Court of Appeal for Ontario

Ravelston Corp. (Re)

Date: 2005-11-10

Docket: CA M33075, CA M33076, CA M33049, CA C44249

Counsel: Alan H. Mark, Edward Greenspan for Conrad Black Robert Staley for Hollinger International Inc. Derek Bell for Hollinger Inc. Alex MacFarlane for R.S.M. Richter Inc.

Doherty J.A.:

I

[1] The receiver, R.S.M. Richter Inc. ("Richter") seeks an order quashing an appeal brought by Lord Conrad Black ("Black") as of right from the order of Farley J. Black resists the motion to quash and, by way of alternative, seeks leave to appeal the order of Farley J. Black's application for leave to appeal need be considered only if Richter successfully quashes Black's appeal.

[2] I would hold that Black does not have a right of appeal and would quash his appeal. I would refuse leave to appeal.

II

[3] In April 2005, Ravelston Corporation Limited ("RCL") was placed into receivership in proceedings taken under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 ("BIA") and the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 ("CCAA"). Richter was appointed receiver/monitor with wide powers to manage the affairs of the company. In making the order, Farley J. indicated that Black and others had resigned as officers and directors of RCL and that the objective of the proceedings was to place RCL (and associated entities) under the control of a court appointed officer:

The draft orders are to be adjusted to make it absolutely clear that the old guard (Black and Radier — and any other officer and director including Messrs. White and Boultbee) are "out" — out in the sense of not being able to, directly or indirectly, pull any of the strings and that Richters as an officer of the court, responsible to the court and the stakeholders of the applicants, is "in" — in in the sense of being able to pull all the strings and thereby direct the fortunes, business and affairs of the applicants.

[4] Richter has filed a series of reports with the Superior Court summarizing its activities since April 2005. Various stakeholders have raised issues before Farley J. and he has made several orders in the course of his ongoing supervision of the insolvency proceedings.

[5] On August 18, 2005, a federal grand jury in Chicago, Illinois indicted RCL and others on fraud charges. RCL has no assets or place of business in the United States. It is currently engaged in civil litigation in Illinois. In its Ninth Report filed on September 16, 2005, Richter outlined the issues raised by the criminal proceedings against RCL in federal court in the United States and advised Farley J. that it needed more time to formulate recommendations as to what steps, if any, RCL should take in response to the indictment.

[6] On September 28, 2005, Richter filed its Tenth Report with Farley J. That report contains a detailed examination of the legal, practical and "special" considerations that Richter had evaluated in formulating RCL's proposed response to the criminal charges in the United States federal court. Richter concluded that it should accept service of the summons in the criminal proceedings on RCL's behalf, voluntarily appear in those proceedings and plead not guilty to the charges. Richter set out several reasons for its recommendation. It then moved before Farley J. for an order allowing it to accept service of the summons, appear in the U.S. federal court, and enter a not guilty plea on behalf of RCL. Richter was supported on the motion by various stakeholders, including Hollinger International Inc. and Hollinger Inc. Black, whose control over RCL had been terminated by the receivership, but who remained a shareholder and creditor, opposed the receiver's motion. His was the only opposition.

[7] On the motion, counsel for Black argued that under the terms of the relevant American "long arm" statute, RCL could not be served with a criminal summons because RCL had no place of business in the United States. Counsel further contended that absent proper service of the summons on RCL, the U.S. federal court had no jurisdiction to proceed against RCL. Counsel urged Farley J. to find that it could not be in the best interests of any of the RCL stakeholders for RCL to attorn to the federal court's jurisdiction, thereby opening itself to potential additional criminal charges and massive penalties, when under the applicable American statute, the American criminal court could not exercise jurisdiction over RCL absent attornment.

[8] The Tenth Report prepared by Richter was the only material before Farley J. on the motion. As I understand the submissions before Farley J., no objection was taken to the facts outlined in the report or the relevance of the various factors identified by Richter in reaching its conclusion as to the appropriate response by RCL to the American indictment.

