Clear The Air News Tobacco Blog Rotating Header Image

Law Suits

US high court throws out EU suit, sides with RJRT

http://www.tobaccojournal.com/US_high_court_throws_out_EU_suit_sides_with_RJRT.53652.0.html

The Supreme Court sided with RJ Reynolds Tobacco (RJRT) in throwing out a suit by the European Union originally filed against RJR Nabisco and associated companies for alleged cigarette smuggling, the New York Times said.

The EU and 26 member states contended lost customs and tax revenue amounted to billions of dollars, the newspaper said on its website. The court in a 4-3 decision ruled RJR Nabisco, which ceased operating as a single entity in 1999, could not be sued under the RICO federal racketeering statute for conduct abroad, the Times said.

Supreme Court backs voiding of USD 10 bln judgement

http://www.tobaccojournal.com/Supreme_Court_backs_voiding_of_USD_10_bln_judgement.53651.0.html

The Supreme Court upheld a decision by the top Illinois state court to void a USD 10.1 billion (EUR 8.9 billion) award against Philip Morris USA, which would have been one of the largest ever for the cigarette maker, Reuters reported.

The appeal was based on a claim that one of the Illinois Supreme Court judges should have recused himself from the case because he received campaign contributions from a group funded in part by Philip Morris, the news agency said. The US high court rejected the appeal without comment.

Altria, the parent company of Philip Morris USA, welcomed the decision, which ends proceedings begun in 2000. PM USA was accused of deceiving Illinois smokers with claims of “light” cigarettes. The Illinois high court twice overturned a lower court award, first in 2005 and again in 2015.

Ask the Lawyer: What are the basics on suing tobacco companies?

http://www.dailybreeze.com/general-news/20160621/ask-the-lawyer-what-are-the-basics-on-suing-tobacco-companies

Q Just what is the main theory against the tobacco companies now since it’s so well-known that smoking can cause harm?

— S.F., Wilmington

A Lawsuits against the tobacco companies date back more than 50 years, but allegations have changed as more information has come forward. Early reports linking cigarettes to cancer are found in the 1950s. Legal theories included product liability, negligent advertising and negligent manufacture. In the 1980s, in the landmark case of Cipollone v. Liggett, the plaintiff and her family alleged that cigarette manufacturers knew smoking caused lung cancer and was addictive, but did not warn consumers. Rose Cipollone’s husband was successful at trial, but the case was reversed on appeal. At that point, the tobacco companies were doing well in defending themselves.

In the 1990s, some plaintiffs began having at least limited success. Among other things, documents were leaked showing some cigarette companies were aware of tobacco’s addictive nature. Then, in February 2000, a California jury found against Philip Morris to the tune of $51.5 million in a case involving a smoker who had inoperable lung cancer. About the same time, more than 40 states sued the tobacco companies under consumer protection and antitrust laws.

More recently, decisions have at least opened the door for class actions. And individual lawsuits face arguably less difficult challenges given the increased awareness of the dangers of smoking. But tobacco litigation often involves complex legal theories, detailed scientific analysis and tenacious defense counsel. Claims may include failure to warn, fraud, negligence and product liability.

Q I see where the family of Tony Gwynn, the great San Diego Padres baseball player, has sued the tobacco industry for wrongful death. They contend his salivary gland cancer was associated with his many years of using smokeless tobacco. A bunch of players still seem to use the stuff. Is there any warning that has to be put on it?

— W.A., Redondo Beach

A Examples of smokeless tobacco are chewing tobacco, moist snuff and snuf. Under the federal Family Smoking Prevention and Tobacco Act, the package and advertisement must include one of the following warnings:

• This product can cause mouth cancer

• This product can cause gum disease and tooth loss

• This product is not a safe alternative to cigarettes

• Smokeless tobacco is addictive

Packages of smokeless tobacco must have the warning on the two principal sides, and cover at least 30 percent of each side. As to advertisements, the warning has to cover at least 20 percent of the area of the ad. These warning labels were required beginning in June 2010.

As to Tony Gwynn, I don’t know enough of the facts at this point, but his use of smokeless tobacco well preceded June 2010, when the act’s warnings became required.

Ron Sokol is a Manhattan Beach attorney with more than 30 years of experience. His column appears on Wednesdays. Email questions and comments to him at RonSEsq@aol.com or write to him at Ask the Lawyer, Daily Breeze, 21250 Hawthorne Blvd., Suite 170, Torrance, CA 90503.

E-cigarettes: health advocates welcome court action against two manufacturers

Consumer watchdog takes Social-Lites and Elusion New Zealand to court, alleging both companies’ products contain carcinogens and toxic chemicals

https://www.theguardian.com/society/2016/jun/20/e-cigarettes-health-advocates-welcome-court-action-against-two-manufacturers

Health advocates have welcomed court action against two e-cigarette manufacturers, arguing it strengthens the case for proposed Victorian laws which would regulate electronic cigarettes in the same way as traditional tobacco products.

The consumer watchdog is taking two companies to the federal court after both allegedly claimed their e-cigarettes didn’t contain cancer-causing chemicals when in fact they did.

“It beggars belief that you can have a rechargeable battery device heating up a liquid of unknown composition, which you use at your mouth for hours at [sic] end, with no safety standards at all,” Quit Victoria director Dr Sarah White said on Monday.

The Australian Competition and Consumer Commission alleges that the two companies, Social-Lites and Elusion New Zealand, breached Australian consumer law by making representations on their websites from at least August 2015 that the e-cigarette products being sold did not contain carcinogens or toxic chemicals, and did not contain any of the chemicals found in conventional cigarettes.

The e-cigarettes sold by the two companies do contain harmful carcinogens and toxic chemicals, including formaldehyde acetaldehyde and acrolein, the ACCC alleges.

