Philip Morris Asia Ltd v Commonwealth of Australia

• Jurisdiction: Derecho Internacional
• Judge: Böckstiegel,McRae,Kaufmann-Kohler
• Court: Arbitration Tribunal (International)
• Date: 17 December 2015

Arbitration Tribunal2

Award on Jurisdiction and Admissibility.

(Böckstiegel, President; Kaufmann-Kohler and McRae, Members)

Philip Morris Asia Limited

and

Commonwealth of Australia1

Arbitration — Jurisdiction — Abuse of rights — When commencement of litigation under investment treaty constituting abuse of rights — Whether initiation of arbitration amounting to abuse of rights — Tobacco products legislation on plain packaging — Foreseeability of plain packaging dispute — Corporate group engaging in restructuring in anticipation of plain packaging legislation — Effect of restructuring to place ownership and control in the hands of company incorporated in party to bilateral investment treaty — Whether any cogent reasons other than obtaining protection of the treaty for corporate restructure

Arbitration — Jurisdiction — Existence of a dispute — Critical date — Whether Tribunal having jurisdiction over dispute ratione temporis— Date plain packaging dispute arising — Whether dispute arising prior to critical date

Economics, trade and finance — Investment protection — Bilateral investment treaties — Protection of intellectual property — Trademarks — Legislation requiring that tobacco products be sold only in plain packaging — Whether contrary to Agreement between Government of Hong Kong and Government of Australia for Promotion and Protection of Investments, 1993 — Abuse of rights

Treaties — Agreement between Government of Hong Kong and Government of Australia for Promotion and Protection of Investments, 1993 — Meaning of “control” and “substantial interest” under Article 1(e) of Treaty — Whether Philip Morris Asia exercising control over Philip Morris Australia and Philip Morris Limited pursuant to Article 1(e) — Whether sufficient evidence of control of any significance

Treaties — Agreement between Government of Hong Kong and Government of Australia for Promotion and Protection of Investments, 1993 — Requirement that an investment be admitted in Australia “subject to its laws and policies applicable from time to time”— Foreign Investment Application — Relevance of letter from Treasurer advising no objection to investment — Whether evidence otherwise establishing invalidly admitted investment

Summary:3The facts:—Philip Morris International Inc., a company incorporated in the United States of America, owned subsidiaries and affiliates across the world. Philip Morris Asia Limited (“the claimant”), a limited liability company incorporated in Hong Kong, was the Asian regional headquarters for the Philip Morris International group of companies. Philip Morris (Australia) Limited (“PM Australia”) was a holding company incorporated in Australia. PM Australia owned Philip Morris Limited (“PML”), which manufactured, imported, marketed and distributed tobacco products in Australia and across the Pacific region.

Philip Morris Brands Sàrl, a Swiss company that also formed part of the Philip Morris International group of companies, owned PM Australia and PML until 2011. On 21 January 2011, the claimant lodged a Foreign Investment Application requesting that the Treasurer of Australia approve the transfer of ownership of PM Australia and PML to the claimant in accordance with the Foreign Acquisitions and Takeovers Act 1975. On 11 February 2011, the Treasurer advised the claimant by letter that there were no objections to the proposed corporate restructure. The transfer of ownership of PM Australia and PML to the claimant was formally effected on 23 February 2011.

The claimant served its Notice of Claim in the proceedings on the Commonwealth of Australia (“the respondent”) on 27 June 2011. The claimant alleged that the respondent had violated the Agreement between the Government of Hong Kong and the Government of Australia for the Promotion and Protection of Investments, 1993 (“the Treaty”), by enacting and enforcing the Tobacco Plain Packaging Act 2011 and associated implementing regulations (“the plain packaging measures”). The plain packaging measures required, among other things, that all tobacco products manufactured or packaged in Australia meet plain packaging standards as of 1 October

2012, and all tobacco products sold in Australia be sold in plain packaging as of 1 December 2012

The respondent requested the Tribunal to find that it did not have the jurisdiction to consider the case and that the claimant's claims were inadmissible. The Tribunal bifurcated the proceedings into two phases and decided to consider two of the respondent's three preliminary objections in the preliminary phase. Those two objections were:

• (1) The claimant's investment had not been properly admitted in Australia pursuant to Article 1(e) of the Treaty,4 which required that an investment be admitted by Australia “subject to its law and investment policies as applicable from time to time”, because the Foreign Investment Application was false or misleading.

