{"id":8643,"date":"2021-12-20T19:50:05","date_gmt":"2021-12-20T18:50:05","guid":{"rendered":"https:\/\/cf.iisd.net\/itn\/?p=8643"},"modified":"2024-08-09T18:32:06","modified_gmt":"2024-08-09T16:32:06","slug":"majority-in-eco-oro-v-colombia-finds-violation-of-minimum-standard-of-treatment-holds-that-a-general-environmental-exception-does-not-preclude-obligation-to-pay-compensation","status":"publish","type":"post","link":"https:\/\/www.iisd.org\/itn\/2021\/12\/20\/majority-in-eco-oro-v-colombia-finds-violation-of-minimum-standard-of-treatment-holds-that-a-general-environmental-exception-does-not-preclude-obligation-to-pay-compensation\/","title":{"rendered":"Majority in Eco Oro v. Colombia finds violation of minimum standard of treatment, holds that a general environmental exception does not preclude obligation to pay compensation"},"content":{"rendered":"

Eco Oro Minerals Corp. v. Republic of Colombia, ICSID<\/span> Case No. ARB\/16\/41<\/h1>\n

Background and claims<\/h3>\n

Eco Oro Minerals Corp. (Eco Oro) is a Canadian mining company that obtained a mining permit for Colombia\u2019s Angostura gold and silver deposits in 1994. On February 8, 2007, Eco Oro entered into a concession contract with the Colombian Geology and Mining Institute, INGEOMINAS (Concession 3452). In 2009, Eco Oro submitted an application for approval of its construction and works plan (PTO) and for an environmental licence, the latter supported by an environmental impact study (EIA).\u00a0<\/span><\/p>\n

While Eco Oro initially envisaged an open-pit mining project in this area, Law 1382 of 2010 prohibited mining operations in the \u201cp\u00e1ramo ecosystems,\u201d defined as “high-mountain ecosystems that play a central role in maintaining biodiversity, premised on a unique capacity to absorb and restore water” (para. 86). The 2007 Atlas released under Colombia’s General Environmental Law indicated a 54% overlap between the Santurb\u00e1n P\u00e1ramo and the area of Concession 3452. In April 2010, Colombian authorities ordered Eco Oro to present a new EIA taking into account the exclusion of p\u00e1ramo ecosystems from mining activities (2010 order). While Eco Oro initially requested the authorities to reconsider their order, it subsequently withdrew its environmental licence application for an open-pit project and requested terms of reference for the preparation of an underground mine as an alternative. In the meantime, INGEOMINAS granted several requests by Eco Oro for extensions of the exploration stage and designated Eco Oro’s project as one of national interest.<\/span><\/p>\n

In July 2013, Eco Oro requested a suspension of its obligations under the concession, including its obligation to submit the PTO, until the p\u00e1ramo delimitation was completed. This suspension was granted. In 2014, Colombia published the boundaries of the Santurb\u00e1n P\u00e1ramo in Resolution 2090, indicating a 54.7% overlap with Eco Oro’s concession area. Following the delimitation of the Santurb\u00e1n P\u00e1ramo in Resolution 2090, Colombian authorities decided not to further extend the suspension of Eco Oro\u2019s activities. Resolution 2090 also provided exceptions to the general prohibition against mining in such areas. These exceptions, however, were struck down by a judgement of the Colombian Constitutional Court in February 2016, impacting large swaths of Eco Oro’s project. Eco Oro submitted its request for arbitration on December 8, 2016.\u00a0<\/span><\/p>\n

On November 10, 2017, the Colombian Constitutional Court struck down Resolution 2090, citing the lack of public consultations. The delimitation of the Santurb\u00e1n P\u00e1ramo was undetermined as of the date of the award in this arbitration. However, in April 2018, Colombian authorities nevertheless confirmed their decision to reject further suspensions requested by Eco Oro in respect of its obligations under the concession. They further directed Eco Oro to submit the PTO within 30 days, at risk of being fined. On March 29, 2019, Eco Oro filed for the renunciation of Concession 3452.<\/span><\/p>\n

