Shortly after 9:40 this morning, copies of the Plan Implementation Certificates were circulated among the service list of those following the CCAA oversight of the settlement between the major tobacco companies operating in Canada and the provincial governments and class actions suing them.
The near-identical documents confirm that: "The Plan Implementation Date has occurred and the CCAA Plan and the provisions of the Sanction Order which come into effect at the Effective Time are effective."
At some point during yesterday's hearing, Chief Justice Geoffrey Morawetz observed that more than 6000 pages of documentation had been submitted to support the 13 or more formal agreements he was being asked to make just two days before the tobacco settlement takes effect.
In contrast to the volume of material, the time given to the presentation, discussion and approval of all these requests did not exceed 40 minutes. The lawyers presenting the requests were mostly concise to the point of laconic. And through their silence when given a chance to comment, all of the formerly warring parties seemed to be in agreement with the last-minute touch-ups to the agreements they approved last December.
Given the pace of developments over the past quarter century, yesterday's developments resembled the digestive tract of the proverbial goose. The decisions involved are linked at the end of this post.
On second thought...
Before court was adjourned, Chief Justice Morawetz let it be known that a subsequent private discussion (case conference) would take place shortly afterwards. The topic under discussion was his ruling earlier that week that there would be a hold-back on the fees paid to lawyers representing the Quebec class action until all claims had been settled.
Yesterday afternoon, he backtracked somewhat on that requirement and issued an amended version of his ruling on fees. Instead of a vaguely defined requirement for a reserve fund, the new text (paras 77 to 79) establishes that "a reserve be held back from the QCAP Counsel fee and retained in the respective QCAP Trust Accounts in the total amount of $50,000,000, the purpose of which is to alleviate, to the extent possible, any reduction in compensation to claimants because of the actual take up rate ..."
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Settlement-related decisions and orders released after August 26 - including one by the US Bankruptcy Court on Tuesday - are linked below.
Plan Amendment Orders:
U.S. Chapter 5
Insurance Settlements
Collateral Agent Order
Plan Administration Reserve Trust Order
Claims Administrator Order
Other issues
Class Counsel Fee Orders
Two months ago, Chief Justice Geoffrey Morawetz had indicated that he would issue his ruling on class counsel fees "long before the implementation date." As it turns out, his ruling issued today arrives only 4 days in advance of that long-anticipated moment.
The lawyers whose fees were the subject of this ruling will consider that it was worth the wait. Chief Justice Morawetz endorsed their request for the full contracted amount.
Two of these fee decisions will draw scant notice - the judge himself dismisses them as "de minimus". The legal team representing the B.C. "Knight" light cigarette action will receive $5 million, which is one-third of the settlement amount for the class. They will also be reimbursed for $1 million in disbursements and an additional award of $10,000 will be provided to the representative class member. The remainder of the $15 million will be allocated to the Cy Pres foundation. Lawyers representing tobacco producers are able to claim 25% of the $15 million recovered for farmers in the settlement (some of which they have already been provided). The remainder will be disbursed among the affected farmers.
The third fee endorsement is the record-breaking decision to uphold the 22% fee contracted by the lawyers who have represented two classes of injured Quebec smokers since 1998. This legal team will receive $901 million in compensation for their decades of work (totalling more than 200,000 hours of work since 1998 and covering future work). Because they have previously been provided with $5 million which was used to reimburse the Fond d'Aide, the legal fees will total almost $906.2 million.
This is the largest fee award in Canada by a considerable margin - described in this ruling as "unheard of in Canadian legal history."
The judge cautions that he does not intend his approval of this fee to become precedent for future legal fees. He nonetheless provides his reasoning at length in a text peppered with quotes, footnotes from other rulings, references to advice from a Quebec jurist, and the interventions of other parties. Fundamentally, he agreed with the position of Quebec lawfirms who said in February and in March that in the absence of a principled reason to alter the fee, their contract should be honoured.
Justice Morawetz summarizes his decision to - "reluctantly" - approve the amount requested.
(63) I accept the following:
(a) QCAP Counsel assumed great risk in accepting the retainer from the class
(b) The 22% fee arrangement is at the low end of the scale and is fair and reasonable.
(c) The ACQPs succeeded at trial and the Quebec Court of Appeal
(d) Although the CCAA Plans reflected a mediated settlement, the CCAA Plans were only put forth to a creditor vote after five and a half years of mediation. This reflects hard fought negotiations.
(d) An exceptional outcome was obtained for the Class. The monetary award for each member of the class if fixed. Even if the fee request of QCAP Counsel is reduced, the reduction will not flow to the benefit of the Class.
(f) The PCCs, as well as the provinces and territories obtained residual benefits as a result of the work of QCAP Counsel.
(g) With the exception of Quebec, the provinces and territories took no position on the appropriateness of fees. This is significant as any reduction in the fees being awarded to the QCAPs would flow to the provinces and territories.
Safeguarding class members' compensation
Justice Morawetz' approval of the $900+ million fee is contingent on the $4 billion awarded to the Quebec class of smokers being enough to provide all eligible members with the compensation provided for them in the settlement and also cover the legal fees.
If it transpires that the class members are being short changed, then the fees to lawyers will be reduced. The endorsement provides for a reserve fund "to ensure that each approved claimant receives the full amount of their claim under the CCAA plans" and directs the monitors to work out the details of how this will happen.
A firm hint from the bench
Chief Justice Morawetz closes his decision by calling on the Quebec legal teams to be generous with their earnings. "This created the opportunity for QCAP Counsel to obtain compensation beyond their wildest expectations. In receiving this reward, they should recognize that they have a moral obligation to society ..." He calls on them to honour this obligation through charitable giving - "In this way they can be publicly recognized for their incredible work in this matter."
