The ICSID tribunal in Infinito Gold v Costa Rica upholds several claims but declines to award damages. The majority of the tribunal found breaches of the FET standard but damages too speculative

Infinito Gold Ltd. v. Costa Rica, ICSID Case No. ARB/14/5

In an award dated June 3, 2021, an ICSID tribunal upheld some of the claims brought by Infinito Gold Ltd. (“Infinito”), a company incorporated under the laws of Canada, against Costa Rica’s revocation through court and executive measures of Infinito’s concession for a gold mining project in northern Costa Rica. The majority of the tribunal found that the government’s legislative mining ban and the subsequent revocation of Infinito’s gold mining exploitation concession amounted to breaches of the FET standard under the treaty. However, the tribunal declined to award damages as it deemed the monetary consequences of Infinito’s loss too speculative to give rise to an award in damages.

Background and claims

In May 2000, the claimant, Vannessa Ventures Ltd. at the time, acquired Infinito, which held an exploration permit granted in 1993 for the Crucitas area in the Crutis district. The permit was extended to September 1999. Between 1993 and 2000, Industrias Infinito performed drilling and studies to confirm the existence and extent of the gold deposit. On December 17, 2001, Infinito obtained its exploitation concession. The concession, which became effective in 2002 (the “2002 Concession”), gave a 10-year term subject to extensions and one renewal, allowing Infinito to extract, process, and sell the metals from the Crucitas gold deposit.

On February 13, 2002, Abel Pacheco, at the time a presidential candidate, filed a request before the Ministry of Environment and Energy (“MINAE”), demanding the revocation of the 2002 Concession. He alleged that it was against the national interest and threatened the constitutional right to a healthy environment. Soon after, in April 2002, environmental activists Carlos and Diana Murillo filed a constitutional challenge, a writ of amparo, against the resolution that granted the 2002 Concession on environmental grounds (the “Murillo writ of amparo”). Later that same year, Pacheco became the president elect of Costa Rica and declared, on June 5, 2002,  an indefinite halt on open-pit mining (the “2002 Moratorium”).

On November 26, 2004, the Constitutional Chamber of the Supreme Court ruled on the Murillo Amparo (the “2004 Constitutional Decision”). It determined that the 2002 Concession violated Article 50 of the Constitution—which guarantees the right to a healthy balanced environment—because that concession was granted before the environmental impact assessment (“EIA”) was approved. The Constitutional Chamber held that granting the 2002 Concession had violated the constitutional right to a healthy environment and annulled the 2002 Concession “without prejudice to what the environmental impact assessment may [had determined]” (para. 83).

Two years later, after President Óscar Arias took office in May 2006, Arias and MINAE repealed the 2002 moratorium and granted Infinito an exploitation concession (the “2008 Concession”). This concession was granted under a domestic administrative term known as “conversion.” The conversion allowed for the previously annulled concession to be converted into a valid one by creating a new one instead of reinstating the previous one. A number of challenges against the 2008 Concession were filed, but in 2010, the Constitutional Chamber ruled that the project did not violate the applicants’ right to a healthy environment.

Later, on April 16 2010, the Contentious Administrative Tribunal issued a temporary injunction preventing the Crucitas Project from moving forward. Subsequent executive moratoriums followed that year by Arias (the “Arias Moratorium”) and by the next president, President Chinchilla (the “Chinchilla Moratorium”), who took office on May 8, 2010 (together, the “2010 Moratoria”). Both decrees essentially declared an indefinite moratorium on open-pit gold mining, understood as mining activities using cyanide and mercury in ore processing.

In December 2010, The Contentious Administrative Tribunal issued a decision (the “2010 CA Decision”) and annulled Infinito’s 2008 Concession together with related administrative decisions. It argued that when the 2004 Constitutional Decision revoked the 2002 Concession, that annulment qualified as an absolute nullity that did not allow for “conversion” into the 2008 Concession. As a result, the 2008 Concession did not qualify as a pre-existing right and was void. That same month, the Costa Rican government enacted an amendment to the Mining Code prohibiting open-pit mining, which came into force in February 2011 (the “2011 Legislative Mining Ban”). Under this ban, all pending applications for mining concessions were removed, which prevented Infinito from applying for a new concession. As a result, on November 11, 2011, Infinito requested the Constitutional Chamber to declare that the 2010 CA Decision was unconstitutional as it conflicted with the 2010 Constitutional Decision. The Administrative Chamber of the Supreme Court denied Infinito’s cassation request (the “2011 Administrative Chamber Decision”), and it upheld the main conclusions of the 2010 CA Decision, mainly the applicability of the 2002 Moratorium.

