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Της Σερδάρη Μαρίας
Infinito Gold Ltd. V. Republic of Costa Rica (ICSID Case No. ARB/14/5): The Fair and Equitable Treatment (FET) Standard& Full Protection and Security (FPS)
The decision under comment was issued on 3rd June 2021 and deals with almost all the issues of International Investment Law. Commentary, however, will be limited to the issues of Fair and Equitable Treatment (FET) Standard and Full Protection and Security (FPS).
FACTS
The Claimant is Infinito Gold Ltd., a Canadian company which develops a gold mining project in the area of Las Crucitas, in Costa Rica. The Respondent, on the other hand, is the Republic of Costa Rica. The dispute concerns the Crucitas Project, which is essentially a project on extract gold from the mountain of this region. Gold mining is being studied and will be achieved by the Claimant. The Claimanthas held an exploration permit since 1993. In 2008, the Claimant obtained again the exploitation concession. In December 2010, enacted an amendment to the Mining Code of Costa Rica, prohibiting open pit mining. On 9 January 2012, the Ministry of the Environment, Energy and Telecommunications canceled Industrias Infinito’s 2008 Concession. Therefore, the Claimant is trying to challenge the above actions of Costa Rica through this arbitration, in order to continue its activity in the area of Las Crucitas.[1]
The Claimant argues that Article II(2)(a) of the BIT, requires the Respondent to grant to its investments fair and equitable treatment. Also, they stated that Respondent Breached the Claimant’s Legitimate Expectations and Treated it Arbitrarily and Inconsistently as they had a reasonable and legitimate expectation that it would be able to proceed with the Crucitas Project. Furthermore, the Claimant submitted that Costa Rica committed a denial of justice by failing to provide a legal system capable of protecting its investments. More specifically, it argues that Infinito was denied procedural and substantive justice.
On the other hand, the respondent said that firstly, the legal standard under Article II(2)(a) of the BIT, is the Minimum Standard of Treatment under customary international law. The reference in Article II(2)(a) to the “principles of international law” means that the standard is tied to the Minimum Standard of Treatment. Moreover, The Respondent argues that, even if legitimate expectations were protected by Article II(2)(a) of the BIT, Costa Rica has not breached any of the Claimant’s legitimate expectations. The Respondent’s argument is essentially that the Claimant’s expectations were neither legitimate nor reasonable and the challenged measures did not breach any of the Claimant’s expectations. Specifically, the respondent emphasized that “[i]f the Costa Rican courts annul a permit or concession because it contradicts Costa Rican law, as they did in this case, this cannot be considered as an inconsistent treatment in breach of the investor’s legitimate expectations”. Finally, the Respondent asserts that it has not denied the Claimant justice. The threshold for determining a denial of justice is high and goes far beyond the mere misapplication of domestic law. The Respondent stresses that mere allegations that a judicial decision is improper are not enough to constitute a breach of denial of justice, unless it is also shown that the decision was “clearly inappropriate or ignominious.”[2]
As for the Full Protection and Security (FPS) Standard the Claimant contends that, contrary to Article II(2)(b) of the BIT, Costa Rica failed to grant Infinito’s investments FPS. More specifically, Infinito Gold Ltd. contends that Costa Rica failed to provide legal security to its investments and that its behavior falls below the standard of due diligence because Costa Rica didn’t create a specific legal system to ensure the mining rights and to provide a process to uphold those rights.
On the other hand, the Respondent argues that (i) the FPS standard under Article II(2)(b) of the BIT is limited to physical security; (ii) the definition of “investment” does not expand the scope of the FPS standard; (iii) the FPS standard does not provide protection in addition to the FET obligation; and (iv) the correct legal standard of the FPS obligation only requires due diligence and good faith.[3]
LEGAL ANALYSIS
1. “Fair” and “Equitable” Treatment (FET) Standard
In contrast to the "relative" standards represented by the "national treatment" and "most-favored-nation" principles, which define the required treatment by reference to the treatment accorded to other investments in comparable circumstances, the Fair and Equitable Treatment standard (FET) states the treatment to be accorded in terms that have their own normative content. By treating the investor as the host state treats its citizens or other foreigners, FET is not always met. By making reference to the unique application-specific conditions, its precise meaning must be ascertained. The FET standard still contains uncertainties and is continually changing despite being the subject of intense litigation and major clarification.[4]
The normative content of the flexible, elastic FET standard is being expanded to accommodate additional components. Due to its prevalence in claims made by foreign investors against host nations, it is the treaty standard that is most frequently cited in investor-state arbitration. In situations when the test for indirect expropriation is too tough to pass because the threshold is high, it has become more and more common to utilize it to safeguard investors. As a result, it has emerged as the remedy of choice for tribunals. According to the court in Sempra v. Argentina: “It would be wrong to believe that fair and equitable treatment is a kind of peripheral requirement. To the contrary, it ensures that even where there is no clear justification for making a finding of expropriation, [as in the present case], there is still a standard which serves the purpose of justice and can of itself redress damage that is unlawful and that would otherwise pass unattended ... It must also be kept in mind that on occasion the line separating the breach of the fair and equitable treatment standard from an indirect expropriation can be very thin, particularly if the breach of the former standard is massive and long-lasting.”[5]
The FET standard is included in almost all investment agreements and preferential trade agreements (PTAs) with investment chapters. A standard formulation without any reference to international law is: “Investors and investments of each contracting party shall at all times be accorded fair and equitable treatment in the territory of the other contracting party”.[6]
Governments are concerned that the more discretion is given to arbitrators and the more closely the process resembles decisions ex aequo et bono, that is, based on the arbitrators' notions of "fairness" and "equity," the latter of which some claim may be intended to give tribunals the possibility of articulating the range of principles necessary to achieve the treaty's purpose in particular disputes.[7] These worries have mostly been shown to be unjustified by experience. According to the unique facts of each case, tribunals have mostly avoided using free-form equitable reasoning and have instead defined a number of consistent constituent components for proving breaches of the fair and equitable treatment requirement. These factors may be broken down into two categories: (a) due process, which includes denial of justice; and (b) transparency and stability, which includes upholding the reasonable expectations of investors. Tribunals have frequently used additional components in addition to these two, typically tied to other substantive norms like vigilance and protection (complete protection and security), absence of arbitrariness, and non-discrimination.
