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International Arbitration Forum

Koch Industries, Inc. and Koch Supply & Trading, LP v. Canada

Case summary

At a glance

Parties
Koch Industries, Inc. and Koch Supply & Trading, LP (USA) v. Canada
Case no.
ICSID Case No. ARB/20/52
Forum and rules
ICSID Convention; ICSID Arbitration Rules 2006, as modified by NAFTA Chapter Eleven, Section B; place of proceeding Washington, D.C.
Treaty
NAFTA Chapter Eleven (with the USMCA)
Tribunal
Eduardo Zuleta (President), Henri C. Alvarez, Andrea K. Bjorklund
Sector
Emissions trading; climate change regulation
Outcome
The claims were dismissed for lack of jurisdiction ratione materiae (Award dispatched 13 March 2024). The decision was unanimous.
Amount
Claimed: USD 31,322,474.62 plus 5% compound interest. Awarded: nothing. Each side bears its own costs (claimants stated USD 4,995,672.60; Canada stated CAD 6,686,661.96). The proceeding costs of USD 690,965.54 are shared equally (USD 345,482.77 each).

The dispute

Koch Supply & Trading, LP (KS&T) is a Delaware company wholly owned by Koch Industries, Inc. of Wichita, Kansas. KS&T registered as a market participant in Ontario's Cap and Trade Program, created under the Climate Change Mitigation and Low-carbon Economy Act, 2016 and Regulation 144/16. It bought emission allowances at four Ontario-only auctions in 2017 and at two joint Ontario–Québec–California auctions in 2018, including USD 30,158,240.95 of allowances at the May 2018 auction. After the June 2018 election, Premier-designate Doug Ford announced the end of the program, and California and Québec delinked their registries from Ontario. Regulation 386/18 then prohibited dealings in allowances, and the Cap and Trade Cancellation Act, 2018 cancelled them without compensation for market participants; Ontario refused KS&T's application for compensation on 14 March 2019. The claimants alleged expropriation (NAFTA Article 1110) and breach of fair and equitable treatment (Article 1105). Canada objected that the allowances were neither "property" (Article 1139(g)) nor "interests" (Article 1139(h)), that Koch Industries held no relevant investment, and that the Premier-designate's announcement was not a "measure"; it also denied liability on the merits.

Key holdings

  1. Whether an asset is property under Article 1139(g) is decided first by the law of the host State, here Ontario. No Ontario statute or court decision classifies emission allowances as property. The Tribunal did not need an earlier court ruling: it asked whether the allowances are property under existing Ontario common law. No settled Canadian 'legal test' for property exists, but exclusive control is an essential attribute of it. Award, pp. 35–37, 52–55
  2. Armstrong v. Winnington (English High Court), which treated EU emission allowances as property, is persuasive but not decisive. It applied the Ainsworth and Celtic tests, which do not include exclusive control, and Canadian courts have declined to carry statutory definitions of property over into general common law. Award, pp. 60–62
  3. The allowances are not property under Article 1139(g). Taken together, the Cap and Trade Act's provisions (ss. 17(4), 22(3), 28(3), 33(2) and 78(1)(8)) gave the government broad powers to cancel or retire allowances and to restrict accounts. Section 70 excludes compensation and expropriation claims. The holder therefore lacked exclusive control. The Tribunal called this 'a very close case'. Award, pp. 70–75
  4. Article 1139(h) must be read with its examples in sub-paragraphs (i) and (ii), following Lion v. Mexico. The allowances gave KS&T no legal share in any asset, so they are not 'interests'. KS&T's trading business was cross-border trade carried out from the United States: allowances were routinely moved to its California account, and its only presence in Ontario was a representative required by regulation. Paying auction proceeds to Ontario was not enough, and estoppel cannot create jurisdiction. Award, pp. 83–95
  5. There is no jurisdiction over Koch Industries. KS&T is not an enterprise of the host State. Its indirect holding of the allowances fails with KS&T's claims. Its Canadian subsidiaries INVISTA and Georgia Pacific were not shown to have been affected by the measures. The Tribunal did not address Canada's other objections. Award, pp. 98–99
  6. Costs lie where they fall. The claims were not frivolous and raised a complex, novel issue, and both sides conducted the case professionally. Each party bears its own costs, and the two sides share equally the USD 690,965.54 in Tribunal and ICSID costs. Award, pp. 101–102, Decision

Procedural history

  1. 20 February 2020Notice of Intent filed.
  2. 7 December 2020Request for Arbitration filed. ICSID registered it on 17 December 2020.
  3. 27 April 2021Tribunal constituted. The President was selected by drawing lots after a list procedure produced a tie.
  4. 29 June 2021Procedural Order No. 1 set the procedural rules and the calendar; Washington, D.C. was fixed as the place of proceeding.
  5. 12 April 2022Procedural Order No. 2 decided the contested document production requests.
  6. 28 October 2022The United States filed a non-disputing Party submission under NAFTA Article 1128.
  7. 4 December 2022Procedural Order No. 4 allowed the United States a short oral submission of no more than 15 minutes, over the claimants' objection.
  8. 5–8 December 2022Hearing on jurisdiction and the merits held in Washington, D.C.
  9. 13 March 2024Award dispatched to the parties: no jurisdiction, and each side bears its own costs.

Tribunal, counsel and experts

Decided by
  • Eduardo Zuleta President — appointed by the institution (selected by the Secretary-General by drawing lots under the parties' agreed list procedure)
  • Henri C. Alvarez Co-arbitrator — appointed by the claimant
  • Andrea K. Bjorklund Co-arbitrator — appointed by the respondent
For the claimant
Steptoe International (UK) LLP
For the respondent
Trade Law Bureau, Government of Canada
Experts
Robert Stavins (claimant) · Jeremy de Beer (claimant) · Michael Mehling (claimant) · Larissa Katz (respondent) · Franz Litz (respondent)

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Keywords

Summary generated with AI from the published documents — refer to the award for the authoritative text.

Case ID
ICSID Case No. ARB/20/52
Country
Treaty
North American Free Trade Agreement (1992)
United States-Mexico-Canada Agreement (2018)
Documents
Section