The Bilcon NAFTA Arbitration: The Damages Ruling - Meinhard Doelle
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Janet M Eaton
Mar 2, 2019, 9:25:05 PM3/2/19
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https://blogs.dal.ca/melaw/2019/03/01/the-bilcon-nafta-arbitration-the-damages-ruling/
The Bilcon NAFTA Arbitration: The Damages Ruling
March 1, 2019
Meinhard Doelle
The decade long legal saga over the Whites Point Quarry project in Digby Neck, Nova Scotia appears to be finally coming to a close. For an overview of the key steps in the NAFTA process, see https://investmentpolicyhub.unctad.org/ISDS/Details/304 . The NAFTA tribunal, which had previously found in favour of Bilcon at the liability stage of the NAFTA Chapter 11 process, recently issued its ruling on damages, awarding Bilcon only a tiny fraction of the damages it was seeking. While Bilcon could make a last-ditch effort to apply to have the damages finding set aside, a change in the outcome is unlikely at this point.
As I previously reported ( https://blogs.dal.ca/melaw/2015/03/25/clayton-whites-point-nafta-challenge-troubling/ ), the project, initially proposed in the early 2000’s, was rejected in 2007 by both the federal and Nova Scotia governments following an unfavourable assessment by a federal-provincial review panel. In response, rather than challenge the decision in a Canadian court by way of judicial review, the proponent, Bilcon, filed a $500 million damages claim under Chapter 11 of NAFTA, alleging that as a US investor, it was unfairly treated by the review panel and by government decision makers.
After 7 years of motions, submissions and hearings, the NAFTA tribunal, in a split decision, agreed with the proponent on liability. Two out of the three members of the tribunal concluded that the review panel (and the two levels of government who relied on the panel report in rejecting the project) had not treated Bilcon fairly. They found that the panel had erred by imposing a “community core values” test on the project without notice to the proponent, and by failing to complete the ‘likely significant adverse effects after mitigation’ analysis required under the Canadian Environmental Assessment Act (CEAA). I previously commented on the liability phase of the NAFTA ruling here: https://blogs.dal.ca/melaw/2015/03/25/clayton-whites-point-nafta-challenge-troubling/ . The government of Canada sought judicial review of the finding of the NAFTA tribunal on the basis that the panel’s work was consistent with the provisions of the applicable provisions of the CEAA and the Nova Scotia Environment Act, but lost before the Federal Court ( https://www.italaw.com/sites/default/files/case-documents/italaw9696.pdf ).
In the meantime, the NAFTA tribunal proceeded to the damages phase of its process. The tribunal was, of course, bound by its previous ruling on liability. Essentially, having found that Bilcon was treated unfairly as a result of the errors made by the panel, and as a result of the two levels of government deciding to reject the project on the strength of the panel report, the tribunal then considered what damages Bilcon had suffered as a result of the unfair treatment it had received. The key issue for the tribunal was to determine what losses or harm the claimant had suffered as a result of the respondent’s failure to conduct an EA process in compliance with NAFTA.
Bilcon sought in the range of $500 million on the basis that but for the errors made by the panel, the Whites Point Quarry project would have been approved by federal and provincial decision makers, and the proponent would have been able to operate the quarry at a profit over a period of 50 years. The basis for this claim was twofold. First, Bilcon argued that if you take the errors out of the panel report, there was nothing left that provided a basis for rejecting the project. Second, Bilcon argued that until the Whites Point Quarry, the province of Nova Scotia had never ‘seen a quarry proposal it did not like’.
Canada took the position that even if the panel had not made the errors it did, there was no certainty that the project would have been approved, in fact it was reasonable, based on the evidence before the panel, to conclude that the project would still have been rejected. Canada particularly argued that the proposed project could reasonably have been rejected by the federal government based on significant adverse effects on whales and lobster, and by the province of Nova Scotia based on these same adverse effects, as well as the negative socio-economic effects of the project. Based on this, Canada argued that the claimants had not proven any harm resulting from the errors identified by the NAFTA tribunal at the liability stage.
The tribunal rejected Bilcon’s core contention that but for the errors made, approval of the project was a virtual certainty. It concluded that the claimants failed to prove that the proposed project would have been approved, or that it would have been approved on conditions that would have made it economically viable or profitable. The tribunal went on to consider what damages the claimants would be entitled to in light of its finding that the claimants had failed to prove that the project would have been approved.
