This year features as an important one for dispute professionals in the UK and further afield with Edinburgh hosting the largest international arbitration gathering in the world between 18 to 21 September. The International Council for Commercial Arbitration (ICCA), accredited as an NGO by the United Nations, is holding its bi-annual conference in the Scottish capital, a little over ten years after the installation of a modern regime for governing arbitrations in Scotland in the form of the Arbitration (Scotland) Act 2010 (which bears much similarity to the 1996 Arbitration Act for England & Wales).
Given the global reach of the energy sector, facing myriads of quickly evolving challenges and opportunities, across different geographies, arbitration is uniquely well placed to offer a neat solution to resolving disputes where a legally binding decision is required. It comes without the associated baggage so often seen in running lengthy and costly court action. Arbitration avoids the dilemma of litigating in your counterparty's national courts (and breaks the deadlock on that issue in contract negotiations) by providing a neutral and internationally recognised safe haven for fair determination of disputes.
With virtually all steps being conducted without travel and by electronic communication, it reduces the carbon footprint in a way that resort to the courts simply cannot do. For this and the reasons explored in this article the sector should see increasing use of arbitration as the formal basis for resolution where negotiation and contract escalation procedures fail.
What is International Arbitration?
Arbitration has been likened to private sector litigation. It is the referral by disputants, most often companies who have entered into a contract with one another, to an independent decision maker who pronounces a legally binding decision. Rather than using the traditional court model to resolve commercial disputes, organisations can determine their own procedure and choose their decision maker. This often leads to quicker resolutions.
Finding effective ways to resolve disputes, with their inevitable burden on management time, is a worthwhile goal for any business. Negotiation and mediation have their place as cost effective and quick means for overcoming differences but sometimes a formal, and enforceable, decision is required. That's where arbitration has a key role to play.
Why International Arbitration is growing in the energy sector
Because it's not tied to the courts of any jurisdiction, international arbitration is geographically flexible. Businesses, wherever they are based, can agree the place of arbitration and the governing law most suitable to them.
This can break deadlock in cross border disputes, ensuring that both parties have confidence in a neutral venue and are not stuck with the national courts of the other. International arbitration offers real flexibility and choice with organisations picking the decision makers, the law, how and where hearings take place and the rules of engagement, tailoring the dispute to parties' needs rather than accepting inflexible rules. This is ideal in the energy sector where bespoke creative solutions are required to meet complex and diverse needs.
Crucially, arbitrations are private. They are conducted behind closed doors with sensitive commercial information, such as financial data, customer lists, internal communications, policy and governance documents etc, are not subject to public scrutiny. Also, unlike court judgements, the scope to challenge arbitral awards is limited. This offers organisations finality and certainty with the confidence that they can obtain a final binding decision that allows them to move forward in their endeavours without the risk of being tied up in appeal for years.
Successful parties in arbitrations will also benefit from higher cost recoveries awarded to them than those achievable in litigation. With over 140 nations signed up to the 1958 New York Convention making it easier to have your "win" recognised and enforced around the world.
Whilst litigation has an important role to play, not least in emergency applications to prevent a wrong (or the continuation of a wrong) from taking place, the benefits of international arbitration are clear. For the energy sector it offers an environmentally-friendly and effective solution to managing cross-border relationships where resort to the public sector court system simply will not meet the needs and aspirations of those seeking quick, cost effective and private resolution of their disputes
There is an increasing tendency for arbitrations to be used by business, particularly in cross border disputes. That direction of travel will only increase following the spotlight ICCA will provide in Edinburgh this year.
The article originally appeared in OGV Energy, September 2022.
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