Stelco Inc., Re, (2005) 196 O.A.C. 142 (CA)

• Judge: Goudge, Feldman and Blair, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: March 18, 2005
• Jurisdiction: Ontario
• Citations: (2005), 196 O.A.C. 142 (CA);2005 CanLII 8671 (ON CA);75 OR (3d) 5;253 DLR (4th) 109;2 BLR (4th) 238;9 CBR (5th) 135;[2005] OJ No 1171 (QL);138 ACWS (3d) 222;196 OAC 142

Stelco Inc., Re (2005), 196 O.A.C. 142 (CA)

MLB headnote and full text

Temp. Cite: [2005] O.A.C. TBEd. AP.023

In The Matter Of The Companies' Creditors Arrangement Act, R.S.C., c. C-36, as amended;

And In The Matter Of a Proposed Plan of Compromise or Arrangement with respect to Stelco Inc., and other applicants Listed in Schedule "A".

Application Under the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36 as amended

(M32289)

Indexed As: Stelco Inc. et al., Re

Ontario Court of Appeal

Goudge, Feldman and Blair, JJ.A.

March 31, 2005.

Summary:

Stelco Inc. and four of its wholly owned subsidiaries obtained protection under the Companies' Creditors Arrangement Act (CCAA). The supervising judge under the CCAA process ordered the removal of two directors from Stelco's Board. See [2005] O.T.C. 156. The directors appealed.

The Ontario Court of Appeal allowed the appeal.

Company Law - Topic 4041

Directors - Appointment or election - General - The Ontario Court of Appeal stated that "the administrative law notion of apprehension of bias is foreign to the principles that govern the election, appointment and removal of directors, and to corporate governance considerations in general. Apprehension of bias is a concept that ordinarily applies to those who preside over judicial or quasi-judicial decision-making bodies, such as courts, administrative tribunals or arbitration boards. Its application is inapposite in the business decision-making context of corporate law. There is nothing in the CBCA [Canada Business Corporations Act] or other corporate legislation that envisages the screening of directors in advance for their ability to act neutrally, in the best interests of the corporation, as a prerequisite for appointment. Instead, the conduct of directors is governed by their common law and statutory obligations to act honestly and in good faith with a view to the best interests of the corporation, and to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances (CBCA, s. 122(1)(a) and (b)). The directors also have fiduciary obligations to the corporation, and they are liable to oppression remedy proceedings in appropriate circumstances. These remedies are available to aggrieved complainants ... but they depend for their applicability on the director having engaged in conduct justifying the imposition of a remedy." - See paragraphs 74 and 75.

Company Law - Topic 4081

Directors - Removal - General - [See Company Law - Topic 4041 ].

Company Law - Topic 4082

Directors - Removal - Power to remove - [See Company Law - Topic 4276 ].

Company Law - Topic 4082

Directors - Removal - Power to remove - The Ontario Court of Appeal discussed the scope of a supervisory judge's discretion under s. 11 of the Companies' Creditors Arrangement Act (CCAA), in the context of corporate governance decisions made during the course of the plan negotiating and approval process - The court held that the discretion under s. 11 did not extend to the removal of directors - The court opined that there might be situations where a judge in a CCAA proceeding would be justified in ordering the removal of directors pursuant to the oppression remedy in s. 241 of the CBCA, and imported into the exercise of the s. 11 discretion through s. 20 of the CCAA - See paragraphs 39 to 64.

Company Law - Topic 4082

Directors - Removal - Power to remove - The Ontario Court of Appeal rejected the submission that a supervisory judge under the Companies' Creditors Arrangement Act had jurisdiction under s. 145 of the Canada Business Corporations Act (CBCA) to order the removal of the directors - The power contained in s. 145(2)(b) of the CBCA authorized an order "declaring the result of the disputed election or appointment" of directors - The court stated that "s. 145 relates to the procedures underlying disputed elections or appointments, and not to disputes over the composition of the board of directors itself." - See paragraph 54.

