Thursday, 31 October 2024

“The precarious state of this restructuring”

It seemed a foregone conclusion that at today's hearing, Ontario Chief Justice Geoffrey Morawetz would agree to allow a vote on the proposed plan to resolve the lawsuits against Canada's insolvent tobacco companies. After all, December 12th had been set as a day for the vote some weeks ago and the vast majority of the vast number of parties involved wanted this to take plus.

Indeed, by early afternoon, the judge indicated he would be issuing: a) Meeting Orders; (b) claim procedures orders and (c) an extension of the litigation stay to January 31, 2025.

The vote will take place on December 12th. Approval requires the support of half of the creditors and two-thirds of the amount owed. These amounts have been calculated in a way that ensures that representatives of both individuals and provinces will have to support the plan for it to move forward for review by Justice Morawetz at the 'Sanction' hearing. 


Although it was seemingly a relatively simple set of questions (can the proposed plan go to a vote, and what rules will guide that process), it came after a long debate and supported by a ton of paperwork. (The documents filed in connection with this question are listed at the end of this post.) 

It took until the early afternoon before the clear majority got the green light they wanted. The delay came despite the clear enthusiasm of the mediator (Hon. Winkler expressed through a lawyer) for the plan he drafted. It came despite the approval voiced by the provincial governments and injured smokers to whom the companies are indebted. It came despite repeated reminders from the bench and the bar that today's issue was only the procedural issue of whether or not to move to this next step. It came despite assurances that the ingredients of the plan would be reviewed at a future "sanctions" hearing. 

The delay came because two of the companies are unhappy with the amount of money they will have to spend.

"Jointly and severally" hurts Philip Morris's subsidiary 

Rothmans, Benson and Hedges is unhappy because the plan proposes that compensation will be paid as a share of each company's profits. For the first 5 years, each company will pay 85%, dropping by 5% in each subsequent five year periods. A company that is not profitable will pay nothing. A company that is more profitable will pay more. All companies will pay until the total compensation is satisfied.

Rothmans does not sell as many cigarettes today as Imperial Tobacco, and it did not sell as many in the years when the wrongful actions that are the subject of the suit took place. (The proposed embeds an end date for wrong doing - "legal breach" - as March 1996). Moreover, Justice Riordan found that Imperial Tobacco behaved worst of the three companies -- and ordered it to pay two-thirds of the penalty. (Ruling, para 1013)

RBH would appear to want the "allocation issue" to be resolved in a way which reduces the likelihood of it paying more than the others. An allocation agreement among the companies remains one unresolved element of the proposed plan. From today's representation, RBH seems to feel it is on the back foot of the negotiations. The comments today from ITL's representative suggest there is not even agreement on the scope of the disagreement - their counsel suggested that only for $175 million of the $32.5 billion deal was that company prepared to make adjustments.

Japan Tobacco wants royalty payments to get priority 

The decision of Japan Tobacco to organize its ownership of Canadian subsidiaries in ways that avoided taxes and reduced its litigation exposure has been gone over a few times over the past 10 years. (It was first reported here in 2013).

Today two Japan Tobacco subsidiaries tried to convince Justice Morawetz that the failure of the proposed plan to give its inter-company payments the status of secured creditors was reason to not proceed with the vote. 

A particular bug-bear was the drafting of the plan by a third party. JTIM's Responding Factum speaks disparagingly of the process: "unprecedented" "beyond reasonable".  It suggests that assigning the task of drafting to court officials -- creating a "creditor drive-by restructuring" is improper and would not survive appeals.

Given the improbability of putting a spoke in the wheels at this point, the lengthy elaboration of the perceived injustice this will cause sounded like a tactic in a different strategy. With more negotiations to come, as their counsel put it, they hoped to "soften the views of those across the table from us who might think they can do this [impose a plan that the company does not agree with].

The judge gave them the cold eye and asked them to signal where they would take their concerns if they were not satisfied. "What is your endgame?" he asked them. "Everyone knows the decision tree that is going forward in the weeks ahead."

