The award in the Allard vs. Barbados investment arbitration was just recently made public. Here were the basic facts and the legal claims:
33. In 1994, Mr. Allard decided to acquire and develop land in Barbados for an eco-tourism attraction. To this end, in October 1996, he incorporated the Barbadian company Graeme Hall Bird Sanctuary Inc. (“GHNSI”), which in three separate land conveyances dated 1996, 1998 and 1999 acquired the Sanctuary, comprising in total 34.25 acres of land located in the western part of some 240 acres of wetlands on the south coast of Barbados (“Graeme Hall Swamp”).
34. The Sanctuary includes a forest of red and white mangroves, and a lake and ponds connected to the ocean by a canal. A long-established sluice gate located at the end of the canal (“Sluice Gate”) is claimed as having the purpose of controlling the exchange of water between the wetlands and the ocean; its exact function at different points in time is in dispute.
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42. The Sanctuary opened to the public in the spring of 2004.
43. In 2005, a failure at the South Coast Sewage Treatment Plant, operated by the Barbados Water Authority, resulted in the emergency discharge of raw sewage into Graeme Hall Swamp.
44. In June 2007, Mr. Allard began trying to sell the Sanctuary.
45. On 15 April 2008, an amended Barbados National Physical Development Plan, first proposed in 2003, came into effect (“2003 Plan”). The 2003 Plan reclassified a zone located to the north of the Sanctuary that had been allocated to recreational and agricultural uses under the 1986 Plan into two zones: a “predominantly residential” zone, closest to the Sanctuary, and an “urban corridor” (the “Zoning Changes”).
46. On 29 October 2008, Mr. Allard announced the closure of the Sanctuary, which became effective between December and March 2009. Since that closure, the visitors centre’s operation has been confined to its use as a café.
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50. In summary, the Claimant’s case is that the actions and inactions of Barbados concerning the mismanagement of the Sluice Gate and other issues, caused and/or failed to mitigate a significant degradation of the environment and the “tourist experience” at the Sanctuary, to an extent obliging the Claimant to close the Sanctuary, and thereby depriving him of the entire benefit of his investment in Barbados.
51. The actions and inactions of Barbados are claimed to constitute breaches of its obligations under the BIT:
(i) to accord “fair and equitable treatment in accordance with principles of International Law” (“FET”) (Article II(2)(a));
(ii) to accord “full protection and security” (“FPS”) (Article II(2)(b)); and
(iii) not to expropriate, except “for a public purpose under due process of law, in a nondiscriminatory manner and against prompt, adequate and effective compensation” (Article VIII).
Roughly speaking then, the argument is that the government's failure to protect the environment adequately violated the investor's rights, in violation of the Canada-Barbados investment treaty, in a way that damaged his investment.
For simplicity, I'm going to focus on just one on the legal claims: the full protection and security obligation. Here is the complainant's claim:
229. Article II(2) of the BIT relevantly provides:
2. Each Contracting Party shall accord investments or returns of investors of the other Contracting Party: [. . .] (b) full protection and security [. . .]
(a) The Claimant’s position
230. The Claimant contends that the FPS standard obligates the host State to act with due diligence to “protect investments against injury by private parties,” requiring “nothing more nor less than the reasonable measures of prevention which a well-administered government could be expected to exercise,” without “any need to establish malice or negligence,” and that here, Barbados’ obligations under the Convention on Biological Diversity and the Ramsar Convention heighten the level of diligence required. Further, the Claimant argues that in determining whether a State has exercised due diligence, it is relevant to consider whether: (i) the facts at issue were known to the host State; (ii) the host State conducted investigations in response to complaints by the investor; and (iii) the host State took adequate steps to apprehend a wrongdoer or otherwise enforce a penalty.
231. On reference to the historical development of the FPS standard, jurisprudence of the International Court of Justice and other investment awards, the Claimant submits that the FPS standard is not limited to protection against “physical interference with property, let alone . . . physical violence” and, that in any event, the claim here is one of physical interference with property through the unlawful trespass of pollutants. The Trail Smelter decision is invoked to establish that damage to private property caused by pollution is an actionable injury under customary international law.
