Canada: JTI-Macdonald Corp opposes proposed $32.5 billion settlement with provinces

In Canada, creditors of three major tobacco companies must vote by Dec. 12, 2024, on a proposed settlement that would see the three makers pay C$32.5 billion to Canadian provinces and smokers, an Ontario court ruled Thursday, as one of the companies said it opposed the plan in its current form.

Under the plan, the three companies - JTI-Macdonald Corp. (Japan Tobacco), Rothmans, Benson & Hedges (Philip Morris) and Imperial Tobacco Canada Ltd. (British American Tobacco) - are expected to pay $24.7 billion to the provinces and territories and more than $4 billion to tens of thousands of Quebec smokers and their heirs. JTI-Macdonald Corp., which has negotiated with its creditors for years, is opposing the proposed settlement announced in early October.[1].

A long legal battle

In 1998, the three tobacco giants were sued in two class actions filed in the Quebec Superior Court of Justice. Both actions sought compensatory and punitive damages in the amount of C$20 billion for 100,000 victims of lung and throat cancers that occurred in Quebec between 1950 and 1998.

The class actions were not certified until February 2005. Ten years later, an Ontario judge ruled in favour of the victims, ordering the tobacco companies to pay C$15 billion in moral and punitive damages to the victims, after it was established that the trio of manufacturers being sued had known about the links between cigarettes and cancer since the 1950s but had failed to alert their customers.

 British American Tobacco, Philip Morris International and Japan Tobacco appealed the decision, but the Quebec Court of Appeal upheld the court's decision in 2019. The manufacturers then activated the process allowing them to seek protection from individual creditors, leading to years of negotiations in a court-supervised mediation process.

The Chief Justice of the Ontario Superior Court approved on October 31 a motion with a proposed settlement submitted for review and vote on December 12 by representatives of creditors, including provincial governments and plaintiffs in the two Quebec class actions. A supermajority is required: having at least half of the plaintiffs in favour of the proposed plan, representing at least two-thirds of the total value of the compensation. If a positive vote is recorded, the next step will be a hearing in court for final approval. This hearing is expected to take place in early 2025. The Philip Morris subsidiary asked the court to wait a few weeks before approving the motion, so that the proposed plan can be amended before being presented to creditors, specifying "that as it stands, this plan is not capable of being implemented in its current form and should therefore not be put to the vote."

A historic settlement

If approved, the agreement would see the three companies - Imperial Tobacco Canada Ltd., JTI-Macdonald Corp. and Rothmans, Benson & Hedges - pay[2] :

- $24.7 billion to the provinces and territories, including $12.5 billion paid up front, starting in early 2025, and the remainder over the next five years, in the form of annual payments.

- $6.6 billion to patients who suffered from smoking-related illnesses, or their survivors. $4.1 billion would be used to settle class actions dating back to the 1990s and involving nearly 100,000 Quebec smokers. The remaining $2.5 billion is intended for people in the rest of Canada who were diagnosed with lung cancer or other smoking-related illnesses between 2015 and 2019.

- $1 billion to a new national foundation for research into cancer and other smoking-related diseases.

Provincial lawyers acknowledge, however, that the proposed payments will not fully cover the cost of treating tobacco-related illnesses. For example, the province of Ontario alone estimates the total direct and indirect health care costs of smoking at $7 billion a year.

A regulation deemed too lenient by anti-smoking associations

If approved, the deal will end all other ongoing proceedings against the three companies. Under the terms of the agreement, the trio will also be able to exit bankruptcy protection provisions and continue operating their current business model.

The settlement is seen by public health experts as a far too lenient approach, allowing major tobacco industry players to walk away relatively easily after decades of litigation while ignoring the pressing need for tobacco regulation and prevention policies. Many have also pointed out that the settlement fee is significantly less than the roughly C$500 billion sought by the provinces in lawsuits against the tobacco industry in Canada.

"The settlement provides no roadmap to prevent these same companies from causing further harm by recruiting new victims, including through new nicotine products," Smoking & Health, Physicians for a Smoke-Free Canada and the Quebec Coalition for Tobacco Control said in a joint statement[3].

Make the tobacco industry legally liable for the damage caused

This case is largely due to the reforms of the judicial system implemented in Quebec facilitating "access to justice" for consumers. For anti-tobacco experts, these reforms could contribute to the deployment of one of the provisions of the WHO framework convention: article 19 devoted to the responsibility of the tobacco industry.

This article 19 invites Parties to consider taking legislative measures to address the issue of criminal and civil liability related to tobacco control. It also encourages cooperation between Parties and provides for assistance in judicial proceedings. Despite the demonstrated effectiveness in combating tobacco use through what experts call "judicial prevention", Article 19 is one of the articles least implemented by Parties.

The tenth Conference of the Parties (COP) to the World Health Organization Framework Convention on Tobacco Control (WHO FCTC), held in February 2024, adopted a decision on this subject. Parties to the Treaty are called upon to implement high standards of accountability and transparency for the tobacco industry, strengthen liability regimes through legislative reforms, implement effective sanctions, ensure policy coherence, exchange information on enforcement, and monitor industry transactions to avoid interference with public health policy. In addition, the concept of accountability is expanded to include a new arsenal of options, including the use of administrative liability, extending the scope to quasi-judicial and non-judicial systems, seeking justice for victims, and identifying effective compensation mechanisms.

The decision adopted at this COP10 provides for a group of experts to assist the parties in developing or strengthening their liability regimes.

The challenge to the tobacco industry in legal actions is a reference for other actors involved in public interest issues and confronted with powerful lobbies. This is the case for the appeals brought to force polluting companies to pay for the environmental damage they cause.

©Tobacco Free Generation

AE

[1] Tobacco firm opposes proposed $32.5B settlement with provinces, smokers, court documents say, The Canadian Press, published October 31, 2024, accessed November 5, 2024

[2] Mike Crawley, How the proposed deal between provinces, smokers and tobacco companies would work, CBC News, published October 18, 2024, accessed November 5, 2024

[3] Tobacco titans offers landmark settlement, ICLG, published October 22, 2024, accessed November 5, 2024