Company Law - Topic 4276

Directors - Duties - General principles - Business judgment rule - Stelco Inc. and four of its wholly owned subsidiaries obtained protection under the Companies' Creditors Arrangement Act (CCAA) - The supervising judge under the CCAA process ordered the removal of two directors from Stelco's Board - The directors appealed - The Ontario Court of Appeal allowed the appeal on the basis, inter alia, that the supervising judge erred in failing to defer to the unanimous decision of the Stelco directors in deciding to appoint the two removed directors to the Stelco Board - Judges supervising restructuring proceedings (and courts in general) would be very hesitant to second-guess the business decisions of directors and management - The supervising judge erred in failing to give effect to the business judgment rule - See paragraphs 65 to 72.

Company Law - Topic 4277

Directors - Duties - General principles - Duty to act impartially and independently -[See Company Law - Topic 4041 ].

Courts - Topic 2004

Jurisdiction - General principles - Inherent jurisdiction (incl. parens patriae jurisdiction) - The Ontario Court of Appeal held that, in supervising his or her jurisdiction under the Companies' Creditors Arrangement Act (CCAA), a judge was generally exercising the discretion provided by s. 11 of the CCAA and supplemented by other statutory powers that might be imported into the exercise of the s. 11 discretion from other statutes through s. 20 of the CCAA - The court held that an order that removed two directors in a CCAA proceeding was not founded on inherent jurisdiction because it was designed to supervise the company's process, not the court's process - See paragraphs 33 to 38.

Creditors and Debtors - Topic 8581.2

Debtors' relief legislation - Companies' creditors arrangement legislation - Jurisdiction - [See second and third Company Law - Topic 4082 , Company Law - Topic 4276 and Courts - Topic 2004 ].

Cases Noticed:

Country Style Food Services Inc. et al., Re (2002), 158 O.A.C. 30 (C.A.), refd to. [para. 24].

Algoma Steel Inc., Re (2001), 147 O.A.C. 291; 25 C.B.R.(4th) 194 (C.A.), refd to. [para. 28].

Olympia and York Developments Ltd., Re (1993), 12 O.R.(3d) 500 (Gen. Div.), refd to. [para. 30].

Ivaco Inc. et al., Re, [2004] O.T.C. 499; 3 C.B.R.(5th) 33 (Sup. Ct.), refd to. [para. 30].

Babcock & Wilcox Canada Ltd., Re, [2000] O.T.C. 135 (Sup. Ct.), refd to. [para. 32].

Hongkong Bank of Canada v. Chef Ready Foods Ltd. (1990), 4 C.B.R.(3d) 311 (B.C.C.A.), refd to. [para. 32].

Lehndorff General Partner Ltd., Re (1993), 17 C.B.R.(3d) 24 (Ont. Gen. Div.), refd to. [para. 32].

Dylex Ltd., Re (1995), 31 C.B.R.(3d) 106 (Ont. Gen. Div.), refd to. [para. 32].

Royal Oak Mines Inc., Re (1999), 96 O.T.C. 279; 7 C.B.R.(4th) 293 (Gen. Div.), refd to. [para. 32].

Westar Mining Ltd., Re (1992), 70 B.C.L.R.(2d) 6 (S.C.), refd to. [para. 32].

College Housing Co-Operative Ltd. and College Housing Inc. v. Baxter Student Housing Ltd. and Baxter (R.C.) Ltd., [1976] 2 S.C.R. 475; 5 N.R. 515, refd to. [para. 35].

Richtree Inc. et al., Re, [2005] O.T.C. 63 (Sup. Ct.), refd to. [para. 35].

Skeena Cellulose Inc. et al., Re (2003), 184 B.C.A.C. 54; 302 W.A.C. 54; 43 C.B.R.(4th) 187; 2003 BCCA 344, agreed with [para. 36].

Clear Creek Contracting Ltd. v. Skeena Cellulose Inc. - see Skeena Cellulose Inc. et al., Re.

