This chapter is taken from Lexology GTDT’s Practice Guide to Mining, examining key themes topical to the international mining community.

This chapter is intended as an overview of how the notion of social licence was born (as explained by Mr James Cooney in his article, ‘Reflections on the 20th anniversary of the term “social licence”’),2 and how and why, in countries with certain constitutional traditions, it has played a role that can be found contradictory to the rule of law, as the notion of social licence has eroded some capital constitutional principles. These reflections will have a particular focus on Argentina.

This chapter starts with a brief reference to Argentine history, so that a principle embodied in the Argentine Constitution of 1853 will have some factual background; it is easier to understand the rationale of any law if the circumstances surrounding its creation and adoption are known. What is today the Argentine territory had been part of the Spanish kingdom since the late sixteenth century. The confusion and disorder that the invasion of the Iberian peninsula by Napoleon Bonaparte – who replaced the King of Spain with his brother Joseph Bonaparte in 1808 – created in the Spanish kingdom expanded to the Spanish colonies in the western part of South America, including what had been since 1776 the viceroyship of the Río de la Plata, more or less the current Argentine territory. In short, the American Spaniards claimed that a system of governmental boards was to be put in place to conduct the governmental affairs of a particular region; as had occurred in Spain, where several governmental boards had been created (the most prominent being the one in Seville). In 1810, a sequence of events was put in motion so that six years later, in July 1816, the independence of a new country was declared. From May 1810 (when a governmental board was created in Buenos Aires), for a period of 43 years, what today is known as Argentina endured varying degrees of turmoil, from ineffective local, provincial and central governments to, cruel and bloody civil war.

After those 43 years, a Constitution was finally adopted in May 1853. It was drafted following the model of the Constitution of the United States, adopting a federal system consistent with the tradition inherited from the Spanish crown, a dual-chamber National Congress, a judiciary branch headed by a National Supreme Court and the administration of national affairs entrusted to a president.

Section 22 of the Constitution, included in the original version and maintained after several amendments (the last one in 1994), sets forth the following:

The people neither deliberate nor govern except through their representatives and authorities established by this Constitution. Any armed force or meeting of persons assuming the rights of the people and petitioning in their name, commits the crime of sedition.3

The reason for discussing the historical context of this fundamental principle is to emphasise that the drafters of this rule were influenced by decades of political violence preceding the moment at which they were adopting the fundamental rules to govern the political affairs of the country. The drafters of the Constitution rightly felt the need to set a very clear principle: that it was through the action of organised authorities (not only National Congress, but also provincial authorities) that the people of the country were to discuss, argue and adopt the laws that would govern their lives and businesses. They went on to adopt the notion of sedition, a crime – punished with imprisonment – for the ‘meeting of persons assuming the rights of the people and petitioning in their name’.

This rule does not suppress the right to petition (section 14), or of free speech and free press (section 32), as scholars have noted,4 but rather it emphasises the way in which the will of the people must be channelled. It is the system of a representative republic, in which there is a delegation of the power to deliberate and adopt the law as a logical consequence of such deliberations. To what extent the respect of this principle makes a paramount difference in the way a civil society conducts its affairs is easy to note if it is remembered that it was not only during 1810 to 1853 that Argentina experienced violent times. In 1930, 1955, 1966 and 1976 the country suffered military coups d’état, each of which started a military government that lasted for several years. In addition, as in many other countries in the region, the effects of the Cold War were also felt by the presence of armed groups applying terrorist tactics and actions, which prompted reactions from other armed groups that were sometimes supported in the shadows by such governments, in a spiral of violence that took many years to overcome. The principle adopted in section 22 of the Constitution is a pivotal difference between an organised civil society and chaos. In other words, it is a cornerstone of the rule of law.

Social licence

What it meant, what it means

The expression ‘social licence’ has gained, in 21 years, a predominant role in any discussion about the impact of the mining industry in any given community, or whenever the interaction of a mining company or project and the surrounding communities is analysed. It is fair to say that the current, global and expanded notion is that social licence is an essential condition, something that a project simply cannot afford not to have. To some degree, social licence is something that seems to be stronger, and far more important than any legal requirement to build and operate a mining facility.

