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Timber plantations owned by Sino-Forest are seen in Tang Kong Village, near Gaoyao, Southern China on June 28, 2011. The once $6-billion Chinese forestry company sank after a short-seller alleged it was a “Ponzi scheme” in June, 2011, resulting in fraud allegations from the Ontario Securities Commission and a $9-billion class action lawsuit filed on behalf of shareholders.Adam Dean/The Globe and Mail

Defence lawyers for Sino-Forest Corp. and some of the collapsed forestry firm's former directors and senior executives have billed $41-million in legal costs over the past four years, an amount that lawyers for burned shareholders call "staggering" and "astonishing."

The once $6-billion Chinese forestry company listed on the Toronto Stock Exchange sank after a short-seller alleged it was a "Ponzi scheme" in June, 2011, resulting in fraud allegations from the Ontario Securities Commission and a $9-billion class action lawsuit filed on behalf of shareholders.

The legal bills in the high-profile case came up in a Toronto courtroom on Monday as lawyers for Sino-Forest's former shareholders clashed with representatives of the defunct company's insurers, who are actually paying the costs.

At stake is whether investors will ever get a share of the rapidly depleting pot of money that is Sino-Forest's insurance policies, which include coverage of only $62-million. For some of the defendants in the class-action case, plaintiffs would only see any recovery from them out of this insurance money. But Sino-Forest's China-based founders, Allen Chan and Kai Kit Poon, face unlimited liability, court heard.

Kirk Baert, a lawyer with Koskie Minsky LLP who acts for Sino-Forest shareholders, told court that since January, 2014, lawyers for the Sino-Forest defendants had billed $26-million, with $18-million of that charged since July, 2014, alone. He called the increase in that burn rate "troublesome."

He alleged in a written submission that defence counsel spent "unnecessary time" on the class-action case, dropping opposition at the last minute to the plaintiffs' motion to have the case certified by a judge in January and attending 19 witness cross examinations, some as far away as Hong Kong and in some cases without asking "any substantive questions."

Sino-Forest is represented by Bennett Jones LLP, which also acts for some of the former executives. Other firms involved in the defence include Rueter Scargall Bennett LLP; Osler, Hoskin & Harcourt LLP; Davis LLP; and McMillan LLP.

The issue came up when lawyers for one of Sino-Forest's four insurance providers sought an order from Justice Geoffrey Morawetz of the Ontario Superior Court on Monday to fix what they call a "clerical error."

Sino-Forest's four insurers each have about $15-million in liability. When one hits their maximum, the next one in line takes over. Mary Margaret Fox, a lawyer acting for Chubb Insurance Co. of Canada, told court that due to a internal error, Chubb accidentally paid out about $1-million that the next insurer in line, Travelers Insurance Co. Of Canada, was supposed to pay.

Ms. Fox asked for an order that would allow Travelers to cover that amount. She also wanted the court to declare that the amount, and all other funds paid out by Chubb, counted as "loss" under Sino-Forest's insurance. She also said the legal bills had been scrutinized by the insurers involved.

Mr. Baert argued her request went too far as it required Justice Morawetz to declare that all of the legal bills paid by Chubb were "reasonable and necessary," something the court could not do without being able to examine what legal work was done and whether it was needed. Justice Morawetz reserved his decision.

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