Grand River Enterprises Six Nations, Ltd V United States of America

Final Award: Grand River Enterprises Six Nations, Ltd v United States of America in 2011

United States views on international law (based on the document “Digest of U.S. Practice in International Law”): 122. The Claimants urged that in assessing whether they had an investment satisfying the requirements of NAFTA's Article 1139, the Tribunal should consider the totality of their activities and not weigh each element in isolation. The Tribunal agrees. However, given the relatively restricted definition of “investment” under Article 1139, the Claimants must nonetheless establish an investment that falls within one or more of the categories established by that Article. Viewing the evidence of their activities in the aggregate in light of their claim for hundreds of millions of dollars, the Claimants have failed to show that Jerry Montour, Kenneth Hill and Grand River have an investment in the United States that qualifies as such within any of those categories. They have shown no investment in the United States by way of enterprise, loan, property or other interest conforming to the definition of Article 1139. Their claims, which relate to off-reservation sales of Grand River's cigarettes, are therefore dismissed for lack of jurisdiction.

126. …In this section, the Tribunal addresses the claim of expropriation of Arthur Montour's investment under NAFTA Article 1110, and the contention that the disputed measures are inconsistent with his reasonable and legitimate expectations, a contention also made to support his claim under NAFTA Article 1105.

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A. The Question of the Claimant's Reasonable Expectations 127. In his claims under both NAFTA Articles 1105 and 1110, Arthur Montour contended that the disputed measures, including the complementary legislation, were inconsistent with his reasonable investment-backed expectations. The Respondent agreed that the issue of an investor's reasonable expectations can be relevant to a claim of regulatory expropriation under NAFTA Article 1110, but maintained that such expectations were not legally relevant to claims of denial of fair and equitable treatment under the customary law minimum standard of treatment under NAFTA Article 1105. Given this disagreement, the Tribunal addresses issues related to Arthur Montour's reasonable expectations here, in the context of the Article 1110 claim, where both Parties recognize their potential relevance. The following discussion applies with equal weight to all of Arthur Montour's arguments that his legitimate expectations were frustrated contrary to NAFTA's Chapter 11.

142. As to U.S. domestic law, given its unsettled nature in relevant respects, it is implausible to find that Mr. Montour could have reasonably expected, and reasonably relied on such an expectation as a prudent investor, that states would refrain from applying the MSA measures to him as they have done. … U.S. states had at least a colorable argument under domestic law for valid application of the MSA measures to his activities. By this observation the Tribunal is not expressing agreement with the argument in favor of state regulation. The point is that the relative strength of this argument and the range of relevant domestic judicial precedents were such that Mr. Montour was not in a position to reasonably harbor an expectation, upon which he would be entitled to rely under NAFTA, that he would be free from application of the MSA measures. The Tribunal believes, however, that Mr. Montour did have a reasonable expectation that he could pursue his challenge to the application of the MSA measures to his activities on the basis of U.S. domestic law in U.S. domestic courts, and the Tribunal understands that he in fact has done so.

Developments

143. Similarly, the Tribunal declines to resolve the opposing interpretations of the Jay treaty in relation to Arthur Montour's commercial activities. The Tribunal affirms the importance of the principle of pacta sunt servanda and acknowledges the significant and constructive roles treaties may have in securing the rights of indigenous peoples. The Tribunal also acknowledges the importance of the Jay Treaty for protecting cross-border movement and trade among indigenous peoples in North America. However, Mr. Montour asserts an absolute immunity from state regulation for commercial activities involving cross-border trade at a significant scale, and in doing so relies on an interpretation of the Jay Treaty that is not plainly supported by the text or easily and readily derived from application of accepted rules of treaty interpretation. What is readily apparent, instead, are the ambiguities in the meaning of the text in respect of the far-reaching claimed immunity, especially in light of the understandings and practice of the contemporary treaty parties, Canada and the United States, which are contrary to the Claimants' interpretation and which must be taken into account.…

144. The Tribunal also notes that trade in tobacco products has historically been the subject of close and extensive regulation by U.S. states, a circumstance that should have been known to the Claimant from his extensive past experience in the tobacco business. An investor entering an area traditionally subject to extensive regulation must do so with awareness of the regulatory situation.

