Attorney General of Canada ( Applicant ) v. William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton v. Bilcon of Delaware, Inc., 2018 FC 436

T-1000-15 2018 FC 436 In the Matter of Sections 5 and 6 of the Commercial Arbitration Act , R.S.C., 1985 (2nd Supp.), c. 17 In the Matter of Articles 1, 6 and 34 of the Commercial Arbitration Code Set Out in the

Schedule to the Commercial Arbitration Act And In the Matter of an Arbitration under

Chapter 11 of the North American Free Trade Agreement (NAFTA) Between: Attorney General of Canada ( Applicant ) v. William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware, Inc. ( Respondents ) and Sierra Club Canada Foundation and East Coast Environmental Law Association (2007) ( Interveners ) Indexed as: Canada (Attorney General) v. Clayton Federal Court, Mactavish J.—Ottawa, January 29 and 30; May 2, 2018.

Foreign Investment Review — Application brought pursuant to Commercial Arbitration Code (Code), Art. 34(2)(a)(iii) seeking order setting aside arbitral award in favour of respondents made by majority of tribunal constituted under North American Free Trade Agreement (NAFTA),

Chapter Eleven — Respondents seeking to develop quarry, processing, ship loading facility and marine terminal in Nova Scotia (Project) — Joint Review Panel (JRP) carrying out environmental assessment — Recommending that Project not be permitted to proceed on basis likely to cause significant adverse environmental effects not justified in circumstances — Governments of Nova Scotia, Canada issuing decisions refusing to allow Project to proceed — Respondents claiming damages under NAFTA, Art. 1102, 1103, 1105 — NAFTA Tribunal majority adopting standard articulated in Waste Management, Inc. v.

United Mexican States (Waste Management) — Finding, inter alia, that governmental authorities creating legitimate expectations on part of respondents, that JRP acting in arbitrary manner by creating new “community core values” standard of assessment, not considering measures to mitigate adverse environmental impact of Project — Concluding that Art. 1102, 1105 breached — Canada contending, inter alia, Tribunal exceeding its jurisdiction by measuring JRP’s conduct against its own determination of domestic law requirements, founding NAFTA liability on breach of domestic law — Whether majority committing jurisdictional error of sort discussed in United Mexican States v.

Cargill , i.e. whether deciding issue not part of submission to arbitration, or misinterpreting its authority under NAFTA — Notice of arbitration making it clear that issues submitted to arbitration requiring Tribunal to decide whether respondents treated less favourably than Canadian investors, whether their treatment falling below minimum standard of treatment at customary international law — Tribunal not exceeding its jurisdiction by deciding questions of Canadian law reserved for Federal Court — NAFTA tribunals may consider compliance or non-compliance with domestic law as factor in determining liability under NAFTA — Deciding “preliminary” or “incidental” questions of national law not converting NAFTA Tribunal into domestic court of appeal — Tribunal majority not addressing issue not within respondents’ submission to arbitration — Not open to Court to review merits of Tribunal’s decision, to second-guess its findings as any error made by Tribunal in this regard not jurisdictional in nature — Only possible to intervene with Tribunal’s decision if majority exceeding jurisdiction — Issue herein whether Canada’s failure to follow requirements of its domestic environmental assessment laws rising to “threshold of seriousness” contemplated by Waste Management, or constituting discriminatory treatment for purposes of NAFTA, Art. 1102 — Canada’s argument that Tribunal failing to apply Waste Management standard, relying instead exclusively on breaches of domestic law in attributing liability not accepted — Tribunal making factual finding of arbitrary conduct, applying customary international law in determining whether minimum standard of treatment violated — Nothing in NAFTA, properly interpreted, precluding Tribunal majority from making award that it made — Application dismissed.

Practice — Parties — Intervention — Canada seeking order setting aside arbitral award in favour of respondents made by majority of tribunal constituted under North American Free Trade Agreement — Interveners’ arguments seeking to expand issues before Court, fundamentally change focus of case — Interveners’ support of Canada based on arguments not advanced by Canada, respondents — Role of intervener not to introduce new issues but to provide different perspective.

This was an application brought pursuant to article 34(2)(a)(iii) of the Commercial Arbitration Code (Code) seeking an order setting aside an arbitral award in favour of the respondents made by the majority of a tribunal constituted under

Chapter Eleven of the North American Free Trade Agreement (NAFTA). The respondents incorporated Bilcon of Delaware, Inc. for the purpose of developing a basalt quarry, processing facility, ship loading facility and marine terminal at Whites Point, Nova Scotia (the Project). The respondents invested many years and millions of dollars in pursuing the Project. A federal-provincial Joint Review Panel (JRP) was established to carry out an environmental assessment of the Project.

The JRP recommended that the Project not be permitted to proceed on the basis that it was likely to cause significant adverse environmental effects that could not be justified in the circumstances. The JRP was concerned, inter alia , that the Project “would have a significant adverse effect on a Valued Environmental Component represented by the ‘core values’ of the affected communities” and “would undermine community-driven economic development planning and threaten an area recognized and celebrated as a model of sustainability by local, regional, national and international authorities”.

The Governments of Nova Scotia and Canada issued separate decisions refusing to allow the Project to proceed. The respondents issued a notice of arbitration under NAFTA, claiming damages for Canada’s breaches of

Article 1102 (National Treatment),

Article 1103 (Most-Favored Nation Treatment), and

Article 1105 (Minimum Standard of Treatment) of NAFTA. The majority of the NAFTA Tribunal adopted the standard articulated by the NAFTA Tribunal in

Waste Management, Inc. v. United Mexican States ( Waste Management ) as prohibiting conduct that is, among other things, “arbitrary, grossly unfair, unjust or idiosyncratic”. The majority found, inter alia , that governmental authorities had created legitimate expectations on the part of the respondents by clearly and repeatedly indicating that they were welcome to pursue the Project, that the JRP acted in an arbitrary manner by creating a new standard of assessment, namely that of “community core values”, and did not consider any measures to mitigate the adverse environmental impact of the Project.

According to the majority, the approach of the JRP was inconsistent with the investment-liberalizing objectives of NAFTA, and was incompatible with

Article 1105. It also concluded that Canada had denied national treatment to the respondents in relation to the Project, in breach of

Article 1102. Canada contended, inter alia , that the Tribunal exceeded its jurisdiction by measuring the JRP’s conduct against its own determination of what domestic law required, and by founding NAFTA liability on a breach of domestic law, rather than measuring the JRP’s conduct against rules of customary international law. The standard of review to be applied in reviewing a NAFTA

Chapter Eleven award under article 34(2)(a)(iii) of the Code was carefully considered by the Ontario Court of Appeal in United Mexican States v. Cargill, Inc , The Court concluded in Cargill that the role of a reviewing Court in a case such as this was to consider whether the Tribunal decided an issue that was not part of the submission to arbitration, or misinterpreted its authority under NAFTA. It suggested that another way for a reviewing court to define the proper approach was to ask itself the following three questions:

(1) What was the issue that the Tribunal decided?

(2) Was that issue within the submission to arbitration made under

Chapter Eleven of NAFTA?

(3) Is there anything in NAFTA, properly interpreted, that precluded the Tribunal from making the award it made? At issue herein was whether the majority in this case committed a jurisdictional error of the sort discussed in Cargill . Held , the application should be dismissed. It was evident from a fair reading of the majority’s reasons as a whole that the central question that it decided was whether Canada’s conduct in relation to the environmental assessment and approvals process for the Project and its treatment of the respondents breached its obligations under Articles 1102, 1103 and 1105 of NAFTA.

This issue was contained within the respondents’ submission to arbitration. The respondents’ notice of arbitration made clear that the issues submitted to arbitration required the Tribunal to decide whether the respondents had been treated less favourably than Canadian investors would have been in like circumstances, and whether their treatment fell below the minimum standard of treatment at customary international law.

The answers to these questions inevitably required the Tribunal to examine the compliance of the JRP and the Canadian government with Canadian domestic environmental law as part of the factual matrix underlying the dispute. The Tribunal did not exceed its jurisdiction by deciding questions of Canadian law that are reserved for the Federal Court. NAFTA tribunals may consider a NAFTA party’s compliance or non-compliance with its domestic law as a factor in the determination of liability under NAFTA.

Deciding “preliminary” or “incidental” questions of national law does not convert a NAFTA Tribunal into a domestic court of appeal. Rather, it is part of the exercise of the inherent jurisdiction of a tribunal that is “necessary in order to give effect to the investor’s right to international arbitration as well as the object and purpose of most, if not all, investment treaties”. The requirements of Canadian environmental law and Canada’s compliance or non-compliance with those requirements were put squarely in issue by the parties before the Tribunal.

