Reproduced from www.worldbank.org/icsid with permission of ICSID.
STATEMENT OF DEFENCE
June 9, 2022
Trade Law Bureau
Government of Canada
I. PRELIMINARY STATEMENT
II. JURISDICTION AND ADMISSIBILITY
A. The NAFTA Does Not Apply Retroactively to GSI's Seismic Materials That Had Already Been Made Publicly Available Prior to the NAFTA's Entry into Force
B. The Claimants Failed to Comply with the Three-Year Limitations Period for Submitting a Claim to Arbitration Under NAFTA Articles 1116(2) and 1117(2)
C. The Claimants Have Acted Inconsistently with NAFTA Articles 1121(1) and (2) by Continuing to Pursue Claims for Damages with Respect to the Measures Alleged to Breach the NAFTA
D. H.P. Einarsson Cannot Establish Personal Jurisdiction as He Was Not an "Investor of another Party" Under NAFTA Articles 1101(1), 1116(1), 1117(1) and 1139 at the Relevant Times
E. The Claimants Have Not Demonstrated That They Have Standing for Their Claims Under NAFTA Articles 1116(1) and 1117(1)
V. REQUEST FOR RELIEF
I. PRELIMINARY STATEMENT
1. Pursuant to Procedural Order No. 1, Canada submits this Statement of Defence as a preliminary response to the Notice of Arbitration ("NOA") dated April 18, 2019 filed by the Claimants against Canada, which the Claimants designated as their Statement of Claim on March 9, 2022.1
2. The Claimants Theodore David Einarsson, Harold Paul Einarsson and Russell John Einarsson bring this claim under Chapter Eleven Articles 1116(1) and 1117(1) of the North American Free Trade Agreement ("NAFTA")2 on behalf of themselves and an enterprise incorporated in Canada, Geophysical Service Incorporated ("GSI"), respectively. The claim is in connection with seismic data from Canada's offshore which the Claimants allegedly own. The Claimants seek damages of no less than US $2,529,000,000 for alleged violations of NAFTA Articles 1105 (Minimum Standard of Treatment), 1106 (Performance Requirements) and 1110 (Expropriation and Compensation).
3. This claim is a meritless attempt to challenge the offshore seismic data regulatory regime in Canada that has been in place for decades. The Claimants were well aware of the applicable legal rules and regulations when they made the business decision in 1993 to acquire old seismic data shot by other companies during the 1970s and 1980s. The Claimants also knew the rules when they decided more than two decades ago to apply for geophysical program authorizations to acquire new seismic data. They cannot now challenge the very conditions under which they made their investment in Canada and were authorized to do business in Canada's offshore.
4. In Canada, the Crown is the owner of the land and resources in Canada's offshore.3 As such, private exploration companies cannot simply go to sea and collect seismic data without government authorization: they must apply for a geophysical program authorization and comply with all of the conditions stipulated therein and in applicable laws and regulations. At issue in this NAFTA arbitration is the regulatory regime that governs the treatment of marine seismic data collected by exploration companies under geophysical program authorizations and the rules on the public disclosure of certain seismic materials submitted to regulatory agencies.
5. For decades, two critical rules have governed the treatment of seismic data collected by exploration companies. First, as a condition of being authorized to collect seismic data in Canada's offshore, the exploration company has the legal obligation to submit certain seismic data materials in specified formats to the responsible regulatory agency with jurisdiction over the geographic area in question. The regulatory agency would keep those materials confidential for a specific period of time as set out in legislation and regulatory instruments. Second, the responsible regulatory agency has the legal authority to release certain seismic materials to the public upon the expiration of the statutory confidentiality period.
6. These rules reflect two policy objectives that Canada's regulatory regime aims to achieve. The first policy objective is to attract investment by exploration companies in the acquisition of geophysical data regarding petroleum and other resources in Canada's offshore. The statutory confidentiality period provides the exploration company with a reasonable amount of time to recoup its investment by commercializing the seismic data it has collected through selling or licensing it to others for profit, or using the data in support of its own hydrocarbon exploration efforts.
7. The second policy objective is to widely disseminate certain seismic materials after the expiration of the confidentiality period to encourage further offshore exploration and the safe and efficient development of the petroleum resources for the benefit of the public as a whole through increased economic activity. Public release of certain seismic materials gives hydrocarbon exploration companies, government entities and scientists open source material to make their own initial assessments of the geology in a particular area and the resources' potential. If the publicly available information shows promise for further exploration, customers can approach the company from which the seismic materials originated in order to license the more detailed and valuable digital field data and other materials that the company has collected, and which are not subject to public disclosure under the applicable regulatory regime.
