Mining, Indigenous Consultation Rights, And Investment Treaty Protection: Part 2

What You Need to Know

• Key takeaway #1

  Lupaka and Kappes reflect a case law that appears to be addressing two distinct and legally coherent factual pathways, with the mechanism of State conduct (judicial enforcement of constitutional rights in Kappes versus executive inaction in the face of attributable armed community conduct in Lupaka) as the key variable.

• Key takeaway #2

  Kappes contains the most analytically developed treatment of ILO 169 in the case line to date and illustrates that, under the customary international law minimum FET standard applicable under CAFTA-DR, independent judicial enforcement of a constitutional consultation right, coupled with active and effective State provision of physical security, can, in specific factual circumstances, provide a defense to FET, FPS, and expropriation claims.

• Key takeaway #3

  Arbitrator Townsend’s minority view in Kappes—identifying cumulative legislative and executive failure to implement an ILO 169 consultation framework as a potential independent ground of FET liability, is a significant development that may bear on future proceedings in jurisdictions where ILO 169 has been ratified without implementing legislation, a risk that may be heightened under investment treaties applying an autonomous FET standard broader than the CAFTA-DR-type customary international law minimum.

Part Two: Lupaka and Kappes —Two 2025 Awards, Opposite Outcomes

Part Two of a Two-Part Client Alert Series. This Alert builds on the discussion in Part One, which surveyed Bear Creek (2017), Copper Mesa (2016), South American Silver (2018), Eco Oro (2021), and Lupaka (2025).

In 2025, two ICSID tribunals decided investment treaty claims arising from mining projects in Indigenous territories and reached opposite outcomes. Both disputes arose in jurisdictions that have ratified the International Labour Organization’s Indigenous and Tribal Peoples Convention, 1989 (No. 169) (ILO 169)—which obliges States to consult with Indigenous peoples through appropriate procedures before authorizing the exploration or exploitation of mineral resources on their lands.

• In Lupaka Gold Corp. v. Republic of Peru (ICSID ARB/20/46, Lupaka (2025)), the investor prevailed on its core claims for breach of the full protection and security standard (FPS)—which requires a State to exercise reasonable due diligence to protect a covered investment against foreseeable harm by third parties—and direct expropriation.
• In Daniel W. Kappes and Kappes, Cassiday & Associates v. Republic of Guatemala (ICSID ARB/18/43, Kappes (2025)), the State prevailed comprehensively: all claims for breach of the fair and equitable treatment standard (FET), FPS, and expropriation were denied on the merits, and all damages claims were denied for lack of causation evidence.

Are Lupaka and Kappes in tension, or are they coherent expressions of the same body of law?

The two awards are not in tension. Both reflect a body of developing case law addressing two distinct factual pathways. The mechanism of State conduct and the nature of community interference are key variables. Neither the investor-favorable nor the State-favorable pathway has been foreclosed. Read together, the 2025 awards provide the clearest map yet of which factual configurations may produce which outcomes—under the specific treaty standards applied in those cases.

1. Lupaka and Kappes Compared

As described in Part One of this article series, in Lupaka, the Rural Community of Parán, a small Indigenous community in central Peru, blockaded and ultimately seized a gold mine site following an armed confrontation with mine personnel. The investor requested assistance from Peruvian authorities, but Peru’s response did not extend beyond facilitating dialogue. Applying the International Law Commission’s (ILC) Articles on Responsibility of States for Internationally Wrongful Acts, the Tribunal found that the Parán Community qualified as a “territorial unit” and organ of the State under ILC Articles 4 and 5, making its conduct directly attributable to Peru. The Tribunal further held that Peru’s dialogue-only response independently fell well below the FPS due diligence standard.¹

Peru argued that ILO 169 placed Indigenous and rural community organizations outside the scope of State attribution. The Tribunal rejected this entirely, finding that ILO 169 does not create an exception from attribution principles for community organizations otherwise analyzable as State organs under domestic and international law,²a holding with significant implications for States that have ratified ILO 169 and whose domestic legal frameworks vest Indigenous community bodies with governmental or quasi-governmental functions. The result was a finding of both FPS breach and direct expropriation.

