SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-09-387984

DATE: 20140618

RE: Her Majesty the Queen in Right of Ontario

AND:

Rothmans Inc., Rothmans, Benson & Hedges Inc., Carreras Rothmans Limited, Altria Group, Inc., Philip Morris U.S.A. Inc., Philip Morris International, Inc., JTI-Macdonald Corp., R.J. Reynolds Tobacco Company, R.J. Reynolds Tobacco International Inc., Imperial Tobacco Canada Limited, British American Tobacco p.l.c., B.A.T Industries p.l.c., British American Tobacco (Investments) Limited, and Canadian Tobacco Manufacturers’ Council

BEFORE: Conway J.

COUNSEL:
Ira Nishisato and Alessandra Nosko, for JTI-MacDonald Corp., R.J. Reynolds Tobacco Company and R.J. Reynolds Tobacco International Inc.

Mark Evans, for British American Tobacco (Investments) Limited

Deborah Templer, for Rothmans Inc. and Rothmans Benson & Hedges, Inc.

Sarit Batner, for Philip Morris U.S.A. Inc., Altria Group, Inc. and Philip Morris International, Inc.

Craig T. Lockwood and Carey O’Connor, for Imperial Tobacco Canada Limited

David R. Byers, for British American Tobacco p.l.c.

Shaun Laubman, for B.A.T. Industries p.l.c. and as agent for Carreras Rothmans Limited

John P. Ormston, for Canadian Tobacco Manufacturers’ Council

William Manuel and Domenico Polla, for Her Majesty the Queen in Right of Ontario (the “Crown”)

HEARD: June 9, 2014

ENDORSEMENT (re: Costs on Motions to Strike)

Conway J.

[1] The defendants brought motions to strike the Crown’s statement of claim. The motions were scheduled to be heard for five days starting on June 2, 2014. On April 1, 2014, the Crown delivered a Fresh as Amended Statement of Claim (the “Fresh Claim”). The Crown had made numerous amendments to the pleading but disputed many of the alleged deficiencies. After receiving the Fresh Claim and the Crown’s factum, the defendants withdrew the motions to strike.

[2] The defendants now seek their costs of the withdrawn motions, on a partial indemnity basis, in the amount of approximately $300,000.[1]

Overview and Chronology

[3] The Crown’s claim is brought pursuant to the Tobacco Damages and Health Care Costs Recovery Act, 2009, S.O. 2009, c. 13 (the “Act”). The Crown seeks to recover $50 billion from 14 defendants, both domestic and foreign.

[4] Under s. 2(1) of the Act, the Crown has a direct and distinct action against a “manufacturer” to recover the “cost of health care benefits” caused or contributed to by a “tobacco related wrong”. Under s. 4, the defendants are jointly and severally liable if, among other things, “at common law, in equity or under an enactment”, those manufacturers would be held “to have conspired or acted in concert” with respect to a breach of duty by another defendant.

[5] The Crown issued the statement of claim (the “Claim”) on September 29, 2009. On December 30, 2009, eight of the domestic defendants served the Crown with notices of motion to strike the Claim.

[6] On August 25, 2010, the Crown amended the Claim.[2] It deleted the part of the Claim that was based on the first branch of the definition of “tobacco related wrong” (common law torts) and restricted it to the second branch of the definition (breach of a common law, equitable or statutory duty or obligation).[3] It continued to allege that the defendants had conspired and acted in concert with respect to the breach of duties.

[7] In the fall of 2010, the moving defendants delivered motion records and facta on the motions to strike and the Crown delivered its responding factum. The motions were then held in abeyance while six of the foreign defendants (the “JCDs” – jurisdiction challenging defendants) challenged this court’s jurisdiction.

[8] The jurisdiction motions were heard in the fall of 2011 and dismissed in January 2012. The JCDs appealed. The Court of Appeal dismissed the appeal in May 2013. The JCDs sought leave to appeal to the Supreme Court of Canada.

[9] In September 2013, a case conference was held before me. A timetable was set for the motions to strike, with variations depending on the outcome and timing of the leave application.

[10] On December 19, 2013, the Supreme Court of Canada denied leave on the jurisdiction motions. According to the timetable, the motions to strike were to be heard on June 2, 2014.

[11] In February 2014, as required by the timetable, the moving defendants delivered supplementary facta on the motions to strike. The JCDs also brought motions to strike and delivered motion materials.

[12] On April 1, 2014, the Crown delivered its fresh motion record, containing the Fresh Claim (issued on March 29, 2014), together with its factum. The defendants had not been told previously that the Crown intended to amend the Claim.

