Marc J. Goldstein Arbitrator & Mediator NYC
August 16, 2020

Summer on Georgian Bay

With the northern border closed except to Essential Workers, which You, sorry to say, are NOT, these are challenging times to know what’s really going on Up There in the Great White North. OK, you can binge-watch Bubble Hockey from Toronto and Edmonton. In a timeout You might catch a stirring glimpse of Lake Ontario at sunset, or a mild-mannered Albertan Black Bear seeking entry to the ice arena without a mask. 🐻 😷. But what you really crave is news of what’s happening with NAFTA (USMCA) arbitration. Arbitration Commentaries is here to help.

The case that motivates this post was issued July 20. It’s called United Mexican States (yes, readers, that’s México) v. Burr, written by a Justice of the Ontario Superior Court in Toronto (…. well, by July 20 the Justice was probably having a crackling gin & tonic on the patio of his Georgian Bay cottage, but ICSID said the seat of the arbitration was Toronto). It’s a case about arbitral jurisdiction in a NAFTA arbitration and, specifically, whether NAFTA’s requirement that Investor Claimants send the Respondent State a Notice of Intent to Arbitrate at least 90 days before starting the arbitration, if it’s violated which it was by about half of the 30+ Investor Claimants, means there is no arbitral jurisdiction over the laggards’ claims. Even more specifically than that, one piece of this case, the one Your Commentator will take on here, is what the arbitrators are supposed to do when the non-party treaty countries – here Canada and the USA (as it then was) — chime in on the side of the Respondent State, to say that they think the Treaty means exactly what México says it means — i.e. no 90 Day Advance Notice = No State Party Consent to Arbitrate. Can they give the back of the hand, which the Majority seem to have done, to evidence of “subsequent practice” of the Treaty Parties, when the governing international law says this evidence SHALL be taken into account?

Now, I realize what some of you Americans are thinking: “We did this dance 💃 in BG Group v Argentina, no? This is just SO 2014…” But wait. Wait. Fingers off the delete key. Let’s check in on the different legal frameworks of American and Canadian arbitration law, and see how like cases get treated differently.

BG Group was indeed about how if at all a court reviews an investment treaty advance notice requirement. In that case, the UK-Argentina BIT required an investor first to file a lawsuit in a Host State court, and either lose or chill-out for nine months before starting arbitration. At the Washington DC seat of arbitration, where FAA jurisprudence governs vacatur and the Model Law is chat room fodder, the outcome was dictated by some well-developed legal presumptions in the FAA case law (what the cool 😎 people call “First Options”): that parties presumably want arbitrators not courts to mainly decide whether a procedural hurdle has been jumped, and presumably want courts not arbitrators to mainly decide whether they consented to arbitrate at all. What looks like a procedural hurdle – in a contract or a treaty — might potentially be an issue of consent to arbitrate, but only if the text convincingly says so. And the text of UK-Argentina BIT didn’t. Game to the arbitrators, siding with the Investors, in the BG Group case.

Ok now back to Canada. (I know people who know people… just follow me, via Buffalo, across Lake Erie. Backstroke will do). Here the Model Law is everywhere. You go in Tim Horton’s for morning coffee and you can get the Model Law for $1.99 if you buy an extra large Double-Double and small box of Timbits. You can even find it in the Courthouse, where, if you are México or are otherwise unhappy with a Toronto-seated (or even Moose Jaw) international arbitration award, the motion to vacate is based on Art. 34 of the Model Law which says they can only vacate on specified grounds which just happen to be – can you believe it? – the NY Convention Article V grounds to deny recognition of a foreign award. (Wow, conforming domestic law to international law – what a scandal! The USA used to allow a handful of lawyers in the American Law Institute to talk about this idea, but then this ALI cell was discovered to be a posse of radical-left anarchists and that was the end of that). Since Art. 34 leaves the Canadian court without much choice but to determine whether the Arbitral Tribunal had jurisdiction, the energy for deference to arbitrators on that issue has been channeled into whether what’s presented to the Court is a “true” question of jurisdiction. If it’s the real turtle soup, not merely the mock, then the standard of review is “correctness” – a polite Canadian term for de novo review. Add to the mix the fact that Canada unlike its friend to the south (you have to learn what “friend” means, to get a degree from a Canadian law school) is a Party – a full-fledged, acceded, ratified, card-carrying Member State – of the Vienna Convention on the Law of Treaties (VCLT). You don’t hear much about VCLT in American treaty arbitration case law, what there is of it. In New York, if you cite VCLT in a brief the law clerks mistake it for a lunch order.

