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August 03, 2010

Quick Observations on Pac Rim ruling

Pac Rim Cayman LLC v. El Salvador, the fist first major corporate attack under CAFTA against the environment, just unfortunately advanced to the next stage. We'll be sharing our official statement momentarily, but you can check out the CAFTA tribunal's decision on preliminary objections here, and other documents related to the case here.

In the meantime, I thought I'd share a few thoughts on the award itself. (For more background on the underlying issues, check out our backgrounder here.)

Tribunal ruling

The tribunal tried to make very little commentary on the actual merits of the case. However, they did say that:
“246. In the Tribunal‟s view, the issue of liability raises questions as to the interpretation and application of the Mining Law (whether treated as fact or law) which are either to be assumed to be true for present purposes or which cannot at present be decided finally in favour of the Respondent; and the issue of causation (assuming liability) raises questions of fact or mixed law and fact which cannot at present be decided finally in favour of the Respondent. As regards the issue of damages (assuming liability and causation), the Tribunal considers that it may be possible for such damages to be quantified as compensation for the loss of a chance even if (which the Tribunal does not here decide) such damages could not be characterised as compensation for the loss of an “automatic” or “perfected” right to a mining exploitation concession; and thus, if this were so, that issue too cannot at present be decided finally in favour of the Respondent.” [italics added]
In other words, the tribunal saw the failure to give a license as potentially compensable, even if not exactly in the way that Pac Rim alleges. Very troubling.

Automatic Exploitation Concession


El Salvador laboriously argued that the granting of an exploration concession does not automatically grant a legal right to obtain an exploitation concession. Specifically, the detailed process notes in the Mining Law would be meaningless if the granting of the exploitation concession were a foregone conclusion. (Para 129-141) I couldn’t find any place where the claimant disputed this line of argument.

Exhaustion of Remedies and Article 10.20

Critics of the investor-state system have called for exhaustion of remedies or a diplomatic screen in order to ferret our cases harmful to the public interest. U.S. officials have argued that the CAFTA Article 10.20-type language approximates U.S. domestic civil procedure with respect to frivolous claims. They argue that, thus, such language should eliminate or lessen critics’ concern – both with respect to their advocacy for a diplomatic screen, and vis a vis the demand for “no greater rights.”

According to the Pac Rim Decision on Preliminary Objections, one of the CAFTA governments appears to have made similar arguments in the Pac Rim case:
“117. The Tribunal was not materially assisted by comparisons between these provisions and national court procedures in one Contracting Party, the USA, as evidenced by its Presidents Message of 2005 and several decisions of US courts, including the decisions of the US Supreme Court in Neitzke v. Williams and Ashcroft v. Iqbal. Not only is that message from one Contracting Party not replicated by other Contracting Parties to CAFTA, there is also no reason to equate such common law court procedures to provisions in CAFTA agreed by Contracting Parties with different legal traditions and national court procedures.”
Therefore, the argument that Article 10.20 language goes any way towards addressing critics’ demands for “exhaustion of remedies” is diminished.

The tribunal was bound to accept that most of the claimants’ representations were true for the sake of the Article 10.20 ruling. In other words, a plausible legal claim backed by absurd factual claims could not be ruled frivolous under Article 10.20.

Where’s the Discrimination?


As we've raised before, one of the major problems with this case is that there is no evidence that Pac Rim Cayman LLC was treated any differently than any other gold mining investor in El Salvador. So why should they get compensation for an environmental regulation?

According to the ruling, Pac Rim argued:

“221. Contrary to the Respondent’s assertions, the Claimant submits that it pleaded the relevant legal and factual bases for its claims in its Notice of Intent. It there alleged: “The Salvadoran Government’s discriminatory behaviour toward the Enterprises is also reflected by the fact that other industries whose operations raise similar environmental concerns, such as power plants, dams, ports, and fishing operations, have received environmental permits during the same timeframe that the Enterprises”applications have been pending. By, inter alia, refusing to grant the environmental permits to PRES and DOREX while issuing those permits to other companies, El Salvador has denied to PRC the same treatment that it is required to afford, and has afforded, to investments of its own nationals and to nationals of other states.” (Paragraph 35 of the Notice of Intent)…

“223. Moreover, according to the Claimant, the Respondent‟s effective ban on mining activities appears to be limited to metallic mining. In the meantime, non-metallic exploitation activities (which are conducted primarily by Salvadoran companies) continue unhindered. These contrasting facts provide further support for the Claimant‟s National Treatment and Most-Favoured-Nation (“MFN”) Treatment claims in these arbitration proceedings.”
In other words, Pac Rim is continuing to argue that governments discriminate when they don’t decide to tackle all environmental problems at the same time. Under this logic, if environmentalists were successful in banning one type of mining, but not another, then this could be the basis of a discrimination claim.

Ownership of Subsoil and Surface


El Salvador moreover argues that Pac Rim did not prove its ownership or authorization to use 87 percent of the surface area for the claimed exploitation concession. (para 149-153)

The Claimant does not directly affirm or deny this charge. Instead, they state:

“195. The Claimant submits that this general principle is reflected in several provisions of the Mining Law. These provisions, read with Article 37, make it clear that, for an underground mine, the applicant need only demonstrate ownership or authorization of the limited surface area where mining activities are actually to be conducted, i.e. where the entrance to the underground mine and the above-ground mining facilities are to be physically located on the surface. The ownership of or authorization to use other surface areas under which minerals may be located (but which surface area is not to be used, disturbed or impacted by the applicant) is clearly not required by Article 37 of the Mining Law…

“198. Moreover, so the Claimant contends, it would make no practical sense for the applicant to be required to obtain ownership of or authorization to use the surface land from private land-owners located above the deposit, but which surface land the applicant does not intend to use or disturb in order to mine the sub-surface. Article 37 only requires property ownership or authorization for works to be performed on the soil surface – not for the surface area overlaying underground deposits that will not be affected by the applicant’s mining activities.”
From the average property owner’s perspective, it is very bizarre that an Investment Chapter supposedly set out to protect private property would allow a claim to be brought based on a factual record that demonstrated a foreign investor’s disregard for the private property of adjacent Salvadorans. I'm just sayin'.

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