The Legal Cost of Free Trade: Tobacco Plain Packaging Dispute Continues

The latest wounds in the fight between Australia and Big Tobacco over Australia's plain packaging tobacco laws (aka the Tobacco Plain Packaging Act 2011 (Cth) - No. 148 of 2011) come in the form of  large legal costs, reported to be coming the Australian taxpayers way as a result of having to defend yet more challenges to those laws. The legal bill for even the initial skirmishes, as the SMH reports, is expected to be large:

It seems that after several years of having attacked the laws in Australia, including a failed High Court challenge (see JT International SA v Commonwealth of Australia [2012] HCA 43 decided 5 October 2012) and efforts to haul Australia before the World Trade Organisation (the WTO), Big Tobacco (mostly, Philip Morris) has now renewed its attack on the Australian plain packaging laws by, as the Australian case contends, relocating its Australian business headquarters to Hong Kong so as to be able to sue Australia as an international subsidiary of a foreign company.

The Philip Morris Position

The matter, it is reported, is being heard by a specially constituted Tribunal which earlier this year heard preliminary matters in Singapore. In the case Philip Morris is reported to be seeking to sue Australia under what is known as the "investor-state dispute settlement provisions" (the ISDS) contained in a 1993 bilateral agreement with Hong Kong that allows compensation for “expropriation” of investments - or in other words compensation for the "taking of privately owned property by a government to be used for the benefit of the public" - in this case such would be compensation for the forced removal of branding on tobacco packaging which Philip Morris would argue has cost it financially.

Australia's Position

In reply to this contention, Australia argues that Philip Morris is not entitled to compensation under the 1993 bilateral agreement's ISDS because it had engaged in "venue shopping" by having, in anticipation of the former Labor Governments plain packaging legislation being enacted in 2011, restructured itself so that its Australian subsidiary had become wholly owned by its Hong Kong-based Philip Morris Asia and would then be in a position to challenge under the 1993 bilateral agreement. As the SMH reports:

A further part of Australia's argument is that given Phillip Morris Asia's knowledge of the existence of the plain packaging laws, it still proceeded to acquire Phillip Morris Australia in 2011 and having had such knowledge, it could then not seek to rely on the 1993 bilateral agreement to claim compensation, having placed itself in a position to be hurt or damaged:

And The Above is Just the Start

The above deliberations are reported as being just initial matters in the longer legal battles expected to follow later in the year (September 2015). As the SMH reports:

A hint of the likely costs to follow comes from reports of the various witnesses called by both sides to give evidence to the Tribunal in Singapore. They include former Labor Government treasurer Wayne Swan for the Australian side and former High Court judge Ian Callinan for the Philip Morris side, who it is reported was called for his expertise on Australian administrative law.

Further, if Australia fails later in the year to stop the case from proceeding it is expected to continue to contest the case by calling the former Labor Government health minister Nicola Roxon and her then departmental secretary Jane Halton as witnesses - the matter being expected to get even larger from there. 

Trade Agreements and ISDS Provisions

ISDS provisions are not new and as reported by SMH, ". . .[they] have been included in two of Australia's recently concluded free trade agreements, with Korea and China". They will certainly be a feature of the Trans Pacific Partnership agreement (the TPP), which is an international trade agreement between Australia and 11 other Pacific-facing nations (including the USA), and already the press reports concerns of over attempts to exempt certain areas like biological and medical products from the operation of such ISDS provisions contained in the TPP; in particular, the Pharmaceutical Benefits Scheme (the PBS), Medicare, the Therapeutic Goods Administration and the Office of the Gene Technology Regulator. The SMH reports La Trobe University public health specialist Deborah Gleeson as expressing fears that:

As an example of the difficulty of excluding an ISDS, the USA, it is reported, has secured an ISDS in every one of its agreements apart from one Australia-USA agreement in 2005. Provisions which, beyond making it difficult to enforce local laws against foreign company's (as is proving to be the case in the Philip Morris matter), make it a costly matter to defend those local laws as Philip Morris is also proving. However, even with the problems and legal costs that can flow from ISDS provisions, the current federal Trade Minister Mr Andrew Robb is reported as saying that ". . . Australia was party to investor-state dispute settlement provisions in 29 agreements and 'the sun has still come up'".

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Australia faces $50m legal bill in cigarette plain packaging fight with Philip Morris (SMH - 28 July 2015)

Tobacco giant sues Australia (The West Australian - 28 July 2015)

The High Court and the Marlboro Man: the plain packaging decision (The Conversation 18 October 2012)

JT International SA v Commonwealth of Australia [2012] HCA 43 (5 October 2012)