Author: Can Eken*
| Jurisdiction: International |
Topics: ICSID Environment Indirect Expropriation FET |
This post analyzes the recent ICSID case brought by Alamos Gold Inc. against Turkey and considers how prior investment arbitration decisions might influence the outcome by analyzing the trends in investment awards dealing with environmental matters.[1] First, it examines the negative treatment of environmental concerns in past indirect expropriation cases. Second, it explores the positive treatment of environmental concerns in investment cases, and then analyzes how compensation has recently been limited in investment arbitration awards.
Background
Alamos began investing in Turkey in 2010 for a gold mining project.[2] Its investment continued until October 2019, when Turkey opted not to renew Alamos’ license. The project spanned over a decade without gold extraction because of preparatory activities prior to extracting gold. The area was covered with trees, which were removed by Alamos for executing the mining project, raising massive environmental protests from the local community and non-governmental organizations supporting the environmental protection. The case also generated widespread engagement from members of the civil society. According to the environmental impact assessment report[3] prepared by the TEMA Foundation,[4] Alamos cut down some 200,000 trees instead of the 45,000 permitted in the environmental impact assessment decision.[5] Following this breach and growing public concern, Alamos Gold could not request renewal of the permit and therefore, Alamos’s license was cancelled according to an official.[6] This decision prompted Alamos to file ICSID arbitration proceedings against Turkey in June 2021 under the Turkey-Netherlands BIT.[7]
Surprisingly, while Alamos’s investment was for approximately 250 million USD, its investment claim is expected to exceed 1 Billion USD.[8] Among others, the principal claim that the investor is likely to raise is that Turkey carried out an indirect expropriation of the gold mine due to its refusal to renew the operating license. On the other hand, Turkey will probably argue that it has the right not to renew a permit if licensing conditions are not fulfilled under relevant national legislation, namely, articles 7 and 24 of the Mining Act No. 3213, which provides that an operating license is issued only after the licensee has received a positive environmental impact assessment decision. If the licensee fails to secure the decision in time or fails to comply with its environmental obligations, the license is not renewed.
Negative Treatment of Environmental Concerns in Indirect Expropriation Cases
Alamos v. Turkey is not the first case where environmental concerns have been raised. Similar issues have been addressed by investment tribunals. The following cases may be particularly relevant to the outcome in Alamos v. Turkey and demonstrate how the protection of the environment has gradually found its place in investment arbitration.
Several investment cases have concerned indirect expropriation claims from investors for the failure to renew or grant licenses and permits in response to alleged environmental concerns. In Metalclad Corporation v. Mexico, and Tecmed v. Mexico, the Tribunals were presented with similar issues, where host states indirectly expropriated investments due to not granting a permit or license based on environmental concerns. This is similar to Alamos v. Turkey, but Alamos has several aspects that makes the case unique.
