Canada (Attorney General) v. Clayton

Canada (Attorney General) v. Clayton
Court (s) Database
Federal Court Decisions
Date
2018-05-02
Neutral citation
2018 FC 436
File numbers
T-1000-15
Notes
A correction was made on January 21, 2017
Reported Decision
Decision Content
Date: 20180502
Docket: T-1000-15
Citation: 2018 FC 436
Ottawa, Ontario, May 2, 2018
PRESENT: The Honourable Madam Justice Mactavish
IN THE MATTER OF SECTIONS 5 AND 6 OF
THE COMMERCIAL ARBITRATION ACT,
R.S.C. 1985, C. 17 (2ND SUPP.)
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
and
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
JUDGMENT AND REASONS
TABLE OF CONTENTS
Para
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
Appendix II
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 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, 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), 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. 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 “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 “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 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 the 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 Mexico and the Government of the United States, 17 December 1992, Can. T.S. 1994 No. 2, 32 I.L.M. 289 (NAFTA).
[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 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 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, 23 Hastings Int’l & Comp. L. Rev., p. 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
Article 1102 : Traitement national
1. 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. [. . .]
1. Chacune des Parties accordera aux investisseurs d’une autre Partie un traitement non moins favorable que celui qu’elle accorde, dans des circonstances analogues, à ses propres investisseurs, en ce qui concerne l’établissement, l’acquisition, l’expansion, la gestion, la direction, l’exploitation et la vente ou autre aliénation d’investissements. [. . .]
Article 1105: Minimum Standard of Treatment
Article 1105 : Norme minimale de traitement
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. [. . .]
1. Chacune des Parties accordera aux investissements effectués par les investisseurs d’une autre Partie un traitement conforme au droit international, notamment un traitement juste et équitable ainsi qu’une protection et une sécurité intégrales. [. . .]
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, (UNCITRAL), Partial Award, 13 November 2000, at para. 259, cited in the United Mexican States v. Metalclad Corporation, 2001 BCSC 664 at para. 61, 89 B.C.L.R. (3d) 359.
[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, 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:
Article 1105(1) prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment of another Party;
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;
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, 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 & Meg Kinnear, “NAFTA Chapter Eleven at Fifteen: Contributions to a Systemic Approach in Investment Arbitration”, (2010) ICSID Rev/F.I.L.J. 225 at 241.
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 (UNCITRAL), P.C.A. Case No. 2009-04, Award on Jurisdiction and Liability, 17 March 2015. 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 LFH Neer and Pauline Neer (USA) v. United Mexican States (1926), 4 RIAA 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”: pp. 61-62.
[39] The majority went on to observe that more recently, the Tribunal in Glamis Gold Ltd. v. United States of America, UNCITRAL Award, 8 June 2009, 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” was necessary to establish a breach of the minimum standard of treatment at customary international law: para. 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”: para. 435.
[40] While noting that “no single arbitral formulation can definitively and exhaustively capture the meaning of Article 1105”, the majority stated that it was adopting the standard articulated by the NAFTA Tribunal in Waste Management, Inc. v. United Mexican States, (ICSID), Case No. Arb(AF)/00/3, Award, 30 April 2004 (“Waste Management”), as prohibiting conduct that is, among other things, “arbitrary, grossly unfair, unjust or idiosyncratic…”: paras. 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….”: para. 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: paras. 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: paras. 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: para. 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 “community 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: para. 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: para. 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: paras. 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 (UNCITRAL), Arbitration Rules, Award on the Merits of Phase II, 10 April 2001, at paragraph 78, the majority observed that differences in treatment “will presumptively violate Article 1102(2) of NAFTA, unless it has 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”: para. 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”: para. 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: para. 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. 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”: para. 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”: para. 37. He concluded that the Waste Management threshold was not met in the case: para. 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: para. 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: para. 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”: para. 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”: para. 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: para. 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’”, 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 para. 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: para. 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 of international arbitral tribunals, including claims submitted to arbitration under Article 1116 of NAFTA: Commercial Arbitration Act, s. 5(4); the Code, art. 1(1); the North American Free Trade Agreement Implementation Act, S.C. 1993, c. 44, s. 2(1), , Clayton v. Canada (Attorney General), 2018 FCA 1 at para. 4, [2018] F.C.J. No. 11 (Clayton FCA).
[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 reviewing Court if the party seeking to have the decision set aside furnishes proof that “the 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, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of 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 the Code 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 respect to the standard of review to be applied to decisions of Tribunals appointed under Chapter Eleven of NAFTA: Henri Alvarez, “Judicial Review of NAFTA Chapter 11 Arbitral Awards”, in Frédéric Bachand ed., Fifteen Years of NAFTA Chapter 11 Arbitration (International Arbitration Institute: 2011), 103 at 105.
[67] The standard of review to be applied in reviewing a NAFTA Chapter Eleven award under Article 34(2)(a)(iii) of the Commercial Arbitration Code was, however, carefully considered by the Ontario Court of Appeal in The United Mexican States v. Cargill, Inc., 2011 ONCA 622, 341 D.L.R. (4th) 249 (Cargill). Cargill is the one of most recent appellate-level Canadian decisions considering this issue in the NAFTA context, and is relied upon by both parties as a correct statement of the applicable standard of review.
[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 statutes are based on the UNCITRAL Model Law on International Commercial Arbitration, as adopted by the United Nations Commission on International 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 law context and in the context of the appellate review of trial decisions, “may not be helpful to courts when conducting their review process of international arbitration awards under Article 34 of the Model Law”: para. 30. The Court further observed that none of the grounds identified in Article 34 of the Model Law allows a court to review the merits of a Tribunal’s decision, and that courts may only review an award based on an excess of jurisdiction: para. 31.
[70] The Ontario Court of Appeal accepted that “courts should interfere only sparingly or in extraordinary cases”: Cargill above para. 35. Indeed, the Court had