Ontario's chief justice forces a change on settlement discussions

Those who tuned in at 10:30 Wednesday morning to the video-link of the Ontario Superior Court session before Justice Geoffrey B. Morawetz expecting to see another rubber stamping process in the tobacco companies' CCAA proceedings were in for a big surprise. 

This was Justice Morawetz' first appearance on these proceedings, and he used the opportunity to force a new process on the proceedings. As well as granting the tobacco companies' unopposed request for another 6 month extension to their litigation, he is imposing an arbitration-like process to develop a road-map out. The 'neutral' monitors (accounting firms) and the mediator (a retired chief justice) are mandated to develop plans of compromise or arrangement.

The back-story

From early 2019 until June 2023, it was Justice Thomas McEwen who was in charge of overseeing the 

insolvency protection for Canada's three large tobacco companies. The companies turned to the Ontario courts for protection after a multi-billion dollar award against them for injured Quebec smokers was upheld by the Quebec Court of Appeal in March 2019.

Rather than challenge the ruling to the Supreme Court or start sending cheques to these elderly and ill Quebecers, the companies were able to engage the federal Companies Creditors Arrangement Act to lump these court-ordered claims with untested claims by provincial governments and to force all parties to negotiate collectively. Doing so required the agreement of the provincial governments, for whom settlement discussions saved them the time and trouble of going to trial.

Over the past four years, Justice McEwen had issued multiple court orders which had the effect of blocking payments to the class action. While he spoke sympathetically about their condition on occasion, not once did he side with their lawyers' requests to distinguish between court-ordered and untried claims, or to hurry the process along. 

Justice McEwen retired from the bench at the beginning of summer - shortly after he wrote that he thought the mediated talks was "entering its final stages."  Upon his retirement, the file was passed to Chief Justice Morawetz.

The new broom

Geoffrey B. Morawetz

As it turns out, the Hon. Geoffrey B. Morawetz is no simple pinch-hitter or bench-warmer on this file. There is no judge at this court level with greater seniority (He has been Ontario's Chief Justice of the Superior Court since mid 2019  - almost as long as this CCAA process has been underway). There are unlikely to be any with greater expertise in insolvency law  in Canada: as they say, "he wrote the book".   

Moreover, he and Justice Winkler  - the former Chief Justice who is the court-ordered mediator in these proceedings - go way back. They were both involved in the Nortel CCAA process - one where mediation talks dragged on for years before being acknowledged as a failure. Where Justice McEwen kept mum about whether he had talked over the case with Justice Winkler, Justice Morawetz  made it known that he and the mediator "exchanged a number of communications in the past few weeks."

Tell me what you see ahead ...

Facing a new judge, each of the parties which submitted paper work in advance of today's hearing provided summaries of events over the past many months. (The paperwork is linked at the bottom of this post). They may have wanted to elaborate on these events or give more of the back-story, but from the beginning of this morning's 90 minute hearing, Justice Morawetz made clear that he already knew what had happened, and shut down any such attempts.

"What I am focused on is receiving submissions as to where the parties are going ...  what I really want to hear from the parties is where they are today and where they think they will be within the next six months." 

This seemed to force the legal teams off their script, and prompted some scrambling. One after another - John MacDonald for Imperial Tobacco, Paul Steep for Rothmans, Benson and Hedges, Leanne Williams for JTI-Macdonald - the industry's representatives pledged a continued commitment to negotiate diligently and in good faith. None of them could offer any specifics on the progress they foresaw - although some seemed to diminish expectations by referring to the "noted  complexity of this restructuring, the vast number and size of claimants and the added complexity of 3 global industry groups." 

Leanne Williams' comment illustrates the vagueness of the response "You asked for where we are and where we are going. JTI has actively participated and believes significant but there is much ground to cover before resolution is achieved. JTI is acting in good faith. JTI hopes that significant progress will continue in the next 6 months. I cannot confidently tell you where we will be, but we will maintain commitment to be fully and actively involved."

Among the claimants, only three shared their views. These parties too were unable to project any expectations of the progress that a further extension would accomplish.

They were, however, ready to point to an (unidentified) co-claimant as a reason that things were more bogged down. Representing a half-dozen provinces and the territories, Mr. Andre Michael confirmed the concerns submitted in writing by the Quebec class action team. Other claimants  had "taken positions which were inconsistent with the advancement of the mediation process and caused unnecessary delay....  A global settlement is not in sight." 

Speaking for the Quebec class action, Mark Meland said the delay was caused by "certain parties who seem to believe that a delay is an appropriate negotiating tactic."  This is the first hearing where complaints have been put on record about the behaviour of any party -- and also the first when the Quebec team did not ask for adjustments to the proposed stay extension orders.

