Abstract
Generally, investment tribunals have historically treated the issue of causation superficially and without “clarity as to the steps of the reasoning that are being employed in order to establish causation.” The international legal landscape, however, has been ripe for a consensus as the increasing complexity of interstate and state-investor relationships and the rising damages claims present even higher stakes as to determining how the harm originates. Recently, some international investment tribunals and litigants have started to focus on the issue of causation, treating causation as its own separate “step” and as separate from the determination of “liability” and the calculation of “quantum.” On January 10, 2019, when the arbitral tribunal in Bilcon v. Canada rendered its Award on Damages, it established a high burden for a claimant to meet in order to establish a causal link that demonstrating that a respondent’s liability primarily led to the claimant’s injuries. The Bilcon decision not only clarifies for future international arbitral panels how causation is to be situated between the breach and quantum inquiries, but it also demonstrates how this high threshold test, grounded in the Chorzów and Genocide cases, situates the issue of lost profits within the causation inquiry. Consequently, Bilcon may provide a primer on causation analysis for future North American Free Trade Agreement (NAFTA) Chapter Eleven tribunals. Part I of this chapter will explore how Bilcon clarifies and situates the causation analysis – an emerging subject that has befuddled some arbitral tribunals – between the issues of breach and quantum. Next, Part II will demonstrate how Bilcon places upon claimants a high burden of causality, based on the Chorzów and Genocide cases, while utilizing the doctrine of factual causation to determine quantum. Finally, Part III will proceed to contextualize the issue of lost profits within this causality analysis by comparing the Bilcon majority’s decision with that of the concurrence. This Part will assess the strengths and weaknesses of the arbitrators’ approach to lost profits.
J.D., Brooklyn Law School (2019); M.A., Harvard University (2012); B.A., Boston College (2010). I would like to dedicate this article to my lovely fiancée, Caroline; my wonderful parents, Rita and Joseph; and my supportive brothers, Thomas and Peter. I also would like to thank Mr. Simon Batifort, a Partner in Curtis, Mallet-Prevost, Colt & Mosle LLP’s International Arbitration Group and Adjunct Professor of Law at Brooklyn Law School, for his constructive comments and encouragement on an earlier draft. This article is reprinted from Volume 35, Issue 3, of the Ohio State Journal on Dispute Resolution. SeeGeorge J. Somi, Bilcon v. Canada: A New Paradigm for Causation in Investor-State Arbitration?, 35 OHIO ST. J. ON DISP. RESOL. (forthcoming 2020).
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Notes
- 1.
Simply defined, “causation (and the terms causality, causal analysis and causal inquiry, which will be used interchangeably with the general term) is understood as the process of connecting an act (or omission) with an outcome as cause and effect.” Plakokefalos I (2015) Causation in the Law of State Responsibility and the Problem of Overdetermination. Eur J Int Law 26(2):471, 472. More specifically, overdetermination “is the existence of multiple causes (multiple wrongdoers, external natural causes, contribution to the injury by the victim and so on) contributing towards a harmful outcome.” Id.
- 2.
Id. at 486. See also id. at 472 (holding that “the concept of causation in international law is unclear, especially in relation to overdetermination” and requiring clarification).
- 3.
A follow-up study by Global Arbitration Review that was published in December 2017 assesses the state of damages awarded in investment treaty arbitration:
The mean amount claimed in investment treaty arbitrations from 2013 onwards has increased significantly to US $2,376 million (compared to US $491.7 million as of the end of 2012). Even excluding Yukos, the mean amount claimed is now US $1,133 million. Again, however, these mean figures are distorted by the larger claims, and the median amount claimed from 2013 onwards was a more modest US $196.4 million (as compared to US $66.1 million at the end of 2012).
Hodgson M, Campbell A (2017) Damages and costs in investment treaty arbitration. Glob Arbit Rev (December 14, 2017). http://www.allenovery.com/SiteCollectionDocuments/14-12-17_Damages_and_costs_in_investment_treaty_arbitration_revisited_.pdf. See also Beharry CL, Méndez Bräutigam E (2020) Damages and valuation in international investment arbitration. In: Chaisse J, Choukroune L, Jusoh S (eds) Handbook of international investment law and policy. Springer, Singapore.
