This article has been written by Sonali, pursuing the Certificate Course in International Commercial Arbitration and Mediation from LawSikho.
Environmental disputes are at an all-time high because of several international treaties entered into by the states (such as the recent Paris Agreement, 2015) along with their subsequent obligations and continuous pressure from non-governmental organisations to save the environment and prevent climate change. They evolved from state to state disputes to investor to state disputes and now turning towards commercial contractual disputes. Since the existence of the United Nations and the International Court of Justice in 1945 the environmental disputes between states have been dealt with and resolved through litigation. But the emergence of arbitration in the international domain and its pragmatic application to environmental or climate change disputes is still a grey area. Here we will understand how arbitration is being done to date in such disputes, how it is useful in getting better results for parties involved, and what are their future prospects together.
Dispute resolution measures for environmental disputes
The remedies available to resolve an environmental dispute are multiple and scattered internationally. The countries often do forum shopping to identify which institute or organisation can fulfill their demands most favourably. For instance, in the EU-Chile swordfish dispute, the EU requested the WTO to establish a panel for dispute resolution while Chile initiated the proceedings in the International Tribunal for the Law of the Sea (ITLOS). But ultimately, they settled the dispute under an agreement on 25 January 2001. But comprehensively there are two categories under which these disputes are dealt with:
- Dispute settlement mechanism, and
- Non-compliance system.
Dispute settlement mechanism
This is primarily undertaken where a dispute has arisen between two or more countries about their obligations under international agreements and it involves interpretation of their rules and principles. A tribunal or court is established to reach a conclusion where initial settlement talks lead to none. This system exists in many international agreements and institutions which are as follows –
- International Court of Justice (ICJ): It is the principal judicial organ of the United Nations established along with the latter itself in 1945. Several multilateral agreements stipulate its jurisdiction. When parties make a unilateral declaration recognising its jurisdiction, the ICJ then has the sole right to adjudicate that dispute. The court in 1993 established an environmental chamber and created a specific body expert in environmental disputes.
- European Court of Justice (ECJ): It resolves disputes pertaining to and obligations arising from EU treaties. Till date, it has dealt with over 150 environmental cases and is now imposing fines on non-compliant parties expeditiously.
- Human Rights Courts: In 1968, the UN General Assembly formally recognised that there is a connection between human rights and the safety of the environment, and the 1972 Stockholm Declaration reiterated the same. Here, the disputes are resolved by the rules of inter-state charter or commission such as the African Charter of Human and People’s Rights or American Convention on Human Rights.
- World Trade Organisation (WTO): The WTO, a multilateral trading system, was created in 1995 to oversee the application of agreements such as General Agreements on Tariffs and Trades (GATT). The dispute arising out of these agreements is dealt with in two stages, firstly by a panel and then by an appeal. Breach of terms under these agreements which simultaneously affect the environment such as the Tuna Dolphin Case of US is dealt with by WTO.
- Permanent Court of Arbitration (PCA): Arbitration and other alternative dispute resolution methods are used to resolve disputes under PCA and it consists of a panel of 265 jurists. In addition to states, PCA has the power to resolve disputes between private parties and inter-governmental organisations. In 1996, it established a working group to prepare its draft environmental procedure rules.
- International Centre for Settlement of Investment Disputes (ICSID): It was established to resolve disputes arising out of an investment treaty between an investor and the host state. Questions of environmental concerns are being raised before ICSID including whether environmental legislation can constitute a form of expropriation and whether full compensation must be paid where taking is for environmental reasons.
- World Bank Inspection Panel: A dispute arising out of a World Bank project which affects a person is inspected by this panel including environmental concerns.
- International Tribunal for the Law of the Sea: The UN Convention on the Law of the Seas provides a provision for compulsory dispute settlement which parties may designate to ICJ, Arbitral Tribunal, or International Tribunal for the Law of the Seas.
The above-mentioned platforms are a mix of traditional litigation and modern alternative dispute resolution mechanisms in the international community.
Where the obligations of a Multilateral Environmental Agreement (MEA) are not fulfilled by the signatory party and it ultimately affects the success of the regime itself is known as a non-compliance system. It deals with global environmental issues and assesses parties’ compliance with the obligations set out in MEA. The specific body created within the MEA governs the procedure in case of non-compliance by a party which includes diplomatic pressure, provision of assistance, issuing cautions and warnings to the withdrawal of technical and financial assistance, and trade restrictions. Examples of such procedures can be seen in Montreal Protocol, CITES, International Whaling Commission, Convention on Long-Range Transboundary Air Pollution, etc. This method is non-adversarial and may not result in effective results because the sanctions may not be binding on different sovereign states. Therefore, we will redirect our focus on the arbitration platforms only in more depth.
Recourse to arbitration as a technique of dispute resolution
Arbitration is a private dispute settlement process that provides parties with an option to choose their own adjudicators and maintain the confidentiality of matters. The parties must have entered into an agreement to refer their dispute to arbitration to make it binding on them. The award passed is final and binding and is subject to the scrutiny of very few grounds (no review on merits of the case). Further due to the Convention on Recognition and Enforcement of Foreign Arbitral Awards, 1958 or New York Convention, 1958 (NY Convention), the awards passed can be enforced in more than 160 jurisdictions.
