TC Energy Corp. v. United States is an ICSID arbitration brought against the United States by Canadian investors in the planned Keystone XL pipeline, which would have extended the existing Keystone Pipeline System to deliver crude oil from tar sands in Alberta, Canada to Nebraska, USA. The pipeline was the subject of extensive protests claiming that the pipeline would harm ecosystems, interfere with indigenous land rights, and endanger public health due to the highly destructive characteristics of tar sands mining and transportation.  President Obama had rejected a permit to build the pipeline across the U.S. border, but President Trump reversed the decision, issuing a presidential permit immediately authorizing the construction of KXL in March 2019.  On President Biden’s first day in office in 2021, he denied another key permit, resulting in termination of the project by TC Energy. 

TC Energy submitted an arbitration request to ICSID on November 22, 2021, seeking damages as a victim of a “regulatory roller coaster.”  TC Energy filed the request pursuant to Annex 14-C of USMCA, the successor of NAFTA, and argued that the ultimate U.S. decision to revoke the presidential permit was “unfair and inequitable, discriminatory, expropriatory, and violated U.S. obligations under Chapter 11 of NAFTA.”  TC Energy specifically alleged the U.S. revocation of the 2019 permit on January 20, 2021, “breached U.S. obligations under Articles 1102 (National Treatment), 1103 (Most-Favored-Nation Treatment), 1105 (Minimum Standard of Treatment), and 1110 (Expropriation and Compensation) of NAFTA.”

However, NAFTA had been terminated by the parties in 2020 and was superseded by the U.S.-Mexico-Canada Agreement (USMCA).  Although the USMCA contains a provision for foreign investment arbitration, Canada opted out of that provision, preventing TC Energy from invoking the provisions of the USMCA itself to complain of the permit denial.  Instead, TC Energy invoked Annex 14-C of the USMCA, which permits arbitration claims for alleged breaches of NAFTA that occurred before NAFTA’s termination.

On January 11, 2023, the United States submitted its first response, requesting bifurcation of the international investor-state arbitration proceedings to allow the tribunal to render a decision on jurisdiction before addressing the merits of the claims.  The United States argued that, because the the construction permit was revoked on January 20, 2021 (more than six months after the termination of NAFTA), the United States could not have breached the substantive obligations of NAFTA.  Instead, any claim would have to relate to the investor’s rights under USMCA, which are similar to those in NAFTA, but for which there was no arbitral jurisdiction between the United States and Canada.

The United States argued that “NAFTA does not contain a survival provision obligating a party to continue abiding by its terms for some period post-termination.”

In support of its argument, the United States cited Article 70(1)(a) of the Vienna Convention on the Law of Treaties (to which the United States is a nonparty) which provides in relevant part: “Unless the treaty otherwise provides or the parties otherwise agree, the termination of a treaty under its provisions or in accordance with the present Convention: (a) releases the parties from any obligation further to perform the treaty.”  The United States further cited Article 13 of the International Law Commission’s Articles on Responsibility of States for Internationally Wrongful Acts: “An act of a State does not constitute a breach of an international obligation unless the State is bound by the obligation in question at the time the act occurs.”