- 4.
Plakokefalos, supra note 1, at 472. Moreover, some cognitive biases on the part of arbitrators, known as “anchoring,” impact arbitral decision-making with respect to making decisions on the quantum of damages. Reed L (2013) The 2013 Hong Kong International Arbitration Centre Kaplan lecture – arbitral decision-making: art, science or sport? J Int Arbit 30:85, 89. According to Professor Christopher Drahozal at the University of Kansas Law School:
In estimating a numerical amount, people tend to start with some initial value—an ‘anchor’—and then come up with a final estimate by making adjustments to the anchor. If the anchor provides useful information about the underlying value (such as the list price), and if people make reasonable adjustments, this ‘anchor and adjustment’ heuristic can be a useful decision-making [sic] approach. But anchoring can be problematic if people start with an irrelevant anchor or fail to make adjustments to the initial value.
Id.
- 5.
See Pearsall PW and Heath JB (2018) Causation and injury in investor-state arbitration in Beharry CL (ed) Contemporary and Emerging Issues on the Law of Damages and Valuation in International Investment Arbitration, 2. Nijhoff International Investment Law Series 11.
In Victor Pey Casado and Foundation “Presidente Allende” v. Republic of Chile, the tribunal ordered the claimants to reimburse $159,509.43 USD to Chile, but in analyzing the claimants’ allegations, assessed reparations as follows:
To recapitulate therefore: the assessment of the reparation due under international law for the breach of an international obligation consists of three steps – the establishment of the breach, followed by the ascertainment of the injury caused by the breach, followed by the determination of the appropriate compensation for that injury.
Victor Pey Casado and Foundation “Presidente Allende” v. Republic of Chile, ICSID Case No. ARB/98/2 (Resubmission Proceeding), Award, ¶ 217 (Sept. 13, 2016), 6 ICSID Rep. 375 (2004)
- 6.
The three-step framework was originally articulated by the general international law of State responsibility. Pearsall & Heath, supra note 5, at 3. The question of causation has been analyzed separately from the question of whether a breach occurred because “international law as a general matter accepts the [vexing] possibility that, depending on the applicable rule, conduct may be internationally wrongful even in the absence of any damage to the wronged party” – a major departure from the common law treatment of causation as one of the several elements, including negligence and harm, in a liability claim. Id. at 4. While the law of State responsibility affords little treatment to causation, Article 31 of the Draft Articles on Responsibility of States for Internationally Wrongful Acts (“Draft Articles”) demonstrates that the concept crucially connects the determination of liability to the calculation of quantum:
- 1.
The responsible State is under obligation to make full reparation for the injury caused by the internationally wrongful act.
- 2.
Injury includes any damage, whether material or moral, caused by the internationally wrongful act of a State.
Draft Articles on Responsibility of States for Internationally Wrongful Acts, Art. 31, Int’l Law Comm’n, Rep. on the Work of Its Fifty-Third Session, U.N. Doc. A/56/10, at 91 (2001) [hereinafter ILC Draft Articles]. Here, Article 31(1) presupposes a “reasonable State” when discussing the need to make full reparation for the harm caused, separating the question of breach from the issue of causation. See Pearsall and Heath, supra note 5, at 5. In addition, Article 31(2) indicates that that causation “will play a determinative role” on a finding of material or moral injury. Id.
- 1.
- 7.
Pearsall & Heath, supra note 5, at 3. See, for example, Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award (July 24, 2008), https://www.italaw.com/sites/default/files/case-documents/ita0095.pdf; Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Concurring and Dissenting Opinion of Gary Born (July 18, 2008), https://www.italaw.com/sites/default/files/case-documents/ita0093_0.pdf.
- 8.
Pearsall & Heath, supra note 5, at 7. Pearsall and Heath do note that the 2004 and 2012 US Model Bilateral Investment Treaties (“BITs”) and recent US free trade agreements (“FTAs”) require claimants to demonstrate “loss or damage by reason of, or arising out of” a breach of the treaty. Id. That said, absent treaties’ explicit statements on causation, some tribunals have looked to the Draft Articles for guidance, even though they “make no attempt to regulate questions of breach between a state and a private party such as a foreign investor.” Crawford J (2010) Investment arbitration and the ILC articles on state responsibility. ICSID Rev 25:127, 130
- 9.
