chevron-down Created with Sketch Beta.

The Year in Review

International Legal Developments Year in Review: 2021

Canada - International Legal Developments Year in Review: 2021

Jacob Mantle, Danny Yeo, Peter Jarosz, Tayler Farrell, Gannon G Beaulne, Megan Steeves, Adam Mauntah, and Salma Kebeich


  • This article surveys significant legal developments in Canada in 2021.
  • In 2021, the COVID-19 pandemic remained the most dominant and disruptive policy challenge for the Government of Canada and the trade and supply chain community.
  • Canada has set the goal of reaching net-zero emissions by 2050 to assist in the fight against climate change.
Canada - International Legal Developments Year in Review: 2021
naibank via Getty Images

Jump to:

This article surveys significant legal developments in Canada in 2021.

I. 2021 Canadian Trade Update

In 2021, the COVID-19 pandemic remained the most dominant and disruptive policy challenge for the Government of Canada and the trade and supply chain community. Continued waves of infection led to further domestic lockdowns in Canada and the closure of the Canada-U.S. border for most of the year for all but essential travel.

Over the last year, the pandemic strained supply chains across Canada, especially at major ports, causing longer delivery times and higher prices for commercial and consumer goods. Other trade headwinds included disputes with China (over canola seed) and the U.S. (over softwood lumber, dairy processor quotas, solar panels, and automotive rules of origin). At the same time, Canada made changes to meet its multilateral export control commitments, responded to geopolitical events through its sanctions regimes, remained an active member of the Ottawa Group on World Trade Organization (WTO) reform, and continued to develop and maintain its network of free trade agreements with its trading partners, including the U.K. and Indo-Pacific nations in particular.

Closer to home, Canada strengthened its anti-money laundering (AML) regime and advanced its customs modernization program. Canadian domestic industries continued to actively file anti-dumping and anti-subsidy complaints, and the Canada Border Services Agency (CBSA) continued a trend of active antidumping and countervailing duties (AD/CVD) enforcement through a record number of normal value and export price reviews.

A. Free Trade Agreements

On April 1, 2021, the Canada-United Kingdom Trade Continuity Agreement came into force, substantially copying provisions of the Canada-European Union Comprehensive Economic and Trade Agreement, but in a bilateral context post-Brexit. This agreement will be a stand-in until negotiations of a comprehensive free trade agreement (expected to start by the end of 2021) are complete. Canada also announced the opening of formal negotiations toward an economic partnership agreement with Indonesia in June 2021 and a free trade agreement with the Association of Southeast Asian Nations in November 2021, both aimed at strengthening Canada’s economic relationship with countries in the Indo-Pacific region.

B. WTO Developments

Canada remained active in 2021 through the Ottawa Group in efforts to advance reforms to the multilateral trading system, including efforts to resolve the Appellate Body impasse. In May, Canada and Australia settled their dispute in Canada–Measures Governing the Sale of Wine. Australia initiated that dispute over measures relating to the distribution, licensing, and sales of imported wine in Canada. Under the settlement, among other things, Canada has agreed to phase out the tax difference between Ontario wine and non-Ontario wine sold in offsite wine retail stores and to eliminate “store within a store” measures in the Canadian province of British Columbia that limited the sale of imported wine to liquor stores within grocery stores while allowing domestic wine to be sold on regular store shelves.

In July, after nearly two years of stalled negotiations, the Dispute Settlement Body established a panel in China–Canola Seed at Canada’s request. This dispute arises from the Government of China’s 2019 decisions to suspend imports of Canadian canola seeds based on the alleged presence of certain pests. The panel was constituted on November 10, 2021.

C. USMCA/CUSMA Chapter 31 Disputes and Softwood Lumber Developments

In 2021, both Canada and the U.S. made use of the Chapter 31 dispute settlement procedures in the Canada-United States-Mexico Agreement (USMCA/CUSMA) and the long-standing Canada-U.S. softwood lumber dispute continued unabated.

The softwood lumber dispute—the longest Canada-U.S. trade dispute in history—carried into 2021, as the U.S. Department of Commerce released its final determinations in its second administrative review and also started its third administrative review. Final results from the second administrative review, which nearly doubled existing duty rates on Canadian softwood lumber, were met with sharp criticism from Canada.

