Canada Expands Economic Sanctions Against Russia

Since March, 2014, Canada has imposed economic sanctions against Russia pursuant to the Special Economic Measures (Russia) Regulations (“the Regulations”).

The Regulations impose an asset freeze and dealings prohibition on designated persons, which include both individuals and entities.

The Regulations also impose restrictions on the financial sector. Specifically, they prohibit dealings in certain types of debt and equity financing transactions.

The Regulations also prohibit the export, sale, supply or shipping of certain goods to Russia for use in offshore oil, shale oil or Arctic oil exploration and production. This includes a ban on the provision of any financial, technical or other services related to the goods subject to this prohibition.

Between March 17, 2014 and March 18, 2016, the Regulations were expanded 13 times. The Regulations then remained untouched for almost 3 years. However, on March 15, 2019, Canada added 25 individuals and 14 entities as designated persons. The result is that Canada now imposes an asset freeze and dealings prohibition on 118 individuals and 68 entities.

The imposition of economic sanctions does not mean that Canadians must cease business with Russia. On-going business is permitted so long as it does not involve, directly or indirectly, a designated person. The expansion of economic sanctions does, however, impose on Canadians conducting business with Russia further obligations to scrutinize ongoing business transactions to ensure compliance.

The lawyers at Tereposky & DeRose have significant experience in the design and implementation of sanctions-related compliance programs, including policies, procedures, employee training, and internal control mechanisms.  They also regularly assist both Canadian and international businesses, financial institutions, and individuals with internal investigations when “red flags” appear and provide advice on compliance in these areas. Where breaches have occurred, they have worked closely with their clients in making voluntary disclosures and in engaging with the ensuing investigations conducted by the RCMP and Global Affairs Canada.

If you would like to discuss any aspect of the Canadian sanctions regime, contact Vince DeRose or Jennifer Radford at:

Vince DeRose
613.237.8862
vderose@tradeisds.com

Jennifer Radford
613.237.9777
jradford@tradeisds.com

Close, But No Cigar: Bilcon Tribunal Rejects Claim on Grounds of Failure to Establish Causation

On 10 January 2019, the Tribunal of Bilcon v. Canada rendered its Award on Damages, following its Award on Jurisdiction and Liability rendered in 2015. In the Award on Jurisdiction and Liability, the majority found that Canada breached NAFTA’s Articles 1102 and 1105 for its review of the Claimants’ proposed construction of a quarry terminal in Nova Scotia. The Tribunal explained that the federal and local governments’ environmental review violated the relevant federal and provincial environmental legislation. Tribunal Member Professor Donald McRae issued a dissenting opinion.

In the Award on Damages, the core issue considered by the Tribunal was to what extent the Claimants’ losses could be attributed to Canada’s breach of the NAFTA. The Tribunal rejected the Claimants’ approximately $440 million damages claim, awarding only $7 million plus interest.

The underlying rationale of the Tribunal was a finding that the investors had failed to satisfy the high threshold test of the “causal link” under international law. The Tribunal explained that the Claimants failed to prove that their proposed project “in all probability” would have been approved by the Canadian government even though there was a “realistic probability”. Professor Bryan Schwartz issued a concurring opinion. The Bilcon Award on Damages suggests that the causal link is crucial for an investment arbitration Tribunal to determine if damages can be awarded to an investor for its loss under a host State’s treaty breach. This is especially true when treaties such as the NAFTA require the establishment of a causal link in Articles 1116 and 1117.

The Bilcon Tribunal’s Approach to Causal Link

The Bilcon Tribunal found that the quantum issue should be divided into two aspects. First, whether causation between the unlawful act of the State and the alleged injury of the investor has been established. Second, when such causation is established, what is the amount of the loss suffered?

To determine which injuries of the investors were caused by Canada’s breach of NAFTA Chapter 11 according to NAFTA Article 1116, the Tribunal endorsed the high thresholds of causality elaborated by the ICJ in the Chorzów case and the Genocide case. First, the alleged injury must “in all probability” have been caused by the breach (Chorzów). Second, a conclusion with a “sufficient degree of certainty” is required that absent a breach, the injury would have been avoided (Genocide). As such, the Tribunal must consider “but for” the violation of the treaty by the host state, will the investor’s loss have occurred “in all probability” or with “a sufficient degree of certainty”? The burden of proof lies with the Claimant in this exercise.

After setting out these threshold tests, the Tribunal firstly recalled Canada’s NAFTA breach in its Award on Jurisdiction and Liability before it considered which injury (if any) suffered by the investors were caused by these breaches.

1. Canada’s NAFTA Breach

The Tribunal recalled that in its Award in Jurisdiction and Liability, it found that the project proposed by the investors was assessed in a manner inconsistent with Canadian law. As such, Canada failed to provide a fair opportunity to the investors to have the specifics of their case to be considered, assessed and decided per applicable laws in environmental assessment.

2. Applying the Test: Injury Proven to be Caused by Canada’s NAFTA Breach

Although the Parties agreed that the investors lost a fair opportunity to have their environmental impact of the proposed project assessed in a fair manner as a result of Canada’s NAFTA breach, they disagreed as to whether the investors have proven any injury beyond that with the required degree of certainty.

Considering the Chorzów case and the Genocide case, the Tribunal concluded that the causal link between the NAFTA breach and the injury alleged by the investors had not been established. Although the Tribunal concluded that there was a realistic possibility that the project would have been approved as a result of a hypothetical NAFTA-compliant review process, that did not mean that such outcome would have occurred “in all probability” or with “a sufficient degree of certainty”.

Commentary

The Bilcon decision indicates that the high threshold test on the causal link as found in general international law and as reflected in the two ICJ cases may be found to be applicable in the NAFTA Chapter 11 context by future Tribunals.

In the event of the application of this test, a Claimant would be required to prove that there is a causal link between its loss and the host State’s breach of the NAFTA Chapter 11. Otherwise, its claim of compensation could fail substantially even though it may have successfully proven the host State breached its treaty obligations. It will be interesting to see whether future NAFTA Chapter 11 Tribunals and other investment Tribunals adopt similar approaches.

Tereposky & DeRose LLP regularly represents clients in investment treaty arbitrations. For further information or should you have any questions, please contact us.

J. Cameron Mowatt
604.318.2300
cmowatt@tradeisds.com

Jennifer Radford
613.237-9777
jradford@tradeisds.com