA “employer” ...

and also stated:

Controlled group members are statutorily determined to be ‘single entities,’ without the necessity of a finding of improper motive or wrongdoing.

c) in PBGC v. Smith-Morris Corp., C.A. No. 94-cv-60042-AA, 1995 US Lexis 22510 at 8 (E.D. Mich. Sept. 13, 1995), the court stated that ERISA’s concern is not whether a stockholder who has a controlling share actually exercised control over corporate affairs but simply whether it had “the ability to control,” as evidenced through stock ownership;

d) in Sun Cap. Partners III, LP v. New England Teamsters & Trucking Indus. Pension Fund, 724 F.3d 129 at 138, the court stated that:

… [ERISA’s] broad definition of “employer” extends beyond the business entity withdrawing from the pension fund, thus imposing liability on related entities within the definition, which, in effect, pierces the corporate veil and disregards formal business structures. …

e) finally, in Cent. States, S.E. & S.W. Areas Pension Fund v. Messina Prods., LLC, 706 F.3d 874 (7th Cir. 2013), at 877-878, the court stated:

When an employer participates in a multiemployer pension plan and then withdraws from the plan with unpaid liabilities, federal law can pierce corporate veils and impose liability on owners and related businesses. … … The [joint and several withdrawal liability] provision’s purpose is to “prevent businesses from shirking their ERISA obligations by fractionalizing operations into many separate entities…” (Citing: Central States, Southeast and Southwest Areas Pension Fund v. White, 258 F.3d 636, 644 (7th Cir.2001)

[135] The 1974 Plan’s expert witness as to U.S. law and specifically, ERISA, Judith Mazo, agrees. She describes at paragraph 37 of her report that the “arithmetic rules” or “bright lines” under ERISA apply to determine common control. She further states there is no other relevant consideration as to whether ERISA applies: Walter Energy Canada Holdings, Inc. (Re) Page 39

44. … Because the law uses mechanical tests and looks at highly concentrated levels of ownership, it does not matter whether the decision- makers actually exercised their control since they had the power to do so if they chose.

[136] Simply put, the 1974 Plan’s claim arises solely by reason of Walter Energy U.S. owning more than an 80% stake in both Walter Resources and the Walter Canada Group entities. Arising from that “arithmetic” rule, ERISA dictates that the Walter Canada Group is liable for any withdrawal liability of a signatory (ie. Walter Resources) under the 1974 Plan.

[137] Accordingly, I agree with the Walter Canada Group that ERISA’s “controlled group” provisions impose liability by ignoring separate corporate personalities and effectively amalgamating, consolidating or collapsing “common control” entities into a single “employer” liable for any withdrawal liability of any other entity within that group. There can be no dispute that, but for ERISA’s provisions, the Walter Canada Group would not be liable for any obligations owing by Walter Resources under the 2011 CBA. It is only by reason of the Walter Canada Group’s relationship with Walter Resources, through the indirect corporate ownership of Walter Energy U.S., that such liability arises.

[138] As the U.S. cases note, this is the essence of “lifting the corporate veil” so as to look beyond the corporate personality of Walter Resources and impose liability on other entities within the corporate group through common shareholdings.

[139] My conclusions are consistent with the comments found in Pension Benefit Guaranty Corp. v. Ouimet Corp., 711 F.2d 1085, 6 (1st Cir.1983) where the Court of Appeals, First Circuit allocated a termination liability to certain solvent members of the Ouimet Group:

On the surface this result may appear to disregard unduly the legal separateness of the corporate entities. There is precedent, however, for piercing the corporate veil in bankruptcy situations. Under its general equitable powers a bankruptcy court may “substantially consolidate” the assets and liabilities of various entities. Substantial consolidation will usually, but not always, involve only debtors and be granted if absolutely necessary for achieving reorganization or protecting creditors’ economic interests. … Some of the facts a court will look for in deciding whether to grant a Walter Energy Canada Holdings, Inc. (Re) Page 40

substantive consolidation include the parent owning a majority of the subsidiary’s stock, the entities having common officers or directors, the subsidiary being grossly undercapitalized, the subsidiary transacting business solely with the parent, and both entities disregarding the legal requirements of the subsidiary as a separate corporation. … There is no need to show that any or all of these factors are present to justify holding the solvent members of the Ouimet Group responsible for the entire liability in this case. Avon’s corporate veil was, in effect, pierced by Congress when it enacted the termination liability provisions of ERISA. The corporate form is a creation of state law and states may impose stringent limitations on attempts to disregard it; the factors courts consider in deciding whether to grant substantive consolidations reflect such limitations. These limitations, however, do not constrict a federal statute regulating interstate commerce for the purpose of effectuating certain social policies … Corn Products Refining Co. v. Benson, 232 F.2d 554, 565 (2d Cir.1956) (existence of separate corporate entity may be disregarded when necessary to further the purpose of a federal regulatory statute). Thus, concerns for corporate separateness are secondary to what we view as the mandate of ERISA in this case. [Emphasis added]

[140] Since ERISA is a creature of the U.S. Congress, there is no similar legislation in Canada that might be considered in this characterization exercise. There is no case authority from Canada that addresses ERISA, nor any case authority involving the type of characterization exercise involved here. Nevertheless, the Walter Canada Group argues that characterizing the 1974 Plan’s claim as one implicating legal personality is consistent with at least one British Columbia authority.

