Odyssey Marine Exploration, Inc. v. United Mexican States

At a glance

Parties

Odyssey Marine Exploration, Inc. (USA), on its own behalf and on behalf of Exploraciones Oceánicas, S. de R.L. de C.V. (ExO), v. the United Mexican States

Case no.

ICSID Case No. UNCT/20/1

Forum and rules

UNCITRAL Arbitration Rules (1976), administered by ICSID; place of arbitration Toronto, Canada

Treaty

NAFTA Chapter 11 (Articles 1116 and 1117)

Tribunal

Felipe Bulnes Serrano (President), Stanimir Alexandrov, Philippe Sands (dissenting)

Sector

Seabed phosphate mining; environmental permitting

Outcome

By majority, Mexico breached fair and equitable treatment (NAFTA Article 1105(1)) and must pay compensation equal to ExO's sunk costs (17 September 2024). A later decision held that the interest rate is dollar-denominated (16 December 2024).

Amount

Headline claim: about US$3.1376 billion (Compass Lexecon). Awarded: US$37.1 million to ExO, plus interest from 12 October 2018 at the one-year Mexico Treasury bond rate (dollar-denominated), compounded annually, net of Mexican taxes. Mexico pays all arbitration costs (USD 1,187,998.31); each side bears its own legal costs (Claimant US$21,265,683.40; Respondent US$2,590,212.44).

The dispute

Odyssey, a Nevada deep-ocean exploration company, incorporated ExO in Mexico in 2012. ExO obtained a mining concession in the Gulf of Ulloa off Baja California Sur to dredge sedimentary phosphate sand (the Don Diego Project). SEMARNAT, the environment ministry, denied ExO's environmental impact statement (MIA) on 7 April 2016, citing the effect on loggerhead (Caretta caretta) turtles. The Federal Administrative Tribunal (TFJA) annulled that denial on 21 March 2018 as unreasoned and unscientific. SEMARNAT denied the MIA again on 12 October 2018. Odyssey claimed that the denials were dictated for political and personal reasons by SEMARNAT Secretary Rafael Pacchiano, relying on two former SEMARNAT officials, Alfonso Flores and Alberto Villa. It claimed breaches of fair and equitable treatment, full protection and security, national treatment and the expropriation provision. Mexico objected to jurisdiction under Article 1117 and argued that the denials rested on genuine environmental concerns and the precautionary principle.

Key holdings

1. Mexico's jurisdictional objection under NAFTA Article 1117 was rejected, and the Tribunal heard the claim. Professor Sands agreed on jurisdiction. Award, Section IV; Sands dissent ¶ 11
2. By majority, Mexico breached Article 1105(1) by treating ExO's investment arbitrarily. The Tribunal did not decide the other claimed breaches (full protection and security, Article 1110, Article 1102), for reasons of judicial economy. Award ¶ 821(a); Sands dissent ¶ 13
3. The Tribunal rejected the claimant's income-based valuation. It awarded ExO's sunk costs of US$37.1 million as of 12 October 2018, the date of the second denial. This is Quadrant Economics' figure without the exclusions Quadrant proposed. Costs incurred after that date were excluded. Award ¶¶ 757–759
4. The Tribunal refused to add a 15% strategic-value premium or the US$444.7 million claimed for the 'lost opportunity' to explore further parts of the deposit. Odyssey's own valuation expert had not included them, and they rested only on speculative estimates by Odyssey's executive Mr. Longley. Award ¶¶ 768–782
5. Interest runs from 12 October 2018 until payment at the one-year Mexico Treasury bond rate, compounded annually. The Tribunal used Article 1110(4) as guidance and rejected both the claimant's 13.95% WACC and Mexico's one-year US Treasury rate. The award is net of Mexican taxes, and Mexico must indemnify ExO for any such taxes. Award ¶¶ 792–806, 811, 821(c)–(d)
6. Mexico lost on liability, but most of its damages defences succeeded and the damages awarded were far below the claim. Mexico therefore bears all arbitration costs (USD 1,187,998.31), and each party bears its own legal fees. Award ¶¶ 817–819
7. Professor Sands dissented. In his view the majority ignored the environmental reasons in SEMARNAT's decisions and the precautionary principle, and relied on paid witnesses whose credibility was doubtful. He would have found no arbitrary conduct, and in any event no causal basis for compensation measured by the value of the investment. Sands dissent ¶¶ 12–53
8. Interpretation granted under Article 35 of the UNCITRAL Rules: the interest rate is the 'one-year dollar-denominated Mexico Treasury bond rate'. Mexico issues no such one-year bond, so the Tribunal gave guidance: add a Mexico country-risk premium to the one-year US Treasury rate. The request for correction under Article 36 was denied. Decision on Interpretation ¶¶ 55–70

Procedural history

1. 5 April 2019Notice of Arbitration filed under NAFTA Articles 1116, 1117, 1120 and 1122.
2. 12 February 2020Jan Paulsson, chosen as presiding arbitrator, withdrew after the parties disagreed on arbitrators' fees.
3. 3 March 2020Tribunal constituted with Felipe Bulnes as President.
4. 23 April 2020Procedural Order No. 1: place of arbitration Toronto; English and Spanish as procedural languages.
5. 25 May 2021Procedural Order No. 4 rejected the claimant's request for interim measures protecting its witnesses Flores and Villa.
6. 20 December 2021Procedural Order No. 6: by majority, the Tribunal denied CIEL and the Puerto Chale fishing cooperative leave to file an amicus submission. Sands dissented.
7. 14 January 2022Procedural Order No. 8 refused to exclude the Taut Solutions expert report but gave the claimant extra hearing time to address it.
8. 24–29 January 2022 and 10 May 2022Virtual hearing on jurisdiction and liability.
9. 17 September 2024Award: breach of Article 1105(1); US$37.1 million plus interest awarded; Sands dissented.
10. 16 December 2024Decision on Interpretation: the interest rate refers to dollar-denominated Mexican Treasury bonds.

Tribunal, counsel and experts

Decided by

• Felipe Bulnes Serrano President — appointed by the parties jointly (replaced Jan Paulsson, who withdrew on 12 February 2020)
• Stanimir A. Alexandrov Co-arbitrator — appointed by the claimant
• Philippe Sands Co-arbitrator — appointed by the respondent (dissented on liability and damages in the Award and on Procedural Order No. 6)

For the claimant

Cooley LLP / Cooley (UK) LLP · King & Spalding LLP · Consorcio de Litigio Estratégico

For the respondent

Secretaría de Economía · Pillsbury Winthrop Shaw Pittman LLP · Tereposky & DeRose LLP

Experts

Pablo T. Spiller (claimant) · Pablo López Zadicoff (claimant) · Timothy Cotton (claimant) · Héctor Herrera (claimant) · Vladimir Pliego (claimant) · Daniel Flores (respondent) · Graham Curren (respondent) · Agnese Mancini (respondent) · Bryan Wallace (respondent) · María Verónica Morales Zárate (respondent) · Carlos Rábago Estela (respondent)

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Keywords

• Don Diego Project
• phosphate
• seabed mining
• dredging
• SEMARNAT
• environmental impact assessment
• Caretta caretta
• loggerhead turtles
• Gulf of Ulloa
• NAFTA Article 1105
• fair and equitable treatment
• arbitrariness
• precautionary principle
• sunk costs
• interest rate
• interpretation of award
• amicus curiae
• dissenting opinion

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