Formaldehyde is classified by the World Health Organisation international agency for cancer research as a Group 1A carcinogen, meaning there is sufficient evidence to show it causes cancer in humans. Acetaldehyde is classified as a Group 2B carcinogen, while Acrolein is classified as a toxic chemical.

“It is imperative that suppliers have scientific evidence to support claims that their products do not contain carcinogens and toxic chemicals such as formaldehyde and acetaldehyde,” ACCC chairman Rod Sims said.

“There is an increasing level of concern among international, national and state authorities regarding the composition of e-cigarettes, and the likely effects of their use. The ACCC will continue to work with its local and international counterparts to ensure consumers are receiving accurate information about these products,” Sims said.

The ACCC also alleges that the chief executive of Social-Lites and the director of Elusion were knowingly concerned in the alleged contraventions.

E-cigarettes are metal tubes that heat liquids typically laced with nicotine and deliver vapour when inhaled. The liquids come in thousands of flavours, from cotton candy to pizza.

Use of the devices has grown quickly in the past decade and experts fiercely debate whether they can help people give up smoking and whether they are safe, with some studies raising concerns about the toxicity of some of the ingredients.

Public health researchers fighting back against lobbyists

http://www.stuff.co.nz/national/politics/81194202/public-health-researchers-fighting-back-against-lobbyists

Boyd Swinburn (left) and two other health researchers are pursuing a defamation case against Cameron Slater (right) and Carrick Graham.

Boyd Swinburn (left) and two other health researchers are pursuing a defamation case against Cameron Slater (right) and Carrick Graham.

Public health researchers worldwide have long been under attack from lobbyists for the tobacco, alcohol and junk food industries. Now some are fighting back. Adam Dudding reports.

When Professor Robert Beaglehole was at medical school in the 1960s, everywhere you looked people were having heart attacks. “They were dropping dead in the street.”

Back then, says the cardiologist and veteran public health researcher, there weren’t yet many good treatments available for heart disease, so it seemed obvious to him that he should look at prevention instead: helping people quit smoking; reducing saturated fats in the average diet.

Professor Doug Sellman is an Otago university professor and director of the National Addiction Centre.

Professor Doug Sellman is an Otago university professor and director of the National Addiction Centre.

To do that required changes in public understanding and government policy, so he built a career as a public health scientist, founding Action on Smoking and Health (ASH) in 1982 and later taking big jobs with the World Health Organisation.

Scientific evidence led inevitably to public activism. It also led him into the firing line. The spokespeople from the tobacco industry called him and his colleagues ‘health nazis’, ‘do-gooders’, ‘nanny-staters’. He shrugged it off.

Professor Boyd Swinburn is an Auckland University professor and director of a WHO anti-obesity centre at Melbourne's Deakin University.

Professor Boyd Swinburn is an Auckland University professor and director of a WHO anti-obesity centre at Melbourne’s Deakin University.

A few decades on, the insults are as likely to appear on an attack blog as in a press release, but the name-calling continues.

But last week, a few of the targets decided to fight back.

On Monday, Boyd Swinburn, Doug Sellman and Shane Bradbrook announced they were suing blogger Cameron Slater and PR consultant Carrick Graham, over material posted on Slater’s blog WhaleOil. This, almost two years after the earthquake triggered by Nicky Hager’s book Dirty Politics is a late, and surprising, aftershock.

Shane Bradbrook is a veteran campaigner to reduce smoking among Maori

Shane Bradbrook is a veteran campaigner to reduce smoking among Maori

The trio – Swinburn is aN Auckland University professor and director of a WHO anti-obesity centre at Melbourne’s Deakin University; Sellman is an Otago university professor and director of the National Addiction Centre; and Bradbrook is a veteran campaigner to reduce smoking among Maori – issued a press release on Monday announcing the court action. They’re not yet talking publicly about it but it’s not hard to see what might be bothering them.

For years the Whaleoil blog has described public health advocates as “troughers”, “wowsers” and “bludgers”, and ascribed their opinions to insanity, greed or delusion.

Early on, some scientists were mystified as to why they were targets of Slater’s abusive criticism. It became less mysterious after the publication of Hager’s book, which used the contents of emails hacked from Slater’s computer to show the links between blogger Slater, lobbyist Graham, and industry.

Sellman is a thorn in the side of alcohol manufacturers because of his public comments about the social harm of excessive drinking.

Dirty Politics showed how Graham emailed Slater a post describing Sellman as “mad”, which Slater then posted under his own name. At the time Graham was paying Slater substantial fees. The clear inference drawn by Hager is that liquor industry money was, by indirect means, funding a blog that would attack not just the arguments of a scientist who spoke up against the them, but was willing to attack that scientist’s personal standing.

Beaglehole had seen it all before, here and abroad.

“There is a long history,” he says, “of interference by vested interests in the formulation, execution and implementation of public health policies designed to promote the health of populations.

“The classic example is the tobacco industry, which has lied and distorted the evidence, attacked independent scientists, and paid for tame scientists and front groups to peddle their distortions of the evidence.”

The tobacco industry has the playbook, says Beaglehole, but the food and beverage industries have learnt from them. They’re more powerful because of their size, and they’re more sophisticated.

Auckland clinical endocrinologist and anti-obesity campaigner Robyn Toomath has much in common with Swinburn and Sellman: she’s an expert in her field; she’s called for regulatory solutions to a major health problem and has been attacked by Whaleoil for her pains. A typical post by Slater from April begins, “Robyn Toomath is a health trougher and a socialist. She hasn’t yet met a tax that she doesn’t like.”

Toomath never reads the blog. She’s not suing. But just because she’s not heading for court doesn’t means she think this stuff is harmless.

“It’s a deliberate tactic. It’s not just him being bad-tempered and naughty. It’s a conscious way to undermine you and your credentials. It derails the scientific discourse.”

