26 | LEXPERT • December 2015 | www.lexpert.ca
NAFTA
no ability to declare illegal or to reverse a government measure,"
he notes. "It only provides that where those measures breach the
very specific commitments of Chapter 11, the government may
have to pay compensation to foreign companies that are harmed."
Such a case – Clayton/Bilcon v. Government of Canada – was
decided in March 2015, when a NAFTA panel ruled against
Canada in a claim filed in 2008 by the Clayton family firm,
Bilcon of Delaware Inc. Bilcon wanted to develop a quarry and a
marine terminal in Whites Point, Nova Scotia, but was rebuffed
in a federal-provincial environmental review.
e NAFTA panel found that Canada failed to treat Bilcon
"in accordance with international law, including fair and equita-
ble treatment and full protection and security," in breach of
Article 1105 (minimum standard of treatment), and failed to
accord "treatment no less favorable than that it has accorded, in
like circumstances, to ... its own investors," in breach of Article
1102 (national treatment). Bilcon has said it will seek C$300-
million in damages.
(Oen a panel's ruling is in two stages: the first decides
whether there was a breach, and, if so, the second stage deter-
mines the damages. "Figuring out the damages can be such a
complex burden," says Lalonde, "that they want to sort out first
whether they even need to deal with that by addressing the merits
of the case.")
A recent study by the Canadian Centre for Policy Alternatives
(NAFTA Chapter 11 Investor-State Disputes to January 1, 2015
and its accompanying analysis, Democracy Under Challenge:
Canada and Two Decades of NAFTA's Investor-State Dispute
Settlement Mechanism) found that more than 70 per cent of
investor/state claims under Chapter 11 since 2005 have targeted
Canada, and that the number of those claims has risen sharply.
During 1995‒2005, 12 cases were brought against Canada,
while in the decade since there were 23. e 35 claims against
Canada comprise 45 per cent of the total number of investor/
state claims under NAFTA. at is significantly higher than the
22 challenges against Mexico or the 20 against the US.
Canada has lost or settled six claims, paying a total of C$170
million in damages, while Mexico has lost five cases and paid
C$204 million. e US, meanwhile, has won 11 cases and has
never lost a NAFTA investor/state case. ere are currently seven
claims outstanding against Canada, all by US companies.
"e vast majority of claims that are brought are either
dismissed, settled or dropped without the payment of damages,"
says Boscariol at McCarthys. "And in those cases where damages
are awarded against Canada, it's typically a small fraction of
what's being claimed."
e biggest payout by Canada in a Chapter 11 case occurred in
2010 when the federal government agreed to pay AbitibiBowater
C$130 million to settle the pulp and paper company's claim that
Newfoundland and Labrador (NL) expropriated its timber and
water rights. e company had sought C$500 million. (Although
AbitibiBowater – which is now Resolute Forest Products – has
its headquarters in Montréal, it is incorporated in Delaware, so
could proceed under NAFTA as a foreign investor.)
When the company closed its Grand Falls-Windsor mill in
2008, it asserted rights to sell its assets, including certain timber-
harvesting licenses and water-use permits. ese permits had
e doctrine of stare decisis does not apply: all of the Chapter
11 arbitrations are at the same level. "Just because a panel hearing
a previous case decided in a certain way doesn't mean that if
I'm appointed to a new panel, I have to follow that ruling," says
Darrel Pearson, a partner at Bennett Jones LLP in Toronto. "I
should consider as a matter of law the principles that have been
discussed in previous cases," Pearson adds. "But it's very easy for
the subsequent panel to say the facts were different there and
make their own decisions."
Canada has been the defendant in Chapter 11 cases "to a
greater extent than we might have expected," says Pearson. e
paramount explanation for this, he says, is that the strongest
investment flows within the NAFTA bloc are from the US
outward. "e sheer volume of investment favors cases taken
against Canada and Mexico by US investors."
Herman notes that it's much easier for US investors to sue
Canada than Mexico. "Canada and the US are English-speaking,
common-law countries, whereas Mexico is a Spanish-speaking,
civil-law country." In addition, through Canada's access-to-
information laws, a US claimant "has access to a huge array of
documents to support their case." American companies, further-
more, are better capitalized and can afford litigation.
John Boscariol, a partner at McCarthy Tétrault LLP in
Toronto, offers a third explanation for why Canada is most
frequently sued under NAFTA. "e provinces may be intrud-
ing more into the economy in Canada than the [states] are in the
US or Mexico. A lot of those Chapter 11 cases against Canada are
challenges against provincial measures. e Canadian govern-
ment is still responsible for defending or paying damages arising
from these claims."
Paul Lalonde, a partner at Dentons Canada LLP in Toronto,
however, rejects the argument that NAFTA undermines the
ability of governments to regulate foreign investors. "NAFTA has
Darrel Pearson
Bennett Jones LLP
"I SHOULD CONSIDER
as a matter of law the principles that
have been discussed in previous cases,
but it's very easy for the subsequent panel
to say the facts were different there
and make their own decisions."