They were, moreover, expressly within the submission to arbitration of the respondents’ claim for damages resulting from Canada’s alleged breaches of its NAFTA obligations. Consequently, the majority did not exceed its jurisdiction since it did not address an issue that was not within the submission to arbitration made by the respondents under

Chapter Eleven of NAFTA. It was not open to the Court to review the merits of the Tribunal’s decision and to second-guess its findings, as any error that the Tribunal may have made in this regard was not jurisdictional in nature. As to the third and final question to be determined, it was only possible to intervene with the Tribunal’s decision if the majority exceeded its jurisdiction, as contemplated by article 34(2)(a)(iii) of the Code.

Here, the Tribunal clearly had jurisdiction to embark on its inquiry, i.e. determine whether Canada’s treatment of the respondents and its conduct relating to the JRP and approvals process for the Project breached its obligations under Articles 1102, 1103 and 1105 of NAFTA. What was at issue was whether Canada’s failure to follow the requirements of its domestic environmental assessment laws rose to the “threshold of seriousness” contemplated by Waste Management , or constituted discriminatory treatment for the purposes of

Article 1102 of NAFTA. It was not possible to accept Canada’s argument that the Tribunal failed to apply the Waste Management standard, relying instead exclusively on breaches of domestic law in attributing liability. The Tribunal made a factual finding of arbitrary conduct and applied customary international law in determining whether Canada violated the minimum standard of treatment for the purposes of

Article 1105 of NAFTA. Whether the approach of the JRP was in fact “novel” or “arbitrary” was a factual determination going to the merits of the Tribunal’s decision and beyond the scope of a review in a set-aside application brought under article 34(2)(a)(iii) of the Code. It was also not accurate to say that the majority based its conclusions of NAFTA liability exclusively on alleged violations of Canadian law in the JRP process. It also based its finding on the fact that Canada’s conduct rose to the level contemplated by Waste Management on the “reasonable expectations” of the respondents.

The majority’s findings with respect to the nature of the representations from state officials and the expectations that could reasonably have been created were factual questions that were put squarely before the Tribunal to decide. They did not involve jurisdictional questions that were subject to review. The fact that the majority focussed at some length on the representations that were made to the respondents was further confirmation that it was aware of, and was endeavouring to apply the Waste Management analysis to the facts of this case.

This understanding that the majority was looking to international law in this regard, and not domestic law, was further buttressed by the fact that legitimate expectations cannot create substantive rights in Canadian law, and can only create procedural rights. For these reasons, there was nothing in NAFTA, properly interpreted, that precluded the majority of the Tribunal from making the award that it made. Finally, the interveners’ arguments sought to expand the issues that were before the Court and to fundamentally change the focus of this case. This was not appropriate on an intervention.

The interveners were generally supportive of Canada’s position in this case. Their support was, however, based on arguments that had not been advanced by Canada, or by the respondents for that matter. The role of an intervener is not to introduce new issues, but rather to provide a different perspective that will “assist the determination of a factual or legal issue related to the proceeding”.

STATUTES AND REGULATIONS CITED Arbitration Act, R.S.B.C. 1996, c. 55, s. 31. Canadian Environmental Assessment Act, S.C. 1992, c. 37, ss. 2 “environmental effect”, 16(1)(d). Commercial Arbitration Act, R.S.C., 1985 (2nd Supp.), c. 17, s. 5(4). Commercial Arbitration Code, being

Schedule 1 to the Commercial Arbitration Act, R.S.C., 1985 (2nd Supp.), c. 17, Art. 1(1) 34. Environment Act, S.N.S. 1994-95, c. 1, s. 3 “environment”, “environmental effect”. Federal Courts Rules, SOR/98-106, rr. 3, 109. International Commercial Arbitration Act, R.S.O. 1990, c. I.9. North American Free Trade Agreement Implementation Act, S.C. 1993, c. 44, s. 2(1). Species at Risk Act, S.C. 2002, c. 29. Treaties and other instruments cited North American Agreement on Environmental Cooperation, 32 I.L.M. 1482 (1993).

North American Free Trade Agreement Between the Government of Canada, the Government of the United Mexican States and theGovernment of the United States of America, December 17, 1992 [1994] Can. T.S. No. 2, 32 I.L.M. 289, Arts. 1102, 1103, 1105, 1114,1116, 1117, 1121, 1131. UNCITRAL Model Law on International Commercial Arbitration, as adopted by the United Nations Commission on International TradeLaw on June 21, 1985, Art. 34. Vienna Convention on the Law of Treaties, 23 May 1969, [1980] Can. T.S. No. 37, 1155 U.N.T.S. 331, 8 I.L.M. 679, Art. 31. CASES CITED APPLIED: United Mexican States v.

Cargill, Inc., 2011 ONCA 622, 341 D.L.R. (4th) 249, 107 O.R. (3d) 528; Consolidated Contractors GroupS.A.L. (Offshore) v. Ambatovy Minerals S.A., 2017 ONCA 939, [2017] O.J. No. 6323 (QL). DISTINGUISHED: United Mexican States v. Metalclad Corp., 2001 BCSC 664, 89 B.C.L.R. (3d) 359. CONSIDERED: S.D. Myers Inc. v. Government of Canada, NAFTA ‒

Chapter 11 ‒ Investment, Partial Award, November 13, 2000; L.F.H. Neer andPauline Neer (U.S.A.) v. United Mexican States (1926), 4 R.I.A.A. 60; Glamis Gold Ltd. v. United States of America, NAFTA – Chapter11 – Investment Award, 8 June 2009; Waste Management, Inc. v. United Mexican States (April 30, 2004), ICSID Case No.Arb(AF)/00/3; Pope & Talbot Inc. v. Government of Canada, (April 10, 2001), UNCITRAL Arbitration Rules, Award on the Merits ofPhase 2; United Mexican States v. Karpa (2005), (ON CA), 74 O.R. (3d) 180, [2005] O.J.

No. 16 (QL); Dunsmuir v.New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190; Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, [2017] 1 S.C.R. 688;ADF Group v. United States of America, (January 9, 2003), ICSID Case No. ARB(AF)00/1; Mesa Power Group, LLC v. Government ofCanada, (March 24, 2016), UNCITRAL PCA Case No. 2012-17; Council of Canadians v. Canada (Attorney General) (2006), (ON CA), 277 D.L.R. (4th) 527, 149 C.R.R. (2d) 290 (Ont. C.A.); Tsleil-Waututh Nation v. Canada (Attorney General),2017 FCA 174, 414 D.L.R. (4th) 373; Corporacion Transnacional de Inversiones, S.A. de C.V. v.

STET International, S.p.A., (ON SC), [1999] O.J. No. 3573 (QL) (Sup. Ct.), (1999), 104 O.T.C. 1, affd (ON CA), [2000] O.J. No.3408 (QL) (C.A.), (2000), 49 O.R. (3d) 414, leave to appeal to S.C.C. refused, [2001] 1 S.C.R. xi. REFERRED TO: Clayton v. Canada (Attorney General), 2018 FCA 1, [2018] F.C.J. No. 11 (QL); Canada (Attorney General) v. S.D. Myers, Inc., 2004FC 38, [2004] 3 F.C.R. 368; Canada (Attorney General) v. Mobil Investments Canada Inc., 2016 ONSC 790 , 129 O.R. (3d)506; Newfoundland and Labrador v. ExxonMobil Canada Properties, 2017 NLTD(G) 147 , [2017] N.J. No. 313 (QL); SMARTTechnologies ULC v.

Electroboard Solutions Pty Ltd., 2017 ABQB 559 , [2017] A.J. No. 953 (QL); Marvin Roy FeldmanKarpa v. United Mexican States, (December 6, 2000), ICSID Case No. Arb(AF)/99/1; GAMI Investments, Inc. v. The Government of theUnited Mexican States, (November 15, 2004), UNCITRAL, Award; Xerox Canada Ltd. v. MPI Technologies Inc., [2006] O.J. No. 4895(QL), (Ont. S.C.); Lesotho Highlands Development Authority v. Impregilo SpA and others, [2005] UKHL 43, [2006]1 A.C. 221; Baker v. Canada (Minister of Citizenship and Immigration), (SCC), [1999] 2 S.C.R. 817, (1999), 174D.L.R. (4th) 193; Mount Sinai Hospital Centre v.

Quebec (Minister of Health and Social Services), 2001 SCC 41, [2001] 2 S.C.R. 281;Canada (Attorney General) v. Mavi, 2011 SCC 30, [2011] 2 S.C.R. 504; Canada (Attorney General) v. Canadian Doctors for RefugeeCare, 2015 FCA 34, 470 N.R. 167; Ishaq v. Canada (Citizenship and Immigration), 2015 FCA 151, [2016] 1 F.C.R. 686; MetalcladCorporation v. United Mexican States (August 30, 2000), ICSID, Case No. Arb(AF)/97/1; Marvin Feldman v. Mexico (December 16,2002), ICSID Case No. Arb(AF)/99/1; The Loewen Group, Inc. and Raymond L. Loewen v. United States of America (June 26, 2003),ICSID Case No.

