Big Tobacco and plain cigarette packaging

Big Tobacco has been bullying and blustering for some time about federal government plans to legislate for plain packaging of cigarettes (i.e. devoid of all branding, trademarks etc).  They’ve threatened to challenge such legislation in the High Court as an acquisition of property on unjust terms (and therefore contrary to Constitution s 51(xxxi).   No doubt they will launch a challenge too. After all they have plenty of money harvested from their addicted customer base, and they certainly won’t want to allow a precedent to stand that will be copied by other countries if it succeeds in reducing smoking levels (as it probably will).

But will Big Tobacco’s legal arguments succeed?  Probably not.  Senior UNSW constitutional academic George Williams says probably not, and I agree.  However Williams does not clearly explain the key reason why Big Tobacco will probably fail.

First, there’s no doubt that Big Tobacco’s trademarks are “property” for constitutional purposes.  And there’s at least a respectable argument that completely prohibiting any use of those trademarks would effectively extinguish those property rights, particularly in a context where just about all other forms of advertising and display have already been banned.

But extinguishment or cancellation of property rights without more will generally not be an “acquisition”. Someone (but not necessarily the Commonwealth) must obtain a real benefit flowing directly from the Commonwealth action, although that benefit need not be the same in kind as the extinguished property e.g. it might be removal of a contingent liability that the Commonwealth or someone else previously had. See Georgiadis and Mewett.

This is evident in a series of cases on the extinction of debts owed by the Commonwealth. There is no doubt that a debt should be treated as property, but does the Commonwealth acquire property as a result of extinguishing its debts? In Georgiadis v Australian and Overseas Telecommunications Corporation, Mason CJ, Deane & Gaudron JJ stated that ‘“acquisition” in section 51(xxxi) extends to the extinguishment of a vested cause of action, at least where the extinguishment results in a direct benefit or financial gain (which, of course, includes liability being brought to an end without payment or other satisfaction)’. In Mutual Pools and Staff Pty Ltd v The Commonwealth of Australia, McHugh J put it in general terms, as he said that a s 51(xxxi) acquisition of property occurs if the Commonwealth obtains ‘a corresponding benefit of commensurate value’ from a deprivation of the plaintiff’s property.

It would be drawing a long bow to argue that the Commonwealth or any other specific person or entity obtains a direct benefit or financial gain from banning branded cigarette packaging.  Any reduction in smoking and associated health benefit to the community would be general gains to the public interest not gains flowing to the Commonwealth itself or indeed any particular person.

Nevertheless, as Williams observes, the law in this area is not absolutely clear and Big Tobacco will be making as much noise as it can.

About Ken Parish

Ken Parish is a legal academic, with research areas in public law (constitutional and administrative law), civil procedure and teaching & learning theory and practice. He has been a legal academic for almost 20 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in the early 1990s.
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Dave
Dave
10 years ago

If sale of cigarettes were banned completely, would that constitute acquisition of property? If not, surely the less draconian alternative of banning branded sales could not constitute acquisition.

Alternatively, how about continuing to allow branded sales, but levying a much higher duty on them? Or perhaps, raising the duty substantially and then introducing a lower duty for plain sales. Would these alternatives constitute acquisition?

If the law were at all logical, the tobacco companies would not have a leg to stand on. If…

Corin
Corin
10 years ago

Ken, I think that is a very interesting post. I haven’t read that case law but an extinguishment by the commonwealth surely operates in a similar manner to an acquisition. [BTW – I don’t think it is a technical ‘extinguishment’]

It does seems to be a divide between black letter law and the lay understanding of an acquisition. ‘I lose property because of government action, one expects compensation’. I would be interested to know if the court has considered the Wik 10 point plan on that, which for all intents and purposes reduced native title rights but not to the benefit of the commonwealth but to pastral lease holders. [caveat – that pastral leases do expire and assume they would revert to native title/commonwealth?]. By your rationale, that is not an acquisition of property by the commonwealth and hence is not caught by s51(xxxi). I assume that native title over ‘unowned’ land would be different but only because there is ‘no [other] owner’ and hence the states or commonwealth would have to be the default beneficiary of that action, hence they would acquire and have to pay just terms.

