BAT to cough up billions in Canada for tobacco suit
In one of the largest awards against big tobacco, the jewel in Reinet Investments’ crown has just been hit with an order to pay billions in moral and punitive damages for endangering smokers in Canada, but has made no provision for the payment.
So confident was British American Tobacco (BAT) – in which business tycoon Johann Rupert’s Reinet has a significant interest – of winning the 17-year-old litigation concluded in December, that it only planned to make provision for it when it became likely that there would be an “unfavourable outcome” and the amount could reasonably be estimated.
BAT is Reinet’s single largest investment, representing almost 73% of Reinet’s net asset value by March last year, its latest reported period. It is a lucrative investment, with Reinet receiving dividends of £106 million (R2 billion at the current exchange rate) from it last year.
“Judgment is anticipated in 2015 and is appealable,” it said on publication of the report last year.
But on Monday, Judge Brian Riordan of the Quebec Superior Court in Canada, in two class actions, found BAT subsidiary Imperial Tobacco, along with two tobacco manufacturers, guilty of failing in their general duty not to cause injury to another person and failing to inform customers of the dangers of their products between 1950 and 1998.
He levied C$1.2 billion (R11.8 billion) – excluding interest – in moral and punitive damages against all three companies, apportioned in terms of each company’s market share. But Imperial’s attempts to block certain documents from being introduced into evidence prompted the judge to increase its share of the damages.
This means BAT’s subsidiary has to pay damages of C$10.4 billion when interest is included.
News of the ruling shaved 2.41% off BAT’s share price in London trading on Tuesday, and it was down 1.66% in Johannesburg.
Riordan threw a spanner in BAT’s works when he also ruled the tobacco companies should pay part of the damages within 60 days of his judgment if they planned to appeal.
He said it was “high time” the companies started to pay for their sins and the plaintiffs received some relief for the financial burden of bringing them to justice after so many years. Imperial’s share is C$743 million. BAT spokesperson Will Hill said being required to pay such a sum to exercise the legal right to appeal was “unprecedented and egregious”, and it was not clear to him why Imperial was asked to pay it when the largest provisional execution order enforced in a Quebec class action to date had been just C$50 000.
He said Imperial advised BAT that there were very strong grounds for an appeal against the judgment as well as the provisional execution order, and this challenge would be lodged within the next month.
“Legal tobacco manufacturers should not be held accountable for adult consumers’ personal choice,” said Hill.
By December, BAT had an amount of £488 million recorded in its annual report under “other provisions for liabilities and charges”. This was split between charges for business restructuring, employee benefits, a liability recognised for toxic chemical cleanups and “other provisions”.
These other provisions include disputes. The recorded amount of £184 million is far short of the amount BAT’s subsidiary must pay if it wants to appeal.
The annual report shed no light on the legal fees Imperial spent defending the case, and Hill did not respond to questions on this score.