IMPLICATIONS OF ONGOING TRADE AND INVESTMENT DISPUTES

CONCERNING TOBACCO: PHILIP MORRIS V. URUGUAY

BENN McGRADY

Introduction ..............................................................................................................................1

II The Claim: Philip Morris Products (Switzerland) v Uruguay..................................................3

III

Investments Affected by Plain Packaging and the Uruguayan Measures ............................5

IV

Expropriation ........................................................................................................................7

V Fair and Equitable Treatment .................................................................................................16

VI

The Umbrella Clause ..........................................................................................................19

VII

Conclusion ..........................................................................................................................19

I INTRODUCTION
This chapter examines the implications of ongoing trade and investment disputes for plain
packaging of tobacco products. As earlier chapters have detailed, challenges under international
law could arise under the World Trade Organization (WTO) covered agreements, or under
international investment agreements (IIAs). In the WTO context, earlier chapters identified
possible claims under the Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS)1 and the Agreement on Technical Barriers to Trade (TBT Agreement).2 In the
context of IIAs, earlier chapters identified the possibility that a tobacco company might seek
compensation for indirect expropriation of an investment or on the basis that plain packaging
violates rules governing fair and equitable treatment of foreign investors.
In this context, there is one direct legal challenge to plain packaging that is ongoing. In June
2011, Philip Morris Asia Limited initiated a challenge to Australias planned implementation of
plain packaging measures. The company, which is the Hong Kong based owner of the
Australian affiliate Philip Morris Limited, has served a notice of claim on the Australian
government. The notice of claim states the companys intention to pursue legal action under the
AustraliaHong Kong bilateral investment treaty (BIT).3 At the time of writing, the notice of
claim has not been made available to the public and Philip Morris has not revealed the grounds
upon which it intends to challenge the Australian measure.
Three other disputes may also have implications for plain packaging, albeit less directly. In
February 2010, Philip Morris Products (Switzerland) brought a claim against Uruguay under the

Marrakesh Agreement Establishing the World Trade Organization, opened for signature 15 April 1994, 1867
UNTS 3 (entered into force 1 January 1995) annex 1C.
2
Marrakesh Agreement Establishing the World Trade Organization, opened for signature 15 April 1994, 1867
UNTS 3 (entered into force 1 January 1995) annex 1A.
3
Agreement between the Government of Hong Kong and the Government of Australia for the Promotion and
Protection of Investments, 1748 UNTS 385 (signed and entered into force 15 September 1993).

Electronic copy available at: http://ssrn.com/abstract=2046261

SwitzerlandUruguay BIT.4 The Request for Arbitration challenges the size and content of pack
warnings required by Uruguayan law, as well as implementation of a law prohibiting the
presence of misleading descriptors, logos and colors on tobacco packaging.5 Given that
Uruguayan law requires warnings covering 80 per cent of the surface of a pack, and that
Uruguay is a world leader in requiring such large warnings, there is little doubt that the claim
was filed as a veiled attack on plain packaging. As such, the outcome of the dispute could help
clarify how IIAs apply to tobacco packaging measures.
At the WTO, Indonesia has brought a claim against the United States concerning measures that
prohibit the sale of certain flavoured cigarettes.6 The US measures prohibit the sale of fruit,
candy and clove flavoured cigarettes, but not menthol flavoured cigarettes. Indonesia argues that
the measures discriminate against Indonesian clove cigarettes as compared to like US menthol
cigarettes, contrary to Article III:4 of the General Agreement on Tariffs and Trade (GATT).7
Indonesia also argues that the measure is not necessary to protect human health in violation of
Article 2.2 of the TBT Agreement. This dispute is likely to be relevant for plain packaging with
respect to Article 2.2 of the TBT Agreement. The lack of case law to clarify the meaning of
Article 2.2 suggests that the outcome of this dispute could have implications for technical
regulations more generally. Equally, the measures in question are distinct from plain packaging
in many ways, making it difficult to predict in any detail how the outcome of the dispute may
affect plain packaging under WTO law.
The final dispute of potential relevance is a claim by Philip Morris (Norway) under the European
Economic Area Agreement concerning Norwegian bans on the display of tobacco products at the
point of sale.8 This claim challenges measures concerning the display of tobacco products,
meaning that there are parallels to plain packaging. In this context, analysis of the proportionality
of the Norwegian measure under European Union law could be particularly relevant to the
prospects of EU Member States implementing plain packaging. The case could also raise
questions about the relationship between plain packaging and bans on point of sale display and
the roles played by these respective measures. Given that EU law is the subject of discussion in
another chapter, this dispute will not be examined further in this one.
Given that information about the Philip Morris Asia claim is not yet in the public domain, Philip
Morris v Uruguay is the dispute from which most can be learned. This chapter examines that
dispute with a view to identifying its implications not only for Philip Morris v Australia, but also
for plain packaging more generally. In the latter respect, the body of IIAs is a fragmented one
and there is no doctrine of precedent applied in investment treaty arbitration. Often, the
4

FTR Holdings SA (Switzerland), Philip Morris Products SA (Switzerland) and Abal Hermanos SA (Uruguay) v
Oriental Republic of Uruguay, ICSID Case No ARB/10/7, registered 26 March 2010.
5
FTR Holdings SA (Switzerland), Philip Morris Products SA (Switzerland) and Abal Hermanos SA (Uruguay) v
Oriental Republic of Uruguay, Request for Arbitration, Under the Rules of the International Centre for Settlement of
Investment Disputes, 19 February 2010.
6
See Request for Consultations by Indonesia, United States Measures Affecting the Production and Sale of Clove
Cigarettes, WTO Doc WT/DS406/1, G/L/917, G/SPS/GEN/1015, G/TBT/D/38 (14 April 2010).
7
General Agreement on Tariffs and Trade, LT/UR/A-1A/1/GATT/2 (signed 30 October 1947), as incorporated in
Marrakesh Agreement Establishing the World Trade Organization, opened for signature 15 April 1994, 1867 UNTS
3 (entered into force 1 January 1995) annex 1A.
8
Case E-16/10 - Philip Morris Norway AS v Staten v/Helse- og omsorgsdepartementet

