Alexis Choquet*
International arbitration and climate change. You might be asking yourself, “why such a heavy topic to start our series of articles on Alternative Dispute Resolution (ADR) mechanisms”? As a fearless young team, we are of the opinion that we should face the crucial topics from the start. Climate Change is a major issue nowadays, which is bound to impact not only our lives, but also our way of dispensing justice, including ADR mechanisms[1]. That being asserted, the object of this article is to gather the various mentions and potential evolutions of environmental considerations representation in either substantive or formal aspects of arbitration.
Substantively, international arbitration can be divided between investment and commercial arbitration. The field that shows the most environmental related evolutions, until today, is investment arbitration.
First of all, it is not rare that investment cases have an issue related to the environment. Indeed, foreign investments are usually prominent projects that usually materialize with a significant carbon footprint and territorial alteration (creation of a bridge, mine, solar panel farms, etc.) which explains why the environmental question is not new in that field. However, it was missing a true legal concretization.
To address this issue, Annette Magnusson, Secretary General at the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), launched the Stockholm Treaty Lab Competition[2]. This initiative is aimed at drafting a multilateral investment treaty project through crowdsourcing – this needs to be remarked for being a modern and inclusive method of international lawmaking. The main focuses of this treaty are to encourage sustainable investments, and discourage former and new unsustainable investments while ensuring a just transition to sustainable development. Besides, it contains a dispute resolution clause which specifically states that an investor or investment may not submit a claim or dispute if the investor or investment has “caused serious environmental damage”. Yet, the implementation of such a revolutionary stipulation would raise the question of who is going to assess the environmental damage, and how investors would have certainty over the evaluation process. Nevertheless, closing the doors of the arbitral tribunals is indeed one of the better ways to urge investors to comply with national regulations. Even though this treaty is not yet part of international law, allowing states to have an example of eco-friendly treaty is already part of the evolution for a better adaptation of international law to current issues.
Bilateral Investment Treaties (BITs) constitute another tool to put environmental considerations at the center of investment arbitration. Recent evolutions have to be remarked. For example, the 2016 Morocco-Nigeria BIT[3], or the 2012 Model BIT of the United States[4], expressly mention the environment or corporate responsibility. Additionally, the 2015 Canada-Ivory Coast BIT[5] regards “sustainable development” in the treaty objectives settings. These are the first BITs that have a clear wording regarding environmental issues. Despite the unproved efficiency of these provisions, it surely could help an eco-friendly interpretation if ever the Vienna Convention was to be applied.
When it comes to precedents, Gabrielle Kaufmann Kohler perfectly expresses that even though the Tribunal is not bound by previous decisions of ICSID tribunals:
“it should pay due regard to earlier decisions of such tribunals. […] Unless there are compelling reasons to the contrary, [the Tribunal] ought to follow solutions established in a series of consistent cases, comparable to the case at hand, but subject of course to the specifics of a given treaty and of the circumstances of the actual case. By doing so, it will meet its duty to seek to contribute to the harmonious development of investment law and thereby to meet the legitimate expectations of the community of States and investors towards certainty of the rule of law”[6].”
Accordingly, observing other cases’ reasonings is relevant for environment-related future cases. In various recent investment arbitration awards, an evolution of outlook is perceptible. Indeed, environmental considerations are becoming increasingly present and important in Tribunal’s reasoning such as in David Aven v. Costa Rica[7] and Cortec v. Kenya, where part of the outcome was grounded on environmental arguments[8]. For instance, in the Cortec tribunal’s own words, environmental considerations were of “fundamental importance”[9]. It is evident that through a multilateral treaty, bilateral treaties or precedents, environmental considerations progressively find their way to their real effectivity in investment arbitration.
While the UN is currently negotiating a multilateral convention on Corporate Social Responsibility, which could eventually compel multinational companies to respect environmental obligations with, in the best scenario, actual binding rules upon them, it is clear that integrating environmental issues into commercial arbitration will not be done instantly.
However, some encouraging developments are still noticeable. First and foremost, arbitration is one of the most flexible dispute resolution mechanisms. Indeed, the party that is affected by an environmental damage can nominate an arbitrator who is perfectly conscious of those questions, and who can outline through his/her questioning and intervention the tremendous consequences arising from climate change and environmental devastation. Furthermore, arbitration offers a substantially wide range of enforcement options, which is an effective tool for the implementation of environmental obligations. This, nevertheless, collides with a lack of transparency. Indeed, commercial arbitration is confidential and awards are not published like in investment arbitration. Therefore, the influence of precedents is reduced[10]. The global push for increased transparency in commercial arbitration will hopefully result in an increased publication of awards, which might allow interested parties to follow the treatment of environment-related considerations in commercial arbitration more easily and closely in the future[11]. This would probably lead to an increased use of this mechanism.
