Space Arbitration: Protecting Space Investments

Space Arbitration: Protecting Space Investments. This post summarizes the webinar with the same name organized by the Space Arbitration Association in 2022. The video can be accessed here. 

Space Mining and Investment Protection

Dr. Rossana Deplano discussed the technical and legal complexities that arise from space mining.

Starting first with the technical complexities, Dr. Deplano explained that space mining would roughly follow the same structure of resource mining on Earth, with the process largely being carried out in three stages: prospecting, exploration, and exploitation. The prospecting stage comprises the remote sensing of a celestial body. The exploration stage consists of the targeted extraction of a sample of minerals from a celestial body. The exploitation stage occurs when the extraction of resources from a celestial body is at a commercial level. 

Each technical stage of space mining would give rise to different legal issues. In the prospecting stage, legal issues may concern the sharing of data collected by satellite remote sensing or scenarios surrounding space debris, like satellite collisions or leaving satellites in orbit after prospecting. In the exploration and exploitation stages, legal issues may be related to property rights, priority rights, safety zones (areas subject to notification and consultation), and the creation of space debris during the mining process. The sharing of the benefits derived from the utilisation of space resources, as articulated in Article I of the Outer Space Treaty of 1967 (OST) and discussed in the United Nations Committee on the Peaceful Uses of Outer Space (COPUOS), may also be relevant.

Dr. Deplano then identified two categories of space mining disputes. The first is regarding the interpretation and application of the five UN space treaties: the OST, the Rescue and Return Agreement of 1968, the Liability Convention of 1972, the Registration Convention of 1975, and the Moon Agreement of 1979. The second type of dispute concerns the actual conduct of operators when space mining.

Turning to the role of arbitration in space mining disputes, Dr. Deplano expressed certain advantages and challenges in using arbitration. Well-established arbitral procedures would provide a level of legal certainty to investors and operators. This legal certainty is particularly beneficial for investments in space mining and for private operators when creating their business plans, and may cause trickle-down advantages to States and international organisations interested in space mining.

However, since the interpretation of space law is still very contested, space arbitration would take place against an uncertain legal background. Indeed, there is no unanimity in interpreting the key provisions of the space treaties. Thus, Dr. Deplano suspected that arbitration may not be very well received from some States because of the authoritative power given to arbitrators to interpret space treaties. She explained that several delegations in COPUOS have objected to the idea of depriving States of their power to interpret the space treaties for their own interests. This analysis is particularly relevant to the first type of space disputes related to the interpretation and application of the space treaties. On the other hand, Dr. Deplano noted that arbitration may be more suitable for the second type of space disputes related to the actual conduct of space mining operators.

In Dr. Deplano’s view, arbitration will probably not be a starting point for the progressive development of international space law regarding space mining. Rather, a multilateral forum like COPUOS may be a better starting point to clarify the grey areas of the law—for example, through the COPUOS Working Group on Legal Aspects of Space Resource Activities to facilitate the process of identifying a more universally-acknowledged interpretation of the space treaties.

Property Rights in Space

Mr. Simon Maynard continued the discussion with the importance of protecting property rights in space.

He identified two main reasons for this importance. Firstly, property rights are a way to acquire value; space has the potential to be a significant source of valuable natural resources. Secondly, property rights are a way to protect value. Without property rights, it would be difficult to assert legal rights over the value extracted from space mining, making it difficult to justify the relevant significant expenses.

Then, Mr. Maynard introduced the basic international legal architecture for protecting property rights in space. First and foremost is the OST, which establishes the principles and legal framework applicable to outer space activities. More than 110 States are parties to the treaty, and a further 23 States have signed the treaty. Article I of the OST stipulates that “[t]he exploration and use of outer space … shall be carried out for the benefit and in the interests of all countries … and shall be the province of all mankind”. Article II of the OST further elaborates on this sentiment, and states that “[o]uter space … is not subject to national appropriation by claim of sovereignty, by means of use or occupation, or by any other means”. Here, Mr. Maynard found it useful to refer to the idea of a “common heritage of mankind”, which, as the Handbook of Space Law explains, is the idea that certain areas lying outside of national jurisdiction for reasons of scientific and commercial value should be commonly managed by all States on behalf of mankind, and cannot be appropriated by a single State or private person. Mr. Maynard noted that the OST raises the question of whether private property rights are precluded completely in space, but that there seems to be some flexibility concerning non-State actors and property rights.

