NAFTA - Chapter 11 - Investment

Cases filed against the Government of Canada

Mercer International Inc. v. Government of Canada

Claimant

Mercer International Inc. (“Mercer”) is a U.S. publicly traded company that is incorporated in Washington. Mercer, through Zellstoff Celgar Limited Partnership situated in Castlegar, British Columbia (“Celgar”), owns and operates a northern bleached softwood kraft pulp mill that is capable of producing electricity.

Articles

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

Damages claimed

$232 million CAD

Status

Won. Tribunal dismissed the claim and awarded $9 million CAD in costs to Canada. Mercer has requested that the Tribunal render a Supplementary Decision.

Arbitration rules

ICSID Additional Facility Rules

Summary

Procedural history

On January 26, 2012, Mercer International served a Notice of Intent to Submit a Claim to Arbitration on the Government of Canada, which they followed on April 30, 2012 with a Notice of Arbitration. The parties exchanged two rounds of written pleadings, the most recent of which was Canada’s Rejoinder, filed on March 31 2015. The Tribunal held a hearing on jurisdiction, merits and damages in Washington, D.C. in July 2015. On November 18, 2015, the Tribunal permitted the parties to file short post-hearing briefs and requested that the parties file simultaneous submissions on costs by March 15, 2016. On March 6, 2018, the Tribunal released its final award which found in favour of Canada and awarded costs.

Factual overview and nature of the claim

Mercer’s claim arose from its dual role as both a producer and a consumer of electricity. At issue was the extent to which Celgar was permitted to sell its own self-generated power at market-based rates while purchasing power at typically lower, embedded-cost rates to meet its own needs. Celgar sold some of its electricity to BC Hydro under an Electricity Purchase Agreement it entered into following BC Hydro’s Bioenergy Call for Power in 2008.

Mercer alleged that BC Hydro, with B.C. Utilities Commission approval, entered into preferential Energy Purchase Agreements with other mills to purchase some or all of the power they generate, while BC Hydro supplied them with embedded cost energy. It alleged that these agreements provided benefits to its competitors that it was denied, causing Canada to be in breach of its obligations under the NAFTA, and claimed damages in the amount of $232 million CAD.

Canada argued that much of the Claimant’s claim fell outside the tribunal’s jurisdiction or was inadmissible because it fell within the procurement exception in NAFTA Article 1108(7)(a); was not an exercise of delegated governmental authority by a state enterprise as defined in NAFTA Article 1503(2); and was accorded more than three years prior to the Claimant’s submission of the claim, thereby rendering it time-barred under NAFTA Articles 1116(2) and 1117(2). Canada also argued that the treatment accorded to the Claimant was consistent with Article 1102 (National Treatment), Article 1103 (Most-Favoured Nation Treatment) and Article 1105 (Minimum Standard of Treatment). Finally, Canada argued that the Claimant had suffered no damages, and requested that the Tribunal dismiss the claims and grant Canada its costs in the arbitration.

Award

On March 6, 2018, the NAFTA Tribunal issued its Award dismissing Mercer’s claims against Canada. With regard to jurisdiction and admissibility, the Tribunal decided that it only had jurisdiction to decide the merits of: (i) Mercer’s claims alleging discriminatory treatment concerning Celgar’s Generator Baseline under Article 1105 (as advocated by Mercer); and (ii) Mercer’s claims concerning B.C. Utilities Commission Order G-48-09 under NAFTA Articles 1102, 1103 and 1105(1). The Tribunal upheld the remainder of Canada's jurisdictional objections – including that any non-discriminatory allegations with respect to Celgar's Generator Baseline in its Electricity Purchase Agreement were time-barred, and that BC Hydro's purchase of electricity in that same agreement was procurement in the sense of NAFTA Article 1108(7).

As to the merits of the claims concerning Celgar’s Generator Baseline, the Tribunal dismissed all such claims under NAFTA Articles 1102, 1103, 1105(1) and 1503(2). Regarding the merits of the claims concerning B.C. Utilities Commission Order G-48-09, under which Celgar's use of its self-generated electricity and sales to third parties were regulated, the Tribunal dismissed all such claims under NAFTA Articles 1102, 1103, and 1105(1). As a result, the Tribunal dismissed Mercer's claim for damages.

The Tribunal Award also ordered Mercer to pay Canada $9,000,000 CAD to cover legal costs and expenses incurred by Canada during the arbitration.

Legal Documents (all documents are in pdf)

This case was governed by the Additional Facility rules of the International Centre for Settlement of Investment Disputes (ICSID). Documents related to this case can be viewed at the website of International Centre for Settlement of Investment Disputes.

Copies of all legal documents posted have been prepared in a language of operation of the Tribunal or Court in question. The Government of Canada has not modified or changed them in any way. As such they have not been translated from the original. They are provided in Acrobat (pdf) files. To view or download pdf files you need Adobe® Acrobat® Reader™ a free software that you can download from the web.

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