Philip Morris Asia is challenging the Australian regime, which the Government has justified on public health grounds and as consistent with international health obligations under the WHO Framework Convention on Tobacco Control. The challenge is based on what Philip Morris argues is a breach of the 1993 Agreement between the Government of Australia and the Government of Hong Kong for the Promotion and Protection of Investments. That bilateral agreement features scope for dispute resolution by an international tribunal, with arbitration being conducted under the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules 2010.
Just before Christmas the Government provided its Response to Philip Morris Asia’s Notice of Arbitration. The Government states that -
As the proceedings brought by Phillip Morris Asia concern the Government’s right to take regulatory measures to protect public health, it is important that the public have access to information relating to the proceedings. The Government is committed to achieving transparency in these proceedings.The A-G's website accordingly features a copy of the Australia - Hong Kong Bilateral Investment Treaty [PDF], the Philip Morris Asia Limited Notice of Claim [PDF] and November 2011 Notice of Arbitration [PDF], and the Australian Response to the Notice of Arbitration [PDF].
The latter states that -
PM Asia is incorporated in Hong Kong and asserts that the plain packaging measure impacts on investments that PM Asia owns or controls in Australia, namely its shares in Philip Morris Australia Limited (“PM Australia”), the shares that are held by PM Australia in Philip Morris Limited (“PML”), and the intellectual property and goodwill of PML. PM Asia acquired its shareholding in PM Australia (and hence a purported indirect interest in the shares and assets of PML) only on 23 February 2011.It continues -
This recent acquisition was made by PM Asia against the backdrop of:a) the Australian Government’s long-standing regulation and control of the manufacture and sale of tobacco in Australia, and its ratification of the World Health Organization (“WHO”) Framework Convention on Tobacco Control (“FCTC”);Thus, PM Asia acquired its shares in PM Australia on 23 February 2011, both in full knowledge that the decision had been announced by the Australian Government to introduce plain packaging, and also in circumstances where various other members of the Philip Morris group had repeatedly made clear their objections to the plain packaging legislation, whereas such objections had not been accepted by the Australian Government.
b) the Australian Government’s establishment of a National Preventative Health Taskforce (“Taskforce”) in April 2008 to consider how to reduce harm from tobacco usage, which led to the Taskforce considering the impacts of packaging on tobacco usage, engaging in a consultation exercise in which PML participated and, ultimately, recommending in June 2009 that the Australian Government mandate the sale of cigarettes in plain packaging and increase the required size of graphic health warnings;
c) the Australian Government’s announcement, on 29 April 2010, of its decision to implement plain packaging and to mandate updated and larger graphic health warnings for all tobacco products; and
d) continuing objections or public complaints on the part of PM Australia, PML and also Philip Morris International Inc. (the ultimate holding company for the Philip Morris group) – in the course of the remainder of 2010 and early 2011 – to the effect that the plain packaging legislation would breach Australia’s international trade and treaty obligations.
Against this backdrop, PM Asia’s claims under the BIT inevitably fail, both as to jurisdiction and the merits:The Government offers a number of preliminary observations before contesting specific claims by Philip Morris. Those observations are -a) Article 10 of the BIT does not confer jurisdiction on an arbitral tribunal to determine pre-existing disputes that have been re-packaged as BIT claims many months after the relevant governmental measure has been announced.
b) The plain packaging legislation cannot be regarded as a breach of any of the substantive protections under the BIT. PM Asia made a decision to acquire shares in PM Australia in full knowledge that the decision had been announced by the Australian Government to introduce plain packaging. An investor cannot make out a claim for breach of (say) the fair and equitable treatment standard or of expropriation in circumstances where (i) a host State has announced that it is going to take certain regulatory measures in protection of public health, (ii) the prospective investor – fully advised of the relevant facts – then acquires some form of an interest in the object of the regulatory measures, and (iii) the host State then acts in the way it has said it is going to act.
