NORTH OF THE BORDER UPDATE
This article has been contributed to the blog by Mary Paterson and Patrick Riesterer. Mary Paterson is an associate in the litigation group of Osler, Hoskin & Harcourt LLP and Patrick Riesterer is an associate in the insolvency and restructuring group of Osler, Hoskin & Harcourt LLP.
In the ongoing Sino-Forest insolvency saga, the Ontario Court of Appeal denied leave to appeal a trial level decision which approved, among other things: (i) a settlement of the class action against Ernst & Young LLP and (ii) a plan of compromise and arrangement in respect of Sino-Forest filed in the proceedings commenced by Sino-Forest under the Companies’ Creditors Arrangement Act (CCAA). The trial level decision was discussed in our previous post on the Sino-Forest proceedings.
The appellants opposed the third party release provided to Ernst &Young for all claims against it relating to its role as auditor of Sino-Forest and the denial of the appellants’ right to opt out of the settlement, a right they may have had if the classification had not been overtaken by the CCAA proceedings.
Appeals in CCAA proceedings
There is no right to appeal an order made under the CCAA; instead, appeals are granted by leave of the court of appeal in the relevant jurisdiction. In considering the appellant’s request, the Ontario Court of Appeal reviewed the test for granting leave to appeal in CCAA proceedings and observed that the court must consider the following four factors before granting leave to appeal:
(1) whether the point on appeal is of significance to the practice;
(2) whether the point raised is of significance to the action itself;
(3) whether the appeal is prima facie meritorious or, on the other hand, whether it is frivolous; and
(4) whether the appeal will unduly hinder the progress of the action.
The Court of Appeal observed that leave to appeal is to be granted sparingly and only where there are serious and arguable grounds that are of real and significant interest to the parties. The factors also require a court to consider whether the point at issue has an abiding interest to the practice or to the industry.
The Ontario Court of Appeal refused to grant leave to appeal, finding that the trial judge had considered all of the relevant tests when approving the settlement and noted that hearing the appeal would entail retrying previously settled law. The Court found that there was no basis for challenging the trial judge’s conclusion that the settlement was fair and reasonable, provided substantial benefits to relevant stakeholders and was consistent with the purpose and spirit of the CCAA. Leave to appeal was therefore refused.
This decision shows the level of deference appellate courts will show to trial judges presiding over CCAA proceedings. Appellate courts tend to defer to trial judges in CCAA proceedings because CCAA proceedings are fast-moving cases that often require urgent decisions. The courts of appeal have interpreted the leave provision in the CCAA as expressing Parliament’s intention that most decisions should be made by the supervising judge, who is most familiar with the case and the interests of the various stakeholders. Appellate courts have often cited the same four factors when considering leave applications in CCAA matters. While it may not always be necessary to demonstrate that all of the factors favour hearing an appeal, the stringent test described by the Ontario Court of Appeal in this case indicates that the courts of appeal will interfere with a trial level decisions only in cases where an appeal is clearly warranted.
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