Lawyer Alain Riendeau told Quebec Superior Court Justice Gaetan Dumas on Wednesday the terms severely limit CP's ability to defend itself in court.
About 25 companies accused of responsibility in the July 2013 tragedy that killed 47 have put up a combined $431.5 million in a settlement fund, unanimously accepted by victims and creditors of the disaster during a June 8 meeting in Lac-Megantic, Que.
Dumas heard arguments Wednesday about whether he should accept the terms of the fund, which was created to compensate victims of the disaster.
On July 6, 2013, an unmanned train owned by the Montreal Maine and Atlantic Railway Ltd. (MMA) roared into town and derailed, with its cargo exploding and decimating part of the town's downtown core.
A decision from Dumas is expected at a later date.
MMA didn't have enough insurance to pay damages to victims and creditors, so it filed for bankruptcy in the U.S. and Canada. The settlement fund is tied to the bankruptcy proceedings on both sides of the border.
The terms of the settlement fund offer all 25 companies who gave money a full release from legal liability for the disaster in both the U.S. and Canada.
The only company accused in the disaster that refused to participate in the fund is CP. The company has said previously it doesn't dispute that families of the victims deserve compensation, but insists it was not responsible for what happened.
Riendeau reminded Dumas during submissions the disaster "did not involve our tracks, did not involve our rail cars, our products or our employees."
The problem for Canadian Pacific is if any of the 25 companies decide to sue them to recoup money put towards the fund. Being freed from liability means CP wouldn't be able to counter-sue.
For example, a lawyer for Irving Oil, one of the firms accused that has offered $75 million to the fund, said it has served Canadian Pacific with legal notice that it ceded its right to sue CP to the U.S. court-appointed bankruptcy trustee.
It is unclear if the trustee has plans to sue CP on behalf of Irving.
Additionally, Riendeau told the court that CP had a contract with World Fuel Services Corporation to deliver oil from the U.S. to refineries in New Brunswick.
In that contract, Riendeau explained that CP had a legal indemnity in case of any damages caused by World Fuel's product, which would be removed by the terms of the settlement fund.
"There is an asymmetry in the settlement fund arrangement (and) plans (against CP)," he said.
Riendeau also argued that the fund is technically illegal because Canada's bankruptcy process doesn't allow third-parties to be fully released from liabilities in certain types of insolvency proceedings such as the one involving MMA.
CP has also challenged the legitimacy of the bankruptcy process, arguing the case should be heard in Federal Court, not Quebec Superior Court.
Patrice Benoit, lawyer for the defunct MMA, urged Dumas to approve what he called a "just and reasonable" settlement fund.
Benoit told reporters it's normal to offer companies such releases and said CP could defend itself in court against the others.
"The creditors and victims said the plan is fair and reasonable, now it's up to the judge to agree or not," he said.
The approved plan would see just under $200 million will go to the government of Quebec and the town of Lac-Megantic for clean up and other related costs.
About $111 million would be distributed to families of the deceased and the remaining millions are reserved for other claims such as psychological and material damages suffered as a result of the train derailment.
As much as $21 million is earmarked for lawyers' fees.
Benoit said if Dumas denies CP's motion earlier this week to move the case to Federal Court and approves the settlement fund, cheques should start arriving in the fall.
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