It seems obnoxious to even ask the question, but is Toomath a “trougher” – Slater’s charming porcine metaphor term for just about anyone who receives public funding for anything?

Well no, says Toomath. And nor are her public health colleagues. When they campaign it’s “in a public-spirited capacity. Doug’s ceaseless campaigning for better alcohol control isn’t something his university is paying him for.”

Toomath’s charity Fight the Obesity Epidemic (FOE) received some funding under the Labour government, but it was for education and data-gathering – “there even a clause that they were not funding us for the purposes of lobbying”.

“The government is not paying us to be advocates, so squandering money doesn’t hold water as a reason to attack us.”

Peter Griffin, manager of the Science Media Centre (SMC), says personal attacks on scientists are harmful even when they fall short of defamation.

The SMC coaxes scientists into explaining and interpreting the evidence behind a news story.

At the best of times “it’s really hard to get scientists to come out of their shell and talk about controversial issues, so having that kind of vicious attacking and smearing going on is a real disincentive”.

Some experts that we should be hearing from “don’t even speak, because they don’t want to be a target”.

This defamation case, successful or not, will “crystallise” the frustration that a lot of academics felt in the wake of Dirty Politics, when they realised that tactics that made the tobacco and alcohol industries abroad notorious were also happening, albeit on a mini scale, in New Zealand.

Not all scientists like to speak out, but in fact it’s in the job description. According to the 1989 Education Act to be a university academic is to accept the role of “critic and conscience of society”.

In public health especially, it’s a short step from recognising possible interventions, to testing them out, to wanting to see them implemented on a grander scale.

Currently the noisiest public health conversation is around whether we should tax sugar or sugary drinks to fight obesity and tooth decay, but many older arguments are still playing out, decades after they began: plain packaging of cigarettes, marketing of junk-food to children, taxation of alcohol and cigarettes, labelling of supermarket food, sponsorship of kids’ weekend sport by burger companies. And that’s just in New Zealand. Similar issues, and similar attacks on scientists, are going on all over the world.

Since May, UK researchers who receive government grants have been banned from using the results of their work to lobby for changes in laws or regulations. According to the Observer, though the aim of the new law was to prevent NGOs lobbying ministers and ministries with the government’s own money, but senior scientists have said the effect will be to muzzle scientists speaking out on important issues.

Cameron Slater is bullish about his chances against his accusers. He’s been fighting a defamation case against businessman Matthew Blomfield since 2012. In early 2017, he’s due in court to defend himself against a defamation action by politician Colin Craig. In a blog posted on the day the suit was filed, he wrote that he had “become quite comfortable” with being taken to court.

Last week Slater said that of the 31 causes of action made in the claim against him by the health researchers, 14 are too old to be actionable, and the remainder are mostly “hurty-feelings stuff – they’re upset about being called wowsers or bludgers or troughers”.

He says the idea that his blogs have diminished the trio’s public standing are problematic, seeing they’re still regularly called by media for comment on health stories, “and they continue to publish peer-reviewed articles, so their peers obviously don’t think they’re diminished”.

What this is really about, says Slater, is people in positions of power using court processes “to bully and silence critics”.

He says the situation resembles the case in the US of Mark Steyn, a conservative National Review blogger who was sued in 2012 for defamation, after alleging that climate data analysis by esteemed climatologist Michael Mann temperatures was “fraudulent”. The Steyn-Mann case is still dragging on, and Slater says his case, like Steyn’s, embodies important principles.

“It’s part of an ongoing campaign by people who receive public monies and speak publicly about policy and politics and taxes. They want the freedoms to say what they want to say but they want critics or people who challenge them to be silenced.”

Hearing Slater’s characterisation of the clash can be like looking down the wrong end of the telescope, as he inverts the claims of his opponents.

They are the bullies, not him. They are the ones who wish to suppress argument, not him. Health researchers say industry-backed lobbyists are suppressing honest debate, but the way Slater sees it, “I believe in giving people a voice because they are intimidated by these people who come out and attack them. Look at the attacks that Swinburn and Sellman have made against companies like Coca-cola, against Frucor. They think nothing of attaching them in public.” (Some context: Coca Cola Holdings’ New Zealand revenue in the year to December 2015 was $531m.)

Slater is unapologetic about the abusive tone of his blog. “That’s my method … my device is to use humour, to use satire”. People might say he should lift the level of debate and engage with the issues rather than make personal attacks, but that means setting standards” for where the debate should be.

“And once you’re setting standards, that’s where freedom of speech and freedom of opinion are being curtained according to the whims of whoever sets the standards. That’s censorship.”

Much of the news coverage that followed the publication of Dirty Politics focused its revelations about the National government’s willingness to use people like Slater to promote its views and attack its enemies. The chapter about Slater’s attacks on scientists like Doug Sellman received rather less attention.

Last week, Nicky Hager said that when he exposed the links between industry lobbyists and Slater in 2014 he thought “they would look so bad that they would more or less be forced to stop on the spot, but some of the key actors, and notably Carrick Graham, have been publicly unrepentant, and seem to have continued full steam ahead.”

It’s almost two years since the book was released. This lawsuit against Slater and Graham seems unlikely to reach court before next year. Hager might be disappointed that his book didn’t have the impact he expected at the time, but the reverberations aren’t over yet.

Sometimes, says Robert Beaglehole, things take longer than you expect. The anti-tobacco group ASH was set up in 1982. Tobacco’s fallen out of favour in New Zealand, sure, “but who would have thought it would take so long?”

When the science of public health comes under attack, “you have to stick to the evidence”, but you also need to do a bit more than that, even when it gets difficult.

“We have a duty, and that’s to promote and discuss and disseminate the policy implications. Sitting in the lab and not putting your head above the parapet is irresponsible.”

