The Council of Canadians, Canadian Union of Postal Workers and the Charter Committee on Poverty Issues
vs.
The Government of Canada
Re: The Constitutionality of NAFTA Investment Rules
On July 8, 2005 the Superior Court of Ontario dismissed a challenge to NAFTA investment rules brought by the Council of Canadians, the Canadian Union of Postal Workers and the Charter Committee on Poverty Issues. While the Court acknowledged that NAFTA’s investment regime may compromise Canada’s sovereignty and is administered in a manner that is neither transparent nor accountable, the Court nevertheless concluded that it does not offend Canada’s constitution. The groups will appeal the Court ruling to the Ontario Court of Appeal.
The case was the first to question the lawfulness of NAFTA and takes aim at the trade deal’s investment rules that empower foreign corporations to sue governments for taking actions which interfere with the profitability of their investments, even where such government measures are non-discriminatory and taken entirely in the public interest.
These extraordinary investor rights have now been invoked by foreign investors and corporations to challenge environmental laws, municipal land-use controls, water protection measures, the activities of Canada Post, and even the decisions of juries and appellate courts. Once initiated, NAFTA investor-state claims are decided by private international tribunals that operate entirely outside the framework of Canadian law and constitutional safeguards including those of the Charter of Rights and Freedoms. Yet the multi-million damage awards against governments made by such tribunals are binding and may be enforced as judgments of Canadian Courts.
The groups had sought declarations by the Court that NAFTA investor-state procedures, and the Canadian laws that implement them, are void and of no force and effect. They argued that the federal government acted unlawfully by establishing NAFTA investor-state for several reasons.
First, the groups argued that it was unlawful for the federal government to delegate the authority of Canada’s superior courts to unaccountable international tribunals. By contracting out the Court’s judicial role in this manner, government was fundamentally undermining the independence of Canadian courts, contrary to section 96 of the Constitution. Mme. Justice Peppal disagreed, and ruled that NAFTA investor-state arbitration is entirely a creature of international not domestic law and therefore does not offend section 96.
But the notion that international law and domestic law exist in different spheres has little if any practical meaning when international agreements can give rise to damage awards and trade sanctions that are measured in the hundreds of $millions. In the context of globalization, trade rules trump domestic law in a way international law has never impinged on sovereignty. In addition to skirting this question, the Court ignored the fact that NAFTA investment rules are in fact formally integrated into Canadian law because the awards of NAFTA tribunals are enforceable under Canadian law.
Second, the groups complained that investor-state proceedings offend both the principles of constitutionalism and the rule of law by subjecting the exercise of superior court authority to review by tribunals which are unbound by legal precedent, subject to no right of appeal, and which operate entirely outside the framework of the constitution. On at least two occasions investor-state tribunals have reviewed the decisions of domestic courts to determine whether those courts accorded foreign investors proper and fair treatment. But the judge reasoned that because investor-state tribunals exercise no formal appellate role, these reviews did not impinge on judicial independence.
It is true that investor-state tribunals have no formal authority to reverse the judgments of domestic courts, but they do have the authority to sanction domestic judicial conduct by ordering that damages be paid to foreign investors where courts offend NAFTA investment rules. Furthermore when Canadian laws have been found to violate NAFTA rules, they have in fact been rescinded.
The groups further argued that under this NAFTA regime, the accountability of the Prime Minister and his cabinet is not to Parliament, but instead to private arbitral tribunals which may be subject to no supervision by Canadian courts. Dismissing this argument as well, the Judge again relied upon the lack of any formal (as opposed to practical and effective) compulsion for Canadians governments to comply with NAFTA-based tribunal awards.
Finally the groups argued the adjudication of legal disputes between individual investors and the state cannot be placed beyond the reach of Canadian constitutional principles. NAFTA tribunals are neither competent nor authorized to apply Canadian constitutional principles including those of the Charter of Rights and Freedoms yet they are authorized to judge matters affecting a wide range of legislation and public policy. It is therefore unconstitutional, the groups argued, to grant them such adjudicative authority.
The court declined to consider this argument on the grounds that it was premature in the absence of allegations that Charter rights had been violated in a particular case. But the groups had asked the Court to consider a more systemic problem, namely the one caused by creating an arbitral regime that can sanction Canadian governments for its policies and law, without any regard to the Constitutional rights of Canadians including those set out in the Charter. This is the question the Court was unwilling to consider.
The groups will now ask the Ontario Court of Appeal to review Justice Peppal’s ruling. They will attempt to persuade the Appeal Court that the coercive authority of NAFTA arbitral tribunals, the secrecy that envelops their proceedings, and the very limited scope for judicial review of arbitral awards should be seen as representing a direct assault on the bedrock principles concerning the administration of justice under Canada’s Constitution.
Steven Shrybman, Sack Goldblatt Mitchell