Instead, Mr. Meland appealed repeatedly to the judge make things go faster -- to "turn up the heat", set  "a new paradigm", to "light a fire" "to get this done." "It is our firm expectation that if plans of arrangement are to be achieved they need to be in next six months."

Only one participant in the hearing offered concrete advice on how to move things along quickly. On behalf of the Quebec government, Mr. Brett Harrison suggested that a case conference held before the end of the next extension might facilitate progress.

.. And then I will fill in the holes in your plan

 

Having pushed parties to articulate their (lack of) plans for the next six months,  Justice Morawetz turned to his own vision of what should happen.

First, he assured them that the unopposed request for a six month extension would be granted in an order that would be released before Monday. 

But then he (very) quickly read out the draft text of another part of his ruling. After mentioning the complexity of the issues and the "astronomical" dollar value of the claims, he announced that the monitors and mediator would be directed to develop plans of compromise or arrangement. 

"Neutral parties will be charged with coming up with a plan. The three court appointed monitors are well positioned to come up with a plan or plans. The existing structure can be used to facilitate the development of a plan. The monitors and mediators are familiar and in view of their neutrality they are in the best positions to come up with a plan that will have the best opportunity to be fair and applicable."

"It's time to move from observable activity to meaningful action."

 

Pausing for a moment for questions that did not come, he adjourned the hearing at 11:30.

Relating filings

Imperial Tobacco

* Factum of ITCAN and ITCO dated September 22, 2023

* Motion Record returnable September 27, 2023

Rothmans, Benson & Hedges

* Motion Record, returnable September 27, 2023

JTI-Macdonald

* Motion Record returnable September 27, 2023

Quebec Class Action Plaintiffs

* Affidavit of Philippe Trudel

Postscript

On October 5th, Justice Morawetz' ruling was released. It can be viewed here.

Why is the CCAA process dragging on? Fingers are pointed at provincial governments

When the parties to the long-going insolvency proceedings for Canada's tobacco companies convene on September 27th , a new judge will be deciding whether to allow yet another 6-month time out on the lawsuits facing Canada's tobacco companies. Ontario's chief justice, the Hon. Geoffrey B. Morawetz  assumed responsibility for this file after Justice Thomas McEwen retired this summer.

Already some of the paperwork has been filed in advance of this hearing by the three tobacco companies and also by lawyers for Quebec smokers whose court award of $13+ billion has lain in limbo since these proceedings began in March 2019.

INDUSTRY POSITION: Impossible to commit to a deadline

In these motions, Imperial Tobacco, Rothmans, Benson & Hedges and JTI-Macdonald, each seek "an order extending the Stay Period (defined below) until and including March 27, 2024." 

Each request is elaborated with background on the case and on the perspectives of the companies. It would seem that these motions are being used as a primer for the new judge - framing events to date in a light to support each party's objectives. But the stories told by the companies' and by the injured smokers leave very different impressions.

According to the companies, the negotiation process is going as well as could be expected, the issues are too complex to be figured out in any less time than this process is taking, and it is not possible to predict when things will end.

These narratives go beyond offering assurance about the negotiation process. They remind the new judge that the companies deny they are guilty of the wrongdoing which underlies the claims against them.  (This, despite a unanimous decision of the Quebec Court of Appeal to the contrary which the Supreme Court has been unable to uphold or strike down because the companies have been granted a litigation stay for the past 54 months.)  

The motions filed in court last week show the companies will fight attempts to arrive at a separate settlement with those claimants who have achieved court-ordered compensation (the Quebec class action) and those who have not yet gone to trial and for whom compensation has not yet been set (everyone else). 

Illustrative extracts from RBH's motion:

" Progress has been made and the experienced Court Appointed Mediator continues to oversee and direct the process...

...While it is the best outcome for the parties, negotiating a global settlement is highly complex and time-consuming. 

... RBH believes that it is critical to continue to give the mediation process the time and attention required by the Court-Appointed Mediator to ensure the best chances of achieving a successful resolution. 

... there is no other practical and more expeditious alternative for creditors that does not involve a CCAA plan with the Tobacco Companies, and the mediation process offers the best opportunity to achieve a consensual CCAA plan.  

... It is difficult to provide a precise estimate of the time needed to complete the mediation and to develop and implement a CCAA plan.

... RBH vigorously disputes both liability and the calculation of alleged damages claimed in the HCCR  [government] Claims and there are numerous contested issues, including establishing a tobacco related wrong and issues relating to causation, damages and valuation."

