Canada Loses Another Investment Dispute under NAFTA

By | March 23, 2015

A NAFTA arbitration panel has decided against Canada in a long-standing investment dispute over a large coastal quarry and marine project in Nova Scotia that had been turned down over environmental and social concerns (Clayton/Bilcon v. Canada).

A majority of the panel said that Canada and Nova Scotia breached the minimum standard of treatment under international law, as required under Chapter 11 of the NAFTA.

The case was launched by the US investors in 2007.

No decision has been made on the amount of compensation, which the investors claim at $300 million.

The decision is likely to stir up considerable controversy, notably because of a strong dissent by one of the panel members, Prof. Donald McRae, who said that the NAFTA panel went far beyond its jurisdiction under the treaty in questioning the reasoning of the federal-provincial environmental panel. Prof. McRae said that even if the review panel had breached some aspects of domestic law , that didn’t mean that the matter could be reviewed under the high thresholds set out in the NAFTA.

This decision, together with another NAFTA award against Canada and Newfoundland in the Murphy Oil Case, seems to reverse a trend where NAFTA investment panels have sided with governments, holding that they had the legitimate right to regulate economic activity and legislate for the public interest as long as their laws and other measures weren’t unfairly discriminatory or arbitrary.

Apart from these Canada-US cases under the NAFTA, there is growing debate in legal and trade policy circles generally over the role of investor-State dispute settlement panels (ISDS), including the dramatically increased use of investor litigation in challenging governmental regulations, many of which concern resource development and environmental protection.

One of the items of focus is that foreign investors have much larger rights under investment treaties than do local investors under domestic law. Another issue concerns the absence of an appeal mechanism, leaving investment panels with essentially un-challengeable authority in deciding these disputes.

It is not beyond legal ingenuity to resolve some of these issues. A few international organizations have even put these points on their agendas for future discussion (e.g., UNCTAD and ICSID). However, in reality, given that there are over 2,500 bilateral investment treaties around the world already in existence, finding a solution to these concerns remains a distant dream.