When a Canadian federal-provincial environmental review panel ruled in 2007 that a proposed quarry would go against community core values and would threaten right whales and other marine life in the Bay of Fundy, groups that had fought against the project believed that was the end of the story.

But, that is not how the system works under the North American Free Trade Agreement (NAFTA), which has dispute settlement provisions allowing corporations to sue governments for compensation when they feel the local environmental approvals process has interfered with expected profits.

Instead of abandoning efforts to build a quarry and marine terminal on Digby Neck, Delaware-based Bilcon headed for the NAFTA Investor-State Dispute Settlement tribunal and, in 2015, the three-person panel ruled two-to-one that the environmental assessment panel had violated Canadian law by using the criterion of core community values.

Bilcon has claimed $300-$500 million in damages.

Bilcon project included shipping path in endangered whale nursery

The Bilcon NAFTA ruling was inexplicable to Nova Scotia residents as the company planned to blast within 50 metres of the Bay of Fundy and build a 600 foot pier with nearly 50 45,000 tonne vessels a year carrying quarried basalt to the U.S. through waters that serves as a nursery for severely endangered right whales.

ICYMI: 3% of the World’s Endangered Right Whales Died This Summer, Mostly in Canada’s Unprotected Waters

This week, the federal government and environmental organizations are in federal court arguing the NAFTA arbitration panel overstepped its bounds and, with NAFTA renegotiations underway, the case is being watched closely.

Ecojustice, working with Sierra Club Canada Foundation and East Coast Environmental Law, is arguing that Bilcon had the opportunity to ask a Canadian court to rule on the alleged breach of federal law, but, instead, went through NAFTA, which is supposed to decide only on questions of NAFTA law, meaning the tribunal stepped outside its legal expertise.

“If this decision stands it will send a chilling message that even when the Canadian government makes good decisions to protect our environment, there’s a chance that a NAFTA tribunal could swoop in, decide our environmental laws are unfair and force Canada to cough up hundreds of millions of dollars — leaving Canadian taxpayers on the hook,” Ecojustice said in a news release.

“We can’t let that happen.”

A local battle to protect a community and its environment “has turned into a broader fight to ensure international trade agreements do not supersede Canada’s environmental laws,” the release said.

The Bilcon case is under the legal microscope, but it is not the only case where Canada has been financially dinged after losing a NAFTA investor-state dispute.

The company is seeking $300 to $500 million in damages. https://t.co/8O8bRjNi4s

— DeSmog Canada (@DeSmogCanada) January 30, 2018

Canada dinged $220 million in NAFTA losses, faces half a billion more

A report by the Canadian Centre for Policy Alternatives found that, as of January 1, 2018, Canada has paid out nearly $220 million in NAFTA losses and settlements — all to U.S. investors.

Those claims often targeted legitimate, non-discriminatory environmental protection, public health and resource management decisions made by Canadian governments, according to the report.

Canada currently faces eight claims with investors demanding about half a billion dollars, including Omnitrax’s claim relating to its broken rail line to Churchill, Manitoba and Lone Pine’s challenge to Quebec’s fracking moratorium, the report found.

In addition, the federal government has spent more than $95 million in legal fees defending the ballooning number of investor-state lawsuits.

The information was compiled by CCPA senior research fellow Scott Sinclair, through access to information requests, and Sinclair would like to see the federal government grasping the opportunity to remove the process from NAFTA — something suggested by the U.S.  

But, instead, Canada’s position is to retain the dispute process as it helps Canadian resource companies investing in developing countries.

Canada is the most-sued country under NAFTA’s Chapter 11 which gives companies the right to sue governments.

Since 2010, Canada has been sued twice as many times as Mexico and the U.S. combined, which is a worrying trend, Sinclair said.

“The Trudeau government has more than enough reasons to remove the undemocratic investor-state dispute settlement process from NAFTA during the current renegotiations, as proposed recently by the U.S. administration,” he said in a news release.

Canada could gain leverage by withdrawing its opposition to allowing countries to opt out of the process, Sinclair said.

“This could help negotiators advance other key Canadian interests, such as safeguarding affordable access to medicines or securing meaningful continental labour standards.”

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.

In April and May alone, Lone Pine Resources Inc. — the oil and gas company that’s currently suing the government of Canada for $118.9 million in alleged damages — lobbied 11 MPs, a policy advisor for the Prime Minister’s Office and the chief of staff for Natural Resources Canada.

The sole subject matter listed for the lobbying efforts was: “Claim against the Government of Canada under the North American Free Trade Agreement (NAFTA) by Lone Pine Resources Inc.”

The company is actively claiming damages for Quebec's 2011 decision to revoke oil and gas exploration licenses located beneath the St. Lawrence River that were granted to its subsidiary, Lone Pine Resources Canada Ltd., via a “farmout agreement” with Junex Inc. The $118.9 figure represents Lone Pine’s estimated sunk costs and lost future profits.

Actual case proceedings haven’t started yet: the last publically available document — a 251 page rebuttal by the Canadian government written entirely in French — is from July 2015.

These recent meetings could mean the company — which Sujata Dey, trade campaigner with the Council of Canadians, dubs “a Canadian company suing Canada through their U.S. tax haven and subsidiary” — is attempting to seek an out-of-court settlement with the government, an option that would allow Lone Pine to avoid mounting legal fees and the unpredictable nature of investment tribunals.

