The Claimant, Técnicas Medioambientales, TECMED S.A., is a commercial company organized under Spanish law, domiciled in Madrid, Spain. It is represented in this arbitration proceeding by:
Mr. Juan Carlos Calvo Corbella
Técnicas Medioambientales TECMED S.A.
Albasanz 16 – 1a planta
28037 Madrid, Spain
Ms. Mercedes Fernández
Mr. Juan Ignacio Tena García
Jones, Day, Reavis & Pogue abogados
Velázquez 51 – 4a planta
28001 Madrid, Spain
The Respondent is the Government of the United Mexican States, represented in this arbitration proceeding by:
Mr. Hugo Perezcano Díaz
Dirección General de Consultoría Jurídica de Negociaciones Comerciales
Subsecretaría de Negociaciones Comerciales Internacionales
Secretaría de Economía
Alfonso Reyes No. 30, piso 17
Mexico, D.F., C.P. 06179, Mexico
A stenographic transcript of the hearing was made, which lists the following persons as having been present at the hearing:
Members of the Arbitral Tribunal
1. Dr. Horacio A. Grigera Naón, President
2. Prof. José Carlos Fernández Rozas
3. Mr. Carlos Bernal Verea
Secretary of the Arbitral Tribunal
4. Ms. Gabriela Alvarez Avila
Técnicas Medioambientales TECMED S.A.
5. Mr. Juan Carlos Calvo Corbella
6. Ms. Mercedes Fernández
7. Mr. José Daniel Fernández
The United Mexican States
8. Mr. Hugo Perezcano Diaz
9. Mr. Luis Alberto González García
10. Ms. Alejandra Treviño Solis
11. Mr. Sergio Ampudia
12. Mr. Carlos Garcia
13. Mr. Rolando Garcia
14. Cameron Mowatt, Esq.
15. Stephen Becker, Esq.
16. Sanjay Mullick, Esq.
17. Ms. Jacqueline Paniagua
18. Lars Christianson, Engineer
19. Ms. Ruth Benkley
20. Francisco Maytorena Fontes, Engineer
21. Christopher Thomas, Esq.
The following witnesses and experts were heard at the hearing after the opening statements made by the Claimant and the Respondent, respectively.
Offered by the Claimant
José Luis Calderón Bartheneuf
Javier Polanco Gómez Lavin
Enrique Diez Cañedo Ruiz
José María Zapatero Vaquero
Jesús M. Pérez de Vega
Luis R. Vera Morales
José Visoso Lomelín
Offered by the Respondent
Alfonso Camacho Gómez
Cristina Cortinas de Nava
Jorge Sánchez Gómez
The Arbitral Tribunal does not deem it appropriate to establish the meaning, in abstract or general terms, of "retroactive application" of a legal provision, an expression that does not appear to meet generally accepted criteria.6 Therefore, in this regard, in addition to following the claims of the Parties as indicated below, the Tribunal will follow the text of the Agreement itself and the rules governing the interpretation of treaties.7
See Decision on Jurisdiction in Tradex Hellas S.A. v. Republic of Albania, December 24, 1996, ICSID case No.Arb/94/2, http:www.worldbank.org/icsid/cases/tradex_decision.pdf, p. 186, "there does not seem to be a common terminology as to what is "retroactive" application, and also the solutions found in substantive and procedural national and international law in this regard seem to make it very difficult, if at all possible, to agree on a common denominator as to where "retroactive" application is permissible and where not".
In its memorial, the Claimant states as follows with regard to the conduct of INE with respect to the exchange or replacement of operating permits for the landfill:
However, this fact, although serious when we know what happened subsequently, did not cause immediate prejudice to the claimant which, after all, was still entitled to operate the Landfill acquired.11
Nevertheless, the Claimant highlights the following in this regard:
...the unwarranted change in the conditions of operation and as a result of a new and different permit being issued, unrelated to the plans and guarantees existing as of the time of the investment, is truly a discriminatory measure without any legal foundation, expressly prohibited by Article III of the ARPPI (Agreement on the Reciprocal Promotion and Protection of Investments).12
And a little later:
It should not be understood that the conversion of an authorization for an unlimited period of time into a temporary one legitimized or enabled the subsequent resolution contrary to renewal. That resolution of INE, challenged in this arbitration, is illegal and unlawful just like a revocation of the license on the same grounds. It is, however, beyond doubt that the precariousness (due to the short duration) and provisional nature of an authorization for such a limited time are greater than in the case of an authorization for an unlimited period of time.13
In connection with the same point, the Claimant explains the following:
However, CYTRAR, S.A. de C.V. and TECMED had an authorization covering the operation of the landfill and were not in a position to make complaints that could "displease" the competent officials. Still, in spite of undeniable differences between an authorization for an unlimited duration and a temporary one, the one granted in 1996 was a legitimate and sufficient title, operation of the landfill continued uninterruptedly and relations between the personnel of the companies and the representatives of the Administration were cordial and fluid. Everyone’s intent was that the landfill should operate and be managed appropriately and that it should last. At the time, at least for the Claimant, it was unthinkable that it would be unlawfully deprived of its lawfully obtained authorization only two years later.14
Referring to INE’s refusal to renew the authorization granted on November 19, 1997, the Claimant states that:
This is precisely the violation challenged in this arbitration —an Official Letter of the National Ecology Institute which deprived Cytrar, S.A. de C.V. of the asset that was the basis of its exclusive activity. A definitive and fundamental act accompanied by a number of proximate, previous and subsequent acts which completed the multiple violation of the ARPPI and which are claimed against in this arbitration.15
The Claimant further states:
However, the necessary accuracy with which the facts have been dealt in this memorial shows how the respondent’s breach did not materialize in a single act, but was gradually prepared, implemented and strengthened until it was finally consummated in the act of refusing renewal.
