Sovereignty Question Lingers After Philip Morris Arbitration

International Arbitration partner Timothy Feighery spoke with Law360 after the Permanent Court of Arbitration rejected a challenge by Philip Morris to Australia's plain-packaging legislation for cigarettes.

Law360 reported Hong Kong-based Philip Morris Asia Ltd. claimed that a 2011 Australia “plain packaging” tobacco law imposed a sweeping ban on the use of trademarks on cigarette packages violated its rights under a 1993 investment treaty between Hong Kong and Australia.

The “tribunal rejected the claim on jurisdictional grounds, ruling that the arbitration was an abuse of right because Philip Morris had restructured itself to take advantage of the Hong Kong-Australia BIT when it already knew that a dispute was on the horizon.”

Tim said the decision came in a case that was widely considered to be "the poster child for investment arbitration run amok" for its apparent attack on a sovereign's right to regulate, particularly in the area of health and welfare. The decision, while not addressing the merits of Philip Morris’s claim, does push back on the notion that investor-state arbitration is a one way, pro-investor system. Tim said that the decision shows that the system does work as designed.

"I think it does show that there’s a certain balance in the system, whereby something like this could be rejected at the preliminary jurisdictional phase … and on a principle of the system, which is that you can't abuse the process by reorganizing yourself corporately in order to take advantage of the best treaty protection that you feel you can get," Tim said.

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