INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES
WASHINGTON, D.C.
PHILIP MORRIS BRANDS SÀRL,
PHILIP MORRIS PRODUCTS S.A.
and
ABAL HERMANOS S.A.
(THE CLAIMANTS)
and
ORIENTAL REPUBLIC OF URUGUAY
(THE RESPONDENT)
(ICSID Case No. ARB/10/7)
AWARD
Members of the Tribunal
Prof. Piero Bernardini, President
Mr. Gary Born, Arbitrator
Judge James Crawford, Arbitrator
Secretary of the Tribunal:
Mrs. Mairee Uran-Bidegain
Date of dispatch to the parties: July 8, 2016
ii
Representing the Claimants:
Mr. Stanimir Alexandrov
Ms. Marinn Carlson
Ms. Jennifer Haworth McCandless
Mr. James Mendenhall
Sidley Austin LLP
1501 K Street, N.W.
Washington, D.C. 20005
United States of America
and
Dr. Veijo Heiskanen
Ms. Noradèle Radjai and
Mr. Samuel Moss
LALIVE
Rue de la Mairie 35
1207 Geneva
Switzerland
and
Mr. Ken Reilly
Shook, Hardy & Bacon LLP
Miami Center
201 S. Biscayne Blvd., Suite 3200
Miami, FL 33131
United States of America
and
Ms. Madeleine McDonough
Shook, Hardy & Bacon LLP
1155 F Street NW, Suite 200
Washington, D.C. 20004
United States of America
and
Mr. Bill Crampton
Shook, Hardy & Bacon LLP
2555 Grand Blvd.
Kansas City, MO 64108
United States of America
Representing the Respondent:
Mr. Rodolfo Nin Novoa
Minister of Foreign Affairs
Colonia 1206, 6to. Piso
Montevideo
Uruguay
and
Dr. Jorge Basso Garrido
Minister of Public Health
18 de julio 1892, Piso 2
Montevideo
Uruguay
and
Dr. Miguel Ángel Toma
Secretario de la Presidencia / Secretary of the
Presidency
Plaza Independencia 710
C.P. 11000
Montevideo
Uruguay
and
Dr. Carlos Gianelli
Embassy of Uruguay
1913 I (Eye) Street, N.W.
Washington, D.C. 20006
United States of America
and
Mr. Paul Reichler
Mr. Lawrence Martin
Ms. Clara Brillembourg
Mr. Andrew B. Loewenstein
Foley Hoag LLP
1717 K Street N.W.
Washington, D.C. 20006-5350
United States of America
and
Prof. Harold Hongju Koh
87 Ogden Street
New Haven, CT 06511
United States of America
iii
TABLE OF CONTENTS
INTRODUCTION AND PARTIES ................................................................................... 1
OVERVIEW OF THE DISPUTE AND THE PARTIES’ REQUEST FOR RELIEF .. 2
PROCEDURAL HISTORY................................................................................................ 4
FACTUAL BACKGROUND............................................................................................ 13
The Claimants’ Operations and Investments in Uruguay...................................... 13
Uruguay’s Tobacco Control Policy and the Applicable Regulatory Framework 16
The International Regulatory Framework ................................................................. 19
The Domestic Regulatory Framework ...................................................................... 23
1. The Regulatory Framework up to the Enactment of the Challenged Measures
....................................................................................................................... 24
2. The Challenged Measures............................................................................. 28
The alleged effects of the Challenged Measures...................................................... 35
Tobacco Use in Uruguay Before and After the Challenged Measures ..................... 35
Claimants’ Investments and Market Competition Before and After the Challenged
Measures.................................................................................................................... 39
The Challenges to the Regulations before the Uruguayan Courts ........................ 41
Proceedings Before the Tribunal de lo Contencioso Administrativo (TCA) Relating
to the SPR.................................................................................................................. 42
The Proceedings Before the TCA and the Supreme Court of Justice Relating to the
80/80 Regulation ....................................................................................................... 44
The Regulatory Framework of Trademarks in Uruguay....................................... 45
LIABILITY ........................................................................................................................ 47
Applicable Law........................................................................................................... 47
Expropriation under Article 5 of the Treaty ........................................................... 48
The Legal Standard ................................................................................................... 49
1. The Claimants’ Position................................................................................ 49
2. The Respondent’s Position ............................................................................ 50
3. The Tribunal’s Analysis................................................................................. 51
The Claim.................................................................................................................. 53
1. The Claimants’ Position................................................................................ 53
2. The Respondent’s Position ............................................................................ 57
3. The Tribunal’s Analysis................................................................................. 65
(a) Whether the Claimants Owned the Banned Trademarks .............................. 65
iv
(b) Whether a Trademark Confers a Right to Use or only a Right to Protect
Against Use by Others......................................................................................... 71
(c) Whether the Challenged Measures Have Expropriated the Claimants’
Investment............................................................................................................ 76
Denial of Fair and Equitable Treatment under Article 3(2) of the Treaty........... 88
The Legal Standard ................................................................................................... 89
1. The Claimants’ Position................................................................................ 89
2. The Respondent’s position............................................................................. 90
3. The Tribunal’s Analysis................................................................................. 91
The Claim.................................................................................................................. 93
1. The Claimants’ Position................................................................................ 93
(a) The Challenged Measures are Arbitrary....................................................... 93
(b) The Claimants’ Legitimate Expectations ...................................................... 97
(c) Uruguay’s Legal Stability ............................................................................. 99
(d) The Doctrine of Unclean Hands, Raised by Respondent, is Inapplicable. ... 99
2. The Respondent’s Position .......................................................................... 100
(a) The Challenged Measures are Not Arbitrary.............................................. 100
(b) The Claimants’ Legitimate Expectations .................................................... 108
(c) Uruguay’s Legal Stability ........................................................................... 109
(d) The Claimants’ Fraudulent Behavior Prevents them from Bringing an FET
Claim ................................................................................................................. 110
3. The Tribunal’s Analysis............................................................................... 111
(a) Are the Challenged Measures Arbitrary? ................................................... 111
(b) Claimants’ Legitimate Expectations & Uruguay’s Legal Stability............. 123
Impairment of Use and Enjoyment of the Claimants’ Investments under Article
3(1) of the Treaty ...................................................................................................... 127
1. The Claimants’ Position.............................................................................. 127
2. The Respondent’s Position .......................................................................... 128
3. The Tribunal’s Analysis............................................................................... 128
Failure to Observe Commitments as to the Use of Trademarks under Article 11...
....................................................................................................................... 129
The Claimants’ Trademark Rights .......................................................................... 129
1. The Claimants’ Position.............................................................................. 129
2. The Respondent’s Position .......................................................................... 130
3. The Tribunal’s Analysis............................................................................... 131
v
Article 11 as an Umbrella Clause and the Scope of the State’s “Commitments”... 132
1. The Claimants’ Position.............................................................................. 132
2. The Respondent’s Position .......................................................................... 133
3. The Tribunal’s Analysis............................................................................... 134
Denial of Justice........................................................................................................ 139
The Legal Standard ................................................................................................. 140
1. The Claimants’ Position.............................................................................. 140
2. The Respondent’s Position .......................................................................... 141
3. The Tribunal’s Analysis............................................................................... 143
The Apparently Contradictory TCA and SCJ Decisions on the 80/80 Regulation. 144
1. The Claimants’ Position.............................................................................. 144
2. The Respondent’s Position .......................................................................... 146
3. The Tribunal’s Analysis............................................................................... 147
The TCA’s Decision on the SPR............................................................................. 154
1. The Claimants’ Position.............................................................................. 154
2. The Respondent’s Position .......................................................................... 156
3. The Tribunal’s Analysis............................................................................... 158
COSTS OF THE PROCEEDINGS................................................................................ 167
AWARD............................................................................................................................ 169
vi
FREQUENTLY USED ABBREVIATIONS AND ACRONYMS
80/80 Regulation Adopted through Presidential Decree 287/009
dated 15 June 2009
Advisory Commission National Advisory Commission for Tobacco
Control of the Ministry of Public Health of
Uruguay
Arbitration Rules ICSID Rules of Procedure for Arbitration
Proceedings dated 10 April 2006
BIT or Treaty Agreement between the Swiss Confederation
and the Oriental Republic of Uruguay on the
Reciprocal Promotion and Protection of
Investments dated 7 October 1988
C – [X] Claimants’ Exhibit
Challenged Measures The 80/80 Regulations and the SPR
CLA – [X] Claimants’ Legal Authority
CM Claimants’ Memorial on the Merits dated 3
March 2014
CR Claimants’ Reply on the Merits dated 17 April
2015
Dec. Jur. Decision on Jurisdiction dated 2 July 2013
FCTC WHO Framework Convention on Tobacco
Control dated 21 May 2003
Hearing Hearing held in Washington, D.C., on 19-29
October 2015
ICSID Convention Convention on the Settlement of Investment
Disputes Between States and Nationals of
Other States dated 18 March 1965
ICSID or the Centre International Centre for Settlement of
Investment Disputes
MPH Ministry of Public Health of Uruguay
PAHO Pan-American Health Organization
vii
R – [X] Respondent’s Exhibit
RCM Respondent’s Counter Memorial on the Merits
dated 13 October 2014
RfA Request for Arbitration dated 19 February
2010
RLA – [X] Respondent’s Legal Authority
RR Respondent’s Rejoinder on the Merits dated 20
September 2015
SCJ Supreme Court of Justice of Uruguay
SPR Single Presentation Regulation adopted
through Ordinance 514 dated 18 August 2008
TCA Tribunal de lo Contencioso Administrativo
Tobacco Control Program National Program for Tobacco Control of the
Ministry of Public Health of Uruguay
Tr Day [x] [p.] [line] Transcript of the hearing on the merits held in
Washington D.C., on 19-29 October 2015
VCLT Vienna Convention on the Law of Treaties
WHO World Health Organization
1
INTRODUCTION AND PARTIES
This case concerns a dispute submitted to the International Centre for Settlement of
Investment Disputes (“ICSID” or the “Centre”) on the basis of Article 10 of the
Agreement between the Swiss Confederation and the Oriental Republic of Uruguay on
the Reciprocal Promotion and Protection of Investments (including Ad Article 10 of the
Protocol thereto) dated 7 October 1988 (the “Switzerland-Uruguay BIT” or the “BIT”
or the “Treaty”), which entered into force on 22 April 1991, and Article 36 of the
Convention on the Settlement of Investment Disputes between States and Nationals of
Other States, dated 18 March 1965, which entered into force on 14 October 1966 (the
“ICSID Convention”).
The Claimants are Philip Morris Brand Sàrl (Switzerland) (“PMB”), Philip Morris
Products S.A. (Switzerland) (“PMP”) and Abal Hermanos S.A. (“Abal”), jointly
referred to as “Philip Morris” or the “Claimants.”
PMB is a société à responsibilité limitée organized under the laws of Switzerland, with
a registered office in Neuchâtel, Switzerland. PMB is the direct owner of 100% of
Abal.1
PMB substituted and replaced FTR Holding S.A., one of the original Claimants
in this case.2
PMP is a société anonyme organized under the laws of Switzerland on 22 December
1988, with a registered office in Neuchâtel, Switzerland.
Abal is a sociedad anónima organized under the laws of Uruguay and has its registered
office in Montevideo, Uruguay.3
The Claimants’ ultimate parent company,4
Philip Morris International Inc. (“PMI”), is
incorporated and headquartered in the United States.5
1
Diagram of Claimants’ Corporate Ownership Structure (C-64). See also CM, ¶ 56.
2
FTR Holding S.A. was incorporated on 14 Dec. 1924 in Switzerland and registered in the Commercial Register
of Neuchâtel on 15 Jan. 1943. By letter of 5 Oct. 2010 the Claimants informed the Centre that Philip Morris
Brands Sàrl replaced FTR Holding S.A. as one of the Claimants in this case and requested that the caption of the
case be amended accordingly.
3
Notarized Attestation of Abal’s Status as a Limited Liability Company Organized Under the Laws of Uruguay,
5 Nov. 2009 (C-10). See also CM, ¶ 56.
4
Tr. Day 1, 13:22-14:1-3.
5
CM, ¶ 55; PMI 2012 Annual Report (C-144).
2
The Respondent is the Oriental Republic of Uruguay and is hereinafter referred to as
“Uruguay” or the “Respondent.” Uruguay is a constitutional democracy with a
population of over 3.4 million people.
The Claimants and the Respondent are hereinafter collectively referred to as the
“Parties.” The Parties’ respective representatives and their addresses are listed above
on page (i).
OVERVIEW OF THE DISPUTE AND THE PARTIES’ REQUEST FOR RELIEF
At its core, the dispute concerns allegations by the Claimants that, through several
tobacco-control measures regulating the tobacco industry, the Respondent violated the
BIT in its treatment of the trademarks associated with cigarettes brands in which the
Claimants had invested. These measures included the Government’s adoption of a
single presentation requirement precluding tobacco manufacturers from marketing more
than one variant of cigarette per brand family (the “Single Presentation Requirement”
or “SPR”), and the increase in the size of graphic health warnings appearing on cigarette
packages (the “80/80 Regulation”), jointly referred to as the “Challenged Measures.”
The Single Presentation Requirement was implemented through Ordinance 514 dated
18 August 2008 (“Ordinance 514”) of the Uruguayan Ministry of Public Health (the
“MPH”). Article 3 of Ordinance 514 requires each cigarette brand to have a “single
presentation” and prohibits different packaging or “variants” for cigarettes sold under a
given brand. Until the enactment of the SPR, Abal sold multiple product varieties under
each of its brands (for example, “Marlboro Red,” “Marlboro Gold,” “Marlboro Blue”
and “Marlboro Green (Fresh Mint)”). As a result of Ordinance 514, Abal ceased selling
all but one of the product variants of each brand that it owns or holds licenses to (e.g.
only Marlboro Red). The Claimants allege that the measure and lack of variant sales
have substantially impacted the value of the company.
The 80/80 Regulation was implemented through the enactment of Presidential Decree
No. 287/009 dated 15 June 2009 (“Decree 287”). Decree 287 imposes an increase in
the size of prescribed health warnings of the surface of the front and back of the cigarette
packages from 50% to 80%, leaving only 20% of the cigarette pack for trademarks,
logos and other information. According to the Claimants, this wrongfully limits Abal’s
right to use its legally protected trademarks and prevents Abal from displaying them in
3
their proper form. This, in the Claimants’ view, caused a deprivation of PMP’s and
Abal’s intellectual property rights, further reducing the value of their investment.
According to the Claimants, the Challenged Measures constitute breaches of the
Respondent’s obligations under BIT Articles 3(1) (impairment of use and enjoyment of
investments), 3(2) (fair and equitable treatment and denial of justice), 5 (expropriation)
and 11 (observance of commitments), entitling the Claimants to compensation under the
Treaty and international law. They further claim damages arising from these alleged
breaches. On this basis, the Claimants request that this Tribunal:
Either:
 Order that Respondent withdraw the challenged regulations or refrain from
applying them against Claimants’ investments, and award damages
incurred through the date of such withdrawal; or, in the alternative
 Award Claimants damages of at least US$ 22.267 million,* plus compound
interest running from the date of breach to the date of Respondent’s
payment of the award; and
Award Claimants all of their fees and expenses, including attorney’s fees,
incurred in connection with this arbitration; and
Award such other relief as the Tribunal deems just and appropriate.6
Uruguay in turn holds that the Challenged Measures were adopted in compliance with
Uruguay’s international obligations, including the BIT, for the single purpose of
protecting public health. According to Uruguay, both regulations were applied in a nondiscriminatory
manner to all tobacco companies, and they amounted to a reasonable,
good faith exercise of Uruguay’s sovereign prerogatives. The SPR was adopted to
mitigate the ongoing adverse effects of tobacco promotion, including the Claimants’
false marketing that certain brand variants are safer than others, even after misleading
descriptors such as “light,” “mild,” “ultra-light” were banned. The 80/80 Regulation
was adopted to increase consumer awareness of the health risks of tobacco consumption
and to encourage people, including younger people, to quit or not to take up smoking,
while still leaving room on packages for brand names and logos. Thus for the
6
CR, ¶ 406 (emphasis in the text). The Claimants originally requested an award of damages of “at least US
$25,743,000.00 plus compound interest.” This number was reduced after the first round of pleadings.
4
Respondent, this case is “about protection of public health, not interference with foreign
investment.”7
On this basis the Oriental Republic of Uruguay, submits that:
1. Claimants’ claims should be dismissed in their entirety; and
2. Uruguay should be awarded compensation for all the expenses and costs
associated with defending against these claims.8
PROCEDURAL HISTORY
On 22 February 2010, ICSID received the request for arbitration dated 19 February 2010
(the “RfA”).
On 26 March 2010, the Secretary-General of ICSID registered the RfA in accordance
with Article 36(3) of the ICSID Convention and notified the Parties accordingly. In the
Notice of Registration, the Secretary-General invited the Parties to proceed to constitute
an Arbitral Tribunal as soon as possible in accordance with Rule 7(d) of the Centre’s
Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings.
The Parties agreed to constitute the Arbitral Tribunal in accordance with Article 37(2)(a)
of the ICSID Convention and to a Tribunal consisting of three arbitrators, one to be
appointed by each party and the third arbitrator and President of the Tribunal to be
appointed by agreement of the two co-arbitrators. In the absence of an agreement
between the two Party-appointed arbitrators, the Secretary-General would appoint the
third and presiding arbitrator.
On 1 September 2010, the Claimants appointed Mr. Gary Born, a U.S. national, as
arbitrator. Mr. Born accepted his appointment on 3 September 2010. On 24 September
2010, the Respondent appointed Prof. James R. Crawford AC, SC, an Australian
national, as arbitrator. Prof. Crawford accepted his appointment on 1 October 2010.
Mr. Born and Prof. Crawford could not reach an agreement as to the third presiding
arbitrator. Accordingly, it fell to ICSID’s Secretary-General to appoint the President of
the Tribunal. On 9 March 2011, the Secretary-General appointed Prof. Piero Bernardini,
7
RCM, ¶ 1.1.
8
RR, p. 297.
5
an Italian national, as President of the Tribunal. Professor Bernardini accepted his
appointment on 15 March 2011.
On 15 March 2011, the Secretary-General, in accordance with Rule 6(1) of the ICSID
Rules of Procedure for Arbitration Proceedings (“Arbitration Rules”) notified the
Parties that all three arbitrators had accepted their appointments and that the Tribunal
was therefore deemed to have been constituted on that date. Ms. Anneliese
Fleckenstein, ICSID Legal Counsel, was designated to serve as Secretary of the
Tribunal.
The Tribunal held a first session with the Parties on 25 May 2011. The Parties confirmed
that the Members of the Tribunal had been validly appointed. It was agreed inter alia
that the applicable Arbitration Rules would be those in effect from 10 April 2006 and
that the procedural languages would be English and Spanish. The Parties also agreed
on a schedule for the jurisdictional phase of the proceedings, including for the
production of documents. The agreement of the Parties was embodied in the Minutes
of the First Session signed by the President and the Secretary of the Tribunal and
circulated to the Parties on 1 June 2011.
On 31 August 2011, as agreed by the Parties, the Tribunal issued Procedural Order No.
1 for the Protection of Confidential Information.
Pursuant to the agreed upon schedule of pleadings on jurisdiction, the Respondent filed
the Memorial on 24 September 2011, the Claimants filed the Counter-memorial on 23
January 2012, the Respondent filed the Reply on 20 April 2012, and the Claimants filed
the Rejoinder on 20 July 2012.
The hearing on jurisdiction was held on 5 and 6 February 2013, at the International
Chamber of Commerce in Paris. Information regarding those present at the hearing and
additional details are included in the Tribunal’s Decision on Jurisdiction.
On 2 July 2013, the Tribunal issued a Decision on Jurisdiction affirming its jurisdiction
over the claims presented by the Claimants. This decision constitutes an integral part of
this Award and is appended hereto as Annex A.
6
The Tribunal ruled that it had jurisdiction over the dispute. It held that its jurisdiction
over the denial of justice claim, which had not been included in the RfA, was established
under Article 46 of the ICSID Convention, and that it had jurisdiction over all other
claims insofar as they were based on alleged violations of the BIT. Specifically it ruled
as follows:
a. That it has jurisdiction over the claims presented by Philip Morris Brands
Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. as far as they are
based on alleged breaches of the Agreement on the Reciprocal Promotion and
Protection of Investments concluded on 7 October 1988 between the Swiss
Confederation and the Oriental Republic of Uruguay;
b. That it has jurisdiction under Article 46 of the ICSID Convention over the
Claimants’ claim for denial of justice;
c. To make the necessary order for the continuation of the procedure pursuant
to Arbitration Rule 41(4); and
d. To reserve all questions concerning the costs and expenses of the arbitral
proceedings for subsequent determination.9
On 7 August 2013, the Parties filed a proposed procedural schedule for the submission
of pleadings on the merits, which was approved by the Tribunal on 19 August 2013.
Pursuant to the agreed upon schedule of pleadings, the Claimants filed a Memorial on
the Merits on 3 March 2014.
On 22 September 2014, the Parties filed a revised procedural schedule for the
submission of the remaining pleadings on the merits, which was approved by the
Tribunal on 23 September 2014.
On 13 October 2014, the Respondent filed a Counter-Memorial on the Merits pursuant
to the agreed upon schedule of pleadings.
On 28 November 2014, the Claimants filed a request with the Tribunal for an order
adjusting the schedule for the production of documents phase. On 3 December 2014, the
Respondent filed a response to the different issues stated by the Claimants in their letter
and asked the Tribunal to approve the new schedule for production of documents agreed
by the Parties.
9
Dec. Jur., ¶ 236.
7
On 4 December 2014, the Tribunal approved the revised schedule for production of
documents agreed by the Parties.
On 17 December 2014, both Parties submitted their response to the exchanged request
for documents, pursuant to the approved schedule for production of documents. On 30
and 31 December 2014, the Parties submitted their replies to the responses for the
document request submitted by each Party.
On 8 and 9 of January 2015, the Respondent and the Claimants submitted observations
in connection with the replies to the responses for the document production requests that
had been transmitted to the Tribunal on 30 and 31 December 2014.
On 13 January 2015, the Tribunal issued Procedural Order No. 2 concerning the
production of documents.
On 30 January 2015, the World Health Organization (the “WHO”) and the WHO
Framework Convention on Tobacco Control Secretariat (the “FCTC Secretariat”)
submitted a request to file a written submission as a non-disputing party, pursuant to
ICSID Arbitration Rule 37(2).
On 9 February 2015, each Party filed observations on the non-disputing party’s
application, as instructed by the Tribunal.
On 12 February 2015, the Tribunal granted leave to the WHO and the FCTC Secretariat
to file a written submission pursuant to ICSID Arbitration Rule 37(2) and informed the
Parties that it would subsequently issue a reasoned decision.
On that same date, the WHO and the FCTC Secretariat’s amicus curiae brief dated 28
January 2015 (the “WHO Amicus Brief”) was transmitted to the Parties and the
Tribunal. In their amicus brief, the WHO and the FCTC Secretariat concluded that:
The action taken by Uruguay was taken in light of a substantial body of evidence
that large graphic health warnings are an effective means of informing
consumers of the risks associated with tobacco consumption and of discouraging
tobacco consumption. There is also a substantial body of evidence [sic] that
prohibiting brand variants is an effective means of preventing misleading
branding of tobacco products. These bodies of evidence, which are consistent
8
with state practice，support the conclusion that the Uruguayan measures in
question are effective means of protecting public health.10
The Tribunal’s reasoning for its 12 February 2015 decision was provided in Procedural
Order No. 3 on 17 February 2015. In this Order, the Tribunal stated, among others that:
[T]he Submission may be beneficial to its decision-making process in this case
considering the contribution of the particular knowledge and expertise of two
qualified entities [the WHO and the FCTC Secretariat] regarding the matters in
dispute. It considers that in view of the public interest involved in this case,
granting the Request would support the transparency of the proceeding and its
acceptability by users at large.
In the light of all the foregoing considerations, the Tribunal decides to allow the
filing by the Petitioners of the Submission in this proceeding pursuant to Rule
37(2). (¶¶ 28, 29).
On 6 March 2015, the Pan American Health Organization (the “PAHO”) submitted a
request to file a written submission as a non-disputing party, pursuant to ICSID
Arbitration Rule 37(2).
As instructed by the Tribunal, on 16 March 2015 each Party filed observations on the
PAHO’s request to file a written submission as a non-disputing party.
On 18 March 2015, the Tribunal decided to grant the PAHO leave to file a written
submission pursuant to ICSID Arbitration Rule 37(2) and informed the Parties that it
would subsequently issue a reasoned decision.
On that same date PAHO’s amicus curiae brief dated 6 March 2015 (the “PAHO
Amicus Brief”) was transmitted to the Parties and the Tribunal. In its submission,
PAHO concluded that:
PAHO and its Member States publicly recognize and fully support Uruguay’s
efforts to protect its citizens from the harmful effects of tobacco consumption,
including through its implementation of the 80% Rule and the Single
Presentation Rule measures and have expressed their deep concern about
misinformation campaigns and legal actions instituted by the tobacco industry
against tobacco contro1.
PAHO supports Uruguay’s defense of the 80% Rule and the SPR, which are
aimed at saving lives, and recognizes it as a role model for the Region and the
world.
10
WHO Amicus Brief, ¶ 90.
9
Uruguay's tobacco control measures are a reasonable and responsible response
to the deceptive advertising, marketing and promotion strategies employed by
the tobacco industry, they are evidence based, and they have proven effective in
reducing tobacco consumption. For this simple reason, the tobacco industry is
compelled to challenge them. (footnotes omitted).11
On 19 March 2015, each Party filed observations on the WHO Amicus Brief.
The Tribunal’s reasoning for its 18 March 2015 decision was provided in Procedural
Order No. 4 on 20 March 2015.
On 24 March 2015, the Tribunal issued a revised version of Procedural Order No. 4, as
agreed by the Parties. In this Order, the Tribunal followed the same reasoning as in its
order granting access to the WHO and FCTC Secretariat and stated that:
[T]he Submission may be beneficial to its decision-making process in this case
considering the contribution of the particular knowledge and expertise of a
qualified entity, such as PAHO, regarding the matters in dispute. It considers
that in view of the public interest involved in this case, granting the Request
would support the transparency of the proceeding and its acceptability by users
at large.
In the light of all the foregoing considerations, the Tribunal has decided to allow
the filing by the Petitioner of the Submission in this proceeding pursuant to Rule
37(2). (¶¶ 30-31)
On 18 April 2015, the Claimants submitted their Reply on the Merits.
On 18 May 2015, each Party filed observations on the PAHO’s Amicus Brief.
On 22 July 2015, the Avaaz Foundation (“Avaaz”) submitted a request to file a written
submission as a non-disputing party, pursuant to ICSID Arbitration Rule 37(2).
As instructed by the Tribunal, each party filed observations on 6 August 2015
concerning Avaaz’ request to file a written submission as a non-disputing party.
On 4 August 2015, the Centre informed the Parties and the Tribunal that Ms. Mairée
Uran Bidegain, ICSID Legal Counsel, would act as Secretary of the Tribunal for the
remainder of the case.
11
PAHO Amicus Brief, ¶¶ 98-100.
10
On 7 August 2015, the Tribunal issued a decision denying the petition by Avaaz to file
a written submission as a non-disputing party. Having considered the petition and the
Parties’ respective arguments, the Tribunal concluded that:
The alleged “unique composition of its membership,” the only argument
provided by the Petitioner, is not a sufficient basis to consider that the Avaaz
Foundation may offer a perspective, particular knowledge or insight that is
different from that of the disputing parties nor one that is relevant to this
arbitration.
The Tribunal further notes that, as recognized by the Petitioner, the Petition is
submitted late in the proceedings, when one of the Parties’ has presented all of
its scheduled written pleadings to the Tribunal. The intervention of a nondisputing
party therefore may disrupt the proceeding and unfairly prejudice one
of the Parties. (p. 2)
On 14 September 2015, the Inter-American Association of Intellectual Property (in
Spanish, Asociación Interamericana de la Propiedad Intelectual, (“ASIPI”) submitted
a request to file a written submission as a non-disputing party, pursuant to ICSID
Arbitration Rule 37 (2).
On 22 September 2015, each Party submitted observations on ASIPI’s request to file a
written submission as a non-disputing party, as instructed by the Tribunal.
On 24 September 2015, the Tribunal issued a decision denying the petition by ASIPI to
file a written submission. After carefully reviewing the petition and the Parties’
respective arguments, the Tribunal stated among others the following:
Pursuant to [Arbitration Rule 37(2)], the Tribunal must not only consider
whether the person or organization that seeks to intervene has the required
expertise or experience, but also whether it is sufficiently independent from the
disputing parties to be of assistance to the Tribunal. Prior ICSID tribunals have
already recognized the importance of the lack of connection between the
petitioner and the disputing parties for the tribunal’s determination to accept or
deny non-disputing parties’ submissions.
The Respondent has brought to the Tribunal’s attention, the “close relationship
between ASIPI and Claimants,” by identifying the participation of Claimants’
lawyers on the management board and on specific thematic committees of ASIPI.
The Tribunal cannot ignore this detailed information.
In addition, the Tribunal highlights that the Petition has been submitted little
over one month before the start of the hearing for the merits phase of these
proceedings
Consistent with its prior determinations on this question, the Tribunal considers
that this belated intervention will disrupt the proceeding and has the potential
11
to unduly burden and unfairly prejudice the Parties, including in connection with
their current preparation of the forthcoming hearing. […] (p. 2)
The hearing on the merits was held from 19 to 29 October 2015, at the Centre’s seat in
Washington, D.C. In addition to the Members of the Tribunal and the Secretary of the
Tribunal, present at the hearing were:
For the Claimants:
Party Representative:
Mr. Marc Firestone
Ms. María del Carmen Ordóñez López
Mr. Diego Cibils
Ms. Tiffany Steckler
Ms. Luisa Menezes
Mr. John Bails Simko
Mr. Steve Reissman
Mr. Marco Mariotti
Party Counsel:
Mr. Stanimir A. Alexandrov
Mr. James E. Mendenhall
Ms. Jennifer Haworth McCandless
Ms. Marinn Carlson
Mr. Patrick Childress
Ms. Courtney Hikawa
Ms. María Carolina Durán
Mr. Andrew Blandford
Mr. Michael Krantz
Ms. Samantha Taylor
Ms. Avery Archambo
Mr. Hisham El-Ajluni
Mr. Carlos Brandes
Mr. Ken Reilly
Ms. Madeleine McDonough
Mr. Bill Crampton
Ms. Catherine Holtkamp
Mr. Leland Smith
Mr. Stuart Dekker
Mr. Dushyant Ailani
For the Respondent:
Party Representative:
Dr. Miguel Toma
Dr. Jorge Basso
Ambassador Carlos Gianelli
Dr. Carlos Mata Prates
Dr. Inés Da Rosa
Dr. Verónica Duarte
Ms. Marianela Bruno
Party Counsel:
Mr. Paul S. Reichler
Mr. Lawrence H. Martin
Ms. Clara E. Brillembourg
Professor Harold Hongju Koh
Mr. Andrew B. Loewenstein
Ms. Melinda Kuritzky
Mr. Nicholas Renzler
Ms. Christina Beharry
Mr. Yuri Parkhomenko
Dr. Constantinos Salonidis
Ms. Analía González
Mr. Eduardo Jiménez de Aréchega
Ms. Francheska Loza
Ms. Gabriela Guillén
Ms. Nancy López
12
Mr. José Rebolledo Mr. Oscar Norsworthy
Ms. Anna Aviles-Alfaro
The following persons were examined:
On behalf of the Claimants:
Witnesses
Mr. Chris Dilley
Mr. Nicolás Herrera
Experts
Mr. Diego Cibils
Professor Julián Villanueva
Professor Alexander Chernev
Professor Jacob Jacoby
Professor Gustavo Fischer
Professor Christopher Gibson
Professor Alejandro Abal Oliú
Professor Jan Paulsson
Mr. Brent Kaczmarek
Mr. Kiran P. Sequeira
On behalf of the Respondent:
Witnesses:
Dr. Jorge Basso, Minister of Public Health
Dr. Winston Abascal, Ministry of Public
Health
Dr. Ana Lorenzo, Ministry of Public Health
Experts:
Dr. Andrea Barrios Kübler
Dr. Nuno Pires de Carvalho
Professor Nicolas Jan Schrijver
Dr. Santiago Pereira
Dr. Eduardo Bianco, Uruguayan Medical
Union/Tobacco Epidemic Research Center
(CIET Uruguay)
Dr. Joel B. Cohen
Dr. Timothy Dewhirst
Dr. David Hammond
Mr. Jeffrey A. Cohen
On 2 November 2015, the Tribunal issued Procedural Order No. 5, providing the
procedural steps for the remainder of the proceeding.
The Parties filed their submissions on costs on 19 January 2016, updating the same on
8 April 2016 as instructed by the Tribunal.
The proceeding was closed on 27 May 2016.
13
FACTUAL BACKGROUND
The Tribunal provides below a general overview of the factual background that has led
to this dispute, to the extent it is substantiated and is material for the determinations and
decisions in this Award. In doing so, it will adopt a chronological timeline when
possible, referring to the evidence presented by the Parties and describing the Parties’
positions with regard to disputed facts.
This section is not intended to be an exhaustive description of all facts underlying this
dispute. Some facts will also be addressed, to the extent relevant or useful, in the context
of the Tribunal’s legal analysis of the issues in dispute, and will be supplemented by
relevant factual information including that provided by witnesses and experts in their
written statements and reports, and in the course of oral examination at the hearing.
Below, the Tribunal describes: (A) the Claimants’ operations and investments in
Uruguay; (B) Uruguay’s tobacco control policy and the applicable regulatory
framework; (C) the use of tobacco in Uruguay before and after the Challenged
Measures; (D) the domestic court proceedings relating to the Challenged Measures, and
(E) the regulatory framework for trademarks in Uruguay.
The Claimants’ Operations and Investments in Uruguay
Abal was formally established in its present form in 1945, although in an earlier
incarnation it had manufactured and marketed tobacco products in Uruguay since
1877.12
Its main business after 1945 continued to be manufacturing cigarettes for export
and sale in the local market.13
Abal was acquired by PMI in 1979.14
Twenty years later, in 1999, it became a wholly
owned subsidiary of FTR Holding S.A (“FTR”).15
On or before 5 October 2010, PMB,
as FTR’s successor, became Abal’s 100% direct owner.16
12
RfA, ¶¶ 14, 17.
13
Abal Hermanos, Financial Statements, 31 Dec. 2012 (C-123).
14
Tr. Day 1, 18:18-19.
15
Notarized attestation of FTR’s ownership of 100% of Abal, 6 Nov. 2009 (C-7); RfA, ¶ 15.
16
Dec. Jur., ¶ 2.
14
Abal concluded license agreements to manufacture and sell cigarettes under various
Philip Morris brands. PMP was the owner of the Marlboro, Fiesta, L&M and Philip
Morris trademarks which it licensed to Abal.17
Abal also used a number of Uruguayan
trademarks registered in its own name to sell tobacco products.18
In particular, Abal
sold the Marlboro, Fiesta, L&M, Philip Morris, Casino, and Premier brands of
cigarettes in Uruguay; and it owns the Casino, Premier and associated trademarks.19
On 14 March 2002, the then President of Uruguay issued a “Declaration of Promoted
Activity for Investment Project of Abal Hnos. S.A.,” which included a package of tax
exemptions and credits to Abal with the objective of increasing Abal’s production
capacity in order to “supply the Paraguayan market with Philip Morris products.”20
As described further below, from 2005 onward, Uruguay initiated a tobacco control
campaign and issued several decrees to regulate the tobacco industry.
Between 2008 and 2011 the factory generated revenues of more than US $30 million
and employed about 100 people.21
In October 2011, Abal closed its factory in
Uruguay.22
Since that time, Abal’s main activity has been the importation of cigarettes
from its Argentine affiliate, Massalin Particulares S.A., for sale in Uruguay and for re-
exportation.23
At the jurisdictional stage of the proceedings, the Claimants’ investments in Uruguay
were considered to include the local manufacturing facility (now closed), shares in Abal,
rights to royalty payments and trademarks.24
17
Notarized attestation of FTR’s ownership of 100% of Abal, 6 Nov. 2009 (C-7); PMP’s Uruguayan Registration
Documents for “Marlboro,” “Fiesta,” “L&M,” and “Philip Morris” Trademarks (C-8); License Agreement and
Amendment between PMP and Abal (C-9). By letter of 17 Mar. 2011, the Claimants informed the Centre that the
trademark for Marlboro, Philip Morris and Fiesta were transferred to PMB as of 1 Jan. 2011, to be then licensed
to Philip Morris Global Brands, sublicensed to PMP and sub-sublicensed to Abal (Dec. Jur., ¶ 3). See also RfA,
¶ 15.
18
Uruguayan Registration Documents for “Casino” and “Premier” Trademarks (C-11). RfA, ¶ 16.
19
Dec. Jur., ¶ 3.
20
Declaration of Promoted Activity for Investment Project of ABAL HNOS. S.A., 14 Mar. 2002 (C-29); CM,
¶ 20; Dec. Jur., ¶ 172.
21
Witness Statement of Mr. Chris Dilley of 27 Mar. 2014 (“Dilley Statement I”) (CWS-5), ¶ 4.
22
Martín Cajal, “Philip Morris se retira de Uruguay,” El Diario, 22 Oct. 2011 (C-137); Witness Statement of
Roman Militsyn, 27 Feb. 2014 (“Militsyn Statement I”) (CWS-7), ¶ 6. CM, ¶ 58.
23
Abal Hermanos, Financial Statements, 31 Dec. 2012 (C-123). CM, ¶ 58.
24
Dec. Jur., ¶ 183, 190, 194; CR, ¶ 107.
15
At the merits stage, the Claimants submit that their investments in this arbitration are
composed by three main elements: (i) Abal itself, (ii) “brand assets,” including the
associated intellectual property rights owned by or licensed to the Claimants, and
(iii) the goodwill associated with the Claimants’ brands.25
Concerning the first element, since PMB directly owns 100% of the shares of Abal, the
Claimants consider Abal itself (and the Abal shares held by PMB) to be an investment
of PMB.26
Concerning the second element, the Claimants consider that they possess a direct or
indirect interest in the “brand assets” that they developed and used in Uruguay. The
Claimants’ alleged brand assets include (a) the Claimants’ brands and brand families;
(b) the Claimants’ variants; and (c) the intellectual property rights associated with the
Claimants’ brands, brand families, and variants. Each of these brand assets can be
summarized as follows:
- Brands, brand families. Until 2009, Abal sold cigarettes under the following
six brands: Marlboro, Fiesta, Philip Morris, Premier, Galaxy, and Casino.
The bundle of variants sold under a particular brand is known as a “brand
family.”27
- Variants. Before 2009, Abal sold thirteen variants within its six brand
families. Variants within a given brand family share certain characteristics
such as quality, brand heritage, or taste but may also exhibits slightly
different characteristics. Marlboro was Abal’s most important brand family.
The Marlboro brand family consisted of four variants—Marlboro Fresh
Mint, Marlboro Red, Marlboro Blue, and Marlboro Gold.28
- Associated intellectual property rights. These intellectual property rights
consist of the trademarks associated with the brand markings on the products
that Abal sold before 2009. Abal owns the trademarks associated with the
25
CM, ¶ 60. The Claimants also deem their investments to include the royalty payments the Claimants would earn
on sales of tobacco products. CR, ¶ 107.
26
CM, ¶ 61.
27
CM, ¶ 65; Militsyn Statement I, (CWS-7), ¶ 7.
28
CM, ¶¶ 74-76; Witness Statement of Daniela Sorio, 1 Mar. 2014 (CWS-8), ¶ 14.
16
Premier and Casino brand families, while the Claimants PMP and PMB own
and license to Abal the trademarks for all of the other products that Abal
currently markets in Uruguay or previously marketed in Uruguay before the
SPR.29
Finally, concerning the third element, the Claimants contend that they possessed
valuable goodwill that was associated with their brand assets and business as a whole in
Uruguay. In the Claimants’ view, the awareness of their brands was valuable in that
consumers were willing to pay more for products that carried the Claimants’ well-known
brands. That goodwill is also alleged to be an asset that is a protected investment under
the BIT.30
Uruguay’s Tobacco Control Policy and the Applicable Regulatory Framework
It is not in dispute between the Parties that smoking cigarettes and other tobacco
products represents a serious health risk.31
Cigarettes are a legal consumer product that
is highly addictive and cause the deaths of up to half of long-term consumers when used
as intended.32
According to the WHO “approximately 5.1 million adults aged 30 years
and over die from direct tobacco use each year. In addition, some 603,000 people die
from exposure to second-hand smoke every year.”33
Uruguay has one of Latin America’s highest rate of smokers, being in third place in the
region after Chile and Bolivia.34
As of 2009, more than 5,000 Uruguayans died each
year from diseases linked to tobacco consumption, mainly due to cardiovascular
diseases and cancer.35
Consumption of tobacco and exposure to tobacco smoke are
29
CM, ¶¶ 84-85; PMP’s Uruguayan Registration Documents for “Marlboro,” “Fiesta,” “L&M,” and “Philip
Morris” Trademarks (C-8); Uruguayan Registration Documents for “Casino” and “Premier” Trademarks (C-11);
Trademark Registration for Marlboro Green Mint, No. 395718, 23 Nov. 2011 (C-158).
30
CM, ¶¶ 63, 92-93; Switzerland-Uruguay BIT, Art. 1(2) (C-1).
31
Tr. Day 1, 36:14-15; see also infra ¶ 133, n. 108.
32
PAHO Amicus Brief, ¶ 3 (citing Peto R; Lopez AD, Boreham J; Thun M; Heath C. Mortality from tobacco in
developed countries: indirect estimation from national vital statistics, Lancet (1992)).
33
WHO Amicus Brief, ¶ 2 (citing WHO Global Report: Mortality Attributable to Tobacco, World Health
Organization, 2012).
34
Pan American Health Organization (PAHO) & World Health Organization (WHO), Tobacco Control Report
for the Region of the Americas (2013) (R-267), Chart 2.
35
This figure exceeded the combined total number of deaths from traffic accidents, homicides, suicides, AIDS,
tuberculosis and alcoholism in Uruguay. See Pan American Health Organization (PAHO), Global Adult Tobacco
Survey (GATS): Uruguay ‘09 (2011), (“GATS Uruguay 2009”), (R-233) pp. 15, 22.
17
responsible for 15% of all deaths of Uruguayans over 30 years of age, which is higher
than the world average of 12%.36
Smoking also has an economic impact. Uruguayan smokers spent an average of 20% of
the national minimum wage to sustain their habit and the health costs linked to smoking
in Uruguay are estimated to amount to US$150 million per year.37
Against this background, Uruguay has positioned itself in the forefront of States in terms
of anti-smoking policy and legislation, with an important push from its current
President, Tabaré Ramón Vázquez Rosas, who in his earlier career was an oncologist,
and whose first presidential term was between 2005 and 2010.
Uruguay has taken a range of increasingly stringent regulatory measures of tobacco
control, including restrictions on advertising, mandatory health warnings, increased
taxation, and prohibition of smoking in enclosed spaces. 38
These are discussed in detail
below. In addition, starting in the year 2000, it implemented a number of policies that
translated into the creation of a series of governmental and non-governmental expert
groups and agencies focusing on the study and prevention of tobacco use. The
paragraphs below summarize the most important agencies in light of the issues in
dispute.
In 2000, Uruguay’s Dirección General de Salud (General Directorate of Health), of the
MPH, participated in the creation of the National Alliance for Tobacco Control, an
interdisciplinary non-governmental organization, with members drawn from various
sectors of the public health community, including governmental, parastatal, local and
international, and academics which promoted Uruguay’s participation in the Framework
Convention on Tobacco Control.39
It operated until 2006.
In 2004, the MPH created the National Advisory Commission for Tobacco Control (the
“Advisory Commission”), a governmental entity made up of experts from the public
sector, civil society, and representatives of medical associations, to advise the Ministry
36
PAHO Amicus Brief, ¶ 23 (explaining that as of 2003, 14 Uruguayans died per day of tobacco-related diseases).
37
A. Sica et al., “Tobacco Control Policies In Uruguay” in Prevention Of Health Risk Factors In Latin America
And The Caribbean: Governance Of Five Multisectoral Effort (M. Bonilla-Chacín, ed., 2014) (R-282), p. 149.
38
GATS Uruguay 2009 (R-233), p. 15.
39
See A. Sica et al. (R-282), p. 150; Witness Statement of Dr. Winston Abascal of 9 Oct. 2014 (“Abascal
Statement I”) (RWS-1), ¶ 2; GATS Uruguay 2009 (R-233), p. 20.
18
of Public Health.40
“The Advisory Commission provides technical support to the
Ministry of Public Health, evaluating the efficacy of current smoking-related policies,
and monitoring and discussing the implementation of the law.”41
Historically, the
Advisory Commission has met approximately twice a month to discuss issues regarding
tobacco control.42
Tobacco companies also participate in tobacco control policy by submitting
recommendations. In that same year, 2004, Abal submitted a detailed recommendation
to the Government proposing alternative regulatory action.43
In 2005, the MPH created the National Program for Tobacco Control (Programa
Nacional para el Control del Tabaco) (the “Tobacco Control Program”). The Tobacco
Control Program is the focal point responsible for planning, developing, and
implementing national-level tobacco control policies in Uruguay: it reports to the
General Directorate of Health and the Minister of Public Health. The Tobacco Control
Program is also charged with ensuring compliance with applicable regulations. It
deploys trained inspectors throughout the country to carry out this task.44
At the national level, the Tobacco Control Program serves as the representative of the
MPH on the Advisory Commission. Relevant proposals of the Advisory Commission
are submitted to the Government through the Tobacco Control Program. Similarly, if a
tobacco measure originates in the MPH, the Tobacco Control Program may refer them
to the Advisory Commission for consideration.45
The regulation of the tobacco industry has increased world-wide over the years.
Uruguay has been a strong supporter of anti-smoking policies at the international level,
notably those described in section (a). At least partly in pursuance of these policies, it
has enacted its own legislation, described in section (b) below.
40
Ordinance 507/004 (RLA-210); See also A. Sica et al. (R-282), p. 152.
41
Witness Statement of Dr. María Julia Muñoz, 8 Oct. 2014 (“Muñoz Statement”) (RWS-3), ¶ 14.
42
Abascal Statement I, (RWS-1), ¶ 6.
43
Abal Hermanos S.A., Recommendations for a comprehensive regulation of tobacco products (9 Jul. 2004) (R-
166), p. 8.
44
See A. Sica et al. (R-282), p. 152.
45
Abascal Statement I (RWS-1), ¶ 6. At the regional and international levels, the Tobacco Control Program is the
focal point representing the country in MERCOSUR’s Intergovernmental Commission for Tobacco Control and
at the World Health Organization and Framework Convention on Tobacco Control Secretariat meetings.
19
The International Regulatory Framework
On 21 May 2003, the World Health Organization concluded the Framework Convention
on Tobacco Control (“FCTC”).46
Uruguay signed the FCTC on 19 June 2003 and
ratified it on 9 September 2004, being the first Latin-American State to do so.47
Switzerland is a signatory but not a party to the FCTC.
The FCTC entered into force on 27 February 2005. Its current membership includes
180 State parties.48
Some of the background elements that drove many countries to
consider adopting the FCTC are explained in its preamble as follows:
Determined to give priority to their right to protect public health,
Recognizing that the spread of the tobacco epidemic is a global problem with
serious consequences for public health that calls for the widest possible
international cooperation and the participation of all countries in an effective,
appropriate and comprehensive international response,
Reflecting the concern of the international community about the devastating
worldwide health, social, economic and environmental consequences of tobacco
consumption and exposure to tobacco smoke,
Seriously concerned about the increase in the worldwide consumption and
production of cigarettes and other tobacco products, particularly in developing
countries, as well as about the burden this places on families, on the poor, and
on national health systems,
Recognizing that scientific evidence has unequivocally established that tobacco
consumption and exposure to tobacco smoke cause death, disease and disability,
and that there is a time lag between the exposure to smoking and the other uses
of tobacco products and the onset of tobacco-related diseases,
Recognizing also that cigarettes and some other products containing tobacco
are highly engineered so as to create and maintain dependence, and that many
of the compounds they contain and the smoke they produce are
pharmacologically active, toxic, mutagenic and carcinogenic, and that tobacco
dependence is separately classified as a disorder in major international
classifications of diseases,
The FCTC is said to be an “evidence-based treaty,” 49
one that “provides a framework
for tobacco control measures to be implemented by the Parties at the national, regional
and international levels in order to reduce continually and substantially the prevalence
46
WHO Framework Convention on Tobacco Control (“FCTC”), 2302 UNTS 166 (RLA-20).
47
RCM, ¶ 3.110.
48
See Parties to the WHO Framework Convention on Tobacco Control available at
http://www.who.int/fctc/signatories_parties/en/.
49
WHO Amicus Brief, ¶ 12.
20
of tobacco use and exposure to tobacco smoke.”50
No reservations may be made to the
FCTC.51
Relevant provisions of the FCTC include the following:
Article 2
Relationship between this Convention and other agreements and legal
instruments
1. In order to better protect human health, Parties are encouraged to implement
measures beyond those required by this Convention and its protocols, and
nothing in these instruments shall prevent a Party from imposing stricter
requirements that are consistent with their provisions and are in accordance
with international law.[…]
Article 4
Guiding principles
To achieve the objective of this Convention and its protocols and to implement
its provisions, the Parties shall be guided, inter alia, by the principles set out
below:
1. Every person should be informed of the health consequences, addictive nature
and mortal threat posed by tobacco consumption and exposure to tobacco smoke
and effective legislative, executive, administrative or other measures should be
contemplated at the appropriate governmental level to protect all persons from
exposure to tobacco smoke.
Article 11
Packaging and labelling of tobacco products
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”; and
(b) each unit packet and package of tobacco products and any outside packaging
and labelling of such products also carry health warnings describing the
50
FCTC (RLA-20), Art. 3.
51
FCTC (RLA-20), Art. 30.
21
harmful effects of tobacco use, and may include other appropriate messages.
These warnings and messages:
(i) shall be approved by the competent national authority,
(ii) shall be rotating,
(iii)shall be large, clear, visible and legible,
(iv) should be 50% or more of the principal display areas but shall be
no less than 30% of the principal display areas,
(v) may be in the form of or include pictures or pictograms.
2. Each unit packet and package of tobacco products and any outside packaging
and labelling of such products shall, in addition to the warnings specified in
paragraph 1(b) of this Article, contain information on relevant constituents and
emissions of tobacco products as defined by national authorities.
[…]
Article 13
1. Parties recognize that a comprehensive ban on advertising, promotion and
sponsorship would reduce the consumption of tobacco products.
[…]
4. As a minimum, and in accordance with its constitution or constitutional
principles, each Party shall:
(a) prohibit all forms of tobacco advertising, promotion and sponsorship that
promote a tobacco product by any means that are false, misleading or deceptive
or likely to create an erroneous impression about its characteristics, health
effects, hazards or emissions;(…)
5. Parties are encouraged to implement measures beyond the obligations set out
in paragraph 4.
The WHO established a strategy called “MPOWER” to implement the FCTC. This was
composed of six steps:
 Monitor tobacco use and prevention policies,
 Protect people from tobacco smoke,
 Offer help to quit tobacco use,
 Warn about the dangers of tobacco,
 Enforce bans on tobacco advertising, promotion and sponsorship,
 Raise taxes on tobacco.
22
In addition, in November 2008, the State Parties to the FCTC established Guidelines for
the implementation of a number of provisions, including Articles 11 and 13 of the FCTC
(the “Guidelines”). 52
According to the WHO and FCTC Secretariat, the Guidelines, which are evidencebased,
“are intended to assist Parties in … increasing the effectiveness of measures
adopted and play a particularly important role in settings where resource constraints may
otherwise impede domestic policy development.”53
The Article 11 Guidelines call on States to consider enlarging health warnings above
50% to the maximum size possible. Paragraph 12 of the Guidelines provides:
Article 11.1(b)(iv) of the Convention specifies that health warnings and
messages on tobacco product packaging and labelling should be 50% or more,
but no less than 30%, of the principal display areas. Given the evidence that the
effectiveness of health warnings and messages increases with their size, Parties
should consider using health warnings and messages that cover more than 50%
of the principal display areas and aim to cover as much of the principal display
areas as possible. The text of health warnings and messages should be in bold
print in an easily legible font size and in a specified style and colour(s) that
enhance overall visibility and legibility. 54
The Guidelines also urge State Parties to “prevent packaging and labelling that is
misleading or deceptive” and to adopt plain packaging or “restrict as many packaging
design features as possible” as follows:
43. Article 11.1(a) of the Convention specifies that Parties shall adopt and
implement, in accordance with their national law, effective measures to ensure
that 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 the product’s characteristics, health effects,
hazards or emissions, including any term, descriptor, trademark or figurative or
other sign that directly or indirectly creates the false impression that a particular
tobacco product is less harmful than others. These may include terms such as
“low tar”, “light”, “ultra-light” or “mild”, this list being indicative but not
exhaustive. In implementing the obligations pursuant to Article 11.1(a), Parties
are not limited to prohibiting the terms specified but should also prohibit terms
such as “extra”, “ultra” and similar terms in any language that might mislead
consumers.
52
Guidelines for implementation of Article 11 of the WHO Framework Convention on Tobacco Control
(Packaging and labelling of tobacco products), adopted at the third Conference of the Parties (Nov. 2008)
(“Article 11 Guidelines”) (RLA-13).
53
WHO Amicus Brief, ¶ 19.
54
Article 11 Guidelines (RLA-13), ¶ 12.
23
[….]
46. Parties should consider adopting measures to restrict or prohibit the use of
logos, colours, brand images or promotional information on packaging other
than brand names and product names displayed in a standard colour and font
style (plain packaging). This may increase the noticeability and effectiveness of
health warnings and messages, prevent the package from detracting attention
from them, and address industry package design techniques that may suggest
that some products are less harmful than others.55
Guidelines to Article 13 read in relevant part:
Parties should prohibit the use of any term, descriptor, trademark, emblem,
marketing image, logo, colour and figurative or any other sign that promotes a
tobacco product or tobacco use, whether directly or indirectly, by any means
that are false, misleading or deceptive or likely to create an erroneous
impression about the characteristics, health effects, hazards or emissions of any
tobacco product or tobacco products, or about the health effects or hazards of
tobacco use. Such a prohibition should cover, inter alia, use of the terms “low
tar”, “light”, “ultra-light”, “mild”, “extra”, “ultra” and other terms in any
language that may be misleading or create an erroneous impression.56
As a Party to the WHO FCTC, Uruguay participated in adopting the Punta del Este
Declaration on the Implementation of the WHO FCTC57
and the Seoul Declaration,58
which reflect the FCTC Parties commitment to implement the FCTC.
The Domestic Regulatory Framework
This Section is divided into two parts. First, it contains a non-exhaustive list of tobacco
regulatory measures adopted by the Uruguayan Government prior to the enactment of
the Challenged Measures. Second, it describes in more detail the Challenged Measures:
(i) the SPR and (ii) the 80/80 Regulation.
55
Ibid. (RLA-13), ¶ 46.
56
Conference of the Parties to the Framework Convention on Tobacco Control (COP-FCTC), Guidelines for
Implementation of Article 13 of the WHO Framework Convention on Tobacco Control (Tobacco advertising,
promotion and sponsorship), FCTC/COP3(12), Nov. 2008 (RLA-133), ¶ 39.
57
Punta del Este Declaration on implementation of the WHO Framework Convention on Tobacco Contro1,
Conference of the Parties to the WHO Framework Convention on Tobacco Control, fourth session, Punta del Este,
Uruguay, 6 Dec. 2010 (RLA-135).
58
Seoul Declaration, Conference of the Parties to the WHO Framework Convention on Tobacco Control, fifth
session, Seoul, Republic of Korea, 17 Nov. 2012, FCTC/COP5(5).
24
1. The Regulatory Framework up to the Enactment of the Challenged Measures
Article 44 of the Uruguayan Constitution provides that it is the Government’s duty to
legislate public health and hygiene issues, with the purpose of attaining the physical,
moral and social improvement of Uruguay’s citizens.
On 12 January 1934, Law No. 9,202, the Organic Law of the Ministry of Public Health,
was enacted.
On 24 December 1982, Law 15,361 was enacted, which, inter alia, required the
inclusion of specific warning texts on the side of tobacco packages, prohibited the sale
of cigarettes to minors, and mandated quarterly publications by tobacco manufacturers
of the maximum percentages of tar and nicotine levels for each cigarette contained in the
packages of the brands sold.59
The latter requirement was modified on 25 October 1984
by Law 15,656, requiring annual publication (instead of quarterly) of average
percentages of tar and nicotine levels contained in tobacco packages.60
In May 1996, Decree 203/996 banned smoking in offices, public buildings and
establishments destined for public or common use, in particular where food is
provided.61
In 1998, Decree 142/98 prohibited promotional efforts that involved tobacco product
giveaways.62
Between January and October of 2005, the Respondent issued an important number of
decrees on tobacco control, including:
59
Law 15,361 dated 24 Dec. 1982 (C-274 (Spa. and Eng. Art. 2) and RLA-5 (Spa.)), Art. 2. On Law 15,361 see
CM, ¶ 45; RCM, ¶ 3.105; RR, ¶ 3.71.
60
Law 15,361 dated 24 Dec. 1982 as modified by Law, 15,656 of 1984 in Art. 3 (C-274 bis); CR, n. 21; RCM,
¶ 3.105. On 28 Nov. 2003, Law 17,714 was enacted to amend the text of the side warning mandated by Article 2
of Law 15,361. Such text warning consisted originally of: “Warning: smoking is injurious to health. M.S.P.,” and
was then modified to read “Smoking can cause cancer, heart and lung diseases. Smoking when pregnant harms
your baby. MSP.” Law 15,361, 24 Dec. 1982, amended by Law 17,714 dated 28 Nov. 2003, e.i.f. on 10 Dec. 2003
(C-274), Art. 2. CM, ¶ 45.
61
V. Denis, et al., Application of FODA Matrix on the Uruguayan Tobacco Industry (2007) (R-180), p. 141.
62
Ibid., p. 140.
25
 Presidential Decree No. 36/005 (“Decree 36”), requiring the inclusion of the
warning texts described in paragraph 99 above, to cover 50% of the front and back
of tobacco packaging instead of the side of the package.63
 Decree 169/005, regulating smoking areas within restaurants, bars and recreation
areas, and prohibiting the advertisement of tobacco products and/or brands on
television channels during so-called “safe harbor” hours for the protection of
minors.64
 Decree 170/005, prohibiting the sponsorship, through advertising and promotion of
tobacco-derived products, in sporting events in Uruguay.65
 Decree 171/005 (“Decree 171”), “extending” what was mandated by Decree 36,
insofar as the health warnings in the packages of tobacco products should not only
occupy 50% of the total display areas, but that they shall also be periodically
rotated, and include images and/or pictograms. Decree 171 further prohibited the
use of terms such as “low tar,” “light,” or “mild” on tobacco products, and gave the
MPH the discretion to define the type, legend, images and pictograms to be included
thereon.66
 Presidential Decree 214/005, providing that public offices were considered “100%
tobacco smoke-free environments.”67
 Presidential Decree 268/005, providing that “all enclosed premises for public use
and any work area, whether public or private, intended for common use by people”
had to be 100% tobacco smoke-free environments.68
 Presidential Decree 415/005, confirming that all pictograms must be approved by
the MPH, further defining the eight types of images to be printed on the lower 50%
of the principal display areas of all packs of cigarettes and tobacco products (as set
forth in Decree 171/005), and providing that one of the two sides of the packs of
cigarettes should be occupied entirely by the text health warning.69
Uruguay enacted additional relevant regulations in 2007:
63
Presidential Decree No. 36/2005 dated 25 Jan. 2005 (C-31); CM, ¶ 45; Cl. Opening Statement, slide 4; RCM,
¶ 3.113.
64
Presidential Decree 169/2005, dated 31 May 2005, published on 6 June 2005 (C-146); CM, ¶ 20; Cl. Opening
Statement, slide 4; RCM, ¶ 3.115.
65
Presidential Decree 170/2005, dated 31 May 2005, published on 6 June 2005 (C-147); CM, ¶ 20; RCM, ¶ 3.115.
66
Presidential Decree 171/2005 dated 31 May 2005 (C-32, C-148, RLA-2); Arts 1 and 2. See also CM, ¶¶ 20, 37,
146; CR, ¶¶ 35, 102; RCM, ¶ 3.113.
67
Presidential Decree 214/2005, dated 5 July 2005 (C-150); CM, ¶ 20.
68
Presidential Decree 268/2005 dated 5 Sep. 2005 (C-151). On 17 Feb. 2006, Presidential Decree 40/2006 was
enacted, setting forth fines for violations of Decree 268/2005. See Presidential Decree 40/2006 dated 17 Feb. 2006
(C-152); See also CM, ¶ 20; Cl. Opening Statement, slide 4; RCM, ¶ 3.115.
69
Presidential Decree 415/2005 dated 20 Oct. 2005, e.i.f. on 26 Oct. 2005 (C-153). See also CM, ¶ 20; Cl. Opening
Statement, slide 4.
26
 Presidential Decree 202/007, attaching three images combined with six legends
to be printed on 50% of the display areas of all packs of cigarettes and tobacco
products, further to Decree 171/005.70
 Decree of July 2007, imposing a 22% Value Added Tax on tobacco products.
Tobacco products were previously exempt from VAT.71
The Claimants did not, nor do they, challenge any of the measures described in the
precedent paragraphs.72
On 6 March 2008, the Uruguayan Parliament adopted Law 18,256.73
The law reaffirmed
and reinforced many of the measures adopted under the Decrees referred to in
paragraphs 102 and 103above, including the prohibitions of smoking in public or private
enclosed places (Art. 3), the limitation of retail advertising to point-of sale and the
prohibition of all other forms of advertising, promotion and sponsorship of tobacco
products including at sporting events (Art. 7), and the prohibition of the free distribution
of tobacco products (Art. 11). Law 18,256 also authorized the MPH to “adopt guidelines
regarding analysis and measurements of the contents and emissions of tobacco products
and regulation thereof,” including the disclosure of information on toxic components,
additives and emissions of tobacco products based on Article 9 of the FCTC (Arts. 5
and 6). In addition, Articles 1, 2, 8 and 9 of Law 18,256 provided in relevant part:
Article 1. (General principle). All persons are entitled to the enjoyment of the
highest possible level of health, improvement of all labor and environmental
health issues, as well as prevention, treatment and rehabilitation from diseases,
pursuant to several international agreements, pacts, statements, protocols and
conventions which have been ratified by law.
Article 2. (Subject-matter). This law pertains to public order and its objective is
to protect the inhabitants of the country against the sanitary, social,
environmental and economic consequences of tobacco consumption and
exposure to tobacco smoke.
In such sense, measures aiming at the control of tobacco are established, in
order to reduce in a continuous and substantial manner the prevalence of
tobacco consumption and exposure to tobacco smoke, pursuant to the World
Health Organization Framework Agreement for Tobacco Control, which was
ratified by Law No. 17.793 of 16 July 2004.
70
Presidential Decree 202/2007 dated 20 Jun. 2007 (C-149). See also CM, ¶ 20; Cl. Opening Statement, slide 4.
71
Euromonitor International, Tobacco - Uruguay (Aug. 2010), (R-229), p. 2. See also RCM, ¶ 3.118.
72
CM, ¶¶ 20, 46; C-CM, Jur, ¶ 32.
73
Law 18,256 dated 6 Mar. 2008 (C-33). See also RfA, ¶ 20; Cl. Opening Statement, slide 4; CM, n. 6; RCM,
¶¶ 3.118-3.121.
27
Article 8. (Packaging and labeling of tobacco products).- It is forbidden for
packages and labels of tobacco products to promote such products in a false,
wrong or misleading way which may lead to a mistake regarding their features,
health effects, risks or emissions.
It is likewise forbidden to use terms, descriptive features, trademarks or brands,
figurative signs or any other kind, which have the direct or indirect effect of
creating a false impression that a certain tobacco product is less harmful than
others. (emphasis added)
Article 9. (Health warnings in tobacco products’ packaging and packets).All
packaging and packets of tobacco products and all external labeling and
packaging thereof must contain health warnings and images or pictograms
describing the harmful effects of tobacco consumption or other appropriate
messages. Such warnings and messages must be approved by the Ministry of
Public Health, as well as large, clear, visible and legible, and shall occupy at
least 50% (fifty percent) of the total main exposed areas. These warnings must
be periodically modified in accordance to the implementation regulation.
All packaging and labeling of tobacco products and all external labeling and
packaging of the same, as well as the warnings specified in the above paragraph
shall contain information regarding the main [all] [sic] components of tobacco
smoke and emissions thereof, pursuant to the instructions furnished by the
Ministry of Public Health.
On 9 June 2008, President Vazquez signed Decree 284/008, which implemented Law
18,256 (“Decree 284”).74
Article 6 and 12 of Decree 284 provide, in relevant part:
Article 6. Manufacturing companies or importers shall quarterly submit to the
Ministry of Public Health an affidavit, addressed to the National Program for
Tobacco Control of such Ministry, in which they will report the presence of the
toxic substances to be established by the Ministry of Public Health. The
information mentioned above shall be published in two newspapers of the capital
city.
Article 12. It is herein established that health warnings shall be rotated every 12
(twelve) months; such warnings shall be approved by the Ministry of Public
Health.
The use of descriptive terms and elements, trademarks or brands, figurative
signs or signs of any other nature, such as colors or combination of colors,
numbers or letters, that have the direct or indirect effect of creating the
misleading impression that a certain product is less harmful than others is
forbidden.
74
Presidential Decree 284/008 dated 9 June 2008 (C-34). See also RfA, ¶ 21; CM, n. 6; RCM, ¶ 3.118.
28
Neither Law 18,256 nor Decree 284 are challenged in this arbitration, nor have they
been challenged before the Uruguayan courts.75
2. The Challenged Measures
The Single Presentation Regulation
1. The Regulation
On 18 August 2008, taking into account the provisions of Article 44 of the Constitution,
the FCTC, Law No. 18,256 and Decree 284, the MPH issued Ordinance 514 adopting
the SPR,76
which entered into force in February 2009.
Ordinance 514 required the use of pictograms consisting of five images combined with
five statements to be printed on 50% of the display areas (lower half) of all packs of
cigarettes and tobacco products.77
Articles 2 of the Ordinance required a legend on the
side of the package:
2. One of the two lateral display areas on cigarette packs and tobacco product
containers shall be taken up in full by the following statement: ‘This product
contains nicotine, tar and carbon monoxide,’ with no specification as to the
amount thereof. […]
Article 3 of the Ordinance required each brand of tobacco products to have a single
presentation, thus prohibiting the use of multiple presentations (i.e. variants) of any
cigarette brand. It provided as follows:
3. Each brand of tobacco products shall have a single presentation, such that it
is forbidden to use terms, descriptive features, trademarks, figurative signs or
signs of any other kind such as colors or combinations of colors, numbers or
letters, which may have the direct or indirect effect of creating a false impression
that a certain tobacco product is less harmful than another, varying only the
pictograms and the warning according to article 1 of the present Ordinance.78
Based on Ordinance 514, tobacco companies could only market one variant for each
family brand. The tobacco companies had the discretion to pick which variant would
remain on the market. For example, for the Marlboro family brand, Philip Morris chose
75
Abal’s Request for Annulment of Ordinance 514 before the TCA, 9 Jun. 2009 (“Abal’s SPR Annulment
Request”) (C-41), p. 3. CM, ¶ 21.
76
Ministry of Public Health Ordinance 514 dated 18 Aug. 2008 (“Ordinance 514”) (C-3 and RLA-7). See also
RfA, ¶ 24; CM, ¶ 23; C-CM, Jur., ¶ 20; CR, ¶ 27; RCM, ¶ 3.122.
77
Ordinance 514 (C-3 and RLA-7), Art. 1.
78
Ordinance 514 (C-3 and RLA-7), Articles 2 and 3.
29
Marlboro Red. Correspondingly, Marlboro Light, Blue and Fresh Mint were taken off
the market.
On 1 September 2009, the Ministry of Public Health issued Ordinance 466, which, inter
alia, restated and modified the requirement of Ordinance 514 that each brand of tobacco
products have a single presentation, as follows:79
2. The Process to Adopt the Single Presentation Regulation
The Parties are in dispute as to the process that led to the adoption of the SPR.
According to the Claimants, with little preparation and specifically without any
thorough and meaningful studies, the Respondent devised the SPR simply because Dr.
Abascal, the Director of the MPH’s Tobacco Control Program, had witnessed customers
in a store receiving Marlboro Gold packs when they asked for Marlboro “light”
cigarettes, and he then, single-handedly, drafted the regulation.80
The Respondent
argues that the SPR was adopted pursuant to the same deliberative process as other
tobacco control measures, and rejects the Claimants’ contention that its adoption was
79
Ministry of Public Health Ordinance 466, 1 Sep. 2009 (C-43). The Ordinance also restated the obligation that
a legend be established on the side of the package. Sections 2 and 3 read in relevant part:
2. It is herein established that one of both side panel of any packet of cigarettes and packages of
tobacco products shall be totally occupied by the following message: “This product contains
nicotine, tar and carbon monoxide”, without any specification of the quantities thereof. The text
shall be printed in black characters on white background.
3. Each brand of tobacco products shall have a single presentation, and only the images and
messages will vary according to the first section of this Ordinance [relating to pictograms].
80
CR, ¶ 44; Witness Statement of Nicolas Herrera of 28 Feb. 2014 (“Herrera Statement I” (CWS-6), ¶¶ 3-4; see
also Second Witness Statement of Nicolas Herrera of 26 Mar. 2015 (“Herrera Statement II”) (CWS-19), ¶¶ 4-
5; See also CR, ¶¶ 52-54.
30
based on a single public health official’s “visit to a store”81
or that it was unilaterally
adopted by a single government official without any meaningful deliberation.82
According to Dr. Abascal’s account, after the implementation of Law 18,254, the
Tobacco Control Program in consultation with the Advisory Commission considered
both plain packaging and single presentation requirements as a way to (a) further
implement the mandate of Article 11 of the FCTC; and (b) counteract tobacco
companies’ desire to circumvent the 2005 ban on descriptors such as “light” through the
use of brand variants to maintain the perception that one brand variant was less harmful
than another.83
The Advisory Commission decided that “Uruguay was not ready to
adopt plain packaging” and “opted for single presentation.”84
Mr. Jorge Basso, the thendirector
of the Dirección Nacional de Salud, asked Dr. Abascal to submit a draft
proposal to this effect for the next regulation on tobacco product packaging.85
On 8 July 2008, Abal’s representatives met with Dr. Abascal to “discuss the details
regarding Decree 284.” According to Abal’s account, during the meeting, Dr. Abascal
explained “his general interpretation on [the] implementing regulation, including what
he considers to be a relation between descriptors and colors,”86
but he did not mention
the possibility of requiring a single presentation for all brands.87
On 25 July 2008, Attorney R. Becerra of the Dirección General de Salud (General
Directorate of Health) of the MPH sent a draft ordinance to the Tobacco Control
Program, telling the latter to add the pictograms and descriptions to be incorporated in
81
RR, ¶ 3.83, citing CR, § I.A.2.a., p. 20.
82
RR, ¶ 3.83, citing CR, § I.A.2.a., p. 20; see also RR, ¶¶ 3.85-3.87; Abascal Statement I (RWS-1), ¶ 10; Witness
Statement of Dr. Jorge Basso Garrido, 11 Sep. 2015 (“Basso Statement”) (RWS-4); Witness Statement of Dr.
Ana Lorenzo, 18 Sep. 2015 (“Lorenzo Statement”) (RWS-6); Witness Statement of Ms. Amanda Sica of 14 Sep.
2015 (“Sica Statement”) (RWS-5).
83
Abascal Statement I (RWS-1), ¶ 10; see also Lorenzo Statement (RWS-6), ¶ 13.
84
Abascal Statement I (RWS-1), ¶ 10.
85
Basso Statement (RWS-4), ¶ 10; Lorenzo Statement (RWS-6), ¶ 16.
86
Regulatory Update, Philip Morris Latin America and Canada Inc., Jul. 2008 (C-488), p. 5. In addition, on 24
July 2008, BAT informed Abal representatives that the MPH intended to allow one design per brand in reaction
to tobacco companies’ attempt to circumvent the ban on using color combinations, letters and others “to make it
seem as though a given product is less harmful than other.” See Email from Javier Ortiz to Chris Dilley, 24 July
2008 (C-343).
87
Dilley Statement I, ¶ 6.
31
cigarette packages in accordance with Article 1 of the Ordinance.88
The draft did not
contain the single presentation requirement.89
On 28 July 2008, the draft Ordinance was sent from the Tobacco Control Program to
the División de Salud de la Población (Division of Population Health). The new draft
expressly referred to Article 8 of Law 18,256 (addressing the ban on the use of terms,
descriptive elements, etc., that have the effect of creating the false impression that a
particular tobacco product is less harmful than others), and contained a new Article 3
providing for the SPR.90
The draft also contained the requested pictograms.
On 30 July 2008, the División de Salud de la Población sent the draft to the Dirección
General de Salud. On 31 July 2008, attorney Rodolfo Becerra, of the General
Directorate, submitted the new version of the proposal “to the consideration of the
Dirección.”91
On 1 August 2008, Dr. Jorge Basso, Director of the Dirección Nacional de Salud, sent
the draft back to the Departamento de Secretaría y Acuerdos de la División Jurídico
Notarial containing a hand-written note to be added to Article 3 in order to prohibit
descriptive elements or signs “such as colors, combinations of colors, numbers or
letters.”92
Uruguay adopted Ordinance 514 on 18 August 2008, with the approval of the Minister
of Public Health (Ms. María Julia Muñoz), and the signature of the Director of the
Departamento de Secretaría y Acuerdos.93
The 80/80 Regulation
1. The Regulation
On 15 June 2009, Presidential Decree 287/009 was enacted. It entered into force on 22
December 2009. Article 1 mandated an increase in the size of health warnings on
88
Ministry of Health Administrative File regarding Ordinance 514 (C-334) p. UGY001807.
89
Ibid.
90
Ibid., p. UGY001810-1812.
91
Ibid., p. UGY001822. See handwritten note reading “con la formulación que antecede pase a consideración de
la Dirección.”
92
Ibid., p. UGY001822-1825.
93
Ibid., P. UGY0001838.
32
cigarette packages from 50 to 80 per cent of the lower part of each of the main sides of
every cigarette package, as follows:
It is ordered that the health warnings to be included on packages of tobacco
products, including images and/or pictograms and messages, shall cover 80%
(eighty per cent) of the lower part of each of the main sides of every cigarette
package and in general of every packet and container of tobacco products and
of any similar packaging and labelling.94
As a result of the measure, tobacco companies had to limit their branding in the
remaining 20% of the front and back of the packaging.
On 1 September 2009, Ordinance 466 of the MPH restated in its Section 1 the
requirement that tobacco packages should have an 80% health warning as follows:95
It is herein ordered that the pictograms to be used in the packages of tobacco
products are defined in six (6) images combined with the corresponding legends
(back and front), which shall be printed in the 80% lower area of both main
panels of any unit packet of cigarettes and in general in any packet and package
of tobacco products[…]..
2. The Process of Adoption of the 80/80 Regulation
As with the SPR, the Parties provide different accounts of the process leading to the
adoption of the 80/80 Regulation.
The Claimants argue that the 80/80 Regulation was the result of a decision to penalise
Mailhos for its evasion of the SPR through the introduction of the so-called “alibi
brands.” Before the introduction of the SPR, Mailhos, Abal’s main competitor,
marketed its brands under the “Coronado” label. After the adoption of the SPR, Mailhos
adopted boxes with the colors and designs of the former “Coronado” range, but
ostensibly under different brands, namely “Madison” (silver) and “Ocean” (blue). It
was clear that they all pertained to the same family of products and as such were
“alibis.”96
For its part, the Respondent alleges that the 80/80 Regulation originated in
the Office of the President of the Republic, in the wake of Uruguay’s decision to adopt
94
Presidential Decree 287/009 dated 15 Jun. 2009 (C-4), Art. 1. See also Dec. Jur., ¶ 4; C-CM, Jur., ¶ 33; CM,
¶ 44; CR, ¶ 158; RCM, ¶ 3.123.
95
Ministry of Public Health Ordinance 466 dated 1 Sep. 2009 (C-43). See also CM, ¶¶ 21, 28, 44; CR, n. 246.
96
CR, ¶¶ 68-73. The Claimants cite that internal documents mention, apart from the documents submitted below,
Dr. Abascal’s statement during a radio interview in 2009, and internal communications of the Claimants.
“Acusaciones a tabacalera,” Radio el Espectador 7 Apr. 2009, (C-277).
33
additional control measures to implement its obligations under the FCTC and its
guidelines.97
On 3 April 2009, Dr. Abascal of the Tobacco Control Program sent a letter to the
Dirección General de Salud expressing concerns about the use of alibi brands by
Mailhos:
Since May 31st of the year 2005, when the decree was enacted that prohibited
deceptive terms, which was later also adopted in Law 18,256, attempts have
been made time and again to avoid compliance with the legal provisions. Every
time measures have been taken in an endeavor to correct the situation, there is
an attempt once again to avoid compliance with those provisions. Therefore, it
is this Program’s understanding that consideration should be given to
expanding the pictograms and legends to 90% of both main faces, as is expressly
authorized by Article 9 of Law 18,256 when it states ‘[s]aid warnings and
messages must be approved by the Ministry of Public Health, must be clear,
visible, and legible, and must occupy at least 50% (fifty percent) of the total
principal exposed surfaces.’ 98
On 16 April 2009, Attorney Becerra addressed an advisory opinion to the Dirección
General de Salud, informing the Directorate of the Tobacco Control Program’s
proposed 90% increase of the health warnings and referring to Mailhos’ alleged lack of
compliance with the SPR. He also suggested plain packaging as an alternative.99
On 15 April 2009, Mr. Eduardo Bianco, a member of the Advisory Commission, met
with President Vázquez to discuss Uruguay’s next steps in terms of tobacco control
measures. Based on Dr. Bianco’s contemporaneous account of the meeting, the
President approved his suggestion of increasing the health warning to the extent legally
practicable. This was to be implemented by the MPH by 2010.100
The relevant
documentation does not contain any reference to Mailhos’ alleged violation of the SPR.
The Respondent’s witnesses state that sometime thereafter, the President encouraged
and authorized the MPH to increase the size of the warning labels. The Tobacco Control
97
RR, ¶¶ 4.10-4.11; RCM, ¶¶ 5.60-5.65. Email from Eduardo Bianco to Minister María Julia Muñoz & DirectorGeneral
Jorge Basso, Ministry of Public Health, 2 Dec. 2007, (R-383) Bates No. UGY0000325; E. Bianco, The
Implementation of the Framework Convention: The Role of Civil Society, VIII Congress on the Prevention and
Treatment of Tobacco Consumption, 19 Feb. 2009 (R-389) Bates No. UGY0002092.
98
Letter from Dr. Abascal to the Director General of the MPH, 3 Apr. 2009 (C-338), p. 2 (English text).
99
Ibid., p. 11 (Spanish text) (R-377) (including English translation of relevant note at p. 7).
100
Letter from E. Bianco, Uruguayan Tobacco Epidemic Research Center (CIET), to President Tabaré Vásquez,
16 Apr. 2009, and email sending same (R-208) p. 5.
34
Program then requested an opinion from the Advisory Commission regarding the
appropriate size of the warnings. The Advisory Commission concluded that warnings
covering 80% of both faces were appropriate and submitted its recommendation to the
MPH through the Tobacco Control Program.101
After being submitted to the necessary
consultation levels at the MPH, the Decree was sent back to the President’s office for
review and approval. The Decree was signed by the President and the Cabinet of
Ministers on 15 July 2009.102
In May 2009, representatives of PMI met with representatives of the Tobacco Control
Program and the Advisory Commission. According to a contemporaneous account by
PMI’s representatives, during the meeting Dr. Abascal suggested that the President’s
measure “might have been motivated on punishing Mailhos.” 103
Both Dr. Abascal and
Dr. Lorenzo, who were also present at the meeting, reject that characterization of the
conversation.104
On 30 June 2009, the Director of the Dirección General de Salud archived the letter
referred to in paragraph 126 above, with a note explaining that the health warnings had
already been increased by Decree.105
Dr. Abascal declares that “neither my
Memorandum nor its recommendation, nor my own statements affected the decision to
increase the health warnings.”106
Documentary evidence submitted by both Parties indicates that the decision to increase
the size of the health warning levels was an initiative implemented on the instructions
of the President’s Office. 107
101
Witness Statement of Dr. Eduardo Bianco, 15 Sep. 2014 (“Bianco Statement”) (RWS-2), ¶¶ 16-20; Abascal
Statement I (RWS-1), ¶¶ 16-18; Muñoz Statement (RWS-3), ¶¶ 20-22.
102
Muñoz Statement (RWS-3), ¶ 22.
103
Email from Federico Gey to Javier Ortíz, 3 Jun. 2009 (C-339); Email from Federico Gey to Javier Ortíz, 13
Jul. 2009 (C-340).
104
Lorenzo Statement (RWS-6), ¶ 25; Abascal Statement II (RWS-7), ¶ 25.
105
Letter from Dr. Abascal to the Director General of the Ministry of Public Health, 3 Apr. 2009 (C-338), p. 7
(Spanish text); see also Basso Statement (RWS-4), ¶ 16; Abascal Statement II (RWS-7) ¶ 23.
106
See Abascal Statement II (RWS-7), ¶ 23.
107
See Email from Federico Gey to Javier Ortíz, 3 June 2009 (C-339) (stating that Dr. Abascal had explained that
the proposal to enlarge the health warnings was not coming from his office, that it was a Presidential initiative
and that PMI had confirmed through the media relations agency that President’s advisors were the ones making
the announcement in national press about the potential increase). See also “Encuesta gigante sobre tabaquismo,”
El País, 31 May 2009 (C-136), p. 2. See also Uruguayan Ministry of Public Health Commitment to the Health of
the Population: Strengthening the Anti-Tobacco Campaign, 1 June 2009 (R-37), p. 2.
35
The alleged effects of the Challenged Measures
The adverse health effects of tobacco consumption are not in dispute before the
Tribunal.108
Rather, the Parties disagree as to whether tobacco use and/or smoking
prevalence has increased, remained constant, or decreased in Uruguay as a result of the
SPR and/or the 80/80 Regulation.109
The Parties further disagree on whether the
Challenged Measures have created incentives for consumers to turn to the
illicit/irregular market.110
This Section accordingly summarizes the Tribunal’s understanding of the status of
tobacco consumption, the illegal trade, and market competition in the tobacco industry
in the relevant period, based on the documentary evidence available in the case record.
Tobacco Use in Uruguay Before and After the Challenged Measures
The Parties are in agreement on two issues relating to the evaluation of tobacco
consumption. First, they agree that any correlation between one individual tobacco
control measure and overall consumer behaviour is difficult to establish.111
Particular
control policies cannot be taken in isolation from other strategies which form the basis
of a State’s control program, or from general socio-economic conditions. Second, the
impact of tobacco control policies takes time before they are clearly visible.
From 1998 to 2006, smoking prevalence in adults remained at around 32%.112
The
documentary evidence suggests, however, that tobacco use in Uruguay has been in
decline for the last decade.113
According to the 2014 International Tobacco Control
Policy Evaluation Project (“ITC”), the smoking prevalence rate decreased to 25% in
108
CR, ¶ 30; RCM, ¶¶ 3.1-3.65, 4.1-4.59; See also, Claimants’ Opening Arguments, stating that “for many years,
PMI has publicly described the adverse health effects of smoking. We respect the need for strict regulation. PMI
understands the public-health community’s concerns about tobacco.” Tr. Day 1, 36:14-17; Report of Dr. Jonathan
M. Samet, 10 Oct. 2014 (REX-1); David M. Burns, M.D., Report on Dennis Deshaies, 21 Oct. 2013, presented in
Deshaies v. R.J Reynolds Tobacco Co., Case No. 3:09-cv-11080-WGY-JBT (M.D. Fla.) (RE-277).
109
See, e.g., CR, ¶¶ 82-86 and RCM, ¶¶ 5.5-5.14.
110
CR, ¶¶ 87-96.
