16.2 Other litigation involving the tobacco industry

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The above section discussed claims seeking damages for personal injury, many of which involved allegations that the tobacco industry engaged in misleading and deceptive conduct. Misleading and deceptive conduct is prohibited under trade practices and fair-trading legislation. The prohibition can be used as a trigger for damages, or invoked to obtain court orders that certain actions were misleading and deceptive, and to order that no similar conduct occur again in the future or that a defendant undertake corrective action.

The process of obtaining such orders can be difficult and involved, though not ordinarily as difficult and involved as cases where damages are sought. There are two important examples of this process in Australia. One is a recent dispute in relation to the tobacco industry's adoption of 'light' and 'mild' cigarettes, which did not ultimately involve litigation, but resulted in a court-enforceable settlement between the Australian Competition and Consumer Commission and the three major Australian tobacco manufacturers. The other is a claim brought by the Australian Federation of Consumer Organisations against the Tobacco Institute of Australia in the late 1980s and heard in the early 1990s for misleading and deceptive conduct in advertisements about secondhand smoke.

16.2.1ACCC action on 'light' and 'mild' cigarettes

In 2005, the Australian Competition and Consumer Commission (ACCC) accepted court-enforceable undertakings from the three major Australian tobacco manufacturers, Philip Morris (Australia) Limited, British American Tobacco Limited and Imperial Tobacco Australia Limited, under which the companies agreed to stop using terms such as 'light' and 'mild' and to provide a total of $9 million for corrective advertising to be run by the ACCC. Philip Morris also agreed to stop using machine-tested cigarette yield information other than when used in a brand name. Neither BAT nor Imperial agreed to stop using machine-tested yield information derived from ISO (International Standards Organisation) testing procedures. The undertakings were given in exchange for an assurance that the ACCC would not take legal action against the companies under the Trade Practices Act 1974 (Cth) over the use of the terms. The undertakings can be viewed at:

http://www.accc.gov.au/content/index.phtml/itemId/683582 (BAT),
http://www.accc.gov.au/content/index.phtml/itemId/683563 (Philip Morris) and
http://www.accc.gov.au/content/index.phtml/itemId/713957 (Imperial).

Complaints that the use of the terms was misleading and deceptive were first made to the ACCC in 2001. After investigating the complaints, the ACCC reached the conclusion that the companies had contravened the Trade Practices Act by marketing 'light' and 'mild' and similarly named products, and other products without these descriptors but with ISO machine-tested deliveries of 8mg or less, as less harmful to health than other cigarettes. The ACCC's conclusions are set out in the formal undertakings documents (see links above). The ACCC had been provided with evidence that approximately 55% of Australian smokers believed that light cigarettes (covering light, mild or low in tar) offered some health benefit compared to regular cigarettes[1] and that 77.5% of Victorian regular smokers (likely to be similar across Australia) smoked cigarettes labelled either 'light' or 'mild'.[2]

The agreement between the ACCC and the tobacco companies contained no element of liability for the harm done by the companies' conduct. The ACCC does not have power to impose penalties upon, or make compensation orders against, those it considers to have breached the Trade Practices Act. Rather, its power is to institute court proceedings, with only a court ultimately able to make such orders. Here the ACCC decided to settle the matter with the companies, rather than take them to court to seek penalties or damages.

In making this decision, the ACCC was clearly influenced by its recognition of how protracted and expensive court proceedings against the tobacco industry were likely to be. In January 2004, the Chairman of the ACCC, Graeme Samuel, when asked about the Commission's investigation into the industry's behaviour, told The Age newspaper:

'A case like this is resource-intensive because of the nature of the evidence that is being brought … we would be fighting powerful companies with enormous resources and we have to consider that. … If we take on a case like this we have to have the evidence and we have to have the resources … On one analysis this could exhaust all our resources in one go.'

