Tribunal dismisses all of investor’s claims under NAFTA and orders him to pay more than $2 million in costs
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International Law Office | 17 September 2020

Tribunal dismisses all of investor’s claims under NAFTA and orders him to pay more than $2 million in costs

by Raúl Herrera

Facts

In April 2016 Joshua Dean Nelson commenced arbitration against Mexico on behalf of Telefacil México, SA de CV and himself in the International Centre for the Settlement of Investment Disputes under the North American Free Trade Agreement (NAFTA).

According to Nelson, the Federal Telecommunications Institute (FTI) had prevented him from participating in the telecoms market by issuing measures that he alleged violated Chapter 11 of NAFTA. Further, Telefacil considered that:

  • Nelson had unjustifiably been denied access to justice as he had not been provided with legal protection; and
  • his investment in the market had been unduly expropriated.

For these reasons, Telefacil demanded that Mexico pay:

  • $471 million for its alleged breach of Chapter 11 of NAFTA;
  • interest; and
  • the costs of the arbitration.

Mexico denied the breach alleged by Telefacil on the grounds that the rights invoked by Nelson were not protected under NAFTA. Likewise, it pointed out that Nelson had not proved that the economic value of his rights had been significantly affected.

Thus, what was possibly in question was whether the measures adopted by the FTI constituted a denial of justice to the detriment of Telefacil in consideration of Article 1105 of NAFTA.

Decision

The arbitral tribunal rejected Telefacil’s claim for illegal expropriation based on Article 1110 of NAFTA, as well as the claim of unfair and inequitable treatment on the basis of Article 1105. The tribunal held that Telefacil owed Mexico $2.05 million in arbitration costs. The main reason for this determination was that the Mexican authorities had not violated international commercial law or breached their commitments under treaties to which they were a party – specifically, NAFTA.

Comment

The overall finding of the award was that even when foreign investors disagree with determinations of Mexican authorities specialised in a matter, this type of resolution does not amount to a violation of Mexico’s international obligations under NAFTA.

The question remains as to whether the refusal to grant Telefacil legal protection was a denial of justice to its detriment or the consequence of supporting and defending determinations of specialised authorities in the telecoms field.

Regardless of the answer, this arbitration shows that if a specialised authority issues such a resolution, this will not per se constitute a violation of Mexico’s international obligations under an international treaty. Rather, each claim must be assessed on a case-by-case basis.

For further information on this topic please contact Raúl Herrera Hazas at Becerril, Coca & Becerril SC by telephone (+52 55 5263 8730) or email (rherrerah@bcb.com.mx). The Becerril, Coca & Becerril website can be accessed at www.bcb.com.mx.