Legal development

Renewables projects five reasons why you should be thinking about international arbitration

Insight Hero Image

    Arbitration is the preferred dispute resolution mechanism in international energy projects. The increasing global pressure to address climate change issues arising most recently from COP26 will mean renewed and increased focus on expansion of and diversification into the renewables sector. The widescale adoption of rapidly advancing technology, sometimes in new or larger applications and more strenuous operating environments than seen previously, and its use by relatively new players in the sector, can and will give rise to commercial disputes.  We set out below five key reasons why international arbitration should be considered the dispute resolution mechanism of choice for such projects.

    1. Neutrality and global enforceability: It is common for renewables projects to involve a number of international parties, whose assets might be located in jurisdictions other than those in which the project or other parties are based. Subjecting disputes to international arbitration rather than domestic court litigation will mean that the 'winning party' is better able to enforce its rights. There are over 160 state parties to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), pursuant to which arbitral awards can be enforced in contracting states as if they were a judgment of the national courts. International arbitration can also be perceived as a more neutral forum for disputes than the domestic courts of one of the contracting parties.
    2. Decision-makers with relevant experience: Renewables projects often involve complex, and sometimes pioneering and relatively "untried and untested", technology (or, at least, existing technology being put to use in a new, larger or more arduous operating environment, or by a party who might not be completely familiar with it). Specific types of contractual frameworks are also typically used, including power purchase agreements. Unlike in court proceedings, in international arbitration the parties are able to choose who will hear their dispute. That means decision makers with relevant industry experience or familiarity with the specific technology involved can be appointed, rather than the dispute being left in the hands of a court-appointed judge with no or little relevant experience.
    3. Privacy and lack of precedent: In most jurisdictions court proceedings are open to the public. In contrast, international arbitration hearings are typically held in private. The parties can also agree that the arbitral award, and any documents created for or disclosed in the proceedings, are kept confidential. This can be particularly attractive to those involved in the renewables industry, where projects often involve commercially sensitive pricing information and new, developing, or even patented technologies, or where newly emerging "players" might be keen to avoid the adverse reputational consequences that can follow from being known to be embroiled in a dispute.
    4. Finality: Disputes may arise in the renewables sector before construction has completed, or before "Final Acceptance" occurs. A swift resolution will often be important in order to ensure that delay is minimised, the parties are not exposed to costs claims and that any ongoing commercial relationships are preserved. Arbitration results in a final and binding award, in respect of which the rights to challenge (or 'appeal') are more strictly limited than is often the case with court judgments. A number of arbitral institutions now offer expedited forms of proceedings, which can speed up the process of achieving certainty and finality.
    5. Flexibility of process: The flexibility inherent in the arbitral process means that the parties can - if appropriate - agree a shorter timetable than might otherwise be the case in court proceedings. They can also agree on exactly how they will present their cases - in terms of written and oral advocacy and supporting evidence - and, in doing so, ensure that the Tribunal fully understands the issues in dispute and underlying commercial drivers. In short, the parties have more control over the procedure in international arbitration proceedings. An area where this can be particularly beneficial is "document production" - the arbitration equivalent to disclosure/discovery in litigation. The process is generally more narrow in international arbitration, and the parties can agree to narrow it further, or agree to abide by helpful rules and protocols which further streamline the process (and consequently avoid substantial time and costs being spent on document review).

    We have extensive experience of acting in international arbitration proceedings in the renewables sector. The first steps in any successful arbitration are getting the arbitration agreement right. Failing to do so can lead to costly and time consuming satellite disputes, potentially heard in the forum that you had been seeking to avoid.

    We can advise on the drafting of arbitration agreements so as to ensure that the most appropriate forum and procedural rules are chosen, and that the dispute resolution clause is enforceable and not susceptible to enforcement risk. We can also advise on how proceedings can be most effectively and efficiently conducted when the arbitration agreement has been invoked.

    Do get in touch if you would like to know more.

    Authors: Emma Johnson, Lucy McKenzie

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


    Stay ahead with our business insights, updates and podcasts

    Sign-up to select your areas of interest