Tag Archives: Sustainable development

Bridging the Climate Change Policy Gap

BLoggIt is clear that to fight climate change, we need to scale up green investment both in terms of amount and geographical reach. However, climate change law, in this case the United Nations Conference Framework on Climate Change and the recently-signed Paris Agreement, do not specifically include terms to promote and protect investment. This is a policy gap.

The SCC, together with the International Bar Association, the International Chamber of Commerce and the Permanent Court of Arbitration, took an initiative to discuss this gap by organising a conference, Bridging the Climate Change Policy Gap: The Role of International Law and Arbitration, in Stockholm on 21 November.

It is noted during the conference that around USD 100 billion in investment over the next fifteen years is needed to combat climate change – a target that is considered achievable. Another speaker emphasised that there is no shortage of capital to address climate change. The challenge is how to get investors to actually invest and how to match the capital with the green investments.

It appeared to be a consensus among the speakers that good policy is key to attracting sustainable investments. Policy needs to be long-term and stable. Short-term policies, often associated with government’s turnover, caused bad impacts, from high transaction costs to the fact that the industry had to fire and re-hire employees depending on how policy is.

A panel of lawyers discussed how litigation has been used to fight climate change, directly and indirectly. Among other things, renewable energy investors have resorted to international arbitration to bring a claim against government for unstable policies and revocation of incentives. Another case being discussed in depth was Urgenda Foundation v. the Netherlands where a Dutch district court ruled that the government has breached its duty of care to its citizens by not doing enough to address climate change.

It may be foreseen that these types of cases, both in domestic and international fora, will propel the right type of government actions.

A report from the conference with more details will be published soon.

 

Host states’ legitimate expectation

Scenic landscapes of Northern ArgentinaThe investor’s legitimate expectations are often a key question in ISDS cases. Such expectations can be based on, for example, the host state’s laws, policies, or contractual commitments – such as when a host state granted the investor mining rights for a certain number of years. A violation of these expectations can be a ground for the investor to bring an ISDS claim against the host government. Several tribunals have ruled that a host country cannot act contrary to the investor’s legistimate expectations.

Karl P. Sauvant and GüneşÜnüvar have written an article published by Columbia Center for Sustainable Investment, introducing the question of whether or not states can also have legitimate expectations towards the foreign investor. According to the article, such expectations may arise from, for instance, the investor’s statements of its contribution to the host country.

As an example, the article points to Sempra v Argentina, where Argentina argued that it “had many expectations in respect of the investment that were not met or otherwise frustrated … (such as)… work diligently and in good faith…”. The article also notes, however, that since governments currently cannot initiate ISDS proceedings against foreign investors, their reliance on legitimate expectations is limited to counterclaims brought in response to investors’ claims. See our previous post about counterclaims here.

Finally, the article proposes that future international investment agreements (IIAs) could explicitly stipulate that host states’ legitimate expectations are protected, thereby establishing a right for host states to bring a claim on this basis.

Vattenfall v. Germany live stream

Blogg_v41_2In the much-publicised ICSID case between Vattenfall and Germany, the main hearing is currently taking place. The parties have agreed to broadcast the hearing live and those who are interested in ISDS can follow this link to see what a hearing looks like. The broadcast starts at 19.00 CET, every night this week and the next.

Just published: Peter Allard v. Canada

Blogg_v41A much-anticipated award is now released for public, Peter A. Allard v Barbados.

As we have written before, a Canadian investor, Peter Allard, brought a claim against Barbados in Permanent Court of Arbitration in 2010. The case concerned Mr Allard’s environmental sanctuary in coastal Barbados. He grounded his claim on the failure of the government of Barbados to enforce its own environmental law which, as a result, has polluted his sanctuary.

The investor claimed that the government’s failure amounted to violation of Canada – Barbados Bilateral Investment Treaty.

In an award rendered in June 2016, the tribunal rejected the investor’s claim on all grounds.

The tribunal disagreed with the investor that Barbados has failed to accord him full protection and security by failing to prevent pollution from coming to the sanctuary. As a departing point, the tribunal asserted that the obligation of the State to provide the investment with full protection and security standard is of ”due diligence” and ”reasonable care” – not of strict liability.

In this case, the tribunal found that Barbadian officials have taken reasonable steps to protect the sanctuary. Among others, the tribunal pointed out that the officials established a committee tasked with developing plans for preservation of the sanctuary.

The claim of expropriation was also dismissed. The tribunal concluded that there was no substantial deprivation of the investment since the investor remains the owner of the sanctuary and operates a cafe there. The tribunal further referred to the investor’s statement during the hearing that ”there is some kind of business remaining there”.

Meanwhile, Simon Lester, a trade policy analyst for Cato Institute, argues that the case sends an important signal for environmental protection. According to him, the legal standard in BIT may pave the way for future cases that environmentalists could help investors bring against governments who may do too little to protect the environment. An example mentioned is if the impact of climate change, for instance rising sea level, caused damage to an investor’s property.

