MEXICO CITY — The government of El Salvador won a long-running legal battle on Friday when an international arbitration panel ruled that it did not have to pay compensation to a mining company that was denied a concession to drill for gold.
The case had been watched by antimining activists, who had pointed to it as a test of the rights of governments to make laws protecting their citizens’ health and the environment against challenges from corporations.
The panel, the International Center for Settlement of Investment Disputes, at the World Bank in Washington, accepted El Salvador’s argument that the company, Pac Rim Cayman, did not meet all the legal requirements to receive a permit.
The ruling was a relief to the Salvadoran government, which faced a demand for $314 million in compensation from Pac Rim Cayman for the loss of expected profits from the mining venture.
“What is clear is that investments are welcome if they respect institutions, if they respect the environment and health,” Lina Pohl, El Salvador’s environment minister, said in a phone interview from San Salvador, the capital.
The World Bank panel, known as Icsid, is a little-known body that arbitrates disputes initiated by private companies that argue that their rights as investors have been violated by governments.
Many free-trade agreements incorporate the rights of foreign investors to seek redress from the panel. Activist groups argue that private companies are using the dispute center to fight regulation.
“The case has been hanging over El Salvador, and the company used this case to try to get permission to work there,” said John Cavanagh, the director of the Institute for Policy Studies, a left-leaning think tank in Washington.
OceanaGold, a Canadian-Australian mining company that acquired Pac Rim’s Canadian parent company in 2013, said the company had been seeking an “amicable resolution.” While OceanaGold was disappointed with the outcome, it respected the opinion of the arbitration panel, said Darren Klinck, the executive vice president for corporate development.
The case that Pac Rim brought to the three-person panel proved to be so weak that the finding against it was unanimous. The company had never acquired the rights to all the land it wanted in its concession, which the government rejected in 2005.
The suit was filed in 2009, after El Salvador’s government declared a moratorium on mining concessions.
An outside evaluation commissioned by the government later argued that El Salvador’s water supply was too threatened, its institutions too weak and its land titles too conflicted to allow mining. “The country doesn’t have conditions for mining,” Ms. Pohl said.
Jamie Kneen, a spokesman for Mining Watch Canada, said that El Salvador’s legal victory did not diminish the threat that companies would go to the arbitration panel in future cases.
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