ExxonMobil and Murphy Oil v. Canada
Research and development
Investor win (awarded $13.2 million plus interest, additional claims pending)
In 2007 Mobil Investments Canada, owned by U.S. oil giant ExxonMobil, and U.S.-based Murphy Oil Corporation used NAFTA to launch an ISDS case against a Canadian province’s policies relating oil exploration contracts. The “Canada-Newfoundland Offshore Petroleum Board’s Guidelines for Research and Development Expenditures” require oil extraction firms to pay fees to support research and development in one of Canada’s poorest provinces, Newfoundland and Labrador. The guidelines apply to domestic and foreign concession holders alike. Offshore oil fields in the region, developed after significant infusions of public and private funds, were discovered to be far larger than anticipated, prompting a variety of new government measures that applied to all concession holders.
In their NAFTA claim, the oil corporations argued that the new guidelines violated NAFTA’s prohibition on performance requirements. In 2012, a tribunal majority ruled in favor of Mobil and Murphy Oil, deeming the requirement to use larger-than-expected oil revenue to fund research and development as a NAFTA-barred performance requirement. That the policy applied to both domestic and foreign investors was irrelevant. NAFTA’s investment chapter, like those of most ISDS-enforced agreements, includes among the substantive rights it guarantees investors a flat ban on signatory nations’ establishment or maintenance of various requirements that investors must meet.
The tribunal’s order for Canada to pay $13.2 million plus interest for damages incurred until 2012 was made public in February 2015. The Canadian government attempted to have the award “set aside”, arguing that the tribunal had exceeded its jurisdiction in making the award — but that application was denied. Furthermore, in its ruling, the tribunal determined that, as long as the Offshore Petroleum Board’s guidelines remained in place, Canada would be in “continuing breach” of its NAFTA obligations “resulting in ongoing damage” to the oil company’s interest, so Mobile launched another case demanding even more damages since 2012, so Canada may end up having to pay much more.
Investor-State Attacks: Energy and Public Safety
Vattenfall v. Germany II
In May 2012, Vattenfall launched a second investor-state claim under the Energy Charter Treaty against Germany, demanding a reported $5 billion in taxpayer compensation for Germany’s decision to phase out nuclear power. The government made that decision in response to widespread German public opposition to nuclear power generation in the wake of Japan’s 2011 Fukushima nuclear power disaster. The German Parliament amended the Atomic Energy Act to roll back a 2010 extension of the lifespan of nuclear plants, and to abandon the use of nuclear energy by 2022.
Vattenfall claims Germany’s policy change violates its obligations to foreign investors under the Energy Charter Treaty. Press reports and inquiries from the German Parliament indicate that the corporation is demanding about 4.7 billion euros (more than $5 billion) from German taxpayers for claimed losses relating to two Vattenfall nuclear plants affected by the phase-out. Though Germany attempted to halt Vattenfall’s claim as one “manifestly without merit,” the investor-state tribunal decided in 2013 to allow the claim to proceed. It is pending.
Occidental Petroleum v. Ecuador
Investor win (awarded $2.3 billion; reduced to $1.4 billion after partial annulment)
In 2006, Occidental Petroleum Corporation (Oxy) launched a claim against Ecuador under the U.S.-Ecuador BIT after the government terminated an oil concession due to the U.S. oil corporation’s breach of the contract and Ecuadorian law. Oxy illegally sold 40 percent of its production rights to another firm without government approval, despite a provision in the concession contract stating that sale of Oxy’s production rights without government pre-approval would terminate the contract. The contract explicitly enforced Ecuador’s hydrocarbons law, which protects the government’s prerogative to vet companies seeking to produce oil in its territory — a particular concern in the environmentally sensitive Amazon region where Oxy was operating. Oxy launched its BIT claim two days after the Ecuadorian government terminated the oil concession, claiming that the government’s enforcement of the contract terms and hydrocarbons law violated its BIT commitments, including the obligation to provide the firm “fair and equitable treatment.”
The tribunal acknowledged that Oxy had broken the law, that the response of the Ecuadorian government (forfeiture of the firm’s investment) was lawful, and that Oxy should have expected that response. But the tribunal then concocted a new obligation for the government (one not specified by the BIT itself) to respond proportionally to Oxy’s legal breach as part of the “fair and equitable treatment” requirement. Deeming themselves the arbiters of proportionality, the tribunal determined that Ecuador had violated the novel investor-state obligation.
The tribunal majority ordered Ecuador to pay Oxy $2.3 billion (including compound interest) — one of the largest investor-state awards to date. To calculate this penalty, the tribunal estimated the amount of future profits that Oxy would have received from full exploitation of the oil reserves it had forfeited due to its legal breach, including profits from not-yet-discovered reserves. Using logic that a dissenting tribunalist described as “egregious,” the tribunal determined that the damages should be based on the entire value of Oxy’s original contract even though the firm had sold a 40 percent share — because the sale violated Ecuadorian law and therefore could not be recognized. And the tribunal arbitrarily concluded that Ecuador was 75 percent responsible for the conflict and thus should pay 75 percent of the projected losses to Oxy, even though the conflict arose from Oxy selling unauthorized rights under a contract that explicitly stipulated that doing so could cause forfeiture of the investment. Ecuador filed a request for annulment of the award, raising four different arguments regarding why the tribunal’s decision to grant jurisdiction over the case in the first instance — and thus the entire $2.3 billion award — should be annulled. In 2015, an annulment committee rejected all four of Ecuador’s arguments. However, based on the logic of the dissenting tribunalist that it was outrageous to order Ecuador to pay Oxy damages for the 40 percent share of the investment that it had sold away, the annulment committee partially annulled the award — reducing the damages that had been based on the 40 percent share that had been sold. The committee’s ruling means that the original award of $2.3 billion (including compound interest) was reduced to $1.4 billion — still an enormous amount for Ecuador to pay Oxy over a conflict that arose from Oxy selling unauthorized rights under a contract that explicitly stipulated that doing so could cause forfeiture of Oxy’s investment.