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Bilcon v. Canada: A New Paradigm for Causation in Investor-State Arbitration?

  • George J. SomiEmail author
Living reference work entry
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Abstract

Generally, investment tribunals have historically treated the issue of causation superficially and without “clarity as to the steps of the reasoning that are being employed in order to establish causation.” The international legal landscape, however, has been ripe for a consensus as the increasing complexity of interstate and state-investor relationships and the rising damages claims present even higher stakes as to determining how the harm originates. Recently, some international investment tribunals and litigants have started to focus on the issue of causation, treating causation as its own separate “step” and as separate from the determination of “liability” and the calculation of “quantum.” On January 10, 2019, when the arbitral tribunal in Bilcon v. Canada rendered its Award on Damages, it established a high burden for a claimant to meet in order to establish a causal link that demonstrating that a respondent’s liability primarily led to the claimant’s injuries. The Bilcon decision not only clarifies for future international arbitral panels how causation is to be situated between the breach and quantum inquiries, but it also demonstrates how this high threshold test, grounded in the Chorzów and Genocide cases, situates the issue of lost profits within the causation inquiry. Consequently, Bilcon may provide a primer on causation analysis for future North American Free Trade Agreement (NAFTA) Chapter Eleven tribunals. Part I of this chapter will explore how Bilcon clarifies and situates the causation analysis – an emerging subject that has befuddled some arbitral tribunals – between the issues of breach and quantum. Next, Part II will demonstrate how Bilcon places upon claimants a high burden of causality, based on the Chorzów and Genocide cases, while utilizing the doctrine of factual causation to determine quantum. Finally, Part III will proceed to contextualize the issue of lost profits within this causality analysis by comparing the Bilcon majority’s decision with that of the concurrence. This Part will assess the strengths and weaknesses of the arbitrators’ approach to lost profits.

Keywords

Bilcon v. Canada Bilcon International law Arbitration International arbitration ISDS Investor-state arbitration Investor-state dispute settlement Canada Causation Breach Quantum NAFTA Chapter Eleven Chorzów Genocide Lemire Biwater Gauff Tribunal BIT Investment treaties Investment 

Introduction

Generally, investment tribunals have historically treated the issue of causation1 superficially and without “clarity as to the steps of the reasoning that are being employed in order to establish causation.”2 The international legal landscape, however, has been ripe for a consensus as the increasing complexity of interstate and state-investor relationships and the rising damage claims3 present even higher stakes as to determining how the harm originates.4 Recently, some international investment tribunals and litigants have started to focus on the issue of causation, treating causation as its own separate “step” and as separate from the determination of “liability” and the calculation of “quantum.”5 Nevertheless, parties and arbitrators occasionally struggle to apply the aforementioned “three-step” framework6 and to define the causation inquiry’s boundaries,7 partly because of the absence of guidance from treaties.8

On January 10, 2019, when the arbitral tribunal in Bilcon v. Canada9 rendered its Award on Damages, it established a high burden for a claimant to meet in order to establish a causal link demonstrating that a respondent’s liability primarily led to the claimant’s injuries. The Bilcon decision not only clarifies for future international arbitral panels how causation is to be situated between the breach and quantum inquiries but also demonstrates how this high threshold test, grounded in the Chorzów and Genocide cases, situates the issue of lost profits within the causation inquiry. Consequently, Bilcon may provide a primer on causation analysis for future North American Free Trade Agreement (NAFTA) Chapter Eleven tribunals.

In Bilcon v. Canada, the majority of a tribunal held, on March 17, 2005, that the Government of Canada breached NAFTA’s Articles 1102 (“National Treatment”) and 1105 (“Minimum Standard of Treatment”) and violated Section A of NAFTA Chapter Eleven when reviewing the claimants’ proposed construction of a quarry terminal.10 The claimants who brought this action were “William Richard Clayton, Douglas Clayton, and Daniel Clayton, all nationals of the United States of America, as well as Bilcon of Delaware, Inc., a limited liability company incorporated under the laws of the State of Delaware” in the United States.11 The Tribunal’s Award on Jurisdiction and Liability reads, in part:

‘In light of the foregoing, and having considered carefully the Parties’ arguments and the evidence before it, the Tribunal, In respect of Mr. William Richard Clayton, Mr. Douglas Clayton, Mr. Daniel Clayton and Bilcon of Delaware, Inc., . . . By majority vote decides that the Respondent has failed to accord to investments of these Investors treatment in accordance with international law, including fair and equitable treatment and full protection and security, in breach of Article 1105 (Minimum Standard of Treatment);

By majority vote decides that the Respondent has failed to accord to investments of these Investors treatment no less favorable than that it has accorded, in like circumstances, to investments of its own investors, in breach of Article 1102 (National Treatment). . . .12

On January 10, having deemed that Canada’s environmental review breached its obligations to the investors, the Bilcon tribunal “considers the content of the Respondent’s obligation to make full reparation for the injury caused by its internationally wrongful acts.”13

