Thursday, 23 July 2015

"No" to provisional execution says the Court of Appeal.

After a nail biting couple of weeks, the Court of Appeal came down late this afternoon with its decision on the question of whether the tobacco companies who have been found responsible for causing lung cancer and heart disease would have to provide some money to their victims before the higher courts could listen to their challenge of the judgment against them.

The Appeal Court agreed to the companies' request to strike down the part of Justice Riordan's ruling that requirement them to make an early "provisional execution" of $1.1309 billion.

The companies, which had previously been working to a June 26 deadline to deposit sums roughly equal to their yearly earnings, can instead continue to ship their profits to their overseas owners. We will never know whether their threats to put the Canadian operations of the multinational companies into insolvency instead of agreeing to a court ordered payment were genuine.

The ruling, issued by Justices Marie-France Bich, Paul Vézina and Mark Schrager, was issued in the early evening - after the stock markets had closed.

In it, the three judges made clear that they had come to no conclusions about the central issues in the condemnation of the companies' behaviour made by Justice Riordan almost two months ago. ("We make no comment whatsoever on the strengths or weaknesses of any of the other parts of the judgment." ) During the hearing on July 9th, they had been presented with an hour-long litany of supposed errors made by Justice Riordan. These allegations of judicial error apparently paid no role in their decision.

The judges also made clear that they are not indifferent to the circumstances of those who are suffering.

[33] We are certainly not without empathy for potential class members who may die of a tobacco related illness prior to receiving any compensation. The judge may have a point that this state of affairs represents serious prejudice measured against the time to bring the case to an end. Unfortunately, the law relating to class actions makes it such that the order of provisional execution is of questionable benefit to potential class member.

The reasons they gave for agreeing to the companies' request included:
  • The prospect of a further delay for appeals is not a legal justification for provisional execution. 
  • They do not think that the appeals should take 6 years to be completed, and noted that the tobacco companies were willing to expedite the process.
  • A further delay in receiving payments will not "aggravate" the injuries received by victims
  • They do not like applying provisional execution to the class action process, and they find little precedent to rely on, ("On a strict legal basis one may wonder whether provisional execution is simply incompatible with class actions...")
  • There is no evidence that an early payment is necessary to help the lawyers representing smokers to see the case through to the final appeals.
  •  If the companies win on appeal, it will be hard to recover payments from those who have received them.
The companies did not get everything they asked for in this round. The judges refused to put a sealing order on the financial statements that they had used to support their claims that they had insufficient funds to satisfy the provisional execution. These financial reports are now public documents -- or will be once someone goes to the court to copy them.

The early payment demanded by Justice Riordan was like icing on the cake of his ruling. For the moment, all that's left is cake!

Friday, 17 July 2015

Calling their own bluff

We still wait for the Court of Appeal to decide whether it will side with the tobacco companies who asked to be liberated from making a $1 billion down payment on the money they owe to Quebec smokers. And the clock is ticking --- there is only a week to go until July 26th, the deadline set by Justice Riordan.

Time waits for no company, it would appear. Philip Morris International was scheduled to report on its Second Quarter results -- an event that would compel it to reveal to investors what had happened in Quebec and what they intended to do about it. Their release went out, as scheduled, yesterday. 

Turns out that they don't seem to intend to force their Canadian subsidiary (Rothmans, Benson and Hedges) into bankruptcy. The parent company will instead absorb the costs of this initial payment - and has warned shareholders that it will cost them $0.09 per share. (Last week they issued quarterly dividends of about ten times that amount). The full text of their comment is posted below.

Last week the Court was told that there was "uncontradicted evidence" that the companies were unable to come up with the money, that they parent operations would not step up and cover the costs and that the three companies would be forced into insolvency.

I guess a lot can happen in a week.

BAT's half-yearly report is due out on July 29, shortly after the payment deadline. JTI is scheduled to issue its results on August 3. 


