Westmoreland Mining Holdings LLC v Canada - ICSID Case No. UNCT/20/3 - NAFTA - Claimant's Counter-Memorial on Jurisdiction - 26 February 2021
Reproduced from www.worldbank.org/icsid with permission of ICSID.
Claimant Westmoreland Mining Holdings LLC's Counter-Memorial on Jurisdiction
1. There is no dispute that Prairie Mines & Royalty ULC ("Prairie") is a mining enterprise in Alberta, owned at all relevant times by a U.S. mining company, and subject at all relevant times to the foreign investment protections of NAFTA Chapter 11. There is no dispute that Westmoreland Coal Company ("WCC") was a U.S. mining company that owned Prairie. Nor is there any dispute that Westmoreland Mining Holdings LLC ("WMH"), the company emerging from WCC's bankruptcy as the owner of WCC's mining assets, including Prairie, is a U.S. mining company.
2. The only dispute now before the Tribunal is whether WCC's creation of WMH as a wholly-owned subsidiary and the transfer of Prairie to WMH through the U.S. bankruptcy process destroys the Tribunal's jurisdiction of any NAFTA claims for Canada's breach of its Chapter 11 obligations to Prairie and its American investors.
3. Canada does not claim that it would suffer any harm, prejudice or unfairness resulting from the Tribunal finding jurisdiction to hear WMH's claim. Canada makes no argument about the equities of its position.
4. Canada's objection to jurisdiction elevates form over substance: that the principle of ratione temporis cuts off any and all claims where there has been a change in the corporate form of the investor. Canada asserts the rule applies strictly even where the change is the result of bankruptcy proceedings. As Canada sees it, a respondent state might violate its investment treaty obligations with impunity and, with a bit of luck, the investor might undergo a corporate restructuring leaving the respondent entirely free from liability.
5. Canada seems to have anticipated that the legal question could be resolved according to U.S. bankruptcy law (the corporate restructuring) and engaged an expert, a U.S. bankruptcy lawyer, to support its argument. However, attorney Kathryn A. Coleman concludes her thirty-six page analysis of WCC's bankruptcy that accompanies Canada's Memorial by finding (at page 34) that "the Bankruptcy Code is silent on the issue of transferability" and "the Bankruptcy Code also defers to applicable non-bankruptcy law as to the merits of a claim and who may assert it."1 That deference, she writes, is owed to "state, federal or international law."2 Hence, Canada's expert witness expresses no opinion on the Tribunal's jurisdiction of WMH's claim, leaving the matter instead to international law.
6. Article 31 of the Vienna Convention on the Law of Treaties ("VCLT") teaches that the international law analysis begins with the text of the treaty, to be "interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in light of its object and purpose."3 Article 32 states that "[r]ecourse may be had to supplementary means of interpretation. .. to confirm the meaning resulting from the application of Article 31, or to determine the meaning when the interpretation according to Article 31: (a) leaves the meaning ambiguous or obscure; or (b) leads to a result which is manifestly absurd or unreasonable."4
7. NAFTA's Chapter 11 provides no textual foundation for Canada's ratione temporis objection. The NAFTA Articles that Canada cites--1101, 1116 and 1117--do not require the investor submitting a claim for arbitration to be the same entity, either in form or in substance, as the investor existing at the time of a breach. Nor do the object and purpose of NAFTA--to promote investment and permit ownership transfers related to the investment in fairness and equity--support Canada's interpretation of the text to deny jurisdiction when an investor restructures in bankruptcy for ordinary business reasons unrelated to the investment or the claim.
8. No supplementary means of interpreting the treaty text on this question should be necessary. The text of the treaty is not ambiguous, nor is the result manifestly absurd. Canada's ratione temporis objection depends on imprecise language in some investor-state tribunal awards, particularly in cases, unlike this one, where there was no qualified foreign investment in place prior to the date of the alleged breaches. Canada stretches these authorities to propose a rule of strict, universal application that goes beyond the text of the treaty, beyond the facts and holdings of arbitral decisions, and beyond reason in Canada's proposed application.
9. International law Professor Jan Paulsson explains in his expert opinion accompanying this Counter-Memorial that a change to the corporate entity of an investor for ordinary business purposes is not fatal to the jurisdiction of a claim by virtue of ratione temporis.5 The doctrine appropriately denies jurisdiction where the restructuring might be a sham, an abuse of investment treaty rights to obtain jurisdiction that otherwise would not be available. Investors and investments also must maintain diversity of nationality. But a tribunal has jurisdiction when corporate change occurs for a legitimate business purpose; there is continuity in the beneficial interest in the investment; and the right to assert the claim is connected to the claimant's bona fide investment in harmony with the purposes of the treaty.
