Environmental Justice in Investment Arbitration: Will Renco v Peru (II) Pave the Way?

Image Credit to Perú Reports

In Investor-State arbitration, argumentation regarding human rights and environmental protection has been controversial. This tension between investment law and human rights conception is well acknowledged both in scholarship and arbitral practice. Renco v Peru (II) once again addresses this unsettled struggle when the tribunal (composed of Tribunal President Judge Bruno Simma, Arbitrator Prof. Horacio Grigera Naón, and Arbitrator Christopher Thomas KC) has recently issued a Procedural Order seeking some clarifications. Amongst others, the tribunal has sought comments from the parties regarding the weight, if any, to be attached to the latest judgment of the Inter-American Court of Human Rights (IACtHR) in La Oroya v Peru. This is the first contentious case decided by the IACtHR where it held a State (Peru) liable for violating the environmental rights emanating from the American Convention on Human Rights (Convention).

This post argues that Renco v Peru (II) has the potential to set precedent for future cases dealing with human rights controversies in investment arbitration. Despite considerable scepticism, Renco v Peru (II) has the prospect of offering valuable insights to effectively address human rights and environmental concerns under the prevailing Investor-State Dispute Settlement (ISDS). After discussing the environmental and human rights obligations of Peru and Renco under the Convention as found by the IACtHR, this post will examine the factual matrix of Renco v Peru (II) against the reasoning in Urbaser v Argentina. Finally, the relevance of the tribunal Composition in Renco v Peru (II) will be investigated to substantiate the claim made in this post.  

Convention Obligations on Peru and Renco

The facts of La Oroya v Peru and Renco v Peru (II) are identical, involving the mining activities of Doe Run Peru (DRP), a subsidiary owned by Renco, in the metallurgical complex in La Oroya. Such activities were carried out without safeguarding the environmental protection causing toxic contamination of harmful substances. The resultant soil, water and air pollution made La Oroya one of the most polluted sites in the world posing substantial health hazards to its inhabitants, particularly the children, pregnant women and the aged. The local residents sued Peru before the Inter-American Commission on Human Rights (IACHR), which after prolonged proceedings held Peru to be internationally responsible for breaching its obligations to protect environment and human rights under the Convention. The case was subsequently referred to the IACtHR for taking remediation measures. The IACtHR rendered its milestone judgment analysing Peru’s environmental and human rights obligations under the Convention. It directed Peru to take urgent measures to stop the environmental pollution, provide treatment and pay compensation to the affected victims. Significantly, it also discussed the corporate responsibility of the mining companies stressing their obligations to protect environment and human rights, which the States must supervise, investigate and regulate. The upshot of La Oroya v Peru is the prospect of the Convention imposing obligations not only on Peru, but also on DRP/Renco not to conduct itself in a manner which would violate the rights of the residents under the Convention. Also, the IACtHR in Advisory Opinion OC-23/17 clarified that environmental rights and human rights are inextricably linked (paras 46-55).

The main challenge for human rights and environmental considerations in investment arbitration is that they do not arise directly out of the investment treaty. However, the Urbaser tribunal (composed of Tribunal President Professor Andreas Bucher, Arbitrator Professor Pedro J. Martínez-Fraga, and Arbitrator Professor Campbell McLachlan QC) by adopting the “principle of systematic integration” settled that international human rights law could be considered as relevant rules of international law under Article 31(3)(c) of the Vienna Convention on the Law of Treaties (VCLT) (para 1200). It is noteworthy to mention that McLachlan innovated the term “principle of systemic integration” in 2005 which was subsequently applied in Urbaser showing the importance of previous works and experiences of any given arbitrator. This is further substantiated by the fact that in the majority of cases following Urbaser, which positively considered human rights and environmental laws, either in the awards or dissenting opinions, Professor Sands was a common tribunal member strongly advocating for incorporating human rights norms in ISDS (Bear Creek v Peru, Award, and Partial Dissenting Opinion; Glencore v Bolivia, Award; Eco Oro v Colombia, Partial Dissent (attached with the Decision on Jurisdiction, Liability and Directions on Quantum)).

