Litigation actions by
the Government of Canada actions
December 21, 1999
The Government of Canada files a lawsuit in the
United States Federal Court against RJR-Macdonald Inc., RJ Reynolds
Tobacco Holdings Inc., several related companies, and the Canadian Tobacco
Manufacturers Council related to the loss of tax revenues associated with
June 30, 2000
Justice McAvoy of the U.S. District Court (New
York) dismisses Canada's case against RJ-Reynolds.
Lawsuit against a tobacco
The National - CBC Television. Toronto: Dec 21, 1999.
PETER MANSBRIDGE: Good evening.
Ottawa is taking on a tobacco giant. Launching a billion
and a half dollar suit against the RJ Reynolds companies.
Accusing them of a massive conspiracy to smuggle cheap
cigarettes into Canada. Ottawa says the tobacco companies
helped undo Canada's high cigarette tax policy. Designed
to discourage smoking and save lives. Today's message
didn't stop with the suit. As the CBCs Eric Sorensen
reports, Canada's health minister says he wants to see
tobacco taxes soar once more.
ERIC SORENSEN: It's one of Canada's
biggest, best known tobacco companies. But tonight RJR
MacDonald and its U.S partners are accused of smuggling
ANNE McLELLAN / JUSTICE MINISTER:
We allege direct involvement on the part of RJR related
SORENSEN: Smuggling peaked in the
early '90s after high taxes were slapped on cigarettes
sold in Canada but not on Canadian cigarettes sold into
the U.S. Smugglers then began bringing the cheap Canadian
cartons back into Canada -- a lucrative business.
McLELLAN: The RJR related companies
used an elaborate network of smugglers and off shore shell
companies to ensure an abundant supply of cheap cigarettes
to the Canadian market.
SORENSEN: Here's one way Ottawa
says RJR did it: Leaf Tobacco from Tillsonburg, Ontario
and Export A Production Lines and Packaging from Montreal
were shipped to Puerto Rico. In a two year period
two-billion cigarettes were manufactured there. And in a
complex scheme, Ottawa says Export A's were moved through
other Caribbean islands back to the United States then
smuggled through the Akwesasne reserve to black-market
wholesalers in Canada. Ottawa says high taxes were
designed to discourage young people from smoking but
smuggling was so widespread, Ottawa was forced to roll
back those taxes.
ALLAN ROCK / HEALTH MINISTER: High
cigarette taxes are the single biggest obstacle in the
efforts by the tobacco companies to hook new smokers and
increase their profits.
SORENSEN: Ottawa is also suing the
Canadian Tobacco Manufacturers' Council -- a lobby group
which Ottawa says was used to persuade the government the
tobacco companies weren't involved in smuggling. Ottawa's
hired a top U.S trial lawyer to argue its case.
FRED BARTLIT / LAWYER: The
defendants in this case who repeatedly wrote letters and
other communications saying that they were not involved
were actually involved.
SORENSEN: For its part, the tobacco
giant says it's reviewing the court documents.
GUY COTE / RJR MacDONALD: This is a
pretty old story. It dates back to a few years. And we see
it frankly as a new twist to an old story.
SORENSEN: Others say they want
Ottawa to go further.
DAVID SWEANOR / NON-SMOKERS' RIGHTS
ASSOC.: We all know that this isn't the only company that
was shipping tobacco products to the United States. It
wasn't the only company that's acknowledged their tobacco
products came back from the United States.
SORENSEN: Justice Minister Anne
McLELLAN isn't ruling out suing other tobacco companies if
an when she says there's sufficient evidence. The health
minister meantime says he'll be talking to the finance
minister about bringing back higher taxes on cigarettes.
Allan Rock says he wants to raise those taxes as much as
possible as soon as possible. Eric Sorensen, CBC News,
Copyright Canadian Broadcasting
Corporation. 1999 All Rights Reserved.
Despite spending millions on
its American attorneys,...
Cristin Schmitz, For Southam Newspapers. CanWest News. Don
Mills, Ont.: Jul 4, 2000. pg. 1
OTTAWA - Despite spending millions
on its American attorneys, the federal government's
$1-billion racketeering suit for alleged tobacco smuggling
against the RJ Reynolds tobacco empire has been tossed out
of U.S. federal court.
