Philip Morris v. Australia, Award on Jurisdiction and Admissibility, 17 Dec 2015

LIST OF DEFINED TERMS
ASoC	PM Asia's Amended Statement of Claim, dated 8 April 2013
Australia	The Commonwealth of Australia
BIT	Bilateral Investment Treaty (also referred to as the "Treaty")
Callinan Report	Legal opinion of Justice Ian Callinan Q.C.
Claimant	Philip Morris Asia Limited, a limited liability company incorporated in accordance with the laws of Hong Kong
December 2010 Minutes	Minutes prepared for the Health Minister Nicola Roxon by DoHA on 9 December 2010
DFAT	The Australian Government Department of Foreign Affairs and Trade
DoHA	The Australian Department of Health and Ageing
FATA	Foreign Acquisitions and Takeovers Act 1975
FATA notification	PMI Group's application to the Foreign Investment Review Board made on 21 January 2011 (also referred to as the "Foreign Investment Application")
FATA Regulations	Foreign Acquisitions and Takeovers (Notices) Regulations 1975
FCTC	World Health Organization Framework Convention on Tobacco Control
Fielding Bill	The Plain Tobacco Packaging (Removing Branding from Cigarette Packs) Bill 2009
FIRB	Australia's Foreign Investment Review Board
First Objection	Respondent's first preliminary objection to the Tribunal's jurisdiction, also referred to as the Non-Admission of Investment Objection
First Procedural Meeting	First procedural meeting held in Singapore on 30 July 2012
FITPD	Foreign Investment and Trade Policy Division

Foreign Investment Application	PMI Group's application to the Foreign Investment Review Board made on 21 January 2011 (also referred to as "FATA notification")
Foreign Investment Application Guide	A policy made by Australia's FIRB and Australia's Department of the Treasury entitled "How to Apply - Business Proposals"
Foreign Investment Policy Guide	A policy made by Australia's Treasurer entitled "Foreign Investment Policy"
FTA	Free Trade Agreement
Hearing on Bifurcation	Hearing on bifurcation proceedings held in Toronto on 20-21 February 2014
Hearing on Preliminary Objections	Hearing on preliminary objections to the Tribunal's jurisdiction held in Singapore on 16-19 February 2015
How-to-Apply Guide	The "How-to-Apply"—Business Proposals guide
ICSID	International Centre for Settlement of Investment Disputes
ICJ	International Court of Justice
ILC	International Law Commission
IP	Intellectual Property
ISDS	Investor-State Dispute Settlement
LPP	Legal Professional Privilege
Minority Labor Government	Labor-Party led minority government formed by Prime Minister Julia Gillard
NAFTA	North African Free Trade Agreement, signed by Canada, Mexico and the United States
No-objection Letter	Formal response letter dated 11 February 2011 regarding the Foreign Investment Application from the Treasury
Non-Admission of Investment Objection	Respondent's first preliminary objection to the Tribunal's jurisdiction
November 2010 Minutes	Minutes prepared for Health Minister Nicola Roxon by DoHA on 23 November 2010

NPHS	Australia's Minister for Health and Ageing's National Preventative Health Strategy
NPHT	Australia's Minister for Health and Ageing's National Preventative Health Taskforce
OB/LRP	PML's Original Budget/Long Range Plan
OBPR	Office of Best Practice Regulations
Parties	The Claimant, PM Asia, and the Respondent, Australia
PCA	The Permanent Court of Arbitration, The Hague
PCIJ	Permanent Court of International Justice
Plain Packaging Measures	The measures enacted by the Tobacco Plain Packaging Act 2011 and the Tobacco Plain Packaging Regulations 2011
PM Asia	Philip Morris Asia Limited, a limited liability company incorporated in accordance with the laws of Hong Kong
PM Australia	Philip Morris (Australia) Limited, a holding company incorporated in accordance with the laws of Australia
PM Brands Sàrl	Philip Morris Brands Sàrl, a Swiss company that is part of the PMI Group
PM Holland	Philip Morris Holland Holdings B.V.
PMI	Philip Morris International Inc., a company incorporated in accordance with the laws of the United States
PMI Group	Philip Morris International group of companies
PML	Philip Morris Limited, a company incorporated in accordance with the laws of Australia
Request to Produce	Application by one party to request the production of documents from the other party
Respondent	The Commonwealth of Australia
RIS	Regulated Impact Statement
RPL	Revised Privilege Log
Rudd Government	The Government under the leadership of Australia's Prime Minister, Kevin Rudd

Second Objection	Respondent's second preliminary objection to the Tribunal's jurisdiction, also referred to as the Temporal Objection
September 2010 Minutes	Minutes prepared for the Health Minister Nicola Roxon by DoHA on 24 September 2010
SPIS	Special Political or Institutional Sensitivity
Temporal Objection	Respondent's second preliminary objection to the Tribunal's jurisdiction
TPP Act	Tobacco Plain Packaging Act 2011 (Act No. 148 of 2011)
TPP Bill	Tobacco Plain Packaging Bill 2011
TPP Regulations	Tobacco Plain Packaging Regulations 2011 (Selective Legislative Instrument 2011 No. 263)
Treaty	The Agreement between the Government of Hong Kong and the Government of Australia for the Promotion and Protection of Investments as signed on 15 September 1993 (also referred to as the "BIT")
UNCITRAL Rules	Arbitration Rules of the United Nations Commission on International Trade Law, as revised in 2010
UK	The United Kingdom
US	The United States of America
VCLT	The Vienna Convention on the Law of Treaties, signed on 23 May 1969
WTO	World Trade Organization

1.

The investor acting as claimant in the present arbitration is Philip Morris Asia Limited ("PM Asia" or the "Claimant"), a limited liability company incorporated under the laws of Hong Kong pursuant to the Hong Kong Companies Ordinance on 8 November 1994,¹ with its registered address at Level 28, Three Pacific Place, 1 Queen's Road East, Hong Kong.

2.

The Claimant is represented in these proceedings by Dr. Stanimir A. Alexandrov, Mr. James Mendenhall, Ms. Marinn Carlson, and Mr. David Roney of Sidley Austin LLP; Mr. Joe Smouha Q.C. and Mr. Salim Moollan of Essex Court Chambers; and Mr. Simon W. B. Foote of Bankside Chambers.

3.

The respondent in this arbitration is the Commonwealth of Australia ("Australia" or the "Respondent"), a sovereign State.

4.

The Respondent is represented by Mr. Simon Daley P.S.M., Ms. Catherine Kelso, Mr. Simon Sherwood, and Ms. Laura Armstrong of the Australian Government Solicitor; Mr. Justin T. Gleeson S.C., Solicitor-General of Australia, Mr. Bill Campbell Q.C. of the Attorney-General's Department, Mr. Anthony Payne S.C. of Sixth Floor Selborne Wentworth Chambers; Mr. James Hutton of Eleven Wentworth Chambers; Mr. Samuel Wordsworth Q.C. of Essex Court Chambers; and Prof. Chester Brown of 7 Selborne Chambers.

5.

A dispute has arisen between PM Asia and Australia (together the "Parties") in respect of the Respondent's enactment and enforcement of the Tobacco Plain Packaging Act 2011 (the "TPP Act") and the implementing regulations known as the Tobacco Plain Packaging Regulations 2011 (the "TPP Regulations") (collectively the "Plain Packaging Measures"). The Claimant commenced arbitration in relation to this dispute pursuant to the Agreement between the Government of Hong Kong and the Government of Australia for the Promotion and Protection of Investments dated 15 September 1993 (the "Treaty" or "BIT").

6.

The Claimant describes itself as the regional headquarters for the Asia region of the Philip Morris International group of companies ("PMI Group").² PM Asia owns 100% of the shares of Philip Morris (Australia) Limited ("PM Australia"), a holding company incorporated in Australia, which in turn owns 100% of the shares of Philip Morris Limited ("PML"). PML is a trading company incorporated in Australia, which engages in the manufacture, import, marketing and distribution of tobacco products for sale within Australia and for export to New Zealand and the Pacific Islands.³ According to the Claimant, PML has rights with respect to certain intellectual property in Australia, including registered and unregistered trademarks, copyright works, registered and unregistered designs, and overall get up of the product packaging.⁴ It is the Claimant's contention that its entire business, and that of PML and PM Australia, rests on its intellectual property, and in particular on the recognition of its brands.⁵

7.

The Claimant alleges, inter alia, that "[t]he plain packaging legislation bars the use of intellectual property on tobacco products and packaging, transforming [the Claimant's subsidiary in Australia] from a manufacturer of branded products to a manufacturer of commoditized products with the consequential effect of substantially diminishing the value of [the Claimant's] investments in Australia".⁶

8.

The Claimant seeks declaratory and compensatory relief from the Respondent for breach of its obligations under the Treaty and for causing it significant financial loss. In particular, the Claimant seeks an order that the Respondent "(i) take[s] appropriate steps to suspend enforcement of plain packaging legislation and to compensate [the Claimant] for loss suffered through compliance with plain packaging legislation; or (ii) compensate[s] [the Claimant] for loss suffered as a result of the enactment and continued application of plain packaging legislation".⁷ The amount in dispute is described in the Notice of Arbitration as "an amount to be quantified but of the order of billions of Australian dollars".⁸

9.

The Respondent rejects the Claimant's claims on the merits. In addition, the Respondent raises three preliminary objections relating to the jurisdiction of the Tribunal and the admissibility of the Claimant's claims. Following a hearing on the question whether the Respondent's preliminary objections were suitable for consideration at an initial stage, before any consideration of the merits, the Tribunal ordered the bifurcation of the proceedings such that only two preliminary objections would be addressed in a first phase: the Respondent's objection that the Claimant's investment was not properly admitted in the host State ("Non-Admission of Investment Objection" or "First Objection"); and the Respondent's objection that the Tribunal was barred from considering the Claimant's claim because the dispute had arisen before the Claimant had obtained the protection of the Treaty as a result of restructuring its investment in PML or because the Claimant's restructuring constitutes an abuse of right. ("Temporal Objection" or "Second Objection").

10.

The present Award is interim in the sense that the matter of costs has yet to be dealt with, and may be designated "Interim Award (final save as to costs)".

11.

The present case has given rise to sixteen procedural orders, each containing its own recitals of relevant procedural events, which are published on the website of the PCA. This section therefore constitutes an abridged summary of the course of the proceedings.

12.

On 22 June 2011, the Claimant served upon the Respondent a Notification of Claim in accordance with Article 10 of the Treaty.

13.

As the Parties did not reach a settlement of their dispute within the three-month period from the date of the Notification of Claim, the Claimant served a Notice of Arbitration dated 21 November 2011 on the Respondent, submitting the dispute to international arbitration under the Arbitration Rules of the United Nations Commission on International Trade Law as revised in 2010 (the "UNCITRAL Rules") in accordance with Article 10 of the Treaty and pursuant to Article 3 of the UNCITRAL Rules. By its Notice of Arbitration, the Claimant informed the Respondent of its appointment of Professor Gabrielle Kaufmann-Kohler as the first arbitrator. Professor Kaufmann-Kohler's address is Lévy Kaufmann-Kohler, 3-5, rue du Conseil-Général, P.O. Box 552, CH-1211 Geneva 4, Switzerland.

14.

In the Notification of Claim dated 22 June 2011 and the Notice of Arbitration dated 21 November 2011, the Claimant proposed Singapore as the place of arbitration.⁹

15.

On 21 December 2011, the Respondent provided a Response to the Notice of Arbitration pursuant to Article 4 of the UNCITRAL Rules, in which the Respondent described its jurisdictional objections and stated that it would "request that jurisdictional objections be heard in a preliminary phase of the proceedings".¹⁰

16.

On the same date, the Respondent informed the Claimant of its appointment of Professor Donald M. McRae as the second arbitrator. Professor McRae's address is 57 Louis Pasteur St., Room 340, Ottawa, Ontario K1N 6N5, Canada.

17.

On 15 May 2012, in accordance with Article 9 of the UNCITRAL Rules, the Secretary-General of the Permanent Court of Arbitration (the "PCA") appointed Professor Karl-Heinz Böckstiegel as the presiding arbitrator. Professor Böckstiegel^ address is Parkstraße 38, 51427 Bergisch Gladbach, Germany.

18.

On 7 June 2012, having received comments from both Parties, the Tribunal issued Procedural Order No. 1 which sets out, inter alia, the applicable procedural rules, Tribunal's fees and expenses, language, and the Tribunal's immunity.

19.

By letters dated 27 June 2012, responding to the Tribunal's invitation to consult with each other in relation to the standard of confidentiality, the Respondent informed the Tribunal that it was committed to transparency and did not agree with the Claimant's proposal that the hearings be held in camera, and the Claimant informed the Tribunal that the Parties disagreed on the standard of confidentiality applicable to the proceedings but that discussions on the matter were ongoing.

20.

On the same date, the Respondent informed the Tribunal that it "propose[d] to continue to consult with the Claimant on the matter of a timetable, including the issue of a bifurcated procedure". By letter of the same date, the Claimant set out its position that procedural economy and expediency would not favour bifurcation but that "should the Tribunal not be minded to refuse bifurcation at this point, PM Asia considers that the question of whether there should be bifurcation ought to be argued and determined only following full memorials from each [P]arty".

21.

By letter dated 10 July 2012, the Respondent proposed that there be an exchange of brief written submissions with regard to whether the proceedings should be bifurcated or not, and that, following such submissions, the issue of bifurcation would be ready for determination at the first procedural meeting in Singapore ("First Procedural Meeting") or shortly thereafter.

22.

By letter dated 11 July 2012, the Claimant objected to the Respondent's proposal and reiterated that, should the Tribunal not refuse bifurcation at this stage, the issue of bifurcation should only be argued and determined following the delivery of full Memorials by each Party.

23.

