Case Notes:
Bear Creek Mining Corporation v. Republic of Peru
ICSID Case No. ARB/14/2
Case type: International Investment Agreement
Claimant(s): Bear Creek Mining Corporation
Respondent: Peru
Applicable rules: ICSID Convention - Arbitration Rules
Investment treaty: Canada-Peru Free Trade Agreement
Damages Amount: US $18,237,592
Other remedy: Respondent shall pay, on the amount awarded, compound interest at a rate of 5%
from the date of publication of Supreme Decree 032, until date of payment. Also, it
shall reimburse Claimant 75% of its arbitration costs, plus compound interest at a rate of 5
cites referred: https://www.iisd.org/itn/en/2018/10/18/bear-creek-v-peru/
Summary of Facts:
Bear Creek Mining Corporation (Bear Creek), a Canadian entity headquartered in Vancouver 1,
commenced efforts in December 2006 to secure mining rights for the Santa Ana Project 2 in Peru,
situated near indigenous communities. In November 2007, Peru's President and Council of Ministers
issued Supreme Decree 083-2007, granting Bear Creek authorization for mining concessions related
to the Santa Ana Project 3. The company later acquired titles from a Peruvian national, who was also
its employee4. Despite Bear Creek's engagement in agreements and workshops with various
communities, opposition to the Santa Ana Project intensified 5.
Between March and June 2011, protests and strikes erupted in the Puno Department, objecting to the
environmental impact of mining activities and the Santa Ana Project. On June 24, 2011, Peru's
Government revoked Supreme Decree 083-2007 through Supreme Decree 032-2011-EM 6, terminating
Bear Creek's rights to operate the mining concessions. Two additional decrees were issued, imposing
a 36-month suspension on new mining concessions in Puno, mandating consultations for existing
concessions, and preventing future authorizations without prior consultation.
Amid legal actions initiated by the Ministry of Energy and Mines and constitutional challenges by
Bear Creek, the latter filed a claim against Peru in August 2014 under the Canada–Peru Free Trade
Agreement. The claim alleged violations related to expropriation, fair and equitable treatment, full
protection and security, and protection against unreasonable and discriminatory measures 7.
The Tribunal, acknowledging that certain issues needed addressing in the merits and damages phase,
focused on the expropriation claim. Relying on factors outlined in the FTA 8, it deemed Supreme
Decree 032-2011-EM an indirect expropriation, emphasizing the lack of due process and the
measure's unlawfulness.
1
Bear Creek Award (n 1) para 2
2
ibid para 140.
3
ibid para 149.
4
ibid paras 121 and 150.
5
ibid paras 172–73.
6
ibid para 202.
7
ibid paras 113 and 115
8
Canada–Peru FTA
Regarding police powers, the Tribunal found no other exceptions applicable beyond the FTA's
detailed provisions. Other alleged FTA violations were briefly addressed, emphasizing the unlawful
indirect expropriation finding.
The Tribunal, noting Bear Creek's lack of contributory fault, deliberated on damages 9. Opting for the
fair market value standard, it considered the unlikelihood of obtaining the necessary social license for
the Project and calculated damages based on Bear Creek's invested costs ($18,237,592) 10. Peru was
directed to bear its arbitration costs and 75 percent of Bear Creek's reasonable costs 11.
In a Partial Dissenting Opinion, Professor Sands, while agreeing on FTA violations, contended that
the protests partly stemmed from the Santa Ana Project. He criticized the majority's failure to reduce
damages for Bear Creek's contributory fault and proposed a 50 percent reduction in damages and
equal cost-sharing in the proceedings.
Diverging Views On A Social License To Operate
Social license to Operate:
A Social License to Operate (SLO) pertains to the degree of acceptance or approval accorded
by local communities and stakeholders to organizations and their activities. This concept has
relatively recently emerged from the broader and more established concepts of "corporate
social responsibility" and "social acceptability." It is grounded in the notion that institutions
and companies require not only regulatory permission but also "social permission" for
conducting their business. The SLO is an outcome of how companies and institutions manage
various aspects of their operations, including ethics, labor practices, sustainability, etc., within
their broader environment, and how they engage in risk communication and activities with
their stakeholders.
