INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES (ICSID) IN THE MATTER OF AN ARBITRATION UNDER CHAPTER ELEVEN OF THE NORTH AMERICAN FREE TRADE AGREEMENT

BETWEEN ADF GROUP INC. AND UNITED STATES OF AMERICA CASE NO. ARB(AF)/00/1 AWARD*

in The Journal of World Investment & Trade
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INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES (ICSID) IN THE MATTER OF AN ARBITRATION UNDER CHAPTER ELEVEN OF THE NORTH AMERICAN FREE TRADE AGREEMENT

BETWEEN ADF GROUP INC. AND UNITED STATES OF AMERICA CASE NO. ARB(AF)/00/1 AWARD*

in The Journal of World Investment & Trade

References

* Data of dispatch to thc Parties: 9 January 2003. Thc current text reproduccd hcrc contains only part of the Award, i,iz., Sections i-m (paras. 1-59) and Scctions v-vi (paras. )2f�—2()0). Thc tull text is available at: «www.naftaclaims.org».

1 Claiiiiaiit's Memorial, paras. 49-50. 2 Respoildent's Submission, para. 7.

1 See Claimant's Rcply at para. 17. 4 See Respondent's Final Observations, p. 3. ' Citing Outline of Argument of Intervenor Attorney General of Canada in Mctaldad, para. 30, Tab. 17 of Claimant's Memorial, p. 12.

fi Rcspondcnt's Final Observations, p. 4 and footilotc 2. 7 Claimant's Response, para. 13.

8EthylCorp.P.Government4 Catlada, decision regarding the place ofarbitration of 28 November 1997, 38 Il 700 (1999); Tab. 23 ofClaimant's Memorial; and Mcthancx Cory. p, '/7u' United States of America, written reasons for Tribunal's decision of7 September on place of arbitration, 21 December 2000, U.S. Appendix, Exhibit 1.

4 See Counter-Mernorial of Rcspondcnt Unitcd States of America on Competence and Liability, dated 29 November 2001 (Respondent Counter-Memorial), pp. 4-7. �" Order No. D30; Contract ID No. C0OOOO54C02, Vol. i, Materials and (ascs, A and 13, Tab 13-1, appcnded to C.laimant's Memorial.

" Respondent's C:ounter-Mernorial, p. 8. 12 para. ? of Exhibit B of Sub-C:ontract, Vol. i, Materials and C:asrs, A and B, Tab. B-3, appmdcd to Claimant's Memorial. 1J Ibid., para. 4. 14 Ibid., para. 5, and Unit Price Schedule. I, Ibid., para. 5. 1(, Ibid., para. 10. 17 Respondent's Countcr-Mcmorial, p. 8.

1S Letter of Shirlcy to VnoT, dated 19 April 1999, Materials and Cascs Vol. i-A and t3, Tab. A-3, p. 1, appended to Claimant's Memorial. 1'1 Letter of C.F. Gee of Vdot, dated 28 April 1!>99, to M.E. Post of Shirley, ibid., Tab. A-4, pp. 1-2. 2'' Invcstor'.s Memorial, paragraphs 13-17.

21 Investor, Memorial, paragraphs 18-ZI. 1. 22 Letter of Mr P. Paschini, Adh International, to Mr M.E. Post, Shirley, dated 25 Junc 1999, pp. 3-4; i; Investor's Materials and Cases, Vol. I-A and 13, Tab. A-7. 21 Ibid., pp. 4-6. 24 Letter of Mr M.E. Post, Shirley, to Mr C.F. Gee, Vl >7, dated 2y June 1999; Investor's Materials and Cases, Vol. i-A and 13, Tab. A-8. 25 Letter ofMr C.F. Gee, VDOT, to Mr M.E. Post, Shirley, datcd 26July 1999; Investor's Materials and Cases, Vol. I-A and B, Tab. A-12.

21, Investors Memorial, para. 27; Respondent's Counter-Mcmorial, p. 13. 21 Exhibit 2 ot [hc Investor's Memorial, the witness statement of Pierre Paschini at paras. 51-53. =" Respondent's Counter-Mcmorial, p. 13.

2') 23 USCA See. 101; Vol. n-Investor's Materials and Gases, A.1, Tab. A-4. Thc full text of Section 165 of thc STAA of 1982, as currently amended, is also quoted in thc Investor's Memorial, para. 47. "' 23 CFR 635.410; ibid., Tab. A-7. The full text of23 (:fa 635.410, as currently amended, is also quoted in the Investor's Memorial, para. 53.

