The Knight delay: inordinate and tactical -- but excusable too. Imperial Tobacco's request for dismissal is turned down.

Two months to the day since a hearing in Vancouver's ultra-modern court house, Justice Nathan Smith today issued his decision to reject Imperial Tobacco's request that the Knight class action be dismissed because of the long delay in moving the trial forward.

As explained here earlier, the Knight case is a class action filed against Imperial Tobacco 14 years ago, asking the court to order ITL to end the marketing of Player's Light and other light cigarettes and to order it to compensate smokers like Kenneth Knight for the deceitful marketing of these cigarettes as being less harmful.

The case was certified as a class action (in 2006), but after 2009 it was essentially put on ice by the plaintiffs' legal team, lead by Doug Lennox. It was his decision to put the case back on track in October 2016 (by asking the Court to allow some documents to become part of the trial record) which prompted Imperial Tobacco to say that this delay was "inordinate and inexcusable" and would hinder their right to a fair trial, especially because some key witnesses had died in the interim.

Justice Smith accepted the facts much as Imperial Tobacco stated them, but he did not accept their view of the impact.

He acknowledged the delay was lengthy ... and that it was inordinate and a tactical call by the plaintiffs' lawyers.
It has been 14 years since the action was started, 12 years since it was certified as a class action, and 10 years since the products at issue were last sold in British Columbia. Prior to October 2016, the plaintiff had taken no steps in the action for seven years. .... I conclude that the delay must be seen as inordinate.

However --- he found that this inordinate and tactical delay was nonetheless excusable in the context of the Létourneau case.
The plaintiff reasonably and sensibly awaited the outcome of the Létourneau action in order to save litigation costs by waiting to see if the verdict pushed the defendant into bankruptcy or a national settlement or, alternatively, to benefit from the lessons learned from that action, including a review of the available evidence.

As for the prejudice caused to Imperial Tobacco, he expressed minimal sympathy. He noted that despite facing both class action and provincial lawsuits which made reference to light cigarettes, the company had made no efforts to preserve the testimony of these "now-dead" witnesses, and that the absence of witnesses was a problem that would affect both sides.
(I)f those witnesses were so crucial to the present litigation, I suspect they would be at least important to the Létourneau action, the health care cost recovery suit in this province, and to all of the other such suits in other provinces. Yet, there is no evidence that the defendant took any steps to preserve their testimony in defence of this and all similar claims after first being notified of these types of claims almost two decades ago.

The last consideration addressed by Justice Smith was what was fair for Kenneth Knight and all the other purchasers of Player's Lights. On this "most important and decisive question" he ruled that the seriousness of the allegations and the rights of the class members weighed against granting the defendants request.
The delay in this case was a tactical decision made in good faith by plaintiff’s counsel to await the results of Létourneau. The plaintiff, to say nothing of as yet unidentified class members, was not personally responsible for that decision and I doubt had any role in making it. I find it would not be in the interests of justice to deny the claim based solely on delay.

Justice Smith, who also adjudicates the B.C. government claim, has now been on the tobacco file for 4 years. A blink of an eye in this business!

(Earlier this month, the Times Colonist of Victoria, B.C. published an editorial "Tobacco lawsuit still drags on". The editors wondered "how it could take the better part of two decades to try a lawsuit, with the end still nowhere in sight?" and then answered their own question by suggesting there had been  "foot-dragging on both sides". )

The Supreme Court Takes On Another Tobacco Ruling

This Thursday morning, as on many Thursday mornings, the Supreme Court of Canada issued a news release indicating some of the requests for appeal on which it had made a decision. Among those was a decision to allow the government of British Columbia to appeal a pre-trial ruling in its decades-long lawsuit against the tobacco industry.

The ruling that is now under appeal, as mentioned here in February, regards the defendant's companies right to compel data from the province. Part of the context for this court is the differing decisions taken by the courts in different jurisdictions which are managing these simultaneous if slow-moving lawsuits.

Summer reading is available! The arguments put forward by the government of British Columbia and by Philip Morris are available. 

There was another interesting if minor footnote to this case this week. On Tuesday, a new government for British Columbia took office. The new Minister of Health is Adrian Dix, who was a key back-room player in the decision of the B.C. government to initiate litigation against the industry. That decision was announced more than 20 years and 4 premiers ago.

This a long game, with a lot of line changes!

