The Conflicting Relationship between Bilateral Investment Treaties and Environmental Law in Ghana

Dr Dominic Dagbanja| dominic.dagbanja@uwa.edu.auIntroduction

The duty of states to protect the environment is not just a matter of municipal law, it is also reflected in international treaties like the International Covenant on Economic, Social and Cultural Rights and the African Convention on Conservation of Nature and Natural Resources and in international declarations.

The duty to protect the environment is fulfilled through the implementation and enforcement of environmental laws and regulations. As Philippe Sands and other scholars pointed out, one of the challenges facing environmental law is the difficulty of enforcement, particularly where environmental protection objectives come into conflict with economic interests. The Commission for Environmental Cooperation of North America (CECNA), for instance, argued that environmental regulations may run afoul of bilateral investment treaties (BITs). The CECNA also pointed out that conflict with BITs is one of the reasons both national environmental law and international environmental law rules suffer from inadequate domestic implementation. The United States Trade Representative similarly noted that while “securing a stable investment climate and a level playing field for […] investment abroad is an important objective […], arbitral claims brought by investors against governments (through “investor-State” arbitration) could be used inappropriately to challenge […] domestic laws and regulations, including those concerning the environment.”

Ghana is a party to bilateral investment treaties (BITs) aimed at providing the legal protection for foreign investment. Ghana’s BITs provide for full protection and security and fair and equitable treatment, expropriation and investor-state disputes settlement. It must live up to the duty to protect the environment and at the same time fulfil BIT obligations. The potential limitations of BITs on environmental regulation are particularly important for Ghana. Environmental degradation occasioned by the activities of businesses, especially the Ghanaian experience in the mining industry dominated by foreign investors, calls for environmental regulation by the State. Such regulation may result in conflict with BIT obligations if an investment is adversely affected by the regulation. This conflict may arise in particular because Ghana’s BITs do not make exceptions for public interest regulation, such as environmental protection. They require the payment of compensation to foreign investors where the adverse effects of governmental regulation on an investment are considered an expropriation, whether directly or indirectly and even if regulation is for public purpose.

Article 36(9) of the 1992 Constitution of the Republic of Ghana provides that the State “shall take appropriate measures needed to protect and safeguard the national environment for posterity; and shall seek co-operation with other states and bodies for purposes of protecting the wider international environment for mankind.” The duty to protect the environment implies a recognition of the right to a clean environment in Ghana. The right to life, property, to work under “healthy conditions” and the right to health recognised in Articles 13, 18, 24 and 30 of the Constitution reinforces this substantive human right to a healthy environment in Ghana. This obligation to protect the environment for posterity is a constitutional recognition of a customary land law principle stated in Justice Ollenu’s Principles of Customary Land Law in Ghana that “land belongs to a vast family of whom many are dead, a few are living and countless host are still unborn.” In this sense, the environment is a “Common Home.”

I argue that key elements of the legal duty to protect the environment such as the refusal, cancellation or termination of environmental permits, forced environmental remediation, imprisonment of environmental offenders, imposition of environmental levies or fines, forfeiting the assets of environmental offenders to the State and regulating the use of environmental hazardous substances could be challenged by foreign investors in investor-state arbitration as breaching Ghana’s BITs.

The Content and Scope of Environmental Regulation in Ghana

In order to assess how BITs might limit environmental regulation in Ghana, it is important to first review the precise content and scope of the legal duty to protect the environment. The Environmental Protection Agency (EPA) was established for the purpose of protecting and improving the environment in Ghana. Its functions are to enforce environmental policy and legislation, prescribe standards and guidelines, and inspect and regulate business operations relating to the environment. The EPA issues environmental permits and pollution abatement notices for controlling sources of pollutants and substances which are hazardous or potentially dangerous to the quality of the environment; prescribes standards and guidelines relating to the pollution of air, water, land and any other forms of environmental pollution and ensures compliance with prescribed environmental impact assessment procedures in the planning and execution of development projects.

The EPA has the power to suspend or cancel a license if it has reasonable grounds to believe that the licensee failed or refused to comply with environmental laws and regulations or any other conditions for the license. It may also suspend or cancel a license if the suspension or cancellation is necessary to prevent or remove a hazard to human beings, crops, animals or the environment. Furthermore, the EPA Act empowers a court to direct the forfeiture to the State of equipment, pesticide or appliance used in the commission of the offence and to order the suspension or cancellation of a license that may have been granted to the person engaged in unregistered pesticide business. Similarly, the Minerals and Mining Act 2006 empowers the Minister responsible for mining to suspend, cancel or revoke mineral rights, licenses and permits for non-compliance with the law or where it is in the public interest to do so, such as when mining is polluting water bodies or causing other environmental damage.

