CLIMATE-CHANGE DISPUTES AND THE THIRD-PARTY CONUNDRUM
- Maithili Parikh and Mitansh Shah
Keywords: Climate-Change, Third-Party, Joinder, Amicus, ICSID
Introduction Governments and corporates are taking various measures to minimize the impact of climate- change, which includes shifting to renewable or low-emission energy sources and adopting “green” processes and technology. These measures often involve new contracts and investments, or drastic changes in old ones, giving rise to a new landscape of disputes, i.e., climate-change related disputes. An ICC Commission Report defined these to include disputes arising out of or in relation to the effect of climate-change and climate change policy, the UNFCC, and the Paris Agreement.
Climate-change disputes are distinct, involving: public interest; numerous stakeholders such as citizens, administrative bodies, non-governmental organizations (NGOs); complex and technical factual issues; and concomitant international obligations. Participation of third-party stakeholders in these disputes gives voice to those affected, increases transparency, prevents multiplicity of proceedings, and improves factual understanding. While arbitration is convenient as far as it allows expert and expedited adjudication, its focus on confidentiality and strict consent requirement makes third-party participation challenging. This blog analyses the development of third-party participation in international arbitration particularly in climate-change disputes. Given the different standards of consent and confidentiality in commercial and investment arbitration, these have been dealt with separately. International Commercial Arbitration Third-party participation can either be via joinder or amicus curiae (“amicus”) submissions. However, third-party participation in commercial arbitration is particularly tricky due to strict confidentiality standards. Confidentiality is a major factor for private parties in choosing
Arbitration, but over time transparency has increased with mechanisms for publication of awards subject to parties’ consent. Some institutions such as the ICC have gone further to make publications a default rule unless a party objects to the same. Amicus submissions, nevertheless, are not allowed in commercial arbitration. Role of National Legislation The UNCITRAL Model Law does not address joinder, and in its absence, joinder of parties is controlled by the parties’ intention, i.e., choice of law. Different jurisdictions have varied approaches, and a brief discussion of these is pertinent. The French Arbitration Law and Swiss Private International Law do not provide for joinder of parties. Therefore, under such jurisdictions, third-parties are permitted only if the disputing parties consent. The English Arbitration Act provides that a non-signatory may be bound by a signatory, but the mere legal or commercial connection is insufficient. The English Courts have also been conservative in adopting the group-of-companies and piercing-the-corporate- veil doctrines. A limited alternative mechanism allows joinder where arbitration arises out of a contract which expressly or impliedly confers benefit(s) on third-parties. The Indian Arbitration Act of 1996, and its amendments, do not provide for the joinder, but India has embraced the group-of-companies doctrine to include third-parties in arbitration and courts apply a three-factor test, namely: (i) direct relationship between the signatory and non-signatory; (ii) direct commonality of subject matter; and (iii) composite nature of the transactions. Where there is a clear intention to bind the non-signatory, third-parties can be bound. However, the group-of-companies doctrine is unlikely to help pertinent non- disputing participants in climate-change disputes. On the other hand, the Dutch Civil Procedure Code permits joinder of third parties as a default upon written request of an interested third-party, provided parties have not agreed otherwise. The modern UAE Federal Arbitration Law too allows joinder on request of a third-party or disputing parties, but only if the same arbitration agreement applies between parties to the dispute and third-parties. Arbitral Institutions: Arbitral institutions are constantly evolving to facilitate the intervention of third-parties in climate-change-related disputes. A recent ICC Commission Report focused on climate- change disputes suggested that amicus participation is a less intrusive manner of participation by non -parties subject to parties’ agreement (generally). In support, it referenced that: (i) the ICC Rules allow arbitral tribunals to hear “any other person” in addition to witness and experts; and (ii) the ICC Note to Parties provides for an arbitral tribunal to, after consulting parties, permit oral or written submissions by non-disputing parties. Joinder of additional parties is also permitted under the LCIA Rules 2020, SIAC Rules 2016, SCC Rules 2013, HKIAC Rules 2018, and UNCITRAL Rules 2010. Each, however, differ in the procedure of application (including the stage of proceedings and who is permitted to apply, i.e., whether a third-party or existing parties) and criteria of determination. International Investment Arbitration Governments, being at the forefront of climate-change action, have to take various measures to reduce contribution to the climate-crisis and mitigate its consequences. Such measures inadvertently impact foreign investments and lead to disputes. For instance: the arbitration initiated against Germany’s decision to phase-out nuclear energy; and notices of arbitration sent to Sweden against its ban on uranium mining and Netherland’s against its imminent ban on coal as part of its climate-change efforts. Investment arbitration of climate-change disputes are distinct because these involve a challenge to sovereign decision-making, impact citizens directly and taxpayers indirectly, and develop public law. For these reasons, there is an even greater demand for transparency and stakeholder participation. Some investment arbitrations rely on the same institutional procedural rules as commercial arbitrations, an overview of which has been provided above and, which do not take into consideration its distinct nature. Others include proceedings under the ICSID Convention and at the Permanent Court of Arbitration, which are more transparent because of public reporting of cases and awards. Articles 37 and 32 of the ICSID Rules allow a non-disputing third-party to file written submissions with parties’ consent and attend hearings respectively. ICSID, therefore, provides for amicus participation and other