Australia's plain packaging win over Philip Morris should take the heat off ISDS

Christmas has come early for advocates of tobacco control, with tobacco giant Philip Morris’s lawsuit against Australian plain packaging legislation ruled invalid. Australia will not have to pay any damages to Philip Morris. Indeed, it is likely that Philip Morris will be ordered to reimburse the Australian government’s costs in defending this suit.

This outcome is also an early Christmas present for defenders of much maligned investor state dispute settlement (ISDS). The Philip Morris case had become the bogeyman of ISDS. It was held up as a reason to object to ISDS clauses in free trade agreements.

This is understandable. A tobacco company sued a government for enacting laws designed to improve public health. They used a little understood mechanism - ISDS – to sue, despite having lost in Australian courts. International trade law disputes rarely have such a clear-cut villain. It is natural to distrust the mechanisms they relied on. However, this victory - in the first ISDS claim brought against Australia - should allay those concerns.

The award

This determination is a victory for common sense. Philip Morris argued that the plain packaging legislation - which prevents them from using their trademarks on the packages of their cigarettes and in advertising – was “expropriatory”. That is it was akin to the government seizing their assets without compensation. Further, Philip Morris argued they were entitled to compensation for lost profits. I have previously noted that this position is nonsense. It has no basis in law. Philip Morris were seeking suspension of the plain packaging legislation and compensation of “an amount to be quantified but of the order of billions of Australian dollars.”] They will get nothing.

In a typically truculent press release Philip Morris continued its attack on plain packaging. Its grandiose claim that the “real point” of the dispute went to “the essence of the rule of law” is correct; though perhaps not in the way they intend.

Ultimately this dispute turned on a question of jurisdiction. Australia argued that Philip Morris was not entitled to bring ISDS proceedings. It argued that Philip Morris had improperly made a foreign “investment” so as to avail itself of these proceedings. It also argued that Philip Morris misrepresented the nature of its investment to the Australian government. Further Australia argued that the case constituted an abuse of right. For these reasons Australia argued that the case could not proceed. In essence Australia was asking the tribunal to find that Philip Morris had - to use a colloquialism - attempted to “game” the system. That jurisdictional argument succeeded.

While the specifics are not yet published, it is clear that the tribunal has rejected Philip Morris’ capacity to bring this suit. Multinational companies are not able to use free trade agreements and investment treaties to do an end run around the proper processes. This is entirely in keeping with the essence of the rule of law.

Myth busting

This case exposes many of the errors opponents of ISDS proceedings make. Claims that such proceedings are secret are simply untrue. Large swathes of this dispute are available online, just as court proceedings in Australia would be. The equivalent ISDS clause contained in the Trans-Pacific Partnership agreement goes further. It has very far-reaching and specific provisions requiring disputes to be resolved transparently.

Equally, we can now demonstrate that these cases proceed according to fairly standard legal processes. Claims that such tribunals are not bound by precedent, and therefore not bound to follow the ordinary legal process are incorrect. That claim discloses a misunderstanding of the nature of precedent.

Many other jurisdictions do not share Australia’s technical rules of precedent - the “stare decisis” rule. Yet they still make predictable decisions. Civil law countries apply “jurisprudence constante”. This rule strikes a balance between the need for predictable decisions and the civil law insistence that only the legislature may make law. International law must accommodate a plurality of legal systems. Australia’s approach to legal reasoning is not the last word in justice. Predictable, coherent legal decisions are possible even without strict application of stare decisis.

I have previously called for a sober analysis of the costs and benefits of ISDS clauses. Australia’s victory over Philip Morris should take much heat out of this debate.

The bogeyman has been slain.