Glamis Gold, Ltd. v United States of America: An UNCITRAL tribunal dismissed claims of expropriation and breach of fair and equitable treatment (FET) protection under NAFTA. In determining the current scope and content of the FET standard under customary international law, the Tribunal rejected arguments that it had evolved since Neer v Mexico, maintaining that acts must be “egregious” and “shocking” in order to establish a violation of this right.

Summary and business impacts

State Parties to the North America Fair Trade Agreement (NAFTA) must accord investors from other State Parties "treatment in accordance with international law, including fair and equitable treatment and full protection and security" under Article 1105. It is widely accepted that NAFTA's FET protection refers to the minimum standard for the treatment of aliens recognised under customary international law. The case of Neer v Mexico established a high bar for a finding that this minimum standard had been violated: state acts must be "sufficiently egregious and shocking" – for example, a gross denial of justice, manifest arbitrariness, blatant unfairness, a complete lack of due process, evident discrimination or a manifest lack of reason.

On 8 June 2009, an UNCITRAL tribunal constituted under Chapter 11 of NAFTA dismissed Glamis Gold's claims that the US had breached its obligation under Article 1105 to accord FET to investors by a series of regulatory and legislative actions at both state and federal levels of government. In reaching its findings, the Tribunal rejected Glamis Gold's assertion that the scope and content of the FET standard had evolved in customary international law since Neer to include: (1) protection against arbitrariness; and (2) protection of legitimate expectations through the establishment of a transparent and predictable legal and business framework.

The approach of this Tribunal is significant for its rejection of existing arbitral jurisprudence as evidence of an evolving FET standard. In contrast to the prevailing view, this Tribunal held that only arbitral awards dealing with customary international practice are relevant to a claimant's case and, even then, such awards cannot provide evidence of state practice but merely "illustrations" of customary law.

Factual background

Glamis Gold owned rights to mine gold and silver at a mining project in south-eastern California (the Imperial Project). It planned to exploit these mining rights using open-pit mining techniques which had previously attracted criticism for their negative environmental impact. In addition, Glamis Gold's mining sites were close to designated Native American lands and other areas of special cultural interest. As a consequence, much public opposition to the mining project was generated on both environmental and cultural grounds.

In response to this public antipathy, the US government instigated a number of regulatory and legislative measures at both state and federal levels which, Glamis Gold contended, rendered its proposed plans economically unviable. Following the implementation of the regulatory and legislative framework and the ultimate rejection of its proposed plan, Glamis Gold initiated UNCITRAL proceedings against the US alleging that the state's measures, viewed both individually and collectively, violated its rights under Chapter 11 of NAFTA, specifically Article 1110 (Expropriation and Compensation) and Article 1105 (Minimum Standard of Treatment – FET).

Tribunal's findings

In order to assess the claims, the Tribunal first had to determine the scope and bounds of the customary international law minimum standard treatment of aliens. Specifically, was the FET standard the same as that put forward in Neer or had it evolved since that award was published in 1926? At the same time, the Tribunal acknowledged that it would be "difficult" to establish a change in customary international law, as this requires evidence of (1) concordant state practice, which is (2) required by or consistent with prevailing law (opinio juris).

Glamis Gold contended that a broader standard of FET was evident in numerous other arbitral awards and that jurisprudence from bilateral investment treaties, in particular, had converged with customary international law in this area. This argument was rejected. The Tribunal held that arbitral awards may only serve as illustrations of customary international law if they specifically examine customary practice. Awards relating to the interpretation of autonomous, underlying treaty-based language were deemed irrelevant for the purpose of establishing standards of customary international law.

On this basis, the Tribunal held that the FET standard had not changed since Neer, save that bad faith is no longer required to find a violation of FET (although its presence would be conclusive evidence of such violation). The Tribunal did suggest, however, that what the international community views as "outrageous" – and therefore what constitutes a breach of FET – may well have changed since 1926.

Applying the Neer standard, the Tribunal found that none of the US government's actions, when viewed either individually or collectively, constituted a breach of FET investor protection. Glamis Gold's claim of indirect expropriation also failed since the measures in dispute had not rendered the Imperial Project substantially without value so as to amount to the "taking" or "expropriation" of the investment. In reaching this conclusion, the Tribunal rejected Glamis Gold's valuation of its remaining mining rights and made several adjustments to the valuation methodology to be applied (e.g. gold prices, appropriate discount rate).

Conclusions

This decision stands in stark contrast to the recent trend in arbitral awards and commentary that views minimum standards under customary international law as fluid and evolving concepts. Typically, tribunals have looked to existing arbitral awards for guidance on the types of actions that may constitute a breach of minimum standards of treatment under international law. However, if the approach of this unanimous Tribunal is to be followed, claimants attempting to define minimum standards may no longer be able to rely on arbitral jurisprudence dealing with autonomous treaty-defined standards of treatment. Only awards looking specifically to define customary practice may be of assistance, and then, for illustrative purposes only. As a consequence, claimants may be faced with a difficult hurdle to clear in establishing violations of the minimum standard under customary international law.

On the other hand, this award also serves to highlight the absence of binding precedent within international arbitration. As such, time will tell whether this new approach to the minimum standard of treatment will be favoured by future tribunals determining questions of customary international law.