It now looks like that celebration may have been shortlived.
While not reversing the decision, the Court today imposed early payments of an equivalent amount on two of the three companies. What the companies won on the provisional execution merry-go-round, they have now lost on the security swings.
(Unlike the provisional execution, the money will not be distributed to class members until the case is finally resolved - but it won't be distributed to the owners and shareholders either.)
The defeat of provisional execution
Justice Riordan thought it was unfair for the victims of the companies' wrong doing to have to wait any longer before receiving some portion of compensation that was owed to them. He was aware that the appeal process could drag on for years, and that many of the victims might not live that long. Besides, as he ruled, "it is high time that the Companies started to pay for their sins."
In his May 27th ruling on the case, he ordered the companies to make a payment of $1.13 billion within 60 days. This amount is roughly equal to their combined yearly income.
The companies rushed to the Appeal Court to have this early payment struck down, arguing that they were unable to finance the payment without becoming insolvent. In support of these claims, they laid bare their current financial situation.
On July 23rd, the Appeal Court agreed to strike down the provisional execution, citing an unwillingness to ever apply such a procedure to a class action.
The judges did, however, give a not-very-subtle hint that they would consider other ways to skin the early payment cat: "This is not to say however that such facts and arguments could not give rise to other recourses or orders."
The subsequent request for security
The lawyers representing Quebec smokers regrouped and returned to the Appeal Court earlier this month to ask for the companies to be told to set some money aside while the appeals were being heard. This security was necessary, they pointed out, because without it the companies would respond to their eventual defeat by filing for bankruptcy and preventing their clients from ever receiving any money.
In the meantime, the companies were trying to make themselves judgment proof by sending all of their money offshore. When the appeals are finished, the Canadian cupboard will be bare.
This, they told Justice Mark Schrager, was a industry's litigation strategy to ensure they would never have to pay. It was put to the judge as a game of "heads I win, tails you lose."
The Court's agreement
Justice Schrager agreed that these concerns were founded. In his ruling issued late today he cited the coin toss analogy: "Sometimes, the vernacular is pointedly apt."
He noted the companies failure to save any money or make other provision to pay victims should Justice Riordan's ruling be upheld. He recalled that the companies had so recently threatened to put themselves into bankruptcy. (Justice Schrager was one of the panel of 3 judges who decided on the provisional execution).
These two behaviours gave him reason to act. These circumstances taken together are a “special reason”. I will order that security be furnished.
And a rejection of the industry's modus operandi
In presenting their case to Justice Schrager, lawyers for the tobacco companies had insisted that it was normal business practice for them to funnel all of their earnings to their off shore owners and to not retain any for future litigation requirements. So, too, they said, was the decision of the parent companies to not bail the Canadian operations out if/when they were faced with court-ordered payments.
This argument got very little sympathy from Justice Schrager.
I do not question [the companies'] right to appeal but neither can I stand idly by while [they] pursue an appeal which will benefit them if they win but which will not operate to their detriment if they lose. Continuing the practice of distributing earnings out-of-jurisdiction at this point is at best disingenuous and at worst, bad faith.
He did not, however, want to give them an excuse to go into bankruptcy. Rather than require that they change their financial flow or finance a large single payment, he merely ordered them to redirect a significant portion of their earnings for 18 months to a forced-savings account.
The poetry of a security equal to the provisional execution.
The Blais-Létourneau lawyers had asked for $5 billion to be set aside, but Justice Schrager felt this was too much.
Instead, he settled on exactly the same amount that Justice Riordan had identified for provisional execution: $1.131 billion, pro-rated to $984 million for the two companies involved.
- Imperial Tobacco must provide $758 million in 7 quarterly payments of $108 million between December 2015 and June 2017.
- Rothmans, Benson and Hedges must provide $226 million in 6 quarterly payments of $37.7 million between December 2015 and March 2017.
Whoever caused Guy Pratte to be so indisposed that he could not argue the case in early October should ask for a reward.
When scheduling the hearing on the securuity, the Blais-Létourneau lawyers were faced with a lengthy delay resulting from Mr. Pratte's (unspecified) inability to attend court. Rather than delay proceedings, they decided to move forward against only two of the companies. They renounced their right to do so later for JTI-Macdonald.
As a result, JTI is off the hook for the $143 million it would otherwise similarly have been expected to provide in security.
Am I the only one who suspects there is an interesting but not-yet-told story behind this?
And there will be more!
There are not one but two court hearings related to this case next week. In Toronto's commercial court, the Blais-Létourneau lawyers will challenge a proposed settlement between the insolvent Reliance Insurance Company and Rothmans, Benson and Hedges, and Imperial Tobacco.
At the Montreal Court of Appeal on November 5th, Simon Potter will present his request that Justice Riordan be told to stop making any further decisions on the case until the appeals are finalized.
