Metalclad Corporation v United Mexican States ARB (AF)/97/1

Case made under ICSID Additional Facility Rules Jurisdiction source: NAFTA, NOT a contract 1990 Federal Mexican government authorised COTERIM (Mexican enterprise) to construct a station for hazardous waste in San Luis Potosí METALCLAD was incorporated under the laws of Delaware 1993 METALCLAD entered into a 6 moths option to buy COTERIM, after the federal permission to operate was granted it exercised its option 1994 Municipality ordered the cessation of building activities due to the absence of a municipal construction permit 1997 After the arbitration proceeding was underway, but before the hearing in the arbitration was held, the Governor of the State of SLP issued an ecological decree on COTERIM’s landfill METALCLAD (US Corporation) as an investor presented a claim on behalf COTERIM (Mexican Corporation) 1117 NAFTA. 1105(1) NAFTA ‘investors of another party treatment in accordance with IL’ 1110 NAFTA ‘no party shall directly or indirectly expropriate an investment… or take a measure tantamount to … expropriation’ 201 (1) measure is defined as ‘any law, regulation, procedure, requirement or practice’ Resolution (70) A tribunal established pursuant to NAFTA Chapter Eleven, Section B must decide the issues in dispute in accordance with NAFTA and applicable rules of international law… In addition NAFTA Article 102(2) provides that the Agreement must be interpreted and applied in the light of its stated objectives and in accordance with applicable rules of International Law. These objectives specifically include transparency and the substantial increase in investment opportunities of the Parties 102(1)(c)

(74) … the Tribunal finds that Metalclad’s investment was not accorded fair and equitable treatment in accordance with international law and that Mexico has violates NAFTA article 1105 (76) …Prominent in the statement of principles and rules that introduces the Agreement is the reference to transparency (NAFTA Article (102)1) The Tribunal understands this to include the idea that all relevant legal requirements for the purpose of initiating, completing and successfully operating investments made, or intended to be made, under the Agreement should be capable of being readily known to all affected investors of another Party. (88) … absence of a clear rule as to the requirement or not of a municipality permit as well as the absent of any established procedure as top the manner of handling applications for a municipal construction permit, amounts to a failure on the part of Mexico to ensure the transparency required by NAFTA [The Tribunal went beyond violation of 1105, transparency, perhaps looking another remedy than just performance] (103)… expropriation under NAFTA includes…. Incidental interference with the use of property which has the effect of depriving the owner, in whole or in significant party, of the use or reasonably-to-be-expected economic benefit of property, even if not necessarily to the obvious benefit of the host State (106) .. the Municipality denied the local construction permit… in so doing, the Municipality acted outside its authority … (107) These measures, taken together with the representations of the Mexican Federal government, on which Metalclad relied and the absence of a timely, orderly or substantive basis for the denial by the Municipality of the local construction permit amount to an indirect expropriation (109) Although not strictly necessary for its conclusion, the Tribunal also identifies as a further ground for a finding of expropriation the Ecological Decree issued by the Governor [Following Chorzow case, Status quo ante principle, the tribunal awarded $16.6 M. USD]