Factual Background
Deep-seabed mining (“DSM”) is a frontier industry that aims to mine critical minerals, including cobalt and nickel. DSM on the international seabed, the so-called “Area,” is regulated by the International Seabed Authority (“ISA”). DSM carries significant environmental risks, from creating sediment plumes and biodiversity loss to noise and light pollution. These risks necessitate a robust liability regime to hold polluters accountable if environmental harm is caused. A key question, which has been a point of contention among Member States of the ISA, is: should a mining operator be held strictly liable if it causes environmental harm, or is a due diligence standard sufficient? This post argues that opting for a strict liability regime is not only in conformity with international practice but could also achieve the right balance of interests amongst different stakeholders, provided that it adheres to the full compensation principle.
A Strict Liability Regime for Contractors
Contractors are mining operators who enter into contractual relationships with the ISA to conduct mineral exploration or exploitation activities in the Area. The 1982 United Nations Convention on the Law of the Sea (“LOSC”) prescribes that “the contractor shall have responsibility or liability 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” (Annex III, Article 22).
In international law, the standard of liability or responsibility is determined by examining the primary obligations (Draft Articles on Responsibility of States for Internationally Wrongful Acts, With Commentaries, Article 2, Paragraph 3). By entering a contract with the ISA, a contractor agrees to be bound by international obligations stemming from the LOSC and the ISA’s rules, regulations, and procedures, which all determine a contractor’s liability standard.
DSM consists of two stages: exploration and exploitation. While exploration involves searching for, analysing, using and testing mineral deposits, exploitation refers to removing such deposits for commercial purposes. The primary obligations of contractors in the ISA’s Exploration Regulations, including the Regulations on Prospecting and Exploration for Polymetallic Nodules (“Nodules Regulations”), are all obligations of conduct and have a due diligence nature (see here and here).
Much of the environmental risk of DSM is expected in the exploitation phase, which has yet to commence. However, in a scenario where serious harm is caused but a contractor can prove it acted diligently, no other actor might be obligated to compensate for the harm, which could create a lacuna in the liability regime. ISA Member States have been working on the Draft Exploitation Regulations and appear to agree on establishing an Environmental Compensation Fund to remedy potential uncompensated harm. Nonetheless, securing adequate funding during the initial phases of exploitation may prove to be difficult, as the primary contributors are likely to be (only a few) contractors and sponsoring States, who will gradually begin to invest.
Strict liability regimes have been developed in international environmental law for hazardous and high-risk activities. They channel the liability and costs from States to private operators that undertake those activities. For strict liability, it is sufficient for victims to demonstrate that the operator has caused damage regardless of fault (for example, 2001 Bunker Convention, Article 3). Strict liability regimes are considered a key way to ensure prompt and adequate compensation is available for transboundary harm (ILC 2006 Draft Principles on the Allocation of Loss, Principle 4 Commentary, Paragraphs 10-11) and are also relevant for DSM, given it is a high-risk activity conducted in part by private companies, and the harm is largely irreversible once caused.
With the suitability of prompt and adequate compensation being addressed below, this blog argues for a strict liability standard for DSM in the Area for the following key reasons. Firstly, strict liability standards are applied in many issue-specific treaty regimes that involve high-risk activities, including oil pollution, nuclear damage and hazardous wastes (for example, see the 1992 Civil Liability Convention, 1960 Paris Convention, Basel Convention, and HNS Convention). Thus, applying a strict liability standard in the exploitation stage of DSM would align with international practice.
Secondly, since liability would, in principle, rest on contractors, the standard of proof is less stringent compared to a due diligence standard. While the victim must prove that a contractor acted wrongfully in a due diligence standard, strict liability regimes only require proof of causality between the act and damage. This will ensure compensation is available for exploitation activities if damage occurs.
Thirdly, one can argue that strict liability regimes incentivise contractors to apply high environmental protection standards to prevent potential liability. Some studies indicate that environmental damage has reduced in areas where strict international liability regimes are in force.
Finally, we must remember that the ISA is legally required to act on behalf of, and in the interest of, humankind, as detailed below. Humankind is a potential victim of harm to the marine environment and its resources, and strict liability is better positioned to encourage contractors to avoid harm and ensure compensation is available if harm occurs.
Balance of Interests
Ideally, a strict liability regime should protect operators from being subject to excessive claims while simultaneously balancing their interests and those of the victims. The balance of interests test is already firmly established in international environmental law and is also evident in the Area regime, which is governed by the Common Heritage of Humankind (“CHM”) principle (LOSC, Article 137(2)). Under this principle, the Area and its mineral resources are vested for the benefit of humankind, and the ISA is required to provide equitable distribution of economic benefits derived from their exploitation. At the same time, the ISA is mandated to protect the marine environment (LOSC, Article 145). The requisite liability standard would need to consider this delicate balance of interests.
