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.
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…
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
The lay person might well see “extinguishment” as synonymous with “acquisition” but that is not the current High Court view as far as one can tell.
As I said, the outcome of any such litigation is not completely certain. However, Newcrest Mining (WA) Ltd v Commonwealth (1997) 190 CLR 513 might help to give you a better feel for the probabilities and the way the High Court seems to conceptualise the question. Newcrest concerned the validity of legislation which effectively forfeited (or removed an existing statutory right of renewal) of a number of mining leases in what was to become Kakadu National Park Stage 3 in the NT.
The Commonwealth argued (among other things) that this was a mere extinguishment of property (the mineral leases or enforceable rights to their renewal) not an acquisition. However, the High Court ruled that the Commonwealth gained a sufficiently specific benefit flowing directly from the extinguishment of property, namely the legal capacity to sell or lease the land to someone else (even though in fact they intended to – and eventually did – turn it into a national park instead). I don’t think you can plausibly argue that the Commonwealth, or any other particular party, gains an even remotely analogous benefit from mere banning use of trademarks on cigarette packaging.
Nevertheless, logically there must come a point where incremental legislative reductions in the scope of the bundle of legal rights which constitute “property” will amount to its complete extinguishment if not acquisition. The lobster might not notice that it’s being slowly boiled, but there comes a point when it’s inexorably dead
Your question about the scope of “just terms” is also a really interesting one. Numerous cases treat it as a purely numerical calculation of (e.g.) loss of expected profit or capital gain to the private property holder. However, the Court has oscillated between holding that only full market value (and sometimes more) is necessary, and one which holds that only a fair balancing between public and private interests is required. No clear resolution between these competing positions has yet been achieved, as Tom Allen explains in a relatively recent (2000) journal article:
However, other judges have indicated recently that ‘just terms’ does require full compensation, as opposed to a rough balance between private and public interests. This is quite clear in Brennan J’s judgment in Georgiadis v Australian and Overseas Telecommunications Corporation, where he stated that:
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.
“Do you think that by removing a capacity to use trademarks they are extinguished?”
I’m not sure. Here’s what Mason J said in the Tasmanian Dams case:
In other words, at least in respect of interests in land, a Commonwealth law which “sterilises” it to an extent where the owner effectively can’t use it for anything much at all will not amount to an acquisition. Moreover, no-one “acquires” anything specific, there’s just a generalised public benefit flowing from the Dams legislation (similar to cigarette packaging).
But on the “extinguishment” point, is it the same for intellectual property rights where they are whittled away bit by bit until there’s nothing left? IP rights are intangible property, they consist entirely of legal rights and if those rights cease to exist then arguably so does the property itself. With an interest in land (e.g. Franklin and Gordon River valleys), the property is tangible/physical and continues to exist even though you can’t exploit much of its economic benefit (except notably eco-tourism). You can still walk around and enjoy it, exclude people from it, conduct hiking, canoeing, camping etc activities. The legislation has “regulated” the extent and manner of exercise of your property rights but not “extinguished” them.
It appears to be a question in issue in litigation currently reserved before the High Court in Phonographic Performance Company of Australia Limited v Commonwealth of Australia. It’s about copyright in old sound recordings being whittled away by compulsory royalty determinations by the Copyright Tribunal. The nicest part about it from an idle entertainment viewpoint is the opening exchange in the transcript of 10 May:
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.
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.
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.
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.
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.
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.
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!
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….
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/
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!
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.
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 …
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.
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/
Yes it does look like the tobacco companies’ emphasis has shifted to international law issues rather than the constitutional acquisition on unjust terms issue. That’s probably because, as I suggested in the primary post, the constitutional issue in itself probably does not have legs. Whether any of the international law angles have any prospects I just don’t know because it isn’t my area (though I suspect not).
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