Brief facts
 Plaintiff ( Metalclad) built a subsidiary to build a
hazardous waste landfill in Guadalzar.
 The State and Mexican Government told that all
requisite permits would be issued.
 Guadalzar Municipal Authorities refused to issue a
construction permit/
 Metalclad initiated an action under North American
Free Trade Agreement
Timeline
 In 1990, the Mexican federal government issued
a permit for a hazardous waste transfer station to
be built by a Mexican company.
 In May 1993, the state government issued a land
use permit for the landfill, which did not
constitute an operating permit.
 In May 1994, Metalclad believed it had the support
of the state government and began construction.
 In October 1994, Municipal officials ordered a
halt to construction due to the absence of a
construction permit.
Claims
 Metalclad’s claims focused on three violations of
NAFTA: (1) that the series of acts leading to the denial
of the construction permit and inability to operate the
hazardous waste landfill constituted a breach of
NAFTA’s Article 1105 on minimum international
standards of treatment, (2) that the same acts also
amounted to an indirect expropriation under
Article 1110 of NAFTA, and (3) that the Ecological
Decree in itself also constituted a breach of Article 1110
of NAFTA.
Article 1110
 Under Article 1110, no party to NAFTA may directly or
indirectly expropriate an investment unless it is for a
(1) public purpose, (2) on a nondiscriminatory basis,
(3) in compliance with due process of law, and (4) with
payment of just compensation.
THE KEY TEST
 Expropriation under NAFTA includes not only open,
deliberate and acknowledged takings of property, such
as outright seizure or formal or obligatory transfer of
title in favour of the host State, but also covert or
incidental interference with the use of property which
has the effect of depriving the owner, in whole or in
significant part, of the use or reasonably-to-beexpected economic benefit of property even if not
necessarily to the obvious benefit of the host State.
Decision
 The Tribunal held that Metalclad’s “justified reliance”
on the federal government’s representations about the
required permits supported the finding of
expropriation.
Reasons
 No authority
 Reliance
 No explanation for denial
 No compensation
Criticisms
 Lower environmental standards in Host Countries.