International Arbitration in the Energy Sector

(1) International Arbitration & Energy Sector (Oil and Gas)


A) ARBITRATION

Arbitration is one form of ADR (alternative dispute resolution).

Arbitration is a private process where disputing parties agree that one or several individuals can make a decision about the dispute after receiving evidence and hearing arguments.  Arbitration is different from mediation because the neutral arbitrator has the authority to make a decision about the dispute. The decision is legally binding against both parties and can be enforced by a court.

Arbitration is not possible when there are claims relating to family law, life and health. Criminal cases or administrative cases cannot be settled via arbitration either. 

The parties to an arbitration have considerable choice in determining how, where, by whom, and in what language their dispute is resolved. Of particular importance to the parties is the choice of decision-maker. Unlike commercial litigation where disputes are resolved by state appointed judges, parties to an arbitration may select their arbitrator.

Often, tribunals will comprise arbitrators of different nationalities, which adds to the neutrality of the process and the decision.

Unlike national courts, an arbitral tribunal will not have inherent jurisdiction to decide a dispute. An arbitral tribunal will only have jurisdiction if all parties to the dispute have agreed to submit their disputes to arbitration. Parties will usually provide for this by inserting an appropriately drafted arbitration clause into their agreement.

Arbitration is particularly advantageous for commercial parties because of the privacy andconfidentiality that it can offer. Hearings generally take place in private. Parties can agree that the hearing and evidence, and any other material created or disclosed in the proceedings, be kept confidential, and that they (and the arbitrators) will not disclose any information about the arbitration. In comparison, court documents and hearings are generally public.


READING:

Ashurst introduction to international arbitration
SH An introduction to international arbitration


International Arbitration
❖Public International Law (State-State arbitration or Investor-State arbitration) 
❖Private International Law (Commercial arbitration) 
Public International Law: Dispute Settlement
Public International Law: Dispute Settlement

JURISDICTION  - CONSENT

  • Due to the sovereignty of states, there is no such thing as truly compulsory jurisdiction in international law. 
  • A state cannot be subject to the jurisdiction of any court without its consent to the jurisdiction. 
  • States can accept the jurisdiction of a court before a dispute occurs or after it occurs.
  • Consent to arbitration may result from a direct agreement to bring before an arbitral tribunal:
  1.   either future disputes arising from the investment   operation (compromissory clause)
  2. or an existing dispute.

Public International Law: Arbitration 

Dispute settlement methods:

1) Use of force (for a long time) and diplomacy.

2) Dispute settlement was necessary to avoid recourse to war.

3) From the 1870s onwards, proposals for the establishment of some system to arbitrate international disputes were becoming common.

4) This resulted in a formalization of international arbitration which found its culmination in the creation of the Permanent Court of Arbitration (PCA) during the first Hague Peace Conference of 1899. What is important is that international arbitration was seen, and still is seen today, as the method – par excellence – to avoid recourse to war and as the means to achieve respect for international law or ensure implementation of international law.

5) During the first Hague Peace Conference of 1899 during which the PCA was created, for the first time in history something akin to a permanent international arbitral tribunal was created. But there was no compulsory submission of disputes to the PCA, and the PCA, despite its name, was neither a court nor a permanent tribunal.

6) Permanent Court of International Justice (PCIJ) is established in 1920.

7) After the Second World War, the United Nations and its principal judicial organ, the International Court of Justice (ICJ), were created. 

8) UN Charter: 
❖obligation to settle disputes in a peaceful way (Article 2 paragraph 3 of the UN Charter), 
❖prohibition on the use of force, (Article 2 paragraph 4 of the UN Charter).

READING:

International Dispute Settlement from Practice to Legal Discipline



B) ENERGY SECTOR


C) ENERGY RELATED DISPUTES: 

A) Upstream
  • In many countries, underground natural resources, such as oil, gas or groundwater, belong to the state. The content of ownership and the restrictions within which the individual can exercise the right of ownership is defined by each sovereign state. Whether natural resources may be the object of a private property rights is determined by the body of domestic administrative law setting forth conditions under which natural resources may be explored and exploited (agreements, licenses, concessions, environmental regulation) as well as conditions under which the property rights are transferred to non-state actors (taxes, royalties).
  • Permanent sovereignty over natural resources (UNGA Resolution 1803 (XVII) adopted in 1962)

  • States set forth conditions under which natural resources are to be utilised and pursue public interests such as the protection of environment, economic development. 


  • Permanent sovereignty over natural wealth and resources applies only in relation to a state territory (state jurisdiction). However, boundaries, particularly maritime boundaries are often challenged. 

Disputes between states and energy companies (Investor - State Arbitration)

Disputes between states (State - State Arbitration) 

B) Midstream and Downstream 

States set forth conditions under which energy is to be transported and traded. States pursue public interests. 

Transportation of oil / gas. 

Sales from the producer to the wholesaler in a particular market, sales from wholesalers to the end users. 

International dimension: Cross-border transportation of oil/gas (pipelines / tankers), cross-border trade in energy products.




AGENDA:
A) State – State Arbitration 
B) Commercial Arbitration (Energy company – Energy company)
C) Investor – State Arbitration 
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