Páramos protection-related case decided in favour of Colombia, this time

Red Eagle Exploration Limited v. Republic of Colombia, Award, ICSID Case No. ARB/18/12

Red Eagle v. Colombia is the third arbitration related to Colombia’s efforts to protect the páramos ecosystems, which are a range of high-altitude wetlands that serve as a primary source of the country’s water supply. Previously, in Eco Oro v. Colombia, a tribunal majority found that Colombia’s prohibition of mining activities in the Santurbán Páramo violated the customary international law minimum standard of treatment (MST) owed to Eco Oro, a Canadian mining corporation. The tribunal majority in that case found that Colombia’s inconsistent delimitations of the Santurbán Páramo violated Eco Oro’s legitimate expectations and that this violation had the aggravating factor of being grossly unfair and arbitrary, therefore amounting to a breach of MST under the Canada–Colombia FTA. Additionally, the tribunal found that the environmental exception in the FTA did not shield Colombia from paying damages, and the case is currently in quantum. In Red Eagle v. Colombia, the tribunal also heard MST claims under the Canada–Colombia FTA regarding the delimitation of the Santurbán Páramo, yet the outcome differed. However, this difference in results was not addressed nor differentiated by the tribunal majority. (The third case, Galway Gold v. Colombia, is currently suspended).

Background and claims

Red Eagle Exploration Limited (“Red Eagle”), another Canadian mining corporation, acquired 11 gold mining titles in the Santurbán area of northeast Colombia between June 2010 and October 2013, and the areas of the titles included páramos ecosystems. As Red Eagle explored the region under the titles, the Colombian government was seeking to ban mining in the páramos because of the importance and fragility of these ecosystems. In 2010 Colombia passed a law that forbid mining in the páramos, except for activities carried out pursuant to an existing environmental licence. Then, the Colombian Constitutional Court found this law to be unconstitutional for lack of public consultation, and in June 2011 the state reinstated the ban on mining in páramos that were previously provisionally delimited, as definitive delimitation pended. A resolution in December 2014, which was nearly identical to the previous, provisional delimitation, delimited the Santurbán area, overlapping substantially with Red Eagle’s mining titles. Another law of June 2015 ratified the mining ban, and then the Colombian Constitutional Court, through two rulings, essentially removed the grandfathering provision for mining titles that Red Eagle was hoping to rely upon and made it clear that a new delimitation of the Santurbán Páramo would be more expansive than the previous one in the resolution.

These judgments, along with the reduction of the mining titles’ area, led Red Eagle to conclude that their envisioned large-scale mining project in northeastern Colombia (the “Vetas Project”) would not be viable. Red Eagle then brought an arbitration claim in March 2018, requesting USD 87 million plus interest in damages, claiming that these measures taken by the Colombian government were a breach of its obligations under the Canada–Colombia FTA. Red Eagle argued that Colombia’s measures, individually or in combination, amounted to a breach of the FET standard, specifically: (i) Colombia adopted measures that frustrated the claimant’s legitimate expectations, also failing to provide a stable and predictable legal framework for the claimant’s investments; (ii) Colombia’s conduct was non-transparent and inconsistent; (iii) Colombia’s measures have been unreasonable or arbitrary; (iv) Colombia’s measures are disproportionate, and (v) Colombia’s measures are discriminatory. Red Eagle also claimed that Colombia unlawfully expropriated its investments contrary to the requirements of the FTA.

Colombia’s jurisdictional objections dismissed

Colombia alleged that Red Eagle “failed to prove that it meets the jurisdictional requirements” under the Canada–Colombia FTA for numerous reasons. The tribunal rejected each of them. In particular, citing Eco Oro v. Colombia, the tribunal stated that the exception for environmental measures found in the Canada–Colombia FTA is a defence on the merits, not an objection to the ratione materiae jurisdiction of the tribunal as presented by Colombia. In this case, the tribunal did not have to reach this exception on the merits, as it rejected Red Eagle’s MST and expropriation claims.

Tribunal analysis

Interpretation of the MST/FET standard

The tribunal started by rejecting Red Eagle’s argument that the MFN clause contained in the Canada–Colombia FTA compelled Colombia to treat Red Eagle no less favourably than investors from other states with whom Colombia has investment agreements, including the FET standards provided in those agreements. The tribunal pointed to the Canada–Colombia Joint Commission Interpretation of the FTA as a binding interpretation that precluded this MFN-based extension of the MST/FET standard beyond what is required under customary international law. Then, commenting on the relationship between customary international law MST and FET, the tribunal referred to Waste Management v. Mexico and described the MST of FET as prohibiting conduct that is “arbitrary, grossly unfair, unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice, or involves a lack of due process leading to an outcome which offends judicial propriety.” Thus, the tribunal explained that this was the standard for Colombia’s conduct to be measured against, rather than a “stand-alone” FET standard found in other investment agreements as argued by Red Eagle. The tribunal majority elaborated that the conduct of a state must reach a certain level in order for it to be a breach of MST, which Colombia’s conduct did not.

