Mercer International Inc. v. Government of Canada
ICSID · Investment (ICSID and treaty) · Canada · 6 Mar 2018
Why it matters
This award is significant for its detailed analysis of the 'like circumstances' test under NAFTA Article 1102 and the minimum standard of treatment under Article 1105. The Tribunal clarified that differential treatment based on legitimate regulatory objectives does not necessarily constitute discrimination. It also addressed the scope of NAFTA Article 1503(2) regarding state enterprises, providing guidance on the limits of investor protections in the energy sector.
Summary
Mercer International Inc., a US corporation, owned a pulp mill in British Columbia, Canada, through its Canadian affiliates. The mill generated electricity from biomass and sold surplus power to BC Hydro, a state-owned utility, under an Electricity Purchase Agreement (EPA). Mercer claimed that BC Hydro and the British Columbia Utilities Commission (BCUC) imposed discriminatory conditions on its mill compared to other generators, violating NAFTA's national treatment (Article 1102), most-favored-nation treatment (Article 1103), and minimum standard of treatment (Article 1105). Specifically, Mercer alleged that BCUC Order G-48-09 required its mill to sell electricity on a 'net-of-load' basis (i.e., only surplus after self-consumption), while other generators were not subject to such a requirement. Mercer also claimed that BC Hydro's setting of its Generator Baseline (GBL) was discriminatory. Canada objected to jurisdiction, arguing that the claims were time-barred under NAFTA Articles 1116(2) and 1117(2), and that certain measures were excluded under Article 1108(7)(a). The Tribunal upheld jurisdiction over the claims concerning the GBL and Order G-48-09 but dismissed other claims as time-barred. On the merits, the Tribunal found that the net-of-load requirement and the GBL setting did not violate NAFTA. It held that Mercer was not in 'like circumstances' with the comparators because of differences in regulatory history and operational characteristics. The Tribunal also found no breach of Article 1105, as the measures were not arbitrary or unfair. Finally, the Tribunal dismissed claims under Article 1503(2) regarding state enterprises. As a result, Mercer's claims for compensation were dismissed, and Mercer was ordered to pay CAN$ 9,000,000 in legal costs to Canada.
The detail
Parties: Mercer International Inc. v. Government of Canada
Case number: ICSID Case No. ARB(AF)/12/3
Outcome: The Tribunal dismissed all of Claimant's claims on the merits and ordered Claimant to pay Respondent CAN$ 9,000,000 in legal costs.
Quantum: CAN$ 9,000,000 (legal costs)
Applicable law: NAFTA Chapter Eleven, ICSID Arbitration (Additional Facility) Rules
Issues in play: The dispute involved NAFTA Articles 1102 (National Treatment), 1103 (Most-Favored-Nation Treatment), 1105 (Minimum Standard of Treatment), and 1503 (State Enterprises). The central issue was whether British Columbia's electricity regulations discriminated against the Claimant's pulp mill.
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