Simon Lester already blogged this morning about the NAFTA investor-state award in Bilcon v. Canada, focusing on one particular issue concerning National Treatment. The award is interesting on a number of fronts, including the issue of the minimum standard of treatment (Fair and Equitable Treatment) in relation to customary international law, the place of public policy concerns in the determination of a violation of National Treatment, and the application of the ILC Articles on State Responsibility to attribution of conduct to a state in an investor-state arbitration. For purposes of disclosure, in this case, I was an outside consultant to the investor's legal team, led by veteran NAFTA litigator (and scholar) Barry Appleton. The tribunal was presided by Judge Bruno Simma, a former judge of the International Court of Justice, the other arbitrators are Professor Bryan Schwartz and Professor Donald McRae both of whom are Canadian jurists. Professor McRae wrote a dissent. Both the majority award and the dissent are linked in Simon's post this morning.
Briefly the majority found for Bilcon, holding that Canada had violated both the Fair and Equitable Treatment and National Treatment provisions of NAFTA. In this post, I'm not going to go into depth on any one point in the awards, but rather try to give a general sense of why they are significant jurisprudentially, and also to the current debate over ISDS, for example in the TTIP context.
The Web of Politics
Bilcon, the American investment, sought to expand its quarrying activities on the East Coast of Canada. While, as the majority found, Bilcon was initially encouraged by the provincial government in its plans, and led to believe that the project was an appropriate one for the location it had chosen, its proposal became entangled in a complex, changing, and eventually quite rancorous web of local politics in Nova Scotia. The investment encountered various, quite unusual and unanticipated roadblocks from both provincial and federal authorities; because of its interpretation of a time bar in the NAFTA, the tribunal focused on events in 2005, when the investor's project was subject to a joint federal-provincial environmental review panel (JRP). The panel did not dispose of the investor's proposal on the basis of an environmental analysis but rather on the motive that it was against "community values", a concept not part of the relevant legal and regulatory framework; as the majority award held, the investor had no advance notice about the employment of this extralegal analytic or any opportunity to confront it. Another unprecedented element was that the JRP advised the government that the investor should not be given the possibility of addressing any concerns through mitigation measures. Ultimately, both the Nova Scotia and Federal Governmen's chose to take on board the JRP's recommendation that the project be killed; the investor failed in obtaining an opportunity to voice its concerns about what happened at the JRP to the Federal authorities.
Fair and Equitable Treatment and Customary International Law
In its approach to the standard of treatment in customary international law, the majority explicitly and categorically rejected the Glamis Gold tribunal's notion that customary law is identical to that recognized in the 1926 Neer case, despite the multiple legal, economic and political developments since that time. Instead, giving a great deal of play to the Waste Management approach, the majority articulated the notion that to engage international responsibility the improprieties or irregularities in question must be "serious", even if they need not be "shocking" in the manner evoked by the Neer ruling. Perhaps most significantly, the majority clearly in its own approach to ascertaining custom dispensed with the anachronistic notion in Glamis that a party relying on a rule of customary international must prove it through the traditional means of surveying state practice and opinio juris (which, ironically, didn't happen in Neer itself-the gold standard for custom according to the Glamis tribunal to make a rather lame pun). The dissent did not so much object to this legal approach of the majority as question whether the particular facts justified an international tribunal second-guessing domestic legal and policy processes. Since, as I mentioned, I was involved in this dispute on behalf of Bilcon, I have to leave it to other followers of this blog to debate whether, under a treaty like NAFTA, a decision fatal to the investment that is on grounds other than those provided by law, and without prior notice of those grounds, is a matter of sufficient seriousness to be of international concern. Indeed, thinking of the ELSI case I wonder in fact whether the majority might have decided the same way, even it had thought that the customary standard was the one that existed in 1926.
