OF JURISDICTION OR DAMAgeS eVALUATION?
This part is divided into three sections. The first will consider NAFTA party submissions made prior to the sweeteners cases on issues relevant to the relationship of trade and investment obligations. The second section will present the inconsistent holdings of the tribunals in the Cargill and ADM cases on those issues and the efforts by Mexico to have the Cargill award set aside. The third section analyzes why the inconsistency raises critical systemic issues and is inherent to Chapter 11. It also evaluates the role that party submissions played, or did not play, in the resolution of those issues.
1. CONTeXT AND STATe PARTIeS’ PRIOR SUBMISSIONS
The relationship between international investment and trade obligations has many facets. Since NAFTA was the first free trade agreement (FTA) to include an investment chapter providing for investor-state arbitration, the relational issues between different chapters of NAFTA, as well as between the different forms of dispute settlement, arose early and have proved contentious.96 One issue was whether measures relating to trade in goods and services could be subject to a Chapter 11 claim when they affected an investment made by investors from another NAFTA party. The related questions abound. Is market access or business income affected by a trade mea- sure an investment under NAFTA?97 If a modest investment is made only to facilitate trade in goods, for example, what damages are to be recovered by the investor: the losses suffered only qua investor or also qua exporter? What is the impact of the territorial nature of NAFTA Chapter 11 protections? Are these matters of jurisdiction or interpretation and damages evaluation?
96. The early questioning went beyond NAFTA and involved interactions with the WTO agreements. See e.g., Methanex v United States, Final Award (n 27) pt II, ch B [4] –[6] and pt IV ch B [4]–[38]. The analysis of this question is beyond the scope of this article. See e.g., Jürgen Kurtz, ‘The use and abuse of WTO law in investor—state arbitration: competition and its discontents’ (2009) 20 European Journal of International Law 749–771; Robert Howse and Efraim Chalamish, ‘The use and abuse of WTO law in investor-state arbitration: a reply to Jürgen Kurtz’ (2009) 20 European Journal of International Law 1087–1094; Jürgen Kurtz, ‘The use and abuse of WTO law in investor-state arbitration: competition and its discontents: a rejoinder to Robert Howse and Efraim Chalamish’ (2009) 20 European Journal of International Law 1095, 1095–1098. See also Nicholas Diebold, ‘Non-Discrimination and the Pillars of International Economic Law—Comparative Analysis and Building Coherency,’ Society of International Economic Law, Second Biennial Conference (University of Barcelona 8–10 July 2010) Working Paper No. 2010/24, 13, <http://papers.ssrn.com/sol3/papers.cfm?abstract_
id=1632927>. On duplication of proceedings in international economic law, see e.g., Joost Pauwelyn, ‘Adding sweeteners to Softwood Lumber: the WTO-NAFTA “Spaghetti Bowl” is cooking’ (2006) 9 Journal of International Economic Law 197; Andrea K. Bjorklund, ‘Private Rights and Public International Law: Why Competition Among International Economic Law Tribunals Is Not Working’ UC Davis Legal Studies Research Paper Series, Research Paper No. 124, November/2007; Andreas R. Ziegler, ‘Is it necessary to avoid substantive and procedural overlaps with other agreements in IIAs?’ in de Mestral and Lévesque (n 3) 158–176.
97. Article 1139 of NAFTA (n 4) provides that: ‘investment means: (a) an enterprise … (h) interests arising from the commitment of capital or other resources … but investment does not mean, (i) claims to money that arise solely from (i) commercial contracts for the sale of goods or services by a national or enterprise in the territory of a Party to an enterprise in the territory of another Party … (j) any claims to money, that do not involve the kinds of interests set out [above].’
All such questions have been posed to Chapter 11 tribunals and NAFTA parties, as respon- dents, in Article 1128 submissions or during set-aside proceedings made their views known on these issues. In summary, state parties all agreed at one time or another that:
– Claims related to cross-border trade in goods or services are not actionable under Chapter 1198 – An investment in the territory of the host country is required to make a claim under
Chapter 1199
– Market access, good will, and business income are not investments in and of themselves100
– Only damages suffered by a claimant qua investor, and not qua exporter or manufac- turer, are recoverable under Chapter 11101
98. E.g., of Article 1128 submissions: Ethyl v Canada (Mexico submission, 11 March 1998) 2; Pope & Talbot v Canada (Mexico submission, 2 December 1999) [14], [17]–[18]; S.D. Myers v Canada (Mexico submission, 14 January 2000) [14], [18]–[19]; S.D. Myers v Canada (Mexico submission (damages phase), 12 September 2001) [18]–[19], [30]; S.D. Myers v Canada (United States submission, 18 September 2001) [12]; S.D. Myers v Canada (Mexico supplemental submission (damages phase), 25 September 2001) [7] –[12]; UPS v Canada (United States third submission, 23 August 2002) [9]; CCFT v United States (Mexico submission, 1 March 2007) [8].
