Essar crunch time: Judge warns against negotiating through SooToday

Justice Frank Newbould of Ontario's Superior Court wants to get this thing done.

Essar Steel Algoma has been under insolvency protection for more than sixteen months.

The judge has until the end of this month to pull in all the loose ends and tie everything up with a nice little bow.

The debtor-in-possession lenders who've been keeping the Sault's steel mill afloat are signaling they've extended their loan arrangement twice already and their patience is running out.

It's crunch time, and there's still no collective agreement with the United Steelworkers.

With mediation scheduled to start in Toronto next Wednesday, Justice Newbould is becoming increasingly concerned with statements published in local media, particularly from Steelworker Local 2251's president Mike Da Prat.

The judge says things are approaching a make-or-break juncture.

He's indicated on a number of recent occasions that he wants people talking to each other, not to the press:

I urge the parties to have meaningful negotiations of the issues surrounding a collective agreement and leave public discussion of the negotiations or threats of action out of it."

The time for strategic manoeuvring is long past. The public interest, including Algoma, its employees and retirees, its creditors, the City of Sault Ste. Marie and the province, demands that the parties now bargain in good faith to achieve a settlement. Failure to do so could be disastrous for the entire public interest.

The latter statement was made by Newbould on March 6, as part of an endorsement that cited concerns about Essar Steel Algoma's ability to emerge from insolvency protection as a going concern.

On that date, the judge ordered Steelworkers Locals 2251 and 2724 to send their full negotiating committees to Toronto for mediation talks running March 22 to the end of the month, possibly longer.

"The mediation is to be held in private without any public pronouncements or discussion of any nature or kind by any person," he said.

"The purpose of the order was to prevent the negotiations from effectively taking place in the media," Newbould added in a subsequent memorandum. "There are to be no artificial barriers to the mediation that has been ordered to take place."

A union's fury

Local 2251 was outraged by that order, insisting it was unreasonable and unconstitutional.

The Local 2251 executive was so upset it called a vote for Tuesday March 14 on whether to restrict its negotiating committee from entering into any binding agreement regarding concessions if negotiations take place outside the Sault or the union's rank-and-file members can't be consulted during the process.

Da Prat's statements, hinting that he was considering boycotting the talks even at the risk of jail time, drew Newbould's attention.

SooToday coverage prompts meeting in Toronto

Concerned that the union's statements as published by SooToday were confusing the public, the judge called lawyers to a case conference on March 8.

There, lawyers representing United Steelworkers Locals 2251 and 2724, Essar Steel Algoma Inc., the court-appointed monitor, term lenders and the ad hoc committee of Essar Algoma noteholders, all signed a memorandum stating that "there was no requirement that the negotiating committees of Locals 2724 or 2251 could not discuss the negotiations with their membership."

At the request of Judge Newbould, this memorandum was then sent to SooToday by Derrick Tay, a lawyer representing the court-appointed monitor overseeing Essar Steel Algoma's restructuring.

Tay asked that we publish the memorandum to "assist in setting the record straight":

I am writing to you in my capacity as counsel to the court-appointed monitor, Ernst & Young Inc., in the Companies' Creditors Arrangement Act proceedings of Essar Steel Algoma Inc.

I do so on the direction of Mr. Justice Newbould, the presiding judge in these proceedings.

A case conference was held this afternoon where Mr. Justice Newbould raised concerns about confusion that may have been caused by recent articles in your newspaper with respect to the mediation that he has ordered in these proceedings.

In order to clarify the record, counsel to all parties who were in attendance at the case conference on March 6, 2017, have signed the attached document with respect to the consensual endorsement made by Mr. Justice Newbould on that date.

We trust that you will see fit to assist in setting the record straight by publishing the attached document.

I can confirm to you that I have received confirmation of signed pages from the parties listed.

- Derrick C. Tay

Da Prat seeks a correction

Even though this clarifying memorandum was signed by Local 2251's own lawyer Lou Brzezinski, its publication by SooToday drew immediate criticism from Da Prat.

Da Prat argued that the court-issued memo was causing further confusion among Local 2251 members and required correction:

We have received a number of calls from our members regarding your article “Statement regarding Essar Steel Algoma mediation order."

Our members are confused due to the fact that they are under the impression that the document reported on in your article is a working document of the order dated March 6, 2017.

It is our belief that that is in fact not the case.

The order, as attached, remains the order and the document titled “Statement from stakeholders regarding mediation," is merely a narrative.

I refer you to both documents and simply beg the question that if the statement document correctly reflects what the counsels consented to, why is the order different?

Obviously, the consent document must reference events that pre-date the order.

I believe it is important to correct the impression our members are getting from your article.

