UPDATED: Since this story was first published, the federal government has posted a status update on the case on the Foreign Affairs, Trade and Development website stating that despite the initial notice of intent to submit a claim for arbitration, a valid claim was not filed and no Chapter 11 arbitration occurred. There has been no financial settlement either, according to the government.

An American-owned water export company has launched a massive lawsuit against Canada for preventing it from exporting fresh water from British Columbia.

Sun Belt Water Inc. of California is suing Canada for $10.5 billion US, the Canadian foreign ministry said Friday.

The suit has been filed under Chapter 11 of the North American Free Trade Agreement. Sun Belt says it has been "mistreated" by the B.C. government.

The clash over exporting water goes back to 1993, when Sun Belt and Snowcap Waters Ltd., a Canadian partner, sued the B.C. government for banning bulk water exports to California. Snowcap Waters agreed to a settlement of $335,000 (Cdn).

Sun Belt did not settle with the province. The company says the B.C. government's banning of water exports from the province violates the terms and conditions of NAFTA.

The lawsuit has upset environmentalists who are angry that companies wanting to make money exporting water are using NAFTA to override environmental laws. Ottawa has 90 days to examine the Sun Belt lawsuit.

In a related development, at a hearing Thursday night in Montreal, groups concerned about exports of bulk water demanded the International Joint Commission include this recommendation when it reports to Ottawa and Washington early in the new year.

The IJC is the group appointed by the Canada and U.S. governments to manage the countries' shared water.

The problem with NAFTA's Chapter 11 is that it allows water to be regarded simply as a good or product that can be sold or traded between countries. If a country stops its export, the company proposing the commercial use could sue for compensation.