Once again in Justice Riordan's court

Let's be polite and say that no one looks a day older.

After a four and half year break, almost all of the parties in the Quebec tobacco class actions were again before Quebec Superior Court Justice Brian J. Riordan.

While the issue under discussion was relatively minor, the significance of the day was great.  For the first time in this 20+ year saga, money was being transferred in recognition of the harmful actions of Canada's tobacco companies.

Don't get too excited! The payments due to injured Quebec smokers from tobacco companies should by now have been on the way of out the door. But because the Quebec courts can't enforce this order without going against rulings of their Ontario court colleagues, all payments by tobacco companies are suspended.

The sums discussed today result from the bankruptcy of two insurance companies which had once issued policies to Imperial Tobacco Canada and Rothmans, Benson and Hedges.  As the story was told in court today (and in more detail in material filed in the Ontario CCAA proceedings), the firms responsible for closing out the insurance company accounts had contacted the class action plaintiffs. A claim was made and, without acknowledgement of entitlement or disclosure of amounts,  a settlement was arrived at.

As the judge in charge of this class action, Justice Riordan's job today was to approve this settlement with the now-defunct Kansa and Northumberland insurance companies, and also the wording of a notice to inform class action members of this development.

Were trial developments not hog-tied by CCAA proceedings, he would also have been asked to approve how the money would be spent. The sums transferred today (by deduction at least $1 million) is said to be too small to distribute to class members. Instead, the lawyers are proposing to start reimbursing the Quebec government fund which advances payments to class actions that are in the public interest (the Fonds d'aide d'actions collectifs), and to reach out to potential class members.

No approval for disbursement was on the cards today. Whether any money can be spent while there is a stay on proceedings has been contested by Imperial Tobacco and RBH in Justice McEwen's Toronto court. Another judge -- former chief justice Winkler -- is mediating the dispute. So many billable hours!

A different room. A different mood.

In comparison with the hundreds of days of acrimonious trial reported here, today's hearing was relatively cordial and considerably scaled back. Smaller court room. Lower voices. Even some smiles!

The regular crew from the class action side was on hand, with a representative of each of the law firms that has worked together for so many years. Joining them was the fifth firm that has come on board , insolvency experts Fishman, Flanz, Meland, Paquin.

The defendant tobacco companies had switched their line up. Eric Préfontaine has represented Imperial Tobacco in this case at the Appeal Court, but this was the first time (I think) that he was before Justice Riordan. RBH had sent Jean Lortie, and JTI-Macdonald stayed at home.

Business quickly done.

The issues debated today were, to these ears, minor wording choices related to the motion pasted below.

Justice Riordan was asked to consider wording to address the potential of courts (CCAA or class action) to break the seal and disclose the amount of the settlement, also also whether class members were to be informed that their rights were not being affected or not substantially being affected.

Within 90 minutes - including a lengthy break -- this business was done. Justice Riordan agreed with the first 7 requests made this morning, but will hold off signing anything until May 14th, with the expectation that an agreement or decision will be communicated from Toronto.

Meanwhile, the business that is not being done.

What didn't happen today is probably more significant than what did.

Today was the last day of the usual 60 day period for those who lose a case to seek leave to appeal at the Supreme Court. Justice McEwen was asked to make this a meaningful deadline, but instead chose to exercise his discretion to restart this clock after the CCAA proceedings are over.

Another 60 day deadline set in the recently-upheld decision was an obligation on the class action lawyers to provide the judge with some suggestions on a way to process claims. This deadline too has been frozen by the CCAA proceedings.

Another thing that likely didn't happen today was any further work up by Ontario towards the hearings it had expected in June.  As was expected, Justice McEwen issued a quick 'zap-you're-frozen' rejection to this request. He had promised to do so on Monday, but issued it only an hour or two after the hearing concluded last Friday.

Obiter dicta

A lot of water has flowed under the bridge since the last face-to-face meeting among this judge and these parties. And there is a lot of remaining business -- like establishing eligibility requirements and payment methods for class members, or resolving the unfinished issues from the trial (abuse of process anyone?). Lots to talk about over dinner, perhaps, but very little space for exchange between judge and lawyers this morning.

Nonetheless, Justice Riordan let it be known that he is hopeful for a settlement. He expressed his personal admiration of former Ontario Chief Justice Winkler. He said it was in the best interests of all the parties, including the companies, he said, to settle and get this over with. "Lots of dollars, perhaps, but it would put some certainty in the situation and let people start getting paid something. That’s the objective."

Discussed today (final order will have some wording changes):

1. GRANT the present Motion; 

2. ORDER that the Settlement Agreements remain under seal and that the settlement amounts payable thereunder not be disclosed; 

3. ORDER the electronic notification of the attached Notice to all persons registered on the Class Counsel database who have submitted an email address; 

4. APPROVE the settlement agreement dated July 4, 2017 (Exhibit P-1 under seal) entered into between Kansa General International Insurance Company Ltd., Ferdinand Alfieri, in his capacity as liquidator of Kansa General International Insurance Company Ltd., Jean-Yves Blais (now deceased) and Conseil Québécois sur le Tabac et la Santé, in their capacity as class representatives in Court File number 500-06-000076-980 and Cécilia Létourneau, in her capacity as class representative in Court File number 500-06-000070-983; 

5. APPROVE the settlement agreement dated February 16, 2017 (Exhibit P-3 under seal) entered into between Northumberland General Insurance Company, through its liquidator PricewaterhouseCoopers Inc., Jean-Yves Blais (now deceased) and Conseil Québécois sur le Tabac et la Santé in their capacity as class representatives in Court File number 500-6-000076-980 and Cécilia Létourneau, in her capacity as class representative in Court File number 500-06-000070-983; and 

6. AUTHORIZE Class Counsel to withdraw from the Court record Exhibits P-1 and P-3; 

7. ORDER that the proceeds of the Settlement Agreements be paid to Fishman Flanz Meland Paquin LLP in trust (“FFMP”), as contemplated in the Settlement Agreements, and forthwith thereafter transferred by FFMP to the Trust account of the law firm Trudel Johnston & Lespérance; 

Under negotiation:

8. AUTHORIZE Class Counsel to use $ 500,000 of the proceeds of the Settlement Agreements to maximize the take-up rate in the class actions. 

