Glamis Gold: NAFTA tribunal rejects claims against USA

Glamis Gold, Ltd. (Glamis), a Canadian corporation, acquired mining rights in US federal lands in California, and planned to employ a process known as open pit leach pad mining, a method that has been criticised by environmental groups. The project area was also located near, though not on, designated Native American lands and areas of special cultural concern. These two factors combined to provoke significant public opposition to the project on environmental and cultural heritage grounds.

Glamis claimed that these concerns caused the United States to breach its NAFTA obligations in two ways:

Glamis alleged that these acts constituted expropriation of its mining rights without compensation and a violation of the fair and equitable treatment obligation under Chapter 11 of NAFTA.

The Glamis tribunal rejected both arguments. Regarding the expropriation claim, the tribunal found that Glamis's mining rights still retained significant value, despite the delays at the federal level and additional land reclamation requirements imposed by the new California legislation. The tribunal compared the valuation of the project at the time of the alleged expropriation (US$49.1 million) and its determination of the value following enactment of the new California land reclamation requirements (in excess of US$20 million). Because Glamis's property rights retained significant value, the tribunal held that the US actions fell short of an expropriation.

With respect to the fair and equitable standard under NAFTA, the tribunal noted that in 2001, the NAFTA governments had issued a binding interpretation equating that standard with the minimum standard for the treatment of non-nationals under customary international law. The tribunal concluded that the customary international law standard has not significantly changed from the standard set forth in Neer. The Neer standard requires state action that is 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 reasons. Reviewing the actions taken by the United States under this standard, the tribunal found no breach.

The Glamis decision is most significant for its analysis of the fair and equitable standard and customary international law. The tribunal's holding that the minimum standard of treatment has not evolved significantly from the standard established in Neer over 80 years ago stands in sharp contrast with several recent arbitral decisions and the writings of various commentators At the same time, however, while it did not find that the significant activity in the field of investment protection in recent decades modified the customary international law standard, the Glamis tribunal did suggest that the perceptions of what factual circumstances might be "sufficiently egregious" or "shocking" may have changed - perhaps producing different results from those that would have been reached at the time of Neer. What impact the Glamis tribunal's approach will have on future NAFTA cases, or investor-state disputes concerning fair and equitable treatment in other investment protection treaties, remains to be seen.