Canada’s USMCA/CUSMA Chapter 10 dispute relating to the first administrative review remains ongoing. In May, the U.S. challenged Canada’s administration of dairy tariff-rate quotas—in particular, quota reservations for dairy processors. A panel hearing respecting the administration of Canadian dairy tariff-rate quotas was held in October in Ottawa. In June, Canada asked to establish a dispute settlement panel after failed consultations with the U.S. about its safeguard tariffs (eighteen percent) on imports of certain solar photovoltaic products. The panel report is expected in early 2022. Finally, in August, Canada joined ongoing Mexico-U.S. consultations regarding certain rules of origin for automotive parts and vehicles.

D. Customs: The Charm Initiative and Valuation for Duty Regulations

The Canada Border Services Agency (CBSA) Assessment and Revenue Management (CARM) project is a multi-year initiative to replace certain existing customs accounting and enforcement systems with a modernized online solution for the accounting, payment, and collection of duties and certain taxes. In May, the CBSA launched the first part of the larger CARM project: the CARM Client Portal. The CARM Client Portal is a self-service tool available for importers, brokers, and trade consultants that facilitates accounting and revenue management processes with the CBSA. In the spring of 2022, the CBSA expects to expand the CARM Client Portal by adding new functions, including electronic commercial accounting declarations and electronic management of appeals and compliance actions.

Canada’s 2021 federal budget proposed legislative changes to the valuation of imported goods for customs duty and GST purposes. The proposed reforms mainly concern the transaction value method of customs valuation. The proposed reforms are intended to ensure that there is a physical purchaser in Canada, and a price between the foreign vendor and that purchaser, and to tighten the use of permanent establishments as purchasers in Canada when there is a multi-party chain of sales, limiting the use of the “first sale” equivalent rule in Canada. In June, the CBSA conducted consultations with stakeholders about these potential changes. At the time of writing, the government has not yet introduced changes to the Customs Act or any of its regulations. The authors, however, expect that any changes will alter the manner of determining the basis for customs duties.

E. Update’s to Canada’s Export Controls, Economic Sanctions and AML Regime

In March, Canada issued sanctions relating to China under the Special Economic Measures Act, targeting four Chinese officials and a Chinese entity allegedly involved in human rights violations, including the use of forced labor, in the Xinjiang Uyghur Autonomous Region in China. During 2021, Canada also updated and expanded its lists of sanctioned individuals and entities in Belarus, Myanmar, Nicaragua, Russia, and Ukraine.

In June, Canada amended its Export Control List, bringing the country up to date with its multilateral export control commitments, including its Wassenaar commitments. The revisions add new export controls for certain goods and technology, including software used by law enforcement agencies to intercept communications, military software for offensive cyber operations, and more. Canada’s updated guide to the Export Control List, detailing the list of specific items subject to export controls, came into force in July and reflects those amendments.

Also in June, Canada made amendments to its AML regime under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. The amendments change ongoing monitoring and beneficial ownership requirements, and sector-specific requirements including new obligations applying to accountants and accounting firms, casinos, securities dealers, and others. The Financial Transactions and Report Analysis Centre of Canada, Canada’s financial intelligence agency, issued new guidance that also came effect in June to assist reporting entities navigate their new compliance obligations.

F. Canadian AD/CVD Proceedings

In 2021, the CBSA initiated four new anti-dumping and subsidy investigations (respecting oil and gas tubular goods, container chassis, and power transformers) and the CBSA and Canadian International Trade Tribunal conducted five expiry reviews. The CBSA also initiated twenty-two normal value and export price reviews this year—the largest number since the introduction of the normal value and export price review mechanism in 2018. Normal value reviews are administered by the CBSA “to update normal values, exports prices, and amounts of subsidy on an exporter-specific basis.” Normal values operate as floor prices or methodologies to establish minimum prices for exporters selling goods to Canada.

In August the Government of Canada, through the Department of Finance, started consultations on potential amendments to Canada’s trade remedy regime, inviting stakeholders to comment on a range of issues, including increasing union participation in trade remedy proceedings; anti-circumvention proceedings; massive importation findings; whether expiry reviews should be automatic; and improving access to the trade remedy process for small and mid-sized enterprises. The proposed changes aim to bring Canada’s trade remedy laws further into alignment with the U.S. and to respond to the domestic steel industry.

