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NAFTA - Chapter 11 - Investment

Settlement of Disputes between a Party and an Investor of Another Party

General information

Section B of NAFTA Chapter 11 outlines the procedures for the settlement of a dispute between a Party to the NAFTA and an investor or investment of another Party within its territory. This investor-protection mechanism provides recourse for alleged breaches of the provisions of Section A of Chapter 11 by a Party that have resulted in loss or damage to the investment of an investor. Investors may also use the dispute settlement mechanism outlined in Section B of Chapter 11 to resolve certain disputes arising out of alleged breaches of NAFTA Article 1503(2) (State Enterprises) and Article 1502(3)(a) (Monopolies and State Enterprises).

Rules

The NAFTA stipulates that Chapter 11 proceedings shall be conducted in accordance with either the International Centre for Settlement of Investment Disputes Rules (ICSID) - 1966, the ICSID Additional Facility Rules - 1978 or the United Nations Commission on International Trade Law Rules (UNCITRAL) - 1966.

Notice of Intent

The first step in the Chapter 11 dispute settlement process is the serving of a Notice of Intent to Submit a Claim to Arbitration.

Under Chapter 11, an investor must submit a Notice of Intent at least 90 days before the claim is to be formally served. In addition, an investor may not make a claim if more than three years have elapsed from the date on which the investor first acquired, or should have first acquired, knowledge of the alleged breach and knowledge that the investor or its enterprise incurred loss or damage. Consultations are typically held between the investor and the NAFTA Party in question after the Notice of Intent is filed.

Notice of Arbitration

After the 90 day notice period, and provided that 6 months have elapsed from the date the measure giving rise to the claim went into effect, the investor may submit a Notice of Arbitration. The serving of a Notice of Arbitration formally launches the arbitration.

The Tribunal

Investor-state arbitrations are heard by three-member tribunals. One arbitrator is named by each party to the dispute and the third by mutual agreement or, failing agreement, by the Secretary-General of ICSID.

In order for there to be a breach of Chapter 11, the measure in question must be found to contravene a specific obligation under Section A of the Chapter. Tribunal awards are based on monetary damages. Where warranted, a tribunal can award damages to an investor but cannot award punitive damages or require a NAFTA Party to amend the measure that gave rise to the dispute.

In the process of reaching their conclusions, Tribunals are required to decide the issues in dispute in accordance with the provisions of the Agreement, the applicable rules of international law, and all notes of interpretation issued by the NAFTA Commission.