2012 ONCA 816, 2012 ONCA 816

In the Matter of a Plan of Compromise or Arrangement of Sino-Forest Corporation [Indexed as: Sino-Forest Corp. (Re)] 114 O.R. (3d) 304 2012 ONCA 816 Court of Appeal for Ontario, Goudge, Hoy and Pepall JJ.A.

November 23, 2012 Debtor and creditor -- Arrangements -- Shareholders of company commencing class actions against company, underwriters and auditorsfor misrepresentation -- Plaintiffs alleging that misrepresentations artificially inflated price of company's shares -- Company successfullyseeking protection under Companies' Creditors Arrangement Act ("CCAA") -- Underwriters and auditors filing proofs of claim againstcompany seeking contribution and indemnity for any amounts they might be ordered to pay as damages in class actions -- Supervisingjudge not erring in finding that those claims were equity claims within meaning of s. 2(1) of CCAA despite fact that underwriters andauditors were not holders of an equity interest -- Companies' Creditors Arrangement Act, R.S.C. 1985, c.

C-36, s. 2(1). The appellant underwriters provided underwriting services in connection with three S Co. equity offerings and four S Co. note offerings.The appellant auditors served as S Co.'s auditors at the relevant time.

Shareholders of S Co. brought proposed class actions against S Co.and, among others, the underwriters and auditors, alleging that S Co. repeatedly misrepresented its assets and financial situation and itscompliance with generally accepted accounting principles in its public disclosure, that the auditors and underwriters failed to detect thosemisrepresentations, and that the auditors misrepresented that their audit reports [page305] were prepared in accordance with generallyaccepted auditing standards.

They claimed that the misrepresentations artificially inflated the price of S Co.'s shares and that proposedclass members suffered damages when the shares fell after the truth was revealed. S Co. successfully sought protection pursuant to theprovisions of the Companies' Creditors Arrangement Act ("CCAA"). The auditors and underwriters filed proofs of claim seekingcontribution and indemnity for, among other things, any amounts that they were ordered to pay as damages to the plaintiffs in the classactions.

S Co. applied for an order that the claims against it arising from the ownership, purchase or sale of an equity interest in thecompany, including shareholder claims, and any indemnification claim against it related to or arising from the shareholder claims,including the claims for contribution or indemnity, were equity claims under the CCAA. The application was granted. The underwritersand auditors appealed. Held, the appeal should be dismissed. The definition of equity claim in s. 2(1) of the CCAA focuses on the nature of the claim, and not the identity of the claimant.

Theappellants' claims for contribution and indemnity were clearly equity claims, despite the fact that the appellants did not have an equityinterest in S Co. Parliament adopted expansive language in defining "equity claim". Parliament employed the phrase "in respect of" twicein defining equity claim: in the opening portion of the definition, it refers to an equity claim as a "claim that is in respect of an equityinterest", and in para. (

e) it refers to "contribution or indemnity in respect of a claim referred to in any of paragraphs (

a) to (d)". TheSupreme Court of Canada has repeatedly held that the words "in respect of" are of the widest possible scope, conveying some link orconnection between two related subjects. It was conceded that the shareholder claims against S Co. were claims for "a monetary lossresulting from the ownership, purchase or sale of an equity interest", within the meaning of para. (

d) of the definition of "equity claim".There was an obvious link between the appellants' claims against S Co. for contribution and indemnity and the shareholders' claimsagainst S Co. Parliament also defined equity claim as "including a claim for, among others", the claims described in paras. (

a) to (e). TheSupreme Court has held that the phrase "including" indicates that the preceding words -- "a claim that is in respect of an equity interest" -- should be given an expansive

interpretation, and include matters which might not otherwise be within the meaning of the term.Accordingly, the appellants' claims, which clearly fell within para. (e), were included within the meaning of the phrase "claim that is inrespect of an equity interest". Parliament chose not to include language in s. 2(1) restricting claims for contribution or indemnity to thosemade by shareholders. If only a person with an equity interest could assert an equity claim, para. (

e) would be rendered meaningless. Nolegislative provision should be interpreted so as to render it mere surplusage. Looking at s. 2(1) as a whole, it appeared that the remediesavailable to shareholders were all addressed by s. 2(1)(

a) to (d). The logic of s. 2(1)(

a) to (

e) therefore also supported the notion thatpara. (

e) referred to claims for contribution and indemnity not by shareholders, but by others. The definition of "equity claim" wassufficiently clear to alter the pre-existing common law. APPEAL from the order of Morawetz J., [2012] O.J. No. 3627, 2012 ONSC 4377 (S.C.J.) declaring that the appellants' claims wereequity claims within the meaning of the Companies' Creditors Arrangement Act. Cases referred toBlue Range Resource Corp. (Re), [2000] A.J. No. 14, 2000 ABQB 4, [2000] 4 W.W.R. 738, 76 Alta. L.R. (3d) 338, 259A.R. 30, 15 C.B.R. (4th) 169, 94 A.C.W.S. (3d) 223; CanadianOxy Chemicals Ltd. v.