– Sunday Star Times

Tobacco Giant Wanted To Sue Australia Over Graphic Warning Labels

http://www.thealternativedaily.com/tobacco-giant-wanted-sue-australia/

Buying cigarettes in Australia involves choosing among shelves of different graphically illustrated, awful illnesses, as that’s how cigarettes legally have to be packaged. Though in reality people can’t choose how smoking tobacco will affect them, the situation is closer to real life than a shelf of glorified smoking brands.

Tobacco giant Philip Morris tried to sue Australia over its packaging laws in 2012, but the Hague international court ruled the attempt an “abuse of rights” in December last year. The 186-page ruling was unsealed on Tuesday.

Australia was the first country to mandate that cigarettes be sold in plain packages, with no branding and full, visual, health warnings, in an attempt to reduce smoking rates, especially among youth. Other countries are now considering the initiative, and Britain is making it compulsory this month.

In Britain, the tobacco industry also tried to defeat the law, but the high court in London rejected the challenge this week. Health spokespeople lauded the rejection a “crushing defeat for the tobacco industry,” and Harpal Kumar, head of Cancer Research UK, said it was “the beginning of the end for packaging that masks a deadly and addictive product … it reflects a huge effort aimed at protecting children from tobacco marketing.”

Philip Morris, which manufactures brands such as Marlboro, argued that the rules impinge on their trademark and intellectual property. Not only did the company want Australia to withdraw the law, it wanted damages of at least US$4.2 billion plus compound interest from Australia — that is, the Australian people.

The company lodged its challenge using an old trade deal between Australia and Hong Kong that included foreign investments, by restructuring its company so that it would fall under the treaty. The court ruled, however, that the cigarette company had restructured itself just to gain protection under the deal, finding that an “abuse of rights.”

Tobacco companies also ran a strong media campaign around the legislation, arguing, rather weakly, that retail workers would find it hard to distinguish between the different brands when selling them, and that crime syndicates would benefit from the packaging. Imperial Tobacco claimed it made Australia a nanny state — that is, an overprotective government.

The trend of corporations suing countries has gained traction over the last decade, with Australia counting 42 investor-state dispute settlement provisions in international treaties in 2014. If the Trans-Pacific Partnership is ratified, transnational corporations based in the US will have an avenue to sue Australia. Though there’s an exclusion for tobacco control measures, there isn’t one for other health issues.

So what do cigarette packets in Australia look like now?

Under Australian legislation, cigarettes have to be sold in logo-free, dark-brown-olive packaging (one of the least attractive colours, according to government research, especially for young people). The number of cigarettes in each packet, as well as the brand, is indicated in plain, uniform text, and most of the packet consists of graphic health warnings, such as, “Smoking causes mouth and throat cancer” or, “Smoking harms unborn babies.”

Yet the impact of the packaging has been less than you might imagine, with one study finding that before it, 20 percent of smokers wanted to quit, and after, 27 percent wanted to quit. And according to the Australian Bureau of Statistics, sales profits were barely affected by the measure, though they did decline after Australia implemented an increased sales tax.

Tobacco interventions pay off

However, a new US study from the Center for Tobacco Control Research and Education found that when smokers quit, healthcare costs immediately plunged. It found that if 10 percent of US smokers gave up cigarettes, and the rest cut back by 10 percent, the US could shave $63 billion off medical costs.

The analysis makes the case for tobacco-control policies as “a very good form of health care and societal investment by governments.”

But smoking is still killing over 480,000 Americans a year, with thousands of young people taking up the habit every day.

Meanwhile, the US tobacco industry spends a million dollars every hour to promote its products, according to Tom Frieden, director of the US Centers for Disease Control and Prevention.

And the day before the Australia Hague ruling was released, the US Supreme Court refused to hear a challenge by Philip Morris to a $25-million Oregon jury verdict in favor of a man whose wife died after smoking the company’s low-tar cigarettes.

The wife, Michelle Schwarz, began smoking in 1964, and tried to quit without any luck, before switching in 1976 to Philip Morris’ Merit brand, which was advertised as “full flavor” but “low-tar.”

She died in 1999 from a brain tumor that was the result of metastatic lung cancer. The suit accused the company of negligence and fraud.

According to the European Commission and the World Health Organization, smokers lose an average of 14 years of life. Tobacco smoke contains more than 4,000 chemicals, 250 of which are harmful and 50 of which cause cancer.

A world without advertising on packaging?

So, what would happen if other unhealthy products were sold in a similar way? What if sweet cereals, for example, were sold with giant warnings that they were more harmful than a lot of junk food, and the only information on the package was… information. What if microwave popcorn packaging only contained the product name, ingredients, quantity, and a giant warning that some of the ingredients cause cancer? Or if Coca Cola and Pepsi were sold in plain cans with obesity and kidney malfunction warnings? We should ask ourselves if consumers, especially younger ones, have a right to shop without manipulation.

—Tamara Pearson

Smoke and Mirrors? Structuring of Foreign Investments Following the Philip Morris Award

http://www.lexology.com/library/detail.aspx?g=a2cfda47-0e67-4a86-91c4-2eba3fa71966

Perhaps the most high-profile case in the debate over investor-state arbitration in recent years has been the investment treaty claim by Philip Morris against the Australian Government, concerning the introduction of tobacco plain packaging rules. Opponents have relied on the case to highlight the perceived risk of “regulatory chill” caused by the proliferation of “secret courts”, while many proponents had hoped that the case would result in an award that carefully balanced the State’s “right to regulate” with the investor’s rights to “fair and equitable treatment” and “legitimate expectations”. The recently published decision[1] of the tribunal not to exercise jurisdiction over the claim has therefore resulted in a degree of disappointment from all quarters. Nonetheless, the award on jurisdiction and admissibility of 17 December 2015 deals with some important issues that have direct relevance to any investors seeking to restructure their investments in a manner that maximises their chances of obtaining investment treaty protections.