By letters dated 16 July 2012, the Parties informed the Tribunal that they were unable to agree either on the desirability of bifurcation or on the timing and procedure for the Tribunal to determine this particular issue. Accordingly, each Party set out its proposed timetable. On the same day, the Tribunal informed the Parties that it intended to discuss the procedure for reaching a decision on bifurcation at the First Procedural Meeting and that no further submissions on the issue of bifurcation would be required before the Meeting.

24.

By letter dated 24 July 2012, the Claimant informed the Tribunal that no agreement had been reached between the Parties concerning the standard of confidentiality and requested, in accordance with Article 28(3) of the UNCITRAL Rules, that the First Procedural Meeting be held in camera and that "all documents created or held by or on behalf of the Tribunal concerning this proceeding, including any transcript of and any other records concerning the [First] Procedural Meeting, be kept confidential".

25.

By letter dated 25 July 2012, the Respondent agreed that the First Procedural Meeting be held in camera and that all documents held by the Tribunal be kept confidential except for those already in the public domain. This arrangement was approved by the Tribunal the following day.

26.

By letter dated 26 July 2012, the Respondent informed the Tribunal that it had proposed to the Claimant that London be the place of arbitration, and indicated that the Claimant had nonetheless maintained that Singapore be the place of the arbitration.

27.

On 30 July 2012, the Tribunal held the First Procedural Meeting, during which the Parties reiterated their respective proposals for the place of arbitration and presented oral arguments in support of their proposals. The Tribunal also discussed with the Parties the regime of confidentiality that should apply to the arbitration, the procedure for considering whether certain jurisdictional objections should be considered in a separate, preliminary phase, and various other procedural points.

28.

Present at the First Procedural Meeting were:

The Tribunal: For the PCA:

Prof. Karl-Heinz Böckstiegel Dr. Dirk Pulkowski

Prof. Gabrielle Kaufmann-Kohler Prof. Donald M. McRae

For the Claimant: For the Respondent:

Mr. Joe Smouha Q.C. Mr. Stephen Gageler S.C.

Mr. David Williams Q.C. Mr. Anthony Payne S.C.

Mr. Simon Foote Dr. Chester Brown

Mr. Peter O’Donahoo Mr. Mark Jennings

Mr. Ricardo E. Ugarte Mr. Simon Daley

Mr. Marc Firestone Mr. Nathan Smyth

Mr. John Fraser Mr. Will Story

Ms. Rosemary Morris-Castico

29.

On 3 August 2012, after consultation with the Parties at the First Procedural Meeting, the Tribunal issued Procedural Order No. 2 which set out a timetable for the Parties to file further written submissions relating to the place of arbitration, confidentiality, and bifurcation of proceedings.

30.

On 13 August 2012, 17 August 2012, 27 August 2012, and 3 September 2012, the Parties exchanged submissions on the place of arbitration in accordance with the timetable set out in Procedural Order No. 2.

31.

On 13 August 2012, the Respondent also filed its submission on the issue of bifurcation in response to the Claimant’s submission dated 30 July 2012. By letter dated 15 August 2012, the Claimant requested the Tribunal to clarify the scope of the Parties’ submissions on the issue of bifurcation and, if needed, to require the Respondent to recast its submission accordingly. On 16 August 2012, the Tribunal confirmed that the Parties’ submissions should be limited to the timing and procedure for reaching a decision on the bifurcation of the proceedings.

32.

On 20 August 2012, 27 August 2012 and 3 September 2012, respectively, the Parties exchanged further submissions on the issue of bifurcation.

33.

By letter dated 12 September 2012, the Parties set out their positions on confidentiality. By letter dated 17 September 2012, the Tribunal invited the Parties to continue their efforts to reach an agreement on the applicable standard of confidentiality and set out a timetable for further submissions in this regard. The Parties, accordingly, submitted their respective proposals for a Procedural Order on confidentiality on 28 September 2012 and provided their comments on the proposal of the other Party on 5 October 2012.

34.

On 26 October 2012, the Tribunal, in Procedural Order No. 3, decided in accordance with Article 18(1) of the UNCITRAL Rules that Singapore was the place of arbitration.

35.

On the same date, the Tribunal issued Procedural Order No. 4, in which it defined the procedure leading up to a decision on bifurcation.

36.

On 30 November 2012, the Tribunal issued Procedural Order No. 5 regarding confidentiality. It held, inter alia, that the Tribunal's awards, decisions and orders shall be published by the PCA, subject to prior redaction; that all hearings, meetings and conferences shall be held in camera and their transcripts be kept in confidence; and that each Party shall be free to render its written submissions public, subject to appropriate redactions where applicable.

37.

On the same date, the Tribunal issued Procedural Order No. 6 regarding outstanding procedural matters relating to communications and submissions, evidence, hearings, language and translations.

38.

Following a change of the Claimant's counsel of record, by letter dated 3 December 2012, the Claimant requested an extension of the deadline for the filing of the Statement of Claim to 28 March 2013.

39.

By letter dated 12 December 2012, the Respondent noted that, if the Claimant's request for an extension were granted, a corresponding extension should also be granted for the filing of the Statement of Defence.

40.

By letters dated 12 and 14 December 2012, the Respondent and the Claimant acknowledged that it would be necessary to identify a new date for the filing of the Claimant's submissions on the aspects of bifurcation not covered in previous submissions.

41.

On 31 December 2012, after consultation with the Parties, the Tribunal issued Procedural Order No. 7, in which the Tribunal set out a revised timetable for the filing of submissions. Pursuant to this revised timetable, the Claimant submitted its Statement of Claim on 28 March 2013; the Respondent submitted its Statement of Defence on 23 October 2013; and the Claimant submitted its Opposition to Bifurcation on 26 November 2013.

42.

On 20 and 21 February 2014, a hearing on bifurcation was held in Toronto ("Hearing on Bifurcation"). Present at the Hearing on Bifurcation were:

The Tribunal: For the PCA:

Prof. Karl-Heinz Böckstiegel Dr. Dirk Pulkowski

Prof. Gabrielle Kaufmann-Kohler Prof. Donald M. McRae

For the Claimant: For the Respondent:

Mr. Joe Smouha Q.C. Mr. Simon Daley P.S.M.

Dr. Stanimir Alexandrov Mr. Anthony Payne S.C.

Mr. James Mendenhall Mr. Justin Gleeson S.C. (by video link)

Mr. Aaron Wredberg Mr. Lucas Robson

Mr. Marc Firestone Mr. Nathan Smyth

Mr. Kevin Banasik Mr. John Atwood

Ms. Esme Shirlow

Mr. Sam Wordsworth Q.C.

Prof. Chester Brown

43.

On 14 April 2014, following the Hearing on Bifurcation, the Tribunal issued Procedural Order No. 8, deciding to bifurcate the proceedings in two phases and that two preliminary objections should be considered in an initial phase of the proceedings. The first phase of the proceedings was to deal with the Respondent’s Non-Admission of Investment Objection and the Temporal Objection. A third objection raised by the Respondent was to be joined to the merits in the event that the first and second objections were not upheld by the Tribunal and the proceedings continued.

44.

On 16 May 2014, after consultation with the Parties, the Tribunal issued Procedural Order No. 9 regarding the timetable for the first phase of the bifurcated proceedings, and in which the Tribunal confirmed that the hearing on preliminary objections would commence on 16 February 2015 ("Hearing on Preliminary Objections").

45.

On 7 July 2014, the Claimant filed its Counter-Memorial on Preliminary Objections, together with accompanying exhibits, witness statements and expert reports.

46.

On 28 July 2014, pursuant to Procedural Order No. 9, each Party submitted to the other Party a reasoned application for the production of documents ("Request to Produce"), limited to material relevant to the Non-Admission of Investment Objection and Temporal Objection as set forth by the Respondent in its Statement of Defence.

47.

On 15 August 2014, after the Parties consulted with each other with a view to amending certain aspects of the process for document production, the Respondent informed the Tribunal that the Parties had agreed to exchange privilege logs listing any documents that a Party wished to withhold on grounds of legal impediment or privilege ("LPP") or special political or institutional sensitivity ("SPIS") and informed the Tribunal that the Parties had failed to reach agreement on a timetable for the exchange of such privilege logs. A timetable was proposed for the Tribunal’s consideration.

48.

On 20 August 2014, the Claimant responded to the Respondent's letter by noting that the Respondent's proposed timetable was unworkable in view of the breadth of the Respondent's document requests. The Claimant therefore proposed an alternative timetable for the Tribunal's consideration.

49.

On 22 August 2014, the Respondent conveyed to the Tribunal that it was prepared to narrow its document requests and confirmed that, while the Claimant's proposed timetable potentially left little time to incorporate certain documents into the Respondent's Reply, the Respondent was prepared to agree to the Claimant's timetable in order to avoid extended arguments.

50.

On 26 August 2014, the Tribunal adopted a modified timetable for the proceedings in the form of Procedural Order No. 10, in which the Tribunal decided that the Parties were to "limit the requests that they will submit in their Redfern Schedules to those documents that are absolutely necessary for the limited purpose of dealing with the preliminary objections to be addressed at the Hearing on Preliminary Objections in February 2015".

51.

On 8 September 2014, pursuant to Procedural Order No. 10, the Parties submitted to the Tribunal in the form of two separate Redfern Schedules all Requests to Produce that they maintained despite the other Party's objections.

52.

On 19 September 2014, the Claimant expressed concerns about what it perceived as an overly broad character of the Respondent's Requests to Produce and presented a proposal to limit the scope of the Parties' Requests to Produce.

53.

In its reply of 22 September 2014, the Respondent noted that "[it] does not agree to the Claimant's proposal for the production of documents relating to control" and requesting "that the Tribunal... decline to make an order reflecting this proposal", while expressing its agreement to limit the scope of e-mails that the Parties were required to review, subject to certain qualifications.

54.

On 23 September 2014, the Tribunal in its Procedural Order No. 11, decided, on a document-bydocument basis on the Parties' Requests to Produce and provided general procedural direction in respect of document production.

55.

On 20 October 2014, in accordance with the timetable set out in Procedural Order No. 10, the Parties exchanged privilege logs listing any documents that a Party wished to withhold on LPP and SPIS grounds.

56.

On 27 October 2014, the Parties exchanged objections in respect of the other Party’s privilege claims, and on 31 October 2014, the Parties responded to the other Party’s objections.

57.

By letter dated 6 November 2014, the Claimant submitted its unresolved objections to the Respondent’s privilege claims to the Tribunal.

58.

Similarly, on 7 November 2014, the Respondent submitted its unresolved objections to the Claimant’s privilege claims.

59.

On 10 November 2014, the Claimant objected to redactions of documents which the Respondent had produced on 6 November 2014 based on privilege grounds.

60.

On 14 November 2014, in Procedural Order No. 12, the Tribunal ruled on these unresolved privilege claims.¹¹

61.

On 1 December 2014, the Respondent filed its Reply on Preliminary Objections together with accompanying exhibits, witness statements and expert reports.

62.

On 9 December 2014, the Tribunal issued Procedural Order No. 13, concerning access by the Claimant to a set of documents that the Respondent considered sensitive.

63.

On 12 January 2015, the Claimant filed its Rejoinder on Preliminary Objections in rebuttal of the Respondent’s Reply on Preliminary Objections together with further evidence upon which the Claimant wished to rely.

64.

On 16 January 2015, the Tribunal sent a draft procedural order regarding details of the Hearing on Preliminary Objections to the Parties inviting them to comment thereon.

65.

By letter of the same date, the Respondent objected to the admissibility of new expert evidence on Australian law adduced by the Claimant, namely the legal opinion of Justice Ian Callinan Q.C. ("Callinan Report") addressing the Respondent’s First Objection.¹²

66.

By letter dated 19 January 2015, the Claimant objected to the Respondent’s request to exclude the Callinan Report and requested the Tribunal, as a matter of procedural fairness, to allow it to file the said Report.

67.

By letter of the same date, the Claimant sought leave from the Tribunal to introduce into the record a recent Award in the arbitration, namely, Renée Rose Levy and Gremcitel S.A. v. Republic of Peru.¹³

68.

On 20 January 2015, Procedural Order No. 14 was issued, in which the Tribunal denied the Respondent's request to exclude the Callinan Report from the record and permitted the Claimant to introduce the Gremcitel Award.

69.

By letter dated 22 January 2015, the Claimant submitted the Gremcitel Award, along with commentary explaining its relevance. By letter dated 25 January 2015, the Respondent submitted its response to Claimant's arguments in relation to the Gremcitel Award.

70.

On January 26, 2015, the Parties submitted notifications of the witnesses and experts whom they wished to examine at the Hearing on Preliminary Objections. The Parties also submitted a chronological list of all exhibits and their comments on the draft procedural order that had been circulated on 16 January 2015.

71.

By letter dated 26 January 2015, the Respondent, following the Tribunal's decision in Procedural Order No. 14, sought leave from the Tribunal to file a short expert report by way of rebuttal to the Callinan Report. By letter of the same date, the Tribunal acceded to the Respondent's request and pointed out that the said expert report was to be strictly responsive to the Callinan Report.

72.

By letter dated 27 January 2015, the Claimant, in response to the Respondent's letter and the Tribunal's decision of 26 January 2015, noted that it regretted that it did not have the opportunity to respond to the Respondent's application in relation to a rebuttal expert report before the Tribunal issued its decision on this matter. The Claimant, therefore, reserved the right to ask the Tribunal to reconsider whether it would allow the Respondent's rebuttal expert report after having reviewed it.

73.

On 29 January 2015, the Respondent filed the expert report of The Hon. Roger Gyles A.O. Q.C. focusing on questions of Australian law, by rebuttal to the Callinan Report.¹⁴

74.

On 4 February 2015, the Tribunal issued Procedural Order No. 15 regarding details of the Hearing on Preliminary Objections.

75.

By letter dated 5 February 2015, the Claimant sought leave from the Tribunal to further introduce a short statement by Justice Callinan and by letter dated 6 February 2015, the Tribunal granted this request.

76.

On 9 and 10 February 2015, respectively, the Parties filed with the Tribunal an agreed timeline of relevant facts.