Electronic copy available at: http://ssrn.com/abstract=2046261

agreements are bilateral and the terms of one agreement may differ from another in meaningful
ways.
The analysis that follows is divided into five sections. Section II outlines the claims made in
Philip Morris v Uruguay. Section III examines the question of what constitutes an investment
for purposes of the Uruguay claim and possible claims relating to plain packaging. Section IV
examines expropriation, including how different clauses are interpreted and the arguments made
by Philip Morris in its Request for Arbitration with Uruguay. Section V addresses fair and
equitable treatment, including the different standards that might be applied by arbitral tribunals.
Finally, section VI touches upon the use of umbrella clauses to bring TRIPS and the Paris
Convention within the applicable law for purposes of an investment treaty arbitration. Sections
III-VI do not attempt to draw out all of the legal issues that may be relevant to resolution of the
dispute. The approach adopted is more selective in the sense that a handful of issues with
potential implications for plain packaging are identified and discussed.
II THE CLAIM: PHILIP MORRIS PRODUCTS (SWITZERLAND) V URUGUAY
In February 2010 Philip Morris Products (Switzerland) and other companies filed a Request for
Arbitration with Uruguay pursuant to a BIT between Switzerland and Uruguay.9 The Request for
Arbitration took issue with three aspects of Uruguays tobacco packaging laws. First, the
Request for Arbitration addressed the fact that Uruguayan law requires 80 percent of the surface
of tobacco packaging to be covered by health warnings. In essence, the Request for Arbitration
argues that mandatory pack warnings should be smaller than 80 percent of the surface area of a
pack.
Second, the claimants took issue with the character of graphic health warnings required under
Uruguayan law. The photographic images in question depict a number of conditions associated
with tobacco consumption. A woman is shown in a hospital bed with a caption identifying
smoking as a cause of cancer and cardio-vascular disease. A hand giving a thumbs-down covers
the naked torso of a man and the caption indicates that smoking leads to inferior sexual
performance. A picture of a mouth with teeth stained yellow and rotting gums is linked with a
caption to the effect that smoking causes gum disease. An image of a sleeping baby surrounded
with tobacco smoke is linked with a caption to the effect that second-hand smoke increases the
risks of Sudden Infant Death Syndrome. An image of a newborn child bears a warning that
smoking is associated with increased risk of premature birth and stillbirth. Finally, a photo of a
dirty battery, held between two fingers as a cigarette is held, is associated with a warning that
cigarettes contain cadmium and other toxic metals.10
In the Request for Arbitration, the claimants allege that these warnings are designed to shock and
repulse rather than warn consumers of the actual effects of smoking. Furthermore, the claimants
argue that the proper role of health warnings is limited to providing consumers with information
to facilitate informed decision-making, rather than actively attempting to dissuade consumers
from using a product.

Agreement between the Swiss Confederation and the Oriental Republic of Uruguay concerning the Reciprocal
Promotion and Protection of Investments, 1976 UNTS 413 (signed and entered into force 7 October 1988).
10
For information on the Uruguayan warnings see <http://www.tobaccolabels.ca>.

Third, the Request for Arbitration took issue with implementation of a Uruguayan law
prohibiting misleading or deceptive tobacco packaging. This law was initially used to prohibit
use of descriptors such as light, ultra-light and mild, that when used in association with
tobacco products give a misleading suggestion with respect to the health consequences of
consumption.11 This Uruguayan law implemented Article 11 of the World Health Organization
(WHO) Framework Convention on Tobacco Control12 (FCTC), to which Uruguay is a Party.
Article 11 of the WHO FCTC provides in part:
1. Each Party shall, within a period of three years after entry into force of this Convention for that Party,
adopt and implement, in accordance with its national law, effective measures to ensure that:
(a) tobacco product packaging and labelling do not promote a tobacco product by any means that
are false, misleading, deceptive or likely to create an erroneous impression about its
characteristics, health effects, hazards or emissions, including any term, descriptor, trademark,
figurative or any other sign that directly or indirectly creates the false impression that a particular
tobacco product is less harmful than other tobacco products. These may include terms such as
low tar, light, ultra-light, or mild

Following the prohibition of these terms, Philip Morris re-branded its products globally, using
colours in place of descriptors in markets where descriptors were prohibited. For example:
Marlboro Light products became Marlboro Gold;
Marlboro Ultra Lights became Marlboro Silver;
Marlboro Menthol Milds became Marlboro Blue; and
Marlboro Menthol is sold in a green coloured pack.
Subsequently, the Uruguayan Ministry of Public Health interpreted Uruguays existing
prohibition on misleading packaging as prohibiting the use of colours in the manner described.
This action is consistent with Guidelines for Implementation of Article 13 of the WHO FCTC.
These guidelines identify several means of promoting tobacco products that may be regarded as
misleading. In addition to the use of terms, descriptors, trademarks, figuratives or other signs, the
guidelines refer to emblems, marketing images, logos and colours.13 A footnote to the relevant
passage states that [t]hese phrases are taken from Article 11.1(a) of the Convention, with the
addition of the word color, which the working group recognises can be used to convey a
misleading impression about the characteristics, health effects or hazards of tobacco products.14
In the Request for Arbitration the claimants assert that the effect of the way in which the
Uruguayan prohibition on misleading packaging has been applied is such that only one product
from a brand family may be sold in the Uruguayan market. More specifically, the claimants
allege that the Uruguayan government permitted it to choose a single presentation of a brand,
such as Marlboro, and to sell its product under that single presentation. The claimants assert that
this is an arbitrary measure not reasonably connected to protection of public health.
11

Law 18,256 prohibited the use of terms, descriptors, trademarks, figurative signs or other kinds of signs which
may have the direct or indirect effect of creating the false impression that one tobacco product is less harmful than
another. Decree 284/008 identified colors or combinations of colors falling within the scope of law 18,256 and
Ordinance 514 then implemented Law 18,256.
12
2302 UNTS 166 (adopted 21 May 2003, entered into force 27 February 2005).
13
WHO Framework Convention on Tobacco Control, Guidelines for Implementation of Article 13, [39].
14
Ibid [39] n 7.

The claimants allege that the measures identified above violate the following four obligations
under the SwitzerlandUruguay BIT:
1. not to obstruct the management, use, enjoyment, growth or sale of investments through
unreasonable or discriminatory measures (Article 3(1));
2. to provide fair and equitable treatment to the claimants investments (Article 3(2));
3. to refrain from acts of expropriation except for a public purpose and upon payment of
compensation (Article 5(1)); and
4. to respect commitments made by Uruguay with respect to investment and, more
specifically, the commitments made under TRIPS and the Paris Convention for the
Protection of Industrial Property15 (Article 11).
It appears from the Request for Arbitration that the claimants might argue that each of the
measures in question violates each of the four obligations.
III INVESTMENTS AFFECTED BY PLAIN PACKAGING AND THE URUGUAYAN MEASURES
The definition of investment in an IIA determines what property rights fall within the scope of
that agreement. In the case of the SwitzerlandUruguay BIT, a broad definition of investment is
used. Under Article 1(2) an investment encompasses all classes of assets. Paragraph (d) further
specifies that these assets include industrial property rights such as manufacturers or
commercial marks or trade names. Hence, it is unlikely to be controversial that Philip Morris
trademarks constitute investments under the SwitzerlandUruguay BIT. The definition of
investment in Article 1(e) of the AustraliaHong Kong BIT is similarly broad and the same types
of assets would also constitute investments under this agreement.
However, two controversies may arise in the context of the Philip Morris v Uruguay claim. First,
there may be a question as to whether tobacco industry trademarks constitute an investment for
purposes of the Convention on the Settlement of Investment Disputes between States and
Nationals of Other States16 (ICSID Convention). Article 25 of the ICSID Convention provides
that jurisdiction exists only for legal disputes arising directly out of an investment, although the
Convention does not define that term. The Philip Morris claim is made pursuant to the ICSID
Convention and the general practice of tribunals has been to interpret the term investment in
Article 25 as having its own autonomous meaning, separate from that in the IIA being invoked.17
In accordance with this practice, the claimants will have to establish that the property rights in
question constitute an investment under the ICSID Convention, as well as under the
SwitzerlandUruguay BIT.
As a general rule, tribunals consider the following three factors in determining whether an
investment has been made under Article 25:
1. the contribution of the investor;
2. the duration of the putative investment; and
15

