On July 12, an investor-state arbitral tribunal set up under the International Centre for Settlement of Investment Disputes (ICSID) rendered its 2-1 award in TC Energy Corporation and TransCanada Pipelines Limited v. United States of America (II). The claimant, TransCanada Keystone Pipeline, L.P., complained that the United States’ reversed position sinks the latter’s argument. The tribunal somewhat rejected this position, but not quite as unequivocally as sovereign respondents might have wanted.

In 2008, TransCanada Keystone Pipeline, L.P. applied for a Presidential permit in the United States “to construct, connect, operate, and maintain the cross-border segment of the KXL Pipeline.”¹ This pipeline was built “to transport up to approximately 900,000 barrels per day of Western Canadian Sedimentary Basin crude oil from a supply hub near Hardisty, Alberta to delivery points in Oklahoma and Texas, for ultimate delivery to U.S. refineries.”

In many ways, this pipeline’s plan was a simple one. It “was to consist of three segments in the United States: (1) the Steele City Segment, which would extend from the Canadian border near Morgan, Montana to Steele City, Nebraska, where it would connect with an operating segment of pipeline that extends from Steele City to Cushing, Oklahoma; (2) the Gulf Coast Segment, which has been operating since 2014 and extends from Cushing to Port Arthur, Texas; and (3) the Houston Lateral, which splits off from the Gulf Coast Segment in Liberty County, Texas and extends to Moore Junction, Texas, near Houston.”

In 2012, the Obama administration denied TransCanada’s application without prejudice. A few years later, TransCanada applied again. And again, its application was rejected. So, TransCanada commenced an ICSID arbitration against the United States “on grounds that there was a legitimate expectation that the Presidential permit would be granted and that the November 2015 decision to deny the permit violated U.S. obligations under [North American Free Trade Agreement (‘NAFTA’)] Chapter 11.” But just over two months after President Trump was elected, the State Department granted that application. And then the same day that President Biden was elected, the permit was revoked. Along with this back and forth, the basis for the claims was also changing. NAFTA was replaced by the United States-Mexico-Canada Agreement (USMCA) in 2020. A key question in this dispute was whether one of the provisions at issue — Annex 14-C — extended the substantive and equality-based investment protections of NAFTA (also known as “Section A”) into the USMCA regime. TransCanada argued yes, but the United States said no.

The tribunal agreed with the government. Using traditional principles of treaty interpretation, it deduced: “Annex 14-C . . . operates to establish consent to arbitrate certain claims: the intention of the State parties was to allow the submission to arbitration, after 30 June 2020, of claims for breaches of an obligation under Section A.” However, that extension does not apply to “Section A itself.” So Section A’s expropriation, non-discrimination, compensation, due process, Most Favored Nation, National Treatment, and other provisions did not, in the TransCanada tribunal’s view, make it into the USMCA.

Among the arguments raised by TransCanada was that the altered position of the United States fatally undermined its defense. The tribunal disagreed. Its award maintained that “[t]he Claimants have not established the content of such a principle, much less its character as a binding rule that unequivocally and permanently bars a State or party from taking an inconsistent position on a matter of fact or law.” Most importantly for the parties, “inconsistent [governmental] statements alone are insufficient to have preclusive effect;” and, in any event, any such standard was not satisfied here.

The reason is that, in the tribunal’s eyes, “[t]he public statements of U.S. officials, made in their official capacities between the conclusion of USMCA negotiations and the assertion of the United States’ jurisdictional defense in this case, have been consistent to the effect that Annex 14-C only extended NAFTA’s investor-State dispute settlement provisions” retired government officials’ post hoc statements do not generally qualify and also because the TransCanada claimants had not shown that they had actually relied on any legitimate assurances. So, while rejecting the specific claim of inconsistency the TransCanada claimants had raised, the tribunal left the door open to some claimant someday “establishing” the consistency principle in international arbitration, possibly as even one that conclusively demolishes a governmental defense. Its evidentiary case might need to be stronger than the evidence of governmental discrepancy was in this matter. However, the possibility remains. And future claimants, arbitrators, and governments will take note of it.

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¹Unless otherwise stated, the quotations used in this article come from the TransCanada award.