Enhancing Environmental Protection in International Investment Law Through the Integration of International Civil Liability Principles

fter more than a decade of debates, it is no longer disputed that the global IIA framework must go through an extensive process of reform to eliminate the asymmetry between foreign investors and host states and ensure a greater balance between their respective rights and obligations.

The need to rebalance the IIA regime is particularly evident in the field of environmental protection. Investment activities can result in significant environmental harm in the host state. In this scenario, both the host state and the victims often face significant challenges in securing remedies, in light of various features of investor–state arbitration, as well as the nature and characteristics of foreign investors, which usually operate as transnational corporations.

Among the potential avenues that could be explored to increase the host state’s protection in the face of environmental damage caused by investment activities in its territory is the incorporation of civil liability principles developed in the field of international environmental law into IIAs. Such a solution would allow holding foreign investors liable for the environmental damage caused in the territory of the host state in the performance of their investment activities.

This piece explores how the incorporation of international civil liability principles into IIAs can be achieved. To do so, it first sets out relevant international civil liability principles that could be incorporated. Secondarily, it analyzes the tools available for such incorporation.

1. Overview of international civil liability regimes

The term “international civil liability regimes” refers to a series of international conventions concluded to address the potentially devastating consequences of specific activities dangerous to the environment and facilitate civil liability claims by the host state and the victims of such activities within the host state’s territory, as well as the restoration of the damaged environment.[1] Such conventions create a uniform system of rules on liability that must be adopted and enforced by the states parties at the national level, through the enactment of the necessary implementing legislation.

International civil liability conventions have been negotiated to deal with the consequences of certain specific ultra-hazardous activities, such as nuclear damage[2] and oil pollution damage.[3] These were soon followed by regimes addressing damages caused by the movement of hazardous goods and waste,[4] living modified organisms,[5] industrial activities on transboundary waters,[6] and damage caused in the Antarctic region.[7] All these conventions rely on a series of uniform principles, which can be summarized as follows:

• The conventions provide a definition of “damage,” which, in most recent treaties, requires the adoption of preventive measures as well as measures of reinstatement of the damaged environment.
• They channel liability for damage through the “operator,” that is, the natural or legal person in control of the ultra-hazardous activity.
• Liability is strict, that is, it is imposed regardless of the operator’s fault, and is subject to exemptions.
• Liability is limited in amount or time, or both.
• The operator must obtain adequate insurance or provide other financial security.
• Additional tiers of compensation are established for the cases in which the operator is not liable because exemptions from liability apply and for those in which, although the operator is liable, the damage exceeds the caps to liability set out in the conventions.
• The conventions identify the courts with jurisdiction over compensation claims and the applicable law.

In general, international civil liability conventions have had low rates of ratification and entry into force. However, where the relevant convention did enter into force, the application of the principles listed above has been particularly successful in ensuring compensation to the victims. This is the case of oil pollution damage, where the regime set out under the 1992 Civil Liability Convention and related agreements have ensured the payment of more than GBP 674 million in compensation since 1978.[8] This reinforces the idea that international civil liability principles could play a larger role in ensuring liability and facilitating compensation for environmental damage.

2. The integration between international investment law and international civil liability principles

The incorporation of international civil liability principles into IIAs could grant the host state and its citizens an additional and powerful safeguard against the adverse effects caused by hazardous economic activities of foreign investors. Such incorporation would, on the one hand, ensure adequate protection to the victims of environmental damage, by providing them access to prompt and adequate compensation, and, on the other hand, facilitate the restoration of the affected environment to its original condition.

In practice, incorporation could occur in three different ways, discussed in the sections below.

a.      Investor’s liability

As a first step, IIAs could specifically provide that the investor shall be liable for the environmental damage caused in the performance of its investment activities in the host state, thus being treated as an “operator” for the purpose of international civil liability regimes.

