Brazilian Court Rejects Main Class Action Filed Against Cigarette Manufacturers

SAO PAULO, May 27, 2011 -

- After 16 years of litigation, Sao Paulo court denies claims for
indemnification from Smokers' Association, in line with recent decisions from
the Brazilian Superior Court of Justice

The judge of the 19th Civil Court of Sao Paulo denied the claims for
indemnification brought by the Association for the Defence of the Health of
Smokers (ADESF) in a class action suit filed against cigarette manufacturers
Souza Cruz (the Brazilian branch of British American Tobacco Group - BAT,
Amex: BTI) (Bovespa: CRUZ3) and Philip Morris Brasil that, according to the
plaintiff, was evaluated at more than R$ 30 billion (US$ 18.4 billion). This
was the first lawsuit seeking indemnification for damages attributed to
smoking cigarettes filed in the country. In the suit, filed in 1995, ADESF
sought indemnification for all the "smoking consumers" it alleged to
represent, based on the argument that manufacturers' advertising had been
misleading and abusive.

At one point in the process, the association managed to receive a
favourable decision from a lower court that, however, had been rendered as an
advance ruling, with defendants not being given the opportunity to produce
the evidence they had requested. In 2008, the Court of Appeals of Sao Paulo
(TJSP) recognized that defence had been curtailed and reversed the decision,
stating that conviction without proof violates the constitutional right of
full legal defence.

The case was remanded to the 19th Civil Court of Sao Paulo for, under due
process of law, evidence to be produced, including the expert evidence
ordered by the Court of Appeals. Due to the class action nature of the claim,
an unprecedented medical court expert examination was carried out (analysing
epidemiological aspects of all diseases associated with cigarette smoking),
as well as an extensive court expert analysis of advertising that, by
explicit ruling of the Court of Appeals of Sao Paulo, covered the last 30
years of advertising of the two defendants in Brazil.

Summarizing, the medical expert concluded that cigarette smoking is a
multifactorial behaviour and that "it is not possible to determine in advance
if a smoker will develop some type of disease or not, but only to point out
the existence of risk factors." The advertising expert, among other aspects,
confirmed that "the use of tobacco in all its forms dates back to ancient
time, more ancient than advertising," and that "advertising is not the only
determining factor in an individual's choice to smoke or not."

Following the statements of the parties and expressly quoting the expert
reports, the judge denied the claims for indemnification based on the proof
that "smoking cigarettes is merely a risk factor (probability) of various
diseases and is not the necessary cause" and on the fact that "the lack of
warnings about the harmful effects of smoking cigarettes on packaging and in
advertising, when there was no legal requirement for such warnings, creates
no liability for the defendants."

Citing ample jurisprudence, including from the Superior Court of Justice
(STJ), the lower court judge emphasized that "it has been a well known fact
for decades that cigarettes are harmful to the health of smokers" and that,
"even though smoking cigarettes causes health risks, there is no prohibition
against their manufacture and sale. On the contrary, commerce in cigarettes
is a legal activity, permitted in our legal order." Further, the ruling
expressly recognized the legality of the manufacturers' advertising and that
"cigarettes are a product that are inherently dangerous and not a defective
product."

All class and individual actions of this type that have been judged
conclusively by Brazilian Courts ended without the intended liability of the
manufacturers. From a Brazilian legal perspective, the object of this class
action is identical to the hundreds of individual actions that have already
been definitively rejected by more than 15 state courts and by the Superior
Court of Justice itself. All final rulings handed down by Brazilian courts
have denied claims for indemnification from smokers, ex-smokers or their
family members, totalling more than 355 cases closed of over 620 cases that
have been filed in Brazil since 1995.

Rafael Machado, Cia da Informacao, +55-11-3074-3440, rafael at ciadainformacao.com.br