Copper Mesa vs. Ecuador
When Arbitrators Reward Mining Corporations’ Human Rights Abuses
In an ill-conceived mining project in one of the world’s most biodiverse areas a Canadian investor engaged in intimidation and violence towards the local Indigenous population; and of a local community vehemently opposed mining to save their forest, water sources and livelihoods. This is the story of a mining initiative that should have never occurred. Yet, after an investor lawsuit, three arbitrators decided that the government rather than the company should bear the blame for the failed project. Despite acknowledging the company’s many wrongdoings, the arbitrators compensated the investor with a US$24 million pay-off.
Intag, a region in Ecuador that is part of the Andean cloud forest belt, is so biologically diverse (being home to animals including jaguars, spectacled bears and spider monkeys)1 that it was recognised as one of the world’s 36 biodiversity hotspots.2 But in this area, deep below the mountains, there are also vast deposits of copper, which is ‘the third-most-consumed industrial metal in the world’.3 In 2014, Ascendant Copper (later renamed Copper Mesa – the name we use in this case study) acquired concession rights through a dubious tender4 for an open-pit copper mine in Junín, a town in Intag.5
25 years of resistance to mining
The communities of Intag have, since the mid-1990s, led one of the most successful resistance campaigns against mining in Latin America. For them, mining meant the risk of massive deforestation, contamination of rivers and water sources, impact on endangered species and threats to local livelihoods.6
Mining has left them [communities living near mines in Peru] poorer, more humiliated. This will not happen in Intag.
POLIVIO PÉREZ, FARMER LEADER FROM INTAG AFTER VISITING MINES IN PERU.7
When Copper Mesa entered Intag in 2004, the company made no attempt to consult the local communities and obtain their consent,8 a basic legal requirement for mining companies.9 The people10 and local authorities11 of Intag were ready to oppose this new large-scale mining project. It wouldn’t be the first time. In 1995, they had already successfully driven away the Japanese corporation Bishimetals’ copper-mining project12 – various environmental impact assessments (EIAs) had confirmed that mining in Intag would lead to loss of livelihoods and deterioration of the environment.13
An open pit mine in Intag would destroy what makes the region attractive and deter long-term investment… Development should not come at the expense of the fundamentals – clean water, an uncontaminated environment… and respect for the people and their decision.
DECOIN, A GRASSROOTS ENVIRONMENTAL ORGANISATION IN INTAG.14
Threats and intimidation of local communities
Because Copper Mesa knew that it would not get approval from local communities, it resorted instead to force and intimidation. The company filed lawsuits and criminal complaints against those opposing mining,15 including a lawsuit for US$1 million against the local community newspaper.16Company-hired paramilitaries physically assaulted individuals, including children, and opened fire at community members blocking the way to the company’s mineral concessions.17
A foreign investor … should not resort to recruiting and using armed men, firing guns and spraying mace at civilians, not as an accidental or isolated incident but as part of premeditated, disguised and well-funded plans to take the law into its own hands. Yet, this is what happened.
ARBITRATORS IN THE COPPER MESA VS ECUADOR CASE18
Copper Mesa’s mining concession terminated
In 2007, after President Rafael Correa came to power, notwithstanding his new government’s support for mining, the authorities ordered Copper Mesa to suspend its activities due to the company’s failure to obtain the Ministry of Mines’ approval for its environmental impact study and to consult with the affected local communities. Under the new mining laws of 2008–2009, those offences became sufficient grounds to terminate a concession, and Copper Mesa’s licences were thus cancelled in 2008.19 The company appealed to the Constitutional Court, but was rejected.
ISDS arbitrators to the rescue
However, the story does not end there. The investment arbitration mechanism in the Canada–Ecuador bilateral investment treaty (BIT) helped Copper Mesa to avoid financial responsibility for its own failures in this project. In 2011, the company sued Ecuador20 at an international tribunal for US$70 million (including anticipated future profits), even though Copper Mesa spent only US$28 million on the project.21 The company argued that Ecuador expropriated its investment unlawfully, and the changes made in mining laws violated its legitimate expectation to a stable legal environment.
The arbitrators ultimately sided with the company, and ordered Ecuador to pay US$24 million.22 An undisclosed third-party funder will take a cut of the award.23Ecuador also had to pay US$6 million in legal defence and the costs of arbitration.
The arbitrators in the case found that Copper Mesa had engaged in ‘reckless escalation of violence… particularly with the employment of organised armed men in uniform using tear gas canisters and firing weapons at local villagers and officials’.24 However, they blamed the local company officials for such actions, and found that senior management in Canada were merely negligent.25 Far from dismissing the case in the light of this finding, they reduced the compensation by 30%.