In August that year, Mr Samuel gave evidence to the Senate Community Affairs Legislation Committee which was inquiring into what the ACCC planned to do with respect to the complaints that had been made against the industry. Mr Samuel said:

'[I] t is very substantial litigation. For obvious reasons, it would be defended vigorously. Then we are talking about an extensive gathering of evidence, including scientific evidence, expert witnesses, a lengthy case, lengthy appeals and the whole question of the resources of the ACCC to deal with that. … [I] f we were to institute proceedings of this nature, it would require a substantial vote of our litigation budget towards these particular proceedings. That would then impact significantly on the ability of the commission to deal with other enforcement activities that are within the scope of its jurisdiction.' The transcript of the hearing before the Senate Committee can be viewed at http://www.aph.gov.au/hansard/senate/commttee/S7866.pdf

The ACCC's corrective advertising campaign ran in December 2005 and January 2006 and again in June 2006. It included advertisements on television, radio, internet and online, in newspapers and magazines, and outdoor (at the cricket and on buses and trams).

After agreeing not to use terms such as 'light' and 'mild' any more, the companies began using terms such as 'rich', 'classic', 'smooth', 'fine', 'ultimate', 'refined' and 'chilled'.

16.2.2Australian Federation of Consumer Organisations v Tobacco Institute of Australia

The tobacco industry is politically active in Australia as it is throughout the world. In 1978 the Tobacco Institute of Australia (TIA) was formed. It ceased operations in 1997[3] —see Chapter 10, Section 10.20.6.1. Its aims included:[4]

  • Promoting 'understanding of the tobacco industry in Australia by the public, by all levels of the Government and of public administration';
  • Representing and assisting 'the tobacco industry in Australia in the legitimate maintenance, support and furtherance of its interests'; and
  • Engaging 'in discussions and negotiations with and determining or assisting in the determination of matters of policy by or for all or any authorities, institutions or associations, whether Governmental, public, or private'.

In the 1980s, the TIA commissioned a series of advertisements about the effects of smoking. One advertisement was the subject of a claim that it amounted to misleading or deceptive conduct. The claim was brought by the Australian Federation of Consumer Organisations (AFCO). The advertisement featured in the major daily newspapers of Sydney and Melbourne in 1986 and took place in the context of public debate about whether secondhand smoke caused disease. The advertisement stated 'there is little evidence and nothing which proves scientifically that cigarette smoke causes disease in non-smokers'. AFCO applied to the Federal Court seeking an injunction against further such statements.

The trial judge, Justice Morling, found that there was compelling scientific evidence that cigarette smoke causes lung cancer in non-smokers.[5] The statement made in the advertisement was erroneous when published and remained so at the time of judgement.[6] His Honour made the same findings in respect of cigarette smoke and respiratory disease in infants under 12 months of age, [7] as well as cigarette smoking and asthma[8] (his Honour did not distinguish between the general disease of asthma and its manifestation in an asthmatic attack).[9] His Honour declined to make such a finding in respect of otitis media.

On the basis of these findings, Justice Morling held that the TIA had breached the Trade Practices Act, and ordered an injunction preventing the further publication of the statement in the future. The TIA appealed.

The Full Court of the Federal Court upheld Justice Morling's findings that the TIA had breached the Trade Practices Act, though each of the three judges took a different interpretation of what needed to be proved in order to find the advertisement misleading or deceptive.[10] The Full Court nevertheless quashed the injunction granted by Justice Morling. The Court held that an indefinite injunction was inappropriate because of the possibility, however slight, that further scientific evidence might be created at a stage in the future, which cast doubt on the link between cigarette smoking and disease. If this occurred, the restraint would operate to prevent the TIA engaging in full and free discussion about the matter.

16.2.3Other cases

Cauvin v Philip Morris, British American Tobacco and Imperial Tobacco
http://www.austlii.edu.au//cgi-bin/disp.pl/au/cases/nsw/supreme_ct/2005/640.html
http://www.austlii.edu.au//cgi-bin/disp.pl/au/cases/nsw/supreme_ct/2006/185.html
http://www.austlii.edu.au//cgi-bin/disp.pl/au/cases/nsw/supreme_ct/2003/1225.html
http://www.austlii.edu.au//cgi-bin/disp.pl/au/cases/nsw/supreme_ct/2003/631.html

Tobacco Control Coalition Inc v Philip Morris, WD & HO Wills and Rothmans
http://www.austlii.edu.au//cgi-bin/disp.pl/au/cases/cth/federal_ct/2000/1004.html

16.2.4The tobacco industry as claimant

In addition to defending actions, the TIA has initiated litigation that aims to assist the tobacco industry or to reduce the capacity of those working in tobacco control. The same aggressive tactics are adopted in relation to initiation of claims as are used in the defence of claims. Two cases illustrate this process.

