NAFTA - Chapter 11 - Investment
Cases filed against the Government of Canada
Chemtura Corporation (formerly Crompton Corporation) v. Government of Canada
Chemtura Corporation is a United States corporation established under the laws of Delaware. Its head office is located in Middlebury, Connecticut. Chemtura Canada is a wholly-owned indirect subsidiary of Chemtura Corpration organized under the laws of Nova Scotia. Its manufacturing facility is located in Elmira, Ontario.
- 1103 (Most-Favoured Nation Treatment)
- 1105 (Minimum Standard of Treatment)
- 1110 (Expropriation)
Won. Tribunal dismissed the claim and awarded $2.9 million CAD in costs to Canada.
The Claimant filed two Notices of Intent to Submit a Claim to Arbitration on November 6, 2011 and on April 4, 2002. It filed a Notice of Arbitration in respect of those notices on October 17, 2002. It filed a third Notice of Intent to Submit a Claim to Arbitration on September 19, 2002, followed by a Notice of Arbitration on February 10, 2005 claiming damages in the amount of $83,139,672 USD. The amount was later revised to $78,593,520 USD.
The hearings took place from 2 to 8 September 2009 and on December 17, 2009. The tribunal issued its award on August 2, 2010 dismissing all of the Claimant’s claims and ordering the Claimant to bear the full costs of the arbitration as well as one half of Canada’s legal fees in the amount of $2,889,233.80 CAD.
Factual overview and nature of the claim
Chemtura Canada’s Elmira plant in Ontario produces seed treatment products, including lindane-based products which are used to treat a variety of seeds, including canola/rapeseeds. Lindane is a pesticide that was first registered on the Canadian market in 1938. In 1998, trade concerns with the United States brought the Canadian canola growers and the four registrants of the lindane-based pesticides (including the Claimant) to the negotiating table. Since lindane is not authorized for canola/rapeseed treatment in the United States, the canola growers, who relied heavily on American exportation, were concerned that their product could no longer be exported to that country. An agreement was struck whereby the four registrants would voluntarily amend or discontinue their lindane-based pesticides by December 31, 1999 and terminate all sales by July 1, 2001. The Pest Management Regulatory Agency (“PMRA”) is the federal agency responsible for the regulation of pest control products in Canada. The PMRA was asked to participate in the negotiations since, as the regulatory agency, it was responsible for accepting amendments or discontinuation notices of such products.
The PMRA conducted a special review of lindane-based pesticides from 1999 to 2001 and concluded that registrations for these products should be terminated or suspended due to health concerns. Later in 2001, the PMRA terminated the Claimant’s licences for pesticides containing lindane. Following a request by the Claimant, a board of review was established to review the special review from 2004 to 2005. Following, the report of the board of review, the PMRA undertook a re-evaluation of lindane which reached similar conclusions as the earlier special review on the health risks presented by lindane.
The Claimant alleged that PMRA’s special review of its lindane-based pesticides was flawed and unfair and that the Government of Canada thwarted its attempts to obtain a re-evaluation of the special review in accordance with the law. It alleged that PMRA’s decision to prohibit the planting of lindane treated seed after July 1, 2001 and the agency’s failure to accord expedited treatment to the registration of replacement products contravened assurances previously given in the context of the withdrawal agreement. It also alleged that PMRA unfairly terminated the registration of its lindane-based pesticides. All these measures, according to the Claimant, breached NAFTA Articles 1105 (Minimum Standard of Treatment) and 1103(Most-Favored-Nation Treatment). The Claimant further argued that the terminations of its registrations for lindane-based pesticides were in breach of NAFTA Article 1110 (Expropriation).
The Tribunal’s Award
In dismissing the Claimant’s claims based in NAFTA Article 1105, the tribunal held that the Claimant failed to establish that PMRA’s special review of lindane-based pesticides was undertaken in bad faith or in breach of due process standards. It found that PMRA’s special review was driven by scientific considerations in pursuance of its mandate and Canada’s international obligations and not by any improper motive. With respect to the Claimant’s challenge concerning the fairness of PMRA’s review process, the tribunal found that the process was neither unfair nor amounted to bad faith behaviour on the part of the PMRA.
The tribunal also found that the Claimant had not established that the withdrawal agreement gave rise to any reasonable or legitimate expectation that PMRA would allow the planting of lindane treated seed after July 1, 2001. Furthermore, the tribunal found that PMRA did not unfairly delay the registration process for the Claimant’s replacement products. The delays the Claimant encountered in registering its replacement products were both attributable to the PMRA and the Claimant and were similar to the delays encountered by the Claimant in the United States.
The tribunal also found that the termination of the Claimant’s lindane registrations was not punitive or unfair. The PMRA had the discretion to offer a phase out of lindane-based pesticides through voluntary discontinuation and, in the exercise of its discretion, it treated all affected registrants similarly. The PMRA offered the Claimant the possibility to voluntarily discontinue its products; in view of its refusal, the tribunal decided that PMRA’s termination could not be considered as punitive or unfair.
The tribunal further held that Canada’s conduct did not breach NAFTA Article 1103. The Claimant alleged that this article allowed it to benefit from other treaties to which Canada is a party containing more favourable fair and equitable treatment clauses. However the tribunal found that, regardless of whether the Claimant could benefit from those treaties through NAFTA Article 1103 or not, the Claimant had not proven that Canada’s measures amounted to a breach of these allegedly more favourable fair and equitable treatment provisions.
The tribunal finally held that Canada’s conduct did not constitute an expropriation under NAFTA Article 1110. In order for a measure to constitute or be tantamount to expropriation the tribunal held that the measure needs to substantially deprive the investor of its investment. Here, the parties agreed that the investment was the Claimant’s Canadian subsidiary, Chemtura Canada. Since the sale of lindane-based pesticides constituted only a small part of the subsidiary’s economic activities, PMRA’s termination of the registrations for such pesticides did not substantially deprive the Claimant of its investment. Additionally, the tribunal held that PMRA’s measures constituted a valid exercise of Canada’s police powers since they were non-discriminatory actions taken to protect human health and the environment. As such, they could not constitute an expropriation.
Legal documents (all documents are in pdf)
This case was governed by the arbitral rules of the United Nations Commission on International Trade Law. Additional documents related to this case can be viewed at the website of the Permanent Court of Arbitration.
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- ARCHIVED - Award of the Arbitral Tribunal (PDF Document - 1.14 MB) - August 2, 2010
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