Koch Industries, Inc. and Koch Supply & Trading, LP v. Canada
ICSID · Investment (ICSID and treaty) · Canada · 13 Mar 2024
Why it matters
This case is a landmark decision on whether emission allowances under a cap-and-trade program qualify as 'property' or 'investment' under NAFTA. The Tribunal's detailed analysis of property law and the nature of regulatory entitlements sets a precedent for future investor-state disputes involving novel assets like carbon credits. It also clarifies the jurisdictional limits of NAFTA's investment protections.
Summary
The dispute arose after Ontario cancelled its Cap and Trade Program without compensation. Koch Industries and its subsidiary KS&T, which had acquired emission allowances in joint auctions, claimed that the cancellation breached NAFTA's minimum standard of treatment, expropriation, and performance requirements. Canada objected to jurisdiction, arguing that emission allowances were not 'property' or 'investment' under NAFTA Articles 1139(g) and (h). The Tribunal agreed with Canada. It held that under Canadian property law, emission allowances lacked the essential element of 'exclusive control' because the government retained significant regulatory powers over them, including the ability to cancel or modify them. The allowances were merely regulatory entitlements, not property. Similarly, under Article 1139(h), KS&T's participation did not constitute an 'investment' as it did not involve a commitment of capital or expectation of profit typical of investments. The Tribunal also found no jurisdiction over Koch Industries because it did not own or control the allowances directly. The case was dismissed for lack of jurisdiction ratione materiae. The Tribunal ordered each party to bear its own costs, noting the complexity and novelty of the legal issues.
The detail
Parties: Koch Industries, Inc. and Koch Supply & Trading, LP v. Canada
Case number: ICSID Case No. ARB/20/52
Outcome: The Tribunal declined jurisdiction over all claims; each party bears its own costs and shares arbitration costs equally.
Applicable law: NAFTA, USMCA, ICSID Convention, Ontario Cap and Trade Act
Issues in play: The definition of 'property' under NAFTA Article 1139(g) and (h) and whether emission allowances created under Ontario's Cap and Trade Act constitute property or an investment. The Tribunal analyzed Canadian property law principles and the statutory scheme.
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