WHAT CONSTITUTES EXPROPRIATION OF MINING PROPERTIES? ARGENTINA

• Jurisdiction: Derecho Internacional

Mining and Oil and Gas Law, Development, and Investment - Book 1
(Apr 2007)
CHAPTER 5A
WHAT CONSTITUTES EXPROPRIATION OF MINING PROPERTIES? ARGENTINA
Carlos J. García Díaz
Attorney
Allende & Brea
Buenos Aires, Argentina

CARLOS J. GARCÍA DÍAZ

Carlos J. García Díaz is a Partner at Allende & Brea, Attorneys-at Law, with particular involvement in foreign investments and transactions and in mineral law. He joined the firm in 1978. He is fluent in Spanish and English. Professional associations include: Pacific Rym Advisory Council (since 1998); Rocky Mountain Mineral Law Foundation, member since 1996; International Bar Association, member since 1986; Madrid Bar Association (Ilustre Colegio de Abogados de Madrid, España) 1981-83; and Buenos Aires Bar Association, admitted in 1973.

He earned a Licenciado en Derecho in 1980 from the Universidad Complutense de Madrid; Master of Comparative Jurisprudence in 1978 from New York University School of Law; Course of Doctor in Law (Commercial Law) 1974-1975 (thesis pending) from the University of Buenos Aires School of Law; Abogado (Lawyer) Degree in 1973 from Catholic University of Argentina School of Law. Awards include Gold Medal from Colegio Esquiú, Buenos Aires 1958-65 and Colegio Champagnat, Buenos Aires 1954-58.

Mr. García Díaz was Clerk of the Civil District Court 12, in Buenos Aires, 1976-78 and Secretary to Judge Dr. Correa Herrera in the Civil Court of Appeals of Buenos Aires, 1974-76. He has been Professor of Contracts in the Postgraduate Course "High Technology Legal Transactions" since 1999; Assistant Professor of Natural Resources Law at Catholic University of Argentina School of Law and Universidad del Salvador School of Law since 1997; Assistant Professor of Commercial Law at the National University of Buenos Aires School of Law (1984-91); Assistant Professor of Civil Law II at Catholic University of Argentina School of Law (1976-77); and Assistant Professor of Civil Law I at National University of Buenos Aires School of Law (1976-77).

Mr. García Díaz has lectured on "Electronic Transactions," Seminar on New Ways for Contracts in Argentina, organized by The Master Group, Buenos Aires, 2004; "Proposed Amendments to the Mining Code of Argentina," Seminar on Mining conducted in Mendoza, Argentina, 2002; "Distribution, Agency and Concession Agreements," Seminar conducted by the Institute for International Research, in Buenos Aires, 2001; lead a workshop on "Legal and Practical Issues in Drafting Contracts," Broadband Technologies, Buenos Aires, 2001; lectured on "Mining Concessions in Argentina," Seminar conducted by the Mining, Oil and Energy National Association of Peru, Lima, 1999; "Argentine Mining Property System," Seminar conducted by the Pacific Rym Advisory Council, Buenos Aires, 1998; and others.

Selected publications include: "Algunas ideas para una futura ley de comercio electrónico" ("Ideas to elaborate a future uniform set of rules for electronic commerce," La Ley Law Review, May, 2002; "Reflexiones Sobre Algunas Normas Internacionales sobre Comercio Electrónico" (Comments on some of the newest international regulations on electronic commerce," La Ley Law Review, September, 2000; Lecciones de Derecho Agrario y de los Recursos Naturales (Cases and materials on natural resources law), published in cooperation with other authors, Buenos Aires, 1998; "Gastos de exploración en la nueva ley de Inversiones Mineras" ("Tax treatment of expenditures incurred during the mineral exploration phase," Panorama Minero, June, 1995.

1. Preliminary Comments.

To analyze the legal regime applicable to expropriation of mining properties in Argentina and, more specifically, to answer the question of what constitutes expropriation of mining properties, requires a research of several legal sources that are different in scope and shape.

We shall review the rules of the Mining Code, first, the regulations of the statutes that govern expropriation of property in general, second and, finally, we shall review certain international treaties binding Argentina with certain countries for the protection of investors domiciled in those countries.

