A recap of events to date ...
At the last hearing, Justice McEwen added another 3 months to the creditor protection that had been given the companies in March. These court orders, made under the federal insolvency law (the Companies' Creditors Arrangement Act, CCAA), allow tobacco companies to continue their business as usual, while suspending the rights of their creditors to demand payment.
Among those creditors are the 100,000 or so injured Quebec smokers who thought they had been victorious when the Quebec Court of Appeal ruled in their favour on March 1st, 2019.
It was this ruling that triggered the CCAA process. Rather than begin making payments to the smokers, the companies instead used federal insolvency law to buy time while they tried to come to an arrangement with all of those suing them. (The Quebec judgment of $13 billion is a small fraction of the $600 billion they say the provinces and others are claiming).
The CCAA allows the companies to lump all their claimants together in group discussions towards a 'global settlement'. The arrangement was approved by Justice McEwen, with the support of many of the provinces and others whose lawsuits against the companies had not yet gone to trial. A former Chief Justice of the Ontario courts, Mr. Warren Winkler, was appointed as a mediator to the process.
This summer, Mr. Winkler demanded that everyone exchange "mediation briefs" at the beginning of August. In mid-September, some provinces responded to the industry positions. Data rooms have been opened and non-disclosure agreements negotiated to allow provinces to take a closer look at the companies' books. A closed-door plenary session with legal representatives of the tobacco companies and all their creditors in the room is scheduled for next week (October 8th).
Oh, and yes -- the last extension of the litigation time-out (the "stay") is due to expire this Friday (October 4th). Which brings us to today's hearing.
Up for debate today
There were two main issues put before Justice McEwen for decision today.
* How long the next extension order should be (This was discussed for about an hour.).
* Whether the Canadian Cancer Society should be allowed to participate in the CCAA process and the mediation talks. (This was discussed for about half an hour.).
A third issue involving whether Imperial Tobacco should be allowed to make extra payments to a related off-shore company was postponed.
Extending the stay: How long is too long?
No one today was proposing that the process be collapsed, or voicing an expectation that a settlement could be reached in less time than the 5 additional months that the companies were seeking.
Where positions differed was whether the companies should be required to come back to court and provide an update on mediation developments before their suggested date of March 6, or whether the process should be allowed to unfold without court oversight until then.
The tobacco companies were strongly of the view that any requirements to check in before March were ill-advised. "Any shorter extension would require attendance at hearings like these that would create distractions... We are moving as fast as possible under the circumstances in such a complex negotiations," explained the lawyers for Imperial Tobacco. The lawyers for Rothmans, Benson and Hedges and JTI-Macdonald agreed completely.
The Monitors (the accounting firms appointed as the 'independent' eyes and ears of the court) also agreed completely with the position of the companies, as they have done in all of these hearings. In a united presentation, the Monitors provided the judge with 4 text-book reasons the extension should be granted as requested: ONE - there is enough money to keep things going; TWO - the mediation is at an early stage and is complex to work through; THREE - no one will be harmed ('prejudiced') by the extension and FOUR - the companies have been behaving themselves.
The Quebec Class Action Plaintiffs say 5 months is 2 months too long
The firm representing Quebec smokers took issue with the idea that no one would be hurt by a few months' extra delay. Mark Méland reminded the court of the reality for the Quebec smokers whose historic class action victory triggered these events, but whose serious illnesses meant they were unlikely to live to see justice.
"We told it to you on the very first day. There are real life consequences to delay for our people. The victims are wondering whether anybody – including the justice system – has any regard for their plight....By the time we get to the finish line we wont have a living class member. We won't have accomplished a great deal if we can't get victims money within their lifetime."
He criticized the companies for failing to make a concrete offer -- or even the "kernel of a plan" and raised concerns about the companies lack of good faith shown by dragging the process out indefinitely instead of putting an offer on the table.
"Up to now we have, unfortunately, not received even the indication of what a plan would look like. The case law shows that there must exist a kernel of a plan. We have not seen the first molecule of a plan."
"They have been involved in this process since March 8 - but they have been effectively involved for 4 years. They engaged their monitors when Justice Riordan ruled in 2015. There is no way that they do not know what they intend to put forward... Other than for tactical advantage or to try to pit one creditor against another – there is no reason that we are aware of that the applicants have not yet put their foot forward and told us what they are prepared to offer."