77.

On 10 February 2015, the Parties provided the PCA with a list of attendees at the hearing, and after consultation with each other, the Parties established a detailed scheduling proposal in relation to the witnesses and experts whom they wished to cross-examine. On the same date, the Claimant submitted a short additional statement by Justice Callinan, strictly limited to replying to the issues raised by The Hon. Roger Gyles A.O. Q.C.

78.

On 15 February 2015, the Respondent submitted a further statement from The Hon. Roger Gyles A.O. Q.C., strictly limited in response to the additional statement by Justice Callinan, together with additional legal authorities.

79.

The Hearing on Preliminary Objections was held in Singapore from 16 to 19 February 2015. The hearing was attended by:

The Tribunal: For the PCA:

Prof. Karl-Heinz Böckstiegel Dr. Dirk Pulkowski

Prof. Gabrielle Kaufmann-Kohler Prof. Donald M. McRae

For the Claimant: For the Respondent:

Dr. Stanimir Alexandrov Mr. Justin Gleeson S.C.

Mr. James Mendenhall Mr. Tony Payne S.C.

Mr. Andrew Blandford Mr. Sam Wordsworth Q.C.

Mr. Patrick Childress Mr. Bill Campbell Q.C.

Mr. Andrew Arnold Prof. Chester Brown

Ms. Katherine Leong Mr. James Hutton

Mr. Joe Smouha Q.C. Mr. Simon Daley P.S.M.

Mr. Chris Young Ms. Catherine Kelso

Mr. Marc Firestone Mr. Jonathon Hutton

Mr. Kevin Banasik Ms. Celia Winnett

Mr. Jonathan Horton Mr. John Atwood

Mr. James Boulton Ms. Sarah Baker-Goldsmith

Mr. Justice Mayall Ms. Anna Garsia

Ms. Melissa Whiting Ms. Nana Frishling

Mr. Devon Whittle Ms. Natalie Mojsoska Mr. Andrew Callaway Mr. Nathan Smyth Ms. Jackie Davis Dr. Anthony Millgate Mr. Andrew Higgins

Fact Witnesses: Expert Witnesses:

Mr. Matteo Pellegrini (for Claimant) Mr. Tony Hinton (for Claimant)

Mr. John Gledhill (for Claimant) The Hon. Ian Callinan A.C. (for Claimant)

The Hon. Wayne Swan (for Respondent) The Hon. Roger Gyles A.O. Q.C. (for

Respondent)

Mr. Brian Wilson (for Respondent)

Court Reporters:

Ms. Jade King

Ms. Bronwen Williams

80.

On 23 February 2015, following consultation with the Parties at the end of the Hearing on Preliminary Objections, the Tribunal issued Procedural Order No. 16 and determined that the Parties should have an opportunity to submit post-hearing briefs, should they wish so, and that the Parties shall consult with each other in respect of any corrections to the hearing transcripts.

81.

On 23 March 2015, the Respondent sought leave to submit two additional legal authorities relevant to the legal issues currently in dispute in this arbitration, namely, Apotex Holdings Inc. and Apotex Inc. v. United States of America,¹⁵ and Tidewater Investment SRL, Tidewater Caribe, C.A. v. The Bolivarian Republic of Venezuela.¹⁶

82.

On 26 March 2015, in response to Respondent's letter of 23 March 2015, the Claimant did not oppose the Respondent's request to submit the two legal authorities, namely, the Apotex Award and the Tidewater Award. By e-mail of the same date, the Tribunal admitted these two awards into the record.

83.

On 1 April 2015, the Claimant sought leave from the Tribunal to submit an additional legal authority, namely, the Award on Jurisdiction and Admissibility in Bilcon of Delaware v. Canada.¹⁷

84.

On 2 April 2015, the Respondent informed the Tribunal that it would not oppose the Claimant's request. On the same date, the Tribunal confirmed admission of the Bilcon Award into the record.

85.

On 6 April 2015, both Parties' simultaneously submitted electronic copies of their First PostHearing Briefs on Preliminary Objections.

86.

On 4 May 2015, both Parties simultaneously submitted electronic copies of the second round of Post-Hearing Briefs on Preliminary Objections, in rebuttal to the other Party’s first round PostHearing Brief.

87.

On 20 July 2015, both Parties requested that the Tribunal give them advance notice of the date of the Award on Jurisdiction and Admissibility in order "to make any necessary internal arrangements".

88.

On 15 December 2015, the Tribunal advised the Parties that the Award on Jurisdiction and Admissibility would be issued on 17 December 2015.

89.

The Claimant, in its Statement of Claim, requests that the Tribunal:

(1) order Respondent to withdraw the [Plain Packaging] [M]easures or refrain from applying them against Claimant’s investments; or in the alternative

(2) award damages of at least [USD] 4,160 million, plus compound interest at the Australian bank cash management account rate running from the date of breach to the date of Respondent’s payment of the [A]ward; and

(3) award Claimant all of its fees and expenses, including attorney’s fees, incurred in connection with this arbitration; and

(4) award such other relief as the Tribunal deems just and appropriate.¹⁸

90.

In its Counter-Memorial on Preliminary Objections, its Rejoinder on Preliminary Objections, and its First Post-Hearing Brief, the Claimant, in addition or alternatively to the relief sought in the Statement of Claim, requests that the Tribunal:

a. dismiss each of Respondent’s bifurcated preliminary objections;

b. enter a procedural order requiring the Parties to consult with the goal of reaching a mutually agreeable schedule for the merits phase of this arbitration; and

c. award Claimant its costs, including counsel fees, that have been incurred in connection with this bifurcated proceeding.¹⁹

91.

In its Statement of Defence, the Respondent seeks the following orders from the Tribunal:

a. that Australia's preliminary objections be heard and determined in a preliminary phase of proceedings in accordance with the Bifurcated Timetable set out at paragraph 294 above;

[…]

b. that the Tribunal dismiss each of the claims made in PM Asia's ASoC;

c. that the Tribunal award Australia all of the fees and expenses incurred in connection with this arbitration, including its legal costs and costs of the arbitration.²⁰

92.

In its Reply on Preliminary Objections, the Respondent seeks the following orders from the Tribunal:

a. That the Tribunal dismiss each of the claims in PM Asia's ASoC;

b. That the Tribunal award Australia all of the fees and expenses it has incurred in connection with this arbitration, including its legal costs and the costs of the arbitration.²¹

93.

In its First Post-Hearing Brief, the Respondent further seeks the following orders:

a. The Tribunal finds that it has no jurisdiction to determine this dispute and/or that PM Asia's claim is inadmissible;

b. The Tribunal dismisses each of the claims in PM Asia's ASoC; and

c. The Tribunal awards Australia all of the fees and expenses it has incurred in connection with this arbitration, including its legal costs and the costs of the arbitration.²²

94.

The following is a short summary of relevant facts as understood by the Tribunal without prejudice to any legal conclusions by the Tribunal, which will be addressed in later sections of this Award.

95.

Philip Morris International Inc. ("PMI") is a company incorporated and headquartered in New York, United States, which produces seven of the top fifteen cigarette brands in the world including the number one selling brand of cigarettes. Marlboro.²³ PMI owns dozens of subsidiaries and affiliates around the world (referred to as the PMI Group) and manages its business in different regions.²⁴ including in Asia, where the Claimant has its regional headquarters.²⁵

96.

The Claimant was incorporated in Hong Kong in 1994 and has been doing business in Hong Kong since that tune.²⁶ On 17 March 1954. the PMI Group began operations in Australia through PM Australia.²⁷ Before restructuring, PM Australia was owned by US-based Philip Monis group companies until 1998, followed by Swiss-based Philip Monis group companies for over 12 years.²⁸ Before PML was incorporated in 1967. PM Australia carried on the PMI Group’s business in Australia and had done so since PM Australia was incorporated in 1954. In May 1967, PML was incorporated as a wholly owned subsidiary of PM Australia, after which PM Australia ceased to cany out operational activities in Australia or elsewhere²⁹ PM Australia was, and remains, the owner of PML. In turn, PML operates the PMI Group’s Australian sales of tobacco products in Australia, selling mainly international brands, licensed from other Philip Monis companies located in Switzerland and the United States.³⁰

97.

The Claimant alleges that it has controlled and managed all strategic, budgetary and investment decisions of the Australian subsidiaries, namely, PM Australia and PML. since 2001. Until February 2011, both PM Australia and PML were owned by Philip Monis Brands Sàrl ("PM Brands Sarl"), a Swiss company forming part of the PMI Group.³¹

98.

According to the Claimant, the PMI Group has been engaged in a group-wide restructuring process "to reduce costs and improve efficiencies by streamlining its legal entity structure, rationalizing business process, centralising activities, and developing shared services".³² The restructuring plan also took into account the political risk that PMI was facing in several countries including Australia with the proliferation of new regulations on packaging and marketing of tobacco products.³³ Since the possible relationship of steps taken by the PMI Group to restructure its investments in Australia with the introduction of the Plain Packaging Measures forms the basis of two of the Respondent’s preliminary objections, these facts will be set out in detail below.

99.

Australia first considered plain packaging in 1995. However. Australia initially recommended further investigations to be made. The Claimant contends that Australia refrained from adopting any Plain Packaging Measures in light of its treaty obligations and lack of evidence that plain packaging would be effective in reducing tobacco consumption.³⁴

100.

On 27 February 2005. the World Health Organization Framework Convention on Tobacco Control ("FCTC") entered into force for Australia. Under the FCTC, States Parties are under an obligation to develop and implement "tobacco control measures, including measures to eliminate the propensity of tobacco packaging to mislead consumers about the health effects of smoking and comprehensive bans on tobacco advertising, promotion and sponsorship".³⁵

101.

in December 2007, shortly after being elected, the Australian Labor Party Government of Prime Minister Kevin Rudd launched the National Preventative Health Taskforce ("NPHT").³⁶

102.

On 9 April 2008, Australia’s then Minister of Health and Ageing. The Hon. Nicola Roxon MP. announced the establishment of the NPHT to "provide evidence-based advice to government and health providers—both public and private—on preventative health programs and strategies, and support the development of a National Preventative Health Strategy" ("NPHS").³⁷

103.

On 10 October 2008, the NPHT published a discussion paper entitled "Australia: The Healthiest Country by 2020". The paper proposed targets for the prevention of obesity, tobacco and alcohol, including in particular the reduction of the prevalence of daily smoking to 9% or less by 2020. To meet this target, the paper suggested to "[f]urther regulate the tobacco industry with measures such as ending all forms of promotion including point-of-sale display and mandating plain packaging of tobacco products".³⁸

104.

On 2 January 2009, PML participated in the NPHT consultation and stated, among other things, that "plain packaging was unnecessary, unsupported by evidence, and unlawful". On the same day, the NPHT consultation closed.³⁹

105.

In April 2009, shortly before the NPHT delivered its report to the government, Australia's Department of Health and Ageing ("DoHA") examined the feasibility of a Tobacco Control Act through which plain packaging would be introduced.⁴⁰ Accordingly, DoHA prepared a draft Regulated Impact Statement ("RIS") and submitted it for review to the Office of Best Practice Regulations ("OBPR") which is the independent government agency responsible for ensuring that "Australian legislation and regulations rest on solid evidentiary foundation". This proposal together with the Tobacco Control Act, however, failed because the draft RIS lacked "proper analysis and substantiation for plain packaging".⁴¹

106.

On 30 June 2009, the NPHT issued a report on the NPHS, listing a series of important actions, including to "[e]liminate the promotion of tobacco products through design of packaging",⁴² and "[m]andate standard plain packaging of all tobacco products to ensure that design features of the pack in no way reduce the prominence or impact of prescribed government warnings".⁴³ The NPHT also issued a "Roadmap for Action", which underlined that plain packaging was "justifiable, proportionate and not inconsistent with international trade agreements",⁴⁴ and identified a series of key actions in relation to tobacco, such as the need to "[l]egislate to eliminate all remaining forms of promotion including (...) promotion through packaging (...)".

107.

In August 2009, Senator Steven Fielding introduced the Plain Tobacco Packaging (Removing Branding from Cigarette Packs) Bill 2009 (the "Fielding Bill") in the Australian Senate, which proposed to remove "brands, trademarks and logos from tobacco packaging".⁴⁵

108.

On 1 September 2009, Health Minister Roxon launched the NPHS, and released a technical paper on tobacco entitled "Australia: The Healthiest Country by 2020", which proposed to "[r]equire all tobacco products to be sold in plain packaging".⁴⁶

109.

Beginning at least on 2 September 2009, the PMI Group received legal advice [REDACTED]⁴⁷.

110.

On 9 October 2009, in response to the Health Minister's launch of the NPHS on 1 September 2009, Allens Arthur Robinson, wrote to Health Minister Roxon to express the PMI Group's concern about the unconstitutionality of plain packaging and the Fielding Bill which sought to introduce a form of plain packaging.⁴⁸

111.

In January 2010, the PMI Group expressed its opposition to the NPHT's recommendation that Australia introduce Plain Packaging Measures. PMI, the parent company of the PMI Group, referred to the "lack of evidence that plain packaging will achieve its intended public health objectives" and described plain packaging as imposing "restrictions tantamount to expropriation".⁴⁹

112.

On 29 January 2010, PM Asia obtained legal advice [REDACTED]⁵⁰.

113.

In February 2010, the popularity of Prime Minister Rudd's Government (the "Rudd Government") dropped, as evidenced by several opinion polls in Australia.⁵¹

114.

In March 2010, the Australian Department of Foreign Affairs and Trade stated that the Fielding Bill "did not represent government policy and that there was no government plan to introduce plain packaging legislation".⁵²

115.

In April 2010, DoHA prepared another RIS draft and submitted it to the OBPR for review. The OBPR rejected the draft because it failed to provide any credible evidence that plain packaging would be effective in reducing smoking.⁵³

116.

