ISDS Redux: Canada Loses – But Very Little

By | March 13, 2015

It’s been reported that a NAFTA investment dispute panel has ordered Canada to pay $17 million in compensation to Exxon-Mobil and Murphy Oil due to changes to the  to the Canada-Newfoundland Offshore Petroleum Board Guidelines governing offshore oil and gas development on the continental shelf off Newfoundland and Labrador.

The award isn’t public as yet, but the story leaked out and was featured in a recent issue of the Investment Arbitration Reporter.

The arbitration was launched by the two oil companies as a result of Guideline changes in 2004, requiring them to make additional R & D expenditures in the Province.

The challenge was grounded in NAFTA Article 1106, which prohibits Parties from imposing local purchase and performance requirements on investors within their territory. The changes in the Guidelines were claimed as beyond the permissible NAFTA allowances.

There are several things to note about the proceedings, notably that the $17 award is substantially less than the $60 million plus interest and costs claimed by the companies.

While we don’t know whether the substantial arbitration costs (arbitrators’ fees and administration, etc.)  will be charged 100% to Canada or whether they will be shared, an award of that amount will likely be eaten up by legal fees alone, incurred over the almost eight years since the claim was filed.

So it’s questionable how much the companies have really gained in all of this, illustrating the risks in pursuing investor-state litigation .

The other interesting element is that the award is against Canada – that is, the federal government – as the NAFTA respondent. Whether Ottawa will recover part of the $17 million from the Province is uncertain. In a prior NAFTA case initiated by Abitibi-Bowater in 2006 over Newfoundland’s expropriation of the company’s assets, Ottawa settled the case by paying $130 million in compensation to the company.

Even though the litigation there involved a Provincial expropriation measure, Newfoundland has apparently refused to repay any of the settlement amount to the Federal government. While this is a different situation in that it concerns a joint Fed-Prov agency, whether Newfoundland coughs up any of the money remains to be seen.