145. Given the circumstances—including the unresolved questions involving the Jay Treaty and U.S. domestic law, and the practice of heavy state regulation of sales of tobacco products—the Tribunal holds that Arthur Montour could not reasonably have developed and relied on an expectation, the non-fulfillment of which would infringe NAFTA, that he could carry on a large-scale tobacco distribution business, involving the transportation of large quantities of cigarettes across state lines and into many states of the United States, without encountering state regulation. (As noted above, Native Wholesale Supply's sales on the Seneca Reservation in New York State are not at issue.)

Details

B. Arthur Montour's Expropriation Claim 146. The Tribunal has jurisdiction over Arthur Montour's claim, including his claim that improper enforcement actions by various states other than New York affecting Native Wholesale Supply's sales have resulted in the expropriation of a substantial portion of the value of his investment. The Tribunal accordingly considers here whether the circumstances claimed involved an expropriation in violation of NAFTA Article 1110.

147. The starting point must be the language of Article 1110(1), providing that [n]o Party may directly or indirectly nationalize or expropriate an investment of an investor of another Party in its territory,” unless certain conditions are met (emphasis added). The text speaks of “an investment,” not “an investment or some portion thereof.” The most natural reading of the language is that any act of expropriation will affect the totality of an investment. This is in harmony with the conception of expropriation applied in numerous cases—that expropriation involves the deprivation or impairment of all, or a very significant proportion of, an investor's interests.

148. Other NAFTA Tribunals have regularly construed Article 1110 to require a complete or very substantial deprivation of owners' rights in the totality of the investment, and have rejected expropriation claims where (as here) a claimant remained in possession of an ongoing business. …

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156. The Claimants alleged that the Respondent has violated its obligations to assure national and most-favored-nation treatment under Articles 1102 and 1103 of NAFTA.…

169. However, the record does not establish that Arthur Montour's distribution business was subjected to enforcement measures that were not applied to other similarly situated businesses, or that other similarly situated investments received better treatment. Indeed, the Tribunal understands a core element of Mr. Montour's NAFTA claims to be that he and his distribution companies should not have been subject to the disputed measures applicable to other similarly situated investors and investments, because of his situation as a First Nations trader.

173. The Claimants—and, as relevant here, Arthur Montour—contended that their treatment by various states of the United States violated the Respondent's obligation to accord fair and equitable treatment as required by NAFTA's Article 1105.…

180. In the Claimants' view, the content of the United States' obligations under Article 1105 is further shaped by U.S. obligations under the Jay Treaty, by principles of customary international law involving indigenous peoples, and by international human rights treaties and customary principles of human rights law. At the hearing, the Claimants' counsel urged that such international legal obligations were “relevant” in determining the obligations owed to these Claimants under Article 1105. In response to the Tribunal's question, counsel urged in this regard that the minimum standard of treatment was not a standard applicable to aliens generally, but that it varied to take account the varying status and legal rights of particular claimants.

181. The Tribunal has previously addressed aspects of this line of argument. While other legal rules may shape the context in which Article 1105 is applied, they do not alter the content of the customary international law minimum standard of treatment. This follows from the very conception of the international minimum standard, which the Tribunal must apply pursuant to the Free Trade Commission's direction. The FTC directed that “Article 1105(1) prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment” that must be given to covered investments. This must be read in harmony with the Commission's further instruction that “[a] determination that there has been a breach of another provision of the NAFTA, or of a separate international agreement, does not establish that there has been a breach of Article 1105(1).”

Final Award: Grand River Enterprises Six Nations, Ltd v United States of America in 2011

United States views on international law (based on the document “Digest of U.S. Practice in International Law”): On January 12, 2011, a NAFTA information on Trade, Commercial Relations, Investment, Transportation in this legal Encyclopedia tribunal rejected all remaining claims against the United States brought by Grand River Enterprises Six Nations, Ltd., a Canadian corporation, and Jerry Montour, Kenneth Hill and Arthur Montour Jr., members of Canadian First Nations. Grand River Enterprises Six Nations, Ltd. v. United States of America. Claimants submitted their claims in 2004, challenging certain legislative measures taken by various states related to the landmark 1998 Master Settlement Agreement (“MSA”) between multiple states and major U.S. tobacco companies. In 2006, the tribunal determined that some of the claims brought against the United States were time-barred. see this world legal encyclopedia in relation with the year 2006 at 688-93. see this world legal encyclopedia in relation with the year 2008 at 528-42 for a discussion and excerpts of the United States counter-memorial filed in the case. Claimants had sought as much as $664 million in damages. A media note issued by the State Department summarized the tribunal's conclusions in its final award on the merits:

Developments

The Tribunal held that it did not have jurisdiction over the claims of Grand River Enterprises Six Nations, Ltd., Jerry Montour and Kenneth Hill because these Claimants did not have an investment in the United States. With regard to the claims of Arthur Montour Jr., the Tribunal held that the legislative measures in question were not discriminatory, did not violate the minimum standard of treatment provision of the NAFTA, and did not constitute an expropriation of his investment.

www.state.gov/r/pa/prs/ps/2011/01/154691.htm. Excerpts below discuss each of these conclusions. (Most footnotes have been omitted.) The tribunal's award is available at (internet link) state.gov/documents/organization/156820.pdf 85. This case poses an unusual situation. As relevant here, Grand River's business is centered on the manufacture of cigarettes at Grand River's cigarette plant at Ohsweken in Canada and their sale and export to two distributors in the United States. The three Grand River Claimants' most obvious and substantial investment—the manufacturing plant—is in Canada. One of the distributors—Arthur Montour, the fourth Claimant in this case—clearly is an investor with an investment in the United States. The other distributor—Tobaccoville—is an independent U.S. corporation that purchases Grand River's cigarettes and distributes them off reservation under the terms of a contract with Grand River. It is a U.S. owned and controlled entity. It is not, and could not be, claimed as part of the Claimants' investment.

Details

86. The Claimants' position regarding the investment in the cigarette plant at Ohsweken, Ontario evolved over the course of the proceedings. The Claimants' pleading described their investment as including “millions of dollars … to purchase truly state of the art equipment” for the manufacturing plant. The Claimants initially included $38 million (later reduced to $24 million) in lost investment in equipment in Ohsweken in calculating their damages claim. However, at the hearing, the Claimants' valuation expert expressed reservations about the accuracy of even the reduced figure, and the Claimants withdrew their $24 million claim for damages in respect of their plant in Canada in their closing arguments at the hearing.

87. Prior NAFTA tribunals have held, following extensive briefing and argument, that they do not have jurisdiction over claims that are based upon injury to investments located in one NAFTA Party on account of actions taken by authorities in another. Chapter Eleven would be applicable only to investors of one NAFTA Party who seek to make, are making, or have made, an investment in another NAFTA Party: absent those conditions, both the substantive protection of Section A and the remedies provided in Section B of Chapter Eleven are unavailable to an investor. Thus, the tribunal in Canadian Cattlemen found it lacked jurisdiction over a claimed NAFTA breach “where all of the Claimants' investments at issue are located in the Canadian portion of the North American Free Trade Area and the Claimants do not seek to make, are not making and have not made any investment in the territory of the United States of America.”

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88. Bayview Irrigation District v. United Mexican States is similar. There, U.S. water right holders in the state of Texas alleged that water use authorized in Mexico impaired their U.S. investments. The claim was dismissed on the ground that NAFTA did not provide rights or protections “to investors whose investments are wholly confined to their own national states.” It was held in that case that a salient characteristic of an investment covered by the protection of NAFTA Chapter Eleven would be that the investment is primarily regulated by the law of a state other than the state of the investor's nationality, and that this law is created and applied by that state which is not the state of the investor's nationality.

89. The Tribunal finds the reasoning of these decisions persuasive here. The Claimants' investment in Grand River's cigarette plant in Canada does not satisfy the jurisdictional requirements of a claim under NAFTA Article 1101.

