Cauvin v Philip Morris Limited & Ors

Cauvin v Philip Morris Limited & Ors - [2005] NSWSC 640 - NSWSC 2005 case summary — Zoe

[12]

7 The plaintiff pleads the following facts concerning the proposed secondary defendants (paragraphs 1.5 - 1.27): "1.5 ALTRIA GROUP, INC. (formerly known as PHILIP MORRIS COMPANIES, INC.) (" PMC ") and Philip Morris International, Inc (" PMI ") are Virginia corporations with their principal place of business located at 120 Park Avenue, New York, New York 10017. 1.6 PMI is a subsidiary of PMC. 1.7 PHILIP MORRIS USA, INC. (" PM ") is a Virginia corporation whose principal place of business is located at 120 Park Avenue, New York, New York 10017. 1.8 PMC is the parent corporation of PM and PMI, and has at all relevant times participated in the manufacture and distribution of cigarettes and tobacco products both individually and through its subsidiaries PML and PMA [the Philip Morris defendants]. 1.12 At all relevant times PMC and/or PMI and/or PM have placed cigarettes into the stream of commerce for the sale of cigarettes including directly or indirectly in Australia through PML and/or PMA [the Philip Morris defendants]. 1.13 BRITISH AMERICAN TOBACCO, P.L.C. (" BAT ") is a British corporation with its principal place of business at Globe House, 4 Temple Place, London WC2R 2PG, England and BAT is the successor to B.A.T. INDUSTRIES, P.L.C. (" B.A.T. Industries "). 1.14 BRITISH AMERICAN TOBACCO (INVESTMENTS) LTD (" BAT Investments ") is a British corporation whose registered office is at Millbank, Knowle Green, Staines, Middlesex, TW18 1DY, England and is the successor to BRITISH AMERICAN TOBACCO COMPANY, LTD (" BAT Co "). 1.15 BAT is the parent corporation of BATAS, Wills Holdings, [the Wills defendants] BATA'a and BATA [the Rothmans defendants] and has at all relevant times participated in the manufacture and distribution of cigarettes and tobacco products both individually and through its subsidiaries BATAS and Wills Holdings [the Wills defendants] and has since mid-1999 participated in the manufacture and distribution of cigarettes and tobacco products both individually and through its subsidiaries BATA'a and BATA [the Rothmans defendants]. 1.19 At all relevant times BAT has placed cigarettes into the stream of commerce for the sale of cigarettes including directly or indirectly in Australia through BATAS and Wills Holdings [the Wills defendants]. 1.20 RJ REYNOLDS TOBACCO INC (" RJR ") and RJ REYNOLDS TOBACCO HOLDINGS INC (" RJR Holdings ") are New Jersey corporations with their principal place of business at 401 North Main Street, Winston-Salem, North Carolina. 1.21 RJR Holdings is the parent corporation of RJR, and has participated in the manufacture and distribution of cigarettes and tobacco products both individually and through its subsidiary RJR. 1.22 At all relevant times, RJR and/or RJR Holdings has manufactured, advertised, and sold cigarettes, including Best Value, Bright Rite, Camel, Century, Doral, Magna, Monarch, More, Now, Salem, Sterling, Vantage and Winston brand cigarettes throughout the United States and elsewhere, including directly or indirectly in Australia amongst other things through an arrangement with the Rothmans companies. 1.23 IMPERIAL TOBACCO LIMITED (" Imperial ") and IMPERIAL TOBACCO GROUP, P.L.C. (" Imperial Group ") are British corporations with their principal place of business at Upton Road, Bristol, UK BS99 7UJ. 1.27 Since mid-1999 Imperial and/or Imperial Group have placed cigarettes into the stream of commerce for the sale of cigarettes including directly or indirectly in Australia through ITA."

[14]

