In April and May alone, Lone Pine Resources Inc. — the oil and gas company that’s currently suing the government of Canada for $118.9 million in alleged damages — lobbied 11 MPs, a policy advisor for the Prime Minister’s Office and the chief of staff for Natural Resources Canada.
The sole subject matter listed for the lobbying efforts was: “Claim against the Government of Canada under the North American Free Trade Agreement (NAFTA) by Lone Pine Resources Inc.”
The company is actively claiming damages for Quebec's 2011 decision to revoke oil and gas exploration licenses located beneath the St. Lawrence River that were granted to its subsidiary, Lone Pine Resources Canada Ltd., via a “farmout agreement” with Junex Inc. The $118.9 figure represents Lone Pine’s estimated sunk costs and lost future profits.
Actual case proceedings haven’t started yet: the last publically available document — a 251 page rebuttal by the Canadian government written entirely in French — is from July 2015.
These recent meetings could mean the company — which Sujata Dey, trade campaigner with the Council of Canadians, dubs “a Canadian company suing Canada through their U.S. tax haven and subsidiary” — is attempting to seek an out-of-court settlement with the government, an option that would allow Lone Pine to avoid mounting legal fees and the unpredictable nature of investment tribunals.
Investor-State Dispute Settlements Can Result In Large Payout, Rollback In Policies
Ben Beachy, senior policy advisor in the U.S. Sierra Club’s Responsible Trade Program, notes some settlements such as the Ethyl Corporation’s successful suit against Canada in the late ‘90s have resulted in weakened policy.
Even if that doesn’t occur, he says such investor-state dispute settlement procedures can create a “chilling effect” on governments: with the looming threat of lawsuits from foreign companies, officials are less likely to implement strong environmental protections.
Beachy said the threat of legal action is concrete: “It clearly is a consideration on the mind of policymakers: ‘Am I going to get sued in front of not a domestic court but three private lawyers whose rulings are unpredictable for millions or billions of dollars?’”
Canada Argues Claims By Lone Pine Are ‘Highly Exaggerated’
Lone Pine Resources is suing the government via the infamous Chapter 11 of NAFTA for what it describes as the “arbitrary, capricious, and illegal revocation” to frack under the St. Lawrence River “without due process, without compensation, and with no cognizable public purpose.”
The government of Canada has contended: “The measure was enacted by a fundamental democratic institution of Quebec and was preceded by numerous studies that establish that the Act seeks to achieve an important public policy objective, namely, the protection of the St. Lawrence River” and that “the damages claimed by the claimant are highly exaggerated.”
Investment Tribunals Lack Safeguards and Equal Standing, Says Investment Law Expert
Gus Van Harten, associate professor at York University’s Osgoode Hall Law School and expert in international investment law and arbitration, emphasizes that investor-state dispute settlement procedures don’t constitute an actual judicial process, lacking the usual safeguards of independence that judges have in domestic and international courts, or the ensuring of standing for all affected parties.
“It’s obvious that there are some foreign investors — not a lot — that benefit from it,” he says. “What’s usually claimed is ‘we’ll get more foreign investment and that will help the economy’ but there’s a real lack of evidence on that point.”
Over 70 Per Cent of NAFTA Claims In Past Decade Have Targeted Canada
Canada is the most sued country in the “developed” world.
A report published by the Canadian Centre for Policy Alternatives in January 2015 noted that via NAFTA, the government has been sued 35 times since 1994, losing seven cases and paying out over $170 million in damages.
Over 70 per cent of NAFTA claims since 2005 have involved Canada. Two-thirds of the total suits have been related to environmental or resource management policy.
Nine foreign investors are currently suing Canada via NAFTA.
Beachy — who wrote and researched the Sierra Club’s recent report “Climate Roadblocks: Looming Trade Deals Threaten Efforts to Keep Fossil Fuels in the Ground” — notes that 2015 featured the largest number of investor-state dispute settlement cases launched globally, double the number from just five years before.
In 2014, half of new cases globally were challenging policies related to oil and gas extraction, mining or power generation.
Investor Suits May Increase In Number With Implementation of New Trade Deals
Beachy describes the Lone Pine case as being similar in significance to TransCanada’s $15-billion suit against the United States for blocking its proposed Keystone XL pipeline as both “serve as a wake-up call that deals like the Trans-Pacific Partnership would undermine our efforts to keep fossil fuels in the ground.”
Dey notes the ratification and implementation of the Trans-Pacific Partnership would add nine countries to the list in which companies could incorporate or set up legal vehicles in and sue Canada via investor protection clauses.
Beachy adds there are investors currently fracking in a dozen states that would gain new rights to sue the United States via proposed trade deals like the Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership.
“This one is clearly not hypothetical because of Lone Pine,” Beachy says. “We are anxiously looking at the Lone Pine case given that more and more states in the United States are trying to do what Quebec and New York have already done to protect their citizens from the dangers of fracking.
“It’s a really ironic time to be handing more power to fossil fuel companies, just after the world committed to curb greenhouse gas emissions and transition to green energy in Paris,” he says.
Lone Pine Filed Notice of Arbitration Three Weeks Before Announcing Its Restructuring
Lone Pine Resources has had a rough few years. In December 2012, Moody’s Investors Service downgraded Lone Pine’s “corporate family rating” to Caa1 due to “strained liquidity and sharply declining production and reserves.”
Two-and-a-half months later, the company fired its CEO and CFO.
By January 2014, it completed financial restructuring and emerged from creditor protection, a process started in September 2013 (less than three weeks after it filed its notice of arbitration to the government).
In the process, it cut long-term debt obligations by over four times and rescinded its position as a publically traded company in Canada and the United States. As a result, it’s impossible to tell what Lone Pine’s net earnings are looking like these days and the potential significance of a $118.9 million settlement for the company.
Regardless of the outcome, Dey contends it’s a deeply troublesome example of what’s wrong with investor-state dispute settlement: “This is completely undemocratic,” she says. “It takes power from elected people and puts them into a supranational system that gives rights to corporations. It has nothing to do with democracy.”
“This is a corporate rights system that is even higher in position that our own democratically elected governments.”
Image: Mysterious foamy water collected after heavy rainfall near a fracking site. Joshua B. Pribanic/Public Herald.