Asset rich oil and gas multinationals need enforceable global resolution.
International arbitration is now conclusively the most preferred form of dispute resolution for cross-border disputes, including in the oil and gas industry. In a new study published today by Queen Mary University of London (QMUL), in partnership with global law firm White & Case, 90% of the respondents surveyed prefer international arbitration to resolve cross-border disputes. This finding shows a significant increase from QMUL's first international arbitration survey in 2006, where the figure was 73%.
The research reflects that oil and gas companies favour international arbitration because it enables them to select arbitrators who have specialist knowledge of the industry (chosen by nearly 40% of respondents) – something which national court systems can often lack – and allows for claims to be heard in private (chosen by nearly a third of those asked). More importantly, however, oil and gas companies prefer this method of dispute resolution thanks to the greater enforceability and finality of arbitral awards worldwide (chosen by nearly 65% of respondents).
White & Case partner Matthew Secomb said: "In the high stakes world of oil and gas, disputes are often between long-term contract partners, and companies sometimes need encouragement to comply with awards. Achieving finality is critical. This is where international arbitration is particularly useful in enabling a company to resolve an issue for good.
"What's more, major oil and gas companies often have assets across the world and the global enforceability of this method of dispute resolution is a key advantage. International arbitration is a reliable, neutral way to achieve a final and enforceable decision. When the value of claims pursued in the oil and gas industry can exceed US$1 billion, it has never been more important for the industry to choose the right way to resolve disputes."
London and Paris continue to be the preferred venues for international arbitration. They were ranked by respondents as the most used seats over the past five years (45% and 37%, respectively) and the most preferred seats (47% and 38%). However, reflecting the growing importance of Asia for large oil and gas projects, the study shows that Hong Kong and Singapore are gaining momentum, coming in third and fourth. Singapore is perceived to be the most improved seat for international arbitration over the past five years, with Hong Kong following closely behind.
Matthew Secomb continued: "A huge part of the oil and gas industry is about managing risk and this extends to the choice of where to pursue a dispute. It's easy to understand why London and Paris are the most used seats, as legal counsel look for tried and tested venues. However, the growth of emerging markets in Asia has created a flow of capital between west and east – often to fund significant oil and gas projects and mega-infrastructure developments. Singapore and Hong Kong are the two natural seats for disputes between oil and gas companies from different Asian countries or which operate in Asia. And with the low oil price hanging over the industry, we are expecting to see a range of issues arising – from gas and LNG pricing disputes to projects being cancelled because the economics no longer work. In this environment, Singapore and Hong Kong will likely only increase in importance as centres for international arbitration."
When respondents were asked to choose their three preferred institutions, just over two-thirds (68%) included the International Chamber of Commerce (ICC) in their answer, and more than one-third (37%) included the London Court of International Arbitration (LCIA), mirroring the results from the 2010 International Arbitration Survey. The Hong Kong International Arbitration Centre (HKIAC) and the Singapore International Arbitration Centre (SIAC) came in third and fourth (28% and 21%, respectively). The Survey revealed that institutions are primarily chosen due to their high level of administration, neutrality/internationalism and ability to administer arbitrations worldwide.
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