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

US $443,350,772

Status

Suspended.

The proceedings were bifurcated between a liability and a damages phase. In the liability phase, the Tribunal found that Canada breached NAFTA (North American Free Trade Agreement) Articles 1102 and 1105. Canada applied to have this award set aside in the Federal Court of Canada and its application was dismissed. In the damages phase, the Claimants claimed US $443,350,772, and the Tribunal awarded damages of US $7 million plus interest.  The Claimants applied to have this award set aside in the Ontario Superior Court and this application has been dismissed. The costs of the arbitration will now need to be determined by the NAFTA Tribunal.    

Arbitration rules

United Nations Commission on International Trade Law (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 disputing parties exchanged pleadings, the Tribunal held a hearing on jurisdiction and liability in Toronto, Ontario, from October 22 to 31, 2013, and issued its Award on Jurisdiction and Liability on March 17, 2015. As the Tribunal found Canada liable for having breached NAFTA, it held a hearing on damages from February 19 to 28, 2018 in Toronto. The Tribunal issued its Award on damages on January 10, 2019. While the Claimants applied to set aside the award, their application has been dismissed. The issue of the costs of the arbitration must still be determined by the Tribunal.   

Factual overview and nature of the claim

The Claimants alleged that the Environmental Assessment (EA) that was undertaken by the Government of Canada and the Government of Nova Scotia for the Whites Point project from 2003 to 2007, along with the administration and conduct of the EA, were arbitrary, discriminatory and unfair. The arbitration pertains to the alleged governmental conduct that relates to the management and operation of the Claimants’ investment and the administration and implementation of the EA.

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).

After conducting its review, including public consultations, the JRP recommended to government decision-makers that the Whites Point project should not proceed because it would have a significant and adverse environmental effect on the “community core values” of the Digby Neck. The governments rejected the project in late 2007.

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 Claimants challenged a number of measures that were time-barred under Article 1116(2) as they were made more than three years after the events took place.

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 Tribunal majority found Canada liable for breaching its Minimum Standard of Treatment obligation under Article 1105(1). 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 claimants 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 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. The Tribunal majority found 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 criticized the Tribunal’s award in submissions filed in the Mesa Power Group, LLC v. Government of Canada arbitration. The three NAFTA Parties 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.

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. The Federal Court dismissed this application on May 2, 2018.

While the claimants alleged damages of US $443,350,772, representing the loss of profits they allege that they suffered as a result of the NAFTA breaches, the Tribunal awarded them US $7 million plus interest. The Tribunal quantified this amount as the value of the denial of an opportunity to have the environmental impact of the project assessed in a fair and non-arbitrary manner.

On April 8, 2019, the Claimants filed a notice of application with the Ontario Superior Court to set aside the Award on Damages, on the grounds that the Tribunal rendered an award beyond the terms and scope of the Parties' consensual submission to arbitration, and in conflict with the public policy of Canada.

The Court dismissed the Claimants’ set aside application for the damages award on November 24, 2022. The Claimants appealed this decision on December 28, 2022 which was dismissed on July 24, 2024.  The Claimants’ subsequent application to the Supreme Court of Canada for leave to appeal the dismissal of their set aside was dismissed on April 17, 2025.

Legal documents

Legal documents related to this case can be viewed at the website of the Permanent Court of Arbitration.

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.

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