The consideration of a social license to operate was extensively deliberated in the submissions of
amici, Asociacio´n civil Derechos Humanos y Medio Ambiente (DHUMA), and Dr. Carlos Lo´pez,
Senior Legal Adviser to the International Commission of Jurists in Geneva. The Tribunal initially
highlighted the disagreement between Bear Creek and Peru regarding the issues raised by the amici.
Bear Creek asserted that, at the time of acquiring mining concessions, no Peruvian law defined the
standards for granting a social license to a mining project, and no international instrument imposed
direct obligations on private companies12.
In contrast, Peru's response to the amici submissions centered on an 'internationally-accepted concept
of the 'social license'' aligned with Peruvian laws, arguing that Bear Creek failed to meet this standard.
According to Peru, Bear Creek's inability to obtain a social license to operate rendered the claim
inadmissible. Profoundly diverging views emerged between the Members of the Tribunal, not only on
the consideration of a social license but also on its nature.
The majority of the Tribunal emphasized that, although the concept of a 'social license' lacks a clear
definition in international law, relevant instruments stipulate that consultations with indigenous
communities aim to obtain consent. However, concerning the social unrest's cause, the majority
concluded that Bear Creek's outreach activities, supported and approved by Peruvian authorities, did
9
ibid para 569.
10
ibid paras 657 and 716.
11
ibid para 731.
12
ibid para 238.
not contribute to the unrest. The Tribunal held that Peru, having continuously approved and supported
Bear Creek's conduct, could not later claim it was contrary to the ILO Convention 169 or contributed
to social unrest.
The majority applied the same reasoning to reject contributory fault or liability on Bear Creek's part.
They concluded that Peru's failure to denounce the inadequacy of consultations prevented it from
relying on Bear Creek's contribution to social unrest as justification for Supreme Decree 032-2011-
EM.
The respondent, Peru asserted that the reason for the revocation of Bear Creek's mining rights was the
social unrest in the region. The tribunal concurred with the respondent, acknowledging that the
claimant could have engaged in more extensive outreach activities to obtain the social license.
However, the crucial issue, according to the tribunal, was whether additional outreach by the investor
was legally required13, a matter that the tribunal ultimately rejected. The tribunal stated that Bear
Creek could assume it had complied with all legal requirements since the respondent consistently
approved and supported the investor's conduct 14 . Considering these factors, the tribunal concluded
that Decree 032 constituted an indirect expropriation.
In contrast, Professor Sands' Partial Dissenting Opinion interpreted the 'social license' concept
differently, anchored in an acknowledgment of foreign investors' obligations. Referring to
consultation requirements in ILO Convention 169, Sands concluded that the Tribunal could consider
whether Bear Creek fulfilled its obligation in line with legal requirements. Sands stressed that
obtaining a 'social license' remained Bear Creek's obligation, and the failure was largely due to its
own shortcomings.
Although both the majority and Professor Sands engaged with the 'social license' concept, their
understandings demonstrated two perspectives. The majority focused on the state's responsibility to
monitor the investor's attempts to seek consent, while Professor Sands emphasized the possibility of
imposing obligations on foreign investors. This distinction is crucial, as a meaningful application of
the 'social license' concept requires acknowledging foreign investors' responsibilities under
international law.
Whether Respondent Expropriated Claimant’s Investment in The Santa Ana Concession
The Claimant asserted that Supreme Decree 032 amounted to an indirect expropriation 15 of its
investment in Santa Ana, violating Annex 812.1 of the FTA, which specifically defines "indirect
expropriation." It argued that by applying the tests outlined in Annex 812.1 of the FTA, the Tribunal
would conclude that Supreme Decree 032 constituted an "indirect expropriation" under Annex
812.1(b) and lacked proportionality under Annex 812.1(c)16.
In response, the Respondent rejected the Claimant's contention of indirect expropriation, contending
that Supreme Decree 032 did not expropriate the Claimant's investment indirectly, as it neither
cancelled nor transferred the Claimant's ownership, and the Claimant retained title to the Santa Ana
concessions17.