It was certainly the refusal that caused damage and definitively prevented this company from obtaining a legitimate return on its investment. The preceding acts, particularly the ones leading to adverse modifications of the terms of the authorization, are in the nature of acts prior to that decisive breach which caused the damage for which compensation is requested. But the truth is that, although there is a difference between the operation of a landfill under a temporary authorization and under a license for an unlimited duration, in both cases there exists a title to undertake and lawfully continue operations, and the day-to-day activities are not curtailed by such time limitations.16
In connection with the refusal to renew the authorization of November 19, 1997, the Claimant further points out the following:
Therein lies the respondent’s essential breach, which has caused the damage for which compensation is requested in this arbitration.17
Referring to the fair and equitable treatment under international law guaranteed by Article 4(1) of the Agreement, the Claimant claims that it encompasses the duty to act transparently and respecting the legitimate trust generated in the investor. In this regard, the Claimant states the following:
In sum, the legitimate trust generated in TECMED inducing it to make the investment was violated and seriously trampled upon. First, as a result of the change in the landfill’s operating conditions and, subsequently and definitively, through the measure that led to its immediate standstill.
If Mexican law were to protect and pennit the conversion of unlimited permits into annual ones, which we deny, the least that could be said is that such legislation is completely lacking in transparency, since none of its provisions specifies that licenses are limited in duration.18
The Claimant also argues that the replacement of the existing unlimited duration license, which in the past was given to state investors (municipal investors or investors from the State of Sonora) by a limited duration license when it was granted to Cytrar constituted a violation of the fair and equitable treatment guarantee set forth in Article 4(5) of the Agreement.19
Finally, the Claimant summarizes its claims as follows:
A declaration is sought from the Arbitral Tribunal regarding the breach committed by the United Mexican States as a result of the actions and decisions stated in this memorial, both as regards the breach itself and in connection with acts in preparation of such breach...20
After listing the main breaches of the Agreement alleged by the Claimant against the Respondent, which include "the substantial change in the conditions governing the operation of the landfill..." as a result of the replacement of the authorization existing at the time of making the investment and "...particularly due to the conversion of an unlimited duration permit into an annual or annually renewable one",21 the Claimant summarizes its claims as follows:
Such acts prepare and constitute an express, serious and blatant breach of the duty to protect foreign investments, declared in Article II of the ARPPI and of the duty to offer fair and equitable treatment to foreign investors, pursuant to Article IV of the Agreement; non-renewal is a measure having equivalent effects to the type of expropriation provided for in Article V of the ARPPI, carried out for political reasons and interests contrary to the public interest and without appropriate compensation.22
Memorial, p. 42.
Memorial, p. 108.
Memorial, p. 109.
Memorial, pp. 44-45. This was later reaffirmed by the Claimant when referring to the authorization granted by INE for the operation of the landfill by Cytrar, of November 19, 1997: "At any rate, we shall reiterate what has already been stated regarding the sufficiency of both authorizations to make operation of the landfill lawful and the practical considerations that caused CYTRAR S.A. de C.V. and TECMED to refrain from expressly protesting such changes in the conditions. The landfill continued to be operational; its duration potential, which depended on its useful life, had not been altered; and the competent authorities had expressed no reservations with regard to the landfill or operation thereof, nor had they expressed any intention that might affect the extent or duration of such operation": Memorial, pp. 47-48.
Memorial, p. 53.
Memorial, p. 103-104.
Memorial, p. 112.
Memorial, p. 122.
Memorial, p. 127.
Memorial, p. 139.
Memorial, p. 139.
Memorial, pp. 139-140.
In its closing statement, the Claimant gives additional details of its requests and claims. Regarding the replacement of the unlimited duration license to operate the Landfill by a one-year license, and in view of the Respondent’s statement that the Claimant’s claims also seek to hold the Respondent liable for such replacement, the Claimant states as follows:
This is absolutely false. Suffice it to look at the request for relief in the claim, which contains the Claimant’s claims, to understand that the only declaration of breach sought from the Arbitral Tribunal relates to the refusal to renew the license for the operation of the CYTRAR Landfill.