Canada (Attorney General), (SCC), [1999] 1 S.C.R. 743, [1998] S.C.J. No. 87, 171 D.L.R. (4th) 733, 237 N.R. 373, J.E. 99-861, 122 B.C.A.C. 1, 133 C.C.C. (3d)426, 29 C.E.L.R. (N.S.) 1, 23 C.R. (5th) 259, 41 W.C.B. (2d) 411; [page306] Central Capital Corp. (Re) (1996), (ONCA), 27 O.R. (3d) 494, [1996] O.J. No. 359, 132 D.L.R. (4th) 223, 88 O.A.C. 161, 26 B.L.R. (2d) 88, 38 C.B.R. (3d) 1, 61 A.C.W.S.(3d) 18 (C.A.); EarthFirst Canada Inc. (Re), [2009] A.J. No. 749, 2009 ABQB 316, 56 C.B.R. (5th) 102; Goodyear Tire & Rubber Co. ofCanada v. T. Eaton Co., (SCC), [1956] S.C.R. 610, [1956] S.C.J.

No. 37, 4 D.L.R. (2d) 1, 28 C.P.R. 25, 56 D.T.C. 1060;In Re: Mid-American Waste Systems, Inc., 228 B.R. 816 (Bankr. Del. 1999); Markevich v. Canada, [2003] 1 S.C.R. 94, [2003] S.C.J.No. 8, 2003 SCC 9, 239 F.T.R. 159, 223 D.L.R. (4th) 17, 300 N.R. 321, J.E. 2003-506, 2003 D.T.C. 5185, 120 A.C.W.S. (3d) 532;National Bank of Canada v. Merit Energy Ltd., [2002] A.J. No. 6, 2002 ABCA 5, [2002] 3 W.W.R. 215, 317 A.R. 319, affg [2001] A.J.No. 918, 2001 ABQB 583, [2001] 10 W.W.R. 305, 95 Alta. L.R. (3d) 166, 294 A.R. 15, 28 C.B.R. (4th) 228, 107 A.C.W.S. (3d) 182(Q.B.); National Bank of Greece (Canada) v.

Katsikonouris, (SCC), [1990] 2 S.C.R. 1029, [1990] S.C.J. No. 95, 74

D.L.R. (4th) 197, 115 N.R. 42, J.E. 90-1410, 32 Q.A.C. 250, 50 C.C.L.I. 1, [1990] I.L.R. Â1-2663 at 10478, 23 A.C.W.S. (3d) 74;Nelson Financial Group Ltd. (Re), [2010] O.J. No. 4903, 2010 ONSC 6229, 75 B.L.R. (4th) 302, 71 C.B.R. (5th) 153 (S.C.J.); ParrySound (District) Social Services Administration Board v. Ontario Public Service Employees Union, Local 324, [2003] 2 S.C.R. 157,[2003] S.C.J. No. 42, 2003 SCC 42, 230 D.L.R. (4th) 257, 308 N.R. 271, 177 O.A.C. 235, J.E. 2003-1790, 7 Admin. L.R. (4th) 177, 31C.C.E.L. (3d) 1, [2003] CLLC Â220-062, 125 A.C.W.S. (3d) 85; R. v.

Nowegijick, (SCC), [1983] 1 S.C.R. 29, [1983]S.C.J. No. 5, 144 D.L.R. (3d) 193, 46 N.R. 41, [1983] 2 C.N.L.R. 89, [1983] C.T.C. 20, 83 D.T.C. 5041, 18 A.C.W.S. (2d) 2; R. v.Proulx, [2000] 1 S.C.R. 61, [2000] S.C.J. No. 6, 2000 SCC 5, 182 D.L.R. (4th) 1, 249 N.R. 201, [2000] 4 W.W.R. 21, J.E. 2000-264,142 Man. R. (2d) 161, 140 C.C.C. (3d) 449, 30 C.R. (5th) 1, 49 M.V.R. (3d) 163, 44 W.C.B. (2d) 479; Return on Innovation Capital Ltd.v. Gandi Innovations Ltd., [2011] O.J. No. 3827, 2011 ONSC 5018, 83 C.B.R. (5th) 123, 206 A.C.W.S. (3d) 464 (S.C.J.) [Leave toappeal refused [2012] O.J.

No. 31, 2012 ONCA 10, 90 C.B.R. (5th) 141, 211 A.C.W.S. (3d) 264]; Stelco Inc. (Re), [2006] O.J. No. 276,14 B.L.R. (4th) 260, 17 C.B.R. (5th) 78, 145 A.C.W.S. (3d) 194 (S.C.J.) Statutes referred to Bankruptcy and Insolvency Act, R.S.C.1985, c. B-3, ss. 2 [as am.], 121 [as am.] Bankruptcy Code, 11 U.S.C.S. 502(e)(1)(

B) Companies' Creditors Arrangement Act, R.S.C.1985, c. C-36 [as am.], ss. 2(1) [as am], (a)-(e), 6(8), 22.1 [as am.] Negligence Act, R.S.O. 1990, c. N.1 [as am.], s. 2 Securities Act,R.S.A. 2000, c. S-4, s. 203(1) [as am.],