9 The case against the foreign corporations who are the proposed secondary defendants is pleaded in this way: " Q. Liability for the contravening conduct I. Direct Liability of Defendants for Contravening Conduct 2.26 The Defendants, and each of them, have a liability for the contravening conduct insofar as that conduct was engaged in by the Defendants or on their behalf in accordance with section 84(2) of the TPA and/or the equivalent provisions in State and/or Territory Fair Trading legislation. … III. Secondary Defendants Liability for the Contravening Conduct of the Primary Defendants 2.29 The conduct referred to in paragraph 2.16 was engaged in by the Primary Defendants as and from July 1977 pursuant to and in accordance with the objectives of the International Conspiracy referred to in paragraph 2.4, and for the common purpose of implementing the objectives of the International Conspiracy, and accordingly each of the Secondary Defendants have a liability for the conduct of the Primary Defendants as and from 1 July 1977 pursuant to section 75B of the TPA and equivalent provisions of the FTA as and from the date those provisions came into effect in that the Secondary Defendants conspired with each other to effect the contravening conduct referred to in paragraph 2.19 and/or 2.20. PARTICULARS (a) The first six Defendants, or some combination of them, in or about 1978, joined together to create a body known as the Tobacco Institute of Australia Limited (" TIA "), which was funded and controlled by the first six Defendants, the purposes of which included engaging in, cooperatively, conduct of the kind referred to in paragraph 2.16 in accordance with the objectives and means of implementation of the International Conspiracy set out in paragraphs 2.4.1 and 2.4.2 above. (b) Further particulars are contained in Schedules C and D hereto. (c) Additional particulars will be provided following discovery. 2.30 By reason of the matters pleaded in the preceding paragraph, the Secondary Defendants have, and each of them has, aided, abetted, counselled or procured the contravening conduct, induced the contravening conduct, been directly or indirectly knowingly concerned in, or party to the contravening conduct of the Primary Defendants." 10 The "contravening conduct" that forms the basis of the plaintiff's claim, being conduct that is misleading or deceptive or likely to mislead or deceive and/or unconscionable, is confined to conduct within Australia (Note (m)). The plaintiff seeks to attach liability to the overseas companies for the contravening conduct by invoking the provisions of s 84(2) of the TPA and she seeks to establish that the proposed secondary defendants were involved in the contravening conduct within the meaning of s 75B of the TPA (and the equivalent provisions of the FTA) so as to render them liable to compensate her under s 87(1) for the loss and damage that she has suffered or is likely to suffer.

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(b) by any other person at the direction or with the consent or agreement (whether express or implied) of a director, servant or agent of the body corporate, where the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, servant or agent; shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate." 13 It is the plaintiff's case that the proposed secondary defendants directed the primary defendants to engage in the contravening conduct and that liability attaches to them under s 84(2)(b) (04/04/05 T 23.37-42). The conduct of the primary defendants (being conduct within Australia) is deemed to have been the conduct of the proposed secondary defendants to the extent that it was carried out by the primary defendants at the direction or with the consent or agreement (whether express or implied) of the proposed secondary defendants. 14 The facts pleaded as the basis for the s 84(2)(b) liability against the proposed secondary defendants are contained in section 1C of the PSASC - "Relationship between the Primary Defendants and the Secondary Defendants": "1.28 The Secondary Defendants have at all relevant times been involved in the affairs and activities of one or other or more than one of the Primary Defendants. PARTICULARS (a) PMC is and has been for several years, directly or indirectly, a shareholder in one or other or both of the Philip Morris companies (including by reason of the fact that in or about March 1986, PMA [the second defendant] became a wholly owned subsidiary of PMC) - further particulars of which will be provided following discovery. (b) The Philip Morris companies have, in effect, distributed for sale within Australia, including to the Plaintiff and other persons, cigarettes manufactured by or for PMC and or manufactured cigarettes under brand names of PMC and or PM at various times, presumably pursuant to some licence agreement or other arrangement or understanding between the respective companies - further particulars of which will be provided following discovery. (c) BAT and/or BAT Investments is and has been at all relevant times, directly or indirectly, including from time to time through BATA, a shareholder in one or other or both of the Wills companies - further particulars of which will be provided following discovery. (d) One or other or both of the Wills companies have distributed for sale to consumers within Australia, including the Plaintiff and other persons, cigarettes manufactured by or for B.A.T. and/or BAT Investments and/or manufactured cigarettes under brand names of B.A.T. and/or BAT Investments, at all relevant times, pursuant to a licence agreement or other arrangement or understanding between the respective companies - further particulars of which will be provided following discovery. (e) One or other or both of the Rothmans companies have distributed for sale to consumers within Australia, cigarettes manufactured by RJR or RJR Holdings, and or manufactured cigarettes under brand names or RJR or RJR Holdings at various times, presumably pursuant to some licence agreement or other arrangement or understanding between the respective companies - further particulars of which will be provided following discovery. (f) Imperial and/or Imperial Group are and have been for several years, directly or indirectly, a shareholder in the Seventh Defendant - further particulars of which will be provided following discovery. 1.29 By reason of the matters set out in paragraph 1.5 - 1.28 inclusive, and by reason of the control exercised and exercisable on that account, the acts, actions, activities and conduct of the Primary Defendants as alleged herein, were acts done, actions performed, or activities or conduct engaged in at the direction of and or with the consent of the Secondary Defendants.

