FIPA 3.0 after Bear Creek Mining: False Start or Failure of Canadian Approach?

Charles-Emmanuel Côté is Full Professor at the Faculty of Law of Université Laval, in Quebec City, where he is also Co-Director of the Centre for International and Transnational Law (CDIT). He is a Senior Fellow at the Centre for International Governance Innovation (CIGI) and a lawyer called at the Barreau du Québec. His book on the participation of private parties to the settlement of international economic disputes was awarded a special mention from the Jury of the Institute of World Business Law Prize of the International Chamber of Commerce. Professor Côté previously held positions at the Quebec Government, as well as at the Centre de droit de la consommation of the Université catholique de Louvain in Belgium. He teaches Public International Law, International Economic Law and Constitutional Law.

The recent arbitral award in Bear Creek Mining v Peru[1] offers first interpretations of key elements of the third generation of Canadian Foreign Investment Promotion and Protection Agreements (FIPA). Canada purported to rebalance Investor State Dispute Settlement (ISDS) in favour of regulatory space of government in its 2004 Model FIPA. It did so most notably by importing trade exceptions and by narrowing down the notion of indirect expropriation in an interpretative annex. Importation of trade exceptions remains rather unusual in international investment law, but had already started in the second generation of FIPAs, as early as 1994.[2] The annex on indirect expropriation is akin to that found in the 2004 US Model Bilateral Investment Treaty (BIT). In Bear Creek Mining, a Canadian investor successfully claimed damages against Peru based on the 2008 Canada-Peru Free Trade Agreement (FTA),[3] which transposes the 2004 Model FIPA in its investment chapter. The arbitral tribunal makes puzzling interpretations both of the exceptions and of the annex on indirect expropriation in finding a breach of the treaty.

The claim involved the revocation of Supreme Decree 083 that had authorised a Canadian investor to own mining concessions in a border region. Opposition to the mining project by local aboriginal communities led to social unrest in the region, situated near Bolivia. The Peruvian government took a series of measures in response to this crisis, including the revocation of the authorisation and a moratorium on all new mining concession requests in the region. The Canadian investor argued that these measures constituted an indirect expropriation of its mining rights. Peru based its defense on the legitimate exercise of police power to cope with a social crisis and restore public order in the border region.

First, the arbitral tribunal considers Annex 812.1 on indirect expropriation, but only partly. It underlines the “more extensive and detailed definitions and rules” than what is found in most other BITs.[4] However, in ruling that the measures constitute an indirect expropriation, the tribunal only focuses on the three illustrative factors mentioned in paragraph (b) of the Annex.[5] It ignores surprisingly paragraph (c), which is a key element in rebalancing ISDS, providing that “except in rare circumstances … non-discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriation”. That is not to say that the Peruvian measures fell clearly in that category, but it is puzzling that the arbitrators only partly consider the Annex, instead of making a global assessment of the expropriatory nature of the measures.

Second, the interpretation that the arbitral tribunal gives to the general exceptions of Article 2201.3 is also highly questionable. These exceptions allow a State to justify an otherwise wrongful measure because it is necessary to protect human, animal or plant life or health, to ensure compliance with laws and regulations, or for the conservation of living or non-living exhaustible natural resources. Without demonstration, the tribunal concludes that the exceptions oust all defenses based on customary international law, including the police power defense.[6] Again, it completely fails to consider whether paragraph (c) of Annex 821.1 codifies the defense of police power in the notion of indirect expropriation. One arbitrator actually dissents from this interpretation and considers that the general exceptions do not exclude the customary defense of state of necessity.[7] Even more worrisome, the tribunal considers that general exceptions would be of no help to justify the measures and exclude responsibility of Peru.[8] It is not convinced that these measures would qualify as necessary to protect human life or health. Furthermore, assuming that it would be the case, the tribunal concludes quite oddly that: “the exception in Article 2201 does not offer any waiver from the obligation in Article 812 to compensate for the expropriation”.[9] It makes no demonstration in support of this far-reaching interpretation. If this interpretation of general exceptions were to triumph over time, it would deprive them of most of their purported effect, at least as regards expropriation. Canada would be under the obligation to compensate even for justified measures.

Is Bear Creek Mining a false start or a failure of Canada’s approach at rebalancing ISDS? United Parcel Service of America v Canada[10] had already shown that arbitrators would not necessarily follow suit on such attempts, with a tribunal splitting on the application of the cultural industries exclusion in NAFTA[11]. Given the weaknesses in the reasoning of the arbitral tribunal, Bear Creek Mining is probably more a false start. Still, one has to remember that the import of trade exceptions in international investment agreements is not a generalised practice (most notably rejected by the US) and that some arbitrators may be reluctant to give them full effect. A recent study shows that the application of trade exceptions to investment agreements will not necessarily increase host States regulatory autonomy.[12] Bear Creek Mining seems to validate this conclusion.

 

[1] Award, ICSID Case No. ARB/14/21 (Canada-Peru FTA, 30 November 2017).

[2] See e.g. Agreement between the Government of Canada and the Government of Ukraine for the Promotion and Protection of Investments, 24 October 1994, Can TS 1995 No. 23, Art. XVII:3.

[3] Free Trade Agreement between Canada and the Republic of Peru, 29 May 2008, Can TS 2009 No. 15.

[4] Bear Creek Mining, supra note 1, ¶372.

[5] Ibid ¶¶368-415.

[6] Ibid ¶¶471-473.

[7] Bear Creek Mining v Peru, Partial Dissenting Opinion, Professor Philippe Sands QC, ICSID Case No. ARB/14/21, ¶41 (Canada-Peru FTA, 30 November 2017).

[8] Bear Creek Mining, supra note 1, ¶¶ 474-478.

[9] Ibid ¶477.

[10] Award on Merits, ICSID Case No. UNCT/02/1 (NAFTA, 24 May 2007)

[11] Ibid ¶¶137, 162; United Parcel Service of America v Canada, Separate Statement of Dean Ronald A. Cass, ICSID Case No. UNCT/2/1 (NAFTA, 24 May 2007) ¶¶134-154.

[12] Andrew D. Mitchel, James Munro & Tania Voon, “Importing WTO General Exceptions into International Investment Agreements: Proportionality, Myths and Risks”, in Yearbook of International Law and Policy 2016-2017 (forthcoming).

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