Fair recompense

Have I spoken about the case of Roxborough v Rothmans of Pall Mall Australia Limited [2001] HCA 68 on this blog before? If not, I’m surprised, because it’s one of my bug-bears.

Put briefly, tobacco wholesalers collected excise tax to pay to the State government. This tax was forwarded from tobacco retailers, who in turn charged the general public extra on the price of tobacco products. The retailers had collected the tax from the consumers, and had forwarded the tax to the wholesalers, but the wholesalers had not yet purchased excise licences from the NSW government when the High Court declared that state excise taxes were unconstitutional. There was a whole heap of unconstitutional tax money up for grabs. So the retailers sued the wholesalers to get the tax back. And they succeeded.

Here we have a problem. Can you see it? The retailers are not the real losers in this situation. The real losers are the consumers, the every day people who paid extra for their cigarettes. So whether it was the wholesalers or the retailers who kept the tax, the winner would get a windfall.

How can we give a fair recompense to the members of the public who had been overcharged for the price of their cigarettes? It would be almost impossible to prove how much consumers had been overcharged in that time.

I have always been a fan of creating some kind of trust for the benefit of the consumers. But then, what would be for the benefit of tobacco consumers? Maybe some kind of trust to recompense consumers, their families and the general public for the medical costs that they will have to incur as a result of tobacco related diseases? That way, it would be for the benefit of all.

There’s no way as the law presently stands that a court could do that. However, both American and Canadian law have developed in a way that enables a court to administer the proceeds of a class action according to the cy pres doctrine. That is, the court might not be able to compensate each wronged consumer precisely, but they could administer the money for the benefit of the wronged consumer for a purpose that comes as close as possible to helping all.

Recently, the Victorian Law Reform Commission has been considering proposals to enact provisions allowing Victorian courts to do this in its First Exposure Draft on Civil Reforms (pages 42 – 47 for those interested). I note that they consider precisely the sort of mechanism I proposed above and believe that courts should have the power to make such an arrangement. I prefer putting money into a cy pres scheme rather than putting it into some kind of a Justice Fund (which is another proposal), but I agree with the VLRC that there should be a broad discretion on the part of judges to choose how they administer the money.

All these considerations returned to my mind again with the recent Federal Court ruling against cardboard box magnate Richard Pratt. Visy was found to have entered into a price-fixing arrangement with its main rival, Amcor, so that they could set the price at a higher level than would occur if genuine competition were present. Apparently companies who have purchased Visy and Amcor products have commenced a class action, and have been greatly heartened by Justice Heerey’s ruling.

But here again: who are the real losers in this scenario? It is the general public, to whom the puchasers of Visy and Amcor products would have passed on any extra costs to the consumer. As Graeme Samuels, head of the ACCC said, “It was a premeditated fraud on Australian consumers. Anyone in the past who has bought a block of chocolate or a piece of fruit packed in a box made by Visy or Amcor has probably been ripped off.”

This is where another of my favourite beasts, a profit-stripping remedy, could come in useful. I would like consumer groups to bring an action to strip Visy and Amcor of ill-gotten profits gained through price-fixing and then ask the court administer the funds in a cy pres scheme for the benefit of the public (eg, to help people who are struggling to afford food and basic necessities).


Filed under business, consumer affairs, courts, Federal Court, high court, law, law reform, society

8 responses to “Fair recompense

  1. Okay, you’ve won me, LE! Get the money back, and use it for the public good. Now here’s another one: embezzlers often cite casinos as the dumping ground for their ill-gotten gains. This money should be recoverable, in the same way that stolen goods are. ALL casino transactions should be recorded, with ID provided by all players. No ID, no play. Too hard? Or just wrong?

  2. Liam Hogan

    Well yes, I love this kind of profit garnisheeing scheme too. It sounds a lot like:

    the democratic socialisation of industry, production, distribution and exchange to the extent necessary to eliminate exploitation and other anti-social features in these fields

    Now the problem is in these days when every old fourth-international entrist has to call themselves a ‘financial conservative’, how do you make a legal remedy like this sound less like redistribution?

