1. The Claimants' Position

1. 183. 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.Footnote 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.Footnote ¹⁹⁰

2. 184. 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.Footnote 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.Footnote ¹⁹² The latter, according to the Claimants, is further emphasized by the lack of 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.Footnote ¹⁹³

3. 185. In the Claimants' view, other considerations such as whether (a) the host State acquired a benefit of a proprietary character after the expropriatory measure;Footnote ¹⁹⁴ (b) the State intended to expropriate the investment;Footnote ¹⁹⁵ or (c) the Claimants' business stopped being an ongoing matter as a result of the expropriation,Footnote ¹⁹⁶ are irrelevant for a valid expropriation claim to exist.

4. 186. The Claimants also contend that the standard outlined above is applicable to both direct and indirect or de facto expropriations,Footnote ¹⁹⁷ and that it serves to protect not only tangible property but also intangible assets, including intellectual property, from uncompensated expropriation.Footnote ¹⁹⁸

2. The Respondent's Position

1. 187. 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.Footnote ¹⁹⁹ In other words, if an act is not an “expropriation,” as a matter of law Article 5 does not apply.Footnote ²⁰⁰ Article 5 specifies 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.Footnote ²⁰¹

2. 188. That question depends on the nature of the State's action.Footnote ²⁰² Interference with foreign property in the valid exercise of police power is not considered expropriation and does not give rise to compensation.Footnote ²⁰³

3. 189. 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.Footnote 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.”Footnote ²⁰⁵

4. 190. 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.Footnote 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.”Footnote ²⁰⁷

3. The Tribunal's Analysis

1. 191. 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 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.Footnote 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,Footnote ²⁰⁹ the Respondent holding that such interference must have “rendered almost without value the rights remaining with the investor.”Footnote ²¹⁰

2. 192. 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.Footnote 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.”Footnote ²¹²

1. The Claimants' Position

1. 193. 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.Footnote ²¹³

2. 194. 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.Footnote 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.

3. 195. 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.Footnote ²¹⁵ Thus, the discontinuance of each of the brand variants, or the interference with each of the remaining brands, constitutes an expropriation.Footnote ²¹⁶

4. 196. 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.

   1. (i) Uruguay's Police Powers

5. 197. 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 enforcement of the law, maintenance of the public order, and defense of the State.”Footnote ²¹⁷ State police power does not constitute a defense against expropriation.Footnote ²¹⁸

6. 198. 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.Footnote 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.Footnote ²²⁰

7. 199. 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.Footnote 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.Footnote 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.”Footnote ²²³

   1. (ii) The Claimants' Intellectual Property Rights are Capable of Being Expropriated

8. 200. 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.

9. 201. 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.”Footnote 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.Footnote ²²⁵ Thus, their absence on the branded packaging is without effect.Footnote ²²⁶

10. 202. 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.Footnote ²²⁷

11. 203. 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.Footnote 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.Footnote ²²⁹ The Claimants could have chosen at any time to trade Marlboro Fresh Mint as its variant for the Marlboro family brand after registration.Footnote ²³⁰

    1. (iii) Uruguay's Trademark Law Confers Registrants a Right to Use and a Right to Protect

12. 204. 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.”Footnote ²³¹

13. 205. 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.Footnote ²³² Second, Uruguayan property law applies to intellectual property and protects the right to use intellectual property.Footnote ²³³

14. 206. 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.”Footnote 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.Footnote ²³⁵

15. 207. 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.Footnote 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.”Footnote 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 effective use of their trademarks.Footnote 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.Footnote ²³⁹

16. 208. 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.Footnote ²⁴⁰

17. 209. 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.Footnote 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.Footnote 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.Footnote ²⁴³

2. The Respondent's Position

1. 210. 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.”Footnote ²⁴⁴

2. 211. Uruguay points to the factual evidence showing that the Claimants' business retains significant commercial value.Footnote 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.Footnote ²⁴⁶

3. 212. 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.Footnote ²⁴⁷

   

4. 213. 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:Footnote ²⁴⁸

   

5. 214. Finally, Uruguay underscores that in 2012, Abal's profits were approximately US$3.5 million.Footnote ²⁴⁹

6. 215. The Respondent also rejects the Claimants' argument that each of its brand assets should be considered as independently affected by the Challenged Measures.Footnote 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.Footnote 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.

   1. (i) Uruguay's Sovereign Police Powers

7. 216. It is Uruguay's submission that preserving and protecting public health is a quintessential manifestation of police power,Footnote ²⁵² which is in turn an essential element of a State's permanent sovereignty.Footnote ²⁵³ Uruguay has the right to exercise its inherent sovereign power to protect public health without incurring international responsibility generally (either for alleged expropriation or breach of other standards of treatment).

