Tobacco Free Initiative (TFI)

International tribunal orders tobacco company to pay Australia’s costs of the arbitration over tobacco plain packaging

18 July 2017 - The International Tribunal that dismissed the investment treaty claim made by Philip Morris Asia in relation to Australia’s introduction of tobacco plain packaging has now ordered that Philip Morris pay a substantial portion of the costs Australia incurred in defending the claim.

The Final Award Regarding Costs brings to a close the long running investment treaty arbitration. In 2011, Philip Morris Asia (a Hong Kong subsidiary of Philip Morris) commenced a claim under the bilateral investment treaty between Australia and China (Hong Kong Special Administrative Region) for compensation for losses allegedly caused by Australia’s introduction of tobacco plain packaging. Guidelines for Implementation of Article 11 (Packaging and labelling of tobacco products) and Article 13 (Tobacco advertising, promotion and sponsorship) of the WHO Framework Convention on Tobacco Control (WHO FCTC) recommend that Parties consider adoption of plain packaging. In December 2012, Australia became the first country to fully implement plain packaging.

An ad-hoc international Tribunal was appointed under the auspices of the Permanent Court of Arbitration (PCA) to hear Philip Morris’ claim. In December 2015, the Tribunal agreed with the Australian argument that Philip Morris’ claim should be dismissed on jurisdictional grounds as the claim constituted an abuse of right.1 The parties were invited to make further submissions on costs, ultimately culminating in March 2017 with a costs award in Australia’s favour (a redacted version of the Tribunal’s Final Award Regarding Costs was made public in July 2017).2

The exact percentage of Australia’s claimed costs that Philip Morris has been ordered to pay, and the resulting final amount due to the Australian Government have not been made public. However, it is evident from the Tribunal’s reasoning that Philip Morris will pay a substantial portion of Australia’s costs. In assessing that Australia’s claimed costs were reasonable the Tribunal took into consideration ‘the significant stakes involved in this dispute in respect of Australia’s economic, legal and political framework, and in particular the relevance of the outcome in respect of Australia’s policies in matters of public health’.3

Last year, in a separate case, the World Bank's International Centre for Settlement of Investment Disputes (ICSID) confirmed that tobacco control measures applied by the Government of Uruguay did not violate the terms of an investment agreement between Uruguay and Switzerland, under which Philip Morris (Switzerland) had brought a claim for compensation. Uruguay claimed costs of USD 10.3 million before the Tribunal and Philip Morris were ordered to pay USD 7 million of these costs, as well as the costs of the arbitral tribunal and ICSID administration fees.4

The award of costs to the Governments responding to the claims in both of these investment treaty arbitrations is important. Although the arbitration processes were long, resource intensive and required up-front investment, the Governments defending their tobacco control measures have been able to recoup substantial amounts of their litigation costs.

The investment arbitrations against Uruguay and Australia have also drawn attention to the fact that the tobacco industry can use international trade and investment agreements to challenge tobacco control measures. In response, in 2015, Bloomberg Philanthropies and the Bill & Melinda Gates Foundation launched the Anti-Tobacco Trade Litigation Fund to provide support for low and middle-income countries that face legal challenges to tobacco control measures under international trade agreements. The fund is managed by the Campaign for Tobacco Free Kids and further information is available on their website.


Footnotes

  • Philip Morris Asia Limited v. Commonwealth of Australia (PCA Case Nº 2012-12), Award on Jurisdiction and Admissibility (December 17, 2015).
  • Philip Morris Asia Limited v. Commonwealth of Australia (PCA Case Nº 2012-12), Final Award Regarding Costs (March 8, 2017).
  • Philip Morris Asia Limited v. Commonwealth of Australia (PCA Case Nº 2012-12), Final Award Regarding Costs (March 8, 2017), at paragraph 101.
  • Philip Morris Brand Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and Abal Hermanos S.A. (Uruguay) v. Oriental Republic of Uruguay (ICSID Case No. ARB/10/7), Decision on the Merits (July 8, 2016), at paragraphs 582-590.

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