16.2.4.1Tobacco Institute of Australia v National Health & Medical Research Council

In 1986, the National Health and Medical Research Council (NHMRC) published a report on The Effects of Passive Smoking on Health. In 1993, a working party was established to update the report, and the NHMRC invited public comment. The initial terms of reference for the updated report were:

1. To review the epidemiological evidence linking passive smoking with disease in adults and children.

2. To assess the burden of illness due to passive smoking in Australia.

3. To make recommendations to reduce the burden of illness.

The TIA objected to the terms of reference on the basis that they assumed that passive smoking did cause disease. The TIA contended that such a link had not been found definitively to exist. After initial negotiations broke down, the TIA commenced proceedings in the Federal Court. Those proceedings were subsequently settled, with both parties agreeing to amended terms of reference. The amended terms of reference were:

1. To review the relevant scientific evidence linking passive smoking to disease in adults and children.

2. To estimate the extent and impact of any illness found likely to be due to passive smoking in Australia.

3. To make recommendations to reduce any illness found likely to be due to passive smoking in Australia.

In subsequent correspondence, the NHMRC informed the TIA that 'the working party will consider in the review all relevant scientific evidence, including all relevant scientific evidence submitted' to the NHMRC by the TIA. In response, the TIA submitted a 34-page document, to which there were five attachments. The attachments were considerable. One contained 122 scientific publications. Another contained five bound volumes of comments by 'independent' scientists on the United States' Environmental Protection Agency report on the Health Effects of Passive Smoking: Assessment of Lung Cancer in Adults and Respiratory Disorders in Children.

After the NHMRC published its draft report, the TIA brought proceedings in the Federal Court, alleging that the NHMRC, when writing the report, only considered papers published in the peer-reviewed scientific press. The NHMRC did not deny the allegation. The TIA argued that, as a result of this decision, the NHMRC had failed to comply with its statutory obligations, and failed to meet the promises made in the correspondence discussed above. This meant that the NHMRC had failed to accord procedural fairness to the TIA and the report did not comply with the requirements imposed by the Parliament.

Justice Finn noted that the legislation that created the NHMRC required the NHMRC, when preparing draft reports, to have 'regard to any submissions received'. On this basis, his Honour found that the NHMRC had a statutory obligation to 'positively consider' the submissions made by the TIA.[11] This obligation was supplemented by a common law obligation, which arose from the promise made by the NHMRC to consider all evidence submitted by the TIA.[12]

The duty to provide 'positive consideration' precluded the adoption of an a priori criterion which excluded parts of the TIA's submission from actual consideration. Instead, 'positive consideration' involved an active intellectual process directed at the submission.[13] The practical effect of this was that the NHMRC 'at least collectively, should have been fully aware of the actual contents of all or virtually all submissions received'.[14] Although those assisting the working party had actually reviewed and summarised the TIA's submissions and attachments, this was insufficient.[15] The decision to exclude from consideration papers that were not published in peer-reviewed scientific press breached this obligation. On this basis, Justice Finn held that the NHMRC did not give genuine consideration to the TIA's materials, and had therefore denied the TIA procedural fairness. The recommendations made by the working party had to be withdrawn

16.2.4.2Tobacco Institute of Australia v Woodward

A second example of legal action commenced by the TIA occurred following the Full Court's decision in the case between the Australian Federation of Consumer Organisations (AFCO) and the TIA (discussed above). This case mirrored the original because here the TIA sought injunctions to prevent a director of the Cancer Council of New South Wales from making public statements about the Court's decision.

After the Full Court handed down its decision, the defendant (who was also Executive Director of Action on Smoking and Health), held a press conference and gave radio interviews. During these interviews, the defendant made a series of statements related to the link between smoking and disease. The statements related to whether the Full Court had overturned Justice Morling's findings in relation to the link between smoking and disease. The basis of the claim was the same as that in the original proceedings; the TIA asked the Court to find that the statements were misleading and deceptive and therefore contrary to the New South Wales Fair Trading Act (the state equivalent to the Trade Practices Act).

