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The tobacco industry is close to ending a long-running Canadian lawsuit, after a court-appointed mediator for British American Tobacco, Philip Morris International and Japan Tobacco proposed a C$32.5bn ($23.6bn) settlement.
The companies have been negotiating a possible resolution to the litigation after a Quebec court ordered their Canadian subsidiaries to pay C$15.6bn damages in 2015 to compensate smokers for health problems, marking the largest damages award in the country’s history.
PMI said on Friday that under the proposal, the settlement would be paid by its unit Rothmans, Benson & Hedges (RBH), and the Canadian units of the two other tobacco companies. The allocation of the amount between the companies in the proceedings remained unresolved, it added.
Upfront payments will be funded from cash in the companies and deposits made into court, while ongoing payments will be determined by the three companies’ profits from tobacco products in Canada. Contributions will start at 85 per cent of net profit, with a 5 per cent reduction every five years to 70 per cent after 15 years, it said.
It added that voting on the plan would happen in December and if accepted by claimants, a hearing to consider approval of the plan would be expected in the first half of next year.
The plan brings a potential end to litigation that has hung over the companies for more than two decades, and was brought on behalf of two groups of smokers, including people who had developed throat and lung cancer, and others who were addicted to nicotine. The class action suits were the first in Canada in which damages were ordered against the industry to compensate smokers for health problems.
“After years of mediation, we welcome this important step towards the resolution of long-pending tobacco product-related litigation in Canada,” said Jacek Olczak, the chief executive PMI.
“Although important issues with the plan remain to be resolved, we are hopeful that this legal process will soon conclude, allowing RBH and its stakeholders to focus on the future,” he added.
Rae Maile, analyst at Panmure Liberum said the proposed settlement was a relief for investors, as it does not involve cost beyond Canada, and will not impact growing segments such as vaping, heat-not-burn and nicotine pouches.
“The companies will still be able to make money from these newer areas, provided that [they] get enough scale to make money,” he said.
PMI’s announcement follows BAT’s earlier on Friday, which confirmed that a compromise and arrangement plan had been filed by a court-appointed mediator in the Ontario Superior Court of Justice, but did not disclose the details.
BAT’s unit Imperial Tobacco Canada (ITCAN), RBH and JT’s Canadian subsidiary JTI-Macdonald all filed for bankruptcy protection in 2019 soon after a Quebec court upheld the 2015 decision after the industry appealed.
“Today marks a positive step towards finding a resolution,” said BAT on Friday. “This has been a complex, confidential mediation and . . . we are hopeful of a quick conclusion to this process and securing a Canadian settlement for the benefit of all stakeholders.”
JTI-Macdonald said it had been “actively engaged in the confidential mediation” but added there were “certain critical issues that would need to be resolved if we are to find a settlement plan that is workable”.
BAT shares were down 4 per cent on Friday.