II. Steps Toward a Canadian Border Carbon Adjustment

Canada has set the goal of reaching net-zero emissions by 2050 to assist in the fight against climate change. As a part of its plan to reach this goal, the Government of Canada announced its intention to explore the possibility of a border carbon adjustment (BCA) in its 2021 budget. It described the role of BCAs as follows:

Border carbon adjustments make sure that regulations on a price on carbon pollution apply fairly between trading partners. If a different price on pollution is levied at source, the difference is accordingly applied on imports and exports between countries. This levels the field, ensures competitiveness, and protects our shared environment.

The concept of leveling the playing field is central to a BCA’s purpose. Canada aims to “level” its carbon price with the carbon prices of its trading partners. But this poses a particular challenge in the Canadian context because there are various carbon prices across the country. Which carbon price would be used to level the playing field?

A. Domestic Carbon Price to “Adjust” Against as a Prerequisite to BCAs

Canada’s division of powers has led to various carbon prices across the country, with certain provinces and territories developing their own carbon pricing regimes. For instance, the province of British Columbia enacted a carbon tax in 2008, and the province of Québec enacted a cap-and-trade system back in 2012. Ontario cancelled its cap-and-trade program in 2018 and has since enacted its own carbon emissions pricing regime. Other provinces and territories, like Manitoba and Nunavut, do not currently have their own carbon price in place.

A major development in 2021, and a development likely critical for the effective implementation of a Canadian BCA, was the Supreme Court of Canada’s (SCC) decision that the federal carbon pricing legislation, the Greenhouse Gas Pollution Pricing Act (GGPPA) was constitutional. Part II of the GGPPA, together with the Output-Based Pricing System Regulations, creates a federal emissions-pricing regime, called the Output-Based Pricing System (OBPS). Under the OBPS, “covered facilities” are allocated a maximum amount of carbon or carbon equivalent that the facility can emit. A facility must pay for any carbon emitted over its allowance. In 2021, the price under the OBPS was $40 CAD per tonne of CO2e. The government announced a progressive increase in this price to $170 CAD per tonne by 2030.

The OBPS is structured as a backstop. It sets a minimum carbon price across the country and delineates the minimum requirements for any provincial or territorial carbon-pricing system. For any province or territory that does not have a carbon price, the OBPS takes effect. For example, the OBPS is currently in place in both Manitoba, Prince Edward Island, Nunavut, Yukon, and Saskatchewan.

If the GGPPA were found unconstitutional, designing and administering a BCA based on the patchwork of carbon prices across Canada may have proven to be prohibitively challenging. While questions remain, such as what happens when the provincial carbon price is higher than the federal price, a federal minimum was an important step toward a Canadian BCA.

B. Canada Announces Consultations on BCAs

After the finding of constitutionality, Canada’s Department of Finance announced the beginning of a consultation period and released a background paper outlining considerations surrounding BCAs that delineates four interrelated objectives of BCAs: (1) reducing the risk of carbon leakage; (2) maintaining the competitiveness of domestic industry; (3) supporting greater domestic climate ambition; and (4) driving international climate action. According to the background paper, the BCA may take the form of an import charge imposed on goods from countries with a lower carbon price, or an export rebate that would rebate the cost of the domestic carbon price paid by domestic producers.

The paper suggests that Canada is looking to collaborate on aspects of a BCA, listing areas such as the scope of the BCA, the determination of embedded emissions, and assessing equivalencies between pricing and non-pricing measures as areas conducive to collaboration. It also emphasizes that: “Canada must consider how BCAs would affect trading relationships and the multilateral trading system more broadly.” Because the U.S. is Canada’s largest trading partner, the paper specifically points to the 2021 Canada-U.S. agreement, the Roadmap for a Renewed U.S.-Canada Partnership, as a basis to “work together to address impacts on trade from global disparities in climate policies.” The U.S.-E.U. announcement of a Global Sustainable Steel Arrangement was also touted as a potential basis for a global, sectoral BCA.