Another tool to be considered is the compliance with the law and regulations of the host state. As for investment arbitration, denying the access of parties to arbitration regarding internal environmental policies could lead to a better execution of the parties’ contractual obligations- for example, non-compliance with reporting requirements about gas emissions.[12] Indeed, “non-compliance with such reporting requirements could result in breaches of common commercial contractual provisions, such as conditions precedent or warranties which require compliance with applicable laws and regulations, and to ensure that other companies involved in the performance of the contract do so as well”[13]. In other words, the non-compliance with the laws and regulation could give rise to an examination from arbitrator of such obligations that the companies must comply with and consequently compel them to abide by themselves to environmental enactments. Moreover, the strength of commercial arbitration is that it applies to a person directly, which makes it easier to identify, whereas in investment arbitration states are representing the people’ interest merged into the state interest[14].
From an institutional standpoint, some arbitration institutions are moving forward on the environmental issue. Indeed, the ICC has engaged with the questions posed by environment-related arbitrations by creating a task force on “Arbitration of Climate Change Related Disputes” to explore, among other things, how ICC arbitration can be used to face climate change-related disputes.[15] In October 2019, the SCC issued its revised arbitrator guidelines[16] which implemented a new approach towards expenses. For instance, the Guidelines provide additional detail on the reimbursable travel-related expenses, which now include the reimbursement of the “standard costs of climate compensating for the flights”[17]. This is, however, not unique to the SCC, yet its wording is the clearest one in favour of carbon compensation.
Formally, arbitration as of its nature as an international activity it subsequently produces carbon emissions. An environmental impact assessment of carbon footprints has been conducted by the Campaign’s Steering Committee on a middle-sized arbitration case[18]. According to its findings, the total carbon impact of the arbitration would require planting more than 20,000 trees to offset its emissions[19]. More than 93% of the identified emissions were related to travel. One of the options would be to reduce one long distance flight for every arbitration, which would result in significant carbon savings, as would eliminating hard copy submissions. The Committee also considered the eventuality of a “Green Arbitration”[20]. This would involve eliminating paper bundles, reducing the amount of travelling, and eliminating motorbike couriers thanks to the alternative use of e-bundles and video conferencing.
To conclude, evolutions undoubtedly exist. But this is just the beginning of the road, and greater developments are needed to reach its end. According to Wendy Miles “We need informed counsel and informed arbitrators in relation to climate change issues”[21]. Dear Wendy, message received loud and clear.
[1] Kluwer Arbitration, New Arbitration Frontiers: Climate Change, Evolution and Adaptation: The Future of International Arbitration, Annette Magnusson
[2] Kluwer Arbitration, Foreword: The Story of the Stockholm Treaty Lab, Annette Magnusson
[3] Article 13, 14 & 19, Reciprocal Investment Promotion and Protection Agreement between The Government of The Kingdom of Marocco and the Government of the Federal Republic of Nigeria, signed on 3 December 2016, not yet into force
[4] https://www.italaw.com/sites/default/files/archive/ita1028.pdf
[5] Article 15, Canada – Côte d’Ivoire Foreign Investment Promotion and Protection Agreement, signed on 30 November 2014, entered into force on 14 December 2015
[6] Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29 § 145
[7] David R. Aven and Others v. Republic of Costa Rica, ICSID Case No. UNCT/15/3
[8] Kluwer Arbitration Blog, Combating Climate Change: The Role Of Investor-State Arbitration In Africa, Wynne Lawrence, Rosalyn Smith, March 17, 2020
[9] Cortec Mining Kenya Limited, Cortec (Pty) Limited and Stirling Capital Limited v. Republic of Kenya, ICSID Case No. ARB/15/29 § 346
[10] Kluwer Arbitration, New Arbitration Frontiers: Climate Change, Evolution and Adaptation: The Future of International Arbitration, Annette Magnusson, IV 1. a)
[11] Kluwer Arbitration Blog, Climate Change, the Environment and Commercial Arbitration, Susan Field, Helin Laufer, March 9, 2020
[12] Kluwer Arbitration Blog, The Green Pledge: No Talk, More Action, Lucy Greenwood (Greenwood Arbitration) and Kabir A.N. Duggal (Columbia Law School), March 20, 2020
[13] Kluwer Arbitration Blog, Climate Change, the Environment and Commercial Arbitration, Susan Field, Helin Laufer, March 9, 2020
[14] Kluwer Arbitration, New Arbitration Frontiers: Climate Change, Evolution and Adaptation: The Future of International Arbitration (Kalicki and Abdel Raouf (eds); Dec 2019), Annette Magnusson, IV 1. a)
[15] Kluwer Arbitration Blog, Climate Change, the Environment and Commercial Arbitration, Susan Field, Helin Laufer, March 9, 2020
[16] https://sccinstitute.com/media/1067295/scc-guidelines-for-arbitrators.pdf
[17] Kluwer Arbitration Blog, Climate Change, the Environment and Commercial Arbitration, Susan Field, Helin Laufer, March 9, 2020
[18] Kluwer Arbitration Blog, The Green Pledge: No Talk, More Action, Lucy Greenwood (Greenwood Arbitration) and Kabir A.N. Duggal (Columbia Law School), March 20, 2020
[19] Ibid.
[20] Ibid.
[21] \’Climate Change: Arbitration – Arbitrators can turn up the heat\’, The Resolver, (© Chartered Institute of Arbitrators (CIArb); Kluwer Law International 2016, Volume 2016 Issue 4) pp. 10 – 13