2009-2016 Pacific Rim International Investment Arbitration against El Salvador

In April 2009, Pacific Rim Mining Corporation (“Pacific Rim Corp.”), through its wholly-owned subsidiary, Pac Rim Cayman LLC (“PRC”, together referred to as “Pacific Rim”), commenced an Arbitration action under the International Centre for Settlement of Investment Disputes (ICSID) Convention seeking damages of more than US$314 million from El Salvador for unlawfully terminating its rights and investments relating to the El Dorado mining project. In particular, Pacific Rim’s claim was based on El Salvador’s failure to accept its application to convert its already-existing exploration concessions to exploitation concessions, which would allow it to begin extracting gold from identified deposits (IISD, 2017).

ICSID was created approximately 50 years ago “to deal with government expropriation of property of foreign investors” (Broad, 2015). It was not widely used until the mid-1990s, with the proliferation of bi-lateral and multi-lateral investment treaties, such as the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA), and the inclusion of international investor-state dispute settlement (ISDS) provisions that allowed investors from a member state (including multi-national corporations) to sue countries for discriminatory or unfair treatment, and to seek compensation for property expropriation (Ibid). The disputes are settled through arbitration proceedings, which are generally decided by a three-person panel of arbitrators selected by the parties.

In this case, the proceeding was divided into two main stages: the jurisdiction stage and the merits stage. At the jurisdiction stage, the panel examined whether it had the authority to consider and decide upon the dispute between Pacific Rim and El Salvador. Pacific Rim argued that the panel had jurisdiction under both DR-CAFTA and El Salvador’s Investment Law (IISD, 2017). As a Canadian company, Pacific Rim Corp. could not rely on the ISDS provisions in DR-CAFTA because Canada is not a party to the treaty. Accordingly, the arbitration was brought by PRC, whose corporate nationality was changed from the Cayman Islands to the United States in 2007. As a United States company, PRC could arguably rely on ISDS provisions under DR-CAFTA to resolve its dispute, as the United States is a party to the treaty. With respect to the Salvadoran Investment Law, Pacific Rim argued that it contained express consent to resolve disputes via arbitral proceedings governed by ICSID (ICSID Jurisdiction Decision, 2012; See also Broad, 2015). In 2012, the tribunal dismissed Pacific Rim’s arguments regarding DR-CAFTA, but assumed jurisdiction under the Salvadoran Investment Law. In so doing, the tribunal rejected El Salvador’s arguments that “the Investment Law specifically subjects subsoil-related investments to the Constitution and secondary laws, and the Mining Law refers disputes involving mining exploration licences to the exclusive jurisdiction of Salvadoran courts” (IISD, 2017). The tribunal held that “El Salvador’s interpretation was not binding” and also rejected its argument that the action was time barred under the Salvadoran Civil Code (Ibid).

The decision to accept jurisdiction over this dispute is viewed by some commentators as evidence of pro-corporate bias in the ICSID process. For example, Robin Broad argues that “the details of the submission should have led the tribunal to throw out the case since [Pacific Rim] claimed that it did not know about the potential problems with getting the concession until March 2008, but that claim was disproved by indisputable evidence, including emails from [Pacific Rim] top officials dating as early as 2005” (Broad, 2015). In other words, the action should have been dismissed as out of time (time barred) under Salvadoran law. The tribunal found, however, that “investment tribunals do not necessarily need to apply domestic statutes of limitations” (IISD, 2017).

Once jurisdiction was accepted, the proceeding moved to the “merits” stage – i.e. a determination of the substantive claims at issue – which was determined by the same three-person panel as the jurisdiction stage (Broad, 2015). Pacific Rim argued that “the denial of the El Dorado [exploitation] concession resulted from El Salvador’s alleged de facto ban on metallic mining, in breach of the country’s obligations under Salvadoran and international law” (IISD, 2017). In effect, Pacific Rim’s position was that, “in granting it an exploration licence, the government of El Salvador was essentially giving it the green light on the exploitation licence” (Broad, 2015). El Salvador argued that, “[Pacific Rim] was not entitled to an exploitation concession, and that the state did not breach any obligations” (IISD, 2017). Overall, Pacific Rim had failed to meet the requirements under El Salvador’s Mining Law and, rather than seek to resolve its dispute about the interpretation of those requirements through domestic judicial proceedings, it sought to have El Salvador’s Mining Law amended in its favour and, when that failed, proceeded to international arbitration (See, for example, El Salvador’s Counter-Memorial on the Merits, para. 173).

The tribunal also accepted submissions from non-disputing parties, including the Centre for International Environmental Law (CIEL) (a Washington D.C.-based NGO), the United States, and Costa Rica. CIEL acted as amicus counsel for members of the National Roundtable against Metallic Mining in El Salvador (Mesa Nacional) and submitted two briefs, one on the issue of jurisdiction and one on the merits. On the issue of jurisdiction, CIEL argued that Pacific Rim’s “claim [did] not present any ‘legal dispute’ or cognizable ‘measure’ sufficient to confer jurisdiction under [the ICSID Convention and DR-CAFTA], but rather appear[ed] to reflect [Pacific Rim’s] dissatisfaction with the general direction that Salvadoran public policy has taken in recent years”, referring to ongoing social movements and national debate over metallic mining and human and environmental rights (Amicus Brief, 2011). On the merits, CIEL’s submissions focused on El Salvador’s obligations under international human rights and environmental law, arguing that the measures taken to place the granting of new mining licences on hold while it reviewed public concerns over the industry was in line with said obligations (IISD, 2017 and Amicus Brief, 2014). The submissions of the United States and Costa Rica focused on the interpretation of the ISDS provisions under DR-CAFTA. They did not take a position on the merits of either of the disputing parties’ positions (Costa Rica Submissions, 2011 and U.S. Submissions, 2011). The tribunal considered these submissions, along with CIEL’s jurisdiction submissions, at the jurisdiction stage. At the merits stage, “[t]he tribunal considered it unnecessary to address CIEL’s case, because the disputing parties did not consent to disclose the factual evidence to CIEL, and because the tribunal’s decisions ‘do not require the Tribunal specifically to consider the legal case advanced by CIEL: and, in the circumstances, it would be inappropriate for the Tribunal to do so'” (IISD, 2017). Ultimately, in deciding the case, “the tribunal focused on two aspects: the legal interpretation of the Mining Law Article 37(2)(b) [the requirement that applicants for exploitation concessions submit proof of property title or authorization from surface land owners] and the claim of estoppel or actos propios” (IISD, 2017).

In 2016, it released its final award (decision), dismissing all of Pacific Rim’s claims against El Salvador and ordering it to pay El Salvador US$8 million in legal costs (ICSID Award, 2016; See also IISD, 2017 for a brief summary of the tribunal’s decision on the above two aspects of Pacific Rim’s claim).

The tribunal’s final award, along with written submissions, transcripts, and expert reports, are available on the “italaw” website, a free online database on investment treaties, international investment law and investor-state arbitration (see https://www.italaw.com/cases/783).