Hong Kong: Smoking & Public Health - Australia / Hong Kong Legal Involvement By Treaty

Through the kind information from Professor Luke Nottage of the University of Sydney Law School, it was recently of some considerable interest for me as a legal practitioner in Hong Kong concerned with advertising restrictions extending to control of smoking and tobacco products to become aware of the Australia Arbitral Tribunal case of 2015 of Philip Morris Asia Limited (Hong Kong) vs The Commonwealth of Australia.

  1. In 1993 the Government of Hong Kong and the Government of Australia entered into an agreement for the Promotion and Protection of Investments expressed to create and enable promotion and protection of investments mutually effected by citizens/residents of each respective place ("the PPI Agreement").
  2. In 2011 the Australian Government enacted the Tobacco Plain Packaging Act ("the Act") with implementing regulations and providing for mandatory plain packaging for tobacco products such that the entire package was to be plain without any indication of brand, manufacture or any other information on the exterior of the packaging.
  3. The Philip Morris Group of tobacco manufacturing and marketing companies ("PM Group") took the view that a legitimate cause of action to address the plain packaging provisions of the Act would arise if the PM Group could take advantage of the PPI Agreement.
  4. Accordingly, PM Group established Philip Morris Asia Limited in Hong Kong ("PMHK").
  5. Utilizing the enabling benefit of the PPI Agreement PMHK was to be very much a test of the full trade protective strength of the PPI Agreement. 
  6. Under the Australian Foreign Acquisitions and Takeovers Act 1975 a broad range of proposing foreign investment requires application to be made to the Australian Treasury for the issue of a no objection notification. 
  7. PMHK was proposing to do this because it had it in mind to acquire the PM Group interests in Australia to become a Hong Kong held asset and, as a Hong Kong party, PMHK saw a cause of action under the PPI Agreement which, after all, was designed for the protection and benefit of commercial interests in each signing territory.
  8. Application was made on behalf of PMHK to the Australian Treasury for no objection to the acquisition by PMHK of PM Group assets in Australia. 
  9. The Treasury issued the no objection notification and PMHK proceeded to acquire the PM Group assets in Australia
  10. Given the consequent vesting of certain investment protection rights in PMHK pursuant to the PPI Agreement, PMHK commenced proceedings ("the Proceedings") under the PPI Agreement for arbitration under the 2010 Arbitration Rules of the United Nations Conference on International Trade Law ("UNCITRAL").
  11. The Proceedings pleaded the damaging effect on the investments in Australia of PMHK of the Australian Tobacco Plain Packaging Act 2011 and the implementation of regulations known as the Tobacco Plain Packaging Regulations 2011.
  12. The Tribunal was constituted under the PPI Agreement and the proceedings were conducted in accordance with the 2010 arbitration rules of the United Nations Conference on international trade law ("UNCITRAL").
  13. As a procedural step the Tribunal ordered the division of the proceedings into two separate phases.
  14. The first phase was set up to deal with preliminary objections raised by Australia and these were the following:
    1. Australia objected that the investment of PM Asia in Australia was not legally admitted in Australia;
    2. The dispute between PM Asia and Australia had arisen before PM Asia obtained the protection of the PPI Agreement;
    3. Australia objected that, in any event, the commencement of the arbitration shortly after the restructuring of PM Asia as the claimant constituted an abuse of rights.
  15.  There was an exchange of written pleadings in respect of these preliminary objections.  A hearing was held in Singapore in February 2015. 
  16. April and May 2015 the parties filed two rounds of post hearing briefs. 
  17. The Tribunal made an award on Jurisdiction and Admissibility in which it addressed only the three bifurcated objections raised by the Australian government.
  18. While the Tribunal rejected the first two preliminary objections by Australia it upheld the third objection.  The conclusion of the Tribunal on the third objection was that the institution of the arbitration constituted an abuse of rights for the reason that the corporate restructuring by which PMHK as claimant acquired the PM Group assets in Australia occurred at a time when there was a reasonable prospect that the dispute would materialize.  As the restructuring and acquisition of the PM Group assets by PMHK was carried out for the principal, if not the sole, purpose of gaining Treaty protection under the PPI Agreement, the determination of the Tribunal was that the claims raised in the arbitration were inadmissible and the Tribunal was accordingly precluded from exercising jurisdiction over the dispute.
  19. In this way, and with this result, the legally ingenious steps taken by PM Group to mount proceedings under the PPI Agreement were on the face of the facts abusive in a way which could not be the subject of further finding by the Tribunal and the ploy constituted by the acquisition by PMHK of the PM Group Australia assets failed on this basic constitutional point and has not proceeded further since.

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