Table of Contents
II. Criteria for Evaluating a Bifurcation Request
III. Respondent's Preliminary Objection Is Not Serious and Substantial
A. Applicable Rules of Treaty Interpretation
B. An Interpretation of Annex 14-C Consistent with the VCLT Shows That a Claimant Holding a Legacy Investment May Bring a Claim in Relation to Measures Taken during the Transition Period
1. The Ordinary Meaning of Annex 14-C Is That a Claimant Holding a Legacy Investment May Bring Claims in Relation to Measures Taken During the Transition Period
2. The Context of Annex 14-C Shows that the USMCA Parties Extended the Obligations under Section A of Chapter 11 of NAFTA 1994 for the Duration of the Transition Period
a) The USMCA Protocol Recognizes That USMCA Provisions Referencing NAFTA 1994 Preserve Substantive Obligations of NAFTA 1994 after the Date When USMCA Entered into Force
b) The Relationship among Annexes 14-C, 14-D, and 14-E Shows That Annex 14-C Allows Claimants to Submit Claims in Connection with Measures Taken during the Transition Period
c) The Definition of "Legacy Investments" Confirms That Annex 14- C Applies to Measures that Post-Date the Replacement of NAFTA 1994
3. Respondent's Interpretation of Annex 14-C Is Inconsistent with the Object and Purpose of USMCA as Set Forth in the Preamble
C. Respondent's False Assertion That the Transition Period Was Intended to Align with the Limitations Period in Articles 1116(2) and 1117(2) of NAFTA Confirms the Fabricated, Post Hoc Nature of Respondent's Objection
IV. Bifurcating the Proceedings Would Be Unfair and Prejudicial to Claimants, and the Preliminary Objection Is Intertwined with the Merits of Claimants' Claims
V. Conclusion and Request for Costs
1. On November 22, 2021, Claimants TC Energy Corporation and TransCanada Pipelines Limited (collectively, and together with their U.S. subsidiaries, "TC Energy") submitted their Request for Arbitration ("RFA") pursuant to Annex 14-C of the Agreement between the United States of America, the United Mexican States, and Canada ("USMCA") and Chapter 11 of the North American Free Trade Agreement ("NAFTA 1994").1 On January 11, 2023--over one year after Claimants submitted their RFA--Respondent submitted its Request for Bifurcation ("Bifurcation Request"), in which it asserted that Claimants' claims are outside the Tribunal's jurisdiction and requested that the Tribunal hear the objection in the preliminary phase of a bifurcated proceeding.2 For the reasons explained below, Respondent's objection is not substantial and serious. For that reason, and to ensure fairness and efficiency in the proceeding, the Tribunal should reject Respondent's request.
2. Annex 14-C of USMCA ("Annex 14-C") provides that, for a period of three years ("transition period") after the date on which USMCA replaced NAFTA 1994, claimants holding "legacy investments" may bring claims alleging a breach of Section A of Chapter 11 of NAFTA 1994 using the procedures set forth in Section B of Chapter 11 of NAFTA 1994.3 Claimants' claims are within the scope of Annex 14-C and are properly before the Tribunal. First, Claimants own legacy investments in connection with the Keystone XL Pipeline (the "KXL Pipeline" or the "KXL Project").4 Second, Claimants alleged in their RFA that U.S. President Joseph Biden's revocation of the Presidential permit ("2019 Permit") to construct, connect, operate, and maintain the cross-border segment of the KXL Pipeline breached U.S. obligations under Section A of Chapter 11 of NAFTA 1994.5 Third, in filing their RFA, Claimants followed the procedures set forth in Section B of Chapter 11 of NAFTA 1994.6 Finally, Claimants filed their RFA well before the expiration of the transition period. Under the procedures set forth in the Protocol Replacing the North American Free Trade Agreement with the Agreement between the United States of America, the United Mexican States, and Canada ("USMCA Protocol"), USMCA replaced NAFTA 1994 on July 1, 2020,7 such that the transition period under Annex 14-C extends until July 1, 2023. As noted, Claimants filed their RFA well before that date, on November 22, 2021.
3. In its Bifurcation Request, Respondent asserts that Claimants' claims are outside the scope of the Tribunal's jurisdiction because NAFTA 1994 had terminated at the time President Biden revoked the 2019 Permit.8 Respondent's simplistic objection misinterprets and, in critical aspects, wholly ignores, the relevant text and context of Annex 14-C, and the object and purpose of USMCA. For example, Footnote 21 of Annex 14-C provides that, if an investor is eligible to assert a claim under Annex 14-E of USMCA (which applies to certain kinds of infrastructure investors9) ("Annex 14-E") in connection with measures that post-date the entry into force of USMCA, then the investor cannot bring a claim under Annex 14-C.10 Footnote 21 makes sense only if both Annex 14-C and Annex 14-E apply to measures that post-date the entry into force of USMCA. Respondent's interpretation of Annex 14-C would render Footnote 21 inutile, contrary to the rules of treaty interpretation. Thus, it is not surprising that Respondent never even mentions Footnote 21 in its Bifurcation Request. As detailed below, an interpretation of Annex 14-C that is faithful to the rules of treaty interpretation as set forth in the Vienna Convention on the Law of Treaties ("VCLT") clearly shows that, with respect to legacy investments, Annex 14- C extends the obligations of Section A of Chapter 11 of NAFTA 1994 for the duration of the transition period.
