Harken Costa Rican Holdings c/ El Estado de Costa Rica, Sentencia No. 1754-2014
Second Judicial Circuit, San Jose
In 1998, Costa Rica granted MKJ Xploration an oil exploration concession encompassing onshore and offshore exploration blocks, and the two parties signed the corresponding concession contract the following year. The concession contract stipulated several conditions to be met by the concessionaire, such as the approval of an environmental impact assessment (EIA), the maintenance of a financial guarantee, and the submission of reports, plans and studies. Subsequently, Harken Costa Rica Holdings bought the concession from MKJ Xploration and, in 2000, Harken submitted an EIA to the appropriate Costa Rican agency to get approval to drill an exploratory well.
In September 2000, the Constitutional Court annulled the concession because it violated the rights of affected indigenous communities to consultation, and it ordered Costa Rica’s Environment and Energy Ministry (MINAE) to carry out the necessary consultation with affected indigenous communities. In November 2000, the Constitutional Court modified its judgment to limit the annulment of the concession to only those parts of (terrestrial) blocks 2 and 4 where indigenous territories are located. In February 2002, Costa Rica’s environmental agency (SETENA) decided to not approve Harken’s EIA because the proposed exploratory well would not be environmentally viable. Harken unsuccessfully challenged SETENA’s decision in administrative tribunals. In 2005, MINAE terminated the concession contract (via Resolution No. 019-2005-MINAE) due to Harken’s failure to fulfill contractual obligations.
Harken submitted the dispute to the Arbitration Center of the Costa Rican Chamber of Commerce demanding compensation for damages caused by Costa Rica’s failures to execute the contract in good faith. Costa Rica challenged the Arbitration Center’s jurisdiction before the Supreme Court. In October 2006, the Supreme Court agreed with Costa Rica and declared that the Arbitration Center lacked jurisdiction. (See Attachments below for decision)
As litigation ensued, Harken challenged the involvement of civil society organizations and stakeholders that were granted third-party intervenor status in the case. These parties were allowed to intervene because the case involved environmental concerns, but Harken argued that the case was about administrative process and contractual obligations, not environmental concerns. In July 2008, an administrative court ruled that, “having established that the issue at hand involves the possible degradation of the environment (from the extraction of hydrocarbons), it must then be understood that the natural and legal persons participating in this litigation are considered duly authorized due to the legal interest to be safeguarded.” Para. V of Sentencia 248-2008, Expediente No. 05-000323-163-CA (see Attachments below for decision).
On September 10, 2014, an administrative court dismissed Harken’s claims for annulment of Resolution No. 019-2005-MINAE and for damages because Harken failed to substantiate (both factually and legally) its allegations of administrative responsibility for contract termination. The court concluded that “the impossibility of recovering investments and costs, as well as obtaining profits, did not result from the conduct of the Administration, but rather from [Harken’s] own actions, which is qualified as fault of the victim, for having been the plaintiff [Harken] who violated the terms of the contract and brought it to its legal termination.” P. 53 of Sentencia 1754-2014, Expediente No. 05-000323-163-CA. The court upheld Resolution No. 019-2005-MINAE and ordered Harken to pay the legal costs of both parties, as well as the interest on said costs.