As for the first prerequisite, tribunals have often determined that the fair and equitable treatment requirement anticipates some due process safeguards, even in the lack of clear definitions: The commitment to uphold the idea of due process and to not obstruct justice are included in several treaties that are more detailed. However, ICSID tribunals have held that fair and equitable treatment includes the restriction against denial of justice even in situations where there isn't a clause of that kind.[8] Denial of justice is not mentioned in the BIT directly, but the Tribunal nonetheless views it as being covered by the FET norm in accordance with other tribunals and recognized theory.[9]
According to the second prerequisite, the first reference to the principle of transparency as an element of the fair and equitable treatment was made by the Metalclad v Mexico tribunal, with respect to administrative proceedings, while the tribunal in Tecmed v Mexico gave further substance to this interpretation by putting it in the context of more concrete procedural principles and rights and expanding it to include the investor’s legitimate expectations. The investor's reasonable expectations have been cited by later tribunals as one of the key elements of fair and equitable treatment. The regulatory experience, where stability and transparency are governmental commitments upon which the investor bases his investment, tends to be covered by its application. The process of specifying the parameters of the "legitimate expectations" concept and applying it to the particulars of a given circumstance is guided by the principles of openness, clarity, and stability. All of these requirements are based on the fundamental concept of good faith, which, as said, “is relied upon as the common guiding light that will orient the understanding and interpretation of obligations...”.[10]
The majority of the Tribunal thus concludes that denial of justice is only one of the ways in which judicial decisions may breach the BIT. After this conclusion, the Tribunal examines whether the Respondent breaches the FET Standard by denying justice to the Claimant or otherwise. The Tribunal concludes that a denial of justice occurs when there is a fundamental failure in the host’s State’s administration of justice and a claim for denial of justice presupposes the exhaustion of local remedies, a requirement that is met here. On the other hand, the Tribunal after examining whether there is a procedural denial concludes that the Claimant has not established a procedural breach by the TCA or the Administrative Chamber. In conclusion the Tribunal considers that the Respondent has breached its FET obligation but it cannot award damages for this breach.
2. Full Protection and Security (FPS) Standard
Full protection and security, as used by Costa Rica, exclusively refers to physical security; but, as used by the Claimant, it also includes legal security. According to the Tribunal, the FPS requirement is meant to guarantee the investor's and its property's physical safety and integrity inside the host State's territory in the absence of treaty text specifying that legal security is covered. While the standard of fair and equitable treatment covers the stability of the business environment and legal security, the comprehensive protection and security standard primarily aims to safeguard investments from physical harm caused by third parties. [11] As noted by the Enron tribunal, “there might be cases where a broader interpretation could be justified, but then it becomes difficult to distinguish such situation from one resulting in the breach of fair and equitable treatment, and even from some form of expropriation.”[12] This Tribunal agrees that a broad reading of the FPS standard might cause it to overlap with other investment protection rules.
Furthermore, the Parties differ as to whether the FPS standard is a distinct standard of protection, as claimed by the Claimant, or a component of the FET standard, as asserted by the Respondent. The fact that FET and FPS are addressed in two different subparagraphs of Article II(2) of the Costa Rica-Canada BIT suggests, in the Tribunal's judgment, that the Contracting Parties intended them to encompass two different duties. A contextual interpretation, which is supported by investment tribunal practice, calls for the Tribunal to give effect to that aim by assigning the two terms separate meanings and fields of applicability[13].