Background

The claim was brought by Philip Morris Asia Limited (“PM Asia“), a Hong Kong based subsidiary of Philip Morris International Inc. (“PMI“), under 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“). The substantive claim arose from the introduction of the Tobacco Plain Packaging Act 2011 and the Tobacco Plain Packaging Regulations 2011, which prohibited the use of brands, trademarks and logos on tobacco packaging. PM Asia argued that this amounted to an indirect expropriation of its intellectual property rights and transformed its Australian subsidiary (“PM Australia“) from a manufacturer of branded products to a manufacturer of commoditised products, thus substantially diminishing the value of its investments in Australia. PM Asia claimed damages of over US$ 4 billion.

The award sets out a detailed description of the chronology preceding the claim, but in summary, Australia had first considered plain packaging legislation in 1995. After various consultations and one abortive attempt to introduce legislation into the Senate, the Australian Prime Minister, Kevin Rudd, officially announced his intention to introduce plain packaging legislation in April 2010. Following Mr Rudd’s defenestration by Julia Gillard and the subsequent election in August 2010, the Tobacco Plain Packaging Bill was eventually introduced into parliament in April 2011 and received Royal Assent on 1 December 2011.

In parallel with these developments, PMI had expressed its opposition to plain packaging legislation in Australia from at least late 2009. It maintained its dialogue with the Government from that point onwards, describing the proposals as “restrictions tantamount to expropriation” and threatening “legal challenges” if the proposals were pursued. Staring in September 2010, PMI began restructuring several of its global affiliates, with the stated aim of streamlining its corporate structure. On 21 January 2011, PMI filed a foreign investment application regarding the proposed purchase of PM Australia by PM Asia. The Treasury subsequently issued a “non-objection letter” and the acquisition completed on 23 February 2011. PM Asia issued its initial notice of claim under the Treaty on 27 June 2011 and its formal notice of arbitration on 21 November 2011, the day that the Tobacco Plain Packaging Bill passed both Houses of Parliament.

Award on Jurisdiction and Admissibility

The award on jurisdiction and admissibility deals with two preliminary objections by Australia:

  • the “Non-Admission Objection” – Australia argued that PM Asia’s investment in PM Australia was not properly admitted in accordance with Australian law and therefore fell outside the subject-matter jurisdiction (ratione materiae) of the tribunal;
  • the “Temporal Objection” – Australia argued that there was a pre-existing dispute between PMI and the Australian Government concerning the plain packaging proposals, and PM Asia’s investment in PM Australia post-dated this dispute, so it did not fall within the temporal jurisdiction (ratione temporis) of the tribunal. Australia supplemented this jurisdictional objection with an admissibility objection: even if the tribunal had jurisdiction over the claim, it should not exercise its jurisdiction because PM Asia’s claim under the Treaty amounted to an abuse of process.
  • The “Non-Admission Objection” is specific to the facts of the case and is therefore of limited significance. However, the tribunal’s findings on the “Temporal Objection” may have wider application and are therefore worth further consideration.

PM Asia’s primary response to the Temporal Objection was that it had controlled PM Australia prior to the restructuring, through the exercise of management functions and strategic/budgetary decisions since 2001. The Treaty definition of an “investment” included assets “owned or controlled” by an investor and so PM Asia argued that it was eligible for the protections afforded by the Treaty long before its formal acquisition of PM Australia. The tribunal undertook a brief analysis of the case law on the distinction between ownership and control and found that PM Asia’s involvement in the approval of expenditures and dividends, its role in branding and marketing strategy and its supervision of PM Australia’s staff were insufficient to amount to “control” in circumstances where PM Asia’s actions were undertaken in accordance with PMI global policies and procedures and were ultimately subject to PMI approvals.

Having determined that PM Asia’s only eligible investment was its acquisition of PM Australia in February 2011, the tribunal therefore needed to ascertain whether it had jurisdiction and, if so, whether there was any reason for it to refuse to exercise that jurisdiction. Applying Gremcitel,[2] the tribunal held that whenever a cause of action is based on a treaty breach, the test for ratione temporis is whether the claimant made the protected investment before the moment when the alleged breach occurred. In that case, the tribunal had found that the critical date on which the breach crystallised was when the relevant legislative measures were adopted, notwithstanding the fact that this may have been “the culmination of a process or sequence of events which may have started years earlier“. In PM Asia’s case, it was the enactment of the Tobacco Plain Packaging Act in December 2011 that allegedly breached the Treaty and so PM Asia’s investment in February 2011 pre-dated the breach. Accordingly, the tribunal found that it did have jurisdiction over PM Asia’s claim.

Moving on to the question of admissibility, the tribunal undertook an analysis of the arbitral case law on abuse of process. Drawing on several prominent cases,[3] the tribunal emphasised that the mere fact of restructuring an investment to obtain the protection of an investment treaty is not per se illegitimate and that the threshold for finding an “abusive manipulation of the system of international investment protection” is high.[4] Applying Tidewater andMobil,[5] the tribunal determined that the key question was whether there was a “pre-existing” dispute at the time the restructuring was carried out. The tribunal grappled with the various formulations adopted in Gremcitel, Lao Holdingsand Pac Rim[6] and held that the initiation of a treaty claim constitutes an abuse of process when an investor “has changed its corporate structure to gain the protection of an investment treaty at a point when a specific dispute was foreseeable“.[7] Rather than adopting the test of foreseeability articulated in Pac Rim as “a very high probability and not merely a possibility“, the tribunal held instead that a dispute is foreseeable when there is a “reasonable prospect… that a measure which may give rise to a treaty claim will materialise“.[8]

Applying this test to the facts, the tribunal noted PMI’s objection to the Government’s proposals as early as 2009, including specific references to the deprivation of property rights and possible legal challenges. The tribunal also emphasised the fact that, while it took a considerable time for the legislation to pass and there was a degree of uncertainty as to whether the Government could obtain the parliamentary majority needed to pass the legislation, the intention of the Government remained relatively clear since April 2010 and so there was at least a “reasonable prospect” of the legislation being passed from that point onwards.

