Tobacco Documents Online

986 451 I0 15 20 25 Q- Hum, hum. And do you believe that to be accurate? A- Yes, I do. Q- The document that you're looking at, RJR-3, was computer generated specifically for this case and I think it was done on the twenty-first (21st) of April nineteen eighty-nine (1989), is that correct? A- Yes. Q- Are you prepared, as former chairman of RJR-Macdonald, to produce your company's financial statements for the years nineteen seventy-six (1976) through nineteen eighty-seven (1987), Mr. Hoult, so the Court can verify the numbers in connectionwith advertising and expenditures for the period covered in the document already produced, which is RJR-3? Me IRVING: My Lord, I am going to object to filing the financial statements of the company for two (2) years. If my friend thinks there is something in particular about research or else let him ask the question and then Mr. Hoult will certainly undertake to have it checked. But it would be sntirely inappropriate to, all of a sudden, file financial statements of a private company, I may say, on a basis like that and burden the record. I might -- may I suggest my friend asks the question, if he thinks there something wrong, and we'll AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ~s L,~e

987 452 5 i0 15 20 25 provide him with the answer. Me BAKER: It's not -- to begin, My Lord, it's not a question of burdening the record, it doesn't necessarily follow that once having looked at the documents, one is necessarily going to file those documents in the record. I believe that we are entitled to a reasonable verification of the numbers that came out of the computer. There is no way to do it other than by going to the source, which is a certified financial statement, which I'm sure this company has got and has got very readily available. If it's relevant, it will be filed, if it's not relevant, I can assure Your Lordship there will be no attempt to file the financial statements. Me IRVING: May I see the other document you were looking at? Me BAKER: Yes. It's your document that you produced, number 2. Me IRVING: Can we just look at it for a moment, please? THE COURT: Well, that could be discussed at the break, between the two (2) of you. It is obvious, I mean we're not going to have the witness look through all of these financial statements while he testifies. He can do that... AUDIOTRANSCRIPT, Di~i,io. d~ P;erre Vilaire & AssociCs Lt~e

988 453 5 10 15 2O 2S Me BAKER: I don't need the witness to look through them at all, My Lord. I want to look through them. Me IRVING: My Lord, if my friend has reason to believe that the exhibit which was filed wrongly states the figures for research, then he must have something on which he bases that. Let him put it to the witness, we will double check it. But it is not proper, in my submission, for Mr. Baker to simply say: Well, there's a figure here of one point seven million ($1,700,000), are you sure that's all, I want to see the financial statements of the company. I mean if we're going to proceed that way, cross-examination is going to take weeks. If he has some reason to doubt that figure, then let him put the question. THE COURT: Well, what I suggest is that you speak to one another during the lunch break, and probably that could be smoothed. Me IRVING: I mean, my friend knows the financial statements of the company are in Toronto, they cannot be made available here this afternoon, which is when Mr. Hoult's evidence AUDIOTRANSCRIPT, Di,,i,~o~, de P~erre ViComte & ASsOCi~, Lt'~e

989 454 5 10 15 2O 25 should finish. Me BAKER: No, Mr. Hoult's testimony may not well finish this afternoon, Mr. Irving, and this trial is not centered around Mr. Hoult's travel schedule. So if it is appropriate and the Court determines that it's fair, proper and reasonable to have those statements, then Mr. Hoult will stay. THE COURT: Well, at this stage, I think we're losing time, let's proceed with some other questions and we'll come back to these questions. Me BAKER: So I take it then, My Lord, that you want us to try and negotiate an agreement in respect of the company's statements? THE COURT: Yes. If you can, if not, we'll decide. Me BAKER: Fine. THE COURT: I don't want to lose time in looking through that. BY Me BAKER: Q- When you talked about children, or people under eighteen (18) to whom you don't advertise and who your company AUDIOTRANSCRIPT, Division de Pierre Vilolre 8, Associ~s L,ge

990 455 AD i0 A- 15 20 Q- A- 25 Q- does not wish to smoke, you spoke of information they should have, and referred to newspapers and things like that, newspaper articles, I believe, and... Trying to draw the comparison between the adult exposure and the child's exposure, that's all. And is it your testimony that the children don't read these newspapers and don't read these magazine articles and don't watch television and therefore aren't exposed to the kind of information that would let them understand that there is a risk that their parents might know about, so the parents can make an adult choice, is that what you're suggesting? I'm suggesting that as people approach adulthood, they are more interested in matters of controversy, more abstract matters, and it's just our company position that this is an adult custom and we want adults to smoke, not children. So that's why we don't advertise to children and that's all I can say, Mr. Baker. We have taken an arbitrary age of eighteen (18), which, as I say, is two (2) years older than the age that the Canadian Government takes, but that's our position. And you don't try to help prevent them from starting? No, we don't. We don't think we are qualified or credible to do that and... Who would be qualified? AUDIOTRANSCRIPT, Di~,~oo a~ ~;erre Vii(mire ~, Asso¢i~s Ll~e

991 456 i0 15 2O 25 Aq 5 Q- In my view, Mr. Baker, the corollary of what I have been saying is that I don't believe any interference either by the tobacco companies or any other authorities will cause children to smoke or not to smoke. Not to smoke. I think there are other social factors which are bigger than any single authority. I see. You're suggesting that it would sort of require a total effort by society? If it were determined by society that this was one of their major priorities, yes, and I don't know whether it would necessarily work then. If you take any other field, I mean the most concerning to us all now, perhaps, is the drug situation. I don't think the efforts of governments there have yet shown themselves to be very effective. But what kind of actions would you be talking about, if it's not the tobacco companies and it's not the government, then what would, in your view... Mr. Baker, I don't know. You don't know? I think this is an issue which is far bigger than my qualifications. I think you would have to have a panel of psychologists, sociologists and teachers and many others. AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ@s LtEe

992 457 Q- Yes. THE COURT: Okay. HUM, hum, We'll resume at two fifteen (14h15). AUDIOTRANSCRIPT, Division de

993 458 i0 15 20 25 In the year of Our Lord, nineteen hundred and eighty-nine (1989), on this twenty-seventh (27th) day of the month of September, PERSONALLY CAME AND APPEARED: PETER HOULT WHO, having previously been sworn on the Holy Bible, doth depose and say as follows: Me POTTER: For Imperial Tobacco, Simon Potter, Lyndon Barnes, Pierre Bienvenu, Craig Bordan. Me IRVING: For RJR-Macdonald, Colin Irving and Georges Thibaudeau. Me BAKER: For the Attorney General of Canada, Roger Baker, Claude Joyal, James Mabbutt, Paul Evraire, Lise Tremblay. THE COURT: Maitre Bienvenu, vous m'aviez remis une copie puis je l'avais d~j~, cette transcription-iA. Me BIENVENU: Ah bon, alors ga devait ~tre la mienne. THE COURT: Non, celle-l~ c'est la bonne. Je pensais que c'~tait celle du vingt-six (26), c'~tait celle du vingt-cinq AUDIOTRANSCRIPT, Division de Pierre Viloire & Associgs Ll~e

994 459 i0 15 2O 25 (25). Me BAKER: My Lord, I regret to advise you, we have achieved no agreement, which means to say that I've requested the financial statements of the company from nineteen seventy-six (1976) through nineteen eighty-seven (1987) consistent with the years for which my friend produced some financials and my friend categorically refuses to make them available. Me IRVING: My Lord, we are now at the trial, My Lord. And my friend examined Mr. Hoult for discovery for six (6) days, as you have heard in the evidence. There is no reason advanced to suggest that anything in the Exhibit which was filed was wrong. A great number of those figures are confirmed by other Exhibits already filed, the operating plan, Tab 2 of the book, for example. There is simply no basis in my submission at all for a request like this, which is nothing but a fishing expedition, to bring all of the financial statements of the company for a ten (i0) year period simply to satisfy my friend's curiosity. That's what discovery is for. My friend might care to suggest, My Lord, whether -- he started this morning by dealing with the figures on research, and for one year it was one point seven AUDIOTRANSCRIPT, Division de Pierre Vilalre 8, Associ~s U4e

995 460 5 i0 15 2O 25 (1.7) million. Now, I gathered from what he said that he had some doubt whether that figure was correct or not. I don't know the basis of that doubt. I don't know whether -- what difference it makes if it's one point one (1.8) or one point six (1.6), but the figure is one point seven (1.7), and it's highly improper, in my submission, at this stage, after extensive discovery, to simply say, "well, I want to see all the financial statements." I might say the financial statements won't show that anyway, because financial statements will show gross figures, they won't show a breakdown as detailed as that. So it would be for nothing in any event. But I resist that request on that ground, My Lord, that is what discovery is for. My friend had all those figures at the discovery. He asked for some additional information, he didn't ask for anything in addition concerning research. That was the time to do it and not now. If he thinks there's something wrong, he should put to the witness that there's something wrong. But not simply say: "Well, I want ten (I0) years of financial statements." And as I say to the Court, those figures won't be in the financial statements. THE COURT: Yes. AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ@s Ll4e

996 461 i0 15 20 25 Me BAKER: In the course of several sessions before Your Lordship, beginning mid-December, nineteen eighty-eight (1988), if I heard it once, I heard it several times that I was getting documents from my friends prior to discovery and prior to trial, simply by leave of their largesse, as it were. My friend is quite wrong, there isn't necessarily a time for a certain kind of document as opposed to a time for another kind of document. This is a trial. He has opened the door wide by the introduction of this document showing some of their expenses going back an eleven (Ii) year period, and my friend is quite wrong in his inference that I suspect that there is something amiss or wrong or perhaps even dishonest about the document that has been filed. all. That's not the case at As I told you this morning, My Lord, all I want to do is be able to verify the figures that have been presented to the Court and the only way to do that is by a serious certified, audited financial statement, which this is not. This has come out of a computer printout on the twenty-fourth (24th) of April, nineteen eighty-nine (1989) for this case and only for this case. That is not the best evidence of what was spent by this company in an eleven (II) year period for their AUDIOTRANSCRIPT, Division de Pierre Vilalre & Associ4s Ll4e

997 462 i0 15 20 25 advertising. It is incorrect to say, my friend wants to argue the point that it is not in issue whether advertising expenses trigger an increasing consumption. Maybe they do, maybe they don't, but I certainly don't have their figures, and it is in issue, because it is in the Crown's contestation of this case. So, a) it is relevant, b) they have opened the door wide for the request, and it doesn't necessarily mean that the record is going to be encumbered by eleven (ii) years of financial statements. We may not deal with them at all. THE COURT: Yes, but what you're trying to get by those statements is just a verification of a testimony. That's not a document pertaining to the issue. You only want to verify something. Me BAKER: My Lord, they have filed a document. I'm not satisfied with the document that they have filed. This came out of a computer. I have no way to know whether this document is accurate, whether the computer person made an error, whether things were left out of this document deliberately or inadvertently, and I cast no aspersions on any person. This is a document produced only for the AUDIOTRANSCRIPT, Division de Pierre Viloire 8. A,SocJ~s L,~e

