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01 October 2020
COVID-19 and climate change
Resolving climate change disputes by arbitration and ADR
ICC task force report
Need for appropriate expertise
Measures to expedite dispute resolution
Climate change commitments and frameworks
Prior to COVID-19, few people would have found an obvious practical connection between a pandemic and climate change. But, with hindsight, the connections are manifold. As discussed in this article, some of these are obvious and some are subtle, while others are still playing out. However, what is becoming clear is that climate change-related disputes are unlikely to abate in the wake of the pandemic. All signs point to a possible surge in cases as political and economic positions harden and all sides seek to take advantage of the compounding pressures on companies, individuals and governments. International arbitration and alternative dispute resolution (ADR) have important roles to play in resolving such disputes.
One obvious impact of COVID-19 has been the reduction of greenhouse gas emissions (and other pollutants) globally, as the restrictions imposed by public bodies have severely curtailed industry and transport. In the face of this global disruption to businesses and supply chains, the pandemic has shone a spotlight on the resilience and sustainability of business practices and supply chains across many sectors, while other sectors – technology and innovation notably – have consolidated their position as drivers of the future for many industries. Science too is having its moment (albeit not without some challengers). The pandemic has also given tangible shape to the potential wide-scale commercial, economic and societal disruption (global and domestic) that scientists and economists have been warning will follow if global warming is not limited to manageable levels. This may result in added impetus for climate change and sustainability measures. Similarly, the combined impact on the oil and gas sector of the oil price crash, COVID-19 and other pre-pandemic pressures – including the energy transition and digitalisation – has, for some, increased the attractiveness of investment in green or sustainable energy assets.
Yet, the pandemic is negatively affecting the energy transition (at least in the short term) – for example, renewable energy projects have faced supply chain issues and with economic pressures, there is likely to be less ambitious investment in green or sustainable projects and research and development, at least during some quarters (few may be aware that the beleaguered oil and gas industry is one of the larger investors in this area). Meanwhile, governments and societies faced with serious economic downturn are grappling with questions around how to fund a post-pandemic recovery, including:
Extensive lobbying from both camps is ongoing. These complicate already difficult questions as to when and how to finance a global-scale transition to a more sustainable future.
The net result has been that climate change and sustainability policy, regulation and law – areas already in significant flux globally prior to the pandemic – are likely to see significant change in the coming months and years. In the face of this, climate change-related disputes are unlikely to abate. Rather, the post-pandemic melting pot of economic and political pressures is likely to result in greater levels of disagreement and disputes.
The range of climate-related disputes is vast. They are now a global phenomenon, where legal issues traverse multiple fields of law and various causes of action and involve a wide range of claimants and defendants from multiple sectors. New disputes against corporates, individuals (eg, directors and officers) and governments are reported almost daily. The risk profile is not only complex but, as discussed above, is in a state of flux. This is partly due to innovative claims being brought by claimants which seek to avoid the legal hurdles frequently faced by such claims (eg, standing, justiciability and causation). It is also due to the ongoing evolution of climate-related regulation and policy, on the national and international stage, as states grapple with how to address climate change and who should shoulder the fiscal burden – questions that are now even more complex in a financially challenge post-pandemic world.
While most climate change disputes to date have been argued before national courts, there is a role for international arbitration and ADR in the resolution of climate change-related disputes.(1) The factors in favour of a greater role for arbitration and ADR are even more prominent in a post-pandemic world. There is little doubt that – if sensitively addressed – this area will grow in importance for the arbitration community.
Reflecting that realisation, major arbitral institutions have recently turned their focus to how best to facilitate efficient and effective resolution of climate change-related disputes. The recent report by the International Chamber of Commerce (ICC) Task Force on the Arbitration of Climate Change-Related Disputes is particularly groundbreaking in its detailed attention to this important area, as summarised below.
The ICC Arbitration and ADR Commission, with the support of the ICC Commission on Environment and Energy, created a task force for the arbitration of climate change-related disputes, which comprised:
The task force's remit was to examine the current use of international arbitration and ADR in resolving international disputes relating to climate change, as well as what features would be required for a dispute resolution mechanism to effectively resolve such disputes. In addition, it looked at the ICC's Arbitration Rules, Mediation Rules, Expert Rules and Disputes Board Rules to consider their suitability for resolving such disputes and whether additional guidance or materials (eg, sample procedures or dispute resolution clauses) might be needed.