Secondly, there is the Moon Agreement of 1979. However, the Moon Agreement was only ratified by 18 countries and further signed by four. The Moon Agreement is more restrictive about property rights in space than the OST as there is no flexibility for non-State actors to hold private property rights.

Thirdly, subsequent international and domestic legal developments began to explore the possibility of legalising the appropriation of natural space resources. The first example of this highlighted by Mr. Maynard is the Artemis Accords, a set of principles that govern the civil exploration and use of outer space. The Accords underpin NASA’s Artemis program—missions that aim to return astronauts to the lunar surface. As a State must sign the Accords to participate in the Artemis program, the Accords act as a soft enforcement mechanism. The Accords provide for the extraction of resources in accordance with the OST, with the recognition that such extraction will be critical to support safe and sustainable space exploration and development.

Another example is the Building Blocks for the Development for an International Framework on Space Resource Activities, designed by The Hague International Space Resources Governance Working Group in 2019. Section 8.1 of the Building Blocks looks to “ensure that resource rights over raw mineral and volatile materials extracted from space resources, as well as products derived therefrom, can lawfully be acquired through domestic legislation, bilateral agreements and/or multilateral agreements”. The Commentary for these Building Blocks noted that the key legal basis for Section 8.1 is the freedom for all States to use outer space enshrined in Article I of the Outer Space Treaty.

Prior to the Building Blocks, some States sought to allow the possibility of private resources exploitation in national legislation. For example, in an explicit rejection of the Moon Agreement, the USA passed the Space Resource Exploration and Utilization Act of 2015 and Executive Order 13914 in April 2020, which assert the rights of US citizens to engage in commercial exploration, and to recover and use resources in outer space. In 2017, Luxembourg also adopted national legislation on the exploration and use of space world resources, advancing the idea that space resources are capable of being appropriated.

In response to Ms. Zielinski’s question on how companies would approach the legal uncertainty of property rights, Mr. Maynard suggested that companies would compare the legal certainty and economic reward, and base their decisions on the balance of risk and reward. Mr. Maynard explained that where the economic reward is high enough, it can make the risk in terms of legal certainty acceptable enough to undertake the activity. 

Applicability of International Investment Protections to Satellites

Prof. Stephan Hobe discussed whether international investment protection could apply to satellites, and then gave a brief overview of the potentially relevant investment protection provisions.

Prof. Hobe first highlighted the importance of whether international investment protection could be applied to satellite communications; the telecommunications industry in 2020 made up more than half of the revenue in the space sector.

Then, after introducing the five UN space treaties, Prof. Hobe distinguished between different satellite launching activities to earmark the most important legal issues. First is the pre-launch phase, which refers to the period between the ignition of the launch vehicle to the on-orbit release of the satellite. This is the most precarious phase; during launch, unpredictable events may happen, and may result in severe damages to—or even the complete loss of—the satellite. Second is the on-orbit phase, where the satellite is separated from the launch vehicle and reaches the final orbital position. Third is the end-of-lifetime phase, where the satellite ceases to provide useful services and becomes a non-functional object.

On whether investment protection can cover telecommunication activities, Prof. Hobe considered the question of whether telecommunication activities qualify as investments. Bilateral investment treaties (BITs) often contain a very broad definition of what constitutes a protected investment, including contracts and IP rights. Thus, telecommunication satellites themselves and contracts regarding their launch and operation can be considered protected investments under most BITs. 

They may also be considered investments under Article 25 of the ICSID Convention. An investment must consist of a contribution with economic value and can take any form; investments are not limited to financial contributions, and can include know-how, equipment, and services. Several tribunals have suggested that an investment should have a further requirement of contributing to the economic development of the host State, although there is dispute as to whether this contribution may already implicitly exist from the investment’s economic value. If applying this requirement to telecommunication activities, due to their multinational nature, determining which State is the host State may be a complicated question. Prof. Hobe suggested that it seems more appropriate to determine the host State in relation to each phase of a satellite communication project, with the investor being able to bring investment claims against several host States in the course of one satellite telecommunications project.

To identify the relevant investment protection provisions, Prof. Hobe commented that it is important to consider the typical risks that private investors may encounter in different phases of a satellite operation. 

