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Context
On April 25, 1997, the Canadian Parliament passed the Manganese-based Fuel Additives Act (the "Act"), which came into effect on June 24, 1997. The Act was introduced in Parliament on April 22, 1996. Its main objective was to address environmental concerns related to vehicle emissions. Specifically, the Act aimed to address the negative impact of MMT on vehicle emission and on-board diagnostic systems. Additionally, there were concerns about the potential toxic effects of airborne manganese from automobile exhaust, as well as the impact of MMT on warranty coverage for new vehicles and on efforts to harmonize fuel and emissions technology standards between Canada and the U.S. As a result, the importation and interprovincial trade for commercial purposes of MMT were prohibited by the Act.
Summary of Proceedings to Date in this Arbitration
On September 10, 1996, Ethyl Corporation notified its intent to submit a claim to arbitration. On April 14, 1997, it submitted a Notice of Arbitration claiming that Canada violated Chapter Eleven by banning the importation and interprovincial trade of MMT. However, Canada contested the jurisdiction of the tribunal. Then, on June 24, 1998, the tribunal made a preliminary jurisdictional award. It rejected some of Canada's objections and included others in the merits phase of the arbitration. Under the North American Free Trade Agreement (NAFTA), Article 1120 outlines three distinct pathways for resolving investment disputes. These pathways include:
International Centre for Settlement of Investment Disputes (ICSID): Parties can choose to arbitrate via the International Centre for Settlement of Investment Disputes ("ICSID" or "Centre"), as stipulated by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, commonly known as the ICSID Convention, dated March 18, 1965 (575 U.N.T.S. 159, ICSID Basic Documents 7, Jan. 1985).
ICSID Additional Facility Rules: Alternatively, parties can select the ICSID Additional Facility Rules, which offer a distinct arbitration framework separate from the ICSID Convention.
UNCITRAL Arbitration Rules: The United Nations Commission on International Trade Law ("UNCITRAL") Arbitration Rules form the third option for arbitration under Article 1120 of NAFTA.
In this case, Ethyl has invoked the UNCITRAL Arbitration Rules by submitting its Notice of Arbitration on April 14, 1997. The UNCITRAL Arbitration Rules subsequently govern the arbitration proceedings, subject to any modifications delineated in Section B of Chapter 11, as indicated in Article 1120(2), as referenced in note 6. The present arbitration, specifically Ethyl’s selection of the UNCITRAL Arbitration Rules, underscores the party’s deliberate choice in shaping the procedural contours of this case.
The Issue
This concerns claims that have arisen due to a Canadian statute that prohibits the import of Methylcyclopentadienyl Manganese Tricarbonyl (MMT), a gasoline additive intended for use in unleaded gasoline. Specifically, these claims are being made by Ethyl Corporation, which is the sole shareholder of a company that serves as the exclusive importer and distributor of MMT throughout Canada.
The Rule Applied
The rule applied was UNCITRAL Arbitration rules from no administering institution.
The Holding
Jurisdiction objections
a. Canada's objection based on the timing of the measure's adoption: Canada argued that the measure in question (the MMT Act) had not been "adopted or maintained" under NAFTA Article 1101(1) at the time of Ethyl's Notice of Arbitration due to the Act not having received Royal Assent. The tribunal dismissed this objection, reasoning that the Act was effectively a reality as of June 24, 1997, and thus constituted a measure within the scope of Article 1101(1).
b. Canada's objection regarding prior consultations: Canada contended that the claimant had not engaged in prior consultations as required under NAFTA. The tribunal rejected this objection, determining that Ethyl had indeed attempted consultations, and such consultations would likely have been futile.
c. Canada's objection related to timing and consent under Article 1121: Canada objected to the jurisdiction of the tribunal based on the claimant's filing being within six months of the Act's entry into force and the delayed submission of consent and waivers. The tribunal dismissed these objections, stating that more than six months had elapsed since the Act's enactment, and Canada had shown no intent to repeal or amend it. The tribunal also found the required formalities of Article 1121 unnecessary and perplexing, stating that initiation of arbitration inherently implies consent. The tribunal noted Ethyl's omission of the required documentation but found no resulting prejudice to Canada.