On Wednesday August 27th Justice Morawetz will hear requests from a number of parties involved in the ink-almost-dry settlement among Canadian provincial governments, injured smokers and farmers and tobacco companies.
This hearing will come two days before the expected implementation date, and one day after the US Bankruptcy Court is expected to support Imperial Tobacco's settlement position in the United States.
This post identifies the issues that will be raised on the 27th with links to the paperwork involved. It will be updated as additional material comes on line.
1) "Amended and Restated Plans"
The monitors are seeking another set of amendments to the plans of each company, and have submitted "Fourth Amended and Restated" versions for approval. In broadly similar motions for each company, they provide consistent rationale that the amendments are "necessary", "consistent" with the original plan that was voted on in December, "not materially adverse" to the financial interests of the creditors and adversely affecting any other party and are not opposed by other parties.
The large volume of changes is immediately apparent from the blackline version which is included in the motion record for each company (Imperial Tobacco, Rothmans, Benson & Hedges (Part 1 and Part 2) and JTI-Macdonald).
The rationale for the changes is explained earlier in the document in a sets of tables that summarize the proposed amendments. Some of the changes embed issues raised earlier this summer and/or proposed for discussion this week.
The Monitors (who also act as Plan Administrators) have submitted a Factum outlining their support for these changes.
2) Collateral Agent Order
Plan Administrators are seeking a court order to appoint Computershare Trust Company as the collateral agent for the parties. Equivalent motions were filed for Imperial Tobacco, Rothmans, Benson & Hedges and JTI-Macdonald
3) Claims Administrator Orders
Epic Class Actions Services is seeking an Order with respect to each company to approve their plan for notifying potential claimants and for their administrative costs and for related issues. They estimate it will cost them $92 million for their role in administering the claims.
* Motion with draft order, Global Notice Plan and related documents including claim forms, etc.
3) Settlement of insurance claims
The companies appear to have finalized their arrangements with those insurance companies which provided them coverage at the time of the behaviour which has resulted in the settlement. Imperial Tobacco will receive about $3 million from 5 insurance companies (Aviva, NHRAE, Lloyds, Westport and Zurich). The motion to approve the allocation of this to the settlement funds also identifies other insurance companies from whom there appears to be no pay-out.
In a brief (15 minute) hearing this morning, Chief Justice Geoffrey Morawetz granted two sets of requests for court orders.
The first, made by the lawyers representing the Quebec class action on behalf of themselves and the three other claimant classes (Pan Canadian Claimants, Knight action and Tobacco Producers) will authorize these lawyers to sign releases and other documents required by the settlement plans.
The second, made by the Monitors-cum-Plan Administrators, will authorize the assignment of managing the settlement funds by BMO.
The two orders which will be endorsed later today were described as "critical elements" of the settlement plan which is expected to take effect on August 29th. There were signals that there will be other issues that need court approval before that date.
The orders which were approved today can be found in the material submitted to the court:
In addition to the clarification about the authority of class action counsel, during this Friday's hearing Chief Justice Morawetz will also be asked to approve the banking arrangements between the Plan Administrators and the Bank of Montreal (BMO).
Details of the parallel requests from each company were posted today on the websites of the monitors (who are also the Plan Administrators). These Motions can be accessed here:
A new notice of motion by the lawyers representing members of the Quebec class action was filed on Friday and made available today. At a hearing now scheduled for Friday, August 15th at 9:00 a.m., they will ask for clearer signing authority for lawyers representing all of the non-government claimants.
This pre-hearing paperwork includes an explanation that the Sanction Order inadvertently failed to specifically authorize these lawyers to release the claims in return for which settlement funds will be issued and to conduct other required paperwork. "Out of an abundance of caution, Quebec Class Counsel are seeking this Court’s authorization to execute and deliver any and all required plan implementation documentation as they consider advisable and propose that this Court’s authorization be extended to the other Claimant Class Counsel as well."
The order from Justice Morawetz they are seeking is to the effect that
"(i) Quebec Class Counsel is hereby authorized to execute and deliver on behalf of the Quebec Class Action Plaintiffs, (ii) PCC Representative Counsel is hereby authorized to execute and deliver on behalf of the PanCanadian Claimants, (iii) Knight Class Counsel is hereby authorized to execute and deliver on behalf of the Knight Class Action Plaintiffs, and (iv) Counsel for the Tobacco Producers is hereby authorized to execute and deliver on behalf of the Tobacco Producers and Ontario Flue-Cured Tobacco Growers’ Marketing Board, any and all documents as they consider advisable to give effect to the implementation of the CCAA Plans including, as applicable and without limitation, the following documents: a. Claimant Contractual Releases; b. Plan Implementation Certificates; c. Collateral Agency Agreements; and d. Flow of Funds Agreement."
Yesterday the Monitors for JTI-Macdonald uploaded the Chapter 15 Order of Justice Mastando of the United States Bankruptcy Court Southern District of New York, giving effect in the United States to the CCAA settlement with respect to that company.
As reported earlier this week, the same judge is currently scheduled to hear an equivalent request from Imperial Tobacco Canada on August 26th.
Documents related to the JTI-Macdonald decision are available on the Deloitte Insolvency website, at the following links:
Following a similar request by JTI earlier this summer, last week Imperial Tobacco submitted its request to a New York Court for "Recognition and Enforcement of the Orders of the Canadian Court".
The hearing is scheduled for "August 26, 2025 at 11:00 a.m., prevailing Eastern Time" before Honorable John P. Mastando III of the United States Bankruptcy Court for the Southern District of New York.
This is only 3 days before the day on which the implementation was earlier suggested to take place - and which is still suggested on the website for claims related to the Quebec class of victims.