111
CR, ¶¶ 97-98; RCM, ¶ 6.18.
112
GATS Uruguay 2009 (R-233), p. 21.
113
In this regard, Euromonitor, an industry monitoring agency, indicates that the “[t]he strict Uruguayan
legislation forbidding smoking in public areas, the total ban on advertising and sponsoring of sports and cultural
plus the crude warnings on cigarettes and other tobacco products packs have contributed to the acceleration in the
declining rates of smoking prevalence since 2005 onwards.” Euromonitor International, Tobacco in Uruguay, Oct.
2014 (“Euromonitor 2014”), (C-373), p. 4; see also Euromonitor 2009, p. 1 (“[F]or the third consecutive year
the tobacco market in Uruguay faced a significant decline.”) (R-215).
36
2009,114
and then further to 23.5% by 2011.115
Official data from the Centro de
Investigación de la Epidemia del Tabaquistmo (“CIET”), indicated that smoking
prevalence in Uruguay had dropped to levels below 20% in 2012116
and got closer to the
19% mark in 2013.117
Other studies have found that the proportion of pregnant Uruguayan women who quit
smoking in their third trimester increased markedly from 15% to 42% between 2007 and
2012.118
The studies posited that “the tobacco control campaign, taken as a whole, was
in fact responsible for the marked increase in quit rates.”119
With regard to young smokers, in 2007, 23.2% of adolescents aged 13 to 15 years used
tobacco products.120
As of 2009, most young smokers began their tobacco consumption
at age 16.121
Among young smokers, female consumption appears to be surpassing male
consumption.122
In 2009, 18.4% of secondary school students were current smokers,
including 21.1% of females and 15.5% of males. In 2011, the prevalence had decreased
to 14.1% of female and 11.9% of male secondary school students.123
The parties are also in dispute as to whether the proper way of determining the effect of
the Challenged Measures on Uruguayans’ health is tobacco prevalence (i.e. the
114
See International Tobacco Control (ITC) Policy Evaluation Project, ITC Uruguay National Report: Findings
from the Wave 1 to 4 Surveys (2006-2012) Aug. 2014, (“ITC 2014”) (R-313) p. 20, citing GATS Uruguay 2009
(R-233) p. 42. The survey was conducted among others under the auspices of the PAHO/WHO and the US Centre
for Disease Control and Prevention from 19 Oct. 2009 to 4 Dec. 2009; see also, Euromonitor International,
Tobacco in Uruguay, Oct. 2012 (“Euromonitor 2012”) (R-417), p. 4, referring to the GATS Uruguay 2009 (R-
233).
115
ITC 2014, (R-313), p. 20, citing the National Statistics Institute Household Survey, 2001.
116
See Euromonitor International, Tobacco in Uruguay, Oct. 2013 (“Euromonitor 2013”) (C-121) pp. 1, 3,
referring to official data from the CIET.
117
See Euromonitor 2014 (C-373), p. 1, referring to official data from the CIET.
118
Harris JE, Balsa AI, Triunfo P., Tobacco control campaign in Uruguay: Impact on smoking cessation during
pregnancy and Birth Weight, National Bureau of Economic Research. Working Paper 19878. Cambridge MA
(Jan. 2014) (R-287), pp. 12, 24; see also, PAHO Amicus Brief, ¶ 90.
119
See Harris J.E. (R-287), p. 24.
120
PAHO Amicus Brief, ¶ 25 (citing the 2007 Global Youth Tobacco Survey (GYTS), Uruguay, Fact Sheet, (ages
13-15)). See also Pan American Health Organization (PAHO) & World Health Organization (WHO), Tobacco
Control Report for the Region of the Americas (2013) (R-267), p. 59.
121
GATS Uruguay 2009 (R-233), p. 16.
122
According to the GATS 2009 Survey, this may result from tobacco companies’ strategies of focusing its
advertising in young women deliberately linking smoking to greater independence and gender equality. (R-233),
p. 55.
123
ITC 2014 (R-313), p. 20.
37
percentage of the population that smokes) or tobacco consumption (the number of
cigarettes consumed).124
The Tribunal notes that Euromonitor, the market research firm heavily relied on by the
Claimants,125
refers to the figures of “tobacco prevalence” and not to the general volume
of sales to assess the state of tobacco use in Uruguay.126
These reports, which were
submitted into the record from the years 2008 to 2015 by both Claimants and the
Respondent, confirm the decline of tobacco prevalence in Uruguay.127
In particular the
2014 report states:
According to the […] CIET the smoking prevalence in Uruguay keeps declining
and in 2013 it fell towards the 19% mark. Restrictive measures that put
increasing pressure on the industry and smokers since the first bans were put in
force in 2005 resulted in a significant reduction in the total number of smokers,
especially between 2008 and 2012. However, this fall in prevalence shows
significantly faster rates than the decline of volume sales during the review
period, which means that those still smoking are doing it more intensively, or at
least purchase more cigarettes.128
The record also shows that Uruguay has received considerable support from the
international public health community for the Challenged Measures, including from the
124
CR, ¶ 99; RCM, ¶ 6.15.
125
See CR, ¶¶ 82-86; 91-92.
126
See e.g. Euromonitor International, Tobacco in Uruguay yearly reports Sep. 2008 (“Euromonitor 2008”) (C-
120), pp. 1-2; Sep. 2009 (R-215), p. 2; Aug. 2010 (R-229) p. 3; Euromonitor International, Tobacco in Uruguay,
Aug. 2011 (“Euromonitor 2011”) (R-412), p. 4; Euromonitor 2012 (R-417), p. 4 (see also p. 1 noting that “2011
ended with the undisputed reality that despite all the government measures to fight […] cigarette smoking, a
lessening of the tax pressure and the good economic conditions prevailing in the country combined to produce the
first positive volume in growth in cigarette in many years”); Euromonitor 2013 (C-121) pp. 1-3 (noting that
“smoking prevalence declin[ed] sharply since 2009” and that “restrictive measures that put increasing pressure on
the industry and smokers since the first ones were put in force in 2005 have resulted in a significant reduction in
the total number of smokers, especially since 2009”); Euromonitor 2014 (C-373), p. 4; Euromonitor 2015 (AG-
49), p. 4.
127
Id. Nevertheless, the data provided in these reports is inconsistent. For example, the figures reflecting tobacco
prevalence for 2008 and 2009 as reflected in the 2010 report (R-229) are different to the figures provided for those
same years (2008, 2009) in the 2014 report (C-373). Similarly, the tobacco prevalence figure for the year 2011 is
different in the 2012 (R-417) and the 2015 reports (AG-49).
128
Euromonitor 2014 (C-373), p. 1.
38
WHO,129
PAHO,130
the Mercosur Member States,131
and the private sector.132
PAHO
for example explains:
[A]n assessment of the impact of national tobacco control policies on three
dimensions of tobacco use in Uruguay (per person consumption, adolescent
prevalence, and adult prevalence) demonstrates consistent decreases in smoking
in Uruguay since the country initiated a comprehensive control program in
2005.133
The International Tobacco Control Policy Evaluation Project assesses the impact of the
SPR and 80/80 Regulation as follows:
The percentage of smokers who reported that warning labels on cigarette packs
were a reason to think about quitting increased from 25% in 2008-09 (when the
warnings were symbolic and covered only 50% of the front and back of the pack)
to 31% in 2010-11 and 30% in 2012 (when the images were more graphic and
covered 80% of the front and back of the pack). In addition, gaps in smokers’
awareness of stroke and impotence as smoking-related health effects were
reduced after the introduction of pictorial health warnings specifically
addressing these health effects.
The ITC Uruguay Survey provides modest evidence of a positive impact of the
single presentation policy. The percentage of smokers who had false beliefs that
light cigarettes are less harmful than regular cigarettes decreased from 29%
before the single presentation policy to 15% after the policy. However, in 2012,
29% of smokers stated that their current brand is a “light”, “mild”, or “low
tar” brand and the majority (91%) of smokers believe that although Uruguay
has implemented a single presentation policy, the same cigarettes are being sold
under different names.134
129
See WHO Amicus Brief, ¶ 90. See also, World Health Organization 62ND
Session of the Regional Committee
and Pan American Health Organization 50th
Directing Council, Resolution CD50.R6 adopted with regard to
Strengthening the Capacity of Member States to Implement the Provisions and Guidelines of the WHO Framework
Convention on Tobacco Control, 29 Sep. 2010 (R-230) (endorsing the SPR); Memorandum of Understanding
between the Secretariat of the WHO Framework Convention for Tobacco Control and the Uruguayan Ministry of
Public Health, 21 May 2014, (R-301-bis) (showing the FCTC Secretariat support for the creation of the
International Cooperation Center on Tobacco Control (ICTC) within the Ministry of Public Health).
130
See PAHO Amicus Brief, ¶ 99; See also, Pan American Health Organization (PAHO), “Director Carissa
Etienne’s Presentation on Tobacco Control: ‘PAHO commits itself to continue supporting the leadership path that
the country has taken”, 2 May 2014 (R-300).
131
Joint Communiqué of the Presidents of the Member States of MERCOSUR (29 Jul. 2014) (R-311).
132
“Bloomberg Philanthropies Honors Uruguay’s Efforts To Fight Big Tobacco,” PR Newswire (22 Mar. 2012),
Bates No. UGY0003430 (R-415).
133
PAHO Amicus Brief, ¶ 89 (citing Abascal W, Esteves E, Goja B, Gonzale Mora F, Lorenzo A, Sica A, Triunfo
P, Harris JE. Tobacco Control Campaign In Uruguay: A Population Based Trend Analysis, Lancet Vol. 380 3
Nov 2012).
134
ITC 2014 (R-313), p. 5; see also PAHO Amicus Brief, ¶¶ 87-88. The reliability of ITC Evaluation project is
disputed by the Claimants, considering that it did not study actual consumer behavior (i.e. whether consumers
actually quit smoking), but instead focused on what smokers thought about or what they were more likely to think
about. CR, ¶ 98. The International Tobacco Control Policy Evaluation Project (ITC) is an international research
collaboration across 23 countries, including Canada, the US, the UK, Australia, France, Germany, the
Netherlands, Brazil, India and others. ITC Uruguay Survey is a national survey conducted by researchers from
39
The 2012 ITC Survey Report says that:
[W]arning effectiveness remained unchanged or decreased slightly[…], after
the warnings changed to smaller set of more symbolic images in 2008, covering
50% of the packages. At Wave 3, after implementation of larger, more graphic
warning covering 80% of the package, warning effectiveness increased to levels
higher than Wave 1, demonstrating that large, graphic images with clear health
messages are more effective than smaller, more abstracts warnings.135
Claimants’ Investments and Market Competition Before and After the Challenged
Measures
It is undisputed that after the entry into force of the SPR, Abal eliminated seven of its
thirteen variants (namely Marlboro Gold, Marlboro Blue, Marlboro Fresh Mint, Fiesta
Blue, Fiesta 50/50, Phillip Morris Blue, and Premier).
The graph below produced by the Claimants in their pleadings shows the number of
family brands pertaining to the Claimants originally sold in Uruguay, and the variants
that were taken off the market.136
The eliminated variants accounted for roughly 20% of Abal’s domestic sales.137
the Department of Sociology at the University of the Republic of Uruguay, the Research Centre for Tobacco
Epidemic (CIET), and the National Institute of Public Health of Mexico - University of South Carolina in
collaboration with the ITC Uruguay Project team centered at the University of Waterloo in Canada. ITC 2014 (R-
313), p. 16.
135
International Tobacco Control Policy Evaluation Project, ITC Uruguay National Report: Findings from the
Wave 1 to 3 Surveys (2006-2011) Aug. 2012, (“ITC 2012”) (C-133), p. 39. According to Euromonitor, “the
increase in the size of the warnings and the use of images have contributed to the decline in sales of all tobacco
products, but especially sales of cigarettes.” Euromonitor 2014 (C-373), p. 5; See also Euromonitor 2011 (R-412),
p. 39.
136
See also Tr. Day 1, 22:4-6.
137
Expert Report of Brent C. Kaczmarek and Kiran P. Sequiera, 3 Mar. 2014 (“First Navigant Report”) (CWS-
013), ¶ 74; See also CR, ¶ 27.
40
In late 2009, after the SPR had entered into force and after the 80/80 Regulation had
been adopted but before it entered into force on 22 December 2009, the Claimants
withdrew Premier Extra and Galaxy from the market.138
Four of Abal’s thirteen variants
remain in the market: Marlboro Red, Casino, Fiesta and Phillip Morris.139
The Claimants contend that the Challenged Measures have also dramatically shifted the
competitive landscape and that they have created incentives for consumers to turn to the
illicit/irregular market.
Claimants’ expert, Mr. B. Kazmarek, indicated that by 2008, Abal’s market share of the
Uruguayan market was 13.5%;140
it rose to 20.4% by 2010, allegedly after Abal had
implemented price reductions for some of its variants, and then decreased again to
similar levels as in 2008, with 13.9% by 2013.141
This is not disputed by the
Respondent.142
Besides Abal, there are two tobacco companies that legally sell their products in
Uruguay:
 Compañía Industrial de Tabacos Monte Paz S.A. (“Monte Paz” or “Mailhos”), a
domestically owned company, which held a market share somewhere between 75%
and 85% between 2007 and 2013.143
Monte Paz is Abal’s main competitor.
 British American Tobacco (South America) Limited Sucursal Uruguay (“BAT”),
another multinational company, which closed its Uruguayan factory in 2003, and
began importing the brands it commercialized from Argentina and Chile. In 2007,
it held 7% of the Market, which decreased to less than a 2% market share as of
2012.144
According to Euromonitor, BAT “finally withdrew from the Uruguayan
market in mid-2010.”145
BAT continued nevertheless to have a presence in the
138
RCM, ¶ 9.82; Witness Statement of Mr. Diego Cibils of 28 Feb. 2014, (CWS-004), ¶ 18.
139
RCM, ¶ 9.83.
140
See First Navigant Report (CWS-013), ¶¶ 79 and 82, Figures 11 and 13 and Appendix K-1. The Tribunal notes
that according to Euromonitor, Abal Hermanos’ market-share as of 2008 was of 16% and as of 2013 it increased
to 17%. See Euromonitor 2009 (R-215), p. 14; and Euromonitor 2014 (C-373), p. 17. ITC 2014 Report states that
“Abal controls around 16% of the market” by 2012 (ITC 2014, (R-313), p. 27).
141
First Navigant Report (CWS-013), ¶¶ 79 and 82, Figures 11 and 13 and Appendix K-1.
142
See RCM, ¶ 7.39.
143
It held 76% as of 2007. See Euromonitor 2008 (C-120), p. 36; 84% in 2010, see Euromonitor 2011 (R-412), p.
17; 85% in 2011, Euromonitor 2012 (R-417), p. 20; 83% in 2013, Euromonitor 2014 (C-373), p. 19.
144
ITC 2014 (R-313), p. 27. According to the ITC 2012 (C-133), p. 12, BAT’s market share was 4% as of 2011.
145
Euromonitor 2011 (R-412), p. 2.
41
Uruguayan market, by selling cigarettes in the Department of Maldonado through
a distributor.146
With regard to illicit trade, Euromonitor explained already in its 2008 report, that “[a]n
unwanted if not unexpected result from all government measures, and especially from
the price increases of 2005 and 2007, was the growth of illicit trade.”147
Euromonitor
further considered that “[i]llicit trade, which had remained relatively stable at around
17% of total sales, with small fluctuations tied to price variation of legitimate brands,
started to grow in 2008 and reached almost 23% in 2010.”148
In particular, it held:
Illicit trade which had continued fluctuating between 17% and 21% of the total
sales (estimated at 20.9% in 2012), with small variations is usually tied to price
increases of legitimate brands. Despite an apparently stronger pressure from
the customs authority and the Ministerio de Economía y Finanzas, there is a
steady flow of illegal brands from Paraguay, Brazil and to a lesser degree,
Argentina.149
There is apparently no official data available on illicit trade of tobacco in Uruguay.
Estimates of the current illicit share of the total cigarette market, according to the
evidence in the record, were in 2011 and 2012 between 17% to 25% of all sales.150
The Challenges to the Regulations before the Uruguayan Courts
Section D summarizes the proceedings lodged by Claimants before the Uruguayan
courts in connection with the Challenged Measures, in particular: (1) before the
Tribunal de lo Contencioso Administrativo (“TCA”) seeking to declare invalid
Ordinance 514 and its single presentation requirement; and (2) before the TCA and the
Supreme Court of Justice (“SCJ”) relating to the 80/80 Regulation. The decisions
rendered in these cases are the basis of the Claimants’ denial of justice claims, which
are dealt with in Section V (F) below.
146
ITC 2014 (R-313), p. 27.
147
Euromonitor 2008 (C-120), p. 1.
148
Euromonitor 2011 (R-412), p. 10; In its 2012 report Euromonitor confirms that illicit trade continues to
fluctuate between 17% and 21% (R-417).
149
Euromonitor 2014 (C-373), p. 12. See also Euromonitor 2012 (R-417), p. 11. See also Euromonitor 2011 (R-
412), p. 8 (“Ilicit trade has increased significantly as a result of price hikes and illicit brands now account for an
important share of volume sales.”)
150
See Euromonitor 2012 (C-121), p. 11 (referring to “illicit trade fluctuating between 17% and 21%”) and ITC
2014 (R-313), p. 27 (citing estimates between 22% and 25%); see also ITC 2012 (C-133), p. 12 (referring to the
same fluctuation.
42
Proceedings Before the Tribunal de lo Contencioso Administrativo (TCA) Relating to
the SPR
On 18 September 2008, Abal presented an administrative challenge to the SPR before
the MPH.151
On 13 April 2009, the challenge was rejected by operation of law when
the Ministry did not rule on it within 120 days.152
On 9 June 2009, Abal filed an accion de nulidad before Uruguay’s TCA to annul Article
3 of Ordinance 514, which imposed the SPR.153
Abal set out three separate bases for its
application. First, the SPR was “manifestly illegal because it exceeds and contradicts
the legal provisions it is intended to implement” (Law 18,256 and the Decree 284) as
those norms did not impose any prohibition on multiple presentations but only against
“misleading packages.”154
Second, the Ordinance is “manifestly illegal because it
imposes an entirely new prohibition on variants” that the MPH has no authority to
impose.155
Third, it considered Ordinance 514 to be “manifestly illegal because it
violates the principle of ‘reserva de la ley’ by restricting Abal’s constitutional rights in
a manner that may only be accomplished, if at all, […] by a formal law enacted by
Parliament.”156
On 30 July 2010, the Procurador del Estado de lo Contencioso Administrativo (State
Attorney) submitted an opinion to the TCA supporting Abal’s challenge.157
It concluded
that Ordinance 514 should be annulled as “neither the […] Law nor its Decree limit the
number of products that may be sold under one brand and, therefore, the limitation
imposed exceeds the norms it regulates.”158
151
Abal’s Administrative Opposition against Ordinance 514, Sep. 2008 (C-35); RCM, ¶ 11.51.
152
See Abal’s Request for Annulment of Ordinance 514 Before the TCA (“Abal’s SPR Annulment Request”),
(C-41), p. 11. See also, Legal Opinion of Prof. Felipe Rotondo, 22 Sep. 2014 (REX-7), ¶ 9.
153
Abal’s SPR Annulment Request (C-41).
154
Ibid., (C-41), pp. 12-19, § IV.A.
155
Ibid., (C-41), pp. 19-25, § IV.B.
156
Ibid., (C-41), pp. 27-29, § IV.C. Claimants define the principle of reserva de la ley as one providing that “only
the legislature has the power to severely impair constitutional rights, including property rights,” while the
Respondent considers that the principle “posits that fundamental rights may be limited only through the law.”
157
Opinion of the State Attorney in Administrative Litigation, 30 Jul. 2010 (C-141).
158
Ibid., (C-141), p. 1; See also Tr. Day 1, 35:18-22. The State Attorney also stated that: “the purpose of the Law
and its Decree is the protection of individuals so that they are not misled with the slogans on the product labels.
However, provided that those guidelines are respected, the existence of more than one product of the same brand
does not in any way affect or harm the legally protected interest that is meant to be protected.” (p. 2).
43
British American Tobacco (“BAT”), one of Abal’s competitors as described above, also
filed an annulment application challenging the legality of Ordinance 514 before the
TCA. In its application, BAT also alleged that the Ordinance violated the principle of
“reserva de ley.”159
On 14 June 2011, before rendering its decision on BAT’s case, the TCA rejected Abal’s
challenge.
In its decision, the Court referred three times to BAT.160
The TCA also discussed a
statement by Dr. Abascal that was not part of Abal’s submission before the TCA.161
On 24 August 2011, Abal filed a motion for clarification and expansion of the TCA’s
decision.162
Abal argued that the TCA had erroneously rejected Abal’s application by
considering “another company” with “other tobacco products,” and on the basis of
“other arguments” and “other evidence,” different to that presented by Abal.163
Abal
alleged, in short, that the TCA’s Decision had been made on the basis of evidence and
arguments submitted by BAT, and not Abal, including a statement by Dr. Abascal not
included in Abal’s file.164
On 29 September 2011, the TCA rejected Abal’s motion for clarification and expansion
in a one-page document, considering, inter alia, that there was no omission regarding
“some essential point of the case,” and that a revision was not justified, as the decision
took into account and considered the “ratio” of the relevant legal provision. 165
159
British American Tobacco’s Complaint in Challenge to Ordinance 514 (C-127).
160
TCA Decision No. 509, Case No. 363/2009, 14 June 2011 (“TCA Decision No. 509”) (C-53; R-242), pp. 7,
12.
161
Ibid., (C-53; R-242), p. 8; CM, 162.
162
Abal’s Motion for Clarification and Further Judgment for the TCA’s Decision on Ordinance 514, 24 Aug. 2011
(“Abal’s Motion for Clarification”) (C-55).
163
Ibid., (C-55), p. 1.
164
Ibid., (C-55), p. 1.
165
TCA Decision No. 801 Rejecting Abal’s Appeal for Clarification, 29 Sep. 2011 (“TCA Decision No. 801”)
(C-56); See also CM, ¶ 166; RCM, ¶ 11.55.
44
The Proceedings Before the TCA and the Supreme Court of Justice Relating to the
80/80 Regulation
On 11 September 2009, Abal filed a constitutional challenge to Articles 9 and 24 of Law
18,256 before the Supreme Court of Justice (“SCJ”).166
In its unconstitutionality action,
it considered that the Law impermissibly delegated authority to the Executive.
The Legislature and the Fiscal de Corte y Procurador General intervened during the
proceedings before the Supreme Court. In their respective submissions to the Court,
they submitted that Law 18,256 did not contain an impermissible delegation of authority
to the Executive Power.167
The basis for this conclusion, according to the Legislature, was that the term “at least”
in Article 9 should be understood in the sense of imposing an obligation on tobacco
companies to incorporate health warning that may occupy more space -- if the company
so desires -- but never less than the fixed minimum of 50%. Law 18,256 also imposed
an obligation on the MPH not to approve smaller warnings. Since the Law did not allow
the regulation to set a higher percentage of the package to be covered by health
warnings, there was no impermissible delegation of authority.168
Likewise, the State
Attorney General also considered that there was “no indication that the Executive Power
could establish a higher percentage.”169
On 22 March 2010, Abal filed an acción de nulidad before the TCA seeking annulment
of the 80/80 Regulation. The TCA suspended its proceedings pending the Supreme
Court’s decision.
On 10 November 2010, the SCJ unanimously dismissed Abal’s unconstitutionality
action, declaring that Law 18,256 did not grant the Executive Power “the unlimited
166
Complaint of Abal Hermanos S.A., SCJ Case No. 1-65/2009, 11 Sep. 2009 (R-216); CM, ¶ 169; RCM, ¶ 11.96;
CR, ¶ 159.
167
Legislature’s Answer to Abal’s Unconstitutionality Action of Law 18,256, 10 Nov. 2009 (C-46) ¶ 4.2. Opinion
of the State Attorney General regarding Law 18,256, 8 Feb. 2010 (C-197).
168
Legislature’s Answer to Abal’s Unconstitutionality Action of Law 18,256, 10 Nov. 2009 (C-46) ¶ 3.9-3.10.
169
Opinion of the State Attorney General regarding Law 18,256, 8 Feb. 2010 (C-197), p. 2.
45
power to restrict individual rights,” and therefore there was no impermissible delegation
of authority.170
On 28 August 2012, the TCA rejected Abal’s acción de nulidad against Decree 287.171
The Regulatory Framework of Trademarks in Uruguay
This section provides a general overview of the legal framework relevant to trademarks
in Uruguay. The parties disagree as to whether this regulatory framework confers on
trademark owners only the right to prevent others from using the trademarks, or also the
right to use the trademarks in commerce. The Claimants maintain it does the latter,172
while the Respondent states that there is no provision in the law that creates a right to
use.173
The legal framework for trademarks in Uruguay was established by Law No. 17,011,
enacted on 25 September 1998 (the “Trademark Law”), which was implemented by
Decree No. 34/99.174
Trademark protection is based on Article 33 of Uruguay’s
Constitution which requires the legislature to recognize and protect the rights of creators
and inventors.175
Article 1 of the Trademark Law defines a trademark as “any sign capable of
distinguishing goods and services of one natural or legal person from those of other
natural or legal persons.”176
Relevant provisions of the Trademark Law include the following:
170
Supreme Court Decision No. 1713, “Abal Hermanos S.A. v. Legislative Power et al. – Unconstitutionality
Action, Articles 9 and 24 of Law 18,256” Docket File No. 1-65/2009, 10 Nov. 2010 (C-51), p. 4; RCM, ¶ 11.97.
171
TCA Decision No. 512 on Abal’s Request for Annulment of Decree 287/009, 28 Aug. 2012 (“TCA Decision
No. 512”) (C-116).
172
CR, ¶ 132; To support this proposition, Claimants refer inter alia to a decision by the TCA in which it allegedly
recognized that trademark holders have the right to the exclusive and effective use of their trademarks (see
Marcelo Lopez, Alejandro Ignacio v. The Ministry of Industry, Energy and Mining, TCA Decision 189-2012, 15
May 2012 (C-370), p. 8. This will be discussed in section V.B (b)(1)(iii) below.
173
RR, ¶ 9.30; RCM, ¶ 9.25 – 9.28 (relying inter alia on TCA Decision 933, Case No. 527/2008, 11 Nov. 2010
(RLA-211)).
174
Law No. 17,011, of 25 Sep. 1998, Establishing Provisions on Trademarks (“Trademark Law”) (C-135). See
also, CM, ¶ 86; RCM, ¶ 9.23; Expert Report of Professor Andrea Barrios Kubler, 2 Oct. 2014, (“Barrios
Report”), (emphasis in the text), (REX-004), ¶ 6.
175
Constitution of the Oriental Republic of Uruguay, 31 Oct. 2004 (RLA-1 and C-30). See also, Barrios Report
(REX-004), ¶ 6.
176
Trademark Law (C-135), Art. 1; See also, CM, ¶ 86.
46
Article 9
The right to a trademark is acquired by registration carried out in accordance
with this Law.
Registration of a trademark shall imply the natural or legal person under whose
name the trademark is registered in the rightful owner.
Article 11
The exclusive property of a trademark is acquired only over products and
services for which registration has been requested.
In the case of a trademark that includes the name of a product or service, the
trademark shall be registered exclusively for the product or service included in
the trademark.
Article 14
The right to oppose the use of any trademark that could lead to confusion
between goods or services shall belong to the person that meets all the
requirements of the present law.
Both Parties agree that Uruguay’s Trademark Law is based on a number of intellectual
property conventions to which Uruguay is a Party.177
These include among others the
following:
 The Montevideo Treaty of 1892, providing in its Article 2 that “ownership of a
trademark or a trade name includes the right to use it…”;178
 The 1979 Paris Convention for the Protection of Intellectual Property (“Paris
Convention”);179
 The 1994 the Agreement on Trade-Related Aspects of Intellectual Property Rights
(“TRIPS Agreement”).180
In addition, Uruguay is a party to the 1998 Protocol on Harmonization of Intellectual
Property Norms in MERCOSUR in the Field of Trademarks, Indications of Source and
Appellations of Origin (the “MERCOSUR Protocol”).181
Article 11 of the Mercosur
Protocol reads in relevant part: “[t]he registration of a trademark shall grant the owner
177
CR, ¶ 110; RCM, ¶ 9.37.
178
Law No. 2,207, 1 Oct. 1892 (C-367). CR, ¶ 131.
179
Paris Convention on the Protection of Industrial Property (“Paris Convention”) (C-AB-04). According to the
Respondent, WIPO confirmed that the Paris Convention does not recognize a right to use; RCM, ¶¶ 9.38-9.41.
180
Notification submitted to the TRIPS Agreement Council on 14 Jul. 1998, WTO Document No. 98-2786
(“TRIPS Agreement”) (R-AB-52); MERCOSUR Protocol of Harmonization of Rules Regarding Intellectual
Property (“MERCOSUR Protocol”) (R-AB-20).
181
MERCOSUR Protocol (R-AB-20). See also Barrios Report, (REX-004), ¶ 7; RCM, ¶ 9.23.
47
an exclusive right of use.” (“El registro de marca conferirá a su titular el derecho de
uso exclusivo”).
In the Claimants’ view, the MERCOSUR Protocol has been incorporated into domestic
law through Law 17,052 of 14 December 1998 and so is applicable to all owners of
trademarks registered in Uruguay.182
In the Respondent’s view, the MERCOSUR
Protocol only applies between State Parties that have ratified it; that is, Uruguay and
Paraguay.183
LIABILITY
The Claimants assert that the Respondent has violated each of Articles 3(1), 3(2), 5 and
11 of the BIT. The Tribunal examines in turn, each of the Claimants’ claims. To do so,
it will first examine the applicable standard for each of the substantive protections
allegedly infringed by the Respondent’s measures, before examining the merits of each
claim.
Applicable Law
Article 42 of the ICSID Convention provides:
Article 42
The Tribunal shall decide a dispute in accordance with such rules of law as may
be agreed by the parties. In the absence of such agreement, the Tribunal shall
apply the law of the Contracting State party to the dispute (including its rules on
the conflict of laws) and such rules of international law as may be applicable.
The Tribunal may not bring in a finding of non liquet on the ground of silence
or obscurity of the law.
The provisions of paragraphs (1) and (2) shall not prejudice the power of the
Tribunal to decide a dispute ex aequo et bono if the parties so agree.
The governing law in this case is the BIT, supplemented by such rules of international
law as may be applicable. The Tribunal has been tasked with determining whether the
Respondent has breached its obligations under the BIT. The role of Uruguayan law is
important in two respects. On the one hand, it informs the content of the Claimants’
182
Trademark Law No. 17,052, 14 Dec. 1998 (C-364); See also CR, ¶¶ 126, 128; Second Expert Opinion of
Gustavo Fischer, 17 Apr. 2015 (“Second Fischer Opinion”) (CWS-24), ¶ 7.
183
RCM, ¶ 9.23 n. 938.
48
rights and obligations within the Uruguayan legal framework, as in the field of
trademarks. On the other hand, Uruguayan law also informs the content of commitments
made by the Respondent to the Claimants that the latter alleges have been violated.
Uruguayan law may be relevant for establishing the rights the State recognizes as
belonging to the Claimants. The legality of a modification or cancellation of rights
under Uruguayan law, while relevant, would not determine whether such an act may
constitute a violation of a BIT obligation.
Rather, whether a violation has in fact occurred is a matter to be decided on the basis of
the BIT itself and other applicable rules of international law, taking into account every
pertinent element, including the rules of Uruguayan law applicable to both Parties.
Expropriation under Article 5 of the Treaty
It is the Claimants’ position that by imposing the SPR and 80/80 Regulation, the
Respondent expropriated their investment in violation of Article 5(1) of the BIT.184
In
particular, the Claimants allege that by effectively banning seven of Abal’s thirteen
variants and substantially diminishing the value of the remaining ones, the Respondent
expropriated the Claimants’ brand assets, including the intellectual property and
goodwill associated with each of the Claimants’ brand variants, in violation of Article 5
of the BIT.185
According to the Respondent, the SPR and 80/80 Regulation cannot be considered
expropriatory since they were legitimate exercise of the State’s sovereign police power
to protect public health.186
It contends that, in any case, the Claimants’ expropriation
claim fails on the merits for at least three different reasons.187
First, after the adoption
of the measures, Abal continued to be profitable. In other words, the Challenged
Measures have not had such a severe economic impact on the Claimants’ business that
it has been rendered virtually without value. Second, the Claimants as an investor had
no rights capable of being expropriated under the law creating them since, under
Uruguayan law, trademark registrants are conferred only a negative right, the right to
184
CM, ¶¶ 180, 182-183.
185
CM, ¶ 213; CR, ¶ 178.
186
RCM, ¶ 7.2.
187
RCM, ¶¶ 7.3-7.5.
49
exclude others from their use, and not an affirmative right to use them. Third, the
Claimants had no valid title to trademarks since they failed to register the modifications
made in the descriptive characteristics of those variants the use of which was affected
by the Challenged Measures.188
Article 5(1) of the BIT, under the rubric “Dispossession, Compensation,” provides:
(1) Neither of the Contracting Parties shall take, either directly or indirectly,
measures of expropriation, nationalization or any other measure having the
same nature or the same effect against investments belonging to investors of the
other Contracting Party, unless the measures are taken for the public benefit as
established by law, on a non-discriminatory basis, and under due process of law,
and provided that provisions be made for effective and adequate compensation.
The amount of compensation, interest included, shall be settled in the currency
of the country of origin of the investment and paid without delay to the person
entitled thereto.
The Legal Standard
1. The Claimants’ Position
According to the Claimants, to assess their expropriation claim under Article 5, the
Tribunal must examine whether the investor was deprived, wholly or partially, of the
use, enjoyment, or benefit of the investment.189
For the Claimants, to find a violation of
Article 5, the Tribunal need not reach the conclusion that the Claimants were deprived
entirely of the economic benefit of the investment. Rather, the threshold is whether the
Challenged Measures have “substantially deprived” the investments of their value.190
The Claimants also contend that under Article 5, all lawful expropriations must be
accompanied by effective and adequate compensation, even when actions are carried
out for a public purpose.191
“Public benefit” is not an exception from expropriation but
instead one of several prerequisites for an expropriation to be considered consistent with
the BIT.192
The latter, according to the Claimants, is further emphasized by the lack of
188
RCM, ¶¶ 7.1-7.5.
189
CM, ¶¶ 185-191.
190
CR, ¶ 185.
191
CM, ¶¶ 204-212 (relying inter-alia on Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v.
Argentine Republic, ICSID Case No. ARB/97/3, Award, 20 Aug. 2007 (“Vivendi Argentina (II)”) (CLA-210), ¶
7.5.21; and Compañía del Desarrollo de Santa Elena, S. A. v. Costa Rica, ICSID Case No. ARB/96/1, Final
Award, 17 Feb. 2000 (“Santa Elena”) (CLA-214), ¶ 72; Norwegian Shipowners’ Claims (Norway v. USA),
Award, 13 Oct. 1922 (“Norwegian Shipowners”) (CLA-212), p. 337, and Southern Pacific Properties (Middle
East) Ltd. v. Egypt, Award, 20 May 1992, (CLA-215), ¶ 158.
192
CR, ¶ 192.
50
any provision in the BIT providing for “carve-outs, exceptions or saving presumptions
for public health or other regulatory actions,” in clear contrast with other BITs such as
the Uruguay-U.S. BIT, which contain such provisions.193
In the Claimants’ view, other considerations such as whether (a) the host State acquired
a benefit of a proprietary character after the expropriatory measure;194
(b) the State
intended to expropriate the investment;195
or (c) the Claimants’ business stopped being
an ongoing matter as a result of the expropriation,196
are irrelevant for a valid
expropriation claim to exist.
The Claimants also contend that the standard outlined above is applicable to both direct
and indirect or de facto expropriations,197
and that it serves to protect not only tangible
property but also intangible assets, including intellectual property, from uncompensated
expropriation.198
2. The Respondent’s Position
According to the Respondent, before determining whether the conditions for a lawful
expropriation under Article 5 have been met, the Tribunal must determine whether the
Challenged Measures were expropriatory in character.199
In other words, if an act is not
an “expropriation,” as a matter of law Article 5 does not apply.200
Article 5 specifies
193
CM, ¶ 210; see also CR, ¶¶ 19; 165-167.
194
CM, ¶ 189.
195
CM, ¶ 190; CR, ¶ 282 (citing Vivendi v. Argentina (II) (CLA-210), ¶ 7.5.20).
196
CR, ¶ 181 (citing inter alia, Chemtura Corp. v. Government of Canada, NAFTA Arbitration under UNCITRAL
Rules, 2 Aug. 2010, (“Chemtura”) (RLA-53), ¶ 249, Middle East Cement Shipping and Handling Co. S.A. v. Arab
Republic of Egypt, ICSID Case No. ARB/99/6, Award, 22 Apr. 2002 (CLA-206); Eureko B.V. v. The Slovak
Republic, PCA Case No. 2008-13, Award on Jurisdiction, Arbitrability, and Suspension, 26 Oct. 2010, (CLA-
271)).
197
CM, ¶¶ 185-191 (relying inter alia on Metalclad Corporation v. United Mexican States, ICSID Case
No. ARB(AF)/97/1, Award, 30 Aug. 2000, (“Metalclad”) (CLA-039), ¶ 103; Técnicas Medioambientales
Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award, 29 May 2003, (“Tecmed”)
(CLA-203), ¶ 116; Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case
No. ARB/03/29, Award, 27 Aug. 2009 (CLA-179), ¶ 443; CME Czech Republic B.V. v. Czech Republic,
UNCITRAL, Partial Award, 13 Sep. 2001 (“CME”) (CLA-202), ¶¶ 606, 608).
198
CM, ¶ 191.
199
RCM, ¶¶ 7.9-7.11 (relying on Fireman’s Fund Insurance Company v. United Mexican States, ICSID Case
No. ARB(AF)/02/1, Award, 17 Jul. 2006 (RLA-169), ¶ 174).
200
RCM, ¶ 7.8.
51
the conditions that render an expropriation lawful, but has no bearing on the question of
whether an expropriation, or a measure having the same effect, actually took place.201
That question depends on the nature of the State’s action.202
Interference with foreign
property in the valid exercise of police power is not considered expropriation and does
not give rise to compensation.203
Moreover, even if the governmental measures here at stake could be considered as
falling under Article 5, the Claimants’ claim is for indirect expropriation, and such a
claim requires showing that the measures have had such a severe economic impact on
the Claimants’ business that it has rendered it virtually without value. A mere negative
impact is not sufficient.204
The interference must be “sufficiently restrictive to support
a conclusion that the property has been ‘taken’ from the owner” so as “to render almost
without value the rights remaining with the investor.”205
The primary consideration is how much value remains after the expropriation, not how
much was taken. The Respondent relies on the finding of the Archer Daniels, LG&E,
CMS, and Encana tribunals, to submit that if “sufficiently positive” value remains, there
is no expropriation.206
The reasons for this threshold, are, according to Uruguay, clear:
“if States were held liable for expropriation every time a regulation had an adverse
impact, effective governance would be rendered impossible.”207
3. The Tribunal’s Analysis
The Tribunal notes that the legal title to the property representing the Claimants’
investment was not affected by the Challenged Measures. Abal remained the registered
201
RR, ¶ 6.7.
202
RR, ¶ 6.8.
203
RCM, ¶¶ 2.10-2.11.
204
RR, ¶ 6.38.
205
RCM, ¶¶ 7.30-32 (see Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1,
Award, 16 Dec. 2002, (“Feldman”) (RLA-201), ¶ 103; Pope & Talbot Inc. v. The Government of Canada,
UNCITRAL, (“Pope & Talbot”) (RLA-216), ¶ 102; Glamis Gold, Ltd. v United States of America, UNCITRAL,
Award, 8 Jun. 2008, (“Glamis”) (RLA-183), ¶ 357).
206
RCM, ¶¶ 7.33-37 (referring to Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc.
v. United Mexican States, ICSID Case No. ARB(AF)/04/5, Award, 21 Nov. 2007, (“Archer Daniels”), (RLA-
178), ¶¶ 246-247, 251; LG&E Energy Corp., et al. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision
on Liability, 13 Oct. 2006, (“LG&E”) (RLA-65), ¶ 191; CMS Gas Transmission Company v. Argentine Republic,
ICSID Case No. ARB/01/8, Award, 12 May 2005, (“CMS”) (CLA-093), ¶¶ 262-264; and Encana Corporation v.
Republic of Ecuador, UNCITRAL, Award, 3 Feb. 2006, (“Encana”)).
207
RCM, 7.32.
52
owner or licensee of the relevant trademarks and continued to be entitled to protect them
by an action for infringement. Clearly, the Claimants’ claim relates to indirect or de
facto expropriation, as shown by the reference to this kind of expropriation in their
pleadings.208
As shown above, the Parties diverge as to the threshold for finding indirect
expropriation, the Claimants contending that the interference with the investor’s rights,
whether regulatory or not, should be such as to substantially deprive the investment of
its value,209
the Respondent holding that such interference must have “rendered almost
without value the rights remaining with the investor.”210
Article 5(1) of the BIT refers to “any other measure having the same nature or the same
effect” as an expropriation or a nationalization. Thus, indirect expropriation under the
Treaty is defined in a different and apparently stricter way than in other treaties that
make reference to measures, the effect of which, would be “tantamount” or “equivalent”
to nationalization or expropriation.211
Be that as it may, in order to be considered an
indirect expropriation, the government’s measures interference with the investor’s rights
must have a major adverse impact on the Claimants’ investments. As mentioned by
other investment treaty decisions, the State’s measures should amount to a “substantial
deprivation” of its value, use or enjoyment, “determinative factors” to that effect being
“the intensity and duration of the economic deprivation suffered by the investor as a
result of such measures.” 212
208
At the Hearing, counsel for the Claimants confirmed that the claim in question is for indirect expropriation
(Closing, answer to Judge Crawford’s question, Tr. Day 9, 2417: 2-12). The Respondent refers to the Claimants’
claim as relating to indirect expropriation: RCM, ¶ 7.1.
209
CR, ¶ 185.
210
RCM, ¶ 7.32 (emphasis in the text).
211
See, e.g., the 2004 and 2012 US Model BITs referring to indirect expropriation as consisting of “measures
equivalent to expropriation or nationalization,” adding in a special Annex B entitled “Expropriation” that “the
determination of whether an action or series of actions by a Party, in a specific fact situation, constitutes an indirect
expropriation, requires a case-by-case, fact-based inquiry,” considering the different factors that are indicated in
the Annex.
212
Telenor Mobile Communications AS v. Republic of Hungary, Award, 13 Sep. 2006, (RLA-078), ¶¶ 65, 70. See
also Metalclad (CLA-039) ¶ 103; CME (CLA-202), ¶ 688; Pope & Talbot (CLA-216), ¶¶ 96, 102.
53
The Claim
1. The Claimants’ Position
According to the Claimants, the Respondent expropriated seven of Abal’s thirteen
variants, including the goodwill and the legal rights deriving from the associated
intellectual property, when it enacted the SPR.213
Thereafter, the Respondent’s 80/80 Regulation destroyed the brand equity of the six
remaining variants, with two immediate alleged effects: first, the discontinuance of two
other brands from the market (the Galaxy and Premier brands) in 2009, and second, the
erosion of the Claimants’ brand equity and pricing power. In particular, the Claimants
say that as a result of the “corrupted presentation” of the Claimants’ packaging, Abal
has been forced to choose between maintaining its market share or maintaining its
historical price premium.214
This, in turn, has substantially affected the Claimants’
profits and revenues as smokers are less willing to pay premium prices for the
Claimants’ products.
The Claimants do not dispute that Abal remained a profitable business. They contend,
however, that each brand asset—including each variant and each brand—is an
individual investment in its own right.215
Thus, the discontinuance of each of the brand
variants, or the interference with each of the remaining brands, constitutes an
expropriation.216
Finally, the Claimants address two defenses raised by the Respondent: the police powers
doctrine and the Claimants’ alleged lack of property rights—intellectual or other—that
could be the object of an expropriation.
Uruguay’s Police Powers
First, the Claimants consider that the police powers doctrine does not excuse the
Respondent from liability for expropriating the Claimants’ investment. According to
the Claimants, “under customary international law, the scope of the implicit exception
for police powers is limited to State powers related to protection and security such as
213
CM, ¶¶ 182, 192-203.
214
CM, ¶ 201.
215
CR, ¶ 180.
216
CR, ¶¶ 180-181.
54
enforcement of the law, maintenance of the public order, and defense of the State.”217
State police power does not constitute a defense against expropriation.218
Furthermore, a State cannot remove a measure from the scope of the BIT’s expropriation
provision by invoking its general authority under domestic law to adopt regulatory
measures.219
A State’s regulatory measure must be subject to limitations. But, in any
event, the Challenged Measures were expropriatory, even if enacted in pursuit of public
health, because they were unreasonable.220
Claimants further consider that in any case the SPR and 80/80 Regulation do not fall
within the police powers doctrine on the basis that:
 The government actions were not in fact “designed and applied to achieve”
reduced tobacco consumption.221
 Even the tribunals that would recognize an implied expropriation exception for
regulatory actions would find that the exception is inapplicable where the
government’s actions conflict with specific commitments to investors.222
 In contrast with the facts in the Chemtura and Methanex cases, in this case
Respondent has not conducted a “serious, objective and scientific” assessment
of whether the Challenged Measures are justified. Moreover, the measures have
been ineffective in practice and are “not proportional to the public interest the
Respondent alleges they serve given the severe harm they inflict.”223
The Claimants’ Intellectual Property Rights are Capable
of Being Expropriated
The Claimants also reject the Respondent’s allegations that Claimants lack intellectual
property rights that could be the subject of an expropriation. First, they assert that the
Claimants’ trademarks are validly registered before Uruguay’s National Directorate of
Industrial Property (“DNPI”) and thus benefit from legal protection.
217
CR, ¶ 196 (relying on Too v. Greater Modesto Insurance Associates, AWD 460-880-2, 29 Dec. 1989, reprinted
in 23 IRAN-U.S.CL. TRIB. REP. 378 (1991) (“Too v. Greater Modesto”) (RLA-153) and Bischoff Case, GermanVenezuelan
Commission, Decision (1903), 10 U.N.R.I.A.A. 420, (“Bischoff”) (RLA-138), p. 421).
218
CM, ¶ 208 (relying on Pope & Talbot (CLA-216), ¶ 99).
219
CR, ¶¶ 201-206.
220
CR, ¶ 211.
221
CM, ¶ 211.
222
CM, ¶ 212 (relying on Revere Copper and Brass, Inc. v. Overseas Private Investment Corp., Award (24 Aug.
1978), 17 I.L.M. 1321 (CLA-217), ¶ 1331).
223
CR, ¶ 204.
55
The Claimants consider that the disputed marks maintained “the distinctive
characteristic” of the registered trademarks, and were therefore covered by the same
original registration, even if the two were not identical in all respects. For example, the
Marlboro Gold and Marlboro Light trademarks as used and as registered are covered by
the same registration, because they both “contain the word ‘Marlboro’ written in the
same distinctive typeface, the classic chevron or ‘rooftop’ symbol, and the distinctive
Philip Morris coat of arms placed above the word Marlboro,” even though the former
removes the word “light.”224
According to the Claimants, the use of descriptors such as
“light,” “mild flavour,” or “milds” are not distinctive, but instead are common in the
tobacco industry and are non-essential elements.225
Thus, their absence on the branded
packaging is without effect.226
The Claimants note the conclusions of their intellectual property experts that the marks
associated with the branded packaging Abal used for its variants, maintained the
distinctive character of the registered trademarks and, therefore, were protected as
trademarks.227
Finally, the Claimants address the Respondent’s contention that they do not own
trademark rights for Marlboro Fresh Mint because the trademark was registered on
September of 2008 and introduced to the Uruguayan market on 3 December 2008,
shortly before the SPR entered into force (on 18 February 2009), but after it was enacted
on 18 August 2008.228
In the Claimants’ view, since the MPH and the SPR do not
regulate trademark registrations, compliance or lack of compliance with MPH’s
regulations has no bearing. Moreover, even if it did, the SPR did not prohibit the
registration of variants. The SPR, the Claimants submit, governs the number of
presentations that may be used in trade, not the number of trademarks that may be
registered.229
The Claimants could have chosen at any time to trade Marlboro Fresh
Mint as its variant for the Marlboro family brand after registration.230
224
CR, ¶¶ 115-116.
225
See CR, ¶ 116; See also Second Fischer Report (CWS-024), ¶¶ 70, 74, 85, 87, 91.
226
CR, ¶¶ 117-119.
227
CR, ¶¶ 112-121, referring to Expert Reports from Fischer and Gibson.
228
CR, ¶¶ 112, 120-121, citing RCM, Chapter 9.II.B.
229
CR, ¶ 120, citing RCM, ¶ 9.63 (citing Barrios Report (REX-004), ¶ 96).
230
CR, ¶¶ 120-121, citing RCM, ¶ 9.63 (citing Barrios Report (REX-004), ¶ 108).
56
Uruguay’s Trademark Law Confers Registrants a Right to
Use and a Right to Protect
The Claimants cite the BIT, which recognises trademarks and trade names as industrial
property rights for the purposes of defining the investment, as did the Tribunal in finding
jurisdiction in this case. The Claimants explain: “[a] trademark is an asset because it
creates value by distinguishing goods in commerce. A trademark can only serve that
function if it is used.”231
Further, in connection with their Article 11 claim, the Claimants submit that they had a
right to use their trademarks in commerce under Uruguayan law for two main reasons.
First, Uruguayan trademark law, incorporating international law, protects the right to
use trademarks.232
Second, Uruguayan property law applies to intellectual property and
protects the right to use intellectual property.233
First, the Claimants rely on Article 11 of the MERCOSUR Protocol, which provides
that “[t]he registration of a trademark shall grant the owner an exclusive right of use.”234
In the Claimants’ view, the MERCOSUR Protocol has been incorporated into domestic
law and so is applicable to all owners of trademarks registered in Uruguay. Thus it is
irrelevant that that Switzerland is not a party to the MERCOSUR Protocol.235
The Claimants then refer to several provisions of the TRIPS Agreement which in their
view also recognize at least a qualified right to use a trademark in connection with goods
or services that are lawfully available for sale within a WTO Member State.236
The
Claimants further rely on Article 2 of the Montevideo Treaty which provides that
“[o]wnership of a trademark or a trade name includes the right to use it.”237
Moreover,
they refer to a decision by the Tribunal de lo Contencioso Administrativo in which the
TCA allegedly recognized that trademark holders have the right to the exclusive and
231
CR, ¶ 123.
232
CR, ¶¶ 126-133.
233
CR, ¶¶ 134-140.
234
CR, ¶ 126 (emphasis in the text), referring to Trademark Law No. 17,052, 14 Dec. 1998 (C-364), incorporating
the MERCOSUR Protocol into domestic law.
235
CR, ¶ 128; Second Fischer Opinion, (CWS-024), ¶ 7.
236
CR, ¶¶ 128-130; Expert Report of Christopher Gibson, 17 Apr. 2015 (“Gibson Report”) (CWS-023), ¶¶ 61-
79; Gervais, Analysis of the Compatibility of Certain Tobacco Product Packaging Rules with the TRIPS
Agreement and the Paris Convention (CLA-307), ¶ 33.
237
CR, ¶ 131; Law No. 2,207, 1 Oct. 1892 (C-367).
57
effective use of their trademarks.238
Finally, the Claimants evoke an alleged reference
to the “effective use of trademarks” made by Uruguay’s Legislature to the Supreme
Court in the context of the Claimants’ litigation challenging the 80/80 Regulation.239
Second, the Claimants submit that under Uruguayan law, trademark rights are a form of
property and that all property owners have the right to use their property. This is
recognized by Articles 7 and 32 of Uruguay’s Constitution referring to property as “an
inviolable right,” and to the “right to be protected in the enjoyment of ... property,”
respectively. In the Claimants’ view, in order to “enjoy” property, one must be allowed
to use that property.240
The Claimants further rely on the literal wording and interpretations of Articles 486,
487, and 491 of the Civil Code, and Article 16 of the Trademark Law.241
They submit
that, contrary to the Respondent’s assertion, trademark rights—like all other property
rights—are protected under Uruguayan law despite the fact that those rights are not
absolute; in fact, no property rights are absolute.242
Also, in Claimants’ view, the fact
that separate provisions in the Constitution and Civil Code exist for intellectual property
does not mean that intellectual property is not protected under these instruments.243
2. The Respondent’s Position
According to Uruguay, even if the Challenged Measures could be considered
expropriatory – something it denies – the effect of the SPR and the 80/80 Regulation are
not tantamount to an expropriation because the “value of the business has not been so
reduced as to effectively deprive it of its character of an investment.”244
238
The Claimants refer inter alia to a decision by the TCA allegedly recognizing that the trademark holders have
the right to the exclusive and effective use of their trademarks. See CR, ¶ 132, citing Marcelo Lopez, Alejandro
Ignacio v. The Ministry of Industry, Energy and Mining, TCA Decision 189-2012, 15 May 2012 (C-370), p. 8.
239
CR, ¶ 133; Legislature’s Answer to Abal’s Unconstitutionality Action of Law 18,256, 10 Nov. 2009 (C-46),
¶ 3.15.
240
CR, ¶¶ 134, 137-138; Constitution of the Oriental Republic of Uruguay, 31 Oct. 2004 (RLA-1 and C-30), Arts.
7 and 32; Second Fischer Opinion, (CWS-24), ¶ 5.
241
CR, ¶ 134-135, 137-140; Uruguay Civil Code (C-266), Art. 491; Fischer Opinion (CWS-12), ¶ 32; Trademark
Law (C-135), Art. 16; Second Fischer Opinion (CWS-24), ¶ 39.
242
CR, ¶ 136; Second Fischer Opinion, (CWS-24), ¶ 37.
243
CR, ¶¶ 138, 140.
244
RCM, ¶¶ 7.3, 7.29-45.
58
Uruguay points to the factual evidence showing that the Claimants’ business retains
significant commercial value.245
Referring to Abal’s market share data, the Respondent
notes that Abal retained and retains its commercial value. It also refers to the Claimants’
damages expert report, which exhibited positive cash flows in perpetuity for Abal,
notwithstanding the SPR and 80/80 Regulation.246
Uruguay stresses that Abal’s net operating income actually increased between 2005 and
2012. It highlights that in 2012, three years after the implementation of the SPR and the
80/80 Regulation, it was higher than at any point since 2004, as shown by the graph
below.247
Uruguay likewise refers to Abal’s total gross profits between 2005 and 2013. It notes
that except for 2010 (when Abal sold cigarettes below production cost for a period of
time), its total gross profit was higher every year after 2008, when the regulations were
implemented. This is depicted in the graph below:248
245
RCM, ¶¶ 7.30, 7.38-7.43; RR, ¶¶ 6.20-6.40.
246
RR, ¶ 6.34.
247
RCM, ¶ 7.40.
248
RR, ¶ 6.36.
59
Finally, Uruguay underscores that in 2012, Abal’s profits were approximately US$3.5
million.249
The Respondent also rejects the Claimants’ argument that each of its brand assets should
be considered as independently affected by the Challenged Measures.250
To the
contrary, the Respondent submits, in the context of indirect expropriation claims, that
the analysis must focus on the investment as a whole, globally, not on its discrete
parts.251
Moreover, it disagrees with the Claimants re-characterizing of the activities
that fall within the concept of “investments” under Article 1(2) in order to include brand-
assets.
Uruguay’s Sovereign Police Powers
It is Uruguay’s submission that preserving and protecting public health is a
quintessential manifestation of police power,252
which is in turn an essential element of
a State’s permanent sovereignty.253
Uruguay has the right to exercise its inherent
249
RCM, ¶ 7.39, referring to CM, ¶ 108.
250
RR, ¶¶ 6.21-6.22.
251
RR, ¶¶ 6.21-6.22; See also ¶¶ 6.24-6.25 (citing Burlington Resources, Inc. v. Republic of Ecuador, ICSID Case
No. ARB/08/5, Decision on Liability, 14 Dec. 2012, (“Burlington”) (CLA-274), ¶¶ 257, 260, 398; Feldman
(RLA-201), ¶ 109).
252
RCM, ¶ 2.9.
253
RCM, ¶ 2.6.
60
sovereign power to protect public health without incurring international responsibility
generally (either for alleged expropriation or breach of other standards of treatment).
The Respondent alleges that a bona fide, non-discriminatory exercise of a State’s
sovereign police power to protect health or welfare does not constitute an expropriation
as a matter of law.254
Nor is the State liable to pay compensation for any damages arising
from its exercise of such a power.255
The Respondent relies inter alia on Chemtura for
this proposition.256
Uruguay sees no merit on the Claimant’s assertion that the BIT does not contain a
particular carve-out or exception. For the Respondent, the police powers doctrine is a
fundamental rule of customary international law and as such, it must be applied to
interpret Article 5, in accordance with Article 31 of the Vienna Convention on the Law
of Treaties (“VCLT”).257
Moreover, Article 2(1) of the BIT explicitly recognizes the
special plane on which police power exists by allowing the contracting States to refuse
to admit investments “for reasons of public security and order, public health or
morality.”258
This power cannot be limited to the point of admission of investments but
must be considered a permanent part of the State’s regulatory authority.
Uruguay does not suggest that the police powers of the State are absolute.259
To the
contrary, they are limited to governmental action that is not discriminatory or taken in
bad faith, but is taken in exercise of “the inherent and plenary power of a sovereign to
make all laws necessary and proper to preserve the public security, order, health,
254
RCM, ¶¶ 7.11-12; RR, ¶ 6.8 (citing Renée Rose Levy de Levi v. Republic of Peru, ICSID Case No. ARB/10/17,
Award, 26 Feb. 2014 (“Levy”), (RLA-207), ¶ 475).
255
RCM, ¶¶ 2.10-18; 7.10-16, 7.21; RR, ¶¶ 6.8, 6.12. (citing inter alia the 1961 Harvard Draft Convention on
Int’l Responsibility of States for injuries to Aliens, Restatement (Third) of Foreign Relations Law of the United
States; Saluka Investments B.V. (the Netherlands) v. Czech Republic, UNCITRAL, Partial Award, 17 Mar. 2006,
(“Saluka”) (CLA-227), ¶ 262; Methanex Corporation v. United States of America, UNCITRAL, Final Award, 3
Aug. 2005, (“Methanex”) (RLA-164), Part IV, Ch. D,¶ 7; Chemtura (RLA-53), ¶ 266; Too v. Greater Modesto
(RLA-153), ¶ 26, Bischoff (RLA-138)).
256
RCM, ¶ 2.17 (citing Chemtura (RLA-53), ¶ 266).
257
RR, ¶¶ 2.3-2.9.
258
RCM, ¶ 2.9.
259
RR, ¶ 2.13.
61
morality and justice.”260
Other categories of State action, even when taken for some
public purpose, are not covered.261
The Respondent considers that the authorities on which the Claimants rely are
inapposite. In both the Norwegian Shipowners and the Santa Elena cases, the tribunals
were not called upon to determine if there was an expropriation but only the amount of
compensation due for such an expropriation. 262
Accordingly, Uruguay’s alleged interference with the Claimants’ property in the
exercise of police power does not constitute expropriation.263
The Claimants Had No Trademark Rights Capable of
Being Expropriated
The Respondent claims that it has no commitments in relation to the trademarks at issue
in these proceedings because they are not owned by the Claimants. The Respondent
goes through each of the seven variants allegedly affected by the SPR and the 80/80
Regulation: Marlboro Gold, Marlboro Blue, Marlboro Fresh Mint, Fiesta Blue, Fiesta
50 50, Philip Morris Blue and Premier.264
It concludes that in each case, they were not
the same as any of the trademarks originally registered.265
Thus, at the time the
Challenged Measures were adopted, these variants were not registered before the DNPI,
and “the necessary predicate for legal protection … under Uruguayan law” did not
exist.266
Since all of the Claimants’ brands as registered contained the prohibited
descriptors, this invalidated their trademarks. Accordingly, the Claimants have no
viable expropriation claim since they “never bothered to perfect those alleged rights.”267
The Respondent says that under Uruguayan law in order for a trademark in use to be
entitled to protection, it must cover the marks “exactly as registered” and that “[a]ny
change made to the original mark as registered, either to its name or its graphic elements,
logos, figures, colors, etc., constitutes a different unregistered trademark and as such its
260
RCM, ¶ 2.8; RR, ¶ 2.10.
261
RR, ¶ 2.10.
262
RR, ¶¶ 6.10-6.11.
263
RCM, ¶ 2.17.
264
RCM, ¶¶ 9.52-9.76.
265
RCM, ¶¶ 9.51-9.75; RR, ¶ 9.66.
266
RCM, ¶ 9.20.
267
RCM, ¶ 9.83.
62
holder will not acquire exclusive rights to the new mark nor can it claim rights to it based
on the registration of the original trademark.”268
The operative provisions of Uruguayan trademark law confirm, in the Respondent’s
view, that negative protection is limited to the mark precisely as it was registered. The
Respondent cites, inter alia,
 Article 31 of the Trademark Law, which provides that “[o]nce the registration
application is submitted, no modifications will be allowed to the representation
of the mark. All requests for modification shall be cause for a new registration.”
269
 Article 13 of the Trademark Law, providing that when registration of a mark is
granted, the holder cannot request a new registration for an identical mark for
the same classes unless it first abandons the first registration.270
 DNPI Resolution No. 21/2001, a technical Resolution, confirming that
“modifications to the sign shall be grounds for a new registration request” and
“only the modification of owners’ names and domiciles due to typographical
errors and limitation of protection shall be allowed.”271
In the Respondent’s view, the Claimants seek to get around the applicable Uruguayan
law by invoking Article 5(C)(2) of the Paris Convention. However, Article 5(C)(2) has
nothing to do with a Member State’s registration requirements. It applies only to the
question of the protection afforded in other countries to marks that have already been
registered.
In any event, the marks in dispute did not have the same “distinctive character” as the
marks the Claimants originally registered, and therefore they should have been
separately registered, even under the Claimants’ alleged misreading of the Paris
Convention. 272
Uruguay explains, inter alia, that if the variants the Claimants invoke
changed the distinctive character of the original trademark (i.e., if Marlboro Gold is
protected by the registration of Marlboro Light), then it would be unnecessary to register
any other Marlboro trademark sharing the same characteristics and it would extend to
268
RCM, ¶ 9.53, citing Barrios Report (REX-004), ¶ 96 (emphasis in the text).
269
RR, ¶ 9.68; Trademark Law (C-135), Article 31.
270
RR, ¶¶ 9.70-9.72.
271
National Directorate of Industrial Property, DNPI Resolution No. 21/2001 (14 Nov. 2001) (R-375), p. 1.
272
RR, ¶ 9.67.
63
all, not only Gold, but also to Red, Blue, Black, and Fresh Mint, so long as the central
characteristics remain the same.273
Uruguayan Law Confers Trademark Registrants only a
Right to Protect against use by others
The Respondent posits that the Claimants do not have a legally protected right amenable
to being expropriated. Like the international law on which it is based, Uruguayan
intellectual property law does not afford trademark registrants an affirmative right to use
their marks in commerce. Instead, it confers on them only the negative right to prevent
others from doing so.274
The argument is three-fold.
First, the Respondent alleges that the Claimants’ expert Professor Gustavo Fischer,
outside the context of this arbitration, specifically noted in his capacity as President of
the Uruguayan Association of Industrial Property Experts that under Uruguayan law,
the registration of a trademark “does not in any way imply an authorization or
qualification for the performance of the specific activity for which the registration is
requested. This is because the National Directorate of Industrial Property has not been
assigned such task.”275
The Respondent also notes that the Claimants failed to raise a
claim to a guaranteed right to use under Uruguayan trademark law in their challenges to
either the SPR or the 80/80 Regulation before the national courts.276
Second, the Respondent submits that the Claimants have been unable to point to any
provision in the Trademark Law or find any basis under Uruguayan law for their
proposition that a trademark confers the registrant anything other than the right to
prevent others from using it.277
In particular, the Respondent further argues that the position and practice of the DNPI
has always been that a registered trademark does not confer on its owner a right to use,
273
RR, ¶ 9.76.
274
RCM, ¶¶ 1.26, 7.47-7.52; RR, ¶¶ 6.16-6.19; RCM, ¶¶ 9.22-9.47.
275
RR, ¶ 9.23, citing Document submitted by AUDAPI to the DNPI, 15 Feb. 2012 (R-AB-57), p. 3.
276
RR, ¶¶ 9.24-9.28.
277
RR, ¶¶ 9.30, 9.32-9.33.; RCM, ¶ 9.25.
64
but rather a right to exclude third parties from using it.278
This is confirmed by the
jurisprudence.279
The Respondent submits that the Claimants are reduced to arguing that such a right can
be inferred from Property Law precisely because Uruguay’s trademark law does not
grant a “right to use.”280
The Respondent notes, inter alia, that Article 491 of Uruguay’s
Civil Code expressly establishes separate provisions for tangible property, on the one
hand, and intellectual property, on the other.281
Moreover, the special rules of trademark
law that only recognize a negative use, would trump the special rules of the Civil Code
even if the Code were in principle to govern trademark rights.282
In conclusion, the Respondent considers that the mere act of registering a trademark
cannot be used as a shield against government regulatory action that restricts the use of
such marks, or the products with which they are associated.283
Third, the Respondent submits that none of the international intellectual property
conventions cited by Claimants recognizes a right to use: 284
 As to the MERCOSUR Protocol, it only uses affirmative language to describe a
negative right.285
Its Preamble notes that it is intended to conform to the Paris
Convention and the TRIPS Agreements, neither of which create a right to use.286
In any event, the MERCOSUR Protocol only applies between State Parties that
have ratified it; that is, Uruguay and Paraguay.287
Even if were incorporated in
Uruguayan law, something that the Respondent denies, it would not constitute a
free-standing provision of universal application, but would apply along with its
limitation and conditions (i.e. as only applicable to Paraguay). The Most
Favored Nation clause of the TRIPS Agreement does not apply as the Mercosur
278
RR, ¶ 9.39, citing Witness Statement of Dr. Brenda Justo Delorenzi, 16 Sep. 2015 (RWS-008), ¶ 12; RCM,
¶¶ 9.27-9.28.
279
RCM, ¶ 9.26; RR, ¶¶ 9.37-9.38. The Respondent also asserts that the Claimants have misunderstood the nature
of the TCA’s decision to which they refer in support of their position, mainly because they omitted to present the
citation in full, which contained an explicit reference to the right to exclude. See RR, ¶¶ 9.34-9.36.
280
RR, ¶¶ 9.40-9.46; RCM, ¶¶ 9.32-9.34.
281
RR, ¶¶ 9.40-9.41.
282
RR, ¶ 9.44.
283
RR, ¶ 9.46.
284
RR, ¶ 9.48.
285
RR, 9.51-9.52, citing Expert Report of Nino Pires de Carvalho, 16 Sep. 2015 (“Carvalho Report”) (REX-
017). The Respondent also alleges that Claimants’ argument is premised on an incorrect translation, since the
original Spanish and Portuguese texts refer to the “right of exclusive use” which is not the same as the “exclusive
right to use;” (RR, ¶¶ 9.49-9.51).
286
RR, ¶ 9.52.
287
RR, ¶¶ 9.53-9.56; RCM, ¶ 9.46.
65
Contracting Parties notified the TRIPS Council that they would avail themselves
of the exception under Art. 4(d) of the TRIPS Agreement.
 As to the Paris Convention and the TRIPS Agreement, the Respondent argues
that the Claimants’ Reply does not address the Paris Convention,288
and notes
that a WTO panel has ruled that TRIPS Agreement only recognizes a negative
right not a “positive right to exploit or use.”289
 As to the Montevideo Treaty, the Respondent alleges that it applies only as
between the State Parties (Uruguay, Argentina, Bolivia, Paraguay, Peru),290
and
Article 2, which Claimants cite for their proposition, in fact refers to the “right
to use exclusively,” which does not constitute an affirmative right to use in the
sense the Claimants contend.291
According to the Respondent, since such a right does not exist, the Claimants had no
trademark right capable of being expropriated. “The essential precondition to a valid
expropriation claim—extant legal rights with which governmental regulation interferes
— is therefore absent.”292
The Claimants have kept their right to prohibit third-parties
from using their registered trademarks. Thus, there is no expropriation.
3. The Tribunal’s Analysis
It is undisputed that trademarks and goodwill associated with the use of trademarks are
protected investments under Article 1(2)(d) of the BIT.293
In order to establish whether
the Claimants’ investments have been expropriated, the Tribunal will deal in turn with
the following questions:
a. Did the Claimants own the banned trademarks?
b. Does a trademark confer a right to use or only a right to protect against use by
others?
c. Have the Challenged Measures expropriated the Claimants’ investment?
(a) Whether the Claimants Owned the Banned Trademarks
The Respondent claims that it has no commitments in relation to the trademarks at issue
in these proceedings because they are not owned by the Claimants.294
The Respondent
relies on Uruguayan Trademark Law which states that “[o]nce the application is
288
RR, ¶ 9.58. See also RCM, ¶¶ 9.38-9.41.
289
RR, ¶¶ 9.59-9.61.
290
RR, ¶ 9.62.
291
RR, ¶ 9.63.
292
RCM, ¶ 7.47
293
As held by the Dec. Jur., ¶ 194.
294
Supra, ¶ 222, indicating which are the trademarks at issue in these proceedings.
66
submitted, no modifications will be allowed to the representation of the mark.”295
A
Technical Resolution by the DNPI confirms that “modifications of the sign shall be the
basis for a new registration request.”296
The argument is that it was necessary for the Claimants to re-apply for trademarks that
had been modified, including those regarding which the 2005 Decree had prohibited the
use of certain misleading descriptors on cigarette packets, such as “lights,” “low in tar,”
“ultra-light” or “mild.”297
The Claimants argue that the Respondent is barred from challenging the ownership of
their trademarks at the merits stage since this objection should have been raised during
the jurisdictional phase, the Claimants’ trademark registrations being publicly available
long before the start of this arbitration.298
The Claimants also contend that the
Respondent is precluded from contesting their ownership of the trademarks since the
Tribunal already found in its Decision on Jurisdiction that “the Respondent has not
objected to the Claimants’ description of their investments.”299
The Tribunal notes that in asserting that the Respondent is barred from challenging only
at this stage their trademarks ownership, the Claimants do not invoke any legal ground
in support of their position. It further notes that this objection was not developed at the
Hearing. Regarding the other objection, the Claimants did not set out during the
jurisdictional phase their precise trademarks, instead simply stating in general terms that
their investment included certain trademarks.300
The Tribunal was only concerned
during that phase with establishing that there was an “investment” for the purposes of
Article 25(1) of the ICSID Convention, not with creating an inventory of that
investment. Therefore, the question remains properly before the Tribunal.
The Claimants have contended further that under Uruguay’s Trademark Law, which is
based on intellectual property conventions such as the Paris Convention, the marks they
295
RR, ¶ 9.68, citing Trademark Law (C-135), Article 31 (emphasis in the text).
296
DNPI Resolution No. 21/2001, 14 Nov. 2001 (AB-60).
297
RCM, ¶¶ 9.48-9.76; RR, ¶ 9.67.
298
CR, ¶ 108.
299
Dec. Jur., ¶ 194.
300
Claimants’ Memorial on Jurisdiction (“CMJ”), ¶ 62; RfA, ¶ 64 (noting that “ PMP has registered a number of
trademarks in Uruguay, including its Marlboro, Fiesta, L&M and Philipp Morris trademarks.”).
67
used in commerce “are not deprived of trademark protection merely because they are
not identical in all respects to Claimants’ registered trademarks.”301
As previously mentioned, following the 2005 Decree, the Claimants removed the
prohibited descriptors from their cigarette packets and renamed many of their brands to
comply with the legislation. But they did not apply for new trademarks, continuing to
use cigarette packets with substantially the same logo, colour and branding. They say
that, for instance, Marlboro Lights became Marlboro Gold with a gold package,
retaining “the same distinctive typeface, the classic chevron or ‘rooftop’ symbol and the
distinctive Philip Morris coat of arms, placed just above the word ‘Marlboro’.”302
They
make reference to Professor Barrios’ indication that “the presentation adopted by the
Marlboro Gold trademark is similar to that claimed in the trademark title corresponding
to the Marlboro Lights trademark.”303
The Claimants’ experts compared the registered trademarks with the mark in use for
each banned variant and concluded that the marks maintained the distinctive character
of the registered trademarks and were therefore protected.304
On this basis, the
Claimants argue that since “the differing elements do not alter the distinctive character
of the mark” they retained ownership over their trademarks as registered even if the
word “lights” was removed from the mark Abal used in commerce.305
They note that
the word “lights” was a generic term commonly used within the industry before it was
banned; it was not a distinctive element of the registered trademark.306
The Claimants
add that they “did not obtain a new trademark because they did not need to -- the
Marlboro Gold trademark was already protected.”307
The question of ownership of the trademarks is one to be determined under Uruguayan
law governing intellectual property since the trademarks here in issue are registered in
Uruguay and exist, if they exist at all, under Uruguayan law. The Tribunal is confronted
301
CR, ¶ 110.
302
CR, ¶ 115.
303
Ibid., citing Barrios Report (REX-004), ¶ 101.
304
CR, ¶ 113; citing their intellectual property experts, Professors Gibson and Fischer Reports.
305
CR, ¶ 116, citing Gibson Report (CWS-023), ¶ 16.
306
Ibid., citing Fischer Second OpinionOpinion (CWS-024), ¶ 74.
307
CR, ¶ 117 (emphasis in the text).
68
with the difficult task of applying Uruguayan trademark regulation in the presence of
discordant opinions of the Parties’ experts regarding its interpretation.
The Claimants’ expert, Professor Fischer, has opined that “[t]he product variants as used
in the market fall within the scope of protection of Claimants’ registered trademark
rights, because they maintain the essential distinctive features of the trademark families
and only differ slightly from the registered trademarks with respect to non-essential
elements.” 308
He has further held that “variations in secondary, non-essential elements
of trademarks neither invalidate the registration nor diminish the protection granted to
the trademarks.”309
The Respondent’s expert, Professor Barrios, has stated:
The analysis of Claimants’ Memorial seems to show that the Claimants are
attempting to base their trademark rights to some of these marks on the fact that
they form a part of a “trademark family” or that they are “derivative marks”
derived from other trademarks that are indeed registered. Unlike other legal
systems, the Uruguayan system does not provide protection for derivative
trademarks (or trademark variants) or for trademark families, and therefore a
claim based on the protection of a family of trademarks or their variants has no
legal basis in Uruguayan Trademark Law, and consequently does not enjoy
protection.310
In addition to the experts’ opinions, the Tribunal notes that, as contended by the
Respondent and attested by the DNPI website, when the Challenged Measures were
adopted there were no registered trademarks for many of the variants at issue that Abal
sold in Uruguay.311
This is not dispositive of the question whether a re-registration of
said variants would have been required, depending on the kind of changes made to the
trademarks as registered.
It has also taken note that Professor Barrios, although supporting the Respondent’s
conclusions on ownership, admitted that whether a modified brand is covered by the
trademark is not a literal exercise, since “… trademarks must be taken as a whole, and
not dismembering them into component parts for the purposes of analysis … . In other
308
Second Fischer Opinion, (CWS-024), ¶ 70.
309
Ibid.
310
Barrios Report (REX-004), ¶ 93 (footnotes omitted).
311
RCM, ¶¶ 9.57 for Marlboro Gold; 9.61 for Marlboro Blue; 9.67 for Fiesta Blue; 9.69 for Fiesta 50 50; 9.71 for
Philip Morris Blue. According to the Respondent, the trademarks at issue in these proceedings which were not
registered at the time the SPR was adopted were seven, Marlboro Fresh Mint and Premier being added to the
above trademarks (RCM, ¶ 9.83) with no evidence however of the DNPI certificate.
69
words we must bear in mind that the trademark is indivisible. It is the impression of the
whole that must be taken into account for all intents and purposes.”312
This position, taken from a decision of the TCA, accords with the views of the experts
called by the Claimants, who stated that the question is whether the trademark retains
its distinctive character. This is also the position under the Paris Convention for the
Protection of Industrial Property under which use of a mark “in a form differing in
elements which do not alter the distinctive character of the mark in the form in which it
was registered […] shall not entail invalidation of the registration and shall not diminish
the protection granted to the mark.”313
This provision, however, has to be reconciled
with Article 6(1) of the same Convention, according to which “the conditions for the
filing and registration of trademarks shall be determined in each country of the Union
by the domestic legislation.”
Even accepting that, based on Article 5(C)(2) of the Paris Convention, only a change in
the “distinctive character” of the mark would entail its invalidation also under
Uruguayan trademark law, it remains to be determined whether the changes made to
each of the Claimants’ trademarks at issue have affected their “distinctive character,” an
issue as to which the Parties’ experts diverge.
According to Dr. Carvalho, the Respondent’s expert, the question “is whether
MARLBORO GOLD is an alteration of the distinctive character (in Paris Convention
terms) or a material alteration (in US legal terms) of MARLBORO LIGHT. The answer
is yes. Both the term “light” and the gold colour have significant strength and meaning
for consumers.” He concludes that a new registration would have been required, since
the previous registration of MARLBORO Light does not encompass “such a
significantly material alteration.”314
According to Professor Fischer, the Claimants’ expert, “the Marlboro Gold variant of
the Marlboro trademark family is substantially identical to the registered Marlboro
Lights trademark (Reg. No. 335,632).” He adds that the “core distinctive elements of
312
RCM, ¶ 9.74, citing Barrios Report (REX-004), ¶ 119, which in turn cites TCA Judgment No. 354/2011, 28
Apr. 2011, resolving a dispute over possible confusing similarity between competing marks (AB-46).
313
Paris Convention (AB-04), Article 5(C)(2). It is essentially this provision that is relied upon by Professor
Gibson in his Report in support of the Claimants’ position: ¶ 5, second bullet point (CWS-023).
314
Carvalho Report (REX-017), ¶ 64.
70
the Marlboro brand family are present both in the Marlboro Gold variant and in Reg.
No. 335,632, including the characteristic chevron or ‘rooftop’ design, the coat of arms,
and the word Marlboro written in a distinctive typeface” and that “the term ‘light’ is not
distinctive. It is common in the tobacco industry and constitutes a non-essential
element.” He concludes that Marlboro Gold variant is protected by the Marlboro lights
trademark registration Reg. No. 335,632, noting that “the registration covers the mark
without claim to colors, thus providing protection for any color variant under which the
distinctive elements of the trademark may be presented.”315
This discussion deals with all of the variants at issue since the legal argument is the same
in each case. The only exception is Marlboro Fresh Mint, for which the Respondent
advances a different argument. It alleges that it was introduced to the Uruguayan market
shortly before the SPR entered into force but after it was enacted; therefore Abal knew
that this brand variant would have to be removed from the market.316
The Tribunal
believes that the Claimants must be correct when they argue that the existence of the
SPR regulation did not prevent the registration of the trademark and did not affect their
ownership.317
However, the timing of the registration of this trademark may be relevant
to damages, if any, given potential causation problems.
According to the Respondent, no claim may be raised regarding two other variants,
Premier Extra and Galaxy, which the Claimants chose to withdraw from the market in
late 2009, allegedly as a result of the 80/80 Regulation,318
since nothing would have
prevented their use in commerce.319
The Tribunal concurs.
The Tribunal has taken note that according to Dr. Carvalho, even if Article 13 of the
Trademark Law requires that any alterations to a mark be subject to new registration,
the Law “does not deny protection to alterations based on the first registration.”320
It
believes that in light of its other findings regarding the claim of expropriation, it is not
necessary to reach a definitive conclusion on the question of the Claimants’ ownership
315
Second Fischer Opinion, (CWS-024), ¶¶ 72-75 (emphasis in the text).
316
RCM, ¶ 9.62.
317
CR, ¶ 120.
318
CM, ¶¶ 98, 198.
319
RCM, ¶ 9.78.
320
Carvalho Report (REX-017), ¶ 58.
71
of the banned trademarks. It will assume, without deciding, that the trademarks
continued to be protected under the Uruguay Trademark Law.
(b) Whether a Trademark Confers a Right to Use or only a Right to Protect
Against Use by Others
The central issue over the trademarks is what rights a registered trademark accords its
owner under Uruguayan law. Abal says that it was required to withdraw seven variants
as a result of SPR and that it had to distort and truncate its trademarks in order to fit
them within the limited space available on the package under the 80/80 Regulation. It
says that under Uruguayan law, and consequently the BIT, it had a right to use those
trademarks unconstrained by such regulations.321
The key provision is Law 17,011, the Trademark Law. The Respondent says that there
is no provision in the Law creating the “right to use” as asserted by the Claimants,322
the Law granting only an “exclusionary right,” but not an absolute right to use: “once
registered, the holder of a trademark has the right to challenge the use of any trademark
that could result in confusion between goods or services for which the trademark was
registered […] and also the right to challenge the registration of identical or similar
signs.”323
The Respondent cites Article 14 of Law 17,011, which provides that “[t]he right to
oppose the use or registration of any trademark that could lead to confusion between
goods or services shall belong to the person that meets all the requirements of the present
law.”324
That is, a trademark gives to the holder an exclusive right to challenge a third
party attempting to register or use the same trademark “such that only the trademark
holder (and no one else) has the possibility to use the trademarks in commerce.”325
The
Respondent argues that Professor Barrios’ opinion has been confirmed by the TCA,
which has made clear that there is a distinction between the registration of a trademark
321
CR, ¶ 122.
322
RR, ¶ 9.30.
323
RCM, ¶ 9.24, citing Barrios Report (REX-004), ¶ 48 (emphasis in the text).
324
RCM, ¶ 9.25, citing Barrios Report (REX-004), ¶ 60.
325
Barrios Report (REX-004), ¶ 60 (emphasis in the text).
72
and the use of that trademark in commerce, ruling that the mere registration does not
give rise to a right to use the trademark.326
The Respondent relies on an exchange in 1994 between the tobacco companies and
WIPO, where WIPO states clearly its view that the registration of a trademark is a
separate question from the use of that trademark: “the Paris Convention obliges its
member States to register a mark even where the sale of the goods to which such mark
is to be applied is prohibited, limited or subject to approval by the competent authorities
of such states.”327
However, it is not clear on the face of the Paris Convention that this
is so, and it is unclear what legal weight is to be given to a statement from the WIPO
Secretariat on such a matter.
Certainly this is the rule in the case of patents, for which there is a specific provision in
the Paris Convention.328
But it seems difficult to draw the conclusion that the same rule
applies in the case of trademarks where none is provided. In fact, the text of the
Convention points in the other direction, stating, as already mentioned, that “the
conditions for the filing and registration of trademarks shall be determined in each
country of the Union by its domestic legislation.”329
The exception to this is where a
trademark is already registered in its country of origin, in which case a second country,
which is also party to the Convention, must accept the filing for trademark purposes,
subject to certain reservations.330
326
RCM, ¶ 9.26, citing TCA Decision No. 933, 11 Nov. 2010 (RLA-211), pp. 5-6.
327
RCM, ¶ 9.40, citing N. Collishaw, Tobacco Control and the Paris Convention for the Protection of Industrial
Property, TOBACCO CONTROL, Vol. 5, No. 2 (1996), p. 165 (quoting Letter from A Bogsch, Director-General
of the World Intellectual Property Organization, to H. Nakajima, Director-General of the World Health
Organization) (RLA-226).
328
Paris Convention (AB-04), Article 4 quater: “The grant of a patent shall not be refused and a patent shall not
be invalidated on the ground that the sale of the patented product or of a product obtained by means of a patented
process is subject to restrictions or limitations resulting from the domestic law.”
329
Paris Convention (AB-04), Article 6(1). See supra, ¶ 248.
330
Paris Convention (AB-04), Article 6 quinquies.
