In Montauk Metals v Colombia, an ICSID tribunal has recently rendered its Award on 7 June 2024, finding that Colombia did not commit any expropriation or breach the Minimum Standard of Treatment (MST) or the Fair and Equitable Treatment (FET) obligation under the respective provisions of Articles 811 and 805 of the Canada-Colombia Free Trade Agreement (FTA) 2008. Colombia’s resounding victory is largely attributable to the tribunal’s conclusion that the impugned measures were adopted primarily to protect the environment, specifically the Páramos ecosystem. This award is promising from both environmental and regulatory perspectives, despite ongoing criticisms of the existing Investor-State Dispute Settlement (ISDS) system for its alleged failure to meaningfully balance the State’s rights to regulate with that of the investor’s rights to protect its investment.
While the tribunal’s thoughtful consideration of the extraordinary fragility and vulnerability of the Páramos ecosystem, with its invaluable biological diversity, deserves high praise, this post argues that parts of the Award’s reasoning are appalling, potentially making it vulnerable in annulment proceedings, should the Claimant seek to challenge it. This claim is made even after taking into account the exceptional and extraordinary nature of ICSID annulment proceedings. This post will briefly outline the Colombian measures delimiting the Santurbán Páramo before exploring the tribunal’s analysis of the FET/MST claim. It will then analyse the inherent contradictions in the Award’s reasoning to substantiate the argument presented here.
Impugned Measures
The Claimant challenged the actions of various Colombian State organs that affected its investment, specifically the establishment of an absolute ban on mining activities in the Páramos ecosystem. Colombia argued that these measures were implemented to ensure the preservation of this environmentally sensitive zone. The central issues concerned the delimitation of the Santurbán Páramo through various rules and regulations, along with the alleged exclusion of certain projects in the area from the ban for a transitional period, provided they met certain legal requirements.
In the process, the Mining Code of 2001 was amended multiple times, followed by interventions from the Colombian Constitutional Court through Judgment C-366 in May 2011 and Judgment C-035 in February 2016. The official delimitation was established by Resolution 2090 in December 2014, which prohibited mining activities in the Santurbán Páramo while exempting projects from the ban that had been granted licenses prior to 9 February 2010.
However, the Constitutional Court, in its Judgment C-035, subsequently imposed an immediate and total ban on mining activities in the zone, without any transitional regime. The Court based this decision on the unacceptable and irreparable damage that investment activities could potentially cause to the Páramos ecosystem, in gross violation of the Colombian Constitution (Award, paras 703-04, 807-09).
Yet, the Judgment C-035 was in complete contradiction to Judgment C-366, issued five years earlier by the same Court, which had allowed a two-year transitional period. This deferral was strongly criticised by Judge Vargas Silva in his partial dissenting opinion in Judgment C-366, due to the potentially detrimental impact it could have on the preservation of the Páramos ecosystems. The investor challenged both, the Resolution 2090 and the Judgment C-035. While the tribunal, referencing the police power doctrine, rejected the Claimant’s expropriation claim with reasoning that can be reasonably understood, however, the manner in which the tribunal addressed the FET claim is problematic.
FET/MST Claim
While scrutinising the FET/MST obligation, the tribunal noted that the issue was whether Colombia breached the MST standard, as opposed to an independent FET standard, a finding that aligned with the wording of the FTA and the majority decision in Eco Oro v Colombia (Decision on Jurisdiction, Liability and Directions on Quantum). The parties disputed the scope of the MST standard, which the tribunal correctly identified (paras 899-908). Citing the majority decision in Eco Oro v Colombia, the Claimant argued that the alleged breach of the FTA should be determined by recourse to investment case law, while Colombia referred to the 2017 Canada-Colombia Joint Commission decision, which required evidence of State practice and opinio juris to prove an MST breach (paras 902-08). The tribunal’s majority concluded that the Claimant was not required to prove MST by adducing evidence of State practice and opinio juris (paras 902-10). The tribunal identified four sub-standards (good faith, arbitrariness, legitimate expectations, and transparency and consistency) and assessed whether any of these specific sub-standards had been breached by Colombia (para 907).
The tribunal’s approach to arbitrariness was particularly problematic. The Claimant alleged that Judgment C-035 was arbitrarily issued, abolishing the transitional regime previously upheld by the same Court in Judgment C-366, despite the absence of any new information (para 916). The tribunal acknowledged that arbitrary measures could breach MST and recognised that Judgment C-035 had the potential to affect the Claimant’s investment (paras 918-19). However, it concluded that there was no breach of MST because ‘…the Constitutional Court acted within the margin typically recognised for judicial bodies to apply the law and adapt it to society’s evolving values’ (para 920). This finding is not only vague but also contradicts the tribunal’s own reasoning in the expropriation section.
