Abitibi launces $500-million free trade suit

MONTREAL — IInsolvent pulp-and-paper giant AbitibiBowater Inc. has launched a $500-million free-trade challenge to fight what it contends is the illegal expropriation of its assets in Newfoundland and Labrador. It would be one of the largest such claims brought against the federal government.

“The company contends that the provincial government’s enactment in December 2008 of Bill 75, which expropriates an extensive array of the company’s rights and assets, was arbitrary, discriminatory and illegal under international law,” the company said in a statement Thursday.

The challenge is being made under Chapter 11 of the North American Free Trade Agreement.

AbitibiBowater said it is seeking direct compensation for damages of about $500-million, plus additional costs and any relief awarded by the Arbitral Tribunal.

“The expropriation was detrimental to the financial position of our Company,” David Paterson, president and chief executive officer, said in the statement. “After operating in Newfoundland and Labrador for more than a century and contributing significantly to the region’s economic, social and sustainable development, the nationalization of AbitibiBowater’s assets was unexpected and unnecessary.”

“AbitibiBowater has been engaged with the Government of Canada and the Government of Newfoundland and Labrador in an effort to achieve a fair and equitable settlement and avoid a protracted NAFTA case. Unfortunately, despite those extensive discussions, we are unable to resolve the matter at this time and the Company has no choice but to file a formal claim under NAFTA,” Paterson added in the statement.

Although its headquarters are in Montreal, Abitibi is incorporated in Delaware and operates in the United States. It contends that the confiscation of its assets and rights in Newfoundland and Labrador in 2008 represents a breach of Canada’s obligations to a U.S. investor under free-trade rules.

“It will be a humongous issue for the federal government,” said a source, who asked not to be named because of the sensitivity of the matter.

Some legal observers said Wednesday they believed an amicable, nonlegal solution was impossible.

“[Newfoundland Premier] Danny Williams is causing trouble here. He knows that constitutionally, there’s probably no way that the federal government can make him pay for this, even though he did it,” said Todd Weiler, an attorney who was involved in many of the earliest NAFTA claims.

“The feds, by the same token, are probably loathe to take money out of the federal treasury to pay for it. From a political standpoint, I don’t see how they can settle it. They’re going to have to go through arbitration.”

The process could take three or four years, Mr. Weiler said.

When Abitibi filed that notice, it estimated it was owed more than $300-million related to the seizure of its property and commercial rights. That figure ballooned after revision.

“The company has invested hundreds of millions of dollars in the province over the last century, ranging from capital investments in mill operations to road projects that have helped build rural Newfoundland,” Abitibi said in a news release last April. The company filed for bankruptcy protection that same month.

In December 2008, Abitibi announced it would shut its Grand Falls mill, the last it operated in Newfoundland, to respond to a decline in product demand. Roughly two weeks later, the provincial government passed the Abitibi-Consolidated Rights and Assets Act.

The company contends the legislation, crafted in retaliation for its actions, effectively confiscated most of its assets in the province, including land rights, timber rights and water rights. It argues the new law also cancelled all water and electricity agreements it had with the province, cancelled all lawsuits the company had against the province, and blocked access to the courts to redress the situation.

When they expropriated Abitibi’s assets, Newfoundland’s politicians said they would fairly compensate Abitibi for things like dams and power plants, according to the Telegram newspaper in St. John’s.

Mr. Williams later said the province was seeking to recoup worker severance payments from Abitibi and that the company may also have environmental liabilities to clean up its former operations. Both of those things would be subtracted from the fair market value of its assets, he said.