I N THE MATTER OF AN INTERNATIONAL ARBITRATION UNDER CHAPTER 11 OF

307 Pages·2005·1.46 MB·English

IN THE MATTER OF AN INTERNATIONAL ARBITRATION UNDER
CHAPTER 11 OF THE NORTH AMERICAN FREE TRADE AGREEMENT
AND THE UNCITRAL ARBITRATION RULES

B E T W E E N :

METHANEX CORPORATION
Claimant/Investor

and

UNITED STATES OF AMER ICA

Respondent/NAFTA Party

FINAL AWARD OF THE TRIBUNAL
ON JURISDICTION AND MERITS

THE TRIBUNAL:
J. William F. Rowley
Professor W. Michael Reisman
V.V. Veeder (President)
PART I - PREFACE

1. The Claimant, Methanex Corporation (“Methanex”), initiated this arbitration
against the Respondent, the United States of America (the “USA”), on 3rd
December 1999 under Chapter 11 of the North American Free Trade Agreement
(“NAFTA”), as a Canadian investor. As formulated in its Original Statement of
Claim of 3rd December 1999, Methanex claimed compensation from the USA in the
amount of approximately US$ 970 million (together with interest and costs),
resulting from losses caused by the State of California’s ban on the sale and use of
the gasoline additive known as “MTBE” (methyl tertiary-butyl ether) which was
then intended to become legally effective on 31st December 2002. MTBE is a
synthetic, volatile, colourless and organic ether, with a turpentine-like taste and
odour. Methanex was (and remains) the world’s largest producer of methanol, a
feedstock for MTBE. It has never produced or sold MTBE.

2. Methanex’s claim was brought under Article 1116(1) NAFTA, based on the alleged
breach by the USA of two provisions in Section A of Chapter 11 of NAFTA:
Article 1105(1) and Article 1110(1).

3. The Tribunal was formed on 18th May 2000 to decide Methanex’ claim. From the
outset, the USA challenged the Tribunal’s jurisdiction to decide Methanex’s claim
and alternatively disputed Methanex’s claim on the merits. After several written
submissions, procedural sessions and a jurisdictional hearing in July 2001 followed
by further written submissions, the Tribunal decided, by its Partial Award of 7th
August 2002, that there was no jurisdiction under Chapter 11 to decide Methanex’s
claim as formulated in its Original Statement of Claim. By permission from the
Tribunal, Methanex significantly amended its claim in November 2002 in the form
of a “Second Amended Statement of Claim”. In all subsequent submissions, the

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USA maintained its challenge to the Tribunal’s jurisdiction and its denial of
Methanex’s amended claim on the merits.

4. Methanex’s amended claim had first been intimated to the Tribunal in the form of
drafts prepared in January and February 2001 by its then newly instructed Counsel
in these arbitration proceedings. Methanex’s claim was there advanced under both
Articles 1116(1) and 1117(1) NAFTA, based also on the alleged breach by the
USA
of Article 1102 NAFTA, in addition to Articles 1105(1) and Article 1110(1).

5. In regard to its draft Amended Statement of Claim of 12th February 2001, Methanex
explained the reasons for amending its claim, as follows:

“Methanex’s decision to amend is the result of information it
discovered in the fall of 2000 indicating that Archer-Daniels-
Midland (“ADM”), the principal U.S. producer of ethanol, misled
and improperly influenced the State of California with respect to
MTBE. Specifically, Methanex discovered that - during the middle
of his 1998 California gubernatorial campaign, and during a time
when the future of all oxygenates in California was under active
review - now-Governor Gray Davis met secretly with top
executives
of ADM. On August 4, 1998, after receiving an initial $5,000
campaign contribution from ADM, he traveled to Decatur, Illinois,
where ADM is headquartered, on a private plane owned by ADM, in
order to confer with executives of ADM.

