\n<\/p>\n
As the world races toward a greener future, demand for critical materials is surging<\/a>. In this high-stakes hunt for resources, the deep seabed beyond national jurisdiction (the \u201cArea\u201d) is increasingly seen as the next \u201cEl Dorado\u201d. However, regulations governing its exploitation have yet to be finalized due to mounting environmental concerns, which prompted several stakeholders to call for a moratorium (e.g. NGOs<\/a>, States<\/a>, the EU<\/a>, corporations<\/a>, arbitration practitioners<\/a>).<\/p>\n Yet, not all are pressing the brakes. Countries such as India<\/a>, China<\/a>, Japan<\/a>, and Nauru<\/a> are actively advocating for deep-sea mining\u2019s potential. The International Seabed Authority (\u201cISA<\/a>\u201d), established under the United Nation Convention of the Law of the Sea (\u201cUNCLOS<\/a>\u201d) and in charge of seabed governance, is moving forward, and has signaled its intent<\/a> to finalize exploitation regulations by 2025, potentially unlocking a new frontier in resource extraction and a whole new sector for international dispute practitioners.<\/p>\n As this post explores, UNCLOS<\/a> already allows recourse to international commercial arbitration under Article 188, and investment arbitration could arguably come into play should mining contractors challenge their sponsoring (host) States.<\/p>\n \u00a0<\/p>\n Regulatory Landscape: Balancing Sovereignty and Global Commons<\/strong><\/p>\n The legal framework for deep-sea mining is rooted in UNCLOS<\/a> Part XI, which governs the Area\u2014defined as \u201cthe seabed and ocean floor and subsoil [\u2026] beyond the limits of national jurisdiction.\u201d Central to this regime is the \u201ccommon heritage of mankind\u201d principle (UNCLOS<\/a> Arts. 136 and 137), preventing any country from claiming sovereignty over any parts of the Area or its resources. Instead, the rights to the Area\u2019s wealth are vested in \u201cmankind as a whole\u201d.<\/p>\n To bridge the gap between global interests and private exploration, UNCLOS<\/a> establishes a three-tier system involving (i) the contractor, (ii) a sponsoring State, and (iii) the ISA.<\/p>\n In essence, the contractor first enters a sponsorship agreement with an UNCLOS member State (Annex III<\/a>, Art. 4) and submits a plan of work to the ISA (UNCLOS<\/a> Art. 153(3); Annex III<\/a>, Art. 3(4)). The sponsoring State then provides the ISA with a sponsorship certificate (Regulations on Polymetallic Nodules<\/a>, Reg. 11) and assumes due diligence obligations to ensure the contractor\u2019s compliance with the UNCLOS regime (UNCLOS<\/a>, Art. 139; Annex III<\/a>, Art. 4(4)). Finally, the ISA grants an exploration concession.<\/p>\n The responsibilities of the sponsoring State can be narrowed down to a twofold obligation: (1) adopting domestic laws and regulations consistent with UNCLOS<\/a> and (2) ensuring that the contractors operate within this legal framework (UNCLOS<\/a>, Arts. 139(1) and 153(4); UNCLOS<\/a> Annex III, Art. 4(4)). This mechanism ensures that the treaty provisions of UNCLOS<\/a> become binding on sponsored contractors through national law.<\/p>\n In its 2011 Advisory Opinion<\/a> the Seabed Disputes Chamber<\/a> (the \u201cChamber\u201d) clarified that this dual obligation is an obligation \u201cof conduct\u201d rather than \u201cresult\u201d (\u00b6110); and requires States to \u201capply best environmental practices\u201d (\u00b6122).<\/p>\n The real test comes when a sponsoring State decides to suspend or revoke its sponsorship (e.g. Tuvalu<\/a>). Such actions can have significant consequences for sponsored contractors, potentially jeopardizing their ability to continue operations. While UNCLOS<\/a> provides a robust dispute resolution system\u2014empowering the Chamber with broad jurisdiction under Article 187 as well as to resort to commercial arbitration under Article 188\u2014one gray area remains: disputes arising from the termination of non-contractual certificates. For instance, the certificate of sponsorship, which is the certificate issued by the sponsoring State to the ISA needed by a contractor to operate, is not of a contractual nature, and therefore, it will arguably not fall within the scope of Article 187.<\/p>\n \u00a0<\/p>\n The Applicability of Investment Law<\/strong><\/p>\n Deep-sea mining straddles the intersection of international governance, sovereign States, and private investors\u2014raising the critical question: Can investment law fill the gaps left by UNCLOS, offering an alternative dispute resolution mechanism for deep-sea mining investors?<\/p>\n For an investor-State arbitration claim to succeed, under most investment agreements, a deep-sea mining investor must establish jurisdiction by proving that (i) an investment was made (ii) in the territory of the host (sponsoring) State (iii) by a foreign protected investor.<\/p>\n Is Deep-Sea Mining a Protected Investment?<\/u><\/em><\/p>\n Most investment treaties adopt broad, asset-based definitions of \u201cinvestment,\u201d covering physical assets, shares, IP rights, and financial claims\u2014arguably all integral to deep-sea mining operations.<\/p>\n Under Article 153(2)(b) UNCLOS<\/a>, activities in the Area are reserved exclusively to \u201c[S]tate enterprises or natural or juridical persons which possess the nationality of States Parties or are effectively controlled by them or their nationals<\/em>.\u201d This means that foreign corporations must<\/em> incorporate an entity in the sponsoring State.<\/p>\n Additionally, entities entering into agreements with the ISA are also required to pay royalties and administrative fees to their sponsoring State, which also facilitates compliance with the Salini<\/em> test<\/em><\/a> requirements.