Meanwhile, in April 2010, IP Australia, the government agency responsible for intellectual property, had raised serious concerns regarding plain packaging in the context of the Fielding Bill and the NPHT. According to the Claimant, IP Australia was unaware of Prime Minister Rudd's decision to adopt the plain packaging law. In other words, the Claimant alleges that Prime Minister Rudd's Government decided to pursue plain packaging without consulting, or informing, IP Australia.⁵⁴

117.

On 19 April 2010, Health Minister Roxon stated that the Australian Government was considering additional measures in line with NPHT's recommendations including plain packaging for tobacco products to address the harmful effects of smoking.⁵⁵

118.

On 23 April 2010, an IP Australia internal e-mail revealed that DoHA had just learnt of Prime Minister Rudd's intentions to publicly announce the plain packaging initiative.⁵⁶

119.

On 29 April 2010, Australia's Prime Minister Kevin Rudd and Health Minister Roxon, jointly announced major tobacco control reforms to give effect to the recommendations of the NPHT including the Government's introduction of plain packaging legislation to mandate plain packaging of tobacco products by 1 July 2012.⁵⁷ In addition, the features of the Plain Packaging Measures were announced, which were similar to those subsequently expressed in the TPP Act.

120.

At that time, Australia had not released a formal response to the NPHT's final report.⁵⁸ Accordingly, several opposition Senators described this announcement as "a politically driven decision".⁵⁹ The then-Opposition Leader Tony Abbot MP criticised Prime Minister Rudd's plain packaging proposal.⁶⁰ The Claimant suggests that Prime Minister Rudd's announcement was "simply a statement of intent" and that the political situation at that time in Australia made it impossible to foresee the ultimate fate of the plain packaging policy as a very high probability.⁶¹

121.

On 30 April 2010, PML reiterated its opposition to plain packaging by contesting the "legality and efficacy" of plain packaging in a submission to the Senate Community Affairs Legislation Committee regarding the Fielding Bill.⁶²

122.

By the end of April 2010, the Respondent alleged that the PMI Group had progressed with its intention and planned strategy to bring a claim under the Treaty if Australia proceeded with its decision to implement Plain Packaging Measures and to restructure the PMI Group to get a "corporate vehicle with standing" to bring the claim.⁶³ The Respondent contends that despite opposition from the PMI Group, the Australian Government adhered to its decision to introduce Plain Packaging Measures.⁶⁴

123.

From April to June 2010, the Australian Government started to implement its plain packaging decision. Through DoHA, the Government had engaged a consultant to market-test the design of graphic health warnings and plain packaging.

124.

On 11 May 2010, the Rudd Government published its formal response to the NPHT's final report, detailing its commitment to the introduction of plain packaging. In particular, it stated that "[t]he Government will remove one of the last remaining vehicles for the advertising of tobacco products by developing legislation to mandate plain packaging for tobacco products from 1 January 2012 with full implementation by 1 July 2012".⁶⁵

125.

On 31 May 2010, in a media release regarding increased funding for Quitline, Health Minister Roxon reiterated that the Government was committed to the introduction of Plain Packaging Measures.⁶⁶

126.

In early June and July 2010, PMI Group's Australian lawyers provided legal advice [REDACTED]⁶⁷.

127.

On 23 June 2010, the PMI Group's claims in opposition to plain packaging were reiterated in an address to investors by PM Asia's President, Mr. Matteo Pellegrini. On the same day, in a media release, Health Minister Roxon stated that the Government would legislate plain packaging.⁶⁸

128.

On 24 June 2010, Prime Minister Kevin Rudd was replaced by Deputy Prime Minister Julia Gillard.⁶⁹ At her first press conference, Prime Minister Gillard indicated "a willingness to revisit the policies of the Rudd Government".⁷⁰

129.

The Respondent explained that in the weeks following the change in Government, the process of implementing Plain Packaging Measures was carried in a methodical, diligent and resolute manner without Australia wavering from its decision. The Respondent dismissed the Claimant's allegations that PMI Group had "good reason" to think that Plain Packaging Measures would never be implemented in Australia because Prime Minister Rudd "had developed a reputation for announcing ambitious proposals and later backing down".⁷¹ The Respondent maintained that there was, at all relevant times, every reason to expect that the Australian Government's decision to introduce plain packaging would be brought to fruition in due course.⁷²

130.

On 7 July 2010, the Australian Government published a timetable for the implementation of its decision to introduce Plain Packaging Measures. The timetable showed that plain packaging legislation would be ready for introduction before 30 June 2011, and would be fully implemented by 1 July 2012.⁷³

131.

On 17 July 2010, three and a half weeks after assuming leadership, Prime Minister Gillard called for an early federal general election on 21 August 2010.⁷⁴ On 19 July 2010, the House of Representatives was dissolved.⁷⁵

132.

On 26 July 2010, Franchise Partners, an investment management firm, communicated with PMI on the likelihood of the Australian Government's decision to introduce Plain Packaging Measures. Franchise Partners expressed the view that:

Outcome of plain packaging is dependent on who wins the election and most experts seem to believe that a labour (sic) government under Julia Gillard is likely to go ahead with PP [plain packaging] plans and based on history most governments have got a second term in office so likelihood of Labor (sic) victory is high.⁷⁶

133.

In a response e-mail of 29 July 2010, PMI noted that "there are no indications that a newly elected [Labor] Government will set aside the pursuit of plain packaging as articulated by the former Prime Minister".⁷⁷

134.

After the 2010 election, the Government continued to pursue its legislative agenda and none of the minor parties or independent Members of Parliament, save one, indicated that they opposed or even were considering opposing the Plain Packaging Measures.⁷⁸

135.

In August 2010, PML cited and relied on the timetable for planning purposes in its 2011-2013 Original Budget/Long Range Plan ("OB/LRP"). The document, in the Respondent's view, evidences that the Claimant's planned BIT strategy was complete and approved at the highest levels of the PMI Group by August 2010.⁷⁹

136.

On 11 August 2010, Health Minister Roxon complained about the Coalition's "lack of support for the Labor Party's plain packaging proposal".⁸⁰

137.

On 16 August 2010, the Coalitions' Shadow Health Minister, Peter Dutton, stated that "[w]e haven't seen any legislation from the Government. So really apart from a press release, we don't know what it is the Government’s asking us to sign up to".⁸¹

138.

In the same period of time, PML's senior management presented its annual OB/LRP, which set out the affiliates’ operating budget and business objectives, to PM Asia’s management including Mr. Pellegrini, for approval. The August 2010 OB/LRP stipulated that the Labor Government’s plan to pursue plain packaging would be a potential future regulatory challenge to the Australian business. However, the sales projections and PML's plans to launch updated packaging designs on the Australian market remained unchanged.⁸²

139.

On 21 August 2010, Australia held a federal election, and no party achieved an absolute majority. The Labor Party and the Opposition Coalition which had criticised plain packaging had an equal number of seats in the House of Representatives.⁸³

140.

On 26 August 2010, the Parliament discontinued its consideration of the Fielding Bill.⁸⁴

141.

In early September 2010, PMI restructured the ownership and functions of many of its affiliates around the world thereby eliminating redundant legal entities. In particular, the restructuring placed PMI Group's operating affiliates in various jurisdictions under the administration of PM Holland.⁸⁵

142.

The decision to restructure ownership of the Australian subsidiaries as part of this global process was documented in an internal memorandum dated 2 September 2010, which stated that the goal of the restructuring plan was "to further streamline PMI's corporate structure".⁸⁶ The Claimant notes that the justifications provided in the internal memorandum for the restructuring proposal (to "streamline" or "rationalise" the corporate structure) were identical to the purpose for the restructuring in the Claimant's notification to the Treasurer (the "FATA notification" or "Foreign Investment Application")⁸⁷ several months later (to "refine PMI affiliates' corporate structure in the Asian region").⁸⁸

143.

On 3 September 2010. PMI approved the restructuring proposal of several companies within the PMI Group and decided to transfer its wholly owned Australian subsidiaries to the Claimant.⁸⁹ Consequently, two Dutch holding companies within the PMI Group—Philip Morris International B.V. and Philip Morris Participation B.V.—were merged into another Dutch company, Park 1989 B.V., which was then transferred to PM Holland.⁹⁰ This was followed by the transfer of PM Australia from PM Brands Sàrl to PM Holland, accomplished by transferring PM Australia to the Claimant and in parallel, transferring the Claimant to PM Holland. As a result, the Claimant became the direct owner of PM Australia and the indirect owner of PML.⁹¹

144.

On 13 September 2010, Health Minister Roxon acknowledged the uncertainty over whether there was poetical support for plain packaging in the newly elected Parliament, and stated that she hoped that the Coalition would support Plain Packaging Measures but voiced concern that the Coalition had "sort of [drawn] back" from supporting the measure.⁹²

145.

On 14 September 2010. following weeks of negotiations. Prime Minister Gillard formed a Labor Party-led minority government ("Minority Labor Government"). However, the Minority Labor Government did not have sufficient votes to pass legislation including the proposed (but not yet drafted) plain packaging legislation.⁹³ According to a report from the Department of Parliamentary Services, "the number of votes that the Government may have on most matters before the House of Representatives [was] variable". Similarly, a research paper published by the Social Policy Section of the Australian Parliamentary Library on 16 September 2010 noted that "it is difficult to determine the likely fate of the plain packaging proposal given that the position of the Coalition and the independent members is unknown".⁹⁴ The Minority Labor Government published schedules of legislation but these contained no references to the proposed plain packaging legislation.⁹⁵

146.

On 20 September 2010, the Managing Director of PM Australia, Mr. Boissart, wrote a letter to the Assistant Treasurer which read, in part, as follows:

Former Prime Minister Rudd announced in late April that he would introduce legislation requiring cigarettes to be sold in plain packaging by mid-2012. This decision was taken without any consultation with the industry or the retail community and no commitment to following normal regulatory impact assessment processes. It was also taken without any recognition that Australian states and territories have moved to ban the retail display of tobacco products.⁹⁶ […] (emphasis added)

147.

On 24 September 2010, DoHA prepared minutes for Health Minister Roxon (the "September 2010 Minutes"), at her request, to update her on the implementation of the Plain Packaging Measures. On the same day, PMI Group received legal advice concerning Plain Packaging Measures and investment treaty protections for Philip Morris's investments in Australia.⁹⁷

148.

On 23 October 2010, a spokesperson for the Health Minister stated that the Australian Government remained committed to the introduction of Plain Packaging Measures.⁹⁸

149.

On 17 November 2010, PMI's Chairman and Chief Executive Officer, Mr. Louis Camilleri stated that "[w]hilst PMI has a proven track record of successfully operating in highly regulated environments, we will continue to use all necessary resources and extensive stakeholder engagement, and where necessary litigation, to actively challenge unreasonable regulatory proposals".⁹⁹

150.

On the same day, in a media release regarding restrictions on Internet tobacco advertising, Health Minister Roxon confirmed the Government's decision to introduce Plain Packaging Measures.¹⁰⁰

151.

On 23 November 2010, DoHA prepared minutes for Health Minister Roxon (the "November 2010 Minutes") which stated that the purpose of the "targeted consultations on plain packaging" with the tobacco industry including the PMI Group was not to engage in a debate about the Australian Government's decision to introduce Plain Packaging Measures but rather to give the tobacco industry an opportunity to comment on aspects of the implementation process.¹⁰¹

152.

On 26 November 2010 and 14 January 2011, DoHA held individual consultations with the three major tobacco companies in Australia, including PML, during which the tobacco companies, in particular, the representative of PML, indicated their opposition to the "excessive regulation" through Plain Packaging Measures.¹⁰²

153.

On 9 December 2010, DoHA briefed Health Minister Roxon again about the implementation of Plain Packaging Measures generally (the "December 2010 Minutes").¹⁰³ The December 2010 Minutes to which a letter, addressed to Prime Minister Gillard, was attached, stipulated that Minister Roxon agreed to the "drafting of legislation for public exposure, prior to making a request for the measure to be included on the legislation programme for introduction during the Winter 2011 sitting period".¹⁰⁴

154.

Between 13 and 21 January 2011, in the lead-up to the restructuring, PMI Group exchanged emails with its solicitors referring to the application of Australian law and investment policies to "any anticipated or actual change in ownership or control of PM Australia and/or PML and concerning investment treaty protections for the Group's operations in Australia".¹⁰⁵

155.

On 14 January 2011, DoHA met with representatives of the tobacco industry including with those of the PMI Group to provide the tobacco industry with an "update on the process and timeliness" of plain packaging, and inform the tobacco industry that the draft legislation or a detailed legislative proposal would be available for public comment in the second quarter of [2011] and that the legislation would not be introduced into the Australian Parliament before the winter 2011 sittings.¹⁰⁶

156.

On 18 January 2011. three days before the PMI Group applied to the FIRB for approval of its proposed restructuring, PMI Group’s legal counsel provided it with legal advice concerning investment treaty protection for its investment in Australia.¹⁰⁷

157.

On 21 January 2011. Australian legal counsel for the PMI Group, Allens Arthur’ Robinson, filed the Foreign Investment Application regarding the proposed change in ownership of PM Australia and PML with the Treasurer requesting approval of the restructuring under the FATA.¹⁰⁸ The Foreign Investment Application refers to the statutory notices,¹⁰⁹ and to documents that the PMI Group and in particular PM Asia had provided, including most importantly the Foreign Investment Review Board Letter ("FIRB Letter") dated 21 January 2011. The Foreign Investment Application stipulated that the transfer was for the purpose of "refining PMI affiliates’ corporate structure in the Asian region".¹¹⁰ It also stated the seller’s nationality (Swiss) and the identity and nationality of the Group’s ultimate parent company (PML United States).¹¹¹ The Foreign Investment Application fiuther provided that the Claimant "[was] not aware of any reason why the [r]estructur[ing] would be contrary to the Australian national interest" because the "[r]estructur[ing] does not result in any change in ultimate control of PM Australia or PML. as both before and after the [r]estructur[ing]. those entities will remain indirect, wholly owned subsidiaries of PMI".¹¹²

158.