8. The rules governing the public release of seismic data materials in Canada are long-standing and widely-known as they apply to all industry participants that collect marine seismic data, including on behalf of a particular client ("exclusive") or on their own behalf in order to market to potential customers ("non-exclusive" or "speculative") for use, among other things, in offshore hydrocarbon exploration. Since 1982, certain exclusive seismic data materials have been subject to a five-year confidentiality period for all offshore jurisdictions in Canada, including Newfoundland and Labrador ("C-NL Offshore Area"), Nova Scotia ("C-NS Offshore Area") and areas that fall within exclusive federal jurisdiction, including the Beaufort Sea, Arctic Islands, Eastern Arctic offshore, Hudson Bay, Bay of Fundy, Gulf of St. Lawrence and the west coast offshore area ("Federal Offshore Area").4 In other words, any company which applied for a geophysical program authorization to collect seismic data on behalf of a customer in the C-NL, C-NS or Federal Offshore Areas understood from the start that certain materials submitted to the Regulatory Boards would be released to the public five years later.
9. Non-exclusive seismic data materials have benefited from a longer confidentiality period in order to give the company more time to commercialize collected seismic data and recoup its investment before certain materials are released to the public. Since 1988, non-exclusive seismic materials collected in the Federal Offshore Area have been subject to a fifteen-year confidentiality period, while in the C-NS Offshore Area (since 1992) and C-NL Offshore Area (since 1999) non- exclusive seismic materials are subject to a ten-year confidentiality period. In other words, if a company receives regulatory authorization to collect seismic data on its own behalf so it can market and license the data to multiple customers, certain materials which are required to be submitted to the Regulatory Boards will be held in confidence for ten or fifteen years, depending on the jurisdiction, before public release.
4 Collectively, the C-NL Offshore Area, C-NS Offshore Area and Federal Offshore Area are known as the "Frontier Lands." The Federal Offshore Area is regulated by the Canadian Energy Regulator ("CER"), formerly known as the National Energy Board ("NEB"), a federal regulatory agency which enforces applicable Canadian laws regarding interprovincial and international hydrocarbons and energy. The C-NL Offshore Area is regulated by the Canada- Newfoundland and Labrador Offshore Petroleum Board ("CNLOPB") and the C-NS Offshore Area is regulated by the Canada-Nova Scotia Offshore Petroleum Board ("CNSOPB"), which are joint federal-provincial agencies with responsibility for regulating offshore hydrocarbon exploration and production in the areas offshore Newfoundland and Labrador and Nova Scotia, respectively. Collectively, the NEB/CER, CNLOPB and CNSOPB are referred to as the "Regulatory Boards."
10. The Claimants made their investments on the basis of these regulatory seismic data submission requirements, the confidentiality periods that attached to the submitted material and the provisions for public disclosure of certain materials at the end of the confidentiality period. Nonetheless, starting in the early 2000s, the Claimants initiated multiple domestic lawsuits against the Government of Canada, various Provinces and the Regulatory Boards in an effort to stop the public disclosure of certain GSI seismic materials. The allegations in those lawsuits are largely the same as the claims in this NAFTA arbitration: that GSI's seismic data materials were being wrongly disclosed to third- parties; that GSI's copyright and trade secrets in such material were being violated; that the Regulatory Boards were acting unfairly in the exercise of their statutory mandates; and that the Claimants' business and rights have been expropriated by Canada, all of which entitled them to compensation and damages.
11. The Claimants also sued their existing and prospective customers and other third-parties in Canadian and United States courts for alleged violations of GSI's copyrights and trade secrets, demanding that they pay GSI licensing fees or monetary damages for accessing and copying publicly- available seismic data materials from the Regulatory Boards.
12. After years of litigation by the Claimants, the Alberta Court of Queen's Bench confirmed in 2016 that Canada's regulatory regime permitted the disclosure, including access and copying, of certain seismic materials to the public after the expiration of the applicable confidentiality period.5 The Court did not consider that the existence of a copyright in the disclosed materials affected the regulatory regime's public disclosure provisions. Having failed in their efforts to challenge the regulatory regime through Canadian domestic courts, the Claimants are now recycling the same arguments with respect to the same laws and regulations and the same seismic data and materials in this NAFTA Chapter Eleven arbitration.
5 R-001, Geophysical Service Incorporated v. Encana Corporation, et al., 2016 ABQB 230. The judgment was upheld by the Alberta Court of Appeal (R-002, Geophysical Service Incorporated v. Encana Corporation, et al., 2017 ABCA 125) and leave to appeal to the Supreme Court of Canada was denied (R-003, Geophysical Service Incorporated v.
Encana Corporation, et al., 2017 SCC 37634). Together, these three judgments are referred to as the "Alberta Court Judgments."
13. The numerous flaws in the Claimants' claim - on jurisdiction, admissibility, the merits and a massively inflated quantum of damages sought - are insurmountable and fatal. The Tribunal should dismiss this claim in its entirety and award Canada its costs.
V. REQUEST FOR RELIEF
39. For the reasons outlined above and for reasons that will be further elaborated in Canada's Counter-Memorial on Jurisdiction, Merits and Damages, Canada respectfully requests that the Tribunal:
(a) dismiss the Claimants' claims in their entirety;
(b) require the Claimants to jointly and severally bear all the costs of the arbitration, including Canada's costs of legal assistance and representation, pursuant to NAFTA Article 1135(1) and Article 40 of the UNCITRAL Arbitration Rules; and
(c) grant any other relief the Tribunal deems appropriate.