8. 217. 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.Footnote ²⁵⁴ Nor is the State liable to pay compensation for any damages arising from its exercise of such a power.Footnote ²⁵⁵ The Respondent relies inter alia on Chemtura for this proposition.Footnote ²⁵⁶

9. 218. 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”).Footnote 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.”Footnote 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.

10. 219. Uruguay does not suggest that the police powers of the State are absolute.Footnote 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, morality and justice.”Footnote ²⁶⁰ Other categories of State action, even when taken for some public purpose, are not covered.Footnote ²⁶¹

11. 220. 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.Footnote ²⁶²

12. 221. Accordingly, Uruguay's alleged interference with the Claimants' property in the exercise of police power does not constitute expropriation.Footnote ²⁶³

    1. (ii) The Claimants Had No Trademark Rights Capable of Being Expropriated

13. 222. 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.Footnote ²⁶⁴ It concludes that in each case, they were not the same as any of the trademarks originally registered.Footnote 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.Footnote 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.”Footnote ²⁶⁷

14. 223. 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 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.”Footnote ²⁶⁸

15. 224. 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.”Footnote 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.Footnote 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.”Footnote ²⁷¹

16. 225. 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.

17. 226. 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.Footnote 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 all, not only Gold, but also to Red, Blue, Black, and Fresh Mint, so long as the central characteristics remain the same.Footnote ²⁷³

    1. (iii) Uruguayan Law Confers Trademark Registrants only a Right to Protect against use by others

18. 227. 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.Footnote ²⁷⁴ The argument is three-fold.

19. 228. 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.”Footnote 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.Footnote ²⁷⁶

20. 229. 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.Footnote ²⁷⁷

21. 230. 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, but rather a right to exclude third parties from using it.Footnote ²⁷⁸ This is confirmed by the jurisprudence.Footnote ²⁷⁹

22. 231. 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.”Footnote 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.Footnote 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.Footnote ²⁸²

23. 232. 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.Footnote ²⁸³

24. 233. Third, the Respondent submits that none of the international intellectual property conventions cited by Claimants recognizes a right to use: Footnote ²⁸⁴

    • • As to the MERCOSUR Protocol, it only uses affirmative language to describe a negative right.Footnote 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.Footnote ²⁸⁶ In any event, the MERCOSUR Protocol only applies between State Parties that have ratified it; that is, Uruguay and Paraguay.Footnote 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 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,Footnote 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.”Footnote ²⁸⁹

    • • As to the Montevideo Treaty, the Respondent alleges that it applies only as between the State Parties (Uruguay, Argentina, Bolivia, Paraguay, Peru),Footnote 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.Footnote ²⁹¹

25. 234. 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.”Footnote 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

1. 235. It is undisputed that trademarks and goodwill associated with the use of trademarks are protected investments under Article 1(2)(d) of the BIT.Footnote ²⁹³ In order to establish whether the Claimants' investments have been expropriated, the Tribunal will deal in turn with the following questions:

   1. a. Did the Claimants own the banned trademarks?

   2. b. Does a trademark confer a right to use or only a right to protect against use by others?

   3. c. Have the Challenged Measures expropriated the Claimants' investment?

1. The Claimants' Position

1. 313. 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 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.Footnote 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.Footnote 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.Footnote 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.”Footnote 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.”Footnote ⁴¹⁸

2. The Respondent's position

1. 314. 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.Footnote ⁴¹⁹ It is not an autonomous standard.Footnote 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 Claimants.Footnote 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.”Footnote ⁴²²

2. 315. 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.Footnote ⁴²³

3. The Tribunal's Analysis

1. 316. 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 ClaimantsFootnote ⁴²⁴ and disputed by the Respondent.Footnote 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.”Footnote ⁴²⁶

2. 317. 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.

3. 318. As held by Chemtura v. Canada, “such determination cannot overlook the evolution of customary international law, nor the impact of BITs on this evolution.”Footnote 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 […].Footnote ⁴²⁸

4. 319. 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,Footnote 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.

5. 320. As held by investment tribunals, whether a particular treatment is fair and equitable depends on the circumstances of the particular case.Footnote 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.Footnote ⁴³¹ In a number of investment 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.

6. 321. 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. Footnote ⁴³²

7. 322. 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). Footnote ⁴³³

8. 323. 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.”Footnote ⁴³⁴

9. 324. 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.Footnote ⁴³⁵

1. The Claimants' Position

2. The Respondent's Position

1. 351. 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.