Paris Convention for the Protection of Industrial Property, Stockholm Act, 14 July 1967.
Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 575 UNTS
159 and 1639 UNTS 409 (entered into force 14 October 1966).
17
Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (Oxford University Press,
2008) 61.
16

3. the existence of a risk for the investor.18

Drawing on the preamble to the ICSID Convention, some tribunals have also considered whether
the putative investment makes a contribution to the development of the host state.19 Other
tribunals have rejected consideration of this factor, reasoning that this is difficult to judge and
that the factor is not intrinsic to whether a property right constitutes an investment.20
In the context of the Uruguayan dispute, Philip Morris Products (Switzerland) claims to own a
Uruguayan subsidiary. This subsidiary owns a license to use trademarks owned by Philip Morris
Products (Switzerland) in the Uruguayan market and pays a fee for the benefit of that license. It
is expected that Philip Morris will claim that the Uruguayan subsidiary and the trademarks each
constitute investments. There is little doubt that ownership of the subsidiary is likely to
constitute an investment for purposes of the ICSID Convention. However, it is questionable
whether ownership of the rights to the relevant trademarks in the Uruguayan market would
constitute an investment. In this respect, trademarks developed abroad and simply registered in
Uruguay might not make a sufficient contribution to the development of the host state for
purposes of Article 25 of the ICSID Convention. Indeed, it is difficult to see how merely
registering a foreign trademark in a host state and selling tobacco products under that trademark
contributes to development of the host state. This is distinct from a range of other activities in
which an intellectual property right could constitute an investment under Article 25, such as if
intellectually property is developed in the territory of the host state, or if registering a patent and
licensing production may provide the host state with access to a beneficial good.
Of course, Philip Morris might argue that the value of its Uruguayan subsidiary has declined as a
consequence of it not being permitted to use the trademarks. This argument might circumvent
concerns about whether the trademarks are investments under the ICSID Convention. Equally,
this approach would alter the nature of the claim substantially. For example, under this approach,
arguments relating to expropriation through packaging measures would relate to the value of the
subsidiary (the investment) rather than the trademarks themselves, making the putative loss
further removed from the regulatory action in question and raising questions about whether the
loss would be substantial enough to sustain an expropriation claim.
More broadly, if Uruguay does make arguments under Article 25 of the ICSID Convention, the
outcome may help to clarify the circumstances in which tobacco industry investment would
qualify as an investment under the Convention. Similarly, arguments along the lines of those
contemplated above could help to clarify the circumstances in which intellectual property rights
constitute an investment and contribute to the development of the host state.
Equally, the implications of this argument for other claims are limited by the fact that not all
claims will be made under the ICSID Convention. For example, Article 10 of the Australia
Hong Kong BIT specifies that arbitration will take place under the Arbitration Rules of the
18

Salini Costruttori SPA and Italstrade SPA v Kingdom of Morocco (Decision on Jurisdiction of 23 July 2001)
(2003) 42 ILM 609, [52].
19
Ibid [52].
20
Romak SA v Uzbekistan (Award) (Permanent Court of Arbitration, Case No AA280, 26 November 2009) [201][204].

United Nations Commission on International Trade Law21 (UNCITRAL Rules) unless the
parties to the dispute agree on alternative procedures. In this context, there remains an inherent
jurisdictional question of what constitutes an investment. For example, at least one
UNCITRAL tribunal has examined the contribution of the investor, the duration of the putative
investment and whether risk is involved in determining jurisdiction under the UNCITRAL
Rules.22 However, it seems less likely that an UNCITRAL tribunal would consider whether the
putative investment contributes to the development of the host state.
The second controversy concerning the definition of investment that may arise in the Uruguayan
dispute is whether the putative investments have been made in accordance with Uruguayan law.
Article 2(1) of the SwitzerlandUruguay BIT provides that each Contracting Party shall admit
investments in accordance with its legislation. This type of clause is often found in IIAs and has
been interpreted to mean that investments made contrary to the domestic law of the host state are
not investments for purposes of the agreement in question.23 In the Uruguayan context, there may
be a dispute concerning whether the trademarks in question were created in compliance with
Uruguayan tobacco control laws. Although the trademarks may have been registered by the
Uruguayan authorities, in many instances, there may be an outstanding question concerning
whether at the time of their registration those trademarks were compliant with the prohibition on
misleading packaging in Law 18,256. Indeed, the way in which the Uruguayan government has
implemented this law could suggest that it is the governments position that the trademarks in
question are non-compliant.
A decision to the effect that some or all of the trademarks are not investments for purposes of the
BIT would be significant in the context of the dispute. Such a decision could limit the scope of
the claims significantly and frame much of the dispute as a question of compliance with
domestic law, for the host state to administer, rather than an international dispute to be
administered by an arbitral tribunal. A determination to this effect, would also suggest that a
trademark does not necessarily constitute an investment simply because it is registered by the
host state.
However, a decision on this issue is likely to have limited implications for plain packaging. In
the Uruguayan context, the question is whether misleading tobacco trademarks were registered
(and thus putative investments made) at a time when a prohibition on misleading tobacco
packaging made the trademarks/investments unlawful. This is distinct from plain packaging,
which would be a new measure restricting use of pre-existing trademarks. At best, the dispute
might suggest a pre-litigation strategy for states to de-register tobacco trademarks that are
contrary to domestic law, so as to limit the property rights of foreign investors that might be
considered investments under an IIA.
IV EXPROPRIATION
Before considering how the claimants arguments in Philip Morris v Uruguay might also apply
in the context of plain packaging, it is worth identifying some of the different approaches to
expropriation in IIAs. In this respect, the SwitzerlandUruguay BIT contains a fairly typical
21

GA Res 31/98, UN GAOR, 31st sess, 99th plen mtg, UN Doc A/31/98 (15 December 1976) (as revised in 2010).
Romak SA v Uzbekistan (Award) (Permanent Court of Arbitration, Case No AA280, 26 November 2009) [207].
23
Dolzer and Schreuer, above n 17, 84-88.
22

expropriation clause. The AustraliaHong Kong BIT contains a variation on this typical clause,
which appears to place more emphasis on interference with property rights than on the taking of
property by the host state. On the other hand, more recent treaties often clarify the core concepts
and reinforce domestic regulatory autonomy.
Article 5.1 of the SwitzerlandUruguay BIT permits expropriation of an investment (whether
direct or indirect) provided that the measure is for a public purpose, is non-discriminatory, is in
accordance with the law and provided that effective and adequate compensation is paid to the
investor. The relevant parts of the clause state:
Article 5
Dispossession, compensation
(1) Neither one of the Contracting Parties shall take measures, directly or indirectly, of expropriation,
nationalization, or any other measure having the same character or same effect, with regard to investments
belonging to investors of the other Contracting Party, if it is not for reasons of the public interest, as defined
by the law and on the condition that such measures are not discriminatory, that they are in accordance with
legal prescriptions, and that they make allowance for the payment of an effective and adequate
compensation. The amount of the compensation, including interest, shall be settled in the currency of the
country of origin of the investment and shall be paid without delay to the party that is so entitled.24

This type of clause is fairly typical of expropriation clauses. However, some clauses vary from
this model. For example, the relevant part of Article 6(1) of the AustraliaHong Kong BIT
states:
(1) Investors of either Contracting Party shall not be deprived of their investments nor subjected to
measures having effect equivalent to such deprivation in the area of the other Contracting Party except
under due process of law, for a public purpose related to the internal needs of that Party, on a nondiscriminatory basis, and against compensation.