The question was left unanswered. Withdraw from Canada?  Sell out to GRE?  Exhaust appeals? It's not clear how these options would play out or affect the ability of Quebec claimants to finally receive compensation.

The Social Stakeholders

The hearing was book-ended with submissions from two of Canada's largest health charities.

The hearing opened with a request from the Heart and Stroke Foundation to have the hearing postponed by three weeks.  It takes a special kind of moxie to walk into a Zoom meeting with 50 lawyers bedecked in court dress and suggest that they take the rest of the day off, but James Bunting did it seemingly without embarrassment. (To date Heart and Stroke has not issued any comment on the proposed settlement plan). The request was turned down flat. 

At the end of the day, the Canadian Cancer Society proposed a series of amendments they would like to see to the plan. Their five suggestions were: (1) expanding the scope of the foundation to consider different forms of research related to tobacco use; (2) making public the documents exchanged under discovery; (3) including some (unspecified) promotional restrictions; (4) rewording the covenants so that the companies are no longer obliged to continue past practices; and (5) including measures to prevent smoking, given that future smokers will, through their purchases, paying compensation for claims.

Hanging by a thread?

There was much that was said - in words and in silences - that suggests that the participants in this process are far from certain of the outcome. Justice Morawetz acknowledged that the time would come when he would have to assess the fairness and reasonableness of the proposed plan to the parties (although he hinted that a priority was to protect creditors, not companies).

What happens if the wheels fall off this bus?  If, to use the parlance of today's hearings, the 'unsolved' issues do not become 'solved' by the Sanction hearing anticipated for January?

JTI's counsel laid out the three normal options for the provinces and other creditors at the December vote:

  • Vote in favour of a plan
  • Vote against and liquidate the company in bankruptcy
  • Convince a court to appoint a receiver so they can run it themselves
At at the end of a hearing where the plan was described as "precarious" and "unresolved" there was a clear impression that the conclusion of the process is far from certain. Back up plans have certainly been developed, but they are being held close to the chest.

But, as JTI's lawyer pointed out, if the wheels fall off this proposal, two other options remain for the provinces and the other creditors.

Related documents:

JTI Macdonald

RBH

Imperial

Posted by at

Wednesday, 30 October 2024

New documents provide additional detail on settlement

Tomorrow morning the dozens of parties involved in Canada's long-running tobacco industry insolvency saga will appear (virtually) before Chief Justice Morawetz. The hearing is scheduled for 9:00 a.m. and can be viewed in real time on Youtube.

The materials to be considered at the meeting have amassed over the past few months. Left over from the postponed hearing in September are motions for an extension of the litigation stay by each company and the reports of their monitors. More recent additions are the proposed plan of arrangement that has garnered significant attention and concern, a motion by JTI-Macdonald expressing its disagreement with the proposed plan, additional monitor's reports for each company - and more! 

These documents are available on the monitor's websites: EY for Rothmans, Benson and Hedges, FTI for Imperial Tobacco and Deloitte for JTI-Macdonald. 

A bumpy road ahead?

Today's addition to this pile is a Joint Factum of the Court-Appointed Mediator and Monitors. This document outlines the process by which the proposed plan will be subject to a vote on December 12th. It also anticipates concerns or objections about the proposed plan, and offers legal arguments to support the unusual way in which the plan emerged. The level of detail in this legal instruction from one former chief justice (Warren Winkler was Chief Justice of Ontario from 2007 to 2013) to his successor (Geoffrey Morawetz was appointed Chief Justice of Ontario in 2019) suggests that the former may feel that the deal he brokered is not a slam dunk.

Further context and explanation is provided in the monitor's reports filed this week for Imperial Tobacco,  JTIM  and RBH. 

For the first time in this process, these reports identify some sticking points or lack of agreement. They note that only 10 of the 13 provinces and territories support the plan, although the identify of those with reservations is not provided. ("Amongst the Provinces and Territories, ten of the thirteen jurisdictions, support the CCAA Plans.") 

