The government and health advocates are deservedly celebrating the High Court decision on plain packaging. But tobacco companies have been quick to note that while they’ve lost a key battle, they intend to continue fighting the war.
A Philip Morris spokesperson reportedly stated that the High Court decision would have “no legal bearing” on the cases pending in the World Trade Organization (WTO) or on its challenge under the Hong Kong–Australia bilateral investment treaty.
This statement underestimates the extent of the deference shown to domestic courts by international tribunals. But it’s true that the decision doesn’t preclude these cases from proceeding or guarantee that the government will prevail in them.
Investor-state dispute settlement
The investor-state dispute under the Hong Kong treaty is particularly concerning for supporters of the legislation. Unlike the WTO, there’s no exception under the treaty for public health measures. And unlike in the Australian Constitution, “expropriation” (the act of a government taking private property) is defined very broadly.
Although detailed reasoning has not yet been provided, the High Court appears to have agreed with the government’s argument that it hasn’t acquired any property from tobacco companies. Unfortunately, under international investment law, the direct acquisition of property is not necessary to trigger the requirement for compensation. If a government measure has a significant impact on an investment (such as a negative effect on the investor’s profits), a tribunal may decide in favour of that investor.
This difference between domestic and international law clearly demonstrates how foreign investors are currently provided greater rights under international investment treaties than domestic firms are accorded under Australian law. The Gillard government rightly decided last year that this is inappropriate and announced that it would no longer agree to investor-state dispute settlement procedures in trade or investment agreements. But existing treaties – such as the one with Hong Kong – still expose the government to liability.
Philip Morris’ plan to proceed with its investor-state dispute despite yesterday’s ruling highlights the extent to which the investment arbitration system has been distorted by corporate interests since it was first developed in the 1960s.
Originally, the system was meant to provide protection for investors operating in countries where the rule of law was absent or where court systems were considered corrupt or biased against foreigners. Now, disgruntled corporations such as Philip Morris, who’ve had their day in court and have been treated fairly in a transparent and accountable manner, are utilising the arbitration system as a supranational court of appeal.
The government has very strong arguments on its side but outcomes in investment arbitration are notoriously hard to predict. There’s no system of basing decisions on precedents and case law is both recent and inconsistent.
And the government could be forced to pay very large legal costs and arbitration fees, even if it wins the case. The High Court has apparently awarded all costs to the government. This also happens on occasion in investment arbitration, but there are no strict rules about the division of costs between winners and losers.
Public vs corporate interests
Still, the government should, without a doubt, continue to defend the legislation. It’s legal fight is about far more than the public health system in this country and the millions of people who have been negatively affected by tobacco products. It’s fundamentally about the right of governments to regulate in the public interest and the role of international institutions in constraining the behaviour of sovereign states.
The government also should maintain its policy against the inclusion of investor-state dispute settlement procedures in trade and investment agreements. It’s under enormous pressure to abandon this policy in the current negotiations for a Trans-Pacific Partnership Agreement. And it has recently been criticised for this at home by the Australian Chamber of Commerce and Industry.
The Philip Morris case perfectly highlights the many problems with investment arbitration, while the purported benefits of the system remain unproven.
The government has shown itself to be a trailblazer in the area of tobacco regulation and many other countries look set to emulate the plain packaging policy, especially in light of yesterday’s victory in the High Court. It is now also leading the way in rejecting systems of international arbitration that enhance corporate power at the expense of democracy. It seems inevitable that other countries will follow suit in this domain as well.
Read other articles on plain packaging published since the High Court decision:
On what this decision means for tobacco companies – Big Tobacco crashes at first legal hurdle on plain packaging
On what this means for other countries wanting to introduce plain packaging and the WHO – The Olive Revolution: Australia’s plain packaging leads the world
On why Philip Morris is using the Australia-Hong Kong BIT to try to stop plain packaging – Why bilateral investment treaties are the last refuge of Big Tobacco