The Lopez-Goyne Family Trust and others v. Republic of Nicaragua
ICSID · Investment (ICSID and treaty) · Nicaragua · 1 Mar 2023
Why it matters
This award clarifies the distinction between contractual termination and expropriation under CAFTA-DR, emphasizing that a state's exercise of contractual rights does not automatically breach investment treaty standards. It also addresses the requirement for a 'commercial discovery' in oil concessions and the limits of legitimate expectations when a contractor fails to meet clear statutory conditions.
Summary
The case arose from a hydrocarbon concession granted to Industria Oklahoma Nicaragua S.A. (ION) by Nicaragua in 2004. ION's shareholders, US nationals, brought claims under CAFTA-DR alleging that Nicaragua's termination of the concession in 2014-2016 breached fair and equitable treatment (FET) and amounted to expropriation. The concession required ION to explore for oil and, upon discovery, to declare commerciality under Article 42(d) of Law 286. ION drilled two wells but failed to complete an evaluation program or prove commercial reserves. After extensions, Nicaragua terminated the contract citing failure to declare commercial discovery. The Tribunal held that Nicaragua had the right to terminate under Article 70(b) of Law 286 because ION never made a commercial discovery. While the termination process had procedural irregularities (e.g., lack of formal administrative proceeding, inconsistent positions by MEM), these did not rise to a breach of the minimum standard of treatment. The Tribunal found no violation of legitimate expectations because ION knew the legal requirements. The expropriation claim failed because the termination was a lawful exercise of contractual rights, not a taking. Nicaragua's counterclaim for environmental damages was dismissed for lack of jurisdiction as it did not arise directly from the investment. The award was unanimous.
The detail
Parties: The Lopez-Goyne Family Trust and others v. Republic of Nicaragua
Case number: ICSID Case No. ARB/17/44
Outcome: Tribunal dismissed all claims and counterclaim; each party bears its own costs and half of ICSID costs.
Applicable law: CAFTA-DR (Dominican Republic-Central America Free Trade Agreement), ICSID Convention, Law 286 (Nicaragua's Hydrocarbons Law), Concession Contract
Issues in play: Minimum Standard of Treatment (Article 10.5) vs. Nicaragua's sovereign right to terminate a concession for failure to prove commercial discovery; expropriation (Article 10.7) vs. contractual termination.
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