Thursday, 25 April 2019

CCAA 3 - Ontario's case against international tobacco companies

Discussions on the terms of creditor protection being offered to Canada's three large tobacco companies resumed today before Justice Thomas McEwen of the Ontario Superior Court.

Of the three topics that had been identified for review, the sole issue discussed at length this morning was whether or not Ontario could nudge along its lawsuit against 14 tobacco companies, including the three Canadian firms and the multinational companies which have controlled them.

This afternoon, with less discussion in court and more behind the scenes, an agreement on steps towards finalizing a settlement between insurance companies and the class action team was agreed to.

Ontario wants its case to proceed

A month ago, the Ontario Attorney General raised its objectives to the stays on all tobacco litigation that had been included in a sweeping, if uneven, fashion in all three of the CCAA Orders extended to Imperial Tobacco, JTI-Macdonald and Rothmans, Benson and Hedges.

As laid out in its highly readable Factum, the Ontario government considers that the companies have tried to use the CCAA proceedings "as a sword to cut down Ontario's [litigation] efforts" just as their case as it was winding towards a potential trial date next year. Moreover, their case against the international companies has become collateral damage of a stay implemented on behalf of their Canadian subsidiaries.

The written submission prepared by Ontario's lawyers is peppered with harsh descriptions of companies' strategies to evade accountability.
  • There is no evidence that any of JTIM, ITCAN and/or RBH intend to restructure their affairs; rather, their clear intention is to continue with “business as usual” and maintain the status quo with respect to their business operations and emerge from the CCAA proceedings having effectively shed their liabilities for their conduct in respect of Canada from 1950 to the present. 
  • In the absence of any consultation with Ontario, JTIM, ITCAN and RBH seek to improperly wrest control of the prosecution of the Ontario HCCR Action from Ontario, 
  • As was the case with JTIM's 2004 CCAA Proceeding, the 2019 CCAA proceedings commenced by JTIM, ITCAN and RBH are best characterized as and should be recognized to be “litigation schemes”. By obtaining the Stays in three separate ex parte CCAA filings before three different judges, which, taken together, extend to all of the litigation pending across Canada against them and the non-filing third parties, JTIM, ITCAN and RBH are attempting to manoeuvre a better outcome for themselves and the other eleven corporations which are defendants in the Ontario HCCR Action, than it would have if the three filing corporations were obliged to settle the terms for the satisfaction of the Quebec judgments and then later deal with the provincial HCCR Actions. 
Ontario's objective today was to persuade Justice McEwen to let the lawsuits proceed short of any money actually changing hands.

Hitting the wall

But when Ms. Jacqueline L. Wall stood before the judge this morning, this effort seemed destined for failure.

Earlier in the week, the judge had explained why he refused a similar but much smaller request from the Quebec class action side for a rewording of the stay. Your take may be different, but to these eyes the central theme was that CCAA judge has broad discretion in general and this judge in particular intends to exercise this by applying the same treatment to all stakeholders, irrespective of circumstances or histories.

Against this mindset, Ms. Wall nonetheless offered reasons why Ontario's case was different and why it should be allowed to proceed despite the stay against further litigation efforts.

Chief among the reasons she presented over more than an hour of soft-spoken delivery was the role of the international owners of the Canadian defendants. (Unlike the class actions, in the provincial lawsuits damages are being claimed against the companies who directed the Canadian operations and to whom the profits continue to flow).

These lawsuits revolve around the collusion (conspiracy) of the companies in failing to meet their obligations to warn and not deceive. As such, the provinces will ask for judgments that, like the conclusions of Justice Riordan and the Quebec Court of Appeal, find the companies collectively (jointly and severally) responsible. For that reason, she explained, both domestic and international companies have to be dealt with together. Yet the parent companies are not participating in the CCAA process intended to reach a settlement and, as she explained it, the Ontario Superior Court can't force them to do so.

Ms. Wall saw no conflict in Ontario simultaneously negotiating towards a settlement with some of these claimants while pursuing a claim in court. The bottom line for Ontario, as it was put, is that the stay should be lifted on their case against all 14 defendant in their lawsuit with the understanding taht should they succeed there would be no award paid by any company with whom a settlement had earlier been reached.

