Seabed mining and arbitration: Deep water, deeper uncertainty

The United States President's Executive Order, directing US agencies to licence deep seabed mining under the Deep Seabed Hard Mineral Resources Act (DSHMRA), has created significant legal uncertainty for companies considering investment in this sector.

Public debate has focused on whether the Executive Order bypasses the International Seabed Authority (ISA) orviolates customary international law. However, an equally pressing question is whether the anticipated activities will give rise to disputes, both between private contractors and in investor-state disputes, and the role arbitration will play in resolving them.

This article examines the pathways through which arbitration might become a forum for deep sea mining disputes for companies involved in US-licensed deep sea mining and provides practical guidance for managing the risks.

Commercial arbitration

Deep sea mining requires multi-party arrangements: joint ventures, technology supply agreements, financing, offtake contracts, marine services and insurance. Each will contain arbitration clauses. Disputes are inevitable and will likely include:

• Performance failures: equipment defects, missed delivery dates, or below-specification mineral yields;
• Force majeure: disruption caused by third-state interference (port denials, seizures, sanctions);
• Cost allocation: disputes over capital calls, cost overruns, and revenue-sharing in joint ventures; and
• Termination rights: parties seeking exit if legal or commercial viability deteriorates.

The core problem: contested legal status

The critical issue is whether DSHMRA licences confer enforceable rights. Under the UN Convention on the Law of the Sea (UNCLOS), the Area is the 'common heritage of mankind' and subject to ISA administration.

The United States is not a party to UNCLOS, having signed but never ratified the treaty. It has asserted that it is not bound by Part XI (the ISA regime) and currently asserts that DSHMRA licences are lawful under both US domestic law and customary international law.

However, 168 other countries are UNCLOS parties and regard the ISA framework as binding. This divergence creates commercial friction: counterparties or third parties to commercial contracts incorporated or operating in UNCLOS states may refuse to recognise DSHMRA licences, regardless of the US legal position.

This creates practical problems for commercial parties involved in the sector's activities, and leads to potential friction. While parties who sign contracts premised on DSHMRA licences will generally be bound to accept their validity for contractual purposes, disputes may still arise where:

• Third states interfere: port denials, seizures, or sanctions by UNCLOS parties may trigger force majeure or frustration defences;
• Risk allocation is unclear: parties may dispute who bears the loss when minerals are seized, financing is withdrawn, or regulatory barriers emerge;
• Third parties refuse recognition: banks, insurers, port authorities, or enforcement courts may decline to give effect to DSHMRA-based rights, even if the contracting parties accepted them.

The core issue is not whether the licence is valid between the parties. It is whether its contested international status creates commercial impracticability or third-party interference that excuses performance at a key point in the supply chain, or triggers liability.

In arbitration, tribunals will face difficult preliminary questions:

• What law governs the validity of the licence - US law (under which it is valid) or international law (under which its status is contested)? Traditional conflicts of laws rules look to the law of the issuing state or the lex situs. However, the Area is not within any state's territory, creating a legal gap.
• Does the licence confer the property rights the contract assumes? Even if the contract itself is valid under its governing law, the licence may not confer internationally recognised title, potentially rendering contractual obligations unenforceable or excusing performance.
• Did parties allocate the risk of non-recognition? Or did they contract on the assumption that DSHMRA licences would gain at least tacit international acceptance?

Arbitral practice on disputed concessions is to a large extent inconsistent. Some tribunals uphold contracts where parties knowingly assumed the risk of contested rights. Others find performance excused where underlying rights prove legally defective or third-party interference makes performance impossible.

Arbitrability: can these disputes be arbitrated?

A threshold issue is whether disputes over DSHMRA licences are arbitrable - capable of resolution by arbitration at all.

Disputes over contractual performance (delivery obligations, payment terms, warranties) are clearly arbitrable. But disputes over the validity or legal status of governmental acts, including whether a DSHMRA licence confers enforceable rights under international law, may be non-arbitrable in some jurisdictions.

The answer depends on:

• The arbitral seat: some jurisdictions (like France and Switzerland) take a broad view of arbitrability and permit tribunals to decide questions of public international law as preliminary issues. Others (like certain US states) are more restrictive.
• The governing law: if the contract specifies that US law governs the licence's validity, tribunals may be more willing to proceed. If it incorporates international law standards or is silent, arbitrability becomes uncertain.
• The relief sought: tribunals cannot invalidate a DSHMRA licence (that's a sovereign act), but they can decide whether contractual obligations premised on that licence are enforceable between the parties or whether performance is excused.

Parties should ensure arbitration clauses clearly state that disputes over the enforceability of contractual rights and allocation of risk, not the validity of the licence itself, are arbitrable.

Enforcement of contracts: public policy and conflicts of laws

Tribunals may be asked to determine public policy defences to contractual claims. A party in a UNCLOS state might argue that enforcing a contract based on a DSHMRA licence violates ordre public - not because the US has breached UNCLOS (to which it is not a party), but because doing so would undermine the international legal framework to which the enforcement state is committed.