[13] On April 28, 2014, the parties advised me at a case conference that the motions to strike were being withdrawn, except for the issue of costs and one narrow issue of parliamentary privilege to be argued by Imperial Tobacco Canada Limited.[4]

Entitlement to Costs

[14] The defendants submit that they are entitled to their costs of the motions to strike, on two bases: (a) they were the successful parties because the Crown, prompted by the motions, made extensive amendments to the Claim; and (b) the Crown should have notified the defendants that it was thinking of amending the Claim at an earlier time, rather than waiting until after all of the defendants’ motion materials were delivered.

Success on the Motions

[15] The motions to strike have been withdrawn and no judicial determination has been made on the substance of the motions. The issue before me is whether I consider the moving defendants to have been successful on the motions because the Claim has now been amended. To decide that issue, I will consider what relief the defendants sought on the motions and whether the Fresh Claim effectively granted that relief.

[16] The defendants brought the motions to strike under Rules 21.01(1)(b), 25.06 and 25.11. The defendants sought to strike the Claim as being so wholly deficient that it disclosed no cause of action. They argued that the Claim did not meet the minimum level of material fact disclosure. They argued that the Claim was not clear or concise, that it did not distinguish among the defendants and that it lumped them together with expressions such as “some or all” of the defendants.

[17] One of the defendants’ primary legal arguments was that the Crown’s misrepresentation and conspiracy claims were founded on common law torts and, accordingly, that all of the elements of those torts had to be pleaded. The Crown’s position, on the other hand, was that it was not required to plead all of the elements of those torts in order to assert its statutory cause of action.

[18] Specifically, the issue was whether, to establish a “tobacco related wrong”, the Crown was only required to plead that the defendants breached a common law, equitable or statutory duty (such as the duty not to misrepresent) or whether it had to plead all of the elements of the common law tort (such as negligent or fraudulent misrepresentation). The issue on conspiracy was whether the Crown was only required to plead that the defendants “conspired or acted in concert” with respect to the breach or whether it had to plead all of the elements of the common law tort of civil conspiracy.

[19] The defendants argued that there were other substantive deficiencies in the Claim, including the following: (i) the conspiracy claims were deficient as they failed to plead special damages against each defendant for the conspiracy, apart from the damages for misrepresentation; (ii) the conspiracy claims did not differentiate between predominant purpose conspiracy and unlawful act conspiracy; (iii) the Claim failed to allege specific time periods for each alleged breach of duty; and (iv) the plea of successor liability was defective as the alleged predecessor companies are still in existence or governed by the laws of England.

[20] Four of the defendants[5] sought to strike portions of the Claim without leave to amend and, accordingly, to have the entire action dismissed against them.

[21] In response to the defendants’ motion materials, the Crown amended the Claim. The pleading now specifies which defendants are alleged to have manufactured cigarettes sold in Ontario and directly breached duties to persons in Ontario – the “Direct Breach Defendants”. It clarifies which defendants are alleged have been involved in which aspect of the conspiracies. It contains additional material facts with respect to the allegations of misrepresentation and conspiracy.

[22] However, when the Crown delivered the Fresh Claim, it did not address all of the defendants’ complaints. In fact, the Crown continued to resist many of the defendants’ arguments. The Fresh Claim was accompanied by a lengthy factum in which the Crown refuted the defendants’ primary argument that the Crown was required to plead all of the elements of the common law torts of misrepresentation and conspiracy. The Crown also challenged the defendants’ other arguments outlined in paragraph 19 above.

[23] In my view, while the Crown did make some revisions as a result of the motions, I cannot accept the defendants’ position that they were the successful parties and entitled to costs of the motions.

[24] The defendants themselves acknowledge that the Fresh Claim did not address all of their complaints. As stated in their factum on costs, the Crown responded to “many, though not all, of the pleading deficiencies identified by the Defendants in the Motions” (emphasis added).

[25] More important, there were a number of significant legal issues that remained to be argued on the motions – in particular whether, in asserting a statutory cause of action under the Act, the Crown was required to plead the elements of the common law torts of misrepresentation and conspiracy. That legal issue is complex. It calls for, among other things, an analysis of the nature of the Crown’s cause of action, the statutory requirements for that cause of action, and the effect of various presumptions in the Act.

[26] Those issues would have been argued on the motions, had they proceeded, but the defendants have now withdrawn the motions. The Crown submits that by withdrawing the motions, the defendants have abandoned those arguments. The defendants deny that they have abandoned any arguments. They have advised the Crown that they reserve the right to raise those arguments in the future – for example, on a motion for particulars or on a motion for summary judgment.

[27] Nonetheless, as far as these motions are concerned, the defendants are no longer pursuing a determination of those issues, nor are they seeking further amendments to the Fresh Claim.

[28] While the pleading has been amended, it has not been revised to the extent sought by the defendants. Significant contested legal issues remain unresolved. Further, none of the defendants has been released from the action as a result of the motions.

