The Colombian Santurbán Páramo saga and its contribution to the development of international investment law and arbitration

Abstract

The Colombian Santurbán Páramo saga is a series of three arbitral proceedings initiated by Canadian companies claiming that Colombia’s actions with regard to the protection of the Santurbán Páramo area, a high-altitude wetland ecosystem on the Colombian Andes, had negatively impacted their mining activities. The three proceedings, which concluded with three awards in 2024, were characterized by the presence of different interests at stake. In fact, while markets represent the Santurbán Páramo as a source of gold to feed the global economy, local communities see the area as a key source of water as well as a fragile ecosystem deserving protection. From an international investment law’s standpoint, the analysis of the Colombian Santurbán Páramo saga offers the possibility to reflect on several key aspects of investment treaty provisions as well as customary international law. In this light, the findings of the three tribunals on expropriation, minimum standard of treatment, and exception clauses will likely be considered by future investment tribunals which have to adjudicate environmental-related disputes. This holds a fortiori true if one considers that more and more disputes will be based on new-generation investment agreements, which generally contain provisions like those of the Canada-Colombia Free Trade Area.

INTRODUCTION

The Colombian Santurbán Páramo saga is a series of three arbitral proceedings initiated by Canadian companies claiming that Colombia’s actions regarding the protection of the Santurbán Páramo area, a high-altitude wetland ecosystem in the Colombian Andes, had impacted negatively on their mining activities. The three proceedings, which concluded with three awards in 2024, were characterized by the presence of different interests at stake. In fact, the Santurbán Páramo area is of strategic importance for both local communities and mining enterprises. While markets represent the Santurbán Páramo as a source of gold to feed the global economy, local communities see the area as a key source of water as well as a fragile ecosystem deserving protection.¹ Therefore, when three companies, namely Eco Oro, Galway Gold (later Montauk Metals), and Red Eagle initiated investment proceedings under the Canada-Colombia Free Trade Area (FTA),² arbitral tribunals found themselves confronted with the necessity to strike a balance between those competing interests.

The aim of this paper is to comparatively analyse the decisions rendered by the arbitral tribunals in the three cases of the Colombian Santurbán Páramo saga. From an international investment law’s standpoint, analysis of the Colombian Santurbán Páramo saga offers the possibility to reflect on several key aspects of investment treaty provisions as well as customary international law. Such an examination is of particular interest for essentially three reasons.

First, it is rare to have in investment law three awards based on the same facts and reflecting on the same standards of protection, namely expropriation and the minimum standard of treatment (MST). Adopting a comparative approach, it is therefore possible to measure the grade of consistency of the three tribunals, in particular considering that the first Interim Decision on Jurisdiction, Liability, and Quantum in Eco Oro was adopted and made public in 2021.

Second, it is noteworthy to mention that the Canada-Colombia FTA is one of the so-called new-generation investment agreements. In practice, these relatively ‘new’ agreements strive to strike a balance between the protection of foreign investment and the preservation of States’ regulatory powers. This latter aspect is of utmost importance if one considers large-scale projects which have a considerable impact on the State’s environment and its nationals, such as in the cases at hand. In this light, looking at how tribunals have interpreted the FTA provisions may serve as a litmus test to gauge whether these agreements effectively manage to preserve investors’ rights without excessively disregarding States’ regulatory powers.

Third, the findings of the three tribunals on expropriation, MST, and exception clauses will likely be considered by future investment tribunals, which will have to adjudicate environmental-related disputes. This holds a fortiori true if one considers that more and more disputes will be based on new-generation investment agreements, which generally contain provisions alike those of the Canada-Colombia FTA. In this light, the Colombian Santurbán Páramo saga may represent an important milestone for the development of key concepts of international investment law.

The structure of this contribution is as follows: the ‘Factual background’ section briefly resumes the complex factual background of the disputes. The ‘The legal disputes’ section presents the key points of the three awards, reflecting in particular on the expropriation claim, the MST claim, and the application of the environmental exception. The ‘Analysis’ section adopts a comparative perspective and confronts the main findings of the tribunals. Furthermore, it reflects on how the three awards would contribute to the development of international investment law. Finally, the ‘Conclusion’ section offers some concluding remarks.

FACTUAL BACKGROUND

The importance of the Santurbán Páramo area and the need to preserve its delicate ecosystem have been recognized by Colombian authorities since the 1980s. While no specific environmental regulation was enacted for its protection since the early 2000s, Colombia had adhered to the Ramsar Convention on Wetlands of International Importance of 1971 and had designated certain páramos as Wetlands of International Importance under that Convention. The first act specifically addressing the protection of the páramo was Resolution 769, adopted by the Ministry of Environment and Sustainable Development in 2002.³ According to it, national authorities were required to prepare a study of the then-current condition of the páramos located within their respective jurisdictions and Environmental Management Plans based on the results of the studies.

