ARBITRATION OF CLIMATE CHANGE DISPUTES

On 28 November 2019, the International Chamber of Commerce Task Force on Arbitration of Climate Change Related Disputes released their Report on Resolving Climate Change Related Disputes through Arbitration and ADR  ("ICC Report"). The 66-page ICC Report explores existing and anticipated climate change-related  disputes and the benefits of using arbitration to resolve these.

Over the last five years, major arbitral institutions have witnessed a steady increase in disputes involving climate change issues.[1] Typically, these have been intrinsically linked to the energy transition away from traditional energy sources such as fossil fuels and coal to increased investments in renewable energy, the modernization of power grids and the improvement of energy and data storage.[2] The ICC Report considers the nature of these disputes and focuses on the following features of the ICC Rules which can enhance existing procedures to effectively adjudicate climate change-related disputes. It also provides extensive guidance on additional language parties may wish to include in their arbitration agreement to tailor these to the types of climate-related disputes which they anticipate may arise.

Expertise of arbitrators and experts

The ICC Report acknowledges that access to appropriate scientific expertise is often critical in climate change disputes. It highlights the parties' ability under the ICC Rules to have a decisive impact on the choice of arbitrators, including by:

• setting out the competence and skills they require their arbitrators to have in their arbitration agreements;
• requiring the ICC Court to consult them prior to appointing a sole arbitrator or presiding arbitrator; and even
• challenging arbitrator appointments "whether for an alleged lack of impartiality or independence or otherwise".[3] Interestingly, the ICC Report suggests that the catch-all "or otherwise" opens the door for challenges where parties consider that arbitrators appointed lack the requisite qualifications to hear a dispute.

The ICC Rules similarly leave the door open for the use of both party-appointed experts and/or tribunal-appointed experts in proceedings. This ensures that a tribunal has access to any climate change-related expertise it needs to determine the issues in dispute. The ICC can assist with the appointment of tribunal-appointed experts by providing expert recommendations as well as assisting with the administration of expert proceedings.

In contrast with other institutions such as the Permanent Court of Arbitration ("PCA"), the ICC does not maintain a formal list of specialised environmental arbitrators or technical and scientific environmental experts.[4] The ICC Report highlights this as a potential working point, and issues a recommendation to the ICC to reach out to climate change scientists and other technical and modelling experts.

Measures and procedures to expedite early or urgent resolution of issues

The ICC offers flexibility in the method of resolution of disputes. The parties' options are not limited to arbitration. They can choose to mediate their dispute or refer these to expert determination, which may facilitate the early neutral assessment of technical facts in issue. The ICC also assists in the formation and use of standing dispute resolution bodies which are uniquely suited to handle disputes arising in long-term infrastructure projects, or projects where funding is subject to the Equator Principles (which require Equator Principles Financial Institutions to have an ongoing grievance mechanism to facilitate the resolution of concerns and grievances about a project's environmental and social performance).

The ICC Report highlights the availability of a number of measures and procedures to expedite the early resolution of issues in climate change-related disputes, such as emergency arbitration, interim and conservatory measures and other time and cost management techniques. The ICC Rules do not go as far as the PCA Optional Rules for Arbitration of Disputes Relating to the Environment and/or Natural Resources (“PCA Environmental Rules”) which expressly empower tribunals to order interim measures to "prevent serious harm to the environment falling within the subject matter of the dispute",[5] or the UN Convention on the Law of the Sea ("UNCLOS") Rules which give tribunals the powers to prescribe provisional measures where necessary to prevent serious harm to the marine environment pending a final decision. However, the ICC Report suggests that should they wish, the parties could include a provision to this effect in their arbitration agreement or in the Terms of Reference.

Transparency and public participation

The ICC Report acknowledges that a major concern in the context of climate change-related disputes is transparency, and the lack of transparency typically associated with commercial arbitration has acted as a barrier to it being viewed as a satisfactory dispute resolution mechanism for climate change-related disputes.

It suggests that increased transparency in relation to climate change-related disputes could be achieved by: (i) opening the proceedings to the public, (ii) publishing case documents; and (iii) publishing awards. The ICC Rules prevent neither open proceedings nor publication of case-related documents, and the parties are free to agree to enhanced transparency wording in their arbitration agreements. The ICC currently promotes a certain degree of transparency, for example by providing for the publication of awards in commercial arbitrations from 1 January 2019 onwards, two years after notification of the award to the parties, absent any objection by the parties. This does provide some additional transparency but falls short of other more extensive transparency provisions, for example, those in the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration.