QUEBEC CLASS ACTION POSITION:  Unreasonable delays attributable to some provinces

An opposite view is offered by the Quebec class action, which unsuccessfully requested that this hearing be held in person, instead of over a Zoom-link.

As summarized in their brief, they have made numerous requests for the stay extensions to be shortened as a way of cracking the whip on the process. This time, they do not repeat the request, but have added  more detail about reasons for the delay. For the first time, they point fingers at  "certain claimants" (presumably provincial governments), suggesting they are acting incompetently or in bad faith. Notably, they do not point fingers at the companies in this regard, but instead state clearly that they consider the companies are acting in good faith.

They also put more detail on the impact of the delay on the smokers whose injuries lay behind the $13+ billion award of the Quebec courts. Twenty-five years after the case was first filed, fewer and fewer of these whose emphysema and cancers were attributed to the wrongful behaviour of the companies are still alive. Approximately 700 class members are reported to have died during the CCAA process (about 3 per week). 

Another new element in their motion is a direct appeal to the Mediator (Hon. Warren Winker) and the Mediators to step up the pace, and to adjust their management of the file in order to reach the next stage in the CCAA process - a formal proposal from the companies on how to resolve the claims against them.

Illustrative extracts from the Quebec Class Action Motion 

"Based on developments over the past six months, I can affirm without any hesitation that a global settlement is currently not in sight.

... the Mediation process has been severely undermined by certain Claimants who have reneged on prior positions and failed to act in an acceptable or appropriate manner.

... we are well past the time that the Quebec Class Members, who have been waiting 25 years for justice to be served, should have received the court-ordered compensation to which they are rightfully entitled.

...  there will be few, if any, victims left alive to receive their rightful compensation from the tobacco companies.

...  approximately 700 Quebec Class Members have unfortunately succumbed to their tobacco-related illnesses and died and many more are becoming increasingly frail. Certain Quebec Class Members could wait no longer and have opted to end their lives by assisted suicide.

... The QCAPs have reluctantly decided not to oppose this six-month extension request to allow the Mediator and the Monitors an opportunity to seek and put in motion alternative solutions, leading to successful plans of arrangement during the next six months."

THE PROVINCES' POSITION: No comment

To this point, the provinces have submitted no paperwork for this week's hearing. Whether the allegations that some are bargaining in bad faith will prompt them to abandon the weeds in which they have stayed for so long remains to be seen.

THE FEDERAL GOVERNMENT POSITION: Not our table

The federal government finances roughly half the costs of Canada's health care system, has constitutional and statutory responsibilities for the health of Canadians, and is the author of the insolvency and bankruptcy process in Canada. Nonetheless, federal health officials appear unwilling to intervene, participate, form a position on or even review the discussions underway.

Heart and Stroke Foundation loses its bid to be included in the Insolvency Mediation

After a loooong wait, Justice McEwen issued his ruling yesterday on the request by Canada's Heart and Stroke Foundation to be allowed to ask for a seat at the mediation table. Last fall they initiated a request to appoint a representative for the "Future Tobacco Harm Stakeholders" -- Canadian smokers not otherwise represented in the settlement discussions. 

His answer was a firm "no".

No matter the merits of the organization, their request came too late. They did not act with "due diligence in the circumstances" and waited too long to make this request. Nor did this judge find that anything had changed since the process began to justify a late-breaking request or to justify agreeing to one.

Moreover, he said, it was too late in the process to risk disruption and delaying an agreement among the parties who had been talking without any input from Heart and Stroke or other health organizations.  "The Mediation appears to be reaching its latter stages after four years.... A resolution is in sight."

This ruling was published 74 days after the arguments were made before him (April 14) and 4 days before his retirement (July 1).  One more "winding up" for this commercial court judge.

A new judge appointed to oversee the CCAA proceedings

Yesterday Justice McEwen made public that he will be retiring at the end of June and that "Chief Justice Morawetz has agreed to assume case management of these CCAA matters".

Heart & Stroke's request to join tobacco negotiations meets resistance

On Friday April 14th, parties to the insolvency protection of Canada's tobacco companies were again virtually convened before Justice Thomas McEwen of the Ontario Superior Court. The sole purpose of this hearing was to allow lawyers from Tyr LLP (lawyers working for the Heart & Stroke Foundation) to say why they should be allowed to ask for a seat at the negotiating table.

More than 6 months have elapsed since this large Canadian health charity first made official its desire to see "future tobacco harm stakeholders" represented in these proceedings by their choice of counsel. Their objective at that table would be to see the establishment of a Fund managed independently of government or the tobacco industry. 