In Metalclad, the Tribunal held that in denying the Claimant’s permit to construct a hazardous waste landfill, the Municipality acted outside its authority and unlawfully prevented the Claimant’s operation of the landfill. In Alamos, Turkey’s refusal to grant the license renewal is akin to indirect expropriation as in Metalclad. However, Alamos’s position is much weaker than the Claimant’s in Metalclad since Alamos was indeed under an obligation under the environmental impact assessment decision to follow the requirements of Turkey’s national law and was in breach of those requirements regarding the cutting of trees. Additionally, Alamos’s deforestation was against Turkey’s environmental objectives, which subjected the authorities to intense public scrutiny.[9]
In Tecmed v. Mexico, the Tribunal decided that the decision to not renew a landfill permit due to environmental concerns was not sufficiently justified by public interest. Nevertheless, the tribunal analyzed whether the regulatory expropriation was proportional to the public interests at stake considering the impacts on the protected investment. In Tecmed the Tribunal used a balancing test which weighs the investor’s economic expectations against the State’s interest to protect the environment. In Alamos, in arriving at a decision, the Tribunal will likely balance the effect of the company’s actions on the environment against the environmental protection interests of Turkey. Moreover, in contrast to Mexico in Tecmed, Turkey’s national legislation explicitly requires the State to take environmental impact into account when issuing licenses. Since Alamos is subject to these regulations when operating in Turkey and they apply to domestic and foreign investors alike, Turkey’s law is an important weight in this balancing test against Alamos.[10]
Positive Treatment of Environmental Matters in Investment Arbitration
Emilio Agustin Maffezini v. Spain evidences a shift towards weighing environmental matters in investment arbitration and is a lot more similar to the Alamos’s case. In Maffezini, the arbitration tribunal found that the State’s concerns over environmental protection were justified. To do so, it applied the balancing test in Tecmed and looked at the environmental impact assessment report and recognized the risks incurred in the operation of the chemical plants since it is “basic for the adequate protection of the environment not only under Spanish and European Economic Community (EEC) law, but also increasingly so under international law.”[11] As in Maffezzini, where the tribunal acknowledged that Spanish Law and EU Law determine that the environmental impact assessment report is necessary to evaluate environmental concerns and constitutes sufficient basis for justifying the protection of the environment, in Alamos v. Turkey, Turkey’s national law determines the need for an environmental impact assessment report in order to assess the effects of business operations on the environment. In Maffezzini, Spanish and European law required the government to consider environmental impact reports when deciding on permits and renewals and the tribunal in this case found that the protection of the environment was justified under these terms and eventually ruled against the investor who failed to comply with environmental measures. For these reasons, the tribunal is likely to draw parallels between the Maffezzini and the Alamos cases. In the latter, the tribunal is likely to evaluate the effects of the company’s operations on the environment and take into consideration environmental impact reports like those prepared by the TEMA Foundation as outlined in Turkey’s national law. This report shows Alamos’s breach of environmental impact assessment decision and it is likely to take place in Turkey’s submissions. Therefore, the Tribunal will consider it in arriving at its decision.
Limiting Compensation in Investment Arbitration Awards
Another important aspect to consider in the present case is the large sum of compensation that Alamos is expected to claim.[12] In the early 2000s, tribunals seemed to be open to awarding multibillion dollar awards to investors.[13] As of today, the largest compensation award in investment treaty arbitration is the 40 billion USD award in Hulley v. Russia.[14] To the contrary, today, because of the harsh critiques to investment arbitration, tribunals seem to have changed the appreciation of damages and hardly ever grant high sums as in Hulley.[15] For instance, in Infinito Gold v. Costa Rica,[16] the Tribunal declined to award damages to the Claimant because it found that its prospects were too speculative. Therefore, whether Alamos’s claim exceeding 1 Billion USD is speculative or not, will also be tested. Realistically, the tribunal would at most award Alamos a fair market value of their 250 million USD investment and in any event reduce the damage caused to the environment.
Conclusion
While precedents are not binding in international arbitration, they act as persuasive authority and can help predict a tribunal’s future decisions. Unfortunately, in earlier cases, environmental concerns were not considered sufficient to prompt a decision as to the non-liability of a host state. However, in Maffezini, we saw a much-desired shift towards environmental protection, where these concerns were given sufficient weight to influence the tribunal’s decision. Perhaps it is time for investment arbitration tribunals to consider environmental issues more thoroughly.
As the number of donor-funded initiatives addressing environmental impacts has grown, States are expected to assume a more active role in protecting the environment as articulated in international treaties. If investors are profiting at the expense of public health, a State has the obligation to discontinue their operations. Accordingly, investment tribunals are expected to recognize the state’s right to regulate and acknowledge the state’s duty to protect the environment. Since the earlier investment decisions, tribunals have considerably paid more attention to the protection of the environment in the interest of public welfare, especially when it is related to climate change.[17] Today, there is a higher chance that an investment tribunal allocates more weight to environmental concerns than it did in the 1990s. This case could serve as a testament to the shift of investment arbitration tribunals where environmental impacts are adequately considered in ISDS disputes.