73
The Tribunal notes that there is nothing in the Paris Convention that states expressly
that a mark gives a positive right to use,331
although it is clear that a trademark can be
cancelled where it has not been used for a reasonable period.332
The Claimants rely on Article 20 of the TRIPS Agreement which seems to imply “a
right to use” a trademark by prohibiting WTO Member States from unjustifiably
imposing “special requirements” on trademarks used in the course of trade. They rely
on Professor Gibson’s Opinion holding that “if there is no right or legitimate interest in
use, there is no need… for Article 20.”333
However, to imply a right to use from a provision that prohibits WTO Member States
to encumber the use of trademarks would elevate to a “right to use” a provision that does
no more than simply acknowledging that trademarks have some form of use in the
course of trade which should not be “unjustifiably” encumbered by special
requirements. In any case, nowhere does the TRIPS Agreement, assuming its
applicability, provide for a right to use. Its Article 16, dealing with “Rights Conferred,”
provides only for the exclusive right of the owner of a registered trademark to prevent
third parties from using the same mark in the course of trade.334
The Claimants rely also on Article 11 of the MERCOSUR Protocol, which provides:
“[t]he registration of a trademark shall grant the owner an exclusive right of use, and the
right to prevent any person from performing, without the [trademark owner’s] consent,
the following acts…”335
They say that this shows that there are two separate rights
granted by a trademark, an exclusive right of use and a right of prevention.
However, as the Respondent has pointed out, the better interpretation is that the
exclusive right to use is simply the other side of the coin of the “right to prevent any
person from performing,” and does not thereby mean that a trademark gives rise to an
331
See also the conclusions in this respect of M Davison, “The legitimacy of plain packaging under international
intellectual property law: why there is no right to use a trademark under either the Paris Convention or the TRIPS
Agreement,” in Tania Voon et al (eds.) Public Health and Plain Packaging of Cigarettes: Legal Issues (2012), p.
82; cited in RCM, ¶ 9.41.
332
Paris Convention, Article 4(1).
333
CR, ¶ 130; citing Gibson Report, (CWS-023), ¶ 76.
334
TRIPS Agreement (AB-52), Article 16(1). Switzerland is not a party to this Agreement, which makes its
applicability to the present dispute questionable.
335
CR, ¶ 126 (emphasis in the text).
74
absolute right of use.336
This is confirmed by the Spanish original of Article 11 which
refers to “the right of exclusive use” (“el derecho de uso exclusivo”).337
Based on the
clear language of the Spanish text, the Tribunal considers it unnecessary to deal with the
further arguments raised between the Parties regarding the effects of the incorporation
of the MERCOSUR Protocol into Uruguayan domestic law, and in particular whether
benefits granted by the Protocol should extend to trademark holders of third countries
by virtue of the MFN provision of Article 4 of the TRIPS Agreement.
In their Reply, the Claimants made reference for the first time to the Montevideo
Treaty.338
Whatever its import in the present dispute, it is clear from its definition of
“use” in Article 1 as being “right to use exclusively” (“el derecho de usar
exclusivamente”) that it also intends to establish only an exclusive right of use, not an
absolute right.339
The Claimants also argue that a trademark is a property right under Uruguayan law
which thus accords a right to use. Again, nothing in their argument supports the
conclusion that a trademark grants an inalienable right to use the mark. As the
Respondent rightly points out, the scope of the property right is determined by
Uruguayan IP laws, such that, in order to work out the legal scope of the property right,
it is necessary to refer back to the sui generis industrial property regime in Uruguay.340
Professor Fischer, one of the Claimants’ experts, confirms in a paper prepared not for
the purposes of this dispute that a trademark confers on its owner only “the right to
prevent others from using a trademark or trademarks that may be confused with their
own.”341
In the Tribunal’s view, both Parties have focused on a dichotomy between a right to use
and a right to protect. However, it may be more fruitful to view the case as a question
of an absolute versus exclusive right to use. Ownership of a trademark does, in certain
circumstances, grant a right to use it. It is a right of use that exists vis-à-vis other persons,
336
RCM, ¶ 9.46, n. 971.
337
RR, ¶ 9.50.
338
CR, ¶ 131.
339
RR, ¶ 9.63.
340
RCM, ¶ 9.33; referring to Uruguay Civil Code, Article 491.
341
Fischer Report on Trademarks with the Term “University/Bank,” 15 Feb. 2012, (AB-57), p. 3.
75
an exclusive right, but a relative one. It is not an absolute right to use that can be asserted
against the State qua regulator.
As explained by Professor Barrios with reference to Professor Bugallo’s work on
Intellectual Property, it is the “right to exclude third parties from the market (called the
negative facet) [that] renders the exclusive use of the registered trademark in the
marketplace possible.”342
Nothing in any of the legal sources cited by the Claimants
supports the conclusion that a trademark amounts to an absolute, inalienable right to use
that is somehow protected or guaranteed against any regulation that might limit or
restrict its use. Moreover, as the Respondent has pointed out, this is not the first time
that the tobacco industry has been regulated in such a way as to impinge on the use of
trademarks.343
Most countries, including Uruguay, place restrictions on the use of trademarks, for
example in advertising. Particularly in an industry like tobacco, but also more generally,
there must be a reasonable expectation of regulation such that no absolute right to use
the trademarks can exist. Otherwise “the mere fact of registering a trademark would
guarantee the sale of any trademarked product, without regard to other
considerations.”344
If a food additive is, subsequent to the grant of a trademark, shown
to cause cancer, it must be possible for the government to legislate so as to prevent or
control its sale notwithstanding the trademark. The Respondent relies on another
publication of the Claimants’ expert, Professor Fischer, to this effect, where he noted
that registering a trademark “does not in any way imply an authorization or qualification
for the performance of the specific activity for which the registration is requested.”345
The objection might be to regulations that target and modify or ban use of their
trademarks as such without otherwise changing the conditions of sale, whereas in the
342
RR, ¶ 9.35, citing Second Legal Opinion of Professor Andrea Barrios Kubler, 19 Sept. 2015 (“Barrios Second
Opinion”) (REX-016), ¶ 35. Professor Barrios further notes that the TCA decision relied upon by the Claimants
(supra, ¶ 207) makes explicit reference to the right to exclude (ius prohibendi) conferred by Article 14 of Law
No. 17.011 but does not make any reference, directly or indirectly, to the existence of an affirmative “right to use”
a trademark: RR, ¶ 9.36, citing Barrios Second Opinion (REX-016), ¶ 36.
343
RR, ¶ 9.25. However, the reference by the Respondent to the 2005 Ordinance banning certain descriptors is a
problematic example, since the Claimants allege that such descriptors were not distinctive aspects of their
trademarks, being terms commonly used in the marketplace. Thus, the Claimants’ response would be that they
did not challenge the 2005 Ordinance because they did not understand it to impinge on their ability to use their
trademark. See RfA, ¶ 22, noting that they have never sought to challenge this Ordinance.
344
RR, ¶ 9.28.
345
Ibid.
76
example of the harmful food additive, sale of the product is prohibited entirely. But
there may be products (of which tobacco is currently one) whose presentation to the
market needs to be stringently controlled without being prohibited entirely, and whether
this is so must be a matter for governmental decision in each case. There is nothing in
the relevant legal materials to support a carve-out of trademarks from the legitimate
realms of regulation. Uruguayan trademark law (like trademark law in other countries
following the Paris Convention system) provides no such guarantee against regulation
that impinges on the use of trademarks.
The Tribunal concludes that under Uruguayan law or international conventions to which
Uruguay is a party the trademark holder does not enjoy an absolute right of use, free of
regulation, but only an exclusive right to exclude third parties from the market so that
only the trademark holder has the possibility to use the trademark in commerce, subject
to the State’s regulatory power.346
(c) Whether the Challenged Measures Have Expropriated the Claimants’
Investment
The Respondent has asserted that the Claimants had no rights capable of being
expropriated since “Uruguayan trademark law does not recognize an affirmative right
for registrants to use their trademark in commerce”.347
The Tribunal does not share the
Respondent’s position. Absence of a right to use does not mean that trademark rights
are not property rights under Uruguayan law, as contended by the Claimants and as
recognized by one of the Respondent’s experts, Professor Carvalho,348
according to
whom “the fact that trademarks are protected as private property does not mean that they
346
Professor Fischer, confirms that regulatory authorities impose restrictions on the use of a trademark, holding
that “[u]ltimately, as normally occurs, the owner of a trademark registration who seeks to carry out a particular
activity under said trademark in the Republic must carry out the activity in compliance with the rules and
regulations applicable to such activity, which will be regulated and controlled by the agency to which jurisdiction
has been legally assigned, depending on the case (for example, the Ministry of Education and Culture, the Ministry
of Public Health, the Central Bank of Uruguay, the respective City Council, etc.)”: Report on Trademarks with
the Term “University/Bank,” 15 Feb. 2012, (AB-57), pp. 3-4. The Tribunal does not deem necessary to deal
specifically with the question whether the trademark owner has a legitimate interest in using its registered and
protected trademarks, as mentioned by Prof. Gibson, one of the Claimants’ experts (Gibson Report (CWS-023),
¶¶ 71-73), considering that this question related to a specific provision of the TRIPS Agreement making reference
to “legitimate interest” (Art. 17).
347
RCM, ¶ 7.49 (emphasis in the text).
348
Carvalho Report (REX-017), ¶ 7: “Intellectual property is private property, indeed. The TRIPS Agreement
does not define it as such, but it recognizes it as ‘private rights’. Case law and statutes of a vast number of countries
have established that those rights are of a proprietary nature. It follows that the first part of PMI’s argument is
correct, trademark rights are rights of property.”
77
convey the right to use.”349
Professor Barrios, another expert for the Respondent,
disagrees holding that “[i]ntellectual property is a sui generis regime, that is not
assimilable to the right of ownership or property,” the ownership or property rights and
their limitations under the Constitution and the Civil Code being not attributable to
trademark owners.350
Trademarks being property, their use by the registered owner is protected. As
intellectual property assets, trademarks are “inherently associated with trade for they
imply a situation of intermediation between producers and consumers.”351
It must be
assumed that trademarks have been registered to be put to use, even if a trademark
registration may sometime only serve the purpose of excluding third parties from its
use.352
As a matter of fact, Abal made use of all of its thirteen trademark variants before SPR
effectively banned seven of them,353
and the 80/80 Regulation limited “the space
available for Claimants to display the visual elements of their remaining brands to only
20% of the front and back of the package.”354
As to the Respondent’s allegation
regarding the Claimants’ lack of valid title to the banned trademarks, the Tribunal refers
to its ruling in that regard.355
The Tribunal concludes that the Claimants had property
rights regarding their trademarks capable of being expropriated. It must now examine
whether the Challenged Measures had an expropriatory character with regard to the
Claimants’ investment.
Regarding the 80/80 Regulation, the Claimants argue that it reduced the brand equity of
those products that survived the implementation of the SPR, “depriving Abal of its
ability to charge a premium price.”356
349
Carvalho Report (REX-017), ¶ 9.
350
Barrios Report (REX-004), ¶ 11.
351
Carvalho Report (REX-017), ¶ 20.
352
Trademark Law, Article 19: “The use of a trademark shall be optional”. However, under the Uruguayan
Trademark Law the registration of the trademark terminates upon expiration of the term provided by Article 18
(ten years), save in case of renewal. Likewise under the Paris Convention (AB-04) (supra, ¶ 260).
353
CM, ¶ 192.
354
Ibid., ¶ 196.
355
Supra, ¶ 254.
356
CM, ¶ 104.
78
In the Tribunal’s view there is not even a prima facie case of indirect expropriation by
the 80/80 Regulation. The Marlboro brand and other distinctive elements continued to
appear on cigarette packs in Uruguay, recognizable as such. A limitation to 20% of the
space available to such purpose could not have a substantial effect on the Claimants’
business since it consisted only in a limitation imposed by the law on the modalities of
use of the relevant trademarks. The claim that the 80/80 Regulation breached Article 5
of the BIT consequently fails.
Regarding the SPR, at the time of its imposition in 2009, the Claimants manufactured
and sold thirteen variants within its six brand families, as follows:357
- Marlboro (a family comprised of Marlboro Red, Marlboro Gold, Marlboro Blue,
and Marlboro Fresh Mint);
- Fiesta (a family comprised of Fiesta, Fiesta Blue, and Fiesta 50 50);
- Philip Morris (a family comprised of Philip Morris and Philip Morris Blue);
- Premier (a family comprised of Premier and Premier Extra);
- Galaxy (which was comprised of only one product, Galaxy); and
- Casino (which was comprised of only one product, Casino).
Before the SPR, Abal owned the trademarks associated with Premier and Casino and
was licensee of the trademarks for all other products from PMP and PMB, which owned
them, as shown by the list of the relevant Uruguayan trademarks, including their
registration numbers, owners and licensees, provided by the Claimants.358
In the
Claimants’ view, each of such “brand assets”359
is an investment protected by the BIT.360
They contend that variants were vital to their business in Uruguay given the ability to
utilize them to compete for market share and pricing power in the Uruguayan market361
and the difficulty and costs to introduce new brands in such a highly regulated market.362
According to the Claimants, the SPR banned seven of the thirteen variants manufactured
and sold by Abal at the time, thus rendering them and the associated goodwill
“valueless”: these were Marlboro Gold, Marlboro Blue, Marlboro Fresh Mint, Fiesta
357
CM, ¶ 75 (emphasis in the text).
358
Ibid., ¶ 85.
359
The Claimants define “brand assets” as including (a) Claimants brand and brand families; (b) brand variants
and (c) the intellectual property rights associated with Claimants’ brand, brand families and variants: CM, ¶ 62.
360
CR, ¶ 179.
361
CM, ¶ 192.
362
Ibid., ¶¶ 81-82.
79
Blue, Fiesta 50 50, Philip Morris Blue and Premier.363
They add that “[b]y destroying
the value of those investments without compensation, Respondent violated Article 5 of
the BIT.”364
They reply to the Respondent’s argument that the damage caused by the
Challenged Measures on Claimants’ business has not been so severe “as to render their
activities so marginal or unprofitable as effectively to deprive them of their character as
investment”365
by pointing to the fact that “each brand asset is an individual investment
in its own right, and each has been expropriated.”366
The question whether indirect expropriation may relate to identifiable distinct assets
comprising the investment or, rather, is to be determined considering the investment as
a whole is disputed, with a number of investment treaty cases supporting one367
or the
other368
position. The Tribunal is of the view that the answer largely depends on the
facts of the individual case.
The starting consideration in the present case is the value that each brand asset had in
the context of Abal’s overall business. Abal produced and sold cigarettes in the
Uruguayan market using different trademarks, each of which was associated by
consumers with specific quality cigarettes. Marlboro brand was associated with the
highest quality being sold which, before the SPR, was sold at a premium over Mailhos’
highest priced cigarettes, accounting for more than 45% of Abal’s profits in the Uruguay
market.369
Marlboro Gold alone accounted for over 10% of Abal’s sales in Uruguay.370
Based on these assumptions, the Claimants’ accounting experts have separately
calculated for each variant the loss resulting from its elimination by the SPR.371
363
Ibid., ¶ 193. See supra, ¶ 222.
364
Ibid., ¶ 194.
365
RCM, ¶ 7.38.
366
CR, ¶ 180.
367
In favor of the separate consideration of individual assets comprising the investment are all cases relied upon
by the Claimants: CR, ¶¶ 181-185 and footnotes 296-303. See RR, ¶¶ 6.26-6.31 for critical remarks regarding
cases relied upon by the Claimants.
368
In favor of the need to consider the investment “as a whole” are the cases relied upon by the Respondent: RR,
¶ 6.23 and footnotes 476-478.
369
CM, ¶ 105.
370
CM, ¶ 193.
371
First Navigant Report (CWS-013), ¶ 183; Second Expert Report of Brent C. Kaczmarek and Kiran P. Sequiera,
17 Apr. 2015 (“Second Navigant Report”) (CWS-017), ¶ 206.
80
Whether the above specificities of Abal’s business are decisive to conclude that each of
the Claimants’ trademarks was an individual investment and that, accordingly, seven of
them were indirectly expropriated as a result of the SPR remains to be seen. The
Respondent gives in that regard the example of an investor owning 13 buildings, arguing
that if just one of them were directly taken this would constitute an expropriation but
that the case would be different if “a generally applicable regulation prohibits the use of
seven of the same buildings due to high levels of asbestos.” In the latter case, the
Respondent adds, whether such “regulation constitutes an indirect expropriation has to
be assessed by reference to its effect on the value of the investor’s investment as a
whole.”372
Since “Claimants continue to reap significant returns on their investment in
Uruguay,” there was no expropriation as a result of the SPR and 80/80 Regulation.373
The Tribunal believes that in order to determine whether the SPR had an expropriatory
character in this case, Abal’s business is to be considered as a whole since the measure
affected its activities in their entirety. This is confirmed by the fact that in order to
mitigate its effects, Abal resorted to countermeasures involving its business as a whole.
Prices were increased initially and then, when its products lost market share, they were
lowered in December of 2009, with Abal suffering losses vis-à-vis its competitor
Mailhos across its entire portfolio. Prices were then increased again beginning February
2011 with resulting market share decline “across its portfolio.”374
In any case, the effects of the SPR were far from depriving Abal of the value of its
business or even causing a “substantial deprivation” of the value, use or enjoyment of
the Claimants’ investments, according to the standard that has been adopted for a
measure to be considered expropriatory.375
The Claimants admit not to have suffered
such substantial deprivation when mentioning that “while Abal has grown more
profitable since 2011, Abal would have been even more profitable if Respondent had
not adopted the challenged measures.”376
372
RR, ¶ 6.32 (emphasis in the text).
373
Ibid., ¶ 6.37.
374
CM, ¶¶ 106-108; CR, ¶¶ 348-351.
375
Supra, ¶ 192.
376
CR, ¶ 342 (emphasis in the text).
81
As indicated by the Claimants’ accounting expert, Navigant, their investment shows
positive cash flows in perpetuity, as evidenced by Abal’s payment of royalties to PMP
every year between 2009 and 2013, and having paid more than it did in 2008 or any
prior year (before the measures) and by Abal’s gross profit which, except in 2010, was
greater between 2009 and 2013 that it was before 2008.377
According to Navigant,
“Abal would have been economically better off, But-For the Regulations. While Abal
is currently profitable because of the cost reductions realized from the factory closure,
it could have been significantly more profitable in a scenario where the Regulations had
not been introduced.”378
In the Tribunal’s view, in respect of a claim based on indirect expropriation, as long as
sufficient value remains after the Challenged Measures are implemented, there is no
expropriation. As confirmed by investment treaty decisions, a partial loss of the profits
that the investment would have yielded absent the measure does not confer an
expropriatory character on the measure. In LG&E v. Argentina, for example, the
tribunal held:
Interference with the investment’s ability to carry on its business is not satisfied
where the investment continues to operate, even if profits are diminished. The
impact must be substantial in order that compensation may be claimed for
expropriation.379
The Tribunal’s analysis might end here, leading to the dismissal of the Claimants’ claim
of expropriation for the above reasons. There is however an additional reason in support
of the same conclusion that should also be addressed in view of the Parties’ extensive
debate in that regard. In the Tribunal’s view, the adoption of the Challenged Measures
by Uruguay was a valid exercise of the State’s police powers, with the consequence of
defeating the claim for expropriation under Article 5(1) of the BIT.
In its Decision on Jurisdiction, the Tribunal noted that the BIT “does not prevent
Uruguay, in the exercise of its sovereign powers, from regulating harmful products in
377
Respondent’s Opening Presentation at the Hearing, tab. 4 slides 16-17.
378
Second Navigant Report (CWS- 017), ¶ 52 (emphasis in the text). The factory closure mentioned by Navigant
was the Claimants’ factory in Montevideo which was shut down in October 2011. According to Navigant, “this
factory closure was a business restructuring that would have been implemented regardless of the Regulations”:
Ibid.
379
LG&E (RLA-65), ¶ 191. The Respondent relies also on Archer Daniels, CMS, and Encana; See RCM, ¶¶ 7.33-
7.37.
82
order to protect public health after investments in the field have been admitted.”380
At
that stage, no conclusion had been drawn from the exercise of such powers regarding
the present dispute.
It is the Claimants’ contention that Article 5(1) of the BIT prohibits any expropriation
unless it is carried out in accordance with the conditions established by said Article and
that the existence of a public purpose, one of such conditions, does not exempt the State
from the obligation to pay compensation.381
In the Claimants’ view, the State’s exercise
of police powers does not constitute a defense against expropriation, or exclude the
requirement of compensation.382
The Claimants add that there is no room under Article
5(1) or otherwise in the BIT for carving out an exemption based on the police powers
of the State.383
The Tribunal disagrees. As pointed out by the Respondent, Article 5(1) of the BIT must
be interpreted in accordance with Article 31(3)(c) of the VCLT requiring that treaty
provisions be interpreted in the light of “[a]ny relevant rules of international law
applicable to the relations between the parties,” a reference “which includes …
customary international law.”384
This directs the Tribunal to refer to the rules of
customary international law as they have evolved.385
Protecting public health has since long been recognized as an essential manifestation of
the State’s police power, as indicated also by Article 2(1) of the BIT which permits
contracting States to refuse to admit investments “for reasons of public security and
order, public health and morality.”
380
Dec. Jur., ¶ 174.
381
CM, ¶ 205.
382
CM, ¶ 208 (citing Pope & Talbot).
383
CM, ¶ 210.
384
RCM, ¶ 7.23, citing the ICJ’s Judgment of 26 June 1986 in Nicaragua v. United States holding that customary
international law does not require incorporation into a treaty to be applicable.
385
As held by the tribunal in Mondev v International Ltd. v. United States of America, Award, 11 Oct. 2002,
(“Mondev”) (RLA-117); a NAFTA case, “like all customary international law, the international minimum
standard has evolved and can evolve…” (¶ 124). According to Chemtura, another NAFTA case, “in line with
Mondev, the tribunal will take account of the evolution of international customary law in ascertaining the content
of the international minimum standard” (¶ 122).
83
The police powers doctrine was propounded much earlier than its recognition by
investment treaty decisions. The 1961 Harvard Draft Convention on the International
Responsibility of States for Injury to Aliens already provided in Article 10(5) as follows:
An uncompensated taking of property of an alien or a deprivation of the use or
enjoyment of property of an alien which results from … the action of the
competent authorities of the State in the maintenance of public order, health, or
morality … shall not be considered wrongful, provided
(a) it is not a clear and discriminatory violation of the law of the State
concerned;
(b) it is not the result of a violation of any provision of Article 6 to 8 of this
Convention [denial of justice];
(c) it is not an unreasonable departure from the principles of justice recognized
by the principal legal systems of the world; and
(d) it is not an abuse of the powers specified in this paragraph for the purpose
of depriving an alien of his property.386
The doctrine was endorsed in the Third Restatement of the Foreign Relations Law of the
United States of 1987 in the following terms:
A State is not responsible for loss of property or for other economic
disadvantage resulting from bona fide general taxation, regulation, forfeiture
for crime, or other action of the kind that is commonly accepted as within the
police powers of states, if it is not discriminatory.387
According to the OECD, “[i]t is an accepted principle of customary international law
that where economic injury results from a bona fide non-discriminatory regulation
within the police power of the State, compensation is not required.”388
The principle that the State’s reasonable bona fide exercise of police powers in such
matters as the maintenance of public order, health or morality, excludes compensation
even when it causes economic damage to an investor and that the measures taken for
that purpose should not be considered as expropriatory did not find immediate
recognition in investment treaty decisions. But a consistent trend in favor of
386
Draft Convention on the International Responsibility of States for Injuries to Aliens, (1961) 55 Am. J. Int’l
548, p. 562.
387
American Law Institute, Restatement (Third) Foreign Relations of the United States (1987), vol. 1, (RLA-257),
¶ 712, comment (g).
388
OECD, “Indirect Expropriation” and the “Right to Regulate” in International Investment Law, OECD
Working Papers on International Investment, 2004/4 (Sept. 2004), (RLA-238), p. 5, n. 10.
84
differentiating the exercise of police powers from indirect expropriation emerged after
2000. During this latter period, a range of investment decisions have contributed to
develop the scope, content and conditions of the State’s police powers doctrine,
anchoring it in international law. According to a principle recognized by these
decisions, whether a measure may be characterized as expropriatory depends on the
nature and purpose of the State’s action.389
Some decisions have relied on the
jurisprudence of the European Court of Human Rights, based on Article 1 of Protocol 1
of the Convention.390
In Tecmed v. Mexico the tribunal stated:
The principle that the State’s exercise of its sovereign power within the
framework of its police power may cause economic damage to those subject to
its powers as administrator without entitling them to any compensation
whatsoever is undisputable.391
In Saluka v. Czech Republic, the tribunal recorded the scope, conditions and effects of
the police powers doctrine, stating:
It 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 to the general welfare.
The tribunal added:
[T]he principle that the State adopts general regulations that are ‘commonly
accepted as within the police power of States’ forms part of customary
international law today.392
The police powers doctrine has been applied in several cases to reject claims challenging
regulatory measures designed specifically to protect public health. As early as 1903,
the Claims Commission in the Bischoff Case, in dismissing a claim for damages, held:
“[c]ertainly during an epidemic of an infectious disease there can be no liability for the
389
Tecmed (CLA-203), ¶ 122; Methanex (RLA-164), Part IV, Ch. D, ¶ 7; Chemtura (RLA-53), ¶ 247; Glamis
(RLA-183), ¶ 356; Saluka (CLA-227), ¶¶ 255-264.
390
Tecmed (CLA-203), ¶ 122; Azurix Corp. v. The Argentine Republic, ICSID Case No. ARB/01/2, Award, 14
July 2006, (CLA-296), ¶ 311; EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award, 8 Oct.
2009 (“EDF”), (CLA-224), ¶ 293.
391
Tecmed (CLA-203), ¶ 119.
392
Saluka (CLA-227), ¶¶ 255, 260, 262. Reference to customary international law as the legal ground for the
police powers doctrine had been made by the OECD Working Paper of 2004 (supra, ¶ 294).
85
reasonable exercise of police powers.”393
In Methanex v. United States, the claimant
had contended that its rights had been expropriated by measures adopted by the U.S.
state of California banning MTBE, a fuel additive harmful to public health. In rejecting
the claim, the tribunal stated:
[A]s a matter of general international law, a non-discriminatory regulation for
a public purpose, which is enacted in accordance with due process and, which
affects, inter alios, a foreign investor or investment is not deemed
expropriatory….394
In Chemtura v. Canada, a U.S. manufacturer of lindane, an agricultural insecticide said
to be harmful to human health and the environment, claimed a breach of the NAFTA by
Canada’s prohibition of its sale. The tribunal rejected the claim, stating:
Irrespective of the existence of a contractual deprivation, the Tribunal considers
in any event that the measures challenged by the Claimant constituted a valid
exercise of the Respondent's police powers. As discussed in detail in connection
with Article 1105 of NAFTA, the PMRA took measures within its mandate, in a
non-discriminatory manner, motivated by the increasing awareness of the
dangers presented by lindane for human health and the environment. A measure
adopted under such circumstances is a valid exercise of the State's police powers
and, as a result, does not constitute an expropriation.395
As evidence of the evolution of the principles in the field, the police powers doctrine
has found confirmation in recent trade and investment treaties. The 2004 and 2012 U.S.
Model BITs provide in the section dealing with “Expropriation”: “Except in rare
circumstances, non-discriminatory regulatory actions by a Party that are designed and
applied to protect legitimate public welfare objectives, such as public health, safety, and
the environment, do not constitute indirect expropriation.” Similar provision is made
by the 2004 and 2012 Canada Model BITs. The EU-Canada Comprehensive Economic
and Trade Agreement contains a similar provision:
For greater certainty, except in the rare circumstance when the impact of a
measure or series of measures is so severe in light of its purpose that it appears
manifestly excessive, non-discriminatory measures of a Party that are designed
and applied to protect legitimate public welfare objective, such as health, safety
and the environment, do not constitute indirect expropriations.396
393
Bischoff (RLA-138).
394
Methanex (RLA-164), Part IV, Ch D, ¶ 7.
395
Chemtura (RLA-053), ¶ 266.
396
Comprehensive Economic and Trade Agreement between the European Union and Canada (“CETA”) Annex
8-A, Expropriation, Article 3. On 29 Feb. 2016, the EU Commissioner for Trade Cecilia Malmstrőm and the
Honourable Crystia Freeland, Minister of International Trade of Canada, announced in a joint statement that “the
86
The same provision is now to be found in the EU-Singapore FTA.397
In the Tribunal’s view, these provisions, whether or not introduced ex abundanti
cautela, reflect the position under general international law.
It should be stressed that the SPR and the 80/80 Regulation have been adopted in
fulfilment of Uruguay’s national and international legal obligations for the protection of
public health. Article 44 of the Uruguayan Constitution398
states: “The State shall
legislate in all matters appertaining to public health and hygiene, to secure the physical,
moral and well-being of all the inhabitants of the country.” As held by Professor
Barrios, one of the Respondent’s experts, “it is in this framework of the essential duty
to protect public health that the State has the authority to prevent, limit or condition the
commercialization of a product or service, and this will consequently prevent, limit or
condition the use of the trademark that identifies it.”399
Article 7 states the principle of
protection pursuant to which “[t]he inhabitants of the Republic have the right to be
protected in the enjoyment of their life” and Article 46 directs the State to “combat social
vices by means of the law and International Convention.”
The 1934 Organic Law400
provides in Article 2(1) that the MPH must adopt “all
measures deemed necessary to maintain collective health…” and in Article 23 that it
must also take “preventive action in regards to… social vices… that decrease the
capacity of individuals or threaten health.”
Law 18,256 on Tobacco Control401
directs the MPH in Article 1-2 to protect the
country’s inhabitants against the health, social, environmental and economic
consequences of tobacco use and exposure to tobacco smoke. Articles 8 and 9 of the
Law set forth rules in fulfillment of the obligations undertaken by Uruguay under
Articles 11 and 13 of the FCTC.402
It is based on these obligations that the SPR and the
80/80 Regulation have been adopted. The FCTC is one of the international conventions
English text of the Agreement has been completed “and that they “are confident that CETA will be signed in 2016
and entered into force in 2017” (Press Release: http://trade.ec.europa.eu/doclib/press/index.cfm?id=1468).
397
European Union-Singapore Free Trade Agreement, initialed on 17 Oct. 2014, Annex 9-A, “Expropriation,”
http://trade.ec.europa.eu/doclib/press/index.cfm?id=961.
398
Constitution of the Oriental Republic of Uruguay (2004) (RLA-1bis); supra, ¶ 97.
399
Barrios Report (REX-004), ¶ 66.
400
Uruguayan Organic Law of Public Health No. 9,202 (20 Dec. 1934) (RLA-8).
401
Supra, ¶ 105.
402
Supra, ¶ 88.
87
to which Uruguay is a party guaranteeing the human rights to health; it is of particular
relevance in the present case, being specifically concerned to regulate tobacco
control.403
As indicated by earlier investment treaty decisions, in order for a State’s action in
exercise of regulatory powers not to constitute indirect expropriation, the action has to
comply with certain conditions. Among those most commonly mentioned are that the
action must be taken bona fide for the purpose of protecting the public welfare, must be
non-discriminatory and proportionate.404
In the Tribunal’s view, the SPR and the 80/80
Regulation satisfy these conditions.
The Challenged Measures were taken by Uruguay with a view to protect public health
in fulfilment of its national and international obligations. For reasons which will be
explored in detail in relation to claims under Article 3(2) of the BIT, in the Tribunal’s
view the Challenged Measures were both adopted in good faith and were nondiscriminatory.
They were proportionate to the objective they meant to achieve, quite
apart from their limited adverse impact on Abal’s business.405
Contrary to the
Claimants’ contention,406
the Challenged Measures were not “arbitrary and
unnecessary” but rather were potentially “effective means to protecting public health,”
a conclusion endorsed also by the WHO/PAHO submissions.407
It is true that it is
difficult and may be impossible to demonstrate the individual impact of measures such
as the SPR and the 80/80 Regulation in isolation. Motivational research in relation to
403
Among international conventions to which Uruguay is a party is the European Convention for the Protection
of Human Rights, whose Article 1, Protocol 1, is another source of decisions regarding the police powers doctrine
(supra, ¶ 295).
404
In Tecmed in order to determine if regulatory actions are to be characterized as expropriation, the tribunal
considered “whether such actions or measures are proportional to the public interest presumably protected thereby
and to the protection legally granted to investments, taking into account that the significance of such impact has
a key role upon deciding the proportionality” (¶ 122) (CLA-203).
405
In other investment treaty cases, the exercise of the State’s regulatory powers in the field of protection of public
health determined the banning of the production and sale of the subject product: in Methanex (RLA-164) for
MTBE (supra, ¶ 298) and in the Chemtura (RLA-53) for lindane (supra, ¶ 299). No similar situation occurred in
the present case: the Challenged Measures only limited the use of Abal’s trademarks for the protection of public
health, far from banning the production and sale of tobacco altogether.
406
CM, ¶¶ 48-53.
407
WHO Amicus Brief, ¶ 90: “These bodies of evidence, which are consistent with state practice, support the
conclusion that the Uruguayan measures in question are effective means of protecting public health.” PAHO
Amicus Brief, ¶ 100: “Uruguay’s tobacco control measures are a reasonable and responsible response to the
deceptive advertising, marketing and promotion strategies employed by the tobacco industry, they are evidence
based, and they have proven effective in reducing tobacco consumption. For this simple reason, the tobacco
industry is compelled to challenge them”.
88
tobacco consumption is difficult to carry out (as recognized by the expert witnesses on
both sides). Moreover, the Challenged Measures were introduced as part of a larger
scheme of tobacco control, the different components of which it is difficult to
disentangle. But the fact remains that the incidence of smoking in Uruguay has declined,
notably among young smokers,408
and that these were public health measures which
were directed to this end and were capable of contributing to its achievement. In the
Tribunal’s view, that is sufficient for the purposes of defeating a claim under Article
5(1) of the BIT.
In light of the foregoing, the Tribunal concludes that the Challenged Measures were a
valid exercise by Uruguay of its police powers for the protection of public health. As
such, they cannot constitute an expropriation of the Claimants’ investment. For this
reason also, the Claimants’ claim regarding the expropriation of their investment must
be rejected.
Denial of Fair and Equitable Treatment under Article 3(2) of the Treaty
Article 3(2) under the rubric “Protection and Treatment of Investments” provides,
insofar as relevant:
Each Contracting Party shall ensure fair and equitable treatment within its
territory of the investments of the investors of the other Contracting Party.
The Claimants allege that by enacting the Challenged Measures, the Respondent has
subjected their investments to unfair and inequitable treatment in violation of Article
3(2) of the BIT for the following reasons: (i) the regulations are arbitrary because they
“fail to serve a public purpose and yet at the same time they cause substantial harm to
the Claimants;” (ii) the measures undermine the Claimants’ legitimate expectations with
respect to the use and enjoyment of their investments, including the Claimants’
expectation that they would be permitted to use their valuable brand assets; and (iii) the
regulations “destroy the legal stability that Uruguay pledged in the BIT and on which
Abal has relied on when developing and deploying its brand assets.”409
408
Supra, ¶¶ 136-138.
409
CM, ¶ 248; see also CR, ¶ 236.
89
The Respondent considers that far from being “egregious,” “shocking,” or “reflecting
bad faith” or “wilful neglect,” the SPR and 80/80 Regulation were adopted in good faith,
and in a non-discriminatory manner to protect public health.410
Moreover, even if the
Tribunal were to adopt the Claimants’ autonomous legal standard when examining
Claimants Article 3(2) claim, something the Respondent rejects, the Claimants’ claim
would fail, as the measure is a reasonable regulatory measure that is “logically
connected” with the State’s public health objectives. The Respondent further alleges
that the Claimants should be precluded from bringing an FET claim when their own
fraudulent actions created the need to take the measures they now challenge.411
The Legal Standard
The Parties agree that the fair and equitable treatment standard has its roots in the
minimum standard of treatment long required by international law.412
They further agree
that the standard of State responsibility for failure to protect rights of aliens under
customary international was first articulated in the Neer case.413
The Parties disagree however on the content of the applicable legal standard under the
Treaty. According to the Claimants, the Treaty provides for an autonomous treaty
standard, whereas the Respondent maintains that Article 3(2) of the BIT refers to the
minimum standard of treatment owed to aliens under customary international law. They
further disagree on the content and interpretation of the minimum standard of treatment
under customary international law.
1. The Claimants’ Position
According to the Claimants, the Respondent’s interpretation of BIT Article 3(2) as
providing for the customary international law minimum standard of treatment is
inapposite for the following reasons:
 It has no basis in the Treaty and it would be contrary to Article 31 of the VCLT,
as the ordinary meaning of the terms “fair” and “equitable” does not refer to the
410
RCM, ¶ 8.2-8.8.
411
RCM, ¶ 8.24-8.29.
412
CM, ¶ 217; RCM, ¶ 8.3.
413
See CM, ¶ 217; RCM, ¶ 8.4. Neer (U.S.A.) v. United Mexican States, U.S.-Mexico General Claims Commission
(CLA-237) (actions that “amount to an outrage, to bad faith, to willful neglect of duty, or to an insufficiency of
governmental action so far short of international standards that every reasonable and impartial man would readily
recognize its insufficiency.”).
90
minimum standard of treatment under customary international law. Similarly,
the context, object and purpose of the Treaty do not support the Respondent’s
interpretation either.414
 It has no basis on the relevant case law. The case-law cited by the Respondent
either refers to Article 1105 of NAFTA, which is not an issue in this arbitration,
or does not support the argument that the FET clause provides for the minimum
standard of treatment.415
 The statement of the Swiss Foreign Office of 1979 relied on by the Respondent
to support its position, even if one were to consider it to be relevant (something
that the Claimants deny), confirms that the fair and equitable treatment standard
under the BIT is broader than the minimum standard of treatment under
customary international law.416
 Even if the fair and equitable treatment standard could be equated to the standard
under customary international law, the standard has continued to evolve today
through state practice and the jurisprudence of arbitral tribunals. International
tribunals have consistently rejected the Neer standard as a statement of the
current customary international law. Thus to establish a violation of Article 3(2),
the Tribunal shall not assess whether Uruguay’s treatment is “egregious,”
“shocking,” or indicative of “willful neglect” or “bad faith.”417
 Instead, the Claimants allege that the Tribunal must assess “in light of all
circumstances” whether Uruguay “ensure[d] that foreign investors are treated
reasonably and objectively and are permitted to realize a reasonable return on
their investments, free from unfair or unjust interference by the State.”418
2. The Respondent’s position
According to the Respondent, FET is a “legal term of art” that refers to the minimum
standard of treatment accorded to aliens under customary international law.419
It is not
an autonomous standard.420
Even if the standard has evolved from Neer, the level of
scrutiny is in principle the same as in Neer, and the burden of proof is on the
414
CR, ¶¶ 215-218.
415
CR, ¶¶ 225-230 (citing inter-alia Total v. Argentine Republic, ICSID Case No. ARB/04/1, Decision on
Liability, 27 Dec. 2010, (“Total”) (RLA-190), ¶ 125; Lemire v. Ukraine, ICSID Case No. ARB/06/18, Decision
on Jurisdiction and Liability, 14 Jan. 2010 (“Lemire”), (RLA-114), ¶¶ 251-253; National Grid P.L.C. v. Argentine
Republic, UNCITRAL, Award, 3 Nov. 2008, (“National Grid”) (CLA-221), ¶ 170; Oko Pankki Oyj, VTB Bank
(Deutschland) AG and Sampo Bank Plc v. The Republic of Estonia, ICSID Case No. ARB/04/6, Award, 19 Nov.
2007 (CLA-277), ¶ 230; Enron Corporation and Ponderosa Assets, L.P. v. The Argentine Republic, ICSID Case
No. ARB/01/3, Award, 22 May 2007 (“Enron”), (CLA-028), ¶ 258; Sempra v. Argentine Republic, ICSID Case
No. ARB/02/16, Award, 28 Sep. 2007, (CLA-142), ¶ 302. See also CR, ¶ 238.
416
CR, ¶¶ 219-224.
417
CR, ¶¶ 231-234.
418
CM, ¶ 216.
419
RCM, ¶ 8.3.
420
RCM, ¶ 8.11.
91
Claimants.421
Relying, inter alia, on the Glamis v. United States case, the Respondent
maintains that even if the Neer standard is not reproduced verbatim by subsequent
tribunals, the “same heightened standard for a breach of the minimum standard …
continues to exist.”422
The Respondent also invokes the commentary to the 1967 OECD Draft Convention on
the Protection of Foreign Property and the 1979 Swiss Foreign Office Statement to argue
that under the principle of contemporaneity, the phrase “fair and equitable treatment”
was considered at the time of the conclusion of the BIT to refer to the minimum standard
of treatment.423
3. The Tribunal’s Analysis
At the outset, the Tribunal notes that the absence of any reference in Article 3(2) of the
BIT to “treatment in accordance with international law” or “to customary international
law or a minimum standard of treatment,” as provided by some other investment treaties
with regard to the FET standard, does not mean that the BIT creates an “autonomous”
FET standard, as contended by the Claimants424
and disputed by the Respondent.425
In
the absence of any additional qualifying language, the reference to FET in Article 3(2)
cannot be read as “treatment required by the minimum standard of treatment under
international law.”426
421
RCM, ¶¶ 8.6-8.8 (relying on S.D. Myers, Inc. v. Government of Canada, UNCITRAL, Partial Award (13 Nov.
2000) (Chiasson, Hunter, Schwartz), (RLA-155), ¶ 263; Glamis (RLA-183), Genin v. Estonia, Award, 25 June
2001 (“Genin”), (RLA-157).
422
RR, ¶¶ 7.11-7.12 (citing Glamis (RLA-183) ¶ 616. Respondent also refers extensively to Biwater Gauff Ltd.
v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award, 22 Jul. 2008, (“Biwater”), ¶¶ 597-599
(CLA-013); Waste Management Inc. v. United Mexican States, Award, 30 Apr. 2004 (“Waste Management”)
(CLA-225) ¶ 98; Hochtief AG v. The Argentine Republic, ICSID Case No. ARB/07/31, Decision on Liability, 29
Dec. 2014, (RLA-313), ¶ 219. See also Cargill, Incorporated v. United Mexican States, ICSID Case No. ARB
(AF)/05/2, Award, 18 Sep. 2009, ¶ 284 (RLA-186)).
423
RR, ¶¶ 7.4-7.10 (citing the UN Conference on Trade and Development, UNCTAD Series on International
Investment Agreements II, Fair and Equitable Treatment: A Sequel (2012), (RLA-274) p. 21.)
424
CR, ¶¶ 226, 215.
425
RR, ¶ 7.5.
426
This is instead the Respondent’s reading of Article 3(2): RCM, ¶ 8.3. The Claimants deny that the FET
obligation under Article 3(2) is the same as “the international minimum standard of treatment under customary
international law”: CR, ¶ 218. The UNCTAD study on “Fair and Equitable Treatment,” Series on Issues in
International Investment Agreements, 1999 (CLA-065), after looking at the evidence in some detail concludes:
“These considerations point ultimately towards fair and equitable treatment not being synonymous with the
international minimum standard” (p. 40).
92
As any other treaty provisions, the text of Article 3(2) of the BIT must be interpreted
according to the normal canons of treaty interpretation as contained in Articles 31 and
32 of the VCLT. This includes interpretation in accordance with general international
law, as stated in Article 31(3)(c) which requires that a treaty be interpreted in the light
of “[a]ny relevant rules of international law applicable to the relations between the
parties.” The scope and content of FET under Article 3(2) must therefore be determined
by reference to the rules of international law, customary international law being part of
such rules.
As held by Chemtura v. Canada, “such determination cannot overlook the evolution of
customary international law, nor the impact of BITs on this evolution.”427
The tribunal
in that case relied on Mondev v. United States which held as follows:
[B]oth the substantive and procedural rights of the individual in international
law have undergone considerable development. In the light of these
developments it is unconvincing to confine the meaning of ‘fair and equitable
treatment’ and ‘full protection and security’ of foreign investments to what those
terms – had they been current at the time -- might have meant in 1920s when
applied to the physical security of an alien. To the modern eye, what is unfair
or inequitable need not equate with the outrageous or the egregious. In
particular, a State may treat foreign investment unfairly and inequitably without
necessarily acting in bad faith […].428
In line with the evolution of customary international law, the FET standard has evolved
since the time, in 1926, when the Neer case, on which the Respondent relies,429
was
decided. The standard is today broader than it was defined in the Neer case although its
precise content is far from being settled.
As held by investment tribunals, whether a particular treatment is fair and equitable
depends on the circumstances of the particular case.430
Based on investment tribunals’
decisions, typical fact situations have led a leading commentator to identify the
following principles as covered by the FET standard: transparency and the protection of
the investor’s legitimate expectations; freedom from coercion and harassment;
procedural propriety and due process, and good faith.431
In a number of investment
427
Chemtura, (RLA-053), ¶ 121.
428
Ibid.
429
RCM, ¶ 8.4
430
Mondev (RLA-117), ¶ 118; Waste Management (CLA-225), ¶ 99; Saluka (CLA-227), ¶ 285.
431
Schreuer, Fair and Equitable Treatment in Arbitral Practice, The Journal of World Invest. & Trade, June 2005,
(CLA-275), pp. 373-374.
93
cases tribunals have tried to give a more definite meaning to the FET standard by
identifying forms of State conduct that are contrary to fairness and equity.
In Genin v. Estonia, the tribunal indicated that a conduct in breach of the standard would
include
[A]cts showing a wilful neglect of duty, an insufficiency of action falling far
below international standards, or even subjective bad faith.432
In Saluka v. Czech Republic, the tribunal held that:
A foreign investor whose interests are protected under the Treaty is entitled to
expect that the [host State] will not act in a way that is manifestly inconsistent,
non-transparent, unreasonable (i.e. unrelated to some rational policy), or
discriminatory (i.e. based on unjustifiable distinctions).433
In other cases it has been found that the relevant standard is breached by State conduct
that is “arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes
the claimant to sectional or racial prejudice.”434
The Tribunal agrees that the various aspects of State conduct mentioned above are
indicative of a breach of the FET standard. It will deal with “legitimate expectations”
and “stability of the Uruguay legal system” as components of the FET standard in the
context of the Claimants’ claim in that regard.435
The Claim
1. The Claimants’ Position
(a) The Challenged Measures are Arbitrary
According to the Claimants, many Tribunals, including those adopting a narrow fair and
equitable treatment standard, consider that “a measure that inflicts damage on the
432
Genin (RLA-157), ¶ 395.
433
Saluka (CLA-227), ¶ 309.
434
Waste Management (CLA-225), ¶ 98. This view is shared by the tribunals in Biwater (CLA-013), ¶ 597 and
by Hochtief AG v. Argentina, ICSID Case No. ARB/07/31, Decision on Liability, 29 Dec. 2014 (RLA-313), ¶
219.
435
Infra., ¶¶ 421-435.
94
investor without serving any apparent legitimate purpose” is “arbitrary” (or
“unreasonable”) and violates the standard.436
The Claimants consider that to assess whether a challenged measure is arbitrary,
“tribunals have examined the rationality of the measure and of the decision-making
process that led to it, the existence of a genuine public purpose, and whether there was
a reasonable connection between the objectives pursued by the state and the utility of
the chosen measures.”437
Referring to this standard, they consider that the Challenged
Measures are arbitrary, as examined further below.438
SPR
The SPR prohibits tobacco manufacturers from marketing more than one variant of
cigarette per brand family. According to the Claimants, there is no connection between
the Respondent’s purported rationale for adopting the measure (i.e., avoid misleading
the consumers) and the actual regulatory measure at issue (i.e., a prohibition against the
marketing of multiple variants within a single brand family).439
Thus, the measures
“damage Claimants’ investment and are not reasonably related to the Respondent’s
stated objectives.”440
The Claimants challenge Ordinance 514 and Ordinance 466, the ordinances that impose
the Single Presentation Requirement, on three main bases: (i) the Respondent adopted
the SPR without any scientific evidence of its effectiveness; (ii) the SPR was adopted
without due consideration by public officials; (iii) the SPR did not further its stated
objective.
First, the Claimants submit that the Respondent has failed to provide empirical evidence
or scientific research in support of the proposition that the existence of various variants
and different packaging were per se misleading to consumers.441
For example, while
436
CM, ¶ 219 (relying on Waste Management (CLA-225), ¶ 98; National Grid (CLA-221), ¶ 197; Plama v.
Bulgaria, Award, 27 Aug. 2008 (“Plama”) (CLA-222), ¶ 184; Toto Costruzioni Generali S.p.A. v. Republic of
Lebanon, ICSID Case No. ARB/07/12, Award, 11 Sept. 2009, (“Toto Costruzioni”) (CLA-223), ¶ 157; Lemire
(RLA-114), ¶ 262.
437
CM, ¶ 223.
438
CM, ¶¶ 221-234.
439
CM, ¶ 225.
440
CR, ¶ 242.
441
CR, ¶¶ 35-41, 55. CM, ¶¶ 8, 25, 28, 222-230.
95
the Respondent portrays the SPR as a regulation restricting the use of misleading colors
on tobacco packaging, it does not in fact regulate or prohibit any colors at all (e.g. gold
packaging). 442
Accordingly, there is no “logical connection” between the regulation
and the stated objective of ensuring that consumers are not mislead into believing that
one variant within a brand family presents fewer health risks than another.443
Second, the Respondent has failed to provide any evidence showing that the
Government engaged in meaningful deliberations before adopting the SPR.444
Relying
on one of their witnesses, the Claimants affirm that, instead, the SPR was devised after
the Director of the MPH’s Tobacco Control Program, Dr. Abascal, witnessed customers
in a store receiving Marlboro Gold packs when they asked for Marlboro “light”
cigarettes.445
The Claimants also consider that the evidence presented by the MPH
indicates that the SPR was drafted by one individual on his own initiative, without input
or consultation from others.446
Third, the Claimants argue, relying on the conclusion of their marketing experts, that
the tobacco consumption did not decrease in Uruguay as a result of the SPR. Thus the
SPR substantially damaged the Claimants’ investments without advancing the public
interest to any degree.447
The Claimants challenge the Respondent’s justification for the SPR—that consumers
necessarily perceive one variant of a cigarette brand as less harmful than another variant
of the same brand, and will begin or continue smoking due to that misperception—
alleging that before the Respondent adopted the SPR, the vast majority of Uruguayans
already believed that smoking caused cancer and coronary heart disease and knew that
cigarettes are harmful.448
442
CM, ¶¶ 3, 30, 32-34; CR, ¶ 36, 38-40.
443
CM, ¶¶ 2, 30, CR, ¶¶ 2, 28-36.
444
CR, ¶¶ 47-51.
445
CR, ¶¶ 43- 44; Herrera Statement I (CWS-6), ¶ 3. See also Herrera Statement II (CWS-19), ¶¶ 4-5. In this
regard, the Claimants argue that anecdotal reporting from a handful of store visits does not serve as a substitute
for actual evidence such as studies, surveys, formal interviews, sales data, etc. CR, ¶ 245.
446
CR, ¶¶ 52-54.
447
CM, ¶ 230. CR, ¶¶ 57-61; Expert Report of Mr. Alexander Chernev, 28 Feb. 2014 (“Chernev Report”) (CWS-
9), ¶ 4; Second Expert Report of Mr. Alexander Chernev, 17 Apr. 2015 (“Chernev Second Report”) (CWS-20),
¶¶ 56-82, 115, 120, 130; Expert Report of Mr. Jacob Jacoby, 17 Apr. 2015 (“Jacoby Report”) (CWS-21), ¶ 5.
448
CR, ¶ 31.
96
In addition, they consider that the SPR is at odds with Uruguayan law’s requirement that
tobacco manufacturers publish in local newspapers the tar and nicotine levels of each of
their cigarette brands. According to the Claimants, that publication is much more likely
to lead consumers to the same misperceptions that the SPR purportedly was intended to
eradicate, and this highlights the irrationality of the Respondent’s SPR policy.449
Finally, the Claimants highlight that neither FCTC nor the Guidelines call for parties to
consider single presentation requirements or 80/80 requirements. Since no other country
had adopted such regulations, it cannot be that they are required by the FCTC.450
The 80/80 Regulation
According to the Claimants, the 80/80 Regulation is arbitrary as there is no evidence
that the government deliberated in a meaningful way about the measure, or that the
measure was necessary to increase awareness of the health effects of smoking and
thereby further the alleged objective of reducing tobacco consumption.
The 80/80 Regulation was, it is said, not adopted for public safety or public health
reasons. According to the Claimants, there are no records indicating that the Respondent
deliberated in any meaningful way as to whether health warning labels covering 50
percent of the front and back surface of the cigarette packages were insufficient to
inform consumers about the health effects of smoking.451
Instead, the Claimants
contend, it was adopted to punish one of its competitors (Mailhos) that was
circumventing the SRP by using the same logo across different brand names through the
use of so-called “alibi brands.”452
The Claimants allege that, while there is no
contemporaneous documentation indicating that the desire to raise awareness of the
health risks of smoking motivated the MPH to adopt the 80/80 regulation, the desire to
punish Mailhos is confirmed by MPH’s internal documents.453
449
CR, ¶¶ 6, 42.
450
CR, ¶ 102.
451
CR, ¶ 246, See also CR, ¶¶ 76-77.
452
CM, ¶ 231; see also CM, ¶¶ 7, 50, 53, 202. “Alibi brands” as defined by the Claimants, “are cigarette brands
that were developed and sold by the local company Mailhos in the wake of the SPR. Alibi brands use nearly
identical packaging to the packaging that Mailhos used before the SPR was adopted—the only exception is that
alibi brands are sold under different brand names, but the products are clearly part of the same family. (See CM,
¶ 40).
453
CR, ¶¶ 10, 62-74, CM, ¶ 50-52. In support of their argument, the Claimants cite internal documents produced
by the Respondent, including a letter from Dr. Abascal to the Director General of the MPH, Dr. Abascal’s
97
Moreover, the Claimants cite to the findings of two of their expert reports noting that
most of the sources the Respondent cites as a basis for the 80/80 Regulation, did not,
and could not, establish that larger health warnings would either increase awareness of
smoking risks or reduce tobacco consumption.454
The Claimants also assert that the 80/80 Regulation was arbitrary as it “sought to address
a non-existent problem.” The Claimants recognize that there is a public health interest
in graphic images.455
They consider, nevertheless, that before the adoption of the 80/80
Regulation there was already “near universal awareness” of the health risks of smoking.
Therefore, “the impact on the trademarks is out of proportion to the need and
justification for 80% warnings.”456
Relying on the GATS Study, they assert that 98%
of Uruguayans already believed that smoking caused cancer and 97% of them believed
that smoking caused coronary heart disease. Enlarging the warnings, therefore, could
not and did not increase public awareness.457
There is also no proof that it has reduced
or will reduce consumption.458
Instead, the Claimants allege, the regulations limit space
for and distort the trade dress, including the trademarked images.459
According to the Claimants “the fact that a regulation simultaneously fails to meet its
supposed purpose while substantially damaging investments protected by the BIT is the
model of an arbitrary measure.”460
(b) The Claimants’ Legitimate Expectations
The Claimants also assert that the BIT’s fair and equitable treatment standard requires
that Contracting Parties provide a treatment that does not affect the “basic expectations”
that were taken into account by the foreign investor when making its investment.461
statement during a radio interview in 2009, and internal communications of the Claimants. See CR, ¶¶ 68-73;
Dilley Statement (CWS-5), ¶ 14, and press articles C-136 and C-277 and C-337; C-338 and C-339.
454
CR, ¶ 77; Chernev Second Report (CWS-20), ¶¶ 22, 26-27, 167; Jacoby Report (CWS-21), ¶ 5.
455
Tr. Day 1, 23:17-18.
456
Tr. Day 1, 24:6-8; see also CM, ¶ 233.
457
CM, ¶ 233; CR, ¶ 11.
458
CM, ¶ 234.
459
CM, ¶ 9.
460
CM, ¶ 234.
461
CR, ¶ 247, referring inter alia to Tecmed (CLA-203), ¶ 154. This is rebutted by Respondent, which alleges
that Tecmed’s interpretation of FET is an outlier. See RCM, ¶¶ 8.34-8.36; RR, ¶¶ 7.45-7.50.
98
The Claimants contend that they made substantial investments based on, inter alia, their
justifiable expectations that the Uruguayan Government would: (a) allow the Claimants
to continue to deploy and capitalize on their brand assets; (b) refrain from imposing
restrictive regulations without a well-reasoned, legitimate purpose; (c) respect the
Claimants’ intellectual property rights; and (d) ensure that the Claimants had access to
a just, unbiased, and effective domestic court system.462
All these expectations, the
Claimants continue, were “eviscerated.”
For the Claimants, those legitimate expectations may arise from general statements, the
legal framework, legislation, treaties, licenses, and contracts, and even from a general
expectation that the State will only implement regulations that are “reasonably
justifiable by public policies.”463
Specific, explicit promises to an investor in a particular
form are not necessary.
In this case, their expectation arose out of both general statements and specific
assurances. As to the general statements, the Claimants assert that they are constituted
by Articles 1 and 4 of Uruguay’s Investment Promotion Law by which Uruguay sought
to attract investment.464
As to the Claimants’ specific expectations, they are said to have arisen out of the
following facts: (a) the Claimants own the intellectual property rights, including the
trademarks, that form the core components of the branding on their cigarette packages;
(b) those intellectual property rights are property rights protected under Uruguayan law;
(c) the Claimants have a right to use their intellectual property rights under Uruguayan
law; (d) the Claimants had used their intellectual property and brand assets without
disruption over many decades, and in the process have created substantial brand value;
(e) the production and sale of tobacco products have at all times been legal in Uruguay;
and (f) the Respondent encouraged further investment in Abal’s production and
marketing of cigarettes.465
462
CM, ¶¶ 237-242.
463
CR, ¶¶ 250-254 (relying inter-alia on Frontier Petroleum Services Ltd. v. Czech Republic, UNCITRAL, Final
Award, 12 Nov. 2010 (“Frontier Petroleum”) (CLA-105) and Saluka (CLA-227), ¶ 329.
464
CR, ¶ 255.
465
CR, ¶¶ 249-250.
99
The Claimants conclude that through the SPR Uruguay thwarted these expectations “by
stripping the Claimants of the ability to market profitable variants and to capitalize on
the intellectual property and associated goodwill tied to these products. The 80/80
Regulation frustrated this expectation further, by weakening the value of the Claimants’
residual products and preventing the Claimants from leveraging their iconic branding to
introduce new products.”466
(c) Uruguay’s Legal Stability
Relying inter alia on the Occidental v. Ecuador Award, the Claimants allege that the
Respondent’s fair and equitable treatment obligations under the Treaty require Uruguay
to provide a reasonably stable and predictable legal system.467
The Claimants accept
that it is a State’s prerogative to exercise its regulatory and legislative powers, but they
consider that those must not be “outside of the acceptable margin of change.”468
The Claimants submit that the Respondent’s arbitrary actions altered the business
circumstances in which Claimants’ operated and undermined decades of legal stability
during which time the Claimant had developed and used their trademarks through
careful brand-building in Uruguay, by launching new variants and products.469
(d) The Doctrine of Unclean Hands, Raised by Respondent, is Inapplicable.
The Respondent alleges that the Claimants’ FET claim should be barred under the
principle of ex dolo malo non oritus actio (a right of action cannot be raised out of fraud)
or the “unclean hands doctrine.” The Claimants allege that the Respondent lacks any
basis for its defence, either in fact or in law.
First, the doctrine of unclean hands is premised on the assumption that the complaining
party engaged in wrongdoing. The Claimants have never been convicted of fraud or of
any illegal activity in Uruguay.470
The Respondent’s allegations regarding “industry
deception” and the history of wrongfully marketing “light cigarettes” related to conduct
in the United States by parties other than the Claimants. The decisions of the United
466
CM, ¶ 238.
467
CM, ¶ 243 (citing inter alia, Occidental Exploration and Production Co. v. Republic of Ecuador, UNCITRAL,
LCIA Case No. UN 3467, Final Award, 1 Jul. 2004 (CLA-071), ¶ 191).
468
CM, ¶ 243.
469
CM, ¶¶ 10, 243 – 248.
470
CR, ¶ 269.
100
States Department of Justice and the U.S. Courts cannot be considered to have
definitively adjudicated any facts relevant to the present dispute.471
Moreover, the
tobacco companies begin selling low-tar and low-nicotine cigarettes at the urging of the
international public health community, and the public authorities were the ones that
communicated those messages to consumers.472
Second, according to the Claimants, the “unclean hands” doctrine is not a general
principle of international investment law or general international law, and only applies
in limited circumstances not present in this case.473
2. The Respondent’s Position
The Respondent asserts that even if the Tribunal adopts an autonomous treaty standard
requiring that measures not be (a) arbitrary, (b) inconsistent with legitimate
expectations, or (c) such as to deprive investors of legal stability, the Claimants’ case
would still fail.
(a) The Challenged Measures are Not Arbitrary
The international law standard for determining whether a State acted arbitrarily was set
forth in the ELSI case, in which a Chamber of the ICJ, after observing that
“[a]rbitrariness is not so much something opposed to a rule of law,” defined it as “a
wilful disregard of due process of law, an act which shocks, or at least surprises, a sense
of juridical propriety.”474
For regulatory measures to be deemed arbitrary, “‘some important measure of
impropriety [must] be manifest,’ reflecting ‘the absence of legitimate purpose,
capriciousness, bad faith, or a serious lack of due process.’ Consequently, measures
undertaken in good faith cannot be considered arbitrary unless there is a manifest lack
471
CR, ¶¶ 271-273.
472
CR, ¶¶ 275 - 277.
473
CR, ¶¶ 266-268.
474
RCM, ¶ 8.16, RR, ¶¶ 7.18-7.23 (referring to Case Concerning Elettronica Sicula S.p.A. (ELSI) (United States
of America v. Italy), Judgment, 20 July 1989, I.C.J. Reports 1989, (“ELSI”) (CLA-088), p. 15, ¶ 128). Respondent
further relies on El Paso Energy International Co. v. Argentine Republic, ICSID Case No. ARB/03/15, Award,
31 Oct. 2011, (“El Paso”) (CLA-102), ¶ 319, and Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11,
Award, 12 Oct. 2005 (“Noble Ventures”) (RLA-165), ¶ 176, and Genin (RLA-157), ¶ 371.
101
of rational relationship between the measure and its objective, i.e., unless there is no
logical connection between them.’”475
To determine whether a State acted arbitrarily, it is irrelevant that the Claimants believe
that courses of action adopted in other countries would have been better. As recognized
in past cases, an international arbitral tribunal cannot substitute its own policy judgments
for those of the State.476
The Respondent further alleges that it is “a well-established principle 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.’”477
Finally, Uruguay alleges that the question is not whether Uruguay has shown that the
Challenged Measures are necessary. Instead, the Claimants bear the burden of showing
that Uruguay acted in an obviously arbitrary manner when they issued the regulations.
The Respondent’s case clearly shows that it did not.478
The SPR
According to the Respondent, the Single Presentation Regulation is a responsible,
reasonable and targeted regulatory measure adopted to prevent the tobacco industry
from continuing to perpetuate the false belief, cultivated over decades, that some
cigarettes are less harmful than others. It is intended to stop deceptive marketing of
variants of cigarettes brands (referred to as “health reassurance” cigarettes) that were
being portrayed as less harmful thus giving existing smokers an apparently healthy
alternative to quitting and new smokers more reasons to smoke.479
The SPR is fully justified and must be considered within the following historical
context:
475
RCM, ¶ 8.21.
476
RCM, ¶ 8.20 (citing Enron (CLA-230), ¶ 281).
477
RCM, ¶ 8.19 (citing Saluka (CLA-227), ¶ 255; see also Methanex (RLA-164), Part IV, Ch. D, ¶ 7).
478
RR, ¶ 4.28.
479
RCM, ¶ 8.22.
102
 Tobacco companies had full knowledge of the harmful effect of the “health
reassurance” type of cigarettes, but used them as a powerful marketing strategy
to appeal to an increasingly health-conscious smoking population.480
 After deceptive descriptions (“light,” “mild,” “low tar”) were banned from
packages, tobacco companies found other ways to communicate their misleading
messages through: (a) continuity campaigns to allow consumers to identify their
preferred rebranded health reassurance cigarettes (“Your pack may be changing
but your cigarette stays the same”); and (b) structuring brand families so as to
communicate message that within a brand different degrees of healthiness
through the use of color-codes (i.e. Marlboro “Light” became Marlboro “Gold;”
“Ultralight,” “Silver;” Intermediate, “Blue”).481
 Studies covering smokers found that marketing strategy had worked and that
different colors were associated with “healthier” cigarettes, including in
Uruguay.482
Respondent submits that pack design affects consumers’ perception
of risk and this is “consistent with subsequent peer-reviewed studies that
document the association between packaging and risk perception in countries
other than Uruguay.”483
Accordingly, there is an obvious “logical connection” between the SPR and the
objective of preventing consumers from being misled―it is, and has always been,
Uruguay’s position that the existence of multiple variants of a single brand per se creates
a risk of deception in the minds of some consumers.484
In addition, the SPR is part of Uruguay’s comprehensive tobacco control policies and is
in line with WHO Recommendations and Uruguay’s express obligations under Article
11 of the FCTC as well as in accordance with Art. 8 of Law 18,256.485
The SPR thus
draws upon the scientific evidence of the FCTC and its implementation guidelines, and
constitutes a sound policy that advances important public health objectives.486
This has been confirmed by the world’s leading authorities on public health and tobacco
control.487
WHO, the FCTC Secretariat, and PAHO have (a) confirmed the existence
480
RCM, ¶¶ 1.14, 3.6-3.7, 4.11-4.117.
481
RCM, ¶¶ 4.68-4.76, 4.94.
482
RCM, ¶¶ 4.94-4.101 (citing inter-alia Euromonitor 2008 showing that low-tar market was experiencing an
important volume growth). See also RR, ¶¶ 3.46-3.47.
483
RR, ¶ 3.18.
484
RR, ¶ 3.34. See also Ibid., ¶¶ 3.27-3.39.
485
RCM, ¶¶ 1.21, 4.8, 4.106.
486
RR, ¶¶ 3.12-3.82; RCM, ¶¶ 4.1- 4.143.
487
RR, ¶¶ 3.12-3.24. Uruguay also recalls that it has received international support for the adoption of the SPR,
including by the Punta del Este Declaration signed by 172 States (RCM, ¶¶ 4.112-117).
103
of a real problem that SPR is designed to address and (b) concluded that SPR is an
effective and sound measure to address it by expressly endorsing the SPR.488
In this regard, the Respondent recalls the January 2015 joint Written Submission to the
Tribunal by the WHO and the FCTC Secretariat that expressed support for the SPR,
inter alia, by noting that “brand extensions can in themselves be misleading to
consumers, particularly when presented in the course of trade alongside one another and
regular or full flavored brands,” and referring to the “substantial body of evidence” that
shows that “prohibiting brand variants is an effective means of preventing misleading
branding of tobacco products.” 489
Furthermore, the Respondent relies on PAHO’s
conclusions that “Uruguay’s tobacco control measures,” including the SPR: (1) are
“evidence based;”(2) “are a reasonable and responsible response to the deceptive
advertising, marketing and promotion strategies employed by the tobacco industry;” and
(3) have “proven effective in reducing tobacco consumption.”490
By contrast, the
Respondent stresses, the Claimants’ experts do not have any direct experience with
tobacco control policy or, indeed, public health regulation.491
Moreover, the Respondent argues that the SPR was adopted pursuant to the same
deliberative process as other tobacco control measures, and rejects the Claimants’
contention that its adoption was based on a single public health official’s “visit to a
store.”492
Uruguay submits that it engaged in an extensive deliberative process that
involved input from both external advisors and government regulators, to consider how
it should address the ongoing problem of consumers being misled into believing that
some cigarettes are less dangerous than others, including through the Advisory
Commission described in paragraph 80 above. These discussions, which occurred over
a period of months, drew upon the existing scientific and public health literature and
prior experience, and considered a variety of regulatory options. They ultimately
yielded the recommendation that the MPH adopt the SPR. The Ministry subjected this
recommendation to its own internal evaluation process and decided it was meritorious.
Only after these processes had been completed was a draft Ordinance prepared, which
488
RR, ¶¶ 3.13 - 3.24.
489
RR, ¶¶ 3.17, 3.19, citing WHO Amicus Brief, ¶¶ 79, 90. See also Ibid., ¶¶ 3.13-3.19.
490
RR, ¶ 3.23, citing PAHO Amicus Brief, ¶ 100.
491
RR, ¶¶ 3.48-3.60.
492
RR, ¶ 3.83-3.109, citing CR, § I.A.2.a., p. 20.
104
was itself subjected to additional internal review within the MPH, before being officially
adopted and signed into law by the Minister of Public Health.493
In the Respondent’s view, apart from its implausibility, the Claimants’ argument that
Dr. Abascal alone is responsible for the SPR is contradicted by the evidence, including
contemporaneous official documentation and testimony of those who were directly
involved in the adoption of the regulation and the extensive deliberations that preceded
it.494
With regard to the publication of tar and nicotine levels, this was a requirement in 1982,
but the requirement was superseded by Art. 6 of Law 18,256, which requires a
publication in major media of toxic products, but not of the levels. There is a temporary
gap in Uruguayan law that has not yet defined with precision what these toxic
components and emissions are. Uruguay is waiting for State Parties to the FCTC to
complete Guidelines to Art. 10 to determine implementation details of Art. 6 of Law
18,256. 495
In addition, the Claimants’ argument that there was no need for the SPR because
consumers are already aware that cigarettes are harmful is baseless―cognizant of health
risks, smokers may eagerly switch to brand variants that they have been led to believe
offer a “healthier” option.496
Finally, the Respondent submits that the Claimants’ threats have stopped other States
from adopting a SPR. Claimants cannot contend that “no other FCTC party has adopted
legislation similar to the SPR” since other States have considered adopting similar
regulations but have been deterred by the threat of litigation, including Paraguay, New
Zealand, and Costa Rica.497
The 80/80 Regulation
According to the Respondent, there is no basis for challenging either the good faith or
the reasonableness of Uruguay’s 80/80 Regulation. The “logical connection” between
493
RR, ¶ 3.84.
494
RR, ¶¶ 3.88-3.105, 3.107.
495
RR, ¶¶ 3.71-3.73.
496
RR, ¶¶ 3.40-3.47.
497
RR, ¶¶ 3.71-3.82, referring to CR, ¶ 102.
105
more effectively warning people of the harms caused by smoking and the protection of
public health is in its view incontestable.
Before turning to these issues, the Respondent notes that there are two critical points of
agreement between the Parties. First, the Parties agree that warning labels are an
effective way to inform consumers.498
Second, the Parties agree that when it comes to
delivering a message, bigger is better. Uruguay, for its part, requires large warning
labels because they are better at informing smokers of the health risks of smoking. The
Claimants, for their part, seek to maximize the space available for them to display their
branding because they know that larger design elements are more effective in reaching,
attracting, and maintaining consumers.499
The Respondent rejects the Claimants’ allegations that the 80/80 Regulation was
introduced to punish Mailhos.500
In support of this argument, the Respondent recalls
the process by which the 80/80 Regulation was adopted. Particularly, it notes that Law
18,256 followed the WHO’s recommendation of February 2008 that warning labels
should cover “at least half of the pack’s main display areas.”501
Then in November
2008, the States Parties to the FCTC unanimously adopted the Article 11
Implementation Guidelines which expressly call on States in paragraph 12 to enlarge
health warnings above 50% to the maximum size possible.502
In the wake of these
developments, Uruguayan authorities met with and then presented a memorandum to
President Vázquez recommending additional tobacco control measures.503
One of the
measures recommended was to enlarge the size of warning labels to increase public
awareness of the harms caused by tobacco smoking, and thus cause people to quit or not
take up the habit. The President approved the proposal, leaving it for the MPH to
determine the precise size requirement. Following consultations among officials of the
498
RR, ¶ 4.5; Philip Morris International, “Health Warning Labels,” (RE-358), p. 1; Abal Hermanos S.A.,
Comments on the “Tobacco Control Law,” Mar. 2008 (RE-197), p. 13.
499
RR, ¶ 4.6.
500
RCM, ¶¶ 5.72-5.73.
501
RR, ¶ 4.8; World Health Organization (WHO), Report on the global tobacco epidemic, 2008: The MPOWER
package (2008) (RE-28), pp. 34-35.
502
RR, ¶ 4.9; Article 11 Guidelines (RLA-13), ¶ 12. Uruguay also refers to ¶ 13 of the Guidelines suggesting plain
packaging.
503
RR, ¶ 4.10; Bianco Statement (RWS-2), ¶¶ 16-20; Letter from E. Bianco, Uruguayan Tobacco Epidemic
Research Center (CIET), to President Tabaré Vásquez dated 16 Apr. 2009, and email sending same (RE-208).
106
PNCT and members of the Advisory Commission, the decision was made to set the
requirement at 80%.504
The Respondent further considers that the Claimants contradict the international
consensus that larger warning labels are more effective than smaller ones.505
First, both
experimental and observational studies demonstrate that warning labels larger than 50%
are more effective 506
Second, the Implementation Guidelines for Article 11 of the
FCTC expressly state that the Guidelines and the studies on which they are based
constituted a sound basis on which to make policy and the Guidelines call for warning
bigger than 50%.507
Third, the WHO and FCTC Secretariat submission provides further
confirmation of the mass of evidentiary support underlying Uruguay’s action.508
Finally, current and past State practice demonstrate the international consensus that
larger health warning are more effective.509
More than 20 States have acted to enlarge the size of their warnings labels above 50%,
including: Namibia (55%),510
Turkey (65%),511
Ecuador (60%),512
Burkina Faso
504
RR, ¶¶ 4.10-4.11; RCM, ¶¶ 5.60-5.65 (citing inter-alia; Bianco Statement (RWS-2), ¶¶ 15-20; Email from
Eduardo Bianco to Minister María Julia Muñoz & Director-General Jorge Basso, Ministry of Public Health, 2
Dec. 2007, Bates No. UGY0000325 (RE-383); E. Bianco, The Implementation of the Framework Convention:
The Role of Civil Society, VII Congress on the Prevention and Treatment of Tobacco Consumption, 19 Feb. 2009,
Bates No. UGY0002092 (RE-389); Abascal Statement I (RWS-1), ¶¶ 16-18; Muñoz Statement (RWS-3), ¶¶ 20-
22; Abascal Statement II (RWS-7), ¶ 19; Lorenzo Statement (RWS-6), ¶ 24. In the Respondent’s view, the record
shows that Dr. Abascal’s opinions in an internal memorandum ―noting that in response to the alibi brands
consideration should be given to expanding the pictograms and legends to 90% of both main faces― were not
what ultimately led to the adoption of the 80/80 Regulation. Rather, his suggestion was overtaken by the
Presidential decision to increase warning label size as recommended in the WHO’s 2008 report and the
Implementation Guidelines to Article 11 of the FCTC (See RR, ¶¶ 4.15-4.19)).
505
RCM, ¶¶ 5.25-5.55; RR, ¶ 4.26.
506
RCM, ¶¶ 5.31-5.43; RR, ¶¶ 4.26-4.34.
507
RR, ¶¶ 4.30-4.34.
508
RR, ¶ 4.32. See also RR, ¶ 7.27.
509
RCM, ¶ 5.98; RR, ¶¶ 4.55-4.57
510
Campaign for Tobacco-Free Kids, “Country Details for Namibia: Summary” (R-445); Canadian Cancer
Society, Cigarette Package Health Warnings: International Status Report (4th ed.), Sep. 2014, (“Canadian
Cancer Society 4th
Report”) (R-426), p. 4.
511
Canadian Cancer Society 4th
Report (R-426), p. 2.
512
Tobacco Labelling Resource Centre, “Ecuador,” (R-349).
107
(60%),513
Chad (70%),514
Uganda (65%),515
Moldova (65%),516
Canada and Brunei
(75%) (average of both the front and the back of the package).517
In addition, the
European Union has mandated through the Tobacco Products Directive (2014/40/EU)
that all 28 member States shall require warning labels that cover 65% of the front and
back of the package by May 2016.518
Other States have gone as far as or beyond Uruguay’s 80%. Sri Lanka also requires
warnings covering 80%.519
Australia requires not only plain packaging, but also
warnings to cover an average of 82.5% of the package (75% front, 90% back).520
Thailand increased the required size of its warning labels from 55% to 85% of the front
and back of its cigarette packs, as of June 2014.521
Similarly, Pakistan and India now
require warning labels that cover 85% of the front and back of cigarette packs.522
Nepal
has recently increased its warning from 75% of the front and back to 90%.523
513
Campaign for Tobacco-Free Kids, “Country Details for Burkina Faso: Summary” (R-442).
514
World Health Organization, Regional Office for Africa, “Chad: 70% Health Warnings in pictures on cigarettes
packs”(R-360).
515
Campaign for Tobacco-Free Kids, “Uganda Sets Powerful Example with Comprehensive Tobacco Control
Law”, 30 Jul. 2015 (R-443).
516
Campaign for Tobacco-Free Kids, “Moldova Enacts Historic Law to Fight Tobacco Use, Resisting Pressure
from U.S. Chamber of Commerce”, 14 Jul. 2015 (R-441).
517
Canadian Cancer Society, Cigarette Package Health Warnings: Int’ l Status Report, Third Edition, Oct. 2012,
(“Canadian Cancer Society 3rd
Report”) (R-262), p. 2; Canadian Cancer Society 4th
Report, (R-426), pp. 2, 4;
Tobacco Labelling Resource Centre, “Brunei,” (R-348).
518
European Union, Directive 2014/40/EU, 3 Apr. 2014, Art. 10(1) (“Each unit packet and any outside packaging
of tobacco products for smoking shall … cover 65% of both the external front and back surface of the unit packet
and any outside packaging.”), Art. 29(1) (“Member States shall bring into force the laws, regulations and
administrative provisions necessary to comply with this Directive by 20 May 2016.”) (R-295). See also European
Commission, “Revision of the Tobacco Products Directive,” (directive entered into force on 19 May 2014) (R-
339).
519
Campaign for Tobacco-Free Kids, “Country Details for Sri Lanka: Summary” (updated 3 Aug. 2015) (R-444).
520
Cunningham, Canadian Cancer Society, “Cigarette Package Warning Size and Use of Pictures: International
Summary,” (R-289), p. 2; Canadian Cancer Society 3rd
Report (R-262), p. 2; Canadian Cancer Society 4th
Report,
(R-426), p. 2.
521
Canadian Cancer Society 4th
Report (R-426) (discussing Thailand’s regulation of warning labels on cigarette
packages at 85% of the front and back). See A. Sawitta Lefevre, “Bigger health warnings for Thai cigarette
packs,” Reuters, 27 Jun. 2014, (R-306) (noting that international tobacco companies sued the Thai government
after the health ministry ordered to increase the size of its warning labels from 55% to 85%. A court temporarily
suspended the measure but, on Jun. 2014, the Supreme Administrative Court ruled it could take effect).
522
Government of Pakistan, Ministry of National Health Services, Regulations and Coordination, “Pictorial
Warning,” (R-430) (announcing Pakistan’s increase to 85%); Campaign for Tobacco-Free Kids, “India Takes
Historic Step to Protect Health and Save Lives by Requiring Large, Graphic Tobacco Warnings: Statement of
Matthew L. Myers”, 15 Oct. 2014, (R-427).
523
Action on Smoking & Health, “Success: 90% graphic health warnings now required on tobacco packs in
Nepal”, 3 Dec. 2014, (R-428); Tobacco Labelling Resource Centre, “Nepal: Health Warnings,” available at
http://www.tobaccolabels.ca/countries/nepal/ (last visited 2 Sep. 2015) (R-359).
108
Finally, Uruguay also rejects the argument that the regulations were not necessary
because Uruguayans were aware of the health risks of smoking. The Respondent notes
that the enlargement of warnings, in conjunction with other tobacco control measures,
allowed smokers to learn about the risks other than cancer and heart diseases and better
understand the severity of the risks.524
This was important as Uruguayans smokers cited
packages as their primary source of information about the dangers of smoking.525
Moreover, large warning labels also serve to minimize the advertising appeal of
cigarette packs.526
(b) The Claimants’ Legitimate Expectations
Uruguay asserts that the balance that the Tribunal must strike when analyzing
allegations of changes in regulations constituting unfair and inequitable measure has
been properly formulated by the El Paso tribunal, as follows:
Under a FET clause, a foreign investor can expect that the rules will not be
changed without justification of an economic, social or other nature.
Conversely, it is unthinkable that a State could make a general commitment to
all foreign investors never to change its legislation whatever the circumstances,
and it would be unreasonable for an investor to rely on such a freeze.527
The Respondent rejects the Claimants’ allegations that their legitimate expectations
were “eviscerated.” It sustains that even if legitimate expectation were to apply, to be
protected, the Claimants must show that their expectations were predicated on specific
representations or assurances made by the host State to the particular investor.528
In
addition, those expectations must be assessed at the time the investment is made,529
and
they must be proved by contemporary documentation, not post-hoc argumentation of
counsel.530
524
RR, ¶ 4.29. See also RCM, ¶¶ 5.16-5.17.
525
RCM, ¶ 5.15.
526
RR, ¶¶ 4.45-4.58.
527
RR, ¶ 7.72, citing El Paso (CLA-102), ¶ 372. The Claimants’ rebut the Respondent’s interpretation of El Paso.
See CR, ¶ 252.
528
RCM, ¶ 8.31-34; RR, ¶¶ 7.44, 7.48, 7.51-7.54 (relying on inter-alia, Glamis (RLA-183), ¶ 620; Duke Energy
v. Ecuador, ICSID Case No. ARB/04/19, Award, 18 Aug. 2008, (“Duke Energy”) (CLA-98; CLA-228), ¶ 351;
EDF (CLA-224), ¶ 217; GEA Group Aktiengesellschaft v. Ukraine, ICSID Case No. ARB/08/16, Award, 31 Mar.
2011, (RLA-191), ¶¶ 283, 287, 291; Ulysseas, Inc. v. Republic of Ecuador, UNCITRAL, Final Award, 12 June
2012, (RLA-196), ¶ 249. Claimants’ rebut Respondent’s interpretation of these cases. See CR, ¶ 253.
529
RR, ¶¶ 7.56 - 7.57.
530
RR, ¶ 7.58.
109
Uruguay made no specific commitments to the Claimants capable of giving rise to
legitimate expectations.531
The sources of expectations that the Claimants cite are
unavailing because (a) they arise from general municipal legislation; (b) they either have
no connection with the expectations that the Claimants claim to have; or (c) they postdate
the Claimants’ investment.532
The Respondent has contended in the context of the claim for expropriation that the
Claimants do not own their trademarks and do not have the right to use them.533
It rebuts
that since the rights they invoke do not exist, the Claimants cannot have had “legitimate
expectations” that they would have been able to exercise those rights permanently.534
Moreover, such expectations would be based on general Uruguayan trademark law, and
not on specific commitments to the Claimants.535
Finally, the Respondent contends that neither the SPR nor the 80/80 Regulation affected
the Claimants’ specific expectations to capitalize on their intellectual property rights.
(c) Uruguay’s Legal Stability
After indicating that tobacco is one of the most highly regulated businesses in the world,
the Respondent alleges that the Claimants could not reasonably have expected that
Uruguay’s regulatory scheme would never change.536
According to the Respondent, there is no language in the Uruguay-Switzerland BIT that
provides for affirmative legal stability, nor is there a general obligation to provide a
stable legal environment.537
Moreover, many past international investment law tribunals
have taken the view that fair and equitable treatment provisions are not stand-alone
guarantees of legal stability, let alone stasis.538
The Respondent further alleges that even if a putative obligation existed, past tribunals
have stated that investors should expect legal systems to change over time without
531
RR, ¶¶ 7.55-7.57.
532
RR, ¶ 7.63.
533
Supra, ¶¶ 222-234.
534
RR, ¶ 7.61.
535
RR, ¶¶ 7.59-7.61.
536
RCM, ¶ 7.28; RR, ¶ 7.62.
537
RCM, ¶ 8.46.
538
RR, ¶ 7.67.
110
infringing on the State’s inherent right to regulate.539
Uruguay, as every State, has “the
sovereign right to exercise its police powers in a non-arbitrary and non-discriminatory
manner to protect public health.”540
Neither the SPR nor the 80/80 Regulation could be
considered an “unreasonable modification of the legal framework.”
In addition, evidence shows that the Claimants did not expect the regulatory framework
to remain immutable. Abal itself foresaw some regulatory action, since it sent a letter
to the MPH stating its encouragement for the adoption of effective tobacco regulations
after Uruguay ratified the FCTC in 2004.541
(d) The Claimants’ Fraudulent Behavior Prevents them from Bringing an FET
Claim
In any event, according to the Respondent, the SPR and 80/80 Regulation “are direct
outgrowths of the Claimants’ history of deceit.”542
They were made necessary and
appropriate by the actions of the tobacco industry itself. On the basis of the maxim ex
dolo malo non oritur actio (“an action at law does not arise from evil deceit”), an
investor should not be permitted to argue that it has been denied FET when it has itself
acted fraudulently or in bad faith, particularly where, as here, the fraud in question
contributed to the adoption of the measures about which the investor complains.
