MARKET COMMENTARY 37
FIRST JURISDICTIONAL OBJECTION Australia asserts that PMAsia’s purported investment (being its acquisition of shares in PM Australia), has not been admitted by Australia in accordance with Article 1(e) of the Australia- Hong Kong BIT which provides that an ‘investment’ must be ”admitted by [Australia] subject to its lawand investment policies applicable from time to time” . 14 Australia contends that when PM Asia’s purchase of PMAustraliawas permitted by the Australian Government, pursuant to the Foreign Acquisitions and Takeovers Act 1975, PMAsiamisled the relevant Australian Government authority and therefore the investment was not made pursuant to Australia’s laws and investment policy. 15 The basis of this contention has not beenmade public, however, whatever the alleged falsity, Australia says that the true purpose of PMAsia’s acquisition of PMAustraliawas to position itself to bring its claimunder the Australia-Hong Kong BIT once the TPPA 16 had been enacted. In further support of its first jurisdictional objection, Australia relies on customary international law, under which a state has a sovereign right to determine the terms onwhich it admits foreign investments. SECOND JURISDICTIONAL OBJECTION Australia further asserts that PMAsia’s claim falls outside Article 10 of the Australia-Hong Kong BIT dealing with the settlement of investor disputes for two reasons. Australia argues that PM Asia is not permitted to take advantage of the Australia-Hong Kong BIT protections bymaking an investment at the time when a dispute is either existing or highly probable (this being a reference to PMAsia acquiring 100 per cent ownership of PMAustralia). 17 It contends that Philip Morris was aware of Australia’s position on cigarette plain packing, and its position in respect of the regulation of tobacco productsmore generally, in the years leading up to the TPPA and before PMAsia acquired PMAustralia. Australia’s position is that PMAsia acquired PMAustralia for the sole purpose of positioning itself tomake a claimunder the Australia-Hong Kong BIT. Australia argues that PMAsia’s claimamounts to an abuse of rights otherwise conferred by Article 10 of the Australia-Hong Kong BIT, on the basis that PMAsia cannot “restructure investments so as to gain jurisdiction under a BIT for [pre-existing or reasonably foreseeable] disputes as it would constitute an abusivemanipulation of the systemof investment protection” . 18 A similar point was raised in Mobil Corporation v Bolivarian Republic of Venezuela (ICSID Case No. ARB/07/27, June 10, 2010). In that case, the tribunal found that corporate reorganisation (or in PMAsia’s case the purchase of PMAustralia) to take advantage of BIT protections is valid insofar as it is amatter of forward planning, but that corporate reorganisation in anticipation of a particular dispute was an “abuse of right” and that in such circumstances a party should not be afforded BIT protection.
THIRD JURISDICTIONAL OBJECTION Australia’s third jurisdictional objection relates to PMAsia’s shareholding in its separate subsidiary PhilipMorris Limited (PML). Australia contends that neither PMAsia’s shares in PML, nor PML’s assets constitute “investments” for the purposes of the Australia-Hong Kong BIT. In light of the fact that both PMAustralia and PML are incorporated in Australia, Australia submits that indirect investments only fall within the ambit of the Australia-Hong Kong BIT where companies incorporated in a third State qualify as investors. Therefore, as PMAsia is the only relevant entity incorporated outside of Australia, only its shares in PMAustraliawould be protected under the Treaty (providing they are found to be an “investment” for the purposes of the BIT). Australia alsomade submissions in the alternative, that to the extent that indirect investments do fall within the definition of “investment”, PMAsia does not ‘own’ or ‘control’ its investment within themeaning of Article 1(e) of the Treaty. It relies upon the fact that PMAsia does not have ownership rights in the intellectual property at issue, nor is it a party to the relevant license agreements. Further, pursuant to the Australian TradeMarks Act, only the registered owner can exercise control over its own trademarks. The Tribunal has determined that the third objection “ factually largely overlaps with the merits” , and in any event, if upheld, would not necessarily be fatal to PMAsia’s case. For these reasons, it will not be heard in the preliminary phase of the proceedings but rather with the merits in the later phase. If Australia is unsuccessful in its jurisdictional arguments, a potential issuemay arise in the substantive arbitration, because the tribunal will be required to determine whether, by enacting the TPPA, Australia has expropriated PMAsia’s investments. However, the High Court of Australia has already determined that this is not the case. In JT International SA v Commonwealth of Australia [2012] HCA 43, the High Court held that there was no acquisitionwithin themeaning of s 51(xxxi) of the Constitution. It is conceivable that it will be contended in the arbitration that there is a relationship between the concepts of appropriation and acquisition and, that the tribunal, in the context of an argument about expropriation, might be asked to forma viewabout the correctness of the High Court’s conclusion that there was no acquisitionwithin themeaning of s 51(xxxi) of the Constitution. This raises the prospect of parties using investor state dispute settlement (ISDS) provisions to challenge legislative and administrative acts of governments, and also raises the prospect of future arbitral awards being inconsistent with the decisions of domestic legal courts. The outcome of this casemaywell have a further impact on government policy going forward in relation to the inclusion of ISDS provisions in BITs. POTENTIAL OVERL AP BET WEEN INVESTMENT ARBITRATION AND DOMESTIC COURTS
14 Response to Notice of Arbitration p 32 15 Procedural Order Number 8 p 36 16 Procedural Order Number 8 p 37 17 Response to Notice of Arbitration p 6 18 Bifurcation Hearing Transcript, at p 73:5-73:16.
7 Notice of Arbitration P 6.1 8 Notice of Arbitration pp 7.3–7.5 9 Notice of Arbitration pp 7.9–7.11 10 Notice of Arbitration pp 7.6–7.8 11 Notice of Arbitration pp 7.12–7.14 12 Notice of Arbitration pp 7.15–7.17
13 Article 10 of the Australia-Hong Kong BIT refers any dispute to arbitration pursuant to the UNCITRAL Rules, and not to the International Centre for Settlement of Investment Disputes
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