DATE: 20010220

DOCKET: C33186

COURT OF APPEAL FOR ONTARIO

RE: IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c.C-36, AS AMENDED;

AND IN THE MATTER OF COURTS OF JUSTICE ACT, R.S.O. 1990, c.C-43, AS AMENDED;

AND IN THE MATTER OF THE BANKRUPTCY AND INSOLVENCY ACT, R.S.C. 1985, c.B-3, AS AMENDED;

AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF ROYAL OAK MINES INC. AND THE APPLICANTS LISTED ON SCHEDULE “A”;

APPLICATION UNDER THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c.C-35, AS AMENDED AND THE BUSINESS CORPORATIONS ACT, R.S.O. 1990, c.B-16, AS AMENDED.

BEFORE: OSBORNE A.C.J.O., AUSTIN AND LASKIN JJ.A.

COUNSEL: Steven Barrett and Michael Kainer for the appellants the United Steelworkers of America and Canadian Autoworkers Union

Kevin McElcheran and Steven J. Weisz for the respondent PricewaterhouseCoopers Inc., interim receiver

Peter H. Griffin for the respondents Trilon Financial Corporation and Northgate Exploration Limited

HEARD: November 27 and 28, 2000

On appeal from the order of Justice James M. Farley, sitting without a jury, dated November 11, 1999.

E N D O R S E M E N T

[1] The appellants are the United Steelworkers of America (“USA”) and the Canadian Autoworkers Union (“CAW”). They represent respectively the employees of Royal Oak Mines Inc. and related companies (“Royal Oak”) at mines in Ontario and in the North West Territories. The appellants are collectively referred to as “the unions”.

[2] They appeal from the order of Farley J. of November 11, 1999 dismissing their motion to vary his order of April 16, 1999.

[3] These proceedings occurred in the context of the financial troubles of Royal Oak. By February, 1999 claims against Royal Oak exceeded $600,000,000. On February 15, 1999 it sought and was granted an order under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c.C-36, as amended (the “CCAA”), protecting it from creditors and staying proceedings against it. The same order appointed PricewaterhouseCoopers Inc. (“PwC”) as monitor of Royal Oak.

[4] By April 1999, the affairs of Royal Oak were such that it, as well as some of its creditors, applied for and were granted the appointment of PwC as interim receiver of Royal Oak under the Bankruptcy and Insolvency Act, R.S.C. 1985, c.B-3 (the “BIA”) s. 47. The order was made by Farley J. on April 16, 1999.

[5] This order is very specific in defining PwC’s role, powers and duties. PwC was in effect to guide and control Royal Oak but Royal Oak was to remain in possession of the mines and the employer of its employees. PwC was given “authority to receive, preserve, protect, dispose of, deal with and sell the Assets or any part thereof as PwC sees fit”.

[6] More particularly, paragraph 8 of the order provided that:

PwC shall have the power for, on behalf of, and in the name of Royal Oak, but without obligation:

(b)to manage or carry on the business and affairs of Royal Oak with respect to the Assets in the name of and on behalf of Royal Oak;

(i)if deemed necessary for the preservation and protection of the Assets, to settle and pay any claims which may be made against any member company of Royal Oak, in relation to the Assets on such terms and in such manner as PwC deems necessary or advisable;

(m)to take such steps and do such things as it may be directed by this Honourable Court;

[7] Even more particularly, paragraph 33 of the order of April 16, 1999 reads as follows:

This Court orders that PwC shall not authorize or cause Royal Oak to make any contribution to any employee pension plan without specific direction and authority of this Court.

Presumably paragraph 33 was included in the order of April 16, 1999 because of the declining financial position of Royal Oak. None of the material filed on the application in which that order was made was put before this court.

[8] No appeal was taken from the order of April 16, 1999. That order however, includes a “come back” provision that expressly invites persons concerned with its contents or with the receivership to apply to the court for relief or direction. On September 10, 1999 the unions moved pursuant to that provision for an order deleting paragraph 33, or alternatively directing PwC to remit pension benefits on behalf of the employees. The notice of motion asked as well for a declaration that in the event the employment of employees was terminated, PwC was bound to provide notice of termination in accordance with the provisions of the Employment Standards Act R.S.O. 1990 c.E-14, as amended, s.57. Failing such notice, the union sought a declaration that PwC was bound to make payment to the Ontario employees of Royal Oak in lieu of notice, regardless of the priority of such claims in relation to the claims secured and other creditors. Similar relief was asked with respect to the employees in the North West Territories.

[9] The motion was heard by Farley J. on September 20, 1999 and on November 11, 1999 he released his reasons dismissing it. The unions appeal from that dismissal.

[10] Issues were raised at the outset of argument before this court whether this appeal was brought under the CCAA or the BIA and whether or not leave was required. In our view, it is not necessary to answer either of these questions. If leave is required we would, in the circumstances, grant it.

[11] The appellants submitted that paragraph 33 was beyond the power of the court to order and, in effect, that paragraph 33 was illegal. They argued that the power of the interim receiver could not exceed the power of Royal Oak and that as Royal Oak could not legally refuse to pay the pension benefits owing under its collective agreements, the court could not authorize the interim receiver to refrain from paying them.