Certainly, the Claimant has provided an account, and informed the Tribunal, of other facts occurring prior to November 25, 1998, because they are relevant and clearly illustrate the attitude and conduct of the Mexican authorities, but the Claimant has not requested a declaration of breach or liability in respect of only one of them.23
The Claimant then adds:
In sum, we hold that the act in connection with which an award is requested in this arbitration is the refusal to renew the permit with respect to the Landfill of Cytrar, aside from the fact that the Tribunal needs to know and assess the meaning of previous acts and measures of the Mexican authorities.
This claim is fully and expressly supported by the provisions on retroactivity contained in the ARPPI between Spain and Mexico, and does not need to rely on any other conventions.24
The Claimant further states that:
We stress that the only violation of the ARPPI requested to be penalized by the Tribunal is the decision not to renew the license, which caused the damage sustained by TECMED [...] However, this does not prevent, but rather determines, that the Arbitral Tribunal should examine and assess the preceding and even subsequent acts of the Mexican authorities.25
Claimant’s closing statement, p. 93.
Claimant’s closing statement, p. 97.
Claimant's closing statement, p. 98.
Vienna Convention, Article 28. Award va Mondev International Ltd. v. United States of America (ICSID Case No. ARB(AF)/99/2), 68, p. 22, www.naftalaw.org. I. Sinclair, The Vienna Convention on the Law of Treaties, 2nd Edition (Manchester University Press, 1984), p. 85.
Italics in the quotations transcribed in paragraph 64 inserted by the Arbitral Tribunal.
Emphasis added by the Arbitral Tribunal.
Emphasis added by the Arbitral Tribunal.
Emphasis added by the Arbitral Tribunal.
Emphasis added by the Arbitral Tribunal.
Emphasis added by the Arbitral Tribunal.
Regarding the importance of the principle of good faith within the framework of the law of treaties, including the period between signing and ratification, see R. Kolb, La bonne foi en droit international public, Presses Universitaires de France, 179-207 (2000). Article 18 of the Vienna Convention arises out of a general rule of international law based on good faith, which it expresses; it is therefore independent, and does not constitute an exception to the principle of non-retroactive application of treaties: I. Sinclair, The Vienna Convention on the Law of Treaties, p. 99, Manchester University Press (2nd Edition, 1984).
See comment at the International Law Commission (United Nations Conference on the Law of Treaties, Official Records, Documents of the Conference, United Nations Publication A/CONF.39/1 l/Add.2), p. 22.
It should be noted that the English version of this provision uses the expression "defeat the object", which is not strictly equivalent to the notion of "frustrate" in English or "frustrar" in Spanish.
The Respondent, on the other hand, argues that Promotora only tendered and sold to the Claimant a pool of personal and real property "relating to the Industrial Park" of the city of Hermosillo, which did not include permits or licenses to operate the landfill.47 According to the Respondent, the public bidding and award of assets relating to the landfill at the Las Víboras site to Tecmed and Cytrar also included acquisition by another company of the Tecmed group of a concession for a landfill —a municipal dump also situated in the Municipality of Hermosillo—, for which Cytrar allegedly paid the above-mentioned amount of $ 24,047,988.26 (Mexican Pesos). The Respondent specifically argues the following:
Tecmed (Mexico) acquired two things in the tender of February 1996. A pool of personal and real property relating to the landfill of hazardous waste, which consisted of a piece of land, existing constructions and machinery and equipment clearly described in the supporting documents of the transaction. It paid 10 million pesos in cash for them, as reflected in the financial statements submitted in these proceedings.
Secondly, it acquired the concession of a landfill, the municipal dump, for which it offered 24 million pesos, a concession which it still holds and continues to operate. What Dr. Calvo Corbella said a moment ago is true, not in respect of Cytrar but in respect of the company [sic], as confirmed by engineer Polanco, who attended the Tecmed (Mexico) tender. This was also confirmed by engineer Diez-Canedo, in reply to a question I expressly made when I asked him if, in addition to the amount of ten million pesos, he had offered a nonmonetary contribution consisting of the construction and comprising the general facilities and the first phase of operations. Engineer Díaz Cañedo answered that that was true.48
In sum, the Respondent not only holds that that amount, or contribution in kind valued at such amount, was not paid or made in exchange for intangible assets (the permits, authorizations or licenses to which Claimant refers), but also that it was not even a part of the price paid for assets relating to the landfill in Las Víboras. According to the Respondent, such amount or contribution was paid or made in exchange for the concession to operate the urban waste landfill of Hermosillo.
Counter-memorial, pp. 24-31; N° 90 et seq.
Oral statement by the Claimant at the Hearing of May 20, 2002, transcript of May 24, 2002, pp. 27-28.