9.  AUTHORIZE Class Counsel to use the balance of the proceeds to reimburse the Fonds d’aide aux actions collectives for the financial aid provided in the class action proceedings. 

10. ORDER an accounting of the use of the proceeds of the Settlement Agreements before the Court; 

11. GRANT provisional execution of the present judgment notwithstanding appeal; 

12.  THE WHOLE without costs.

CCAA 4 : Minutes

Today was the fourth day of court hearings into the benefits extended to tobacco companies as a result of their gaining cover under Canada's Companies Creditor Arrangement Act.

Let's just say it was brief. The court sat for under ten minutes -- by my clock it was between 10:35 and 10:40 and again from 11:20 to 11:22.

As before, the real discussion is behind the scenes. At the normal court time of 10:00, the lawyers retreat en masse to a separate private meeting with the judge. As before, the open court session serves to record developments and agreements.

During those brief minutes today, we learned that:

• the concerns of the Genstar pensioners are heading to resolution. On May 14th a motion will be processed and on June 26th a settlement motion will be proposed.
• as signalled yesterday, the Ontario government will be able to file a "fresh and amended" claim against the companies, upping the amount it is seeking to $330 billion. For reasons not made public, Justice McEwen's agreement to this will be formally given on Monday instead of today.

Work it out yourselves...

By the actions of the dozens of lawyers in attendance (fewer each day, but still more than enough to fill a hockey bench), this backroom dealing and quick judicial approval seems to be part and parcel of the CCAA process.

At this point anyway there seem few signs to encourage unhappy parties to bring their troubles to the bench. To the contrary, Justice McEwen seems to have increased the pressure on parties to work things out for themselves. Those who have asked him to intervene in nuances or variations in the orders initially granted to the companies seem to have come away with less than before they made their case.

• Quebec class action lawyers wanted to prevent the companies from being able to simultaneously appeal the ruling against them and benefit from CCAA protection. In losing this argument, they also lost ground. Now the companies no longer face a deadline on filing their appeal, and can continue to have their cake and eat it past next week (when the deadline for filing would have expired).

• The Ontario government wanted to be able to continue its case against the domestic companies  while it pursued their international partners, to whom the stay had not been completely applied. Even before Justice McEwen rules this Monday, they have already lost ground as a result of his previous decisions. The stay has been more definitively extended to any and all tobacco related claims, as illustrated in the paragraph 19 of the  changes to the Orders approved yesterday)

The next hearing is scheduled for May 14th.

CCAA 3 - Ontario's case against international tobacco companies

Discussions on the terms of creditor protection being offered to Canada's three large tobacco companies resumed today before Justice Thomas McEwen of the Ontario Superior Court.

Of the three topics that had been identified for review, the sole issue discussed at length this morning was whether or not Ontario could nudge along its lawsuit against 14 tobacco companies, including the three Canadian firms and the multinational companies which have controlled them.

This afternoon, with less discussion in court and more behind the scenes, an agreement on steps towards finalizing a settlement between insurance companies and the class action team was agreed to.

Ontario wants its case to proceed

A month ago, the Ontario Attorney General raised its objections to the stays on all tobacco lawsuits that had been applied in a sweeping, if uneven, fashion to all three CCAA Orders protecting the companies.

As laid out in its highly readable Factum, the Ontario government considers that the companies have tried to use the CCAA proceedings "as a sword to cut down Ontario's [litigation] efforts" . And this just as their case winding towards a potential trial date next year. Their claims against the international companies, who are not participating in the CCAA proceedings, became collateral damage.

The written submission prepared by Ontario's lawyers is peppered with harsh descriptions of companies' strategies to use the CCAA to evade accountability.

• There is no evidence that any of JTIM, ITCAN and/or RBH intend to restructure their affairs; rather, their clear intention is to continue with “business as usual” and maintain the status quo with respect to their business operations and emerge from the CCAA proceedings having effectively shed their liabilities for their conduct in respect of Canada from 1950 to the present. 
• In the absence of any consultation with Ontario, JTIM, ITCAN and RBH seek to improperly wrest control of the prosecution of the Ontario HCCR Action from Ontario, 
• As was the case with JTIM's 2004 CCAA Proceeding, the 2019 CCAA proceedings commenced by JTIM, ITCAN and RBH are best characterized as and should be recognized to be “litigation schemes”. By obtaining the Stays in three separate ex parte CCAA filings before three different judges, which, taken together, extend to all of the litigation pending across Canada against them and the non-filing third parties, JTIM, ITCAN and RBH are attempting to manoeuvre a better outcome for themselves and the other eleven corporations which are defendants in the Ontario HCCR Action, than it would have if the three filing corporations were obliged to settle the terms for the satisfaction of the Quebec judgments and then later deal with the provincial HCCR Actions. 

Ontario's objective today was to persuade Justice McEwen to lift the stay and to let their lawsuit proceed, short of any damages awards from these three companies actually being paid out.

Hitting the wall

But when Ms. Jacqueline L. Wall stood before the judge this morning, this effort seemed destined for failure.

Earlier in the week, the judge had explained why he refused a similar but much smaller request from the Quebec class action side for a rewording of the stay. Your take may be different, but to these eyes the central theme in his reasons was that the CCAA gave judges broad discretion in general and this judge in particular intends to exercise his discretion this by applying the same treatment to all stakeholders, irrespective of circumstances or histories.

Against this mindset, Ms. Wall nonetheless offered reasons why Ontario's case was different and why it should be allowed to proceed despite the stay against further litigation efforts.

Chief among the reasons she presented over more than an hour of soft-spoken delivery was the role of the international owners of the Canadian defendants. (Unlike the class actions, in the provincial lawsuits damages are being claimed against the companies who directed the Canadian operations and to whom the profits continue to flow).

