Álvarez y Marín Corporación S.A., Bartus van Noordenne, Cornelis Willem van Noordenne, Estudios Tributarios AP S.A. and Stichting Administratiekantoor Anbadi v. Republic of Panama, ICSID Case No. ARB/15/14
A group of Dutch and Costa Rican investors lost a legal battle against Panama before an ICSID arbitral tribunal. After more than three years of proceedings, the tribunal rendered its award declining jurisdiction on October 12, 2018. The case concerned a tourism project in an Indigenous-protected area. According to the claimants, the project was frustrated due to locals’ opposition and a governmental report, in breach of the Netherlands–Panama BIT and the Central America–Panama FTA.
Background and claims
In 2010 a group of investors acquired four rustic farms in order to develop the Cañaveral eco-tourism project along the Panamanian Caribbean, in the Indigenous protected reserve known as Comarca Ngöbe-Buglé, created by law on March 7, 1997. However, the Panamanian government questioned the legality of the acquisition from the very beginning. In that line, the state’s national land management authority (Autoridad Nacional de Administración de Tierras) issued a report on July 9, 2013, concluding that two of the four farms were in fact outside the Comarca.
The Comarca is a special territorial regime in which the Indigenous communities have collective ownership of the lands in the reserve. Therefore, third-party ownership is limited and can only be granted under specific circumstances. Namely, (i) private ownership over the lands should have existed prior to the enactment of the law creating the Comarca, and (ii) the Comarca communities have the right of first option to purchase the lands; a third party may acquire the lands only when the Comarca communities do not want them.
The claimants said the July 2013 report frustrated the Cañaveral project because it relocated two of the four farms, thus reducing the area of the project from 685 to 250 hectares. Furthermore, they argued that the report was leaked and created an atmosphere of opposition and criticism from the Comarca, which led to the illegal occupation of the farms and ultimately made the project unfeasible.
Panama argued that the claimants illegally acquired the farms in the Comarca area through acquisitive prescription (so-called “squatter’s rights”) proceedings that had produced judgements granting ownership to third parties. It alleged that such proceedings were tainted by fraud and irregularities.
On March 15, 2015, the claimants initiated ICSID arbitration. The Dutch claimants relied on the 2000 Netherlands–Panama BIT, and the Costa Rican claimants relied on the 2002 Central America–Panama FTA. They argued that Panama (i) expropriated their investment without compensation, without cause of public utility and without respect for due process; (ii) did not treat them fairly and equitably; and (iii) did not give their investment full protection and security.
The existence of the legality requirement in the treaties
Panama raised four preliminary objections, namely: (i) the investment was illegal; (ii) some of the claimants were not investors protected by the treaties; (iii) some of the investors did not prove that their investment meets the Salini test; and (iv) the claimants did not demonstrate prima facie a breach of the treaties. The tribunal only considered it relevant to address the first preliminary objection.
Panama argued that BIT Art. 2, FTA Art. 10.12 and public international law enshrine the requirement of legality in the investment. Hence investments made in breach of the good faith, clean hands, abuse of process and illicit enrichment doctrines are not protected, according to Panama. Conversely, the claimants argued that the BIT does not impose obligations on the investor as such, but only on the state, and that the FTA does not impose any formality or requirement on the investment.
The tribunal agreed with the claimants that neither treaty includes a provision on the legality requirement. However, it understood that “the legality requirement, although not explicitly expressed in the Treaties, forms an implicit part of the concept of protected investment ” (para. 118).
It also concluded that not all types of illegality entail that a given investment is not protected by the treaties, considering that such a consequence would be severe. In that sense, it held that protection should only be denied when it constitutes a proportionate response to an investor that severely infringed the law of the host state. The severity of the breach should be assessed in light of the relevance of the infringed regulation and the intention of the investor.
First preliminary objection: The illegality of the investment
Having concluded that the legality requirement is relevant to the dispute, the tribunal went on to analyze whether the claimants indeed breached the requirement.
For Panama, the acquisition of the investment was illegal considering that the acquisitive prescription proceedings were tainted by fraudulent witness statements and other irregularities. Even in the event that the claimants did not participate in the fraudulent process, Panama maintained that they could not argue that they were good-faith holders of the farms, given that several times they were presented with inconsistencies in the judicial proceedings and in the purchase of the farms. Furthermore, Panama pointed out that the claimants never conducted any georeferenced procedure on the area in order to confirm the exact location of the farms.
The tribunal concluded that the investment was procured in breach of the applicable legal regime in a severe way and therefore neither the claimants nor their investment could enjoy protection from the treaties and international law. It assessed the intention of the claimants in light of the red flags and irregularities in the acquisition, and concluded that the situation required a higher standard of due diligence from the investors. The tribunal found that this was especially the case as the acquisition of the farms interacted with a highly relevant special regime, which created the Comarca and provided for specific and essential requirements that were not met: the Indigenous Peoples’ right of first option to purchase the lands had not been respected. According to the tribunal, the violation of this regime is of such severity that the whole transaction must be deemed null.
Decision and costs
In light of the insurmountable illegality of the investment, resulting in the loss of protection under the applicable treaties and international law, the tribunal concluded that it lacked jurisdiction to decide on the merits. It ordered each party to bear its own costs, but ordered Panama to bear the onsite inspection costs.
Notes: The tribunal was composed of Juan Férnández-Armesto (president appointed by the parties, Spanish national), Horacio A. Grigera Naón (claimants’ appointee, Argentinian national) and Henri C. Álvarez (respondent’s appointee, Canadian national). The award is available in Spanish only at https://www.italaw.com/sites/default/files/case-documents/italaw10491.pdf
Juan Carlos Herrera-Quenguan is a senior associate at Flor & Hurtado in Quito, Ecuador. He specializes in public international law and international dispute settlement.