The court ruled that the company had failed to consult the community in accordance with United Nations International Labour Organisation (ILO) convention 16 - ratified by the Chilean government in 2008 - which protects indigenous and tribal peoples' rights. Chilean-Swedish-owned Ecopower is seeking a revision of the decision and is concerned for the future of the $235 million project.
This is the first time a Chilean court has made a judgement in favour of a local community according to convention 169, and the ruling could have implications for other projects in Chile. The country currently only has 172MW of installed wind capacity, but a further 2.3GW have been given environmental approval.
The supreme court judgement at the end of March accepted the Antu Lafquen de Huentetique indigenous community's claim that the assessor from Corema, the regional environmental commission, should have ordered a full environmental impact assessment (EIA) last year before approving the project, given the potential impact on the community.
At the time, Corema approved the quicker environmental impact declaration submitted by Ecopower, which had no formal consultation process and, therefore, according to the court judgement, had failed to act in accordance with convention 169.
The indigenous community is part of a broader opposition to the project - to be located in the Quilo and Mar Brava sectors of Chiloe Island in southern Chile's Los Lagos region - which includes numerous other community groups and conservation organisations.
Barbara Galletti of the Sea Mammal Conservation Centre in Chile is part of that opposition. "The supreme court has clearly indicated that the action of the regional authorities in accepting a (declaration) and not (asking for) an EIA was illegal," she said. "The north-east of Chiloe is the prime area for tourist development and the Mar Brava's surroundings have diverse ecosystems and protected species alongside sites of archeological value."
Julio Albarran Ecopower's general manager, denied the project affects the community as claimed and said that there are no archeological sites inside the project's borders. The company has applied to revise the judgement.
Albarran said construction was due to start on 4 June and finish in February 2014. If the judgement stands, the EIA process could delay the project by around a year and this could unsettle financial backers, he said. He is also concerned about the effect of ILO convention 169.
Andres Devoto, a partner at Chilean corporate law firm Grupo Alianza, explained the legal basis of Albarran's concerns about the convention. "Our country has not regulated this, therefore uncertainty exists as to how to comply in practical terms with the international standards," he explained.
There is uncertainty over how to carry forward consultation in line with the convention, leading to doubt for the market, he said. "Even when a consultation is done in good faith by a company and governing body, could a community or individual from a recognised ethnicity in Chile question the process and take new legal action against the project through fresh claims?"
But Jose Ignacio Escobar, vice-president of renewable energy association Acera, said that abiding by the ILO convention is part and parcel of the approval process required to build a wind project in Chile, and that Acera generally was not concerned about its effect on development. "The wind-power projects developed by companies that have involved communities from the start and that follow the highest national and international standards shouldn't have any problem developing their projects," he said.