The award by Promotora of assets relating to the Las Víboras landfill to Tecmed as a result of the tender of such assets by Promotora was followed by the signing of a "promise to sell" contract dated February 20, 1996, entered into between Promotora and Tecmed, the fourth clause of which provides that at the time of executing the notarial deed of conveyance, the assets conveyed would include copies of permits, licenses and authorizations relating to the assets specified in the agreement.49 In item or representation No. IIII of such instrument, it is stated that the Board of Directors of Promotora unanimously approved the following proposal:
Price offer for the purchase of Cytrar, alternative number two, consisting of 10 million pesos plus a nonmonetary contribution to the Municipality of Hermosillo in the form of a project for the construction of and advice in connection with the operation of the new landfill in accordance with the attached project which comprises the general facilities and their first phase of operation, including the closedown of the current landfill, services valued at $ 24,155,185.00 (Mexican Pesos). Total offer: $34,155,185 (Mexican Pesos).
The second clause of the document stipulates that part of the price - $ 10,000,000 (Mexican Pesos)- would be paid in cash, part upon signing the promise to sell and part upon signing the notarized deed of conveyance of the tendered real property, with the balance, amounting to $24,155,185.00 (Mexican Pesos), to be paid in kind, by providing the service of closing down the existing landfill and constructing and providing advice in connection with the operation of a new one as mentioned above and referred to in item or representation number III of the "promise to sell" contract. As regards payment in kind of that part of the price, the second clause of the promise to sell expressly states as follows:
The difference relates to the cost of constructing a new landfill and closing down the existing one, in accordance with the approved proposal, which would be at the time of completing the construction of the new landfill to the satisfaction of Promotora Inmobiliaria of the Municipality of Hermosillo based on the construction project submitted by the buyer, upon which time the reservation of ownership would end; in the case of sale of the personal property located in the "landfill", it will be billed by seller to buyer upon formalization of the final transaction, such formalities being the responsibility of Promotora Inmobiliaria of the Municipality of Hermosillo.
In turn, the fifth clause of the "promise to sell" contract provides the following:
The parties specify that as from now the use to be given to the hazardous waste landfill shall be precisely that, failing which the property will revert back to the seller, in which case the buyer shall automatically forfeit any advances or payments made, unless the buyer "Tecmed, Técnicas Medioambientales de México S.A. de C.V." fails to obtain the government permits and licenses required for lawful operation, in which case it may change the mode of operation by using the existing original license for operation of the landfill by "Tecmed, Técnicas Medioambientales de México S.A. de C.V.".
Third: Promotora Inmobiliaria of the Municipality of Hermosillo OPD further undertakes to issue an invoice for the intangibles upon full compliance by Cytrar S.A. de C.V. of the obligation set forth in clause two of the above-mentioned agreement of February 20, 1996. The invoice value will be $24,047,988.26 (Mexican Pesos) plus $ 3,607,198.24 (Mexican Pesos) VAT, totaling $ 27,655,186.50 (Mexican Pesos).
Fourth: Cytrar S.A. de C.V. agrees to the terms of the preceding clauses and in turn undertakes to issue invoices for the part it will pay with the construction and delivery of the new landfill of the Municipality of Hermosillo and the closedown of the current municipal dump. Such invoices will be issued upon formal delivery of the works.
Finally, pursuant to the award conditions, through a notarial deed of March 27, 1996,51 Cytrar acquired from Promotora the real property, constructions and personal property relating to the landfill. Item or representation number 1 of the deed specifies that the seller (Promotora). "..tendered various assets held by it, in particular the ‘hazardous waste landfill situated at the Las Víboras’ site in the Hermosillo Industrial Park." In item or representation II of such deed, reference is made to the meeting of the Board of Directors of Promotora, which unanimously approved the proposal submitted by Tecmed on the following terms:
"Price Offer for Acquisition of Cytrar", alternative number two, consisting of $10,000,000 (ten million pesos), plus a non-monetary contribution to the Municipality of Hermosillo, approval recorded in minutes, stating that it was unanimous, and including the closedown of the current landfill, the project and the construction of the first phase of the new landfill, pursuant to the resolutions approving performance, issued by the Board of Directors..."
The requirements for approval by the Board of Directors of Promotora include, as point c) of item or representation II the following:
Identifying the responsibility of each party and the timing for obtaining operating licenses.
The second clause of the deed states a cash amount of $ 10,000,000 (Mexican Pesos) as the price, which is broken down into different amounts paid for the constructions already existing, personal property and land. Such clause also provides that:
regardless of the price fixed, the PURCHASER undertakes to perform non-monetary obligations consisting of the project and construction of the first phase of the new landfill and closedown of the existing one, to the satisfaction of "Promotora Inmobiliaria of the Municipality of Hermosillo", in accordance with the approved proposal.
The fourth clause of the deed provides that the reservation of ownership subject to which the sale is made will be lifted
… upon completion of the construction works for the new landfill and the closing down of the existing one, to the entire satisfaction of "Promotora Inmobiliaria of the Municipality of Hermosillo", in accordance with the approved proposal.