In addition, should the parties wish, the interests of third parties such as NGOs, environmental protection agencies or scientific research entities, may be taken into account in a contractual arbitration through: (i) the joinder of an additional party, or (ii) non-party participation such as through a written amicus curiae brief.[6] Again, appropriate wording would need to be included in either the arbitration clause or the Terms of Reference to provide for this.

Comment

The ICC Report responds to the IBA Climate Change Justice and Human Rights Task Force's call to all arbitral institutions to "take appropriate steps to develop rules and/or expertise specific to the resolution of environmental disputes, including procedures to assist consideration of community perspectives".[7] Its publication reflects the growing concern climate change represents, not just for individuals but for corporates alike, and the need to ensure that appropriate fora are available to resolve the increasing number of climate change-related disputes, be they claims against companies and governments for breaches of human rights, claims against governments to accelerate climate change prevention, shareholder claims against companies for failing to adequately disclose the environmental impact of their operations, insurance disputes, company disputes in the energy sector, or other climate change-related disputes.

Herbert Smith Freehills' partner Thierry Tomasi, who participated in the ICC's Task Force on Arbitration of Climate Change Related Disputes observes that: "stimulating discussions in the context of the Task Force's sessions have led to a report which provides both a comprehensive assessment of the current state of play in relation to arbitrating climate change related disputes, and a very useful roadmap for the ongoing reflection, within the ICC, on this growing field of investigation".

The ICC Report highlights the availability of an existing number of provisions which could make arbitration under the ICC Rules an attractive forum for climate change-related disputes. In particular, provisions can be adopted for increased transparency, the involvement of third parties, interim and conservatory measures, as well as the appropriate expertise of arbitrators appointed. As ever, the flexibility of the arbitration process means that it can be purposefully adapted to suit the dispute resolution needs of the parties. However, the ICC makes it clear that the onus is on the parties to tailor their arbitration agreements or Terms of Reference to suit the particular requirements of their likely disputes.

The ICC Report highlights certain areas where the ICC can focus its efforts, for example by building a more extensive database of climate change-related experts. It does not, at this stage however, propose any changes to its Rules to cater to these types of disputes. This contrasts with  other institutions such as the PCA which have taken a more radical approach to climate change disputes, by enacting new rules specifically designed to attract new users who have climate change-related disputes.

The ICC Report shortly preceded the publication of the much-anticipated  Hague Rules on Business and Human Rights Arbitration, launched on 12 December 2019 ("Hague BHR Rules"), which propose an arbitration framework to deal with human rights-related disputes and therefore also climate change, environmental, and human rights-related claims. The Hague BHR Rules are accompanied by detailed commentary on issues similar to those raised in the aforementioned IBA Climate Change and ICC Reports, including: (i) having arbitrators with expertise appropriate for such disputes and bound by high standards of conduct, (ii) the possible need for the tribunal to create special mechanisms for the gathering of evidence and protection of witnesses, (iii) prescribing rules for third-party participation in arbitrations, and (iv) other procedural issues relevant to human rights disputes.

While the ICC Report does not suggest any radical overhaul or changes to adapt the existing ICC arbitration procedure to meet the specific needs of climate change-related disputes, its recommendations, which overlap with those made by the IBA or contained in the Hague BHR Rules suggest that there may be a growing consensus in the procedural developments that will take on greater significance in climate change-related disputes.

For more information, please contact Florencia Villaggi, Counsel, Maguelonne de Brugiere, Senior Associate, Christine Sim, Associate, or your usual Herbert Smith Freehills contact.

[2] Supra 1, Section II(B).

[3] ICC Arbitration Rules, Art 14(1).

[4]  Permanent Court of Arbitrators Specialized Panel of Scientific experts, https://pca-cpa.org/wp-content/uploads/sites/6/2016/07/Current-List-Annex-3-SP-SciEXP-update-20190930-184038-v6_.pdf

[5] PCA Environmental Rules, Art 26.

[6]  Supra ¶5.83-5.91.

[7] IBA Climate Change Justice and Human Rights Task Force Report, “Achieving Justice and Human Rights in an Era of Climate Disruption”, 2014, p. 144.