Under strict liability regimes, the interests of victims may be balanced with those of the operators if the activity in question carries social benefits. Mechanisms that ease pressure on the industry include liability exceptions, insurance and financial guarantees, liability caps, residual State liability, and compensation or trust funds, each of which is discussed below. This post argues that Member States could consider adopting such mechanisms under a strict liability standard during the exploitation stage, except for liability caps as discussed below.
Exceptions to Liability
Strict liability regimes are often coupled with liability exceptions, such as acts of armed conflict, hostilities, and insurrections (for example, see 1963 Vienna Convention, Article IV(3)). This is mainly because it is difficult to obtain insurance if liability is unlimited. The ISA’s Exploration Regulations provide only one exception to liability in the case of force majeure (Common Annex IV, section 17).
While the ISA Member States appear to have included the same force majeure exception in the Draft Exploitation Regulations, detailed discussions have not occurred (ISBA/30/C/CRP.1, Annex X, Section 8). There is merit in discussing other liability exceptions, such as acts of war, hostilities, and any other relevant to the Area regime.
Insurance and Financial and Technical Capabilities of Contractors
Every applicant for a DSM exploration contract must have the necessary financial and technical capabilities to undertake their operations and fulfil financial obligations owed to the ISA (for example, see Nodules Regulations, Regulation 12). A contractor must also maintain appropriate insurance policies (Exploration Regulations, Common Annex IV, Section 16.5). ISA Member States are considering including similar obligations in the Draft Exploitation Regulations (ISBA/30/C/CRP.1, Regulations 5(3) and 36). However, given the high environmental risks, four major insurers have excluded DSM from their underwriting activities in the last year alone (see here and here). The Metals Company, one of the companies pushing to initiate exploitation activities, has admitted that it might not obtain full insurance for its operations in its latest Annual Report to the US Securities and Exchange Commission.
Liability Caps and Residual State Liability
Some strict liability regimes apply liability caps to enable insurance coverage and prevent placing excessive burdens on operators (for example, see Convention on Supplementary Compensation for Nuclear Damage, Article IV). They also usually differ from the full compensation principle established by the Chorzów Factory case (Page 47) by offering prompt and adequate compensation, and some provide for residual State liability (for example, see 1963 Brussels Supplementary Convention, Article 3).
However, these mechanisms are currently not applicable to the Area regime as ISA contractors are liable for the actual amount of damage, as per the LOSC (Annex III, Article 22), the ISA’s Exploration Regulations (Common Annex IV, Section 16.1), and the Seabed Disputes Chamber (“SDC”) of the International Tribunal for the Law of the Sea‘s 2011 Advisory Opinion on the Responsibilities and Obligations of States Sponsoring Persons and Entities with Respect to Activities in the Area (“2011 Advisory Opinion,” Paragraph 193). The SDC further noted that residual liability for sponsoring States is not applicable due to the liability of contractors and sponsoring States existing in parallel (2011 Advisory Opinion, Paragraph 204).
The ISA Member States could develop further liability rules according to Article 304 of LOSC and the SDC’s direct reference to this point (2011 Advisory Opinion, Paragraph 211). However, the desirability of liability caps must be questioned, given that they insulate contractors from liability for the actual amount of damage. Prompt and adequate compensation does not sit well with the Area regime because it is implemented at the international level rather than the national level, as is the case with all strict liability regimes. This means the contractors need to compensate humankind rather than different States. Some legal instruments already envisage a strict liability standard without providing liability caps (see, Space Objects Liability Convention, 1993 Lugano Convention). The Area regime can adopt a similar approach.
Compensation or Trust Funds
A final potential mechanism is establishing compensation or trust funds, which, in principle, are financed by the entities, governments, or public or private persons that create the potential risk of causing damage. In its Advisory Opinion, the SDC pointed to a potential liability gap where a sponsoring State is not liable, and a contractor does not fully meet its liability, for example, because of insolvency (2011 Advisory Opinion, Paragraphs 205 and 209-210). To address this situation, Member States have been discussing the establishment, purpose and funding of an Environmental Compensation Fund (see here, here, and here).
Conclusion
ISA discussions regarding the standard of liability for contractors are still in their early stages. A strict liability regime is more appropriate for DSM activities, given their inherently high-risk nature and in light of international practice in comparable regimes. Strict liability ensures that contractors bear the responsibility, and it empowers victims by applying a lower standard of proof. Additionally, it balances the interests of various stakeholders within the Area regime, including humankind. The Area regime already includes insurance requirements for contractors and provisions for force majeure exceptions to liability. Furthermore, ISA Member States are eager to establish an Environmental Compensation Fund for the exploitation phase. Member States can build on these existing and any potential mechanisms in the Draft Exploitation Regulations to avoid imposing excessive burdens on contractors. Nevertheless, liability caps may not be appropriate, as these run counter to the Area regime’s goal of ensuring full compensation is available for humankind.