non-disputing parties, but not other disputing third-parties. Multi-party arbitrations, namely arbitrations where numerous investors make claims together, are routinely accepted, without additional consent from respondent states. However, it was clarified that multi-party arbitrations do not qualify as joinders or consolidation—both of which require specific consent. The Permanent Court of Arbitration (PCA) has established special rules for environmental disputes but these do not cover third-party participation. In summary, joinder has remained a grey area in investment arbitration. The concept of amicus participation, which is widely accepted in national and international courts, is also popular in investment arbitration. Amicus are generally citizen groups, NGOs, professional associations, scholars, and law-schools. Despite its popularity, there is no uniform process or standard in allowing amicus participation. However, some modern International Investment Agreements (IIAs) now include provisions on making proceedings available to the public and for filing amicus briefs. A brief overview of the jurisprudential evolution of amicus participation is necessary to understand its status in environmental disputes. Methanex vs United States was the first case to consider amicus participation, and the tribunal allowed the Centre for International Environmental Law (CIEL) and an NGO to participate given the substantial public interest involved. The tribunal, however, clarified that the substantive and procedural rights of parties would be unaffected. In Glamis Gold Ltd., the arbitral tribunal allowed amicus to participate but decided that it was not required to consider their submissions. While the above two were NAFTA cases, the tribunal in United Parcel Service also allowed amicus submissions under Article 15(1) of the UNCITRAL Rules. The idea of amicus briefs under ICSID Rules first arose in Aguas del Tunari, where the dispute involved privatization of water. The arbitral tribunal decided that it had no power to join third-parties to the arbitral process. Subsequently, however, the ICSID tribunal in Suez, Vivendi Universal allowed amicus participation and devised a three-prong evaluation: (i) appropriateness of the subject matter; (ii) suitability of non-party to act as amicus; and (iii) procedure for making and considering amicus submissions. Despite participation, the role of amicus has been marginal as seen in the Pac Rim case, where arbitration was initiated against El Salvador’s refusal to grant a mining concession. CIEL (amicus) submitted that such refusal was in line with international obligations, but the arbitral tribunal did not consider it on the ground that it was not required to address amicus submissions and that the disputing parties had not disclosed factual evidence to CIEL. The position in Commerce Group was similar. Amicus participation plays a limited role— providing relevant information on fact and law—but is not effective participation for impacted parties. More so, the current mechanism gives arbitral tribunals nearly complete discretion to allow or disallow it. To address these limitations, a UNCITRAL Working Group has suggested reforms for necessary third-party participation:
i. participation through intervention, joinder, or interpleader;
ii. dismissal of claims where parties are unwilling/unable to join; and
iii. reframing of claims and remedies where necessary.
These procedural rules already exist widely in national legal systems.
The climate-change crisis has made the world environmentally conscious, and developments in international arbitration follow trend. Modern BITs require investments to be environmentally sound, some arbitral institutions have devised special task-force for environmental disputes, and others provide costs for carbon footprints. Further, the landscape for third-party participation is evolving, and it will be interesting to see how issues like procedural complexity, costs, neutrality, fairness of process, and confidentiality are dealt with. A comprehensive criterion for the extent and process of third-party participation is undoubtedly the need of the hour.
Ms. Parikh is an Advocate at the Chambers of Senior Advocate Zal Andhyarujina, Bombay High Court, and has obtained an LLM from Harvard Law School. Mr. Shah is pursuing his B.L.S., LL.B. from Government Law College, Mumbai and is an Incoming Associate at AZB & Partners. Preferred Method of Citation- Maithili Parikh, Mitansh Shah, 'Climate-Change Disputes And The Third-Party Conundrum', (16 November 2020) https://www.investmentandcommercialarbitrationreview.com/post/climate-change-disputes-and-the-third-party-conundrum
 Confidentiality Revisited: Blessing or Curse in International Commercial Arbitration?, Gu Weixia, American Review of International Arbitration, 2004, p. 607; See also - International Commercial Arbitration, Gary B. Born, 2nd Edition, Kluwer Law International, 2014.  UNCITRAL Model Law, Article 8(1).  International Commercial Arbitration, Gary B. Born, 2nd Edition, Kluwer Law International, 2014, p. 2578.  City of London v Ashok Sancheti  EWCA Civ 1283 .  Peterson Farms Inc. v C&M Farming Limited  EWHC 121 (Comm).  Prest v Petrodel Resources Limited  UKSC 34.  Chloro Controls v. Severn Trent Water Purification, (2013) 1 SCC 641.  Mahanagar Telephone Nigam Ltd. v. Canara Bank & ors, 2019 SCC Online SC 995.  Mahanagar Telephone Nigam Ltd. v. Canara Bank & ors, 2019 SCC Online SC 995.  Article 1045, Netherlands Code of Civil Procedure.  Article 22, UAE Federal Arbitration Law.  Article 1045, Netherlands Code of Civil Procedure; Article 22, UAE Federal Arbitration Law.  Article 22.1 (x).  Rule 7.  Rule 13.  Rule 27.  Article 17(5).  See also Blessed Unions In Arbitration - An Introduction to Joinder And Consolidation in Institutional Arbitration, Arjun Gupta, Sahil Kanuga & Vyapak Desai, Indian Journal of Arbitration Law, Volume 4, Issue 2, p. 145.  Goetz v. Burundi, ICSID Case No. ARB/95/3; Suez et al. v. Argentina, ICSID Case No. ARB/03/17; Urbaser et al. v. Argentina, ICSID Case No. ARB/07/26; OKO Pankki Oyj et al. v. Estonia, ICSID Case No. ARB/04/6; Funnekotter et al. v. Zimbabwe, ICSID Case No. ARB/05/6.
 For instance, the International Court of Justice, International Criminal Court, and European Court for Human Rights amongst others.
The views and opinions expressed in the article are those of the author(s) solely and do not reflect the official position of the institution(s) with which the author(s) is /are affiliated. Further, the statements of the author(s) produced herein should not be construed as legal advice.