Colombia’s preliminary objections dismissed<\/h3>\n

Colombia argued that it could deny the benefits of the Canada\u2013Colombia FTA<\/span> to Eco Oro as the latter was owned and controlled by investors of a non-party. The tribunal noted that the FTA did not contain any definition of the term “own.” It held that in the absence of any circumscribing adjectives, the term refers to 100% ownership. As Colombia had not asserted that non-party investors fully owned Eco Oro’s shares, the tribunal dismissed this objection. Turning to the control criterion, the tribunal concluded that the term refers to actual and not putative control. Since Colombia had not advanced any evidence indicating concerted actions taken by Eco Oro’s non-Canadian shareholders, the tribunal rejected Colombia’s assertion of control by non-party investors.<\/span><\/p>\n

Colombia also contended that Eco Oro was not a protected investor as the true beneficiary of the claim was a Delaware-incorporated company to whom Eco Oro had assigned its claims. However, since Colombia “[did] not identify any provisions in the FTA requiring investigation into Eco Oro\u2019s beneficial ownership,” the tribunal declined to examine this contention (para. 273).\u00a0<\/span><\/p>\n

The tribunal further rejected Colombia’s contention that Eco Oro had failed to set out “the legal and factual basis for the claim, including the measures at issue [in its notice of intent to arbitrate],” in contravention of the conditions precedent to arbitration prescribed in Article 821 of the FTA. Noting that Colombia’s objection pertained to measures that occurred after Eco Oro issued its notice of intent, the tribunal considered that it was not \u201crealistic or practical\u201d to expect an investor to file a new notice of intent each time a further measure occurred. In the tribunal’s view, it could exercise jurisdiction over a related subsequent measure if there was “sufficient nexus between such measure and the claim as detailed in the Notice of Intent such that it is an evolution of the same dispute” (paras. 328\u2013329). The tribunal found this requirement to have been met in this instance.<\/span><\/p>\n

Colombia additionally argued that the general exception in Article 2201(3) of the FTA excluded environmental measures from the scope of its consent to arbitrate. Both the claimant and Canada (through a non-disputing party submission) opposed this. The tribunal referred to the title of this Article (“General Exceptions”) and its ordinary terms (“For the purposes of Chapter Eight”) to find that the exception could only apply when the provisions of Chapter Eight of the FTA were engaged, rather than applying to exclude the totality of Chapter Eight.<\/span><\/p>\n

Majority rejects claim of indirect expropriation citing actions for environmental preservation taken in good faith<\/h3>\n

The tribunal first considered the nature of Eco Oro’s investment and whether it had an \u201cacquired right\u201d protected against expropriation. The tribunal observed that under Concession 3452, Eco Oro could not proceed to economic exploitation without the necessary approval of its work plan and an environmental licence. Based on its review of congressional discussions, communications from state bodies, and judicial decisions, the tribunal concluded that \u201cwhilst there is no express authority upon which it can rely,\u201d the fact that Eco Oro had acquired a right to exploit the concession area \u201carises from the general understanding that the rights a party acquired under a concession agreement were indivisible.\u201d In the tribunal’s view, the fact that a vested right of exploitation \u201cmay be difficult to value, or indeed may be valueless where [there is] almost no chance of getting an environmental license” did not imply that no acquired right existed (para. 439). Hence, for the tribunal, Eco Oro had certain vested rights that were capable of being expropriated.<\/span><\/p>\n