Some years later, the Colombian Constitutional Court issued decisions C-339/02 and T-666, establishing the State’s obligation to protect páramos and clarifying that those areas required higher levels of protection.⁴ The Constitutional Court reiterated that environmental authorities may exclude certain areas from mining (decision C-443).⁵ Meanwhile, the Colombian parliament adopted Law 1382 in 2010.⁶ This legislation amended the 2001 Mining Code and prohibited exploration and exploitation works in areas declared and delimited as páramos, except for activities carried out pursuant to an existing environmental license. In addition, the Colombian Congress enacted Law 1450, establishing a new prohibition on all mining activity within páramo ecosystems as well as certain agricultural activities. It also prescribed a regime for the delimitation of páramo ecosystems and wetlands by the specific authorities in charge of that task under Colombian law.⁷

Subsequently, however, Law 1382 was declared unconstitutional by the Constitutional Court of Colombia (Judgement C-035).⁸ It held that the communities affected by Law 1382 should have been asked or at least been involved in the discussions before mining activities in their territories were banned, given it had a direct impact on their livelihoods and many indigenous communities in Colombia depend on mining. The Court allowed the legislation to remain in force for 2 years to give time to Congress to enact replacement legislation.

A significant challenge affecting the project was that there remained uncertainty as to the precise boundaries of the páramo of Santurbán. There existed a cartography of the páramos in Colombia, produced by a government-linked but independent research organization, but this document provided no specific boundaries. Over the years, government-led initiatives to delimit the páramo as a protected area ran into considerable difficulties, owing to the likely economic impacts of delimitation and associated restrictions on livelihood activities and the increasingly fraught relations between lowland and highland residents. The former were primarily concerned about environmental protection and drinkable water, and the latter were preoccupied with their livelihoods, dependent on economic activities in and around the páramo.

Ultimately, a ministerial resolution—Resolution 2090 of 2014—delimited the páramo of Santurbán, dividing the area into three different zones (the preservation, restoration, and sustainable use zones).⁹ This resolution was followed a year later by Law 1753, which established the parameters for delimiting páramo ecosystems and recognized that the environmental benefits of páramo ecosystems include regulation of water cycles and utility as a system of carbon capture.¹⁰ Similar to the express carve-out in Law 1382, Article 173(1) of Law 1753 specifically addressed mining concession contracts entered into before 9 February 2010 and provided that they would remain fully valid and all permitted exploration and mining work could be completed during the full 30-year fixed term if certain requirements were satisfied before that date, that is, (i) they had a valid mining title; (ii) they were in the exploration stage or exploitation stage; and (iii) they had a valid environmental license or an equivalent environmental management and control instrument.

Constitutional Court Judgement C-035, Resolution 2090, Law 1450, and Law 1753 were challenged in 2015 before the Constitutional Court of Colombia for failing to sufficiently protect páramos by allowing mining activities to be carried out in páramo ecosystems where concession contracts had been entered into prior to February 2010. In late 2017, the Constitutional Court declared that the existing páramo delimitation under Resolution 2090 was unconstitutional due to a lack of compliance with consultation requirements (decision T-361/17).¹¹ Furthermore, the Court held that páramo ecosystems are subject to special protection under the Colombian Constitution due to their strategic value and particular vulnerability, thus allowing the Court to favour the protection of those ecosystems over the particular interest of the concessionaries. The Court then ordered the government to carry out a new delimitation within a year. Accordingly, the Colombian Congress adopted Law 1930 in 2018, intending to consolidate all regulatory measures required to be taken by various Colombian authorities to protect páramo ecosystems. Law 1930 defines páramos and enshrines the general prohibition to execute exploration and exploitation mining activities within those ecosystems.¹² Nevertheless, despite the adoption of Law 1930 and the Court’s decisions, no new delimitation of the paramo has been done.

This course of action prompted three separate investment claims, one brought by Eco Oro Minerals,¹³ one by Galway Gold (later Montauk Metals),¹⁴ and the last one by Red Eagle Exploration.¹⁵ All of these three companies had invested in gold-silver projects within the California-Vetas Mining District and had been impacted by Colombia’s actions. In particular, Eco Oro and Red Eagle claimed that Colombia’s ban on mining activities in the paramo had deprived them of their mining rights under their respective concession contracts. Slightly different, Galway Gold did not possess a concession contract but ‘only’ an Option Agreement, whereby it could acquire the exploration and exploitation mining rights granted to another company, Reina de Oro, under a contract. When Reina de Oro challenged the exercise of the Option Agreement for various reasons, including the restrictions on mining in páramo ecosystems, Galway Gold initiated arbitral proceedings.

Overall, the three investors claimed that Colombia’s actions amounted to expropriation and a violation of the MST under the Canada-Colombia FTA.