On January 9, 2012, the Ministry of the Environment, Energy and Telecommunications (“MINAET”) ultimately cancelled Infinito’s 2008 Concession (the “2012 MINAET Resolution”). Infinito challenged this decision, but on June 19, 2013, the Constitutional Chamber dismissed Infinito’s unconstitutionality challenge and held that the challenge was inadmissible because the Administrative Chamber had already issued a ruling (the “2013 Constitutional Decision”).

By September 2015, Infinito had left the Crucitas site. Soon after, the Contentious Administrative Tribunal ordered Infinito, the National System of Areas Conservation, and the state to pay USD 6.4 million for environmental damages within six months (the “2015 CA Damages Decision”). Upon appeals, however, in December 2017, the Administrative Chamber of the Supreme Court overturned the decision for lack of motivation.

Meanwhile, on February 6, 2014, Infinito filed for arbitration against Costa Rica, claiming that Costa Rica’s conduct had breached Articles II (1), II (2), IV and VIII of the Canadian–Costa Rica BIT. In particular, the claimant argued that the government’s decision to cancel the exploitation concession and other project approvals, as well as other measures, destroyed Infinito’s investments and its rights to develop and commercialize the gold mine.

The Claimant’s shares in Infinito qualify as protected investment under the treaty

Costa Rica argued in its jurisdictional objections that the tribunal lacked jurisdiction ratione materiae et ratione voluntatis because the concession was not owned and controlled following Costa Rican law as required by the BIT, and the investment was obtained through deceitful conduct.

The claimant had listed a number of assets as the investments (shares in Infinito, money invested through intercompany loans, the concession, the pre-existing mining rights, other approvals for the project; the project’s physical assets including the mining infrastructure built so far, and, the project’s intangible assets). The tribunal reasoned, however, only the shares in Infinito qualified as an investment = to establish jurisdiction. Infinito owned these shares indirectly through a company incorporated under the laws of Barbados, the Crucitas (Barbados) Limited (para. 176).

Corruption concerned matters that happened after the initial investment was made

The respondent initially claimed that the tribunal lacked jurisdiction because the investment was obtained through corruption, as there were ongoing criminal investigations regarding Infinito’s investment. However, after local criminal courts ruled certain corruption charges were time-barred, Costa Rica withdrew this objection to contend the 2008 Concession was not granted following domestic law.

The tribunal rejected the illegality objection but considered that the corruption allegations raised an international public policy issue, which the tribunal should address ex officio. After analyzing this, it concluded that nothing confirmed that the 2008 Concession had been acquired through corruption, even if corruption allegations were found. The majority concluded that under the circumstantial evidence standard of proof, which is a “less demanding standard of proof,” it could not be concluded that the concession was unlawful (para. 181).

Claimant claims are not time-barred under Article XII(3)(c) of the BIT

Under Article XII(3)(c), investors must submit a dispute to arbitration within three years from the date the investor first received or should have acquired knowledge of the alleged breach, loss, or damage.

Costa Rica argued that the alleged breaches crystallized before the cut-off date established by the tribunal, February 6, 2011. Thus Infinito’s claim fell outside the temporal scope of the BIT because the relevant moment for Article XII(3)(c) was when the investor understood its investment to be worthless. Consequently, the claimant could not invoke any breach because the legal and factual situation holding Infinito’s claims had already been shaped by events before February 6, 2011, the cut-off date.

However, in the majority’s view, the limitation period began only once the breach as a legal notion has occurred. In other words, the moment at which a breach occurs, according to the majority of the tribunal, “will depend on when a fact or group of facts is capable of triggering a violation of international law” (para. 220).

Additionally, the majority explained that breach and loss could coincide depending on the standard breached. It further addressed knowledge of the breaches and loss for each breach raised by Infinito (FET, expropriation, denial of justice, full protection and security). The tribunal’s majority concluded that the claims were not time-barred because the claimant did not have knowledge of breach and loss after the cut-off date.

Claimant has failed to establish a composite breach

Infinito claimed that the breach had occurred through several measures (namely the 2011 Administrative Chamber Decision, The 2011 Legislative Mining Ban on open-pit mining, The 2012 MINAET Resolution, and the reinitiation of the CA proceedings for environmental damage in January 2019). The majority explained that Infinito’s claims suggested “a series of actions or omissions defined as wrongful,” a composite breach resulting from the combined effect of the various measures. However, the tribunal’s majority also explained that even if Infinito could rely on a composite breach, it had not properly proved such a breach (para. 230).

Autonomous FET standard: Article II(2)(a) of the BIT is not limited to customary international law

While Costa Rica argued that the FET was limited, Infinito maintained that under the BIT, Costa Rica must have granted fair and equitable treatment under the principles of international law. Infinito claimed that the language of Article II in its ordinary meaning did not limit the FET standard to the minimum standard of treatment under customary international law because it does not refer to it.

