Australia's Legal Bill For Fighting Philip Morris Corporate Sovereignty Case: $35 million -- So Far

from the heads-you-win,-tails-I-lose dept

Back in 2012, we wrote about Philip Morris using corporate sovereignty provisions in trade agreements to sue Australia and Uruguay over their attempts to reduce the number of deaths from smoking through plain packaging and other health measures. Since then, the case has become a textbook example of all that is wrong with investor-state dispute settlement (ISDS).

For example, even though Philip Morris lost its battle in the Australian High Court to stop the introduction of plain packaging, it did not simply accept the ruling, but sought to use ISDS to nullify the court's decision. The natural instrument would be the trade agreement between the US and Australia, but the Australian government had wisely refused to accept a corporate sovereignty chapter there. So Philip Morris used an obscure 1993 trade agreement between Australia and Hong Kong, which did have ISDS, claiming that its business activities in the latter territory gave it the right to invoke the treaty -- a classic example of "treaty shopping".

Since those events from a few years back, we've heard nothing about how the Philip Morris ISDS case is proceeding -- until now, since The West Australian newspaper has discovered the following fact:

More than [AU]$50 million [about US$35 million] of taxpayer money is expected to go up in smoke defending cigarette plain packaging in a secretive international tribunal in Singapore.

But costs will pile much higher if Australia loses on its first defence that Philip Morris indulged in cynical "venue shopping" by shifting its headquarters to Hong Kong to sue Australia.
That's because the hearing will move on to the main issues, summarized here on the official Australian government Web page for the case:
Philip Morris Asia is arguing that Australia's tobacco plain packaging measure constitutes an expropriation of its Australian investments in breach of Article 6 of the Hong Kong Agreement. Philip Morris Asia further argues that Australia's tobacco plain packaging measure is in breach of its commitment under Article 2(2) of the Hong Kong Agreement to accord fair and equitable treatment to Philip Morris Asia's investments. Philip Morris Asia further asserts that tobacco plain packaging constitutes an unreasonable and discriminatory measure and that Philip Morris Asia's investments have been deprived of full protection and security in breach of Article 2(2) of the Hong Kong Agreement.
The information obtained by The West Australian is significant, because it reveals the scale of the costs that a government must contemplate when defending itself against a corporate sovereignty claim. Given that background, it's easy to see why governments in these cases may choose to settle quickly, and to give the companies what they want, rather than risk mounting costs and a huge fine.

It's that fact that gives the lie to the claim that ISDS cannot force a government to change its laws. While that's true in theory, in practice governments are very likely to choose capitulation as the cheaper and easier option, recognizing that the whole process is biased against them. After all, unlike companies, a government can never win an ISDS case: the best it can hope for is not to lose.

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Filed Under: australia, corporate sovereignty, hong kong, isds, plain packs, trade agreements
Companies: philip morris


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  • icon
    DaveK (profile), 5 Aug 2015 @ 3:33am

    A modest proposal.

    Well, if corporations really want to be sovereign, we should let them see what it really means: Australia should declare war on Philip Morris.

    Preferably just when its senior executives are visiting the country, so that they can be seized and interned in a PoW camp.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 5 Aug 2015 @ 6:26am

      Re: A modest proposal.

      That should either solve the corporate sovereignty problem once and for all or make things get way worse for the world, shootings Franz Ferdinand style.

      reply to this | link to this | view in chronology ]

    • icon
      beltorak (profile), 5 Aug 2015 @ 6:28am

      Re: A modest proposal.

      That's exactly why they don't *call* it corporate sovereignty. In politics, names, even if complete bullshit, matter.

      reply to this | link to this | view in chronology ]

    • identicon
      Justme, 5 Aug 2015 @ 1:48pm

      Re: A modest proposal.

      'Well, if corporations really want to be sovereign, we should let them see what it really means: Australia should declare war on Philip Morris.'

      That may actually be a viable option! I don't know Australia's legal system but it wouldn't a formal declaration of war suspend all treaties, relations and commerce. Let Philip Morris stick that in there business model and smoke it!

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 5 Aug 2015 @ 3:36am

    What If.

    If "Big-Multinational" with a Corporate Headquarters in country "A", and country "B" wanted to protect its citizens with some law Like "NO Lies in Advertising", so "Big-Multinational" wants to protect its profits, so it moves the Corporate Headquarters to country "C". A Sovereign nation might decide to re-task its security services to deal with the management of "Big-Multinational.

    reply to this | link to this | view in chronology ]

  • identicon
    David, 5 Aug 2015 @ 3:45am

    Red herring

    It's that fact that gives the lie to the claim that ISDS cannot force a government to change its laws.

