Glamis Gold Ltd. v. United States of America

(Originally published in 2011 in International Investment Law and Sustainable Development: Key cases from 2000–2010; republished on this website on October 18, 2018. Read more here.)

Award and other documents available at http://www.state.gov/s/l/c10986.htm

Keywords

Amicus curiae, cultural measures, environmental measures, expropriation, fair and equitable treatment/minimum international standards of treatment, legitimate expectations, transparency

Key dates

Notice of Arbitration: 9 December 2003

Constitution of Tribunal: 12 November 2004

Final Award: 8 June 2009

Arbitrators

Mr. Michael Young (president)

Mr. Kenneth Hubbard (replacing Mr. Donald Morgan, claimant appointee)

Prof. David Caron (respondent appointee)

Forum and applicable procedural rules

International Centre for Settlement of Investment Disputes (ICSID)

United Nations Commission on International Trade Law

(UNCITRAL) Arbitration Rules

Applicable treaty

North American Free Trade Agreement (NAFTA), Chapter Eleven, Investment

Alleged treaty violations

• Expropriation
• Fair and equitable treatment/minimum international standards of treatment

Other legal issues raised:

• Procedure—amicus curiae participation
• Procedure—transparency

1.0 Case Summary

1.1 Factual background

Glamis Gold Limited (“Glamis” or “Claimant”) is a Canadian-based mining company that had sought permission to develop a mine site in California using “traditional” open pit techniques. In this case, Glamis alleged that the United States had breached the investor protections in NAFTA through the adoption of measures by the state of California that established strict rules on how mining could be undertaken, required complete backfill and restoration of the site, aimed to protect the Native American religious and cultural heritage sites, and effectively precluded the open pit production process that Glamis had originally intended to use. Other techniques to mine the property remained available, though at greater operating cost.

Beginning in the mid-1990s, Glamis began efforts to secure the permits and approvals necessary to operate its mining project. Changes in government and the undertaking of extensive and complex environmental and cultural impact assessment processes, including the assessment of potential effects on ancient Native American religious and cultural sites, impacted the permitting processes. These processes themselves were subject to significant controversy and attracted much public attention. While they were proceeding, California adopted more stringent standards, which would apply to other possible mines as well as to the Glamis project, than previously had existed for such types of mining. Glamis was the first company subject to these new standards. One reason these higher standards were adopted was that the scale of mining with the proposed, more traditional, open pit techniques was larger than had occurred before in California. Another was the proximity to the traditional Native American religious grounds.

The new regulations did not dispossess Glamis of the property or preclude its development through other possible mining processes; however, they did impact the level of profits that could be anticipated if Glamis were to proceed with the project. In July 2003, without waiting for the permitting process—which was then still ongoing—to conclude, Glamis initiated its NAFTA action.

1.2 Summary of legal issues and award

Glamis alleged that the adoption of new measures precluding the type of mining that previously had been allowed in California and establishing other constraints breached two obligations under Chapter Eleven of NAFTA:

1. The obligation to accord minimum international standards of treatment to protected investors, including fair and equitable treatment, as per Article 1105 of NAFTA.
2. The obligation not to take measures tantamount to expropriation without paying compensation, in accordance with Article 1110 of NAFTA.

The Tribunal rejected each of these claims for a final award in favour of the respondent United States.

2.0 Select Legal Issues

2.1 Amicus curiae participation and transparency

Glamis continued and expanded the acceptance of amicus curiae submissions in NAFTA investor–state disputes, a practice begun in Methanex v. United States. In Glamis, at least three sets of written arguments were accepted, one by a coalition of non-governmental organizations, one by a business association and one by the locally-based Quechan Indian Tribe, whose sacred sites and traditions were affected by the proposed mining project. The amicus process in this case was perhaps one of the most difficult for the Tribunal to manage, with multiple non-parties seeking to make submissions.