THE LEGAL DISPUTES

The applicable legal framework

All three cases hinge on the Canada-Colombia FTA, a so-called ‘new generation’ comprehensive trade agreement which embeds also investment provisions. Unlike old-generation investment agreements (roughly those concluded before 2000), the Canada-Colombia FTA strives to balance investors’ rights with the State’s right to regulate. All three disputes concern in particular three provisions of the FTA, namely Article 811 on expropriation (and related Annex 811), Article 805 on the MST, and Article 2201 on general exceptions. Therefore, before resuming the main findings of the three cases, it is useful to succinctly present the content of the three provisions.

As far as expropriation is concerned, Article 811 may be considered as the classic provision against unreasonable expropriation. In fact, it states that ‘neither Party may nationalize or expropriate a covered investment either directly or indirectly through measures having an effect equivalent to nationalization or expropriation except (i) for a public purpose; (ii) in a non-discriminatory manner; (iii) on prompt, adequate, and effective compensation; and (iv) in accordance with due process of law.’¹⁶

Interestingly, the FTA contains an Annex specifically devoted to indirect expropriation. Annex 811 guides the tribunal in determining whether indirect expropriation has taken place. In this regard, it states that ‘the determination of whether a measure or series of measures of a Party constitute an indirect expropriation requires a case-by-case, fact-based inquiry that considers, among other factors: (i) the economic impact of the measure or series of measures, although the sole fact that a measure or series of measures of a Party has an adverse effect on the economic value of an investment does not establish that an indirect expropriation has occurred; (ii) the extent to which the measure or series of measures interfere with distinct, reasonable investment-backed expectations; and (iii) the character of the measure or series of measures.¹⁷ Furthermore, it provides that, ‘except in rare circumstances, such as when a measure or series of measures is so severe in the light of its purpose that it cannot be reasonably viewed as having been adopted in good faith, non-discriminatory measures by a Party that are designed and applied to protect legitimate public welfare objectives, for example, health, safety, and the protection of the environment, do not constitute indirect expropriation.’¹⁸

As far as the MST is concerned, Article 805 provides that ‘each Party shall accord to covered investments treatment in accordance with the customary international law MST of aliens, including fair and equitable treatment (FET) and full protection and security (FPS).’¹⁹ As specified by the agreement itself, the concepts of FET and FPS do not require treatment in addition to or beyond that which is required by the customary international law MST of aliens. It is up to the tribunal to identify the content of the customary international standard of MST, insofar as the FTA only specifies that ‘the obligation in paragraph 1 to provide “fair and equitable treatment” includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process.’²⁰

Finally, as for the so-called ‘environmental exception’, Article 2201(3) provides that ‘subject to the requirement that such measures are not applied in a manner that constitute arbitrary or unjustifiable discrimination between investments or between investors, or a disguised restriction on international trade or investment, nothing in this Agreement shall be construed to prevent a Party from adopting or enforcing measures necessary: (i) to protect human, animal or plant life or health, which the Parties understand to include environmental measures necessary to protect human, animal, or plant life and health; (ii) to ensure compliance with laws and regulations that are not inconsistent with this Agreement; or (iii) for the conservation of living or non-living exhaustible natural resources.’²¹

Findings of the tribunals

Eco Oro v Colombia

Decision on liability

At first, the tribunal examined whether the measures adopted by Colombia amounted to indirect expropriation. In this regard, a majority of the tribunal (arbitrators Blanch and Sands) found that the challenged measures were non-discriminatory, designed, and applied to protect a legitimate public welfare objective, namely the protection of the environment, and were adopted in good faith. Therefore, the measures were a legitimate exercise by Colombia of its police powers pursuant to Annex 811(2)(b). In the same vein, the majority excluded that they comprised a ‘rare circumstance’ such as that envisaged by Annex 811(2)(a).²² In its reasoning, the majority of the tribunal gave due weight to the considerations offered by experts as well as the Colombian Constitutional Court, recalling, for instance, the fragility of páramo ecosystems and the need to ensure special protection. On this basis, the tribunal recognized that ‘it is clear páramos require protection, and it is also clear that once damaged, it is uncertain whether or not they can be restored and, if so, the length of time such restoration will take.’²³ Considering the precautionary principle applicable, the tribunal held that the measures adopted by the respondent State were not disproportionated with respect to the protection of the páramos and did not constitute a rare circumstance under Annex 811(2)(a).²⁴ Accordingly, the tribunal dismissed the claim for expropriation.