We shall focus exclusively on expropriation described as an act of Government to dispossess an individual or a legal entity of its property, leaving aside other mechanisms that do not involve the public authorities. For example, we shall set aside the review of the rules allowing the holder of a mining concession to demand the forced sale of the surface land overlapping the deposit (Section 156 of the Mining Code) because this is not an act of Government and, therefore, it does not constitute, strictly speaking, expropriation.

Likewise, this paper will not comment on certain acts of Government that are not expropriation. There is a legal theory under Argentine Law that allows individuals and legal entities to claim damages against the Government arising out of legitimate decisions adopted by Government authorities. This theory will not be reviewed in this paper, even if a hypothetical case could affect a particular mining property in a manner that might entitle the owner to claim damages against the Government under this theory, because of two reasons.

First, because damages arising from legitimate decisions by the public authorities (if not aimed at taking properties from individuals or legal entities) do not constitute expropriation "stricto sensu".

Second, because legal scholars and case law have concluded that the review of any damages awarded under the legal theory mentioned above would have to follow the rules of compensation payable in cases of expropriation proper (see parag. 4 below). This would lead us, at any rate, to analyze the expropriation rules, which is the subject of this paper.

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The decision to expropriate may be adopted by the Federal Government, the Provincial Governments and even the Municipalities.¹ With so many different public authorities involved, we shall refer to each authority, in general, as the "State", a word that has a long tradition in Latin America, meaning that the Government entity that resolves on a particular expropriation, and becomes bound to pay compensation, may be the Federal State, the Provincial State or a Municipal entity.

As mentioned below, at present minerals may be found only in the Provincial jurisdictions of Argentina. However, since this paper needs to address many issues, cases and legal theories some of them exceeding the boundaries of Mineral Law, we consider it convenient to maintain the concept of "State", as described above.

With these preliminary comments, we shall start to examine the issue.

2. The Mining Code of Argentina.

Under the Mining Code of Argentina, mining property is deemed to be in the domain of either the Federal Government or the Provincial Governments, depending on the location of the minerals.²

Section 9 of the Mining Code establishes several limitations to the State in the use of its domain ownership. Among the limitations imposed by the Mining Code, the prohibition of exploring for minerals and mine deposits appears as one of the most severe. The State must grant concessions to private companies to explore for minerals or to mine them, following the rules and regulations of the Mining Code.

A basic principle of the recent amendments introduced to the Mining Code in the five years from 1990 to 1995, is that the State is prohibited from operating mining properties by itself. The Mining Code has been amended to reduce rights previously enjoyed by provincial states to explore for minerals, permitting the States to establish only certain limited "reserve areas" (of no more than 100,000 hectares, about 386 sq. miles) within which they can conduct only "geological surveys" which have to be completed in two years (a term which is not renewable). If any minerals are discovered, the area or areas have to be passed on to private companies or individuals.

Once the period mentioned above has expired, the State has to turn over these areas to private companies for further exploration or mining. Therefore, under current legislation

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, the State enjoys limited rights to explore for minerals and its chances to intervene in the mining industry have been reduced from hitherto more permissive rules.³

Exploration permits and mining concessions, once granted to a private company,⁴ or individual, are legally deemed to be the property of such a company or individual.⁵ As such, exploration permits and mining concessions are recorded in a special registry kept in each provincial jurisdiction. Similarly, transactions in exploration permits and mining concessions are similarly recorded in the mentioned registry.

Section 13 of the Mining Code establishes the basic principle that the activities of exploration and mining are deemed to be of "public interest", and this principle has several consequences ruled in other provisions of the Mining Code. For example, the right of concession holders to obtain access to land easements is a consequence of the "public interest" principle of the Code, as is the right vested on concession holders to demand the forced sale of surface property surrounding the mining concession (Sections 146 and subsequent of the Mining Code).

With particular interest from the point of view of this paper, Section 16 of the Mining Code establishes the right of the State to expropriate mining property, but it can do so only based on "public interest" of a higher degree than that recognized in Section 13.

This means that the State can expropriate the surface property beneath which a mining operation takes place, or it can expropriate the mining concession itself. The expropriation rights established in Section 16 of the Mining Code constitute an express exception to the...