Introduction
Whilst many dream of claiming their own island slice of paradise, few would have ever done so with the same verve as Alexander Francis Ure. In 1970, Ure claimed the islands of Elizabeth and Middleton Reefs — some 80 miles north of Lord Howe Island — in order to exploit the substantial hydrocarbon deposits he believed to lie beneath.
On 11 September 2001, 3000 people were killed in co-ordinated terrorist attacks in New York, Washington and Pennsylvania.
The wording of s 18C of the Racial Discrimination Act 1975 (Cth) (“RDA”) is once again the subject of heated political debate, after Liberal Senator Cory Bernardi put forward a motion to rewrite the section.
The road to European Union membership is notoriously long and difficult; its conditions are many and, if successful, its speedy rewards scarce. Few nations are more familiar with this truth than Turkey.
On 12 July 2016, a five-member arbitral tribunal (‘Tribunal’) handed down a historic final award in Republic of the Philippines v People’s Republic of China, an arbitration instituted by the Philippines under the United Nations Convention on the Law of the Sea (‘Convention’).
From being forcibly dragged into the courtroom in the Extraordinary African Chambers in Dakar, Senegal, last July, to finally facing justice at the hands of Senegal the African Union, the journey to conviction of former Chadian leader Hissene Habré represents a “significant moment” for international criminal law.
This month, three contentious cases have been instituted by States in the International Court of Justice (ICJ).
This breaks a dry spell for the ICJ, where no proceedings were commenced in 2015.
Everyone wants a piece of India in recent times. No surprises there! The Indian economy has gone from strength to strength. Indian Prime Minister Narendra Modi is pursuing an ambitious agenda for promoting manufacturing in India as the cornerstone for his long-term economic strategy.
On 16 May 2016 the Permanent Court of Arbitration released a redacted version of the Tribunal’s award on Jurisdiction and Admissibility (“Award”) in the investor-State arbitration dispute between Philip Morris Asia Limited (“Philip Morris”) (part of the Philip Morris group) and the Commonwealth of Australia.
The arbitration concerned the Tobacco Plain Packaging Act 2011, which was passed by the Australian Parliament on 21 November 2011 (and became law following Royal Assent on 1 December 2011). On 21 November 2011 Philip Morris served Australia with a formal Notice of Arbitration that initiated a lengthy international arbitration proceeding over Australia’s tobacco plain packaging laws. On 17 December 2015 the Tribunal issued a unanimous decision in Australia’s favour, but the award could not be released until confidential information was redacted.
In its award the Tribunal held that it was precluded from exercising jurisdiction over the tobacco plain packaging dispute because Philip Morris’ initiation of the arbitration constituted an ‘abuse of rights’. This was so, the Tribunal held, because Philip Morris had restructured its business at a time when there was a reasonable prospect that the dispute would materialise and it did this for the principal, if not sole, purpose of initiating arbitration proceedings against Australia over its tobacco plain packaging laws under the 1993 bilateral investment treaty between Australia and Hong Kong. The Tribunal was unconvinced by Philip Morris’ argument that other business and tax advantages were the principle drivers behind the restructure (Award, paras 582 and 584).
Interestingly, the Tribunal held that the test for whether a corporate restructure will constitute an abuse of rights is if an investor restructures its business to take advantage of treaty protection at a time when a specific dispute is foreseeable. The Tribunal held that ‘a dispute is foreseeable when there is a reasonable prospect…that a measure which may give rise to a treaty claim will materialise’ (Award, para 554). This can be contrasted with another leading award on the abuse of rights doctrine, Pac Rim v El Salvador, where the Tribunal held that an abuse of rights will only be established where restructuring takes place at a time when a specific dispute can be foreseen ‘as a very high probability and not merely as a possible controversy’ (Award, para 554). Accordingly this latest award applies a lower threshold test than that in the Pac Rim award for what constitutes an abusive restructure.
In conclusion this award provides authority for the proposition that multinational companies may restructure their business to take general advantage of potential treaty protections. However, if the corporate restructuring occurs at a time when there is a reasonable prospect that a specific dispute will materialise, the abuse of rights doctrine may preclude the investor from taking advantage of any applicable treaty protections with respect to that specific dispute.
Philip Morris sought to either have the tobacco plain packaging laws withdrawn or not applied to their investments or, in the alternative, to be awarded at least US$4.16 billion in damages from the Australian Government (Award, para 89).
The next and final stage in the proceedings is for the Tribunal to decide on the allocation of costs associated with the arbitration (Award, para 590).