The claimants in Bilcon contend that “the content of the duty of reparations, namely that ‘reparations must undo the harm caused by the breach and make the wronged party whole to the extent possible,’” ultimately requesting approximately $440 million USD in damages for losses.14 By contrast, Canada argues that “any liability is limited to injury resulting from the NAFTA breaches identified by the Tribunal…..”15 A chief contention is whether the claimants’ proposed construction – the Whites Point Projects – would have “obtained all relevant regulatory approvals” and receive approval from the Canadian government.16 The claimants argues that they “lost a fair opportunity to have the environmental impact of the Whites Point Project assessed in a fair and non-arbitrary manner”17 because “but for Canada’s breaches of the NAFTA, the Whites Points [q]uarry would have been approved and permitted and would have produced and shipped stone.”18 Canada, however, contends that “there was no certainty that the Whites Point Project would have been approved but for the breach” and that the same outcome could have been possible absent the breach of NAFTA Chapter Eleven.19

Part I of this article will explore how Bilcon clarifies and situates the causation analysis – an emerging subject that has befuddled some arbitral tribunals – between the issues of breach and quantum. Next, Part II will demonstrate how Bilcon places upon claimants a high burden of causality, based on the Chorzów and Genocide cases, while utilizing the doctrine of factual causation to determine quantum. Finally, Part III will proceed to contextualize the issue of lost profits within this causality analysis by comparing the Bilcon majority’s decision with that of the concurrence. This part will assess the strengths and weaknesses of the arbitrators’ approach to lost profits.

How the Bilcon Decision Situates the Causation Analysis Between the Inquiries of Breach and Quantum

In addressing the issue of damages, the Bilcon tribunal inquires first into whether the claimants have adequately established causation between the Canadian State’s unlawful act and the alleged injury suffered by the investors: “[a]s a threshold question, the Tribunal must first consider whether a causal link between the Respondent’s breach of international law and any injury of the investors has been established at all.”20 The tribunal continues by establishing the operative test: “the test is whether the Tribunal is ‘able to conclude from the case as a whole and with a sufficient degree of certainty’ that the damage or losses of the Investors ‘would in fact have been averted if the Respondent had acted in compliance with its legal obligations under’ NAFTA….”21

The abovementioned test that the tribunal establishes is noteworthy because it not only crystallizes the independence of a tailored causation stage but it also situates the causation inquiry closer to the actual injury than to the issue of breach. To illustrate what and how significant this is, consider the conceptual dichotomy in the majority and dissenting opinions in Biwater Gauff v. Tanzania case.22 In Biwater, the claimant held the contractual rights to provide water and sewer services in Tanzania, but while Tanzania breached the bilateral investment treaty (BIT), different actions, which could be attributable to the claimant, resulted in the investment’s loss of value.23 Thus, the claimant’s investment “was the subject of an expropriation [Tanzania]. However, . . . by the time that this expropriation took place, the termination of the Lease Contract was inevitable in any event, and the losses and damage for which [the claimant] claims in these proceedings had already been (separately) caused.”24 Despite Tanzania’s breach of the BIT, the Biwater majority awarded no damages to the claimant because “all the circumstances that the actual, proximate or direct causes of the loss and damage for which [the claimant] now seeks compensation were acts and omissions that had already occurred . . . [N]one of the Republic’s [BIT] violations . . . caused the loss and damage in question.”25 Therefore, the injury needing to be remedied by the tribunal was not simply the breach of conduct but rather a “head of claims” for which the claimant must establish a causal link with the breach.26 Thus, for the majority, a claimant has the burden of proving that there is a causal link between the defendant’s breach of the BIT with the damages or losses faced by the claimant – the very approach argued by the Government of Canada and adopted by the Bilcon tribunal.27

However, as intuitive as the Bilcon tribunal’s construction of causation might seem to be now, the causation analysis framework adopted in cases like Biwater and Nordzucker AG v. Republic of Poland28 has faced contentious opposition. In his dissenting opinion in Biwater, the arbitrator, Gary Born, “considered an injury to encompass any impairment of a legal right.”29 His dissent is as follows:

[Tanzania’s] expropriatory, unfair and inequitable and other wrongful acts caused injury to [the claimant]. Specifically, it is beyond debate that the Republic wrongfully seized City Water’s business, premises and assets at a point in time (1 June 2005) at which the Republic had no right – under either international law or the Lease Contract – to do so. That wrongful seizure clearly caused injury to City Water by depriving it prematurely of the use and enjoyment of its property: whether measured in weeks (to 24 June 2005, as the Tribunal concludes) or months (some longer period which would have obtained in reasonable dealings between contracting parties conducting themselves in good faith) or years (the remaining lease term under the Lease Contract), City Water was wrongfully evicted from its leased premises, and wrongfully denied the use of its assets, its management and its staff, for some ascertainable period of time.30

Thus, Born’s dissent situates the causation analysis closer to the issue of breach, holding that any breach of a legal right as being, in and of itself, an injury. His dissent is exemplative of the analytical difficulties that arbitral tribunals have had in defining how causation sits between breach and quantum.31 It also highlights how the Bilcon tribunal’s articulation could crystallize the proper roadmap for analyzing causation pursuant to the International Law Commission’s (ILC) intentions in Article 31 of the Draft Articles.32

