Westmoreland Mining Holdings LLC v Canada - ICSID Case No. UNCT/20/3 - NAFTA - Procedural Order No 3 - Decision on Bifurcation - 20 October 2020
Reproduced from www.worldbank.org/icsid with permission of ICSID.
II. THE DISPUTING PARTIES' ARGUMENTS
11. The Disputing Parties' positions, insofar as relevant to the issue of bifurcation, are set out below.
A. THE RESPONDENT'S POSITION
12. The Respondent makes four objections that it characterises as relating to jurisdiction and one with respect to admissibility:
i. the Claimant was not a protected investor at the time of the alleged breaches;
ii. the Claimant has not made out a prima facie damages claim;
iii. the challenged measures do not "relate to" the Claimant or its investments pursuant to NAFTA Article 1101(1);
iv. the Claimant has not made a timely claim; and
v. NAFTA Article 1102 does not apply by virtue of NAFTA Article 1108(7)(b).
13. As a preliminary point, the Respondent says that Article 21(4) of the applicable procedural rules, the 1976 UNCITRAL Arbitration Rules (the "1976 UNCITRAL Rules") establishes a presumption that questions of jurisdiction should be heard in a preliminary phase to ensure fairness and efficiency in the arbitral proceedings such that the Tribunal's discretion is fettered. In determining whether bifurcation is fair and efficient it is necessary to consider the resources which would be expended in litigating an ultimately unsuccessful claim, such resources extending to the "significant time and resources....at both the federal and provincial levels that will not be captured in a Costs Award."2 If some of the Respondent's objections warrant bifurcation then it would be procedurally unfair and inefficient not to hear all the objections together.
14. The Respondent's objection with respect to Article 1108 is being brought pursuant to the Tribunal's general powers granted under Article 15(1) of the 1976 UNCITAL Rules.
15. The Respondent next says it is common ground that the factors to be considered by the Tribunal in determining whether to exercise its discretion in favour of ordering bifurcation are those set out in Philip Morris v. Australia, 3 (the "Philip Morris factors") namely:
i. Is the objection prima facie serious and substantial: the Respondent contends an objection is prima facie serious and substantial if it is not frivolous or vexatious, citing the only four NAFTA cases proceeding under the 1976 UNCITRAL Rules which have had to consider the question of bifurcation as well as the decisions of many other investment tribunals operating under the 1976 UNCITRAL Rules. The Respondent says it is important to apply the same standard to ensure consistency for all future disputing parties but it further notes that were the Tribunal minded to apply a higher standard, the Respondent's objections would meet such higher standard.
ii. Can the objection be determined without prejudging or entering the merits: the test is not, the Respondent notes, whether there is any overlapping of issues. Whilst some evidence may need to be reviewed both with respect to jurisdictional objections as well as the merits, this is not sufficient of itself to avoid bifurcation.4
iii. If successful, will the objection dispose of all or any essential part of the claims raised.
16. The Respondent makes three temporal jurisdictional objections as detailed in paragraph 12(i)-(iii) above (the "temporal objections"). At the heart of each of the Respondent's temporal objections is the fact that the Claimant did not come into existence until January 2019 and did not acquire the Canadian business the subject of the claim until March 2019. The Respondent says that the Claimant "is a new company owned by a former creditor of Westmoreland Coal Company, or WCC. WCC sold its Canadian business to the Claimant in an arms-length purchase as part of WCC's bankruptcy proceedings. Now WCC is set to dissolve."5 Whilst each of these emanate from similar facts, they are three independent objections which must be determined individually but it would be efficient for all three to be determined as preliminary issues.
17. The Respondent's temporal objections are the first three set out below.
i. Was the Claimant a Protected Investor at the time of the alleged breaches as required by NAFTA Articles 1116(1) and 1117(1)?
