Friday, 28 March 2025

Looking for movement ...

No sign of an appeal

It is now 22 days since Justice Morawetz approved the measures that will end the decades-long lawsuits against Canada's tobacco companies. That means that 1 day has passed since the deadline for any parties to file their objections. 

Objections to any court decisions based on the Companies Creditors' Arrangement Act must be filed within 21 days (section 14 of the CCAA). Ontario's Court of Appeal has its own methods for managing such appeals that don't necessarily involve public hearings and which make it more difficult for outsiders to know what is going on:

"An appeal under the Companies’ Creditors and Arrangement Act is processed differently from other appeals. Under this act leave to appeal can be obtained by a single judge or a panel. A notice of motion for leave to appeal under this act must be served within 21 days from the date of the order being appealed.
*A panel motion follows Rule 61.03 (1) and is heard in writing without the attendance of parties or lawyer. A decision will be made by a panel of Judges.
*A single judge motion follows Rule 37 and a notice of motion (Form 37A) is served upon the respondent(s), and then filed in the office of the Court of Appeal with proof of service at least 7 business days before the hearing date of the motion. A date is chosen by the moving party/ies."

If any notice of motions to appeal the March 6 Sanction Decisions has been submitted, none have yet been identified on the Monitor's sites (the site for Imperial Tobacco has not been functional this week). 

No roadmap has been made public

Following the hearing on March 7th, a lawyers-and-judges-only huddle was held in the library of the court house to discuss what Chief Justice Morawetz described as "logistical issues". It seems likely that these related to the steps that must be completed before he will establish the date on which the arrangement will take effect. The plans (including in section 4.2) identify a number of such restructuring steps. 

It is not clear how long it will take for these to take place and no road-map or schedule has yet been posted. Even the lawyers seem uncertain. In an interview with the media in march, a lawyer working for several provincial governments gave a wide range for when money will change hands: "somewhere between 90 and 120 days".

Nor is there any indication of when other issues that need court approval - such as the establishment of the research foundation - will be addressed .

A quickie ruling made in semi-private

Last Friday, a motion was filed by lawyers representing the "Pan Canadian Claimants", with a request for the court to block other lawyers from offering their services to assist potential claimants. A similar request had made (and granted) in December, but the injunction which resulted on that occasion expired in March. The request was supported by the lawyers representing the Quebec class action and also by the Ontario government. 

A hearing on this issue was held by video conference on Wednesday, but no public access was indicated on the monitors' websites or on the court rolls. Today Chief Justice Morawetz issued the requested injunction. 

If other issues were discussed at this time, we are not aware of any public record of them. 



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Friday, 7 March 2025

"Absurdly High" or "Just Reward"? - the decision on lawyers' fees

The finalizing hearings to resolve the lawsuits against tobacco companies ended shortly after noon today with a discussion of how much the lawyers representing the Quebec class actions should be paid.*

In theory, the fees of all three class actions were under discussion. In reality, the only question before the court was whether approval should be given to the $900+ million fee requested by the lawyers for the Quebec class action.

Their request had been filed more than a month ago, and the arguments in favour of it presented to Chief Justice Morawetz soon after. The review of their request was interrupted for a few weeks by Chief Justice Morawetz' decision to ask a former Quebec judge to act as an amicus curiae. The Hon. André Prevost was mandated to provide "a purely legal and academic description of the applicable test under Quebec law" as well as some advice on how to apply this to the current circumstances.

André Prévost filed his report in late February. This morning he presented his findings, beginning with the caution that the decision in this case -- whatever it was - would set a landmark for class action fees in other mega fund cases. 

He presented the rules that govern lawyers' fees in Quebec (Code of Professional Conduct, s. 102), court rulings on assessing class action fees (e.g. A.B. c. Clercs de Saint-Viateur du Canada, para 64-65), and recent reflections of academics on the subject of fee levels. His review of other cases across Canada, presented as schedules to his report, showed that the fee request under review was consistent with past practice. He cautioned that fees which encouraged large lawsuits are needed in a class action business environment where lawyers feel they are "better to take on smaller cases where the judge is unlikely to be shocked" by the fee. 

In short, if Justice Morawetz had been hoping for some comfort or support in turning down the fee request, he would have had to look hard in the report of the amicus curiae.

Yet it seemed that a reason to cut was what Justice Morawetz was looking for. Not because he thought the work had not met the criteria for reward  -- he described the endeavour as "spectacular" - but because $900 million might be "absurdly high". 

"One of the things that I have to consider is 'what is the objective of class proceeding  legislation compensation for lawyers – is it to create a fund for generations to come?'"

A backdrop to the decision imposed on the court is that the ruling will set a precedent for future mega-tort cases -- even though the likelihood of a parallel case is considered remote. Mr. Prévost acknowledged the challenge in his closing comments to the judge: "I am happy to be in my shoes and not in yours. In this case if you compare to all other cases, this is extreme. Counsel has 100% on all factors [to justify honouring their contracted fee]. This was a huge case – we will probably not have many such cases in Canada."

Quebec counsel: a fair and principled fee request

Counsel to the Quebec class action used the opportunity to respond to the Prévost report to repeat and emphasize some arguments to support their request. He batted back the idea that the fee would not be fair to the class members (who have voiced no objection, despite being canvassed). He rejected the idea that the fee would make lawyers look unreasonably profit-seeking or otherwise diminish the reputation of the legal profession, and said that their case had the opposite effect.  

At the end of these remarks, Chief Justice Morawetz asked what would happen if the fee were reduced. The answer (provided also by Ontario counsel later in the day) was that the provinces would be the recipient of any money that was not needed to pay legal fees in the (likely) case that there were enough funds to cover all of the claims made by class members. 

Cancer Society: A unique achievement

The last intervention in the day was by counsel for the Canadian Cancer Society. He identified that the Quebec case was "beyond the grid" of the table of other "mega-fund" cases that had been discussed earlier in the morning. "There has been nothing like it. There may never again be anything like it. .. It has enhanced the reputation of the profession. They have achieved what no one else has ever achieved going back to the 1950s - and against impossible odds. Their unique legal story will lats in Quebec, Canada and globally."

No public arguments in favour of a reduced fee

Although counsel for the Quebec government had originally raised concerns about the size of the fee, they withdrew any objection after the appointment of Mr. Prevost. If Justice Morawetz received any other recommendations or reasons to over-rule the contracted fee in this class action, they were not directly expressed before him in these proceedings. 

The mediator in this case -- former Chief Justice Warren Winkler - has played a major role over the past 6 years and is authorized to speak privately to the judge. His views on the fees are not on the public record. 

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 *Disclosure: The staff of Physicians for a Smoke-Free Canada were among those who worked on a contingency basis for the counsel to the Quebec class action.

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Thursday, 6 March 2025

Sanction: a seal of approval brings Canada's tobacco lawsuits closer to the end

 Late this afternoon - presumably after the markets had closed - Chief Justice Geoffrey Morawetz released his decision in favour of the Plan of Arrangement that will resolve a quarter century of lawsuits against tobacco companies.

His ruling can be read here.   In about 50 pages, he translates the 1,200+ text of the proposed plan into readable English before giving a thumbs up to the compromise that was unanimously agreed to in December by those suing tobacco companies and which was the subject of hearings earlier this winter.  