Subsequently, in January 2011. the Foreign Investment Application was first considered by [REDACTED] an officer of the Foreign Investment and Trade Policy Division of the Treasury ("FITPD"), and no national interest concerns were raised.¹¹³

159.

While the Foreign Investment Application was pending before the Treasury. Minister Roxon stated at a press conference that "plain packaging legislation [would] be available and introduced through the middle of [2011]" and explained that the draft legislation would fust be "made available for discussion and debate" before it is introduced in Parliament. She also noted that "if it is passed by the [P]arliament", the Plain Packaging Measures would be in force as from 1 July 2012.¹¹⁴

160.

On 10 February 2011. PMI’s Chairman and Chief Executive Officer. Mr. Louis Camilleri. addressed Australia’s decision to introduce Plain Packaging Measures at a conference call with analysts, in his remarks. Mr. Camilleri recognised that Australia had a "strong intent" to implement Plain Packaging Measures and stated that "plain packaging doesn’t make any sense and we’ll fight plain packaging in every way possible".¹¹⁵

161.

On 11 February 2011. the Treasury responded to the Foreign Investment Application with a formal letter stipulating that, "there are no objections to this proposal in tenus of the Government's foreign investment policy" ("No-objection Letter").¹¹⁶

162.

On 17 February 2011, PMI Group indicated that it had suddenly realised that it may be exposed to substantial tax payments in Hong Kong if the restructuring occurred as described in the Foreign Investment Application. As a result, the PM Australia transaction went from one of mere "contribution" where PM Asia paid nothing to acquire PM Australia to one where it acquired it for substantial value.¹¹⁷

163.

On February 2011, [REDACTED] the Claimant formally acquired PM Australia and PML when PM Brands Sàrl transferred its shares from PM Australia to the Claimant.¹¹⁸ On the same day. PML wrote to Health Minister Roxon stating that PML "strongly opposes" Australia’s proposal for plain packaging.¹¹⁹ Furthermore, at a presentation given in New York by the Chief Financial Officer of PML Australia’s Plain Packaging Measures were raised once more and it was stated that "[w]e will vigorously oppose any such proposed measures using all the tools at our disposal, including, if necessary, legal challenges".¹²⁰

164.

Less than a week after the share transfer on 23 February 2011, the Claimant, continuing its preparations for the present arbitration, made inquiries for the purposes of instructing additional counsel.

165.

On 6 April 2011, the Tobacco Plain Packaging Bill 2011 ("TPP Bill") was introduced into the Australian Parliament.¹²¹

166.

On 7 April 2011, the Minority Labor Government released for public consultation an Exposure Draft of the TPP Bill 2011 (which would become the TPP Act 2011) along with a consultation paper.¹²² Meanwhile, Australia received a number of submissions from interested parties opposing plain packaging, including from the Coalition, which opposed plain cigarette packaging.¹²³ The Coalition's Shadow Health Minister noted that "there are a lot of question marks around this".¹²⁴

167.

On 8 April 2011, the Minority Labor Government notified the draft plain packaging legislation to the World Trade Organization ("WTO") at an "early appropriate stage" (when amendments and comments could still be made).¹²⁵ On the same day, Health Minister Roxon suggested that plain packaging involved "some level of experiment" and that the Plain Packaging Measures, on their own, probably would not stop addicted smokers.¹²⁶ In April 2011, the Australian Government released its trade policy statement which expressly made a link between Investor-State Dispute Settlement ("ISDS") clauses and the Respondent's plain packaging proposals.¹²⁷

168.

On 17 May 2011. Coalition leader. Mr. Tony Abbott, expressed concerns that the proposed plain packaging legislation could be "counterproductive in practice".¹²⁸

169.

On 22 May 2011. three months after the Claimant acquired the Australian subsidiaries. Health Minister Roxon criticised the Coalition for failing to support Plain Packaging Measures. The Health Minister did not respond when she was asked whether the Minority Labor Government would have sufficient votes to pass the plain packaging legislation without the Coalition’s support.¹²⁹ Rather. Health Minister Roxon admitted that the Government had a "very big fight on [its] hands" in Parliament over the plain packaging proposal.¹³⁰

170.

On 24 May 2011, the Australian press reported that "there were indications that some Coalition Members of Parliament were prepared to cross the floor to vote with federal government on plain packaging".¹³¹

171.

On 26 May 2011. another article stipulated that "plain packaging would likely pass the House regardless of what Coalition Leader [Mr. Abbott] decides", and explained that the Minority Labor Government had seemed the votes it needed to pass the legislation.¹³²

172.

On 22 June 2011. PMI approved the transfer of its Malaysian and Taiwanese entities to PM Asia as part of its ongoing efforts to refine PMI affiliates’ corporate structure in the Asia region.¹³³

173.

On 27 June 2011, pursuant to the Treaty, the Claimant served its Notice of Claim on the Respondent, to the attention of the Prime Minister, the Attorney-General, and the Treasury. The Notice of Claim was made public on the same day.¹³⁴ The Respondent adds that the claim could have been lodged on 23 February 2011 when the dispute had already "crystallised" (or had beyond doubt become reasonably foreseeable), or earlier, but that the Treaty was not yet available at such earlier points in time.¹³⁵

174.

On 6 July 2011, the TPP Bill was introduced into the House of Representatives by the Health Minister, who, on the same day, also delivered the second reading speech for the Bill.¹³⁶

175.

On 19 September 2011, having received the Notice of Claim, the Attorney-General’s Department wrote a letter to [REDACTED] the FITPD inquiring whether the Claimant’s Foreign Investment Application complied with the FATA.¹³⁷ Shortly thereafter, [REDACTED] the FITPD (the very division responsible for assessing the Foreign Investment Application) responded stating that "no objections were raised against the proposal because the proposal was not considered to be contrary to [the] national interest [of Australia]".¹³⁸

176.

On 21 November 2011, nine months after the Claimant acquired the Australian subsidiaries, the TPP Bill passed both Houses of Parliament and the TPP Act was enacted. On the same day, the Claimant served the Respondent with a Notice of Arbitration under the Treaty.¹³⁹

177.

On 1 December 2011, the TPP Act received Royal Assent.

178.

On 7 December 2011, the TPP Regulations were promulgated. Under the terms of the Plain Packaging Measures, all tobacco packages had to be manufactured in compliance with the plain packaging requirements as of 1 October 2012 and all tobacco products sold at retail outlets had to comply with the Plain Packaging Measures as of 1 December 2012.¹⁴⁰

179.

On 21 December 2011, the Respondent’s response to the Notice of Arbitration was filed; it did not express any concerns about the content of the Foreign Investment Application.¹⁴¹

180.

On 13 January 2012, the Respondent pointed out that the ownership of PM Asia "appears" to have been transferred from PM Brands Sàrl to PM Holland.¹⁴²

181.

On 30 July 2012, at the First Procedural Meeting, the former Solicitor-General of the Commonwealth reiterated the preliminary objections of the Respondent; in this context, no submission was made in relation to the Foreign Investment Application or the No-objection Letter.¹⁴³

182.

On 31 July 2012, [REDACTED] the FITPD sent a letter to the Attorney-General’s Department of Australia reiterating, according to Claimant, that no objections were raised against the proposal and, therefore, the No-objection Letter was valid.¹⁴⁴

183.

The Claimant asserts that it has met all the jurisdictional requirements to bring its claim against Australia in this arbitration. First, the Claimant submits that, as a company incorporated under the laws of Hong Kong at all relevant times, it is a covered investor under the Treaty.¹⁴⁵ Second, the Claimant considers that it satisfies the "investment" requirement under Article 1(e) of the Treaty since it owns or controls assets in the form of direct shareholding in PM Australia and indirect shareholding in PML; PML’s brands and its portfolio of brands as a whole; and PML’s ownership and/or licence of intellectual property rights.¹⁴⁶ Third, the Claimant asserts that its investments have been admitted by Australia subject to its laws and investment policies, and therefore its investments are legal under the host State’s law.¹⁴⁷ Fourth, the Claimant states that there is a dispute between the Claimant and the Respondent in relation to the Plain Packaging Measures, which have substantially diminished the value of the Claimant’s investments in Australia, and that the Claimant has thus satisfied the dispute resolution provisions in the Treaty.¹⁴⁸

184.

As noted above, the Respondent advances three preliminary objections, relating to the Tribunal’s jurisdiction and to the admissibility of the Claimant’s claim.¹⁴⁹ The First Objection is that the Claimant’s purported "investment" has not been admitted by the Respondent in accordance with Article 1(e) of the Treaty, which provides that an investment must be admitted by Australia "subject to its law and investment policies as applicable from time to time".¹⁵⁰ The Second Objection is that the Claimant’s claim falls outside the scope of Article 10 of the Treaty because it relates to a pre-existing dispute, or, alternatively, that the Claimant’s claim amounts to an abuse of right because it has sought to restructure its investment to gain Treaty protection over a pre-existing or reasonably foreseeable dispute.¹⁵¹ The Third Objection is that neither the shares in PML nor PML’s assets constitute investments for the purposes of the Treaty.¹⁵²

185.

The Tribunal has deemed the First and Second Objections suitable for consideration in a preliminary phase. The legal arguments presented by both Parties in respect of each objection are summarised in detail in the following sections. Both bifurcated objections centre on the question whether, in the period between Australia’s announcement of a decision to introduce the Plain Packaging Measures and the enactment of these measures into legislation, the Claimant properly became an investor in Australia when it acquired equity in PML in the context of a corporate restructuring in 2011.¹⁵³

186.

In addition, the Claimant raises an argument that, in its view, "eliminates every objection raised by the Respondent in this preliminary phase of the arbitration"¹⁵⁴, i.e., it has continuously "controlled, managed, and supervised PML’s business" since 2001,¹⁵⁵ such that it should qualify as an investor in Australia since that date regardless of the 2011 restructuring. Given the nature of the Claimant’s defence, the Tribunal considers it expedient to address this contention at the outset, before turning to the Parties’ views on the two specific jurisdictional objections.

187.

Finally, the Tribunal summarises the Parties’ positions on the burden of proof in respect of the bifurcated preliminary objections.

188.

The Parties disagree with respect to the meaning of the term "controlled" in Article 1(e) of the Treaty. Whereas the Claimant contends that oversight and management control is sufficient, the Respondent believes that a showing of a legal and economic interest in the investment is required for the purpose of establishing control.

Article 1(e) of the Treaty reads as follows:

"investment" means every kind of asset, owned or controlled by investors of one Contracting Party and admitted by the other Contracting Party subject to its law and investment policies applicable from time to time...

For the purposes of this Agreement, a physical person or company shall be regarded as controlling a company or an investment if the person or company has a substantial interest in the company or the investment.

189.

The Parties are in agreement that Article 1(e) of the Treaty is to be interpreted in accordance with Article 31 of the Vienna Convention on the Law of Treaties ("VCLT").¹⁵⁶ The Article provides as follows:

Article 31

General rule of interpretation

1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.

2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:

(a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty;

(b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.

3. There shall be taken into account, together with the context:

(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;

(b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;

(c) any relevant rules of international law applicable in the relations between the parties.

4. A special meaning shall be given to a term if it is established that the parties so intended.

190.

Applying Article 31 of the VCLT to the Treaty, the Claimant argues that the concept of "substantial interest" is not determinative of the meaning of "control" under the Treaty. According to the Claimant, "substantial interest" is one way, but not the only way, to prove "control".¹⁵⁷ The Claimant asserts that the Treaty language "shall be regarded as controlling a company or an investment" does not mean that control can only be found "in the presence of, or requires a substantial interest".¹⁵⁸ The drafters of this Treaty, in the Claimant’s view, could have chosen a different wording had they intended "substantial interest" to be the only way to prove control.¹⁵⁹

191.

Furthermore, the Claimant criticises the Respondent’s attempt to "make 'substantial interest’ the exclusive definition of control" on the basis that the Respondent does not provide a clear definition of substantial interest but simply implies that it means substantial ownership interest.¹⁶⁰ Substantial control does not always require ownership, the Claimant explains, because "the word 'ownership’ does not appear in the wording of the phrase" and "control is distinct from ownership under the Treaty".¹⁶¹ According to the Claimant, as a result of the ordinary meaning of Article 1(e) of the Treaty, in particular the word "or", the Treaty provides that "ownership and control are two distinct and independent bases" for establishing a protected investment.¹⁶² The Claimant maintains that neither dictionary definitions of control nor the ordinary meaning of control in the corporate context link control to ownership.¹⁶³ Rather, "the ordinary meaning of 'control’ focuses on the ability of one entity or person to direct the actions of another".¹⁶⁴ The Claimant explains that its "management control—pursuant to which it managed, directed, superintended, governed and oversaw the Australian subsidiaries—fits this definition".¹⁶⁵ In any event, whether or not "substantial interest" is the exclusive definition of "control" under Article 1(e), the Claimant maintains that "[t]he ordinary meaning of 'substantial interest' includes management control" and that "if a supervising entity manages every aspect of a business" then "that supervising entity has a substantial interest in the business".¹⁶⁶

192.

For the purposes of defining Article 1(e) within a particular treaty context, the Claimant disputes the Respondent's reliance on the meaning of "investment" as solely referring to economic contributions of a certain duration involving some element of risk. According to the Claimant, "Article 1(e) of the Treaty defines 'investment' to mean 'every kind of asset, owned or controlled by investors of one Contracting Party and admitted by the other Contracting Party'".¹⁶⁷ Moreover, the definition provided by the Respondent refers to the criteria set out in Salini v. Morocco —an ICSID case that was never intended to establish a universal definition of "investment" in investment treaties but refers, at most, to Article 25 of the ICSID Convention.¹⁶⁸

193.

