Essay: Significance Of Arbitration Clause In Oil And Gas Contracts." (70 Characters)

International Law and Oil and Gas industry

Critically evaluate the significance of an ‘Arbitration Clause’ in the context of an Oil & Gas contract. Comment on it’s value as far as dispute resolution is concerned.

The search for oil is paramount, exploration and production of oil and gas have led to the rise of both worldwide and transnational petroleum firms. As every industry around the world work under some rules and regulations, it is evident that the oil and gas industry are working according to laws (Williams & Meyers, 2010). Rules cover various aspects of oil industry vacillating from licensing, joint ventures, projects and service contracts, construction and so on. Even though each country has its specific laws, international petroleum laws apply to any firm in any nation. This paper transcends how substantive rules of the international law apply to the oil and gas industry across the world. Also, it will evaluate fundamental principles of contract formation and key international principles and trends in the oil and gas sector. Additionally, it will review how effective international laws are placed upon the oil and gas industry to address the environmental impact of oil exploration and exploitation. Lastly, a critical analysis of the importance of oil and gas law as a distinct subject studied in real-world and commercial context.

To begin with the IOGP (International Association of Oil and Gas Producers), in recent years have played a major part in developing the respective industry regarding adhering to environmental liability, financial reporting and transparency within the industry (IOGP, 2013). It stipulates that organizations or firms that are involved in this type of industry should comply with the international requirements to meet the oil and gas management standards. One of the relevant international law id the environmental law and policies involved in energy and natural resources. This policy or law states that every industry must use and produce products that are not harmful to the public or the environment as a whole. Also, industries in the oil and gas industries must not deplete all the resources available on the verge to look for their raw materials. Additionally, a perfect example of international law that relates to the oil and gas industry is The International and The Comparative Petroleum Law and Policies. The law integrates the oil company, the host government, and the investors. The explains the openness of the financial investor and the international corporate (IOGP, 2013).

Secondly, sovereignty refers to the to the privileges a country id given to control its populace within its boundaries (Ghandi & Lin, 2010). It is evident that most of the resources are owned privately or publicly in a specified industry. The international law identifies the principle of sovereignty. Even though the international law recognizes it, sovereignty does not give one the power to go against the international laws and regulations as required by an oil and gas company.  Additionally, many oil and gas industry producers are bounded by others businesses through the treaties and convention that are formed under the international law. Some of the best legally binding agreements are the Vienna Convention on the law of treaties and the United Nations on Contracts if International Sale of Goods. (CISG). The CISG have rules and regulations that involve the formation of contracts and contractual preparations that are identical to Unified Commercial Code used in the United States. Other notable conventions that affect the oil and gas industry include The 1970 Hague Evidence Convention that was focused on giving individuals new methods and techniques of gathering and discovering evidence.

Arbitration Clause and the Oil and Gas Industry

Arbitration can be referred to a special form of obligatory dispute tenacity steered by an unbiased tribunal, which was instigated from the treaty of the parties but is delimited by a nation or state. It is evident that oil and gas industry involves multifaceted, expensive and risky operations which frequently last for a period (Berlin, 2004). Individual contracts must be regulated in the parties engaged in any oil and gas industry transactions since disputes may arise from the agreement. Issues that may occur in the oil and gas sector that concerns contracts and agreements include claims over jurisdiction, equipment-related claims, quality and quantity of goods, insurance issues and so on and so forth. 

These disputes are inevitable in a long run, and international petroleum transaction is no exemption. Most of the contractual disagreements in the oil and gas industry use a preferred method of arbitration due to its neutrality characteristic, non-adversarial techniques of dispute resolution and cost-effectiveness of arbitration process (Maniruzzaman, 2009). First, the vital consideration when it comes to the settlement of disputes depends on the following choices of law, forum and the predetermined dispute resolution requirements. To begin with, there must be a substantive law that applies to a given transaction focused on contract remedies, performance, and interpretation. Secondly, the choice of forum is essential as it allows to select a precise group or court that can hear the disagreement between any contractual dispute between two oil and gas firms. This choice must be valid in the sense that it does not favor any party in the dispute.

After the above considerations are made. Conflict resolution can either take the form of litigation or arbitration. As mentioned earlier, oil and gas firms prefer arbitration to ligation as litigation takes a long time and it might be costly (Joffé, et al., 2009). In universal negotiation or arbotration, the two oil companies may consent to either ad hoc or any other established arbitration. The Ad Hoc comprises of arbitration procedures picked by the parties involved as per commonly settled upon tenets and methodology. This kind of mediation necessitates that, both must accept obligations of regulating as well as arranging the entire arbitration deprived of the regulation of a built up foundation. Parties involved can particularly situate and embrace the arbitration guidelines for different affiliations. The UNCITRAL (United Nations Commission on International Trade Law) set up arbitration decides shorn of an organization which administers all procedures so that the parties involved can either utilize the UNCITRAL rules individually with the appointed systems or require the foundation connected such principles. In arbitration, there is no value regulator in terms of quality, and oversight through any legitimate organization. Although, Ad hoc’s arbitral grants are likewise enforceable underneath the identical laws talked about next, and are seen by all. International tribunals might probably mediate than if the intervention were before a setup foundation.

