In addressing the debate surrounding arbitration v. litigation for climate change disputes, this article elucidates why litigation emerges the preferred choice. Through an evaluation of certain selected issues, the article demonstrates why despite several unified efforts to promote international arbitration for climate change disputes, the nuances of the international arbitration process have so far rendered it a difficult preference.
With rapidly diminishing borders for business, trade and investments globally, issues of climate change arising therefrom have earned for themselves the international status of being “truly ours.” This has brought with it the recurrent debate of the suitability of arbitration v. litigation for climate change disputes. Given their international status, it is argued that resolving climate change disputes warrants an international mechanism rather than a national or domestic one. This is why international conventions on climate change, along with trade treaties between States, advocate the use of arbitration and other international modes of Alternative Dispute Resolution (“ADR”) for resolving climate change disputes.
Historically, we have had the Permanent Court of Arbitration Optional Rules for Arbitration of Disputes Relating to Natural Resources and/or the Environment, 2001 (“the PCA Rules”). In fact, the International Bar Association Report on Achieving Justice and Human Rights in the Era of Climate Disruption, recommends the Permanent Court of Arbitration (“PCA”) as thepreferred institution for handling international environmental disputes. More recently, the International Chamber of Commerce (“ICC”) Task Force published its report onResolving Climate Change disputes through Arbitration and ADR in November 2019 (“ICC Report”), seeking to promote arbitration for climate change disputes. The ICC Report identifies a host of avenues that could lead to future climate change issues. Additionally, it provides for recourse to expert panels, specialized mechanisms for seeking interim measures, and increased transparency in dealing with climate change disputes.
However, despite these efforts, combined statistics of the Climate Change Laws of the World database, The Grantham Research Institute on Climate Change and the Environment, and the Sabin Centre for Climate Change Law (“the Sabin Centre”)reveal that it is litigation that is driving global climate goals.
Through a discussion of the selected issues below, this article attempts to determine why litigation emerges the preferred option for climate change disputes and why arbitration proves a difficult choice by comparison.
The Missing Definition for Climate Change Disputes and What it Implies for Climate Change Arbitration
Historically, there has been no attempt to define precisely what constitutes “climate change disputes.” This is also evident from the leading international instruments, inter alia, the UN Framework Convention on Climate Change of 1992, the Kyoto Protocol of 1997, and the Paris Agreement, 2016 (“the Paris Agreement”) (collectively “the international instruments”), which have while promoting the protection of climate, on one hand, failed to define “climate change disputes” on the other. It is fascinating that in recent times as well, in deciphering the meaning of climate change disputes, the ICC Report has associated it with all kinds of energy, infrastructure, urban disputes, transactions, and varied categories of commercial contracts. However, no attempt has been made to define or enlist what are necessarily deemed climate change disputes. This ambiguity poses to be a significant issue when considering arbitration for climate change disputes. This is because climate change issues, by governing public interests globally, are plagued with public policy implications.Traditionally, claims involving public policy issues for example – competition law claims, bankruptcy claims, intellectual property disputes, etc. were prima facie considered inarbitrable. It is essential to note that these classes of disputes have fought their way over time to acquire, for each of their classes, the status of arbitrability.
However, in the case of climate change, the disputes arising therefrom have neither been formally defined nor classified. Thus, in the absence of a certified group for these and given their public policy implications, crusading for their arbitrability as a whole and presuming that they circumvent the public policy test is difficult. Further, the lack of the operation of the doctrine of stare decisis for arbitration prevents even the few climate change cases that may be declared as arbitrable, from setting the trend for their arbitrability. Thus, on the one hand, while a broad interpretation of climate change disputes is beneficial for recognizing and acknowledging all that threatens climate change, the same proves detrimental towards rendering an arbitrable status for these on the other.
This also explains why, despite stipulations for arbitration for climate change disputes through the international instruments, arbitration as a mode of dispute resolution has not been actively resorted to. The failure of developing an ad hoc arbitral body, i.e., the International Court of Environment Tribunal (“the ICET”), as proposed by the International Bar Association seeking to resolve inter alia climate change issues,could also be attributable to similar reasons. Many argue that this failure was primarily due to the presumption that the ICET would have been perceived as pro-environment, which would have deterred the reference of disputes. However, even if the ICET had seen the light of day, it remains uncertain whether the undetermined status of climate change disputes and their arbitrability, would have encouraged parties to refer their disputes to the ICET.