ADM has a reputation for seeking to create and control markets by
influencing the political decision-makers who affect them; to that
end, ADM makes large political contributions to both political
parties in order to ensure that its interests are furthered. ADM is
single-minded in pursuit of its corporate objectives, and its
corporate behavior has been harshly condemned by the US Court of
Appeals for the Seventh Circuit in a case involving another of
ADM’s products: ‘The facts involved in this case reflect an
inexplicable lack of business ethics and an atmosphere of general
lawlessness that infected the very heart of one of America’s leading
corporate citizens. Top executives at ADM and its Asian co-

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conspirators throughout the early 1990s spied on each other,

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fabricated aliases and front organizations to hide their activities,
hired prostitutes to gather information from competitors, lied,
cheated, embezzled, extorted and obstructed justice’ United States v
Andreas, 216 F.3d 645, 650 (7th Cir. 2000).

Two weeks after the secret meeting at ADM’s headquarters in
Decatur, ADM made a $100,000 contribution to the Davis
campaign, and it made another $55,000 in contributions over the
next four months. Seven months after his initial meeting with ADM
officials, the Governor issued the executive order banning MTBE
and indicating that ethanol would be the preferred replacement.
Shortly thereafter, ADM made yet another $50,000 contribution to
the Governor [Footnote 2 omitted: see below]. Once the MTBE ban
was announced, ADM moved into the California oxygenate market:
it began selling its U.S. ethanol, and it has been reported that it
build an ethanol plant there. ”

Two important features of Methanex’s explanation, for seeking the Tribunal’s
permission to amend its case, may here be noted.

6. First, the application to amend was premised on Methanex’s receipt of new
information during the autumn of 2000, including Methanex’s discovery of a
“secret” meeting between Mr Davis and ADM on 4th August 1998. Whilst this
meeting undoubtedly took place, there later arose in these arbitration proceedings,
after the Tribunal’s permission to amend was granted to Methanex, significant
issues as to how “secret” this meeting was and whether, in any event, Methanex
knew of it in or shortly after August 1998, long before the preparation and
submission of its original Statement of Claim of 3rd December 1999.

7. Second, as explained by Methanex in the footnote to this same passage cited above,
Methanex made no allegation of bribery or criminal corruption against Mr Davis or
ADM or that either otherwise “in any way violated U.S. or California campaign
contribution statutes or other relevant laws”. Subsequently, throughout these
arbitration proceedings, Methanex has specifically not alleged any criminal act

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under the laws of California, Illinois or the USA against Mr Davis, ADM or
ADM’s
officers and employees. Methanex has nevertheless characterised the conduct of Mr
Davis as “corruption” (its own phrase), short of criminal or unlawful conduct under
the laws of the USA, but nonetheless constituting (in its submission) violations by
the USA of Articles 1102, 1105 and 1110 NAFTA.

8. After a series of further pleadings, written submissions and procedural sessions,
including an oral procedural meeting in March 2003, Methanex and the USA
presented their respective cases on Methanex’s amended claim, in writing and
orally, at the main hearing held in June 2004. In addition to the written testimony
previously adduced by the Disputing Parties, the Tribunal heard oral testimony and
received written submissions from Canada and Mexico as NAFTA Parties and from
three NGO amici. This main hearing addressed all issues of jurisdiction and merits
arising from Methanex’s amended claim (excepting only quantum). By agreement
of the Disputing Parties, it was held in public, excepting one procedural issue heard
in camera at Methanex’s request. By this Award, the Tribunal decides those issues
and provides reasons for its several decisions.

9. This short recital of five years’ legal proceedings disguises a difficult, controversial
and complicated dispute, as to both procedure and substance. Given the way in
which Methanex successively developed its case up to the end of the main hearing
in June 2004, it is necessary to address in this Award several important procedural
issues. As to substance, Methanex’s and the USA’s legal arguments on both
jurisdiction and merits have required a close analysis of the factual and expert
evidence adduced by both Disputing Parties. The Tribunal therefore seeks no
excuse for the length of this Award. Both Methanex and the USA, including others
closely involved in this dispute, are entitled to know the reasons for the Tribunal’s
procedural and substantive decisions.

