Décision

Conseil québécois sur le tabac et la santé c. JTI-MacDonald Corp.						2013 QCCS 6085
JM1838    SUPERIOR COURT
CANADA
PROVINCE OF QUEBEC
DISTRICT OF			MONTREAL
No:		500-06-000076-980
		500-06-000070-983
DATE:	December  4th, 2013
______________________________________________________________________
UNDER THE PRESIDENCY OF:				THE HONOURABLE	ROBERT MONGEON, J.S.C.
______________________________________________________________________
500-06-000076-980
CONSEIL QUÉBÉCOIS SUR LE TABAC ET LA SANTÉ
-and-
JEAN-YVES BLAIS
Plaintiffs
v.
JTI-MACDONALD CORP.
-and-
ROTHMANS, BENSON & HEDGES INC.
-and-
IMPERIAL TOBACCO CANADA LTD.
Defendants
500-06-000070-983
CÉCILIA LÉTOURNEAU
Plaintiff
v.
JTI-MACDONALD CORP.
-and-
ROTHMANS, BENSON & HEDGES INC.
-and-
IMPERIAL TOBACCO CANADA LTD.
Defendants
______________________________________________________________________
JUDGMENT ON MOTION FOR A SAFEGUARD ORDER
______________________________________________________________________

OVERVIEW AND OUTLINE OF THE POSITIONS OF THE PARTIES

[1]           The Plaintiffs Conseil Québécois sur le tabac et la santé et Jean-Yves Blais on one part, and Cécilia Létourneau on the other part, are suing the three Defendant companies in two separate class actions.

[2]           The class actions were authorized in 2005, after the Motions for Authorization had been filed as early as 1998.

[3]           The trial on the merits of the two class actions is currently under way.  It has, in fact, begun in March 2012 and is expected to last until the latter part of 2014.  The Plaintiffs have completed their evidence and the Defendants are in the process of exposing their evidence and arguments.  Judgment in first instance is likely to be rendered some time in 2015.

[4]           Although the trial is more than half-way completed, the Plaintiffs now seek an order which would have the effect of prohibiting one of the Defendants, JTI-Macdonald Corp. (JTIM), from continuing to effect certain payments of capital and interest pursuant to JTMI’s assumption of an obligation of $1.2 billion towards its wholly-owned subsidiary, JTI-Trade Marks Corp. (JTI-TM), as well as payments of royalties for the use of certain trade-marks also payable to JTIK-TM.  These payments currently represent, in round figures, approximately $110 million per year and have been made since the year 2000[1].

[5]           The Plaintiffs allege that these payments are the result of a series of inter-corporate transactions which were effected at the time of the sale of assets of the R.J. Reynolds tobacco group to Japan Tobacco Inc. (JT) in 1999.  In so doing, the Canadian corporate entity, then known as RJR-Macdonald Inc. (RJRM) was purchased by JTIM through what is known as a leveraged buy-out operation.[2]

[6]           More specifically and as we will see below, this operation was structured in such a way that the assets of the “target” company, i.e. RJRM, were used to finance the acquisition and, as a result, the “purchaser”, that is JTIM, company assumed a substantial debt.  In addition, the trade-marks under which tobacco products were being sold were transferred to its wholly-owned subsidiary, JTI-TM, and JTIM was allowed to use the said trade-marks, in exchange for the payment of royalties currently amounting to $20 million annually.

[7]           The debt assumed by JTIM is in the form of an inter-company loan of $1.2 billion in favour of JTI-TM, thus creating an interest obligation of approximately $92 million per year.

[8]           The Plaintiffs allege that these transactions were structured so as to render JTIM, the Canadian tobacco company, “creditor proof” and to ensure that the revenues generated from the sale of tobacco products in Canada would be, for the most part, funnelled out of JTIM, out of its subsidiary JTI-TM and into off-shore related corporate entities.  The Defendants answer that the corporate structure is perfectly legitimate and was put together mainly for tax-related reasons.

[9]           The Plaintiffs allege further that in the event of a favourable judgment in the Class actions, JTIM may not have the financial resources to assume the judgment.

[10]        More particularly, the Plaintiffs are concerned with the question of punitive damages.  They allege that if the current situation is allowed to continue, JTIM will have little or no capacity to pay any such damages.  More importantly, they suggest that the eventual award of such punitive damages by the trial judge is a direct function of JTIM’s capacity to pay.  Consequently, the Plaintiffs now seek an order whereby all current payments of capital, interest or royalties by JTIM in favour of JTI-TM would be suspended.  This would permit the accumulation of approximately $550 million in cash in favour of JTIM over the next five years, thus creating a basis for the allowance of punitive damages.

[11]        In support of their position and as an illustration of the consequences of these inter-corporate transactions, the Plaintiffs allege that, in 2003 and 2004, JTMI was sued by the Attorney General of Canada (AGC) and by the Ministère du Revenu du Québec (MRQ) for the recovery of $2.8 billion of unpaid taxes as a result of the illegal smuggling of cigarettes into Canada.

[12]        These claims caused JTMI to seek protection under the Companies and Creditors Arrangement Act (the CCAA).  With this protection, came an Initial Order by Mr. Justice James Farley of the Ontario Superior Court of Justice which had the immediate effect of suspending any payments of capital, interest or royalties to JTI-TM.[3]  This Initial Order was granted at the request of JTIM, and also had the effect of suspending any obligation to pay the tax claims as well as suspending any of JTIM’s interest payments to its subsidiary.

[13]        In support of its Statement of Claim[4], the AGC made specific allegations on the corporate structure, qualifying the same as fraudulent conveyances, put in place in 1999 and 2001.  It is to be noted that, however (and contrary to what was done in the present proceedings), this action was not only directed against JTMI but also against all of the other corporate entities of the JT group parties to these alleged fraudulent conveyances.  Finally, it should also be noted that the AGC sought a declaration that all the so-called fraudulent conveyances were null and void and/or inopposable to the Plaintiff.[5]

[14]        The alleged fraudulent conveyances were described by the AGC as follows:[6]

160.        A series of corporate reorganizations and inter-company transactions undertaken between 1999 and 2001 relating to the assets and business of RJR-Macdonald were conveyances intended to defeat, hinder, delay or defraud the creditors or others of RJR-Macdonald (including the plaintiff) of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures …

161.         RJR-Macdonald and Japan Tobacco (together with its related entities …) (collectively the "Fraudulent Conveyance Defendants") orchestrated a complex series of corporate reorganizations, the particulars of which are within the knowledge of the Fraudulent Conveyance Defendants but not the plaintiff.