Perhaps the other reason the big tobacco groups would likely fail is the requirement of ‘just terms’ which in a normal context is a purely numerical value of the expected sale of the rights or commercial value, which in the case of cigarette trademarks is very substantial. However, would the court apply that formula to a product that creates such health effect. I think again this is a black letter law question , where the public would view ‘just terms’ and big tobacco differently to the law of acquisition of their trade marks.

Perhaps ‘just terms’ over native title is an interesting comparator as a numerical value for the diminution of land rights is pretty difficult once you add in all the other cultural and social effects. Perhaps you could apply that in reverse with the extinguishment of tobacco trade marks.

Corin
Corin
10 years ago

Ken, takes me back to my Con law lectures 1997! I haven’t read a HC case in full since Dean and Brennan were on the bench, so thanks for the very thorough analysis.

Do you think that by removing a capacity to use trademarks they are extinguished? This could be where the case fails. I think the Court would rule yes on that as it is a substantial prcedent if it does not rule yes. I mean, would the Court want to enhance the power of the commonwealth to strip corporates of their value and property unless it resulted from illegal activity.

Corin
Corin
10 years ago

Ken, thanks, my recollection is that the Tas Dams case was successfully defended by the Cmwth using the external affairs power (51XXIX I think) and as one of the critical powers for national sovereignty I’d have thought that gives the power a greater capacity to overide other constiutional protections, not dissimilar to the emergency powers in times of war giving the Cmwth capacity to overide other protections. Notwithstanding I also accept the premise that a ‘sterilised’ asset is not necessarily acquired or even extinguished. Still, I’d have thought, given that the law ‘lives and breathes’ based on circumstance, that like Keynes, if the facts changed, so might th Court distinguish the cases. Anyway fascinating exchange, I might buy a Con Law book and do some reading, it is very enjoyable. It is one of the only subjects I got an HD for and I now can’t remember the cases and what sections and sub-sections are relevant aside from general principles.

Jacques Chester
Jacques Chester
10 years ago

If smoking is reduced, the Commonwealth gains by reduced health expenditures. I would be amazed if words to this effect could not be turned up in Hansard.

Ken Parish
Ken Parish
10 years ago

Jacques

Yes that would certainly be an argument Big Tobacco would make. You can argue that that is a distinguishing feature from Tassie Dams. In that situation only a general public benefit flowed, not a quantifiable (perhaps) benefit to the government’s budget in reduced health expenditure. However it isn’t a benefit that is tightly coupled to the property extinguishment, unlike in Newcrest where the government gained the benefit of having the ability to sell or re-lease that particular land. That is, the case law says the benefit flowing from the extinguishment must be direct even though it need not be of the same sort as the roperty extinguished and need not flow to the government.

Thus you can’t give an absolutely certain prediction. However, like Williams, I doubt that Big Tobacco’s arguments would ultimately succeed. The big conceptual conundrum with the “just terms” acquisition guarantee is that if applied too strictly it would effectively negate legislative power. Every law confers benefits on some people and removes them from others. If “just terms” was interpreted such that the government had to compensate everyone who lost a benefit by a regulatory change, then regulation would be rendered almost impossible in a practical sense. Hence the Court’s insistence that there must be a clear and direct benefit to someone flowing from the extinguishment. If a generalised benefit to the public interest (such as a healthier population and therefore lower overall government health spending) were to count as a sufficient benefit to amount to an “acquisition”, the conundrum I referred to would certainly be front and centre. That’s why I think the Court would not embrace such an approach.

wilful
wilful
10 years ago

I don’t know what purpose Big Tobacco thinks it will serve by publicly wailing and gnashing their teeth. They simply cannot win the PR battle, there is bipartisan support for the legislation, the government are not for turning, and their only hope is through the courts. Which I sincerely hope and believe will not be influenced by some nonsense opinion pieces written by the IPA.