Fair and Reasonable and Not Contrary to the Public Interest

The final objections of two companies having been removed earlier in the week, there were few roadblocks to his endorsing the agreement exactly as it was drafted by the team lead by former Chief Justice Warren Winkler. 

After Monday, the only nay-sayers in the process were the Heart and Stroke Foundation and the Canadian Cancer Society, which had urged him to consider that some health-oriented measures were required for the plan to be fair and reasonable.

Justice Morawetz acknowledged these requests in his ruling, but firmly turned them down. It was not  his job, he said, to interfere in this way. 

(165). The decision for the court to make is a binary one. It is to either sanction the CCAA Plans or to reject the CCAA Plans. It is not the role or the function of the court to redraft or amend the CCAA Plans. The views expressed by HSF and CCS are important to consider. However, in my view, these views have been taken into account by the drafters of the CCAA Plans. 

In assessing the fairness, reasonableness and public interest of the plan, Chief Justice Morawetz stressed that individuals and provinces will receive compensation, a research institute will be established -- and that tobacco companies will be able "to continue as going concerns, which will benefit their employees, suppliers and other stakeholders."  

Not decided

A number of details still remain to be decided -- including important ones like the day on which this agreement will take force and when money will change hands. The "Plan Implementation Date" has yet to be decided - but the litigation stay will be in force until then.

A separate ruling is to be expected for the questions of counsel fees, discussion of which will be the subject of a hearing tomorrow (March 7th).

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Misleading or misreading? 

To buttress his rejection of the concern expressed by HSF for injured smokers whose potential claims were being released, Justice Morawetz used the (not public) transcript to cite the views expressed by Ontario's lawyer on January 31st. 

In response to the theoretical case raised by the Heart and Stroke Foundation, she had asserted that no Canadian who started smoking after 1996 and who was injured by tobacco products would have a viable claim for damages. The reason she gave was her reading of the Quebec Court in the Blais-Létourneau case. 

 "The (Quebec) Court found that the (public-knowledge) date to be March 1st of 1996, so the breach period during which the tobacco companies committed their wrongful conduct which grounds the cause of action, begins in 1950 and ends, very important, ends at the public knowledge date."

This does not jive with a normal reading of Justice Riordan's ruling. (Riordan, 2015, paras 139-142, 643-646, 818-836).

Justice Riordan considered the behaviour of the companies from 1950 to November 1998 (the class period) and did not hear evidence or decide upon later behaviour. During the class period he reviewed, he never identified a time when the companies were not at fault. "Thus, the Members' knowledge does not arrest the Companies' faults under these other provisions. Since the Companies took no steps to correct their faulty conduct, their faults continued throughout the Class Period." Because fault is not the only condition of civil liability, he also considered the "contributory fault" of those smokers who started smoking after the harms were known - the "knowledge dates".

Justice Riordan identified separate knowledge dates for knowledge of harm (1976) and knowledge of addiction (1996). The liability of the companies towards their injured customers continued after these dates, he ruled, except for those under one section of the Quebec law (Civil Code article 1468). Their breach of three other sections of the law continued to establish liability (Civil Code Articles 1457, Quebec Charter, article 49, Consumer Protection act, articles 219, 228).

He ruled that although injured smokers who had started smoking after the "knowledge date" had to carry some responsibility (20%), the companies were 80% to blame, and they remained 100% responsible for punitive damages. This 20% deduction for those who started smoking after 1976 remains in the compensation which will be awarded through the CCAA plan. 


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Monday, 3 March 2025

Court agrees to minor amendments to proposed settlement

During the course of a 30 minute hearing today, Chief Justice Morawetz listened to and agreed to the request for his approval of a small amendment to the plan which would resolve the lawsuits facing Canada's tobacco companies.

The amendment in question (pasted below) would end the inter-company wrangling over dividing the check. With it, there is now full agreement among all the parties involved - tobacco companies and their creditors. It is hard at this point to see any reason why the plan will not soon be put into force. 

Rothmans, Benson and Hedges had earlier maintained it was getting a raw deal because it put more money into the initial kitty and because the Quebec court had ruled that Imperial Tobacco's behaviour was worse and therefore it was responsible for a greater portion of the damages. In the end, Imperial Tobacco agreed that it would relinquish any claim it might have on the $750 million from that kitty that was being returned to the companies in the form of "working capital."  With that concession, RBH withdrew all of its objections to the plan.

Japan Tobacco's affiliates (both the cigarette manufacturing branch and the trademark-owning branch) also withdrew their objections today, although there was nothing presented that would explain their change of heart. They may simply have known when to fold them: their objection was based on a desire to maintain dubious inter-corporate financial arrangements that had already been the subject of court criticism.

The longest part of today's session was the courtroom whipping of Heart and Stroke for its temerity in filing an objection to the amendment. Ontario's lawyer played the heavy - going on at some length about the limited role that social stakeholders should  have in such a process, and accusing the agency of  "abuse of process" and "egregious conduct that needs to be reined in by the court."

Some ganging-up is to be expected. Everyone seems anxious to get this to the finish line, and Heart and Stroke was alone in voicing any concerns about putting this last brick in the wall.  (The Canadian Cancer Society is also on record that  "plans should not be sanctioned in their current form", but did not intervene on this morning's request for amendment.)

Chief Justice Morawetz directed a courtroom-style tongue-lashing at Heart and Stroke's lawyer, asking him to identify how they would be affected by the request (he couldn't) and then pushing him to explain why the foundation should not be assigned costs for the time of the (many dozen!) lawyers whose time was impacted by the objection.

The hearing ended with the judge agreeing to the request for amendment and clarifying that the litigation stay which has suspended all lawsuits against these companies for almost 6 years would be sustained until he issued his decision on the settlement.  One (last?) hearing is scheduled for this Friday, March 7th, when the court will review the amicus curiae brief regarding legal fees.

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The amendment agreed to today:
 

Documents filed in connection with this request:

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Friday, 28 February 2025

Corporate objections to settlement plan are suddenly withdrawn

On February 27th a flurry of documents were submitted to the court managing the resolution of tobacco lawsuits in Canada. From these it appears that the companies have reached an agreement amongst themselves about how much each will contribute to the payments to provincial governments and their other victims.

This would appear to have removed the concerns previously expressed by Japan Tobacco and Rothmans, Benson and Hedges, who now state they support the plan. 

"The Monitor understands that the Tobacco Companies have now reached an agreement in principle to resolve all allocation issues under the CCAA Plans between them." (RBH Monitor)

"JTIM supports the sanctioning of the Third A&R CCAA Plan, and otherwise withdraws its previous objections, subject to the Court agreeing to the amendments and accepting the Third A&R CCAA Plan." (Aziz Affidavit)

This agreement will require court approval for the (minor) amendments to the proposed plans (pictured below). To authorize this, a hearing has been scheduled for next Monday (March 3rd) at 10:00 a.m. and will be viewable on YouTube. 
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Saturday, 15 February 2025

Sanction Hearing - Day 5 scheduled for March 7th.

