Environmental NAFTA lawsuit could be trouble
As rallying cries go, NIMBOF doesn't exactly roll off the tongue. But "Not In My Bay Of Fundy" has proven a powerful enough slogan to fell a controversial quarrying project slated for the southwest shore of Nova Scotia. It remains to be seen whether it can also thwart a retaliatory lawsuit filed by the frustrated project-developers.
A New Jersey-based construction company is now suing the Government of Canada for $188 million (US) for blocking a 152-hectare quarry and marine port. The US investors wanted to extract large quantities of basalt—a key ingredient in the production of concrete and asphalt—and ship it by bulk tanker to their New Jersey manufacturing site.
The proposal was not popular with locals, who fretted about noise, dust and pollution, both on-shore and off. Heeding these concerns, bureaucrats convened a special review panel to scrutinize the proposed project. After exhaustive study (more on that in a moment), the three-person committee recommended that the project be nixed.
In late 2007, both the provincial and federal governments adopted the panel's recommendation. However, the project-developers did not return to New Jersey with their tails between their legs. Citing the sums spent on the proposal, and lamenting their future lost profits, the developers lodged a claim in 2008 under the North American Free Trade Agreement (NAFTA).
In their legal filings, they allege that they received a much rougher welcome than that accorded to other development projects in Canada, and were subjected to a time-consuming and irregular environmental review process. In legal parlance, they say they've suffered discrimination and have been denied the minimum standard of treatment owed by Canada to foreign investors.
It now falls to a pair of Canadian professors—Donald McRae of the University of Ottawa and Bryan Schwartz of the University of Manitoba—and a judge of the International Court of Justice, Bruno Simma, to decide whether Canada's handling of the project did indeed breach NAFTA commitments.
Recently, the Feds released their first set of pleadings filed in the Nova Scotia dispute. The government, which maintains a full-time phalanx of trade lawyers to defend such cases, contends that the potential for significant adverse environmental impacts dictated that the project proposal be subjected to the most strenuous form of review under applicable environmental assessment laws.
The Feds note that the Bay of Fundy is an important breeding ground for several species of whales, including "the world's most endangered large whale, the North Atlantic right whale." They also point to other endangered species in the Bay, including leatherback turtles, as well as other "species of concern."
Because blasting, quarrying and shipping might impact negatively on such species, the authorities gave the project its most searching level of scrutiny.
In Canada's eyes, the US investors got full and ample due process. The US investors counter that the same review process was an exercise in bureaucratic overkill.
What is not in dispute is that everyone got a chance to be heard in the review process.
In 13 days of public hearings, the review panel heard testimony from 78 individuals and received hundreds of public comments and written submissions. Transcripts of the process run into the thousands of pages.
The ongoing NAFTA arbitration process will be watched closely by trade lawyers and environmental policy wonks alike.
It remains to be seen to what extent arbitrators will defer to the environmental review process. Indeed, any future arbitration ruling will not only determine Canada's liability, but could be seized upon in other international arbitrations that are touching upon similar environmental contests.
For instance, in El Salvador, a battle is playing out over that country's increasing skepticism of mining activity in its territory. The government—spurred by environmental groups and the Catholic Church—expresses concern that current and future mine projects could pose catastrophic threats to the tiny country's rivers and other water sources.
Foreign mining corporations, including North American firms such as Pacific Rim and Commerce Group, contend that they've had earlier assurances from local regulators that mining projects will be supported. The companies complain that the Salvadoran government is now dragging its feet on key permit applications, and rejecting some altogether. Thus far, the response by mining companies has been to file multi-million dollar arbitration claims under the Central American Free Trade Agreement (a pact which mirrors NAFTA in many key respects).
As with the dispute that has arisen in Nova Scotia, panels of international arbitrators will be charged with scrutinizing the conduct of government officials in El Salvador, and judging whether the reasons for delaying or rejecting major development projects can be squared with the duties owed to foreign investors under global trade pacts.
Although these claims can take several years to play out, the stakes are important enough that everyone should be paying them some attention.
Luke Eric Peterson is the editor of InvestmentArbitrationReporter.com, an online news and analysis service focusing on cross-border investment arbitration lawsuits.
editor@embassymag.ca
http://embassymag.ca/page/printpage/cross_border_disputes-10-7-2009