Case Summary No. 7

Blue chemical cans all over. Outdoors on chemical plant.We continue our series of case summaries with SD Myers v. Canada, a NAFTA dispute decided under the UNCITRAL arbitration rules. The summary is based on the facts as described in the three separate awards rendered by the arbitral tribunal between November 2000 and December 2002.

S.D. Myers, Inc. (“SDMI”) is a United States corporation that processes and disposes of polychlorinated biphenyl (“PCB”), an environmentally hazardous chemical compound used in electronics manufacturing. SDMI created a Canadian affiliate with the aim of soliciting orders for the destruction of Canadian PCBs at its U.S. facility. The U.S. had banned the import of PCB from Canada in 1980, but granted SDMI an exception in 1995. Promptly after SDMI had been granted permission from the U.S. government to import PCB waste from Canada, Canada issued an order prohibiting the export of PCB waste to the U.S. The prohibition was in effect for approximately 16 months.

SDMI filed claims against Canada under the UNCITRAL Rules in October 1998, alleging that Canada’s ban on the export of PCB waste had violated several provisions of Chapter 11 of NAFTA. SDMI claimed that it had suffered economic harm to its investment through interference with its operations, lost contracts and opportunities in Canada. Canada maintained that the ban had been motivated by environmental concerns.

In its first partial award, on liability only, the tribunal found for the investor with respect to its Article 1102 and 1105 claims, holding that Canada had violated NAFTA’s national treatment and minimum standard of treatment provisions. According to the tribunal, the evidence showed that Canada’s ban on PCB export was not driven by environmental concerns, as asserted by Canada, but intended primarily to protect the Canadian PCB disposal industry from U.S. competition. The investor’s claims regarding expropriation and performance requirements were dismissed. Canada challenged the award in its own federal court, on the grounds that the tribunal had exceeded its jurisdiction and that the award was against Canadian public policy. The court dismissed the challenge.

The tribunal issued two subsequent awards, on damages and costs, respectively. On damages, the tribunal reasoned that the investor may only be compensated for harm proximately caused by the breach of the specific NAFTA provision. According to this principle, indirect harm such as loss of opportunity or a damaged reputation are too remote to warrant compensation. The tribunal thus awarded SDMI damages of CAN$ 6 million, a fraction of the US$ 70 million claimed by the investor.