Clause 5a) of the deed provides that the transferee (Cytrar) must undertake to perform its obligations under the public bidding in full, including the following obligations:
Specification that the acquired assets will be used solely as a landfill for hazardous waste, failing which they shall revert back to Promotora Inmobiliaria of the Municipality of Hermosillo, and any payments made will be forfeited, if the buyer "Cytrar" S.A. de C.V. should fail to obtain the government permits and licenses required for lawful operation; in such case, the mode of operation may be changed by using the existing original license for operation of the landfill by "Cytrar" S.A. de C.V.
Clause 5d) also provides that:
The steps required to be taken in order to obtain the government permits and licenses necessary for operation of the hazardous waste landfill shall be the sole responsibility of the transferee, Promotora Inmobiliaria of the Municipality of Hermosillo hereby being released from any liability with regard to the official authorizations required to be requested from the Municipality of Hermosillo. Promotora Inmobiliaria will lend its support to secure approval.
As specified in the agreement signed between the parties on March 20, 1996, which fixes the terms and conditions under which the transaction will be settled, an involuntary error led to a mistaken and insufficient breakdown of values and calculation of Value Added Tax, AS THE TECHNICAL DESCRIPTION53 of such assets WAS NOT TAKEN INTO ACCOUNT, i.e. the necessary topographic survey and description of constructions and intangibles, since it was agreed that personal property and intangibles would be invoiced separately.
Keep in force any federal, state and municipal licenses and other permits required for operation of the landfill.
An authorization granted by the National Ecology Institute for the operation of a controlled landfill, through the collection, transport, treatment, temporary storage, and disposal of hazardous waste; the authorization also includes an authorization for soil use on the part of the Municipality of Hermosillo.
In item two, RODOLFO SALAZAR PLATT (an engineer) reads out the resolution adopted at the preceding meeting which reads (verbatim): After these reviews, the Board declares the following proposal to be unanimously approved: "Price offer for the acquisition of CYTRAR, alternative 2 (two), consisting of $10,000,000.00 (TEN MILLION MEXICAN PESOS) and a non-monetary contribution to the Municipality of Hermosillo in the form of a construction project and provision of advice to the operation of the new landfill in accordance with the enclosed project, which comprises the general installations and the first phase of operation. It includes the closing of the current landfill, work valued at $24,155,185.00 (Mexican Pesos) [....] Total value of offer is $34,155,185.00 (Mexican Pesos) [....], the opinion of the full Board being that it is the most convenient offer from the economic and technical point of view and that it is beneficial for all the community of Hermosillo.
the interest and powers of the Municipality, as a government agency formed by representatives elected by the people, by and for the purpose of supervising the proper operation of the landfill in accordance with the highest applicable national and international standards.
The appointment of the advisor was thus directly linked to the Municipality’s interest in ensuring that the assets purchased should be treated as a unit for landfill of hazardous waste pursuant to the legal provisions, which was obviously not possible without the permits authorizing the operation.
Document A16, paragraph 6.
Document A25, notarial deed of March 27, 1996, fifth clause.
Counter-memorial, pp. 24-25, 95.
Promotora could not, in good faith, impose such a drastic requirement or such a harsh sanction on Cytrar as the reversion to Promotora of the assets relating to the Las Viboras landfill if Cytrar was not authorized to use them in accordance with the agreed use, without assuming that access to the permits and licenses for the operation of the Las Viboras landfill in a manner consistent with their historical use was a fundamental part of the operation and of the expectations of Cytrar, Tecmed and, ultimately, the Claimant, and without assuming certain commitments to vest Cytrar with minimum rights that would prevent an outcome as adverse to such expectations and interests as the reversion of assets and at the same time the loss of amounts paid in cash or consideration furnished until then as payment of the price. Neither could INE ignore that the real property and tangible personal property relating to the Las Víboras landfill —and the investment relating to the Las Víboras landfill— would be devoid of economic value if Cytrar did not obtain the permits, licenses or authorizations required for operation. The note of the Municipality of Hermosillo addressed to INE on March 28, 1996,68 whereby the Municipality "most respectfully" requests the Institute
to provide to TECMED Técnicas Medioambientales de México, S.A. de C.V., or to the company organized by it to operate the landfill, all necessary assistance to comply with the formalities for changing the name appearing in the operating license, which is currently Confinamiento Controlado Parque Industrial de Hermosillo69
not only confirms the above, but also evidences that no doubts were being cast as to the fact that the change of the license holder’s name was considered to be the lawful, normal and logical procedure in order to ensure that Cytrar could operate the Las Víboras site in accordance with the purpose mandated to it under the tender, sale and transfer documents.
Emphasis in the original.
1) Article 2(1) on the promotion and admission of investments;
2) Article 3 on protection of investments;
3) Article 4(1) on fair and equitable treatment;
4) Article 4(2) on the most favorable treatment;
5) Article 4(5) on national treatment; and
6) Article 5 on nationalization and expropriation.