[9] Farley J. made the order sought by Richter. In doing so, he said:

The Receiver has had the opportunity of a thorough analysis, assisted by its Canadian counsel, but importantly by its U.S. counsel, and it has concluded that on balance it would be appropriate to attorn and plead not guilty; and further that that would be the right and proper thing to do and that it would likely be to the advantage of the estate. I see no reason to quarrel with or second guess that considered analysis …

[10] Black appealed the order of Farley J. He relied on s. 193(a) of the BIA, which provides a right of appeal from an order "if the point at issue involves future rights". Alternatively, if s. 193(a) was inapplicable, Black applied for leave to appeal under s. 193(e) of the BIA.

[11] Pursuant to s. 195 of the BIA, the filing of the Notice of Appeal stayed the order under appeal. If Black is found not to have a right of appeal, but is granted leave to appeal, the granting of leave also stays the order. RCL has not yet attorned to the jurisdiction of the U.S. federal criminal court.

III

The motion to quash

[12] Richter, supported by Hollinger Inc. and Hollinger International Inc., argues that the order of Farley J. does not involve future rights and therefore does not provide an automatic right of appeal pursuant to s. 193 (a). If Richter's submission is correct, the appeal must be quashed for want of jurisdiction.

[13] In addition to a right of appeal where the issue "involves future rights" under s. 193(a), ss. 193(b), (c) and (d) provide a right of appeal in a variety of other circumstances. Black does not rely on any of these provisions and I need not set them out here. There does not appear to be any unifying principle underlying the situations in which an appeal lies as of right via s. 193 of the BIA.

[14] The specific rights of appeal granted under s. 193 of the BIA are combined with s. 193(e), which provides for appeals where leave is granted by a judge of the Court of Appeal. Leave may be granted from any order made under the BIA on any ground.

[15] By combining limited specific rights of appeal with a broad power to appeal with leave, s. 193 of the BIA both allows access to the appeal court on meritorious appeals and limits the availability of multiple appeals in ongoing insolvency proceedings where those appeals would inevitably delay and fracture the proceedings.

[16] The BIA does not provide any definition of the phrase "future rights". As with any exercise in statutory interpretation, the words must be read in their entire context, in their grammatical and ordinary sense, and in keeping with the scheme and object of the Act: Rizzo & Rizzo Shoes Ltd., Re (1998), 154 D.L.R. (4th) 193 (S.C.C.) at para. 21; Bell ExpressVu Ltd. Partnership v. Rex (2002), 2002 SCC 42, 212 D.L.R. (4th) 1 (S.C.C.) at para. 26.

[17] Earlier cases such as Amalgamated Rare Earth Mines Ltd. (No. 2), Re (1958), 37 C.B.R. 228 (Ont. C.A.) that would give the phrase "future rights" a "wide and liberal interpretation" are inconsistent with the contemporary approach to statutory interpretation. These cases also take the interpretation of "future rights" from earlier insolvency cases. Those earlier cases were, however, interpreting insolvency legislation that did not grant any right of appeal from orders made in insolvency proceedings, but only provided for appeal with leave from specific orders, including orders "involving future rights". It was within the context of statutory provisions that provided only a limited right of appeal with leave that the courts gave a wide and generous reading to the phrase "future rights". Any other reading could have closed the appeal court door on many meritorious appeals. Under the scheme of appeals set out in the present B1A, there is no need to give the phrase "future rights" a broad meaning to ensure that meritorious appeals can be heard.[^1]

[18] The meaning of the phrase "future rights" is not obvious. Caselaw holds that it refers to future legal rights and not to procedural rights or commercial advantages or disadvantages that may accrue from the order challenged on appeal: Ditchburn Boats & Aircraft (1936) Ltd., Re (1938), 19 C.B.R. 240 (Ont. C.A.), at 242; Dominion Foundry Co., Re (1965), 52 D.L.R. (2d) 79 (Man. C.A.), at 84. Rights that presently exist, but may be exercised in the future or altered by the order under appeal are present rights and not future rights: Simonelli v. Mackin (2003), 2003 ABCA 47, 320 A.R. 330 (Alta. C.A. [In Chambers]) at paras. 9-11 (C.A., Wittmann J.A. in chambers); Fiber Connections Inc. v. SVCM Capital Ltd. (2005), 10 C.B.R. (5th) 201 (Ont. C.A. [In Chambers]) at paras. 11-12 (Ont. C.A., Armstrong J.A. in chambers); Devcor Investment Corp., Re (2001), 2001 ABCA 40, 277 A.R. 93 (Alta. C.A.) at para. 7 (C.A., Picard J.A. in chambers).