4. If the interpretation of Annex 14-C that Respondent now asserts truly reflected the intention of the USMCA Parties, Respondent could have--and surely would have--raised its objection at an earlier stage of the proceeding. Respondent had ample opportunity to do so. This dispute began over one and a half years ago, when, on July 2, 2021, Claimants submitted their Notice of Intent to Submit a Claim to Arbitration ("Notice of Intent").11 On September 17, 2021, Claimants and Respondent held a video conference for purposes of settlement negotiations, followed by Claimants providing written responses to Respondent's questions and a further settlement conference in February 2022. On November 22, 2021, Claimants filed their RFA with the International Centre for Settlement of Investment Disputes ("ICSID"). On December 7, 2021, Respondent objected to the registration of Claimants' claims on grounds unrelated to its present objection (and subsequently withdrew that unrelated objection). Respondent did not even mention the objection it now raises at any point prior to the discussion leading to the procedural conference in December 2022
5. If Respondent genuinely believes that the scope of Annex 14-C is limited in the manner it currently asserts, then one would have expected Respondent to have mentioned such an important position at the earliest possible opportunity (and provided evidence of its veracity) in hopes of triggering a withdrawal of Claimants' claims or to have used the position as leverage in settlement discussions. If successful, that approach would have saved the U.S. Government, Claimants, and ICSID time and resources, and would have provided a clear and simple response to the claims Claimants have asserted.
6. Further, Claimants have not identified a single statement from any of the USMCA Parties in connection with the conclusion of USMCA, and outside the context of an arbitration proceeding, that explains the scope and purpose of Annex 14-C in the manner Respondent now asserts. If the U.S. Government actually believes that U.S. citizens and corporations cannot bring legacy investment claims arising from measures taken during the transition period, then Respondent surely would have taken the earliest opportunity in a high-profile, highly-publicized dispute like this one to publicly clarify this position to its own constituents. Yet, the U.S.
position did not become publicly known until the Bifurcation Request was posted on the ICSID docket in mid-January 2023.
7. The fact that Respondent waited so long to raise its objection shows that the objection is not seriously held, but rather invented as a litigation tactic. It appears that Respondent's only interest is in further delaying the proceedings, likely to ensure that any award is issued long after the 2024 U.S. Presidential election. That strategy fully accords with Respondent's politicized treatment of the KXL Project for over fifteen years.
8. The Tribunal will recall that the saga surrounding the KXL Project began in 2008, when TC Energy submitted its first application for a Presidential permit for the KXL Pipeline During the ensuing fifteen years (excluding the approximately four-year interlude when the Presidential permit was granted and in force), the U.S. Government subjected Claimants and their investments to abusive, politicized treatment that has cost Claimants billions of dollars.
Respondent's Bifurcation Request, coming over a year after Claimants submitted their RFA, is merely another manifestation of that treatment. It would be unfair and prejudicial to Claimants to delay the proceeding any further. Claimants are entitled to their day in court, and the Tribunal should reject Respondent's baseless Bifurcation Request
9. Section II discusses the criteria for assessing Respondent's Bifurcation Request. Section III shows that Respondent's preliminary objection is not serious and substantial, in that it has no basis under the ordinary meaning of the text of Annex 14-C, as properly interpreted in its context and in light of the object and purpose of USMCA. Section IV shows that bifurcating Respondent's preliminary objection would be unfair and prejudicial to Claimants, and that Respondent's objection is intertwined with the merits of Claimants' claims in a manner that would eliminate or substantially reduce any procedural efficiency that might be gained from bifurcation. Section V concludes Claimants' Observations and requests an award of costs to cover the legal fees and other expenses that Claimants incurred to address Respondent's baseless request.
V. Conclusion and Request for Costs
58. For the reasons explained above, the Tribunal should reject Respondent's Bifurcation Request. Respondent bases its request on an objection that is not substantial and serious.
Furthermore, its objection is intertwined with the facts underlying Claimants' claims and would require the Tribunal to address matters that are directly relevant to the merits of those claims.
Hearing the objection in a bifurcated proceeding would be highly prejudicial to Claimants and unfair, particularly given the duration and nature of Respondent's egregious conduct, the delay in Respondent raising its objection, and the long delay that would be required to hear this baseless objection before proceeding to the merits phase.
59. Claimants respectfully request that the Tribunal award Claimants all costs and fees, including, without limitation, attorneys' fees and other expenses Claimants have incurred to address Respondent's Bifurcation Request.
ANNEX - Statements from USMCA Parties:
- In a 2018 press briefing in connection with the conclusion of USMCA, "[t]wo senior [U.S.] administration officials" engaged in the following exchange:. ..
- In 2019, the U.S. International Trade Commission explained that:. ..
- In 2021, the U.S. State Department explained that:. ..
- The Congressional Research Service explained that:. ..
- In its Statement on Implementation of USMCA, the Government of Canada explained that:. ..
- In its Economic Impact Assessment of USMCA, Global Affairs Canada explained the scope of Chapter 14 as follows:. ..
- The Government of Mexico has provided the following explanation of Annex 14-C:. ..
- Statements from a Former U.S. Negotiator of USMCA's Investment Chapter:. ..
- In a presentation at American University, Mr. Mandell stated:. ..
- A piece that Mr. Mandell co-authored in 2021 stated, in connection with changes to Mexico's Electricity Industry Law in 2021 (after the replacement of NAFTA and the entry into force of USMCA):. ..