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A. The Claimant

Metalclad is an enterprise of the United States of America, incorporated under the laws of Delaware. Eco-Metalclad Corporation (hereinafter "ECO") is an enterprise of the United States of America, incorporated under the laws of Utah. ECO is wholly-owned by Metalclad, and owns 100% of the shares in Ecosistemas Nacionales, S.A. de C.V. (hereinafter "ECONSA"), a Mexican corporation. In 1993, ECONSA purchased the Mexican company Confinamiento Técnico de Residuos Industriales, S.A. de C.V. (hereinafter "COTERIN") with a view to the acquisition, development and operation of the latter’s hazardous waste transfer station and landfill in the valley of La Pedrera, located in Guadal-cazar. COTERIN is the owner of record of the landfill property as well as the permits and licenses which are at the base of this dispute.
COTERIN is the "enterprise" on behalf of which Metalclad has, as an "investor of a Party", submitted a claim to arbitration under NAFTA, Article 1117.
In these proceedings, Metalclad has been represented by:

Clyde C. Pearce, Esq.

Law Offices of Clyde C. Pearce 1418 South Main Street Suite 201

Salinas, California 93908 USA.

B. The Respondent

The Respondent is the Government of the United Mexican States. It has been represented by:

Lic. Hugo Perezcano Diaz Consultor Juridico

Subsecretaria de Negociaciones Comerciales Internacionales Dirección General de Consultoría Jurídica de Negociaciones Secretaria de Comercio y Fomento Industrial

Alfonso Reyes No.30, Piso 17 Colonia Condesa

Mexico, Distrito Federal, C.P. 06149 Mexico.


The Town Council of Guadalcazar, SLP, is the municipal government of Guadalcazar, the site of the landfill project. While neither Guadal-cazar nor SLP are named as Respondents, Metalclad alleges that Guadalcazar and SLP took some of the actions claimed to constitute unfair treatment and expropriation violative of NAFTA.


On October 2, 1996, Metalclad delivered to Mexico a Notice of Intent to Submit a Claim to Arbitration in accordance with NAFTA, Article 1119, thereby instituting proceedings on behalf of its wholly owned enterprise, COTERIN, for purposes of standing under NAFTA, Article 1117. On December 30, 1996, Metalclad delivered to Mexico a written consent and waiver in compliance with NAFTA, Article 1121(2)(a) and (b).

On January 2, 1997, and pursuant to the NAFTA, Article 1120, Metalclad filed its Notice of Claim with the International Centre for Settlement of Investment Disputes (hereinafter "ICSID"),1 and requested the Secretary-General of ICSID to approve and register its application and to permit access to the ICSID Additional Facility.

