The clock is ticking, and there are only days left until the September 30th expiry of the "litigation stay" that has protected Canada's three tobacco companies from having to pay compensation to the Quebec smokers who won their class action suit in 2015.
On September 28th, the companies will ask for another 6 month extension to their stay. It now seems that this hearing will also include a request from the Heart and Stroke Foundation to be allowed to participate in the mediation discussions.
The story so far:
Since March 2019, Ontario Justice Thomas McEwen has been managing the proceedings under the federal Companies' Creditor Arrangement Act, repeatedly extending his Order that all legal actions against the companies be suspended and that they be allowed to continue their "business as usual" while they attempt to reach a settlement with the provincial governments, class action suits and other claims against them. Although the claims of Quebec smokers have an Appeal Court ruling upholding them, payment was stalled after provincial governments insisted that their own health-care cost claims be dealt with at the same time. (A background note on these proceedings can be downloaded here)
Thirty six months of discussions do not appear to have been enough for provincial governments and other claimants to agree on a way forward for this industry. In the meantime, the profits from the companies that would normally be distributed to head office and shareholders are being held back, and the kitty available to settle claims continues to grow. The reports to court expected this week will likely show that the cash now available has grown well above the $7.5 billion mark reached this spring.*
As large as that is, it is but a rounding-error on the $500 billion the provinces claim to redress the health care costs resulting from the companies' failure to warn and other wrongful behaviour in the last half of the 20th century. Because the companies and their multinational owners have dispersed assets to shareholders who cannot be sued, any compensation beyond the companies' cash on hand will necessarily be generated by future sales of tobacco or other products made by these companies - a classic harming Peter to pay Paul scenario.
How to resolve these lawsuits without causing future injury is a key issue - but not one that has been formally acknowledged by the provinces to date. None have indicated an intention to include health-related objectives in any settlement, although they have been pressed to do so by tobacco control organizations who focus on the non-monetary outcome of winding the industry down and other health charities who focus on the allocation of 10% of any settlement funds to health-related activities.
A seat at the table for 'Future Tobacco Harm Stakeholders'?
In a notice of motion filed this week, the Heart and Stroke Foundation is asking the court to recognize the interests of those whose purchases of tobacco industry products are the source of any compensation payments. "The FTH [Future Tobacco Harm] Stakeholders are those individuals who will buy and use tobacco products (or be exposed to the use of tobacco products) in the post-petition period. It is their use of and exposure to tobacco products that will directly fund any Proposed Plan that is approved by this Honourable Court."
Heart and Stroke argues that the interests of these involuntary (addicted) consumers is best addressed if a fund is established to manage "tobacco-use prevention and cessation programs and other similar programs that are directly linked to addressing and remediating the harms that will be suffered by the FTH Stakeholders." Like the other settlement revenues, this fund will be sourced from smokers' purchases, but in this case HSF argues that the money should be administered by a committee nominated by this charity and not by government.
This request is predicated on an acceptance by this organization that the settlement discussions cannot and will not result in any more profound structural changes to the market, and that it is better that money continue to flow from smoker to government: "Indeed, HSF recognizes that, as a restructuring process, the purpose of these proceedings and the Mediation is to find a path so that the Tobacco Companies will continue operations in the future, and that this represents some social good in the sense that their continuation will see more of the Claims paid."
Round 2 for health charities
This is the second attempt by a Canadian health charity to be included in the settlement discussions. In the autumn of 2019, the Canadian Cancer Society requested permission to participate, but was essentially not allowed beyond the doorstep. Justice McEwen acknowledged that the charity as a "social stakeholder" but was "not convinced, however, that CCS has a direct financial interest ... It is neither a creditor nor a debtor."
With this second attempt, HSF is presenting itself as an advocate for those with a direct financial interest. Given his past rulings on this and other issues, the odds seem long that Justice McEwen would respond favourably to this new request. It could be, however, that the main target of the HSF motion is not the judge but the 10 provincial governments who will be in the virtual courtroom when their argument is presented.
Watch live on Youtube!
Details on the Youtube link for the hearing at 11:00 a.m. Eastern Time on September 28th will be posted at this link: https://documentcentre.ey.com/#/detail-engmt?eid=402
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* Monitor's reports showed that as of the end of September, a combined $8 billion in cash was on hand (Imperial Tobacco $2.886 billion; Rothmans, Benson and Hedges $4,312 billion; JTI-Macdonald $958 million)
