{"id":285,"date":"2009-07-14T06:07:00","date_gmt":"2009-07-14T11:07:00","guid":{"rendered":"http:\/\/itn.mattrock.ca\/2009\/07\/14\/glamis-gold-ltd-v-united-states-of-america-tribunal-sets-a-high-bar-for-establishing-breach-of-%e2%80%9cfair-and-equitable-treatment%e2%80%9d-under-nafta\/"},"modified":"2013-02-04T01:58:11","modified_gmt":"2013-02-04T07:58:11","slug":"glamis-gold-ltd-v-united-states-of-america-tribunal-sets-a-high-bar-for-establishing-breach-of-fair-and-equitable-treatment-under-nafta","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2009\/07\/14\/glamis-gold-ltd-v-united-states-of-america-tribunal-sets-a-high-bar-for-establishing-breach-of-fair-and-equitable-treatment-under-nafta\/","title":{"rendered":"Glamis Gold Ltd. v. United States of America: Tribunal sets a high bar for establishing breach of \u201cFair and Equitable Treatment\u201d under NAFTA"},"content":{"rendered":"

By Elizabeth Whitsitt and Damon Vis-Dunbar
\n15 July 2009<\/strong>
\n<\/strong>
\nA protracted dispute between the United States of America and Glamis Gold Ltd., a Canadian gold mining company, was settled in June by an arbitral tribunal constituted under Chapter 11 of NAFTA<\/span>.<\/p>\n

In a unanimous 355-page decision, the Tribunal dismissed Glamis\u2019 claims that the US expropriated its rights to mine gold in southeastern California and that the US denied Glamis \u201cfair and equitable treatment\u201d in its attempt to utilize those rights.<\/p>\n

The Glamis claim rested on a series of regulatory measures imposed by federal and state agencies in response to concerns over the environmental and cultural impacts of its mining project (the Imperial Project). The open pit mining project was controversial in California, drawing particular opposition from the Quenchan Indian Nation due to its location in an area sacred to the Native American tribe.<\/p>\n

Glamis argued that federal mining agencies departed from well-established precedent when they declined to approve Glamis\u2019 plan of operation. Glamis also objected to measures introduced by the State of California in 2003, which it claimed were arbitrary and discriminatory, designed to block the Imperial Project rather than genuinely address environmental and cultural concerns associated with mining activities generally.<\/p>\n

In considering Glamis\u2019 expropriation claim, the Tribunal extensively analyzed the value of the mining project in light of the additional costs required to meet the environmental criteria demanded by the State of California.<\/p>\n

Glamis argued that the cost associated with completely backfilling the Imperial mine, as required under the California measures, reduced the project to a negative value. However, the Tribunal rejected Glamis\u2019 valuation, concluding that the mining project was valued at over US$20 million (Glamis had estimated the value of the project at US$49 million without the backfilling measures prescribed in the California measures).<\/p>\n

Given the \u201csignificantly positive valuation\u201d, the Tribunal concluded that \u201cthe first factor in any expropriation analysis is not met: the complained of measures did not cause a sufficient economic impact to the Imperial Project to effect an expropriation of the Claimant\u2019s investment.\u201d<\/p>\n

The Tribunal also went on to reject Glamis\u2019 claim that the United States had violated Article 1105(1) of NAFTA, which provides that \u201c[e]ach Party shall accord to investments or investors of another Party treatment in accordance with international law, including fair and equitable treatment and full protection and security.\u201d<\/p>\n

In considering this provision, the Tribunal noted that \u201c[t]here is no disagreement among the State Parties to the NAFTA, nor the Parties to [this case], that the requirement of fair and equitable treatment in Article 1105 is to be understood by reference to the customary international law minimum standard treatment of aliens.\u201d* Thus, the Tribunal characterized the issue before it under Article 1105 as one which required a determination of the customary international law minimum standard of treatment owed by a NAFTA State Party to an investor of another State Party.<\/p>\n

Glamis and the US, along with the two other NAFTA State Parties, agreed that the customary international law standard was at least that as delineated in 1926 in Neer v. Mexico<\/em>.**\u00a0 Glamis and the US disagreed, however, as to whether and how that customary standard has since evolved.<\/p>\n