The Opportunity to Create Policy and Precedents
Climate change disputes bring with them the opportunity to seek revision or formulation of policies and precedents for climate change issues, both domestically and internationally. This has been aptly illustrated through the 2019 decision of the Supreme Court of Netherlands in Urgenda Foundation v. The State of the Netherlands, which discussed the extent of the permissibility of greenhouse-gas emissions. In addition to upholding the2015 decision of the Hague District Court to reduce such emissions by 25% by 2020, the2019 decision directed the Dutch government to formulate more robust policies and ensure a higher duty of care in regulating matters of climate concern. In another eminent case ofPeople v. Arctic Oil before the Borgarting Court of Appeals in Norway, claims in the nature of constitutional safeguards for a healthy environment with a damage-free climate were raised for the first time. This was in addition to claims seeking prohibition of the drilling of oil in the Arctic. In the more recent case ofKelsey Cascadia Rose Juliana v. the United States of America, the Plaintiffs, amongst other reliefs, sought from their government the enactment of a plan for controlling climate change by reducing emissions of carbon dioxide (CO2) and fossil fuels. Building on the Urgenda case, inMillieudefensie et al. v. Royal Dutch Shell plc., the Hague District Court came to a similar decision and ordered the Shell group to reduce its CO2 levelsby the end of 2030. Next, characterized as “the case of the century” for being one of the first of its kind worldwide, is the Administrative Court of Paris’s decision inNotre Affaire à Tous v. France. In this case, the Administrative Court of Paris was found calling out the French governmentfor failing to implement its commitments and climate change obligations under the Paris Agreement.
In addition to directing the States to fulfill their international commitments for climate change, what the above cases strikingly have in common are the claims demanding the implementation of policies and the preservation of the constitutional right to a safe environment, and in turn, climate. Regardless of their success in seeking such claims, it is notable that the Petitioners were in no way incapacitated or prohibited from demanding such reliefs before their national courts and respective governments. However, had these claims been the subject matter for consideration before an arbitral tribunal, the situationmight not have been the same. This is because the possibility of “creating policy” has always been a characteristic feature of litigation. The same is evident from the decision of the French government to cancel plans to expand the Charles de Gaulle airportin its attempt to reduce greenhouse gas emissions as a result of the Notre Affaire case discussed above. The chances of achieving the same are often questionable in arbitration proceedings. Unlike in litigation, a Claimant in arbitration may not be encouraged to bring claims of a constitutional character before the arbitral tribunal. This is because it is tough to concur with certainty whether arbitral tribunals are empowered to rule on such considerations. Even if it were assumed, that arbitral tribunals could rule on issues of constitutional concern vis-à-vis climate change and formulate policies thereon, it is still questionable whether such awards would escape the clutches of public policy considerations when faced with enforcement. This could, in turn, have the effect of jeopardizing the entire arbitration process.
Moreover, the fact that the decisions of national courts in some jurisdictions have binding value through the doctrine of stare decisis, also tends to place litigation on a higher footing than arbitration. However, an exception would be instances of certain international investor-State arbitrations. Even though the awards in these disputes are not backed by the force of the doctrine of stare decisis affirmatively,they tend to set indirect precedents for policymaking. This is because awards in investment disputes, in their allowance or disallowance of investments or divestments, impact the activities that the investor-State would undertake, which might consequently impact the existing policies in the host State. Thus, arbitration in the investment arena often acts as a positive exception to the rule that precedent can only be set through litigation. However, there also exists the debatablesuspicion of arbitral tribunals being pro-investor in investor-State disputes, vis-à-vis national courts. This poses a severe threat for the arbitration of the climate change issues that may arise from such arbitral proceedings. The case ofEthyl Corporation v. The Government of Canada illustrates the same, where, despite the activities of the investor-State causing environmental degradation in the host State Canada, the arbitral tribunal directed the Canadian government, to repeal its existing ban on a fuel additive. This ban was in the interests of climate change issues but wasrepealed after the investor claimed these to be violative of the national treatment requirement. Thus, precedents through awards in the instant case create a negative trend for climate change issues. Moreover, the non-existence of the mechanism of appeals in the world of arbitration and the restrictive grounds available for setting aside awards make arbitration a far less reliable option for these disputes comparatively.