As a preliminary matter, the tribunal concluded that while the claimants had a general duty to mitigate their losses, it was reasonable in the circumstances for the claimants not to seek JR of the panel report and the government decisions to reject the project. The tribunal was clearly reluctant to require the pursuit of a domestic remedy as mitigation measure, given that under Chapter 11 of NAFTA, the exhaustion of domestic remedies is not a prerequisite for a claim. The tribunal furthermore appears to have shared the claimant’s concern that even if it was going to be successful in a JR application, the outcome would likely have been a new EA process rather than a project approval, and given the circumstances, its project may not have been given fair consideration in a second EA process.
The tribunal then proceeded to assess damages based on the claimants’ lost a “fair opportunity to have their case considered and assessed” in the course of the EA process from 2001 to 2007. Essentially, the tribunal concluded that all the proponent had was an opportunity to have the project reviewed fairly. Its value could therefore not be assessed assuming project approval, but would rather have to be assessed based on the value of the opportunity at the time Bilcon applied for approval. The tribunal concludes that Bilcon is entitled to damages based on “the value of the opportunity to have the environmental impact of the Whites Point Project assessed in a fair and non-arbitrary manner”.
The tribunal goes on to conclude that damages, at a minimum, would be the claimants’ cost of going through EA process, which was estimated at $5 million. This conclusion appears to be based on the assumption that the proponent would not have spent the money to go through the EA process if the value of the opportunity was not at least as much as the cost of the EA process. In addition to considering the cost of going through the EA process, the tribunal also gave consideration of the value of the business opportunity before the fate of the project was known. Based on the limited evidence before it, in part because Bilcon had focused on lost profits as its basis for assessing damages, not the value of the opportunity before the EA decision, the tribunal ultimately concluded that the value of the opportunity was $7 million.
Ultimately, while Bilcon won the initial battle on liability, it ultimately was awarded very little in damages. Furthermore, with NAFTA due to be replaced with a new agreement that does not include an equivalent to Chapter 11, and Canada’s trade agreement with the EU due to set up a somewhat different process, the precedential significance of the ruling may turn out to be minimal.
The Bilcon NAFTA Arbitration: The Damages Ruling
March 1, 2019
Meinhard Doelle
The decade long legal saga over the Whites Point Quarry project in Digby Neck, Nova Scotia appears to be finally coming to a close. For an overview of the key steps in the NAFTA process, see https://investmentpolicyhub.unctad.org/ISDS/Details/304 . The NAFTA tribunal, which had previously found in favour of Bilcon at the liability stage of the NAFTA Chapter 11 process, recently issued its ruling on damages, awarding Bilcon only a tiny fraction of the damages it was seeking. While Bilcon could make a last-ditch effort to apply to have the damages finding set aside, a change in the outcome is unlikely at this point.
As I previously reported ( https://blogs.dal.ca/melaw/2015/03/25/clayton-whites-point-nafta-challenge-troubling/ ), the project, initially proposed in the early 2000’s, was rejected in 2007 by both the federal and Nova Scotia governments following an unfavourable assessment by a federal-provincial review panel. In response, rather than challenge the decision in a Canadian court by way of judicial review, the proponent, Bilcon, filed a $500 million damages claim under Chapter 11 of NAFTA, alleging that as a US investor, it was unfairly treated by the review panel and by government decision makers.
After 7 years of motions, submissions and hearings, the NAFTA tribunal, in a split decision, agreed with the proponent on liability. Two out of the three members of the tribunal concluded that the review panel (and the two levels of government who relied on the panel report in rejecting the project) had not treated Bilcon fairly. They found that the panel had erred by imposing a “community core values” test on the project without notice to the proponent, and by failing to complete the ‘likely significant adverse effects after mitigation’ analysis required under the Canadian Environmental Assessment Act (CEAA). I previously commented on the liability phase of the NAFTA ruling here: https://blogs.dal.ca/melaw/2015/03/25/clayton-whites-point-nafta-challenge-troubling/ . The government of Canada sought judicial review of the finding of the NAFTA tribunal on the basis that the panel’s work was consistent with the provisions of the applicable provisions of the CEAA and the Nova Scotia Environment Act, but lost before the Federal Court ( https://www.italaw.com/sites/default/files/case-documents/italaw9696.pdf ).
