The Ontario tobacco board and some growers have filed lawsuits, each for $50 million, against Imperial Tobacco Canada Ltd. and Rothmans, Benson & Hedges Inc., claiming damages to their interests the two companies caused while carrying on alleged "smuggling" activities.
The suits, filed in Ontario Superior Court in London against the cigarette manufacturers by the Ontario Flue-Cured Tobacco Growers' Marketing Board, Andy Jacko, Brian Baswick, Ron Kichler and Arpad Dobrentey, also seek class-action status.
They deal with a period of activities alleged to have been carried on by the companies between 1986 and 1996.
The claimants are also seeking an order for costs, for what could be lengthy legal proceedings.
Imperial and Rothmans have filed notices of intent to defend, but have not responded to requests for interviews about the suit.
Werner Keller, of the Windsorbased lawfirm Sutts, Strosberg LLP that is representing the claimants, said the accusations in the statements of claim represent the only public comments of his clients in the case.
Allegations in the statements of claim have not been proved in court.
Keller also noted that his clients have not been able to file a legal action against a third major tobacco manufacturer, JTI (RJR Macdonald), because that firm earlier was placed under court protection after filing under the federal Companies, Creditors Arrangements Act.
Such a court order also protects the company from lawsuits unless a court gives permission to bring one.
Sutts, Strosberg LLP has filed a motion for leave to bring its suit against JTI, but no decision has been made.
In the two suits filed, the board and the individual growers take issue with the actions of the two companies in buying and trading in Ontario tobacco grown under the board's supply management jurisdiction during the crop years 1986 to 1996.
It was also the same time period the federal government used in its action against the same companies, who later admitted they violated the Canada Excise Act by buying product under the export and duty-free regime and pretending to export it, only to bring it back into the Canadian market.
In exchange for their pleading guilty, the government won a $1-billion settlement from the companies in 2008, then later used some of the money to assist Ontario growers with a $300-million exit package and transition program.
During the class action 1986 to 1996 period, the Ontario Farm Products Marketing Commission had delegated to the board the ability to manage the supply of all tobacco grown in the province under a quota system, and sold through an auction exchange.
They dealt with the companies through an annual agreement that set out the terms and conditions of the sale of tobacco, the prices and quantities to be produced and marketed.
The agreements required the companies to pay to the board a guaranteed average price per pound for tobacco for domestic use and floor prices for each pound of tobacco to be used for duty free or export purposes. That price was normally lower.
The companies also were required to provide "proof of export" to the board's auditors, accurately disclosing the quantity of tobacco they delivered to the U.S. to be sold for duty free and export purposes.
The claim states that in 1986, duty-free and export tobacco represented between 1% and 3% of all domestic tobacco sold through the board.
Starting in 1987, federal and provincial taxes on tobacco products began to increase regularly and significantly until early 1994. During that period, purchases in Canada of legal tobacco products for domestic use declined significantly, but the duty-free and export percentage rise.
During the class-action period, Imperial and Rothmans "designated tobacco as being for export and duty free purposes, intending that it be smuggled into and sold in Canada," the two claims say.
"In the result, massive quantities of cigarettes and other tobacco products were smuggled back into Canada after (the companies) executed sham exports, leading to the distribution of these products throughout Canada on the black market."
The claims accuse the companies of not stamping the cigarette packages and cartons to conform to the Excise Act. That was not done, the claims say, "to facilitate the smuggling of cigarettes into Canada."
On July 31, 2008, Imperial and Rothmans pleaded guilty to violating the Excise Act by "aiding persons to sell or be in possession of tobacco products manufactured in Canada that were not packaged and were not stamped in conformity with the act.
By pleading guilty in the federal action, the claim states that Rothmans and Imperial were "admitting publicly for the first time involvement in smuggling operations."
In following those practices, the claim says, the two companies breached their agreements with the tobacco board by failing to report to its auditors the true amount of tobacco designated for export and duty-free purposes "which (they) knew or ought to have known would be smuggled into Canada."
Further, in not paying makeup payments they were supposed to have paid to the board, the claim says the companies "had the benefit" of them and used them for their business purposes, earning a 10%-plus internal rate of return.
The claimants' law firm is awaiting a statement of defence.