International Arbitration As A Means Of Settlement Of Disputes In Oil And Gas Industry

Energy Sector and International Commercial Arbitration

Discuss about the Essay for International Arbitration As A Means Of Settlement Of Disputes In Oil And Gas Industry.

Energy sector particularly the oil and gas sector is widely known for its preference for International Commercial Arbitration over litigation as a more efficient and effective method of settling international disputes. Projects handled by oil and gas companies are usually very vast, complex and long-term, as they involve heavy use of machinery and equipment and often goes beyond boundaries, where the managers have to deal with an entirely different socio-political, legal and economic environment. Due to the ambiguity and uncertainty posed by such factors, oil and gas companies are often found involved in various kinds of disputes. However, arbitration is not the only peaceful method of resolving disputes; there are other ways too. But, due to the number of benefits it offers to the parties to dispute make it the most favored way for tackling international oil and gas conflicts. Not just that the arbitrator and venue of arbitration are chosen by parties themselves, but the award and the whole discussion is kept secret from the public eye. Above all, arbitration does not cause delays or interruptions in the smooth conduct of projects undertaken. Whereas, litigation is expensive, noisy and usually interferes with the activities of the project, and hence affects its viability and profitability. At present, arbitration has been witnessing a tremendous growth.

Oil and gas companies handle a wide array of projects that include building energy infrastructure, setting up energy plants and LNG stations, designing and developing a framework for gas transportation and production, exploring and exploiting energy resources such as fuel, oil, petrol, gas, etc. among others.  While doing so, these organizations face daunting challenges as the business environment has been increasingly unpredictable and technologically advance. Tough work schedules, strict safety, and environmental requirements, check on quality and quantity of resources used, compliance with the international code of business have made matters difficult to deal with. No matter how hard such companies try to avoid complexities, at times, they drastically failed in their mission to not to confront confrontation (Asadi, 2013). In this regard, different types of disputes oil and gas companies may face pertains to claims regarding maritime boundary, the jurisdiction of exploration, machinery employed, expert opinion and analysis on any particular issue, amidst quality of raw material used, and insurance and compensation amount to be paid.

Types of Disputes in Oil and Gas Companies

Although, negotiation, mediation, expert determination, dispute review board and litigation are a bunch of some useful modes, but arbitration is favored by numerous people as the only correct approach to determine international commercial conflicts (Gaillard, 2015). It reaps huge advantages over the prosecution or say litigation in court, for example, party controls the procedure. It is less expensive and less time taking as far as awarding of decision is concerned. Moreover, it allows for adaptability. Grants or compensations demanded are reasonable, decisions are enforceable, the parties themselves choose arbitrators based on their qualification, skills, experience, and fees he/ she would charge.

Contrary to the litigation, arbitration is a creature of court. This implies that conflicting parties can jointly outline the arbitration procedure so as to suit their particular needs and can keep on doing so as long as they need. Both, before and after the arbitration has started, the parties can decide the nature and extent of information to be disclosed (that is whether to permit statements). They can also decide the behavior of the hearing (providing evidence in the form of a live or recorded video), the time allotment for the whole process, as well as pre-screening of the specialists, experts, and other concerned individuals for their availability (O. Durosaro, 2014).

Another advantage that arbitration provides over litigation is regarding money. The fees paid and other various types of costs incurred on the lawyer in litigation comprise the major chunk of all the money spent during the litigation process. And, this fact goes in direct relation with the time of litigation which takes years to reach the final decision. Whereas, arbitrators are comparatively less expensive, and usually arbitration takes few months to settle out a dispute (Hwang, 2015). Moreover, lawsuits filed in court neither have arbiters, nor they carry any institutional charges. The International Chamber of Commerce reports that the amount paid to arbiters and in the name of institutional expense make up 18% of the total expense of arbitration. These 18 percent or little more can be recovered rapidly on account of the speed and effectiveness at which arbitration is carried out and the capacity to shape it in line with the particular needs of the conflicting parties.

Court cases by and large require more counsel time and, therefore, more cost for planning and trial than is required in arbitration. For instance, wide pre-trial rehearsal and comprehensive disclosure compliant with tenets of the common methodology are not basic in arbitration (PARK, 2010). Numerous hearing pertaining matters which demand more time and cash in court are generally not a portion of arbitration such as broad evidentiary issues, voir dire, fees of jury, assessment of validity and credibility of statements, verification of records and documents provided, and services of specialists and witnesses.

Advantages of International Commercial Arbitration over Litigation

Apart from this, arbitration is an adaptable procedure which allows parties right to decide the direction and procedure to use for arbitration. Furthermore, planning dates for hearings and meetings also entirely depends on the discretion of parties in accordance with their ease and comfort (KÖKSAL, 2011). Another benefit that comes from arbitration is the selection of venue of arbitration. Parties usually select the location that minimizes costs, proceeding with hearing even after the regular working hours have passed, collecting evidence or conversing with the witness who is far away through video conferencing or through a phone or mobile call, etc. Besides this, arbitration allows the parties to include clauses in the agreement than enhance the effectiveness of whole of the arbitration process. No such flexibility is provided in litigation. Everything is pre-decided. Things go according to the book of law. Procedures and process are already outlined. Hearing dates are given by courts depending on the number of cases in the row.

