How big tobacco got away with not paying out a cent in Canada

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OTTAWA — For more than two decades, big tobacco companies in Canada have been fighting lawsuits claiming they sold a highly addictive product that caused cancer while holding back information about the health risks.

Between 1998 and 2012, every Canadian province and territory filed suit looking to recover hundreds of billions of dollars in costs of providing health care to former smokers. Several other class-action lawsuits were also filed on behalf of Canadian smokers.

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The tobacco companies have yet to payout a single cent in Canada from any of these suits.

In contrast to Canada’s long wait, tobacco companies settled similar suits with all U.S. states by 1998, the same year British Columbia moved forward with the first provincial lawsuit.

In 2015, after years of pre-trial appeals and a 251-day trial, one of the Canadian class-action lawsuits, known as the Blais and Letourneau case, won a historic judgment. The judge ruled against Canada’s largest tobacco companies — Imperial Tobacco, Rothmans, Benson & Hedges and JTI-MacDonald — finding them at fault and ordering the payment of $15 billion in damages to an estimated 100,000 Quebec smokers.

The tobacco companies appealed, but in 2019 they lost at the Quebec Court of Appeal.

Every Canadian suit against them was stopped after that appeal court ruling. That’s because the tobacco companies, who produce hundreds of millions in profits annually, have been in bankruptcy ever since.

Smoking remains the largest cause of premature death in Canada, taking the lives of 48,000 people a year, according to Statistics Canada. A 2018 Conference Board of Canada report estimated smoking-related illnesses cost the health-care system $6.5 billion a year.

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In the lawsuits, the provinces are seeking more than $600 billion, targeting both the Canadian firms and their global parent companies. The other class-action suits are also seeking billions of dollars, amounts exceeding the funds the companies actually have.

But there are hints a big tobacco payout may finally be coming.

Since 2019, when the bankruptcy proceedings began, a mediation process has been playing out behind closed doors. The proceedings’ stated goal is to come to a global settlement that will resolve all the lawsuits.

Manitoba Premier Wab Kinew told a roomful of NDP supporters in May that a settlement may be close. He said the proposal is “with the federal government,” and that his province’s share would fund a new cancer-care facility. Kinew has since declined to expand on what he knows about the settlement talks.

Multiple federal government departments contacted by National Post said they were not involved in the legal process. Health care is a provincial responsibility under Canada’s constitution and the federal government has not filed suit against tobacco companies to recover health-care costs.

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Yuval Daniel, press secretary to mental health minister Ya’ara Saks, said the federal government is not a party in the litigation.

The U.S. settlement required tobacco companies to end any advertising for their products, fund programs designed to discourage youth smoking, and pay out just over US$200 billion over 25 years. Even as the final year of that initial settlement is reached in 2025, tobacco companies will still have to pay US$9 billion to the states every year.

Canada has enacted similar laws, banning tobacco advertisements since the mid 1990s. However, smoking rates remain roughly the same in Canada and the U.S., with about 11 per cent of people over the age of 15 self-reporting as regular smokers.

Kinew’s vague comments about the tobacco lawsuits remain the most detailed from any provincial government about what is happening inside those confidential mediation rooms. The National Post reached out to several provinces, all of whom declined to answer any questions about the process, citing the court-imposed confidentiality.

Flory Doucas, with the Quebec Coalition for Tobacco Control, said provinces must respect the confidentiality of the mediation process, but they could have said what they’re trying to achieve.

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“Nothing prevented governments from stating what their principal objectives were in terms of public health, because that is what led to this whole saga,” she said.

Most of the provinces brought in outside lawyers to prosecute the case, many of whom are operating on a contingency basis, meaning they will be paid out of the future settlement. The provinces of British Columbia, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, Saskatchewan and the three territories all share the same legal representation, a consortium of major law firms.

Certain Quebec class members could wait no longer and have opted to end their lives by assisted suicide

Last September, the tobacco companies sought and received their tenth extension of the bankruptcy proceedings to try and find a mediated settlement. Philippe Trudel, a lawyer who represents the successful Quebec class-action suit members, filed an affidavit with the court pleading for more urgency in resolving the case.

He said the Quebec smokers, who thought they had won the case after that 251-day trial in 2015, feel as though they will never collect.

“During the timeframe of the [bankruptcy] proceedings alone, approximately 700 Quebec class members have unfortunately succumbed to their tobacco-related illnesses and died and many more are becoming increasingly frail,” he wrote.

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“Certain Quebec class members could wait no longer and have opted to end their lives by assisted suicide.”

Trudel accused some parties to the negotiations of shifting their stance and delaying the process.

“Since the last extension was granted, the mediation process has been severely undermined by certain claimants who reneged on prior positions and failed to act in an acceptable or appropriate manner,” he wrote in his submission. “Certain claimants appear to view delay as a tactical advantage rather than a concern.”

Because of the secrecy around the process, Trudel did not name names. The tobacco companies brought the application for the extension and Trudel did not challenge that they were operating in good faith. The provinces and other class suits are the only other parties in the litigation; it is not clear who Trudel was referring to.

The National Post reached out to Trudel, but did not get a response.

Cynthia Callard, a spokesperson for Physicians for a Smoke-Free Canada, has closely followed the case. She said Trudel seemed more accepting of the 11th extension, which happened this spring. She saw this as a sign a settlement was close, but said nothing is certain.

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“It’s always possible there’s another roadblock we won’t hear about until September,” she said.