Applying the general rule of interpretation, Article 31 of the VCLT, the majority of the tribunal upheld the claimant’s argument. It concluded that Article II(2)(a) of the BIT is not limited to the minimum standard of treatment under customary international law. The majority explained that the expression “principles of international law” does not refer to customary international law, which is only “but one source of international law and is distinct from general principles” (Para. 331-337).

FET breach: Domestic court judicial measures may breach the FET standard outside of a denial of justice

Three of the measures Infinito claimed had affected its investment were judicial decisions (the 2011 Administrative Chamber Decision, the 2013 Constitutional Decision, and the CA Damages Decision). Costa Rica argued that judicial measures could only engage the state’s international responsibility if they amount to a denial of justice because they cannot breach international law. However, Infinito challenged this and contended that neither the BIT nor the ILC Articles on State Responsibility exclude liability for acts of judicial organs that do not qualify as a denial of justice.

By agreeing with the approach taken in Sistem v Kyrgyz Republic, the majority concluded that domestic courts’ decisions are not immune from scrutiny by international tribunals because court decisions may deprive investors of their property rights in the same way as if the investor had been expropriated by decree. Thus, “judicial decisions that are arbitrary, unfair or contradict an investor’s legitimate expectations may also breach the FET standard even if they do not rise to the level of a denial of justice” (para. 359).

The tribunal majority further explained that judicial measures derived from the state and the BIT does not differentiate between acts from different branches of the government. Before analyzing whether a denial of justice had occurred, it reasoned that a denial of justice “may be procedural or substantive and that in both situations the denial of justice is the product of a systemic failure of the host State’s judiciary taken as a whole” (para. 445).

No procedural or substantial denial of justice

Infinito asserted that a procedural denial of justice had occurred because Costa Rica lacked a system that deals with inconsistent judicial decisions. According to the claimant, the res judicata principle was not respected because the Administrative Chamber did not comply with a prior judicial decision issued by the Constitutional Chamber of the Supreme Court. Notably, the claimant argued that the 2011 Administrative Chamber Decision, which upheld the 2010 CA Decision failed to reverse certain findings of the CA decision that were inconsistent with the 2010 Constitutional Decision, which had found the 2008 Concession to be constitutional.

Costa Rica objected to this. It claimed the 2011 Administrative Chamber Decision was consistent with the Constitutional Chamber’s, since both chambers have a significantly different scope and jurisdiction in terms of appeal and review of lower courts decisions.

The tribunal rejected Infinito’s argument and noted that a lack of a domestic body or mechanism to deal with inconsistencies that arise from the decisions of different courts could not constitute a breach in itself . It also indicated that Infinito had previously raised the res judicata objection before domestic courts (both the CA and the Administrative Chamber, which had heard and dismissed them on the basis of the different scope of jurisdiction). Under Costa Rican law, “the competence to review the legality of administrative acts lies exclusively with the contentious-administrative courts” (paras. 447-452), while the Constitutional Chamber assessed only compliance with constitutional standards, leaving outside its scope the concession’s legality.

The tribunal concluded that no inconsistency existed as the domestic tribunal had properly assessed Infinito’s res judicata objection. Moreover, the tribunal found that the lack of a mechanism to deal with inconsistency did not amount to a denial of justice because only a lack of remedy that deprives an investor of a fair opportunity to plead its case or inexistent access to justice would amount to a denial of justice (para. 483).

Similarly, Infinito also asserted that a substantial denial of justice had occurred because the 2011 Administrative Chamber amounted to such denial as the court applied the 2002 Moratorium to the Crucitas Project, breaking Costa Rican law. Relying on the expert report, the claimant argued that the cancellation of the 2008 Concession was inappropriate because Infinito had vested rights within the meaning of the Mining Code.

The tribunal rejected this claim because the conversion of the concession was, in the tribunal’s view, illegal because the Constitutional Chamber had annulled the 2002 Concession in 2004, and this nullity was absolute. Thus, after the Constitutional Chamber’s declaration of nullity, Infinito’s right to the exploitation concession had disappeared.

Regulatory measures that prevent applying for a new concession are disproportionate but do not amount to damages, as they are too speculative

The majority next analyzed whether Costa Rica’s measures violated the FET standard of the BIT.

Infinito had argued that Costa Rica had breached the FET standard through a number of measures that hindered/thwarted Infinito from reapplying for a concession. These measures were the 2011 Legislative Mining Ban and the 2012 MINAET Resolution.