[141] In JTI-Macdonald Corp. v. British Columbia (Attorney General), 2000 BCSC 312, this court considered the constitutionality of the Tobacco Damages and Health Care Costs Recovery Act, S.B.C. 1997, c. 41 (the “Tobacco Act”). The Tobacco Act created a cause of action permitting the government to directly recoup medical costs from the tobacco industry. The Tobacco Act defined “manufacturer” broadly and, coupled with the group liability provisions, extended liability to affiliated (perhaps also foreign) companies (see paras. 156-158). Similar to ERISA, the Tobacco Act “imposed liability upon a foreign defendant not on the basis of wrongful conduct but on the basis of being deemed a member of a group in which another member commits a wrongful act.” (para. 233). Walter Energy Canada Holdings, Inc. (Re) Page 41

[142] I agree with the 1974 Plan that the result in JTI-Macdonald Corp. is limited since it arose in the context of a constitutional challenge which is not involved here. Nevertheless, many of the comments of Justice Holmes in respect of the Tobacco Act strike a similar chord in terms of what ERISA seeks to accomplish as against the Walter Canada Group. I have included lengthy quotes of Holmes J. here, particularly given the degree of reliance placed on this case by the Walter Canada Group:

[172] The combined effect of [provisions of the Act] purport to affect the status, structure and corporate personality of foreign corporations and the rights of their shareholders. [173] The Act has the effect of abolishing the separate corporate personalities of companies incorporated under federal or foreign law with domiciles outside British Columbia. [174] A company's registered office establishes its domicile. [Gasque v. Inland Revenue Commissioners, [1940], 2 K.B. 80; Fraser & Stewart, op. cit. at p.144; National Trust Co. Ltd. v. Ebro Irrigation & Power Co. Ltd., [1954], 3 D.L.R. 326 (Ont.H.C.); Voyage Co. Industries v. Craster, [1998] B.C.J. No. 1884 (Unreported) (B.C.S.C.)]. [175] A corporation's domicile determines the law respecting its creation and continuation (corporate personality), matters of internal management, share , and shareholder rights. [Castel, J.G., Canadian Conflict of Laws 4th ed., (Toronto: Butterworths, 1997) pp.574-575; Voyage Co. Industries v. Craster, supra; National Trust Co. Ltd. v. Ebro Irrigation & Power Co. Ltd., supra; Fraser & Stewart, op. cit. p.144; Palmer's Company Law (looseleaf ed.) Vol. I, (London: Sweet & Maxwell, 1997) pp.2105-2106]: Questions concerning the status of a foreign corporation, especially whether it possesses the attributes of legal personality, are, on the analogy of natural persons, governed by the law of the domicile of the corporation. This domicile is in the state or province of incorporation or organization and cannot be changed during the corporation's existence even if it carries on business elsewhere. Thus, the law of the state or province under which a corporation has been incorporated or organized determines whether it has come into existence, its corporate powers and capacity to enter into any legal transaction, the persons entitled to act on its behalf, including the extent of their liability for the corporation's debts, and the rights of the shareholders. [Castel, supra, at p.574-575]. [176] It is a fundamental principle of company law that a corporation is a legal entity distinct from its shareholders. [Salomon v. Salomon & Co. Ltd., [1897] A.C. 22 (H.C.); Palmer's Company Law 24th ed., Schmitthoff, C.M. Ed., (London: Stevens & Sons, 1987) pp.200-201; Fraser & Stewart Company Law of Canada 6th ed., (Carswell, 1993) at p.17; Canada Business Corporations Act, R.S.C. 1985, c.C-44, S.15(1)]. Walter Energy Canada Holdings, Inc. (Re) Page 42

[177] This distinction is operative in a parent and subsidiary relationship and applies to related corporations owned by a common shareholder. [Fraser & Stewart, op. cit. at p.21, Davies, P.L., Gower's Principles of Modern Company Law 6th ed. (London: Sweet & Maxwell, 1997) at pp.80, 159-163; BG Preeco I (Pacific Coast) Ltd. v. Bon Street Developments Ltd. (1989), 60 D.L.R. (4th) 30 (B.C.C.A.)]. [178] There is a distinction in Canadian constitutional law between the power to incorporate and the power to regulate the activities of a company. The power to incorporate a company is the ability to bestow legal personality on an association of persons, regulate a corporate structure and define the rights of shareholders. [179] A company once incorporated however will be responsible to the laws of jurisdictions in which it operates. A federally incorporated company is, for example, accountable under provincial security laws. …. [189] The Act therefore attempts to alter and derogate from what are clearly domiciliary rights under the law of foreign jurisdictions, … … [205] The Act overrides the substantive laws of extra-territorial Canadian or foreign jurisdictions in four major areas: (a) in respect of the status and corporate personalities of corporate tobacco manufacturers with domiciles outside British Columbia; …. and (d) in respect of shareholder's rights and liabilities regarding shares of federal or foreign corporations. …. [213] Sections [of the Tobacco Act], when they purport to govern the status, structure and corporate personality of a federally-incorporated company under the Canada Business Corporations Act are not only extra-territorial in effect they trench upon the exclusive jurisdiction of the Parliament of Canada. [214] There is much force to the argument that a practical cumulative effect of these provisions of the Act is to "amalgamate" or "merge" defendant tobacco companies such that those "amalgamated" by the operation of the provisions of the Act incur liability for civil claims against others in the involuntary merger. That is a fundamental interference with a federal jurisdiction reserved under Part XV of the Canada Business Corporations Act. [215] The combined effect of Sections…of the Act ignores the separate identities of federally-incorporated companies for the purpose of establishing a tobacco related wrong committed by a related company and for the purpose of calculating amounts assessed against them. [216] The separate legal personality conferred under s.15(1) of the Canada Business Corporations Act is removed and the corporation loses its legal status as distinct from its shareholders. … Walter Energy Canada Holdings, Inc. (Re) Page 43

