British American Tobacco (BAT) announced on Friday that it has made significant progress toward settling long-standing tobacco-related claims in Canada. A court-appointed mediator and monitor filed a compromise arrangement in the Ontario Superior Court of Justice, which may pave the way for a resolution.
The Path to Mediation
For over 26 years, tobacco litigation has loomed over BAT’s subsidiary, Imperial Tobacco Canada (ITCAN). These claims center on accusations that tobacco companies misled consumers about the health risks of smoking. In particular, a Quebec court decision in 2015 upheld a massive C$15 billion award to smokers, implicating ITCAN along with other tobacco companies.
After ITCAN sought creditor protection under Canada’s Companies’ Creditors Arrangement Act (CCAA) in 2019, the company entered into mediation to resolve the litigation.
- The mediation is confidential.
- It’s court-supervised.
- ITCAN continues its operations while the negotiations continue.
This process has been a complex, multi-year effort, but according to BAT, a potential settlement is finally within reach.
Stakeholders Waiting for a Resolution
“This has been a complex, confidential mediation, and, like our Canadian colleagues, we are hopeful of a quick conclusion,” a BAT spokesperson remarked on Friday.
The mediator’s report suggests the settlement could provide a comprehensive release to Imperial, BAT, and all related entities from all tobacco-related claims in Canada. The financial component of the settlement is expected to come from both existing cash reserves and future sales of tobacco products.
The report further indicated that the settlement would:
- Allow Canadian tobacco companies to continue operating.
- Maximize recovery for creditors.
However, the situation remains fluid, as stakeholders, including claimants and creditors, wait for the final terms to be agreed upon.
Canadian Government’s Role in Cost Recovery
Interestingly, the Canadian government has its own plans regarding the future of tobacco regulations. On August 1, 2024, a federal bill was proposed that could introduce new charges on tobacco manufacturers and importers. This is part of a “tobacco cost recovery framework” designed to recoup government costs associated with enforcing the Tobacco and Vaping Products Act.
The bill proposes an annual charge based on a company’s domestic market share of tobacco products. This move could be a new burden on manufacturers, including BAT, as it pushes toward settlement in the ongoing litigation.
A Challenging Future for ITCAN
As the settlement process unfolds, ITCAN faces additional hurdles. A recent report noted that machinery used by Imperial Tobacco was damaged during floods in Montreal in August 2024. This caused interruptions at the third-party manufacturing facility owned by Bastos du Canada Limitée.
ITCAN is currently assessing the impact of the floods and is working with other manufacturers to secure the supply of tobacco products in the interim. With litigation on one side and operational challenges on the other, ITCAN is juggling multiple priorities as it strives for a smooth settlement process.
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