Court issues landmark ruling against UK tobacco company

This is the first time outside the US a non-American cigarette holding company was legally declared responsible for its subsidiaries.

A Jerusalem District Court ruling against giant holding company British American Tobacco PLC (BAT) on Thursday will reportedly have far-reaching implications on lawsuits brought by health maintenance organizations elsewhere against conglomerates that own tobacco companies. The ruling was the first time outside the US in which a non-American cigarette holding company was legally declared to have responsibility for its subsidiaries. Jerusalem District Court Judge Yosef Shapira set a legal precedent when he decided to allow the inclusion of the British holding company - the world's second-largest tobacco concern - as an additional defendant in Clalit Health Services' NIS 7.6 billion lawsuit against several tobacco manufacturers. Clalit, Israel's largest health fund, has been in court since 1998 to demand compensation for the treatment of members whose health problems were caused cigarettes manufactured by the defendants. The precedent lies in ruling that a holding company that does not itself deal directly with tobacco production, marketing or advertising can be sued for fraud and misleading the public about the real dangers of its subsidiaries' products. The court decision was partly based on the fact that a strategic committee in the holding company set policy for the companies it owned. The British company is now subject to the penalties requested by the health fund. The court said the lawsuit against this British defendant has "substantial merit." Clalit is suing seven groups of cigarette manufacturers from Israel, the US and Britain for a total of NIS 7.6 billion, plus linkage and interest since 1998 (in current values, NIS 11.5b.). The health fund's demand that companies be prohibited from using the deceptive term "lite" - as if cigarettes with a reduced amount of tar were less harmful - led to Israeli legislation prohibiting the use of this term in advertising and labeling of cigarette packets. Clalit contended that the holding company set down the advertising policies of its subsidiaries and told them how to refute arguments that smoking was harmful. Thus, it was not just a holding company with only loose control of the subsidiaries. The court said that contrary to BAT's commitment, it did not provide Clalit with access to its documents in Minneapolis, Minnesota, and in Guilford, England, for a full year. A precedent-setting decision in the US established that such documents must be open to public scrutiny. The same Israeli court and judge ruled last year against Philip Morris (the maker of Marlboro), British American Tobacco (the maker of Kent), and Dubek (the maker of Time), which had claimed the health fund cannot directly sue them for the diseases caused by smoking. The companies maintained that Clalit would have to sue the tobacco companies in the name of each smoker separately. The companies also insisted that Clalit was a "distant, third side" and "too far away" from the damage caused by smoking to sue the companies. Since then, the judge ruled that Zerah Gehl, the former managing director of Israeli tobacco monopoly Dubek - who has for 17 years been living in England and has not returned - can be personally sued for his responsibility for the tobacco company's actions when he headed it. One of BAT's heads, Kenneth Clark, was a leading candidate to head Britain's Conservative Party, triggering severe criticism due to his involvement in the tobacco business.