On Tuesday, the Justice Department
was made aware of a decision handed down late Friday by
U.S. District Court Judge Thomas McAvoy, who threw out the
Canadian government's racketeering and civil fraud action
against U.S.-based RJ Reynolds Tobacco Co., five related
companies and the Canadian Tobacco Manufacturers Council.
The decision came just seven days after hearing arguments
on the unprecedented case in Binghamton, N.Y.
In granting the tobacco companies'
preliminary motion to dismiss Ottawa's case before it even
gets to trial, the judge accepted the defendants' argument
that the case is, in essence, an attempt by the Canadian
government to collect evaded duties and taxes, which is
barred by a U.S. legal rule - known as "the revenue rule"
- that forbids American courts from interpreting or
enforcing foreign tax laws.
Announced by three Cabinet
ministers in a blaze of publicity last December, the
Canadian government's novel lawsuit under the U.S.
Racketeer Influenced and Corrupt Organizations (RICO) Act
alleges that the tobacco companies and the Canadian
Tobacco Manufacturers Council aided and abetted in the
smuggling of tobacco products from the U.S. into Canada.
The government claims it was defrauded of more than $1
billion US in foregone taxes, duties and other costs from
1991 to 1994.
The government will study the
ruling before deciding whether to appeal, said Department
of Justice lawyer Gordon Bourgard, head of the
government's five-lawyer, in-house tobacco litigation
team. "As in other cases involving rulings on points of
law, an appeal is not out of the question," he said on
In a prepared statement, Bourgard
called the ruling "lengthy and complex."
"We will review (it) to determine
the best way to redress the injuries that Canada has
Bourgard said the government is
"disappointed with the ruling."
"This lawsuit was filed only after
a substantial investigation convinced the Canadian
government it had a strong and meritorious case. In its
ruling the court did not address the factual merits of the
government's case. Rather, it dismissed the lawsuit based
on a rule of law that has been called into question by
several courts" in Canada and the United States.
Toronto lawyer Douglas Hunt, an
ex-assistant deputy attorney general of Ontario who
represents Reynolds's Canadian affiliate RJR Macdonald
Inc. (now JTI-Macdonald Corp.) with respect to ongoing
RCMP investigations into tobacco smuggling, said the speed
of the U.S. court's decision suggests "the judge not only
understood the issues, but felt that they were clearcut.
Hopefully the people who made the decision to go ahead
with this expensive lawsuit fully understood the risks
Hunt pointed out that the Canadian
government had paid its U.S. attorneys, Bartlit Beck
Herman of Chicago, nearly $4 million by last April, just
four months into the lawsuit.
"I'm sure that that figure is
closer to $5 or 6 million at this point," Hunt speculated.
"And an appeal will certainly not be inexpensive, so I
think that the Canadian taxpayer is going to have to
underwrite fees that are going to continue to grow in a
very significant way."
In his decision, McAvoy said
Ottawa's lawsuit would draw the American court into
"forbidden waters reserved exclusively to the legislative
and executive branches" of the U.S. government that are
responsible for establishing and conducting international
The American court would be
required to pass on the validity, and enforce, Canadian
revenue laws, the judge said. "Enforcing foreign revenue
laws is precisely the type of meddling in foreign affairs
the Revenue Rule forbids," he wrote.
Should the federal government
successfully appeal McAvoy's order - and go on eventually
to win the lawsuit - the stakes are high. An American
court would be required to award triple the amount of
proven damages - a potential $3-billion US award, which
likely considerably exceeds what the government could hope
to win by suing the tobacco companies in Canada.
The case marks the first time a
foreign government has used the civil provisions of the
U.S. RICO law to target a tobacco company for alleged
Recently, the state governors of
Colombia followed in Canada's footsteps, filing a
$3-billion RICO suit in U.S. District Court against the
world's largest tobacco multinational, Philip Morris
Companies Inc., for lost tax revenue due to alleged
smuggling and alleged drug money laundering.
David Sweanor, an Ottawa lawyer
with the Non-Smokers' Rights Association, argues that the
U.S. court's decision offers the Canadian government
grounds for appeal.
"The interpretation of the common
law revenue rule seems to be offbase," Sweanor said. "But
more importantly, health organizations have never endorsed
this litigation as an end in and of itself. The key thing
is that the tobacco companies be held accountable for what
they did to facilitate smuggling and the government has
many options to take to achieve that result."