E.g., of respondent submissions: S.D. Myers v Canada (Statement of Defence, 18 June 1999) [38]; S.D. Myers v Canada (Counter-Memorial (damages phase), 7 June 2001) [96]–[104]; ADF v United States (Counter-Memorial of the United States of America on Competence and Liability, 29 November 2001) 38; Methanex v United States (Amended Statement of Defence of Respondent United States of America, 5 December 2003) [256]. Canada and Mexico also argued this point in front of the Federal Court of Canada during the set-aside proceedings con- cerning the S.D. Myers award. See Attorney General of Canada v S.D. Myers (Memorandum of Fact and Law of the Applicant, The Attorney General of Canada, undated) [192]–[201]; Attorney General of Canada v S.D. Myers (Memorandum of Fact and Law of the Intervener, The United Mexican States, 4 July 2003) [104]–[109], [123]–[128].
99. E.g., of Article 1128 submissions: S.D. Myers, Inc. v Canada (Mexico submission, 14 January 2000) [15]–
[16]; S.D. Myers, Inc. v Canada, (Mexico submission (damages phase), 12 September 2001) [10]; S.D. Myers, Inc. v Canada (Mexico supplemental submission (damages phase), 25 September 2001) [32]–[34], [37]; Bayview v Mexico (United States submission, 27 November 2006) 1–5; CCFT v United States (Mexico submission, 1 March 2007) [2] , [15]–[16]; See also S.D. Myers v Canada (United States submission, 18 September 2001) [4];
Loewen v United States (Mexico submission, 2 July 2002) [10].
E.g., of respondent submissions: S.D. Myers v Canada (Government of Canada Counter-Memorial, 5 October 1999) [248]–[252]; UPS v Canada (Memorial of the Government of Canada on Preliminary Jurisdictional Objections, 14 February 2002) [125]; Bayview Irrigation v Mexico (Memorial on Jurisdiction, 14 April 2006) [2] , [78]–[100]; CCFT v United States (Memorial on the Preliminary Issue of Respondent United States of America, 1 December 2006) 1–20; Grand River v United States (Counter-Memorial of Respondent United States of America, 22 December 2008) 48–53. See also set-aside arguments made in Attorney General of Canada v S.D. Myers (Memorandum of Fact and Law of the Applicant, The Attorney General of Canada) [174]–[175], [190]–[191] and Attorney General of Canada v S.D. Myers (Memorandum of Fact and Law of the Intervener, The United Mexican States, 4 July 2003) [103], [115].
100. E.g., of Article 1128 submissions: Methanex v United States (Canada second submission, 30 April 2001) [59]–[62]; Methanex v United States (Mexico submission, 30 January 2004) [8] ; Feldman v Mexico (Canada second submission, 28 June 2001) [24]; S.D. Myers v Canada (United States submission, 18 September 2001) [5].
E.g., of respondent submissions: Pope & Talbot v Canada (Government of Canada Statement of Defence, 8 October 1999) [156]–[158]; S.D. Myers v Canada (Counter-Memorial (damages phase), 7 June 2001) [85];
Methanex v United States (Memorial on Jurisdiction and Admissibility of Respondent United States of America, 13 November 2000) 32–36; Merrill & Ring v Canada (Government of Canada Counter-Memorial, 13 May 2008) [265]–[282]; Grand River v United States (Counter-Memorial of Respondent United States of America, 22 December 2008) 63–64.
101. E.g., of Article 1128 submissions: S.D. Myers v Canada (Mexico submission (damages phase), 12 September 2001) [35]–[37], [45]; S.D. Myers v Canada (United States submission, 18 September 2001) [8] –[10], [13]; S.D. Myers v Canada (Mexico supplemental submission (damages phase), 25 September 2001) [23], [25]–
[26], [57]–[65]; See also Methanex v United States (Mexico submission, 30 January 2004) [3].
