These timber plantations in Tang Kong Village, near Gaoyao, southern China, are owned by Sino-Forest Corp. Lawyers are vying for the right to represent shareholders in class-action suits against the forestry company.Adam Dean/The Globe and Mail
Rival groups of the country's most prominent class-action lawyers will be back in a Toronto courtroom Wednesday morning, fighting among themselves for the right to represent burned investors who lost billions of dollars in scandal-plagued Sino-Forest Corp.
The battle to lead the class-action lawsuit against Sino-Forest and its big-name auditors and underwriters pits three rival teams of law firms against each other. They all filed their own separate lawsuits on behalf of investors in the wake of the fraud allegations that sank the forestry company's stock this year.
At stake, the helm of perhaps the largest and highest-profile shareholder class-action in Canadian history, and a fight to recover some of the billions that were wiped out. Plus, the share of legal fees that could go with it.
None of the allegations in the lawsuits have been proven.
The hearing before Mr. Justice Paul Perell of the Ontario Superior Court began on Tuesday, a day after Sino-Forest was hit with default notices on its debt that could soon tip the company into insolvency proceedings.
This kind of legal skirmish, known as a carriage fight, is rare but certainly not unheard of in Canada, where the small number of law firms that specialize in class-actions often make arrangements to work together. In this case, no such deal was forthcoming.
On Tuesday, Judge Perell suggested from the bench that one option could be to impose such an arrangement.
Lawyer James Orr, of Kim Orr Barristers P.C., said his firm's lawsuit casts a wide net, naming company officials in China as defendants that the other law firms have ignored for the sake of efficiency.
Mr. Orr's claim also accuses the auditors and underwriters of Sino-Forest of fraud and "recklessness" for failing to report alleged problems with the company that have since surfaced, such as the lack of title documents for its Chinese forest holdings. By doing so, he said, these "experts" enabled investors to sink billions into Sino-Forest.
"That money went into the company not because a few men came out of the woods in China and said we have a lot of trees," Mr. Orr said. "… There were clean audits year after year, and prospectuses issued."
His firm also argues that its large institutional clients in the case, including the British Columbia Investment Management Corp. pension fund, make it the best choice.
Mr. Orr also pointed to his firm's alliance with U.S. class-action firm Milberg LLP and the inclusion of Milberg's Michael Spencer, a veteran of major U.S. shareholder class-actions licensed to practise law in Ontario, as a selling point. (All of the Canadian firms vying for the case have affiliations with U.S. firms.)
Joel Rochon, of Rochon Genova LLP, pointed out that he was first to file a case in Ontario against Sino-Forest, filing on June 8, just six days after short-seller Carson Block and his research firm Muddy Waters LLC accused the company of being an elaborate fraud.
Mr. Rochon said his proposed representative plaintiff, sales manager Doug Smith of Georgetown, Ont., has no other way to recoup his losses other than a class-action, unlike big pension funds that could afford to launch their own cases if they wished.
The court also heard from Kirk Baert of Koskie Minsky LLP, part of a team with shareholder class-action veteran Dimitri Lascaris of Siskinds LLP in a third Sino-Forest case.
They argue that their narrower approach to naming defendants makes their case more likely to succeed. And they say their list of representative plaintiffs is the most comprehensive, as it includes Canadian pension funds, a Swedish pension fund, a large shareholder and a holder of Sino-Forest debt notes.
Jeff Gray