"On the basis of the interpretation
of the RICO law I think they should appeal," Sweanor
added. "The only question is whether another avenue would
more quickly attain justice, such as a civil action in
Canada or a royal commission or Canadian inquiry into the
role of the tobacco companies in smuggling and various
Sweanor argued that abandoning the
case would make "no sense at all.
"The facts are overwhelming that
the tobacco companies engaged in activities designed to
undermine health and fiscal policies in Canada, and simply
in terms of good government, Canada has to ensure that no
entity can get away with the sorts of actions the tobacco
companies engaged in."
Why our own governments are taking their tobacco
litigation down the road
Canadian Lawyer, September 2000
MONTREAL - MANY THINGS ABOUT CHICAGO lawyer
leave their mark. He's a big, ramrod guy with a
barrel chest and gruff military voice. A West
Point graduate, he's also magna cum laude,
University of Illinois College, and editor (1960)
of the University of Illinois Law Review. If
that's not enough, he served four years as a U.S.
Army Ranger. This alone is bound to bring a few
good men to attention. Be nice to this guy - or at
least be careful. One other thing about Bartlit
stands out. He is, at 67, a techno-whiz who
demands that his law firm is out there on the
cutting-edge of information technology so that
when he walks into a courtroom, he's ready.
He creates a virtual office in any city where he's
pleading a case. He loads up a semi-tractor
trailer with computer equipment, taxes, telephones
and copying machines that he then transfers to a
hotel suite where he can run a 24-hour-a-day
operation. He calls it his travelling war room.
And he claims it gives him a strategic edge.
His credentials as well as his respectable track
record are ostensibly the reason why the Canadian
government last year hired him to lead their $1
-billion racketeering lawsuit against R.J.
Reynolds Tobacco Co. and a string of affiliates
and subsidiaries, including Toronto-based PJ.R.-Macdonald
Inc. (now called JTI-Macdonald after it was sold
last year to Japan Tobacco).
Canadian lawyers might be excused, however, for
regarding Bartlit as an American carpetbagger
stealing away their livelihood. The exact details
of his hourly rate/contingency-fee agreement have
never been made public. What is known is that so
far he and his firm, Bartlit Beck, have collected
$3.76 million US, the highest single legal tab run
up by Ottawa in a fiscal year. And the race hadn't
even begun before U.S. Federal judge Thomas McAvoy
in July dismissed the racketeering case claiming
it involved interpretation of a foreign
government's tax laws, which is forbidden under
the common-law Revenue Rule. (McAvoy's ruling
invites appeal. He stated that, in our modem
global economy, he finds the rule "outdated" and
the rational "unpersuasive,"and cites other
judgments that share this view. He appeared,
however, bound by judgments of the Second Circuit
But before lawyers get too upset about the
southern migration of jumbo legal fees, it's
important to understand where Bartlit comes from
and how his hiring reflects on our own judicial
Though his accomplishments are considerable (44
cases tried between 1971 and 1998, 32 wins, seven
settled, four lost), Bartlit is not self-made. In
fact, Bartlit is no special genus. He is part of
the collective experience of the entire American
plaintiff bar in organizing and pleading complex
cases against major corporations that take years
of preparation. In this sense, he is little more
than a product. One of many fashioned over more
than a century of aggressive, entrepreneurial,
risk-taking American plaintiff bar actions.
The fact that the federal government has to go to
the U.S. to seek justice is, for many lawyers, an
admission that the Canadian legal system simply
fails to meet the grade for highly complex cases
involving massive corporate fraud. In contrast to
the bold vistas of the American bar, the Canadian
judicial landscape appears as a slow-growth garden
of perennially cautious, overly conservative,
often lazy, chronically underfunded and
all-too-elitist judiciaries. So if Canadian
lawyers complain that the tobacco bonanza is not
descending on their town, it's probably their own
fault. But the loss is that of all Canadians.
Had the lawsuit been filed in Canada, the judicial
system would have had an infusion of much more
than windfall legal fees. Lawyers and judges would
benefit from the experience and the law likely
would advance. But that's not going to happen.
Instead, the intricacies of large litigation will
be explored outside Canada. Canadians will not
garner the benefits of courtroom debates that
inevitably probe the strength and weakness of
evolving justice systems. That will all happen in
a foreign jurisdiction where American lawyers and
judges will work with American legal systems to
advance American laws. The only benefit Canada
will ever get will be whatever money it might win
from its lawsuit.
