SCC Spotlight Talk: Tom Melbye Eide

SCC manages considerable number of energy-related arbitrations, including those against states. As a former General Counsel for a major energy corporation, could you highlight the primary reasons behind choosing arbitration over other dispute resolution methods for energy-related claims, including those against states? 

As a former General Counsel with diverse energy industry experience, I've seen that arbitration is the preferred choice for resolving energy-related disputes. Large energy projects, whether upstream joint ventures or downstream operations, often depend on government concessions or specific investment agreements. Arbitration offers advantages such as legal certainty, fair treatment, and a quicker resolution compared to courts. For energy projects, English law, a recognized seat, and institutions like SCC are preferred. Access to qualified legal experts and New York Convention signatories are crucial. In trading and supply disputes, ad-hoc arbitration is standard practice, often on LMAA terms but also institutional arbitration do occur for example involving  SCC. In renewable energy, practices vary with new entrants, making it an evolving area.

How did your legal team evaluate the risks and benefits associated with potential seats for arbitration? 

In the energy companies I've worked with, risk assessments were standard practice. These assessments covered political systems, investment climate, legal frameworks, and contractual terms, including dispute resolution. Key factors included the choice of substantive law, arbitration seat, and procedure. For agreements with host governments in joint ventures, discussions with partners were essential. International energy companies typically preferred respected arbitration institutions like SCC, LCIA, ICC, or Singapore. Each institution had its strengths and weaknesses, but they were generally seen as equal. Host governments sometimes had preferences based on prior experiences, with Francophone countries favoring ICC Paris, Commonwealth countries opting for LCIA in London, and former Soviet Union countries and China leaning towards SCC. Singapore also held a strong position among Asian countries.

How did you navigate the challenges of enforcing arbitral awards against states?

In addressing the enforcement challenges of arbitral awards against states, several factors were considered. This included assessing whether the country was a signatory to the New York Convention and had bilateral investment treaties in place. Signatory status to the Energy Charter Treaty was also viewed positively. Additionally, the specific contractual terms played a critical role in ensuring a valid contractual claim in case of expropriation or other unjustified government actions. Evaluating the prospects of award enforcement in the host country and other jurisdictions with available assets was essential. Typically, for large capital projects vital to both local economies and investors, a preference existed for broader package solutions, considering previous awards. Pursuing formal enforcement was often a last resort, with instances where execution outside the host state was a more viable option. In some cases, such as Exxon's exit from Venezuela, pursuing enforcement was the only available solution.

What do you consider to be the most critical trend that energy corporations should take into account when formulating their dispute-resolution strategy today? 

Energy corporations should consider several critical trends when shaping their dispute-resolution strategies today.

Firstly, I expect, particularly for larger projects, a growing demand from international energy companies to use English law or other international recognized laws such as Swiss or Swedish law as substantive law. This shift aims to enhance predictability amidst increasing uncertainty in the energy transition and a more fragmented world with weaker rule of law.

Secondly, international energy companies should be emphasizing internationally recognized arbitration seats to ensure fairness, equality, and improved enforcement. The use of well-known arbitration institutions is on the rise, with host governments being signatories to the New York Convention and having bilateral investment treaties in place remaining crucial.

Moreover, the termination of the Energy Charter Treaty (ECT) is a notable development, impacting, in my view, predominantly medium-sized companies and renewables. A revised ECT could rebalance investor-host government relations in the energy transition.

Lastly, international energy companies are expected to explore alternative dispute resolution methods like mediation and mixed approaches, driven by the need for flexibility, cost-effectiveness, and faster resolution.