Social licence is not a legal concept, but it seems to have, however, a weight heavier than law itself, even in legal circles. In fact, it has gained such a status that it sometimes shadows the existence of legal licences.

Now, it seems correct to say that to many observers, stakeholders, non-governmental organisations (NGO) and media, this is a situation that is not only unsurprising but, even more, is valuable: how could it be considered unfavourable that a mining operation needs to have the acquiescence of those who will be impacted in their daily lives more than anyone else?

That any given mining project could not go forward in spite of having been granted its various governmental licences owing to community opposition might be perceived as a triumph of social awareness about environmental and other perils involved in mining. This is, indeed, a widespread view and a legitimate one. However, it is also true that with any mining operation frustrated by the failure to gain social licence, there are jobs that are not created, revenues for workers that will not exist, revenues in taxes that will not be collected and value creation for shareholders that will not occur.

From a traditional legal standpoint, this approach creates the following problems:

  • Social licence is undefined. There is no official source of the concept, there is no authority defining it; we know its meaning, more or less, but such a notion, even when shared, is by no means a definition.
  • Who grants it? Most people would say that social licence is granted by the community, but ‘the community’ is not a valid answer, as it is very rare that in any given community something or someone is empowered to act on behalf of the community except, precisely, for those authorities that are legally created and maintained – but then one is within the notion of ‘legal licences’, which is not covered by the concept of social licence.
  • For how long is it granted? It seems possible to say that we know when it exists and when it does not exist, but there are a lot of grey areas that indicate that we simply do not know for how long an operation enjoys it.
  • What are the requirements to keep it in good standing? Similar to the term of its existence, the conditions that are to be met to keep it in good standing are unknown. One may feel intuitively whether the social licence is still in place or if it has been lost. But there is no hard fact or measure to know for certain.

And yet, in spite of all the problems that mining companies’ executives and officers – and their financiers and advisers – are faced with, the concept is solidly applied.

These problems have been puzzling for some time. Something felt wrong: being so vague, its limits being so blurred, why is this notion so generally, vastly applied? Should lawyers not do something to bring some clarity to the problem? And even further, are the licences that are socially required for a mine to be built and operated not included in the law, whether national, provincial or even municipal? If the law does not contain all the licences that are socially needed – if the law fails to catch certain licences – how can this other licence be legally dealt with?

In May 2017, the Journal of Energy & Natural Resources Law of the International Bar Association5 published a brief commentary entitled ‘Reflections on the 20th anniversary of the term “social licence”’. The particular value of this piece relied on the fact that the author, Mr Cooney, was the creator of the expression ‘social licence’, and that the article was the first time he made public his personal account of the events that led to the creation of the term; such account was written and published in light of the 20th anniversary of the moment when he first used the expression.

The most interesting element of this article was that Mr Cooney expressed his surprise at the evolution of the concept since he first used it. It was at a presentation he made in his capacity, at the time, as vice president of international government affairs with Placer Dome Inc during a World Bank gathering held in Washington, DC, in March 1997. The gathering was called ‘Roundtable on Mining: The Next 25 Years’. Attendants included representatives of mining companies and NGOs, academia and other experts in various fields. Mr Cooney was a political risk expert, primarily responsible for managing his company’s political risk exposure in developing countries. He was called to speak about the ‘main political risk challenges that the mining sector would face in the developing world during the coming quarter century’.

After several years of experience working with developing countries, Mr Cooney had come to the conclusion that managing political risk for mining projects consisted of two ‘tracks’. First, dealing with the permits that every government requires to allow the mining projects to operate, including permits for health and safety, and environmental issues, for which dealing with what is known as ‘government take’ may be included. Where applicable, these permits would also include stabilisation agreements, devised to guarantee to the investor (most likely an investor foreign to the country where the resource is located) that the tax and royalties regime under which the decision to build and operate the project was adopted would survive for the life of the project without amendments that would alter the basic economic parameters – or at least during a period long enough to guarantee repayment of the investment. The second track of managing political risk is, in Mr Cooney’s view, the effect of globalisation, which caused local communities to gain unprecedented levels of knowledge about the issues they were facing with a particular project, as much as support in their negotiations with the relevant company or companies from the NGO community and other sectors sympathetic to their position. The two phenomena combined dramatically increased the bargaining power of local communities to levels that were unknown at the time.