This notion, closely related to the common law “unclean hands doctrine,” is said to be
“inherent in the notion of equity,” derives from the principle of good-faith, and has a
role in an investor’s claim that it has been treated unfairly.543
As to the facts, the decisions of the D.C. Circuit Court and U.S. Court of Appeals
authoritatively show that the Claimants have engaged in a history of misconduct and
consumer deceit.544
Regulators around the world have arrived at similar conclusions,
539
RCM, ¶¶ 8.47-8.49; (citing Saluka (CLA-227), ¶¶ 304-308; Parkerings-Compagniet AS v. Republic of
Lithuania, ICSID Case No. ARB/05/8, Award, 11 Sept. 2007, (“Parkerings-Compagniet”) (RLA-177), ¶ 332);
see also RR, ¶¶ 7.68-7.69 (citing Levy (RLA-207), ¶ 3.19 and Enron (CLA-28), ¶ 261).
540
RR, ¶¶ 7.70-7.71.
541
RCM, ¶ 8.52.
542
RR, ¶ 7.32.
543
RR, ¶ 7.31; RCM, ¶ 8.25.
544
RR, ¶¶ 7.36-7.38 (citing myriad court decisions including Engle v. RJ Reynolds Tobacco, No. 94-08273 CA–
22, 2000, WL 33534572, p.*3 (Fla. Cir. Ct.), 6 Nov. 2000, (RLA-287) and Price v. Philip Morris, Inc., 9 N.E. 3d
599 (Ill. App. Ct. 2014) (RLA-310)). According to the Respondent, the industry perpetuated the myth for four
decades by knowingly exploiting the limitations of the “smoking machine,” developed by the U.S. FTC with full
knowledge that the machine was based on wrong premises. See RCM, ¶¶ 4.35-4.41 (referring to US District Court
111
including the Australian Competition and Consumer Commission and the Italian
antitrust authority.545
Whether it has been recognized by the Uruguayan courts is
irrelevant; recognition by domestic courts have not been considered necessary by past
tribunals.546
Both before and after they made their investment in Uruguay, the Claimants defrauded
Uruguayan consumers about the harmfulness of smoking in general, and the relative
safety of certain brand variants in particular. The Claimants’ fraud was multi-faceted.
For decades they, among other things: (1) falsely denied the harmful health effects of
smoking, claiming the issue was the subject of controversy; (2) falsely denied that
nicotine is addictive, even as they designed their products to be as addictive as possible;
and (3) extended brand families to promote the false belief among health-concerned
consumers that some cigarettes are less harmful than others.547
3. The Tribunal’s Analysis
The Tribunal will proceed to determine whether the treatment afforded to the Claimants’
investment by the Challenged Measures was in accordance with the FET standard,
interpreted as indicated above. To this purpose, it will review each measure taking into
account all relevant circumstances, including the margin of appreciation enjoyed by
national regulatory agencies when dealing with public policy determinations.
(a) Are the Challenged Measures Arbitrary?
It is the Claimants’ contention that the Challenged Measures are “arbitrary” since they
were adopted without a scientific evidence of their effectiveness, without due
Decision confirming the manipulative marketing schemes. See U.S. v. Phillip Morris, 566 F3D 1095, 1106 (D.C.
Cir. 2009) (RLA-182). The Claimants’ challenge the reference to these litigations stating that PMI has prevailed
in many other cases and that the District Court decision is an outlier. RR, ¶¶ 7.41-7.43 (citing inter alia Philip
Morris Internal Document, S. Schachter, Pharmacological and Psychological Determinants of Smoking, 2 Mar.
1977, Bates No. 1000046626-1000046661, pp. 1000046655, 1000046660 (R-101)).
545
RR, ¶ 7.39 (citing Australian Competition & Consumer Commission, “ACCC resolves ‘light’ and ‘mild’
cigarette investigation with Imperial Tobacco”, 7 Nov. 2005, (R-378) and E. Povoledo, “National Fight Against
Smoking Attacks ‘Light’ and ‘Mild’ Brands,” Italy Daily, 1 Oct. 2002, (R-376)).
546
RR, ¶ 7.33 (citing Plama (CLA-222); ¶ 134 and Fraport AG Frankfurt Airport Services Worldwide v.
Republic of the Philippines, ICSID Case No. ARB/03/25, Award, 16 Aug. 2007 (RLA-175), ¶ 398).
547
RCM, ¶ 8.29.
112
consideration by public officials and with no reasonable connection between the
objectives pursued by the State and the utility of the chosen measure.548
According to the international law standard set forth by the ICJ Chamber in the ELSI
case, “arbitrariness” is defined as “a wilful disregard of due process of law, an act which
shocks, or at least surprises, a sense of juridical propriety.” 549
As noted by the
Respondent, the ELSI judgment is most commonly referred to by investment tribunals’
decisions as the standard definition of “arbitrariness” under international law.550
Based
on this definition, the Tribunal concludes that the Challenged Measures are not
“arbitrary,” for the following reasons.
Both measures have been implemented by the State for the purpose of protecting public
health. The connection between the objective pursued by the State and the utility of the
two measures is recognized by the WHO and the PAHO Amicus Briefs, which contain
a thorough analysis of the history of tobacco control and the measures adopted to that
effect. The WHO submission concludes that “the Uruguayan measures in question are
effective means of protecting public health.”551
The PAHO submission holds that
“Uruguay’s tobacco control measures are a reasonable and responsible response to the
deceptive advertising, marketing and promotion strategies employed by the tobacco
industry, they are evidence based, and they have proven effective in reducing tobacco
consumption.”552
The Claimants, while accepting in principle that no cigarette is safer than another, argue
that the Challenged Measures were adopted with no scientific support as to their
effectiveness in conveying that message.553
But the Tribunal would note the following
points. At the time the measures were adopted, evidence was available at the
international level regarding in particular consumers’ misperception of the health risks
548
CM, ¶¶ 222-223; CR, ¶¶ 242-243.
549
ELSI (CLA-88), ¶ 128; cited by the Respondent: RCM, ¶ 8.16; RR, ¶¶ 7.18-7.23.
550
A list of such decisions is in RR, n. 536.
551
WHO Amicus Brief, ¶ 90.
552
PAHO Amicus Brief, ¶ 100.
553
The Parties’ experts have debated at length on the subject, including at the Hearing, Professors Chernev and
Jacobs supporting the Claimants’ position in their Reports (CWS-009; CWS-20; CWS-21), Professors Cohen,
Dewhirst and Hammond showing in support of the Respondent that the SPR was based on an extensive evidentiary
record (REX-004; REX-013). It is to be noted that the Parties agreed to limit the experts’ intervention at the
Hearing to the SPR.
113
attached to “light” and “lower tar” cigarettes (so called “health reassurance” cigarettes).
That evidence included the tobacco industry’s own records, including those of PMI,
showing that “cigarettes brand variants … were strategically positioned to offer health
reassurance.”554
Evidence included also the U.S. v. Philip Morris judgment of 2006,
“an encyclopedia of industry research and practice with respect to brand variants,”555
confirming, based on available data (which again included PMI internal documents) that
PMI had mispresented health risks and finding that “since the 1970s, the defendants as
a group had deliberately misled consumers into believing that ‘light’ and ‘low tar’
cigarettes were healthier than other cigarettes, and therefore an acceptable alternative to
quitting.”556
Additional empirical evidence was offered, among other sources, by the
Canada NGO Physicians for a Smoke-Free Canada557
and by the Brazilian
experience.558
Numerous scientific studies had been published by that time in leading
international journals cited by the U.S. Surgeon General and the U.S. National Cancer
Institute.559
For a country with limited technical and economic resources, such as Uruguay, adhesion
to the FCTC and involvement in the process of scientific and technical cooperation and
reporting and of exchange of information represented an important if not indispensable
means for acquiring the scientific knowledge and market experience needed for the
proper implementation of its obligations under the FCTC and for ensuring the fulfilment
of its tobacco control policy. As stated by PAHO, “Uruguay has been one of the most
active countries during this period, both at governmental and non-governmental levels,
not only advancing its own regulations domestically but also providing support to other
Member States” regarding compliance with FCTC mandates.560
554
Rebuttal Expert Report by Cohen, Dewhirst and Hammond, (“Rebuttal Report by Cohen, Dewhirst and
Hammond”) (REX-013), ¶ 9. In PM USA R&D Strategic Plan, Dec. 1987, one may read: “we have a considerable
commitment at this time to development of a product which addresses consumer health concerns. The low tar (or
zero tar)/high taste program and Project ART (low nicotine) can be marketed to the consumer in such a way to
convince them that they are indeed receiving a product which would be perceived as ‘safer”. (JC-048), p. 28.
555
Hammond, Tr. Day 5, 1213:12-13.
556
United States v. Philip Morris USA inc. et al., 449 F. Supp. 2d1 (D.D.C. 2006), (excerpts in RLA-171); RCM,
¶ 3.54.
557
A Comprehensive Plan to End the “Light” and “Mild” Deception, Physician for A Smoke-Free Canada, Jan.
2005 (R-170).
558
Labelling and Packaging in Brazil, National Cancer Institute, Health Ministry of Brazil, WHO, 2003 (R-014).
559
Rebuttal Report by Cohen, Dewhirst and Hammond, (REX-013), ¶ 60.
560
PAHO Amicus Brief, ¶ 94.
114
Starting with the year 2000, Uruguay implemented a series of measures including the
creation of groups of experts and agencies for the study and prevention of tobacco
effects on human health.561
In 2004, the MPH created the Advisory Commission to
advise the Ministry on implementation of the State’s obligations under the FCTC.
Uruguay’s measures were adopted based on the substantial body of evidence that had
been made available in the course of its active participation in the FCTC negotiations
and in the drafting of implementing guidelines through the newly created Advisory
Commission. As indicated by the WHO, such guidelines are “evidence-based,” the
working groups relying on available scientific evidence.562
Material used in their
development was released publicly.563
Following ratification of the FCTC in 2004 and its entry into force on 27 February 2005,
Uruguay started the process of complying with the resulting obligations. All legal
measures taken internally for implementing tobacco control were expressly adopted in
conformity with the FCTC. Law 18.256 of 6 March 2008 on Tobacco Control provides
in Article 2 that its object “is to protect the inhabitants of the country from the
devastating health, social, environmental, and economic consequences of tobacco
consumption and exposure to second-hand smoke,” stating that measures have been
taken “in accordance with the World Health Organization Framework Convention on
Tobacco Control, ratified by Law Number 17,793 on 16 July 2004.” Law 18,256 and
its implementing Decree 284/008 reinforced the measures adopted since 2005 and
provided the basis for the further tobacco regulation, including the two measures
challenged in this arbitration.
In the Tribunal’s view, in these circumstances there was no requirement for Uruguay to
perform additional studies or to gather further evidence in support of the Challenged
Measures. Such support was amply offered by the evidence-based FCTC provisions
and guidelines adopted thereunder. As indicated by the WHO, “[t]he ability of Parties
to rely on this evidence-based resource in policy development is important for
561
Reference is made to Section IV B for a description of Uruguay’s tobacco control measures.
562
WHO Amicus Brief, ¶ 16.
563
Ibid., ¶ 49, with reference to the Article 11 Guidelines.
115
implementation of the Convention by all Parties, and particularly by Parties in low
resources settings.”564
The Claimants have further argued that the Challenged Measures were adopted without
due consideration by public officials. The Tribunal would respond with two remarks,
one of a general character and the other regarding each measure considered separately.
The remark of a general character relates to the “margin of appreciation” to be
recognized to regulatory authorities when making public policy determinations.
According to the Claimants, the “margin of appreciation” has no application in the
present proceeding as being a concept applied by the ECHR for interpreting the specific
language of Article 1 of the Protocol to the Convention, no analogous provision being
contained in the BIT.565
The Tribunal agrees with the Respondent that the “margin of appreciation” is not limited
to the context of the ECHR but “applies equally to claims arising under BITs,” at least
in contexts such as public health.566
The responsibility for public health measures rests
with the government and investment tribunals should pay great deference to
governmental judgments of national needs in matters such as the protection of public
health. In such cases respect is due to the “discretionary exercise of sovereign power,
not made irrationally and not exercised in bad faith … involving many complex
factors.”567
As held by another investment tribunal, “[t]he sole inquiry for the
Tribunal… is whether or not there was a manifest lack of reasons for the legislation.”568
The issue arose in a somewhat similar context in a NAFTA Chapter 11 case, Chemtura
v. Canada, which concerned an administrative decision to phase out a pesticide, lindane,
on public health grounds. The tribunal deemed it
[N]ecessary to address an additional question concerning the scope of Article
1105 on which the Parties disagree, i.e. whether the protection granted under
this provision is lessened by a margin of appreciation granted to domestic
regulatory agencies and, if so, to what extent. Having reviewed the arguments
564
Ibid., ¶ 47.
565
CR, ¶ 174.
566
RCM, ¶ 2.42.
567
Electrabel S.A. v. Republic of Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicability
and Liability, 30 Nov. 2012, (RLA-200), ¶ 8.35. See also Saluka (CLA-227), ¶¶ 272-273; Frontier Petroleum
(CLA-105), ¶ 527.
568
Glamis (RLA-183), ¶ 805.
116
of the Parties, the Tribunal is of the opinion that the assessment of the facts is
an integral part of its review under Article 1105 of NAFTA. In assessing whether
the treatment afforded to the Claimant’s investment was in accordance with the
international minimum standard, the Tribunal must take into account all the
circumstances, including the fact that certain agencies manage highly
specialized domains involving scientific and public policy determinations. This
is not an abstract assessment circumscribed by a legal doctrine about the margin
of appreciation of specialized regulatory agencies. It is an assessment that must
be conducted in concreto. The Tribunal will proceed to such assessment in
concreto when reviewing the specific measures challenged by the Claimant.569
As done by the Chemtura tribunal, the Tribunal proceeds to assess in concreto whether
the treatment afforded to the Claimants’ investment by each of the Challenged Measures
was in conformity with the FET standard, as interpreted by it. In this regard the first
point to be made is that both measures were adopted in an effort to give effect to general
obligations under the FCTC. It may be that the FCTC, to which Switzerland is not a
party, could not be invoked by the Respondent to excuse its non-performance of distinct
obligations under the BIT. But that is not the present context. In the Tribunal’s view,
the FCTC is a point of reference on the basis of which to determine the reasonableness
of the two measures, and in the end the Claimants did not suggest otherwise.570
The SPR
Regarding the SPR, the measure was adopted by Ordinance 514571
which in its preamble
refers to the FCTC, in addition to the Constitution, Law 18,256 and Decree 284. More
specifically, the preamble confirms that Ordinance 514 was issued in accordance with
Article 8 of Law 18,256, which, in turn, as made manifest by its formulation, was
intended to implement Article 11(1)(a) of the FCTC.572
The measure was not
discriminatory since it applied to foreign and domestic investors alike. The TCA
Decision n. 509 of 14 June 2011 upheld the validity of the SPR, rejecting Abal’s
challenge under Article 3 of Ordinance 514.573
As indicated by one of the reports filed by the Respondent, “promoting ‘light’ and ‘lower
tar’ cigarettes as a way for most smokers to reduce their tar intake misrepresented what
569
Chemtura (RLA-053), ¶ 123.
570
Tr. Day 1, 125: 5-7 (Alexandrov).
571
Supra, ¶ 108.
572
Supra, ¶ 105.
573
TCA Decision No. 509 (C-53; R-242).
117
would actually happen.”574
In fact, smokers’ need for a given amount of nicotine would
be compensated by smoking more intensively, switching to brands perceived as “safer,”
the term “lights” being chosen by producers to convey a message of reduced harm.575
A similar process of increased concern for health risks of smoking and the strategy,
revealed by Philip Morris’ internal documents, “to provide reassurance to consumers
through the creation of different brand variants that were associated with less harm”
apparently applied in Uruguay “using the product and marketing techniques also
observed in the U.S. and other markets.”576
At the time it was introduced, the SPR was without precedent in the practice of other
States. It is not specifically mentioned in the FCTC, although Article 11(1)(a) of that
Convention did require each State Party to take measures “in accordance with its
national law” to prevent “the false impression that a particular tobacco product is less
harmful than other tobacco products.”577
In its first formulation, the SPR tracked the
language of Article 11(1)(a), whereas in its re-enacted version as Article 3 of MPH
Ordinance 466, the SPR was unconditional.578
But the rationale of the SPR in both
formulations was to address the false perception, plausibly said to be created by the use
of colours and their association with earlier packaging and labelling, that some brand
variants, including those previously advertised as “low tar,” “light,” “ultra-light,” or
“mild,” are healthier than others.579
The Claimants in effect accepted the validity of this concern, since they themselves had
recognized the importance of including health warnings on packaging, even
voluntarily.580
Nor did they suggest, publicly or in argument before the Tribunal, that
574
“The Single Presentation Requirement: Overcoming the Illusion of a Less Hazardous Cigarette,” Report by
Cohen, Dewhirst and Hammond, 19 Sep. 2014, (REX-002), ¶ 59.
575
Ibid., ¶¶ 53,62.
576
Ibid., ¶ 80.
577
The WHO Amicus Brief recognizes that “Uruguay is the only Party to have prohibited brand extensions on
grounds that they are misleading” (at ¶ 66), adding, on the one side, that “sovereign states adopt different levels
of protection with respect to the risks associated with tobacco consumption” (at ¶ 62) and, on the other, that “the
rationale for this action is supported by the evidence” (at ¶ 66).
578
The potential difference between the two formulations of the SPR was not really explored in the arguments by
the Parties.
579
RCM, ¶ 4.143.
580
RCM, ¶ 5.12.
118
“light,” “mild” or “menthol” cigarettes are in truth safer: the scientific consensus is that
the only safe approach to smoking is not to smoke at all.
But there was much debate in evidence over whether the SPR was calculated to achieve
this legitimate aim or not. The Claimants argue that the SPR was “overbroad” because
it “prohibit[s] the use of colors that are undisputedly not misleading, if those colors are
used in multiple product lines under a common brand name.”581
The Respondent replies
that instead of banning colors, “the SPR takes a different approach by eliminating the
ability of tobacco companies to use color contrast within a brand family to promote the
misimpression that there are differences in healthiness.”582
In a way one may consider
the SPR as “under-inclusive” since by not prohibiting the introduction of new brands it
allowed Maihlos’ alibi brands. But according to the Respondent, it was considered that
“new brands, entirely distinct from existing brands, do not convey the same messages
as variations within the same brand.”583
The Tribunal observes that possible over- or
under-inclusiveness of the SPR was unsurprising given the relative novelty of this
regulation.
The Tribunal’s conclusions on the evidence would be as follows: (1) the SPR was not
the subject of detailed prior research concerning its actual effects, which would in any
case have been difficult to conduct since it involved a hypothetical situation; (2) there
was consideration of the proposal by the Tobacco Control Program in consultation with
the Advisory Commission of the MPH, although the paper trail of these meetings was
exiguous;584
(3) the SPR was in the nature of a “bright idea” in the context of a policy
determination to discourage popular beliefs in “safer” cigarettes585
but, as held by the
WHO, “the rationale for this action [was] supported by the evidence.”586
581
CM, ¶ 4.
582
RCM, ¶ 4.124 (emphasis in the text).
583
RCM, ¶ 4.129.
584
For a description of the process leading to the adoption of the SPR see supra, ¶¶ 113-120.
585
During her examination at the Hearing, Dr. Lorenzo, Technical Director of the Centre for International
Cooperation on Tobacco Control of the MPH, stated: “So the very existence of the variants means that the
consumer can compare, has a reference, and can assume one is less harmful than the other. By eliminating the
variants, you remove that comparison. When we determined the single presentation, it was to put to an end that
comparison within a same brand. Here, it’s different brands. Therefore, there is no possibility of comparison
within a single brand because there is only one” (Lorenzo, Tr. Day 3, 830:20-22; 831:1; 832:14-18).
586
WHO Amicus Brief, ¶ 66.
119
As to the utility of the measure, the marketing evidence on either side is discordant.
According to the Claimants, tobacco consumption in the legal domestic market
remained close to the trend, which had been projected in 2008 (prior to the Challeged
Measures) by Euromonitor, an independent market research firm, to decline by 150
million cigarettes from 2008-2012.587
The Respondent relies on various sources,
including ITC, Uruguayan National Report of August 2014, to show that the rate of
smoking prevalence, which was around 32% prior to the measures, by 2009 dropped to
25% in persons 15 years or older, estimated by a 2011 survey to be “approximately
23%.”588
In the end the Tribunal does not believe that it is necessary to decide whether the SPR
actually had the effects that were intended by the State, what matters being rather
whether it was a “reasonable” measure when it was adopted.589
Whether or not the SPR
was effective in addressing public perceptions about tobacco safety and whether or not
the companies were seeking, or had in the past sought, to mislead the public on the point,
it is sufficient in light of the applicable standard to hold that the SPR was an attempt to
address a real public health concern, that the measure taken was not disproportionate to
that concern and that it was adopted in good faith. The effect of the SPR was to preclude
the concurrent use of certain trademarks, without depriving the Claimants of the
negative rights of exclusive use attached to those trademarks.
In short, the SPR was a reasonable measure, not an arbitrary, grossly unfair, unjust,
discriminatory or a disproportionate measure, and this is especially so considering its
relatively minor impact on Abal’s business.590
The Tribunal concludes, by majority,
that its adoption was not in breach of Article 3(2) of the BIT.591
587
CM, ¶¶ 112-113.
588
RCM, ¶ 6.45, based on ITC 2014 (R-313), p. 20.
589
See the Tribunal’s question n. 4 addressed to the Parties on 27 Oct. 2015 during the Hearing: “Assuming
‘reasonableness’ to be the relevant standard under question 1, is reasonableness of the two measures to be assessed
based on the situation prevailing at the time the measures in question have been adopted or should this judgment
consider also the extent to which the measures have met their intended objective?” The Parties’ answers during
Closing were as follows: for the Claimants, “the measures must have an adequate evidentiary foundation at the
time of their adoption,” but “subsequent evidence can help to demonstrate that the measures, even when adopted,
had fatal and readily apparent flaws” (Tr. Day 9, 2464:1-3; 2467:13-15); for the Respondent, “the critical date for
the assessment of a regulatory measure’s reasonableness is the date of its adoption, not afterwards” (Tr. Day 9,
2564:7-9).
590
Supra, ¶¶ 284-285.
591
Arbitrator Born dissents, for the reasons set out in the Opinion attached as Annex B.
120
The 80/80 Regulation
The 80/80 Regulation was adopted by Presidential Decree 287/009 of 15 June 2009,
which also refers to the FCTC. The Decree was issued in accordance with Article 9 of
Law 18,256, which was meant to implement Article 11(1)(b) of the FCTC.592
The TCA
Decision n. 512 of 23 August 2012 upheld the validity of the 80/80 Regulation, rejecting
Abal’s request for its annulment.
Article 11(1)(b)(iv) of the FCTC requires health warnings on cigarette packages which
“should be 50% or more of the principal display areas but shall be no less than 30% of
the principal display areas” (emphasis added). In other words, the principle of large
health warnings is internationally accepted; it is for governments to decide on their size,
and they are encouraged to require health warnings of 50% or more. It is worth noting
that Decree 287/009 was issued after Article 11 Guidelines had recommended that
health warnings should cover “more than 50% of the principal display area and aim to
cover as much of the principal display area as possible.”593
The 80/80 Regulation was imposed on all cigarettes sold in Uruguay. The Claimants
nonetheless argued that the measure was discriminatory in two respects. First, they
argue that it was imposed as a punitive measure in response to the use by its competitor
Mailhos of alibi brands.594
Second, they argue that the 80/80 Regulation (as well as the
SPR) encouraged illicit sales from neighbouring States, to their prejudice.595
On the first point, the Tribunal notes that the evidence does not sustain the assertion that
this measure was punitive in its aim. It is true that within the MPH concerns were
expressed as to the alibi brands; the MPH was advised by its legal counsel, rightly or
592
Articles 8 and 9 of Law 18,256 implement also Article13 of the FCTC which in paragraph 4 provides, among
others:
4. As a minimum, and in accordance with its constitution or constitutional principles,
each Party shall:
a. prohibit all forms of tobacco advertising, promotion and sponsorship that promote a
tobacco product by any means that are false, misleading or deceptive or likely to create
an erroneous impression about its characteristics, health effects, hazards or emissions.
b. require that health or other appropriate warnings or messages accompany all tobacco
advertising and, as appropriate, promotion and sponsorship.
593
Supra, ¶ 92.
594
CM, ¶ 231; CR, ¶ 63.
595
CM, ¶¶ 121-124; CR, ¶ 87.
121
wrongly, that these could not be prosecuted under the existing law.596
But that does not
show that the 80/80 Regulation was a merely punitive response. From the Ministry’s
point of view, the adoption of alibi brands diluted the intended effect of the SPR, and
the situation called for further action.
As to the second point, there was some increase at the relevant time in the incidence off
cigarette smuggling, but it was not shown how, if at all, this related to the Challenged
Measures. The Claimants went no further than to say that cigarettes are smuggled into
Uruguay “to evade taxation”597
and that they are “appealing to consumers because they
cost a fraction of the price of legal cigarettes” and because they “often do not comply
with government regulations such as the SPR and 80/80 Regulation.”598
The Tribunal
agrees with the Respondent that no evidence has been offered by the Claimants showing
that “the two challenged measures have caused an increase in illegal cigarette sales.”599
As to the Claimants’ further assertion that the government did not deliberate in a
meaningful way about the adoption of the 80/80 Regulation, it is on record that the
relevant process was initiated by a proposal to increase health warnings made by a
member of the Advisory Commission, Dr. Eduardo Bianco, in a meeting with the
President of the Republic, Dr. Tabaré Vázquez. Following the meeting, Dr. Bianco
presented a memorandum to President Vázquez recommending additional tobacco
control measures of various nature.600
President Vázquez approved the increase of
warning space leaving to the MPH to determine the precise size requirement.601
596
Dr. Rodolfo Becerra’s legal opinion, 16 Apr. 2009, noting that “Desde el punto de vista marcario la empresa
[Mailhos or Monte Paz] puede utilizar las marcas registradas” (“From the trademark point of view, the enterprise
may make use of the registered trademarks”: translated by the Tribunal) (C-338, available only in Spanish). The
same opinion advises the MPH to consider a new regulation calling for the plain packaging as a means of putting
an end to alibi brands. At the time, plain packaging was considered to be “too aggressive” (Lorenzo, Tr. 799:3-
5).
597
CM, ¶ 115.
598
CR, ¶ 90 (emphasis added).
599
RCM, ¶ 6.20.
600
Letter from Dr. Bianco to President Tabaré Vázquez, 16 Apr. 2009 (R-208). Dr. Bianco’s letter to President
Vazquez shows the attention by which health control measures regarding tobacco were studied, monitored and
implemented by the MPH in areas such as:
- Protection from Exposure to Tobacco
- Offering Help to Quit Smoking
- Health Warning
- Enforcing bans on tobacco advertising
- Raising taxes on the price of tobacco products.
601
RCM, ¶ 5.65.
122
Following consultation, the decision was made to fix the requirement at 80% rather than
90%, which was also under consideration.602
Apparently the reason for the lower figure
was to leave space for branding.
Such as it is, the marketing evidence suggests that the 80/80 Regulation also had some
deterrent effect on smokers, the percentage of smokers who said that health warnings
made them think about quitting having increased from 25% in 2008-2009, when the
warnings covered only 50% of the front and back of the packs, to 36% in 2012 when the
labels covered 80%.603
According to reports submitted by both Parties, the Challenged
Measures have contributed to a continued decline in smoking prevalence, especially in
new smokers and young smokers – a crucial group in Uruguay.604
The view the Tribunal
has expressed regarding the effectiveness of the SPR is applicable also to the 80/80
Regulation, including the fact that reasonableness of the measure is to be assessed based
on the situation prevailing at the time it was adopted,605
and considering that, absent
specific evidence, it may hardly be determined which of the two measures (or other
concurrent measures, including tax increases) produced a given effect on smokers.
In the Tribunal’s view, the present case concerns a legislative policy decision taken
against the background of a strong scientific consensus as to the lethal effects of tobacco.
Substantial deference is due in that regard to national authorities’ decisions as to the
measures which should be taken to address an acknowledged and major public health
problem. The fair and equitable treatment standard is not a justiciable standard of good
government, and the tribunal is not a court of appeal. Article 3(2) does not dictate, for
example, that a 50% health warning requirement is fair whereas an 80% requirement is
not. In one sense an 80% requirement is arbitrary in that it could have been 60% or 75%
or for that matter 85% or 90%. Some limit had to be set, and the balance to be struck
between conflicting considerations was very largely a matter for the government.
In the end, the question is whether the 80% limit in fact set was entirely lacking in
justification or wholly disproportionate, due account being taken of the legitimate
602
For a description of the process leading to the adoption of the 80/80 Regulation see supra, ¶¶ 124-132. As
witnessed at the Hearing by Dr. Lorenzo, “along the line of trying to move forward more cautiously, it was
preferable to go with 80 percent, and then to move later on to plain package” (Lorenzo Tr. Day 3, 823:6-8).
603
RCM, ¶ 6.42, referring to ITC 2014, (R-313), p. 102.
604
Supra, ¶¶ 136-140.
605
Supra, n. 589.
123
underlying aim – viz., to make utterly clear to consumers the serious risks of smoking.
The Claimants did not object to the content of the warnings, which reflected the
scientific consensus of the different harmful effects of continued smoking, but only to
their size increase to 80% with respect to the previously-accepted 50% size. How a
government requires the acknowledged health risks of products, such as tobacco, to be
communicated to the persons at risk, is a matter of public policy, to be left to the
appreciation of the regulatory authority.
In short, the 80/80 Regulation was a reasonable measure adopted in good faith to
implement an obligation assumed by the State under the FCTC. It was not an arbitrary,
grossly unfair, unjust, discriminatory or a disproportionate measure, in particular given
its relatively minor impact on Abal’s business.606
The Tribunal concludes that its
adoption was not in breach of Article 3(2) of the BIT.
(b) Claimants’ Legitimate Expectations & Uruguay’s Legal Stability
These two additional grounds of the Claimants’ claim of breach of the FET standard
will be considered in the same context due to their interrelation.
It is common ground in the decisions of more recent investment tribunals that the
requirements of legitimate expectations and legal stability as manifestations of the FET
standard do not affect the State’s rights to exercise its sovereign authority to legislate
and to adapt its legal system to changing circumstances.607
On this basis, changes to general legislation (at least in the absence of a stabilization
clause) are not prevented by the fair and equitable treatment standard if they do not
exceed the exercise of the host State’s normal regulatory power in the pursuance of a
public interest and do not modify the regulatory framework relied upon by the investor
at the time of its investment “outside of the acceptable margin of change.”608
606
Supra, ¶¶ 284-285.
607
Parkerings-Compagniet (RLA-177), ¶¶ 327-28; BG Group v. Argentina, UNCITRAL, Final Award, 24 Dec.
2007, (CLA-084), ¶¶ 292-310; Plama (CLA-222), ¶ 219; Continental Casualty v. Argentina, ICSID Case No.
ARB/03/9, Award, 5 Sept. 2008, (CLA-096), ¶¶ 258-61; EDF (CLA-224), ¶ 219; AES v. Hungary, ICSID Case
No. ARB/07/22, Award, 23 Sep. 2010, (RLA-100), ¶¶ 9.3.27-9.3.35; Total (RLA-190), ¶¶ 123,164; Paushok v.
Mongolia, UNCITRAL, Award, 28 Apr. 2011, (“Paushok”) (RLA-75), ¶ 302; Impregilo v. Argentina, ICSID
Case No. ARB/07/17, Award, 21 June 2011, (RLA-061), ¶¶ 290-291; El Paso (CLA-102), ¶¶ 344-352, 365-367.
608
CM, ¶ 243, citing El Paso (CLA-102), ¶ 402; CR, ¶ 210.
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The Tribunal in EDF v. Romania has stated in that regard:
The idea that legitimate expectations, and therefore FET, imply the stability of
the legal and business framework, may not be correct if stated in an overlybroad
and unqualified formulation. The FET might then mean the virtual
freezing of the legal regulation of economic activities, in contrast with the State’s
normal regulatory power and the evolutionary character of economic life.
Except where specific promises or representation are made by the State to the
investor, the latter may not rely on a bilateral investment treaty as a kind of
insurance policy against the risk of any changes in the host State’s legal and
economic framework. Such expectation would be neither legitimate nor
reasonable.609
A similar view has been expressed by the tribunal in El Paso v. Argentina:
There can be no legitimate expectation for anyone that the legal framework will
remain unchanged in the face of an extremely severe economic crisis. No
reasonable investor can have such an expectation unless very specific
commitments have been made towards it or unless the alteration of the legal
framework is total.610
Under a FET clause, a foreign investor can expect that the rules will not be
changed without justification of an economic, social or other nature.
Conversely, it is unthinkable that a State could make a general commitment to
all foreign investors never to change its legislation whatever the circumstances,
and it would be unreasonable for an investor to rely on such a freeze.611
It clearly emerges from the analysis of the FET standard by investment tribunals that
legitimate expectations depend on specific undertakings and representations made by
the host State to induce investors to make an investment. Provisions of general
legislation applicable to a plurality of persons or of category of persons, do not create
legitimate expectations that there will be no change in the law.
Given the State’s regulatory powers, in order to rely on legitimate expectations the
investor should inquire in advance regarding the prospects of a change in the regulatory
framework in light of the then prevailing or reasonably to be expected changes in the
economic and social conditions of the host State.
The Claimants rely on what they consider “justifiable expectations” that the Respondent
would “(a) allow Claimants to continue to deploy and capitalize on their brand assets;
(b) refrain from imposing restrictive regulations without a well-reasoned, legitimate
609
EDF (CLA-224), ¶ 219.
610
El Paso (CLA-102), ¶ 374.
611
Ibid., ¶ 372.
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purpose; (c) respect Claimants’ intellectual property rights; and (d) ensure that
Claimants had access to just, unbiased, and effective domestic court system.”612
According to the Claimants, each of these expectations was “eviscerated” by the
Respondent’s actions.613
Leaving aside the last mentioned expectation, which will be
considered in the context of the “denial of justice” claims, the following may be noted.
The Claimants have provided no evidence of specific undertakings or representations
made to them by Uruguay at the time of their investment (or, for that matter,
subsequently). The present case concerns the formulation of general regulations for the
protection of public health. There is no question of any specific commitment of the State
or of any legitimate expectation of the Claimants vis-à-vis Uruguayan tobacco control
regulations. Manufacturers and distributors of harmful products such as cigarettes can
have no expectation that new and more onerous regulations will not be imposed, and
certainly no commitments of any kind were given by Uruguay to the Claimants or (as
far as the record shows) to anyone else.
On the contrary, in light of widely accepted articulations of international concern for the
harmful effect of tobacco, the expectation could only have been of progressively more
stringent regulation of the sale and use of tobacco products. Nor is it a valid objection
to a regulation that it breaks new ground. Provisions such as Article 3(2) of the BIT do
not preclude governments from enacting novel rules, even if these are in advance of
international practice, provided these have some rational basis and are not
discriminatory. Article 3(2) does not guarantee that nothing should be done by the host
State for the first time.
As an example of distortion of the legal framework, the Claimants indicate that the
“Uruguayan legal system guaranteed to the Claimants a right to use all of their
trademarks.”614
Leaving aside the absence of “a right to use” under the Uruguayan
trademark legislation, which has been excluded by the Tribunal,615
no undertaking or
representation may have been grounded on legal rules of general application, as is the
612
CM, ¶ 237.
613
Ibid., 237.
614
CM, ¶ 244.
615
Supra, ¶ 271.
126
case of trademarks regulation, made subject in any case to the State’s regulatory power
in the public interest.
As noted by Professor Barrios, one of the Respondent’s experts, “[t]he Uruguayan State
enjoys unquestionable and inalienable rights to protect the health of its citizens. And it
is in this framework of the essential duty to protect public health that the State has the
authority to prevent, limit or condition the commercialization of a product or service,
and this will consequently prevent, limit or condition the use of the trademark that
identifies it.”616
According to Professor Barrios, the State’s duty to legislate on issues of
public health is reflected in Article 44 of the Constitution and in international
conventions to which Uruguay is a party, including the FCTC.617
In any event, the Claimants’ “expectations” have not been “eviscerated” by the
Challenged Measures for the reasons detailed in the context of the Tribunal’s analysis
of the alleged “arbitrary” character of such measures. Nor have the new regulations
modified the legal framework for foreign investments beyond an “acceptable margin of
change,” as also alleged by the Claimants,618
considering the limited impact on Abal’s
business, as found by the analysis of the alleged expropriation of their investment.619
The Tribunal concludes that by adopting the Challenged Measures the Respondent has
not breached Article 3(2) of the BIT regarding “legitimate expectations” and the
“stability of the legal framework,” considering that the Claimants had no legitimate
expectations that such or similar measures would not be adopted and further considering
that their effect had not been such as to modify the stability of the Uruguayan legal
framework.
The conclusion reached regarding the dismissal of the Claimants’ claim of breach of
Article 3(2) means that the Tribunal has no need to examine the Respondent’s objection
that the Claimants are prevented from bringing a FET claim due to their alleged
fraudulent behavior.620
616
Barrios Report, (REX-004), ¶ 66.
617
Ibid., ¶ 67.
618
CM, ¶ 243; CR, ¶ 262.
619
Supra, ¶¶ 284-285.
620
RR, ¶¶ 7.31-7.43.
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Impairment of Use and Enjoyment of the Claimants’ Investments under Article
3(1) of the Treaty
The Claimants also allege, albeit briefly, that the Respondent violated Article 3(1) of
the BIT.
Article 3(1) of the BIT provides, in so far as relevant:
Each Contracting Party shall protect within its territory investments made in
accordance with its legislation by investors of the other Contracting Party and
shall not impair by unreasonable or discriminatory measures the management,
maintenance, use, enjoyment, extension, sale and, should it so happen,
liquidation of such investments.
1. The Claimants’ Position
The Claimants allege that as a result of Respondent’s “unreasonable” measures, they
“have clearly lost the ‘use,’ ‘enjoyment,’ and ‘extension’ of their investments in PMI’s
portfolio of brands and intellectual property.”621
In particular, they consider that
establishing a BIT violation requires “no more than” showing that “the measures are, in
a general sense, not reasonable.”622
The Claimants rely on the holding of the National Grid tribunal for its proposition that
“arbitrariness” and “unreasonableness” are interchangeable terms. From this, they
conclude that the same facts that demonstrate the Respondent’s violation of the fair and
equitable treatment obligation on grounds of arbitrariness are also sufficient to establish
an “unreasonable” impairment of the Claimants’ investment.623
These facts include inter alia (1) allegations that the Respondent has not produced any
documentation to prove that it discussed and studied the possible effects of the
Challenged Measures,624
and (2) the lack of connection between the regulation and the
Respondent’s stated objectives and policy goals to change the habits of Uruguayans.625
This demonstrates, according to the Claimants, that the Challenged Measures are not
reasonable and constitute a violation of Article 3(1) of the BIT.
621
CM, ¶ 250.
622
CR, ¶ 281.
623
CM, ¶ 251 (citing National Grid (CLA-221), ¶ 197).
624
CR, ¶¶ 47-54.
625
CM, ¶¶ 251-2.
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2. The Respondent’s Position
Article 3(1) only prohibits impairment of use and enjoyment of an investment if the
measure is “unreasonable or discriminatory.”626
The Respondent underlines that the
SPR and 80/80 Regulation were applied equally and without discrimination to all
tobacco brands.627
With regard to “unreasonableness,” the appropriate standard was set forth by the
tribunals in the Biwater Gauff and Saluka cases, where the tribunals found that the
affected investors were intentionally targeted by the States’ measures and went on to
find the measures to be unreasonable.628
The Respondent further argues that the factual arguments (summarized above)
demonstrating that the measures were not arbitrary also apply to prove that they were
reasonable.629
3. The Tribunal’s Analysis
The Claimants claim to have lost the “use,” “enjoyment” and “extension” of their
investment by reason of measures that they consider unreasonable. In their view, the
term “unreasonable” is interchangeable with “arbitrary,” so that the same facts
demonstrating the Respondent’s violation of the FET obligation on ground of
“arbitrariness” are sufficient to establish an “unreasonable” impairment of their
investment under Article 3(1).630
The facts at the basis of the alleged “unreasonable” impairment of the Claimants’
investments631
have already been examined by the Tribunal in the context of the claim
for breach of the FET obligation, reaching the conclusion that the Respondent has not
breached Article 3(2). There is no reason regarding the present claim to apply a test
626
RCM, ¶ 8.55.
627
RCM, ¶ 1.1.11.
628
RCM, ¶¶ 8.58-8.60 (citing Saluka, (CLA-227), ¶ 460, and Biwater (CLA-013), ¶ 460. The Respondent further
relies on Invesmart v. Czech Republic, Award, 26 June 2009 (RLA-297), ¶ 453.
629
RCM, ¶ 8.57.
630
CM, ¶¶ 250-251. In their Reply, the Claimants appear to have abandoned the ground of arbitrariness to contend
only that the Challenged Measures “are not reasonable measures”: CR, ¶ 281. It may be noted that while Article
3(1) refers to “reasonable or discriminatory measures” as impairing the investment, the Claimants rely only on
the “unreasonableness” of the measures, without reference to their discriminatory character.
631
Supra, ¶ 438.
129
different from the one applied to the claim of breach of the FET, considering that the
factual and legal basis of the two claims are the same.
For the same reasons that have been given for dismissing the claim for breach of Article
3(2), the Tribunal concludes that there was no breach of Article 3(1), dismissing the
Claimants’ claim also in this regard.
Failure to Observe Commitments as to the Use of Trademarks under Article 11
Article 11 of the BIT, under the rubric “Observance of Commitments,” provides:
Either Contracting Party shall constantly guarantee the observance of the
commitments it has entered into with respect to the investments of the investors
of the other Contracting Party.
The Tribunal will first examine whether Article 11 operates as an umbrella clause and
then determine the scope of “commitments” entered into by the State which had thus to
guarantee their observance.
Before doing so, and considering its determinations with regard to the expropriation
claim, it will deal with the Respondent’s contention that since the Claimants did not own
the trademarks allegedly affected by the Challenged Measures, it has not made any
“commitments” to the Claimants;632
and then with the Claimants’ allegation that they
enjoyed a full range of rights as holders of those trademarks, namely the right to use
them in commerce and the right to exclude others from doing so, which rights the
Respondent undertook the obligation to protect when it accepted the Claimants’
trademark applications.633
After summarily reviewing the Parties’ positions on these
issues, it will provide its determination on these two questions, before turning to the
analysis of the standard of treatment set forth under Article 11 of the BIT.
The Claimants’ Trademark Rights
1. The Claimants’ Position
The Claimants allege that by enacting the SPR and 80/80 Regulation, the Respondent
breached its commitments to protect the Claimants’ right to use their trademarks. In
632
RCM, ¶ 9.83.
633
CM, ¶ 257; CR, ¶ 283.
130
particular, they alleged that by granting the trademarks over Abal’s different cigarette
brands, the Respondent “committed to ensuring the Claimants the full range of rights
that trademark holders enjoy in Uruguay, including the right to use trademarks and the
right to exclude others from doing so.” Such commitments arose from Uruguay’s
decision to accept the Claimants’ trademark registrations. The Respondent failed to
observe that obligation by virtue of the SPR and 80/80 Regulation. Failure to honor them
constitutes a violation of Uruguay’s obligations under Article 11’s umbrella clause.634
The effect of the SPR regulation was that the Claimants could only use one variant from
each of its cigarette brands, and the effect of the 80/80 Regulation was that their ability
to use those trademarks was significantly undermined. This, according to the Claimants,
constitutes a violation of the umbrella clause of Article 11 of the BIT.
Moreover, all the variants that are the basis of the claim are protected because they
maintain the “distinctive features” of the trademarks as originally registered and they
grant the Claimants a right to use their trademarks in commerce.
The Claimants further rebut Uruguay’s allegations that (i) the Claimants did not own
the trademarks that were allegedly affected by the Challenged Measures and thus it
cannot be considered to have made any “commitments” in relation to the Claimants, and
(ii) Uruguay’s trademark law only confers upon trademark registrants the rights to
exclude others from using the trademark, but not the right to use the trademarks in
commerce.
2. The Respondent’s Position
The Respondent rejects the Claimants’ contentions on several grounds: (1) Article 11
does not operate as an umbrella clause; (2) registration of a trademark does not constitute
a “commitment” for purposes of Article 11; (3) the Claimants’ trademarks were not
registered with Uruguay’s National Directorate of Industrial Property (DNPI) to benefit
from legal protection so that the Respondent has no “commitments” in relation to the
trademarks at issue in these proceedings because they are not owned by the Claimants;
and (4) Uruguayan trademark law does not grant registrants a positive right to use the
trademarks in commerce, but only a right to exclude others from doing so.
634
CM, ¶ 259.
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With regard to the third point, the Respondent argues that the marks displayed on the
branded packaging of seven of the thirteen brands variants allegedly affected by the
Challenged Measures, were not, in fact, protected trademarks insofar as the Claimants
failed to register them.635
With regard to the last point, Respondent asserts that after obtaining a trademark
registration by the DNPI, the holder of trademark has the right to challenge the use of
any trademark that would result in confusion between the goods or services in question
and the good for which the trademark was registered. It also has the right to challenge
the registration of identical or similar signs. 636
In sum, what Uruguayan law recognizes
is a right to prevent others from using the trademark and not a right to use the trademark
in commerce.637
The freedom to engage in commerce and market products bearing
marks is recognized by the Constitution regardless of whether the trademark is
registered or not. This qualified freedom cannot be converted in a right to use.638
Moreover, none of the international Intellectual Property Conventions on which the
Claimants rely, and on which Uruguay’s Intellectual Properly law was based, recognize a
right to use.639
3. The Tribunal’s Analysis
Regarding the Claimants’ ownership of the trademarks at issue in these proceedings the
Tribunal, when examining the expropriation claim, has assumed, without deciding, that
said trademarks continued to be protected under the Uruguayan trademark law.640
It
will proceed, based on the same assumption, to establish whether a trademark is a
“commitment” for the purposes of Article 11 of the BIT.
Also when examining the expropriation claim, the Tribunal has excluded that the right
to use is among the rights conferred by a trademark.641
To that extent, therefore, no
635
RCM, ¶ 9.83. The Respondent asserts that seven of the 13 variants about which Claimants complain were not
validly registered when the SPR was adopted. See supra, ¶ 246 and n. 311.
636
RCM, ¶ 9.24, citing Barrios Report (REX-004), ¶ 50.
637
RR, ¶¶ 9.29, 9.31-46 (referring to the Barrios Report, the decision of the Tribunal de lo Contencioso
Administrativo No. 933 of Nov. 2010, and the administrative practice of Uruguay).
638
RR, ¶ 9.31.
639
RR, ¶¶ 9.47-9.64; RCM, ¶¶ 9.36-9.47.
640
Supra, ¶ 254.
641
Supra, ¶ 271.
132
“commitments” may be said to have been undertaken by the Respondent with regard to
the trademarks allegedly affected by the Challenged Measures.
Article 11 as an Umbrella Clause and the Scope of the State’s “Commitments”
1. The Claimants’ Position
The Claimants contend that Article 11 is an umbrella clause since it includes “the core
components” of such a clause: (1) a State obligation to observe (2) commitments entered
into with respect to investments, which the State has failed to observe.642
Relying on, among others, the LG&E and Enron tribunals, the Claimants posit that a
State can assume those “obligations” by enacting generally applicable domestic laws
and regulations. A failure to meet these general obligations would trigger State
responsibility.643
They further add that “[t]here is nothing unusual about the BIT’s
umbrella clause.”644
The Claimants contend that their trademark registration is within the scope of
“commitments” covered by Article 11 of the BIT because:
[A]a trademark registration is a grant of the rights specified in Uruguayan law
to an individual person or entity. Claimants’ trademark registration are indeed
specific to Claimants. As a result of those particular registrations, Claimants
alone have rights in their trademarks, no one else owns the trademarks, and no
one else may use the trademarks without Claimants’ authorization.645
Contrary to the Respondent’s arguments, the Claimants consider that a letter presented
to ICSID in the SGS v. Pakistan arbitration, where Switzerland provided its
interpretation of the BIT, is inapposite in this arbitration. They allege that (1) it refers
to the Swiss-Pakistan BIT, not the Switzerland-Uruguay BIT; (2) it was signed 15 years
after Switzerland concluded the BIT with Uruguay; (3) it is a post hoc interpretation of
the Switzerland BIT with Pakistan; and (4) it is irrelevant to the interpretation of the
Uruguay BIT under the VCLT as it was a unilateral communication.646
Even if the
642
CR, ¶ 286, citing Duke Energy (CLA-228), ¶ 318.
643
CM, ¶¶ 253-256 (citing Enron (CLA-230), ¶¶ 274-277, and LG&E, (RLA-65), ¶ 174); CR, ¶¶ 287-291.
644
CR, ¶ 286.
645
CR, ¶ 290.
646
CR, ¶¶ 287-289.
133
Tribunal accepts the relevance of the letter, the Claimants’ trademark registration still
falls under the commitments covered by Article 11.647
2. The Respondent’s Position
The Respondent makes two arguments on this score. First, it argues that Article 11
cannot be equated to umbrella clauses in other BITs involving different parties.648
To
support its argument, it points to its “unusual” wording of Article 11, which obligates
the Contracting States to the BIT to “constantly guarantee the observance of the
commitments.” This, according to the Respondent, differs from the “conspicuously
different” usual formulation of umbrella clauses, under which States “shall observe any
obligation” entered into.649
The Respondent notes that the difference is evident “as a
matter of simple semantics.”650
It says that this unusual wording shows that it is not
intended to elevate domestic commitments into a treaty obligation, relying on academic
commentary and a sample of relevant arbitral awards on the question.651
Second, it alleges that even if it did operate as an umbrella clause, Article 11 should not
be interpreted as covering commitments made under generally applicable municipal
law.652
Thus, Uruguay’s registration of the Claimants’ trademarks cannot be considered
an international law obligation on the basis of Article 11.
The Respondent refers to a letter sent by Switzerland to ICSID, which stated that a
provision of the Swiss-Pakistan BIT in similar language to the Switzerland-Uruguay
BIT was not intended to cover obligations arising under general legislative,
administrative, or other unilateral measures. According to the Respondent,
Switzerland’s interpretation in SGS is applicable in the present case.653
It points out that
the Claimants themselves rely on the Tribunal’s finding in SGS v. Pakistan and that they
cannot now allege its inapplicability.654
647
CR, ¶ 290.
648
RCM, ¶ 9.6.
649
RCM, ¶ 9.8 (emphasis in the text).
650
RR, ¶ 9.8.
651
RR, ¶¶ 9.9-9.12
652
RCM, ¶¶ 9.6-9.18; RR, ¶ 9.19.
653
RCM, ¶ 9.14; citing Letter from Ambassador Marino Baldi, Swiss State Secretariat for Economic Affairs, to
Mr. Antonio R. Parra, Deputy Secretary General, ICSID, 2003, p. 14 (RLA-251).
654
RR, ¶ 9.17.
134
Relying on the findings of the HICEE B.V. v. Slovak Republic tribunal, the Respondent
considers, in the alternative, that Switzerland’s letter should, in any case, be considered
merely as a “supplementary means of interpretation” under Article 32 of the VCLT.655
3. The Tribunal’s Analysis
Interpretation of Article11 as an umbrella clause
Clauses with similar wording to that of Article 11 have by now been the subject of a
number of awards and extensive academic commentary. In SGS v. Pakistan, concerns
about the “almost indefinite expansion” of Article 11 of the Swiss-Pakistan BIT, which
is identical to Article 11 of the Uruguay-Swiss BIT, resulted in an interpretation of the
word “commitment” that did not include contract claims.656
In SGS v. Philippines, the
tribunal reached the contrary result on the basis of Article 10(2), which provided:
“[e]ach Contracting Party shall observe any obligation it has assumed with regard to
specific investments in its territory by investors of the other Contracting Party,”
justifying its interpretation based partly on the different wording in this provision. 657
The textual distinction between Article 10 of one BIT and Article 11 of the other BIT
was rejected in the SGS v. Paraguay award. The Paraguay tribunal was concerned with
Article 11 of the Paraguay-Swiss BIT, which is also identical to Articles 11 of the SwissPakistan
and Swiss-Uruguay BITs. In a footnote in the jurisdictional decision, the
tribunal sought to deal with the diverging case law on the topic as follows:
The SGS v. Philippines tribunal suggested that it reached a different result […]
based at least in part on difference between the umbrella clause language of the
Switzerland-Philippines BIT and the supposedly less direct or less specific
language of the umbrella clause in the Switzerland-Pakistan BIT. […] Inasmuch
as we reach the same result on jurisdiction as the SGS v. Philippines tribunal,
on the basis of the same Treaty language as was before the SGS v. Pakistan
tribunal, it follows that this Tribunal does not see the language as meaningfully
different. That is, we do not consider that the wording of Article 11 of the Treaty
is so general or hortatory as to preclude reading it as an obligation of the State
to comply with, inter alia, its contractual commitments.658
655
RR, ¶¶ 9.15-9.17 (citing HICEE B.V. v. Slovak Republic, UNCITRAL, Partial Award, 23 May 2011,
(“HICEE”) (RLA-111), ¶ 136).
656
SGS v. Pakistan, ICSID Case No. ARB/01/13, Decision on Jurisdiction, 6 Aug. 2003 (“SGS Pakistan”) (CLA-
059), ¶¶ 166-167.
657
SGS v. Philippines, ICSID Case No. ARB/02/6, Decision on Jurisdiction, 29 Jan. 2004 (“SGS Philippines”)
(CLA-058), ¶ 119.
658
SGS v. Paraguay, ICSID Case No. ARB/07/29, Decision on Jurisdiction, 12 Feb. 2010, (CLA-143), ¶ 169, n.
95.
135
That decision was upheld by the annulment committee, which rejected Paraguay's
allegations that the tribunal had manifestly exceeded its powers,659
albeit in terms that
suggested that its members might have personally taken a different view.660
The Respondent made reference to the Switzerland–Paraguay BIT661
but did not deal
with the SGS v. Paraguay decision in either of its written pleadings.
While the Respondent placed significance on academic commentary emphasizing the
textual differences, it must be noted that much of that commentary has taken its cue
from the SGS v. Pakistan case. Moreover, that commentary can be understood in a
context in which there is a drive to defend the coherence of the arbitration system in the
face of apparently contradictory awards involving the same claimant. In this case, the
Respondent’s argument would require emphasis to be placed on textual differences too
subtle to bear the weight of such a distinction. The words “constantly guarantee the
observance of commitments” require something more active than merely providing a
legal system within which commitments might be enforced, as the Respondent would
have it.662
Moreover, the Noble Ventures award is not directly applicable; it did not
express a final view on the question, finding in any case that it could hear the contract
claim on the basis of the standard umbrella clause before it.663
The Tribunal concludes that Article 11 operates as an umbrella clause, at least for
contract claims.
Is a trademark a “commitment” within Article 11?
The Claimants say that the trademarks they were granted were “commitments” for the
purposes of Article 11: on this basis, they claim a breach of that Article since the
Respondent failed to observe the obligations it had assumed by adopting the Challenged
659
SGS v. Paraguay, ICSID Case No. ARB/07/29, Decision on Annulment, 19 May 2014, ¶ 120.
660
Ibid., ¶¶ 119-121.
661
RCM, ¶ 9.9. No reference to the Switzerland-Paraguay BIT or the SGS v. Paraguay decision was made by the
Claimants.
662
RR, ¶ 9.10, relying on Anthony Sinclair, “The Umbrella Clause Debate,” in Andrea Bjorklund et al (eds.)
Investment Treaty Law: Current Issues III (2009), (RLA-247), p. 283 (arguing for a different interpretation stating
that “[i]t might for example, mean merely to provide a legal system and framework of institutions in which
commitments may be enforced.”); and on Noble Ventures (RLA-165), ¶ 58.
663
Noble Ventures (RLA-165), ¶ 61.
136
Measures.664
According to the Claimants, “commitments” may be entered into by the
State “through generally applicable laws and regulations and this includes the trademark
law.”665
The Claimants say that by granting the trademarks over Abal’s different
cigarette brands, the Respondent “committed to ensuring Claimants the full range of
rights that trademark holders enjoy in Uruguay, including the right to use trademarks
and the right to exclude others from doing so.”666
The effect of the SPR regulation was
that the Claimants could only use one variant from each of its trademarked cigarette
brands, and the effect of the 80/80 regulation was that its ability to use those trademarks
was undermined, thus failing to “constantly guarantee the observance of the
commitments” under Article 11. 667
The Respondent denies that Article 11 can be used “to elevate nominal violations of
generally applicable IP law into a treaty breach.”668
It relies on a letter from the Swiss
government to ICSID following the SGS v. Pakistan and SGS v. Philippines awards,
where Switzerland explained that Article 11 of the Switzerland-Pakistan BIT (which is
identical to Article 11 of the Switzerland-Uruguay BIT) was intended to cover specific
commitments related to the investment, such as an investment authorisation, but it does
not extend to “municipal, legislative or administrative or other unilateral measures.”669
In its Counter-Memorial, the Respondent made no legal argument as to what weight
should be given to a letter of this kind, simply stating that it would be appropriate to
give the parties’ views considerable deference. The Swiss-Uruguayan BIT contains no
facility akin to the NAFTA Free Trade Commission whereby the State parties can issue
binding interpretations of NAFTA.670
Moreover, as the Claimants note, under the
VCLT there is no facility for taking into account the post hoc explanations by one State
as to what it meant when it signed a treaty, although it would be possible for Switzerland
664
CM, ¶¶ 255-256; CR, ¶ 283.
665
CM, ¶ 258, relying on LG&E (RLA-65); CR, ¶ 285, citing Noble Energy, Inc. and Machalapower Cia. Ltda.
v. The Republic of Ecuador and Consejo Nacional de Electricidad, ICSID Case No. ARB/05/12, Decision on
Jurisdiction, 5 Mar. 2008, (CLA-247) and other cases in CR n.499.
666
CR, ¶ 283.
667
Ibid.
668
RCM, ¶ 9.18.
669
RCM, ¶ 9.14 (citing Letter from Ambassador Marino Baldi, Swiss State Secretariat for Economic Affairs, to
Mr. Antonio R. Parra, Deputy Secretary General, ICSID, 2003 (emphasis in the text) (RLA-259)).
670
North American Free Trade Agreement (NAFTA), Article 2001(2).
137
and Uruguay to subsequently agree on the scope of Article 11.671
The Respondent did
not seek to argue that this had crystallised into agreement with the acceptance of the
position by it in these proceedings, but even if it had, it is not clear what weight should
be given to such an agreement.672
In its Rejoinder, the Respondent argued that Switzerland’s letter was capable of being
given weight under Article 32 VCLT as a supplementary means of interpretation, noting
that the list in Article 32 is not exclusive. It pointed to the HICEE B.V. v. Slovak
Republic award as an example.673
There the relevant statement by the Dutch
Government had been made public in the process of concluding the treaty, not
subsequently, and had been shared by Slovakia during the proceedings.674
It would be
quite novel and potentially raise due process concerns in investment arbitration cases if
a subsequent unilateral statement by one State could be given substantial, let alone
decisive, weight.
The letter does not deal with trademarks. It merely underlines the words “commitment
to a specific investments or a specific investor,” suggesting that they require a specific
link between the commitment and the investment, such that a general law, or “municipal
legislative or administrative or other unilateral measures,” would not be covered. On
the other hand, a more active demeanour by a party that points more in the direction of
a commitment to a specific investment or a specific investor, either in a contract or “an
investment authorization … or a written agreement” would be covered.675
Irrespective of the interpretative weight of Switzerland’s letter, its content reflects the
view, repeatedly held by investment tribunals, that clauses such as Article 11, referring
to “commitments entered into [by State] with respect to the investment of the investor”
671
VCLT, Article 31(3).
672
Richard K. Gardiner, Treaty Interpretation 32 (2008) at p. 1268: “That the agreement of the parties on an
interpretation trumps other possible meanings seems obvious enough, given the nature of a treaty as an
international agreement between its parties.” But compare Interpretation of the Air Transport Services Agreement
of 6 Feb. 1948 (Italy v. United States), 16 RIAA 75, 99 (1965), noting that subsequent practice of the treaty parties
is not “in itself decisive for the interpretation of the disputed text; it can however serve as additional evidence as
regards the meaning to be attributed to the text.” The ICJ adopts an even narrower approach: “Interpretations
placed upon legal instruments by the parties to them, though not conclusive as to their meaning, have considerable
probative value when they contain recognition by a party of its own obligations under an instrument.”
(International Status of South-West Africa, Advisory Opinion, I.C.J. Reports 1950, 128, at 135-136).
673
RR, ¶¶ 9.13-9.17.
674
HICEE (RLA-111), ¶ 136. See RR, ¶ 9.16, n. 652.
675
RR, ¶ 9.13.
138
of the other State, do not cover general obligations imposed by the law of the host State.
As held by the tribunal in the Noble Ventures case, “the employment of the notion
‘entered into’ indicates that specific commitments are referred to and not general
commitments, for example by way of legislative acts.”676
The question for this Tribunal is whether a trademark falls between the two categories,
i.e. whether it can be considered a commitment under general legislation or by reason
of the individual consideration involved in the initial grant as a specific commitment to
as specific investment or investor.
The Claimants argue that it is a commitment that arises when a submitted registration
application is granted under Uruguayan law “to an individual person or entity.”677
Yet,
a trademark is not a unique commitment agreed in order to encourage or permit a
specific investment. Unlike the case of an authorisation or a contract, where the host
State may undertake some specific obligations, Uruguay entered into no commitment
“with respect to the investment” by granting a trademark. It did not actively agree to be
bound by any obligation or course of conduct; it simply allowed the investor to access
the same domestic IP system available to anyone eligible to register a trademark. While
the trademark is particular to the investment, it stretches the word to call it a
“commitment.”
In addition, the scope of any such commitment remains uncertain. As compared to a
contract, where the host State enters into specific, quantifiable obligations in relation to
an investment, a trademark is not a promise by the host State to perform an obligation.
It is simply a part of its general intellectual property law framework. A trademark gives
rise to rights, but their extent, being subject to the applicable law, is liable to changes
which may not be excluded by an umbrella clause: if investors want stabilization they
have to contract for it.
The Tribunal concludes that trademarks are not “commitments” falling within the
intended scope of Article 11 of the BIT. Accordingly, the Claimants’ claim of breach
by the Respondent of Article 11 by the adoption of the Challenged Measures is rejected.
676
Noble Ventures (RLA-165), ¶ 51. See also SGS Philippines (CLA-058), ¶ 121.
677
CR, ¶ 290.
139
Denial of Justice
The Claimants further allege that the Respondent, through its judicial system, committed
two denials of justice in breach of the fair and equitable treatment standard set out in
Article 3(2) of the Swiss-Uruguayan BIT. First, the Claimants allege that the final
decision of Uruguay’s Supreme Court of Justice (“SCJ”) on the constitutionality of Law
18,256 (Article 9) and the TCA’s Decision on the legality and validity of the 80/80
Regulation were directly contradictory with no way to reconcile that contradiction
without incurring in a denial of justice. Second, the Claimants say that the TCA’s
decision on the SPR amounted to a denial of justice because when rendering its
judgment, the TCA failed to address Abal’s arguments and evidence and instead
considered the challenge against the same regulation brought by one of its competitors,
British American Tobacco (“BAT”).
The Respondent in turn explains that Uruguay’s judicial system and its commitments to
the rule of law, are widely recognized by international organizations and independent
observers as among the best in South America.678
The actions of its judiciary in this
case do not show otherwise. First, allegedly divergent decisions from the SCJ and the
TCA with regard to the interpretation of Law 18,256 are not sufficient to amount to a
denial of justice.679
The Respondent stresses that the Supreme Court and the TCA are
co-equal institutions and that each acted “within its sphere of competence.” The TCA
was only bound by a decision of the SCJ holding a law unconstitutional, which did not
occur here. 680
Second, the 3 passing references to BAT’s trademarks in the TCA’s
decision over Abal’s SPR challenged, are at most an oversight. They do not amount to
a “procedural irregularity of such severity that it affects the outcome of the case” and
thus cannot be considered a denial of justice under the FET standard interpreted in
accordance with international law.681
In addition, the Claimants failed to exhaust all
available and effective remedies.
678
RCM, ¶¶ 11.44-11.50 (citing to rankings from the Inter-American Development Bank, the World Bank, the
U.S. State Department, Transparency International and others). This point was recognized by the Claimants’ own
experts: Tr. Day 6, 1832:19 – 1833:3.
679
RCM, ¶¶ 11.120, 11.125.
680
RCM, ¶¶ 11.101, 11.112-11.118; RR, ¶ 11.54.
681
RCM, ¶ 11.84.
140
The Legal Standard
Article 3(2) of the BIT reads in relevant part:
Each Contracting Party shall ensure fair and equitable treatment within its
territory of the investments of the investors of the other Contracting Party.
Both parties agree that in so far as Article 3(2) concerns judicial decisions, it creates a
denial of justice standard.
The Parties further agree that for a State to incur international responsibility, the
underlying denial of justice claim must arise from “fundamentally unfair judicial
proceedings” at the issuance of which the claimant is considered to have exhausted all
available local remedies.682
The Parties disagree nevertheless on the standard of proof
and the threshold necessary for a denial of justice claim.
1. The Claimants’ Position
According to the Claimants, a denial of justice may result from, for instance, a “refusal
to judge” (including a “disguised refusal”), a breach of due process, arbitrariness, gross
incompetence, or a pretense of form.683
Neither bad faith nor malicious intent are
required, however, as recognized by the Respondent’s expert, Professor Schrijver.684
The Claimants also relied on the original formulation in the 1929 Harvard Draft
Convention on State Responsibility, article 9 of which provided: 685
Denial of justice exists when there is a denial, unwarranted delay or obstruction
of access to courts, gross deficiency in the administration of judicial or remedial
process, failure to provide those guarantees which are generally considered
indispensable to the proper administration of justice, or a manifestly unjust
judgment.
682
CR, ¶ 294.
683
CM, ¶ 263, citing Paulsson, Azinian v. Mexico, Grand River v. United States, the 1929 Harvard Draft
Convention, and Mondev v. United States (the latter stating that “question is whether, at an international level and
having regard to generally accepted standards of the administration of justice, a tribunal can conclude in the light
of all the available facts that the impugned decision was clearly improper and discreditable, with the result that
the investment has been subjected to unfair and inequitable treatment”).
684
CR, ¶ 298 (relying on Loewen Group Inc. v. United States, ICSID Case No. ARB(AF)/98/3, 26 June 2003,
(“Loewen”) (CLA-169), ¶ 132.
685
CM, ¶ 264. The 1929 Harvard Draft Convention on State Responsibility, article 9 was relied on by: Ian
Brownlie, Principles of Public International Law (2003), pp. 506-07; Grand River Enterprises Six Nations Ltd v.
USA, UNCITRAL, Award, 12 Jan. 2011, ¶ 223.
141
Relying on their expert, Professor Paulsson, the Claimants submit that the alleged denial
of justice would breach both the FET obligation in the BIT and the relevant customary
international law standard.686
The condition that local remedies be exhausted, for its part, requires determining
whether there is a higher court that can reconsider and correct a lower court’s unfair
proceeding. The available higher court must be capable of redressing the wrong and
thereby correct what would otherwise be a denial of justice.687
In any case, it is the Respondent who bears the burden of showing that a reasonable and
effective remedy was available and was not exhausted by the Claimants, to avoid
incurring international responsibility after its courts have denied justice to the
Claimants. 688
2. The Respondent’s Position
The Respondent is broadly in agreement with the Claimants’ statement of the legal
standard for a denial of justice, but it emphasises that there is a high threshold to prove
a denial of justice.689
It requires clear and convincing evidence of an egregious conduct
of judicial proceedings, that results in an outrageous failure of the judicial system.690
It
is not enough to have an erroneous decision, or even an incompetent judicial procedure.
For instance, the misapplication of municipal law or erroneous factual findings do not
per se give rise to a denial of justice.691
There must be a “failure of a national system
as a whole to satisfy minimum standards” or a demonstration of “systemic injustice.”692
Uruguay also relies on Flughafen award, to allege that the grave procedural errors must
686
Expert Report of Jan Paulsson of 27 Feb. 2014 (“Paulsson Report I”) (CWS-011), ¶ 20.
687
CR, ¶¶ 303-309.
688
CR, ¶ 301, relying on Schwebel’s Opinion (“Schwebel Opinion”) (CWS-15), ¶ 19; ELSI (CLA-164; CLA-
88), ¶ 63.
689
RCM, ¶ 11.11; Second Expert Report of Jan Paulsson, 8 Apr. 2015 (“Paulsson Report II”) (CWS-25), ¶¶ 6-
8; Schwebel Opinion (CWS-15), ¶ 11; Second Legal Opinion of Professor Nico Schrijver, 10 Sep. 2015
(“Schrijver Second Opinion”) (REX-10), ¶¶ 4-5; See also RR, ¶ 11.15.
690
RCM, ¶ 11.16 (emphasis in the text).
691
RCM, ¶ 11.18.
692
RCM, ¶¶ 11.13-11.14; citing Oostergetel v. Slovakia, Final Award, UNCITRAL Arbitration, 23 Apr. 2012,
(RLA-194), ¶ 273.
142
have an impact on the outcome,693
and that there is a presumption of legality of the
decisions of domestic courts which the Claimants must overcome.694
Moreover, the standard of conduct imposed by international law is independent from
the question of legality under domestic law. The Respondent emphasizes that
international investment tribunals may not serve as a court of appeals for decisions of
national courts or tribunals. Accordingly, the Respondent argues, when examining a
denial of justice claim the Tribunal may not engage in a re-adjudication of complex
questions of municipal law over which the parties advance plausible interpretations.695
As to the exhaustion of local remedies, the Respondent emphasizes that the denial of
justice requires the exhaustion of all reasonably available and potentially effective local
remedies, including constitutional and extraordinary remedies.696
The only exception is
local remedies that are obviously futile. 697
According to the Respondent, the standard outlined above applies to a denial of justice
claim under both to fair and equitable treatment under the BIT and under customary
international law.698
With regard to the burden of proof, Uruguay asserts that if it is for the claimant to bear
the burden of demonstrating that it has exhausted all reasonable remedies or that a local
remedy was not exhausted because it would be futile.699
The Respondent considers that
as long as a remedy is available and capable of affording effective relief, the Claimants
have the obligation to exhaust it.
693
RR, ¶ 11.16 citing Flughafen Zürich A.G. and Gestión e Ingeniería IDC S.A. v. Bolivarian Republic of
Venezuela, ICSID Case No. ARB/10/19, Award, 18 Nov. 2014 (“Flughafen”) (CLA-248), ¶ 693.
694
RR, ¶ 11.17, citing Flughafen (CLA-248), ¶ 637.
695
RCM, ¶¶ 11.18-11.23; RR, ¶¶ 11.15-11.16, citing Mamidoil Jetoil Greek Petroleum Products Societe S.A. v.
Republic of Albania, ICSID Case No. ARB/11/24, Award, 30 Mar. 2015, (RLA-314), ¶ 764.
696
RCM, ¶¶ 11.11, 11.24, 11.31-11.33 (citing ILC Drafts Articles on Diplomatic Protection 14.2, and
jurisprudence of the European Court of Human Rights).
697
RCM, ¶¶ 11.31-11.35.
698
RCM, ¶¶ 11.37-11.43 (citing Paushok, (RLA-75), ¶ 625, Iberdrola Energía S.A. v. Republic of Guatemala,
ICSID Case No. ARB/09/5, Award, 17 Aug. 2012, (RLA-199), ¶ 427, Jan de Nul N.V. v. Arab Republic of Egypt,
ICSID Case No. ARB/04/13, Award, 6 Nov. 2008, (RLA-181), ¶ 259).
699
RCM, ¶ 11.30; RR, ¶ 11.47 (citing inter alia Apotex, Inc.& the United States, UNCITRAL Arbitration, Award
on Jurisdiction and Admissibility, 14 June 2013 (RLA-205), ¶ 268).
143
3. The Tribunal’s Analysis
The fair and equitable treatment obligation may be breached if the host State’s judicial
system subjects an investor to denial of justice. The Parties appear to be broadly in
agreement on the legal standard for a denial of justice. Both cite Arif v. Moldova, its
basic proposition being that a denial of justice is found “if and when the judiciary
breached the standard by fundamentally unfair proceedings and outrageously wrong,
final and binding decisions.”700
An elevated standard of proof is required for finding a denial of justice due to the gravity
of a charge which condemns the State’s judicial system as such. A denial of justice
claim may be asserted only after all available means offered by the State’s judiciary to
redress the denial of justice have been exhausted. As held by one decision, “[a] denial
of justice implies the failure of a national system as a whole to satisfy minimum
standards.”701
The high standard required for establishing this claim in international law means that it
is not enough to have an erroneous decision or an incompetent judicial procedure,
arbitral tribunals not being courts of appeal.702
For a denial of justice to exist under
international law there must be “clear evidence of … an outrageous failure of the
judicial system”703
or a demonstration of “systemic injustice”704
or that “the impugned
decision was clearly improper and discreditable.”705
The Tribunal shares the view according to which “grave procedural errors” may result
in a denial of justice depending on the circumstances of each case.706
It believes that a
denial of justice exists if the conditions outlined above for finding the same are satisfied,
whatever impact it may have had on the outcome of the court proceedings.707
700
CM, ¶ 262; RCM, ¶ 11.12 (emphasis in the citation added by the Respondent).
701
RCM, ¶ 11.13 (relying on Ian Oestergetel v. Slovak Republic, UNCITRAL Arbitration, Final Award, 23 Apr.
2012 (“Oestergetel”)(RLA-194), ¶ 273).
702
Mondev (RLA-117), ¶ 126.
703
RCM, ¶ 11.16, citing Professor Greenwood’s opinion (emphasis in the text).
704
RCM, ¶ 11.13, citing Oestergetel (RLA-194), ¶ 273.
705
Mondev (RLA-117), ¶ 127.
706
RR, ¶ 11.16, relying on Schrijver’s Second Opinion, (REX-10), ¶¶ 6-7, citing Flughafen (REX-010), ¶ 693.
707
See infra, ¶¶ 571572.
144
After citing in the Counter-Memorial the position of Sir Gerald Fitzmaurice that to prove
denial of justice it is necessary to show bad faith708
and after repeating it in the summary
of Arif v. Moldova,709
the Respondent does not invoke the bad faith requirement in the
Rejoinder. The requirement of bad faith has been excluded by other tribunals.710
As to the Parties’ debate regarding burden of proof of the exhaustion of local
remedies,711
the Tribunal notes that this is a condition that has to be satisfied prior to
asserting a denial of justice claim. It is for the Claimants to show that this condition has
been met or that no remedy was available giving “an effective and sufficient means or
redress”712
or that, if available, it was “obviously futile.”713
The Apparently Contradictory TCA and SCJ Decisions on the 80/80 Regulation
1. The Claimants’ Position
In the Claimants’ view, Decree 287 was impermissible under Uruguayan law under
either of the following readings of Law 18,256: (a) if Law 18,256 only allowed the MPH
to impose a requirement that the warnings cover 50% of the package, then the 80/80
Regulation would impermissibly exceed the scope of the law; and (b) if Law 18,256
allowed the MPH to require warnings covering more than 50% of the package, then that
delegation of legislative authority would have been impermissible under the Uruguayan
Constitution, because only the legislature is permitted to restrict fundamental property
rights, including intellectual property rights.
Under the Uruguayan judicial system, Abal was required to litigate each of the
propositions described in the preceding paragraph in separate courts. Abal could only
litigate proposition (a) before the TCA, which has jurisdiction to assess the legality of
708
RCM, ¶ 11.19.
709
RCM, ¶ 11.23.
710
Such as in Loewen (CLA-169), ¶ 132.
711
CR, ¶ 301; RR, ¶ 11.47.
712
CR, ¶ 309, citing Draft Articles on Diplomatic Protection with Commentaries, Report of the International Law
Commission on the Work of its 6th
Session, UN Doc. A/61/10 15, (LC-10), Article 14, comment 2, p. 72.
713
RCM, ¶ 11.30 (referring in n. 1218 to Schrijver Opinion, (REX-008), ¶ 35, to Claim of Finnish Shipowners
against Great Britain, Award, 9 May 1934, (CLA-030), p. 1505 (emphasis added in the reference) and to The
Ambatielos Claim (Greece, United Kingdom of Great Britain and Northern Ireland), Award, 6 Mar. 1956, 12
U.N.R.I.A.A. 83 (RLA-44), p. 119.
145
administrative acts such as decrees; and only proposition (b) before the Supreme Court,
which has jurisdiction to assess the constitutionality of laws.714
According to the Claimants, the outcomes before the Supreme Court and the TCA turned
on the same matter under dispute: did Article 9 of the Law delegate authority to the
executive to require warnings of more than 50%?715
However the decisions ultimately
rendered by the Supreme Court and the TCA are openly contradictory in the Claimants’
view. On the one hand, the Supreme Court found that Law 18,256 was constitutional
because it did not allow the MPH to require health warnings covering more than 50%
of the surface of a cigarette package; on the other hand, the TCA, when assessing the
legality of the Decree, found that the 80/80 Regulation was permissible because Law
18,256 did allow the MPH to require warnings covering more than 50% of the package.
The Claimants contend that both propositions cannot be true. In their view, as a result
of these allegedly conflicting rulings without the possibility of any further appeal, the
Uruguayan judicial system deprived Abal of its right to a decision on the legality of the
80/80 Regulation and inflicted a denial of justice.716
The Claimants consider that the TCA’s decision, subsequent to the SCJ ruling, is an
example of a “failure of State authorities to give effect to a judicial decision favorable
to the alien’s cause.”717
The Claimants further contend that the TCA violated Uruguayan law when it
contradicted the Supreme Court’s interpretation of Law 18,256. Because Uruguayan
law incorporates the principle of res judicata,the TCA was bound to follow the Supreme
Court’s interpretation of Law 18,256 as applied to Abal. The TCA’s failure to do so
resulted in contradictory and irreconcilable decisions.718
By invoking the separate functioning and relationship between its administrative and
constitutional systems, the Claimants contend, the Respondent is improperly seeking to
invoke domestic law and its domestic legal system to insulate it from international
responsibility. In any case, even under the domestic legal system, the principles of legal
714
CM, ¶ 168.
715
Tr. Day 1, 31:19-22.
716
CR, ¶ 163. See also Ibid., ¶¶ 158-162; CM, ¶¶ 272-275.
717
CR, ¶ 322.
718
CR, ¶ 164.
146
interpretation, the integrity of the legal system and due process cannot tolerate that two
directly contradictory legal positions coexist and apply simultaneously to the same
parties.719
Finally, a denial of justice must be compensated, regardless of the merits of
the domestic case.720
2. The Respondent’s Position
The Respondent submits that under Uruguayan law, the TCA and SCJ are co-equal
institutions with different spheres of competence. The TCA rules on administrative acts,
the SCJ determines the constitutionality of laws. Thus, according to Uruguay, the
existence of allegedly divergent decisions is not sufficient to amount to a denial of
justice. 721
The “key point,” in the Respondent’s view, is that the SCJ found the law constitutional.
When a law is declared constitutional, the TCA is not obligated to adopt the SCJ’s legal
reasoning.722
Rather, under Respondent’s analysis, it was constitutionally empowered
to reach a different conclusion.723
Thus, the TCA was not bound to agree with the SCJ’s
interpretation that the law only authorized the Ministry to require warnings covering up
to 50% of the pack. 724
Instead, it was free to decide on the legality of the Decree, based
on its own interpretation of the authority Law 18,256 conferred on the MPH.725
In any case, the Respondent asserts, at the end of the day, whether the TCA is bound by
the SCJ on questions of interpretation, is a fine question of Uruguayan public law, but
what is important is that the TCA decision plainly constitutes a “plausible and
reasonably tenable interpretation of municipal law.”726
Since it is not possible to
consider that the TCA’s decision was NOT of a kind which no competent judge would
have made, the TCA’s decision cannot constitute a denial of justice under international
719
CR, ¶ 324.
720
CR, ¶¶ 329-333 (citing Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No.
ARB/81/1, Resubmitted Case: Award, 31 May 1990 (CLA-160), ¶ 174; Harry Roberts (U.S.A) v. United Mexican
States, Award, 2 Nov. 1926 (“Roberts”) (CLA-241), ¶¶ 6-7, 10-11; B.E Chattin (U.S.A) v. United Mexican States,
Award, 23 July 1927 (“Chattin”) (CLA-242), ¶¶ 26, 30).
721
RCM, ¶¶ 11.120, 11.125.
722
RCM, ¶¶ 11.8, 11.113-11.126.
723
RR, ¶ 11.60.
724
Ibid.
725
RR, ¶ 11.73.
726
RCM, ¶ 11.124.
147
law.727
It would stretch the concept of denial of justice far beyond its limits to declare
the Uruguayan constitutional order itself unjust.728
The relationship between the parallel administrative and constitutional systems is
critical in determining whether justice was denied. That system was in place before the
Claimants invested in Uruguay. The Claimants’ knowledge of this relationship is
evidenced by Abal’s procedural stance in challenging the 80/80 Regulation.729
The Respondent further rejects the Claimants’ contention that the alleged contradictory
character of the two decisions, means, ultimately, that the Claimants were deprived of a
decision on the legality of Decree 287. On the contrary, there was a clear legal decision
on the constitutionality of Law 18,256 and the validity of its implementing Decree,
respectively.730
Each decision was “reasonably substantiated.”731
Both courts received
vigorous argument from both sides (Abal/MPH), and subsequently reviewed, analyzed,
adjudicated upon the claims and dismissed them.
Moreover, the Respondent argues that under Uruguayan law, res judicata only
exceptionally extends beyond the holding of a judgment itself.732
3. The Tribunal’s Analysis
Abal challenged the 80/80 Regulation through two separate actions, one before the SCJ
and the other before the TCA, due to the two courts’ distinct jurisdiction.
Abal argued before the SCJ, in relevant part, that:
Articles 9 and 24 of the Law [Law No. 18,256] violate the Constitution inasmuch
as they grant unlimited authority to the Executive Branch to restrict individual
rights. Such authority is exclusively reserved for the law and cannot be
delegated to the Executive Branch. For such reason, Articles 9 and 24 of the
Law are unconstitutional. It is the power of the legislature, and only the
legislature, to affect the rights of individuals.733
727
RCM, ¶¶ 11.123-11.125.
728
RR, ¶ 11.65.
729
RR, ¶ 11.65.
730
RCM, ¶¶ 11.99-11.111.
731
RCM, ¶ 11.110.
732
RR, ¶¶ 11.71-11.72.
733
Complaint of Abal Hermanos S.A., SCJ Case No. 1-65/2009, 11 Sep. 2009 (R-216), p. 2.
148
In dismissing Abal’s unconstitutionality action the SCJ, after noting that the Law’s
origins are predicated on the FCTC, declared:
[A]rticle 9 of the Law No. 18.256, […] does not delegate to the Executive Power
a discretionary power to impose restrictions on top of said minimum, but
imposes on the tobacco company the obligation that the exterior labeling of their
packs must contain a warning that occupies at least 50% of the total exposed
principal surfaces. […]
[T]he only thing left by the norm in the field of the Executive Power (Ministry of
Public Health) is to control –for the purpose of its approval- that the health
warnings and messages are clear, visible, legible and occupy at least the 50 %
(fifty per cent) of the total exposed principal surfaces, and also the periodical
modification of such warnings, aspect that clearly refers to the message and not
to their size. […]734
In its action before the TCA, Abal alleged that Decree 287, based on which the 80/80
Regulation had been adopted, went beyond the scope of authority conferred on the MPH
by Law 18,256 when it required warnings covering 80% of the package, while Article
9 of the Law prescribed health warnings covering “at least 50%” of the total main
exposed areas.735
It further alleged that the Decree affected a number of its fundamental
rights and that under the reserva de la ley principle such limitations could only be
imposed by law and not by an executive decree.736
In its decision rejecting Abal’s acción de nulidad, the TCA referred to Uruguay’s FCTC
ratification law, and then indicated that Decree 287 was an administrative act that sought
to complement, enable and ensure the execution of Law 18,256. 737
It further found that:
The contended decree has limited itself to what was established by law […]. The
law establishes a minimum limit for the administrator as much as the space that
the warnings go and permits to be regulated, and therefore, raising the set
minimum, according to the directives of the World Health Organization, is in
accordance to law. […]
Lastly, regarding the decision of the Supreme Court of Justice that the plaintiff
brings to this Court as a new fact, it is not understood that the decision has the
reach claimed by the plaintiff. Being an exclusive capacity of this administrative
[…] jurisdiction the analysis of the legality of the contested decree, only this
organ can analyze it, and according to what was said the contested decree does
no other thing than reaffirming the legal will, enshrined in Law Number 18.256
and in its regulatory decree Number 284/2008, contemplating the spirit of the
734
Supreme Court Decision No. 1713 (C-51).