Environmental disputes can be arbitrated only when it has been agreed between the parties in advance whether in their investment treaties, Multilateral Environmental Agreements (MEA), or commercial contracts. As given above, amongst the traditional ways of dispute resolution mechanism use of arbitration is also mentioned. The Permanent Court of Arbitration has made relevant changes in its rules to incorporate procedures for arbitrating environmental disputes. But apart from this specialised ad-hoc arbitration is also popular between state and non-state private parties. Therefore, it can be said that parties may have recourse to arbitration for environmental disputes via the following modes:
International agreements providing mandatory arbitration
Dispute resolution in international agreements is often done with negotiations in the beginning and on its failure one of the parties can refer their dispute to arbitration. This unilateral reference of disputes can be seen in many treaties including the following but not limited to:
- Convention for the Protection of the Marine Environment of the North-East Atlantic, 1992 (OSPAR): It states that, if a matter could not be resolved through conciliation either of the parties can submit the dispute for arbitration.
- United Nations Convention on the Law of the Seas (UNCLOS): Here parties have an option to choose arbitration as a compulsory method of dispute resolution and if no declaration is made by parties, arbitration is deemed to have been accepted by the parties.
International agreements providing optional arbitration
Sometimes parties are free to choose amongst different dispute resolution mechanisms and can make their choice when the dispute arises. They are just required to inform the administrative body of the convention about their choice. The treaties having similar provisions of arbitration as an optional mechanism are as follows:
- Convention on International Trade in Endangered Species of Wild Fauna and Flora, 1973 (CITES) and the Convention on Conservation of Migratory Species of Wild Animals, 1979: The parties under these treaties may submit their disputes to arbitration where initial negotiation fails only when there is the mutual consent of the parties. No unilateral reference can be made.
- The Vienna Convention on Protection of Ozone Layer, 1985 under which Montreal Protocol, 1992 was adopted: Here the parties have to at the time of ratification of the convention make a decision whether they will be referring their disputes to Arbitration, the ICJ, or the both. The arbitration is only optional here and parties may choose otherwise.
- Convention on Biodiversity, 2002: This treaty also mentioned arbitration as an optional mechanism in its Article 27, and detailed procedures are given in annex II.
- The Helsinki Convention on the Trans-Boundary Effects of Industrial Accidents, 1992: Similarly as given in the above Conventions both the parties may refer their dispute for arbitration in case of failure of a negotiation settlement.
State practice on arbitration
States have also shown a bend towards arbitration for environmental dispute resolution through institutions such as PCA, ITLOS, and through ad hoc arbitrations because there is greater autonomy to parties in respect of selection of tribunal and choosing the procedure for hearings/proceedings.
One of the very initial examples is the Trail Smelter case, between the US and Canada which defined the transboundary environmental damage and consequently liability of states to compensate for the same. The arbitration was originally between the farmers and the smelting company but with the involvement of federal officers it became an international dispute. It was only in 1935 that the State parties entered into a convention for the settlement of difficulties arising from the operation of the smelter at Trail and the tribunal was formed under the same. Awarding economic compensation, the tribunal successfully imposed state responsibility for transnational air pollution.
In Southern Bluefin Tuna cases, the dispute was between Australia, New Zealand on one side and Japan on the other due to an experimental fishing program conducted by Japan over southern seas near Antarctica which is recovering from overfishing. The matter was referred to ICSID for arbitration because the parties were signatory to ITLOS which allows a mandatory arbitration. But Japan contended the jurisdiction of this tribunal on the grounds that this dispute is solely arising from the Convention of Conservation of Southern Bluefin Tuna, 1993 which allows any peaceful method to resolve the dispute and not necessarily arbitration. It was held that the tribunal had no jurisdiction because a dispute has arisen in both the conventions and parties may resolve it by negotiation settlement.
There are several other cases that clarify the situation that State entities are willing to resolve environmental conflicts through arbitration and that too mostly from ad hoc ones and not institutional ones.
Commercial contracts providing mandatory arbitration
Environmental disputes are complex and generally take place between governments and major carbon emitters and investigations launched by the former. But seldom arises an occasion that disputes having an environmental component occur in a contractual and commercial contract between the parties. An arbitration process is really flexible and international in that parties have an option of choosing arbitrators and create a tribunal that has adequate knowledge of regulatory and technical issues involved in the climate change dispute. These climate change disputes due to the confidentiality option may majorly arise from the energy and construction sectors.
Subsequent to entering into force the Paris Agreement on Climate Change, 2015, states are introducing and enhancing environment-related disclosure and precautionary obligations on commercial entities too. Non-compliance with these obligations would result in a breach of contractual provisions, consequently making parties liable for arbitrating those disputes. In addition, breach of commercial obligations by arising force majeure circumstances and contributing to climate change by causing harm to the operations of claimants will result in environment-related arbitrations.