[218] The provisions of the Act appear not so much designed to "pierce the corporate veil" as they are to strip away separate identities and treat them as if they had legally merged or amalgamated. The effect of provisions of the Act is not to look through the façade of a company shell; it is to deny the right to any separate corporate existence. [Emphasis added]

[143] Applying these same comments to ERISA, it is clear that the “controlled group” provisions simply disregard the separate corporate personalities of other companies within the Walter Energy Group (including those within the Walter Canada Group) by lifting their corporate veils. It does this by ignoring the separate legal existence and personality of the Walter Canada Group entities (and limited liability per Salomon), effectively amalgamating or consolidating those entities, in deeming them to be one “employer” along with Walter Resources.

[144] I agree that JTI-Macdonald provides substantial support that a claim which purports to impose liability arising purely as a result of corporate relationships, such as ERISA does, are properly classified as claims concerning the status and legal personality of corporations. To use the words of Holmes J., the application of ERISA to the Walter Canada Group results in those entities’ “separate legal personality” being removed or “stripped away” such that they lose their legal status as distinct from their shareholders.

[145] I agree that the 1974 Plan’s claim against the Walter Canada Group, being founded on ERISA’s “controlled group” liability provisions, should be characterized as concerning the status and legal personality of corporations and partnerships within the Walter Canada Group.

[146] In conclusion, in my view, the legal nature of the 1974 Plan’s claim is appropriately characterized as one of corporate or partnership law and specifically, a claim which results in a challenge to the status and separate legal personalities of the entities within the Walter Canada Group. Walter Energy Canada Holdings, Inc. (Re) Page 44

(2) What Choice of Law Rule Applies?

[147] Having characterized the claim, I now turn to the second step in the choice of law analysis. This involves a consideration of relevant “connecting factors”.

[148] At page 221, Pitel and Rafferty state:

As we will see, the selection of the connecting factor is critical in formulating the choice of law rule. There are many possible connecting factors. Some are relatively certain and predictable. These include the person's domicile or habitual residence and the place where a specific act occurs, such as the commission of a tort or the making of the contract. These sorts of connecting factors have a relatively narrow focus. They are quite specific and can therefore be described as rigid connecting factors. Other connecting factors have a broader focus and are thought to be more flexible. These include the “proper law” of a contract, ascertained by weighing several factual connections to various legal systems. One of the core debates in choice of law is how rigid or how flexible the connecting factor should be for a particular rule.

[149] It is worthwhile being reminded at this time of Castel & Walker’s comment at 3-1, quoted above, that a “connecting factor” is a “fact or element connecting a legal question or issue with a particular legal system” which is then identified as the governing law.

[150] What then are the “connecting factors” to be considered after having characterized the 1974 Plan’s claim as I have?

[151] Under Canadian choice of law rules, issues concerning a person’s legal personality are governed by the law of the person’s domicile: Castel & Walker at 30- 1, quoted above. Similarly, Pitel and Rafferty state that the “status of non-natural persons is governed by the law of the person’s ‘home’ jurisdiction” (at 245) and that there is a “well-established principle that a corporation’s domicile is the country in which it was incorporated” (at 26-27).

[152] To similar effect, Dicey states at 1532-1533:

Whether an entity exists as a matter of law must, in principle, depend upon the law of the country under which it was formed. That law will determine whether the entity has a separate legal existence. The law of that country will determine the legal nature of the entity so create, e.g. whether the entity is a Walter Energy Canada Holdings, Inc. (Re) Page 45

corporation or partnership, and, if the latter, the legal incidents which attach to it.

[153] Domicile was addressed in National Trust Co. v. Ebro Irrigation and Power Co. Ltd. [1954] O.R. 463 (S.C.), where the court stated at 476:

It is well established that the domicile of a corporation is in the country in which it was incorporated. In Cheshire on Private International Law, 4th ed. 1952, at pp. 193-4, it is stated that: ”Questions concerning the status of a body of persons associated together for some enterprise, including the fundamental question whether it possesses the attribute of legal personality, must on principle be governed by the same law that governs the status of the individual, i.e. by the law of the domicil. … In the case of the natural person it is the domicil of his father, in the case of the juristic person it is the country in which it is born, i.e. in which it is incorporated.” …

[154] The Walter Canada Group also refers to Singer Sewing Machine Co. of Canada Ltd (Re), 2000 ABQB 116, a decision of the colourful Registrar Funduk. There, the Alberta court was considering whether to recognize an order from the U.S. Bankruptcy Court. It appears that the U.S. court has assumed jurisdiction not only over the Singer Sewing Machine entities in the U.S., but also over the Canadian subsidiary who only conducted business in Canada and whose assets were held in Canada. The intention of the U.S. court seemed to be toward assuming overall jurisdiction over the entire corporate group in terms of administering assets and presumably, claims against those assets.

[155] This case was decided before amendments to Part IV of the CCAA which provides for a robust degree of comity in terms of addressing cross-border insolvencies. Nevertheless, the comments of the Registrar in terms of rejecting what he considered was a collapsing of the Canadian entity and its assets within the broader international group have, in my view, some relevance here:

11. Canadian law says that a corporation is a person in law. Canadian law says that a corporation has an existence separate from its shareholders. Canadian law says that a shareholder is not liable for the corporation’s debts. Canadian law says that a shareholder does not own the corporation’s assets. Canadian law says that a corporation’s business activities are not the shareholder’s business activities. Walter Energy Canada Holdings, Inc. (Re) Page 46

[156] Similarly, amalgamation of corporations, characterized as a change of status, is governed by the law of the place of incorporation: Castel & Walker, vol. 2, at 30-5. If the merged or amalgamated corporations were incorporated in different jurisdictions, the merger must be valid under the laws of both jurisdictions: Dicey 1534. See also Concept Oil Services Ltd. v. En-Gin Group LLP, [2013] EWHC 1897 (Comm) at paras. 70-72.

