In a recent decision, Cooper-Standard Automotive Canada Limited (Re), 2009 CanLII 51188 (ON S.C.), [“Cooper-Standard”], the Ontario Commercial List Court determined that Ontario was forum non conveniens and lifted a court-imposed stay under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (CCAA) , therby paving the way for a Delaware company to sue a Canadian subsidiary embroiled in parallel U..S.Chapter 11 proceedings. This blog post addresses the jurisdictional aspects of the decision and whether the forum non conveniens doctrine is the appropriate jurisdictional test in multi-jurisdictional insolvency proceedings.
On August 18, 2009, Judge Peter J. Walsh of the United States Bankruptcy Court for the District of Delaware rejected Cooper Tire’s request to commence proceedings in Ontario to determine the issue of entitlement to the anticipated tax refunds and interest from the province of Ontario. Cooper Tire then sought to have the ultimate issue of the entitlement to the refunds and interest received by CSA or its subsidiaries, including CSA Can, determined by the U.S. Bankruptcy Court by amending Cooper Tire’s present Complaint against CSA and CSA Holdings in that Court to include CSA Can. The pleading amendment necessarily required that the stay of proceedings be lifted in the Ontario CCAA proceedings.
In the midst of the Ontario CCAA proceedings, the U.S. Bankruptcy Court set October 5, 2009 for the hearing of a motion by Cooper Tire for a preliminary injunction to require segregation of the tax refunds and interest and the hearing of a motion by CSA and CSA Holdings to dismiss the present Complaint of Cooper Tire.
Cumming J.’s analysis on the Court’s power to grant and lift a stay of proceedings against a debtor company under ss. 11(1), (3) and (4) of the CCAA requires no further elaboration. What is of greater interest is the court’s analysis of CSA Can’s two jurisdictional arguments. CSA Can argued that the U.S. Bankruptcy Court was not the proper forum for adjudicating Cooper Tire’s resulting trust or constructive claims against CSA Can, in respect of the tax refunds, the nature of which were aimed at preventing CSA Holdings/CSA/CSA Can (if the Complaint is amended to add CSA Can) from being unjustly enriched at Cooper Tire’s expense. (at para. 19-20). CSA Can also asserted that the balance of convenience favoured keeping the stay of proceedings in place with respect to the Cooper Tire claim against CSA Can.
 Cooper Tire is put to significant risk and possible prejudice by CSA Can’s present position. CSA Can refuses to segregate future tax refunds received until the claims in respect of those funds have been adjudicated upon. As well, the record suggests CSA Can has used the July 27, 2009 tax refund for working capital or for the benefit of affiliates in contravention of the contractual obligations imposed upon CSA Holdings as signatory to the Agreement. While CSA Can is not a party to the Agreement it seems the handling of the July 27, 2009 refunds was in derogation of the obligations of CSA Holdings under the Agreement which had committed itself to remitting to Cooper Tire the tax refunds and interest of its wholly-owned subsidiary, CSA, and the wholly-owned subsidiaries of CSA, including CSA Can.
 Thus, Cooper Tire is put to significant risk and possible prejudice if its claimed right to the refunds is not adjudicated upon expeditiously. Conversely, there is no apparent prejudice to CSA Can in the refund being segregated until a determination of the claims to the refunds by a court of competent jurisdiction. Commingling of funds pending a determination of the rights of Cooper Tire to the tax refund may well result in competing claims by the DIP lender and by the other creditors of CSA Can to those funds even if the Cooper Tire claim of a trust is ultimately validated.
On the issue of jurisdiction simpliciter, Mr. Justice Cumming cites Amchem Products Inc. v. British Columbia (Workers’ Compensation Board), 1993 CanLII 124 (S.C.C.),  1 S.C.R. 897 at 912 for the general proposition that the “appropriate forum for an action is generally that ‘jurisdiction that has the closest connection with the action and the parties.’” With respect to choice of law, Cumming J. further notes that:
 In an action for a declaration of a constructive or resulting trust, the applicable law is “that with which the obligation to restore the benefit unjustly obtained has the closest and most real connection.” Janet Walker, Castel & Walker: Canadian Conflict of Laws. 6th ed., loose leaf (Markham: LexisNexis Canada Inc., 2005) at 1396. Where there is no contract between the deprived party and the enriched party, and the property at issue is not land, the proper law is the law of the place where the unjust enrichment occurs. Castel & Walker, supra at S. 32.1.
