BAT Canada Gets Court Protection After Defeat in Quebec Case

(Bloomberg) -- British American Tobacco Plc’s Canadian unit won court protection from creditors, becoming the second major tobacco company to seek relief after a legal defeat over the risks of smoking.

BAT’s Imperial Tobacco Canada was granted protection by the Ontario Superior Court, the company said in a statement Tuesday. The decision lets the unit continue operating its businesses normally, and follows a similar move by Japan Tobacco Inc.’s JTI-Macdonald unit last week. BAT shares fell 1.5 percent Wednesday morning in London.

The Canadian units of BAT, Japan Tobacco and Philip Morris International Inc. were ordered earlier this month to pay damages estimated at about C$13.6 billion ($10 billion) after losing an appeal of class actions filed by Quebec smokers seeking damages. BAT had said last week the ruling would hit its profit and set aside C$758 million to cover damages.

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Imperial Tobacco Canada said its share of the judgment amounts to as much as C$9.2 billion. The company said if it had not obtained court protection, it could have been required to pay all or part of JTI-Macdonald’s share in addition to its own.

The legal defeat in Quebec was the latest blow to global tobacco companies, which have been undergoing a major shift as they try to lower their reliance on traditional cigarettes, seeking a future with alternative products as smoking demand wanes and countries tighten regulations.

Analysts had warned that if Big Tobacco loses the Quebec cases, it could bankrupt the industry in Canada. The case stems from litigation originally filed in 1998, and involved the first damages against the industry in Canada. The lawsuits were in favor of smokers seeking damages for addiction and smoking-related diseases, who argued they were never warned of the risks.

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The industry faces other cases in Canada, where the country’s provinces are also suing the tobacco industry to recover health-care costs.

The move by BAT’s unit is likely to stoke further anger among plaintiffs in the Quebec case, who have criticized the protection awarded Friday to Japan Tobacco’s unit, which suspended proceedings in the class action for all tobacco companies. The order also suspended until April 5 cases by Canadian provincial governments to recover medicare costs.

“We are extremely surprised and disappointed that one judge of the Ontario Superior Court can ... suspend the exercise of the rights of tobacco victims, and at the same time allow tobacco companies to continue to rake in billions in profits,” Mario Bujold, a strategic adviser to the Quebec Council on Tobacco and Health, said in a statement Monday.

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