For those that may have missed it, the NAFTA Bilcon v Canada dispute was back in the news this week. In 2015, the Claytons and Bilcon of Delaware, a US company, were awarded compensation for breaches of NAFTA Articles 1105 (fair and equitable treatment) and 1102 (national treatment). The dispute centred on the assessment of the claimant’s proposed Whites Point quarry project by an environmental review panel, the Joint Review Panel (JRP). On 16 June 2015, Canada filed a Notice of Application seeking to set aside the Award on Jurisdiction and Liability. This week, the Federal Court of Canada is hearing Canada’s case. If successful, the Award will be set aside and unenforceable in Canada.*
Canada’s main argument is that the Award deals with a dispute where determination as to whether the actions of the JRP violated Canadian law falls outside its submission to arbitration. Canada also argues that on this basis the Award violates Canadian public policy. Pursuant to Article 34(2)(a)(iii) of the Commercial Arbitration Code,** as enacted and set out in the Schedule to the Commercial Arbitration Act, Canada has laid out three reasons for set aside:
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The Tribunal erred in assuming jurisdiction over the complaints advanced by Bilcon and the Claytons insofar as the methodology used by the JRP to conduct the environmental assessment and the recommendations it made to government decision-makers are not attributable to Canada and therefore not measures adopted or maintained by Canada to which Chapter 11 applies;
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The Award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration in that it determines the actions of the JRP violated Canada’s domestic laws;
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The Award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration in finding breaches of NAFTA Articles 1105 and 1102 solely on the basis of the Tribunal’s determination that the actions of the JRP violated Canada’s domestic laws. (Notice of Application, para 15).
Pursuant to Article 34(2)(b)(ii) of the Commercial Arbitration Code, the Award may also be set aside if the Canadian courts (on its own initiative) finds the Award in conflict with the public policy of Canada. Canada has argued:
The Award is in conflict with the public policy of Canada, contrary to Article 34(2)(b)(ii) of the Code insofar as it usurps the judicial review function of Canadian courts. A determination of whether a JRP’s recommendations departed from the requirements of Canadian law is one that only Canada’s courts, not NAFTA tribunals, are authorized to make, and one for which the only prescribed remedies are those that can be obtained through judicial review, not an award of NAFTA damages. (Notice of Application, para 16).
In the NAFTA dispute, the tribunal was divided as to whether a breach of Canadian law (by the JRP) amounted to a breach of NAFTA. Ultimately, Judge Bruno Simma (President) and Professor Bryan Schwartz, the majority of the tribunal, relied on the “particular and unusual circumstances of this case” to find Canada liable. (Award, para 741). Professor Donald McRae cautioned in his dissenting opinion: “the majority has in effect introduced the potential for getting damages for what it is breach of Canadian law, where Canadian law does not provide a damages claim for such a breach.” (Dissenting Opinion, para 43, see also para 48). Mindful of Professor McRae’s critique, the majority of the tribunal, remarked that:
Errors, even substantial errors, in applying national laws do not generally, let alone automatically, rise to the level of international responsibility vis-à-vis foreign investors. The trigger for international responsibility in this particular case was the very specific set of facts that were presented, tested and established through an extensive litigation process. (Award, para 738).
Nevertheless, Professor McRae raised concerns that allowing the JRP’s failure to comply with Canadian law to become the basis for a NAFTA claim allowed the claimants “to bypass the domestic remedy provided for such a departure from Canadian law.” (Dissenting opinion, para 48). He argued this is “a significant intrusion into domestic jurisdiction and will create a chill on the operation of environmental review panels.” (Dissenting Opinion, para 48).
The hearings come at a time when the NAFTA parties are seeking to renegotiate Chapter 11 of the NAFTA, specifically the controversial investor-state dispute settlement process (ISDS). The fate of investment protections and ISDS in NAFTA is unclear. Canada has already applied the lessons from the Award in its subsequent treaty-making.*** In a few weeks, the Bilcon tribunal will have its hearing on quantum. While I do not want to rehash a debate about the Bilcon Award, I wanted to flag Canada’s application for those interested in studying the fate of ISDS. Also, while unlikely to impact Canada’s strategy in the NAFTA negotiations, Canada’s application returns the spotlight to the high-profile loss for Canada that raised red flags about ISDS for some Canadians. The hearings resume next week.
For full disclosure, I worked on the Bilcon v Canada case, representing the claimants. The Award and Dissenting Opinion are available on italaw.com.
*The applicable rules governing this arbitration are the United Nations Commission on International Trade Law Arbitration Rules of 1976, as modified by NAFTA Chapter 11.
**The relevant language from the Code is:
Article 34(2):
An arbitral award may be set aside by the court […] only if:
(a) the party making the application furnishes proof that: […]
(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside;
[…]
or, (b) the court finds that (ii) the award is in conflict with the public policy of Canada.
These grounds are based on the 1985 Model Law on International Commercial Arbitration as adopted by the United Nations Commission on International Trade Law (UNCITRAL Model Law).
***Article 8.10(7) of the Canada-EU trade agreement states: "7. For greater certainty, the fact that a measure breaches domestic law does not, in and of itself, establish a breach of this Article. In order to ascertain whether the measure breaches this Article, the Tribunal must consider whether a Party has acted inconsistently with the obligations in paragraph 1.”
