{"id":3803,"date":"2016-08-10T09:34:57","date_gmt":"2016-08-10T14:34:57","guid":{"rendered":"http:\/\/itn.mattrock.ca\/?p=3803"},"modified":"2024-08-09T18:27:06","modified_gmt":"2024-08-09T16:27:06","slug":"mesa-power-group-llc-v-government-of-canada-uncitral-pca-case-no-2012-17","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2016\/08\/10\/mesa-power-group-llc-v-government-of-canada-uncitral-pca-case-no-2012-17\/","title":{"rendered":"NAFTA tribunal dismisses claims against Canada on green energy Feed-In Tariff program"},"content":{"rendered":"

Mesa Power Group, LLC v. Government of Canada, UNCITRAL<\/span>,\u00a0PCA Case No. 2012-17<\/em><\/h3>\n

An arbitration tribunal constituted under the North American Free Trade Agreement (NAFTA<\/span>) has issued its award subject to a dissenting opinion. The tribunal found jurisdiction under NAFTA Chapter 11 on Investment.<\/p>\n

The majority of the tribunal found that Ontario\u2019s Feed-In Tariff program (FIT Program)\u2014which created a tender process for long-term power purchase agreements (PPA) whereby business would sell clean energy to the provincial grid\u2014constituted procurement for the purposes of NAFTA, which resulted in the dismissal of certain claims. The majority also found that Canada did not breach its international obligations under NAFTA Article 1105.<\/p>\n

Background\u00a0<\/em><\/h3>\n

The claimant, Mesa Power Group, LLC (Mesa), is a company constituted under U.S. laws. Mesa is part of a group of companies that oversees and develops renewable energy projects, notably in the wind sector.<\/p>\n

In 2009, Ontario implemented the FIT Program for clean energy producers. Contrary to expectations, a high number of applications were filed. Although Mesa submitted a total of six applications, including two in the earliest possible window, it ultimately failed to secure a single PPA under the FIT Program. In particular, all of Mesa\u2019s projects were located in Ontario\u2019s Bruce Region. Following the first and second round of tenders under the FIT Program, the province cited transmission constraints as a material reason for not awarding PPAs in that region.<\/p>\n

In January 2010, while the FIT Program was ongoing, Ontario entered into a Green Energy Investment Agreement (GEIA) with a consortium led by the multinational Samsung. The GEIA required Samsung\u2019s consortium to establish and operate manufacturing facilities for wind and solar generation equipment in Ontario. In exchange, Samsung\u2019s group was, among others,<\/em>\u00a0guaranteed priority access to certain transmission capacity.<\/p>\n

Mesa served Canada with a Notice of Arbitration under NAFTA Chapter 11 on October 4, 2011. It alleged that Canada had, contrary to Articles 1102 and 1103, treated Mesa and its investments less favourably than other investors in like circumstances; contrary to Article 1106, imposed minimum domestic content requirements; and, contrary to Article 1105, failed to treat Mesa\u2019s investments in accordance with the international law standard of treatment. Mesa requested damages of approximately US$75 million.<\/p>\n

The tribunal was constituted on July 16, 2012 under the auspices of the Permanent Court of Arbitration (PCA<\/span>). Subsequently, all three arbitrators signed a \u201cDeclaration of Acceptance and Statement of Independence and Impartiality\u201d regarding their appointment. On May 4, 2015, the presiding arbitrator disclosed that she was chairing an ICSID<\/span> arbitration in which one of the party-appointed arbitrators appeared as counsel.<\/p>\n

No requirement for \u201ccooling-off period\u201d in relation to each and every event\u00a0<\/em><\/h3>\n

Canada objected to the tribunal\u2019s jurisdiction on the basis that the NAFTA Parties conditioned their consent to arbitration on a potential claimant following the procedures set out in NAFTA Articles 1118 to 1121 and that Mesa had not done so.<\/p>\n

In particular, Mesa had filed its Notice of Arbitration only three months after the final decision of the Ontario government that it sought to challenge. Canada argued that Mesa did not comply with the six-month cooling-off period in Article 1120(1), and that the ordinary meaning of the phrase \u201cevents giving rise to a claim\u201d in the provision designates each and every event. In this respect, Canada was supported by the third-party submission of Mexico.<\/p>\n

The tribunal proceeded to interpret Article 1120(1) in light of the principles of interpretation in the Vienna Convention on the Law of Treaties and bearing in mind the objectives stated in NAFTA Article 102(1). It ultimately agreed with Mesa: if Canada\u2019s argument were accepted, every new event related to a claim would require a claimant to wait for a further six months, which would apply however secondary or ancillary the new event may be. Thus, if events relating to the same claim kept occurring, a claimant would effectively be precluded from ever initiating arbitration under Article 1116(1). This interpretation, according to the tribunal, would effectively deprive the provision of\u00a0effet utile<\/em>, an outcome that is contrary to treaty interpretation rules.<\/p>\n

