UK tobacco lawsuits may be halted

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A ruling expected later this week threatens to stop legal action against the UK tobacco industry in its tracks. At issue is whether tobacco companies in the UK can claim costs against a growing number of solicitors organising group actions here on a no-win-no-fee basis. If they can, group actions in the UK could end before they have even started. If they cannot, the UK faces a tidal wave of US-style litigation. Sameena Ahmad reports. The UK's leading anti-smoking lawyer is this week threatening to drop cases against the industry because of a quirk in the UK's legal system. Martyn Day, of solicitors Leigh Day, said on Friday he would consider dropping legal action against Imperial Tobacco and Gallaher if the UK cigarette companies were allowed to claim costs against his firm in the event that they successfully defend their case.

Behind closed doors, the tobacco companies are expected to inform Leigh Day today about whether or not they intend to claim against the solicitor for costs.

The issue, seen as a legal test case, will then be put before a judge on Friday. Mr Day said the matter of who was liable for costs was critical: "If the tobacco companies can claim against us, it would be a serious issue. We couldn't go ahead if we thought we were facing pounds 10m-pounds 20m of potential costs."

Should the judge rule in favour of the tobacco companies, experts said it would make US-style tobacco litigation in the UK a dim prospect.

Liability for costs threatens to be such a sticking point in the current case against the UK tobacco groups for three reasons. First, Leigh Day's case is a group action where costs involved for both parties are likely to be substantial. Mr Day is suing Imperial and Gallaher on behalf of a group of lung cancer victims who claim their illnesses were caused by tobacco companies failing to reduce tar levels in cigarettes.

Though there are 47 clients in the group action, Mr Day says 25 more are planning to join the action in the next few months, something the tobacco companies can argue will push up the costs.

Second, the case is being brought against the tobacco industry. This means that insurance companies in the UK are not willing to insure plaintiffs against costs and, in turn, defendants have no hope of reclaiming their costs from the plaintiffs. Both Imperial and Gallaher recognise that claiming against the lawyer who is bringing the case is the best chance for them to get their money back.

Moreover, legal experts say that Mr Day's no-win-no-fee arrangement with his clients means he is effectively subsidising his clients' lawsuits and therefore an interested party who can be sued for costs.

Tim Maloney, a partner at Eversheds, the UK's largest litigation practice, said that in principle, Imperial and Gallaher had every right to claim legal costs from Leigh Day: "Defendants are entitled to recoup their costs. There is no reason why a private arrangement between a client and a lawyer like a no-win no-fee arrangement should disentitle a successful defendant from the right to get back his costs."

However, several observers pointed to the risks of failing to win on this issue: "The last thing these tobacco companies want is to risk losing on a big issue like this. Ruling in favour of the tobacco companies is totally against public policy. If a lawyer had to fund a defendant's case, there would be no point in lawyers bringing these cases to court at all."

This illustrates the wider significance of the tobacco case. Observers say that preventing a defendant from claiming costs in a class action could take the UK the same way as the US, where class action suits based on a no-win no-fee basis have grown exponentially over the past decade.

In the US, successful parties are unable to claim costs against anyone, leaving lawyers bearing little risk even in the least well-founded cases. This has led to what many regard as an unhealthy obsession with litigation.

On the other hand, experts say the judge presiding over Friday's hearing will have to bear in mind that under the current UK system, it is theoretically possible, and quite likely, that a financially strong defendant can scare off challenges from weaker opponents and even groups of people by threatening to sue their lawyer for costs.

Fears that the UK tobacco industry will face the same tide of litigation as the US, which has culminated in proposals for a $368bn settlement against future tobacco litigation, have prompted a group of UK fund managers to seek advice from heavyweights in the US case.

In a meeting organised by Kleinwort Benson, around 40 UK fund managers are due to meet next week with Jim Tierney, the central figure in the US settlement and who co-ordinated state actions against US tobacco companies and Richard Daynard, the head of the tobacco products liability group.