    You are looking for a smoking gun at a shooting range. The whole point and motivation of an ISDS is to override local laws, so there cannot sensibly be a debate about whether this could occur as a side effect.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 5 Aug 2015 @ 3:46am

    Oh, if only I could visit a country whose laws would favour me and then come back and break the laws of my country of origin just because I'd taken a well calculated trip.
    Not to mention that no matter what treaties exist and say, opening a branch in a more favourable country to exploit a treaty is essentially free.
    So maybe we should have a few contradicting treaties set up in some accommodating countries and then pick and choose which we'd like to apply. Checkmate national laws, now pay up while we do what we want!

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 5 Aug 2015 @ 4:04am

    Could a company that sells storage media sue a government for extending copyright terms?
    Since more copyright means less music, films, ... to store, and thus lost profit for the storage seller.

    reply to this | link to this | view in chronology ]

  • icon
    That Anonymous Coward (profile), 5 Aug 2015 @ 4:14am

    So I'm guessing using ISDS is cheaper than buying politicians.

    reply to this | link to this | view in chronology ]

    • identicon
      David, 5 Aug 2015 @ 4:22am

      Re:

      ISDS requires buying politicians upfront. You just have a reasonable expectation of lower operating bribes in the long haul.

      reply to this | link to this | view in chronology ]

  • icon
    Ninja (profile), 5 Aug 2015 @ 4:19am

    Philip Morris: Battling for your rights to have cancer.

    Nice slogan.

    reply to this | link to this | view in chronology ]

    • identicon
      David, 5 Aug 2015 @ 5:33am

      Re:

      "The prerequisite to making healthy life choices is actually having a choice!"

      That kind of slogan should sit well with people who believe the key to their personal safety to lie with easy accessibility of lethal weapons.

      reply to this | link to this | view in chronology ]

  • identicon
    Guardian, 5 Aug 2015 @ 5:47am

    @6

    dont lie , cause there is a usa and israeli vaccine for lung cancer that 100% works

    now lets see all those wankers yap

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 5 Aug 2015 @ 5:52am

    Something I've wondered: Australia, being an actual sovereign state, what recourse does Philip Morris actually have if the Australian government says "Piss off, we're not paying shit."

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 5 Aug 2015 @ 6:48am

      Re:

      According to other commenters, this is what the US does if it can get away with it.

      reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 5 Aug 2015 @ 6:49am

      Re:

      Sanctions probably.
      No cigarettes for you!

      reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 5 Aug 2015 @ 7:30am

      Re:

      They'll smoke the Aussies out...!

      reply to this | link to this | view in chronology ]

    • icon
      JoeCool (profile), 5 Aug 2015 @ 12:00pm

      Re:

      They can petition to seize off-shore accounts held by Australia.

      reply to this | link to this | view in chronology ]

    • icon
      G Thompson (profile), 7 Aug 2015 @ 1:09am

      Re:

      PM doesn't have much recourse at all.. Though they could petition for Hong Kong to seize Australian assets, the Australian courts would then via the way of our Tax office and Federal Police then seize assets of PM's corporate persons who reside within Australia..

      You see PM's problem is they aren't thinking big enough.. If they win this case, the High court will most likley then grant absolute ability for any Australian to sue individually or in class PM in its entirety (and any and all prior and present directors) for any health problems that 'on balance' resulted from their products..

      Oha nd then they have the comity problems when the courts grant just compensations since PM as odffices in all countries with comity agreements with Australia.. PM would have to declare chapter 11/bankruptcy..

      I personally would shed no ttears for the fuckers who are basically killers worse than terrorists..

      Oh also, it's impossible for any Australian to defame a company. PM and all it's competitors are the scum of the earth and ARE Criminals and murderers and terrorists (in the absolute definition of the word) and are basically in the same league as peadophiles.

      reply to this | link to this | view in chronology ]

  • identicon
    Rekrul, 5 Aug 2015 @ 6:03am

    Now I see why the US wants so badly to include ISDS clauses in its trade agreements. Umm, actually, no I don't...

    reply to this | link to this | view in chronology ]

  • icon
    Spaceman Spiff (profile), 5 Aug 2015 @ 7:02am

    There is a solution

    Just outlaw all PM products in Australia, or hit them with import duties so high that no one will purchase their products!

    reply to this | link to this | view in chronology ]

    • icon
      JoeCool (profile), 5 Aug 2015 @ 12:03pm

      Re: There is a solution

      And then PM adds that to their suit. Also doing so would probably convince the tribunal that PM was right on all counts. It's the insidious nature of ISDS - theirs almost nothing you can do that doesn't simply make the tribunal find against you even worse.

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 5 Aug 2015 @ 7:04am

    and regardless of what it costs, the government will still go all out for voting IDS in at every/all opportunities! there cant be any better business than turning a whole country into one and then being in total financial control of that country, can there? and you know where the people will be? completely enslaved! if you want something, doesn't matter what it is, you have to pay! no pay, no get, even when it's medicine to save your life or keep you alive!