Generally, the success of private investments in satellite operations depend to a large extent on long-term commitments made by State entities through contracts and administrative licenses. As such, umbrella clauses in BITs are highly relevant because they ensure that the State complies with all its commitments to foreign investors. Even where the applicable BIT does not contain an umbrella clause, host State commitments may still be protected as legitimate expectations under the fair and equitable treatment (FET) standard.

In the pre-launch phase, the principle of full protection and security (FPS) is particularly relevant as satellites are confronted with imminent physical transformations and their corresponding physical dangers. FPS puts an obligation on the host State to provide a certain level of protection to foreign investment from physical damage.

FPS is also relevant to a satellite’s on-orbit phase, as satellites may be exposed to physical dangers such as collisions with space debris or other satellites. Additionally, in the context of international investment law, a distinction can be made between the physical protection of a satellite as a space object, and the rights obtained by the investor for its operation. These rights may include the rights for a satellite to use specific frequencies and to occupy specific orbital positions, both of which are vital for the economic success of the space venture. Thus, FPS may also protect these rights.

When satellites enter the end-of-lifetime phase, they are typically moved into orbits away from common operational orbits, and additional coverage against the risk of damage must be taken.

Prof. Hobe concluded by answering a question by Ms. Zielinski. On how to approach applying the investment regime to outer space, considering that space investments are not within the territory of the host State, Prof. Hobe responded that Article VIII of the OST creates the link between a State and the respective space object. The State of Registry according to Article VIII provides the responsible State for investment protections.

Risks of Extending International Investment Protections to Outer Space

Dr. Gershon Hasin believed that we must be careful when extending the investment protection regime (and commercial arbitration) to outer space investments and activities. More generally, he believed that when considering whether investment treaties can apply to investment disputes concerning space activities, we should adopt a contextual, policy-based decision-making process.

Dr. Hasin first illustrated risks of extending international investment protection regimes to outer space. He applied the idea of “pollution haven” jurisdictions in the environmental context to the context of regulatory regimes for private space activities. States that lack space capabilities are incentivised to participate in space activities by attracting foreign investors. The primary way for States to do so is through creating favourable domestic laws and regulations for investors. At best, this may be through increasing the property rights and gains of investors, but at worst, this may be through reducing environmental and sustainability commitments and duties.

The process of States being incentivised to reduce regulatory burdens on investors risks turning circular, with every jurisdiction enforcing less and less burdens to encourage the relocation of investors to them. This can be referred to as a regulatory race to the bottom. While this may produce immediate gains in wealth for a State, the negative externalities from this process affect all participants in outer space activities and threaten future sustainability.

Dr. Hasin noted that this development is difficult to stop without either norms increasing the cost of relocation or the prescription of regulatory minimums on an international scale. While both solutions are difficult to implement, prescribing regulatory minimums is particularly elusive as international law is based on State consent. Indeed, Dr. Hasin explained that it would be even more difficult to achieve regulatory minimums in the context of outer space, where applicable norms are limited and where most investments are not tied to the host State’s territory in the same way investments on Earth are.

For the space-capable home State of an investor, several important questions arise which relate to the rationales of investment protection. Should home States encourage foreign investments in the State sector in the same way that it does for terrestrial investments? Should tribunals protect investments that take advantage of a supposed space “pollution havens”? Can, or in fact, should, the tribunal act otherwise?

When considering questions like these, Dr. Hasin identified two modes of approaching the decision: the textual rule-based mode, and the contextual, policy-based mode.

Under the textual mode, the applicable rule is identified and then interpreted, producing claims of illegality, suggested policy choices, or proposed arrangements. The rule itself is authoritative and controls the decision-making process. Having its origins in domestic law, the textual mode works on the basis that there is a high probability that the lawfulness of a decision is subject to a legal decision-maker (e.g., the courts). However, apart from international investment law where the proposition of a legal decision-maker is likely, no court or tribunal may ever decide on the legality of an action in international law. As Dr. Hasin explained, the absence of such a ruling from a legal decision-making body is particularly pertinent in space governance, where many norms are outdated and vague, and may be easily denounced. Thus, Dr. Hasin argued that in these cases where legal decision-makers are not likely to play a direct role, the contextual, policy-based mode of approaching decisions should be applied.

The contextual mode concentrates on the process of interactions rather than the strict application of rules. Rules and norms are considered in the context of their ability to shape decisions towards a desired outcome, and towards the goal values of the international community. As such, where a rule is purportedly breached, the focus is on how other participants perceive an act’s effects on the international legal process rather than whether the rule was breached.

