ICJ Renders First Environmental Compensation Decision: A Summary of the Judgment
On 2 February 2018 the International Court of Justice rendered its first decision on environmental damage and compensation in the case Certain Activities Carried Out By Nicaragua In the Border Area (Costa Rica v. Nicaragua) Compensation Owed By The Republic Of Nicaragua To The Republic Of Costa Rica.
This is a brief summary of the key aspects of the landmark decision in the case Certain Activities Carried Out By Nicaragua In the Border Area (Costa Rica v. Nicaragua) Compensation Owed By The Republic Of Nicaragua To The Republic Of Costa Rica (2018). While the final amount of compensation assessed against Nicaragua fell significantly short of what Costa Rica had demanded, the case is nonetheless an important precedent for recognizing conservation interests and ecosystem services.
The case originated from a territory dispute between Costa Rica and Nicaragua over a 3-kilometer area of wetland in the northern part of Isla Portillas. In 2010 Costa Rica had instituted proceedings with the International Court of Justice against the Republic of Nicaragua for unlawful incursion, occupation and use of Costal Rican territory, including claims of serious damage to protected rainforests and wetlands. The environmental damage claim arose from Nicaragua’s activities in excavating a cano (channel) for navigational purposes, which included removal of trees and vegetation. Nicaragua responded by instituting proceedings against Costa Rica in 2011 claiming violations of Nicaraguan sovereignty and major environmental damage arising from a road construction works by Costa Rica along the border area between the two countries. In 2013 the Court joined the two cases. During the interim the Court issued a provisional order restricting both parties from any activities that aggravate or extend the dispute. Notwithstanding the Court’s provisional order, Nicaragua proceeded to excavate two more canos in the disputed territory, which led to another hearing before the Court in 2013 and a new order allowing Costa Rica to take the necessary measures to prevent irreparable prejudice to the environment after consultation with the Secretariat of the Ramsar Convention on Wetlands of International Importance especially Waterfowl Habitat.
In 2015 the Court decided the sovereignty dispute in favor of Costa Rica rendering Nicaragua’s activities unlawful under international law, which gave rise to an obligation of reparation by Nicaragua. However, as the parties were unable to reach an agreement on the issue of compensation for the damage within the time period given by the Court, new proceedings for compensation were instituted.
Costa Rica claimed compensation for two categories of damages: quantifiable environmental damages caused by Nicaragua in excavation of the 2010 cano and 2013 eastern cano; and costs and expenses incurred due to Nicaragua’s unlawful activities, including expenses to monitor and remedy the environmental damage (para. 36). Nicaragua countered that Costa Rica was only entitled to “material damages” which are damage to property or other interests of Costa Rica that can be assessed in financial terms (para. 37). The total amount of compensation Costa Rica claimed for the impairment or loss of goods and services was US$2,148,820.82 for the 2010 cano, US$674,290.92 for the 2013 eastern cano, US$57,643.08 for restoration costs: US$ 54,925.69 for replacement soil in the two canos, and US$2,708.39 for wetland restoration (para. 57). Nicaragua countered with replacement cost valued at between US$27,034.00 and US$34,987.00 (para. 58).
On the question of compensation, the Court began by identifying the legal principles of international law for the determination of compensation. The first is the well settled principle of international law that a breach of an obligation gives rise to an obligation to make reparation in adequate form. There was no dispute between the parties that damage to the environment was compensable under international law. What is significant is that Court recognized ecosystem services as part of the compensable damage to the environment, including both direct and indirect services. The Court stated that “damage to the environment, and the consequent impairment or loss of the ability of the environment to provide goods and services, is compensable under international law,” which may include indemnification for such impairment or loss or payment for restoration of the damaged environment. In light of Nicaragua’s wrongful acts in the disputed territory the Court concluded that Nicaragua had an obligation to make full reparation for environmental damages caused by its wrongful acts (paras. 29-30; 41).
Importantly, the Court also stated that the lack of certainty as to the extent of damage did not preclude awarding compensation for the impairment or loss of environmental goods and services (paras 35 and 86). The Court stated its view that “damage to the environment, and the consequent impairment or the loss of the ability of the environment to provide goods and services is compensable under international law.” (para. 42).
The next important principle concerned causation. According to the Court the assessment of compensation for damages requires the Court to be able to determine a causal link between the wrongful act and injury suffered (para. 32). The Court noted that environmental damage claims had their own particular issues concerning causation as damage could be the result of multiple concurrent causes or the lack of scientific certainty may make it difficult to establish the causal link (para 34).
Costa Rica had identified 22 categories of goods and services impaired by Nicaragua’s wrongful acts but only claimed compensation for six: standing timber; raw materials (fiber and energy); gas regulation and air quality (eg. Carbon sequestration); natural hazards mitigation; soil formation and erosion control; and biodiversity (habitat and nursery).
In regard to the methodology to be used to value the impairment or loss of environment goods and services, not surprisingly the parties offered different methodologies. Costa Rica used the “ecosystems services approach” method. Nicaragua, on the other hand, claimed the appropriate method to be the “replacement value” of the lost environmental services. Rather than choose between the competing options the Court noted that they were not the only methods, and adopted a more flexible approach. The Court explained it would select those elements of both methods offered by the Parties that provided a “reasonable basis for valuation” to assess the value for restoration of the damaged environment (Nicaragua) as well as the impairment of loss of goods and services prior to recovery (Costa Rica) (para 53). The Court justified this approach noting that there is no prescribed method of valuation for the compensation of environmental damage under international law and that the Court would have to take into account the specific circumstances and characteristics of each case. In other words, the Court was refraining from adopting a single purpose methodology for valuation of environmental damage in favor of a case-by-case approach (para. 52).