[19] A definition of the phrase "future rights" appears in the judgment of McGillivray C.J.A. in Elias v. Hutchison (1981), 1981 ABCA 31, 121 D.L.R. (3d) 95 (Alta. C.A.), at 100-101:

A right in a legal sense exists when one is entitled to enforce a claim against another or to resist the enforcement of a claim advanced by another. A present right exists presently: a future right is inchoate in that while it does not now exist, it may arise in the future. For the adjective "future" to have any meaning, it cannot refer to that which presently exists. …

To give "future" the meaning that includes that which a litigant may obtain by success in litigation in the future is to say that a right of appeal exists in all cases. Any claim advanced is, in that sense, a future right to a judgment which does not yet exist. It would seem to me for para, (a) of s. 163 [now 193] to have any meaning that it must refer to rights which could not at the present time be asserted but which will come into existence at a future time

[emphasis added].

Elias has been repeatedly cited with approval in various appellate courts: see e.g. TFP Investments Inc. (Trustee of) v. Singhal (1991), 44 O.A.C. 234 (Ont. C.A.), at 236 (Catzman J.A. in chambers).

[20] Black does not argue that the order of Farley J. involves the future rights of RCL. That order directs RCL to attorn to the jurisdiction of the American court and to plead not guilty to the outstanding indictment. RCL clearly had the right to appear in answer to the criminal allegations and enter a plea after the grand jury had returned the indictment against RCL. The order of Farley J. does not affect RCL's future rights, but rather tells RCL how it should exercise its present rights.

[21] Counsel for Black also does not argue that his future rights are affected by the order.

[22] Counsel does argue that the future rights of the American prosecutor (the U.S. Attorney) who Farley J. has held to be a stakeholder in the insolvency proceedings, are affected by the order. Counsel contends that the U.S. Attorney presently has no right to proceed against RCL in the U.S. criminal proceedings, but that an order directing RCL to attorn would give the U.S. Attorney the right to proceed against RCL in the future.

[23] The order of Farley J. may impact on the right of the U.S. Attorney to proceed against RCL, but it does not involve any future right of the U.S. Attorney. The U.S. Attorney's rights against RCL, including its right to proceed if RCL attorns to the jurisdiction, existed when Farley J. made his order. His order may remove an impediment to the U.S. Attorney's proceeding against RCL, but that does not make the U.S. Attorney's right to proceed a future right. I would analogize this to a situation where a litigant needs leave to pursue a civil proceeding in the insolvency context. An order granting leave does not create the right to sue which existed all along, but merely removes an impediment to the exercise of that right: see Simonelli, supra, at paras. 9-11.

[24] As I have rejected the submission that the order of Farley J. involves the future rights of the U.S. Attorney, I need not decide whether Black can rely on the future rights of another stakeholder to gain a right of appeal. I leave that question for another day.

[25] The order of Farley J. does not involve future rights. The appeal must be quashed.

IV

The leave to appeal application

[26] Having concluded that Black has no right of appeal, I turn to his application for leave to appeal. In seeking leave, Black argues that Farley J.'s exercise of his discretion directing RCL to attorn to the jurisdiction of the American court was based on a misinterpretation of the relevant American statute. He contends that the proper interpretation of that statute raises a significant legal question upon which leave to appeal should be granted under s. 193(e) of the BIA.

[27] As indicated above, s. 193(e) permits leave to appeal from any order on any issue that the court determines warrants leave to appeal. There are no statutory criteria governing the granting of leave. Appellate courts, using different formulations, have identified various factors that should be addressed when deciding whether to grant leave under s. 193(e) of the BIA. The cases recognize, however, that the granting of leave to appeal is an exercise in judicial discretion that must be case-specific, and cannot be completely captured in any single formulation of the relevant criteria: see e.g. Baker, Re (1995), 22 O.R. (3d) 376 (Ont. C.A. [In Chambers]), at 381 (C.A., Osborne J.A. in chambers); Fiber Connections Inc. v. SVCM Capital Ltd., supra, at para. 19; GMAC Commercial Credit Corp. - Canada v. T.C.T. Logistics Inc., [2003] O.J. No. 5761 (Ont. C.A. [In Chambers]) (C.A., Feldman J.A. in chambers).

