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TC Energy Corporation and Transcanada Pipelines Limited v. United States of America (II) - opinion

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TC Energy Corporation and Transcanada Pipelines Limited v. United States of America (II) - decision

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The dispute concerns the Keystone XL Pipeline, a project intended to transport crude oil from Alberta, Canada, to U.S. refineries. The project, partly financed by Alberta Petroleum Marketing Commission (APMC), faced repeated setbacks due to shifting U.S. political decisions. The initial Presidential Permit application (2008) was denied in 2012, prompting a second application, which was also rejected under the Obama administration, leading to an ICSID Arbitration between the parties. However, after the Trump administration approved the permit in 2017, the parties terminated the arbitration and waived future claims related to prior events. The permit was reissued in 2019 but was revoked in January 2021 after President Biden took office. With NAFTA replaced by USMCA in July 2020—and Canada opting out of investor-state arbitration—the claimants initiated a new arbitration in November 2021 under Annex 14-C of the USMCA as a NAFTA legacy claim.

The jurisdictional arguments in TC Energy & TransCanada v. United States (2) focused on whether Annex 14-C of the USMCA allowed claims for breaches occurring after NAFTA’s termination on June 30, 2020, but within the three-year transition period (July 1, 2020 – June 30, 2023). The claimants argued for an expansive interpretation, asserting that Annex 14-C permitted claims based on breaches occurring during the transition period as long as they were filed before June 30, 2023. They maintained that the ordinary meaning of Annex 14-C, its explicit reference to NAFTA Chapter 11, and the principle of good faith supported their position. Additionally, the claimants invoked estoppel and unclean hands, arguing that the United States had induced them to withdraw an earlier NAFTA claim with the promise of a Presidential Permit, only to later revoke it.

In contrast, the United States (respondent) argued for a restrictive interpretation, contending that only breaches occurring before NAFTA’s termination could be arbitrated under Annex 14-C. The U.S. maintained that NAFTA’s substantive protections expired on June 30, 2020, and that the transition period merely extended the dispute resolution mechanism, not the underlying obligations. The U.S. also relied on international law principles, particularly Article 70 of the VCLT, which states that once a treaty is terminated, its obligations no longer apply unless expressly preserved. The U.S. further emphasized that allowing claims for post-2020 breaches would conflict with the USMCA's purpose of replacing NAFTA and create uncertainty over applicable legal standards.

The tribunal majority (Mourre & Crook) upheld the restrictive interpretation and declined jurisdiction, ruling that Annex 14-C only preserved the arbitration mechanism, not NAFTA’s substantive protections. The majority based its decision on several key findings:

1.	Ordinary treaty interpretation (VCLT Article 31) indicated that NAFTA’s substantive obligations ended on June 30, 2020, and only the arbitration process was temporarily extended.
2.	Contextual evidence, including footnotes in Annex 14-C and other USMCA provisions, confirmed that no provision extended NAFTA’s investment protections beyond its termination date.
3.	Treaty termination rules (VCLT Article 70) supported the conclusion that a treaty’s substantive provisions do not survive termination unless expressly stated.
4.	Good faith and estoppel arguments were rejected, as the tribunal found no evidence that the U.S. had misled the claimants into believing that NAFTA’s protections would continue post-2020.

In dissent, Arbitrator Alvarez argued for the expansive interpretation, stating that Annex 14-C’s reference to NAFTA Chapter 11 implied that its substantive protections should remain in force throughout the transition period. He maintained that the ordinary meaning of the treaty text, footnotes in Annex 14-C, and negotiation history supported the claimants' position. He also criticized the majority’s ruling for adding a condition not found in the treaty text, arguing that NAFTA’s investment protections should have applied for the full three-year transition period.
Ultimately, the tribunal declined jurisdiction over the claim, ruling that breaches occurring after NAFTA’s termination were not covered under Annex 14-C. The claimants were ordered to pay the arbitration costs, marking a significant decision on the scope of NAFTA legacy claims under the USMCA.

Merits:
The Tribunal did not analyze the merits of the case as it declined jurisdiction to hear the case based on the reasons above set.

Conclusion:
Ultimately, the tribunal majority upheld the restrictive view, ruling that Annex 14-C preserved only NAFTA’s arbitration mechanism, not its substantive protections. A dissenting opinion, however, supported the expansive view, arguing that NAFTA’s investment protections should have applied throughout the transition period.

TC Energy Corporation and Transcanada Pipelines Limited v. United States of America (II)

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TC Energy Corporation and Transcanada Pipelines Limited v. United States of America (II) - opinion

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