Energy sector arbitration in Latin America
The arbitration culture in Latin America has exploded, driven largely by a desire to avoid litigation in the courts. Many states have adopted arbitration laws that are similar to the United Nations Commission on International Trade Law (UNCITRAL) Model Law on Commercial Arbitration, and many public and private energy companies in the region have adopted contracts or legislation that select arbitration as a dispute resolution mechanism. The leading arbitral institutions keep statistics on this, and they tell us that arbitration of energy-related disputes in the region is strong – whether such disputes are pursuant to a contract or an international investment protection treaty. Nothing here is surprising, and in fact growth has been sustained for years.
International energy companies operating in Latin America regularly choose arbitration as their primary means of resolving important contractual and investment disputes. Arbitration offers many advantages for these companies, including flexibility, efficiency, confidentiality and access to high quality and expert decision makers. The most significant advantages for these companies, however, may be the neutrality of the forum, the ability to have a significant say over the process and the worldwide enforceability of arbitration awards. Latin America comprises many jurisdictions with different regulatory approaches to arbitration and to the energy sector. However, across many of those jurisdictions the energy sector needs and actively seeks investment of foreign capital, technology and human resources. Acceptance and promotion of arbitration has been an important element of attracting that kind of investment. Many Latin American jurisdictions have adopted arbitration-friendly legal regimes, both international and local arbitral institutions have flourished in Latin America and the practice of arbitration has grown dramatically across the region.
Many key energy participants in Latin America are state-owned and foreign, all of which can directly implicate these treaties depending on the circumstances of each case. These treaties can impose important obligations on states and state-owned companies regarding energy projects, such as obligations related to pricing agreements, licensing and regulatory schemes. In an industry that is rapidly changing due to technological advances and recent emphasis on renewables, regulatory schemes struggle to keep up and are bound to be a key subject of many energy disputes in the future.
Energy companies should try to avoid having disputes in the first place, which they often do by achieving clear agreements on legal rights and obligations at the outset, and by good project management. But when arbitration disputes arise, they can take many steps to improve their chances of a satisfactory outcome. Among these steps are, first, getting the right people involved. This is not just selecting the right arbitrators or hiring the right counsel and experts, but also making sure that the company is ready for the case and has good internal leadership who can provide direction, access resources within the company and make timely decisions. Second, parties should develop case strategies that align with the company’s overall strategy for the sector, the region and the project. For example, if a dispute relates to a one-off project that cannot be salvaged, the company might make strategic decisions that differ from those it would make in a case involving a long-term project in which it will continue to have to work with its adversaries in the arbitration. Disputes of this kind may be more suitable for resolution through constructive negotiations or mediation, which experienced arbitration counsel can help facilitate. Finally, companies should master the technical issues and develop a deep understanding of how effectively to relate them to the legal rights and claims. Energy sector disputes often will turn on technical issues. A party that is sophisticated about those issues, and how to frame and present them to the tribunal, will find itself with a distinctive advantage over a party that treats them superficially.
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