1) The obligation to refrain from expropriating or nationalizing in violation of the Agreement;
2) The obligation to assure fair and equitable treatment in accordance with international law; and
3) The obligation to grant full security and protection to investments under international law, and the other violations to the Agreement alleged by the Claimant.
Furthermore, CYTRAR S.A. de C.V. agreed with the different levels of the Federal, State and Municipal Government and communicated to the public the relocation of the landfill.
... the infringements committed by the company involved are not sufficient to immediately cancel, suspend or revoke the permit for carrying out hazardous material and/or waste management activities, nor do they have an impact on public health or generate an ecological imbalance.83
1) the site of the Landfill did not comply with applicable Mexican regulations in terms of its location and characteristics;
2) in 1998, Cytrar had committed a number of irregularities while operating the Landfill, mainly related to the transportation of waste from Alco Pacifico, and such irregularities triggered strong community pressure against the Landfill;
3) Mexican authorities, mainly from the Municipality of Hermosillo, expressed their doubts as to the Landfill’s operations;
4) there was the risk that community pressure might increase if operation of the Landfill continued; and
5) Since 1997 Cytrar had reportedly been aware that community pressure suggested that the operation of the Landfill was not feasible due to its location, and that is why it agreed to relocate it at its own cost.
The community’s opposition to the Landfill, in its public manifestations, was widespread and aggressive, as evidenced by several events at different times. In November 1997, the association Alianza Civica de Hermosillo (Hermosillo’s Alliance for Civic Affairs) publicly denounced Cytrar’s "actions and omissions" particularly in connection with waste transportation from Alco Pacifico, and requested that Cytrar’s permit to operate the Landfill be cancelled and the extension thereof be denied.100 Also in November101 "...around 200 people organized a demonstration, marching to the landfill and closing it down symbolically... ", and then, a meeting was held with federal, state, and municipal public officials including the President of INE, the Deputy Director of the PROFEPA Environmental Audit Bureau, the Minister of SEMARNAP and representatives of the community organizations. In December 1997, the association Academia Sonorense de Derechos Humanos (Sonora Human Rights Academy) filed a criminal complaint against Cytrar for the commission of acts that could be defined as "environmental crimes".102 In January 1998, the same association "...filed a challenge..." against the Municipality of Hermosillo for the permit granted by that Municipality in 1994 to operate the Landfill.103 In late January 1998 "...members of the community and of the different community organizations..." organized a blockade of the Landfill which lasted until March 7, 1998, when the police intervened under orders of the Attorney’s General Office. After the police intervention, the community organizations that questioned such measures organized a sit-in at Hermosillo’s Town Hall104 that lasted 192 days. By late March 1998, the same opposition groups issued a communication condemning the actions of the authorities that had put an end to the blockade of the Landfill.105 In April 1998, a group of demonstrators attempted to block access to the Landfill but the police thwarted this action.106 In September 1998, a certain Asociación de Organismos No Gubernamentales en Lucha contra el CYTRAR (Association of NGOs Against CYTRAR) filed a claim before the State Commission of Human Rights against the authorities of the State of Sonora and the Municipality of Hermosillo for having intervened to put an end to the 192-day sit-in organized at the Town Hall107. In October 1998, a "family demonstration for the defense of health and dignity" and against "the landfill and the authorities’ position in that regard" was organized and a public communication contrary to the Landfill was issued.108 According to the news media, about 400 people participated in the demonstration.109 In November 1998, community organizations submitted a petition to the local office of SEMARNAP so that expressions of such associations and individual citizens be considered upon evaluating the renewal of the Permit. During that period —as evidenced by the "Press Dossier (I)" included in the documents offered by the Claimant—110 these developments were covered by the local press and Hermosillo’s radio and television.
Counter-memorial, pp. 51-52, 191 et. seq.
Article published in Hermosillo newspaper El Impartial on November 23, 1997. Document D88.
Counter-memorial, p. 55, 203
Counter-memorial, p. 56, 207
Counter-memorial, pp. 57-59, 210 et. seq.
Counter-memorial, p. 63, 232
Counter-memorial, p. 66, 237
Counter-memorial, pp. 74-75, 265 et. seq.
Counter-memorial, p. 79, 285
Article published in Hermosillo newspaper El Impartial on October 26, 1998. Press dossier (I), annex A70.