It was only in February that they received permission to make their case  -- and even then Justice McEwen decided that before the charity could present the substance of its arguments in favour of being included, it would be necessary to show that it had the right to make the argument: "the leave motion should be heard in advance of the motion itself (assuming leave is granted)." 

The timetable set for the hearing on leave required the parties to put their argument for and against on the record. These are now available on the monitors website, and provide the detailed version of the report that follows on the day's proceedings.

* Heart and Stroke Motion Record (February 2023)

* Heart and Stroke Factum (March 31, 2023); and Book of Authorities 

* Joint Factum of the Monitors (April 6, 2023) and Book of Authorities F

* Reply Factum of the Proposed Future Tobacco Harm Stakeholders (April 11, 2023)

In favour of a path towards Future Tobacco Harm Stakeholders

Heart & Stroke hired lawyers at Tyr LLP to present itself as a representative of the "Future Tobacco Harm Stakeholders". As James Bunting explained to the court, the individuals who face "future harm"  are those Canadians whose purchases of tobacco products will finance any settlement paid by tobacco companies to their creditors. 

He presented these Canadians as currently being unrepresented in the CCAA process and not included among those smokers for whom a representative (Mr. Wagner) was appointed in late 2019. Because those who are harmed now will be seeking to maximize damage awards and those who will be harmed later will be financing those awards, he saw the interests of these two set of smokers as being inherently in conflict. He saw an important distinction between injuries occurring before the CCAA process and those after.

Asking to join four years into the process (- the judge described it as "the eleventh hour"), Mr. Bunting was expected to provide a rationalization for the lateness of this request. It was not the responsibility of the health charity to have identified missing parties, he said, pointing/not pointing to the firms appointed as monitors in the process. And as for the risk of slowing this down, he suggested that failing to include this group might result in a legal challenge to any settlement reached without their consent.

Against opening the process to new counsel

Each of the tobacco companies has assigned an accounting firm to monitor its activities in the CCAA proceedings. Not for the first time, these monitors are presenting a united voice to the court.  "The Monitors respectfully suggest that the Court exercise its discretion to deny HSF leave to bring its motion." 

In a sequence of presentations, lawyers Natasha MacParland, Jane Dietrich and Linc Rogers aggressively argued against a decision to allow HSF to put their case formally to the court at a later session. They pointedly stuck to the procedural issues, refusing to stray into the substantive issues raised by Mr. Bunting and also by Justice McEwen (how is this different than other cases?)

The monitors did not agree that there were any unrepresented future claims. They drew the judge's attention to the broad language he agreed to when they recommended that Mr. Wagner become representative for "unascertained and unasserted" claims for "tobacco related wrongs". They saw no conflict or temporal distinction in the potential claims of current and future smokers.

The monitors claimed that because HSF had not made their request earlier in the process it should not be heard now. Doing so would involve adjustments to previous decisions of the court, and would not be fair to those who had been negotiating under those "building blocks". 

Moreover, HSF participated by supporting the earlier request of the Canadian Cancer Society (CCS) for a seat at the table. The monitors said the two groups were fundamentally asking for the same thing -- representation and a fund -- and that the rejection of the earlier request by the CCS should have settled this question.  

They appealed to Justice McEwen to see that his job was to ensure the court met its core role as gatekeeper and that in the absence of any reasons to restructure the process he should not allow HSF's request for a hearing on the merits of assigning a representative for "future harm" stakeholders.

Only one other party offered an opinion on the issue:  the representative of the Quebec government said that it supported the Monitors and recommended that leave be denied.

HSF's proposal draws fire from other quarters, too. 

This is not the first request by Heart and Stroke for governments to include health measures in any resolution of their lawsuits against tobacco companies. Together with the Canadian Cancer Society and the Lung Association, they have proposed 10 measures they want to see included -- with increased funding and an independent foundation in charge of 10% of settlement revenues at the top of their list. In its motion to the court, however, HSF has seemingly abandoned all objectives other than the creation of a fund administered outside of government.

The charity may not have succeeded in convincing the court to consider its request for participation, but it did succeed in exposing the growing rift between it and its traditional allies and community partners. 

For example, the motion today catalyzed the Campaign for Justice on Tobacco Fraud to urge  governments to oppose HSF's participation in negotiations. "To be blunt, in language of the street, the Heart Foundation Motion and affidavit by executive Diego Marchese have all the earmarks of a cash grab."  An angry letter was also sent to the Canadian Cancer Society, accusing it of conspiring with Heart & Stroke on the motion to the detriment of the larger health community. 

Other tobacco control groups have, like HSF, identified that the burden of a monetary settlement will be borne by future victims - triggering a "a kind of litigation Ponzi scheme, where harm is passed down the chain in order to make good to initial victims."  