Glamis contended that the duty to accord investors \u201cfair and equitable treatment\u201d and the minimum standard of treatment are dynamic standards, informed by the proliferation of more than 2,000 bilateral investment treaties and many treaties of friendship and commerce.\u00a0 Accordingly, Glamis argued that the Tribunal in this case could look to decisions of other tribunals interpreting the \u201cfair and equitable treatment\u201d standard under those treaties to establish that the same standard under NAFTA Article 1105 required something less than the \u201cegregious\u201d, \u201coutrageous,\u201d or \u201cshocking\u201d threshold enunciated during the 1920s.<\/p>\n

For its part, the US noted that customary international law requires proof of: (i) state practice and (ii) opinio juris<\/em>, and contended that Glamis had not met its burden of establishing an evolution in the customary standard of \u201cfair and equitable treatment.\u201d\u00a0 Specifically, the US attacked Glamis\u2019 use of treaties and other tribunals\u2019 interpretation of the \u201cfair and equitable treatment\u201d standard under those treaties as evidence of the customary international law standard of \u201cfair and equitable treatment\u201d under NAFTA Article 1105.<\/p>\n

In agreement with the US, the Tribunal would distinguish the task of determining the meaning of \u201cfair and equitable treatment\u201d by way of treaty interpretation from the task of determining the content of customary international law, explaining that:<\/p>\n

“[a] tribunal confronted with the question of treaty interpretation can, with little input from the parties provide a legal answer.\u00a0 It has two necessary elements to do so, namely the language at issue and rules of interpretation.\u00a0 A tribunal confronted with the task of ascertaining custom, on the other hand, has a quite different task because ascertainment of the content of custom involves not only questions of law but also questions of fact, where custom is found in the practice of States regarded as legally required by them.”<\/p>\n

While the Tribunal acknowledged that it is difficult to establish a change in customary international law, it nonetheless maintained that claimants, like Glamis, arguing for an evolution of the customary \u201cfair and equitable treatment\u201d standard under NAFTA Article 1105 have a heavy burden to prove such an assertion.<\/p>\n

In this case, the Tribunal concluded that Glamis failed to prove that \u201cfair and equitable treatment\u201d has evolved under customary international law since it was articulated in Neer v. Mexico<\/em>. As such, the Tribunal determined that a high threshold would have to be met by Glamis in order to prove a breach of the \u201cfair and equitable treatment\u201d standard, holding that a violation \u201crequires an act that is sufficiently egregious and shocking \u2013 a gross denial of justice, manifest arbitrariness, blatant unfairness, a complete lack of due process, evident discrimination, or a manifest lack of reasons …\u201d.<\/p>\n

Ultimately, the Tribunal found no evidence that federal and state agencies met these levels of misconduct in their dealings with Glamis.<\/p>\n

The Tribunal\u2019s insistence that claimants, like Glamis, must demonstrate an evolution in the customary international law standard of \u201cfair and equitable treatment\u201d in order to support their case sets a heavier burden than past NAFTA tribunals have required.\u00a0 To the degree that subsequent NAFTA tribunals adopt a similar approach, claimants seeking refuge under NAFTA Article 1105 will have a difficult time successfully establishing their claims.<\/p>\n

The award in Glamis Gold Ltd. v. United States of America is available from the website if the US State Department: http:\/\/www.state.gov\/s\/l\/c10986.htm<\/a><\/p>\n

* In support of this proposition, the Tribunal referenced the Free Trade Commission, Notes of Interpretation of Certain Chapter 11 Provisions, \u00a7 B(2) (31 July 2001) which states that \u201cArticle 1105(1) prescribes the customary international law minimum standard of treatment of aliens as the minimum standard of treatment to be afforded to investments of investors of another Party.\u201d<\/p>\n

** See Neer v. Mexico, 4 R. Int\u2019l Arb. Awards (15 October 1926) at p. 4 where the arbitral tribunal stated that: \u201c[t]he treatment of an alien, in order to constitute an international delinquency, should amount to an outrage, to bad faith, to willful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency.\u201d<\/p>\n