18. Given the Claimant did not acquire the Canadian businesses until March 2019 when it purchased them at arm's length as part of Westmoreland Coal Company ("WCC")'s restructuring, the Claimant's status as an investor in Canada can only have commenced at that date. At the time of the measures complained of, it could not, therefore have been a protected investor nor could it have had protected investments. The Claimant is not WCC; indeed, this is clearly demonstrated by the Claimant's act, upon acquiring the Canadian businesses, of initiating new arbitration proceedings in its own name and filing its own consent and waiver as required by NAFTA rather than continuing the arbitration proceedings commenced by WCC. The Claimant is a new entity seeking to claim for losses allegedly suffered by WCC, the seller of the Canadian investments.
19. The Respondent contends that this objection meets each of the Philip Morris factors: (i) it is clearly serious and substantial given the Tribunal only has jurisdiction if the Claimant can demonstrate it was protected by NAFTA at the time of the alleged breaches; (ii) it requires consideration of a discrete issue, namely when did the Claimant become an `investor of a Party' (the Respondent says March 2019 when it acquired the investments) whereas the merits require consideration of WCC's treatment in 2015 and 2016 (the fact that the Respondent asserts in its substantive defence that the Claimant has not been accorded treatment under Articles 1102 and 1105 does not mean there is any overlap with the merits, it just highlights the absurdity of the Claimant claiming a breach that predates its investment in Canada); and (iii) it is common ground that if successful it disposes of the entirety of the Claimant's claims.
ii. The Claimant has not made out a prima facie damages claim under NAFTA Articles 1116(1) and 1117(1)
20. The Claimant is claiming for damages suffered by WCC; it itself could not have incurred damage by reason of the alleged breaches as (i) they predate its existence as an investor of a Party and (ii) it did not own or control an enterprise at the time such enterprise incurred damages. Again determining this objection will not require the prejudgement of the merits as, for the purposes of the jurisdictional challenge, the Claimant need only show as a matter of law that either it or its enterprise could have incurred the claimed loss or damage by reason of the alleged breach given it only became an investor and acquired the investment in March 2019, whereas at the merits stage, the Claimant will have to prove causation and quantum. Finally, if the Respondent succeeds with this jurisdictional challenge, the claim is disposed of as no loss will have been suffered by the Claimant.
iii. Did the challenged measures "relate to" the Claimant or its investment as required by NAFTA Article 1101(1)?
21. The Claimant has failed to show that the challenged measures relate to it. NAFTA Article 1101(1) is a gateway provision, limiting access to NAFTA Chapter Eleven to circumstances where a challenged measure relates to a claimant and its investment. At the time the challenged allocation of Transition Payments was made in 2016 the Claimant neither existed nor had any investments in Canada. The same is true with respect to Alberta's 2015 Climate Leadership Plan (the "Climate Plan"). The objection is clearly serious and substantial, does not enter the merits nor require the Tribunal to prejudge the merits as again it merely requires consideration of, on the one hand, when the Claimant became an investor of a party and acquired its investment and on the other hand when the challenged measures occurred. It does not require any analysis of whether the alleged damages have a causal link to each of the claimed breaches but is a distinct enquiry.
iv. Time limits under NAFTA Articles 1116(2) and 1117(2)
22. The Respondent's fourth jurisdictional objection arises out of the three year time limitation period under NAFTA Articles 1116(2) and 1117(2). As a matter of NAFTA practice, such an objection is usually determined as a preliminary issue. The Respondent accepts that the temporal objections must be established before this fourth objection can be determined.
23. The critical date pursuant to Articles 1116(2) and 1117(2) is 12 August 2016 as the Notice of Arbitration was received on 12 August 2019. To determine this jurisdictional challenge it is only necessary to identify the date on which the Claimant acquired actual or constructive knowledge of the alleged breach and loss: there is no prejudging of the merits in undertaking this analysis.