In order to avoid this, they have called on governments to use these lawsuits instead to wind down the tobacco business.  "The principal goal of a litigation outcome should be significant and permanent changes to the foundation of the companies and their business practices. The companies should not come out of this process with the continued capacity to profit from tobacco sales."

In an op-ed published in the Calgary Herald today and related press release, the Quebec Coalition on Tobacco Control cautions that "The worst outcome from a public health perspective is for provinces to force a superficial monetary outcome primarily focused on splitting up the available cash pie and calling dibs on future company profits."

It urged the CCAA participants instead to shift their focus from money towards better controls on the industry. "Rather than squabbling over how to slice the modest money pie or how to tap into revenues from current and future consumers, they should focus on a plan to prevent further damages — not one that benefits from them."

Déja vu all over again

The Canadian government lawsuits against tobacco companies are taking place almost 3 decades after the U.S. lawsuits, and the criticisms levelled today at HSF by its civil society partners may only be familiar to those with long memories. 

Ultimately arriving at a "Master Settlement Agreement", parties to the U.S. lawsuit first agreed to a "global settlement" for which there was a seat at the table for one health agencies. The involvement of one health agency in that controversial process - despite the independent fund that was eventually put in place  -- did not protect future generations from this harmful industry, but instead did much to worsen relations among partners. 

Another milestone: The 10th Extension of CCAA protection for Canada's tobacco companies

Another virtual hearing before Justice Thomas McEwen of the Ontario Supreme Court took place this morning to decide how long the suspension of lawsuits against Canada's tobacco companies would be extended. The hearing ended without an immediate decision - but perhaps shed some light on a process that has been obscured from public gaze for most of the past 4 years.

The background

All lawsuits against the three major tobacco companies have been suspended since March 2019. This Ontario court order was the result of the companies asking for and receiving protection under the federal insolvency law (the Companies Creditors' Arrangement Act, CCAA). The companies sought this cover immediately after the Quebec Court of Appeal upheld a $13+ billion judgment against them in the first class action suit against them to reach judgement. The CCAA process also pre-empted the Supreme Court reviewing the unanimous decisions of the Quebec courts that this industry conspired to act wrongfully and that their behaviour was responsible for the harms experienced by some smokers.

The CCAA process became the framework for court-ordered negotiation process towards a "global settlement" with the companies and all Canadian parties suing them. Although the Quebec class action plaintiffs (QCAP) are the only claimants ('creditors') to have supportive court decisions, their claim is smaller than those of the provinces which have sued tobacco companies but have not yet gone to trial. Other creditors include class actions in other provinces, Ontario tobacco farmers and other parties. A fact sheet with further information on the process can be downloaded here. 

This CCAA process has required the companies to return to the Ontario Court to apply for an extension to order that shields them from having to pay Quebec victims or to face other litigants in court. This has happened 9 times over the past 4 years, and since the fall of 2019 the Court has always granted 6 month extensions. 

Last fall, lawyers representing the Quebec victims requested that the order be extended for only 3 months, arguing that this would accelerate negotiations and signal to their clients that the court was concerned with the impact of the delay. Justice McEwen turned the request down, giving his assent to the request of the companies. 

The hearing 

The question before the court today was the length of the extension to the stay order that would be granted after the current one expired at the end of this month. In mid-March, the companies submitted another request for a 6 month extension, and the Quebec plaintiffs repeated their request that the extension be limited to 3 months. 

In many ways the session was a repeat of the hearing last fall:  an insistence by the companies that things were going as well as could be expected, an appeal for the plight for Quebec smokers who having been injured by the companies were still not in receipt of any compensation; some sympathetic comments from the judge, together with an appeal for everyone to get on with the job.

Today, most parties drilled down on the approach they took last fall, but a few spoke out where they had previously been silent. During this longer-than-normal (1 hour) hearing, some parties who had previously been silent put their views on record. 

In support of six months: 

As usual, Imperial Tobacco/BAT was the first to present the industry's view (it is the company with the largest market share). Their lawyer argued that the reasons the judge gave for a longer extension were still in place (that requiring parties to return to court earlier would "distract" the negotiations, that there was no evidence of an undue delay and that the extension orders and the mediation follow independent timelines). As he emphasized these points, he tried to paint the Quebec plaintiffs as outliers in the process, claiming that "several of the stakeholders support a 6 month extension and/or do not oppose it" - and that the "focus must continue to be on the big picture and the interests of all stakeholders".

