A DECISION on whether to include con- likely become a matter of - PDF document

PE/June P24-27 ARBIT 10/6/02 4:36 pm Page 24 Power Dispute Resolution ECONOMICS june 2002 Arbitration and dispute resolution in the electricity industry Arbitration traditionally resolves to settle disputes quickly and painlessly, but there are always further issues to consider By David J. Rosso & Carroll S. Dorgan JONES, DAY, REAVIS & POGUE (MILAN & PARIS) A DECISION on whether to include con- likely become a matter of public record if it arbitral proceedings will not be governed by tractual provisions to resolve potential were to be produced in a court. local rules of civil procedure. Instead, the pro- disputes associated with international power ceedings will be governed by the rules of arbi- Arbitration projects needs detailed consideration. This tration of an arbitral tribunal or ad hoc rules, entails an evaluation of whether any disputes Arbitration is a procedure for the resolution of selected by the parties with knowledge of among the parties would be better resolved by disputes by an arbitral tribunal comprising one those rules, and any additional rules express- litigation in court, arbitration or alternate dis- or more arbitrators, though always an odd num- ly agreed to or, if the parties in dispute fail to pute resolution procedures. In the absenceof ber, chosen by or on behalf of the parties. The so agree, that the arbitral tribunal may adopt. any contrary agreement, disputes would typ- arbitration is conducted pursuant to an agree- Therefore, the parties may agree on a more ically be heard and resolved by any national ment of the parties and the tribunal’s decision convenient location for the proceedings, on a court having jurisdiction. upon the dispute submitted to it is binding, limited number of hearings or indeed on an Many contractual relationships common in subject to any right of appeal or challenge entire schedule for the proceedings, on the energy industry in general and the elec- against the award that may exist under an detailed procedures, including discovery tric power industry in particular, lend them- applicable law. If the losing party fails to hon- procedures, and on a language in which the selves to the use of arbitration or alternate our an abitration ruling – the award – the award proceedings will be conducted which is famil- dispute resolution (ADR) mechanisms in may be enforced through court proceedings and iar to all parties. Such arrangements will also resolving conflict among the parties. Among assets may be seized to satisfy the award. permit the parties to utilise their usual inter- them are contracts for: As indicated, arbitration has certain distinct national litigation counsel, without the need •Long-term fuel supply, whether coal, natur- advantages over litigation, especially in an for local counsel. al gas, liqufied natural gas or other source international project. Appointing experts •Long-term power supply Neutrality •Operations and maintenance (O&M) Another advantage of arbitration is the •Engineering, procurement and construction National courts apply rules of procedure that parties’ role in selecting the arbitrators. The (EPC) of new facilities or repowering of may be unfamiliar to foreign litigants, which- procedure will vary, depending upon the num- existing facilities would be obliged to retain local counsel to con- ber of parties and the number of arbitrators. •Reservation of transmission capacity in an duct litigation before those courts. Proceedings In the most straightforward alignment – two open access transmission rights regime will be conducted in the national language, parties and an arbitral tribunal of three arbi- Indeed, most contractual relationships, which may be unfamiliar to one, some, or even trators – each party is generally entitled to including concession agreements – where all of the parties. The location of the national select, or nominate for confirmation by some arbitration of disputes with the host country court exercising jurisdiction may be inconve- other authority, one arbitrator. The third arbi- is not prohibited by its national laws – nient and not easily accessible to the parties. trator, who serves as chair, is then selected by involved in a project agreement of the parties or ‘Arbitration has certain distinct advantages over finance transaction also the party-appointed arbitra- lend themselves to the tors, or by some appointing litigation, especially in an international project’ use of arbitration and authority. other ADR mechanisms. In most international arbi- The frequency of travel required of key per- trations, the arbitrators are required to be Why arbitration or ADR? sonnel to attend audiences required by local impartial and independent of the parties and, The principal reasons why the parties may procedure may be onerous. Consider, for exam- of course, their counsel. In some ad hoc pro- choose to provide for arbitration or ADR in ple, a project finance transaction where the ceedings conducted under rules agreed upon such contracts are: principal financiers/contractors/sponsors are by the parties and not under the auspices and •The international nature of many contractual companies and financial institutions from the rules of any established arbitration institution, relationships tend to cause the parties to pre- US, Japan and Europe and the project is in the parties may agree that only the neutral fer neutral, international forums, rather than Kazakhstan, a situation which would be likely third arbitrator must be impartial and that the the national courts of one participant to present all of these problems. party-appointed arbitrators may act as advo- •The technical and sophisticated nature of the The foreign litigant may also perhaps justi- cates for their party’s position within the arbi- matters in dispute lend themselves to an fiably fear that a national court may favour a tration panel and, perhaps, may even continue arbiter with greater industry expertise than local party or parties. A national court may during the proceedings to communicate ex is likely to be found in national courts lack or appear to lack complete independence parte with the party which appointed them, but •The more flexible and convenient procedures if one of the parties in the litigation is the not with the neutral arbitrator. Such a proce- than available in national courts for which government, a state entity or even a major dure is sometimes adopted because the parties the parties may contract, including the avail- investor-owned corporation of that country. believe that it will assist them in dealing with ability of fast track mechanisms for expedi- In contrast, international arbitrations are the questions which are actually troubling the tious dispute resolution generally conducted in a country that is neutral arbitrator, and increase the possibility •The possibility of maintaining confidential neutral vis-à-vis the parties. The arbitrators of reaching a resolution by settlement. valuable information which must be revealed will not be the judges of the courts of a nation Subject to the applicable rules regarding to the tribunal because it is integral to the which is home to one of the parties, rather independence and impartiality, the parties may resolution of the dispute, and which would they will be an international panel. The select arbitrators who have a particular profile,