Philip Morris Asia v Australia

Philip Morris Asia’s claim against Australia concerning Australia’s plain packaging laws has come to an end. The tribunal ruled (in December 2015) that it had no jurisdiction to decide the claim, which was filed in 2011, under the 1993 HK–Australia BIT.

The ruling

On December 17, 2015, the arbitral tribunal constituted to decide Philip Morris’s claim against Australia concerning Australia’s plain packaging laws (enacted in 2011) ruled that it had no jurisdiction to decide Philip Morris Asia Limited’s claim under the Hong Kong–Australia BIT (the Agreement between the Government of Australia and the Government of Hong Kong for the Promotion and Protection of Investments of 1993). The tribunal was unanimous in upholding Australia’s jurisdictional challenge.

Regulation of tobacco packaging

This decision forms the latest development in a series of legal proceedings, in domestic courts and before international tribunals, that have been commenced by tobacco companies and other countries in response to measures taken by governments to regulate the appearance of packaging used to contain tobacco products. These measures restrict the ability of tobacco companies to differentiate their brands in the design of the packaging. Australia, by introducing plain packaging legislation, is the first country to standardize the appearance of all cigarette packaging. All cigarettes sold in Australia are now required to be packaged in standard-sized boxes with an unappealing colour and look (by design); tobacco companies operating in Australia can no longer include their logos or marketing content (apart from the brand name and variant names, in standard font) on their products.

The tribunal

The tribunal constituted to decide Philip Morris’ claim
comprised

1. Professor Karl-Heinz Böckstiegel (presiding arbitrator, appointed by the Secretary-General of the Permanent Court of Arbitration)
2. Professor Gabrielle Kaufmann-Kohler (appointed by Philip Morris Asia Limited)
3. Professor Donald M McRae (appointed by Australia).

Redaction of confidential information

As the Permanent Court of Arbitration, the arbitral institution administering the arbitration, has not yet published the award, the full rationale behind the tribunal’s decision has only been communicated to the parties. Due to the sensitive nature of the parties’ submissions, the tribunal had issued procedural directions permitting the parties to request the redaction of confidential information from any award, decision or order. This procedure for the redaction of the tribunal’s award has been triggered and is ongoing at the time of writing.

The 2011 notice of arbitration

Philip Morris Asia Limited is a company incorporated in Hong Kong. In its Notice of Arbitration dated November 21, 2011, it asserted that Australia had violated its intellectual property rights, as an investor in Australia, through the enactment and enforcement of the Tobacco Plain Packaging Act 2011 (Cth). Philip Morris Asia argued that by enacting and enforcing this Act, Australia breached its obligations under the HK–Australia BIT in two ways: by failing to provide Philip Morris Asia with the investment protections guaranteed under the treaty; and by depriving Philip Morris Asia of its investments, including the intellectual property and goodwill relating to Philip Morris’s tobacco products.

Australia’s response

Australia argued, in its Response to the Notice of Arbitration dated December 21, 2011, that Philip Morris Asia’s claim did not satisfy the jurisdictional conditions for the arbitral tribunal to exercise jurisdiction under the HK–Australia BIT. Australia also denied that it had breached any substantive obligation under the treaty by enacting the Tobacco Plain Packaging Act.

Australia contended that at the time that the dispute between the parties arose, Philip Morris Asia did not own an interest in the investments that it claims are covered by the investor protection provisions of the HK–Australia BIT.

Australia relied on the fact that Philip Morris Asia only acquired ownership of the relevant investments in February 2011, i.e. almost a year after Australia’s April 2010 announcement of its decision to introduce plain packaging legislation.

Australia also asserted, as a separate argument, that the HK–Australia BIT only accorded protection to investments that had been ‘admitted’ by the host State ‘subject to its law and investment policies applicable from time to time’ (article 1(e)). Australia argued that it was up to Philip Morris Asia to satisfy the tribunal that the investments which formed the subject of the dispute met the definition of an ‘investment’ covered under the BIT.

Australia had also requested that its jurisdictional objections and arguments be heard and determined at a preliminary phase, before any ruling by the tribunal on the merits of Philip Morris Asia’s claim. This request appears to have led to the award, albeit more than four years after the commencement of the arbitration.

The question of balance

It is now clear that these arbitral proceedings will not address the thorny issue of the ‘balance’ to be struck between the rights and expectations of a foreign investor and the right of a State to exercise its legislative and regulatory powers without incurring any obligation to pay compensation for the consequences.

The need for treaty planning

In light of the emphasis placed on the timing of Philip Morris Asia’s acquisition of the relevant investments in Australia’s arguments on jurisdiction, the award when published will likely reinforce the importance of early ‘treaty planning’, i.e. conducting an audit of the scope and nature of the treaty protections afforded to foreign investments, at an early stage.

Guy Spooner is a partner and Samuel Leong is an associate in the Singapore office of Norton Rose Fulbright.