With respect to Annex 811 of the FTA concerning expropriation, the tribunal noted that Eco Oro had lost over 50% of its mining rights due to Colombia’s measures. The tribunal acknowledged that it would have been difficult for Eco Oro to obtain requisite exploitation approvals once it was clear that a p\u00e1ramo ecosystem overlapped with a significant part of its concession area. However, it observed that Colombia had issued 67 environmental licences in areas overlapping p\u00e1ramo ecosystems since Colombia\u2019s General Environmental Law had enshrined the precautionary principle. Thus, \u201cthe Tribunal [could not] say that Eco Oro had no prospect of success\u201d and found the loss of the right to exploit the concession area to be “a substantial deprivation, such as to amount to an indirect expropriation” (paras. 632 and 634).<\/span><\/p>\n

Nevertheless, a majority of the tribunal found that this deprivation was a legitimate exercise of Colombia’s police powers since it resulted from non-discriminatory measures designed and applied to protect the environment. In arriving at this conclusion, the majority referred to the environmental significance of p\u00e1ramo systems and the threat they face from mining activities. In addition, the majority noted that Colombia’s measures affected all mining concessionaires whose concessions overlapped with the Santurb\u00e1n P\u00e1ramo.\u00a0<\/span><\/p>\n

The majority further considered whether the exercise of police powers could be characterized as a “rare circumstance” where the measure was “so severe \u2026 that it cannot be reasonably viewed to have been adopted in good faith” under Annex 811(2(b) of the FTA. For the majority, this provision referred to “a very significant aggravating element or factor in the conduct of the\u00a0 State and not just a bureaucratic muddle or State inefficiency” (para. 643). The majority, however, did not find such aggravating conduct, emphasizing the <\/span>bona fide <\/span><\/i>purpose of the measures. While the majority expressed concern over the manner in which the p\u00e1ramo was delimited, they did not find this conduct to be sufficiently egregious to comprise a lack of good faith amounting to \u201crare circumstances\u201d within the meaning of Annex 811. Conversely, the dissenting arbitrator considered the investor’s expectations when the concession was granted as well as principles of good faith to conclude that the retroactive application of the p\u00e1ramo delimitation to Eco Oro indicated “rare circumstances” of the kind described in Annex 811.<\/span><\/p>\n

Finally, with respect to the proportionality of Colombia’s measures with their intended purpose, the majority noted that “[t]he precautionary principle is clearly relevant when considering the effect and proportionality of the measures with respect to the protection of the p\u00e1ramos” (para. 654). Taking into account the uncertain extent and impact of damage from mining activities to p\u00e1ramos, the tribunal considered Colombia’s actions to be reasonable and proportionate.<\/span><\/p>\n

Majority of tribunal finds breach of provisions related to minimum standard of treatment<\/h3>\n

A different majority of arbitrators found a breach of Article 805 of the FTA concerning the minimum standard of treatment (MST).\u00a0<\/span><\/p>\n

As a preliminary matter, the majority observed that the meaning of MST “must be permitted to evolve as indeed international customary law itself evolves” (para. 744). Noting the references to a “predictable commercial framework” and environmental matters in the FTA’s preamble, the majority found that “Eco Oro was entitled to expect that Colombia would treat its investment in an even-handed and just manner to ensure a predictable business environment \u2026 but that, in doing so, it would ensure the enhancement and enforcement of environmental laws and regulations” (para. 748). In addition, the majority held that a finding of violation of MST would require “some aggravating factor such that the acts identified comprise more than a minor derogation from that which is deemed to be internationally acceptable” (para. 755).\u00a0<\/span><\/p>\n

Applying this standard, the majority first noted that Colombia had granted Concession 3452 in full knowledge that the concession area overlapped with the Santurb\u00e1n P\u00e1ramo and that it had an obligation to protect this area against environmental harm. The majority further noted that Eco Oro continued to receive encouragement from Colombia with respect to its concession and was held up as an example to other foreign miners. Finally, the majority considered that despite various laws, resolutions, and court decisions that imposed an obligation on Colombia to delimit and acquire p\u00e1ramo areas, Colombia had failed to do so. For the majority, this indicated that the \u201cAngostura Deposit cannot be said with any certainty to be within the Santurb\u00e1n P\u00e1ramo\u201d (para. 777). Accordingly, the majority held that Colombia\u2019s internally inconsistent actions, including its failure to delimit the Santurb\u00e1n P\u00e1ramo, denied Eco Oro a stable and predictable regulatory environment in breach of its legitimate expectations.<\/span><\/p>\n