On the broader issue of potential overlap between the obligations contained in different NAFTA chapters, tribunals held early on that overlap was not necessarily synonymous with inconsistency and they did not consider their jurisdiction limited in this way.102 On the other issues, the scorecard is mixed. While the fact that, under Chapter 11, protection is limited to the territory of the host state has been widely recognized,103 the impact on jurisdiction and the award of damages has not been constant.104 Also, tribunals have differed on the question as to whether market access or good will could constitute investments in and of themselves.105
Tribunals faced many of these early on in the context of NAFTA. As we have seen, it was in Methanex that the three parties asserted more strongly that their views on interpretation shall be taken into account under Article 31(3) of the VCLT. The analysis of the awards in the sweetener cases confirms that this position of parties is not consistently heeded.
2. SWeeTeNeR TRIBUNALS’ HOLDINgS
As will be described below, the awards in ADM and Cargill reached a different conclusion on critical matters for NAFTA Chapter 11 and arguably for FTA-based investment protec- tion more generally. From Mexico’s perspective, the tribunal in Cargill committed an approxi- mately US$ 40 million jurisdictional error by accepting a claim of export losses into Mexico for the U.S.-based investor.106 Mexico attempted, without success, to convince the Ontario Superior Court to set aside the award and, as an alternative, replace it with an award for a
E.g., of respondent submissions: S.D. Myers v Canada (Counter-Memorial (damages phase), 7 June 2001) [83], [91]–
[93], [110]. See also set-aside arguments made in Attorney General of Canada v S.D. Myers (Memorandum of Fact and Law of the Applicant, The Attorney General of Canada) [174]–[178], [234] and Attorney General of Canada v S.D. Myers (Memorandum of Fact and Law of the Intervener, The United Mexican States, 4 July 2003) [164]–[172].
102. Article 1112(1) of NAFTA (n 4) provides that ‘[i] n the event of inconsistency between this Chapter and another Chapter, the other Chapter shall prevail to the extent of the inconsistency.’ See e.g., Pope & Talbot v Canada, UNCITRAL (Award by the Tribunal in relation to Preliminary Motion by Government of Canada to Dismiss the Claim because it Falls Outside the Scope and Coverage of NAFTA Chapter 11 ‘Measures Relating to Investment’ Motion, 26 January 2000) [26]; S.D. Myers v Canada (Partial Award, 13 November 2000) UNCITRAL [289]–[300], [318] and S.D. Myers v Canada (Second Partial Award, 21 October 2002) UNCITRAL [126]–[139]. See also Ethyl v Canada (Award on Jurisdiction, 24 June 1998) UNCITRAL [62]–[64]. The Federal Court of Canada deciding on the set-aside application of the S.D. Myers award agreed, holding that ‘different chapters of NAFTA overlap, and (…) NAFTA rights are cumulative, unless there is direct conflict’. See The Attorney General of Canada v S.D. Myers, Inc., 2004 FC 38, [71]. See Charles-Emmanuel Côté, ‘Looking for legitimate claims: Scope of NAFTA Chapter 11 and limitation of responsibility of host state’
(2011) 12(3) Journal of World Investment and Trade 321, 327–329.
103. See e.g., Bayview Irrigation v Mexico (Award, 19 June 2007) ICSID Case No ARB(AF)/05/1 [93]–[108];
CCFT v United States (n 31) [112], [127].
104. See e.g., SD Myers v Canada (Second Partial Award) (n 121) [116]–[122], where the tribunal held that
‘[t] here is no provision [of Chapter 11] that requires that all of the investor’s losses must be sustained within the host state in order to be recoverable. (…) The Tribunal concludes that compensation should be awarded for the overall economic losses sustained by SDMI that are a proximate result of Canada’s measure, not only those that appear on the balance sheet of its investment.’
105. See Pope & Talbot v Canada (Interim Award, 26 June 2000) UNCITRAL [96]–[98]; contra: Methanex v United States (Final Award (n 27)) pt IV ch D, [17]. See also SD Myers v Canada, Second Partial Award (n 121) footnote 32 discussing good will as a potential investment.