 Lawyers for the other two companies agreed with his point, and added their own emphasis on the absence of evidence of any foot-dragging ("you have never heard a complaint that the parties are not working hard..") and the need to not interfere with the work of the mediator ("artificial deadlines should not be imposed on the mediators' timeline") 

During last fall's hearing, the provinces had sat silent. This time most provided their own take on the situation. First to speak was the lawyer from Ontario's Ministry of the Attorney General. She reminded the court that Ontario had the biggest claim, and that this province did not oppose the longer extension. Her comments provided the most insight into the negotiations that has yet been put on record. Despite the "complex legal, financial and factual issues" and the fact that "a handful of difficult issues remain", she said that the province was optimistic that they are nearing the end of the negotiation - but that at least 6 months was needed "to focus on this work."

The private sector lawyers representing the jurisdictions proceeding on a contingency-fee basis spoke next (These jurisdictions are British Columbia, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and the territories). He stated his position with respect to the length of the extension in an ambiguous way, saying they were "supportive of granting an extension for the stay for this process" with the hope work over the next 3 months would lead to a resolution. The lawyers representing Alberta and Newfoundland said nothing. 

The lawyer representing smokers in provinces other than Quebec (now coined the "Pan Canadian Complainants, PCC") expressed his "non opposition" to a 6 month stay.  

At the end of the hearing, each of the three monitors also expressed support for the 6 month duration. 

In support of a 3 month deadline to return to court. 

In their second attempt at a shorter extension, the lawyers for the Quebec victims again emphasized the human dimensions to the prolonged negotiations. They cited some messages sent to them by victims angry at or frustrated by the delay - (these are included in the material they filed with court, and cited below).

To further emphasize that this case involved real people with real lifespans, the plaintiff lawyers trained one of their virtual court cameras on their office board room, in which sat Mrs. Blais, who is now the representative class member for those injured with cancers and lung disease. (Her husband, Jean-Yves Blais, became the representative class member in 1998, but died in 2012 shortly after the trial opened).

Their main objective for shortening the extension was not to address members' concerns,  however, but rather to put some pressure on the system. 

"A shorter stay extension will act as a catalyst. It is a truism of human nature that work expands to meet time available - and that is exactly what has happened in the last 6 months... Most of the progress was accomplished in the last few weeks. The substantial issues that were dealt with could have be done in 3 months, they could have been done in one. ... A key component of a mediaiton process is momentum. A longer extension eases the pressure on the parties and removes momentum from the process."

"The time available determines how much time it will take. If we had 1 week and we sat in one conference room or several conference rooms – we could get this done."

It would seem that this group do not share the view that negotiations have been proceeding at a satisfactory pace. The judge was encouraged to consider that the lack of evidence of delays was a function of the confidentiality of the proceedings: it was not possible for them to point to examples of delay in open court without offending the secrecy orders of the negotiations. Moreover, the same secrecy means that the public (and their clients) have no idea of the mediation timeline. "There is no evidence to you or to the public of when that progress might translate into a settlement. Because of the secrecy of the mediation we are unable to advise our clients of the reason for the delay."

Justice McEwen was also encouraged to reflect on the impression about the justice system that was left as a result of secrecy and delays. "It is not a good look for our justice system to have thousands of people thinking that the justice system does not work for them. ... In this case the maxim 'Justice delayed is justice denied' is very appropriate."  He was urged to send "an unequivocal message that it must be brought to a conclusion in 2023."

Last fall, only the Canadian Cancer Society added its support to a shorter extension period. Today, the provinces broke rank and the lawyer representing the government of Quebec said that this province also felt that 3 months was more appropriate. 

To illustrate his point that complex settlements could be reached in a shorter period of time, Quebec's counsel alluded to the settlement that was reached last year reached among the same provinces and manufacturers of opioids. "This is not different than other issues managed by such processes.  The CCAA deals with lots of issues that are similarly complex and they don’t take four years to resolve."

(Justice McEwen bristled at the suggestion that there were other cases as complex, and professed ignorance of the opioid settlement. - "I didn't even know there was an opioid settlement until you mentioned it." I have never had a case this complex in my life. I appreciate Mr. Harrison’s comments but I have never seen one with this many moving parts."  Those who have wondered whether this judge is adequately attuned to public health issues take note!)

Quebec suggested that a shorter time frame would provide "firmer direction" to parties.  If a shorter extension was not agreed to, then there should at least be a case conference in three months time. This, he said, "will not require monitors' reports, but would be an update and provide some focus for parties and a deadline."  The judge responded to this by saying that he was considering this as "a sensible mid-range position."

Another party which spoke in favour of a shorter deadline was the Knight class action on light cigarettes (based in British Columbia). The Ontario Flue Cured Tobacco Marketing Board had filed a motion in support late last week, but the court was informed today that it had changed its mind.