24. The Claimant now says it is not challenging the Climate Plan (which was announced on 22 November 2015, being outside this limitation period) but its Request for Arbitration is replete with references to the Climate Plan, identifying it as the challenged measure and noting that the value of its investment was reduced as a result of the Climate Plan. The Claimant now refers to "Albertan Measures that breached the minimum standard of treatment",6 but those measures are unidentified, the Claimant asserting that "What the Measure is cannot be identified without an examination of Alberta's action and their impacts on Westmoreland."7 This suggests that the Claimant will be using the document production phase as a fishing exercise to identify possible NAFTA breaches. However pursuant to Article 18(2) of the 1976 UNCITRAL Rules, a Claimant must identify the facts supporting the claim and the points at issue. By saying that it is not challenging the Climate Plan but equally not identifying the measure in issue, the Claimant is in breach of Article 18(2). The reason the Claimant has not identified the measure out of which its claim arises is because the only relevant measure is the Climate Plan and the Claimant is seeking to create ambiguity over its claim to circumvent this limitation period. This evidences that the objection is serious and substantial. It would be unfair and inefficient to proceed to the merits phase before the Claimant identifies the measure it challenges. Determining this question will not require the Tribunal to prejudge the merits as the only question to be resolved is one of timing. As the Climate Plan was announced before the critical date, no investigation will be required into the effect of the Climate Plan (to the extent consideration of the Climate Plan is required as part of considering background facts, this is not an issue) and if the objection were resolved in the Respondent's favour, it would result in a material reduction in the scope of the merits phase, leaving just the Transition Payments as a disputed measure.
v. Inadmissibility due to NAFTA Article 1108(7)(b)
25. The Respondent also raises an admissibility objection pursuant to Article 1108(7)(b) which provides that, inter alia, Article 1102 does not apply to "subsidies or grants provided by a Party or a state enterprise, including government-supported loans, guarantees and insurance." As an objection to inadmissibility as opposed to jurisdiction, the Tribunal is asked to exercise its discretion to bifurcate under Article 15(1) of the 1976 UNCITRAL Rules, however the Respondent submits that in any event the objection meets the Philip Morris factors and says that the Disputing Parties both agree that this is the test the Tribunal should apply to determine this objection.
26. The wording of the Article indicates that Article 1108(7) objections should be determined prior to turning to the merits. Considering the ordinary meaning of the words used in this Article, it should be interpreted broadly. The dictionary definitions of a "subsidy" and "grant" together with the fact that the payments were made voluntarily under the Alberta Grants Regulations, expressly on the basis that "the Province is under no legal obligation to compensate or otherwise pay any amount to [the recipients]" and were publicly described as `grants' are all highly probative of the fact that the Transition Payments under the Off Coal Agreements ("OCAs") were indeed grants or subsidies. This objection is serious and substantial. No investigation into the merits will be required because the issue for the purposes of the Respondent's admissibility objection is whether "the transition payments [were] assignments of money by Alberta? Were they sums of money granted by Alberta to support something held to be in the public interest?" whereas the issue to be considered for the merits is whether "the Claimant [was] discriminated against because Canadian companies received payments relating to their coalmine assets? Was the Claimant inequitably or arbitrarily excluded from receiving a transition payment?" 8 The questions for determining admissibility therefore do not require prejudgement of the questions for determining the merits of whether there was a breach of Article 1102. The Respondent accepts that the OCAs are contracts but says that is irrelevant - government-supported loans, guarantees and insurance are all affected by contracts.
27. The fact the Tribunal may need to review the OCAs in both analyses is not on point; rather it will not need to make any determinations which prejudge the merits. How the Government decided to whom Transition Payments should be made is not a question that needs to be answered to determine the Article 1108(7)(b) objection. Examining the OCAs to determine whether or not the Transition Payments were `grants' or `subsidies' for the purposes of Article 1108(7)(b) does not require any examination into the questions of whether domestic companies received payment for their coal assets or into how Alberta decided to allocate the Transition Payments. For the purposes of the Article 1108(7)(b) analysis, the OCAs speak for themselves. There is not a sufficient overlap to deny bifurcation of this question. There are just two questions for the Tribunal to address: (i) determining the correct meaning of `grant' and `subsidy' and then (ii) applying that meaning to the Transition Payments to determine if they come within it.9 Finally, if the objection were resolved in the Respondent's favour it would dispose of the Claimant's claim that the Transition Payments were in breach of NAFTA Article 1102, which would "eliminate the need for a factually complex, inherently comparative national treatment analysis."10
B. THE CLAIMANT'S POSITION
28. As a preliminary point, whilst the Claimant accepts the application of the Philip Morris factors, it notes that the Tribunal always retains discretion as to whether or not to order bifurcation, irrespective of whether the three Philip Morris factors are met. Each case turns on its own facts and the Tribunal should not be bound by the "straitjacket" of only considering whether bifurcation should be ordered by reference to the Philip Morris factors.11
29. Turning to the first of these three factors, the Claimant says the Respondent is wrong to say serious and substantial equates to frivolous and unworthy: there is a threshold between these two positions which the Tribunal should apply.
