Friday, 16 May 2014

Nortel’s Joint Canada-US Bankruptcy Trial Begins

On Monday May 12, 2014 the joint Canada-U.S. trial to determine how to allocate the remaining assets of Nortel Networks began.  Linked by video conferencing, Mr. Justice Newbould of the Commercial List of the Ontario Superior Court of Justice in Toronto, and U.S. Bankruptcy Judge Gross in Wilmington, Delaware, simultaneously began hearing the opening submissions, presented by two lawyers in Toronto and two in Wilmington.   Nortel Networks Limited and its subsidiaries and affiliates around the world are parties to this action.    About forty lawyers attended in Toronto, and there was about the same number in the U.S.  The trial is expected to continue until late June, and there is another trial for related claims shortly thereafter.     

Although this author knows of no precedent for a combined trial covering multiple jurisdictions, there is provision for this in the Guidelines Applicable to Court-to-Court Communications in Cross-Border Cases, which was published by the American Law Institute in 2003, and which was adopted by the Commercial List of the Ontario Superior Court of Justice in 2004.  Guideline 9 provides for courts to conduct joint hearings with other courts, subject to various requirements such as that each court can simultaneously hear the proceedings in the other court, and all filings in one court are to be available electronically and publicly in the other court.   Filing in one court does not constitute attornment to the other court’s jurisdiction. 

Presumably the rationale for this joint trial is to reduce costs.  Already over one billion U.S. dollars has been spent in the bankruptcy on professional fees of lawyers, accountants and others, since 2009. Various efforts to resolve the dispute of how to divide the assets have failed. 

It remains to be seen what will happen if the two courts’ decisions conflict,  which conflict may arise from differences between Canadian and American bankruptcy law, or differences in fact-findings, or both.     There does not appear to have been a determination of the proper, applicable substantive law – lex causae -- to govern both the Canadian and American sides of this dispute.   The Allocation Protocol, which sets the ground rules for this trial, says nothing about choice of law.

As well, parties in both countries have their “usual rights of appeal” from interlocutory and final orders, which gives rise to further potential for a conflicting outcome.

I will try to follow developments in the trial.