[157] I agree with the Walter Canada Group that the 1974 Plan’s claim depends entirely on ERISA’s provisions which allow the 1974 Plan to disregard the separate legal personalities of the Walter Canada Group entities as being distinct from that of Walter Resources. The 1974 Plan has not advanced any other theory of liability for its claim under British Columbia law or any other law; rather, it relies exclusively on ERISA’s “controlled group” provisions as the basis for its claim against the Walter Canada Group. Further, as I have already stated, the 1974 Plan’s claim against the Walter Canada Group does not stem from any conduct by or contract with the Walter Canada Group.

[158] During its submissions, the 1974 Plan did not draw any particular distinction between its claims against the corporations within the Walter Canada Group (who are the only CCAA petitioners) and the partnerships, who are not petitioners, but who were granted certain protections under the Initial Order. The claim of the 1974 Plan advanced in its pleading is only as against the “petitioners”. The Walter Canada Group suggests that since the 1974 Plan chose to assert its claim only against the “petitioners”, any claim against the partnerships is barred pursuant to the claims bar date set under the Claims Procedure Order. I am not sure as to the effect of such a distinction in terms of the recovery under the claims.

[159] This “claims bar date” argument may have some merit, but I do not propose to base my decision as regards the partnerships solely on this basis. The simple answer is that the same analysis set out above in relation to the corporations applies equally to the partnerships, as was noted in Dicey at 1532-33, quoted above, which refers to the law of the country in which an “entity” was formed. Walter Energy Canada Holdings, Inc. (Re) Page 47

[160] The issue as to whether the Walter Canada Group’s separate legal personalities can be ignored is subject to the Canadian choice of law rule that the status and legal personality of a corporation is governed by the law of the place in which it was incorporated, namely British Columbia and Alberta. Here, as with the corporations within the Walter Canada Group, both with limited liability and unlimited liability, it is admitted that all of the partnerships were organized under British Columbia law. Accordingly, the choice of law analysis leads to the same result in relation to the partnerships, namely British Columbia law, including under the Partnership Act, R.S.B.C. 1996, c. 348.

[161] The place of incorporation or organization is a matter of public record and all persons who would do business with or otherwise deal with the Walter Canada Group entities would or should be well aware of that fact.

[162] I agree that, under Canadian choice of law rules, the place of incorporation or organization of the Walter Canada Group entities is the appropriate “connecting factor” in relation to the issue arising from the 1974 Plan’s claim. As a result, British Columbia and Alberta law determine whether the separate legal personalities of the Walter Canada Group entities can be ignored.

[163] The 1974 Plan also made substantial submissions concerning the choice of law rule applicable to its claim. Relying on this Court’s analysis in Minera at paras. 184-207, the 1974 Plan asserts that one must consider which law has the “closest and most real connection” to the issue. Its further submissions are that the court must examine a non-exhaustive list of factors in that context (Minera at para. 200). This, of course led to the 1974 Plan’s objection to this summary hearing and its positon that, since it has been denied any discovery from the Walter Energy Group, it has been hampered in its ability to put into evidence all relevant factors at this summary hearing.

[164] However, the analysis in Minera was made in the context of the Court’s conclusion that the choice of law rule that applied to the unjust enrichment claim was the “proper law of the obligation”. In addition, contrary to the two-step approach Walter Energy Canada Holdings, Inc. (Re) Page 48 illustrated in Minera, at the end of its submissions, the 1974 Plan’s argument essentially conflated that process by suggesting that the Court should consider connecting factors (most of which it says have yet to be disclosed through discovery from the Walter Canada Group) in the characterization exercise in the first step.

[165] Rejecting the 1974 Plan’s contention that its claim should be characterized as one of contract inevitably leads to the further conclusion that the appropriate choice of law rule is not the “proper law of the obligation”.

[166] Accordingly, I do not intend to address the 1974 Plan’s detailed submissions on the second step within the choice of law issue other than to briefly comment on certain aspects.

[167] The 1974 Plan argued that even if I accepted the characterization of the claim advanced by the Walter Canada Group, the Court would still need to address facts other than the place of incorporation. These facts were said to include the degree to which the Walter Canada Group was managed out of the U.S. and an understanding of the Walter Energy Group’s global business. I reject these submissions on the basis of the above authorities. There is no need to look beyond the clear facts that when these Canadian entities were incorporated or organized, they were expressly created within these Canadian jurisdictions with the intention that their legal status and personality would be governed by Canadian laws. The same comment could presumably be made concerning the U.S. and English entities.

[168] The 1974 Plan argued that the “proper law of the obligation” approach would allow this court to consider the connecting factors that exist between the 1974 Plan’s claim and the Walter Canada Group, including the degree to which the U.S. and Canadian operations were integrated, citing Imperial Life Assurance Co. of Canada v. Colmenares, [1967] S.C.R. 443 at 448 and Minera.

[169] However, my conclusions above have the effect of rendering moot the 1974 Plan’s objections arising from the lack of discovery. In addition, it is clear enough that even if there was no degree of integration or management between the U.S. Walter Energy Canada Holdings, Inc. (Re) Page 49 and Canadian entities, the 1974 Plan’s position is that all “contract” factors point to the U.S. - including the contractual documents, the location of and management of the 1974 Plan, the location of Walter Resources (the only counterparty to the 2011 CBA), that the benefits under the 2011 CBA are for Walter Resources’ U.S. employees and that the withdrawal by Walter Resources from the 1974 Plan arose in the U.S. As I have emphasized, as regards the choice of law analysis, there is absolutely no contractual connecting factor between the 1974 Plan and the Canadian entities.

[170] In that regard, it is difficult to conceive (although I need not decide the issue) that any Canadian court would conclude that these “contractual” connecting factors pointed to anything other than the U.S. Any degree of integration or joint management could only add to such arguments; conversely, it is difficult to see that any lack of integration or joint management would detract from them.

[171] On this last point (ie. the degree of integration), what emerges as crystal clear from the 1974 Plan’s position, supported by Ms. Mazo’s opinion, is that ERISA expressly makes such a factual enquiry entirely irrelevant. The “bright line” or “arithmetic” test under ERISA entirely disregards anything other than the level of stock ownership: see Pension Benefit Guaranty Corp. v. Ouimet Corp., 470 F.Supp 945 (1975).

[172] Other so-called “connecting factors” suggested by the 1974 Plan are bizarre to say the least. The 1974 Plan suggests that Walter Energy U.S. will be “enriched” given the potential payment of estate funds to that corporate level after payment to the Canadian creditors. This is hardly a relevant consideration. Further, any recovery available to the 1974 Plan against the U.S. entities is entirely driven by U.S. law, including ERISA, the Chapter 11 Proceedings and its participation in the Settlement Term Sheet. If the 1974 Plan obtains no recovery from the U.S. entities within the Walter Energy Group, that is of no moment as regards its claim against the Canadian entities. Walter Energy Canada Holdings, Inc. (Re) Page 50

[173] The other “connecting factor” said to arise by the 1974 Plan is that the application of Canadian law works an injustice on the 1974 Plan “because of the removal of assets out of reach of ERISA”. This proposition begs the very question as to whether ERISA applies to the Walter Canada Group at all. If ERISA does not apply to the Walter Canada Group in these circumstances, the Canadian assets were never within reach of the 1974 Plan.

[174] The 1974 Plan further argues that accepting the Walter Canada Group’s argument on choice of law would result in a “blanket denial” of all ERISA claims against Canadian entities in Canadian courts. In my view, this is an exaggeration. Canadian law allows for the imposition of liability on persons in a variety of ways - including tort and fraud (see B.G. Preeco). This decision is only intended to address whether these Canadian entities are subject to ERISA which seeks to impose liability on them, not by reason of any conduct or contract, but simply by reason of a corporate relationship.

[175] The 1974 Plan also suggests that a decision that ERISA does not apply to the Walter Canada Group would threaten principles of international comity in that a Canadian court could not recognize a judgment made by a U.S. court in respect of a Canadian entity for withdrawal liability under ERISA. This other “chicken little” argument is entirely speculative. Firstly, this case does not involve any judgment obtained against the Walter Canada Group. Further, in my view, my decision does not detract from the well-entrenched and long standing comity that has existed between Canada and the U.S. courts, particularly in the field of insolvency.

[176] As described above, the only facts and connecting factors relevant here given my characterization of the 1974 Plan’s claim are uncontroversial and have been admitted. In these circumstances, I see no difficulty in proceeding to determine this matter in a summary fashion, based on the considerations discussed earlier in these reasons.

[177] In conclusion, I find that the 1974 Plan’s claim is characterized as one of corporate or partnership law and specifically, one relating to the status, legal Walter Energy Canada Holdings, Inc. (Re) Page 51 existence and personality of corporations and partnerships. The appropriate choice of law rule is one of domicile or place of incorporation or organization. In the case of the entities within the Walter Canada Group, that is British Columbia or Alberta.

[178] ERISA is not part of British Columbia or Alberta law. Accordingly, the 1974 Plan’s claim must fail for that reason.

VIII THE SECOND AND THIRD QUESTIONS

[179] The second and third issues posed by the Walter Canada Group are:

If the 1974 Plan’s claim against the Walter Canada Group is governed by United States substantive law (including ERISA), then as a matter of U.S. law, does “controlled group” liability for withdrawal liability related to a multiemployer pension plan under ERISA extend extraterritorially? If the 1974 Plan’s claim against the Walter Canada Group is governed by U.S. substantive law (including ERISA), and ERISA applies extraterritorially, is that law unenforceable in Canada because it conflicts with Canadian public policy?

[180] As I noted above, the Walter Canada Group only needed to succeed on one of the questions raised in this application in order to defeat the 1974 Plan’s claim.

[181] Accordingly, having found in favour of the Walter Canada Group on the first issue, it is not necessary to decide the other two questions. While they pose interesting issues, I see no need to delay these proceedings further in order to consider and decide those issues. A timely resolution is in the interests of justice and furthers the purposes of the CCAA.

IX CONCLUSION

[182] In conclusion, I grant a declaration that, under Canadian conflict of laws rules, the 1974 Plan’s claim as against the Walter Canada Group is governed by Canadian substantive law and not U.S. substantive law (including ERISA).

[183] Costs are awarded against the 1974 Plan in favour of both the Walter Canada Group and the Union on the usual scale. If any party should wish to seek a different order of costs, such an application must be filed within 30 days of the release of Walter Energy Canada Holdings, Inc. (Re) Page 52 these reasons and the hearing to determine the matter should be set as soon as possible. Failing such application(s) being filed, my costs award shall stand.