These lawsuits revolve around the collusion (conspiracy) of the companies in failing to meet their obligations to warn and not deceive. As such, the provinces will ask for judgments that, like the conclusions of Justice Riordan and the Quebec Court of Appeal, find the companies collectively (jointly and severally) responsible for their wrongdoing. For that reason, she explained, both domestic and international companies have to be dealt with together. It is not possible to pursue litigation only against the parent companies.

Ms. Wall saw no conflict in Ontario simultaneously negotiating towards a settlement with some of these defendants while pursuing a claim in court against them.  She pointed out that the parent companies are not participating in the CCAA process intended to reach a settlement and, in her view, the Ontario Superior Court can't force them to do so.

Show of hands in favour

As before, Justice McEwen's request for indications of support and opposition divided the room into a few parties against everyone else.

On behalf of the Quebec class action plaintiffs, Avram Fishman supported Ontario's position. He cautioned that rejecting it would give the tobacco companies a 'litigation holiday' for years. He reminded Justice McEwen that these were not companies like any other -- what might be appropriate in 99% of CCAA cases did not apply here.

He implicitly addressed the unique position of the Quebec class action as the only party that has emerged with a completed trial and orders from two levels of court. "We're not concerned about keeping a leg up" on other litigants," he said. "It doesn’t bother us at all if other claimants catch up with us."

He hinted at the option of putting a time limit on settlement discussions, and setting a date at which claims could be reactivated. This "would be giving a strong message that you expect this thing to be resolved within a reasonable period of time.'

In its first intervention in this case, the Canadian Cancer Society also supported the position of the Ontario government. Mr. Vern DaRe introduced the mandate of the CCS and its role as a "non economic stakeholder", drawing attention to the society's longstanding support for health care cost recovery litigation.

Mr. Max Starnino took a grudging "middle position" on behalf of the governments of Alberta and Newfoundland. While "not actively supporting" the position of Ontario, they "did not oppose, with a couple of caveats."  He disagreed with Ontario's view about the jurisdiction of the CCAA court, saying that the international defendants could be compelled to participate, although forcing them to dig into their pockets might prove more difficult.

Those opposed ...

As before, the three tobacco companies, their three monitors and the consortium lawyers representing 6 provinces agreed to disagree with any change to the stay of legal actions.

Speaking for Imperial Tobacco (which had also filed a written response and set of background documents), Mr. John A. Macdonald (sic) said it would be "completely unworkable" for the companies to concurrently defend their case AND negotiate a settlement.

At this Justice McEwen's intervention further torpedoed Ontario's hopes. "I don’t disagree," he interjected. "You read the ruling I issued – we are re-ploughing old ground."

He pushed the parties to express whether or not they saw anything unique in Ontario's case. "I am more interested in whether the other defendants won't participate or whether I don’t have the power to force them? Why is Ontario uniquely different?"

Mr. McDonald's response helps explain how challenging the CCAA proceedings are from a public health standpoint. He highlighted that the driving force behind negotiations was the bottom line and keeping business going. He highlighted the particular expertise of the CCAA "in taking practical action on business matters." Under the forced negotiations of the CCA, parties "act in their commercial interests. The debtor companies have to do that. The parent companies do that. This court sets up a framework for those companies to come together and see if there is a resolution."

In presenting Rothmans, Beson and Hedges opposition to Ontario's position, Paul Steep also stressed that the CCAA was intended to motivate parties to negotiate. He thought it would be unreasonable to expect his client to concurrently fight a $330 billion dollar claim and negotiate a global settlement with other claimants. He accused "the Crown" (Ontario) and Quebec class action lawyers of undermining the prospect of a stable environment with their encouragement of continued litigation. 

Mr. Mike Eizinga spoke briefly against Ontario's request on behalf of the provinces of British Columbia, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and Saskatchewan. This position of these 6 provinces has not changed since they similarly opposed a partial lifting of the stay for Quebec, he said. 

Me too. Me Three. Me Four. The Monitors all lined up against Ontario's request. They softened their position somewhat by giving assurances that from their perspective the CCAA was not a delaying tactic. "We are not in the business of punting things for several years."

Before adjourning for lunch, Justice McEwen promised that he would have an answer by Monday.

A more agreeable afternoon

As people left for lunch, it was still uncertain if or when an afternoon sitting would be held. A couple of hours later, however, the court reassembled to allow Justice McEwen to hear where agreements had been arrived at.

Chief among these was a way to resolve the challenge by Imperial Tobacco and Rothmans, Benson and Hedges to the use of funds being provided by two bankrupt insurance companies (Kansa and Northumerland) to the Quebec class action claim. This issue has been handed over to Justice Winkler to address -- if there is no resolution by May 14th, it will be raised before Justice McEwen.

A few other issues were resolved -- and will be reported here later.

Tomorrow the request to restore pension cheques to former Genstar employees will be presented.

Tomorrow's lineup

Tomorrow and Friday will see the second set of hearings related to the decision of Canada's tobacco companies to call on court protection from their creditors. In the warm up to the gathering at the court at 330 University Avenue in Toronto, a number of documents have been circulating among the several dozen lawyers who have signed up to the service list.

Thankfully, some of them are quicker to push the forward button than the Monitors are to post the documents on the public websites. (FTI Consulting for Imperial Tobacco, Ernst and Young for Rothmans, Benson and Hedges and Deloitte for JTI-Macdonald.)

While nominally independent, the monitors seem to play a role somewhat akin to golf caddies -- strategizing and carrying the weight to help their clients make sure that their clients keep out of the rough.

Agreeing to disagree in open court

JTI's Monitor has circulated suggestions for the Tee-time for each of the major issues of disagreement that are anticipated tomorrow.

• First up could be the Ontario government, with its request that the freeze on all legal proceedings be temporarily thawed to allow for some hearings related to its lawsuit against the companies to take place as scheduled this spring and early summer. 
• Coming next would be the requests of the Quebec class action lawyers for clarifications related to the permission they were given earlier this month to seek approval of a settlement with two defunct insurance companies.
• Last for consideration would be the case of the American pensioners who have found themselves cut off from cheques that had previously been covered by Imperial Tobacco.