998 463 i0 15 20 25 record of this trial. But they have documents that go back eleven (ll) years that are certified financial statements that are the real documents of the company, as it were, and I think we're entitled to see those documents to put them to the proof. That is the best evidence of what was actually spent on advertising and marketing and promotion over an eleven (ii) year period. Me IRVING: Well, My Lord, my friend says, he has no way of verifying. If he would trouble to read the exhibits which have already been filed, he'd find many of these figures are in those exhibits. He should ask Mr. Hoult, perhaps, whether the certified financial statements will show the figure he was looking at this morning, which was the research figure for nineteen eighty-seven (1987). I say to Mr. Baker, I say to the Court, the certified financial statements won't show that kind of detail, and we would be producing it for nothing. So, if my friend has doubts about the accuracy of what has been produced, he should ask the witness, but... THE COURT: Well, certainly a preliminary question is whether or not you're going to find those figures in the financial statements. Me IRVING: AUDIOTRANSCRIPT, D~,~oo ~ Pierre ViJaire & As,o¢i~s Ll~e

999 464 5 I0 15 2O 25 Yes. THE COURT: Mr. Hoult, would you stand up, please. Q- The information contained in the Exhibit RJR-3, relating to advertising and promotion spending, where did you get those figures from? A- Those figures on the Exhibit, My Lord, were produced at the request of counsel, and as has been suggested by RJR's counsel, the figures from audited data would not be in the same detail as this is. There would be a total figure for marketing. So the research element would be within a total figure. Q- But where did you get those specific figures for various headings of the spendings? A- These figures, My Lord, were from the record of our company, which we keep over a large number of years, and they were simply pulled out for this purpose. These are from the audited figures, and the total at the bottom, which is the total, would correspond with the audited figures. We have broken them down for this exercise. Me IRVING: They were also produced at the discovery, My Lord. Baker has the discovery Exhibit in front of him. Me BAKER: Perhaps the Court may want to have a look at that and Mr. AUDIOTRANSCRIPT, Division de Pierre Vilaire & As, soci~s L,4e

i000 465 5 I0 15 20 25 judge for himself whether that's an audited financial statement. Me IRVING: Well, I didn't say it was an audited financial statement, I simply said that most of those numbers were provided on discovery. THE COURT: Where does that come from? Me IRVING: That was a document which was -- I'm speaking now from memory -- I think this was prepared as a result of a conversation between Mr. Baker and I to... THE COURT: No, that's not what I'm asking. Where do the numbers come from? Me IRVING: Oh, they're -- Mr. Hoult can answer that. A- They come from our financial records, My Lord, and at the request of Mr. Baker who asked for the breakdown of, as I recall, at discoveries, of marketing expenditure. THE COURT: What I want to know is what you're going to find in the financial and in the audited financial statements? Are we going to find the detail of all of those items or are we going to find just the one number? AUDIOTRANSCRIPT, Division de P~erre Vilalre & Associ~, Lt~e

I001 466 i0 15 20 25 We are going to find one or two numbers, which would be a summary of those numbers you have before you. Do you have something to add, Maitre Baker? Me BAKER: I'm sorry, My Lord, I didn't hear you. THE COURT: Did you have something to add? Me BAKER: No, My Lord. THE COURT: I will allow the question under reserve. Me BAKER: Thank you, My Lord. Q- Mr. Hoult, it would appear unlikely that your examination is going to terminate this afternoon, so would you be so kind, given the Court's ruling, to instruct somebody from your company to telephone Toronto to have these financial statements forwarded to us so we can have them available tomorrow morning. A- And you require the audited financial statements of our company? That is correct. For the past ten (i0) years? Track any years and the document that you have produced that you just had in front of you from nineteen AUDIOTRANSCRIPT, D~vi,loo ae Pierre Vilaire & Associ~s Lt4e

1002 467 i0 15 2O 25 seventy-six (1976) through nineteen eighty-seven (1987). The audited financial results. Yes, I will. Statements and all. I will. That's what I asked for. The entire statements, sir. Thank you. Mr. Hoult, is the Court to understand from your previous testimony that your advertising is only directed to or targeted at existing smokers? It is. Can you define for the Court what you mean by "smoker"? A smoker is an adult, that is over the age of eighteen (18)~ who is currently smoking. Currently smoking how many a day? that you can qualify a person as a smoker, Mr. Hoult? Well, I suppose the technical minimum would have to be one (i) cigarette, in terms of our research: "Do you smoke". One (i) cigarette per day is the convention, as I recall, for market research studies. On some studies, we would ask for a higher consumption than that, but as a smoker, the definition would be purchasing cigarettes, smoking one (1) cigarette a day or more, aged over eighteen (18). So any person who smokes, who's over the age that you seem to feel is the appropriate age for a person to be smoking at all, which is over seventeen (17), who smokes Is there a minimum so AUDIOTRANSCRIPT, Div;s;on de Pierre Vilaire & Associ~, L~'~e

1003 468 15 A- Q- A- 2O Q- A- 25 Q- one (i) cigarette a day, in your view and in your company's view, it's fair game to advertise to that person as a smoker? Yes. And any advertising directed to such a person, you don't think could be an enticement to that person to smoke and smoke more and really get into the habit? No, absolutely not. We are trying to entice that individual to smoke our brands or -- rather than the competition's -- or to continue to smoke our brands. Hm, hm. You make no distinction then between a person who smokes one (I) cigarette a day, a person who smokes ten (10) cigarettes a day, forty (40) or fifty (50) or sixty (60) or seventy (70), I take it? No, we do not. Does RJR-Macdonald advertise to new smokers? According to the definition I've just given, yes, providing that person smokes. Whether he's been smoking one (i) month or one (i) year, he would be a new smoker. And in the jargon of your company or the expressions used by your company in its advertising documents, does RJR-Macdonald advertise to first-time smokers? First-time smokers would be smokers who had a brand, and we would certainly advertise to those people. Does your company want non-smoking adults to start AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ~s Ll4e

1004 469 i0 15 2O 25 buying and using cigarettes, Mr. Hoult? Well, obviously if -- if the continuing -- if the decline in the industry continued, at some stage we will be out of business, so obviously we would be pleased if our market continued to grow by new smokers coming into the market. You need replacement smokers for those who are dying and quitting, don't you? If our industry is to continue, yes, we need replacement smokers. So on an annual basis, your company and the industry generally in Canada adds a significant number ofsmokers to its client lists, as it were? Yes. The replacement smokers? Yes. Is it fair to say that on an annual basis in Canada, for the last years, at least fifty (50,000) to seventy-five thousand (75,000) new smokers joined the smokers' ranks on an annual basis? I can't -- I don't have the number but obviously, there is a significant -- there are a significant number of people entering the market every year to replace those who are leaving. Well, I think you know, Mr. Hoult, that approximately AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ~s Lt~e

1005 470 5 i0 15 2O 25 one percent (1%) of the market, on an annual basis, constitutes new smokers, correct? More or less? A- As I recall, it's approximately... Q- Approximately... A- Yes. Q- ... one percent (1%). And you know that there are approximately seven million (7,000,000) smokers in Canada, more or less? A- Yes. Q- Something like that. THE COURT: Well, give me time. More or less one percent (1%) of what? The smoking people? Me BAKER: Therefore... THE COURT: And more or less how many smokers? Me BAKER: Seven million (7,000,000), My Lord. THE COURT: In Canada? Me BAKER: That's correct. Q- So therefore you would agree with me, I take it, that somewhere between fifty (50,000) to seventy-five AUDIOTRANSCRIPT, Division de Pierre Viloire & A,soci4s

1006 471 i0 15 20 25 thousand (75,000) new smokers come on-stream every year? A- I would -- I'd acknowledge the arithmetics of that. Q- Mr. Hoult, you're aware of an argument that several of your experts have asserted in the past and intend to assert at this trial, and that is the discussion of mature market in connection with cigarettes, correct? A- Yes. Q- I'll ask you if you agree with the following definition of mature market given by John Jenkins at a committee of the House of Commons on January nineteen (19), nineteen eighty-eight (1988). THE COURT: Who is Jenkins? Me BAKER: He is one of the experts who's expected to testify. "Following its original introduction, when a consumer product has been on market for a sufficient period of time, that all its prospective purchasers are aware of its existence, of its purpose and its usage, the product is said to be mature." Do you agree with that definition or would you want to qualify it in any way? It has to be qualified. My definition of a mature market is also a market that is not growing in size. In AUDIOTRANSCRIPT, Di~;~;oo ~e Pierre Viloire & Associgs Llge

1007 472 i0 15 2O 25 fact, normally it declines. Q- And was the cigarette market, in your view, Mr. Hoult, as of December thirty-one (31), nineteen eighty-eight (1988), stable, mature or in decline? A- I would say it was a market mature and in decline. Q- Mature and in decline. Could you explain to the Court how it is that this declining market happened to attract fifty (50,000) to seventy-five thousand (75,000) new smokers in nineteen eighty-eight (1988)? A- Yes, because in this declining market, the number of new smokers entering did not meet or match the number of smokers leaving the market. Q- But notwithstanding the maturity of the market and the market being in decline, it still managed to attract fifty (50,000) to seventy-five thousand (75,000) new users in the course of the year? A- Oh yes, and I think that that has nothing to do with the definition of a mature market, the attraction of new users. Me BAKER: Q- The RJR-14, Tab 2, Mr. Hoult, is the nineteen eighty-five (1985) operating plan of the company. Yes. Can you tell the Court where it was created? Where was the operating plan created? AUDIOTRANSCRIPT, D~v~,~o,~ de Pierre Viloire & Assoclgs Lt4e

1008 473 i0 15 20 25 Om Am Yes, drafted. In Canada, in Toronto, our head office. Are the dollar figures stated in American dollars? Well, some tables they're in American dollars and in some they're Canadian. This page fourteen (14), did you refer to? I haven't referred to one yet. I thought I heard you say fourteen (14). I opened at page fourteen (14). This is in Canadian dollars, for example. M'hm. Then on some of them, they are expressed in American dollars? Yes. For example, page nineteen (19), Advertising and Promotion? Do you see it? Yes, and that is in U.S. dollars. M'hm. Could you explain to the Court why it would be that in a Canadian corporation, its annual operating plans would have projections and costs expressed in a foreign currency? Well, as I said earlier, they're expressed in both. In terms of individual comparisons and justification for expenditure, these would normally be given in Canadian dollars to -- to compare your expenditure with competitors. In terms of the overall proposals for AUDIOTRANSCRIPT, Div~,~on ae Pierre Vilalre & Asso¢i~s L,~e

1009 474 i0 15 2O 25 budgets which our -- our parent company would ultimately approve, they would be given in U.S. dollars so that our proposals could be compared with proposals for other markets because just as I, as a C.E.O., would have to allocate resources between brands, our parent would also have to allocate resources between markets. And to make comparisons easy, they're put in one (I) common currency, that is the U.S. dollar. Q- I see. So the budgets are -- are approved in Winston-Salem? A- Yes, the budgets are approved in Winston-Salem. Q- I see. Thank you. A. Well, they were approved in London at the time that the -- they were approved at the head office which on some -- on some occasions was London, others Geneva, and others Winston-Salem. I'd like to add for information that the budget approval for the whole of the Americas with the exception of the United States are approved here in Toronto. THE COURT: I don't understand. A- We divide the market into various regions, My Lord, and the -- the individual who would approve the budgets for the different American markets with the exclusion of the U.S. is located in Toronto. He is the Executive AUDIOTRANSCRIPT, D;,,~,~oo de Pierre Vila~re & Associ~s Lt~e

