Legal issues
Smiths is committed to operating within the law in all applicable jurisdictions, and seeks to benefit from the rights and protections afforded by relevant laws. The Company aims to anticipate and meet the changing requirements of the markets it serves, as legal and regulatory reforms impact those markets.
Smiths faces different types of legal issues in different jurisdictions. The high level of activity in the US, for example, exposes the Company to the likelihood of various types of litigation commonplace in that country, such as ‘mass tort’ and ‘class action’ litigation, and legal challenges to the scope and validity of patents. These types of proceedings (or the threat of them) are also used to create pressure to encourage negotiated settlement of disputes.
In addition, contracting with the US Government subjects a company to numerous stringent regulatory obligations, calling for an active programme of compliance, reporting and communication. By contrast, the Company’s activities in some countries with less developed legal systems pose challenges for the protection of corporate assets such as real estate and intellectual property rights.
In order to address the challenges and exploit the opportunities arising from these and other legal issues, Smiths employs experienced lawyers in head office and certain operations, and retains the services of law firms around the world.
John Crane, Inc. litigation
John Crane, Inc. (JCI) an indirect subsidiary of the Company, is one of many co-defendants in numerous lawsuits pending in the USA in which plaintiffs are claiming damages arising from alleged exposure to, or use of, products containing asbestos. The JCI products generally referred to in these cases consist of industrial sealing products, primarily packing and gaskets. The asbestos was encapsulated within these products in such a manner that, according to tests conducted on behalf of JCI, the products were safe. John Crane ceased manufacturing products containing asbestos in 1985.
JCI has resisted every case in which it has been named and intends to continue its robust defence of asbestos-related claims based upon this ‘safe product’ defence. As a result of its defence policy, JCI has been dismissed before trial from cases involving approximately 159,000 claims over the last 29 years. JCI is currently a defendant in cases involving approximately 136,000 claims. Despite these large numbers of claims, JCI has had final judgments against it, after appeals, in only 70 cases, amounting to awards of some US$70m over the 29 year period.
The 2007 Annual Report noted that JCI had secured the commutation of certain liability insurance policies, resulting in proceeds of £43m. While substantial excess liability insurance remains in place the exact scope of the cover is currently the subject of litigation in the United States in the Circuit Court of Cook County, Illinois. In the meantime JCI has begun to meet defence costs directly, and intends to recover appropriate contribution from insurers in accordance with the terms of the remaining policies in due course. The 2007 Annual report noted that JCI has made a provision for defence costs of £101m based upon an assessment of the probable costs of defending known and expected future claims. In establishing this provision no account has been taken of recoveries from insurers as their nature and timing are not yet sufficiently certain to permit recognition.
During the current year, JCI has charged £5m in respect of adverse legal judgments delivered. Despite JCI's commitment to its safe product defence, history shows that juries will occasionally return adverse verdicts which can be difficult to overturn on appeal. A further £40m has, therefore, been charged to establish a provision for future adverse judgments. In deciding upon this amount, JCI has relied on expert advice from a specialist in asbestos liability estimation.