Among all the tribunal’s investor-friendly interpretations in favour of Copper Mesa, one exposes the corporate bias of the ISDS system most clearly: the arbitrators’ ruling that the Ecuadorian government did not do enough to help the company deal with protesters. In the arbitrators’ upside-down world, apparently the government should have sided with the company against its own citizens during the protest, even though states are obliged under international law to protect their citizens’ human rights. Because it didn’t support the company, arbitrators concluded that the government had not provided ‘full protection and security’ to the investor and had not treated it ‘fairly and equitably’, thus violating two key provisions in the Canada–Ecuador investment treaty.26
[The government] should have attempted something to assist the Claimant in completing its consultations [with the community] and…the Environmental impact assessment… In the Tribunal’s view, it could not do nothing.
ARBITRATORS IN THE COPPER MESA VS ECUADOR CASE.27
The asymmetry of access to justice
While investment arbitrators handed Copper Mesa a hefty award, the Canadian courts dismissed a lawsuit taken by three Ecuadorian villagers. These villagers sued Copper Mesa’s company directors and the Toronto Stock Exchange (TSX) for not having acted to prevent the armed assaults perpetrated by Copper Mesa’s private security guards (mostly ex-military), against adults and children from Junín. The lawsuit presented evidence that the company executives and the TSX had been warned about the attack and the potential for further assaults.28 Ultimately, however, Copper Mesa’s violence went unpunished, exposing once again the asymmetry in access to justice between corporations and affected communities.
Alarmingly, violent attacks on communities defending their local environment have been increasing in recent years. A Guardian headline reporting this development observes that ‘environmental defenders [are] being killed in record numbers globally’,29 and the newspaper article reports that 290 activists were murdered between 2017 and 2018.30 Resistance to mining, along with oil, is the most dangerous activity for environmental defenders.31 This case thus illustrates how investor–state dispute settlements (ISDS) may ‘exacerbate the repression and criminalisation that human rights defenders face’.32 When states are faced with a choice between paying millions to multinational corporations or protecting their citizens’ rights, they might think twice about whether to side with their people given the substantial financial risks involved. Arbitrators, meanwhile, are clearly encouraging governments to let mining companies act without any restraints.
The arbitration mafia
Many of the private lawyers who will decide the investor-state disputes in this report – the arbitrators – are part of a small group of commercial lawyers known as the ‘inner mafia’ of investment arbitration.33 Several are known for investor-friendly interpretations of the law, and combine their arbitrator role with other roles – for example, as academics, sitting on government delegations, or representing the disputing parties in investment claims as counsel, thus opening up a Pandora’s Box of conflicts of interest.34
For example:
- The Swiss lawyer Gabriele Kaufmann-Kohler is considered the world’s most powerful investment arbitrator.35 According to a study of known ISDS awards until 2010, she is also one of the most investor-friendly arbitrators, leaning towards expansive (read: investor-friendly) interpretations of vaguely formulated investment law provisions.36 She has been on the board of companies such as the Swiss bank UBS, and has repeatedly been accused of conflicts of interest.37 Kaufmann-Kohler chairs the tribunal which will decide the Elitech/ Razvoj Golf case against Croatia.
- The Canadian Yves Fortier is also considered an ISDS ‘power broker’38 and is known for his investor-friendly legal interpretations.39 His professional and personal interest in ISDS was strikingly illustrated by the Yukos arbitrations, where he billed a staggering €1.7 million for his services.40 He has also sat on company boards, including those of mining giants Alcan Inc. and Rio Tinto.41 In the Border Timbers and von Pezold cases against Zimbabwe, Fortier acted as tribunal president.
- Simultaneously to serving as arbitrator, the Spanish lawyer Bernardo M. Cremades has also acted as counsel in investment disputes.42 This kind of dual role raises numerous conflicts of interest – for example, when Cremades has to decide without prejudice on an issue that also features in another case in which his law firm represents the claimant investor. He is also among the world’s most influential investment arbitrators43 – and has been identified as one of the most corporate-friendly ones.44 He was the investor-appointed arbitrator in Copper Mesa vs Ecuador.
If a doctor is sponsored by a major pharmaceutical company, we may well question whether the medicine prescribed is the best for our health; if a civil servant receives kick-backs from a lobbyist, we might question whether the policies they pursue are in the public interest. In the same vein, if an arbitrator’s main source of income and career depend on corporations suing states, we should surely question the impartiality of their rulings.