Ontario Court of Appeal dismisses appeal of Union challenging constitutionality of NAFTA arbitration tribunals set up to resolve investors disputes since they deal only with issues arising between parties to nafta and have not been incorporated into Canadian domestic law
The Council of Canadians, members of the Canadian Union of Postal Workers and members of the Charter Committee on Poverty Issues filed a suit in the Ontario courts. It challenged the constitutionality of Canada's agreement in the North American Free Trade Agreement (NAFTA) to set up arbitration Tribunals to resolve claims by foreign investors that they had suffered damage due to governmental measures undertaken by Canada.
The application judge first took up the question of whether Section 96 of the Constitution Act of 1867 applied to the investor state arbitration mechanism in Chapter 11 of NAFTA. She found that it did not because Canada had not made NAFTA part of Canada's domestic law. The Act provides that: "The Governor General shall appoint the Judges of the Superior, District, and County Courts in each Province, except those of the Courts of Probate in Nova Scotia and New Brunswick."
While NAFTA does provide standing to foreign investors, the obligations enforced by NAFTA tribunals constitute international commitments made by that Treaty among the three NAFTA parties, Canada, Mexico and the United States. She held that Section 96 of the Constitution Act did not affect NAFTA as an international agreement.
Assuming arguendo that the Canadian courts might someday decide that Section 96 does reach the NAFTA tribunals, the judge concluded that there was still no violation. The arbitration tribunals decide only whether a NAFTA Party had breached its Treaty obligations, a type of jurisdiction that superior courts have never exercised. Since an aggrieved investor could complain about a government measure either to a domestic court or to a NAFTA tribunal, the latter did not have exclusive jurisdiction to hear disputes about contested government measures. Thus, NAFTA could not have usurped a core function of the superior courts.
Finally, the judge held that the mere establishment through NAFTA of the system of arbitration tribunals did not breach any rights guaranteed by the Charter of Rights and Freedoms. As a result, any question of a Charter violation arising from a particular tribunal decision was premature. Plaintiffs took an appeal.
The Ontario Court of Appeal, however, dismisses. The application judge correctly determined that the tribunals set up under Chapter 11 had not been incorporated into the domestic law of Canada thus removing one possible basis for applying Section 96 to them.
There is a clear and well known distinction in Canadian law between (1) parliamentary approval of a treaty on one hand, and (2) incorporation of that treaty into domestic law on the other. The NAFTA Implementation Act clearly did the former, and just as clearly did not purport to do the latter. The provision in the Commercial Arbitration Act that made decisions by NAFTA tribunals enforceable in Canadian courts, went no further.
"Although framed as an appointing power accorded to the federal government, it is now well established that Section 96 was designed to ensure the independence of the judiciary and to provide some uniformity to the judicial system throughout the country. See, for example, Reference re Amendments to the Residential Tenancies Act, (N. S.), [1996] 1 S. C. R. 186. Moreover, the application of Section 96 must be addressed in functional terms if it is to properly serve these purposes. See McEvoy v. New Brunswick (A.G.), [1983] 1 S. C. R. 704 at 718." [¶ 31]
The Residential Tenancies case laid down the well known test for determining whether a conferral of power on an inferior tribunal violates Section 96. Paragraph 74 of that ruling explains further. "It consists of three steps, represented by the following questions: (1) does the power conferred "broadly conform' to a power or jurisdiction exercised by a superior, district or county court at the time of Confederation? (2) if so, is it a judicial power? (3) if so, is the power either subsidiary or ancillary to a predominantly administrative function or necessarily incidental to such a function? The first two steps may be seen as identifying potential violations of Section 96; the last step as setting out the circumstances in which the transfer of a Section 96 power to an inferior tribunal is "transformed' and hence constitutionalized by the administrative context in which it is exercised." [¶ 32].
"Even if the conferral of the power in question does not transgress the Residential Tenancies test, if it constitutes the complete removal from the superior courts of a power that is integral to the core or inherent jurisdiction of those courts, it will nonetheless violate Section 96. ..."
"In applying the Residential Tenancies test, the application judge focused on the first of these three steps. In my view, the same focus is warranted in this court. ... [T]his step is designed to determine whether the power conferred on the inferior tribunal is analogous to, or in broad conformity with, one exercised by the courts that became Section 96 courts at the time of Confederation."