In the meantime, the NAFTA tribunal proceeded to the damages phase of its process. The tribunal was, of course, bound by its previous ruling on liability. Essentially, having found that Bilcon was treated unfairly as a result of the errors made by the panel, and as a result of the two levels of government deciding to reject the project on the strength of the panel report, the tribunal then considered what damages Bilcon had suffered as a result of the unfair treatment it had received. The key issue for the tribunal was to determine what losses or harm the claimant had suffered as a result of the respondent’s failure to conduct an EA process in compliance with NAFTA.
Bilcon sought in the range of $500 million on the basis that but for the errors made by the panel, the Whites Point Quarry project would have been approved by federal and provincial decision makers, and the proponent would have been able to operate the quarry at a profit over a period of 50 years. The basis for this claim was twofold. First, Bilcon argued that if you take the errors out of the panel report, there was nothing left that provided a basis for rejecting the project. Second, Bilcon argued that until the Whites Point Quarry, the province of Nova Scotia had never ‘seen a quarry proposal it did not like’.
Canada took the position that even if the panel had not made the errors it did, there was no certainty that the project would have been approved, in fact it was reasonable, based on the evidence before the panel, to conclude that the project would still have been rejected. Canada particularly argued that the proposed project could reasonably have been rejected by the federal government based on significant adverse effects on whales and lobster, and by the province of Nova Scotia based on these same adverse effects, as well as the negative socio-economic effects of the project. Based on this, Canada argued that the claimants had not proven any harm resulting from the errors identified by the NAFTA tribunal at the liability stage.
The tribunal rejected Bilcon’s core contention that but for the errors made, approval of the project was a virtual certainty. It concluded that the claimants failed to prove that the proposed project would have been approved, or that it would have been approved on conditions that would have made it economically viable or profitable. The tribunal went on to consider what damages the claimants would be entitled to in light of its finding that the claimants had failed to prove that the project would have been approved.
As a preliminary matter, the tribunal concluded that while the claimants had a general duty to mitigate their losses, it was reasonable in the circumstances for the claimants not to seek JR of the panel report and the government decisions to reject the project. The tribunal was clearly reluctant to require the pursuit of a domestic remedy as mitigation measure, given that under Chapter 11 of NAFTA, the exhaustion of domestic remedies is not a prerequisite for a claim. The tribunal furthermore appears to have shared the claimant’s concern that even if it was going to be successful in a JR application, the outcome would likely have been a new EA process rather than a project approval, and given the circumstances, its project may not have been given fair consideration in a second EA process.
The tribunal then proceeded to assess damages based on the claimants’ lost a “fair opportunity to have their case considered and assessed” in the course of the EA process from 2001 to 2007. Essentially, the tribunal concluded that all the proponent had was an opportunity to have the project reviewed fairly. Its value could therefore not be assessed assuming project approval, but would rather have to be assessed based on the value of the opportunity at the time Bilcon applied for approval. The tribunal concludes that Bilcon is entitled to damages based on “the value of the opportunity to have the environmental impact of the Whites Point Project assessed in a fair and non-arbitrary manner”.
The tribunal goes on to conclude that damages, at a minimum, would be the claimants’ cost of going through EA process, which was estimated at $5 million. This conclusion appears to be based on the assumption that the proponent would not have spent the money to go through the EA process if the value of the opportunity was not at least as much as the cost of the EA process. In addition to considering the cost of going through the EA process, the tribunal also gave consideration of the value of the business opportunity before the fate of the project was known. Based on the limited evidence before it, in part because Bilcon had focused on lost profits as its basis for assessing damages, not the value of the opportunity before the EA decision, the tribunal ultimately concluded that the value of the opportunity was $7 million.
Ultimately, while Bilcon won the initial battle on liability, it ultimately was awarded very little in damages. Furthermore, with NAFTA due to be replaced with a new agreement that does not include an equivalent to Chapter 11, and Canada’s trade agreement with the EU due to set up a somewhat different process, the precedential significance of the ruling may turn out to be minimal.
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