Introduction
Class action litigation exposes companies to the risk of significant liability for alleged wrongdoing and may jeopardize their ability to continue as a going concern. In Canada, such risk may be the impetus for a company to seek protection under the Companies’ Creditors Arrangement Act (the “CCAA”).1 A facilitative federal statute, the CCAA provides breathing space for a financially distressed company to develop a plan of compromise or arrangement with its creditors with the objective of continuing the company’s viability going forward.2
Constitutionally, laws governing class actions, including their settlement, are within the authority of the provincial legislature under ss. 92(13) and 92(14) of the British North America Act, 18673 (now the “Constitution Act, 1867”) over property, civil rights, and the administration of justice.4 Nonetheless, there is little doubt today that class actions can also be settled under the CCAA pursuant to the Parliament of Canada’s exclusive legislative authority over bankruptcy and insolvency.5 In this context, the rights of class members may be compromised as a result of a settlement approved by a superior court exercising its jurisdiction under a federal statute.6
This article reviews the constitutional principles that justify a CCAA court resolving issues pertaining to class actions, including in a circumstance where the class action proceedings were not instituted in the same province as the CCAA proceedings. As well, the authors consider whether a CCAA court with the authority to make orders related to a class action should, in all circumstances, exercise its authority and discuss when during the course of proceedings, and on what basis, objections can be raised about a CCAA court’s jurisdiction.
Constitutional Considerations
The Constitution Act, 1867 provides for a division of powers between the federal and provincial legislatures, but does not provide for the resolution of conflicts between federal and provincial laws. However, this lacuna has been filled by the courts which established that the federal law is paramount and the provincial law inoperative to the extent of any conflict between the two.7
The Supreme Court of Canada (the “Supreme Court”) recently confirmed in Murray-Hall8 that the doctrine of federal paramountcy applies when the inconsistency between the federal law and the provincial law results in operational conflict or frustrates the purpose of the federal law. By contrast, if a conflict does not exist in operation or purpose, the doctrine of paramountcy does not apply and both laws remain operative.
The decision in Multiple Access Ltd. v McCutcheon9 provides an example of such judicially confirmed coexistence. The provincial law duplicated federal law to protect companies against insider trading. Both laws were valid — under the Constitution Act, 1867 provinces can legislate on matters relating to property and civil rights and the Parliament of Canada can legislate on matters of trade and commerce. Because it was possible to follow both laws, the Supreme Court did not apply the doctrine of paramountcy but, rather, applied the double aspect doctrine.
The double aspect doctrine is employed by courts to justify measures dealing with subjects that could fall equally under two heads of power, one federal and the other provincial.10 Such overlaps in the exercise of provincial and federal authority are recognized as the indicia of cooperative federalism, an approach that reflects the evolution away from watertight compartments (i.e., the traditional divide set out in ss. 91 and 92 of the Constitution Act, 1867) to a more flexible approach in dealing with the division of powers.11 For overlaps to be permitted, each level of government must be properly pursuing objectives that fall within its legislative authority.12
In Murray-Hall, however, Wagner C.J. cautioned that where the legislative subject matter has a double aspect, it is essential “to avoid eroding the importance attached to provincial autonomy.”13
Legislative provisions concerning class actions are intra vires the provincial legislature as they relate to property, civil rights, and the administration of justice,14 while the Parliament of Canada retains exclusive jurisdiction in bankruptcy and insolvency matters. However, in contrast to the express provisions concerning the resolution of class actions found in most provinces’ legislation,15 the CCAA is silent with respect to the subject of class actions, including the resolution of such litigation as a component of an insolvent company’s plan of compromise and arrangement. Nevertheless, and as explained in Century Services, silence does not constitute a bar for a CCAA court to issue orders in appropriate circumstances:16
The general language of the CCAA should not be read as being restricted by the availability of more specific orders. However, the requirements of appropriateness, good faith, and due diligence are baseline considerations that a court should always bear in mind when exercising CCAA authority. Appropriateness under the CCAA is assessed by inquiring whether the order sought advances the policy objectives underlying the CCAA. The question is whether the order will usefully further efforts to achieve the remedial purpose of the CCAA – avoiding the social and economic losses resulting from liquidation of an insolvent company. I would add that appropriateness extends not only to the purpose of the order, but also to the means it employs. Courts should be mindful that chances for successful reorganizations are enhanced where participants achieve common ground and all stakeholders are treated as advantageously and fairly as the circumstances permit.
