Glencore International A.G., C.I. Prodeco S.A., and Sociedad Portuaria Puerto Nuevo S.A. vs. Republic of Colombia

An ICSID tribunal in Glencore International A.G., C.I. Prodeco S.A., and Sociedad Portuaria Puerto Nuevo S.A. vs. the Republic of Colombia, ICSID Case No. ARB/19/22, in its award dated April 19, 2024, found that Colombia had violated the FET standard under the Swiss–Colombia BIT by failing to address cost-sharing inequities for a Colombian coal port access channel.

Background and claims

This case was submitted to the ICSID for alleged breaches of the 2006 bilateral investment treaty signed between Colombia and Switzerland.

The claimants were the Swiss company Glencore International A.G. (Glencore), C.I. Prodeco S.A. (Prodeco), and Sociedad Portuaria Puerto Nuevo S.A. (PNSA). Prodeco is a Colombian subsidiary wholly owned and controlled by Glencore. PNSA is a wholly owned subsidiary of Glencore and Prodeco, established to serve as a special service vehicle for the construction, maintenance, management, and operation of the Puerto Nuevo port.

The dispute arose from Colombia requiring the claimants to pay tariffs for constructing and maintaining public infrastructure while permitting another foreign-owned company to use it without any contribution. The central issues were fairness and cost-sharing in maintaining a shared access channel to the coal port in Colombia. Prodeco, a coal-exporting company, invested substantially in developing and maintaining the Puerto Nuevo coal port and its access channel as mandated by the Colombian government. However, other companies also used the channel without contributing to its costs. This created a competitive imbalance, as Prodeco bore all the expenses while competitors benefited for free.

To address these inequities, the Ministry of Transport and other government bodies initiated discussions and studies. Reports identified significant market asymmetries, proposing solutions such as cost-sharing for access channel use. Recommendations included revising tariff regulations or compensating Prodeco for investments.

Despite these efforts, the Ministry of Transport rejected Prodeco’s formal petition in 2014, citing a lack of legal authority and sufficient evidence of asymmetry. Subsequent appeals by Prodeco were also dismissed, with the Ministry asserting that resolving the issue would require input from multiple agencies, effectively leaving the problem unaddressed.

Against this background, the claimants argued that Colombia violated Articles 4(1) and 4(2) of the treaty. They claimed that Colombia had breached its obligation to provide FET to their investment, and MFN treatment to Swiss nationals. They also contended that Colombia had impaired the claimants’ enjoyment of their investments through unreasonable and discriminatory measures.

The claimants sought various declarations confirming the breach by Colombia in addition to compensation amounting to USD 40.3 million, along with pre- and post-award interest at a rate of 5.57% per year, compounded annually from June 12, 2014. The respondent state contended that the claims were time-barred under Article 11(5) of the treaty. In the eventuality that the tribunal was to find that it had jurisdiction, it sought various declarations that it did not breach its obligations under the treaty.

Maintainability of the claim

Article 11(5) of the treaty provided for a 5-year limitation period for the submission of a dispute for resolution from the date that the “investor first acquired or should have acquired knowledge of the events giving rise to the dispute.” The claimants submitted their request for arbitration on June 11, 2019.

Colombia contended that the claims raised by the claimants were time-barred under Article 11(5) of the treaty because the events they complained of began in April 2013 when the National Infrastructure Agency (ANI) notified the claimants that PNSA would be unable to charge a tariff for the use of the access channel. Even still, the latest date per the respondent for the limitation to start running was when Drummond Company Inc. (Drummond), a national of the United States, began using the access channel free of charge. Colombia argued that the claimants were already aware of the government’s position and the competitive disadvantage before June 2014, as evidenced by earlier communications and actions.

The claimants contended that the earliest date on which the treaty could have been said to have been breached was June 12, 2014, when the Colombian government officially rejected Prodeco’s petition to address an alleged competitive asymmetry in the access channel. Before this, Colombia had shown a willingness to address the problem, and no disagreement had crystallized into a “dispute” under the treaty. Consequently, prior events, like the April 2013 letter from ANI, did not constitute a definitive refusal, as discussions and efforts to resolve the issue were ongoing.

The tribunal found that it had jurisdiction over the dispute. It relied on Article 31 of the VCLT to read Article 11(5) in conjunction with the rest of Article 11. It found that the dispute arose only once the claimants became aware of Colombia’s rejection of their petition on June 12, 2014. Prior to this, and despite the correspondence from ANI in April 2013 and the free use of the access channel, a treaty-based claim would not have been ripe as the parties were actively exploring potential solutions to the alleged market asymmetry—i.e., the respondent commissioned the so-called Valbuena Report and met with claimants to discuss potential solutions—and respondent had not yet conveyed to claimant a formal decision on its petition.

The dispute

The claimant had contended that the respondent’s conduct vis-à-vis the claimants failed to accord FET contained in Article 4(2) to the claimants’ investments, in that the respondent’s conduct was inconsistent and lacked transparency, lacked due process, was discriminatory, and frustrated the claimants’ legitimate expectations. The claimant further submitted that the respondent’s conduct failed to accord the claimants’ investments treatment no less favourable than that granted to investments of investors of a third state and impaired the claimants’ investments through unreasonable and discriminatory measures.

The respondent submitted that the claimants’ contentions were without merit for two primary reasons.

First, these claims either challenge public policy decisions concerning the financing of the access channel—policies that claimants voluntarily accepted—or amount to contractual grievances, neither of which engages the respondent’s responsibility under the treaty. The respondent state emphasized that the treaty did not obligate it to alter public policies for an investor’s financial benefit, especially when the investor has explicitly agreed to those policies. It asserted that the access channel’s financing arrangement was clear from the outset, and the claimants assumed the risks associated with these terms when they invested. Furthermore, Colombia contended that altering regulations to favour the claimants would disrupt Colombia’s nationwide port policies, with broader implications for public access and regulatory consistency.

Second, the respondent asserted that the claimants had failed to prove the existence of an anti-competitive situation or show that the respondent had acted arbitrarily, discriminatorily, or unreasonably in rejecting their requests. There was no legal or factual basis for the state to intervene in the access channel issue, as the claimants had failed to demonstrate how the cost disparity with Drummond impacted competition in the coal market. It further contended that its consistent rejection of claimants’ requests aligns with Colombian law, which views competition through market access rather than cost allocation. Additionally, the Superintendency of Industry and Commerce, Colombia’s competition authority, confirmed the absence of an anti-competitive situation, validating the respondent’s position.

Findings of the tribunal

The tribunal found that the respondent’s failure to resolve the access channel issue constitutes arbitrary and discriminatory conduct, violating the FET standard under Article 4(2) of the treaty, and dismissed all other claims, objections, and defences raised by the parties.

First, the tribunal determined that the claimants’ claims are based on breaches of the treaty, specifically the FET standard under its Article 4(2) and not on contractual breaches under the concession agreement, as contended by Colombia. It then found that the respondent’s conduct did, in fact, breach the FET standard under the treaty on two accounts.

First, the tribunal found the Colombian government’s conduct to be arbitrary. Despite recognizing the unfair competitive disparity between Drummond and the claimants, as well as its obligation to address this inequity, the government failed to take action.

Second, it found the government’s behaviour discriminatory. By refusing to regulate the equitable sharing of costs associated with the access channel, Colombia treated the claimants’ investments significantly less favourably than Drummond’s, which benefited from free use of the channel without sharing the financial burden. The tribunal found that such conduct is specifically proscribed by Article 4(2) of the treaty, which establishes a substantive connection between the FET standard and the MFN principle. Consequently, the tribunal adopted an approach to determine whether the host state’s actions are discriminatory under the treaty, similar to that for MFN claims, but without needing to prove discrimination based on nationality. The key focus is on whether the measure has discriminatory effects rather than proving an intent to discriminate. The tribunal applied a three-step analysis to determine whether the government’s actions amounted to discrimination:

The first step is the identification of a comparator, i.e., investments of an investor in like circumstances. The tribunal found that Drummond was an appropriate comparator, operating in the same industry, and was a direct competitor of the claimants. The second step was to assess if the host state had accorded the protected investor less favourable treatment in comparison to the comparator. The tribunal determined that the respondent’s treatment of the claimants’ investments was manifestly less favourable than its treatment of Drummond’s investments. They shouldered the entire cost of constructing and maintaining the access channel, while Drummond used it without financial contribution. The tribunal rejected the argument that tax benefits or other offsets could neutralize this inequity. The third step was to examine the justification for such less favourable treatment by the host state and whether it was based on a non-discriminatory rational policy. The tribunal found that the Colombian government failed to provide a valid, non-discriminatory justification for its inaction. Historical practices, such as state-funded access channels, did not apply to the private investment context of this case. Arguments from the Ministry of Mines about preserving coal’s competitiveness by avoiding tariffs only underscored the discrimination faced by the claimants.

The tribunal concluded that Colombia violated its obligations under Article 4(2) of the treaty by engaging in arbitrary and discriminatory conduct. This breach of the FET standard was sufficient to establish liability. Therefore, the tribunal did not address the claimants’ additional allegations under the treaty.

Reparation and costs

The tribunal awarded the claimants USD 9.4 million, plus simple interest at 5.6%, net of Colombian taxes, and required the respondent to indemnify the claimants for any tax liabilities imposed on the compensation. The costs of the arbitration were to be borne equally by the parties.

The tribunal found that its findings of violation of the FET standard necessitated reparation for the injury caused. Both parties agreed that the principle of full reparation, as established in customary international law (e.g., Chorzów Factory and the International Law Commission Articles on State Responsibility), governs the determination of damages in this case. While the treaty provides a specific formula for compensation in cases of lawful expropriation, it is silent on the methodology for non-expropriatory breaches. In addressing this gap, the tribunal relied on customary international law and applied an analogous approach to the compensation framework for lawful expropriations.

The tribunal reviewed the claimants’ damages calculations and identified the need for downward adjustments. First, the tribunal accounted for the decline in claimants’ coal exports after 2020, when Prodeco ceased operations at its mines. Second, it found that the claimants’ reliance on speculative assumptions, such as the implementation of specific tariff mechanisms and fixed returns, inflated the damages estimate. Third, the tribunal recognized that the claimants knowingly assumed risks tied to the regulatory gaps in the concession agreement. As a result, the tribunal adjusted the damages to USD 9.4 million, excluding interest.

Regarding interest, the tribunal determined that a simple interest rate of 5.6%—reflecting Prodeco’s cost of debt—was reasonable and consistent with commercial norms. Interest would accrue from the date of the award until the date of payment. The request for compound interest was rejected due to its prohibition under Colombian law and the claimants’ comparative fault. The tribunal also addressed the issue of taxation. To ensure full reparation, it ruled that the compensation amount must be net of Colombian taxes.

Note

The arbitral tribunal was presided over by Bernardo M. Cremades (Spanish national) and comprised of Daniel M. Price (claimant-appointed arbitrator, U.S. national) and Claus von Wobeser (respondent-appointed arbitrator, Mexican and German national).

Author

Meher Tandon is an India-qualified lawyer and is currently an intern at Quinn Emanuel Urquhart & Sullivan, LLP in Paris.