Regarding the FPS standard's substance, the Tribunal believes that it does not offer complete protection against bodily injury.[14] “the reference [...] to the provision of 'continuous protection and security' cannot be understood as the making of an assurance that property shall never in any circumstances be inhabited or disturbed,” the ICJ stated in the ELSI case.
With these specifications in mind, the Tribunal will now determine whether the Respondent breached Article II(2)(b) of the BIT. The Claimant’s FPS claim is premised on an alleged failure by Costa Rica to provide legal security to the Claimant’s investments; the Claimant has not pointed to any physical harm. As the Tribunal has found that the BIT’s FPS standard only protects against physical harm, the Claimant’s claim must fail.
CONCLUSION
In the author’s opinion, this decision is sufficiently reasoned and the arguments set out are clearly acknowledged. In Infninito Gold v. Costa Rica, there is an effort of determining and further analyzing the FET and FPS Standards. According to the tribunal’s findings, as set out above, there is a clear distinction between the level of protection between these Standards. Although this is not settled, as some commentators state that FPS is included in the general FET Standard. This is a matter of interpretation of each and every BIT, so there is no a universal view.
Σερδάρη Μαρία,
Τμήμα Νομικής, Εθνικό και Καποδιστριακό Πανεπιστήμιο Αθηνών, Μεταπτυχιακή Φοιτήτρια, Μέλος της ομάδας σχολιασμού δικαστικών αποφάσεων του The Law Project.
[1]Infinito Gold Ltd v. Republic of Costa Rica, ICSID Case No ARB/14/5, Award, 3 June 2021. The Tribunal comprised Prof. Gabrielle Kaufmann-Kohler (President), Prof. Bernard Hanotiau (Arbitrator) and Prof. Brigitte Stern (Arbitrator) par. 5-118. [2]Infinito Gold Ltd v. Republic of Costa Rica par. 292-320. [3]Infinito Gold Ltd v. Republic of Costa Rica par. 587-617. [4]A. Fatouros, Government Guarantees to Foreign Investors 35–141, 214–15 (1962); UNCTAD, Bilateral Investment Treaties in the Mid-1990s (1998). [5]Sempra Energy International v. Argentine Republic, ICSID Case No. ARB/02/16, Award (Sept. 28, 2007), ¶¶ 300, 301 [hereinafter Sempra v. Argentina]. [6]Treaties concluded by the Netherlands, Sweden, Switzerland, and Germany. For example, the German Model BIT (1998) art.2(1) states: ‘Each Contracting Party ... shall in any case accord such investments fair and equitable treatment’ and the Swiss Model BIT (1995) art. 4(1), states: ‘Investments and returns of investors of each Contracting Party shall at all times be accorded fair and equitable treatment ...’. See UNCTAD. [7]See Yannaca-Small, supra note 11. See also Joseph C. Lemire v. Ukraine, ICSID Case No. ARB/06/18, Dissenting Opinion of Arbitrator Dr. Jürgen Voss (March 28, 2011), ¶ 449 (‘I find disquieting the Majority’s attempt at grounding the legitimacy of BIT protection on perceived restrictions of municipal laws and explaining the fundamental rationale of BIT protection with a desirability of overcoming these restrictions to the benefit of BIT protected business operators. This legal policy position indeed can pave the way to construing the FET standard into an empowerment of tribunals ex aequo et bono to develop a case law superseding host countries’ administrative laws even where they conform to recognized principles of law within the meaning of Article 38(1) of the ICJ Statute’). [8]Swisslion DOO Skopje v. Macedonia, former Yugoslav Republic of Macedonia, ICSID Case No. ARB/09/16, Award (July 6, 2012), ¶¶ 329–30. [9]Jan Oostergetel & Theodora Laurentius v. Slovak Republic, UNCITRAL, Final Award (Apr. 23, 2012), ¶ 272. [10]See R. Dolzer & C. Schreuer, Principles of International Investment Law (2d ed. 2012). [11]AWG Liability, ¶ 173, Exh. RL-0208; El Paso, ¶¶ 522-523, Exh. CL-0035. [12]Enron Award, ¶ 286, Exh. CL-0036. [13]Jan de Nul Award ¶ 269, Exh. RL-0091; Electrabel, ¶ 7.83, Exh. RL-0126; Vannessa Ventures, ¶¶ 221-224, Exh. RL-0078; Mamidoil Jetoil Greek Petroleum Products Societe S.A. v. Republic of Albania, ICSID Case No. ARB/11/24, Award, 30 March 2015 (“Mamidoil”), ¶¶ 819-820, Exh. RL-0022; Arif, ¶¶ 504-506, Exh. CL-0014; Frontier Petroleum, ¶ 296, Exh. CL-0039. [14]R. Dolzer and C. Schreuer, Principles of International Investment Law (2008), pp. 149-150. See also Lauder, ¶ 308, Exh. RL-0229 (“The Treaty does not oblige the Parties to protect foreign investment against any possible loss of value caused by persons whose acts could not be attributed to the State.”)