(10) Securities Act, R.S.B.C. 1996, c. 418, s. 131(1) [as am.],

(11) Securities Act, R.S.N.L. 1990,c. S-13, s. 130(1), (8) Securities Act, R.S.N.S. 1989, c. 418, s. 137(1), (8) Securities Act, R.S.O. 1990, c. S.5, s. 130(1) [as am.], (8)Securities Act, R.S.P.E.I. 1988, c. S-3.1, s. 111(1), (12) Securities Act, R.S.Q., c. V-1.1, ss. 218 [as am.], 219, 221 [as am.] SecuritiesAct, S.N.B. 2004, c. S-5.5, s. 149(1), (9) Securities Act, S.N.W.T. 2008, c. 10, s. 111(1), (12) Securities Act, S.Nu. 2008, c. 12, s. 111(1),(12) Securities Act, S.Y. 2007, c. 16, s. 111(1), (13) The Securities Act, C.C.S.M. c. S50, s. 141(1), (11) The Securities Act, 1988, S.S.1988-89, c.

S-42.2, s. 137(1), (9) Authorities referred to Driedger, Elmer A., Construction of Statutes, 2nd ed. (Toronto: Butterworths,1983) [page307] Peter H. Griffin, Peter J. Osborne and Shara Roy, for appellant Ernst & Young LLP.

Sheila Block and David Bish, for appellants Credit Suisse Securities (Canada) Inc., TD Securities Inc., Dundee Securities Corporation (now known as DWM Securities Inc.), RBC Dominion Securities Inc., Scotia Capital Inc., CIBC World Markets Inc., Merrill Lynch Canada Inc., Canaccord Financial Ltd. (now known as Canaccord Genuity Corp.), Maison Placements Canada Inc., Credit Suisse Securities (USA) LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, successor by merger to Banc of America Securities LLC. Kenneth Dekker, for appellant BDO Limited. Robert W. Staley, Derek J.

Bell and Jonathan Bell, for respondent Sino-Forest Corporation. Benjamin Zarnett, Robert Chadwick and Julie Rosenthal, for respondent Ad Hoc Committee of Noteholders. Clifton Prophet, for monitor FTI Consulting Canada Inc. Kirk M. Baert, A. Dimitri Lascaris and Massimo Starnino, for respondent Ad Hoc Committee of Purchasers. Emily Cole, for respondent Allen Chan. Erin Pleet, for respondent David Horsley. David Gadsden, for respondent Pöyry (Beijing). Larry Lowenstein and Edward A. Sellers, for respondent board of directors.

BY THE COURT: -- I Overview [1] In 2009, the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended ("CCAA"), was amended to expresslyprovide that general creditors are to be paid in full before an equity claim is paid. [2] This appeal considers the definition of "equity claim" in s. 2(1) of the CCAA. More particularly, the central issue is whether claimsby auditors and underwriters against the respondent debtor, Sino-Forest Corporation ("Sino-Forest"), for contribution and indemnity fallwithin that definition.

The claims arise out of proposed shareholder class actions for misrepresentation. [page308] [3] The appellants argue that the supervising judge erred in concluding that the claims at issue are equity claims within the meaning ofthe CCAA and in determining the issue before the claims procedure established in Sino-Forest's CCAA proceeding had been completed. [4] For the reasons that follow, we conclude that the supervising judge did not err and accordingly dismiss this appeal. II TheBackground (

a) The parties [5] Sino-Forest is a Canadian public holding company that holds the shares of numerous subsidiaries, which in turn own, directly or

indirectly, forestry assets located principally in the People's Republic of China. Its common shares are listed on the Toronto Stock Exchange. Sino-Forest also issued approximately $1.8 billion of unsecured notes, in four series.

Trading in Sino-Forest shares ceased on August 26, 2011, as a result of a cease-trade order made by the Ontario Securities Commission. [ 6 ] The appellant underwriters [See Note 1 below] provided underwriting services in connection with three separate Sino- Forest equity offerings in June 2007, June 2009 and December 2009, and four separate Sino-Forest note offerings in July 2008, June 2009, December 2009 and October 2010.

Certain underwriters entered into agreements with Sino-Forest in which Sino-Forest agreed to indemnify the underwriters in connection with an array of matters that could arise from their participation in these offerings. [ 7 ] The appellant BDO Limited ("BDO") is a Hong Kong-based accounting firm that served as Sino-Forest's auditor between 2005 and August 2007, and audited its annual financial statements for the years ended December 31, 2005 and December 31, 2006. [ 8 ] The engagement agreements governing BDO's audits of Sino- Forest provided that the company's management bore the primary responsibility for preparing its financial statements in accordance with generally accepted accounting principles ("GAAP") [page309] and implementing internal controls to prevent and detect fraud and error in relation to its financial reporting. [ 9 ] BDO's audit report for 2006 was incorporated by reference into a June 2007 prospectus issued by Sino-Forest regarding the offering of its shares to the public.