Combating Climate Change through ISDS

White lily in an environment of green leaves on waterAn article demonstrates how ISDS provides the necessary tools to improve regulatory stability and predictability necessary for low-carbon investment. According to the author, ISDS has the potential to protect low-carbon investments against the risk of regulatory changes that can affect climate policies.

The text takes its starting point at the importance of private capital and technology in the transition to a low-carbon economy. The Kyoto Protocol establishes different implementation mechanisms for State parties to reduce greenhouse gas emissions, mechanisms in which private actors play important roles. In turn, governments may also establish different support schemes for investment in low-carbon technology. Some of the common schemes are guaranteed a minimum price for electricity produced by renewable resources (the so-called feed-in tariff) and investment aid for renewable energy producers.

The article points out some risks for low-carbon investment, including that authorities could withdraw the promised support or shorten its duration.

It further argues that some substantive protections under international investment agreements may play an important role.

One example is the ISDS case, Nykomb v. Latvia. In this case, the tribunal found that the government provided support scheme for low-carbon installations operated by domestic investors, but not for installations operated by foreign investors. The tribunal held that this amounted to discrimination, and the investor obtained compensation.

The article concludes that climate law and investment law are based on comparable principles but having different perspectives. Climate law creates rights and expectations for investors, while investment law aims to protect them. In turn, investment arbitration has the potential to limit the instability that currently affects the implementation of climate change mitigation policies.

Mesa Power Group LLC v. Canada

Array of wind power station at the sunsetOur next case summary is Mesa Power Group LLC v. Government of Canada, an arbitration under Chapter 11 of NAFTA. This summary is prepared based on the publicly available award rendered on 31 March 2016.

The claimant in this case was Mesa Power Group LLC (“Mesa”), a U.S. corporation that oversees and develops renewable energy projects, notably in the wind sector. Mesa’s claims centered on the Government of Ontario’s Feed-in Tariff program (the “FIT Program”), enacted to promote the generation and consumption of renewable energy in the province. Under this program, generators of renewable energy could apply for a 20 or 40-year power purchase agreement (a “FIT Contract”) that would guarantee a certain price per kWh for electricity delivered into the Ontario electricity system. Participants in the FIT Program had to satisfy a certain domestic-content requirement, meaning that the 25-50% of the equipment used must be made in Canada. Mesa filed six applications under the FIT Program, but was not awarded any FIT contracts.

Mesa filed for arbitration under NAFTA Chapter 11, claiming that the government had acted in an arbitrary and discriminatory manner in awarding FIT contracts. Specifically, Mesa argued that the program’s domestic-content requirement was impermissible under NAFTA, that the awarding of FIT contracts was irregular and resulted in discrimination against Mesa, and that the government’s changes to the FIT program after applications had been received amounted to arbitrary and unfair treatment. Mesa sought more than CAD 650 million in damages.

Responding to Mesa’s claims, Canada argued the acts of the Ontario Power Authority were not covered by the obligations in Chapter 11 of NAFTA; and that even if the acts were covered, Article 1108 excludes procurement programs from protection under the principles of National Treatment and Most-Favored-Nation (“MFN”) Treatment. Finally, Canada maintained that Mesa had not been treated less favorably than other Canadian or U.S. investors.

In its award, rendered on 31 March 2016, the arbitral found that the claims did properly fall within Chapter 11 of NAFTA, but that the FIT program had not constituted a breach of Canada’s obligations under that treaty. Specifically, the tribunal agreed with the respondent state that, under Article 1108, procurement programs are excluded from Chapter 11’s National Treatment and MFN clauses. The tribunal further concluded that Canada’s conduct in implementing the FIT Program had not breached the “fair and equitable treatment” standard of Article 1105.

The tribunal noted that “at least some criticism” could be levelled at the government’s policy choices and actions with respect to its renewable energy programs. The tribunal concluded, however, that “judged in all the circumstances, this is not criticism that reaches the threshold of a violation of Canada’s international obligations.” Mesa’s claims were thus dismissed in their entirety, and Mesa was ordered to bear the costs of the arbitration, including a portion of Canada’s cost of legal representation.

Just published: UNCTAD report on ISDS development  

?????????????????????The United Nations Conference on Trade and Development (UNCTAD) has recently published a report on developments of ISDS in 2015. The report addresses ISDS cases initiated in 2015 as well as the statistics on overall ISDS cases from 1987 to 2015.

The report finds that there were 70 ISDS cases initiated in 2015, which brings an overall number of publicly known ISDS cases to 696. Most of the cases initiated in 2015 arose from old bilateral investment treaties dating back in the 1990s.

Investors from developed countries made the most frequent claimants in cases initiated in 2015, with the top three home states of investors being the United Kingdom, Germany and Luxembourg. This is also true when it comes to the home states of claimants in total since 1987, where investors from the United States, the Netherlands and the United Kingdom top the list.