In this regard, Glamisstands as an important benchmark for the recognition of the capacity of a tribunal to manage more complex amicus curiae submission processes. This arbitration was subject to intense media scrutiny and public interest. Unlike the Biwater v. Tanzania amicus curiae process, however, the Tribunal imposed no restriction on access to materials or on the process. Thus, the Glamis process stands as a practical repudiation of the need for secrecy and strict “prudential measures” to protect the functioning of the tribunal.

2.2 Expropriation: Finding that the investor’s losses were not significant enough to support its claim[1]

The Glamis decision on expropriation is distinct from previous decisions on this issue. It noted that two elements were required to determine whether an indirect expropriation, or measure tantamount to expropriation, had taken place. One was a significant economic impact on the investment; the other was that the measure be expropriatory in nature, as opposed to a bona-fide regulation. This two-step approach stands in marked contrast to the economic impact test that appears to be set out in the Metalclad v. Mexico award (also under NAFTA) nine years earlier and provides a considerably greater purview to government policy space than the approach in Metalclad.

With respect to the first step, the Tribunal determined that it had to assess whether property was “in fact taken” (para. 356). It further stated that where the alleged taking is indirect, the test would require an inquiry into the degree of interference with the property right claimed to be impacted, based upon the “severity of the economic impact and the duration of that impact” (para. 356). Citing the Tecmed v. Mexico award, the Tribunal stated, importantly, that “[i]t must first be determined if the claimant was radically deprived of the economical use and enjoyment of its investment, as if the rights related thereto…had ceased to exist” (para. 357). The Tribunal noted further that “[m]ere restrictions on the property rights do not constitute takings” (para. 357). In a slightly different formulation, the Tribunal stated its assessment of the impact of the measures should “determine whether [the] Claimant’s investment…has been so radically deprived  of  its economic value to [the] Claimant as to potentially constitute an expropriation and violation of Article 1110 of NAFTA…” (para. 358).

After very detailed consideration on the first issue (the impact), the Tribunal ruled that the anticipated diminished levels of profit, approximately US$28–29 million over the span of the project (out of a previously anticipated US$49 million), did not create an expropriation: “…the Tribunal holds that the first factor in any expropriation analysis is not met: the complained of measures did not cause sufficient economic impact…to effect an expropriation of the Claimant’s investment” (para. 536).

This case is one of the few to seek to define the impact of a regulatory measure, in the assessment of whether an expropriation has taken place, in such detail. The finding that a diminishment of profit by some US$28 million, or approximately 55–59 per cent of anticipated profits, did not constitute an expropriation is extremely significant. Moreover, it should also be recalled that Glamis does not stand for the proposition that the sole factor is the economic impact, but only that it may be assessed first before moving on (if needed) to assess the second primary factor, that of whether the nature of the measure is expropriatory or regulatory.

2.3 Minimum international standards of treatment: Reining in the standard under NAFTA and customary international law[2]

The Tribunal’s ruling on the interpretation of the minimum international standards of treatment article is significantly different and narrower than the Metalclad case, S.D. Myers v. Canada, Pope & Talbot v. Canada,[3] Tecmed and others. To understand this, it is useful to note that the Tribunal begins its reasoning by summarizing the Claimant’s position that the standard “includes interrelated and dynamic obligations providing for, among other duties, protection against arbitrariness and discrimination, protection of legitimate investment-backed expectations, and a requirement of a transparent and predictable legal and business framework” (para. 542), language often associated with the Tecmed decision.

To begin with, the Tribunal took a firm position on the 2001 Interpretative Statement issued by the NAFTA Ministers, which asserted that the standard was intended to reflect the customary international law standard on treatment of aliens and was not an autonomous standard that incorporated elements outside of customary international law. Still, that left the difficult task of determining what was, and was not, included within the scope of customary international law.