Notwithstanding these findings, the tribunal acknowledged that the commencement of a claim shortly after a corporate restructuring might not necessarily amount to an abuse of process where the restructuring was justified “independently of the possibility of bringing a claim“.[9] On the facts, the tribunal was unconvinced by PM Asia’s insistence that the restructuring (i) was part of a broader group-wide process, (ii) was needed to align ownership with pre-existing management control, (iii) helped minimise PM Asia’s tax liabilities, and (iv) helped to optimise cash flow. In particular, the tribunal noted the failure of PM Asia to present any witnesses who were directly familiar with the rationale for the restructuring and the lack of “contemporaneous corporate memoranda or other internal correspondence sufficiently explaining the business case for the restructuring in detail“.[10]

The tribunal also placed significant emphasis on the volume and timing of legal advice from PMI’s advisors concerning potential investment treaty claims. As part of the production phase of the arbitration, the parties agreed to exchange privilege logs listing any documents that they wished to withhold on grounds of privilege or political sensitivity. Following objections from both parties, the tribunal ordered the production of many of those documents.[11] While the award itself contains heavy redactions in relation to privileged and commercially sensitive documents, it is evident that the subject headings of emails passing between PMI and its legal advisors (for example, “Australia-HK BIT“, “Arbitration under the HK BIT“) gave a clear indication that PMI was being advised on potential investment treaty claims from as early as July 2010. Critical email exchanges also coincided precisely with the internal approval of the restructuring and the finalisation of the notice of claim.

In such circumstances, the tribunal was satisfied that the passage of the offending legislation was not only foreseeable, but actually foreseen. The tribunal concluded that “the main and determinative, if not sole, reason for the restructuring was the intention to bring a claim under the Treaty, using an entity from Hong Kong“.[12] Since this was carried out “at a time when there was a reasonable prospect that the dispute would materialise” it was deemed to be an abuse of process. Accordingly, the tribunal declared the claim inadmissible, precluding it from exercising jurisdiction over the dispute.

Key Lessons

There are several key lessons to take away from the Philip Morris award for any investor seeking to restructure its foreign investments in an effort to maximise treaty protections:

  • Preparing for the “worst case scenario” by seeking legal advice on investment treaty protections is entirely normal and prudent business behaviour.
  • Similarly, restructuring investments to benefit from treaty protections is unlikely to be abusive where this is in response to a general risk of future disputes.
  • The threshold for abusive conduct lies where a restructuring takes place at a point in time when a specific dispute is foreseeable; in other words, there is a reasonable prospect that a measure giving rise to a treaty claim will materialise.
  • Factual evidence is likely to be fundamental to the outcome of any objection based on abuse of process. It is therefore critical to ensure that any other reasons for the restructuring (such as tax benefits, costs reductions, management rationalisation) are well-documented and are presented in a manner that can be adduced in evidence without jeopardising any subsequent claims for legal privilege.
  • Legal advice on potential investment treaty protections should be sought as early as possible, and certainly prior to the crystallisation of a specific dispute. Wherever possible, any communications seeking legal advice should be clearly marked as privileged and should be drafted carefully to avoid any inadvertent suggestions that a specific dispute is either inevitable or foreseeable.

Smoke and Mirrors? Structuring of Foreign Investments Following the Philip Morris Award

http://globalarbitrationnews.com/smoke-mirrors-structuring-foreign-investments-following-philip-morris-award-20160608/#page=1

Perhaps the most high-profile case in the debate over investor-state arbitration in recent years has been the investment treaty claim by Philip Morris against the Australian Government, concerning the introduction of tobacco plain packaging rules. Opponents have relied on the case to highlight the perceived risk of “regulatory chill” caused by the proliferation of “secret courts”, while many proponents had hoped that the case would result in an award that carefully balanced the State’s “right to regulate” with the investor’s rights to “fair and equitable treatment” and “legitimate expectations”. The recently published decision[1] of the tribunal not to exercise jurisdiction over the claim has therefore resulted in a degree of disappointment from all quarters. Nonetheless, the award on jurisdiction and admissibility of 17 December 2015 deals with some important issues that have direct relevance to any investors seeking to restructure their investments in a manner that maximises their chances of obtaining investment treaty protections.

Background

The claim was brought by Philip Morris Asia Limited (“PM Asia“), a Hong Kong based subsidiary of Philip Morris International Inc. (“PMI“), under 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“). The substantive claim arose from the introduction of the Tobacco Plain Packaging Act 2011 and the Tobacco Plain Packaging Regulations 2011, which prohibited the use of brands, trademarks and logos on tobacco packaging. PM Asia argued that this amounted to an indirect expropriation of its intellectual property rights and transformed its Australian subsidiary (“PM Australia“) from a manufacturer of branded products to a manufacturer of commoditised products, thus substantially diminishing the value of its investments in Australia. PM Asia claimed damages of over US$ 4 billion.

The award sets out a detailed description of the chronology preceding the claim, but in summary, Australia had first considered plain packaging legislation in 1995. After various consultations and one abortive attempt to introduce legislation into the Senate, the Australian Prime Minister, Kevin Rudd, officially announced his intention to introduce plain packaging legislation in April 2010. Following Mr Rudd’s defenestration by Julia Gillard and the subsequent election in August 2010, the Tobacco Plain Packaging Bill was eventually introduced into parliament in April 2011 and received Royal Assent on 1 December 2011.