"The United States has an independent plaintiff
bar that is fearless in terms of its willingness
to take on powerful interests and we do not, and I
think that our democracy is weaker because of
that," said Toronto lawyer Doug Lennox, who is
litigating two tobacco-related actions here.
The mere fact that Ottawa had filed its suit in
Syracuse, N.Y., and was using 18 U.S. Code Chapter
96 - the famous Racketeer Influenced and Corrupt
Organizations (RICO) statute for its remedy,
points to a gaping hole in our own system. Ottawa
claims tobacco companies aided and abetted
smuggling from 1991 to 1994, thereby defrauding
the Canadian government of taxes.
If the federal attorney general believes RICO is
the appropriate recourse, why does Canada not have
a RICO statute that makes sense for Canadians?
Perhaps it is because Canada's judiciary has not
been spirited to create the kind of debate that
would have given birth to a RICO statute. RICO in
the U.S. did not come out of nowhere. It evolved
out of a judiciary that is an active part of the
American political process.
"There's a lot of hype here concerning people in
the U.S. being able to hold companies to ransom
and get big awards," said Toronto lawyer Andreas
Seibert, who has a class-action suit in the wings
against all three major tobacco companies. "But
here the average guy cannot even get into court.
They cannot get access to the courts because it's
too expensive and the payback is too small. So
lawyers will not even take the case unless it is a
Despite growing evidence that tobacco companies
have willfully concealed the health hazards of
smoking from the public, Canadians have launched
only five tobacco liability lawsuits. The first
was launched in British Columbia in 1988 and was
finally banged out of court years later by judges
who ruled it was time barred: Perron v. R.J.R.
Macdonald Inc. (1990),66 D.L.R. (4th) 132.
British Columbia is the only province to pursue in
Canada the tobacco manufacturers for health cost
recovery. The lawsuit springs from the Tobacco
Damages and Health Care Costs Recovery Act that
was enacted in 1998.
The legislation is modeled after an American law -
Florida's highly successful 1995 Medicaid
Third-Pa" Liability Act. The B.C. Supreme Court
stuck down the statute in February on the issue of
extra-territoriality but recognized the essential
right of the province to pursue Big Tobacco for
health cost recovery. The province is therefore
redrafting the legislation: British Columbia
(Attorney General) v. JTI-Macdonald Corp.
(2000),184 D.L.R. (4th) 335.
Ontario, the nation's most populated province, has
only three tobacco product liability suits, all of
which are barely off the ground. Ironically, the
furthest along is a mere $6,000 small claims suit
launched in 1997 by Joseph T. Battaglia, who's 58.
He smoked Imperial Tobacco Ltd. brands since he
was 16 when he began working as an office boy with
Rothmans of Pall Mall Ltd., later rising to
national sales manager.
He says the company encouraged him to smoke,
claiming it would advance his career and not
damage his health. Now, however, he says he has
coronary heart disease directly related to smoking
and, despite numerous attempts, can't cure his
Unable to find a lawyer to take his case,
Battaglia initially represented himself until Doug
Lennox agreed to help out. Three years after the
filing, he only recently won the right to a trial.
That is the furthest a tobacco case has ever
advanced in this country (see sidebar).
"He doesn't care about the money. He wants the
tobacco executives to be forced to stand up in
court and explain themselves," Lennox said. "Civil
litigation to my mind is not about money. I don't
want to represent a client who tells me, 'I've
been wronged, I want money.' I want someone to
tell me 'I have been wronged and I want to make a
"There are a lot of Canadians who have lost loved
ones to the tobacco industry and they all deserve
a chance to go to a Montreal courtroom, or to a
Toronto courtroom or what have you, and sit there
and listen to these tobacco executives who have
acted so callously for so long."
Andreas Siebert filed his class-action product
liability case against R.J.R.-Macdonald, Imperial
Tobacco and Rothmans Benson & Hedges Inc. in 1995.
The case drags on. It still has not received
class-action certification. Siebert blames the
delays on the flood of motions from tobacco
companies seeking access to plaintiffs' medical
Ontario's class-action legislation is fairly
liberal. It requires a cause of action that is
capable of proof. A plaintiff must also show there
is one or more individuals who would be recognized
as a class of similarly related individuals with
common cause. Finally, the lawyer must produce a
workable plan of litigation.
Siebert is currently in the Ontario Court of
Appeal seeking to file a separate action against
the tobacco companies for destruction of
Lennox also is seeking class-action approval for a
suit alleging that the three major tobacco
companies conspired against the production of
cigarettes that carry a lower risk of fire.