Investor-State Dispute Settlements Can Result In Large Payout, Rollback In Policies

Ben Beachy, senior policy advisor in the U.S. Sierra Club’s Responsible Trade Program, notes some settlements such as the Ethyl Corporation’s successful suit against Canada in the late ‘90s have resulted in weakened policy.

Even if that doesn’t occur, he says such investor-state dispute settlement procedures can create a “chilling effect” on governments: with the looming threat of lawsuits from foreign companies, officials are less likely to implement strong environmental protections.

Beachy said the threat of legal action is concrete: “It clearly is a consideration on the mind of policymakers: ‘Am I going to get sued in front of not a domestic court but three private lawyers whose rulings are unpredictable for millions or billions of dollars?’”

Lone Pine Suing Canada Over Quebec's Fracking Ban, Aggressively Lobbying in Ottawa https://t.co/YlkUqSMPTD @ccpa #NAFTA #cdnpoli

— DeSmog Canada (@DeSmogCanada) May 25, 2016

Canada Argues Claims By Lone Pine Are ‘Highly Exaggerated’

Lone Pine Resources is suing the government via the infamous Chapter 11 of NAFTA for what it describes as the “arbitrary, capricious, and illegal revocation” to frack under the St. Lawrence River “without due process, without compensation, and with no cognizable public purpose.”

The government of Canada has contended: “The measure was enacted by a fundamental democratic institution of Quebec and was preceded by numerous studies that establish that the Act seeks to achieve an important public policy objective, namely, the protection of the St. Lawrence River” and that “the damages claimed by the claimant are highly exaggerated.”

Investment Tribunals Lack Safeguards and Equal Standing, Says Investment Law Expert

Gus Van Harten, associate professor at York University’s Osgoode Hall Law School and expert in international investment law and arbitration, emphasizes that investor-state dispute settlement procedures don’t constitute an actual judicial process, lacking the usual safeguards of independence that judges have in domestic and international courts, or the ensuring of standing for all affected parties.

“It’s obvious that there are some foreign investors — not a lot — that benefit from it,” he says. “What’s usually claimed is ‘we’ll get more foreign investment and that will help the economy’ but there’s a real lack of evidence on that point.”

Over 70 Per Cent of NAFTA Claims In Past Decade Have Targeted Canada

Canada is the most sued country in the “developed” world.

A report published by the Canadian Centre for Policy Alternatives in January 2015 noted that via NAFTA, the government has been sued 35 times since 1994, losing seven cases and paying out over $170 million in damages.

Over 70 per cent of NAFTA claims since 2005 have involved Canada. Two-thirds of the total suits have been related to environmental or resource management policy.

Over 70% of #NAFTA Claims In Past Decade Have Targeted Canada https://t.co/YlkUqSMPTD @TheEnergyMix #oilandgas #fracking #cdnpoli

— DeSmog Canada (@DeSmogCanada) May 25, 2016

Nine foreign investors are currently suing Canada via NAFTA.

Beachy — who wrote and researched the Sierra Club’s recent report “Climate Roadblocks: Looming Trade Deals Threaten Efforts to Keep Fossil Fuels in the Ground” — notes that 2015 featured the largest number of investor-state dispute settlement cases launched globally, double the number from just five years before.

In 2014, half of new cases globally were challenging policies related to oil and gas extraction, mining or power generation.

Investor Suits May Increase In Number With Implementation of New Trade Deals

Beachy describes the Lone Pine case as being similar in significance to TransCanada’s $15-billion suit against the United States for blocking its proposed Keystone XL pipeline as both “serve as a wake-up call that deals like the Trans-Pacific Partnership would undermine our efforts to keep fossil fuels in the ground.”

Dey notes the ratification and implementation of the Trans-Pacific Partnership would add nine countries to the list in which companies could incorporate or set up legal vehicles in and sue Canada via investor protection clauses.

Beachy adds there are investors currently fracking in a dozen states that would gain new rights to sue the United States via proposed trade deals like the Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership.

“This one is clearly not hypothetical because of Lone Pine,” Beachy says. “We are anxiously looking at the Lone Pine case given that more and more states in the United States are trying to do what Quebec and New York have already done to protect their citizens from the dangers of fracking.

“It’s a really ironic time to be handing more power to fossil fuel companies, just after the world committed to curb greenhouse gas emissions and transition to green energy in Paris,” he says.

Lone Pine Filed Notice of Arbitration Three Weeks Before Announcing Its Restructuring

Lone Pine Resources has had a rough few years. In December 2012, Moody’s Investors Service downgraded Lone Pine’s “corporate family rating” to Caa1 due to “strained liquidity and sharply declining production and reserves.”

Two-and-a-half months later, the company fired its CEO and CFO.

By January 2014, it completed financial restructuring and emerged from creditor protection, a process started in September 2013 (less than three weeks after it filed its notice of arbitration to the government).

In the process, it cut long-term debt obligations by over four times and rescinded its position as a publically traded company in Canada and the United States. As a result, it’s impossible to tell what Lone Pine’s net earnings are looking like these days and the potential significance of a $118.9 million settlement for the company.

Regardless of the outcome, Dey contends it’s a deeply troublesome example of what’s wrong with investor-state dispute settlement: “This is completely undemocratic,” she says. “It takes power from elected people and puts them into a supranational system that gives rights to corporations. It has nothing to do with democracy.”

“This is a corporate rights system that is even higher in position that our own democratically elected governments.”

Image: Mysterious foamy water collected after heavy rainfall near a fracking site. Joshua B. Pribanic/Public Herald.

The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for our free weekly dose of independent journalism.