On 27 July 2026, an arbitral tribunal (the “Tribunal”) in proceedings before the International Centre for Settlement of Investment Disputes (“ICSID”) issued its award (the “Award”) in the dispute between Legacy Vulcan, LLC (“Legacy Vulcan”) and the United Mexican States (“Mexico”). The Tribunal found that Mexico had denied fair and equitable treatment (“FET”) under Article 1105 of the North American Free Trade Agreement (“NAFTA”) and ordered Mexico to pay USD 15,884,117, plus interest, for the shutdown of quarrying operations at El Corchalito.[1]
The Award illustrates an important distinction between establishing a treaty breach and proving compensable loss. Although Mexico’s conduct concerning another property, La Adelita, also supported a finding of liability, Legacy Vulcan recovered no damages for that breach because it failed to establish that lawful conduct would have enabled the proposed quarrying activities. The Tribunal also declined jurisdiction over a later claim concerning the shutdown of La Rosita and further rejected Mexico’s environmental counterclaim as untimely.[2]
Facts
Legacy Vulcan, a Delaware company, held its Mexican quarrying investment through its subsidiary, Calizas Industriales del Carmen, S.A. de C.V. (“CALICA”). The investment originated in the 1980s and included a quarry and processing facilities at La Rosita and a port at Punta Venado. Both sites were operational and generating revenue before NAFTA entered into force on 1 January 1994. The investment expanded through the acquisition of El Corchalito and La Adelita in 1996. CALICA commenced quarrying at El Corchalito in 2001 but never commenced quarrying at La Adelita.[3]
A local environmental zoning programme adopted in 2009 (“POEL 2009”) restricted quarrying at La Adelita. Although CALICA held various pre-existing authorisations, it had not obtained the separate authorisation for soil-use change in forested terrains (“CUSTF”) required before vegetation could be removed for quarrying. The Tribunal found that POEL 2009 preserved rights acquired under authorisations already obtained, but that those preserved rights did not include the unobtained CUSTF. It nevertheless rejected Mexico’s allegation that CALICA had been negligent in failing to obtain a CUSTF before POEL 2009, because CALICA had not yet commenced quarrying at La Adelita and the obligation to obtain the CUSTF had therefore not yet arisen. Under the existing zoning, the Tribunal considered that an application for a CUSTF would ordinarily be refused. Neither the adoption of POEL 2009 nor the authorities’ 2013 indication that rezoning was necessary was itself challenged as a breach of FET. [4]
On 12 June 2014, CALICA and Mexican authorities entered into the Total Regularization Scheme and a memorandum of understanding (“MoU”). On 13 May 2015, the parties to the MoU entered into an addendum (“Amended MoU”). The Award refers to these three instruments collectively as the “2014 Agreements”. The MoU and Amended MoU addressed the proposed amendment of POEL 2009; the Amended MoU set out a detailed timetable for the zoning-amendment process, while making that process subject to applicable law. The first two substantive stages, characterisation and diagnosis, were completed, but after a final Committee meeting in April 2016 no further meetings were convened and the remaining stages were not completed.[5]
Separately, Mexico’s Federal Attorney’s Office for Environmental Protection (“PROFEPA”) inspected CALICA’s compliance with its federal environmental impact authorisation (the “Federal EIA”). Following inspections in May and November 2017, PROFEPA issued an order dated 22 January 2018 (the “Shutdown Order”), implemented on 24 January 2018. The Shutdown Order relied on a presumed excess of 2.15 hectares over the authorised 140-hectare extraction area below the water table. CALICA disputed the measurements and sought to submit expert evidence. An administrative resolution dated 30 October 2020 (the “October 2020 Resolution”) maintained the closure and relied on additional alleged violations.[6]
ICSID received Legacy Vulcan’s request for arbitration on 3 December 2018 and registered it on 3 January 2019. Legacy Vulcan brought claims on its own behalf and on behalf of CALICA, including a demand for reimbursement of port fees following Mexican court proceedings. After the shutdown of La Rosita in 2022, Legacy Vulcan sought permission to introduce an additional claim concerning its remaining operations (the “Ancillary Claim”). On 19 December 2022, Mexico requested leave to bring a counterclaim concerning alleged environmental harm and non-compliance across the three quarrying sites (the “Counterclaim”).[7]
Issues