Extract from PMI News Release, July 16, 2015
Philip Morris International Inc. (PMI) Reports 2015 Second-Quarter Results;


As of the date of this press release, the Québec Court of Appeal has yet to issue its decision regarding a motion, heard by the court on July 9, 2015, to cancel the order of the Superior Court of the District of Montréal, issued on May 27, 2015, that PMI’s Canadian affiliate, Rothmans, Benson & Hedges Inc. (“RBH”), pay an initial deposit of approximately CAD 246 million into a trust account pending the merits appeal of the Québec class actions judgment.

The trial court had ordered, as part of its judgment, that RBH and the other defendants make initial deposits of a portion of the damages award within 60 days.

Should the Court of Appeal deny the motion for cancellation of the order, PMI expects to incur a pre-tax charge of approximately CAD 246 million (approximately $199 million), or an after-tax charge of $0.09 per share. Depending on developments, this charge would likely be recorded as tobacco litigation-related expenses in the second quarter of 2015. Given that the Court of Appeal's decision has yet to be issued, the Schedules to this press release do not reflect any such charge. In the event of a denial of the motion for cancellation by the court, revised Schedules and any other relevant information will be furnished promptly in a filing with the U.S. Securities and Exchange Commission, to the extent relevant.

The cases are Cécilia Létourneau v. JTI-Macdonald Corp., Imperial Tobacco Canada Ltd., Rothmans, Benson & Hedges Inc.,and Conseil Québécois sur le Tabac et la Santé and Jean-Yves Blais v. JTI-Macdonald Corp., Imperial Tobacco Canada Ltd., Rothmans, Benson & Hedges Inc. (Superior Court of the District of Montréal, Province of Québec).

Thursday, 9 July 2015

The Billion Dollar Question

The first round in the tobacco companies' fight against a $15.6 billion ruling against them took place this morning at the Montreal Court of Appeal.

Salle Mignault
Montreal Appeal Court
The specific issue before today's panel of 3 judges was whether the companies would have to make an early payment of over $1.1 billion of their penalty, even before they had a chance to put their case of why the entire award should be struck down.

Under normal rules, someone who is successfully sued does not have to make any payment until their last appeal has been exhausted. But the Montreal tobacco trials were not called an "exceptional case" by Justice Riordan for nothing, and when making his decision he had added a kicker:
"Finally, the Court orders the provisional execution of the judgment notwithstanding appeal with respect to the initial deposit of one billion dollars of moral damages, plus all punitive damages awarded. The Defendants must deposit these sums in trust with their respective attorneys within sixty days of the date of the judgment. The Court will decide how those amounts are to be disbursed at a later hearing."
With the clock ticking till the money is due, the companies want the Court of Appeal to strike down this order for provisional execution and so today's hearing was added before the summer break.

The justices assigned to the panel were Justice Marie-France Bich, Justice Paul Vézina (who was on the same panel that heard the Constitutional challenge last month), and Justice Mark Schrager (a judge with special expertise in insolvencies). More on tobacco and judges at the end of this post!

It would appear that a fight over a billion dollars can still draw a crowd. But for the addition of a dozen chairs, this morning's session would have been standing room only. It seemed like everyone who had ever been involved in the trial was on hand - and more. There was a global presence - including Philip Morris International's corporate spokesperson, Anne Edwards. The competition for a seat with a view was tough.

Shhh... more secrets

Before the hearing got underway, there were (again) demands by the companies that the financial information that was part of their case should be kept confidential. Happily, the judges decided against going in camera and forcing the overflow crowd to wait in the corridors.

They did, however, impose a non-divulgation order on all of those in the room to not share any of the financial information that was subject to claims of confidentiality. Unhelpfully, they did not specify which information was supposed to be confidential, and which was not!

Some of the numbers bandied about have been in previous judgments and also in Annual Reports. As my ears heard them, the numbers only illustrated the general points, and there is nothing lost in today's story by having some specifics under wraps.

Three tests

In addition to the appropriate use of judicial discretion, it would appear from this morning's presentations that there are three main issues this panel of judges will focus on in their decision.
* Will the provisional execution cause "serious and irreparable" harm to the companies ?
* Are there apparent weaknesses in Justice Riordan's ruling that suggest the eventual appeal will be successful?
*  What is the balance of inconvenience? (Which side comes out worst if the ruling goes against them)

"An abuse of discretion" to give lung cancer victims money before they die 

After the secret stuff had been dispensed with, Simon Potter opened the case for the tobacco companies.