Jack Williams is a Legal Officer at the Australian Attorney-General’s Department and spent three years working on the Australian Government’s legal defence of tobacco plain packaging in the arbitration that is the focus of this article and in the World Trade Organization. The views expressed in this article are the author’s own and do not necessarily represent the views of the Australian Government.
An unfortunate side-effect of action on climate change
Buoyed by renewed global enthusiasm for climate action after the Paris Agreement and the US-China Joint Presidential Statement on Climate Change, the financial community is increasingly turning its mind to what happens when governments act to limit greenhouse gas emissions. Previously, fossil fuel companies had planned to develop approximately five times the amount of fossil fuel than we can safely burn if we are to prevent an average temperature increase of more than 2°C. Capital has been and will continue to be wasted on carbon intensive projects that should not proceed under the new regime; a reality that the market is beginning to wake up to. When this reality truly strikes investors, it may prompt a dangerous market-wide share sale in fossil fuel companies and precipitate a decline in those companies’ market values.
Australians with superannuation fund accounts stand to lose money when this carbon bubble bursts, because most superannuation funds invest in blue chip energy and resources companies such as ExxonMobil, BP, Shell, AGL, Santos and their financiers, large global banks and our Big Four banks in Australia; NAB, Commonwealth Bank, ANZ and Westpac. If and when fossil fuel companies suffer economic hardship because their projects are no longer viable (see, for instance, the bankruptcy of Peabody Energy in mid-April 2016), superannuation members will lose out. As the Asset Owners Disclosure Project Chair and former federal leader of the Liberal Party of Australia, Dr John Hewson, put it, the eventuation of climate risk could “easily precipitate a financial crisis”. Having put its support behind UN action on climate, the G20 has begun turning attention towards how to prevent such a crisis.
Why the risk of stranded asset persists
We all have a degree of leverage to ensure our concerns over the management of climate risk are addressed through our “consumer sovereignty”. Most Australians could easily change superannuation funds to those that are mitigating climate change risk in their investment portfolios. Like any market, if people demand a certain product, it is often supplied by budding entrepreneurs. However, it can be difficult at the best of times to understand whether one superannuation fund is better than another at managing its investment portfolio, let alone climate risk. Considering that many funds present their climate-related information in different ways, and use different metric systems of measurement, it is a tough task to make meaningful comparisons. This presents a concerning information and comprehension gap for consumers that has to be filled.
The G20’s big move
The challenge of providing transparency on climate risk to the financial sector has been recently taken up by the G20, which has asked the Financial Stability Board (‘FSB’) to examine how the financial system can better acknowledge and consider climate change risks. The FSB, made up of the finance ministers and central bank governors of the G20 countries, is a soft law body established in the wake of the Global Financial Crisis which aims to ‘assess vulnerabilities affecting the global financial system and identify…the regulatory, supervisory and related actions needed to address them’ (Art 2(1)(a), FSB Charter).
The FSB has, in turn, established a new Taskforce for Climate-Related Financial Disclosures (‘TCFD’), and appointed three-time mayor of New York City and businessman Michael Bloomberg, to lead the initiative. Its mission is to ‘develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers and other stakeholders’. In its Phase I report (p 2), the TCFD concluded that disclosure by companies currently is ‘fragmented and incomplete’, and this is preventing ‘investors, creditors, and underwriters from accessing information that can inform their decisions’.
Most significantly, the TCFD announced in its Phase I report (p 26) that it will now examine voluntary, common disclosure standards for institutional investors. This will make disclosure frameworks part of the mainstream consciousness of the superannuation sector.
One model for the TCFD to consider is the Asset Owners Disclosure Project (AODP). The AODP aims to rectify the information and comprehension gap, by producing rankings and ratings of the world’s 375 largest superannuation and pension , as well as insurers and sovereign wealth funds, in regard to their management of climate risk. This initiative establishes transparency and comparability between pension funds by using a quick and easy-to-use scale. It encourages pension funds to take the initiative to file shareholder resolutions, which request that companies’ business models comply with a low-carbon economy, create innovative ways of financing renewable energy and reduce exposure to fossil fuel assets.
The forthcoming TCFD disclosure standards will give individual superannuation fund members a bigger source of leverage to demand that climate risk is managed properly. In turn, this will continue to drive competition between superannuation funds and their suppliers, which can only mean better outcomes for members. The information and comprehension gap appears to be closing swiftly and comprehensively. By focusing on transparency and disclosure, the G20 may well consolidate recent climate action successes with the assurance that the transition to a post-fossil fuel world can be more financially stable too.
Joshua Sheppard is a penultimate year law student at Monash University and a project manager for the Asset Owners Disclosure Project.