Tribunal leaves door open for full protection and security to encompass obligation to protect against environmental damage

In its Award dated 27 June 2016, the Tribunal dismissed the Claimant’s claim in Peter A. Allard v The Government of Barbados (PCA Case No. 2012-06) relating to the Respondent’s alleged breach of its international obligations under the bilateral investment treaty between Canada and Barbados, including a claim that the Respondent omitted to accord full protection and security to the Claimant’s investment by failing to implement environmental measures for the protection of the Claimant’s eco-tourism site in Barbados on which the Claimant operated a bird and nature sanctuary.

Background

The dispute concerned the Claimant’s investment in the acquisition and development of the sanctuary. The Claimant maintained that the Respondent had failed to take reasonable and necessary environmental protection measures and, through its organs and agents, had directly contributed to the contamination of the sanctuary, thereby destroying the value of the Claimant’s investment.

The Tribunal found that the Claimant had failed to establish that there was a degradation of the sanctuary and that, even if it had found that there was a degradation of the environment at the sanctuary, it would not have been persuaded that such degradation was caused by any actions or inactions of the Respondent.

In relation to the alleged indirect expropriation in respect of the Claimant’s ability to carry on an eco-tourism business, the Tribunal concluded that, even if it were to accept that the destruction of the Claimant’s ability to run an eco-tourism business could constitute an indirect expropriation, its finding that the Claimant had failed to establish any degradation of the sanctuary foreclosed the expropriation claim.

Of particular interest was the Claimant’s argument in relation to the alleged breach by the Respondent of its obligation to accord full protection and security to investments. The Claimant argued that, in breach of the full protection and security standard, the Respondent had failed to take specific steps to prevent or mitigate environmental damage to the sanctuary and had failed to enforce its relevant environmental legislation. The Tribunal held the host state’s obligation to provide the investment with full protection and security “is limited to reasonable action, and a host State is not required to take any specific steps that an investor asks of it.” The Tribunal’s conclusion is consistent with an established view in the jurisprudence that the obligation to provide an investment with full protection and security entails a requirement of “due diligence” or “reasonable care”, which is measured objectively. Although in principle the Tribunal agreed with the Claimant that the full protection and security standard includes an obligation of the host state to protect foreign investments against environmental damage, the Tribunal found that, being aware of the environmental sensitivities, the Respondent did take reasonable steps to protect the investment at issue.

Conclusion

It is notable that the Tribunal, in principle, accepted that the full protection and security standard included an obligation to protect investments against environmental damage. However, the Tribunal’s finding leaves no doubt that, building on the existing jurisprudence regarding this BIT standard, the host state’s compliance with such obligation will be measured objectively as a due diligence standard rather than an obligation imposing a strict liability. Investment treaties may thus provide an effective tool where a host state fails to act diligently in implementing procedures to prevent or mitigate environmental damage to a protected investment.