Metalclad Corp. v. United Mexican States Case No. Arb(Af)

97/1 (2000)

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Nature of the Case

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Facts

Metalclad (P) made the serious mistake of starting a wholly owned subsidiary in order to build a hazardous-waste landfill in Guadalcazar, State of San Luis Potosi, Mexico. The Mexican government and the state informed P that all necessary permits would be issued for the landfill. P believed them and made a significant investment in building the facility. Federal construction and operating permits for the landfill were issued, and the state issued a state operating permit. There was significant and vigorous local opposition. When the project was completed, the local city refused to issue a construction permit. The city claimed there were adverse environmental effects and geological unsuitability for a landfill. The city had a council meeting, and everyone was there, but P as P never received notice. P sued in Mexican courts but gave that up and decided arbitration under Chapter 11 of the North American Free Trade Agreement (NAFTA). Mexico claimed that the city has lawful authority over construction permits and issues. P claimed that the federal government had sole authority over environmental issues and waste handling permits.