ARB(AF)/98/3; Apotex Inc. v. The Government of the United States of America (June 14, 2013), ICSID Case No.

UNCT/10/2. AUTHORS CITED Adkins, Cory and David Singh Grewal. “Democracy and Legitimacy in Investor-State Arbitration” (2016), 126 Yale L.J. 65. Alvarez, Henri. “Judicial Review of NAFTA

Chapter 11 Arbitral Awards”, in Frédéric Bachand ed., Fifteen Years of NAFTA

Chapter 11 Arbitration , International Arbitration Institute, 2011. Atik, Jeffrey “Legitimacy, Transparency and NGO Participation in the NAFTA

Chapter 11 Process” in Todd Weiler, ed . , NAFTA: Investment Law and Arbitration: Past Issues, Current Practice, Future Prospects , New York: Transnational Publishers, 2004. Brauch, Martin Dietrich. IISD Best Practices Series: Exhaustion of Local Remedies in International Investment Law , January 2017. Brower II, Charles H. “Investor-State Disputes Under NAFTA: The Empire Strikes Back” (2001), 40 Colum. J. Transnat’l L. 43. Brown, Donald J.M. and John M. Evans. Judicial Review of Administrative Action in Canada , loose leaf, Toronto: Canvasback, 1998. Carfagnini, Michael. “Too Low a Threshold: Bilcon v.

Canada and the International Minimum Standard of Treatment” (2016), 53 Can. Y.B. Int’l L . 244. Coe, Jack J. “Taking Stock of NAFTA

Chapter 11 in Its Tenth Year: An Interim Sketch of Selected Themes, Issues, and Methods” (2003), 36 Vand. J. Transnat’l L. 1381. de Mestral, Armand and Lukas Vanhonnaeker. “The Impact of the NAFTA Experience on Canadian Policy Concerning Investor-State Arbitration” in de Mestral, ed., Second Thoughts: Investor-State Arbitration Between Developed Democracies , Waterloo, Ont.: Centre for International Governance Innovation, 2017. Dodge, William S. “Local Remedies Under NAFTA

Chapter 11”, in Frédéric Bachand ed., Fifteen Years of NAFTA

Chapter 11 Arbitration , International Arbitration Institute: 2011. Dodge, William S. “National Courts and International Arbitration: Exhaustion of Remedies and Res Judicata Under

Chapter Eleven of NAFTA” (2000), 23 Hastings Int’l & Comp. L. Rev. 358. Doelle, Meinhard. “The Bilcon NAFTA Tribunal: A Clash of Investor Protection and Sustainability-based Environmental Assessments” in Stanley D. Berger, Key Developments in Environmental Law , 2017 Edition, Aurora, Ont.: Canada Law Book, 2009. Jan van den Berg, Albert. The New York Arbitration Convention of 1958: Towards a Uniform Judicial

Interpretation , T.M.C. Asser Institute, 1981. Kinnear, Meg N., Andrea K. Bjorklund and John F.G. Hannaford, Investment Disputes under NAFTA: An Annotated Guide to NAFTA

Chapter 11 , looseleaf, Kluwer Law International, 2006. Lemieux, Denis and Ana Stuhec. Review of Administrative Action under NAFTA , Scarborough, Ont: Carswell, 1999. Foreign Affairs, Trade and Development Canada. Notes of

Interpretation of Certain

Chapter 11 Provisions (NAFTA Free Trade Commission, July 31, 2001), online: http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp- diff/NAFTA-Interpr.aspx?lang=eng. Puig, Sergio and Meg Kinnear. “NAFTA

Chapter Eleven at Fifteen: Contributions to a Systemic Approach in Investment Arbitration ” (2010), 25 ICSID Review - Foreign Investment Law Journal 225. Redfern, Alan and Martin Hunter. Law and Practice of International Commercial Arbitration , 4th ed. London: Sweet & Maxwell, 2004. Rubins, Noah. “Judicial Review of Investment Arbitration Awards” in Todd Weiler ed., NAFTA Investment Law and Arbitration: Past Issues, Current Practice, Future Prospects , New York: Transnational Publishers, 2004.

Spiermann, Ole. “Applicable Law”, in Peter Muchlinski, Federico Ortino and Christoph Schreuer eds., The Oxford Handbook of International Investment Law , Oxford: Oxford University Press, 2008. Weiler, Todd. “ Metalclad v. Mexico : A Play in Three Parts” (2001), 2 J. World Inv. 685. Whites Point Quarry and Marine Terminal Project Joint Review Panel. Environmental Assessment of the Whites Point Quarry and Marine Terminal Project: Joint Review Panel Report , October 2007.

APPLICATION brought pursuant to article 34(2)(a)(iii) of the Commercial Arbitration Code seeking an order setting aside an arbitral award ( Bilcon of Delaware Inc. et al. v. Government of Canada (March 17, 2015), UNCITRAL P.C.A. Case No. 2009-04) in favour of the respondents made by the majority of a tribunal constituted under

Chapter Eleven of the North American Free Trade Agreement Between the Government of Canada, the Government of the United Mexican States and the Government of the United States of America . Application dismissed. APPEARANCES Roger Flaim, Karen Lovell and Susanna Kam for applicant.

Gregory J. Nash, John Judge, John Terry and Randy Sutton for respondents. Aaron Ward, Amir Attaran and Matthew Lakatos-Hayward for interveners. SOLICITORS OF RECORD Deputy Attorney General of Canada for applicant. Nash Johnston LLP , Vancouver, for respondents. Ecojustice Environmental Law Clinic , Toronto, for interveners. TABLE OF CONTENTS Paragraph I. Introduction 1 II. The Investors 7 III. The Project 8 IV. The Federal-Provincial Joint Review Panel 12 V. The Submission to Arbitration 23 VI. The Relevant Provisions of NAFTA 27 VII. The Decision of the NAFTA Tribunal 34 A. The Majority’s Decision 37 (

i) The Majority’s Application of the Waste Management standard 43 B. The Dissenting Opinion 52 VIII. The Issue 62 IX. The Applicable Standard of Review 64 X. Did the Tribunal Commit a Jurisdictional Error in this Case? 84 A. The Arguments of the Parties 84 B. Commentary on the Majority’s Decision 91 C. What was the Issue that the Tribunal Decided? 100 D. Did the Majority’s Award Deal with an Issue that was not Within the Submission to Arbitration Made under

Chapter Eleven of NAFTA? 106 (

i) The Investors’ Submission to Arbitration 108 (ii) Canada’s Argument Regarding the Tribunal’s Consideration of Domestic Law 113 (iii) Canada’s Argument Regarding the Relevant Articles of NAFTA and the Interpretative Notes 125 (iv) Analysis 130 E. Is there Anything in NAFTA that Precluded the Majority of the Tribunal from Making the Award that it Made? 148 (

i) Did the Tribunal Have Jurisdiction to Embark on the Inquiry? 159 (ii) Metalclad is Distinguishable 164 (iii) The Tribunal’s Application of the Waste Management Standard 170 XI. The Interveners’ Arguments 184 XII. Conclusion 198 XIII. Costs 201 Appendix I p. 462 Appendix II p. 466 The following are the reasons for judgment and judgment rendered in English by Mactavish J. : I. Introduction [ 1 ] The Government of Canada seeks an order setting aside an arbitral award in favour of the respondents made by the majority of a tribunal constituted under

Chapter Eleven [Articles 1101 to 1139] of the North American Free Trade Agreement (NAFTA). The majority of the Tribunal concluded that Canada had violated certain of its NAFTA obligations when a federal-provincial environmental assessment panel recommended that the respondents’ proposed quarry and marine terminal project in Nova Scotia should not go forward.

Based upon the findings of this assessment, the federal and Nova Scotia governments subsequently refused to approve the project. [ 2 ] Canada argues that the majority of the Tribunal erred in finding that Canada had breached its obligations under NAFTA by basing its liability finding on its conclusion that the environmental assessment was not carried out in accordance with applicable federal and provincial legislation.

The majority’s liability finding was also based on its determination that the assessment was carried out in a manner that did not comply with the level of procedural fairness required by Canadian administrative law. [ 3 ] Canada notes that NAFTA tribunals do not sit in review of judicial or administrative decisions made by State Parties, and that they have only been empowered to decide questions of international law. While the majority of the Tribunal purported to base its decision on international law principles, Canada submits that it instead decided questions of Canadian law that are reserved for this

Court. According to Canada, this wrongful appropriation of jurisdiction requires that the Award be set aside. [ 4 ] The respondents observe that the authority of this Court to interfere with international arbitral decisions is strictly limited by the provisions of the Commercial Arbitration Act [R.S.C., 1985 (2nd Supp.), c. 17], which precludes the Court from reviewing the merits of an arbitral tribunal’s decision.