It then turned to whether the contested measures amounted to a violation of the MST. At the outset, it considered that the regulatory changes effected by Colombia would amount to a breach of the MST if Colombia had acted in a way that was arbitrary, grossly unfair, discriminatory, or otherwise inconsistent with the customary international law standard understood in the context of customary international law.²⁵ Controversially, a different majority of the tribunal (arbitrators Blanch and Grigera de Naon) found that Eco Oro had legitimate expectations that (i) it would be entitled to undertake mining exploitation activities; (ii) in the event the State were to expropriate Eco Oro’s acquired rights, compensation would be payable; and (iii) Colombia would ensure a predictable commercial framework for business planning and investment. The majority found that Colombia’s refusal to allow mining exploitation activities to take place without payment of compensation, its inconsistent approach to the delimitation of the Santurbán Paramo and its failure to delimit the Santurban Paramo frustrated Eco Oro’s legitimate expectations.²⁶ Furthermore, the majority held that the State had acted in an arbitrary manner. The decisive factor in this regard was the lack of explanation about why the delimitation of the Santurbán Páramo still not been undertaken.²⁷ Colombia had failed to act coherently, consistently, or definitively in its management of the Santurbán Páramo, and in so doing had infringed a sense of fairness, equity, and reasonableness and indeed has shown a flagrant disregard for the basic principles of fairness. Therefore, the tribunal found by majority that Colombia was in breach of Article 805 of the FTA.²⁸

Finally, the tribunal proceeded to consider whether the environmental exception contained in the FTA would except Colombia to prevent liability. Controversially again, the tribunal construed Article 2201(3) such that whilst a State may adopt or enforce a measure pursuant to the stated objectives in Article 2201(3) without finding itself in breach of the FTA, this would not prevent the payment of compensation.²⁹ The tribunal in particular considered that, ‘given that the FTA is equally supportive of investment protection, had it been the intention of the Contracting Parties that a measure could be taken pursuant to Article 2201(3) without any liability for compensation, the Article would have been drafted in similar terms as Annex 811(2)(b), namely making explicit that the taking of such a measure would not give rise to any right to seek compensation under Chapter Eight.’³⁰ In this regard, the tribunal rebutted even the position of Canada, which in its non-disputing party submission argued that if the challenged measures in question meet the requirements of Article 2201(3), there is no violation of the FTA and no State liability and payment of compensation would not be required.’³¹

Partial dissenting opinion Philippe Sands

Arbitrator Sands disagreed with the majority’s decision on whether there had been a violation of the MST. In particular, he considered that Colombia’s actions were not perfect yet not contrary to the rule of law insofar as they had not been conducted in a way that shocked or offended a sense of juridical propriety.³² To support his position, he recalled that (i) the designation of the general area of the parámo in 2007 had not been impugned; (ii) the tribunal had recognized that the area in which mining was prohibited had not crossed a line of impropriety or illegality under the FTA; (iii) the Claimant went into this project with its eyes open, knowing that it was investing in a parámo which was already subject to certain protections, and it knew—or should have known—that over time those protections were likely to become even more restrictive; and (iv) what the tribunal impugned was merely the fact that the respondent had failed to give precise and detailed effect in a timely manner to the permanent and final delimitation of the parámo in accordance with a particular scale, timetable, and factors. Furthermore, he claimed that the majority had failed to take into consideration the precautionary principle in determining whether there had been a breach of the MST.³³ Unfortunately, he did not elaborate on the environmental exception, having concluded that there had been no breach of either Article 805 or Article 811.³⁴

Award on damages

Having found that Colombia’s breach of Article 805 entitled Eco Oro to make a claim for damages, the tribunal was called upon to determine which losses were caused by Colombian measures which were in breach of Article 805, and what was the value of such losses.³⁵ First, the tribunal recalled that, in ascertaining the quantum of loss, it is unarguable that inherent in the reparation standard is the principle that a claimant can only recover for losses which it has established to have been caused by an internationally wrongful act. A loss caused by other factors, including any act which has been found to be lawful, is thus not recoverable. To this end, the tribunal found it necessary to exclude those losses which would have been suffered in any event as a result of measures found to be lawful. This required the tribunal to distinguish between the measures that were found to be a breach of Article 805, on the one hand, and the loss that has been suffered by Eco Oro as a result of such measures, on the other.³⁶

In this context, the tribunal conceded that the difficulty was that it had previously held that Colombia’s actions were a lawful exercise of Colombia’s police powers.³⁷ A majority of the tribunal therefore could not accept that Colombia’s breaches of Article 805 caused the total loss in value of the project. Accordingly, it stated that the loss of value was caused by acts found to be lawful and not by the breach of Article 805 identified by the majority of the tribunal.³⁸

In light of this, it concluded that the only identifiable loss which stemmed from the finding of the breach of Article 805 was the inability of Eco Oro to apply for an environmental license.³⁹ However, under the applicable domestic law, the grant of an environmental license is subject to the discretion of the respondent, and therefore, it cannot be excluded that Colombia could have decided, on an entirely lawful basis, to refuse to grant any environmental license.

