13.2.1 Material Scope of the Potential Liability Regime for Deep Seabed Mining in the Area
Article 134 UNCLOS establishes that its Part XI (including the liability and responsibility provisions therein) apply to the Area as well as activities conducted in the Area. Following on from Article 134, when coupled with the zonal approach established by UNCLOS, it must be emphasised that the liability regime for DSM
will only apply to those activities associated with DSM
in the Area and not to other maritime zones (such as the exclusive economic zone (EEZ)
or the high seas
). For this reason, the rules detailing responsibility and liability need to clarify to which activities they specifically apply. Article 139 UNCLOS states that the rules regarding responsibility and liability, pertaining to DSM
in the Area, apply to “activities in the Area
”. Article 1(1)(3) UNCLOS defines activities in the Area
as “all activities of exploration for, and exploitation of, the resources of the Area”. After an examination of other relevant UNCLOS provisions, the SDC explained in its 2011 advisory opinion that in the context of exploration and exploitation, activities in the Area
includes “the recovery of minerals from the seabed and their lifting to the water surface”.
10 Furthermore, the Chamber made clear that the extraction of water from such minerals and the “preliminary separation of materials of no commercial interest, including their disposal at sea, are also deemed to be covered by the expression ‘activities in the Area
’”.
11 In contrast, the SDC held that the process through which metals are extracted from the respective minerals at a plant situated on land is excluded from “activities in the Area
”.
12 The transportation “to points on land from the part of the seas super-adjacent to the part of the Area in which the contractor operates”, is also not included as an activity taking place in the Area.
13 The reason for this is that regulating such transportation could create conflicts with existing provisions and rights under UNCLOS associated with, for example, navigation on the high seas
or through an EEZ
.
14
Although the 2011 advisory opinion sheds some light on the scope of application of potential liability rules in the Area, the definition of “activities in the Area
” does not fully resolve the issues related to the scope of application. This is because the definition does not address questions connected to the role of flag States (of vessels used for mining and related activities) and their liability for failures to appropriately oversee shipping matters in areas used for DSM
.
15 Given the diverse array of actors involved in DSM
, any newly proposed liability regime will need to be particularly accurate when demarcating the division of responsibilities. The definition of “activities in the Area
” will guide the scope of application of liability rules related to DSM
in the Area however, such guidance needs to take note of the development of other rules. This will need to include issues such as compensation, flag State responsibility and the like, all of which may have an impact on the future scope of application of the intended liability regime.
13.2.3 Imputability of Liability
Each actor addressed within the current framework has different responsibilities regarding adherence to obligations associated with the precautionary approach
and employing best environmental practices. The responsibility of the sponsoring States is to cooperate with the ISA in implementing the DSM
regime, to establish an adequate domestic legal regime and to ensure that sponsored contractors fulfil their contractual obligations. The ISA, taking into account the best scientific information, is responsible for monitoring all activities in the Area
. Contractors are responsible for implementing the regulations of the Authority, and complying with their contractual obligations.
19
Traditionally, “a State may be held liable under customary international law even if no material damage results from its failure to meet its international obligations”.
27 In this way:
the liability of a sponsoring State constitutes an exception to the customary law rule on liability. In the [Seabed Dispute] Chamber’s view, if the sponsoring State failed to fulfil its obligation but no damage has occurred, the consequences of such a wrongful act are determined by customary international law. This means that under customary international law, a sponsoring State may be liable if it breaches its obligation where no damage has been caused. It seems to follow that if a sponsoring State is not liable under the deep seabed regime of UNCLOS, it may be liable at the customary law level.
28
Finally, there may be situations in which several States sponsor the same contractor. In such situations, the question arises as to how liability should be divided between the States concerned. In this regard, the SDC noted that “in the event of multiple sponsorship, liability is joint and several unless otherwise provided in the Regulations issued by the Authority”.
29
Article 22 of Annex III UNCLOS deals with the liability of contractors. It states that contractors will be responsible and liable “for any damage arising out of wrongful acts in the conduct of its operations, account being taken of contributory acts or omissions by the Authority”. The liability of sponsored contractors was shaped by the SDC in relation to the liability of sponsoring States. In this regard, the SDC concluded that:
The liability of the sponsoring State arises from its own failure to comply with its responsibilities under the Convention and related instruments. The liability of the sponsored contractor arises from its failure to comply with its obligations under its contract and its undertakings thereunder.
35
The language used in the Exploration Regulations, the Draft Regulations on Exploitation as well as the standard clauses of both exploration and exploitation contracts highlights that the obligations of a contractor are not all that different from those of sponsoring States.
36 All the exploration regulations (concerning nodules, sulphides and crusts) provide that contractors “shall take necessary measures” to protect and preserve the environment pursuant to Article 145 UNCLOS.
37 Such phrases are clearly indicative of obligations of conduct rather than result.
38 For this reason, the current standard of
liability applicable to contractors appears to be one of negligence—i.e. contractors are liable if they breach their due diligence obligations.
