The International Business Transactions Blog

ICSID Investment Arbitration and the Keystone XL Pipeline Termination

By Yuki Taylor
Law Student Editor

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However, NAFTA had been terminated by the parties in 2020 and was superseded by the U.S.-Mexico-Canada Agreement (USMCA).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.”

Schiefelbein Global Dispute Resolution Conference: Panel 4 Summary

By John Contrera
Law Student Guest Editor
Yuki Taylor
Law Student Editor

The fourth and final panel of the Schiefelbein Global Dispute Resolution Conference, dealing with innovation in investor-state arbitration, was moderated by Prof. Roger P. Alford of Notre Dame Law School. The panelists were:

  • Christina L. Beharry, Foley Hoag LLP (Washington, D.C.)
  • Alejandro A. Escobar, Chair of Public International Law at Baker Botts LLP (London, UK)
  • David Ingle, Allen & Overy LLP (Washington, D.C.)
  • Martina Polasek, Deputy Secretary-General of the International Centre for Settlement of Investment Disputes (“ICSID”) (Washington, D.C.)

Ms. Polasek opened the panel’s discussion on new trends in investment arbitration, specifically discussing the new ICSID rules issued in 2022. She noted that ICSID hopes the new rules will bring greater transparency to proceedings, and specified how they would alter the time and cost of proceedings, the requirement for disclosure of third-party funding agreements, security for costs, and the participation of non-disputing treaty parties. ICSID is closely monitoring how the implementation of the new rules may affect arbitral proceedings in practice.

Mr. Escobar discussed abuse of process in international arbitration cases. Arbitral tribunals have the power to prevent unfair or improper use of arbitration procedure. Mr. Escobar highlighted several recent awards that were overturned or criticized on abuse of process grounds. He stressed that tribunals must take control of proceedings in the face of unfairness to a party, or in order to avoid the risk bringing themselves into disrepute, even though a party’s conduct may comport with the literal application of the procedural rules.

Mr. Ingle focused on issues of inequity in international arbitration cases. He discussed how larger foreign investors reap the benefits of bilateral investment treaties (BITs) due to the high costs imposed on claimants. Similarly, large investors can negotiate an arbitration clause in contracts with host States, while smaller investors may lack such bargaining power. Mr. Ingle viewed innovation to provide smaller investors with adequate remedy as necessary. He also discussed the recent push towards expedited arbitration for disputes below a minimum threshold, limiting potential costs of proceedings and discovery. Arbitration institutions are also moving toward allowing parties to negotiate the costs of proceedings among themselves, which may be cheaper and faster for the parties involved. Mr. Ingle stressed the importance of such innovations in establishing a more equitable playing field in international arbitration.

Ms. Beharry discussed innovations in the awarding of damages in international arbitration. Damages awards have significantly grown in recent years since the late 1990s, from the tens of millions in U.S. dollars. Now, UNCTAD’s Investment Dispute Settlement Navigator indicates that approximately 27% of investment claims involve damages upward of US$ 500 million, with 14% over one billion U.S. dollars, pushing states to seek innovative ways in order to avoid such large damages against them. Additionally, parties are seeking consistency in awards. Ms. Beharry discussed cases where analogous fact patterns and breaches incurred different damages awards based on the differing valuation methods used by tribunals. In response, some States have begun revising their model BITs, in particular the valuation methodologies used when calculating damages and applying commercially reasonable interest rates. In the future, Ms. Beharry predicts more States will amend their model BITs and seek guidance from other sources on how to limit damages awards preemptively.

Schiefelbein Global Dispute Resolution Conference: Panel 3 Summary

By John Contrera & Sergey Harutynyants
Law Student Guest Editors

The third panel of the Schiefelbein Global Dispute Resolution Conference dealt with Nontraditional International Arbitration Claims. The panel was moderated by Hugh Carlson, CEO of Three Crowns LLP. The speakers were:

  • Claudia Salomon, President of the ICC International Court of Arbitration (Paris, France)
  • Steven K. Andersen, VP of the AAA’s International Centre for Dispute Resolution (Los Angeles, CA)
  • Jacomijn van Haersolte-van Hof, Director General of the London Court of International Arbitration (London, UK)
  • Patrícia Kobayashi, Secretary General of the Center for Arbitration & Mediation of the Chamber of Commerce Brazil-Canada (São Paulo, Brazil).

The speakers first offered examples of what constituted traditional claims for their respective institutions. Most agreed that the typical case involves breach of contract claims that are arbitrated according to an arbitration agreement within a commercial contract.

The speakers then discussed recent trends regarding non-traditional claims in arbitration. All agreed that the number of cases involving multiple parties is increasing as both claimants and respondents. Ms. Saloman noted that technology disputes are becoming increasingly common arbitration claims within the ICC. She noted that claims involving renewables involved a combination of both the energy and technology sectors, and that these claims provide unique challenges to the court in finding qualified arbitrators and present novel issues. Ms. Kobayashi also noted that renewables are presenting new challenges to the Center for Arbitration and Mediation of the Chamber of Commerce Brazil-Canada as it is inherently different from traditional energy disputes. She noted that her institution is watching how arbitrators across the world are deciding renewable disputes, so that the expectations of parties in their own proceedings might be managed.  Additionally, technological advances and sophisticated licensing agreements are leading to more intellectual property rights cases being overseen by the ICC. Mr. Anderson agreed with Ms. Salomon, opining that patent disputes are a good fit for arbitration moving forward. He observed that tech and life-sciences cases are becoming increasingly popular disputes at the International Centre for Dispute Resolution over the past few years.

The panelists all agreed that a challenge facing arbitral institutions are similar claims arising from different disputes involving disparate parties. These cases present issues because the issues in the proceedings may have already been decided by an arbitrator, and may lead to disagreements between the parties as to his or her appointment. The institutions are committed to finding an arbitrator that fits both parties’ needs, but they need to balance efficiency, experience, and neutrality as well.

Ms. van Haersolte-van Hof spoke about how the complexity of cases now involving multiple parties and emerging technologies similarly presents challenges to institutions. Finding arbitrators who are knowledgeable, have the right background for the parties, and the requisite experience is increasingly difficult. As an example, all the panelists agreed that blockchain disputes are novel issues facing their institutions, and that meeting client requests for arbitrators versed in the topic is a major concern. The panelists also noted that the technological sector is demanding, and that lawyers in those fields are less willing to take on additional work as an arbitrator in addition to their day-to-day workload. Looking forward, Mr. Anderson suggested that these issues can be resolved through industry-group leadership and training. He stressed the importance of training lawyers versed in some tech sectors in other fields.

Finally, the panelists were asked about what future claims are likely to arise in international arbitration. While most were reluctant to proffer any strong predictions, all agreed that developments in technology would affect not only claims, but provide instruments to aid the arbitral process. All agreed that sophistication in how proceedings are handled will increase dramatically. Additionally, Ms. Saloman predicted that more low-value disputes will involve alternative dispute resolution. She recognized the backlog in traditional courts and the flexibility of the arbitration process as an attractive alternative.

Blog Editors

Faculty Editor
Prof. Aaron Fellmeth

Law Student Editor
Yuki Taylor

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