The Bilcon Tribunal’s Utilization of Factual Causation to Determine Damages

In its determination of whether damages to investors were caused by Canada’s violations of its obligations under Section A of NAFTA Chapter Eleven, the Bilcon tribunal has adopted a high threshold of causality. The tribunal has held:

Authorities in public international law require a high standard of factual certainty to prove a causal link between breach and injury: the alleged injury must “in all probability” have been caused by the breach (as in Chorzów), or a conclusion with a “sufficient degree of certainty” is required that, absent a breach, the injury would have been avoided (as in Genocide). While the facts of the Genocide case were of course markedly different from those underlying the present arbitration, there is an important similarity: the ICJ, as the Tribunal in the present case, was confronted with a situation of factual uncertainty, where in the view of one of the parties, the same injury would have occurred even in the absence of unlawful conduct.33

First, a claimant must demonstrate that the damage was, “in all probability,” caused by the respondent’s liability. Here, the tribunal remains true to the near-canonical authority of Chorzów on states’ reparations for breaches of their legal duties under international law: “that reparation must, as far as possible, wipe out all the consequences of the illegal act and reestablish the situation which would, in all probability, have existed if that act had not been committed.”34 Therefore, a state must compensate an investor to make the him or her whole again if the breach very likely is responsible for the injury. Second, a claimant must prove that without the respondent’s harmful action, there is a “sufficient degree of certainty” that the injury would have been avoided; that is, only the breach and no alternative phenomenon would have caused the claimant’s damage. Here, the Bilcon tribunal adopts Genocide’s “sufficiently direct and certain nexus” standard between extraneous occurrences and the claimant’s suffered losses, essentially adopting a but-for test to make it an uphill struggle to prove that the injury occurred only because of the breach.35 While the Bilcon tribunal insists that the Nordzucker tribunal had enacted a more stringent standard – “whether the State’s conduct ‘necessarily’ led the investor to act in ways that harmed its profitability”36 – the burden of “in all probability,” semantics aside, still appears to be a difficult one for any claimant.

Moreover, the Bilcon tribunal clearly articulates that a claimant must prove that the alleged injury was sustained through the doctrine of “factual” causation when it asserts that there must be a “high standard of factual certainty to prove a causal link between breach and injury.”37 Factual causation employs a but-for test to ascertain whether the claimant would have incurred an injury without the respondent’s breach.38 By contrast, the “legal” causation doctrine, which the tribunal refused in favor of the aforementioned approach, “operates to filter out harms that were ‘too remote’ from the alleged breach, were ‘not proximate’ to the wrongful act, or, in the formulations of some tribunals, were not ‘foreseeable.’”39

The two doctrines have been explained well by Professor Michael Moore, who states:

The conventional wisdom about the causation requirement in both criminal law and torts is that in reality it consists of two very different requirements. The first requirement is that of ‘cause-in-fact’. This is said to be the truly causal component of the law’s two requirements framed in causal terms, because this doctrine adopts what is thought of as the ‘scientific’ notion of causation. Whether cigarette smoking causes cancer, or whether the presence of hydrogen or helium caused an explosion, are factual questions to be resolved by the best science the courts can muster. By contrast, the second requirement, that of ‘proximate’ or ‘legal’ cause, is said to be an evaluative issue, to be resolved by arguments of policy and not arguments of scientific fact. Suppose a defendant knifes his victim who then dies because her religious convictions are such that she refuses medical treatment. Has such a defendant (legally) caused her death? The answer to such questions, it is said, depends on the policies behind liability, not on any factual issues; factually, it is thought, the knifing surely caused her death.40

Factual causation, which underlies the Bilcon tribunal’s approach, is more scientific and relies on issues of fact. By contrast, legal causation invokes legal policy and argumentation.

To highlight the significance of the Bilcon tribunal’s factual causation approach, consider the opposite approach previously taken by the majority in Lemire v. Ukraine in 2011.41 The Lemire case derived from allegations that the claimant, an investor in the radio broadcasting industry, was repeatedly denied bids for broadcasting frequencies by Ukraine in violation of fair and equitable treatment in a US-Ukraine BIT.42 The claimant, requesting lucrum cessans (“ceased profits”), contended that the failure to attain radio broadcasting bids resulted in the following: the investment’s “business plans could not be achieved, . . . its planned development was curtailed, its market position eroded, its capacity to generate profits impaired and its potential market value was never achieved.”43 It was not clear, however, “how specific tenders would have been awarded if the National Council had not violated the FET standard;” so, had the irregularities in this process been eliminated, the claimant may or may not have obtained the licenses it needed.44 The majority held that “[i]f it can be proven that in the normal cause of events a certain cause will produce a certain effect, it can be safely assumed that a (rebuttable) presumption of causality between both events exists, and that the first is the proximate cause of the other.”45 Furthermore, “offenders must be deemed to have foreseen the natural consequences of their wrongful acts, and to stand responsible for the damage caused.”46 Here, the majority appeared to inject foreseeability – a feature of the legal causation doctrine – into its causal analysis.47 By contrast, the Lemire dissent criticized the majority for its inability to substantiate whether a radio frequency would have, in actuality, been allotted to the claimant.48 Indeed, the dissent argued that allowing the claimant, or any other tender participant, to recover damages for lost profits when there is less than a near certainty that the flawed process led to such lost profits “may accumulate to incalculable ‘liability avalanches.’”49