Despite dismissing Canada's objections, the tribunal held that Ethyl could have avoided these issues by waiting for Royal Assent before delivering its Notice of Intent and then waiting an additional six months before filing the Notice of Arbitration with necessary consent and waivers.
Settlement of the Claim
Following a challenge by Canadian provinces under the Agreement on Internal Trade, a Canadian federal-provincial dispute settlement panel ruled that the federal measure (MMT Act) clashed with certain provisions of the Agreement. Subsequent to this decision, Canada and Ethyl settled all outstanding matters, including the Chapter Eleven claim. The investor (Ethyl) had initially claimed $201 million USD, but a settlement resulted in an award of $13 million USD.
The Tribunal concluded that it possessed jurisdiction over the dispute and dismissed Canada's objections regarding the timing of the filing, lack of prior consultations, and the formalities under Article 1121. However, the Tribunal held that the Claimant could have preempted these objections by delaying its filing and consequently assigned the costs of the jurisdictional proceedings on these matters to the Claimant.
Decision Reasoning
1. Timing of filing and measure adoption
As aforementioned, Canada argued that the MMT Act was not adopted or maintained within the meaning of NAFTA Article 1101(1) at the time of the Notice of Arbitration filing. The Tribunal rejected this argument, noting that the Notice of Arbitration was submitted shortly after the Senate passed Bill C-29 and only awaited Royal Assent, which is typically granted upon government request. The Tribunal held that the MMT Act became a reality before the arbitration commenced, meeting the criteria of a 'measure' under Article 1101.
2. Lack of prior consultations
Canada contested the Tribunal's jurisdiction due to the absence of prior consultations. The Tribunal disagreed, pointing out that the Claimant had attempted to initiate consultations, albeit unsuccessfully, and opined that consultations might not have been productive regardless.
3. formalities under NAFTA article 1121
Canada objected to jurisdiction based on the timing of the consent and waivers under Article 1121, which were filed after the Notice of Arbitration. The Tribunal dismissed this objection, reasoning that more than six months had elapsed since the Act's entry into force, and Canada had not indicated any intent to amend or repeal the Act. The Tribunal found the formalities required by Article 1121 to be largely procedural, with the initiation of arbitration constituting implied consent.
4. Claimant's Option to Avoid Objections
The Tribunal acknowledged that the Claimant could have sidestepped the objections by delaying the Notice of Arbitration until after Royal Assent and then waiting six months to provide the requisite consent and waivers. Consequently, the Tribunal attributed the costs of the jurisdictional proceedings concerning these objections to the Claimant.
Result
The tribunal's holdings established that the MMT Act was deemed a measure under NAFTA Article 1101(1) and that Ethyl's claim fell within the tribunal's jurisdiction despite Canada's objections. Moreover, the tribunal upheld the validity of the claimant's attempts at prior consultations and found no impediments in the timing and consent provisions of Article 1121. The tribunal noted Ethyl's procedural missteps but concluded that these errors did not prejudice Canada. Consequently, the tribunal ruled in favor of Ethyl's jurisdiction to proceed with the arbitration.
Subsequently, the dispute was settled between Canada and Ethyl, culminating in an award of $13 million USD to Ethyl following a challenge under the Agreement on Internal Trade by Canadian provinces. This award marked the resolution of the Chapter Eleven claim and the end of the arbitration proceedings.
Bibliography
"Ethyl Corporation V. Government of Canada," GAC, last modified December 21, 2017,
https://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaine/disp-diff/ethyl.aspx?lang=eng.
"Ethyl Corporation V. Government of Canada," GAC, last modified December 21, 2017, https://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/disp-diff/ethyl.aspx?lang=eng.
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