Wednesday, October 14, 2015

Ways to Ignore a Supreme Court Decision

In Nortel Networks Corporation (Re), 2015 ONCA 681 the Court of Appeal for Ontario made a policy decision about the running of interest after a CCAA filing. The Court held interest, in general, stops accruing. 

Unfortunately for the Court of Appeal there is a recent Supreme Court of Canada case (Canada 3000 (Re)Inter-Canadian (1991) Inc. (Trustee of), 2006 SCC 24, [2006] 1 S.C.R. 865) that says interest continues to accrue after a CCAA filing. 

Some might think the Supreme Court decision would bind the lower court - but not here. 

The passage in which the Court of Appeal decides to ignore that Supreme Court ruling is quite illuminating. It may also be helpful to counsel seeking to get around an otherwise awkward decision:

[57]       On appeal to the Supreme Court of Canada, the court determined that the airport authorities and NAV Canada had the right to detain the aircraft leased and operated by the bankrupt airlines. The issue of post-filing interest was, therefore, an issue the court had to decide.

[58]       In deciding that issue, Binnie J. made the following comment at para. 96: 

While a CCAA filing does not stop the accrual of interest, the unpaid charges remain an unsecured claim provable against the bankrupt airline. The claim does not accrue interest after the bankruptcy: ss. 121 and 122 of the [BIA]. [Emphasis added.]

[59]       The appellant submits that the underlined words are binding ratio and must be followed in this case. 

[60]       While I agree that Binnie J.'s comment about the CCAA is not obiter, I am not convinced that it should be read as broadly as the appellant contends. In R. v. Henry, 2005 SCC 76, [2005] 3 S.C.R. 609, Binnie J. warned, at para. 57, against reading "each phrase in a judgment … as if enacted in a statute". Rather, the question to be asked is "what did the case decide?".  

[61]       To answer what Canada 3000 decided about post-filing interest under the CCAA, it is important to consider the context in which Binnie J. made his comment, including the facts of the case, the issues before the court, the structure of his reasons, the wording he used, and what he said as well as what he did not say. 

[62]       At para. 40., Binnie J. defined the "two major questions raised by the appeals" as follows: (1) "are the legal titleholders liable for the debt incurred by the registered owners and operators of the failed airlines to the service providers?" and (2) "even if they are not so liable, are the aircraft to which they hold title subject on the facts of this case to judicially issued seizure and detention orders to answer for the unpaid user charges incurred by Canada 3000 and Inter-Canadian?" (emphasis in original). The answer to those two questions turned on the interpretation of the Airports Act and CANSCA. As Binnie J. noted at para. 36, the case was "from first to last an exercise in statutory interpretation".  

[63]       After engaging in a lengthy exercise of statutory interpretation, he concluded that: (1) under s. 55 of CANSCA, the legal titleholders were not jointly and severally liable for the charges due to NAV Canada; and (2) under s. 56 of CANSCA and s. 9 of the Airports Act, the airport authorities and NAV Canada were entitled to apply for an order detaining the aircraft operated by the failed airlines.  

[64]       Binnie J. then addressed eight additional arguments made by the parties and just before his last paragraph on disposition, he included a section simply entitled "Interest", starting at para. 93. 

[65]       He began his analysis of the interest issue by outlining the statutory authority for charging interest: s. 9(1) of the Airports Act expressly provided for the payment of interest, and while CANSCA did not explicitly provide for interest, a regulation under CANSCA imposed interest: para. 93. 

[66]       "The question then", said Binnie J. at para. 95, was "how long the interest can run". He addressed that question as follows, at paras. 95-96:

The airport authorities and NAV Canada have possession of the aircraft until the charge or amount in respect of which the seizure was made is paid. It seems to me that this debt must be understood in real terms and must include the time value of money.

Given the authority to charge interest, my view is that interest continues to run to the first of the date of payment, the posting of security or bankruptcy. If interest were to stop accruing before payment has been made, then the airport authorities and NAV Canada would not recover the full amount owed to them in real terms. Once the owner, operator or titleholder has provided security, the interest stops accruing. The legal titleholder is then incurring the cost of the security and losing the time value of money. It should not have to pay twice. While a CCAA filing does not stop the accrual of interest, the unpaid charges remain an unsecured claim provable against the bankrupt airline. The claim does not accrue interest after the bankruptcy: ss. 121 and 122 of the [BIA]. [Emphasis added.]

[67]       Significantly, Binnie J. made no mention in his reasons of the common law interest stops rule or the related pari passu principle. Nor did he cite any case law dealing with those issues. In fact, even though it is well established that the interest stops rules applies under the BIA, he did not rely on the common law rule in support of his finding that interest stopped on bankruptcy. Instead, he relied on ss. 121 and 122 of the BIA in concluding that the interest payable under the Airports Act and the regulation under CANSCA did not accrue post-bankruptcy. 

[68]       Binnie J.'s analysis of the issue is rooted in the factual and statutory context of the case. In discussing the accrual of interest under the CCAA, he specified that the interest was on "unpaid charges", namely charges under CANSCA and the Airports Act. Binnie J. was not answering an abstract legal question but rather deciding how long interest ran in the particular factual and statutory context. 

[69]       In effect, I read Binnie J. as saying that a CCAA filing does not stop the accrual of interest under CANSCA or the Airports Act but the statutory provisions of the BIA ss. 121 and 122 do. He was not deciding whether, in the absence of the right to interest under CANSCA and the Airports Act, interest would have accrued or been stopped by the common law interest stops rule. 

[70]       Let me add that I agree with the CCAA judge's comment that Binnie J.'s statement in Canada 3000 should "now be construed in light of Century Servicesand Indalex". In fact, one can well imagine that the court's interpretation of CANSCA and the Airports Act as allowing the accrual of interest in a CCAAproceeding but not in a BIA proceeding might have been different had it reached the Supreme Court after these two more recent cases. That question, however, is for another day. For now, I turn to this court's decision in Stelco.

Of the Law Societies of Upper Canada and Nunavut