The Bilcon tribunal’s call for a high standard of factual certainty in its causality analysis operates to prevent an incalculable number of liability avalanches. Among the questions that the tribunal asks are:

Assuming a different (hypothetical) JRP process for the Whites Point project that was conducted on a basis which was compliant with NAFTA, what is the degree of certainty that such a JRP would have recommended the approval of the project? What hypothetical JRP recommendations, or government licensing conditions, should the Tribunal assume with respect to the mitigation of potential adverse effects of the project on the environment? Does this analysis lead to a conclusion that is different from the Investors’ approach of focusing on the existing JRP Report with a deemed deletion of findings on community core values?50

By objectively tailoring causation to the breach and the specific damages incurred by the investors with the standards articulated in Chorzów and Genocide and refraining from unscientific guesses of uncertain scenarios pertaining to whether the Whites Point Project would have been approved in a hypothetically NAFTA-compliant Joint Review Panel (JRP) process, the tribunal ascertained that $seven million USD plus interest represented appropriate damages, rather than approximately $440 million USD.51 Consequently, the tribunal “conclude[d] that the causal link between the NAFTA breach and the injury alleged by the Investors has not been established.”52 While “there is a realistic possibility that the Whites Point Project would have been approved as a result of a hypothetical NAFTA-compliant JRP Process, it cannot be said that this outcome would have occurred ‘in all probability’ or with ‘a sufficient degree of certainty.’”53

Bilcon’s Heightened Burden of Causation Undermines Lost Profit Claims

The Bilcon majority’s determination that a high standard of factual certainty is needed to prove a causal link between breach and injury, in concert with its reliance on Chorzów and Genocide, not only heightens a claimant’s burden to prove actual damages but also complicates the investors’ efforts to successfully prove lost profits. The tribunal held that its “analysis of the Investors’ lost profits claim ends here, as, without a high degree of certainty as to regulatory approval [of the Whites Point Project], it goes without saying that no damages based on the profitable operation of the quarry can be awarded.”54 The tribunal explicitly held the awarding of lost profit damages “to the [same] standard applicable under international law” that it has resorted to in other parts of the opinion.55

The Bilcon majority justified this holding, reasoning first that “even in the event of an approval [of the business plan for the Whites Point Project’s operation], the long-term future profitability of the Whites Point Project must be regarded as uncertain.”56 After all, the ecology of the region could change, the project could be subject to new environmental laws and regulations affecting quarry business operations, market changes could affect the supply and demand for basalt, and extraneous, unexpected economic changes are not to be discounted.57 Second, even though there are probably algorithms that could factor in uncertainty in valuations, “many tribunals have declined to resort to DCF [Discounted Cash Flow] valuations of future profits where the investment is not yet a going concern, which has not generated any historic cash flows.”58 Thus, the tribunal could not conclusively determine in a fair and nonarbitrary manner whether the Whites Point Project would have generated long-term profits.59

The Bilcon tribunal’s position pertaining to lost profits is unsurprising, as it is indicative of the problems that can arise when the but-for test is employed under the doctrine of factual causation, which the tribunal utilized.60 The but-for test simply heightens the burden needed to establish lost profit damages and other future damages.61 Incidentally, some tribunals have recognized this predicament and have articulated a degree of certainty with which establishing lost profits can be possible.62 Even the ILC has conceded that “[c]laims for lost profits are . . . subject to the usual range of limitations on the recovery of damages, such as causation, remoteness, evidentiary requirements and accounting principles, which seek to discount speculative elements from projected figures.”63

In his concurrence to the Bilcon majority decision, Professor Bryan P. Schwartz leaves open the door to a deliberation of lost profits that is more separate from a general inquiry into causation. Schwartz’s concurring opinion seeks to “consider an approach to valuing the Investors’ compensation based on viewing its losses as a lost chance – not a certainty – of obtaining regulatory approval and then operating the project profitably.”64 Such a “value of the chance” would be determined by “the expert evidence of jurists on the likelihood of success at a judicial review and a regulatory do-over,” as well as business experts’ financial projections of future profitability.65 Schwartz believes that, conceptually, the majority misguidedly “places a value on a lost opportunity, rather than confining compensation strictly to the investment costs in this case.”66

Despite his stance, Schwartz still manages to reach the same compensation figure as the tribunal, albeit in a different manner. First, however, he elaborates on how an investor may recover for lost profits:

[I]n my understanding, in an appropriate case, an investor might be able to recover compensation where it is able to demonstrate a substantial probability that an investment would have received regulatory approval to proceed had itbeen considered in a manner consistent with the applicable international law on investor protection. In appropriate factual circumstances, in my view, the just measure of compensation will be for a lost opportunity. The best measure of compensation in some circumstances might take into account an estimate of the probability of obtaining a permit and an estimate of the likely profits if a permit was granted.67

Of course, here, first, one questions what constitutes “an appropriate case” involving lost profits, as appropriateness is a vague condition. For instance, one may question whether a new, unestablished investor who claims lost profits presents an appropriate case compared to an experienced investor who claims similar damages, but also can demonstrate historical data concerning past profitability for similar projects in that country. Second, while Schwartz’s notion of “substantial probability” is rooted in an investment’s receival of regulatory behavior, it completely disregards other legitimate, aforementioned factors raised by the majority, such as ecological changes, and presumes a static economic market with no changes in supply and demand. Third, one may question what may constitute “a lost opportunity” for investors, as most micro and macro business decisions generally result in a new or missed opportunity since many decisions by multiple players are constantly made on a daily basis, impacting the business’s apportionment of energy, time, resources, and money. Finally, this may usher in “incalculable ‘liability avalanches.’”68

Nevertheless, in spite of this lack of nuance, Schwartz does correctly point to academic commentary and international investment case law precedent. For instance, he cites Article 7.4.3(2) of the UNIDROIT Principles of International Commercial Contracts, “which draws upon domestic legal systems” and articulates that compensation is due for future harm if “established with a reasonable degree of certainty.”69 Schwartz especially emphasizes the portion of Article 7.4.3(2) that states, “[c]ompensation may be due for the loss of a chance in proportion to the probability of its occurrence.”70 Furthermore, he points to case law applying the “lost opportunity” approach: Sapphire v. National Iranian Oil Company and Gemplus S.A., SLP S.A., Gemplus Industrial S.A. de C.V. and Talsud S.A. v. The United Mexican States.71 The latter case, which concerns “modern investment treaty arbitration practice,” establishes a case-specific approach to lost opportunity: “[t]he concept of certainty is both relative and reasonable in its application, to be adjusted to the circumstances of the particular case.”72

Schwartz opines that as it pertains to proving the likelihood that the investors would have obtained a permit absent the Canadian government’s breach of NAFTA,

[T]he evidence shows, in my respectful view, that the Investors actually had a high probability of obtaining a permit on economically viable terms had the environmental assessment been carried out in a NAFTA-compliant manner in the first place. It would similarly have had a high probability of eventual success had a judicial review been pursued of the initial regulatory determinations and a “do-over” of the permitting process had been ordered and carried out.73

Thus, Schwartz’s rationale for supporting the tribunal’s determination of quantum of damages stems not from any disbelief that the claimants would have likely obtained a permit. Instead, he reaches agreement with the majority of the tribunal by factoring in the Investors’ inability to mitigate their damages. As a result, the experts in this case have not produced similar valuations of damages, undermining the claimants’ case:

[A]s a primary reason, the Investors had a duty to mitigate their damages. Assuming a high likelihood of success in eventually obtaining a permit, the Investors cannot reasonably claim all of its lost profits after abandoning the investment rather than pursuing it. The more powerful the case is that the Investors could have succeeded on a judicial review in the courts of Canada and a “do-over” of the regulatory approval process, the more powerful the case is that they reasonably should have sought to mitigate their damages by pursuing those avenues.74

[A]s a secondary and supporting reason, there is a substantial measure of uncertainty about what the profits would have been had Canadian authorities granted the permit. The Tribunal heard from two experts who impressed me as doing their best to be impartial, and who exhibited a sophisticated understanding of the general principles of estimating damages, and of the facts of this particular case. Yet their estimates were radically different. The approach adopted by the Tribunal by contrast, has the advantage of fixing damages based largely, although not exclusively, on evidence of actual past expenditures. This consideration about the uncertainty of lost profits is not by itself decisive for me. If justice otherwise clearly required, I might have been prepared to make a reasonable estimate of lost profits, multiply it by a reasonable estimate of the likelihood of obtaining a permit on a NAFTA-compliant basis, and award compensation on that basis.75

Schwartz opines that had the Investors eliminated much of the uncertainty pertaining to their suffered losses by mitigating their damages, they might still have recovered losses under NAFTA, and the tribunal would not have needed “to weigh drastically different expert reports on future long-term profits.”76

Therefore, the dilemma that the Bilcon majority and concurring opinions present with regard to the question of causation and lost profits is the struggle between the more stringent and factually dependent factual causation doctrine and the more inclusive legal causation doctrine, which threatens to open the door to a flurry of lawsuits against states and will need a more nuanced articulation.

