The seabed floor is increasingly seen as a large-scale commercial supply source of the minerals required to feed global demand for electrical vehicle batteries and other components of the energy transition. However, regulations concerning permitting, exploring and mining seabeds have not kept up with this increased interest. Accordingly, investors do not currently have clear guidelines on how to structure potential deep sea investments and how to plan for seabed disputes when they arise.
The seas are subject to the rules of the UN Convention on the Law of the Sea (UNCLOS), which then created the International Seabed Authority (ISA) to govern over international seabeds. In practical terms, the ISA governs over more than half of the oceans.
Like many traditional mining law frameworks, the ISA’s framework differs based on whether an investment is explorative or exploitative. Exploration is the process of searching for resources while exploitation is the process of collecting and refining the minerals. For exploration, the ISA adopted regulations back in 2013 that cover seabed exploration projects. Those regulations spell out who can explore, where they can explore and how they can explore. Exploration contracts have now been granted to 31 contractors from a variety of sponsor states.
However, exploitative investments have not been clearly addressed by the ISA, despite the significant push from investors. Right now, there is a regime that governs when and how contractors can look for things, but not one that sets out what they can do with them when found. In 2021, Nauru – a small island nation in Micronesia – triggered a provision in the ISA Implementation Agreement that gave the ISA two years to finalize a Mining Code before provisional contracts should be awarded. Nauru is interested, as are many states and investors, in mining the Clarion-Clipperton Zone, which is a resource-rich area between Hawaiʻi and Mexico. Despite this pressure, the ISA concluded its July 2023 meetings without finalizing a Mining Code for the seabed floor.
The consequences of not finalizing the Mining Code are not entirely clear yet. Currently, it is not certain how much control investors will have over the process. This will become much clearer as the ISA begins considering applications under the provisional rules. However, some insight can be gained from the ISA’s general mandate, which is “to organize and control all mineral-resources-related activities in the international seabed for the benefit of humankind as a whole.”
What seems reasonably certain is that investors will split control over concession agreements with states and the ISA itself. As an example, under Part XI of UNCLOS, a corporation wishing to extract metals from the international seabed may do so only based on a contract concluded with the ISA. However, no private corporation may apply for the right to explore or exploit resources in the international seabed until it is sponsored by a state party to UNCLOS. Sponsoring states have the duty of ensuring that the contractor complies with the terms of its contract with the ISA, but what does that mean exactly and what level of due diligence will be required by the sponsoring state? The role of the sponsoring state is not crystal clear, but it does appear that there is a significant amount of control being ceded to the state sponsors by design.
The relationship between the state sponsor and the corporation will be governed by the country-specific national legal instruments relating to activities in the international seabed. A “certificate of sponsorship” and investment contract – or sponsorship agreement – will set out additional legal and financial conditions. So those documents will restrict the state’s discretion to unilaterally variate, suspend or terminate a sponsorship agreement, and it is likely that’s where the dispute mechanism language will be found. For example, what happens if the state sponsor and the corporation don’t get along anymore? UNCLOS and associated instruments do not specify particular consequences for the termination or the variation of sponsorship, except imposing notice and replacement requirements. Those issues will be dealt with in the certificate of sponsorship or sponsorship agreement.
As with any other international contract with a government, the developing corporation will want comfort that it will not invest time, money and resources only to have the state sponsor hand the project over to someone else. These sponsorship agreements seek to preserve the economic bargain struck between the parties. We expect such agreements will contain language confirming that (i) any laws and regulations brought into effect after the commencement date of the state sponsorship will not interfere with or diminish the corporation’s rights, except as required to allow the state to meet its international state sponsorship obligations, and (ii) in enforcing applicable laws, the state sponsor will at all times accord the corporation fair and equitable treatment, provide a stable and predictable legal framework, and make decisions consistently and transparently and in accordance with the legitimate expectations of the corporation.
In addition, once there is a dispute, there is a wide array of dispute resolution mechanisms relevant to commercial disputes on the seabed. This makes it difficult to incorporate dispute resolution language into these agreements that works in all situations and for all parties. Investors are, accordingly, recommended to stay informed of their rights and obligations in each as they may also evolve over time.
The next decade will be very important for the future of seabed mining. The topic should see significant movement as more investors become interested in the seabed and the ISA responds by furthering regulation concerning the seabed.
For more information on this topic, please contact the authors, Greg McNab and Diora Ziyaeva.
