NAFTA - Chapter 11 - Investment

Cases Filed Against the Government of Canada

Clayton/Bilcon v. Government of Canada

Claimant

The Claytons and Bilcon of Delaware Inc., (Bilcon) are U.S. investors who own and control shares in a Canadian subsidiary named Bilcon of Nova Scotia to operate the Whites Point project, the purpose of which was to provide a reliable supply of aggregate for Bilcon of Delaware and the Clayton Group of Companies. Bilcon entered into a partnership with a Nova Scotia company, Nova Stone Exporters, to develop a quarry and marine terminal at Whites Point Quarry. The partnership was acquired entirely by Bilcon in 2004.

Articles

  • 1102 (National Treatment)
  • 1103 (Most-Favoured Nation Treatment)
  • 1105 (Minimum Standard of Treatment)

Damages claimed

$101 million USD.

Arbitration rules

UNCITRAL

Summary

Procedural history

On February 5, 2008, William Ralph Clayton et al. and Bilcon of Delaware, Inc. submitted a Notice of Intent to Submit a Claim to Arbitration, and on May 26, 2008, they served a Notice of Arbitration on the Government of Canada. After the parties exchanged pleadings, the Tribunal held a hearing on jurisdiction and liability in Toronto, ON from October 22 to 31, 2013, and issued its Award on Jurisdiction and Liability on March 17, 2015. The arbitration has moved into a damages phase, where the parties will submit evidence and argument to the Tribunal concerning the quantum of a compensation award.

Factual overview and nature of the claim

The Claimants allege that the Environmental Assessment (EA) that was undertaken by the Government of Canada and the Government of Nova Scotia for the Whites Point project, along with the administration and conduct of the EA, were arbitrary, discriminatory and unfair. The Claimants do not dispute the fact that EAs were required before construction and operating of industrial projects was to begin, although they allege that Canada’s environmental regulatory regime was applied to the project in an arbitrary, unfair and discriminatory manner. The arbitration pertains to the alleged governmental conduct that relates to the management and operation of the Claimant’s investment and the administration and implementation of the EA.

The governments of Canada and Nova Scotia jointly conducted the EA for the Whites Point project from 2003 to 2007.  As the governments jointly determined that the project engaged widespread public concern and the possibility of significant adverse environmental effects, the EA was referred to a Joint Review Panel (JRP), which was comprised of three professors from Dalhousie University.

The JRP gathered information on the environmental effects of the Whites Point project, held public hearings, and issued a recommendation to government decision-makers that the Whites Point project should not be permitted to proceed because it would have a significant and adverse environmental effect on the “community core values” of the Digby Neck. “Community core values” were defined by the JRP as shared beliefs by individuals in a group that constitute defining features of the community. Nova Scotia and the federal government rejected the project in late 2007. The Government of Canada specifically concluded, under the former Canadian Environmental Assessment Act, that the project was likely to cause significant and adverse environmental effects that were not justified.

Award on jurisdiction and liability

In its March 17, 2015 Award on Jurisdiction and Liability, the Tribunal found Canada liable for having breached its obligations under Articles 1105 and 1102.

The Tribunal agreed with Canada that the Claimant challenged a number of decisions made over the course of the EA that were made more than three years prior to the commencement of Bilcon’s NAFTA claim. As such, the claims regarding these decisions were time-barred under Article 1116(2).

The Tribunal disagreed however with Canada’s argument that the actions of the JRP were not attributable to it. It found that the JRP was part of the apparatus of the Government of Canada and exercised elements of Canadian governmental authority. It also found that Canada had acknowledged and adopted the actions of the JRP as its own.

A majority of the Tribunal found Canada liable for having breached its Minimum Standard of Treatment obligation under Article 1105(1). This provision requires that investors investments of NAFTA Parties be treated “in accordance with international law, including fair and equitable treatment and full protection and security” and prescribes the customary international law minimum standard of treatment of aliens as the applicable standard. The majority’s findings were based on the fact that the JRP’s recommendation relied on the application of a standard, “core community values,” that was not found in Canadian law and therefore that there was a lack of due process because the proponents were not given an opportunity to make a case based on this criterion. Professor Donald McRae issued a dissenting opinion related to the finding of a breach of Article 1105. In the dissent, Professor McRae disagreed with the majority’s assessment of the facts, with the majority’s determination that the JRP departed in fundamental ways from the standard of evaluation required by the laws of Canada. He also expressed disagreement with the effect of the majority’s decision on the threshold for the application of the standard under Article 1105.

The majority also found Canada liable for having breached its National Treatment obligation under Article 1102. This provision requires Canada to accord NAFTA investors treatment no less favourable than that which it accords, in like circumstances, to domestic investors. The majority’s finding was based on the fact that the standard applied by the JRP had not been applied in other environmental assessments and the government had not shown any legitimate non-discriminatory reason for such difference in treatment.

The United States, Mexico and Canada have criticized the Tribunal’s award in submissions filed in the Mesa Power Group, LLC v. Government of Canada arbitration. The three NAFTA Parties have stated that the Tribunal failed to adequately address nationality-based discrimination in its analysis of Bilcon’s Article 1102 claim, failed to properly assess customary international law for the purposes of determining the content of Article 1105 and incorrectly concluded that alleged violations of Canadian law amounted to a violation of the customary international law minimum standard of treatment.

Status

Damages phase

Following the issuance of the Award on Jurisdiction and Liability, the arbitration has moved into a damages phase, where the parties will submit evidence and argument to the Tribunal concerning the quantum of a compensation award. The damages phase of the proceedings will require document production, an exchange of written pleadings, witness statements and expert reports, and an oral hearing.

Set-aside proceedings

On June 16, 2015, Canada filed a notice of application in the Federal Court of Canada for the set aside of the Tribunal’s award of March 17, 2015. In the set aside proceedings, Canada is arguing that the Award on Jurisdiction and Liability contains decisions on matters beyond the scope of the submission to arbitration, contrary to Article 34(2)(a)(iii) of the Commercial Arbitration Code as enacted and set out in the Schedule to the Commercial Arbitration Act and is in conflict with the public policy of Canada contrary to Article 34(2)(b)(ii) of the Commercial Arbitration Code.

Legal Documents

This case is being governed by the arbitral rules of the United Nations Commission on International Trade Law.  Legal documents related to this case can be viewed at the website of the Permanent Court of Arbitration.

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Application to the Federal Court of Canada for Set Aside of the Award

On June 16, 2015, Canada filed a notice of application with the Federal Court of Canada seeking to set aside the award on jurisdiction and liability, on the grounds that the Tribunal exceeded its jurisdiction and that the award is in conflict with the public policy of Canada.

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