Precise costs orders remained unknown, despite earlier disclosures

As is well-known (see here), Philip Morris’ claim under the Australia-Hong Kong bilateral investment treaty was dismissed in December 2015, when the tribunal of Karl-Heinz Boeckstiegel (chair), Gabrielle Kaufmann-Kohler and Donald McRae determined that the investor had committed an abusive restructuring of its corporate operations in order to gain investment treaty protection.

The tribunal’s final costs award was eventually rendered in March 2017 (see here), indicating that Philip Morris had been ordered to bear some percentage of Australia’s legal costs and the costs of the arbitration. However, the precise percentage in question, and the overall amounts of costs, were redacted from the public version of that award.

Speculation in the Australian media in 2015 had suggested that Australia’s defence costs for the investment treaty claim ran to A$50 million (around US$36 million). In July 2018, The Guardian reported that the total defence costs were just under A$39 million. However, that figure was further qualified by a statement from Australia’s Department of Health that the figure might include costs related to other tobacco plain packaging litigation (such as Australia’s defence in its case at the World Trade Organization and an earlier Australian High Court challenge), since certain invoices were not disaggregated.

While those disclosures provided a degree of clarity, the defence costs specific to the investment treaty dispute, and the proportion of those costs that Australia would receive back from Philip Morris under the tribunal’s 2017 final award, still remained unknown.

Australia claimed A$23 million in legal defence costs

The newly-released 2-page excerpt from the previously-redacted costs award reveals that Australia claimed just over A$23 million (around US$16 million) in legal fees for its defence in the investment treaty case.

As we reported in 2017, the tribunal accepted that the sum claimed by Australia (which was then not public) was reasonable. The tribunal adopted a starting-point that, given its victory in the case, Australia should be reimbursed the entirety of these legal defence costs.

Respondent is left with A$11.5 million in unreimbursed legal costs due to unsuccessful jurisdictional objection

However, the tribunal went on to criticise Australia for raising an objection that Philip Morris’ investment was not 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.

This reasoning led the tribunal to order the investor to reimburse only a portion of Australia’s defence costs.

While that portion was previously unknown, the newly-released document indicates that Philip Morris was held responsible for only 50% of Australia’s legal costs, or around A$11.5 million.

Arbitration costs amounted to €1.3 million, with Philip Morris bearing 75% of this

The document also clarifies that the costs of the arbitration amounted to €1,329,202.14. Philip Morris was similarly ordered to bear 50% of Australia’s half-share of this sum, amounting to a reimbursement of €333,059.91 to Australia.

As noted, assuming that Philip Morris has complied with these costs orders, the investment treaty case therefore leaves Australia with a bill of around A$12 million.