106. This number consists of the amount awarded by the tribunal, minus damages accruing directly to Cargill’s subsidiary. Mexico sought an order substituting the tribunal’s award of damages of US$ 77,329.240 with an award of US$ 36,166,885. See Mexico v Cargill, Factum of the Applicant (n 16) [11]–[13].
smaller amount of damages. Mexico’s attempt on appeal was also rejected, as well as its request to the Supreme Court of Canada that it hear the case.107
a. Inconsistent Holdings: ADM v. Cargill
The broad question of the relationship between cross-border trade in goods and investment pro- tection under Chapter 11 was tackled by the tribunal in Cargill but not in ADM. In Cargill, the tribunal addressed it in deciding Mexico’s jurisdictional objection relating to the location of the claimant’s investment.108 The tribunal noted how NAFTA treats trade in goods and services (and has those subject to state-state dispute settlement) and investment protection (which is subject to investor-state dispute settlement) in different chapters.109 It also noted the demarcation found in the definition of investment at Article 1139 of NAFTA, which excludes claims to money that arise solely out of commercial contracts for the sale of goods and services.110 However, it con- sidered that overlap was not excluded between the chapters of NAFTA and that such overlap did not necessarily constitute an inconsistency that would make another chapter prevail over Chapter 11.111 The tribunal referred to the decisions in Ethyl Corporation v. Canada, Pope and Talbot v. Canada, and S.D. Myers v. Canada to support its position.112 It concluded: “there is no express or implied presumption that measures dealing with goods cannot ipso facto be alleged to be measures ‘relating to’ investors or investments per Article 1101.”113 It then highlighted that the relevance of the relationship between trade and investment was in the evaluation of dam- ages, which was a question of interpretation and not jurisdiction (more on this below).114
As to the “territorial” basis of investment protection under NAFTA Chapter 11, both tribu- nals seemed to agree as a matter of principle. However, for the Cargill tribunal it was sufficient, as a jurisdictional matter, for the claimant to have an investment in Mexico, which it undeni- ably had (its subsidiary: Cargill de Mexico). The tribunal in ADM conceived of the question differently and held that, as a jurisdictional matter, protection did not apply to investments located in the home territory of the investor (the United States) as opposed to the territory of the host (Mexico).
To reach its conclusion, the Cargill tribunal analyzed different jurisdictional provisions of Chapter 11, including Article 1101. In relevant parts, this Article states: “1. This Chapter applies to measures adopted or maintained by a Party relating to: (a) investors of another Party; (b) investments of investors of another Party in the territory of the Party.”115 It noted its agreement with the decision in Bayview Irrigation v. Mexico according to which an investor of a party must make, or propose to make, an investment in the territory of another party for Article 1101(1)(a) of NAFTA to apply.116 There was no doubt in this case that Cargill had made an investment in Mexico through a subsidiary, Cargill de Mexico, which was an enterprise.
107. See (n 17).
108. Cargill v Mexico (n 9) [140].
109. ibid [146].
110. ibid [147].
111. ibid [148] referring to art 1112(1) of NAFTA (n 4) cited above at (n 121).
112. ibid [149]–[152].
113. ibid [153].
114. ibid [154].
115. NAFTA (n 4) art 1101(1).
116. Cargill v Mexico (n 9) [165].
The tribunal noted that Cargill de Mexico operated in ten Mexican states and employed over a thousand people.117
The ADM tribunal addressed the issue in its evaluation of damages. It ruled that the jurisdiction of the tribunal to award damages included the loss of profits incurred by ADM’s subsidiary in Mexico, but not the profits that ADM claims to have lost on the sale of HFCS pro- duced in the United States and not in Mexico.118 In support, it cited Article 1128 submissions made by the United States in the Bayview Irrigation case and Canada’s arguments in the S.D.
Myers case.119 Underlining the role of state submissions, it added: “Chapter Eleven, aided by the interpretation of the three NAFTA Parties, leads to the conclusion that protection does not apply to investments located in the territory of the investor, nor investments located outside the territory of the State that violated the rights afforded to investors under the NAFTA.”120 It then referred to Article 1101(1)(b) of NAFTA to justify its ruling. If the investments are not in the territory of Mexico, they are not covered by the scope of Chapter 11, even if such invest- ments are meant to promote sales of HFCS in Mexico.121
The question whether business income can be considered an investment in and of itself was most directly raised in the context of Cargill’s expropriation claim. In this case, the tribunal held that it “has little difficulty in concluding that business income, particularly one associ- ated with a physical asset in the host country and not merely trade in goods, is potentially an investment both as an element of a larger investment involving the physical asset and as an investment in and of itself.”122 The ADM tribunal did not explicitly take a position on whether lost profits or business income is or could be an investment in and of itself. However, in the damages section, it treated loss of profits as a measure of injury and not as an object of protec- tion under NAFTA (i.e., an investment).