162.     RJR-Macdonald was a federally incorporated company until 1999. Subsequently:

(a)         it was continued as a Nova Scotia corporation;

(b)         it was amalgamated with a new entity incorporated following the JTI transaction described above and known as JT Nova Scotia Corporation;

(c)         the shares of RJR-Macdonald were transferred to an entity called JT Canada LLC II Inc. ("LLC ll") which was a wholly owned subsidiary of another new entity, JT Canada LLC Inc. ("JT LLC");

(d)        JT LLC was wholly owned by JT International Holding B.V., a Netherlands corporation;

(e)        the trademarks owned by RJR-Macdonald, which were assets of value, were transferred to another new entity known as JTI-Macdonald TM Corp., newly incorporated in 1999 ("TM Holdco");

(f)         JT LLC then loaned $1.2 billion to TM Holdco, taking as security the trademarks pledged in return. The trademarks were assigned a value of $1.2 billion;

(g)        TM Holdco then loaned the funds to a predecessor corporation of JTI-Macdonald Corp; and

(h)        in 2000, JT LLC lent $410 million to JTI-Macdonald Corp. and received corporate debentures in return. The debentures were then transferred to TM Holdco in exchange for notes payable to JT LLC, in the aggregate amount of $410 million.”

163.     By correspondence dated January 30, 2002, RJR-Macdonald's auditors, Deloitte & Touche, expressly admitted to the plaintiff that the 1999 asset transfers (including of the trademarks) from a predecessor entity to the defendant JTI-Macdonald Corp. was carried out "for creditor proofing purposes" […].

164.     In conjunction with the transactions described above, Japan Tobacco effected a further complicated series of inter-corporate loans and transactions among its affiliates, designed to defeat and hinder the enforcement of any judgment in this action.

165.     The particulars of these transactions are within the knowledge of the Fraudulent Conveyance Defendants. Their effect was to create a circular arrangement pursuant to which each of the entities was encumbered by secured debt in favour of a related party. JT LLC  was indebted to RJR-Macdonald. RJR-Macdonald was indebted to TM Holdco. TM Holdco was indebted to JT LLC. All loans were secured. This arrangement was a further attempt to insulate the assets of Japan Tobacco and was designed to effect a circular security arrangement.

             […]

168.     Japan Tobacco caused and directed the above transactions, knowing that the RJR Group, and in particular RJR-Macdonald, were liable to the plaintiff for the wrongful conduct described in this claim, and with the purpose of defeating the plaintiff’s ability to recover on any judgment subsequently obtained by the plaintiff.

169.     Japan Tobacco conspired and agreed with its subsidiaries and affiliates, JT International B.V., JT International Holding B.V., JT Canada LLC Inc., JT Canada LLC II Inc., JT International (BVI) Canada Inc., JT International SA and JTI-Macdonald TM Corp. that the assets of RJR-Macdonald would be conveyed to and among these affiliates, to hinder and defeat the plaintiff and other creditors.

170.     RJR-Macdonald's assets were conveyed to the affiliates and subsidiaries of Japan Tobacco as described above and through other means known to the Fraudulent Conveyance Defendants but unknown to the plaintiff, at the direction of Japan Tobacco, and with the agreement of those affiliates and subsidiaries.

171.     The purpose of this agreement was to harm the plaintiff, by making it impossible for the plaintiff to enforce and recover under any judgment against RJR-Macdonald.”

[15]        MRQ took a similar approach with respect to its claim for unpaid taxes.  In August 2004, the MRQ filed a Motion to Lift the Stay of Proceedings ordered by Farley J. earlier that year[7].  Some of the allegations of fraudulent conveyances were reiterated, insisting on the fact that the JTI group had “unlawfully implemented a number of complex corporate transactions involving JTI … that were designed to fraudulently defeat, hinder and delay the lawful claims of the Minister and to enable operating profits to be stripped from JTI.”

[16]        The MRQ Motion was settled when JTIM agreed to provide security to its creditors.  JTIM was also allowed to resume its payments of capital, interest and royalties to its subsidiary.

[17]        The claims of the AGC and of the MRQ were ultimately settled out of court as a result of a payment of approximately $525 million by the RJR/JTI group and JTIM was allowed to emerge from CCAA protection in 2010, without any decision having been made on the validity of the inter-company transactions surrounding the sale of RJRM to JTIM.

[18]        Today, the Plaintiffs allege that the situation remains the same.  JTIM’s revenues from its tobacco operations are allegedly drained from it through payments of capital and interest on the $1.2 billion obligation and through payments of royalties.

[19]        On or about the 28^th day of June, 2012, Mr. Justice Brian Riordan rendered a decision ordering the communication of “cleaned copies” of the financial statements of the Defendant companies in the class actions.  Those documents included the JTIM financial statements for the period 1998 to 2011, which were eventually communicated on or about the 12^th day of October 2012.  These documents confirmed the said recurrent yearly payments by JTIM transferring $100 million to $110 million of revenues every year to JTI-TM, out of tobacco operations yearly revenues of $110 million to $130 million.

[20]        At paragraphs 31 to 52 of their Motion, the Plaintiffs re-allege the various components of the inter-corporate transactions of 1999-2000-2001 which, according to them, continue to cause the drainage of JTIM’s revenues from operations into JTI-TM and then out of JTI-TM into other related members of the JT corporate group, adding, however, that, from 2009 to 2011, JTIM and JTI-TM amended their agreements so as to reduce the interest payable on the $1.2 billion obligation from 7.76% to 0.1% annually.  This was also done with respect to the $410 million obligation subscribed in 2000 where the interest payable (LIBOR plus 0.5% per annum) was reduced to 0%.  On the other hand, during that same period, JTIM reimbursed to JTI-TM those interest payments which had been suspended as a result of the Farley Initial Order (see exhibit RME-1).

[21]        The $410 million loan was reimbursed by JTIM and is no longer an issue.

[22]        The Plaintiffs now allege that the inter-corporate transactions in question have literally drained, and continues to drain, JTIM’s capacity to eventually meet its obligation to pay damages, and more specifically punitive damages, to the Plaintiffs:

53.        In 1999, RJR-M and its subsidiaries were valued at US $2.24 billion. (Paragraph 13 of the Monitor’s Fourth Report, Exhibit R-9).