Irreconcilable Outcome
When evaluating the expropriation claim, the tribunal explicitly noted that:
‘… it could be argued that there was an element of arbitrariness [in Judgment C-035], for the same Constitutional Court to change its position… without any new explanation, based on scientific information already available in its first decision [in Judgment C-366], and without considering the possible consequences of its decision by affecting private parties’ (emphasis added) (para 811).
The tribunal continued:
‘… even though there was a change of criteria by the Constitutional Court, this Tribunal believes that such a change does not entail ‘manifest arbitrariness’, since judicial bodies across the globe are widely recognised to validly lead the way in the development of the law according to society’s evolving values’ (para 812) (emphasis in original).
Taken together, it is therefore entirely clear that the tribunal found Judgment C-035 to be arbitrary, though not manifestly arbitrary, in determining the issue of expropriation. Surprisingly, when examining the MST standard, the tribunal found that the Constitutional Court acted within the proper limits of its margin of discretion in rendering Judgment C-035. Furthermore, although the tribunal rightly recognised arbitrariness as a sub-standard of MST (para 918), it subsequently concluded that Colombia’s action was not “manifestly arbitrary” (para 940), raising the threshold to a very high level by adding the “manifest” requirement without providing any reasoning whatsoever. These inconsistencies in determining arbitrariness with regard to the same impugned measure, i.e., Judgment C-035, under Articles 811 and 805 respectively (in sequence of the analysis in the Award), defy common sense and logic.
The implications of this irregularity are profoundly significant, given that, in the tribunal’s own words, a violation of any of the sub-standards, including arbitrariness, would amount to a breach of MST by Colombia. This means that the sub-standards were alternative, not cumulative, requirements (para 907).
A thorough analysis of the Award might help uncover the reason for this inconsistency. Throughout the Award, the tribunal was deeply concerned about the apparent contradiction between Judgments C-366 and C-035 (paras 693, 705, 806). The issue arose from the abolition of the transitional regime in Judgment C-035, which defied the logic of Judgment C-366, despite the absence of any new event. The tribunal emphatically relied on the partial dissent of Judge Silva in Judgment C-366, where he criticised the deferral made by the majority (paras 692-93, 805). This reliance was arguably an attempt to highlight the defective nature of Judgment C-366, which, in the tribunal’s view, was subsequently remedied by Judgment C-035 (paras 693, 705, 812, 920). The tribunal’s frequent references to Judge Silva’s partial dissent illustrate its attempt to reconcile the two completely contradictory decisions by the same Court on the same issue, within a span of just five years. However, in the end, the tribunal arguably became entangled in its own reasoning, as outlined above, due to its inability to resolve the inherently irreconcilable contradictions in the Constitutional Court’s decisions.
The Award contains another startling feature, again in the MST segment. In the concluding part, the tribunal stated that ‘…[it] believes that the Claimant has not proven the content of the customary international law concept of MST based on States’ practice and opinio juris’ (emphasis added) (para 940). This conclusion must be read in light of the tribunal’s earlier finding in the same section, where it stated that no obligation could be imposed on the Claimant ‘…to prove State practice and opinio juris to define MST’ (para 910). These are self-defeating conclusions that defy logic and are internally conflicting.
Conclusion
According to Article 52(1)(e) of the ICSID Convention, the failure to state the reasons on which the Award is based constitutes grounds for annulment. In MINE v Guinea, it was held that the requirement to state reasons would not be satisfied if those reasons were either contradictory or frivolous (paras 5.08-5.09). Similarly, the Annulment Committee in Venezuela Holdings B.V. v Venezuela found it permissible to intervene under Article 52(1)(e) when the process used by the tribunal to reach its conclusion was ‘vitiated by a defect so serious as to invalidate the findings themselves’ (paras 116, 188-189). In light of these established principles, the Award in Montauk Metals appears potentially susceptible to a successful annulment challenge, should one be made, as the reasons provided are incapable of supporting a meaningful conclusion due to their inherent inconsistencies.
Khan Khalid Adnan has recently completed his LLM in Litigation and Dispute Resolution from UCL with distinction. He is a Fellow of the Chartered Institute of Arbitrators (FCIArb), a Barrister in England and Wales, and an Advocate of the Supreme Court of Bangladesh. Currently, he serves as the Head of the Chamber at Khan Saifur Rahman & Associates, Dhaka, Bangladesh.
The article is written in a very thoughtful way. I hope the award remains unchanged, if challenged. However the reasoning should be aligned.