Like the federal government, Ontario has chosen to
seek its remedy in the U.S. Last year it filed
suit, a health care cost recovery case, against
Big Tobacco and retained the hugely successful
South Carolina firm of Ness Motley Loadholt
Richardson & Poole. The Ontario Health Insurance
Plan (the province's public health insurer) claims
tobacco-related illnesses have cost the province
an estimated $40 billion US.
Ness Motley (the same firm dramatized in the film The Insider) represented 30 of the 50 U.S.
states in the $254-billion US settlement in 1997
with U.S. tobacco companies. The firm stands to
earn as much as $12 billion US in contingency fees
from that case. Ontario has agreed to pay Ness
Motley a 20-percent contingency fee, meaning the
firm stands to earn as much as $8 billion US from
a successful prosecution. Ron Motley has agreed to
spend $20 million US to prosecute the action. It's
a can't-lose situation for Ontario. But what does
it mean for the Canadian judicial system?
Lawyers like Lennox claim Ontario's decision to
seek justice outside Canada is an admission that
the Canadian system is a failure.
The only other tobacco-related action is in Quebec
where lawyers Bruce Johnston and Philippe Trudel
are seeking the right to file a health-related
class action against the three major Canadian
tobacco companies. The case was filed in 1998: See Fortin c. Imperial Tobacco ltée  J.Q.
The tobacco companies contested the capacity of
the two lawyers to act on the file because a
partner at a previous law firm had once acted for
a tobacco company. The Quebec Appeals Court
recently denied Big Tobacco's motion to dismiss.
"I would say the plaintiff bar in Canada as a
whole is much more timid than it is in the
States," Johnston said. "I think there is an
important element of corporate responsibility that
is lacking in this country because of this.
[Tobacco companies] market a product that addicts
and kills people and virtually no one has thought
to bring them to justice." Johnston calculates
that he and his partner have spent about $200,000
in time and disbursements on the case so far.
Most of the provinces have declared that they
intend to file health care cost recovery cases.
The intended venues have not been announced. The
bandwagon is getting crowded, but little action is
Contrast this with the U.S., where tobacco
litigation goes back decades and literally
hundreds of cases have been filed. The first was
in 1953 and was quickly tossed out. But that
didn't stop the American plaintiffs' bar. It
continued to chase the tobacco companies until it
finally found the winning formula in 1994 with a
settlement in Mississippi. Since then, the
floodgates have opened culminating in the massive
$246-billion US settlement in 1997 creating a
windfall for American lawyers and state
Yet the money is hardly the point. The long
history of American tobacco litigation ultimately
served a higher purpose. It was a massive dose of
truth serum injected into the muscular arm of a
strapped-down industry. Millions of corporate and
scientific documents chronicling tobacco company
research and the behavior of tobacco executives
throughout the last century have been forced into
the public realm and are, in countless ways,
In fact they are so revealing that they serve as
the basis for more and more suits and criminal
investigations not only in the U.S., but also in
Canada and throughout Europe. The tobacco
industry, which prided itself on never losing
lawsuits and spent hundreds of millions of dollar
in the process, is at bay. Its Achilles heel is
its own extensive documentation and databases,
revealed thanks to an undeterred American bar for
whom the big score offers the necessary incentive
to seek truth and restitution.
This is why Canada chose to take its
anti-racketeering case to JL Syracuse, NY. To deal
with a more sophisticated judiciary, well
practiced in such complex cases.
This is crucial primarily because Canada's case
opens a whole new area of tobacco litigation. It's
not about health or fire safety - it's about
corporate fraud and racketeering at a
international level. (The Republic of Ecuador and
23 states in Colombia have since filed two similar
lawsuits in the U.S. claiming huge tax loses
against Philip Morris Companies Inc., Reynolds and
British American Tobacco Co. Ltd.)
