pmi’sinternational investment law claims againstaustralia
TRANSCRIPT
PMI’s International Investment Law Claims Against Australia and Uruguay
Professor Andrew D. MitchellMelbourne Law School
The University of MelbournePhotocredits:freebieshutterb/FreeDigitalPhotos.net
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01
03Implications &Uncertainties remaining
02
ü Timelineü Claimsü Treaty violations allegedü Preliminary Objectionsü Outcome
Presentation Outline
Philip Morris v. Uruguay Case
ü Timelineü Claimsü Jurisdictional objectionsü Treaty violations allegationsü Tribunal findings
ü Fair and equitable standard of treatment
ü Denial of justice ü Decision on the merits only in
Philip Morrisü Systemic implications
Philip Morris v. Australia
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Draft regulationImplementation
Australia
New Zealand
United Kingdom
Canada
Expanding Interest in Tobacco Plain Packaging
Ireland
France
Norway
Finland
Sweden
Turkey
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2010March
2011March
2013July
2015January
2015October
REGISTRATION
-The dispute was registered in March -Request for arbitration by Claimant on February
-September appointment of arbitrator by claimants and respondent
TRIBUNAL CONSTITUTION
The tribunal was constituted
DECISION ON JURISDICCION
-Jurisdiction hearing on February-Jurisdiction objections by Uruguay decided (rejected) by Tribunal
WHO AMICUS CURIE
-January request of amicus curie by the WHO and submission by WHO-Request accepted based on the public interest involved in the case-March: submission by PAHO accepted-Other requests denied
AWARD
Rendering of the award including concurring and dissenting opinion by Mr Born
2016July
RECTIFICATION ONAWARD
Tribunal issued a rectificationwithout impact on the substantialreasoning/findings of the case
Case TimeLine
Bilateral Investment Treaty
Oriental Republic of Uruguay-Switzerland (1988)
Case under the ICSID ConventionArbitration Rules
2016Sept
HEARING
Hearing on the merits from 19-29 October
Challenged
Measures
ʛ. 80/80
SINGLE PRESENTATION REGULATION
‘’Each brand of tobacco products shall have a single presentation, such that it is forbidden to use terms, descriptive features, trademarks, figurative signs or signs of any other kind such as colors or combinations of colors, numbers or letters, which may have the direct or indirect effect of creating a false impressionthat a certain tobacco product is less harmful than another, varying only thepictograms and the warning (…)’’
HEALTH WARNINGS 80%
Increased in the size of mandatory health warnings from 50% to 80% on the front and back of cigarettes packaging.
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�
Appointed by Uruguay President designated by ICSID
Piero BernardiniProfessor
Appointed by Claimants
James CrawfordProfessor/Judge
The Arbitrators
Gary BornPractitioner/Academic
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18 Months of domestic litigation
Article 10 (2) BIT Uruguay Interpretation
Precondition to investment treaty arbitration exhausting 18 months of domestic litigation. Domestic claim under the BIT rather than general procedure for annulment before the TCA
Tribunal considered that domestic litigation requirement was met before decision on jurisdiction
REJECTED
ONE
Exclusion of public health measures Article 2 (1) BIT Uruguay
InterpretationPublic health measures were carved out from the scope of the treaty protection in accordance with Uruguayan Constitution and the consideration of public health as a supreme good/right
REJECTED
TWO
Claimant Activity not an Investment
Article 25 (1) ICSID Convention
Salini test: investment positive and significant contribution to the economic development of the host state
Not an investment within the meaning of article 25 ICSID
REJECTED
THREEEJURISDICTIONAL OBJECTIONSBy: Uruguay
| 2013
The respondent submitted three jurisdictional objections which the tribunal rejected
Legal basis: ICSID Convention article 41 providing that the tribunal is the judge of its own competence and the Centre’s jurisdictionArticle 46 regarding denial of justice claim
Assessment based on: article 25 ICSID, articles 1 & 10 BIT, 9 & 10 of BID Protocol
Investments admitted under Uruguayan Law not excluded from treaty obligations
Broad meaning of ‘investment’ creates no basis to deny status of investment to the claimants’ activity in Uruguay
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Expropriation Claim|5 (1) BIT
FINDINGS| UNANIMOUSLY DISMISSED
•The regulation was not expropriatory because it could nothave a substantial effect on the claimants’ business
•Adoption of the measures was a valid exercise of the state’spolicy powers
•Expropriatory claim over the 80/80 front and back healthwarnings had not even a prima facie case for indirectexpropriation
LegalStandard
CLAIMS
02 |
Measures effectively banned seven of the 13 Abal’s variants and substantially reduced the value of the remaining ones
01 |
Respondent expropriated its investment, particularly its brand assets, the intellectual property and the goodwill
IndirectExpropriationInterference with the investor’s rights must have a major adverse impact on investment
-Should amount to a substantial deprivation of its : value, use or enjoyment
-Consideration of intensity and duration of economic deprivation
njaj/FreeDigitalPhotos.net
MisterGC/FreeDigitalPhotos.net
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Relevant IssuesRights conferred by a Trademark
Right to use or right to protect against useby others?
