Deep Seabed Mining in the Area: is international investment law relevant?

The last decade has seen a renewed interest in the commercial exploitation of deep seabed minerals located beyond national jurisdiction. However, the respective responsibilities of deep sea miners and of their sponsoring states in this process have not been clarified fully. This short piece argues that international investment law is part of the legal framework applicable to the relationship between the deep sea miner and the state sponsoring it. More specifically, it attempts to demonstrate that deep sea mining operations can constitute a foreign-owned investment within the territory of a host state. Thus, when accepting to sponsor deep sea mining activities, states need to be mindful of the additional disciplines imposed by international investment law. 

The seabed beyond national jurisdiction (named as the “Area” by UNCLOS) is known to contain valuable mineral resources including copper, nickel, zinc and rare earth metals which have become particularly valuable because of recent technological innovations. The International Seabed Authority has awarded twenty-nine exploration contracts to a variety of state and private corporate bodies for vast zones in the Pacific and Indian Oceans. Foreign capital has become increasingly involved in this economic activity. Thus, Nauru Ocean Resources, a Nauruan entity which was granted an exploration contract in 2011, is a subsidiary of the Canadian corporation Deepgreen Mineral Corp. UK Seabed Mineral Resources is a subsidiary of the well-known Lockheed Martin. However these activities are controversial and there exist glaring gaps in the scientific knowledge of the ecosystems where deep sea mining is supposed to take place.

UNCLOS details a complex legal regime for deep sea mining in the Area centred on the principle of “Common Heritage of Mankind” (article 136 UNCLOS). Broadly speaking, this principle entails: (1) the prohibition on any exercise of national jurisdiction over mineral resources in the Area, and (2) the creation of an international organization empowered to allocate mining rights and redistribute the profits derived therefrom. Under article 153 of UNCLOS the International Seabed Authority has a mandate to regulate and supervise mining activities in the Area. Article 145 of the Convention advances the effective protection of the marine environment as one of the organisation’s purposes. Three actors intervene in exploration and exploitation activities: the corporate entity which carries out extractive activities, the Authority which grants the contracts that regulate those activities, and a state whose sponsorship is necessary for any corporate entity to become eligible for a contract with the Authority.   

Sponsoring states have an essential role to play in the supervision of deep seabed mining. Under article 139 of UNCLOS the state which has decided to sponsor a deep sea miner must ensure that activities in the Area are carried out in conformity with law of the sea rules. However, this does not create a regime of absolute responsibility for all failure by the sponsored entity to observe its obligations (see article 4 of the Annex III of UNCLOS). In its 2011 Advisory Opinion ITLOS’ Seabed Disputes Chamber (or SDC) has described this responsibility to be one of due diligence: the adoption of appropriate rules and a certain level of vigilance in their implementation (§ 115). According to the SDC what is required by due diligence might vary over time in light of new scientific or technological discoveries (§ 117). To respect this duty of due diligence sponsoring states may have to implement measures that affect negatively the operations of deep sea miners.

For example, sponsoring states may make the policy choice of terminating their sponsorship while labeling this action as a way to implement the precautionary approach. Nonetheless such suspension would have an exorbitant impact on the deep sea miner’s activities: without the sponsorship certificate its contract with the Authority will be terminated and its economic investment rendered worthless. For such situations UNCLOS does not offer any remedy for the deep sea miner. Articles 187 – 191 UNCLOS do not envisage any mechanism to settle disputes between the deep sea miner and its sponsoring state.

Article 4(3) of annex III UNCLOS requires that each applicant be “sponsored by the State Party of which it is a national”. Yet, as foreign capital has become increasingly involved in the exploration for deep sea mineral resources, international investment law may be relevant and provide a further forum where deep sea miners’ claims against sponsor state regulation can be litigated. Investment arbitration may be available by the means of state consent contained in a treaty, a contract or a national investment law. Certain conditions must be fulfilled for this to occur: there must be an investment, in the territory of the host state, held by a national of another state.