What the Glamis Tribunal did differently in this regard was return to the root pronunciation on what this standard meant from the 1926 decision in the Neer case[4]—conduct that is so egregious or outrageous as to shock the conscience of the independent observer. From there, it held Glamis to a strict standard of proof, as the Claimant, of the evolution of customary international law in order to establish that a broader range of conduct, or a different standard by which to test conduct, had become part of customary international law. It ruled that no such new or additional standard had been made out by the Claimant. The Tribunal did note that, while the threshold standard remained the same in approach as the Neer case, what might be considered to meet this standard today may well have evolved and become a broader set of acts than what was seen as shocking in 1926.

The Tribunal’s approach reflects the binding interpretative statement issued by the NAFTA Parties in 2001, as noted above. Thus, it is open to some discussion as to whether the articulation of the fair and equitable standard in different treaties may lead to different approaches. This risk displays the importance of proper drafting of any fair and equitable treatment standards (or formulation of interpretative statements regarding those standards).

The Tribunal, however, did not leave the matter there. In its own summary, the Tribunal set out the basics of its subsequently detailed reasoning: that a breach of the fair and equitable treatment or minimum international standard obligation could be made out when there was a sufficiently egregious or shocking act, such as “a gross denial of justice, manifest arbitrariness, blatant unfairness, a complete lack of due process, evident discrimination, or a manifest lack of reasons…or the creation by the State of objective expectations in order to induce investment and the subsequent repudiation of those expectations” (para. 22, emphasis added, and see para. 627). Later on, it highlights, “In this way, a State may be tied to the objective expectations that it creates in order to induce investment” (para. 621, original emphasis, and para. 766).

Because it found that the state had not made any objective commitments to induce investment, there was no breach of this branch of the standard.

The Tribunal then explained that it therefore did not have to assess what level of breach, or what form of commitment, would be required for a violation to be established. Importantly, however, the Tribunal does note that in the absence of at least “a quasi-contractual relationship” (paras. 766, 813) setting out the commitment, “the Claimant cannot have a legitimate expectation that the host country will not pass legislation that will affect it” (para. 813).

On the one hand, therefore, the Tribunal adopted a strict and generally high standard of interpretation of fair and equitable treatment, requiring egregious or shocking acts. This provides a significant cushion for ensuring respect for government policy space and law making. But, on the other hand, it added or reinforced a second category or type of act that could also constitute a breach of the standard: “the creation by the State of objective expectations in order to induce investment and the subsequent repudiation of such expectations” (para. 627).

Here, it appears to go a BIT further than other cases such as Parkerings v. Lithuania by stating in an affirmative way that a breach of an objective expectation would constitute a breach of the fair and equitable standard, as opposed to being a factor to consider. This is a broad and potentially overly embracing approach and one to be taken with some caution because no such commitment existed in this case, and no degree of breach or requirements for establishing the commitment were determined.

As noted in the discussion on expropriation in Methanex, the Tribunal’s approach in Glamis provides for a more flexible interpretation in favour of government regulatory space as a general principle, but against it where additional commitments outside the treaty have been given to an investor. A concern with this approach lies in the reality that such specific commitments are almost uniquely given by developing countries that, over time, are most in need of the policy space that developed countries have for decades enjoyed. This potential de facto division between one standard for developed countries and a different one for developing countries, and the impacts such a division may have on the two groups of countries’ respective abilities to exercise their regulatory prerogatives, is a critical development to follow.

Notes

[1] The legal standards discussed here are set out in Part V of the award, paragraphs 353–366 in particular. Following this, the Tribunal undertakes an extensive review of the question of the economic impact of the measure on the proposed project.

[2] Summarized from Part F of the Final Award.

[3] Pope & Talbot v. Canada, Award on  the Merits of  Phase 2, 10 April 2001, available at http://www.naftaclaims.com/Disputes/Canada/Pope/PopeFinalMeritsAward.pdf

[4] Neer v. Mexico, 4 R. Int’s Arb. Awards, 60–62 (1926), referenced several times in the award, as well as in the filings of the Respondent and Claimant.