This use by Sino-Forest was governed by an engagement agreement dated May 23, 2007 in which Sino-Forest agreed to indemnify BDO in respect of any claims by the underwriters or any third party that arose as a result of the further steps taken by BDO in relation to the issuance of the June 2007 prospectus. [ 10 ] The appellant Ernst & Young LLP ("E&Y") served as Sino- Forest's auditor for the years 2007 to 2012, and delivered auditors' reports with respect to the consolidated financial statements of Sino-Forest for fiscal years ended December 31, 2007 to 2010, inclusive.

In each year for which it prepared a report, E&Y entered into an audit engagement letter with Sino- Forest in which Sino-Forest undertook to prepare its financial statements in accordance with GAAP, design and implement internal controls to prevent and detect fraud and error, and provide E&Y with its complete financial records and related information.

Some of these letters contained an indemnity in favour of E&Y. [ 11 ] The respondent Ad Hoc Committee of Noteholders consists of noteholders owning approximately one-half of Sino-Forest's total noteholder debt. [See Note 2 below] They are creditors who have debt claims against Sino-Forest; they are not equity claimants. [ 12 ] Sino-Forest has insufficient assets to satisfy all the claims against it. To the extent that the appellants' claims are accepted and are treated as debt claims rather than equity claims, the noteholders' recovery will be diminished. (

b) The class actions [ 13 ] In 2011 and January of 2012, proposed class actions were commenced in Ontario, Quebec, Saskatchewan and New York State against, amongst others, Sino-Forest, certain of its officers, directors and employees, BDO, E&Y and the underwriters. Sino- Forest is sued in all actions. [See Note 3 below] [page310] [ 14 ] The proposed representative plaintiffs in the class actions are shareholders of Sino-Forest.

They allege that Sino- Forest repeatedly misrepresented its assets and financial situation and its compliance with GAAP in its public disclosure; the appellant auditors and underwriters failed to detect these misrepresentations; and the appellant auditors misrepresented that their audit reports were prepared in accordance with generally accepted auditing standards ("GAAS").

The representative plaintiffs claim that these misrepresentations artificially inflated the price of Sino- Forest's shares and that proposed class members suffered damages when the shares fell after the truth was revealed in 2011. [ 15 ] The representative plaintiffs in the Ontario class action seek approximately $9.2 billion in damages. The Quebec, Saskatchewan and New York class actions do not specify the quantum of damages sought. [ 16 ] To date, none of the proposed class actions has been certified. (

c) CCAA protection and proofs of claim [ 17 ] On March 30, 2012, Sino-Forest sought protection pursuant to the provisions of the CCAA . Morawetz J. granted the initial order which, among other things, appointed FTI Consulting Canada Inc. as the monitor and stayed the class actions as against Sino-Forest. Since that time, Morawetz J. has been the supervising judge of the CCAA proceedings.

The initial stay of the class actions was extended and broadened by order dated May 8, 2012. [ 18 ] On May 14, 2012, the supervising judge granted an unopposed claims procedure order which established a procedure to file and determine claims against Sino-Forest. [ 19 ] Thereafter, all of the appellants filed individual proofs of claim against Sino-Forest seeking contribution and indemnity for, among other things, any amounts that they are ordered to pay as damages to the plaintiffs in the class actions.

Their proofs of claim advance several different legal bases for Sino-Forest's alleged obligation of contribution and indemnity, including breach of contract, contractual terms of indemnity, negligent and fraudulent misrepresentation in tort, and the provisions of the Negligence Act, R.S.O. 1990, c. N.1 . (

d) Order under appeal [ 20 ] Sino-Forest then applied for an order that the following claims are equity claims under the CCAA : claims against Sino- Forest arising from the ownership, purchase or sale of an equity [page311] interest in the company, including shareholder claims ("shareholder claims"); and any indemnification claims against Sino-Forest related to or arising from the shareholder claims, including the appellants' claims for contribution or indemnity ("related indemnity claims"). [ 21 ] The motion was supported by the Ad Hoc Committee of Noteholders. [ 22 ] On July 27, 2012, the supervising judge granted the order sought by Sino-Forest and released a comprehensive endorsement.

[ 23 ] He concluded that it was not premature to determine the equity claims issue. It had been clear from the outset of Sino- Forest's CCAA proceedings that this issue would have to be decided and that the expected proceeds arising from any sales process would be insufficient to satisfy the claims of creditors. Furthermore, the issue could be determined independently of the claims procedure and without prejudice being suffered by any party. [ 24 ] He also concluded that both the shareholder claims and the related indemnity claims should be characterized as equity claims. In

summary, he reasoned that -- the characterization of claims for indemnity turns on the characterization of the underlying primary claims.

The shareholder claims are clearly equity claims and they led to and underlie the related indemnity claims; -- the plain language of the CCAA , which focuses on the nature of the claim rather than the identity of the claimant, dictates that both shareholder claims and related indemnity claims constitute equity claims; -- the definition of "equity claim" added to the CCAA in 2009 broadened the scope of equity claims established by pre- amendment jurisprudence; -- this holding is consistent with the analysis in Return on Innovation Capital Ltd. v. Gandi Innovations Ltd., [2011] O.J.

