Over on Twitter, lots of people are talking about the recent investment arbitration award in Eco Oro Minerals v. Colombia. (For Investment Arbitrator Reporter subscribers, a summary of the tribunal's reasoning is here.)
I've followed some of the Twitter discussion, but haven't read the whole award. For now, let me just make two quick points about some specific aspects of the award.
First, here are some key passages from the Tribunal majority's finding of violation of MST/FET:
805. A majority of the Tribunal finds that Colombia’s actions, including its failure finally to delimit the Santurbán Páramo in circumstances where Eco Oro was advised that no environmental licenses could be issued for mining projects in the vicinity of the Santurbán Páramo until the new delineation had been completed and the failure to give Eco Oro an extension to submit its PTO, comprise conduct that failed to provide Eco Oro with a stable and predictable regulatory environment.
...
821. Whilst the bar is a high one and the Tribunal does not expect that Colombia should have elevated unconditionally Eco Oro’s interests above its obligation to protect the páramo, equally Colombia should have ensured that its various arms took the necessary steps to comply with Colombia’s constitutional obligation to protect the páramo such that they acted in parallel and in a coordinated manner with respect to Concession 3452. It should be reminded that, for purposes of attribution, “[t]he conduct of any State organ shall be considered an act of that State under international law, whether the organ exercises legislative, executive, judicial or any other functions, whatever position it holds in the organization of the State, and whatever its character as an organ of the central Government or of a territorial unit of the State.”837 It is clear from the above review of Colombia’s actions, viewed as a whole, that Colombia’s approach to the delimitation of the Santurbán Páramo was one of arbitrary vacillation and inaction which inflicted damage on Eco Oro without serving any apparent legitimate purpose. Colombia was not willing to address and manage the widely disparate interests of those impacted by where the boundary of the Santurbán Páramo was drawn; it found itself torn between the competing interests of protecting the páramo and obtaining much needed royalties. It has failed to act coherently, consistently or definitively in its management of the Santurbán Páramo and in so doing has infringed a sense of fairness, equity and reasonableness and indeed has shown a flagrant disregard for the basic principles of fairness. This is more than just inconsistency or inadequacy by Colombia and its officials. Colombia has not accorded Eco Oro’s investment treatment in accordance with the customary international law minimum standard of treatment of aliens, including the obligation to provide fair and equitable treatment, and the Tribunal therefore finds by a majority that Colombia is in breach of article 805 of the FTA.
My take on MST/FET jurisprudence has always been that the approach of many tribunals to this obligation is not rooted in the reality of how governments operate. If you take standards such as "stable and predictable regulatory environment" seriously, such a wide range of government actions, perhaps even a majority of them, would violate these obligations that the whole system doesn't make any sense. Now, if you could narrow MST/FET down to some extremely egregious actions that only occur rarely and we all agree are unacceptable, maybe it would work. But there's no language I've ever seen proposed that would come close to doing this. In practice, the various options with MST/FET language involve varying degrees of vagueness and overbreadth.
Second, after finding a violation of MST/FET, the tribunal majority found that the existence of an environmental exception does not prevent compensation from being awarded for the violation. The exception, Article 2201(3), says:
(3) For the purposes of Chapter Eight (Investment), subject to the requirement that such measures are not applied in a manner that constitute arbitrary or unjustifiable discrimination between investment 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:
(a) 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;
(b) To ensure compliance with laws and regulations that are not inconsistent with this Agreement; or
(c) For the conservation of living or non-living exhaustible natural resources.
That seems like a fairly clear and normal IEL exception, but the Tribunal took away its force by allowing claims for compensation even if the exception is satisfied, as follows:
828. The Preamble to the FTA details, inter alia, that its object and purpose is to ensure a predictable commercial framework for business planning and investment in a manner that is consistent with environmental protection and conservation.841 Canada accepts that “the Parties [to the FTA] did not view their investment obligations as being at odds with the protection of [….] their environment and human rights obligations.”842 and that “trade and environment policies are mutually supportive […]”.843 In determining the ordinary meaning of Article 2201(3) it is therefore necessary to understand, as has been held by the Tribunal, that neither environmental protection nor investment protection is subservient to the other, they must co-exist in a mutually beneficial manner.
829. In the context of the FTA’s object and purpose, the Tribunal construes Article 2201(3) as being permissive, ensuring a Party is not prohibited from adopting or enforcing a measure to protect human, animal or plant life and health, provided that such measures are not arbitrary or unjustifiably discriminatory between investment or between investors or a disguised restriction on international trade or investment. Such a construction is consistent with the FTA’s objective of environmental protection: by prohibiting an investor from applying for restitution pursuant to Article 834(2)(b), the State is not precluded from adopting or enforcing the measure in question. Equally, however, there is no provision in Article 2201(3) permitting such action to be taken without the payment of compensation. 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. In this regard, it is of note that there is no reference in Article 2201(3) to claims for breaches of the FTA. Indeed, given that the Contracting Parties drafted other provisions, such as Annex 811(2)(b), to include an express stipulation as to the circumstances in which a measure is not to constitute a treaty breach, it is simply not credible that the Contracting Parties left such an important provision of nonliability to be implied when considering the operation of Article 2201(3).
830. The Tribunal therefore construes 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 does not prevent an investor claiming under Chapter Eight that such a measure entitles it to the payment of compensation.
That conclusion is eye-popping, to say the least.
Putting these two findings together confirms my strongly held opinion that there is nothing that can be done to salvage MST/FET provisions. Revisions to the wording of the obligation do very little; and adding in exceptions does very little. The only solution I see is to remove MST/FET from international investment obligations entirely. (While some people might suggest investment courts are the answer here, I'm not sure they would help.)