Conclusion

The recent Bilcon v. Canada opinion establishes the independence of a tailored causation stage and situates the causation inquiry closer to the actual injury than to the issue of breach. It provides a useful roadmap for future NAFTA Chapter Eleven tribunals by intuitively analyzing causation pursuant to the ILC’s intentions in Article 31 of the Draft Articles. Second, the Bilcon Tribunal has placed on claimants a high burden of proving causality, based on the Chorzów and Genocide cases, while utilizing the doctrine of factual causation to determine quantum. The tribunal has extended this causation analysis not only to direct damages flowing directly and necessarily from a breach of a BIT but also to consequential damages, including lost profits. While this prevents excessive suits from being raised against states, it also dramatically inhibits claimants’ ability to prove damages in the form of lost profits. While the Bilcon concurrence aptly establishes the importance of recognizing such consequential damages, it also does not provide a conclusive primer for future tribunals, as it lacks the nuance to prevent “incalculable liability avalanches.”77

Footnotes

  1. 1.

    Simply defined, “causation (and the terms causality, causal analysis and causal inquiry, which will be used interchangeably with the general term) is understood as the process of connecting an act (or omission) with an outcome as cause and effect.” Plakokefalos I (2015) Causation in the Law of State Responsibility and the Problem of Overdetermination. Eur J Int Law 26(2):471, 472. More specifically, overdetermination “is the existence of multiple causes (multiple wrongdoers, external natural causes, contribution to the injury by the victim and so on) contributing towards a harmful outcome.” Id.

  2. 2.

    Id. at 486. See also id. at 472 (holding that “the concept of causation in international law is unclear, especially in relation to overdetermination” and requiring clarification).

  3. 3.
    A follow-up study by Global Arbitration Review that was published in December 2017 assesses the state of damages awarded in investment treaty arbitration:

    The mean amount claimed in investment treaty arbitrations from 2013 onwards has increased significantly to US $2,376 million (compared to US $491.7 million as of the end of 2012). Even excluding Yukos, the mean amount claimed is now US $1,133 million. Again, however, these mean figures are distorted by the larger claims, and the median amount claimed from 2013 onwards was a more modest US $196.4 million (as compared to US $66.1 million at the end of 2012).

    Hodgson M, Campbell A (2017) Damages and costs in investment treaty arbitration. Glob Arbit Rev (December 14, 2017). http://www.allenovery.com/SiteCollectionDocuments/14-12-17_Damages_and_costs_in_investment_treaty_arbitration_revisited_.pdf. See also Beharry CL, Méndez Bräutigam E (2020) Damages and valuation in international investment arbitration. In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook of international investment law and policy. Springer, Singapore.

  4. 4.
    Plakokefalos, supra note 1, at 472. Moreover, some cognitive biases on the part of arbitrators, known as “anchoring,” impact arbitral decision-making with respect to making decisions on the quantum of damages. Reed L (2013) The 2013 Hong Kong International Arbitration Centre Kaplan lecture – arbitral decision-making: art, science or sport? J Int Arbit 30:85, 89. According to Professor Christopher Drahozal at the University of Kansas Law School:

    In estimating a numerical amount, people tend to start with some initial value—an ‘anchor’—and then come up with a final estimate by making adjustments to the anchor. If the anchor provides useful information about the underlying value (such as the list price), and if people make reasonable adjustments, this ‘anchor and adjustment’ heuristic can be a useful decision-making [sic] approach. But anchoring can be problematic if people start with an irrelevant anchor or fail to make adjustments to the initial value.

    Id.

  5. 5.

    See Pearsall PW and Heath JB (2018) Causation and injury in investor-state arbitration in Beharry CL (ed) Contemporary and Emerging Issues on the Law of Damages and Valuation in International Investment Arbitration, 2. Nijhoff International Investment Law Series 11.

    In Victor Pey Casado and Foundation “Presidente Allende” v. Republic of Chile, the tribunal ordered the claimants to reimburse $159,509.43 USD to Chile, but in analyzing the claimants’ allegations, assessed reparations as follows:

    To recapitulate therefore: the assessment of the reparation due under international law for the breach of an international obligation consists of three steps – the establishment of the breach, followed by the ascertainment of the injury caused by the breach, followed by the determination of the appropriate compensation for that injury.

    Victor Pey Casado and Foundation “Presidente Allende” v. Republic of Chile, ICSID Case No. ARB/98/2 (Resubmission Proceeding), Award, ¶ 217 (Sept. 13, 2016), 6 ICSID Rep. 375 (2004)

  6. 6.
    The three-step framework was originally articulated by the general international law of State responsibility. Pearsall & Heath, supra note 5, at 3. The question of causation has been analyzed separately from the question of whether a breach occurred because “international law as a general matter accepts the [vexing] possibility that, depending on the applicable rule, conduct may be internationally wrongful even in the absence of any damage to the wronged party” – a major departure from the common law treatment of causation as one of the several elements, including negligence and harm, in a liability claim. Id. at 4. While the law of State responsibility affords little treatment to causation, Article 31 of the Draft Articles on Responsibility of States for Internationally Wrongful Acts (“Draft Articles”) demonstrates that the concept crucially connects the determination of liability to the calculation of quantum:
    1. 1.

      The responsible State is under obligation to make full reparation for the injury caused by the internationally wrongful act.

       
    2. 2.

      Injury includes any damage, whether material or moral, caused by the internationally wrongful act of a State.

