There was an award on expropriation given by the Tribunal. It found that Italy had expropriated Rockhopper's investment without compensation, thus deeming it unnecessary to decide the other claims (para. 200).[1] It then went on to find that, under Italian law, the approval of Rockhopper's EIA in August 2015 bestowed on Rockhopper a right to be granted the final exploitation permit, which had been "wiped out" by the rejection of the application in January 2016 (para. 169).[2]

Italy timidly tried to argue that no expropriation could be carried out in relation to an activity that had not started yet – an argument with which the Tribunal was unimpressed, confirming that the "wiping out" of the entitlement to the concession was, in itself, expropriation (paras. 194-196).

How was the principle of Environmental legitimacy dealt with?

There was a strong uprise against offshore production in Ombrina Mare related to environmental factors, however, the outcome of this case passes no judgement whatsoever on the legitimacy or validity of those views. The case only addresses the legal issue at hand. The Tribunal only examined the legislative history and held that environmental factors were secondary to this case. More importance was given to the political uprisings in the state and the conflict between the Parliament and the local community. The Tribunal severed the connection between environmental degradation and Italy's conduct.

When Italy banned offshore production in late 2015, the Tribunal held this act to be Italy's sovereign choice and not to criticize it either from a political or environmental standpoint. Then, Italy issued a law banning all offshore production activities within 12 nm of the coastline as it degraded the marine environment and demanded an Environment Impact Assessment and also the opinion of the local authorities located within 12 nm of the marine and coastal areas affected by the activities. On 6 March 2015, the Respondent's Ministry of the Environment and the Protection of Land and Sea issued a detailed and lengthy document (C-114) approving "Rockhopper's EIA application.

This called for an enormous negative reaction from the Abruzzo Region and the local communities. The Conference of Services was called for to acquire the missing opinions. This was a big blow to the claimants. However, the Tribunal held that the claimants had duly satisfied all the requirements for "environmental compatibility."

What were the key claims made under ISDS and ECT? (identified below are any three)

The claims under ISDS and ECT were:

1. The Claimants advance their case on liability on three separate strands, namely, impairment, fair & equitable treatment, and unlawful expropriation.
2. The ECT provides, in Article 13(1), a standard of compensation for lawful expropriations. However, that standard is not taken to apply, as in this case, to instances of unlawful expropriation. Therefore, the standard of compensation is to be drawn from customary international law.
3. The Claimants review three potential valuation systems:
   1. Discounted Cash Flow (DCF)
   2. Market Transactions
   3. A sunk-costs approach
   The Claimants favour the DCF model for compensation in this arbitration. The Respondent does not believe the DCF model is appropriate to value Ombrina Mare and instead favours a Market Transaction based approach.

What are the limitations of this award?

In this case, the Tribunal has not been asked to direct that such production should go ahead. The sole and key matter for the Tribunal to decide is whether or not the Claimants are entitled to compensation pursuant to international law (as a matter of the ECT) for certain actions of Italy. Further, the Tribunal is also at pains to say that any such compensation could only arise, under international law, if the sovereign promises and actions of Italy triggered such rights on the part of the Claimants.

The award so passed was ignorant of the environmental issues of Italy's actions. The Tribunal dismissed the police powers defence by stating that Rockhopper's application was rejected due to political concerns and not because of environmental factors. But it should have been kept in mind that when a government bans any activity due to reasons of the local uprising, that particular reason becomes the subject- matter of the case ie environmental concerns. The case fails to reach out to the audience as to how climate policy is dealt with in ISDS.

The decision has quickly become symbolic of the incompatibility of the ECT with efforts at tackling the climate crisis (Italy had already withdrawn from the ECT in 2015, but Rockhopper benefitted from the treaty's sunset clause, which extends its application to pre-withdrawal investments for a further 20 years).[1] The Tribunal ignored the fundamental question ie Whether a right to expropriation must possess a proprietary nature? This case implied that expropriation is possible in both contractual rights and preliminary rights to the contract.

The next limitation of the award was the choice of appropriation of valuation method to determine the investor's loss. The Tribunal went with the DCF valuation instead of sunk cost approach and the market-based approach only because DCF it widely used in financial practice than the latter approaches. Regrettably, the Tribunal treated valuation as a purely financial issue, as ISDS Tribunals, unfortunately, tend to do, rather than one deeply entangled with the environmental preoccupations that lay behind the offshore ban.

How has the domestic law influenced the IIA of the host country?

Yes, domestic law did influence the International Investment Agreement. Firstly, the laws that were enacted by Italy that no offshore production shall be allowed within 5 nm and then amending it to 12 nm, affected the investment agreement as these conditions were not provided before by Italy. Bringing such laws when the agreement is enforced influenced the whole case revolving around these municipal laws. Only because these municipal laws affected the investment agreement, there was this case in the first place.

Secondly, the domestic law required the claimant to conduct an Environment Impact Assessment which was not provided in the Investment Agreement. But the municipal government demanded the same. It became a vital part of deciding whether to proceed with the subject matter. The importance of the agreement here became a subsidiary of the Environment Impact Assessment results. Thirdly, the valuation method that was adopted by the Tribunal ie the DCF method was nowhere mentioned in the investment agreement. It was the decision of the Tribunal influenced by the market popularity and finance practice.

End Notes:

1. Toni Marzal, 'Polluter Doesn't Pay: The Rockhopper V. Italy Award' (EJIL 19 January 2023) <https://www.ejiltalk.org/polluter-doesnt-pay-the-rockhopper-v-italy-award/> accessed on 18 May 2023.
2. Paolo Mazzotti, Rockhopper V. Italy and the Tension between ISDS and Climate Policy (International Law and International Legal Thought 21 December 2021) <https://voelkerrechtsblog.org/de/rockhopper-v-italy-and-the-tension-between-isds-and-climate-policy/> accessed on 18 May 2023.
3. Ibid.