54.        At that time, (prior to the Transactions) RJR-M was generating a net profit at a rate of $82.7 million per year. (Paragraphs 5 & 6 of the Monitor’s Fourth Report, Exhibit R-9).

55.        Immediately prior to the Transactions, as at November 26, 1999, RJR-M’s balance sheet indicated $868 million of assets and $741.5 million of retained earnings and liabilities of only $126.4 million.  (Paragraph 6a of the Monitor’s Third Report, produced herewith as Exhibit R-10).

56.        The JTI financial statements (Exhibit R-8) reveal that immediately after the Transactions, its net earnings dropped to $9 million in 2000 and continued to drop to a net loss of $80 million in 2008.

57.        JTI’s financial statements as at December 31, 2011, show a deficit of $334.3 million and liabilities of $2.046 billion, of which $1.775 billion are inter-company debts.

[23]        The Plaintiffs therefore seek “relief from this Court to ensure that JTI be prevented from further insulating itself and from claiming that it lacks the capacity to pay punitive or any damages”[8].  They claim that they meet the tests of prima facie right, irreparable prejudice and of urgency, as well as alleging that the balance of inconveniences weighs in their favour, which they have to meet in order to obtain the Safeguard Order sought.

[24]        The Defendant JTIM vigorously denies that the 1999-2000-2001 inter-company transactions were effected to render it judgment-proof.  JTIM suggests that these transactions were put in place to substantially reduce its tax burden, that the transactions were perfectly legal and made sense from a business point of view.  JTIM further alleges that these transactions were never hidden or concealed, that the Plaintiffs were fully aware of their existence and effect at least since 2004-2005, and that the Plaintiffs have in any event, failed to ask for the nullity and/or inopposability of same.

THE QUESTIONS

[25]        The Court proposes to address the following issues:

a)            What is the true effect of the safeguard order sought by the Plaintiffs?

b)            What is the true ambit of article 46 C.C.P. and are the Plaintiffs entitled to an order under this article, given the facts of this case?

c)            If so, do the Plaintiffs meet the criteria of urgency, appearance of right, irreparable prejudice and balance of inconveniences to be fulfilled before a safeguard order is made under article 46 C.C.P.?

d)            If the Plaintiffs obtain favourable answers to questions a) and b) above, what order should be made and for how long?

[26]        The Court will, as it becomes necessary to respond to these questions, further analyse the factual situation in greater depth and detail.

DISCUSSION

[27]        Safeguard orders are, by their very nature, exceptional.  They are used in cases of nearly absolute necessity in order to prevent an unbalance which will affect the rights of the parties.

[28]        Consequently, for a safeguard order to be envisaged, the party seeking it must have some right to invoke or claim into the end results.  If the end result will only be to safeguard asset upon which the Plaintiffs make no claim or may not exercise any right thereon, the safeguard order sought should not be granted.

[29]        Furthermore, the financial consequences of certain transactions may have the effect of draining the resources of a corporate entity.  However, to effectively stop this alleged drainage of resources, the transactions in question must be judicially set aside.  If no conclusions are sought in this respect, the safeguard order may not have any effect and more particularly, it may not have the effect of protecting the eventual rights of the Plaintiffs into the proceeds of a judgment not yet rendered in their favour.

A)      The Order sought:  what effect will it really have upon the parties?

[30]        The Plaintiffs allege that it is essential and urgent to stop JTIM from continuing to make multi-million dollar payments to its subsidiary JTI-TM, which in turn, funnels these amounts to other related companies in the JT group, and thus depleting the assets of JTIM.  The safeguard order is sought also to give JTIM an added “capacity to pay punitive damages to the Plaintiffs and class members”.  As the Plaintiffs put it:

“In granting the interim relief sought herein, this Court can ensure that what remains in JTI and the revenue going forward will not be further depleted.”[9]

[31]        Exhibit RME-2 outlines what would be the estimated capital, interest and royalty payments which would be affected by the Order sought.  Approximately $92.2 million per year in interest, $1.3 million per year in capital and $10 million per year in royalties would not be effected, thus building a “reserve” of approximately $517.6 million by the end of 2018.[10]

[32]        The Plaintiffs expect that with this “reserve” the trial judge of the class actions will be in a better position to assess the proper amount of punitive damages which could be awarded in a favourable judgment, should the Plaintiffs win their case.

[33]        However, the safeguard order will force JTIM to keep the money safeguarded but will do nothing to liberate the said sums or even ear-mark them to be used to settle an eventual judgment.  The money may not be “depleted” as suggested by the Plaintiffs but it will remain subjected to all of the contractual obligations of JTIM in favour of JTI-TM, unless the validity, legality or opposability of these transactions is attacked.  This point will be more fully elaborated below when the Court analyses the criteria to be met before the issuance of a safeguard order.

B)        What is the true ambit of Article 46 C.C.P. and are the Plaintiffs entitled to the order sought, given the facts of the case?

[34]        A Safeguard Order under article 46 C.C.P. must be considered under four principal criteria:

a)            Urgency

b)            Appearance of right

c)            Irreparable prejudice

d)            Balance of inconvenience

[35]        However, before looking into these criteria, a close analysis of article 46 C.C.P. is required.

[36]        Article 46 C.C.P. reads as follows:

46.   The Courts and judges have all the powers necessary for the exercise of their jurisdiction.

They may, at any time and in all matters, whether in first instance or in appeal, issue orders to safeguard the rights of the parties, for such time and on such conditions as they may determine.  As well, they may, in the matters brought before them, even on their own initiative, issue injunctions or reprimands, suppress writings or declare them libellous, and make such orders as are appropriate to deal with cases for which no specific remedy is provided by law.

                                                                                                                (emphasis added)

[37]        One may not think of broader or more far-reaching powers, coupled with quasi-total freedom of action, limited only by a proper  exercise of judicial discretion.

[38]        The first sentence of article 46 C.C.P. empowers Courts or judges to do anything or everything necessary to ensure that justice is or will eventually be rendered in any matter brought before them.

