Metalclad v Mexico

Brief facts

Plaintiff ( Metalclad) built a subsidiary to build a

hazardous waste landfill in Guadalzar.
The State and Mexican Government told that all
requisite permits would be issued.
Guadalzar Municipal Authorities refused to issue a
construction permit/
Metalclad initiated an action under North American
Free Trade Agreement
 Timeline

In 1990, the Mexican federal government issued a

permit for a hazardous waste transfer station to be built
by a Mexican company.
In May 1993, the state government issued a land use
permit for the landfill, which did not constitute an
operating permit.
In May 1994, Metalclad believed it had the support of
the state government and began construction.
In October 1994, Municipal officials ordered a halt to
construction due to the absence of a construction
permit.
In February 1995, an environmental impact
assessment was completed , approving the facility.
This was confirmed by the federal
environmental agency.
In March 1995,construction was complete but the
facility never became operational.
In November 1995, Metalclad reached an
agreement with the federal officials for the
operation of the facility.
In December 1995, the municipality rejected
Metalclad’s application for the operation.
In January 1996, the municipality initiated a legal
action in Mexico’s constitutional court to challenge
the federal agreement that purported to allow
Metalclad to operate the facility.
The state and municipal officials, continued to
oppose the facility and, in January 1997, Metalclad
initiated the arbitration proceedings.
 Issue

Has Mexico violated the foreign investment

treaty by failing to keep its promise?
 Claims

Metalclad’s claims focused on three violations of

NAFTA: (1) that the series of acts leading to
the denial of the construction permit and
inability to operate the hazardous waste
landfill constituted a breach of NAFTA’s
Article 1105 on minimum international
standards of treatment, (2) that the same acts
also amounted to an indirect expropriation under
Article 1110 of NAFTA, and (3) that the Ecological
Decree in itself also constituted a breach of Article
1110 of NAFTA.
 Decision

Mexico - failed to comply with or adhere to the

requirements of NAFTA, Article 1105(1) that each
Party accord to investments of investors of another
Party treatment in accordance with international
law, including fair and equitable treatment. This is so
particularly in light of the governing principle that
internal law does not justify failure to
perform a treaty
The Tribunal equated NAFTA’s Article 1105, entitled “Minimum Standard
of Treatment,” fair and equitable treatment (FET). It stated that FET
encompasses the obligations on government transparency .
‘It held that this requires the host state to ensure …that all relevant legal
requirements for the purpose of initiating, completing and successfully
operating investments made, or intended to be made, under the
Agreement should be capable of being readily known…. There should be
no room for doubt or uncertainty on such matters.
Once the authorities of the central government of any Party… become
aware of any scope for misunderstanding or confusion in this
connection, it is their duty to ensure that the correct position is
promptly determined and clearly stated so that investors can
proceed with all the appropriate expedition in the confident belief that
they are acting in accordance with all relevant laws.’ (para. 76)
The Tribunal also ruled, importantly, that Mexico’s
domestic environmental law placed all matters
related to hazardous waste into federal jurisdiction
so municipal permit not required.
There was no legal basis for not issuing the permit.
Mexico acted contrary to its domestic law and that
this also amounted to a breach of Article 1105