39
Regarding the relationship between the liability of the ISA and contractors, the standard clauses for both exploration and exploitation contracts indicate that the liability of the contractor and the ISA will be calculated by taking into account the “contributory acts or omissions” of each.
44 Additionally, each party must also indemnify the other.
45 The Draft Exploitation Regulations provide for an almost identical framework except that they allow “contributory acts of third parties to be taken into account, in addition to contributory acts of the ISA or the contractor”.
46 Given that the ISA and the contractors are obliged to indemnify each other, the argument can be made that the liability of the ISA and contractors will be joint and several. However, the ISA and the contractors deal with different aspects related to activities in the Area
and, following the reasoning of the SDC, it could also be argued that the liability of the Authority and a contractor exist in parallel.
47 This is an unclear area and a liability regime purporting to regulate DSM
in the Area needs to take into account such ambiguities.
Lastly, the SDC indicated that “sponsoring States have an obligation to assist the Authority in its task of controlling activities in the Area
”.
48 The SDC noted that such an obligation to “ensure” is “met through compliance with the ‘due diligence’ obligation set out in article 139”, and it would seem, therefore, that the liability of the Authority and sponsoring States also exist in parallel. However, as with the liability relationship between the ISA and contractors, more clarity on this point is still needed.
Additionally, the SDC ruled that the “standard of
due diligence may vary over time and depends on the level of risk
and on the activities involved”.
51 Both Articles 235 and 304 UNCLOS provide that the relevant rules and principles relating to international responsibility and liability are not static but are open to elaboration and development.
52 These conclusions are relevant for a discussion on how liability standards under the DSM
regime may alter over time and be based on the particular activity that is being undertaken. The variable nature of the due diligence obligation implies that even the obligation itself may change as technologies improve and may become stricter for riskier activities.
53 This is not to say that the concept of due diligence will one day equate to strict liability, but future developments may potentially contribute to bridging the gap between liability standards based on due diligence and those based on strict liability.
The extent to which damage will be compensable will depend on several factors, including the definition of damage adopted, the threshold of harm/damage required and, ultimately, the scope of the liability regime established. While a thorough analysis of this is beyond the ambit of the current report, several questions require further examination before a conclusive definition of compensable damage can be submitted. The SDC’s finding seems to indicate that “damage to the Area and its resources” is different from “damage to the marine environment”. The Draft Exploitation Regulations defines the “marine environment” as including “the physical, chemical, geological and biological and genetic components, conditions and factors […], the waters of the seas and oceans and the airspace above those waters, as well as the seabed and ocean floor and subsoil thereof”.
56 If a definition of compensable damage took account of the airspace and water column above the Area, it remains to be seen how such a definition would have a bearing on the rules and instruments applicable in other maritime zones.
57
The definition of “marine environment”, although capturing the complexity of the marine ecosystem, also presents challenges for the restoration or reinstatement of the marine environment. The risks
and impacts associated with DSM
activities may make such restoration or reinstatement unfeasible or impossible.
58 Additionally, Article 162(2)(x) UNCLOS stipulates that exploitation contracts will be disapproved where there exists “the risk
of serious harm to the marine environment”. Article 162 suggests that the threshold of harm required needs to be serious. However, in light of the contemporary developments surrounding international environmental law since the adoption of UNCLOS, “the use of the term serious harm seems to impose an unreasonably high threshold before liability for harm is triggered”.
59
The amount and structure of limits are directly affected by the “predicted quantum of potential damages” and the lack of an agreed-upon threshold and definition for compensable damage will affect the establishment of limits in any potential liability regime.
60 The SDC noted that “the form of reparation will depend on both the
actual damage and the technical feasibility of restoring the situation to the
status quo ante”.
61 Moreover, Article 22 of Annex III UNCLOS mentions that the liability for contractors and the Authority will be for the “actual amount of damage”. The use of the term “actual damage” may imply that damage claims are not limited, which would pose problems for potential insurance obligations as unlimited liability is likely to be received as unreasonable and unfair by both operators and insurers.
62
The legal character and special features of the Area will require a tailored approach to defining and limiting compensable damage. Any approach will need to take note of whether damage must exceed a particular threshold (serious or significant), whether pure environmental
harm will be compensable and how particular compensable damage will be valued.
63
In contrast, neither UNCLOS nor the exploration regulations indicate how the Authority will pay compensation should it be found liable. Under the current Draft Exploitation Regulations, the contractor is obliged to include the ISA as an additional assured, and “shall ensure that all insurances required under this regulation shall be endorsed to provide that the underwriters waive any rights of recourse, including subrogation rights against the Authority in relation to Exploitation”.
66 This seems to imply that even if the Authority were to be found legally liable, the liability of the contractor, together with the waiver of recourse under the Draft Exploitation Regulations, means that the Authority will not be held financially liable.
67 Such a conclusion could seriously undermine a primary purpose of an effective liability regime—i.e. sufficient deterrence so that damage is avoided.
