Submission to the UN Special Rapporteur on Human Rights and the Environment: “Should the Interests of Foreign Investors Trump the Human Right to a Clean, Healthy and Sustainable Environment?”
Editor’s Note: Below is an excerpt of input submitted by Kyla Tienhaara, Rachel Thrasher and Kevin P. Gallagher to the Office of the High Commissioner of Human Rights (OHCHR) at the United Nations in June 2023 to inform the OHCHR’s report on “Investor-State Dispute Settlement (ISDS) mechanisms and the right to a clean, healthy and sustainable environment.” The OHCHR presented these submissions at the United Nations General Assembly in October 2023, and conclusions from those inputs were published as a Report of the Special Rapporteur.
By Kyla Tienhaara, Rachel Thrasher and Kevin P. Gallagher
We are academics rather than representatives of states or businesses that are directly involved in investor-state dispute settlement (ISDS). However, between us, we have published a significant number of peer-reviewed academic journal articles on the relationship between foreign investment, human rights and the environment. In this short submission, we draw from collaborative research efforts that were published in 2022 in the journals Science and Climate Policy.
Has your State been the subject of ISDS arbitration claims as a result of government actions intended to address climate change, protect the environment or advance the right to a clean, healthy and sustainable environment? Please provide details, including links to settlements or decisions by international arbitration panels where possible.
We would like to briefly summarize several relevant cases that we have been studying in Canada and the United States. We would note that a common theme across these cases is that the existence of public pressure to act on climate change is used by investors as evidence that government decisions are “politically motivated” and thus illegitimate.
In 2011, the province of Québec passed a law (Bill 18) banning oil and gas exploration and production in the St. Lawrence River to protect the environment. Exploration licences were revoked and any licences that covered both a land and river portion were redefined to only include the land area. No compensation was paid to licences holders. Lone Pine, a company incorporated in Delaware, had entered (through a Canadian subsidiary) into a series of farmout agreements with the Canadian junior oil and gas company, Junex, gaining access to several exploration licenses near Trois-Rivières, Québec, to explore for shale gas. One of these licenses was located in the St. Lawrence River and was revoked when Bill 18 was passed. When this occurred, Lone Pine had yet to undertake any exploration within the river license area.
Lone Pine filed a claim under the North American Free Trade Agreement (NAFTA) arguing that Canada had breached two provisions of NAFTA: Article 1110 on expropriation and Article 1105 on the Minimum Standard of Treatment. The latter was clarified by the parties in the 2001 “Notes of interpretation” to be limited to “that which is required by the customary international law minimum standard of treatment for aliens”. With respect to Article 1110, Lone Pine alleged that the revocation of the river permit expropriated its investment without any compensation. With respect to Article 1105, the company alleged that the revocation of the river exploration license was arbitrary, unfair and inequitable and violated its legitimate expectations. A key part of the company’s argument was that Bill 18 was passed for political, rather than legitimate environmental, reasons (to appease the public and anti-fracking lobby). The company argued that it was owed lost future profits amounting to $118.9 million.
The final Award in this case was issued on 21 November 2022. Although a Majority of the Tribunal dismissed all the claims, its reasons for doing so were extremely narrow. On expropriation, the Tribunal was unanimous that no “substantial deprivation” had occurred because only part of the investment (the river exploration license) was affected by the ban. If Québec had passed a total ban on all oil and gas development (as it did in 2022), the outcome might have been different. On the minimum standard of treatment, the Tribunal stressed that “the standard to be met for a breach of NAFTA Article 1105 is a very high one”, which suggests that the same conclusions might not have been drawn had the case occurred prior to the Notes of Interpretation or under a different treaty with a vague FET provision. Even with this high standard, one dissenting arbitrator concluded that the failure to provide the company with compensation, which he viewed as politically expedient and therefore not justifiable, was enough to create a breach.
On his first day in office, US President Joe Biden issued an executive order that rescinded a permit issued by his predecessor – Donald Trump – for the cross border section of the Keystone XL pipeline (hereafter KXL). Without this critical permit, the project proponent, Canadian company TC Energy (formerly known as TransCanada) was unable to proceed with the pipeline, which was intended to bring tar sands crude from Alberta to refineries in Texas and Oklahoma.
In November 2021, TC Energy launched an ISDS claim under the ‘legacy’ provisions in the United States-Mexico-Canada Agreement (USMCA) that replaced NAFTA in 2020, which allow for disputes over investments made prior to 1 July 2020 to be referred to ISDS until 30 June 2023. This was the second time that the company had made an ISDS claim over the project. The first claim in 2016, following President Obama’s decision to deny the same permit in the leadup to the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change, was withdrawn when President Trump reversed the decision. Both claims were for $15 billion in compensation. TC Energy argues that the US government has breached four separate provisions of NAFTA: Articles 1102 (National Treatment), 1103 (Most-Favored-Nation Treatment), 1105 (Minimum Standard of Treatment) and 1110 (Expropriation and Compensation). The case is ongoing, with jurisdictional objections from the US (about whether the NAFTA legacy provisions should apply to this dispute) being dealt with as a preliminary matter.
Westmoreland Coal Company v. Canada
In 2015, the Alberta government committed to phasing out coal-fired power by 2030. Without the infrastructure to export coal, the climate plan also resulted in a de facto phaseout of local thermal coal mining. To ensure support for the plan, major utility companies in the province were provided with “transition payments” to facilitate the switch to gas and renewable energy. Mining companies, including Westmoreland Coal, an American mining firm, however, did not receive a government handout, because they do not produce energy. The first dispute involving this measure, filed in 2018, was withdrawn by the company, which had filed for bankruptcy in the US and was going through a restructuring. The second, filed by a different corporate entity (Westmoreland Mining Holdings), was thrown out at the jurisdictional phase because the company had not been the investor at the time of the dispute. In 2023, the original corporate entity (Westmoreland Coal) filed a new claim under the NAFTA legacy provisions in USMCA. The company argues that, through Alberta’s coal-fired power phase out, Canada has breached NAFTA Articles 1102 (National Treatment) and 1105 (Minimum Standard of Treatment). Although the claimed amount is not yet public, the firm previously complained that it would suffer loses of more than CDN$440 million as a result of the early closure of its mine.
Earlier this year, Ruby River Capital LLC., an American company, filed an ISDS claim under the NAFTA legacy provisions in USMCA against Canada over its failed bid to develop an LNG facility in Québec. The project was rejected by both the provincial government and the federal government over concerns about greenhouse gas emissions and the impact of the project on marine life and Indigenous communities. The company argues that these decisions were political, rather than legitimately motivated by environmental concerns, and that Canada has breached four separate provisions of NAFTA: Articles 1102 (National Treatment), 1103 (Most-Favored-Nation Treatment), 1105 (Minimum Standard of Treatment), and 1110 (Expropriation and Compensation). Ruby River is seeking $20 billion in compensation, even though it only spent around CDN$165 million on the project.
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