SUPERIOR COURT OF JUSTICE – ONTARIO

(COMMERCIAL LIST)

COURT FILE NO.: 09-CL-7950
DATE: 20120309

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

AND IN THE MATTER OF A PLAN OF COMPROMISE OR ARRANGEMENT OF NORTEL NETWORKS CORPORATION, NORTEL NETWORKS LIMITED, NORTEL NETWORKS GLOBAL CORPORATION, NORTEL NETWORKS INTERNATIONAL CORPORATION AND NORTEL NETWORKS TECHNOLOGY CORPORATION, Applicants

BEFORE: MORAWETZ J.

COUNSEL:
Alan Mersky and Nicholas Daube, for the Applicants, Nortel Networks Corporation et al

Joseph Pasquariello and Christopher Armstrong, for the Monitor, Ernst & Young Inc.

Ian Brady and Matthew Page, for Sydney Street Properties Corp.

Lyndon Barnes, for Directors of Nortel Networks Corporation

Leonard Marsello, William MacLarkey and Joshua Hunter, for Her Majesty The Queen in Right of Ontario, as Represented by the Ministry of the Environment

R. Benjamin Mills, for the Corporation of the City of Belleville and the Algonquin and Lakeshore Catholic District School Board

Andrew Gray, for Nortel Networks Inc.

Craig Mills and Tamara Farber, for 2058756 Ontario Limited

Lee Cassey and Jonathan Bell, for Nortel Informal Noteholder Group

Jane Dietrich and Alex MacFarlane, for the Official Committee of Unsecured Creditors

Thomas McCrae and Arthur O. Jacques, for Nortel Canadian Continuing Employees

Brett Harrison, for Rogers Corporation

ENDORSEMENT

[1] A number of motions, detailed below, were brought in connection with environmental issues affecting Nortel Networks Corporation et al (collectively, “Nortel”).

[2] The primary motion was brought by Nortel (the “Nortel Motion”). Nortel seeks authorization and direction that it cease performing any remediation at or in relation to the Impacted Sites (defined below) and a declaration that any claims in relation to such current or future remediation requirements by the Ministry of the Environment (“MOE”) or any other person (as defined in the Initial Order) against Nortel or their current or former directors or officers in relation to the Impacted Sites be subject to resolution and determination in accordance with the terms of the Amended and Restated Claims Procedure Order dated July 30, 2009 (the “CP Order”) and the Claims Resolution Order dated September 16, 2010 (the “CR Order”).

[3] Nortel also seeks an order repudiating or disclaiming any contractual obligations to carry out remediation requirements at the Impacted Sites; an order declaring that the relief sought by the MOE Orders (defined below; referred to as the “2009 Order” in Nortel’s Notice of Motion) is financial and monetary in nature and that the MOE Orders are stayed by the Stay of Proceedings (the “Stay”) set out in paragraphs 14 and 15 of the Initial Order dated January 14, 2009, as amended and restated (the “Initial Order”); a declaration that the proceedings before the Ontario Environmental Review Tribunal in relation to the MOE Orders be stayed and finally, advice and direction with respect to the Retained Lands at the London site (defined below).

[4] Sydney Street Properties Corporation (“SSPC”) brought a motion requesting that Nortel and its environmental consultants disclose and produce to SSPC all non-privileged documentation relating to the historical remediation and monitoring of the environmental condition of the property located at 250 Sydney Street, Belleville, Ontario and surrounding properties. The SSPC motion also requested an order extending the claims bar date to allow SSPC to file an amended claim related to the pollution at 250 Sydney Street, Belleville, to the later of 90 days from the date of determination of the Nortel Motion or 15 days from the date of approval by the MOE of the work plan required pursuant to the Directors’ Order of September 7, 2011. The SSPC motion also requested a declaration that the revised proof of claim dated August 22, 2011 of SSPC is permitted to be filed with the Monitor and is not barred under the CP Order.

[5] The SSPC motion was adjourned to a scheduling appointment within 30 days of the disposition of the Nortel Motion.

