On his second day of presiding over the sanction hearing for the plans to settle the debts and end the insolvency of Canada's tobacco companies, Ontario Chief Justice Geoffrey Morawetz heard from lawyers representing one tobacco company, 100,000 Quebec smokers, a greater number of smokers living in other provinces, seven provincial governments and one large national health charity.
Yesterday two tobacco companies spoke in opposition to the plan developed by officials appointed to the task by Justice Morawetz some 16 months ago. Today, none of the conventional stakeholders voiced any opposition, offering instead a large menu of reasons for the judge to brush aside their objections.
This post will provide a brief summary of the day's hearing. The views of the Heart and Stroke Foundation - which opposed the plan - were presented at at the end of the day and will be reported after they have finished their remarks tomorrow.
Imperial Tobacco
The day began with a forceful presentation by counsel for Imperial Tobacco - the same lawyer who had unsuccessfully led that company's defence during the Quebec class action.
"Imperial fully supports this plan," she opened. "This is the only plan before the court after 6 years of tough negotiation. The question for this court is a binary one – yes or no - sanction it in full or reject it."
In a departure from the dynamic that had played out before Justice Riordan in Quebec, she dropped any inter-corporate solidarity and took several swipes at the two competing tobacco companies who had complained about the impact of the payment schedules on their business.
RBH was attempting a "do-over" of the negotiations, she said. Their request for "true-up" payments from ITL would leave her client with no earnings for years. This went against the agreement made at the outset of the negotiations, which was to ensure that the companies could continue to operate and that their payments were founded on the capacity to pay. "The objective of all of the proposals and the plan was to ensure that the applicants were sufficiently profitable going into the future to be able to fund an industry deal."
She provided the judge with a detailed rebuttal to the position of RBH, reading large tracts from the affidavits filed with their reply record. Despite the confidentiality order placed on the negotiations, she contributed to the droplets of information that have spilled out during this hearing, saying that RBH had not raised this issue in earlier. It had never raised the issue of apportionment in earlier proceedings, she said: "None of these issues were ever on the table for negotiation."
Agreeing to RBH's request would not only harm her client, she said, but would also harm the provinces because of the impact it would have on payments. Yesterday both RBH and JTI had threatened tactics that might undermine the settlement, and today ITL responded in kind. If the ownership company, BAT, found itself without any revenue from Imperial, they would stop providing support to the company and would let it and the plan fail. "BAT cannot and will not shoulder the burden and receive no return on its investment."
She cautioned Justice Morawetz that he did not have the authority to make fundamental changes to a plan that had been approved by the creditors.
Documents filed by Imperial Tobacco in advance of this hearing include the Reply Factum, Reply Record and Aide-Memoire
The Quebec Class Action (QCAP)
The lawyer representing the Quebec class action opened his comments by praising the mediator and monitors for the plan that was under discussion. "We owe a great debt of gratitude to them for achieving what the parties could not do on their own, and doing what the court asked them to do. Not only is this plan the best alternative, it is the only alternative. There is no other viable plan to consider and if it were not approved no better plan could or would emerge."
He conjectured that all of the companies would come around to the view that this deal was in their best interests. "There is no mediation 2.0. There is no plan B. I am convinced that the companies objecting before you will see the light and give effect to its terms."
He also shed some light on what had happened behind the negotiating curtain, saying that the companies had presented their views in lock-step during the past 5+ years. All of their offers (term sheets) were presented collectively, and all of these contemplated the basic financing structure that is found in the plan that was made public in October.
He provided Justice Morawetz with some back-story to JTI-Macdonald's practice of owing money to its subsidiary, citing the harsh view of this series of transactions expressed by Justice Riordan. He pointed to the decision of Justice Riordan to increase the punitive damages assigned to JTIM as a result.
He praised the mediator for creating a structure that balanced the interests and influence of provinces and victims, and for the resulting "victim-centered plan". The Cy-Pres research foundation and the easy-to-use distribution and claims process were similarly held out for admiration.
