The Canadian unit of cigarette manufacturing company Japan Tobacco recently won a landmark court protection which grants the company creditor protection. The ruling was issued to Japan Tobacco following its legal defeat regarding the risks of smoking which threatens the very existence of tobacco companies in Canada.
The court protection ruling was issued by the Ontario Superior Court. The court ruled in favor of Japan Tobacco-Macdonald Corporation after the company argued that the damage of CAD$1.177 billion (US$1.32 billion) exceeds the company's ability to pay. As part of the ruling, Japan Tobacco-Macdonald Corporation is tasked to make initial damages deposit of CAD$145 million.
Aside from Japan Tobacco, the Canadian units of Philip Morris International Inc. and British American Tobacco PLC were also ordered to pay damages which were initially estimated to be around CAD$17 billion. The massive damages suit was levied after the tobacco companies lost an appeal of class action lawsuits filed by Quebec smokers. In a later estimated, the entire tobacco industry was fined about CAD$13.5 billion. As a response, British American Tobacco PLC said that the ruling will most likely hit its profit and that the company has already set aside CAD$758 million in order to cover for the damages.
The recent defeat in Quebec is just one of the latest legal blows to the global tobacco industry. The industry has, for several years, been undergoing a major shift as countries start to impose stricter laws and regulations towards cigarette smoking and trading.
According to Japan Tobacco-Macdonald Corporation, the creditor protection which was cited under Canada's Companies' Creditors Arrangement Act was the company's best option in order to avoid total bankruptcy. The company said that it will appeal the ruling to the Supreme Court of Canada.
In a statement, Japan Tobacco-Macdonald Corporation said, "This extraordinary judgment forced JTI-Macdonald Corp. to seek protection under the CCAA to protect 500 Canadian jobs and carry on its business operations with minimal disruption."
Tobacco companies in Canada are facing stricter laws as some of the country's provinces are suing them in order to recover healthcare costs. Citing this particular claim, Ontario alone is set to claim damages of CAD$50 billion from various tobacco corporations.
According to some experts, the Canadian federal government will most likely step in to come up with a settlement because once cigarette manufacturers go under, it might open a new industry of illegal tobacco trade.
