$500M in damages riding on rejected N.S. quarry in NAFTA fight

Federal lawyers were in an Ottawa courtroom on Mondayseeking to quash a potentially costly,Nova Scotia-linked NAFTA tribunal ruling that is seen bysome as a test of sovereignty under the free trade agreement.

The Delaware-based Bilconis seeking more than $500 million in compensation after an international arbitration panel ruled in 2015 the American companywas wrongly denied permission to open a 152-hectare quarry and marine terminal on Digby Neck, N.S.

The long peninsula on the Bay of Fundyhome to about 2,000 peoplewas chosen by Bilcon as the future site of a 50-year stone quarry in 2002, only to have its proposal rejected by ajoint federal-provincial review panel in 2008 due to environmental concerns.

Bilconsuccessfully sued Canada usinga controversial investor protections clausefound under Chapter 11 of the North American Free Trade Agreement, which allows foreign companies to sue governments over unfair treatment.

"This outcome, this exposure to potential damages, is outside the scope of the NAFTA agreement," Canada lawyer Roger Flaim argued in the Federal Court of Canada on Monday.

Overstepping authority

Flaim said the international arbitration tribunal overstepped its authority in ruling Canada's rejection of the quarry was so egregious it was liable for damages under Chapter 11.

Bilconhad claimed it was blindsided by the joint panel's decision to reject its proposal, and convinced the tribunal its treatment was unfair, arbitrary and unprecedented.

In court Monday, federal lawyers argued that thetribunal did not have the jurisdiction to decide on the Canadian environment assessment process. The remedy, thelawyers said, was to seeka judicial review in this country.

"At the end of the day, the liability was arrived at for the same reasons the decision would have been set aside on judicial review," Flaim said.

Monday's hearing comes just three weeks before Bilcon goes back to the same arbitration tribunal to complete the second phase of the case settling on the award for damages.

"In three weeks, Canada will be defending itself from damages in excess of $500 million in respect to questions that should be answered by this court," Flaim said.

Environmental laws, foreign investors

According to University of Ottawa law professor Amir Attaran, the case is importanttest of sovereignty because what's at stake is whether Canada has the right to enforce its own environmental laws on foreign investors.

"In this case, what's happened was an American concrete company wanted to carry out a project that will affect the environment terribly, including whale-breeding habitat," said Attaran, whois also a lawyer forEcojusticeLaw, which is representing two environmental groups who are intervenors in the case.

"When they were told no by the Canadian and Nova Scotia governments, they demanded a half-a-billion-dollar payout for not getting permission to carry out their project."

NAFTA Chapter 11 problems

Investor protections outlined underNAFTA'sChapter 11 are aproblem, saidCatherine Abreu, of the East Coast Environmental Law Association, an intervenor in the case.

"Ultimately Chapter 11 is hurting Canada and Canadians rather than helping us and our private businesses," she said.

Both Abreu and Attaran questioned why Ottawa is supporting the current dispute-resolution mechanism under NAFTA,which has frequently found Canada liable for compensation.

"Why is the Trudeau government hanging on to keep aNAFTAinvestments system which has cost us money,which we lose in. And it's the Americans who are always winning who want to get rid of it. This makes no sense," saidAttaran.

The Trump administration has said it wants the right to opt out of the binding dispute-resolution panels of Chapter 11, because it views them as an invasion of sovereignty and an incentive for companies to outsource to Mexico.

Canada's Foreign Affairs Minister Chrystia Freelandhas called for reforms to Chapter 11so that "governments have an unassailable right to regulate in the public interest."

The quarry case resumesTuesday, when Bilcon lawyers are expected to argue that way the project was rejected was so arbitrary that it deserved protectionsunder NAFTA.

The company also disputes that a precedent could be established in the case.