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10. This Award is divided into six parts, including this Preface. In Part II, the Tribunal
addresses the principal procedural matters, including the procedural applications
made by Methanex and the USA which remained outstanding at the end of the main
hearing in June 2004. In Part III, the Tribunal addresses the principal evidentiary
matters, including the Disputing Parties’ relevant testimony on factual and expert
issues. In Part IV, the Tribunal decides in turn each of the jurisdictional issues and
the relevant issues on the merits. In Part V, the Tribunal decides the issues of legal
costs and the costs of the arbitration. Part VI records the Tribunal’s operative order
made by this Award.

11. From this Award and from the Partial Award also, it will be evident that the
Tribunal has relied heavily on the submissions of Counsel, who were assisted by
many others whose names do not appear on the transcript of the hearings. In
adversarial proceedings addressing such a massive, complicated and difficult
dispute over many years, it could not be otherwise. At the beginning of this Award,
therefore, it is appropriate to record our appreciation of the scholarship and industry
which Counsel for the Disputing Parties, Mexico and Canada as NAFTA Parties
and the amici have deployed during these lengthy arbitration proceedings, together
with their respective experts, assistants and other advisers.

Part I - Preface - Page 6
ANNEX 1 TO PART I
GLOSSARY

ADM Archer Daniels Midland

AIT Canada’s Agreement on Internal Trade

AMA American Medical Association

API American Petroleum Institute

BCRA Bipartisan Campaign Reform Act

CAA Clean Air Act

CAAA Clean Air Act Amendments of 1990

Cal. EPA California Environmental Protection Agency

CARB California Air Resources Board

CaRFG2 California Phase II Reformulated Gasoline Regulations

CaRFG3 California Phase III Reformulated Gasoline Regulations

CEC California Energy Commission

CEH Chemical Economics Handbook-SRI International

CFTA Canada-United States Free Trade Agreement

CIWMB Cal. EPA, Integrated Waste Management Board

CO Carbon Monoxide

EC European Commission

EIA United States Energy Information Administration

EPA United States Environmental Protection Agency

ETBE Ethyl Tertiary-Butyl Ether

FECA Federal Election Campaign Act

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FTC Free Trade Commission

GAO United States Governmental Accounting Office

GATT General Agreement on Tariffs and Trade

GEC Governors’ Ethanol Coalition

IBA International Bar Association

ICSID International Centre for Settlement of Investment Disputes

ICJ International Court of Justice

IEA International Energy Annual

IARC International Agency for Research on Cancer

LACMTA Los Angeles County Metropolitan Transportation
Authority

LUFTs Leaking Underground Fuel Tanks

LUSTs Leaking Underground Storage Tanks

MCL Maximum Contaminate Level

METHANEX Methanex Corporation (Claimant, Canada)

METHANEX-US Methanex Methanol Company (Texas)

METHANEX-FORTIER Methanex Fortier Inc (Delaware)

MMT Methylcyclopentadienyl Manganese Tricarbonyl

MTBE Methyl Tertiary- Butyl Ether

NAFTA North American Free Trade Agreement

NIEHS National Institute for Environmental Health Sciences

NOx Nitrogen Oxide

NRDC Natural Resources Defense Council

NTP National Toxicology Program

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OAL Office of Administrative Law (California)
OEHHA Office of Environmental Health Hazard Assessment
(California)
OSPAR Convention The Convention for the Protection of the Marine
Environment of the North-East Atlantic
PCB Polychlorinated Biphenyl
RFA Renewable Fuels Association
RFG Reformulated Gasoline
RFP Request for Proposals
RVP Reid Vapour Pressure
SWRCB Sate Water Resources Control Board (California)
TAME Tertiary-Amyl Methyl Ether
TBE Tertiary-Butyl Ether
TSE Toronto Stock Exchange
UC University of California at Davis
UCLA University of California, Los Angeles

USDA United States Department of Agriculture

USDHHS United States Department of Health and Human Services
USITC United States International Trade Commission
UFTs Underground Fuel Tanks
UNCITRAL United Nations Commission on International Trade Law
USTs Underground Storage Tanks
VCLT Vienna Convention on the Law of Treaties
VOC Volatile Organic Compound
WTO World Trade Organisation

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