This content is from: Portfolio

Russ Girling’s Keystone Lawsuit Puts Trade Disputes in Spotlight

Under CEO Girling, TransCanada Corp. has filed a $15 billion claim against the U.S. government for rejecting the Keystone XL oil pipeline.

In late 2013 reporters asked TransCanada Corp. president and CEO Russ Girling what he would do if President Barack Obama put the kibosh on the company’s proposed $8 billion Keystone XL oil pipeline project. At the time, the planned link between Alberta’s tar sands and refineries on the U.S. Gulf Coast had been struggling through the review process for five years. “Nobody is going to pack up their tent and leave,” Girling said. “We will get through these hurdles.”

The response was typical of Girling, whose dogged resolve to win the pipeline crusade since becoming CEO of Calgary-based TransCanada in 2010 has been called “Churchillian” and “unblinking,” though never hotheaded. In thousands of interviews he’s maintained a polite but determined demeanor, just what you’d expect of a former Boy Scout who put himself through college and business school by delivering mail in the extreme Albertan weather.

Girling, 53, who joined the energy infrastructure company in 1994 after working in marketing and management at other Alberta oil companies, is said to be optimistic and earnest almost to a fault. He praised Neil Young’s music even after the Canadian singer described one tar sands site as “worse than Hiroshima.” TransCanada operates more than 42,000 miles of natural gas pipelines in Canada, the U.S. and Mexico, and owns gas storage and power generation facilities, but it’s Keystone XL that has put the low-key Girling in the spotlight.

On January 6 he made good on at least part of his vow to keep fighting for the pipeline’s development. In response to the State Department’s final rejection of the project last November, TransCanada launched two lawsuits against the U.S.

The first suit, a claim under the North American Free Trade Agreement, argues that the corporation’s project was unjustly rejected and seeks $15 billion in damages for perceived losses, including future revenue. The second, filed in a federal court in Houston, charges that Obama violated the U.S. Constitution by vetoing a bill from Congress that supported the pipeline’s approval; it aims to have that veto annulled.

TransCanada’s central argument is that although it followed the rules for getting a transborder pipeline approved, the U.S. administration kept arbitrarily raising the bar. Girling has long maintained that Keystone became a symbol for the evils of fossil fuels in a proxy war over U.S. energy policy.

Environmentalists like Tom Steyer, founder of hedge fund firm Farallon Capital Management and a prominent Keystone opponent, beg to differ. They assert that the pipeline would have put American farmland and water reservoirs at risk while encouraging oil companies to crank up production in Alberta. Many climate change scientists agree that tar sands oil is among the world’s dirtiest sources of energy.

In an e-mail, a spokesman for Steyer’s NextGen Climate advocacy group called TransCanada’s latest salvo “just another desperate ploy.”

Other activists point to TransCanada’s NAFTA claim as a taste of what to expect under megaregional deals like the pending Trans-Pacific Partnership: more costly and secretive investor-state dispute settlement (ISDS) cases for which taxpayers foot the bill.

NAFTA and other global trade agreements include ISDS clauses that allow corporations to sue a foreign government for damages if they believe they’ve been unfairly treated. Such cases are adjudicated by tribunals that operate outside of any country’s judicial system. They’re not bound by precedent, which is partly why it’s impossible to gauge whether TransCanada will win its NAFTA claim, even if many investment lawyers feel it has a strong case, says Elizabeth Whitsitt, an assistant professor of law at the University of Calgary. (Other experts disagree, and constitutional lawyers are divided over whether TransCanada has a chance of winning its federal suit.)

ISDS accords have evolved since NAFTA was ratified in 1993, and “good discussions have helped to improve the laws around them,” Whitsitt adds. She says ISDS will be more transparent under the TPP. Researchers at the Peterson Institute for International Economics, a Washington-based think tank, recently argued that the TPP’s ISDS mechanism “respects the legitimacy of environmental, health and safety regulation, and more narrowly defines ‘fair and equitable treatment’ than in NAFTA.”

Still, critics like David Schneiderman, a professor of law and political science at the University of Toronto, have little faith that the TPP will adequately address the shortcomings of the ISDS system, including evidence that its outcomes appear skewed. The U.S. has never lost a NAFTA investor-state dispute. Canada frequently loses. “When the U.S. is the respondent state, the adjudicators tend to interpret the investment laws much more narrowly,” Schneiderman says.

Another problem with the ISDS system is that corporate lawyers who represent industry clients can rotate into positions as adjudicators, he explains: “That there hasn’t been a larger public outcry over these mechanisms is a tremendous victory for the lawyers who gain from the fees and ever-expanding client base as more of these investment agreements are signed.”

Schneiderman contends that investors should be encouraged to pursue other avenues — buying risk insurance, for example, or appealing to the code of laws that already exists within a state. He’s watching the situation in Europe, where Germany and France have thrown a wrench in negotiations over the Transatlantic Trade and Investment Partnership because of the ISDS question and are proposing the creation of a permanent international court to deal with investor disputes.

Last month a report from the E15 Initiative, a research project supported by the Geneva-based International Centre for Trade and Sustainable Development and the World Economic Forum, urged investors to begin using conflict management mechanisms — like mediation or early neutral evaluations — as preventative actions before a disagreement can escalate into a lawsuit. Doing so would be more efficient, say the authors, who warn that “the exclusive reliance on adjudication . . . is generating such high economic and political costs that the legitimacy of the international investment regime is being corroded.”

With his newest offensive in the Keystone battle, Girling may have put himself at the center of yet another proxy war.

Related Content