Investment Arbitration Reporter | 10 August 2015
As decision in Mesa v. Canada looms, investor and all three NAFTA parties weigh in on significance of Bilcon
Reprinted with permission of InvestmentArbitrationReporter.com
Following Canada’s loss this March in a NAFTA dispute, Bilcon v. Canada, that decision has prompted a new round of submissions in a separate dispute, Mesa Power Group LLC v. Canada.
The attorneys for the claimants in Bilcon are also the claimant’s attorneys in Mesa. After prevailing on their claims in Bilcon in March of this year, the attorneys wrote to the Mesa tribunal, notifying it of the Bilcon award, and highlighting issues in the Bilcon decision that were allegedly relevant for the claimant’s arguments in Mesa. The tribunal then invitedthe disputing parties in Mesa and the other two NAFTA state parties to make submissions on the “relevance and impact of the Bilcon award and dissenting opinion”, under Article 1128 of NAFTA. As the tribunal noted, although the hearings in Mesa had already been held and the parties’ post-hearing submissions filed, the proceedings had not yet been closed.
Arbitrators in the case are Gabrielle Kaufmann-Kohler (chair), Toby Landau, and Charles N. Brower. Mesa is represented by Appleton & Associates in Toronto and Astigarraga Davis Mullins & Grossman in Miami.
Canada and the other NAFTA parties declare that Bilcon decision was wrong on FET
In their submissions (available here), all three NAFTA states criticized the March decision, which had held Canada liable for violating the national treatment and fair and equitable treatment (FET) obligations under that treaty.
The NAFTA parties stated that the Bilcon tribunal was initially correct in rejecting certain of the claimant’s arguments, which had discounted the legal significance of the NAFTA states’ 2001 FTC Note of Interpretation, and had asserted that the FET obligation was not limited to customary international law. In particular, the NAFTA parties all argued the tribunal was correct in determining that:
– the FTC statement constituted an authentic interpretation of the NAFTA and is binding on tribunals;
– the NAFTA tribunals are bound to interpret and apply the standard in accordance with customary international law; and
– the FET obligation in the NAFTA cannot be regarded as an “autonomous” treaty norm that imposes additional requirements above and beyond what the minimum standard requires.
Nevertheless, the NAFTA states argued, the Bilcon majority ultimately failed in its duty to properly apply customary international law. According to their submissions, the Bilcon majority’s key failing consisted of not requiring the investor to establish, based on evidence of state practice and opinio juris, that a relevant rule of customary international law existed (and that was subsequently breached). Rather than hold the investor to that burden, the state parties asserted, the tribunal erroneously relied on decisions of other investor-state arbitration tribunals to define the FET obligation.
The United States in particular took issue with the tribunal’s decision to adopt the Waste Management II standard as the “epitome of the minimum standard.” In applying that standard, the United States stated, the Bilcon tribunal neglected to determine the existence of relevant rules of customary international law; improperly determined that the FET obligation protects investors’ “reasonable expectations”; and also failed to accord Canada the “high measure of deference that international law general extends to the right of domestic authorities to regulate matters within their own borders.”
NAFTA parties also criticize the Bilcon decision on national treatment
The NAFTA parties also challenged the Bilcon tribunal’s approach to the national treatment obligation. That obligation, they stated, was designed to protect against nationality-based discrimination, but, in their view, the Bilcon tribunal did not adequately address whether there actually had been any such discrimination.
Additionally, the NAFTA states argued, the Bilcon tribunal erred in imposing the burden on Canada to justify disparate treatment of different investors. According to the Bilcon tribunal, once the investor establishes a prima facie case of disparate treatment, the respondent must justify its differential treatment of the investors. However, the treaty parties argued that the burden in fact never shifts; it remains the investor’s burden to establish the required elements under NAFTA’s national treatment obligation.
The United States also rebuked the Bilcon tribunal for relying on the analysis of the Occidental v. Ecuador tribunal, which had applied the national treatment standard and, according to the United States, had “conclud[ed] erroneously that oil producers and flower producers were in ‘like situations.’”