Although the provision is titled expropriation, neither expropriation nor nationalization is

mentioned in the body of the provision. Rather, the text of the provision is focused on the
deprivation of investments or measures having equivalent effect, raising the question whether the
focus of the provision is on expropriation by the host state in its true sense, or merely on
interference with an investors property rights.
These provisions can be contrasted with more recent treaties that include clauses intended to
clarify the concept of expropriation. An example can be found in Chapter 11 of the Agreement
Establishing the Asean-Australia-New Zealand Free Trade Area25 (AANZFTA) (2009). Article
9 of the agreement governs expropriation and compensation and sets out a clause that is quite
similar to Article 5 of the SwitzerlandUruguay BIT. The most relevant part of the provision
states:
1. A Party shall not expropriate or nationalise a covered investment either directly or through measures
equivalent to expropriation or nationalisation (expropriation), except:
(a) for a public purpose;
24
25

Unofficial translation from the French original.

Signed 27 February 2009 [2010] ATS 1 (entered into force 1 January 2010).

(b) in a non-discriminatory manner;

(c) on payment of prompt, adequate, and effective compensation; and
(d) in accordance with due process of law.

However, an annex to this provision clarifies the effect of Article 9. The annex states:
1. An action or a series of related actions by a Party cannot constitute an expropriation unless it interferes
with a tangible or intangible property right or property interest in a covered investment.
2. Article 9.1 (Expropriation and Compensation) of Chapter 11 (Investment) addresses two situations:
(a) the first situation is direct expropriation, where a covered investment is nationalised or
otherwise directly expropriated through formal transfer of title or outright seizure; and
(b) the second situation is where an action or series of related actions by a Party has an effect
equivalent to direct expropriation without formal transfer of title or outright seizure.
3. The determination of whether an action or series of related actions by a Party, in a specific fact situation,
constitutes an expropriation of the type referred to in Paragraph 2(b) requires a case-by-case, fact-based
inquiry that considers, among other factors:
(a) the economic impact of the government action, although the fact that an action or series of
related actions by a Party has an adverse effect on the economic value of an investment, standing
alone, does not establish that such an expropriation has occurred;
(b) whether the government action breaches the governments prior binding written commitment
to the investor whether by contract, licence or other legal document; and
(c) the character of the government action, including, its objective and whether the action is
disproportionate to the public purpose
4. Non-discriminatory regulatory actions by a Party that are designed and applied to achieve legitimate
public welfare objectives, such as the protection of public health, safety, and the environment do not
constitute expropriation of the type referred to in Paragraph 2(b).

Similar language can be found in other treaties26 and in the model treaties of capital-exporting
countries such as the US and Canada.
Obviously, there are significant textual differences between the three approaches. The basic rule
of interpretation, that treaty language should be given effect, also suggests that the textual
differences are meaningful. These differences could suggest three different standards of
protection, with the more recent clauses identified above providing the greatest degree of
regulatory autonomy to host states, typical clauses like the SwitzerlandUruguay BIT clause
providing less autonomy and clauses like Article 6 of the AustraliaHong Kong BIT providing
less autonomy still. Alternatively, the language might suggest two standards of protection with

26

See, eg, side letters on expropriation to the SingaporeUnited States of America Free Trade Agreement (done at
Washington, 6 May 2003).

more recent treaties merely clarifying the meaning of typical clauses and clauses like Article 6 of
the AustraliaHong Kong BIT providing less autonomy for host states.
However, the dominant line of case law suggests that typical expropriation clauses, such as that
in the SwitzerlandUruguay BIT, are similar in their effect to more recent treaties, such as the
AANZFTA. This line of case law suggests that a significant degree of interference with an
investors property rights is necessary, but not alone sufficient, to establish indirect
expropriation.27 Moreover, this line of case law suggests that the factors identified in the annex
referred to above are likely to be considered in interpreting a clause like Article 5 of the
SwitzerlandUruguay BIT. As the North American Free Trade Agreement (NAFTA) tribunal
in Corn Products International v Mexico put it:
To distinguish between a compensable expropriation and a non-compensable regulation by a host State the
following factors (usually in combination) may be taken into account: whether the measure is within the
recognized police powers of the host State; the (public) purpose and effect of the measure; whether the
measure is discriminatory; the proportionality between the means employed and the aim sought to be
realized; and the bona fide nature of the measure.28

Equally, there are other lines of authority that suggest expropriation is easier to establish. As the
NAFTA tribunal in Metaclad v Mexico put it:
expropriation under NAFTA includes not only open, deliberate and acknowledged takings of property, such
as outright seizure or formal or obligatory transfer of title in favour of the host State, but also covert or
incidental interference with the use of property which has the effect of depriving the owner, in whole or in
significant part, of the use or reasonablytobeexpected economic benefit of property even if not
necessarily to the obvious benefit of the host State.29

This approach suggests that significant interference with property rights is alone sufficient to
constitute indirect expropriation. Along these lines, in Santa Elena v Costa Rica, the tribunal
held that the purpose of protecting the environment, for which property was taken, did not alter
the legal character of the taking for which compensation was owed.30 In Azurix v Argentina, the
tribunal also found the purpose of a measure to be insufficient as a criterion to determine whether
expropriation had occurred, arguing that the legitimacy of the measure was not relevant to
whether compensation was due.31 Similarly, in Vivendi v Argentina, the tribunal rejected
reference to either intent or the public purpose of a host state, reasoning that it must first be
determined whether a measure constitutes expropriation and only then whether it is for a public
purpose.32

27

Fireman's Fund Insurance Company v Mexico (Award) (ICSID Arbitral Tribunal, Case No ARB(AF)/02/01, 17
July 2006) [176(c)]; cited in Corn Products International Inc v Mexico (Decision on Responsibility) (ICSID Arbitral
Tribunal, Case No ARB(AF)/04/1, 15 January 2008) [91]. Although for a controversial view that emphasises
interference see Metalclad Corp v Mexico (Award) (2002) 5 ICSID Rep 212, [103].
28
Corn Products International Inc v Mexico (Decision on Responsibility) (ICSID Arbitral Tribunal, Case No
ARB(AF)/04/1, 15 January 2008) [87(j)].
29
Metalclad Corp v Mexico (Award) (2002) 5 ICSID Rep 212, [103].
30
Compaa del Desarrollo de Santa Elena SA v Costa Rica (Final Award) (2002) 5 ICSID Rep 157, [71].
31
Azurix Corp v Argentina (Award) (ICSID Arbitral Tribunal, Case No ARB/01/12), 14 July 2006) [309]-[312].
32
Compaa de Aguas del Aconquija SA and Vivendi Universal SA v Argentina (Award) (2001)16 ICSID Rev
FILJ 641, [7.5.21].

