Canada: Ontario Court Of Appeal Denies Leave To Appeal Nortel Allocation Decision

On May 3, 2016, the Court of Appeal for Ontario released its decision (Leave Decision) denying leave to appeal from Justice Newbould's allocation of the proceeds of sale of the remains of the Nortel Networks group of companies (Allocation Decision).

The main points arising from the decision are as follows:

  • The Court of Appeal finds no basis to interfere with Justice Newbould's decision that pro rata allocation does not constitute a "substantive consolidation".
  • Justice Newbould considered relevant evidence and law, and there were no prima facie errors in his judgment.
  • The importance of the case to the parties does not warrant leave to appeal absent an issue of broader importance to the profession.

The Leave Decision has implications for the ongoing international Nortel insolvency proceedings and is of broader interest for the Court of Appeal's detailed discussion of the test for leave to appeal in Companies' Creditors Arrangement Act (CCAA) cases.

For much of the 1990s, Nortel was a leading communications technology firm headquartered in Canada, but with subsidiaries and significant operations located around the world. Various Nortel entities filed for insolvency protection in Canada, the United States, the United Kingdom and various other jurisdictions, starting on January 14, 2009. By June of that year, the various entities decided to liquidate the group's remaining assets rather than attempt to restructure and continue the business in some form.

The insolvency proceedings for the Nortel entities located in Canada (Canadian Debtors) were administered by the Commercial List of the Ontario Superior Court; the Nortel entities in the United States (U.S. Debtors) were administered by the federal Bankruptcy Court in Delaware; and the Nortel entities in Europe, the Middle East and Africa (EMEA Debtors) were administered primarily by the English courts, with secondary proceedings in the various other countries in which EMEA Debtors were located.1

The Canadian, U.S. and EMEA Debtors worked cooperatively to sell Nortel's remaining assets and after payment of various expenses, approximately US$7.3 billion remained in a "lockbox", pending an agreement on how to allocate the funds among the various debtors. When no such agreement could be reached, the Ontario and Delaware courts agreed to conduct a unique joint trial to determine the issue. On May 12, 2015, Justice Newbould of the Ontario Superior Court of Justice and Judge Gross of the U.S. Bankruptcy Court for the District of Delaware simultaneously released separate decisions directing that the lockbox proceeds be allocated in proportion to each debtor's share of the Nortel group's debts. This allocation was, broadly speaking, favourable to the EMEA and Canadian Debtors.

After unsuccessfully seeking reconsideration of the Allocation Decision and its Delaware equivalent, the U.S. Debtors and various other parties with related interests pursued appeals in both jurisdictions. In Delaware, they appealed as of right to the federal District Court for Delaware. That appeal was argued on April 5, 2016 and is currently under reserve. In Ontario, leave to the Court of Appeal was sought under section 13 of the CCAA, leading to today's decision.

Leave to appeal in CCAA proceedings is granted only when there are serious and arguable grounds that are of real and significant interest to the parties and the legal profession. This test is rarely met. In considering whether to grant leave, the Court of Appeal considers four factors: (i) whether the proposed appeal is prima facie meritorious; (ii) whether the proposed appeal raises issues of significance to the practice; (iii) whether the proposed appeal raises issues of significance in the proceeding; and (iv) whether the proposed appeal will unduly hinder the progress of the proceeding.

The bulk of the Leave Decision addressed the first factor. The U.S. Debtors advanced three grounds of appeal that, they argued, were prima facie meritorious. The Court of Appeal rejected each of those arguments.

First, the U.S. Debtors argued that Justice Newbould "substantively consolidated" (and thereby disregarded the separate legal existence of) the various Nortel estates and that he applied an inappropriately low threshold in doing so. The Court of Appeal disagreed, noting that Justice Newbould found that a pro rata allocation was not tantamount to substantive consolidation in the circumstances. The Court of Appeal held that there was no basis to interfere with that conclusion because it was supported by factual findings that Justice Newbould was entitled to make on the basis of the evidence before him. There was therefore no need for the Court of Appeal to consider the threshold for applying the substantive consolidation doctrine.

Second, the U.S. Debtors argued that Justice Newbould erred in finding that an agreement that was at the heart of the U.S. Debtors' allocation theory was not, in fact, intended to address the allocation of proceeds in an insolvency. Once again, the Court of Appeal held that there was no reason to intervene. The standard of appellate review with respect to matters of contractual interpretation is a deferential one, and the U.S. Debtors did not identify any reversible error of law or fact. The Court of Appeal also rejected the U.S. Debtors' complaint that Justice Newbould took an unduly narrow view of the "factual matrix" evidence (i.e., evidence about the surrounding circumstances of the agreement), given that Justice Newbould reviewed that evidence in considerable detail.

Third, the Court of Appeal dismissed the U.S. Debtors' argument that they were denied procedural fairness and that the allocation decision was arbitrary. The U.S. Debtors were aware that a pro rata allocation was a possible outcome and strenuously opposed such an allocation. In this regard, the decision was not unfair to them. Nor was the allocation decision arbitrary simply because it did not give the U.S. Debtors credit in the pro rata allocation for certain guarantee claims made by U.S. bondholders. Justice Newbould carefully considered those claims and held that it would be "double counting" to account for them in the pro rata allocation.

The Court of Appeal dealt with the three other factors of the leave test in a fairly summary fashion. There were no issues of general importance to insolvency practice: the facts of the case were unique, the doctrine of substantive consolidation was not engaged and the principles of contractual interpretation did not require clarification. Although the allocation of the lockbox funds was a significant issue in the proceeding, the Court of Appeal held that this did not warrant granting leave to appeal on its own (since most appeals involve issues of importance to a proceeding). Finally, the Court of Appeal observed that the insolvency proceedings had already been ongoing for some time and that granting leave to appeal would be a "barrier to progress".

The Leave Decision, though perhaps more detailed than many leave to appeal decisions, applied the well-settled test for leave to appeal in the CCAA context to the unique facts of the Nortel insolvency. The Court of Appeal's emphasis on resolving the allocation proceedings expeditiously embodies the traditional appellate deference to CCAA proceedings, which typically take place in real time and are not well-suited to lengthy appellate review.


Davies acts as co-counsel to the EMEA Debtors in Canada, along with Lax O'Sullivan Lisus Gottlieb LLP. Herbert Smith Freehills LLP and Debevoise & Plimpton LLP act as United Kingdom co-counsel to the EMEA Debtors, and Hughes Hubbard & Reed LLP act as United States counsel to the EMEA Debtors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions