{"id":4764,"date":"2015-05-21T23:30:41","date_gmt":"2015-05-22T04:30:41","guid":{"rendered":"http:\/\/www.iisd.org\/itn\/?p=4764"},"modified":"2024-08-09T18:26:08","modified_gmt":"2024-08-09T16:26:08","slug":"uncitral-tribunal-finds-canadas-environmental-assessment-breached-international-minimum-standard-of-treatment-and-national-treatment-standard-clayton-bilcon","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2015\/05\/21\/uncitral-tribunal-finds-canadas-environmental-assessment-breached-international-minimum-standard-of-treatment-and-national-treatment-standard-clayton-bilcon\/","title":{"rendered":"UNCITRAL tribunal finds Canada\u2019s environmental assessment breached international minimum standard of treatment and national treatment standard"},"content":{"rendered":"

William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware Inc. v. Government of Canada<\/em>, UNCITRAL<\/span><\/h2>\n

Background <\/strong><\/h3>\n

In an award dated March 17, 2015, a majority of Bruno Simma (chair) and Bryan Schwartz (investor\u2019s nominee) of a tribunal under the arbitration rules of the United Nations Commission for International Trade Law (UNCITRAL) found that Canada\u2019s environmental assessment of the investors\u2019 proposed quarry and marine terminal project breached the minimum standard of treatment and national treatment provisions under the investment chapter of the North-American Free Trade Agreement (NAFTA<\/span>). Canada\u2019s nominee, Donald McRae, strongly dissented from the majority\u2019s analysis of the facts and application of the NAFTA Article 1105 standard. The tribunal deferred the calculation of damages; the investors\u2014four U.S. nationals and a company constituted under U.S. law\u2014initially claimed $300 million.<\/p>\n

In April 2002, a permit was issued to build and operate a quarry in the Canadian province of Nova Scotia. In 2004, through a Canadian subsidiary, the claimant company (Bilcon) acquired the quarry and a marine terminal at Whites Point (the Project). Canada and Nova Scotia established a Joint Review Panel (JRP) to conduct an environmental assessment (EA) of the Project. Based on a 2007 JRP report, Nova Scotia and then Canada rejected the Project for its incompatibility with \u201ccommunity core values.\u201d Bilcon initiated arbitration in June 2008, alleging defects in the JRP process and report and in Canada\u2019s subsequent rejection of the project.<\/p>\n

At the outset of the analysis, the tribunal addressed Canada\u2019s jurisdictional objections, including that some claimants did not qualify as \u201cinvestors,\u201d that some claims were time barred, and that the JRP\u2019s acts could not be attributed to Canada. Yet the tribunal upheld its jurisdiction and set out to analyze the key substantive aspects of the case.<\/p>\n

Majority declares international minimum treatment standard is bound by FTC Note, but decides standard has evolved since Neer<\/em> case<\/strong><\/h3>\n

The investors argued for the fair and equitable treatment (FET<\/span>) standard in NAFTA Article 1105 to be interpreted as an autonomous standard encompassing the investor\u2019s legitimate expectations, protection against arbitrary and discriminatory measures, and a general requirement that the state \u201cact reasonably\u201d (para. 359). Canada countered that the standard did not include stand-alone obligations such as legitimate expectations, but that the NAFTA Free Trade Commission\u2019s (FTC) Notes of Interpretation of Certain Chapter Eleven Provisions limited FET to the international minimum standard in accordance with customary international law. The tribunal agreed with Canada that it was bound by the interpretation under the FTC Note and that there was a \u201chigh threshold\u201d for Article 1105 to apply (para. 441).<\/p>\n

The tribunal then determined that the general standard for Article 1105 as articulated in Waste Management<\/em> was the most appropriate interpretation. According to Waste Management<\/em>, \u201cthe minimum standard of treatment of fair and equitable treatment is infringed by conduct attributable to the State and harmful to the claimant if the conduct is arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety\u201d (para. 442).<\/p>\n

But the tribunal then decided that an international breach was not limited to \u201coutrageous\u201d state conduct, because the current international minimum standard had evolved to provide greater protection than that under the Neer<\/em> case. It determined that a tribunal must be fact-sensitive, which included weighing investors\u2019 \u201creasonably relied-on representations by a host state\u201d to determine if Article 1105 was breached (para. 444).<\/p>\n

Majority finds Canada in breach of international minimum standard of treatment<\/strong><\/h3>\n

Based on specific declarations by Nova Scotia officials, and even on the province\u2019s general investment promotion materials and policy statements, the tribunal held that the investors were clearly and repeatedly encouraged to pursue the Project. According to the tribunal, Canada led the investors to the reasonable belief that, subject to compliance with federal and provincial laws, the Whites Point area was not a \u201cno go\u201d zone for investment (para. 590), as the majority concluded it turned out to be through the JRP\u2019s assessment. In McRae\u2019s dissent, he argued that the fact that Nova Scotia officials encouraged investment in mining and any consequent \u201clegitimate expectations\u201d are irrelevant to whether the JRP has met the Article 1105 standards. He determined that any investor would have the expectation that Canadian law would be properly applied during an environmental assessment and this expectation has nothing to do with any assurances or encouragement provincial officials provided.<\/p>\n

The majority found the review was arbitrary because the JRP failed to determine the Project\u2019s viability based on the \u201clikely significant adverse effects after mitigation\u201d criterion. According to the majority, the JRP exceeded its mandate by, without notice or proper legal authority, adopting a new standard of \u201ccommunity core values\u201d assessment, which the majority compared to a public referendum on the project.<\/p>\n

Though the majority hedged that a \u201cmere error in legal or factual analysis\u201d (para. 594) would not be sufficient to meet the high threshold of international responsibility, it determined that the breach in this case did rise to that level. First, the majority considered that the investors had reasonable expectations and invested substantial resources and reputation in the JRP process. Second, it took into account their lack of notice regarding the \u201ccommunity core values\u201d assessment standard. Finally, it considered that the JRP fundamentally departed from the standard of evaluation required under Canadian law.<\/p>\n

McRae criticized the majority\u2019s reliance on investors\u2019 experts and witnesses for alleged issues in the JRP hearing process, saying the majority did not examine the actual hearing record. According to him, the majority wrongly interpreted the JRP\u2019s elaboration of \u201ccommunity core values.\u201d He stated that a closer examination of the actual report showed that the JRP\u2019s use of \u201ccore values\u201d and \u201ccommunity core values\u201d were simply names given to address \u201chuman environmental effects,\u201d a term that was a key component of the JRP\u2019s terms of reference (para. 15). In its analysis, the JRP found that the investors had failed to address human environmental effects in their Environmental Impact Statement, even though the JRP\u2019s terms or reference gave them notice of the need to address those effects. McRae rejected the majority\u2019s finding that the JRP in effect made a \u201czoning decision,\u201d arguing that its recommendations were based on the specific details of the investors\u2019 project (para. 27). He also determined that the JRP had provided sufficient reasoning for its decision not to include individual mitigation measures. Ultimately, McRae concluded that the majority\u2019s finding that the JRP\u2019s actions were arbitrary was not supported by any evidence or reasoning.<\/p>\n

Finally, McRae argued that even if the JRP\u2019s report was incompatible with domestic law, this was not sufficient to sustain a NAFTA breach, as the breach did not meet the high threshold of the Waste Management <\/em>standard. McRae determined that the JRP\u2019s actions were not arbitrary, and the majority did not show that other elements of the Waste Management<\/em> standard were met. McRae argued that, \u201c[b]y treating a potential violation of Canadian law as itself a violation of NAFTA Article 1105[,] the majority had in effect introduced the potential for getting damages for what is a breach of Canadian law, where Canadian law does not provide a damages claim for such a breach\u201d (para 43).<\/p>\n

Majority finds Canada did not accord national treatment to Bilcon\u2019s investment <\/strong><\/h3>\n

Bilcon argued that Canada accorded it treatment less favourable than that accorded to domestic investors, by subjecting it to the rarely used JRP review method and by failing to apply the \u201clikely significant adverse effects after mitigation\u201d standard. While the tribunal dismissed the first claim as time-barred, it upheld the second claim.<\/p>\n

The majority rejected Canada\u2019s attempt to restrict comparators to investments or investors in \u201clike circumstances\u201d such as those undergoing the more stringent JRP or those projects with significant pushback from a local community. It determined that the broad language in Article 1102 and NAFTA\u2019s general objective to materially increase investments meant that the range of comparators should be broader.<\/p>\n

Of the comparison cases involving quarries and taking place in sensitive coastal areas, at least three underwent \u201clikely significant adverse effects\u201d assessments. For the majority, this was sufficient to show that they received more favorable treatment than the investors. The majority determined that a state could justify its differential and adverse treatment under the Pope & Talbot<\/em> test, but found that Canada did not provide compelling justification for its actions.<\/p>\n

McRae disagreed with this finding as well, stating that the investors were treated in accordance with Canadian law.<\/p>\n

Investors\u2019 other claims dismissed and majority makes caveat to ruling<\/strong><\/h3>\n

The investors claimed other issues with the JRP assessment, but the majority determined that these factors did not rise to the level of international liability.<\/p>\n

The majority also decided it was unnecessary to determine if Canada breached the most-favoured-nation (MFN<\/span>) provision since it would not affect the measure of damages.<\/p>\n

The majority also took pains to stress that its finding in favour of the investors was not an assessment of substantive Canadian environmental law, but that its decision was based on the specific facts of the investors\u2019 claims and the JRP report\u2019s non-compliance with existing Canadian environmental law.<\/p>\n

McRae disagreed, stating that the majority added a control at the international level for investors to challenge decisions of domestic environmental review panels. He warned that this was \u201ca significant intrusion into domestic jurisdiction and will create a chill in the operation of environmental review panels\u201d (para. 48). For him, the most troubling aspect of the majority decision was that a state was held liable in damages to an investor for putting important value on how a project affects the human environment and for taking into account the community\u2019s articulation of its own interests and values.<\/p>\n

Notes<\/em>: The tribunal was composed of Bruno Simma, Bryan Schwartz and Donald McRae. The majority award is available at http:\/\/www.italaw.com\/cases\/documents\/2984<\/a> and the dissent, at http:\/\/www.italaw.com\/cases\/documents\/2985<\/a>.<\/p>\n

Marquita Davis<\/strong> is a Geneva International Fellow from University of Michigan Law and an extern with IISD<\/span>\u2019s Investment for Sustainable Development Program.<\/p>\n