10. Canada's broad application of ratione temporis is not based on the ratio decidendi of the cases that it cites. The policy reasons for denying jurisdiction based on ratione temporis do not apply to this case. Professor Paulsson finds that Canada should not be entitled to windfall relief, through the misfortune of a bankruptcy that befell Prairie's American owner, from the duties it owed to Prairie and its investors.
11. The facts about the WCC bankruptcy are publicly available and are not materially disputed. WCC owned and controlled Westmoreland Canada Holdings Inc, an Albertan entity, which directly owned Prairie, a Canadian corporate enterprise owning the Alberta coal mines at issue in the dispute. WCC filed a petition for bankruptcy in the United States on October 9, 2018 to restructure its debt. Secured Creditors with first priority lien interests in WCC's debt approved a bankruptcy reorganization plan by which WMH would be created as a wholly-owned subsidiary of WCC and would receive its coal-mining assets. WCC transferred those interests to WMH, along with its interests in the NAFTA Chapter 11 claim as an investor in Prairie.
The first priority debt interests of the Secured Creditors of WCC were converted to equity interests in WMH and, therefore, the debt-investors of WCC became the equity- investors of WMH.
12. The bankruptcy proceeding provided an orderly process for the debt reduction and restructuring of the company. It protected and preserved the investment interests of the Secured Creditors including the investment of an American coal company in Prairie, a Canadian entity. The bankruptcy restructuring did not confer any new nationality or status on the emerging company to obtain treaty protections that were not previously available. There is no suggestion that the bankruptcy restructuring was a sham transaction in abuse of investment arbitration rights.
13. No tribunal has held that a bankruptcy restructuring for legitimate business purposes and that respects the diversity of nationality requirements of Articles 1116 and 1117 undoes jurisdiction over an investment claim. The treaty's text, in light of its object and purpose, does not support the application of Canada's ratione temporis objection to these facts. The ordinary meaning of the treaty is not ambiguous, nor would the Tribunal's decision to recognize jurisdiction lead to a manifestly absurd or unreasonable result.
14. If the Tribunal were to conclude that it need resort to supplementary means of interpreting the NAFTA text, the relevant international arbitration awards suggest that the present factors of restructuring for an ordinary business purpose, in good faith, with a continuity of the beneficial investment interests, in harmony with the purposes of the treaty, all sustain the Tribunal's jurisdiction over the claim. Here, NAFTA existed long before Alberta breached it. Prairie was a U.S.-owned investment in Canada well before Alberta breached Canada's NAFTA obligations. Investors in Prairie were at all relevant times American. The chains of nationality were never broken.
15. A finding that the Tribunal has jurisdiction in this case would be consistent with ratione temporis jurisprudence, not a departure from it. This case is not an example of treaty-forum shopping, nor an example of an investor transferring better rights to an investment than it otherwise had. Even were the Tribunal to acknowledge the broad, formalistic rule Canada advocates, it should recognize a narrow exception here. There is a legitimate public policy, consistent with the purposes of NAFTA, to allow lawful bankruptcy restructurings. WMH is operating as a revitalized WCC. There is no prejudice to Canada, nor equitable reason, why jurisdiction should be denied.
II. PRAIRIE WAS AND IS A FOREIGN INVESTMENT OWNED BY U.S. INVESTORS AT ALL RELEVANT TIMES
III. THE TEXT OF NAFTA DOES NOT REQUIRE, NOR DO THE FACTS OF THIS CASE SUPPORT, CANADA'S RATIONE TEMPORIS OBJECTION
IV. PROVIDED DIVERSITY OF NATIONALITY IS MAINTAINED, NAFTA DOES NOT PROHIBIT ASSIGNMENT OF CLAIMS
V. CANADA'S BREACH CONTINUES AND ITS DAMAGES REMAIN PENDING FOR PRAIRIE AND WMH
104. Canada argues that its idea to apply ratione temporis is a "widely- accepted principle," but Canada's expansive interpretation of that principle reaches beyond plain meaning of the treaty and all related jurisprudence. The text of Articles 1116 and 1117 require an investor of one nationality to own an investment in the other country when that other country breaches its obligations to the investment. The cases upon which Canada relies are consistent with the treaty text and the facts here. The facts in cases where tribunals have denied jurisdiction do not resemble the facts here, nor does the reasoning of the tribunals Canada invokes resemble Canada's reasoning.
105. Professor Paulsson observes for this Tribunal that the facts here are unlike the facts in any other investor-state arbitration, and for good reason. Canada can make its case here only by inserting language and requirements for jurisdiction into a treaty where no such language or requirements exist.
106. Claimant requests that the Tribunal deny Canada's objections to jurisdiction and issue an award of costs and fees in Claimant's favor.