Canada adds that Bilcon was also wrong on its decision on attribution
In its submission to the tribunal regarding the Bilcon decision, Canada also argued that the tribunal had erred in certain of its decisions on attribution and jurisdiction. Canada first stated that the facts of Bilcon were distinguishable from those ofMesa, and that those decisions in Bilcon were therefore not relevant for the issues before the tribunal in Mesa.
More specifically, Canada explained, the Ontario Power Authority (OPA) – whose actions are at issue in the Mesa case – is a state enterprise, and Canada’s responsibility under Chapter 11 of the NAFTA for acts of state enterprises is governed by thelex specialis rule of NAFTA Article 1503(2). In contrast, Canada continued, the Joint Review Panel (JRP) at issue in Bilcon was not a state enterprise. As a result, according to Canada, the Bilcon tribunal’s analysis of whether Canada was liable for the actions of the JRP is not relevant for assessing Canada’s liability for acts of the OPA.
Apart from being irrelevant, Canada added, the conclusions reached by the Bilcon tribunal on the particular issues of attribution and jurisdiction were erroneous and should not in any case be followed.
Neither Mexico nor the United States discussed the Bilcon tribunal’s findings on attribution and jurisdiction. Instead, both states instructed that “no inference should be drawn” from their decision not to address all aspects of the Bilcon decision. Nevertheless, in response to the two states’ submissions, Mesa highlighted the silence, declaring that “neither Mexico, nor the United States, [took] issue with the unanimous interpretations provided by the Bilcon tribunal on the issues of state responsibility, attribution and jurisdiction.”
Mesa calls for tribunal to follow Bilcon, and contends that doing so will result in an award against Canada
In its submission on the significance of the Bilcon case, Mesa presented a much more favorable view of the decision’s analysis and conclusions. On the national treatment obligation, Mesa argued, the proper approach was, as the Bilcon tribunal had stated, for the claimant to establish a prima facie case of disparate and adverse treatment of foreign investors/investments that are in “like circumstances” with domestic or other foreign investor/investments, and for the burden then to shift to the respondent to “show that detrimental treatment can be explained as required by legitimate policy objectives.”
Mesa also argued that the Bilcon tribunal applied a broad approach to “like circumstances”, suggesting that the Mesa tribunal should follow suit.
Turning to the FET obligation, Mesa argued that the Bilcon tribunal was correct in adopting the Waste Management II standard, and called for the Mesa tribunal to likewise follow that approach. As elaborated by that standard, Mesa continued, the FET obligation would be violated if there were a breach of investors’ legitimate expectations, or procedural or substantive unfairness or arbitrariness.
Addressing the issue of attribution and jurisdiction, Mesa argued that the Bilcon tribunal’s finding that Canada was internationally responsible for the acts of the JRP supported its position that Canada was similarly responsible for the acts of the OPA. It did not, however, address Canada’s contention that the OPA was covered by the lex specialis rule of NAFTA Article 1503 and therefore subject to different analysis than the JRP.
Claimant discounts legal force of NAFTA states’ submissions
In its response to the NAFTA states’ Article 1128 submissions, Mesa attempted to discount the legal weight of the state parties’ positions, asserting three main arguments.
First, it argued that non-disputing party submissions do not constitute the type of “concordant, common and consistent subsequent practice” that must be taken into account by tribunals under the Vienna Convention on the Law of Treaties (VCLT).
Second, Mesa argued that accepting the submissions would have the improper “de facto effect of amending the terms of the NAFTA” outside of the treaty’s specified procedures for amendments.
Third, Mesa argued that non-disputing party submissions were not “reliable or authoritative” approaches for “supplemental interpretation” of treaties such as the NAFTA that “bring into being the rights of non-State actors.” In such circumstances, Mesa asserted, “the fundamental principles of independence and impartiality of justice may require attenuating the extent to which states are regarded as [masters of their treaties].”
Bilcon award facing challenge in Canadian courts
The NAFTA parties’ critiques of the Bilcon award before the Mesa tribunal add to the challenges mounting against that award. As we reported previously, Canada is already seeking to set aside the Toronto-seated Bilcon award before the Federal Court of Canada.