3. The Tribunal's Analysis

1. 388. 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.

1. The Claimants' Position

1. 438. 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.”Footnote 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.”Footnote ⁶²²

2. 439. 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.Footnote ⁶²³

3. 440. 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,Footnote 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.Footnote 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.

2. The Respondent's Position

1. 441. Article 3(1) only prohibits impairment of use and enjoyment of an investment if the measure is “unreasonable or discriminatory.”Footnote ⁶²⁶ The Respondent underlines that the SPR and 80/80 Regulation were applied equally and without discrimination to all tobacco brands.Footnote ⁶²⁷

2. 442. 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.Footnote ⁶²⁸

3. 443. 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.Footnote ⁶²⁹

3. The Tribunal's Analysis

1. 444. 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).Footnote ⁶³⁰

2. 445. The facts at the basis of the alleged “unreasonable” impairment of the Claimants' investmentsFootnote ⁶³¹ 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 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.

3. 446. 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.

1. The Claimants' Position

1. 450. 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 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.Footnote ⁶³⁴

2. 451. 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.

3. 452. 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.

4. 453. 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

1. 454. 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.

2. 455. 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.Footnote ⁶³⁵

3. 456. 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. Footnote 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.Footnote 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.Footnote 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.Footnote ⁶³⁹

3. The Tribunal's Analysis

1. 457. 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.Footnote 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.

2. 458. Also when examining the expropriation claim, the Tribunal has excluded that the right to use is among the rights conferred by a trademark.Footnote ⁶⁴¹ To that extent, therefore, no “commitments” may be said to have been undertaken by the Respondent with regard to the trademarks allegedly affected by the Challenged Measures.

1. The Claimants' Position

1. 459. 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.Footnote ⁶⁴²

2. 460. 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.Footnote ⁶⁴³ They further add that “[t]here is nothing unusual about the BIT's umbrella clause.”Footnote ⁶⁴⁴

3. 461. 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. Footnote ⁶⁴⁵

4. 462. 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.Footnote ⁶⁴⁶ Even if the Tribunal accepts the relevance of the letter, the Claimants' trademark registration still falls under the commitments covered by Article 11.Footnote ⁶⁴⁷

2. The Respondent's Position

1. 463. 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.Footnote 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.Footnote ⁶⁴⁹ The Respondent notes that the difference is evident “as a matter of simple semantics.”Footnote 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.Footnote ⁶⁵¹

2. 464. 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.Footnote ⁶⁵² Thus, Uruguay's registration of the Claimants' trademarks cannot be considered an international law obligation on the basis of Article 11.

3. 465. 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.Footnote 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.Footnote ⁶⁵⁴

4. 466. 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.Footnote ⁶⁵⁵

3. The Tribunal's Analysis

(i) I Interpretation of Article11 as an umbrella clause

1. 467. 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.Footnote 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.Footnote ⁶⁵⁷

2. 468. 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 Swiss-Pakistan 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.Footnote ⁶⁵⁸

3. 469. That decision was upheld by the annulment committee, which rejected Paraguay's allegations that the tribunal had manifestly exceeded its powers,Footnote ⁶⁵⁹ albeit in terms that suggested that its members might have personally taken a different view.Footnote ⁶⁶⁰

4. 470. The Respondent made reference to the Switzerland–Paraguay BITFootnote ⁶⁶¹ but did not deal with the SGS v. Paraguay decision in either of its written pleadings.

5. 471. 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.Footnote 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.Footnote ⁶⁶³

6. 472. The Tribunal concludes that Article 11 operates as an umbrella clause, at least for contract claims.

   (ii) Is a trademark a “commitment” within Article 11?

7. 473. 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 Measures.Footnote 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.”Footnote 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.”Footnote 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.Footnote ⁶⁶⁷

8. 474. The Respondent denies that Article 11 can be used “to elevate nominal violations of generally applicable IP law into a treaty breach.”Footnote 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.”Footnote ⁶⁶⁹

9. 475. 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.Footnote 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 and Uruguay to subsequently agree on the scope of Article 11.Footnote 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.Footnote ⁶⁷²

10. 476. 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.Footnote 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.Footnote 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.

11. 477. 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.Footnote ⁶⁷⁵

12. 478. 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” 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.”Footnote ⁶⁷⁶

13. 479. 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.

14. 480. 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.”Footnote 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.”

15. 481. 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.

16. 482. 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.