 The following notice was posted on the JTI Monitor website on February 14th:


"Pursuant to the Order of the Superior Court of Justice dated January 29, 2025, the Court appointed the Honourable André Prévost as Amicus Curiae to assist the Court with the motions to approve the fees of the Quebec Class Action Counsel, British Columbia Class Action Counsel and Counsel for the Tobacco Producers.  Please be advised that with respect to the class counsel fee approval motions, amicus expects to file his factum around February 26, 2025 and the hearing of the motions will resume on March 7, 2025 at 10 am. The YouTube link for the livestream of the March 7, 2025 hearing will be posted once available."  

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Tuesday, 11 February 2025

Sanction Hearing: Day 4 - Fee approvals

After a 10 day break, the creditors, companies and other stakeholders involved in the CCAA-managed resolution of the lawsuits against Canadian tobacco companies met again today before Chief Justice Morawetz.

There was only one item on the agenda - the fees that would be permitted for the legal terms representing the three class action lawsuits.* Nonetheless, discussion of the item was not finished because the advice of a former Quebec judge (André Prévost) had only recently been commissioned and was not yet available.

All three class actions which are included in the settlement were managed on a contingency-fee basis. The lawyers entered into contracts under which they would receive no money unless and until their case was successful at trial or through settlement. All three cases involved a contract stipulating the percentage of any award or settlement that would be paid as a fee. 

The lawsuits filed by 11 provinces and territories also used contingency-fee arrangements with lawyers (only Ontario and Quebec did not), but their fees did not require approval by judge supervising the CCAA process. These fee contracts have not been made public. Lawyers assigned by the court for the Pan-Canadian settlement were paid on a fee-for-service basis.

In advance of today's hearing, the law firms involved in these class actions formally filed requests for payment and provided background information on their cases to support the amount they were seeking:

  • In their motion, counsel for Tobacco Producers sought the 25% fee defined in its retainer plus tax and $1.5 million in unpaid disbursements. The settlement provides for a payment of $15 to producers.
  • In their motion, counsel for the Knight Class Action sought the 33% fee defined in its retainer, plus tax and about $1 million in disbursements, as well as asking for permission to provide an honorarium to the representative class counsel. The settlement provides for a payment of $15 to the Knight Class action.
  • In their motion, counsel for the Quebec Class Action sought the 22% of their retainer, plus taxes. This sum is intended to cover their disbursements to date, as well as the costs of administering the payments to Quebec claimants and other future costs. The settlement provides for a payment of $4.12 billion to injured Quebec smokers.

Who decides how much is too much?

It appears that, if approved, the retainer fee of the Quebec class action ($901 million) would set another high-water mark in a case that is already full of superlatives. By any standard, that is a fair chunk of change. 

Anticipating, perhaps, the eyebrows that would be raised, the law firms attached to their request affidavits which provided information about their efforts on the case over the past 26 years as well as the effort and costs involved (203,849 hours of professional time!  $46.6 million in disbursements!)  
These readable 100 pages are the most complete back-story to the case that has yet been made public. 
The lawyers also provided information on the generally positive response they had received from class members when their views were solicited about fees. 

From the paper work filed in advance of today's hearing, it would seem that  not everyone was agreeable to the lawyers receiving an amount creeping up to the $1 billion mark. The Quebec government filed a formal response to the proposal,  saying that it wanted to make sure that such fees would be "fair" to the class members. "It’s for this Court to determine at what point, even in 26 year long high-risk case, could counsel fees become unreasonable. Particularly, when those counsel fees operate to reduce class compensation," the government's representative offered before suggesting that in "mega-fund" cases, the retainer contract should not be presumed valid. They also quibbled about the level of detail in the statement of costs.

The tone of the Quebec government brief suggested that there might be a bit of a dust-up when today's hearing on the issue was  held. This did not turn out to be the case.

Presenting the Quebec counsel request

Standing to present the QCAP case for $900 million was a new face in Toronto, but a familiar name to followers of the Montreal trials. André Lespérance centred his presentation on the principles that had been applied to approving large legal fees in other class actions. Those who did not watch the hearing on YouTube can benefit from the compendium filed yesterday that provides these details.

He began by pointing out that retainer agreements were contracts and that class actions and contingency fees were tools designed to serve policy objectives. Core criteria to assess the reasonableness of a fee, he said, were the risk involved in pursuing the case, the work required and the outcome received. Other considerations included the image and the integrity of the legal profession and - in his view a final but not primary element - the relationship of the fees to the usual cost of the work involved (the multiplier). 

For more than an hour, Mr. Lésprance explained the circumstances behind other courts decisions to award fees in the cases highlighted in the compendium. These cases were summarized in a table of the  highest fees allowed in Canadian cases along with the relationship of the fee to the retainer agreement, the amount of the award and the 'multiplier'. He showed how the amount the Quebec team were requesting - with its multiplier of 4 - was consistent with these decisions. 

He spoke briefly about the enormous and unprecedented risk he and his colleagues had assumed when taking tobacco companies to court, the enormity and unprecedented effort required on their part to go through the trial and many appeals, the enormity and unprecedented nature of their court victory, and the benefit their case provided in facilitating a resolution to the provincial cases and in providing compensation to smokers outside of Quebec.

Only if there were a principled reason should the courts over-rule the contract with the clients, he concluded. Once again, Chief Justice Morawetz was being told that he should not interfere with the arrangements reached among other parties.

Voicing support 

Standing in support of this fee request were counsel for the Canadian Cancer Society and for the Pan Canadian Claimants - neither of whom worked in this case on a contingency basis. 

Rob Cunningham of CCS outlined the "exceptional high degree of difficulty" in tobacco cases and the scorched earth litigation strategy they followed as exemplified by a well-known RJ Reynolds claim that  “the way we won these cases was not by spending all of our money, but by making that other son of a bitch spend all of his.”

The Quebec lawyers should be understood to have spent the last 27 years "going up against three super goliaths". "One cannot just say they did an incredible job – it is orders of magnitude greater than that ... For the litigation threat to work there must be the ability to file lawsuits for future lawsuits.  In the past there was asbestos. Now there is tobacco. In the future there will be others. We need an incentive for counsel to take such cases. Their work has been consistent with the highest standards of the legal profession."

Raymond Wagner, who was assigned by this court to represent smokers outside of the Quebec class membership in 2019, similarly offered high praise for the work of his Quebec colleagues. As a class action lawyer who otherwise worked on contingency fees, he spoke of the personal risks that were part of the work, and of the benefits to others that the Quebec class action has resulted in .  "I have had some pretty catastrophic defeats and I know the sacrifices you bring in when taking these cases forwards.... despair for the time away form families and their sacrifices. On behalf of PCCs, we thank QCAP - these 200,000 people will get compensation they would not otherwise have got ... I cheer the work they have done and thank them. Job well done."

Two counsel representing provincial governments spoke to clarify material they had filed with court, and to assert that they were not taking a position in favour of or opposed to the fee request. On behalf of the Consortium of 6 provinces and 3 territories, André Michael said that the information they filed last Friday regarding their own contingency fee had been presented only to correct the impressions that had otherwise been left from press reports.Counsel for the Quebec government, Guneev Bhinder, walked back the position expressed in Quebec's earlier responding factum and clarified that Quebec did not suggest that 3% to 5% was a sufficient reward in this case. "After Quebec filed a factum it became aware of the appointment of an amicus curiae on this topic. Given that development, Quebec is content to not make further submissions on the fee approval. "

Presenting the request for the Knight class action

In asking Justice Morawetz to support their request for 33% of the $15 million provided in this lights class action, Doug Lennox gave a quick overview of the length of their involvement (20 years this week since certification), the contribution of this case to other suits (such as fighting off third-party claims against the federal government), and the challenges of a tobacco suit that existed in Canada's common law provinces. (Under Quebec's civil code system it is easier for a class action to be certified and some public support is given for costs). He also described some of the differences in B.C. that affected the business decision to sue and which resulted in contingency fees typically being higher in that province.

