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NAFTA - Chapter 11 - Investment

Cases Filed Against the Government of Canada

Ethyl Corporation v. Government of Canada

Claimant

Ethyl Corporation is a U.S. company incorporated under the laws of the State of Virginia where it has its head office. It is the sole shareholder of a Canadian company, Ethyl Canada Inc., incorporated under the laws of Ontario and with a head office in Mississauga. Through its Canadian subsidiary, the claimant imports and distributes across Canada a fuel additive, Methylcyclopentadienyl Manganese Tricarbonyl (MMT), designed to increase the octane level of unleaded gasoline.

Articles

  • 1102 (National Treatment)
  • 1106 (Performance Requirements)
  • 1110 (Expropriation)

Damages claimed

$201 million USD.

Arbitration Rules

UNCITRAL

Summary

Procedural History

Ethyl Corporation filed a Notice of Intent to Submit a Claim to Arbitration on September 10, 1996, and on April 14, 1997, it submitted a Notice of Arbitration alleging that Canada breached its obligations under Chapter Eleven as a result of introducing legislation banning the importation of and interprovincial trade in MMT.

Canada challenged the jurisdiction of the tribunal and on June 24 1998 the tribunal issued a preliminary award on jurisdiction rejecting some of Canada’s challenges and joining some other objections to jurisdiction to the merits phase of the arbitration.

Factual overview and nature of the claim

On April 25, 1997 the Parliament of Canada passed the Manganese-based Fuel Additives Act (the "Act") which came into force on June 24, 1997. The Act had been introduced in Parliament on April 22, 1996.  The Act prohibits the importation and interprovincial trade for commercial purposes of MMT.

The Act was passed in response to environmental concerns focused on vehicle emissions. More specifically, the Act responded to the negative effects MMT was believed to have on vehicle emission systems and on on-board diagnostic systems that monitor vehicle emission systems.  Other considerations included potential toxic effects of airborne manganese from automobile exhaust, the possibility that the continued use of MMT in Canadian gasoline could lead to a reduction in warranty coverage for new vehicles and could frustrate efforts to harmonize Canada's fuel and emissions technology standards with those of the U.S.

Decision on jurisdiction

Canada submitted that at the time the Claimant filed its Notice of Arbitration (14 April 1997) there was no measure adopted or maintained by Canada within the meaning of NAFTA Article 1101(1) (Scope and Coverage), as the Act did not receive Royal Assent until 25 April 1997. As such, Canada requested the Tribunal to dismiss the claim and require the Claimant to commence a new arbitration. The Tribunal dismissed Canada’s objection. It noted that the Notice of Arbitration was delivered five days after Bill C-29 had passed the Senate, and only awaited Royal Assent, which, the Tribunal is given to understand, is granted as a matter of course once the Government has requested it. The Tribunal concluded that in any event, the MMT Act is, as of 24 June 1997, a reality, and therefore the Tribunal is now presented with a claim based on a ‘measure’ which has been ‘adopted or maintained’ within the meaning of Article 1101."

Canada also objected to the Tribunal’s jurisdiction since the disputing parties had not engaged in prior consultations. The Tribunal rejected Canada’s argument finding that the Claimants had in fact sought to initiate consultations, without success, and that in any event the consultations would most probably have not been useful.

Canada also objected to the jurisdiction of the Tribunal since the claim was filed less than six months after the Act entered into force and because the consent and waivers required by NAFTA Article 1121 were only filed after the filing of the Notice of Arbitration. The Tribunal dismissed Canada’s objections since, as of the date of its decision on jurisdiction, more than six months had passed since the entering into force of the Act and Canada had given no indication of any intent to repeal or amend the Act. According to the Tribunal “dismissal of the claim at this juncture would disserve, rather than serve, the object and purpose of NAFTA.” Also, the Tribunal professed not to understand the reasons for the formalities required in Article 1121, which it stated seemed to express what “normally is the case in any event, namely, that the initiation of arbitration constitutes consent to arbitration by the initiator, whereby access to any court or other dispute settlement mechanism is precluded (except as allowed ancillary to or in support of the arbitration).” The Tribunal noted that Ethyl had not provided any reasons for not having furnished the necessary documentation with the Notice of Arbitration, and “equally is unaware of any resulting prejudice to Canada”.

Although it dismissed Canada’s objections, the Tribunal noted that the Claimant could have avoided these issues by delivering its Notice of Intent after Royal Assent, and then waiting six months to deliver its Notice of Arbitration along with the required consent and waivers. The Tribunal thus decided that the Claimant should bear the costs of the proceedings on jurisdiction regarding these issues.

Settlement of the claim

Further to a challenge launched by three Canadian provinces under the Agreement on Internal Trade, a Canadian federal-provincial dispute settlement panel found that the federal measure was inconsistent with certain provisions of that Agreement. Following this decision, Canada and Ethyl settled all outstanding matters, including the Chapter Eleven claim.

Status

Settled.

Legal Documents (all documents are in pdf)

This case was governed by the arbitral rules of the United Nations Commission on International Trade Law (UNCITRAL).  Additional documents related to this case can be viewed at the website of the UNCITRAL Transparency Registry.

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