International tobacco giant Philip Morris will launch legal action today aimed at forcing the Gillard government to back down on its plain-packaging legislation or face a compensation bill of "billions of dollars".
Photo: Alan Pryke
Nicola Roxon, pictured launching her government's bid to force tobacco companies to put cigarettes in plain packaging.
In a dramatic escalation of the tobacco industry's campaign against the laws, which to date has been confined to lobbying and advertising, Philip Morris wants to prevent the Australian government setting a precedent that could be adopted by governments around the world.
The action by the manufacturer of prominent brands such as Marlboro and Peter Jackson will occur under a bilateral investment treaty between Australia and Hong Kong.
The company will argue that, because the Australian operation is owned by Philip Morris Asia Limited (PMA), which is based in Hong Kong, the plain-packaging legislation will adversely impact upon an investment protected by the treaty.
Federal Health Minister Nicola Roxon has pledged to introduce and pass the legislation this year and have it operational on January 1. It will ban all commercial branding from cigarettes, mandating olive-green packaging with prominent health warnings. Packs will be distinguishable only by printed brand names in a standard font and size on the top, front and bottom of the packets.
Philip Morris says the removal of trademarks devalues its intellectual property, in breach of the investment treaty. It argues the cigarette trade will be reduced to a commodity market where prices will be forced down, reducing its profitability and the value of its assets. Spokeswoman Anne Edwards said: "We don't take legal action lightly, but we have no other option. We believe we have a very strong legal case."
The notice of claim to be served today will trigger a three-month period of negotiation. If there is no resolution the matter will proceed to arbitration. "PMA will be seeking the loss in value of its investments in Australia that will result from plain packaging," Ms Edwards said. "The damages may amount to billions of dollars."
Philip Morris's case has been examined by international business and investment law expert Don Wallace, of Washington's Georgetown University. He said action under bilateral investment treaties had become increasingly common, although this could be the first lodged against Australia.
Professor Wallace, a consultant to PMA, said the decision could be enforced by courts in any of 145 nations that were party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
The notice of claim will be sent today from PMA's Hong Kong offices to Ms Roxon, Julia Gillard and Attorney-General Robert McClelland.
Earlier this month, Ms Roxon said the government had taken legal advice on its legislation.
"We're very confident that we're on solid ground," the Health Minister told the ABC. "And the reason that we're so confident of this is that governments are always able to take actions to act in the public interest or in public health or public protection."
Plain-packaging laws have been considered, but have stalled, in Britain and Canada.