China: Philip Morris与乌拉圭之间关于香烟包装的国际仲裁案子引发了对在外商投资纠纷&#

Last Updated: 30 January 2018
Article by Hua Huang
Most Read Contributor in China, March 2019

Philip Morris与乌拉圭之间关于香烟包装的国际仲裁案子引发了对在外商投资纠纷中政府权力原则的运用的讨论。

Expropriation and Regulation in the Public Interest

The international arbitration case regarding the regulation of cigarette packaging between Philip Morris and Uruguay raised questions as to the operation of the police power doctrine in foreign investment disputes1. Philip Morris International Inc., a multi-national company headquartered in the United States, successfully relied on the bilateral investment treaty between Switzerland and Uruguay to bring an expropriation claim against the government of Uruguay through its Swiss subsidiary. The dispute arose as to whether the measures taken by the government of Uruguay to implement health warnings and restrict forms of advertising on cigarette packaging amounted to expropriation and if so, whether Philip Morris should be entitled to compensation.

Bilateral Investment Treaties (BITs) developed in the 1960s contained expropriation clauses without specific rules as to the application of the expropriation clauses. Most Chinese BITs, for example, rely on the standard formula that Contracting States shall not "expropriate, nationalize or take similar measures... unless the following conditions are met:

  1. for the need of social and public interests;
  2. under domestic legal procedure;
  3. without discrimination;
  4. against compensation."2

More recently, developments have been made in the drafting of BITs, for example, the 2012US Model BIT provides some guidance on the matter of expropriation by specifically referring to expropriation through taxation measures under Article 21 and including Annex B, which attempts to explicate the concept of expropriation by referencing customary international law and including a statement on indirect expropriation as being:

"an action or series of actions by a Party has an effect equivalent to direct expropriation without formal transfer of title or outright seizure.

  1. The determination of whether an action or series of actions by a Party, in a specific fact situation, constitutes an indirect expropriation, requires a case-by-case, fact-based inquiry that considers, among other factors:

    1. the economic impact of the government action, although the fact that an action or series of actions by a Party has an adverse effect on the economic value of an investment, standing alone, does not establish that an indirect expropriation has occurred;
    2. the extent to which the government action interferes with distinct, reasonable investment-backed expectations; and
    3. the character of the government action.
  2. Except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations."

While paragraph (b) above of the US Model BIT appears to accept the police power doctrine, the use of the language "rare circumstances" reflects certain tensions within US constitutional law.

The police power doctrine was promoted in the influential decision of Chief Justice Lemuel Shaw of Massachusetts in the case of Commonwealth v. Alger3 creating a distinction between the exercise of eminent domain, for which compensation was required, and police power, for which compensation was not a requirement.

However, in the case of Pennsylvania Coal Co. v Mahon 4, Justice Holmes of the Supreme Court of the United States stated that where the exercise of police power "goes too far it will be recognized as a taking" and compensation follows 5. Whether this statement refers to manner of the exercise of police powers or whether the statement refers only to the extent of the taking involved is a question of continuous uncertainty and debate 6. In other words, it is arguable that the single relevant criteria for the determination as to the existence of an expropriation is the effect upon the property owner, which has been termed the 'sole effects doctrine' 7.

The tension in US constitutional law was in a way reflected in the award of Philips Morris v Uruguay, dated the 8th of July 2016,where the arbitral tribunal essentially decided the case on two points of law 8. The first point was that the actions of the government of Uruguay did not amount to 'taking' in terms of the assessment of the impact of the regulations upon Philip Morris and in terms of an analysis of the proprietary nature of the rights being claimed.

The tribunal referred to the concept of 'substantial deprivation' as the requirement for establishing an indirect expropriation claim 9. The tribunal rejected the claim that the measures taken by the government of Uruguay substantially affected the claimant's profits, due to the fact that the Philip Morris' operations in Uruguay were still profitable, in spite of claim that operations would have been more profitable but for the regulations. In other words, the tribunal looked at the effect on the investment as a whole rather than the particular proprietary right. Similarly, the question as to whether tribunals should limit itself to looking at the investment as a whole or whether a part of an investment can be the relevantly protected by referencing a specific right, is also a contentious issue 10.

The second point was that the arbitral tribunal purported to confirm the application of the police power doctrine in international investment law 11. The tribunal stated that this case was one in which would clearly fit under the police power doctrine and that Uruguay would not be subject to a requirement to make payments for compensation because of the legitimate nature of the regulations.

