London Court of International Arbitration Case No. 111790 FINAL AWARD
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London Court of International Arbitration Case No. 111790 FINAL AWARD - NON-CONFIDENTIAL - in the Arbitration The United States of America – Claimant – vs. Canada – Respondent – Arbitral Tribunal Professor Albert Jan van den Berg, Co-Arbitrator V.V. Veeder, Co-Arbitrator Dr. Klaus Sachs, President Final Award – NON-CONFIDENTIAL - Page 1 - LCIA Case No . 111790 TABLE OF CONTENTS A. THE PARTIES .......................................................................................................................... 5 I. Claimant ................................................................................................................................. 5 II. Respondent ............................................................................................................................. 5 B. THE ARBITRAL TRIBUNAL ................................................................................................. 7 C. SUMMARY OF THE PROCEEDINGS TO DATE ................................................................. 8 D. THE DISPUTE ........................................................................................................................ 28 I. The 2006 Softwood Lumber Agreement ............................................................................... 28 II. Previous Disputes under the SLA .......................................................................................... 31 III. The Present Dispute and Requests for Relief ......................................................................... 33 1. Claimant’s Position and Requests for Relief ....................................................................... 33 2. Respondent’s Position and Requests for Relief ................................................................... 37 E. THE BACKGROUND OF THE DISPUTE ............................................................................ 39 I. Undisputed or Established Facts ........................................................................................... 39 1. B.C.'s Grandfathered Timber Pricing System ...................................................................... 39 a) Scaling and Grading ...................................................................................................... 40 b) The Pricing System (MPS)............................................................................................. 45 2. The 50/50 Rule .................................................................................................................. 46 3. The Mountain Pine Beetle Infestation and the April 2006 Reforms ..................................... 46 a) The Effect on Host Trees ............................................................................................... 48 b) The April 2006 Reforms Addressed the MPB Attack ................................................... 52 II. Summary of the Parties’ Positions on the Background of the Dispute .................................... 54 1. Claimant’s Position: The Increase of Grade 4 Starting in 2007 Was Due to Misgrading ...... 56 a) No Reason for the Increase in Grade 4 Except Misgrading ......................................... 57 b) Constant Lumber Yields Confirm B.C.'s Underpricing ............................................... 59 2. Respondent's Position: The Increase of Grade 4 Is Directly Attributable to the MPB Epidemic............................................................................................................................ 62 a) The MPB Epidemic Is the Reason for the Rise in Grade 4 ........................................... 63 b) Claimant’s Reliance on Lumber Output Is Misconceived ............................................ 67 F. ANALYSIS .............................................................................................................................. 70 I. Preliminary Issues ................................................................................................................ 70 1. Jurisdiction ........................................................................................................................ 70 2. Governing Law .................................................................................................................. 70 3. Weight of Previous Awards ................................................................................................ 71 II. Analysis of Claimant’s Claim ............................................................................................... 71 1. The Development of Claimant’s Claim............................................................................... 71 Final Award – NON-CONFIDENTIAL - Page 2 - LCIA Case No . 111790 2. The Requirements for Claimant’s Claim under Article XVII of the SLA............................. 79 3. The Relevant Circumventing Action in Terms of Article XVII SLA ................................... 81 a) The Parties’ Positions on the Relevant Action .............................................................. 81 (i) Claimant’s Position ................................................................................................... 81 (ii) Respondent’s Position ............................................................................................... 82 b) The Tribunal’s Considerations ...................................................................................... 83 (i) Burden of Proof ......................................................................................................... 83 (ii) Circumstantial Evidence ............................................................................................ 84 (iii) Claimant Is Advancing One Case, Not Two Distinct Cases ........................................ 85 (iv) Selling of Grade 4 Timber As Such Is No Circumvention of the SLA ........................ 86 (v) Misgrading Could Constitute a Circumvention of the SLA ......................................... 86 III. Analysis of the Four Actions Relied upon by Claimant ......................................................... 87 1. Introduction ....................................................................................................................... 87 2. Action 1: B.C. Encouraged Development of "Local Knowledge" as a Means to Facilitate Misgrading and Underpricing of MPB Timber ................................................................... 88 a) Claimant's Position ........................................................................................................ 88 (i) Encouragement of Local Knowledge Changed Scaling Practice ................................. 89 (ii) Local Knowledge Is Not Grandfathered ..................................................................... 90 b) Respondent's Position .................................................................................................... 91 (i) The February 2007 Memorandum Was No “Directive” .............................................. 91 (ii) Encouragement of Use of Local Knowledge Did Not Lead to Misgrading .................. 92 (iii) Encouragement to Use Local Knowledge Is In Any Event Grandfathered .................. 93 c) The Tribunal's Considerations ...................................................................................... 94 3. Action 2: B.C. Allowed Kiln Warming to Facilitate Downgrading ...................................... 96 a) Claimant’s Position ........................................................................................................ 96 (i) Kiln Warming Diverts Timber to Grade 4 .................................................................. 96 (ii) Kiln Warming Is Not Grandfathered .......................................................................... 98 b) Respondent’s Position .................................................................................................... 99 (i) Kiln Warming Is Necessary for Grading Consistency ............................................... 100 (ii) Kiln Warming Adds to Accuracy ............................................................................. 100 (iii) Kiln Warming Is Grandfathered ............................................................................... 102 c) The Tribunal's Considerations .................................................................................... 102 4. Action 3: B.C. Urged Use of Bucking and New Sweep Formula to Facilitate Downgrading105 a) Claimant's Position ...................................................................................................... 105 (i) New Bucking Policy ................................................................................................ 105 (ii) New Sweep Formula ............................................................................................... 106 b) Respondent’s Position .................................................................................................. 107 Final Award – NON-CONFIDENTIAL - Page 3 - LCIA Case No . 111790 (i) No Effect of Bucking Policy on Grading .................................................................. 107 (ii) Bucking Is a Grandfathered Practice ........................................................................ 109 (iii) No Effect of New Sweep Formula ........................................................................... 109 c) The Tribunal's Considerations .................................................................................... 110 (i) Bucking ..................................................................................................................