Canada has lost a legal battle launched against it by Exxon Mobil Corp.(XOM-N78.15-0.48-0.61%) and Murphy Oil Corp.,(MUR-N45.38-1.24-2.66%) two U.S. oil companies who complained that demands by Newfoundland for increased research spending violated the North American free-trade agreement.

A panel of international arbitrators ruled 2-1, with the Canadian appointee dissenting, that rules imposed in 2004 on the oil companies in connection with the Terra Nova and Hibernia oil projects were invalid under NAFTA’s controversial Chapter 11.

The result of the claim, filed in 2007, has not been officially released. It was first reported Friday on the New York-based website Investment Arbitration Reporter, iareporter.com, which follows investor-state arbitration issues. An Exxon source confirmed the result when contacted by The Globe and Mail.

Chapter 11, which allows foreign investors to sue NAFTA’s three signatory governments for policies they allege discriminate against them, has been controversial since the treaty came into effect in 1994.

Anti-free-trade activists have long charged that it gives too much leverage to foreign multinationals, who can use it to block environmental, labour or other laws they don’t like. But losses for Canada under NAFTA proceedings like this have so far been rare. >>>MORE<<<