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).

Fair go on fees

I saw today that Choice and the Consumer Action Law Centre are running a campaign to make banks more transparent about the penalty fees which we all pay on our accounts. It’s called “Fair go on fees.”

I’m interested. I accidentally paid the rent twice over a few weeks back. In the process, I overdrew our account, and got charged a penalty fee. Oops. I was miffed.

Choice and CALC are questioning the legal basis upon which banks charge penalty fees. It’s fine for banks to charge customers a fee which represents a genuine pre-estimate of the loss caused by a default or breach of contract (sometimes called “liquidated damages”). However, “penalty” clauses, which seek to penalise the customer for the breach or default, are unenforceable by law, whether by principles of unconscionability (see eg. O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359; AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170; Esanda Finance Corporation v Plessnig (1989) 166 CLR 131) or pursuant to legislative provisions such as s 32W of the Fair Trading Act 1999 (Vic).

Banks call these charges by all kinds of names: “service fees”, “account overdrawn” or “honour fees”, “credit card late payment fees”, “cheque dishonour fees” and “direct debit dishonour fees”. But it doesn’t matter what they call them – what do they look like in substance? The problem is that it’s hard to know. Banks don’t like disclosing information about penalty fees.

The fact of the matter is that some of the penalty fees don’t seem to bear any relationship to a pre-estimate of loss suffered. And some bank fees are rising far in excess of inflation. Sounds unfair…and illegal.

Another problem is that you are more likely to end up paying these fees if you don’t have much money. If you’re a millionaire, you don’t have to worry if the rent is taken out twice, or if you are charged for someone else’s cheque bouncing, but if you haven’t got stacks of cash in your account, then…whoopsies, there’s a big negative bank balance there. So the vulnerable are penalised.

Choice and CALC argue that:

Banks and other financial institutions should:

• Eliminate inward cheque dishonour fees.
• Introduce systems to provide a greater range of options and real-time information to consumers where there are insufficient funds to make a due payment. These might include simply declining payments without charging a fee, an automated system to notify consumers by email or text message (or perhaps for concession card holders without electronic facilities, by phone), or by automated message via the ATM or EFTPOS system, before the payment is processed.
• Adopt one of the following responses to credit card over-the-limit and account overdrawn honour fees:
  • eliminate the fees altogether (we note that credit cards operated successfully in Australia for some 20 years without such fees)
  • offer consumers a choice between declining transactions (at no cost), or charging a reasonable fee no more than the actual cost to the bank or say 2-3% of the amount by which the consumer has exceeded the limit/overdrawn their account, whichever is lower.
• Ensure that all other penalty fees are limited to the actual costs incurred by the institution.

Sounds fair enough to me. If my bank had a policy like that in place, then my second mistaken rent payment wouldn’t have gone through. The bank would have contacted me by e-mail, perhaps, to let me know of my mistake. I would have said I didn’t want the second rental payment to go through. And then I wouldn’t have been charged a fee. Simple.

But unfortunately, it doesn’t seem to be about making things easier for the customer. Banks just want their pound of flesh.

After reading that Choice website, I think I might contact my bank about that recent account overdrawn fee, and ask for a refund. The worst they can say is “No”. And the best outcome is that community pressure could force banks to change. Yeah! Power to da people!

Corporatisation of law firms

Jim Belshaw has written a great counterpoint post to the post I wrote about Slater & Gordon’s move to list on the stock exchange.

Put shortly, Jim’s contentions are that the move to corporatise law firms comes about to remedy fundamental inefficiencies in the way in which partnerships operate:

• Senior partners are also senior managers. As Jim points out, partners are not necessarily good managers, and one does not become a partner because of one’s management prowess.
• Partners have a jumble of roles: managers, owners and professional advisers. Jim proposes that it is necessary to separate equity returns from payment for work. Then the definition of roles and the remuneration to be attached to those roles could then be dealt with using conventional job analysis and remuneration principles
• Abolition of goodwill. Firms no longer treat the brand name, intellectual property and staff of a firm as something valuable. They focus on short-term cash-maximisation rather than long-term growth.
• Acquisitions. Listed firms can offer shares in a company without the problems that can be involved in slotting new partners into a partnership structure. Staff shareholding schemes can be used to reward staff for growth (as is occurring at Slater & Gordon).
• Risk management. Corporate structures can quarantine risk (whereas a failure of one part of a partnership can threaten the whole). If firms can quarantine risk, they will be able to expand into new areas and different disciplines more easily.

I found this very interesting, as I had not looked at the issue in this way. Being a litigator, my first thoughts were of course about how everything could go wrong…

Do have a read of Jim’s post and his more recent post on the topic.

Motherhood and setting up your own business

When I first had my baby, a friend got in touch with me. “I’ve got a great business proposition for you!” she said. “Come around to my place and we’ll chat about it.” I was somewhat wary, but wanted to be open-minded. It turned out that she had recently joined a pyramid-selling organisation, and wanted me to join her “team”. “It’s only $250 to get a start-up kit!” she enthused.

Pyramid-selling organisations really aren’t my kind of thing, although I understand that some people get pleasure out of working for them, and need the extra money. However, I don’t have much use for make-up, candles, bath products or cleaning products. And I’m not comfortable with the concept of turning friends into potential clients, unless friends seek me out for something particular.

Sometimes pyramid sales can grab people like a religion. I saw a 20 year friendship between two women almost destroyed because one of the women became involved in Amway. She tried to sell products to everyone. Suddenly her friends weren’t friends any more – they were potential buyers and/or converts. One couldn’t have a normal conversation with this woman any more without some reference to the great products of Amway or the way in which becoming a member had changed her life. The other woman didn’t want to get involved, and politely said so after her friend had tried to recruit her a few times. The first woman became very upset and didn’t talk to her friend for a few years. I believe that they’re talking again now, but it’s never been quite the same afterwards.

But starting your own business is an attractive idea, particularly once you become a mother. Personally, I like being my own boss, and I like being in control of my own destiny. I can do my work in the way I choose, in my own time, when it suits me. If you have ownership of a business, you feel passionate about it. And if your work is flexible, it is far easier to also spend time with your child. I have thought about doing some consulting work myself, although I think I’ll have to build up a few more publications in my field before I can hold myself out as an expert.

As far as I can see most women want a balance – they want to spend time with their children, but they also want to be able to keep their careers to an extent too. Certainly that has been my experience. Karen Terry came upon this blog, and sent me her book to review: Full-Time Woman, Part-Time Career. Her website is here. It is an interesting read, with many hints as to what you will need to do if you want to run your own business. She looks at various different possibilities, including consulting, freelance writing, coaching, teaching computer software classes and public speaking. She also looks at the nuts and bolts: what you will need to do if you want to set up your own business, how to market your business and the pros and cons of working from home. She raises a number of case studies which show how other women have managed to establish their own businesses successfully.

The main drawback of this book from an Australian point of view is that it has a natural focus on the US. Therefore, the specific details about whether to incorporate, what training certificates are available and so forth only applies to a US audience. However, the general gist of the advice remains sound, because the way in which things work in Australia is similar.

I think if I ran my own business, I’d do a lot better selling legal advice than I would if I had to sell lipsticks or dishwashing liquid, because I’d actually feel passionate about my “product”. Anyone need any advice about unjust enrichment out there?