Standing in support of this request, Rob Cunningham of the Canadian Cancer Society reminded Justice Morawetz of the public health importance of ending the sale of light and mild cigarettes - and gave a shout out for the work of Mr. Lennox when he acted pro bono on the Battaglia small claims case - one of only three Canadian lawsuits to make it to trial.

Presenting the request for the Producers Class Action

William Sasso also began his comments by referring to the length of time -- more than 15 years -- that tobacco farmers had been seeking redress. He explained the structure of their request in light of the fact they received partial fee payments during the CCAA process.

Although he aligned his farmer clients as "part of the tobacco industry", he nonetheless spent much of his time praising the work of the Quebec lawyers who had fought against that industry.  He praised their work during the CCAA negotiations which had contributed to the negotiations moving away from a "pari passu" approach - where every creditor is given an equal proportion of what they are owed - to a system where individual victims received a greater proportion than did governments.

"If words that are laudatory are to be spoken here, they should also be spoken about the role that they played in negotiating a substantial recovery for their particular clients, for their class in a manner that in relation to the group of creditors bears no relationship to the small percentage they have in connection of the overall debt."

He linked that approach to his own ability to deliver meaningful compensation to his clients. "Our recovery on a $29 million contractual obligation is approximately 50% of the principal amount – a number that in these circumstances was brought about because all of the other creditors took a look at the claim and thought these suppliers were entitled to a larger than pro rata share. To that extent I think we have represented our clients well." 

Shortly before 1:00, the hearing was adjourned. Chief Justice Morawetz indicated there would be an opportunity to respond to the opinion from André Prévost when it became available, and reminded that the question of fees was contingent on the decision on the Sanction Motion. Still under reserve!

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*Disclosure: The staff of Physicians for a Smoke-Free Canada were among those who worked on a contingency basis for the counsel to the Quebec class action.
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Friday, 31 January 2025

Sanction Hearing: Day 3

The third day of the hearings before Justice Geoffrey Morawetz to finalize (or not) a plan to settle the lawsuits against Canada's tobacco companies was focused on the concerns of the "social stakeholders" -- the Canadian Cancer Society and the Heart and Stroke Foundation -- and on the rebuttals of parties to statements earlier in the week.

Heart and Stroke (H&S)

The criticisms of this leading Canadian health charity were presented at the end of Day 2 (but not reported here), and were concluded this morning. 

Although this agency has lobbied governments about the management of their lawsuits, it is a new-ish presence in the CCAA process and its outsider status was made clear from the get-go. (It had an unsuccessful run at introducing its concerns in early 2023) The agency's counsel had barely opened his mouth yesterday afternoon before Justice Morawetz asked pointedly "Why are you here?".

"Because tobacco is a harmful product. The sale has devastating economic impacts and takes an unfathomable toll on individuals and families. This plan will facilitate the continued sale of a dangerous and addictive product that will kill Canadians. It is within that perspective to consider whether the plan is fair and reasonable."

H&S's counsel argued that there was a class of stakeholders who had been omitted from consideration in the settlement. These are those Canadians who have not yet experienced harm, but whose continued smoking puts them at risk of doing so. He characterized these individuals as the "Future Tobacco Harm Stakeholders" - Canadians whose continued purchases and resulting health risk will be used to finance the payments the companies will make to the provinces over the next 20 odd years but whose interests have not been represented during the negotiation. 

The remedy which H&S proposes for this situation is to expand the scope of the Cy-Pres foundation to include prevention and cessation activities. It says that these activities are specifically excluded from the work that the $1 billion foundation will support.

Justice Morawetz' discomfort with this exogenous suggestion was its disconnect with his limited role to either approve or dismiss the settlement. "The problem I have is that while I hear everything you say, I have to deal with what is before me." He repeatedly pressed for a clear answer to the question "Is it your objective to see this plan fall apart?"

This question hung in the air as the agency's two counsels outlined their previous efforts to communicate these concerns to unresponsive monitors and governments, and identified other instances where resolution of tobacco and opioid lawsuits had produced resources to help reduce use.

The question was left hanging overnight. In the morning, H&S returned to offer a somewhat more nuanced objective. They suggested the Sanction decision was not a binary one, but that Justice Morawetz could approve the settlement subject and direct a subsequent vote on an expanded mandate for the Cy Pres foundation. 

The Factum for the Heart and Stroke Foundation can be found here. 

Canadian Cancer Society 

The submission of this other large health charity was made in two parts. The first was a defence of the importance of the views of social stakeholders in situations with large public interest, and a promotion of the view that accepting propositions from social stakeholders was an appropriate evolution of CCAA application.

It would appear that there are slim pickings when it comes to finding precedents for the type of role that CCS wanted to see. Nonetheless, Justice Morawetz was presented with some rulings where the broader public interest will be a "factor against which the decision of whether to allow a particular action will be raised."

There was little sympathy offered to this argument, and it felt like Justice Morawetz was handing the nails for the lawyer to hammer into his own coffin when he asked. "Can you point me to any authority where such an action has been recognized?" he asked.  "I am not aware of any such case."

The second part of CCS's presentation was a critique of certain provisions of the agreement, and proposals for 'administrative' textual changes that would address these concerns. One of these was the covenants in Article 11 which commit the companies to maintaining their historic business practices. Given the dubious and condemned past practices of this industry, "the effect of this wording is to offer partial protection from liability for future conduct." 

Modifying the text to clarifying that there was no future protection should be viewed as an administrative change to the plan, CCS counsel argued, pointing to the public statements made in October that the intention was  to release the companies from past liability. 

Other amendments to the plan were also proposed.  CCS asked that all of the documents exchanged under discovery be provided to the document library at the University of California at San Francisco. It proposed that ongoing promotional expenditures be disallowed, which in addition to public health benefits would also help accelerate payments to the provinces as it would increase profitability. 

The Factum for the Canadian Cancer Society can be found here. 

The Replies

Each of the parties had the opportunity to reply to the comments made by counsel to other participants. This resulted in some rebuttal to the shade that had been cast by one party on the others over the previous days. Not extortion!  Not a do-over!  

There were signs that there had been some movement in the positions of the parties on some areas of disagreement, such as how to allocate the $750 million assigned from the accumulated cash to the companies as working capital. 

Counsel for Ontario spent her time trying to cut the ground out from beneath the arguments of the Heart and Stroke Foundation and Canadian Cancer Society.  At length she described the legal reasons why only a small number of Canadians would technically qualify as victims with compensable diseases and therefore subject of either direct financial compensation or included in the the scope of the Cy Pres foundation. 

Anyone who started to smoke after 1996 has no cause of action, she said, basing this conclusion on the knowledge date for addiction set by Justice Riordan in his ruling.  The concerns of the CCS about the companies being able to act in wrongful ways in the future were misplaced: "It misunderstands  the purpose and intent of Article 11 covenant.. .. They are simply not correct."