Under annex A70
The authorities of the Municipality of Hermosillo were the direct target of "community pressure". The Municipality was one of INE’s interlocutors at the time of consideration of the Permit’s renewal. In view of the pressure that questioned the Municipality’s grant of the permit to use the land where the Landfill was operated, the Municipality rendered an opinion on March 31, 1998, which explained that at the time of granting such permit the current legal provisions were not applicable and that those provisions came into force subsequently, establishing a minimum distance between landfills and urban centers which the Landfill did not comply with. However, the Municipality expressed its agreement with the community about the need to relocate Cytrar’s hazardous waste landfill operation to a different site and its support to conduct an audit of operations to determine whether the Landfill’s operation entailed any risks. That same day, the Health Commission of the Municipality rendered an opinion confirming that, although Cytrar’s operation at the Las Víboras site met the legal requirements for functioning and there were no "legal, ethical or logical arguments" to seek the closing of the Landfill, all necessary efforts should be made to relocate Cytrar’s operations. After this, several other decisions to the same effect were issued by the Municipality, additionally highlighting that only the federal Mexican authorities were competent in "...events relating to toxic waste".111 INE also consulted with the Municipality on November 18, 1998 about Cytrar’s requests to, among other things, expand cell No. 2 and build another one. The Municipality did not agree to the construction of a third cell, but accepted expansion subject to:112
....a detailed and legal relocation commitment agreed upon between the three levels of Government and the company
and provided that:
...a commission with representatives from each party be formed; and that, prior to that, an audit of operations be conducted and the final close down of the landfill be carried out; and that it would have to be made clear that that would be the last authorization for the current site.
The consultation with the Municipality and with the authorities of the State of Sonora and its results have been summarized as follows in the declaration of Dra. Cristina Cortinas de Nava,113 who was at the time INE’s General Director for Hazardous Materials, Waste and Activities and issued the Resolution, during the Hearing held from May 20 to May 24, 2002:
.... the gentleman is right to point out that I consulted with the municipal authority and with the state authority before making my decision about the company’s application for an authorization to expand its capacity while relocation was pending!...]. Let me inform you that the reply that I obtained from the authorities was "let them fill in the cell, that’s all right. But don’t let them build anything else because we have waited too long for their relocation to allow them to have more space at the site they are at".
Counter-memorial, pp. 63-65, 233 et. seq.
Counter-memorial, pp. 86-97, 311 et. seq.', note of the Mayor of the Municipality of Hermosillo to INE’s President dated November 18, 1998, document D157.
Hearing held from May 20 to May 24, 2002, transcript of the session of May 21, 2002, p. 82 overleaf.
The relocation of Cytrar’s operations as a response to community pressure was therefore also one of the factors taken into account by INE, and mentioned incidentally in the Resolution, upon deciding whether to renew the Permit. By late 1997, owing to the community pressure against the Landfill, Cytrar and the Municipality of Hermosillo started negotiations about the relocation, which, indeed, entailed the final close down of the hazardous waste landfill operation at the Las Viboras site, and that was undoubtedly the aim pursued by the community groups and the authorities of the Municipality. The relocation and the final close down of the Landfill, as it has been seen, were also the express claims of the Municipality of Hermosillo, apparently in response to the complaints about the Landfill and Cytrar’s operation described above. The Claimant underscores that, as from the commencement of the negotiations, it did not object to the relocation but accepted it on the condition that a new site be identified before closing the operation at Las Viboras, and that the continuity of the operation at the new site and premises be guaranteed with the necessary permits.114 On March 16, 1998, in a notice published by the local press, Cytrar ratified, among other things, its agreement to relocate its operation.115 On July 3, 1998, at a meeting called by the Governor of the State of Sonora and attended by the Minister of SEMARNAP, Ms. Julia Carabias Lillo and the authorities of the Municipality of Hermosillo, Cytrar was informed of a joint declaration issued by the federal, state and municipal authorities stating that although the inspections conducted did not provide "...evidence of any risk to health and the ecosystems..." arising out of the Landfill, the relocation was necessary to "secure environmental safety in view of the rapid urban growth of Hermosillo, provide a response to the concerns that had been expressed and guarantee, in the long term, the environmental infrastructure to handle and dispose of industrial waste".116
The declaration also states that:
...As a consequence, the present landfill operated by CYTRAR shall cease to operate as soon as the new premises are ready to start operations...
Memorial, pp. 77-78
Counter-memorial, p. 61, 228; document DI 11
Document A92; Memorial, pp. 78-79
Award dated August 30, 2000, in ICSID case No. ARB(AF)/97/1 Metalclad v. United Mexican States, 16 Mealey’s International Arbitration Report (2000), pp. A-l et seq.; p. A-13 (p. 33 of the award, 103): «Thus, expropriation [...] includes not only open, deliberate and acknowledged takings of property, such as outright seizure or formal or obligatory transfer of title in favor of the host State, but also covert or incidental interference with the use of property which has the effect of depriving the owner, in whole or in significant part, of the use or reasonably-to-be expected economic benefit of property even if not necessarily to the obvious benefit of the host State. »
Partial award in the case Pope Talbot Inc v. Government of Canada, 102-104, pp. 36-38, www.naftalaw.org: and II Restatement of the Law (Third) Restatement of the Foreign Relations Law of the United States, § 712, pp. 200-201; notes 6-7, pp. 211-212 (1987).
