David R. Aven and Others v. Republic of Costa Rica, ICSID Case No. UNCT/15/3
ICSID · Investment (ICSID and treaty) · Costa Rica · 18 Sep 2018
Why it matters
This award is significant for its detailed analysis of the relationship between investment treaty protections and environmental regulation. The Tribunal held that Costa Rica's actions to protect wetlands and forests were a valid exercise of police powers and did not violate DR-CAFTA. It also addressed issues of investor misconduct, including fragmentation of land to avoid environmental review and failure to disclose a geological report. The case clarifies that investors bear the burden of complying with host state environmental laws and that states retain the right to regulate for environmental protection without incurring treaty liability.
Summary
The case arose from a real estate development project called 'Las Olas' on Costa Rica's Pacific coast. The claimants, U.S. nationals, acquired land and began developing a condominium and hotel complex. They obtained an environmental viability permit for part of the project but later faced opposition from neighbors and investigations by Costa Rican authorities. The Municipality of Parrita issued a shutdown notice, and criminal charges were brought against Mr. Aven for alleged environmental violations. The claimants initiated arbitration under DR-CAFTA, alleging that Costa Rica breached fair and equitable treatment (FET) and unlawfully expropriated their investment. Costa Rica counterclaimed, arguing that the claimants caused environmental damage to wetlands and forests. The Tribunal first addressed jurisdiction, finding that it had jurisdiction over most claimants and properties, but excluded 67 lots not owned by the claimants at the time of the notice of arbitration. On the merits, the Tribunal analyzed whether Costa Rica's actions violated FET or constituted expropriation. It found that the claimants had failed to disclose the existence of wetlands and forests on the site, had fragmented the land to avoid a full environmental impact assessment, and had submitted a forged document. The Tribunal concluded that Costa Rica's enforcement of its environmental laws was a legitimate exercise of police powers and did not breach DR-CAFTA. The Tribunal also dismissed Costa Rica's counterclaim for environmental damage, finding that the state had not proven the extent of damage or that the claimants were solely responsible. On costs, the Tribunal ordered the claimants to pay a portion of Costa Rica's arbitration costs due to their misconduct, including the inclusion of properties they did not own.
The detail
Parties: David R. Aven and Others v. Republic of Costa Rica, ICSID Case No. UNCT/15/3
Case number: italaw/cases/2959
Outcome: The Tribunal dismissed all of Claimants' claims under DR-CAFTA Articles 10.5 and 10.7, and also dismissed Respondent's counterclaim. Claimants were ordered to pay Respondent USD 1,090,905.10 for costs.
Applicable law: DR-CAFTA Chapter Ten, UNCITRAL Arbitration Rules (2010), Costa Rican environmental law (Environmental Organic Law, Forestry Law, Water Law, Biodiversity Law), Ramsar Convention
Issues in play: The case involved a collision between investor rights under DR-CAFTA (fair and equitable treatment, expropriation) and Costa Rica's environmental regulations protecting wetlands and forests. The Tribunal had to determine whether the state's enforcement actions constituted a breach of treaty standards or were legitimate exercises of police powers.
Read the full decision at italaw ↗
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