Historic settlement approved, tobacco companies live on

Imperial Tobacco Canada Limited, 2025 ONSC 1358
What is the test for approval of a global settlement in a CCAA proceeding?

Summary: The Court has approved CCAA plans for JTI-Macdonald, Imperial Tobacco and Rothmans that will see them pay $32.5 billion over 20 years to settle approximately $1 trillion in claims against them — an “astronomical” amount that was clearly beyond their ability to satisfy. The Court noted that the mediator and the monitors had achieved an unprecedented consensus among the creditors of the tobacco companies, and approached with caution objections and recommendations made by the Heart and Stroke Foundation and the Canadian Cancer Society, as social stakeholders. The Court’s role in determining what is fair and reasonable for purposes of sanctioning a plan of arrangement does not extend to amending or rewriting CCAA plans to incorporate the concerns of social stakeholders, notwithstanding how laudable those concerns may be. The unanimous approval of the CCAA plans by affected creditors who voted reflected their belief that the CCAA plans are fair, reasonable and economically feasible. The Court held that it should not second-guess or displace the business judgment of the creditors who, with the tobacco companies, participated in the development of the CCAA plans in their best interests.

In March 2019, JTI-Macdonald Corp., Imperial Tobacco Canada Limited and Imperial Tobacco Company Limited, and Rothmans, Benson & Hedges Inc. (collectively, the “Tobacco Companies”) each obtained Initial Orders pursuant to the Companies’ Creditors Arrangement Act. In April 2019, a court-appointed mediator (the “Mediator”) was appointed in the CCAA proceedings to oversee and coordinate a multi-party, comprehensive mediation among the Tobacco Companies and their key stakeholders and mediate a global settlement of all claims and potential claims against them in respect of, among other things, the design, production, and marketing of tobacco products, and the development of any disease related to the use of tobacco products (collectively, the “Tobacco Claims”).

On October 5, 2023, the court directed the respective Monitors to work with the Mediator to develop a plan of compromise or arrangement for each Tobacco Company. Ultimately, CCAA Plans were unanimously approved by Affected Creditors voting in person or by proxy at each of the three Meetings of Affected Creditors and the double majority required by the CCAA was achieved for each CCAA Plan. Consequently, the Monitors brought motions in each of the CCAA proceedings for Sanction Orders approving and sanctioning the CCAA Plans and Orders authorizing and directing CCAA Plan Administrators, the Mediator and the Tobacco Companies to implement the CCAA Plans.

The global settlement of all Tobacco Claims in Canada involves the concurrent resolution of the CCAA Proceedings of the Tobacco Companies in accordance with the terms of the CCAA Plans. The complexity of the structure of the CCAA Plans to settle the Tobacco Claims and the implementation and administration of the terms of the CCAA Plans over an estimated twenty-year Contribution Period necessitate continuing oversight of the Tobacco Companies throughout the Contribution Period. The CCAA Plans provide compensation to Affected Creditors based on future earnings of the Tobacco Companies over a Contribution Period that is currently estimated to span twenty years.

To obtain the global settlement, the Tobacco Companies will pay all but $750 million of their aggregate cash on hand upfront, and the majority of their future Net After-Tax Income until the Global Settlement Amount of $32.5 billion is paid in full. In return, the Tobacco Companies will receive a release of all Tobacco Claims by all Persons having an Affected Claim or a Released Claim, including provinces and territories who commenced actions to recover the cost of health care benefits caused or contributed to by a tobacco-related wrong. In short, the CCAA Plans will bring finality to thirty years of litigation in Canada against the Tobacco Companies.

The CCAA Plans had the support of all three Tobacco Companies and their respective Monitors. Two organizations expressed opposition to the CCAA Plans in their current form: the Heart and Stroke Foundation of Canada (“HSF”) and the Canadian Cancer Society (“CCS”). HSF submitted that the CCAA Plans did not meet the third part of the test to sanction a plan because the CCAA Plans were not in the public interest and did not address or protect the legitimate interests of stakeholders. CCS submitted that the CCAA Plans should be modified to ensure there is not a release to protect tobacco companies from liability for future wrongful conduct after the effective time.

The Court noted that the Mediator and the Monitors achieved an unprecedented consensus among the creditors of the Tobacco Companies. Having regard to such widespread support for the CCAA Plans, the Court held that the recommendations offered by HSF and CCS, as social stakeholders, were to be approached with great caution. The Court’s role in determining what is fair and reasonable for purposes of sanctioning a plan of arrangement does not extend to amending or rewriting the CCAA Plans to incorporate the concerns of social stakeholders, notwithstanding how laudable those concerns may be.

The solutions and suggestions provided by HSF and CCS were, in the Court’s view, unworkable. In essence, HSF and CCS sought to amend the CCAA Plans notwithstanding that the Court’s decision was a binary one (i.e. either reject or approve the CCAA Plans). It is not the role or the function of the Court to redraft or amend the CCAA Plans. The views expressed by HSF and CCS were important to consider, but the Court found that they had been taken into account by the drafters of the CCAA Plans. Specifically, the establishment of a $1 billion public charitable foundation to provide indirect benefits to individuals residing in all Provinces and Territories who are suffering from tobacco-related harms and do not fulfill the criteria to qualify to receive compensation under the CCAA Plans showed that the CCAA Plans had taken into account the interests of social stakeholders and the public at large.

