Daniel W. Kappes and Kappes, Cassiday & Associates v. Republic of Guatemala

At a glance

Parties

Daniel W. Kappes (United States) and Kappes, Cassiday & Associates (Nevada company) v. Republic of Guatemala

Case no.

ICSID Case No. ARB/18/43

Forum and rules

ICSID Convention; ICSID Arbitration Rules in force as of 10 April 2006, as modified by DR-CAFTA; place of proceeding Washington, D.C.

Treaty

Dominican Republic–Central America–United States Free Trade Agreement (DR-CAFTA), Chapter Ten

Tribunal

Jean Kalicki (President), John M. Townsend, Zachary Douglas

Sector

Gold and silver mining

Outcome

Decision of 13 March 2020: all three expedited preliminary objections denied (the first by majority, with a partial dissent by Zachary Douglas); the time-bar objection was deferred to the merits. The published documents do not show a final award.

Amount

Claimed: no less than USD 175 million for the Progreso VII Project, no less than USD 175 million for the Santa Margarita Project, and no less than USD 500,000 for impounded concentrate shipments. Costs of the preliminary phase reserved.

The dispute

Mr. Kappes and his company KCA together own, directly and indirectly, Exmingua, a Guatemalan company that held the Progreso VII Derivada gold and silver exploitation licence and an exploration licence for the neighbouring Santa Margarita project (together the "Tambor" project). Local communities blockaded the Progreso VII site from 2012. In 2015–2016 Guatemala's Supreme Court and Constitutional Court suspended the exploitation licence in amparo proceedings brought by the NGO CALAS, holding that local communities had not been consulted under the ILO Convention. The Ministry of Energy and Mines then suspended Exmingua's exploitation rights and export certificate. The claimants allege breaches of national treatment, MFN treatment, the minimum standard of treatment (including full protection and security) and the expropriation provision (DR-CAFTA Articles 10.3, 10.4, 10.5 and 10.7). In an expedited preliminary phase under Article 10.20.5, Guatemala argued that the claimants could not recover Exmingua's losses under Article 10.16.1(a), that the MFN claim had not been included in the Notice of Intent, and that the full protection and security claim was time-barred. Guatemala later also filed a counterclaim.

Key holdings

1. By majority, a shareholder may bring a claim 'on its own behalf' under DR-CAFTA Article 10.16.1(a) for reflective (indirect) loss, meaning loss in the value of its shares caused by State measures directed at the local enterprise. The text of the provision contains no limit to 'direct' loss. Article 10.16.1(b), under which a controlling shareholder claims on behalf of the enterprise, is an additional option, not the exclusive route. Decision on Preliminary Objections ¶¶ 126–144, 157–159
2. The waiver objection falls with the main issue. Article 10.18.2 requires an enterprise waiver only for claims under Article 10.16.1(b), so the claimants' own waivers were enough. Annex 10-E does not apply, because Exmingua's local proceedings alleged breaches of Guatemalan law, not of the treaty. Effet utile, object and purpose, and the practice of a subset of the treaty parties do not justify reading in a limit to direct loss. Decision on Preliminary Objections ¶¶ 121, 139–156
3. Zachary Douglas signed subject to a Partial Dissenting Opinion on the reflective loss question. The majority stressed that causation and quantum must take into account Exmingua's creditors, and that whether the claimants themselves incurred loss is a matter for proof. Decision on Preliminary Objections ¶ 159 and fn. 172, 176; signature page
4. The MFN claim is admissible. The Article 10.16.2 notice of intent is a mandatory precondition for all claims intended when it is given. But the MFN claim rested on the Constitutional Court's Escobal ruling of 3 September 2018, which came after the 16 May 2018 Notice of Intent. Read with Article 10.16.4, Article 10.20.4 and ICSID Arbitration Rule 40, DR-CAFTA allows such a new claim to be raised in the Notice of Arbitration without a second notice of intent and waiting period. Decision on Preliminary Objections ¶¶ 184–199
5. The time-bar objection under Article 10.18.1 to the full protection and security claim was not dismissed but deferred to the merits. The claimants confirmed that they pursue no claim for events before the critical date of 9 November 2015. Questions of knowledge and of continuing conduct, especially for Santa Margarita, depend on the facts and need an evidentiary record. Decision on Preliminary Objections ¶¶ 222–228
6. No award of costs for the preliminary phase. None of the objections was frivolous; the first raised a novel issue of law under DR-CAFTA. Costs are reserved to the end of the proceeding. Decision on Preliminary Objections ¶¶ 231–233
7. Procedural rulings: La Puya's amicus application was denied because its counsel would not identify who leads the movement and instructs it (PO5). The claimants were ordered to disclose the exact name of their third-party funder, said to be an affiliate of Burford Capital, but not whether the funding covers adverse costs (PO8). PO5 ¶¶ 37–42; PO8 ¶¶ 43–49

Procedural history

1. 16 May 2018Claimants deliver a Notice of Intent to Guatemala.
2. 9 November 2018Notice of Arbitration filed with ICSID; the case is registered on 11 December 2018.
3. 2 July 2019Tribunal constituted.
4. 16 August 2019Guatemala files preliminary objections under DR-CAFTA Article 10.20.5. Procedural Order No. 1 follows on 10 September 2019.
5. 16 December 2019Public hearing on the preliminary objections in Washington, D.C.
6. 13 March 2020Decision on Preliminary Objections: all objections denied, the time-bar objection deferred to the merits, with a partial dissent by Zachary Douglas.
7. 5 February 2021Procedural Order No. 5 denies La Puya's renewed amicus curiae application.
8. 28 September 2021Procedural Order No. 8 orders disclosure of the third-party funder's exact name.
9. 28 February – 11 March 2022Remote hearing on jurisdiction and the merits, held because of COVID-19 (Procedural Orders Nos. 9–11).
10. 22 June 2022Closing hearing held remotely. Procedural Order No. 15 (dated 20 July 2022) then admits supplemental exhibits on the consultations for Progreso VII and the Fénix mine. The published documents do not show the outcome of the merits.

Tribunal, counsel and experts

Decided by

• Jean E. Kalicki President — appointed by the parties jointly
• John M. Townsend Co-arbitrator — appointed by the claimant
• Zachary Douglas Co-arbitrator — appointed by the respondent (partial dissent on the Decision on Preliminary Objections)

For the claimant

White & Case LLP

For the respondent

Holland & Knight LLP · GST LLP · Ministry of Economy of Guatemala · Procuraduría General de la Nación

For other participants

Sheppard Mullin Richter & Hampton LLP

Experts

Mike Armitage (claimant) · James Siddorn (claimant) · Garrett Rush (claimant) · Mario Fuentes Destarac (claimant) · Margarita Mendoza Yaquián (claimant) · Richard J. Lambert (respondent) · Stephan H. Theben (respondent) · Graham G. Glow (respondent) · Howard Rosen (respondent) · Chris Milburn (respondent) · Marcelo Pablo Ernesto Richter (respondent) · Ana María Esteves (respondent) · Lloyd Lipsett (respondent)

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Keywords

• DR-CAFTA
• CAFTA-DR
• reflective loss
• shareholder claims
• Article 10.16.1
• waiver
• notice of intent
• MFN treatment
• full protection and security
• limitation period
• Article 10.20.5 expedited objections
• Exmingua
• Progreso VII
• Santa Margarita
• Tambor
• ILO Convention 169
• community consultation
• gold mining
• amicus curiae
• third-party funding

Summary generated with AI from the published documents — refer to the award for the authoritative text.