Having found that the Agreement referred to the regime of tax refunds (at para. 26), most of the co-borrower, CSA Can’s debt was reportedly cross-collateralized as secured debt of entities in the US Chapter 11 proceedings (at para. 27), and CSA Holdings group of companies consolidated its financial information for public reporting purposes (at para. 28), the court granted the motion and lifted the stay, concluding that:
…while both Delaware and Ontario have jurisdiction to determine the rights of the competing parties to the tax refunds Delaware is the jurisdiction that has the closest connection with any action relating to the tax refunds received by the CSA Holdings group of companies. The US Bankruptcy Court for the District of Delaware is already dealing with the Complaint of Cooper Tire against CSA Holdings and CSA. It is just and convenient for that Court to deal with any Complaint against CSA Can (through the proposed amendment to the present Complaint) which will relate to the same issues (resulting or constructive trust due to unjust enrichment) as seen in the present Complaint.
At paragraphs 30-31, the court, perhaps superfluously, undertakes a forum non conveniens analysis and concludes that Ontario is not a convenient forum. Generally speaking, it is doubtful whether forum non conveniens is applicable at all to bankruptcy or insolvency proceedings, since no other forum can grant a Canadian receiving order, particularly given that a receiving order or adjudication of bankruptcy in a foreign jurisdiction is considered a separate proceeding: [see, L.W. Houlden and Geoffrey B. Morawetz, Houlden and Morawetz Bankruptcy and Insolvency Analysis, Westlawecarswell (online service)- Bankruptcy and Insolvency Act- [Part II (ss. 42-49) D§2-Place for Filing the Petition, citing: Re Chu (1995), 30 C.B.R. (3d) 78 (Ont. Gen. Div.).]
Nevertheless, the principles applicable to inter-jurisdictional co-operation in cross-border insolvency cases was previously established in Babcock & Wilcox Canada Ltd.., Re, (2000) 5 B.L.R. (3d) 75, 18 C.B.R. (4th) 157 (Ont. SCJ-CL) where Farley, J. held that the Ontario court’s jurisdiction to assist other courts in international cases was distinct from its jurisdiction to provide protection to a reorganizing insolvent debtor. Accordingly, the court held that it could extend injunctive protection against creditors’ claims to a solvent affiliate of a debtor in a foreign reorganizational proceeding, based upon the following non-exhaustive list of factors:
(b) Respect should be accorded to the overall thrust of foreign bankruptcy and insolvency legislation in any analysis, unless in substance generally it is so different from the bankruptcy and insolvency law of Canada or perhaps because the legal process that generates the foreign order diverges radically from the process here in Canada.
(c) All stakeholders are to be treated equitably, and to the extent reasonably possible, common or like stakeholders are to be treated equally, regardless of the jurisdiction in which they reside.
(d) The enterprise is to be permitted to implement a plan so as to reorganize as a global unit, especially where there is an established interdependence on a transnational basis of the enterprise and to the extent reasonably practicable, one jurisdiction should take charge of the principal administration of the enterprise’s reorganization, where such principal type approach will facilitate a potential reorganization and which respects the claims of the stakeholders and does not inappropriately detract from the net benefits which may be available from alternative approaches.
(e) The role of the court and the extent of the jurisdiction it exercises will vary on a case by case basis and depend to a significant degree upon the court’s nexus to that enterprise; in considering the appropriate level of its involvement, the court would consider:
(ii) the location of the debtor’s stakeholders;
(iii) the development of the law in each jurisdiction to address the specific problems of the debtor and the enterprise;
(iv) the substantive and procedural law which may be applied so that the aspect of undue prejudice may be analyzed;
(v) such other factors as may be appropriate in the instant circumstances.
(f) Where one jurisdiction has an ancillary role,
(i) the court in the ancillary jurisdiction should be provided with information on an ongoing basis and be kept apprised of developments in respect of that debtor’s reorganizational efforts in the foreign jurisdiction;
(ii) stakeholders in the ancillary jurisdiction should be afforded appropriate access to the proceedings in the principal jurisdiction.
(g) As effective notice as is reasonably practicable in the circumstances should be given to all affected stakeholders, with an opportunity for such stakeholders to come back into the court to review the granted order with a view, if thought desirable, to rescind or vary the granted order or to obtain any other appropriate relief in the circumstances. “(at para. 21)
“The Guidelines have already been applied to international insolvency cases on the Commercial List. It is expected that these Guidelines will facilitate co-operative procedures for insolvency proceedings and other types of commercial disputes involving cross-border proceedings, where court-to-court communications might facilitate in harmonizing proceedings to help ensure consistent results and increase efficiency.”
Antonin I. Pribetic