“Fitzpatrick J.” Walter Energy Canada Holdings, Inc. (Re) Page 53

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation: Walter Energy Canada Holdings, Inc. (Re), 2017 BCSC 709 Date: 20170509 Docket: S1510120 Registry: Vancouver

In the Matter of the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 as Amended

And

In the Matter of the Business Corporations Act, S.B.C. 2002, c. 57, as Amended

And

In the Matter of a Plan of Compromise or Arrangement of Walter Energy Canada Holdings, Inc. and the Other Petitioners Listed on Schedule “A”

The text of the judgment was corrected on page 2 and in paragraph 5 on May 5, 2017.

Before: The Honourable Madam Justice Fitzpatrick

Corrigendum to Reasons for Judgment

Counsel for the Petitioners: M. Paterson M.I.A. Buttery P. Riesterer M.A. Rowe K. Sachar Walter Energy Canada Holdings, Inc. (Re) Page 54

Counsel for United Mine Workers of America C. Dennis, Q.C. 1974 Pension Plan and Trust: J. Sandrelli T. Jeffries O. James

Counsel for the United Steelworkers, Local 1- C.D. Bavis 424: J. Sanders

Counsel for KPMG Inc., Monitor: P.J. Reardon

Place and Date of Hearing: Vancouver, B.C. January 9-13, 16, 18-20, 2017 Place and Date of Written Reasons: Vancouver, B.C. May 1, 2017 Place and Date of Corrigendum: Vancouver, B.C. May 9, 2017 Walter Energy Canada Holdings, Inc. (Re) Page 55

[1] On page two and paragraph 5 of my reasons for judgment released May 1, 2017 (2017 BCSC 709), the reference to United States Steel Workers, Local 1-424 is corrected to read “United Steelworkers, Local 1-424”.

Fitzpatrick J.

TAB 14 2010 ONSC 3974 Ontario Superior Court of Justice [Commercial List]

Xerium Technologies Inc., Re

2010 CarswellOnt 7712, 2010 ONSC 3974, 193 A.C.W.S. (3d) 1066, 71 C.B.R. (5th) 300 IN THE MATTER OF the Companies' Creditors Arrangement ACT, R.S.C. 1985, c. C-36, AS AMENDED XERIUM TECHNOLOGIES, INC., IN ITS CAPACITY AS THE FOREIGN REPRESENTATIVE OF XERIUM TECHNOLOGIES, INC., HUYCK LICENSCO INC., STOWE WOODWARD LICENSCO LLC, STOWE WOODWARD LLC, WANGNER ITELPA I LLC, WANGNER ITELPA II LLC, WEAVEXX, LLC, XERIUM ASIA, LLC, XERIUM III (US) LIMITED, XERIUM IV (US) LIMITED, XERIUM V (US) LIMITED, XTI LLC, XERIUM CANADA INC., HUYCK.WANGNER AUSTRIA GMBH, XERIUM GERMANY HOLDING GMBH, AND XERIUM ITALIA S.P.A. (collectively, the "Chapter 11 Debtors") (Applicants)

C. Campbell J.

Heard: May 14, 2010 Judgment: September 28, 2010 Docket: 10-8652-00CL

Counsel: Derrick Tay, Randy Sutton for Applicants

C. Campbell J.:

1 The Recognition Orders sought in this matter exhibit the innovative and efficient employment of the provisions of Part IV of the Companies Creditors Arrangement Act, R.S.C. 1985, c. C.36, as amended (the "CCAA") to cross border insolvencies.

2 Each of the "Chapter 11 Debtors" commenced proceedings on March 30, 2010 in the United States under Chapter 11 of Title 11 of the United States Bankruptcy Code (the "U.S. Bankruptcy Code") in the U.S. Bankruptcy Court for the District of Delaware (the "Chapter 11 Proceedings.")

3 On April 1, 2010, this Court granted the Recognition Order sought by, inter alia, the Applicant, Xerium Technologies Inc. ("Xerium") as the "Foreign Representative" of the Chapter 11 Debtors and recognizing the Chapter 11 Proceedings as a "foreign main proceeding" in respect of the Chapter 11 Debtors, pursuant to Part IV of the CCAA.

1 4 On various dates in April 2010, Judge Kevin J. Carey of the U.S. Bankruptcy Court made certain orders in respect of the Chapter 11 Debtors' ongoing business operations.

5 On May 12, 2010, Judge Carey confirmed the Chapter 11 Debtors' amended Joint Prepackaged Plan of Reorganization dated March 30, 2010 as supplemented (the "Plan") 1 pursuant to the U.S. Bankruptcy Code (the "U.S. Confirmation Order.")

6 Xerium sought in this motion to have certain orders made by the U.S. Bankruptcy Court in April 2010, the U.S Confirmation Order and the Plan recognized and given effect to in Canada.

7 The Applicant together with its direct and indirect subsidiaries (collectively, the "Company") are a leading global manufacturer and supplier of products used in the production of paper products.

8 Both Xerium, a Delaware limited liability company, Xerium Canada Inc. ("Xerium Canada"), a Canadian company, together with other entities forming part of the Chapter 11 Debtors are parties to an Amended and Restated Credit and Guarantee Agreement dated as of May 30, 2008 as borrowers, with various financial institutions and other persons as lenders. The Credit Facility is governed by the laws of the State of New York.

