Philip Morris International (NYSE:PM.N), British American Tobacco (LON:BATS.L), and Japan Tobacco (2914.T) have reached a proposed settlement of C$32.5 billion ($23.6 billion) to resolve a long-running legal dispute in Canada.
The settlement comes after nearly a decade of litigation, following a 2015 Quebec court ruling that awarded damages to over 100,000 smokers and ex-smokers who argued that the companies had failed to adequately warn consumers of the health risks associated with smoking.
The proposal is part of a mediation process overseen by a court-appointed mediator.
2015 court ruling awarded C$15 billion in damages
The legal battle began in 2015 when a Quebec court ruled against the Canadian subsidiaries of Philip Morris, British American Tobacco, and Japan Tobacco.
The judgment awarded approximately C$15 billion in damages to smokers in Quebec who claimed that the companies had known about the health risks of smoking since the 1950s but continued to sell their products without proper warnings.
After the court upheld the ruling in 2019, the Canadian units sought bankruptcy protection, allowing time for negotiations on a potential settlement.
Mediation process leads to multi-billion dollar proposal
Under court supervision, the Canadian subsidiaries of the three tobacco giants have been negotiating the terms of a settlement.
Although the aggregate settlement amount of C$32.5 billion has been set, the allocation of this sum among Philip Morris, British American Tobacco, and Japan Tobacco has yet to be finalised.
The companies remain optimistic that the legal process will conclude soon, with Philip Morris’ CEO Jacek Olczak expressing hope that their Canadian unit, Rothmans, Benson & Hedges (RBH), can shift focus to future business operations.
BAT calls the proposed plan a ‘positive step’
British American Tobacco, which owns Imperial Tobacco Canada, has described the proposed settlement as a positive step towards resolution.
While the company refrained from providing specific details of the plan, it emphasised its support for the settlement framework.
The company plans to use available cash reserves and future cash flow from Canadian tobacco sales to fund its portion of the settlement.
Despite this announcement, British American Tobacco’s shares dropped by 3% on Friday morning, reflecting investor caution.
Philip Morris anticipates voting on the plan in December
The proposed settlement plan requires approval from claimants before proceeding.
Philip Morris has stated that a vote is expected to take place in December 2024, with a subsequent court hearing to approve the plan likely in the first half of 2025, if the vote passes.
A successful vote would end years of uncertainty for the tobacco companies’ Canadian operations, which have been operating under bankruptcy protection and facing significant financial liabilities.
Settlement marks a significant shift in Canadian tobacco litigation
This settlement, if approved, would be one of the largest in Canadian legal history and a turning point in tobacco litigation within the country.
The case has highlighted the long-term health implications of smoking and the responsibilities of tobacco companies to disclose risks to consumers.
It also underscores the significant financial impact that such litigation can have on major global players like Philip Morris, British American Tobacco, and Japan Tobacco, as they navigate ongoing legal challenges in different jurisdictions.