KCN 5.17% $1.22 kingsgate consolidated limited.

Expropriation claim and general exemption

  1. 2,721 Posts.
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    For any new shareholders, it's interesting to look into Kingsgate's indirect expropriation case using Crystallex v. Venezuela as a good precedent.

    Article 912 of TAFTA provides:"Neither Party shall nationalise, expropriate or subject to measures having effect equivalent to nationalisation or expropriation (hereinafter referred to as “expropriation”) the investments of investors of the other Party unless the following conditions are complied with: (a) the expropriation is for a public purpose related to the internal needs of that Party and under due process of law; (b) the expropriation is non-discriminatory; and (c) the expropriation is accompanied by the payment of prompt, adequate and effective compensation."

    So it's necessary to prove the following:
    • Kingsgate held legal rights to an asset;
    • the asset was expropriated; and
    • (a), (b) or (c) didn't apply.

    Legal rights to an asset

    This is not in debate so we can skip it.

    Expropriation
    The tribunal in Crystallex v. Venezuela first looked at whether there was a claim of expropriation. The Tribunal explained there are essentially there are two forms: direct and indirect. Direct expropriation results in formal transfer or outright seizure of an asset, whereas indirect expropriation occurs “where a state’s action or series of actions result in the investor being deprived of the enjoyment or benefit of its investment, although title to the property or the rights remains with the original owner.” For Kingsgate, there hasn’t been outright seizure of the mine - Kingsgate still owns the land and rights over the mining leases. However, I think it’s clear that the state’s actions to suspend mining operations through the section 44 order has had the effect of depriving Kingsgate of “…the enjoyment or benefit of its investment…” - that being the the profits gained through mining and processing gold and silver.

    Thailand will try to argue that the order was a temporary suspension (not a permanent expropriation) but that is inconsistent with the order itself which imposes requirements for gold mine operators to restore the land while acknowledging unknown facts and that the ‘temporary’ order has yet to be revoked three years on.

    Public purpose and due process
    The Tribunal in Copper Mesa v. Ecuador explained that it's not in the tribunal's functions to decide what is in the national interests. It is a country's "...sovereign right as regulator, to determine what lies within its national interest". Thailand will argue that closure of the mine was for a public purpose of protecting the safety of its people, the environment, and restoring public order. I think we can concede that these matters relate to a public purpose (despite what we know about the private interests behind the scenes) and that Thailand can decide what that is.

    However, regarding 'due process', the tribunal in Crystallex v. Venezuela stated: “…in the expropriation context, demands an actual and substantive legal procedure for a foreign investor to raise its claims against the depriving actions already taken or about to be taken against it. Some basic legal mechanisms, such as reasonable advance notice, a fair hearing and an unbiased and impartial adjudicator to assess the actions in dispute, are expected to be readily available and accessible to the investor to make such legal procedure meaningful. In general, the legal procedure must be of a nature to grant an affected investor a reasonable chance within a reasonable time to claim its legitimate rights and have its claims heard. If no legal procedure of such nature exists at all, the argument that ‘the actions are taken under due process of law’ rings hollow”. The use of the section 44 order clearly does not meet any of these requirements – it's an absolute power in the temporary constitution with no legal avenue of appeal.

    Non-discrimination
    I already discussed that here in relation to the general defence under TAFTA (https://hotcopper.com.au/posts/44633238/single). While the words of the order are not discriminatory, applying to all gold mining operations across Thailand, the effect of the order was to suspend operations in Akara only because no other gold mines were operating.

    Compensation
    This is not in debate either, they've given us f'all.

    The argument that indirect expropriation has occurred and at least (a), (c) and possibly (b) do not apply is very strong.

    The question is whether the general exceptions in article 1601 of TAFTA apply: “For purposes of Chapters 8 – 10, Article XIV of GATS is incorporated into and made part of this Agreement, mutatis mutandis.” The two relevant exceptions in GATS are “necessary to protect public morals or to maintain public order” and “necessary to protect human, animal or plant life or health”. ‘Public order’ is a very high threshold test meaning “…a genuine and sufficiently serious threat is posed to one of the fundamental interests of society”. Thailand will likely argue the second one about it being necessary to protect human health.

    This goes to Dr Kiratipong’s discussion, which I already posted on here (https://hotcopper.com.au/posts/44633238/single) and here (https://hotcopper.com.au/posts/39613620/single). The issue is all about the ‘necessity’ of the measure, or also known as the proportionality test.

    Continental Casualty Company v. The Argentine Republic explores this “The necessity of a measure should be determined through “a process of weighing and balancing of factors” which usually includes the assessment of the following three factors: the relative importance of interests or values furthered by the challenged measures, the contribution of the measure to the realization of the ends pursued by it and the restrictive impact of the measure on international commerce.” In other words, the Tribunal will look at the relative importance of the purported health/environmental issues and the contribution of suspending mining operations to achieving that objective. It will be very difficult for Thailand to show the contribution of suspending mining operations in protecting the health of the locals and the environment when it has yet to establish the cause of the purported elevated arsenic and manganese levels. High-level officials have admitted this multiple times in public.

    The other principle in establishing whether the measure was 'necessary' is whether other options were available. So the question is whether Thailand could be expected to employ an alternative and reasonably available measure. As a defence, Thailand will have to show that there was no other option, other than to use the section 44 order, or it was not capable of taking other measures because they would impose “…an undue burden…such as prohibitive costs or substantial technical difficulties”. The difficulty for Thailand will be showing that laws designed specifically for dealing with mining and environmental impacts caused by mining were not reasonably available to its regulator at the time. The Minerals Act, for example, allows an official to order a mining, mineral processing or metallurgical processing operation to alter procedures or suspend the operations. The official only has to ‘consider’ that the operations caused harm to persons, animals, vegetation or properties. How will Thailand show this law couldn't be used?
    Last edited by densamer: 19/05/20
 
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