In parallel with these developments, PMI had expressed its opposition to plain packaging legislation in Australia from at least late 2009. It maintained its dialogue with the Government from that point onwards, describing the proposals as “restrictions tantamount to expropriation” and threatening “legal challenges” if the proposals were pursued. Staring in September 2010, PMI began restructuring several of its global affiliates, with the stated aim of streamlining its corporate structure. On 21 January 2011, PMI filed a foreign investment application regarding the proposed purchase of PM Australia by PM Asia. The Treasury subsequently issued a “non-objection letter” and the acquisition completed on 23 February 2011. PM Asia issued its initial notice of claim under the Treaty on 27 June 2011 and its formal notice of arbitration on 21 November 2011, the day that the Tobacco Plain Packaging Bill passed both Houses of Parliament.

Award on Jurisdiction and Admissibility

The award on jurisdiction and admissibility deals with two preliminary objections by Australia:

the “Non-Admission Objection” – Australia argued that PM Asia’s investment in PM Australia was not properly admitted in accordance with Australian law and therefore fell outside the subject-matter jurisdiction (ratione materiae) of the tribunal;
the “Temporal Objection” – Australia argued that there was a pre-existing dispute between PMI and the Australian Government concerning the plain packaging proposals, and PM Asia’s investment in PM Australia post-dated this dispute, so it did not fall within the temporal jurisdiction (ratione temporis) of the tribunal. Australia supplemented this jurisdictional objection with an admissibility objection: even if the tribunal had jurisdiction over the claim, it should not exercise its jurisdiction because PM Asia’s claim under the Treaty amounted to an abuse of process.
The “Non-Admission Objection” is specific to the facts of the case and is therefore of limited significance. However, the tribunal’s findings on the “Temporal Objection” may have wider application and are therefore worth further consideration.

PM Asia’s primary response to the Temporal Objection was that it had controlled PM Australia prior to the restructuring, through the exercise of management functions and strategic/budgetary decisions since 2001. The Treaty definition of an “investment” included assets “owned or controlled” by an investor and so PM Asia argued that it was eligible for the protections afforded by the Treaty long before its formal acquisition of PM Australia. The tribunal undertook a brief analysis of the case law on the distinction between ownership and control and found that PM Asia’s involvement in the approval of expenditures and dividends, its role in branding and marketing strategy and its supervision of PM Australia’s staff were insufficient to amount to “control” in circumstances where PM Asia’s actions were undertaken in accordance with PMI global policies and procedures and were ultimately subject to PMI approvals.

Having determined that PM Asia’s only eligible investment was its acquisition of PM Australia in February 2011, the tribunal therefore needed to ascertain whether it had jurisdiction and, if so, whether there was any reason for it to refuse to exercise that jurisdiction. Applying Gremcitel,[2] the tribunal held that whenever a cause of action is based on a treaty breach, the test for ratione temporis is whether the claimant made the protected investment before the moment when the alleged breach occurred. In that case, the tribunal had found that the critical date on which the breach crystallised was when the relevant legislative measures were adopted, notwithstanding the fact that this may have been “the culmination of a process or sequence of events which may have started years earlier“. In PM Asia’s case, it was the enactment of the Tobacco Plain Packaging Act in December 2011 that allegedly breached the Treaty and so PM Asia’s investment in February 2011 pre-dated the breach. Accordingly, the tribunal found that it did have jurisdiction over PM Asia’s claim.

Moving on to the question of admissibility, the tribunal undertook an analysis of the arbitral case law on abuse of process. Drawing on several prominent cases,[3] the tribunal emphasised that the mere fact of restructuring an investment to obtain the protection of an investment treaty is not per se illegitimate and that the threshold for finding an “abusive manipulation of the system of international investment protection” is high.[4] Applying Tidewater and Mobil,[5] the tribunal determined that the key question was whether there was a “pre-existing” dispute at the time the restructuring was carried out. The tribunal grappled with the various formulations adopted in Gremcitel, Lao Holdings and Pac Rim[6] and held that the initiation of a treaty claim constitutes an abuse of process when an investor “has changed its corporate structure to gain the protection of an investment treaty at a point when a specific dispute was foreseeable“.[7] Rather than adopting the test of foreseeability articulated in Pac Rim as “a very high probability and not merely a possibility“, the tribunal held instead that a dispute is foreseeable when there is a “reasonable prospect… that a measure which may give rise to a treaty claim will materialise“.[8]

Applying this test to the facts, the tribunal noted PMI’s objection to the Government’s proposals as early as 2009, including specific references to the deprivation of property rights and possible legal challenges. The tribunal also emphasised the fact that, while it took a considerable time for the legislation to pass and there was a degree of uncertainty as to whether the Government could obtain the parliamentary majority needed to pass the legislation, the intention of the Government remained relatively clear since April 2010 and so there was at least a “reasonable prospect” of the legislation being passed from that point onwards.

Notwithstanding these findings, the tribunal acknowledged that the commencement of a claim shortly after a corporate restructuring might not necessarily amount to an abuse of process where the restructuring was justified “independently of the possibility of bringing a claim“.[9] On the facts, the tribunal was unconvinced by PM Asia’s insistence that the restructuring (i) was part of a broader group-wide process, (ii) was needed to align ownership with pre-existing management control, (iii) helped minimise PM Asia’s tax liabilities, and (iv) helped to optimise cash flow. In particular, the tribunal noted the failure of PM Asia to present any witnesses who were directly familiar with the rationale for the restructuring and the lack of “contemporaneous corporate memoranda or other internal correspondence sufficiently explaining the business case for the restructuring in detail“.[10]

The tribunal also placed significant emphasis on the volume and timing of legal advice from PMI’s advisors concerning potential investment treaty claims. As part of the production phase of the arbitration, the parties agreed to exchange privilege logs listing any documents that they wished to withhold on grounds of privilege or political sensitivity. Following objections from both parties, the tribunal ordered the production of many of those documents.[11] While the award itself contains heavy redactions in relation to privileged and commercially sensitive documents, it is evident that the subject headings of emails passing between PMI and its legal advisors (for example, “Australia-HK BIT“, “Arbitration under the HK BIT“) gave a clear indication that PMI was being advised on potential investment treaty claims from as early as July 2010. Critical email exchanges also coincided precisely with the internal approval of the restructuring and the finalisation of the notice of claim.

