Case comment: Pac Rim Cayman LLC v. El Salvador

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Lexology | 10 January 2017

Case comment: Pac Rim Cayman LLC v. El Salvador

Pac Rim Cayman LLC thwarted in attempt to recover damages from El Salvador (Pac Rim Cayman LLC v. El Salvador, ICSID Case No. ARB/09/12, Award, 14 October 2016).

Gold miner Pac Rim Cayman LLC (Claimant) had invested in El Salvador, conducting exploratory and pre-mining activities in various concession areas, at a time when the State was looking to attract investors in order to develop its mining industry and boost economic development. The State, several years later, however, refused to issue the Claimant permits and licenses needed to exploit the high-grade gold reserves discovered in the El Dorado concession area, a decision the Claimant alleged to be wrongful under domestic and international law, and that allegedly nullified the Claimant’s investment into El Salvador. The Claimant referred the dispute to international arbitration under the Central American Free Trade Agreement (CAFTA) and El Salvador’s Mining Law, alleging the State’s conduct breached the State’s obligations owed to foreign investors under these instruments.

El Salvador argued in its defense that the Claimant had simply failed to meet the legal requirements under El Salvador’s Mining Law to be issued exploitation permits and licenses, and that the Respondent’s conduct could accordingly not be characterized as wrongful. The key issue of fact between the parties was whether under the Mining Law the Claimant was obligated to own land, or be authorized by the land owner to exploit the subsoil of the land, throughout the entire concession area, or only the part of the surface area the mining activities would impact.

In a 2012 award, the tribunal established to hear the dispute declined jurisdiction under the CAFTA on the basis that the State had denied the benefits of the treaty’s protections to the Claimant under CAFTA Article 10.12.2. The dispute accordingly proceeded exclusively under El Salvador’s Investment Law.

In an award dated 14 October 2016, the tribunal denied the Claimant’s claim on the merits. The tribunal’s principal finding was that under the local law, the Claimant was not entitled to obtain from the State, and the State was not obligated to grant the Claimant, the permits and licenses necessary to exploit the gold reserves in the El Dorado concession area. As such, the State had not acted in breach of the Mining Law nor, consequently, the Investment Law. The tribunal further awarded El Salvador US$8 million in respect of its expenses, fees and costs

The case attracted significant attention from the outset because of the broader question in public international law regarding the intersection between, on the one hand, the State’s treaty obligations to pay compensation for expropriation and to treat foreign investors fairly and equitably and, on the other hand, the State’s right to regulate. However, because the tribunal declined jurisdiction under the CAFTA, the public international law question ultimately fell away.

From a procedural standpoint, the dispute nevertheless remains notable because of third parties’ participation in the dispute resolution process, and the procedural measures adopted to ensure a significant degree of transparency in the proceedings. During the proceedings, the tribunal heard submission from amicus curiae and non-disputing party submissions from Costa Rica and the United States (in addition to those of the disputing parties themselves) on public interest and public international law issues. Furthermore, a large number of documents in the proceeding were made publicly available, including the parties’ submissions, the amicus curiae briefs as well as the non-disputing parties’ submissions, and the oral hearings were transmitted live via webcast. As some States move toward greater transparency in investor-State dispute settlement proceedings, cases such as Pac Rim v. El Salvador will stand as examples of the procedures that can be adopted to achieve transparency objectives and/or allow third party participation in the dispute.

source: Lexology