Within weeks of lawyers for injured Quebec smokers being handed resounding support from the Quebec Court of Appeal, they have been landed into the Ontario legal system, where they have to refight the right of victims to compensation.
In need of an explanation for why this is happening? Look no further than the Factum these plaintiffs filed in advance of the CCAA hearing scheduled for this coming Thursday and Friday.
As they explain, this month's events are just the latest twist in a decades' long history of dirty tricks, illegal behaviour and abuse of process. The introduction to their Factum is pasted below - the complete version provides additional insight and can be read here.
PART 1 - OVERVIEW
2. The Initial Orders sought and obtained permit each of the Tobacco Companies to carry on business as usual. All arm’s length parties and even related parties would continue to be paid as in the past. This includes all intercompany payments, as well as payments of interest and royalties which, in the case of JTIM, had already been characterized by the Quebec Courts as artificial creditor-proofing schemes.
3. Although not mentioned in any of the press releases, the Tobacco Companies also intended to conduct their version of business as usual vis-à-vis the Quebec Class Action Plaintiffs, meaning paying no debt arising from the Riordan Judgment and Appeal Judgment and continuing their two-decade long war of attrition. However, because of their striking lack of success before seven judges of the Quebec Courts, this time the Tobacco Companies sought the vehicle of CCAA proceedings in Ontario to continue their business as usual. Consistent with the manner in which they had conducted themselves in the Quebec Class Actions, the Tobacco Companies did not see fit to make full and fair disclosure to this Court in ex parte applications invoking contrived claims of urgency.
4. The egregious conduct of the Tobacco Companies has resulted in an award of billions of dollars of moral damages to the Quebec Class Members who were the victims of that conduct, and a significant condemnation for punitive damages that was confirmed in the Appeal Judgment. The misconduct of the Tobacco Companies occurred over many decades. The first phase was during the 48-year class period preceding the date of institution of legal proceedings in 1998 by the Quebec Class Action Plaintiffs. The second phase comprises the legal proceedings in Quebec until the Appeal Judgment was rendered. The third phase commenced on March 1, 2019, with the release of the Appeal Judgment.
5. The conduct of the Tobacco Companies during the first phase is described in Exhibit 1 to the Johnston JTIM Affidavit. They showed callous disregard for the health of the consumers of their products in a relentless pursuit of profit maximization and colluded with each other to mislead and misinform the public about the dangers of smoking. They cynically disputed clear scientific evidence of the dangers of smoking by publicly questioning the accuracy of scientific research to generate many billions of dollars in profits. Justice Riordan described their faults as "particularly reprehensible", “intentionally negligent”, “so far outside the standards of acceptable behavior”, “egregious”, “immoral” and in “bad faith”.2 The Quebec CA agreed and held that the Applicants “intentionally violated the right to life, security and integrity” of the Quebec Class Members and engaged in “vexatious and malicious commercial conduct”.3
6. During the second phase, the Tobacco Companies waged an unparalleled war of attrition against the Quebec Class Action Plaintiffs, consistently employing abusive and dilatory tactics. Their conduct in the legal process was so beyond acceptable practice that Justice Riordan determined that he would adjudicate upon this procedural abuse when all appeals had been exhausted.4 Imperial’s conduct was so extreme that it even engaged outside counsel to destroy evidence regarding scientific research.5
7. The Tobacco Companies concurrently embarked on an obvious and, at least in the case of JTIM, admitted, strategy of making themselves judgment-proof. They took no provisions for a possible future condemnation against them, and instead used various techniques to distribute funds to their parents or related entities, outside of the jurisdiction. Justice Mark Schrager J.A. remarked that “it would be far too cynical to adopt the position that [they] were so foresightful and efficient in ordering [their] affairs so as not to have the liquidity to satisfy the judgment”.6 He held that “[c]ontinuing the practice of distributing earnings out-of-jurisdiction is at best disingenuous and at worst, bad faith”.7
8. On March 1st, both Imperial and RBH commenced the third phase by immediately serving urgent motions to seek a stay of execution of the Appeal Judgment, returnable before the Quebec CA on March 4th. The Quebec Class Action Plaintiffs served a Motion to Withdraw Security, returnable on March 7th. On March 4th, counsel for Imperial and RBH agreed that their motions as well as the motion of the Quebec Class Action Plaintiffs would be heard on March 25th by the Quebec CA. They were given until March 15th to amend their motions seeking a stay of execution and JTIM had until that date to file its own motion. None of the Tobacco Companies informed the Quebec CA or counsel for the Quebec Class Action Plaintiffs of their intention to seek an Initial Order ex parte under the CCAA.
9. In their respective CCAA applications, neither JTIM nor ITCAN advised the Court of the pending March 25th hearing before the Quebec CA. JTIM even went so far as to seek a stay of proceedings in favor of Imperial and RBH, without advising the Court that Imperial and RBH had already agreed to the March 25th hearing.
