Bear Creek Mining Corporation v. Republic of Peru
ICSID · Investment (ICSID and treaty) · Peru · 30 Nov 2017
Why it matters
This case is a landmark for its detailed analysis of indirect expropriation and the 'social license to operate' in mining projects. The Tribunal held that while a state may regulate for public welfare, revoking a concession due to social unrest without proper process or compensation can constitute expropriation. The dissenting opinion by Prof. Sands QC highlights the investor's failure to obtain community consent, reducing damages by half. The case underscores the importance of community engagement and the limits of police powers in investment treaty arbitration.
Summary
Bear Creek Mining Corporation, a Canadian company, invested in the Santa Ana silver mining project in Peru. In 2011, Peru issued Supreme Decree 032-2011-EM, which revoked a prior decree (083-2007) that had granted Bear Creek the right to explore and exploit the Santa Ana concession. The revocation followed social protests by local communities concerned about environmental impacts and lack of benefits. Bear Creek initiated ICSID arbitration under the Canada-Peru Free Trade Agreement (FTA), claiming expropriation and violation of fair and equitable treatment (FET). The Tribunal (majority) found that Decree 032 constituted an indirect expropriation because it deprived Bear Creek of the value of its investment without compensation. The Tribunal rejected Peru's defense that the measure was a valid exercise of police powers, holding that the FTA's exceptions are exhaustive and did not apply. The Tribunal also found that Peru breached the FET standard by failing to provide a stable legal framework. However, the Tribunal declined to award damages for the Corani project, finding that Bear Creek had not proven that project was affected. The Tribunal awarded US$18,237,592 in damages for the Santa Ana investment, plus pre-award interest at LIBOR + 2% and post-award interest at the same rate. Costs were awarded to Bear Creek. Arbitrator Philippe Sands QC dissented in part, arguing that Bear Creek's failure to obtain a 'social license' from local communities contributed significantly to the project's failure, and he would have reduced damages by 50% and split costs equally. The award is notable for its discussion of the investor's duty to engage with local communities and the limits of state police powers under investment treaties.
The detail
Parties: Bear Creek Mining Corporation v. Republic of Peru
Case number: ICSID Case No. ARB/14/21
Outcome: The Tribunal found that Peru's Supreme Decree 032-2011-EM indirectly expropriated Bear Creek's investment in the Santa Ana silver mining project without compensation, breaching Article 812 of the Canada-Peru Free Trade Agreement. The Tribunal awarded Bear Creek US$18,237,592 in damages plus interest and costs.
Quantum: US$18,237,592
Applicable law: Canada-Peru Free Trade Agreement (FTA), particularly Article 812 (Expropriation) and Annex 812.1; ICSID Convention; international law on expropriation and fair and equitable treatment.
Issues in play: The case involved a collision between Peru's police powers to regulate for public welfare and the investor's right to protection against expropriation under the FTA. The Tribunal held that the FTA's exceptions (Article 2201.1) are exhaustive and did not cover Peru's actions, rejecting the police powers defense.
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