It would appear that JTIM was able to ask for (and receive) the complicity of an Ontario lower court judge in suspending action on the Quebec tobacco trials.
Not just creditor protection for JTIM- but a stay of proceedings that favours all three companies
The kicker paragraphs of the 30-page "Initial Order" issued by Justice Glenn Hainey of the Ontario Superior Court begin about a third of the way in. After laying out the right of JTI to continue to do business as usual (and to continue to ship its profits to its off-shore owner), the Ontario judge sets a one month period when the rulings of the Quebec Court are effectively null and void.
"19. This court orders that during the Stay Period [until April 5, 2019 or later] none of the Pending Litigation or any Proceeding in relation thereto shall be commenced, continued or take place against or in respect of any Person named as a defendant or respondent in any of the Pending Litigation ... and any all all such Proceedings currently underway or directed to take place against or in respect of any of the Other Defendants or any member of the JTI Group or affecting the Business or Property are hereby stayed and suspended pending further Order of this Court."To add insult to injury, the order makes clear that governments will continue to get taxes, landlords will continue to get rent, corporate directors will get an extra $4 million and the bankruptcy managers will get $3 million -- but that Quebec smokers will be SOL.
Same ruse, different court
The rationale that JTIM provided to Justice Hainey for bankruptcy protection is exactly the same as Justice Riordan's rationale for slapping them with extra punitive damages: - the corporate restructuring that turned them from a profitable to a heavily indebted cigarette company.
The details are laid out in its 132-page application record and 34 page Factum but boil down to a massive phony paper debt owed by JTIM to its owners in return for being able to use its unique Canadian trademarks like Export A. As a result, instead of sending post-tax earnings to its Tokyo-based owners, it sends income tax-free loan payments. Importantly in this context, the Tokyo company is a priority creditor who stands in line ahead of anyone else with a financial claim.
This ploy has been hashed out multiple times in Quebec Courts - before Justice Mongeon in 2013, before Justice Riordan in 2014, and as part of JTI's arguments during the appeal hearing in 2016. The corporate restructuring (I once heard it referred to as a fraudulent conveyance) is so transparently offensive that it became the basis of additional punitive damages in Riordan's ruling (paras 1092 to 1104).
"The Interco Contracts represent a cynical, bad-faith effort by JTM to avoid paying proper compensation to its customers whose health and well-being were ruined, and the word is not too strong, by its wilful conduct."JTI asked the Appeal Court to take back those harsh words, but the court found no reason to. In last week's ruling (paras 1158-1163], it said instead that after opening up the sealed financial records, it found it agreed with Riordan's condemnation of this restructuring as as creditor proofing.
A surprise Friday afternoon hearing in a different city
JTIM seeing bankruptcy cover is no surprise, but this particular Ontario development opens up a new bag of dirty tricks. No notice was given to the other parties and they had no ability to make representation.
In its application, JTIM acknowledged that it had been asked to provide advance notice of any bankruptcy applications. It notes that the Quebec class action lawyers asked in 2015 for 7 days prior notice, and that last week, counsel to most provinces had similarly done so. In all cases, the company reports, "JTIM did not reply to the request".
It did not admit that this was because it didn't want them in the room. The reason provided was that the private late-afternoon meeting was required to protect the share value and avoid speculative stock-trading.
Rubber stamp? Surely not!
At first glance, the order issued by Justice Hainey is word-for-word the text drafted by JTIM and included in their application. Conveniently, they also include the 'track version' copy of their additions to the boilerplate application. This makes it clear where they were asking for consideration (like stay of execution) that goes beyond the normal bankruptcy request.
Justice Hainey seems to have nodded along to the whole thing. I know they do things differently in Toronto, but this seems so extremely one-sided.
Next Steps
The order suggests that the next step in this court is a hearing on April 4th.
- How can it be that a solitary Ontario judge can wade in late one Friday afternoon - without any notice or participation of affected parties -- and stay a Quebec appeal court ruling.?
- Is Justice Glenn Hainey bilingual enough to have read the Appeal Court ruling? If not, why would he have ruled without doing so? If so, why would he have ruled the way he did?
- If Justice Hainey can suspend a Quebec court ruling, can a Quebec court suspend his?