This is not to suggest that these are strong lines in the case law. On the contrary, more recent
NAFTA tribunals have viewed indirect expropriation as requiring a taking that is a substantially
complete deprivation of the economic use and enjoyment of rights to the property, or of
identifiable distinct parts thereof (i.e. it approaches total impairment)33. Most importantly,
tribunals have viewed this requirement as necessary for expropriation to occur, but not on its
own sufficient to constitute expropriation. Similarly, even the tribunal in Azurix stated that
proportionality between the aim sought and means by which it is pursued is relevant in
determining whether regulatory actions give rise to expropriation.34
Case Law Interpreting Deprivation Clauses
The case law also suggests that clauses governing deprivation of investments are interpreted in
much the same manner as clauses governing expropriation. The case law suggests that the term
deprivation is synonymous with the concept of indirect expropriation and that clauses
governing deprivation do not provide a higher standard of protection for investors.
Before considering cases interpreting deprivation clauses, it is worth noting that arbitral tribunals
often use the concept of deprivation in interpreting clauses referring to indirect expropriation. In
fact, it is in disputes concerning expropriation that the concept of deprivation of property rights is
most often mentioned.35
A number of arbitral tribunals have also interpreted clauses referring to deprivation. Both CME v
Czech Republic and Saluka v Czech Republic applied Article 5 of the Czech Republic
Netherlands BIT,36 which mentions deprivation but not expropriation. In CME v Czech Republic
the tribunal used the concept of deprivation interchangeably with expropriation and recognised a
distinction between measures resulting in deprivation of property and measures for the general
welfare of the host state.37
In Saluka v Czech Republic the tribunal also drew no distinction between the clause governing
deprivation and the concept of indirect expropriation. Moreover, the tribunal endorsed the
position that measures within the police powers of the state are non-compensable. The tribunal
stated Article 5 imports into the Treaty the customary international law notion that a deprivation
can be justified if it results from the exercise of regulatory actions aimed at the maintenance of
public order38 and that [i]t is now established in international law that States are not liable to
pay compensation to a foreign investor when, in the normal exercise of their regulatory powers,
they adopt in a non-discriminatory manner bona fide regulations that are aimed at the general
welfare.39

33

Fireman's Fund Insurance Company v Mexico (Award) (ICSID Arbitral Tribunal, Case No ARB(AF)/02/01, 17
July 2006) [176(c)]; cited in Corn Products International Inc v Mexico (Decision on Responsibility) (ICSID Arbitral
Tribunal, Case No ARB(AF)/04/1, 15 January 2008) [91].
34
Azurix Corp v Argentina (Award) (ICSID Arbitral Tribunal, Case No ARB/01/12, 14 July 2006) [309]-[312].
35
See, eg, Metalclad Corp v Mexico (Award) (2002) 5 ICSID Rep 212, [103].
36
Agreement on Encouragement and Reciprocal Protection of Investments between the Kingdom of the Netherlands
and the Czech and Slovak Federal Republic Act No 569/1992 (Date signed: 29th April 1991)
37
CME Czech Republic BV v Czech Republic (Partial Award and Separate Opinion) (2001) IIC 61, [603].
38
Saluka Investments BV v Czech Republic (Partial Award) IIC 210 (2006) [254].
39
Ibid [255].

Another tribunal, in interpreting Article 5 of the Czech RepublicNetherlands BIT, held that the
provision is applicable only if there was a substantial deprivation of the entire investment or a
substantial part of the investment.40 Although this approach appears to find little support in the
language of the treaty, it is consistent with a body of case law interpreting expropriation clauses.
As the excerpt from Metaclad quoted above suggests, tribunals consider whether a substantial
deprivation of an investment has occurred in order to determine whether an indirect
expropriation has taken place.
There is also little in the case law to suggest a contrary approach. Some disputes involving
deprivation clauses offer less guidance. In these disputes, tribunals have not used the concept of
expropriation interchangeably with deprivation. Equally, little can be read into the outcome of
these disputes because the tribunals have not been forced to examine whether deprivation is
synonymous with expropriation.41 Thus, the case law suggests that tribunals interpret clauses
governing deprivation in much the same manner as clauses governing expropriation. The
dominant line in the case law, which emphasises the non-compensable character of legitimate
regulation, is as much evident in these cases as it is in cases interpreting expropriation clauses.
Treaty Practice with respect to Deprivation Clauses
In terms of treaty practice, a variety of different terms are used in BIT clauses governing
expropriation. These terms include expropriation and nationalisation, dispossession, taking,
deprivation and privation.42 The phrase deprived of is often used in BITs to which Hong Kong
is a party. The Hong KongUnited Kingdom BIT uses much the same language as the Australia
Hong Kong BIT, as do the AustriaHong Kong, Hong KongNetherlands, Hong KongBelgiumLuxembourg Economic Union and Hong KongSwitzerland BITs.43 The Hong KongItaly BIT
offers another formulation stating that [i]nvestors of either Contracting Party shall not be
deprived of their investments nor subjected to any measures having effect equivalent to such

40

Eastern Sugar BV v Czech Republic (Partial award and partial dissenting opinion), (2007) IIC 310, [210].
See for example Eureko BV v Poland (Partial Award and Dissenting Opinion) (2005) IIC 98. In another dispute,
the tribunal applied Article 4 of the CyprusHungary BIT, which refers to deprivation rather than expropriation. The
tribunal rejected an argument by Hungary to the effect that the concept of deprivation is narrower than
expropriation. Although the tribunal did not state expressly that deprivation and expropriation are synonymous, it
did state that it was not attracted by the Respondent's effort in differentiating the meaning and scope of the terms of
deprivation and expropriation and went on to find that the expropriation of the Claimants' interest constituted
a depriving measure under Article 4 of the BIT. See ADC Affiliate Ltd and ADC & ADMC Management Ltd v
Hungary (Final Award on Jurisdiction, Merits and Damages) (ICSID Arbitral Tribunal, Case No ARB/03/16, 27
September 2006) [426] (emphasis in original), [476].
42
Rudolf Dolzer and Margrete Stevens, Bilateral Investment Treaties (Martinus Nijhoff, 1995) 98.
43
Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the
Government of the Hong Kong Special Administrative Region of the People's Republic of China for the Promotion
and Protection of Investments UKTS 9 (2000) (Date signed: 30th July 1998); Agreement between the Government
of the Republic of Austria and the Government of Hong Kong for the Promotion and Protection of Investments
BGBL No III 198/1997 (Date signed: 11th October 1996); Agreement on the Encouragement and Protection of
Investments between the Government of Hong Kong and the Government of the Kingdom of the Netherlands 1745
UNTS 5 (Date signed: 19th November 1992); Agreement between the Government of Hong Kong and the BelgoLuxembourg Economic Union for the Promotion and Protection of Investments BS 8 June 2001 (Ed 2); 2154 UNTS
81; UNTS Reg No I-37607 (Date signed: 7th October 1996); Agreement between the Government of Hong Kong
and the Swiss Federal Council on the Promotion and Reciprocal Protection of Investments, SR .975.241.6, (Date
signed: 22nd September 1994).
41

deprivation or limiting the enjoyment of the investment.44 These BITs offer little guidance on
what is meant by deprivation.
On the other hand, Article 4(2) of the GermanyHong Hong BIT suggests that deprivation is
broader than expropriation.45 The provision states:
Investors of either Contracting Party shall neither suffer expropriation, nor otherwise be deprived of their
investments, nor subjected to measures having equivalent effect, in the area of the other Contracting Party
except lawfully, for the public benefit related to the internal needs of that Party, and against compensation.
Such compensation shall amount to the real value of the investment immediately before the expropriation
or deprivation