9 Due to a drop in global demand for paper products and in light of financial difficulties encountered by the Company due to the drop in demand in its products and is difficulty raising funds, the Company anticipated that it would not be in compliance with certain financial covenants under the Credit Facility for the period ended September 30, 2009. The Chapter 11 Debtors, their lenders under the Credit Facility, the Administrative Agent and the Secured Lender Ad Hoc Working Group entered into discussions exploring possible restructuring scenarios. The negotiations progressed smoothly and the parties worked toward various consensual restructuring scenarios.

10 The Plan was developed between the Applicant, its direct and indirect subsidiaries together with the Administrative Agent and the Secured Lender Ad Hoc Working Group.

11 Pursuant to the Plan, on March 2, 2010, the Chapter 11 Debtors commenced the solicitation of votes on the Plan and delivered copies of the Plan, the Disclosure Statement and the appropriate ballots to all holders of claims as of February 23, 2010 in the classes entitled to vote on the Plan.

12 The Disclosure Statement established 4:00 p.m. (prevailing Eastern time) on March 22, 2010 as the deadline for the receipt of ballots to accept or reject the Plan, subject to the Chapter 11 Debtors' right to extend the solicitation period. The Chapter 11 Debtors exercised their right to extend the solicitation period to 6:00 p.m. (prevailing Eastern time) on March 26, 2010. The Plan was overwhelmingly accepted by the two classes of creditors entitled to vote on the Plan.

2 13 On March 31, 2010, the U.S. Bankruptcy Court entered the Order (I) Scheduling a Combined Hearing to Consider (a) Approval of the Disclosure Statement, (b) Approval of Solicitation Procedures and Forms of Ballots, and (c) Confirmation of the Plan; (II) Establishing a Deadline to Object to the Disclosure Statement and the Plan; and (III) Approving the Form and Manner of Notice Thereof (the "Scheduling Order.")

14 Various orders were made by the U.S. Bankruptcy Court in April 2010, which orders were recognized by this Court.

15 On May 12, 2010, at the Combined Hearing, the U.S. Bankruptcy Court confirmed the Plan, and made a number of findings, inter alia, regarding the content of the Plan and the procedures underlying its consideration and approval by interested parties. These included the appropriateness of notice, the content of the Disclosure Statement, the voting process, all of which were found to meet the requirements of the U.S. Bankruptcy Code and fairly considered the interests of those affected.

16 The Plan provides for a comprehensive financial restructuring of the Chapter 11 Debtors' institutional indebtedness and capital structure. According to its terms, only Secured Swap Termination Claims, claims on account of the Credit Facility, Unsecured Swap Termination Claims, and Equity Interests in Xerium are "impaired" under the Plan. Holders of all other claims are unimpaired.

17 Under the Plan, the notional value of the Chapter 11 Debtors' outstanding indebtedness will be reduced from approximately U.S.$640 million to a notional value of approximately U.S.$480 million, and the Chapter 11 Debtors will have improved liquidity as a result of the extension of maturity dates under the Credit Facility and access to an U.S. $80 million Exit Facility.

18 The Plan provides substantial recoveries in the form of cash, new debt and equity to its secured lenders and swap counterparties and provides existing equity holders with more than $41.5 million in value.

19 Xerium has been unable to restructure its secured debt in any other manner than by its secured lenders voluntarily accepting equity and the package of additional consideration proposed to be provided to the secured lenders under the Plan.

20 The Plan benefits all of the Chapter 11 Debtors' stakeholders. It reflects a global settlement of the competing claims and interests of these parties, the implementation of which will serve to maximize the value of the Debtors' estates for the benefit of all parties in interest.

21 I conclude that the Plan is not likely to be followed by the liquidation or the need for further financial reorganization of the Chapter 11 Debtors.

3 22 On April 1, 2010, the Recognition Order granted by this Court provided, among other things:

(a) Recognition of the Chapter 11 Proceedings as a "foreign main proceeding" pursuant to Subsection 47(2) of the CCAA;

(b) Recognition of the Applicant as the "foreign representative" in respect of the Chapter 11 Proceedings;

(c) Recognition of and giving effect in Canada to the automatic stay imposed under Section 362 of the U.S. Bankruptcy Code in respect of the Chapter 11 Debtors;

(d) Recognition of and giving effect in Canada to the U.S. First Day Orders in respect of the Chapter 11 Debtors;

(e) A stay of all proceedings taken or that might be taken against the Chapter 11 Debtors under the Bankruptcy and Insolvency Act or the Winding-up and Restructuring Act;

(f) Restraint on further proceedings in any action, suit or proceeding against the Chapter 11 Debtors;

(g) Prohibition of the commencement of any action, suit or proceeding against the Chapter 11 Debtors; and

(h) Prohibition of the Chapter 11 Debtors from selling or otherwise disposing of, outside the ordinary course of its business, any of the Chapter 11 Debtors' property in Canada that relates to their business and prohibiting the Chapter 11 Debtors from selling or otherwise disposing of any of their other property in Canada, unless authorized to do so by the U.S. Bankruptcy Court.

23 I am satisfied that this Court does have the authority and indeed obligation to grant the recognition sought under Part IV of the CCAA. The recognition sought is precisely the kind of comity in international insolvency contemplated by Part IV of the CCAA.

24 Section 44 identifies the purpose of Part IV of the CCAA. It states

The purpose of this Part is to provide mechanisms for dealing with cases of cross-border insolvencies and to promote

(a) cooperation between the courts and other competent authorities in Canada with those of foreign jurisdictions in cases of cross-border insolvencies;

(b) greater legal certainty for trade and investment;

4 (c) the fair and efficient administration of cross-border insolvencies that protects the interests of creditors and other interested persons, and those of debtor companies;

(d) the protection and the maximization of the value of debtor company's property; and

(e) the rescue of financially troubled businesses to protect investment and preserve employment.