In general, Supreme Decree 032 and the Respondent's arguments were based on two legal reasons:
1) the newly discovered unconstitutionality of Supreme Decree 083 due to the involvement of Ms.
Villavicencio; and
13
Ibid para. 408
14
Ibid para. 412
15
Ibid para 341.
16
Ibid para 341-347.
17
Ibid para 355
2) the social unrest in the Puno department necessitating the derogation of Supreme Decree 083 18 .
Referring to Article 812.1 of the FTA and Annex 812.1, the Tribunal found that the FTA provides
more extensive and detailed definitions and rules of indirect expropriation than many other Bilateral
Investment Treaties (BITs)19. To determine indirect expropriation, the Tribunal examined whether the
effects of Supreme Decree 032 aligned with the "factors" outlined in Annex 812.1 subsection (b) of
the FTA20.
Applying the first factor in subsection (i), the Tribunal determined that there was an "economic
impact" as Supreme Decree 032, by revoking the authorizations of Supreme Decree 083, deprived
the Claimant of major legal rights crucial for realizing its mining project 21. In the application of the
second factor in subsection (ii), the Tribunal found that Supreme Decree 032 "interferes with" the
Claimant's "distinct, reasonable investment-backed expectations22"
Regarding the third factor (iii), which considers the "character of the measure," the Tribunal sought
answers to two questions. First, "Did Claimant's Involvement of Ms. Villavicencio Justify the
Derogation of Decree 083?" The Tribunal pointed out that the public necessity approval by Supreme
Decree 083 was granted after careful consideration, including detailed information about Ms.
Villavicencio's relationship with the Claimant and her involvement with the Santa Ana Project. The
Tribunal observed that Respondent's arguments suggesting the Claimant had illegally obtained the
public necessity declaration through Ms. Villavicencio's involvement were not valid 23. Second, "Did
the Social Unrest Justify the Derogation of Supreme Decree 083?"
While acknowledging that further actions by the Claimant were feasible, the Tribunal concluded that
Respondent, having continuously approved and supported Claimant's conduct, cannot claim that this
conduct was contrary to the ILO Convention 169 or was insufficient, causing or contributing to the
social unrest in the region24.
Consequently, Supreme Decree 032 was found to be based on reasons considered illegal according to
Peruvian law and did not justify a breach of the FTA 25. From these considerations, the Tribunal
concluded that the three "factors" expressly provided in Annex 812.1(b) of the FTA for the
identification of an indirect expropriation are fulfilled, and therefore held that Supreme Decree 032
was an indirect expropriation in the sense of Article 812 and Annex 812.1 of the FTA26
Whether Supreme Decree 032 was Lawful under Article 812 of the FTA
The Tribunal highlighted that, in line with the explicit language of Article 812.1 of the FTA, a direct or
indirect act of expropriation will violate the FTA under two conditions: (1) in the absence of due
process of law, or (2) if there has been no payment of "prompt, adequate and effective
compensation27".
The Tribunal pointed out that Respondent's decision not to invite Claimant to the meetings between
June 20 and 23, 2011, was based on the belief that Claimant's presence might complicate discussions
18
Ibid para 388-390, 400
19
Ibid para 368-372
20
Ibid para 374
21
Ibid para 375, 415
22
Ibid para 376, 415
23
Ibid para 392-399
24
Ibid para 415
25
Ibid Para 415
26
Ibid para 415-416
27
Canada–Peru FTA para 443
with groups organizing social unrest, and the Government faced significant political pressure to find
an agreeable solution28. Consequently, the Tribunal assumed that no effort was made by Respondent
to afford Claimant the opportunity to comment before issuing Supreme Decree 032. It also
acknowledged the undisputed fact that Supreme Decree 032 did not provide any compensation to
Claimant29. Therefore, the Tribunal concluded that Supreme Decree 032, lacking due process of law
and the payment of prompt, adequate, and effective compensation, constituted an unlawful indirect
expropriation, violating Article 812.1 of the FTA30.
28
Ibid para 444
29
Ibid para 447-448
30
Canada–Peru FTA para 449
