Articles | Apr 27, 2023

ITA Holds First Mining Conference in Toronto

By Eoin Ó Muimhneacháin

The Institute for Transnational Arbitration’s inaugural conference focused on the mining sector took place in Toronto last month, covering topics such as political risk, ESG, tax, and the etiquette of declining demands for bribes. Eoin Ó Muimhneacháin of Phillips Lytle in New York reports for Global Arbitration Review.

Following a welcome from ITA chair Tom Sikora, day one of the conference consisted of a young lawyers roundtable presented by Young ITA. It focused on developing the skills required in the toolbox of successful arbitration practitioners.

The first session focused on excellence in cross-examination. It was led by independent arbitrator Brian King and Christina Beharry, a partner at Foley Hoag. They shared “ten commandments” of cross-examination, concluding with “Avoidest thou sarcasm (unless truly warranted).” It was followed by discussion of strategies for dealing with difficult or arrogant witnesses and how to best prepare for a cross-examination.

The second session focused on excellence in oral argument. It was led by Julie Bédard of Skadden Arps Slate Meagher & Flom and Michael Kotrly, a barrister at One Essex Court. Participants discussed techniques for avoiding “death by PowerPoint” and tailoring rhetorical styles to suit the tribunal.

Day two consisted of five panel discussions plus a debate. The first two panels were held under the Chatham House rule.

The first panel focused on “political risk” versus regulatory flexibility in foreign investment. It was moderated by conference co-chair Myriam Seers of Agora and included Ana María Ordoñez of Colombia’s Agencia Nacional de Defensa Jurídica del Estado, Nils Englestad of Alamos Gold, Yousef Rehman of Centerra Gold and Liz Snodgrass of Three Crowns.

The panelists discussed stability agreements and their potential downsides: if a mining company negotiates too favorable an agreement, public resentment regarding, for example, favourable tax treatment, may result in any benefits obtained in such an agreement being neutralised in future renegotiated agreements. Therefore, stability agreements need to provide both mining companies and governments with fair, mutually beneficial outcomes.

The discussion turned to mining companies’ consideration of the applicable tax regime when entering a new market. The point was made that tax considerations are much more important than rights available under an investment treaty. Consideration of governance and regulatory risk is something that is typically associated with investment in developing economies, but it was suggested that this approach ought to be revisited. Canada, where mining activities often face regulatory challenges, particularly pertaining to environmental regulation, was offered as an example. Proactive monitoring and intervention by public relations professionals is critical to confront, in an honest and transparent way, any public narratives alleging that mining companies are causing environmental damage.

Good relationships with key government officials are also crucial. Governments have a legitimate mandate to regulate and protect the environment, but the line between that legitimate regulation and arbitrary or expropriatory conduct can sometimes be crossed in certain jurisdictions. Separately, corruption and bribe-seeking are major risks in some jurisdictions and must be proactively managed. The nuances of demands for bribes from public officials and the etiquette for tactfully declining them are very culturally specific and require a sophisticated understanding of the unique cultural backdrop to each mining project.

The importance of investor due diligence when entering a new market was also discussed. It was suggested that this ought to include a review of how environmental legislation applies to the mining sector. The flow of capital from investors to mining operations could adapt to regulatory or other setbacks, but capital dries up in the face of regulatory or other uncertainty so the elimination of such uncertainty must be a priority for risk management. Demands from investors for regulatory flexibility cannot and should not extend to demands that they be elevated to effectively being above the law. Getting accurate intelligence on the progress of opaque decision-making processes inside governments to enable the proactive management of investment risk is a perennial challenge in some jurisdictions.

Finally, in relation to investor-state arbitration, both states and investors agree that they need more efficient arbitration processes and the ability to conclude proceedings more quickly than is currently possible.

The second panel covered “everything a mining company needs to know about investment treaty protections.” It was moderated by John Terry of Torys and included Abby Cohen Smutny of White & Case, Mélida Hodgson of Arnold & Porter, and Amanda Fullerton of Denarius Metals.

The panel echoed a number of the themes of the previous session, including the importance of due diligence on environmental, social and governance (ESG) risk when entering a new market. The panel also highlighted the important distinction between a licence to explore for minerals and permission to actually extract those minerals.

The panel placed little weight on the availability of remedies under investment treaties. It was said that mining risk managers are more interested in investigating the community in the area and whether there are competing mining operations there. If large mining companies are operating there, that gives some comfort. If only local mining operations are active, it could indicate potential risks as they may feel threatened by a foreign miner moving into their territory. However, just because there is a history of mining in an area doesn’t mean that mining companies will not encounter public opposition down the line. Due diligence needs to be more extensive than just seeing a history of mining.

The panel expressed the view that over half of the risk in mineral exploration arose over whether there were minerals to be discovered. The remaining risk was primarily ESG risk. ESG is a newly fashionable buzzword for a concept that has always been familiar to mining operators. It is merely a familiar bundle of risks that have been grouped together and given a new acronym.

The third panel focused on quantification of damages in mining cases, moderated by Junior Sirivar of McCarthy Tétrault and including Carla Chavich of Compass Lexecon, Elliot Luke of Clifford Chance, and Howard Rosen of Secretariat. One innovative approach the panel discussed was the use of unjust enrichment doctrines under international law in “treasure map” claims.  Those are claims in which mining companies seek redress for expropriation of mineral resources that the company identified through exploration and was required to disclose to the government.

The fourth panel – moderated by Caroline Richard of Freshfields Bruckhaus Deringerand and including Stephen Crozier of Ring of Fire Metals, Cedric Soule of King & Spalding, and Diana Suárez of Cerro Matoso – addressed social and governance obligations.

The fifth panel discussed environmental issues in mining arbitration. It was moderated by conference co-chair Kathryn Khamsi of Three Crowns and included Francisco Balduzzi of Womble Bond Dickinson, Gino Bianchi Mosquera of GSI Environmental, Mark Luz of Canada’s Trade Law Bureau, and José Zapata of Holland & Knight.

This panel explored the criticism that investment treaties – including three in Canada’s recent practice – dampen states’ ability to regulate investors’ activities. The EU-Canada Comprehensive Economic and Trade Agreement (CETA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), for example, were generally regarded as containing compromises that had the effect of bolstering states’ ability to regulate investor activity in the public interest but still contained provisions designed to protect investors against expropriation.

The conference culminated with a debate on the motion that “Investment treaties limit the critical right of states to preserve the environment and protect community rights in a mining context.” Kenneth Figueroa of Foley Hoag argued for the motion with conference co-chair Nigel Blackaby KC of Freshfields Bruckhaus arguing against.

The ITA’s inaugural conference on international arbitration in the mining sector took place in Toronto on 8 and 9 March. The conference, which was attended by over 140 participants from more than 10 countries, brought together leading experts in the industry to discuss the latest developments in the field of international mining arbitration. It will continue to be held annually following the Prospectors & Developers Association of Canada (PDAC) conference, the major mining industry conference held every year in Toronto.

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