Six Nations tobacco firm suing Ottawa for $3 billion
Grand River Enterprises alleges breach of native rights
PARTNERS IN A SIX NATIONS tobacco manufacturing firm are suing the federal government for allegedly forcing them to incorporate and lose their tax-exempt status while failing to stamp out contraband competitors.
Grand River Enterprises’ (GRE) $3billion claim argues Ottawa is liable for misfeasance, negligence, breach of fiduciary duty and breach of Aboriginal rights.
A recent Ontario Court of Appeal ruling has cleared a path to trial by rejecting all but one of the federal government’s arguments to derail the lawsuit.
GRE’s legal counsel declined to comment on the June 23 Appeal Court decision.
“Since this matter remains in litigation, we do not believe it is appropriate to comment at this time,” John F.C. Hammond of Inch Hammond Professional Corporation said in an email to The Spectator.
Federal spokesperson Andrew Gowing said the government “is still reviewing the details of the decision” and it’s “premature to comment on any next steps.”
GRE and four of its shareholders — Jerry Montour, Ken Hill, Curtis Styres and Gregory Smith — allege federal officials forced them to incorporate to receive an excise licence for operation in 1996.
That opened them up to taxation and duties they wouldn’t have otherwise paid on their personal, on-reserve properties as stipulated under the Indian Act.
“The claim for ‘forced incorporation’ is a very unusual and groundbreaking claim,” Murray Klippenstein, a Toronto-based lawyer experienced in First Nations rights litigation, said Tuesday.
The claim also “raises important questions about lands that were specifically reserved for or recognized as Indigenous lands centuries ago by treaties and other agreements,” said Klippenstein, who’s not involved in the lawsuit.
“This case may refocus the issues from looking at only corporations to seeing things as Indigenous people on Indigenous lands conducting business.”
The GRE partners also allege the federal government has failed to control contraband and counterfeit tobacco on Six Nations, which has resulted in financial losses due to an unfair playing field.
The lawsuit, last amended in 2013, claims $1.5 billion in damages as well as “equitable compensation in the same amount.”
The Crown hasn’t yet filed a statement of defence but it did try to have the case tossed from Superior Court, arguing it lacked legal basis and was a Tax Court matter.
In the Appeal Court ruling, Justice Gloria Epstein only backs the Crown’s appeal to dismiss the breach of fiduciary duty claims based on the federal government’s failure to enforce contraband. “In all other respects I would dismiss the appeal.”
Klippenstein noted the decision doesn’t favour the claim but does say it’s worth serious consideration, “which is quite significant.”
In the ruling, Epstein recounts how the GRE partners were in talks with federal DeHamilton partment of National Revenue officials from 1993 to 1997 regarding their on-reserve tobacco business.
They were ultimately faced with the “government’s ultimatum” to incorporate to receive an excise licence, the judge writes. They agreed, but only if Ottawa stepped up enforcement of contraband tobacco.
But by 2003, the partners were complaining about the “increased availability” of illegal products on Six Nations while paying “$50 million to $60 million a year in taxes and duties,” Epstein notes.
A Spectator investigation noted GRE’s gross sales were more than $200 million in 2004.
The Non Smokers’ Rights Association considers the Ohsweken-based firm a major player nearly in league with such heavyweights as Imperial and Benson and Hedges.
Taxation on tobacco products is the most effective way of reducing consumption in the interest of public health, says Francois Damphousse, the association’s Quebec director.
Damphousse doesn’t dispute the existence of black market tobacco but says government enforcement has made an effort to battle it.
“They have introduced many measures to try and control contraband issues.”
First Nations leaders, meanwhile, have criticized such enforcement as a violation of constitutional rights.
The GRE case is the latest chapter in a complex and cantankerous history between its partners and Ottawa.
In 1996, for example, Montour, then 26, his father Peter Montour, 57, Hill, 38, and Smith, 38, were among nine men charged by the RCMP with illegally making and selling tobacco on Six Nations.
The elder Montour, who died in 2012, pleaded guilty to conspiracy to smuggle cigarettes into Canada from the United States and possessing proceeds of crime. He was fined $640,000.
More recently, GRE has litigated in the United States over its ability to sell cigarettes there.
Klippenstein doesn’t expect the latest Canadian lawsuit to be resolved any time soon.
“A case such as this will probably go on for many, many years in the courts because of the issues and the stakes involved, and all parties probably recognize that.”
The claim for ‘forced incorporation’ is a very unusual and groundbreaking claim. TORONTO LAWYER MURRAY KLIPPENSTEIN
The shop floor of Grand River Enterprises warehouse, seen in 2004. The operation is on Chiefswood Road in Ohsweken on Six Nations.