For Germany, this was a break from use of the terms expropriation and deprivation
interchangeably. For example, Article 3(2) of the GermanyRepublic of Korea BIT46 provides:
The investments of nationals or companies of either Contracting Party in the territory of the other
Contracting Party shall not be expropriated except for the public benefit and against compensation. Such
compensation shall represent the equivalent of the investment affected; it shall be actually realizable, freely
transferable, and shall be made without undue delay. Adequate provision shall have been made at or prior
to the time of the deprivation for the determination and the giving of such compensation. The legality of
any such deprivation and the amount of compensation shall be subject to review by due process of law of
the Contracting Party in whose territory the investment has been expropriated.

This interchangeable use of the terms expropriation and deprivation is also found in German
BITs with Liberia and Cameroon, 47 as well as some BITs involving the Belgium-Luxembourg
Economic Union.48 The latter BITs use the term deprivation in headings and then refer to
expropriation and nationalisation in the body of expropriation provisions. Other agreements use
the term deprivation in headings and then refer to acts of expropriation, nationalisation or
dispossession in the body of the provisions.49
The Czech Republic uses the terms expropriation and nationalisation in some of its agreements
and then refers specifically to deprivation of management or control as a form of indirect
44

Agreement between the Government of Hong Kong and the Government of the Italian Republic on the Promotion
and Protection of Investments G.U. 19.7.97 n.167 s.o. n.146 L (Date signed: 28th November 1995),
45
Agreement between the Federal Republic of Germany and the Government of Hong Kong for the Encouragement
and Reciprocal Protection of Investments BGBl II 1997, 1848 (Date signed: 31st January 1996),
46
Treaty between the Federal Republic of Germany and the Republic of Korea concerning the Promotion and
Reciprocal Protection of Investments, BGBl II 1966, 841, (Date signed: 4th February 1964).
47
See Treaty between the Federal Republic of Germany and the Republic of Liberia for the Promotion and
Reciprocal Protection of Investments BGBl II 1967, 1537 (Date signed: 12th December 1961); Treaty between the
Federal Republic of Germany and the Federal Republic of Cameroon concerning the encouragement of investments
BGBl II 1963, 991 (Date signed: 29th June 1962)
48
See, eg, Agreement between the Republic of Uganda, on the one hand, and the Belgo-Luxemburg Economic
Union, on the other hand, on the reciprocal promotion and protection of investments (Date signed: 1st February
2005); Agreement between the Belgo-Luxembourg Economic Union, on the one hand and the Government of
Ukraine, on the other hand on the Reciprocal Promotion and Protection of Investments 2154 UNTS 113, (Date
signed: 20th May 1996).
49
See, eg, Agreement between the Belgo-Luxembourg Economic Union, on the one hand, and the Government of
the Republic of Uzbekistan, on the other hand, on the Reciprocal Promotion and Protection of Investments 2195
UNTS 155, (Date signed: 17th April 1998).

expropriation.50 This approach can also be found in some US agreements.51 The US approach
also appears to be one of treating deprivation as synonymous with indirect expropriation. In this
respect, the US President submits treaties to the US Senate for ratification. Many of the
transmittal letters include language indicating that indirect expropriation and deprivation are
used interchangeably in the agreements. For example, the relevant text of Article III:1 of the
KazakhstanUS BIT states [i]nvestments shall not be expropriated or nationalized either
directly or indirectly through measures tantamount to expropriation or nationalization
(expropriation).52 In referring to this provision, the transmittal letter states:
Paragraph 1 describes the general rights of investors and obligations of the Parties with respect to
expropriation and nationalization. These rights also apply to direct or indirect state measures tantamount
to expropriation or nationalization, and thus apply to creeping expropriations that result in a substantial
deprivation of the benefit of an investment without taking of the title to the investment.

In summary, some BITs use the terms expropriation and deprivation interchangeably. Others,
such as the GermanyHong Kong BIT, suggest that deprivation is broader than expropriation.
And still others treat deprivation of management or control as a form of expropriation. When
viewed together with the case law, this treaty practice suggests that expropriation and deprivation
clauses are likely to be applied in much the same manner despite differences in wording.
Accordingly, the outcome Philip Morris v Uruguay is likely to be relevant to expropriation
claims concerning plain packaging under a wide array of IIAs.53
Implications of the Philip Morris Claim
Leaving aside the question of how different treaty clauses affect the analysis, what are the
potential implications of the expropriation claim in Philip Morris v Uruguay? In a general sense,
resolution of the dispute may help clarify the distinction between indirect expropriation giving
rise to an obligation to pay compensation and non-compensable regulatory measures. The
outcome may help to clarify how the concept of police powers applies to tobacco control
measures, the reasonable expectations of tobacco companies acting as foreign investors and how
a proportionality analysis might be applied in the context of an addictive and harmful product
that host states might ban outright, but for its entrenched character.
In this respect, the fourth session of the Conference of the Parties to the WHO FCTC issued the
Punta del Este Declaration. In its preamble, the declaration recalls the right to the highest
attainable standard of health and the determination of WHO FCTC Parties to give priority to
their right to protect health. The preamble also recognises that measures to protect public health,
50

See, eg, Agreement between the Government of the Czech Republic and the Government of the United Arab
Emirates for the Promotion and Protection of Investments Act No 69/1996 (Date signed: 23rd November 1994);
Agreement between the Czech Republic and the State of Kuwait for the Promotion and Protection of Investments
Act No 42/1997 (Date signed: 8th January 1996).
51
See, eg, Treaty between the Government of the United States of America and the Republic of Senegal Concerning
the Reciprocal Encouragement and Protection of Investment S Treaty Doc No 99-15 (1986) (Date signed: 6th
December 1983).
52
Treaty between the United States of America and the Republic of Kazakhstan Concerning the Reciprocal
Encouragement and Protection of Investment S Treaty Doc No 103-12 (1993) (Date signed: 19th May 1992).
53
It is also worth noting that a most-favoured nation clause could, in theory, give an investor the right to invoke the
highest standard of treatment afforded by a host state to foreign investors if a difference in the standard of treatment
existed.