The reports also note continuing disagreement among the companies regarding who pays how much. ("The issue of allocation of the Global Settlement Amount as between the Tobacco Companies in the three CCAA Proceedings remains unresolved.")

Not doomed to fail (or guaranteed to be found fair and reasonable).

Former Chief Justice Winkler's report to the court holds up the draft plan as a document suitable for the vote, but acknowledges that the vote is not the final stage."3. The CCAA Plans are plans of compromise or arrangement. They accordingly reflect difficult, yet necessary compromises by a broad range of diverse stakeholders with the goal of achieving a just and workable result in these staggeringly complex circumstances. Whether the CCAA Plans strike the right balance and are ultimately fair and reasonable, however, is a question for another date...  At this preliminary juncture, the question is simply whether the CCAA Plans are “doomed to fail”.


Posted by at

Monday, 28 October 2024

Private lawyers set to receive $1.74 billion from provinces for tobacco settlement

Among the many secrets which surround the proposed tobacco settlement is how much the legal teams representing the provincial governments will receive. 

Only two provinces have made public the terms of their contracts with the 3 teams of private law firms which have managed the suits. Using these disclosures as the basis of assumptions of the fee rate in other provinces, the total payment to these firms is likely to exceed $1.7 billion. 

The calculations behind this estimate are detailed below and on a downloadable fact sheet.


11 of Canada's 13 jurisdictions have hired lawyers on a contingency fee basis

Ontario and Quebec are the only two Canadian jurisdictions which have used in-house staff to manage their lawsuits against tobacco companies. 

Each of the other 11 jurisdictions is working on a contingency fee basis with private law firms. They have agreed to pay these firms a percentage of any payments that are provided to them as a result of their lawsuits. British Columbia originally engaged a local firm on a fee-for-service basis, but a decade later shifted legal teams. In 2009, after about a decade of effort, B.C.'s payments to outside counsel were reported as being $12 million. 

Three sets of law firms are primarily involved, with additional support during the insolvency process:

The contracts with private law firms have mostly been kept a secret. 

Only two provinces - New Brunswick and Newfoundland and Labrador - have provided information on the terms of their contracts with these private law firms.  

Details on the New Brunswick arrangement were made public after tobacco companies challenged the contingency fee arrangement in court. The ruling which upheld the arrangement provided information on the percentage that would be paid: 12% after a statement of claim was filed but before trial began; 18% after trial proceedings had begun but before they were concluded; 20% if the trial had been completed and 22% if an appeal stage was involved. 

Details on the Newfoundland contract were made public when the lawsuit was announced, and further details were released as part of a freedom of information (FOI) request. In the first case, the amount was cited as 30%, but was shown in the FOI request as being 25%. 

No other province has pro-actively disclosed the fee, and several have refused to do so when asked under FOI requests. FOI authorities in British Columbia, Alberta, and Saskatchewan have reviewed these refusals, but even when they have directed officials to make the information public, no release has been made.

Applying estimates of contingency fee rates

An estimate of the legal fees in provinces where the contingency agreement has not been made public is only possible if assumptions are made about the rate that will be applied. 

By applying the fee schedule agreed to in New Brunswick the following percentages are derived:
  • 18% in New Brunswick, British Columbia,  Saskatchewan, Manitoba, Nova Scotia, Prince Edward Island (where the statements of claim had been filed, but the trial had not been completed, putting the proceedings at stage 2)
  •  12% in Nunavut, Northwest Territories and Yukon (where a Statement of Claim was not filed and the lawsuits were at stage 1.)
For one of the two other jurisdictions (Newfoundland), the lowest reported percentage was 25%. There is no information on the Alberta fee schedule, other than it being reported as the "lowest" of the amounts bid.  For the purposes of this estimate, a 10% rate is assumed.