How diligent is diligent enough?

The response to the plea from the Quebec plaintiffs (and government) was left mainly to the monitors, who were last on the agenda today. They pointed to comments in their reports that affirmed their clients were acting "in good faith and with due diligence." 

There is, of course, no independent monitor on the other parties or a way for the Judge to know whether the provinces were acting quickly, or whether they are operating in government time. Justice McEwen pointedly asked the lawyer representing the mediator (Hon. Winkler) whether progress was being made. She said it was.

"Momentum has to continue"

As he had last fall, Justice McEwen did not decide immediately. "I am going to think about this. You will have the decision before the 31st."

"I will repeat what I did last time. I need and expect people to keep giving this their utmost attention and to provide assistance to the Hon. Mr. Winkler to keep negotiations moving, top of mind and constructive." He again hinted that if he agreed to the 6 month extension he might call the parties in at an interim date for a case conference.

POSTSCRIPT: A six month extension is granted

Two days later, Justice McEwen issued his decision. After some expressions of concern for the Quebec victims, he nonetheless granted the companies' request in full. Neither was the timeframe shortened, nor was an obligation imposed for a less formal meeting before the end of September. These options, he ruled, had the potential to harm the negotiations. 

Parties prepare for another extension to the tobacco litigation stay ...

.... and an argument about protecting "future victims" 

The insolvency protection for Canada's three large tobacco companies now seems set to enter its fifth year. Notice has been given that a hearing to extend the litigation stay will take place on March 28th at 11:00 a.m.. Another hearing is set for April 14th to consider the request of the Heart and Stroke Foundation for one more seat to be placed at the negotiating table - this one to represent the interests of  "future tobacco harm" victims.

Getting ready for year 5

It was in early March 2019 that  JTI-Macdonald bounced from defeat at the Quebec Court of Appeal to land before a sympathetic Ontario Court to seek protection under the federal Companies Creditors Arrangement Act (CCAA). Within the month, the other two companies that shared the burden of a court-ordered $15 billion payment to injured Quebec smokers had climbed on the CCAA wagon. 

Since then, the Court has consistently extended the litigation stay and directed the companies to negotiate with injured smokers from Quebec and other provinces, together with all 10 provincial governments to reach a "global settlement" with these Canadian branches of the three largest multinational tobacco companies. 

The current stay expires on March 31, 2023. The decision to set the hearing date only 2 days earlier than the scheduled expiry suggests that the companies know they will receive another renewal with no difficulty.

A request for representation for the smokers who will foot the bill

Late last summer, the Heart and Stroke Foundation (HSF) came knocking, seeking a seat at the table and askign to represent 'future' smokers whose interests they say are not currently included in these negotiations. 

The charity argues that tobacco companies can only make financial payments to governments, injured smokers or other 'creditors' if they are allowed to continue selling cigarettes and allowed to use the revenue from these future sales to underwrite any damages they pay. They identify these continuing smokers as Future Tobacco Harm Stakeholders ('FTH Stakeholders').

The solution they propose is for some portion of the money paid by smokers be allocated to a Fund to "meaningfully address the future harm that will be suffered by the FTH Stakeholders, including through, among other things, the funding of 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."

As part of this request, HSF disagrees with proposals that the tobacco lawsuits be used to accelerate or direct the winding down of the tobacco industry in Canada - arguing instead that the CCAA process is designed to keep the companies in business and that future tobacco sales will benefit society by allowing the industry's debt to be paid. ("to find a path so that tobacco companies will continue oeprations in future and that this represents some social good in that their continuation will see more of the claims paid.")

HSF's request to present their motion was not presented at the last hearing CCAA hearing in September, but following a case conference in February has been scheduled for April 14. Only if HSF gets past this hurdle will it be able to present its core request at a later hearing. 

Will the charity be able to shoe-horn its way into the proceedings? Not if the tobacco companies and their monitors are successful with their procedural objections to the main motion being given court time.

More information

Documents related to these upcoming hearings will be posted on the monitor's web-sites.

• Deloitte for JTI-Macdonald
• EY for Rothmans, Benson and Hedges
• FTI for Imperial Tobacco 

(updated March 16, 2023)

Does the opioid settlement foreshadow the tobacco settlement?

Last month the B.C. Supreme Court gave its stamp of approval to a settlement reached earlier in 2022 among all Canadian provinces and Purdue Pharma to resolve the governments' claims over wrongful actions in the selling of opioids. Until the full text of that settlement is made public, this ruling provides the greatest detail on what the provinces were willing to accept to release Purdue Pharma from further responsibility for its marketing of Oxycontin.

