Halting legal proceedings against tobacco companies key to ensuring fairness: judge

TORONTO — An Ontario judge says he suspended legal proceedings against three tobacco giants to ensure a level playing field for all parties as the companies try to negotiate a settlement with their creditors.

Ontario Superior Court Justice Thomas McEwen released his reasons Tuesday for last week’s decision to uphold an order that halted any existing or new proceedings involving JTI-Macdonald Corp., Rothmans, Benson & Hedges and Imperial Tobacco Canada Ltd.

The companies were initially granted the stay last month as they sought creditor protection following the loss of a multibillion-dollar appeal in Quebec.

In March, Quebec’s highest court upheld an earlier, groundbreaking decision that ordered the companies to pay more than $15 billion to smokers in that province who took part in two class-action lawsuits.

The tobacco companies said the stay was necessary but lawyers representing the Quebec smokers argued the creditor protection process should be stopped if the companies plan to appeal to the Supreme Court of Canada.

Barring that, the lawyers asked that the court partially lift the stay to allow them to respond to any appeal proceedings.

Lawyers representing Ontario had sided with Quebec, but those representing several other provincial governments — all of them seeking to recover health-care costs related to smoking — said that would give those in one province a leg up over the others.

Last week, McEwen ruled the stay would remain in place but noted it would also prevent any of the companies from seeking leave to appeal to the Supreme Court while the creditor protection process is underway, unless they obtain the court’s permission. Any deadlines to apply for leave would also be extended during that time.

In his reasons Tuesday, the judge said it was the best way to ensure a fair process for all parties as they try to reach a deal.

Case law “clearly establishes the significant need to preserve the status quo between all stakeholders to preserve a level playing field and maximize the chances of obtaining resolution,” he wrote.

Allowing the companies to pursue appeals at the same time as they enter into settlement negotiations — as two of them sought to do — would “alter the status quo in their favour,” he said. The companies would be able to challenge the Quebec ruling but the stay would prevent the class-action members from replying, he said.

“This not only would affect the status quo but add an impediment to resolution” through creditor protection because it would distract the companies from negotiations, he wrote.

Partially lifting the stay to allow the Quebec class-action members to respond to any appeal applications would be unfair to the other plaintiffs, because it would allow them “to move further ahead and closer to resolution when the other actions are stayed,” McEwen said.

A blanket stay on legal proceedings that pauses any appeal applications while preserving the possibility of such applications down the line “would best preserve the status quo as it existed at the time of the filings and provide for the level playing field needed to attempt a resolution of all claims,” he said.

A hearing to deal with other issues in the case is scheduled for Thursday.

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