[39]        In the matter of Sanimal Inc., Alex Couture Inc. et al. v. Produits de viande Levinoff Ltée, 2005, QCCA 265, the Court of Appeal, under the pen of Chief Justice Michel Robert, wrote:

[19]      Le législateur a modifié le code pour consacrer ce pouvoir de prononcer des ordonnances de sauvegarde à l’article 46 du Code de procédure civile de façon à étendre sa portée à toutes matières et en tout temps.  Le texte de l’article 46 se lit maintenant de la façon suivante :

46.   Les tribunaux et les juges ont tous les pouvoirs nécessaires à  l’exercice de leur compétence.

Ils peuvent, en tout temps et en toutes matières, tant en première instance qu’en appel, prononcer des ordonnances de sauvegarde des droits des parties, pour le temps et aux conditions qu’ils déterminent.

[20]     Malgré son appellation, le premier juge rappelle, selon la jurisprudence de cette Cour, que l’ordonnance de sauvegarde est de la nature d’une injonction provisoire :

« … mesure judiciaire, discrétionnaire, émise pour des fins conservatoires, dans une situation d’urgence, pour une durée limitée et au regard d’un dossier où l’intimé n’a pu encore introduire tous ses moyens. »

[21]           Quant à sa délivrance, l’ordonnance de sauvegarde est assujettie aux mêmes critères que l’injonction provisoire :  l’apparence de droit, le préjudice sérieux ou irréparable, le poids relatif des inconvénients et l’urgence.

…

Analyse et décision

[25]           L’injonction n’est pas, en principe, la procédure appropriée pour obtenir le paiement d’une créance.  Notre Cour l’a rappelé dernièrement dans l’arrêt Provident, Compagnie d’assurance vie et accident.  Le premier juge a eu raison de ne pas ordonner le paiement des sommes dues.  Par ailleurs, la mesure de sauvegarde ne constitue pas la reconnaissance d’un droit d’une partie à une somme d’argent.

…

[30]           En droit des affaires, particulièrement mais non limitativement, les ordonnances de sauvegarde sont utiles, voire même nécessaires pour rétablir un certain équilibre entre les parties contractantes.  Des mesures semblables sont largement utilisées dans des recours en oppression  par des actionnaires minoritaires. 

[31]           L’article 46 confère une discrétion au juge de première instance et, à moins que cette discrétion ne soit utilisée de façon abusive, déraisonnable ou non judiciaire, une Cour d’appel devra hésiter avant d’intervenir pour simplement substituer son opinion à celle du premier juge.

[32]           En effet, en certaines matières, le Code de procédure civile, dans sa version antérieure à 2003, octroyait aux tribunaux le pouvoir d'émettre des ordonnances de sauvegarde dans certains cas précis : pensons par exemple aux art. 523 (appel) ; 754.2 (injonction - c'est d'ailleurs toujours le cas), 766, par. 5 (certaines procédures), 813.13 (certaines matières familiales) ; 835.4 (recours extraordinaires). Ces dispositions ont été abrogées ou modifiées et l'ordonnance de sauvegarde est dorénavant prévue à l'article 46 C.p.c.[5]. Dans son rapport intitulé Une nouvelle culture judiciaire, le Comité de révision de la procédure civile écrit ce qui suit :

En vertu de l'article 46 du Code, les tribunaux et les juges ont tous les pouvoirs nécessaires à l'exercice de leur compétence. Cette règle, essentielle au bon fonctionnement de la justice, doit demeurer, d'autant qu'elle permet aux tribunaux et aux juges, en complémentarité avec d'autres dispositions, soit les articles 2 et 20, de pourvoir aux imprévus et de suppléer aux silences du Code.

Par ailleurs, l'ordonnance de sauvegarde, qui vise à protéger les droits des parties pendant l'instance ou à l'étape de l'exécution, est spécifiquement prévue dans plusieurs dispositions du Code, soit aux articles 523, 754.2, 766, 813.13 et 835.4, et, pour cette raison, certains se demandent si son application est limitée à ces dispositions. Il convient donc de clarifier la portée de la règle générale de l'article 46 du Code pour y préciser le pouvoir du tribunal ou d'un juge de rendre une ordonnance de sauvegarde en tout temps et en toutes matières, tant en première instance qu'en appel. Aux conditions qu'il estime justes eu égard aux circonstances de chaque dossier.

 

[33]           On comprend de ce passage que ses auteurs ont voulu élargir et non restreindre la portée de l'ordonnance de sauvegarde et d'augmenter le nombre des cas où elle est susceptible d'être employée.

[34]           Par ailleurs, antérieurement à la modification de l'article 46 C.p.c., aux termes de l'article 766, par. 5, C.p.c., disposition que l'on trouvait au chapitre I («Dispositions générales») du Titre II («De certaines procédures relatives aux personnes et aux biens»), on accordait parfois dans les affaires entre propriétaires et locataires des mesures semblables à celles qu'on recherche en l'espèce, de façon à maintenir un certain équilibre entre les parties. Ainsi, dans Gestion Nomic Inc. c. Immeubles Polaris (Canada) ltée, J.E. 97-1129 (C.A.), notre Cour, en vertu du par. 766(5) C.p.c., confirme l'ordonnance par laquelle le juge de première instance avait ordonné le dépôt judiciaire d'une somme de 80 000 $ (sur un total d'arrérages de loyers s'élevant à 109 386 $) et elle écrit que :

La Cour supérieure, dans le cadre d'une ordonnance de sauvegarde, dispose d'une large discrétion, comme l'indique le texte habilitant. Le dépôt exigé, en argent, au dossier de la Cour ou dans un compte en fidéicommis non susceptible de retrait jusqu'au jugement final, n'est pas un paiement à l'intimée. Le jugement décidera du sort de la somme déposée. Il n'était donc pas utile de mentionner au dispositif qu'il s'agissait d'acomptes.

Dans Gagnon c. Samra [renvoi omis], cette Cour a reconnu récemment la discrétion d'imposer un tel dépôt, sous l'autorité de l'article 754.2 C.p.c. dont le texte habilitant est identique à celui de l'article 766.5°.

Dans 3095-9035 Québec Inc. c. Stermer [renvoi omis], cette Cour a nié ce droit mais il s'agissait d'une affaire de résiliation de bail et de réclamation de loyers commencée par action. Sur requête pour faire déclarer la défense et demande reconventionnelle irrecevable ou alternativement pour faire déposer au greffe les loyers dus et à venir, il a été décidé que l'article 46 C.p.c., le seul article invoqué au soutien de la demande pour forcer le dépôt des sommes, ne pouvait justifier ce recours.

