High Court explains reasons for plain packaging decision

In JT International SA v Commonwealth of Australia ([2012] HCA 43, October 5 2012), the High Court of Australia has dismissed claims by a group of tobacco companies that Australia’s Tobacco Plain Packaging Act 2011 contravenes Section 51(xxxi) of the Commonwealth of Australia Constitution Act because it effects an acquisition of their IP rights and goodwill other than on "just terms".

Section 51(xxxi) of the Constitution states that:

“The Parliament shall, subject to this Constitution, have power to make laws for the peace, order and good government of the Commonwealth with respect to:

(xxxi) the acquisition of property on just terms from any… person for any purpose in respect of which the Parliament has power to make laws.”

The act imposes significant restrictions on the colour, shape and finish of retail packaging for tobacco products in Australia. Relevantly, it prohibits the use of trademarks on all such packaging other than as permitted by the act.

The tobacco companies argued that their respective trademarks and the get-up (or trade dress) of their products constitute “property” within Section 51(xxxi) of the Constitution and that the Tobacco Plain Packaging Act, in effect and in substance, constitutes an acquisition of that property that is not permitted by Section 51(xxxi) of the Constitution because the acquisition is not on “just terms”.

Although six of the seven judges of the High Court delivered individual judgments, a common theme of the majority can be found in the judgment of her Honour Crennan J, wherein she described as “settled doctrine” the principle that an acquisition, for the purposes of Section 51(xxxi) of the Constitution, requires that the Commonwealth (or another person) must acquire, for the purposes of the Commonwealth, "an interest in property, however slight or insubstantial it may be".

The majority of the court considered that the restrictions in the Tobacco Plain Packaging Act which effectively prohibit the tobacco companies from using their property (trademarks) for advertising or promotional purposes, while “severe” from a commercial viewpoint, do not operate so as to effect an “acquisition” by the Commonwealth of any proprietary right or interest from the tobacco companies.

The tobacco companies argued that, although the Commonwealth may not have “acquired” a proprietary interest in their trademarks as such, it had nevertheless benefited from the effects of the legislation and cited the comments made by their Honours Deane and Gaudron JJ in Mutual Pools & Staff Pty Ltd v The Commonwealth ([1994] HCA 9; (1994) 179 CLR 155 at 185) that, for there to be an “acquisition”, there must be an obtaining of “at least some identifiable benefit or advantage relating to the ownership or use of property”.

Her Honour Kiefel J stated that the words “relating to” (in the above passage) did not mean that something less than an interest in the nature of property is necessary to be acquired for the purposes of Section 51(xxxi), or that the “benefit or advantage” need not have a proprietary quality. Her Honour went on to note that the passage quoted above followed upon their Honours’ explanation that acquisition is required and that extinguishment, modification or deprivation is not sufficient.  

This reasoning is consistent with the judgment of Mason J in The Commonwealth v Tasmania ([1983] HCA 21; (1983) 158 CLR 1 at 145) (the well-known Tasmanian Dam case), wherein his Honour stated that:

“[t]he emphasis in Section 51(xxxi) is not on a ‘taking’ of private property but on the acquisition of property for purposes of the Commonwealth. To bring the constitutional provision into play, it is not enough that legislation adversely affects or terminates a pre-existing right that an owner enjoys in relation to his property…”

Accordingly, Section 51(xxxi) simply did not come “into play” because the act was held not to effect an acquisition of the companies’ property (ie, their trademarks).

To conclude, it is worth noting the very 'down to earth' remarks made by his Honour Heydon J in his dissenting judgment. Heydon J noted that none of the provisions of the act is expressed in direct language as effecting an acquisition of any property. However, his Honour thought that the relevant question was whether the tobacco companies effectively are being deprived of “the reality of proprietorship” by an indirect acquisition, through the collective operation of the provisions of the act, of “the substance of a proprietary interest”.

His Honour clearly thought so. Some will characterise his remarks as being overly cynical, others (such as the tobacco companies) will no doubt believe that they are realistic and right on the money:

“In view of the enormous amounts of money which would probably be needed to provide just terms [to the tobacco companies], the possibility of evasion [by the government] in relation to the impugned legislation cannot be ruled out. The structure of that legislation is very strongly motivated by an altruistic desire to improve public health – or rather the health of Australian residents, as distinct from foreigners, for the legislation sees it as satisfactory to let exporters purvey lies and death to them. But improving (local) public health is not the fundamental concern of the impugned legislation. Its fundamental concern is to avoid paying money to those who will be damaged [the tobacco companies] if that desire to improve (local) public health is gratified in the manner which the legislation envisages. Section 15(1) of the [Tobacco Plain Packaging Act] provides:

“This act does not apply to the extent (if any) that its operation would result in an acquisition of property from a person otherwise than on just terms.”

There is no provision for just terms in the [act]. Thus, faced with a choice between protecting local public health at the price of compensating the proprietors and not protecting local public health at all, the legislature chose the latter course.”

For further observations on some of the practical and commercial implications of this decision, please see "Tobacco plain packaging clears final hurdle in Australia", "Plain packaging under the microscope as New Zealand follows Australia" and "Investors spooked by plain packaging, but hope remains".

It should also be noted that the High Court’s present decision under the Australian Constitution is not the end of the matter, because separate challenges to the legality of the Australian legislation under the terms of the Hong Kong - Australia Bilateral Investment Treaty have also been brought before the World Trade Organisation. Another 'watch this space' issue.

Julian Gyngell, Kepdowrie Chambers, Wahroonga