TC Energy Corporation and TransCanada Pipelines Limited v United States of America ICSID Case No. ARB/21/63 - Respondent's Reply on its Preliminary Objection - 27 December 2023
Country
Year
2023
Summary
Source: icsid.worldbank.org
TABLE OF CONTENTS
I. Introduction
II. Annex 14-C Does Not Provide the Tribunal with Jurisdiction over Claimants' Claims
A. Annex 14-C Limits the Tribunal's Jurisdiction Ratione Temporis to Claims Based on Breaches Allegedly Occurring While the NAFTA Was in Force
B. Claimants' Interpretations of Annex 14-C Are Divorced from the Ordinary Meaning of Its Terms
1) The USMCA Did Not Extend the NAFTA's Substantive Obligations
2) Claimants' Applicable Law Argument Is Meritless
C. Claimants' Analysis of the Relevant Context Is Flawed
1) The Preamble and the USMCA Protocol Support the Ordinary Meaning of Annex 14-C
2) Annex 14-C's Placement Outside the Body of Chapter 14 Confirms That It Does Not Extend Substantive Investment Obligations
3) The Definition of "Legacy Investment" Confirms that the USMCA Parties' Consent is Limited to Breaches Predating the NAFTA's Termination
4) The Footnotes to Annex 14-C Do Not Support Claimants' Interpretation
a. Footnote 20 confirms that NAFTA Chapter 11 applies to claims for alleged breaches that occurred while the NAFTA was in force
b. Footnote 21 has no bearing on the interpretation of Paragraph 1 of Annex 14-C
5) USMCA Article 14.2(3) Confirms that the USMCA Parties Intended Annex
14-C to Apply to Claims Based on Events Predating the USMCA's Entry into Force
6) USMCA Article 34.1 Confirms that the USMCA Parties Did Not Extend the NAFTA's Substantive Investment Obligations
D. Claimants Misapply the USMCA's Object and Purpose
E. Claimants Continue to Focus on Ambiguous and Irrelevant Supplementary Means of Interpretation
1) Documents Reflecting the USMCA Parties' Negotiations Confirm the U.S. Interpretation of Annex 14-C
2) Claimants Ignore Relevant Past Treaty Practice in Favor of Irrelevant Practice Relating to Legacy Agreements with Survival Clauses
3) Claimants' Convoluted Argument About NAFTA's Three-Year Limitations Period Gets Them Nowhere
4) Claimants Offer No Reason for the Tribunal to Give Weight to Ambiguous and Contradictory Statements of Current or Former Officials
F. The U.S. Interpretation of Annex 14-C Is Correct, But Even If Ambiguity Remained, the Tribunal Must Hold Claimants to Their Burden and Decline Jurisdiction
III. Claimants' Equitable Arguments Are a Meritless Distraction
A. Claimants' "Principle of Consistency" Argument Fails Because Claimants Have Not Demonstrated Manifest Inconsistency or Reliance
B. Claimants' Unclean Hands Argument Requires the Tribunal to Prejudge the Merits of the Case Before It Has Found Jurisdiction
IV. Conclusion
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I. Introduction
2. As the United States made clear in its Memorial, this Tribunal lacks jurisdiction because Claimants have not alleged a breach of a NAFTA obligation that occurred while that treaty was in force. Paragraph 1 of USMCA Annex 14-C only permits claims for "breach of an obligation"
under the specified NAFTA provisions.2 Consistent with the rule of customary international law that an act of a State cannot breach an obligation unless it was bound by that obligation at the time the act occurred, the United States could not have "breached an obligation" of the NAFTA after its termination in 2020.3 As the Parties agree, the only relevant U.S. act - the revocation of the Presidential Permit - occurred in 2021. Therefore, there could be no "breach of an obligation"
under the NAFTA that gives rise to jurisdiction under Annex 14-C.
3. Claimants have floated two different arguments in an attempt to circumvent this rule. At
the bifurcation stage, Claimants argued that a combination of the USMCA Protocol and references
to the NAFTA in Annex 14-C amounted to an agreement by the USMCA Parties to extend the
NAFTA's substantive investment obligations for three years after its termination. The United
States rebutted that argument in detail in its Memorial, showing that no provision or combination
of provisions in the USMCA could be read to constitute such an agreement. NAFTA Chapter
clearly terminated in July 2020, as indicated by (among other things) the several references to the
termination in USMCA Annex 14-C. Annex 14-C merely extended the time period to file a claim
for alleged breaches of the NAFTA that occurred while it was in force.
4. In their Counter-Memorial, Claimants shift their focus to a theory advanced by their expert Christoph Schreuer. According to Professor Schreuer, it does not matter whether the United States was bound by the NAFTA's obligations when it revoked the Keystone XL pipeline permit - or whether the revocation breached those obligations when it occurred - because Annex 14-C specifies the NAFTA as the law applicable to claims submitted thereunder. Professor Schreuer does not concern himself with how an act can be a "breach of an obligation" if that obligation is no longer in force.
5. As will be explained below, Claimants' applicable law argument is no more compelling than their original theory. The requirement in Paragraph 1 of Annex 14-C that claims submitted to arbitration be claims for "breach of an obligation" under the specified NAFTA provisions is a limit on the Tribunal's jurisdiction ratione temporis. Specifically, this language permits only claims based on events occurring while the NAFTA's obligations were binding on - and capable of being breached by - the USMCA Parties. This is clear from the ordinary meaning of the language in Annex 14-C, Paragraph 1, and it is how the nearly identical language in NAFTA Articles 1116 and 1117 was understood by NAFTA tribunals, the USMCA/NAFTA Parties, and scholars - including Professor Schreuer - who have considered the issue. Under this plain reading and these common understandings, in order to reach the "applicable law" provisions on which Professor Schreuer relies, a claimant must first be able to allege a breach of an obligation of the NAFTA; if such obligation does not exist at the time of the act at issue, there is no claim and the question of applicable law does not arise. Furthermore, in confirming in Footnote 20 that the NAFTA is the law applicable to claims under Annex 14-C, the USMCA Parties were merely acknowledging the general principle of intertemporal law that events occurring while the NAFTA's obligations were in force must be assessed under those obligations.4 There is nothing in this confirmation of the applicable law that could be read to alter, let alone remove, the ratione temporis limit placed on the Tribunal's jurisdiction in Paragraph 1.
6. The Tribunal therefore lacks jurisdiction over Claimants' claims and should dismiss them in their entirety. This Reply addresses the interpretation of Annex 14-C, the core issue before the Tribunal in this phase of the bifurcated proceeding, in Section II, before turning to Claimants' meritless equitable arguments in Section III.
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IV. Conclusion
145. In summary, Claimants have failed to establish that this Tribunal has jurisdiction under the USMCA to hear the claims they have alleged. Annex 14-C, by its plain terms, only applies to breaches of certain obligations of the NAFTA. Those obligations ceased to bind the NAFTA Parties on July 1, 2020. Thus, the alleged NAFTA breaches asserted by Claimants, which did not occur until January 2021, cannot be subject to an Annex 14-C claim. Claimants' attempt to read the word "obligation" out of Annex 14-C is unavailing; this Tribunal must apply the words chosen by the USMCA Parties in the treaty text.
146. In light of the above, the United States respectfully requests the Tribunal to conclude that
it lacks jurisdiction over Claimants' claims and to dismiss them in their entirety
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