Álvarez y Marín Corporación S.A. and others v. Republic of Panama
ICSID · Investment (ICSID and treaty) · Panama · 12 Sep 2018
Why it matters
This award is significant for its application of the implicit legality requirement in investment treaties. The tribunal held that investments made in violation of host state law, particularly laws protecting indigenous land rights, are not entitled to protection under the ICSID Convention or the applicable treaties. It underscores that investors must comply with domestic law, including laws that restrict land ownership in indigenous territories, and that failure to do so can result in a complete lack of jurisdiction. The case also highlights the importance of due diligence in verifying the legality of land acquisitions.
Summary
The case concerns an investment in four rural properties located within the Ngöbe-Buglé indigenous comarca (reserve) in Panama. The claimants, a group of Costa Rican and Dutch investors, sought to develop an eco-tourism project. The properties were originally acquired by Panamanian individuals through adverse possession (usucapión) and then sold to a Panamanian company, DECSA, which was later owned by the claimants. Panama argued that the acquisition violated Law 10 of 1997, which prohibits non-indigenous individuals from owning land within the comarca. The tribunal found that the adverse possession proceedings were irregular and that the subsequent sale to DECSA violated the Comarca law. The tribunal applied an implicit legality requirement derived from the BIT and FTA, holding that investments made in violation of host state law are not protected. The tribunal also considered the gravity of the violation, noting that the law protected a fundamental public interest (indigenous land rights) and that the claimants acted with deliberate ignorance of the legal restrictions. As a result, the tribunal declined jurisdiction over all claims. The decision was by majority, with one arbitrator dissenting. The tribunal also ordered each party to bear its own costs and half of the procedural costs, with Panama bearing the costs of the site inspection.
The detail
Parties: Álvarez y Marín Corporación S.A. and others v. Republic of Panama
Case number: ICSID Case No. ARB/15/14
Outcome: The Tribunal declined jurisdiction over all claims due to the illegality of the investment, and ordered each party to bear half of the procedural costs and their own defense costs, with Panama bearing the costs of the site inspection.
Applicable law: ICSID Convention; Netherlands-Panama BIT (2000); Central America-Panama Free Trade Agreement (2002); Panamanian law (Law 10 of 1997 creating the Ngöbe-Buglé Comarca)
Issues in play: The case involved a collision between the requirement of legality for investment protection under the BIT and FTA, and Panamanian domestic law restricting land ownership in indigenous territories. The tribunal had to determine whether the claimants' acquisition of land through adverse possession and subsequent sale violated the Comarca law, thereby rendering the investment illegal and depriving the tribunal of jurisdiction.
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