232. Applying these principles to the claims, the Claimant argues that Barbados denied FPS to Mr. Allard’s investment by failing to take reasonable care to protect the Sanctuary, despite being put on notice of the environmental damage to the Sanctuary and notwithstanding Mr. Allard’s repeated offers of financial and technical assistance. Specifically, Barbados failed to adequately manage the Sluice Gate and enforce its environmental laws, such as the Marine Pollution Control Act.
The tribunal rejected this claim. Here's a key part of its reasoning:
239. In essence, the Claimant complains that Barbados breached the FPS standard by failing to: (i) repair and regularly operate the Sluice Gate; (ii) take the other specific stepslisted at paragraph 234 above to reduce the run-off of contaminants into the Sanctuary; and (iii) enforce the Marine Pollution Control Act.
240. In substance, the Parties agree that none of these actions were taken by Barbados.
241. With regard to the first two complaints, it may be accepted that the record supports the Claimant’s contention that Barbados was aware of the potential environmental importance of the Sluice Gate and the possible presence of contaminants in both the natural run-off to the Sanctuary and in any emergency discharge from the Barbados South Coast Sewage Plant.
242. The Tribunal further finds, however, that, being aware of the environmental sensitivities of the Sanctuary, Barbados took reasonable steps to protect it.
243. It is accepted by the Claimant that the obligation of the State to provide the investment with FPS is not one of strict liability, but of “due diligence” or “reasonable care.” Relevantly, and as noted in El Paso v. Argentina:
[. . .] the obligation to show “due diligence” does not mean that the State has to prevent each and every injury. Rather, the obligation is generally understood as requiring that the State take reasonable actions within its power to avoid injury when it is, or should be, aware that there is a risk of injury. The precise degree of care, of what is “reasonable or “due”, depends in part on the circumstances.
244. The obligation is limited to reasonable action, and a host State is not required to take any specific steps that an investor asks of it. The fact that Barbados is a party to the Convention on Biological Diversity and the Ramsar Convention does not change the standard under the BIT, although consideration of a host State’s international obligations may well be relevant in the application of the standard to particular circumstances.
245. Here, it is established that Barbadian officials implemented procedures to prevent environmental damage to the Sanctuary both on their own initiative and in response to the Claimant’s complaints. In particular, Barbados established the Graeme Hall Stewardship Committee (“Committee”) in 2003, in order “to investigate and coordinate government action at Graeme Hall [Swamp] in an integrated manner.” The Committee was comprised of representatives of all the ministries responsible for managing the Graeme Hall Swamp ecosystem, as well as representatives of private stakeholders, including GHNSI. The Committee “was tasked by Cabinet to meet as often as necessary and to report back to government” in order to “address the issues related to effective management of the Graeme Hall ecosystem,” and undertook to develop a Master Plan for the long-term preservation of the Graeme Hall Swamp, which, in its draft form of 2007, identified “the significant issues of concern affecting the environmental [conditions of the swamp’s ecosystem]” and set forth the “immediate actions required to ameliorate [these] environmental problems,” including, inter alia, sewage management, use of adjacent lands, drainage and the Sluice Gate.
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249. Under these circumstances, Barbados’ approach in addressing the Sluice Gate and general pollution issues at the Sanctuary as part of its governance of the entire area does not fall short of what was appropriate and sufficient for purposes of the duty of due diligence required by Article II(2)(b) of the BIT.
What really intrigues me about this case is the implications for possible future claims about a failure to protect the environment. For example, let's say a foreign investor purchases some property near the ocean. Over time, due to the impact of changes in the climate, it is possible that sea levels will rise, causing damage to the property. It is also possible that government actions were a cause of this, and that other government actions could have been taken in the meantime to prevent the damage.
So here's my question. If sea levels rise and the damage occurs, and such investors can find an investment treaty or FTA investment chapter to rely on, how strong a legal claim would the investors have that the government's various actions and inactions violate its obligation to provide full protection and security? Note this standard cited by the tribunal: "the obligation is generally understood as requiring that the State take reasonable actions within its power to avoid injury when it is, or should be, aware that there is a risk of injury." Also, "consideration of a host State’s international obligations may well be relevant in the application of the standard to particular circumstances."
Here's a related question: If this happens, will environmental NGOs and business groups both switch sides in the ISDS debate?