He charged Justice Riordan with having overstepped his authority to exercise his judgment in the case. His decision on provisional execution was "such a grave error of law that it resulted in an abuse of that discretion."

That's a loaded charge, and it triggered some push back from Justices Schrager and Vézina, who expressed at least an understanding of the rationale offered for this decision. Had Justice Riordan not expressed concern that "people were dying"? 

For the next several minutes, Mr. Potter was pulled off his prepared notes. His lawyerly answers to their questions reinforced the view that these companies still do not get the message:

"[Justice Riordan] took it for granted [that they were dying]. But there was no proof. He is probably right that some members of the class are in their last days or weeks or months or years - but there was no evidence brought on that point." 

His insistence on evidence for the obvious did not seem to fit well. He disparaged Justice Riordan's for having estimated with "absolutely ZERO" evidence that the time for the appeals to be exhausted was, optimistically, six years, (He put on the record that the companies are willing to expedite the appeals.)

"Four to six years seems realistic to me [as the time appeals will take]." said Justice Vezina, who also offered comments which would have given comfort to the class members watching the proceedings.

"Of the 100,000 people, some are dying and some are dead. A number will not live to see the end of the appeals.... Can we not give them $10,000 each to make their final years less awful? ( "moins penible").

Their questions clearly took Mr. Potter off his plan, and he was prompted by his colleagues to not overstep his time. (Each side of the argument was given 60 minutes to make their case).

"Serious and irreparable harm" 

The second part of the companies' argument was presented by Mr. Mahmud Jamal (for Imperial Tobacco).

He appealed to the judges' potential concerns with creating new interpretations of the rules. There was no precedent for distributing a provisional execution to a class action despite a forty-year history of class actions.  "The reason is that it is not authorized by the Code of Civil Procedure."

He stressed the "irreparable harm" of "serious magnitude" that would result if the payment were required. 

"The uncontradicted evidence is that all three defendants will be in insolvency..."They will not be able to pay the amounts by the due date... Our submission is that all of the defendants will suffer irreparable harm of such serious magnitude." ... "My client can't pay at all."  

Their appeal rights will be lost

One reason the companies say they cannot borrow money is that those who might be in a position to loan them such large sums (including their own parent companies) are scared off at the prospect that they will not be able to recover the sums. This is not an admission that they will eventually lose, however, but an assessment that it will not be possible to go to people who receive money in advance and get them to pay it back.

By their logic, this means they effectively lose their right to appeal. "The amounts will be unrecoverable for all intents and purposes .. this will render the appeal moot." said Mr. Jamal.

The manifest errors they see in the ruling

It fell to Guy Pratte (JTI Macdonald) to convince the panel that there was good reason to think that when the main appeal was heard it would be decided in favour of the companies.

To do this, he took them through a rapid, and somewhat colourlessly expressed, overview of the many errors he saw in Justice Riordan's ruling. (You can read them in the companies' inscriptions in appeal, available here.)

A reasonable and judicial exercise of discretion, say the plaintiffs

Gordon Kugler, on behalf of Quebec smokers, had the job of giving the panel reasons to leave Justice Riordan's ruling intact. He laid these reasons out one by one, in a steady series of short arguments expressed in the simplest of terms and without any rhetorical flourishes. Nothing theatrical - yet it felt like a scene from a good courtroom drama.

He reminded the panel that Justice Riordan had come to his decision after an extraordinarily long trial, and that having done so was "entitled to his discretion." Moreover, the Appeal Court should not challenge this discretion without considering the whole of the judgment -- something that this hearing was not set up to do. "For them to say he abused his discretion is unjust, unfounded and frankly insulting."

Hollow threats of self-inflicted harm

Mr. Kugler rejected the idea that the companies were losing their right to appeal. The amount in question is a small fraction of the ruling that they are appealing. "It is only 7% of the total award of $15 billion." The bulk of their punishment would not be faced until after their appeals were exhausted.

