Hernán Pérez Loose July 14 2016 BIT tribunal not deterred by constitutional mandate Coronel & Pérez | Arbitration & ADR - Ecuador Hernán Pérez Loose Arbitration & ADR BackgroundDecisionCommentA United Nations Commission on International Trade Law (UNCITRAL) tribunal has found Ecuador to be in breach of the 1996 Canada-Ecuador Bilateral Investment Treaty (BIT) for the unlawful expropriation of the investment of a Vancouver-based company. The expropriation was the result of a resolution passed by the 2008 constituent assembly. According to Ecuadorian jurisprudence, the powers of constituent assemblies are considered unlimited and are therefore not subject to judicial review. This demonstrates that even constituent power has its limits in international law.BackgroundIn January 2007 Rafael Correa, the newly elected president of Ecuador, called for a referendum to convene a constituent assembly for the enactment of a new constitution. The proposal gained overwhelming support. According to Ecuador's jurisprudence, constitutional assemblies are the institutional expression of constituent power, the ultimate source of the state's legitimacy. Since their members have been entrusted by the people to set a new constitutional order, the powers of these assemblies has been viewed as free from any control.The new assembly was elected in September 2007. The election results were favourable to Correa's party, which secured 70% of the seats. As the assembly began its debates for the new constitution, its members decided to promulgate certain laws – under the name of 'constituent mandates' – to regulate ongoing situations.One of the areas that attracted the attention of the assembly was the mining industry. Thus, in April 2008 the assembly approved Constituent Mandate 6.(1) According to this resolution, the existing legal framework for mining operations did not correspond to the national interest, as it had failed to protect the rights of indigenous people and the environment. The assembly ordered that, until a new mining law could be adopted, a series of mining concessions that had been previously granted should be terminated without economic compensation. According to Article 12 of Mandate 6, no action, complaint or recourse, even of a constitutional nature, may be filed against it.Despite the criticism that it received from legal scholars and practitioners, the 'mining mandate', as it became known, was implemented by the Correa administration. A year later, a new mining law was passed by the newly elected legislature, where Correa's party coalition obtained a majority.One of the companies affected by the mining mandate and the new mining law was Copper Mesa Mining Corporation, a multinational based in Vancouver. The company had investment interests in two local subsidiaries that held concession rights in two open-pit mines located in the Junin and Chaucha regions of Ecuador. It also had interests in the acquisition of a third mining project located in the area of Talinbela.DecisionIn January 2011 Copper Mesa filed for arbitration under the 1996 Canada-Ecuador BIT. The arbitral tribunal was then established by the Permanent Court of International Arbitration and the arbitration was conducted according to UNCITRAL rules. Cremades from Spain and Bruno Simma from Germany were appointed arbitrators at the request of the claimant and respondent, respectively. The tribunal was chaired by VV Veeder QC from the United Kingdom.On March 15 2016 the tribunal issued its award. It found that the 2008 termination of the Junin concession was an unlawful expropriation. The revocation of that concession without economic compensation was adopted as a result of the mining mandate. Ecuador had argued that such termination was legal under Ecuadorean law. The tribunal also found that the new mining law had violated the BIT because it created a defect on the concession title of the Chaucha area. The tribunal ordered Ecuador to pay the claimant US$24.4 million, including interest. The fact that the expropriation of the concession rights was adopted in compliance with a constituent mandate made no difference to the tribunal. Ecuador has since announced that it will seek the annulment of the award before the ordinary courts of The Hague.The UNCITRAL tribunal in Copper Mesa has not been alone in passing judgment on a constitutional mandate issued by the 2008 constitutional assembly. A recent decision by the UN Committee on Human Rights, seated in Geneva, found that Constitutional Mandate 11 had deprived two Ecuadorean bankers, Roberto Isaias and William Isaias, of the fundamental right of defence. The mandate had barred any judge or tribunal from hearing any complaint filed by the Isaias brothers in their legal battle following the seizure of their properties. The committee found Ecuador to be in breach of the UN Convention on Human Rights and ordered the state to implement reparations on the Isaias brothers.CommentThe Copper Mesa and Isaias decisions are important reminders that Ecuador's view that the powers of constituent assemblies are unlimited is flawed. In modern constitutional law there is no room for unchecked powers – not even constituent power. This is more evident from the perspective of international law, particularly in regard to the protection of fundamental rights, as the right to compensation for expropriation or the guarantee of due process. The mining mandate has fuelled further arbitration cases against Ecuador. It is expected that the tribunals in those cases may follow the precedents set in Copper Mesa and Isaias.For further information on this topic please contact Hernán Pérez Loose at Coronel & Pérez by telephone (+593 4 2519 900) or email ([email protected]). The Coronel & Pérez website can be accessed at www.coronelyperez.com.Endnotes(1) Official Register 321, Second Supplement, April 22 2008.