"She said that this requires that the power be characterized by focusing on the type of dispute involved, rather than on a technical analysis of the remedies used by the tribunal. She also directed that, in applying step one of the test, the reviewing court look at the subject matter of the disputes being resolved and not [at the] the apparatus of adjudication used to resolve them."
"Keeping these considerations in mind, I have no doubt that the application judge was correct in concluding that the power conferred on NAFTA tribunals is not analogous to one exercised by superior courts at the time of Confederation."
"The type of dispute to be resolved by those tribunals is clearly revealed by Chapter 11 of NAFTA, their only source of power. The state obligations they enforce are set out in Article 11. Article 1102 is the "national treatment' obligation, namely, the obligation of each Party to accord investors of another Party treatment no less favourable than it accords to its own investors."
"Article 1103 is the "most favoured nation' treatment obligation, namely the obligation of each Party to accord investors of another Party treatment no less favourable than that accorded to investors of any other state. Article 1105 is the minimum standard of treatment obligation, that is, the obligation of each Party to accord investors of another Party fair and equitable treatment. Finally, article 1110 contains the obligation of each Party not to expropriate investments from investors of another Party except for a public purpose, on a non discriminatory basis and in accordance with due process and with compensation."
"These are all state obligations mutually undertaken in NAFTA by the three Parties signing the Treaty. They derive only from the Treaty. They bind the three Parties only because they signed the Treaty. And they regulate only the conduct of each Party in adopting measures relating to investors from another Party. The NAFTA tribunals only have power to adjudicate upon the consistency of governmental measures with these state obligations. Alleged inconsistency with these state obligations are the causes of action that NAFTA tribunals have authority to determine."
"We have been shown nothing that suggests that there were any domestic causes of action known to the superior courts at the time of Confederation that could be said to be broadly analogous to these international obligations to accord national treatment, most favoured nation treatment, and fair and reasonable treatment to the foreign investors."
"The only arguable exception is the expropriation obligation contained in article 1110. However, this is but one particular obligation among those that are part of the scheme of powers given to NAFTA tribunals. That scheme is animated by the principle of protecting and promoting international investment throughout North America by giving investors of any Party the capacity to bring claims under NAFTA against another NAFTA Party."
"This is a quite different principle from the traditional domestic law of expropriation which is designed to regulate the government taking of domestic private property, not to facilitate the flow of international investment in North America. This difference is enough to constitute even the expropriation component of the powers of NAFTA tribunals [as] a novel jurisdiction different from the expropriation jurisdiction of superior courts at the time of Confederation."
"In addition to the obligations enforced by these tribunals, the law they must apply and the limits on the effect of their decisions are also relevant at step one of the Residential Tenancies test. Article 1131 of NAFTA obliges the tribunals to decide the disputes before them in accordance with NAFTA, and the applicable rules of international law. Article 1136(1) ensures that the tribunals have no power to alter or affect domestic laws through their awards by providing that these awards have no binding effect except between the disputing parties and in respect of the particular case. By contrast, the process of superior courts are shaped by domestic law and clearly carry effects beyond the immediate litigants and the particular case."
"In summary then, these tribunals have been given the power to adjudicate only upon alleged breaches of the international obligations mutually undertaken by treaty by the NAFTA Parties, obligations which have no counterpart in pre 1867 domestic law in Canada. They are to do so using international law principles"not domestic law"and they are to issue awards which have no effect beyond the disputing parties and the particular case. In all these respects, there is no broad conformity with a Section 96 court power." [¶¶ 33 42]
Nor was there was any removal of original jurisdiction from the superior courts. Article 1121 expressly contemplated that investors could elect to proceed in the domestic courts rather than complain to a NAFTA tribunal.
The appellants also contended that Section 96 courts cannot exercise judicial review over NAFTA tribunals constituted outside Canada thus removing that core function from those courts.
"Again the answer is straightforward. The judicial review jurisdiction of Section 96 courts is with respect to tribunals constituted under domestic law for alleged violations of domestic law. It has never been a part of the core jurisdiction of superior courts to review international tribunals conducted offshore and acting under international law." [¶ 55].
Citation: Council of Canadians v. Canada (Attorney General), [2006] O. J. No. 4751; 2006 ON. C. LEXIS 4649 (Ontario Ct. App. 2006).
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