FIT Program constitutes procurement\u00a0<\/em><\/h3>\n

According to Canada, the obligations under NAFTA Articles 1102, 1103, and 1106 did not apply to Mesa\u2019s investment, because the FIT Program constituted \u201cprocurement\u201d under Articles 1108(7)(a) and 1108(8)(b), which provide reservations and exceptions to the investment protections under NAFTA. As NAFTA Chapter 11 does not define the term procurement, Canada argued that the tribunal should accept the expansive approach taken in previous NAFTA arbitrations, for example,\u00a0ADF v. United States<\/em>\u00a0and\u00a0UPS v. Canada<\/em>, as well as the World Trade Organization Panel and Appellate Body reports in\u00a0Canada \u2014 Renewable Energy<\/em>. Mesa, however, invoked the most-favoured-nation (MFN<\/span>) clause in NAFTA Article 1103 and the better treatment provided under subsequent treaty practice, such as the 2009 Canada\u2013Czech Republic Foreign Investment Promotion and Protection Agreement (FIPA).<\/p>\n

In regards to the claimant\u2019s MFN argument, the tribunal observed that, \u201c[f]or an MFN clause in a base treaty to allow the importation of a more favorable standard of protection from a third party treaty, the applicability of the MFN clause in the base treaty must first be established. Put differently, one must first be\u00a0under<\/em>\u00a0the treaty to claim\u00a0through<\/em>\u00a0the treaty. \u00a0Thus, […] for the Claimant to establish that Article 1103 of the NAFTA applies, it must show that the FIT Program does not constitute procurement\u201d (paras. 401\u2013402). However, Mesa ultimately failed in this regard, and the tribunal concluded that the FIT Program did constitute procurement, dismissing the discrimination claims under Articles 1102 and 1103.<\/p>\n

Charles Brower dissented from the finding that the FIT Program constituted procurement.<\/p>\n

Tribunal settles on scope of customary international law standard of treatment\u00a0<\/em><\/h3>\n

The tribunal considered submissions from the parties to the dispute and the non-disputing NAFTA Parties (both Mexico and the United States) with regard to the interpretation and scope of Article 1105. In terms of interpretation, the tribunal found the Free Trade Commission\u2019s 2011\u00a0Notes of Interpretation of Certain Chapter Eleven Provisions<\/em>\u00a0(FTC Notes) to be binding.<\/p>\n

On the scope of the customary international law minimum standard of treatment found in Article 1105, the parties diverged: Mesa claimed that it has evolved and now has the same content and meaning as the so-called \u201cautonomous\u201d fair and equitable treatment (FET<\/span>) standard of modern bilateral investment treaties (BITs), while Canada advanced the view that Article 1105 in no way creates an open-ended obligation to be defined by tribunals.<\/p>\n

Upon consideration of the parties\u2019 positions, the tribunal was of the unanimous opinion that the decision in\u00a0Waste Management II<\/em>\u00a0had correctly identified the content of the customary international law minimum standard of treatment found in Article 1105. On this basis, it affirmed the following components of Article 1105: \u201carbitrariness; \u2018gross\u2019 unfairness; discrimination; \u2018complete\u2019 lack of transparency and candor in an administrative process; lack of due process \u2018leading to an outcome which offends judicial propriety\u2019; and \u2018manifest failure\u2019 of natural justice in judicial proceedings\u201d (para. 502). The tribunal also upheld the view that the failure to respect legitimate expectations of an investor must be considered when applying the standard, but does not in and of itself constitute a breach of Article 1105. In conclusion, the tribunal noted that when defining the content of Article 1105 \u201cone should further take into consideration that international law requires tribunals to give a good level of deference to the manner in which a state regulates its internal affairs\u201d (para. 505).<\/p>\n

Dissenting opinion on whether Canada ultimately breached Article 1105\u00a0<\/em><\/h3>\n

Although concurring on the above formulation of the applicable standard, Charles Brower dissented from the finding that Canada had not breached Article 1105. According to Brower, \u201c[m]oreover, \u2013 and this can only be characterized as grotesque \u2013 as it actually happened, the Korean Consortium was thereby enabled to acquire low-ranked FIT applicants in order to fill its allotted 500 MW, thereby jumping clear losers in the FIT Program over higher-ranked, but ultimately unsuccessful FIT applicants, due to the reduced available megawattage\u201d (para. 4 of the dissenting opinion).<\/p>\n

Canada largely successful in application for costs\u00a0<\/em><\/h3>\n

Pursuant to NAFTA Article 1135(1), the tribunal was at liberty to award costs in accordance with the applicable arbitration rules and followed Article 40 of the 1976 UNCITRAL Rules in finding that the claimant as the unsuccessful party must bear all of the costs of the arbitration. In terms of costs of legal representation and assistance, however, the UNCITRAL Rules provided less direct guidance, and the tribunal was of the view that the claimant should bear all of its own and 30 per cent of Canada\u2019s costs.<\/p>\n

Notes<\/em>: The tribunal was composed of Gabrielle Kaufmann-Kohler (President appointed by appointed by the International Centre for Settlement of Investment Disputes as appointing authority, Swiss national), Charles Brower (claimant\u2019s appointee, U.S. national), and Toby Landau\u00a0(respondent\u2019s appointee, British national). The final award of March 24, 2016 is available at\u00a0http:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw7240.pdf<\/a>\u00a0and Charles Brower\u2019s dissent at\u00a0http:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw7241.pdf<\/a>.<\/p>\n

Matthew Levine<\/strong>\u00a0is a Canadian lawyer and a contributor to IISD<\/span>\u2019s Investment for Sustainable Development Program.<\/p>\n