The jurisdictional and procedural questions concerned whether the Tribunal had jurisdiction over the Ancillary Claim following NAFTA’s termination, including under the legacy-investment regime in Annex 14-C of the Agreement between the United States of America, the United Mexican States, and Canada (“USMCA”), and whether the Counterclaim could be admitted at that stage of the proceedings.[8]
On the merits, the Tribunal had to determine whether Mexico’s treatment of La Adelita and El Corchalito breached Article 1105, whether Article 1103’s most-favoured-nation treatment provision (“MFN”) permitted reliance on protections contained in other investment treaties, and whether Mexico’s failure to reimburse port fees violated NAFTA.[9]
The compensation questions included whether the failure to advance the zoning amendment caused the claimed La Adelita losses, and whether damages for El Corchalito could encompass losses throughout the wider shipping and distribution business outside Mexico.[10]
Key Findings
The Tribunal applied the customary international law minimum standard of treatment (“MST”), rather than an autonomous FET standard. By majority, it found that Mexico breached Article 1105 in relation to La Adelita by failing to pursue the POEL amendment process consistently with the specific representations contained in the 2014 Agreements. The Tribunal also found that four measures concerning El Corchalito, the refusal to consider contradictory expert evidence, the disproportionate Shutdown Order, the maintenance of the closure through the October 2020 Resolution without an opportunity to respond to new allegations, and the absence of an effective means of lifting the closure, breached Article 1105 whether considered individually or as a whole.[11]
However, the La Adelita breach did not establish an entitlement to damages. Legacy Vulcan failed to prove that, but for Mexico’s breach, the POEL amendment would have succeeded and CALICA would have been permitted to quarry La Adelita. Compensation was therefore confined to the El Corchalito breach.[12]
By majority, the Tribunal found that it lacked jurisdiction over the Ancillary Claim. It rejected the Counterclaim as untimely and inadmissible. Legacy Vulcan’s MFN arguments and port-fee claim also failed.[13]
Mexico was ordered to pay USD 15,884,117, with interest at the six-month US Treasury bill rate plus two percentage points, compounded annually from 24 January 2018 until full and final payment. Each party was required to bear its own legal and other costs, while the Tribunal’s fees and expenses and ICSID’s administrative fees and direct expenses were allocated equally.[14]
Reasoning
A. Article 1105 Imposed a Demanding Standard, Not a General Guarantee Against Regulatory Disappointment
Under NAFTA Article 1131(2), the Tribunal was bound by the interpretation of Article 1105 issued by the NAFTA Free Trade Commission (“FTC”) on 31 July 2001. FET did not require protection beyond the customary international law MST. The Tribunal adopted a demanding standard encompassing arbitrary or grossly unfair conduct and serious procedural deficiencies, while recognising that specific representations reasonably relied upon by an investor could be relevant to the assessment.[15]
Legitimate expectations were not an independent source of international obligations. They had to arise reasonably from the State’s conduct, assessed in context, including the investment’s risks, the investor’s due diligence and the specificity of any assurances. Neither anticipated profitability nor general statements about an attractive investment environment sufficed. The Tribunal also emphasised that it was not an appellate body charged with second-guessing domestic regulatory decisions.[16]
These limits could not be avoided through MFN. The Tribunal rejected Legacy Vulcan’s attempt to import an autonomous FET standard through Article 1103 because doing so would circumvent Article 1105 and the FTC’s binding interpretation of that provision. It treated the umbrella-clause argument separately. Although it did not hold that treaty-based treatment could never fall within Article 1103, Article 1103 required a comparison with actual treatment accorded to another investor in like circumstances. A hypothetical Swiss investor with quarrying operations in Mexico was therefore insufficient, and Legacy Vulcan’s umbrella-clause argument failed for want of the required factual comparator.[17]
B. La Adelita: The Protected Expectation Concerned a Lawful Process, Not a Guaranteed Result
The Tribunal distinguished the legal enforceability of the 2014 Agreements under Mexican law from their significance as representations for Article 1105. It did not need to determine whether those documents were legally binding under Mexican law. Their detailed language, timetable and the steps taken towards performance could nevertheless support legitimate expectations.[18]