[29] The defendants rely on caselaw in which the moving party was awarded costs when the matter was resolved prior to the motion being heard: see Rothman v. Kaba Ilco Corp.;[6] Colistro v. Tbaytel.[7] The rationale is that where the responding party agrees to the relief sought on the motion, the motion was withdrawn and it was reasonable to have brought the motion, the moving party can claim costs in preparing, serving and filing the motion materials. The responding party may also be seen as having refused to admit anything that should have been admitted and thereby lengthening the proceeding.

[30] In this case, the Crown cannot be said to have fully agreed to the relief sought on the motions, given the nature of the amendments made and the remaining legal issues to be argued. Moreover, since the motions have been withdrawn, the defendants cannot be said to have prevailed on those legal issues.

[31] I therefore regard this as a situation in which “success” was divided.

Timing of Delivery of Fresh Claim

[32] The defendants argue that the Crown should have advised them it was thinking of amending the Claim at the earliest opportunity and should have delivered the Fresh Claim before the date the defendants filed their materials in February 2014.[8]

[33] The Crown’s response is that: (a) it had no way of knowing that its amendments would cause the defendants to abandon the balance of the issues on the motion; (b) it was reasonable for the Crown to wait until all of the defendants had delivered all of their motion materials before formulating a response; (c) the Crown’s materials were delivered over a month before they were due; and (d) the defendants’ costs were not truly costs thrown away.

[34] I accept the Crown’s submissions.

[35] While the Crown could have advised the defendants that it was considering amending the Claim, I cannot say that its failure to do so justifies an award of costs. The Crown was entitled to wait until it knew which defendants were bringing motions to strike, it had received all of their materials, and it had considered all of their separate arguments before formulating its response to the motions.[9] Further, there was no delay in the Crown’s response, as the Crown delivered the Fresh Claim in advance of the established deadline.

[36] Moreover, the amendments only addressed some of the defendants’ objections and left significant legal issues to be argued on the motions. The Crown clearly anticipated that making the amendments would not resolve the motions, as it prepared a factum arguing the remaining live issues. It obviously did not expect (nor would it have known) that the defendants, after receiving the Fresh Claim, would withdraw the motions in their entirety.

[37] Finally, the defendants submit that they will be raising those legal arguments at a later stage in these proceedings and have reserved their right to do so. I am therefore not persuaded that any of the costs they incurred were wasted.

Decision

[38] In light of my conclusions set out above, I exercise my discretion pursuant to s. 131 of the Courts of Justice Act and order that each side bear its own costs of the motions to strike.[11]

Conway J.

Date: June 18, 2014

[1] Bills of costs were submitted by: Rothmans Inc. and Rothmans, Benson & Hedges Inc.; Carreras Rothmans Limited; Philip Morris International, Inc., Philip Morris U.S.A. Inc. and Altria Group, Inc.; JTI-MacDonald Corp.; R.J. Reynolds Tobacco Company and R.J. Reynolds Tobacco International Inc.; Imperial Tobacco of Canada Limited; British American Tobacco p.l.c.; B.A.T. Industries p.l.c.; British American Tobacco (Investments) Limited; and Canadian Tobacco Manufacturers’ Council.

[2] The Crown had previously made minor amendments to the Claim on December 11, 2009.

[3] See definition of “tobacco related wrong” in s. 1(1) of the Act: (a) a tort committed in Ontario by a manufacturer which causes or contributes to tobacco related disease, or (b) in an action under subsection 2(1), a breach of a common law, equitable or statutory duty or obligation owed by a manufacturer to persons in Ontario who have been exposed or might become exposed to a tobacco product.

[4] That motion was argued before me on June 2, 2014 and decided on June 12, 2014: see Ontario v. Rothmans et al., 2014 ONSC 3382. Imperial has deducted its fees for that motion from those sought on the motions to strike.

[5] Carreras Rothmans Limited, British American Tobacco p.l.c., B.A.T. Industries p.l.c. and British American Tobacco (Investments) Limited.

[6] 2012 ONSC 6412, [2012] O.J. No. 5571.

[7] 2013 ONSC 5952, [2013] O.J. No. 4593.

[8] While the defendants argue that they incurred needless expense in preparing their 2014 motion materials, they are only seeking these costs (and all other costs of the motions) on a partial indemnity basis.

[9] While most of the motion materials had previously been delivered by the moving defendants in the fall of 2010, the timetable provided for supplemental materials and fresh materials to be delivered by the moving parties by February 19, 2014. This gave the JCDs the opportunity to bring their own motions to strike if leave was denied on the jurisdiction motions.

[10] R.S.O. 1990, c. C.43.

[11] The Crown submitted that if success is considered to have been divided, the appropriate order would be costs in the cause, but acknowledged that this was in the court’s discretion. In my view, the appropriate (and more usual) order where success is divided is for each side to pay its own costs.