In seeking approval of a plan of compromise or arrangement under the CCAA, the debtor company must establish that:

1. There has been strict compliance with all statutory requirements;

2. Nothing has been done or purported to be done that is not authorized by the CCAA and prior orders of the Court in the CCAA proceedings; and

3. The plan must be fair and reasonable.

With respect to the third factor, in reviewing the fairness and reasonableness of the CCAA Plans, the Court does not and should not require perfection. The Court should be informed by the objectives of the CCAA, namely, to facilitate the reorganization of a debtor company for the benefit of the company, its creditors, employees and, in many instances, a much broader constituency of affected persons. Factors that establish that a plan is fair and reasonable include: (i) the claims are properly classified; (ii) the plan was approved by the double majority of creditors as required by the CCAA; (iii) there is no viable alternative to the plan; and (iv) the public interest.

The Court found that the statutory requirements for the sanction of the CCAA Plans under s. 6 of the CCAA were satisfied. Throughout the course of these CCAA Proceedings, the Tobacco Companies, the Monitors and the Court-Appointed Mediator acted in good faith and with due diligence, and complied with the requirements of the CCAA and the Orders of the Court.

The unanimous approval of the CCAA Plans by Affected Creditors voting in person, or by proxy at the meetings, reflected their belief in exercising their business judgment, that the CCAA Plans are fair, reasonable and economically feasible. The Court held that it should not second-guess or displace the business judgment of the Affected Creditors who, with the Tobacco Companies, participated in the development of the CCAA Plans in their best interests. Further, the Monitors’ and the Mediator’s determination that there was no “alternative transaction that would provide greater recovery than the recoveries contemplated in the Plans” weighed in favour of a finding that the CCAA Plans were fair and reasonable.

The Tobacco Companies faced aggregate liability of approximately $1 trillion arising from the Tobacco Claims. The “astronomical” dollar value of potential claims “is clearly beyond the ability for any or all of the [Tobacco Companies] to satisfy”. If the CCAA Plans were not sanctioned and implemented, the likely outcome would be the liquidation or bankruptcy of the Tobacco Companies. The CCAA Plans provide meaningful recovery to Affected Creditors and allow the Tobacco Companies to continue as going concerns, which will benefit their employees, suppliers and other stakeholders.

The Court granted the Monitors’ motions to sanction the respective CCAA Plans.

Judge: Chief Justice Morawetz

Professionals involved:

• Natasha MacParland, Chanakya Sethi and Anisha Visvanatha of Davies for FTI as Monitor of Imperial Tobacco

• Shayne Kukulowicz and Monique Sassi of Cassels for EY as Monitor of Rothmans, Benson & Hedges

• Pamela Huff, Linc Rogers, Jake Harris and Katrina Banham of Blakes for Deloitte as Monitor of JTI-Macdonald

• Deborah Glendinning, Marc Wasserman, Martino Calvaruso, Craig Lockwood and Marleigh Dick of Osler for Imperial Tobacco

• Michael Feder, K.C., Paul Steep, Heather Meredith, Deborah Templer, Trevor Courtis, Jamey Gage and Meena Alnajar of McCarthy Tetrault for Rothmans, Benson & Hedges

• Robert Thornton, Leanne Williams, Scott McGrath, Mitch Grossell, Rushi Chakrabarti and Rebekah O’Hare of TGF for JTI-Macdonald

• Maria Konyukhova and David Byers of Stikeman Elliott for British American Tobacco

• Vern DaRe of Fogler Rubinoff and Robert Cunningham for the Canadian Cancer Society

• Edward Park for Canada Revenue Agency

• Avram Fishman, Mark Meland and Tina Silverstein of Fishman Flanz; André Lespérance, Philippe Trudel and Bruce Johnson of TJL; Gordon Kugler of Kugler Kandestin; and Harvey Chaiton of Chaitons for the Quebec Class Action Plaintiffs

• Jacqueline Wall for the Province of Ontario

• Linda Plumpton, Jeremy Opolsky, Scott Bomhof, Adam Slavens and Alec Angle of Torys for JT Canada LLC and PwC as Receiver of JTI-Macdonald TM Corp.

• Clifton Prophet and Nicholas Kluge of Gowling WLG for Philip Morris International Inc.

• David Ullmann of Blaney McMurtry for La Nordique Compagnie D’Assurance du Canada

• Raymond Wagner, K.C., Kate Boyle and Maddy Carter of Wagners, Representative Counsel for the Pan-Canadian Claimants

• Stacy Petriuk and Laura Comfort for the Province of Alberta

• Jesse Mighton, Jeffrey Leon, Mike Eizenga, Preet Gill and Shawn Kirkman of Bennett Jones; André Michael of Siskinds; Peter Lawless, K.C., Edward Gores, K.C., Michael Peerless and Jordan Wong for various provinces and territories in their capacities as plaintiffs in the HCCR Legislation Claims

• Glenda Best, K.C. of Roebothan McKay Marshall and Ken McClain for the Province of Newfoundland and Labrador

• Brett Harrison and Guneev Bhinder of McMillan for the Province of Quebec

• Patrick Flaherty, Bryan McLeese and Claire Wortsman of Chernos Flaherty Svonkin; and Justin Safayeni and Patrick Carl of Stockwoods for R.J. Reynolds

• Ari Kaplan, Representative Counsel for Former Genstar U.S. Retiree Group Committee

• Steven Weisz and Dilina Lallani of Cozen O’Connor for Grand River Enterprises Six Nations

• James Bunting and Sam Cotton of Tyr for Heart and Stroke Foundation

• Douglas Lennox and David Klein of Klein Lawyers for Representative Plaintiff, Kenneth Knight, in the Certified British Columbia Class Action

• William Sasso and David Robins of SWS Litigation for The Ontario Flue-Cured Tobacco Growers’ Marketing Board

• Matthew Gottlieb and Andrew Winton of Lax O’Sullivan for The Honourable Warren K. Winkler, K.C., Court-Appointed Mediator