En l'espèce, le pouvoir de sauvegarde est expressément prévu et cette Cour ne devrait pas intervenir sauf en cas d'abus de discrétion judiciaire ou de déni de justice [renvoi omis]. Les faits ci-haut relatés de cette affaire-ci ne permettent pas de conclure qu'il s'agit de l'un de ces cas.

                                                                              (emphasis added)

[40]        In other words, the modifications incorporated into the Code of Civil Procedure in 2003 has, in the opinion of the Court of Appeal, broadened the scope of intervention of courts and judges in their powers to issue Safeguard Orders.  One should therefore be guided by this new approach rather than look into the manner in which article 46 C.C.P. was interpreted and applied prior to 2003.

[41]        The undersigned must be guided by these teachings from the Quebec Court of Appeal.  However, Article 46 C.C.P. should not be interpreted so broadly that other specific dispositions of the Code become moot.

[42]        Defendant JTIM contends that, however broad and far-reaching article 46 C.C.P. may be, it does not allow the Court to render a safeguard order which would alter the rights of third parties which are either not sued or which have not intervened.

[43]        The undersigned agrees.

[44]        Any safeguard order rendered by this Court affecting the rights of JTI-TM by reason of the proposed order sought would be illegal because JTI-TM is not a party and because the contractual arrangement pursuant to which JTI-TM is entitled to collect interest or royalties are not attacked either in nullity or as being inopposable to the Plaintiffs.  If this is not done, the safeguard order sought does not protect any rights of the Plaintiffs.

[45]        JTIM also objects to the use of article 46 C.C.P. when the Code of Civil Procedure otherwise provides for specific remedies.

[46]        For example, as it was the case in Société en commandite Adamax Immobilier v. Immobilier Soltron Inc.[11], article 46 C.C.P. should not be used to circumvent the specific provisions dealing with injunctions or seizures before judgment.  In that particular instance, Adamax sued Soltron in resiliation of an accepted offer to purchase a hotel for a total price of $79.8 million.  The claim of Adamax was for damages of $25 million.

[47]        An amount of $6 million had been deposited in trust in the hands of a law firm, in support of the offer.  Adamax then sought an order under 46 C.C.P. to prevent the law firm in question to remit the $6 million to Soltron, alleging that it was Soltron’s only tangible asset upon which it could hopefully execute an eventual favourable judgment on its claim for damages.

[48]        Mr. Justice Fournier, as he then was a member of this Court, dismissed Adamax’s Motion.

[49]        In so doing, Fournier J., quoting various authorities[12] held that the inherent powers of the Court, codified in article 46 C.C.P. were essentially suppletive, to be relied upon only when the law is otherwise silent:

“Ces pouvoirs inhérents ne sont toutefois pas sans limites quant à leur exercice.  La règle de la suprématie de la loi continue de prévaloir de sorte que ces pouvoirs inhérents des tribunaux et des juges ne peuvent être exercés aux fins de mettre de côté le droit applicable, de créer des droits nouveaux ou de refuser de rendre jugement selon la loi. »[13]

                                                                                                                (emphasis added)

[50]        The Supreme Court of Canada in Lac d’Amiante stated even more clearly that:

37   De plus, le droit procédural reconnaît des pouvoirs inhérents aux tribunaux pour régler des situations non prévues par la loi ou les règles de pratique.  (Voir Société Radio-Canada c. Commission de police du Québec, 1979 CanLII 24 (CSC), [1979] 2 R.C.S. 618.)  Des décisions de gestion ponctuelles peuvent également être rendues nécessaires par les particularités de certains dossiers.  Cependant, ces pouvoirs inhérents ou accessoires, que consacrent d’ailleurs les art. 20 et 46 C.p.c., n’accordent aux tribunaux qu’une fonction subsidiaire ou interstitielle dans la définition du contenu de la procédure québécoise.  La loi prime.  Les tribunaux doivent baser leurs décisions sur celle-ci.  Sans nier l’importance de la jurisprudence, ce système ne lui reconnaît pas le statut de source formelle du droit, malgré la légitimité d’une interprétation créatrice et ouverte sur la recherche de l’intention du législateur telle que l’expriment ou l’impliquent les textes de loi.  (Voir J. Dainow, « The Civil Law and the Common Law : Some Points of Comparison » (1967), 15 Am. J. Comp. L. 419, p. 424 et 426; A. Popovici, « Dans quelle mesure la jurisprudence et la doctrine sont-elles sources de droit au Québec? » (1973), 8 R.J.T. 189, p. 193 et 199.) 

 38   Ainsi, la législature québécoise n’a pas laissé aux tribunaux la même marge de liberté que les législatures des autres provinces.  La procédure civile se retrouve principalement dans le Code.  Même si les règles de pratique ont pris graduellement de l’ampleur, il demeure qu’elles sont adoptées sous l’autorité de ce Code et dans le cadre général défini par celui-ci.

 39   Un tribunal québécois ne peut décréter une règle positive de procédure civile uniquement parce qu’il l’estime opportune.  À cet égard, dans le domaine de la procédure civile, le tribunal québécois ne possède pas le même pouvoir créateur qu’une cour de common law, quoique l’intelligence et la créativité de l’interprétation judiciaire puissent souvent assurer la flexibilité et l’adaptabilité de la procédure.  Bien que mixte, la procédure civile du Québec demeure un droit écrit et codifié, régi par une tradition d’interprétation civiliste.  (Voir J.-M. Brisson, « La procédure civile au Québec avant la codification : un droit mixte, faute de mieux », dans La formation du droit national dans les pays de droit mixte (1989), 93, p. 93-95; aussi du même auteur : La formation d’un droit mixte :  l’évolution de la procédure civile de 1774 à 1867, op. cit., p. 32-33.)  Suivant la tradition civiliste, les tribunaux québécois doivent donc trouver leur marge d’interprétation et de développement du droit à l’intérieur du cadre juridique que constituent le Code et les principes généraux de procédure qui le sous-tendent.  La dissidence du juge Biron rappelle à juste titre ces caractéristiques d’un régime de droit codifié et souligne pertinemment la nature de la méthode d’analyse et d’examen applicable en l’espèce.