A final comment about the the Fair and Equitable Treatment analysis in this award and regulatory democracy. The claimants in Bilcon, as the majority noted, were not challenging any environmental law or regulation of Canada or the province of Nova Scotia. The claimants merely insisted that they were entitled to a decision on their project that was based on the expectation that the law in force as written and customarily interpreted would be applied to their proposal. On some views of democracy, a government should be able to reject a project just based on its unacceptability to some politically salient part of the community in which it is sited, regardless of environmental, health or other policy-rational concerns. So if, contrary to the actual situation in this case, Canada's environmental law instead had a clause that allowed or empowered a JRP to override environmental analysis and make a determination of rejection for a project based on its judgment that the views of politically salient parts of the community were highly adverse regardless of established environmental risks, and the investor had been on notice about that, would this tribunal have found a violation of NAFTA? Some awards suggest that an investor is entitled to a legal and regulatory framework that is intrinsically stable or rational, and is insulated from political vicissitudes (at least of the NIMBY kind). There is language in Tecmed along these lines. Some may find in the tone and substance of the majority's award a view that is more accommodating of what could be called "deep democracy"; certainly, there is emphasis on the specific expectations of the claimant that the laws and regulations valid at the time would be applied to it in the normal way, as opposed to the view that FET requires as such that the substance of the law must ensure that objective criteria rather than elements of popular sentiment carry the day. (On the facts of Bilcon, it wasn't clear, by the way, that the community as a whole were negative; but those with the ear of the politicians seemed to be).
National Treatment
I want to raise a different aspect of the National Treatment analysis than that blogged by Simon earlier today. NAFTA investor-state tribunals have been understandably concerned that the National Treatment obligation in NAFTA, unlike that in the GATT and certain other WTO Agreements, for instance, is not qualified by a general public policy exceptions clause, for measures justified on legitimate health, environmental or other grounds. They have struggled with how to take account of legitimate public policy, often leading to rather incoherent or obscure readings of concepts such as "like circumstances" and "treatment no less favorable." In Bilcon, the approach taken is reminiscent for me of that which the WTO Appellate Body adopted in the recent TBT trilogy, faced with the analogous challenge that, unlike the GATT the Technical Barriers to Trade Agreement has no general public policy exceptions provision. The Bilcon majority allows that detrimental treatment may nevertheless not be a violation of National Treatment where the respondent state can demonstrate adequately that there is a rational nexus of the detrimental treatment to a legitimate public policy. This seems a lot like the "legitimate regulatory distinction" test applied in the TBT cases by the WTO Appellate Body, although it also has a good basis in a rather early NAFTA award, Feldman v. Mexico.
Attribution of Conduct to the State and the ILC Articles on State Responsibility
On attribution, Canada had argued that the JRP, because it was composed of outside experts and only advised the governments on the disposition of the project rather than taking the actual decision, was not part of the government. The tribunal unanimously rejected that; the majority noted in its reasons that the JRP was fully embedded in the Canadian legal and regulatory framework and had no function autonomous from its role in governmental decision-making. This distinguished the JRP from the kind of bodies that may have both a public and a commercial function, and made it a de jure organ of Canada. There is also a very interesting dictum: the majority suggested that even if the JRP were not an organ, the governments had adopted its conduct within the meaning of ILC Article 11, as they had accepting the recommendations of the JRP, including its "community values" approach, without additional, separate analysis supporting the decision in question.
Remedying Administrative Injustice: Domestic Courts vs. International Tribunals and the Debate over the Future of ISDS
Finally, the axis of (very respectful) divergence between the majority and dissent seems somehow to connect to a deep policy or normative question of whether one thinks that an international tribunal could have some legitimate or useful function in remedying miscarriages of administrative justice, i.e. as opposed to a domestic court in the host state. The dissent apparently doesn't see international judicial review as appropriate, where what is at issue is departure from a state's own laws and requirements of due process. According to the majority, by contrast, "Third-party adjudicators may have their own advantages including independence and detachment from domestic pressures." (Para. 439) Of course, both the majority and the dissent agreed that the NAFTA tribunal properly had jurisdiction in this case as a matter of law; but the difference of perspectives obviously has relevance to the policy debate going on right now about the fate of ISDS in the TTIP.