I010 475 I0 15 20 25 Vice-President responsible for the Americas, and he would approve in Toronto the spending in Argentine, Brazil and so forth. Me BAKER: Q- Now, Mr. Hoult, in your company's advertising, you use words like "medium", "mild", "light", "extra light", "ultra light" and "special mild", and you call these things "descriptors", don't you? A- Yes. Q- Can you tell the Court what your company wishes the consumer to understand from the use of the word "special mild"? A- The descriptor "special mild" would have two (2) meanings. Firstly, a descriptor of the lightness of the total taste, which is mild; and secondly, that this was a special cigarette made of selected tobaccos. Q- And in its advertising, what would your company or what does your company want the consumer to understand by the use of the word "ultra light"? A- That this was an extremely light cigarette, and if it were used in the context of the Export family, that ultra light is a member of that Export family and currently, at least, the lightest cigarette available with the Export flavour. Q- And in the same connection, Mr. Hoult, what does your AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ4s Ll4e

i011 476 i0 15 2O 25 Am company want the consumer to understand by the use of the words "extra light"? Extra light would be perceived as the penultimate, next to the lightest cigarette in the family. And what does your company want the consumer to understand by the use of the word "light" on its packages? All these descriptors are relative, and therefore in the context of the total family, a light cigarette would be lighter than medium but more flavourful than extra light or ultra light. And what does your company want the consumer to understand by the expression "mild", Mr. Hoult? Mild as a positioning for our brands in the Export family is a cigarette that is milder than medium but more flavourful than light. What does your research disclose, or your company's research disclose, Mr. Hoult, in connection with how the consumer actually perceives the word "light"? The consumer broadly would perceive the word "light" in the context of cigarette smoking very much in the way I have just described, because not only are they our descriptors but our competitors use the same gradations of flavour description, too. Would you agree with me, Mr. Hoult, that your research AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associgs L,Ee

1012 477 i0 15 20 25 discloses that some consumers draw the inference that some cigarettes are safer than others as a consequence of the descriptors used? Well, consumers do see cigarettes, perhaps, as safer, but I wouldn't say as a consequence of our descriptors. We talked yesterday, for example, about the encouragement in the late Sixties and early Seventies by government and by -- by the medical authorities, too, for -- to encourage smokers to smoke lighter, lower tar, nicotine cigarettes. So I believe that what you have said is correct, but I believe that the reasons for those assumptions are not the descriptors that we use necessarily, but encouragement in the early years of this controversy. You say "not the descriptors necessarily", but you do agree with me that the descriptors certainly do allow some consumers to understand and perceive cigarettes and the safety factor in connection therewith that way as a consequence of using words like "ultra light", "ultra mild" and "ultra light"? Well, in that the authorities to which I referred did -- did encourage the smoker to smoke those brands so described, the answer is yes; but also, the government continues or did continue when I was the C.E.O., it would appear, to have this belief in that they AUDIOTRANSCRIPT, Division de Pierre Viloire & A,socigs Lt~e

1013 478 5 10 15 20 25 encouraged the industry to lower tar/nicotine numbers to an average of thirteen (13), and the industry complied. You were asked by your lawyer yesterday whether it's absolutely essential to do the research that you do in connection with advertising, and if my memory serves me correctly without going into the record, I think you said you couldn't do without it, that it was absolutely imperative. Is that not correct? Yes. Do we take that to mean, Mr. Hoult, that your company knows exactly what it is doing when it lays out an advertisement and makes it go public? In other words, you know whether it's going to find acceptance by the public and you know what the public understands the words to mean, because otherwise you don't put the advertisement on the street; isn't that correct, Mr. Hoult? That is incorrect. That is incorrect. Well, could you tell the Court where that statement, then, is incorrect? It's incorrect because you said that you know exactly what you're doing. To the extent, within the limits of human knowledge... No. ..Mr. Hoult? AUDIOTRANSCRIPT, Division de P~erre Vilair~. & Asso[i~s

1014 479 i0 15 20 25 The answer is still no. I see. Because it's not within the limits... So what's the purpose of all the research? To reduce the likelihood of failure. I see. Even so, eight (8) out of ten (I0) new brands still fail. I see. So to the extent possible, you go out and you talk to people and you think before you put an advertisement out on the street that people will react to it in a certain way? Yes, we do. From the research you have done with people in connection with a test ad, correct? Correct. So when you put out a new brand called "Export Ultra Light", you have your own expectation about how it's going to be received because you've already talked to people and you know how they're going to understand it, don't you, Mr. Hoult? We have expectations, but more we have hopes. Well, life is built on hopes; I appreciate that, Mr. Hoult. But to the extent that it's possible you spend and your company spends an enormous amount of money AUDIOTRANSCRIPT, Divi,ioo de Pierre Viloire & Associ4s Ltee

1015 480 i0 15 20 25 trying to make those hopes a reality, don't you? We do. That's where a part of the hundred million dollars ($i00,000,000) a year goes to in this country and two billion dollars ($2,000,000,000) a year in the United States, isn't that correct? I'm sorry, what is the hundred million dollars ($100,000,000) a year you're referring to? Spent by the Canadian tobacco companies on advertising and promotion of cigarettes? Oh, yes, but not on research. I thought... Oh, you mean -- you mean research wasn't included in that seventy-five to... Oh, yes, but it wasn't a hundred million ($i00,000,000). I thought we were talking in the context of research when you mentioned the figure of a hundred million (i00,000,000). I thought you were putting those two (2) items together. We -- we do our best to find out as much as we can about our smoker in order to do the best marketing job we can. About eight (8) out of ten (i0) times we fail because, as I explained to you at discoveries, marketing is not a science. We use some scientific tools but it's still more a matter of judgment than art. Does your research disclose that health-concerned AUDIOTRANSCRIPT, Division de Pierre Vilaire

1016 481 i0 15 20 25 smokers are moving towards lighter cigarettes, Mr. Hoult, and have done so in the last fifteen (15) years? There would appear to be a correlation between what we classify, as you saw from segmentation, that people score highly on health-concerned and the movement towards light cigarettes, yes. Does your company's advertising specifically target and advertise these low-tar cigarettes to health-concerned people? No, we do not. Are you suggesting that your advertisements are never responsive to the health concerns of your smokers? Well they're responsive in the sense that consumers, by their behavior, are telling us that they want light, mild cigarettes in increasing numbers and we are in the marketing business of trying to provide what the smoker wants better than our competitors. So in that sense, we do respond. But your advertising doesn't seek to convince the smoker of the low tar cigarette that in any way it might be safer for him? No, we do not. Did it ever? No, it did not. Now, I refer you, Mr. Hoult, to a document called AUDIOTRANSCRIPT, Division de Pierre Vilaire 8, Associ~s Ltge

1017 482 i0 15 20 25 "Vantage Marketing/Copy Strategy" recommendation, February nineteen eighty-two (1982). I refer you to page 1396, the bottom right corner. Yes, I have it. And at the top of the page, I read: "Background. Vantage King Size was introduced to test marketing in Canada in nineteen seventy-five (1975)." The second sentence reads as follows: "Positioned as "the only cigarette for a concerned smoker who wants maximum taste satisfaction in a low tar cigarette"." Yes. Now, concerned smoker, concerned about what, do you think, Mr. Hoult? Well, in the context of our previous discussion, as has been indicated by our segmentation study, smokers concerned about their -- about health, do have an inclination to move to light cigarettes. And quite clearly, the Vantage smoker certainly historically has been in this category, both in this country and other countries where Vantage has been marketed. And the Vantage smoker, while wanting the lightest cigarette, also desired a full flavored product... But I thought this... AUDIOTRANSCRIPT. D~,,~,~oo d~ ~ Wlo~, ~. A,,o~, L,~,

1018 483 i0 15 2O 25 A- ... and this is... Q- I'm sorry. I'm sorry to interrupt you, Mister... A- And therefore... Q- ...Me Irving is going to be cross at me again. A- And therefore, the positioning of Vantage was, as a light product, offering the maximum degree of taste and satisfaction possible within those low tar nicotine numbers. Q- When you say "positioned as the light product", I see in the page here "the only cigarette for concerned smokers", and I thought you said several minutes ago, in response to a question, that your company's advertising was never responsive to the health concerns of smokers. A- Well, I did. And it says here "positioned as", and we positioned it as that, but the advertising... Q- "As that", meaning... A- Positioned, positioned it as a cigarette for these smokers that we have indentified, as you point out, as concerned smokers. But your question was: "Do you ever advertise it?". It's positioned, that is our positioning. If you look at the advertising, which I'm sure you have for this era, it doesn't refer to health in any way at all. Q- We'll file this document as AG... THE CLERK: AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ~s Lt~e

1019 484 5 I0 15 20 25 Me BAKER: Q- I have handed you a document, Mr. Hoult... THE COURT: Mr. Baker -- okay. Me BAKER: Q- ... captioned "Vantage Right Attitude" advertising test. A- Yes. Q- I refer you to what -- could you tell what year this thing was... A- Yes, it's on page three (3) at the bottom: June nineteen eighty-one (1981). Q- I see, thank you. I refer you to page five eight seven two (5872). A- Yes. Q- It's the page with the big question mark in the middle, "The Right Attitude". A- Yes. Yes. Q- Now, on the left side, there's some copy, as you can commonly refer to, and it says: "Vantage is more than a cigarette, it's an attitude. You had to make a choice when it came to smoking. If you're not prepared to stop, you're still faced with choices: to go on smoking what you have been smoking or think AUDIOTRANSCRIPT, D~v~,~on de Pierre Vilalre & Associ~s Lt4e

1020 485 5 i0 A- Q- A- Q- 15 A- Q- A- Q- 20 A- Q- A- 25 Q- of the alternatives. Think Vantage." Now, when you move to the right side of the page in the copy, I see the words: "Vantage gives you more of the taste you want in a cigarette with a lot less of what you may not want." Now what it is, could you please tell the Court, Mr. Hoult, that your company intended the consumer to think by "a lot less of what you may not want"? Tar and nicotine. That's all? Yes. Thank you. Would you file this document as AG-10? Now, Vantage has a brand image, doesn't it, Mr. Hoult? Yes, it does. And that brand image is generally, I think, understood to be a safer cigarette? No. Very.low tar. A very low tar cigarette but not a safer cigarette. Not a safer cigarette. It's not a cigarette for people who are more concerned about their health rather than people who are less concerned about their health? Certainly that's not its image. Not its image in your mind. What about the image out AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ@s Ll4e

1021 486 i0 15 2O 25 there with the consumers? That's what I was referring to. And on what research do you base that answer, Mr. Hoult? On the basis -- I can't give you the exact research number but in our segmentation and our attitude studies, our image studies, Vantage is seen as a cigarette, as I've said earlier, for urban people. They see themselves as white collar professional, men and women, they see themselves as intelligent and they want a cigarette with low tar but flavor. And that is the image of Vantage as they describe it. And that is what we try to reinforce in our advertising. And your company has done research in respect of the question that I just raised? As I said, I can't refer you to the specific research report, but a culling of all the research that has been provided, I think, would make that absolutely clear. Well, since it's so absolutely -- since a culling would make it absolutely clear and since you're going to be here again tomorrow morning, I would ask you to refresh your memory after you've finished testifying this evening, look through your company's -- the index of documents which your counsel has so kindly provided us with, and perhaps you'd be prepared to lead the Court tomorrow to a document which would absolutely AUDIOTRANSCRIPT, Divi,ion de Pierre Vilc~ire & As,o¢i~, Lt~e

