Introduction
Commercial arbitration is a method by which companies and other organisations agree to resolve disputes without having to go through litigation in a traditional court system.
Arbitration clauses are frequently found in contracts and agreements between businesses, organizations, and governments. They require that any disputes pertaining to the terms of the agreement be resolved through arbitration rather than going through one of the parties’ local courts. The parties’ agreement regarding the rules governing the arbitration, the arbitration institution to oversee the process, the number of arbitrators (usually three or one), the language to be used in the arbitration, and the “seat of arbitration” (also known as the “place” of arbitration), which is usually a neutral location where procedural disputes will be decided by arbitration law, are all often outlined in an arbitration clause.
Arbitration the Process
In a typical commercial arbitration, the party initiating the arbitration will file a “request for arbitration” that includes the details of the party’s claim. Where the agreement calls for three arbitrators, the claimant will also propose one.
The disputing parties will then respond to the request for arbitration, assert any counterclaims, and choose their arbitrator. The parties will attempt to reach an agreement on a third arbitrator to serve as the arbitral tribunal’s chair or president. If they cannot agree, the chair is appointed under the rules of the arbitration institution chosen by the parties in their arbitration clause, such as the London Court of International Arbitration or the International Chamber of Commerce, to administer the arbitration.
The parties then argue their respective positions, providing evidence to back them up. This is usually done by the legal representatives of the parties. Arguments are typically submitted in writing, followed by a hearing in which fact and expert witnesses testify, the arbitrators may pose questions, and lawyers may present oral and/or written closing arguments.
After considering the arguments of the parties, the arbitrators will resolve the dispute and make an award. When parties agree to arbitration, the decision of the arbitrators is final and not subject to appeal or challenge in court, unless there are extraordinary circumstances or prior agreement to the contrary.
Arbitration Procedure in the Energy Charter Treaty
The procedure for filing claims in investment arbitration is broadly similar under both the ICSID Rules and the Arbitration Rules of the United Nations Commission on International Trade Law (“UNCITRAL”), which are commonly used in investment arbitrations.
When deciding whether to bring a claim against a State through investment treaty arbitration, a claimant should consider whether the relevant investment treaty contains any admissibility requirements. Treaties, for example, may include ‘fork-in-the-road’ clauses that require an investor to choose between pursuing claims against a host State through the arbitration mechanisms provided in the relevant investment treaties, or in local courts or before other venues specified in contracts.
Furthermore, investment treaties frequently require that an investor and a state attempt to resolve their dispute through negotiation or conciliation before resorting to investment arbitration. A claimant deciding whether to bring investment treaty arbitration may also need to determine whether the applicable treaty imposes specific negotiation obligations or time limits.
What is the requirement for an Arbitration dispute?
- Neutral Form: When companies enter into agreements with entities from different jurisdictions, they frequently want to avoid ending up arguing a dispute in a court in the counterparty’s home country. Arbitration prevents one party from gaining a ‘home advantage’ over the other. As a result, arbitration, rather than court litigation, is the norm in cross-border transactions in the oil and gas industry.
- Privacy: Arbitration proceedings are held behind closed doors. In many jurisdictions, such as New York or England and Wales, litigation involving companies, individuals, or other entities means that testimony and other types of evidence related to a dispute are frequently made public. An arbitration, on the other hand, can be held privately and confidentially, allowing the parties involved to keep the details of their dispute and commercially sensitive information to themselves.
- Expertise Many international arbitrators have developed significant subject matter expertise while working in the oil and gas sector and resolving significant oil and gas disputes over the years, and as a result, they frequently have significantly more sector-specific expertise than national court judges. This can be useful when resolving a dispute that requires expert testimony from oil and gas experts on complex commercial and technical issues unique to the oil and gas industry. While experts are frequently appointed by the parties, the arbitration panel may appoint its own expert to assist in reconciling any differences between the parties’ appointed experts.
- Efficiency and Cost Arbitration can be relatively quick and inexpensive. A complex commercial arbitration can take two to three years to complete (and sometimes less time for less complicated disputes).
This is typically as fast as or faster than litigation in a US or European court, and significantly faster than litigation proceedings in other parts of the world (for example, in certain jurisdictions in Latin America, commercial cases can take more than a decade to settle via litigation). Furthermore, there is generally less “document discovery” in arbitration proceedings, in which parties must disclose to each other the documents in their possession that are relevant to the dispute.
When a commercial dispute goes to litigation in a U.S. or U.K. court (which, given the importance of New York, Texas and English law, are often the forums for oil and gas related litigation), document discovery is a key part of the process.
Conclusion
In a world where they anticipate that oil and gas prices may be lower than previously anticipated, oil and gas companies are competing for profitability. Many oil and gas companies prioritize “advantaged,” low-cost, and low-emission oil and gas opportunities. They may also decide to reduce their investment in other established or more traditional projects as a result of allocating a larger portion of their capital spending toward clean energy projects and emissions mitigation schemes.
This could lead to disagreements amongst project participants. Significant price drops for oil in 2014 and 2020 appear to have increased the frequency of large swings in energy prices, which could lead to more disagreements between suppliers and customers along the value chain for oil and gas. Conflicts may also arise from resource nationalism and anti-corruption movements, especially in Latin America and Africa.
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