The Claimant refers to the Holderness Report as stating that, "in the context of multinational corporations, it is common practice for control—but not necessarily ownership—of certain subsidiaries to be delegated to another subsidiary within the same corporate family".¹⁶⁹ The separation of ownership and control is, according to the Claimant, "one of the defining features of the corporation that distinguishes it from other organizations".¹⁷⁰ The Claimant cites the Holderness Report as stating that, "the key feature of control is not financial interest, but rather the existence of performance measurement and evaluation, and incentive and disincentive systems that allow the controlling entity to 'determine the management of corporate resources'".¹⁷¹

194.

According to the Claimant, in International Thunderbird Gaming Corporation v. Mexico,¹⁷² the tribunal defined control in a corporate setting as "the power to effectively decide and implement the key decisions of the business activity off an enterprise...".¹⁷³ Similarly, the tribunal in Bilcon of Delaware v. Canada confirmed "that ownership is not necessary to establish control of an investment".¹⁷⁴ According to the Claimant, in Bilcon of Delaware v. Canada, the tribunal was concerned with the interpretation of NAFTA Article 1139 which "is analogous to Article 1(e) of the [Treaty]".¹⁷⁵ The Bilcon Award involved a claimant that "did 'not formally hold any equity in any relevant entities of the Bilcon group'".¹⁷⁶ According to the Claimant, "[a]lthough Mr. Clayton did not exercise any formal control of the relevant entities, the tribunal decided to look at evidence of informal control—unrelated to ownership—to establish jurisdiction".¹⁷⁷ The Bilcon tribunal stated that "the evidentiary record does not exclude any reasonable possibility that [the claimant] exercised indirect control in other—less formal—ways".¹⁷⁸

195.

The Claimant disagrees with the Respondent's interpretation of International Thunderbird Gaming Corporation v. Mexico as establishing that control is linked to the expectation to receive an economic return. Contrary to the Respondent's view, the Claimant emphasises that "the Thunderbird tribunal did not conclude that an economic return is a necessary condition to establish control".¹⁷⁹ The Claimant emphasises that in the Thunderbird Award, the tribunal reasoned that "'[c]ontrol can also be achieved by the power to effectively decide and implement the key decisions of the business activity of an enterprise ' without the legal capacity to control".¹⁸⁰ According to the Claimant, "the nature of [its] control is comparable to that exhibited by the investor in [the] Thunderbird [Award]" on the ground that the Claimant was responsible for the approval of PML's major business decisions and significant investments and was directly involved in the overseeing of the implementation of PML's business plans, the approval of significant expenditures and payment of dividends, as well as the appointment of top level management in the Australian subsidiaries.¹⁸¹ These factors, viewed collectively, support the Claimant's position.¹⁸²

196.

In support of its assertion that oversight and management can suffice to establish control for the purposes of enjoying treaty protections, the Claimant refers to the findings of the tribunal in S.D. Myers v. Canada.¹⁸³ According to the Claimant, the S.D. Myers tribunal confirmed that, "control can exist independently of ownership".¹⁸⁴ In S.D. Myers v. Canada, the tribunal was concerned with the relationship between a claimant corporation, SDMI, and the subject of the dispute, a separate company called Myers Canada. SDMI did not own any equity in Myers Canada, but both companies were owned by the same four brothers, one of whom was, according to the Claimant, also the "CEO" or "President" of SDMI.¹⁸⁵ The Claimant asserts that the S.D. Myers tribunal "relied on the testimony of the President of SDMI that he controlled Myers Canada in his role as President of SDMI, even though SDMI did not own equity in Myers Canada and that there was no legal agreement 'set[ting] out the respective responsibilities and obligations' of the companies".¹⁸⁶ When the respondent State sought to set aside the decision, the Federal Court of Canada "strongly endorsed the [A]ward" and made a finding that "[t]he meaning of 'controlled directly or indirectly' is its ordinary meaning. In this case, the tribunal found that SDMI controlled Myers Canada. "This control was not based on the legal ownership of shares, but on the fact that Mr. Dana Myers controlled every decision, every instrument, every move by Myers Canada, and Mr. Myers did so as chief executive officer of SDMI".¹⁸⁷ The Claimant also refers to the decision in Perenco v. Ecuador —a case in which the claimant did not possess legal title to the shares in question on the date of consent to the arbitration. According to the Claimant, the tribunal held that jurisdiction was proper because the treaty covered investments "owned or controlled" by French nationals, and the French claimants exerted indirect control over the Ecuadorian investments at issue.¹⁸⁸ The tribunal in Perenco v. Ecuador stated that it would not take a "formalistic approach to the question of control".¹⁸⁹

197.

The Claimant disputes that its interpretation of "control" runs counter to the object and purpose of the Treaty.¹⁹⁰ In response to the argument that the Claimant's interpretation of control would not require assets, funds and technology transfer, the Claimant notes that its "position does contemplate that the investor manages the development of investments in Australia, authorises new investments and controls decisions related to the transfer of assets, funds, expertise".¹⁹¹ The Claimant dismisses the Respondent's requirement of "exposure to risk" on the basis that the Treaty does not contain such a requirement.¹⁹² In any event, the Claimant disputes the Respondent's assertion that it did not assume any risk of the investment's failure since the Claimant "had a significant interest in the economic performance of the Australian subsidiaries".¹⁹³ Finally, the Claimant does not find it problematic to allow multiple claims related to "controlled" investments, since, in the Claimant's view, this resembles the situation of "possible multiple claims over 'owned' investments".¹⁹⁴ In any case, the Claimant considers there to be only "three PMI entities" that "could be understood as having exercised 'control' of PM Australia and PML in the pre-2011 period".¹⁹⁵ The Claimant criticises the Respondent's position that it should not incur obligations to an unknowable class of investors, arguing that "[a] [S]tate's unilateral offer to arbitrate disputes with all investors of the other contracting party, be they known or unknown, is a core element of an investment treaty".¹⁹⁶ Australian law does not require the notification of all foreign investments.¹⁹⁷

198.

According to the Claimant, the purpose of the Treaty is to "create favourable conditions for greater investment by investors of one Contracting Party in the area of the other".¹⁹⁸ In the Claimant's view, regardless of whether there is ownership of an investment, protecting the actors who make investment decisions and who are held accountable for those decisions, will promote investment and advance the purpose of the Treaty.¹⁹⁹ The Claimant maintains that interpreting the Treaty as covering PM Asia would recognise that the Treaty "incentivizes investment by reducing legal and political risk".²⁰⁰ This is because "[w]hen an entity like PM Asia is held accountable for investment decisions made in Australia—even if that entity does not own the investments—legal and political risk will strongly influence its decision making".²⁰¹

199.

The Claimant relies on supplementary means of interpretation to support its definition of Article 1(e) of the Treaty as entailing "control" by oversight and management.²⁰² Thus, the Claimant cites the travaux préparatoires of the Treaty as recording that "officials of the Australian government [had] reported internally regarding the final version of the [Treaty] [that] '[w]e insisted [on] elements that were central to all of our IPAs, such as. a definition of investment that included the notion of control as well as ownership".²⁰³ According to the Claimant, the Respondent "rejected suggestions from Hong Kong that the Treaty should cover only 'directly and indirectly' owned investments".²⁰⁴ The Claimant concludes that the travaux préparatoires show that the Respondent "wanted Article 1(e) to protect assets that were controlled, but not necessarily owned, by investors".²⁰⁵

200.

The Claimant also relies on the language in other Australian investment treaties to argue that a substantial interest is not the only way to establish control.²⁰⁶ Contrary to the Respondent's view, the Claimant asserts that the tribunal in Nova Scotia Power Inc. v. Venezuela did not disregard treaty practice as such but merely mentioned that "looking at prior treaty-making practice requires caution".²⁰⁷ The Claimant notes that the tribunals in Churchill Mining v. Indonesia and Metal-Tech v. Uzbekistan found that a contracting party's treaty practice can be considered as a "supplementary means of interpretation".²⁰⁸ The Claimant points to the Respondent's investment treaties with Argentina and India as well as the Model Bilateral Investment Treaty at that time, which demonstrate a consistent approach in favour of the Claimant's interpretation of control.²⁰⁹

201.

Referring to the ordinary meaning of the terms of Article 1(e) of the Treaty, the Respondent contends that, "Article 1(e) partly states that an investor ' shall be regarded as controlling. a company or an investment if the [investor] has a substantial interest in the company or the investment'".²¹⁰ As drafted, this mandatory language in Article 1(e) defines the meaning of control exclusively by reference to "substantial interest".²¹¹ No other activity will, according to the Respondent, establish control.

202.

Having a "substantial interest" means, according to the Respondent, "that the putative investor must have a right or power over an asset which is sourced in a legal arrangement, and which is capable of being exercised in some significant way that affects the economic returns from and disposition of the asset".²¹² The meaning of substantial interest as an economic interest can, according to the Respondent, be derived from the "context of the term 'control'" in the Treaty.²¹³ Thus, "[t]he context provided by the term 'investment' militates against the interpretation of 'control' contended for by PM Asia—namely that of management and oversight—"[because] 'investments' are understood as an economic contribution of a certain duration which involves some element of risk".²¹⁴ The Respondent refers to Articles 2(2), 3(1) and 8(1) of the Treaty which "apply to 'investments and returns' of investors" where the term "returns" means "the amounts yielded or derived from an investment" such as profits or dividends.²¹⁵ The Respondent also refers to Article 6(1) of the Treaty, which provides that investors should be compensated for any loss suffered.²¹⁶ According to the Respondent, in the absence of any substantial economic interest in the investment, the Claimant "could not have suffered any financial loss" and thus "would not be entitled to any compensatory damages".²¹⁷ Therefore, in light of the context of the provisions of the Treaty, control over an investment must entail an economic relationship. The Respondent recalls that, "in the period 2001-2011, PM Asia did not have any expectation of 'an economic return' from its asserted 'control' of PM Australia and PML".²¹⁸

203.

According to the Respondent, the determinations of other tribunals support its assertions regarding the need for an economic relationship. Thus, the tribunal in International Thunderbird Gaming Corporation v. Mexico "linked ' de facto control' with 'the expectation to receive an economic return'".²¹⁹ Similarly, in Romak SA v. Uzbekistan, the tribunal stated that, "the term 'investments' under the treaty has an inherent meaning (irrespective of whether the investor resorts to ICSID or UNCITRAL arbitral proceedings) entailing a contribution that extends over a certain period of time and that involves some risk".²²⁰

204.

According to the Respondent, the definition of "control" suggested by the Claimant "is inconsistent with the object and purpose of the [Treaty]".²²¹ The Respondent argues that oversight and management control would not require assets, funds or technology transfer between Hong Kong and Australia. This would frustrate the purpose of the Treaty to "promote investment, economic co-operation and mutual prosperity 'between the Contracting Parties'".²²² The Claimant's contention that protecting actors who actually make investment decisions would promote investments, is, in the Respondent's view, not supported by the text of the Treaty.²²³ Similar to its assertions with respect to the context provided by Articles 2(2), 3(1), 6(1) and 8(1) of the Treaty, the Respondent submits that the purpose of the Treaty does not allow actors who do not suffer any economic loss to bring a claim.²²⁴

205.

The Claimant's interpretation of control would, the Respondent emphasizes, "lead to a multiplication of possible claimants in respect of the same investment", including at least FTR Holding SA, PMI and PM Asia.²²⁵ According to the Respondent, the very risk of creating uncertainty as to which entity may be considered an "investor" and what constitutes an "investment" under the treaty led the tribunal in Aguas del Tunari v. Bolivia to reject the test of "control" based on the exercise of management functions alone.²²⁶ Similarly, the Respondent stresses that "information about the detail of management practices within a corporate group is generally not available publicly" and that the Claimant's interpretation of "control" as equivalent to such internal management practices would expose the Respondent to "obligations [owed] to an unknowable class of investors".²²⁷

206.

The Respondent refers to the travaux préparatoires as "clearly demonstrat[ing] that Australia and Hong Kong regarded the need for a 'substantial interest' as the sole criterion of control".²²⁸ According to the Respondent, Hong Kong was initially unwilling to agree to the inclusion of "control" but agreed on the basis that it was defined by reference to the concept of "substantial interest".²²⁹ The Respondent asserts that the discussion of "substantial interest" by the Treaty drafters was not, as the Claimant asserts, by reference to direct or indirect ownership, but rather in order to distinguish "full" ownership and having a "substantial interest" which nonetheless confers control.²³⁰

207.

The Respondent takes issue with the Claimant's reference to other Australian investment treaties in support of its interpretation of Article 1(e) on the grounds that the text of other treaties is irrelevant to the interpretation of this Treaty and that "prior treaty-making practice" is also irrelevant as "supplementary means of interpretation under Article 32" of the VCLT, as confirmed by the tribunal in Nova Scotia Power Incorporated v. Venezuela.²³¹ Furthermore, the Respondent notes that in any event the Claimant "has failed to establish a consistent [Treaty] practice" by Australia.²³²

208.

The Respondent disputes the relevance of S.D. Myers v. Canada for establishing that "'control' can exist separately from 'ownership'".²³³ According to the Respondent, the decision in S.D. Myers v. Canada turned on the fact that the NAFTA defines "investment of an investor" as an "investment owned or controlled directly or indirectly by an investor".²³⁴ The Respondent also highlights that, unlike in the Treaty, Chapter 11 of NAFTA does not contain any clarification on what is meant by the term "control", for example by reference to "substantial interest".²³⁵ According to the Respondent, there are also significant factual differences between S.D. Myers v. Canada and the present dispute.²³⁶ Specifically, unlike in S.D. Myers v. Canada, the Claimant here did not "direc[t] the actions of PML", "derive a profit from PM Australia's/PML's business", "contribut[e] to the capital of PML", "provid[e] PML with any speciali[s]ed technical know-how" or "regularly work together" with PML.²³⁷

209.