The Court may only intervene where an arbitral tribunal decides a matter that is beyond the parties’ submission to arbitration, or where one of the five other enumerated grounds for setting aside an arbitral decision is met.

The respondents submit that no such jurisdictional error was committed by the majority of the Tribunal in this case, and that its liability finding was not based on Canada’s domestic laws, but on the international law principles that are embedded in the relevant articles of NAFTA. [ 5 ] According to the respondents, Canada is endeavouring to fabricate a jurisdictional issue where none exists, in what they say is a transparent attempt to re-argue the merits of the case.

In the absence of a true issue going to the jurisdiction of the Tribunal, the respondents say that the application should be dismissed. [ 6 ] For the reasons that follow, I have concluded that Canada’s application to set aside the Tribunal’s Award cannot succeed as the errors attributed to the majority of the Tribunal do not involve true questions of jurisdiction. What Canada takes issue with are findings of fact made by the Tribunal majority, or its application of the law to the facts as it has found them.

In the absence of a true jurisdictional error on the part of the Tribunal, this Court has no power to intervene. Consequently, the application will be dismissed. II. The Investors [ 7 ] The respondent Bilcon of Delaware, Inc. is a U.S. corporation. The respondents William Ralph Clayton, William Richard Clayton, Douglas Clayton and Daniel Clayton are American citizens. Bilcon of Delaware, Inc. and certain of the Claytons own or control a subsidiary company incorporated in Nova Scotia, known as Bilcon of Nova Scotia (Bilcon).

For the purposes of these reasons, the Respondents shall be referred to collectively as “ the Investors”. III. The Project [ 8 ] The Investors incorporated Bilcon in 2002 for the purpose of developing a basalt quarry, processing facility, ship loading facility and marine terminal at Whites Point, Nova Scotia (the Project). Whites Point is a community adjacent to the Bay of Fundy. [ 9 ] The Bay of Fundy is an important feeding and breeding ground for many different marine animals, including a number of species that are protected by the Species at Risk Act , S.C. 2002, c. 29.

In 2001, the United Nations Educational, Scientific and Cultural Organization designated the area a “ biosphere reserve”: that is, an ecosystem that promotes biodiversity, conservation, and sustainable resources. [ 10 ] The Investors’ proposed Project consisted of two principal components. The first was a 152-hectare quarry to be located one kilometre west of the village of Little River, where rock would be blasted, crushed, washed and stockpiled.

The second main component of the project was a 170-metre long marine terminal where bulk carrier ships of up to 230 meters in length could moor to be loaded with processed aggregate.

It was intended that Bilcon would ship 40 000 tons of high quality Nova Scotia stone from Whites Point to the United States each week (or 2 000 000 tons annually) for a period of 50 years. [ 11 ] Relying upon the encouragement that they say they received from “the highest levels of government”, the Investors invested many years and millions of dollars in pursuing the Project, only to have the federal and provincial governments ultimately refuse to approve it. IV.

The Federal-Provincial Joint Review Panel [ 12 ] The Project was subject to two environmental assessment regimes, the Nova Scotia Environment Act , S.N.S. 1994-95, c. 1 (NSEA) and the Canadian Environmental Assessment Act , S.C. 1992, c. 37 (CEAA) [repealed by S.C. 2012, c. 19, s. 66 ], as well as the regulations promulgated under each statute.

The completion of a federal environmental assessment was a precondition for the Investors to receive the necessary permits from various branches of the federal and provincial governments to allow the Project to proceed. [ 13 ] The provincial and federal governments decided to harmonize these assessments, and, in 2004, they established a federal- provincial Joint Review Panel (JRP) to carry out an environmental assessment of the Project [ Environmental Assessment of the White Points Quarry and Marine Terminal Project : Joint Review Panel Report , October 2007].

The Investors do not dispute that an environmental assessment was required in this case. They do, however, take issue with the way that the assessment was carried out. [ 14 ] Before the NAFTA Tribunal, the Investors objected to the decision to refer the Project to a JRP for assessment, rather than subjecting it to a less intensive form of environmental review. They also took issue with the composition of the JRP itself. The Tribunal refused to consider these claims on the basis that they were brought outside of the three-year limitation period provided for in

Article 1116 of NAFTA, and these arguments are not at issue in this application. [ 15 ] Under the NSEA, the JRP had to consider whether the Project would cause adverse effects or environmental effects that could not be mitigated. To this end, the NSEA mandated a broad inquiry into the Project’s potential effects on both the biophysical and human environments. The NSEA defines [at

section 3 ] “environment” broadly to include “air, land and water”, in addition to “socio-economic conditions … environmental health, [and] physical and cultural heritage”. It defines “environmental effect” as including “any change, whether negative or positive, that the undertaking may cause in the environment, including any effect on socio-economic conditions, on environmental health, [or] physical and cultural heritage”.

The NSEA Regulations provided that the JRP was to make recommendations on these factors to the Nova Scotia Minister of Environment and Labour, whose responsibility it was to either approve the project (with or without conditions) or reject it. [ 16 ] Pursuant to the CEAA , the JRP was required to give consideration to the environmental effects of the Project and their significance. Like the NSEA, the CEAA required consideration of both biophysical and socio-economic effects. The CEAA defines [at

section 2 ] “ environmental effect”, in part, as “any change that the project may cause in the environment” and “any effect of any change [in the environment] on (

i) health and socio-economic conditions, (ii) physical and cultural heritage, [or] (iii) the current use of lands and resources for traditional purposes by aboriginal persons”. The CEAA [at paragraph 16(1) (d)] also required a consideration of “ measures that are technically and economically feasible and that would mitigate any significant adverse environmental effects of the project”. [ 17 ] After almost three years of work, the JRP submitted its report to the governments of Canada and Nova Scotia on October 22, 2007.

The JRP recommended that the Project not be permitted to proceed on the basis that it was likely to cause significant adverse environmental effects that could not be justified in the circumstances. [ 18 ] While the JRP expressed many concerns over the potential biophysical and socio-economic effects of the Project, the primary conclusion underlying its recommendation that the Project be rejected was that it “would have a significant adverse effect on a Valued Environmental Component represented by the ‘core values’ of the affected communities”.

As the JRP explained, the “injection of an industrial project into the region would undermine and jeopardize community visions and expectations, and lead to irrevocable and undesired changes of quality of life”. [ 19 ] A primary consideration influencing the JRP’s decision to recommend rejection of the Project was the adverse impact that the project would have on the people, communities and economy of Digby Neck and Islands.

It observed that this region of Nova Scotia “ is unique in its history and in its community development activities and trajectory”, and that “[i]ts core values, defined by the people and their governments, support the principles of sustainable development based on the quality of the local environment”. [ 20 ] The JRP went on to note that “[l]ocal residents are deeply embedded within and dependent on the terrestrial and marine ecosystems of this region” and that “human health and well-being is intrinsically linked with the viability of the ecosystem”.

The JRP was of the view that the Project “ would undermine community-driven economic development planning and threaten an area recognized and celebrated as a model of sustainability by local, regional, national and international authorities”.

It further found that “[t]he Project is inconsistent with many government policies and principles at local, provincial and national levels”, and that it would not make a net contribution to sustainability, and would be likely to have a significant adverse environmental effect on the people and communities that comprise Digby Neck and Islands. [ 21 ] The JRP chose not to provide any recommendations regarding measures that could be taken to mitigate the environmental impact of the Project, in the event that government decision makers decided to approve it.

This was because it concluded was that the Project’s impact on “community core values” was a significant adverse environmental effect that could not be mitigated. [ 22 ] Once the JRP submitted its report, decision makers had to consider whether to take action under federal and provincial statutes to enable the Project to go ahead. In November of 2007, Nova Scotia issued a decision refusing to allow the Project to proceed. Canada followed suit the next month, issuing a separate decision denying the Investors permission to proceed with the Project. V.

The Submission to Arbitration [ 23 ] Although they have identified what they say are numerous procedural and substantive errors in the JRP process and Report, the Investors did not seek judicial review of the JRP Report, either in this Court or in the Nova Scotia Courts, nor did they seek to challenge the governmental decisions denying them permission to proceed with the Project in either jurisdiction. [ 24 ] Instead, on February 5, 2008, the Investors filed a notice of intent to refer a claim for damages to arbitration under the investor- state dispute resolution provisions of

Chapter Eleven of the North American Free Trade Agreement Between the Government of Canada, the Government of United Mexican States and the Government of the United States of America , 17 December 1992, [1994] Can. T.S. No. 2, 32 I.L.M. 289. [ 25 ] On May 26, 2008, the Investors issued a notice of arbitration under NAFTA, claiming damages for Canada’s breaches of

Article 1102 (National Treatment),

Article 1103 (Most-Favored Nation Treatment), and

Article 1105 (Minimum Standard of Treatment) of NAFTA. [ 26 ] In support of their claim for damages, the Investors asserted that Canada’s environmental regulatory regime had been applied to them in an arbitrary, unfair and discriminatory fashion. Amongst other things, the Investors claimed that the evaluation standard employed by the JRP in assessing the environmental impact of the Whites Point Project was outside its mandate under Canadian law.