R. v. Sharpe (J.R.), [2001] 1 S.C.R. 45; 264 N.R. 201; 146 B.C.A.C. 161; 239 W.A.C. 161, refd to. [para. 41].

Rizzo & Rizzo Shoes Ltd. (Bankrupt), Re, [1998] 1 S.C.R. 27; 221 N.R. 241; 106 O.A.C. 1, refd to. [para. 41].

London Finance Corp. v. Banking Service Corp. (1923), 23 O.W.N. 138 (H.C.), refd to. [para. 46].

Stephenson v. Vokes (1896), 27 O.R. 691 (H.C.), refd to. [para. 46].

Catalyst Fund General Partner I Inc. v. Hollinger Inc. et al., [2004] O.T.C. 1025 (Sup. Ct.), refd to. [para. 47].

Peoples Department Stores Inc. (Bankrupt) v. Wise (2004), 326 N.R. 267 (S.C.C.), refd to. [para. 59].

Algoma Steel Inc., Re (2003), 168 O.A.C. 89; 63 O.R.(3d) 78 (C.A.), refd to. [para. 63].

Algoma Steel Inc. v. Union Gas. Ltd. - see Algoma Steel Inc., Re.

Brant Investments Ltd. et al. v. KeepRite Inc. et al. (1991), 45 O.A.C. 320; 3 O.R.(3d) 289 (C.A.), refd to. [para. 66].

Sammi Atlas Inc., Re (1998), 59 O.T.C. 153; 3 C.B.R.(4th) 171 (Gen. Div.), refd to. [para. 68].

Alberta-Pacific Terminals Ltd., Re (1991), 8 C.B.R.(3d) 99 (B.C.S.C.), refd to. [para. 68].

Blair v. Consolidated Enfield Corp., [1995] 4 S.C.R. 5; 187 N.R. 241; 86 O.A.C. 245; 128 D.L.R.(4th) 73, refd to. [para. 76].

Statutes Noticed:

Canada Business Corporations Act, R.S.C. 1985, c. C-44, sect. 145(2)(b) [para. 54].

Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, sect. 11 [para. 40]; sect. 20 [para. 52].

Authors and Works Noticed:

Driedger, Elmer A., The Construction of Statutes (2nd Ed. 1983), generally [para. 41].

Halsbury's Laws of England (4th Ed. 1976), vol. 37, para. 14 [para. 34].

Jacob, I.H., The Inherent Jurisdiction of the Court (1970), 23 Current Legal Problems 23, pp. 25 [para. 37]; 27, 28 [para. 34].

Peterson, Dennis H., Shareholder Remedies in Canada (1989) (Looseleaf), p. 18-47 [para. 55, footnote 5].

Sullivan, Ruth, Sullivan and Driedger on the Construction of Statutes (4th Ed. 2002), p. 262 [para. 41].

Counsel:

Jeffrey S. Leon and Richard B. Swan, for the appellants, Michael Woollcombe and Roland Keiper;

Kenneth T. Rosenberg and Robert A. Centa, for the respondent, United Steelworkers of America;

Murray Gold and Andrew J. Hatnay, for the respondent, Retired Salaried Beneficiaries of Stelco Inc., CHT Steel Company Inc., Stelpipe Ltd., Stelwire Ltd. and Welland Pipe Ltd.;

Michael C.P. McCreary and Carrie L. Clynick, for USWA Local 5328 and 8782;

John R. Varley, for the Active Salaried Employee Representative;

Michael Barrack, for Stelco Inc.;

Peter Griffin, for the Board of Directors of Stelco Inc.;

K. Mahar, for the Monitor;

David R. Byers, for CIT Business Credit, Agent for the DIP Lender.

This appeal was heard on March 18, 2005, by Goudge, Feldman and Blair, JJ.A., the Ontario Court of Appeal. Blair, J.A., delivered the following decision for the court on March 31, 2005.