Although provincial governments were collectively claiming CAD $85 billion (US$67 billion), they settled for $150 million. Two additional non-monetary elements were included in the settlement, according to the court ruling: "limited-scope documentary disclosure and access to interview a set number of Purdue Canada’s senior commercial employees."  Once remaining legal issues are resolved and the settlement is fully finalized, Purdue and those employees who acted wrongfully will walk free:  "In exchange, the Canadian Governments release all claims against Purdue Canada and certain related persons."

Governments were suing to recover the health care and public costs associated with the opioid use that resulted from Purdue's wrongful marketing. They were not the only ones seeking damage:  individuals who had become addicted were represented in class action claims filed across Canada. Purdue's offer was accepted by lawyers representing these injured people, and last fall an important court approval of that settlement was also given. 

To these injured individuals, Purdue agreed to pay a total of  "$20 million, inclusive of all interest, taxes and costs, to compensate the approved claimants, the claims of the [Provincial Health Insurers], class counsel legal fees and disbursements, and any honorariums to representative plaintiffs." Of that amount, $4.65 million has been approved as lawyers' fees. Important to note, that  no money has yet been paid to any individual.  

Purdue was only one of 3 dozen defendents in the provincial claims for opioids. The provincial actions against the other manufacturers and distributors continue, and at least one other defendant (Roxane) has settled. Some of the other defendant companies have also settled some class actions. 

Same same, but different

While the Opioid settlement resulted from a more recent claim and a faster resolution, there are a number of parallels between it and the current tobacco settlement:

• same issues: both involve the wrongful marketing of an addictive and harmful drug
• same structure: both involve multiple government claimants and multiple corporate defendants
• same legal authorities: both used near-identical legislation to pursue aggregated claims (for example B.C.'s 2020 Tobacco Damages and Health Care Costs Recovery Act and its 2018 Opioid Damages and Health Care Costs Recovery Act)
• similar mediation: both mediated negotiations were catalyzed by bankruptcy protection
• same sharp elbows: both involve competition for damages between individuals who were harmed by the companies' behaviour and the government which covered their health care costs.
• same team players: both the opioid and tobacco claims engaged the same private lawfirms and justice department individuals.
• same lack of transparency: both sets of claims involve important public policy issues resolved under litigation privilege instead of democratic transparency. 
• same narrowness of focus: both sought to resolve the wrongful behaviour through financial remedies, and neither process aims to establish changes to conduct to prevent a re-occurance of harm. 

Where the manufacture, marketing and supply of these two addictive and harmful substances differ is in scale. The Canadian Institute for Substance Use Research (CISUR) and the Canadian Centre on Substance Use and Addiction estimate that in 2017 tobacco use cost the health care system 13 times more than opioids ($6.1 billion vs. $439 million), and that the total economic burden of tobacco is twice that of opioids ($12.3 billion vs. $6 billion). 

Not only is the economic burden of opioids less, the share of the burden that is imposed on governments (and not individuals or the economy) is smaller.  Two thirds of the economic burden of opioid use is not directly related to government expenditures, but is measured as lost productivity resulting from premature death ($3.9 billion of the $5.95 billion total). 

Canadian Substance UseCosts and Harms, 2015-2017

Governments settle for fractions of pennies on the dollar - but get the lions' share

The provinces agreed to a settlement that allowed Purdue to pay less than 18 cents on each $100 of provincial claims against it ($150 million on a claim of $85 billion). 

The Purdue settlement pie was divided so that governments received 7.5 times as much as the families and individuals who were harmed.

If the same ratio were applied to the provincial claims of $500 billion against tobacco companies, less than $1 billion would be provided to governments and $117 million to class actions representing injured smokers. 

Failing to fix the policies that facilitated the harms

The opioid settlement has been criticized for the absence of accompanying policy change by federal or provincial governments. In an analysis of the settlement published in The Conversation, Daniel Eisenkraft Klein and Joel Lexchin identify the structures that will allow the recurrance of similar wrongdoing. "Unless something radically changes in how the pharmaceutical industry is regulated, there is little reason to assume a similar crisis won’t occur again."

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Links related to provincial claims against Purdue. 

December 2022 court approval of settlement with provincial government: British Columbia v Purdue Pharma Inc., 2022 BCSC 2288

Copies of the provincial statements of claim against Purdue Pharma, made available through U.S. Bankruptcy Court proceedings.

• British Columbia
• Alberta
• Saskatchewan
•  Manitoba
• Ontario
• Quebec
•  New Brunswick
• Prince Edward Island
• Newfoundland and Labrador