Paris Arbitration Week recap: Claims in climate change

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[co-author: Amy Crowe]

On 8 July 2020, as part of the Paris Arbitration Week, Hogan Lovells hosted a webinar titled “Claims in Climate Change“, a topic which has attracted much attention and debate in the arbitration community over the past twenty years. The panel discussion, moderated by Laurent Gouiffès, partner in Hogan Lovells’ Paris international arbitration team, was divided into three parts focussing on: (i) climate change issues in international commercial arbitration; (ii) the issues which may arise in the context of investment arbitration; and (iii) the rise of climate change litigation in France and the potential impact on arbitration.

A recording of the webinar can be found here.

(i) Climate change issues in international commercial arbitration

Patrick Thieffry, an independent arbitrator and co-chair of the Task Force on Arbitration of Climate Change Related Disputes at the ICC, gave an overview of the role of commercial arbitration in the resolution of climate change issues. Throughout the webinar P. Thieffry referred to the ICC Commission Report, “Resolving Climate Change Related Disputes through Arbitration and ADR” (the “ICC Report“), which analyses how arbitration is currently used to resolve climate change related issues as well as the features of dispute resolution that are required for effective resolution of climate change related disputes.

First, P. Thieffry defined the scope of climate change related disputes by categorizing disputes that are “climate change related” into three groups: (i) “direct disputes” which involve pure climate change issues; (ii) “indirect disputes” which include all manners of contracts giving rise to environmental questions and climate change issues; and (iii) “submission agreements“, disputes in which a non-party to the contract initiates arbitration because they are impacted by one of the party’s actions.

Second, P. Thieffry explored the features of arbitration that make it a suitable forum to adjudicate environmental disputes, namely the expertise of arbitrators and the urgent resolution devices that could be employed. Given the technicality of many environmental disputes, the ability to appoint arbitrators and experts with relevant knowledge makes the forum particularly attractive. In addition, the ability to expedite proceedings and apply interim and conservatory measures makes it a suitable forum for resolution of climate change disputes, particularly those involving potentially irreversible damage to the environment.

Third, P. Thieffry discussed the features of arbitration which could be improved to tackle environmental disputes, including the confidentiality norm and the inclusion of third parties in arbitral disputes. While, in general confidentiality is considered to be a key tenant of arbitration, climate change disputes entail public interest considerations, and thus, it is argued, related disputes should be subject to less stringent confidentiality obligations.

  1. Thieffry was asked whether he considered that arbitral institutions should set forth a specific set of rules for environmental disputes. Such suggestions were however rejected on the basis that the current ICC rules can be adapted to cater for climate change issues, whilst acknowledging that parties who are not accustomed to arbitration might be reassured by a specific set of rules. Jorge Viñuales, Professor of Law and Environmental Policy at Cambridge University and Founder and director of the Cambridge Center for Environment, Energy and Natural Resource Governance, emphasized that the optional rules of the PCA, which were introduced in 2001 to deal with environmental disputes, have only been used 9 times in 10 years. Annette Magnusson, Secretary General at the Arbitration Institute of the Stockholm Chamber of Commerce, agreed that it is not necessary to introduce environment specific rules, arguing that current arbitral rules are flexible enough that they can be applied to any case.

(ii) Climate change issues in investment arbitration

Viñuales explained how the proliferation of green industrial policy has resulted in a growth in disputes with an environmental component. For example, there were 30 reported cases from 1970 to 2011, whilst from 2011 to 2020 J. Viñuales estimates that 150-200 disputes had an environmental component. J. Viñuales predicted that this trend of increasing amounts of environmental investment treaty disputes will continue as environmental questions have become a part of public discourse, compounded by the fact that the post covid-19 landscape will require states to rebuild their economies, providing them with a platform to shift their investments from brown to green.

There has also been an increase in treaties which include some sort of reference to the environment. In 2008 there was a peak of treaties which included environmental language; more than 89% of treaties had some form on environmental clause. Yet J. Viñuales commented that in practice these clauses have rarely been used, stating that a climate change dispute “never enters the room dressed as climate change“. Instead tribunals tend to rely on basic investment law concepts, expanded upon to take into account the specificities of each dispute, in particular, tribunals often rely on the following “core” arbitration concepts: (i) police powers doctrine; (ii) legitimate expectations; (iii) non-discrimination; and (iv) legality clause.

  1. Viñuales also noted that the interpretation of environmental clauses is still in flux, and thus that they could be interpreted in various other ways; (i) as an exclusion clause, meaning that the tribunal will not have jurisdiction to hear a claim against an environmental measure; (ii) as a carve out clause, meaning that the tribunal maintains jurisdiction to hear certain claims relating to other treaty clauses; and (iii) as an exception or affirmative defence.

When asked whether we could expect more State counterclaims in investment arbitration, J. Viñuales responded in the affirmative, but noted that whilst it has been established that investors can be directly bound by international law, the international obligations on investors will progress more slowly than domestic obligations.

(iii) The rise of climate change litigation in France and the potential impact on arbitration

Laure Nguyen, counsel at Hogan Lovells and specialist of environmental law and related litigation, discussed her experience of environmental litigation in France and whether arbitration was an appropriate forum for such disputes.

In France, environmental disputes were traditionally adjudicated with administrative law before the Code de l’Environnement was introduced, which regulates “damages to the environment” and grants standing to some non-governmental organisations to act on behalf of the environment.

  1. Nguyen stated that in recent years “climate change has become the central rather than the secondary claim that claimants raise in their appeals“. For example, the recent case brought by the mayor of the city of Grande-Synthe in which the mayor, Damien Carême initiated an appeal against the State for non-compliance with its climate commitments demonstrates the growth in “pure” climate change claims. Nguyen noted that arbitration might be a preferable forum for such disputes given that arbitration can be adjudicated by experts and often involves higher damages to the claimant than litigation.

 Conclusion

The increasing public interest in relation to environmental protection has led to the proliferation of laws, regulations and treaties designed to address threats to the environment. As a result, we can expect that arbitrating climate change will continue to grow in the commercial and investment arbitration field. It will be interesting to see how the practice of arbitration continues to respond to this growth area.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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