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  • Australia recovered a portion of its legal and other costs incurred as respondent in arbitral proceedings commenced by Philip Morris in 2011.
  • The arbitral tribunal interpreted and applied Articles 40(2) and 42(1) of the 2010 version of UNCITRAL’s Arbitration Rules.
  • The final arbitral award in redacted form sets a perplexing precedent.

Australia was a respondent in arbitral proceedings conducted under the auspices of the Permanent Court of Arbitration (‘PCA’) and in accordance with the Rules of Arbitration formulated by the United Nations Commission on International Trade Law, as revised in 2010 (‘UNCITRAL Rules’). On 8 March 2017 at Singapore, a second and final award regarding costs was issued by an arbitral tribunal constituted in accordance with a 1993 Hong Kong-Australia investment treaty. After describing the essential background, this note reviews the parties’ arguments and the tribunal’s analysis before exploring some implications.


In 2011, the claimant, Philip Morris Asia Limited (‘PM Asia’), a limited liability company incorporated under Hong Kong law, initiated arbitral proceedings against Australia. A dispute had arisen about Australia’s enactment and enforcement of the Tobacco Plain Packaging Act 2011 (Cth) and the implementing Tobacco Plain Packaging Regulations 2011 (Cth).

PM Asia commenced arbitration under a bilateral investment treaty, being the Agreement between the Government of Hong Kong and the Government of Australia for the Promotion and Protection of Investments dated 15 September 1993. An arbitral tribunal was established.

In 2015, the tribunal issued an award on jurisdiction and admissibility. It rejected Australia’s first two preliminary objections. However, it upheld the third, concluding that the initiation of the arbitration was an abuse of rights. The corporate restructuring by which PM Asia acquired its Australian subsidiaries occurred when there was a reasonable prospect that a dispute would materialise and was carried out for the principal, if not the sole, purpose of gaining treaty protection. The claims raised in the arbitration were inadmissible and the tribunal was precluded from exercising jurisdiction.

The parties agreed that the arbitration costs were to be allocated in accordance with Article 42(1) of the 2010 United Nations Commission on International Trade Law’s Rules on Arbitration (‘the 2010 Rules’). Article 42(1) thereof provided that the costs of an arbitration shall in principle be borne by the unsuccessful party. However, an arbitral tribunal may apportion each of such costs between the parties if apportionment is reasonable, taking into account the circumstances of the case. Australia and PM Asia disagreed as to the interpretation and application of this provision.

As to the amount of costs claimed, the parties agreed that Article 40(2) of the 2010 Rules applied. This article states that the term ‘costs’ includes only:

  • the tribunal’s fees (to be stated separately for each arbitrator and fixed by the tribunal itself);
  • reasonable travel and other expenses incurred by arbitrators;
  • reasonable costs of expert advice and other assistance required by the tribunal;
  • reasonable travel and other expenses of witnesses to the extent approved by the tribunal;
  • the legal and other costs incurred by the parties in relation to the arbitration to the extent determined to be reasonable; and
  • any fees and expenses of the appointing authority and that of the PCA Secretary-General.

Australia sought reimbursement for its claimed costs falling into these categories. PM Asia did not claim any of the costs it had incurred and disagreed as to the reasonableness of amounts claimed by Australia.

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