Canada - tobacco companies may face C$200 billion in claims..

October 22, 2009 - Tobacco companies that operate in Canada may face at least C$200 billion ($192 billion) in claims from governments seeking compensation for treatment of smoking-related illnesses and lost taxes from smuggling, an Ontario judge said. “On these two tracks, we have to be talking a couple hundred billion,” Superior Court Judge Peter Cumming said at a hearing in Toronto today.

Ontario, Canada’s most populous province, has sued tobacco manufacturers and is seeking C$50 billion to cover the costs of treating smokers in the government-funded health-care system for cancer and other tobacco-related illnesses. British Columbia was the first province to sue and is seeking unspecified damages as is New Brunswick. Quebec has said it plans to sue and will likely seek about C$30 billion, said Laura Donaldson, an attorney for British Columbia.

The tobacco companies may also face further claims from provinces alleging they lost taxes because the companies exported Canadian cigarettes to the U.S. in the 1990s, knowing they would be smuggled back into Canada for resale on the black market. Provinces also claim smuggling led to an increase in smoking among youth, adding to the health-care costs.

Imperial Tobacco Canada Ltd. and Rothmans agreed last year to pay about C$1.15 billion in fines and penalties to settle a federal smuggling case. JTI-MacDonald, the Canadian unit of Japan Tobacco Inc. (JTI) and the third-biggest Canadian cigarette manufacturer, wasn’t a part of the settlement.

JTI won bankruptcy protection in 2004 after Quebec’s Ministry of Revenue demanded a C$1.4 billion payment for lost taxes from smuggling. The company said it had C$1.81 billion in assets and C$1.8 billion in liabilities.

Canadian provinces trying to force JTI to settle these health-care claims. (Canada Provinces Accused of Misusing JTI Bankruptcy (Update2) by Joe Schneider, Bloomberg.com, 10/20/2009)

JTI assumed all the liabilities in a 1999 restructuring when debt from companies associated with Japan Tobacco was imposed on the Canadian unit to make it judgment-proof, Donaldson said. (May 12, 1999 - RJR Nabisco sells international tobacco business to Japan Tobacco..

British Columbia, Ontario and New Brunswick asked the judge to put a time limit on new health-care recovery lawsuits and allow pending claims to be included among the creditors in JTI’s bankruptcy. The company, Canada’s federal government and Ernst & Young Inc., the accounting firm appointed by the court to oversee JTI’s operations while in bankruptcy, opposed the request.

The provinces are concerned the smuggling claims may be settled for pennies on the dollar and nothing will be left for the health-care claims if they’re not included among the creditors, Davidson said.

“I don’t want to clutter up the disposition of the smuggling case,” Cumming said. “There’s so much horse-trading here.”

The judge reserved his decision, saying it will take some time to consider the request. He noted there wasn’t any urgency in disposing of the request.

The case is Between JTI-MacDonald and the Attorney General of Canada, 04-cl-5530, Ontario Superior Court of Justice (Toronto)

Reference: Tobacco Companies May Face C$200 Billion in Canadian Claims by Joe Schneider (jschneider5@bloomberg.net), Bloomberg.com, 10/21/2009.