Implicit in her description, but unstated, was that there are neither direct nor indirect benefits for the vast majority of smokers. If she addressed the comments of the Heart and Stroke Foundation that these citizens would be financing the settlement while imperiling their lives, these ears did not catch it. 

The counsel for the Pan Canadian Claimants gave another set of reasons for the judge to disregard the proposals of the health charities. He asserted the foundation's job was not to replace programs that are already underway, and these charities would have an opportunity to seek funds from the foundation in the future. 

No party spoke in favour of the proposals of the social stakeholders. 

By the end of the day the submissions on the plan had been completed. Most of the sticking points at the beginning of the session remained at the end: there was no consensus among the participants about whether a plan could be imposed on a debtor without their consent, or whether two companies' concerns about splitting the bill could trigger adjustments to the draft.  

The extension

With only 8 hours until the current litigation stay expired, Justice Morawetz said he was extending all stays until March 3rd.


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Thursday, 30 January 2025

Sanction Hearing: Day 2

On his second day of presiding over the sanction hearing for the plans to settle the debts and end the insolvency of Canada's tobacco companies, Ontario Chief Justice Geoffrey Morawetz heard from lawyers representing one tobacco company, 100,000 Quebec smokers, a greater number of smokers living in other provinces, seven provincial governments and one large national health charity. 

Yesterday two tobacco companies spoke in opposition to the plan developed by officials appointed to the task by Justice Morawetz some 16 months ago. Today, none of the conventional stakeholders voiced any opposition, offering instead a large menu of reasons for the judge to brush aside their objections.

This post will provide a brief summary of the day's hearing. The views of the Heart and Stroke Foundation - which opposed the plan - were presented at at the end of the day and will be reported after they have finished their remarks tomorrow.

Imperial Tobacco

The day began with a forceful presentation by counsel for Imperial Tobacco - the same lawyer who had unsuccessfully led that company's defence during the Quebec class action. 

"Imperial fully supports this plan," she opened. "This is the only plan before the court after 6 years of tough negotiation. The question for this court is a binary one – yes or no - sanction it in full or reject it."

In a departure from the dynamic that had played out before Justice Riordan in Quebec, she dropped any inter-corporate solidarity and took several swipes at the two competing tobacco companies who had complained about the impact of the payment schedules on their business.

RBH was attempting a "do-over" of the negotiations, she said. Their request for "true-up" payments from ITL would leave her client with no earnings for years. This went against the agreement made at the outset of the negotiations, which was to ensure that the companies could continue to operate and that their payments were founded on the capacity to pay. "The objective of all of the proposals and the plan was to ensure that the applicants were sufficiently profitable going into the future to be able to fund an industry deal."

She provided the judge with a detailed rebuttal to the position of RBH, reading large tracts from the affidavits filed with their reply record.  Despite the confidentiality order placed on the negotiations,  she contributed to the droplets of information that have spilled out during this hearing, saying that RBH had not raised this issue in earlier. It had never raised the issue of apportionment in earlier proceedings, she said: "None of these issues were ever on the table for negotiation."

Agreeing to RBH's request would not only harm her client, she said, but would also harm the provinces because of the impact it would have on payments. Yesterday both RBH and JTI had threatened tactics that might undermine the settlement, and today ITL responded in kind. If the ownership company, BAT, found itself without any revenue from Imperial, they would stop providing support to the company and would let it and the plan fail. "BAT cannot and will not shoulder the burden and receive no return on its investment."

She cautioned Justice Morawetz that he did not have the authority to make fundamental changes to a plan that had been approved by the creditors.

Documents filed by Imperial Tobacco in advance of this hearing include the Reply Factum, Reply Record and Aide-Memoire

The Quebec Class Action (QCAP)

The lawyer representing the Quebec class action opened his comments by praising the mediator and monitors for the plan that was under discussion. "We owe a great debt of gratitude to them for achieving what the parties could  not do on their own, and doing what the court asked them to do. Not only is this plan the best alternative, it is the only alternative. There is no other viable plan to consider and if it were not approved no better plan could or would emerge."

He conjectured that all of the companies would come around to the view that this deal was in their best interests. "There is no mediation 2.0.  There is no plan B.  I am convinced that the companies objecting before you will see the light and give effect to its terms."

He also shed some light on what had happened behind the negotiating curtain, saying that the companies had presented their views in lock-step during the past 5+ years. All of their offers (term sheets) were presented collectively, and all of these contemplated the basic financing structure that is found in the plan that was made public in October.

He provided Justice Morawetz with some back-story to JTI-Macdonald's practice of owing money to its subsidiary, citing the harsh view of this series of transactions expressed by Justice Riordan. He pointed to the decision of Justice Riordan to increase the punitive damages assigned to JTIM as a result. 

He praised the mediator for creating a structure that balanced the interests and influence of provinces and victims, and for the resulting "victim-centered plan". The Cy-Pres research foundation and the easy-to-use distribution and claims process were similarly held out for admiration. 

"What we have here is something that has never been done elsewhere. The only other comparator is the U.S. Master Settlement Agreement - but in that case not one penny was paid to a victim. Even today in the Purdue bankruptcy a tiny fraction of the settlement goes to to victims of opioids. We are most proud that this plan prioritizes payment to victims." 

"We view the plan as the culmination of a valiant and improbable victory against the companies. This is something that has never happened any where else in the world." 

Documents filed by the QCAP in advance of this meeting include Reply Factum and Affidavit. 

The Pan Canadian Claimants

Although there were no active class actions in other parts of the country, the CCAA process established a notional class and assigned a law firm to represent Canadian smokers in the settlement discussions. The reason for this, the lawyer explained today, was to allow the companies to obtain a release from other claims -- even though he felt such claims would never have succeeded in provinces outside of Quebec.  

Most of his comments to the judge focused on the merits of the plan, the money that would be given to an estimated 186,000 Canadians and the indirect benefits smokers would get from the research funded by the $1 billion Cy-Pres Foundation. 

And as for the criticisms filed by the Canadian Cancer Society and Heart and Stroke Foundation that this foundation would be handcuffed by its terms of reference that and unable to offer the benefits that were needed? "They are talking to the wrong people." He advised them to look to the provinces, who will be receiving the residual form any unallocated PCC payments and to ask them to fund these activities. "You simply have to wait two and a half years."

He urged a pragmatic approach to resolving these lawsuits. "We should do the do-able, and not the undoable. There is no alternative. The plan provides direct and indirect benefits to victims and provides benefits to society. We can't allow perfection to be the enemy of the good."

Documents filed by the PCC claimants in advance of the meeting include: Factum 

The Province of Ontario

Other than the judge and court officials, Ontario's representative at this hearing is the only public servant to speak. 

After offering the "strong and unequivocal support" of Ontario for the plan and praising the work of the mediator, she focused on offering Justice Morawetz reasons to reject any suggestions to tinker with it. The plan must be taken as a whole, she said. "It is not up to RBH, JTI or the charities to pick which terms they like or don't like and try to change them."

She cast more shade on the behaviour of JTI and its use of royalty and debenture debts to avoid paying claimants. "Even now, complicit with the Receiver, JTIM continues to try to evade efforts to address the harms it caused in Canada ... it is attempting to keep money out of the claimants hands."

