19 October 2021 | In this guest column, arbitration lawyer Juan Carlos Boué presents the case of Columbia, which has included an environmental exception in their treaty with Canada. Still they were sentenced by a tribunal to pay damages to a Canadian mining company for a ruling of their highest court, which imposed mining restrictions in protected areas.
Juan Carlos Boué. In 2008, Colombia and Canada signed a Free Trade Agreement, which contains a general exception – Article 2201(3) – shielding environmental governmental measures from giving rise to liability under strict conditions, even when they violate the Investment Chapter.
Eight years later, the Colombian constitutional court issued a ruling broadening restrictions on mining in high-mountain ecosystems known as páramos, and striking down legislation that sought to exempt projects negotiated before 2010 from mining restrictions in such areas. One such project was owned by Canadian company Eco Oro, which proceeded to sue Colombia at the World Bank arbitration forum for 736 million dollars, with the claim being financed by a third party litigation funder which will reputedly receive at least 51% of any sum awarded.
In September 2021, the arbitration tribunal hearing the claim decided, by a majority, that Colombia is liable and must pay compensation, irrespective of the legitimate environmental purpose of protecting the páramos. The tribunal thus concluded that states should protect the environment but should do so while observing investment commitments.
This interpretation runs counter to the hierarchy set up in the treaty (in which the environment is supposed to trump investment). Astonishingly, the tribunal reached this conclusion by reasoning that the Treaty did not state explicitly enough that a clause entitled “General Exceptions” worked as an exception.
Even more astonishingly, Canada made a Non-Disputing Party Submission supportive of Colombia’s position, which the tribunal then disagreed with as not reflecting “the intention of the Contracting Parties”. The tribunal did not allow any intervention by environmental NGOs or local communities, despite the impact that the mining activities at dispute could have on the latter.
For the arbitrator in the minority, the whole thing amounted to a travesty which merited a dissenting opinion drafted in coruscating language: the “majority fails to respect the text agreed by the drafters of the FTA, and is likely to undermine protection of the environment.”
The outcome of this case sends a clear message to those who do not believe that investment arbitration is a problem in terms of the protection of the environment. The treaty at issue was a “new generation” treaty, supposedly characterized by a greater deference for the regulatory functions of states. But the tribunal rendered meaningless an environmental exception commonly found in such treaties, thereby sending an unequivocal message that, as long as such arbitrators are the ones who decide, reforming treaties does not matter. And readers would do well to remember that compensation in this case is yet to be determined.
Juan Carlos Boué is a Mexican national and London-based counsel in the’ international corporate and arbitration practice of the international law firm Curtis, Mallet-Prevost, Colt & Mosle. Boué has combined an academic career with a decade at the helm of the international trading arm of Mexico’s state oil company, PEMEX, overseeing commercial aspects of all of Mexico’s crude oil exports. He also served on the committee which reviewed the country’s oil export pricing and policies, among other strategic roles in the oil industry, was a special adviser to the Ministry of Energy and Petroleum of Venezuela and sat on the boards of various oil refining companies. From 2010 to 2018, Mr. Boué was a senior research fellow at the Oxford Institute for Energy Studies. He has written widely on the industrial economics of oil and gas exploration and production, petroleum refining, auction design for oil and gas bidding rounds and the taxation and general political economy of oil.