The Investors further contended that by relying on a flawed environmental assessment in refusing to approve the Project, the decisions of the federal and provincial governments were fundamentally arbitrary and unfair and breached the above-noted Articles of NAFTA. VI. The Relevant Provisions of NAFTA [ 27 ]

Chapter Eleven of the NAFTA deals with investments made by investors from one NAFTA Party in the territory of another NAFTA Party. It was intended to further the NAFTA objective of increasing investment opportunities in the territories of the three signatories to the Treaty. [ 28 ]

Section A [Articles 1101 to 1114] of

Chapter Eleven of NAFTA sets out specific obligations owed by each Party to investors from other NAFTA countries. Amongst other obligations, State Parties are required to treat investors from another NAFTA country in accordance with the minimum standard of treatment under customary international law, and to accord them treatment that is no less favorable than the treatment accorded to its own investors.

Section B [Articles 1115 to 1138] of

Chapter Eleven allows an investor from one NAFTA country to submit a claim for arbitration against a host state alleging that the substantive provisions of

Chapter Eleven have been violated: William S. Dodge, “National Courts and International Arbitration: Exhaustion of Remedies and Res Judicata Under

Chapter Eleven of NAFTA” (2000), 23 Hastings Int’l & Comp. L. Rev. , page 358. [ 29 ] At issue in this proceeding are Articles 1102 and 1105 of NAFTA, the relevant portions of which provide that:

Article 1102: National Treatment

Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments. …

Article 1105: Minimum Standard of Treatment 1. Each Party shall accord to investments of investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security. The full text of each of these provisions is attached as Appendix I to these reasons. [ 30 ] The purpose of

Article 1105 of NAFTA has been described as being “ to avoid what might otherwise be a gap” in investor-state protections. That is, a “government might treat an investor in a harsh, injurious and unjust manner, but do so in a way that is no different than the treatment inflicted on its own nationals. The ‘minimum standard’ is a floor below which treatment of foreign investors must not fall, even if a government were not acting in a discriminatory manner”: both quotes from S.D. Myers, Inc. v. Government of Canada , NAFTA –

Chapter 11 – Investment, (UNCITRAL), Partial Award, 13 November 2000 [ S.D. Myers ], at paragraph 259, cited in United Mexican States v. Metalclad Corp. , 2001 BCSC 664 , 89 B.C.L.R. (3d) 359 [ Metalclad ], at paragraph 61 . [ 31 ] Also relevant to

Article 1105 are the “Notes of

Interpretation” issued by the NAFTA Free Trade Commission: See “Notes of

Interpretation of Certain

Chapter 11 Provisions (NAFTA Free Trade Commission), July 31, 2001,” online: Global Affairs Canada <http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/NAFTA-Interpr.aspx?lang=eng> (FTC Note). With regard to the minimum standard of treatment, the FTC Notes provide that: 1. Article 1105(1) prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment ... of another Party; 2.

The concepts of “ fair and equitable treatment ” and “ full protection and security ” do not require treatment … to or beyond that which is required by the customary international law minimum standard of treatment …; 3. A determination that there has been a breach of another provision of NAFTA, or of a separate international agreement, does not establish that there has been a breach of Article 1105(1). [ 32 ] In accordance with Article 1131(2) of NAFTA and

Article 31 of the Vienna Convention on the Law of Treaties , 23 May 1969, [1980] Can. T.S. No. 37, 1155 U.N.T.S. 331, 8 I.L.M. 679 (Vienna Convention), such

interpretations by the NAFTA Free Trade Commission are binding on NAFTA Tribunals. [ 33 ] Insofar as

Article 1102 of NAFTA is concerned, national treatment obligations in investor-state agreements have traditionally sought to level the economic playing field between foreign and domestic participants.

Article 1102 imposes a duty on NAFTA Parties “not to discriminate between foreign and domestic investors or investments on account of nationality when such investors or investments are situated in like circumstances”: Sergio Puig and Meg Kinnear, “NAFTA

Chapter Eleven at Fifteen: Contributions to a Systemic Approach in Investment Arbitration” (2010) 25 ICSID Review - Foreign Investment Law Journal 225, at page 240. VII. The Decision of the NAFTA Tribunal [ 34 ] The Tribunal was composed of three members. Professor Bryan Schwartz was appointed by the Investors, and Professor Donald McRae by Canada. Judge Bruno Simma was appointed as Tribunal President by agreement of the parties. [ 35 ] The Tribunal rendered its decision on March 17, 2015: Bilcon of Delaware Inc. et al. v. Government of Canada (March 17, 2015), UNCITRAL P.C.A.

Case No. 2009-04, Award on Jurisdiction and Liability. As the parties had agreed to bifurcate the proceedings, the initial Tribunal Award dealt only with the issues of jurisdiction and liability. While the Tribunal unanimously concluded that it had jurisdiction to determine the Investors’ claim, they disagreed as to whether Canada was liable for breaches of any of its obligations under NAFTA. [ 36 ] The majority decision issued by Tribunal President Simma and Professor Schwartz found Canada liable for breaches of Articles 1102 and 1105 of NAFTA, whereas Professor McRae found no liability on the part of Canada.

The Tribunal’s hearings on the quantum of damages were set to begin in February of 2018. At this point, the Investors are seeking in excess of half a billion Canadian dollars in damages for Canada’s breaches of its obligations under NAFTA. A.

The Majority’s Decision [ 37 ] While the Investors had challenged a wide range of measures and decisions made over the course of the JRP process, the majority found Canada liable under Articles 1105 and 1102 of NAFTA based primarily on two actions of the JRP: its reliance on the concept of “community core values” to arrive at its recommendation that the Project not be permitted to go ahead, and its approach to the issue of mitigation.

The majority also had regard to the expectations that had been created in the minds of the Investors by governmental officials. [ 38 ] The majority acknowledged at several points in its decision that it was required to apply customary international law in order to determine whether the actions of the JRP breached

Article 1105 of NAFTA. As to what the minimum standard of treatment was that was required by customary international law, the majority stated that the “starting point” for its analysis was the decision in L.F.H. Neer and Pauline Neer (U.S.A.) v. United Mexican States (1926), 4 R.I.A.A. 60. Neer held that to establish a breach of the minimum standard of treatment of aliens at customary international law it must be shown that the treatment in question amounted to “bad faith, to willful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial

man would readily recognize its insufficiency”: pages 61–62. [ 39 ] The majority went on to observe that more recently, the Tribunal in Glamis Gold Ltd. v. United States of America , NAFTA –

Chapter 11 – Investment, Award, 8 June 2009 [ Glamis ], held that “‘a gross denial of justice, manifest arbitrariness, blatant unfairness, a complete lack of due process, evident discrimination, or a manifest lack of reasons’” [footnote omitted] was necessary to establish a breach of the minimum standard of treatment at customary international law: paragraph 762.

That said, the majority held that “NAFTA tribunals have … tended to move away from the position more recently expressed in Glamis, and rather move towards the view that the international minimum standard has evolved over the years towards greater protection for investors”: paragraph 435. [ 40 ] While noting that “no single arbitral formulation can definitively and exhaustively capture the meaning of

Article 1105” [at paragraph 443], the majority stated that it was adopting the standard articulated by the NAFTA Tribunal in Waste Management, Inc. v. United Mexican States (April 30, 2004), ICSID Case No. Arb(AF)/00/3, Award ( Waste Management ), as prohibiting conduct that is, among other things, “arbitrary, grossly unfair, unjust or idiosyncratic”: paragraphs 442–443. The majority added, however, that “[t]he list conveys that there is a high threshold for the conduct of a host state to rise to the level of a NAFTA

Article 1105 breach, but that there is no requirement in all cases that the challenged conduct reaches the level of shocking or outrageous behaviour”: paragraph 444. [ 41 ] The majority further observed that more than a mere breach of domestic law, procedural unfairness, an imprudent exercise of discretion or even an outright mistake is generally required to establish a breach of the international minimum standard for the purposes of

Article 1105 of NAFTA: paragraphs 436–437, 594 and 738. [ 42 ] Finally, the majority accepted that the reasonable expectations of investors are a factor to be taken into account in assessing whether a host state has breached the international minimum standard of fair treatment under

Article 1105 of NAFTA: paragraphs 444– 445, 455. (

i) The Majority’s Application of the Waste Management Standard [ 43 ] The majority found that in this case, Nova Scotian governmental authorities had created legitimate expectations on the part of the Investors by clearly and repeatedly indicating that Bilcon was welcome to pursue its coastal quarry and marine terminal project at the Whites Point location.