1. The Claimants' Position

1. 488. 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.Footnote ⁶⁸³ Neither bad faith nor malicious intent are required, however, as recognized by the Respondent's expert, Professor Schrijver.Footnote ⁶⁸⁴

2. 489. The Claimants also relied on the original formulation in the 1929 Harvard Draft Convention on State Responsibility, article 9 of which provided:Footnote 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.

3. 490. 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.Footnote ⁶⁸⁶

4. 491. 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.Footnote ⁶⁸⁷

5. 492. 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.Footnote ⁶⁸⁸

2. The Respondent's Position

1. 493. 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.Footnote ⁶⁸⁹ It requires clear and convincing evidence of an egregious conduct of judicial proceedings, that results in an outrageous failure of the judicial system.Footnote 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.Footnote ⁶⁹¹ There must be a “failure of a national system as a whole to satisfy minimum standards” or a demonstration of “systemic injustice.”Footnote ⁶⁹² Uruguay also relies on Flughafen award, to allege that the grave procedural errors must have an impact on the outcome,Footnote ⁶⁹³ and that there is a presumption of legality of the decisions of domestic courts which the Claimants must overcome.Footnote ⁶⁹⁴

2. 494. 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.Footnote ⁶⁹⁵

3. 495. 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.Footnote ⁶⁹⁶ The only exception is local remedies that are obviously futile.Footnote ⁶⁹⁷

4. 496. 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.Footnote ⁶⁹⁸

5. 497. 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.Footnote 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.

3. The Tribunal's Analysis

1. 498. 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.”Footnote ⁷⁰⁰

2. 499. 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.”Footnote ⁷⁰¹

3. 500. 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.Footnote ⁷⁰² For a denial of justice to exist under international law there must be “clear evidence of … an outrageous failure of the judicial system”Footnote ⁷⁰³ or a demonstration of “systemic injustice”Footnote ⁷⁰⁴ or that “the impugned decision was clearly improper and discreditable.”Footnote ⁷⁰⁵

4. 501. 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.Footnote 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.Footnote ⁷⁰⁷

5. 502. After citing in the Counter-Memorial the position of Sir Gerald Fitzmaurice that to prove denial of justice it is necessary to show bad faithFootnote ⁷⁰⁸ and after repeating it in the summary of Arif v. Moldova,Footnote ⁷⁰⁹ the Respondent does not invoke the bad faith requirement in the Rejoinder. The requirement of bad faith has been excluded by other tribunals.Footnote ⁷¹⁰

6. 503. As to the Parties' debate regarding burden of proof of the exhaustion of local remedies,Footnote 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”Footnote ⁷¹² or that, if available, it was “obviously futile.”Footnote ⁷¹³

1. The Claimants' Position

1. 504. 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.

2. 505. 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 administrative acts such as decrees; and only proposition (b) before the Supreme Court, which has jurisdiction to assess the constitutionality of laws.Footnote ⁷¹⁴

3. 506. 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%?Footnote 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.Footnote ⁷¹⁶

4. 507. 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.”Footnote ⁷¹⁷

5. 508. 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.Footnote ⁷¹⁸

6. 509. 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 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.Footnote ⁷¹⁹ Finally, a denial of justice must be compensated, regardless of the merits of the domestic case.Footnote ⁷²⁰

2. The Respondent's Position

1. 510. 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.Footnote ⁷²¹

2. 511. 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.Footnote ⁷²² Rather, under Respondent's analysis, it was constitutionally empowered to reach a different conclusion.Footnote 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.Footnote 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.Footnote ⁷²⁵

3. 512. 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.”Footnote 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 law.Footnote ⁷²⁷ It would stretch the concept of denial of justice far beyond its limits to declare the Uruguayan constitutional order itself unjust.Footnote ⁷²⁸

4. 513. 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.Footnote ⁷²⁹

5. 514. 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.Footnote ⁷³⁰ Each decision was “reasonably substantiated.”Footnote ⁷³¹ Both courts received vigorous argument from both sides (Abal/MPH), and subsequently reviewed, analyzed, adjudicated upon the claims and dismissed them.

6. 515. Moreover, the Respondent argues that under Uruguayan law, res judicata only exceptionally extends beyond the holding of a judgment itself.Footnote ⁷³²

3. The Tribunal's Analysis

1. 516. 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.

