COURT OF APPEAL FOR ONTARIO

CITATION: Nortel Networks Corporation (Re), 2013 ONCA 518

DATE: 20130815

DOCKET: M42159

Laskin, Rosenberg and Tulloch JJ.A.

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

And in the Matter of a Plan of Compromise or Arrangement of Nortel Networks Corporation, Nortel Networks Limited, Nortel Networks Global Corporation, NORTEL NETWORKS INTERNATIONAL CORPORATION and Nortel Networks Technology Corporation

Application under the Companies’ Creditors Arrangement Act, R.S.C. 1985, C. C-36, As Amended

Alan D’Silva, Ellen M. Snow and Ingrid Minott, for Chartis Insurance Company of Canada

Lyndon A.J. Barnes, for the Boards of Directors of Nortel Networks Corporation and Nortel Networks Limited

Gavin H. Finlayson, for the Canadian Lawyers for The Informal Nortel Noteholder Group

R. Shayne Kukulowicz, for the Canadian Lawyers for the Official Committee of Unsecured Creditors

Barbara Walancik, for the Former Employees of Nortel

Robin B. Schwill, for the Joint Administrators of Nortel Networks UK Limited

Joseph Pasquariello, for the Monitor, Ernest & Young Inc.

Thomas McRae, for Nortel Canadian Continuing Employees

Alan Merskey, for the Applicants

Scott A. Bomhof, for Nortel Networks Inc.

Considered in writing on: June 10, 2013

Application for leave to appeal the order of Justice Geoffrey B. Morawetz of the Superior Court of Justice, dated November 16, 2012, with reasons reported at 2012 ONSC 5653.

ENDORSEMENT

[1] The applicant, Chartis Insurance Company of Canada, seeks leave to appeal the order of the motion judge that it is required to pay the legal fees of Nortel’s executives in respect of two proceedings without reference to the ten million dollar retention amount or the directors and officers trust fund.

[2] The motion judge held that Nortel Networks Corporation was subject to a pre-filing obligation to indemnify its directors and officers for their legal fees, but that it was precluded from doing so by the CCAA stay of proceedings. He interpreted the directors’ and officers’ insurance policy to mean that the retention amount did not apply, because payment was not “permitted”. Therefore the insurer, Chartis, was required to indemnify the directors and officers now and not after the $10 million retention amount was depleted. He also interpreted the trust indenture to mean that the trustee of the $12 million trust account for the benefit of the directors and officers had full discretion as to whether to provide access to the trust funds. He was of the view that to permit Chartis to access those funds would be to improperly elevate Chartis over other unsecured creditors.

[3] Chartis argues that the motion judge erred in finding the indemnification to be a pre-filing claim and therefore subject to the stay. Had he found that the obligation continued after the stay, he would have found that the retention amount applied. Chartis also argues that the motion judge erred in his interpretation of the trust indenture, in that the liability claims should be paid out of the trust.

[4] In our view, the motion judge’s finding that the indemnification was a pre-filing claim and that allowing access to the trust would improperly elevate Chartis’ priority were findings that were squarely within his expertise and entitled to deference. They involved the interpretation of his own Initial Order. His legal analyses of the directors and officers insurance policy and the trust indenture were not shown to contain any prima facie errors. These issues are specific to this case and not of broader interest to the practice or the public.

[5] In a CCAA proceeding, leave to appeal is granted sparingly and only where there are serious and arguable grounds of significant interest to the parties. The applicant has not succeeded in meeting the stringent test for leave to appeal as set out in Re Timminco Ltd., 2012 ONCA 552, at paras. 2-3.

[6] The moving party included an unsealed affidavit in the moving party’s Motion Record that was not before the motion judge. Fresh evidence on motions for leave to appeal is not admissible as of right. On a motion for leave from Divisional Court, it is only admissible with leave of the court and then only for a limited purpose. Weiler J.A. set out the appropriate procedure to follow for tendering fresh evidence on motions for leave to appeal in Iness v. Canada Mortgage and Housing Corp. (2002), 2002 CanLII 15707 (ON CA), 62 O.R. (3d) 255 (C.A.), at para. 15:

[T]he party seeking to adduce evidence on the matter of public importance should file a motion to admit evidence on the matter and a supporting affidavit with the application for leave to appeal. Similarly, any response to the affidavit should be filed with the responding materials on the leave motion. The panel hearing the application for leave to appeal would then consider the motion to admit the evidence on the issue of public importance when considering the leave application. Motions to strike affidavits and motions to cross-examine on such affidavit material would properly be made to the chambers judge.

[7] The moving party did not bring a motion for leave to admit the fresh evidence. The respondents did not bring a motion to strike, but the applicants below and the Monitor objected to its admissibility before the panel. The parties have not provided any submissions on the test to be applied on a motion for fresh evidence on an application for leave to appeal in CCAA proceedings. In the circumstances, we think it preferable to deal with the question of the appropriate test for fresh evidence on a motion in which the issue has been fully argued.

[8] Given that there was no motion for leave to admit the fresh evidence, it was not considered.

[9] Leave to appeal is denied.

[10] Costs are awarded to the three groups of responding parties as follows: $3,000 to the applicants below (the Nortel companies) and the Monitor (who filed joint materials), $1,000 to the former directors and officers of Nortel, and $1,000 to Nortel Networks Inc. and the other U.S. Debtors and the Official Committee of Unsecured Creditors (who filed joint materials).

“J.I. Laskin J.A.”

“M. Rosenberg J.A.”

“M.H. Tulloch J.A.”