How slow is too slow? Reflections in Quebec and British Columbia

Almost eight months have passed since November 30th, the date that the Quebec Court of Appeal finished hearing the arguments for and against Justice Riordan's condemnation of the decades' long behaviour of Canada's large tobacco companies in the Blais/CQTS and Létourneau class action suits.

Yet a ruling by the five-judge panel is still nowhere in sight!

The friendly bets made in my social circle have all been lost --- that the Court would take no more than 6 months to decide, that the ruling would be released by the second anniversary of Riordan's decision, that their work plan would ensure it was wrapped up before St. Jean Baptiste Day (tomorrow) launched the summer . 

Is the length of the appeal process something that adds to the burden of those smokers and their families who have already waited decades for compensation?  Justice Riordan thought so, which is why he originally included an early payout ("provisional execution") for the victims.

Twenty-three months today the Appeal Court found that such a provisional execution would be unfair to the companies. They though Justice Riordan was overly pessimistic in predicting that the appeal process would take 6 years - hinting that from their point of view there was "the possibility of an expedited process".

An expedited process that takes more than 2 years to clear the next hurdle?  Well, time is relative, as it has been famously pointed out. Perhaps in the judicial system this is as fast as things can go.

The question of what constitutes a reasonable time frame was the subject of a hearing in a very different court in a not-so-different case today. Justice Smith of British Columbia's Supreme Court was considering a motion by Imperial Tobacco to dismiss the Knight class action "for want of prosecution".

Knight v. Imperial Tobacco is one of the very few actions against tobacco companies in Canada -- or indeed the world -- to become a certified class action. It was filed in British Columbia in 2003 by the law firm Klein Lyons (now Klein Lawyers). The suit is named after Kenneth Knight, a BC resident who bought Player's Light cigarettes in the belief that they were less harmful than other cigarettes. It seeks to recover damages for all B.C. residents who bought light and mild cigarettes on the basis that "the defendant, Imperial Tobacco Canada Limited, engaged in “deceptive trade practices” contrary to the Trade Practices Act in the marketing of its light cigarette brands."

This class action was given the green light of certification by Justice Satanove of the B.C. lower court (the Supreme Court) in 2005 , the same year as the Quebec class actions were authorized. The B.C. upper court (the Appeal Court) upheld most of her decision in 2006.

Since then, there has been a lot of water under the bridge. The attempt by Imperial Tobacco to hold the federal government responsible for any potential liabilities in this and the B.C. cost recover case took more than a little court time: it was not until the Supreme Court ruling in 2011 that the federal government was immune from such involvement that this side-issue was settled.

But like most of the tobacco litigation in Canada, this case has been on the back burner while the parties concerned wait to see how the Blais and Létourneau cases resolve. The BAT Annual report (p. 144) lists multiple aggregate claims in Canada, with "standstill agreements" or "no trial date".  My impression has been that it was considered prudent to put other trials on hold to wait for the courts resolve key legal issues, for the possibility of settlement to be exhausted, and for the economic impact (i.e. bankruptcy) to be worked through.

The BAT annual report suggests that it was lasts fall, when Doug Lennox of Klein Lawyers tried to move the Knight case along, that Imperial Tobacco decided to ask that this delay be a reason to dismiss the case. "After being dormant for several years, the plaintiff delivered a Notice of Intention to Proceed, and Imperial delivered an application to dismiss the action for delay."

The Vancouver Court House is a considerable distance away, so I was not among those who would have heard the tobacco company argue that the 'inordinate delay' has harmed its ability to defend its actions. Too many potential witnesses have died, it would appear, for the company to marshal the evidence it needs. And besides, they don't sell 'light' cigarettes anymore.

Justice Smith, to whom these arguments were being presented, also presides over the B.C. government cost recovery lawsuit.  He would know better than most that these cases are playing out in larghissimo tempo. (He would also be aware of the legal complexities when these cases are handled simultaneously -- not so long ago he and a colleague on the New Brunswick bench came to opposing decisions on a similar pre-trial issue).

One irony in all this is that Imperial Tobacco was challenged in the Quebec class actions about the delaying tactics it used to try to avoid a trial in that province. These "abuse of process" concerns were put before Justice Riordan in the the final arguments of the plaintiffs (in part as a justification for provisional execution), but the judge refused to hear them until the main issues had been resolved.

