Santa Elena S.A. X Costa Rica International Centre for Settlement of Investment Disputes (ICSID)

International Centre for Settlement of Investment Disputes - ICSID  arbitration body related to the World Bank

Santa Elena S.A. X Costa Rica

 Compañía del desarrollo de Santa Elena, S.A. (CDSE)  Company established in 1970 to acquire land and develop tourist and resorts properties.  Cost: U.S. $395,000

Santa Elena S.A. X Costa Rica  In 5 May 1978 Costa Rica government issued a decree for the expropriation of the property for the sum of U.S. $1,900,000  The reason given was the necessity to protect the environment and to extend nearby reserves  CDSE agreed with the expropriation, but not with the value offered

Santa Elena S.A. X Costa Rica  The parties spent more than twenty years in dispute about the value of the property  CDSE demanded U.S. $6,400,000  Costa Rican law prescribes that, after ten years the return of the property may be requested, which was denied

Santa Elena S.A. X Costa Rica  Helms Amendment: U.S. $175,000,000 Inter- American Development Bank loan to Costa Rica was delayed at the behest of the U.S. until Costa Rica consented to refer the Santa Elena case to international arbitration

Arbitration procedure  CDSE requested U.S. $41,200,000 as compensation  Matters under appreciation:  Applicable Law  Fair compensation value  Time frame for the evaluation of that amount

Arbitration procedure  Applicable Law  Article 42(1) of the ICSID Convention  “The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable.”

Arbitration procedure  Applicable Law  “The parties’ apparently divergent positions lead, in substance, to the same conclusion, namely, that, in the end, international law is controlling. The Tribunal is satisfied that, under the second sentence of Article 42(1), the arbitration is governed by international law.”

Arbitration procedure  Fair compensation value  Environmental argument: does the nature of the expropriation affects the value of the property?  1) Property should be valued on its possible uses under environmental law restraints  2) property should be valued as the in best use possible

Arbitration procedure  Fair compensation value  “While an expropriation or taking for environmental reasons may be classified as a taking for a public purpose, and thus may be legitimate, the fact that the Property was taken for this reason does not affect either the nature or the measure of the compensation to be paid for the taking. That is, the purpose of protecting the environment for which the Property was taken does not alter the legal character of the taking for which adequate compensation must be paid. The international source of the obligation to protect the environment makes no difference.”

Arbitration procedure  Time frame for evaluation  Assessed under those conditions, when that evaluation should be done?  At the moment of the arbitral judgement?  At the moment of the expropriation?

Arbitration procedure  Time frame for evaluation  “Stated differently, international law does not lay down any precise or automatic criterion, such as the date of the transfer of ownership or the date on which the expropriation has been “consummated” by agreed or judicial determination of the amount of compensation or by payment of compensation.37 The expropriated property is to be evaluated as of the date on which the governmental “interference” has deprived the owner of his rights or has made those rights practically useless. This is a matter of fact for the Tribunal to assess in the light of the circumstances of the case.”

Arbitration procedure  Time frame for evaluation  Costa Rica’s valuation of Santa Elena in 1978 was approximately U.S. $1,900,000.  Claimant’s 1978 valuation was approximately U.S. $6,400,000.  Final value: U.S. $4,150,000

Arbitration procedure  Application of interests  “In the instant case, an award of simple interest would not be justified, given that since May 1978, i.e., for almost twenty-two years, CDSE has been unable either to use the Property for the tourism development it had in mind when it bought Santa Elena or to sell the Property. On the other hand, full compound interest would not do justice to the facts of the case, since CDSE, while bearing the burden of maintaining the property, has remained in possession of it and has been able to use and exploit it to a limited extent.”

Arbitration procedure  FINAL final evaluation  On the basis of the circumstances of the case, the Tribunal determines that the compensation payable to Claimant, comprising principal and interest to the date of the Award, shall be U.S. $16,000,000

Santa Elena S.A. x Costa Rica