On January 13, 1997, the Secretary-General of ICSID informed the parties that the requirements of Article 4(2) of the ICSID Additional Facility Rules had been fulfilled and that Metalclad’s application for access to the Additional Facility was approved. The Secretary-General of ICSID issued a Certificate of Registration of the Notice of Claim on that same day.
On May 19, 1997, the Tribunal was constituted. The Secretary-General of ICSID informed the parties that the Tribunal was "deemed to have been constituted and the proceedings to have begun" on May 19, 1997, and that Mr. Alejandro A. Escobar, ICSID, would serve as Secretary to the Tribunal. All subsequent written communications between the Tribunal and the parties were made through the ICSID Secretariat.
The first session of the Tribunal was held, with the parties’ agreement, in Washington, D.C. on July 15, 1997. In accordance with Article 21 of the ICSID Arbitration (Additional Facility) Rules (hereinafter "the Rules"), the Tribunal then determined that the place of arbitration would be Vancouver, British Columbia, Canada. The parties accepted that determination by the Tribunal.
Numerous requests for production of documents were exchanged by the parties, some of which were allowed, and some of which were disallowed, particularly those that came later in the proceedings. Through instructions given by its President,2 the Tribunal issued a ruling on April 27, 1999, relating to Mexico’s April 14, 1999 Request for Production of Documents. The President of the Tribunal indicated that he could not, at that stage of the case, decide the extent to which the requested documents and materials might be relevant to the case, but ordered Metalclad to produce the documents at issue and noted that Metalclad might seek an award of costs related to the production should the requests be adjudged unreasonable or improper. No such finding has been made.
On October 14, 1997, Metalclad filed its Memorial. On December 17, 1997, Mexico filed a Request for an Extension of Time for the filing of its Counter-memorial. Metalclad filed an Opposition to the requested extension, Mexico filed a Reply and Metalclad filed a Rejoinder. On January 7, 1998, the Tribunal granted Mexico’s request for an extension and ordered that Mexico’s Counter-Memorial be filed February 17, 1998.
On February 17, 1998, Mexico filed its Counter-Memorial without objection. Certain exhibits of Mexico’s Counter-Memorial were filed May 22, 1998, and Mexico’s translations of certain exhibits were filed with the Claimant on July 17, 1998 and with the Secretariat on July 20, 1998.
On February 20, 1998, Metalclad filed a Motion for Sanctions regarding Mexico’s "untimely" filing of its Counter-Memorial. Metalclad objected to Mexico’s failure to submit translations of all pertinent documents with the Counter-Memorial on the date due and set by previous Order of the Arbitral Tribunal. Mexico filed an Opposition to the Motion for Sanctions, to which Metalclad filed a Reply and Rejoinder, to which Mexico filed an additional Opposition. On March 31, 1998, the Tribunal denied Metalclad’s Motion for Sanctions and stated that non-acceptance of the Counter-Memorial and/or the exclusion of certain documents from consideration would be excessive under the circumstances. The Tribunal further stated that it had been "unable to identify significant, if any, harm suffered by the Claimant by reason of the delay in the filing of the translations".
On April 6, 1998, Metalclad filed a Request to Submit a Reply to Mexico’s Counter-Memorial, to which Mexico filed an Opposition. On April 20, 1998, the Tribunal granted Metalclad’s Request to Submit a Reply, and ordered Metalclad to file the same by June 30, 1998. In its Order, the Tribunal noted that the date for Mexico’s Rejoinder would be set after the Tribunal had considered the Reply.
On June 22, 1998, Metalclad filed a Motion for Additional Time to File its Reply, to which Mexico filed a Response. On June 29, 1998, the Tribunal granted Metalclad’s Motion for Additional Time and ordered the Reply to be filed August 6, 1998. On July 28, 1998, the Tribunal granted the Claimant’s request for a further extension of the time period for filing its Reply until August 21, 1998.
On August 21, 1998, Metalclad filed its Reply without objection. Transcriptions of portions of the American Appraisal Associate’s ("AAA") Expert Report were filed September 3, 1998. Translations of the Reply were filed September 22, 1998 and translations of the AAA Expert Report were filed September 28, 1998.
On October 5, 1998, Mexico filed Observations regarding Metalclad’s Reply. Metalclad filed a Reply to the Observations, to which Mexico filed a Reply. On November 13, 1998, the Tribunal denied Mexico’s requests for exclusion of certain information submitted with the Reply and for the award of costs at that point in time. The Tribunal ordered Mexico to file its Rejoinder by March 19, 1999.