The scope of those expectations was decisive. The 2014 Agreements contemplated action under applicable law, including public participation. Mexican authorities had control over key procedural aspects of the amendment process. They could convene meetings and schedule the Committee’s activities, but they did not have unfettered control over the process or its outcome. Legacy Vulcan could reasonably expect best efforts to pursue the lawful procedure, not an unconditional entitlement to quarry La Adelita.[19]
Mexico failed to meet that narrower expectation. No further Committee meetings were convened after April 2016, and no satisfactory explanation was provided for abandoning the process. The majority therefore found that Mexico’s failure to act consistently with the specific representations in the 2014 Agreements was arbitrary and contrary to Article 1105. Importantly, the breach lay in the failure to pursue the process, not in the failure to produce a favourable zoning amendment.[20]
That distinction also defeated the damages claim. Legacy Vulcan’s valuation assumed that the amendment would have succeeded and quarrying would have been possible in 2016. Yet substantive stages, including public consultation, remained outstanding, and environmental groups had already expressed objections. Treating their participation as a formality would have assumed the very outcome that the authorities could not lawfully guarantee.[21]
The damages claim failed for lack of factual causation, not merely because the amount of loss was uncertain. Legacy Vulcan did not prove on the balance of probabilities that the POEL amendment would have succeeded and quarrying would have been permitted had Mexico complied with NAFTA. Nor did it advance an alternative damages theory for the La Adelita quarrying business. The Tribunal therefore rejected compensation for La Adelita.[22]
The Award was accompanied by a dissenting opinion from Arbitrator Guido Santiago Tawil.[23] Arbitrator Professor Sergio Puig (“Professor Puig”), while joining the majority’s disposition, recorded a narrower understanding of Article 1105. In his view, Legacy Vulcan had neither unsuccessfully sought enforcement of the 2014 Agreements in egregiously deficient domestic proceedings nor established that local remedies were unavailable. It therefore had not established the necessary failure of domestic due-process protection. Nevertheless, he supported the Award’s ultimate result because, in his view, no compensation was due for the conduct concerning La Adelita.[24]
C. El Corchalito: The Defects Lay in the Enforcement Process and the Resulting Indefinite Closure
The Tribunal did not accept every criticism of PROFEPA. It recognised a valid legal basis for the supplemental inspection and declined to second-guess PROFEPA’s technical assessments. It also rejected the suggestion that the Shutdown Order made no reference to environmental concerns.
The Tribunal ultimately identified four measures that breached Article 1105, whether considered individually or as a whole. The first two were the refusal to consider expert evidence contradicting PROFEPA’s measurements and the disproportionate Shutdown Order. The third was the maintenance of the closure through the October 2020 Resolution, without giving CALICA an opportunity to respond to new allegations before being sanctioned. The fourth was the absence of an effective means of lifting the shutdown. The Tribunal also found that, taken as a whole, the measures were pretextual and designed to shut down CALICA’s operations at El Corchalito.[25]
First, PROFEPA arbitrarily refused to consider expert evidence offered to challenge its measurements. Its distinction between the type of survey offered by CALICA and the measurements performed by its inspectors did not justify denying CALICA a meaningful opportunity to contest the evidence underlying enforcement. Acceptance of earlier expert evidence did not cure the refusal to consider evidence addressing later findings.[26]
Second, the Shutdown Order rested on an alleged excess of 2.15 hectares, approximately 1.5% of the total authorised extraction area below the water table. The measurements were acknowledged to be approximate, and the relevant finding concerned a probable breach and presumed excess extraction. The Tribunal considered this a thin basis for a measure with such severe consequences, particularly where CALICA had been denied the opportunity to challenge the measurements effectively.[27]
Third, the October 2020 Resolution relied on additional alleged violations, including quarrying only one of the two authorised properties and exceeding an asserted annual extraction limit. CALICA had not been adequately notified of those allegations or afforded an opportunity to answer them before being sanctioned. The Tribunal’s conclusion concerned that procedural failure; it expressly declined to decide the merits of the alleged violations themselves.[28]