Precedents exist where tribunals declined to enforce contracts involving bribery, sanctions violations, or assets expropriated in breach of international law. Whether DSHMRA licences fall into this category is untested, but the risk may arise where third-party interference has made performance commercially impracticable.

Enforcement of awards: practical challenges

Even a favourable award may face difficulties at the enforcement stage. Under the New York Convention on the Recognition and Enforcement of Foreign Awards, courts can refuse enforcement if the award is contrary to public policy (Article V(2)(b)). A court in a UNCLOS party might conclude that enforcing an award based on a contested US licence undermines the international legal order to which it is committed.

Enforcement also depends onasset location:

• Mining equipment and vessels: movable assets, potentially subject to seizure by third states;
• Minerals: may be detained at ports or refused entry into UNCLOS jurisdictions;
• Bank accounts: enforcement depends on where the judgement debtor holds assets and whether those jurisdictions will recognise the award; and
• Corporate guarantees: parent company guarantees may provide more secure enforcement routes, but only if the guarantor has assets in enforcement-friendly jurisdictions.

Parties should conduct due diligence on counterparties' asset locations and consider requiring security (e.g. letters of credit, escrow accounts) in stable, arbitration-friendly jurisdictions, after considering the national courts' stance on interpreting the public policy exception under Article V(2)(b) of the New York Convention.

Risk of fragmented outcomes

Commercial arbitration lacks appellate mechanisms or binding precedents. Different tribunals may reach opposite conclusions about DSHMRA licences:

• Tribunal A (seated in New York, applying US law) might uphold a contract, finding the licence valid under DSHMRA and performance obligations enforceable;
• Tribunal B (seated in Paris, applying French conflicts rules) might find performance excused due to third-state interference or contrary to international public policy; and
• Tribunal C (seated in Singapore) might take a middle path, enforcing some obligations but excusing performance where third-state interference constitutes force majeure.

This fragmentation creates uncertainty, which could also deter investment, or at least lead to strong market skewing in favour of very strategically planned supply chains and corporate structures.

Flow on effects on international law

Importantly, arbitral tribunals deciding on commercial disputes have no mandate to pronounce definitively with an erga omnes effect on UNCLOS or the 'common heritage of mankind' principle. Yet their decisions on contract enforceability and risk allocation will shape the practical viability of US mining rights far more than diplomatic protests. This represents a profound shift: private arbitration tribunals may become the de facto arbiters of whether unilateral sea mining is commercially sustainable, fragmenting governance of the global commons across confidential, inconsistent proceedings.

Investor-State arbitration unlikely, but not impossible

Investor-state dispute settlement (ISDS) under bilateral investment treaties (BITs) is far less likely due to structural barriers:

• Territoriality: Investment treaties protect investments 'in the territory' of a host state. The Area is not US territory, nor anyone's territory. It is explicitly beyond national jurisdiction under UNCLOS. While the US is not a UNCLOS party, this does not change the fact that the Area lacks the territorial nexus required by most investment treaties.
• DSHMRA eligibility: If licences can only be issued to US citizens or US-controlled entities, this limits potential ISDS claimants to foreign subsidiaries of US companies - raising treaty shopping and abuse of process concerns.
• Limited US treaty network: The US has no or limited ISDS with relevant jurisdictions like Japan, Canada, Australia, Norway, or the UK.

The most plausible (though speculative) scenario is that a US company establishes a subsidiary in a treaty jurisdiction (e.g. Panama), obtains a DSHMRA licence (permissible because the subsidiary is US-controlled), and later sues the US for revoking it.

Practical considerations for companies investing in deep sea mining

1. Conduct legal due diligence: Assess whether counterparties' jurisdictions recognise DSHMRA licences and whether contracts are enforceable in key markets.
2. Draft robust arbitration clauses: Specify arbitral seat, governing law, and confirm that disputes over enforceability of contractual rights and allocation of risk (not validity of licences) are arbitrable.
3. Allocate risk explicitly: Clearly define who bears the risk of third-state interference, non-recognition, or regulatory changes. Include detailed force majeure provisions addressing port denials, seizures, and sanctions.
4. Secure assets: Require guarantees, letters of credit, or escrow in arbitration-friendly jurisdictions with substantial counterparty assets.
5. Consider political risk insurance: Assess whether insurers will cover losses from non-recognition of DSHMRA licences or third-state interference.
6. Plan for fragmentation: Accept that arbitral outcomes will be inconsistent and build flexibility into commercial structures.

What does this all mean?

Arbitral tribunals, with no mandate to interpret UNCLOS, may become the de facto arbiters of whether US unilateral sea mining is commercially viable, rather than international courts. Their decisions, rendered in confidential proceedings and enforced (or not) on a case-by-case basis, may come to shape the practical legitimacy of DSHMRA licences far more than diplomatic debate.

For companies entering this space, careful contract drafting, explicit risk allocation, jurisdictional planning, and realistic assessment of enforcement prospects are essential.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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