This is a guest post from Mona Pinchis on the Mesa v. Canada NAFTA Chapter 11 decision
On March 24, 2016, a decision was rendered in the Mesa Power Group LLC v Canada dispute. The Government of Canada released the decision a few days ago, including a concurring and dissenting opinion of The Honourable Judge Charles N Brower (the claimant’s nominee). In this opinion, Judge Brower dissented from the majority on its conclusions regarding Articles 1105 and 1108(7)(a) and (8)(b) of NAFTA.
In this post, I want to focus on a passage from Judge Brower’s opinion regarding the Chapter 11 tribunal’s interpretive approach to reflect on the tension between treaty parties and tribunals when interpreting treaty provisions.
In brief, the claimant alleged that Ontario (and hence Canada) had failed to meet its obligations established in NAFTA Articles 1102 (national treatment), 1103 (most-favoured-nation treatment) and 1106 (performance requirements) in its implementation of the Feed-in Tariff (FIT program). According to Canada, the FIT program was a procurement process designed by a NAFTA Party and implemented by a state enterprise. However, NAFTA Articles 1102, 1103, and 1106 did not apply to the claimant’s investment because the FIT program fell under NAFTA Articles 1108(7)(a) and 1108(8)(b).
NAFTA Articles 1108(7)(a) and (8)(b) provide:
7. Articles 1102, 1103 and 1107 do not apply to:
(a) procurement by a Party or a state enterprise; or […].
8. The provisions of:
(b) Article 1106(1)(b), (c), (f) and (g), and (3)(a) and (b) do not apply to procurement by a Party or a state enterprise; […].
Thus, the question became whether the FIT program was a ‘procurement by a Party or a state enterprise.’ Canada, supported by the other NAFTA parties, presented a broad assessment of the term ‘procurement’. The majority examined the ordinary meaning and context, as well as the object and purpose and followed the NAFTA parties’ interpretation, noting that ‘[a]ll three NAFTA Parties appear to support the broad notion of procurement’. (Award, para 410).
Judge Brower dissented from the majority on the basis that Articles 1108(7)(a) and 1108(b)(b) together immunize ‘procurement by a Party or a state enterprise’ – and not just ‘procurement’ alone. In addition to his assessment as to the ‘ordinary meaning’ of that phrase, Judge Brower reflected on the majority’s acceptance of the NAFTA parties’ interpretation. In doing so, Judge Brower engaged in a discussion about what are appropriate interpretive approaches under the Vienna Convention on the Law of Treaties (VCLT). Judge Brower explained that the interpretation of the relevant NAFTA provisions should not be ‘materially influenced by’ the Chapter 11 tribunal’s perception that ‘all three NAFTA parties appear to support’ a particular interpretation. (Judge Brower’s opinion, para. 30). It is worthwhile to quote the remainder of Judge Brower’s opinion in full:
I have never experienced a case in which the other Party or Parties to a treaty subject to interpretation, appearing in a non-disputing capacity, have ever differed from the interpretation being advanced by the respondent State. Inevitably, they club together. Moreover, the interpretation given by a State Party in actual litigation cannot be regarded as an authentic interpretation. In the end (Article 2001(2)(c)), only three Ministers of the States Party to NAFTA, convened as the Free Trade Commission, can “resolve disputes that may arise regarding [NAFTA’s] interpretation or application.” That does not mean that the Tribunal is in any way barred from interpreting NAFTA. To the contrary. It does suggest at least, however, that caution should be exercised, if not skepticism, when confronted by that with which the Tribunal is dealing in the Award’s paragraph 410.
Pursuant to Article 31(3) VCLT, the treaty parties’ subsequent agreement and practice shall be taken into account in interpretation, recognizing the ongoing role of the parties in interpreting their treaties. Article 31(3) does not clarify what constitutes subsequent agreement or practice. There are several ways treaty parties may reach agreement on the interpretation of a provision after the conclusion of the treaty. One possible example of subsequent agreement and practice is non-disputing party interventions, where a treaty party makes submissions on the treaty’s interpretation and application, such as the process set out in NAFTA Article 1128. The danger in relying on the the treaty parties’ interpretations, as raised by Judge Brower, is that these interpretations are offered in the context of litigation. This means that the other NAFTA Parties are more likely to identify with the respondent State than with the claimant. This is because the NAFTA parties have a vested interest in trying to present a uniform interpretation of the treaty; presumably each party could face a similar issue in a future dispute as respondent.
At the same time, other scholars have observed that state submissions may be a ‘potentially importance source of practice’ and that ‘they may evidence agreement.’ In Canadian Cattlemen for Fair Trade v United States, the Chapter 11 tribunal agreed with the respondent that the ‘formal process of interpretation under Article 1131(2) is not the only means available to the NAFTA Parties of reaching a “subsequent agreement”. (Award on Jurisdiction, para 185). The Cattlemen tribunal then found that Mexico’s Article 1128 submissions in that arbitration and Canada’s statements in its counter-memorial in the SD Myers v Canada dispute constituted “subsequent practice” under Article 31(3) of the VCLT. (para 186).
Returning to Judge Brower’s opinion, to my knowledge, there have been two NAFTA cases where a non-disputing party endorsed the position of the claimant. In Metalclad Corporation v Mexico, the United States endorsed the claimant’s view that the actions of local governments, including municipalities, were subject to the NAFTA standards. (Metalclad Corporation v United Mexican States, Submission of the Government of the United States (ICSID Case No. ARB(AF)/97/1, 9 November 1999, paras 3-8). Similarly, in Marvin Feldman v Mexico, the United States submitted a view that benefitted the claimant’s claim that under NAFTA 1117(1), the NAFTA did not bar a claim against Mexico under Chapter 11 by a natural person who was both a citizen of the United States and a permanent resident of Mexico (Marvin Roy Feldman v United Mexican States, Submission of the United States of America on Preliminary Issues (ICSID Case No, ARB(AF)/99/1, 6 October 2000, paras. 2-12). These cases emerged from Professor Kaufmann-Kohler’s ‘Non-Disputing State Submissions in Investment Arbitration: Resurgence of Diplomatic Protection’, which provides detailed information as to when a non-disputing State endorses the position of the claimant (data up to date as of 31 March 2011). I am not aware of any detailed studies which demonstrate whether States are inconsistent in their statements on interpretation through non-disputing party submissions or pleadings. [H/T to Lise Johnson who pointed out to me that under the US-Peru FTA, the US recently weighed in on the side of the claimant.]
In addition to the methods discussed above, one option, which I believe is becoming more popular, is opting to draft focused, more detailed treaties (and moving away from ‘constructive ambiguity’ or an ‘incomplete contract’ view of treaty-making). This approach can be seen in the detail provided in CETA Article 8.10 (Treatment of investors and of covered investments). In the CETA Investment Chapter, ‘for greater certainty’ is used nine times. In the TPP Investment Chapter the words ‘for greater certainty’ is used thirteen times and ‘for the avoidance of doubt’ is used three times.
The NAFTA parties have a history of being concerned with the way the NAFTA is interpreted. As the line between interpretation and amendment is blurry, I am not too surprised that Canada has tried to improve its investment treaties, and I leave it to the blog’s readers to determine whether this effort likely is (at least a part of) the reason why it accepted the EU’s investment court proposal. It’s too early to see the future for CETA. However, it will be interesting to see whether an investment court would help States find their ‘voice’ in investment disputes, or lose it altogether.
For full disclosure, I worked at Appleton & Associates early on in the Mesa Power dispute.