In addition to flexibility, arbitration fosters confidentiality. Because hearings are uni-cameral. It suggests that only parties to the dispute and concerned authorities attend the hearing sessions. Whereas hearings in litigation are bi-cameral that is not only the conflicting parties but the general is also allowed to sit in the sessions. Moreover, it depends on whim and desire of the conflicting parties that whether or not they want to publicize the findings and decisions of the court. However, no such confidentiality prevails in case of court hearings (Kenton and Hirst, 2015). It is worth mentioning that confidentiality matters a lot when the dispute in hand is about trade secrets, or intellectual property of any corporation or the dispute can cause major damage to the reputation and business of the companies concerned. But, no such privacy is provided in litigation.

Another incredible advantage of arbitration is that the parties can themselves choose their judges or say arbiters either through party system or enlistment system. It is the fact that the conflicting parties choose the arbiters that best select their needs. Parties see various qualifications in the arbiter like his expertise and knowledge in the subject matter of dispute, reputation as an arbitrator, experience in the field, number of cases being tackled in capacity of arbitrator, availability on specific dates, fees he/she would charge, ability to smoothly and successfully manage whole arbitration process. The discretion of parties to choose arbiters with the specific skill set, qualification, experience and success rate appear differently in relation to general court situations where judges are allocated haphazardly without respect to whether they have capabilities especially suited to the dispute being referred to.  An extra advantage is the parties can choose more than one arbitrators to handle complex disputes.

Flexibility and Cost-Effectiveness of Arbitration

Adding to that, arbitration is a peaceful method of settlement of international disputes in oil and gas industry. Firstly, because of the fact that it is less time consuming and secondly it does not disrupt the business operations. However, it is crucial that disputes should be settled as soon as possible. However, it is crucial that commercial disputes in oil and gas industry must be determined rapidly on the grounds that resulting uncertainty in global oil sector could probably expands costs and might cause business loss (Martin, 2011). Thus, arbitration is quick, cost effective and hence profitable means of settling the international commercial dispute.

Another gain from arbitration is the finality of the award. Unlike court cases, where decisions can be appealed and re-appealed in higher courts, and cases are stretched from months to years, no such thing could be associated with arbitration (Cuniberti, 2008). Decisions awarded by arbitrators are usually binding to the parties and decision once given cannot be challenged. However, the lack of facility to appeal is deemed as the strength rather than weakness, but at times where one of the parties does not find the award as just and right, severely raise concerns about the absence of any mechanism to rectify the errors or loopholes in the system.

One more benefit that could be derived from international commercial arbitration is the power with which it is enforced. Because majority of the world nations are parties to New York Convention and it binds the signatories to abide by the decisions of international arbitration awards.

International commercial arbitration is presently the most favored type of dispute resolution for cross-border conflicts, as believed by those in the oil and gas industry (NATOV, 2016).. In another study conducted by Queen Mary University of London (QMUL), in collaboration with worldwide legislative firm White and Case, 90% of the respondents reviewed International commercial arbitration as the best way to determine trans-national disputes. This figure demonstrates a noteworthy increment from QMUL’s first worldwide review in 2006, where the figure was 73%.

The exploration mirrors that oil and gas organizations support universal mediation since it empowers them to choose mediators who have specialist knowledge of the business they operate in (picked by almost 40% of respondents). It is something which national court frameworks regularly need – and takes into consideration that cases must be heard in private (picked by about 33% of those inquired). All the more essentially, oil and gas organizations incline toward this strategy for conflict determination on account of the enforceability and irrevocability of arbitral recompenses around the world (picked by almost 65% of respondents).

The quick and ceaseless condition of progress in global exchange implies that the decision for business managers whether to resolve international conflicts through litigation or arbitration will be a mind-boggling choice requiring cautious thought and shrewd direction. There are numerous cases in which the right choices can prompt a universal arbitral procedure which is ideal in addressing the requirements of the parties. Because it sets a platform for such an  arrangement of dispute resolution in a way compatible with the conflict solution in line with the needs of the parties and perceiving the requirement for an efficient business type solution of the dispute in hand, so as to permit trade and exchange to continue.

References

Asadi, A. (2013). Mechanism of Settlement Commercial Disputes (Adr) Specialisation in Oil and Gas in Globalisation. Int. Jour. of Soci. and Econ. Rese., 3(3), p.260.

Cuniberti, G. (2008). Beyond Contract – The Case for Default Arbitration in International Commercial Disputes. Fordham International Law Journal, 32(2), pp.413-424.

Gaillard, E. (2015). Sociology of international arbitration. Arbitration International, 31(1), pp.1-17.

Hwang, M. (2015). Commercial courts and international arbitration–competitors or partners?. Arbitration International, 31(2), pp.193-212.

Kenton, M. and Hirst, P. (2015). The International Comparative Legal Guide to: International Arbitration 2015. 12th ed. London: Global Legal Group Ltd, pp.20-23.

KÖKSAL, J. (2011). THE METHODS OF DISPUTE SETTLEMENT FOR DISPUTES ARISING FROM INTERNATIONAL CONSTRUCTION CONTRACTS AND BUSINESS PARTNERSHIP CONTRACTS. International Journal of Humanities and Social Science, 1(9), pp.170-174.

Martin, T. (2011). International Dispute Resoution. Independent Petroleum Association of America, pp.1-5.

NATOV, N. (2016). EFFECTIVENESS OF INTERNATIONAL COMMERCIAL ARBITRATION. pp.2-6.

Durosaro, W. (2014). The Role of Arbitration in International Commercial Disputes. International Journal of Humanities Social Sciences and Education (IJHSSE), 1(3), pp.1-8.

PARK, W. (2010). Arbitrators and Accuracy. Journal of International Dispute Settlement, 1(1), pp.25-53.