                                                                                                                 (emphasis added)

[51]        The Court of Appeal in 9045-6740 Québec Inc.[14] reiterated the rule that article 46 C.C.P. only conferred auxiliary powers, accessory or complementary to the exercise of the Court’s jurisdiction.  Still in Adamax, Fournier J. adds, in this context:

9   Dans 9032-3031 Québec Inc. c. Rogers Wireless, on lit:

[8]    En matière d'injonctions le code a prévu le moyen d'exercer  un droit:  V. art. 752 et suivants;

[9]   Il y a l'injonction finale, l'injonction interlocutoire et l'injonction interlocutoire provisoire.  De plus, lors de la présentation de la requête pour obtenir une injonction interlocutoire, le tribunal peut rendre une ordonnance nécessaire à la sauvegarde des droits des parties. Il peut également rendre une telle ordonnance au cours de l'instruction;

[10]  En l'espèce, comme il a été mentionné plus haut, les appelantes n'ont pas présenté une requête pour injonction interlocutoire;

[11]  À l'audience, l'avocat des appelantes a concédé qu'en réalité les conclusions de la procédure des appelantes étaient celles d'une requête pour obtenir une injonction interlocutoire;

[12]  Mais une injonction interlocutoire qui n'est pas une injonction interlocutoire provisoire ne peut être prononcée sommairement sans que la partie à qui elle est adressée ait eu l'occasion de faire valoir pleinement les droits qui lui sont offerts par le code:  apporter des preuves et, avec la permission du tribunal, contester la requête par écrit;

[13]    L'article 46 C.p.c. ne saurait être interprété comme permettant à une partie d'obtenir une ordonnance d'injonction interlocutoire sans suivre la procédure prévue à cette fin par le code au chapitre de l'injonction;

[52]        He also adds, as it is the case in the present instance :

[15]            Il n'y a rien dans les affidavits déposés au soutien de la demande de sauvegarde qui viendrait étayer le péril objectif exigé pour l'émission d'un bref de saisie avant jugement sous l'autorité de l'article 733 du Code de procédure civile, c'est-à-dire des mouvements d'actifs frauduleux qui auraient pour but de permettre à Soltron de se soustraire à l'exécution d'un jugement favorable à Adamax.

[16]            Le remède de la saisie avant jugement est prévu à l'article 733 du Code de procédure civile.  Il vise précisément à mettre sous main de justice tout ou partie du patrimoine d'un débiteur défaillant qui cherche à se soustraire à l'exécution d'un jugement.  Si les faits objectifs de la conduite de Soltron ne suffisent pas à justifier une saisie avant jugement, Adamax ne peut se replier sur une ordonnance de sauvegarde pour obtenir un résultat semblable.

[17]            Autrement dit, ce n'est pas parce qu'on ne se qualifie pas pour un remède expressément prévu qu'on peut demander au tribunal d'utiliser ses pouvoirs inhérents pour en créer un sur mesure.

[18]            Avec respect, c'est à tort qu'Adamax s'appuie sur des décisions rendues notamment dans Gestion Nomic Inc. c. Les Immeubles Polaris (Canada Ltée) et Sanimal c. Produits de viande Levinoff Ltée pour plaider que les tribunaux ont élargi le champ des ordonnances de sauvegarde à des situations s'apparentant à celle sous étude.

[53]        Plaintiffs’ Motion does not contain any allegation of peril and the facts alleged could not be interpreted as a Motion for the Issuance of a Writ of Seizure before Judgment.

[54]        On the possibility of obtaining a « Mareva » injunction without establishing the basic criteria for such an extraordinary measure, Fournier J. cites Lalonde J. in Quebec (Sous-ministre du Revenu) c. Weinberg[15] to conclude that in the absence of fraudulent dishonesty such an order should not be made[16].

[55]        In Cousineau v. Alrod[17], Madam Justice Marie St-Pierre, also as she then was of this Court, wrote in a similar factual context (attempted recuperation of monies held in trust by a notary):

 [38]  Dans le cadre du présent débat, le Tribunal n'a pas à décider, et ne peut décider, des prétentions des parties quant au fond de l'affaire.

[39]   Ce que cherche la Demande c'est d'obtenir la mise sous saisie de la somme, avant jugement, mais sans établir le péril de sa créance aux termes de l'article 733 C.p.c.  Le Tribunal ne peut permettre que ce soit le cas.

[40]   De plus, et malgré le contenu des allégations de l'affidavit souscrit par le demandeur Cousineau, le présent dossier ne saurait donner lieu à l'émission d'une ordonnance d'injonction de type Mareva: ces faits allégués ne peuvent suffire à  justifier une telle mesure.

                                                                                                                (emphasis added)

[56]        In 9187-5047 Québec Inc. c. Provost[18], the defendant Provost sought a safeguard order with a view to ordering a party to deposit in the hands of a notary, the sum of $400 000,00 as provided in an agreement for the purchase of shares.  Godbout J. of the Superior Court stated that safeguard orders were not appropriate to obtain payment of a debt[19] or to secure the payment of one eventual judgment[20].

[57]        To summarize, safeguard orders are not to be used to circumvent existing recourses specifically provided by the law.  Generally speaking, they should not be used to replace seizures before judgment or Mareva injunctions.  Furthermore, safeguard orders are discretionary in nature and should only be used to maintain a statut quo or a “level playing field” between the litigants.  Unless the parties are contractually bound by the terms of a contract “à execution successive”, such as the payment of rent, a safeguard order should not be used to obtain the execution of a monetary obligation.  The “Sanimal” decision cited above is a clear example of this kind of situation, where the general rule of Provident Compagnie d’assurance vie et accident v. Chabot was not followed.

[58]        Chabot J. properly summarized the exception to the general rule laid down by the Provident decision as follows:

6.  La distinction qui existe entre Sanimal et Provident, elle est là:  l’existence de relations contractuelles qui continuent.  D’ailleurs, c’est exactement le même principe en matière de bail où finalement une partie continue à profiter tout en désavouant, c’est-à-dire qu’elle continue à occuper les locaux et ne paie pas de loyer :  donc elle profite, mais elle désavoue en même temps.  C’est pour ça que l’ordonnance de sauvegarde vient là pour rétablir l’équilibre :  « put your money where your mouth is ».  Même chose pour les taxes municipales : le paiement des taxes municipales constitue une mesure de préservation du bien jusqu’à temps qu’on statue sur le litige, donc une mesure essentiellement conservatoire.  Ici, ce qu’on me demande, c’est l’exécution carrément de la prestation des défenderesses par anticipation avant même qu’une défense soit faite, une défense qu’on me dit de déclarer frivole en me basant sur un jugement rendu sur une ordonnance d’injonction interlocutoire provisoire dans un autre dossier.  Ce n’est pas à ce stade-ci de le faire.