487 1022 5 i0 15 2O 25 demonstrate the image of the Vantage cigarette -- of the image of the cigarette Vantage that in no way leads one to conclude that it is for people who want safer cigarettes rather than not. Me IRVING: My Lord, you know we provided my friend with filing cabinets filled with all these documents months ago. As I said, there were six (6) days of discovery. If my friend has a Vantage research paper he wants to put to the witness, surely he by now can bring it out and show it to him, and then simply ask the witness to go back through all those records which were provided... THE COURT: Because it doesn't make sense. Me IRVING: It makes no sense at all. THE COURT: And the way the question is drafted, it sure doesn't make sense. Me BAKER: Q- Does your company -- then I'll rephrase the question, if it pleases the Court -- does your company have a research disclosing what kind of image Vantage has in nineteen eighty-eight (1988)? A- I have not seen any research in nineteen eighty-eight

1023 488 i0 15 2O 25 (1988), Mr. Baker. As you recall, I left the company in nineteen eighty-eight (1988). Q- Nineteen eighty-seven (1987) then, Mr. Hoult? A- I cannot specify a year. We have attitude and image studies, some of which I've referred to in this courtroom with regard to segmentation and on the attitudes of different smokers in different segments. THE COURT: Q- Is there one on Vantage particularly or just all the brands? A- In terms of... Q- Because we've seen some of them... A- Yes. Q- ... mentioned in the various exhibits already filed, but... A- The advertising which counsel showed to me, like all our advertising, would have been researched, and the attitudes to which he referred would clearly be indicated in those research reports. But it does go back to nineteen eighty-one (1981), My Lord, and I do believe counsel has all those research reports. Me BAKER: Q- Mr. Hoult, are you familiar with a series of ads that was run by Vantage in the late seventies and early eighties, which were called: "The Smoke Start," -- AUDIOTRANSCRIPT, Division de Pierre Viloire & A,sod%s 1,4e

1024 489 5 i0 15 2O 25 Om "Smoke Smart," series of ads? I'm sure I would recognize them, but I'm not familiar with them, no. Well, we have your document 221, which I'll show you. I'd ask you to refer to page seventy forty-three (7043). THE COURT: What -- sorry? Me BAKER: Soixante-dix quarante-trois (7043), Votre Seigneurie. Q- At the top of the page we see the number twelve (12), meaning of base line, "Smoke Smart." I take that to be advertising copy from a campaign of Vantage? A- I don't recognize this headline, "Smoke Smart," Mr. Baker. I don't know whether this is referring to actual advertising or research or material produced purely for research. Q- Well, could you take your time and go through the document so you can properly respond to it. See, for example, at page seventy forty (7040)... A- Yes. Q- ...reference is made to those who thought Vantage different. A- Yes. Q- You might keep flipping the document to determine if AUDIOTRANSCRIPT, Division de Pierre Vilaire & Assoclgs Ltge

1025 490 l0 15 20 25 Qm Am this is in fact a Vantage document, Mr. Hoult. Oh, I'm quite clear it's a Vantage document, Mr. Baker. The only issue is whether we're testing research materials here or actual advertising that appeared in the market. M'hm. Just take your time. Mr. Baker, by just reading the introduction to this, this is a pretest of an advertising copy or an advertisement. It doesn't indicate whether this advertisement ever appeared in the marketplace or not. M'hm. Do you, however, know whether it did? I have no recollection ever of seeing an ad which could be described with a headline, "Think Smart." In fact.. No, it's "Smoke Smart." I have no recollection of that at all. However, "Think Taste," I do recall. And I can say, with firm recollection, that that was a headline that we did use at or about this period. Is it possible for you to determine, without a great deal of difficulty, Mr. Hoult, whether you ever ran a series of ads called, "Smoke Smart?" I think so. Yes. Could you please do so? Yes. Thank you. AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ~s Lt~e

1026 491 i0 15 20 25 THE COURT: Are you filing this or...? Me BAKER: Not until I've gotten a response from the witness, My Lord. I'm not going to file it for no purpose. LA COUR: Remettez-la ~ maitre Baker. Me BAKER: Q- Mr. Hoult, does your company's research disclose why people switch from one brand to another? A- When that question is asked, it is always specific to an individual brand and my answer to that would be: no, it would not disclose, you know, using the word generally: Qm why do people switch? We do know there are many reasons for people to switch. We've discussed, this afternoon, the desire to move to lower tar and nicotine products, that's one. In the price war late eighty-five ('85), early eighty-six ('86), clearly switching was a function of a better bargain in the marketplace by moving to cut price brands. Isn't it a fact that in the last ten (i0) years invariably the switching went from high tar to low tar cigarettes, Mr. Hoult? No, not invariably. M'hm. AUDIOTRANSCRIPT, Division de Pierre Vilalre 8, Assoc~s Lt~e

1027 492 i0 15 2O 25 Ou I've just mentioned -- given an example of switching... That was a blip, wasn't it, Mr. Hoult? Generally the switching trends have been from high tar to low tar cigarettes in the last ten (i0) years? Generally, switching, when there is a lower tar, lower version, lower nicotine version available, is within family, but there are many instances of smokers moving from one family to another, particularly when a new brand is introduced. After all, that's where new brands get their smokers from: existing brands. And these can be at the same tar and nicotine level as existing brands. Do you agree that many of the switchers in the last ten (i0) years were very concerned about their health and wanted to quit? No, I wouldn't agree with that statement, because I have no evidence to support it or contradict it. M'hm. Does your company in its advertising strategy -- had advertising strategies ever tried to dissuade smokers from quitting? No. Certainly do create a lot of paper. And you make a lot of use of it, Mr. Baker. That's what I get paid for, Mr. Hoult. I'd ask you to turn, Mr. Hoult, to page AUDIOTRANSCRIPT, Division de Pierre Viloire & Associgs L,~e

1028 493 5 i0 15 2O 25 thirty-eight o one (3801) -- trente-huit zero un (3801), Votre Seigneurie. Do you see the paragraph towards the bottom... Me IRVING: What page? Me BAKER: Thirty-eight o one (3801). That's thirty-eight o one (3801) on the computer printout, Mr. Irving, it's twenty (20) in the body of the document. Me IRVING: Okay. I have it. Me BAKER: Do you have it? Q- Do you see the last paragraph, Mr. Hoult, beginning with the words "the control ad?" A- Yes. Q- In the second sentence of that paragraph I read the words: "The main message was in fact perceived as an efficient filter followed closely by, "Helps you Quit Smoking." Mildness and health also came out and so did taste, but at a much lower level. Correct perception of the message as "no need to quit smoking if you smoke Vantage," was at AUDIOTRANSCRIPT, Division de Pierre Vilaire & Asso¢i~s Lt~e

1029 494 i0 15 20 25 a relatively low level." Now, are you telling this Court from the previous answer, now reading that line in the document that I've just read, that the advertiser did not want that ad to be understood other than that the correct perception was, "you don't have to quit smoking if you smoke Vantage?" A- Mr. Baker, this research was done, as I saw from the beginning, in nineteen seventy-eight (1978). I wasn't in Canada in nineteen seventy-eight (1978), I have never seen or looked at this research before. I have no idea whether such an ad ever appeared in the market. I have no idea whether this ad was requested by RJR-Macdonald or produced by the advertising agency, so my answer is: I have no knowledge of that at all. Q- Thank you very much. We'll file this document as AG-I1. THE COURT: It's called Vantage Advertising Research. Me BAKER: Q- Now, I asked you a short time ago, Mr. Hoult, whether Vantage did not have the image of a cigarette for very concerned people, and you said: "Absolutely not"? A- I did. Q- M'hm. I refer you to a document called, "Vantage Brand Positioning Statement, 1975, Ogilvy & Mather." I gather

1030 495 I0 15 20 25 Ogilvy and Mather is one of your company's advertising agencies, Mr. Hoult? It was our advertising agency in nineteen seventy-nine (1979). It's not our advertising agency now. Neither was it while it I was the C.E.O. Me IRVING: Are these parts of the document you're handing out, Mr. Baker? Me BAKER: No, I think there's been a -- you can verify it with your own, Mr. Irving, it's document 219. Q- Now, Mr. Hoult, I ask you to consider page nine five seven three (9573) of the document. Yes, I'm on that page. And this is a brand positioning statement, right? Yes. Now, you've said the positioning comes two (2) ways: either the company deliberately positions a cigarette or a brand in a certain fashion or it finds it's own positioning in the marketplace? Or the two work together. Or the two work together, right. So in this number one, in this page nine five seven three (9573), we see how the prime prospect currently views the brand; correct? Yes, Mr. Baker. AUDIOTRANSCRIPT, Division d~ P~erre ViJolre ~ Associ4s Lt~e

1031 496 i0 15 2O 25 Q- User image in (b). A- Yes. Q- "Primarily female, white collar, extremely concerned about their health and would like to quit smoking." Is that an accurate statement of the image of the brand as at that time and the position it found itself in in the marketplace? A- Mr. Baker, I was not in Canada at the time this brand position statement was written. I have no way of telling you whether that was an accurate statement or not. I repeat what I said, that is not the brand positioning statement as of today. Q- Thank you. A- Or while I was the -- either the marketing vice-president or the C.E.O. of the company. Q- We'll file that as AG-12. My Lord, Votre Seigneurie, c'est trois heures et quart (3H15). THE COURT: Yes. You want to break a minute? Me BAKER: Well, I understood your ruling to be that we would break at three fifteen (3H15) every afternoon. AUDIOTRANSCRIPT, D~,;oo de Pierre Viloire & Asso¢i~s Lt@e

1032 497 5 i0 15 2O 25 THE COURT: Yes. It's the only time I can make my calls. SHORT RECESS Me IRVING: My Lord, just to allow my friend to rest his back for a moment and before he begins, Mr. Baker asked Mr. Hoult about the "smoke smart"... THE COURT: Campaign. Me IRVING: ... campaign which is referred to in one of the documents, and asked Mr. Hoult if he would verify whether that ad was ever run by the company, and Mr. Hoult has the answer to that, which he can give the Court in a second. Secondly, on the question of the financial statements, we have arranged to have them flown down. Someone will have to bring them to Montreal this evening. They will be on the five o'clock (17:00) plane and we will let Mr. Baker know when they've arrived here and he can look at them in Mr. Thibaudeau's office this evening prior to the court resuming tomorrow. On the "smoke smart", Mr. Hoult? AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ¢s Lt4e

1033 498 i0 15 20 25 A - The answer to... Me BAKER: Come on, Mr. Irving, I'm still conducting the cross-examination. We'll let him deal with "smoke smart" en temps et lieu. THE COURT: Well, you asked the question. Me IRVING: Well, my friend asked the question, My Lord, and I think he's entitled to have his answer and Mr. Hoult is entitled to give it. Me BAKER: Q- A - Q- Right. Was it run or wasn't it run? The answer is that the campaign was never run. Thank you. Now, could I see the ads that were produced this morning, the big ones? Do you remember AG-2, Mr. Hoult, this big Export thing with the canoers, with the yellow and blue jacket in it? Yes. Now, you were describing either this specific ad or another Export ad, but in it you were talking about the lassie up in the top, the young lady in the top left corner who gave the continuing image of the Macdonald brand family. What did you call her this morning? The Macdonald lassie. AUDIOTRANSCRIPT, D~,~oo ~ Pierre Viloir~ & Asso¢i@s Lt~e