In global petroleum exchanges, parties all the more frequently pick or fall back on established arbitration beforehand somewhat an of the numerous open and private establishments. The most perceived and regarded organizations are the ICC (International Chamber of Commerce), ICSID (International Center for the Settlement of International Disputes, AAA (American Arbitration Association, and the LCIA (London Court of International Arbitration) . Even though there are uncountable numbers of other local, nearby and industry-specific arbitration mediums, these organizations give a current discussion permitting parties to determine clashes under set up standards and methodology before referees skilled at applying the universal law and comprehension of distinctive legitimate frameworks.

The United Nations’ general assembly embraced the model law on International Commercial Arbitration (ICA) drafted by the UNCITRAL. The model law was formulated to outline a uniform and customary arbitration laws around the world with the goal of determining the numerous inborn clashes amongst different nationwide intervention laws. The UNCITRAL model type of mediation law, is mostly used to serve any premise for some federal intervention decrees all through the world and notwithstanding any state legislation in the US. Up until the main part of country entirely received UNCITRAL model law on arbitration, there will be contrasts between the countries through applying and deciphering the arbitration rules picked by both parties or the principles of a specific organization (Sanders, 2005).

A genuine procedure in handling mediation differs relying on the arbitration’s provisions incorporated into a certain agreement, and the tenets and methods proclaimed by any arbitrational establishment picked. Whether an arbitration is occupied with the two types of arbitration, mostly chosen by Oil and gas industry, each firm involved are obligated to resolve several bureaucratic issues, as well as determination of authorities, the judges, dialect utilized as a part of the arbitral procedures, and methods employed in revelation and certainty assembly. Institutional arbitration is condemned since it has gone up against superior qualities of prosecution, turning out to be unreasonable and tedious, and certain arbitration affiliations might not give mastery and sectorial learning an adequate to determine question concerning complex international petroleum exchanges. Progressively, parties have looked to different types of ADR to determine their debate in less formal situations that suit speedier determination and foster proceeded with business connections (Nolan-Haley, 2013).

Before prosecuting or parleying a debate, numerous parties pick intervention, appeasement, ministerial and other pre-arbitral and pre-litigation options. In universal arbitration, a public option amongst any of the Eastern societies, has an official procedure in which both oil firms present their debate, commonly settled upon an outside, particular intervention or Arbitration Dispute Response Association picked by the firms. Different worldwide relationships have built up the general procedural tenets for intercession, including the UNCITRAL, ICC, and the CAMCA (Commercial Arbitration and Mediation Center for the Americas). Placation is viewed as a less formal other option to intervention and, dissimilar to intercession, is utilized less with the end goal of acquiring an eventual settlement and assertion between the parties, and more with the ultimate purpose of keeping up a correspondence between the parties. Like intercession, general procedural rules have been declared by different universal associations (e.g., the ICC Rules of Optional Conciliation) which are intended to help the assuagement procedure and guarantee absence of bias, value, and equity (Moens & Sharma, 2013)

Supplementary non-binding Arbitration Dispute Response options incorporate the utilization of pre-arbitral officials and initials, which permit independent parties to limit the issues and survey the actualities and law administering their debate and gives the parties a fair-minded perspective of their individual qualities and shortcomings. There are various ADR focuses all through the world and offered by different global associations. Options are less inclined to be drafted into worldwide petroleum contracts, however, are progressively well known to abstain from starting the long and restricting strategies for intervention and suit (Gouldson, et al., 2015).

The international laws have come up with about 70 conventions the oil and gas industry must follow up to preserve the environment. According to (IOGP, 2016), international and regional frameworks have been put in place to manage the oil and gas industry environmentally. Additionally, there are operational practices and procedures which are being implemented on the site. Such operational considerations include pollution prevention and a cleaner production of oil, waste management and disposal techniques and formulation of an oil spill contingency plan. If the firms in this industry follow up such stipulations as required by these conventions that are focused on creating a better environment, then oil and gas industry will be able to produce an ecologically approachable product that does not cause chaos or pollution to the environment.

Truth be told, oil meets 97% of the UK transport division request. Moreover, it additionally advantages our lives in being imperative to the creation of numerous ordinary essentials (Yusuf, et al., 2013). Oil's refined items are utilized to fabricate every substance item, for example, plastics, manures, cleansers, paints and even meds, in addition to an entire host of different items that you will not anticipate. The oil and gas law is essential in our day to day lives in that it regulates all these producers of oil and gas products and regulates the trade in the oil and gas industry. Additionally, the oil and gas law has been essential not only in one country but in several nations across the world that are focused on improving the environment and fighting off the Green House effect (Chu & Majumdar, 2012).

Conclusion

It is significant to note that oil and gas industry is primarily affected by the international laws. Also, as a fast-growing company and investors are cashing in a lump sum of many it has become contractual and there are disputes in the business activities that run daily in the industry. Oil and gas sector prefer the arbitration rather than ligation due to its neutrality characteristic. Also, it is important to note that arbitration is the most used method of solving any contractual disagreement in this type of industry. Merchants do not want to waste time, the need to focus on the next delivery. Hence arbitration suits best. Additionally, the international law has stipulated conventions that regulate the exploitation and production of oil and gas. Lastly, the oil and gas are essential for controlling and guarding customers against the malpractices from the dealers in the industry.

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