Also relevant for a discussion on insurance is that Draft Regulation 26 of the Draft Exploitation Regulations requires contractors to “lodge an Environmental Performance Guarantee in favour of the Authority and no later than the commencement date of production in the Mining Area”. In this context, “Environmental Performance Guarantee” means a financial guarantee,
68 and while a number of issues remain to be specified in guidelines to be issued by the Authority, the Draft Exploitation Regulations indicate that the primary purpose of the guarantee is to cover the costs associated with the closure of a mining site.
69 Importantly, Draft Regulation 26(8) highlights that “an Environmental Performance Guarantee by a Contractor does not limit the responsibility and liability of the Contractor under its exploitation contract”.
The SDC acknowledged that there may be situations in which a contractor is unable to cover the amount of damage in full. In other words, where “the sponsoring State has taken all necessary and appropriate measures, [and] the sponsored contractor has caused damage and is unable to meet its liability in full”, there could be a liability gap.
70 In this regard, the SDC highlighted that the liability regime under UNCLOS does not allow for residual liability and that any outstanding amount cannot be claimed from the sponsoring State.
71 In light of this, the SDC drew attention to Article 235(3) UNCLOS and surmised that such a liability gap may be bridged by “the establishment of a trust fund to compensate for the damage not covered”.
72
It must be highlighted that no such fund yet exists, however, Section 5 of Part IV of the Draft Exploitation Regulations does envisage the establishment of an Environmental
Compensation Fund.
73 The main purpose of such a fund will be the implementation of measures necessary “to prevent, limit or remediate any damage to the Area arising from activities in the Area
, the costs of which cannot be recovered from a Contractor or sponsoring State”.
74 The establishment of a compensation fund will have to take account of several factors including financing (compulsory or voluntary) as well as who the respective contributors and beneficiaries would be. Contractors are the immediate beneficiaries associated with DSM
in the Area but are not the only beneficiaries as Article 160(2)(f)(i) UNCLOS requires that the Authority equitably shares “financial and other economic benefits derived from activities in the Area
”. In this regard, the vast array of beneficiaries that this provision may include needs to be understood in the establishment of any potential funding scheme. Moreover, the common heritage of mankind principle not only entails common benefits but also common obligations in protecting the environment and contractors cannot be expected to be the only contributors to the fund.
75 This is not to say that every actor will be expected to make an equal contribution, however, account will have to be taken of an equitable beneficiary and contributory regime (especially considering the needs and involvement of both developed and developing States).
The categories of compensable damage have a direct impact on the contentious jurisdiction of the SDC. The SDC noted that actors “entitled to claim compensation may include the Authority, entities engaged in deep seabed mining
, other users of the sea, and coastal States”.
77 This is in line with the contentious jurisdiction provisions contained in Article 187 UNCLOS which provides that the SDC has jurisdiction over,
inter alia, disputes between States parties, disputes between State parties and the Authority as well as disputes between parties to a contract—which will always involve the Authority on one side and contractors, in the form of States parties, State enterprises and natural or juridical persons, on the other.
78 However, it must be noted that there are limitations to the jurisdiction of the SDC including the fact that Article 187 UNCLOS does not allow for States parties to bring claims against contractors who are either State enterprises or natural or juridical persons.
79 Should a limitation to jurisdiction be present as, for example, where a State party wishes to institute action against a State enterprise/private company that has caused damage to the marine environment, recourse could follow within domestic fora. The jurisdiction that national courts may have over a particular dispute is a direct consequence of Article 235(2) UNCLOS that obligates sponsoring States to ensure that their domestic legal systems allow for prompt and adequate compensation, “including access to the court system of potentially affected claimants”.
80
Despite the obligation that sponsoring States provide such legislation, problems within domestic legal systems are already evident. The current domestic laws of sponsoring States refer to the SDC as a forum for dispute resolution which, if the SDC did have jurisdiction, is unlikely to provide “prompt and adequate compensation” as required under Article 235(2) UNCLOS.
81 Additionally, the existing domestic laws are silent on measures to ensure enforcement
of any judgement that may be made against a liable contractor.
82 Gaps in current domestic legislation may entail non-compliance with Article 235, which entails a failure of a State’s due diligence obligations and has the potential to expose States to liability.
One last point worth noting is the SDC’s statement that each States party to UNCLOS may “be entitled to claim compensation in light of the
erga omnes character of the obligations relating to preservation of the environment of the high seas
and in the Area”.
83 Arguably, this means that all States, even a State that is not injured, may be entitled to invoke the responsibility of another State that has breached its obligations owed to the Area.
84 There are several problems associated with what form of reparation could be claimed for such a breach (assurance of non-repetition, restitution, satisfaction etc.) since certain forms of reparation, such as satisfaction, need to be made to the true victims, which might exclude States that are not in fact injured.
85 Additionally, the SDC did not differentiate between
erga omnes obligations owed to the international community as a whole and
erga omnes partes confined to the States parties of UNCLOS.
86 The impact of this statement requires further examination, and uncertainties regarding which States, including non-State Parties to UNCLOS, may bring a claim based on
erga omnes obligations owed to the marine environment will need to be clarified.
87