19 Mar 2015
Will Australia's first dedicated Energy and Resources Arbitration Centre meet the needs of industry?
The Perth Centre for Energy & Resources Arbitration could give the region's energy and resources sector a fresh incentive to consider arbitration at the contract-drafting stage.
Arbitration is a popular dispute resolution mechanism in the energy and resources industry but poorly considered arbitration clauses and ad-hoc arbitration processes leave parties dissatisfied. Below, we note key points on why the Perth Centre for Energy & Resources Arbitration could be considered during the contract-drafting stage to facilitate a better outcome.
Choosing arbitration over litigation
The choice of arbitration over litigation is intended to provide a flexible and effective alternative to litigation. But it is not without its complications.
Parties using poorly considered arbitration provisions may learn, after the dispute has been initiated, that the provisions are inadequate or are themselves a source of dispute. Disputing parties are then left to agree on a myriad of crucial issues from the appointment and scope of the arbitral tribunal (and award-making powers) through to practical matters associated with procedure and the conduct of the hearing.
The decision to include an arbitration clause in a contract (or not), or to rely on arbitration to resolve a dispute (or not), must be an informed commercial choice based on the nature of the transaction or interests giving rise to the dispute, the relationship between the parties, practical procedure, the perceived expertise and experience of the relevant courts and the "finality" of an arbitral award.
Choosing an arbitral institution
There are well known arbitral institutions across Australia, the Asia-Pacific and elsewhere. Parties in the energy and resources industries (E&RI) may wish to also consider a newcomer, the Perth Centre for Energy & Resources Arbitration (PCERA).
Recently launched, PCERA is solely dedicated to resolving E&RI disputes. PCERA:
- is a not-for-profit centre for arbitration and expert determination which aims to facilitate the efficient, effective and expert determination of disputes; and
- recognises that E&RI disputes can involve complex and technical issues. These require resolution through a combination of legal, dispute resolution and industry expertise.
- (institutional framework) offers an institutional framework to enhance the benefits of arbitration and is governed by a set of specially developed principles to produce efficient fast-track outcomes in E&RI disputes (PCERA Arbitration Principles).
- (dedicated E&RI expertise) is solely dedicated to resolving E&RI disputes, unlike the more traditional arbitration venues. PCERA's Advisory Committee comprises leading international arbitration practitioners. PCERA arbitrators include both Australian and international professionals with expertise in various stages in the life of E&RI projects.
- Proximity to projects and intellectual capital: PCERA is located in Perth, a regional hub for E&RI activity. It is geographically close to natural resources and projects in Australia, specifically, and both the Asia-Pacific and African regions, generally. PCERA benefits from a sophisticated community of legal and technical E&RI experts, and there are centres of learning dedicated to E&RI at both the University of Western Australian and Curtin University.
Is it a one stop shop? (Yes, it is)
PCERA handles disputes in all stages in the life of E&RI projects including:
- Exploration and Project Development: prospecting and exploration; licences and permits; supporting infrastructure projects (access issues for railways and highways, and water, gas, and electricity pipelines); State agreements; project and associated infrastructure financing; construction; and product liability.
- Established Projects: sales contracts for oil & gas, iron ore, coal, gold, nickel, alumina and other commodities (spot sales and long-term contracts, both domestic and international); chemical supply; energy supply; mining, extraction and refinery processes; debts, collections, payments and security; gas and electricity pricing; royalties; derivatives; port, shipping and admiralty matters; joint venture issues involving partners and operators; and mine & field closure issues (including environmental liabilities).
Should you incorporate a "PCERA clause" into your contracts?
It is likely that E&RI participants in Australia, the Asia-Pacific region and Africa who view arbitration favourably will begin to consider seriously what PCERA offers during the contract-drafting stage. This is even more so given that:
- Although arbitration remains regarded by E&RI companies as a good way to resolve disputes confidentially, companies are increasingly focused on getting better value from the process.
- Most disputes are settled through direct negotiation or mediation. But when this is impossible, considerations such as the strength of a party's legal position, the strength of the available evidence and the amount of recoverable damages demand a sophisticated yet efficient arbitration process.
- E&RI companies often have a higher regard for an arbitrator's commercial understanding of their industry over his/her pure technical knowledge or qualifications. The commercial considerations of disputing parties are notably becoming increasingly diverse both in terms of the underlying market factors and their implications for long-term price changes and cost implications.
- Senior executives and officers often have the final say on whether to initiate proceedings by way of arbitration or litigation. But in-house counsel have, perhaps, the greatest influence over the matter and are likely to appreciate the benefits of PCERA's offering.