Firstly, deep sea mining operations may constitute an investment in the territory of the sponsoring state. In accordance with UNCLOS only corporations sponsored by their state of nationality may be granted a contract with the International Seabed Authority. This means that foreign companies must incorporate an entity in the state from which they seek a sponsorship. In addition, various national legislations foresee the possibility for the contractor to enter into additional contracts, or Sponsorship Agreements, to establish supplementary conditions related to the terms of such sponsorship. “Enterprises”, “shares, stocks and other forms of equity participation in an enterprise”, “production and revenue sharing contracts, concessions and other similar contracts” and “licences, authorisations, permits and similar rights conferred pursuant to a Party’s domestic law” are all assets which are mentioned by numerous international treaties as constituting an investment (i.e Article 1 Part IX of the Pacific Agreement on Closer Economic Cooperation, or PACER Plus). An economic operations that combines these assets is also likely to fulfil the objective criteria (the commitment of capital or other resources, the expectation of gain or profit, and the assumption of risk) required by such arbitral decisions as Romak v. Uzbekistan (at §207).

In addition, the deep sea miner or its foreign shareholders will be considered to be foreign investors under the applicable international instrument. This might happen in two ways. First, in accordance with article 25(2)(b) of the ICSID Convention, the parties to an investment contract may agree that the deep sea miner must be treated as a foreign investor despite being a national of the sponsoring state. This can be done by providing for ICSID dispute settlement in the compromissory clause of the applicable investment contract (see Vacuum Salt v. Ghana). Second, most international investment treaties (and some national investment laws) include participation in a company in their definition of investment: for instance chapter IX of PACER Plus enumerates “shares, stock and other forms of equity participation in an enterprise” as part of the protected international investment. In this way, the participation in the local company becomes the protected investment and the foreign shareholder may pursue a claim in its own name. This was upheld by a long series of consistent arbitral decisions.

However extractive activities take place beyond national jurisdiction, in the Area. One can wonder whether the Area’s status as Common Heritage of Mankind opposes the classification of deep sea mining activities as investments in the territory of the sponsoring state. Indeed, article 137 of UNCLOS prohibits any exercise of sovereign rights over any part of the Area or its resources. Sponsoring states may attempt to invoke this as a defense against the jurisdiction of investment tribunals over disputes with deep sea miners.

Arguably this defense would fail because of the well-established principle of “economic unity” of an investment (Ambiente Ufficio v. Argentina, § 428). Under this principle, arbitral tribunals consistently refused to subdivide the claimant’s activities into services provided abroad and services provided in the host state and to then exercise jurisdiction solely over the former category. In SGS v. the Philippines the relevant ICSID arbitral tribunals held that pre-shipment inspections services performed in port states but coordinated through a liaison office in the Philippines constituted an investment in the host state. It mattered that the Manila Office, itself an investment in the Philippines, arranged a process aiming to provide certification services for the Philippines. This approach was confirmed in Deutsche Telekom v. India, which concerned India’s refusal to lease S-band transponders on two satellites to an internet services provider. The investor had been denied the use of electromagnetic spectrum given to India by the International Telecommunications Union – another international regime for the allocation of a resource. The arbitral tribunal upheld its jurisdiction since:

It is common ground that Devas is a company incorporated and existing in India. In the Tribunal’s view, the requirement that the investment be in the territory of the host state does not restrict the way in which such investment can be made. It suffices that the result of the investment activity, i.e. relevant assets, be in the territory of the host state (§ 151)

These tribunals verified whether the operations performed by the claimant abroad were part and parcel of a wider service ultimately performed inside the respondent state. In this way, they brought into their analysis operations that were not taking place inside the host state. Nevertheless, they did so only when certain assets constituting per se an investment were present in the host state so to “anchor” the operations performed outside. This might not be the case in each and every given deep sea mining operation.  

The principle of Common Heritage of Mankind is unlikely to affect the applicability of international investment law over the relation between the deep sea miner and its sponsoring state. However, it may become important at the merits stage and/or when determining the quantum of the owed compensation. If a deep sea miner invokes a breach of the Fair and Equitable Treatment standard, a respondent state may adduce the rules and standards of the International Seabed Authority as evidence that there could be no legitimate expectation that the regulatory environment would not change and that expectation “could only have been of progressively more stringent regulation” (Philip Morris v. Uruguay, § 430). Nevertheless the success of such defences will hinge on the circumstances of the specific case, including the existence of a stabilisation clause in the sponsorship agreement.  

Conceivably, the Common Heritage of Mankind principle may also play a role when determining the amount of awarded compensation. An illustrative example is the case of SPP v. Egypt, which concerned the cancellation of a project for the construction of resorts close to the Pyramids. Just before, the site had become a World Heritage Site under article 11 of the UNESCO World Heritage Convention. The tribunal awarded damages only for profits lost previously and not successively to that date in which the activities at issue had become illegal under both Egyptian and international law. Interestingly, the preamble of the World Heritage Convention refers to the “world heritage of mankind as a whole”.