735
Abal’s Request for Annulment of Decree 287 before the TCA, 22 Mar. 2010 (C-49); CR, ¶ 160; RCM, ¶ 11.98.
736
Ibid. (C-49), p. 2.
737
TCA Decision No. 512 (C-116), pp. 4-5; CM, ¶ 177; RCM, ¶ 11.98; CM, ¶ 177, RCM, ¶ 11.98.
149
constitutional author to regulate aspects relating to health and public hygiene
(Decisions 219/10 and 395/10) (Decision 133/2012). […]
In this sense, [Law]18.256 clearly shows the legal minimum for the warning and
entrusts to regulations its enlargement and/or modification, with the evident
objective of preventing the consumer from becoming familiarized and living with
it without perceiving the harmful consequences attributed to tobacco products.
738
According to the Claimants, in their resulting decisions, the SCJ and the TCA directly
contradicted each other, the SCJ finding that Articles 9 and 24 of Law 18,256 were
constitutional since they “did not delegate authority to the MPH to require warnings
covering more than 50% of tobacco packaging” while the TCA found that the law did
delegate that exact authority to the MPH.739
The Claimants argue that this “Orwellian
display of arbitrariness again denied Abal a fair hearing of its case, amounting to a denial
of justice.”740
Professor Paulsson opined that the effect of the two decisions “was the
functional equivalent of locking Abal out of the court building.”741
The Respondent does not suggest that there was a failure to exhaust local remedies in
relation to this claim.742
As to the merits of the claim, however, it argues that the
existence of divergent jurisdiction is not sufficient to amount to a denial of justice.743
According to the Tribunal, the simple fact is that the Supreme Court and the TCA are
co-equal under the Uruguay constitutional system. Both have original and exclusive
jurisdiction: the SCJ to determine the constitutionality of a law;744
the TCA to declare
the validity or illegality of an administrative act adopted pursuant to a law determined
to be constitutional, examining whether the administrative act is “contrary to a rule of
law or under a distortion of authority.”745
Under that system, which has been in place since the 1952 Constitution (long before the
Claimants invested in Uruguay), the TCA is only bound by a decision of the SCJ holding
a law unconstitutional, which did not occur here. On the other hand, “the interpretation
738
TCA Decision No. 512 (C-116), pp. 4-5; CM, ¶ 177; RCM, ¶ 11.98.
739
CM, ¶ 272 (emphasis in the text).
740
Ibid.
741
Ibid., ¶ 274; citing Paulsson Report I (CWS-011), ¶ 40.
742
RCM, ¶ 11.126.
743
RCM, ¶¶ 11.120, 11.125.
744
Constitution, Articles 256 and 257 (RLA-1 ter).
745
Constitution, Article 309 (RLA-1 ter); Expert Opinion of Santiago Pereira, 19 Sep. 2015 (“Pereira Opinion”)
(REX-015), ¶¶ 285-288.
150
made by the SCJ in declaring the constitutionality of a law is not binding upon the
TCA.”746
The co-equal position of the two judicial bodies and the independence of their
respective decisions was confirmed by both the SCJ and the TCA in their decisions. The
SCJ mentioned in its decision that there was no impediment to the TCA’s review of the
constitutionality of the Law:
The circumstance that the Executive Power has promulgated a decree
establishing that the health warnings should occupy the lower 80% of
both principal faces [Decree N.° 287/009] and, as a result, that is has
interpreted the challenged legal norms in a manner different from that put
forth, involves a question that cannot be reviewed by this body by virtue
of the regime established in Section XV, Chapter IX of the Constitution.747
For its part, the TCA acknowledged the existence of the SCJ’s decision when it ruled
on the validity of Article 9 of Law 18,256:
Lastly, regarding the decision of the Supreme Court of Justice that the
plaintiff brings to this Court as a new fact, it is not understood that the
decision has the reach claimed by the plaintiff. Being an exclusive
capacity of this administrative-litigation jurisdiction the analysis of the
legality of the contested decree, only this organ can analyze it, and
according to what was said the contested decree does no other thing than
reaffirming the legal will, enshrined in Law Number 18,256 and its
regulatory decree Number 284/2008, contemplating the spirit of the
constitutional author to regulate aspects relating to health and public
hygiene.748
The fact is that the very ground on which the SCJ upheld the constitutionality of the
80/80 Regulation – that it did not permit an increase to the size beyond the 50% stated
in the Law itself – was not decisive for the TCA. Under Uruguay’s Constitution only
the TCA has jurisdiction to determine the validity of an administrative act, so that the
views of the SCJ regarding an administrative act “are obiter dicta and impose no
obligation on the TCA.”749
746
Pereira Opinion (REX-015), ¶ 287.
747
Supreme Court Decision No. 1713, 10 Nov. 2010, (“Supreme Court Decision No. 1713”) (C-051), p. 4 (under
V).
748
TCA Decision No. 512 , Ground VIII, (C-116), p. 5; Legal Opinion of Dr. Felipe Rotondo, 22 Sep. 2014 (REX-
007), p. 28.
749
RCM, ¶ 11.120.
151
The TCA found the 80/80 Regulation to be an implementing regulation necessary to
ensure execution of Law 18,256 and Decree 284/008, the Law establishing a minimum
limit for the administrator. Therefore, raising the set minimum according to the
recommendations of the WHO was in accordance with the Law.750
According to the
TCA, the 80/80 Regulation does not constitute a deviation of power. The pursued
objective did not infringe on any constitutionally protected rights since those rights can
be limited for reasons of general interest through the law: “[t]he right to life and the
enjoyment of health of the population… prevail over the abovementioned rights.”751
The
80/80 Regulation – added the TCA - does not operate “a plain suppression of the brand,
but rather a limitation established for reasons of public interest.”752
In the Tribunal’s view, it is unusual that the Uruguayan judicial system separates out the
mechanisms of review in this way, without any system for resolving conflicts of
reasoning. The Tribunal believes, however, that it would not be appropriate to find a
denial of justice because of this discrepancy. The Claimants were able to have their day
(or days) in court, and there was an available judicial body with jurisdiction to hear their
challenge to the 80/80 Regulation and which gave a properly reasoned decision. The
fact that there is no further recourse from the TCA decision, which did not follow the
reasoning of the SCJ, seems to be a quirk of the judicial system.
Under the Uruguayan judicial system, the SCJ can uphold the constitutionality of a law
based on an interpretation of the scope of that law, in application of constitutional
principles. That interpretation, however, does not bind the TCA when it determines, on
the basis of the principles provided by administrative law, the legality of decrees
rendered under that same law. That position does not seem to be manifestly unjust or
improper, either in general or in the context of this case. Here both courts separately
upheld the legality of the measure the Claimants sought to challenge, each under its own
jurisdiction and applying its own legal criteria. In the Tribunal’s view this does not rise
to the level of a denial of justice. As previously mentioned, arbitral tribunals should not
750
TCA Decision No. 512 (C-116), p. 4.
751
Ibid.
752
Ibid., p. 6.
152
act as courts of appeal to find a denial of justice,753
still less as bodies charged with
improving the judicial architecture of the State.
In other words, the failure of the TCA to follow the Supreme Court’s interpretation of
Articles 9 and 24 of Law 18,256 may appear unusual, even surprising, but it is not
shocking and it is not serious enough in itself to constitute a denial of justice. Outright
conflicts within national legal systems may be regrettable but they are not unheard of.
In terms of the separation of constitutional from administrative jurisdiction, Uruguayan
law derives from the civil law tradition, albeit with features of its own, including the
independence and high standing of the TCA. 754
The position of separate administrative tribunals in the civil law tradition was explained
in the following terms by the European Court of Human Rights in the context of Article
6 of the European Convention:
81. […] The Court considers that in a domestic legal context
characterised […] by the existence of several Supreme Courts not subject
to any common judicial hierarchy, it cannot demand the implementation
of a vertical review mechanism of the approach those courts have chosen
to take. To make such a demand would go beyond the requirements of a
fair trial enshrined in Article 6 §1 of the Convention.
82. What is more, the Court points out that the lack of a common
regulatory authority shared by the Supreme Courts – in this case the
Supreme Administrative Court and the Supreme Military Administrative
Court – capable of establishing the interpretation these courts should
follow, is not a specificity of the Turkish judicial system. Numerous
European States whose judicial systems feature two or more Supreme
Courts have no such authority […] In itself, however, this cannot be
considered to be in breach of the Convention.
83. The Court further considers that in a judicial system like that of
Turkey, with several different branches of courts, and where several
Supreme Courts exist side by side and are required to give interpretations
of the law at the same time and in parallel, achieving consistency of the
753
Mondev (RLA-117), ¶ 126.
754
TCA and Supreme Court judges are appointed by the same method, assuring independence from political
decisions: see Pereira Opinion (REX-015), ¶¶ 40-61. Unlike the French Conseil d’Etat, the TCA performs
exclusively judicial functions.
153
law may take time, and periods of conflicting case-law may therefore be
tolerated without undermining legal certainty.755
The Court added:
[…] that it must avoid any unjustified interference in the exercise by the
States of their judicial functions or in the organization of their judicial
systems. Responsibility for the consistency of their decisions lies
primarily with the domestic courts and any intervention by the Court
should remain exceptional.756
A parallel can also be drawn, in the context of investment protection, with the recent
award in Mamidoil, which found that “a legal system that is characterized by a division
between public and private law as well as civil and administrative procedures” did not
result in an “improper, discreditable or in shocking disregard of Albanian Law,” despite
the fact that the claimant took his claim for overpaid taxes before two different tribunals,
both of which refused to hear the merits of his claim.757
As Professor Paulsson has
stated, “the vagaries of legal culture that enrich the world are to be respected.”758
The other element of the Claimants’ case for denial of justice was based on a res judicata
argument. As mentioned by the Respondent, no such rule was undermined here since
res judicata applies under Uruguayan procedural law only upon satisfaction of a “triple
identity” test requiring that proceedings (1) be between the same parties, (2) seek the
same relief, and (3) arise from the same cause of action.759
Even if it is doubtful that the
parties were different,760
different reliefs were sought (a declaration of
unconstitutionality of a law before the SCJ versus the annulment of a complementing
regulation before the TCA) based on different causes of action (the compatibility of Law
18.256 with the constitutional provisions versus the compatibility of the 80/80
Regulation with the provisions of Law 18.256).761
755
Case of Nejdet Şahin & Perihan Sahin v. Turkey, ECH Application No. 13279/05, Judgment of 20 Oct. 2011,
(“Nejdet”) (NS-59), ¶¶ 81-86, cited in Schrijver Second Opinion (REX-010), ¶ 22, n. 30.
756
Nejdet (NS-59), ¶ 94.
757
Schrijver Second Opinion (REX-010), ¶ 22, citing Mamidoil (RLA-314), ¶ 769.
758
RR, ¶ 11.59; citing Paulsson, Denial of Justice in International Law (2005), (LC-06), p. 205.
759
RR, ¶ 11.70, citing Pereira Opinion (REX-015), ¶¶ 309-311.
760
According to the Respondent the parties were different since the action before the SCJ was addressed to the
Legislative Power whereas the action before the TCA was addressed to the Executive Branch: RR, ¶ 11.70. This
is a doubtful proposition since in both cases the action was addressed to the State even if in the person of different
judiciary organs.
761
RR, ¶ 11.70.
154
It was only in the reasons of the Supreme Court that there was a potential divergence
with the TCA, but, as noted by the Respondent, under Uruguayan law res judicata would
only exceptionally extend beyond the holding of a judgment where the reasons form an
“absolutely inseparable logical precedent of the operative part.”762
That was not the
case here since the Supreme Court offered alternative reasons to reach its conclusion,
including its finding that the MPH “is competent in establishing all the measures it may
deem necessary for ensuring the health of the population,”763
a finding which would
seem to have been applied by the TCA.
For the above reasons, the Tribunal holds by majority that there was no denial of justice
regarding the 80/80 Regulation proceedings.
The TCA’s Decision on the SPR
1. The Claimants’ Position
Turning to the TCA’s decision on the SPR, it is the Claimants’ view that when the TCA
rejected Abal’s challenge to Ordinance 514, based on the record brought by a different
claimant in a different case (i.e. BAT’s distinct annulment application to the TCA
challenging Ordinance 514), and then refused to correct the error, Uruguay committed
a denial of justice.764
In its view, the TCA decided only Abal’s first argument relating to the reserva de la ley
claim and it did so on the basis of BAT’s evidence and arguments, not Abal’s.765
Moreover, the TCA did not adjudicate Abal’s other two claims766
and it deprived Abal
of the right to seek a remedy of a manifestly erroneous decision.767
These three
arguments will be outlined in turn.
First, the Claimants contend that the TCA rejected the claim as presented and litigated
by BAT, not Abal, because the decision: (i) refers to Abal only in the title of the
decision—throughout the rest of the decision it refers to BAT; (ii) does not discuss
762
RR, ¶ 11.71; relying on Pereira Opinion, (REX-015), ¶¶ 330-332, 337-341.
763
RR, ¶ 11.72; Supreme Court Decision No. 1713 (C-051), p. 3 (emphasis added).
764
CM, ¶¶ 267-269; CR, ¶ 311.
765
CR, ¶¶ 145-150.
766
CR, ¶¶ 151-154.
767
CR, ¶¶ 155-157.
155
Abal’s trademarks; it only lists BAT’s trademarks; and (iii) does not discuss Abal’s
expert evidence.768
In the Claimants’ view, even if the decision did not address all of
BAT’s claim, nor did it address all of Abal’s, but it did specifically refer to BAT, BAT’s
trademarks, and evidence from BAT’s administrative file. The decision, in short,
decided BAT’s claim, not Abal’s.769
Second, the Claimants consider that the TCA failed to adjudicate Abal’s claims that
(i) the SPR exceeded and was inconsistent with Law 18,256, and (ii) the MPH did not
have the authority to establish the SPR because Law 18,256 did not expressly grant the
MPH the authority to adopt the regulation.770
Third, the Claimants argue that the TCA deprived Abal of the right to seek a remedy
against a manifestly erroneous decision since it did not provide any explanation of why
or how the references to BAT, and the mistakes with regard to essential points of the
case, did not merit full reconsideration. In the Claimants’ view, even if the TCA had
initially made a mistake in its decision, it had an opportunity to correct that error, and it
knowingly refused to do so. Abal had no further avenue of appeal or no other remedy
it could have pursued to have its challenge to the SPR decided on the merits.771
Thus, contrary to the Respondent’s contentions, the Claimants consider that Abal
exhausted all applicable local remedies to challenge the SPR. The TCA’s decision on
the challenge was final and could not be subject to further appeal.772
The additional remedy raised by the Respondent, i.e. challenging the constitutionality
of Article 8 of Law 18,256, cannot be considered an “available and effective local
remedy.” The exhaustion doctrine does not require initiating proceedings to challenge
an entirely different measure, on entirely different legal grounds before a court that is
manifestly not a court of appeals from the TCA.773
In any case, seeking a declaration
768
CR, ¶ 145.
769
CR, ¶ 149.
770
CR, ¶¶ 152-154.
771
CR, ¶¶ 155-157.
772
CR, ¶¶ 317-320.
773
CR, ¶ 319.
156
of unconstitutionality, besides being frivolous, could not correct the wrong that had been
done by the TCA and thus could not have been effective.774
According to the Claimants, it is a fundamental principle of procedural fairness that a
court must respond to the arguments and evidence of the party before it, rather than the
arguments and evidence of a third party that is not involved in the suit. Thus, the TCA’s
fundamental breach of due process, arbitrariness, and effective refusal to judge Abal’s
case constitutes a denial of justice.775
2. The Respondent’s Position
The Respondent rejects the Claimants allegations. It submits that the TCA considered
and dismissed Claimants’ reserva de la ley claim, as well as other claims in regard to
the SPR “as presented and litigated by BAT, not Abal.”776
Moreover, the TCA
considered the legality of the administrative act generally, thus its determination does
not vary depending on the tobacco company challenging the measure.777
Finally, the
Claimants failed to exhaust all available and effective local remedies against the TCA's
decision.778
On the first question, the Respondent contends that “it is not true that the TCA decision
‘refers to Abal only in the title of the decision’.” The TCA rejected Abal’s challenge
after addressing each of its arguments and the opinion of its experts in a well-reasoned
decision. For instance, the TCA stated in its decision that the claim it was deciding was
filed by Abal’s legal representative; and in the section of its decision called Resultando
(“Findings of Fact”), the TCA described and addressed Abal’s arguments.779
Moreover, the TCA’s references to BAT’s trademarks should be understood in the
context of the TCA’s review of a challenge to a general administrative act.
Second, the Respondent addresses the Claimants’ argument that the TCA violated
Abal’s due process rights by denying Abal the opportunity to refute evidence that had
been submitted in BAT’s case and that the TCA relied upon in deciding Abal’s case,
774
CR, ¶¶ 319-320.
775
CM, ¶ 270.
776
RR, ¶¶ 11.20-11.37. See also RCM, ¶¶ 11.59-11.77.
777
RR, ¶¶ 11.38-11.40.
778
RR, ¶¶ 11.45-11.51. See also RCM, ¶¶ 11.88-11.95.
779
RR, ¶ 11.22.
157
including the public statement made by Dr. Abascal which was known to tobacco
companies in Uruguay, including the Claimants.
The Respondent notes that the Claimants challenged the legality of Ordinance 514 as a
matter of general administrative law; they did not challenge a specific resolution
applying it to the factual circumstances.780
The specific trademarks at issue (i.e. Abal’s
or BAT) were thus irrelevant.
The Respondent explains that when the TCA addresses challenges filed by different
parties against the same general administrative act, it tends to address them integrally.
When examining the legality of the SPR, the TCA engaged in an abstract judicial review
of SPR by reference to the relevant domestic legislation, constitutional norms and
international obligations of Uruguay and concluded that “it complied with the ratio legis
of Law 18,256.” This applied to all tobacco companies.781
In addition, in the Respondent’s view, there is nothing in the TCA’s decision to suggest
that it “relied upon” Dr. Abascal’s statement.782
Also, the Respondent contends that the
Claimants’ expert opinions met none of the requirements to be considered evidence,783
and that the TCA considered and dismissed the Claimants’ other claims in regard to the
SPR.784
Third, the Respondent addresses the Claimants’ contention that Abal had exhausted all
available local remedies. It notes that the Claimants could have challenged the
constitutionality of Article 8 of Law 18,256, the provision under which the SPR was
adopted, before Uruguay’s Supreme Court of Justice.785
In the Respondent’s opinion,
while the success of such a potential challenge cannot now be known, there is no
question that it was available and that the Claimants did not pursue it.786
There is also
no question that if successful, the SCJ declaration of unconstitutionality would have
780
RR, ¶¶ 11.23-11.24
781
RCM, ¶¶ 11.83-11.86; RR, ¶ 11.24.
782
RR, ¶¶ 11.38-11.39.
783
RR, ¶¶ 11.27-11.28.
784
RR, ¶¶ 11.30-11.37.
785
RR, ¶ 11.45.
786
RR, ¶ 11.47.
158
resulted in the illegality and invalidity of the SPR. Thus, it was an effective legal
remedy.
3. The Tribunal’s Analysis
Regarding the TCA’s decision on the SPR,787
the Claimants argue that the TCA rejected
Abal’s application for annulment of Article 3 of Ordinance 514 imposing the SPR788
on
the basis of a record in an entirely different proceeding involving a different claimant,
BAT. In their view, the TCA failed to respect a fundamental principle of procedural
fairness whereby a court must respond to the arguments and evidence of the party before
it.789
According to the Claimants, the judgment delivered did not refer to Abal’s
evidence, arguments, trademarks, or expert legal opinions.790
While the caption of the
decision reads “Abal,” much of the rest of the decision referred to BAT and relied on
evidence from Dr. Abascal that was not part of the proceedings in Abal’s challenge, but
only in BAT’s challenge. The Claimants say, with considerable force, that this was
procedurally and substantively unfair.
Abal filed its objection to the SPR second after BAT. It sought to differentiate its
challenge from BAT’s. It alleged that Ordinance 514 was improper based on three
arguments: (i) only the Legislature had the right to severely impair property rights, not
the MPH (reserva de la ley); (ii) the SPR exceeded and was inconsistent with the legal
provisions it intended to implement, Law 18,256 and Decree 284/008; (iii) the MPH
was not competent to impose the SPR because neither Law 18,256 nor Decree 284/008
or the Constitution or the FCTC expressly grants MPH the authority to adopt the
regulation.
By comparison, the BAT claim had only relied on argument (i), not the other two
arguments Abal made;791
it also relied on arguments Abal did not make. During the
proceedings the State Attorney in Administrative Litigation (Procurador del Estado en
lo Contencioso Administrativo) submitted an opinion to the TCA in support of Abal’s
787
TCA Decision No. 509 (C-53, R-242).
788
Abal’s SPR Annulment Request (C-41).
789
CM, ¶ 270.
790
CM, ¶ 268.
791
CM, ¶ 163.
159
position.792
According to the Claimants, the TCA never addressed the State Attorney’s
argument or their own arguments.793
Abal timely filed a request for clarification, pointing out that the TCA had erroneously
rejected Abal’s annulment application based on the evidence and arguments that had
been submitted in BAT’s litigation.794
However, the TCA summarily rejected the
request for clarification on the grounds that “the so called contradictions are not
important nor do they justify the revision of the decision.”795
The Respondent notes that
in its motion for clarification “Abal did not argue that the TCA had failed to address its
legal arguments” and this for good reason since such arguments had in fact been
addressed by the TCA.796
In the Counter-Memorial the Respondent contends that “[t]he record is clear that the
TCA addressed Abal’s arguments and the opinions of its experts, and rendered a wellreasoned
decision that the Claimants dare not dispute as such.”797
It notes that “at the
root” the Claimants complain that “the TCA’s decision makes three passing references
to the trademarks of a different company,” which it claims was “a de minimis
oversight.”798
It describes where in its decision TCA addressed each of Abal’s three
arguments.799
The Respondent’s Rejoinder records in more detail the occasions on
which the TCA specifically addressed the claims and arguments of the Claimants.800
It
notes that the “evidence” that the Claimants allege was overlooked was merely the
opinions of their legal experts, which do not constitute evidence under Uruguayan
law,801
even though they may be taken into account.
792
CM, ¶ 164.
793
CM, ¶ 165.
794
CM, ¶ 269 (referring to Abal’s Motion for Clarification (C-55). Supra, ¶ 160.
795
Ibid. (referring to TCA Decision No. 801 (emphasis in the text) (C-56). Supra, ¶ 161.
796
RCM, ¶ 11.61 (emphasis in the original).
797
RCM, ¶ 11.6.
798
Ibid., ¶ 11.6.
799
Ibid., ¶¶ 11.63-11.66.
800
RR, ¶¶ 11.29-11.37.
801
RR, ¶¶ 11.26-11.28.
160
According to the Tribunal, the refusal of courts to address a claim can clearly amount to
a denial of justice.802
However, it is not incumbent on courts to deal with every argument
presented in order to reach a conclusion.803
The question is whether, in substance, the
TCA failed to decide material aspects of Abal’s claim, such that they can be said not to
have decided the claim at all. As noted, the Claimants argue that they put three matters
before the TCA and that only the first (regarding the reserva de la ley) was addressed in
the decision.
The Tribunal notes that the TCA’s decision addressed Abal’s three arguments for
challenging Article 3 of Ordinance 514 both in the Findings of Fact (“Resultando”) and
Conclusions of Law (“Considerando”), where the following is stated:
In short, the Claimant stated that the contested Ordinance is manifestly illegal
because it goes beyond and contradicts the laws it was designated to implement;
because it creates a prohibition that the Ministry of Public Health lacks the
competence to impose, and because of the limitation of constitutionally protected
rights such as the right to property and commerce.804
The TCA also addressed separately each of Abal’s arguments in a reasoned manner.
Regarding the “reserva de la ley” argument,805
it stated as follows:
In other words, this is not a case of invading areas of legislation reserved
exclusively to the Law; on the contrary, the purpose is to implement the legal
provisions through regulations that enable such ratio legis. 806
Regarding Abal’s argument that the SPR exceeded and was inconsistent with Law
18,256 and Decree 284/008, it held that “the contested regulatory provision is part of an
administrative act which the issuing entity calls an ‘Ordinance’ and that said measure
may be classified as an implementing regulation”,807
the TCA then stated:
802
Antoine Fabiani Case (No. 1), (France v. Venezuela), Award of the President of the Swiss Confederation,
(1898) V Moore Intl ARB 4878, 15 Dec. 1896 (CLA-259); Azinian v. Mexico, ICSID Case No. ARB(AF)/97/2,
Award, 18 Oct. 1999 (NS-17).
803
Compare the decision of the annulment committee in Wena Hotels v. Arab Republic of Egypt, ICSID Case No.
ARB/98/4, Decision, 5 Feb. 2002, ¶¶ 101 and 105, finding that an annulment would be appropriate only where
the Tribunal’s failure to answer a question impacted on the reasoning of other issues. That is, a failure to respond
to an argument is not concerning unless the argument itself might have been material to the outcome. Obviously,
the context of this case is different – but it may provide a useful analogy.
804
TCA Decision No. 509, (C-53; R-242), respectively at pp. 3 and 6.
805
The Claimants mention in the Memorial that the TCA responded to this argument (CM, ¶ 163) while stating in
the Reply that the TCA rejected the “reserva de la ley” claim “as presented and litigated by BAT,” not by Abal
(CR, ¶ 145). The Claimants’ contention is said by the Respondent to be “false”: RR, ¶ 11.29.
806
TCA Decision No. 509, (C-53; R-242), p. 10.
807
Ibid., p. 8.
161
Ergo, the Court considers that the Ordinance in the instant case belongs to the
aforementioned category of administrative acts, and therefore seeks to provide
general regulations for Law 18,256 and Decree 284/008, supplementing them
and enabling and ensuring their implementation.808
Finally, regarding MPH’s alleged lack of competence, the TCA held that:
The scope of the ban established in Law 18,256 and its Regulatory Decree No.
284/008 is so broad that, in the opinion of the Court, the contested regulatory
provision does nothing more than interpret, as an implementing regulation, the
spirit and purpose of the legal framework governed by this broad law enacted
in protection of human health.809
Based on the above reasons, the TCA concluded:
[T]he contested regulatory provision does nothing more than reaffirm the legal
provision established in Law 18,256 and its Regulatory Decree No. 284/008,
and, moreover, the aforesaid regulatory provision is consistent with the spirit of
the Constituent Assembly (art. 44 of the Constitution[)], insofar as it provides:
“The State shall legislate on all matters related to public health, seeking the
physical, moral and social development of all inhabitants of the country.”810
The Claimants concede that the TCA dealt with one of Abal’s arguments, raised also by
BAT, namely that the SPR violated the principle of the “reserva de la ley.”811
But the
TCA directly dealt also with Abal’s other two arguments, finding that the MPH was
competent to issue the SPR pursuant to Law 18,256, and that the SPR did not exceed
and was not inconsistent with Law 18,256 and Decree 284/008.812
It held that the SPR
was “designed to implement” Article 8 of Law 18,256 and Article 12(3) of Decree 284,
also adhering to Article 11 of the FCTC813
and was an “implementing regulation,”814
such that it did not exceed Law 18,256 and Decree 284/008. It also held that the MPH
may promulgate regulations that “establish formalities or requirements not provided for
by the law which are necessary for its enforcement,”815
that is, it was not necessary for
the law to expressly grant the authority. The TCA thus responded to Abal’s other two
arguments, as the Respondent points out.816
The Tribunal notes that the fact that this
808
Ibid., p. 10.
809
Ibid., p. 12.
810
Ibid., p. 13.
811
CM, ¶ 163.
812
TCA Decision No. 509 (C-53, R-242), p. 12; RCM, ¶ 11.66.
813
TCA Decision No. 509 (C-53, R-242), p. 10; RCM, ¶ 11.64.
814
TCA Decision No. 509, p. 8; cited at RR, ¶ 11.36, n. 995.
815
RCM, ¶ 11.64 (emphasis added), with reference to the TCA Decision No. 509, p. 8.
816
RCM, ¶¶ 11.63-11.66.
162
discussion may have fallen under a different heading, or may have not been clearly
structured, does not mean that the TCA failed to deal with Abal’s substantive arguments.
As to the Claimants’ contention that the TCA ignored the evidence presented by Abal,
most notably expert opinions from three prominent Uruguayan law experts,817
it is to be
noted that under Uruguayan procedural law, expert opinions on matters of law are not
considered “expert evidence.”818
To be considered evidence rather than assertions of a
party, the expert opinion must relate to a question of fact and not a question of law and
must have been prepared pursuant to an order of the court, neither of these requirements
being met in this case.819
The TCA may disregard expert legal opinions not meeting
these requirements.820
The Tribunal finds Professor Pereira’s opinion persuasive, as
evidenced also by his cross-examination at the Hearing making reference, inter alia, to
the iura novit curia principle as the basis for disregarding expert legal opinions.821
There
is a reference in the TCA decision to the three legal opinions as “dogmatic constructions
which may be very respectable in themselves”822
(a reference which does not apply to
BAT since it had not filed legal opinions) and to the State Attorney’s opinion.823
As to the Claimants’ further contention regarding reference in the Abal’s judgment to
Dr. Abascal’s evidence, not relied upon by Abal but in the record of BAT’s case,824
the
Tribunal notes that while it may be regrettable that there was such a reference in Abal’s
judgment, it was not in the dispositive section and it can be understood, as the
Respondent argues, as simply informing the context of the MPH decision to adopt the
SPR, not as a key part of the reasoning.825
The Claimants have complained that Abal’s judgement referred to BAT’s trademarks,
not to Abal’s trademarks.826
As a matter of fact, in its decision TCA stated as follows:
817
CR, ¶ 147.
818
Pereira Opinion (REX-015), ¶ 182.
819
Ibid., ¶¶ 187-188.
820
Ibid., ¶ 208.
821
Tr. Day 7, 2029: 18-22; 2030: 1-10.
822
TCA Decision No. 509 (C-53, R-242), p. 13.
823
Ibid., p. 4.
824
CM, ¶ 268.
825
RCM, ¶ 11.76; RR, ¶ 11.39.
826
CM, ¶ 268; CR, ¶ 145, 2nd
bullet point.
163
[T]he Court considers that the Claimant has failed to prove its ownership of the
trademarks included in the list of products added to case filet page 4;
nevertheless, and because this is not something that has been disputed by the
defendant, we shall consider that BAT is the owner of the trademarks listed […].
Consequently, from the list of trademarks provided by the claimant
(administrative case file page 4), and by a contextual interpretation of the
arguments in the complaint with respect to the contested measure, the Court
interprets that what aggrieves BAT is the limitation on presenting their products
with trademarks that differentiate them by the use of a distinctive color;
however, we observe that this prohibition was already contained in Decree
284/008… . 827
The Tribunal agrees with the Respondent’s remarks that this reference “was of no
consequence to the outcome of Abal’s case,” considering also that the MPH had raised
no question in that proceeding regarding Abal’s ownership of its trademarks.828
At the very least, the failure to deliver a separate judgment for Abal raises questions of
procedural propriety. The cases were not joined, and Abal took no part in BAT’s
challenge. There are frequent references throughout the TCA judgment to BAT and to
its trademarks and infrequent references to Abal, although there are also references to
Abal and its particular arguments, even if replies to such arguments are given in a
disorganised manner so as to raise questions regarding completeness of the analysis.
The question is whether, taken together, this is enough to raise sufficiently serious
questions about the propriety of the process.
In general, when considering procedural improprieties arbitral tribunals have adopted a
high threshold for a denial of justice. In International Thunderbird Gaming Corp v.
Mexico, the tribunal rejected a claim that administrative proceedings amounted to a
denial of justice, notwithstanding certain procedural irregularities, noting that “even if
one views the absence of Lic. Aguilar Coronado (who signed the Administrative Order)
at the 10 July hearing as an administrative irregularity, it does not attain the minimum
level of gravity required under Article 1105 of the NAFTA under the circumstances.”829
The tribunal noted that the Administrative Order was sufficiently detailed and reasoned,
reviewed the evidence presented, and discussed at length the legal grounds for the
decision that the Claimant was objecting to. It concluded that the proceedings “were
827
TCA Decision No. 509 (C-53, R-242), pp. 7, 12.
828
RCM, ¶ 11.82.
829
International Thunderbird Gaming Corp v. Mexico, UNCITRAL, Arbitral Award, 26 Jan. 2006 (RLA-166), ¶
200.
164
[not] arbitrary or unfair, let alone so manifestly arbitrary or unfair as to violate the
minimum standard of treatment.”830
Likewise in Tokios Tokelés v. Ukraine, the tribunal held that discontinued and then twice
revived criminal charges for tax evasion, which remained pending three years after the
event, did not amount to a denial of justice, even in circumstances in which the tribunal
was unable to rule out the possibility that these were “part of an attempt to put pressure
on Tokios Tokelés to settle an expensive […] arbitration.” 831
On the other hand, the tribunal in Loewen found a denial of justice arising from a
procedural failure in the trial process that was clearly discriminatory against the foreign
investor.832
The tribunal referred to the Trial Judge’s failure to reign in frequent
references to the claimant’s race, class and foreign nationality by defense counsel,
concluding that by any standard the trial “was a disgrace,” the tactics of the lawyers
were “impermissible” and the trial judge failed to afford Loewen due process.833
The
tribunal did not ultimately find that the standard at international law was breached, but
this was because Loewen had not exhausted local remedies, including the possibility of
seeking certiorari before the United States Supreme Court.
In the Tribunal’s view, there is clearly a case to answer here. But it is important to be
clear about the exact form that Abal’s TCA judgment took. It was not simply a
photocopy of the BAT decision, as the Claimants sometimes came close to alleging. It
was entered under Abal’s name and correctly identified the arguments it was making in
the introductory summary. True, the TCA appears to have copied and pasted large
chunks of the BAT decision directly into the Abal decision, without taking care to
correct incorrect references to BAT and to BAT’s trademarks, and with reference on
one occasion to the evidence of Dr. Abascal, which was not before the TCA in the Abal
proceeding. According to the Claimants, the result is that the Abal judgment did not
actually address Abal’s arguments in its decision and did not cite Abal’s expert evidence
from three prominent Uruguayan law experts.834
830
Ibid., ¶ 197.
831
Tokios Tokelés v. Ukraine, ICSID Case No. ARB/01/18, Award, 26 July 2007 (CLA-207), ¶ 133.
832
Loewen, (CLA-169).
833
Ibid., ¶ 119.
834
CR, ¶¶ 147-148. These arguments were however refuted by the analysis conducted by the Tribunal.
165
There could have been no complaints had the TCA quoted lengthy passages of the BAT
judgment in its decision with proper attribution and gone on to endorse them. Account
should be taken in this context that when deciding challenges filed by different parties
against the same general administrative act the TCA tends to decide them on uniform
grounds since only matters of law are at issue so that decisions are made “with
independence from arguments advanced by the parties.”835
The Respondent argues that procedural improprieties cannot amount to a denial of
justice where the claimant has not proved that the outcome would have been any
different had there been no procedural injustice. The Respondent’s expert, Professor
Schrijver, relies on the Frontier Petroleum Services Ltd v. Czech Republic award, where
“the fact that the domestic courts would not have come to a different conclusion” was a
particularly important factor in rejecting any procedural impropriety.836
But that was
not the only reason given. In particular, the tribunal also reasoned that the procedural
irregularities in the case – denial of the right of the claimant to participate in certain
judicial proceedings involving its bankruptcy proceedings – had been cured by the fact
that the claimant had subsequently appealed.837
But it did place significance on the
proposition that no different conclusion would have been reached.
In the Tribunal’s view the question of what a BIT-compliant domestic court would have
decided is an appropriate factor (and may be highly relevant) for the damages
assessment, but it is not determinative of whether a breach occurred. A procedural
impropriety can occur notwithstanding that the court could (and probably would) still
have reached the same result absent the impropriety. This is the effect of the cases cited
by the Claimants where a denial of justice was found notwithstanding that the criminal
defendant subjected to the internationally wrongful behaviour was guilty on the
merits.838
Even apparently weak cases or apparently undeserving parties are entitled to
835
Pereira Opinion, (REX-015), ¶¶ 157-162.
836
Schrijver’s Second Opinion, (REX-010), ¶ 8, citing Frontier Petroleum (CLA-105), ¶ 411.
837
Frontier Petroleum (CLA-105), ¶ 410.
838
CM, ¶¶ 292-293, citing Roberts (CLA-241) and Chattin (CLA-242). However, these cases are not authority
for the proposition that compensation is to be entirely de-linked from the question of the merits. In those cases,
the defendants were not compensated as if they were not guilty (i.e. had been acquitted); instead, the tribunals
calculated compensation for the long period of imprisonment without trial that gave rise to an award of indemnity
under international law. In other words, the tribunals awarded compensation for the procedural impropriety itself,
calculating damages based on the cost of the improper restriction to liberty, in a particular criminal context not
applicable here. On such a principle, the Claimants here might be entitled to all or some of Abal’s costs in taking
166
minimum standards of due process, and this is true even if what they lost thereby was a
remote chance.
Two issues need to be considered. The first is whether these procedural improprieties
were sufficiently grave in themselves as to rise to the standard of a denial of justice. It
is then relevant to turn to consider whether, substantively, Abal’s claim was nonetheless
fairly determined, having regard in particular to Abal’s unsuccessful motion to the TCA
for reconsideration of its decision on grounds of confusion with BAT’s claim.
Although the Claimants went to great lengths to show how their case was different, the
substance of Abal’s administrative challenge was that the MPH did not have the
authority to enact the SPR regulation. While BAT’s argument put the focus on the
proposition that only the legislature had the authority to impair property rights, Abal
focused on the other side of the same coin, arguing that the MPH did not have that
authority. In finding that MPH was entitled to impair property rights pursuant to Law
18,256, the TCA dealt with the substance of Abal’s closely related claim.
This is therefore a case that may hardly be characterized as a denial of justice. Clearly,
there were a number of procedural improprieties and a failure of form. But ultimately,
the similarities between the two cases and the claims made in them support the
conclusion that there has been no denial of justice. In substance, Abal’s arguments were
addressed.839
The subsequent failure of the TCA to amend or clarify its decision did not create a denial
of justice. In particular, Abal did not bring to the TCA’s attention the arguments it now
alleges were not dealt with in the judgment.840
Whether or not the subsequent
proceedings were sufficient in themselves to cure a prior perfected denial of justice, they
were at least relevant to the question whether a sufficiently egregious error occurred.
the TCA case, but it is difficult to understand how they could be entitled to claim full damages as if they had won
that case.
839
The Tribunal notes further that according to Uruguayan procedural system a failure to address arguments does
not result in a denial of justice given the distinction between a “claim” (“what is requested”) and arguments (“why
it is requested”). Only the “claim” is to be considered and decided and the claim in the present case, namely the
illegality of Article 8 of Law 18,256 on which the SPR was founded, was decided by the TCA (Pereira’s Expert
Testimony at the Hearing, slide 7, and his cross-examination, Tr. Day 7, 2033:10-16).
840
RCM, ¶¶ 11.61, 11.86; RR, ¶¶ 11.31, 11.41-11.44.
167
For these reasons the Tribunal holds that the procedural improprieties were not sufficient
in this case to rise to the standard of a denial of justice and decides that there was no
denial of justice also in the SPR proceedings.
That being so, there is no need to address questions of the non-exhaustion of local
remedies and of quantum of damages regarding both claims for denial of justice raised
by the Claimants.
COSTS OF THE PROCEEDINGS
According to Article 61(2) of the ICSID Convention and Rule 47(1)(j) of the Arbitration
Rules, the Tribunal has to decide, as part of the Award, the apportionment of the costs
incurred by the Parties as well as of the fees and expenses of the members of the Tribunal
and the charges for the use of the facilities and services of the Centre.
Each Party has requested the Tribunal that its costs in connection with these
proceedings, including the advances made to ICSID for the Centre’s charges and the
fees and expenses of the arbitrators, be reimbursed to it by the other Party. The
Claimants have quantified their costs in the total amount of US$ 16,906,045.46. The
Respondent has quantified its total costs, in the amount of US$ 10,319,833.57.841
The
Tribunal notes that these costs in aggregate exceed the base amount of damages claimed
by the Claimants.
The Tribunal notes that under Article 61(2) of the ICSID Convention it has a wide
discretion with regard to cost allocation. Specifically, Article 61(2) states that:
[I]n the case of arbitration proceedings the Tribunal shall, except as the parties
otherwise agree, assess the expenses incurred by the parties in connection with
the proceedings, and shall decide how and by whom those expenses, the fees and
expenses of the members of the Tribunal and the charges for the use of the
facilities of the Centre shall be paid. Such decision shall form part of the award.
The ICSID Convention and the Arbitration Rules offer little guidance on how this
discretion is to be exercised. It has been said that “the practice of ICSID Tribunals in
apportioning costs is neither clear nor uniform.”842
In some cases the principle “the
loser pays” (referred to also as “costs follow the event”), commonly applied in
841
The Parties’ total cost increased by US$ 75,000 per party, in light of the Centre’s final request for advance
payments to cover all final costs and expenses relating to the proceedings.
842
Schreuer, The ICSID Convention. A Commentary. Second Edition. 3rd printing, 2011, p. 1229.
168
international commercial arbitration, has been followed in investment treaty arbitration.
In other cases, tribunals have ordered the parties to bear their costs and share equally the
fees and expenses of the arbitrators and the charges of the Centre. In a number of cases
arbitral tribunals have also taken into account the nature of the dispute and the conduct
of the parties.
The Tribunal notes that this case has given rise to important and complex legal issues
and that both the Claimants and the Respondent have raised weighty arguments in
support of their respective positions. The Tribunal finds that, in the circumstances of
this particular arbitration, the application of the “loser pays” principle is appropriate. It
does not consider that either Party’s procedural conduct in the arbitration has been such
that it should be taken into account in apportioning costs.
The Tribunal notes that all jurisdictional objections raised by Respondent have been
rejected but that the Claimants’ different claims of breach of the BIT have been
substantially rejected. On balance, the outcome of the case has favoured the Respondent
to a large extent.
In view of the outcome of the case and the significant disproportion between the Parties’
respective costs, the Tribunal deems it fair and reasonable that the costs of the
proceedings be paid by the Parties as follows: each Party shall bear its own costs but the
Claimants shall reimburse the Respondent for part of the latter’s costs in the amount of
US$ 7,000,000.00 and, in addition, pay all fees and expenses of the Tribunal and
ICSID’s administrative fees and expenses.
169
The fees and expenses of the Tribunal and ICSID’s administrative fees and expenses are
the following (in US$):843
Arbitrators’ fees and expenses
- Professor Piero Bernardini:
- Mr. Gary Born
- Judge James Crawford
US$ 482,887.01
US$ 307,349.27
US$ 155,477.80
ICSID admin fees and expenses (estimated)844 US$ 540,000.00
Total US$ 1,485,714.08
AWARD
For the reasons set forth above, the Tribunal decides as follows:
(1) The Claimants’ claims are dismissed; and
(2) The Claimants shall pay to the Respondent an amount of US$7 million on account
of its own costs, and shall be responsible for all the fees and expenses of the
Tribunal and ICSID’s administrative fees and expenses, reimbursing to the
Respondent all the amounts paid by it to the Centre on that account.
Arbitrator Born attaches a statement of dissent.
843
The ICSID Secretariat will provide the parties with a detailed Financial Statement of the case account as soon
as all invoices are received and the account is final.
844
The amount includes estimated charges (courier, printing and copying) in respect of the dispatch of this Award.
170
ANNEX A
INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES
WASHINGTON, D.C.
PHILIP MORRIS BRANDS SÀRL,
PHILIP MORRIS PRODUCTS S.A.
and
ABAL HERMANOS S.A.
(THE CLAIMANTS)
and
ORIENTAL REPUBLIC OF URUGUAY
(THE RESPONDENT)
(ICSID Case No. ARB/10/7)
DECISION ON JURISDICTION
Members of the Tribunal
Prof. Piero Bernardini, President
Mr. Gary Born, Arbitrator
Prof. James Crawford, Arbitrator
Secretary of the Tribunal:
Mrs. Anneliese Fleckenstein
Date of dispatch to the parties: July 2, 2013
1
Representing the Claimants:
Mr. Stanimir Alexandrov
Ms. Marinn Carlson
Ms. Jennifer Haworth McCandless
Mr. James Mendenhall
SIDLEY AUSTIN LLP
1501 K Street, N.W.
Washington, D.C. 20005
United States
and
Mr. Daniel M. Price
Daniel M. Price PLLC
1401 I Street, NW, Suite 1120,
Washington, D.C. 20005
and
Dr. Veijo Heiskanen
Ms. Noradèle Radjai and
Mr. Samuel Moss
LALIVE
Rue de la Mairie 35
1207 Geneva
Switzerland
Representing the Respondent:
Dr. Luis Almagro Lemes
Ministro de Relaciones Exteriores
Calle Colonia 1206, 6to. Piso
Montevideo
Uruguay
and
Dr. Diego Cánepa Baccino
Prosecretaría de la República
Plaza Independencia 710
C.P. 11.000
Torre Ejecutiva Pisos 11
Montevideo
Uruguay
and
Dr. Jorge Venegas
Ministro de Salud Pública
18 de julio 1892, Piso 2
Montevideo
Uruguay
and
Embassy of Uruguay
1913 I (Eye) Street, N.W.
Washington, D.C. 20006
and
Mr. Paul Reichler
Mr. Ronald Goodman
Foley Hoag LLP
1875 K Street N.W.
Washington, D.C. 20006
2
INDEX
Page
TABLE OF ABBREVIATIONS.....................................................................................................3
I. THE DISPUTE …………………………………………………………….……………..…4
II. PROCEDURAL HISTORY... ……………………………………………………………….6
III. RELEVANT LEGAL PROVISIONS……………………………………………………..8
IV. THE RESPONDENT'S OBJECTIONS TO JURISDICTION
A. First Objection: the Claimants Have Not Satisfied Jurisdictional Requirements.....……...12
1. Arguments of the Respondent…...……………..………………………..…………….…12
2. Arguments of the Claimants……………………………….…………………………….19
3. Findings of the Tribunal…………………………………………………………………29
B. Second Objection: Article 2 of the BIT Excludes Public Health Measures from the Scope
of the Protection Afforded Investors
1. Arguments of the Respondent…………………………...…………………………… .50
2. Arguments of the Claimants………………………………………...………….………..54
3. Findings of the Tribunal …………………………………………………………….…..55
C. Third Objection: The Claimants' Activities in Uruguay Are not an "Investment" Within the
Meaning of Article 25 of the ICSID Convention
1. Arguments of the Respondent…………………………………………………………...59
2. Arguments of the Claimants……………………………………………………………..60
3. Findings of the Tribunal ………………………………………………………………...63
V. THE CLAIMANTS’ DENIAL OF JUSTICE CLAIM
1. Arguments of the Claimants ......................................................................................... 69
2. Arguments of the Respondent....................................................................................... 70
3. Findings of the Tribunal................................................................................................ 71
VI. DISPOSITIF ......................................................................................................................... 76
3
TABLE OF ABBREVIATIONS
Centre The International Centre for the Settlement of Investment
Disputes established under the ICSID Convention
Counter-memorial The Claimants’ Counter-memorial on Jurisdiction, filed on 23
January 2012
Exh C- The Claimants’ Exhibits
Exh CLA- The Claimants’ Legal Authorities
Exh R- The Respondent’s Exhibits
Exh RL- The Respondent’s Legal Authorities
fn. footnote
ICJ The International Court of Justice
ICSID Convention Convention on the Settlement of Investment Disputes between
States and Nationals of other States, Washington D.C., 1965
Memorial The Respondent’s Memorial on Jurisdiction, filed on 24
September 2011
MFN clause Most-Favored Nation clause
MPH Uruguayan Ministry of Public Health
RFA The Claimants’ Request for Arbitration, filed on 19 February
2010
Rejoinder The Claimants’ Rejoinder on Jurisdiction, filed on 20 July 2012
Reply The Respondent’s Reply on Jurisdiction, filed on 20 April 2012
VCLT Vienna Convention on the Law of Treaties, 1969
The BIT Agreement between the Swiss Confederation and the Oriental
Republic of Uruguay on the Reciprocal Promotion and Protection
of Investments of 7 October 1998, entered into force on 22 April
1991
Transcript Day[#], [page:line] Transcript of the Hearing on Jurisdiction
Day One: 5 February 2013
Day Two: 6 February 2013
4
I. THE DISPUTE
1. FTR Holding S.A. (“FTR”), Philip Morris Products S.A. (“PMP”) and Abal
Hermanos S.A. (“Abal”), together with FTR, PMP, “Philip Morris” (or “the
Claimants”), filed a Request for Arbitration on 19 February 2010 (the “RFA”) to
institute arbitration proceedings against the Oriental Republic of Uruguay
(“Uruguay” or “the Respondent”). The proceedings were initiated in accordance
with Article 36 of the Convention on Settlement of Investment Disputes between
States and Nationals of Other States dated 18 March 1965 (the “ICSID
Convention”) and Article 10 of (including Ad Article 10 of the Protocol to) the
Agreement between the Swiss Confederation and the Oriental Republic of
Uruguay on the Reciprocal Promotion and Protection of Investments dated 7
October 1988 (the “Switzerland-Uruguay BIT” or “the BIT”). The BIT entered
into force on 22 April 1991, as provided by its Article 12.
2. FTR and PMP are sociétés anonymes organized under the laws of Switzerland,
with registered office in Neuchâtel, Switzerland. FTR was incorporated on 14
December 1924 and registered in the Commercial Register of Neuchâtel on 15
January 1943. PMP was incorporated on 22 December 1988 and registered in the
Commercial Register of Neuchâtel on the same date. Abal is a sociedad anónima
organized under the laws of Uruguay and has its registered office in Montevideo,
Uruguay. FTR was the direct owner of 100% of Abal. By letter of 5 October 2010
the Claimants informed the Centre that Philip Morris Brands Sàrl replaced FTR
Holding S.A. as one of the Claimants in this case and requested that the caption of
the case be amended accordingly. Philip Morris Brands Sàrl (“PMB”) is a Société
à responsibilité limitée organized under the laws of Switzerland, with registered
office in Neuchâtel, Switzerland. PMB is now the direct owner of 100% of Abal.
3. PMP was the owner of the “Marlboro”, “Fiesta”, “L&M” and “Philip Morris”
trademarks which it licensed to Abal. By letter of 17 March 2011, the Claimants
informed the Centre that the trademark for Marlboro, Philip Morris and Fiesta
were transferred to PMB as of 1 January 2011, to be then licensed to Philip Morris
Global Brands, sublicensed to PMP and sub-sublicensed to Abal. Abal produces
and sells the “Marlboro”, “Fiesta”, “L&M”, “Philip Morris”, “Casino”, and
5
“Premier” brands of cigarettes in Uruguay; it owns the “Casino”, “Premier” and
associated trademarks.
4. The Claimants’ claims arise out of the enactment by the Uruguayan Ministry of
Public Health (the “MPH”) of Ordinance 514 dated 18 August 2008 (“Ordinance
514”) and the enactment by the President of Uruguay of Decree 287/009 dated 15
June 2009 (“Decree 287/009”). On 1 September 2009, Ordinance 466 was
enacted by the MPH (“Ordinance 466”), allegedly perpetuating the “single
presentation” requirements of Ordinance 514 and restating the 80% health
warning requirement in Decree 287/009.
5. Article 1 of Ordinance 514 mandates graphic images (“pictograms”) that purport
to illustrate the adverse health effects of smoking reflected in the text warnings.
According to the Claimants, many of these pictograms are not designed to warn of
the actual health effects of smoking; rather they are highly shocking images that
are designed specifically to invoke emotions of repulsion and disgust, even horror.
Thus, it is said, the effective function of the pictograms is to undermine and
indeed destroy the good will associated with Abal’s and PMP’s legally protected
trademarks, and not to promote legitimate health policies.
6. Article 3 of Ordinance 514 requires each cigarette brand to have a “single
presentation” and prohibits different packaging or presentations for cigarettes sold
under a given brand. Until the enactment of Ordinance 514, Abal sold multiple
product varieties under each of its brands (for example, “Marlboro Red”,
“Marlboro Gold”, “Marlboro Blue” and “Marlboro Green (Fresh Mint)”). The
Claimants allege that Article 3 has forced Abal to cease selling all but one of
those product varieties under each brand that it owns or licenses and that sales of
these now forbidden products represented a significant portion of Abal’s total
sales.
6
7. Decree 287/009 imposes an increase in the size of health warnings on cigarette
packages from 50% to 80 per cent of the surface of the front and back of the
package. According to the Claimants, the 80 per cent health warning coverage
requirement wrongfully limits Abal’s right to use its legally protected trademarks
and prevents Abal from displaying them in their proper form.
8. The Claimants allege that Ordinance 514 has caused a decrease in Abal’s sales,
notably because Abal has been forced to discontinue a number of its product
varieties. It has also caused a deprivation of PMP’s and Abal’s intellectual
property rights and a substantial reduction in the value of Abal as a company. As
a result, it is alleged that the Claimants have already sustained, and will continue
to sustain, substantial losses.
9. The Claimants claim that the mandatory pictograms under Article 1 of Ordinance
514 to illustrate the adverse effect of smoking, the single presentation requirement
in Article 3 of Ordinance 514 and the 80% health warning requirement imposed
by Decree 287/009 constitute breaches of the Respondent’s obligations under
Articles 3(1), 3(2), 5 and 11 of the BIT, entitling the Claimants to compensation
under the BIT and international law.
10. The Respondent has denied the Claimants’ allegations and has requested that the
Claimants’ claims be dismissed for lack of jurisdiction.
II. PROCEDURAL HISTORY
11. According to the RFA, the dispute arose out of the Claimants’ investment in
Uruguay. The Claimants allege that Uruguay violated their rights under the BIT in
connection with that investment.
12. On 26 March 2010, pursuant to Article 36(3) of the ICSID Convention and in
accordance with Rule 6 of the Rules of Procedure for the Institution of
Conciliation and Arbitration Proceedings (the “Institution Rules”), ICSID’s
Secretary-General registered the RFA and the proceeding was instituted on the
same date.
7
13. The method for the constitution of the Tribunal was agreed upon by the Parties,
pursuant to which the Tribunal would be comprised of three arbitrators, with each
Party appointing one arbitrator and the third arbitrator to be appointed by the two
Party-appointed arbitrators. In the absence of an agreement between the two Partyappointed
arbitrators, the Secretary-General would appoint the third presiding
arbitrator.
14. On 1 September 2010, the Claimants appointed Mr. Gary Born, a US national, as
arbitrator. Mr. Born accepted his appointment on 3 September 2010. On 24
September 2010, the Respondent appointed Prof. James Crawford, an Australian
national, as arbitrator. Prof. Crawford accepted his appointment on 1 October
2010. Mr. Born and Prof. Crawford could not reach an agreement as to the third
presiding arbitrator. Accordingly, it fell upon ICSID’s Secretary-General to
appoint the President of the Tribunal. On 9 March 2011, the Secretary-General
appointed Prof. Piero Bernardini, an Italian national, as President of the Tribunal.
Professor Bernardini accepted his appointment on 15 March 2011.
15. On 15 March 2011, the Tribunal was constituted. Its members are: Prof. Piero
Bernardini (Italian), President of the Tribunal; Mr. Gary Born (U.S.), Arbitrator;
Prof. James Crawford (Australian), Arbitrator. Mrs. Anneliese Fleckenstein was
appointed by ICSID’s Secretary-General as Secretary of the Tribunal.
16. On 25 May 2011, the Tribunal held its first session by telephone conference. A
procedural calendar was established for the proceedings on jurisdiction. The
Minutes of the First Session were transmitted to the Parties.
17. On 31 August 2011, as agreed by the Parties, the Tribunal issued Procedural Order
No. 1 for the Protection of Confidential Information.
18. Pursuant to the agreed upon schedule of pleadings, the Respondent filed the
Memorial on 24 September 2011, the Claimants filed the Counter-memorial on 23
January 2012, the Respondent filed the Reply on 20 April 2012 and the Claimants
filed the Rejoinder on 20 July 2012.
19. Pursuant to the Tribunal’s direction of 14 December 2012, the Parties agreed on
15 January 2013 on the schedule of the hearing on jurisdiction. The schedule was
accepted by the Tribunal.
8
20. The hearing on jurisdiction was held on 5 and 6 February 2013, at the
International Chamber of Commerce in Paris. Present at the hearing were:
- for the Tribunal: Prof. Piero Bernardini, President; Mr. Gary Born and Prof.
James Crawford, arbitrators; Mrs. Anneliese Fleckenstein, Secretary of the
Tribunal;
- for the Claimants:
Mr. Daniel M. Price Daniel M. Price PLLC
Mr. Stanimir A. Alexandrov Sidley Austin LLP
Mr. James Mendenhall Sidley Austin LLP
Ms. Mika Morse Sidley Austin LLP
Mr. Andrew Blandford Sidley Austin LLP
Mr. Carlos Brandes Guyer & Regules
Mr. JB Simko Philip Morris
Mr. John Fraser Philip Morris
Mr. Matias Cikato Philip Morris
Ms. Anne Edward Philip Morris
Dr. Carlos E. Delpiazzo Expert
- for the Respondent:
Mr. Paul S. Reichler Foley Hoag LLP
Dr. Ronald E.M. Goodman Foley Hoag LLP
Dr. Eduardo Jiménez de Aréchaga Attorney at Law
Mrs. Christina Beharry Foley Hoag LLP
Mr. Yuri Parkhomenko Foley Hoag LLP
Dr. Constantinos Salonidis Foley Hoag LLP
Mr. Yoni Bard Foley Hoag LLP
Mrs. Irene Okais Foley Hoag LLP
Ms. Angelica Villagran Foley Hoag LLP
Dr. Diego Cánepa Baccino Deputy Secretary
Presidency of the Republic of Uruguay
Dr. Carlos Mata Director of Legal Affairs
Ministry of Foreign Affairs
Dr. Daniel Hugo Martins Expert
21. The Parties agreed on corrections to the hearing transcript by letter of 25 February
2013 enclosing jointly agreed corrections.
III. RELEVANT LEGAL PROVISIONS
22. According to Article 41 of the ICSID Convention, the Tribunal is the judge of the
Centre’s jurisdiction and its own competence. In order to determine the existence
of the Centre’s jurisdiction and its competence in the present case, the Tribunal
9
must decide whether the jurisdictional requirements of the ICSID Convention and
the BIT have been satisfied. In reaching such decision, the Tribunal must apply
Article 25(1) of the ICSID Convention, Articles 1 and 10 of the SwitzerlandUruguay
BIT and Ad Articles 9 and 10 of the Protocol to the BIT.
23. Article 25 of the ICSID Convention sets forth the criteria for ICSID’s jurisdiction
and provides in relevant part:
(1) The jurisdiction of the Centre shall extend to any legal dispute arising
directly out of an investment, between a Contracting State… and a national
of another Contracting State, which the parties to the dispute consent in
writing to submit to the Centre. When the parties have given their consent,
no party may withdraw its consent unilaterally.
(2) “National of another Contracting State” means:
(a) [omitted]
(b) any juridical person which had the nationality of a Contracting State
other than the State party to the dispute on the date on which the
parties consented to submit such dispute to conciliation or arbitration
and any juridical person which had the nationality of the Contracting
State party to the dispute on that date and which, because of foreign
control, the parties have agreed should be treated as a national of
another Contracting State for the purposes of this Convention.
24. Article 1 of the BIT defines as follows certain relevant terms:
(1) The term “investor” refers with regard to either Contracting Party to
(a) natural persons who, according to the law of that Contracting Party,
are considered to be its nationals;
(b) legal entities, including companies, corporations, business
associations and other organisations, which are constituted or
otherwise duly organized under the law of the Contracting Party and
have their seat in the territory of that same Contracting Party;
(c) legal entities established under the law of any country which are,
directly or indirectly, controlled by nationals of that Contracting Party.
(2) The term “investment” shall include every kind of assets and particularly:
(a) movable and immovable property as well as any other rights in rem,
such as charges on real estate, mortgages, liens, pledges;
(b) shares, certificates or other kinds of participation in companies;
(c) money claims and any entitlement of economic value;
(d) copyrights, industrial property rights (such as patents of inventions,
utility models, industrial designs or models, trade or service marks,
trade names, indications of source or appellation of origin), know-how
and good-will;
(e) concessions under public law, including concessions to search for,
extract or exploit natural resources as well as all other rights given by
law, by contract or by decision of a public entity in accordance with
the law.
10
25. Article 10 of the BIT sets forth provisions governing the disputes between a
Contracting Party and an investor of the other Contracting Party that may be
submitted to international arbitration. In pertinent part, it reads:
(1) Disputes with respect to investments within the meaning of this
Agreement between a Contracting Party and an investor of the other
Contracting Party shall, as far as possible, be settled amicably
between the parties concerned.
(2) If a dispute within the meaning of paragraph (1) cannot be settled
within a period of six months after it was raised, the dispute shall,
upon request of either party to the dispute, be submitted to the
competent courts of the Contracting Party in the territory of which
the investment has been made. If within a period of 18 months after
the proceedings have been instituted no judgment has been passed,
the investor concerned may appeal to an arbitral tribunal which
decides on the dispute in all its aspects.
26. Ad Articles 9 and 10 of the Protocol to the BIT read as follows:
Judgment of the competent courts in the sense of Article 9, paragraph (8)
and Article 10, paragraph (2) means for the Oriental Republic of
Uruguay a judicial decision in a one and only instance.
Ad Article 10 of the Protocol to the BIT reads as follows:
In the event of both Contracting Parties having become members of the
Convention of 18 March 1965 on the Settlement of Investment Disputes
between States and Nationals of other States, disputes with respect to
investments between a Contracting Party and an investor of the other
Contracting Party shall, at the request of the investor, be submitted
according to the provisions of the aforementioned Convention to the
International Centre for Settlement of Investment Disputes.
27. The jurisdiction of the Centre and the Tribunal’s competence depend first and
foremost on the consent of the Parties.1
The Tribunal shall exercise jurisdiction
over all disputes that fall within the scope of the Parties’ consent as long as the
dispute satisfies the requirements of the ICSID Convention and the relevant
provisions of the BIT.
28. Based on Article 25 of the ICSID Convention, Articles 1 and 10 of the BIT, Ad
Articles 9 and 10 of the Protocol to the BIT, this Tribunal has jurisdiction over the
present dispute if the following conditions are met: (1) a condition ratione
1
Report of the Executive Directors of the International Bank for Reconstruction and Development on the
Convention, stating that “[c]onsent of the parties is the cornerstone of the jurisdiction of the Centre”, 1 ICSID
Reports, para. 23.
11
personae: the Claimants are all investors of one Contracting Party and Uruguay is
another Contracting Party; (2) a condition ratione materiae: the dispute must be a
legal dispute arising directly out of an investment made by the Claimants in the
territory of the other Contracting Party; (3) a condition ratione voluntatis: the
parties to the dispute have consented that the dispute be settled through ICSID
arbitration. While no objections have been raised by the Respondent regarding
jurisdiction ratione personae, it has objected that since the other conditions have
not been met, the Tribunal lacks jurisdiction to hear the case. Before examining
the Respondent’s objections, two preliminary matters must first be addressed.
29. Regarding burden of proof, it is commonly accepted that at the jurisdictional stage
the facts as alleged by the claimant have to be accepted when, if proven, they
would constitute a breach of the relevant treaty.2
However, if jurisdiction rests on
the satisfaction of certain conditions, such as the existence of an “investment” and
of the parties’ consent, the Tribunal must apply the standard rule of onus of proof
actori incumbit probatio3
, except that any party asserting a fact shall have to
prove it.4
30. Regarding the law governing the determination of jurisdiction, the Tribunal
adheres to the predominant opinion that this issue is to be decided according to
Article 25 of the ICSID Convention, the applicable rules of the relevant treaty and
2
Regarding facts that have to be provisionally accepted for jurisdictional purposes reference may be made to
Saipem v. Bangladesh Decision on Jurisdiction and Recommendation on Provisional Measures, 21 March 2007,
stating as follows (at para. 91):
“The Tribunal’s task is to determine the meaning and scope of the provisions upon which [the claimant] relies to
assert jurisdiction and to assess whether the facts alleged by [the claimant] fall within those provisions or would
be capable, if proven, of constituting breaches of the treaty obligations involved. In performing this task, the
Tribunal will apply a prima facie standard, both to the determination of the meaning and scope of the relevant
BIT provisions and to the assessment whether the facts alleged may constitute breaches of these provisions. In
doing so, the Tribunal will assess whether [the claimant’s] case is reasonably arguable on its face. If the result is
affirmative, jurisdiction will be established but the existence of breaches will remain to be litigated on the
merits.”
3
SOABI v. Senegal, Award, 25 February 1988, para. 9,23; AAPL v. Sri Lanka, Award, 27 June 1990, para. 56;
Tradex v. Albania, Award, 29 April 1999, paras 73-75; Middle East Cement v. Egypt, Award, 12 April 2002,
paras 88-91; Generation Ukraine v. Ukraine, Award, 16 September 2003, paras 19.1, 19.4; CSOB v. Slovakia,
Award, 29 December 2004, paras 225-226; Noble Ventures v. Romania, Award, 12 October 2005, para. 100;
Salini v. Jordan, Award, 31 January 2006, paras 70-75; Tokios Tokelès v. Ukraine, Award, 26 July 2007, paras
121, 122. See also Bin Cheng, General Principles of Law as Applied by International Courts and Tribunals,
1987, paras 327-331.
4
Feldman v. Mexico, Award, 16 December 2002, para. 117; Soufraki v. UAE, Award, 7 July 2004, paras 58,81;
Thunderbird v. Mexico Award, 26 January 2006, para. 95; Saipem v. Bangladesh, Decision on Jurisdiction, 21
March 2007, para 83. See also the ICJ in: Military and Paramilitary Activities in and Against Nicaragua
(Nicaragua v. United States of America), Judgment, 26 November 1984, ICJ Reports 1984, p. 437, para. 101;
Case concerning Avena and other Mexican Nationals (Mexico v. United States), Judgment, 31 March 2004, ICJ
Reports 2004, p. 41, paras 55-57. See also Article 27(1) of the 2010 UNCITRAL Arbitration Rules.
12
the applicable rules and principles of international law, Article 42(1) of the ICSID
Convention governing only the merits of the case.5
IV. THE RESPONDENT’S OBJECTIONS TO JURISDICTION
A. First Objection: The Claimants Have Not Satisfied Jurisdictional Requirements
1. Arguments of the Respondent
31. According to the Respondent, requirements prescribed by Article 10, including
the domestic litigation requirement, are jurisdictional pre-conditions that have to
be satisfied in order for the Tribunal to have the authority to hear this case. This is
evident from the form of words used by which international arbitration was
intended to be a forum of last resort only if justice is not served in the host State.
32. The requirements of Article 10 are stated in terms of obligatory steps, each to be
complied with before the next step may be taken. First, disputes “shall” as far as
possible be settled amicably under Article 10(1) and only “if” the dispute cannot
be so settled within six months, it “shall” be submitted to the competent court of
the host State under Article 10(2). Then, but only “if” no judgment has been
passed within 18 months, the investor may appeal to an arbitral tribunal under the
same Article 10(2).
33. The choice of words is deliberate. The term “if” combined with the mandatory
“shall” introduces cumulative conditions that must all be satisfied before resort
may be had to arbitration. Article 9(8) of the BIT underscores the fact that
domestic litigation is an indispensable pre-condition by specifying that an arbitral
tribunal “may only” render an award if it finds that a domestic judgment breaches
the BIT. The conditions stated in Article 10 define the scope of the Tribunal’s
jurisdiction ratione voluntatis, non-compliance negating jurisdiction.
5
Schreuer, The ICSID Convention, A Commentary (2nd
edn, 2009), Article 25, para. 578, stating that
“[t]ribunals have held consistently that questions of jurisdiction are not subject to Art. 42 which governs the law
applicable to the merits of the case”, referring in this regard to various ICSID decisions on jurisdiction. Article
42(1) provides as follows:
“The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the
absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute
(including its rules on the conflict of laws) and such rules of international law as may be applicable”.
13
34. The history of the BIT’s negotiation and ratification shows that Uruguay deemed
domestic litigation requirement to be a critical element of the BIT and an
important limitation on the consent to international arbitration. The Senate
Committee on International Affairs, when recommending the adoption of the BIT,
in a Report dated 9 August 1990 explained that Article 10 establishes a procedure
requiring that only after an unsuccessful attempt to the amicable settlement and
the referral to the competent domestic court could the dispute be submitted to an
arbitral tribunal.6
35. Consent being the cornerstone of ICSID jurisdiction, any limitations on consent
contained in a BIT constitute limitations on the scope of the tribunal’s
jurisdiction. International jurisprudence, both from the ICJ and other ICSID
tribunals, confirms that procedural preconditions like those under Article 10 limit
States’ consent to jurisdiction.
36. In the case concerning Armed Activities on the Territory of the Congo (New
Application 2002)7
, the ICJ held that where the applicable preconditions had not
been met, the treaty could not provide jurisdiction. The Court made clear that
examination of such conditions “relates to its jurisdiction and not to the
admissibility of the application”.8
Accordingly, the Court did not accept
jurisdiction due to the failure to comply with the pertinent conditions.9
37. ICSID tribunals have applied the same rules regarding the six-month waiting
period. In Enron v. Argentina, the relevant BIT required the parties to initially
seek a resolution of the dispute through consultation and negotiation, this
requirement being, in the tribunal’s view, “very much a jurisdictional one. A
6
Memorial, para 54, referring to the Report of the Senate Committee on International Affairs (9 August 1990) in
Minutes of the Uruguayan Senate Sessions (4 September 1990), p. 42 (R-5).
7
Case Concerning Armed Activities on the Territory of the Congo (New Application, 2002) (Democratic
Republic of the Congo v. Rwanda), Judgment on Jurisdiction and Admissibility, 3 February 2006, I.C.J. Reports
2006, para. 88 (RL-48).
8
Ibid., para. 88.
9
Ibid., para. 126.
14
failure to comply with that requirement would result in a determination of lack of
jurisdiction”.10
38. ICSID tribunals have held that the requirement of litigation is a jurisdictional
condition. In Wintershall v. Argentina the tribunal held that this requirement “is
an essential preliminary step to the institution of ICSID arbitration under the
Argentina-Germany BIT; it constitutes an integral part of the “standing offer”
(“consent”) of the Host State that must be accepted on the same terms by every
individual investor who seeks recourse (ultimately) to ICSID arbitration….The
requirement of recourse to local courts…. is fundamentally a jurisdictional
clause”.11
39. The Claimants made no effort to comply with the domestic litigation requirement,
as is evident from the fact that they did not pursue the special statutory
mechanism designed by Uruguayan law exclusively for the resolution of BIT
disputes. The Claimants chose rather to bring before the Uruguayan courts only
matters of Uruguayan municipal law, declining to raise any claims under the BIT
in those proceedings. Even on the Claimants’ theory, the 18 months had not run
before the arbitration began.
40. The special procedure created in Uruguay for the litigation of BIT claims is set
forth in Law 16,110 of 25 April 1990. As explained by the Respondent’s expert
Dr. Daniel Hugo Martins, the first article of Law 16,110 “ratifies” Uruguay’s
bilateral investment treaty with Germany.12
The remainder of that Law creates a
specific mechanism, of a general character, for the resolution of investor-State
disputes arising under any bilateral investment treaty, the competent courts being
the Tribunal de lo Contencioso Administrativo (“TCA”) and the Tribunales de
Apelación en lo Civil.
10
Enron Corp and Ponderosa Assets v. The Argentine Republic, ICSID Decision on Jurisdiction, 14 January
2004, para. 88. Similarly, Burlington Resources Inc. v. Republic of Ecuador and Empresa Estatal Petróleos del
Ecuador, ICSID Decision on Jurisdiction, 2 June 2010, para. 315; Murphy Exploration and Production Co. Int’l
v. Republic of Ecuador, ICSID Decision on Jurisdiction, 15 December 2010, para .151.
11
Wintershall v. Argentina, Award, 8 December 2008, para. 114. The same was held by the tribunal in
Impregilo S.p.A. v. Argentine Republic, Award, 21 June 2011, paras 79-94.
12
Dr. Daniel Hugo Martins’ Expert Report attached to the Reply, para. 18.
15
41. Under Law 16,110, a claimant must express with precision that its claims are
based on the norms established under a BIT, identifying the BIT claims with
particularity. Once the Uruguayan court has rendered its decision, no domestic
appeal is available, any secondary recourse being to international arbitration. The
Law establishes a series of expedited deadlines that are shorter than those
applicable in conventional domestic proceedings so as to facilitate the rendering
of a judgment within the 18-month period provided by a number of Uruguay’s
BITs, including the Switzerland-Uruguay BIT.
42. The Claimants nowhere suggest that they invoked Law 16,110. They rather
chose not to submit this BIT dispute to the Uruguayan courts by pursuing
ordinary actions against Uruguay’s tobacco regulations in the TCA, raising
purely municipal law disputes alleging breaches of Uruguayan administrative
and constitutional norms, arguing that the challenged regulations should be
annulled on those grounds.
43. Disputes arising under Uruguayan domestic law and under the BIT are different,
however; they cannot be conflated. The alleged BIT violations were mentioned
by the Claimants only to indicate that they reserved the right to present that
dispute later, in a different forum. However, under Article 10 of the BIT the
same BIT dispute, involving the same BIT issues, will be presented before both
the domestic court and the arbitral tribunal. Article 9(8) of the BIT confirms that
the arbitral tribunal may be called upon only to rule on the same dispute
submitted to the domestic court.
44. The critical distinction between treaty and non-treaty claims is well established
in investor-State jurisprudence. As stated by the Annulment Committee in
Vivendi v. Argentina, “a treaty cause of action is not the same as a contractual
cause of action, it requires a clear showing of conduct which is in the
circumstances contrary to the relevant treaty standard”.13
There can be no
opportunity to rule upon the international obligations guaranteed in the BIT
before disputes concerning the scope of those obligations are submitted to
13
Compañia de Aguas del Aconquija S.A. and Vivendi Universal v. Argentine Republic, ICSID Decision on Annulment,
3 July 2001, para. 113.
16
arbitration if the domestic courts are never presented with the international
claims in the first place. That this was the intent of Article 10 is confirmed by
the travaux préparatoires of the BIT14
in view of Uruguay’s insistence on the
preference for local courts to rule on its international legal obligations in the first
instance.
45. The Claimants’ contention that the requirement of Article 10 is a matter of
admissibility which can be satisfied after arbitration has begun, even if accepted
(which is not), fails since their case would still be at least 18 months short of
becoming admissible. As held by another tribunal, “At the time of commencing
dispute resolution under the treaty, the investor can only deny or accept the offer
to arbitrate but cannot vary its terms”.15
There is no ambiguity in the mandatory
character of the prior submission of the dispute to the decision of the competent
court of the host State. It is not simply a question of timing, but it is instead a
critical substantive requirement that is a key condition going to the heart of the
Tribunal’s jurisdiction.
46. Jurisdiction must exist at the moment of instituting legal proceedings. The
Claimants suggest that it is enough to create jurisdiction that the 18-month
period has since run even if such period has not ended when the arbitration
began. The ICJ has allegedly applied this rule “with some flexibility”, as
asserted by the Claimants’ expert, Professor Schreuer, citing three cases from the
ICJ’s jurisprudence. Such cases are of little consequence since, in its judgment
on jurisdiction in the Georgia v. Russia case16
, the Court denied jurisdiction
because of Georgia’s failure to meet a jurisdictional pre-condition before
initiating litigation. The failure in this case to satisfy the requirement of prior
recourse to local courts deprives the Tribunal of jurisdiction even if the 18month
clock could now be deemed to have expired.
47. It is the Claimants’ contention that the MFN clause in Article 3(2) of the BIT
allows them to dispense with the Article 10(2) requirements by applying BITs
14
Supra, para. 34.
15
ICS Inspection and Control Services Limited v. The Argentine Republic, UNCITRAL Award on Jurisdiction, 10
February 2012, para. 272.
16
Georgia v. Russia, ICJ Judgment, 1 April 2011, para. 130.
17
that contain more favourable dispute resolution clauses. They cite two other
BITs that do not require prior resort to domestic courts for 18 months before
instituting international arbitration, Uruguay’s BITs with Canada and Australia.
48. Article 3(2) (referred to by the Respondent, with emphasis added by it) provides:
Each Contracting Party shall ensure fair and equitable treatment within its
territory of the investments of the investors of the other Contracting Party. This
treatment shall not be less favourable than that granted by each Contracting
Party to investments made within its territory by its own investors, or than that
granted by each Contracting Party to the investments made within its territory
by investors of the most favoured nation, if the latter treatment is more
favourable.
The ordinary meaning of this language confirms that this clause is confined to
fair and equitable treatment and does not allow the Claimants to escape the
jurisdictional requirements of Article 10(2).
49. As explained by the ILC Commentary on the Draft Articles on Most-Favoured
Nation Clauses, pursuant to the eiusdem generis rule “the clause can only
operate in regard to the subject matter which the two States had in mind when
they inserted the clause in their treaty” and it “can attract the rights conferred by
other treaties (or unilateral acts) only in regard to the same matter or class of
matters”.17
The principle of contemporaneity proves that Article 3(2) does not
apply to dispute settlement. When the BIT was concluded nearly 25 years ago,
the Contracting Parties could not have reasonably envisaged that it might apply
to dispute settlement. The BIT was signed 12 years before the Maffezini tribunal
for the very first time applied an MFN clause to establish jurisdiction where it
did not otherwise exist.18
50. In stark contrast to the wording of broad MFN clauses in other BITs, Article 3(2)
limits the scope of the MFN clause to fair and equitable treatment. Other treaties
accord MFN treatment to “all matters subject to the agreement”19
or to matters
that are specifically mentioned.20
These differences demonstrate that the drafters
17
Memorial, para. 69.
18
Emilio Augustin Maffezini v. Kingdom of Spain, ICSID Decision on Jurisdiction, 25 January 2000, 5 ICSID
Reports, para.396.
19
Argentina-Spain BIT dated 3 October 1991, Article IV.2. See Maffezini v. Spain, cit., para. 60.
20
Argentina-Germany BIT dated 4 September 1991, Article 3.
18
of treaties know how to provide for broad or narrow application of MFN
treatment as fits the circumstances.
51. Investment arbitration tribunals have held that an MFN clause cannot
incorporate by reference dispute settlement provisions unless the clause clearly
and unambiguously indicates that the contracting parties intended this effect.21
The MFN clause of the Uruguay-Switzerland BIT does not “clearly and
unambiguously” indicate that it should be interpreted to replace one means of
settlement with another.22
Unlike the MFN clause in other cases, the MFN clause
of the BIT in the present case does not apply to “all matters governed by the
treaty” so that it cannot be extended to dispute resolution.23
52. Differential treatment regarding dispute resolution may not necessarily equal
less favourable treatment. Whether certain provisions are more or less
favourable cannot depend on the subjective perception of the individual investor
but rather on an objective determination based on a comparison of the provisions
of the two treaties “as a whole and not part-by-part”.24
A comparison with the
BITs with Australia and Canada shows that the Switzerland-Uruguay BIT is
more favourable as to the dispute settlement clause since it gives the Claimants
“two bites at the apple”, not just one.25
53. As the tribunal in Renta 4 v. The Russian Federation held, “the attribution to
Subparagraph 3 of sophisticated implications simply cannot dislodge the
qualifying adjectives “fair and equitable” in Subparagraph 1 [and] even less can
it undermine the unambiguous reference in Subparagraph 2 to “treatment
referred to in paragraph 1 above”.26
The same applies to the Claimants’ reference
to Article 3(3)-(4) of the BIT and the implications they seek to draw therefrom.
The importance of the “expressio unius” principle is overstated by the
21
Plama Consortium Limited v. Republic of Bulgaria, Decision on Jurisdiction, 8 February 2005, para. 223;
Vladimir Berschader and Moïse Berschader v. The Russian Federation, Award, 21 April 2006, para. 181;
Wintershall v. Argentina, cit., para. 17; Salini Costruttori S.p.A. and Italstrade S.p.A. v. The Hashemite
Kingdom of Jordan, Decision on Jurisdiction, 9 November 2004, paras 118-119; Telenor Mobile
Communications A.S. v. The Republic of Hungary, Award, 13 September 2006, paras 89-95.
22
Wintershall v. Argentina, cit., para. 167.
23
Impregilo S.p.A. v. Argentine Republic, cit., para. 103.
24
ICS v. Argentina, cit., para. 320.
25
Ibid., paras 323-324.
26
Renta 4, S.V.S.A. v. The Russian Federation, Award on Preliminary Objections, 20 March 2009, para. 117.
19
Claimants. As shown by Articles 5(2) and 7 of the BIT, when the Contracting
Parties deemed it appropriate to grant MFN treatment, they did so explicitly.
54. As noted by another tribunal, the content of the substantive standard of “fair and
equitable treatment” as applied in international law does not encompass the
procedural issues of access to international arbitration. Even if such access may
be more favourable to investors than lack of access, “this does not mean that
failure to give access to such a tribunal is unfair or inequitable”.27
2. Arguments of the Claimants
55. According to the Claimants, Uruguay’s objections to the Tribunal’s jurisdiction
are premised on the incorrect assumption that the prerequisites for arbitration set
forth in Article 10 of the BIT have not been satisfied. On the contrary, with
respect to each of the measures that gave rise to the dispute, the Claimants
sought to reach an amicable resolution with the Government for at least six
months and have litigated their dispute in local courts for at least 18 months. The
fact that some procedural steps were not taken prior to the registration of the
RFA does not deprive the Tribunal of jurisdiction.
56. The term “appeal” in Article 10(2) does not imply that the Claimants may only
resort to arbitration to appeal an adverse domestic court decision. This would be
contrary to the plain meaning of that provision which permits the Claimants to
submit their dispute to arbitration if no decision has been rendered in domestic
courts within 18 months. In the context, “to appeal” means “to petition, to resort
to”. The above interpretation is clear from the English text, and even clearer in
the Spanish version of the BIT, which states “[s]i dentro de un plazo de 18
(dieciocho) meses . . . no se dictara sentencia, el inversor involucrado podrá
recurrir a un Tribunal Arbitral.” The verb “recurrir” confirms that the BIT
drafters did not mean “appeal” in the sense of bringing a judgment to a higher
authority for review. In the context, “recurrir” means, as the English “appeal”,
“to petition, to resort to.”
27
Ibid., para. 154.
20
57. Regarding Ordinance 514, the six-month consultation period began on 18
September 2008 with the filing of administrative opposition and expired on 18
March 2009, while the 18-month litigation period began on 9 June 2009 when an
annulment action was filed before the TCA and expired on 9 December 2010, no
decision having been issued by the TCA during that time.
58. On behalf of the Claimants, Abal sent letters to the MPH on 23 and 24
September and on 26 December 2008 and on 3 February 2009, objecting to
Ordinance 514. The filing of an administrative opposition on 18 September 2008
did not constitute a submission to a “competent court” within the meaning of
Article 10 but merely the continuation of the effort to reach an amicable
settlement. In a supplemental submission with the MPH of 7 November 2008
Abal gave express notice that Ordinance 514 violated the Claimants’ rights
under the BIT.
59. The six-month consultation period ended on 18 March 2009, six months after the
filing of the administrative opposition, or at the latest on 7 May 2009, six
months after the filing of the supplemental submission.
