A sympathetic-sounding but firm "no" to the tobacco companies' Quebec victims.

Yesterday the almost-routine process of extending the litigation stay which has prevented Quebec smokers from receiving their court-ordered compensation was interrupted by a request by their lawyers to prepone the next occasion for extension by 10 weeks.

During the hearing, in both tone and words, Justice Thomas McEwan expressed some empathy for the frustration felt by those individuals who have suffered with cancer and lung disease and have been waiting since 2015 to receive the compensation ordered by that province's court. 

He said he would think overnight before making his decision on their request for extending the stay to January 15th instead of March 30. True to his word, about 24 hours later his decision was communicated on the web-site of one of the Monitors. 

His answer was NO.  "I have, somewhat reluctantly, come to the conclusion that the six month stay period proposed by the [tobacco company] Applicants is preferrable to the three month period proposed by QCAP [the Quebec class action]."

He explained his reflected a concern that anything shorter would be a distraction from the mediation discussions. He repeated the call he made yesterday for "all parties to the mediation to remain completely focused on resolution" and to provide "their full cooperation over the next six months".

Barring a breakthrough towards a settlement, it is now likely that discussions on the future of Canada's tobacco business will remain completely behind closed doors for another 6 months. Justice McEwan's ruling today included a reference to the confidential advice he considers when making his ruilings. It would appear that the Agenda for the meerting prepared by the Monitor's was annotated with a list of positions by stakeholders who chose to remain quiet during the public part of yesterday's hearing. ("The applicant's position is supported by the Monitors and a number of stakeholders noted in the Agenda.")

Quebec victims request a shorter extension to the litigation stay

This morning's hearing before Ontario Justice Thomas McEwan took 40 minutes -- somewhat longer than the previous five occasions in which he extended the litigation stay which protects Canadian tobacco companies from their creditors. 

The public sessions held in February 2020, September 2020, March 2021, September 2021 and March 2022 were characterized by brevity and the expressed or tacit consent of everyone involved to keep the court sessions as short as possible. With support from all of those whose claims for damages from tobacco companies triggered the use of Canada's Companies' Creditors Arrangement Act (CCAA), the companies have been protected by the courts while continuing their "business as usual" for three and a half years.

Discussed: A proposal to shorten the next extension.

Today's session was to consider the companies' request for a further six month extension - an issue of some  urgency given that the current stay expires on Friday. As before, all of the parties participating were in agreement that the negotiations negotiations mediated by the Hon. Justice Winkler should continue. This time, however, the lawyers representing injured Quebec smokers sought to compress the timeframe, and to reduce the extension to mid-January instead of the end of March 2023.

Their reasons were outlined in a motion submitted to the court last week and presented today by Bruce Johnston. This is the first time that Mr. Johnston has appeared before Justice McEwan, but he is no Johnny-come-lately to the issue. Almost a quarter century has elapsed since he and his legal partner Philippe Trudel launched a class action suit on behalf of Quebec smokers addicted to nicotine. He has likely been involved in tobacco litigation longer than any of the other 140 lawyers involved in these CCAA proceedings.

This is not the first time that the Quebec class action plaintiffs (QCAP) have tried to hasten the proceedings. In October 2019, they urged Justice McEwan to put pressure on the negotiations by shortening the litigation stay. Prolonged discussions would have the effect of denying victory to the Quebec smokers whose claims had been upheld by the Quebec Court of Appeal earlier in the year. Justice McEwan was completely unsympathetic to their request at that time: in rejecting their request, the judge criticized the Quebec lawyers' attitude towards the process. 

Today, Mr. Johnston prefaced his comments by acknowledging those criticisms and admitting to his own change in perspective since the process began. "When we appeared before you the first time three and a half years ago we were coming out of 21 years of hard fought litigation.... we felt that in some ways this was an attempt to achieve through the CCAA a result that could not be achieved in the court rooms against us."