Finally, the ADM and Cargill tribunals took different positions on Mexico’s arguments that only damages suffered by a claimant qua investor, and not qua exporter or manufacturer, are recoverable under Chapter 11. Mexico contended that the tribunal did not have jurisdiction to award damages for losses arising from the ability to engage in cross-border trade.123 In support of its argument, Mexico cited the U.S. Article 1128 submissions in the S.D. Myers case where a distinction was drawn between damages suffered as importer of goods versus damages suf- fered as an investor.124
Notably, after the award in ADM was issued, the claimant in this case made a request to the tribunal for correction, supplementary decision, and interpretation. In its decision reject- ing the request, the tribunal confirmed its jurisdictional holding as regards damages related to exports. It stated:
The Claimants also refer to their investment in ALMEX’s Mexican distribution facilities as a justification for their right to recover lost profits on US manufactured fructose that would have
117. ibid [167].
118. ADM v Mexico (n 7) [270].
119. ibid [271].
120. ibid [272].
121. ibid [273].
122. Cargill v Mexico (n 9) [353]. See also summary at [3] and conclusion at [551]. The tribunal had earlier noted, under the heading of art 1101, that this question had been discussed, notably in Methanex v United States and Pope and Talbot v Canada, but never resolved. Cargill v Mexico [176]–[178].
123. ADM v Mexico (n 7) [256]; Cargill v Mexico (n 9) [136]–[143].
124. ADM v Mexico [256].
been distributed through these facilities. The Claimants here confuse the losses for their invest- ment in Mexico (ALMEX) with their losses from their U.S. operations. The Tribunal has juris- diction to award compensation for losses of the Claimants in respect of their investment in Mexico in their capacity as investors.125
In Cargill these issues were also considered in the damages evaluation phase. The tribunal determined that the proper approach to the assessment of damages was to determine the “pres- ent value of net lost cash flows” which equals “the ‘but for’ quantity of HFCS that Claimant would have sold.”126 The question arose as to whether Cargill’s loss of export sales from the United States to Cargill de Mexico were part of the investment or were separate export losses and thereby not compensable under Chapter 11. The tribunal found it helpful to consider lost profits as divided at the border between “upstream losses” (those attributed to Cargill’s inabil- ity to sell HFCS to Cargill de Mexico) and “downstream losses” (those attributed to direct losses to Cargill de Mexico).127 After analysis, it ruled that both streams of damages were com- pensable under NAFTA Chapter 11.
Facing the contrary holding of the tribunal in ADM, the Cargill tribunal recalled its pre- vious statement that the definition of investment under NAFTA was broad and that busi- ness income could be both an investment in and of itself and part of a larger investment.128 It reasoned:
With respect to the particular facts of this case, the Tribunal finds that the profits generated by Cargill’s sales of HFCS to its subsidiary, Cargill de Mexico, for CdM’s marketing, dis- tribution, and re-sale of that HFCS, were so associated with the claimed investment, CdM, as to be compensable under the NAFTA. Cargill’s investment in Mexico involved import- ing HFCS and then selling it to domestic users, principally the soft drink industry. Thus, supplying HFCS to Cargill de Mexico was an inextricable part of Cargill’s investment. As a result, in the view of the Tribunal, losses resulting from the inability of Cargill to supply its investment Cargill de Mexico with HFCS are just as much losses to Cargill in respect of its investment in Mexico as losses resulting from the inability of Cargill de Mexico to sell HFCS in Mexico.129
The tribunal described its approach as “holistic” since the inability of Cargill to export is only the other side of the coin of the inability of Cargill de Mexico to import.130 It also attempted in one short paragraph to distinguish ADM on the facts, on the basis that ADM was selling HFCS produced in Mexico as opposed to Cargill de Mexico, which was selling only HFCS imported from its parent in the United States.131
125. ADM v Mexico, Decision on the Requests for Correction, Supplementary Decision and Interpretation (n 7) [54].
126. Cargill v Mexico (n 9) [444]–[447]. The losses covered spanned from June 2002 through December 2007 ([464]).
127. ibid [519].
128. ibid [521]–[522].
129. ibid [523].
130. ibid [525].
131. ibid [524].