OTTAWA - Free trade critics say a $250-million damage suit being pursued as a result of Quebec's moratorium on fracking is proof Canada needs to be careful in negotiating trade pacts around the world.
The Council of Canadians, the Sierra Club and Quebec-based Eau secours say the suit by Lone Pine Resources Inc. (TSX:LPR) shows that trade deals that include investor protection clauses are a bad idea because they can prevent governments from passing laws to protect the environment.
The groups are asking Lone Pine to drop the suit before a NAFTA panel, but company president Tim Granger says he is going ahead unless Quebec lifts its moratorium on fracking for natural gas under the St. Lawrence River.
"As an organization we, in good faith, purchased leases, we paid rentals and then to just have been stymied, that's not acceptable," he said in an interview.
"What we are asking for is some level of restitution for losses we have incurred and what we could have potentially received if we were allowed to develop those leases."
The statement of claim filed Sept. 6 says the company "expended millions of dollars and considerable time and resources" on the project and that the Quebec government was "arbitrary" and "capricious" in revoking the rights even before an environment study on the fracking process was completed.
The company estimates there are between 1.9 trillion and 3.3 trillion cubic feet of undiscovered natural gas trapped in the shale in the area covered by the suit, the equivalent of about half of Canada's total annual production.
But the groups say the suit has become symbolic for everything that is wrong with investor protection clauses in major trade agreements.
The Canadian case has attracted even greater scrutiny because Quebec has yet to decide whether fracking — a process to inject fluid into the ground at a high pressure in order to fracture shale rocks to release natural gas inside — can be conducted safely under the St. Lawrence.
"If a government is not even allowed to take a time out to study the impact without having to compensate a corporation, it puts a tremendous chill on a governments' ability to regulate in the public interest," said Ilana Solomon, director of the Sierra Club's trade program in Washington, D.C.
Stuart Trew, a trade campaigner with the Council of Canadians in Ottawa, which has generally been critical of trade deals, says the suit has attracted attention in Europe, Australia and other countries contemplating major trade deals.
Canadians should expect more lawsuits if it completes trade deals with the European Union and in the Trans-Pacific Partnership, he said, since both are likely to include investor protection provisions similar to the one found in NAFTA.
"These investment protections are going to be built into these mega-trade deals and this Lone Pine case has become kind of the poster child for what's wrong with giving corporations the right to sue governments when they don't like certain policies," he said.
"We have no confidence the government is going to be able to limit cases brought by European countries, In fact, (the Canada-EU trade deal) could lead to more cases than have happened under NAFTA."
Even if the lawsuits fail, Trew said such cases serve as a chill to governments that want to regulate in areas of the environment and public safety and that is "entirely intentional."
Another unusual aspect of the case is that Lone Pine is a Calgary-based firm and would not have standing as a foreign entity to sue Canada under NAFTA, but Granger said it can do so because it is registered in Delaware.
Although the suit complains against a Quebec government action, the federal government would be liable to pay any damages if it succeeds since it alleges that obligations under the North American Free Trade Agreement were violated.
In 2010, Ottawa agreed to pay AbitibiBowater $130 million to settle the company's claim that Newfoundland illegally seized some of its assets, a suit that was also filed under NAFTA.
Prime Minister Stephen Harper said at the time he would in the future seek to "reclaim" money from the provinces if their actions cause Ottawa to lose cases before international trade process.