60. The Claimants waited until 9 June 2009 to submit their dispute to the TCA
seeking annulment of Ordinance 514 based on the “single presentation”
requirement being a new restriction of Law 18.256 and Decree 284 and a
violation of the Claimants’ rights under the BIT. The 18-month litigation period
before the local courts ended on 9 December 2010. The TCA issued a decision
on 14 June 2011, i.e. only 24 months after domestic litigation had been initiated
and six months after expiry of the 18-month period.28
61. The TCA’s decision of 14 June 2011 rejected Abal’s annulment request relying
on arguments and evidence presented in the different proceedings initiated by
British American Tobacco (“BAT”). Requested for a clarification, the TCA
declared on 29 September 2011 that “the so-called contradictions are not
important nor do they justify the revision of the decision”. Since the facts and
arguments presented by BAT are vastly different from those presented by Abal
28
The TCA Decision 509 on Abal’s Request for Annulment of Ordinance 514, 14 June 2011(C-053).
21
and since TCA’s decision is final and unappealable, the Claimants have no
recourse against that decision. Even if the Tribunal finds that the Claimants have
not complied with the BIT’s procedural requirements, the Claimants should be
permitted to raise a denial of justice claim in this arbitration, as to which the
Tribunal has jurisdiction.
62. Regarding Decree 287, the six-month consultation began on 5 June 2009, even
before the issuance of the Decree on 25 June 2009, with a letter sent by Abal on
behalf of the Philip Morris group of companies to the MPH, objecting to the new
requirement that the size of health warnings had to increase from 50% of the
surface area of tobacco package to 90%. The letter indicated that this was in
breach of the Claimants’ rights under the BIT.
63. The Government ignored the objections and, without consultation, issued Decree
287 on 25 June 2009, increasing to 80% the surface area of the health warning.
Abal filed an administrative opposition to the Decree on 16 July 2009 and a
supplemental brief on 6 November 2009. The six months expired on 5 December
2009, over two months before the RFA was filed. The 150-day period for the
MPH to address the Claimants’ opposition expired on 13 December 2009,
without any response.
64. The Claimants waited until 22 March 2010 to initiate domestic litigation by
filing an action before the TCA seeking annulment of Decree 287, asserting
rights on behalf of the Philip Morris group of companies under the BIT. The 18month
litigation period expired on 22 September 2011, but the decision was not
issued by the TCA until 28 August 201229
, i.e. eleven months later. The RFA
had been filed on 19 February 2010 and registered on 26 March 2010.
65. Ordinance 466 continued the requirements of Ordinance 514 and Decree 287.
The consultation and litigation steps undertaken by the Claimants with respect to
the latter therefore fulfilled the procedural requirements for the Claimants’
challenge of Ordinance 466. In any event, the six-month consultation period
began on 11 September 2009, when the Claimants filed an administrative
29
The TCA Decision 512 on Abal’s Request for Annulment of Decree 287, dated 28 August 2012 (C-116).
22
opposition to Ordinance 466, and it expired on 11 March 2010. The 18-month
litigation period began on 20 April 2010 when an annulment action was filed
before the TCA and expired on 20 October 2011. The decision was issued by the
TCA on 22 November 2011, i.e. one month later.30
66. The Respondent argues that even if Abal has met certain of the requirements of
Article 10, the other Claimants have not. The Respondent overlooks the fact that
Abal was wholly owned by FTR and now is wholly owned by Philip Morris
Brands and that the brands Abal sells in Uruguay are owned or licensed by Abal
or PMP. Any dispute involving Abal and its products necessarily involves the
other Claimants. Further, throughout the discussions with the Government and
the administrative and judicial proceedings, Abal made it clear that it was
speaking on behalf also of its parents and affiliates.
67. According to the Respondent, the fact that the Claimants were not in compliance
with the domestic litigation requirement as of the date of registration of the RFA
is fatal to the Tribunal’s jurisdiction. The Respondent misconstrues the steps in
Article 10 as preclusive jurisdictional prerequisites rather than procedural
requirements. A lengthy line of jurisprudence supports the Claimants’ position
that procedural steps, such as notification requirements, waiting periods and
domestic litigation requirements, are not conditions for the vesting of
jurisdiction. Such procedural steps pertain, not to jurisdiction, but to the
admissibility of the dispute, or to procedural conduct related to the claim.31
Given that all procedural prerequisites have been met, dismissal of the claims
would serve no purpose as the Claimants could resubmit the dispute to
arbitration.
68. In the cases Uruguay cites in support of its position, the claimants never made
any attempt to comply with negotiation or domestic litigation requirements. In
contrast, in this case, the Claimants have complied with the BIT requirements as
30
The TCA Decision 970 on Abal’s Request for Annulment of Ordinance 466, dated 22 November 2011 (C-114).
31
In the Counter-memorial the Claimants cite to the following cases (at para. 86):
Hochtief AG v. Argentina Republic, Decision on Jurisdiction, 24 October 2011 (“Hochtief”), paras 90, 91 (CLA-
032); Telefonica S.A. v. Argentine Republic, Decision of the Tribunal on Objections to Jurisdiction, 25 May
2006, (“Telefonica”), para. 93 (RL-77); TSA Spectrum de Argentina S.A. v. Argentine Republic, Award, 19
December 2008 (“TSA”), para. 112 (CLA-064).
23
to all steps, the passage of time having rendered moot the fact that the RFA was
registered before the end of the 18-month domestic litigation period. Uruguay
has not contested that there is jurisdiction ratione materiae, ratione personae
and ratione temporis. As explained by Professor Schreuer in his legal opinion,
“requirements additional to those of Article 25 [of the ICSID Convention],
contained in an instrument of consent would generally be related to
admissibility”.
69. Most decisions have concluded that the six-month consultation period is not a
jurisdictional requirement and that in any case it can be rendered moot or
dispensed with if pursuit of consultation would be futile. Tribunals have
recognized that procedural prerequisites cannot be applied mechanically in
situations where dismissing the case would have no effect other than to delay the
proceedings and force the parties to incur additional costs.32
Declining
jurisdiction in the present case would be an unduly formalistic decision, at odds
with the spirit and rationale of the dispute settlement provisions of the BIT.
70. According to the Respondent, the Claimants were required to have litigated their
BIT claims before the TCA, not claims under Uruguay’s domestic law. There is
no basis for the Respondent’s position.
71. The “dispute” that must be submitted to litigation before the competent domestic
court is defined by Article 10(1) as relating to an investment, not as a dispute
limited to claims of a violation of the BIT. Since either party may submit the
“dispute” to local courts, it would make no sense if the dispute were limited to
BIT claims, there being no basis for Uruguay to submit to local courts a BIT
claim against an investor. Furthermore, under Articles 9(8) and 10(2) the BIT
allows the investor to submit to arbitration “all aspects” of the dispute, which
must be understood to mean both domestic and international law claims related
to the same subject matter. There is no exhaustion requirement under Article 10,
32
In the Counter-memorial the Claimants cite to the following cases (at para. 92):
SGS Société Générale de Surveillance S.A v. Islamic Republic of Pakistan, Decision of the Tribunal on Objection
to Jurisdiction, 6 August 2003 (“SGS v. Pakistan”), para. 184 (CLA-059) ; Ethyl Corp. v. Government of
Canada, Award on Jurisdiction, 24 June 1998 (“Ethyl”), para 75 (CLA-029) ; Bayindir Insaat Turizm Ticaret Ve
Sanayi A.S. v. Islamic Republic of Pakistan, Decision on Jurisdiction, 14 November 2005, paras 99-100 (CLA-
012).
24
the investor having only to wait to see whether a judgment is passed by the local
court within 18 months before resorting to arbitration.
72. According to the Respondent, even if the TCA were the proper court for hearing
their claims, the Claimants should have invoked the procedures set forth in Law
16,110, which provides for the submission of the BIT claims to the TCA. The
Claimants note at the outset that neither the government defendant nor the TCA
at any point indicated that the Claimants should have invoked Law 16,110. As
stated by Professor Schreuer in his legal opinion, either Uruguay knew about the
special procedure under Law 16,110 but refrained from pointing it out to the
Claimants, in which case it did not act in good faith, or it was not aware of the
special procedure under Law 16,110, in which case it would be highly unusual to
hold a foreign investor to a procedural error of which the host State was not
aware.
73. Due to changes in Uruguay’s Constitution, critical parts of Law 16,110 are no
longer operational so that it can no longer allow a single and unappealable
decision for annulment and damages. This is contrary to the BIT’s requirement
that the investor seek a “judicial decision in a one and only instance”, which the
Respondent has interpreted to mean a proceeding that could simultaneously hear
damages and annulment claims. The Claimants complied with the requirements
of Article 10 by submitting their dispute to the TCA and seeking annulment.
They were not required to invoke the procedures of Law 16,110, the BIT saying
nothing about the applicable domestic procedures.
74. As stated by the Claimants’ expert Dr. Carlos E. Delpiazzo, the Uruguayan
constitutional reform of 1997 implicitly abrogated Law 16,110 by prohibiting
the simultaneous hearing of annulment and damage claims, which was the
objective of Law 16,110. According to the Respondent’s expert, Dr. Daniel
Hugo Martins, the constitutional change “does not imply the repeal of Law
16,110”. However, this position is directly contradicted by Dr. Daniel Hugo
Martins’ previous publications stating that actions for damages must now “be
filed before the jurisdiction as established by law”, which in his opinion was no
longer the TCA.
25
75. On the basis of the foregoing, it is clear that it is no longer possible to raise BIT
claims in a single, non-appealable court proceeding in Uruguay under Law
16,110 or otherwise. Consequently, if, as the Respondent contends, Law 16,110
was necessary in order to allow investors to submit their disputes to a court
capable of rendering a “judicial decision in a one and only instance”, then the
Respondent itself has undermined that process and rendered it a nullity. This dire
result, however, only occurs if one accepts the Respondent’s flawed argument
that Law 16,110 was necessary to implement the BIT.33
76. Requiring investors to use Law 16,110 would effectively preclude investor-State
arbitration, since the relevant procedure would have resulted in a decision by the
TCA within 90 days, therefore before the 18 months had elapsed. As the
legislative history indicates, Law 16,110 was designed for a category of BITs,
like the Germany-Uruguay BIT, differing from the Switzerland-Uruguay BIT.
For the first category of BITs, the use of the procedure in Law 16,110 would not
preclude access to international arbitration once the TCA has issued its decision.
This is not the case for the other category of BITs, like the instant BIT.
77. Should the Tribunal find that the Claimants have not satisfied the domestic
litigation requirement of the BIT, the MFN clause of Article 3(2) allows the
Claimants to rely on other BITs that do not contain similar restrictions. Uruguay
has in fact entered into other investment treaties that allow investors to submit a
dispute directly to arbitration, such as Uruguay’s BITs with Canada and
Australia.
78. As held by other investment treaty tribunals, the ability to initiate arbitration
without submitting the dispute to domestic courts is “more favourable” to
investors than not having such a right. Under Article 312 of the Uruguayan
Constitution, the TCA only has jurisdiction to annul an administrative act but not
to award monetary compensation, one of the remedies sought by the Claimants
in this case. To obtain this remedy would have required filing another action
33
Rejoinder, para. 96.
26
before a different court, the multiple level of jurisdiction being clearly less
favorable to investors than arbitration.
79. According to the Respondent, having “two bites at the apple”, one before
domestic courts and one before an arbitral tribunal, is more favorable. Under the
present BIT, should the domestic court render a judgment within 18 months the
investor would be precluded from resorting to arbitration, so that there could not
be two bites at the apple but just one. This is less favorable than to allow the
investor to choose either domestic litigation or arbitration or both. Under the
Canadian BIT, the choice of when and whether to proceed to arbitration is
entirely that of the investor. Under the Australian BIT, the presence of a fork-inthe-road
provision allows investors to have direct access to arbitration if they so
choose. Both situations are more favorable than the one under the SwitzerlandUruguay
BIT.
80. As held by other tribunals, the “treatment” guaranteed by the MFN clause is not
limited to substantive treatment, as asserted by the Respondent, but extends to
procedures for the settlement of investment disputes. Dispute settlement is an
important part of the treatment a State gives to an investor and there is no textual
basis to exclude it from the scope of the MFN clause. Further, even if the
treatment so guaranteed were limited to “fair and equitable treatment”, as argued
by the Respondent, the MFN clause would still be to the Claimants’ advantage.
81. Whether “this treatment” refers to “treatment” or only to “fair and equitable
treatment” is unclear. Other tribunals have held that MFN provisions with a
similar construction are not limited to “fair and equitable treatment”. If the
Respondent’s view that this treatment refers to “fair and equitable treatment”
were correct, the exceptions to the MFN clause in Articles 3(3) and 3(4),
regarding respectively free trade agreements and double taxation or other
taxation agreements, would be nonsensical.
82. “Fair and equitable treatment” is an international law concept that is not
applicable to a State's treatment of its own investors. It is an obligation owed by
a State to “foreign” investors. Therefore, as Professor Schreuer opines, the only
27
interpretation that gives the second sentence of Article 3(2) a meaning is to
interpret the phrase “the treatment” as referring to treatment generally and not
fair and equitable treatment.
83. In the absence of language to the contrary, the BIT’s guarantee of “most favored
nation treatment” should be read to extend to more favorable dispute settlement
provisions. As held by other investment treaty tribunals, the dispute settlement
provisions are at the core of the BIT’s protections, the MFN clause making no
distinction between substantive and procedural rights. A long line of cases
consistently supports the position that MFN treatment extends to dispute
settlement.
84. In order to deny the applicability of the MFN clause to dispute settlement,
Uruguay invokes the ejusdem generis principle and argues that the clause does
not expressly state that it applies to “all matters” covered by the BIT. Neither of
these contentions has merit.
85. Under the ejusdem generis principle, an MFN clause “attracts matters belonging
to the same category of subject as that to which the clause itself relates”. This
was central to the reasoning of the Ambatielos and Maffezini decisions, which
were seminal. As noted in Maffezini, Ambatielos “accepted the extension of the
clause to questions concerning the administration of justice and found it
compatible with the ejusdem generis rule”. The subject matter of the third-party
treaty was found to be the same as that of the basic treaty, namely the protection
of foreign investments or the promotion of trade, both including access to
dispute settlement.
86. It is not necessary for the MFN provision to state explicitly that it covers dispute
settlement. The latter is not listed in Articles 3(3) and 3(4) of the BIT as one of
the limited exceptions to the MFN obligation and there is no basis to impose
new exceptions that the parties themselves did not include. The “all matters”
language is considered evidence of the parties’ intentions regarding the scope of
the MFN clause, but it is not a necessary prerequisite to a finding that the clause
28
extends to dispute settlement. As the tribunal held in Maffezini, where no such
express provision is included this does not end the inquiry.
87. As noted by other investment treaty tribunals, the exceptions to MFN treatment
for certain preferential agreements show that the parties considered which issues
should not benefit from the MFN protection. Since dispute settlement was not
included among such exceptions, under the rule “expressio unius est exclusio
alterius”, the MFN provision extends to dispute settlement.
88. The MFN clause’s extension to the 18-month domestic litigation requirement
does not raise the policy concerns identified by Maffezini and other tribunals.
Uruguay has not argued that any such concerns are applicable in this case, and
for good reasons. Article 10(2) of the BIT does not require a final and nonappealable
decision but only that no decision has been rendered after 18 months.
The Claimants are not trying to use the MFN clause to switch arbitration forums
or to introduce the type of radical jurisdictional change that Maffezini found
problematic and that led the Plama tribunal to reject extension of the MFN
clause to dispute settlement.
89. Even if the MFN clause were limited to “fair and equitable treatment”, it
nevertheless extends to dispute settlement, as held in Maffezini. The principles of
ejusdem generis and expressio unius would still apply in situations where the
MFN clause is linked to “fair and equitable treatment”. Fair and equitable
treatment includes investors’ procedural rights, such as access to international
arbitration for the protection of their rights. Uruguay’s grant of more favorable
international arbitration terms in other treaties is a “more favorable” form of fair
and equitable treatment.
90. Relying on the alleged principle of contemporaneity, the Respondent argues that,
because it could not have known at the time of negotiating the BIT with
Switzerland that tribunals would interpret the MFN clause to apply to dispute
settlement, such a clause cannot be interpreted in that manner. There is no basis
for applying the alleged principle which, under the VCLT, may only be a
supplementary means of interpretation when the ordinary meaning and context
29
criteria leave the meaning ambiguous, which is not the case here. Further,
Uruguay was fully aware that the MFN standard applied to dispute settlement at
the time it approved the BIT, as shown by contemporaneous statements by the
Uruguayan legislature indicating that Uruguay expected the MFN clause to
apply to dispute settlement.
3. Findings of the Tribunal
91. The Tribunal has carefully considered the Parties’ submissions, which have been
summarized above. It now proceeds to discuss them in turn.
(i) The six-month settlement attempt requirement
92. In its written submissions, the Respondent contends that the Claimants have not
satisfied the mandatory preconditions to raise disputes under the BIT. The
reference made in this context to the first two paragraphs of Article 10 of the
BIT makes it clear that when referring to mandatory preconditions in the plural
the Respondent means both the six-month requirement to make efforts to
amicably settle the dispute and the 18-month domestic litigation requirement.34
93. Regarding the six-month requirement, the Respondent states that “Neither FTR
Holding S.A. nor its replacement Claimant, Philip Morris Brand Sàrl, ever
attempted to raise any aspect of the present dispute with Uruguay, let alone
negotiate an amicable solution, prior to the filing of the RFA”.35
Even if the
Respondent emphasizes primarily the Claimants’ alleged failure to comply with
the 18-month domestic litigation requirement, the 6-month requirement must
also be addressed.
94. Under Article 10(1) of the BIT, “Disputes with respect to investments… shall, as
far as possible, be settled amicably between the parties concerned”. The
Respondent has not argued that no dispute had yet arisen with the Claimants, but
only that the latter had failed to make efforts to amicably settle the same. The
34
Memorial, para. 38.
35
Ibid., fn. 60 (emphasis in the original text).
30
Tribunal notes in this regard that Article 10(1) applies to both Parties, not only to
the Claimants.
95. The Claimants have convincingly shown that they have complied with the sixmonth
requirement before these proceedings were instituted.36
No reply having
been received from the Respondent to the initial correspondence during the sixmonth
period, as well as thereafter on occasion of the administrative oppositions
filed against the various measures, the Claimants initiated litigation before the
local courts seeking the annulment of such measures. It is true that some letters
were sent and administrative oppositions filed by Abal alone. But the latter’s
actions were aimed at removing the effects of the measures to the extent they
limited the marketing of tobacco in Uruguay by all of the Claimants. Due to the
identity of positions and interests involved, Abal’s actions were to the benefit
also of the other Claimants. Documents in the evidentiary record show that Abal
acted in some cases expressly on behalf also of the other Claimants.37
96. Further, at the hearing, the Respondent’s counsel conceded that Uruguay had no
complaint regarding the Claimants’ satisfaction of the 6-month requirement. In
reply to the President’s question in this regard, Mr. Reichler stated: “Happily I
can give you a very short answer to your question, Mr. President; the answer is,
yes, they satisfied the six-month requirement”.38
97. In the light of the foregoing, the Respondent’s objection that the Claimants
failed to satisfy the six-month negotiation requirement is rejected.
(ii) The 18-month domestic litigation requirement
98. The Respondent also contends that the Claimants have failed to satisfy the 18month
domestic litigation requirement of Article 10(2) on the following
grounds:
36
Supra, paras 57-59 as to Ordinance 514; paras 62-63 as to Decree 287; para. 65 as to Ordinance 466.
37
See the letter sent by Abal to the MPH on 5 June 2009 (C-018) and Grounds for the Administrative Appeal against
Ordinance 514 of 7 November 2008 (C-036).
38
Transcript, Day One, page 78, lines 3-6.
31
a) The Claimants failed to litigate their treaty dispute in Uruguayan courts39
,
b) Even if they had submitted the dispute to Uruguayan courts, the Claimants
were required to litigate for 18 months before initiating arbitration.40
99. According to the Respondent, jurisdiction is wanting on either of these grounds
or both of them.41
In opposition, the Claimants contend that they satisfied this
requirement by filing with the TCA a request for annulment of each of the three
measures enacted by the Respondent on which their claims are founded (the
“Requests for Annulment”).
1. The first ground of the First Objection.
100. The first ground cited by the Respondent to deny jurisdiction raises the question
whether the Claimants were required to litigate their “treaty” dispute in
Uruguayan courts to satisfy the 18-month requirement. To properly address this
question, resort must be had to the meaning of the term “dispute” under Article
10 of the BIT. In this regard, reference must be made to Article 10(1), which
provides that “Disputes with respect to investments within the meaning of this
Agreement between a Contracting Party and an investor of the other Contracting
Party shall, as far as possible, be settled amicably between the parties
concerned”. Account must also be taken of the other provisions of Article 10
referring to “disputes”. The Parties disagree as to the meaning to be ascribed to
“disputes with respect to investments”.
101. The Respondent claims that it is not sufficient to submit to the Uruguayan courts
a dispute concerning violations of Uruguayan constitutional or administrative
law in order to “fulfill the conditions of Article 10”.42
In its view, what must be
submitted to the Uruguayan courts is “the actual dispute arising under the
BIT”.43
According to the Respondent, this interpretation is confirmed by the
sequence of steps established by the various provisions of Article 10 through
which it claims that a dispute must proceed before arriving to international
arbitration.
39
Reply, para. 75.
40
Ibid., para. 76.
41
Transcript, Day One, page 14, lines 10-25.
42
Transcript, Day One, page 15, lines 22-24.
43
Reply, para. 27
32
102. The Respondent argues that, for these provisions to make sense, the dispute to be
submitted to international arbitration must be the same dispute that has been
presented to Uruguayan courts, not a different dispute involving different
issues.44
This interpretation finds support in the term “appeal” in Article 10(2),
which would suggest that one and the same dispute will be heard in the first
instance by the domestic courts and then by the arbitral tribunal.45
103. According to the Claimants, the ordinary meaning and the context of the phrase
“disputes with respect to investments within the meaning of this Agreement”
indicate that it refers to the subject matter at issue, not to particular legal claims,
much less to claims for breach of the BIT. The Claimants refer in this regard, on
the one hand, to other BITs signed by Uruguay that expressly define “disputes”
to mean disputes arising out of breach of the BIT or international law46
, and, on
the other hand, to arbitral decisions and awards holding that the general term
“disputes with respect to investments” may well cover both domestic and treaty
claims pertaining to the subject matter at issue.47
104. Clearly, by alleging violation of Uruguayan municipal law before the local
courts, the Claimants would not have submitted a dispute over breach of the BIT
to the Uruguayan courts. In addition to submitting Uruguayan municipal law
claims, however, the Claimants’ Requests for Annulment filed with the TCA
included an “Assertion and Reservation of Rights”.48
In each case, the Claimants
44
Ibid., para. 30
45
Ibid., para. 31.
46
Rejoinder, para. 36, citing Uruguay BITs with Canada, Chile, the United States and Venezuela.
47
Rejoinder, para. 39, citing CMS v. Argentina, Decision on Jurisdiction, 17 July 2003, paras 109-11: Lucchetti
v. Peru, Award, 7 February 2005, para. 50; ATA Construction v. Jordan, Award, 10 May 2010, paras 99-103;
SGS v. Philippines, Decision on Jurisdiction, 29 January 2004, paras 130-135.
48
Abal’s Request for Annulment of Ordinance 514 before the TCA dated 9 June 2009 (C-041), at Chapter VII (“The
‘single presentation’ clause of the Ordinance also constitutes a breach of the rights of Abal and its parent companies,
and other companies belonging to the Philip Morris group of companies, under applicable bilateral investment treaties,
including, without limitation, the Agreement between the Swiss Confederation and the Republic of Uruguay on the
Reciprocal Promotion and Protection of Investments, approved by law No. 16.176, dated 30 March 1991, … Without
prejudice to the above, and in order to preserve all their right, Abal on its own behalf and on behalf of its parent
companies and other companies belonging to the Philip Morris group of companies hereby explicitly asserts its own and
their rights under the treaties mentioned above.”); Abal’s Request for Annulment of Decree 287 before the TCA dated
22 March 2010 (C-049) , at Chapter V (“The 80-80 requirement also constitutes a breach of the rights of ABAL and its
parent companies, and other companies belonging to the Philip Morris group of companies, under applicable bilateral
investment treaties, including, without limitation, the Agreement between the Swiss Confederation and the Republic of
Uruguay on the Reciprocal Promotion and Protection of Investments, approved by law No. 16.176, dated 30 March
1991,. … Without prejudice to the above, and in order to preserve all their rights, ABAL on its own behalf and on
33
included both an “assertion” of their BIT rights and a reservation of rights to
pursue those claims in international arbitration. Moreover, in at least one case,
the TCA also ruled expressly on such claims under the BIT (apparently rejecting
them).49
Regardless how the TCA’s conclusions regarding these claims are
characterized, the Tribunal considers that the TCA was made fully aware of the
Claimants’ BIT claims in the context of Article 10(2)’s domestic litigation
requirement.
105. In any event, even if the Claimants had not submitted their claims under the BIT
to the Uruguayan courts, the Tribunal concludes that they had no obligation to
do so under the BIT. The question is whether for purposes of the domestic
litigation requirement under Article 10(2), the dispute brought before the
Uruguayan courts must be the same as the dispute brought in arbitration. The
Tribunal does not believe so.
106. The Respondent’s argument that the sequence of steps under Article 10 for a
dispute to arrive at international arbitration implies that the dispute must
necessarily be the same in every step is certainly worthy of consideration. In the
Tribunal’s view, however, this argument, and more generally the Respondent’s
position regarding the meaning of “disputes with respect to investments” under
Article 10, must yield to the ordinary meaning to be given to this phrase in its
context and in the light of the object and purpose of the BIT, in accordance with
Article 31 of the VCLT.50
behalf of its parent companies and other companies belonging to the Philip Morris group of companies hereby explicitly
asserts its own and their rights under the treaties mentioned above.”); Abal’s Request for Annulment of Ordinance 466
before the TCA dated 20 April 2010 (C-050) , at Chapter VI (“The challenged Pictogram created and imposed by the
Ordinance also constitutes a breach of the rights of ABAL and its parent companies, and other companies belonging to
the Philip Morris group of companies, under applicable bilateral investment treaties, including, without limitation, the
Agreement between the Swiss Confederation and the Republic of Uruguay on the Reciprocal Promotion and Protection
of Investments, approved by law No. 16.176, dated 30 March 1991,. … Without prejudice to the above, and in order to
preserve all their right, ABAL on its own behalf and on behalf of its parent companies and other companies belonging
to the Philip Morris group of companies hereby explicitly asserts its own and their rights under the treaties mentioned
above.”).
49
The TCA Decision 512 on Abal’s Request for Annulment of Decree 287, dated 28 August 2012, under VIII (C-116).
50
VCLT, Article 31 (General rule of interpretation):
1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of
the treaty in their context and in the light of its object and purpose.
2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its
preamble and annexes:
(a) any agreement relating to the treaty which was made between all the parties in connection with the
conclusion of the treaty;
34
107. In the Tribunal’s view, the ordinary meaning of the phrase “disputes with respect
to investments” is broad and includes any kind of disputes where the subject
matter is an “investment” as this term is defined by the BIT. The words “within
the meaning of this Agreement”, appearing after the phrase in question in Article
10(1), clearly refer in the context to “investments” as defined by Article 1(2) of
the BIT, not to “disputes”. The Respondent acknowledges that this phrase, as
used in Article 10 of the BIT, is “broader than comparable clauses in other BITs
and that its reach extends beyond treaty-based disputes”, to include investment
contract disputes not involving treaty breach, but not domestic law claims.51
108. Disputes concerning alleged breaches of the BIT and disputes regarding
domestic law claims may well both fall within the scope of the reference in
Article 10(1) to “Disputes with respect to investments”. A line of investment
treaty decisions draws a distinction between the broad meaning of the wording
in other bilateral investment treaties that are similar to Article 10 in the BIT,52
and the narrower meaning of the wording in still other treaties, including treaties
concluded by Uruguay, referring to “disputes relating to a claim for breach of
the treaty” or to “an investment dispute” (defined as including also an alleged
breach of rights conferred by the treaty) or similar wording.53
(b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and
accepted by the other parties as an instrument related to the treaty.
3. There shall be taken into account, together with the context:
(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of
its provisions;
(b) any subsequent practice in the application of the treaty which establishes the agreement of the parties
regarding its interpretation;
(c) any relevant rules of international law applicable in the relations between the parties.
4. A special meaning shall be given to a term if it is established that the parties so intended.
51
Transcript, Day One, page 11, lines 8-15; 19-25; page 12, lines 1-3.
52
Ex multis: Salini v. Morocco, Decision on Jurisdiction, 23 July 2001, para. 61, referring to Article 8 of the
Italy-Morocco BIT mentioning “tous les différends ou divergences… concernant un investissement”; Vivendi v.
Argentina, Decision on Annulment, cit., para. 55, referring to Article 8 of the BIT between France and Argentina
mentioning “any dispute relating to investments made under this Agreement”; SGS v. Philippines, Decision on
Jurisdiction, 29 January 2004, para. 15, referring to Article VIII(2) of the BIT between Switzerland and The
Philippines mentioning “disputes with respect to investments”; Teinver S.A., Transportes de Cercanias S.A. and
Autobuses Urbanos del Sur S.A and the Argentine Republic, Decision on Jurisdiction, 21 December 2012, para.
112, referring to Article X (1) of the Argentine-Spain BIT mentioning “disputes.. in connection with investments
within the meaning of this Agreement”. An exception to this uniform interpretation is in the SGS v. Pakistan
Decision on Jurisdiction, 6 August 2003, holding that the phrase “disputes with respect to investments” in
Article 9 of the Switzerland-Pakistan BIT was “merely descriptive” and that “pure contractual claims were not
covered by this clause” (para. 161).
53
Many BITs concluded by Uruguay following the conclusion of the Switzerland-Uruguay BIT refer in the same
context to disputes relating to claims for breach of the treaty:
35
109. The reference in the last series of treaties to claims based on the alleged breaches
of the treaty is clearly different from the wording of Article 10(1) of the
Switzerland-Uruguay BIT and of provisions of other treaties concluded by
Uruguay. As the tribunal said in SGS v. Philippines, “if the State Parties to the
BIT had wanted to limit investor-State arbitration to claims concerning breaches
of the substantive standards contained in the BIT, they would have said so
expressly, using similar language”54
. The Tribunal shares the view expressed by
other tribunals that the definition of disputes as “relating to investments within
the meaning of this Agreement”, or “relating to investments made under this
Agreement”55
, or “in connection with investments within the meaning of this
Agreement”56
, “does not use a narrower formulation, requiring that the investor’s
claim allege a breach of the BIT itself…; it is sufficient that the dispute relate to
an investment made under the BIT”57
.
110. The interpretation of the meaning of “disputes with respect to investments”
under Article 10 is confirmed by the other interpretative rule provided by Article
31 VCLT, namely, the context. As noted by the ad hoc committee in Vivendi v.
Argentina,58
in the same context, a broad formulation of “dispute” like that in
Article 10(1) of the BIT may be contrasted with the State-to-State dispute
settlement provision of Article 9(1) of the BIT which refers to “disputes…
regarding the interpretation or application of the provisions of this Agreement”.
The definition of “disputes” in the latter case is deliberately narrow, in contrast
to the expansive language of Article 10(2), clearly indicating in the Tribunal’s
Treaty between the Argentine Republic and the United States of America concerning the Reciprocal
Encouragement and Protection of Investment, 14 November 1991, entered into force on 20 October 1994;
Agreement between the Government of Canada and the Government of the Eastern Republic of Uruguay for the
Promotion and Protection of Investments, signed on 29 October 1997, entered into force on 2 June 1999, Art.
XII; Acuerdo entre la República de Chile y la República Oriental del Uruguay Para la Promoción y Protección
Recíproca de las Inversiones, signed on 26 October 1995, entered into force on 22 April 1999, Art. 8; Treaty
between the United States of America and the Oriental Republic of Uruguay Concerning the Encouragement and
Reciprocal Protection of Investment, signed on 4 November 2005, entered into force on 1 November 2006, Art.
24; Acuerdo entre el Gobierno de la República Oriental del Uruguay y el Gobierno de la República de Venezuela
para la Promoción y la Protección Recíproca de Inversiones, signed on 20 May 1997, entered into force on 18
January 2002, Art. 9.
54
Cit., supra, fn. 52, para. 138.
55
As in the France-Argentina BIT in the Vivendi v. Argentina case (supra, fn. 52).
56
As in the Argentina-Spain BIT on which the Teinver v. Argentina case was based (ibidem).
57
Vivendi v. Argentina, cit., para 55. This holding is endorsed by the tribunal in Teinver v. Argentina, cit., para.
112.
58
Cit., para. 55.
36
view that an investor could satisfy Article 10(2) by submitting a domestic law
claim to the Uruguayan courts, provided that it was based on substantially
similar facts and subject matter as the BIT claim subsequently submitted by the
investor to arbitration.
111. Articles 9(8) and 10(2) of the BIT support the conclusion that the term
“disputes” under Article 10(1) embraces either domestic law claims or BIT
claims. Both provisions contemplate that, should the dispute be submitted to
arbitration following the domestic court litigation, the arbitral tribunal shall
decide on the dispute “in all its aspects”. Article 10(2) provides that failing a
decision by the domestic court within 18 months, the investor may “appeal to an
arbitral tribunal which decides on the dispute in all its aspects”. As already
noted, “appeal” in the context means “resort to”, without necessarily implying,
as contended by the Respondent, that the dispute must be the same. The words
“in all its aspects” must have a meaning according to the principle that all treaty
provision must have an “effet utile”. Such meaning cannot but be that once the
dispute reaches the level of an arbitral tribunal, be it a State-to-State dispute or
the investor-State dispute, “in all its aspects” regarding the latter dispute must
refer to issues of both domestic and international law. Should Article 10(2)
apply, this contextual aspect confirms that, following consideration of domestic
law claims by the Uruguayan courts, the investor-State tribunal shall be
competent to deal also with international law claims.59
112. The Tribunal notes that the remedy sought by the Claimants from the TCA was
appropriate since had the annulment of the three measures issued by the
Respondent been granted that would have answered the Claimants’ claims,
under both domestic and international law, including the BIT.
113. In the light of all the foregoing the Tribunal concludes that by submitting their
domestic law claims through the Requests for Annulment filed with the TCA to
the Uruguayan courts the Claimants satisfied the domestic litigation requirement
under Article 10(2) of the BIT. The term “disputes”, as used in Article 10(2), is
to be interpreted broadly as concerning the subject matter and facts at issue and
59
As opined by Professor Schreuer, Second Legal Opinion, para. 21.
37
not as limited to particular legal claims, including specifically BIT claims. The
dispute before domestic courts under Article 10(2) does not need to have the
same legal basis or cause of action as the dispute brought in the subsequent
arbitration, provided that both disputes involve substantially similar facts and
relate to investments as this term is defined by the BIT.60
114. Finally, even if the Requests for Annulment were filed by Abal, the latter clearly
acted in the interest also of the other Claimants considering that it is whollyowned
by Philip Morris Brands and the brands Abal sells in Uruguay are sublicensed
from PMP.61
(iii) Applicability of Law 16,110.
115. The Respondent’s first ground for objecting to the Tribunal’s jurisdiction
involves the further question whether the Claimants have satisfied the 18-month
requirement by addressing their domestic claims to the “competent courts” of
Uruguay. The Respondent has not disputed that the TCA is the competent court
for the annulment of administrative acts, this being the object of the Claimants’
Requests for Annulment.62
The Respondent contends rather that the Claimants
should have followed the special procedure established by Law 16,110 of 7 May
199063
, which they concededly did not do.64
116. The Tribunal notes at the outset that the reference to Law 16,110 was made by
the Respondent for the first time only in the Reply, i.e., more than two years
after the RFA was filed and eight months after the filing of the Memorial. At the
hearing, the Respondent argued that it waited until the Reply to invoke the
Claimants’ failure to comply with Law 16,110 due to the fact that in the RFA
“they relied exclusively on the MFN clause”.65
This is hardly consistent with the
60
In this regard, the reference made by the Respondent to cases dealing with the effect of the fork-in-the-road
clauses on jurisdiction depending whether the dispute before a domestic court is or not the same as the dispute in
arbitration is inapposite in this context.
61
Supra, para. 3.
62
Abal’s Request for Annulment of Ordinance 514 before the TCA dated 9 June 2009 (C-041); Abal’s Request
for Annulment of Decree 287 before the TCA dated 22 March 2012 (C-049); Abal’s Request for Annulment of
Ordinance 466 before the TCA dated 20 April 2010 (C-050).
63
Uruguayan Law 16,110 of 7 May 1990 (RL-83).
64
Transcript, Day One, page 9, lines 5-17.
65
Transcript, Day One, page 72, lines 19-23.
38
importance given by the Respondent to the application of Law 16,110 and of all
elements that were at its disposal to timely raise this issue.
117. Neither the TCA nor the Respondent called the Claimants’ attention to the
alleged need to apply the special procedure of Law 16,110 following the filing
by the Claimants of the Requests for Annulment of Ordinance 514, Decree 287
and Ordinance 466. This, despite the fact that the notification to the Respondent
of the RFA had made known the existence of BIT claims and that under each of
the Requests for Annulment the Claimants had reserved the right to bring and
pursue claims under various treaties, including the BIT.66
The Respondent was
therefore in a position immediately to react by calling the Claimants’ attention to
any need to comply with the procedure of Law 16,110.
118. Whether the Respondent itself overlooked the existence of the special law or
took the view that the law was inapplicable in the instant case, it is difficult for
the Tribunal to accept the critical remarks addressed to the Claimants in this
arbitration for having brought their claims before the TCA based on procedural
rules of general application rather than in accordance with the special procedure
of Law 16,110. If it were mandatory for the Claimants to seek relief under Law
16,110, the Respondent’s failure to so advise the Claimants would itself not
escape criticism and could, if necessary for a decision, provide the basis for a
finding against the Respondent. Moreover, in the Tribunal’s view, the
Respondent’s objection that the Claimants should have used the special
procedure under Law 16,110 would be belated in view of the timely filing of
jurisdictional objections required by Rule 41(1) of the Arbitration Rules.67
Nonetheless, the Tribunal, in view of the duty to satisfy itself that it has
jurisdiction to hear the case,68
notes the following.
66
See “Assertion and Reservation of Rights” under the various Requests for Annulment (C-041, Chapter VII; C-049,
Chapter V; C-050, Chapter VI).
67
Rule 41(1) provides: “Any objection that the dispute or any ancillary claim is not within the jurisdiction of the Centre
or, for other reasons, is not within the competence of the Tribunal shall be made as early as possible. A party shall file
the objection with the Secretary-General no later than the expiration of the time limit fixed for the filing of the countermemorial,
or, if the objection relates to an ancillary claim, for the filing of the rejoinder-unless the facts on which the
objection is based are unknown to the party at that time”.
68
AIG v. Kazakhstan, Award, 7 October 2003, para. 9.2: “It [the “as early as possible” filing requirement] cannot be
read as coercive”.
39
119. The Claimants have alleged that Law 16,110 applies only to treaties having the
same characteristics as the Treaty on Reciprocal Promotion and Protection of
Investments signed by the Respondent with the Federal Republic of Germany on
4 May 1987 and approved by Article 1 of Law 16,110 (the “Germany-Uruguay
Treaty”). In the Tribunal’s view, this limited application of Law 16,110 is not
warranted in the light of Article 3 of Law 16,110 that unambiguously states that
all disputes arising under treaties ratified by Uruguay “shall be subject to the
procedure established in the following articles”. In the absence of any
exceptions, this statement cannot but refer also to the Switzerland-Uruguay BIT.
The procedure that had to be followed pursuant to Article 3 is then described by
Articles 4 and 9 of Law 16,110.
120. Article 4 states in pertinent part:
The procedure to be followed shall be that established below:
A) The Tribunales de Apelaciones en lo Civil (Courts of Civil Appeal) shall
have the competency to hear these proceedings
Article 9 states:
Annulment and reparatory actions of a contentious-administrative nature, which
are presented under the Treaties to which the present law refers, shall be subject
to the decision of the Tribunal de lo Contencioso Administrativo, following the
procedure provided for in the foregoing articles.
121. As explained by the Respondent’s legal expert, Dr. Martins, “All lawsuits
against the State must be filed with the Tribunales de Apelaciones en lo Civil,
except for “annulment and reparatory actions of a contentious-administrative
nature”, which take place before the TCA, pursuant to Article 9 of Law
16,110”.69
122. The Claimants have not filed with the TCA a dispute arising under the
Switzerland-Uruguay BIT pursuant to the special procedure of Law 16,110. This
Law was also not applied by the TCA in the proceedings before it, even if, as
shown by certain parts of the TCA’s decisions regarding the Requests for
Annulment which refer to and rely upon the BIT, the court was made aware of
the existence of BIT claims by the Claimants and, as discussed above, in fact
69
Dr. Daniel Hugo Martins’ Expert Report annexed to the Reply, para. 22.
40
rejected them.70
No reference was made by the TCA on that occasion to Law
16,110 regarding the procedure that should have been applied. Instead, the
Parties accepted that the TCA was the competent court: their debate has focused
rather on the question whether that court continued to be competent, as in the
past, not only for annulment claims but also for damages claims following the
constitutional reform of 1997.
123. The Claimants’ position is that, by submitting the dispute to the TCA under the
procedure of general application limited to the annulment of the three measures
enacted by the Respondent, they fulfilled the requirements of Article 10 and Ad
Article 9 and 10 of the Protocol to the BIT since, on the one hand, they were not
bound to submit a dispute by reference to the BIT and, on the other hand, the
TCA’s decisions are not appealable to any other authority. Thus, according to
the Claimants, by submitting the dispute to the TCA the condition of a decision
“in a one and only instance”71
was satisfied since this phrase does not
“necessarily mean annulment and damages combined”.72
The Respondent
contends in opposition that the Claimants should have submitted to the TCA the
dispute regarding both annulment and damages in accordance with Law 16,110,
since in this arbitration they are seeking both annulment and damages.
124. The question whether the TCA is competent to rule on damages claims, as well
as other claims for relief, following the Uruguayan constitutional reform of
1997, has lost some of its importance in view of the Tribunal’s decision that Law
16,110 is inapplicable to the Claimants’ filings with the TCA. However, since
this question may still be of interest in the frame of the TCA’s competence under
the procedure of general application and the unappealable character of its
decisions, it is briefly examined below.
125. Under the older version of Article 312 of the Uruguayan Constitution, actions
for damages could only be raised after actions for annulment, the TCA being the
70
Notably, in its Decision of 28 August 2012 rejecting the Claimants’ Request for Annulment of Decree 287 (C-116),
the TCA has made reference to the plaintiff’s allegation of the violation of the Switzerland-Uruguay BIT stating that
“the investments of the Swiss company are not affected” by the Decree and that “Regulating matters of Public Health is
outside of the rules on investment protection”. This passage of the TCA’s Decision was referred to by the Claimants at
the hearing: Transcript, Day One , p. 170, lines 11-22.
71
Transcript, Day One, page 176, lines 12-16.
72
Transcript, Day One, page 169, lines 10-14.
41
only jurisdiction, separate from the Judicial Branch, for hearing lawsuits seeking
the annulment of final administrative acts issued by any State body. The new
version of Article 312, following the constitutional reform of 1997, provided for
the possibility of choosing between an annulment action and damages action,
establishing that in the case of opting for annulment, “if there is a judgment of
annulment an action for damages may later be filed with the corresponding
court”.73
126. In his Expert Report, Dr. Martins, the Respondent’s legal expert, opines that the
provisions of Law 16,110 allowing the TCA to hear annulment and damages
claims simultaneously, are compatible with the new Constitution, because the
reference in Article 312 to “the jurisdiction provided by the law” is a reference
to the TCA.74
According to the Claimants, this position contradicts Dr. Martins’
previous publications, not mentioned in his c.v. submitted in this proceeding,
where he concluded: “However, Article 312 as amended says that actions for
damages may be filed in the jurisdiction stipulated by the law, and here the law
appears to grant jurisdiction to the Judicial Branch but could not grant to the
Tribunal de lo Contencioso Administrativo because, in my opinion, the [TCA]
has a closed jurisdiction; in other words, its jurisdiction is expressly established
in the text of the Constitution… it would appear that we can deduce that when
the text provides “shall be filed before the jurisdiction as established by the law”
the [TCA] is not included”.75
127. According to Dr. Delpiazzo, the Claimants’ legal expert, the 1997 Uruguayan
constitutional reform meant that “art. 312 provides for an option between
damages and annulment which excludes the possibility of bringing both actions
simultaneously. Accordingly, any provision establishing the possibility of
bringing both proceedings simultaneously would contradict the Constitution”.76
According to Dr. Delpiazzo, “This means that said provision [of Law No.
16,110] on the one hand grants the TCA jurisdiction in compensatory reparation
matters and on the other, it allows for the consolidation of the annulment and
73
Dr. Martins’ Expert Report, paras 14-15.
74
Dr. Martins’ Expert Report, para. 22.
75
Dr. Daniel Hugo Martins, Algunos Aspectos del reparatorio patrimonial, in Reflexiones sobre la Reforma
Constitucional del 1996, 1998, para. 130,134 (CLA-097).
76
Dr. Delpiazzo’s Expert Opinion, para. 3.2.1 (CWS-03).
42
damages claims in a single proceeding, which is manifestly inconsistent with
supervening constitutional reform”.77
According to other Uruguayan legal
scholars, the constitutional reform eliminated the possibility of expanding the
TCA’s jurisdiction to damages claims simply through a law, such as Law
16,110.
128. Dr. Delpiazzo’s opinion coincides with the opinion that Dr. Martins had
expressed in his doctrinal writing prior to this arbitration. Having to choose
between two diverging opinions by distinguished experts of Uruguayan law, the
Tribunal is inclined to give more weight to Dr. Delpiazzo’s opinion in light of
the weight of scholarly commentary and the wording of the revised version of
Article 312 of the Constitution. The new provision states that in case of
annulment by the TCA “an action for damages may later be filed with the
corresponding court”. The reference to a “later” filing of the damages action
“with the corresponding court” points rather to a separate proceeding before a
court other than the TCA. The two experts agreed at the hearing that annulment
and damages are two separate proceedings.78
129. The Tribunal does not need to pursue the matter further considering its previous
holding that the Claimants have satisfied the 18-month domestic litigation
requirement by filing with the TCA the Requests for Annulment79
. In light of
these considerations, the Tribunal holds further that the TCA’s decisions satisfy
the requirement of “a judicial decision in a one and only instance”, as required
by Ad Articles 9 and 10 of the Protocol to the BIT, since such decisions are not
appealable before any other judicial authority in Uruguay.80
2. The second ground of the First Objection.
77
Ibidem, para. 3.3.1.
78
Dr. Martins, replying to the President’s question: “Yes. First, there is an annulment decision with reservations for
repairs and subsequently the interested party can initiate an action for repairs” (Transcript, Day One, page 300, lines 4-
7). Dr. Delpiazzo: “If it [the TCA] can only annul or confirm, then it cannot issue a ruling calling for reparations to be
given… for a damage case to be heard that means it has to be heard in a different jurisdiction” (Transcript, Day One,
page 327, lines 6-11).
79
Supra, para. 99.
80
“The decisions by the TCA are not subject to appeal… its rulings are not subject to review by any other Tribunal”
(Dr. Delpiazzo, Transcript, Day One, page 315, lines 4-9).
43
130. The other ground of the Respondent’s contention regarding the Claimants’
failure to satisfy the 18-month domestic litigation requirement rests on the fact
that the Claimants initiated this arbitration before the 18-month domestic
litigation period prescribed by Article 10(2) had expired. This is not disputed by
the Claimants.
131. The Parties agree that, in accordance with Rule 6 of the Institution Rules, this
proceeding was instituted on 26 March 2010.81
The Parties also agree that no
decisions by the Uruguayan courts intervened within the 18-month period
prescribed by Article 10(2) of the BIT.
132. The decision regarding the Request for Annulment of Ordinance 514 was
rendered by the TCA on 14 June 2011, i.e., 24 months after the RFA had been
filed on 9 June 2009.82
The decision regarding the Request for Annulment of
Ordinance 466 was rendered by the TCA on 22 November 2011, i.e., nineteen
months after the Request for Annulment had been filed on 20 April 2010.83
The
decision regarding the Request for Annulment of Decree 287 was rendered by
the TCA on 28 August 2012, i.e., twenty-nine months after the RFA had been
filed on 22 March 2010.84
All these requests were rejected.
133. The Respondent contends that the 18-month litigation requirement is a
jurisdictional requirement and that failure to satisfy the same by the date this
arbitration was instituted deprives the Tribunal of jurisdiction to hear the case.
The Claimants assert in opposition that the requirement in question is merely
directory and procedural, not mandatory and jurisdictional, and that the Tribunal
is not deprived of jurisdiction if, as in the instant case, the requirement is not
satisfied on the date of institution of the arbitration, but is satisfied thereafter.
134. In support of their respective positions, each of the Parties relies on a line of
investment treaty decisions on jurisdiction that, on various grounds, have denied
or, respectively, asserted the jurisdictional character of the domestic litigation
81
Supra, para. 12.
82
Supra, para. 60.
83
Supra, para. 65.
84
Supra, para. 64.
44
requirement under the relevant treaty. The Tribunal has carefully considered the
jurisdictional decisions referred to by the Parties. It notes that many such
decisions are based either on language of the relevant treaty provision, or on
factual circumstances, that differ from those in the present case.85
It notes further
that these decisions evidence the large extent to which this area of investment
treaty law remains in the process of developing a jurisprudence constante, due to
the variety of qualifications given to the requirement in question and the
resulting discrepancies in reasoning and conclusions.
135. As to the cases relied on by the Claimants,86
the following may be observed. In
Hochtief, the tribunal preferred not to make a decision regarding the character of
the 18-month domestic litigation requirement by proceeding to examine the
applicability of the MFN clause of the Germany-Argentina treaty.87
In
Telefónica, the tribunal held that the 18-month domestic litigation requirement
“is best qualified as a temporary bar to the initiation of arbitration. The objection
is therefore technically an exception of inadmissibility…”, making reference in
this regard to Art. 44 of the ILC Articles on State Responsibility.88
The Tribunal
notes that the relevant provision of the applicable Spain-Argentina treaty differs
in one significant respect from Article 10(2) of the BIT. Art. X.3(a) of the treaty
permits either party to defer the dispute to an international arbitral tribunal not
only “when there is no decision on the merits after eighteen months following
the beginning of the process under point 2 of this article” (“cuando no exista una
decisión sobre el fondo después de transcurridos dieciocho meses contados a
partir de la iniciación del proceso previsto por el apartado 2 de este articulo”)
but also when “the timely issuance of such decision exists but the dispute
85
For example, in Burlignton v. Ecuador, the claimant had never given notice of the dispute and therefore had not tried
to reach a settlement (Decision on Jurisdiction dated 2 June 2010, paras 312-318); in Murphy v. Ecuador the tribunal
found that it was not possible for a dispute to have arisen in the absence of a prior allegation of a treaty breach (Award
dated 15 December 2010, para.104).See on these two case, Schreuer, First Legal Opinion attached to the Memorial,
paras 31-32.
87
Supra, para. 67.
88
Hochtief, para. 55: “The Tribunal does not need to decide the point because the Claimant has raised another
argument, based on the MFN provision in BIT Article 3. That argument was the main focus of the parties’
pleadings, and is a sufficient basis for the Tribunal’s decision”. Only later on, at para. 91, when examining the
applicability of the MFN clause, the tribunal appears to consider the requirement in question as part of “the
prescribed procedures for accessing that [the tribunal’s] jurisdiction”.
89
The I.L.C. uses the term “Admissibility of claims” as title of Art. 44 of its Articles on State Responsibility.
According to this article: “The responsibility of a State may not be invoked if: (b) The claim is one to which the
rule of exhaustion of local remedies applies and any available and effective local remedy has not been
exhausted”.
45
between the parties continues” (“cuando existe tal decisión pero la controversia
subsiste entre las partes”). The reference to Art. 44 of the ILC Articles is
inapposite in that the issue in this case was not one of exhaustion of local
remedies.
136. In TSA, the tribunal indicated that Article 10(2) of the Netherlands-Argentina
treaty “has some resemblance with Article 26 of the ICSID Convention which
provides that a Contracting State may require the exhaustion of local
administrative or judicial remedies as a condition of its consent to arbitration
under the Convention”.89
Having noted that when the ICSID proceedings were
initiated only three months out of the prescribed 18 month time period remained,
and that it would have been “most unlikely that a decision by a court giving TSA
satisfaction could have been obtained before the expiry of the eighteen
months”,90
the tribunal concluded “that it could be highly formalistic now to
reject the case on the ground of the failure to observe the formalities of Article
10(3) of the BIT, since a rejection on such ground would in no way prevent TSA
from immediately instituting new ICSID proceedings on the same matter”.91
No
position was expressed by the tribunal regarding the characterization of the
domestic litigation requirement.
137. The Tribunal disagrees with the position expressed by some tribunals, and
echoed by the Claimants, which would disregard the domestic litigation
requirement is “nonsensical”,92
since, allegedly, the domestic court would not be
in a position to render a decision within the time-limit prescribed by the
applicable treaty.93
The Tribunal also considers that a finding that domestic
litigation would be “futile” must be approached with care and circumspection.
Except where this conclusion is justified in the factual circumstances of the
particular case, the domestic litigation requirement may not be ignored or
dispensed with as futile in view of its paramount importance for the host State.
Its purpose is to offer the State an opportunity to redress alleged violations of the
89
TSA, para. 110.
90
Ibid., para. 111.
91
Ibid., para. 112.
92
The latter is the expression used in Plama v. Bulgaria, Decision on Jurisdiction, 8 February 2005, para. 224.
93
As shown by the time taken to issue its various decisions (supra, paras 57, 61 and 62), the TCA might have
rendered a decision on each of the Requests for Annulment within the 18-month period.
46
investor’s rights under the relevant treaty before the latter may pursue claims in
international arbitration.
138. Whether the domestic litigation requirement relates to jurisdiction or, rather, to
admissibility or procedure depends on the interpretation of Article 10 of the BIT,
based on the interpretative rules of the VCLT.94
139. The sequence of steps to be followed by the Claimants under Articles 10(1) and
(2) before resorting to international arbitration is of importance for the purpose
of this analysis. Each such step is clearly indicated as part of a binding sequence,
as evidenced by the word “shall” before each step as follows:
(i) initially, a dispute “shall” as far as possible be settled amicably between
the parties;
(ii) “if” there is no settlement within six months after the dispute was
raised, the dispute “shall”, as a second step, be submitted to the competent
Uruguayan courts;
(iii) “if” within 18 months after institution of the proceeding before the
domestic courts “no judgment has been passed”, the investor may as a final step
resort to international arbitration.
Obviously, Article 10 is based on the premise of the binding character of steps
(i) and (ii) which the investor must comply with if it wishes (“may”) to resort to
step (iii). In the Tribunal’s view, this is true regardless how Article 10(2)’s terms
are characterized (i.e., as jurisdictional, admissibility or procedural).
140. The ordinary meaning of the terms used for the two steps (i) and (ii), which are
preliminary to the institution of international arbitration, is clearly indicative of
the binding character of each step in the sequence. That is apparent from the use
of the term “shall” which is unmistakably mandatory and from the obvious
intention of Switzerland and Uruguay that these procedures be complied with,
not ignored.
94
Supra, para. 106.
47
141. The position in international law generally is stated by the ICJ. In Georgia v.
Russia, the Court explained the legal character of procedural preconditions as
follows:
“To the extent that the procedural requirements of [a dispute settlement clause]
may be conditions, they must be conditions precedent to the seisin of the court
even when the term is not qualified by a temporal element”.95
The Court referred to the “fundamental principle of consent” 96
as stated in the
Armed Activities case in the following terms:
“[The Court’s] jurisdiction is based on the consent of the parties and is
confined to the extent accepted by them…When that consent is expressed in a
compromissory clause in an international agreement, any conditions to which
such consent is subject must be regarded as constituting the limits thereon. The
court accordingly considers that the examination of such conditions relates to
its jurisdiction and not to the admissibility of the application…”.97
142. In the present case, the Tribunal does not consider it necessary to characterize
the 18-month domestic litigation requirement as pertaining to jurisdiction or to
admissibility. Even if that requirement were considered as pertaining to
admissibility, its compulsory character would be evident. This conclusion is
confirmed by the object and purpose of the requirement in question which is
aimed at offering the host State the opportunity to redress the violations of the
BIT alleged by the investor. The objective pursued by the Respondent when
negotiating the domestic litigation requirement was made clear during the
Uruguayan Parliamentary debate leading to the approval of the BIT.98
The
Claimants do not dispute that this was the Respondent’s objective when
providing for this requirement in the BIT.
143. The Claimants’ actions before the TCA sought annulment of the administrative
measures that are claimed in this arbitration to be in breach of the BIT. Had the
95
Case Concerning Application of the International Convention on the Elimination of all Forms of Racial
Discrimination (Georgia v. Russian Federation), Judgment on Preliminary Objections, 1 April 2011, para. 130
(RL-47).
96
Ibid., para. 131.
97
Case Concerning Armed Activities in the Territory of the Congo, cit. (supra, para. 33).
98
See the Respondent’s statement in that regard at the hearing: “The record shows that Article 10 was proposed
by Uruguay which insisted that disputes between investors and contractors [sic] would continue to be submitted
to review by the competent national courts. As shown in slide 24, it was Uruguay’s firm position that disputes of
this type should be handled through a contentious administrative process before the competent judicial body”
(Transcript, Day One, page 52, lines 14-21.). See also the Report of the Senate Committee on International
Affairs (9 August 1990) in Minutes of Uruguayan Senate Sessions, No. 48, vol. 332 (4 September 1990), p. 42
(R-5).
48
TCA granted the Claimants’ requests within the prescribed 18-month period, or
even thereafter, by annulling the measures in question, the Claimants’ claims in
this arbitration would have lost their legal grounds. The object and purpose of
the domestic litigation requirement under Article 10(2) would thus have been
met.99
144. The domestic litigation requirement had not been satisfied at the time this
arbitration was instituted.100
The present case differs from the other cases where
jurisdiction has been denied due to the absence either of a dispute expressed in
legal terms101
or of any actions by the investor to address its claims to the
domestic court before resorting to arbitration.102
Nonetheless, even if the
requirement were regarded as jurisdictional, the Tribunal concludes that it could
be, and was, satisfied by actions occurring after the date the arbitration was
instituted. The Tribunal notes that the ICJ’s decisions show that the rule that
events subsequent to the institution of legal proceedings are to be disregarded for
jurisdictional purposes103
has not prevented that Court from accepting
jurisdiction where requirements for jurisdiction that were not met at the time of
instituting the proceedings were met subsequently (at least where they occurred
before the date on which a decision on jurisdiction is to be taken).
145. As held by the ICJ,
“it is not apparent why the arguments based on the sound administration of
justice, which underpin the Mavrommatis case jurisprudence, cannot also have
a bearing in a case such as the present one. It would not be in the interest of
justice to oblige the Applicant, if it wishes to pursue its claims, to initiate fresh
proceedings. It is preferable except in special circumstances, to conclude that
the condition has, from that point on, been fully met”.104
99
The tribunal in Teinver v. Argentina, referring to the domestic litigation and the arbitration as having the same
subject matter, states: “the goal of both suits is to make the Claimants… whole for the economic loss suffered as
a result of the nationalization” (cit., para. 132).
100
Supra, para. 131.
101
As in the case of Burlington v. Ecuador, fn. 85.
102
As in the case of Wintershall v. Argentina, leading to the dismissal of the case for lack of jurisdiction.
103
Case Concerning the Arrest Warrant of 11 April 2000 (Democratic Republic of Congo v. Belgium),
Judgment, 14 February 2002, ICJ Reports 2002, para. 26: “The Court recalls that, according to its settled
jurisprudence, its jurisdiction must be determined at the time that the act instituting proceedings was filed. Thus,
if the Court has jurisdiction on the date the case is referred to it, it continues to do so regardless of subsequent
events”.
104
Case Concerning Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Croatia v. Serbia), Preliminary Objections, Judgment, 18 November 2008, ICJ Reports 2008, pp. 441-442, para.
87.
49
In the Mavrommatis case the Permanent Court of International Justice had
found that jurisdictional requirements which were not satisfied at the time of
instituting legal proceedings could be met subsequently. The Court stated:
“Even if the grounds on which the institution of proceedings was based were
defective for the reason stated, this would not be an adequate reason for the
dismissal of the applicant’s suit. The Court, whose jurisdiction is international,
is not bound to attach to matters of form the same degree of importance which
they might possess in municipal law. Even, therefore, if the application were
premature because the Treaty of Lausanne had not yet been ratified, this
circumstance would now be covered by the subsequent deposit of the necessary
ratifications”. 105
The Tribunal agrees with and accepts this reasoning. It also notes that the same
reasoning applies regardless how Article 10(2)’s domestic litigation
requirement is characterized. Whether regarded as jurisdictional, admissibility
or procedural, the considerations identified in the Mavrommatis case apply
fully.
146. During oral argument, in response to a question from the Tribunal, Counsel for
the Claimants accepted that had the TCA given a decision (either way) within
18 months, the proceedings before the Tribunal would have been (or, if they
had already started, would have become) inadmissible.106
The Tribunal agrees.
A party commencing proceedings prior to the date set out in a domestic
litigation requirement of a BIT takes the risk of its claims failing if the
condition in question is satisfied within the time limit laid down. This gives
domestic courts the opportunity to adjudge the matter if they can do so in the
time available. But that did not happen here, where no judgment was rendered
by the TCA within the 18 month time period.
147. Nor does the Tribunal have to decide between the position taken by the
International Court in Croatia v Serbia and the position taken by Judge
Abraham, dissenting, in that case. In Croatia v Serbia, Judge Abraham
expressed the view that the Mavrommatis principle cannot be applied if it is no
longer possible to recommence the proceedings (because of supervening
changes in jurisdictional provisions, for example) at the time when the decision
105
Mavrommatis Palestine Concession case, Judgment No. 2, 30 August 1924, PCIJ, Series A, No. 2, p. 34.
106
Transcript, Day Two, p. 463, lines 14-19.
50
is taken.107
In the present case, the BIT remains in force and it would be
perfectly possible for the Claimants to commence these same proceedings on
the day after a decision by this Tribunal is handed down, a situation where
dismissal of the Claimants’ claims would merely multiply costs and procedures
to no use.
148. Relying on the ICJ’s jurisprudence, the Tribunal comes to the same conclusion
as the tribunal in Teinver v. Argentina, namely that “the core objective of this
requirement, to give local courts the opportunity to consider the disputed
matters, has been met. To require Claimants to start over and re-file this
arbitration now that their 18 months have been met would be a waste of time
and resources”.108
That is true however Article 10(2)’s domestic litigation
requirement is characterized. In view of the filing by the Claimants of domestic
proceedings before the Uruguayan court prior to the initiation of this
proceeding, the Claimants have satisfied the terms and objective of the
domestic litigation requirement under Article 10(2) of the BIT. This is the case
even where the Uruguayan court’s decisions were rendered after the expiry of
the 18-month period set by Article 10(2), but before the Tribunal rules on its
jurisdiction.
149. In the light of all the foregoing, the Tribunal dismisses the First Objection to its
jurisdiction.
150. In view of the above conclusion, there is no need to examine whether based on
the most favored nation clause in Article 3(2) of the BIT the Claimants could
have relied on the allegedly more favorable dispute resolution clause contained
in treaties concluded by Uruguay with third States in order to dispense with the
18-month domestic litigation requirement.
B. Second Objection: Article 2 of the BIT Excludes Public Health Measures from
the Scope of the Protections Afforded Investors.
107
Case Concerning Application of the Convention on the Prevention and Punishment of the Crime of Genocide
(Croatia v. Serbia), Preliminary Objections, Judgment, 18 November 2008, ICJ Reports 2008, p. 540, para. 51.
108
Teinver v. Argentina, cit., para. 135.
51
1. Arguments of the Respondent
151. According to the Respondent, Article 2 of the BIT excludes the measures the
Claimants attack from the scope of the BIT’s protection to investors and their
investments. Article 2(1) states in relevant part:
“The Contracting Parties recognize each other’s right not to allow economic
activities for reasons of public security and order, public health or morality, as
well as activities which by law are reserved to their own investors”.
152. The Respondent argues that the emphatic affirmation of Uruguay’s and
Switzerland’s mutual sovereign rights to effect regulations in the interest of
public health can only be understood as excluding “economic activities for
reasons of … public health…” from the scope of the BIT and thus the
Tribunal’s jurisdiction. Article 2 must be interpreted so as to give it a meaning
rather than to deprive it of meaning and the only plausible meaning is that it
was intended to exclude public health measures from the scope of the BIT
protection.
153. The provision in question comes after a prior sentence of Article 2 expressing
the Parties’ reciprocal obligations to promote and admit investments. This
structure of the clause can only mean that the Parties’ obligation to promote
and admit investments gives way to each State’s right to prohibit certain
activities for the listed reasons. Since this categorical affirmation of the Parties’
“right” not to permit certain economic activities comes before any of the
investor’s rights are listed, this means that the first enunciated right modifies
the latter’s enunciated right. Thus, Article 2 precludes the existence of a
“dispute” within the meaning of the BIT when a Contracting State has acted for
the reasons stated by that Article.
154. There is a critical difference between the obligation to promote and that to
admit investments, which is the fact that the obligation to promote applies
throughout the life-cycle of an investment, covering also investments already
made. Therefore, contrary to Claimants’ contention, Article 2 is not limited to
the pre-admission phase, the obligation to promote extending beyond this
phase. Abal was itself a beneficiary of Uruguay’ s National Interests Promotion
52
and Protection Law 16,906 of 1997 being granted a “generous package” of tax
exemptions and credits.
155. Under the Uruguayan Constitution, public health is a primordial right and
supreme good (“bien supremo”), meaning that it is not negotiable. As a bien
supremo, public health matters are above other sovereign powers and
obligations. In view of the supreme duty owed its people in matters of public
health, Uruguay could not agree to bestow rights to foreign investors
conflicting with this duty, thus carving out from the BIT’s protection any
actions it might need to take for reasons of public health, even if they restrict
investors’ economic rights.
156. Article 2 of the BIT is different from other BITs provisions regarding “nonprecluded
measures”. The latter only make clear that the treaty applies but that
nothing elsewhere in the treaty should be read to hinder necessary measures
from being taken. On the contrary, Article 2 leaves the exercise of the State’s
right to prohibit certain economic activities for reasons of public health as
entirely outside the scope of the BIT or its dispute resolution mechanism.
Further, Article 2 does not require that the excluded measures be “necessary”
for the designated policy goal, in contrast with precluded measures. This is
confirmed by the ICJ’s reasoning in the Nicaragua v. United States case,
holding that since Article XXI of the 1956 Treaty between the two States
speaks simply of “necessary” measures it did not remove the interpretation and
application of that Article from the Court’s jurisdiction to determine whether
the measures taken by a State fall within the exception.109
157. The three measures challenged by the Claimants were taken by Uruguay for
reasons of public health, against a background of persistent tobacco control
efforts dating back to the 1970s. Such efforts intensified in the 2000s due to the
staggering impact of tobacco consumption on public health. Despite
educational and regulatory efforts, between 1998 and 2005 the percentage of
smokers among adult population remained steady at 32% while particularly
alarming was the percentage of adolescents who smoked, 23%, one of the
109
Memorial, paras 123-126.
53
highest rates in Latin America. These high rates of tobacco consumption
among the population were rightly considered to constitute a public health
crisis.
158. To better educate the public, especially adolescents, about the consequences of
smoking, the Government adopted the three measures challenged by the
Claimants. Ordinance 514, adopted on 18 August 2008 and in force as of 14
February 2009, required, as the first measure, all cigarette packages to include
graphic pictograms illustrating the effects of smoking on human health, in
addition to textual warnings. As set forth in the Preamble, Ordinance 514 was
promulgated because “it is the duty of the State to legislate in all matters
regarding public health and hygiene”, consistent with Article 44 of the
Constitution, the Organic Law on Public Health of 12 January 1934 and the
World Health Organization Framework Convention on Tobacco Control
ratified on 16 July 2004. The public health reasons for these measures are
evident.
159. The other measure required by Ordinance 514, criticized by the Claimants, is a
single presentation, forbidding descriptive elements creating the false
impression that a certain tobacco product is less harmful than another.
160. As found by a United States federal court in United States v. Philip Morris,110
tobacco companies knew that the risks of lung cancer, other debilitating
diseases and premature death were just as high for smokers of “light” and “low
tar” cigarettes than for smokers of “regulars”. The Court sanctioned the
cigarette companies, including Philip Morris, for their deceptive “light”
descriptors, that remained banned.
161. That is what more than 70 States proceeded to do by banning for reasons of
public health the sale of tobacco products labeled as “light”, “low tar”, “mild”
or other similarly deceptive descriptors. Article 3 of Ordinance 514 implements
Law 18,256 of 2008, reiterating the prohibition on deceptive terms and other
descriptive elements, such as colors, numbers or letters creating a false
110
Memorial, para. 141.
54
impression that one tobacco product is less harmful than another. There can be
no doubt that it was adopted for reasons of public health.
162. The third measure challenged by the Claimants is the requirement of Decree
287/009, enacted in June 2009, that the size of mandatory health warnings on
tobacco products be increased from 50% to 80% of the front and back of each
pack. The public health reasons for the adoption of Decree 287/009 are evident,
the Preamble to the Decree citing the same public health justification as the
Preamble to Ordinance 514, invoking Article 11 of the WHO Framework
Convention on Tobacco Control requiring, inter alia, that warnings and
messages “be 50% or more of the principal display areas…”. Decree 287/009
was issued six months after the unanimous adoption of the Framework
Convention Guidelines for Article 11, establishing that health warning and
messages should cover “as much of the principal display area as possible”.
2. Arguments of the Claimants
163. According to the Claimants, Article 2 of the BIT is not applicable because it
covers admission and does not affect investments already admitted, including
those made by the Claimants. Article 2 states:
Promotion, admission
(1) Each Contracting Party shall in its territory promote as far as possible
investments by investors of the other Contracting Party and admit such
investments in accordance with its law. The Contracting Parties recognize
each other’s right not to allow economic activities for reason of public
security and order, public health or morality, as well as activities which by
law are reserved to their own investors.
(2) When a Contracting Party shall have admitted, according to its law, an
investment on its territory, it shall grant the necessary permits in connection
with such an investment and with the carrying out of licensing agreements
and contracts for technical, commercial or administrative assistance. Each
contracting party shall, whenever needed, endeavor to issue the necessary
authorizations concerning the activities of consultants and other qualified
persons of foreign nationality.
164. As is clear from the title and its plain language, this provision applies only
prior to the time an investment is being made, not thereafter. Uruguay’s
reading of the second sentence of Article 2(1) to extend the scope of the
55
provision to the post-establishment stage of an investment would lead to absurd
results. The host State could, after an investment has been made, declare it
reserved to its own investors and throw out all existing investors of the other
Party in the sector. The terms “admit” (used in the first sentence) and “allow”
(used in the second sentence) are synonymous. They both relate to the same
issue. Thus, Article 2(1) pertains to the admission of an investment while
Article 2(2) relates to the post-admission phase.
165. Uruguay has welcomed and admitted the Claimants’ investment, granting Abal
a generous package of tax exemptions and credits in furtherance of Abal’s
plans to make a capital investment to upgrade the machinery in the local
factory. None of the measures at issue in this dispute pertains to the admission
of investments. Article 2 is inapplicable in this context. Once the investment
has been admitted, Article 2 does not exempt the State from any obligation
pertaining to that investment. Article 2 contains no exceptions to the BIT’s
post-admission investor rights, therefore it does not foreclose the Tribunal’s
jurisdiction over the Claimants’ claims that the measures at issue violate
Uruguay’s obligations under the BIT.
166. The Claimants do not contest Uruguay’s right to adopt non-discriminatory,
legitimate regulation to protect public health. Whether the measures at issue are
legitimate public health measures that comply with the BIT is a matter for the
merits, not a matter of jurisdiction. The fact that Uruguay’s Constitution
obliges the Government to adopt public health measures has no bearing on
whether the Respondent has breached its obligations under the BIT. As stated
in Article 3 of the ILC Articles on State Responsibility, the characterization of
an act of State as internationally wrongful is governed by international law,
such characterization being not affected by the same act being lawful under
domestic law.
3. Findings of the Tribunal
56
167. It is the Respondent’s contention that measures taken by the State for public
health purposes fall outside the scope of the BIT. It relies in that regard on
Article 2(1) of the BIT which states:
Each Contracting Party shall in its territory promote as far as possible
investments by investors of the other Contracting Party and admit such
investments in accordance with its law. The Contracting Parties recognize
each other’s right not to allow economic activities for reasons of public
security and order, public health or morality, as well as activities which by
law are reserved to their own investors.
As indicated by its title, “Promotion, admission”,111
Article 2 deals with two
different concepts, promotion and admission of investments.
168. Consistent with the Preamble of the BIT, “promotion” of investments refers to
the Contracting States’ duty to create the conditions for the flowing of
investments by nationals of one State into the territory of the other State. To
that effect, the Preamble stresses the Contracting States’ intent “to create
favourable conditions for capital investments in both States” while at the same
time “Recognizing the need to protect investments by nationals and companies
of both States with the aim to foster the economic prosperity of both States”.
Accordingly, “promotion” is a continuing duty that the Contracting States have
accepted in order to foster investments both by creating favourable conditions
for their flowing into each other’s territory and, once investments have been
made, by ensuring their protection and by granting the necessary permits and
authorizations concerning the activities to be carried out by investors.112
169. As the ordinary meaning of the word indicates, “admission” is the act by which
each State, having verified the conformity of the proposed investments with
internal legislation,109
allows them to be made in its territory, thus accepting
that they are protected investments for purposes of the BIT. Thus, Article 2(2)
relates to the post-admission stage, as made clear by its initial words: “When a
Contracting Party shall have admitted, according to its law, an investment on
its territory,…” .
111
Article 2 is reproduced in its entirety supra, para. 163.
112
Article 2(2) deals with this continuing promotion of the investments once they have been admitted.
57
170. The reference in Article 2(1) to “public health” as one of the reasons by which
economic activities may not be allowed by the host State points to the stage of
admission of the investments, therefore to the pre-establishment stage, as
clearly shown by the context. The reference in question is made immediately
after providing for each State’s duty to admit investments, as an exception to
such duty for reasons, including of public health, characterized by the
importance of the public interest involved.113
Admission and acceptance,
including the exception for reasons of public health, refer both to the preestablishment
stage. The Respondent accepts that the obligation to admit
investments is limited to the pre-establishment stage114
and that the right to
admit is the same as the right to regulate whether to “allow [investments] to
enter”.115
171. It is not true that, as asserted by the Respondent, “The only plausible meaning
that can be given to the language of this Article is that it was intended to
exclude public health measures from the scope of the protections the BIT
affords investors”.116
Uruguay might exclude the admission of investments
under the BIT for reasons of public health in two different ways, either (i) by
providing for such exclusion in its internal legislation so that a proposed
investments would not be admitted as being not “in accordance with its law”
under Article 2(1), or (ii) by availing itself of the possibility under Article
25(4) of the ICSID Convention to notify the Centre that it would not consider
submitting to the jurisdiction of the Centre disputes relating to public health.117
In no other case could any such exclusion apply to investments that have
already been admitted under the BIT, which is the case so far as the Claimants
are concerned.
113
Article 2(1) states, in pertinent part, that “The Contracting Parties recognize each other’s right not to allow
economic activities for reasons of public security and order, public health or morality, as well as activities which
by law are reserved to their own investors”.
114
Reply, para. 185: “Among the critical differences between the obligations to promote and to admit
investments is the fact that the obligation to promote investments applies throughout the life-cycle of an
investment”.
115
In the Memorial, para. 109, the Respondent accepts that the ordinary meaning of “to admit” is “to allow to
enter”.
116
Memorial, para. 108.
117
ICSID Convention, Article 25(4) provides:
“Any Contracting State may, at the time of ratification, acceptance or approval of this Convention or at any time
thereafter, notify the Centre of the class or classes of disputes which it would or would not consider submitting to the
jurisdiction of the Centre. The Secretary-General shall forthwith transmit such notification to all Contracting States.
Such notification shall not constitute the consent required by paragraph (1)” (emphasis added by the Tribunal).
58
172. As far as is known to the Tribunal, neither of the above steps has been taken
until now by the Respondent in pursuance of its objective to exclude
investments in tobacco activities from the scope of the BIT. To the contrary,
the investments made by the Claimants were encouraged by the Respondent by
the granting in 2002 of an exemption “from all surtaxes” in connection with the
importation of certain types of cigarette manufacturing equipment and of a
credit for the Value-Added Tax included in the acquisition of materials used
for works contemplated by the project submitted by Abal on behalf of the
Claimants.118
173. The Resolution of the President of the Republic, after stating that the project
submitted by ABAL HNOS “complies with Article 11 of Law 16,906 of
January 7, 1998,” resolves “To declare that the activity of the investment
project submitted by ABAL HNOS S.A. is hereby promoted, with respect to
the manufacturing, marketing and distribution of cigarettes and tobacco”. The
Declaration confirms, on the one hand, that, as distinct from the “admission” of
investments, “promotion” is not limited to the pre-establishment stage, and, on
the other hand, that, still in 2002, the Respondent, despite intensified efforts
allegedly made already at the time to fight tobacco consumption,119
encouraged
the Claimants’ tobacco activities by promoting the related investments.
174. The Tribunal concludes that Article 2(1) does not create an exception to the
BIT’s substantive obligations with respect to investments that have already
been admitted in accordance with Uruguayan law. It is true, as the Claimants
accept, that this does not prevent Uruguay, in the exercise of its sovereign
power, from regulating harmful products in order to protect public health after
investments in the field have been admitted. But Article 2(1) is concerned
solely with admission, although it is subject to the subsequent regulation of
investments in ways consistent with the BIT. Whether the regulations here are
in conformity with the BIT is thus an issue for the merits.
118
Declaration of Promoted Activity for Investment Project of ABAL HNOS dated 14 March 2002, paras 1-3 (C-029).
119
Memorial, para. 127; supra, para. 157.
59
175. In the light of the foregoing considerations, the Second Objection to the
Tribunal’s jurisdiction is dismissed.
C. Third Objection: The Claimants’ Activities in Uruguay are not an “Investment”
Within the Meaning of Article 25 of the ICSID Convention
1. Arguments of the Respondent
176. According to the Respondent, in the absence of a definition of “investment” in
the ICSID Convention, jurisprudence and legal authority have accepted that the
term has an objective meaning which must be satisfied for the purpose of
ICSID jurisdiction. This meaning sets the limits within which the States’
bilateral definition under a treaty must be interpreted.
177. The Claimants’ interests in Uruguay do not constitute a protected investment
since not only do they fail to make any contribution to the Country’s
development, but they actively prevent and interfere with such development.
The Claimants’ concern about post-hoc evaluation is at odds with other ICSID
tribunals that have examined investors’ contributions to the economic
development of host States with little difficulty. The huge costs the Claimants’
activities impose on Uruguay are obvious to any reasonable observer.
178. Under the “Salini test”, one of the objective criteria to be satisfied is that the
economic activity must contribute positively and significantly to the economic
development of the host State. Economic development is at the core of the
foreign investment regime and is the paramount objective of the ICSID
Convention, as shown also by its Preamble.
179. The Salini interpretation has been confirmed by subsequent tribunals and
scholarly commentary. The requirement of contribution to the economic
development of the host State is emphasized by the Preamble of the ICSID
Convention which refers to “the need for international cooperation for
economic development and the role of private international investment
therein”. Reference to the “economic development process” and to the fact that
60
an adequate flow of capital may “substantially contribute to the development of
the country” as the object and purpose of the BIT is made by its Preamble. An
indication of the significant nature of the contribution to the host State’s
economic development is whether the activity serves the public interest.
180. The Salini test logically requires that if the investor’s activities or interests
create an overall negative effect on economic development, such as the
Claimants’ interests, this would not meet the definition of investments
protected by the ICSID Convention. The Claimants’ activities have harmed and
continue to harm Uruguay’s economic development, still less do they serve the
State’s public interest.
181. The negative impact of the consumption of tobacco products on the State’s
development has been confirmed by authoritative specialized international
institutions, including the OECD, the World Bank and the WHO. In Uruguay,
more than 5,000 people die each year from smoking-related illness. The
estimated direct health costs of smokers in Uruguay amount approximately to
US$ 150 million per year.
182. The “net contributions” to the economic development made by the Claimants’
interests and activities in Uruguay has been overwhelmingly negative. Based
on the Claimants’ own inflated estimate, their combined contributions total
around US $ 29 million per year, more than offset just by the direct health care
costs of US $ 30 million (a small share of Uruguay total costs imposed by the
Claimants’ tobacco products). For these reasons, the Claimants’ interests and
activities are not “investments” in the sense of the ICSID Convention. The
jurisdiction of the Centre may not extend to disputes arising in connection with
such activities and interests.
2. Arguments of the Claimants
183. According to the Claimants, Uruguay’s assertion that the Claimants do not own
an “investment” in Uruguay is factually and legally incorrect. The Claimants
have several investments falling within the definition of investment under
61
Article 1(2) of the BIT which are covered by Article 25 of the ICSID
Convention. Specifically, the Claimants’ investments include manufacturing
facilities (Article 1(2)(a)), shares in Abal (Article 1(2)(b)), rights to royalty
payments (Article 1(2)(c)) and trademarks (Article 1(2)(d)).
184. The ICSID Convention does not define “investment”. The fixed definition that
Uruguay attempts to impose is contrary to the intention of the drafters of the
ICSID Convention to provide the greatest flexibility to the scope of the
Contracting States’ consent to arbitration. Even if there may be an outer limit
to what can be considered an investment under the ICSID Convention, this
does not necessitate the mandatory application of tribunal-created criteria as
jurisdictional pre-requisites. Uruguay’s argument that the Claimants’ activities
in Uruguay are not “investments” rests entirely on a controversial, tribunalcreated
criterion for identifying an investment that has no basis in the plain
meaning of the term either in the BIT or in the ICSID Convention.
185. The Salini criteria are not jurisdictional requirements. Most of the tribunals that
have examined these criteria have used them as typical characteristics rather
than as jurisdictional requirements. Specifically, the criterion of the
contribution to the economic development of the host State is inappropriate
because it has no basis in the BIT, leads to a troubling post hoc analysis of the
investment and is highly subjective. In any case, the Claimants’ investments
have as a matter of fact contributed to the economic development of Uruguay.
186. It is in keeping with the plain meaning of Article 25 and the purpose of the
ICSID Convention to defer to the State parties’ intent, as expressed in the
relevant treaty, as to what constitutes an investment. It is reasonable for the
Tribunal in this case to defer to the Contracting Parties’ definition of
investment as set forth in the BIT.
187. As explained by the tribunal in Biwater Gauff v. Tanzania, the Salini “criteria
are not fixed or mandatory as a matter of law”.120
They are problematic to the
extent they provide for a fixed and inflexible test which may contradict
120
Biwater Sauff v. Tanzania, Award, 24 July 2008, paras 323 ff.
62
individual agreements, as expressed in bilateral investment treaties. Other
decisions have declined to apply the Salini criteria, holding that they should not
create a limit which neither the ICSID Convention nor the State parties to a
specific treaty intended to create.121
These criteria should not play a role in the
Tribunal’s analysis of whether an investment exists, much less to serve as a
jurisdictional requirement.
188. In particular, the contribution-to-development criterion requires a post-hoc
examination of the economic, financial and/or policy assessment that prompted
the Claimants’ activities which, in addition to being difficult to make, will
render uncertain whether the investment is protected until the analysis has been
performed. Further, the criterion introduces elements of subjective judgment on
the part of the arbitral tribunal, transforming it into a policy maker. If
jurisdiction under the ICSID Convention became dependent on such
retrospective analysis, the unpredictability of ICSID availability to settle given
disputes would increase.
189. The contribution-to-development criterion is in any event based on a
misunderstanding of the Preamble of the ICSID Convention. The reference to
the “need for international cooperation for economic development and the role
of private investment therein” is not evidence that contribution to economic
development is a required criterion of investment, as Uruguay claims. The
Preamble should be read as describing how the ICSID Convention will foster
economic development by achieving and maintaining a flow of foreign
investment. Further, should the Tribunal perform the Salini analysis using the
criteria as part of a flexible, pragmatic approach, it will find that the Claimants’
investments have in fact satisfied those criteria.