Key legal requirements for environmental protection in Ghana that investors might challenge in investor-state arbitration if implemented include:

1. the suspension, cancellation and termination of environmental permits;
2. forfeiture of the assets of an offending person to the State to meet the cost of restoring the environment to its desirable state;
3. imposition of environmental fines and levies for non-compliance with environmental laws and regulations;
4. conviction and imprisonment of environmental offenders;
5. no payment of compensation for general regulation that effects property rights; and
6. banning the export and import or restricting the use of chemicals and pesticides on environmental protection grounds.

Environmental Regulation and BITs in Practice: Implications for Ghana

The ability and willingness of investor-state tribunals to accommodate environmental duties of host states to protect the environment is determined by examining arbitral decisions made when a foreign investor challenges the performance of these duties. Since Ghana’s BITs made no exception for environmental regulations, it cannot rely on the BITs to defend environmental measures when they are challenged in investor-state arbitration. In light of the similarities of disputed measures and standards of investment protection, conclusions can be drawn about the potential of BITs to narrow environmental policy space and regulatory autonomy in Ghana using arbitral cases involving Canada.

An important case is Clayton v Government of Canada. A proposed terminal underwent a lengthy environmental assessment by Nova Scotia and the Canadian Federal Government as required by state and federal environmental and fishery legislation. Both governments decided not to approve the permit for the project on environmental grounds. The Clayton Group brought an investor-state suit under the North America Free Trade Agreement (NAFTA) claiming that Canada breached its minimum standard of treatment; national treatment, most-favoured-nation treatment and full protection and security obligations. They argued that Canada acted in an unfair and unreasonable manner by imposing on them biased, discriminatory, needless and unfair procedures and obligations. These standards of investment protection are substantially the same as those in Ghana’s BITs.

The Tribunal held that Canada breached the minimum standard of treatment. The majority reasoned that the investor reasonably relied on specific encouragements, at the political and technical level, to pursue the project not only in Nova Scotia but in the specific site they chose. In the opinion of the Tribunal, although states are entitled to regulate for purposes of environmental protection and general public interest, they still have to respect obligations they have voluntarily entered into to protect foreign investment. Where states fail to do so, they would not escape liability.

Similarly, in Chemtura Corporation v Canada, Canada’s termination of a pesticide (lindane) registration and ban on its use on public health and environmental grounds under Canadian Pest Control laws was challenged in an investor-state suit. While this decision ended in favor of Canada, it supports the proposition that environmental regulation even when justified under domestic law can still be challenged by a foreign investor in investment arbitration.

These decisions have direct implications for Ghana. They suggest the exercise of any of the powers relating to implementation of environmental legislation in Ghana such as refusal or cancellation of an environmental permit can be the subject to an investor-state suit. Under sections 31 and 35 of the EPA Act, the approval of an application to register or renew the registration of a pesticide is subject to the application meeting prescribed conditions. The effect of the EPA Act is that an application for the registration or renewal of registration of a pesticide can be refused on grounds of “toxicological risk to people, animals, crops or the environment” or for failure to meet prescribed conditions. The Supreme Court of Ghana stated in New Patriotic Party v Inspector General of Police that “[w]hoever has power to grant a permit or license has power to refuse it.” Thus, a decision to refuse an environmental permit may very well be justified under environmental legislation in Ghana. Yet, such a refusal can be challenged in investor-state arbitration.

Conclusion

The benefits of foreign investment are neither certain nor guaranteed. However, the activities of foreign investors in the extractive industry do come with serious effects on the environment and human health. Therefore, BITs are not in the public interest if their provisions impair or prevent the State from discharging its legal duty to protect the environment. For this reason, the duty to protect the environment must place limitations on the BIT obligations Ghana can undertake. This duty, given its public interest relevance and source under the Constitution and international environmental treaties, must inform the interpretation of BITs and any order for the payment of compensation to an affected investor. An exception to liability for interference with investment on environmental grounds in existing BITs is justifiable where that interference can be excused under the Constitution and/or international environmental treaties. Future BITs of Ghana must provide for safeguards for the adoption of environmental protection measures without state liability.

Dr Dominic Dagbanja is a Lecturer in Company Law at The University of Western Australia. He previously worked at The University of Manchester as a Postdoctoral Research Associate and at The University of Auckland as a Graduate Teaching Assistant. He was a Senior Legal Officer with the Public Procurement Authority of Ghana. Dr Dagbanja has published extensively in the areas of international investment law and public procurement law in journals and yearbooks, including The Oxford University Commonwealth Law Journal, African Journal of International and Comparative Law and theYearbook on International Investment Law and Policy.