The majority did, however, recognize that all of these encouragements were provided in the context of Bilcon being required to present a project that would comply with federal and provincial environmental laws: paragraph 589. [ 44 ] The majority further found that the Investors had relied on these encouragements to their detriment, by devoting substantial resources to the environmental assessment process and attempting to design a project that would meet all of the relevant legal requirements concerning environmental protection. [ 45 ] According to the majority, the JRP then acted in an arbitrary manner by effectively creating a new standard of assessment, namely that of “‘[c]ommunity core values’”, without notice to Bilcon, and by having this standard play a predominant role in the Report’s conclusion that the project should not proceed.

The majority further found that the JRP had effectively found the Whites Point area to be a “no go” zone for projects of this kind, without considering any measures that could mitigate the adverse environmental impact of the Project: paragraph 505. [ 46 ] According to the majority, the “‘community core values’” approach adopted by the JRP was not a “‘rational government policy’”, and was at odds with the law and policy of the CEAA . The approach of the JRP was, moreover, inconsistent with the investment-liberalizing objectives of NAFTA, and was incompatible with

Article 1105 of the Agreement: paragraph 724. [ 47 ] The majority further concluded that the Investors were treated unfairly in the JRP process, as they had no way of knowing that the impact that the Project would have on “‘community core values’” was in issue, and they were thus unable to seek clarification of and respond to the JRP’s concerns in this regard: paragraphs 534 and 543. [ 48 ] The majority’s conclusion with respect to the legality of the JRP’s actions under Canadian domestic law was also central to its finding that Canada had breached

Article 1102 of NAFTA. It will be recalled that this provision required that the Investors and their investment be treated in accordance with the treatment afforded to similarly situated Canadian investors and investments. [ 49 ] Citing the decision in Pope & Talbot Inc. v.

Government of Canada , (April 10, 2001), UNCITRAL Arbitration Rules, Award on the Merits of Phase 2, at paragraph 78, the majority observed that differences in treatment “will presumptively violate Article 1102(2) [of NAFTA], unless they have a reasonable nexus to rational government policies that (1) do not distinguish, on their face or de facto, between foreign-owned and domestic companies, and (2) do not otherwise unduly undermine the investment liberalizing objectives of NAFTA”: paragraph 722. [ 50 ] After considering the extensive evidence adduced by the parties with respect to the treatment accorded to “like” projects, the majority concluded that as a result of the JRP’s flawed approach to the environmental assessment process, the Investors, unlike Canadian project proponents, “did not receive the expected and legally mandated application, for the purposes of federal Canada environmental assessment, of the essential evaluative standard under the CEAA ”: paragraph 697.

The majority of the Tribunal therefore concluded that Canada had denied national treatment to the Investors in relation to the Project, in breach of

Article 1102 of NAFTA: paragraph 725. [ 51 ] The Investors’ claims under

Article 1103 were dismissed and are not at issue in this proceeding. B. The Dissenting Opinion [ 52 ] Professor McRae disagreed with the majority’s liability finding [Dissenting Opinion of Professor Donald McRae, 10 March 2015]. He found that when the Report of the JRP was viewed in its entirety, it was evident that the term “community core values” was used as a form of shorthand to describe the effects of the Project on the “human environment”.

The impact of the Project on the “human environment ” in the Whites Point area was one of the central factors that the JRP was obliged to consider under both its terms of reference, and under federal and provincial environmental assessment legislation. As a consequence, Professor McRae concluded the

Investors were on notice that they had to address such effects, with the result that there had been no procedural unfairness in this regard. [ 53 ] Professor McRae agreed with the majority that the Waste Management standard was the appropriate standard to be used in determining whether there had been a breach of

Article 1105 of NAFTA. He was, however, of the view that although the majority purported to apply the “‘high threshold’” articulated in Waste Management , it had applied the standard in a way that it would be met “simply by an allegation of a breach of Canadian law”: paragraph 2. [ 54 ] The majority had concluded that the JRP’s actions were arbitrary, as a result of it having “effectively created, without legal authority or notice to Bilcon, a new standard of assessment”, instead of applying Canadian law. That is, by deviating from Canadian law, the majority found that the JRP had acted arbitrarily.

According to Professor McRae, “[t]his reasoning suggests that any departure from Canadian law is arbitrary and thus any departure from Canadian law meets the threshold of arbitrariness under the Waste Management standard. Breach of NAFTA

Article 1105, then is equated with a breach of Canadian law”: paragraph 37. He concluded that the Waste Management threshold was not met in the case: paragraph 40. [ 55 ] Professor McRae further observed that given the JRP’s concerns with respect to the Project’s impact on the human environment and its concerns over the adequacy of information and data that had been provided by the Investors, the Panel was of the view that “pointing out possible individual mitigation measures served no value when its concerns were much larger”.

In his view, it was this “accumulation of concerns” that ultimately led the Panel to recommend the rejection of the project: paragraph 29. [ 56 ] Professor McRae accepted that there may be questions under Canadian law as to whether it was proper for the JRP to take such an approach to the issue of mitigation, and whether using a term such as “ community core values” to encapsulate the variety of effects on the human environment effects that the Investors had failed to adequately address accorded with the requirements of Canadian law.

He further accepted that the question of whether Canadian law had been complied with in the process leading up to the refusal of permission to proceed with the Project was a relevant consideration in determining whether there had been a violation of

Article 1105 of NAFTA. However, a breach of Canadian law was not, in and of itself, sufficient to establish such a violation: paragraph 31. [ 57 ] Professor McRae was further of the view that the Tribunal could not conclude that the JRP had violated Canadian law without the benefit of a determination of that question by this Court.

He noted that as the expert witnesses called by the parties in the arbitration had provided divergent views on this point, “the matter was arguable and the Tribunal did not have the benefit of a determination by a Canadian federal court on the matter”: paragraph 34. [ 58 ] Professor McRae was also concerned about the significant implications that the majority’s decision would have for the application of environmental laws by NAFTA Parties. In his view, the conclusion that a potential violation of Canadian law is sufficient to meet the Waste Management standard for establishing a violation of

Article 1105 of NAFTA, thereby allowing a claimant to bypass the domestic remedy provided for in Canadian law, represented “a significant intrusion into domestic jurisdiction and will create a chill on the operation of environmental review panels”: paragraph 48. [ 59 ] In support of this contention, Professor McRae observed that if an environmental assessment agency made an error in the past, its recommendations would either be ignored by the government to which they were made, or they would be overturned on judicial review.

If, however, the views of the majority in this case were to be accepted, the proper application of Canadian law by an environmental review panel would then be in the hands of a tribunal appointed pursuant to

Chapter Eleven of NAFTA, thereby importing a damages remedy that is not available under Canadian law: paragraph 48. [ 60 ] Professor McRae noted that this result “may be disturbing to many”. In his view, there was nothing unusual about an environmental review panel electing to put more weight on the human environment and community values than on a project’s scientific and technical feasibility. In his view, it was open to the JRP to conclude that these community values were not outweighed by what the Panel regarded as the modest economic benefits that would accrue over the ensuing 50 years.

Neither the result, nor the process by which the JRP reached its decision “ could ever be said to ‘offend judicial propriety’” [footnote omitted], leading Professor McRae to conclude that “the decision of the majority will be seen as a remarkable step backwards in environmental protection” and that “a chill will be imposed on environmental review panels which will be concerned not to give too much weight to socio-economic considerations or other considerations of the human environment in case the result is a claim for damages under NAFTA

Chapter 11”: all quotes from paragraph 51. [ 61 ] Finally, Professor McRae was of the view that the Investors had in fact been treated in accordance with Canadian law, and that there were no grounds for a finding that the JRP process breached

Article 1102 of NAFTA by denying national treatment to the Investors in relation to the Project: paragraph 53. VIII. The Issue [ 62 ] Canada submits that the Tribunal exceeded its jurisdiction by grounding NAFTA liability in purported breaches of Canadian law.

It therefore seeks a determination from this Court of the following question: Does the Award deal with a dispute not contemplated by or not falling within the terms of the submission to arbitration by wrongfully determining that the actions of the JRP violated domestic administrative law standards and making that determination the sole basis of liability under the NAFTA? [ 63 ] For their part, the Investors submit that the majority’s Award was not outside of the scope of their submission to arbitration (to which Canada consented), and that Canada has not established that the Award dealt with a dispute that was not contemplated by, or not falling within the terms of the submission to arbitration, or that it contained decisions on matters that were beyond the scope of the submission to arbitration.

