Koch Industries, Inc. and Koch Supply & Trading, LP v Canada - ICSID Case No. ARB/20/52 - Award of the Tribunal - 13 March 2023
Country
Year
2023
Summary
Source: icsid.worldbank.org
AWARD
Members of the Tribunal
Professor Andrea K. Bjorklund, Arbitrator
Mr. Henri C. Alvarez, K.C., Arbitrator
Mr. Eduardo Zuleta, President
TABLE OF CONTENTS
I. INTRODUCTION
A. OVERVIEW OF THE ARBITRATION
B. PARTIES
II. PROCEDURAL HISTORY
III. REQUESTS FOR RELIEF
A. CLAIMANTS
B. RESPONDENT
IV. FACTUAL BACKGROUND
A. ANTECEDENTS OF ONTARIO'S CAP AND TRADE PROGRAM
B. ONTARIO'S CAP AND TRADE PROGRAM
C. KS&T'S PARTICIPATION IN ONTARIO'S CAP AND TRADE PROGRAM
D. ONTARIO'S CANCELLATION OF THE CAP AND TRADE PROGRAM AND SUBSEQUENT EVENTS
V. JURISDICTION
A. BURDEN OF PROOF
1. Respondent's Position
2. Claimants' Position
3. The Tribunal's Analysis
B. JURISDICTION UNDER NAFTA ARTICLE 1139(G)
1. Respondent's Position
2. Claimants' Position
3. The Tribunal's Analysis
(a) The legal issue before the Tribunal
(b) Applicable legal framework
Whether the Ontario or Canadian Courts have established a general "legal test" or general interpretative principles for property
a. The Saulnier decision
b. The Anglehart decision
c. The Tucows decision
d. The Bouckhuyt decision
e. Conclusions on whether the Ontario or Canadian Courts have established a general "legal test" or "interpretative principles" for property
The non-Canadian decisions
a. The CJEU cases
b. The US cases
c. The Armstrong case
(c) Analysis of the Cap and Trade Act
The Purpose of the Cap and Trade Act
The context and the text of the Cap and Trade Act
Whether emission allowances satisfy the "exclusive control" element
a. Provisions identified by Claimants' expert
b. Other statutory provisions are indicative of the absence of the "exclusive control" element of property
C. JURISDICTION UNDER NAFTA ARTICLE 1139(H)
1. Respondent's Position
2. Claimants' Position
3. The Tribunal's Analysis
(a) Interpretation of NAFTA Article 1139(h)
(b) Whether KS&T held a protected investment under NAFTA Article 1139(h)
D. JURISDICTION RATIONE MATERIAE WITH RESPECT TO KOCH INDUSTRIES
1. Respondent's Position
2. Claimants' Position
3. Tribunal's Analysis
VI. COSTS
VII. DECISION
I. INTRODUCTION
A. OVERVIEW OF THE ARBITRATION
This case concerns a dispute submitted to the International Centre for Settlement of Investment Disputes (ICSID or the Centre) on the basis of the North American Free Trade Agreement (the NAFTA), the United States-Mexico-Canada Agreement (the USMCA), and the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention).
This dispute relates to the cancellation without compensation by the Province of Ontario of emission allowances which had been acquired in a joint auction (Ontario, Québec, and California) established under the so-called "Cap and Trade Program".
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III. REQUESTS FOR RELIEF
Claimants' claims arise out of the measures taken by Respondent which allegedly "had the effect of wiping out KS&T's carbon allowances trading business" in Ontario under the Cap and Trade Act, without compensation, thus breaching Respondent's obligations under NAFTA.