Steps that were taken by arbitral institutions to incorporate environmental disputes
Permanent Court of Arbitration
International Convention for the Pacific Settlement of International Disputes, 1899 (Hague Convention) PCA is the first international establishment for resolving and administering international disputes through arbitration and further assists arbitration outside the institution. In the North Atlantic Coast Fisheries case, an inter-state dispute arose between the US and UK under their special agreement signed at Washington which gave US inhabitants the same rights as British subjects to engage in all types of fishing on a specified part of the British coastline of Newfoundland and Labrador. The tribunal decided on the interpretation of Article I of the convention and other environmental disputes and the same was settled by the PCA.
The PCA has administered similar other cases and to progress in this direction had come up with Optional Rules for Arbitration of Disputes Relating to the Natural Resources and/or the Environment, 2001. The rules are first of their kind to include non-state actors such as Non-Government Organisations in arbitration proceedings as parties that exert great influence on state parties for environmental concerns. It waives off the need to characterize a dispute as an environmental or natural resource to decide jurisdiction if all the parties have agreed for arbitration of their dispute. This prevents the diverting of proceedings from merits to the interpretation of definitions of environmental dispute and natural resources. It further saves time on jurisdictional issues and aids in the timely completion of proceedings.
American Arbitration Association
Similarly, other arbitration institutions have made significant changes in different forms to identify environmental issues as a part of their dispute resolution mechanism. The American Arbitration Association though has not created separate rules for environmental disputes but listed the same as a category of a dispute with Construction and Real-estate disputes. It states that the disputes arising out of industrial projects creating pollution in the environment are resolved under them and they help parties in multi-party and multi-jurisdiction arbitrations.
International Chamber of Commerce
In 2019, the International Chamber of Commerce took an initiative and formed a task force to examine the role of arbitration and ADR in the resolution of international disputes related to Climate Change. The Report identified three categories of climate change disputes namely – General Commercial Contracts, Contracts concluded as per Paris Agreement, and Submission Agreements entered after a dispute has arisen by the impacted group. The report also identified six procedural features to be considered by the parties for optimal arbitration proceedings. They are –
- Using appropriate scientific methods to appoint arbitrators and experts.
- Looking for urgent interim reliefs.
- Application of climate change commitments and laws.
- Third-party participation.
- Allocating costs.
International Bar Association
Other than arbitral institutions, independent associations such as the International Bar Association (IBA) have also issued a task force report on climate change and human rights and given the citizens of London a model statute to sue their government in case of their failure to fulfill climate change obligations. The citizens can ask for judicial review of the mechanisms used by the government to tackle climate change. Steps like this by various institutions and organisations are creating a level playing field for several parties involved in complex environmental disputes and their resolution through arbitration.
Future of climate change claims with the arbitration
Before presuming the fate of environmental disputes and arbitration, we should first delve into the harms that arbitration may cause to the environment. According to a study conducted by Dechert LLP, it is acknowledged that carbon emissions of one medium-size arbitration are around 418,531 kg CO2e which is equal to planting 20,000 trees to offset its effect. The study included the long and short flight hauls, the printing of hearing bundles, courier and hotel stays, etc. The numbers are huge and do not consider ad hoc arbitrations. Also, the technicalities of climate change disputes require more parties such as technical experts, witnesses, etc., and consequently more rounds of cross-examinations increasing the flights and carbon emissions.
The COVID-19 scenario has helped a bit in this cause because of the introduction of virtual hearings of arbitration. The arbitration community has embraced this “virtualisation” of proceedings and is not hesitant to even conduct cross-examinations online. From the perspective of environmental concern, this regime should stay post-covid too with little to no requirement of traveling for hearings or site visits. New technological advancements make it possible for anyone to witness and appear in proceedings from any place. Therefore, the concern of carbon emission is curable and is in the hands of the arbitration community. Apart from the above concern, it can be said that arbitration for climate change disputes is amazing and will see some light of the day in the near future.
The journey of this article has apparently brought us to a conclusion that dispute resolution in environmental and climate change disputes is scattered and fragmented. The recourse to arbitration is fragmented too, between different domains including investment treaties, international agreements, and commercial contracts and different structures including permanent institutions and ad hoc arbitrations. This may even not be an exhaustive list because of the complex nature of the dispute which can take any form in the future. But another believing conclusion is that the several actors of the regime, be it the arbitral institutions or self-regulated organizations, all are fully prepared to embrace any changes required to be made in the existing domain to meet the demands of the future.
For time being it can be said that arbitrability of environmental disputes is a young regime and is rapidly taking a strong and unambiguous structure with the help of actors involved in the arbitration community. It provides the autonomy to parties to mold the process of hearings in accordance with the nature and complexity of the case and choose an expert panel of arbitrators to adjudicate upon the matter. Undoubtedly, other than the fact of carbon emission due to arbitration proceedings and the requirement of keeping a check on the same, the future of arbitration with environmental disputes is quite bright.
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