These cases will rely heavily on company documents
and, in Canada's case, on testimony from corporate
insiders such as former R.J.R. executives Les
Thompson and Stan Smith. Thompson is the sales
manager at R.J.R.-Macdonald who from 1991 to 1994
was in charge of organizing tobacco shipments into
the smuggling networks of Akwesasne Indian Reserve
near Cornwall, Ont. He pleaded guilty last year in
Syracuse to money laundering charges and is
currently serving a four-year sentence in federal
prison. He also pleaded guilty in Toronto in
February to one charge of conspiring to defraud
the federal government. He received a suspended
Smith was R.J.R.-Macdonald's vice-president of
sales during the smuggling era. He was never
charged in the U.S. and has since resigned from
the company and moved to England. He was expected
to testify on behalf of the plaintiff and support
Thompson's evidence that R.J. R. conspired at the
highest levels to aid and abet smuggling. The
government is also negotiating with other former
senior executives at R.J.R.
Justice department lawyer Duff Friesen, who is
managing the five-man tobacco legal team in
Ottawa, says the government might include Imperial
Tobacco and Rothmans as defendants. Like R.J.R.,
these companies also had a network in place that
supplied cigarettes to smugglers. All three
companies have stated that they broke no laws.
R.J.R.'s permanent retainer, New York lawyer C.
Steven Heard Jr., will quarterback its defense.
Heard is the same lawyer who debriefed Thompson
when he learned in June 1998 that he was under
investigation for smuggling related charges.
Company lawyers urged him to stand tall, no wobbly
legs needed here. But when Thompson was arrested
last year at the Windsor-Detroit border crossing
and sent to Syracuse to stand trial on conspiracy
to defraud and money laundering charges, his
company-paid lawyers advised him to negotiate a
plea. Now he feels like the company's sacrificial
lamb. So there's no love lost between Thompson and
his former employers.
Heard's first move was to file a motion to dismiss
the entire case. He claimed:
the case is essentially a tax recovery case
and under revenue rules, U.S. courts cannot
interpret foreign tax laws;
the case is time-barred under RICO and the
Canadian government is not a "person" as defined
by the statute;
most of the alleged illegal actions took
place in Canada and therefore Syracuse is not a forum conveniens, and
The Canadian Tobacco Manufacturers' Council
is based exclusively in Canada, and is therefore
not subject to New York jurisdiction.
The motion was debated June 23 before U.S.
federal Judge Thomas McAvoy in the sleepy
university town of Binghamton, NY. R.J.R. brought
in 11 lawyers. Canada's Fred Bartlit had five, two
of whom sat behind Bartlit with open laptops.
Auditing the procedure was a lawyer representing
the Colombian lawsuit.
The questions of sovereign tax law interpretation
and of time bar are crucial. The government
alleges its injuries took place between 1991 and
1997. RICO requires that it file no less than four
years after discovery of its injury. R.J.R. claims
the government knew of its injury in 1994 when it
rolled back tobacco taxes.
In its arguments, the attorney general claimed
that equitable tolling permits a plaintiff to toll
the statute of limitations during the time in
which it is unable to obtain "vital information
bearing on the existence of his claim." This
includes the identify of the wrongdoer, which
Canada claims was only revealed, at the earliest
on June 20,1997, when a U.S. grand jury indicted
Thompson and 20 co-conspirators including R.J.R.
subsidiary, Northern Brands International Inc.
One key issue is whether the government applied
due diligence in attempting to discover who was
responsible for its injury. Given its vast
investigative resources, Ottawa might find it
difficult to convince a U.S. federal judge it
wasn't clever enough to uncover the truth until a
task force of U.S. police and prosecutors
succeeded in 1997. Essentially, Ottawa claims it
was hoodwinked by the tobacco companies and their
agent, the Canadian Tobacco Manufacturers Council
Canada argues that the U.S. venue is appropriate
because most of the conspiracy occurred in the
U.S. and many of the defendants and potential
witnesses are in the U.S. Syracuse was convenient
because it served as the venue for the criminal
charges against Thompson and Northern Brands, the
R.J. R. company through which tobacco was funneled
to the smugglers. Even the judge is the same.
Thomas McAvoy presided over the criminal trials,
so Syracuse is a judicial environment well-versed
in the facts of the case.
Yet the same argument for holding the case in the
U.S. can also be made for holding it in Canada.
The alleged fraud is against the Canadian
government and was allegedly hatched on Canadian
soil by a Canadian-based company and its Canadian
Big awards are a major incentive to litigation in
the U.S. A RICO suit, for example, awards treble
damages. Canada's relatively paltry settlements
are largely the reason most Canadians do not have
access to justice, thereby stunting the nation's
judicial growth, lawyers say.