C. Conclusion

Discussions remain in the early stages in Canada. But interest in BCAs continues to grow around the globe. Although BCA legislation has not yet been tabled in Canada, the important early steps taken in Canada are bound to influence how this crucial legal framework will develop in the future.

III. The Evolving Landscape of Transnational Corporate Accountability Litigation

Last year, the SCC recognized that Canadian corporations with foreign operations can now be sued for alleged breaches of customary international law that occur abroad. But the practicalities of bringing this type of novel claim have not yet been clarified by or fully tested before Canadian courts.

At its highest level, claims for breaching customary international law concern breaches of norms. Customary international law embodies the ever-evolving common law of the international legal system. It finds its expression in norms, particularly those that have become so widely accepted that they are viewed as obligatory. Today, widely recognized norms of customary international law include, for example, prohibitions on “forced labor; slavery; cruel, inhuman, or degrading treatment; [and] crimes against humanity.”

In Nevsun Resources Ltd. v. Araya, a group of former Eritrean workers started a proposed class action in British Columbia against a Canadian mining company based on alleged human rights violations that occurred at an Eritrean mine owned in part by indirect subsidiaries of the Canadian entity, and in part by the Eritrean government.

A majority of the SCC allowed the claims to proceed, dismissing a defense motion seeking to defeat them at a preliminary stage. The majority held that customary international law is part of Canadian law by virtue of the “doctrine of adoption,” under which customary international law is automatically incorporated into domestic law, at least insofar as it is not inconsistent with existing legal rules. Since Canadian companies must follow Canadian law, and Canadian law includes customary international law, the majority found that it could not conclude that it was “plain and obvious” (the test that applies to the defense motion to strike out the plaintiffs’ statement of claim) that the novel claims for breaches of customary international law could not succeed.

The Nevsun decision was and is a potentially significant legal development, but it resulted from a preliminary motion on which no evidence on the merits was pleaded, and by which the “plain and obvious” test governed. Thus, the SCC did not determine the merits of the novel claims advanced by the plaintiffs in that case. Those merits will now never be determined because the parties in Nevsun reached a private settlement before a merits determination could occur. As a result, trial courts in Canada have been left to interpret Nevsun, and to answer the many practical and jurisprudential questions raised by the majority opinion.

At the time of writing, a dearth of judicial guidance exists in Canada about how judges should approach the relatively untried principles relating to alleged liability for breaches of customary international law discussed in Nevsun.

In June 2021, the Federal Court of Canada released perhaps the most instructive decision considering Nevsun yet. Bigeagle v. Canada was a putative class action in which the plaintiff alleged that Canada’s federal police service, the Royal Canadian Mounted Police (RCMP), had failed to investigate and prosecute cases involving missing and murdered Indigenous persons. Unlike in Nevsun, the alleged conduct at the heart of the case occurred in Canada. Nevertheless, relying on Nevsun, the plaintiff alleged potential liability under domestic iterations of international law—in particular, the prohibitions on genocide and crimes against humanity. The Federal Court refused to certify the case as a class action, and struck out the claim without leave to amend. The Federal Court distinguished the Nevsun decision for two reasons: first, the plaintiff in Bigeagle was relying on genocide, which had not been pleaded in Nevsun, and second, nothing in the pleadings in Bigeagle supported the claim that the RCMP had acted in a way to further an act constituting a crime against humanity under the Rome Statute of the International Criminal Court, committed as part of “a widespread or systematic attack directed against a civilian population.” Ultimately, the Federal Court held that the plaintiff in Bigeagle had not pleaded the elements of genocide or crimes against humanity, and that the deficiencies in the pleadings were not capable of being cured by further amendments.

In Bigeagle, the Federal Court brought to bear on the novel claim for breach of customary international law certain of the traditional side-constraints relating to pleadings requirements and preliminary motions to strike out claims that Canadian courts regularly apply in other contexts to root out cases lacking any real prospect of success. But it also appeared to accept that customary international law norms—and the elements that make up those norms, as set out in international instruments or other sources—might be capable of grounding a domestic cause of action. The Federal Court noted, in relation to Nevsun, that the law is “unsettled” but breaches of customary international law “could lead to civil remedies.”