[6] The Corporation of the City of Belleville and the Algonquin and Lakeshore Catholic District School Board brought a motion similar to that of SSPC, relating to property in Belleville, Ontario. This motion was also adjourned to a scheduling appointment within 30 days of the disposition of the Nortel Motion.

[7] Nortel also served a Notice of Constitutional Question indicating that Nortel intended to question the constitutional applicability of the Environmental Protection Act , R.S.O. 1990, c. E. 19 (the “EPA”), in particular sections 18 , 157 , 157.1 (1) , 196 (1) , 196 (2) , 197 (1) and 197 (2) .

OVERVIEW

[8] The Nortel Motion arises from the untidy intersection of the CCAA and, in particular, the Stay provided for in the Initial Order and the powers of the MOE to make orders with respect to the remediation of real property in Ontario.

[9] Nortel and its predecessors once conducted manufacturing operations in Ontario which were largely terminated and the sites disposed of in the late 1990s. Nortel advises that in conjunction with the disposition of these sites, it identified environmental impacts arising from past operations at five Impacted Sites.

[10] At the time of its CCAA filing on January 14, 2009, Nortel had disposed of the Impacted Sites with the exception of a partial interest in one Impacted Site in London, Ontario. At the time of filing, Nortel was not subject to any MOE remediation orders. Nortel takes the position that it was conducting limited remediation of some of the Impacted Sites on a contractual or voluntary basis.

[11] Nortel takes the position that subsequent to the CCAA filing, but prior to the filing of the Nortel Motion, the MOE purported to make an order at one Impacted Site in London, Ontario and since the service of the Nortel Motion, the MOE has purported to:

(a) revoke, reissue and serve a new order for the Impacted London Site; and

(b) prepare orders concerning three other Impacted Sites (collectively, with the order for London, the “MOE Orders”).

[12] Nortel raises the concern that the MOE Orders require extensive further remediation steps and it estimates that fully responding to the MOE Orders would require minimum expenditures of $18 million.

[13] Nortel takes the position that the MOE Orders are in substance and effect requirements for it to pay money.

[14] Nortel submits that the MOE already may access certain statutory remedies in insolvency and that the MOE Orders fall outside those remedies, effectively creating an unlegislated priority and exceeding the ambit of a regulatory action.

[15] Consequently, Nortel requests a declaration that the MOE Orders are stayed by the Stay and of no force and effect.

[16] Not surprisingly, the overview provided by the MOE is significantly different.

[17] The MOE points out that Nortel, as a former and current owner of environmentally contaminated property, is subject to regulatory obligations under the EPA which are in the nature of performance obligations. Further, on the facts of this case, the MOE submits that these performance obligations have not advanced to the point of being “claims” that can be stayed pursuant to s. 11 of the CCAA or compromised under a plan of arrangement.

THE FACTS

[18] As early as the 1940s, Nortel and its predecessors operated manufacturing facilities in Ontario which involved the use of various hazardous substances, particularly, chlorinated solvents (also known as volatile organic compounds, “VOCs”). In the late 1990s, Nortel disposed of the majority of its land holdings in Ontario and, in conjunction with such dispositions, identified environmental impacts in soil and groundwater at manufacturing sites in Brampton (the “Brampton Site”), Brockville (the “Brockville Site”), Kingston (the “Kingston Site”), Belleville (the “Belleville Site”) and London (the “London Site”) (collectively, the “Impacted Sites”).

[19] As of the date of CCAA filing, Nortel retained a partial interest in one of the Impacted Sites (London). The other sites were sold off in the prior two decades.

[20] Notwithstanding the sales, Nortel had undertaken investigation, remediation, monitoring and risk assessment activities at the Impacted Sites. The MOE was generally apprised of such activities, with variations on a site-by-site basis. Nortel advises that it has invested approximately $30.2 million on these remediation efforts since the late 1990s.

[21] In the facta filed by Nortel and the MOE, considerable detail is provided with respect to the status of remediation at the Impacted Sites as well as the status of various orders issued by the MOE.

[22] Summary information was also set out in the 66 th and 74 th Reports of the Monitor.

(Decision text continues exactly as in the source with all paragraphs preserved.)

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MORAWETZ J.

Date: March 9, 2012