She rebutted the arguments that consensus was required by recalling the decision to put the pen on the agreement in the hands of the monitors and mediator. "This order was reached because a consensus was not available. This order was not appealed." 

She likened the tactics of the two companies which are opposing the plan unless they are allowed keep more money to extortion. She suggested that the judge use the disagreements amongst the companies in this hearing as a demonstration of the intractability that was a barrier to consensual negotiations and evidence that consensus was not possible among these parties.

She was not much friendlier towards the positions of the Canadian Cancer Society and Heart and Stroke Foundation. She suggested they should get over their disappointment at their ideas not having found their way to the plan, and said that lots of ideas had been proposed which were eventually not accepted. She criticized them for sticking their oar in at this point:  "The CCS and HSF positions should be recognized for what they are – an attempt to dictate and control how the $1 billion will be spent.... They risk jeopardizing a deal 6 years in the making that would provide payments to so many people." 

The Consortium

British Columbia, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island and the Territories are represented in these proceedings by a private lawfirm. As had the previous speakers, lawyers for this firm took the view that the plan under review should be adopted as drafted.  "The plan is fair, reasonable and practical. It works in its entirety. It fairly balances the interests of all parties. It is in the interest of the administration of justice. .. These three plans are comprehensive and coherent and should be considered in totality as a whole."

They joined the chorus urging the judge to disregard the concerns of JTI and RBH, and provided more precedents to support the decision to sanction a plan that was not supported by the debtor company. 

In advance of this hearing, this Consortium filed a Factum

Still to come

The Heart and Stroke Foundation was the first social stakeholder to present its concerns with the plan. Its views, and those of the Canadian Cancer Society will be reported tomorrow.  Also on the schedule for tomorrow are the opportunity for parties to make replies to what has been said to date,  motions to extend the litigation stay (which expires tomorrow), and discussion of the fees that will be permitted for the class action counsel. 
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Wednesday, 29 January 2025

Sanction Hearing: Day 1

On what could be the starting line to the final lap of tobacco litigation in Canada, lawyers and spectators gathered before Ontario Chief Justice Geoffrey Morawetz today to present their reasons why he should - or should not - give a thumbs up to the plan drafted by former Ontario Chief Justice Warren Winkler to restructure the debt of the companies.

There were so many lawyers present for the hearing that an adjacent overflow room was set up. Happily for many, in this post-COVID world hybrid sessions are allowed. YouTube indicated that a few hundred people in addition to these eyes on the trial were watching the proceedings remotely.

The arguments that will be presented in the next week have mostly been stated, re-stated and stated again in the voluminous material filed with the court in recent days. Copies of these documents are available on the websites of the firms hired as monitors for each of the three companies involved: Imperial Tobacco Canada (subsidiary of British American Tobacco); Rothmans, Benson & Hedges (subsidiary of Philip Morris International) and JTI-Macdonald (subsidiary of Japan Tobacco). The key documents filed for this hearing are listed in a previous post. 

Today - Day 1 - allowed for representations from 4 parties. First to speak were lawyers representing the Mediator and the Monitors. They who spoke in favour of the settlement, urging the judge to adopt their motions to approve (sanction) it and also to approve their plans for hiring the same monitoring firms to administer the plan for the coming decades. 

Second and third to speak were lawyers representing companies two companies owned by Japan Tobacco. The fourth and last representations today were made by counsel to Rothmans, Benson and Hedges. All these expressed their opposition to the settlement as written.

Tomorrow Imperial Tobacco will be the last company to make representation, following which claimants will provide their views. The sequencing of presentations and the time allotted to various parties is presented at the end of this post, based on the agenda which can be found here. 

A new friend of the court

Immediately after the session opened and before the main show got underway, Justice Morowetz announced that he was appointing retired Quebec judge André Provost to act as an Amicus Curiae and to assist the court in assessing the requests for fees by lawyers representing Quebec plaintiffs and other class actions. (His motion to that effect became public on February 1)

Unprecedented. Unique. Without an alternative.

In advocating for the plan they drafted, the Mediator and Monitors' team recounted some of the back story to the company's use of insolvency following their loss in the Quebec court in March 2019. They gave some details on the mediation efforts that subsequently dragged on until the court intervened with an arbitration approach in October 2023. 

Repeatedly the team hit on the idea that this case was "unprecedented", "unique", "complex", and "challenging" - as though trying to pave the way for the court to make unprecedented, unique, complex and challenging decisions to approve it.

For the most part, they spoke glowingly about the mediation activities and the plan they had produced. They described how in order to release the companies from any further Canadian claims they had reached out to the territories to join the provinces in seeking redress, had established a new "Pan Canadian" class of injured smokers not covered by the Quebec class action, and designed a Cy-Pres foundation to provide indirect benefit for the vast majority of injured Canadian smokers whose rights to sue will be eliminated by the settlement.

The impetus for their role in drafting the settlement, they reminded the court, was the "intractable" positions taken by some parties in the summer of 2023. 

They were unapologetic as they addressed the criticisms the settlement has received from public health agencies. Their intent for the proposal was to "permit tobacco companies to exit the proceedings and continue to carry on business in Canada." ...  "We had no mandate to resolve the societal issues related to smoking and the plans to do not purport to do that."

As they described it, this was a take it or leave it proposition and the only "viable" option for consideration. "There is no alternative."

And as for the objections that were about to be presented by two of the companies involved? The Monitors acknowledged these by way of asking the judge to sort them out if necessary. On the dispute amongst the companies about how to split the bill, the monitors had no position - although the judge was invited to adjudicate them. (Justice Morawetz' observation that he was being asked to 'tiptoe through the tulips' bewildered the Millennial lawyers making this case.)

The written arguments were tabled with the court last week for the Monitors for RBH and Imperial Tobacco  and the Monitor for JTI. 

Consent is not required.

The Mediator & Monitors team closed their presentation by rebutting the arguments that they knew were coming from two of the companies: that the Court had no right to impose a restructuring plan on  a company against its consent.

They argued that it did. They pointed to the criteria laid down for approving CCAA outcomes, saying that they applied in this case: the law was being observed, the process had been properly executed, the outcome should be considered to be fair and reasonable. They said that companies which now argued that they should not be subject to a court-imposed solution had effectively consented to adjudication when they sought insolvency protection through the courts.

From the small number and old age of the cases shown to the judge today in defence of imposing a resolution, it would appear that the judge is being asked to make decisions that have not happened in Canada.

Objections from Japan Tobacco

All of the companies are made up of many separate corporate identities, but Japan Tobacco is the only one in these proceedings to engage as two distinct legal bodies. JTI-Macdonald is the Canadian branch of Japan Tobacco which makes and sells cigarettes and JTI-TM is the Canadian branch of Japan Tobacco which owns the trademarks that appear on those cigarettes. Today lawyers from both related firms took a one-two punch against the draft settlement.

The first of these was with respect to how the companies will divide up the pie. While the current text does not seem to immediately disadvantage this company, it is concerned that the uncertainties of the settlement including text that identifies the allocation as being "unresolved" could cause problems in the future. They also object to the language which addresses what happens if a payment is defaulted on.