Show of hands in favour

As before, Justice McEwen's request for indications of support and opposition divided the room into a few parties against everyone else.

On behalf of the Quebec class action plaintiffs, Avram Fishman supported Ontario's position. He cautioned that rejecting it would give the tobacco companies a 'litigation holiday' for years. He reminded Justice McEwen that these were not companies like any other -- what might be appropriate in 99% of CCAA cases did not apply here.

He implicitly addressed their unique position, as the only party that has emerged with a completed trial and orders from two levels of court. "We're not concerned about keeping a leg up" on other litigants, he said -- "it doesn’t bother us at all if other claimants catch up with us."
He hinted at the option of putting a time limit on settlement discussions, and lifting the stay at a given date. This "would be giving a strong message that you expect this thing to be resolved within a reasonable period of time..." but at some point "the playing field would be leveled and parties with rights would be able to pursue them."

In its first intervention in this case, the Canadian Cancer Society also supported the position of the Ontario government. Mr. Vern DaRe introduced the mandate of the CCS and its role as a "non economic stakeholder", and its longstanding support for litigation.

Mr. Max Starnino took a grudging "middle position" on behalf of the governments of Alberta and Newfoundland. While "not actively supporting" the position of Ontario, they "did not oppose, with a couple of caveats."  He disagreed with Ontario's view about the jurisdiction of the CCAA court, saying that the international defendants could be compelled to participate, although forcing them to dig into their pockets might prove more difficult.

Those opposed ...

As before, the three tobacco companies, their three monitors and the consortium lawyers representing 6 provinces agreed to disagree with any change to the stay of legal actions.

Speaking for Imperial Tobacco (which had also filed a written response and set of background documents), Mr. John A. Macdonald (sic) said it would be "completely unworkable" for the companies to concurrently defend their case AND negotiate a settlement.

At this Justice McEwen further torpedoed Ontario's hopes. "I don’t disagree," he interjected. "You read the ruling I issued – we are re-ploughing old ground."

He pushed the parties to express whether or not they saw anything unique in Ontario's case. "I am more interested in whether the other defendants wont participate or whether I don’t have the power to force them? Why is Ontario uniquely different?"

Mr. McDonald's response helps explain challenging the CCAA proceedings are from a public health standpoint. The CCAA has extensive expertise in taking practical action on business matters. Under the forced negotiations of the CCA, parties act in their commercial interests. The debtor companies have to do that. The parent companies do that. This court sets up a framework for those companies to come together and see if there is a resolution.

In presenting Rothmans, Beson and Hedges opposition to Ontario's position, Paul Steep also stressed that the CCAA was intended to motivate parties to negotiate. It would be unreasonable to expect his client to concurrently fight a $330 billion dollar claim and negotiate a global settlement with other claimants. He accused Ontario and Quebec class action lawyers of undermining the prospect of a stable environment with their encouragement of continued litigation. 

Mr. Mike Eizinga spoke briefly against Ontario's request on behalf of the provinces of British Columbia, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and Saskatchewan. This position of these 6 provinces has not changed since they similarly opposed a partial lifting of the stay for Quebec, he said. 

Me too. Me Three. Me Four. was the agreement from the Monitors, albeit with some assurances that from their perspective the CCAA was not a delaying tactic. "We are not in the business of punting things for several years."

Before adjourning for lunch, Justice McEwen promised that he would have an answer by Monday.

A more agreeable afternoon

As people left for lunch, it was still uncertain if or when an afternoon sitting would be held. A couple of hours later, however, the court reassembled to allow Justice McEwen to hear where agreements had been arrived at.

Chief among these was a way to resolve the challenge by Imperial Tobacco and Rothmans, Benson and Hedges to the use of funds being provided by two bankrupt insurance companies (Kansa and Northumerland) to the Quebec class action claim. This issue has been handed over to Justice Winkler to address -- if there is no resolution by May 14th, it will be raised before Justice McEwen.

A few other issues were resolved -- and will be reported here later.

Tomorrow the request to restore pension cheques to former Genstar employees will be presented.