1034 499 I0 15 20 25 Om The Macdonald lassie, right. And she's an important part of the advertising of this company? She's not always used... Of RJR-Macdonald? ... but she is a recognized symbol. Right. And epitomizes the heritage of our company, a very well-known symbol in Canada associated with our company. Right, and so the association of the company, because of the brand family name of Export, is -- you know, Macdonald and Export is a very important, potent thing in the force of the advertising of your company, isn't it? Yes, it's a very important part of the message, yes. Right, yes. Now, I show you a document that is captioned 'Export "A" Cup' or 'La Coupe Export "A"'. And it starts at the top: "Export "A" lassie visits West Coast. Dressed in her traditional Scottish garb, Petra Pocklington is recognizable as the Export "A" lassie wherever she goes and people on the West Coast will have the opportunity to meet the lassie later this month. Miss Pocklington, twenty (20), will be on the West Coast for the Export "A" Cup", et cetera, et AUDIOTRANSCRIPT, Division de Pierre Vilalre & Associ~s

1035 500 i0 15 2O 25 5 A - cetera, et cetera. Now, at the bottom of this page is One First Canada Place, Toronto, Ontario, Telephone: 866-7700. That's your company's office in Toronto, isn't it, Mr. Hoult? It was at this time. Right. It is no longer. Now, this lassie who appears in your ads, Petra Pocklington, aged twenty (20) -- I thought that you had some kind of an agreement that you've been talking about from time to time in the course of the last couple of days between the tobacco companies and the government of Canada, that you're so happy to abide by -- and if I'm not mistaken, the age of the models is twenty-five (25) and over, isn't it? It is, yes. Hm. So would you be good enough to explain to the Court how it is that you hire a lassie, Petra Pocklington, who's aged twenty (20)? Yes. This lady was employed as a promotion lady at the event, as a personality. She -- (a) promotions are not advertising; (b) she did not appear in any of our advertisements for cigarettes. Are you sure of that? Yes, I am. AUDIOTRANSCRIPT, Divl,lon de Pierre Viloire & Assod~s Lt6e

1036 501 I0 15 2O 25 Q - You have twenty- (20) year-olds promoting your product? A - We have adults who act as hostesses at various events and, yes, I would think that a number of them would be that age. Q - She's not just any hostess at any event, though, is she, Mr. Hoult? Have a look at your own document. She's the Export "A" lassie, twenty (20) years old. A - She represents... Q - You fly her around Canada, don't you? A - We don't fly her around Canada. She appeared at this event. I'm not aware of any other event she appeared in. It wasn't a very important part of our Export promotion. Q - May I have the document, please -- as AG-13? THE COURT: Where does the term "lassie" comes from? Me BAKER: It's a Scottish term for a young girl. THE COURT: Q - Is that correct? A - It is correct. And the Scottish lassie has been used as our trademark for many years and I'd like to point out, My Lord, that the representation of the lassie on that advertisement is a painting; it is not a photographic representation of a model. It is taken straight from AUDIOTRANSCRIPT, oivisioo de Pierre Vilaire & Associ4s Lt4e

1037 502 5 i0 15 20 25 our cigarette pack, which in turn is an illustration. Q - Because in my young age, Lassie used to be a dog. That's why. Me BAKER: I understand there is an absolute immunity of judges in this country, but you may just well have overstepped the bounds and may be expecting to hear from Miss Pocklington's lawyers at any moment, My Lord! THE COURT: Put that to the face of my ignorance. Proceed, then, Me Baker. Me BAKER: Q - I have just handed you, Mr. Hoult, the nineteen seventy-eight (1978) business plan of RJR-Macdonald, which contains inside it the international plan. It doesn't appear clear from the top page, but this is the way it's been described by your lawyers. It's document 26 -- excuse me, 64. Excuse me. It starts at page three (3). That's the way you gave it to us; you might want to verify it with the documents in your... Me IRVING: I'm sorry, what document number? Me BAKER: I beg your pardon? AUDIOTRANSCRIPT, Division de Pie,r~ Viloire & AssociCs b~e

1038 503 i0 15 2O 25 Me IRVING: What document number? Me BAKER: Document number sixty-four (64). Me IRVING: Sixty-four (64)? THE COURT: What is it called? Me BAKER: Q - It... what has been given to us by your counsel is what your counsel has in its filing cabinets behind them. So by looking inside the document, we concluded that it was the nineteen seventy-eight (1978) business plan of RJR-Macdonald and the international plan. Would you like to verify that for the purpose of the record, please, Mr. Hoult? I don't want to mislead the Court. A - Well, there is no indication but I am prepared to accept that. From the date, obviously it does refer to seventy-eight ('78). Q - All right. Would you be good enough to turn to page two one two six (2126) of this rather large document? Me BAKER: Vingt-et-un vingt-six (2126), Votre Seigneurie. Q - Do you have the same page in front of you that I have in front of me, Mr. Hoult, that is captioned VIII, AUDIOTRANSCRIPT, Di~i,ioo d, Pierre Viloire

1039 504 i0 15 2O 25 "Advertising Plan 2 - Copy Strategy - G: Rationale". Yes, I do. M'hm. Could you read that paragraph, please, out loud? "Rationale. As consumers shift from full-flavour cigarettes to brands with lower tar and nicotine levels, they'll desire as much flavour and satisfaction as possible while easing their concerns about the smoking and health controversy. Because there are many new and established brands competing in this segment, it will be necessary to aggressively communicate that Export "A" Light is the only brand that has successfully combined full flavour and lightness in one cigarette." Now, the rationale of the copy talks about shifting from full flavour to lower tar and nicotine levels, does it not? Yes. And while they're doing that, the smoker requires as much flavour and satisfaction as possible? Yes. Correct? While easing their concerns about smoking and health? Yes. AUDIOTRANSCRIPT, Division de Pierre Vilaire & A,soci~s

1040 505 5 i0 15 20 25 Am concerns? THE COURT : So while they're going down from higher tar to lower tar they're easing their concerns, and that's the rationale of the copy strategy, isn't it? That is the rationale of the copy strategy and that's what smokers presumably believed in nineteen seventy-eight (1978). As I'm sure you know, I wasn't there, but that is quite clear in this statement. But why would you have a copy strategy easing smokers' I mean... First of all, what is a copy strategy? A copy strategy, My Lord, is a description of the procedures that you are going to follow to establish an advertising campaign. It tells you how you are going to achieve a communication objective. Me BAKER: Q- Thank you, Mr. Hoult. Would you file that document as AG- quatorze (14)? May I add a comment to that which I've already made? That first paragraph, which describes consumers shifting from full flavour to light cigarettes and their desire for as much flavour and satisfaction as possible while easing their concerns about the smoking and health controversy is a description of the consumers' behaviour. What we are going to do about it is in the AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ4s Lt4e

1041 506 i0 15 2O 25 5 second paragraph, and that simply states that: "Export "A" Lights is the only brand that has successfully combined full flavour and lightness in one cigarette." It does not relate in any way to our statements -- because we didn't make them -- about easing their concerns about smoking and health. Well, you never make those statements, do you? No. You don't make statements like that. We don't. You'd have to be crazy to make statements like that. That's not the way your advertising works, does it? No, it does not. It works with images. It doesn't work with statements like saying, "This cigarette is healthier for you." No, it does not. You don't say that because you don't believe that any of them are harmful. Isn't that correct, Mr. Hoult? That is true. So you can't say directly that it's healthy or safer. No, we don't... Fine. ... because we don't believe it. But your smokers do, don't they? AUDIOTRANSCRIPT, Division de Pierre Viloire & AssocJ~s L,¢e

1042 507 5 l0 15 20 25 A - We have evidence, as you saw there, that certain smokers believe, for reasons I've given, that light, low tar and nicotine cigarettes are healthier than full-flavoured cigarettes. Me BAKER: Est-ce qu'on va produire la copie que vous avez devant vous, Votre Seigneurie? THE COURT: Oui. Q- Mr. Hoult, would you agree with me that in the late nineteen eighties smoking is a good deal less socially acceptable than it used to be? A- Yes, I would. Q- Is it your view that if society finds it -- "it" meaning smoking -- socially unacceptable, advertising won't change that perception? A- Yes, it is. Q- Can the Court take it then that your company, in its advertising and its strategies, does not attempt to make smoking appear more socially acceptable? A- No, that couldn't be said. The statement you asked me was about social acceptability; a very broad statement. Q- No, it wasn't that broad. I'll put it to you again. If society finds smoking socially inacceptable, advertising will not change that perception. And you AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ~s Lt6e

1043 508 i0 15 2O 25 agreed. I was referring to your earlier statement when you said, "is smoking becoming generally" -- I think you said generally, but I took it to be generally -- "less socially acceptable in the eighties," and my answer was: yes. Late eighties, and you agreed with that as well. Yes. Yes. So the question is: can the Court take it that, therefore, that in your company's advertising and its strategies that you don't attempt to make smoking appear more socially acceptable? Certainly not among non-smokers because, as I've said many.times before, we don't advertise to non-smokers. Let's leave, for the moment, non-smokers out of it. We're not talking about smokers or non-smokers, we're talking about social acceptability as opposed to social unacceptability. And socially... Does your company... Mr. Baker. Mr. Baker, social acceptability is a phrase that includes smokers and non-smokers. And I think it's important for me to repeat that our advertising is directed only at smokers. I think you've made that quite clear over the course of AUDIOTRANSCRIPT, Division de Pierre Vi~alre & Associ~s Lt~e

1044 509 l0 15 20 25 the last several days, Mr. Hoult. Does your company's advertising, in its copy, in its strategy, attempt to make smoking more socially acceptable? No, it does not. But our advertising does aim, among other things, to be supportive to our own smokers in terms of their existing needs, beliefs and wants. Mr. Hoult, you have in front of you a document called, "Export "A" Brand, Long-Term Strategy, October 21, 1987." Yes. Correct? Yes. I would ask you to turn to page o two nine two (0292). Yes. There's a, in very large bold print at the top of that page, I see the words: "Whose behaviour are we trying to affect." Yes. And then there's a box, and inside the box in the top left corner of the box I read the word "Psychographics." Yes. And then I read the following: "Socially aware, this group is conscious of changing norms within society, recognizing the increasing societal concerns surrounding AUDIOTRANSCRIPT, Divi,;oo de Pierre Vilalre & Associ~s Lt~e

1045 510 i0 15 20 25 5 cigarette consumption and secondary smoke health hazards. Therefore, it is necessary for them to find an environment that is relaxed and comfortable to fully enjoy smoking." So this group who has concerns surrounding cigarette consumption and secondary smoke health hazards is a group whose behaviour your company is trying to affect. Yes. So then the question is: would you please tell the Court, how are you trying to affect their behaviour, and what it is that you want them to think after you finish affecting their behaviour that they didn't think before you started? Mr. Baker, we are trying to affect their behaviour as smokers to encourage them to move to Export from their existing brands, competitive brands, or to maintain their smoking of Export in the face of competitive pressures. This psychographic is simply a statement of what this group is. It doesn't state anything here in terms of what we're trying to do. This does not do anything except describe to the advertising copywriter, for example, one of the characteristics of this group. How about the expression "therefore, it is necessary for them to find an environment that is relaxed and AUDIOTRANSCRIPT, Division de Pierre Viloire & Associgs Lt4e