                                                                                                                 (emphasis added)

[59]        In the present instance, the court is confronted with a rather unique situation where the Plaintiffs are not bound by contract with JTIM.  They are not the beneficiaries of an ongoing obligation.  They are claiming unliquidated damages in a complex case where judgment has not yet been rendered.  Without following the pre-requisites of a seizure before judgment under article 733 C.C.P., or for the issuance of a “Mareva” injunction, the Plaintiffs seek an equivalent remedy against JTIM, ordering it not to dispossess itself of certain assets to the detriment of a corporation which is not a party to the present litigation, and, in addition, where the contractual arrangements pursuant to which the payments of capital or interest or royalties are not attacked in nullity or by way of a paulean action under article 1631 C.C.Q.

[60]        The undersigned cannot see how the inherent powers of the Court can be stretched to the point of issuing a safeguard order which would transform article 46 C.C.P. into a duplication of the provisions of the same Code dealing with seizures before judgment (articles 733 and following C.C.P.) or with injunctions (articles 751 and following C.C.P).  Nowhere is it alleged that without the benefit of the safeguard order sought, the recovery of the Plaintiffs’ claim is in jeopardy and nowhere do we find, in the present Motion, sufficient allegations which would allow the issuance of a “Mareva” injunction.

[61]        The conclusions of the Motion of Plaintiffs are not seeking the issuance of a writ of seizure before judgment but the Plaintiffs are expecting the effects of one.  Inasmuch as the remedy sought by the Plaintiffs does clearly exist in our law, there is no reason to circumvent the provisions of the Code of Civil Procedure which deal specifically with such remedy.  Otherwise, if article 46 C.C.P. would allow the issuance of such an order, the whole chapter of the Code dealing with seizures before judgment would be totally useless.

[62]        So also for the strict criteria applicable to Mareva injunctions.

[63]        On the basis of this analysis alone, the Plaintiffs must fail.  The Plaintiffs cannot invoke article 46 C.C.P. to obtain the relief sought.

[64]        However, the Court considers useful to add the following comments on the criteria of urgency, appearance of right, irreparable prejudice and balance of inconveniences.

[65]        The parameters or criteria which must be met in order to have recourse to article 46 C.C.P. is not a matter for the Court’s discretion.  On the other hand, the assessment of the four criteria to be considered if article 46 C.C.P. applies are a matter where judicial discretion plays an important function.

URGENCY

[66]        The Defendant alleges that the Plaintiffs have not established their case on the issue of urgency.

[67]        JTIM alleges that the contracts pursuant to which the payments of capital, interest and royalties are being made have been in place since 1999 and known to all interested persons including the Plaintiffs, more particularly as a result of the CCAA proceedings of 2003 in Ontario.

[68]        JTIM specifically refers to the proceedings taken against it by the AGC and by the MTQ which publicly alleged the so-called illegality of the corporate structure put in place by the JT group in 1999-2000

[69]        The allegations of the Plaintiff on the issue of urgency are found at paragraphs 70 to 73 of their Motion.  After carefully reviewing same, the only element to be retained on this issue is that the Plaintiffs were only given access to “clean copies” of the financial statements of JTIM late in 2013 following a judgment of Riordan J. rendered on June 28^th, 2012.  Permission to seek leave to appeal of the said judgment was dismissed on October 15, 2012 and the financial statements were communicated only on or about October 25, 2012.

[70]        Even then, the financial statements communicated at the time were still redacted, at least with respect to some of the notes describing the institution of the present proceedings in the financial statements covering the periods ending in 1998 and 2012.

[71]        The concept of urgency applicable to safeguard orders is not as strict as it would be in injunction proceedings.  Here, the issues is not measured in terms of the passing of time since one’s knowledge of the facts but in terms of whether or not the pertinent facts now require the intervention of the Court in order to safeguard the rights of the parties.

[72]        The Plaintiffs did not have all of the necessary information to institute their Motion before the communication of the financial statements in October 2012.  Their Motion came in June 2013.  The delay to be considered by the Court is consequently not the period 2003 to 2013 but the much shorter period of 7 or so months between October 2012 and June 2013.

[73]        See Trizechahn Place Ville Marie v. 2959-6319 Quebec Inc., per Dalphond J.A. [21]:

« Même si l’on parle ici d’urgence, il s’agit plutôt de la nécessité d’une ordonnance afin de sauvegarder les droits des parties pendant l’instance. »

[74]        See also CSH (Honoré-Beaugrand) Inc. v. Montréal (Société de Transport de)[22]:

…

[18]      Néanmoins nous voyons une différence dans la notion de l’urgence entre l’ordonnance de sauvegarde et l’injonction provisoire “classique”.  Dans l’injonction provisoire, l’urgence semble être plus pressante, plus immédiate.  Le but est de réagir avant que quelque chose d’irrémédiable n’ait lieu.

[19]      Par contre, dans l’ordonnance de sauvegarde, surtout dans le contexte de faire arrêter un refus injuste de faire des paiements périodiques, les tribunaux nous semblent moins exigeants à cet égard.  Dans la cause de Trizechahn Place Ville Marie Inc. c. 2959-6319 Québec inc., le juge Dalphond, alors à la Cour supérieure, a noté que « Même si on parle ici d’urgence, il s’agit plutôt de la nécessité d’une ordonnance afin de sauvegarder les droits des parties pendant l’instance. »

[20]      Souvent, nous voyons le cas où le Tribunal note que, si une ordonnance ne se prononçait pas à ce moment, le débiteur risquerait de ne pas pouvoir acquitter un jugement éventuel.  En ce faisant, le Tribunal considère la solvabilité, ou au moins les moyens financiers, des débiteurs potentiels pour décider si l’accumulation du montant qui pourrait éventuellement être dû est rendue suffisamment importante pour exiger une intervention à ce moment-là.