On the state side, Spain was the most frequent respondent state in cases initiated in 2015, followed by Russia, Czech Republic and Ukraine. Overall since 1987, most frequent respondent states in ISDS cases are still developing countries, with Argentina and Venezuela top the list.

As for the matters being disputed, a number of cases initiated in 2015 concerned sustainable development sectors such as infrastructure and climate change mitigation. Approximately 30% of cases were triggered by the regulation of renewable energy producers, all of which were brought against EU member States (Bulgaria, Italy, and Spain).

ISDS tribunals rendered at least 51 decisions in 2015, 31 of which were in the public domain at the time of the writing of the report. This brings the number of concluded cases to 444 by the end of 2015, with 36% of the cases decided in favour of the State, 26% in favour of investors and 26% cases were settled.

IIA reform continues

IIAsBlogStates continue to sign new international investment agreements (IIAs) in recent years, where by the end of 2015, the IIA universe consisted of 3,286 agreements. Among these agreements, 2,928 are bilateral investment treaties (BITs) and 358 are other IIAs (for example, trade agreements with investment chapters).

At the same time, as many as at least sixty countries have developed or are developing new model IIAs.

Here we bring out some progress of the reform.

As noted by the United Nations Conference on Trade and Development (UNCTAD) in its latest report, IIA reform is happening against the backdrop of the global trend to formulate a “new generation of investment policies” that place inclusive growth and sustainable development at the heart of efforts to attract and benefit from investment.

In general, most of the new models include provisions safeguarding the right to regulate, including for sustainable development objectives. It is also clear that states intend to move away from the “protection (only) model” to a more balanced “investment for sustainable development” model.

India’s new model BIT is particularly interesting because it includes some provisions not found in many other BITs. For instance, it promotes transparency by requiring states to ensure that all laws and regulations are published or available for those who are interested. This model also tries to provide more balance in the state-investor relationship by providing obligations to foreign investor, which consists of requirement to comply with host state’s laws, including environmental and human rights law. It further mandates foreign investors to voluntarily incorporate internationally-recognized standards of corporate social responsibility (CSR) in their practices and internal policies.

Meanwhile, the Netherlands model BIT excludes “mailbox” companies from the scope of the BIT. Finally, the recently-signed Trans-Pacific Partnership includes some clarification on expropriation provisions and a special denial of benefits clause for tobacco-related claims.

Guest blog in Swedish: The first award in solar panel cases against Spain

Solar panels behind fenceIn a guest blog in Swedish this week, Jonas Hallberg, an analyst at the Swedish National Board of Trade, has written about Charanne B.V. & Construction Investments S.A.R.L v. Spain. The award is the first that has been rendered among at least 26 disputes regarding Spain’s measure to reduce incentives for solar panel sectors.

The award is published and can be downloaded in Investment Arbitration Reporter website.

The investors brought the claim under the Energy Charter Treaty, arguing that the measure violated fair and equitable treatment standard and that it constituted indirect expropriation.

The tribunal rejected the investors’ claims in its entirety and ordered the investors to pay Spain’s legal costs which is equivalent to EUR 1.3 million.

Peter Allard vs. Barbados: Investor argues breach of environmental laws

KingfisherPeter Allard, a Canadian investor who owns a nature sanctuary in Barbados, has brought an ISDS claim against Barbados. In a nutshell, he grounds his claim on the failure of the government of Barbados to enforce its own environmental law which, as a result, has polluted his sanctuary. He is also accusing Barbados of refusing to abide by its international obligations under the Convention on Wetlands and Convention on Biological Diversity.

The actions and inactions by Barbados, according to the investor, have destroyed the value of his investment in the sanctuary. The claim is brought under Canada – Barbados Bilateral Investment Treaty (BIT).

The sanctuary, which is an eco-tourism facility, consists of almost 35 acres of natural wetlands situated on the Graeme Hall wetlands, a site protected under the Convention of Wetlands of International Importance in the south coast of Barbados. Mr Allard, as written in his notice of dispute, made investment in this sanctuary with the purpose to conserve the environmental heritage of Barbados.

The investor claims that Barbados has failed to accord him full protection and security under the BIT. Among other things, the investor points out that Barbados has failed to prevent the Barbados Water Authority, a state agency, from repeatedly discharging polluted substances from a sewage treatment facility into the Graeme Hall wetlands. The investor also asserts that Barbados has failed to operate drainage structures into the wetlands that regulate its biological health.

In addition, the investor argues that Barbados has violated fair and equitable treatment standard protection under the BIT due to a change of land use that allows run off of pollution into the sanctuary. The investor underlines that he made the investment in the sanctuary because of Barbados’ previous regulatory frameworks that he believed will protect the environment.

The case is still pending and administered by the Permanent Court of Arbitration in the Hague. Barbados’ reply to this claim is not publicly available and therefore the response of the state is still unknown.