Will The Supreme Court Intervene in Metcalfe and Mansfield?

After the Supreme Court of Canada’s (“SCC”) decision in BCE Inc, et al. v A Group of 1976 Debentureholders, [2008] 3 SCR 560 in June, newspaper business pages across the nation were once more reminded that the Supreme Court exists and is relevant to the financial news which they cover. Now, once more, the media is abuzz over a big-money case. Ivanhoe Mines Ltd. has requested that the SCC review Metcalfe & Mansfield Alternative Investments II Corp., (Re), 2008 ONCA 587 [Metcalfe & Mansfield].

It is extremely likely, in this writer’s opinion, that the SCC will agree to hear the case. The reason is very simple: the management of thirty-two billion dollars’ (yes, billion) worth of asset-backed commercial paper (“ABCP”) is at stake, and the SCC cannot ignore the request to rule on such a momentous financial event.

ABCP is an short-term investment tool which is collateralized by other financial investments. The ABCP at issue in Metcalfe & Mansfield were at least partially backed by subprime mortgage investments in the United States, which largely became worthless (or at least perceived as such) thanks to those mortgages becoming worthless.

Ivanhoe requests the SCC review as an investor in Metcalfe and Mansfield’s alternative investment corporations (Ivanhoe holds approximately $70 million in devalued ABCP) because the deal that was worked out last year to bail out ABCP holders potentially sets a precedent allowing greater immunity to become available to managing parties in cases of financial mismanagement. In this case, immunity was granted to bankrupt third parties who were not themselves creditors of the debtor party. (The “third parties” in question are actually only third parties in the sense of technical structuring of the web of corporations that comprised Metcalfe and Mansfield. They are by no means unrelated to the monetary collapse of the ABCP.)

Ivanhoe (and any additional investors wishing to join their attempt to appeal) are likely not attempting to get the SCC to overturn the deal because of their dislike of the immunity, of course; they’re using the necessity of determining a solid precedent in order to advance their cause, which is to scrap the rescue deal in favour of a new deal that hopefully would afford them a better (or, more accurately, less worse) financial outcome when they sell their devalued ABCP. Regardless, the SCC will likely have to accede to their request for an appeal; even if the legal precedent was not so thorny as to demand involvement, the simple issue of this being the largest financial meltdown in Canadian history would require it.