Climate Change and the Use of Commercial Arbitration (Webinar Climate Change and Commercial Arbitration - 13 December 2023)
19 March 2024
On 13 December 2023, a pivotal webinar organized by Nivalion AG and Wöss & Partners titled "Climate Change and Commercial Arbitration" convened, featuring an esteemed panel led by moderator, Dr. Herfried Wöss, and including speakers Kevin O'Gorman (Partner and Head of Arbitration US, Norton Rose Fulbright), Nathalie Allen (Legal Director, Addleshaw Goddard), and Patrick Thieffry (Independent Arbitrator).
This webinar delved into the intricate ways in which arbitration can be harnessed to address the burgeoning issue of climate change disputes, drawing on historic resolutions of mass claims as a foundational perspective. The discussion was rooted in understanding how arbitration tribunals could adapt to facilitate the resolution of climate change disputes, exploring the potential for such tribunals to draw from historical precedents in mass claims resolution to address the complex and pressing disputes arising from climate change impacts.
After delving briefly into the complexities of climate change and its implications for commercial arbitration, moderator Dr. Herfried Wöss transitioned the discussion to Kevin O'Gorman. O'Gorman explored the potential of arbitration tribunals in resolving climate change disputes, drawing parallels from historical examples of mass claims resolution. He began by defining the scope of climate change disputes, referencing the ICC Task Force's Report on "Resolving Climate Change Disputes through Arbitration and ADR 's" broad definition. This definition encompasses contract disputes related to energy transition, mitigation, or adaptation in line with the Paris Agreement, as well as disputes indirectly involving climate or environmental issues.
O'Gorman then delved into the history of arbitration in mass claims, starting with the 1794 Jay Treaty, which set a precedent for modern international commercial arbitration. He highlighted several examples including the Iran-US Claims Tribunal, which was established after the 1979 Islamic Revolution, and had successfully resolved thousands of claims, and the United Nations Compensation Commission, which was formed in response to Iraq's invasion of Kuwait, and had addressed over 2.7 million claims. Another significant example was the Claims Resolution Tribunal for Dormant Accounts ("CRT") in Switzerland, which dealt with Holocaust-era bank claims and awarded over US$1.25 billion.
These historical examples underscored arbitration's flexibility and adaptability in resolving complex disputes. O'Gorman emphasized the importance of specialized tribunals in handling climate change disputes, noting their potential benefits such as accessibility, cost-effectiveness, and expertise in scientific and technical matters. He also discussed the balance between transparency and confidentiality, the involvement of third parties, and the enforceability of decisions.
However, O'Gorman identified key challenges in establishing an arbitration forum for climate disputes, such as obtaining the consent from both claimants and respondents and the lack of established private rights and responsibilities in the climate change context. He pointed out the diversity of legal theories in current climate change cases, ranging from negligence to regulatory claims, which complicates the consensus for an international tribunal.
In conclusion, O'Gorman suggested that the success of tribunals like the CRT could serve as a model for resolving climate disputes through arbitration. He argued that an expedited, cost-effective forum could be more favorable for all parties involved, drawing from past successes and lessons in mass dispute resolution. His presentation effectively laid the groundwork for further discussion on the role of arbitration in addressing the pressing issue of climate change disputes.
Subsequently, Nathalie Allen offered an insightful presentation examining the effectiveness of international arbitration in addressing climate change-related claims. She posed five key areas for consideration: (i) potential alternatives to using international arbitration to resolve climate disputes, (ii) the importance of transparency in the resolution of climate change disputes, (iii) the impact of negative public relations ("PR") threats, (iv) the significance of the ability to appeal, and (v) the necessity of non-contractual parties having an avenue for bringing claims.
Allen began by identifying various alternatives to international arbitration, such as complaints procedures, regulatory investigations, and non-contractual claims in domestic courts. She highlighted cases like BP's advertising campaign amendment due to a complaint from ClientEarth and HSBC's criticized sustainability campaign. These examples demonstrate the impact of non-arbitral avenues in effecting change.
Regarding transparency, Allen emphasized its importance in the public discussion and evolution of climate change claims. She noted the tension between confidentiality and transparency in arbitration, underscoring transparency's role in understanding legal standards, causation, and remedies in climate disputes.
Allen then addressed the value of negative PR threats, acknowledging their concrete impact on companies. She cited examples like H&M and Oatly facing criticism for misleading advertising and Deutsche Bank's DWS facing a significant fine and share price drop. However, she noted that the long-term impact of such criticism is not always clear.
On the topic of the ability to appeal, Allen discussed its importance in both clearing a company's name and potentially worsening its situation. She cited the UK Supreme Court case of Okpabi v Shell as an example where the appeal process provided valuable legal analysis and set clear standards.
Finally, Allen argued that litigation plays a pivotal role in climate change activism, allowing NGOs, citizens, and activists to compel change. However, she also recognized the role of arbitration in addressing the commercial realities of climate change commitments more privately, without the risk of political agendas.
In conclusion, Allen acknowledged the continued relevance of arbitration in certain aspects of climate change disputes, paving the way for a balanced approach between litigation and arbitration in addressing this critical issue.
Patrick Thieffry moved on to discuss the evolving landscape of commercial arbitration in the wake of climate change was meticulously analyzed, echoing sentiments from the ICC Task Force Report.
Thieffry began his presentation by referencing the ICC Task Force Report. He suggested that the evolving global context has made adaptations in commercial arbitration increasingly necessary. Thieffry identified the growing reliance on corporate governance worldwide, spurred by the G20's Task Force on Climate Related Financial Disclosures, as a key factor necessitating these changes. This "sustainable finance strategy" emphasizes the importance of financial and non-financial disclosures regarding climate impacts, based on the principle of double materiality. Additionally, he noted the increasing use of human rights as a legal foundation or in interpreting corporate duties of care in climate litigation as another significant trend that commercial arbitration must adapt to in order to maintain its relevance and social acceptability.
Thieffry then moved on to discuss the arbitration agreement itself, questioning the adequacy of current model clauses and whether these should be modified to reflect new realities. He highlighted the United Nations Guiding Principles on Business and Human Rights, which call for businesses to establish or participate in effective grievance mechanisms for those adversely impacted by their actions. This, he argued, points to a broader trend towards offering arbitration as a consolidated forum for dispute resolution, potentially extending unilateral offers to arbitrate to affected parties, akin to those seen in investment treaties.
The choice of arbitrators, Thieffry argued, is another area ripe for reconsideration. He debated whether arbitrators with technical knowledge should be preferred over those with a more general legal background, and who may rely on expert testimony. He suggested that innovative, perhaps hybrid solutions could be developed to enhance the arbitration process, such as the treatment of expert witness testimony or the use of dispute boards.
Regarding procedural adaptations, Thieffry proposed mechanisms for the early disposition of baseless claims and for compensating procedural costs by the claimant, aiming to make arbitration more responsive to the needs of parties involved in climate-related disputes. He also advocated for the incorporation of third-party information and participation in arbitration processes, which could introduce greater transparency and fairness.
In conclusion, Thieffry addressed the potential impact of commercial arbitration in matters of public interest, emphasizing the importance of the legal foundation of underlying rules. He noted that the lawmakers' intentions regarding the imperiousness of such rules could be crucial, as certain behaviors may be deemed unequivocally unacceptable. Through his comprehensive analysis, Thieffry underscored the pressing need for commercial arbitration to adapt to the new legal challenges posed by climate change and human rights considerations, marking a significant shift in how arbitration might be approached in the future.
A recording of the conference can be watched here (https://www.youtube.com/watch?v=ybwwjPB-SZ4&t=512s).
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