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”.
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