Essay: Int'l Commercial Arbitration In Oil & Gas Industry: Benefits.

Types of International Commercial Arbitration

Describe about the oil and gas industry?

The oil and gas industry is one of the most expensive industry. It is a complex industry, consisting of risky operations The parties enter into special contracts.  This industry has complex and risky operations, hence susceptible to myriad disputes.  The disputes that arise are related to jurisdiction, quality of goods, quantity of goods, insurance, international boundary, expert findings, etc, thus it is necessary to solve the dispute between the parties by appropriate means. ADR (agreed dispute resolution) processes are also called alternative dispute resolution. It can be mediation, arbitration, negotiations, expert determination, conciliation and evaluation.

Arbitration is one of the forms of agreed dispute resolutions. It permits the parties to the contract to solve their disputes by arbitrator instead of the traditional court system. To initiate arbitral proceedings, the parties to the contract can refer their dispute to one or more persons - known as the 'arbitrators' or an 'arbitral tribunal' and it is agreed between them to be bound by the decision or award of arbitrators or the arbitral tribunal. International commercial arbitration is of two types, 1) An institutional arbitration and 2) An ad-hoc arbitration  (Maniruzzaman, 1993).

The institutional arbitration process is one where the parties to the dispute refer their case to the arbitral institution for determination of an award, whereas in adhoc arbitration, the parties file their dispute to an arbitration not managed by any established arbitral institution. There is no dearth of arbitral institutions in the world. There are three main International Commercial Arbitration Institutions viz, the International Chamber of Commerce (ICC), International Cente for the Dispute Resolution (ICDR), International Court of Arbitration the American Arbitration Association’s (AAA) and the London Court of International

The reasons as to why international commercial arbitration is still preferred in spite of development in litigation

1) Neutrality

It so happens, that the contracts are between the parties of different nations and different jurisdictions, None of the parties to the contract are ready to be subjected to the jurisdiction of another nation. The countries would want to avoid the advantage of home country, thus resulting in parties choosing neutrality based arbitration. For the purpose of neutrality, the nationality and residence of the arbitrator are considered by the court. The arbitrator's relation to the parties to the contract is also considered in order to make sure that the arbitrator's decision is independent and impartial (Trakman, 2002). The decision of the arbitrator can be challenged in case of absence of independence and impartiality by the public policy executors.

Reasons for using International Commercial Arbitration

2) Autonomy

The main principle of International commercial arbitration is autonomy. It gives autonomy to the parties to the contract, that is not given in litigations. It is provided in Article 19 (1) of UNCITRAL Model Law that subject to the provisions of national and international  laws of arbitration, the parties to the contract agree about the conduct of arbitral tribunal’s proceedings. The parties to the contract are free to concur on the methods of solving their disputes in the United Kingdom. Arbitrators are persons with expert knowledge in the oil and gas industry in comparison to magistrates and honurable judges of courts who lack expertise. In the case of Jivraj v Hashwan (2011) UKSC 40, the Supreme Court held that the autonomy of parties cannot be challenged by overruling the decision of Court of Appeal. There is no limit as to the freedom of parties (Giles, 2011).

3) Speedy disposal and cost effective

Arbitration is preferred, as it is speedy and cost effective. Whereas litigation involves high fees and is very expensive, the court processes are lengthy. However, there is a difference of opinion regarding the costs of the arbitration process, as it is believed that the arbitration is costly in comparison to international litigations. In Arbitration, the award is not appealable, except in a few cases, there is less of discovery, so it takes a shorter time, hence, more beneficial in comparison to litigations. It is authored by Watkins and Latham that, delay in arbitration may result due to the arrangement of the arbitrators schedule and even the party schedule (Hwang, 2015).

The basic benefit of international arbitration is in respect of an enforcement of an award. As per the New York Convention, it is obligatory on the contracting parties or contracting states to give recognition to the award and also obligatory to enforce an award, except, in case of irregularities that are of a serious nature in procedure or in the integrity of procedure (Ahmed, 2010). The development of resolving international disputes in oil and gas industry by arbitration is attributed to the New York  Convention and is regarded as an important treaty in the matter of international arbitration in the commercial sector. Since, it is obligatory to enforce an award, it becomes much easier to enforce an award given in one contracting state into the other contracting states. The most important feature in the matter of arbitration is the principle of separability which exists in an arbitration clause or agreement. It states that, even if, the clause of arbitration in the contract is declared as null and void, it permits the parties to enforce an award. The principle of separability is incorporated in Article 16 (1) of the UNCITRAL Model Law, as under an arbitral clause, which is a part and constitutes a contract shall be considered as an agreement and irrespective of the rest of the terms of the contract. The decision taken by the arbitral tribunal which declares the contract as null and void will also do not make the arbitration clause invalid (The Merits, the Award and Annulment -- Act IV, Scene I, 2008).