In Kappes, a community-led environmental justice group known as La Puya blockaded a gold and silver mine. Separately, a sequence of Guatemalan court decisions, culminating in the Constitutional Court’s 2020 judgment, found that the exploitation license had been granted without conducting the requisite ILO 169 consultation, and suspended it on that basis. Throughout this period, Guatemala maintained a police presence at the project site. The Tribunal found that the license suspension arose from independent judicial enforcement of a constitutional right rather than arbitrary State conduct, and that Guatemala’s physical security provision was adequate in the circumstances. The sole breach found, an overlong impoundment of gold concentrate, did not give rise to compensable damages due to the lack of a causal link.³

The contrast between the two outcomes is structural rather than merely factual. In Lupaka, liability arose from executive inaction in the face of attributable armed community conduct; in Kappes, the State’s defense rested on independent judicial enforcement of constitutional rights coupled with active physical security provision. Both outcomes are legally coherent within the existing framework.

2. The Kappes ILO 169 Framework: The Most Developed Analysis in the Cases Surveyed

The Kappes Award devotes a dedicated section to ILO 169 that is materially more developed than the treatment of the Convention in any of the comparator decisions. The Tribunal drew on four categories of external authority to establish the content and scope of the State’s consultation obligation:

• The ILO’s Manual on the Indigenous and Tribal Peoples Convention, 1989 (No. 169) (the ILO 2003 Manual) is cited for the proposition that consultation must be sincere, transparent, and aimed at genuine agreement or consensus through appropriate representative institutions—which may include traditional bodies or locally-elected leaders recognized as genuine community representatives,⁴but not closed meetings with selected individuals who do not represent the majority view.
• The International Finance Corporation’s Guidance for the private sector (the IFC Guidance) makes two distinct points of significance: first, that a State’s failure to comply with its ILO 169 consultation obligations may expose privately held licenses to legal challenge; and second, that where implementing regulations are absent, companies may be expected to play a proactive role in designing and implementing a consultation process with government participation and endorsement.⁵
• The Inter-American Commission on Human Rights (IACHR) practice, including Guatemala’s own positions in proceedings before that body, documented the State’s acknowledgment of a regulatory “void” and its concession that the environmental impact assessment (EIA) participation mechanisms were not “the ideal consultation mechanism.”⁶
• The ILO Committee of Experts on the Application of Conventions and Recommendations (CEACR) confirmed that consultation duties arise directly from ILO 169 regardless of implementing legislation, rest with the Government rather than private parties, cannot be deferred pending domestic regulatory development, and must be carried out “without delay.”⁷

The Kappes Tribunal also surveyed a line of Guatemalan Constitutional Court decisions spanning from the Sipacapa case (2007) through the CGN case (2020), finding that they built a consistent domestic record on three points: (i) that participation in the EIA process does not satisfy the ILO 169 consultation obligation; (ii) that Community Development Councils (statutory bodies established under Guatemalan development law) are not ancestral Indigenous institutions⁸capable of serving as representative consultation counterparts; and (iii) that Guatemala’s Ministry of Energy and Mines (MEM) bears a duty to initiate consultation processes without delay.⁹This domestic jurisprudential record was central to the Tribunal’s conclusion that the license suspension arose from legitimate judicial enforcement rather than arbitrary executive conduct.

3. Denial of Justice and Kappes Arbitrator Townsend’s Minority View

A feature of Kappes that distinguishes it from all comparator awards is its structured treatment of denial of justice (the doctrine under which a State may incur international responsibility for the conduct of its courts where judicial proceedings fall below the minimum standard required by international law) as a discrete sub-head of the FET analysis. Because the primary State conduct challenged was judicial rather than executive or legislative, the denial of justice doctrine was directly engaged. The majority rejected the Claimants’ denial of justice arguments, consistent with the demanding threshold applied in international law, which requires something materially beyond legal error.¹⁰