" Text quoted in exterrso in Invcstor's Memorial, p. 4; Material and Cases Appended to Investor's Memorial, Vol. I-A and B, Tab-13(1) cxccrpts from main contract containing VDOT Section 102.5; Tab B(3) Shirlcy/ ADF Sub-Contract, paragraph 12, incorporating Exhibit 13, paragraph 4 providing that contractor acknowledges domestic content requirernents of Section 102. 12 Investor's Memorial, para. 6; Respondcnt's Countcr-Memorial on Competence and Liability, pp. 14-18. .1.1 In Tab B(3), Exhibit B, para. 4; supra, note 31.

.14 Investor's Memorial, pp. 11- 14. The Investor points to ehe definition of "measure" in Article 201 (1), NAHA, as including "any law, regulation, procedure, requirement or practice." It may also be note<1 tliat thc Investor rcfcrs to the Interpretation and application of the measures in qucstion "in the Springfield(1 Interchange Project in particular, or in any Federal-aid Highway Yroject in general." Ibid., p. 14. .\5 Legal Opinion dated 22 March 1999, from Emalfarb, Swan and Bain; Materials and Cases, Vol. I-A an<1 B, Tab 2, Armexed to Investor's Memorial. The opiuion seems to have been post-dated.

111 Note B to Article 40 ofthe Icsil) Arbitratiou Rulcs suggests that "the test to satisfy this condition is whether the facutal connection between the original and the allrillary �i.e. ificidentall claim�s) is so close as to reqtiire the adjndianiort of tlte Intter in order to achieve the final scttlemcnt ofthe disi)iite, thc objcct bcing to disposc of all grounds of disputc arising out ofthc satlic subject matter." /f.'.'i;D RffH��'t'Hx and Rules with rsplanatory Notes Prepared by the Secretariat oflcstD; (1975) p. 105 (emphases added). Article 4H of the 1(:sii) Arbitration (Additional Facility) Rules reproduces paragraphs 1 and 2 ofArticle 40 ofthe 1(:"ii) Arbitration Rules. C.H. Schreuer, The ICSID Converttion: A Commentary (2001) p. 738, referring to Article 46 of thc Convention, writes: "This close conncction is not a matter of jurisdiction. The wording of Article 46 makes it clear that the `arising dircctly' rcquircmcnt is in addition to jurisdiction. A claims may well be witlün the Cmtre '5 jllrisdictiOIl but not arise directly_frotn the subject matter oJ' a particular dispute �f/βrc the triburtal. An obvious example would be a claim arising from a different investment operation benveerr tlu- same investor atid the same liost state also covered by all IcsiD arbitration rlause..." (para. 49) (emphasis added). See further, id., p. 742, para. 62.

132 See, e.g. United .States-Import Proleibition of Certain Slsrirnp and Shrimp l'roducts, Report 4the Appellate Body (AB-1998-4) (WT/DS58/AB/R) adopted 12 Octobcr 1998, para. 114; EC-Measnres C(iticerniti.z Meat and Meat Prodmts (Hormones), Report gf Appellate Body (AB-1997-4) (WT/DS26/AB/R; WT/19548/ÄB/R) adopted 16 January 1998, paras. 181, 165.

111 l'iciiiiaConventionontheLAll' 4 Treaties, 23 May 1969 (UN Doc. A/Conf 39/27), Articles 31, 32. See also, in this connection, J.R. Johnson, The North American t;rc:e 'IYade A,�reement: A Comprehensive Gllide (Toronto, 1994).

�" See liejoinder of the U.S. at page 27.

15� Rejoillder of the U.S. at pages 25-27. 1Wl See letter of 8July 1999 from the National Steel Bridge Alliance to the Fi iwa referred to in para. 54, snpra.

157 See statement of Mr Paschini referred to in para. 55, svprn.

151Webster'.aNew7wepitietitCenturyDictionary oflheEt�Zli-�liIjmguage,Clllabridged (2d Edition, 1976) p. 1435. "0/ The French text of NnrTn Article 1108(7) uses the tcrrn "achats effectucs par une Partie". The French text is included in Materials and Cises, Annexed to the Memorial ofthe Investor, Vol. II-A.l, Tab. 1, p. 11-5. The Spanish text refers to "1,ins rornprns realizadas por una Parte"; available at «http://www.nafta-sec-alena.org/ spanish/nafta/chap-111.httl1». 1611 Invcstor's Memorial, Materials and Cases Vol. Exhibit B(3) iiitrodlictory paragraph.