Accordingly, the majority of the tribunal found that Eco Oro had not met its burden of proof to show that Colombia’s actions caused Eco Oro a quantifiable harm.⁴⁰ In this regard, it stated that ‘Colombia may be benefitting from its failure to issue a final delimitation of the Santurbán Páramo, given it is the absence of the final delimitation that prevents the tribunal from assessing the percentage likelihood that economic exploitation could have been possible. However, Eco Oro accepts that the destruction to the value of the Concession was caused by the challenged measures, which the majority of the tribunal found to be a lawful exercise of Colombia’s police powers.’⁴¹

Red Eagle v Colombia

Award

Unlike in Eco Oro, in Red Eagle the tribunal started by considering whether Colombia had violated the MST under the Canada-Colombia FTA. In this respect, the tribunal held that the MST may be breached where the claimant demonstrates the existence of ‘at least a quasi-contractual relationship between the State and the investor, whereby the State has purposely and specifically induced the investment.’⁴² In addition, the MST may be breached when the State acts with a lack of transparency or in an arbitrary, unreasonable, disproportionate, or discriminatory way.⁴³ As far as arbitrariness and unreasonableness are concerned, they may be demonstrated in a number of ways, including measures which harm the interests of the claimant but do not have a legitimate purpose, measures that are taken for reasons other than those put forward, and decisions taken in wilful disregard of due process and proper procedure.⁴⁴ Eventually, a majority of the tribunal considered that Colombia’s actions could not, on any reasonable basis, be said to have been arbitrary. Echoing the dissenting opinion of Sands in Eco Oro, the majority stated that ‘in determining whether measures taken by a State are arbitrary to the point of being shocking, a tribunal is bound to be sensitive to the real-world difficulties of government decision-making in the face of legitimate objectives that may pull in different directions. In this regard, it is inevitable that, in a matter of complexity, a degree of uncertainty is inevitable, as the path to be taken is considered and ultimately determined.’⁴⁵

On the basis of the evidence produced, the majority concluded that the measures taken by the respondent did not come close to being characterized as arbitrary insofar as they were genuinely intended to protect the environment and were reasonable and proportionate on the basis of the objectives they sought to achieve. On the contrary, it was satisfied that the respondent was pursuing legitimate public policy objectives when it banned mining in the páramo, as demonstrated by the extensive social, economic, and environmental studies carried out. Colombia did not go further than was necessary to pursue its objectives. Even the claimant had not identified any alternative measures which would have achieved the same level of environmental protection while having a lesser effect on the claimant’s economic interests.⁴⁶ Therefore, the tribunal concluded that the claimant had failed to provide sufficient evidence of any of these elements of arbitrariness or unreasonableness.

Subsequently, the tribunal considered whether Colombia had expropriated Red Eagle’s investment. The tribunal dismissed rather quickly this claim. In fact, it was not satisfied that the claimant ever acquired a vested right to engage in mining activities in the páramo area. Rather, the claimant’s right to carry out mining was always conditional on being granted an environmental license, which was at the discretion of the respondent.⁴⁷ Given these circumstances, the tribunal held that it was not strictly necessary to carry out a further analysis into whether the measures fell within the scope of the respondent’s police powers. However, for the sake of completeness, the tribunal specified that it was of the view that the measures did fall within the scope of the respondent’s police powers. In fact, the measures adopted by Colombia were plainly designed and applied to protect the public policy goal of environmental protection. Although the text of Annex 811 leaves open the possibility that in ‘rare circumstances’ public policy measures may fall outside the scope of police powers, the tribunal concluded that no such circumstances exist in the case.⁴⁸

Finally, since no such breach has been determined by the tribunal, it did not consider the scope or effect of Article 2201(3).⁴⁹

Montauk Metals v Colombia

Award

The tribunal first considered whether the respondent had expropriated the investor’s business.⁵⁰ In particular, the tribunal examined how the Option Agreement was affected by the measures related to both (i) existing mining projects, such as the small-scale mining activities of Reina de Oro, and (ii) new mining projects, such as the Vetas Gold Project that the claimant intended to pursue.⁵¹ To determine whether respondent had violated Article 811, the tribunal followed the approach outlined in Eco Oro, namely considering first the economic impact of the contested measures on the investment and, second, whether there was a legitimate exercise of the State’s regulatory functions.⁵² Accordingly, the tribunal found that Colombia’s measures were not disproportionate in light of their purpose nor so severe that only a State not acting in good faith would have approved them.⁵³ Furthermore, it found that, even though there was a change of criteria by the Colombian Constitutional Court, such a change did not entail a manifest arbitrariness, since judicial bodies across the globe are widely recognized to validly lead the way in the development of the law according to society’s evolving values.⁵⁴ On the contrary, the Constitutional Court should be subject to the special deference that international arbitral tribunals afford to judicial decisions in cases where expropriation by the judiciary is alleged, unless the investor’s claim meets the high standard of proving denial of justice, that is, manifest arbitrariness or blatant unfairness.⁵⁵ In consideration of the above, it found that there were no elements that could support an argument that the measures were adopted by the respondent in a manner other than in good faith and in a non-discriminatory manner and, thus, cannot qualify as an indirect expropriation in the rare circumstances terms of Annex 811 of the FTA.⁵⁶

