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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 clean-ups 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.
THE CASE
The matter was brought on behalf of two classes of plaintiff – smokers who smoked at least 15 cigarettes a day for five years and contracted cancer as a result, as well as others who were addicted to nicotine.
Their lawyers argued the cigarette companies hid knowledge of the health risks of smoking, as well as its addictiveness, during the 48 years to 1998. BAT held a controlling stake in Imperial during this period.
The judge found Imperial’s internal experts knew about these risks at least as far back as April and May 1958, when three of its scientists toured North America seeking information from other experts on the extent to which it was accepted that cigarette smoke caused cancer.
This resulted in a 10-page report with the almost unanimous response that there was a link between smoking and cancer. But nobody in the Canadian industry said anything publicly, adopting a “policy of silence”.
In July 1972, BAT scientist SJ Green wrote an internal memo, urging the company to admit the link between smoking and disease.
“I believe it will not be possible indefinitely to maintain the rather hollow ‘we are not doctors’ stance. In my view, it would be best to be in a position to say in public what was believed in private. The association of cigarette smoking and some diseases is factual,” he wrote.
Company executives were also discussing the addictive effects of smoking by 1976 internally. One executive drew up a report for another, stating: “For some reason, tobacco adversaries have not, as yet, paid too much attention to the addictiveness of smoking. This could become a very serious issue if someone attacked us on this front. I think we should study this subject in depth, with a view towards developing products that would provide the same satisfaction as today’s cigarette without ‘enslaving’ consumers.”
But the company failed to issue warnings about its products, and only did so when presented with threats of legislation. The first health warning started appearing on cigarette packs in 1972. It read: “The department of national health and welfare advises that danger to health increases with amount smoked.”
The next one, in 1975, advised that “danger to health increases with amount smoked – avoid inhaling.”
“The remarkably naive admonition to avoid inhaling ... must have inspired either a hearty chuckle or a cynical shake of the head in most smokers,” said Riordan.
More specific warnings, such as “smoking reduces life expectancy” – started circulating in the late 1980s.
Addiction warnings only started circulating in 1994.
“It would have taken some time for that one message to circulate widely enough to have sufficient force,” said Riordan. “The impact of decades of silence and mixed messages is not halted on a dime.”
It was on this basis that the three companies were held responsible for knowingly failing to warn users about their products.