From that observation, he drew the following conclusions:

The objective of conventional political risk management at the national level was to obtain and sustain a ‘government permit’ to operate. What was the objective of political risk management focused on local communities and their global allies? It could not be called a ‘community permit’, as that would have implied a non-existent local legal authority, and would have overlooked the role of the international allies of communities. So I decided to describe the objective of local political risk management as a ‘social licence’, a term that had a nice verbal parallelism with ‘government permit’ but was necessarily more nebulous. As with political risk management at the national level, a mining company needed to maintain an ongoing positive relationship with local communities and their allies by demonstrating that they were acting in a manner consistent with local expectations and demands. Failure to maintain government support could lead to the suspension of the mining permit. Similarly, failure to maintain community support could lead to the suspension of the ‘social licence’. That was what I intended the term to emphasise. It was simply an analogy or metaphor that highlighted the equivalence of the political risk management challenges at the community level with those at the governmental level. In retrospect, I correctly foresaw that political risk management by mining companies during the years after 1997 would follow two separate tracks, one focused on national governments and the other on communities. What I failed to anticipate was that the term ‘social licence’, which I had used simply to illustrate the reality of this two-track process, would become a major reference point in the discussion about the relationship between mines and communities.

Further on he adds the following:

[I] remain surprised by how much attention the concept has attracted. For me, the term was descriptive of a reality that mining companies faced on the ground. Since then, the term has evolved into a prescriptive norm that mining companies should endeavour to achieve. . . . ‘Social licence’ has been viewed positively by some as a useful guide and negatively by others as a harmful impediment to effective decision-making about major industrial projects. Apparently, that is the peril inherent in a metaphor.

This article is impressive for two reasons. First, it was of an intellectual honesty that is not frequently seen; and second, because it somehow came to prove that there was something wrong, if not with the notion, at least with the intensity and widespread use the term had gained. The term acquired a life of its own, beyond the intent of its creator. A metaphor had become a crucial requirement that meant, for a mining company regarding a particular project, the difference between success and failure.

Is social licence consistent with the rule of law?

Bringing together the pieces that have been presented so far there is (i) a long history of struggling to make the rule of law the norm rather than the exception (referring to Argentine history; but Ihering’s The Struggle for Law, published in 1872, suggests that the concern is older and universal); (ii) a constitutional norm whereby attempting to express the will of the people and not being a representative elected following the applicable law is – as harsh as it may seem and sound – a crime; and (iii) a coexisting principle under which for building and operating a mining project a company needs the social licence of the community, understanding that in such context social licence does not mean the legal permits, licences and other approvals such community might have formally given to the project through the governmental bodies (local executive branch or legislature) because, by definition, social licence is different from a legal licence.

The point this chapter intends to make is that these three elements do not work well together. In other words, if understood and applied as if it was a strict principle, social licence – element (iii) – may very well work against elements (i) and (ii).

Argentina gives some examples of that.

Mining activity has been legislated by the national code adopted by the National Congress following a mandate in what is now section 75(12): it is within the authority of the National Congress to adopt a code on mining. As per such norm, the mining code was adopted in the late nineteenth century and it has set forth the principle that mining activity is of public importance. This notion has some legal and practical consequences as it is the ground for the code mandating that easements for mining purposes are to be imposed on surface owners if the project’s needs so indicate.

In summary, the duly elected representatives of the people, gathered in the National Congress in their role as legislators, have decided that Argentina shall favour the mining industry in the understanding that it is much needed for the progress of the country. This is the law.

In spite of what the law mandates (ie, mining is a fundamental activity and nobody other than the duly elected officers may represent the people), several communities around the country have decided that they do not support mining. In 2002, in a town called Esquel, located in the Andean lake region in Patagonia, the local community started a series of actions that eventually led to mining company Meridian Gold – a public company whose shares plummeted – suspending all activities in the project.

Actions by members of the community triggered other similar situations in other locations. No a la Mina, an NGO, claims on its website6 that 100 communities around the country oppose mining projects.

Under the social licence standard, the Esquel project could not proceed. In fact, it never has, at least so far. The reason was that it clearly lacked social licence; the company’s decision to build and operate was inconceivable. Under the rule of law standard, the company had all permits in place. It was entitled to go ahead. But the social licence principle prevailed.