On February 22, 1999, Mexico filed a Request for an Extension of Time for the Filing of its Rejoinder. On March 4, 1999, the Tribunal granted Mexico’s Request for an Extension of Time and ordered Mexico to file the Rejoinder by April 19, 1999. In the same Order, the Tribunal set the pre-hearing conference for the marshalling of the evidence for July 6, 1999 in Washington, D.C. The Tribunal also ordered the parties’ witness lists to be filed by June 11, 1999, together with an outline of each witness’s testimony and an estimate of time for each party’s presentation of its case and for the examination of witnesses. The Tribunal further set the hearing on the merits for August 30, 1999.
On 11 March 1999, Mexico filed a Request for Production of Documents. Metalclad filed a Response to Mexico’s Request, to which Mexico filed a Reply. On April 14, 1999, Mexico then filed a request for an extension of one month in the time for filing its Rejoinder. On April 16, 1999, the Tribunal granted in part Mexico’s Request for an Extension and ordered that the Rejoinder be filed by May 3, 1999. The Tribunal further extended the time for the parties to submit their marshalling of the evidence briefs to June 18, 1999. On May 3, 1999, Mexico filed its Rejoinder.
During the written phase of the pleadings, statements from the following persons were submitted by the Parties: by Metalclad - American Appraisal Associates, Augustina Armijo Bautista, Kevin C. Brennan, Gustavo Carvajal Isunza, Francisco Castillo Ayala, Centro JURICI, Ramon Chavez Quirarte, Anthony Dabbene, Daniel de la Torre, Jorge de la Torre, Lee A. Deets, William E. Gordon, Javier Guerra Cisneros, Bruce H. Haglund, Jaime E. Herrera, Ambassador James R. Jones, Grant S. Kesler, Ariel Miranda Nieto, Paul Mitchener, T. Daniel Neveau, Herbert L. Oakes Jr., Sandra Ray-Baucom, David Robinson, Sergio Reyes Lujan, Humberto C. Rodarte Ramon, Mario Salgado de la Sancha, Leland E. Sweetser, Anthony Talamantez, Mike Tuckett, Roy Zanatta; by Mexico - Luis Manuel Abella Armella, Sergio Aleman Gonzalez, Rene Altamirano Perez, Salomon Avila Perez, Antonio Azuela de la Cueva, Fernando Bejarano, Alan Borner, John C. Butler III, Julia Carabias Lillo, Juan Carrera Mendoza, José Ramón Cossío Díaz, Pablo Cruz Llañez, Kevin Dages, Jaime de la Cruz Nogueda, José Mario de la Garza Mendizabal, Carlos de Silva, Fernando Diaz-Barriga Martinez, Hector Raul Garcia Leos, Jorge Adolfo Hermosillo Silva, Francisco Enrique Hernandez Sanchez, Sergio Lopez Ayllon, Joel Milan, Pedro Medellin Milan, Hermilo Mendez Aguilar, Angelina Nunez, Santiago Oñate Laborde, Rogelio Orta Campos, Jose Antonio Ortega Rivero, Práxedis Palomo Tovar, Officials of PRODIN, Leonel Ramos Torres, Ronald E. Robertson, Aurelio Romo Navarro, Juan Antonio Romo, Horacio Sanchez Unzueta, Leonel Serrato Sanchez, Ulises Schmill Ordonez, Marcia Williams, Ramiro Zaragoza Garcia, Mark Zmijewski.
As permitted by NAFTA, Article 1128, Canada made a written submission to the Tribunal on July 28, 1999. Although Canada does not have any specific commercial interest in the dispute in this case, the submission addressed the interpretation of NAFTA, Article 1110 relating to expropriation and compensation. Specifically, Canada rejected Metalclad’s suggestion that NAFTA, Article 1110 is a codification of the United States’ position on the rules of international law regarding expropriation and compensation.
With the agreement of the parties, a hearing was held in Washington, D.C. from August 30, 1999 through September 9, 1999, at which both parties appeared and presented witnesses. The Tribunal directed that only those portions of the written submissions that were disputed were to be introduced at the hearing. Witnesses called by Metalclad for cross-examination were Julia Carabias Lillo, Horacio Sanchez Unzuetta, Pedro Medellin Milan, Leonel Ramos Torres, Marcia Williams and John Butler III; witnesses called for cross-examination by Mexico were Grant S. Kesler, Gustavo Carvajal Isunza, Anthony Dabbene, Lee A. Deets and Daniel T. Neveau.
The Tribunal posed questions to the parties, which were addressed by the parties in their post-hearing briefs submitted on November 9, 1999. Full verbatim transcripts were made of the hearing and distributed to the parties.
As permitted by NAFTA, Article 1128, the United States made a written submission to the Tribunal on November 9, 1999. Although the United States does not have any specific commercial interest in the dispute in this case, the submission set forth the United States’ position that the actions of local governments, including municipalities, are subject to NAFTA standards. The United States also submitted that the NAFTA, Article 1110, term "tantamount to expropriation" addressed both measures that directly expropriate and measures tantamount to expropriation that thereby indirectly expropriate investments. The United States rejected the suggestion that the term "tantamount to expropriation" was intended to create a new category of expropriation not previously recognized in customary international law.


