S.D. Myers, Inc. v Canada

Year of the award: 2000 - 2002
Forum/Rules: Ad Hoc Tribunal (UNCITRAL arbitration rules)
Applicable investment treaty: NAFTA

Arbitrators:
Mr J. Martin Hunter - President
Mr Bryan P. Schwarts
Mr Edward C. Chiasson

Executive summary

SDMI, a U.S. corporation engaged in treatment of Polychlorinated biphenyl (PCB), an environmentally hazardous chemical compound, established an investment in Canada (MYERS Canada) to obtain Canadian PCB waste for treatment by SDMI in its U.S. facility.

In 1980 the U.S. closed the border for the movement of PCB waste, but in the fall of 1995 SDMI was granted permission to import PCB from Canada. Promptly after this Canada issued an Order prohibiting the export of PCB waste to the U.S. thus precluding SDMI and its Canadian investment from carrying out the business they intended to. The prohibition was in effect for approximately 16 months.

SDMI brought a claim under NAFTA Chapter 11 alleging that Canada violated a number of its NAFTA obligations and claiming damages that arose therefrom. The Tribunal established a violation of NAFTA national treatment and minimum standard of treatment provisions as the evidence showed that the Order was intended primarily to protect the Canadian PCB disposal industry from U.S. competition and favoured Canadian nationals. SDMI's claims in respect of performance requirements and expropriation were dismissed.

The issue of damages was addressed by the Tribunal in detail. It elucidated a number of general principles on awarding damages, including the following:

  • the "fair market standard" may not apply in non-expropriation cases; instead, rules of public international law (the Chorzow doctrine) may be applied;
  • damage does not necessarily have to arise in the host state in order to recoverable; it simply has to be a result of the measure at issue;
  • availability of other remedies under NAFTA does not deprive an investor from remedies under NAFTA Chapter 11 (cumulative principle);
  • when a measure at issue breaches more than one investment-treaty provision, there should be no 'double recovery'.
  • in relation to the issue of causation, the 'proximity' was supported; the 'foreseeability' and 'direct/indirect damages' approaches rejected.

SDMI claimed compensation for lost profits, loss of opportunity, out-of-pocket expenses and goodwill. Out of these, only the issue of lost profits received significant attention from the Tribunal. In great detail the Tribunal set out its methodology and findings on this issue. However, these methodology and findings are very fact-specific and will not necessarily be relevant for future cases.

The Tribunal awarded CAN$6 million in compensation (cf. more than US$70 million claimed by SDMI), plus interest calculated from the date of notice of arbitration and compounded annually.

Canada attempted to set aside the Tribunal's award in the Federal Court of Canada but its application for judicial review was dismissed (issue of damages was not discussed).