Likewise, the tribunal found that Colombia did not violate the MST. Building on its previous findings on expropriation, the tribunal repeated that the Colombian Constitutional Court acted within the margin typically recognized to the judiciary bodies to apply the law and adapt it to society’s evolving values. By the same token, the tribunal failed to hold that Colombia’s actions were arbitrary since the claimant did not comply with the filing of the application for registration in accordance with the requirements under Colombian law. The claimant had not received any ‘clear and explicit representation’ that the páramo delimitation would not overlap with the area of the concession.⁵⁷ Finally, the tribunal concluded that, despite the fact there was inconsistent action among the legislature, the executive, and the judiciary in the determination of the protected páramo zones, it did not believe that such conduct amounted to a breach of the MST.⁵⁸ Citing the dissenting opinion of Sands in Eco Oro, the tribunal recognized that ‘the responsibilities of a State are elaborate and multifaceted. Coordination among the different departments of the administrative or executive branch is not easy. This becomes harder when such coordination requires the involvement of the legislature and the judiciary. A seamless coordination is complex to achieve. What becomes relevant in a case such as this is whether the conduct and the effect of the conduct on the investor become a breach under the FTA.’⁵⁹

While dismissing all the claims, the tribunal nevertheless considered whether Article 2201 of the FTA precludes the payment of compensation. In this regard, the tribunal agreed with the interpretation adopted in Eco Oro. Contrary to submissions of Colombia and Canada, the majority of the tribunal did not believe that the stated interpretation renders the exception devoid of content or purpose. In fact, according to the tribunal, ‘regardless of whether Article 2201(3) of the FTA is applicable to the case, the most reasonable interpretation is that it only precludes orders by an arbitral tribunal affecting the adoption and enforcement of the measures. The majority of the tribunal deems that it does not preclude the payment of compensation.’⁶⁰

ANALYSIS

Expropriation

The existence of rights that may be expropriated

In the three cases, one key question was whether the investors possess acquired rights capable of being expropriated. The question was crucial because, as the tribunal explained in Eco Oro, Article 46 of the Colombian Mining Code was not meant to prevent laws from being applied retroactively but to provide that ‘an existing title holder may be entitled to compensation if it suffers loss of an acquired right.’⁶¹

This issue was touched upon rather quickly in Montauk Metals, where the tribunal concluded that, since the claimant had not become the owner of Concession 14833, the rights acquired under that concession could not be considered a protected investment under the FTA.⁶² Rather, the only investment made by the company were the rights under the Option Agreement, namely the right to exercise the option, which is derived from the fulfilment of a series of conditions that imply the commitment of capital to carry out an economic activity in Colombia.⁶³

On the contrary, both Eco Oro and Red Eagle did possess concession contracts. Therefore, the question was whether these were acquired rights even in the absence of an environmental license. Interestingly, the two tribunals reached different conclusions. In Eco Oro, the majority of the tribunal considered that the rights a party acquired under a concession agreement were indivisible: a concessionaire is therefore granted acquired rights to explore and to exploit, entitling it to compensation if its economic equilibrium was disrupted. The mere fact that the exploitation right may be difficult to value, or indeed may be valueless in circumstances where it has almost no chance of getting an environmental license, cannot and does not of itself mean it is not an acquired right.⁶⁴ In this light, the tribunal held that Eco Oro had certain vested rights capable of being expropriated, namely the right to explore, the right to exploit (albeit a right which could only be exercised after obtaining an environmental license), and the right to extend its concession at the end of the concession period.⁶⁵ On the contrary, the majority of the tribunal in Red Eagle was not satisfied that, as a matter of domestic law, the claimant had ever acquired a vested right to engage in mining activities in the páramo area. The claimant’s right to carry out mining in relation to its project was always conditional on being granted an environmental license, which was at the discretion of the respondent.⁶⁶

View in a broader context, the Eco Oro tribunal represents an outlier. Instead, arbitral tribunals have usually held that mining concessions provide ‘only’ relative security for tenure.⁶⁷ In this light, the Red Eagle and the Montauk Metals tribunals corroborated this latter position and may contribute to the further marginalization of the Eco Oro decision.

