NAFTA - Chapter 11 - Investment

Cases Filed Against the Government of Canada

Lone Pine Resources Inc. v. Government of Canada

Claimant

Lone Pine Resources Inc. (“LPRI”) is a company incorporated in the State of Delaware in the United States. LPRI owns Lone Pine Resources Canada Ltd. (“LPRC”), which is incorporated in Alberta. LPRC is an oil and gas resources development and production company operating in Alberta, British Columbia, Quebec and the Northwest Territories.

Articles

• 1105 (Minimum Standard of Treatment)
• 1110 (Expropriation)

Damages claimed

$118.9 million USD

Status

Pending decision.

Arbitration rules

UNCITRAL

Summary

Procedural history

The claimant submitted a Notice of Intent to Submit a Claim to Arbitration on November 8, 2012, followed by a Notice of Arbitration on September 6, 2013. An arbitration tribunal was constituted in September 2014 and Canada filed a Response to the Notice of Arbitration on February 27, 2015. The parties exchanged written pleadings and the Tribunal held a hearing on jurisdiction, merits, and damages in Toronto, Ontario, October 2 to 13, 2017. Closing arguments were heard on November 24, 2017, in Montreal, Quebec. On September 21, 2020, following the passing of the president of the Tribunal, a new president was appointed and the Tribunal was reconstituted in accordance with the UNCITRAL Arbitration Rules (2010) and Chapter Eleven of the North American Free Trade Agreement.

Factual overview and nature of the claim

The claimant alleges that LPRC has contractual interests relating to five contiguous exploration licences for petroleum, natural gas and underground reservoirs (“exploration licences”) located near Trois-Rivières. These interests stem from a farmout agreement signed with the holder of these exploration licences, a Canadian company named Junex Inc. Four of the exploration licences are located on land and one is located in the St. Lawrence River.

The exploration licence located in the St. Lawrence River was revoked following the coming into force, on June 13, 2011, of a Quebec law titled An Act to limit oil and gas activities (“Act”). The Act revokes exploration licences located in the St. Lawrence River and limits the area of those that cross the water’s edge to their land portion.

The Act was passed in response to the findings of a strategic environmental study on hydrocarbon development in the maritime estuary basin and the northwestern Gulf of St. Lawrence, which concludes that this environment is not conducive to hydrocarbon development activities. This study was preceded by numerous other studies that, since 2003, have been analyzing the impact of hydrocarbon exploration and exploitation activities on the biophysical and human environment of the St. Lawrence River.

In addition to studies on hydrocarbon development in the St. Lawrence River, the Government of Quebec devotes considerable resources to documenting and assessing the environmental and socio-economic impacts of the shale gas industry. Since February 2011, reports from Quebec’s Bureau d’audiences publiques sur l’environnement (“BAPE”) and studies conducted as part of strategic environmental studies have been establishing the existence of risks to the biophysical and human environment tied to shale gas development activities involving hydraulic fracturing.

The claimant alleges that Quebec’s energy policy in effect at the time of the facts promoted investments in the hydrocarbon sector. It also alleges that Quebec government workers assured it that it could conduct exploration work in the territory covered by the Junex licences in which it has interests.

The claimant alleges that the revocation of the river licence violates Canada’s obligations under articles 1105 (Minimum Standard of Treatment) and 1110 (Expropriation). More specifically, it alleges that the passing of the Act is an arbitrary, unfair and inequitable measure based on political and populist grounds rather than actual environmental grounds. It also alleges that this measure violates the legitimate expectations that it had when it decided to invest in Quebec. Finally, the claimant alleges that the revocation of the river licence expropriated its investment without any compensation. It alleges that this violation of Canada’s international obligations caused it damages that it has assessed at $118.9 million USD.

Conversely, the Government of Canada alleges that the Act is not a measure that affects the claimant because it is not the holder of the exploration licence owned by Junex. Moreover, according to the Government of Canada, the Act is a legitimate measure of public interest that applies indiscriminately to all holders of exploration licences that are located fully or partially in the St. Lawrence River. The measure was enacted by a fundamental democratic institution of Quebec and was preceded by numerous studies that establish that the Act seeks to achieve an important public policy objective, namely, the protection of the St. Lawrence River. Therefore, the Act cannot be considered an arbitrary, unfair or inequitable measure.

The Government of Canada also points out that the minimum standard of treatment guaranteed in Article 1105 of NAFTA does not protect investors’ legitimate expectations. Even if this were the case, no representative of the Government of Quebec communicated to the claimant any guarantee, promise or specific assurance that could create legitimate expectations relating to the development of hydrocarbon resources that may be found beneath the St. Lawrence River.

Finally, the Government of Canada disputes that the claimant had an investment that was capable of being expropriated. Even if this were the case, the disputed measure did not substantially deprive it of its investment because the Act revoked only one of the five exploration licences that are the subject of the farmout agreement with Junex. Furthermore, passing the Act is a legitimate exercise of the Government of Quebec’s police power and, thus, the measure cannot constitute an expropriation. Lastly, the Government of Canada believes that the damages claimed by the claimant are highly exaggerated.

Legal Documents

This case is governed by the arbitral rules of the United Nations Commission on International Trade Law.  Legal documents related to this case can be viewed at the website of the International Centre for Settlement of Investment Disputes.

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