190. Uruguay does not contest that the Claimants have invested in Uruguayan
manufacturing facilities, shares in Abal, rights to royalty payments and
trademarks, requiring substantial technical, financial and human resources
contribution. Having maintained operations in Uruguay for more than 30 years,
121
Phoenix v. Czech Republic, Award, 15 April 2009, para. 85; Malaysian Historical Salvors v. Malaysia, Annulment
Decision, 16 April 2009, paras 76-79; Saba Fakes v. Turkey, Award, 14 July 2010, para. 111; Alpha v. Ukraine,
Award, 8 November 2010, para. 312.
63
the Claimants easily satisfy the Salini criterion of duration of the investment.
This is not contested by Uruguay. The Claimants took a commercial risk
without any guarantee of payment by their customers.
191. In any event, the Claimants’ investments have made a significant contribution
to Uruguay’s economy in terms of revenues earned in Uruguay from sales of
the Claimants tobacco products, taxes paid to the Government and workers
employed in Uruguay and their salaries. From 2005 to 2010, the Claimants
paid over US$ 148 million in taxes to the Uruguayan Government and directly
employed an average of 99 people in Uruguay, paying salaries and social
security contributions of US $ 3.7 million each year.
192. Uruguay’s argument that the Claimants’ activities do not contribute to the
State’s economic development is inconsistent with Uruguay’s conduct of active
encouragement to the Claimants to continue to invest over the past 30 years.
Despite the knowledge of the alleged negative effects that the Respondent lists,
it actually encouraged the Claimants to expand its operations by granting Abal
a generous package of tax exemptions and credits in furtherance of Abal’s plan
to make capital investment in the Uruguayan factory to upgrade the machinery.
The Respondent’s allegations shall be addressed at the appropriate stage in
these proceedings.
3. Findings of the Tribunal
193. Inasmuch as this Tribunal is established under the ICSID Convention, its
competence and the Centre’s jurisdiction are established by the reference in
Article 25(1) to “any legal dispute arising directly out of an investment
between a Contracting State … and a national of another Contracting State”.
The concept of “investment” is therefore central to the Centre’s jurisdiction
and the Tribunal’s competence “ratione materiae”.
64
194. The Claimants’ investments in Uruguay, as described by them,122
fall within the
definition of the term under Article 1 of the BIT. The Respondent has not
objected to the Claimants’ description of their investments but has instead
asserted that such investments do not satisfy one of the constitutive elements of
the term.
195. The Respondent contends that the term “investment” under the ICSID
Convention has an objective meaning which must be satisfied for the purposes
of the ICSID jurisdiction. Under the Salini test, to be protected, an investment
must contribute to the economic development of the host State.123
Since the
Claimants’ activities assertedly impose a huge cost on Uruguay, they do not
satisfy the above condition. Accordingly, the Centre’s jurisdiction may not
extend to disputes arising in connection with the Claimants’ activities and
interests.
196. It is generally accepted that the term “investment” under Article 25 of the
ICSID Convention was left undefined so as to leave flexibility in its
application. The fact that the term is not defined does not mean that it is not to
be interpreted based on the criteria set by Article 31 of the VCLT124
. The
controversy regarding the term “investment” shown by various arbitral
decisions and doctrinal writings reveals that the meaning of the term is far from
settled.
197. According to the 1965 Report of the Executive Directors on the ICSID
Convention, “[n]o attempt was made to define the term ‘investment’ given the
essential requirement of consent by the parties, and the mechanism through
which Contracting States can make known in advance, if they so desire, the
classes of disputes which they would or would not consider submitting to the
Centre (Article 25(4))”.125
To understand this statement, it must be recalled that
the question of whether and how to define the concept of “investment” was one
122
Supra, para. 183.
123
See, infra, para. 207.
124
Supra, para. 106.
125
Report of the Executive Directors, supra, fn.1, nr. 27.
65
of the most contentious issues in the negotiation process leading to the
adoption of the ICSID Convention.
198. The compromise eventually adopted took account both of the concern
expressed by capital exporting countries by providing a non-definition
approach, implying weak limits to the jurisdiction ratione materiae of the
Centre, and the concern expressed by capital importing countries by permitting
Contracting States “to notify the Centre of the class or classes of disputes
which it would or would not consider submitting to the jurisdiction of the
Centre” according to Article 25(4).126
199. A further aspect to be considered when interpreting the term “investment”
under Article 25(1) of the ICSID Convention is its interplay with the definition
of “investment” under the BIT.127
The consent of the Contracting Parties under
the BIT to the scope of “investment” is of relevance when establishing the
meaning of the term under Article 25(1) of the ICSID Convention, although
such Parties do not have an unfettered discretion to go beyond what have been
called the “outer limits” set by the ICSID Convention.128
200. To establish these “outer limits”, the concept of “investment” under Article
25(1) must be interpreted by reference first of all to “the ordinary meaning to
be given to the terms of the treaty in their context and in the light of its object
and purpose”. The notion covers a wide range of economic operations
confirming the broad scope of its application, subject to the possibility for
States to restrict the jurisdiction ratione materiae by limiting their consent
either in their investment legislation or in the applicable treaty.
126
The background of the adoption of Article 25(1) of the ICSID Convention is described in the Ambiente
Ufficio S.p.A. and Others and the Argentine Republic Decision on Jurisdiction, 8 February 2013, paras 448-452.
127
Para. 22, supra, reproduces Article 1(2) of the BIT defining the term “investment”.
128
Broches, The Convention on the Settlement of Investment Disputes: Some Observations on Jurisdiction, 5
Columbia Journal of Transnational Law, 1966, para. 268: “Presumably, the parties’ agreement that a dispute is
“an investment dispute” will be given a great weight in any determination of the Centre’s jurisdiction, although
it would not be controlling” (emphasis added by the Tribunal). Reference to the “outer-limits” of the notion of
investment under the ICSID Convention is made by Professor Abi-Saab in his Dissenting Opinion dated October
28, 2011 in the Abaclat v. Argentina Decision on Jurisdiction, 4 August 4, 2011 (at para. 46).
66
201. The reference to the object and purpose of the treaty does not make a
significant contribution to the meaning and scope of the term “investment”.
The usual reference to the Preamble of the ICSID Convention emphasizing
“the need for international cooperation for economic development and the role
of private international investment therein” may reasonably be understood in
different ways, underlining either the contribution to the host State’s
development or the role of the private investment depending on individual
cases. The Preamble therefore does not materially advance analysis. Likewise,
the reference in the Preamble of the BIT to the “important… role of foreign
investment in the economic development process” appears too general to
permit the drawing of definitive conclusions regarding the need for the
investment to contribute to the host State’s economic development.
202. The foregoing analysis leads the Tribunal to conclude that the term
“investment” under Article 25(1) of the ICSID Convention, when interpreted
according to its ordinary meaning in its context and in the light of the object
and purpose of the Convention, is to be given a broad meaning.
203. This meaning would in any case be subject to the outer limits of an economic
activity that would not encompass within the notion of investment, and
therefore the Centre’s jurisdiction, a single commercial transaction, such as the
mere delivery of goods against payment of the price. Within such expansive
limits, however, it is for the States’ agreement, as reflected in the present case
by the BIT, to define the scope of the “investment” that they accept to protect
by their treaty. No such limits have been laid down by the definition of
“investment” in Article 1 or otherwise in the BIT.
204. Whether the so-called Salini test relied upon by the Respondent has any
relevance in the interpretation of the concept of “investment” under Article
25(1) of the ICSID Convention is very doubtful. The test finds its source in a
decision on jurisdiction issued by an ICSID tribunal in the case Salini v.
Morocco.129
Assuming arbitral decisions and awards are “judicial decisions”
within the meaning of Article 38(d) of the Statute of the ICJ, which is far from
129
Salini Costruttori S.p.A. and Italstrade S.p.A. v. Morocco, Decision on Jurisdiction, 23 July 2009, para. 52.
67
being commonly accepted, this would be on condition that they have attained a
sufficient degree of publicity and are part of a “jurisprudence constante”. As
shown hereafter, there is no such a “jurisprudence constante” with respect to
acceptance of the Salini test.
205. As is known, the Salini test includes the following elements, as described by
the tribunal in Salini v. Morocco:
“The doctrine generally considers that investment infers: contributions, a
certain duration of performance of the contract and a participation in the risks
of the transaction. In reading the Convention’s preamble, one may add the
contribution to the economic development of the host State of the investment
as an additional condition”. 130
206. The Salini test has received varied applications by investment treaty tribunals
and doctrinal writings.131
In the Tribunal’s view, the four constitutive elements
of the Salini list do not constitute jurisdictional requirements to the effect that
the absence of one or the other of these elements would imply a lack of
jurisdiction. They are typical features of investments under the ICSID
Convention, not “a set of mandatory legal requirements”.132
As such, they may
assist in identifying or excluding in extreme cases the presence of an
investment but they cannot defeat the broad and flexible concept of investment
under the ICSID Convention to the extent it is not limited by the relevant
treaty, as in the present case.
207. Of its constitutive elements, the most controversial one has been held by some
tribunals to be the contribution to the economic development of the host State
due to the subjective character of this element and the resulting difficulty to
ascertain its presence in a given investment.133
In order to determine whether an
investment, at the time it is made, is capable of contributing to the economic
development of the host State a tribunal would be required to conduct an ex
post facto analysis of a number of elements that, considering also the time
130
Salini v. Morocco, cit., para. 52.
131
The Parties’ written submissions analyze arbitral decisions and scholarly writings favouring the application of
this particular test (Memorial, paras 160-166; Reply, paras 227-253) and those criticizing it (Counter-memorial,
paras 196-198; Rejoinder, paras 250-272).
132
Schreuer, The ICSID Convention. A Commentary, Art. 25, para. 171.
133
The tribunal in Phoenix v. Czech Republic, Award, 15 April 2009, referring to the contribution to the
development of the host State, states that it is “impossible to ascertain [it] – the more so as there are highly
diverging views on what constitutes development” (para. 85).
68
elapsed, “can generate a wide spectrum of reasonable opinions”.134
As
explained by another tribunal, “… the criterion invites a tribunal to engage in a
post hoc evaluation of the business, economic, financial and/or policy
assessments that prompted the claimant’s activities. It would not be appropriate
for such a form of second-guessing to drive a tribunal’s jurisdictional
analysis”.135
208. The Tribunal agrees in this regard with what was stated by the tribunal in Pey
Casado v. Chile:
“An investment could prove useful or not for a country without losing its
quality [as an investment]. It is true that the Preamble to the ICSID Convention
mentions contribution to the economic development of the host State.
However, this reference is presented as a consequence and not as a condition of
the investment: by protecting investments, the Convention facilitates the
development of the host State. This does not mean that the development of the
host State becomes a constitutive element of the concept of investment”. 136
209. The Respondent appears to agree on a more flexible approach to the concept of
investment when stating: “… whether one views the Salini criteria as
mandatory jurisdictional requirements or instead adopts the “typical
characteristic approach” is, in the circumstances of the case, a distinction
without a difference”.137
In the Tribunal’s view, the purposes of the ICSID
Convention and the BIT, and the weight of authority, support the more flexible
approach acknowledged by the Respondent. Applying that analysis, however,
the Tribunal sees no basis for concluding that the Claimants’ long-term,
substantial activities in Uruguay do not qualify as “investments” under the BIT
and the ICSID Convention.
210. In the light of the above considerations, the Tribunal dismisses the Third
Objection to its Jurisdiction.
134
Deutsche Bank AG v. Democratic Socialistic Republic of Sri Lanka, Award, 31 October 2012, para. 306.
135
Alpha v. Ukraine, cit., para. 312.
136
Victor Pey Casado and President Allende Foundation v. Republic of Chile, Award, 8 May 2008, para. 232.
The same conclusion was reached by the tribunal in Electrabel S.A. v. Republic of Hungary, Decision on
Jurisdiction, Applicable Law and Liability, 30 November 2012, para. 5.43.
137
Reply, para. 253.
69
V. THE CLAIMANTS’ DENIAL OF JUSTICE CLAIM
1. Arguments of the Claimants
211. In the Counter-memorial the Claimants have indicated the intent to include in
their Memorial on the Merits an additional claim that the TCA’s decision of 29
September 2011 rejecting the request for annulment of Ordinance 514 amounts
to a denial of justice in breach of the guarantee of fair and equitable treatment
under Article 3 of the BIT.138
In the Claimants’ view, the TCA’s decision was
grossly unjust and denied their right to due process. They add that the denial of
justice claim cannot be subject to the 18-month local litigation requirement
since the TCA’s decisions are final and not subject to appeal so that there is no
local forum before which to bring such a claim.139
212. In the Rejoinder,140
the Claimants further explained that the TCA’s decision
addressed a different plaintiff, British American Tobacco. The latter was not
party to Abal’s annulment action and had presented an entirely different set of
facts and arguments. According to the TCA, BAT had not proven the
ownership and the trademarks that, on the contrary, Abal had proven in its
case. Requested for a clarification, the TCA dismissed the objections asserting
that “the so-called contradictions are not important nor do they justify the
revision of the decision”.141
213. The denial of justice claim was addressed by the Claimants at the hearing of 5
February 2013 based on arguments that had been previously submitted.142
The
Claimants added that “Seeking redress in Uruguay’s domestic courts would not
only be futile but impossible because the TCA decisions are final and
unappealable” and that “There is nothing more that the Claimants can do to
resolve their denial of justice claim in Uruguayan courts”, so that direct access
to arbitration should be allowed “to resolve this dispute”.143
Following a
138
Counter-memorial, fn. 46.
139
Ibidem.
140
Rejoinder, para. 213.
141
The TCA Decision 801 Rejecting Abal’s Appeal for Clarification, 29 September 2011 (C-056).
142
Transcript, Day One, pages 218-221.
143
Ibid. page 221, lines 17-24.
70
question from the Tribunal, the Claimants indicated that resorting to the sixmonth
notification requirement would also be futile since “the executive would
not be able to seek a revision of that decision of the TCA”.144
214. In answer to another question by the Tribunal, the Claimants pointed out that
had they to submit the claim to a court of “one and only instance” using Law
16,110, they “would have to appear before the TCA a third time and ask them
to adjudicate a claim that the TCA itself committed a denial of justice while the
TCA jurisdiction is limited to claims for annulment of administrative acts and
nothing else”.145
215. Regarding whether they had to go to a domestic court with the denial of justice
claim under Law 16,110, the Claimants referred also to the passage of the
Senate record of the discussion when Law 16,110 was adopted recording Dr.
Eduardo Jimenez de Aréchaga’s letter to the Chairman of the International
Affairs Committee. They summarized the content of said letter as follows:
“What he is saying here is in cases of denial of justice or delay that is
equivalent to denial of justice, this principle in no way means that the foreign
investor cannot go to arbitration. In our submission, law 16,110, if you look at
the drafting history in the Senate records, the statement of Dr. Eduardo Jimenez
de Aréchaga does not preclude the submission to arbitration of a denial of
justice claim. It does not require that the denial of justice claim be submitted
again to domestic litigation in Uruguay.”146
216. Requested to state their position as to whether the denial of justice claim is to
be qualified as an additional claim under Article 46 of the ICSID Convention,
the Claimants confirmed that the claim in question “does squarely fall within
the ambit of Article 46 because it arises directly out of the subject matter of the
dispute”.147
2. Arguments of the Respondent
144
Transcript, Day Two, page 483, lines 2-8.
145
Ibid., page 480, lines 13-20, 25; page 481, lines 1-2.
146
Ibid., page 490, lines 7-25; page 492, lines 3-14
147
Ibid., page 484, lines 3-7, 13-16.
71
217. The Respondent asserts that in advancing this claim the Claimants exalt form
over substance since “a number of tobacco companies, including Abal, all
challenged Uruguay’s actions as a matter of domestic law on identical grounds
at approximately the same time”, so that “the TCA’s reasons for rejecting their
challenge were equally applicable to all of them”.148
218. In its reply at the hearing, the Respondent noted, without however committing
the Government of Uruguay, as it indicated, that regarding the alleged futility
of addressing the denial of justice claim to the Uruguayan executive, even if
the latter could not revoke a decision by the TCA it would not be excluded that
if the Government were convinced through friendly negotiations that its
position were similar to that of the Claimants, “it is very likely that support of
the Government of Uruguay could be influential with whichever Tribunal were
hearing the matter under Law 16,110”.149
219. Regarding the domestic litigation, Respondent commented at the hearing as
follows on the futility argument raised by the Claimants:
“ [i]n the event of going before a Tribunal under law 16,110, in the event there
is a negative decision in regard to their allegation or claim under the treaty for
denial of justice, then with an unfavourable decision they would also have the
right to arbitrate. That is the interpretation of the Government of Uruguay. So
there is no futility here”.150
220. At the hearing, the Respondent agreed that the Claimants’ denial of justice
claim would come within Article 46 of the ICSID Convention.151
3. Findings of the Tribunal
221. The Parties agree that the Claimants’ denial of justice claim falls within the
ambit of Article 46 of the ICSID Convention152
. Article 46 states:
Except as the parties otherwise agree, the Tribunal shall, if requested by a
party, determine any incidental or additional claims or counterclaims arising
directly out of the subject-matter of the dispute provided that they are within
148
Reply, para. 72.
149
Transcript, Day Two, page 487, lines 24-25; page 488, lines 1-8.
150
Ibid., page 489, lines 1-8.
151
Ibid., page 486, lines 17-19.
152
This agreement is recorded in the hearing transcript, supra, paras 215 and 218.
72
the scope of the consent of the parties and are otherwise within the jurisdiction
of the Centre.
222. Article 46 must be read in conjunction with Rule 40 of the Arbitration Rules,
which states as follows:
(1) Except as the parties otherwise agree, a party may present an incidental or
additional claim or counterclaim arising directly out of the subject-matter of the
dispute, provided that such ancillary claim is within the scope of the consent of
the parties and is otherwise within the jurisdiction of the Centre.
(2) An incidental or additional claim shall be presented not later than in the
reply and a counter-claim no later than in in the counter-memorial, unless the
Tribunal, upon justification by the party presenting the ancillary claim and upon
considering any objection of the other party, authorizes the presentation of the
claim at a later stage in the proceeding.
(3) The Tribunal shall fix a time limit within which the party against which
ancillary claim is presented may file its observations thereon.
223. The Parties’ agreement regarding the applicability of Article 46 of the ICSID
Convention and, as a result, of Rule 40 of the Arbitration Rules does not exempt
the Tribunal from determining whether the conditions set by these provisions are
met.
224. To meet these conditions the Claimants’ claim must:
a) be presented not later than in the reply or, if so authorized by the Tribunal
upon justification by the party presenting the claim and consideration of the other
party’s objections, if any, at a later stage;
b) arise directly out of the subject-matter of the dispute; and
c) be within the scope of the consent of the parties and otherwise within the
jurisdiction of the Centre.
225. Regarding the timely presentation of the claim, the Tribunal notes that it was
mentioned for the first time in the Claimants’ Counter-memorial,153
therefore in
the first written submission following the RFA. No objections have been raised
by the Respondent regarding satisfaction by the Claimants of this condition.
226. There is no doubt that the denial of justice claim arises directly out of the same
subject matter of the dispute brought before the TCA by Abal’s request for
153
Supra, para. 211.
73
annulment of one of the measures challenged by the Claimants, Ordinance 514.
The TCA’s decisions that, according to the Claimants, denied them justice are
both the decision rejecting the requested annulment of Ordinance 514 and the
decision rejecting the requested clarification of the latter decision.154
The
Respondent has not objected to this condition being met in the instant case.
227. Whether the denial of justice claim falls within the scope of the Parties’ consent
or otherwise within the Centre’s jurisdiction requires a closer examination of the
six-month settlement attempt and the 18-month domestic litigation of this claim
requirements, in view also of the Respondent’s remarks in that regard.
228. The discussion at the hearing centered on the question whether it would have
been futile for the Claimants, as asserted by the latter, to attempt to reach an
amicable settlement of the dispute related to this claim. According to the
Respondent, the Claimants should have proceeded to “first provide notice to the
executive… and enter into conversation”, admittedly without any power by the
executive to “revoke a decision or an order or ruling by the TCA”.155
The
Respondent’s reference being clearly to the six-month attempt for an amicable
settlement,156
the Tribunal shall deal with this issue for the sake of completeness
of the analysis.
229. The Tribunal notes initially that the dispute must be held to have arisen as a
result of the TCA’s decision dismissing the Claimants’ request for a clarification
of the previous decision rejecting the request for annulment of Ordinance 514.
The executive having no power to revoke such decision,157
there would have
been no real prospect for an amicable settlement of the dispute that had arisen. It
is difficult for the Tribunal to see how an appeal by the Claimants directly to the
Government for an amicable settlement would have served any useful purpose in
154
The TCA’s decisions 509 on Abal’s Request for Annulment of Ordinance 514 dated 14 June 2011 (C-053)
and 801 Rejecting Abal’s Appeal for Clarification dated 29 September 2011 (C-056). Abal’s Appeal for
Clarification and Further Judgment for the TCA Decision on Ordinance 514 is dated 24 August 2011 (C-055).
155
Transcript, Day Two, page 487, lines 1-8.
156
No views are expressed by the Tribunal regarding whether this requirement is an element of the State’s consent to
arbitration.
157
As admitted by the Respondent at the hearing, “The executive cannot by itself, of course, revoke a decision or an
order or ruling by the TCA”: Transcript, Day Two, page 487, lines 6-8.
74
this particular context, nor has the Respondent offered convincing arguments to
that effect.158
230. May the same conclusion be drawn regarding the 18-month domestic litigation
requirement? In support of their respective positions, the Parties have proposed
arguments at the hearing based on assumptions that a closer scrutiny leads to the
following remarks.
231. The Respondent has contended that in case of a negative decision by the court
under Law 16,110 regarding the claim for denial of justice the Claimants would
have the right to arbitrate so that in this case there is no futility.159
This
contention is correct only if the reference is to a decision rendered beyond the
prescribed time limit of 18 months. If, however, as the context seems to indicate,
the Respondent had in mind a decision by the TCA within said time limit, its
interpretation160
would overlook the fact that under the BIT a Uruguayan court
decision within the 18-month period, whether favourable or not to the Claimants,
would appear to preclude resort to arbitration. This appears to be the intended
meaning of Article 10(2) of the BIT when it provides that “If within a period of
18 months after the proceedings have been instituted no judgment has been
passed, the investor concerned may appeal to an arbitral tribunal, which decides
on the dispute in all its aspects”. This would mean, a contrario, that if such a
judgment intervenes within 18 months, resort to arbitration is precluded.161
232. The Claimants’ contention that in case of a denial of justice claim the foreign
investor does not need to go again to domestic litigation in Uruguay but may
submit the claim to arbitration is based on the letter addressed by Eduardo
Jimenez de Aréchaga to the Chairman of the International Affairs Committee.162
However, as apparent from its text, the letter in question refers to the Germany-
158
Supra, para. 218.
159
Supra, para. 218.
160
At the hearing the Respondent stated: “That is the interpretation of the Government of Uruguay” (supra, para. 212).
161
The Respondent’s interpretation would be correct if the Germany-Uruguay Treaty (as to which see below in the
text) had been the applicable treaty.
162
Supra, para. 215.
75
Uruguay Treaty,163
the text of which was in the process of being examined by the
Senate in view of its ratification.164
233. Article 11(2) of the Germany-Uruguay Treaty provides as follows:
“If a dispute as described in Paragraph 1 cannot be settled within the period of
six months counted from the date on which one of the interested parties raised
it, it shall be submitted at the request of one of the parties to the competent
courts of the Contracting Party in whose territory the investment was made. As
soon as there has been a decision by the competent courts, either of the parties
may resort to an International Court of Arbitration, for the purpose of declaring
if the legal decision complies and to what extent it meets the terms of this
Treaty. If after a period of 18 (eighteen) months from bringing the legal action
there has been no pronouncement, either of the parties may resort to the
International Court of Arbitration, which in this case shall have the competence
to resolve the dispute in its entirety. This provision shall not affect Article 10”.
According to this provision, and apparently unlike Article 10(2) of the BIT,
whatever domestic court’s decision is rendered within 18 months from bringing
legal action, resort to international arbitration is open to the party dissatisfied
with such decision. The Claimants seem to have had this provision in mind when
denying the requirement to go once again to the competent court in Uruguay for
the denial of justice claim.
234. Unlike the subject matter of the dispute regarding the three measures issued by
the Respondent and challenged by the Claimants, the dispute in this case does
not concern an administrative act for the annulment of which the TCA is the
only competent court in Uruguay. As alleged by the Claimants, the denial of
justice claim arises out of the TCA’s decisions rejecting an annulment request
and the subsequent request to correct the previous decision. To go back to the
TCA to redress such decision would have been a useless, time consuming and
costly exercise, any decisions by the TCA being final and not appealable. This is
one of the circumstances of the particular case warranting a conclusion of
“futility” of the domestic litigation requirement.165
163
The text of the Germany- Uruguay Treaty is in Exhibit RL-31.
164
The agenda of the Senate Session and the text of Eduardo Jimenez de Aréchaga’ letter are in Exhibit R-75 (see
Transcript, Day Two, page 490, lines 17-18). As clearly mentioned therein, the analysis made by the letter is based on
the Germany-Uruguay Treaty, specifically “the clauses on disputes recorded in Articles X and XI of the Treaty…”.
165
Supra, para. 137.
76
235. In the light of all the foregoing, the Tribunal affirms the Centre’s jurisdiction
and its competence to hear the Claimants’ claim for denial of justice.
VI. DISPOSITIF
236. For the foregoing reasons, the Tribunal unanimously decides:
a. That it has jurisdiction over the claims presented by Philip Morris Brands Sàrl,
Philip Morris Products S.A. and Abal Hermanos S.A. as far as they are based on
alleged breaches of the Agreement on the Reciprocal Promotion and Protection
of Investments concluded on 7 October 1988 between the Swiss Confederation
and the Oriental Republic of Uruguay;
b. That it has jurisdiction under Article 46 of the ICSID Convention over the
Claimants’ claim for denial of justice;
c. To make the necessary order for the continuation of the procedure pursuant to
Arbitration Rule 41(4); and
d. To reserve all questions concerning the costs and expenses of the arbitral
proceedings for subsequent determination.
ANNEX B
Philip Morris Brands Sàrl (Switzerland), Philip Morris Products S.A. (Switzerland) and
Abal Hermanos S.A. (Uruguay)
(The Claimants)
and
Oriental Republic of Uruguay
(The Respondent)
(ICSID Case No. ARB/10/7)
Concurring and Dissenting Opinion
Mr. Gary Born, Arbitrator
Date of dispatch to the parties: July 8, 2016
- 1 CONCURRING
AND DISSENTING OPINION
I agree with almost all of the conclusions in the Tribunal’s Award. I also have the
utmost respect for the members of the Tribunal, and the care and diligence that they have
brought to this matter. I write separately, with respect to two limited issues, only because of
my fundamental disagreement with the Tribunal’s conclusions and reasoning on these matters.
Apart from these issues, I concur with the Tribunal’s conclusions in its Award.
The two issues on which I part company from the Tribunal concern the interpretation
of Article 3(2) of the Agreement between the Swiss Confederation and the Oriental Republic
of Uruguay on the Reciprocal Promotion and Protection of Investments, dated 7 October 1988
(“BIT”). In particular, I am unable to agree that Uruguay’s failure to provide the Claimants
any means of judicial recourse following contradictory decisions by the Uruguayan Supreme
Court and Tribunal de lo Contencioso Administrativo did not constitute a denial of justice or
that Uruguay’s “single presentation requirement” for tobacco products did not constitute a
denial of fair and equitable treatment. Rather, with respect to each of these grounds, I conclude
that Uruguay violated Article 3(2) of the BIT.
As a preliminary matter, it is important to emphasize the narrow scope of the two
foregoing conclusions. My conclusions are not in any way a comment on the sovereign
authority of Uruguay (or any other state) to safeguard its population’s health or safety, to enact
tobacco control legislation, or to prevent deceptive or misleading tobacco marketing or
packaging. The adoption of such measures are within the regulatory sovereignty of Uruguay,
which nothing in my Opinion questions. Rather, this Opinion concerns two highly unusual
aspects of the Uruguayan legal system, neither of which implicates Uruguay’s sovereign
regulatory authority, but both of which entail violations of individual rights protected by Article
3(2) of the BIT.
First, this Opinion is directed towards a highly unusual aspect of the Uruguayan legal
system, which produced a result in this case that has never previously occurred under
Uruguayan law. As discussed below, two of the country’s highest civil courts reached directly
contradictory interpretations of precisely the same statutory provision, in closely-related
proceedings involving claims by the same party against the government, with these
contradictory interpretations then being applied, in each case, to deny that party relief.
Moreover, that same party was then left with no judicial forum in which to assert otherwise
available constitutional challenges to the relevant statutory provision, as it had been
authoritatively interpreted and applied to that party. In my view, that unprecedented result
plainly constituted a denial of justice under Article 3(2) of the BIT and basic principles of
international law.
Second, this Opinion is directed towards an equally unusual aspect of Uruguay’s
regulatory regime for tobacco – namely, a “single presentation requirement” that permits only
a single presentation of any trademark used in marketing tobacco products. It is undisputed
that no other country in the world has adopted such a requirement, which is also neither
required nor contemplated by the comprehensive international regulatory regime for tobacco
products. In my view, given the factual background against which it was adopted and the
evidentiary record in these proceedings, this unprecedented requirement is manifestly arbitrary
and disproportionate and, as a consequence, constituted a denial of fair and equitable treatment
under Article 3(2) of the BIT and international law.
- 2 I.
THE FAILURE OF URUGUAY TO PROVIDE ANY MEANS OF RECOURSE
FOLLOWING CONTRADICTORY DECISIONS BY THE SUPREME COURT
AND TRIBUNAL DE LO CONTENCIOSO ADMINISTRATIVO CONSTITUTED
A DENIAL OF JUSTICE
I first consider the Claimants’ denial of justice claim based upon the disposition of their
challenges to the so-called “80/80” requirement imposed by Decree 287/009 and Ordinance
466. In particular, the Claimants assert that Uruguay “effectively denied Abal the right to a
decision on the legality of the 80/80 requirement,” when the Supreme Court of Justice of
Uruguay (“Supreme Court”) and the Tribunal de lo Contencioso Administrativo (“TCA”)
rendered contradictory decisions regarding the meaning of Articles 9 and 24 of Law 18,256.1
The Claimants argue that these assertedly contradictory decisions by the Supreme Court and
TCA resulted in a denial of justice, in violation of the fair and equitable treatment guarantee of
Article 3(2) of the BIT.2
The Respondent contends that the Supreme Court and the TCA are separate and
independent governmental organs, and that Uruguayan law has for decades allowed the
possibility that these organs will reach inconsistent conclusions. 3
The Respondent also
contends, in at least some of its submissions, that the Supreme Court and TCA decisions are
consistent, because the two tribunals addressed and resolved different issues.4
The Tribunal accepts the Respondent’s conclusions in part, holding that the Supreme
Court and TCA reached contradictory results, which were “unusual, even surprising,”5
but that
such a quirk is not sufficiently “shocking” or “serious”6
to constitute a denial of justice.
Adopting the Respondent’s analysis, the Tribunal reasons that judicial systems in other national
legal systems allow similar types of inconsistent results, citing a decision of the European Court
of Human Rights (“ECtHR”).7
In my view, in the particular circumstances of this case, the contradictory decisions of
the Supreme Court and TCA operated to deny the Claimants access to justice. Those decisions
were rendered in closely-related proceedings involving the same parties and interpreted the
same provision of Uruguayan law to mean diametrically opposed and contradictory things, in
each case as the basis for rejecting Abal’s claims. As a consequence of these contradictory
decisions, Abal was left without any judicial forum in which to pursue generally available
constitutional challenges against Law 18,256, as it had been authoritatively interpreted and
applied to Abal by the TCA. I am unable to avoid concluding that the operation of the
Uruguayan judicial system in these circumstances amounted to a denial of justice in violation
of Article 3(2) of the BIT.
A. Preliminary Matters
Preliminarily, it is important to be clear that the Claimants’ claim does not require the
Tribunal to decide whether the existence of parallel and co-equal judicial organs – that is, the
Supreme Court and the TCA – constitutes a denial of justice. Many legal systems have
1
Claimants’ Memorial, II.C.2, p. 75.
2
Claimants’ Memorial, III.B., pp. 115-21; Claimants’ Memorial, III.A.2., pp. 96-109.
3
Respondent’s Counter-Memorial, para. 11.113.
4
Respondent’s Counter-Memorial, para. 11.62 et seq.
5
Award, para. 529.
6
Award, para. 527, 529.
7
Award, para. 529-532.
- 3 comparable
divisions of legal authority, and the existence of specialized tribunals operating
within a single legal system provides no independent basis for a denial of justice complaint.
On the contrary, the existence of such specialized tribunals is intended precisely to ensure that
justice is not denied and that the rule of law is enhanced.
The Claimants’ claim also does not require the Tribunal to decide whether the rendering
of contradictory decisions concerning the same issue of law, by parallel and co-equal judicial
organs, constitutes a denial of justice. This result is theoretically possible in systems in which
parallel and co-equal judicial tribunals exist and, as a consequence, virtually all legal systems
have adopted mechanisms for avoiding or preventing contradictory decisions. 8
Again,
however, the Claimants’ claim does not require deciding whether these mechanisms are
required as a matter of the BIT or customary international law.
Instead, what this dispute concerns is a highly unusual circumstance where parallel
Uruguayan judicial tribunals – that is, the Supreme Court and the TCA – reached contradictory
decisions interpreting the same statutory provision in closely related proceedings involving the
same party, in each case applying those contradictory interpretations to deny that party relief
on claims against the government. Moreover, following those contradictory decisions, the
same party was also denied any opportunity of presenting a concededly serious constitutional
challenge to Uruguayan legislation (specifically, Law 18,256), as that legislation had been
authoritatively interpreted and applied to it by the TCA, to a competent Uruguayan judicial
authority. In my view, that constitutes a paradigmatic denial of access to justice which cannot
be dismissed as merely an unusual quirk or curiosity, but which is instead a violation of basic
guarantees of international law.
B. Factual Background
In my view, it is important to begin consideration of this issue by recounting the relevant
factual and procedural background. This background is essential to the appreciation and
resolution of the Claimants’ claim.
1. The Uruguayan Supreme Court and Tribunal de lo Contencioso
Administrativo
Uruguay’s highest civil court is the Supreme Court of Justice of Uruguay, established
pursuant to the 1952 Uruguayan Constitution. The Supreme Court is empowered to interpret
Uruguayan legislation and determine the constitutionality of such legislation.9
The Supreme
Court has the authority to review decisions of lower courts by cassation.10
8
See L. Garlicki, ‘Constitutional courts versus supreme courts,’ (2007) 5(1) Int J Constitutional Law 44 (citing,
e.g., German Constitutional Court (Bundesverfassungsgericht); Nejdet Şahin and Perihan Şahin v. Turkey, ECtHR
Application No. 13279/05, Judgment, 20 October 2011, para. 34 (citing Germany, Ukraine, Greece, and Bulgaria)
[Exhibit REX-010].
9
Uruguayan Constitution, Art. 256 (“Laws may be declared unconstitutional by reason of form or content, in
accordance with the provisions of the following articles.”); Art. 257 (“The Supreme Court of Justice has original
and exclusive jurisdiction in the hearing and decision of such matters; and must render its decision in accordance
with the requirement for final decisions.”).
10
Rotondo Opinion, para. 25 [Exhibit REX-007] (“The Supreme Court exclusively reviews the constitutionality
of laws and acts as the last stage in any action where the parties have filed a petition for cassation against the
judgments of the Courts of Appeals.”).
- 4 The
TCA is a governmental organ established pursuant to the Uruguayan Constitution.11
The TCA is, in all material respects, a judicial body but, nonetheless, is not formally part of the
Uruguayan judiciary and is independent from both the Uruguayan government and the
Uruguayan judiciary, including the Uruguayan Supreme Court of Justice.12
The TCA is granted
jurisdiction by the Uruguayan Constitution13
and Law No. 15,869 of 6/22/1987.14
Specifically,
the TCA is empowered to adjudicate disputes regarding the validity of administrative acts,
including the interpretation of Uruguayan legislation to authorize or annul such administrative
acts.15
The only respect in which the Uruguayan Constitution limits the TCA’s independence
vis-à-vis the Supreme Court is Article 258 of the Constitution, which provides that the TCA
must abide by a Supreme Court determination that a statute is unconstitutional. 16
The
Respondent’s legal expert on Uruguayan law describes the institutional divide between the
TCA and Supreme Court as “sui generis.”17
2. Law 18,256 and Decree 287/009
The Claimants’ denial of justice claim arises out of challenges under Uruguayan law
by Abal to Law 18,256 and Decree 287/009. In particular, Abal challenged the constitutionality
of Law 18,256 in the Uruguayan Supreme Court and the validity of Decree 287/009 in the
TCA. It is important to appreciate the issues raised in these two proceedings and the relevant
Uruguayan statutory provisions at issue in those proceedings.
The Uruguayan Parliament adopted Law 18,256 on 6 March 2008. The relevant
portions of Law 18,256 for present purposes were Articles 9 and 24, which provided:
Article 9. (Health warnings). – All packages and containers of tobacco products,
and all external labeling and packaging thereof, shall bear health warnings and
images or pictograms describing the harmful effects of tobacco consumption or
other appropriate messages. Such warnings and messages shall be approved by
the Ministry of Public Health; shall be clear, visible, and legible; and shall take
up at least 50% (fifty percent) of the total exposed primary surfaces. These
warnings shall be modified periodically in accordance with regulations. All
packages and containers of tobacco products and all packaging and labeling
thereof, as well as the warnings described in the preceding paragraph, shall
contain information on all components of the tobacco products and their
emissions, in accordance with the provisions of the Ministry of Health.
11
Rotondo Opinion, para. 48 [Exhibit REX-007].
12
Rotondo Opinion, paras. 5, 7, 48 [Exhibit REX-007].
13
Uruguayan Constitution, Art. 309.
14
Rotondo Opinion, para. 5 [Exhibit REX-007].
15
Rotondo Opinion, para. 6 [Exhibit REX-007] (“The TCA has jurisdiction to hear the cases of actions for
annulment of final administrative acts issued by any Government entity which are contrary to a ‘legal rule,’ which
includes those that are affected by misuse, or abuse or excess of power … The TCA annuls or confirms the
challenged administrative acts, without modifying them.”).
16
Uruguayan Constitution, Art. 258 (“In [the] case [that a law is declared unconstitutional], the [TCA]
proceedings shall be suspended and the case referred to the Supreme Court of Justice.”).
17
Rotondo Opinion, para. 55 [Exhibit REX-007] (“Based on everything that has been asserted in this report, it
may be concluded that: a) The Uruguayan jurisdictional system is sui generis…”).
- 5 Article
24. (Regulation). – The Executive Branch shall regulate this law within
a period of ninety days from its date of enactment.18
In implementation of Law 18,256, the Uruguayan President issued Presidential Decree
287/009 on 15 June 2009. That Decree provided for the so-called 80/80 graphic warning
requirement, mandating that tobacco companies include graphic health warnings on at least
80% of the surfaces of tobacco packages:
It is ordered that the health warnings to be included on packages of tobacco
products, including images and/or pictograms and messages, shall cover 80%
(eighty per cent) of the lower part of each of the main sides of every cigarette
package and in general of every packet and container of tobacco products and
of any similar packaging and labelling.19
The Uruguayan Ministry of Public Health adopted Ordinance 466 on 1 September 2009,
giving effect to Presidential Decree 287/009. Ordinance 466 provided for the 80/80 graphic
warning requirement, in Section 1, as follows:
The pictograms to be used on packs of tobacco shall be defined by six (6) images
associated with the corresponding texts (front and back), which shall be printed
on the lower 80% of both principal display areas of all packets of cigarettes and
in general all packets and packs of tobacco products and all similar wrappings
and labels in the order and manner shown in the annexed model, which is an
integral part of this Order, an equal number of each type of pack design being
printed for each brand available on the market.20
As noted above, the Claimants’ denial of justice claim arises from the handling of the
challenges which Abal initiated to Law 18,256 and Decree 287/009 in Uruguay’s courts.
3. Abal’s Challenges to Law 18,256 and Decree 287/009
Shortly after promulgation of Ordinance 466, on 11 September 2009, Abal filed an
action in the Supreme Court – Abal Hermanos S.A. v. Legislative Power and Ministry of Health
– challenging the constitutionality of Article 9 of Law 18,256.21
The basis of Abal’s action was
that a grant of authority by Article 9 to the President and Ministry of Public Health to require
graphic warnings in excess of 50% of the surface of tobacco packages would violate limitations
on the delegation of legislative authority under the Uruguayan Constitution.
Six months later, on 22 March 2010, Abal filed an action (an accion de nulidad) in the
TCA requesting annulment of the 80/80 requirement in Ordinance 466 and Decree 287/009.22
The basis of Abal’s action was that Ordinance 466 and Decree 287/009 exceeded the scope
properly permitted by Law 18,256, by requiring 80% graphic warnings, while, properly
interpreted, Law 18,256 only permitted a requirement of 50% graphic warnings.
Immediately after Abal filed its action in the TCA, the TCA suspended its proceedings
pending a decision by the Supreme Court on Abal’s constitutional challenge to Law 18,256.
According to the TCA, the Supreme Court’s decision would involve a “threshold question”
18
Uruguayan Law No. 18,256 (6 Mar. 2008), Arts. 9, 24 [Exhibit RL-6].
19
Uruguayan Decree No. 287/009 (15 June 2009), Article 1 [Exhibit RL-4].
20
Ministry of Public Health Ordinance 466, September 1, 2009, Articles 1-2 [Exhibit C-043].
21
Abal’s Complaint Challenging Law 18,256 before the SCJ, September 11, 2009 [Exhibit R-216].
22
See Abal’s Request for Annulment of Decree 287 Before the TCA, March 22, 2010 [Exhibit C-049].
- 6 (cuestion
previa) which therefore warranted suspension of the TCA proceedings until the
Supreme Court had rendered its decision.23
In the Supreme Court proceedings initiated by Abal challenging the constitutionality of
Article 9 of Law 18,256, the Uruguayan Legislature made formal submissions regarding Abal’s
claim. The Legislature took the position that Law 18,256 was constitutional because Article 9
did not authorize graphic warnings in excess of 50% of the surface of tobacco packages; the
Legislature also acknowledged that, if Law 18,256 did delegate authority to require graphic
warnings in excess of 50%, then the statute would have been subject to challenge under the
Uruguayan Constitution as an excessive delegation of legislative authority. The Legislature’s
submission in the Abal proceeding concluded:
3.9 When the law says ‘at least 50%’ it is setting the quantitative limit on the
fundamental right, that is, the size of the health warning. This legal
determination has a dual consequence:
1. It imposes an obligation on the tobacco companies to include a warning that
takes up at least 50% of the package or container—which means that it could
take up more space, if the tobacco company so wished—never less; and
2. It imposes an obligation on the Ministry of Public Health to reject a request
to approve a health warning that takes up less than 50% of the above-referenced
surface areas.
3. But it does not allow the regulation to set a higher percentage: … That is not
what the law allows, because there is no reason whatsoever to support [the view]
that said percentage should fluctuate periodically. …
3.10. … What the law establishes is that said containers cannot display a
warning of less than fifty percent (at least 50%) and that the Ministry shall not
approve them. The only thing that the law attributed to regulation is the periodic
regulation of the modification of the warning, regarding things that the law
cannot reasonably determine, which is not the percentage of surface area
affected.
… [D]espite the fact that the limiting of rights is reserved for statute, it is
reasonable for the law to have the [Executive] make an exact determination of
the limitation when the Legislative Branch does not have the information,
aptitude or technical advice to compose ‘clear; visible, legible’ warnings …
Therefore, the possibility of a ‘… narrow exception for delegation …’ … is fully
present here, on account of being ‘… justified by technical or practical
necessities.’ But that is not with respect to the percentage of affected surface
areas that must be taken up by the health warnings; rather, it is with respect to
the periodic modifications of said warnings …24
The Uruguayan State Attorney General (Fiscal de Corte y Procuraduria General de la
Nacion)25
also made formal submissions in Abal’s Supreme Court proceedings. Like the
23
See Motion of Abal Hermanos S.A., Motion to Suspend Proceedings, TCA Case No. 132/2010, May 3, 2010
[Exhibit R-224].
24
Legislature’s Answer, paras. 3.9-3.10 [Exhibit C-046].
25
The Uruguayan State Attorney General is empowered by the Organic Law of the State Attorney General’s
Office (Decree-Law No. 15,365) to: (i) be the exclusive representative of the State Attorney General’s Office
before the Supreme Court of Justice; (ii) represent the State Attorney General’s Office in the proceedings of
exclusive jurisdiction of the Supreme Court of Justice and be heard in all other proceedings conducted before the
- 7 Uruguayan
Legislature, the State Attorney General took the position that Article 9 of Law
18,256 was constitutional because the legislation did not authorize graphic warnings in excess
of 50% of the surface of tobacco packages, again indicating that a contrary interpretation of the
law would render it unconstitutional.
According to the State Attorney General, “the provision as to the percentage limits itself
to establishing that it cannot be less than 50% of the [packaging]. … [T]he Ministry of Health,
to whom approval of these warnings is entrusted, will not be able to approve them if they
occupy less than this 50%.” The State Attorney General noted that there were “no references
to the Executive having the power to establish a higher percentage,” and thus, “the provision
does not contain any delegation whatsoever.”26
The Uruguayan Supreme Court accepted the arguments advanced by the Legislature
and the State Attorney General. In a thoroughly reasoned decision, the Court held that Article
9 of Law 18,256 did not authorize the Ministry of Public Health to require graphic warnings
that covered more than 50% of the surface of tobacco packages, while indicating that a contrary
interpretation of the legislation would render it unconstitutional (by reason of an excessive
delegation of legislative authority).
The Supreme Court interpreted Article 9’s requirement that graphic warnings “be clear,
visible, and legible… and shall take up at least 50% (fifty percent) of the total exposed primary
surfaces” as not delegating additional authority to require warnings occupying more than 50%
of the surfaces of tobacco packages. In the Supreme Court’s words:
[Law 18,256] does not delegate to the Executive Power a discretionary power to
impose restrictions on top of said [50%] minimum, but imposes on the tobacco
company the obligation that the exterior labeling of their packs must contain a
warning that occupies ‘at least 50% of the total exposed principal surfaces.’ As
asserted by the representatives of the Legislative Power, the text of the norm ‘at
least’ should be understood in the sense that the health warning may occupy
more space—if the tobacco company wants that—but never less than the
minimum fixed at 50%.
Further, it emerges from the text that the only thing left by the norm in the field
of the Executive Power (Ministry of Public Health) is to control—for the purpose
of its approval—that the health warnings and messages are clear, visible, legible
and occupy at least the 50% (fifty per cent) of the total exposed principal
surfaces, and also the periodical modification of such warnings, [an] aspect that
clearly refers to the message and not to their size. In consequence, since the
[statute] determines the minimum limit of the warnings so they can be approved
by the Ministry of Public Health, and to leave to the discretion of the regulatory
power only certain aspects that [relate] to its execution, it cannot be considered
that the principles of legality and non delegation have been infringed.27
Supreme Court of Justice when laws or constitutional principles are involved, or when the general interests of the
Society, the State, or the Treasury are, or may be, at stake; (iii) intervene in the unconstitutionality proceedings;
and (iv) be heard in the conflicts of jurisdiction to be resolved by the Supreme Court of Justice. (See Claimants’
Memorial, fn. 217.)
26
State Attorney General’s Opinion at Section 2 [Exhibit C-197].
27
Supreme Court Decision No. 1713 at 4 [Exhibit C-051].
- 8 In
sum, the Supreme Court was unambiguous in its conclusion that Law 18, 256 did not
authorize the Ministry of Health, or the Uruguayan Executive Branch more generally, to require
graphic warnings occupying more than 50% of the surface of tobacco packages.
Following the Supreme Court’s decision, the suspension of Abal’s TCA proceedings
was lifted and the TCA rendered a decision on Abal’s claim that Decree 287/009 and Ordinance
466 were invalid because, under Article 9 of Law 18,256, the Uruguayan Executive Branch
was not empowered to require graphic warnings that covered more than 50% of the surface of
tobacco packages. The TCA rejected Abal’s challenge, as well as the Supreme Court’s prior
conclusion that Article 9 of Law 18,256 did not authorize the requirement of graphic warnings
covering more than 50% of the surface of tobacco packages.
The TCA’s brief statement of reasons in Abal’s proceeding was quoted from a decision
in another proceeding, which had been initiated by another tobacco company against Law
18,256 and Decree 287/009. In relevant part, the TCA’s opinion was as follows:
[The Framework Convention on Tobacco Control] is composed by a preamble
and 38 sections. In the first it is explicitly stated that addiction to tobacco [is]
an epidemic with grave consequences to Global Health inasmuch: ‘… the
cigarettes and other products containing tobacco are designed in a very
sophisticated manner with the end of creating and maintaining dependency…,’
to this respect is that the Framework’s provisions seek to regulate warnings in
the cigarette packs in order to allow the population to access truthful
information regarding the chemicals they are ingesting and consuming.
Reason for which, Section 18.256 enters in direct and frank legal accordance
with the international provisions, legislating and regulating the Convention’s
provisions, in compliance with the obligations towards humankind and the
international community adopted by the Oriental Republic of Uruguay. In this
sense, Statute 18.256 clearly shows the legal minimum for the warning and
entrusts to regulations its enlargement and/or modification, with the evident
objective of preventing the consumer from becoming familiarized and living with
it without perceiving the harmful consequences attributed to tobacco products.28
In reaching this conclusion, the TCA rejected the interpretation of Article 9 of Law
18,256 that the Supreme Court had previously adopted.29
As discussed above, the Supreme
Court, Legislature, and State Attorney General had all concluded that Law 18,256 did not
authorize the Uruguayan executive branch to require graphic warnings that covered more than
50% of the surface of tobacco packages. In contrast, the TCA reached the opposite conclusion,
holding with minimal explanation that Article 9 of Law 18,256 authorized precisely such a
result (and therefore provided authorization for the 80% requirement of Decree 287/009 and
Ordinance 466).
28
TCA Decision 512, Section VI [Exhibit C-116].
29
The TCA’s interpretation of Law 18,256, quoted in relevant part above, provides no insight into its reasons for
rejecting the views of the Uruguayan Legislature and State Attorney General.
Testimony of the Respondent’s expert witnesses at the evidentiary hearing indicated that the TCA has a very
heavy case load (with some 1,000 cases being decided each year by a five judge tribunal). (Evidentiary Hearing
(Tr., 6/1745/3-12) (Abal) (“…[The TCA] is made up of five members and [they have] to decide yearly about
1,000 that are submitted to its consideration …”)). The consequences of this caseload are apparent in the
Claimants’ challenge to the TCA’s decision regarding the single presentation requirement, where, as the Tribunal
describes, the TCA’s decision confused the Claimants’ proceedings and submissions with those of another
company, in a different proceeding.
- 9 It
is undisputed that the TCA’s interpretation of Article 9 of Law 18,256 is authoritative
as a matter of Uruguayan law, having been issued pursuant to the TCA’s constitutional and
statutory mandate to interpret legislative authorizations of regulatory action.30
On the basis of
that interpretation of Article 9 by the TCA, Decree 287/009, Ordinance 466, and the 80/80
requirement were upheld. It is also undisputed that there was no basis for appealing from the
TCA decision to the Supreme Court, or to any other body, whether by cassation or otherwise.31
It is also clear that, so far as the record shows, this case was the first time that the
Uruguayan Supreme Court and TCA have rendered contradictory decisions about the meaning
of a statutory provision.32
The Respondent asserted that other examples of such cases existed,
but it cited only a single instance allegedly involving such a contradiction.33
On examination, however, the one case cited by the Respondent did not in fact involve
contradictory decisions, but instead involved a decision by the Supreme Court upholding the
constitutionality of a particular procedure and a decision by the TCA holding that the same
procedure was not permitted as a statutory matter.34
As the Tribunal appears to accept,35
that is
not a conflicting or contradictory set of decisions, but an example of entirely consistent
decisions about different legal rules.
The present case is fundamentally different: it involves a direct and irreconcilable
conflict between the Supreme Court and the TCA with regard to the interpretation of Article 9
of Law 18,256. The Supreme Court held, directly and explicitly, that Article 9 only authorized
the Executive to require graphic warnings covering 50% of the surface of tobacco packages,
while the TCA held, equally directly and explicitly, that Article 9 authorized the Executive to
require graphic warnings covering 80% (or more) of the surface of tobacco packages. These
two interpretations could not be more diametrically opposed, yet both were applied to Abal, in
each case in order to reject claims that it had brought against the application of Law 18,256 by
the Uruguayan government to its activities.
30
Abal Opinion, para. 94 [Exhibit CWS-014] (“It is undisputed that the TCA is the ‘highest entity’ (and the only
entity) in the Uruguayan legal system that can resolve challenges of nullity against administrative acts.”);
Respondent’s Counter-Memorial, para. 9.26 (“Uruguay’s highest administrative tribunal, the Tribunal de lo
Contencioso Administrativo”).
31
Abal Opinion, para. 94 [Exhibit CWS-014] (“It is [ ] undisputed that ‘there is no possible appeal’ against TCA
judgments. It is also absolutely undisputed that the Supreme Court cannot review TCA judgements.”) (citing
Rotondo Opinion, para. 22 [Exhibit REX-007] (“… [T]here is no appeal or petition for cassation against
judgments of the TCA.”); Respondent’s Counter-Memorial, para. 11.113 (“[the TCA] is not subject to the
cassation review of the Supreme Court”).
32
See Abal Opinion, para. 94 (“The contradiction that arose in this case between decisions of the [Uruguayan
Supreme Court] and the TCA is unusual, and there is no Court in Uruguay that has the authority to hear the
controversy generated by the TCA’s decision.”); see also Evidentiary Hearing (Tr., 6/1804/11-17) (Abal) (“… I
don’t know of any case, apart from this one right here, where [ ] a contradiction [between the Uruguayan Supreme
Court and the TCA] has transpired … I have searched, and I have found no instances where the SCJ has
contradicted the TCA or the TCA has contradicted a decision of the Supreme Court of Justice.”).
33
Respondent’s Rejoinder, paras. 11.56-11.58; Pereira Opinion, paras. 293-296, [Exhibit REX-015] (citing Case
No. 2-3871/2006, Supreme Court of Justice, Decision No. 47/2007 (May 2, 2007), Conclusion of Law I [Exhibit
SPC-049] (“the Henderson case”)).
34
See Evidentiary Hearing (Tr. 7/2119/3-19) (Pereira) (“In my opinion, there is no contradiction in the
judgments.”).
35
Award, paras. 527-528.
- 10 -
4. No Possibility of Constitutional Challenge to Article 9 of Law 18,256
in the Supreme Court Following the TCA Decision
The record in this arbitration also establishes that, following the TCA’s decision, Abal
was unable to return to the Supreme Court to challenge the constitutionality of Article 9 of Law
18,256 as it had been authoritatively interpreted by the TCA. As the Tribunal acknowledges,36
there was no procedure available under Uruguayan law that would have allowed Abal to reopen
proceedings in the Supreme Court challenging Article 9 of Law 18,256. Rather, as the
Claimants contend, the prior Supreme Court decision, rejecting Abal’s constitutional challenge
to Article 9, was res judicata and foreclosed further litigation of that challenge by Abal in the
Supreme Court.37
As indicated by the Tribunal, the Respondent did not argue during these arbitral
proceedings that Abal could have returned to the Supreme Court to challenge the
constitutionality of Article 9 following the TCA decision, nor that Abal’s failure to do so
constituted a failure to exhaust its local remedies. Rather, although the Respondent argued that
Abal could have challenged the constitutionality of Article 838
of Law 18,256 in the Supreme
Court,39
it never suggested that Abal could have reopened its previously decided challenge to
Article 9 of Law 18,256. Likewise, none of the Respondent’s experts on Uruguayan law made
any such suggestion in their expert reports or oral testimony.40
On the final day of the evidentiary hearing, counsel for the Respondent suggested, in
answer to questions from the Tribunal, that Abal could in fact have reopened proceedings in
the Supreme Court challenging the constitutionality of Article 9 of Law 18,256 based on the
“new fact” of the TCA decision.41
As indicated above, that suggestion was inconsistent with
the Respondent’s position throughout the course of the arbitration42
and was unsupported by
any expert testimony or other evidence regarding procedural avenues available to Abal in the
Supreme Court. 43
In contrast, Claimants’ expert evidence concluded (without prior
contradiction by the Respondent’s experts) that Abal had exhausted its local remedies.44
In these circumstances, I see no basis for concluding that Abal could have either
36
Award, paras. 522-523.
37
As the Tribunal notes, the Respondent did not suggest during the course of this arbitration that Uruguayan law
permitted Abal to return to the Supreme Court and revive its constitutional challenge to Law 18,256 based on the
TCA’s interpretation of the statute. Award, para. 521 (“The Respondent does not suggest that there was a failure
to exhaust local remedies in relation to this claim.”).
38
Article 8 of Law 18,256 was designed to prohibit misleading packaging (see full text of Article 8 at para. 151
below) This is distinct from Article 9 of the Law which requires graphic heath warming on tobacco packages (see
full text of Article 9 at para. 20).
39
Respondent’s Counter-Memorial, para. 1.28.
40
In particular, the expert opinions of Professor Rotondo and Schrijver made no suggestion that Abal could have
reopened its Article 9 challenge in the Supreme Court or that the failure to do so constituted a failure by Abal to
exhaust its local remedies.
41
Evidentiary Hearing (Tr., 9/2640/6-9) (Salonidis) (“In our submission, we believe yes [it would have been
possible to challenge the constitutionality of Article 9 in the Supreme Court as that Article had been interpreted
by the TCA], because the TCA interpretation would be definitely a new fact to be considered by the Supreme
Court.”).
42
The Respondent argued that Abal could have challenged a different provision of Law 18,256 (Article 8, rather
than Article 9) in new proceedings in the Supreme Court. Respondent’s Counter-Memorial, para. 11.89 et seq.
(“…Claimants could have sought a declaration of unconstitutionality of Article 8 of Law 18,256, whose provisions
the SPR was intended to ‘enable.’”).
43
See generally Rotondo Opinion [Exhibit REX-007]; Schrijver Opinion [Exhibit REX-008].
44
See Abal Opinion, para. 94; Paulsson Opinion, paras. 45-46.
- 11 reopened
its challenge to Article 9 of Law 18,256 in the Supreme Court, or initiated new
proceedings in the Supreme Court making such a challenge. Rather, after the TCA’s decision,
Abal was left with a Supreme Court ruling upholding Law 18,256’s constitutionality because
Article 9 did not authorize graphic health warnings in excess of 50% of the surface of tobacco
packages, and a TCA ruling upholding Decree 287/009 and Ordinance 466 because Law 18,256
did authorize graphic health warnings in excess of 50% of the surface of tobacco packages.
C. Analysis
In light of the foregoing, I am unable to avoid the conclusion that the operation of the
Uruguayan judicial system in this case constituted a denial of justice. Specifically, Uruguay
denied Abal justice when its courts rendered directly contradictory decisions interpreting
Article 9 of Law 18,256 in proceedings involving Abal, but did not thereafter provide Abal
access to a judicial forum in which to present a presumptively serious constitutional challenge
to Article 9 as that provision had been authoritatively interpreted and applied to it. In my view,
this amounted to “Heads, I win; tails, you lose” treatment, without affording Abal the
possibility of subsequent judicial recourse, which is contrary to Article 3(2)’s guarantee of fair
and equitable treatment and the rule of law.
The Tribunal observes that the TCA’s refusal to follow the interpretation of Article 9
of Law 18,256 which the Supreme Court (and the Uruguayan Legislature and State Attorney
General) had adopted was “unusual, even surprising.”45
That is correct. The TCA’s decision
was both unusual and surprising because the interpretation of a statutory provision to mean
diametrically opposed things, by different judicial tribunals within the same legal system, is in
conflict with the basic values of the rule of law and prohibitions against denials of justice.46
The rule of law serves to ensure predictability, stability, neutrality, and objectivity; it
ensures that generally applicable legal rules, rather than personal or political expedience,
govern human affairs. Where different courts within a single legal system adopt contradictory
interpretations for the same law, the rule of law is undermined, exposing individuals to
inconsistent, unpredictable, and arbitrary treatment. Put simply, “[t]he fact that litigants can
receive diametrically opposite answers to the same legal question depending on which type of
court examines their case can only undermine the credibility of courts and weaken public
confidence in the judicial system.”47
Despite its surprise at the contradictory interpretations of Law 18,256 by the Supreme
Court and TCA, the Tribunal nonetheless concludes that these decisions are not a denial of
justice. According to the Tribunal, while unusual and surprising, the TCA’s decision was the
result of a “quirk,” which is not sufficiently “serious” or “shocking” to violate Article 3(2) of
the BIT.
45
Award, para. 529.
46
Like the Tribunal, I do not accept the Respondent’s argument that the Supreme Court and TCA decisions were
not inconsistent, because they addressed different issues (namely, whether Law 18,256 was constitutional and
whether Decree 287/009 and Ordinance 466 were authorized by Law 18,256). The critical point is that the
Supreme Court and TCA interpreted Article 9 of Law 18,256 in diametrically opposite ways (namely, that Article
9 did not authorize graphic warnings larger than 50% and that Article 9 did authorize such warnings). In my view,
it is impossible to regard these decisions as anything other than squarely inconsistent or contradictory.
47
Nejdet Şahin and Perihan Şahin v. Turkey, ECtHR Application No. 13279/05, Joint Dissenting Opinion, 20
October 2011, para. 17 [Exhibit REX-010].
- 12 The
sole basis for the Tribunal’s conclusion on this point appears to be a decision of
the ECtHR in Nejdet Şahin and Perihan Şahin v. Turkey (“Şahin v. Turkey”).48
In my view, as
detailed below, the ECtHR’s decision does not support the Tribunal’s holding and, on the
contrary, requires the opposite conclusion from that reached by the Tribunal. Simply put, even
if the ECtHR’s interpretations of the European Convention on Human Rights (“ECHR”) were
decisive in interpreting Article 3(2) of the BIT, which they are not, the Şahin v. Turkey decision
involved a vitally different factual setting than this case. When those differences are taken into
account, the ECtHR’s decision does not support, and instead contradicts, the Tribunal’s
interpretation of Article 3(2). More fundamentally, the decisions of the Uruguayan courts in
this case violated basic precepts of the fair and equitable treatment standard, denying the
Claimants access to vitally important judicial protections which are guaranteed by both Article
3(2) and general principles of international law.
As a preliminary matter, I do not agree that decisions interpreting the protection of the
right to a fair trial in Article 6 of the ECHR are of decisive importance in interpreting the fair
and equitable treatment guarantee of Article 3(2) of the BIT. Article 6’s fair trial guarantee is
contained in a particular human rights instrument, which was drafted and accepted in a specific
geographic and historical context. Interpretations of Article 6 by the ECtHR may shed light on
the general objects and purposes of the prohibition in Article 3(2) against denials of justice, but
they provide little additional guidance in interpreting Article 3(2) or the standard of fair and
equitable treatment under international law more generally.
Also preliminarily, the Tribunal relies on the ECtHR’s decision for the proposition that
the use of “separate administrative tribunals in the civil law tradition”49
does not constitute a
denial of justice. In my view, that proposition is undoubtedly correct, but irrelevant to the real
grounds on which the actions of Uruguay’s courts in this case are subject to challenge under
Article 3(2) of the BIT.
There is in my view no basis for criticizing the existence or use of “separate
administrative tribunals in the civil law tradition” (or in other traditions). As discussed above,
this is a common feature of many legal systems, in both common law and civil law traditions.50
As a general proposition, the existence of administrative tribunals (or other specialized types
of tribunals), as well as other civil tribunals, is perfectly consistent with requirements for fair
trials or prohibitions against denials of justice.
That general proposition is, however, of little relevance in this case. The existence of
separate tribunals (the TCA and Supreme Court) in the Uruguayan legal system, is not the basis
for either the Claimants’ denial of justice argument or my own conclusion that Uruguay has
violated Article 3(2). Rather, the challenge to Uruguay’s actions rests on the fact that the
Supreme Court and TCA rendered contradictory decisions, in proceedings involving the same
party, without allowing that party any possibility of recourse to a judicial forum for
constitutional challenges following the TCA’s authoritative interpretation of Law 18,256.
Even if authorities interpreting the ECHR were relevant to the meaning of Article 3(2) of the
BIT, the ECtHR’s decision in Şahin v. Turkey does not support the Tribunal’s resolution of the
real issues presented in this case.
48
Award, para. 530 (quoting Nejdet Şahin and Perihan Şahin v. Turkey, ECtHR Application No. 13279/05, Joint
Dissenting Opinion, 20 October 2011 [Exhibit REX-010]).
49
Award, para. 530.
50
See above paras. 11-12.
- 13 In
Şahin v. Turkey, a narrow majority of the ECtHR held that the issuance of
inconsistent decisions by Turkish military and administrative courts was not a violation of
Article 6 of the ECHR. The ECtHR reasoned that “achieving consistency of the law may take
time, and periods of conflicting case-law may therefore be tolerated without undermining legal
certainty.”51
The Court also emphasized the existence of mechanisms in the Turkish legal
system for avoiding inconsistent interpretations of the law,52
and the deference that the ECtHR
owed national courts in the administration of their judicial systems under Article 6 of the
ECHR.53
Initially, it is appropriate to note that the Şahin v. Turkey decision on this point was
rendered by a narrow majority of the European Court (ten judges) and was accompanied by a
powerful dissent (by seven judges).54
The dissent reasoned that the rendering of inconsistent
judgments by different courts was a “flagrant malfunctioning” of the judicial system, which
created the appearance of “arbitrariness,” resulting in a violation of Article 6 of the ECHR.55
Specifically, the dissent reasoned:
[W]e consider that a violation of the right to a fair hearing was caused by a
malfunctioning of the machinery set in place to settle conflicts of jurisdiction,
coupled with inconsistency in court decisions concerning the same factual
situation. While domestic systems may comprise a variety of judicial structures,
these structures should not give any appearance of arbitrariness in the public
eye; when taking legal action litigants should be able to make decisions with a
sufficient degree of foreseeability and based on clear, common and stable
criteria.56
In my view, there is substantial force to the reasoning of the dissenting opinion in Şahin
v. Turkey. The concept of the rule of law implies regularity, stability, and lack of arbitrariness.
In the words of the dissenting judges, the rule of law ensures that private parties are “able to
make decisions with a sufficient degree of foreseeability and based on clear, common and
stable criteria.” The dissent’s reasoning is also consistent with the approach taken by the
ECtHR in its earlier jurisprudence, where the Court has routinely held that conflicting judicial
decisions, producing legal uncertainty and unpredictability, are contrary to Article 6(1) of the
ECHR.57
51
Nejdet Şahin and Perihan Şahin v. Turkey, ECtHR Application No. 13279/05, Judgment, 20 October 2011, para.
83 [Exhibit REX-010].
52
Nejdet Şahin and Perihan Şahin v. Turkey, ECtHR Application No. 13279/05, Judgment, 20 October 2011,
paras. 87, 91-92 [Exhibit REX-010] The Court reasoned that Turkish courts had established mechanisms for
“respecting the boundaries of their respective areas of jurisdiction and refraining from both intervening in the
same area of the law,” and that a Jurisdiction Disputes Court had issued rulings on the issue before the Turkish
administrative and military courts, which had been applied by those courts in the matters before the ECtHR. Ibid.
53
Nejdet Şahin and Perihan Şahin v. Turkey, ECtHR Application No. 13279/05, Judgment, 20 October 2011,
paras. 88-89 [Exhibit REX-010].
54
Nejdet Şahin and Perihan Şahin v. Turkey, ECtHR Application No. 13279/05, Joint Dissenting Opinion, 20
October 2011 [Exhibit REX-010].
55
Nejdet Şahin and Perihan Şahin v. Turkey, ECtHR Application No. 13279/05, Joint Dissenting Opinion, 20
October 2011, para. 2 [Exhibit REX-010].
56
Nejdet Şahin and Perihan Şahin v. Turkey, ECtHR Application No. 13279/05, Joint Dissenting Opinion, 20
October 2011, paras. 3, 15-16 [Exhibit REX-010].
57
See, e.g., Tudor Tudor v. Romania, ECtHR Application No. 21911/03, Judgment, 24 March 2009, para. 41 (“in
the absence of a mechanism which ensures consistency in the practice of the national courts, such profound and
long-standing differences in approach in the case-law, concerning a matter of considerable importance to society,
are such as to create continual uncertainty … this uncertainty deprive the applicant of a fair trial”); Brumărescu v.
Romania, ECtHR Application No. 282342/95, Judgment (Merits), 28 November 1999, para. 61 (“One of the
- 14 The
rendering of contradictory decisions, by co-equal courts within a single legal
system is in tension with these basic objectives of transparency, stability, and predictability.
Inconsistent decisions in cases involving similar legal issues do not reflect the rule of law, and
instead reflect arbitrary and unprincipled chance. It is for precisely this reason that states which
have co-equal judicial authorities also have mechanisms for reconciling the decisions of such
tribunals.58
In my view, the seven dissenting judges in Şahin v. Turkey adopted a sounder view
of guarantees of a fair trial or protections against denials of justice than the ten judges in the
majority of the ECtHR.
Importantly, however, resolution of the present case does not require deciding whether
it was the majority, or the dissenting, judges of the ECtHR in Şahin v. Turkey that were correct.
Instead, in my view, Şahin v. Turkey is plainly distinguishable from the present dispute, which
involves a very different and significantly more troubling set of circumstances.
Şahin v. Turkey involved judicial decisions that were rendered in a number of different
Turkish legal proceedings, brought by different private parties, each of whom received benefit
payments, but in different amounts, from different Turkish military and administrative courts.59
The parties who had received lower benefit payments from military courts complained that
they had been treated differently from other parties, who had received larger payments from
administrative courts.
In contrast, the present case involves not merely conflicting case-law by different courts
in cases involving different parties, but proceedings brought by the same party, which was
subject to directly contradictory decisions, rendered in closely related legal proceedings,
interpreting the same statutory provision in irreconcilable ways. The Claimants in this
arbitration do not complain that Abal was treated differently from other parties, in different
proceedings, but that Abal itself was subjected to different treatment and contradictory
interpretations of the same law, in the same dispute, with each of those contradictory
interpretations then being applied to reject Abal’s claims against the Uruguayan government.
Nothing in the ECtHR’s reasoning in Şahin v. Turkey suggests that the Court would
have found there was no violation of the right to access to justice or the rule of law where a
state’s courts not only adopted inconsistent interpretations of the law, but did so in closelyrelated
proceedings involving the same party.60
It is one thing for a state’s judicial system to
produce inconsistent interpretations of the law, and inconsistent results, in different cases,
involving different parties. That circumstance involves “conflicting case-law,” which might
be “tolerated” for a period, as ten judges of the ECtHR held in Şahin v. Turkey.61
fundamental aspects of the rule of law is the principle of legal certainty, which requires, inter alia, that where the
courts have finally determined an issue, their ruling should not be called into question.”).
58
As discussed in Şahin v. Turkey, such a mechanism existed in Turkey (in the form of a Jurisdiction Disputes
Court), although the efficacy of that mechanism was disputed. See above para. 49, fn 52.
59
Nejdet Şahin and Perihan Şahin v. Turkey, ECtHR Application No. 13279/05, Judgment, 20 October 2011,
paras. 25-32 [Exhibit REX-010].
60
On the contrary, the ECtHR emphasized that the issue before it involved different parties in different legal
proceedings, reasoning that “two courts, each with its own area of jurisdiction, examining different cases may
very well arrive at divergent but nonetheless rational and reasoned conclusions regarding the same legal issue
raised by similar factual circumstances.” Nejdet Şahin and Perihan Şahin v. Turkey, ECtHR Application No.
13279/05, Judgment, 20 October 2011, para. 86 [Exhibit REX-010].
61
Nejdet Şahin and Perihan Şahin v. Turkey, ECtHR Application No. 13279/05, Judgment, 20 October 2011, para.
83 [Exhibit REX-010].
- 15 In
my view, it is something very different for the law to be interpreted in diametrically
opposed ways in the same dispute, involving the same party.62
This latter result involves a
state, through its courts, holding that the same law means exactly opposite things as applied to
the same litigant in the same dispute.63
That is the antithesis of the rule of law: it constitutes a
much more direct and immediate instance of arbitrariness, incapable of explanation by
differences in the identities of the litigants, the circumstances of the parties or their dispute or
the parties’ litigation conduct.64
Furthermore, in the present case, the contradictory Supreme Court and TCA decisions
involved additional elements of arbitrariness. Here, a nation’s highest civil court, relying on
formal submissions from the nation’s legislature and highest legal officer, reached a considered
and reasoned decision about the meaning of a legislative act. The interpretation of Uruguayan
legislation on which that judicial decision rested was then rejected by an administrative
tribunal, in what can only be characterized as a brief and largely unreasoned decision (quoted
above65
), after that administrative tribunal had stayed its own proceedings pending the outcome
of the judicial proceedings.
As discussed above, this case was the first time that the Uruguayan Supreme Court and
TCA have rendered contradictory decisions about the meaning of a statutory provision.66
As a
consequence, it is an understatement for the Tribunal to characterize the contradictory Supreme
Court and TCA decisions as only an unusual and surprising occurrence. In fact, this case was
the first and only time that such a contradiction between the Supreme Court and the TCA has
occurred in more than 60 years (since the TCA was established in 1952).
The foregoing circumstances give rise, in my mind, to a very serious question whether
the contradictory decisions of the Supreme Court and TCA in the proceedings commenced by
Abal, standing on their own, constituted a denial of justice in this case. In my view, the
unprecedented rendering of directly contrary interpretations of the same legislative provision
by different Uruguayan courts, in proceedings arising from a single dispute involving the same
parties, is in very serious tension with guarantees of regularity and fairness that underlie
protections against denials of justice.
This is particularly true in a case, such as this one, where the contradictory
interpretations of law are both applied by a state’s courts to deny a party relief against
governmental actions. Here, the Supreme Court rejected Abal’s claims by holding that Law
62
As discussed in Şahin v. Turkey, the Turkish legal system provided a mechanism to resolve “conflicts of
judgments when the enforcement of a right is rendered impossible by a divergence between the final decisions
adopted by at least two of the courts referred to in section 1, provided that those decisions concern the same subject
and the same cause of action – but not matters of jurisdiction – and that at least one of the parties [to the case] is
the same ….” Nejdet Şahin and Perihan Şahin v. Turkey, ECtHR Application No. 13279/05, Judgment, 20 October
2011, para. 24 [Exhibit REX-010] (alteration in original) (emphasis added). The existence of such a mechanism
– and its inapplicability in Şahin due to the fact that multiple claims, involving multiple parties, were at issue –
underscores the distinction between that case and this one.
63
As noted above, the ECtHR made a point of observing that the issue before it in Şahin v. Turkey involved
different parties in different legal proceedings, See above paras. 54-55.
64
That is why domestic legal systems have mechanisms designed to prevent the same law from being applied in
contradictory ways to the same litigants in the same dispute. In addition to mechanisms for avoiding or reconciling
conflicting decisions by different tribunals (noted above), principles of res judicata and law of the case provide
further protections against contradictory results being reached in proceedings involving the same parties. The
failure of Uruguay’s courts to apply such doctrines in this case materially heightens both the surprising character
of their decisions (as the Tribunal correctly notes) and the arbitrariness of those decisions.
65
See above para. 28.
66
See above para. 33.
- 16 -
18,256 was constitutional because it did not authorize a requirement of graphic warnings larger
than 50% of the surface of tobacco packaging, and the TCA rejected Abal’s claims by holding
that Decree 287/009 and Ordinance 466 were valid because Law 18,256 did authorize a
requirement of graphic warnings larger than 50% of the surface of tobacco packaging. As
discussed above, those holdings reflected a “Heads, I win; Tails, you lose” result. I find it very
difficult to avoid concluding that these contradictory decisions, rendered against the same party
in closely-related proceedings, violate guarantees of access to justice and adherence to the rule
of law.
I am unpersuaded by the Tribunal’s characterization of the foregoing circumstances as
only a quirk.67
Quirkiness is not a defense under international law. Rather, Article 3(2) of the
BIT requires “fair and equitable treatment.” It is neither fair nor equitable for a state to reject
a party’s claims against it by applying diametrically contradictory interpretations of the same
law to the same party, in the same dispute, in each case as a basis for rejecting that party’s
claims against the state. Instead, that is arbitrary and irrational, denying parties the basic legal
certainty, predictability and the fundamental fairness that the rule of law serves to ensure.
In the present case, however, there is an additional and even more serious procedural
deficiency, not present in Şahin v. Turkey, which requires holding that the Uruguayan judicial
system denied Abal access to justice. Here, the Uruguayan judicial system denied Abal access
to justice not only by rendering contradictory decisions, on the same legal issue in cases
involving the same parties, but by thereafter failing to provide Abal with any means of judicial
recourse following these rulings.
Specifically, in my view, Uruguay denied Abal justice by failing to provide it with any
means of asserting a constitutional challenge in the Supreme Court to Article 9 of Law 18,256
as that statutory provision had been authoritatively interpreted and applied to Abal by the TCA.
In the particular circumstances of this case, that was not merely an unusual or surprising quirk,
but was a classic denial of access to justice.
Put simply, Uruguayan law provided Abal (and others) with constitutional guarantees
against legislation that excessively delegated legislative authority to executive officers and with
a mechanism for asserting claims based on those guarantees in the Supreme Court. Abal
availed itself of that mechanism to challenge Article 9 of Law 18,256, but the Supreme Court
rejected Abal’s challenge on the basis that Article 9 did not authorize a requirement of graphic
warnings in excess of 50% of the surface of tobacco packages. Nonetheless, the TCA thereafter
surprisingly, but authoritatively, held that Article 9 in fact did authorize warnings in excess of
50%, and it therefore upheld Decree 287/009 and Ordinance 466.
At that juncture, the evidence before this Tribunal is that Uruguay’s judicial system
provided Abal with no means to assert claims based on the constitutional guarantees against
legislation like Article 9 of Law 18,256, as it had been interpreted authoritatively by the TCA
and applied to Abal. In my view, the combination of the TCA’s highly unusual, but
authoritative, decision, contradicting the Supreme Court’s prior decision on precisely the same
issue, and the absence of any mechanism to reopen or reinitiate Abal’s constitutional challenge
67
The Tribunal concludes that the TCA’s decision was “unusual, even surprising,” but that “such a quirk” is not
sufficiently “shocking” or “serious” to constitute a denial of justice. Award, paras. 528-529. Fine distinctions
between unusual surprises and “shocking” or “serious” decisions are inherently susceptible to subjectivity. In my
view, however, the unprecedented contradiction between two of Uruguay’s highest courts, in cases involving the
same claimant, was sufficiently serious and sufficiently inconsistent with the requirements of consistency and
regularity to constitute a denial of justice.
- 17 in
the Supreme Court, based on the TCA’s contrary and authoritative interpretation of Law
18,256, manifestly constitutes a denial of justice.
Adopting the relatively conservative formula of Article 9 of the 1929 Harvard Draft
Convention on State Responsibility, a “[d]enial of justice exists where there is a denial … of
access to courts.”68
Other authorities are to the same effect, underscoring the simple point that
access to a judicial forum is the most basic guarantee of justice.69
Among other things, the
ECtHR, considering Article 6 of the ECHR, has held that“[i]t would be inconceivable … that
[Article 6(1)] should describe in detail the procedural guarantees afforded to parties in a
pending lawsuit and should not first protect that which alone makes it in fact possible to benefit
from such guarantees, that is, access to a court.”70
In the present case, Uruguay was free, under the BIT and otherwise, to establish the
Supreme Court and the TCA as co-equal judicial tribunals with overlapping competence, and
to provide that Law 18,256 was subject to authoritative interpretation by the TCA. One can
assume that the TCA was also free to adopt surprising administrative interpretations of Law
18,256, in contradiction to the Supreme Court’s interpretations of that same law. One might
even assume that the TCA was free to do so even with respect to the same party that had been
involved in Supreme Court proceedings challenging the same legislation.
However, in my view, Uruguay clearly was not entitled to, under either Article 3(2) of
the BIT or international law, provide Abal with no possibility of asserting its constitutional
rights in the Supreme Court, in a proceeding based on the TCA’s authoritative interpretation
and application (to Abal) of Article 9 of Law 18,256. That is not consistent with either
Uruguay’s commitment to the rule of law or rules of international law. Instead, in my view,
Uruguay was required to provide a means by which its Supreme Court could hear constitutional
challenges to Law 18,256, as that statute was finally interpreted and applied to Abal by the
TCA.71
Given these very substantial and important differences between the present case, and
the circumstances at issue in Şahin v. Turkey, I do not believe that the ECtHR’s decision in that
68
Draft Convention on ‘International Responsibility of States for Damage done in their Territory to the Person or
Property of Foreigners’ prepared by the Harvard Law School (1920) in Yearbook of the International Law
Commission, 1956, Vol. II, Annex 9, pp. 229-230 (“1929 Harvard Draft Convention on State Responsibility”).
See also Harvard Draft Convention on the International Responsibilities of States for Injuries to Aliens (1961),
Art. 7 [Exhibit CLA-236] (state responsibility is triggered by “the denial […] of a fair hearing in a proceeding
involving the determination of […] civil rights or obligations.”).
69
See Universal Declaration of Human Rights (UDHR), Art. 8 (“Everyone has the right to an effective remedy
by the competent national tribunals for acts violating the fundamental rights granted him by the constitution or by
law”); UDHR, Art. 10 (“Everyone is entitled in full equality to a fair and public hearing by an independent and
impartial tribunal, in the determination of his rights and obligations and of any criminal charge against him.”);
International Covenant on Civil and Political Rights (ICCPR), Art. 14 (“In the determination of any criminal
charge against him, or of his rights and obligations in a suit at law, everyone shall be entitled to a fair and public
hearing by a competent, independent and impartial tribunal established by law.”); Judicial Guarantees in States
of Emergency (Arts. 27(2), 25 and 8 American Convention on Human Rights), Inter-American Court of Human
Rights, Advisory Opinion No. 9, para. 24 (a denial of justice occurs “when, for any reason, the alleged victim is
denied access to a judicial remedy”). See also A. Freeman, The International Responsibility of States for Denial
of Justice (1970), pp. 95, 229 [Exhibit CLA-231] (denial of justice defined as “the refusal or failure on the part of
judicial officers to perform their legal functions” and “even where there has been an original acceptance of the
petition by a court of first instance followed by proceedings which terminate in an adverse judgment, the refusal
to grant an appeal allowed by law will itself constitute a denial of justice.”).
70
Golder v UK, ECHR Case No 4451/70, Judgment, 21 February 1975, para. 35.
71
See above paras. 40-72.
- 18 case
provides meaningful support for the Tribunal’s decision that there has been no denial of
justice. Put simply, Şahin v. Turkey involved a much different, and less problematic, set of
circumstances than this case.
Instead, in my view, the Şahin v. Turkey decision supports, rather than contradicts, the
Claimants’ denial of justice claim. The well-reasoned views of the seven dissenting judges of
the ECtHR apply a fortiori to the present case, while the additional concerns raised by the
circumstances of the present case argue decisively that the Claimants were denied access to
justice. As discussed above, the present case does not merely involve “conflicting case-law”
applied to different parties which might be “tolerated” for a period, but instead involves
contradictory decisions, applied to reject claims against governmental action, brought by the
same party, followed by a denial of recourse to generally available judicial relief. If the present
case was brought before the ECtHR, I do not believe that the Court would have viewed these
circumstances as “tolerable,” for either a period or at all.
In sum, I am unable to avoid concluding that Uruguay violated Article 3(2) of the BIT
by failing to provide Abal with a possibility of asserting its constitutional rights in the
Uruguayan Supreme Court, in a proceeding challenging Article 9 of Law 18,256 as it had been
authoritatively interpreted and applied (to Abal) by the TCA. This conclusion in no way
questions Uruguay’s sovereign right to structure its judicial system as it deems fit, including
with independent and co-equal courts with overlapping competence.72
It only requires that a
state then comply with the basic requirements of fairness and access to justice that international
law demands.