"What they are trying to do – and are using the passage of time to assist them – is to get leverage. People are beginning to tire. The companies are expecting that creditor will get pitted against creditor and not against them."
He urged the judge to see that requiring the companies to return to court sooner would put pressure on them to make tangible progress. There was little downside in an earlier hearing -- but the downsides of not having a hearing if progress were stalled were real. "The comeback hearing serves a number of purposes. It forces parties to act more diligently. It provides more transparency to the process."
He urged the judge to maintain control of the CCAA outcome. "The mediation is not a substitute for the CCAA process. The mediation is a parallel process. It does not change the requirements of parties to act diligently to put forward a kernel of a plan."
The provincial view
The government of Quebec (in what I think is their first submission in this process) supported the position of the Quebec class action. Their lawyer urged the judge to see an earlier hearing as "an opportunity for transparency and a focus for the parties." He echoed concerns voiced by others that the companies were making important decisions that were not being shared until the Monitor included them in the reports that only were prepared in advance of hearings. He suggested a compromise. "Obviously parties need time – but that doesn’t mean that we need to go to March 6th. Perhaps making it earlier - in the month of February - would be a balance."
The lawyers for the 'consortium' provinces (PEI, Nova Scotia, New Brunswick, Manitoba, Saskatchewan and B.C") supported a longer extension. "We support the process that is taking place under Chief Justice Winkler and it should be given time to play out."
The lawyers for Newfoundland and Labrador and Alberta said they were "sympathetic" to the position of the Quebec Class Action group, and pointed to the restructuring activities of JTI that only came to light in the Monitor's report. (JTI is moving 43 positions overseas).
The government of Ontario did not oppose the extension to March.
Is there a seat at the table for the public interest?
Last week the Canadian Cancer Society filed a motion seeking permission to participate in the CCAA process and also in the mediation hearings. The formal motion was precipitated by a reaction by Justice McEwen when the Cancer Society tried to make representation at an earlier hearing, in which he made clear that the CCS would need to demonstrate its financial stake in the proceedings.
Today the CCS put forward its arguments in favour of a meaningful role in these events. As an organization with massive expenditures in supporting cancer victims, it was not a stretch to show its financial interest in any outcome that affected tobacco use. But its main point was to encourage the judge to see this important health charity as a "social stakeholder", and an agency whose contribution should be welcomed as a way to integrate the public interest into the proceedings.
The court was reminded of the previous participation of the CCS as an intervenor in the defence of tobacco legislation, and of the role that other social stakeholders have played in settling class actions. Seventeen organizations were supporting the CCS as a participant in this CCAA/mediation process, renouncing any intention to seek such status for themselves. The floodgates of interested intervenors will not open!
The tobacco companies did not express their opposition to the CCS playing this role -- but their monitors were prepared with a joint submission that was "no objection to participation", but which nonetheless would result in no participation.
The Monitors pointed out that the CCS was on the service list and received all of the filings, but argued that their ability to make any submission to the courts should be at the discretion of the judge. Should things come up which warranted the participation of the CCS then "we can deal with it at that time. Decisions should be made on a case by case basis."
As for participating in mediation, the Monitors thought that should be a question for Mr. Winkler to decide. They pointed to his broad mandate to consult - "He can invite whomever he thinks is appropriate" - and advised against ordering him to include anyone - "Absent that invitation there is no basis for an order directing that the CCS should be a participant."
The only participants to voice support for the Cancer Society's role were the class action teams (The Quebec Class Action, the B.C. class action and -- by letter - the non-certified claims filed by the Merchant group).
For the B.C. case, Mr. Doug Lennox gave his reasons, recalling meetings that the CCS had hosted with lawyers in 1999. "Two decades have passed since then, and they have always been a helpful resource. It is not unusual for social stakeholders to be involved in other class action settlements."
Wait for it ....!
Well before noon, the court adjourned. Justice McEwen said he would choose the length of the extension by tomorrow and that his reasons would follow.
Whatever he decides - another season will have passed before this case is again in open court.
