Is Arbitration an Appropriate Method for the Resolution of Novel Climate Change Disputes?

The green economy framework, contained in such instruments as the United Nations Framework Convention on Climate Change (‘UNFCCC’) and the Paris Agreement, aims to strengthen the global response to the threat of climate change. In particular, the Paris Agreement paves the way for ambitious climate mitigation, adaptation and financial commitments. It is expected that these developments at the global level will have a two-fold effect. On the one hand, as suggested by the 2019 ICC Report entitled “Resolving Climate Change Related Disputes through Arbitration and ADR”, climate change action will require rapid technological changes, resulting in new contracts and investment agreements. On the other hand, there will be the adoption of new national climate change-related laws and policies, and an increase of public policy demand for environmental compliance.

These trends combined can become a source of the so-called ‘climate change disputes’. As the name suggests, such disputes will have a direct or indirect connection with climate change policies, often involving a genuine public interest in a sustainable environment. To ensure the protection of public interests, any form of dispute settlement will almost inevitably require some degree of transparency and inclusiveness. While arbitration traditionally favours confidentiality, it is questionable whether it is an appropriate forum for resolving climate-related disputes. The technical complexity of environmental disputes may also present a challenge, where such a type of dispute often requires the examination of scientific evidence. Nonetheless, it appears that in certain cases of investment arbitration, the rights of an investor may be considered subordinate to environmental compliance.

1.    Concept of a climate change dispute

The 2019 ICC Report defines a climate change-related dispute as “any dispute arising out of or in relation to the effect of climate change and climate change policy, the United Nations Framework Convention on Climate Change (‘UNFCCC’) and the Paris Agreement.” From this definition, it appears that a climate change dispute is a broad concept. According to the report, the parties in such a dispute may be very diverse and will include private parties under general commercial contracts.

By their very nature, climate change disputes will contain a public interest element and may require disclosure of certain information to the general public. If for investment arbitration, the acceptance of such disclosure is growing, the situation is less clear in commercial arbitration.

2.    Implied duty of confidentiality

Before delving into the application of confidentiality with respect to environmental disputes, it is necessary to address the concept of the implied duty of confidentiality. It is of particular interest to look at how the level of confidentiality required in ‘commercial’ arbitration greatly differs by countries. Some examples will be discussed below.

Although the English Arbitration Act 1996 does not address the confidentiality of arbitration, English law appears to be among the few that adhere to the implied duty of confidentiality in arbitration (Dolling-Baker v Merrett [1991] 2 All ER 890, Hassneh Insurance Co of Israel v Mew [1993] 2 Lloyd’s Rep 243 and reaffirmed in Ali Shipping Corporation v ‘Shipyard Trogir’, John Forster Emmott v Michael Wilson & Partners Ltd). The position of the English courts is that the parties’ desire for confidentiality and privacy outweighs the public interest in a public hearing (Department of Economic Policy and Development of the City of Moscow v Bankers Trust Co).

This could be contrasted with the position in Australia and the United States. In Esso Australia Resources Ltd v The Honourable Sidney James Plowman and ors, the High Court of Australia decided that although the privacy of the hearing must be respected, that does not render confidentiality an essential attribute of private arbitration. Under US law, the parties are not required to treat as confidential the arbitration proceedings, and the information disclosed during such proceedings provided it is not stated otherwise in the applicable arbitration rules or in the agreement of the parties (Industrotech Constructors Inc. v Duke University 67 NC App. 741, the United States v Panhandle Eastern Corporation 118 FRD 346 (D. Del. 1988), Contship Containerlines Ltd v PPG Industries Inc., 17 April 2003, 2003 US Dist. 6857).

3.    Confidentiality adjustments for climate change disputes

The principle of confidentiality is often in conflict with the increasing demand for transparency. That said, in England, as Lawrence Collins L.J. explained in John Foster Emmott, one of the possible exceptions from the duty of confidentiality is the exception of public interest. Therefore, climate change disputes appear to be in the area where the parties would need to be prepared to a certain degree of disclosure of the arbitration proceedings. To respond to the transparency demand in climate change disputes, there are several ways in which arbitration could be adjusted.