He said the companies would only go into bankruptcy if they chose to do so. The companies had the capacity to pay, were "hugely profitable" and had turned over billions and billions of dollars to their multinational owners in recent years.

They have earned billions of dollars from operations since 1999. yet not one of the defendants has made a provision, has taken a reserve nor set aside any money to satisfy an eventual judgment in these cases. What they have done is pay virtually all of their earnings to their offshore related companies in the guise of royalties, interest or dividends.

"What colossal nerve to point the finger at this court and say 'if you don't cancel provisional execution you will be responsible for putting them out of business." If the parent companies were not willing to return some money to these "hugely profitable" Canadian subsidiaries, "then that's their business decision. They will do what they want."

Mr. Kugler drew attention to other large legal payments that had been made by the companies to the federal government after faced with smuggling charges and in other litigation. (Another lawsuit against Imperial Tobacco had been settled last December, with a payment roughly the same as that they now say they cannot afford.)

Their capacity to pay had been established as "a finding of fact" in the Blais Létourneau trials. At that time, only one of the companies had argued that they would be unable to make a payment of this size, yet were now changing their story, "This court is not in a position today to overturn that finding of fact." 

A reasonable balance

He expressed the balance of inconvenience argument for his class members in human terms. "There are 100,000 class members. Eighty-five percent will likely be dead within 5 years.... They are suffering from cancer and emphysema which the judge said was caused by numerous faults by [the companies]."

The provisional execution would allow for each member to receive $10,000 - much less than the up to $250,000 that the judgment provided. It was "pure speculation" on the part of the companies that they could not get this money back if they eventually won their appeals, but even if this were the case, "their appeal is maintained up to 93%." "Justice Riordan struck the right balance."

He asked the court to weigh the interests of these victims against the possibly "hollow threat" of bankruptcy.

"If the order of provisional execution is suspended, the Blais class members will die before the process is completed. They will be provided with no benefit even though it took 17 years to litigate to get this judgement."

A different litany

Bruce Johnston offered a counterpoint to the list of judicial errors that had been presented by Guy Pratte. He similarly took the panel through a review of selected sections of Justice Riordan's decision, but focused instead on the faults that the companies had been found guilty of.

As they had with Mr. Pratte, the panel offered no physical or verbal reaction to this presentation.
It was as if they wanted to leave the meat of the appeal untouched - untainted by any reflections on their part.

Spread some light

In a brief address at the end of the plaintiff's allotted hour, Mr. André Lespérance argued against maintaining any confidentiality on the affidavits and evidence that the companies were using as the basis of their claims of hardship. He took the court through decisions in the recent Marcotte bank case, where similar confidential issues had been resolved in a way which avoided unnecessary witholding of information.

The rebuttal

Each of the companies had  few minutes to respond and make their final points. Some were worth noting:

Mr. Potter made a veiled suggestion of the consequences to public order if the cigarette companies became bankrupt and the contraband market became larger. The sale of cigarettes is permitted by law and regulated by government, he said.

It is "highly relevant to the balance of convenience to have this legal market served by legal companies who pay their taxes -- pay the excise taxes and who have obeyed the laws." 

Mr. Jamal tried to explain away why Imperial Tobacco could make a settlement of more than a half billion U.S. dollars in December, but was unable to make the provisional execution a half year later. The decision on Flintkote was "financed by the parent company" as "a final judgment to settle historical claims."

He said it was a "business decision" for BAT to finance the Flintkote (asbestos) case, and that it had made a business decision not to finance the Blais (lung disease) case.

"In this case the company has said it will not finance the provisional execution. It is the right of the company to say it will not finance. It is not for counsel to disagree with business decisions."

Sooner rather than later

Although the Court of Appeal is under pressure to make a ruling soon, we will still have to wait. Justice Bich adjourned with their decision not yet made or shared.

Judges and tobacco lawyers

Mr. Mahmoud Jamal is a new face on the Imperial Tobacco team in this trial (although he has worked on tobacco cases for them in New Brunswick and possibly elsewhere).

