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TC Energy's $15-billion Keystone XL lawsuit gets thrown out

Pipes intended for construction of the Keystone XL pipeline are shown in Gascoyne, N.D. on Wednesday April 22, 2015. Photo by Alex Panetta / Canadian Press

Calgary-based TC Energy recently lost its US$15-billion arbitration case against the U.S. government over the Keystone XL pipeline, much to the relief of environmentalists.

“This is going to be a massive relief for climate activists in the United States, for people who've been fighting the Keystone XL Pipeline forever,” said Stuart Trew, a senior researcher at the Canadian Centre for Policy Alternatives (CCPA) and director of its trade and investment research project.

The decision, with details not yet released, could have an impact on several cases unfolding in Canada, Trew said.

TC Energy argued it should be paid the $15 billion as part of a controversial investor protection mechanism that has since been removed from Canada-U.S. trade agreements.

In 2021, after President Joe Biden revoked a key permit for Keystone XL — effectively rejecting the project — TC Energy responded by suing the U.S. government for $15 billion under the North American Free Trade Agreement (NAFTA). NAFTA contained a controversial mechanism called investor-state dispute settlement (ISDS), which allowed corporations based and operating in the U.S., Canada and Mexico to sue the government when public policy, regulations or other state action affect their bottom line. However, in 2020 NAFTA was replaced by the United States-Mexico-Canada Agreement (USMCA) which ended the ability for Canadian investors to sue governments between Canada and the U.S.

TC Energy's US$15-billion arbitration case against the U.S. government over the Keystone XL pipeline was thrown out. “This is going to be a massive relief for climate activists ..." said Stuart Trew with the @ccpa #KeystoneXL

The new agreement allowed companies three years of “legacy rights” when the NAFTA dispute settlement process could still be used.

The U.S. argued that the legacy provision in the USMCA was only meant to allow arbitration of disputes that had already emerged before NAFTA ended. But TC Energy and other investors believed it meant NAFTA continued to apply for three years, said Kyla Tienhaara, an associate professor at Queen’s University’s school of environmental studies. Ultimately, the tribunal decided it didn’t have jurisdiction to proceed with arbitration because Biden revoked Keystone XL’s permit about six months after NAFTA was replaced by USMCA.

“We are both disappointed and frustrated with the Tribunal’s decision to deny our right to bring a legacy NAFTA claim,” said Patrick Keys, executive vice-president and general counsel for TC Energy, in a company statement emailed to Canada’s National Observer. Keys said the ruling does not align with the company’s expectations and views on how to interpret the legacy provision.

“TC Energy was treated unfairly and inequitably in the revocation of the Permit, which was driven by political considerations,” Keys’ statement added.

This won’t automatically result in other similar cases being thrown out, but it's still likely to influence ongoing tribunals, said Tienhaara.

While Mexico intervened in the case to support the U.S. position, Canada sat on the sidelines. This is unusual, said Trew. Canada has “intervened in almost every NAFTA case since at least the late 90s,” he added.

Tienhaara said there were some political factors at play, not only because TC Energy is a big Canadian company, but because Alberta also has a legacy claim against the U.S. over the Keystone XL pipeline seeking damages of $1.33 billion.

“So the domestic politics are kind of complicated for Canada,” she said.

It gets even more complicated than just those two cases.

One of the biggest current cases is Ruby River Capital’s US$20 billion lawsuit against Canada. The American company sued after the federal government and Quebec rejected its proposal to build a natural gas liquefaction plant and maritime terminal near the mouth of the St. Lawrence River, citing climate and environmental concerns that arose during the environmental assessment.

Ruby River Capital’s claim is the largest in the history of NAFTA investor-state dispute settlements and could leave Canada on the hook for US$20 billion. However, the tribunal’s decision to throw out TC Energy’s lawsuit suggests this case could also be thrown out on similar grounds.

Investor-state dispute settlements are a controversial and powerful tool for corporations, and the Canadian Centre for Policy Alternatives is pushing for its removal in all trade agreements.

Governments around the world have paid about $114 billion to investors as a result of ISDS claims, with fossil fuel companies as the biggest beneficiaries by far, according to recent analysis.

A UN report from July concluded that the ISDS regime, “with its roots in colonialism and extractivism, is not fit for purpose in the [21st] century because it prioritizes the interests of foreign investors over the rights of [states], human rights and the environment.” It found the “crippling costs” of ISDS claims “have already had enormous impacts by deterring, delaying and watering down [states’] climate and environmental policy decisions” and put a chill on climate and environmental action.

The Intergovernmental Panel on Climate Change (IPCC) also acknowledged in 2022 that ISDS poses a huge obstacle to effective climate action.

The removal of ISDS in USMCA for Canada and the U.S. was celebrated by then-minister of foreign affairs Chrystia Freeland, who said the investor-state dispute resolution system had cost Canadian taxpayers more than $300 million in penalties and legal fees. The vast majority of ISDS cases against Canada are brought by U.S. investors, so USMCA “got a huge risk out of the way,” Tienhaara said.

Past analysis by the CCPA found 70 per cent of the dispute settlements Canadian investors have brought against countries outside North America since 1998 were initiated by companies in the mining and oil and gas industries — frequently as a result of environment-related decisions.

However, nearly all Canada’s other international investment agreements allow foreign companies to sue governments if they are treated unfairly. Canada has indicated it wants to keep ISDS in many of its trade agreements, like with Ecuador, for example.

“Canada is the 12th biggest economy in the world, but we're the fourth most litigious country when it comes to companies using ISDS to challenge environmental decisions in other countries, challenges with respect to mining permits and whatnot,” said Trew in a previous interview.

TC Energy said it has not recognized any potential recoveries related to the NAFTA claim in its financial statements, nor factored into its outlook.

Natasha Bulowski / Local Journalism Initiative / Canada’s National Observer

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