Sean Harris
Sean Harris
10 years ago

Ken, this is a great post! I am however curious whether you think trademark legislation would comes into consideration at all in this matter?- for example sect 84A of the trade marks act.

derrida derider
derrida derider
10 years ago

So, Jacques and Ken, the implication is that the High Court might find the legislation unjust and unconstitutional precisely because it is of public benefit. Absent the public benefit there is no benefit to the Commonwealth and therefore it is not an acquisition. The Government is only free to extinguish property rights without compensation if the extinguishment is harmful to itself or the public it represents.

Should the court find thus I have to say that the judgement would do nothing to increase its reputation.

On the PR battle, wilful, the more money they spend shouting that it won’t work the more evidence that is that it will. Even the dumbest talkback listener must understand that by now. Not to mention that their whole legal case is predicated on the assumption that it will very much work (else where’s the property loss?).

Their only hope now is to forget the pollies and PR, say nothing and leave it to the vagaries of the judiciary.

observa
observa
10 years ago

Law schmaw! Just listen to yourselves. We addicts smoke particular brands for their particular flavours, characteristics, tar contents, lack of woody tissue (I swapped to Champion Ruby after Drum started putting branches in their tobacco),etc. We have politely accepted the externality problem of tobacco smoke and advertising to new chums, your well intentioned health warnings and locking the stuff up like covering Victorian piano legs, but get this- we don’t give a stuff if you put skull and crossbones on the packets and label the stuff Brand A to Z as long as we can identify our favourite puff. Randomly changing the contents of A-Z would certainly piss us off no end, just as it would your favourite tipple.

Now about your favourite tipple. Imagine it’s still a legal product for sale and we tobacco addicts are discussing giving you all a taste of your own medicine in the Courts? Grange Hermitage or cleanskins, Coopers Pale Ale or Stout, it’s all the same folks in the same black bottle with the skull and crossbones and the concerned smokers’ health warnings on it. Sheesh!

observa
observa
10 years ago

Your Honours, we are all here today to determine, just like the final outlawing of tobacco in Wowser vs Philip Morris, why our society will be so much better off without alchohol and as such I present as Exhibit A, the latest research from….

observa
observa
10 years ago

from… err… gulp!… the eminently sensible Observa with bad breath over at Harry’s Place your Honours??
http://www.harryrclarke.com/2011/05/31/coalition-supports-plain-cigarette-packages/

observa
observa
10 years ago

And don’t get too addicted to that nasty bottled stuff there freedom lovers!

http://www.news.com.au/breaking-news/canadian-province-bans-bottled-water/story-e6frfku0-1226072104116

Sheesh and it doesn’t even get you shickered!

Adam
Adam
10 years ago

Are you sure that tobacco companies will pursue domestic legal remedies, and not Investor-state dispute settelement (ISDS) arbitration?

Seems easier to me to argue that the Government’s actions are an ‘indirect expropriation’ and convince an arbitrator under the ICSID rules.

Corin
Corin
10 years ago

Ken, it looks like international news as well:

http://www.independent.co.uk/news/world/australasia/shock-law-angers-cigarette-firm-philip-morris-2303423.html

http://www.guardian.co.uk/world/2011/jun/27/philip-morris-australia-cigarette-packets

The law suit could back fire for more than constiutional reasons if other countries were to take similar action from the publicity.

BTW – took me ages to find this post to update …

Patrick
Patrick
10 years ago

I think they have actually gone down a different path to that originally floated, it sounded like (from the Australian) they were arguing that they were protected under the US-Aus FTA.

Which I think has Buckley’s in court but should make for interesting reading.

Sean Harris
Sean Harris
10 years ago

It is interesting that the Dominican Republic has also challenged this arguing that it violates Trade-Related Aspects of Intellectual Property Rights (TRIPS)

http://www.ip-watch.org/weblog/2011/06/16/plain-packaging-for-tobacco-puts-wto-members-in-a-quandary/

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