Renewables projects: Should you be thinking about international arbitration?

Five reasons which indicate that you should

With continued global demand for green energy, there is a renewed and increased focus on expansion of and diversification into the renewables sector for governments, energy companies and investors alike. 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 and inexperienced players in the sector, means more scope for commercial disputes. 

We set out below five key reasons why international arbitration should be considered the dispute resolution mechanism of choice for renewables projects.

1. Neutrality and global enforceability

Renewables projects often have an international dimension. Due to the large amount of upfront investment and the extensive technical expertise required, it is common for a number of companies to band together to deliver a project. Those companies will likely be incorporated or have assets in different jurisdictions. The project they are jointly working on may be located in a third state. International arbitration might be a more neutral forum for disputes than submitting to the domestic courts of one of the contracting parties. Moreover, international arbitration will mean that the ‘winning party’ is better able to enforce its rights. There are over 170 state parties to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (more widely known as the “New York Convention”), pursuant to which arbitral awards are enforced as if they were a judgment of the national courts in the state where enforcement is sought.

2.  Decision-makers with relevant experience

Renewables projects often involve complicated, technical areas of dispute, whether relating to the underlying technology or financial models based upon which stakeholders agreed to invest in the project. Complex contractual frameworks, including power purchase agreements, might also be used. International arbitration allows the parties to choose who will hear their dispute. For example, they might choose to appoint arbitrators with relevant industry experience or familiarity with the specific technology involved, or experience with performance calculation models or economics more generally. This differs from litigation, where there is generally no control over which judge will hear the dispute.

3.  Privacy and lack of precedent

In most jurisdictions court proceedings are open to the public. In contrast, international arbitration is typically a private process. Hearings are held behind closed doors and in many cases the arbitration rules and/or applicable law will also impose obligations on the parties to keep the fact of the arbitration and any award confidential. The parties can also agree to more stringent confidentiality obligations which prevent them from making use of any information created for or disclosed in the arbitration. 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. It can also avoid public knowledge that newly emerging “players” are embroiled in a dispute, and the adverse reputational consequences that can follow.

4. Finality

Disputes may arise before construction of the project 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 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.

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, as well as supporting evidence and site visits. In doing so, they can ensure that the Tribunal fully understands the issues in dispute and any underlying commercial drivers. 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, forego it entirely, or agree to abide by helpful rules and protocols which 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.