A. The Facilities at Issue

B. Metalclad’s Purchase of the Site and its Landfill Permits

C. Construction of the Hazardous Waste Landfill

D. Metalclad is Prevented from Operating the Landfill



A Tribunal established pursuant to NAFTA Chapter Eleven, Section B must decide the issues in dispute in accordance with NAFTA and applicable rules of international law. (NAFTA Article 1131(1)). In addition, NAFTA Article 102(2) provides that the Agreement must be interpreted and applied in the light of its stated objectives and in accordance with applicable rules of international law. These objectives specifically include transparency and the substantial increase in investment opportunities in the territories of the Parties. (NAFTA Article 102(1)(c)). The Vienna Convention on the Law of Treaties, Article 31(1) provides that a treaty is to be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of the treaty’s object and purpose. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes, any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty. (Id., Article 31(2)(a)). There shall also be taken into account, together with the context, any relevant rules of international law applicable in the relations between the parties. (Id., Article 31(3)). Every treaty in force is binding upon the parties to it and must be performed by them in good faith. (Id., Article 26). A State party to a treaty may not invoke the provisions of its internal law as justification for its failure to perform the treaty. (Id., Article 27).

The Parties to NAFTA specifically agreed to "ENSURE a predictable commercial framework for business planning and investment". (NAFTA Preamble, para. 6 (emphasis in original)). NAFTA further requires that "[e]ach Party shall ensure that its laws, regulations, procedures, and administrative rulings of general application respecting any matter covered by this Agreement are promptly published or otherwise made available in such a manner as to enable interested persons and Parties to become acquainted with them". Id. Article 1802.1.


A. Responsibility for the conduct of state and local governments.

B. NAFTA Article 1105: Fair and equitable Treatment

C. NAFTA, Article 1110: Expropriation


A. Basic Elements of Valuation

Mexico asserts that a discounted cash flow analysis is inappropriate where the expropriated entity is not a going concern. Mexico offers an alternative calculation of fair market value based on COTERIN’s "market capitalization". Mexico’s "market capitalization" calculations show a loss to Metalclad of $13-15 million.
Mexico also suggests a direct investment value approach to damages. Mexico estimates Metalclad’s direct investment value, or loss, to be approximately $3-4 million.
Metalclad asserts that it invested $20,474,528.00 in the landfill project, basing its value on its United States Federal Income Tax Returns and Auditors’ Workpapers of Capitalized Costs for the Landfill reflected in a table marked Schedule A and produced by Metalclad as response 7(a)A in the course of document discovery. The calculations include landfill costs Metalclad claims to have incurred from 1991 through 1996 for expenses categorized as the COTERIN acquisition, personnel, insurance, travel and living, telephone, accounting and legal, consulting, interest, office, property, plant and equipment, including $328,167.00 for "other".
Mexico challenges the correctness of these calculations on several grounds, of which one is the lack of supporting documentation for each expense item claimed. However, the Tribunal finds that the tax filings of Metalclad, together with the independent audit documents supporting those tax filings, are to be accorded substantial evidential weight and that difficulties in verifying expense items due to incomplete files do not necessarily render the expenses claimed fundamentally erroneous. See Biloune, 95 I.L.R. at 223-24.
The Tribunal agrees, however, with Mexico’s position that costs incurred prior to the year in which Metalclad purchased COTERIN are too far removed from the investment for which damages are claimed. The Tribunal will reduce the Award by the amount of the costs claimed for 1991 and 1992.

B. "Bundling"

Some of the subsequent costs claimed by Metalclad involve what has been termed "bundling". "Bundling" is an accounting concept where the expenses related to different projects are aggregated and allocated to another project. Metalclad has claimed as costs related to the development at La Pedrera earlier costs incurred on certain other sites in Mexico. While not taking any decision in principle regarding the concept of bundling as it may be applicable to other situations (for example in the oil industry where the costs in relation to a "dry hole" may in part be allocated to the cost of exploring for and developing a successful well), the Tribunal does not consider it appropriate to apply the concept in the present case. The Tribunal has reduced accordingly the sum payable by the Government of Mexico.

C. Remediation

D. Interest

E. Recipient



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