$500 Million lawsuit launched against federal & provincial governments

by Gary McHale - The Regional

November 3, 2010

In a press release by Findlay McCarthy LLP, the lawyers for the Caledonia Class Action, and the firm of McDonald/Ross, a law firm situated in the City of Cambridge, it states they have been "retained by Weninger Farms Ltd., which operates a farm in Oxford County, and Stanley and Linda Koscik, who operate a farm in Elgin County, on behalf of themselves and all tobacco producers throughout Canada."

The lawsuit seeks damages of $500 million against the Federal Ministry of National Revenue and the Ontario Ministry of Finance for 'misfeasance in public office of their servants and agents and for negligence." The Claim seeks additional punitive and aggravated damages to be determined by the Court along with pre and post-judgment interest. The lawsuit has been filed against the Federal government in Federal Court while a parallel Claim has been filed in Superior Court against the Ontario government.

The Claim states that the plaintiffs own and operate tobacco farms in Ontario and that Statistics Canada states that 98.9% of all tobacco farms in 2006 were in Ontario.  The marketing of tobacco is regulated by the Federal Excise Act, the Ontario Retail Sales Tax Act as well as the Ontario Tobacco Tax Act. Not only do these Acts impose taxes upon the tobacco product they also regulate the importation, stamping, marking, manufacturing and distribution of tobacco.

The Claim states that Canada and Ontario at all times have a public and statutory duty to administer and enforce these Acts.

Between 2001 and 2008, federally imposed taxes on cigarettes increased from $1.29 - $1.36 to $2.62 - $2.72 on a package of twenty-five cigarettes. At the same time, provincial taxes increased from $0.91 to $3.10 on the same pack. Currently 70-75% of the retail price of cigarettes sold legally in Canada is comprised of federal and provincial taxes.

The Claim states that since 2001 contraband tobacco products have increased dramatically and according to a 2008 RCMP report illegal tobacco products are sold in smoke shops, bingo parlours, flea markets and in the work place. The same report confirmed the presence of 315 smoke shops in Ontario in 2006 on first nation reserves and elsewhere.

These contraband cigarettes are openly advertised for sale on billboards on public highways and there is no police presence at the points of manufacture or sale of contraband tobacco products.

In 2001, the Plaintiffs produced and sold only 36.24% of their production quota or 117 million lbs. of tobacco by auction which generated $267,683,409 in revenue. By 2007, the sale had declined to 34.4 million lbs. of tobacco with a revenue of $55,342,338. By 2008 the Plaintiffs sales were reduced to a mere 8.52% of their production quota or 27.5 million lbs. of tobacco. This represents a 90% decrease in revenue by year end of 2008.

The Plaintiffs state that the Minister of Justice and the Attorney General of Canada, the Minister of National Revenue, the Minister of Public Safety and the Commissioner of the RCMP have knowingly and deliberately failed to enforce the Excise Act and state, "The Crown Agents have ignored flagrant violations of the prohibition on the sale of contraband tobacco products and have permitted open trade in contraband tobacco and tobacco products on first nation reserves and through illegal outlets established off the reserve."

Section 8 of the Excise Act states, "The Minister shall administer and enforce his Act..." The Plaintiffs state, "the Crown Agents have wilfully and deliberately failed to carry out the duty imposed by s.8 of the Excise Act by permitting the import, manufacture and sale of unstamped and improperly packaged tobacco products..."

Regarding Ontario government's obligation the Claim quotes from s. 4(1) of the Tobacco Tax Act which states, "The Minister may designate in writing any person to collect the tax imposed by this Act, and the person so designated shall be the agent of the Minister and shall collect and remit the tax to the Minister..."

The Plaintiffs state that Ontario is required to enforce the Tobacco Tax Act and that Ontario is wilfully and deliberately failing to enforce the provisions of the Tobacco Tax Act and the Retail Sales Tax Act by failing to ensure that tax was collected on every cigarette and on every gram or part gram of tobacco and on every cigar sold in Ontario at the rate prescribed in the Acts.

The Plaintiffs state that the decline in their sales of tobacco product was a direct and foreseeable consequence of the wilful failure of the Defendants to carry out their duties as set out in the various Acts. The Defendants knew that their failure to enforce the Acts would cause significant increases in the manufacturing and sale of contraband tobacco products and thereby cause substantial damage to the Plaintiffs.

The Plaintiffs claim the Defendants have a duty of care to the Plaintiffs to enforce the law and to provide adequate and effective police services to enforce the Acts. Since 2001 the Defendants have breached their duty of case and failed to enforce the Acts and failed to provide the police services needed to enforce the Acts.

The press release states, "the action has been supported by the New Tobacco Alliance Committee ("NTAC") which has been formed to advance the claims of tobacco farmers and draw public attention to the failure on the part of both levels of government to stop the sale of illegal tobacco products in Canada."

Of particular note is that the website for this Class Action has four photos posted which are all from Caledonia. The four photos are the Hydro Smoke Shack, Broken Promises Smoke Shack, Henhawk Smoke Shack and the remaining one on Argyle St.

For more information: www.TobaccoJusticeClassAction.com