1046 511 5 10 15 2O 25 comfortable." I mean, is that talking about an Export "A" brand? A- It's talking about the Export "A" smokers. Q- I don't see that there, I see that you're trying to get them to find an environment that is relaxed and comfortable because they're socially aware and they're worried about the increasing societal concerns surrounding the cigarette consumption... A- Well... Q- ...and secondary smoke health hazards. You've got to read the two (2) sentences together to make any sense of the paragraph, Mr. Hoult. A- I can... Me IRVING: I wish my friend would not make statements, My Lord, and confine himself to questions. Me BAKER: Q- It may do -- be well worth to recall to my friend that I am cross-examining. If I am making statements as a function of questions, then the answers will have less weight than if it had come out entirely from Mr. Hoult's mouth alone. So I would ask my friend to keep his comments to a minimum if possible. THE COURT: Yes. But you can't mislead the witness either. AUDIOTRANSCRIPT. o~i,ioo ~ ~.,, Viloire & Associ~s

1047 512 i0 15 20 25 I'm not saying you are. A- Mr. Baker. Me BAKER: Q- Yes. Me BAKER: I am not misleading, I -- with a great respect to you, My Lord, I resent the inference. I am not trying to mislead the witness. THE COURT: I'm saying you can't. I was just about to say that when we talk about the psychographics of smokers, that is simply a description of the smokers as we have been able to determine it through marketing research. There is nothing in this statement other than that is a description. It doesn't say what we are going to do in our advertising or what we can do. That's covered elsewhere in the document. File this document as AG-15. One to your lawyer, please. Now, you have a document in front of you, Mr. Hoult, called, "Third Family Creative Direction Recommendation." Yes, I do. M'hm. Now, this is the document -- a document that was produced by your advertising agency, J. Walter Thompson, in nineteen eighty-four (1984) and its got its AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ#s Lt~e

1048 513 i0 A- Q- 15 A- Q- A- 20 Q- A- 25 Q- recommendations for the creative direction of this campaign, correct? Yes. M'hm. Now, you remember we were talking about your response to the question as to whether your company tries to convince people that smoking is more socially acceptable. You will recall that? Yes. M'hm. (0157) of that document. Yes. Well, I'd ask you actually to go back one page and you see you're in a chapter called "Sociability Positioning," correct? Yes. Right. Now, you could turn the page, please. And they talk about the target group smokers of the third family. Now, I'd ask you to look at page o one five seven The top? Yes. "Third family target group smokers are characterized by their values and sociability and group consciousness." Yes. "They're extremely influenced by their peer AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associgs Lt~e

1049 514 i0 15 20 25 Yes. group. " "They have little involvement with their brand and are influenced by the brand choice of their friends." "Third family will differentiate itself from competitive brands by major usage of imagery which portrays the positive social appeal of peer group acceptance." .Now, why would you want to do that? Why would you want to have major imagery portraying positive social appeal of peer group acceptance if you weren't trying to convince the third family target group that smoking was socially acceptable? This is very clear to me, and I'll try to make it clear to you. No, it's to the Court, Mr. Hoult... I'm sorry, Mr. Baker. ...not to me. What this family was attempting to do was, I hope you can recall from the previous evidence, is to develop a brand for young adult smokers, aged eighteen (18) to twenty-four (24). We have clearly found to our AUDIOTRANSCRIPT, Di~'i,lon cle Pierre Viloir, & A,,o¢i#, L,~e

1050 515 i0 15 2O 25 satisfaction that a very important dynamic in this group is sociability. They do things together more so than older people. The group to which they belong is very important. Therefore, sociability in this context refers only to the brand that we want them to smoke, not the smoking behaviour itself. Are you trying to tell the Court somehow that brands are social, people aren't? I mean, is that what that answer is supposed to mean? The way I read this, you're portraying people. It's people you're talking about. Yes. People who are smoking third family, as it came to become. Mr. Hoult, inanimate objects don't smoke cigarettes, people do; right? Yes, Mr. Baker. Right. Inanimate objects aren't your company's target groups, people are; right? Yes. Inanimate objects aren't subject to peer group pressure, people are; right? Yes, Mr. Baker. Right. So then, how is that you can read that second paragraph and paragraph four (4) and try and convince a Court that it is not people who are going to be persuaded that smoking is socially acceptable, more AUDIOTRANSCRIPT, Division de Pierre Viloire & Assoc~#s IJ4e

1051 516 i0 15 20 25 rather than less? You're going to have to explain that to me, Mr. Hoult, because I didn't understand it. Well, I will try to make you understand, Mr. Baker. I wish you would. What I wanted to say, what I hoped I was saying was: the group that we were directing our efforts towards was a group of young adult smokers, aged eighteen (18) to twenty-four (24). One of the most important dynamics of that group is sociability, getting together, they do things together. Therefore, we were using this particular dynamic in the case of this particular brand -- sociability to, we hope, persuade these young adult smokers to smoke this brand rather than a competitive brand. It was nothing to do as I -- as I thought you were trying to say then, about encouraging them to smoke generally. They are smokers already and we want them to smoke our brands rather than the competitors, and we used a social or a sociability approach to the advertising. And, furthermore, this is nothing to do with social acceptability of smoking. Nothing to do with that whatsoever. We'll file this document as AG-16. Mr. Hoult, you have in front of you a document called "Tempo Qualitative Post Launch Evaluation, AUDIOTRANSCRIPT, Division de Pierre Viloire ~ Associ4, Lt~e

1052 517 5 i0 15 20 25 January, 1986." A- Yes, I do. Q- I would ask you to turn to page six two nine eight (6298), please? Me IRVING: That's already been produced, I think, by Mr. Baker. Me BAKER: I beg your pardon? Me IRVING: That already has an Exhibit number. That's... Me BAKER: 291? Me IRVING: Yes. Me BAKER: Goodness gracious! Me IRVING: That's Tab 10 in the -- Tab 10 in the book yesterday. Ours is an extract, as I said at the time, so go ahead. Me BAKER: Yes, I don't think yours went in its extracted condition quite as far as this document goes in its entirety. Your document 291, which was found in Tab i0 of the large green book, RJR-14, ends at page six two eight four (6284) and we're referring to page six two nine AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ~s L,~e

1053 518 5 i0 15 20 25 AG-17. Me BAKER : eight (6298). Q- Do you have it in front of you, Mr. Hoult? THE COURT: Which page? Me BAKER: Soixante-deux quatre-vingt-dix-huit (6298), Votre Seigneurie. Q- Could you please read that first paragraph beginning with "the overall?" A- "The overall effect of these attitudes is that smokers may question their smoking in terms of health or price and may need some type of assurance about the social acceptability of smoking, a point noted several times when the Tempo advertising was discussed." Thank you. W~uld you please file this document as Excuse me, My Lord, I can't locate a document. You recall the document that was produced this morning, AG-6? Yes. Which is the document that was created by your people in Winston-Salem, Mr. Fyock and Associates? I think this is AG-9. AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ6s L,4e

1054 519 5 A- i0 Q- A- 15 Q- A- 20 Q- A- 25 No, no, that's -- ignore that; it's AG-6. Very well. Could you tell the Court why this document was created? Do you know, Mr. Hoult? As I said at discoveries, I hadn't seen it before and I have not read it since. So my -- my views would be opinion only, and I haven't had a discussion either with Mr. Fyock or anybody else as to the purpose of this document. Mr. Hoult, in the marketing of your company's cigarettes in the nineteen eighties, how important is sponsorship? We considered it to be a very important element. It's only one (I) element, but nevertheless an important element in our overall marketing efforts in order to develop goodwill about the brands that we're being sponsored and to associate our sponsor brands with activities in which we knew they were interested. Do you see this as a form of advertising? No, it's a form of promotion. And what distinction do you make, how can you distinguish that for the Court? The major distinction between sponsorship and advertising is that advertising is something that you can control in terms of the precise content of any particular ad, where it appears, and the frequency with AUDIOTRANSCRIPT, Divlsion de Pierre Vilolre & A,,o~i~, Lt~e

1055 520 i0 15 2O 25 5 which it appears. You select your target very carefully and through choice of media you are pretty certain that that particular advertisement is seen by the target. None of those conditions apply to sponsorship, which is essentially an event, normally, where you have significantly less control and you rely upon third (3rd) parties such as journalists or public relations agencies to be able to communicate the event to the target group. Your industry has not been allowed to advertise its product on television in this country since nineteen seventy-two (1972), is that not correct? Yes. And yet you know that when you sponsor certain major sporting events, the name of your product is going to appear on television? Yes, it's an important criteria in the selection of events. A very important criteria. So would you agree with me that it is an indirect way of -- of doing something on television that you ordinarily would not be allowed to do? I would, except that again it's -- it's by no means guaranteed that it will appear on television. The television channels have the choice whether to broadcast the event or not. They have the choice what parts of AUDIOTRANSCRIPT, Division de Pierre Vilalre &

1056 521 i0 15 20 25 5 the event to televise, and more often than not, any commercial material such as banners or flags or any other items that advertised in those days a brand, would deliberately not be shown by the media, by the broadcast media. How long do you think it would take you to stop doing the sponsorships if your logos and your names and your banners weren't shown on television in those major sporting events, Mr. Hoult? You don't do it because it's a philanthropic effort of RJR-Macdonald, do you? Oh, no, we don't do it through philanthropy; we do it for commercial reasons because we think it's good for the brands. But the answer to your question is we would probably continue, because indeed we already sponsor events that do not meet that criteria of being televised. Do you control contractually with the people you're sponsoring events of -- for example, the Canadian Ski Association -- whether it's going to be on television or not going to be on television what they're allowed to put beside your people at the finish line or -- you know, that sort of thing? You do exercise some control, don't you? You don't just give them money and sort of pray that you're going to be on television? No, we -- we do have conditions that we want the event AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ@s Lt4e

1057 522 i0 15 20 25 5 that is being sponsored to meet; but that is just the sponsored event. That has nothing to do with television. The television broadcasting companies, as I say, have the choice at all times whether to -- whether to broadcast the event and if they do, what parts of it to show. Well, yes, I suppose to the extent that a television cameraman could aim up at the sky if somebody that was coming through the finish line in an F.I.S. downhill meet where the Export "A" logo was flashing beside it. I mean, I suppose the cameraman could do that, but it's not ~very likely, is it, Mr. Hoult -- Mr. Hoult, and that's not your -- as you talked about consumers yesterday -- that's not your company's expectation, is it? It's not our expectation that they would point the cameras at the sky, but it is our expectation that cameramen on TV would, whenever possible, make a conscious effort not to show corporate logos. Is that part of the contract? No, no, I'm -- I'm simply saying that that is what they do. They exercise their artistic freedom as cameramen to show what they want -- and the producer of the show as well. So we're frequently disappointed -- is the short answer -- to the coverage that we get on TV. AUDIOTRANSCRIPT, Division de P~erre Vilalre & A,,o¢;#, Lt~e

1058 523 I0 15 20 25 Q- Does your company sell and market smokeless tobacco in Canada? A- No, we do not. Q- Do you import it? A- No, we do not. Q- No chewing tobacco? A- No, we do not. Q- There's no market for it in this country? A- I don't know very much about the market. I'm sure there is a market, but it would not be a market in which we are interested. We're interested in, as far as possible, large volume markets. My judgment would be that it would be a very small market indeed. Q- M'hm. Saving the financial statement which my friends have undertaken to produce this evening, I have no further questions for Mr. Hoult at this time, My Lord. Me IRVING: At this time? Me BAKER: It depends on what the... Me IRVING: May I ask what "at this time" means, My Lord? Me BAKER: I'll tell you exactly what it means, Mr. Irving. It AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ~s