Despite this development, much remains unclear. Although claims for breaches of customary international law may be allowed to proceed before Canadian courts (if properly pleaded) under Nevsun, there remains little or no meaningful guidance in the Canadian case law about the type of evidentiary record that will be needed to support the merits of that claim, or the type of legal analysis that asserting such a claim will require.

Developments in other jurisdictions offer little more by way of direct guidance. Courts in the U.K. have affirmed the potential liability of parent companies relating to foreign harms involving subsidiaries, but have not ventured into Nevsun territory. Meanwhile, in 2021, the Supreme Court of the United States rejected the argument that domestic courts should hear claims asserting potential liability of U.S. companies relating to alleged human rights abuses occurring abroad under the Alien Tort Statute.

Accordingly, the legal framework governing transnational corporate accountability litigation in Canada appears to have shifted somewhat over the last two years, but the extent and full nature of the change remains to be seen. For now, no court has expanded on the reasoning of the majority of the SCC in Nevsun or explored practical aspects of bringing the breach of customary international law claim discussed in the decision. Different jurisdictions have adopted different approaches and, for now, Canada appears to be an outlier.

IV. Questions of Jurisdiction and Foreign Law in Canada’s Federal Courts

The jurisdiction of the Federal Court of Canada and the Federal Court of Appeal is described in the Federal Courts Act. The Federal Court has concurrent original jurisdiction over maritime and shipping matters, among other subjects. These matters include disputes between private parties. The Federal Court of Appeal has jurisdiction over decisions of the Federal Court. In 2021, two cases relating to shipping were among those before the Federal Court of Appeal. The decisions illustrate principles that the Federal Courts will apply when faced with questions of jurisdiction and the application of foreign law.

The decision in Great White Fleet v. Arc-En-Ciel Produce Inc. examined the application of the Marine Liability Act and the discretion of the Federal Court to stay a proceeding on the ground that the matter is proceeding in another court or jurisdiction. As explained by the Federal Court, Arc-En-Ciel contracted Great White Fleet to ship perishable goods from Costa Rica to Toronto, Ontario, Canada. The goods were transported by water to the U.S. and then by truck to Canada.

Arc-En-Ciel alleged that the goods were damaged and sued in the Federal Court. Great White Fleet brought a motion to stay that action because the bill of lading provided that any disputes arising from the contract would be commenced in the U.S. District Court for the Southern District of New York and would be decided in accordance with U.S. law. Arc-En-Ciel invoked subsection 46(1) of the Marine Liability Act, which allows an action relating to a contract for carriage of goods by water to be commenced in Canada if certain conditions are met. The Federal Court dismissed the motion, holding that Arc-En-Ciel had met the “strong cause” test to show why the forum selection clause should not be enforced.

The Federal Court of Appeal held that the Federal Court judge had erred in failing to determine whether section 46 of the Marine Liability Act applied, and in refusing to grant a stay. It was an error to leave the applicability of Section 46 to the trial judge, rather than treat it as a threshold question. In addition, if Section 46 applies, a forum non conveniens test should be applied. That test is different from the strong cause test, and Arc-En-Ciel should not have to meet both the forum non conveniens and strong cause tests. The matter was thus remitted to the Federal Court for redetermination by a different judge.

In contrast, the Federal Court of Appeal in Hapag-Lloyd AG v. Iamgold Corporation and Niobec Inc. upheld the decision of a Federal Court judge.

Hapag-Lloyd had contracted with Iamgold to transport four containers by ship from Montreal, Québec, Canada to Antwerp, Belgium. The cargo was then to be loaded onto a truck in Antwerp to be transported to The Netherlands. While the cargo was in Antwerp, three of the containers were inadvertently released to an unauthorized trucker, with only one container arriving at its intended destination.

Hapag-Lloyd admitted liability, and the parties agreed that German law would apply, but they disagreed about whether the loss had occurred on the ocean leg or the road leg of the journey. The trial judge heard two opposing experts on the interpretation of applicable German law. The trial judge determined that the loss had occurred during the road leg of the journey. The trial judge was able to make this determination of fact based on the expert evidence. The liability of Hapag-Lloyd for loss occurring on the road leg was significantly higher than if the loss had been found to have occurred on the ocean leg of the journey.