With respect to the definition of “investment” relevant for the purpose of attaching liability to the investor, this should coincide with the definition of protected “investment” under the IIA. This would allow avoiding the risk of restricting liability to investments in certain activities, while at the same time omitting certain equally dangerous activities to which no liability would attach.

b.      Environmental investor obligations

Alternatively or in addition to the above, IIAs could provide for specific investor obligations, which are being increasingly recognized as a tool that could rebalance investor’s rights and responsibilities under IIAs,[9] with a view to enhancing the protection of the environment.

For example, IIAs could incorporate the provisions of certain international civil liability conventions relating to the adoption of preventive or reinstatement measures. In this case, the investor would be required to put in place all necessary preventive measures to avoid serious and imminent danger of environmental damage caused by its investment activity in the host state. If environmental damage has already occurred, the investor would instead be required to take all practicable and necessary measures to reduce, contain or manage the damage and restore the environment to its original condition.

IIAs could also establish obligations on investors aimed at providing prompt and adequate compensation to the victims of environmental damage caused by their investment activities, in accordance with a strict liability standard and subject to exemptions in the event the occurrence of damage was completely outside the investor’s control. Moreover, IIAs could also require investors to obtain adequate insurance coverage or other financial security covering damages arising from investment in the host state, thereby also facilitating the victims’ access to compensation.

In both cases under a. and b., it might be argued that the provision of such obligations in IIAs may be redundant, especially when similar provisions are included in the host state’s domestic law and the applicable IIA provides for the investor’s obligation to comply with the domestic law of the host state. However, directly including such obligations in IIAs may still prove useful where domestic law does not actually contain similar obligations, or in cases in which the transboundary nature of the investor’s activities or structure hinders effective access to environmental remedies.

c.       Additional tiers of compensation

While the inclusion in IIAs of environmental investor obligations or provisions imposing liability on investors for environmental damage is—at least theoretically—straightforward, the incorporation of an additional tier of compensation in IIAs may be harder to achieve.

Civil liability regimes have followed two different approaches to additional compensation mechanisms: one, followed by the nuclear liability conventions, requiring state parties to make available public funds in the event of nuclear accidents, and the other, adopted by oil pollution conventions, establishing international funds financed through industry contributions.

Of these two models, the first option could be more easily integrated into IIAs, as the agreement could simply provide that states parties must make available public funds to cover environmental damage caused by investments of their nationals in the territory of the other party. The second option could create implementation challenges, such as the need for the interested states to enter into a separate agreement governing the functioning of the fund, or the identification of the investors that would be required to contribute to the fund.

3. Conclusion

From a theoretical perspective, there is no general, inherent incompatibility between the principles governing civil liability regimes and IIAs. Indeed, investor obligation provisions have already begun to appear in newer generation IIAs and model IIAs,[10] while the imposition of civil liability on investors has been advocated for in some model IIAs developed by scholars.[11] Therefore, these developments could be driven further, to strike a more equitable balance between investor protection and environmental concerns of the host state.

In practice, however, the incorporation may be harder to achieve. Leaving aside the issue of whether states would be willing to pursue this solution, the first difficulty lies in developing appropriate mechanisms that would allow transposing into IIAs the most complex principles of civil liability, such as the provision of additional tiers of compensation. Secondarily, a procedural reform of ISDS would also be necessary, creating appropriate procedural avenues for victims and host states alike to enforce their substantive rights under the reformed IIA regime against investors.

Author

Alessandra Mistura is a Ph.D. candidate at the Graduate Institute of International and Development Studies, where she is focusing on the integration of sustainable development in international investment law. This piece is based on a wider analysis carried out by the author in Mistura, A. (2019). Integrating Civil Liability Principles into International Investment Law: A Solution to Environmental Damage Caused by Foreign Investors? in L. Sachs; L. Johnson & J. Coleman (Eds.), Yearbook on International Investment Law and Policy 2017. Oxford: Oxford University Press, pp. 446–491. Retrieved from https://global.oup.com/academic/product/yearbook-on-international-investment-law-and-policy-2017-9780198830382

Notes

[1] Churchill, R. R. (2002). Facilitating (transnational) civil liability litigation for environmental damage by means of treaties: progress, problems, and prospects. Yearbook of International Environmental Law, 12(1), 3.