Applying these percentages to each applicable jurisdiction's share of the payments produces a total estimate of $1.74 billion for the 11 provinces and territories. The largest amount would be in British Columbia - $644 million.  

This money will not all be paid at once. The proposed settlement anticipates paying the provinces $6.282 billion upfront with $18.4 billion to be paid over the next decades. As a result, the contingency fees paid to external counsel are likely to be made in stages, with $442 million paid upfront, and $1.3 billion paid in annual installments. 


Posted by at

Friday, 25 October 2024

One wheel wants off the bus

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. 


Posted by at

Thursday, 24 October 2024

The proposed tobacco settlement mandates continued cigarette sales for 20+ years

There are many good reasons to doubt the sincerity of tobacco companies when they say they want to end the sale of combustible cigarettes.   There are no good reason for provincial governments to have included a requirement that they keep selling conventional cigarettes for decades to come.

This post reports on the "covenant" to maintain tobacco sales that is contained in the settlement made public last week. 

The covenants

Under each of the three individualized forms of the settlement, each company has undertaken to "not conduct their businesses and operations, divest assets, rearrange ownership, and/or alter their corporate structures, and/or operational practices, in any manner that circumvents or is adverse to the ability ...  to satisfy its obligations under the CCAA Plan..."


In short, once this settlement agreement is formally approved by the provinces and by the Ontario court overseeing the insolvency, the companies will be obliged to maintain their tobacco trade with the same enthusiasm and marketing tools that are currently in place. 

Two structural elements of the settlement have led to this condition: (1) the deferral of payments to the provinces over a period of decades and (2) the exclusion of "alternative products" from the terms of the settlement.

Deferred payments 

Most of the money paid to the provinces will come in installments that are spread out over many years. Although $6 billion will be paid from the $12.5 billion in savings that were safeguarded during the years of insolvency protection, the remaining $19 billion in provincial payments will be taken as a percentage of the companies future income on tobacco sales. 

For the first 5 years, the companies will provide 85% of their income, but after every 5 year period the proportion steps down by 5% (Year 6 to 10 at 80%, years 11 to 15 at 75%, etc.) 

Included in the settlement document is a chart ("Estimated Upfront Contribution Available") which forecasts the amount that will be paid in the near future. Between now and 2030, the companies forecast providing about $1 billion per year to the provinces. At that rate, their debt to the provinces will not be met until after 2045.

Because of their covenant, for the next 20-plus years the companies have a legal obligation to maintain current efforts to sell tobacco products.

Exclusion of "alternative products"

Payments to the provinces come from tobacco sales, but not from the sale of vaping or heated tobacco products. All "alternative products" are carved out of the CCAA Plan.

To make this exclusion more overt, the companies are required to set up separate companies to manage the sale of these alternative goods. This is largely already the case, in the sense that different corporate structures exist for newer products: for example, Nicoventures is a corporate subsidiary of  BAT. 

“Alternative Product” means (i) any device that produces emissions in the form of an aerosol and is intended to be brought to the mouth for inhalation of the aerosol without burning of (a) a substance; or (b) a mixture of substances; (ii) any substance or mixture of substances, whether or not it contains tobacco or nicotine, that is intended for use with or without those devices to produce emissions in the form of an aerosol without burning; (iii) any non-combustible tobacco (other than smokeless tobacco) or nicotine delivery product; or (iv) any component, part, or accessory of or used in connection with any such device or product referred to above."

The settlement thus provides the companies with an incentive to increase the sales of these newer nicotine products because they can keep all of the revenue. At the same time, they are under an obligation to maintain tobacco sales. The settlement thus puts pressure on the system to increase overall nicotine use. 

Links to each company's proposed agreement and the covenant to maintain tobacco sales. 

Imperial Tobacco:  (British American Tobacco)

ARTICLE 11. COVENANTS AND OTHER PAYMENT ASSURANCE
11.1 Covenants
...