1059 524 i0 15 20 25 means that when I get the financials statements this evening and if they require questions to be asked, I will then ask Mr. Hoult questions tomorrow morning. That's what it means. Is that plain enough? THE COURT: Do you have any questions in your re-examination? Me IRVING: Well, My Lord, I think I better wait for the conclusion of the cross-examination before I do re-examination. I would -- I would have not more than a few -- few questions in re-examination for Mr. Hoult... THE COURT: Well, we'll... Me IRVING: ...up to this point, but I'd like to -- what we'll have to do is put together those exhibits. But the re-examination will relate to two (2) or three (3) of the exhibits which have just been filed which I'd like to have a look at. It will only be this evening that I can give Mr. Baker the financial statements. Until the cross-examination is over, I would prefer not to re-examine. • THE COURT: What's your problem of doing it... AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ4s [t4e

1060 525 5 i0 15 2O 25 Me IRVING: If the Court pleases, if the Court pleases, I will take a couple of the points now and -- but... THE COURT: No, that's not ---, we still fifteen (15) minutes, why don't you use it? Me IRVING: I take it then that this re-examination, which I am not very anxious to do while the cross-examination -- it will not lead to further cross-examination, that's all, the only point I'd like to make. THE COURT: No, no, you will re-examinate. If we need to be technical, we'll get technical. Me IRVING: Very good. All right. My Lord, not that I want to avoid asking -- I was going to ask the Court; I spoke to Mr. Baker on the subject and my friend -- if counsel could have ten (i0) or fifteen (15) minutes with Your Lordship at the conclusion today to discuss the scheduling of other witnesses who will be coming on, as it's now getting -- we're now getting to the point where it's slightly easier to foresee when some of the experts will be called. They're all coming from -- from -- three (3) of them come from out of town. Perhaps a AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ4s L|4e

1061 526 I0 better use of the fifteen (15) minutes, if we could just take -- just take the time with Your Lordship, perhaps just outside, it will just take a few minutes. Me BAKER: I must say I applaud my friend's valiant efforts to avoid dealing with the witness tonight, but I have no problem, My Lord. Me IRVING: I'm very happy to start. I don't want to provoke any more cross-examination. That's my only concern. THE COURT: Okay, I'll be waiting for you in my office. Me IRVING: Thank you, My Lord. We will be right there. AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ4s Lt~e

1062 CANADA PROVINCE DE QU~BE.C DISTRICT DE MONTREAL COUR SUPt~RIEURE SOUS LA PRI~SIDENCE DE L'HONORABLE JUGE JEAN-JUDE CHABOT, J.C.S. No : 500-05-009755-883 R JR-MACDONALD INC. Requ&ante LE PROCUREUR GI~NI~RAL DU CANADA Intim6 No 500-05-009760-883 IMPERIAL TOBACCO LIMITEE Requ~rante LE PROCUREUR GI~NI~RAL DU CANADA Intim~ 28 septembre 1989 - Vol. 5 COMPARUTIONS • Pour la requ&ante R JR-MACDONALD INC. Pour la requ6rante IMPERIAL TOBACCO LIMITI~E M~ COLIN K. IRVING, M~ GEORGES R. THIBAUDEAU, EARL A. CHERNIAK, Q,C., M~ MICHEL A. PINSONNAULT, Avocats M" SIMON V. POTTER, M~ PIERRE BIENVENU, LYNDON A.J. BARNES, ESQ., M~ GREGORY BORDAN Avocats MACKENZIE GERVAIS Procureurs OGILVY, RENAULT Procureurs Pour l'intimfi LE PROCUREUR GI~Nt~RAL DU CANADA ROGER E. BAKER, Q.C., M' CLAUDE JOYAL, PAUL EVRAIRE, ESQ., Avocats COT~ & OUELLET Procureurs AUDIOTRANSCRIPT,- Division de Vilaire a Associ~s - St~nographes Officiels - Court reporters 4 est, Notre-Dame, Bureau 201, Montreal H2Y 1B8 -- T@I.: 871.1~19

1063 529 INDEX PROOF OF PETITIONERS PETER HOULT Cross-examination (Contd) Re-examination (Me Irving) Cross-examination Re-examination (Me Irving) ROY DONALD BROWN Examination (Me Potter) 537 560 567 574 582 AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associgs Llge

1064 530 LIST OF EXHIBITS AG-18 Document - RJR-Macdonald Inc. "Advertising & Promotion Spending CND$" from 1976-1987 553 ITL-I Graph of the I.T.L. market share 607 ITL-2 Table "Image Study 1987, Image Dimensions" 631 ITL-3 "Brand Positioning" Table 641 ITL-4 1976 Market Model 641 ITL-5 1976 Poster Advertisement for Player's Light 653 ITL-6 1976 Player's Light ad proof 655 ITL-7 Magazine proof advertising "The Evolution of Quality" du Maurier 674 ITL-8 In-store Poster Advertisement "The Evolution of Quality, du Maurier 674

1065 531 LIST OF OBJECTIONS Objection ................. Objection ................. Objection ................. 557 576 618 AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ4s

1066 532 LIST OF UNDERTAKINGS Provide data for 1977 through to 1987 advertising and promotion spending by RJR- Macdonald broken down by brand and brand extension and also a breakdown for the five (5) areas of Canada 553 AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ~, L,4e

1067 533 i0 15 In the year of Our Lord nineteen hundred and eighty-nine (1989), on this twenty-eighth (28th) day of the month of September, PERSONALLY CAME AND APPEARED: Me SIMON V. POTTER: Pour Imperial Tobacco, Simon Potter, Lyndon Barnes, Pierre Bienvenu, Greg Bordan. Me COLIN K. IRVING: Pour la requ~rante RJR-Macdonald, Colin Irving et Georges Thibaudeau. Me ROGER E. BAKER, Q~C.: Pour l'intim~ le Procureur g~n~ral du Canada, Roger Baker, Claude Joyal et Lise Tremblay. AUDIOTRANSCRIPT, Division de Pierre Vilalre & Associ~s Ll@e

1068 534 i0 15 2O 25 In the year of Our Lord nineteen hundred and eighty-nine (1989), on this twenty-eighth (28th) day of the month of September, PERSONALLY CAME AND APPEARED: PETER HOULT, WHO, having been duly sworn on the Holy Bible, doth depose and say as follows: THE COURT: Have you had the... Me BAKER: My Lord, I got the financial statements delivered by my friends last night, which I scrutinized and discovered that there's less information in them than information which had already been provided, which means to say there is no way that one could verify or extrapolate the detail to go to the source of the figures in RJR-3 from the financial statements. I make no suggestion that Mr. Hoult in any way tried to mislead the Court by saying that the information from RJR-3 may have come from the financial statements. In fact, I haven't looked at the transcript to get his exact wording, but it's not important... AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ~s Lt~e

1069 535 10 15 2O 25 THE COURT: Well, I think he said that it was only global figures. Me BAKER: Yes, these -- well, so RJR-3 are sort of global figures, but they're even less global in the financial statements, so -- but the figures did come from somewhere, and to the extent that it was relevant for my friend to introduce RJR-3 and ask the witness questions about what their advertising expenses have looked like over an eleven (ii) year spread, I think we should have the right and the opportunity -- and it would be no less relevant, I submit to you -- that we go to the source of that information wherever that source be. I don't know whether it is on a computer tape. I don't know how they keep their records. Perhaps Mr. Hoult would wish to speak to the issue, but if it was relevant to the extent that you allowed under reserve the financial statements and the information is not therein contained, it must be somewhere else, so... Me IRVING: My Lord, I'm not just sure of what my friend is really asking. If he has a question for Mr. Hoult, I think he should simply put it to Mr. Hoult. This is an exhibit which we have filed. My friend may have some submissions later in the case as to the weight to be AUDIOTRANSCRIPT, Divi,ion de Pierre Vilolre & A,,o¢i~, L,4e

1070 536 5 i0 15 20 25 attached to it, I don't know, but Mr. Hoult has testified that those are the figures for advertising for those years and obviously, as with any company-generated document, it wasn't Mr. Hoult personally who put that together. It's taken -- put together by those people in the company who have the information. I don't know what my friend's complaint is. If he has any doubt about the accuracy of the figures, he should ask Mr. Hoult. If he wishes, as part of his case, to prove something different, then let him do so. THE COURT: I'm not sure either what you're asking, Mr. Baker. What are you asking, basically? I know what you're saying but I'm wondering what you want. Me BAKER: I want the details and the breakdowns of the numbers with the elements in RJR-3. For example, I see: "Print advertising 1987: $1,416,000.00". I don't know if that's magazines, I don't know if that's newspapers. I don't know whether that's weighted in national media or local media. "Signs", I don't know whether that includes billboards... THE COURT: Well, maybe these questions should be put to the witness. AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ~s Lt~e

1071 537 i0 15 2O 25 Me IRVING: Why don't you ask Mr. Hoult? Me BAKER: Because I don't think Mr. Hoult knows the answer but I'm more than prepared... THE COURT: Well, if he doesn't know... Me BAKER: ... I'm more than prepared to ask him the questions. CROSS-EXAMINED BY Me ROGER E. BAKER, Q.C., for Respondent: Q- Have you got a copy of RJR-3 in front of you, Mr. Hoult? Me IRVING: Well, My Lord, may I point out that for a great many of these, my friend has the detailed breakdown already. Not for all of the categories but for quite a number of them. They were provided to him for discovery. Me BAKER: I told you at the time and I tell you again, Mr. Irving, that they are insufficient and I'm not satisfied with the numbers that you have provided to us. So the fact that you say you've provided us with pieces of paper is not especially important to me. Q- Now, Mr. Hoult, have you got RJR... AUDIOTRANSCRIPT, Di~,~o0 ~ P~arra Vilalra & Associ@s Lt~e

1072 538 i0 15 20 25 Me IRVING: Just a moment. Just a moment. THE COURT: Well, let's not lose time. Why don't you ask him the question, if you're not satisfied with what you have, and we'll see. Me BAKER: Q- Do you have a copy of RJR-3 in front of you? THE COURT: Yes, I have. Me BAKER: No, I'm asking the witness, My Lord. A- No, I don't. I have it in front of me, Mr. Baker. Q- See for the year nineteen eighty-seven (1987), "Print advertising: $1,416,000.00"? A- Yes. Q- Do you know how that is broken down between magazines and newspapers in Canada? A- No, it just includes magazines and newspapers. know the breakdown. Q- Hm, hm. Do you know whether it's approximately fifty-fifty (50-50) or is it weighted eighty percent (80%) in favor of magazines or eighty percent (80%) in favor of newspapers? Do you have any idea, Mr. Hoult? Well, it would be very heavily weighted in favor of I don't AUDIOTRANSCRIPT, Division de Pierre Viloire & A,soc;~s Lt~e

1073 539 I0 15 20 25 QD magazines, but I couldn't give you the proportion. Hm, hm. "Signs: $6,000,839.00", what does that mean? Signage is made up of out of home -- billboards, bus shelter signs, this sort of thing. Hm, hm. Does that have anything to do with the kinds of signs you see in stores? No. The little "maquette", for example? No, that is covered under "Point of sale". That is covered under "Point of sale: $1,736,000''3 Yes. Now "Retail: $18,568,000", that's point of sale as well, is it not? No, the retail would be the costs, contractual costs of programs in-store which would be planned on a six (6) week cycle throughout the year. Now, I'd like an explanation of that. Contractual costs, that means what exactly? Well, you would come to agreements at the end of a year with important chains. Shopper's Drug Market would be -- Shopper's Drug Mart would be an example. And you would agree with Shopper's Drug Mart that, say three (3) times a year, you would have a shelf display behind the counter for your cartons and you would pay a fee for that shelf display, depending on how much shelf display AUDIOTRANSCRIPT, Division de Pierre Vilalre & Associgs Lt~