The Appeal Court subsequently hinted strongly that issues related to this case be suspended until the appeals on the main judgment were exhausted.

So while an argument on industry-triggered delays has been further delayed in Quebec, Imperial Tobacco has been able to claim that delays resulting from its delays should annul the case against it.

Justice Smith reserved his decision. Any bets on whether he will have made his ruling on delays before the Court of Appeal has decided on a potentially "expedited" case?

Some scant tidbits of news plucked from the annual reports

The Annual Reports of the multinational tobacco companies which operate in Canada were issued last month. Contained within them were some small nuggets of news about the progress of the provincial cost recovery suits against them.

The companies are required to inform shareholders of the potential liabilities they face as a result of lawsuits. This protection for investors has, for more than a decade, been the only regular source of information on the progress of the provincial health care cost recovery suits.

Page 144 in the BAT 2016 Annual Report is devoted to details on the Canadian actions. From this I have learned that:

• the B.C. government "delivered an expert report dated October 2016, quantifying its damages in the amount of CAD $118 billion."  This is more than the combined claim to date for Ontario ($50 billion) and Quebec ($60 billion).
• New Brunswick's claim has also been quantified -- "in the rage of $25 - $60 billion from 1954 to 2060".

As for the other cases? No sign of any trial dates, but "discoveries are substantially complete" in New Brunswick.  The rest are still in "early case management stage".

Philip Morris' Annual Report for 2016 notes that 10 of the 16 health care cost recovery actions that are pending against it are in Canada (5 of the rest are in Nigeria, and the other one is in Korea). It also reports that:

• The New Brunswick Court "entered a consent order establishing a discovery timetable that contemplates the province of New Brunswick applying by September 2017 for a trial date.
• "Pre-trial discovery" is also ongoing in British Columbia, Ontario, Newfoundland and Labrador, Alberta and Manitoba. It is scheduled to begin this year for Saskatchewan, Prince Edward Island and Nova Scotia.

Japan Tobacco's Annual Report for 2016 doesn't contain much in the way of news -- and even seems to have missed out on some of the details in the others. It notes, for example, that the "claim amount is unspecified" for B.C. -- no mention of any $118 billion figure.

Notices filed with the Supreme Court

B.C. had 60 days to tell the Supreme Court if it wished to appeal the unfavourable decision from the B.C. Court of Appeal on disclosure of records. That window closed on Easter weekend -- but not before B.C. submitted an Application for Leave to Appeal. Unlikely that the court record will provide much insight -- two certificates on limitations to public access were also submitted -- as was a Certificate "if inappropriate for a judge to take part in adjudication." No risk, I suspect, of Imperial Tobacco's former counsel being asked to wade in on this one!

And B.C. rules the other way ....

Anyone with two parents doubtless learned at an early age that there is some variability in decisions from authority figures, and had the experience of getting different answers to the same question depending on which authority was asked.

Events this week showed that this may be a lifelong experience.

Yesterday, the B.C. Court of Appeal upheld a lower court's decision to give the defendants in that province's cost recovery lawsuit the very thing that the New Brunswick Courts had only recently refused them: access to (annonymized) individual electronic medical records.

I don't think it was intended to go this way when near-identical rules for these lawsuits were set across the provinces many years ago. Both the New Brunswick and British Columbia Tobacco Damages and Health Care Cost Recovery Acts contain identical provisions about whether medical records are or are not "compellable" (can be given to the other side):

2(5)(b) the health care records and documents of particular individual insured persons or the documents relating to the provision of health care benefits for particular individual insured persons are not compellable except as provided under a rule of law, practice or procedure that requires the production of documents relied on by an expert witness.

Last June, Justice Cyr of New Brunswick decided that this clause protected medical records from discovery, and that releasing them would risk "exposure of very sensitive information." Neither the New Brunswick Court of Appeal, nor the Supreme Court of Canada was interested in entertaining PMI/Rothmans, Benson and Hedges challenge to this decision. (The other tobacco defendants have accepted a data-access agreement involving Statistics Canada). New Brunswick Courts up the line said "no" to PMI/RBH's request for the data.

A year earlier, Justice Smith of the B.C. trial court had come to a very different conclusion. He ruled that access to data was necessary to generate the kind of statistical proof that the case required, and that the information could be given over in confidence because the security demands on expert witnesses were as sound as those imposed by Statistics Canada in the arrangement preferred by the province.