Emphasis added by the Arbitral Tribunal.
R. Dolzer & M. Stevens, Bilateral Investment Treaties, p. 100 (1995).
European Court of Human Rights, In the case of Matos e Silva, Lda., and Others v. Portugal, judgment of September 16, 1996, 92, p. 19, http://hudoc.echr.coe.int.
European Court of Human Rights, In the case ofMellacher and Others v. Austria, judgment of December 19, 1989, 48, p.24; In the case of Pressos Compania Naviera and Others v. Belgium, judgment of November 20, 1995, 38, p. 19, http://hudoc.echr.coe.int
It has been stated that: "....on the whole [...] notwithstanding compliance with the public interest requirement, the failure to pay fair compensation would render the deprivation of property inconsistent with the condition of proportionality", Y. Dinstein, Deprivation of Property of Foreigners under International Law, 2 Liber Amicorum Judge Shigeru Oda, p. 849 et seq. ; esp. p. 868 (2002).
European Court of Human Rights, In the case of James and Others, judgment of February 21, 1986, 50, pp. 19-20, http://hudoc.echr.coe.int
ibid., 63, pp. 24.
Document D101, p. 2.
Communication issued by the Municipality of Hermosillo dated March 26, 1998, document D114; Declaration 300398 issued by the Commission of Public Health of the Municipality of Hermosillo dated April 1998, document DI 16, Communication Forms of the Municipality of Hermosillo, document DI 17.
Stenographic transcript of the declaration given by Julia Carabias Lillo in her appearance before the House of Representatives of the Federal Congress on September 10, 1999; pp. 10-11; document A69.
Oral allegation by the Respondent’s counsel. Hearing held from May 20 to May 24, 2002. Transcript of the session of May 24, 2002, p. 37 overleaf.
Hearing held from May 20 to May 24, 2002. Transcript of the session of May 21, 2002, p. 78.
Hearing held from May 20 to May 24, 2002; transcript of the session of May 21, 2002, pp. 77-77 overleaf.
Communication of the Mayor of the Municipality of Hermosillo, document DI 13.
Communication sent to INE’s President by the Mayor of the Municipality of Hermosillo on November 18, 1998, in which the Mayor requests "the execution of a landfill relocation agreement between the Federation, the State, the Municipality and the company. A detailed, signed, legal agreement containing a schedule and fixed dates." Document D157.
Document A 91.
Hearing held from May 20 to May 24, 2002; transcript of the session held on May 21, 2002, p. 72.
D.F.Vagts, Coercion and Foreign Investment Rearrangements, 72. The American Journal of International Law, pp. 17 et seq., specially p. 28 (1978) : "...the threat of cancellation of the right to do business might well be considered coercion."
Ibidem, pp. 68-68 overleaf
Documents A43 and A44
Hearing held from May 20 to May 24, 2002. Declaration of Jorge Sánchez Gómez, transcript for the session of May 23, 2002, p. 53 overleaf.
Transcript of the session of May 23, 2002, p. 59 overleaf.
Report by Fausto García y Asociados, p. 22
Award of ICSID case No. ARB (AF)/97/1 Metalclad Corporation v. United Mexican States, 16 Mealey’s International Arbitration Report, p. A-l et. seq.', pp. A-14/A-15, 119-122 (2000). Award in case Phelps Dodge Corp, and Overseas Private Investment Corp. v. The Islamic Republic of Iran, 10 Iran-U.S. Claims Tribunal Reps., p. 121 et. seq.', 30, pp. 132-133 (1986-1); award of ICSID case No. ARB/98/4, Wena Hotels v. Arab Republic of Egypt, 411.L.M. 896 (2002), 122-125, pp. 918-919, award of December 8, 2000.
"2000 Annual Report of Actividades de Construcción y Servicios", document A7, Annex 8.1 "Consolidated Information", pp. 131-132 ; 133.
Respondent’s brief "Admissions and denials", p. 4.
Respondent’s brief "Admissions and denials", p. 32.
Memorial, p. 146.
Award in ICSID case ARB/99/6 Middle East Cement Shipping and Handling Co.SA v Arab Republic of Egypt, April 12, 2002, 174, p. 42, http://www.woridbank.org/icsid/cases/awards.htm. See also: award of December 8, 2000, in ICSID case ARB/98/4, Wena Hotels Ltd. v Arab Republic of Egypt, 41 I.L.M. 896 (2002), specially 128-129, p. 919; award in ICSID case No. ARB/96/1 Compania del Desarrollo de Santa Elena S.A. v Republic of Costa Rica, 15 ICSID Law Review-Foreign Investment Law Journal, p. 167; specially 96-106, p. 200-202 (2000); award in ICSID case no. ARB(AF)/97/1 Metalclad Corporation v United Mexican States, 16 Mealey’s International Arbitration Report, A-l; specially 128, pp. 41-42 (A-16) (2000).