Police powers doctrine

All three awards consider Annex 811(2)(b) as a codification of the police powers doctrine, a concept which some tribunals have considered to exist in customary international law.⁶⁸ As noted by Canada in Eco Oro, ‘the police powers of the State are expressly reflected in Annex 811’. In this regard, the Eco Oro tribunal held that in interpreting and applying the provisions of Annex 811(2), awards on the police powers doctrine under customary international law may provide some guidance.⁶⁹ Accordingly, it construed the police powers doctrine reflected in Annex 811(2) as a two-stage test whereby the tribunal first needs to consider whether the effect of the challenged measures was equivalent to direct expropriation and, if so, whether they were a legitimate exercise of police powers.⁷⁰ In this latter regard, the tribunal found that it needed to evaluate whether Colombia’s actions were non-discriminatory, adopted in good faith, designed, and applied to protect the environment.⁷¹ Finally, the Eco Oro tribunal explained that the ‘rare circumstances’ phrase seems to establish a high threshold regarding the character and interference with distinct, reasonable expectations that must be satisfied for such measures to constitute indirect expropriations and not to be an additional independent requirement.⁷²

Consistent with this approach, the Montauk Metals tribunal agreed that Annex 811(2) establishes a 2-fold test, requiring a tribunal to consider the economic impact and whether there was a legitimate exercise of the State’s regulatory functions.⁷³. Furthermore, the tribunal held that the rare circumstances test includes, among others, a ‘severeness in light of the measure’s purpose that it cannot reasonably be viewed as having been adopted in good faith.’⁷⁴

The reasoning of the Eco Oro tribunal was also followed by the Red Eagle tribunal, which held that the measures fell within the scope of the respondent’s police powers insofar as they were plainly designed and applied to protect the public policy goal of environmental protection.⁷⁵ As for the rare circumstances test, the tribunal found that such rare circumstances will only exist where the host State has acted contrary to a specific commitment made to the investor, which had not been made in the case.⁷⁶

Overall, the findings of the tribunals on Annex 811 may have a profound impact on future investment awards. In fact, several new-generation investment agreements have an Annex on expropriation, which clarifies the criteria that shall guide tribunals in drawing the line between compensable and non-compensable takings. As recognized by previous tribunals,⁷⁷ these provisions codify in investment treaties the general international law principle that measures taken in pursuit of a legitimate public policy objective fall within a State’s police powers and are non-compensable.⁷⁸ Of particular importance for future tribunals may be the analysis of the ‘rare circumstances’ test, which found no express clarification in the treaty. In this light, the reasonings of the tribunals to interpret ‘rare circumstances’ as requiring a high threshold regarding the character and interference with distinct, reasonable expectations may be followed by future tribunals, which have to flesh out the content of similar expressions contained in new-generation investment agreements.

MST

Since the Canada-Colombia FTA pegs the FET standard to the MST, all three tribunals needed to ascertain the precise content of the latter. In Eco Oro, the tribunal considered that the conduct in question must engender a sense of outrage or shock, amount to gross unfairness or manifest arbitrariness falling below acceptable standards, or there must have been a lack of due process which has led to an outcome which offends a sense of judicial propriety. In addition, the treatment must be unacceptable from an international perspective whilst set against the high measure of deference that international law extends to States to regulate matters within their own borders.⁷⁹

Referring to how previous tribunals had interpreted the MST, the tribunal considered that the MST comprises (i) the legitimate expectations of the investor; (ii) the maintenance at all times of a stable and transparent investment environment; and (iii) good faith as required by international law. If a breach is found, it must be determined whether it was unacceptable from an international perspective, that is, whether Colombia had acted in an unjust or arbitrary manner.⁸⁰

The construction of the MST as encompassing those elements appears to be flawed. As part of his dissenting opinion, Sands pointed out that the claimant in such a case had failed to meet its burden of proving the existence of State practice and opinio iuris.⁸¹ The Montauk Metals tribunal, for instance, held that good faith is not recognized as an independent source of obligations under international law. Rather, it is the manner in which already established obligations should be performed as held, for instance, by the International Court of Justice.⁸²

In the same vein, the Red Eagle tribunal aptly stated that there is insufficient evidence to support the proposition that the doctrine of legitimate expectations, which forms a part of the FET standard in other treaties, is part of the customary MST. Citing the tribunal’s decision in Glamis Gold v. United States, the tribunal held that the MST may be breached where the claimant demonstrates the existence of ‘at least a quasi-contractual relationship between the State and the investor, whereby the State has purposely and specifically induced the investment.’⁸³ In addition, the tribunal found that the MST may be breached when the State has acted with a lack of transparency as well as in an arbitrary, unreasonable, disproportionate, or discriminatory way.⁸⁴

In dismissing all the claims, both the Red Eagle and Montauk Metals tribunals followed Sand’s dissenting opinion. In the first case, the tribunal considered that ‘it is inevitable that on a matter of complexity, such as the one in the present case, a degree of uncertainty is inevitable, as the path to be taken is considered and ultimately determined.’⁸⁵ Likewise, the Montauk Metals tribunal stated that ‘there was inconsistent action among the legislature, the executive, and the judiciary in the determination of the protected páramo zones. There were delays, certainly. But the tribunal did not believe that such conduct amounted to a breach of the FET standard under the FTA, understood as a minimum standard under international law.’⁸⁶ Therefore, the tribunal found that the opinion of Prof. Sands in his partial dissent in the Eco Oro decision applied to the case.⁸⁷

