On April 1st, 2021, a NAFTA tribunal rejected a US oil and gas company’s claim against Canada for revoking a fracking permit. The company, Lone Pine Resources Inc., had sought $250 million in damages from the Canadian government following the revocation of an exploratory oil and gas project in Quebec. This case highlights the complexities surrounding investment disputes between countries with free trade agreements such as NAFTA.
The Background of the Case
Lone Pine Resources Inc., an American oil and gas company, initiated arbitration proceedings against Canada after their request to explore natural gas off the coast of Quebec was denied. The company had already acquired two permits from the Quebec government that allowed them to explore natural gas by using hydraulic fracturing (or “fracking”). However, this permit was revoked by the Supreme Court of Canada due to environmental concerns about potential harm to endangered species living in the St. Lawrence River.
The International Arbitration Process
Under Article 1139(1) of NAFTA, Lone Pine invoked international arbitration proceedings against Canada, seeking $250 million in compensation for lost profits resulting from the revocation of their fracking permits. The tribunal was composed of three members; one chosen by each party (the US and Canadian governments) and one agreed upon jointly by both parties. After deliberating on the case, they issued a divided ruling which stated that Lone Pine had failed to prove its claims and thus could not receive any compensation from Canada.
Implications of this Ruling
This decision is significant because it sets an important precedent regarding how investment disputes should be addressed under the free trade agreements such as NAFTA. Companies must understand that they will only sometimes be successful in seeking financial compensation when pursuing international arbitration proceedings. This case also shows that companies considering investing in countries with more stringent environmental regulations must be prepared for unexpected changes or delays that may arise during their projects’ development stages.
This case helps highlight some of the complexities surrounding investment disputes between countries with free trade agreements such as NAFTA. It serves as a reminder that although international arbitration can provide companies with a means to seek financial compensation when facing unexpected changes or delays during project development stages, business owners must understand that specific environmental regulations are necessary to protect vulnerable ecosystems around the world and therefore have priority over any economic considerations. By understanding these nuances and preparing accordingly, businesses can minimize potential losses while still engaging in global investments responsibly and ethically.