Other disagreements under private discussion

From the monitors reports, it would appear that many items are still under discussion, and a few have been postponed or dropped.  Among complaints that now appear to be on the backburner are objections to the appointment of Deloitte as a Monitor, given its previous actions in tobacco-related files, the need for the Court to approve the billings of the (many) lawyers and other professionals working on the CCAA proceedings for the companies. Many other issues -- i.e. the continued repatriation of payments to BAT by ITL, and the scope of the stay -- remain unresolved.

Business as usual is quite profitable!

Imperial Tobacco's monitor's latest report  offers a rare insight into the profitability of the tobacco business.  The report gave details on income and expenses for 3 weeks in April. Of the $266 million in sales revenue, $164 million was forwarded to provincial and federal government treasuries. Another $62 million went to cover expenses.

That left $40 million profit on sales (net of taxes) of just over $100 million - a 40% profit margin.

Two more motions for Round 2 of the Comeback hearings.

At the end of this Easter week, two days (April 25 and 26) are allocated for requests for further further modifications to the initial orders setting up the terms of creditor protection.

Two new requests for changes were filed this week.

Unsettling and resettling the insurance settlements

On April 4th, Justice McEwen agreed to a carve out of the general freeze on all litigation developments to allow the Quebec Class Action Plaintiffs "to seek the approval of the Kansa Settlement and of the Northumberland Settlement from the Honourable Justice Brian Riordan JSC."   

As explained here yesterday, last Tuesday they proceeded to do so following the Quebec court rules for giving such approval, as set out in Article 590 of the Quebec Code of Civil Procedure. This required transparent disclosure to class members of the use to which the settlement money would be put. This seems to be an issue which has upset Imperial Tobacco and Rothmans, Benson and Hedges. On Thursday they sent emails to both judges to complain, if I understand their position correctly, that although they are agreeable to court approval of the settlement, they oppose any use of the funds.

The Quebec class action team has given notice that they will ask Justice McEwen to clarify his order to allow the Quebec court to decide these issues.

The pensionless pensioners

Of the 5,000 or so former executives and workers who receive pensions administered by Imperial Tobacco, there are 53 Americans who are former employees of Genstar. These individuals have suddenly found themselves without their monthly pension cheques.

Genstar (which had nothing to do with the tobacco business) was owned by Imperial Tobacco before the non-tobacco assets were spun off as part of British American Tobacco's privatization of the company. It would seem that some of the pension responsibilities, however, stayed behind.

Behind - but not secured. Of the 9 pension funds administered by the company, only this one is not registered and not protected.

Their concerns were refiled with Justice McEwen earlier this week. One of the bases for their claim for special consideration is "the Canadian Charter of Rights and Freedoms. It is respectfully submitted that before this Honourable Court makes any order staying pension payments to Affected Members, it must be mindful of whether that order will result in jeopardizing the life or security of any person and be reasonably satisfied that such order will not in actual fact do so. Orders made by judges under the CCAA are subject to the Charter."

Another peek inside the insurance larder -- and more attempts to block Quebec court authority

One of the tantalizingly unavailable aspects of tobacco litigation are details about the insurance policies held by the companies and who will benefit from any insurance payouts.

Only rarely have we been given access to the private insurance policies that may - or may not - factor into the compensation that will be available to injured smokers (or government health plans).

2012: Kansa winding up in Montreal

Six years ago, a box of nominally public documents related to the bankruptcy of Kansa insurance sat in the office of Quebec Superior Court Justice Jean-Yves Lalonde. Among them were papers related to a fight about whether the company would owe Imperial Tobacco any support for its legal fees. Juicy facts about the legal costs of the suits facing the company emerged for one day -- but were forcibly suppressed within 24 hours.

2015: Reliance winding up in Toronto

A few years later the bankruptcy of another insurance company which had issued policies to tobacco companies was being wound up in court. This time there was a  dispute over whether or not a settlement reached with Imperial Tobacco and Rothmans, Benson and Hedges could be supported by the court. (It wasn't). These proceedings revealed that more than 30 insurance companies had issued liability coverage to Canadian tobacco companies.

2015-2017: The relics of Kansa and Northumberland 

The next peek at the potential of insurance companies to cover litigation-related costs has resulted from the current proceedings for the three tobacco companies under the Companies' Creditor Arrangement Act (CCAA).

One of the few alterations made to this spring's order by Ontario Courts to suspend any and all legal developments related tobacco lawsuits was to allow a settlement between lawyers representing Quebec smokers and Kansa to be submitted for court approval.

The request was made by the Quebec plaintiff lawyers, and their affidavit explained that Quebec law required that the settlement be approved by a Quebec Court within 90 days of the appeal court judgment (i.e. by the end of May). (p. 103, Tina Silverstein affidavit).

The change was "uncontested", and was arranged without much information being made public. A few more details slipped out yesterday on the web-site managed by Imperial Tobacco's CCAA Monitor, i.e.

• a motion from the Quebec lawyers to Justice Riordan
• a letter of complaint by Imperial Tobacco to Justice Riordan and also to Justice McEwen.

From these new filings we now know that in the 1980s, Kansa had insured ITL and RBH with annual policies for coverage that ranged from $1 million to $10 million. Northumberland had insured Imperial Tobacco for 3 years in the 1980s, with coverage under $10 million. Both companies went bankrupt - Northumberland in 1985 and Kansa in 1994. Decades later their affairs have not yet been put to rest.

Those responsible for distributing the remaining assets of these insurance companies don't seem eager to recognize claims by either tobacco defendants or those to whom damages are owed. But in the case of Kansa and Northumberland, there seems to have been a decision to settle rather than fight.

• Kansa paid an undisclosed amount to Imperial Tobacco and Rothmans, Benson and Hedges in 2015, after Riordan's judgment was issued. 
• Kansa reached a settlement with the Class Action lawyers in 2017 for an undisclosed amount (said to be larger than that paid to the tobacco companies).  The terms of the settlement were that the money would be paid irrespective of any appeal decision.
• settled with Kansa before 2016 (for an undisclosed sum).
• in 2017, Northumberland reached a settlement with both Imperial Tobacco and the Class Action Lawyers. The amount is undisclosed and the company received an amount "not greater" than that provided for their injured clients.