So in this México v Burr case the VCLT was in play as governing law, not lunch, and its says in relevant part that in the interpretation of a treaty any “subsequent agreement” or “subsequent practice” of the Treaty parties “shall be taken into account.” Into the Mexico v. Burr arbitration come lawyers for Canada and lawyers for the US (under NAFTA’s Greek Chorus clause, Art. 1128) who say “yes just like México says, we always have and always will treat the failure to send that 90-Day Advance Notice of Intent as a failure to engage the Consent of the Respondent State, and that rises to the level of a subsequent agreement or at least a subsequent practice and either way México wins on jurisdiction and the laggard Investors are out.” But it seems that the Arbitral Tribunal majority more or less understood these pleas as opportunistic messages from litigants who might want to win similar cases — that is to say, Canada and the USA, as serial NAFTA arbitration Respondents with serial motivation to win, are motivated to argue for and to develop some jurisprudence that treats the non-observance of the Advance Notice requirement (NAFTA Art. 1119) as jurisdictional, but the arguments say more about the State-employed litigators’ motives in common to win their cases than they do about the States’ “agreement” or uniform “practice” in the interpretation of the NAFTA.

On a practical level, don’t you wonder what it is about NAFTA Art. 1119 that is necessary to “engage the consent” of the Respondent State? “You live where? On the Upper West Side? Nah, Canada doesn’t do UWS! You’re claiming what, an FET breach? Nah, we only arbitrate expropriation. You want how much? $300 million? Well, we‘ll think about it and let you know in 90 days.” Is this really about consent? Or is it so the lawyer can tell her boss that she has a big new case? Canada isn’t really going to withhold consent for UWS Claimants. Really?? In BG Group terms, the Treaty text evidence that this Art. 1119 Notice is a condition of the Host State keeping its standing offer to arbitrate upright looks pretty thin.

Can the Treaty Parties change things by lining up their briefs in the arbitration (one as Respondent, two as Greek Choraleers under NAFTA Art. 1128) to say “Ever since 1995, all three of us have consistently viewed that 90 day Advance Notice as a condition of consent. No Notice, No Offer to Arbitrate!”? Do those brief-y submissions make out a “subsequent practice in the application of the treaty which establishes the agreement of the Parties regarding its interpretation” that NAFTA arbitrators, bound to heed (not eat) the VCLT, “shall take into account” ? Hmm.

You will appreciate why this is a tough question for any judge who spends her waking hours parsing the opportunistic arguments of litigants. Because whether States bound by a Treaty have a “practice” tantamount to an “agreement” about how they give consent to Treaty-based arbitration is, naturally, about what these States have argued in other cases. It’s not about objective activity out there in the Real World, like how far into its coastal waters a fishing treaty group of States permits its treaty partners’ fishers to fish. Crunching the Ontario judge’s very detailed examination of NAFTA jurisprudence into a digestible summary for You, the Commentaries Consumer, the court holds that (1) “subsequent practice” in regard to NAFTA‘s arbitration commencement provisions may possibly be established by aligned litigation submissions made in one case by the Host State Respondent supported by the other States as Art. 1128 Choraleers, BUT (2) the Court looks at the content of those submissions with three factors in mind: precision, repetition, and collaboration.

These are my interpretive phrases not the Court’s. So what do I mean by “precision”: Well, Canada, if you (or México or USA) argued in earlier cases that investor compliance with the NAFTA case-commencement procedures generally is jurisdictional, that’s not as precise as having argued in prior cases the exact issue here: the alleged jurisdictional significance of the 90 Day Advance Notice under Art. 1119. Repetition?: Much easier. How many times has the precise same argument been presented? Showing three or four prior instances of a State having made precisely the same Art. 1119 Advance Notice argument may be better evidence of “practice” indicative of “agreement” than six or more prior instances of making the more general argument about NAFTA case-initiation procedures. Collaboration?: Also easier. In how many of those prior arbitrations were the three NAFTA States all making the identical argument, in harmony, and calling it a VCLT “practice” tantamount to an “agreement on interpretation of the Treaty.”? As a final step, the Court considered whether arbitral tribunals or courts in the prior cases cited by the States found the arguments persuasive.

Said the Court in its own words: “[T]his is the first case in which the NAFTA parties have offered unanimous submissions on the interdependency of Articles 1119 and 1121 (with the exception of Canada’s submissions in Mondev, where the tribunal did not give effect to those submissions). … While the NAFTA parties do have a long history of arguing for strict adherence to procedural requirements, their track record of success is inconsistent. … Having found that the NAFTA parties’ Article 1128 submissions do not constitute subsequent practice, I find that it was not jurisdictional error for the Majority to treat the submissions as they did.

Ok why am I telling you all this, you ask, if NAFTA was replaced by the USMCA as of July 1, 2020 and arbitration under the revised treaty has been kicked to the curb? Well, not so fast. First, there are pre-USMCA cases in the pipeline. Second, NAFTA dispute resolution methods are intact until 7/1/2023 for investments made and continuously maintained before and up to 7/1/2020. Third, NAFTA’s arbitration procedures are carried forward for US-México disputes. Fourth, the carry-forward also extends to investors who made government contracts in five key economic sectors. Fifth, Canada and México have not given up on treaty arbitration; henceforth they will do it under the Trans-Pacific Partnership Treaty (CPTPP), and there is surely plenty of room for persuasive construction and application of the VCLT in those cases. Finally, as to the USA and as fans of the Brooklyn Dodgers used to say except in 1955: Wait ‘Til Next Year!

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