"'' Text in J. Crawfbrd, The International Law COllllllissioll Articles Oll State R�<�-«7'f�Yy.' Introduction, Text and Cornmentaries (2002) p. 94. The international customary law Status of the rule is recognize in, illter alia, D!{fererlces Relntiny to Lmrnunity frorn Regal I'rocess of a Special napporteur ol'tiie Gommission on Human Rights, 1.Cj. Reports 1999, p. 62, at p. 87, para. 62. See also paras. 8, 9 and 10 ofthe Commentary ofthe LL.C., stressing that "the principle in Articlc 4 applies equally to organs ofthe central government and to those of regional or local units" (para. 8; p. 97), and that "[i]t docs not matter for this purpose whether the territorial unit in question is a component unit of a federal State or a specific autonomous arca, and it is equally irrelevnnt whether the internal law of the State in question gives the federal parliament power to compcl the component unit to abide by the State's international obligations." (para. 9; p. 97).

"l2Supra, paras. 84-85. 11,.1 Supra, para. 101. 11,4 Investor's Reply tu the U.S. Counter-Memorial on C'nompetence and Liability, paras. 14()-159. 1(,; The provisions of the Clcan Water Act (33 U.S.C., See. 1281 [h][l]-[3]) relied upon by the Invcstor reads in part as follows: "(h) A grant may be made under this section to construct a privately owned treatment plant serving one or more principal residrnces or small conunercial establishments constructed prior to, and inhabited in Dcccmbcr 27, 1977, where thc Administrator finds that: (1) a public body otherwise eligible for a grant undcr subsection (g) ofthis section has applied on behalf of number ofsuch units and certified that public ownership of such works is not feasible; ..." 166 Ibid.

107 J.C. Thomas, ReHections on Article 1105 of NAnil: History, State Practice anrl the Inβllenee of Commentators, 17 ICSIU Review-Foreign Investment Law Journal 21, at 22-39 (2002) provides a recent survey of this debate. See also, e.g., G. Schwarzenberger, luternational Law, Vol. 1 (3d edition, 1957) 200 et. seq. and A.V. Freeman, 77le International Responsibility of States for Denial of Justice, chaps. 17-18 (1938). "•" Transcript of the Oral Hearing, Vol. 11, 16 April 2002, pp. 492-493. Also Post-Hearing Submission of the United States, 27 Junc 2002, p. 20. 1IW Transcript of thc Oral Hearing, Vol. II, 16 April 2002, p. 501. 1711 See Canada's Second Submission Pursuant to NAFTA Article 1128, 19 July 2002, para. 33: "Canada's position has never been that thc customary international law regarding the treatment. of aliens was 'frozen in amber at the time of the Neer decision'. Obviously, what is shocking or egregious in the year 2002 may differ from that which was considered shocking or egregious in 1926. Canada's position has always been that customary international law can evolve over time, but that the threshold for finding violation of the minimum Standard of treatment is still high." "' See the Second Submission of the United Mexican States in the Matter of AnF Group. Inc. v. United States of America, 22 July 2002, p. 11. In the Pipe and Talbot case, Mexico submitted that "fit] also agrecs that the standard is relative and that conduct which may not have violated international law [in] the 1920's might very well be seen to offend internationally accepted principles today." As quoted in the 1'ope and Talbot Award on Damages, para. 8.

172 Icsid Case No. ARs(AF)/9912. 173 Id., paras. 114, 115 & 116.

174 Id., para. 117. See, in this connection: c.g., S. Vasciannic, 71", Fair alld Eqllitablc Treatmunt Standard International Investment Law and Practice, 70 Brit. Yb. Int L. 99 (1999); Fair and L'quitalrfe Treatment, UNCTAD Scries on Issucs in International Investnent Agreements (1999) (based on manuscript prepared by S. Vasciannir); lt. Dolzer and M. Stevens, βilateral Investment Treaties, chap. 3 (1995); and J.C. Thomas, cupra, note 167, pp. 39-51. Note may also be taken of the continuing efforts of nmnber of countrics to achieve, during the ongoing Doha Round of tradc ncgotiations, a general multilatcral coliveiitioii on the promotion and protcction of foreign investment within the framework of the World Trade Organization.

175 Id., para. 119. 176 Ibid. Schwarzenberger, supra, note 167, at p. 231 makes the comment that "[ilt is arguable that thc law- creating process on which [the minimum] Standard [of treatment of aliens] now rests is either international customary law or the general printiples of law recoglllzed hy civilized nations." (Emphasis added). Bin Cheng, General I'rinciples ofLaw (1953) stresses the organic nature of general principles oflaw as one of the sources ofinternational law.

