Big tobacco bites back

The Gillard government’s plain pack­ag­ing for cig­a­rettes leg­is­la­tion is dis­com­fort­ing even for those who have no patience with the huge and unnec­es­sary costs that tobac­co use impos­es on the Aus­tralian pub­lic health sys­tem.

It looks like anoth­er piece of heavy-hand­ed, “go for the jugu­lar” gov­ern­ment reg­u­la­tion (like the appalling NBN, the car­bon tax and the blan­ket ban on cat­tle exports to Indone­sia). This is why the “nan­ny state” adver­tise­ments of the big tobac­co com­pa­nies strikes a chord. There is lit­tle sign of care­ful con­sid­er­a­tion of ben­e­fits and costs rel­a­tive to alter­na­tive mea­sures. There is also a trou­bling ques­tion of “speech” in there some­where (but we have no con­sti­tu­tion­al pro­tec­tion of this free­dom).

Phillip Mor­ris Inter­na­tion­al now seeks to turn “dis­com­fort” into actu­al pain with its announce­ment it would serve of a notice of claim under the Aus­tralia-Hong Kong bilat­er­al invest­ment treaty, rolling out a “renowned” aca­d­e­m­ic to not-so-much-back their claims as thun­der about the con­se­quences of loos­ing a dis­pute:

Renowned law pro­fes­sor at George­town Uni­ver­si­ty Law Cen­ter, Don Wal­lace Jr., Chair­man of the Inter­na­tion­al Law Insti­tute and an expert on investor-state dis­putes, said “Plain pack­ag­ing leg­is­la­tion would expose Aus­tralia to well-found­ed claims under the treaty, poten­tial­ly cost­ing the Aus­tralian gov­ern­ment bil­lions of dol­lars in dam­ages.” Extract from PMI News Release June 27, 2011

So is the “renowned” pro­fes­sor right? Does PMI have the Aus­tralian gov­ern­ment by the short-and-curlies…?

On the face of it, PMI does have a pret­ty good case for tak­ing the Aus­tralian gov­ern­ment to the clean­ers over this pro­posed law…

The expro­pra­tion pro­vi­sions (Arti­cle 6) of the 2008 Hong Kong Aus­tralia bilat­er­al invest­ment treaty that requires com­pen­sa­tion for expro­pri­a­tion are very typ­i­cal of such treaties

Investors of either Con­tract­ing Par­ty shall not be deprived of their invest­ments nor sub­ject­ed to mea­sures hav­ing effect equiv­a­lent to such depri­va­tion in the area of the oth­er Con­tract­ing Par­ty except under due process of law, for a pub­lic pur­pose relat­ed to the inter­nal needs of that Par­ty, on a non-dis­crim­i­na­to­ry basis, and against com­pen­sa­tion. Such com­pen­sa­tion shall amount to the real val­ue of the invest­ment imme­di­ate­ly before the depri­va­tion or before the impend­ing depri­va­tion became pub­lic knowl­edge whichev­er is the ear­li­er.

But you’d be ill-advised to jump to the con­clu­sion that the “renowned” pro­fes­sor indi­cates. A lot of expen­sive bur­gundy will flow down the gul­lets of the legal fraternity/sorority before this dis­pute is resolved; if it is ever resolved.

This may be the first seri­ous legal threat to the Gillard government’s leg­is­la­tion enforc­ing plain pack­ag­ing for cig­a­rettes but only the most recent in a series of sim­i­lar dis­putes the com­pa­ny has bought under investor-state pro­vi­sions of invest­ment treaties. PMI made sim­i­lar claims against Nor­way and Uruguay in 2010 and issued a com­plaint against Canada’s pro­hi­bi­tion of the (mis­lead­ing) terms “mild” and “light” under NAFTA invest­ment pro­vi­sions (in 2002). None of these dis­putes to my knowl­edge has yet led to any award against a gov­ern­ment.

PMI’s aca­d­e­m­ic con­sul­tant is care­ful to talk about being “exposed” to a claim. PMI has first to show that the plain pack­ag­ing leg­is­la­tion is amounts to poten­tial “expro­pri­a­tion” (of the trade­mark prop­er­ty) under the treaty. It may also have to show that it had “rea­son­able expec­ta­tion” that its prop­er­ty would not be alien­at­ed (could be dif­fi­cult). Also, there is also well-qual­i­fied opin­ion that no expro­pri­a­tion claim will suc­ceed under the UNCITRAL pro­vi­sions if the prop­er­ty is alien­at­ed under a “rea­son­able” (in the sense of not irra­tional) law for well-found­ed pub­lic pur­pos­es applied in a non-dis­crim­i­na­to­ry man­ner. The first two con­di­tions seem to be ful­filled and here does not appear to be any dis­crim­i­na­tion against PMI in this case.

Todd Weil­er, in a very good recent paper (that I learned about from Simon Lester) argues that Tri­bunals, in these cir­cum­stances, must (and do) defer to gov­ern­ments, declin­ing to find that “expro­pri­a­tion” took place. Hence the lack of awards so far.

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