1074 540 5 i0 A- Q- 15 A- Q- 20 25 A- you took and for how long. You'd also pay a fee for counter units. These are smaller displays which you might have seen by the cash register which shows individual packs. So that that is what the retail costs covers and any other payment to the retailers. There is no way, for example, that one could tell from that document, RJR-3, say for example in respect of the Export brand family, what the weight of the advertising was in respect of the lighter extensions in that brand family as opposed to the Export "A" Green, would there be? Are you talking about any specificitem on this or as a general question? It's a general question. I suspect not, because I -- and this is only a suspicion -- that in terms of records, it would be kept under the overall brand family, but it may, it may be. How would one -- if you wanted to, as the chief executive officer of your company, for example, want to know -- if you wanted to know how much was spent on advertising of Export "A" Light in the year nineteen eighty-six (1986), as opposed to Export "A" Green, how would you determine that? What kind of records would you go to and where would they be? Well, the first record I would look at for eighty-six

1075 541 5 15 A- Q- 2O A- Q- 25 ('86) would be the nineteen eighty-seven (1987) or the nineteen eighty-eight (1988) plan, where the broad spending focus for the previous years would be included for reference in order to justify whatever plan was being proposed for the following year. So in a typical operating plan, there would be some considerable detail of the previous two (2) years, the year that you're proposing and the following two (2) years in a strategic sense, so that the reader, the evaluator can get an idea of the pattern and the strategic focus over time. And if you wanted to chart, for example, over an eleven (ii) year period, where the weight of your company's advertising went in terms of the lighter cigarettes as opposed to those over thirteen (13) or fourteen (14) milligrams, how would you do it? Well, I would carry out the exercise I've just described in a fairly repetitious fashion, going back over operating plans over that period of time. And it's your testimony that the operating plans would have all that information in it? Well, it would have -- it would certainly have sufficient information for me to make that determination that you've just used -- cited as an example. And if you wanted to break down the advertising expenditures on an annual basis, in terms of the AUDIOTRANSCRIPT, Divi,~oo de Pierre Viloire & Associ#s Lt~e

1076 542 5 A- A- i0 Q- 15 A - 20 25 sections of Canada that you described yesterday -- I think, the East, and Quebec, and then Ontario, and Saskatchewan and Manitoba, and now the West -- how would you do that, Mr. Hoult? Well, that information probably wouldn't be in a plan because that would be getting down to a more tactical level than the strategic level you've just asked about. And where would that information be, sir? In -- for recent years, say the previous two (2), I'd be fairly confident that those records would still be kept either at the advertising agency or in the company, in the marketing group. Prior to that, I would expect the records to be incomplete. Are those records -- are the records of the expenses reflected in any of the computer information that you have in your company? It would be for that relatively recent period of time, the two (2) years that I've just described. It probably would not, in a sense I would hope it would not, for previous years because, again as discussed in our discoveries, one of the problems that large companies have and our company, I thought, had when I was the C.E.O., that the amount of information and data was becoming totally overwhelming. And I did, as you know, pass out a specific instruction, only to keep ,4UDIOTRANSCRIPT, Division de ~ier're Vilolre &

1077 543 5 i0 15 2O 25 information that was relevant and actionable... THE COURT: Q- Mr. Hoult... A- ... for any particular year. Q- ... the discovery that you have been through prior to the case has not been filed, so as far as I'm concerned it doesn't exist. So don't assume, don't presume anything. I don't know what you said at the discovery and I will not know, unless it is filed. And it is to the counsel who has examined you to decide whether or not he files it, and he's perfectly free to do so or not. So when you testify to me, don't refer back to the discovery. I wasn't there and I don't know, and I will not know what has been said. A- Very well. Q- Okay? A- Yes. Q- Just to make sure you understand. Me BAKER: Q- For example, Mr. Hoult, if one wanted to determine, for any of the years in question, the last eleven (ii) years, the proportion of expenses between say Quebec and Ontario, how would you do that? A- Well, I certainly would expect to be able to get that information for the previous two (2) years, as I say, AUDIOTRANSCRIPT, Division de Pierre Vilalre & Associ4s Lt4e

1078 544 5 20 A- Q- A- 25 either from a source in the marketing department, who would have kept those records, or from the agency who would have kept those records. But I doubt very much whether those records would go back very much earlier than that, because it would not be seen as relevant. We follow a policy, in our operating plans, just to look at the previous two (2) years. The year in question and the following two (2) years, in a five (5) year span, is considered to be the most appropriate for our planning purposes. A five (5) span? Yes. The previous two (2) years, the year in question and the following two (2) years. M'hm. In the year nineteen eighty-seven (1987) did your company spend more money advertising the light brand extensions of the Export family rather than the Export "A" Green? Most certainly. Where they were not advertised together, of course, in one photograph. Yes. My answer is: most certainly. And what would the breakdown of that have been, do you have any idea? I, again, have an idea and this is an estimate. I would judge that at least seventy-five percent (75%) of AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associgs Ltge

1079 545 i0 15 2O 25 specific brand advertising within the Export family would be directed towards the lighter cigarettes, because, as I've said, that was where the market was moving and that was where we saw the greatest opportunities for obtaining brand share. THE COURT: These figures will appear from the operating plan of nineteen eighty-eight (1988)? A- I believe they would be in such detail, My Lord, indicating where the focus of -- focus of our spending was in the sense of Export Light versus Export Green. Me BAKER: Q- Yes, in that big green book that you showed us the other day? A- Yes. THE COURT: Nineteen eighty-five ('85). A- The operating plan in that book is the eighty-five ('85) operating plan. Me BAKER: Yes. But the same would apply. apply. The same principle would Oh, well then, perhaps we could look at the eighty-five ('85) one. AUDIOTRANSCRIPT, Di~;,~o~ ae Pierre Viloire & Associ~s Lt~e

1080 546 i0 15 2O 25 THE COURT: At Tab 2. Me BAKER: Q- Perhaps you could, in connection with the answer you've just given, show us what the breakdown in nineteen eighty-five (1985) was of your advertising expenses of the light brand extensions in the Export family as opposed to the, I think... A- Mr. Baker, I've been through all the financial tabulations in the plan and, in fact, in this plan, while it gives the objectives in terms of units, it gives an overall family expenditure for Export and doesn't, indeed, break it down by the line extensions. Q- M'hm. So there's no way to determine from the annual operating plan what the specifics are? A- No. I thought it was included in there but, certainly from this plan, nineteen eighty-five (1985), there is not. It may have occurred in the eighty-seven ('87) plan. Q- Do you have it with you? A- I don't have the nineteen eighty-seven (1987) plan with me. I don't know whether counsel has it. THE COURT: Would you look at page forty-three (43) and tell me what this is? AUDIOTRANSCRIPT, oiv~,ion de Pierre Vilaire 8, Associ~, Ltge

1081 547 i0 15 2O 25 A- Table 43, My Lord, is a summary of the objectives in terms of share of market for each of our brand families and against each the total measured media we plan to spend. Q- No, but in eighty-three ('83) and eighty-four ('84), for example, you have figures. These were actual figures? A- Yes, they were. And we have all these figures in great detail for the total family, My Lord, but the question was: if you took the Export family and broke it down into its various line extensions, how would the expenditure on the lighter brands compare with Export Q- Okay. A- And that detail, I'm unable to provide from this plan. THE COURT: But it can at least tell you in terms of the whole spending which of the families are more favored... A- Oh yes. THE COURT: ...by the spendings, like in the Export family, obviously, for eighty-four ('84) or eighty-three ('83)? A- Very clearly, My Lord. Mr. Baker, if it's helpful, I can say that most of that expenditure was family expenditure and would probably be classified as such. However, as I indicated I think yesterday, at this AUDIOTRANSCRIPT, Di,,i,lo~, d~ Pierre Vilaire & A,soci~s Lt6e

1082 548 i0 15 2O 25 period of time, nineteen eighty-seven (1987), we would always be illustrating in that family advertising, when we showed individual brands, the lighter brands rather than Export "A". And apart from that it would have been family advertising showing all the packets. Q- You're aware, Mr. Hoult, that your counsel has provided us with a document, seven (7) pages... THE COURT: Before you move to that, could I just ask another question in relation -- would you refer now to page twenty-eight (28) of the same operating plan where you have the product line management strategy? A- Yes. THE COURT: Couldn't you work from that to arrive at the same global figure for the family? A- No, because this -- the data on this -- on this page, My Lord, refer essentially to brand shares rather than spending and the spending is summarized in the right-hand side of the -- of the document which indicates that for the Export -- the Export family, as a whole, in nineteen eighty-three (1983) accounted for sixty-four percent (64%) of our spending. In nineteen eighty-four (1984), seventy-six (76) and we were planning for it to account for seventy-five percent AUDIOTRANSCRIPT, Division de Pierre Vilaire & AssociCs

1083 549 i0 15 20 25 (75%) in eighty-five ('85). THE COURT: No, the brand family share of market objectives. When I look at the eighty-three ('83) figure... A- Yes. THE COURT: ...I end up with the Export family at fourteen point zero (14.0)... A- That is share of market. THE COURT: ...broken down? A- Yes, share of market. THE COURT: That corresponds exactly to the actual dollars spent in the Export family for the same year, at page forty-three (43)? A- Yes, that is a coincidence, My Lord. THE COURT: It's the same for the Vantage family. A- Could you... THE COURT: It's the same for the Macdonald Select family. Is it purely coincidental? A- Could you refer me to the -- the other... AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ~s Lt6e

1084 550 10 15 2O 25 ME IRVING: Page forty-three (43), Me BAKER: Page forty-three (43), the comparison. Me IRVING: The share of market also. A- Yes, these are -- these are the same figures, share of market. But the question is -- is about how much did you spend in order to achieve that share of market. THE COURT: And these were not -- would not be actual spendings... A- No, these are... THE COURT: ... they're only shares? A- ...actual shares of cigarettes... Me BAKER: It's only a percentage... A- ...that we obtained. Me BAKER: That's reflective of the percentage of the market. It's what I think the witness is saying, am I not correct? A- Yes, that is correct. Share of market does refer to how many cigarettes you sell as a percentage of the total market and the question is focused on how much did we spend. And I can provide that information for the total AUDIOTRANSCRIPT, Division de Pierre Vilolre & Associ6s L,4e

1085 551 5 I0 15 2O 25 family of Export but I can't provide the breakdown of the individual line extensions. THE COURT: Okay. A- I'm sorry, Mr. Baker. Me BAKER: Not at all. Q- Now, you have seen a document, I believe, Mr. Hoult, called RJR-Macdonald Inc. advertising and promotion spending, Canadian dollars, total spending, spending years nineteen seventy-six (1976) through nineteen eighty-seven (1987). A- Yes, I have. Q- Now, do you have a copy of that that we might provide to the Judge, Mr. Hoult? Me IRVING: We only have one (i) copy. We'll be quite happy to... Me BAKER: Q- Now, on the top page you see total spending. It's by brands down the left side? A- Yes. Q- Correct? A- Yes. Q- So, for the year nineteen eighty-seven (1987), the total spending was thirty-five million, three hundred and AUDIOTRANSCRIPT, Division de Pierre Viloir~ & AssoclCs L,4e