In a decision released in May, the Ontario Court of Appeal confirmed that courts may recognize foreign orders in foreign arrangement proceedings based on the principles of private international law and effectively endorsed the principles followed by the Commercial List on section 18.6 cross-border CCAA applications.
The decision concerned Cavell, a London based reinsurance company. Cavell, faced with long tail claims under reinsurance policies in respect of asbestos, sexual abuse, tobacco and tainted blood, had stopped writing reinsurance and wished to crystallize its obligations to its policyholders. It sought to do so through a plan of arrangement under section 425 of the U.K. Companies Act, 1985. The process that Cavell followed was similar to a Canadian CCAA application. Cavell applied to the U.K. court for an order convening a meeting of its creditors to consider a plan of arrangement. Creditor approval is by class by and requires a majority in number representing 75% in value of creditors voting in favour of the plan. Following creditor approval, court approval is required.
A number of Cavell’s policyholders were Canadian insurance companies. To make sure that the plan was binding in Canada, Cavell sought an order from Farley J. recognizing the initial U.K. order. Farley J. did so, over the objection of some Canadian insurance companies. Some of the insurance companies appealed. The appeal was dismissed.
Farley J.’s order included the following provisions, which are common in section 18.6 CCAA orders:
- the U.K. proceedings were recognized;
- Cavell was ordered to keep the Ontario court advised of any material developments in the U.K. proceeding and any further orders of the U.K. court and seek any further orders from the Ontario court needed to co-ordinate the two proceedings;
- a video link to the creditors meeting was to be provided at the offices of Cavell’s counsel in Toronto;
- notice of the creditors meeting and access to documents was to be provided to Canadian creditors;
- other proceedings against Cavell were stayed except with leave of the Ontario court; and
- the usual "comeback" provision.
In the course of his reasons for decision, Goudge, J.A., for the Court of Appeal, made the following points:
- the rules of private international law relating to the recognition and enforcement of foreign judgments must accommodate the increasingly transnational nature of commercial transactions that accompanies the inexorable evolution towards a global economy;
- the doctrine of comity is central to that task. The doctrine of comity is "grounded in the need in modern times to facilitate the flow of wealth, skills and people across state lines in a fair and orderly manner";
- the need to accommodate the flow of wealth, skills and people is an imperative;
- in considering recognition applications the courts must consider principles of order and fairness - those principles recognize the importance of both the security of international transactions and as well the need for fairness to those against whom recognition and enforcement is sought, and the need to balance the two;
- the initial U.K. order was certain enough in its terms not to be rejected for uncertainty;
- particularly because the Ontario court must be kept advised of developments and future orders, there was little, if any, risk of injustice to the Canadian insurers and there was little risk that the underpinnings of the U.K. order would disappear;
- principles or reciprocity also favour recognition; and
- recognition enhances fairness to those who may be affected by the initial U.K. order and the U.K. proceedings.
In the course of his reasons Goudge J.A. noted that the same result could have been achieved by domestic legislation, "as it has been in both the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act for foreign proceedings brought under bankruptcy or insolvency legislation. Neither Act applies to this circumstance, because of the legislation used in the U.K".
While Cavell was not an insolvency case, the Court of Appeal has clearly endorsed the approach taken by courts in Canada to applications for recognition orders under section 18.6 of the CCAA. Further, the Court of Appeal has said quite clearly that the lack of a domestic statutory framework for the recognition of foreign arrangement orders and proceedings will not stand in the way of their recognition based on the principles of private international law.
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