including measures implementing the WHO FCTC and its guidelines fall within the power of
sovereign States to regulate in the public interest, which includes public health. This language
echoes the concept of police powers found in much of the case law concerning regulatory
expropriation. Although it is not express, the declaration suggests that tobacco control measures
in the WHO FCTC and its guidelines are non-compensable regulatory measures.
Given this suggestion, the tribunal in Philip Morris v Uruguay might examine the legal status of
the Punta del Este Declaration. The fact that Switzerland is not a Party to the WHO FCTC means
that the Declaration is not likely to be considered a subsequent agreement of the parties to the
Switzerland Uruguay BIT. Equally, the declaration could clarify customary international law as
it relates to expropriation (reinforcing the concept of police powers) or may be relied upon in
examining the proportionality of plain packaging to its objective, or the legitimate expectations
of a tobacco company engaged in foreign investment. Any of these approaches would be relevant
to plain packaging.
Another key question in the dispute is likely to be whether the Uruguayan measures interfere
with an investment to a sufficient degree for an expropriation to transpire. As noted above, recent
NAFTA tribunals have equated indirect expropriation with a substantially complete deprivation
of the economic use and enjoyment of rights to the property, or of identifiable distinct parts
thereof (i.e. it approaches total impairment)54. In this respect, there is case law outside the
NAFTA context suggesting that diminished profits are not sufficient to found a claim of
expropriation if an investor remains able to carry on its business55 and there does not appear to
be a question concerning whether the claimants can continue to operate a viable business in
Uruguay. This suggests the Philip Morris claim is likely to be built around its trademark rights,
which form a distinct or identifiable part of the investment. Given this, it will be necessary for
the tribunal to examine the nature of trademark rights in Uruguay in order to evaluate the degree
of interference with the relevant part of the investment.
Under international treaties, such as TRIPS, trademark rights are negative rights to exclude third
parties and not positive rights of use.56 If this narrow conception of a trademark right is
replicated in Uruguayan law, the interference with the relevant part of the investment might be
considered insufficient to constitute indirect expropriation. Although intellectual property law
differs from host state to host state, the approach of the tribunal to the question of sufficient
interference could also be relevant to plain packaging claims.
Other arguments identified in the Request for Arbitration could also be relevant to plain
packaging. The claim concerning the size of pack warnings has obvious implications for an
approach to plain packaging that compels the use of large pack warnings in place of other
imagery. For example, at the time of writing, the Australian government is proposing to
implement plain packaging in a manner that would require warnings covering approximately 85
54

Fireman's Fund Insurance Company v Mexico (Award) (ICSID Arbitral Tribunal, Case No ARB(AF)/02/01, 17
July 2006) [176(c)].
55
See, eg, LG&E v Argentina (Decision on Liability) (2007) 46 ILM 36 [191].
56
Panel Report, European Communities Protection of Trademarks and Geographical Indications for Agricultural
Products and Foodstuffs, Complaint by Australia, WTO Doc WT/DS290/R (adopted 20 April 2005) [7.610][7.611].

per cent of the front and back of a pack. The similarity of the two measures is such that
arguments about the proportionality of the Uruguayan measures are relevant to plain packaging.
The Uruguayan dispute may address whether there is a point at which the interference with
property rights is no longer justified by protection of human health. In this respect, the Request
for Arbitration calls into question the evidence base concerning the effects of larger pack
warnings on consumers by suggesting that warnings can achieve their purpose by covering 50
per cent of packaging.
On the other hand, plain packaging and large pack warnings do not necessarily overlap
completely in terms of the objectives pursued. Whereas increasing the size of pack warnings may
be intended to increase consumer recall of those warnings, plain packaging is also intended to
minimise the impact of branding on intention to purchase. In this context, there is an evidentiary
question about the impact of branding on consumers that may not arise in the context of the
Uruguayan measures.
Although the claim concerning the content of the graphic health warnings in Uruguay is specific
to the images used in Uruguay, the claim also has broader significance. Similar images are used
in other countries57 and the Request for Arbitration claims that it is not legitimate for a host state
to use warnings as a means of discouraging consumption. Philip Morris argues that labeling
should be used only to convey information to consumers and that the labels in question go
beyond this, so as to demean the products. This line of argument suggests that graphic warnings
communicating the health effects of tobacco consumption would not constitute expropriation, but
that images going beyond mere risk communication may. In the Australian context, this would
be relevant to existing warning labels, which contain a logo for a Quitline, including a phone
number consumers can call for help quitting.58
The claim concerning Uruguays implementation of the prohibition on misleading packaging
could also be relevant to plain packaging. If sub-brands are distinguished by different colors,
plain packaging could affect the ability of manufacturers to maintain the structure of their brand
families. Of course, this will depend on how plain packaging is implemented and the brand
families in place in different countries. If a plain packaging measure permits brands to be
distinguished through their name, the structure of brand families would be unaffected,
distinguishing the measure from the Uruguayan dispute.
V FAIR AND EQUITABLE TREATMENT
In its Request for Arbitration with Uruguay, Philip Morris foreshadows that it intends to make
arguments under both Article 3(1) and (2) of the SwitzerlandUruguay BIT. The relevant parts
of the provisions state:
(1) Each Contracting Party shall protect the investments within its territory made in accordance with its
legislation by investors of the other Contracting Party, and shall not obstruct through unjustified or
discriminatory measures the management, use, enjoyment, growth, sale or, as applicable, the liquidation of
such investments. In particular, each Contracting Party shall issue the authorizations indicated in Article 2,
sub-paragraph (2) of this Agreement.

57
58

For a collection of images see <http://www.tobaccolabels.ca>.

Trade Practices (Consumer Product Information Standards) (Tobacco) Regulations 2004 (Cth) sch 2.

(2) Each Contracting Party shall ensure within its territory a just and equitable treatment of investments and
investors of the other Contracting Party. 59

Philip Morris appears to allege that Article 3(1) establishes an autonomous standard of treatment
prohibiting Uruguay from obstructing enjoyment or growth of its investments on an unjustified
or unreasonable basis. In addition, Philip Morris appears to assert that Article 3(2) imposes a
separate obligation on Uruguay to provide fair and equitable treatment to Philip Morris
investments.
It is common for arbitral tribunals to confront the question of whether a fair and equitable
treatment provision creates an autonomous treaty standard or merely incorporates the
international minimum standard found in customary international law. Which standard is to be
applied will differ from treaty to treaty. In many instances, older BITs, such as the Switzerland
Uruguay BIT and the AustraliaHong Kong BIT, do not specify which standard is to be applied.
In such circumstances, it is common for an investor to argue that an autonomous standard should
be applied and for a host state to argue for application of a customary international minimum
standard. These positions are likely to be reflected in Philip Morris v Uruguay, although on
Uruguays side is a 1979 statement by the Swiss foreign office to the effect that fair and
equitable treatment refers to this classical international law standard.60
If the Philip Morris argument concerning an autonomous treaty standard were upheld, the
Uruguayan measures would be judged against a standard of reasonableness. The tribunal might
examine whether the obstruction of property rights associated with the Uruguayan measures is
reasonable, or whether a reasonable host state could have implemented the measures in question
if in the shoes of Uruguay. The former approach would represent a strict standard of review,
whereas the latter approach would entail a more deferential standard of review. Whatever
standard of review is used, the outcome of the analysis would appear directly relevant to plain
packaging.
On the other hand, if the tribunal were to apply the international minimum standard of treatment,
the tribunal would have to identify the relevant contents of that standard. The case law suggests
three standards of protection relevant to the Philip Morris claim that might fall within the
international minimum standard. These are freedom from arbitrariness, protection of legitimate
investment-backed expectations and provision of due process.61 Given that due process claims
would be specific to the Uruguayan context and factual record, it is claims relating to
arbitrariness and legitimate expectations that are most likely to have implications for plain
packaging.
Much of the case law suggests that it is difficult to establish a violation of the international
minimum standard. In an early articulation of the standard, the Neer tribunal stated the treatment
of an alien, in order to constitute an international delinquency, should amount to an outrage, to
bad faith, to willful neglect of duty, or to an insufficiency of governmental action so far short of
59

Unofficial English translation from the French original.