No. 3827, 2011 ONSC 5018 , 83 C.B.R. (5th) 123 (S.C.J.), which dealt with contractual indemnification claims of officers and directors. Leave to appeal was denied by this court, [2012] O.J. No. 31, 2012 ONCA 10 , 90 C.B.R. (5th) 141; and -- "[i]t would be totally inconsistent to arrive at a conclusion that would enable either the auditors or the underwriters, through a claim for indemnification, to be treated as creditors [page312] when the underlying actions of shareholders cannot achieve the same status" (para. 82).

To hold otherwise would run counter to the scheme established by the CCAA and would permit an indirect remedy to the shareholders when a direct remedy is unavailable. [ 25 ] The supervising judge did not characterize the full amount of the claims of the auditors and underwriters as equity claims. He excluded the claims for defence costs on the basis that while it was arguable that they constituted claims for indemnity, they were not necessarily in respect of an equity claim. That determination is not appealed. III

Interpretation of "Equity Claim" (

a) Relevant statutory provisions [ 26 ] As part of a broad reform of Canadian insolvency legislation, various amendments to the CCAA were proclaimed in force as of September 18, 2009. [ 27 ] They included the addition of s. 6(8): 6(8) No compromise or arrangement that provides for the payment of an equity claim is to be sanctioned by the court unless it provides that all claims that are not equity claims are to be paid in full before the equity claim is to be paid.

Section 22.1, which provides that creditors with equity claims may not vote at any meeting unless the court orders otherwise, was also added. [ 28 ] Related

definitions of "claim", "equity claim" and "equity interest" were added to s. 2(1) of the CCAA : 2(1) In this Act, @7 . . . . . "claim" means any indebtedness, liability or obligation of any kind that would be a claim provable within the meaning of

section 2 of the Bankruptcy and Insolvency Act ; @7 . . . . . "equity claim" means a claim that is in respect of an equity interest, including a claim for, among others, (

a) a dividend or similar payment, (

b) a return of capital, (

c) a redemption or retraction obligation, [page313] (

d) a monetary loss resulting from the ownership, purchase or sale of an equity interest or from the rescission, or, in Quebec, the annulment, of a purchase or sale of an equity interest, or (

e) contribution or indemnity in respect of a claim referred to in any of paragraphs (

a) to (d); "equity interest" means (

a) in the case of a company other than an income trust, a share in the company -- or a warrant or option or another right to acquire a share in the company -- other than one that is derived from a convertible debt, and (

b) in the case of an income trust, a unit in the income trust -- or a warrant or option or another right to acquire a unit in the income trust -- other than one that is derived from a convertible debt[.] (Emphasis added) [ 29 ]

Section 2 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 ("BIA") defines a "claim provable in bankruptcy".

Section 121 of the BIA in turn specifies that claims provable in bankruptcy are those to which the bankrupt is subject. 2. "claim provable in bankruptcy", "provable claim" or "claim provable" includes any claim or liability provable in proceedings under this Act by a creditor; @7 . . . . . 121(1) All debts and liabilities, present or future, to which the bankrupt is subject on the day on which the bankrupt becomes bankrupt or to which the bankrupt may become subject before the bankrupt's discharge by reason of any obligation incurred before the day on which the bankrupt becomes bankrupt shall be deemed to be claims provable in proceedings under this Act. (Emphasis added) (

b) The legal framework before the 2009 amendments [ 30 ] Even before the 2009 amendments to the CCAA codified the treatment of equity claims, the courts subordinated shareholder equity claims to general creditors' claims in an insolvency. As the supervising judge described [at paras. 23-25]: Essentially, shareholders cannot reasonably expect to maintain a financial interest in an insolvent company where creditor claims are not being paid in full. Simply put, shareholders have no economic interest in an insolvent enterprise.

The basis for the differentiation flows from the fundamentally different nature of debt and equity investments. Shareholders have unlimited upside potential when purchasing shares. Creditors have no corresponding upside potential. [page314] As a result, courts subordinated equity claims and denied such claims a vote in plans of arrangement. (Citations omitted) [See Note 4

below] (

c) The appellants' submissions [31] The appellants essentially advance three arguments. [32] First, they argue that on a plain reading of s. 2(1), their claims are excluded. They focus on the opening words of the definition of"equity claim" and argue that their claims against Sino-Forest are not claims that are "in respect of an equity interest" because they donot have an equity interest in Sino-Forest. Their relationships with Sino-Forest were purely contractual and they were arm's-lengthcreditors, not shareholders with the risks and rewards attendant to that position.

The policy rationale behind ranking shareholders belowcreditors is not furthered by characterizing the appellants' claims as equity claims. They were service providers with a contractual right toan indemnity from Sino- Forest. [33] Second, the appellants focus on the term "claim" in para. (

e) of the definition of "equity claim", and argue that the claims in respectof which they seek contribution and indemnity are the shareholders' claims against them in court proceedings for damages, which are not"claims" against Sino- Forest provable within the meaning of the BIA and, therefore, not "claims" within s. 2(1). They submit that thesupervising judge erred in focusing on the characterization of the underlying primary claims. [34] Third, the appellants submit that the definition of "equity claim" is not sufficiently clear to have changed the existing law.