Similarly, the Respondent disputes the relevance of the Bilcon Award for three reasons. First, the Bilcon of Delaware v. Canada claim was brought under Chapter 11 of NAFTA "which does not contain a test for control such as that found in Art 1(e) of the [Treaty]".²³⁸ Second, the Bilcon tribunal, according to the Respondent, "held that the state of the evidentiary record did not permit it to make a determination as to the issue of 'control'".²³⁹ In contrast, in the present dispute, the Claimant "has had ample opportunity. to make good its assertions".²⁴⁰ Third, although the claimant in Bilcon of Delaware v. Canada "had no ownership interest in Bilcon of Delaware, it seems there was evidence that he ran the business and had made a financial contribution, and it is possible that there was an agreement conferring rights of control on Mr. Clayton".²⁴¹ The Respondent states that none of these factors are present in this case.²⁴²

210.

Even if "significant interest" does not exclusively define the meaning of "control" under the Treaty, the Respondent refers to a number of cases where the meaning of "control" was, in its view, established to mean something more than management practices.²⁴³ For example, the Respondent refers to the findings of the arbitral tribunal in Aguas del Tunari v. Bolivia where "control" was linked with "legal capacity to control", and in turn defined by reference to "the percentage of shares held".²⁴⁴ The Respondent cites the Aguas del Tunari tribunal as stating that "the word 'controlled' is not intended as an alternative to ownership since control without an ownership interest would define a group of entities not necessarily possessing an interest which could be the subject of a claim. In this sense 'controlled' indicates a quality of the ownership interest".²⁴⁵

211.

In Vacuum Salt v. Ghana, the ICSID tribunal determined that "a total absence of foreign shareholding would virtually preclude the existence of [foreign] control".²⁴⁶ The Respondent acknowledges that the fact pattern in Vacuum Salt v. Ghana was different to the present case since, in Vacuum Salt v. Ghana, the tribunal was concerned with determining whether a Ghanaian company was controlled by an individual.²⁴⁷ However, the Respondent asserts that the relevance of Vacuum Salt v. Ghana is that "the tribunal rejected an assertion of control in circumstances where the supposed controller exercised a far greater level of influence over a corporate entity than PM Asia supposedly exercised over PM Australia or PML".²⁴⁸ The Respondent recalls that the Claimant "held no shares in PM Australia or PML" nor any "legal rights conveyed in instruments or agreements" in the period between 2001 and 2011.²⁴⁹

212.

The Respondent also refers to International Thunderbird Gaming Corporation v. Mexico in which the tribunal held that a number of factors, viewed collectively, justified the finding that the claimant controlled the relevant minority-owned subsidiaries. These factors, according to the Respondent, were: (i) that the claimant held more than 30% of the share capital in the subsidiaries; (ii) the claimant "expected an economic return on its investment in the subsidiaries"; (iii) the "key officers of [the claimant] and [the subsidiaries] were one and the same"; and (iv) "the initial expenditures, the knowhow of the machines, the selection of suppliers, and the expected return on the investment were provided or determined by [the claimant]."²⁵⁰ The Respondent submits that "[i]n contrast, none of these factors were present in the relationship between PM Asia and PM Australia/PML prior to February 2011".²⁵¹

213.

The Respondent accepts that "control" may be established in certain other circumstances, for example, where there is a formal agreement to this effect—as was the case in AIG Capital Partners, Inc. v. Kazakhstan.²⁵² The Respondent emphasises, however, that no equivalent formal agreement exists in the present case.²⁵³ Nevertheless, although AIG Capital Partners, Inc. v. Kazakhstan entailed a different fact pattern to that which characterises the present dispute, the Respondent maintains that the case "nonetheless provides an example of what is necessary in order to establish 'control' [and that t]he existence of certain management practices is not enough".²⁵⁴

214.

The Claimant asserts that the cases cited by the Respondent do not support its assertion that there is a generally accepted meaning of "control". "Nothing in the decisions does or could supersede the plain text of the Treaty, the travaux préparatoires, and arbitral jurisprudence, all of which align on the core point: management control is an independent basis for jurisdiction, distinct from ownership, under Article 1(e) [of the Hong Kong-Australia BIT]".²⁵⁵

215.

The Claimant disputes the relevance of the decision in Aguas del Tunari v. Bolivia on the basis that the relevant treaty in that case did not contain "owned or" as an alternative to "controlled".²⁵⁶ In contrast to the present case, the Claimant notes that the tribunal in Aguas del Tunari focused on the question of whether the actual exercise of control was a necessary element in addition to the legal capacity to control.²⁵⁷ In the Claimant's view, the tribunal found only that legal capacity to control is sufficient to establish control; the tribunal therefore "did not find that actual control by itself is insufficient to meet the standard of control" as suggested by the Respondent.²⁵⁸ The Claimant emphasises that the Aguas del Tunari v. Bolivia case also contradicts the Respondent's argument that the Claimant did not control the Australian subsidiaries pursuant to Article 1(e) of the Treaty because "PMI ultimately controlled the Claimant". According to the Claimant, the finding of the Aguas del Tunari tribunal found that

"[t]he BIT does not limit the scope of eligible claimants to only the 'ultimate controller '".²⁵⁹

216.

The Claimant also explains that Vacuum Salt v. Ghana does not help the Respondent because it addresses issues that are very different from the present case, such as the meaning of "foreign controlled" under the ICSID Convention and the involvement of "an individual's person property, not an investment within a corporate family".²⁶⁰ The Claimant points to the tribunal's finding that, for the purpose of establishing control, "a tribunal. may regard any criterion based on management, voting rights, shareholding or any other reasonable theory as being reasonable for the purpose".²⁶¹ The Claimant stresses that in Vacuum Salt v. Ghana, the claimant presented "exceedingly thin" evidence in support of its assertion of control, and the Vacuum Salt tribunal therefore asserted that "[i]t is significant that nowhere does there appear to be any material evidence that [the claimant] either acted or was materially influenced in a truly managerial rather than technical or supervisory vein. Nowhere in these proceedings is it suggested that [the claimant]. was in a position to steer, through either positive or negative action, the fortunes of Vacuum Salt".²⁶² The Claimant maintains that, unlike the investor in Vacuum Salt v. Ghana, it "has exercised significant 'control' over the investment within the plain meaning of that term", that the evidentiary record in this case is "bursting with evidence of Claimant's control of the Australian subsidiaries" and that the relevance of Vacuum Salt v. Ghana should therefore be rejected.²⁶³

217.

The Claimant reiterates that International Thunderbird Gaming Corporation v. Mexico in fact supports the Claimant's position.²⁶⁴ In the Thunderbird Award, the tribunal interpreted the term control "in accordance with its ordinary meaning" and held that "[c]ontrol can also be achieved by the power to effectively decide and implement the key decisions of the business activity of an enterprise" absent legal capacity to control.²⁶⁵ The Thunderbird tribunal then examined the facts and determined that the claimant exercised de facto control over the investment and therefore "controlled" the investment for the purposes of jurisdiction under NAFTA.²⁶⁶ The Claimant agrees with the Respondent that there were a series of factors that led the Thunderbird tribunal to its conclusions.²⁶⁷ The Claimant emphasises that both Parties agreed these factors are to be "viewed collectively— i.e. that no individual factor is dispositive or necessary".²⁶⁸ This is significant for the Claimant's position in this case since, "on any 'collective' view of the evidence, Claimant's exercise of control of PML is undeniable". Thus, according to the Claimant, the evidence in the present case satisfies the Thunderbird tribunal's formulation of "control".²⁶⁹

218.

As regards the AIG Capital Partners, Inc. v. Kazakhstan decision, the Claimant considers it "entirely irrelevant" because there is no similar legal agreement between the parties in the present case".²⁷⁰ The AIG Capital Partners tribunal, the Claimant emphasises, "takes no position on whether management control can qualify as control under an investment treaty".²⁷¹

219.

In the Respondent's view, "[e]ven if PM Asia's assertion that "oversight and management control' qualifies as 'control' under Article 1(e) of the Treaty is correct (which it is not), PM Asia has failed to demonstrate that it did in fact exercise such 'control' over PM Australia and PML before the restructur[ing]".²⁷² The Respondent supports this assertion on the following basis: (i) the evidence demonstrates that any control over PM Australia and PML was exercised regionally by PMI; (ii) Mr. Pellegrini's responsibilities in respect of PM Australia and PML were limited and insufficient to amount to "control"; (iii) there was no delegation of control from PMI to PM Asia; and (iv) PM Asia's asserted "control" is inconsistent with the PMI Group's application to FIRB.²⁷³ These assertions are set out in more detail below.

220.

With respect to whether PM Asia or PMI controlled PM Australia and PML before the restructuring, the Respondent asserts that the documentary evidence provided by the Claimant is "sparse, incomplete and inadequate" and argues that any control over PM Australia and PML was in fact exercised by "the ultimate parent company, PMI".²⁷⁴ According to the Respondent, PMI assigned specific individuals to Hong Kong to oversee decisions concerning the Australian subsidiaries who "acted in their capacity as part of a PMI structure, not in their capacity as officers of PM Asia".²⁷⁵

221.

To elaborate on its arguments, the Respondent disputes that one of the Claimant’s primary functions has been the oversight of PMI affiliates in Asia on the grounds that the PMI Annual Report for 2008 does not even mention PM Asia and that Mr. Pellegrini is described therein as the President of the "Asia Region", consistently with his profile on the PMI website.²⁷⁶ The "only contemporaneous document" provided by the Claimant, the Respondent notes, does not suggest that PM Asia personnel has anything to do with the restructuring process.²⁷⁷ The Respondent also contests the Claimant’s alleged "various appointments of PML’s senior management", arguing that, "the documentary evidence establishes no link between such appointments and PM Asia officeholders acting in that capacity".²⁷⁸

222.

According to the Respondent, the Claimant’s evidence only indicates that various officers at PML reported to "individuals holding positions in the PMI 'Asia Pacific Region’, and not to PM Asia".²⁷⁹ The Respondent emphasises that, "documentary evidence, witness testimony and [the Claimant’s] own organizational structure" establish that "what was important for the personnel at the Australian subsidiaries in their reporting lines was the 'region’".²⁸⁰ Thus, the Respondent points out that the Claimant "has not established that the actions undertaken by Mr. Pellegrini with respect to the Australian subsidiaries were done either in the capacity of President of PM Asia (which he was not), or as a director of PM Asia (which he was). The documentary evidence is consistent with him exercising powers as President of the Asia Region of PMI".²⁸¹ While the Claimant refers to PM Asia as a "team of managers" that assisted Mr. Pellegrini, the Respondent stresses that this does not alter the fact that "those managers and directors are working either as part of the PMI Asia Region or within a PMI central function".²⁸²

223.

The Respondent points to further documentary evidence to support its assertion that PM Asia did not provide oversight of the Australian subsidiaries. As regards PML's financial performance and budget, the Respondent emphasizes that the documents produced by the Claimant concern a market strategy review meeting in 2003 and only show that "PM Asia was responsible for organizing, and providing feedback from, that meeting" but not control of PML.²⁸³ The Respondent points to Mr. Pellegrini's own admission that it is the CEO of PMI who finalises PML's budget and concludes that, "ultimate decision-making power rested with PMI".²⁸⁴ Addressing the approval of PML's capital expenditures, the Respondent emphasises that, contrary to the Claimant's assertion, Mr. Pellegrini gave his approval in his role within PMI and the expenditures were approved in accordance with a PMI policy.²⁸⁵ Furthermore, the person "who gave the ultimate approval for PML's payment of dividends", the Respondent notes, was "a PMI officer".²⁸⁶

224.

With respect to Mr. Pellegrini's responsibilities, the Respondent submits that the limited responsibilities of individuals like Mr. Pellegrini "would still not amount to 'control' by PM Asia".²⁸⁷ The Respondent relies on Professor Lys's expert report to argue that, "the final decision was often made by [Mr. Pellegrini’s] supervisors within PMI".²⁸⁸ The Respondent cites several examples to demonstrate Mr. Pellegrini's limited responsibilities.²⁸⁹ Where the Claimant insists that it controlled PML’s major business initiatives and budgets through reviewing and approving PML's OB/LRP since 2001, the Respondent asserts that Mr. Pellegrini's evidence was in fact that "PMI 'finalised the numbers’ on PML’s [OB/LRP]... [and that] Mr. Pellegrini would review the budgets against a standard provided to him by PMI".²⁹⁰ As to the Claimant's assertion that it "directed PML’s branding and marketing strategy", the Respondent asserts that "Mr. Pellegrini agreed that decisions concerning international brands had to be approved by PMI in Lausanne".²⁹¹ As to the Claimant’s assertion that PML managing directors reported to and worked under the supervision of the Claimant’s President, Mr. Pellegrini, the Respondent asserts that "the evidence shows that much of the reporting was directly to 'central function’ personnel in Lausanne, and only indirectly to Mr. Pellegrini on a 'dotted line’ basis".²⁹² According to the Respondent, this ''in no sense... establishes] 'control’ of those departments of the Australian subsidiaries".²⁹³ The Respondent states further that "PMI’s RACI tables²⁹⁴ make it clear that Mr. Pellegrini’s ability to approve [capital] expenditure was restricted, and even in those limited cases in which Mr. Pellegrini was involved in approvals, anything above USD 25 million also required approval from someone higher up in PMI".²⁹⁵ Finally, the Respondent notes that any approval of the Australian subsidiaries’ dividend payments had to be approved by the "director Treasury PMI".²⁹⁶

225.

The Respondent refers to the facts in S.D. Myers v. Canada to emphasise its position that "control" cannot be established through an "intermediate company". According to the Respondent, in S.D. Myers v. Canada, "the CEO of SD Myers was the 'authoritative voice’ and 'directing mind and controller’ of both companies, who 'directed and controlled every decision of Myers Canada’, in the present case, there are manifest limitations on Mr. Pellegrini’s ability to make decisions in respect of the Australian subsidiaries".²⁹⁷

226.