Statement by the Swiss Foreign Office, quoted in (1980) 36 Annuaire Swiss de Droit International 178.
61
For discussion of these types of claims see, generally, Ioana Tudor, The Fair and Equitable Treatment Standard in
International Foreign Investment Law (Oxford University Press, 2008).
60

international standards that every reasonable and impartial man would readily recognize its
insufficiency.62 In the context of claims relating to arbitrariness, contemporary tribunals have
tended to preserve the strictness of this standard. For example, after reviewing the case law in the
context of the customary international law minimum standard codified in Article 1105 of the
NAFTA, the tribunal in Glamis Gold v United States held:
an act must be sufficiently egregious and shockinga gross denial of justice, manifest arbitrariness, blatant
unfairness, a complete lack of due process, evident discrimination, or a manifest lack of reasonsso as to
fall below accepted international standards and constitute a breach of Article 1105(1).63

Equally, some tribunals have taken a more liberal approach, concluding that customary
international law may be violated by acts that are merely unfair, inequitable or unreasonable.64
These divergences in the case law make it difficult to predict with certainty the standards that
will be applied to the Philip Morris claim of arbitrariness and the implications of any outcome
for plain packaging. If applied, the stricter standard, articulated in cases such as Neer, is such that
it would be difficult for the Philip Morris claim to succeed and little may be learned for measures
such as plain packaging. On the other hand, if arbitrariness were equated merely with
unreasonableness, the tribunals analysis is likely to be relevant to plain packaging because there
is overlap in the rationales for the measures and the evidence base supporting them.
Another claim Philip Morris might make under Article 3 of the BIT is that the measures violate
the companys reasonable expectations with respect to treatment of its investments. In this
respect, a host state may be held to reasonable expectations it has created in order to induce
investment.65 Put another way, where a host state creates a reasonable expectation on the part of
an investor and the investor relies on that expectation in making the investment, this may found
the basis for a claim under a clause governing fair and equitable treatment.66
The dispute could help clarify what expectations a tobacco company may legitimately hold in the
absence of an isolated and specific representation by the host state. For example, in Grand River
the tribunal stated that trade in tobacco products has historically been the subject of close and
extensive regulation by U.S. states, a circumstance that should have been known to the Claimant
from his extensive past experience in the tobacco business. An investor entering an area
traditionally subject to extensive regulation must do so with awareness of the regulatory
situation.67
Similarly, in the Uruguayan context the tribunal could explore the legitimacy of expectations:
associated with the sale of a harmful product;
that a tobacco company has in the context of its branding if that branding has been
developed to attract new users, or developed as part of an attempt to mislead consumers;
and
62

Neer v Mexico (1926) 4 R Intl Arb Awards, [4].

Glamis Gold Ltd v United States (Award) (2009) IIC 380, [616].
64
See Merrill & Ring Forestry LP v Canada (Award) (2010) IIC 427, [210].
65
Glamis Gold v United States (Award) (2009) IIC 380, [621].
66
For this concept within the NAFTA context, which applies an international minimum standard, see International
Thunderbird Gaming Corporation v Mexico (Award) (2006) IIC 136, [147].
67
Grand River Enterprises Six Nations Ltd and ors v United States (Award) (2011) IIC 481 [144].
63

if an investor knows its product to be harmful and is aware of a trend towards tighter
regulation.

The tribunal might also examine the reasonable expectations of an investor, which has organised
its affairs so as to enable it to bring a claim under a BIT. For example, if Philip Morris
Switzerland owns its Uruguayan subsidiaries to facilitate a claim against Uruguay, the tribunal
might examine the reasonable expectations of the foreign investor in these circumstances. If
anything, structuring ownership to take advantage of a BIT could suggest that the foreign
investor expected the measures in question.68
Discussion of these expectations could be of relevance to tobacco companies other than Philip
Morris and to countries other than Uruguay, thereby having significance for tobacco control
measures more generally, including plain packaging.
VI THE UMBRELLA CLAUSE
Philip Morris alleges that Uruguay has violated an umbrella clause in the SwitzerlandUruguay
BIT, which obliges each party to respect at all times the commitments it has undertaken with
regard to the investments of investors of the other contracting party.69 More specifically, Philip
Morris alleges that the Uruguayan measures violate TRIPS and the Paris Convention.
Given the discussion of these agreements in earlier chapters, it is not necessary to examine the
merits of the claims under TRIPS or the Paris Convention here. Although the prospects of this
Philip Morris claim succeeding seem slim (given that the commitments in question are not to
investors) it is also not necessary to examine the merits of the claim. The point of note is simply
that Philip Morris is attempting to use an umbrella clause to bring these agreements within the
applicable law of the investment treaty arbitration. This would circumvent restrictions on
standing to bring claims under these agreements, which envisage disputes between states but not
the possibility of a putative intellectual property rights holder bringing a claim against a state. If
such a claim were successful, it would expand investors rights significantly by permitting
indirect incorporation of a wide variety of treaty commitments into BITs.
VII CONCLUSION
This chapter has identified four broad issues in the Philip Morris v Uruguay claim that may be
relevant to plain packaging of tobacco products. Section III examined the question of in what
circumstances tobacco industry property will constitute an investment under arbitral rules. In this
respect, it should not be assumed that the mere registration of a trademark in a host state always
constitutes an investment under the ICSID Convention or UNCITRAL Rules. Nor should it be
assumed that property rights in trademarks have been created in compliance with the law of the
host state simply because those marks have been registered under domestic law. Rather, in some
instances, tobacco companies may depend heavily, or even exclusively, on their ownership of
subsidiaries as the basis for their claim. This may have implications for the substance of claims,
particularly those relating to expropriation.
68

The issue of ownership might also be examined in the process of determining the nationality of an investor.
Agreement between the Swiss Confederation and the Oriental Republic of Uruguay concerning the Reciprocal
Promotion and Protection of Investments, 1976 UNTS 413 (signed and entered into force 7 October 1988) Article
11, unofficial translation from the French original.

69

In respect of expropriation claims, the case law suggests that tribunals are likely to adopt a
similar approach with respect to the interpretation of expropriation clauses despite differences in
their terms. This increases the likelihood that the outcome of the Philip Morris expropriation
claims will be relevant to plain packaging claims under different IIAs. The outcome may offer
guidance on general issues, such as the approach to indirect expropriation, as well as on issues
specific to tobacco control, such as when the degree of interference with a tobacco company is
sufficient to constitute expropriation and how IIAs apply to large graphic warnings. Examination
of claims concerning fair and equitable treatment may offer insight into the legitimate
expectations of tobacco companies, although the different approaches to interpretation of clauses
governing fair and equitable treatment may limit the broader implications of the outcome. In
contrast, the claim under the umbrella clause would have widespread implications, but seems
unlikely to succeed.