Applicable Law: Yours or Mine?
In cases of international arbitration, the law applicable to the merits of the dispute is often influenced by a variety of factors, for example – the law of the seat, the law of the country where the contract is to be performed, the law of the country where enforcement of a potential award may be sought, etc. Consideration of which of these factors has the most dominant effect on the outcome of the dispute, steers the parties towards making a choice. This determination, while evidently simple in theory, is complex in practice and explains why parties often fail to stipulate the applicable law, leaving it to the judgment of arbitral tribunals. Since climate change disputes are often an indirect consequence of disputes concerned with other subject matters, determining the laws applicable to the merits in such cases is even more complex. In this regard, the ICC Report has suggested thatparties must anticipate climate change implications to their transactions and word the applicable law provisions in their arbitration agreements accordingly. However, this is not so straightforward. For illustration, assume the resulting claims for a climate disruption in India arising from a construction agreement involving French and American parties. The agreement provides for an ICC arbitration seated in Paris but fails to determine the law applicable to the dispute’s merits. The parties are free to decide upon the law applicable to their construction agreement. However, which law – French, American, or even English – could be practically applied when the climate disruption is in India? Would Indian laws not be the logical choice for the same? Going by the ICC Report, the parties, in such a case, would have to anticipate at inception that Indian laws could well become applicable to their construction case in the event of climate disruption in India and would need to stipulate for the same accordingly.
Further, adding to the ordeal of ascertaining issues of laws applicable to the merits for climate change disputes is the disparity between developed and developing nations over climate change issues. Take, for instance, the United Kingdom (“UK”), Mexico, Russia, Turkey, and Saudi Arabia. Each of these contributes differently towards global emissions, and their outlook towards issues of climate change and efforts mitigating the same also varies accordingly. Thus, while the UK, Mexico, and Saudi Arabia ratified the Paris Agreement at its inception, Russia only ratified the same in 2019, and Turkey, as recently as 2021. Interestingly, the UK was one of the first countries to have adopted a Climate Act, i.e., the UK Climate Act, 2008, even before the promulgation of the Paris Agreement. Efforts on the part of Mexico have also been particularly substantial. Despite being one of the smallest contributors to global greenhouse gas emissions, Mexico was the first Latin American, and more importantly, the first developing country in the world, to have propagated climate change legislation, namely,the General Law on Climate Change in 2012. The same was amended in 2018 tomake it more consistent with the Paris Agreement. On the other hand, despite being amongst the world’s top five largest greenhouse gas emitters, Russia has yet to make considerable progress in legislating on climate change. Turkey, one of the newest members to ratify the Paris Agreement, is alsoyet to make considerable progress on the same. There is also, of course, Saudi Arabia, which“maintains a get-out clause for its Paris targets if it decides that any such commitment places an “abnormal burden” on its economy by reducing its income from fossil fuels.”
A question to thus be considered here is : Which law would be applicable in cases where the parties to the climate change dispute are Turkish, Saudi Arabian, Mexican, British, or Russian? Would a party that belongs to a land of comparatively lesser stringent climate change laws like Saudi Arabia, agree for the sake of arbitration, to subject itself to the laws of Mexico, with stricter provisions for protection and penalties? Given that arbitration is a creature of party autonomy, parties or arbitral tribunals are, in these cases, saddled with the onus of determining whether choosing one country’s law over the other would be just, fair and equitable to the party that will be liable thereunder. Additionally, they would have to determine whether such a choice of law would be in line with the public policy concerns of the country where the damage is likely to occur.