First, the Australian Government is implementing plain packaging to protect the public health of Australia’s population from an addictive and dangerous substance that causes widespread death and disease in Australia (and around the world). The protection of public health is an objective of fundamental importance to all Governments, and the WHO and the FCTC Secretariat have indicated their strong support for plain packaging as an effective public health measure.In contesting the tobacco giant's claim of expropriation the Government states that -
Secondly, the Australian Government’s plain packaging initiatives are based on a broad range of studies and reports, and supported by leading Australian and international public health experts. The evidence demonstrates that use of logos, symbols, designs, colours and other forms of advertising on tobacco packaging increases attractiveness to consumers, can mislead consumers into thinking some tobacco products are safer than others, and also decreases the prominence and effectiveness of health warnings. Tobacco advertising can be particularly effective on young people, the age group most likely to become addicted to smoking.
Thirdly, in so far as PM Asia contends that plain packaging measures will lead to a decline in cigarette prices (and hence increased consumption) and to an increase of market participation in illicit tobacco products (cf Notice of Arbitration, para. 6.3), those contentions are not accepted. Further, even if correct, the Australian Government has power to implement a range of measures, including further increases to the rate of excise, to ensure that cigarette prices do not fall to a level which would lead to an increase in consumption. In addition, the Australian Government will continue to vigorously enforce its laws against illicit trade in tobacco.
Fourthly, plain packaging is not an alternative to other tobacco control measures but is an integral part of the comprehensive suite of measures adopted by Australia to respond to the public health problems caused by tobacco. These measures ... are based on the comprehensive tobacco control strategy recommended by the Taskforce in 2009. The implementation of this wide-ranging set of measures will be critical to achieving significant reductions in smoking rates in Australia.
Fifthly, PM Asia claims at various junctures in its Notice of Arbitration that plain packaging eliminates branding. PML will however retain the ability to place brand names, including any variant, on tobacco packaging. Plain packaging does not prevent product differentiation or identification of a product’s place of origin on its packaging (cf. Notice of Arbitration, para. 1.4).
What the plain packaging measure in fact restricts is the ability of tobacco companies to advertise their products by packaging them with attractive branding and other designs. This is the real substance of PM Asia’s concern. By preventing such advertising on retail tobacco packaging, as one of the principal remaining means for PML and other tobacco companies to advertise tobacco, the Australian Government intends that plain packaging will contribute to efforts to reduce smoking rates in Australia.
The Australian Government rejects PM Asia’s claim that it has breached the obligation under Article 6 not to deprive investors of their investments or subject investors to measures having effect equivalent to such deprivation.After arguing that there has been no discriminatory action, the Government requests the arbitral tribunal -
PM Asia has not in fact been deprived of the purported investments it made on 23 February 2011; nor has PM Asia been subjected to measures having equivalent effect.
Further, plain packaging measures are non-discriminatory regulatory actions of general application designed and adopted by the Australian Government to achieve the most fundamental public welfare objective – the protection of public health. Such measures do not amount to expropriation, are not equivalent to expropriation, and do not give rise to a duty of compensation.
a) to declare that it has no jurisdiction over PM Asia’s claims, or that they are inadmissible;In essence, it is arguable that PM Asia - knowing that restrictions on packaging were in the pipeline - acquired the Australian interests in order to take action under the BIT and with an awareness that the value of interests would be eroded by the restrictions. The tribunal might be unimpressed by PM Asia's claim for compensation regarding assets with a value that was presumably going to be reduced by “billions of Australian dollars”. Article 6 of the BIT specifies that compensation reflects “the real value of the investment immediately before the deprivation or before the impending deprivation became public knowledge whichever is the earlier”. Given that PM Asia acquired the interests after the impending deprivation became public knowledge (and arguably with the intention to thwart the restrictions) it would appear to have no interest at the relevant time.
b) alternatively, to dismiss PM Asia’s claims in their entirety; and
c) to order that PM Asia bear the costs of the arbitration, including Australia’s costs of legal representation and assistance, pursuant to Article 42 of the UNCITRAL Arbitration Rules.