IX. The Applicable Standard of Review [ 64 ] Canada’s application is brought pursuant to article 34(2)(a)(iii) of the Commercial Arbitration Code , which is

Schedule 1 of the

Commercial Arbitration Act, R.S.C., 1985 (2nd Supp.), c. 17 (the Code). This provision governs applications to set aside decisions ofinternational arbitral tribunals, including claims submitted to arbitration under

Article 1116 of NAFTA: Commercial Arbitration Act,subsection 5(4); the Code, paragraph 1(1); North American Free Trade Agreement Implementation Act, S.C. 1993, c. 44, subsection 2(1),Clayton v. Canada (Attorney General), 2018 FCA 1, [2018] F.C.J.

No. 11 (QL) (Clayton FCA), at paragraph 4. [65] The relevant provisions of article 34(2)(a)(iii) of the Code provide that an arbitral award may only be set aside by a reviewingCourt if the party seeking to have the decision set aside furnishes proof that “the award deals with a dispute not contemplated by or notfalling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission toarbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that partof the award which contains decisions on matters not submitted to arbitration may be set aside”.

The full text of article 34(2)(a)(iii) of theCode is attached as Appendix II to this decision. [66] There has evidently been “considerable inconsistency” in the reasoning of Canadian, American and Mexican courts with respectto the standard of review to be applied to decisions of Tribunals appointed under

Chapter Eleven of NAFTA: Henri Alvarez, “JudicialReview of NAFTA

Chapter 11 Arbitral Awards”, in Frédéric Bachand ed., Fifteen Years of NAFTA

Chapter 11 Arbitration (InternationalArbitration Institute, 2011), 103, at page 105. [67] The standard of review to be applied in reviewing a NAFTA

Chapter Eleven award under article 34(2)(a)(iii) of the CommercialArbitration Code was, however, carefully considered by the Ontario Court of Appeal in United Mexican States v. Cargill, Inc., 2011ONCA 622, 107 O.R. (3d) 528, 341 D.L.R. (4th) 249, (Cargill). Cargill is one of most recent appellate-level Canadian decisionsconsidering this issue in the NAFTA context, and is relied upon by both parties as a correct statement of the applicable standard ofreview. [68] Although Cargill dealt with the standard of review established under the International Commercial Arbitration Act, R.S.O. 1990,c.

I.9 (rather than the federal Commercial Arbitration Act), the language of the two provisions is identical. This is because both statutesare based on the UNCITRAL Model Law on International Commercial Arbitration, as adopted by the United Nations Commission onInternational Trade Law on June 21, 1985. [69] The Court started its analysis in Cargill by observing that domestic concepts of standard of review, both in the administrative lawcontext and in the context of the appellate review of trial decisions, “may not be helpful to courts when conducting their review processof international arbitration awards under

Article 34 of the Model Law”: paragraph 30. The Court further observed that none of thegrounds identified in

Article 34 of the Model Law allows a court to review the merits of a Tribunal’s decision, and that courts may onlyreview an award based on an excess of jurisdiction: paragraph 31. [70] The Ontario Court of Appeal accepted that “courts should interfere only sparingly or in extraordinary cases”: Cargill, above,paragraph 35. Indeed, the Court had previously observed that “[n]otions of international comity and the reality of the global marketplacesuggest that courts should use their authority to interfere with international commercial arbitration awards sparingly”: United MexicanStates v.

Karpa (2005), (ON CA), 74 O.R. (3d) 180, [2005] O.J. No. 16 (QL), at paragraph 34. [71] The Court further noted that if Canadian judicial review principles were applicable, it would have to apply a Dunsmuir analysisand determine whether the applicable standard of review was that of reasonableness or correctness, and that under Dunsmuir, truequestions of jurisdiction are ordinarily decided on the standard of correctness: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R.190 [Dunsmuir], at paragraph 47.

The Court observed that this was the standard that had been applied by the British Columbia SupremeCourt in reviewing the decision of a NAFTA Tribunal in Metalclad, above, and by this Court in Canada (Attorney General) v. S.D.Myers Inc., 2004 FC 38, [2004] 3 F.C.R. 368 (S.D. Myers (Federal Court)): Cargill, above, at paragraph 35. [72] The Court also had regard to Canadian administrative law principles in Cargill in considering what constitutes a “true question ofjurisdiction”.

Again referring to Dunsmuir, the Court stated in Cargill that the term “‘[j]urisdiction’ is intended in the narrow sense ofwhether or not the tribunal had the authority to make the inquiry”.

True questions of jurisdiction “arise where the tribunal must explicitlydetermine whether its statutory grant of power gives it the authority to decide a particular matter”: Cargill, at paragraph 40, referring toDunsmuir, above, at paragraph 59. [73] The Court concluded in Cargill that a NAFTA Tribunal “must interpret the grant of authority correctly or its action will be foundto be ultra vires or to constitute a wrongful decline of jurisdiction”: Cargill, at paragraph 40.

This led the Ontario Court of Appeal toconclude that the standard of review to be applied to an arbitral decision under NAFTA is that of correctness, “in the sense that thetribunal had to be correct in its determination that it had the ability to make the decision it made”: paragraph 42, citing Donald J.M.Brown and John M.

Evans, Judicial Review of Administrative Action in Canada (loose-leaf), Toronto: Canvasback, 1998, pages 14-3 to14-6. [74] That said, the Court went on in Cargill to caution that even though the standard of review on jurisdictional questions is that ofcorrectness, this does not give reviewing courts a broad scope for intervention in the decisions of international arbitral tribunals:paragraph 44.

While Canadian courts are required to take a narrow view of what constitutes a jurisdictional question in the domesticcontext, this approach is magnified in the international arbitration context, where “[c]ourts are warned to limit themselves in the strictestterms to intervene only rarely in decisions made by consensual, expert, international arbitration tribunals, including on issues ofjurisdiction”: paragraph 46. [75] Although there is some authority for the proposition that there is a “‘powerful presumption’” that expert international arbitralTribunals act within their authority, this does not mean that a reviewing court should presume that the Tribunal was correct indetermining the scope of its jurisdiction.

If Courts deferred to the decisions of arbitral Tribunal on true issues of jurisdiction, it would“effectively nullify the purpose and intent of the review authority of the court under Article 34(2)(a)(iii)”: Cargill, paragraph 46. [76] The Court further cautioned that when a reviewing court does identify a true question of jurisdiction in a NAFTA Tribunaldecision, “they are to carefully limit the issue they address to ensure that they do not, advertently or inadvertently, stray into the merits ofthe question that was decided by the tribunal”: Cargill, paragraph 47; see also Canada (Attorney General) v.

Mobil Investments Canada

Inc., 2016 ONSC 790 , 129 O.R. (3d) 506 [Mobil], paragraph 37. [77] The Court concluded in Cargill that the role of a reviewing Court in a case such as this is to consider whether the Tribunaldecided an issue that was not part of the submission to arbitration, or misinterpreted its authority under NAFTA: paragraph 53. Itsuggested that another way for a reviewing court to define the proper approach is to ask itself the following three questions: 1. What was the issue that the Tribunal decided? 2. Was that issue within the submission to arbitration made under

Chapter Eleven of NAFTA? 3. Is there anything in NAFTA, properly interpreted, that precluded the Tribunal from making the award it made? [78] Cases decided since the Ontario Court of Appeal’s decision in Cargill have confirmed this approach, both in the NAFTA contextand otherwise: Mobil, above, at paragraphs 37–39; Consolidated Contractors Group S.A.L. (Offshore) v. Ambatovy Minerals S.A., 2017ONCA 939, [2017] O.J. No. 6323 (QL) [Consolidated Contractors Group], at paragraphs 28–32; Newfoundland and Labrador v.ExxonMobil Canada Properties, 2017 NLTD(G) 147 , [2017] N.J.

No. 313 (QL), at paragraphs 111–112; SMART TechnologiesULC v. Electroboard Solutions Pty Ltd., 2017 ABQB 559 , [2017] A.J. No. 953 (QL), at paragraphs 71–77. [79] There is one post-Cargill decision that requires specific comment: that is the decision of the Supreme Court of Canada in TealCedar Products Ltd. v. British Columbia, 2017 SCC 32, [2017] 1 S.C.R. 688 [Teal Cedar].

Canada cites this decision as an articulationof the type of legal error that resulted in an excess of the Tribunal’s jurisdiction in this case. [80] As was noted earlier, Canada contends that the majority erred in this case by measuring the JRP’s conduct against its owndetermination of what domestic law required, and by founding NAFTA liability on a breach of domestic law, rather than measuring theJRP’s conduct against rules of customary international law.