Liz Tout and Anisha Patel argue that more transparency in arbitration could be achieved on a voluntary basis as opposed to a court order basis. For instance, the parties could choose to publish parts of the award. In Abyei Arbitration, the parties went even further, publishing pleadings, decisions, and certain other documents while providing webcasts of the hearings.

Another option to have a greater degree of transparency is the possibility of giving voice in the arbitration process to non-parties. It is evident that some large-scale projects under commercial contracts, which could potentially impact the environment (e.g. the construction of a power station), will attract significant public interest, resulting in some pressure from groups wishing to participate in related disputes. In such a case, stakeholders can engage in the dispute via third-party participation, notably in the form of amicus curiae written submissions (i.e. non-parties to the case that submit written briefs or make oral statements before a court or tribunal concerning the law or facts). In the NAFTA case of Methanex Corporation v United States of America, the tribunal permitted the involvement of third parties, including the International Institute for Sustainable Development, Communities for a Better Environment and the Earth Island Institute. Another example is the case of Eureko v Slovak Republic, where the investment tribunal, upon consent by the parties, invited comments from the European Commission and the Netherlands Government about the existence of the tribunal’s jurisdiction.

Judith Levine suggests that a non-party might also take part in the proceedings as a witness, as was the case of Greenpeace activists in the Arctic Sunrise. Another option for non-parties to be involved is to become observers as in the Philippines v China arbitration, where the interested States were granted permission to observe the hearings and receive copies of pleadings.

A recent illustration of attempts to make climate change investor-state arbitration more transparent is the ICSID case of Vattenfall II. Although the Tribunal permitted disclosure of certain Claimants’ submissions to the Hamburg Regional Court, and some of the hearings were held public, arguably, the required degree of transparency has not been achieved in this case. As one of the disputed issues was the amount of compensation for an investor, it could hugely impact public finance. It is questionable whether the confidentiality of arbitration is justified in such cases in the eyes of the public at all.

4.    Other hurdles of arbitration

As far as investor-state arbitration is concerned, another controversial feature of arbitration is the question of whether tribunals could interpret investment treaties in favour of enhanced environmental protection. In David Aven v Costa Rica, the tribunal interpreted a provision in DR-CAFTA which specified that the host state could adopt measures for environmental protection. According to the tribunal’s reading, the investor had an obligation to comply with national environmental regulations both under domestic laws and an investment treaty. This is in line with the view taken by the tribunal in Cortec v Kenya, where the arbitrators stressed that host states are not financially responsible for investments in violation of domestic laws intended to protect public interests such as the environment.

A common feature for both commercial and investment arbitration is that due to the technical complexity of climate change disputes, they often require a recourse to appropriate expertise. This issue is remedied by the arbitral institutions, in which they provide steps to facilitate parties’ access to expert knowledge. For instance, the PCA Environmental Rules provide for the establishment of a list of arbitrators with environmental expertise and a list of scientific and technical experts available for appointment as expert witnesses. The 2019 ICC Report also encourages parties to select arbitrators with climate change expertise according to the ICC Arbitration Rules. Besides arbitrators, the parties or a tribunal may appoint experts from the database of the ICC Centre for ADR, comprising, amongst others, experts on climate change.

Conclusion

Given that all climate change disputes are likely to involve public interest, it is advisable for disputants to agree expressly on which information needs to remain confidential. That said, the parties would have to be prepared to make some concessions by making certain information publicly available and allowing, where possible, for the involvement of non-parties in the proceedings. The investor-state disputes face a further challenge of tribunals interpreting investment treaties’ provisions which confer the rights upon investors as subordinate to domestic environmental protection measures. However, this is inevitable under the global environmentally-oriented agenda. Finally, climate change disputes often require technical expertise, but arbitral institutions take an active stance to resolve this problem. With the above-mentioned analysis, arbitration remains suitable for the resolution of climate change disputes provided that appropriate adjustments are made.

 

Tatyana Jacob is a trainee advocate in Russia. She has an academic background in both common and civil law. Tatyana holds an LL.M. from the University of London, as well as a Master’s in Private International Law from the Kutafin Moscow State Law University. Her research interests include International Commercial Arbitration and International Litigation.

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