See Bilcon of Delaware et al. v. Government of Canada, PCA Case No. 2009-04, Award on Damages (Jan. 10, 2019) [hereinafter Bilcon v. Canada (Award)], and Bilcon of Delaware et al. v. Government of Canada, PCA Case No. 2009-04, Concurring Opinion of Professor Bryan Schwartz (Jan. 10, 2019) [hereinafter Bilcon v. Canada (Concurrence)].
- 10.
Bilcon v. Canada (Concurrence), PCA Case No. 2009-04 at ¶ 19
- 11.
Id. at ¶¶ 1, 6
- 12.
Id. at ¶ 19
- 13.
Id. at ¶ 93
- 14.
Id. at ¶ 109
- 15.
Id.
- 16.
Id. at ¶ 134
- 17.
Id. at ¶ 133
- 18.
Id. at ¶ 134
- 19.
Id.
- 20.
Id. at ¶ 114
- 21.
Id.
- 22.
See Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award (July 24, 2008) [hereinafter Biwater v. Tanzania (Award)], and Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Concurring and Dissenting Opinion of Gary Born (July 18, 2008) [hereinafter Biwater v. Tanzania (Dissenting Opinion)]. For a commentary, see Qian X (2018) Challenges of water governance (and privatization) in China: traps, gaps, and law. GA J Int Comp Law (1):49–91.
- 23.
See Biwater v. Tanzania (Award), ICSID Case No. ARB/05/22 at ¶ 485.
- 24.
Id.
- 25.
Id. at ¶ 798
- 26.
See Pearsall and Heath, supra note 5, at 9.
- 27.
See Bilcon v. Canada (Award), PCA Case No. 2009-04 at ¶ 102 (“The Respondent argues that an approach that is consistent with the ILC Articles Commentary was adopted in Biwater . . . ,” where the tribunal noted that “causing injury must mean more than simply the wrongful act itself [. . .], otherwise the elements of causation would have to be taken as present in every case.”) (internal quotation marks omitted).
- 28.
See Nordzucker AG v. The Republic of Poland, UNCITRAL, Third Partial and Final Award, November 23, 2009, ¶ 64 (dismissing claimant’s claim for loss profits because “[t]he damages demonstrated . . . have no causal link with the breach which the Arbitral Tribunal decided in its second Partial Award to have been committed by Poland.”).
- 29.
Pearsall & Heath, supra note 5, at 9 (emphasis added)
- 30.
Biwater v. Tanzania (Dissenting Opinion), ICSID Case No. ARB/05/22 at ¶ 17
- 31.
See Pearsall and Heath, supra note 5, at 4.
- 32.
See ILC Draft Articles, supra note 6, at 91.
- 33.
Bilcon v. Canada (Award), PCA Case No. 2009-04 at ¶ 110 (emphasis added)
- 34.
Germany v Poland (Judgment) (Case concerning the Factory at Chorzów), 1928 P.C.I.J. (ser. A) No. 17 (Judgment No. 13, Merits), September 13, 1928 [hereinafter Chorzów]; Bilcon v. Canada (Award), PCA Case No. 2009-04 at ¶ 95
- 35.
See Bosnia and Herzegovina v. Serbia and Montenegro, (Judgment) (Application of the Convention on the Prevention and Punishment of the Crime of Genocide), I.C.J. Reports 2007, at ¶ 462 [hereinafter Genocide case] (“Such a nexus could be considered established only if the Court were able to conclude from the case as a whole and with a sufficient degree of certainty that the genocide at Srebrenica would in fact have been averted if the Respondent had acted in compliance with its legal obligations.”).
- 36.
Bilcon v. Canada (Award), PCA Case No. 2009-04 at ¶ 111 (emphasis added)
- 37.
Id. at ¶ 110 (emphasis added)
- 38.
See Pearsall and Heath, supra note 5, at 95.
- 39.
Id. (“There is significant dispute as to which of these competing formulations should apply under investment treaties, and whether there is any material difference between them.”)
- 40.
Moore MS (2009) Causation and Responsibility: An Essay in Law, Morals, and Metaphysics 83–84.
