Legal Aspects Of Oil And Gas Industries For Oil And Gas Arbitration

Role of International Arbitration in Resolving Oil and Gas Disputes

Discuss about the Legal Aspects of Oil and Gas Industries for Oil And Gas Arbitration.

The Global Oil and gas Industry have been an integral part of the lives of many people as it has directly or indirectly succeeded in catering the needs of a number of people. Whether in the form of supplying energy to a maximum of the power industries or lending a helping hand to transport industry in the form of the provision of good quality of fuels, the industry has always been the topmost priority for all the employment seekers. As a contribution to the countries as a whole, the industry has efficiently worked to add on to the their economy in terms of tax revenues, a substantial amount of exports and even with the introduction of new technological reformations which are being readily adopted by the other sectors of the countries (Otero & Garcı´a-Castrillon, 2013).

International arbitration has gained a great popularity recently and has eventually become a leading method of resolving the disputes rising from the international commercial agreements and the other international relationships. An international arbitration is considered commercial in nature when it tends to cover the matters rising from all sorts of relationships of a commercial nature, despite of the fact that they are whether contractual or not. The crippling oil and gas industries in most of the countries could be considered as a substantial reason that has a capability to undermine the national government’s ability to maintain internal and external security (AKINJIDE-BALOGUN, 2000). The litigation system offers a one-size-fits-all solution which eventually makes it a poor means of handling the sensitive economic and political issues.  Hence, this can be a major reason behind the growing aversions of the parties embroiled in oil and gas disputes towards the litigation system.

Historically, arbitration was seen as a healthier option for various companies to resolute the legal disputes, majorly due to time and costs. The court proceedings eventually have a tendency to resolve complicated matters in a larger time span than the arbitration system (Business & Technology Law Group, 2014). When the leading researchers were talked upon the contrast between the two systems, they quickly responded with an effective reason of why the arbitrations are better than normal litigation systems. The reason was that: In arbitration, both the parties have a lot of control over who is preferred to hear and decide the dispute and in contrast, the litigation system consists of court proceedings where one has no control over the choice of the decision-maker because the judges are arbitrarily assigned. This randomness is regarded an impoverished approach that eventually makes the case meaningless as the disparity among a good judge and a bad judge could be case-dispositive (Heath, 2006). When arbitrators are discussed in a general instance, it is said that they are not required to follow law and other related legal formalities while working in a legal dispute or even guiding the companies legally. Although, this saying is quite true about them, yet, they usually do, or more likely to reach the right result.

Advantages of Arbitration in Oil and Gas Industry

The international Oil and Gas business invests in large, complex, capital-intensive and lucrative projects that usually have a tendency to run for a long span. Although the procedures and practices in these projects eventually remain the same, but the economies, circumstances, political parties and the ruling government involved in the governance of these energy industries, changes with time complying with the needs and perceptions of the people (Gaitskell, 2010). This combination of a static element with a dynamic element often leads to development of myriads of disputes within the industries. This is the only reason why this energy sector makes up the largest portfolio of the international commercial and state investment disputes around the globe. The disputes hence therefore have a vital risk when occurs in any international energy project. The risk here is entirely not in a fact that whether an ongoing project will have any dispute or not, but it lies in the fact that whether the party facing the dispute will be able to manage the dispute in a satisfactory way or not (Chartered Institute of Arbitrators, 2014). With the onset of the 20^th Century, the concept of globalization began to reflect in all the commercial sectors of a country and no other industry has better reflected the advantageous impacts of globalization better than the Oil and Gas industry. To understand the need of the alternative resource of dispute resolution practices, the energy sector has provided sound reasons and examples and has also succeeded in explaining that why disputes arising in the energy sector need a dispute resolution procedure that has a capability to incorporate the international flavor of commerce which itself has a number of reformed ways that could tackle disputes in time and by effectively using the available resources. In older times, the oil-rich countries usually lacked the technology, capital and management skills to find and extract oils and the major corporations governing the activities of Oil and Gas industries in such countries had a major say in the routine activities and issues of these industries (Kurth, 2016). Hence, these corporations, following the traditional aspects of dispute resolving, insisted the industries to resolve their disputes in the courts of their home nations. With the creation of the OPEC (Organization of the Petroleum Exporting Countries), the oil-rich countries and the other petro-states began to start their own state-backed NOCs (National Oil Companies) to take charge of their energy reserves and its associated disputes.