Their main objection seems to be the way in which the settlement will put a stop to their practice of sheltering Canadian profits from Canadian tax. For many years JTI-Macdonald has lost money on Canadian operations because the royalty payments it makes to JTI-TM cause its balance sheet to produce net losses. The real money made in Canada is sent to Japan Tobacco headquarters in the form of royalty payments instead of dividends from profits. If income tax is paid on those earnings, it is done in Japan (where the Japanese government is the largest shareholder of Japan Tobacco). 

This tax-avoidance and "creditor protection" practice was strongly criticized by the Quebec courts. After these concerns were raised early in the CCAA process, the company was told that it could not make trademark payments in order that the profits remain in Canada for the benefit of the company's creditors.

In drafting the settlement, the Mediator and Monitors prevented this company from returning to its old ways of operating a profit-free Canadian business. The plan requires them to pay governments a percentage of their net revenues before the trademark royalty payments are deducted. 

The company does not accept this, arguing that its trademark company should be treated as a secured creditor and repaid for the money it was unable to send overseas as royalty payments over the past 5+ years. 

In making this case, JTI made two not-very-veiled threats. The first was that it might be prepared to undermine the agreement through transfer pricing.  "There is no guarantee of ongoing profit if there is not a consensual plan ... There are 28 different contracts [with affiliated overseas Japan Tobacco suppliers] in place for inter company goods and services.... Each of those companies represents an opportunity in a non-supported plan for a member of the corporate group to increase pricing, to draw profits away from JTIM and into a foreign jurisdiction."  (Justice Morawetz mused about similar incentives also existing when consensual plans were in place.) 

The second threat was that the company might try to bog down the process by taking any decisions upstairs. The prospect of appeals to higher courts was presented as "delay and uncertainty from leave and appeal."

Written arguments were filed last week for JTI-Macdonald and JTI-TM. 

Objections from Rothmans, Benson & Hedges

RBH also maintains that a restructuring plan must be consensual to be legal or workable. Before it will consent to the plan, it wants the allocation to be resolved in ways which reduce its share of the payments.

As they see it, RBH is being asked to pay $7 billion more than the share that would be assigned to them if the bill were divided the way Justice Riordan imposed in his decision. In that ruling, Imperial Tobacco was ordered to pay more because its activities were judged to be more reprehensible than were those of the other companies. 

Because RBH had more money on hand at the beginning of the CCAA process and because of some differences in income, the company has paid more than what it considers its fair share into the $12.5 billion that is slated to be distributed in 'upfront payments'. 

RBH's has asked the judge to address this by adding a section to the Sanction Order which provides for "true-up" payments between the companies over time. It proposes that the Riordan allocation (67% to ITL, 20% to RBH) be the basis of the payment to the Quebec victims, and that a percentage closer to market share be used for payments to other claimants. This proposal is attached as Schedule A to the Factum they filed this week.   

Written arguments were filed last week for Rothmans, Benson and Hedges. 


The Zero-Sum Game and the alternatives

In response to requests from JTI and RBH for him to wade in and change the text of the restructuring plan, Justice Morawetz expressed concerns that this was a "zero-sum" game where he would be favouring one party at the expense of another.

These comments prompted push back from lawyers for JTIM and RBH, who disagreed with the  notion that the settlement proposal on the table (and the zero-sum choices within that framework) were the only route forward. They identified alternatives other than liquidation to the text before the court. 

Alternative approaches they suggested included making a settlement with the Quebec class action, after which they would exit from insolvency. Provincial governments could then pursue their lawsuits in the normal course. Or the companies could return to mediation, possibly with a different mediator. Or they could negotiate individuals plans for each company. "I am not suggesting that they are great options," said RBH counsel, " but it is not true to say that the only alternative is liquidation."

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The Schedule

For 6 business days (January 29 to February 5), the court will sit for 5 hours between 10 and 4:30, taking two pauses and a lunch break, giving a potential 30 hours of hearing time. Another 3 days of court time are reserved for January 11-13, either to deal with remaining issues. 

In advance of this hearing, an agenda was posted, allocating an estimated time for the parties, and suggesting the order in which their concerns would be heard. The agenda provides as follows:

On the Sanction Order:

  • The Court-Appointed Mediator and Monitors (2 hours)
  • Tobacco companies (6 hours)
  • Claimants (5 hours)
  • Social Stakeholders (TBD)
  • Reply submissions (3.5 hours)

On the Stay Extension: 2 hours for the companies and one monitor 

On Fee Approvals and other: 

  • 4 hours for the three cases where fee approvals are required  
  •  15 minutes for the Quebec government (which opposes the fee approval) and unspecified time for a a new  "Court appointed Amicus Curiae".


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Tuesday, 14 January 2025

The Paperwork

January 13 was the first of several filing days leading up to the month's end hearing to seek approval of the settlement reached in October between Canada's three large tobacco companies and those who are suing them.  

The timetable for these filings, approved by the court in December, is displayed below (click to enlarge.) The documents appear on the websites of the firms which act as court monitors: EY for Rothmans, Benson & Hedges; Deloitte for JTI-Macdonald and FTI for Imperial Tobacco. 

This post will identify some of these documents as they become available on the website of the monitors. Stay tuned for updates!


January 13: Fee approvals

The settlement requires the fees charged by lawyers representing Quebec class action, the Knight class action and tobacco farmers to be approved by the court. Contingency fees charged by lawyers for eight provincial governments and three territories do not require court approval, nor do counsel for injured smokers who are not part of the Quebec class action (the Pan-Canadian claimants). 

Quebec Class Action *

The Quebec class action counsel motion filed on January 13 requests approval of payment of 22% of the settlement amount, which works out to $901 million of their $4.1 billion share of the settlement. The percentage was set in an agreement signed with the Conseil Québécois pour le Tabac et la Santé (CQTS) in 1998 and amended in 2017. 

The lengthy (300+ pages!) material filed in support of this request is compelling reading. This set of personal narratives details the personal, legal and financial history of this historic trial and how several lawfirms joined forces to sustain the claim over decades. To date more than 100 person years of plaintiff lawyers' effort (203,849 hours) have been logged. (The major firms involved are Trudel, Johnston, Lespérance; De Grandpré Chait; Kugler Kandestin; and Fishman Flanz Meland Paquin.)

Tobacco Producers

The farmers' share of the settlement is $15 million, and counsel is requesting a payment of $3.1 million. Their original retainer agreement was for 25% of the award. In support of this request, the document provides a background on the lawsuit and the companies' contracts with farmers. These Ontario farmers are represented by Strosberg Wingfield Sasso. 

Knight Class action

Imperial Tobacco was the only company implicated in the B.C. "Knight" class action lawsuit focused on the sale of light cigarettes. The settlement provides for a $15 million dollar payment in this case which, apart from legal fees, will be allocated to the research foundation established as part of the settlement. 

The retainer fee negotiated at the outset of this case was 30%, and the lawyers are asking for approval of $5 million plus $1 million in disbursements plus interest and sales taxes. Almost $3 million in billing hours is identified since the law firm, Klein Lawyers, filed the action in 1998. 

This document provides background on the evolution and context of the lawsuit. Included is matrial that would otherwise never see the light of day, such as the expert reports on health impact prepared by David Hammond and David Burns and also a review of the financial benefits to Imperial Tobacco of light cigarette sales.

