United Mexican States v. Metalclad Corp. - Statutory Review of NAFTA Chapter 11 Award

Client

Counsel to Metalclad Corporation in the application to set aside the Award of the NAFTA Tribunal (The United Mexican States v. Metalclad Corporation (2001), 89 BCLR (3d) 359; 14 BLR(3d) 285; supplementary reasons: [2001 BCJ No. 2268; 2001 BCSC 1529)

Concerned the construction of a hazardous landfill under federal authority in Mexico. Although all federal approvals had been obtained, the adjoining municipality obtained an injunction prohibiting operation of the landfill and the governor of the relevant state proclaimed a rare cactus preserve which included the area of the landfill.

Metalclad eventually sought relief under Chapter Eleven of NAFTA, asserting that Mexico had (a) failed to provide fair and equitable treatment to it as an investor, contrary to Article 1105 of NAFTA; and (b) expropriated its investment without compensation, contrary to Article 1110 of NAFTA. An arbitral tribunal was constituted in Vancouver. Finding that Metalclad had established its claims, the tribunal ordered Mexico to compensate Metalclad for its expenditures on the landfill, less certain deductions for the costs of remediating earlier contamination of the site. The award amounted to over US$16.7 million plus interest.

Mr. Justice Tysoe held that the tribunal made decisions on matters beyond the scope of Chapter Eleven, specifically by importing considerations of transparency that are not part of customary international law (and which are addressed elsewhere in NAFTA). Mr. Justice Tysoe accordingly held that the award should be set aside to the extent it was based on Article 1105.

Mr. Justice Tysoe similarly held that the tribunal had exceeded the scope of the submission to arbitration by basing the award under Article 1110 (expropriation) upon its misstatement of the minimum standard contemplated by Article 1105. However, Mr. Justice Tysoe upheld the tribunal's alternative finding that the proclamation of an ecological decree purporting to establish an environment conservation area was tantamount to an expropriation of Metalclad's investment, within the meaning of Article 1110.