It’s bad PR, but CP needs to fight
Lac-Mégantic fund
Quebec Superior Court justice Gaetan Dumas left court on Wednesday with at least 450 pages of written arguments on whether he should approve a $430 -million settlement for victims of the Lac-Mégantic rail tragedy.
If ever there was a case for rapid justice, this is it. The 2013 disaster killed 47 people and wiped out LacMégantic’s downtown. About 25 companies have agreed to contribute to the compensation fund. Victims and creditors have accepted that offer.
If Justice Dumas is able to deliver a quick approval of the settlement fund, it will probably be due to the power of Canada’s corporate insolvency law, the federal Companies’ Creditors Arrangement Act or CCAA.
The settlement proposal is one of the matters Dumas has heard in the CCAA insolvency proceeding involving Montreal, Maine & Atlantic Railway or MMR, which filed for court protection after its train derailed in Lac-Mégantic. The immediate hurdle to the settlement comes from Canadian Pacific Railway. The company is opposed to the settlement because it offers all its contributors a release from any further liability in the Lac-Mégantic tragedy.
But CP’s situation is different: It happens to be the defendant in another Lac-Mégantic proceeding, a certified class action lawsuit.
The Calgary-based company steadfastly denies responsibility for the disaster. But regardless of whether it is or it isn’t at fault, CP has a right to defend itself in court. And a common defence tactic is for a defendant to sue those it believes bear the actual responsibility for the loss. If any of those settling companies get immunity from the judge, CP is worried it will lose the ability to fully defend itself.
Of course, the Lac-Mégantic case is about a horrible human tragedy. CP doesn’t look great in fighting the settlement. But if it honestly believes it did no wrong, it’s not hard to see why the company is reluctant to go along with it. CP is a company, not a charity — or an ATM for class-action lawyers.
And so CP is relying on the argument that Dumas’s court lacks jurisdiction in the first place, since the Transportation Act has specific provisions that deal with railway insolvencies, the Quebec Superior Court lacks jurisdiction over the case. In short, it’s a federal case, not a provincial one.
But CCAA proceedings are not every corporation’s best friend. Designed to keep big companies afloat and protect the rights of creditors, the CCAA can pack a cruel punch for the little guy. You may recall the protests in Toronto and Ottawa by enraged retired Nortel employees when a CCAA court slashed their pensions in 2009 — they demanded Ottawa take action against a process some called “legalized theft.” If CP were to succeed in obstructing the Lac-Mégantic settlement, it could very well lead to yet more calls to Parliament to add provisions to the CCAA law to protect special interests
But we should be careful before clipping the CCAA’s powers. The CCAA is “catch-all” legislation, meant to deal with a wide range of bankruptcy types. The law is intentionally broad. CCAA is a powerful process because it recognizes that in Canada, Superior Court judges have what is called “inherent jurisdiction.” This means that when there’s a gap in the law, a Superior Court judge has the flexibility to paper over the cracks with a creative solution.
A powerful example of this was the asset-backed commercial paper (ABCP) crisis. An Ontario judge used CCAA to supervise the restructuring of the entire $32 billion ABCP market.
Justice Dumas isn’t operating in a legal vacuum. He is bound by precedent. He’ll surely give appropriate attention to all of the legal arguments presented to him, including CP’s. But given the powers he has under the CCAA process, it’s hard to see how CP’s technical legal argument will stand in his way.
After all, a different Quebec judge already ruled in back in October 2013 that MMA was correct to proceed under the CCAA. Why? Because that judge noted that denying MMA to access to the range of legal tools available under CCAA would amount to an injustice to Lac-Mégantic victims. From a practical perspective, it’s hard to see how a judge might suddenly decide that the past 20 months of hearings, arguments and negotiations were some sort of procedural error.
It’s all in the hands of Justice Dumas. Let’s see if he can use CCAA to keep the settlement on track.