[2] For example, the Paris Convention on Third Party Liability in the Field of Nuclear Energy, July 29, 1960, 956 UNTS 251. Retrieved from https://treaties.un.org/Pages/showDetails.aspx?objid=080000028010a6ab; and the Vienna Convention on Civil Liability for Nuclear Damage, May 21, 1963, 1063 UNTS 265. Retrieved from https://treaties.un.org/Pages/showDetails.aspx?objid=08000002800fb0a7, as amended by the Protocol to Amend the Vienna Convention on Civil Liability for Nuclear Damage, September 12, 1997, 2241 UNTS 270. Retrieved from https://treaties.un.org/Pages/showDetails.aspx?objid=0800000280079ad5.

[3] For example, the London Protocol of 1992 to Amend the International Convention on Civil Liability for Oil Pollution Damage, 1969, November 27, 1992, 1956 UNTS 255. Retrieved from https://treaties.un.org/Pages/showDetails.aspx?objid=08000002800a5777 [hereafter 1992 Civil Liability Convention].

[4] For example, the Basel Protocol on Liability and Compensation for Damage Resulting from Transboundary Movements to the Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal, December 10, 1999. Retrieved from https://treaties.un.org/Pages/ViewDetails.aspx?src=IND&mtdsg_no=XXVII-3-b&chapter=27

[5] Nagoya–Kuala Lumpur Supplementary Liability Protocol to the Biosafety Protocol, October 15, 2010. Retrieved from https://treaties.un.org/pages/ViewDetails.aspx?src=IND&mtdsg_no=XXVII-8-c&chapter=27

[6] Protocol on Civil Liability and Compensation for Damage Caused by the Transboundary Effects of Industrial Accidents on Transboundary Waters, May 21, 2003. Retrieved from https://treaties.un.org/pages/ViewDetails.aspx?src=TREATY&mtdsg_no=XXVII-16&chapter=27

[7] For example, Annex VI to the Protocol on Environmental Protection to the Antarctic Treaty on Liability Arising from Environmental Emergencies. Retrieved from https://ats.aq/documents/recatt/Att249_e.pdf

[8] International Oil Pollution Compensation Funds (IOPC Funds). (2017), Annual Report 2017, p. 17. London: IOPC Funds. Retrieved from https://www.iopcfunds.org/publications

[9] UNCTAD. (2018). UNCTAD’s reform package for the international investment regime. Geneva: UNCTAD. Retrieved from https://investmentpolicyhub.unctad.org/Upload/UNCTADs%20Reform%20Package_web_09-03-2018.pdf; IISD. (2018, April). Integrating investor obligations and corporate accountability provisions in trade and investment agreements. Geneva: IISD. Retrieved from https://www.iisd.org/library/integrating-investor-obligations-and-corporate-accountability-provisions-trade

[10] Reciprocal Investment Promotion and Protection Agreement between the Government of the Kingdom of Morocco and the Government of the Federal Republic of Nigeria [Morocco–Nigeria BIT], December 3, 2016, Art. 14. Retrieved from https://investmentpolicyhub.unctad.org/Download/TreatyFile/5409; Southern African Development Community (SADC). (2012, July). SADC model bilateral investment treaty template with commentary, Article 21. Gaborone: SADC. Retrieved from http://www.iisd.org/ITN/wp-content/uploads/2012/10/SADC-Model-BIT-Template-Final.pdf; Government of India. (2015). Model text for the Indian bilateral investment treaty. Retrieved from http://indiainbusiness.nic.in/newdesign/upload/Model_BIT.pdf

[11] Mann, H., von Moltke, K., Peterson, L. E., & Cosbey, A. (2005). IISD Model international agreement on investment for sustainable development: negotiators’ handbook. Geneva: IISD. Retrieved from https://www.iisd.org/library/iisd-model-international-agreement-investment-sustainable-development-negotiators-handbook; see also IISD, 2018, supra note 9.