This case was a leading one. Whether or not the number of 100 communities that No a la Mina references on its website is correct or not, the fact is that the opposition to mining projects has expanded.

Activism has replaced deliberation in the appropriate venues, and legislative debate. It is true that activism has developed, at some points and under certain circumstances, into law. Where that has happened the rule of law is saved. But in many circumstances mere activism is what stops a project. And where those situations occur in spite of the existence of governmental valid licences, permits and approvals, it is clear that the rule of law has suffered. The issue is that activism has been legitimised by the social licence notion.

The following is relevant in supporting the view that the rule of law has somehow been eroded by social licence when social licence is given undue importance:

But the Rule of Law is not just about government. It requires also that citizens should respect and comply with legal norms, even when they disagree with them. When their interests conflict with others’ they should accept legal determinations of what their rights and duties are. Also, the law should be the same for everyone, so that no one is above the law, and everyone has access to the law’s protection. The requirement of access is particularly important, in two senses. First, law should be epistemically accessible: it should be a body of norms promulgated as public knowledge so that people can study it, internalize it, figure out what it requires of them, and use it as a framework for their plans and expectations and for settling their disputes with others. Secondly, legal institutions and their procedures should be available to ordinary people to uphold their rights, settle their disputes, and protect them against abuses of public and private power. All of this in turn requires the independence of the judiciary, the accountability of government officials, the transparency of public business, and the integrity of legal procedures.7

Also, as follows, regarding the practical implications of this matter in the decision-making process:

Predictability is often cited as a Rule-of-Law virtue. In his well-known recent book on the subject, Tom Bingham indicated that one of the most important things people needed from the law that governed them was predictability in the conduct of their lives and businesses. He quoted Lord Mansfield to the effect that: [i]n all mercantile transactions the great object should be certainty: . . . it is of more consequence that a rule should be certain, than whether the rule is established one way rather than the other. (Lord Mansfield in Vallejo v Wheeler (1774) 1 Cowp. 143, p. 153 (cited by Bingham 2010: 38).) [N]o one would choose to do business . . . involving large sums of money, in a country where parties’ rights and obligations were undecided. (Bingham 2010: 38.) [A]nd knowing that one can count on the law’s protecting property and personal rights gives each citizen some certainty about what he can rely on in his dealings with other people. The Rule of Law is violated, on this account, [. . .] when the norms that are applied by officials do not correspond to the norms that have been made public to the citizens or when officials act on the basis of their own discretion rather than norms laid down in advance. If action of this sort becomes endemic, then not only are people’s expectations disappointed, but increasingly they will find themselves unable to form expectations on which to rely, and the horizons of their planning and their economic activity will shrink accordingly.8

Conclusion

Mining, like other extractive industries, has been under intense scrutiny for various reasons, at different levels, in the past 50 years. In some provincial jurisdictions within Argentina, the risks (real or perceived) associated with open pit mining and the use of cyanide has led those jurisdictions to ban either one or both. Whether right or ill decisions from a political, economic or constitutional standpoint, the existence of laws restricting mining practices or the use of certain chemicals is part of the legal landscape and, as such, companies must deal with it and, to a point, accept it. Companies affected by such laws may take actions to ensure that policy and lawmakers are well informed and that decisions are adopted as a result of a process conducted rationally. Where appropriate, companies may take legal actions and seek a remedy from the legal system as devised by constitutional rules. In practice, however, the will to ban mining, as much as the opposition to a particular project, is often channelled through other means. This is the case in countries in which the legal institutions are, for a variety of reasons, weak.

Reality shows that, where legislative bodies and the judiciary are regarded with disrespect, social demands are made, bypassing republican institutions. Even violent means are sometimes used.

Not only to prevent violence, but to simply contribute to social advancement in developing nations, the importance of the role of law in communities’ lives can never be exaggerated.

In Mr Cooney’s words, ‘the term (social licence) has evolved into a prescriptive norm that mining companies should endeavour to achieve.’

The concern, however, is that social licence might have helped to undermine the importance of the rule of law, which as Professor Waldron described ‘[i]s not just about government. It requires also that citizens should respect and comply with legal norms, even when they disagree with them. When their interests conflict with others’ they should accept legal determinations of what their rights and duties are’.