Unregistered marks (Variations: (i.e Marlboro Gold))
Police Powers Doctrine
Uruguayan law and international conventions do not give the holder an “absolute right of use, free of regulation,” but rather gives a right to exclude third parties from the market
Property rights regarding their trademarks capable of being expropriated
Not necessary to reach a definitiveconclusion on the claimants’ ownership ofthe banned marks
The tribunal assumed their protection under Uruguayan Law
BUT
Valid exercise of state’s police powers
Acknowledges development of the doctrinein investment cases since the 2000s
The challenged measures were not arbitrary and unnecessary but ratherwere potentially “effective means to protecting public health”
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Manifestly inconsistentNon TransparentUnreasonableDiscriminatoryLack of good faithCoercion or harassmentLack of due process Violation of legitimate expectations
FindingsBy: Majority
Ground OneBy: Philip Morris
| Regulations adopted were arbitrary because they failed to serve a public purpose while causing them substantial harm
njenetus/FreeDigitalPhotos.net
State conduct that is “arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional and racial prejudice
LegalStandard
njenetus/FreeDigitalPhotos.net
80/80- Denial of Fair and Equitable Treatment | 3 (2) BIT
All aspects indicative of a breach
Not arbitrary
No FET Breach Reasonable
Non-discriminatory measure
Not disproportionate to the aim/justified
Not grossly unfair
In good faith
Not unjust
Relative minor impact on claimant
80/80
International principle on large health warnings
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Manifestly inconsistentNon transparentUnreasonableDiscriminatoryLack of good faithCoercion or harassmentLack of due process Violation of legitimate expectations
FindingsBy: Majority
Ground OneBy: Philip Morris
| Regulations adopted were arbitrary because they failed to serve a public purpose while causing them substantial harm
njenetus/FreeDigitalPhotos.net
State conduct that is “arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional and racial prejudice
LegalStandard
njenetus/FreeDigitalPhotos.net
SPR - Denial of Fair and Equitable Treatment | 3 (2) BIT
All aspects indicative of a breach
Not Arbitrary
No FET Breach
Reasonable
Non-discriminatory measure
Not disproportionate to the concern
Not grossly unfair
In good faith Not unjust
SPR
Relative minor impact on claimant
Finding One| DIMISSED 2/3
The Tribunal found unusual that the Uruguayan System separates out the review mechanism in this way without a system to resolve conflicting reasoning
But it would not be a appropriate to find a denial of justice because of the discrepancy
-Decision of the TCA to reject the annulment request of the regulations and the subsequent request for clarifying/amending the decision to reject the annulment (SPR Measure)
Denial of Justice
LegalStandard
High
Renjithkrishnan/FreeDigitalPhotos.net
“Clear evidence of… an outrageous failure of the juridical system”
Or “demonstration of systemic injustice”
Or “that impugned decision was clearly improper and discreditable” Arbitral Courts not being courts of
appeal
Finding Two| DISMISSED 2/3
The tribunal found that the Claimants’ substantive arguments and claims were addressed in a reasoned manner
There were procedural improprieties and failure of form that did not amount to denial of justice
Claims
-Contradictory decisions of the TCA and Supreme Court on 80/80
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AGGREGATE COSTS EXCEEDED THE AMOUNT ON DAMAGES CLAIMED
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Cost by the Claimant 17 m$
Cost by the Respondent 10.3 m$
Claimant to pay fees and expenses of the tribunal and ICSID administrate fees
1.5 m$
Claimant should reimburse respondent for 7m$
DECISION
CLAIMED
Cost of Proceedings
PAMPOTE/FreeDigitalPhotos.net
Cost by the claimant including fees and expenses
Damages with compound interests
‘Loser pays’ principle appropriate
22.2 m$
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1
REINFORCEMENT OF POLICY POWERS DOCTRINE AND MARGIN OF APRECIATION
In the context of public health policy and other public policies more broadly.