       

    Draft Articles on Responsibility of States for Internationally Wrongful Acts, Art. 31, Int’l Law Comm’n, Rep. on the Work of Its Fifty-Third Session, U.N. Doc. A/56/10, at 91 (2001) [hereinafter ILC Draft Articles]. Here, Article 31(1) presupposes a “reasonable State” when discussing the need to make full reparation for the harm caused, separating the question of breach from the issue of causation. See Pearsall and Heath, supra note 5, at 5. In addition, Article 31(2) indicates that that causation “will play a determinative role” on a finding of material or moral injury. Id.

  7. 7.

    Pearsall & Heath, supra note 5, at 3. See, for example, Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award (July 24, 2008), https://www.italaw.com/sites/default/files/case-documents/ita0095.pdf; Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Concurring and Dissenting Opinion of Gary Born (July 18, 2008), https://www.italaw.com/sites/default/files/case-documents/ita0093_0.pdf.

  8. 8.

    Pearsall & Heath, supra note 5, at 7. Pearsall and Heath do note that the 2004 and 2012 US Model Bilateral Investment Treaties (“BITs”) and recent US free trade agreements (“FTAs”) require claimants to demonstrate “loss or damage by reason of, or arising out of” a breach of the treaty. Id. That said, absent treaties’ explicit statements on causation, some tribunals have looked to the Draft Articles for guidance, even though they “make no attempt to regulate questions of breach between a state and a private party such as a foreign investor.” Crawford J (2010) Investment arbitration and the ILC articles on state responsibility. ICSID Rev 25:127, 130

  9. 9.

    See Bilcon of Delaware et al. v. Government of Canada, PCA Case No. 2009-04, Award on Damages (Jan. 10, 2019) [hereinafter Bilcon v. Canada (Award)], and Bilcon of Delaware et al. v. Government of Canada, PCA Case No. 2009-04, Concurring Opinion of Professor Bryan Schwartz (Jan. 10, 2019) [hereinafter Bilcon v. Canada (Concurrence)].

  10. 10.

    Bilcon v. Canada (Concurrence), PCA Case No. 2009-04 at ¶ 19

  11. 11.

    Id. at ¶¶ 1, 6

  12. 12.

    Id. at ¶ 19

  13. 13.

    Id. at ¶ 93

  14. 14.

    Id. at ¶ 109

  15. 15.

    Id.

  16. 16.

    Id. at ¶ 134

  17. 17.

    Id. at ¶ 133

  18. 18.

    Id. at ¶ 134

  19. 19.

    Id.

  20. 20.

    Id. at ¶ 114

  21. 21.

    Id.

  22. 22.

    See Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award (July 24, 2008) [hereinafter Biwater v. Tanzania (Award)], and Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Concurring and Dissenting Opinion of Gary Born (July 18, 2008) [hereinafter Biwater v. Tanzania (Dissenting Opinion)]. For a commentary, see Qian X (2018) Challenges of water governance (and privatization) in China: traps, gaps, and law. GA J Int Comp Law (1):49–91.

  23. 23.

    See Biwater v. Tanzania (Award), ICSID Case No. ARB/05/22 at ¶ 485.

  24. 24.

    Id.

  25. 25.

    Id. at ¶ 798

  26. 26.

    See Pearsall and Heath, supra note 5, at 9.

  27. 27.

    See Bilcon v. Canada (Award), PCA Case No. 2009-04 at ¶ 102 (“The Respondent argues that an approach that is consistent with the ILC Articles Commentary was adopted in Biwater . . . ,” where the tribunal noted that “causing injury must mean more than simply the wrongful act itself [. . .], otherwise the elements of causation would have to be taken as present in every case.”) (internal quotation marks omitted).

  28. 28.

    See Nordzucker AG v. The Republic of Poland, UNCITRAL, Third Partial and Final Award, November 23, 2009, ¶ 64 (dismissing claimant’s claim for loss profits because “[t]he damages demonstrated . . . have no causal link with the breach which the Arbitral Tribunal decided in its second Partial Award to have been committed by Poland.”).

  29. 29.

    Pearsall & Heath, supra note 5, at 9 (emphasis added)

  30. 30.

    Biwater v. Tanzania (Dissenting Opinion), ICSID Case No. ARB/05/22 at ¶ 17

  31. 31.

    See Pearsall and Heath, supra note 5, at 4.

  32. 32.

    See ILC Draft Articles, supra note 6, at 91.

  33. 33.

    Bilcon v. Canada (Award), PCA Case No. 2009-04 at ¶ 110 (emphasis added)

  34. 34.

    Germany v Poland (Judgment) (Case concerning the Factory at Chorzów), 1928 P.C.I.J. (ser. A) No. 17 (Judgment No. 13, Merits), September 13, 1928 [hereinafter Chorzów]; Bilcon v. Canada (Award), PCA Case No. 2009-04 at ¶ 95

  35. 35.