The first step for the Court in making a valuation of the loss or impairment of the six categories of environmental goods and services claimed by Costa Rica was the threshold issue to establish a “direct and certain causal link” between claimed environmental damage and Nicaragua’s unlawful acts (excavation of the 2010 and 2013 canos) (para. 72). The Court found that Costa Rica had failed to demonstrate that the area had lost its capacity to mitigate natural hazards (e.g. flood control). Secondly, the Court was not persuaded by the evidence offered by Costa Rica that the difference in quality of replacement soil used to refill the canos resulted in impaired erosion control services (para.74). However, on the remaining four categories of environmental goods and services the Court found the removal of some 300 trees and the clearing of vegetation of a 6.19-hectare area by Nicaragua was a direct cause of the impairment or loss of environmental goods or services (para. 75).
On the other hand, the Court rejected Costa Rica’s 50-year recovery period citing the lack of any clear evidence of the baseline condition of the totality of the environmental goods and services that existed before Nicaragua’s activities. In addition, the Court disagreed with a single recovery period for all categories of goods and services, observing that recovery time will vary with different components of the ecosystem (para. 76). The Court also disagreed with Nicaragua’s valuation method that was based on payments to landowners by Costa Rica as incentives to preserve the area, as these amounts do not reflect the value of the impaired environmental goods (para. 77).
The Court went on to develop its own method of valuation of environmental damage “from the perspective of the ecosystem as a whole”, which is an overall assessment of the impairment or loss of environment goods or services rather than separate valuation of each different category. The Court included in its “overall assessment” approach the removal of trees, which the Court found to be the greatest damage to the environment, wetlands, and the capacity of the area for natural regeneration. However, the Court noted that it was not possible to assign a single period of recovery time for the different environmental goods and services.
Having rejected the methods of both parties the Court gave the green light to a modified version of a third method proposed by Nicaragua termed as a “corrected analysis”, which was itself a variation of Costa Rica’s ecosystem system approach. The Court, however, made its own further adjustments to the “corrected analysis” method.
The reasons given why the Court rejected Nicaragua’s “corrected analysis” method is insightful. Based on the assumption that there would be no loss of environmental services after one year the Court criticized the Nicaraguan “corrected analysis” method of valuation as underestimating the value of environmental goods and services. This assumption, the Court stated lacked evidentiary support. In addition, the “corrected analysis” also failed to take into account the particular importance of environmental services in a wetland protected under the Ramsar Convention, which the Convention Secretariat had described to be of high value. The Court noted the improbability that subsequent natural regrowth, in the near future, would equal the rich biological diversity prior to Nicaragua’s unlawful activities. Furthermore, the Court took issue with Nicaragua’s valuation of gas regulation and air quality services as one-time losses and disagreed (para. 85).
In conclusion, based on its own adjusted version of Nicaragua’s “corrected analysis” of Costa Rica’s ecosystem services approach, the Court awarded US$120,000.00 for the impairment or loss of environmental goods and services of the area in question. In addition, the Court rejected Costa Rica’s claim of US$54,925.69 to replace the lower quality soil used by Nicaragua. However, the Court awarded in full Costa Rica’s claim of US$2,708.39 to compensate for measures taken to restore the wetland.
The Court also assessed claims by Costa Rica for costs and expenses incurred as a result of Nicaragua’s unlawful activities in the disputed territory, which included the costs of surveillance of the area, monitoring the protected areas, and also costs for the construction of dyke as a measure to prevent irreparable harm to the environment from the excavations of the canos.
The case is important for several reasons. Notably, it is the first time the 72-year old International Court of Justice has decided an environmental compensation case. Secondly, and most importantly it marks a clear affirmation that environmental damage includes ecosystem services. The Court has recognized the important value of biological diversity and its services. Unfortunately, while the Court rejected the narrower and more traditional valuation method claimed by Nicaragua, it remains unclear as to how the Court arrived at its final compensation award. Aside from declaring its methodology in broad terms, such as the “overall assessment” approach and some version of the ecosystem service approach, the Court failed to provide details as to how it calculated the value of the impairment or losses to the environmental services provided by the four categories.
by Nilufer Oral, Istanbul Bilgi University and Member, IUCN WCEL Steering Committee
 Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v. Nicaragua).
 Construction of a Road in Costa Rica along the San Juan River (Nicaragua v. Costa Rica).
 Costa Rica v. Nicaragua and Nicaragua v. Costa Rica cases.
 Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v. Nicaragua), Provisional Measures, Order of 8 March 2011, I.C.J. Reports 2011.
 Certain Activities Carried Out by Nicaragua in the Border Area (Costa Rica v. Nicaragua) and Construction of a Road in Costa Rica along the San Juan River (Nicaragua v. Costa Rica) Provisional Measures, Order of 22 November 2013, I.C.J Reports 2013.
 Costa Rica did not claim damages for the third cano excavated by Nicaragua in 2013.
 Factory at Chorzów, Jurisdiction, Judgment No. 8, 1927, P.C.I.J., Series A, No. 9, p. 21.