In so doing, Canada says that the Tribunal exceeded its jurisdiction. [81] In support of this contention, Canada notes that the Supreme Court observed in Teal Cedar that although the application of alegal test to a set of facts is a question of mixed fact and law, a legal question will arise that is open to appellate review if the underlyinglegal test was altered by a decision maker: paragraph 44. [82] It is, however, important to note that the arbitral decision at issue in Teal Cedar was subject to review under the British ColumbiaArbitration Act, R.S.B.C. 1996, c. 55,

section 31 of which provides that arbitration awards are subject to appellate review on questions oflaw. There is no comparable provision in the Commercial Arbitration Act, with the result that the Supreme Court’s comments in TealCedar are of limited assistance in this case. [83] With this understanding of the applicable standard of review, I turn next to consider whether the majority in this case committeda jurisdictional error of the sort discussed in Cargill that would allow this Court to intervene. X. Did the Tribunal Commit a Jurisdictional Error in this Case? A.

The Arguments of the Parties [84] Canada acknowledges that the reasons of the majority correctly identify the standard that it was bound to apply in determiningwhether Canada breached

Article 1105 of NAFTA, namely that established in the Waste Management case. However, Canada says thatthe majority of the Tribunal then “lost its way”, exceeding its jurisdiction by founding both its analysis and its ultimate determination ofNAFTA liability on whether the JRP’s actions complied with Canadian, rather than international law. [85] In support of this contention, Canada points to the majority’s finding that the environmental assessment carried out by the JRPinvolved “a fundamental departure from the methodology required by Canadian and Nova Scotia law”: paragraph 600.

The majoritywent on to conclude that this resulted in the Investors not being “treated in a manner consistent with Canada’s own laws, including thecore evaluative standard under the CEAA and the standards of fair notice required by Canadian public administrative law”:paragraph 602. [86] Canada notes that NAFTA Tribunals do not sit in appeal of decisions made under domestic law.

Not every regulatory deficiencywill rise to the level of a breach of the international law obligation to accord fair and equitable treatment to investors, and that“something more than simple illegality or lack of authority under the domestic law of a State is necessary to render

an act or measureinconsistent with the customary international law requirements of Article 1105(1)”: ADF Group v. United States of America, (January 9,2003), ICSID Case No. ARB(AF)00/1, Award [ADF Group]: paragraph 190. The jurisprudence further teaches that this “somethingmore” can include matters such as “sectoral or local prejudice”: Waste Management, paragraph 115. It can also include a party’slegitimate expectations resulting from representations made by the host state: Waste Management, paragraphs 98 and 99. [87] Canada further contends that the importing of an incorrect element into the majority’s

Article 1105 analysis constitutes ajurisdictional error of the sort contemplated by article 34(2)(a)(iii) of the Code, and by the Ontario Court of Appeal in Cargill. [88] In support of this claim, Canada cites the decision of the Supreme Court of British Columbia in Metalclad, above. The NAFTATribunal in Metalclad had expressly and incorrectly stated that the minimum standard of treatment under customary international lawincluded an obligation to be “transparent”.

The Tribunal’s finding of NAFTA liability was then based on a determination that there hadbeen a lack of transparency in the governmental action in issue: paragraph 70. The Court concluded that in so doing, the Tribunal decideda matter beyond the scope of the submission to arbitration, and the Tribunal’s decision was accordingly set aside: paragraph 76. [89] The Investors contend that that Canadian law simply formed part of the factual matrix in which customary international law wasapplied by the majority of the Tribunal.

They further submit that the question of whether or not the Tribunal applied the correct legal testto the facts of this case is not a true question of jurisdiction for the purposes of article 34(2)(a)(iii) of the Code.

[ 90 ] In what the Investors characterize as a “transparent attempt to re-argue the merits”, they say that Canada is mischaracterizing the majority’s decision in order to fabricate a jurisdictional issue where none exists. Contrary to Canada’s contentions, the majority’s finding that Canada breached its obligations under NAFTA does not rest on Canada’s domestic law, but on the international law principles that are embedded in Articles 1102 and 1105 of NAFTA that determined the question submitted to arbitration. B.

Commentary on the Majority’s Decision [ 91 ] It is fair to say that the decision of the majority in this case has attracted a great deal of negative commentary from the dissenting arbitrator, the academy and the State Parties themselves. [ 92 ] Professor McRae’s highly critical comments with respect to the majority’s decision have been discussed earlier in these reasons.

Academic commentators have also suggested that the majority did indeed err by equating a breach of Canadian administrative law principles with a breach of Canada’s obligations under NAFTA, and by applying too low a threshold in finding Canada to have breached

Article 1105 of NAFTA: see Cory Adkins and David Singh Grewal, “Democracy and Legitimacy in Investor-State Arbitration” (2016), 126 Yale L.J. Forum 65, at pages 65–76; Michael Carfagnini, “Too Low a Threshold: Bilcon v. Canada and the International Minimum Standard of Treatment” (2016), 53 Can. Y.B.

Int’l L. 244, pages 244–277. [ 93 ] Adkins and Grewal further assert that the decision of the majority “ is inconsistent with the principled respect for democratic sovereignty with which the majority began its analysis”, and that while the majority’s decision “claims to uphold the importance of democratic control over national laws … it strips this commitment of meaning in its actual application to the facts”: page 73. [ 94 ] Some scholars point to the majority’s decision as an example of the disturbing trend of NAFTA Tribunals enlarging the scope of protection offered by fair and equal treatment, made possible by

Article 1105’s “broad and undefined language”: Armand de Mestral & Lukas Vanhonnaeker, “The Impact of the NAFTA Experience on Canadian Policy Concerning Investor-State Arbitration” in de Mestral, ed., Second Thoughts: Investor-State Arbitration Between Developed Democracies , Waterloo, Ont.: Centre for International Governance Innovation, 2017, 187, at pages 198–199. Atik further asserts that “[e]ach provision is its own case as a textual matter; yet taken together they present a potential opportunity for a substantial enhancement of

Chapter 11’s reach, beyond the parties’ respective original intent, and perhaps beyond the underlying consent of the respective polities”: Jeffrey Atik, “Legitimacy, Transparency and NGO Participation in the NAFTA

Chapter 11 Process” in Todd Weiler, ed . , NAFTA: Investment Law and Arbitration: Past Issues, Current Practice, Future Prospects (New York: Transnational Publishers, 2004), at page 147. [ 95 ] Other commentators have raised concerns with respect to the ability of NAFTA Tribunals “ to properly assess whether a foreign investor has been treated fairly under a domestic environmental assessment process”: Meinhard Doelle, “The Bilcon NAFTA Tribunal: A Clash of Investor Protection and Sustainability-based Environmental Assessments” in Stanley D.

Berger, Key Developments in Environmental Law , 2017 Edition, (Aurora, Ont.: Canada Law Book, 2009) 99, at page 121. Doelle suggests that amongst the challenges facing the Tribunal in this case was its lack of familiarity with relevant Canadian law, with the environmental assessment practice at the federal and provincial levels, and with the process used to make findings of fact and domestic law: page 121. [ 96 ] Doelle further echoes the concern expressed by Professor McRae, the Interveners and others as to the “chill” that will allegedly result from the majority’s decision.

As he explains, the concern is that “ when officials speak out in favour of a project before an [environmental assessment] is conducted, they may be in violation of NAFTA if they later take the advice of an independent [environmental assessment] that concludes the project should not be permitted to proceed because of its negative impacts on local communities”: page 117. [ 97 ] The three signatories to NAFTA have also expressed their disapproval of the majority’s reasoning with respect to the requirement for fair and equitable treatment under

Article 1105, and its relationship to minimum standard of treatment at customary international law. In written submissions filed by Canada, the United States and Mexico in Mesa Power Group, LLC v.

Government of Canada , (March 24, 2016), UNCITRAL PCA Case No. 2012-17, Award [ Mesa ], the three signatories asserted that the majority in this case erred by failing to require the Investors to establish that the actions of Canada resulted in a breach of customary international law, and by equating a failure to comply with applicable domestic law with a failure to meet the minimum standard of treatment at international law. [ 98 ] Even if the Tribunal erred as alleged, the question for determination is whether any such error constituted an excess of jurisdiction within the meaning of article 34(2)(a)(iii) of the Code.

That is, whether in finding Canada to be liable to the Investors for breaches of Articles 1102 and 1105 of NAFTA, the majority exceeded its jurisdiction in the sense that its Award “deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration”. [ 99 ] To answer this question, regard must be had to the three questions identified by the Ontario Court of Appeal in Cargill . The first of these requires me to identify the issue that the Tribunal decided. C.

What was the Issue that the Tribunal Decided? [ 100 ] Canada says that the majority decided wheth

[…]