Canada ordered to pay $7 million for botched environmental review, but NAFTA arbitrators reject U.S. investors’ bid for $400+ million in lost profits

In a final award rendered in a long-running, high-profile NAFTA dispute, arbitrators have awarded a group of U.S. investors $7 million, plus nearly 12 years of pre-award interest, for a flawed environmental review that was deemed to breach NAFTA Chapter 11.

The January 10, 2019 award in the case of Clayton & Bilcon v. Canada was released today following redaction of certain confidential information by the parties.*

The claimants turned to NAFTA arbitration in 2008 seeking compensation for the decision of Canadian and Nova Scotia authorities to deny approval of the claimant’s proposed basalt quarry and marine terminal on the Bay of Fundy. (The project was the subject of a vociferous community debate, and considerable opposition from many living in the vicinity of the proposed project.)

As we’ve previously reported, arbitrators ruled by 2-to-1 majority in March of 2015 that Canada was in breach of its NAFTA obligations due to the flawed nature of the environmental review of the proposed venture. Canada unsuccessfully sought to set aside that award in Canadian courts while the tribunal moved forward to assess the compensation owing to the claimants.

In their final award on damages released publicly today, all three arbitrators, Bruno Simma (chair), Donald McRae, and Bryan Schwartz, were in agreement that the claimant did not meet the burden of proving that they would have obtained regulatory approval for their controversial quarry project in coastal Nova Scotia if the environmental assessment had been performed in a NAFTA-compliant fashion.

Given the serious question marks over permitting – and, indeed, of the likely profitability of a properly-permitted project – arbitrators rejected the claimants’ plea for more than $400 million in compensation based on a discounted cash-flow analysis of the projected lost profits that would have been earned over the lifetime of the quarry project. (IAReporter has previously profiled the parties’ detailed damages arguments in this earlier report.)

Instead, the majority of Mr. Simma and Mr. McRae, proceeded to evaluate the discrete “value of the opportunity to have the environmental impact of the Whites Point Project assessed in a fair and non-arbitrary manner”. The tribunal ultimately weighed the expenditures incurred by the investors up until December 2007, as well as certain past transactions made in relation to the project site, which allowed the arbitrators to establish an implied value range of the investment opportunity presented by the Whites Point Project (inclusive of permitting risks).

While all three arbitrators were in agreement on the amount of compensation, Mr. Schwartz issued a concurring opinion wherein he analyzed the damages owing to the claimants “based on viewing its losses as a lost chance – not a certainty – of obtaining regulatory approval and then operating the project profitably. ”

We will be publishing a detailed review of the damages award and concurring opinion this week [UPDATE: that fuller review is now available here.]. In the mean time, they can be downloaded from our website here and here.

* [UPDATE: very shortly after publication, we noticed a typo: the wrong date was given for this latest decision. We’ve now corrected this. Sorry.]