25 I am satisfied that the provisions of the Plan are consistent with the purposes set out in s. 61(1) of the CCAA, which states:

Nothing in this Part prevents the court, on the application of a foreign representative or any other interested person, from applying any legal or equitable rules governing the recognition of foreign insolvency orders and assistance to foreign representatives that are not inconsistent with the provisions of this Act.

26 In Babcock & Wilcox Canada Ltd., Re (2000), 18 C.B.R. (4th) 157 (Ont. S.C.J. [Commercial List]) at para. 21, this Court held that U.S. Chapter 11 proceedings are "foreign proceedings" for the purposes of the CCAA's cross-border insolvency provisions. The Court also set out a non exclusive or exhaustive list of factors that the Court should consider in applying those provisions.

27 The applicable factors from Babcock & Wilcox Canada Ltd., Re that dictate in favour of recognition of the U.S. Confirmation Order are set out in paragraph 45 of the Applicant's factum:

(a) The Plan is critical to the restructuring of the Chapter 11 Debtors as a global corporate unit;

(b) The Company is a highly integrated business and is managed centrally from the United States. The Credit Facility which is being restructured is governed by the laws of the State of New York. Each of the Chapter 11 Debtors is a borrower or guarantor, or both, under the Credit Facility;

(c) Confirmation of the Plan in the U.S. Court occurred in accordance with standard and well established procedures and practices, including Court approval of the Disclosure Statement and the process for the solicitation and tabulation of votes on the Plan;

(d) By granting the Initial Order in which the Chapter 11 Proceedings were recognized as Foreign Main Proceedings, this Honourable Court already acknowledged Canada as an ancillary jurisdiction in the reorganization of the Chapter 11 Debtors;

(e) The Applicant carries on business in Canada through a Canadian subsidiary, Xerium Canada, which is one of Chapter 11 Debtors and has had the same access and participation in the Chapter 11 Proceedings as the other Chapter 11 Debtors;

5 (f) Recognition of the U.S. Confirmation Order is necessary for ensuring the fair and efficient administration of this cross-border insolvency, whereby all stakeholders who hold an interest in the Chapter 11 Debtors are treated equitably.

28 Additionally, the Plan is consistent with the purpose of the CCAA. By confirming the Plan, the U.S. Bankruptcy Court has concluded that the Plan complies with applicable U.S. Bankruptcy principles and that, inter alia:

(a) it is made in good faith;

(b) it does not breach any applicable law;

(c) it is in the interests of the Chapter 11 Debtors' creditors and equity holders; and

(d) it will not likely be followed by the need for liquidation or further financial reorganization of the Chapter 11 Debtors.

These are principles which also underlie the CCAA, and thus dictate in favour of the Plan's recognition and implementation in Canada.

29 In granting the recognition order sought, I am satisfied that the implementation of the Plan in Canada not only helps to ensure the orderly completion to the Chapter 11 Debtors' restructuring process, but avoids what otherwise might have been a time-consuming and costly process were the Canadian part of the Applicant itself to make a separate restructuring application under the CCAA in Canada.

30 The Order proposed relieved the Applicant from the publication provisions of s. 53(b) of the CCAA. Based on the positive impact for creditors in Canada of the Plan as set out in paragraph 27 above, I was satisfied that given the cost involved in publication, the cost was neither necessary nor warranted.

31 The requested Order is to issue in the form signed. Motion granted.

Footnotes 1 Capitalized terms used herein not otherwise defined shall have the meanings ascribed to them in the Plan. Unless otherwise stated, all monetary amounts contained herein are expressed in U.S. Dollars.

6 IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED Court File No: CV-19-625200-00CL AND IN THE MATTER OF JACK COOPER VENTURES, INC., JACK COOPER DIVERSIFIED, LLC, JACK COOPER ENTERPRISES, INC., JACK COOPER HOLDINGS CORP., JACK COOPER TRANSPORT COMPANY, INC., AUTO HANDLING CORPORATION, CTEMS, LLC, JACK COOPER LOGISTICS, LLC, AUTO & BOAT RELOCATION SERVICES, LLC, AXIS LOGISTIC SERVICES, INC., JACK COOPER CT SERVICES, INC., JACK COOPER RAIL AND SHUTTLE, INC., JACK COOPER INVESTMENTS, INC., NORTH AMERICAN AUTO TRANSPORTATION CORP., JACK COOPER TRANSPORT CANADA INC., JACK COOPER CANADA GP 1 INC., JACK COOPER CANADA GP 2 INC., JACK COOPER CANADA 1 LIMITED PARTNERSHIP, JACK COOPER CANADA 2 LIMITED PARTNERSHIP APPLICATION OF JACK COOPER VENTURES, INC. UNDER SECTION 49 OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985 c. C-36, AS AMENDED

ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST

Proceeding commenced at Toronto

BOOK OF AUTHORITIES OF THE APPLICANT (Motion returnable October 18, 2019)

OSLER, HOSKIN & HARCOURT LLP P. O. Box 50 - 1 First Canadian Place, Suite 6200 Toronto ON M5X 1B8

Marc Wasserman (LSO# 44066M) Tel: 416.862.0900 [email protected]

Shawn T. Irving LSO# 50035U Tel: 416.862.4733 [email protected]

Andrea Lockhart LSO# 55444k Tel: 416.862.6829 [email protected]

Lawyers for the Applicant