(g) Imperial and its Material Subsidiaries shall conduct their businesses in good faith with a view to fulfilling their obligations pursuant to the Definitive Documents, and shall not conduct their businesses and operations, divest assets, rearrange ownership, and/or alter their corporate structures, and/or operational practices, in any manner that circumvents or is adverse to the ability of Imperial to satisfy its obligations under the CCAA Plan including, the ability of Imperial to pay the Upfront Contributions, Tax Refund Cash Payments and/or Annual Contributions within the Contribution Period; 

JTI-Macdonald  (Japan Tobacco)

ARTICLE 11. COVENANTS AND OTHER PAYMENT ASSURANCE
11.1 Covenants
...

(g) JTIM and its Material Subsidiaries shall conduct their businesses in good faith with a view to fulfilling their obligations pursuant to the Definitive Documents, and shall not conduct their businesses and operations, divest assets, rearrange ownership, and/or alter their corporate structures, and/or operational practices, in any manner that circumvents or is adverse to the ability of JTIM to satisfy its obligations under the CCAA Plan including, the ability of JTIM to pay the Upfront Contributions, Tax Refund Cash Payments and/or Annual Contributions within the Contribution Period; 

Rothmans, Benson & Hedges (Philip Morris)

ARTICLE 11. COVENANTS AND OTHER PAYMENT ASSURANCE
11.1 Covenants
...

(g) RBH and its Material Subsidiaries shall conduct their businesses in good faith with a view to fulfilling their obligations pursuant to the Definitive Documents, and shall not conduct their businesses and operations, divest assets, rearrange ownership, and/or alter their corporate structures, and/or operational practices, in any manner that circumvents or is adverse to the ability of RBH to satisfy its obligations under the CCAA Plan including, the ability of RBH to pay the Upfront Contributions, Tax Refund Cash Payments and/or Annual Contributions within the Contribution Period; 


Posted by at

Tuesday, 22 October 2024

A closer look at the claims and payments in the proposed settlement

 This post focuses on the amount of compensation that would flow to provincial governments, injured smokers and other parties under the proposed settlement between tobacco companies and those suing for damages.

The figures shown below (and in the downloadable fact sheet) are taken from the version of the settlement that is written with BAT-Imperial Tobacco Canada in mind. 

Two and a half cents on the dollar for provincial governments 

The overall claims of the provinces were not based on their initial court filings, but were established through a bespoke formula provided by a consultant (Dr. Glenn Harrison) and detailed in Schedule "G" to the settlement. The claims of the provinces totalled $944.5 billion, making up 98% of the total claims of $964.1 billion. 

A total of $32.5 billion is provided for in the settlement, representing 3.4% of the total identified claims. Each province will receive 2.6% of the amount of its claim, and the total to be provided to provinces is equal to 76% of the payments. 


Thirty to fifty cents on the dollar for eligible smokers.

Quebec class action victims were awarded $13.7 billion by Quebec courts and will receive $4.12 billion. Ignoring inflation, they will receive 30% of their court award. Their claim represents 1.42% of the total claims and 12.7% of the payments.

The Pan Canadian Claimants (smokers in other parts of Canada) will receive 50% of the calculated equivalent of the amount awarded to Quebec claimants, albeit with different eligibility criteria based on limitation periods. Their claims make up 0.52% of the total claims and 7.8% of the payments

Other payments

Tobacco farmers will receive 51.6% of their claim of $29 million dollars (about 3 hundredths of a percent of the total claims)

A foundation will be created, and $1 billion will be provided for its operations. This represents about 3% of the total compensation.





Posted by at

Monday, 21 October 2024

Health voices condemn the provincial tobacco settlements

Late in the day on Thursday, October 17th, a proposed settlement was made public. This settlement would resolve the lawsuits filed by provincial governments, the class action lawsuits filed on behalf of injured smokers and a few other small claims. 

This post reports on the response to the settlement by public health agencies and leaders. 

