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Red Eagle vs. Colombia: A Landmark Arbitration Decision Upholds Environmental Protection
Red Eagle vs. Colombia: A Landmark Arbitration Decision Upholds Environmental Protection
Background:
On February 28, 2024, the arbitral tribunal in the case between Red Eagle Exploration Limited ("Red Eagle") and Colombia issued a decisive award under the Canada-Colombia FTA (2008). This arbitration case (ICSID Case No. ARB/18/13) primarily revolved around Red Eagle’s claims of minimum standard of treatment (MST) and expropriation, stemming from Colombia's stringent environmental regulations.
Context of the Dispute:
The conflict traces back to Colombia's adoption of its Mining Code in 2001, which laid out conditions for obtaining mining rights, including environmental licenses. Specifically, the code prohibited mining in protected areas, known as "mining exclusion zones," including páramos (high-altitude wetlands). These provisions were upheld by the Colombian Constitutional Court in 2002. Red Eagle acquired 11 mining titles between 2009 and 2012 to develop a gold mining project. However, in 2010, Colombia enacted Law 1382, designating páramos as exclusion zones, but with a grandfathering clause for existing activities. Subsequent laws and court judgments further reinforced this prohibition, impacting Red Eagle's plans as part of its titles overlapped with the Santurbán Páramo. Despite the evolving regulatory landscape, Red Eagle did not secure the necessary environmental licenses or Mining Works Program (PTO), which eventually led to the National Mining Agency (ANM) barring mining activities in the affected areas. Frustrated, Red Eagle initiated ICSID arbitration in 2018, seeking over CAD$ 110 million in damages.
Tribunal’s Ruling on Minimum Standard of Treatment:
Red Eagle’s claims under the MST provision of the FTA included arguments that Colombia’s actions frustrated its legitimate expectations and were non-transparent, inconsistent, unreasonable, arbitrary, disproportionate, and discriminatory. However, the tribunal, by majority, rejected these claims.
Legitimate Expectations:
The tribunal emphasized that the MST, rooted in customary international law, did not extend to protecting legitimate expectations beyond a certain threshold. It found insufficient evidence to consider the doctrine of legitimate expectations as part of the MST. The tribunal noted that Red Eagle was aware of the mining prohibition in páramos when it invested and that there was no quasi-contractual relationship with Colombia ensuring mining rights in these zones.
Transparency and Arbitrariness:
The tribunal ruled that Colombia acted transparently and reasonably, as evidenced by the public participatory process in delimiting the páramos. Red Eagle had participated in this process, and there was no indication of arbitrariness or unreasonableness in Colombia’s actions. The tribunal highlighted that Colombia's measures, including Resolution 2090, were adopted through a balanced, deliberative process aimed at protecting the environment while considering economic interests.
Indirect Expropriation:
Red Eagle also claimed that Colombia indirectly expropriated its investment. The tribunal dismissed this claim, stating that Red Eagle never acquired vested rights to engage in mining within the páramo area, as the necessary environmental license and PTO were neither applied for nor granted. Furthermore, the tribunal underscored that Colombia’s measures fell within its sovereign police powers aimed at environmental protection, thus not constituting indirect expropriation.
Dissenting Opinion:
Arbitrator Mr. Martínez de Hoz dissented, arguing that Colombia’s regulatory framework was unclear, creating legal uncertainty that frustrated Red Eagle’s legitimate expectations. He referenced the Eco Oro case, where Colombia was found to have breached MST under similar circumstances. However, the tribunal majority disagreed, noting that Red Eagle’s investment was made with full knowledge of existing mining prohibitions in páramos.
Conclusion:
The tribunal’s decision reinforces Colombia’s right to implement and enforce environmental protections, particularly in ecologically sensitive areas like páramos. By dismissing Red Eagle’s claims, the tribunal affirmed that Colombia’s regulatory actions were consistent with its international obligations and necessary for environmental conservation. This award clarifies the scope of MST under the FTA and sets a precedent for the burden of proof on investors claiming legitimate expectations.
- The conflict traces back to Colombia's adoption of its Mining Code in 2001, which laid out conditions for obtaining mining rights, including environmental licenses.
- The tribunal emphasized that the MST, rooted in customary international law, did not extend to protecting legitimate expectations beyond a certain threshold.
- The tribunal’s decision reinforces Colombia’s right to implement and enforce environmental protections, particularly in ecologically sensitive areas like páramos.