International conventions like the Paris Agreement have probed States to adopt policies that uniformly and internationally mobilize efforts to curb climate change. However, the difference in the sensitivities of different States towards issues of climate change leads to differences in the nature of the policies and laws so adopted in this regard. Considering this, the issue of reconciling the choice of the law applicable to merits in climate change disputes continues to pose a threat for their arbitration. On the other hand, the UN Human Rights Council (“the UNHRC”) has, as of 2021, adopted a resolution recognizing inter alia the human right to a sustainable environment and has also established aSpecial Rapporteur for the promotion and protection of this right in the context of climate change. Even though the said resolution is non-binding on States, the Special Rapporteur predicts that this will helpprotect against any gaps in domestic laws when international parties litigate climate change issues. This assures the efficient resolution of international claims through litigation, without the burden of determining the applicable law.
Affected Third Parties and Arbitration?
Allegations of climate disruption are not always brought by parties to the dispute, be it investor-State or commercial disputes and claims are often raised by victims who are non-parties. In fact, since 2015,92% of the climate change cases outside the United States (“US”) have been argued by victims on a human rights basis. As of February 2022, the Sabin Center’s database indicated thata minimum of 22 climate change-related cases have been filed based on human rights violations and also suggested a greater trend for the same in the future. A vast majority of these claims are brought by human rights victims, mainly indigenous groups and Non-Governmental Organizations (“NGOs”) on behalf of such groups. The ICC Report also suggests thatthese non-parties may be local groups impacted by an investment in a new or protected forest or NGOs advancing climate protection causes. According to the ICC Report, such “non-parties” to a dispute can bring their related climate change claims before the arbitral tribunal hearing matters of “the parties” to the dispute through a submission agreement. There are also the recently enactedHague Rules on Business and Human Rights Arbitration (“the HRBHRA”) that promote arbitration of human rights claims. The HRBHRA also enables the joinder of third parties to arbitration under its Rules.
Traditionally, questions involving the joinder of third-party or non-signatory parties to an arbitration have not been free from complexity. WhilePart V(E) of the ICC Rules andArticle 28 of HRBHRA offer the option of joinder of such “third-parties or non-parties,” they do not guarantee the same. As for each case, an arbitral tribunal would have to ascertain, firstly, whether questions of climate change as human rights could be entertained for their public policy implications; secondly, whether the pre-determined applicable laws are suitable for the intervening climate change issues; and lastly, whether “the parties” accede to such an intervention. As far as third-party victims go in the world of litigation, however, the recent decision of the Supreme Court of Canada in the case ofNevsun Resources Ltd. v. Araya once again reinforces the preference for litigation over arbitration. In this case, the Supreme Court of Canada held that it would hear claims of “non-party” victims of human rights violations against Canadian corporations,even if the said claims ensue abroad and the victims are foreigners. Given that an arbitral tribunal cannot guarantee the intervention of third-party victims, owing to the nuances that arbitral processes demand, arbitration continues to prove a tricky choice even for such “non-parties” to the dispute.
The ICC Report identifies a wide array of technology, financial and construction disputes with mandatory greenhouse gas reporting requirements, that would be subject to ICC arbitration in the future. By doing so, the ICC Report makes an excellent endeavor to indirectly label and in turn, define what may constitute climate change disputes. However, most of the other recommendations of the ICC Report, such as the provisions for increased transparency, expert panels, and third-party joinders, are not different from the PCA Rules. Given that the PCA Rules have not witnessed much progress in promoting arbitration for climate change disputes in the last two decades, it will be interesting to witness whether the ICC efforts prove different. With an increase in the number of arbitral institutions making awards available for public review, and greater international efforts towards unifying standards for climate protection globally, the issues of creating precedents and applicable laws as discussed above, may receive some respite in the future. Additionally, the prediction of growing avenues of international transactions giving rise to climate change issues, and the ease of enforcing international awards through theNew York Convention indicates that arbitration will indeed have a future for climate change disputes. However, until such selected issues are addressed, while arbitrating climate change disputes, as Murphy’s law suggests – all that can go wrong will go wrong!
The author’s opinions are personal and do not represent the opinions of any organizations she is affiliated with. The author reserves her right to depart from these views in light of changed circumstances.
About the Author
Ms. Tinaz Kalyanvala, ACIArb, is an International Arbitration Lawyer. She holds an LLM in International Arbitration from the Queen Mary University of London, 2019-2020.
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Preferred Method of Citation
Tinaz Kalyanvala, “Arbitration for Climate Change Disputes: Made for Each Other?” (IJPIEL, 10 August 2022)