As more companies conduct international business, disputes that eventually could arise with contractors or host country entities may require legal action. Many international firms instead are opting for arbitration to settle those differences through the dispute resolution services of the International Chamber of Commerce (ICC) International Court of Arbitration (http://www.iccwbo.org).
Dispute resolution and arbitration can be good strategies for mitigating risk because they enable companies 1) to (usually) resolve disputes quicker, more efficiently, and at less cost than litigation and 2) to avoid hostile local courts, where the location and language may put them at a disadvantage, where resolution could take 5-10 years, and national pride or political intervention could influence outcome. With a carefully crafted arbitration agreement, the process also can afford greater privacy and confidentiality, while providing a degree of certainty of arbitration agreement enforcement and awards, mostly governed by international treaties.
On the downside, with arbitration there is almost no right of appeal, and the process lacks many procedures and safeguards available in court. There also remains the possibility that in some cases litigation could even be required to enforce the arbitration agreement.
Nonetheless, because many of these disadvantages can be avoided by careful drafting of arbitration agreements and contracts, the advantages override the disadvantages. Before embracing this process, however, there are important things companies need to know, said international attorneys Fulbright & Jaworski LLP at a breakfast seminar in Houston earlier this year.
Avoiding mistakes
There are 10 big mistakes oil and gas lawyers make in international disputes that could effect a detrimental outcome, said John P. Bowman, who chaired the discussion.
The first mistakes involve not being familiar with the arbitral procedure—the 12 stages of ICC arbitration—and with the legal regimes governing the arbitration.
Attorneys also should fully understand the style and method of arbitral advocacy before agreeing to arbitration and should understand a sovereign government's motivations to settle or to fight a dispute. Bowman emphasized that it is important to be the first to file and to always interview prospective arbitrators before an appointment.
"Ignoring local state court actions commenced by a recalcitrant defendant" is a mistake, Bowman said, as is "underestimating the legal, procedural, and logistical complexity of a cross-border dispute." He also advised against challenging the chosen arbitrator without solid grounds for objection. Finally, thinking that the usual legal tool of discovery will be available without an express provision in the arbitration agreement could later cause problems, he said.
ICC arbitration stages
The first four stages of an ICC arbitration include the initial review and analysis of the claim, the preparation of the request for arbitration and answer (and possibly counterclaim and answer), the appointment of the arbitral tribunal, review and comment on drafts of the terms of reference and, separately, the procedural order prepared by the tribunal.
Then comes document disclosure and review, witness interviews and written statements, preparation of expert witness statements, and the prehearing "memorials," or written presentation of the facts of the case.
Finally comes preparing exhibits; preparing witnesses for direct and cross-examination; preparation of cross-examination and opening statements; the arbitration hearing, which includes opening statements, presentation of claimant's and respondent's direct cases, and rebuttal presentations, often by both parties; and the posthearing memorials.
Important facts
Bowman emphasized the importance of drafting a well-written, broad-form, inclusive arbitration agreement with a confidentiality clause, a waiver of sovereign immunity, and a mechanism for appointing the arbitral tribunal. It also should designate the arbitral site and language and provide that arbitration may go forward in the absence of a party as long as the missing party receives notification of the arbitration commencement, appointment of the arbitral tribunal, and the hearing date.
Every petroleum negotiator should know that an arbitral award can be set aside only at the place of arbitration, that the award is not appealable on the merits, that whoever drafts the arbitration agreement must consider the special attention needed for multiple parties and contracts, and that a multistep dispute resolution requires explicit transitions from one step to the next and a tolling provision.
Arbitration agreements with states or state-owned enterprises raise special concerns, Bowman said, and require specific contractual language. He also said that, depending on the domicile of the international oil company, it might be possible to require a host government to arbitrate disputes under a bilateral investment treaty, even without an agreement to arbitrate.