In such circumstances, the tribunal was satisfied that the passage of the offending legislation was not only foreseeable, but actually foreseen. The tribunal concluded that “the main and determinative, if not sole, reason for the restructuring was the intention to bring a claim under the Treaty, using an entity from Hong Kong“.[12] Since this was carried out “at a time when there was a reasonable prospect that the dispute would materialise” it was deemed to be an abuse of process. Accordingly, the tribunal declared the claim inadmissible, precluding it from exercising jurisdiction over the dispute.

Key Lessons

There are several key lessons to take away from the Philip Morris award for any investor seeking to restructure its foreign investments in an effort to maximise treaty protections:

Preparing for the “worst case scenario” by seeking legal advice on investment treaty protections is entirely normal and prudent business behaviour.
Similarly, restructuring investments to benefit from treaty protections is unlikely to be abusive where this is in response to a general risk of future disputes.
The threshold for abusive conduct lies where a restructuring takes place at a point in time when a specific dispute is foreseeable; in other words, there is a reasonable prospect that a measure giving rise to a treaty claim will materialise.
Factual evidence is likely to be fundamental to the outcome of any objection based on abuse of process. It is therefore critical to ensure that any other reasons for the restructuring (such as tax benefits, costs reductions, management rationalisation) are well-documented and are presented in a manner that can be adduced in evidence without jeopardising any subsequent claims for legal privilege.
Legal advice on potential investment treaty protections should be sought as early as possible, and certainly prior to the crystallisation of a specific dispute. Wherever possible, any communications seeking legal advice should be clearly marked as privileged and should be drafted carefully to avoid any inadvertent suggestions that a specific dispute is either inevitable or foreseeable.

[1] Award on Jurisdiction and Admissibility, Philip Morris Asia Limited v The Commonwealth of Australia (PCA Case Nº 2012-12); available at https://www.pcacases.com/web/sendAttach/1711

[2] Gremcitel v Peru [ICSID Case No. ARB/11/17]

[3] Tidewater v Venezuela [ICSID Case No. ARB/10/5]; Mobil v Venezuela [ICSID Case No. ARB/07/27]; Gremcitel v Peru [ICSID Case No. ARB/11/17]; and Aguas del Tunari v Bolivia [ICSID Case No. ARB/02/3]

[4] Phoenix Action v Czech Republic [ICSID Case No. ARB/06/5]; Chevron v Ecuador [PCA Case No. 34877]

[5] Tidewater v Venezuela [ICSID Case No. ARB/10/5]; Mobil v Venezuela [ICSID Case No. ARB/07/27]

[6] Gremcitel v Peru [ICSID Case No. ARB/11/17]; Lao Holdings v Laos [ICSID Case No. ARB(AF)/12/6; Pac Rim v El Salvador [ICSID Case No. ARB/09/12]

[7] Paragraph 554

[8] Paragraph 554

[9] Paragraph 570

[10] Paragraph 582

[11] Procedural Order No. 12 (14 November 2014); available at https://www.pcacases.com/web/sendAttach/1483

[12] Paragraph 585

Cigarette tax suit against UPS to go forward

http://www.tobaccojournal.com/Cigarette_tax_suit_against_UPS_to_go_forward.53640.0.html

A federal court declined to dismiss a lawsuit by New York authorities against UPS that contends the logistics company knowingly shipped untaxed cigarettes from Native American reservations to customers, the Associated Press said.

US District Court Judge Katherine Forrest denied a motion by UPS to dismiss the suit, reportedly saying there were issues that should be decided at trial. New York filed the suit in 2014, and is alleging the shipper handled about 700,000 cartons of between 2010 and 2014 in violation of an agreement with the state to stop, the AP said.

E-cigarettes blamed for blowing up in smokers’ faces

Serious injuries occurred in some cases; one man lost an eye

https://www.consumeraffairs.com/news/e-cigarettes-blamed-for-blowing-up-in-smokers-faces-052616.html

Traditional cigarettes are really bad for you, but at least they don’t blow up in your face, as e-cigarettes have been doing lately. In one of the most recent cases, an Albany, N.Y., man said his e-cig blew up and knocked him to the ground.

“Like a M80 bomb went off in my mouth,” Kenneth Barbaro said. “When I hit the button, I saw a huge yellow light. The next thing I know, I’m on the floor and my arms are paralyzed.”

Barbaro was hospitalized with burns to his hands, knocked-out teeth, and a splt tongue, he said in a televised report.

“When it blows up in your face, you’re not having a good time,” he said in a televised news report.

More serious

In an even more serious case, an e-cig exploded on April 15, tearing through a man’s eye, smashing two cheekbones, and starting a fire. Joseph Cavins, now blind in one eye, has filed a lawsuit against vaping retailers and distributors, Courthouse News Service reported.

He said he was working at his computer when his vaping device exploded, hitting him in the eye, then hitting the ceiling, and finally landing on top of the computer, where it started a fire.

Cavins, a public school counselor, underwent seven hours of surgery. Doctors removed his left eye and performed surgery to fix broken bones in his face and to repair his sinus cavity.

The problem, according to Cavins’ lawsuit, is that the batteries in vaping devices have “an inherent risk of fire and explosion,” exacerbated by what it says is the cheap construction and poor design of many of the devices.

If the temperature inside the lithium-ion battery builds up high enough, it can cause an explosion that propels the battery “like a bullet or rocket,” Cavins’ suit says.

Several similar cases have been reported in recent months.