Whether investment treaties may apply to space activities lies in the intersection between two fields of international law where different modes of decision are appropriate. Dr. Hasin expressed his view that in most cases, it would not be beneficial under a policy-oriented analysis for a tribunal to interpret the terms of an investment treaty to apply to an investment dispute concerning space activities. He distinguished the promotion of space investment with the promotion of foreign space investments, and with the promotion of sustainable space investments. 

Given the characteristics of space investments, Dr. Hasin explained that promoting foreign investments in space may not be consistent with the interests of space-capable home States of investors. Space-capable States may have little incentive to export their private space industry, especially with the added dimension of space-technology often being dual-use. Additionally, as space-capable States are interested in maintaining a sustainable space environment, they also have little incentive to allow investors to switch their operations to space “pollution havens”.

Dr. Hasin believed that while investment treaties can be interpreted to apply to outer space activities under the textual-based mode of approaching decisions, they should not be applied. In his view, the textual-based mode of decision analysis provides limited insight into the application and development of international norms, and that applying investment treaties may reinforce a regulatory race to the bottom. 

Ms. Zielinski asked Dr. Hasin whether the investment regime may be used to increase the potential liability of States and encourage more restrictive national authorisation requirements. Dr. Hasin responded that this relies on two questions: (1) whether it is in the interests of major space actors to extend investment protections to investors, promoting certain relocations, and (2) whether it is possible to develop norms through arbitration that promote common interests, and thus, whether in theory, the investment regime could promote limiting the authorisation of certain activities. 

Final Considerations on Space Arbitration to Protect Space Investments

Prof. Hobe answered a question from the audience, on what appropriation of property in outer space may look like. Prof. Hobe responded that because property in outer space and on Earth fall under fundamentally different regimes, it may be that something that is considered property in outer space will not be recognized as property on Earth.

In responding to a question from an audience member on whether investment arbitration is the right forum to shape policies in outer space, Dr. Deplano explained that the issue with arbitration shaping policy is not necessarily whether arbitrators decide to support certain interpretations provided by the parties in an arbitration, but that there is a risk that certain concerns of the international community will not feed into the arbitration process. While the arbitrators’ application of the law may not necessarily be based on the parties’ interests, the law must be applied in the context of the dispute. As Dr. Deplano explained, this means that under the presumption of legal actions mostly coming from powerful actors due to financial, economic, or technological reasons, policy development will probably be more sensitive to interests which only pertain to certain members of the international community. For example, sharing the benefit of outer space resources is an issue that concerns a large part of the international community, but is unlikely to be developed in international law through arbitration. Finally, Dr. Deplano opined that the role of scholars is to observe in a systematic way the normative development of the law via the traditional sources of international law (treaties, custom, and general principles of law) and State practice.

In response to the equivalent question on investment arbitration as a means to shape policy, Dr. Hasin expressed two concerns. Firstly, he distinguished between investment arbitration, which is public, and commercial arbitration, which is not. The concern he had was regarding the lack of transparency in commercial arbitration, combined with the knowledge that there will be repeat actors—parties that enter arbitrations on a repeated basis. There is a risk that norms promoted by certain institutions may shape the decisions of repeat actors, but that there is no public scrutiny the way there is for investment protection. Secondly, arbitrators in both investment and commercial arbitration are supposed to apply a textual mode of decision and are not supposed to consider systemic considerations. Thus, there is a risk that norms are being optimised for actors involved in arbitrations, especially since parties tend to propose interpretations of the law that promote their own objectives. Particularly in underdeveloped fields of law like space governance, there is a risk of creating norms that give significant preference to private interests. If arbitration were to be used to shape policy, Dr. Hasin highlighted that it would be important to modify our current view of arbitration and ensure that arbitrators are allowed and encouraged to consider public interests, rather than solely focussing on the direct parties involved.

To follow up on this, Mr. Maynard commented that he may not share the same concerns to the same extent as Dr. Deplano and Dr. Hasin. He explained that investment tribunals only consider the interpretation of a treaty within the framework of the dispute, to the extent necessary for deciding the dispute before them. He continued to remark that investment tribunals have done this previously in other areas of international law where they do not have jurisdiction (e.g., intra-EU disputes). Applied to outer space activities, Mr. Maynard did not imagine that any investor-State tribunal would presume to pronounce definitively on the interpretation of the OST or create precedence, and was thus less concerned about this issue than perhaps the other panellists were.

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