[75]        Although JTIM vigorously argues[23] that the Plaintiffs could have known of the allegations of the AGC attacking the inter-company transactions as early as 2005 when the CCAA proceedings were posted on a website, it is far from certain that the present Plaintiffs were, in fact, aware of such allegations.

[76]        On its appreciation of this first criterion, the Court is satisfied that the Plaintiffs have satisfied their obligation to act with sufficient diligence to seek a safeguard order pursuant to Article 46 C.C.P.

Appearance of Right or “Prima Facie” right to a safeguard order

[77]        The Plaintiffs are asking the Court to enjoin JTIM from continuing to make payments to its subsidiary (and, by extension, to other members of the JT group) in order to:

a)            protect the Plaintiffs’ ability to recover damages in general; and

b)            protect the Plaintiffs’ ability to obtain punitive damages and recover same, in particular.

[78]        However, once a close look at the situation which will prevail at the time of the judgment on the class actions is taken, the undersigned is of the opinion that the safeguard order presently sought will be of no help whatsoever in the current context of the present proceedings.

[79]        If judgment is rendered in favour of the Plaintiffs, for whatever amount, it will be either satisfied or not satisfied.  If it is, the present safeguard order, if granted, would be moot.

[80]        If the judgment to intervene is not satisfied, it does not follow that the amount to be set aside or “safeguarded” as a result of the order sought would then be available to the Plaintiffs to satisfy any judgment to be rendered because the judgment in question will not have the effect of extinguishing or eliminating JTIM’s obligation to pay these amounts to JTI-TM nor will it extinguish or eliminate JTI-TM’s obligation to pay these same amounts to other related corporate entities within the JT group.

[81]        This is so because the contracts pursuant to which these payments will remain due and payable will not be declared null and void, set aside nor declared inopposable.

[82]        The only way the Plaintiffs could ever benefit from the safeguard order sought would be to amend their proceedings, implead the party (or parties) to whom these payments are due and attack the contracts pursuant to which these payments are due.

[83]        Unless and until those conclusions are sought, the Plaintiffs have no right or appearance of right to protect or safeguard./

[84]        The Plaintiffs cannot argue that the safeguard order will permit or facilitate the award of punitive damages, for the very same reason the trial judge will not be able to take the amount of the reserve accumulated in the hands of JTIM as a result, because these amounts will still be lawfully due and payable to JTI-TM.  The trial judge will not be able to ignore, in his decision to award punitive damages that JTIM will still be indebted towards JTI-TM for the total amount of the reserve in question.

[85]        Consequently, the undersigned cannot conclude that the Plaintiffs have established an appearance of right or “prima facie” right to a safeguard order under Article 46 C.C.P.

Irreparable prejudice and balance of inconveniences

[86]        It follows that the two remaining criteria of irreparable prejudice cannot be considered.

[87]        But, once again, if, assuming that a “prima facie” right would exist, the undersigned cannot conclude to an irreparable prejudice.

[88]        The first reason for this is that the trial judge is not limited to JTIM’s capacity to pay punitive damages.  This is one - but certainly not the only - criterion to be taken into account in awarding such damages.

[89]        Article 1621 C.C.Q.[24] contains certain guidelines which are not limitative.  The patrimonial situation of the debtor is only one - albeit important - of such guidelines[25].

[90]        Secondly, as indicated above, the “reserve” of some $560 million which may result from the safeguard order would have to be weighed against the debtor’s other obligations and, unless this amount would be free and clear of the debtor’s other liabilities, its creation would not enhance its capacity to pay.

[91]        It should be kept in mind that the assets of JTIM and of its subsidiary, JTI-TM are mortgaged pursuant to a series of moveable hypothecs in favour of the creditor corporations members of the JT group to which the proceeds of the payments of capital interest and royalties are ultimately due[26].  Consequently, unless these movable hypothecs are annulled or declared inopposable to the Plaintiffs as judgment creditors, it would follow that JTIM’s obligation to repay its secured debts would rank ahead of its obligation to pay the amount of any potential condemnation in the class actions.

[92]        As a result, given the present state of these proceedings, the parties involved and the conclusions sought, the granting of the safeguard order would merely create a reserve which would eventually have no impact on the capacity of JTIM to pay any judgment condemnation and the dismissal of the Plaintiffs’ Motion would not cause the irreparable prejudice alleged by the Plaintiffs.

[93]         As for the balance of inconveniences, the position of both Plaintiffs and Defendant JTIM would follow the same analysis.

[94]        The Plaintiffs have nothing to gain from the safeguard order sought and the Defendant JTIM would, in turn, be liable to face additional default interest charges which would not put it in a better financial position.

[95]        JTIM has alleged that the suspension of its obligation to pay the interest and royalties would increase its income tax burden.  Although the Defendant admits that such additional tax burden could be substantially reduced, if not completely eliminated with the help and participation of JTI-TM and other ultimate beneficiaries of these revenues, the fact of the matter remains that JTIM would not be without suffering any inconveniences.

[96]        Therefore, the Plaintiffs do not successfully pass the tests of irreparable prejudice and balance of convenience.

Conclusion

[97]        The Plaintiffs have chosen to sue only JTIM and not the other members of the corporate group created in 1999 when JT purchased the non-US tobacco assets of R.J. Reynolds-Nabisco.  The only corporation of that group presently before the Court is JTIM.  Whatever the intent or effect of the integrated series of transactions set up to acquire the tobacco operations of RJRM by the JT group may have been, these integrated transactions are to be considered valid and opposable to the Plaintiffs unless attacked as being invalid and/or inopposable to the same Plaintiffs.

[98]        The Plaintiffs cannot avoid the vicissitudes of not attacking the corporate members of the JT group as well as avoiding the difficulties inherent to an action in nullity or in inopposability under 1631 C.C.Q. and expect to achieve the same result by way of a safeguard order under Article 46 C.C.P.

FOR THESE REASONS, the Court

[99]        DISMISSES the Plaintiffs’ Motion for a Safeguard Order;

[100]     WITH COSTS.

		__________________________________ ROBERT MONGEON, J.S.C.
Me Gordon Kugler
Me Sandra Mastrogiuseppe
Me Jonathan Gottlieb
Kugler Kandestin
Attorneys for the Plaintiffs
Me Guy Pratte
Me François Grondin
Me Marc Duchesne
Borden Ladner Gervais
Attorneys for the Defendants
Date of hearing:	11 and 12 November 2013