2019: Jurisdiction over the hanging threads

The motion filed with Justice Riordan earlier this week explains that the settlement between the Class Action and Kansa received approval of the judge managing the bankruptcy case (Justice Lalonde) in 2017, but now must be submitted for approval by the judge managing the class action (Justice Riordan).

This seems to be where things get tricky. Justice McEwen authorized the class action team to get authorization for the settlement from Justice Riordan. But, by my reading of article 590 of Quebec's Code of Civil Procedure (referred to in their motion), they must first inform class members of the settlement and how they intend for the money to be distributed.

The proposal that is being put to Justice Riordan is that the money from the insurance settlements NOT be distributed to smokers OR to lawyers. Instead they are proposing that it be used to fund outreach to class members and to reimburse the Fonds d'Aide aux actions collectives, the government agency which loans money to support class actions that are in the public interest.

But hey! Didn't Justice McEwen block all decisions related to distribution of any class action monies? 

This seems to be the view of Imperial Tobacco and RBH. Both companies have given notice that they think seeking the authority of Justice Riordan for the use of the settlement funds goes too far. They have indicated that  they will ask Justice McEwen to "address these issues" during the hearing at the end of the week.

One set of rules says distribution must be considered. The other says it can't.

The Chinese have an expression for such inherent conflicts. Maodun - sword-shield - the impasse between an impenetrable shield and an unbeatable sword.

Another setback: Justice McEwen unsheathes the sword of Damocles

On Wednesday, Justice Thomas McEwen did as promised -- he responded to the request of lawyers representing injured Quebec smokers that the tobacco companies not be allowed to simultaneously seek creditor protection AND pursue a challenge to court ruling that sent them there.

He did not respond as hoped. Quite the opposite. Rather than forcing the companies to choose between appealing the ruling of the Quebec Court of Appeal and using creditor protection, he said they could do both. He expanded the stay to stop the clock on the Supreme Court time limits.

His short ruling, penned on the back of the request made to him by the Quebec lawyers, did not give reasons. These he said (transcript below) will "soon follow".

April 17, 2019
For ease of reference I am providing this endorsement by way of the QCAP Factum which references all three Applications. 

For reasons to soon follow an order shall go [out] staying any and all current proceedings against the Applicants and related entities as set out in the Initial Orders, and prohibiting the commencement of any further proceedings by or against them except with leave of this Court. 

This includes any applications for leave to the Supreme Court of Canada. It is further ordered that, to the extent of any prescription, time or limitation period relating to any proceeding by or against the Applicants that is stayed pursuant to this order may expire, the term of such prescription, time or limitation period shall be deemed to be extended by a period equal to the Stay Period. 

This endorsement is being provided to all counsel who attended at the motion. 

McEwen J. 

This is the "Sword of Damocles" scenario portrayed by two sets of lawyers -  those representing Quebec smokers and the Ontario government. Earlier this month, they cautioned Justice McEwen that as long as the Appeal Court ruling was not final or the path forward resolved, the companies would have an imbalance of power in any negotiations.

Next Friday, the Ontario government was expected to offer reasons to Justice McEwen as to why preliminary motions in their lawsuits should proceed in June this year, as currently scheduled. Yesterday's ruling suggests that will be a tough case to make.

An unofficial translation of the Quebec Court of Appeal Judgment on the Blais-Létourneau class actions

A useful document was found among the thousands of pages filed in the lead up to the hearings on the "comeback" motions to renew creditor protection for Canada's three main tobacco companies. You will recall that the companies fled to Ontario courts for protection under Canada's  Companies' Creditors Arrangement Act in the weeks following their crushing defeat at the Quebec Court of Appeal.

One of the criticisms leveled against the Ontario court was that it stayed the Quebec judgments without having likely read them. One of the criticisms leveled against JTI was that it had asked for protection from Ontario courts without telling them what Quebec courts had said about their behaviour. Perhaps putting the whole thing on record in English was seen as a way of addressing these concerns.

It's reasonable to expect that Ontario judges would not have read the Quebec decision. Not only is it long - 400 plus pages - it is almost entirely in French. For many Ontario lawyers, this is a language they have not been called on to use since high school.

The 5 judges who wrote the French original will likely cringe at the clunky and leaden English in the translation. (My Francophone colleagues tell me that the original ruling is beautifully penned). But until a better version comes along, this one may have to do!

• Link to JTI Motion record with the translation in it (begins at PDF page 357)
• Link to the original ruling

CCAA-2: The mostly private hearing.

Today was the second day of the 'Comeback' hearing for the creditor protection of Canada's three large tobacco companies (Imperial Tobacco, Rothmans, Benson and Hedges and JTI-Macdonald). From the long list of things to discuss that had been circulated ahead of the meeting, only a handful had been aired yesterday.

And with a large cast of creditors with positions to be considered, one might have thought that the day would be full with debate and legal argument. As it turned out, very little happened in open court.

The morning began with lawyers representing the dozen or so interests being ushered to meet (in private) in another court room. A half hour or so later, they emerged and spent an equivalent period caucusing (in private) in the hallways.

It was clear that an agreement was being put into action (in private). Word was out that a deal was being hammered out. Body language became more relaxed. Coats were gathered and about half of the teams began to drift away.

Around noon Justice McEwen came into court, outlined some signposts for the way forward and went through and signed (in public) the changes that each of the tobacco companies was proposing for the Order that would allow it to continue to operate under CCAA protection.

Here is what we were told:
* the items that were not discussed at this session will be picked up again at the next hearing on April 25th.
* on the week of April 15th, Justice McEwen intends to issue his ruling on the Quebec Class Action Plaintiffs' request to alter the order with respect to the companies' ability to seek leave to appeal of the Court of Appeal judgment against them or otherwise manage the impact of the CCAA order on executing that judgment.
* the CCAA orders protecting all three companies have been extended to June 28th.
* a hearing will be scheduled for the end of June (likely June 26th).