Overall, the combined reading of the three cases sheds light on the current concept of the MST under customary international law. First, all cases confirm that the bar to establish a breach of the MST is still high. Second, the legitimate expectations of the investor, while being recognized as an element of the stand-alone FET standard, have not become an element of the MST under customary international law. Third, even when tribunals found that the State had acted with a certain degree of inconsistency and/or uncertainty, this does not automatically entail a breach of the MST. On the contrary, especially in relation to complex projects, such as mining plants, where competing interests are at stake, States enjoy a considerable margin of action that needs to be determined on a case-by-case approach.

By the same token, this idea that a State should enjoy a certain margin of action in large-scale projects has been recently recognized by the tribunal in Gabriel Resources v. Romania.⁸⁸ In that case, which shares similar traits to the Santurban páramo saga, the tribunal recognized that ‘this is a case where the environmental, social, cultural, and economic challenges facing a massive mining project have proven so far to be insurmountable in circumstances where blame cannot be fairly attributed to any one party or any one cause.’⁸⁹ Therefore, it seems to be growing in international investment arbitration to adopt a more deferential attitude towards States’ margin of action in regulating their internal affairs.

Environmental protection

When the Eco Oro decision on jurisdiction and liability became public, one of the most criticized aspects of the decision concerned the application of the environmental exception. As stated above, the tribunal considered that Article 2201(3) does not prevent the payment of compensation.⁹⁰ Despite being utterly criticized in legal scholarship,⁹¹ both tribunals in Red Eagle and Montauk Metals did not disavow that interpretation. While the former tribunal simply did not examine the issue, the latter explicitly upheld it. According to the Montauk Metals tribunal, such an interpretation does not predate Article 2201(3) of its effect utile. Rather, Article 2201(3) continues to have a useful effect: specifically, that of precluding an arbitral tribunal from preventing the adoption and enforcement of measures to protect the environment. This prevents an investor from requesting and the tribunal from granting, for example, that Colombia reinstate the exceptions to mining in the páramos.⁹²

While this interpretation of Article 2201(3) may raise doubts, it is important to note that several new-generation treaties contain general exception clauses drafted in the same way, that is, modelled after Article XX GATT. Therefore, it is reasonable to expect that investors will rely on the interpretation of these general exception clauses formulated by the tribunals in Eco Oro and Montauk Metals (and, before them, in Bear Creek v. Peru).⁹³

In this light, the best alternatives for States would be to modify the provision, add a footnote, or issue a joint interpretation specifying that general exception clauses modelled after Article XX GATT prevent the payment of compensation if certain requirements are satisfied.

CONCLUSION

Overall, three main conclusions can be formulated. The first pertains to the level of consistency reached by the tribunals in the Santurban Paramo saga. As stated above, the  tribunals in both Red Eagle and Montauk Metals largely concurred with the findings of the Eco Oro tribunal, whose Decision on Jurisdiction, Liability, and Quantum had been made public 3 years before their rulings. In fact, the only major point of contentiousness pertained to the interpretation of the MST, with tribunals in Red Eagle and Montauk Metals that adopted the position of dissenting arbitrator Sands in Eco Oro. On the other hand, it seems that the Eco Oro tribunal itself partially mitigated its findings on the breach of the MST in the final award on damages, wherein it awarded no compensation to the claimant.

The second conclusion that may be formulated regards the effectiveness of the Canada-Colombia FTA in striking a balance between investors’ rights and States’ regulatory powers. In this regard, the codification of the States’ police powers in the form of an Annex on expropriation seems to have effectively preserved the State’s regulatory powers. As the three tribunals held, the ‘rare circumstances’ test requires a high threshold regarding the character and interference with distinct, reasonable expectations to entail a breach of the treaty.

However, on the contrary, general exceptions have proved to be not effective in preserving States’ regulatory powers. In fact, all three tribunals considered that the presence of general exception clauses modelled after Article XX GATT did not prevent the payment of compensation. As stated above, the best alternatives for States would be to modify the provision, add a footnote, or issue a joint interpretation specifying that general exception clauses have the effect of excluding economic liability if certain requirements are satisfied.

Finally, the third conclusion concerns the profound impact that the Colombian Santurban Paramo saga may have on international investment law. In this light, the findings of the three tribunals on expropriation, MST, and exception clauses will likely be considered by future investment tribunals, which will have to adjudicate environmental-related disputes. This holds a fortiori true if one considers that more and more disputes will be based on new-generation investment agreements, which generally contain provisions like those in the Canada-Colombia FTA.

Footnotes