Finally, the route to lifting the closure was circular. PROFEPA required amendment of the Federal EIA. That process became linked to renewal of the authorisation, which required PROFEPA’s validation of compliance. Such validation was unavailable because of the very findings underpinning the closure. The Tribunal concluded that the mechanism deprived CALICA of an effective means of resolving its position, turning an ostensibly partial and temporary measure into a total and indefinite shutdown.[29]
The majority did not consider the pending domestic proceedings to prevent an Article 1105 finding. Professor Puig expressed reservations about bypassing the available administrative adjudicatory process where permanent nullification of investment rights was alleged. However, he did not disagree with the principal conclusion concerning the temporary Shutdown Order and related measures, noting that Mexican federal courts had reviewed that order without remedying PROFEPA’s serious procedural deficiencies.[30]
D. The Ancillary Claim Required an Independent Basis of Consent After NAFTA’s Termination
NAFTA was superseded on 1 July 2020 by the USMCA. The Tribunal distinguished the preservation of claims already pending when NAFTA terminated from the conditions governing a new claim introduced afterwards. The provision allowing an existing arbitration to proceed to conclusion did not automatically establish jurisdiction over the Ancillary Claim; nor had the earlier procedural permission to present that claim finally resolved jurisdiction.[31]
The majority applied paragraph 6(a) of USMCA Annex 14-C, which defined a legacy investment by reference to establishment or acquisition between 1 January 1994 and NAFTA’s termination, with continued existence when the USMCA entered into force. La Rosita and Punta Venado had been established before that period and were already mature, revenue-generating operations by 1994. Later expansion, the acquisition of the joint-venture partner’s interest and corporate restructuring did not, on these facts, establish or acquire a new investment within the relevant definition.[32]
The Tribunal therefore found that it lacked jurisdiction over the Ancillary Claim. It did not determine the separate question whether Annex 14-C extended NAFTA’s substantive protections to post-termination conduct. It also made no determination on the merits of the challenged La Rosita measures. The Award should therefore not be read as either condemning or validating that shutdown under NAFTA.[33]
E. The Counterclaim Failed on Timing, Not on a Categorical Prohibition Against Environmental Counterclaims
The applicable 2006 ICSID Arbitration Rules (the “Arbitration Rules”) required a counterclaim to be presented no later than the counter-memorial, unless later presentation was authorised on a justified basis. Mexico filed its counter-memorial on the original claims on 23 November 2020 but first submitted a particularised application for leave to introduce the Counterclaim on 19 December 2022. Its earlier reservation of rights was not an application. Filing a later counter-memorial on the Ancillary Claim did not restart the deadline for a counterclaim concerning the pre-existing dispute.[34]
The Tribunal found that Mexico had long been aware of the relevant facts and had not justified waiting more than two years. Admission at that stage would also cause undue prejudice to Legacy Vulcan. The Counterclaim was consequently inadmissible under Rule 40(2) of the Arbitration Rules.[35]
This was a procedural disposition. The Tribunal expressly left several questions undecided. It did not decide whether NAFTA permitted the Counterclaim. It also left open whether the Counterclaim duplicated Mexican proceedings and whether the alleged environmental violations were established. Its rejection was therefore not a determination that environmental counterclaims are inherently unavailable in investment arbitration.[36]
F. Compensation Required a Sufficiently Causal Link Between the Breach and the Loss
The Tribunal rejected an absolute territorial limitation on recoverable losses. NAFTA did not expressly require all loss to be incurred within the host State. Nevertheless, the relevant investor or enterprise had to incur the loss, and there had to be a sufficient causal connection between that loss and the treaty breach.[37]
Legacy Vulcan’s proposed valuation extended across the wider quarrying, shipping and distribution business. The Tribunal accepted that this was a genuine commercial network, but did not treat commercial integration as sufficient to combine the profits and risks of distinct businesses in different jurisdictions into a single compensable loss. The downstream shipping and distribution losses were too remote in legal causation. Foreseeability of exports and subsequent sales did not, by itself, overcome that obstacle. The appropriate valuation was therefore confined to CALICA.[38]
