The oil sector has been one famous for the long term duration of its projects, and the high mix of international partners/players. It is also easily affected by changes in fiscal and regulatory policies, which are tied to different regimes. This could affect the original contractual terms of such long term projects and hence a dispute could result ensue.
This article will be dealing with the different types of disputes that usually occur and what are the channels of dispute settlement.
The focus will be on arbitration and how effective a tool it is in international dispute settlements.
Diversity of Disputes in the Energy Sector dispute settlements
There are diverse kinds of disputes that usually occur in the energy sector. They include the following:
IOC vs State disputes
These are disputes that occur between IOCs (International Oil Companies) and the government. They are usually about the exploration of oil, its development and production. These disputes are often referred to as state investment disputes and they do occur when there are new policies put in place that threaten contractual agreements.
Dispute between State vs State
These are rarer, but they often occur when oil exploration activities cut across international borders, both offshore and onshore. Offshore disputes usually occur over who has the rights in the Exclusive Economic Zone, and onshore disputes as a result of transportation charges on the throughput in cross border oil and gas pipelines.
Company vs IOC disputes
These usually occur between the companies and their sub-contractors and are usually called international commercial disputes. These disputes involve a breach in contractual agreement regarding issues such as joint operations, cost allocation, purchase, off-take and transportation of crude oil amongst others.
Disputes between Individuals and IOCs
These issues occur when individuals file claims against large corporations that engage in business activities that violate their human rights. Provisions have been made for example, in IU.S, under the United States Alien Statute for individuals to make use of this.
Methods of Dispute Settlement
Arbitration has always been the way to go when it comes to dispute settlement in the oil and gas sector. We’ll be considering other methods by which the dispute can be settled. These include;
This usually occurs through different forms of communication, be it direct or indirect. Most times, negotiation is not the planned form of dispute resolution. It just comes up as a matter of course. However, if it is to be used in the arbitration of disputes, it should be documented as part of a multi-tiered arbitration process in a contract agreement.
By using this as a means of dispute settlement, contractual parties can resolve their disputes without going to a law court. This is achieved by the input of a mediator who helps the disputing parties agree on their commercial interests, instead of being occupied with their legal rights and contractual obligations. Although faster and cheaper than any other method of dispute settlement, it is not often used in the oil and gas sector.
This is a method very common to lawyers when it comes to dispute settlement in the energy sector, and it would be very effective if the disputes were local or the disputing parties were from the same jurisdiction was it an international case. But, on the whole, in cases of international dispute settlement, litigation is often the least applied.
This involves the invitation of a third party-an expert- to oversee the source of the dispute, usually for technical or economic related issues. Though the decision of this expert is not enforceable as an arbitral award, nevertheless, it binds the parties involved. Though they will have to put into writing, the areas expert determination covers in their dispute settlement.
This is a widely accepted and used method when it comes to dispute settlement. It is a process that legally binds the parties involved, and it offers the most flexibility, with regards to the choice of arbitrators, the type of and extent of the arbitral process, and the forum or venue where it would take place etc. Arbitral awards are recognized in foreign jurisdictions hence, it’s a very effective tool when matters of international dispute settlement do arise.
Legal framework for International Arbitration
For arbitration of disputes to be carried out effectively, certain elements have to be taken care of to provide a very sound and enforceable structure. These elements include:
An arbitration clause
This is the basis for international arbitration. It gives the disputing parties autonomy, that is, the right to do as they please in their arbitration of disputes, provided that they make provisions for it in their contractual agreement.
Investment treaties and conventions
Several conventions and treaties are recognized internationally for the enforcement of arbitral awards. They include, but are not limited to:
- The New York convention
- Regional conventions
- Bilateral investment treaties (BITs)
- Energy Charter Treaty
- Multilateral trade agreements, among others.
These enforce arbitral rules and awards. They provide aid for the arbitral process such as measures of preservation of evidence, the attendance of witnesses, and disclosure of documents amongst others.
They also retain the authority to ensure that arbitral processes are carried out fairly and according to order.
This article sought to provide an apt breakdown of dispute settlement in the oil and gas sector. The common types of disputes, as well as the methods for International dispute settlement, were discussed with arbitration of disputes being the main focus.
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