• (2) Either the dispute had crystallized before the claimant's investment was admitted in Australia in 2011, or the claimant's restructuring in 2011 amounted to an abuse of right because the claimant had carried out the restructuring in order to obtain the protection of the Treaty over a pre-existing or reasonably foreseeable dispute.

The claimant maintained that the Tribunal had jurisdiction and its claims were admissible. The claimant also maintained that, in any event, it had controlled and managed PM Australia and PML since 2001, thereby eliminating both preliminary objections.

Held:—The Tribunal was precluded from exercising jurisdiction over the dispute as the claimant's claims were inadmissible.

(1) (unanimously) The burden was on the claimant to prove the facts establishing jurisdiction under the Treaty. It was for the respondent, meanwhile, to prove the facts on which its preliminary objections were based (para. 495).

(2) (unanimously) The claimant did not control the Australian investments within the terms of Article 1(e) of the Treaty prior to acquiring ownership of PM Australia and PML through the corporate restructuring in 2011. Article 1(e) of the Treaty defined “control” by reference to the notions of “ownership” and “substantial interest”, which was a distinct concept from ownership. The Tribunal did not, however, reach a conclusive interpretation of “substantial interest” or, as a consequence, “control”. Since the claimant had failed to establish that it had exercised management control of any significance over its Australian investments before the 2011 corporate restructure, the claimant did not satisfy the requirements for control pursuant to Article 1(e) of the Treaty (paras. 496–509).

(3) (unanimously) The claimant's investment was admitted in Australia in accordance with Article 1(e) of the Treaty. The letter from the Treasurer of Australia advising that there was no objection to the proposed corporate restructure constituted prima facie evidence that the investment was validly admitted under Australian law. The respondent had failed to prove that the no-objection letter was ineffective and the investment was invalidly admitted on the basis that the information contained in the application was incomplete and therefore misleading. The claimant's investment was therefore validly admitted under Article 1(e) (paras. 510–23).

(4) (unanimously) The claimant's claims met the temporal requirements of Article 10 of the Treaty.5 The critical date, for the purposes of determining the Tribunal's jurisdiction over the dispute ratione temporis, was the date on which the respondent adopted the measures in dispute. In the present proceedings, the critical date was 21 November 2011, the date on which the respondent enacted the Tobacco Plain Packaging Act 2011. Since it had been decided to carry out the corporate restructuring on 3 September 2010 and the restructuring had been completed on 23 September 2011, the Tribunal had jurisdiction ratione temporis over the dispute in accordance with Article 10 of the Treaty (paras. 524–34).

(5) (unanimously) The claimant's claims were inadmissible because the initiation of the case constituted an abuse of rights. The commencement of litigation under an investment treaty amounted to an abuse of rights when the investor in question had changed its corporate structure in order to obtain the protection of a treaty and, at that time, a specific dispute was foreseeable. A dispute was foreseeable when there was a reasonable prospect that a measure that could give rise to an investment treaty claim would materialize. It was foreseeable to the claimant, at the time of restructuring, that a dispute concerning plain packaging would arise. On 29 April 2010, the Australian Government had announced its intention to introduce the plain packaging measures. From that date, it was reasonably foreseeable to the claimant that the plain packaging measures would materialize and, therefore, that the dispute would arise. Since the claimant had not proven that it had cogent tax or business reasons for the corporate restructuring, the main and determinative, if not the sole, reason for that restructuring was the intention to commence litigation under the Treaty, using as a vehicle for the litigation the limited liability company incorporated in Hong Kong (paras. 535–88).

(6) The decision of the Tribunal was final save as to costs (paras. 589–90).

The text of the Award of the Tribunal, which was redacted prior to being made public, commences on the following page.6

TABLE OF CONTENTS

page
List of Defined Terms	430
I. Introduction	432
A. The Claimant	432
B. The Respondent	433
C. Background to the dispute	433
II. Procedural History	435
A. Commencement of the Arbitration and First Procedural Meeting	435
B. Place of arbitration, confidentiality regime and bifurcation of proceedings	438
C. Document production, submissions and Hearing on Preliminary Objections	440
III. The Parties' Requests	446
A. The Claimant's request	446
B. The Respondent's request	446
IV. Statement of...