    See Bosnia and Herzegovina v. Serbia and Montenegro, (Judgment) (Application of the Convention on the Prevention and Punishment of the Crime of Genocide), I.C.J. Reports 2007, at ¶ 462 [hereinafter Genocide case] (“Such a nexus could be considered established only if the Court were able to conclude from the case as a whole and with a sufficient degree of certainty that the genocide at Srebrenica would in fact have been averted if the Respondent had acted in compliance with its legal obligations.”).

  36. 36.

    Bilcon v. Canada (Award), PCA Case No. 2009-04 at ¶ 111 (emphasis added)

  37. 37.

    Id. at ¶ 110 (emphasis added)

  38. 38.

    See Pearsall and Heath, supra note 5, at 95.

  39. 39.

    Id. (“There is significant dispute as to which of these competing formulations should apply under investment treaties, and whether there is any material difference between them.”)

  40. 40.

    Moore MS (2009) Causation and Responsibility: An Essay in Law, Morals, and Metaphysics 83–84.

  41. 41.

    Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Award (Mar. 28, 2011), https://www.italaw.com/cases/614 [hereinafter Lemire v. Ukraine]. For a commentary, see Chaisse J (2016) Renewables re-energized? The internationalization of green energy investment rules and disputes. J World Energy Law Bus 10(1):269–281.

  42. 42.

    Id at. ¶¶ 31, 158

  43. 43.

    Id. at ¶ 161

  44. 44.

    Id. at ¶ 169

  45. 45.

    Id.

  46. 46.

    Id. at ¶ 170

  47. 47.

    See Pearsall and Heath, supra note 5, at 105.

  48. 48.

    Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Dissenting Opinion of Jürgen Voss, ¶¶ 296–98 (Mar. 28, 2011), https://www.italaw.com/cases/614 [hereinafter Lemire v. Ukraine (Dissent)]

  49. 49.

    Id. at ¶ 284

  50. 50.

    Bilcon v. Canada (Award), PCA Case No. 2009-04 at ¶ 8

  51. 51.

    Id. at ¶ 303. See Cameron Mowatt J and Radford J (2019) Close, but no cigar: Bilcon tribunal rejects claim on grounds of failure to establish causation, Tereposky & DeRose (March 13, 2019). https://tradeisds.com/index.php/close-but-no-cigar-bilcon-tribunal-rejects-claim-on-grounds-of-failure-to-establish-causation/

  52. 52.

    Bilcon v. Canada (Award), PCA Case No. 2009-04 at ¶ 168

  53. 53.

    Id.

  54. 54.

    Id. at ¶ 276

  55. 55.

    Id.

  56. 56.

    Id. at ¶ 277

  57. 57.

    Id.

  58. 58.

    Id. at ¶ 278

  59. 59.

    Id.

  60. 60.

    See Pearsall and Heath, supra 5, at 13 (“A second set of problems may arise when the ‘but for’ scenario is marked by a substantial degree of uncertainty. For example, a claimant alleging lost profits or other future damages generally has the burden to establish such damages.”).

  61. 61.

    Id.

  62. 62.
    Id. See, for example, S.D. Myers, Inc. v. Canada, UNCITRAL Arbitration Proceeding, Second Partial Award, ¶ 173 (Oct. 21, 2002). As the tribunal recognized:

    The quantification of loss of future profits claims can present special challenges. On the one hand, a claimant who has succeeded on liability must establish the quantum of his claims to the relevant standard of proof; and, to be awarded, the sums in question must be neither speculative nor too remote. On the other hand, fairness to the claimant requires that the court or tribunal should approach the task both realistically and rationally.

    Id. Likewise, the tribunal in another case stated:

    The Majority of this Tribunal accepts that . . . no strict proof of the amount of future damages is required and that ‘a sufficient degree’ of certainty or probability is sufficient. However, the amount claimed ‘must be probable and not merely possible.’ Future damages . . . must only be proved with reasonable certainty.

    Mobil Inv. v. Canada, ICSID Case No. ARB(AF)/07/4, Decision on Liability and on Principles of Quantum, ¶¶ 437–38 (May 22, 2012).

  63. 63.

    ILC Draft Articles, supra note 6, at 105 (emphasis added)

  64. 64.

    Bilcon v. Canada (Concurrence), PCA Case No. 2009-04, at ¶ 3

  65. 65.

    Id.

  66. 66.

    Id. at ¶ 38

  67. 67.

    Id. ¶ 4 (emphasis added)

  68. 68.

    Lemire v. Ukraine (Dissent), ICSID Case No. ARB/06/18 at ¶ 284

  69. 69.

    Bilcon v. Canada (Concurrence), PCA Case No. 2009-04 at ¶ 12

  70. 70.

    Id.

  71. 71.

    Id. at ¶ 13

  72. 72.

    Id.

  73. 73.

    Id. at ¶ 4

  74. 74.

    Id. at ¶ 5

  75. 75.

    Id. (emphasis added)

  76. 76.

    Id. at ¶ 6

  77. 77.

    Lemire v. Ukraine (Dissent), ICSID Case No. ARB/06/18 at ¶ 284

Copyright information

© Springer Nature Singapore Pte Ltd. 2020

Authors and Affiliations

  1. 1.WorcesterUnited States

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