"We were told that we needed to give peace a chance. I must admit we weren't hearing much John Lennon at the time - we were more on the Rage Against the Machine vibe. It took us a while to adjust and it wasn't the easiest... We recognized that to give peace a chance we had to engage in the process and we had to give enough time to the process for it to work."

He praised Mr. Justice Winkler for his "expert and tireless guidance" in the mediation process, but hinted that not all of the parties shared a sense of urgency: "[Justice Winkler's] capacity is dependent on all parties and claimants accepting the consequences of a global settlement." 

He underlined how his clients were losing faith in the process, and how the delays were harming those whose court-awarded damages were continually delayed. "After each renewal, we communicate to approximately 27,000 people and we explain to them that we are engaged in the process and that we believe that the process is in their interest. We are unable to explain to them in any way that is satisfactory why the delay is necessary. What we get in their comments in response is distressing ... They feel that the justice system is not working. They feel that no one cares about them and that nothing is being done for them."

"It is obvious to us that the delays are very serious prejudice for people who are beneficiaries of a judgement and who expect some compensation. What we are asking very simply is that this prejudice be considered when setting the timeline for the future of this file. ... It would help the process if the court indicated to all parties and to the victims that 6 month extensions will not be automatic and that we have to - at this stage of three and a half years - put some pressure on the parties to arrive at a global settlement."

Only one hand was raised in support of this position. On behalf of the Canadian Cancer Society (which has the right to participate in the hearings, but not the mediation talks), Rob Cunningham quickly stated support for a three-month extension. 

Lawyers for the three tobacco companies spoke in indirect opposition to the suggestion. Imperial Tobacco urged the judge to consider the view of the monitors as independent bodies "immersed in the mediation process". The other firms suggested that the 6 month extension was following a time-table set by Justice Winkler - "everyone has moved in accordance with the pace that the mediator has set."

The monitors gave an opinion with wiggle-room: "the mediation timeline and the extension are two different issues - one is not tied to the other."

The firm representing 6 provinces (British Columbia,     Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island) and the territories was equivocal. They "did not oppose" the 6 month extension, but "encourage all parties to negotiate with the goal of a resolution in the near term."  Lawyers for the other provinces and for other class actions were silent. 

The lawyer representing Justice Winkler said the mediator was "not taking a position" on the question of the length of the extension, but relayed his assurances that "good progress is being made on mediation," with "parties on the right track". 

Justice McEwan has been quick to decide in previous decisions, but on this occasion said he needed time before making a decision. "I will think overnight and will provide my decision tomorrow."

He did, however, provide some comfort to members of the Quebec class action who might have been watching the proceedings. "QCAP has raised legitimate concerns with respect to the time this is taking ...  this matter needs to have a sense of  urgency."

For the first time, he (gently) cracked the whip. "I am not casting any aspersions in any direction, but I want to take this opportunity to reinforce that we need to put our full attention on this matter and continue to drive it forward... we need to redouble our efforts to bring this to a sensible conclusion."

Left undiscussed: Heart and Stroke Foundation's request for a seat at the table

As reported earlier, the Heart and Stroke Foundation has submitted a request for inclusion in the settlement discussions for those seeking the dedication of a portion of any settlement proceeds to an independently administered health promotion fund. 

Among those who thought this motion might be discussed today was Justice McEwan, who was set to hear arguments before being informed by the monitors that this was no longer on the schedule for today. 

Other motions in this process have been sidelined. Over a year ago, lawyers for Ontario farmers asked for a distinct treatment as creditor, but have yet to have their day on this motion in this court. 

Meanwhile, the proposal by Heart and Stroke has raised concerns in other quarters. The Quebec Coalition for Tobacco Control today issued a statement calling for governments to give priority to a settlement which includes measures to directly reduce tobacco. "A deal that would force big tobacco companies to meet tobacco reduction targets, rather than that a financial settlement for provinces and an anti-tobacco fund, would be an ethical approach that would save lives."

 

Another health charity attempts to penetrate the settlement process

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)