Utility Week

24 | 28th March - 3rd april 2014 | UtilitY WEEK Operations & Assets Market view T he continued growth of international arbitration as the energy sector's dis- pute resolution mechanism of choice has been confirmed by a new survey. The Hogan Lovells Global Currents: Trends in Complex Cross-Border Disputes research study polled 146 general counsel, senior lawyers and executives across the Americas, Europe, the Middle East and Asia Pacific from FT Global 500 multinational corporations and clients, of which around one-fi„h were from the energy, utilities and natural resources sectors. Key findings include that: • almost half of respondents had experi- enced an increase in cross-border dis- putes in the past two years and more than half expected them to increase in the next two; • China, England, France, Germany and the USA had been the most common jurisdic- tions for disputes; • the most challenging markets for disputes were the USA and China, followed by Brazil and India; • the biggest difficulties facing corporations in disputes (especially in these jurisdic- tions) were lack of familiarity with over- seas legal systems and their procedural requirements, finding quality local coun- sel, and overcoming different time zones, languages and cultures; • approximately one-third of cross- border disputes involved arbitration and three- quarters of international contracts included a provision selecting interna- tional arbitration as the dispute resolu- tion mechanism. For disputes concerning oil and gas, utili- ties and natural resources, the use of arbitra- tion was even higher. This comes as no surprise. As an industry sector which has always engaged in interna- tional transactions, participants are acutely aware of many of the challenges identified by the Hogan Lovells survey, and that refer- ring disputes to arbitration (as opposed to litigating in local courts) provides one of the best ways of avoiding and managing the risks associated with cross-border disputes. There are clear practical and legal advan- tages to choosing arbitration over litigation, of which the key ones are predictability, effi- ciency, confidentiality, and enforceability. The outcome of cross-border disputes resolved by international arbitration is gen- erally more predictable, thus enabling par- ties to manage risk with a greater degree of confidence. The inclusion of an arbitration agreement in a contract will generally ensure that skilled and expert arbitrators chosen by the parties will decide any disputes. This contrasts favourably with litigation in a local court, where a party will have little or no control over the identity of the judge or tri- bunal, which may not be inde- pendent or competent to hear complex commercial disputes. These risks are o en magnified for energy sector companies that do business in developing juris- dictions with courts that may tend to protect domestic or state counterparties, and given that energy disputes are typically complex and high value. Arbitration can also be more efficient than litigation. As a consensual process, arbitra- tion allows parties to seek to reach agree- ment on procedural matters. This means that the parties can tailor the procedure to the needs of their dispute. For example, parties can agree to place limits on the amount of evidence that needs to be presented to the tribunal and on the length of hearings. And if the parties cannot agree, the arbitrators are likely to be skilled in designing the process to fit the dispute – unlike under most court rules, arbitrators are not obliged to adopt a one-size-fits-all approach. The ability to exert greater control over the procedure is also an important factor for parties operating in countries where domes- tic courts are inefficient and litigation can end up being a drawn out process. India – highlighted by the survey as one of the most challenging jurisdictions for disputes – is a particularly notable example of a country where court litigation can literally last for decades. In addition, the scope for challeng- ing an arbitration award is limited, so parties avoid the several rounds of appeals available in the courts of some jurisdictions. Whereas litigation normally takes place in a public court, an important benefit of arbitration is that parties can generally hold all hearings in private, and may also be able to keep the content or even the existence of the arbitration confidential (if confidential- ity is provided for in the arbitration clause or by the tribunal). Given that energy sector disputes o„en involve commercially sensitive and valuable subject matter and informa- tion, the ability to restrict commercial secrets getting out into the public domain is key. However, perhaps the most critical advantage of arbitra- tion over litigation relates to the enforceability of the final decision. Multinational players such as energy sector companies need to be sure that any final judgment in their favour can be enforced, including against assets that are located in multiple juris- dictions. Whereas a court order from one jurisdiction may not necessarily be easily enforceable in another, because of interna- tional treaties regulating the enforcement of arbitral awards – the most notable of which is the 1958 New York Convention – an award from an arbitral tribunal rendered in one contracting state will generally be enforce- able in another contracting state. In summary, arbitration is a process ide- ally suited to disputes arising out of cross- border transactions. As Hogan Lovells' survey confirms, energy sector companies already recognise this. However, as global markets continue to shrink and international trade increases, so it appears that arbitration is likely to consolidate its position yet further as the mechanism of choice for international business. Simon Nesbitt is global co-head of Hogan Lovells' international arbitration practice and a partner in the London office. Michael Darowski is of counsel in the London international arbitration and disputes practice Try arbitration, not litigation The benefits of arbitration over litigation – such as predictability, confidentiality, and enforceability – make it particularly valuable in the energy sector, say Simon Nesbitt and Michael Darowski. Unlike under most court rules, arbitrators are not obliged to adopt a one-size- fits-all approach Powering your business with support that's onest Make the change to Haven Power. It's about more than just good customer service, it's about making a difference to you and your business. Finding you the best electricity deal and going the extra mile. Making you feel truly valued. That means getting the simple things right and being there when you really need us. Haven Power. The honest approach to electricity. British-based Business electricity specialist Named contact Call our UK based experts on 01473 707755 www.havenpower.com Mike Watts I&C Business Development Manager – Major Accounts

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