Enforceability of Awards

This separability doctrine of the arbitration clause is favored and in many cases, defended by the arbitrators. In the matter of arbitration between Texaco Overseas Petroleum Company (Topco) & California Asiatic Oil Company v Government of Libya Arab Republic Award of 19th January 1977,17 LL.M 3 (1978) 4 Y. B.Com. Arb. 177 (1979), wherein it was held that the doctrine of separability  is widely accepted. It is complicated, expensive and time consuming to enforce the judgement of the court in another country, thus arbitration internationally is the most preferred means of settling  disputes as it is speedy and simple (Wortmann, 1998).

Confidentiality

International Commercial Arbitration is of a great advantage due to its virtue of confidentiality. It is agreed between the parties to the arbitration agreeent to maintain confidentiality of proceedinds, orders, documents and also the awards, whereas in litigation, there is no confidentiality, the proceedings are open to the public, however there is a lot of controversy regarding the confidentiality of arbitration proceedings, as the person who seeks to enforce an award has to apply in court for enforcement, thus it results in proceedings becoming open to public. In the case of Dowans Holdings Dowans SA (Costa Rica) (DOWANS) and Dowans Tanzania Limited v Tanzania Electricity Supply Co. Limited (TANESCO) Arbitration Case No.15947/ VRO. ICC, in this case gave an award favouring DOWANS applied to High Court of Tanzania Dar-es-Salaam. the proccedings acquired huge news media reporting. Thus, the dispute regarding confidentiality may be right (Uk.practicallaw.com, 2016).

Non-Adversarial

This is one of the most important factor of a non-adversarial approach. As put forth by King and Others, the basic aim is to prevent the disputes, co-operation and solving the problems Its objective is to find the truth and not the dispute determination only. The approach is more multidisciplinary than monopoly.  This approach of non-adversarial is based on the principle of win-win. This is most suitable for oil and gas industry, as the parties to the dispute intend to maintain relationships even after the disputes are resolved and award is granted. It is a big advantage in this regards due to this approach of Non-adversarial for maintaining good relationships between the parties to the dispute after the completion of arbitration process. In litigations, the principle of winner-take all is due to adversarial approach, so the question or intention of maintaining relations is not there (Legislation.gov.uk, 2016). 

Conclusion

In short, oil and gas industry prefers an arbitration process, as it enables the parties to select a venue that is neutral, resulting in a neutral process. The most deciding factor for parties to prefer international arbitration despite developments in litigations, is due to party autonomy. As per the NewYork Convention, the parties can enforce an award of an arbitrator, thus the parties to the dispute are given an assurance for choosing arbitration for Redressal of their greivances. And lastly, due to its non-adversarial approach to solve disputes on the basis of principle of win win, it allows the parties to the dispute to maintain good relations, which is very important for continuing the operations in oil and gas industry. However, according to the survey carried out by Professor Loukas Mistelis, Director of the school of international arbitration, eighty percent of the corporation stated that, the main disadvantage of arbitration was huge expenses (Resolution, 2015). Recently, it was acknowledged by the stakeholders that arbitration is costlier than litigation and that at times it is not possible for the parties to refer the dispute to arbitration for vindication of their rights (Uk.practicallaw.com, 2016). It is not accepted by some that arbitration is more expensive than litigation as they consider some arbitration are cheaper than litigation and some are costlier, in the case of complex disputes, the cost goes up to hundreds  or millions in foreign currency. The people who consider arbitration expensive have following reasons in believing so:

Confidentiality

1) It is the case that the clause in the contract results in party to a particular arbitration institution, thus they are not able to exercise an option of choosing a low cost arbitration, if the agreed arbitration institution is expensive. Thus, it becomes expensive as the party cannot choose a low cost institution.

2) The second reason attributing to being expensive is the responsibility of the party to pay the arbitrators' fees, administrative fees, fees of the institution, whereas in litigation, Judges are not to be paid by the parties to the dispute, as the government pays them (Academia.edu, 2016) .

3) The arbitration procedures put a burden of lots of extra fees on the party. All the extra fees results in arbitration expensive, however, these extra fees tend to become less costly than the costs of attorney's fees and other legal expenses, where substantial investigations are required.

It may be said that there are expensive arbitration and cheaper arbitration and litigation too may be expensive or may be cheaper. In spite of being expensive, international commercial arbitrations are preferred to solve their disputes because of its reliability of enforcement of awards. It may be suggested that in coming year’s arbitration may develop and has a bright future. It can be further suggested that a mechanism needs to be developed to reduce the arbitration cost. If the parties to the dispute in international contracts conducts a research in the matter of selection of arbitral institution or  other body, then in that case it would enable them to know the costs of arbitration (Celik, 2013). They can analyze and get details of the costs of all the arbitral bodies or institutions  and choose the one that suits their budget. In view of the given reasons for preferences for International Commercial Arbitration, it seems that arbitration is a more advantageous method of solving the disputes as it enables the parties to maintain good relations at the end of the arbitration. It is very important for the parties to continue to keep good relationships with each other in oil and gas industry.

References

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