30. The Claimant further says that the facts necessary to examine each of the Respondent's objections are intertwined with the facts necessary to determine the merits. For example, "Canada's argument that the Claimant is not an investor of another Party with a foreign investment to which the alleged breaches relate under Article 1101 is a Merits question" and "Canada's theory that Westmoreland was not accorded treatment because [the Claimant] purchased the assets after the Measures were enacted is the same argument that Canada has advanced in its jurisdictional objections...." 12 necessitate the determination of facts which fall to be considered both with respect to jurisdictional objections and the merits.
31. Further, the questions to be answered are not entirely legal and will require significant resources and delay in the procedural timetable. In any event, even were the Respondent's objections to be determined in its favour, not all of the Claimant's claims would be disposed of. Thus bifurcation will not lead to efficiency.
32. Finally, the Claimant says that there is no efficiency to be gained in hearing any of the objections in a bifurcated hearing. Were the Claimant to successfully defeat the Respondent's objections significant time and resources would have been wasted. Bifurcation may be appropriate where the question is entirely legal and is a clear issue but that is not the case here where the facts pertinent for the jurisdictional objections are intertwined with the merits and the bifurcated issues would require factual development.
i. The temporal objections
33. The Claimant concedes it is a new entity from WCC but the change from WCC was not a complete change; there was a consistent connection between the two entities. When WCC filed for bankruptcy protection in 2018 it owned Prairie Mines and Royalty. As part of the restructuring, the Claimant was created as a wholly owned subsidiary of WCC. Prairie Mines and Royalty were transferred from WCC to Westmoreland Mining Holdings LLC ("WMH") and WCC then transferred its equity ownership in WMH to the first lienholders of WCC. "The Westmoreland that emerged from bankruptcy was substantially the same as the Westmoreland that entered."13 At all relevant times Prairie Mines and Royalty were owned by a U.S. investor such that the nationality of the investment and the investor remained the same, the only material change was the restructured entity.
34. The Respondent recognised this continuity and did not require adherence by the Claimant to the NAFTA formalities, for example consultation, on the basis these had already been carried out by WCC. Upon commencing arbitration, the Claimant did not materially change the Statement of Claim or the Notice of Intent from that issued by WCC and it merely changed the waiver letters to change the name of the Claimant. It cannot be the case that "NAFTA's draftsmen intended to deny fundamental investment protections for foreign investors undergoing restructuring, whether it be an intracompany transfer of assets, bankruptcy, or, as here, both."14
35. The investigation the Tribunal would need to undertake to determine if the Westmoreland of 2019 is the same as the Westmoreland of 2018 "would be a deep inquiry into....a fairly complicated process. ....introducing probably Expert Witnesses on bankruptcies, on corporate reorganizations, on an explanation of why we think that the Claim survived the corporate reorganization, which at the time was, indeed, the advice of a small army of specialized lawyers. So, the Tribunal would have to examine that, and that would also be at the heart of how Westmoreland was being distinguished because we don't know for sure exactly what the Government of Alberta's reasoning was in excluding Westmoreland from payment. So, perhaps it perceived a different company or perhaps at that time when it made the decision not to compensate Westmoreland it had some sense of a character of Westmoreland that's different that we don't know about yet. So, it is one thing to examine whether the Company was the same and that - but that's a deep and complicated examination, but also, knowing what the company is, is, it seems to us, central to the Merits of the Claim."15 No prior cases have considered this issue and the Claimant contends there would be no efficiency in bifurcating this issue.
