Voting Day: The Ayes Have it.

Yesterday three separate private meetings were held among the creditors of Canada's insolvent tobacco companies (BAT-Imperial Tobacco, PMI-Rothmans, Benson and Hedges and JTI-Macdonald). The sole purpose of these meetings was to decide whether the plan of arrangement (settlement) that had been drafted by the mediators in the long-going negotiations was acceptable to the provincial governments and private plaintiffs.

Comments during the October 31 hearing made it no surprise that the plan was approved. Late in the afternoon, the results were confirmed by the Quebec class action and on Saturday the monitors for Rothmans, Benson & Hedges reported that the result for that no one voted against the deal.

The agreement to this settlement by all of the Canadian provinces was quickly panned by health agencies. The groups are disappointed that provincial governments failed to insist on the inclusion of measures aimed at reducing tobacco use or the resulting diseases.

In a joint press release, Action on Smoking & Health, the Quebec Coalition for Tobacco Control, Physicians for a Smoke-Free Canada said that provincial governments had thrown the public interest under the bus, and squandered a unique opportunity to change Big Tobacco’s profitable addiction and disease business model. They called for the provinces to move quickly to counterbalance the flaws in this agreement by introducing new and bold laws to accelerate declines in smoking and prevent addiction to new industry products. 

The Heart and Stroke Foundation raised concerns about the research focus of the cy-pres foundation, which will receive $1 billion from the settlement. Heart and Stroke wants to see the mandate expanded to include prevention and public awareness activities aimed at helping people quit smoking.

The Canadian Cancer Society called for the amendment to be amended before the court reviews it in late January. They want to see 'smoking-reduction measures and the release of confidential industry documents, similar to what was achieved in the United States decades ago.'

injunctive relief -

 On Monday a small wave of documents were uploaded on the website of one of the auditing firms which are acting as monitors for the tobacco industry's Canadian insolvency proceedings. 

Two lawfirms were seeking an urgent decision by Justice Morawetz to close down an attempt by a third firm to recruit clients among the injured smokers who will be eligible for compensation, should the settlement plan with tobacco companies come into effect.

One of the firms seeking injunctive relief was the Quebec firm, Trudel, Johnston, Lespérance, which has for decades managed class action suit of Quebec smokers with lung cancer, throat cancer and serious emphyzema who were diagnosed before March 12, 2012. The other is the Halifax firm, Wagners, which was appointed by the court to represent similarly-injured smokers who were not part of the Quebec Class action. (These injured smokers are across Canada and were diagnosed with the same diseases in the four years before March 9, 2019.

In recent weeks, the Actis Law Group encouraged potential claimants to register with them, suggesting that they would take a contingency fee cut of any payments. This raised the ire of the firms mandated to represent those claimants, especially because the administration of the compensation plan has been designed to avoid the need for lawyers (or lawyers' fees!).

Justice Morawetz granted the request for injunctive relief today. He ordered Actis to remove those sections of their website, to stop soliciting any clients and to provide the names of those who had signed up with them. This injunction will be in effect until the settlement is approved (or not) in a sanction order. 

One week to the first survival test for Canada's proposed tobacco settlement.

Next Thursday, December 12th, is the day the proposed settlement agreement between the three large tobacco companies and those suing them will be put to its first survival test.

On that day, a secret vote will be held among the companies' creditors to decide whether or not the proposal drafted by the Hon. Warren Winkler is an acceptable resolution to their claims. 

In insolvency proceedings, it is usually the companies which draft the proposal to their creditors. In this case, the task was assigned to Mr. Winkler after the negotiations he had mediated between the companies and their creditors had dragged on for more than four years with no obvious result. 

Just over a year ago he and the participating accounting firms (monitors) were assigned the task of putting pen to paper.  Their suggested text was made public on October 17 this year, and on Halloween it was decided that it should be put to a vote. 

The settlement proposal will only survive the vote if it receives a double majority of votes in favour. It must be approved by more than 50% of the eligible voters AND ALSO be supported by those holding at least two-thirds of the companies' debts. 

As shown in the settlement plan (below), the effect of this requirement is that some creditors have more voting power than others.  

To succeed, those representing some injured Canadian smokers must vote in favour, because they hold 64% of the eligible votes (186,003 of  289,906). A second class of injured smokers in Quebec hold just over one-third of the votes (186,003). Tobacco producers have just over 1% of the votes, but the provinces and other parties have only one vote each.

No other party has enough power to block the vote on their own. The two claimants with the largest claims (Quebec and Ontario) each hold about one-fifth of the value of the proposed compensation: it would take both of these provinces rejecting the settlement before it would collapse. Most of the provinces, including Ontario, have indicated that they will vote in favour.

The results of the vote will be provided to the court on Friday the 13th of December. In the likely case that the vote is in favour, details of the court review of the settlement will be made clear the following week, with a flurry of other preparations for the hearing now scheduled to take place at the end of January. 

It would be a whole different ball game if the vote went against:  the parties would be back to where they have been since March 2019.

Survival test #2 

The next survival test for the settlement agreement will take place at the Sanction hearing, which is scheduled for January 29 to 31. During this 3 day hearing, Justice Morawetz  will consider whether the agreement/plan of arrangement is fair and reasonable, how much the class action lawyers should be paid and other issues. 

If he decides against the deal, then the parties are back to where they have been since March 2019. 

Survival tests #3 and ... ? 

A thumbs up or thumbs down from Justice Morawetz may not be the end of the road because his decisions are subject to appeal. The companies and other parties could try to contest any rulings and/or take other actions to block its implementation. 

Already we know that two of the companies object to some portions of the plan. The decision to assign the drafting of the plan of arrangement to the mediator is  legal novelty - and legal novelties involving rich and unhappy litigants often end up before the Supreme Court.

Other actions may also be available to the companies, should they wish to pull the rug out from under the plan if it makes it past the first hurdles:

* The proposal is drafted in ways which require Japan Tobacco to stop using fancy corporate footwork to make it look like it loses money in Canada. With a small market share and the prospect of only operating at 15% of net revenues, its headquarters may prefer to pull up stakes and abandon the Canadian market. 

* The plan contains nothing to resolve the tension between Philip Morris and British American Tobacco on how to apportion payments between them. Subsequent lawsuits between them on this dispute could cause further delays.