The authority of a CCAA court to make orders regarding matters that are not explicitly addressed in the statute have been attributed to an exercise of inherent jurisdiction or to statutorily given discretion and, at times, CCAA courts appear to have conflated the two powers. Inherent jurisdiction is an extraordinary power that cannot be exercised in a manner that conflicts with a statute, whereas discretion under s. 11 of the CCAA is the engine that drives the statute’s broad and flexible approach to restructurings.17 Indeed, as restructurings become increasingly complex, “CCAA courts have been called upon to innovate accordingly to exercise their jurisdiction beyond merely staying proceedings (…). They have been asked to sanction measures for which there is no explicit authority in the CCAA.”18
A fundamental purpose of the CCAA is to allow financially troubled companies the opportunity to restructure their affairs and to continue operations while providing some payment to creditors. A CCAA court’s subject-matter jurisdiction to make orders related to the settlement of a class action – inter-jurisdictional or not – is derived from the discretion granted to it under this broad statutory regime.
The scope of a CCAA court’s jurisdiction must be assessed in view of the Supreme Court’s guidance that a “single proceeding model” applies in insolvency proceedings – a model that favours all litigation involving an insolvent company being addressed within a single forum. The importance of the single proceeding model, as it relates to bankruptcy and insolvency proceedings, was confirmed by the Supreme Court in a number of decisions beginning in 2001 in Sam Lévy19 to, most recently, in Peace River20 in 2022. The model protects stakeholder rights and the public interest in the efficient and economical clean-up of the aftermath of financial collapse.21 The CCAA confers a broad scope of authority to deal with most disputes, as anything less would unnecessarily complicate and undermine the efficacy of winding up or reorganizing an insolvent entity’s affairs. As confirmed recently by the Supreme Court:22
The central role of courts in ensuring the equitable and orderly resolution of insolvency disputes is reflected in the “single proceeding model.”
This model favours the enforcement of stakeholder rights through a centralized judicial process. The legislative policy in favour of “single control” is reflected in Canadian bankruptcy, insolvency, and winding-up legislation (Century Services, at paras. 22-23). The single proceeding model is intended to mitigate the inefficiency and chaos that would result if each stakeholder in an insolvency initiated a separate claim to enforce its rights (…).
This model is not without limits. A CCAA court may consider that the application of the single proceeding model would go too far in the particular circumstances and decide not to exercise its statutory given discretion, even in pursuit of CCAA objectives.23
In 2013, in the context of a cross-border insolvency, the Superior Court of Québec was asked to lift a stay of proceedings to allow a motion for declaratory judgment to be filed in the U.S.24 The applicant admitted that the Québec court had jurisdiction but argued that the U.S. District Court of Maine was better placed to hear the motion. Dumas J. dismissed the applicant’s request and stated that there was no tangible benefit from departing from the single proceeding model as “the Bankruptcy Court is a court of equity and the notion of equity is interpreted as conferring on the Bankruptcy Court all powers to dispose of disputes or a difficulty even when the law contains no specific provision that is likely to apply.”25
A few years later, in Bloom Lake 2017,26 debtors filed for CCAA protection in Québec and the Québec court was asked to decide a preliminary dispute as to whether it should request the aid of the Supreme Court of Newfoundland and Labrador with respect to the scope and priority of the deemed trust and other security created by Newfoundland and Labrador’s Pension Benefit Act. It was argued in support of the request that:
- there were complex and important issues of foreign provincial law;
- the Newfoundland and Labrador court possessed far greater expertise on said law;
- it was a question of purely local concern and could significantly impact a large number of residents in Newfoundland and Labrador; and
- if justice was to be done and be seen to be done, it was important that consequential decisions on provincial legislation be made by the courts of Newfoundland and Labrador.
Hamilton J. (as he then was) was not persuaded by these arguments and remained concerned by the delays that might result if the matter was referred to another court. He held that the general rule is that a CCAA court should rule on all issues that arise in the context of insolvency proceedings because “[t]here are clear efficiencies to having a single court deal with all of the issues in a single judgement.”27
It is now well established that an objector to a CCAA court’s exercise of jurisdiction on the basis that a court in another jurisdiction is the more appropriate forum (e.g., on the basis of forum non conveniens) must show that the alternative forum is clearly more appropriate and that it would be fairer and more efficient to transfer the proceedings to another court.28 The objector, when it cannot claim to be a stranger to the CCAA proceedings, has the burden of demonstrating that the dispute relates to a matter that is outside even a generous view of the insolvency process.29
Silence of the CCAA Versus Express Provisions of Provincial Law
As is evident from the decisions summarized below, most courts that have explicitly considered the interplay between the absence of provisions on a specific matter in the CCAA and the express provisions of provincial statutes relating to the same subject matter, did so in situations where the provincial law was found to be in conflict with the purpose of the federal law. At one time, in the absence of any inconsistency between the federal and provincial legislation on a particular matter, certain courts held that the discretionary power pursuant to s. 11 of the CCAA could not be used to override an express provision of provincial law;30 courts, however, no longer apply that reasoning.31
1 RSC c C-36.
2 Dr. Janis P. Sarra, the Honourable Chief Justice Geoffrey B. Morawetz & the Honourable L.W. Houlden, 2022-2023 Annotated Bankruptcy and Insolvency Act (Toronto: Thomson Reuters, 2022), Part III, Chapter 19 at ss 19:3.