According to Claimants, the Tribunal has jurisdiction under Chapter 11 of NAFTA because they are investors holding protected investments. Claimants argue that the emission allowances of KS&T constitute "property" and "interests" under NAFTA Article 1139(g)1 and (h).2 Moreover, Koch Industries holds the following investments under NAFTA Article 1139(e): a 100 percent shareholding in KS&T and INVISTA, interests in enterprises entitling Koch Industries to the income or profits of these enterprises, and real estate or other property, tangible or intangible, acquired in the expectation or used for the purpose of economic benefit or other business purposes.3 Claimants argue that the measures taken by Respondent amount to an expropriation under NAFTA Article 1110,4 and to a breach of the fair and equitable treatment clause in NAFTA Article 1105.5
Respondent contends that the Tribunal lacks ratione materiae jurisdiction with respect to KS&T and Koch Industries because (i) emission allowances are neither "property" nor "interests" that may qualify as an investment under NAFTA Articles 1139(g) and (h),6 (ii) Koch Industries' shareholding in KS&T and in Canadian entities INVISTA and Georgia Pacific does not qualify as an "enterprise" under Article 1139(a),7 and (iii) the emission allowances purchased by an enterprise are not an interest in such an enterprise under Article 1139(e).8 Respondent also contests the Tribunal's ratione personae jurisdiction over Koch Industries under NAFTA Article 1116, because there is no prima facie claim to loss or damages.
On the merits, the Respondent says Claimants have not established a breach of NAFTA Articles 1110 and 1105.9
A. CLAIMANTS
In their Memorial, Claimants request the following relief:
"For the reasons stated, the Claimants respectfully request that the Tribunal render an Award:
a. Declaring Canada in breach of Articles 1105(1) and 1110 of NAFTA in light of the impugned measures;
b. Awarding monetary damages to Koch and to KS&T pursuant to Article 1116 in the amount of USD 31,322,474.62 for all injuries and losses by reason of, or arising out of, Canada's breaches of Articles 1105(1) and 1110 of NAFTA;
c. Awarding pre- and post-Award compound interest on the amount of damages awarded, at a rate of 5%, compounded annually;
d. Awarding compensation to Koch and to KS&T for all of their costs of the arbitration and costs of legal representation, plus compound interest thereon at the same rate and interval as on the damages; and
e. Granting such other relief as the Arbitral Tribunal may deem just".10
In their Reply, the Claimants request the following relief:
"The Respondent has failed to answer the Claimants' case as presented in their Memorial. In any event, as set forth above, the Claimants have comprehensively rebutted its Counter-Memorial on every level.
Accordingly, maintaining the request for relief set out in their Memorial, the Claimants respectfully request that the Tribunal render an Award:
a. Declaring the Tribunal as having jurisdiction ratione materiae pursuant to the NAFTA (and, in the alternative, concurrently pursuant to both the NAFTA and the ICSID Convention) to adjudicate the Claimants' claims against the Respondent;
b. Declaring the Respondent in breach of NAFTA Articles 1105(1) and 1110 in light of the impugned measures;
c. Awarding monetary damages to Koch and to KS&T pursuant to Article 1116 in the amount of USD 31,322,474.62 for all injuries and losses by reason of, or arising out of, Canada's breaches of NAFTA Articles 1105(1) and 1110;
d. Awarding pre- and post-Award compound interest on the amount of damages awarded, at a rate of 5%, compounded annually;
e. Awarding compensation to the Claimants for all of their costs of the arbitration and costs of legal representation, plus compound interest thereon at the same rate and interval as on the damages; and
f. Granting such other relief as the Tribunal may deem just".11
B. RESPONDENT
In its Counter-Memorial and Rejoinder, Respondent requests the following relief:
"For the foregoing reasons, Canada respectfully requests that this Tribunal:
(a) dismiss the Claimants' claims in their entirety;
(b) require the Claimants to bear all costs of the arbitration, including Canada's costs of legal assistance and representation; and
(c) grant any other relief that it deems appropriate". 12
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VII. DECISION
For the reasons set out above, the Tribunal decides as follows:
(1) The Tribunal does not have jurisdiction over the claims filed by Claimants, Koch Industries, Inc. and Koch Supply & Trading, LP, against Respondent, Canada.
(2) Each Party shall bear its own costs, fees, and expenses.
(3) The costs of this arbitration, including the fees and expenses of the Tribunal and of the ICSID Secretariat as outlined in paragraph 428 of this Award, shall be shared in equal parts by the Parties.
(4) All other requests for relief are rejected.
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Footnotes omitted.