Canadian lumber company fails to vacate NAFTA Chapter 11 award in US court

By Damon Vis-Dunbar
12 September 2008

A bid by a Canadian lumber company, Tembec, to vacate a NAFTA Chapter 11 award was dismissed in August by a United States District Court.

This is the second time Tembec has turned to the United States District Court for the District of Columbia. In 2005, Tembec made an attempt to vacate an order which consolidated Tembec’s claim against the United States with two other similar claims by Canadian lumber companies.

Tembec later agreed dismiss its petition before the US district court – as well as withdraw its NAFTA chapter 11 claim – following a political agreement between the United States and Canada over the softwood lumber dispute. The next day, however, the United States submitted to the NAFTA tribunal that Tembec bear all the costs associated with the arbitration. The NAFTA tribunal ultimately decided that Tembec should pay all the costs; a decision that contrasts with many investment-treaty arbitrations, in which the costs are shared between the parties.

In 2007, Tembec filed another petition before the US District Court for Columbia to vacate the NAFTA award on costs. But in a decision dated August 14th, the district court rejected the petition on two grounds: res judicata and collateral estoppel.

Essentially, the petition was dismissed on the grounds that the court has already ruled on this matter. “By filing this suit [Tembec Inc. et al] attempts the proverbial second bite of the apple,” wrote the court, which argued that Tembec was using “the very same nucleus of facts raised in the First Petition …”.

Under the doctrine res judicata, “a judgment on the merits in a prior suit bars a second suit involving identical parties or their privies based on the same cause of action.” Under the doctrine of collateral estoppel (aka issue preclusion) “an issue of fact or law that was actually litigated and necessarily decided is conclusive in a subsequent action between the same parties …”.

A copy of the 14 August 2008 opinion of the United States District Court for the District of Columbia in Tembec Inc. et al v. United States of America is available from the Investment Treaty Arbitration website.