On March 19, 2021,[1] an ad hoc Committee for the International Centre for Settlement of Investment Disputes (ICSID) upheld a 2018 ICSID award,[2] which found that, in order to be protected under international investment law, the mining licence at issue had to substantially comply with local environmental law. Because it did not comply, the Tribunal determined the licence was not an “investment” for the purposes of the applicable investment treaty, namely the Kenya-UK Bilateral Investment Treaty (BIT), and therefore was not protected as such.
In its application for an annulment, subsidiaries of a Canadian mining corporation (collectively, Cortec),[3] alleged the ICSID Tribunal had exceeded its jurisdiction by reading into the BIT an “implicit legality requirement” that investments must be compliant with national law. The ad hoc Committee rejected this argument, maintaining that it was not untenable to require a licence comply with a host State’s national laws in order to be protected as an investment. The following provides a more detailed overview of parts of the claim and resulting takeaways.
The claim
Beginning in 2007, Cortec invested millions of dollars in the exploration and development of a niobium and rare earths mine in the Mrima Hill forest reserve area of Kenya. Cortec was initially granted a prospecting licence for its project, over an area that originally did not include Mrima Hill. A 1997 Gazette notice under the Mining Act (Kenya)had prohibited all prospecting and mining in Mrima Hill, but this could be overturned by the Mining Commissioner.[4] In 2010, the prospecting licence was renewed by the Mining Commissioner, and the area under licence expanded to include Mrima Hill.[5]
In order to advance the project, Cortec had to convert the prospecting licence into a mining licence. The process for doing this proved long and arduous. Between 2010 and 2013, Cortec received several renewals for its prospecting licence and information on the conditions precedent required to convert to a mining licence. Cortec alleged bureaucratic obstruction in the process, and that it had complied with its obligations. Kenya alleged a failure by Cortec to comply with the conditions precedent as the reason for the delay.[6]
In March of 2013, Cortec was granted an exclusive 21-year mining licence over an area that included Mrima Hill. Following a Kenyan general election and a change of government that same year, the mining licence was revoked in August of 2013.[7] This was because in Kenya’s view the conditions for the mining licence had not been met and mining in Mrima Hill was prohibited by Kenyan law.[8]
Cortec advanced its claim on the basis that this revocation of the mining licence contravened multiple provisions in the BIT, including those on expropriation, fair and equitable treatment, and unreasonable and discriminatory measures.[9] The 2018 Tribunal, chaired by Canada’s Ian Binnie QC alongside panel members from Australia and France, concluded that Cortec’s mining licence did not constitute an “investment” under the BIT; it was a creature of Kenyan law and void from the outset because it had been issued in violation of Kenyan national laws to protect the environment.[10] Since there was no mining licence, such could not be a basis for Tribunal jurisdiction under the BIT. The only valid licence held by Cortec was a prospecting licence – which “was not itself a licence to make money [but] a licence to spend money. Prospecting, as such, involves cost not revenue.”[11]
In 2019, Cortec sought an annulment of this decision, arguing among other things that:[12]
- The reading of a national compliance legality requirement into the BIT, and the resulting conclusion that their mining licence was not an investment, amounted to an extra-jurisdictional exercise of the Tribunal’s powers; and
- The Tribunal failed to exercise jurisdiction over Cortec’s investments beyond the mining licence, namely its prospecting licence and ownership of shares in Cortec Mining Kenya Limited.
The ad hoc Committee’s 2021 decision on the annulment application dismissed each of these arguments. Reading an implicit legality requirement into the BIT is not untenable, and the Tribunal may only exercise jurisdiction over the questions put to it directly.[13] The prospecting licence and the shares in Cortec Mining Kenya Limited were effectively not in issue because there was no independent claim raised for each, nor any adverse governmental action directly alleged against either.[14] The ad hoc Committee upheld the Tribunal’s finding in respect of the mining licence; indeed, the mining licence was not a protectable investment on the basis that it failed to comply with Kenyan environmental law.[15]
Takeaways
The ad hoc Committee’s decision provides confirmation that for an investment to qualify for protection under the BIT at issue, it must substantially comply with the material laws of the host State even without express language to this effect in the treaty.[16] This could even be the case where a noncompliant licence is granted by the host State’s government.[17] As stated by the ad hoc Committee, “while international law protects property rights, the existence and scope of those rights are determined by municipal law; and in this case no such rights existed to protect.”[18]
These decisions have the potential to significantly impact companies with current and future mining and development licences where there are questions around environmentally sensitive areas. Perhaps the most notable impact is what mining companies are to do in a situation where there is confusion on conditions precedent to a licence, or in knowing which laws apply with respect to potentially protected areas. There could be situations where these issues give rise to regulatory or outright expropriation and delay (amongst other matters) in breach of investment treaty protections. There might also be times where international mining proponents who currently hold or are in the process of acquiring mining licences may need to undertake additional due diligence, to ensure compliance with national laws in the regions in which they work, and consult with counsel at an early stage around these nuances.
[1] Cortec Mining Kenya Limited, Cortec (PTY) Limited, and Stirling Capital Limited v Republic of Kenya, ICSID Case No. ARB/15/29 – Decision on Application for Annulment (19 March 2021) at paras 4, 74-78 (Decision on Application for Annulment).
[2] Cortec Mining Kenya Limited, Cortec (PTY) Limited, and Stirling Capital Limited v Republic of Kenya, ICSID Case No. ARB/15/29 – Final Award (22 October 2018) (Award).
[3] Cortec Mining Kenya Limited, Cortec (Pty) Limited and Stirling Capital Limited (collectively, Cortec), each a subsidiary of Canada’s Pacific Wildcat Resources Corp.
[4] Award at paras 43 & 63.
[5] Award at para 100.
[6] Award at paras 97-105.
[7] Decision on Application for Annulment at paras 4, 74-78.
[8] Award at para 222.
[9] Decision on Application for Annulment at para 4.
[10] Award at paras 222, 364-365. See also Annulment Decision at paras 98-104. The 2013 mining licence was not a “lawful investment” – it was not obtained “in accordance with the laws of Kenya” – and thus the Tribunal was without jurisdiction to entertain a claim as a result of this licence.
[11] Award at para 328.
[12] Decision on Application for Annulment at page ii (Table of Contents), and paras 106-199.
[13] Decision on Application for Annulment at paras 211,
[14] Decision on Application for Annulment at paras 175-176.
[15] Decision on Application for Annulment at paras 144.
[16] Decision on Application for Annulment at paras 138-139.
[17] Decision on Application for Annulment at para 143: “…in any event, [the mining licence] is a piece of paper whose value, if any, lies exclusively in the consequences attached to it by Kenyan law. In this case, as the Kenyan Courts have said, Kenyan law attached no consequences to [this] piece of paper.”
[18] Ibid.