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Anonymous Coward, 5 Aug 2015 @ 7:38am

      Re:

      The problem with your scenario is that it only helps one years profits. When the stock markets punish the company for lack of growth, and they have already sued every country in the world, what will they do next? I shudder to think.

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 5 Aug 2015 @ 8:52am

    Just outlaw all tobacco sales in Australia.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 5 Aug 2015 @ 9:26am

      Re:

      Prohibition never works see:-
      1) The War on Drugs.
      2) The UK hand gun ban.
      Therfore:-
      The tobacco companies would still have cigarettes sold in Australia, Via the smugglers, and would also use IDS to get Australia to pay for their lost profits due to the ban, allowing them to profit twice from the Australian citizens, and increasing their tax bill to pay for anti-smuggling efforts.

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 5 Aug 2015 @ 9:26am

    Forgive my ignorance on the matter, but can Australia just simply cancel the trade agreement that allows for this to happen? And then just turn around and point the finger at Philip Morris for the reason all of the other benefits fell through?

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 5 Aug 2015 @ 10:30am

    I wonder why Australia is even bothering with the tribunal. They could literally say - "sorry, this is ridiculous and we aren't going to participate or acknowledge any judgement" and nothing would happen. Does anyone really think Hong Kong is going to freak out at Australia over this?

    reply to this | link to this | view in chronology ]

  • identicon
    aterfuturo, 5 Aug 2015 @ 12:25pm

    Untenable

    This is ridiculous. Companies don't get to tell countries what to do. You can write it into treaties all that you want, it is just a piece of paper.

    Australia should leave the tribunal and save its money, then enforce the laws that are best for the citizens of the country. File a formal withdrawal from the treaty to tidy it up. Nobody can force the country to do otherwise.

    The idea that companies could override the laws of a country is preposterous. If that was the way that it worked in the past, we would all be driving cars that get 7 miles to the gallon, without seatbelts, smoking cigarettes advertised as good for your health, standing by as companies dumped toxic chemicals into any river they wanted.
    People would be sick and dying from pollution and food containing hazardous chemicals and maimed by faulty cars and any other products with a motor.

    However, it is all a moot point. After a while of corporations in control of countries, few people would have any money to buy anything.

    The idea that health and safety laws are injurious to companies is untenable. No government should even pretend to engage in this system. The Australian government needs to tell its citizens what is going on and withdraw from the tribunal.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 5 Aug 2015 @ 4:33pm

    Wrong currency

    You've reported it in $US however the appropriate currency is 10,000 foregone hospital admissions (@~$3500 per admission)

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 5 Aug 2015 @ 4:56pm

    Naive

    To all the commentators suggesting Australia just ignore/withdraw from the trade agreement, let me ask you a question: if you were in charge of setting up an agreement like this, do you think you might anticipate such a response and pop some things into the treaty to head this off? If your answer is, "No", then probably return calmly to your day job because the job title of "International Treaty Negotiator" isn't in your future.
    In bilateral treaties, you have agreed sanctions in trade between the two parties and in things like the TPP it's worse because if one party violates the treaty then all the other parties apply sanctions.

    In their 'pure' form, ISDS clauses are a direct response to bad-actor countries like this. If your company is convinced to invest a large amount of money to operate in a country who you then discover is tilting the playing field deliberately and unfairly, you would want a right to recover damages.

    The problem with the inclusion of these clauses in the TPP is that this is not generally the case in larger and more advanced economies with a strong rule of law.

    Now, having said that, Techdirt regularly publishes articles that almost make the case *for* inclusion of ISDS clauses - articles detailing blatant favoritism/nepotism/field-tilting within these so-called advanced governments. The caveat is that the industries on the receiving end of this favoritism are also those most likely to abuse ISDS clauses.

    reply to this | link to this | view in chronology ]

    • icon
      Uriel-238 (profile), 6 Aug 2015 @ 12:11pm

      Sounds like trade agreements with ISDS clauses are not a viable solution to the problems they're supposed to solve.

      There also seem to be no protections for parties regarding odious contracts or odious clauses.

      The Phillip Morris case presents an example of why a nation might be better off refusing to engage in trade agreements in the first place, since their only end function is to leave the people open to abuse as consumers. Sanctions for failing to do so might actually be preferable to being stuck in a one sided nation-wide TOS agreement.

      A nation's government entering a trade agreement at all can, hence, be interpreted as a symptom of government failure.

      In the meantime, while Australia is stuck in hardball with Phillip Morris, it would be a shame if of PMs imports got stuck on the ships due to a bureaucratic snarl in customs. The great down under is not so far from Japan not to know that tactic.

      reply to this | link to this | view in chronology ]


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