In the view of the tribunal’s majority, Costa Rica had breached its FET obligation under the treaty because it deprived the claimant of the opportunity to apply for a new concession through the 2011 Legislative Mining Ban and the 2012 MINAET Resolution that extended the implementation of the Ban.  The tribunal also explained that the 2011 Legislative Mining Ban was not unfair and inequitable in the abstract. However, the ban’s application to the claimant was unfair because that application of the ban to the Crucitas Project was disproportionate to the public policy pursued. It further concluded that no damages were identified even if a breach had been established because Infinito did not put forward any quantifiable harm for the loss of opportunity and did not give the tribunal elements to calculate it (para. 582).

The BIT does not provide for an exception to liability regarding environmental protection

Costa Rica argued that even if it had breached its FET obligation through the 2011 Legislative Mining Ban and the 2012 MINAET Resolution that implemented the ban, the environmental exception in Section III(1) of Annex I of the BIT exempted Costa Rica from liability. The tribunal thus analyzed whether Section III(1) of the BIT provided for an exception to liability. Using the general rule of interpretation (Article 31 of the VCLT), the tribunal interpreted the treaty’s provision concluding that Section III(1) of the Costa Rica-Canada BIT was not an exception to liability. And it further explained that because Section III contains the wording “any measure otherwise consistent with this Agreement,” this means all measures meant to ensure that investment activity respects the environment must also be consistent with the BIT’s investment protection framework (para. 773). Consequently, and according to commentators, this provision could not override mandatory treaty obligations.

Costa Rica also argued that the words “otherwise consistent with this Agreement” in Section III(1) did not apply to the measures Infinito wanted to challenge because those measures only maintained pre-existing measures that Infinito could not challenge because of the three-year limitation period. The tribunal rejected this argument and interpreted that the relevant wording also applied to measures aiming to maintain or enforce previous ones.

Costs

Both parties sought an award of the entirety of the costs related to this arbitration. The claimant had requested that the respondent bear all expenses by Infinito. Infinito’s total expenses amounted to USD 2,099,918.27 for costs and fees for the jurisdictional phase and USD 3,513,732.09 for the merits phase. In contrast, the respondent costs amounted to approximately USD 3 million (USD 997,403.63 for costs and expenses for the jurisdictional phase and USD 2,016,863.95 for costs and expenses in the merits phase).

The tribunal stated that under the ICSID Convention it had broad discretion to allocate all costs of the arbitration and noted that while Infinito had prevailed in the jurisdiction phase, Costa Rica had largely succeeded on the merits. It also noted that parties and their counsel had conducted the proceedings cooperatively and efficiently. Thus, the tribunal weighing these elements concluded that it was fair to split the costs of the proceeding equally while each party should bear its legal costs.

Prof. Brigitte Stern’s dissenting opinion

In a partial dissent, arbitrator Stern reasoned that she would have reached the same conclusion but through different reasoning for the time-barred objections. Thus, she felt it necessary to explain her rationale as she agreed with the case’s final outcome.

Stern focused her analysis on the 2011 Administrative Chamber Decision and argued that, even if Infinito had identified a number of measures that it considered breached the BIT, ultimately, the claimant’s argumentation focused on the 2001 Administrative Chamber Decision as to the main breach that has to be considered for the application of the statute of limitations (the cut-off date). She noted that first knowledge of the breach or loss has wrongly been “metamorphosed into first knowledge of a completed breach, which disguises, in fact, final knowledge” (Dissent, para. 14). Stern further argued that, in her view, this was contrary to the rules of interpretation of the VCLT when interpreting Article XII(3)(c). She concluded that this Article refers to the date when an investor first acquires knowledge of a breach and loss and not when the existence of the breach and loss is finally known (Dissent, para. 14).

Stern also disagreed with the majority’s analysis of the FET standard and explained that Article II(2)(a) of the BIT was in her view limited to the minimum standard of treatment under customary international law because a reference to both “rules of international law” and “the principles of international law” is made. For Stern, such a double deference to both terms without elaborating more on that “is sufficient to conclude that the FET must be interpreted according to international law as applied among all nations, which is customary international law” (Dissent, para. 81).

Stern further noted that because the majority’s analysis does not give meaning to the BIT’s reference to the principles of international law, reference to international law is, as a result, erased even though the BIT specifically mentions it (Dissent, para. 84).

Notes: The tribunal was composed of Gabrielle Kaufmann-Kohler (president, nominated by the parties, Swiss national), Bernard Hanotiau (claimant’s appointee, Belgian national) and Brigitte Stern (respondent’s appointee, French national). The award of June 3, 2021 is available at http://icsidfiles.worldbank.org/icsid/ICSIDBLOBS/OnlineAwards/C3384/DS16472_En.pdf.

Maria Bisila Torao is an international lawyer based in London. She holds an LL.M. in investment treaty arbitration from Uppsala University, an LL.M. in international commercial arbitration from Stockholm University and a bachelor’s degree in law from the University of Malaga.