2. 517. 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.Footnote ⁷³³

3. 518. 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. […] Footnote ⁷³⁴

4. 519. 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.Footnote 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.Footnote ⁷³⁶

5. 520. 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.Footnote 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 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.Footnote ⁷³⁸

6. 521. 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.Footnote 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.”Footnote ⁷⁴⁰ Professor Paulsson opined that the effect of the two decisions “was the functional equivalent of locking Abal out of the court building.”Footnote ⁷⁴¹

7. 522. The Respondent does not suggest that there was a failure to exhaust local remedies in relation to this claim.Footnote 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.Footnote 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;Footnote 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.”Footnote ⁷⁴⁵

8. 523. 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 made by the SCJ in declaring the constitutionality of a law is not binding upon the TCA.”Footnote 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.Footnote ⁷⁴⁷

9. 524. 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.Footnote ⁷⁴⁸

10. 525. 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.”Footnote ⁷⁴⁹

11. 526. 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.Footnote 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.”Footnote 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.”Footnote ⁷⁵²

12. 527. 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.

13. 528. 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 act as courts of appeal to find a denial of justice,Footnote ⁷⁵³ still less as bodies charged with improving the judicial architecture of the State.

14. 529. 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.

15. 530. 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.Footnote ⁷⁵⁴

16. 531. 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 law may take time, and periods of conflicting case-law may therefore be tolerated without undermining legal certainty. Footnote ⁷⁵⁵

17. 532. 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. Footnote ⁷⁵⁶

18. 533. 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.Footnote ⁷⁵⁷ As Professor Paulsson has stated, “the vagaries of legal culture that enrich the world are to be respected.”Footnote ⁷⁵⁸

19. 534. 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.Footnote ⁷⁵⁹ Even if it is doubtful that the parties were different,Footnote 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).Footnote ⁷⁶¹

20. 535. 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.”Footnote 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,”Footnote ⁷⁶³ a finding which would seem to have been applied by the TCA.

21. 536. For the above reasons, the Tribunal holds by majority that there was no denial of justice regarding the 80/80 Regulation proceedings.

1. The Claimants' Position

1. 537. 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.Footnote ⁷⁶⁴

2. 538. 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.Footnote ⁷⁶⁵ Moreover, the TCA did not adjudicate Abal's other two claimsFootnote ⁷⁶⁶ and it deprived Abal of the right to seek a remedy of a manifestly erroneous decision.Footnote ⁷⁶⁷ These three arguments will be outlined in turn.

3. 539. 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 Abal's trademarks; it only lists BAT's trademarks; and (iii) does not discuss Abal's expert evidence.Footnote 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.Footnote ⁷⁶⁹

4. 540. 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.Footnote ⁷⁷⁰

5. 541. 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.Footnote ⁷⁷¹

6. 542. 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.Footnote ⁷⁷²

7. 543. 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.Footnote ⁷⁷³ In any case, seeking a declaration of unconstitutionality, besides being frivolous, could not correct the wrong that had been done by the TCA and thus could not have been effective.Footnote ⁷⁷⁴

8. 544. 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.Footnote ⁷⁷⁵

2. The Respondent's Position

1. 545. 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.”Footnote 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.Footnote ⁷⁷⁷ Finally, the Claimants failed to exhaust all available and effective local remedies against the TCA's decision.Footnote ⁷⁷⁸

2. 546. 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.Footnote 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.

3. 547. 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, including the public statement made by Dr. Abascal which was known to tobacco companies in Uruguay, including the Claimants.

4. 548. 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.Footnote ⁷⁸⁰ The specific trademarks at issue (i.e. Abal's or BAT) were thus irrelevant.

5. 549. 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.Footnote ⁷⁸¹

6. 550. 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.Footnote ⁷⁸² Also, the Respondent contends that the Claimants' expert opinions met none of the requirements to be considered evidence,Footnote ⁷⁸³ and that the TCA considered and dismissed the Claimants' other claims in regard to the SPR.Footnote ⁷⁸⁴

7. 551. 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.Footnote 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.Footnote ⁷⁸⁶ There is also no question that if successful, the SCJ declaration of unconstitutionality would have resulted in the illegality and invalidity of the SPR. Thus, it was an effective legal remedy.

3. The Tribunal's Analysis

1. 552. Regarding the TCA's decision on the SPR,Footnote ⁷⁸⁷ the Claimants argue that the TCA rejected Abal's application for annulment of Article 3 of Ordinance 514 imposing the SPRFootnote ⁷⁸⁸ 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.Footnote ⁷⁸⁹ According to the Claimants, the judgment delivered did not refer to Abal's evidence, arguments, trademarks, or expert legal opinions.Footnote 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.

2. 553. 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.