3 30 & 31 Vict, c 3.
4 L’Oratoire Saint‑Joseph du Mont‑Royal v J.J., 2019 SCC 35 at para 6 (the Supreme Court articulates the objectives that underlie the provisions relating to class actions as facilitating access to justice, modifying harmful behaviour, and conserving judicial resources).
5 Section 91(21) of the Constitution Act, 1867.
6 Section 2 of the CCAA.
7 See e.g., Peter W. Hogg, “Paramountcy and Tobacco” (2006) 34 Supreme Court Law Review 335.
8 Murray-Hall v Québec (Attorney General), 2023 SCC 10 at para 84 Murray-Hall.
9 [1982] 2 SCR 16.
10 Rogers Communications Inc. v Châteauguay (City), 2016 SCC 23 at para 50.
11 Jim Pattison Enterprises Ltd. v British Columbia (Workers’ Compensation Board), 2011 BCCA 35 at paras 1 and 86-87 Jim Pattison.
12 Alberta (Attorney General) v Moloney, 2015 SCC 51 at para 15.
13 Murray-Hall, supra note 8 at para 85 (reproducing a concern expressed in References re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11 at para 128).
14 See e.g., Sandoz Canada Inc. v British Columbia, 2023 BCCA 306, Poorkid Investments Inc. v Ontario (Solicitor General), 2023 ONCA 172 at para 21, and Janet Walker, “Are National Class Actions Constitutional?: A Reply to Hogg and McKee” (2010) 48:1 Osgoode Hall LJ 95 at 105.
15 For example, Ontario’s Class Proceedings Act, 1992, SO 1992, c 6; British Columbia’s Class Proceedings Act, RSBC 1996, c 50; Alberta’s Class Proceedings Act, SA 2003, c C-16.5; Manitoba’s Class Proceedings Act, CCSM c C130; and Title III of Book VI of Québec’s Code of Civil Procedure, CQLR c C-25.01.
16 Century Services Inc. v Canada (Attorney General), 2010 SCC 60 at para 70 Century Services [emphasis added].
17 Dr. Janis P. Sarra, Rescue! The Companies' Creditors Arrangement Act, 2nd ed. (Toronto: Carswell, 2013) (citing the Ontario Court of Appeal in Stelco Inc. (Bankruptcy), Re, 2005 CanLII 8671 (ON CA) at paras 33 and 36 Stelco). The view that it is the discretion provided by s. 11 of the CCAA which is the basis for the court to make such orders, rather than inherent jurisdiction, was cited with approval by the Supreme Court in 9354-9186 Québec Inc. v Callidus Capital Corp., 2020 SCC 10 at para 68.
18 Century Services, supra note 16 at paras 58 and 61 [emphasis added].
19 Sam Lévy & Associés Inc. v Azco Mining Inc., 2001 SCC 92 Sam Lévy.
20 Peace River Hydro Partners v Petrowest Corp., 2022 SCC 41 Peace River (the principle was relied on in numerous decisions by Québec Courts including Arrangement relatif à Bloom Lake, 2021 QCCS 3402 at paras 52ff Bloom Lake 2021 and Montréal, Maine & Atlantic Canada Co./Montréal, Maine & Atlantique Canada Cie (Arrangement relatif à), 2013 QCCS 5194 at para 25 MM&A).
21 Peace River, supra note 20 at para 55.
22 Ibid at paras 54-55.
23 David Bish, “In Search of the Limits of Judicial Discretion in Insolvency Law” (2018) 7 J Insol Inst Can 181.
24 MM&A, supra note 20.
25 MM&A, supra note 20 at para 27.
26 Arrangement relatif à Bloom Lake, 2017 QCCS 284 Bloom Lake 2017.
27 Ibid at paras 32-33.
28 Bloom Lake 2021, supra note 20 at para 88 (citing the Supreme Court in Club Resorts Ltd. v Van Breda, 2012 SCC 17 at paras 105 and 108-110).
29 Bloom Lake 2021, supra note 20 at paras 58ff.
30 Richtree Inc. (Bankruptcy), Re, 2005 CanLII 55905 (ON SC) Richtree.
31 SR Telecom & Co. v Apex – Micro Manufacturing Corporation, 2008 BCSC 1768 SR Telecom.