D. Additional Observations
The foregoing analysis provides my reasons for rejecting the Respondent’s defenses
and the Tribunal’s conclusions on this issue. Nonetheless, for the sake of completeness, I
address several additional points.
First, the Respondent’s position is not assisted by the observation, raised in questioning
of the Respondent’s counsel by the Tribunal, that different circuit courts of appeal in the United
States can adopt conflicting rules, a conflict that may take the Supreme Court some time to
resolve.73
That analysis ignores critical differences between U.S. appellate practice and the
Claimants’ arguments in this case.
U.S. courts of appeal exercise a jurisdiction that is territorial, based upon a geographic
division of the United States of America into a number of separate “Circuits,” each with its
own “Court of Appeals.”74
That is unsurprising in a state as large as the United States; likewise,
it is unsurprising that other, similar states (such as Canada and Australia) adopt comparable
72
This is not to say, however, that the structuring of a judicial system cannot found a claim for denial of justice.
See, e.g., Jacob Idler (US v Venezuela), J.B. Moore, History and Digest of International Arbitrations to which the
United States Has Been a Party 3491, p. 3508 (“Venezuela could, of course, constitute her courts as she desired,
but having established them, it was Idler’s right, if his affairs were drawn in litigation there, to have them
adjudicated by the courts established under the forms of law.”); A. Freeman, The International Responsibility of
States for Denial of Justice (1970), pp. 533, 671-2 [Exhibit CLA-231] (“If, through the composition of its courts
or through its procedure, a State makes possible a decision which does not offer the minimum guarantees for the
proper administration of justice which are inseparable from the idea of civilization, we consider that it is guilty of
a denial of justice and must be held responsible therefor.”).
73
Evidentiary Hearing (Tr., 2/482/13-22) (Crawford).
74
Administrative Office of the United States Courts, Court Role and Structure, (2016),
http://www.uscourts.gov/about-federal-courts/court-role-and-structure.
- 19 geographical
divisions.75
There is also nothing unusual or surprising in the fact that different
courts of appeal might adopt different interpretations of the same statute; indeed, it is inevitable
and, at least arguably, a means of ensuring considered development of the law through robust
debate and multiple opportunities for examination of difficult issues, prior to an authoritative
ruling by the nation’s highest appellate court.
The possibility that different courts of appeal may arrive at different interpretations of
the same statute is not, however, in any way analogous to the basis for the Claimants’ denial
of justice claim here. As detailed above, the Claimants’ denial of justice claim is not only that
contradictory decisions were rendered by the Supreme Court and the TCA; instead, the
Claimants’ claim rests on the TCA’s highly unusual decision, rejecting the Supreme Court’s
interpretation of Article 9 of Law 18,256 in proceedings involving the same party, and the
absence of any mechanism for that party thereafter to reopen or reinitiate a constitutional
challenge to Article 9 of Law 18,256, as it had been authoritatively interpreted and applied by
the TCA. There is no suggestion in the materials before the Tribunal that the U.S. system of
federal appellate courts, divided geographically into multiple circuits, permits such a result and
I am aware of nothing, either in my own research or experience of U.S. appellate and Supreme
Court proceedings, that would support such a conclusion.76
On the contrary, U.S. courts apply broad rules of claim and issue preclusion77
which, in
my view, would almost certainly preclude circumstances like those in which Abal found itself
in this case. Alternatively, U.S. law also provides comparatively broad possibilities for
constitutional challenges78
which, again in my view, would enable a party in Abal’s situation
to institute new proceedings asserting such a challenge based on a new interpretation of
legislation (such as that adopted by the TCA of Law 18,256). There is, in my view, no basis
for concluding that the unexceptional existence of specialized courts – whether organized by
geography or subject matter – is comparable to the very exceptional denial of access to a
judicial forum that occurred here.
Second, I do not believe that the Tribunal’s analysis is advanced by the Mamidoil
award, which remarked that there was nothing inherently improper in a legal system that
divides public and private, or civil and administrative, functions.79
As discussed above,80
nothing in my Opinion criticizes or questions to value or legitimacy of co-equal tribunals with
75
See, e.g., Canada (Government of Canada, Department of Justice, The Judicial Structure, (April 4, 2016),
http://www.justice.gc.ca/eng/csj-sjc/just/07.html); Australia (Australian Government, Attorney-General’s
Department, The Courts, (2016), https://www.ag.gov.au/LegalSystem/Courts/Pages/default.aspx).
76
I also note that the U.S. judicial system has a mechanism (of review by the Supreme Court) for review of
decisions of Courts of Appeals, which specifically takes into account the existence of so-called “circuit splits.”
(International Union, United Auto., Aerospace and Agr. Implement Workers of America AFL-CIO, Local v.
Scofield, 382 U.S. 205 (1965)). It is conceded that Uruguay has no mechanism for resolving disagreements
between the TCA and Supreme Court. (Evidentiary Hearing, Tr., 2/483/4- 7) (Crawford/Salonidis)
(CRAWFORD: My question was is there any mechanism in Uruguayan law for resolving such discrepancies
[between courts at the same level]? SALONIDIS: As far as I know, no.).
77
See B & B Hardware, Inc. v. Hargis Industries, Inc., 135 S. Ct. 1293 (2015) (“If federal law provides a single
standard, parties cannot escape issue preclusion simply by litigating anew in tribunals that apply that one standard
differently.”); Christian v. McHugh, 847 F. Supp. 2d 68 (D.D.C. 2012) (“By precluding parties from contesting
matters that they have had a full and fair opportunity to litigate, the two doctrines of claim preclusion and issue
preclusion protect against the expense and vexation attending multiple lawsuits, conserve judicial resources, and
foster reliance on judicial action by minimizing the possibility of inconsistent decisions.”).
78
See U.S. Federal Rules of Civil Procedure, Rule 5.1; see generally Moore’s Federal Practice – Civil § 5.1.02
(2015).
79
Award, para. 533.
80
See above paras. 10-11.
- 20 over-lapping
competency. That is true whether one considers a civil or a common law system.
Rather, as also explained above, it is the particular and unprecedented manner in which
Uruguay’s divided legal system (with competence distributed between the Supreme Court and
TCA) functioned in this particular case that resulted in a denial of justice.
Third, I also do not believe that the Respondent’s defense is assisted by its argument
that the Uruguayan system has a mechanism of review, in which the TCA may review decisions
of the Supreme Court.81
As the Respondent acknowledges, this mechanism of review is
limited: “the only time the TCA is required to follow the [Supreme Court] is when the latter
declares a law unconstitutional.”82
As discussed above, the basis for the Claimants’ denial of
justice claim is the absence of any avenue of judicial recourse after the TCA has, unusually,
adopted a different interpretation than that of the Supreme Court.83
In such circumstances,
where the Supreme Court has upheld the constitutionality of a law and the TCA is not bound
to follow its ruling, a litigant is left without remedy in event of conflicting decisions.
Finally, like the Tribunal, I am unpersuaded by the Respondent’s argument that
Uruguayan law has allowed the possibility of inconsistent Supreme Court and TCA decisions
for decades. As discussed above, this is apparently the first case in Uruguay’s history in which
such contradictory results have ever been reached. 84
I see no basis, as a result, for concluding
that the Claimants should have anticipated, or should be regarded as assuming the risk of,
contradictory decisions of this character.
In any event, it is not the mere possibility of contradictory decisions under Uruguayan
law that constitutes a denial of justice; rather, it was the failure of the Uruguayan legal system
to provide an avenue for challenging Article 9 of Law 18,256 following the TCA’s authoritative
interpretation and application of that provision which constitutes a denial of justice. That denial
of access to a judicial forum is a denial of justice, which both the BIT and Uruguay’s
commitment to the rule of law proscribe.
II. THE SINGLE PRESENTATION REQUIREMENT VIOLATES URUGUAY’S
OBLIGATION TO PROVIDE FAIR AND EQUITABLE TREATMENT
The second issue on which I part company from the Tribunal is the so-called “single
presentation requirement,” which required that only a single “presentation” be used for each
brand of tobacco products. For the reasons discussed below, and unlike the Tribunal, I cannot
avoid concluding that, on the evidentiary record in this case, the single presentation
requirement is manifestly arbitrary and unreasonable, and thus a violation of Article 3(2) of the
BIT.
The Claimants contend that the “single presentation requirement” imposed by
Ordinances 514 and 466 violates the fair and equitable treatment guarantee contained in Article
3(2) of the BIT. The Claimants argue that there is no rational relationship between the single
presentation requirement and the asserted regulatory purpose of the measure (namely, to avoid
misleading consumers).85
They also claim that the requirement was adopted without any
81
Respondent’s Rejoinder, para. 11.54; Respondent’s Counter-Memorial, para. 1.29, 11.01, 11.112-11.125.
82
Respondent’s Rejoinder, para. 11.54; Respondent’s Counter-Memorial, para. 1.29, 11.01, 11.112-11.125.
83
See above paras. 36-39.
84
See above paras. 33-35, 59.
85
See, e.g., Claimants’ Memorial, paras. 20-42; 214, 219-230. Claimants’ Reply, paras. 27-42, 236-245.
- 21 meaningful
deliberation or consultation, and imposes an arbitrary limitation on the use of
valuable intellectual property rights.86
The Respondent asserts that the single presentation requirement was a nondiscriminatory
measure, imposed on all tobacco companies, designed to prevent such
companies from misleading consumers.87
The Respondent claims that the existence of multiple
brand variants leads consumers to believe that some variants are less harmful than others,
thereby giving smokers and potential smokers less reason to quit smoking.88
The Respondent
also contends that the requirement was adopted as the result of an extensive deliberative process
and is in keeping with Uruguay’s commitments under the World Health Organization
Framework Convention on Tobacco Control.89
The Tribunal largely adopts the Respondent’s conclusions and analysis. The Tribunal
applies a “margin of appreciation,” derived from ECtHR decisions, and concludes that the
single presentation requirement was “an attempt to address a real public health concern, that
the measure taken was not disproportionate to that concern and that it was adopted in good
faith.”90
It also concludes that the requirement was the product of “consultation” with the
Ministry of Public Health’s Advisory Commission, although the “paper trail of these meetings
was exiguous,” and that the requirement was in the nature of a “bright idea.”91
In my view, analysis of the single presentation requirement is more difficult than the
Tribunal suggests and the requirement is much less capable of rational justification than the
Tribunal acknowledges. As discussed below, the measure is internationally unique – not
required by the Framework Convention on Tobacco Control and not adopted by any other
country in the world – with effects which are inherently both over-inclusive and underinclusive.
While fully acknowledging Uruguay’s sovereign power and regulatory authority to
protect the health of its population, I am persuaded that the single presentation requirement
does not bear even a minimal relationship to the legislative objective cited by Uruguay for the
requirement.
I also do not believe that the “margin of appreciation” adopted by the Tribunal is either
mandated or permitted by the BIT or applicable international law. The “margin of
appreciation” is a specific legal rule, developed and applied in a particular context, that cannot
properly be transplanted to the BIT (or to questions of fair and equitable treatment more
generally). There are well-considered legal rules, already applicable to questions of fair and
equitable treatment, which serve similar purposes to those of the “margin of appreciation,” but
in a more nuanced and balanced manner.
When these rules governing the fair and equitable treatment standard are applied, I am
persuaded, based on the evidentiary record in this proceeding, that the single presentation
requirement is arbitrary and irrational. I am also persuaded that, as a consequence, application
86
See, e.g., Claimants’ Memorial, paras. 214, 222-230; Claimants’ Reply, paras. 43-61, 242-245.
87
See, e.g., Respondent’s Counter-Memorial, paras. 1.13, 4.11-8.21.; Respondent’s Rejoinder, paras. 3.12-3.82.
88
See, e.g., Respondent’s Counter-Memorial, paras. 4.88-4.143; Respondent’s Rejoinder, paras. 3.12-3.24, 3.32-
3.109.
89
See, e.g., Respondent’s Counter-Memorial, paras. 1.14, 2.30-2.36, 3.78-3.95, 4.98-4.111; Respondent’s
Rejoinder, paras. 2.37-2.38, 3.57-3.60, 3.83-3.109, 7.40.
90
Award, paras. 399, 409.
91
Award, para. 407.
- 22 of
the single presentation requirement would constitute a denial of fair and equitable treatment
under Article 3(2) of the BIT.
A. Preliminary Matters
Preliminarily, it is important to reiterate that the Claimants’ challenge to the single
presentation requirement does not in any way question Uruguay’s sovereign authority to adopt
measures to protect the health and safety of its population. As the Award describes, Uruguay
has adopted an extensive and comprehensive set of legislation and regulations that impose
highly restrictive limitations and safeguards on the sale and use of tobacco.92
The Claimants
do not challenge any of these regulations. More fundamentally, nothing in the Award (or this
Opinion) raises any question about the validity or lawfulness of any of these regulations.
Likewise, nothing in the Award or this Opinion raises any question about the authority
of Uruguay (or other states) to regulate in the interests of public health and safety in the future.
On the contrary, the Award makes clear that Uruguay possesses broad and unquestioned
sovereign powers to protect the health of its population, both in the context of tobacco
regulation and otherwise. Nothing in the BIT prevents Uruguay from exercising these powers.
Finally, this Opinion also does not conclude that Uruguay would violate Article 3(2) by
forbidding misleading presentations of trademarks for tobacco products, including the
misleading use of colors, descriptions, or other design features. On the contrary, the evidence
submitted to the Tribunal convinces me that neither Article 3(2) nor any other provision of the
BIT would preclude Uruguay from prohibiting the use of trademarks that suggested different
health consequences (e.g., silver or white versions of trademarks suggesting “light” or “low tar”
attributes of cigarettes). Critically, however, this is only one application of the single
presentation requirement, which sweeps far more widely and indiscriminately, and, as a
consequence, violates the fair and equitable treatment guarantee of Article 3(2) of the BIT.
B. Factual Background
In my view, it is important to consider the single presentation requirement in its factual
context. That includes considering both the manner in which requirement was adopted and the
surrounding legislative and regulatory regime in Uruguay.
1. The Framework Convention on Tobacco Control
As the Award describes, like other states, Uruguay has an extensive regime of
legislation and regulations governing the sale and use of tobacco. Among other things, this
regulatory regime implements the WHO Framework Convention on Tobacco Control (“FCTC”
or “Convention”) and Guidelines which have been adopted under the Convention.
The FCTC is a multilateral convention, drafted under the auspices of the World Health
Organization (“WHO”) in 2003, and ratified by Uruguay in 2004. The Convention is
essentially global in its coverage, with 180 state parties. According to Article 3, the Convention
“provid[es] a framework for tobacco control measures to be implemented by the Parties at the
national, regional and international levels in order to reduce continually and substantially the
prevalence of tobacco use and exposure to tobacco smoke.”93
92
Award, paras. 78, 96-107.
93
World Health Organization (WHO), Framework Convention on Tobacco Control (FCTC), Art. 3 [Exhibit RL-
- 23 The
FCTC contains extensive provisions regarding the regulation of tobacco. Most
importantly, Article 4(1) and Article 11(1)(a) provide, in relevant part:
Article 4. – (1) Every person should be informed of the health consequences,
addictive nature and mortal threat posed by tobacco consumption and exposure
to tobacco smoke and effective legislative, executive, administrative or other
measures should be contemplated at the appropriate governmental level to
protect all persons from exposure to tobacco smoke…
Article 11. – (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”…94
Articles 13(1), 13(2), 13(4)(a) and 13(5) of the Convention also provide:
Article 13. –
1. Parties recognize that a comprehensive ban on advertising, promotion and
sponsorship would reduce the consumption of tobacco products.
2. Each Party shall, in accordance with its constitution or constitutional
principles, undertake a comprehensive ban of all tobacco advertising, promotion
and sponsorship.
4. As a minimum, and in accordance with its constitution or constitutional
principles, each Party shall: (a) prohibit all forms of tobacco advertising,
promotion and sponsorship that promote a tobacco product by any means that
are false, misleading or deceptive or likely to create an erroneous impression
about its characteristics, health effects, hazards or emissions; …
5. Parties are encouraged to implement measures beyond the obligations set out
in paragraph 4.95
”
The Guidelines to Article 11(1)(a) of the FCTC provide, in pertinent part:
Article 11.1(a) of the Convention specifies that Parties shall adopt and
implement, in accordance with their national law, effective measures to ensure
that 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 the product’s characteristics, health effects,
hazards or emissions, including any term, descriptor, trademark or figurative or
other sign that directly or indirectly creates the false impression that a particular
20].
94
World Health Organization (WHO), Framework Convention on Tobacco Control (FCTC), Arts. 4(1), 11(1)(a)
[Exhibit RL-20].
95
World Health Organization (WHO), Framework Convention on Tobacco Control (FCTC), Arts. 13(1), 13(2),
13(4)(a), 13(5) [Exhibit RL-20].
- 24 tobacco
product is less harmful than others. These may include terms such as
‘low tar, ‘light’, ‘ultra-light’ or ‘mild’, this list being indicative but not
exhaustive. In implementing the obligations pursuant to Article 11.1(a), Parties
are not limited to prohibiting the terms specified but should also prohibit terms
such as “extra”, “ultra” and similar terms in any language that might mislead
consumers.96
The Guidelines to Article 13 provide, inter alia:
Parties should prohibit the use of any term, descriptor, trademark, emblem,
marketing image, logo, colour and figurative or any other sign that promotes a
tobacco product or tobacco use, whether directly or indirectly, by any means
that are false, misleading or deceptive or likely to create an erroneous
impression about the characteristics, health effects, hazards or emissions of any
tobacco product or tobacco products, or about the health effects or hazards of
tobacco use. Such a prohibition should cover, inter alia, use of the terms “low
tar”, “light”, “ultra-light”, “mild”, “extra”, “ultra” and other terms in any
language that may be misleading or create an erroneous
impression.97
It is important to note that the single presentation requirement is not required by or
referred to in the Convention. That is true although the Convention does mandatorily prescribe
a number of other specific regulatory measures, which were developed through extensive
international study and consultation. These include measures providing for protection from
exposure to tobacco smoke in indoor workplaces and other public places (Article 8); measures
to restrict advertising and promotion, including misleading use of trademarks (Article 13);
measures to ensure that all unit packets and packages of tobacco products and any outside
packaging are marked to determine the origin of the tobacco products (Article 15); and
measures to prohibit the sales of tobacco products to minors (Article 16).98
Despite this detailed list of regulatory measures, and despite the Convention’s
“savings” clause (providing for further national regulations),99
there is no suggestion in the text
or history of the Convention that a single presentation requirement was either mandated or
contemplated by the Convention. Likewise, there is nothing in the Guidelines to the
Convention that suggests that a single presentation requirement was mandated or contemplated
by the Convention’s drafters. Although the Guidelines make reference to a variety of wide
regulatory measures,100
they contain no reference to a single presentation requirement.
96
Guidelines for implementation of Article 11 of the WHO Framework Convention on Tobacco Control
(Packaging and labelling of tobacco products), adopted at the third Conference of the Parties (Nov. 2008), para.
43 [Exhibit RL-13].
97
Conference of the Parties to the Framework Convention on Tobacco Control (COP-FCTC), Guidelines for
Implementation of Article 13 of the WHO Framework Convention on Tobacco Control (Tobacco advertising,
promotion and sponsorship), FCTC/COP3(12), Nov. 2008, para. 39 [Exhibit RL-133].
98
World Health Organization (WHO), Framework Convention on Tobacco Control (FCTC), Arts. 8, 15, 16
[Exhibit RL-20].
99
World Health Organization (WHO), Framework Convention on Tobacco Control (FCTC), Arts. 2 and 13(5)
[Exhibit RL-20].
100
For example, the FCTC Guidelines to Article 11 provide that Parties “should prohibit the display of figures for
emission yields” or “should prevent the display of expiry dates on tobacco packaging and labelling where this
misleads or deceives consumers into concluding that tobacco products are safe to be consumed at any time”:
- 25 Finally,
it is also relevant that a single presentation requirement has never been imposed
by any other state, either in Latin America or elsewhere, prior to Uruguay’s adoption of
Ordinance 514 and Ordinance 466. Instead, Uruguay was the first state to adopt or, so far as
the evidentiary record indicates, to consider a single presentation requirement. Similarly,
again so far as the evidentiary record indicates, no state other than Uruguay has subsequently
adopted a single presentation requirement.101
The single presentation requirement was (and
remains), in a field with an extensive body of regulation, unprecedented.
2. Uruguayan Tobacco Legislation and Regulations
Uruguayan legislation and regulations contained detailed restrictions on the use and
sales of tobacco prior to ratification of the FCTC (on 9 September 2004). These restrictions
were preserved, and then expanded, after the Convention came into force for Uruguay. They
provide important context for consideration of the single presentation requirement.
In summary:
a. In 1982, Uruguay’s Parliament adopted Law 15,361. That legislation imposed
a number of significant restrictions on the use and sale of tobacco, including (a)
mandating inclusion of specific warnings on tobacco packaging; (b) prohibiting sales
of cigarettes to minors; and (c) requiring quarterly publication of tar and nicotine levels
of cigarette brands by tobacco companies.102
b. In 1996, Decree 203/996 prohibited smoking in offices, public buildings and
other public establishments.103
c. In 1998, Decree 142/998 prohibited promotion of tobacco involving product
giveaways.104
d. In 2005, Decrees 36/005 and 171/005 mandated inclusion of warning texts on
tobacco packaging covering 50% of the surfaces of the front and back of packages,
required periodic rotation of warnings and inclusion of administratively-specified
images and pictograms, and prohibited use of terms such as “low tar” and “light.”105
e. In 2005, Decree 169/005 limited smoking areas in restaurants and bars and
Guidelines for implementation of Article 11 of the WHO Framework Convention on Tobacco Control (Packaging
and labelling of tobacco products), adopted at the third Conference of the Parties (Nov. 2008), paras. 44-45
[Exhibit RL-13].
101
The Respondent suggests that other states (including Ecuador) have considered adoption of a single
presentation requirement, but have allegedly been deterred by the pendency of this arbitration. (Respondent’s
Rejoinder, paras. 3.76-3.79; Uruguay’s Comments on the Written Submission of the Pan American Health
Organization (18 May 2015), para. 15.) There is no independent evidentiary support for this suggestion and it
seems unlikely that states would refrain from adopting what they regard as important public health measures
because of the possibility of future litigation.
102
Law 15,361, December 24, 1982, amended by Law 17,714, December 10, 2003, Art. 2 [Exhibit C-274].
103
V. Denis, et al., Application of FODA Matrix on the Uruguayan Tobacco Industry (2007), p. 141 [Exhibit R-
180].
104
V. Denis, et al., Application of FODA Matrix on the Uruguayan Tobacco Industry (2007), p. 140 [Exhibit R-
180].
105
Uruguayan Decree No. 36/005 (25 January 2005), Art. 1 [Exhibit C-031], Uruguayan Decree No. 171/005, Art.
1 (31 May 2005) [Exhibit RL-2].
- 26 advertisements
on television (requiring “safe hours” for minors).106
f. In 2005, Decree 170/005 prohibited advertising and promotion of tobacco
products in connection with sports events.107
g. In 2005, Decrees 214/005 and 268/005 declared that all public offices were
“100% tobacco smoke-free environments” and that all enclosed public premises and
work areas were subject to the same requirement.108
h. In 2005, Decree 415/005 required that all pictograms on tobacco packaging be
approved by the Ministry of Public Health, specified images for use on tobacco
packaging and required health warnings on one side of tobacco packages.109
i. In 2007, Decree 202/007 specified three images and legends for use on the
surfaces of tobacco packaging.110
j. In 2007, Tax Law 18,083 significantly modified the previous tax regime and
imposed a 22% value added tax on tobacco products.111
Following Uruguay’s ratification of the FCTC, Uruguay’s Parliament adopted Law
18,256, which restated and extended many of the foregoing regulations. Article 2 of Law
18,256 made specific reference to the Convention, providing “measures aiming at the control
of tobacco are established, in order to reduce in a continuous and substantial manner the
prevalence of tobacco consumption and exposure to tobacco smoke, pursuant to the World
Health Organization Framework Agreement for Tobacco Control.”112
As contemplated by Article 11 of the Convention, Article 8 of Law 18,256, titled
“Packaging and labeling of tobacco products,” imposed a broad prohibition against false or
misleading packaging or labelling of tobacco products, including specific prohibitions against
false or misleading use of trademarks:
It is forbidden for packages and labels of tobacco products to promote such
products in a false, wrong or misleading way which may lead to a mistake
regarding their features, health effects, risks or emissions. It is likewise
forbidden to use terms, descriptive features, trademarks or brands, figurative
signs or any other kind, which have the direct or indirect effect of creating a
false impression that a certain tobacco product is less harmful than others.113
Article 8 was implemented by Decree 284/008, which contained an equally broad
prohibition against misleading use of trademarks. Decree 284 provided in Article 12 as
follows:
106
Uruguayan Decree No. 169/005 (6 June 2005) [Exhibit C-146].
107
Uruguayan Decree 170/005 (6 June 2005) [Exhibit C-147].
108
Uruguayan Decree 214/005 (5 July 2005) [Exhibit C-150], Uruguayan Decree 268/005 (5 September 2005)
[Exhibit C-151].
109
Uruguayan Decree 415/005 (26 October 2005) [Exhibit C-153].
110
Uruguayan Decree 202/007 (20 June 2007) [Exhibit C-149].
111
Uruguayan Tax Law 18,083 (1 July 2007).
112
Law 18,256, Art. 2 [Exhibit C-033].
113
Law 18,256, Art. 8 [Exhibit C-033].
- 27 The
use of descriptive terms and elements, trademarks or brands, figurative
signs or signs of any other nature, such as colors or combination of colors,
numbers or letters, that have the direct or indirect effect of creating the
misleading impression that a certain product is less harmful than others is
forbidden.114
It was against this regulatory background that the single presentation requirement was adopted
in Ordinance 514 (and, subsequently, Ordinance 466).
3. Ordinances 514 and 466: Single Presentation Requirement
As noted above, the Respondent contends that the single presentation requirement was
the product of a comprehensive and extensive deliberative process, which assertedly included
a number of meetings concerning the requirement.115
The Tribunal acknowledges that the
“paper trail of these meetings was exiguous,” although the Tribunal seems to accept the
Respondent’s assertion that the two measures were subject to at least some degree of
consideration by the Advisory Commission of the MPH.116
In my view, the record does not support a conclusion that the single presentation
requirement of Ordinance 514 or Ordinance 466 was preceded by any meaningful internal
study, discussions or deliberations at the Ministry of Public Health, or by other Uruguayan
authorities. On the contrary, I cannot avoid concluding that no serious study, discussion,
deliberations, or consultations occurred with respect to the requirement, either within the
Ministry of Public Health or otherwise.
It is significant that the evidentiary record contains no minutes, agendas, protocols,
preparatory materials, memoranda, letters, emails or other documentary evidence suggesting
that any meetings, conference calls or other interactions concerning the single presentation
requirement ever occurred. If such meetings had occurred, there would inevitably have been
substantial documentation generated in scheduling, organizing and reporting on them. More
importantly, there would have been records of the rationale and evaluation of the single
presentation requirement by the Ministry of Public Health or other government agencies.
Uruguay was free to adduce documentary evidence of such meetings or other discussions, but
it did not do so.
On the contrary, during document production, the Claimants requested all “[d]ocuments
generated or obtained by/for the Ministry of Public Health in 2008 reflecting its deliberations
on the [single presentation requirement]” including:117
(i) meeting minutes; (ii) documents establishing the date(s) on which the
meetings regarding the SPR took place; (iii) correspondence regarding the SPR;
(iv) documents showing that “new brands, entirely distinct from existing brands,
do not convey the same messages as variations within the same brand;” (v)
documents showing that brand variants are per se misleading, even if the
“colors have not been used previously in Uruguay to convey linkage to specific
banned variants that were formerly identified explicitly as ‘light’ or ‘mild’; (vi)
all drafts of proposed regulations that led to the SPR, including preliminary
114
Uruguayan Decree 284, Article 12 [Exhibit C-034].
115
Respondent’s Rejoinder, paras. 3.83-3.109.
116
Award, para. 407; Respondent’s Counter-Memorial, para. 1.1, 4.105-4.107; Respondent’s Rejoinder, paras.
3.83, 3.85-3.87, 3.98-3.108.
117
Procedural Order No. 2, January 13, 2015, Annex A, Request No. 7.
- 28 drafts
of Ordinance 514; (vii) documents reflecting the Advisory Commission’s
consideration and/or rejection of alternative measures.
The Claimants also requested all “[d]ocuments that the MPH considered and/or relied upon as
evidentiary support when considering or adopting the SPR.”118
In response, the Respondent produced only six generic documents, none of which refer
to the single presentation requirement and none of which involved meetings within or near the
time period relevant to adoption of the single presentation requirement.119
As indicated above,
none of these materials evidenced any study, debate, or consultation regarding the single
presentation requirement.
This is confirmed by an examination of the very limited documentary record
surrounding the adoption of the single presentation requirement. That evidence shows that
there was simply no time for – as well as no evidence of – any internal study, discussion, or
consultation regarding the single presentation requirement.
The documentary record indicates that the first proposals for Ordinance 514 were
presented in July 2008.120
It is undisputed that the initial draft of the proposed ordinance (on
25 July 2008) did not include the single presentation requirement.121
The first reference to a single presentation requirement was included in a 28 July 2008
draft of Ordinance 514, prepared by the Ministry of Public Health’s National Tobacco Control
Program. The 28 July draft added the text of a single presentation requirement to the prior
draft that the Ministry had received on 25 July,122
without including any commentary or
explanation for the addition.123
The 28 July draft was then sent to the Ministry of Public Health’s Division of
Population Health (Division de Salud de la Poblacion), which forwarded the draft on 30 July
2008, to the Director General of Health (Direccion General de Salud). The Director General
of Health (Dr. Basso) reviewed the draft and made a single hand-written addition to the text of
the draft; again, there was no explanation or discussion of the single presentation
requirement.124
The 28 July draft of Ordinance 514, with the 30 July edit, was then signed and
118
Procedural Order No. 2, January 13, 2015, Annex A, Request No. 1.
119
Five documents were general email announcements of upcoming meetings of the Advisory Commission and
one was a scanned copy of personal calendar entries noting meeting dates of the Advisory Commission scheduled
in April 2008. Email from Ministry of Public Health Commissions to Dr. Abascal et al, 1 July 2008 [Exhibit C-
328]; Email from Ministry of Public Health Commissions to Dr. Abascal et al, 2 June 2008 [Exhibit C-329]; Email
from Ministry of Public Health Commissions to Dr. Abascal et al, 18 June 2008 [Exhibit C-330]; Email from
Ministry of Public Health Commissions to Dr. Abascal et al., 27 May 2008 [Exhibit C-331]; Email from Eduardo
Bianco to Ministry of Public Health Commissions, 27 May 2008 [Exhibit C-332]; Personal Agenda of Eduardo
Bianco, 2008 [Exhibit C-333]. The Government withheld no documents on grounds of privilege with regard to
these requests.
120
Ministry of Health Administrative File regarding Ordinance 514, pp. UGY0001810-1812 [Exhibit C-334].
121
Respondent’s Rejoinder, para. 3.102; Claimants’ Reply, para. 52.
122
Ministry of Health Administrative File regarding Ordinance 514, UGY0001836-1838 [Exhibit C-334].
123
Ministry of Health Administrative File regarding Ordinance 514, p. UGY0001810-1812; Respondent’s
Rejoinder, para. 3.103; Claimants’ Reply, para. 52.
124
Ministry of Health Administrative File regarding Ordinance 514, pp. UGY0001824 [Exhibit C-334]. See also,
Basso Witness Statement, paras. 11-12 [Exhibit RWS-004].
- 29 sent
to the Minister of Public Health the next day (1 August 2008), again without any
commentary or explanation relating to the single presentation requirement.125
As noted above, there was no time during this process for there to have been any
meaningful discussions or consultations regarding the single presentation requirement. Rather,
the requirement was formulated, drafted, and approved in the space of only a few days – with,
as noted above, no documentary evidence of any governmental meetings, discussions, or study
of the measure.
Shortly thereafter, on 18 August 2008, the amended 28 July 2008 draft was approved
by the Minister of Public Health and Ordinance 514 was formally adopted.126
When adopted,
the relevant portions of Ordinance 514 provided as follows:
Article 3. – Every brand of tobacco products shall have a single presentation,
such that it is forbidden to use terms, descriptive features, trademarks, figurative
signs or signs of any other kind such as colors or combinations of colors,
numbers or letters, which may have the direct or indirect effect of creating the
false impression that a certain tobacco product is less harmful than another,
varying only pictograms and the warning according to article 1 of the present
Ordinance.127
Subsequently, in September 2009, the Ministry of Public Health adopted Ordinance
466, which amended the text of Ordinance 514. It is undisputed that these amendments were
in the nature of clarifications, not substantive alterations, to the existing language of Ordinance
514. The revised ordinance restated the single presentation requirement as follows:
Article 3. – Each brand of tobacco products shall have a single presentation,
varying only the pictograms and the warning according to article 1 of the
present Ordinance.128
As indicated above, there were no documents or other materials accompanying any of
the drafts of the proposed ordinances (in either 2008 or 2009) that explained the purpose or
background of the single presentation requirement or how the requirement was contemplated
to work in practice, nor that addressed any empirical evidence that would bear upon the
requirement’s goals or efficacy. There are also no documentary records of any internal
deliberations of the requirement nor edits or revisions to the requirement.
Likewise, there were also no documentary records of any external consultations by the
Ministry of Public Health regarding the single presentation requirement, either with the
National Advisory Commission for Tobacco Control, the National Program for Tobacco
Control, or any other government body (nor with representatives of these or other governmental
advisory bodies). Similarly, there are no documentary records of any consultations by the MPH
regarding the single presentation requirement with representatives of the tobacco industry, nor
of any notice to tobacco industry participants (or others), or any opportunity to comment on
the proposed requirement.129
125
Basso Witness Statement, paras. 11-12 [Exhibit RWS-004].
126
Ministry of Health Administrative File regarding Ordinance 514, UGY0001836-1838 [Exhibit C-334].
127
Ministry of Public Health Ordinance 514, 18 August 2008, Article 3 [Exhibit C-003].
128
Ministry of Public Health Ordinance 466, 1 September 2009, Article 3 [Exhibit C-043].
129
There is evidence that BAT, another tobacco company, received informal information that a measure like the
single presentation requirement was being considered in late July 2008. Email from Javier Ortiz to Chris Diller,
- 30 Uruguay
did submit a limited amount of witness evidence indicating in general terms
that the single presentation requirement was the subject of some, albeit very limited, internal
discussion.130
This oral testimony, even at its highest, indicates at most only very brief and
general discussions within the Ministry of Public Health regarding the single presentation
requirement, without any suggestion of any internal studies, reports on presentations, or
external consultations.
Moreover, where the question is whether formal governmental consideration of
proposed regulatory measures occurred (and, if so, to what extent), contemporaneous
documentary evidence is much preferable to recollections and oral testimony. Here, the events
in question occurred some eight years ago (in 2008), and involved a very brief period of time
(between 28 July and 1 August 2008, as noted above). There is no question that
contemporaneous documentary evidence is vastly more reliable in these circumstances than
oral testimony about recollections of past meetings or discussions.
The documentary evidence is clear in demonstrating that no meaningful internal
discussion or consideration of the single presentation requirement occurred within the Ministry
of Public Health (or elsewhere in the Uruguayan government). There is no reliable evidence
that any meeting was ever held to discuss the requirement in any meaningful way, in
circumstances where contemporaneous documentation inevitably would have been generated
in connection with such discussions.131
Likewise, there are no documents recording or referring
to any studies, internal discussions, or commentary regarding the single presentation
requirement. In my view, the inescapable conclusion is that there was no serious internal
discussion or deliberation at the Ministry of Public Health or within the Uruguayan government
more generally about the requirement.
This absence of any study, analysis, or discussion of a measure that was not included
in the FCTC’s comprehensive list of recommended or mandatory tobacco controls and that had
never been adopted (or even discussed) by any other state, is impossible to reconcile with the
Respondent’s claim that the requirement was the result of an “extensive deliberative process
that involved input from both external advisors and government regulators.”132
On the contrary,
I believe that the record makes clear that the single presentation requirement was adopted with
July 24, 2008 [Exhibit C-343]; Attachment to Email from Javier Ortiz to Chris Dilley, July 24,2008 [Exhibit C-
353]. The Claimants were provided no such notice and there is no evidence that any consultations between the
Claimants (or other tobacco companies) ever occurred. Dilley Witness Statement, para. 6 [Exhibit CWS-005];
Second Dilley Witness Statement, para. 4 [Exhibit CWS-022].
130
Abascal Witness Statement, paras. 7-12 [Exhibit RWS-001]; Bianco Witness Statement, paras. 7-11 [Exhibit
RWS-002]; Basso Witness Statement, paras. 8-12 [Exhibit RWS-004]; Sica Witness Statement, paras. 6-10
[Exhibit RWS-005]; Lorenzo Witness Statement, paras. 11-15 [Exhibit RWS-006]; Abascal Second Witness
Statement, paras. 4-5, 8 [Exhibit RWS-007]; Muñoz Witness Statement, paras. 15-19 [Exhibit RWS-001].
131
It is impossible to conclude that meetings within the MPH, or with governmental advisory groups, would not
have required agendas and presentations; would not have resulted in minutes or protocols; and would not later
have been referred to in correspondence or reports.
132
Respondent’s Reply, para. 3.84 (“Uruguay engaged in an extensive deliberative process that involved input
from both external advisors and government regulators, to consider how it should address the ongoing problem of
consumers being misled into believing that some cigarettes are less dangerous than others. These discussions,
which occurred over a period of months, drew upon the existing scientific and public health literature, and
considered a variety of regulatory options. They ultimately yielded the recommendation that the MPH adopt the
SPR. The Ministry subjected this recommendation to its own internal evaluation process and decided it was
meritorious. Only after these processes had been completed was a draft Ordinance prepared, which was itself
subjected to additional internal review within the MPH, before being officially adopted and signed into law by the
Minister of Public Health.”).
- 31 no
meaningful study, discussion, deliberation, or consultation with the industry.
The absence of any evidence of deliberations regarding the single presentation
requirement is, in my view, relevant to evaluating the Claimants’ fair and equitable treatment
claim.133
This background is not decisive, but it nonetheless provides important context in
evaluating the extent to which the challenged Uruguayan measure is arbitrary or
disproportionate.
Put simply, claims that a governmental action is arbitrary, disproportionate, or not
rationally related to any stated government objective are more plausible with respect to an
unprecedented regulatory measure, adopted without any meaningful prior study, discussion, or
consultation, which departs from a widespread and comprehensive international regulatory
regime, than with respect to measures that have been adopted by other states, recommended by
international bodies, or developed through careful domestic or other study, discussion, and
consultation.134
Or, put alternatively, claims that a governmental action is entitled to deference
because of administrative or regulatory expertise are less persuasive where there is no
indication that any such expertise was ever relied upon or brought to bear with respect to the
challenged measures.
As discussed above, Uruguay’s single presentation requirement was a significant
departure from both prior international practice and internationally recommended regulatory
measures. Although very substantial consideration had been given to issues of tobacco control
generally, and tobacco packaging and labelling specifically, neither the FCTC nor its
Guidelines, nor any national regulatory regime, had ever adopted or proposed a single
presentation requirement. At a minimum, that deprives such a requirement of the support that
would otherwise be provided by adoption of an international standard; more generally, it also
inevitably raises questions as to the rationale of a measure which, despite very extensive
international consideration of the subject, had never been proposed or adopted.
This also suggests that the requirement was not a “bright idea,” as the Tribunal
charitably puts it,135
but instead was an unreflective directive, issued very hastily and without
the checks and validation that internal study and discussion and/or external notice and
consultation provide. Where a governmental measure encroaches on protected investor rights
– as Ordinance 514 concededly does – these surrounding circumstances argue for particular
care in considering claims that the measure is not arbitrary, disproportionate, or unfair.
133
See, e.g., Methanex Corporation v United States of America, UNCITRAL, Final Award, 3 Aug. 2005, Part III,
Chapter B, para. 57; Part III, Chapter A, para. 101 ("the time-line of the California Senate legislation, scientific
study, public hearing, executive order, and initiatives to secure an oxygenated waiver [were] all objectively
confirmed" and scientific evidence was subject to "public hearings, testimony and peer review").
134
Tribunals have often considered the relevance of state practice when determining whether a measure has
breached the FET standard. See, e.g., ADF Group Inc. v. United States of America, ICSID Case No.
ARB(AF)/00/1, Award, 9 January 2003, para. 188 [Exhibit RL-165 ] (challenged domestic content and
performance requirements in governmental procurement “are to be found in the internal legal systems or in the
administrative practice of many States.”); Noble Ventures Inc. v. Romania, ICSID Case No. ARB/01/11, Award,
12 October 2005, paras. 178, 182 [Exhibit RL-165] (judicial reorganization proceedings for insolvency were
“provided for in all legal systems”); Link-Trading Joint Stock Company v Moldova, UNCITRAL, Final Award,
18 April 2002 (challenged tax measures were “not dissimilar to the policies of many countries in the world”).
135
Award, para. 407.
- 32 C.
Analysis
Turning to an analysis of the single presentation requirement, I find it impossible to
avoid a conclusion that the requirement is a violation of the fair and equitable treatment
standard in Article 3(2). Instead, notwithstanding the deference that is due sovereign regulatory
measures and judgments, I am convinced that the requirement does not bear a rational
relationship to its stated legislative objective, yet disproportionately injures important investor
rights.
1. Fair and Equitable Treatment
The terms of the BIT are familiar, paralleling those of many other international
investment treaties. Article 3(2) provides, among other things, that “[e]ach Contracting Party
shall ensure fair and equitable treatment within its territory of the investments of the investors
of the other Contracting Party.”
As the Award correctly observes,136
Article 3(2)’s guarantee of fair and equitable
treatment cannot be equated with the traditional international minimum standard of treatment
of aliens (whether the standard referred to in Neer v. United Mexican States or otherwise).
There is no indication that Article 3(2) was meant merely to incorporate the international
minimum standard,137
much less the international minimum standard as it was sometimes
phrased in the early decades of the 20th
century.
As the Tribunal correctly concludes, Article 3(2)’s fair and equitable treatment
guarantee is instead an autonomous standard, defined by the terms of the BIT and by evolving
principles of international law. As the tribunal in Mondev v. United States concluded: “it is
unconvincing to confine the meaning of ‘fair and equitable treatment … to what these terms –
had they been current at the time – might have meant in the 1920s…”138
One of the central elements of the guarantee of “fair and equitable treatment” is a
protection against arbitrary treatment. This guarantee reflects a fundamental aspect of the rule
of law: citizens are entitled to treatment, by their government, which is rational and
proportionate. Irrational or arbitrary governmental measures, which are unrelated to any
legitimate governmental objective, or which are gravely disproportionate to the achievement
of such an objective, are neither fair nor equitable, and they betray, rather than advance, the
rule of law.
This conclusion has been almost uniformly embraced by well-considered decisions
interpreting international protections similar to those in Article 3(2) of the BIT. The tribunal
in Saluka v. Czech Republic held that the fair and equitable treatment guarantee ensures that a
state “will not act in a way that is manifestly inconsistent, non-transparent, unreasonable (i.e.,
unrelated to some rational policy), or discriminatory (i.e., based on unjustifiable
distinctions).”139
Similarly, the tribunal in Waste Management, Inc. v. United Mexican States
136
Award, paras. 316-324.
137
The Respondent argues that Article 3(2) “refers to the minimum standard of treatment that must be accorded
to aliens under customary international law.”: Respondent’s Counter Memorial, para. 8.3. The Tribunal correctly
rejects this argument, as has the decisive weight of arbitral authority: Award, paras. 316-324.
138
Mondev International Ltd. v. United States of America, ICSID Case NO. ARB(AF)/99/2, Award, 11 Oct. 2002,
para. 210 [Exhibit CLA-280].
139
Saluka Investments B.V. (the Netherlands) v. Czech Republic, UNCITRAL, Partial Award, 17 March 2006,
para. 309 (emphasis added) [Exhibit CLA-227].
- 33 held
that fair and equitable treatment provides protection against governmental action that is
“arbitrary, grossly unfair, unjust or idiosyncratic, … discriminatory or [that] exposes the
claimant to sectional or racial prejudice.”140
More specifically, the guarantee of fair and equitable treatment provides protection
against “a measure that inflicts damage on the investor without serving any apparent legitimate
purpose”141
or that is “done capriciously, without reason.”142
Or, in the words of the Rumeli
Telecom v. Kazakhstan tribunal, “[t]he standard of ‘reasonableness’ has no different meaning
than the ‘fair and equitable treatment’ standard with which it is associated. Therefore, it
requires that the State’s conduct bears a reasonable relationship to some rational policy.”143
All of these formulations reflect a common principle. Governmental actions that
encroach on individual rights must satisfy minimum standards of rationality and
proportionality: they must be fair and equitable, not arbitrary or capricious.
It is important to recognize that the fair and equitable treatment standard, and the
protection against arbitrary measures, does not empower this, or any other, tribunal to secondguess
legislative or regulatory judgments. On the contrary, it is well-settled that the judgments
of national regulatory and legislative authorities are entitled, under the fair and equitable
treatment guarantee, to a substantial measure of deference.
In this regard, however, I am unable to agree with the Tribunal’s application of the
“margin of appreciation” as developed in ECtHR jurisprudence. As discussed below, that
doctrine is based upon the specific language of the ECHR and its Protocols and, as the weight
of other authority concludes, is not transferable to the specific terms of Article 3(2) of the BIT
or to customary international law more generally.144
Instead, in my view, the proper degree of deference in considering claims under Article
3(2) must be derived from the terms and context of the BIT itself, in accordance with customary
international law rules for treaty interpretation, and from decisions involving similar guarantees
of fair and equitable treatment in other international instruments. In my view, these sources
mandate substantial deference to Uruguay’s regulatory and legislative judgments, and forbid
any second-guessing of such judgments, but nonetheless require a minimum level of rationality
and proportionality between the state’s measure and a legitimate governmental objective.145
140
Waste Management, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/00/3, Award, 30 April 2004,
para. 98 (emphasis added) [Exhibit CLA-225].
141
National Grid P.L.C. v. Argentine Republic, UNCITRAL, Award, November 3, 2008, para. 198 [Exhibit CLA-
221].
142
National Grid P.L.C. v. Argentine Republic, UNCITRAL, Award, November 3, 2008, para. 198 [Exhibit CLA-
221].
143
Rumeli Telekom A.S. and Telsim Mobil Telekomikasyon Hizmetleri A.S. v. Republic of Kazakhstan, ICISD Case
No. ARB/05/16, Award, July 29, 2008, para. 671.
144
See below paras. 181-191.
145
A number of awards have considered the principle of proportionality in interpreting and applying fair and
equitable treatment provisions in investment treaties. The basis for doing so is debated. See B. Kingsbury & S.
Schill, ‘Investor-State Arbitration as Governance: Fair and Equitable Treatment, Proportionality and the Emerging
Global Administrative Law’ (2009) New York University School of Law, Public Law & Legal Research Theory
Research Paper Series, Working Paper No. 09-46, pg. 23; C. Henckels, Proportionality and Deference in InvestorState
Arbitration (CUP 2015), pp. 23, 70-71; G. Bücheler, Proportionality in Investor-State Arbitration (OUP
2015), pp. 193-199. For present purposes, it is sufficient to observe that Article 3(2)’s requirement for “fair and
equitable” treatment necessarily connotes a measure of proportionality. Although related, the requirement of
proportionality differs from that of rationality or reasonableness. Proportionality involves an analysis of the
- 34 The
starting point for analysis is, as the tribunal in S.D. Myers v. Canada concluded
with respect to fair and equitable treatment claims under the NAFTA, that such claims must be
assessed “in the light of the high measure of deference that international law generally extends
to the right of domestic authorities to regulate matters within their own borders.”146
The S.D.
Myers tribunal concluded:
When interpreting and applying the ‘minimum standard,’ a Chapter 11 tribunal
does not have an open-ended mandate to second-guess government decisionmaking.
Governments have to make many potentially controversial choices. In
doing so, they may appear to have made mistakes, to have misjudged the facts,
proceeded on the basis of a misguided economic or sociological theory, placed
too much emphasis on some social values over others and adopted solutions that
are ultimately ineffective or counterproductive. The ordinary remedy, if there
were one, for errors in modern governments is through internal political and
legal processes, including elections.147
This observation reflects the presumptive lawfulness of governmental authority under
customary international law, as well as respect for a state’s sovereignty, particularly with regard
to legislative and regulatory judgments regarding its domestic matters. Or, as another tribunal
noted, a state would not violate its obligations towards an investor if the government authorities
made “a decision which is different from the one the arbitrators would have made if they were
the regulators”; “arbitrators are not superior regulators” and “they do not substitute their
judgment for that of national bodies applying national laws.”148
It is not generally for arbitral
tribunals to devise or impose different purposes or objectives (save for exceptional cases
involving pretextual rationales149
).
Nonetheless, deference to governmental measures is not a substitute for reasoned
analysis, either under customary international law or Article 3(2) of the BIT: deference to
sovereign measures is the starting point, but not the ending point, of evaluation of fair and
equitable treatment claims. Rather, a sensitive and nuanced consideration of the nature of the
governmental measure, the character and context of the governmental judgment, the
relationship between the measure and its stated purpose, and the measure’s impact on protected
investments is necessary.
That consideration must occur in the specific context of the relevant treaty provisions
legitimacy of a measure’s objective and whether a measure is both necessary and suitable for that objective, while
reasonableness or arbitrariness focus primarily on the relationship between the measure and investor’s rights.
146
S.D. Myers Inc. v. Government of Canada, UNCITRAL, Partial Award, 13 November 2000, para. 263 [Exhibit
RL-155]. See also Joseph Charles Lemire v. Ukraine, ICSID Case No ARB/06/18, Decision on Jurisdiction and
Liability, 14 January 2010, para. 505 [Exhibit RLA-114].
147
S.D. Myers Inc. v Government of Canada, Partial Award, para. 263 [Exhibit RLA-114]. Although the S.D.
Myers tribunal was applying the customary international law minimum standard of treatment under Article 1105(1)
NAFTA, tribunals have been guided by this formulation when considering autonomous FET standards as
well. See, e.g., Total S.A. v. Argentine Republic, ICSID Case No. ARB/04/1, Decision on Liability, 27 December
2010, para. 115; Gemplus S.A., SLP S.A. & Gemplus Industrial S.A. de C.V. v. United Mexican States and Talsud
S.A. v. United Mexican States, ICSID Cases Nos. ARB(AF)/04/3 & ARB(AF)/04/4, Award, 16 June 2010, Part
VI, para. 26.
148
Joseph Charles Lemire v. Ukraine, ICSID Case No ARB/06/18, Decision on Jurisdiction and Liability, 14
January 2010, paras. 283 [Exhibit RLA-114].
149
See, e.g., Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. The United Mexican
States, ICSID Case No. ARB (AF)/04/5, Award, 21 Nov. 2007, paras. 142, 149-150; Methanex v. United States
of America, UNCITRAL, Partial Award, 7 Aug. 2002, para. 158; S.D. Myers Inc. v. Government of Canada,
UNCITRAL, Partial Award, 13 Nov. 2000, para. 263 [Exhibit RL-155]; Corn Products International, Inc. v.
United Mexican States, ICSID Case No. ARB(AF)/04/1, Award, 18. Aug. 2009, para. 137.
- 35 applicable
to the disputed measures. In the present case, the BIT does not contain language
reserving any particular sphere of discretion or immunity for state actions. Language of this
character exists in other contexts, including the ECHR, as discussed below,150
or treaties
mandating deference or providing exceptions to international guarantees.151
No such text exists
in Article 3(2) of the BIT. Rather, the BIT requires interpretation and application of the “fair
and equitable treatment” standard in the context of the BIT, and applicable principles of
international law more generally.
In my view, Article 3(2)’s guarantee of “fair and equitable treatment,” and the related
requirements of reasonableness and proportionality, require an objective consideration of the
extent to which a governmental measure is rationally related to, or fairly advances, the state’s
articulated objectives. That consideration must give considerable deference to a state’s choice
among competing means to accomplish its objectives, its assessment of the likelihood that
particular means will be effective, and its weighing of costs and benefits.
This deference does not, however, free a tribunal from its obligation, under the BIT or
customary international law, to decide whether a particular measure is fair and equitable, or
proportionate, in light of the state’s articulated objectives. In turn, the tribunal must assess
whether, viewed in the context of a state’s legislative and regulatory actions, a particular
measure is rationally related and fairly proportionate to the state’s articulated objectives.
2. Uruguay’s Single Presentation Requirement
Applying the foregoing standard, I am satisfied that the single presentation requirement,
considered in the context of the Uruguayan regulatory regime, is arbitrary and disproportionate.
As a consequence, and notwithstanding the deference appropriately afforded national
regulatory and legislative judgments, I am persuaded that, the requirement violates the
guarantee of fair and equitable treatment in the BIT.
Uruguay has very clearly explained the governmental objective of the single
presentation requirement – namely, “to combat a practice that misled smokers and would-be
smokers into believing that certain brand variants were less harmful than their parent brands,
or other variants in the same brand family, and caused them to smoke the supposedly ‘safer’
variants in lieu of quitting.”152
In similar terms, Uruguay explained: “the existence of multiple
variants of a single brand per se creates a risk of deception in the minds of some consumers”153
and the goal of the single presentation requirement is to “diminis[h] the industry’s ability to
continue perpetrating this fiction.” 154
The Respondent’s witnesses identified the same
objectives of the requirement in their testimony,155
as did the TCA in its consideration of Law
18,256 and its implementing regulations.156
150
See below paras. 181-191.
151
See, e.g., Article 22(2) of the Australia-United States Free Trade Agreement (“Nothing in this Agreement shall
be construed to preclude a Party from applying measures that it considers necessary for the fulfilment of its
obligations with respect to the maintenance or restoration of international peace or security, or the protection of
its own essential security interests.”).
152
Respondent’s Counter-Memorial, para. 5.54. See also Evidentiary Hearing (Tr., 1/198/7-199/7) (Koh); (Tr.,
1/231/11-18; 1/233/21-234/11) (Reichler).
153
Respondent’s Rejoinder, para. 3.34.
154
Respondent’s Rejoinder, para. 3.39.
155
Evidentiary Hearing, (Tr., 3/797/7-798/8) (Lorenzo); (Tr. 1/186/7-187:10) (Basso).
156
TCA Decision 512, Section VI [Exhibit C-116] (“evident objective of preventing the consumer from becoming
familiarized and living with it without perceiving the harmful consequences attributed to tobacco products”).
- 36 There
is no question that these are legitimate and entirely proper governmental
objectives. The protection of consumers from misleading or deceptive marketing in order to
safeguard the public health is within the scope of any government’s regulatory powers. That
conclusion is non-controversial and indisputable.
There is also no question, in my view, that the Tribunal must accord deference to
Uruguay’s chosen legislative objectives. Although one might conceive of alternative or
additional legislative purposes for the single presentation requirement, it is for the state, not the
arbitral tribunal, to identify such objectives with regard to the measures it has adopted.157
With the foregoing stated objectives of the single presentation requirement in mind, the
fair and equitable treatment standard requires at least some measure of objective consideration
of the extent to which the requirement achieves, or is calculated to achieve, that objective. In
doing so, it is important to consider both the terms of Ordinances 514 and 466, and the terms
of previously-existing Uruguayan law directed at the same objective.
As detailed above, prior to adoption of Ordinance 514, Uruguayan law already
contained prohibitions against the misleading packaging or labelling of tobacco products and,
in particular, the misleading use of trademarks. Specifically, Article 8 of Law 18,256, titled
“Packaging and labeling of tobacco products,” provided:
It is forbidden for packages and labels of tobacco products to promote such
products in a false, wrong or misleading way which may lead to a mistake
regarding their features, health effects, risks or emissions. It is likewise
forbidden to use terms, descriptive features, trademarks or brands, figurative
signs or any other kind, which have the direct or indirect effect of creating a
false impression that a certain tobacco product is less harmful than others.158
Article 8 was implemented by Decree 284, which provided in Section 12 as follows:
The use of descriptive terms and elements, trademarks or brands, figurative
signs or signs of any other nature, such as colors or combination of colors,
numbers or letters, that have the direct or indirect effect of creating the
misleading impression that a certain product is less harmful than others is
forbidden.159
Together, Article 8 of Law 18,256 and Section 12 of Decree 284 provided express and
extensive prohibitions against the misleading use of trademarks and other elements of tobacco
packaging or labelling that had the “direct or indirect effect” of misleading consumers. In
doing so, Uruguay gave effect to Article 11(1)(a) and 11(4) of the FCTC, which contained
parallel provisions regarding the misleading use of trademarks, packaging, labelling and
advertising.160
Uruguay also banned the use of descriptors such as “light” and “mild” in Presidential
157
See, e.g., GAMI Investments, Inc. v. The Government of the United Mexican States, UNCITRAL, Award, 15
Nov. 2004, para. 114; Bilicon v. Government of Canada, PCA Case No. 2009-04, Award, 17 May 2015, para. 598;
Teco Guatemala Holdings, LLC v. Republic of Guatemala, ICSID Case No. ARB/10/23, Award, 19 Dec. 2013,
paras. 490-493, 629-638; Parkerings Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8, Award,
11 Sept. 2007, para. 332 [Exhibit RL-177].
158
Law 18,256, Article 8 [Exhibit C-033].
159
Decree 284, Section 12 [Exhibit C-034].
160
World Health Organization (WHO), Framework Convention on Tobacco Control (FCTC), Article 11.1(a),
11(4) [Exhibit RL-20].
- 37 Decree
171/2005. Specifically, Article 1 provided:
The provisions of Decree No. 36/005 of 25 January 2005 are hereby extended
insofar as health warnings shall occupy 50% of the total display areas in the
packages and containers of tobacco products, shall be periodically rotated and
shall include images and/or pictograms. It is also stipulated that expressions,
terms, elements, marks or signs that have the direct effect of creating a false
impression, such as “low tar”, “light”, “ultra-light”, or “mild” [sic].161
Given these provisions of Uruguayan law, one must ask what additional purpose the
single presentation requirement would serve in achieving the measure’s only stated purpose –
namely, to prevent misleading use of trademarks. The simple point is that Uruguayan law
already contained carefully drafted provisions, adopting international models, that achieved
precisely this objective.
Notwithstanding this regulatory background, which already contained prohibitions
against misleading packaging and labelling of tobacco products, Ordinance 514 and Ordinance
466 introduced a different measure regarding the use of tobacco-related trademarks, which
(ultimately) provided:
Article 3. – Each brand of tobacco products shall have a single presentation,
varying only the pictograms and the warning according to article 1 of the
present Ordinance.162
In my view, this provision is inherently ill-suited to achieving its asserted objective of
prohibiting the deceptive or misleading use of trademarks. Instead, on considered reflection, I
find it impossible to avoid concluding that the single presentation requirement is inevitably
incapable of discriminating between misleading and non-misleading uses of trademarks, and
therefore both arbitrary and disproportionate.
As finally adopted, Ordinance 466’s single presentation requirement is a blunt and
sweeping measure, that contains nothing that focuses on or refers to misleading, false or
deceptive use of trademarks. The measure therefore almost inevitably prohibits many uses of
trademarks that are not misleading or false, while allowing even more uses of trademarks that
are in fact misleading and deceptive. Put simply, there is a fundamental mismatch between the
character and terms of the single presentation requirement and its stated objective.
First, Ordinance 466’s single presentation requirement is inherently overbroad. By its
terms, the requirement forbids any use of tobacco-related trademarks other than in a single
presentation. There is, however, no reason in either logic or empirical evidence to conclude
that all of the myriad of different uses of trademarks that could be employed on tobacco
products, apart from in a single presentation, are misleading and deceptive.
There is nothing the record in this proceeding that suggests that all presentations of a
product, save a single presentation chosen by the manufacturer, are misleading or deceptive.
At the most, the Respondent cites some (very limited) evidence that the use of some variations
of colors in some trademark presentations could mislead consumers (e.g., silver or white
presentations assertedly indicating “light” or “low tar” cigarettes).163
In my view, this evidence
161
Presidential Decree 171/2005, Article 1 [Exhibit C-148].
162
Ministry of Public Health Ordinance 466, 1 Sept. 2009, Article 3 [Exhibit C-043].
163
See, e.g., Respondent’s Counter-Memorial, paras. 4.118-4.143, 4.89-4.97; Respondent’s Rejoinder, paras.
3.48-3.60, 5.1-5.45; Expert Report of Professor Joel Cohen, 19 September 2014, paras. 112-113, 127.
- 38 was
tenuous, even with regard to the question of different colors of trademark, for the reasons
detailed in the Claimants’ expert evidence; that evidence concluded that the use of brand
variations with different colors did not create the impression that cigarettes of one brand color
entailed less of a health risk that other brand colors.164
Nonetheless, as applied to the use of at least some different colors of brands (e.g., silver,
white, red, blue) and to “light” and “low tar” descriptors, I conclude on the record in this
arbitration that Uruguay’s prohibition against the use of brand variants was not arbitrary or
disproportionate. Although the evidence supporting such a prohibition was, in my view,
unimpressive, it was sufficient to uphold a prohibition against the use of these different colors
of trademarks for tobacco packaging, particularly in light of the deference that is owed a state’s
regulatory and legislative judgments.
However, even accepting this evidence, it does nothing to support Ordinance 466’s
blanket requirement of a single presentation of all aspects of trademarks (including use of
different design features, additional words or numbers, seasonal or geographic variations,
different languages or scripts, all colors, etc.). The Respondent’s evidence addresses only the
use of colors as brand extensions or variants and the use of some descriptors (such as “light”
and “low tar”),165
but does not address other forms of brand variations.
In my view, this is insufficient to justify Ordinance 466’s blanket prohibition against
all but a single presentation of any tobacco trademark. Put simply, the fact that some uses of
colors in some brands of tobacco products may be regarded as misleading in some
circumstances does not suggest, even indirectly, that all other variations of trademarks are also
misleading.
There is, for example, no reason to think, or evidence to show, that seasonal motifs on
tobacco products would be misleading, or that brand variants with numbers corresponding to
the number of cigarettes in a package would be misleading, or that brands in different languages
or with different font sizes or styles would be deceptive. There is nothing at all in either logic
or the evidentiary record that suggests that there is anything deceptive or misleading about any
of these countless brand variants. In my view, it is impossible on the record in this arbitration
to avoid the conclusion that the single presentation requirement is gravely overbroad.
Returning to the basic character of the single presentation requirement, it is inevitable
that the requirement is ill-focused and over-inclusive in the extreme. Consider a regulation
aimed at prohibiting misleading food or automobile advertisements – which required
manufacturers to use only a single presentation for any trademark for food or automobile
products. That prohibition would obviously do nothing – except perhaps accidentally – to
discourage misleading food or automobile advertisements, while it would prohibit large
categories of perfectly acceptable and desirable advertisements. Ordinance 466’s single
presentation requirement is no different.
The conclusion that Ordinance 466 is severely over-inclusive is particularly true given
the existence, discussed above, of Article 8 of Law 18,256, Section 12 of Decree 284, and
Presidential Decree 171/2005, which already specifically prohibited misleading and deceptive
uses of trademarks. Given these existing prohibitions against misleading practices, it is
164
See Expert Report of Mr. Alexander Chernev, 28 February 2014, paras. 4, 30 [Exhibit CWS-009]; Second
Expert Report of Mr. Alexander Chernev, 17 April 2015, para. 130 [Exhibit CWS-020]; Expert Report of Mr.
Jacob Jacoby, 17 April 2015, paras. 5, 42-45 [Exhibit CWS-021].
165
Expert Report of Professor Joel Cohen, 19 September 2014, paras. 112-113, 127.
- 39 impossible
to see how Ordinance 466’s additional single presentation requirement was
anything other than over-inclusive; indeed, it seems inescapable that Ordinance 466 added
nothing to Law 18,256, Decree 284, and Presidential Decree 171/2005 except a prohibition
against non-misleading uses of trademarks.
These conclusions have particular force because, as discussed above, the evidentiary
record makes it clear that the single presentation requirement was adopted with no meaningful
prior study, internal debate, or external consultation. Rather, so far as the evidence shows, the
requirement was formulated, drafted and adopted in the space of only a few days, without any
meaningful study or discussion of the measure.166
The absence of internal checks and balances,
or external consultation, both helps explain, and underscores the arbitrary and disproportionate
character of the single presentation requirement.
Second, and conversely, Ordinance 466’s single presentation requirement is also underinclusive.
In particular, Ordinance 466 has the effect of prohibiting multiple presentations of
a single trademark, but did nothing to address the misleading presentation of different
trademarks, and specifically, did nothing to prohibit the use of so-called “alibi brands” that
used slightly different combinations of colors and designs to accomplish precisely the same
results that the single presentation requirement was supposedly intended to prevent.
It is helpful to consider what Ordinance 466 forbids, and what it permits, in assessing
whether its single presentation requirement is a fair, proportionate and non-arbitrary measure
for preventing consumers from being misled. Specifically, the single presentation requirement
of Ordinance 466 prohibits the use of the trademarks of the Claimant depicted below (marked
with red “X”s):167
At the same time, Ordinance 466’s single presentation requirement permits cigarettes
to be sold under different, so-called “alibi” brands, using common branding elements and
colors. The examples depicted below are products sold by a domestic Uruguayan producer
(not by the Claimant, which in general used no alibi brands):168
166
See above paras. 109-130.
167
Claimants’ Memorial, para. 36.
168
Claimants’ Memorial, paras. 40-41.
- 40 It
is very difficult to see how there is any material difference between these two
categories of trademarks from the perspective of consumer deception. There is no material
difference in the use of colors (and, if anything, the “alibi” brands’ use of light colors is more
pronounced than those of the Claimants’ brand-variants). As a consequence, it is impossible
to avoid the conclusion that the single presentation requirement is gravely under-inclusive.169
In light of the foregoing, I believe that it is beyond dispute that the single presentation
requirement is inherently over-inclusive and under-inclusive. Put simply, the single
presentation requirement is inherently and inescapably unrelated to its only articulated
objective – protecting consumers against deceptive uses of trademarks. There is simply no
logical or empirical relationship between a blanket single presentation requirement and
misleading advertisements or packaging. Instead, the single presentation requirement’s only
independent effects are to forbid a substantial range of uses of trademarks that are not deceptive
and misleading, while allowing other uses of trademarks that plainly are deceptive and
misleading.
Indeed, when the single presentation requirement is read together with the pre-existing
provisions of Law 18,256, Decree 284, and Presidential Decree 171/2005, the requirement is
only over-inclusive and under-inclusive. Put differently, everything that the single presentation
requirement is assertedly intended to accomplish was already specifically accomplished by preexisting
provisions of Uruguayan law, while the requirement itself independently forbids
nothing but things that do not further its stated objective. That result is neither fair nor
equitable; it is arbitrary and capricious.
As noted above, I find significant the lack of evidence of any other international use or
consideration of a single presentation requirement and of any meaningful study deliberation,
or consultation regarding the single presentation requirement. If the single presentation
requirement made serious regulatory sense, it would have been included in the FCTC’s lengthy
catalogue of regulatory measures or in the Guidelines’ supplementation of those measures. Or,
169
Although this case does not require a decision on the issue, a measure’s under-inclusiveness would not
ordinarily be an independent basis for concluding that the measure constituted a denial of fair and equitable
treatment. In principle, states would be free to address some, but not necessarily all, aspects of a perceived ill.
See, e.g., Glamis Gold, Ltd. v United States, UNCITRAL, Award, 8 June 2009, para. 805 [Exhibit RL-183] (“[t]he
fact that [the measure] mitigates some, but not all, harm does not mean that it is manifestly without reason or
arbitrary; it more likely means that it is a compromise between the conflicting desires and needs of the various
affected parties.”). There might be circumstances where under-inclusive measures would raise questions of
discrimination or pre-textual conduct, but those considerations have not been raised here.
- 41 even
if not, the measure would have been recommended in the extensive literature on antismoking
regulations or, alternatively, would have been the product of study and deliberations
counselling in favor of its adoption.
As already discussed, however, the single presentation requirement was none of these
things: it was instead an inherently and inevitably arbitrary proposal that was never previously
recommended, discussed, or adopted and that was adopted hastily without serious study,
debate, or consideration.170
In these circumstances, and even accepting the Tribunal’s “margin of appreciation” for
the sake of argument, I cannot agree that the single presentation requirement satisfied the
requirements of rationality and proportionality. Mindful of Uruguay’s extensive legislative
authority and broad regulatory discretion, it is still impossible to see how a hastily-adopted
measure that is so ill-suited to its articulated purpose, and that treads so far onto protected rights
and interests, can satisfy even the Tribunal’s stated standard.
In identifying the inherent irrationality of the single presentation requirement, a tribunal
would not undermine Uruguay’s regulatory and governmental authority. As discussed above,
Uruguay can already prevent everything that it asserts the requirement is intended to
accomplish under Law 18,256, Decree 284, and Presidential Decree 171/2005, including the
deceptive use of different colors of tobacco packaging.171
The only things that Ordinance 466
can logically prohibit are things that Uruguay has not said that it wishes to forbid, but that its
own citizens wish to undertake. It does not restrict Uruguay’s sovereign authority, or encroach
upon Uruguay’s regulatory powers, to hold that these applications of Ordinance 466 would
deny the Claimants fair and equitable treatment.
Finally, it is important to note the limits of the foregoing conclusion. It does not hold
that Uruguay is forbidden from adopting other regulations of tobacco, with other objectives, as
it already had done. It does not hold that Uruguay is forbidden from prohibiting the use of
trademarks with different colored presentations or other presentations that are found to be
deceptive (as with the use of at least some colors and descriptors). It also does not address the
question whether Uruguay could adopt measures with the objective of reducing tobacco
consumption or smoking prevalence, or even regulations with the objective of entirely
eliminating smoking or tobacco sales. All of those are presumptively valid and lawful
governmental purposes, which could support a wide range of presumptively valid and lawful
tobacco-control measures.
But those objectives, and those measures, are not at issue in this arbitration. What is at
issue is the single presentation requirement and the stated objective of forbidding misleading
tobacco product packaging. And, for the reasons set forth above, I cannot avoid the conclusion
that, in the circumstances of Uruguay’s articulated regulatory purposes and existing regulatory
regime, the requirement constitutes a denial of fair and equitable treatment.
D. Additional Observations
The foregoing analysis sets forth my disagreement with the Tribunal’s conclusions, and
the Respondent’s defense, with regard to the single presentation requirement. In addition,
several further points require brief discussion.
170
See above paras. 107-128.
171
See above paras. 148-159.
- 42 First,
as noted above, I do not agree with the Tribunal’s conclusion that “the ‘margin of
appreciation” is not limited to the context of the [ECHR] but ‘applies equally to claims arising
under BITs.’”172
In my view, this conclusion is impossible to sustain with regard to the BIT at
issue in this arbitration and also impossible to justify more generally, with regard to other
investment instruments.
The doctrine of a “margin of appreciation” is, as the Tribunal acknowledges, derived
from decisions of the ECtHR, applying the ECHR.173
In turn, in formulating this “margin of
appreciation,” the ECtHR has relied upon Article 1 of Protocol 1 to the ECHR, which protects
private property from seizure, subject to exceptions for the “public interest” and “general
interest.”174
Article 1 of Protocol 1 to the ECHR has been interpreted by the ECtHR to afford a very
wide margin of appreciation to governmental authorities with respect to what constitutes
“public interest.”175
Among other things, the ECtHR has held that “it should respect the
legislature’s judgment as to what is ‘in the public interest’ unless that judgment is manifestly
without reasonable foundation.”176
This interpretation of the Convention and its Protocols is
supported by the travaux préparatoires of the Convention, which indicate that the drafters
intended to incorporate a “very wide” margin of appreciation.177
There is no provision in the text of the BIT that is equivalent to Article 1 of Protocol 1,
or that could provide a textual basis for importing such a concept into Article 3(2) of the BIT.
On the contrary, as the Tribunal acknowledges,178
Article 3(2) is phrased broadly, referring only
to the guarantee of “fair and equitable treatment,” without incorporation of the international
minimum standard or limitations like that in Article 1 of Protocol 1 to the ECHR. Nor, so far
as the parties have suggested or I can discover, is there anything in the travaux of the BIT that
suggests that its parties intended to incorporate the concept of a “margin of appreciation.”
The “margin of appreciation” utilized under Protocol 1 to the ECHR was drafted and
accepted in a specific geographic and historical context, in relation to a particular human rights
instrument. The reasons that led to acceptance of the “margin of appreciation” in the context
of the ECHR are not necessarily transferable to other contexts, including specifically to a BIT
172
Award, para. 399.
173
Award, para. 399.
174
Article 1 of Protocol 1 provides “(1) Every natural or legal person is entitled to the peaceful enjoyment of his
possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions
provided for by law and by the general principles of international law; (2) The preceding provisions shall not,
however, in any way impair the right of a state to enforce such laws as it deems necessary to control the use of
property in accordance with the general interest or to secure the payment of taxes or other contributions or
penalties.”
175
The scope of Article 1 is extremely broad in comparison to the approach taken under other international human
rights treaties. For example, the UN Human Rights Committee does not apply the doctrine of the margin of
appreciation in cases relating to the International Covenant on Civil and Political Rights (ICCPR): see, e.g.,
General Comment No. 34, “Article 19: Freedoms of Opinion and Expression,” UN Doc. CCPR/C/GC/34 (2011),
at para. 36 (“the scope of this freedom is not to be assessed by reference to a “margin of appreciation”); Ilmari
Länsman v. Finland, UN Hum. Rts. Com, 14 Oct. 1993, para. 9.4.
176
James and others v. United Kingdom, ECtHR, Series A No. 98, 21 Feb. 1986, para. 46; see also Broniowski v.
Poland, ECtHR., Application No. 31443/96, Judgment, 22 June 2005, para. 149 [Exhibit RL-190].
177
Travaux préparatoires to the ECHR, 17th Sitting, 7 September 1949 , p. 1150 (Teitgen) (“Each country shall,
through its own legislation, determine the conditions in which these guaranteed liberties shall be exercised within
its territory, and, in defining the practical conditions for the operation of these guaranteed liberties, each country
shall have a very wide freedom of action.”).
178
Award, paras. 316-319.
- 43 between
Switzerland and Uruguay. Rather, just as the meaning of Article 3(2)’s “fair and
equitable” treatment guarantee must be determined by interpretation of the BIT,179
so the
standard of review and degree of deference to state regulatory and legislative judgments must
be determined by interpretation of the BIT, not of the ECHR and decisions interpreting that
instrument.
This conclusion is consistent with the decisions of those arbitral tribunals and
international courts which have addressed the issue. These decisions have consistently rejected
the doctrine of a margin of appreciation when applying general rules of international law. They
have instead treated the doctrine as a specific rule, limited to the particular context in which it
was formulated.
Thus, the tribunal in Siemens v. Argentina concluded that “Article 1 of the First Protocol
to the ECHR permits a margin of appreciation not found in customary international law or the
[Germany-Argentina Bilateral Investment] Treaty.”180
Similarly, the tribunal in Quasar de
Valores v. Russian Federation held that the protections guaranteed by the applicable bilateral
investment treaty could not be overridden by the ECHR’s margin of appreciation.181
Likewise,
the tribunal in von Pezold v. Zimbabwe refused to apply the margin of appreciation, reasoning
that:
[D]ue caution should be exercised in importing concepts from other legal
regimes (in this case European human rights law) without a solid basis for doing
so. Balancing competing (and non-absolute) human rights and the need to grant
States a margin of appreciation when making those balancing decisions is well
established in human rights law, but the Tribunal is not aware that the concept
has found much support in international investment law.
This is a very different situation from that in which margin of appreciation is
usually used. Here, the Government has agreed to specific international
obligations and there is no “margin of appreciation” qualification within the
BITs at issue. Moreover, the margin of appreciation doctrine has not achieved
customary status. Therefore the Tribunal declines to apply this doctrine.182
Conversely, the only award which appears to have adopted a “margin of appreciation”
based upon ECtHR jurisprudence has done so in the context of a BIT provision that contained
express exceptions for the “public order” and “essential security interests.”183
In adopting a
margin of appreciation, the tribunal relied specifically on these textual references,184
while
179
Award, paras. 316-317.
180
Siemens v Argentina, ICSID Case No. ARB/02/8, Award, 6 Feb. 2007, para. 354 [Exhibit RL-198].
181
Quasar de Valors SICAV S.A., Orgor de Valores SICAV S.A., GBI 9000 SICAV S.A. v. The Russian Federation,
SCC No. 24/2007, Award, 20 July 2012, para. 22 [Exhibit RL-198] (“[W]here the value of an investment has been
substantially impaired by state action, albeit a bona fide regulation in the public interest, one can see the force in
the proposition that investment protection treaties might not allow a host state to place such a high individual
burden on a foreign investor to contribute, without the payment of compensation, to the accomplishment of
regulatory objectives for the benefit of a national community of which the investor is not a member.”).
182
Bernhard von Pezold and Others v. Republic of Zimbabwe, ICSID Case No. ARB/10/15, Award, 28 July 2015,
paras. 465-466.
183
Continental Casualty v. Argentine Republic, ICSID Case No. ARB/03/9, Award, 5 Sept. 2008, para. 187
[Exhibit CLA-096].;see also Claimants’ Reply on the Merits, para. 173.
184
Continental Casualty v. Argentine Republic, ICSID Case No. ARB/03/9, Award, 5 Sept. 2008, para. 181
[Exhibit CLA-096] (“[T]he expression ‘its own security interests’ implies that a margin of appreciation must be
afforded to the Party that claims in good faith that the interests addressed by the measure are essential security
interests or that its public order is at stake.”).
- 44 cautioning
against similar conclusions in the absence of a textual basis.185
Two other awards merit brief mention. In Electrabel, the tribunal stated that a
“reasonable margin of appreciation” should be applied;186
while in Lemire, the tribunal afforded
“the high measure of deference” to the respondent state.187
The language used by these
tribunals does not indicate an application of the ECtHR’s doctrine of a margin of appreciation
but are general references to deference as a standard of review. It is uncontroversial that a
degree of deference should be afforded to the state, but the Award errs, in my view, in endorsing
a standard of review transposed from, and as wide as that afforded by, the ECtHR’s margin of
appreciation.
Other international courts and tribunals have also consistently refused to apply the
concept of a margin of appreciation akin to that developed under the ECHR.188
For example,
the International Court of Justice has also repeatedly rejected the doctrine of a margin of
appreciation in various contexts,189
most recently holding in Whaling in the Antarctic that “an
objective test of whether a program is for purposes of scientific research does not turn on the
intentions of individual government officials, but rather on whether the design and
implementation of a program are reasonable in relation to achieving the stated research
objectives.”190
In sum, I cannot agree to the transposition of the doctrine of a margin of appreciation
from the ECHR context to either the Switzerland-Uruguay BIT or international law more
generally. Rather, I am persuaded by the conclusions of other international tribunals and courts
that a more specific standard of review, focused on the terms and context of the relevant treaty,
is mandated.191
As discussed above, this standard results, in my view, in a substantial degree
of deference for sovereign regulatory judgments, but it does not warrant incorporation of the
ECtHR’s understanding of the “public interest” in the ECHR into Article 3(2)’s protections.
185
Continental Casualty v. Argentine Republic, ICSID Case No. ARB/03/9, Award, 5 Sept. 2008, para. 187
[Exhibit CLA-096] (“Although a provision such as Art. XI, as earlier indicated, involves naturally a margin of
appreciation by a party invoking it, caution must be exercised in allowing a party unilaterally to escape from its
treaty obligations in absence of clear textual or contextual indications.”).
186
Electrabel v Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicability and Liability, 30
Nov. 2012, para. 8.35 [Exhibit RL-200].
187
Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/8, Decision on Jurisdiction and Liability, 14 Jan.
2010, para. 505 [RLA-114]. See also Saluka v. Czech Republic, Partial Award, para. 272 [Exhibit CLA-227]
(“[Czech Republic] enjoyed a margin of discretion”); Frontier Petroleum Services Ltd. v. The Czech Republic,
UNCITRAL, Final Award, 12 Nov. 2010, para. 527 [Exhibit CLA-105] (“States enjoy a certain margin of
appreciation in determining what their own conception of international public policy is.”).
188
Well-reasoned commentary is to the same effect: J. Arato, ‘The Margin of Appreciation in International
Investment Law’ (2013) 54(3) Virginia Journal of International Law 546, p. 578 (arguing that to apply the margin
of appreciation would do “active harm” to investment law as a whole); E. Bjørge, ‘Been There, Done That: The
Margin of Appreciation and International Law’ (2015) 4(1) C. J. I. C. L. 181.
189
See, e.g., Oil Platforms (Iran v US) [2003] ICJ Rep 2003 161, para. 73 (“[T]he requirement of international
law that measures taken avowedly in self-defence must have been necessary for that purpose is strict and objective,
leaving no room for any “measure of discretion”.); Gabcikovo/Nagymaros (Hungary/Slovaki), 1997 ICJ 7, 40
(“[T]he state of necessity can only be invoked under certain strictly defined conditions which must be
cumulatively satisfied; and the State concerned is not the sole judge of whether those conditions have been met.”).
190
Whaling in the Antarctic (Australia v Japan; New Zealand intervening) [2014] ICJ Rep 2014, para. 97.
191
See, e.g., Glamis Gold v. United States of America, UNCITRAL, Award, 8 June 2009, para. 617 [Exhibit RL-
183] (finding that the standard of deference was “present in the standard as stated, rather than being additive to
the standard” and “[t]he idea of deference is found in the modifiers “manifest” and “gross” that make this standard
a stringent one; it is found in the idea that a breach requires something greater than mere arbitrariness, something
that is surprising, shocking or exhibits a manifest lack of reasoning.”).
- 45 Second,
the Tribunal reasons that “there were no reasons for Uruguay to perform
additional studies or to gather further evidence in support of the Challenged Measures,”
because “[s]uch support was amply offered by the evidence-based FCTC provisions and
guidelines adopted thereunder.”192
With respect to the single presentation requirement, I do not
believe that the record in this arbitration supports this conclusion.
As discussed above, neither the FCTC nor its Guidelines make any reference to a single
presentation requirement, nor provides any suggestion that this requirement was either required
or contemplated.193
I therefore cannot agree that the Convention and its Guidelines provided
support for the single presentation requirement. In fact, the FCTC and its Guidelines provide
no support at all for such a requirement, because they neither require nor mention it.
In my view, the opposite inference is more appropriate. In the course of extensive study
and consultation, and compilation of a very extensive and thorough list of mandatory and
recommended tobacco control measures, the drafters of the FCTC and its Guidelines did not
choose to recommend or require a single presentation requirement. That omission gives rise
to the natural inference that the requirement was not regarded as useful or supported by the
studies associated with the Convention. In these circumstances, I cannot agree that the FCTC
and its preparatory work provide any support for the single presentation requirement.
Third, the parties devoted some effort to demonstrating that the single presentation
requirement either did, or did not, reduce both tobacco consumption and smoking prevalence.194
I agree with the Tribunal that this evidence was largely inconclusive, both because of questions
about the reliability of available surveys and statistics and because of difficulties in establishing
causation.195
The fundamental point is that the single presentation requirement violated Article 3(2)
for reasons other than an after-the-fact assessment of the measure’s efficacy in reducing
smoking. Rather, as discussed above, the single presentation requirement must be regarded as
arbitrary and disproportionate because it is wholly unnecessary to accomplishing its only stated
objective and instead prohibits substantial categories of conduct that do not accomplish that
objective. It is that fundamental lack of rationality and proportionality that renders the
requirement arbitrary and disproportionate.
* * * * * *
In sum, I agree with most of the Tribunal’s conclusions, but part company with the
Award on two important issues. My conclusions on these issues do not question the broad
authority of Uruguay, or other states, to regulate in the interest of public health and safety.
They do, however, go to the heart of guarantees of access to justice and protection from
arbitrary state conduct and, with regret, I must therefore dissent.
192
Award, para. 396.
193
World Health Organization (WHO), Framework Convention on Tobacco Control (FCTC), Article 11 [Exhibit
RL-20]; Guidelines for Implementation of Article 11 of the WHO Framework Convention on Tobacco Control
(Packaging and Labelling of Tobacco Products) [Exhibit RL-13].
194
Claimants’ Memorial, paras. 112-13; Respondent’s Counter-Memorial, para. 6.45.
195
Award, para. 408.
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