By the time the train left Toronto, the 'amended and restated' orders were on the Monitor's websites for Imperial Tobacco and JTI-Macdonald, (The one for RBH was posted somewhat later).   These new orders are only modestly altered from the initial versions that were approved (in private) over the past month. Many of the adjustments are housekeeping changes or bring the orders for the three companies into alignment with each other. All now expire on the same day, for example, and they all adopt similar language with respect to the role of Mr. Winkler.

So there it seems it will sit for the next 3 weeks. The 'status quo', as defined in these orders, will continue for a while longer.

The open part of today's hearing was merely an affirmation of the deal that had been brokered in private amongst the parties. The real business was done in private. This, I expect, will be the pattern that continues -- especially when there is an officer of the court whose job it is to hold private meetings with parties and to try to strong arm them into reaching agreements.

Whatever the merits of such an approach for private business, it fits more awkwardly when more than half the parties are governments and when the policy implications are so profound. The status quo that is being maintained, after all, is the same one that is currently responsible for 45,000 annual deaths.

CCAA-1: The Status Quo and the Quebec judgment

"I see we have a full house". Justice Thomas McEwan's comment as he sat down at the head of Courtroom 8-1 was a decided understatement.  The courtroom was at twice its capacity.

A hundred or more lawyers and onlookers were assembled for the first day of the "Comeback" hearing that had been set up to hash out terms under which Canada's three large tobacco companies (Imperial Tobacco, Rothmans, Benson and Hedges and JTI-Mcdonald) could continue to be sheltered from their debts.  All the seats were taken well before the scheduled beginning (10:00 am).

The crowd should have been no surprise. On the service list 35 firms are identified -- 26 law firms representing industry clients, 3 firms representing monitors, the monitors themselves, the mediator, financial advisers and restructuring specialists. Add to that interested parties that don't have official standing, and you would wonder why anyone thought they could all squeeze into this room.

The absence of overflow chairs was only one of many details that were not thought through before the day's beginning. A schedule to allow presentation and responses to the many motions that had been filed over the last week had not been agreed to by starting time. Almost an hour was taken up while lawyers met in the Judges' library to work such details out. 

Nonetheless, when the hearing did start (at 11:00) things ran very smoothly - and continued to do so throughout the day. Smoothly - yes - but not without some very disturbing moments.  

The unopposed items first 

It took very little time to dispense with a handful of items to which there was little or no opposition: impediments to confirming settlements with between insurance companies were removed; a cash collateral issue was resolved; the role of former Justice Winkler was transformed from 'Interim Tobacco Claimant Coordinator' to 'Court-Appointed Mediator'. 

The view from Quebec

The rest of the day was taken up with the only one proposal -- the request of the Quebec class action lawyers for Justice McEwen to limit the ability of the tobacco companies to simultaneously use creditor protection to negotiate a settlement while also maintaining their right to appeal a court decision.

They have offered two suggestions to the judge: a) the CCAA process would be disbanded for any defendant who makes an appeal to the Supreme Court, or b) decisions on staying the Quebec court judgment be made by the Quebec Courts, not the CCAA process.

The arguments in support of these suggestions were not made by the lawyers whose work has been described here over the past many years. The CCAA process has brought new legal talent to the teem -- Montreal specialists in insolvency law at the law firm Fishman Flanz Meland Paquin LLP. 

It was Mark Meland of this firm who presented the case over the morning's hearing. In doing so, he provided colourful (and, to these ears, compelling) background to the proceedings. 

Forum shopping

Mr. Meland said that the tripwire to the CCAA process was the judgment issued by the Quebec Court of Appeal in favour of Quebec smokers on March 1st - a judgment that has now been put on ice as a result of the CCAA Orders signed by 3 Ontario judges. 

He framed the CCAA process (and the stay on the Quebec judgment) as an attempt of the tobacco companies to "evade improperly the jurisdiction of the Quebec Court of Appeal" . He called it a collateral attack on the jurisdiction of that court that was "unlawful, disrespectful and should not be sanctioned by this court." 

He drew attention to the change in the companies strategies to prevent the judgment from coming into effect (and their having to provide more money to their victims). He told the story,  not previously made public, about the events immediately after the trial.

In the hours after learning that it had lost the appeal, ITL had initiated a request to the Quebec Court of Appeal for a stay on the judgment until it had gone to the Supreme Court. A brief court hearing had taken place at the Quebec Court of Appeal on the next business day (Monday), with all parties agreeing to set March 25 as the day of hearing that motion. Mr. Meland called this a "judicial contract" and went through the exchange of emails and motions on the subject.

But instead of honouring this process, Mr. Meland pointed out, the companies had "gone down the 401"  looking for a friendlier court and a friendlier statute to achieve their ends.

A creditor like no other

Mr. Meland said that the Quebec class action members deserved special consideration in the CCAA process.  "They are not like every other creditor. Against all odds they achieved two remarkable judgments  - there are no judgments anywhere else in the world where big tobacco has  been found to be so negligent and where an award on a mass tort basis has been rendered. It is a credit to the Quebec justice system that this has been rendered."

These creditors were different also in that the CCAA was altering the status quo in their case, not protecting it. "Their definition of status quo and our definition of status quo are different ... The only party today that is affected by your order in a fundamental way is the Quebec Class Action Plaintiffs.  I acknowledge there are other creditors, but there are none that are so close," said Mr. Meland.

Yes, there were other people suing the tobacco companies -- "there is not one other single pending case that will be heard in this year."

CCAA Applicants like no other

Mr. Meland warned the judge about the past behaviour of the tobacco companies - their persistent efforts to impede litigants and the "critical and scathing" conclusions of the Quebec court. "These are the people who are before you and who are asking for your assistance."

He gave an immediate example of their tactical ambiguity. When first appearing before justice McEwen Imperial Tobacco had said that it did not intend to seek leave to appeal -- yet had filed documents indicating they still wanted to keep this option open.

