You may have missed it, but the stoush between Big Tobacco and the Australian government over the plain packaging legislation took an odd turn late last year. The government’s response to Philip Morris Asia’s attempt to challenge the legislation under the bilateral investment treaty with Hong Kong revealed that Philip Morris may have acquired its Australian investments purely for the purpose of taking the action.
Just before Christmas, the Australian Government formally responded to the claims of Philip Morris Asia Ltd (PMA), a Hong Kong company, that the legislation for plain packaging of cigarettes breaches the Agreement between the Government of Hong Kong and the Government of Australia for the Promotion and Protection of Investments (the “BIT”).
Briefly, PMA owns all the shares in Philip Morris (Australia) Ltd, which, in turn, owns all the shares in Philip Morris Ltd. Philip Morris Ltd owns or has a licence to use some tobacco trade marks that are certainly worth a lot of money. PMA’s argument is that the plain packaging legislation constitutes an expropriation or deprivation of its investments in the two Australian companies because of its detrimental impact on the value of those trademarks.
Much has already been written on whether the legislation could constitute a breach of the BIT, even if everything that PMA claims about the facts of the matter are correct. PMA will struggle to show that there has been any expropriation within the meaning of the BIT.
But, even more significantly, PMA did not state in its documentation one further key fact that seriously affects the strength of its argument.
The Australian government’s formal response to PMA makes the point that PMA did not have any interest in the Australian companies until February 23, 2011. The Australian government had made its policy position very clear and public well before that date, in April 2010. In addition, it received submissions from Philip Morris about the proposed legislation well before that date, so none of the Philip Morris companies can seriously claim that they were not aware of the impending action by the Australian Government.
It appears as though PMA only acquired the Australian companies in order to be able to launch this claim under the BIT. It also seems that PMA acquired assets in Australia knowing that they would be adversely affected by the forthcoming legislation.
The company’s own documentation in the dispute alleges that it is entitled to compensation “in an amount to be quantified but of the order of billions of Australian dollars”. So PMA acquired assets knowing that, according to it, the value of those assets was about to be reduced by “billions of Australian dollars”.
Article 6 of the BIT specifically refers to how compensation should be calculated. It states that the compensation shall amount to “the real value of the investment immediately before the deprivation or before the impending deprivation became public knowledge whichever is the earlier”.
The investment is defined in Article 1 of the BIT as the investment of the Hong Kong investors, that is, PMA. So what was the value of the “investment” that PMA had before the impending “deprivation” became public knowledge? It seems that it did not have any investment at all at the time that the impending “deprivation” became public knowledge.
No doubt PMA will have some argument on the point but, as a general rule, the value of nothing is nothing.
It appears that PMA’s claim for “billions of Australian dollars” has about as much life as the parrot in the famous Monty Python sketch. It will be interesting to see whether PMA argues that its claim is just resting or, perhaps, just temporarily stunned by the Australian government taking it out of its cage and giving it a good hard whack with the facts.