For El Corchalito, the valuation compared CALICA’s position with and without access to El Corchalito as at 24 January 2018. In the “but-for” scenario, CALICA could quarry La Rosita and El Corchalito; in the actual scenario, it could quarry La Rosita only. Both scenarios therefore included La Rosita, and the subsequent La Rosita shutdown was not incorporated into the 2018 valuation. The Tribunal adopted Mexico’s “No PTU or Dividend Tax” model, removed an unjustified size-risk premium and applied a 7.97% discount rate. That produced USD 14,384,117, to which the Tribunal added USD 1.5 million for below-water blasting and drilling, yielding USD 15,884,117 before interest.[39]
G. Success in Domestic Proceedings Did Not Establish a Right to Port-Fee Reimbursement
The port-fee claim failed because Legacy Vulcan had not demonstrated the legal entitlement underlying it. Although Mexican courts had annulled certain administrative measures and made findings concerning the relevant charging rights, the Tribunal was not satisfied that they had ordered repayment or that repayment necessarily followed as a matter of law. Without that foundation, Mexico’s failure to reimburse the fees did not establish the alleged NAFTA breach for non-compliance with a domestic judgment.[40]
Conclusion
The Award demonstrates that treaty liability, jurisdiction and compensation must each be established on their own terms. Specific State representations may give rise to legitimate expectations that are relevant to the Article 1105 minimum-standard analysis, but they do not independently guarantee a particular regulatory outcome. Correspondingly, proving the wrongful abandonment of a regulatory process does not establish that profits dependent on a favourable outcome are recoverable.[41]
For environmental regulation, the decision draws a similarly careful distinction. The Tribunal deferred to the regulator on technical assessments and did not treat every procedural complaint as a treaty breach. However, the arbitrary refusal to consider contradictory expert evidence, a disproportionate shutdown, sanctioning on new allegations without an opportunity to respond, and the absence of an effective route to lift the closure crossed the Article 1105 threshold in the circumstances.[42]
For arbitration practice, the lessons are equally significant. A later claim must independently satisfy the applicable consent and jurisdictional requirements. A counterclaim must comply with procedural deadlines or justify late admission. A damages model must correspond to the precise breach and to loss connected to that breach by a sufficiently close causal link. The central lesson is that establishing wrongful State conduct is not a substitute for proving the particular compensation claimed.[43]
[1] Legacy Vulcan, LLC v. United Mexican States, ICSID Case No. ARB/19/1, Award, 27 July 2026, ¶¶ 1-6, 1553(A)-(D).
[2] Id. ¶¶ 611, 668-670, 988, 1282-1290.
[3] Id. ¶¶ 2, 6-10, 604-605.
[4] Id. ¶¶ 909, 919-920, 924-927, 933-934.
[5] Id. ¶¶ 232, 935-939, 965-971, 973, 976-977.
[6] Id. ¶¶ 1016-1038.
[7] Id. ¶¶ 14, 19, 25-26, 82-89, 559-562, 636-637.
[8] Id. ¶¶ 568-570, 613-614, 634.
[9] Id. ¶¶ 559-562, 771-776, 789-800, 869-870, 1012-1015.
[10] Id. ¶¶ 1264-1269, 1292-1294, 1313-1314.
[11] Id. ¶¶ 758-761, 982-988, 1189-1191 and fn. 1187.
[12] Id. ¶¶ 1282-1290, 1447.
[13] Id. ¶¶ 562, 611, 668-670, 776, 800.
[14] Id. ¶ 1553(C)-(D), (F)-(G).
[15] Id. ¶¶ 757-764.
[16] Id. ¶¶ 779-784.
[17] Id. ¶¶ 771-776, 789-800.
[18] Id. ¶¶ 951-957, 965-966, 973-976.
[19] Id. ¶¶ 968-971.
[20] Id. ¶¶ 977-988.
[21] Id. ¶¶ 1273, 1282-1287.
[22] Id. ¶¶ 1267, 1288-1290.
[23] Legacy Vulcan, LLC v. United Mexican States, ICSID Case No. ARB/19/1, Dissenting Opinion of Professor Dr. Guido Santiago Tawil, 27 July 2026.
[24] Legacy Vulcan, LLC v. United Mexican States, ICSID Case No. ARB/19/1, Award, 27 July 2026, ¶ 988, fn. 1187.
[25] Id. ¶¶ 1050-1052, 1105-1107, 1118, 1189-1191.
[26] Id. ¶¶ 1053-1055, 1074-1081, 1088-1091.
[27] Id. ¶¶ 1110-1114.
[28] Id. ¶¶ 1130-1147.
[29] Id. ¶¶ 1166-1175.
[30] Id. ¶¶ 1186-1191 and fn. 1471.
[31] Id. ¶¶ 579-585, 593-599.
[32] Id. ¶¶ 586, 599, 603-609.
[33] Id. ¶¶ 611-612, 670, 1192-1193.
[34] Id. ¶¶ 34, 634-640.
[35] Id. ¶¶ 651-658, 660-663, 668.
[36] Id. ¶ 669.
[37] Id. ¶ 1264.
[38] Id. ¶¶ 1323-1327, 1332-1338.
[39] Id. ¶¶ 1301-1308, 1358, 1417, 1447.
[40] Id. ¶¶ 559-562.
[41] Id. ¶¶ 970, 985-988, 1282-1290.
[42] Id. ¶¶ 1050-1052, 1105-1107, 1147, 1168-1169, 1189-1191.
[43] Id. ¶¶ 596-611, 634-640, 668-669, 1264, 1289-1290, 1332-1338.