Caps on damages are a huge disincentive for a
lawyer to accept most cases. The Supreme Court in
1977, in the famous "damages trilogy" of cases,
capped general damages at $100,000, which has
since risen, through indexation, to about
"The irony is if you are Brian Mulroney and there
are allegations against you, you can file a
lawsuit and you can get $2 million," Lennox said.
"But if you are a quadriplegic you can get
$250,000. So why take on a big company for
There's an abundance of cases demonstrating the
folly of suing even if you eventually win. Trial
lawyers like Montreal's Brahm Campbell know only
too well how quickly protracted suits can drain
treasuries. Campbell fought an action for 13 years
before he won a case where the Supreme Court of
Canada ruled on the question of constructive
dismissal: Farber v. Royal Trust (1997),
145 D.L.R. 4th 1. His client's award including
claim, interest, indemnity and all judicial costs
totaled only $350,000. Did he recover his costs?
Not even close, Campbell says.
"Unless a counsel believes in the principle and
his client stands four-square with him, then it's
possible [to get justice]," he says. But "for the
vast majority of our population it's an impossible
dream to go for that long for that meager sum."
In addition to the problem of puny awards,
Campbell claims judges lack administrative backup
to help cases proceed quickly through the system.
"We spend $100 million on an Olympic Stadium roof
but we scrimp and save on judicial expenditures
where the true debates of society should be held -
and they are not being held because we don't spend
the money," he said. "The machinery of justice has
been left rusting and it's not fair to the
"The average citizen does not have the wherewithal
to wait years before truth will out and his
damages are properly compensated," he said. "He
doesn't have the money. So what restriction is
there for a large corporation to stop abuse in our
system? There is none."
Punitive damages, or the lack thereof, is another
problem. In the recent insurance case of Whiten
v. Pilot Insurance Co., the plaintiff was
awarded $1 million after its family home burned
down and the insurance company refused to pay the
indemnity. The company charged arson even though
there was no evidence to support the claim.
The award was meant to punish the company for its
unreasonable conduct. But the Ontario Court of
Appeal last year reduced the award to $100,000.
Justice John 1. Laskin wrote a strong descent
claiming large punitive damages are needed to
counter corporate misconduct: (1999), 170 D.L.R.
(4th) 280. The Supreme Court has given leave to
appeal and scheduled the case for a hearing in the
Furthermore, costs can quickly bury a litigant and
Ontario had until recently forbidden contingency
fees, although the Ontario attorney general plans
to introduce them in the fall.
Large awards have allowed U.S. firms like Ness
Motely to accumulate massive war chests. They can
afford to absorb the high cost of litigation
anticipating a big payday. But Canadian courts
frown on war chests. Consequently, large companies
can bankrupt an individual with cost motions.
Montreal lawyer Leonard Siedman would love to have
a war chest to continue his battle against the
federal government on behalf of a translator who
suffers from multiple chemical sensitivity or sick
building syndrome as a result of working in a
federally administered building poisoned by
toxins. Siedman sued in 1997. The case still has
not gone to court. The federal government has used
all its resources to try to obtain a declinatory
exception. Losers in the Quebec Superior Court and
the Court of Appeal, Ottawa has taken the case to
the Supreme Court. Siedman is basically working
pro bono. Siedman views our justice system as
little more than an "ornament for the rich."
Aggressive tobacco litigation has not simply been
a windfall for U.S. lawyers and state treasuries.
It has educated the public about the dangers of
smoking. It has also directly reduced smoking.
Tobacco companies have had to increase prices to
pay off the awards. Escalating prices are a main
reason why young people decide not to smoke.
Michael Szymarczyk, Philip Morris CEO, told a
Florida jury in June that those higher prices have
reduced his company's sales volume 13 percent.
For many lawyers, tobacco litigation and Canada's
journey south for justice serve to highlight
crucial issues concerning access to justice. They
beg the crucial question of how can people obtain
justice without a more entrepreneurial legal
William Marsden is an investigative reporter for
The Gazette in Montreal He has reported
extensively on smuggling and the tobacco industry
and this year won his second National Newspaper
Tobacco Litigation Wars Continue
Canadian Underwriter, Augus 2001.
* confirms that approximately $13 million in legal
costs has besen spent thus far by ottawa on its own RICO based lawsuit.
"Many legal claim experts in the Canadian property and
casualty insurance industry have identified tobacco related liability
exposures to be the biggest threat facing insurers since the asbestosis
claim of the 1980s."