Rejection of Red Eagle’s legitimate expectations claim

Red Eagle argued, referring to Tecmed v. Mexico, that the correct interpretation of the FET standard includes the protection of legitimate expectations on which an investor relied at the time it made its investments. The tribunal majority quickly disposed of this interpretation, saying that there is “insufficient evidence to support the proposition that the doctrine of legitimate expectations, which forms a part of the FET standard in other treaties, is part of the customary MST.” The tribunal majority pointed to the lack of state practice and opinio juris to support the existence of such a rule and stated that the Tecmed standard is rarely, if ever followed by tribunals, has been strongly criticized, and “is not one on which reliance may be placed.” Instead, the tribunal majority relied on Glamis Gold v. United States to say that the customary international law MST may be breached where the claimant demonstrates the existence of “at least a quasi-contractual relationship between the State and the investor, whereby the State has purposefully and specifically induced the investment.” Then, using this standard, the tribunal majority rejected Red Eagle’s legitimate expectations claim, explaining that much of Red Eagle’s claim relies on general expectations of stability and consistency, which are not supported by any specific representation or promise from Colombia. Furthermore, it elaborated that at the time of Red Eagle’s purchase of the 11 mining titles, the páramos mining ban was already in effect and known by Red Eagle, their project was never grandfathered, and the alleged representations (such as Colombian officials’ visits to Canada or attendance in meetings surrounding the investments) did not rise to the level of being specific evidence of a quasi-contractual relationship or evidence that Red Eagle actually relied on or was induced by the alleged representations.

Recognition of Colombia’s legitimate purpose of protecting the environment

Following the tribunal in EDF v. Romania, the majority of the tribunal started out by saying that “arbitrary or unreasonable conduct may be demonstrated in a number of ways, including measures which harm the interests of the Claimant but do not have a legitimate purpose, measures that are taken for reasons other than those put forward, and decisions taken in willful disregard of due process and procedure” but that Red Eagle had failed to provide sufficient evidence of any of these elements of arbitrariness or unreasonableness. The tribunal emphasized that the measures taken by Colombia did not deprive Red Eagle of any acquired right—they were never granted the legal right to carry out a mining project in the páramos area. Additionally, the majority of the tribunal found that the páramos protection and delimitation process was based on extensive research and a deliberative process, demonstrating a meaningful consideration of various interests to reach a balanced policy aimed at the legitimate interest of protecting the environment. The tribunal stated, “As long as the Tribunal is satisfied that the Respondent has acted for a legitimate purpose—which in this case, it very plainly has, as the Tribunal is unanimous in concluding, then it has no business questioning how the Respondent has chosen to balance these competing interests.” The majority of the tribunal found that the unpredictability or instability in reaching a balanced policy did not cross the line of arbitrariness, but rather was inevitable given the complexity and real-world difficulties of government decision making in the face of legitimate objectives. For similar reasons, the tribunal dismissed Red Eagle’s claim on disproportionality, noting that Colombia did not go further than necessary to pursue its objectives and Red Eagle had not identified an alternative measure which would have achieved the same level of environmental protection, but have less effect on their economic interests.

(The tribunal majority also dismissed Red Eagle’s discrimination claim, saying the existence of illegal artisanal mining in the páramos did not demonstrate discrimination given the small-scale nature of this mining’s environmental impact and how Colombia’s mining prohibition applied universally. Red Eagle’s transparency claim was also rejected because the preliminary provisional delimitation maps, later confirmed in the resolution, along with the public court judgments, served to confirm transparency rather than obscurity.)

Expropriation claim rejection

Red Eagle alleged that Colombia unlawfully expropriated their investments contrary to the requirements of the FTA by substantially depriving them of economic benefit, enjoyment, and value of their returns under the mining titles. Since the measures of Colombia were not an outright seizure of the mining titles, Red Eagle’s claim was for indirect expropriation. A tribunal majority responded by stating “that for any claim of expropriation to get off the ground, the Claimant needs to demonstrate the existence of a vested right of which it has been deprived.” The tribunal majority found that Red Eagle never acquired a vested right to engage in mining activities in the páramos region; it was always conditional on being granted an environmental licence at the discretion of Colombia. (Contrasting from Eco Oro v. Colombia, where the tribunal found that Eco Oro had acquired a right to explore and exploit the area, even though this was also subject to the discretion of Colombia). Then, a tribunal majority noted that even if Red Eagle had a vested right, Colombia’s measures to protect the páramos fell within the police powers exception to expropriatory measures found in the FTA and not into the bucket of rare circumstances where such measures are a breach of the treaty.

Allocation of costs

Noting that the tribunal rejected Colombia’s objections to jurisdiction and found Red Eagle’s claims to have no merit, the tribunal called for each party to bear its own attorney’s fees and expenses (USD 2,900,042.24 for Colombia). However, in allocating the arbitration costs, the tribunal referenced how Colombia had previously ignored their requests to “pay its corresponding share of the advances notwithstanding the mandatory wording of the ICSID Convention…and the Claimant paid for the entirety of the advances requested” and found it reasonable that Colombia pay its half of the costs of arbitration. Since the costs of arbitration had been paid out of the advances made by Red Eagle, the tribunal ordered Colombia to reimburse the claimant USD 461,118.95 for its corresponding share of arbitration costs. Thus, the total cost of this case for Colombia, which it won, was USD 3,361,161.19—demonstrating the consequences countries are facing in implementing environmental policies given the current ISDS system.

Note

The tribunal was composed of Andres Rigo Sureda (parties’ appointee), Jose Martinez de Hoz (claimant’s appointee) and Philippe Sands (respondent’s appointee).

Author

Jack Chaffee is a former international law fellow at IISD and a JD student from Michigan Law School.