- 41.
Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Award (Mar. 28, 2011), https://www.italaw.com/cases/614 [hereinafter Lemire v. Ukraine]. For a commentary, see Chaisse J (2016) Renewables re-energized? The internationalization of green energy investment rules and disputes. J World Energy Law Bus 10(1):269–281.
- 42.
Id at. ¶¶ 31, 158
- 43.
Id. at ¶ 161
- 44.
Id. at ¶ 169
- 45.
Id.
- 46.
Id. at ¶ 170
- 47.
See Pearsall and Heath, supra note 5, at 105.
- 48.
Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Dissenting Opinion of Jürgen Voss, ¶¶ 296–98 (Mar. 28, 2011), https://www.italaw.com/cases/614 [hereinafter Lemire v. Ukraine (Dissent)]
- 49.
Id. at ¶ 284
- 50.
Bilcon v. Canada (Award), PCA Case No. 2009-04 at ¶ 8
- 51.
Id. at ¶ 303. See Cameron Mowatt J and Radford J (2019) Close, but no cigar: Bilcon tribunal rejects claim on grounds of failure to establish causation, Tereposky & DeRose (March 13, 2019). https://tradeisds.com/index.php/close-but-no-cigar-bilcon-tribunal-rejects-claim-on-grounds-of-failure-to-establish-causation/
- 52.
Bilcon v. Canada (Award), PCA Case No. 2009-04 at ¶ 168
- 53.
Id.
- 54.
Id. at ¶ 276
- 55.
Id.
- 56.
Id. at ¶ 277
- 57.
Id.
- 58.
Id. at ¶ 278
- 59.
Id.
- 60.
See Pearsall and Heath, supra 5, at 13 (“A second set of problems may arise when the ‘but for’ scenario is marked by a substantial degree of uncertainty. For example, a claimant alleging lost profits or other future damages generally has the burden to establish such damages.”).
- 61.
Id.
- 62.
Id. See, for example, S.D. Myers, Inc. v. Canada, UNCITRAL Arbitration Proceeding, Second Partial Award, ¶ 173 (Oct. 21, 2002). As the tribunal recognized:
The quantification of loss of future profits claims can present special challenges. On the one hand, a claimant who has succeeded on liability must establish the quantum of his claims to the relevant standard of proof; and, to be awarded, the sums in question must be neither speculative nor too remote. On the other hand, fairness to the claimant requires that the court or tribunal should approach the task both realistically and rationally.
Id. Likewise, the tribunal in another case stated:
The Majority of this Tribunal accepts that . . . no strict proof of the amount of future damages is required and that ‘a sufficient degree’ of certainty or probability is sufficient. However, the amount claimed ‘must be probable and not merely possible.’ Future damages . . . must only be proved with reasonable certainty.
Mobil Inv. v. Canada, ICSID Case No. ARB(AF)/07/4, Decision on Liability and on Principles of Quantum, ¶¶ 437–38 (May 22, 2012).
- 63.
ILC Draft Articles, supra note 6, at 105 (emphasis added)
- 64.
Bilcon v. Canada (Concurrence), PCA Case No. 2009-04, at ¶ 3
- 65.
Id.
- 66.
Id. at ¶ 38
- 67.
Id. ¶ 4 (emphasis added)
- 68.
Lemire v. Ukraine (Dissent), ICSID Case No. ARB/06/18 at ¶ 284
- 69.
Bilcon v. Canada (Concurrence), PCA Case No. 2009-04 at ¶ 12
- 70.
Id.
- 71.
Id. at ¶ 13
- 72.
Id.
- 73.
Id. at ¶ 4
- 74.
Id. at ¶ 5
- 75.
Id. (emphasis added)
- 76.
Id. at ¶ 6
- 77.
Lemire v. Ukraine (Dissent), ICSID Case No. ARB/06/18 at ¶ 284
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Somi, G.J. (2020). Bilcon v. Canada: A New Paradigm for Causation in Investor-State Arbitration?. In: Chaisse, J., Choukroune, L., Jusoh, S. (eds) Handbook of International Investment Law and Policy. Springer, Singapore. https://doi.org/10.1007/978-981-13-5744-2_118-1
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