Procedural Posture and Key Issues

This Award on Damages was rendered by a UNCITRAL tribunal in a NAFTA Chapter Eleven dispute between U.S. investors and the Government of Canada. It follows the Tribunal's 2015 Award on Jurisdiction and Liability, which found that Canada had breached its obligations under NAFTA Articles 1105 (Minimum Standard of Treatment) and 1102 (National Treatment) in the environmental assessment process for the Investors' proposed Whites Point Quarry project. This award determines the quantum of compensation owed for those breaches.

The central legal issues addressed were: (i) causation, specifically whether the NAFTA breaches caused the claimed loss of profits or merely the loss of a fair opportunity for project approval; (ii) the appropriate valuation methodology for the established injury; (iii) whether the Investors had a duty to mitigate their loss by seeking domestic judicial review; and (iv) whether the Investors' claim constituted an impermissible claim for "reflective loss" under NAFTA Article 1116.

Tribunal's Analysis on Causation and Quantum

The Tribunal held that the Investors failed to establish the requisite causal link between Canada's breaches and their claimed loss of profits. Applying the standard of "in all probability" or "sufficient degree of certainty," the Tribunal found it could not conclude that the project would have been approved but for the flawed environmental review. It reasoned that a NAFTA-compliant process could have reasonably resulted in several alternative outcomes, including rejection on other valid environmental or socio-economic grounds, or approval with economically unviable conditions. Consequently, the Tribunal characterized the injury not as the loss of a profitable enterprise, but as the loss of a fair opportunity to have the project assessed in a non-arbitrary manner.

Having rejected the claim for lost profits, the Tribunal declined to apply a Discounted Cash Flow (DCF) valuation. Instead, it proceeded to value the lost opportunity. The Tribunal used the expenditures reasonably incurred by the Investors in pursuing the project as the primary indicator of the opportunity's value. It also considered past transactions related to the quarry site as secondary indicators of value, ultimately determining the value of the lost opportunity to be US$ 7 million.

Findings on Mitigation and Procedural Issues

On mitigation, the Tribunal found that while a duty to mitigate exists under international law, it did not, in this case, require the Investors to pursue domestic judicial review. It reasoned that such a remedy would not have restored the same opportunity that was lost and that it was not unreasonable for the Investors to refrain from such proceedings. The Tribunal also addressed Canada's jurisdictional objection that the claim was for "reflective loss" incurred by the Investors' Canadian enterprise (Bilcon of Nova Scotia) and was therefore impermissible under Article 1116. The Tribunal concluded that the compensation awarded was for the loss of the Investors' own opportunity to invest, which was a direct loss to them and not a reflective loss. It found that the Canadian entity was merely a "conduit" for the U.S. Investors' activities. The Tribunal also denied the Investors' request for a tax gross-up.

Decision and Operative Part

The Tribunal unanimously decided that:

1. The Respondent, Canada, shall pay the Investors US$ 7 million as compensation for the breaches of NAFTA.
2. The Respondent shall pay compound interest on this amount, accruing annually from 22 October 2007 until full payment is made, at a rate based on the average one-year U.S. Treasury bill yield.
3. All other claims are dismissed.
4. The decision on the costs of arbitration is deferred to a final award on costs.