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Public Version Page | 343 IN THE MATTER OF AN ARBITRATION UNDER CHAPTER ELEVEN OF THE NORTH AMERICAN FREE TRADE AGREEMENT AND THE ICSID CONVENTION - - - - - - - - - - - - - - - - -x : In the Matter of Arbitration : Between: : : MOBIL INVESTMENTS CANADA, INC., : : ICSID Case No. Claimant, : ARB/15/6 : and : : GOVERNMENT OF CANADA, : : Respondent. : : - - - - - - - - - - - - - - - - x Volume 2 HEARING ON JURISDICTION, MERITS AND QUANTUM Tuesday, July 25, 2017 The World Bank 1818 H Street, N.W. Conference Room 4-800 Washington, D.C. The hearing in the above-entitled matter came on at 9:30 a.m. before: PROF. CHRISTOPHER GREENWOOD, Q.C., President DR. GAVAN GRIFFITH, Co-Arbitrator MR. J. WILLIAM ROWLEY, Q.C., Co-Arbitrator Confidential Information, Unauthorized Disclosure B&B Reporters Prohibited 001 202-544-1903 Public Version Page | 344 ALSO PRESENT: MS. LINDSAY GASTRELL Secretary to the Tribunal MR. ALEX KAPLAN Legal Counsel Court Reporter: MR. DAVID A. KASDAN Registered Diplomate Reporter (RDR) Certified Realtime Reporter (CRR) B&B Reporters 529 14th Street, S.E. Washington, D.C. 20003 (202) 544-1903 Confidential Information, Unauthorized Disclosure B&B Reporters Prohibited 001 202-544-1903 Public Version Page | 345 APPEARANCES: On behalf of the Claimant: MR. KEVIN O'GORMAN MR. PAUL NEUFELD MR. DENTON NICHOLS MR. RAFIC BITTAR MS. LAWRI LYNCH Norton Rose Fulbright US, LLP 1301 McKinney Street Suite 5100 Houston, Texas 77010 United States of America MS. KATIE CONNOLLY Norton Rose Fulbright US, LLP 799 9th Street NW Suite 1000 Washington, District of Columbia 20009 United States of America Claimant Representatives: MR. PAUL PHELAN ExxonMobil Canada Ltd., seconded to Syncrude Canada Limited MS. ALICE BROWN MR. TOMASZ J. SIKORA Law Department, Exxon Mobil Corporation MS. STACEY O'DEA Law Department, ExxonMobil Canada Confidential Information, Unauthorized Disclosure B&B Reporters Prohibited 001 202-544-1903 Public Version Page | 346 APPEARANCES: (Continued) On behalf of the Respondent: MR. MARK LUZ Senior Counsel MR. ADAM DOUGLAS MS. HEATHER SQUIRES MS. MICHELLE HOFFMANN MS. VALANTINA AMALRAJ MS. MELISSA PERRAULT MS. DARIAN PARSONS Department of Foreign Affairs and International Trade, Canada Trade Law Bureau (JLT) Lester B. Pearson Building 125 Sussex Drive Ottawa, Ontario K1A 0G2 Canada MS. JULIE BOISVERT Global Affairs Canada, Government of Canada MS. LISA MULLINS Department of Natural Resources, Government of Canada MS. MEAGHAN McCONNELL Department of Justice & Public Safety, Government of Newfoundland & Labrador MR. GERARD COLLINS Department of Natural Resources, Government of Newfoundland & Labrador MR. RAYMOND FROKLAGE Global Affairs Canada, Government of Canada Confidential Information, Unauthorized Disclosure B&B Reporters Prohibited 001 202-544-1903 Public Version Page | 347 C O N T E N T S PAGE PRELIMINARY MATTERS.......................................6 WITNESSES: PAUL PHELAN Direct examination by Mr. Nichols.....................344 Cross-examination by Mr. Douglas......................382 RYAN NOSEWORTHY Direct examination by Mr. Nichols.....................494 Cross-examination by Ms. Squires......................522 Redirect examination by Mr. Nichols...................613 KRISHNASWAMY SAMPATH Direct examination by Mr. Nichols.....................617 Cross-examination by Ms. Squires......................621 Confidential Information, Unauthorized Disclosure B&B Reporters Prohibited 001 202-544-1903 Public Version Page | 343 1 P R O C E E D I N G S 2 PRESIDENT GREENWOOD: Right, ladies and 3 gentlemen. Apologies for the late start. 4 I think we will break for lunch at the time 5 we originally suggested depending on how the 6 cross-examination is going, but we will run an extra 7 15 minutes this afternoon. 8 Right. So, Mr. Phelan, I think it's you, 9 next. 10 PAUL PHELAN, CLAIMANT'S WITNESS, CALLED 11 MR. NICHOLS: With the permission of the 12 Tribunal, may we place on Mr. Phelan's table his 13 Witness Statements and the Rejoinder Report of 14 Richard Walck? 15 PRESIDENT GREENWOOD: Yes, I think there's no 16 problem about that. Please do. 17 Mr. Phelan, good morning. 18 Would you please make the Declaration on the 19 laminated sheet in front of you. 20 THE WITNESS: I solemnly declare upon my 21 honor and conscience that I shall speak the truth, 22 the whole truth, and nothing but the truth. Confidential Information, Unauthorized Disclosure B&B Reporters Prohibited 001 202-544-1903 Public Version Page | 344 1 PRESIDENT GREENWOOD: Thank you very much. 2 Mr. O'Gorman, which of your team is going to 3 engage in the very brief direct examination? 4 MR. O'GORMAN: Mr. President, thank you. My 5 colleague, Denton Nichols, will examine Mr. Phelan. 6 PRESIDENT GREENWOOD: Thank you. 7 Mr. Nichols. 8 MR. NICHOLS: May I also add that we intend 9 to pose to Mr. Phelan certain questions regarding 10 Richard Walck's Rejoinder Report as permitted in P.O. 11 8? 12 PRESIDENT GREENWOOD: Yes. 13 MR. NICHOLS: Thank you. 14 DIRECT EXAMINATION 15 BY MR. NICHOLS: 16 Q. Good morning. 17 A. Good morning. 18 Q. Can you please introduce yourself and what 19 your relationship is to the Hibernia and Terra Nova 20 Projects. 21 A. Okay. My name is Paul Phelan. 22 Since 1990, other than my current position as Confidential Information, Unauthorized Disclosure B&B Reporters Prohibited 001 202-544-1903 Public Version Page | 345 1 Manager of Internal Audit with Syncrude in Fort 2 McMurray, Alberta, and my time in Sarnia, Ontario, as 3 the Imperial Controller between 2004 and 2006, most 4 of my career has been on the East Coast, first of 5 all, with Hibernia Management Development Company 6 Limited, where I moved up from the first position of 7 Budget Reporting up through to Finance Manager. 8 And then, in 2007, I moved back to St. John's 9 after Sarnia, and at that time I was the Operations 10 Accounting Manager responsible for eastern Canada 11 operations for ExxonMobil Canada, which included 12 Hibernia, Terra Nova, Hebron, and Sable. 13 Q. Did you submit written Witness Statements in 14 the last proceeding between Mobil and Canada? 15 A. I did. I submitted five Witness Statements 16 for Mobil I. 17 Q. Did you also testify at the hearings in the 18 last proceeding? 19 A. I did. 20 Q. You submitted two Witness Statements in this 21 proceeding; isn't that correct? 22 A. That is correct. Confidential Information, Unauthorized Disclosure B&B Reporters Prohibited 001 202-544-1903 Public Version Page | 346 1 Q. You have your First Witness Statement of 2 March 7, 2016, that was submitted in this proceeding 3 and marked CW-1? 4 A. I have it in front of me. 5 Q. Do you reaffirm the contents of that Witness 6 Statement? 7 A. I do. 8 Q. Do you have any corrections to make to that 9 Witness Statement? 10 A. No. 11 Any corrections I would have noted in Witness 12 Statement No. 2. 13 Q. Do you have your Second Witness Statement of 14 September 22nd, 2016, marked CW-9? 15 A. I do. 16 Q. Do you reaffirm the contents of that Witness 17 Statement? 18 A. I do. 19 And I have one correction and a couple of 20 updates I would like to convey to the Tribunal and to 21 Canada. 22 Q. Let's start with the corrections, sir. Confidential Information, Unauthorized Disclosure B&B Reporters Prohibited 001 202-544-1903 Public Version Page | 347 1 Can you please point us to where you wish to 2 make a correction? 3 A. Okay. If you go to Paragraph 81. 4 In Paragraph 81, I talk to the historical 5 trends of the R&D and E&T expenditures; and, upon 6 review of this particular paragraph, I realized that 7 the sentence that says "during the pendency of a 8 Canadian court challenge against the Guidelines 9 between 2004 and 2008, there were no accounting 10 systems in place to track expenditures." I should 11 have said "prior to 2004, there were no accounting 12 systems in place to track expenditures." 13 Prior to 2004, Hibernia spent approximately 14 on R&D, but we were not tracking what is 15 now the Board's definition of R&D and E&T, so the 16 was primarily R&D SR&ED-eligible. 17 Terra Nova was the same process. My 18 counterparts at Terra Nova with Suncor also did not 19 have any accounting systems prior to 2004, and so 20 again, I just want to correct this particular 21 paragraph to highlight that beyond 2004 we did track 22 costs to meet the R&D Guidelines. Confidential Information, Unauthorized Disclosure B&B Reporters Prohibited 001 202-544-1903 Public Version Page | 348 1 Q. You mentioned a moment ago that you had a 2 couple of updates as well to this Witness Statement. 3 A. Okay. The two updates I would like to talk to 4 is Paragraph 13 in my Second Witness Statement. And 5 what I would like to convey to the Tribunal is that I 6 will be receiving an update from our Treasurer's 7 department relative to the CDOR rates, and for 8 purposes of this Tribunal, provide hopefully later 9 this week an update to June 30th, 2017, of the 10 interest calculations. 11 The second Update that I would like to talk 12 to would be referring to Paragraphs 18, 19, and 20 13 where I talk about the Province's treatment of 14 incremental Research and Development. 15 In Paragraph 18, I had indicated in my Second 16 Witness Statement that the Province had not yet 17 delivered results of any of its royalty audits in the 18 years in which Incremental Expenditures had been 19 filed. 20 What I would like to indicate is in 21 December 2016, ExxonMobil Canada received for the 22 Hibernia Project for the Year 2010 its Notice of Confidential Information, Unauthorized Disclosure B&B Reporters Prohibited 001 202-544-1903 Public Version Page | 349 1 Preliminary Redetermination, so that was an 2 indication of what would be allowed and disallowed 3 relative to royalties.