Final award is released in Philip Morris v. Australia case, but crucial costs information is redacted from public view
The final costs award in the high-profile Philip Morris v. Australia arbitration has been released by the institution administering the case, the Permanent Court of Arbitration.
As we’ve reported (see here), the tribunal dismissed the investor’s case in December 2015, on the grounds that it had committed an abusive restructuring of its corporate operations.
The Final Award of March 8, 2017 (and now available here) reveals that Philip Morris has been ordered to bear some percentage of both Australia’s legal costs and the costs of the arbitration. Notably, however, the key information in the award – the precise percentage that the claimant will bear, and the overall amounts in question – has been redacted.
It is highly unusual for a tribunal to redact such basic costs information – presumably in response to a demand of one or both parties – before the award is published. The upshot of this is that the Australian taxpayer will bear some of the costs of this case, without being permitted to know the extent of this outlay.
Arbitrators in the case are Karl-Heinz Boeckstiegel (chair), Gabrielle Kaufmann-Kohler and Donald McRae.
Grounds for redaction of costs information remain a mystery
In an earlier procedural order, the parties had agreed that information could be redacted from case documents on two grounds: business confidentiality, or ‘government confidentiality, including information the disclosure of which is, for reasons of political or institutional sensitivity, not in the public interest’.
Following release of the award to the parties in March of 2017, it appears that one or both of the parties contended that costs details should be redacted on one of the two aforementioned grounds. The now-published version of the award – perhaps understandably – does not discuss the post-award debate about redaction.
In a 2016 statement, the government made clear that it did not “intend to publicly release information concerning the legal costs of defending challenges to tobacco plain packaging”.* It’s unknown whether Philip Morris took any position on whether such costs information should or should not be in the published final award.
Investor is clearly the ‘unsuccessful’ party and should – in principle – reimburse full defence costs, tribunal finds
The published award does offer reasoning on whether Philip Morris should be ordered to bear any of Australia’s legal costs and/or the arbitration costs.
For its part, Philip Morris proposed that the tribunal’s fees and expenses simply be split evenly, and that there be no shifting of either party’s legal costs.
In the claimant’s view, each party had prevailed on two issues (Australia on bifurcation and the abuse of right objection, and Philip Morris on objections relating to lawful admission of the investment and the time at which the dispute arose), and therefore neither party was the ‘unsuccessful’ party that would ordinarily bear the full legal costs under the governing UNCITRAL Rules.
However, the tribunal dismissed this, viewing Philip Morris clearly as the unsuccessful party in the case. Given the finding of abuse of right in particular, the tribunal said, Australia should in principle not be made to bear any of its defence costs.
The tribunal also saw no concern in Australia’s request for a hearing on bifurcation, an issue that would normally be resolved by written filings alone. In this case, the tribunal held, the bifurcation request was justifiable, with Australia ultimately succeeding in dismissing the case on a pre-merits basis.
Philip Morris contended that its success on the ‘time of dispute’ objection was more significant than Australia’s success on abuse of right, since the former objection was jurisdictional whereas the latter related ‘only’ to admissibility. However, the tribunal declined to downplay its abuse finding, seeing no reason to adjust apportionment of costs in the investor’s favour.
Tribunal penalises Australia for its objection that investment was not validly admitted
More importantly, though, the tribunal chastised Australia for raising the objection that Philip Morris’ investment had not been admitted in accordance with Australian law. This objection required a close examination of Australian law, and took up a significant portion of the proceedings, the tribunal observed. While it was a serious objection, it nonetheless failed, and the tribunal ‘could have reached its conclusion that the claim is inadmissible more expeditiously and at more limited costs to the Parties’ if the objection had not been raised.
In light of this, the tribunal did not order the investor to pay Australia’s full legal defence costs, but only a proportion of them. (Alas, the crucial proportion ordered is redacted from the final award.)
Investor labels Australian defence costs ‘excessive’, considerably higher than comparable NAFTA state claims
The tribunal then turned to the actual amount claimed by Australia in legal fees.
Noting that Australia was represented largely by in-house government lawyers, Philip Morris queried the figures claimed as fees for these lawyers (who enjoyed only ‘very modest government salaries’), labelling the amounts ‘excessive’.
The investor also compared Australia’s costs claims to those of Canada and the United States in NAFTA cases. Noting that these two countries had never claimed more than US$4.5 million, Philip Morris protested that the NAFTA states ‘have never claimed [redacted] as much in costs and fees as Respondent claims in this arbitration’.
(Although the redaction in this phrase makes it somewhat difficult to understand, Philip Morris’ argument here at least appears to set a lower bound on Australia’s costs claim – ie, US$4.5 million. This is perhaps not surprising, given Australian media reports (albeit unconfirmed) that the country spent at least A$50 million on its defence, as we’ve noted, although it is unclear whether that quoted figure includes amounts for defending the same legislation at the WTO and in an earlier Australian High Court challenge.)
Australia says its costs are reasonable in light of critical importance of case
For its part, Australia contended that its legal fees were ‘reasonable in light of the circumstances of the case’. Australia explained that its in-house government solicitor service operated on a ‘commercial and competitive basis in the marketplace’, rather than at set government rates. The state added that it had been cautious and reasonable in its claims, for instance capping time claimed at 6 hours per day from October 2014 to May 2015, writing off costs that it judged should not be claimed, and waiving claims for legal advisors that played only a minor role in the defence.
Furthermore, Australia said, Philip Morris had forced a full merits filing in the case by objecting to bifurcation, thus increasing the state’s costs. The tobacco measures in question, Australia added, were of ‘critical importance’ to the state, and required a ‘robust’ defence.
Complex issues and public health importance justify large defence claims, tribunal says
The tribunal confirmed that the volume of work in the case ‘considerably exceeded what is usual’ in investment arbitration, for instance including a hearing on bifurcation and arguments on the place of arbitration. The issues were complex, and the case’s relevance for public health had increased the stakes, the tribunal noted.
Australia had no prior experience with investment arbitration, unlike the repeat NAFTA players, the tribunal said, explaining the NAFTA states’ ‘considerably smaller’ claims, and justifying Australia’s decision to hire certain outside counsel. As for the government lawyers, it was normal to claim for such representation at a higher rate than their salaries would suggest, the tribunal said, ‘in view of high overhead costs’.
By contrast, Australia would not be reimbursed for certain witness expenses relating to the objection on admission in accordance with Australian law, the tribunal held, since, in its view, this objection should not have been brought.
Final amounts redacted, but post-award interest added
As a result, Philip Morris was ordered to pay a (redacted) percentage of Australia’s legal costs, the precise amount of which was also redacted. The investor was also apparently ordered to pay the same percentage of the arbitration costs, although these figures are similarly redacted.
The tribunal added post-award simple interest to the costs amounts, adopting Australia’s proposed rate of 1.5% (the cash rate of the Reserve Bank of Australia at the time of costs submissions).
The final award appears to bring the long-running case to a close.
* The statement by Australia on not disclosing costs information is here. For what it’s worth, Australia appears to have favoured minimal redactions to the earlier jurisdictional award. Indeed, Procedural Order No 17 of May 2016 indicates that Australia objected to certain of Philip Morris’ proposed redactions to the jurisdictional award, arguing that the public interest in the case required redactions to be kept limited.