The test for granting leave to appeal in Companies Creditors’ Arrangement Act proceedings is well-settled:
- Whether the point on the proposed appeal is of significance to the practice;
- Whether the point is of significance to the action;
- Whether the proposed appeal is prima facie meritorious or frivolous; and
- Whether the appeal will unduly hinder the progress of the action.
In Labourers’ Pension Fund of Central and Eastern Canada v. Sino-Forest Corporation, 2013 ONCA 456, the Ontario Court of Appeal had to apply this “stringent” test in novel circumstances.
The defendant Sino-Forest had gone bankrupt amidst allegations of corporate fraud. Morawetz J. had approved a settlement releasing Ernst & Young LLP (“E&Y”) from any claims arising from its auditing of Sino-Forest. The settlement was supported by all parties to the CCAA proceedings, including the Monitor, Sino-Forest’s major creditors and a group of plaintiffs seeking to recover their investment losses in a contemplated, but not yet certified, class action.
A group of Sino-Forest investors (“Invesco”) objected to the settlement because it wished to preserve its right to opt out of any class proceedings and pursue an independent claim against E&Y. Invesco was represented by Kim Orr LLP. Perell J. had denied Kim Orr LLP carriage of the class action in a decision that was not appealed.
Invesco sought leave to appeal two orders of Morawetz J., where he had:
- sanctioned a plan of compromise and reorganization for Sino-Forest; and
- approved the E&Y settlement and dismissed Invesco’s motion for an order to represent all class members who oppose settlement.
The Court of Appeal unanimously held that the appeal of the order sanctioning the plan of compromise and reorganization was moot and, and in any event, the Court saw no basis to interfere with Morawetz J.’s decision.
Turning to the settlement with E&Y, the Court held that there was no basis to interfere with Morawetz J.’s finding that the “settlement was fair and reasonable, provided substantial benefits to relevant stakeholders and was consistent with the purpose and spirit of the CCAA” (para. 13). In light of that, it followed that Invesco’s motion for a representation order would also be dismissed.
Though the Court did not apply each element of the test for leave to appeal, it is clear that the Court felt, at the very least, the appeal had no merit. Leave was therefore denied.