Friday, 8 March 2019

Ontario court gives JTI-Macdonald quickie creditor protection

Almost a week to the hour after the Quebec Court of Appeal delivered its unequivocal support for Quebec smokers in their decades' long struggle for compensation from tobacco companies, the strategy of one of the defendant tobacco companies to avoid paying up became public.

At the end of the business day, JTI-Macdonald issued a press release revealing that an Ontario court had granted them bankruptcy protection -- a move they said was prompted by the court decision and which they found necessary "to protect 500 Canadian jobs and carry on its business operations with minimal disruption."  

Why now? Why only one company?

In upholding Justice Riordan's May 27, 2015 decision, the Quebec Court of Appeal returned events more or less back to where things left off in late 2015:
a) the companies are required to immediately deposit a combined initial payment of  $1.13109 billion, of which JTI's share was $142.5 million.
b) 'provisional execution notwithstanding appeal' comes into play, meaning that compensation payments using this money can begin flowing to class members even before the appeals are finalized, and some of the plaintiff's legal costs can be covered.
c) additional payments to victims that need funds beyond the initial $1.13109 billion will require further direction from the court.

More or less, that is where we have returned.

In the first weeks after the ruling was issued, following moves and counter moves by the parties, the Appeal Court suspended provisional execution, and replaced it with a security deposit of the same amount. For Imperial Tobacco and Rothmans, Benson and Hedges, the right hand of the court relieved them of a $758 million and $226 million payment only to have the left hand take it back shortly later.

So for those two companies, step "a" has already been completed. The money is now long ago deposited into a trust account where we can presume it has been gathering interest.

Despite brave talk to the media last week about plans to file an appeal, both companies conceded to shareholders this week that the money was gone.

* As BAT put it: "Following the 1 March 2019 judgment, the Board of Directors of ITCAN have reassessed the recoverability of the deposit and have determined that the asset's recoverability is, under IFRS, less than virtually certain."

* Philip Morris International noted that its decision to note a CDN $226 million 'adjusting expense' was based on its "assessment of the portion of the judgment that it believes is probable and estimable at this time."

For JTI-Macdonald, the circumstances are different.

For reasons that may perhaps never be fully explained, this smallest defendant escaped from the decision to require a security deposit. (A scheduling conflict was the excuse given at the time of the hearing). As a result, the requirement that it pony up its $137.5 million share of the initial deposit only came into force with last week's ruling.

This makes JTI the only company in a position where it can hope that possession is nine-tenths of the law -- and that it can hold on to its money using whatever tools are available.

Remember, this is a company that has mastered the shell game. It used bankruptcy proceedings in 2004 to avoid paying taxes to the Quebec government. It turned its org chart into a spaghetti code of IOUs from the Canadian branch to its Japan-based owners, so that it could avoid declaring any profits in Canada.

These restructuring efforts earned the company more than rebuke during the class action process - their efforts to become "creditor proof" landed them with additional punitive damages. As Justice Riordan put it:

"... we cannot but conclude that this whole tangled web of interconnecting contracts is principally a creditor-proofing exercise undertaken after the institution of the present actions by a sophisticated parent company, Japan Tobacco Inc.,operating in an industry that was deeply embroiled in product liability litigation. ...

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. This deserves to be sanctioned and we shall do so by setting the condemnation for punitive damages above the base amount."

The first, but not the last?

RBH and ITL may also have plans to avoid paying anything beyond the initial deposit - including, perhaps, bankruptcy protection. Stay tuned!

Justice vs. Jobs

For the past month, Canadians have been gripped with the  dramatic struggle between law-makers and law-keepers over the hierarchy between jobs and justice. Now JTI-Macdonald is playing the jobs card in an Ontario court in any attempt to stymie justice in Quebec. Is this something they teach in law school?