Arbitrator Townsend expressed his minority view in two footnotes to the Award. In the first, he addressed a dimension of State responsibility the majority did not adopt as a ground for liability: the cumulative failure of all three branches of Guatemala’s government to operationalize the ILO 169 consultation obligation. In his view, the legislative branch’s failure to enact implementing regulations, the executive branch’s failure to make a serious effort to conduct consultations while awaiting judicial resolution, and the judicial branch’s four-year delay in issuing its decision—during which the Claimant’s license remained suspended—together had the practical effect of destroying the value of the investment. This pattern was documented across the CEACR record and repeatedly identified in the Constitutional Court’s own jurisprudence.¹¹

In the second footnote, Arbitrator Townsend dissented from the majority’s conclusion that the Constitutional Court’s four-year delay in issuing the 2020 Judgment did not constitute a denial of justice, taking the view that a court that orders the suspension of a commercial activity while it deliberates bears a heightened responsibility to act with reasonable dispatch, and that the simultaneous suspension of the license made the delay particularly consequential. Taken together, Arbitrator Townsend’s analysis is a significant forward-looking warning: a prolonged and documented absence of an ILO 169 consultation regulatory framework is not a neutral fact in ISDS proceedings, and may in future cases support a FET breach finding on cumulative grounds independently of judicial conduct.

For States that have ratified ILO 169 without enacting implementing legislation, a common position across Latin America, this is a material litigation risk that the majority outcome in Kappes does not eliminate. Moreover, this risk may be heightened rather than reduced when the applicable FET treaty standard is broader than the customary international law minimum standard of treatment applied under the CAFTA-DR (the Dominican Republic–Central America–United States Free Trade Agreement, which governed the Kappes dispute).

4. Trend or Outlier?

What the 2025 awards confirm is that outcomes in ILO 169 and community-conflict ISDS disputes are sensitive to two specific variables:

The first is the mechanism of State conduct. Judicial enforcement of constitutional Indigenous rights generates a materially different legal analysis from executive inaction, executive facilitation of obstruction, or the attribution of armed community conduct to the State. The Kappes majority’s State-favorable outcome depended critically on the independence and legitimacy of the judicial process through which the license was suspended, and on Guatemala’s active provision of physical security alongside that process. The Lupaka investor-favorable outcome depended critically on the characterization of the State’s response as inadequate and the community’s conduct as attributable to Peru. Neither variable is accidental and both are susceptible to legal strategy by both investors and States from the earliest stages of a dispute.

As discussed in Part One, practitioners should also note that the operative pathway may shift over the life of a dispute. A license suspension that originates in legitimate judicial enforcement may, through prolonged executive non-performance of the court’s own directions, progressively take on the character of executive inaction, with materially different ISDS consequences. Where a court has ordered a consultation to proceed immediately and years elapse without verified conclusion, the period of executive delay is properly analyzed as an executive omission rather than a continuation of the judicial enforcement act, regardless of the judicial origin of the original suspension.

The second variable is the nature and degree of community interference. Organized protest accompanied by court proceedings is treated differently from armed seizure and occupation of an investment site. The FPS due diligence threshold is calibrated to the severity and character of the threat, and to the adequacy of the State’s response to it.

The broader message for practitioners is that the case law has not converged on a single answer to the ILO 169 and community-conflict question. It has instead produced two coherent and legally defensible pathways to opposite outcomes. For investors and their counsel, the practical implication is to identify, at the earliest possible stage, which pathway the facts of their dispute most closely resemble, and to manage both engagement strategy and evidentiary preservation accordingly. For States, Arbitrator Townsend’s minority view in Kappes is a reminder that a State-favorable majority outcome in one case does not neutralize the litigation risk created by a prolonged absence of ILO 169 implementing legislation.

Footnotes

1. Lupaka Gold Corp. v. Republic of Peru, ICSID Case No. ARB/20/46, Award (30 June 2025), 321, 326, 360.

2. Lupaka (2025), 188, 236.

3. Kappes v. Guatemala, Award (23 December 2025), 1302(3), (6).

4. Id., 148.

5. Id., 154.

6. Id., 167.

7. Id., 161.

8. Id., 443.

9. Id., 222.

10. Id., 711.

11. Id., 722 and fn. 1478 (Arbitrator Townsend).