Thank you, Mr. Chairman.
Good morning. Thank you for the opportunity to address the committee.
As the assistant deputy minister for trade policy and negotiations, I'm responsible for managing the negotiation of Canada's international trade agreements, and their management and operation, including the management of disputes under the agreements.
My colleague John O'Neill is responsible for the management of negotiations and litigation under Canada's investment treaties.
The subject of the committee's discussions today is an investor-state dispute, pursuant to the provisions of chapter 11 of the North American Free Trade Agreement, arising from an action taken by the Government of Newfoundland and Labrador.
On December 16, 2008, the Newfoundland legislature passed legislation to expropriate certain of AbitibiBowater's assets in the province. Those assets included AbitibiBowater's Grand Falls-Windsor newsprint plant, the Exploits River hydroelectric facility, and the Star Lake hydroelectric facility, as well as certain related water and timber rights.
As stated by Danny Williams, the then premier of Newfoundland and Labrador, the province chose to take these measures as a result of the announcement of AbitibiBowater's decision to close the Grand Falls-Windsor newsprint plant in March 2009.
After Newfoundland passed the act, the company and the Government of Newfoundland and Labrador had extensive discussions regarding the question of appropriate compensation for these assets, but they were unable to reach a mutually agreeable settlement.
It is clear in the act and in their public statements that the Government of Newfoundland and Labrador understood that it was not a question of whether compensation was due to AbitibiBowater as a result of this expropriation, but rather a question of how much compensation the company should receive.
The public record shows that one of the principal points preventing an agreement between the company and Newfoundland was the valuation of assets in light of the potential environmental remediation costs that might arise in the context of properties owned or operated by AbitibiBowater over the last 100 years in Newfoundland. It is important to note that most of the potential remediation costs were related to properties other than those that were the subject of the expropriation.
As it was unable to reach agreement with Newfoundland, in April 2009 AbitibiBowater filed a notice of intent to submit an investor-state claim against Canada under the dispute settlement provisions of chapter 11 of the NAFTA, claiming damages of at least $300 million.
NAFTA chapter 11 and Canada's other international investment treaties do not prevent the government from expropriating private property for a public policy reason. However, these treaties oblige governments to provide compensation for the expropriated assets based on fair market value.
Moreover under the domestic law of most provinces, including Newfoundland, the government has the right to expropriate property for public purposes but must pay compensation. It is important to note that even if there were no investor-State dispute settlement provisions in the NAFTA, companies have legal recourse through the domestic courts to seek compensation for expropriation. Furthermore, providing compensation for the expropriation of foreign-owned property is an obligation arising under customary international law, irrespective of the NAFTA.
In the spring of 2009, AbitibiBowater was in a difficult financial situation. Consequently, on April 16, 2009, the company filed for creditor protection under chapter 11 of the United States Bankruptcy Code, and for protection under Canada's Companies' Creditors Arrangement Act the following day.
During the year following AbitibiBowater's notice of intent, settlement discussions towards an agreement on the amount of compensation due to the company were pursued. On February 25, 2010, as no agreement had been reached among the three parties, AbitibiBowater took the next step in the arbitration process and filed a notice of arbitration against the Government of Canada under NAFTA chapter 11, increasing its damages claim to at least $500 million.
AbitibiBowater alleged that the provincial legislature expropriated both its and its Canadians affiliates' assets in a discriminatory manner, without due process or valid public purpose, in contravention of Canada's obligations under NAFTA. It further claimed that the provincial legislature did not comply with NAFTA's compensation requirements.
The company alleged that, through Newfoundland's actions, Canada had contravened the national treatment and most-favoured nation treatment provisions of the NAFTA, as the act explicitly targeted and singled out the Canadian operation of AbitibiBowater, rather than apply generally to all local companies or foreign investors that have also closed facilities in the province, and that the approach to compensation was equally discriminatory and precluding that company alone from accessing the courts.
AbitibiBowater also claimed that the act violated the principle of fair and equitable treatment of Canada's minimum standard of treatment obligation in the NAFTA, alleging that expropriation was arbitrary, irrational and discriminatory, in violation of AbitibiBowater's legitimate expectation of a stable business and legal environment, and of equal treatment vis-à-vis other investors.
Furthermore, the expropriation and compensation provisions of the NAFTA provide that no party can expropriate an investment except for a public purpose, on a non-discriminatory basis, in accordance with due process of law, and on payment of compensation. The company claimed that the act did not meet any of these criteria for such an expropriation to be lawful.
By the spring of 2010, it had become evident that the Government of Newfoundland and Labrador would or could not contribute financially to a compensation package, due to outstanding claims for environmental remediation at current or former AbitibiBowater sites in the province.
After reviewing its options, the Government of Canada decided to continue settlement discussions with the company, which continued through the spring and summer of that year. On August 24, 2010, the Government of Canada and AbitibiBowater announced that an agreement had been reached to the mutual satisfaction of both parties, without recourse to arbitration.
The agreement was structured so that it did not come into force until the company's plan of restructuring in the United States and Canada had been approved by the courts. This happened in December 2010. Through the settlement agreement, AbitibiBowater irrevocably and permanently withdrew its $500 million NAFTA chapter 11 claim against Canada, and the Government of Canada made a payment of $130 million to AbitibiBowater.
The Government of Canada did its due diligence by ensuring that all the conditions of the settlement agreement had been met. For the settlement agreement to come into effect, the U.S. and Canadian bankruptcy courts had to first approve the settlement agreement itself, and then these courts had to also approve AbitibiBowater's general plan of restructuring.
Finally, according to the terms of the settlement agreement, once the court approvals had been secured, the settlement agreement only took effect when all of the relevant appeal periods had lapsed. This ensured that the payment was made to a Canadian entity that had continuing operations in Canada. The $130-million payment was based on an assessment of the fair market value of the company’s expropriated assets in Newfoundland and Labrador. As a result, the settlement agreement fully complied with Canada's commitments under the 2006 softwood lumber agreement.
The Government of Canada, which is constitutionally responsible for Canada’s international relations, resolved this dispute for the benefit of Canada’s long-term economic interests. In reaching this agreement, the government has avoided potentially long and costly legal proceedings which, in the end, would have ended with Canada providing compensation to AbitibiBowater for the expropriated assets. Moreover, this approach reaffirms the Government of Canada’s commitment to maintaining a rules-based business environment that facilitates free trade and encourages investment.
In summary, the payment of $130 million to AbitibiBowater was not a question of whether government and Canada had or have the ability to regulate in the public interest. Rather it was a question of providing equitable compensation for property expropriated by a government in Canada. There is no question of the government's right to expropriate the properties for a public purpose, as long as adequate compensation is provided.
I trust that the Committee will find the information I have provided today useful. I welcome the opportunity to address any questions you may have on the matter.
