NAFTA - Chapter 11 - Investment

Cases filed against the Government of Canada

Pope & Talbot Inc. v. Government of Canada

Claimant

Pope & Talbot, Inc. is a U.S. forest-products company incorporated in the State of Delaware with investments in Canada consisting of three softwood lumber mills and one pulp and paper mill, all located in the interior of British Columbia.

Articles

  • 1102 (National Treatment)
  • 1105 (Minimum Standard of Treatment)
  • 1106 (Performance Requirements)
  • 1110 (Expropriation)

Damages claimed

$500 million USD

Status

Lost. Tribunal found a breach of 1105 and awarded $527 thousand USD to Pope & Talbot.

Arbitration rules

UNCITRAL

Summary

Procedural history

The Claimant filed its Notice of Intent to Submit a Claim to Arbitration on December 24, 1998 and its Notice of Arbitration on March 25, 1999. The Tribunal issued an interim award on June 26, 2000 and an award on the merits of the claim on April 10, 2001. The Tribunal subsequently issued an award on damages on May 31, 2002 and an award on costs on November 26, 2002.

Factual overview and nature of the claim

On May 29, 1996, the United States and Canada entered in the Softwood Lumber Agreement (the “SLA”).  To give effect to the SLA, Canada created an Export Control Regime (the “Regime”) under which softwood lumber producers from Quebec, Ontario, Alberta and British-Colombia (the “Covered provinces”) were required to obtain export permits and pay fees before exporting their softwood lumber products to the United States.

Unsatisfied with allocations of export permits to its investment, the Claimant submitted a claim to NAFTA Chapter 11 arbitration alleging that Canada’s implementation of the SLA breached its obligations under the NAFTA.

The Tribunal’s decisions and award

In its June 2000 interim award, the Tribunal found that Canada had not breached Articles 1106 and 1110. The Tribunal declined to rule on Articles 1102 and 1105 without further information from the Parties. In dismissing the Investor’s claim that Canada breached its NAFTA obligations by setting “performance requirements”, the Tribunal noted that while setting a limit on exports may breach the performance requirements article, the regime set up to implement the SLA did not fix any such export cap. The Tribunal also concluded that export fees may deter producers from exporting beyond a certain level, but they do not prevent producers from doing so, and there is therefore no breach of Article 1106.

In dismissing the Investor’s claim that its investment in Canada had been expropriated, the Tribunal held that government “interference”, by regulation or otherwise, does not constitute expropriation unless it interferes substantially with the owner’s ability to use, enjoy, or dispose of its property. The Tribunal found that the Regime did not restrict the Investor’s investment in Canada according to this standard.

On April 10, 2001 the Tribunal rendered a decision on the claims based on NAFTA Articles 1102 and 1105. It dismissed all claims against Canada under Article 1102, dismissed the claims concerning the implementation of the SLA under Article 1105 but found a breach of Article 1105 with respect to a verification review conducted by the Government of Canada on information provided by the Claimant in the context of the export control regime.

In dismissing all of the Claimant’s allegations under Article 1102, the Tribunal found that differences in treatment between a foreign-owned investment and domestic investments in the same economic sector will presumptively violate the national treatment obligation unless the differences in treatment have a reasonable nexus to rational government policies that do not distinguish, on their face or in fact, between foreign-owned and domestic companies. Based on this theory of national treatment, the Tribunal found that the application of the Regime to softwood producers located in the covered provinces alone and the application of a super fee on all British Columbia producers were reasonably related to the policy objective of removing the threat of countervailing duty actions by the United States and was not motivated by discrimination against foreign-owned entities.

The investor’s claim that its investment was denied the minimum standard of treatment guaranteed by NAFTA Article 1105 was dismissed in large part. The Tribunal determined that, in administering its responsibilities to allocate softwood lumber quota, Canada did not breach its obligations under NAFTA Article 1105. However, the Tribunal held the treatment of the investment in connection with the verification review process resulted in a denial of the “fair” treatment required by NAFTA Article 1105. Canada had conducted a verification review of the Claimant’s investment to determine whether its allocations of quota were correct after the investment identified potential errors in its original quota application questionnaire. In particular, the Tribunal highlighted how Canada had insisted that the verification take place in Canada, rather than in Oregon, where the company was headquartered and had required the investment to incur unnecessary expense and disruption in meeting requests for information.

In its award in respect of damages, the Tribunal awarded the investor $407,646 USD plus interests for the damages incurred because of the breach of NAFTA Article 1105. In its final award in respect of costs, the Tribunal ordered Canada to bear the cost of the arbitration with respect to the investor’s claims regarding the verification review, in the amount of $120,200 USD.

Legal documents (all documents are in pdf)

This case was governed by the arbitral rules of the United Nations Commission on International Trade Law (UNCITRAL). Additional documents related to this case can be viewed at the UNCITRAL Transparency Registry.

Copies of all legal documents posted have been prepared in a language of operation of the Tribunal or Court in question. The Government of Canada has not modified or changed them in any way. As such they have not been translated from the original. They are provided in Acrobat (pdf) files. To view or download pdf files you need Adobe® Acrobat® Reader™ a free software that you can download from the web.

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