[28] The inquiry into whether leave to appeal should be granted must, however, begin with some consideration of the merits of the proposed appeal. If the appeal cannot possibly succeed, there is no point in granting leave to appeal regardless of how many other factors might support the granting of leave to appeal.

[29] A leave to appeal application is not the time to assess, much less decide, the ultimate merits of a proposed appeal. However, the applicant must be able to convince the court that there are legitimately arguable points raised so as to create a realistic possibility of success on the appeal. Granting leave to appeal if the merits fall short of even that relatively low bar would be a waste of court resources and would needlessly delay and complicate insolvency proceedings.

[30] In Canadian Airlines Corp., Re (2000), 2000 ABCA 149, 261 A.R. 120 (Alta. C.A. [In Chambers]) at para. 35, Wittmann J.A. (in chambers) was faced with an application for leave under the CCAA. He referred to earlier cases which had listed four criteria for the granting of leave, one of which was that "the appeal is prima facie meritorious". He described the necessary merits inquiry in this way:

… There must appear to be an error in principle of law or a palpable and overriding error of fact. Exercise of discretion by a supervising judge, so long as it is exercised judicially, is not a matter for interference by an appellate court, even if the appellate court were inclined to decide the matter another way. It is precisely this kind of a factor which breathes life into the modifier "prima facie" meritorious.

[31] I think the same level of merits inquiry is warranted on an application for leave to appeal under the BIA. I would describe an appeal which raises an apparent error in law or apparent palpable and overriding factual error as an appeal that has a realistic possibility of success.

[32] The court need address the other matters relevant to the exercise of its discretion on a leave to appeal application only if the applicant demonstrates that the appeal has prima facie merit. I do not reach those other considerations on this motion.

[33] Black's proposed appeal focuses on two aspects of the reasons of Farley J. He submits that Farley J. erred in holding that the applicable U.S. federal legislation contemplated service of a summons in a criminal matter on RCL even though RCL had no assets or a place of business in the United States. Black also contends that at most, Farley J. should have directed Richter to enter an appearance in the federal court in the United States solely for the purpose of contesting the jurisdiction of that court. An appearance limited to the jurisdictional issue would have permitted RCL to determine whether in fact the American court had jurisdiction without attorning to that jurisdiction.

[34] The federal prosecutor's right to effect service of a summons on RCL in Canada was canvassed in Richter's Tenth Report:

The Receiver has been unable to determine the existence of any U.S. judicial decision that confirms the effectiveness of service of a summons outside the United States. Given the language of the Federal Rules of Criminal Procedure 4(c) (Fed. R. Crim. P. 4(c)), the uncertainty of the language of the MLAT [Mutual Legal Assistance in Criminal Matters Treaty], the absence of any apparent practice of serving an originating process for criminal prosecution under the MLAT, and the lack of any U.S. caselaw to support effective service ex juris of an originating criminal process, it appears to the Receiver that the U.S. Attorney's Office would have significant difficulty effecting service, in Canada, on the Receiver or RCL

[emphasis added]. …

[35] Richter did not put forward a definitive interpretation of the relevant U.S. legislation. Nor did it rest its advice that RCL should attorn to the U.S. federal jurisdiction on its interpretation of any American legislation. Richter referred to the possibility of service under the legislation, and to several other possible ways that a U.S. federal court might find that it had jurisdiction over RCL. Richter concluded that the question of the court's criminal jurisdiction over RCL raised several difficult legal issues that would have to be litigated to be resolved. Richter believed that the litigation would be lengthy and expensive and the outcome uncertain.

[36] Richter did not limit its analysis to the possible bases upon which the U.S. prosecutor might successfully assert that the U.S. federal court had jurisdiction over RCL. Richter considered practical factors including the benefits that might inure to RCL through cooperation with the U.S. authorities. Richter also addressed what it called "special circumstances" that arose because of Richter's status as a court appointed receiver. When referring to these "special considerations", Richter observed:

A receiver has a further duty to consider and respect the interests of comity between this Honourable Court and the U.S. Court, and the public's interest in the administration of justice generally.

