In 2012, tobacco giant Philip Morris launched legal action against Australia’s plain packaging cigarette laws, seeking financial compensation for lost sales and profits under an investor-state dispute settlement (ISDS) clause contained in an obscure investment agreement with Hong Kong.
Here’s the Productivity Commission’s explanation of this action via its Trade and Assistance Review:
[Philip Morris Asia] is asking an arbitration panel to suspend the law and award substantial compensation for the financial damage that plain packaging will cause by commoditizing the cigarette market in Australia. (PMI 2014)…
…the ongoing costs to Australian taxpayers of funding the preparation and defence of the tobacco plain packaging legislation are likely to be substantial. Since the dispute was lodged, there have been eleven procedural orders determined by the PCA requiring legal representation by both parties.
…[There is] a lack of transparency regarding the true cost of including ISDS provisions in Australia’s trade agreements and investment treaties. The open-ended nature of these costs needs to be taken into account in any discussion regarding the appropriateness of such provisions and consideration of the net benefits (costs) that they entail.
Thankfully, Philip Morris last year lost its law suit against Australia, with the court labelling it an “abuse of rights”. And now Philip Morris has been ordered to compensate Australian taxpayers for their legal costs. From The Canberra Times:
While the exact figure is a closely-guarded secret – and is redacted from the Permanent Court of Arbitration’s new ruling – it’s believed the bill could be as high as $50 million.
The court published its decision at the weekend, bringing a six-year legal battle to a close… the court now says Philip Morris must cover Australia’s legal costs, plus an undisclosed percentage of the arbitration costs.
The company argued Australia’s claim for costs was “excessive” given its legal team “consisted primarily of public servants”, saying it was well above what was claimed by Canada ($US4.5m) and the United States ($US3m) in similar investment disputes.
But the government argued its claim – which included the cost of its own lawyers, outside counsel, expert reports and witnesses, plus travel and accommodation – was justified, and the court agreed.
”The Tribunal does not consider that any of these costs claimed by the respondent were unreasonable and should not have been incurred,” the court found.
“In making this assessment, the tribunal also takes 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”…
Former Treasurer Wayne Swan helped draft the plain-packaging laws and was called by Australia to give evidence during secret hearings in 2015…
Mr Swan said the case had reinforced his view that investor-state dispute settlement clauses which allow foreign corporations to sue governments for expropriation – and which were recently included in Australia’s trade deals with China and Korea – were bad.
This is a stunning result for Australia. Not only does it recoup the estimated $50 million spent fighting the case, but it should also act as a deterrent to multinational companies launching similar frivolous law suits in the future.
This result could become very important in the future given the Turnbull Government is seeking to reignite the Trans-Pacific Partnership trade agreement (minus the United States), which will likely include an ISDS clause, thus potentially opening Australia up to future legal actions.