The terms of the settlement with the provincial government have been widely criticized for their failure to include measures to reduce smoking or to modify the tobacco trade. The portion of the settlement which resolves class action claims has received widespread support.

Representative extracts of media statements and press releases are shown below. 

----------------------------------

Action on Smoking & Health, Physicians for a Smoke-Free Canada, Quebec Coalition for Tobacco Control: Provincial governments have squandered a unique and historic opportunity to put an end to the tobacco industry
Press release, October 17, 2024.

Apart from the compensation to victims or their descendants in Québec and in the rest of Canada, which is the only positive component of this deal, there is little public health benefit to be found in this arrangement. The settlement provides no roadmap aimed at preventing these very same companies from causing more damage by recruiting new victims, including through new enticing nicotine gadgets.

Despite the tobacco industry having its back against the wall, the provinces choose to negotiate themselves a cash windfall without bothering to change the corporate behaviour at the core of the lawsuits. Provinces have deliberately agreed to allow Big Tobacco to maintain its business model extracting profits from addiction and harm in perpetuity. They have shamelessly turned a blind eye to the damage these very same companies will inflict on future generations.

Canadian Cancer Society criticizes proposed tobacco settlement as inadequate
Press release, October 18, 2024


"The approach in the proposed settlement falls massively short and fails to protect the future health of Canadians properly," says Rob Cunningham, lawyer for the Canadian Cancer Society. "How can such an approach possibly be justified when we continue to have millions of Canadians who smoke each year and while tobacco remains the leading cause of cancer death? This settlement fails to support public health efforts to reduce smoking."


The Canadian Lung Association responds to proposed settlement in tobacco lawsuits
Statement, October 18, 2024

We feel that the proposed settlement is not only monetarily insufficient but missing key measures that would prevent the tobacco industry from returning to business as usual.

We urge the government and all parties involved to reconsider this proposed settlement and seek a just outcome that truly addresses the devastating consequences of tobacco-related harm. Canadians have the right to expect a fair and equitable resolution that holds the tobacco industry accountable for its actions and provides adequate compensation for those affected while ensuring that the right supports are in place to protect generations to come.

Campaign for Justice on Tobacco Fraud: Tobacco Settlement Cave In
Press release, October 21, 2024

Tobacco lawyers would argue that the Companies Creditors Arrangement Act exists to ensure the long-term viability of companies that seek protection. We hold that governments ultimately hold all of the cards, legislation, and could have used their muscle in these talks if they had been committed to public health.

"This settlement is an embarrassment," said Mahood. "Other than providing payments to Quebec smokers harmed by the industry and due via a class action court award, the settlement has no redeeming value. It should be abandoned, not the kids who will be harmed by an industry restored to good health."

Michael Chaiton, Senior Scientist, CAMH
City News, October 18, 2024

“The lesson of these lawsuits is that cigarettes … should not be a profitable consumer product and that there are alternatives available, he said."

“Functionally, I think some of the settlement protects the companies to allow them to continue to sell those products in particular, rather than switching over.”

David Hammond, Professor, University of Waterloo
City News, October 18, 2024

"Their business practices essentially haven't changed and won't change," said Hammond.

"The industry still generates billions of profits from cigarettes, and so I think they will continue the practices that have been generating that revenue."

Rob Cunningham, Canadian Cancer Society
CBC News, October 18, 2024

Rob Cunningham, senior policy analyst for the Canadian Cancer Society, says the proposal does not go far enough. He's calling on the provinces to make changes before it's approved.

"This proposed settlement contains nothing to actually reduce smoking," Cunningham said Friday in an interview with CBC News Network.

Cynthia Callard, Physicians for a Smoke-Free Canada
National Post, October 18, 2024


Callard said the provinces could have taken a much different approach to this suit focused on winding down the industry.

“The government had the option to force the companies into bankruptcy and to find an orderly way to wind up down their business and to actually chase out smoking. Instead, they’ve given them carte blanche to operate,” she said.