36. Whilst the Claimant concedes that, were the Respondent to succeed in these temporal objections, its claims would all be disposed of, they are not serious or substantial and they cannot be examined without prejudging or entering the merits.
ii. Time limits under NAFTA Articles 1116(2) and 1117(2)
37. The measure the Claimant asserts as the basis of its claim is the disparate treatment occasioned by the Transition Payments and not the announcement of the Climate Plan. Whilst the Climate Plan is "an important contextual fact",16 it is a statement of intent and not a measure for which the Claimant seeks redress. The Claimant was not directly damaged by the announcement of the Climate Plan: the date for the Claimant's actual or constructive knowledge must be the point at which it knew or should have known that it was damaged. It "arises when the Government started handing out money. And even then, it was not yet a closed matter as to whether Westmoreland was going to see some of that money. They were continuing behind-the-scenes conversations, and it is not until Westmoreland knows it's damaged and knows it's not going to get any money that there's a measure to be challenged here."17 This was July 2017. "[W]hat the character of these transition payments is, is central to determining how [the Claimant] was treated compared to the others. That is the - that's our Claim."18
38. This objection is not serious or substantial, it cannot be considered without prejudging or entering the merits and if successful it would not dispose of all of the claim, leaving the claim arising out of the Transition Payments to be determined.
iii. Inadmissibility due to NAFTA Article 1108(7)(b)
39. Article 21(4) of the 1976 UNCITRAL Rules does not apply to this claim and the burden shifts to the Respondent: it has failed to meet this burden. The relevant words in Article 1108(7)(b) must be construed narrowly as it is an exception. The fact the Transition Payments were described by the Respondent as grants is irrelevant; the ordinary definition of `grant' is a "gift" and these Transition Payments were not gifts. The express terms of the OCAs note there was consideration for the Transition Payments, providing that:
"7(a) Subject to the provisions of Section 7(b), neither the Company nor any Plant Owner shall commence any legal action against the Province or any provincial agency, including the Independent System Operator and the coal facilitator, with respect to the mines, coal supply agreements, mining contracts or mining equipment related to the coal used to fuel the Plants, or alleging any other cause of action in relation to the phase out of Coal Fired Emissions from the Plants."19
40. To understand whether the Transition Payments were indeed grants or subsidies, the Tribunal will need to look behind the words of the OCAs, review the negotiations leading to their conclusion, their intent, whether the Albertan Government's conduct was consistent with the payment of a grant or subsidy, and consider how they were administered and how the money was distributed pursuant to the OCAs. In any event even if the Respondent were successful with respect to this objection, it would have no effect on the Claimant's Article 1105 claim.
41. Again, this objection is neither serious or substantial, it cannot be examined without prejudging or entering the merits and will not dispose of the entire case, leaving the Article 1105 claim to be determined.
C. THE RESPONDENT'S REPLY
42. The Respondent noted the Claimant's apparent withdrawal in its oral submissions of its allegation that the coal phase out programme denied it the reasonable expectation of its investments in breach of Article 1105 (as stated in paragraph 105 of its Notice of Arbitration), such that the only measure it now challenges is the Transition Payment. The Respondent sought the Claimant's confirmation of this but otherwise reiterated its submission that the Climate Plan was outside the limitation period.
D. THE CLAIMANT'S REBUTTAL
43. In its rebuttal, the Claimant explained there is nothing to withdraw: its claim relates to "the limitation of the policy, and that policy is implemented when these payments begin to be paid out, and when they are paid out, to the exclusion of Westmoreland, and we learned that we are not going to receive any."20
III. THE TRIBUNAL'S ANALYSIS
60. For the reasons set out above, the Tribunal:
a. Grants the Respondent's request to bifurcate the present proceedings between (i) the temporal jurisdictional objections and (ii) the merits of the case and any and all other jurisdictional or admissibility objections;
b. Directs the Disputing Parties to confer as to whether the proposed timetables set out in the Disputing Parties' 31 July 2020 email to the Tribunal should be followed or whether a revised timetable should be agreed in the light of this order; and
c. Reserves costs for subsequent determination.
Date: 20 October 2020
On behalf of the Tribunal:
Ms. Juliet Blanch
Presiding Arbitrator ...