Final Award: Grand River Enterprises Six Nations, Ltd v United States of America in 2011

United States views on international law (based on the document “Digest of U.S. Practice in International Law”): 208. The Tribunal's Conclusions. The language of Article 1105 does not state or suggest a blanket prohibition on discrimination against alien investors' investments, and one cannot assert such a rule under customary international law. States discriminate against foreign investments, often and in many ways, without being called to account for violating the customary minimum standard of protection.…

209. Thus, neither Article 1105 nor the customary international law standard of protection generally prohibits discrimination against foreign investments. Further, it has not been shown that either the text of Article 1105 or the customary minimum standard includes the more specialized prohibitions and requirements involving indigenous peoples invoked here, much less that those requirements have been breached as to Arthur Montour.

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210. It may well be, as the Claimants urged, that there does exist a principle of customary international law requiring governmental authorities to consult indigenous peoples on governmental policies or actions significantly affecting them. One member of the Tribunal has written that there is such a customary rule. Moreover, a recent study by a committee of several international law experts assembled under the auspices of the International Law Association, after an exhaustive survey of relevant state and international practice, found a wide range of customary international law norms concerning indigenous peoples, including “the right to be consulted with respect to any project that may affect them.” As pointed out by the Claimants, the duty of states to consult with indigenous peoples is featured in the United Nations Declaration of the Rights of Indigenous Peoples, particularly in its Article 19 as well as in several other articles. In its Counter-Memorial the Respondent maintained in sweeping terms that the Declaration does not represent customary international law, as did Canada in its non-disputing party submission. However, when questioned by the Tribunal on this point at the hearing, the Respondents' counsel stated that some parts of the Declaration could reflect fundamental human rights principles and emerging customary law.

211. In any event, any obligations requiring consultation run between the state and indigenous peoples as such, that is, as collectivities bound in community. Article 19 of the U.N. Declaration provides that “States shall consult with indigenous peoples through their own representative institutions” (emphasis added). It would go well beyond any articulation of the indigenous consultation norm, as well as far beyond its conceptual foundations as understood by the Tribunal, to hold that the norm obliges consultations with individual investors such as Arthur Montour, who does not purport to have been endowed with authority to represent the First Nations communities of which he is a member in regard to the matters at hand. At the hearing, the Claimants' counsel argued, without any written authority or testimony by someone with direct relevant knowledge, that in the customs of the Haudenosaunee, sovereignty resides with the individual. Hence, as relevant here, Arthur Montour should be seen as the beneficiary of the customary international law obligation for governments to consult with indigenous communities. Thus, the argument went, NAFTA entitled him to be directly consulted before the states took any action affecting his investment. The Tribunal finds this particular argument unpersuasive and unsubstantiated.

Developments

227. As presented in the Claimants' Memorial and Reply, [the denial of justice portion of the Article 1105] claim argued that state legislatures perpetrated a denial of justice by enacting the Escrow laws to require the Claimants to escrow funds as a condition for off-reservation sales of Grand River's cigarettes, even though those cigarettes had not been judicially determined to harm any person. Posed this way, the claim is outside the Tribunal's jurisdiction. It is precluded under Paragraph 103 of the Tribunal's July 2006 Decision on Jurisdiction, which found that the Claimants' claims relating to the original enactment of the Escrow Laws were untimely and barred by NAFTA's Articles 1116(2) and 1117(2).

228. However, at the hearing, the Claimants emphasized the more recent Allocable Share Amendments, urging that their off-reservation sales were injured only as Grand River's cigarettes lost off-reservation market share following the amendments, so that their enactment resulted in a denial of justice. The Tribunal does not have jurisdiction regarding the claims of Kenneth Hill, Jerry Montour and Grand River related to those off-reservation sales. Accordingly, the [denial of justice] Article 1105 Claim as it pertains to those sales is outside the Tribunal's jurisdiction and is dismissed.

229. The Claimants' Memorial did not clearly set out a separate claim of denial of justice or otherwise under Article 1105 specifically related to Arthur Montour. While he and his companies have been involved in litigation in various courts in the United States, he was not heard to contend that his treatment in that litigation has not conformed to Article 1105. Moreover, as noted above, the Claimants' written materials disavowed any intention to dispute the operation of the U.S. court system, a position presumably shared by Mr. Montour. Accordingly, the [denial of justice portion of the] Article 1105 claim as it pertains to Mr. Montour is also dismissed.

Final Award: Grand River Enterprises Six Nations, Ltd. v. United States of America

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