Evaluating the Urbaser Reasoning    

Argentina’s counterclaim based on international human rights norms in Urbaser was defective (Award, para 1115). Argentina could not point out the precise provision of international law which the investor allegedly breached (para 1206). Thus, the counterclaim failed. However, Urbaser spelled out two propositions which perfectly befits the factual matrix of Renco v Peru (II) based on the analysis of La Oroya v Peru. Firstly, foreign investors can be subjected to obligations under international law, apart from the investment treaty in question (Urbaser, paras 1194-1195). This is also in alignment with Sands’ partial dissent in Bear Creek. Secondly, the Urbaser tribunal drew a clear line between human rights obligation to perform and obligation to abstain from committing acts in violation of human rights (para 1210). The earlier obligation is only material for the States and is irrelevant for the investor, whereas the investor may have an obligation in the latter sense. Argentina’s counterclaim was rejected as it involved an obligation to perform. The tribunal stated that ‘… an obligation [to abstain] can be of immediate application, not only upon States, but equally to individuals and other private parties’ (para 1210). La Oroya v Peru highlighted Renco’s breach of human rights and environmental obligations by causing the toxic pollution through its investment activities, which Peru had failed to regulate. This is clearly an “obligation to abstain” in terms of Urbaser’s reasoning which is relevant for Renco. The Urbaser tribunal explained its finding would have been different, had the facts attracted an obligation to abstain. This might be a good hint for the tribunal in Renco v Peru (II) keeping in mind the evaluation of the IACtHR in La Oroya v Peru.

Tribunal Composition in Renco v Peru (II)

In a recent podcast, Professor Sands commented that arbitrators’ background play a significant role in the outcome of the case. Similarly, Judge Bruno Simma, the President of the Renco v Peru (II) tribunal, has emphasised the importance of arbitrators’ backgrounds when considering human rights norms in investment disputes. For Judge Simma, only arbitrators with adequate expertise in public international law can effectively engage with the complex relationship between investment law and international human rights law. Simma has been a strong advocate of integrating human rights concepts in investment disputes. He was also the chair of the high-profile drafting team which prepared The Hague Rules on Business and Human Rights Arbitration, demonstrating how human rights arguments can be effectively considered in investment disputes.  

The Procedural Order has signposted that the Renco v Peru (II) tribunal has already considered La Oroya v Peru. It is now measuring the weight to be given to the IACtHR findings, if any. This extraordinary initiative shows how international human rights and environmental laws can positively interact with foreign investment law. By seeking comments on the matter, the tribunal is fulfilling its obligation to ensure procedural fairness and natural justice. Renco v Peru (II) tribunal’s progressive attitude should be analysed and understood bearing in mind Judge Simma’s presence in the tribunal. This is not a coincidence. Likewise, Sands’ justified sympathy for the indigenous community affected by the investor’s activities in Bear Creek, has striking resemblance with his impactful submission for Chagossians in the Chagos Advisory Opinion (here). I argue that development of this contentious area of investment arbitration requires proactive engagement from the arbitrator’s end. Also, academic and scholarly writings by the arbitrators showing a particular view do not affect their independence and impartiality in any way (here, para 184).

Conclusion    

Integration between different branches of public international law is nothing new in ISDS. Recently, in Peteris Pildegovics v Norway, an ICSID tribunal interpreted and applied an investment treaty by taking into account United Nations Convention on the Law of the Sea (UNCLOS) and other relevant international agreements (paras 294-295). In Renco v Peru (II), the investor alleged breach of the United States-Peru Free Trade Agreement (PTPA), one of the landmark investment treaties providing express provisions for the protection of environment. In this background, La Oroya v Peru’s significance in interpreting the PTPA from an environmental point of view becomes indispensable. Investment law jurisprudence has witnessed references to human rights and environmental norms on a piecemeal basis, but it is yet to find a precedent that will operate as a strong reference point for the future tribunals. The surrounding controversies will not resolve until sound and concrete reasoning is innovated. As the Procedural Order demonstrates, Renco v Peru (II) is walking in that direction, which is highly desirable.

Khan Khalid Adnan has recently completed his LLM in Litigation and Dispute Resolution from UCL with distinction. He is a Fellow of the Chartered Institute of Arbitrators (FCIArb), a Barrister in England and Wales, and an Advocate of the Supreme Court of Bangladesh. Currently, he serves as the Head of the Chamber at Khan Saifur Rahman & Associates, Dhaka, Bangladesh.

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