Flexibility in Arbitration

Choosing arbitration over the national court litigation creates a better opportunity for the enforcement of the awards. Parties facing the legal disputes, if opts for the arbitration, have an option to select arbitrators with expertise in the relevant industry or subject matter that forms the grounds of the underlying commercial contract. Arbitration is considered a bit flexible in its application and hence has a tendency to offer a greater procedural flexibility when compared with the normal litigation systems. The proceedings being carried out under an arbitrator are generally private and confidential and usually avoid any sort of controversy that can defame the industry and its associated activities. The Arbitration has been favored by the energy sector majorly due to another fact that these industries demand disputes resolution procedures that recognize the international context of the industry that does not favor one party over the cost of the other (GROSSMAN, 2007). The two parties involved in the disputes have eventually learned that submitting disputes to the national courts of either of the parties is an unpalatable option for both the sides which would cost both time and money to the industries. The forums of the court litigation are usually public by nature and hence have been considered as an undesirable option in the competing world of energy (Kadiri, 2014). In terms of acceptability, the options offered under Arbitration are quite easy to accept and enforce over a wide variety of legal issues.

In contrast to the traditional litigation proceedings, Arbitration allows operations that demand the presence of the parties at the major operational level and these parties only play a major role in selecting the arbitrator who will eventually discharge his services by being a neutral-decision maker. The energy industries participating in the arbitration procedures, usually has a competitive advantage over the others as they possess a sort of flexibility to mutually define the procedures, that would be followed by both the parties involved in the dispute, prior to the signing  and accepting any contract (Oxnard & Benoit Le Bars, 2009). This procedure of resolution is far greater than the other obsolete litigation proceedings as the process can be tailored according to the needs and demands of both the parties involved in the disputes and is basically designed to address the business specification considering both the parties and their way of working at the same time. Although, there is a never ending list of the advantages that the process of arbitration has over the Litigation system, but at the same time Arbitration cannot be necessarily considered as the better option than litigation (Segal & Steinmetz Fladgate, 2016). Talking about the need and the popularity of the Oil and Gas Industry in the booming Energy World, Arbitration provisions have become a routinely part of the most basic agreement being signed between any two leading nations. Due to its time and cost effective nature, the parties readily include it in the legal system of the industries without paying much heed to the adverse impacts of this option.

Confidentiality of Arbitration Proceedings

Although Arbitration is considered as a faster and more flexible alternative to the courts, but one forgets that there is no such guarantee about the fact. The speed of the Arbitration proceedings entirely depends upon the efficiency of the Arbitrator and even on the experience level of the agencies that administer such Arbitrators. Hence, the energy industries, while incorporating such options in their legal system, should have clear and candid information about these agencies and should even avoid taking any chances with the dilettante people in such field.The energy industry itself requires a huge amount of investments in its project and the cost of an Arbitrator along with its administration people can even make the simple and easy matters much more expensive than the litigation proceedings (Wälde, 2010). Hence, highly relying upon the Arbitrators, even for small and easily resolvable matters, can also be a bit unprofitable for the energy industries as the costs that could be effectively employed in other profitable projects would be lost in paying off these Arbitrators and their agency agents. It is a well known fact, that the Arbitration process lacks the Discovery Phase which forms an integral part of the litigation. To be more precise, in a Discovery Phase a party uses a number of measures to gather information and unveil hidden facts behind the disputes.

On the contrary, as there is no such phase in Arbitration, hence the hidden cost of Arbitration can entirely be due to this reason. The process of Arbitration is carried out in a more relaxed atmosphere when compared to the strained ambience of a formal courtroom, but the large filing fee of an Arbitrator process outweighs this advantage. As the final decision is made by the Arbitrator and its agency, hence, it is usually hard to shake. The energy industries have often faced some challenges when the arbitrator resolves a matter in an unfair and illogical manner (MOORE & DAVID E. PIERCE, 1997). As arbitrator proceedings are held in private rather than the open courtroom, hence, lack of such transparencies often make the final decisions of the arbitrators a bit tainted or biased towards one party on the cost of the other. The industries facing the consequences of such unbiased decisions are considered more unfortunate ones as the courts infrequently reviews the arbitration decisions which eventually leads an industry in a worst troublesome situation. The parties, which have considered arbitration provisions in their agreements, should read and re-read the agreements before signing them in order to avoid any regrettable issues later.

Selection of Knowledgeable Arbitrators

As the Oil and Gas industries are globally expanding with an ever-imagined pace, and so are the legal disputes. In such circumstances, Arbitration seems to be a quite viable option than the litigation. But considering the Arbitration as the only available option for dispute resolution is not a profitable approach for an industry experiencing the best returns and profits (Glusker, 2011). Due to a number of drawbacks, the once considered as a time and money effective alternative to the litigation, has now become a mere first step on the long and expensive way to litigation process. The parties which have an earlier thought that Arbitration can face all the legal challenges with an ease, now are moving on to the courts for a reliable outcome. Hence, instead of considering it as an ultimate option, the industries adopting it could consider it as a way to ease the caseload of the overburdened judiciary.

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