The Respondent asserts that delegated control is not protected under any investment treaty when the delegator does not qualify as an investor, because "any control being exercised is not that of PM Asia as the delegate, but that of the delegator".²⁹⁸ The Respondent explains that "delegated control—which is revocable at will by the company exercising actual control—cannot be sufficient to establish "control" for the purposes of Article 1(e) of the Treaty and is not protected when the delegator is not an "investor" under the [Treaty]...[since] PMI [is] an entity not protected by the [Treaty]".²⁹⁹ The Respondent refers to the evidence of Professor Lys as stating that, "delegated control is meaningful from an economic point of view only where the delegate is more than a mere caretaker for the delegator".³⁰⁰

227.

The Claimant emphasises that there is "incontrovertible evidence that the Claimant exercised management control over the Australian subsidiaries since 2001".³⁰¹ Moreover, the Claimant asserts that its control of the Australian subsidiaries "provides a distinct, independent basis of jurisdiction under the Treaty, which renders all of the Respondent’s preliminary objections moot".³⁰²

228.

With respect to whether PM Asia or PMI controlled PM Australia and PML before the restructuring, the Claimant asserts that it has "put on the record clear, substantial evidence that it has exercised management control over PML since 2001 and has therefore controlled the Australian subsidiaries for purposes of Article 1(e)".³⁰³ The Claimant refers to "two briefs, four witness statements and abundant documentation [that constitutes] overwhelming evidence" in its favour.³⁰⁴ In response to the Respondent’s assertion that the evidence on control put forward by the Claimant is "sparse, incomplete and inadequate", the Claimant explains that it had "offered to produce a set of [control-related] documents from 2009" in respect of the Respondent’s document production requests but the Respondent rejected this offer.³⁰⁵

229.

The Claimant maintains that, "PM Asia and the Australian subsidiaries have always been part of the same corporate family and, at least since 2001, Claimant has controlled the subsidiaries".³⁰⁶ The Claimant emphasises its role as controlling the significant business decisions related to its Asian subsidiaries.³⁰⁷ [REDACTED]³⁰⁸

230.

The Claimant disputes the significance of Mr. Pellegrini’s "formal title" as referring to the "Asia region" rather than "PM Asia".³⁰⁹ Referring to Mr. Pellegrini’s testimony, the Claimant asserts that he "was and remains the President of PM Asia".³¹⁰ The Claimant explains that Mr. Pellegrini’s title refers to "Asia region" because "PM Asia is the headquarters for PMI’s Asia region" and "[o]versight and supervision of PMI affiliates in the Asia region is one of PM Asia’s primary functions".³¹¹ The Claimant reiterates that secondments to PM Asia were arranged on the basis that PM Asia had the right to supervise and define the duties and activities of the "Expatriates".³¹² According to the Claimant, "Respondent has been unable to refute the fact that Mr. Pellegrini regardless of his title, works on behalf of PM Asia (as proven by his employment letter and his position as the senior director of PM Asia) and that he had his staff at PM Asia control the Australian subsidiaries (as proven by the documentary evidence of PM Asia’s management control of the Australian subsidiaries covering many years)".³¹³

231.

The Claimant contends that it "has controlled the composition of PM Australia’s and PML’s Boards, approved PML’s budgets and strategy, authorised PM Australia’s dividend payments, overseen PML’s marketing and sales plans, approved the introduction of new brands in Australia, and evaluated and approved the evaluations of PML’s key offices".³¹⁴ In this regard, the Claimant refers to the witness testimony of its President, Mr. Pellegrini, and that of the Managing Director of PML, Mr. John Gledhill. The Claimant also explains that it exercised control over PML since at least 2001 by overseeing its senior staff; directing its budgeting and business planning processes; requiring PML to secure the Claimant’s approval for certain expenditures, including capital investments; and requiring approval for other business decisions, including developing and launching new products, discontinuing products, changing product packaging, adjusting recommended retail prices, and developing marketing plans.³¹⁵ The Claimant has also exercised control by virtue of the fact that the Claimant’s President appoints or approves the appointment of the senior managers of PML who then become board members.³¹⁶

232.

With respect to Mr. Pellegrini’s responsibilities, the Claimant refers to the "employment contracts of Messrs. Gledhill and Boissart" and reiterates that PML managing directors reported to and worked under the supervision of Mr. Pellegrini.³¹⁷ According to the Claimant, Mr. Pellegrini "completed the annual performance reviews of the Managing Directors of PML", "fixed the salaries of PML employees" and "set the annual bonuses of PML staff".³¹⁸ Moreover, "[t]he employment contracts and personnel announcements for other key PML management", the Claimant argues, indicate its control over PML.³¹⁹ To further support its position, the Claimant provided what it characterises as "[i]nternal organizational and reporting line documentation from 2009".³²⁰

233.

The Claimant insists that it controlled PML’s major business initiatives and budgets through reviewing and approving PML’s OB/LRP since 2001.³²¹ In addressing the Respondent’s concern over the OB/LRP process, the Claimant refers to the agendas for the 2008, 2009 and 2010 regional OB/LRP reviews in Hong Kong and Mr. Pellegrini’s account of the review process for PML’s 2010 OB/LRP.³²² The Claimant also points out that "PML was also required to submit revised budget forecasts to Claimant each month".³²³

234.

Various examples of PML initiatives that were approved by the Claimant in 2009 demonstrate, according to the Claimant, that it directed PML’s branding and marketing strategy.³²⁴ In the context of approvals of PML’s major expenditures and capital investments, the Claimant considers any distinction between approvals made by the Asia Region and those by PM Asia "meaningless".³²⁵ According to the Claimant, the Respondent’s argument concerning the PMI policy for the approval of expenditures is "unhelpful" because the fact that the expenditure approval process has been standardised across the company has nothing to do with the Claimant’s approval.³²⁶ Similarly, the Claimant maintains that the fact that PMI approval was required for large expenditures does not affect the Claimant’s approval in this context.³²⁷ As regards the approval of dividend payments, the Claimant contends that the requirement of multiple approvals does not change the "critical fact. that PML dividend payments required Claimant's approval".³²⁸

235.

The Claimant counters the Respondent’s assertion that PM Asia’s executives acted on behalf of PMI instead of PM Asia on the grounds that the position of "President Asia Region" is a position with PM Asia, and that both employment letters [REDACTED] demonstrate that the relevant executives worked on behalf of PM Asia.³²⁹ The Claimant also points out that Mr. Pellegrini was not only seconded to PM Asia in 2003 but also appointed to PM Asia’s board of directors.³³⁰ Hence, "the fact that Mr. Pellegrini was part of PMI’s global management team", the Claimant suggests, "is fully consistent with his role as President of PM Asia".³³¹

236.

The Claimant states that the legal arguments of the Respondent, namely "that if Claimant controlled the Australian subsidiaries, then it must have been exercising the powers of a shareholder", turns on a "factual question " : "Did Claimant exercise powers held by PML shareholders?"³³² The Claimant asserts that it did not, and that the Respondent’s legal argument must therefore fall away.³³³ The Claimant’s arguments are, in summary, that the Respondent "blurs the distinction" between the activities of PML employees and members of PML’s board of directors to the effect that it appears as though Mr. Pellegrini acted with the powers of a PML shareholder.³³⁴ The Claimant rejects this mischaracterisation of the powers of PML employees. For example, the Claimant refers to Mr. Pellegrini’s First Witness Statement, wherein Mr. Pellegrini confirms that he had no power to remove directors from PML’s board of directors and could not have exercised powers equivalent to a shareholder.³³⁵ The Claimant also asserts that while "Claimant has the authority to approve the appointments of individuals to functional roles such as PML’s Director of Finance or Director of Marketing", this does not mean that the Claimant had the power to appoint individuals to PML’s board of directors.³³⁶ As set out in Mr. Pellegrini’s Second Witness Statement, "PML’s board appoints individuals to PM’s board of directors and fills any vacancies".³³⁷ The Claimant also states that while Mr. Pellegrini did fix salaries and bonuses of individuals in their roles as PML personnel, "[this] says nothing about Claimant’s power to set remuneration for individuals in their capacities as PML board members".³³⁸ The Claimant stresses that it "did not have the latent power to, and never purported to, set compensation for directors acting in their capacities as board members before February 2011".³³⁹

237.

The Claimant disputes the relevance of the Respondent’s contention that delegated control is not protected under any Treaty when the delegator does not qualify as an investor because that control can be revoked at will.³⁴⁰ According to the Claimant, the Treaty "speaks only of 'control’ not 'revocable’ or 'irrevocable’ control".³⁴¹ Furthermore, the fact that a higher level entity within the PMI Group could have revoked the Claimant’s control over the Australian subsidiaries is irrelevant: "[t]he undisputed fact is that Claimant’s control was never revoked".³⁴² According to the Claimant, "[i]f an investor has control when the host [S]tate takes adverse action, that is sufficient for purposes of jurisdiction. It does not matter under Article 1(e) whether that control could have been revoked by a higher entity".³⁴³

238.

Even assuming that the Claimant’s control over PM Australia and PML from 2001 could be established, the Respondent contends that such an investment by virtue of control has not been admitted under Article 1(e) because the Claimant failed to meet the notification requirement under section 26 of the FATA.³⁴⁴ Based on sections 18(2)(a) and 11(2)(d) of the FATA, the Respondent asserts that the Claimant was exercising or controlling rights "attached to a share".³⁴⁵ As a result, the Claimant was required under section 26 of the FATA to notify the Treasurer about the "agreement by virtue of which he or she acquires a substantial shareholding in an Australian corporation" in order to "avoid a criminal offence".³⁴⁶ In the Respondent’s view, the Claimant either did not have control over the investment or had control but failed to satisfy the notification requirement.³⁴⁷

239.

The Respondent counters the Claimant’s argument that it equates the meaning of substantial interest under the Treaty and under Australian law, emphasising that its position is entirely based on sections 26(2), 5(1) and 11(2)(d) of the FATA.³⁴⁸ According to the Respondent, "[a] person exercises the 'rights attached to a share’ if that person exercises powers that are held by the shareholder", including the power to "dismiss a director-level employee", the power to "appoint directors at a general meeting" and the power to "review the remuneration of directors".³⁴⁹

240.

As regards section 38 of the FATA, the Respondent notes that the effect of a failure to notify is that the agreements between the PM entities by virtue of which it is said PM Asia had control of the Australian subsidiaries are not automatically invalidated, which does not "prevent inquiry into the legal validity of acts purportedly done under the FATA".³⁵⁰

241.

The Claimant contests the Respondent’s position that the Claimant would have been required to file a notification under section 26 of the FATA on the ground that the Respondent’s analysis is based on the premise that a showing of substantial interest is necessary for the purpose of establishing control.³⁵¹ The Claimant contends that the Respondent also "incorrectly equates the meaning of 'substantial interest’ under the Treaty and under Australian law".³⁵²

242.

In any event, the Claimant argues that the notification requirement does not affect the admission of its investment because section 38 of the FATA states that "[a]n act is not invalidated by the fact that it constitutes an offence against this Act".³⁵³

243.

In the Claimant’s view, it did not exercise powers held by PML shareholders as the Respondent suggests. First, the Claimant notes that Mr. Pellegrini did not and "could not remove directors from PML’s board of directors".³⁵⁴ Secondly, "[n]either Claimant nor Mr. Pellegrini ever claimed to have appointed individuals directly to PML’s board of directors before February 2011".³⁵⁵ Thirdly, contrary to the Respondent’s view, the Claimant only reviews the remuneration of PML employees but not directors.³⁵⁶ As far as section 38 of the FATA is concerned, the Claimant maintains that "FATA violations have no legal effect on the admission of an investment" as explained in more detail in the Claimant’s arguments regarding the NonAdmission of Investment Objection.

Philip Morris v. Australia

Documents of the case

Lawyers, other representatives, expert(s), tribunal’s secretary

Award on Jurisdiction and Admissibility

I. INTRODUCTION

A. THE CLAIMANT

B. THE RESPONDENT

C. BACKGROUND TO THE DISPUTE

II. PROCEDURAL HISTORY

A. COMMENCEMENT OF THE ARBITRATION AND FIRST PROCEDURAL MEETING

B. PLACE OF ARBITRATION, CONFIDENTIALITY REGIME AND BIFURCATION OF PROCEEDINGS

C. DOCUMENT PRODUCTION, SUBMISSIONS AND HEARING ON PRELIMINARY OBJECTIONS

III. THE PARTIES' REQUESTS

A. THE CLAIMANT'S REQUEST

B. THE RESPONDENT'S REQUEST

IV. STATEMENT OF FACTS

A. THE PHILIP MORRIS INTERNATIONAL GROUP OF COMPANIES

B. THE WORK OF THE NATIONAL PREVENTIVE HEALTH TASKFORCE (NPHT)

C. RESPONSES TO THE NPHT'S WORK AND THE CHANGE IN GOVERNMENT IN AUSTRALIA

D. THE PROPOSED RESTRUCTURING AND PLAN TO INTRODUCE PLAIN PACKAGING MEASURES

E. INTRODUCTION OF THE TOBACCO PLAIN PACKAGING BILL 2011

V. THE PARTIES' ARGUMENTS IN RESPECT OF THE RESPONDENT'S PRELIMINARY OBJECTIONS

A. WHETHER THE CLAIMANT HAS EXERCISED CONTROL WITHIN THE MEANING OF ARTICLE1(e) OF THE TREATY SINCE 2001

1. The Meaning of "Controlled"

(a) The Meaning of the Term "Controlled" in Accordance with Article 31 VCLT

The Claimant's Position

The Respondent's Position

(b) The Meaning of the Term "Controlled" in Light of other Arbitral Awards

The Respondent's Position

The Claimant's Position

2. Evidence of Management Oversight for the Purposes of Establishing "Control"

The Respondent's Position

The Claimant's Position

3. Notification Requirement under FATA

The Respondent's Position

The Claimant's Position

Donald M. McRae	Appointed by the State
Gabrielle Kaufmann-Kohler	Appointed by the investor
Karl-Heinz Böckstiegel	President