Callard said she expects the proposed deal will go through. She said while the deal is a disappointment it is also an opportunity for governments to step up and do a better job regulating the industry, both cigarettes and vaping, because they have failed to do so in the past.

“Obviously, the industry did wrong, it hurt people, that’s what they’re settling about. But governments stood back in those years and let the company operate in that inadequately regulated way,” she said.


Posted by at

Thursday, 17 October 2024

Provinces, class actions and tobacco companies reach a deal.

This evening a proposed settlement to resolve the many Canadian tobacco lawsuits was made public. The 1437 page draft agreement can be downloaded here. 

The litigation efforts behind this effort have spanned a generation. The first provincial lawsuit was filed by British Columbia in November 1998 and resubmitted in January 2001). During this time, tobacco companies continued to sell cigarettes, governments continued to collect taxes, and smokers continued to die. 

Over the past 66 months, there has been complete secrecy by the provincial governments in their handling of negotiations with tobacco companies. With the proposed settlement now made public, there is an opportunity for legislators and the public to engage in an assessment of the proposal and to offer guidance to government with respect to the next steps in this process.

In evaluating the proposal, Canadians might consider the following questions:

  • Will this settlement change the behaviour of the tobacco companies? 
  • Does this settlement provide justice to smokers?
  • Are there important and relevant issues which are not resolved by this settlement?

Included in the plan

In brief, the plan proposes that the companies will pay a total of $32.5 billion, of which the amount that has been held in reserve during the insolvency process (about $12.5 billion) will be available after the agreement is approved by court. $20 billion will be provided to provincial governments in deferred payments.

* $24.8 billion will be paid to the provinces, including a deferred payment of about $18 billion. This will settle the claims of over $500 billion filed by the provinces since 2001.  Unlike the U.S. agreements, these payments will be made as a percentage of revenue from tobacco sales, starting with a remittance of 85% of net after tax income from tobacco sales. (The companies will keep all of their revenue from vaping or other products). 

* $6.75 billion will be paid to some smokers who have suffered from lung cancer, throat cancer or emphysema. Of this, $4.25 billion will be paid to smokers in Quebec whose claim was upheld by the Quebec courts following a class action suit. $2.5 billion will be paid to injured smokers in other parts of Canada, even though there were no lawsuits resolved for these cases.  Up to $100,000 will be paid to each Quebec victim, and up to $60,000 to each victim in other parts of Canada. Money for these payments will be made available soon after the agreement is approved by court.

* $1 billion will be used to establish a foundation focused on activities to support victims who do not direct compensation. $131 million from the Quebec Class Action will be directed to this fund. These payments will not be deferred.

* Lesser amounts to additional claimants (tobacco farmers, the "Knight" class action", etc). 

Not included in the plan

This agreement contains no admission of liability on the part of the companies. Nor does it include any concessions or undertakings by the industry with respect to the way they market tobacco, nicotine or other products. 

The next steps

Because this settlement is being negotiated through Canada's insolvency laws, the settlement is not final until the provincial government, class action and other "creditors" of the three companies vote to approve it. That vote is scheduled for December 12, 2024.  Court hearings to formally approve the agreement would be held at a later date.

A claims procedure has been established for injured Quebec smokers, who can submit their claim through the following portal: www.recourstabac.com

Financial Context:


Over the period of these lawsuits:







Posted by at

Wednesday, 2 October 2024

Is December 12th an actual deadline??

 As anticipated, Justice Morawetz agreed with the proposal that the current stay on tobacco litigation be extended by an additional month before he heard a request from Canada's three large tobacco companies for an even longer delay. 

His endorsement of the idea to push the hearing from October 1st to October 31st was released last night and made public this morning on the monitor's websites. 

This time, his agreement comes with a kicker: he expects there to be a votable plan by year's end. "The court has every expectation that matters will progress such that meetings of creditors can take place on or before December 12, 2024."



As always on this file, stay tuned!





Posted by at
Subscribe to: Posts (Atom)