The Federal Court of Appeal upheld this ruling. It determined that the palpable and overriding error standard of review for findings of fact, established by the SCC in Housen v. Nikolaisen, should apply to the findings of the trial judge about foreign law. The Court held that the trial judge had not made a palpable and overriding error. The conclusion that the judge had reached was “clearly open to him on the evidence.”

V. Judicial Deference in Reviewing Commercial Arbitral Awards

Debate over the standard of review that applies when judges are asked to consider commercial arbitration awards was reignited in Canada by the 2019 decision of the SCC in Canada (Minister of Citizenship and Immigration) v. Vavilov.

Before Vavilov, two SCC decisions, released only a few years earlier, in 2014 and 2017, respectively, directed judges to apply the deferential reasonableness standard of review on appeals of questions of law from commercial arbitral awards. The scope of appellate intervention in commercial arbitration was considered to be narrow, and a deferential standard of review was found to almost always apply, in the interests of efficiency and finality—central objectives of the commercial arbitration regime. The SCC explained preference for the reasonableness standard in the commercial arbitration context is premised in part on the expertise of the arbitrator, who was selected on the consent of the parties.

In its 2019 decision in Vavilov, the SCC revised the framework governing the standard of review that applies to administrative decisions, holding that courts will review any statutory appeal from an administrative tribunal on the less deferential correctness standard. Because, however, domestic arbitration statutes adopted by various Canadian common law provinces and territories provide for appeals from arbitrators’ decisions on the merits, it might follow that courts should now review domestic commercial arbitral awards on the correctness standard, which would circumvent deference to arbitrators.

The issue of the standard of review that applies to commercial arbitration awards has been raised in several appellate court decisions since Vavilov. In Northland Utilities (NWT) Limited v. Hay River (Town of), the Court of Appeal for the Northwest Territories dealt with an appeal from an arbitrator’s decision brought under the Northwest Territories Arbitration Act. The Court found that the SCC in Vavilov intended that the correctness standard apply to commercial arbitration decisions. The Court questioned whether the commercial attractiveness of Canada as a forum for resolving local and global business disputes would be negatively affected, rather than enhanced, by allowing appeals from arbitrators’ decisions based on errors on questions of law. It also suggested that an appellate standard of review would not compromise party autonomy, as parties can contract out of the right of appeal.

Additionally, in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, the SCC addressed the issue of the standard of review that applies to an arbitrator’s decision under British Columbia’s Arbitration Act. The majority opinion suggested that the pre-Vavilov approach of applying the “reasonableness” standard when reviewing an arbitrator’s decision may not have been changed by Vavilov. But the majority of the SCC left the proper standard of review for another day. Meanwhile, three judges suggested in a concurring opinion that they would have applied the correctness standard. In their view, differences between the commercial arbitration and administrative contexts do not affect the standard of review that applies when a statutory right to appeal exists. They reasoned that factors justifying deference to an arbitrator’s decision, particularly the parties’ choice to arbitrate their dispute, do not affect the interpretive exercise when the word “appeal” is used in legislation.

Most recently, in Lululemon Athletica Canada Inc. v. Industrial Color Productions Inc., the British Columbia Court of Appeal heard an appeal under British Columbia’s International Commercial Arbitration Act on the grounds that the arbitrator had decided matters beyond the terms of the submission to arbitration. The Court held that the proper standard of review is correctness when there is a true question of jurisdiction. The standard of review applicable to international commercial arbitral awards should promote party autonomy and minimize judicial intervention. The Court suggested that Vavilov’s application is limited to the review of administrative decisions, and does not affect arbitration decisions.

The unsettled state of the law surrounding the standard of review that applies to commercial arbitration decisions post-Vavilov has led to debate about the efficiency and finality of arbitral awards in Canada. Further clarification by the courts is needed to resolve the state of confusion.

Editor: Gannon Beaulne. Authors in order of appearance: Jacob Mantle and Danny Yeo (Part I); Peter Jarosz and Tayler Farrell (Part II); Gannon Beaulne and Megan Steeves (Part III); Adam Mauntah (Part IV); and Salma Kebeich (Part V).