NAFTA - Chapter 11 - Investment
Cases Filed Against the Government of Canada
Merrill & Ring Forestry L.P. v. Government of Canada
Merrill & Ring Forestry L.P. (“M&R”) is a limited partnership based in Washington State that owns timber lands under federal jurisdiction in British Columbia and markets logs from these lands for export and domestic sales.
- 1102 (National Treatment)
- 1105 (Minimum Standard of Treatment)
- 1106 (Performance Requirements)
- 1110 (Expropriation)
$50 million CAD.
M&R filed a Notice of Intent to Submit a Claim to Arbitration on September 25, 2006 and subsequently served a Notice of Arbitration on December 27, 2006. A hearing on jurisdiction and merits took place in Washington in May 2009 and the Award was issued on March 31, 2010.
Factual Overview and Nature of the Claim
M&R alleged that Canada’s export controls on logs harvested from its lands in British Columbia violated several obligations under NAFTA Chapter 11, for which M&R claimed over CAD $50 million in losses as a result of these alleged breaches.
The Tribunal’s Award
The tribunal dismissed M&R’s claim in its entirety.
With respect to its national treatment claim, M&R alleged that it was in like circumstances with other log producers that export logs from other parts of British Columbia and from Canada. M&R claimed that it received “less favourable” treatment than these comparators. The tribunal determined, however, that the treatment M&R was accorded was identical to that accorded to domestic investors in the same category. In the tribunal’s view, Canada did not breach its obligation of national treatment in this case.
With respect to its performance requirements claim, M&R asserted that the log export control regime caused it to cut and sort timber according to “normal market practices” in Canada, to scale timber rafts metrically and to follow additional rules for properties located in the remote coastal region, which all impacted the way it manages its investment in Canada. In M&R’s view, these amounted to prohibited performance requirements. The tribunal disagreed, noting instead the measures complained of do not lend themselves to inclusion in the closed list of performance requirements under Article 1106.
M&R also claimed that Canada’s log export control regime was a measure tantamount to expropriation in violation of Article 1110, as it substituted government control for the Investor’s control over critical parts of its business, including the harvesting, processing and selling of its logs. In particular, M&R asserted that its rights in an “interests in realizing fair market value for its logs on the international market” were expropriated. The tribunal dismissed this claim because the business of the investor has to be considered as a whole and not necessarily with respect to an individual or separate aspect, particularly if this aspect does not have a standalone character. In the tribunal’s view, while the right to export is a fundamental aspect to the business concerned, the protection against expropriation does not and cannot guarantee exports will be made at a certain price. The tribunal asserted that the regulatory measures under the log export control regime may amount to inconveniences to the investor’s business, does not meet the standard of substantial deprivation so as to qualify for a compensable expropriation under NAFTA.
With respect to its minimum standard of treatment claim under Article 1105, M&R claimed that requirements to export logs according to “normal market practices” imposed additional requirements left that have never been defined and left to the determination of the British Columbia Ministry of Forests. M&R further asserted that the log export control regime was administered in a highly secretive and non-transparent manner, in breach of the rule of law and that unfairness, discrimination and an unstable business environment are all elements of Canada’s regime, which was contrary to the fair and equitable treatment standard. The tribunal reviewed the meaning of “fair and equitable treatment,” and determined that the applicable minimum standard of treatment of investors is found in customary international law. The tribunal failed to reach a consensus on whether there was a breach of Article 1105, ruling instead that even if one were to accept the Investor’s claim under Article 1105 amounted to a breach of the fair and equitable treatment standard, damages resulting from that breach have not been proven.
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 UNCITRAL Transparency Registry.
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- ARCHIVED - Final Award (PDF Document - 1.12 MB) - March 31, 2010
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