She added the delays, whoever is responsible, are working just fine for the tobacco companies.

“The industry is motivated to demonstrate to the rest of the world that litigation isn’t really a very efficient or effective way of doing it,” she said. “It’s motivated to make sure that governments everywhere, not just in Canada, are reluctant to follow suit.”

Since the bankruptcy process began, the three companies have been supervised by court-appointed monitors — large accounting firms who have overseen their business operations. During bankruptcy, the companies can’t transfer their profits to their international parent companies or pay funds out to shareholders, but otherwise they can continue business as usual.

According to filed financial statements, it is estimated the three companies have banked a combined $12 billion since entering bankruptcy in 2019.

Callard said the companies have taken this time to create new products, like vaping and tobacco pouches.

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“It meant that there was no disincentive for the companies to spend large amounts of money promoting vaping products and shifting their market, because they weren’t getting to keep the money anyway,” she said.

Callard said last year the court also called on those monitors to draft a bankruptcy proposal on their own, another hint of a possible settlement.

“I am hopeful that there will be resolution; whether the resolution improves the lives of Canadians, that’s a real question for us.”

Some of the tobacco companies now talk openly about moving away from cigarette sales permanently, focusing on tobacco pouches and vaping products.

Health Minister Mark Holland has railed against these smoking alternatives, arguing the flavours and marketing of these products makes them attractive to children.

“Vaping has, I think, been really made problematic by these flavours that the evidence shows attract young people,” he said earlier this year.

The Liberals have brought in new legislation that would restrict how products like these are marketed. The ongoing bankruptcy process has prevented new lawsuits against the companies related to their new products.

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Citing the confidential nature of the bankruptcy process, the tobacco companies all declined to comment to the National Post.

“The negotiations are being conducted via a court ordered confidential mediation and as such public comment is a violation of the court order. We and all parties are precluded from commenting,” said a spokesperson for Imperial Tobacco.

The other two companies issued similar statements to the Post.

In their 2023 annual report, British American Tobacco, the parent company of Imperial Tobacco, noted that a proposed class action lawsuit claiming their Zonnic brand of nicotine pouches had been marketed to children, was stayed by the bankruptcy process.

In a legal filing to extend the bankruptcy negotiations in 2023, Rothmans, Benson & Hedges said a deal could soon be reached covering the provincial lawsuits and the class-action suits.

“A global settlement that addresses all pending and potential tobacco claims is the best outcome for the parties. It will end years of litigation, maximize recoveries for the claimants and minimize delay and costs for the parties,” they wrote.

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In Phillip Morris’ annual report to shareholders last year, the company maintained the original decisions in the Quebec class action lawsuits were wrong.

“RBH and PMI believe the findings of liability and damages in both Létourneau and the Blais cases were incorrect and in contravention of applicable law on several grounds,” the report said.

What we are afraid of is that a settlement could be announced any day, and we’ll see huge amounts of money at play, but not necessarily with the structural changes… to prevent more harm

Flory Doucas, Quebec Coalition for Tobacco Control

Throughout the bankruptcy process, the three companies have maintained their right to take the case to Canada’s Supreme Court.

Callard said she fears that provincial governments will release news of a settlement at some point in the middle of summer when few people are paying attention. She points to smuggling cases against Canada’s tobacco companies in the 1990s. The firms were criminally charged back then, accused of playing a role in smuggling operations that saw more contraband tobacco ending up in Canada, Quebec and Ontario especially.

The companies denied responsibility, but ultimately agreed to pay a combined $1.5 billion in penalties and fines, but the increase in contraband tobacco forced governments at the time to lower cigarette taxes, leading to billions in lost tax revenue.

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She said the original class-action lawsuit and the appeal spelled out requirements for companies that sell products that cause harm, a standard that could apply to tobacco as well as products like alcohol. She said that won’t be enforceable without a Supreme Court ruling.

“This process is leading towards a settlement and not a Supreme Court ruling. It is depriving the country of clarity about the rules of the game for tobacco manufacturers.”

Doucas said she fears that the provinces are all looking at the potential cash windfall and not considering taking measures aimed at phasing out the industry. She noted ongoing payments could only be funded by operations and products that continue to addict new generations to nicotine.

“What we are afraid of is that a settlement could be announced any day, and we’ll see huge amounts of money at play, but not necessarily with the structural changes that are required to prevent more harm.”

Meanwhile, Canadians like Jean Luc Duval continue to wait for resolution. He was part of the historic class-action lawsuit in Quebec. A former smoker, Duval lost his wife, Monique, to lung cancer in the summer of 2005. She died on their 40th wedding anniversary, saying goodbye on the same day she had said “I do.”

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“It was tough for me, because she was my first love and we had been together since we were 18 years old. She was my love.”

His wife weighed less than 100 pounds when she died. They had taken a special trip out of the hospital to their cottage, where she passed away looking out over the water, surrounded by family.

Duval’s wife was a smoker for their 40 years together. He quit after 30 years. Losing his wife and other friends to smoking-related illnesses has turned Duval into something of an evangelist against smoking.

“I’m like a preacher on the sidewalk. If I see a young boy or girl smoking, I ask the person to talk,” he said.

If a settlement is ever reached, he said getting the money is not where the provincial governments should stop.

“That should not be the end. The governments should take another action to force them to stop selling tobacco of any kind.”

National Post

rtumilty@postmedia.com

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