[12] This submission misconstrues or mischaracterizes the situation. Royal Oak sought the protection of the CCAA, because it was incapable of dealing with the claims against it. The appointment of an interim receiver was sought in April, 1999 by Royal Oak, its banker and other creditors because, as one counsel put it, Royal Oak’s management had disappeared. It was hoped that with careful management the operations could be salvaged and the mines sold to others.

[13] The interim receiver, however, had no funds with which to pay debts or with which to continue Royal Oak’s operations. Nor did Royal Oak. Work could only begin or continue, and debts could only be paid with the infusion of financial support from Trilon Financial Corporation (“Trilon”), Northgate Exploration Limited (“Northgate”) and other prospective lenders. What operations were to be continued and what debts were to be paid were decided upon in advance by PwC and then authorized by court order.

[14] The obligation to pay pension benefits was an obligation of Royal Oak under the collective agreement. That obligation was not altered by the order of April 16, 1999 because Royal Oak remained the employer. That obligation, however, was not honoured by Royal Oak for the simple reason that Royal Oak had no funds. PwC was under no obligation to pay the pension benefits; it was not the employer of the employees, nor was it the agent of Royal Oak. PwC’s obligation and liabilities, positive and negative were spelled out in the order of April 16, 1999. In our view, s. 47(2) of the BIA gave the court jurisdiction to make the order, including paragraph 33.

[15] Indeed, all that paragraph 33 of the order of April 16, 1999 did was to make it clear to the interim receiver and to others that the money being advanced by Trilon, Northgate and others was not to be applied to pension benefits without the express direction and authority of the court. Between April 16 and August 29, 1999, approximately $37,174,400. was advanced pursuant to the terms of the order of April 16, 1999 in order to keep Royal Oak in operation.

[16] It was argued that the inclusion of paragraph 33 in the order served to undermine the collective agreement which provided for the payment of pension benefits. We do not accept that submission. The benefits were not paid because Royal Oak had no funds with which to pay them and the financial support available to the receiver did not provide for such payments.

[17] In these circumstances, we see nothing whatever illegal or unlawful about paragraph 33, nor do we see any reason why Farley J. should not have made such an order in the exercise of the broad power conferred upon the court by s.47(2) of the BIA. The appeal with respect to pension benefits must therefore be dismissed.

[18] The appellant also seeks to reverse the order of Farley J. of November 11, 1999, in so far as it refused to order PwC to pay the employees their termination pay in accordance with the provisions of s. 57 of the Ontario Employment Standards Act and the North West Territories’ parallel legislation.

[19] The unions argue that because PwC is a court-appointed receiver, it owed a duty to the employees to give notice of termination of employment as required by the Ontario Act and its North West Territories equivalent. They also argue that because PwC failed to give such notice notwithstanding its court appointed status, the employees should be entitled to termination pay in priority to all others.

[20] No authority was cited to support this latter position and we are not aware of any jurisprudential support for it. In his reasons for his order of November 11, 1999 Farley J said:

What is important to consider here is that PwC was appointed as interim receiver, but it was not to operate the mines. RO continued to operate the mines. It is to RO that the employees must look to have their pension, severance and termination claims made whole. PwC in this regard is acting for and on behalf of RO. No appeal was taken. [from the order of April 16, 1999] The parties here appear to have been content to allow matters to develop as they did between them as each side felt it was in their own best interests. Now outside factors have hurt both.

[21] We agree with those comments. There is no legal basis for the order requested and the appeal in that regard must be dismissed. We should add that the financial picture to-day is not as bleak as it was at the time Farley J. made those remarks, and that the employees will probably make some recovery.

[22] Counsel for PwC conceded that neither the unions nor the employees were served with the notice of motion returnable April 16, 1999. Neither were the unions or the employees served with the resulting order. It is clear from the interim receiver’s reports to the court however that by May 1999, the interim receiver was concerned that the employees would cease work unless vacation payments were paid as they accrued. In the result the interim receiver sought and received direction from the court in June 1999 to make vacation payments.

[23] No evidence was tendered to show when paragraph 33 of the order of April 16, 1999 came to the attention of the unions or the employees. The existence of pressure from the employees with respect to vacation pay in May 1999 would suggest awareness of paragraph 33 by that time. The motion to vary however was not launched until September 10, 1999 and not heard until September 20, 1999.

[24] It was submitted on behalf of the unions that part of the delay was caused by the tardiness of the interim receiver in the production of reports about pension benefits, reports that were available in June but not produced until August or September. In view of the clarity of the language of paragraph 33 it is not apparent why such reports were necessary in order to launch a motion to vary.

[25] The timeliness of the motion to vary was relevant to its chances of success. The later it was brought, the more Trilon and other lenders had at stake because the unions were in effect asking the court to change the rules during the proceedings. Accordingly, the later it was brought, the less the motion’s chance of success in fact, whatever its legal merit might have been.

[26] The timeliness of the motion to vary may also be relevant to the matter of service of the original motion. If it took the unions from May to September to respond to paragraph 33, that example would not be likely to encourage service of an originating notice of motion the next time such an occasion arises. As a consequence we draw no conclusion from the circumstances of this case that notice should have been given to the unions or others in advance in this case or should be given in advance in future cases of similar nature.

[27] The appeal is dismissed with costs.

(signed) “C. A. A. Osborne A.C.J.O.”

(signed) “Austin J.A.”

(signed) “John Laskin J.A.”