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Risk management

Smoking and health litigation

The Company maintains a sound system of internal control with a view to safeguarding shareholders' investment and the Company's assets.

This system is designed to manage risks that may impede the achievement of the Company’s business objectives rather than to eliminate these risks and can therefore provide only reasonable, not absolute, assurance against material misstatement or loss.

Litigation commentary

Smoking and health litigation originated in the US because of the unique characteristics of its judicial system. The tobacco industry has a strong record of winning these cases and we, along with many analysts, believe this will continue, although it’s always possible that sometime, somewhere, a smoking and health case will be lost.

The Group is involved in a number of legal and regulatory court proceedings in a number of countries. These proceedings may be characterised as covering smoking and health issues and include claims for personal injury and claims for economic loss arising from the treatment of smoking and health related diseases.

In addition, there are legal proceedings and a governmental investigation in Canada arising from alleged past smuggling activities with consequent claims for unpaid excise tax.

While it is impossible to be certain of the outcome of any particular case or of the amount of any possible adverse verdict, the Company believes that the defences of the Group companies to all these various claims are meritorious both on the law and the facts. Nevertheless, it is not impossible that the results of operations or cash flows of the Group could be materially affected by the final outcome of any particular litigation.

Types of case

There are a number of different types of claim which have been brought against the tobacco industry. The three most common are:

  • Recoupment actions, also known as third party reimbursement cases, are where health care providers or similar organisations seek to recover the costs of treating diseases linked to smoking.
  • Class actions are where a group of people jointly bring a single claim alleging that there are common issues which affect them all.
  • Individual actions are brought by a single person who alleges, for example, that they have suffered damage to their health due to smoking.

In some cases, the plaintiff or plaintiffs may seek to recover what are known as punitive damages in addition to compensatory damages.

US litigation

Our exposure to US litigation was reduced when R.J. Reynolds Tobacco combined with our former US business Brown & Williamson Tobacco in 2004. This means that we no longer have a wholly-owned subsidiary operating in the US market; instead, we have a 42% shareholding in Reynolds American. Reynolds American now manages and co-ordinates Brown & Williamson defendant cases.

Litigation outside the US

In the US, several special factors lead to litigation that are not replicated in any other country, which is why large volume and high value litigation has largely not spread to other parts of the world.

While it is difficult to predict the outcome of every lawsuit in every country, our companies will continue to vigorously defend smoking and health litigation, drawing confidence from the industry’s exceptionally good record when the law is properly applied.