3. 554. By comparison, the BAT claim had only relied on argument (i), not the other two arguments Abal made;Footnote 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 position.Footnote ⁷⁹² According to the Claimants, the TCA never addressed the State Attorney's argument or their own arguments.Footnote ⁷⁹³

4. 555. 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.Footnote 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.”Footnote 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.Footnote ⁷⁹⁶

5. 556. 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 well-reasoned decision that the Claimants dare not dispute as such.”Footnote 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.”Footnote ⁷⁹⁸ It describes where in its decision TCA addressed each of Abal's three arguments.Footnote ⁷⁹⁹ The Respondent's Rejoinder records in more detail the occasions on which the TCA specifically addressed the claims and arguments of the Claimants.Footnote 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,Footnote ⁸⁰¹ even though they may be taken into account.

6. 557. According to the Tribunal, the refusal of courts to address a claim can clearly amount to a denial of justice.Footnote ⁸⁰² However, it is not incumbent on courts to deal with every argument presented in order to reach a conclusion.Footnote 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.

7. 558. 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. Footnote ⁸⁰⁴

8. 559. The TCA also addressed separately each of Abal's arguments in a reasoned manner. Regarding the “reserva de la ley” argument,Footnote 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. Footnote ⁸⁰⁶

9. 560. 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”,Footnote ⁸⁰⁷ the TCA then stated:

   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. Footnote ⁸⁰⁸

10. 561. 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. Footnote ⁸⁰⁹

11. 562. 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.” Footnote ⁸¹⁰

12. 563. 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.”Footnote 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.Footnote 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 FCTCFootnote ⁸¹³ and was an “implementing regulation,”Footnote 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,”Footnote 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.Footnote ⁸¹⁶ The Tribunal notes that the fact that this 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.

13. 564. As to the Claimants' contention that the TCA ignored the evidence presented by Abal, most notably expert opinions from three prominent Uruguayan law experts,Footnote ⁸¹⁷ it is to be noted that under Uruguayan procedural law, expert opinions on matters of law are not considered “expert evidence.”Footnote 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.Footnote ⁸¹⁹ The TCA may disregard expert legal opinions not meeting these requirements.Footnote 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.Footnote ⁸²¹ There is a reference in the TCA decision to the three legal opinions as “dogmatic constructions which may be very respectable in themselves”Footnote ⁸²² (a reference which does not apply to BAT since it had not filed legal opinions) and to the State Attorney's opinion.Footnote ⁸²³

14. 565. 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,Footnote 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.Footnote ⁸²⁵

15. 566. The Claimants have complained that Abal's judgement referred to BAT's trademarks, not to Abal's trademarks.Footnote ⁸²⁶ As a matter of fact, in its decision TCA stated as follows:

    [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…. Footnote ⁸²⁷

16. 567. 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.Footnote ⁸²⁸

17. 568. 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.

18. 569. 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.”Footnote 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 [not] arbitrary or unfair, let alone so manifestly arbitrary or unfair as to violate the minimum standard of treatment.”Footnote ⁸³⁰

19. 570. 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.”Footnote ⁸³¹

20. 571. 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.Footnote 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.Footnote 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.

21. 572. 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.Footnote ⁸³⁴

22. 573. 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.”Footnote ⁸³⁵

23. 574. 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.Footnote 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.Footnote ⁸³⁷ But it did place significance on the proposition that no different conclusion would have been reached.

24. 575. 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.Footnote ⁸³⁸ Even apparently weak cases or apparently undeserving parties are entitled to minimum standards of due process, and this is true even if what they lost thereby was a remote chance.

25. 576. 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.

26. 577. 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.

27. 578. 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.Footnote ⁸³⁹

28. 579. 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.Footnote 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.

29. 580. 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.

30. 581. 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.

1. The Uruguayan Supreme Court and Tribunal de lo Contencioso Administrativo

1. 14. 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.Footnote ⁹ The Supreme Court has the authority to review decisions of lower courts by cassation.Footnote ¹⁰

2. 15. The TCA is a governmental organ established pursuant to the Uruguayan Constitution.Footnote 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.Footnote ¹² The TCA is granted jurisdiction by the Uruguayan ConstitutionFootnote ¹³ and Law No. 15,869 of 6/22/1987.Footnote 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.Footnote ¹⁵

3. 16. 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. Footnote ¹⁶ The Respondent's legal expert on Uruguayan law describes the institutional divide between the TCA and Supreme Court as “sui generis.”Footnote ¹⁷

2. Law 18,256 and Decree 287/009

1. 17. 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.

2. 18. 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.

   Article 24. (Regulation). – The Executive Branch shall regulate this law within a period of ninety days from its date of enactment. Footnote ¹⁸

3. 19. 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.Footnote ¹⁹

4. 20. 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. Footnote 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

1. 21. 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.Footnote 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.

2. 22. 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.Footnote 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.