3
AMICUS BRIEF
In cases where public interest is involved. First time of this importance reliance on the amicus briefs
SCOPE LEGITIMATE EXPECTATIONS
Clarifies the scope of the concept of legitimate expectation in regard to the regulation of harmful products
POSITIVE RESULTS FORREGULATORY AUTONOMY
Implications of the Award
2
5 RELEVANCE EVIDENCE BASED REGULATION
But it does not preclude innovative measures despite difficulty to isolate their impact for assessment
6RELEVANCE DOMESTIC PROCESS OF ADOPTION
Bona fide measures, not arbitrary, reasonableness, not discriminatory…
7SIGNALING EFFECT APPORTIONING OF COSTS
Additional considerations of transaction costs of these kinds of claims
4RELEVANCE OF WHO FCTC
-As a basis of the measures, -As a source of evidence-Expression of international consensus-Source of rights and duties-A point of reference for reasonableness
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Donald McRae PROFESSOR
Appointed by the Respondent
Dr Karl-Heinz
Böckstiegel PROFESSOR
President designated by the ICSID
Gabrielle Kaufmann-
Kohler PROFESSOR
Appointed by Philip Morris
The Arbitrators
CASE EVENTS
2010April. Australian Government
announces decision to implement PP
850DESIGN
AUSTRALIA
HONG KONG
Case TimeLine
2011February. Philip Morris Asia (PMA) (Limited) Purchased Philip Morris Australia (Limited)
2011June. Philip Morris Asia
(Limited) issued notice of claim under HK-Australia BIT
2011June. Philip Morris Asia (Limited) issued notice of claim under HK-Australia BIT 2011
NOTICE FOR ARBITRATIONNovember. Australia Issues Plain
Packaging Bill 2014April. Decision on bifurcation of proceedings. Decision that two preliminary objections should be considered in an initial phase2015
February. Hearing on Preliminary Objections 2015
December. Award on Jurisdiction and Admissibility. (published May 2016)
BIT1993
Permanent Court of Arbitration (PCA)
Case under the UNCITRAL Rules
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EXPROPRIATIONInvestors’ property cannot be taken without compensation
PP measures substantially diminished the value of its investment in Australia
Substantive Claims
FAIR AND EQUITABLETREATMENTInvestors must be dealt with in a fair & equitable manner
REQUESTS
Withdrawal of the PP or order to refrain from applying the measures against the claimant
Damages for USD4,160 million + compound interests
Fees and expenses, including attorney fees
Measures could not be justified as a legitimate public health measure
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Investment not admitted in accordance with article 1(e) of the treaty
(Subjected to Australia’s law and investment policies)
Admitted as preliminary objection
Claimant’s claim falls outside the scope of article 10 of the treaty because it relates to a pre-existing dispute
FACTS
Until February 2011 PM Australia and PML (HK) were owned by Philip Morris Brands Sarl (Swiss Company) part of PMI Group.
01
FACTS
On February 2011 the claimant acquired PM Australia and PML
02
ALLEGATION BY CLAIMANT
PMI Group engaged in a world-wide restructuring to improve efficiencies and reduce costs
01
02
01
Not suitable for consideration at preliminary phase
Preliminary objections: jurisdiction & admissibility
Claimant’s claim constitutes an abuse of rights because it sought to restructure its investment to gain treaty protection over pre-existing dispute
Alternatively Neither the shares in PML nor PML assets are investment for the purpose of the treaty
LEGAL ISSUE
Whether the re-structuring had business purpose or economic rationale other than gaining the protection of an investment treaty
Admitted as preliminary objection
LEGAL ISSUE
Whether the dispute was foreseeable : reasonable prospect that a measure that gives rise to a claim will materialise
02ALLEGATION BY CLAIMANT
Claimant had controlled, managed and supervised PML’s” business” since 2001
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Tribunal held it was “precluded from exercising jurisdiction”
“the initiation of this arbitration constitutes an abuse of rights,* as thecorporate restructuring … occurred at a time when there was a reasonableprospect that the dispute would materialise and as it was carried out forthe principal, if not the sole, purpose of gaining the Treaty protection”
FURTHER FINDINGS
Claimant’s acquisition took place on 23 February 2011, around 10 months after theAustralian government announced its intention to introduce plain packaging (on 29 April2010
The tribunal rejected the Claimant’s other purported reasons for this acquisition therestructuring ‘had no business justification whatsoever’
Award on Jurisdiction
REFLECTION
An ‘abuse of rights’ is a matter of legal principle reflecting on the conduct of the Claimant, as distinct from a mere procedural ‘technicality’
* Abuse of process/ Right of procedural nature
VOLTBusiness Consulting // 27
UNCERTAINTIES: PUBLIC HEALTH MEASURES | AND OTHER PUBLIC POLICY OBJECTIVES
‘Investment tribunals should pay great deference to governmental judgments of national needs in matters such as the protection of public health ‘ BUT some uncertainties remain
FET SCOPE AND CONTENT
Dissenting opinion brings concerns on the scope of FET: (i) level of evidence and (ii) process required to implement the measures
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ANNULMENT CLAIM
High Transaction costsHigh legal standard for success
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MARGIN OF DISCRETION REMAINING FOR TRIBUNALS
Interpretation of the same standard of treatment and criteria under the same facts could lead to different conclusions (i.e dissenting opinion in Philip Morris v Uruguay)
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WTO CLAIMS
WTO decision against Australia’s standardized packaging requirements for tobacco products is pending
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ImportantFactorsforovercomingtobaccolegalthreats
1.StrongPoliticalSupport2.ActiveEngagementbyCivilSociety3.Supportbythetransnationaltobaccocontrolnetwork4.Internationalfinancialandtechnicalsupport
Domesticandinternationallegalimplications?
• Latest in a string of legal losses by the tobacco industry at thenational and international level.• Greater legal certainty about a country’s right to implementpublic health regulations• Further reforms to international dispute settlement?