by FOEI, TNI, IGJ, Focus (updated by bilaterals.org)
In 2011, Australia introduced plain packaging for all tobacco products, part of a range of comprehensive tobacco control measures recommended by the World Health Organisation. Tobacco giant Philip Morris challenged the plain packaging legislation suing the Australian Government in the national court system but also at international investment arbitration using the Australia-Hong Kong Bilateral Investment Treaty (BIT). Philip Morris was claiming 4.1 billion USD and argued that Australia’s policy was “not for a proven public purpose” because “there is no credible evidence that plain packaging will reduce smoking”. Yet, since the introduction of plain packaging, smoking rates have continued to drop in Australia, reducing the risk of numerous health conditions including lung and heart disease and decreasing the strain on the public health system.
In 2012, the Australian High Court rejected the domestic challenge. The international arbitration case continued until 2015 when the tribunal dismissed the case. However, the international tribunal never got to rule on whether the public health measure taken by Australia constituted a breach of the international investment protection treaty. Instead, the tribunal dismissed the case because Philip Morris Australia had orchestrated a corporate restructuring that “constitutes an abuse of rights” to access international arbitration through the Australia-Hong Kong BIT.
Philip Morris Australia was owned by Philip Morris International based in Switzerland. Australia does not have a BIT with Switzerland. Philip Morris Asia acquired the assets in Australia in February 2011 after the government had announced in 2010 it would introduce plain packaging legislation. The shares were purchased specifically to take advantage of the BIT.
Despite the ultimate failure of the case for Philip Morris, it illustrates the risk of ISDS when it comes to the state’s ability to enact legislation for the benefit of its citizens. The threat of having to spend billions in lawsuits put a chill into other countries’ decisions to move forward with similar legislation. New Zealand, Namibia and Togo, for example, delayed the introduction of plain packaging in response to the Philip Morris claim.
Furthermore, regardless of the outcome of the case, Australia is left to carry the burden of the legal fees to defend itself from this frivolous claim. It spent A$24 million in legal costs (just under US$19 million) but Philip Morris only paid half, leaving the Australian taxpayers to pay the other half.
last update: April 2021