It isassumed that the legislature does not intend to change the common law without "expressing its intentions to do so with irresistibleclearness": Parry Sound (District) Social Services Administration Board v. Ontario Public Service Employees Union, Local 324, [2003]2 S.C.R. 157, [2003] S.C.J. No. 42, 2003 SCC 42, at para. 39, citing Goodyear Tire & Rubber Co. of Canada v. T. Eaton Co., (SCC), [1956] S.C.R. 610, [1956] S.C.J. No. 37, at p. 614 S.C.R.

The appellants argue that the supervising judge'sinterpretation of "equity claim" dramatically alters the common [page315] law as reflected in National Bank of Canada v. Merit EnergyLtd., [2001] A.J. No. 918, 2001 ABQB 583, 294 A.R. 15, affd [2002] A.J. No. 6, 2002 ABCA 5, 317 A.R. 319. There, the courtdetermined that in an insolvency, claims of auditors and underwriters for indemnification are not to be treated in the same manner asclaims by shareholders.

Furthermore, the Senate debates that preceded the enactment of the amendments did not specifically commenton the effect of the amendments on claims by auditors and underwriters. The amendments should be interpreted as codifying the pre-existing common law as reflected in National Bank of Canada v. Merit Energy Ltd. [35] The appellants argue that the decision of Return on Innovation Capital Ltd. v. Gandi Innovations Ltd. is distinguishable because itdealt with the characterization of claims for damages by an equity investor against officers and directors, and it predated the 2009amendments.

In any event, this court confirmed that its decision denying leave to appeal should not be read as a judicial precedent forthe

interpretation of the meaning of "equity claim" in s. 2(1) of the CCAA. (

d) Analysis (

i) Introduction [36] The exercise before this court is one of statutory

interpretation. We are therefore guided by the following oft- cited principle fromElmer A. Driedger, Construction of Statutes, 2nd ed. (Toronto: Butterworths, 1983), at p. 87: [T]he words of

an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme ofthe Act, the object of the Act, and the intention of Parliament. [37] We agree with the supervising judge that the definition of equity claim focuses on the nature of the claim, and not the identity of theclaimant. In our view, the appellants' claims for contribution and indemnity are clearly equity claims. [38] The appellants' arguments do not give effect to the expansive language adopted by Parliament in defining "equity claim" and read inlanguage not incorporated by Parliament. Their

interpretation would render para. (

e) of the definition meaningless and defies the logic ofthe section. (ii) The expansive language used [39] The definition incorporates two expansive terms. [40] First, Parliament employed the phrase "in respect of" twice in defining equity claim: in the opening portion of the definition, it refersto an equity claim as a "claim that is in respect of [page316] an equity interest", and in para. (

e) it refers to "contribution or indemnity inrespect of a claim referred to in any of paragraphs (

a) to (d)" (emphasis added). [41] The Supreme Court of Canada has repeatedly held that the words "in respect of" are "of the widest possible scope", conveying somelink or connection between two related subjects. In CanadianOxy Chemicals Ltd. v. Canada (Attorney General), (SCC),[1999] 1 S.C.R. 743, [1998] S.C.J. No. 87, at para. 16, citing R. v. Nowegijick, (SCC), [1983] 1 S.C.R. 29, [1983]S.C.J. No. 5, at p. 39 S.C.R., the Supreme Court held as follows: The words "in respect of" are, in my opinion, words of the widest possible scope.

They import such meanings as "in relation to", "withreference to" or "in connection with". The phrase "in respect of" is probably the widest of any expression intended to convey someconnection between two related subject matters. (Emphasis added in CanadianOxy) That court also stated as follows in Markevich v.Canada, [2003] 1 S.C.R. 94, [2003] S.C.J.

No. 8, 2003 SCC 9, at para. 26: The words "in respect of" have been held by this Court to be words of the broadest scope that convey some link between two subjectmatters. (Citations omitted) [42] It is conceded that the shareholder claims against Sino- Forest are claims for "a monetary loss resulting from the ownership,purchase or sale of an equity interest", within the meaning of para. (

d) of the definition of "equity claim". There is an obvious linkbetween the appellants' claims against Sino- Forest for contribution and indemnity and the shareholders' claims against Sino-Forest. Thelegal proceedings brought by the shareholders asserted their claims against Sino-Forest together with their claims against the appellants,which gave rise to these claims for contribution and indemnity. The causes of action asserted depend largely on common facts and seek

recovery of the same loss. [43] The appellants' claims for contribution or indemnity against Sino-Forest are therefore clearly connected to or "in respect of" a claimreferred to in para. (d), namely, the shareholders' claims against Sino-Forest. They are claims in respect of equity claims by shareholdersand are provable in bankruptcy against Sino-Forest. [44] Second, Parliament also defined equity claim as "including a claim for, among others", the claims described in paras. (

a) to (e). TheSupreme Court has held that this phrase "including" indicates that the preceding words -- "a claim that is in respect of an equity interest"-- should be given an expansive [page317]

interpretation, and include matters which might not otherwise be within the meaning of theterm, as stated in National Bank of Greece (Canada) v. Katsikonouris, (SCC), [1990] 2 S.C.R. 1029, [1990] S.C.J.