The task force's Report on Resolving Climate Change Disputes through Arbitration and ADR was published in November 2019. It identified six areas in which the existing procedures may be enhanced when arbitrating such disputes and provided additional guidance and language that parties may use when drafting arbitration agreements in respect of carbon-capture climate change disputes.
Given the breadth and complexity of this area, securing relevant scientific and technical expertise is essential to arbitrating climate change-related disputes. In arbitration, this essential expertise can be obtained via the parties' choice of arbitrator plus any party or tribunal-appointed experts. When choosing an arbitrator, parties may expressly provide for specific requirements, although care should be taken over being too prescriptive as this may lessen the pool of potential arbitrators to the detriment of both parties. The report provides sample wording which parties may consider when drafting arbitration agreements, as well as guidance on the procedure for the parties or the tribunal to appoint experts. In addition, the ICC may assist in selecting arbitrators or experts with the relevant expertise or in offering guidance as to the relevant expertise required.
The report acknowledges that the meaningful resolution of climate change-related disputes is often urgent. Not only is climate change science and technology constantly developing at pace but, in some situations, delay may have a detrimental impact on the environment or populations, which may ultimately result in further proceedings being brought. The report offers guidance on how to expedite dispute resolution, including:
The report also recommends that consideration be given to national legal and regulatory frameworks that action commitments under international agreements such as the Paris Agreement, and to commercial agreements which increasingly adopt industry standards such as the Equator Principles. Although the arbitral tribunal will be confined to the governing law to which the parties have agreed, such frameworks and industry standards may become increasingly relevant to climate change-related disputes. The task force anticipated that parties may increasingly seek to argue termination, force majeure, frustration,
change of circumstances or illegality as a result of states' and businesses' commitments to those frameworks and industry standards. The ICC is considering whether to propose specific guidance in this respect, beyond the sample wording provided in the report.
A major concern of the task force was that a perception of a lack of transparency in traditional arbitral proceedings may deter parties from choosing to arbitrate climate change-related disputes. This concern is often traced back to public policy implications that can be associated with climate change disputes and lead to questions over the legitimacy of private proceedings. The report suggests that in order to ensure that arbitration remains a trusted dispute resolution tool for climate change-related disputes, more information should be made available to states, businesses and interested parties.
There has already been significant progress towards transparency in the context of investor-state disputes, with the United Nations Commission on International Trade Law Rules on Transparency in Treaty-Based Investor-State Arbitration providing rules for transparency and accessibility to the public. Similarly, the ICC rules provide for the publication of awards of certain commercial arbitrations. However, the report reminds parties that the ICC Arbitration Rules do not prevent parties from agreeing to disclose to the public information pertaining to pending arbitral proceedings or final awards. However, this should be read in the context of the parties' original reasons for choosing arbitration, which in some instances may stem from the privacy that arbitration can offer over other forms of dispute resolution – notably, litigation.
As with transparency, there is some concern that disputes which stray into issues of wider public concern, such as climate change-related disputes, should allow for the participation of interested third parties. With the increase in climate change projects and policies, a corresponding increase in the impact on citizens and industry is expected, which may result in disputes. The report suggests that parties may therefore consider incorporating appropriate dispute resolution mechanisms in their bespoke arbitration agreements to ensure that third parties do not bring parallel proceedings in other fora and to allow for appropriate levels of third-party participation in the arbitral proceedings. The report suggests that there are two main ways in which this can occur in ICC arbitral proceedings: by the joinder of additional parties or by allowing for amicus curiae submissions.
The report highlights concerns over costs – an increasingly important consideration in the current economic situation. The report proposes revisions to the existing ICC rules to remind parties and legal representatives of the costs provisions applicable to ICC proceedings and in order to ensure that appropriate stakeholders can participate in the dispute resolution process.
For further information on this topic please contact C Mark Baker or Kevin O'Gorman at Norton Rose Fulbright's Houston office by telephone (+1 713 651 5151) or email (email@example.com or firstname.lastname@example.org). Alternatively, contact Cara Dowling at Norton Rose Fulbright's Vancouver office by telephone (+1 604 687 6575) or email (email@example.com). The Norton Rose Fulbright website can be accessed at www.nortonrosefulbright.com.
(1) For further information please see "Climate-related disputes: Adaptation and innovation".
Scott Hobbs, trainee, assisted in the preparation of this article.
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