One reason for the switch up is that Imperial Tobacco has two fewer Montreal-based lawyers than it did a year ago. Suzanne Côté was elevated to the Supreme Court of Canada last winter, and late last month Silvana Conté became a judge at the Quebec Superior Court.

A third lawyer who has worked for the companies in this case, albeit in a minor role, was also appointed to the bench last month. Marie-Josée Hogue, who is now a judge on Quebec's Court of Appeal, had subbed in for Mr. Potter on at least one occasion during the Blais-Létourneau trials.

Is it an advantage or a disadvantage for the companies to have so many of their own in high places?
This morning's hearing is an example of how it can make a difference.

In checking the court record today I found out that the original panel scheduled for this week included two judges (Chief Justice Nicole Duval Hesler and Justice Robert Mainville) who had to step back from this hearing because of potential conflicts as a result of their connections with tobacco.

This post was backdated to make for consistency in indexing

Monday, 6 July 2015

The Appeals Begin

The deadline for the tobacco companies to file an appeal to Justice Riordan's decision in the Montreal tobacco trials came and went on Friday, June 26. Before it left, each of the three companies had duly filed their separate objections to his ruling.

As far as I know, only one of these documents is easy to access at the moment. It has been made so courtesy of Rothmans, Benson and Hedges web-portal on this case ( As the filings from the other companies become accessible, I will post them here.

Many judicial errors

In its Inscription in Appeal, Rothmans, Benson and Hedges has taken a broad-brush approach to criticizing the judgement. They identified no fewer than 33 specific errors which they say were made by Justice Riordan. His approach to the case was described as one in which he "disregarded the most fundamental limits on his judicial role." 

"The Trial Judge erred in finding that fault, causation and injury had been proven conclusively or at all; erred in awarding collective recovery of moral damages in Blais; erred in awarding punitive damages; erred in granting prescribed claims; and erred in ordering provisional execution. He also made palpable and overriding errors in his factual findings and treatment of the evidence, and fundamentally erred in his understanding of the class action procedure." 

The main themes of their concerns are the same as those which they presented during the main trial: individual harms have to be demonstrated, smokers knew about the risks and should be held responsible for their decisions, the shelter of government approval of package warnings.

(Noteworthy is the role of Philip Morris International in providing media commentary on this trial. Their director of Corporate Affairs Strategy and Planning, Anne Edwards, has provided a number of clips for media use on Among these is their view that the company "cannot be held liable for the government's own mandate.")

Reading RBH's appeal, I could identify no area in which they have adjusted their version of history in response to Justice Riordan's findings of fact. It would appear that the strategy of no concessions, no admissions is still in play.

The Provisional Execution

Each company has also filed a separate motion asking to be liberated from making the a $1.13 billion* payment required by Justice Riordan when he ruled in favour of such a 'provisional execution'.

His ruling required them to deposit this amount within 60 days of his ruling, i.e. by July 26th. With only a 30 day window to resolve this sub-issue, the Appeal Court quickly scheduled a hearing which will take place this Thursday morning, July 9th.

The companies have been ordered to drum up the equivalent of one year's earnings (for Rothmans) with a higher figure for the companies that were found more at fault (Imperial Tobacco and JTI-Macdonald).

I had rather expected them to increase the price of their cigarettes to help make these payments. This, after all, is what happened when all the U.S. companies found themselves on the hook to the U.S states after the Master Settlement Agreement was reached in 1998. There, the price of a package of cigarette increased by about $0.45 - or 20% of the price of a premium brand. 

Wholesale Price Increase in U.S. during and
after Master Settlement Agreement
U.S. Department of Agriculture

A similar tactic in Canada would involve a wholesale price increase of about $0.67* a package (or a little more if the higher price led some Canadians to buy fewer of the companies brands). There are about 30 billion manufactured cigarettes sold in Canada.

If there has been a wholesale price increase, it has not reached the stores in my neighbourhood. Then again, raising prices might conflict with the plea of poverty that will doubtless be spun to the Appeal Court later this week!
(*these numbers were corrected on July 9th)

Another Legacy

Documents from the Blais-Létourneau class action are now available on the incomparable Legacy Document site at the University of California San Francisco.  Search and enjoy!