Case Overview

In Windstream Energy v. Canada (II), a tribunal constituted under the legacy investment protection provisions of the Canada-United States-Mexico Agreement (CUSMA) dismissed all claims brought by a U.S. investor against Canada. This case, the second arbitration between the parties, concerned events following a 2016 NAFTA award (Windstream I) related to an offshore wind project in Ontario. The claimant alleged that Canada's conduct after the first award, culminating in the termination of its Feed-in-Tariff (FIT) Contract, constituted an unlawful expropriation and a new breach of the fair and equitable treatment (FET) standard under NAFTA Chapter 11. The tribunal ultimately rejected these claims, finding that the core issues were precluded by the findings in the first award. It determined that the Windstream I tribunal had already established that the claimant's investment, aside from a security deposit that was later returned, had no value. Consequently, the subsequent termination of a valueless contract could not amount to an expropriation or a new breach of FET.

Procedural History

The arbitration was administered by the Permanent Court of Arbitration (PCA) under the 2013 UNCITRAL Arbitration Rules, with the seat in Toronto, Canada. The tribunal was composed of Wendy Miles KC (President), John Gotanda (appointed by the Claimant), and Beverley McLachlin (appointed by the Respondent). The Claimant, Windstream Energy LLC, filed its Notice of Arbitration on December 22, 2020. An oral hearing on the merits was held from February 5-9, 2024. Canada raised three preliminary objections, arguing that the claims were barred by the principles of res judicata and collateral estoppel based on the Windstream I award, and that the claims were time-barred under NAFTA's three-year limitation period. The tribunal decided to join these jurisdictional objections to the merits of the case. Mexico and the United States, as non-disputing NAFTA parties, made submissions pursuant to NAFTA Article 1128, primarily on the interpretation of the limitation period.

Key Issues and Positions

The central dispute was whether Canada's actions (or inaction) after the Windstream I award gave rise to new, independent breaches of NAFTA. The first award had found Canada in breach of FET for placing the project in a "legal and contractual limbo" via a moratorium on offshore wind, but dismissed the expropriation claim. It awarded CAD 25 million in damages but noted the FIT Contract remained in force and could be reactivated.

Claimant's Position

Windstream argued that the Windstream I award compensated it only for sunk costs up to that point, leaving the primary investment—the FIT Contract and a CAD 6 million security deposit—intact but in limbo. It contended that Canada's subsequent failure to lift the moratorium, refusal to engage in negotiations to reactivate the project, and the eventual termination of the FIT Contract by Ontario's Independent Electricity System Operator (IESO) in 2020 constituted a new and complete destruction of its investment, amounting to an unlawful expropriation and a fresh breach of FET.

Respondent's Position

Canada countered that the claims were barred by res judicata and collateral estoppel. It argued that the Windstream I tribunal had conclusively determined that there was no expropriation and that the FIT Contract had no value as of the date of that award. Therefore, the subsequent termination of a valueless contract could not constitute a new taking. Canada asserted that the first award's finding that the parties had an "option" to renegotiate did not create a legal obligation for it to do so. It also maintained that the claims were time-barred, as the claimant was aware of the alleged harm well before the critical date of December 2017.

Tribunal/Court Reasoning and Holdings

Jurisdiction

The tribunal dismissed all of Canada's preliminary objections. It found that the claims were not barred by res judicata because they were based on a new, dispositive measure—the termination of the FIT Contract—which occurred after the first award. On the time-bar issue, the tribunal held that the cause of action for the new claims only crystallized upon the termination of the contract in February 2020, placing the Notice of Arbitration within the three-year limitation period.

Merits

Despite overcoming the jurisdictional hurdles, the claimant's claims failed on the merits. The tribunal held that it was bound by the factual and legal findings of the Windstream I award under the principle of collateral estoppel. The first tribunal had found no expropriation because the claimant had not been substantially deprived of its investment, as the security deposit was still in place and the FIT Contract, though valueless, formally existed with an "option" for reactivation. The Windstream II tribunal reasoned that since the first award had determined the FIT Contract had no value unless reactivated, and since Canada had no legal obligation to reactivate it, the termination of this valueless contract could not constitute an expropriation. The subsequent return of the security deposit meant the claimant was not deprived of the only part of the investment the first tribunal had identified as having substantial value. Similarly, the tribunal rejected the FET claim, finding that the first award had fully compensated the claimant for the harm caused by the "legal and contractual limbo." The first award created no new obligation for Canada to ensure the project's revival, and its inaction therefore did not constitute a new breach.

Costs

In a notable departure from the "costs follow the event" principle, the tribunal ordered each party to bear its own costs. It acknowledged the "unusual case" and the "reasonable uncertainty" created by the language of the Windstream I award, which it found had necessitated the second arbitration. While the Respondent had wholly prevailed, the tribunal exercised its discretion in light of these unique circumstances.

Disposition / Relief

The tribunal rejected all of Windstream's claims in their entirety. It declared that Canada had not unlawfully expropriated the claimant's investments nor failed to accord them fair and equitable treatment following the Windstream I award. No additional damages were awarded, and each party was ordered to bear its own legal fees and costs.