Philip Morris lawsuit could cost taxpayers £11bn

TOBACCO giant Philip Morris is to launch the biggest corporate compensation case in history against the UK and Scottish Governments over the decision to impose plain packaging on cigarettes.

Philip Morris cigarettes. Picture: Getty
Philip Morris cigarettes. Picture: Getty

Legal papers are expected to be presented today or early next week seeking between £9 billion and £11bn – a figure almost as high as the welfare cuts planned by the UK Government for this parliament. Other tobacco companies are expected to follow suit.

Legal advice from former Advocate General of Scotland Lord Davidson of Glen Clova and retired judge Lord Hoffman says the policy breaches international law on image rights and the Human Rights Act.

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MPs voted in March to introduce plain packaging for tobacco products, replacing famous labels with images of the health consequences of smoking.

Cigarettes in Australia bear dire health warnings and no logos. Picture: Getty

The measure is due to be introduced in 2016. Powers over tobacco packaging are devolved to Holyrood but Scottish ministers have said they will follow Westminster’s lead on the issue.

Both governments have accepted arguments by campaigners and medical experts that packaging helps market tobacco to new, young smokers.

The tobacco industry has warned the move would set a precedent that could spread to other sectors such as alcohol.

But campaigners at Ash Scotland pointed out that a legal challenge in Australia, which introduced plain packaging in 2012, had failed.

Philip Morris International PMI CEO André Calantzopoulos. Picture: Getty

The charity claimed the move by Philip Morris was a delaying tactic and an attempt to put other countries off trying to do the same.

Papers seen by The Scotsman show that Lords Hoffman and Davidson consider that trademarks are protected under European law and forced removal of them is a “deprivation of property” and breach of Article 1, Protocol 1 of the European Court of Human Rights, and Article 17 of the EU Charter of Fundamental Rights, both of which apply in Scotland and England.

They also believe the move agreed earlier this year breaches international trademark agreements made through the World Trade Organisation.

In his summary, Lord Davidson said that the ruling against the tobacco companies in Australia would not apply in the UK and the case foundered because “the Australian constitution imposes a test of whether property is acquired on just terms” which would not apply in the UK.

He noted that five out of the seven judges in Australia accepted that plain packaging was a “deprivation of property” and said that under EU law this meant “compensation would be payable” by UK taxpayers.

The £11bn compensation is based on independent analysis drawn up by investment company Exane BNP Paribas, which was in turn based on an annual tobacco profit pool of £1.5bn.

A source at Philip Morris, producers of Marlboro cigarettes, told The Scotsman: “Papers will be presented either on Friday or Tuesday at the latest. We believe we have a strong case.”

Japan Tobacco International (JTI) also confirmed it is preparing to sue the UK and Scottish Governments.

A spokesman said: “JTI strongly considers plain packaging is unlawful. JTI and others have repeatedly and consistently said plain packaging infringes important principles of UK and EU law, and other fundamental rights. JTI therefore expects to challenge the legislation.”

Both the UK and Scottish Governments said they had been expecting a legal challenge.

While smoking control is devolved to Scotland, ministers had pushed for a UK-wide approach which was then agreed, just before the election, by the Tory/Lib Dem coalition.

Last night, a Department of Health spokesperson said: “We have not received any legal claim but we will not allow public health policy to be held to ransom by the tobacco industry.” Scotland’s public health minister Maureen Watt said: “A legal challenge would not be unexpected. However, we do not believe that legal threats from the tobacco industry should stop us from taking action to improve the health of our children, families and communities.”

Sheila Duffy, chief executive of Ash Scotland, said: “The idea of a filthy rich company with an addictive and lethal product demanding compensation against a measure aimed at protecting children and saving people’s lives astonishes me.”