Da Prat told us: "The so-called working paper says we can talk to our members while the order, which is later, says we cannot talk to any person of any kind. Furthermore the working paper says the talks commence in Toronto while the order says we stay until such time the mediator decides....It cannot be reported that we can speak with our members unless the order itself is amended through specific language changes."

Judge says Da Prat is wrong

On Tuesday of this week, Justice Newbould issued yet another clarification, this one clearly critical of Da Prat's position.

If the memorandum sent to SooToday by the monitor's lawyer was less than a formal court document, the latest statement from the judge was a very official endorsement from the Superior Court:

I understand that... the president of Local 2251 continues to take the position that the negotiating committee is unable to discuss the negotiations in the mediation with its membership.

To be clear, there is no basis for the president of Local 2251 to take that position.

The order of March 6, 2017 was to prevent public discussions, not prevent discussions with the membership of the locals.

As acknowledged by counsel on March 6, 2017 and again on March 8, 2017, including counsel for Local 2251, the purpose of the order was to prevent the negotiations from effectively taking place in the media.

There are to be no artificial barriers to the mediation that has been ordered to take place.

While it should not be necessary, in order to achieve that end, I order and reiterate as follows:

1) The mediation is to be held in private without any public pronouncements or discussions of any nature or kind by any person, including the executive or membership of Locals 2724 or 2251.

2) The negotiating committees of those locals may discuss the negotiations that take place in the mediation with their membership on the condition that the membership is advised of the order preventing any public pronouncements or discussions of any nature or kind regarding the negotiations.

Local 2251's secret resolution

At a series of special meetings held on Tuesday, the membership of Local 2251 overwhelmingly approved a resolution on the mediation process, although SooToday is advised that the wording was altered from the original draft.

Da Prat issued a news release about the resolution, but he's unwilling to release the specific wording.

"I'm not really releasing any more than what I did in the press release," Da Prat told us.

"The press is going to have to fight for freedom of the press. I'm getting tired of fighting the judge all by myself. I believe that he's infringing on the right of the press to get news," he said.

Signature questioned on Essar Capital letter

One other aspect of SooToday's coverage has become an issue in the Essar Steel Algoma insolvency case.

A letter, purportedly written by Essar Global Fund on January 28 and filed the following day as part of a court affidavit by a lawyer representing Essar Capital, was published by SooToday on February 2.

The letter is the only known document from Essar Global indicating an interest in re-acquiring Essar Steel Algoma, but Judge Newbould points out that it was never sent directly to the monitor and he's questioning the curious signature (see illustration above):

While the Essar Global letter appears to have been signed, there is no information on the face of it as to who executed the letter or what position the person executing the letter holds with Essar Global.... The monitor has no record of having received the letter other than as an exhibit to the... affidavit.

The letter, however, was quoted on January 28, 2017 in the SooToday, a local newspaper in Sault Ste. Marie.... Who provided the letter to the SooToday is not in the record but it is passing strange that the letter on Essar Global letterhead with a Cayman Island address and signed by an indecipherable signature was dated the same day that the letter appeared in the local newspaper.

If it truly was a letter from Essar Global and Essar Global was honestly trying to engage the monitor, it was not any kind of way to do that.

I find it hard to give any kind of bona fide credit to the letter.

I agree with the monitor that negotiating through the press, which tends to be not only unproductive but may well be harmful to the process of navigating Algoma successfully through the CCAA proceedings by the dissemination of untested allegations and causing unwarranted confusion among the stakeholders, will likely have a deleterious effect on Algoma and its business.

SooToday has advised the court that it is misinformed as to the date we published the letter.

It was not January 28, but February 2, after we found it in a court file.

Algoma.com domain dispute

A dispute over the Algoma.com web account will be heard on March 30 by Justice Geoffrey Morawetz, regional senior judge for Toronto region.

As SooToday reported earlier this week, Essar Algoma wants to regain control of the Algoma.com domain, which is hosted though a Net4 India account controlled by Jayantha Prabhu, Essar Group's chief information officer.

On Tuesday, Judge Newbould prohibited Essar Steel Algoma, Essar Steel India or any related company from trying to change the domain's legal ownership or registrant information until the dispute is resolved.

Essar Algoma sues coal supplier

Essar Steel Algoma has confirmed to SooToday that it is suing a coal supplier, Southern Coal Sales Corp., in U.S. bankruptcy court in the District of Delaware.

One online source reports that the supplier is accused of sending Essar Algoma only 247,000 tons of the 780,000 tons of coal agreed to in its contract. and that the delivered coal didn't meet quality standards.

As a result, Essar Algoma is said to have spent more than $13 million acquiring coal from other sources.