Supreme Court of Justice withdraws mining concessions for lack of community consultations

White & Case LLPOn 16 February 2022, the First Chamber of the Supreme Court of Justice ("SCJ") ruled in favor of the Ejidal Commissariat and the Nahua Indigenous Community of Tecoltemi, ordering the withdrawal of two mining concessions from a Canadian company due to the lack of consultation1 prior to the granting of these concessions on the basis of article 2 of the Political Constitution of the United Mexican States and Convention 169 of the International Labor Organization on indigenous peoples (the "ILO Convention").2

The concessions were granted in 2003 and 2009 to the Mexican subsidiary of the Canadian company with the aim of developing gold and silver mining activities in the northern part of the State of Puebla. Through its ruling, the SCJ recognized that "there is a conventional obligation for all Mexican authorities to carry out the necessary mechanisms or procedures that give effect to the right to prior, free and informed consultation of indigenous peoples,"3 and "determined that it is appropriate to order the Secretariat of Economy, through its Directorate General for Mining Regulation, to withdraw the mining concession titles."4

Mexican courts have stated that "consultations should not be held whenever indigenous groups are involved in any state decision, but only in cases where State activity can cause significant impacts on their lives and surroundings."5 Thus, as recognized by international courts, the "ILO Convention imposes direct obligations only on States…. [Private enterprises cannot 'fail' to comply with the ILO Convention because it does not impose direct obligations on them."6 So, if the concessionaire acted in good faith, it may have to be compensated for the effect caused by the State's conduct.

In their claim, the indigenous people of Tecoltemi had also claimed to declare unconstitutional articles 6, 10, 15 and 19 of the Mining Law.7 However, the SCJ concluded that "the complaining party is not justified in that the disputed articles are unconstitutional" because "the regime established in constitutional article 27 on the minerals owned by the Nation is clear in establishing the exclusive power of the Federation to apply the modalities necessary for the utilization of mineral resources".8

It should be mentioned that the SCJ left open the possibility of renewing the concessions if the indigenous community's rights of consultation are respected, allowing the Secretariat of Economy to "issue them again considering that … there is a conventional obligation for all Mexican authorities to carry out the necessary mechanisms or procedures that give effect to the right to prior, free and informed consultation."9

Members of the mining industry whose rights may be affected by this precedent may seek legal advice for the intervention of the relevant means of defense.

International Protections

It should be noted that, in the face of measures taken by the State, the investment promotion and protection treaties ("IBTs")10 grant rights to investors for the protection of their investments, which translate into obligations under public international law for the State. Mexico has IBTs signed with more than 40 states,11 in addition to the fact that state legislatures (e.g., the European Union-Mexico Free Trade Agreement) did not formalize several IBTs who had ended the negotiation process.

The IBTs to which Mexico subscribed grant investors, among other things, the following key rights:

  • Fair and equitable treatment: This is a guarantee covering a series of obligations for the State that have been outlined in arbitration practice. In particular, it requires the State to refrain from adopting acts or measures that: (i) frustrate the legitimate expectations of the investor at the time the investment was made; (ii) lack of due transparency; (iii) are irrational or arbitrary; or (iv) have disproportionate negative effects on the investment. The State also has an obligation to maintain a stable and transparent regulatory framework.
  • Non-discrimination: The investment recipient states are obliged to give the investor the same treatment as their nationals with respect to investments (known as "National Treatment") and the same treatment as other foreign investors in similar circumstances (what is known as "Most Favored Nation Treatment").
  • Fair Expropriation: States suffering an expropriation or governmental act of similar effects with respect to the investment of a foreign investor protected by the treaty in question shall provide prompt, fair and adequate compensation. In addition, such a measure should be based on the public interest of the State that applied it.12

The content and definition of each of the rights protected here is intrinsically linked to the text of the treaty in question, as its application and interpretation will depend on the way in which the treaty was drafted. Violation of any of the rights protected by the IBTs would implicate the international responsibility of the state and its obligation to compensate for the damage.

The decision of the SCJ, as well as the possible application of this precedent for other mining concessions in the country, could potentially affect rights protected by the IBTs, such as the reasonable and legitimate expectations of investors who invested in the country and relied on the application of a specific legal and business framework. Such affectation could lead to potential claims before international courts under the IBTs to which the Mexican State is a Party.

1 Sin Embargo, "SCJN makes history: It withdraws 2 concessions to Canadian miner and protects indigenous people," available at: https://www.sinembargo.mx/16-02-2022/4117992.
2 Article 2 of the Political Constitution of the United Mexican States provides that "the right of indigenous peoples to self-determination shall be exercised within a constitutional framework of autonomy that ensures national unity…. This constitution recognizes and guarantees the right of indigenous peoples and communities to self-determination and, consequently, the autonomy to: (v) conserve and improve habitat and preserve the integrity of their lands under the terms set forth in this Constitution." In addition, Article 6 of ILO Convention 169 provides that: "Governments shall, (a) consult the peoples concerned, through appropriate procedures and in particular through their representative institutions, whenever legislative or administrative measures likely to affect them directly are provided for… 2. Consultations carried out in application of this Convention shall be conducted in good faith and in a manner appropriate to the circumstances, with the aim of reaching agreement or obtaining consent on the measures proposed."
3 Sin Embargo, "SCJN makes history: It withdraws 2 concessions to Canadian miner and protects indigenous people," available at: https://www.sinembargo.mx/16-02-2022/4117992.
4 Idem.
5 See Amparo en revisión 499/2015. Jose Luis Flores Gonzalez and others. November 4, 2015 and Amparo en revisión 500/2015.
6 Bear Creek Mining Corporation c. Republic of Peru, ICSID Case No. ARB/14/21, Award of 30 November 2017, para. 664.
7 Sin Embargo, "SCJN makes history: It withdraws 2 concessions to Canadian miner and protects indigenous people," available at: https://www.sinembargo.mx/16-02-2022/4117992.
8 Idem.
9 See El País, "The Supreme Court cancels two mining concessions in Tecoltemi in a historic decision of February 16, 2022," available at: https://elpais.com/mexico/2022-02-16/la-suprema-corte-cancela-dos-concesiones-mineras-en-tecoltemi-en-una-decision-inedita.html.
10 IBTs are agreements in which two or more countries establish the rules and conditions applicable to foreign investment in each of the countries that subscribe to it and where the criterion of reciprocity guides the granting of guarantees by each State concerned.
11 Specifically, Mexico has entered into mutual investment protection agreements ("IPAs") that are currently in force with the following countries: Argentina, Australia, Austria, Bahrain, Germany, Belarus, China, South Korea, Cuba, Denmark, Finland, France, Slovakia, Spain, United Arab Emirates, Greece, Holland, India, Iceland, Italy, Kuwait, Panama, Portugal, Czech Republic, United Kingdom, Singapore, Sweden, Switzerland, Trinidad and Tobago Turkey and Uruguay. Mexico has also signed free trade agreements ("NAFTA") containing investment protection provisions, such as the Pacific Alliance, the Mexico-United States-Canada Treaty (the "T-MEC," formerly NAFTA), the Comprehensive and Progressive Trans-Pacific Partnership Treaty, Chile FTA, Colombia FTA, Costa Rica FTA, Japan FTA, Panama FTA, Peru FTA and Uruguay FTA.
12 It should be mentioned that the public interest of a regulatory measure does not necessarily exempt the State from its international responsibility in the event of expropriation.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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