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22 In Bray v F Hoffman-La Roche Ltd [2002] FCA 243; 118 FCR 1 Merkel J considered whether a number of foreign companies were carrying on business within Australia for the purpose of s 5(1) of the TPA which confers limited extra-territorial operation to the TPA. This was in the context of a claim alleging a contravention of s 45 of the TPA. His Honour observed (at 21, [72]): "[72] … The difficulty with the sweeping assertion that the Australian subsidiaries, being directed and controlled by an overseas parent as part of the parent's global enterprise, carried on the business of the parent, is that that alone is not sufficient to pierce the corporate veil. Factors of the kind adverted to in Smith, Stone [ Smith, Stone & Knight Ltd v Birmingham City [1939] 4 All ER 116] and Adams v Cape [ Adams v Cape Industries Plc [1990] 1 Ch 433] would usually be considered before a conclusion is arrived at that the subsidiary's business, assets and contracts are those of the parent. In Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549 at 577 Rogers AJA observed that a proposition similar to that put forward by the applicant and the ACCC is "too simplistic". … [77] In the present matter the Australia subsidiaries, in conducting their business activities in Australia, held their assets (including bank accounts) in their own names and employed employees and purchased and sold products in their own names. Their businesses were not confined to the class vitamins or to products supplied by other companies in the respective groups. The accounts of each of the subsidiaries were included in the Consolidated group accounts but that is commonplace with subsidiaries and accords with established accounting and regulatory requirements: see for example Industrial Equity v Blackburn (1977) 137 CLR 567 at 577. There may be some overlapping board appointments in respect of the subsidiaries and the regional or parent companies in the three groups but, for the most part, the subsidiaries had different boards to the European or regional parent. The evidence does not suggest that the Australian subsidiaries were not maintained as distinct or separate entities or that the parents have disregarded corporate boundaries. [78] The European and regional parents did not appear to hold assets in Australia save for intellectual property rights and shares in the Australian subsidiaries, had no premises, offices or employees in Australia and, in general, did not purport to engage in business activities in Australia. Of course, as I later explain in some detail, the European or regional parents were extensively involved in the implementation of the cartel arrangement in Australia. That involvement, however, related to the cartel arrangement and not to the manner in which the Australian subsidiaries generally carried on their businesses. It follows that subject to the question of foreign direction and control, the applicant has little to point to in respect of the matters suggested in Adams v Cape or Smith, Stone in relation to piercing the corporate veil or agency that assist her s 5(1) case. … [80] In my view something more than the indirect legal and commercial capacity of the parent companies to control and direct the subsidiaries, plus the parent's involvement in implementing the cartel arrangement, is required to lift the corporate veil between the subsidiaries and their parents or to find that each of the subsidiaries is carrying on its business as agent for the parent. That is particularly so where it is contended (as it is in the present case) that the parent, rather than the subsidiary, is carrying on business in Australia or, put another way, the subsidiary is engaging in all of its commercial activities on behalf of, and therefore as agent for, the parent." 23 His Honour's remarks are of assistance in considering the facts and circumstances that may be relevant to the determination of whether conduct has been engaged in on behalf of a body corporate at the direction or with the consent or agreement of the body corporate for the purposes of s 84(2)(b).

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His Honour went on to observe that since the Tobacco Institute case, declarations have been made in a great number of cases involving contraventions of the provisions of the TPA and, in particular, the contravention of s 52. He noted the observations that the defendants rely on in the joint judgment in Rural Press Limited and that in that case Kirby J expressed a different view at [140]: "I have previously expressed my hesitation over attempts to subject to the rigidities of traditional equity practice the scope of declaratory and injunctive orders of the Federal Court, made pursuant to broad powers in a remedial statute, in novel circumstances, to afford new protections for large and important social and economic purposes." 82 Gray J concludes his consideration of this topic at [113]: "The High Court, by a clear majority, has obviously taken the view that the mechanical process of making declaratory orders should not continue. At the same time, the High Court has also taken the view that, whatever might be the rationale behind the making of declaratory orders of the kind it made, there are circumstances in which it will be appropriate to declare that a contravention of a provision of the Trade Practices Act has occurred. Attention must be given to the form of the declaration, so that it is at least informative as to the basis on which the court declares that a contravention has occurred." 83 The plaintiff claims relief including that the Court declare that the defendants have contravened the provisions of the TPA. To succeed on her claim she needs to establish this much. There can be no embarrassment to the defendants in meeting the plaintiff's case on the basis that she claims declaratory relief of this description. It is premature to exclude that the relief that the Court may grant is a broadly framed declaration in the terms pleaded. 84 The defendants complain of the inclusion in the PSASC of the word "including" in paragraph 3.4, which deals with her claim for injunctive relief. The introduction of this term, they submit, does not assist in narrowing the issues in the proceedings. I accept that is so. The word "including" in paragraph 3.4 is to be struck out.

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