No.95, at p. 1041 S.C.R.: [T]hese words are terms of extension, designed to enlarge the meaning of preceding words, and not to limit them. [T]he natural inference is that the drafter will provide a specific illustration of a subset of a given category of things in order to make itclear that that category extends to things that might otherwise be expected to fall outside it. [45] Accordingly, the appellants' claims, which clearly fall within para. (e), are included within the meaning of the phrase a "claim that isin respect of an equity interest". (iii) What Parliament did not say [46] "Equity claim" is not confined by its definition, or by the definition of "claim", to a claim advanced by the holder of an equityinterest.

Parliament could have, but did not, include language in para. (

e) restricting claims for contribution or indemnity to those madeby shareholders. (iv) An

interpretation that avoids surplusage [47] A claim for contribution arises when the claimant for contribution has been sued.

Section 2 of the Negligence Act provides that atortfeasor may recover contribution or indemnity from any other tortfeasor who is, or would if sued have been, liable in respect of thedamage to any person suffering damage as a result of a tort.

The securities legislation of the various provinces provides that an issuer, itsunderwriters and, if they consented to the disclosure of information in the prospectus, its auditors, among others, are jointly andseverally liable for a misrepresentation in the prospectus, and provides for rights of contribution. [See Note 5 below] [page318] [48] Counsel for the appellants were unable to provide a satisfactory example of when a holder of an equity interest in a debtor companywould seek contribution under para. (

e) against the debtor in respect of a claim referred to in any of paras. (

a) to (d). In our view, thisindicates that para. (

e) was drafted with claims for contribution or indemnity by non- shareholders rather than shareholders in mind. [49] If the appellants'

interpretation prevailed, and only a person with an equity interest could assert such a claim, para. (

e) would berendered meaningless, and as Lamer C.J.C. wrote in R. v. Proulx, [2000] 1 S.C.R. 61, [2000] S.C.J. No. 6, 2000 SCC 5, at para. 28: It is a well accepted principle of statutory

interpretation that no legislative provision should be interpreted so as to render it meresurplusage. (

v) The scheme and logic of the

section [50] Moreover, looking at s. 2(1) as a whole, it would appear that the remedies available to shareholders are all addressed by s. 2(1)(

a) to(d). The logic of s. 2(1)(

a) to (

e) therefore also supports the notion that para. (

e) refers to claims for contribution or indemnity not byshareholders, but by others. (vi) The legislative history of the 2009 amendments [51] The appellants and the respondents each argue that the legislative history of the amendments supports their respective

interpretationof the term "equity claim". We have carefully considered the legislative history. The limited commentary is brief and imprecise.

Theclause-by-clause analysis of Bill C-12 comments that "[a]n equity claim is defined to include any claim that is related to an equityinterest". [See Note 6 below] While, as the appellants submit, there was no specific reference to the position of auditors andunderwriters, the desirability of greater conformity with United States insolvency law to avoid forum shopping by debtors washighlighted in 2003, some four years before the definition of "equity claim" was included in Bill C-12. [52] In this instance, the legislative history ultimately provided very little insight into the intended meaning of the amendments.

We havebeen guided by the plain words used by Parliament in reaching our conclusion. [page319] (vii) Intent to change the common law [53] In our view, the definition of "equity claim" is sufficiently clear to alter the pre-existing common law. National Bank of Canada v.Merit Energy Ltd., an Alberta decision, was the single case referred to by the appellants that addressed the treatment of auditors' andunderwriters' claims for contribution and indemnity in an insolvency before the definition was enacted. As the supervising judge noted,in a more recent decision, Return on Innovation Capital Ltd. v.

Gandi Innovations Ltd., the courts of this province adopted a moreexpansive approach, holding that contractual indemnification claims of directors and officers were equity claims. [54] We are not persuaded that the practical effect of the change to the law implemented by the enactment of the definition of "equityclaim" is as dramatic as the appellants suggest. The operations of many auditors and underwriters extend to the United States, wherecontingent claims for reimbursement or contribution by entities "liable with the debtor" are disallowed pursuant to 502(e)(1)(

B) of theU.S. Bankruptcy Code, 11 U.S.C.S. [See Note 7 below] (viii) The purpose of the legislation [55] The supervising judge indicated that if the claims of auditors and underwriters for contribution and indemnity were not includedwithin the meaning of "equity claim", the CCAA would permit an indirect remedy to the shareholders when a direct remedy is notavailable. We would express this concept differently.

[56] In our view, in enacting s. 6(8) of the CCAA, Parliament intended that a monetary loss suffered by a shareholder (or other holder ofan equity interest) in respect of his or her equity interest not diminish the assets of the debtor available to general creditors in arestructuring.