In reaching the conclusion that the regulations imposed by Uruguay were of a legitimate nature of the kind that does not demand compensation, the tribunal looked at the expectations of the parties, the nature of the regulation by the government, and the effect of the regulations upon the investor. The tribunal held that "in light of widely accepted articulations of international concerns for the harmful effect of tobacco, the expectation [of the claimant] could only have been of progressively more stringent regulation of the sale and use of tobacco products" 12.

As a side note, the issue of the lawfulness or unlawfulness of expropriation is not to be confused with the question as to the application of the police power doctrine. BITs clearly provide that lawful expropriations also require the element of compensation, however, the concept of unlawful expropriation may have certain implications on the calculation of the amount of compensation 13.

As background to Philip Morris v Uruguay, Australiawas the first to introduce plain tobacco packaging legislation in 2011 under the Tobacco Plain Packaging Act 2011 (Cth). In response, claims were brought by tobacco companies under the section 51(xxxi) of the Australian Constitution 14. Chief Justice French of the High Court held that right holders should not be under any illusion that their intellectual property rights would not be subject to regulation. French CJ accepted that intellectual property rights were of the relevant proprietary characteristic that might be subject to section 51 and that the legislation did reduce the value of the trademark and therefore amounted to 'taking'. However, the Australian Constitution only requires compensation for an 'acquisition' as distinct from the concept of 'deprivation' and so no compensation was required.

The decision of the High Court of Australia left open the issue as to the standard of expropriation existing under a country's international obligations and Philip Morris brought an investment arbitration case against Australia. No international instruments between Australia and the US provided for investor-state arbitration, and Philip Morris' Australian subsidiary transferred its interests to Philip Morris Asia in the attempt to rely on the Hong Kong and Australia BIT, but was unsuccessful as the PCA tribunal in Singapore held that the claim was inadmissible 15.

Corresponding with the investor-state arbitration, the governments of Ukraine, Indonesia, Cuba, Honduras and the Dominican Republic lodged complaints against Australia's measures under the WTO system for trademark violations, however, it is to be noted that Ukraine subsequently suspended its proceedings against Australia in May 2015. While the parties to the dispute have issued their submissions to the DBS panel established according to the DSU, the report of the panel is pending.

As international arbitrations are not necessarily tied to any particular jurisdictional courts or precedent, the need for consistency in international arbitration is ever pressing. While this case might be considered 'easy' in the sense that there is no real public support and only limited political support for tobacco companies, the debate as to the applicability of police power doctrine in international investment law does raise doubts as to whether arbitrators are appropriately positioned to make decisions relating to the balancing of interests between states and investors in matters involving the public interest. The updating of BITs may help settle these issues, providing more guidance to arbitrators and more certainty for investors and states alike.


[1] Philip Morris Brands Sŕrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7

[2] Agreement Between the Government of the People's Republic of China and the Government of the Republic of Croatia Concerning the Encouragement and Reciprocal Protection of Investments.

The BIT between Switzerland and Uruguay also contains a similar provision without further explanation as to the application of the rule against expropriation.

[3] 61 Mass. (7 Cush.) 53, 86 (1851)

[4] 260U.S.393 (1922)

[5] Ibid. at 415

[6] Barros, B., 2004, "The Police Power and the Takings Clause", University of Miami Law Review, vol. 58, No. 2

[7] Mostafa, B., 2008, "The Sole Effects Doctrine, Police Powers and Indirect Expropriation under International Law", Australian International Law Journal, vol. 15, iss. 1 at pg. 267

[8] Philip Morris Brands Sŕrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7 ("Philip Morris v Uruguay")

[9] Philip Morris v Uruguay,8 July 2016 Award, at para. 192

[10] Isakoff, P.D., 2013, 'Defining the Scope of Indirect Expropriations for International Investments', the Global Business Law Review, vol. 3, iss. 2, 189, para. 198

[11] Philip Morris v Uruguay July 2016 Award, at para. 292

[12] Ibid. at para.430

[13] ADC Affiliate Limited and ADC & ADMC Management Limited v. Republic of Hungary (ICSID Case No. ARB/03/16)

[14] JT International SA v Commonwealth of Australia; British American Tobacco Australasia Limited v The Commonwealth [2012] HCA 43

[15] Philip Morris Asia Limited v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions