GALLAHER faces fresh accusations of colluding with Customs to mislead parliament about alleged complicity in tobacco smuggling, according to legal papers that will be lodged in court this week.

The claim is one of three cases dogging the British firm and threatens to derail the £7.5 billion takeover bid by Japan Tobacco International, which Gallaher’s board has recommended to shareholders.

The legal action, to be filed in Cyprus, is part of a dispute between Gallaher and its former distributor in the Middle East, Tlais Enterprises Ltd (TEL), based in Limassol.

However, TEL, run by Lebanese businessman Abu Hameed Tlais, is now bringing Revenue & Customs into the conflict, claiming £250m in damages for breach of contract.

The inclusion of a government agency in the legal dispute could delay the takeover, given that behind the latest writ is an allegation that financial mismanagement by Customs was covered up.

At issue is an agreement between the three parties, which senior Customs officials authorised in December 2002 and hailed as a breakthrough in their fight to control smuggling into Britain of Gallaher’s key brands — Sovereign and Dorchester. The so-called “tripartite agreement” gave Customs the ability to monitor the activities of a major distributor for the first time.

But draft court documents seen by The Sunday Times and Customs sources allege the agreement had a fatal flaw: in return for unprecedented access to its distribution chain, Customs allowed Gallaher to sell more than 2 billion “old” and unfit cigarettes with English health warnings on the open market, knowing they were vulnerable to being smuggled back into the high-duty UK and Europe.

It is understood that Customs did not ask how much old stock there was or at what ratio it would be mixed with new Gallaher tobacco. Nor did it properly police the agreement with regular spot checks at the warehouses. The loss to the Treasury due to the smuggled cigarettes is estimated to run into millions of pounds.

Details of the mismanaged agreement were never disclosed to the Treasury select committee that was scrutinising Gallaher and Customs’ fight against smuggling.

According to the claim, Customs “fraudulently colluded” with Gallaher to “red card” TEL for failing to stop the smuggling before the committee hearing in January 2005. This, the claim suggests, provided Gallaher with the pretext to sack its distributor. It is further alleged that Gallaher “purposefully concealed” information about the old cigarettes from the committee.

This disputed series of events has led to a flurry of legal actions by TEL over the past two years, which now threaten to undermine Japan Tobacco’s sole bid for Gallaher.

In July 2005, TEL counter-sued Gallaher, seeking £350m in damages. It also alleged the tobacco firm had orchestrated a worldwide smuggling policy and broke sanctions by trading with Saddam Hussein’s Iraqi regime.

Over Christmas, Tlasco, Gallaher’s distributor in Lebanon, which is owned by Tlais’s brother, issued separate proceedings in Beirut accusing Gallaher of fraud and selling “spoiled goods … invalid for human consumption”.

Gallaher denies the claims.

It said it works closely with Customs but denies soliciting the red card or misleading parliament.

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