[37] Black argues that Farley J. misconstrued the American legislation that provides for the service of a summons on a corporation in a criminal matter. Black contends that on a plain reading of the statute and its accompanying commentary, it is crystal clear that since RCL had no place of business in the United States, it could not be served with a summons requiring it to appear in a criminal proceeding in federal court in the United States. Black maintains that Farley J. found that RCL could be served under the relevant statute and that this led him to accept Richter's recommendation that RCL should attorn to the American jurisdiction.

[38] Farley J. did not decide whether RCL could be served with a summons under the relevant American legislation. He referred to counsel for Black's interpretation of the legislation and identified what he considered to be weaknesses in the argument advanced by counsel. He did not ultimately accept or reject counsel's contention.

[39] It was unnecessary for Farley J. to come to any conclusion as to the proper meaning of the American legislation. He based the exercise of his discretion on the absence of any reason to "quarrel with or second guess" Richter's analysis. That analysis included, but was not limited to, Richter's assessment of the U.S. Attorney's ability to effectively summons RCL in answer to the charges. Farley J. did not make the order he did because he was satisfied that RCL could be properly summonsed under the American legislation, but because he was satisfied that Richter had done its job as the court appointed receiver and there was no reason for the court to interfere with Richter's judgment as to RCL's best course of conduct.

[40] Receivers do not often have to decide whether to attorn to the criminal jurisdiction of a foreign court on behalf of those in receivership. While the specific decision Richter had to make was an unusual one, it was not essentially different from many decisions that receivers must make. Receivers will often have to make difficult business choices that require a careful cost/benefit analysis and the weighing of competing, if not irreconcilable, interests. Those decisions will often involve choosing from among several possible courses of action, none of which may be clearly preferable to the others. Usually, there will be many factors to be identified and weighed by the receiver. Viable arguments will be available in support of different options. The receiver must consider all of the available information, the interests of all legitimate stakeholders, and proceed in an evenhanded manner. That, of course, does not mean that all stakeholders must be equally satisfied with the course of conduct chosen by the receiver. If the receiver's decision is within the broad bounds of reasonableness, and if it proceeds fairly, having considered the interests of all stakeholders, the court will support the receiver's decision. Richter's Tenth Report demonstrates that it fully analyzed the situation at hand before arriving at its decision as to RCL's best course of conduct.

[41] The second argument made by Black that Farley J. should have at least limited RCL's appearance to a challenge of the American federal court's jurisdiction fails for the same reason as his first argument. Richter was aware of this option. The determination that RCL should attorn and plead not guilty reflected its considered opinion that RCL had much to lose should it engage in and ultimately lose a jurisdictional fight with the U.S. Attorney. Richter also properly took into account its court appointed status in deciding against a jurisdictional battle with the U.S. Attorney. Finally, Richter weighed the views expressed by other stakeholders, particularly Hollinger Inc. and Hollinger International, the principal stakeholders. All stakeholders save Black wanted RCL to attorn to the American jurisdiction.

[42] I see no viable argument that Farley J. erred in principle in the exercise of his discretion. There is no realistic possibility that Black could succeed on appeal were leave to appeal granted. I would refuse leave to appeal.

V

Conclusion

[43] I would quash the appeal brought by Black and refuse leave to appeal.

[44] The successful parties, Richter, Hollinger Inc., and Hollinger International, are entitled to their costs on a partial indemnity basis. As the two motions were closely related, one order of costs is appropriate. Counsel for the successful parties will have five days from the release of these reasons to provide written submissions of no more than five pages. Black will have five days from receipt of those submissions to respond with written submissions of no more than five pages.

S. Borins J.A.:

I agree

H.S. LaForme J.A.:

I agree

Application granted.

[^1]: The earlier insolvency legislation which provided for leave to appeal from orders involving future rights was in issue in Clarke v. Union Fire Insurance Co. (1886), 13 O.A.R. 268 (Ont. C.A.), at 294 -95; J. McCarthy & Sons Co., Re (1916), 32 D.L.R. 441 (Ont. C.A.), at 442 -43. Those cases were in turn cited with approval in cases such as Amalgamated Rare Earth Mines Ltd. (No. 2), Re, supra, without reference to the important difference in the rights of appeal created by the relevant legislation.