AbitibiBowater wins NAFTA case vs. Ottawa

August 27, 2010


Source: The Montreal Gazette

It came as a surprise to many this week that the federal government -and ultimately Canadian taxpayers -will make a payment of $130 million to Montrealbased AbitibiBowater Inc. to compensate for company assets expropriated by the Newfoundland government in that province.

In announcing the settlement on Tuesday, the Department of Foreign Affairs and International Trade said it had “resolved this dispute for the benefit of Canada’s long term economic interests,” and was “avoiding potentially long and costly legal proceedings.”

As part of the agreement, AbitibiBowater agreed to waive its legal actions and claims against the federal government under the North American Free Trade Agreement (NAFTA).

A NAFTA agreement on investment disputes -also known as Chapter 11 and not to be confused with Chapter 11 of the U.S. Bankruptcy Code -gives foreign investors the right to sue countries for unfair treatment or seizure of assets before a panel of arbitrators, private lawyers specialized in international arbitration.

Although AbitibiBowater has its head office in Montreal, it is incorporated in Delaware and has significant U.S. assets, allowing it to use NAFTA’s investment-protection mechanism claim as a foreign investor.

It was seeking $500 million in damages after Newfoundland and Labrador seized timber and hydro power rights and other assets late in 2008 after the company said it would close a century-old newsprint mill in Grand Falls-Windsor, laying off hundreds of employees in a town built up around the industry.

The federal government said its $130-million payment represents the “fair market value of the company’s expropriated assets.”

While some international trade lawyers see the settlement of the case as a clear signal Canada will respect its international trade treaties, they question why the federal government apparently has no legal way to collect any money in return from Newfoundland, a political irony not lost on those who have watched Newfoundland Premier Danny Williams scuffle with the Conservative government of Stephen Harper.

They say the case clearly illustrates the kind of pickle the federal government can find itself in if a provincial government does something that puts it in conflict with an international treaty that the federal government has signed.

They refer to the so-called Labour Conventions case, under the Canadian Constitution, in which the federal government has no independent treaty-making power that could bind the provinces in areas that would otherwise fall within provincial jurisdiction.

Yesterday, Harper moved to quell those questions, saying his government will create a mechanism to reclaim money lost through international trade agreements should similar provincial trade actions occur in the future.

Simon Potter, an international trade specialist at McCarthy Tetrault LLP in Montreal, called for a mechanism sooner rather than later before any other case crops up, and called it “unfair” that all Canadians have to pay for one province’s actions.

“It is disappointing that the settlement has been done in a way to indicate that a province can act with impunity and mistreat investments,” Potter said.

He noted that this past year when the government expanded procurement commitments to get a loosening of Buy America provisions, Ottawa got provincial agreements to abide by the results of arbitrations before signing on.

This week’s settlement, reached very early in the NAFTA claim stage, is a win for Ogilvy Renault LLP lawyers Pierre Bienvenu and Martin Valasek, who acted as outside co-counsel to AbitibiBowater and its internal legal team in the NAFTA case along with Washingtonbased Arnold & Porter LLP and Stewart McKelvey, a St. John’s firm.

The settlement is conditional on AbitibiBowater obtaining court approval for its restructuring plans under Canadian proceedings under the Companies’ Creditors Arrangement Act in Canada and by the U.S. court in Chapter 11 bankruptcy proceedings.

The payment will be made when the company emerges from court protection -pending a coming creditors’ vote in a couple of weeks. Confirmation of the payment is a definite assurance of a little more liquidity as the company works on what is called exit financing.

Dozens of Montreal law firms and lawyers are involved in that ongoing file, with Stikeman Elliott LLP’s Marc Barbeau acting as lead outside counsel to the company for the proceedings.

The next Lawyer of the Week on Legal Matters, The Gazette’s online legal page, is Robert Kugler of Kugler Kandestin LLP. He is the litigator who this week won a $4.1-million personal injury award for a young boy injured on a ski hill. The feature will be posted this afternoon.