In the second step of its analysis, the majority found that Colombia’s frustration of Eco Oro’s legitimate expectations was unjust and arbitrary. In arriving at this conclusion, the majority referred to Colombia’s failure to delimit the Santurb\u00e1n P\u00e1ramo in wilful disregard of its statutory duty. The majority also focused on \u201ccompeting approaches within the Colombian ministries,\u201d that is, the need to at once protect the p\u00e1ramo and secure economic benefits of exploitation. To the tribunal, this suggested a \u201ccomplete lack of agreement or even co-ordination,\u201d resulting in a “near total failure to resolve the competing demands” (para. 815). Finally, the tribunal noted that while Columbia had refused to allow Eco Oro a time extension to submit its PTO, it had simultaneously taken extensions to complete the delimitation of the p\u00e1ramo. Viewed as a whole, the majority found Colombia’s approach to the delimitation of the p\u00e1ramo to be one that “inflicted damage Eco Oro without serving any apparent legitimate purpose” (para. 821).\u00a0\u00a0<\/span><\/p>\n

Colombia’s construction of the general exceptions clause rejected<\/h3>\n

Colombia argued that Article 2201 of the FTA, containing a general exception for measures “necessary [t]o protect human, animal or plant life or health\u201d and for \u201cthe conservation of living or non-living exhaustible natural resources,\u201d operated to exclude its liability to pay compensation. The majority rejected Colombia’s contention. The majority considered Article 2201(3) to be “permissive,” such that it allowed Colombia to adopt or enforce a measure for environmental conversation provided that these measures were not arbitrary, unjustifiably discriminatory, or disguised restrictions on international investment. However, for the arbitrators, if the parties had intended this provision to exclude liability for compensation, they would have drafted the provision in similar terms as Annex 811 on police powers. The arbitrators considered that any contrary interpretation would also conflict with the provisions in Annex 811, “which expressly acknowledges that in certain circumstances a measure taken for the protection of the environment may constitute indirect expropriation” (para. 831).\u00a0<\/span><\/p>\n

In this respect, the majority further held the damages claimed by Eco Oro were not speculative, despite its failure to obtain an environmental licence and necessary PTO approvals. For the majority, Colombia had issued certain environmental licences for mining activities in p\u00e1ramo areas since its General Environmental Law came into force. Accordingly, the majority found that notwithstanding the reference to the precautionary principle in Colombian law, Eco Oro could not be said to have “no prospect whatsoever of obtaining an environmental licence” (para. 848).\u00a0<\/span><\/p>\n

Noting that they lacked sufficient information to determine the quantum of damages, the majority adopted the “Comparable Transactions” methodology of valuation proposed by the claimant and directed the parties to make additional submissions to determine the loss resulting from Eco Oro’s right to apply for an environmental licence.\u00a0<\/span><\/p>\n

Decision and costs<\/h3>\n

Based on the foregoing, the tribunal found jurisdiction over the claims raised and, by majority, a breach of Article 805 of the FTA concerning MST. The tribunal reserved its decision on costs until its award on damages.\u00a0<\/span><\/p>\n

Notes: <\/span><\/i>The tribunal was composed of Juliet Blanch (president, appointed by the ICSID Secretary-General, British national), Horacio A. Grigera Na\u00f3n (claimant\u2019s nominee, Argentinian national), and Philippe Sands (respondent\u2019s nominee, French, British, and Mauritian national). The award is available at <\/span>https:\/\/www.italaw.com\/sites\/default\/files\/case-documents\/italaw16212.pdf<\/span><\/a><\/p>\n

The author of this case summary has chosen to contribute anonymously. <\/span><\/p>\n