January 15: Stay Extensions and Draft implementation orders

Stay Extensions

As it now stands, the insolvency protection extended to Canada's tobacco companies will expire at the end of this month -- halfway through the Sanction hearing at which the fate of the draft settlement will be discussed. One of the first parts of the agenda of that hearing is expected to address the need for a further stay extension, and January 15th was the deadline for the companies to submit their extension requests. 

At the end of October the companies failed to convince Justice Morawetz to extend the stay until the end of this March. 

This time the companies have adopted a new approach and are offering a menu of choices to the judge.  In Rothmans, Benson and Hedges' motion, the request is for an extension until  the end of February. Imperial Tobacco is asking for the stay to be extended until  the "Effective Time" when the settlement is put in place. JTI-Macdonald is asking for an extension to March 31, 2025. 

Sanction Order

Draft versions of the court orders to approve the settlement have were submitted together with rationale for adoption. Draft Sanction Orders and Plan Administrator Appointment Orders for Imperial Tobacco, Rothmans,  Benson and Hedges and  JTI-Macdonald's were filed by their monitors. 


Monitor's Reports

The monitor for each company also filed a report providing their support for the proposed motions and additional information considered useful to the court. These reports provide new background to the mediation process. Reports are now downloadable for JTI-Macdonald (#22), Imperial Tobacco  (#25) and Rothmans, Benson and Hedges (#23).

One of these reports again signals a red flag over the outcome of the settlement. The companies have not yet agreed on how to divide the responsibility to make payments. Although all the monitors had previously given a green light for moving ahead with a Sanction hearing, JTI's is now expressing concerns that because of the unresolved issues the agreement might be doomed to fail.  

JTI's monitor,  reports that without a resolution of these issues, the agreement should not be sanctioned in the view of the company, as the "allocation needs to be resolved prior to the sanctioning of the JTIM CCAA Plan as this unresolved issue has the potential to introduce significant commercial uncertainty and ambiguity in the application of the settlement on the Canadian tobacco industry. As a result, JTIM has advised the Monitor that JTIM and its Tobacco Company Group do not support the JTIM CCAA Plan in its current form...".

"44. The working assumption of the Monitor in seeking the Meeting Order and the Sanction Protocol Order was that the issue of allocation had a reasonable prospect of being resolved in the existing Mediation process prior to the sanctioning of the CCAA Plan and therefore the JTIM CCAA Plan was not doomed to fail. 
45. In the Monitor’s view, addressing the uncertainty arising from the allocation issue is a significant consideration in the workability of the JTIM CCAA Plan. 
46. If the parties do not agree on allocation, or allocation is not otherwise settled, there is an implementation risk."

Monitors for the other two companies recommend that the court issue a Sanction Order (and on January 22, the JTI Monitor also submitted a factum in support of the settlement being sanctioned).

January 20: Objections to adopting the settlement


Health Charities

Two Canadian health charities filed objections to elements of the settlement that were proposed to be included in the finalizing court order. 

The Heart and Stroke Foundation repeated the concerns they had expressed at Hallowe'en. The "Responding Motion Record" they filed today provides copies of their correspondence with the monitors and an expert report written by Dr. Andrew Pipe. The foundation signals that they will object to the sanctioning of the settlement because the foundation that will be created through it has too narrow a mandate. 

"HSF is concerned not only about the limited mandate of the Cy Pres fund, but also that the limited mandate arises at least in part  because the interests of those who will suffer future harm related to tobacco use or exposure have not been adequately represented during these proceedings. For these
reasons, among others, the HSF will be objecting to the Sanction Orders approving and sanctioning the Tobacco CCAA Plan."

The Canadian Cancer Society's responding motion record covers 600 pages (in volume 1 and volume 2). In addition to extensive background on their involvement in the lawsuits over the years, it also includes reports written by Dr. Robert Schwartz and Monique Muggli. 

The Cancer Society offers textual changes to the settlement that have the effect of:
*  broadening the scope of activities for the Foundation, 
*  requiring the documents obtained from the industry during discovery to be made public through the UCSF Library, 
* including a number of tobacco control marketing restrictions that have been the subject of CCS advocacy in recent years.

Tobacco companies

JTI-Macdonald filed a "responding motion" to the proposal of other parties that the settlement be approved. The company provides an account of some exchanges in the fall that were held without a public audience (i.e. the hearing of December 12th).  The company articulates its strong opposition to the settlement: "JTIM does not agree to the JTIM M&M Plan and cannot support it due to the outstanding important commercial and legal issues that have been previously identified to the Mediator during the mediation and to the Court through my affidavit sworn October 24, 2024 (the “October Affidavit”), a copy of which (without exhibits) is attached hereto as Exhibit “C”. These issues are further discussed in this affidavit. Until these issues are resolved, the JTIM M&M Plan is not fair, reasonable or workable."

RBH also filed a document outlining its objections to the proposed settlement (with a second volume). It maintains that it has  expressed concerns about the share of the payments that it is expected to provide "throughout the CCAA proceedings". This document confirms that the companies have not yet resolved their differences in this regard. 

The company provides calculations of the differing financial impact of the plan:  "Based on the attached calculations, if the CCAA Plan were implemented without an allocation as between the Tobacco Companies, RBH would be required to contribute far more towards the Global Settlement Amount than would be required under any reasonable allocation of responsibility. Such a CCAA Plan would effectively force RBH to subsidize Imperial, JTIM and their affiliates by a significant amount compared to what RBH would pay if responsibility were allocated in a reasonable way. For example, the calculations in Exhibit “A” reflect that RBH would contribute approximately $6.923 billion more under the proposed CCAA Plan without an allocation than it would be responsible to pay if the Court-Determined Allocation were applied to the Global Settlement Amount."

Imperial Tobacco has provided its own version of the allocation dispute in an "aide memoire". As with the other documents filed by the companies on this day, this contribution to the court wanders into describing the negotiation process (which has mostly otherwise been kept confidential): The disclaimer about allocation in the proposed settlement "Article 5.2 was included in the CCAA Plan at first instance because Rothmans, Benson & Hedges Inc. (“RBH”), very late in the process, sought to backtrack from the terms of the negotiated deal – which include an internal and self-adjusting allocation formula – in an effort to reduce its own contribution obligations." ... " In an effort to advance matters to the creditors’ meetings and avoid an impasse, the Monitors ultimately included Article 5.2 so that a draft plan could be put forward for a vote without opposition from the Tobacco Companies. To be clear, however, Imperial does not view the “issue of allocation of the Global Settlement Amount” to be “unresolved”. To the contrary, the respective contributions by each Tobacco Company to the Global Settlement Amount are expressly defined by the CCAA Plan."

January 22, 2025:  Factums, etc. 


The documents filed on this day are the shrink-wrapped versions of their case - the factums. These documents provide readable versions of the parties' positions.

Fees:

Sanction Order

Stay Extension: 


January 24, 2025: More Factums 


Fees:

Sanction Order

January 27, 2025: Still More Factums 

February 6, 2025: Documents related to fee approvals.



Updated January 28, 1 p.m 
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*Disclosure: The staff of Physicians for a Smoke-Free Canada were among those who worked on a contingency basis for the counsel to the Quebec class action.


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