3. 23. 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” (cuestion previa) which therefore warranted suspension of the TCA proceedings until the Supreme Court had rendered its decision.Footnote ²³

4. 24. 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 … Footnote ²⁴

5. 25. The Uruguayan State Attorney General (Fiscal de Corte y Procuraduria General de la Nacion) Footnote ²⁵ also made formal submissions in Abal's Supreme Court proceedings. Like the 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.

6. 26. 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.”Footnote ²⁶

7. 27. 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).

8. 28. 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.Footnote ²⁷

   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.

9. 29. 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.

10. 30. 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. Footnote ²⁸

11. 31. In reaching this conclusion, the TCA rejected the interpretation of Article 9 of Law 18,256 that the Supreme Court had previously adopted.Footnote 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).

12. 32. 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.Footnote 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.Footnote ³¹

13. 33. 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.Footnote ³² The Respondent asserted that other examples of such cases existed, but it cited only a single instance allegedly involving such a contradiction.Footnote ³³

14. 34. 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.Footnote ³⁴ As the Tribunal appears to accept,Footnote ³⁵ that is not a conflicting or contradictory set of decisions, but an example of entirely consistent decisions about different legal rules.

15. 35. 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.

4. No Possibility of Constitutional Challenge to Article 9 of Law 18,256 in the Supreme Court Following the TCA Decision

1. 36. 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,Footnote 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.Footnote ³⁷

2. 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 8 Footnote ³⁸ of Law 18,256 in the Supreme Court,Footnote 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.Footnote ⁴⁰

3. 38. 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.Footnote ⁴¹ As indicated above, that suggestion was inconsistent with the Respondent's position throughout the course of the arbitrationFootnote ⁴² and was unsupported by any expert testimony or other evidence regarding procedural avenues available to Abal in the Supreme Court. Footnote ⁴³ In contrast, Claimants' expert evidence concluded (without prior contradiction by the Respondent's experts) that Abal had exhausted its local remedies.Footnote ⁴⁴

4. 39. In these circumstances, I see no basis for concluding that Abal could have either 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.

A. Preliminary Matters

1. 89. 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.Footnote 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.

2. 90. 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.

3. 91. 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

1. 92. 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

2. 93. 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.

3. 94. 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.”Footnote ⁹³

4. 95. 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”… Footnote ⁹⁴

5. 96. 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. ” Footnote ⁹⁵

6. 97. 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 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. Footnote ⁹⁶

7. 98. 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. Footnote ⁹⁷

8. 99. 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).Footnote ⁹⁸

9. 100. Despite this detailed list of regulatory measures, and despite the Convention's “savings” clause (providing for further national regulations),Footnote 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,Footnote ¹⁰⁰ they contain no reference to a single presentation requirement.

10. 101. 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.Footnote ¹⁰¹ The single presentation requirement was (and remains), in a field with an extensive body of regulation, unprecedented.

2. Uruguayan Tobacco Legislation and Regulations

1. 102. 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.

2. 103. In summary:

   1. 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.Footnote ¹⁰²

   2. b. In 1996, Decree 203/996 prohibited smoking in offices, public buildings and other public establishments.Footnote ¹⁰³

   3. c. In 1998, Decree 142/998 prohibited promotion of tobacco involving product giveaways.Footnote ¹⁰⁴

   4. 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.”Footnote ¹⁰⁵

   5. e. In 2005, Decree 169/005 limited smoking areas in restaurants and bars and advertisements on television (requiring “safe hours” for minors).Footnote ¹⁰⁶

   6. f. In 2005, Decree 170/005 prohibited advertising and promotion of tobacco products in connection with sports events.Footnote ¹⁰⁷

   7. 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.Footnote ¹⁰⁸

   8. 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.Footnote ¹⁰⁹

   9. i. In 2007, Decree 202/007 specified three images and legends for use on the surfaces of tobacco packaging.Footnote ¹¹⁰

   10. j. In 2007, Tax Law 18,083 significantly modified the previous tax regime and imposed a 22% value added tax on tobacco products.Footnote ¹¹¹

3. 104. 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.”Footnote ¹¹²

4. 105. 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. Footnote ¹¹³

5. 106. 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:

   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. Footnote 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

1. 107. 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.Footnote 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.Footnote ¹¹⁶

2. 108. 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.

3. 109. 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.

4. 110. 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:Footnote 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 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.”Footnote ¹¹⁸

5. 111. 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. Footnote ¹¹⁹ As indicated above, none of these materials evidenced any study, debate, or consultation regarding the single presentation requirement.

6. 112. 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.