<\/p>\n The Territorial Dilemma: Does the Investment Occur in the Host State?<\/u><\/em><\/p>\n Most investment treaties require that the investment occurs \u201cin the territory of\u201d the host State. This poses a significant challenge for seabed mining activities, which largely take place in the Area, a region beyond national jurisdiction governed by the principle of \u201ccommon heritage of mankind\u201d. Nevertheless, at least two established legal theories may help deep-sea mining investors navigate this hurdle.<\/p>\n First<\/em>, established case law embraces the theory of the general unity of an investment. According to this theory, when a tribunal is presented with a complex operation, it should look at the economic substance of the operation in a holistic manner and determine whether the core of the operation unfolds in the territory of the host State (e.g. Ambiente Ufficio v. Argentina<\/em><\/a>, <\/em>\u00b6429; <\/em>SGS v. Paraguay<\/em><\/a>, \u00b6113). While seabed mining operations primarily unfold in the Area, essential phases such as refining, processing, and marketing would likely occur in the host State\u2019s territory. Even if a tribunal will not be persuaded that these latter constitute the core of the operation, a tribunal recently applied the holistic approach to assessing the existence of an investment and ultimately asserted jurisdiction only over parts located within the host State (Pildegovics v. Norway<\/em><\/a>, \u00b6\u00b6258-260, 287).<\/p>\n Second<\/em>, another line of case law, particularly in relation to intangible assets, suggests that the satisfaction of the \u201cterritorial link\u201d depends on whether the investment \u201caccrues to the benefit of the [host] State itself\u201d (e.g. Inmaris v. Ukraine<\/em><\/a>, \u00b6124). This over-expansive interpretation of the territoriality requirement has sparked virulent dissent (see e.g. Partial Dissenting Opinion of Zachary Douglas, in Kappes and Kappes v. Guatemala<\/em><\/a>), yet it could be of particular relevance if applied to deep-sea mining operations. Many national seabed mining laws, such as those in the Cook Islands<\/a>, Fiji<\/a>, Kiribati<\/a>, Micronesia<\/a>, Nauru<\/a>, Tonga<\/a>, and Tuvalu<\/a> permit authorities to establish terms regarding royalties, taxes, sponsorship fees, and other charges\u2014contributions that would likely meet the benefit requirement, thereby fulfilling a territorial link.<\/p>\n Can Deep-Sea Mining Contractors Qualify as Foreign Investors?<\/u><\/em><\/p>\n Under Article 153(2)(b) UNCLOS<\/a>, private entities seeking to conduct activities in the Area must be juridical persons with the nationality of their sponsoring State or effectively controlled by that State or its nationals. Likewise, most countries, including Belgium<\/a>, China<\/a>, the Czech Republic<\/a>, Fiji<\/a>, and Japan<\/a>, have adopted nationality registration, or residency criteria within their national laws for entities to qualify for sponsorship. While the concept of \u201ceffective control\u201d is still under debate<\/a> and will be a focal point at the upcoming ISA Council<\/a> sessions, the \u201cnationality\u201d requirement under UNCLOS and national laws may prompt sponsoring States to challenge investment tribunals\u2019 jurisdiction based on the \u201cforeign nationality\u201d criterion commonly present in investment treaties. Contractors, however, might counter such challenges through two primary arguments.<\/p>\n First<\/em>, investment tribunals have interpreted contractual clauses providing investor-State arbitration as evidence of the parties\u2019 consent to treat an investor as foreign (BSG Resources v. Guinea<\/em><\/a>,<\/em> \u00b6287; <\/em>LETCO v. Liberia<\/em><\/a>, \u00b616.10). Similarly, in deep-sea mining, agreements or national laws permitting ICSID arbitration may indicate an intent to treat sponsored entities as foreign investors. For example, Micronesia<\/a> and Tuvalu<\/a> included in their national law ICSID arbitration provisions for disputes involving sponsored entities, albeit requiring local registration.<\/p>\n Second<\/em>, even without explicit agreements designating a locally registered entity as foreign, foreign investors may claim investment protection through shareholdings in the sponsored entity. Many investment treaties adopt broad definitions of investment that include shares and stakes in corporations, enabling shareholders to claim indirect or reflective losses if their investment falls under the scope of the relevant BIT.<\/p>\n \u00a0<\/p>\n Conclusions<\/strong><\/p>\n As already discussed on the Blog (here<\/a>), UNCLOS Part XI already embeds key investment law principles\u2014such as uniform treatment, reasonableness, and proportionality\u2014but its dispute resolution framework has notable gaps. Whether investment law can step in to bridge these gaps depends largely on the national law of the sponsoring State, the applicable investment treaty, and how a deep-sea mining investor structures its operation.<\/p>\n Deep-sea mining has therefore the potential to mark a new frontier for investment arbitration, as evidenced by the recent Odyssey v. Mexico<\/em><\/a> case, concerning a deep-sea mining project within Mexico\u2019s jurisdiction. However, investment law\u2019s historical resistance to integrate environmental considerations\u2014highlighted in Philippe Sands\u2019 dissenting opinion<\/a> in Odyssey<\/em> (\u00b6\u00b658-59)\u2014casts doubts on its suitability to address disputes in this space.<\/p>\n