Arbitrability of Environmental Disputes: A Legal Perspective

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Environmental and sustainability disputes have become a pressing concern in India, with a country facing numerous challenges related to pollution, conservation, and sustainable development. The question of whether environmental dispute can be resolved through arbitration has gained significant attention in the recent years. The author through this article aims to explore the arbitrability of environmental disputes in India, examining the legal framework.

I. Legal Framework

In contemporary India, there exists a wealth of constitutional and legislative measures aimed at safeguarding the environment. The judiciary, alongside the National Green Tribunal (‘NGT’), has been instrumental in advancing and fortifying environmental law in the country. Despite this robust legal framework, significant issues persist within the system. These include inadequate policy implementation, negligence in enforcing court decisions, insufficient expertise and technical knowledge among legal professionals, and deficiencies in the legislative framework, all of which continue to pose challenges.

The Arbitration and Conciliation Act, 1996 (‘the Act’) defines “arbitration” under Section 2(1) of the Act as a process where parties submit their dispute to a neutral third party for a binding decision. While the Act does not explicitly exclude environmental disputes from arbitration, the issue has been a subject of debate among legal scholars and practitioners.

II. Sustainability and Suitability of Arbitration in Environmental Disputes

Arbitration assumes a distinctive role in resolving disputes arising from the shift towards a more sustainable economy. Its suitability for environment-related disputes is underscored by several key attributes:

a. Parties can select arbitrators and experts possessing pertinent scientific and environmental expertise. The adaptability of arbitration was notably demonstrated during the global pandemic, where proceedings continued virtually, affirming arbitration as an optimal mechanism for dispute resolution due to its effectiveness, adaptability, and efficiency. The arbitration community has adeptly adjusted to evolving global conditions, thereby enhancing its suitability for addressing disputes within an uncertain landscape.

b. Proceedings can be expedited, and interim measures applied swiftly, crucial in cases involving potential irreversible environmental harm. Arbitration offers customization, enabling parties to tailor procedural protections to ensure efficiency. This includes selecting institutional or ad hoc rules conducive to efficient dispute resolution and appointing arbitrators with relevant industry expertise, particularly beneficial for technically complex environment-related disputes.

c. Specific environmental laws can be applied as governing or applicable law. Arbitration generally proves more efficient than court litigation, given court backlog issues, offering parties flexible and expedient resolution options critical for climate-related disputes. Arbitrators can facilitate settlement where viable, including through mediation or conciliation, promoting amicable resolutions.

d. Arbitration maintains confidentiality while moving towards greater transparency, respecting parties’ requirements and the public interest. Confidentiality, a hallmark of arbitration, ensures privacy and protects sensitive information, a significant consideration in climate-related disputes where confidentiality may be paramount.

e. Arbitral rules are adaptable to diverse cases. Moreover, arbitration’s international dimension allows parties to choose a neutral forum and venue, enhancing its appeal for resolving disputes with global implications. The framework provided by the New York Convention facilitates seamless enforcement of arbitral awards worldwide. The UN Framework Convention on Climate Change explicitly anticipates arbitration for interstate disputes arising from treaty breaches, underscoring its role in international environmental governance. This recognition was reaffirmed in the Paris Agreement, highlighting arbitration’s potential to contribute to global climate governance frameworks.

III. Contractual Obligations and Environmental Arbitrations

The impacts of climate change are affecting businesses all over the world, evident from company reports indicating substantial increases in losses attributed to climate-related and extreme weather events. These effects are expected to intensify in the future. They may manifest as physical impacts or transitional challenges, such as market losses or new competitive pressures, and legal or regulatory changes like permit difficulties or stricter business regulations affecting profitability. Shifts in policy, technology, and physical risks could prompt reevaluations of asset values as costs and opportunities become clearer. Climate-related issues present numerous potential negative impacts on contracts, leading to commercial disputes. For instance, weather-related events often trigger force majeure claims.

Moreover, as new risks emerge, parties will naturally seek to manage and allocate these risks contractually. Consequently, many contracts now incorporate obligations to comply with environmental, human rights, or sustainability standards, and commitments to establish reciprocal arrangements with downstream counterparts. Disputes over these provisions are inevitable. Once again, commercial arbitration will likely emerge as a preferred forum for resolving many of these contractual disputes. As the effects of climate change continue to unfold globally, there is expected to be a corresponding increase in arbitration cases brought forward to address these issues.

IV. Conclusion

In conclusion, arbitration, supported by its procedural flexibility, efficiency, and confidentiality, stands as an ideal method for resolving climate change-related disputes. Its role is endorsed by international bodies and continues to evolve in response to the complexities of global environmental challenges. Arbitration institutions globally are actively administering cases related to environmental disputes, offering timely redressal to parties involved.

Author: Anjali Sharma

Lawyers.

Interns and Paralegals.

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