Viewed through a public policy lens, the draft agreement to settle government lawsuits against tobacco companies has had a rough week. (By contrast, the provisions to finally compensate injured smokers have been well received).
The initial reaction from health groups was harsh. There was no defence or explanation from provincial governments. Stock market analysts gave it a thumbs up. Even a former tobacco industry lawyer mused that "the executives at the three Big Tobacco companies in Canada were collectively patting themselves on the back last week."
Corporate concerns are now being added to the mix. A week after the public release, Japan Tobacco's Canadian affiliate (JTIM) has said it objects to what is going down. "JTIM does not agree to the M&M Plan in its current form and cannot support it..."
It would appear that the company objects to provincial governments and injured smokers receiving money from the Canadian operations that the head office think are owed to its corporate relatives. " ... the M&M [Settlement] Plan purports to confiscate approximately $1.6 billion of cash collateral that is subject to JTI-TM’s security and attempts to subordinate JTI-TM’s debt and security to a priority that is below the position proposed for the unsecured creditors being compromised under the M&M Plan."
Their finger is pointed at the mediator, who is accused of going beyond his mandate "to mediate" the development of the proposal and of drafting a proposal that is not agreeable to the company. "This attempts to force the M&M Plan on unwilling participants ... The M&M Plan in its current form, however, is not a consensual CCAA plan."
Throughout this long legal saga, Japan Tobacco has been exposed as using inter-corporate transactions to become judgement proof and/or to minimize taxes. Concerns about this practice surfaced at an early stage in the CCAA proceedings, when JTI was ordered to stop shipping money back to its overseas owners in the form of royalty payments. JTIM now claims that it is unfairly treated by such a restriction.
JTIM's motion to the court throws up numerous other objections to the settlement - including some potentially time-consuming issues like determining extra-territorial decision-making.
All of this will be grist for the mill of the hearing before Justice Morawetz on Hallowe'en. It seems a long shot that JTIM's objection to the proposal would prevent the vote among creditors now scheduled for December 12th. Less clear is whether the demand for a "consensual" agreement might surface in an appeal to a positive vote.
Post script
André Lespérance is a lawyer representing injured Quebec smokers. He provided a response to the claims made by JTI in an affidavit submitted to the court on October 28.