"What we have here is something that has never been done elsewhere. The only other comparator is the U.S. Master Settlement Agreement - but in that case not one penny was paid to a victim. Even today in the Purdue bankruptcy a tiny fraction of the settlement goes to to victims of opioids. We are most proud that this plan prioritizes payment to victims."
"We view the plan as the culmination of a valiant and improbable victory against the companies. This is something that has never happened any where else in the world."
The Pan Canadian Claimants
Although there were no active class actions in other parts of the country, the CCAA process established a notional class and assigned a law firm to represent Canadian smokers in the settlement discussions. The reason for this, the lawyer explained today, was to allow the companies to obtain a release from other claims -- even though he felt such claims would never have succeeded in provinces outside of Quebec.
Most of his comments to the judge focused on the merits of the plan, the money that would be given to an estimated 186,000 Canadians and the indirect benefits smokers would get from the research funded by the $1 billion Cy-Pres Foundation.
And as for the criticisms filed by the Canadian Cancer Society and Heart and Stroke Foundation that this foundation would be handcuffed by its terms of reference that and unable to offer the benefits that were needed? "They are talking to the wrong people." He advised them to look to the provinces, who will be receiving the residual form any unallocated PCC payments and to ask them to fund these activities. "You simply have to wait two and a half years."
He urged a pragmatic approach to resolving these lawsuits.
"We should do the do-able, and not the undoable. There is no alternative. The plan provides direct and indirect benefits to victims and provides benefits to society. We can't allow perfection to be the enemy of the good."
Documents filed by the PCC claimants in advance of the meeting include:
Factum
The Province of Ontario
Other than the judge and court officials, Ontario's representative at this hearing is the only public servant to speak.
After offering the "strong and unequivocal support" of Ontario for the plan and praising the work of the mediator, she focused on offering Justice Morawetz reasons to reject any suggestions to tinker with it. The plan must be taken as a whole, she said. "It is not up to RBH, JTI or the charities to pick which terms they like or don't like and try to change them."
She cast more shade on the behaviour of JTI and its use of royalty and debenture debts to avoid paying claimants. "Even now, complicit with the Receiver, JTIM continues to try to evade efforts to address the harms it caused in Canada ... it is attempting to keep money out of the claimants hands."
She rebutted the arguments that consensus was required by recalling the decision to put the pen on the agreement in the hands of the monitors and mediator. "This order was reached because a consensus was not available. This order was not appealed."
She likened the tactics of the two companies which are opposing the plan unless they are allowed keep more money to extortion. She suggested that the judge use the disagreements amongst the companies in this hearing as a demonstration of the intractability that was a barrier to consensual negotiations and evidence that consensus was not possible among these parties.
She was not much friendlier towards the positions of the Canadian Cancer Society and Heart and Stroke Foundation. She suggested they should get over their disappointment at their ideas not having found their way to the plan, and said that lots of ideas had been proposed which were eventually not accepted. She criticized them for sticking their oar in at this point: "The CCS and HSF positions should be recognized for what they are – an attempt to dictate and control how the $1 billion will be spent.... They risk jeopardizing a deal 6 years in the making that would provide payments to so many people."
The Consortium
British Columbia, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and the Territories are represented in these proceedings by a private lawfirm. As had the previous speakers, lawyers for this firm took the view that the plan under review should be adopted as drafted. "The plan is fair, reasonable and practical. It works in its entirety. It fairly balances the interests of all parties. It is in the interest of the administration of justice. .. These three plans are comprehensive and coherent and should be considered in totality as a whole."
They joined the chorus urging the judge to disregard the concerns of JTI and RBH, and provided more precedents to support the decision to sanction a plan that was not supported by the debtor company.
In advance of this hearing, this Consortium filed a
Factum
Still to come
The Heart and Stroke Foundation was the first social stakeholder to present its concerns with the plan. Its views, and those of the Canadian Cancer Society will be reported tomorrow. Also on the schedule for tomorrow are the opportunity for parties to make replies to what has been said to date, motions to extend the litigation stay (which expires tomorrow), and discussion of the fees that will be permitted for the class action counsel.
