William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware Inc. v. Government of Canada

Case summary

At a glance

Parties: William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton (U.S. nationals) and Bilcon of Delaware, Inc. (U.S.) v. Government of Canada
Case no.: PCA Case No. 2009-04 (UNCITRAL)
Forum and rules: UNCITRAL Arbitration Rules 1976, as modified by NAFTA Chapter Eleven; administered by the PCA; seat Toronto, Ontario
Treaty: NAFTA Chapter Eleven (Articles 1102, 1103, 1105)
Tribunal: Judge Bruno Simma (President), Professor Donald McRae, Professor Bryan Schwartz
Sector: Mining (basalt quarry and marine terminal); environmental assessment
Outcome: By majority, Canada breached Articles 1105 and 1102 (17 March 2015; McRae dissenting). The Tribunal unanimously awarded US$ 7 million for the lost opportunity of a fair assessment (10 January 2019). Canadian courts dismissed both sides' set-aside applications.
Amount: Claimed: lost profits of over US$440 million over 50 years. Awarded: US$ 7 million plus interest at the average one-year U.S. Treasury bill yield, compounded annually from 22 October 2007. Arbitration costs deferred to a final award on costs.
Court: Federal Court of Canada (2017 FC 214; 2018 FC 436); Ontario Superior Court of Justice (2022 ONSC 6583); Court of Appeal for Ontario (2024 ONCA 581)
Underlying award(s): Award on Jurisdiction and Liability (17 March 2015); Award on Damages (10 January 2019)

The dispute

The Clayton family and Bilcon of Delaware, Inc., through Bilcon of Nova Scotia, planned to build a 152-hectare basalt quarry and a marine terminal at Whites Point, on Digby Neck in Nova Scotia (Bay of Fundy). The plan was to ship about 2,000,000 tons of aggregate a year to the United States for 50 years. A federal–provincial Joint Review Panel (JRP) assessed the project under the CEAA and the Nova Scotia Environment Act. In October 2007 it recommended rejection, relying heavily on the project's effect on "community core values". The Nova Scotia and federal governments then refused approval (20 November and 18 December 2007). The investors claimed breaches of NAFTA Articles 1105 (minimum standard of treatment), 1102 (national treatment) and 1103 (most-favoured-nation treatment). Canada's main defences were that the claims were time-barred, that the JRP's conduct was not attributable to it, that the Tribunal could not decide questions of Canadian law, and that any breach did not cause the claimed loss of profits.

Key holdings

Jurisdiction upheld unanimously for claims based on events on or after 17 June 2005. Claims based on earlier events, including the referral of the project to a JRP and the scope of the review, are time-barred. The Tribunal reserved its position on whether William Ralph Clayton is an "investor" and made no merits decision as to him. Award on Jurisdiction and Liability ¶ 742
By majority, Canada breached Article 1105. The JRP used an unprecedented "community core values" approach that in effect treated the area as a "no go" zone. It also failed to assess likely significant adverse effects after mitigation, as the CEAA requires. The investors had no prior notice of this approach and had relied on officials' encouragement to invest at the site. The majority stressed that errors in applying national law do not generally give rise to international responsibility. Award on Jurisdiction and Liability ¶¶ 735–741
By majority, Canada breached Article 1102. The JRP's approach was not a "rational government policy" that could justify the less favourable treatment of the investment compared with domestic comparators. The Tribunal found it unnecessary to decide the Article 1103 claim. Award on Jurisdiction and Liability ¶¶ 724–731
Professor McRae dissented on Article 1105. In his view, the majority treated a possible breach of Canadian law as a breach of NAFTA. The JRP's approach was not arbitrary under the Waste Management standard, and the investors could have sought judicial review in the Federal Court. He warned of a regulatory chill on environmental review. Dissenting Opinion ¶¶ 36–51
Damages (unanimous). The investors did not prove that, but for the breaches, the project would have been approved and operated profitably. Lost profits were therefore refused. The Tribunal instead awarded US$ 7 million for the lost opportunity of a fair and non-arbitrary assessment, with compound interest from 22 October 2007, and dismissed all other claims. Professor Schwartz concurred on the amount, relying mainly on the investors' duty to mitigate by seeking judicial review. Award on Damages ¶ 400; Schwartz concurrence ¶¶ 5, 36–38
Articles 1116 and 1117 bar claims for reflective loss under Article 1116. However, the lost opportunity belonged to the investors themselves, not to Bilcon of Nova Scotia, which was only a conduit. Compensation is therefore payable directly to the investors under Article 1116. Award on Damages ¶¶ 389–396
The courts at the seat refused to set aside either award. The Federal Court held that Canada's complaints about the liability award concerned findings of fact and the application of law, not true questions of jurisdiction. The Ontario courts held that the damages award applied the correct international-law standard of proof and did not conflict with Canadian public policy. 2018 FC 436 ¶ 6; 2024 ONCA 581 ¶¶ 30, 38–39