DISPUTE RESOLUTION under INTERNATIONAL O&G AGREEMENTS

a presentation by

HEW R. DUNDASChartered Arbitrator DipICArb

International Arbitrator & Mediatorto the

CEPMLP25th November 2005

OVERVIEW of PRESENTATION

Introduction Oil Industry Agreements Dispute Resolution Clauses & Options Domestic/International Disputes Oil & Gas Industry – a Special Case ? A Case Study – the WRONG approach Conclusions

OIL INDUSTRY AGREEMENTS

State/Statee.g. Statfjord/Markham/JDZs

State/OilCoe.g. PPL/PSC/PSA

OilCo/OilCoe.g. JOA/SPA/FIA etc

OilCo/Contractore.g. drilling/construction contracts

Contractor/Subcontractor

DISPUTE RESOLUTION OPTIONS

Litigation Arbitration Domestic/International Expert Determination Mediation Other ADR Application in Oil & Gas Industry Advantages and Disadvantages

LITIGATION

Difficulties of Litigating Local Laws – are they adequate ? Courts – Good, Bad and Ugly Litigation against States Finality Timescales - long and VERY long Enforceability Costs

INTL. COMM. ARBITRATION (1)OVERVIEW

What Is It ?“International”“Commercial”“Arbitration”

Profusion of Laws Institutions and Tribunals Finality Enforceability

INTL. COMM. ARBITRATION (2)PROFUSION of LAWS

Law of the Contract Law of the Arbitration Agreement Law of the Arbitration (Lex Arbitri) Law governing Capacity of Parties Law of Seat (Lex Curiae) Law of Place of Enforcement Other Potentially Applicable Laws

INTL. COMM. ARBITRATION (3)SOME KEY LEGAL ISSUES

Arbitrability Capacity Substantive vs Procedural Laws Arbitrations against States/State

Immunity Enforceability Public Policy Exception (NYC V(2)(b)) Protectionism

INTL. COMM. ARBITRATION (4) INSTITUTIONS

UNCITRAL ICSID/NAFTA/ECT ICC/LCIA Chartered Institute of Arbitrators Regional Institutions incl. CIETAC/AAA LMAA GAFTA/FOSFA/LME/RSA Other

INTL. COMM. ARBITRATION (5) PROCEEDINGS (1)

Party Autonomy Ad Hoc vs Institutional Arbitration Choice of Lex Arbitri Choice of Rules/Institution Choice of Tribunal Choice of Seat

INTL. COMM. ARBITRATION (6) PROCEEDINGS (2)

Choice of Language Choice of Procedure Common vs Civil Law Cultures Communications Disclosure Ethics Tribunal Issues

INTL. COMM. ARBITRATION (7)AWARD & ENFORCEMENT

AppealsJurisdictionProcedural FailuresIssues of Law

Exequatur Enforcement New York Convention 1958

INTL. COMM. ARBITRATION (8)NEW YORK CONVENTION

Recognition of Arbitration Agreements Enforcement via NYC58; Court may refuse

Art. V(1)Capacity/InvalidityFailure of Due Process/other Procedural FailureOutwith JurisdictionAward Not Binding/Set Aside at seat

Art. V(2)Dispute not ArbitrableAward Contrary to Public Policy

Court MAY, not “shall”, refuse enforcement Enforcement other than via NYC58

INVESTMENT ARBITRATION

Private Investor vs State/State Entity Nature of Arbitration Agreement BITs/MITs Washington Convention/ICSID NAFTA Energy Charter Treaty State Immunity

ALTERNATIVE DISPUTERESOLUTION (1) - OVERVIEW

What is ADR ? Why ADR ? Relationship with Courts Compulsory or Voluntary ? Court Support of:

The ProcessThe Outcome

Qualifications and Training

ADR (2) – FORMS of ADR

Executive Negotiation Early Neutral Evaluation (ENE) Private Mini-Trials Adjudication, DABs DRBs Mediation/Conciliation Med-Arb, Arb-Med, MedExDet Arbitrediation Other/None of the Above

ADR (3) – MEDIATION

Consensual Process Confidentiality Facilitative/Evaluative The Process The Outcome Is Art 6 ECHR an Issue ? Strengths and Weaknesses

ADR (4) – MEDIATION HYBRIDS

US Origins Med-Arb Arb-Med MedExDet Arbitrediation Other Strengths and Weaknesses

ADR (5) - EXPERT DETERMINATION

Origins Nature of the Process Nature of the Decision English Law (Bernhard Schulte) Other Laws Enforceability Strengths and Weaknesses Use in O&G Industry

ADR (6) - ADJUDICATION

Origins in Construction Disputes Nature of the Process Nature of the Decision English Law HGCRA 1996 Other Laws – NZ/Singapore Contrast with Expert Determination Strengths and Weaknesses O&G Industry Excluded in UK

ADR (7) – DABs/DRBs

Prevention of Construction Disputes Neutral/Panel of Neutrals Nature of the Process Nature of the Decision Contrast with Expert Determination Strengths and Weaknesses Project Neutral during Negotiation

DISPUTE PREVENTION &DISPUTE MANAGEMENT

PreventionCorporate CultureCo-Operation – what do YOU WantConciliatory ApproachLocal Customs/Culture/Mores

ManagementDedicated Task ForceExpertise – technical/litigatorDecision-making

DISPUTE RESOLUTION in O&G AGREEMENTS (1)

State/StatePCJ/PCAArbitration e.g. UNCITRALDiplomacy

State/OilCoArbitrationConciliation/MediationDiplomacyGood Management

DISPUTE RESOLUTION in O&G AGREEMENTS (2)

OilCo/OilCoLitigation (……. Rules OK ?)ArbitrationExpert DeterminationMediation

OilCo/ContractorLitigationArbitrationThe Squeeze

SOME CURRENT ISSUES in the OIL & GAS INDUSTRY

Industry Preference for Litigation Expert Determination Failure to Grasp ADR Ignorance of non-Mediation ADR Composition of Arbitral Tribunals The Lawyers’ Involvement Macho Management/Lawyers

CASE STUDY: CATS DISPUTE CATS - North Sea Gas Pipeline Capacity Reservation by 3rd Party User Send Or Pay Obligation; £45m paid Fall In Gas Price – Contract Uneconomic High Court/CoA/House of Lords

Did the Subsea valve work ?

Was CATS “Available “ ?

£100m at stake; £8-12 million legal costs

CONCLUSIONS (1)

Wide Range of Dispute Resolution Tools Lack of understanding of ADR techniques Oilmen’s Decisions Best for Oily Disputes Prevalence of/Preference for Litigation Dinosaurs Still Survive You Cannot Afford Macho-Man

CONCLUSIONS (2)

Oil Industry Myth (1) - Certainty Oil Industry Myth (2) - $000,000s = Judge Judges/QC Arbitrators are NOT Engineers Judges/QC Arbitrators are NOT Oilmen Widen The Options Think ‘outside the box’ Take Risks – Caution is Expensive

CONCLUSIONS (3)

Oily Arbitrators and Expert Determiners

RULE THE WORLD Or should do !!!!!! The CATS case proves the point

THANK YOU for

your ATTENTION