He signaled the dangers of giving the companies the capacity to cause further delays, and how a special concession which allowed them to appeal but which prevented other movements on cases would give them a new tactical weapon. They could eat up the clock in negotiations and then turn to the Supreme Court for further delays. This was too much. "Those who don't learn from history are condemned to repeat it." '"After 21 years - enough is enough"

Justice McEwen was urged to consider the impact of this on the 100,000 Quebec victims, and how his making this concession to the companies would ensure that there will not be one living member of the Quebec class to receive compensation. "When you weigh that group against the perpetrators, do you opt for the victims of the perpetrator."

Don't interfere in Quebec Court matters

He appealed to Justice McEwen's judicial comity - citing other CCAA rulings where courts had refrained from trumping each other's decisions. "Superior courts do not order each other about or make orders interfering with each other's process. Rather, it is essential that they should cooperate. Conflicts between courts, or other bodies having ultimate judicial power, may well have serious results, including perhaps even loss of liberty. In Canada, superior courts do not compete with one another. They accord to one another "full faith and credit..."

To usurp the Quebec Court's role on a stay, Mr. Meland stressed, would be a "slap in the face" of Quebec jurisdiction.

The government of Ontario - the lone supporter 

After lunch, other parties were invited to air their views on the Quebec plaintiff's request, with those in support going first. Of the almost dozen other parties, only one sided on this issue with Quebec smokers -- the government of Ontario.

On behalf of Canada's largest province (also the party with the largest claim against the tobacco companies - a gulping $330 billion!), Ms. Jacqueline Wall of the Ontario Attorney General's office said that she too felt that if the companies were able to keep their appeal options open that they would have an unfair upper hand in negotiations.

"Seeking to have the advantage of a sword of Damocles is not an expression of good faith. If the purpose is to be a global settlement - including Quebec and other applicants -- then such impediments to discussion should be removed. ...The applicants should waive their appeal  rights or pursue their appeal."

After Ms. Wall's short (5 minute) intervention, support for Quebec's position seemed to evaporate. The rest of the day was spent hearing all the other parties line up against the idea.

It's all about the money

The first to speak was Ms. Deborah Glendinning on behalf of Imperial Tobacco. She reframed the discussion away from issues of mutual respect between courts and towards an issue that seems top of mind to many -- money.

By her account, the real motivation of the Quebec lawyers was to get their hands on the security deposit that ITL and RBH had made at the order of the Court of Appeal over 2015-2017. 

"The $1 billion – that’s what it has been all about since March 1." She said the goal of the plaintiffs was to get a final ruling in Quebec because doing so would give them an edge - "a leg up" -  in any future insolvency decisions. 

She gave a very different account of the hours and days after the March 1 decision. "The moment we were released from the lock up they ran to the register asking for the money.... Our filing was not some tactical event to evade the jurisdiction of the Quebec Court of Appeal or 'forum shopping'. In large measure ti was to prevent the Quebec plaintiffs from getting their hands on the $1 billion."

"They forced our hand... They forced us into this position."

For those concerned that Imperial Tobacco was seeking an advantageous position, Ms. Glendinning offered that their main concern was for others. They wanted to make sure that the process was fair to the provinces and others suing them. They wanted to prevent giving a benefit to Quebec over "all the other people who want to lay a claim to that money."

"All we are saying is give peace a chance"

As Ms. Glendinning sat down, Mr. Jeffrey Leon stood up to support her position.

In itself, this was enough to make eyebrows rise, given that he is the lawyer representing 6 provincial governments (British Columbia, Saskatchewan, Manitoba, New Brunswick, Nova Scotia and Prince Edward Island). 

But his next comments were even more remarkable. After a "hard fought" battle against the tobacco companies, he was ready to seek peace. "All we are saying is give peace a chance. .... In my submission there comes a time when you have to lay down your sword....Have to put aside the past. "

And as part of peace talks, he wanted to make sure that all of the money was on the table. "No one has a monopoly on the value of their claim at this stage.... If the process can't be divided it has to include everyone."

Mr. Max Starnino, speaking on behalf of the governments of Alberta and Newfoundland,  expressed his opposition to the Quebec class action proposal. As their Factum makes clear, they are concerned that allowing the Quebec case to proceed in any way that results in a transfer of money (including through settlements of insurance companies) could harm their chances.

The others pile on 

Less surprisingly, lawyers for Rothmans, Benson and Hedges and JTI-Macdonald also gave the thumbs down to the idea that Quebec courts should decide on the question of a stay of the class action. 

Paul Steep (for RBH) outlined the approach that RBH and JTIM preferred as the "narrowest and least intrusive way" forward.  Their proposal maintains the right to file a request for appeal, but subjects any other steps to decisions of the CCAA court.

Robert Thornton addressed the criticisms that had been levelled about the behaviour of the companies - and especially his client, JTI-Macdonald, It was time, he suggested to turn the page. "This is a new day. A new proceeding. A New Focus."  The shift from the Quebec judicial system to the CCA in Ontario reflected the need for "Fresh faces and new ideas." 

He echoed the view that the $1 billion that had been required by the Quebec Court of Appeal as a security deposit should not be released to Quebec smokers. Doing so would be to allow one creditor to "tactically manoeuvre to gain an advantage over others." JTIM escaped having to contribute to the deposit, and Mr. Thornton wanted to keep it that way. "Any further deposit that is for just one stakeholder... shouldn’t happen on your watch.."

The next voice against the proposal to return to Quebec courts any decision-making on staying their own judgment was on behalf of other class actions. There is only one other certified class action in Canada (the Knight case against Imperial Tobacco on light and mild cigarettes). But a handful of copy-cat cases have been filed in several provinces by the (dare I say notorious?)  Tony Merchant law firm. 

Evatt Merchant urged the judge to consider that there was no reason for Quebec smokers to be compensated ahead of other victims in Canada. They want to be included in any global settlement negotiated through former Chief Justice Warren Winkler - and to make sure that no one gets a slice of the pie before they do. "Our ultimate concern is that this shouldn't be a form of litigation – whatever track we end up going down – where smokers in Quebec who have COPD are dramatically better compensated than end user smokers in other part of the country..."

Next to the stand were representatives of the Monitors. Despite their independent role, all of them wholly supported the positions of the companies they were recruited by.

The billion dollar question

Justice McEwan pushed the lawyer for ITL's Monitor to explain the legal standing of the security deposit now in Quebec courts. "Who owns the money?" he asked.

