What are the advantages of using arbitration to resolve international infrastructure project disputes?

Infrastructure projects can be transformative. Whether it is energy, transport or technology, these developments can radically alter our physical and socioeconomic landscapes. These factors bring with them high stakes: international infrastructure projects are expensive, complex, often involve multiple parties across various jurisdictions and, often, government concessions and participation. Therefore it is vital for parties to manage risk and to identify at the outset of a project the best route for dispute resolution.

Key features and advantages of arbitration

Arbitration offers parties a flexible, neutral and confidential process to resolve international infrastructure project disputes by experienced arbitrators, culminating in an award which is final and widely enforceable.

Consent

The foundation of commercial arbitration is consent: the parties must agree to submit their disputes to arbitration.

Typically this "arbitration agreement" is reflected in the parties' contract, which will nominate arbitration as the dispute resolution forum. Alternatively the parties may enter into a standalone agreement to arbitrate.

In either case, the parties can also agree other details, for example, the arbitrator to be appointed, the procedure and whether a dispute will be resolved at a hearing or on the papers only.

Neutrality

Arbitration is well-suited to resolving international infrastructure disputes because it offers a neutral forum for parties from different jurisdictions, without forcing one party to submit to the national courts of another.

This neutrality may be reinforced by the choice of a "seat" of the arbitration and of a set of procedural rules from an arbitral institution. The law of the seat (that is, the legal place of the arbitration) governs the arbitration procedure and gives a "nationality" to the proceedings and the award. A seat in an impartial and pro-arbitration jurisdiction provides the parties with a neutral forum in which to resolve their disputes, according to the governing law of the contract. Popular arbitral seats include London, Paris, Geneva, New York and Singapore.

Procedural rules

The parties must agree to apply either an arbitral institution's procedural rules or ad hoc rules, which will govern the conduct of the arbitration together with the law of the seat. If the parties select the former, that institution will also administer the arbitration (assist with the constitution of the tribunal, the running of the proceedings and the payment of the costs of the arbitration).

Parties should consider whether their chosen rules contain procedures that will assist them in an international infrastructure project dispute, for example, emergency arbitration and expedited options, as well as joinder and/or consolidation provisions in cases of multiple parties and/or related contracts.

Well-regarded arbitral institutions include the London Court of International Arbitration (LCIA), the International Chamber of Commerce (ICC) and the Singapore International Arbitration Centre (SIAC), and many jurisdictions that historically had no arbitral institution are either in the process of or have recently established their own institutions.

Confidentiality

Unlike public court proceedings, arbitrations are typically confidential. Subject to certain limited exceptions, the existence and details of a case, any documents produced or submitted, any hearings, and any orders and awards are therefore confidential.

This is particularly relevant where parties are concerned about risk to reputation or the impact on stakeholders of a dispute becoming public.

Arbitrator skill sets

Parties can select a preferred arbitrator, taking into account the arbitrator's experience, expertise and language skills.

For example, in a highly specialised infrastructure project dispute, a party might seek out an arbitrator with experience in that particular field to shortcut detailed technical explanations which court judges might otherwise require.

Flexibility

Parties can agree to a procedure (by reference to the chosen procedural rules) that is suitable for the nature of their contract and the dispute, and the arbitral tribunal can give tailored case directions.

Finality

The grounds to challenge or appeal an arbitral award are generally very limited, depending on the law of the seat.

Typical grounds include lack of jurisdiction, procedural impropriety and appeal on a point of law, but the bar is set very high and so parties can expect a degree of certainty and finality in the outcome of an arbitration. Further, where institutional rules govern the procedure, appeals on points of law are often excluded by party agreement.

Enforcement

The New York Convention is the cornerstone of the enforcement of arbitral awards across the world. In short, it allows an award rendered in one of the 170+ signatory states to be enforced in any of the other signatory states, as if it were a local court judgment.

This avoids the often complicated, lengthy and costly process of enforcing a court judgment in one state before the courts of another state.

Investment treaties

Investment treaties are international agreements between two or more states that provide the terms and conditions under which private investors from one country invest in another. There are two main types:

• Bilateral investment treaties (BITs) are agreements between two states.
• Multilateral investment treaties (MITs) are agreements between more than two states (such as the Energy Charter Treaty (ECT) and the North American Free Trade Agreement (NAFTA)).

Under these treaties, each state offers private investors of the other contracting state specific guarantees of protection for investments they make in the territory of the receiving state, for example: the receiving state must not favour domestic investors' interests over foreign investors' interests; offer better protections to other foreign investors under other investment treaties; or expropriate foreign investors' investments without providing prompt, adequate and effective compensation.

Foreign investors access these protections by virtue of being a national of a state which is a signatory to an investment treaty with the state where the investment was made. Therefore investors (including those considering investing in an international infrastructure project) should conduct "treaty planning" to ensure an investment treaty is in place. If not, these protections will be unavailable.

What is investment treaty arbitration?

Investment treaties provide a route for a foreign investor to refer a dispute against a receiving state for breach of its treaty obligations to an independent arbitral tribunal, whose decisions are binding on the state. The dispute settlement process is a protection within the treaty itself and takes the form of an international arbitration.

Investment treaty arbitrations are similar to typical commercial arbitrations in many ways, however, there are some minor but important differences.

Specific characteristics of investment treaty arbitrations include:

• an investor is not party to the treaty, therefore the arbitration agreement takes the form of a standing offer by the contracting state to arbitrate qualifying disputes under the treaty;
• an investor will always be the claimant and the receiving state will always be the respondent;
• the definition of "investor" varies from treaty to treaty and might include natural persons, corporations, business associations and government-related entities;
• domestic/national laws can have limited relevance, with tribunals applying the terms of the relevant treaties and public international law and conventions to resolve disputes;
• an investor has no role in choosing the applicable procedural rules, which are identified in the treaty;
• there is a greater likelihood that the arbitration and any award will become public; and
• political factors may influence the arbitration.

Osborne Clarke comment

When parties are providing for the possibility of a commercial arbitration, they should check applicable law and dispute resolution provisions in their infrastructure project contracts with a disputes lawyer at the stage of drafting. Not having such provisions or having bad provisions will likely add significant time and cost in the event a dispute arises.

For investment arbitration, investors should check the legal mechanics for the structuring of the international infrastructure project to maximise protection from investment treaties.

If you are considering an international infrastructure project and would like to ensure that you have the right protections in place, or have any questions on the topic, get in touch with one of our commercial and investment arbitration specialists.

Further information is also available in our Arbitration Toolkits, reach out to your Osborne Clarke arbitration contact for more details.