Inter-Court Insolvency Recognition

The Federal Court will give considerable weight, in deciding whether or not to stay proceedings before it, to insolvency or related orders made in other Canadian Courts.

In RMI Marine Limited v. Scotia Tide (Ship), the Federal Court decided to stay an in rem action against the ship and to order the release of the ship from arrest having regard to a stay of proceedings issued in favour of the shipowner by the Supreme Court of Nova Scotia (NSSC).

The NSSC stay was in the context of CCAA insolvency proceedings (a restructuring alternative to bankruptcy).  The NSSC order was interim to give the debtor time to come up with a proposal, which was expected to include continued operation of the ship, which had meanwhile been arrested in Federal Court.

The NSSC order specifically provided that it did not apply to the Federal Court proceedings unless and so far as the Federal Court would determine.  In granting its own interim stay of proceedings to mirror the NSSC order, the Federal Court noted that the NSSC order was consistent with prior similar cases which had confirmed in relation to foreign bankruptcies that the Federal Court has its own independent jurisdiction and discretion.  While general stay principles (such as what was the natural forum, etc.) applied, the idea of comity (essentially legal courtesy) toward other domestic Courts with their own specific jurisdictions (including specific CCAA restructuring jurisdiction) was an important consideration, although not necessarily controlling.

The argument advanced by the Federal Court plaintiffs that the NSSC order exempted the Federal Court proceedings did not succeed; the language of the NSSC order was merely a recognition of the Federal Court’s distinct jurisdiction and discretion.