The Court of Appeal took the New Brunswick court's views into consideration, but was not persuaded by it anymore than it was by lawyers representing the province or the provincial Information and Privacy Commissioner. B.C. courts up the line said "yes" to the request for data.

The B.C. Appeal court acknowledged its colleagues, and explained why they thought they were wrong: "[Justice Cyr]did not attempt to read the provisions of the New Brunswick Act as a harmonious whole."  

As if that were not enough, it raised the stakes further by suggesting that denying access to these medical records (as New Brunswick had done) was effectively denying the companies  a fair trial:  "It cannot have been the intention of the Legislature for the playing field to be tipped unfairly in the Province’s favour."

So where do they all go from here? If B.C. is successful in engaging the Supreme Court in a review - and loses - will that put the New Brunswick case under a shadow?

As it turns out, there is a good chance of a harmonious whole to the appraoch by the provincial plaintiffs. Both actions are lead by the same law firm (Siskinds) and the same lead lawyers (James Virtue and André Michael.

New Brunswick medical records will not be disclosed.

This past Thursday, the Supreme Court of Canada decided that it would not review the decisions New Brunswick courts to refuse the tobacco industry defendants in the government's cost recovery suits to get access to the medical records of that province's citizens.

The issue, you may recall from an earlier post, is one that was simultaneously before the courts in New Brunswick and British Columbia.

The B.C. Court of Appeal has yet to decide whether it will align its thinking with that of Justice Thomas Cyr in New Brunswick (now left untouched by both the New Brunswick Court of Appeal and the Supreme Court), or whether it will side with  Justice Nathan Smith's different way of seeing things in B.C..

That court has now had more than 3 months to reflect on the arguments they were presented with around Thanksgiving last year. A blink of an eye in this business!

Smokers are paying more for their cigarettes. Coincidence? I think not.

Somewhere in Canada there is a cache of almost three-quarters of a billion dollars, the fate of which is hanging on the decisions of higher courts on the  Quebec class action suits.

This money was set aside after Justice Schrager ordered two of the defendant companies to lock it up while the appeals of Justice Riordan's ruling were ongoing. He made this decision after the plaintiffs raised concerns that the companies might not honour a ruling against them and might find ways of escaping the penalty.

Ten of the 13 payments required by this October 2015 security order will have been posted by now.

Rothmans, Benson and Hedges was told to put aside about $400,000 per day. Imperial Tobacco was required to save almost three times as much ($1.18 million).

That's a fair chunk of change, as they say! Yet there seems to have been little discussion about the impact of this on the companies, their shareholders or their clients. (Last year, BAT informed shareholders that it was consider the money "an asset to be recovered upon successful appeal" and PMI made a similar disclosure.)

Today, by chance, I came across some information on price increases implemented by the companies around the time that the request for the security order was being made.

In the first week of August 2015, both Imperial Tobacco and Rothmans Benson and Hedges increased the prices of their premium brands by $2.00 a carton, with somewhat smaller increases on mid-priced ($1.50) and discount ($1.00) brands. JTI, which escaped having to make security as a result of a scheduling conflict, matched these price increases two weeks later.

There were at least three more rounds of price increases: in January 2016 prices went up by $1.00 to $1.50 per carton, as they did again in May 2016, September 2016 and again this month.

All told, Imperial Tobacco now charges $5.00 cents more for a carton of du Maurier, $3.20 for Player's, $2.50 for Pall Mall than it did in July 2015. RBH charges $7.5 more for a carton of premium brands like Dunhill or Rothmans, and $4.00 more for a package of its discount brand, NEXT.

Has this allowed them to fully offload the costs of the security order onto smokers?  More data would be needed to know for sure. The market share per brand is considered confidential business information by those who collect it (industry, government, trade analyists) and not available to the likes of me.

But enough data is available to conclude that this may be the case.  Health Canada recently reported that about 29 billion cigarettes were sold in 2015, or slightly more than 36 million cartons per quarter. Of these, the market share for RBH and ITL (87%) would be approaching 32 million cartons each quarter. To recoup the quarterly security payments of $146 million, the companies would have to raise prices per carton by about $4.60.

The price increases over the past 18 months are about equal to the last federal tax increase of $4 per carton in February 2014. Interesting that wholesale price increases do not result in the same cries of alarm from the industry about contraband that tax increases of the same magnitude do.