If a shareholder sues auditors and underwriters in respect of his or her loss, in addition to the debtor, and the auditors orunderwriters assert claims of contribution or indemnity against the debtor, the assets of the debtor available to general creditors would bediminished by the amount of the claims for contribution and indemnity. [page320] IV Prematurity [57] We are not persuaded that the supervising judge erred by determining that the appellants' claims were equity claims before theclaims procedure established in Sino-Forest's CCAA proceeding had been completed. [58] The supervising judge noted, at para. 7 of his endorsement, that from the outset, Sino-Forest, supported by the monitor, had takenthe position that it was important that these proceedings be completed as soon as possible.

The need to address the characterization of theappellants' claims had also been clear from the outset. The appellants have not identified any prejudice that arises from the determinationof the issue at this stage. There was no additional information that the appellants have identified that was not before the supervisingjudge. The monitor, a court-appointed officer, supported the motion procedure. The supervising judge was well positioned to determinewhether the procedure proposed was premature and, in our view, there is no basis on which to interfere with the exercise of hisdiscretion. V

Summary [59] In conclusion, we agree with the supervising judge that the appellants' claims for contribution or indemnity are equity claims withins. 2(1)(

e) of the CCAA. [60] We reach this conclusion because of what we have said about the expansive language used by Parliament, the language Parliamentdid not use, the avoidance of surplusage, the logic of the

section and what, from the foregoing, we conclude is the purpose of the 2009amendments as they relate to these proceedings. [61] We see no basis to interfere with the supervising judge's decision to consider whether the appellants' claims were equity claimsbefore the completion of the claims procedure. VI Disposition [62] This appeal is accordingly dismissed. As agreed, there will be no costs.

Appeal dismissed. @7 Notes ---------------- Note 1: Credit Suisse Securities (Canada) Inc., TD Securities Inc., Dundee Securities Corporation (now known as DWM Securities Inc.),RBC Dominion Securities Inc., Scotia Capital Inc., CIBC World Markets Inc., Merrill Lynch Canada Inc., Canaccord Financial Ltd. (nowknown as Canaccord Genuity Corp.), Maison Placements Canada Inc., Credit Suisse Securities (USA) LLC and Merrill Lynch, Pierce,Fenner & Smith Incorporated, successor by merger to Banc of America Securities LLC.

Note 2: Noteholders holding in excess of $1.296 billion, or 72 per cent, of Sino-Forest's approximately $1.8 billion in noteholders' debthave executed written support agreements in favour of the Sino-Forest CCAA plan as of March 30, 2012. These include noteholdersrepresented by the Ad Hoc Committee of Noteholders. Note 3: None of the appellants are sued in Saskatchewan and all are sued in Ontario. E&Y is also sued in Quebec and New York and theappellant underwriters are also sued in New York.

Note 4: The supervising judge cited the following cases as authority for these propositions: Blue Range Resource Corp., (Re), [2000]A.J. No. 14, 2000 ABQB 4, 259 A.R. 30; Stelco Inc. (Re), [2006] O.J. No. 276, 17 C.B.R. (5th) 78 (S.C.J.); Central Capital Corp. (Re)(1996), (ON CA), 27 O.R. (3d) 494, [1996] O.J. No. 359 (C.A.); Nelson Financial Group Ltd. (Re), [2010] O.J. No.4903, 2010 ONSC 6229, 71 C.B.R. (5th) 153 (S.C.J.); EarthFirst Canada Inc. (Re), [2009] A.J. No. 749, 2009 ABQB 316, 56 C.B.R.(5th) 102. Note 5: Securities Act, R.S.O. 1990, c. S.5, s. 130(1), (8); Securities Act, R.S.A. 2000, c.

S-4, s. 203(1), (10); Securities Act, R.S.B.C.1996, c. 418, s. 131(1), (11); The Securities Act, C.C.S.M. c. S50, s. 141(1), (11); Securities Act, S.N.B. 2004, c. S-5.5, s. 149(1), (9);Securities Act, R.S.N.L. 1990, c. S-13, s. 130(1), (8); Securities Act, R.S.N.S. 1989, c. 418, s. 137(1), (8); Securities Act, S.Nu. 2008, c.12, s. 111(1), (12); Securities Act, S.N.W.T. 2008, c. 10, s. 111(1), (12); Securities Act, R.S.P.E.I. 1988, c. S-3.1, s. 111(1), (12);Securities Act, R.S.Q., c. V-1.1, ss. 218, 219, 221; The Securities Act, 1988, S.S. 1988-89, c.

S-42.2, s. 137(1), (9); Securities Act, S.Y.2007, c. 16, s. 111(1), (13). Note 6: We understand that this analysis was before the Standing Senate Committee on Banking, Trade and Commerce in 2007. Note 7: The United States Bankruptcy Court for the District of Delaware in In Re: Mid-American Waste Systems, Inc., 228 B.R. 816(Bankr. Del. 1999) indicated that this provision applies to underwriters' claims, and reflects the policy rationale that such stakeholders arein a better position to evaluate the risks associated with the issuance of stock than are general creditors. ----------------