The Supreme Court of New South Wales refused to hear the application, on the basis that the defendant's statements did not take place 'in trade or commerce', but rather as Executive Director of ASH. The claim was therefore dismissed as the Act only applied to conduct engaged in 'trade or commerce'.

16.2.5Litigation funding

As should now be clear, tobacco litigation requires pleadings that survive rigorous challenges by the tobacco industry. This in turn requires rigorous investigation of relevant facts before the statement of claim is filed, because plaintiffs cannot expect to use the discovery process to fill gaps in their factual understanding. The investigation and drafting process is likely to be very expensive, as is the court hearing itself. One possible source of funding might be litigation funders, who finance a plaintiff's claim in return for a share in the damages that are awarded if the claim is successful.

Litigation funding is a relatively new process in Australia, and has only recently been considered by the High Court. The consideration occurred in the case of Campbells Cash and Carry v Fostif.[16]

The circumstances surrounding the consideration involved tobacco retailers seeking compensation from tobacco wholesalers for non-return of payments they had made relating to excise taxes that were subsequently declared invalid by the High Court. After the decision in Roxborough v Rothmans of Pall Mall Australia,[17] which held that retailers were entitled to reimbursement, tobacco wholesalers settled claims made by large retailers. However, claims made by small tobacco retailers were vigorously opposed. The average amount owed to each small retailer was approximately $1000. In such circumstances, the benefits of pursuing a claim were insufficient to outweigh the potential costs. A company called Firmstones wrote to tobacco retailers asking for authority to act on their behalf in recovering the amounts owed. In return for one third of any money received by the retailers, Firmstones would fund and direct the litigation.

The High Court was asked to decide whether, because the funding came from litigation funders, the proceedings were contrary to public policy. The High Court held that litigation funding was not clearly contrary to public policy,[18] and that it was to be welcomed as a means by which access to the courts could be facilitated.[19]

Litigation funding has become an increasingly important way of facilitating litigation that would otherwise not be brought because of its cost. However, a recent decision by the Full Federal Court found that class action funding and retainer arrangements may constitute a managed investment scheme and require registration pursuant to section 601ED of the Corporations Act 2001 (Cth).[20] The effect of this decision on the availability of litigation funding is not yet known.

[1] R Borland, H Yong, B King, KM Cummings, GT Fong, T Elton-Marshall, D Hammond, A McNeill, 'Use of beliefs about light cigarettes in four countries: Findings from the International Tobacco Control Policy Evaluation Survey' Nicotine & Tobacco Research Vol 6, Suppl 3 (December 2004).

[2] Centre for Behavioural Research in Cancer, The Cancer Council Victoria, 2005.

[3] Carter SM. Cooperation and control: the Tobacco Institute of Australia. Tob Control 2003;12 Suppl 3:iii54; 56.

[4] Winstanley M, Woodward S and Walker N. Tobacco in Australia: Facts and Issues. 2nd ed. Melbourne: Quit Victoria; 1995.

[5] Australian Federation of Consumer Organisations Inc v The Tobacco Institute of Australia Ltd (1991) ATPR 41-079 para [313] .

[6] Ibid at [322] .

[7] Ibid at [413] .

[8] Ibid at [456] .

[9] Ibid at [461] – [462] .

[10] Re Tobacco Institute of Australia Limited and Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1.

[11] Tobacco Institute of Australia Ltd v National Health & Medical Research Council (1996) 142 ALR 1 at 13.

[12] Ibid at 17.

[13] Tickner v Chapman (1995) 57 FCR 451 at 432; Norvill v Chapman (1995) 133 ALR 226 at 238 per Black CJ.

[14] Tobacco Institute of Australia Ltd v National Health & Medical Research Council (1996) 142 ALR 1 at 13.

[15] Ibid at 13-14.

[16] (2006) 80 ALJR 1441.

[17] (2001) 208 CLR 516.

[18] (2006) 80 ALJR 1441; [2006] HCA 41 per Gleeson CJ at [1] ; Gummow, Hayne and Crennan JJ at [92] ; Kirby J at [146] .

[19] Ibid per Gummow, Hayne and Crennan JJ at [65] ; Kirby J at [144] .

[20] Brookfield Multiplex Limited v International Litigation Funding Partners Pte Ltd [2009] FCAFC 147

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