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 case originated from a territorial dispute between Costa Rica and Nicaragua over the northern part of Isla Portillos, a wetland area protected under the Ramsar Convention. In October 2010, Nicaragua began dredging the San Juan River and excavated a channel (the 2010 caño) on disputed territory, and deployed military personnel to the area. The ICJ issued provisional measures in 2011 ordering both parties to refrain from sending personnel to the disputed territory. In 2013, Nicaragua excavated two additional caños in breach of the 2011 Order. In a 2015 Judgment on the merits, the Court found that sovereignty over the disputed territory belonged to Costa Rica, and that Nicaragua's excavation of three caños and establishment of military presence violated Costa Rica's territorial sovereignty. The Court held Nicaragua obligated to compensate Costa Rica for material damages, and directed the parties to negotiate. When negotiations failed, Costa Rica requested the Court to determine the amount of compensation due. Costa Rica claimed US$6.7 million for environmental damage and costs/expenses, while Nicaragua argued Costa Rica was entitled to no more than US$188,504.

• What are the applicable legal principles for determining compensation for environmental damage under international law?
• What methodology should be used for valuing environmental damage to a protected wetland ecosystem?
• What is the extent of compensable environmental damage (impairment or loss of environmental goods and services) caused by Nicaragua's unlawful activities?
• What restoration costs should be awarded for the damaged wetland?
• What costs and expenses incurred by Costa Rica in monitoring and responding to Nicaragua's unlawful activities are compensable?
• Are salaries of government officials compensable as costs and expenses?
• Is Costa Rica entitled to pre-judgment and post-judgment interest on compensation awarded?

The Court fixed total compensation due from Nicaragua to Costa Rica at US$378,890.59 (comprising US$120,000 for environmental goods and services impairment, US$2,708.39 for restoration costs, US$236,032.16 for costs and expenses, and US$20,150.04 in pre-judgment interest), to be paid by 2 April 2018, with post-judgment interest at 6% annually accruing from 3 April 2018 if payment is delayed.

1) 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 as consistent with principles of full reparation. 2) Compensation for environmental damage may include indemnification for the impairment or loss of environmental goods and services in the period prior to recovery and payment for the restoration of the damaged environment. 3) International law does not prescribe any specific method of valuation for purposes of compensation for environmental damage; courts must be guided by general principles of compensation and adapt methodology to the specific circumstances and characteristics of each case. 4) To award compensation, a court must ascertain whether each head of damage can be established and whether a sufficiently direct and certain causal nexus exists between the wrongful act and the injury suffered. 5) In cases of environmental damage to interconnected ecosystems such as wetlands, an overall valuation approach may be more appropriate than attributing specific values to individual categories of environmental goods and services. 6) Regular salaries of government officials are not generally compensable unless they are temporary and extraordinary in nature (e.g., overtime payments or hiring of supplementary personnel not originally budgeted). 7) Pre-judgment interest may be awarded if full reparation for injury requires it, but it is not automatic; for environmental damage valued at a specific point in time accounting for loss over the recovery period, pre-judgment interest may not be warranted.

The Court noted with regret that the parties failed to reach agreement on compensation within the 12-month period provided, necessitating the Court's determination. The Court observed that wetlands are among the most diverse and productive ecosystems in the world, with closely interlinked physical, biological and chemical components enabling vital functions including supporting rich biological diversity, regulating water regimes, and acting as sinks for sediments and pollutants. The Court commented that the affected area demonstrated "high capability for natural regeneration of vegetation...provided the physical conditions of the area are maintained." The Court emphasized that compensation should not have a punitive or exemplary character. The judgment also noted that the "benefits transfer" or "ecosystem services" approach to valuation, while used in some national and international contexts, is not universally accepted and may be used for purposes beyond damage valuation (such as cost/benefit analysis for environmental projects and policy-setting). The Court's approach suggests flexibility in evidentiary standards for environmental damage cases, recognizing that "the absence of adequate evidence as to the extent of material damage will not, in all situations, preclude an award of compensation for that damage" and that equitable considerations may inform valuation where precise quantification is impossible.

This is the first ICJ judgment to award compensation specifically for environmental damage per se, establishing important precedents in international environmental law. The judgment confirms that damage to the environment is independently compensable under international law, beyond merely economic losses. It establishes that compensation may include both indemnification for impairment or loss of environmental goods and services during the recovery period and payment for restoration measures. The Court's flexible approach to valuation methodology recognizes that international law does not prescribe a single method for valuing environmental damage, and that courts must adapt their approach to the specific characteristics of each case. The judgment is particularly significant for its treatment of damage to internationally protected wetlands under the Ramsar Convention. It also clarifies principles regarding compensability of State expenses in responding to internationally wrongful acts, including that regular government salaries are generally not compensable unless they represent extraordinary expenses. While this is an ICJ case rather than a South African judgment, it represents important developments in international environmental law principles that may influence South African courts when dealing with transboundary environmental disputes or interpreting international environmental obligations.