7. 113. The documentary record indicates that the first proposals for Ordinance 514 were presented in July 2008.Footnote ¹²⁰ It is undisputed that the initial draft of the proposed ordinance (on 25 July 2008) did not include the single presentation requirement.Footnote ¹²¹

8. 114. 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,Footnote ¹²² without including any commentary or explanation for the addition.Footnote ¹²³

9. 115. 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.Footnote ¹²⁴ The 28 July draft of Ordinance 514, with the 30 July edit, was then signed and 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.Footnote ¹²⁵

10. 116. 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.

11. 117. 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.Footnote 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. Footnote ¹²⁷

12. 118. 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. Footnote ¹²⁸

13. 119. 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.

14. 120. 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.Footnote ¹²⁹

15. 121. 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.Footnote 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.

16. 122. 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.

17. 123. 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.Footnote 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.

18. 124. 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.”Footnote ¹³² On the contrary, I believe that the record makes clear that the single presentation requirement was adopted with no meaningful study, discussion, deliberation, or consultation with the industry.

19. 125. 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.Footnote 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.

20. 126. 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.Footnote 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.

21. 127. 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.

22. 128. This also suggests that the requirement was not a “bright idea,” as the Tribunal charitably puts it,Footnote 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.

C. Analysis

1. 129. 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

2. 130. 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.”

3. 131. As the Award correctly observes,Footnote 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,Footnote ¹³⁷ much less the international minimum standard as it was sometimes phrased in the early decades of the 20^th century.

4. 132. 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…”Footnote ¹³⁸

5. 133. 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.

6. 134. 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).”Footnote ¹³⁹ Similarly, the tribunal in Waste Management, Inc. v. United Mexican States 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.”Footnote ¹⁴⁰

7. 135. 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”Footnote ¹⁴¹ or that is “done capriciously, without reason.”Footnote 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.”Footnote ¹⁴³

8. 136. 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.

9. 137. 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 second-guess 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.

10. 138. 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.Footnote ¹⁴⁴

11. 139. 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.Footnote ¹⁴⁵

12. 140. 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.”Footnote 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 decision-making. 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. Footnote ¹⁴⁷

13. 141. 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.”Footnote ¹⁴⁸ It is not generally for arbitral tribunals to devise or impose different purposes or objectives (save for exceptional cases involving pretextual rationalesFootnote ¹⁴⁹ ).

14. 142. 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.

15. 143. That consideration must occur in the specific context of the relevant treaty provisions 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,Footnote ¹⁵⁰ or treaties mandating deference or providing exceptions to international guarantees.Footnote 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.

16. 144. 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.

17. 145. 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

1. 146. 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.

2. 147. 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.”Footnote 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”Footnote ¹⁵³ and the goal of the single presentation requirement is to “diminis[h] the industry's ability to continue perpetrating this fiction.”Footnote ¹⁵⁴ The Respondent's witnesses identified the same objectives of the requirement in their testimony,Footnote ¹⁵⁵ as did the TCA in its consideration of Law 18,256 and its implementing regulations.Footnote ¹⁵⁶

3. 148. 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.

4. 149. 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.Footnote ¹⁵⁷

5. 150. 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.

6. 151. 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. Footnote ¹⁵⁸

7. 152. 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. Footnote ¹⁵⁹

8. 153. 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.Footnote ¹⁶⁰

9. 154. Uruguay also banned the use of descriptors such as “light” and “mild” in Presidential 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]. Footnote ¹⁶¹

10. 155. 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.

11. 156. 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. Footnote ¹⁶²

12. 157. 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.

13. 158. 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.

14. 159. 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.

15. 160. 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).Footnote ¹⁶³ In my view, this evidence 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.Footnote ¹⁶⁴

16. 161. 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.

17. 162. 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”),Footnote ¹⁶⁵ but does not address other forms of brand variations.

18. 163. 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.

19. 164. 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.

20. 165. 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.

21. 166. 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 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.

22. 167. 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.Footnote 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.

23. 168. Second, and conversely, Ordinance 466's single presentation requirement is also under-inclusive. 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.

24. 169. 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):Footnote ¹⁶⁷

    

25. 170. 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):Footnote ¹⁶⁸

    

26. 171. 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.Footnote ¹⁶⁹

27. 172. 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.

28. 173. 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 pre-existing 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.

29. 174. 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, even if not, the measure would have been recommended in the extensive literature on anti-smoking regulations or, alternatively, would have been the product of study and deliberations counselling in favor of its adoption.

30. 175. 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.Footnote ¹⁷⁰

31. 176. 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.

32. 177. 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.Footnote 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.

33. 178. 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.

34. 179. 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.