* Mr. Can Eken is a PhD candidate at the Faculty of Law of The Chinese University of Hong Kong (CUHK). His doctoral thesis addresses procedural and ethical issues that arise in third-party funding (TPF) agreements. A member of the State Bar of California and the Istanbul Bar Association, he holds two LLM degrees, one from the London School of Economics and Political Science (LSE) and another from Dokuz Eylül University, where he also obtained his bachelor’s degree in law with a high honour degree. He spent the 2019/20 academic year at Stanford University as a visiting researcher.
[1] Jack Ballantyne, Turkey hit with billion-dollar mining claim, Global Arbitration Review (June 8, 2021), https://globalarbitrationreview.com/turkey-hit-billion-dollar-mining-claim?utm_source=Reliance%2Band%2BShell%2Bwin%2Banother%2Bround%2Bin%2BIndian%2Boilfield%2Bdispute&utm_medium=email&utm_campaign=GAR%2BAlerts.
[2] Alamos Gold Announces US$1 Billion Investment Treaty Claim Against the Republic of Turkey (April 20, 2021), https://www.alamosgold.com/news-and-events/news/news-details/2021/Alamos-Gold-Announces-US1-Billion-Investment-Treaty-Claim-Against-the-Republic-of-Turkey/default.aspx.
[3] Call from TEMA Foundation: Stop the business that violates the EIA in Çanakkale Kirazlı, (July 7, 2019), https://www.tema.org.tr/basin-odasi/basin-bultenleri/canakkale-kirazli.
[4] Turkish Foundation for Combating Erosion, Afforestation and Conservation of Natural Assets.
[5] Miray Gökce and Pelin Ünker, Activists fight deforestation in Turkey’s Ida mountains, Deutsche Welle (May 8, 2019), https://www.dw.com/en/activists-fight-deforestation-in-turkeys-ida-mountains/a-49903433.
[6]Turkish ministry revokes mining license of Alamos Gold (March 15, 2021), https://www.hurriyetdailynews.com/turkish-ministry-revokes-mining-license-of-alamos-gold-163166.
[7] Alamos Gold Holdings Coöperatief U.A. and Alamos Gold Holdings B.V. v. Republic of Turkey (ICSID Case No. ARB/21/33)
[8] Taylan Bilgic, Gold Miner Seeks $1 Billion From Turkey for Stalled Mine, Bloomberg (April 20, 2021), https://www.bloomberg.com/news/articles/2021-04-20/alamos-seeks-1-billion-from-turkey-on-stalled-gold-mine.
[9] Metalclad Corporation v. The United Mexican States, ICSID Case No. ARB(AF)/97/1, Award (Aug. 30, 2000).
[10] Técnicas Medioambientales Tecmed, S.A. v. The United Mexican States, ICSID Case No. ARB (AF)/00/2, Award (May 29, 2003).
[11] Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Award (Nov. 13, 2000).
[12] Arundhati Sarkar, Alamos Gold’s units to file $1 bln investment treaty claim against Turkey, Reuters (April 20, 2021) https://www.reuters.com/business/energy/alamos-golds-unit-file-1-bln-investment-treaty-claim-against-turkey-2021-04-20/.
[13] Jonathan Bonnitcha and Sarah Brewin, Compensation Under Investment Treaties: What are the problems and
what can be done?, Int’l Inst. for Sustainable Dev’t., https://www.iisd.org/system/files/2020-12/compensation-investment-treaties-en.pdf.
[14] Hulley Enterprises Ltd. v. Russian Federation, PCA Case No. 2005-03/AA226.
[15] Matthew Hodgson, Yarik Kryvoi, Daniel Hrcka, 2021 Empirical Study: Costs, Damages and Duration in Investor-State Arbitration (June 2021), https://www.biicl.org/documents/136_isds-costs-damages-duration_june_2021.pdf
[16] Infinito Gold Ltd. v. Costa Rica, ICSID Case No. ARB/14/5.
[17] See, e.g., The Green Pledge, Greenwood Arbitration, https://www.greenwoodarbitration.com/greenpledge.