10. The Tobacco Companies’ attempts to game the system were unconscionable. They have shown reckless disregard for the Court in their applications and have presented false and inaccurate reasons for claiming the urgent need for an ex parte hearing on their applications for an Initial Order. There was absolutely no legitimate excuse for the Applicants failing to respect the usual practice of giving prior notice to at least some major creditors and then absolutely no possible excuse for failing to make full and fair disclosure to the Court. In the case of JTIM, for example, it purposely omitted to file the Riordan Judgment, which made specific factual findings about its “creditor-proofing” scheme, which Justice Riordan described as a “sham”, did not disclose to the Court that when it filed for CCAA protection in 2004, it did not ask for the right to continue making payments of interest and royalties to related parties, or that during the six-year period of its prior CCAA proceeding and thereafter, interest and royalty payments were suspended, reduced or amended without consequence to JTIM, “whenever it suits [it]”.8
11. The filings by the Applicants were all made for an improper purpose, including as a transparent collateral attack upon the Quebec CA and its processes. Clearly, the purpose of the CCAA cannot be intended as a shield for unrepentant abusers of the legal system and of the public, against a single group of judgment creditors in class action litigation.
12. All three Tobacco Companies sought Court permission to continue to make intercompany payments as in the past, except for dividends. They consider that it is appropriate for them to conduct business as usual while tens of thousands of Quebec Class Members, who are the victims of the faults of the Tobacco Companies, have not received any compensation in the past 21 years for the serious damages they intentionally and fraudulently caused.
13. All three Tobacco Companies provided spurious pretexts for filing under the CCAA. None of them is insolvent today. The only reason for filing was to frustrate the Quebec Class Action Plaintiffs’ efforts to obtain justice and to seek leverage to use improperly against them. By way of example:
a. they purportedly seek a global settlement of all tobacco claims, despite having never before made the slightest attempt to negotiate a settlement with the Quebec Class Action Plaintiffs, let alone make an offer;
b. they claim to want to treat all tobacco claimants fairly and equitably, but dragged out the litigation for decades and engaged in illegal, abusive and dilatory tactics that gave rise to punitive damages; and
c. they refer to the amount of excise and sales taxes that they pay every year, but that did not stop them from colluding to illegally smuggle cigarettes into Canada prior to 2004 to avoid these taxes, for which they faced criminal charges and paid fines in excess of 1 billion dollars.
14. RBH obtained an exceptional order that would permit it to make a leave application to the SCC but then would freeze all steps in relation thereto. Aside from brazenly seeking to override the CCP, the SCC Act, the SCC Rules and the fundamental rights of the Quebec Class Action Plaintiffs, RBH appears intent on trying to “park” a leave application to the SCC as an insurance policy in the event its CCAA proceeding fails. JTIM considered that this is such a good idea that it is now seeking the same relief. This may be among the more disingenuous devices yet attempted by them in their war of attrition strategy.
15. After using the Appeal Judgment as the pretext for the CCAA filing, they appear to suggest that they want to only "commence" an appeal process of that very judgment, presumably so that it could be revived later if they can't wear down the Quebec Class Action Plaintiffs enough in the present insolvency process. That is such a blatant abuse of both the insolvency process and the appeal process (and so clearly improper and contrary to law) that it must be rejected out of hand. If that were not enough, the Tobacco Companies, clearly have no intention of ever satisfying the Judgment Debt if and when the leave application or appeal to the SCC is ultimately dismissed.
16. Justice Riordan decided that “it is high time that the [Tobacco] Companies started to pay for their sins”9 but they have done everything possible to avoid doing so. This is not a case of an honest and unfortunate debtor that requires CCAA protection to restructure and become profitable. These extremely profitable companies have inflicted grievous and sometimes fatal harm on their victims and have refused to pay anything for their misdeeds. These exceptional circumstances dictate that the Court’s broad discretion be used to severely restrict the Tobacco Companies and achieve justice and fairness for their victims.
17. As stated by Justice Schrager, J.A. in the Security Judgment, “a strategic decision is required by [Applicants] in caucus with their parent companies and related entities who received the benefit of the profitable operations over the years”10, as to whether they intend to resolve the Judgment Debt. If they do not, the Tobacco Companies should be adjudicated bankrupt to avoid wasting tens of millions of dollars in CCAA expenses.
...
62. The CCAA proceedings should not be regarded as typical filings by commercial debtors in financial distress but rather as an exceptional situation where bad corporate actors are seeking the Court’s assistance to avoid paying a judgment debt to the victims of their malicious misconduct.
Footnotes
2 Riordan Judgment at paras. 239, 269, 288, 339, 369, 378 [ITCAN Application Record, Tab 2J].
3 Appeal Judgment at pars. 98 and 1149 [ITCAN Application Record, Tab 2A].
4 Riordan Judgment at para. 1196 [ITCAN Application Record, Tab 2J].
5 Riordan Judgment at paras. 365-366, 1010-1011 [ITCAN Application Record, Tab 2J].
6 Security Judgment at para. 1101 [ITCAN Application Record, Tab 2M].
7 Security Judgment at para. 52 [ITCAN Application Record, Tab 2M].
8 Schedule J to the Riordan Judgment at para. 2141(g) [ITCAN Application Record, Tab 2J].
9 Riordan Judgment at para. 1200 [ITCAN Application Record, Tab 2J]
10 Security Judgment at para. 52 [ITCAN Application Record, Tab 2M].