  3. Oooh, interesting questions both!

    Lad Litter, there is English authority which made some embezzled money gambled away at a casino recoverable: Lipkin Gorman v Karpnale. I’m a big fan of this case. I like your idea about ID and recording transactions. But I’m not quite sure how it would work – what about $1 pokie machines, for example – how could this be recorded? Perhaps if people convert money into coins, they should have to record their details and sign a receipt. But I don’t know if the casinos would like it because it might put people off gambling – quelle horreur!

    Liam, it so happens that you have put your finger on one of my favourite questions. The fact of the matter is that every legal remedy is redistributive on one level. If a court decides to give a person remedies for medical negligence, for example, they are making decisions which will result in a redistribution of assets. However, courts don’t see it in this fashion

    Unalloyed distributive justice is seen to be innately suspicious: it involves a moral value judgement on the part of the decision maker, as well as a decision which involves depriving one party of a right to money or property.

    Personally I have no problem with distributive remedies, because on a larger scale, isn’t this what a court does all the time in commercial cases? People just don’t like to think of it in that way. What I do think we need is a certain guideline of when remedies like that will be ordered, which I think will make people a lot less nervous about it.

  4. Liam Hogan

    I agree, LE, about the moral aspect to distributive justice, and nor do I particularly have a problem with courts (or anyone else) making those inherently political decisions.

    Unalloyed distributive justice is seen to be innately suspicious

    Sounds like it’s all in the timing. If you get your revenge/remedy in first, then it’s socialism.

  5. Tee hee! I’m glad someone is on my side. In Alexander v Perpetual Trustees Ltd [2004] HCA 7, Gleeson CJ, Gummow and Hayne JJ said:

    It is, therefore, wrong to proceed, whether from general notions of “distributive justice” or otherwise, as if the legislative purpose or object were wider than providing for contribution between those liable to a common plaintiff.

    I don’t think the majority of the High Court at the moment would be very open to notions of distributive justice as a motivation. But as long as there’s principled laws for redistribution I don’t have a problem with it.

    For example, trusts law has remedies such as an account of profits which involve distributive considerations (a fiduciary should not be allowed to keep a profit even if he or she was acting in good faith). Essentially, that’s because the law deems that trustees and fiduciaries should be deterred from profiting at their beneficiaries expense. That’s something even Gummow J doesn’t have a problem with – but maybe that’s because his Honour hasn’t thought about it as redistributive…and it’s been around long enough that people don’t have a problem with it…

  6. Nicole

    Hi LE, I’m very much in agreement with you. The truth is it is doubtful whether any of Amcor’s or Visy’s corporate customers, such as Cadbury, sustained losses as a result of the cartel to fix prices. They would have passed costs on to us, the chocoholics of the world. We do need cy pres remedies available so that groups of consumers can get together, or a representative action can be taken, to gain compensation even if not every single affected consumer can be identified. Judges already have powers to make “any other orders that they consider reasonable” or some such powers in lots of different circumstances so they should have the skills to make these sorts of orders where appropriate.

    I agree that this is preferable to putting the money into a Fund – these Funds are invariably government administered and this means the funds tend to be dished out in small amounts here and there and it is sometimes difficult to see what overall good came of them. Cy pres allows a lot more flexibility to get the compensation to an appropriate outlet. Also, the money in government Funds becomes part of the government budget so they tend to hold onto big swags of the cash and never give it out, claiming a “reserve” is needed to be retained (which can also help prop up the budget bottom line!).

    Overall, I heartily agree that Australia could do with some better remedies to disgorge ill-gotten gains more generally. Otherwise the incentives not to engage in the conduct are too little. I think this issue also relates to the argument that Australia should introduce criminal penalties for this sort of hard-core cartel activity. Even methods to disgorge profits are not necessarily going to prevent company executives from engaging in the conduct in the first place, but the possibility of a jail term… the Oz government said it would introduce these a while ago but it still hasn’t happened.

  7. Where are u LE?

    Miss you 😦

  8. Really good and really interesting post. I expect (and other readers maybe :)) new useful posts from you!
    Good luck and successes in blogging!

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