He did not get a clear answer, being told instead that was "fairly technical."  What was clear was that all the monitors -- including that for JTIM -- characterized any money going to Quebec smokers as a result of last month's judgment would be giving "a leg up" to one creditor over the others.

"That ship has sailed"

By the time Avram Fishman stood to give the response of the Quebec plaintiffs, the discussion had clearly moved from how to respect the jurisdiction of Quebec's court to what to do about the $1 billion that had been set aside by that court for the Quebec plaintiffs.

Mr. Fishman made clear that while they were very much in favour of working with Warren Winkler towards a resolution, that they did not consider that initial payment to be part of the discussion.

He derided the statements by the company lawyers that they wanted to be "fair" to all creditors, and alluded again to the tactics of attrition. He reminded the court again that JTIM had suggested that the CCAA process could take years -- and that this company had previously dragged out CCAA protection for the 6 years between 2004 and 2010. "It's a little late in the day for tobacco companies to talk about being fair as their motivation. Its not their motivation. It is to have leverage over us to try to get a better deal." 

Justice McEwen asked him about fairness in the context of other class actions - would it be preferential treatment if they received money just because they were the first.

To this question, Mr. Fishman was unequivocal that the position of the Quebec plaintiffs was that this money had been set aside for Quebec victims once a final judgment was established and that this happened before the CCAA was triggered. "This is not something that would improve with the passage of time... That ship has sailed."

Justice McEwen pressed the issue in the context of settlement discussions. Mr. Fishman made clear that they intended to apply for the money once able to do so. "We cant get at it, but that doesn’t change the legal position. The legal position is that the money is ours. Is ours vis à vis the applicants. Its ours vis à vis the other."

Moreover, he later pointed out, "the matter of the billion dollars is not before the court today on the comeback motion... that is for another day."

And next?

When the court adjourned shortly before 5:00 only one of several contentious issues had been discussed. But the discussion about the concerns of the Quebec plaintiffs had fleshed out a lot of positions on other issues. It drew out the extent to which 8 Canadian provinces preferred to side with tobacco companies than with a co-litigant. It exposed the vulnerability of the Quebec claim to further lengthy and costly delays. 

The Quebec claimants had made their case clearly and well, but from the room of around 100 other lawyers wanting the same money, Justice McEwen would have seen very little support for it.

Friday will begin with an informal exchange about the order of discussion. 

Imperial Tobacco reports it has initiated discussions with provinces and class action representatives

There are now only 2 days left before the a Toronto judge again assesses whether tobacco companies can use the Companies Creditors Arrangement Act to avoid paying compensation to injured Quebec smokers.

Some of the documents filed in court last week are only now beginning to appear on the web-sites maintained by the monitors in the CCAA proceedings. The Monitor for Imperial Tobacco (FTI Consulting) seems to take longer than the others, which is why the requests that Imperial Tobacco will be making are just now being circulated.

In its Motion dated March 29 , Imperial Tobacco includes a draft order it wants the court to adopt. In addition to asking for a 10 week extension to the stay (until June 28th, 2019), it is also asking for the stay to be expanded to new categories of legal action. (see extract pasted below).

But more interesting was information filed by Eric Thauvette (Imperial Tobacco's CFO) that talks between the parties have already begun. By his account, ITL lawyer  Marc Wasserman met with most of the provinces and also representatives of the Quebec class actions. The only province which did not meet with him was Quebec, which so far has been keeping a very low profile in the CCAA process. (It has not even asked to be on the 'service list' to receive updates on events).

Marc Wasserman, Osler

And how did those meetings between warring parties go? According to Mr. Thauvette, they were 'frank and open'.

"The Applicants' meetings with counsel for the Tobacco Litigation plaintiffs were productive with a frank and open exchange of views, including with respect to the Initial Order and the CCAA proceedings. The Applicants agreed to consider matters raised by counsel for the Tobacco Litigation plaintiffs and to move forward on a consensual basis to the extent possible. The Applicants intend to continue this dialogue with a view to developing a framework for future discussions and, ultimately, a plan of compromise or arrangement for the benefit of all stakeholders."



Imperial Tobacco's requested change to the stay of proceedings

March 12 Order	March 29 requested order
19. THIS COURT ORDERS that, during the Stay Period, no Proceeding in Canada that relates in any way to a Tobacco Claim or to the Applicants, the Business or the Propefty, including the Pending Litigation, shall be commenced, continued or take place against or in respect of any member of the BAT Group except with the written consent of the Applicants and the Monitor, or with leave of this Court, and any and all such Proceedings currently underway or directed to take place against or in respect of any member of the BAT Group are hereby stayed and suspended pending further Order of this Court	19. THIS COURT ORDERS that, during the Stay Period, (i) none of the Pending Litigation or any Proceeding in relation to any other Tobacco Claim 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 (such Persons the “Other Defendants”); and (ii) no Proceeding in Canada that relates in any way to a Tobacco Claim or to the Applicants, the Business or the Property shall be commenced, continued or take place against or in respect of any member of the BAT Group except, in either case, with the written consent of the Applicants and the Monitor, or with leave of this Court, and any and all such Proceedings currently underway or directed to take place against or in respect of the Other Defendants or any member of the BAT Group, or affecting the Business or the Property or the funds deposited pursuant to the Deposit Posting Order are hereby stayed and suspended pending further Order of this Court.
20. THIS COURT ORDERS that, to the extent any prescription, time or limitation period relating to any Proceeding against or in respect of the Applicants, the ITCAN Subsidiaries or any member of the BAT Group that is stayed pursuant to this Order may expire, the term of such prescription, time or limitation period shall hereby be deemed to be extended by a period equal to the Stay Period.	20. THIS COURT ORDERS that, to the extent any prescription, time or limitation period relating to any Proceeding against or in respect of the Applicants, the ITCAN Subsidiaries, any Other Defendant or any member of the BAT Group that is stayed pursuant to this Order may expire, the term of such prescription, time or limitation period shall hereby be deemed to be extended by a period equal to the Stay Period.