177 See, supra, para. 94. I7X See, supra, para. 168. 179 See the nutterials referred to in thc Rcspondcnt's Counter-Memorial, pp. 3cm31. 1811 See, supra, para. 99.

181 The very gcueral assertions adduced by the Investor are summarized suprn, para. 72. The Investor appears to argue principally that the Fiiwa disregarded the language of See. 165 of the 1982 STAA in issuing then implcmcnting regulations. It appears to the Tribunal that the Investor believes that the FHWA fell mto legal error in its interpretation of Sec. 165. lt seems unnecessary to add that, in any event, such error, if error there was, does not automatically translatc into lack or excess of authority on the part of Fi IWA. 112 In Mondev, thc tribunal conuncnted that "[olii the approach adopted by A10lldcIJ, NAFTA tribunals would turn into courts ofappcal, which is not their rolc." Mondev International Ltd. v. United States ofAmerica, lcsil) Case No. Ai�B(AF)/99/2, 11 Octobcr 2002, para. 136. Wc agrec also with the statement of Mexico in its Pre-hearing Submission under Articlc 1128, that thc Tribunal is not called upon to sit as a "court of appeals" in respect of uational law; suprn, para. 1 24. The saine view was earlier set out in Robert Azinian and others v. United Mexican States, ICSID Case No. Attlt(AF)/97/2, para. 99: "'1'ke yossibility of holding a State internationally liableforjudicial decisioiis does not, however, entitfc a daimant (0 seek international revieu, ofthe national court decisions its t6ou�h the international jurisdininn seized has plenary appellate jurisdirtinrr. This is not true generally and it /101 trtll')<1/' NAFH. What rnust be shou,rr is that the court decision itself constitutes a violation of the treaty ..." (Emphasis partly in original and partly added). Cf. the statement in S.U. Myers, Inc. v. Canada that: "[w]hen interpreting and applying the 'tiiiiiiiiiuiii Standard', a Chapter 11 tribunal does not have an open-ended mandate to second-guess governments decision-making ..." (para. 261 ofthe Myers Award rendered under the UNCrrRm Rttles). Cf. also the statement in Marvin Roy Fefdman Kaq�a v. !7n�<'d Mexican States (1(:sll) Case No. ARH(AF)/99/)), Interim Decision on Jurisdiction, 6 December 2000, para. 61: "[TJhc Tribunal docs not have, in principle, jurisdiction to decide upon claims arising because of an allege viofation o_f gencral international law or floin(stic Mexiran �n' ..." (Emphases added). 181 Cf. the statements of a Chamber of the International Court of Justice in the Case Concerning Elertnmica Sicufa, S.p.A. (Ftst) (U.,S. v. litily) (1989) LC.J. Rcp_ 4, para. 124. IH4 See Article 7 of the International I.aw Cornmission's Draft Articles on Responsibility of States for Internationally Wrongful Acts; text in J. Crawford, supra, noted 161, p. 106.

I<;Supra, paras. 77 ei seg. The pcrtinent portions of the U.S.-Albania and U.S.-Estonia treaties are quoted, supra, paras. 77 and 79. 116 Supra, paras. 187 et seq. 1H7 Supra, id.

188 Supra, para. 107. See, in this connection, J.C. Thomas, ReNedious nn Article 7105 o(N1/-T4, slIpra, note 167, at p. 51, whcrc hc concludes, after a quick but comprchcnsivc survey of trcaty practice (pp. 39-51), that "[wjhilc thc precise wording varicd, it is cvidcncc that statcs propounding thc negotiation of investment protcction trcaties saw a clear and intended link betwecn constant (or full) protection and security and fair and equitable treatrnent and the international minirnum Standard at gencral intcmational law. Tht former werc coiisidcrcd to be expressions of the latter." Siipra, paras. 160 et seg. 1'111 Icsin Case No. ARU/97/7, 25 January 2000; 40 Imn 1129 (2001). ''" 40 lLm at p. 1139: "While this clause applies to national treatment of foreip investors, it may also be understood to embrace the treatment required by a Governments for its investors abroad, as evidenced by the treaties made to cnsurc tlicir protection. Hence, if a Govcrnment sccks to obtain a dispute sctticmcnt mcthod for its invcstors abroad, which is morc fivorablc than that granted undcr thc basic trcaty to foreign investors in its territory, thc clause may be construed so as to require a similar treatment of the latter."

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