Global Arbitration Review

The Guide to
Energy Arbitrations
General Editor
J William Rowley QC

Editors
Doak Bishop and Gordon E Kaiser

Fourth Edition

© Law Business Research 2020

The Guide to Energy
Arbitrations

Fourth Edition

General Editor
J William Rowley QC
Editors
Doak Bishop and Gordon E Kaiser

Reproduced with permission from Law Business Research Ltd

This article was first published in October 2020

For further information please contact Natalie.Clarke@lbresearch.com

gar
© Law Business Research 2020
Publisher
David Samuels
Account Manager
Bevan Woodhouse
Editorial Coordinator
Pawel Frydrych
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The information provided in this publication is general and may not apply in a specific
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Legal advice should always be sought before taking any legal action based on the
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© Law Business Research 2020

 Acknowledgements

The publisher acknowledges and thanks the following for their learned assistance
throughout the preparation of this book:

BENNETT JONES LLP

CLYDE & CO LLP

EDISON SPA

GIBSON, DUNN & CRUTCHER LLP

HAYNES AND BOONE CDG, LLP

HUGHES, HUBBARD & REED LLP

DOUG JONES AO

GORDON E KAISER

KING & SPALDING

PAUL HASTINGS LLP

SQUIRE PATTON BOGGS (US) LLP

TWENTY ESSEX

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 Publisher’s Note

Global Arbitration Review is delighted to publish The Guide to Energy Arbitration.

For those unfamiliar with GAR, we are the online home for international arbitration
specialists, telling them all they need to know about everything that matters.
Most know us for our daily news and analysis service, but we also provide much,
much more – technical books and reviews, conferences and handy workflow tools, to name
just a few, that go into more depth than the exigencies of journalism allow. (Do visit us at
www.globalarbitrationreview.com to see our full range of output.)
The Guide to Energy Arbitrations, fourth edition, is one such volume.
Because GAR is so central to the international arbitration community, we regularly
become aware of gaps in the literature. The Guide to Energy Arbitrations was the first example
of identifying such a gap and we are delighted at the successful way in which it has been
filled, with the help of so many leading firms and individuals, and the enduring appeal of
this Guide.
If you find it useful, you may also like the other books in the GAR Guides series.
They cover construction, mining, post-M&A disputes, IP, advocacy, damages, and the
challenge and enforcement of awards in the same practical way. We also have a citation
manual – UCIA (Universal Citation in International Arbitration).
On behalf of the whole GAR team, I’d like to thank our editors – Bill
Rowley, Doak Bishop and Gordon Kaiser – for the energy they’ve put into the project, and
my colleagues in production for the elan with which they’ve realised our collective idea.

David Samuels
October 2020
London

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 Contents

Preface������������������������������������������������������������������������������������������������������������������������vii
J William Rowley QC

Overview
The Breadth and Complexity of the International Energy Industry��������������������������������1
Doak Bishop, Eldy Quintanilla Roché and Sara McBrearty

Part I: Investor-State Disputes in the Energy Sector

1 The Energy Charter Treaty�������������������������������������������������������������������������������17
Cyrus Benson, Charline Yim and Victoria R Orlowski

2 Investment Disputes Involving the Renewable Energy Industry under

the Energy Charter Treaty���������������������������������������������������������������������������������45
Igor V Timofeyev, Joseph R Profaizer and Adam J Weiss

Part II: Commercial Disputes in the Energy Sector

3 Construction Arbitrations Involving Energy Facilities����������������������������������������71
Doug Jones AO

4 Offshore Vessel Construction Disputes���������������������������������������������������������������91

James Brown,William Cecil and Andreas Dracoulis

5 Disputes Involving Regulated Utilities������������������������������������������������������������ 102

Gordon E Kaiser

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 Contents

6 NAFTA Energy Arbitrations��������������������������������������������������������������������������� 133

Gordon E Kaiser

7 Gas Supply and LNG Arbitrations������������������������������������������������������������������� 155

Hagit Elul, James H Boykin and Malik Havalic

Part III: Contractual Terms

8 The Evolution of Natural Gas Price Review Arbitrations�������������������������������� 173
Stephen P Anway and George M von Mehren

9 Gas Price Review Disputes: Key Insights for a Successful Resolution�������������� 184
Devika Khanna

10 Gas Price Review Arbitrations������������������������������������������������������������������������ 193

Marco Lorefice

Part IV: Procedural Issues in Energy Arbitrations

11 When Consolidation Fails: The Challenges of Parallel Arbitral Proceedings������ 217
Vasilis Pappas, Romeo Rojas and Gita Keshava

Conclusion
The Challenges Going Forward��������������������������������������������������������������������������������� 233
Gordon E Kaiser

About the Authors����������������������������������������������������������������������������������������������������� 243

Contributors’ Contact Details������������������������������������������������������������������������������������ 253

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Preface

Economic liberalisation and technological change in the past several decades have altered
the global economy profoundly. Businesses, and particularly those involved in the energy
sector, have responded to reduced trade barriers and advancement of technology through
international expansion, cross-border investments, partnerships and joint ventures of
every description.
The move to today’s ‘internationality’ of business and trade patterns alone would have
been sufficient to jet-propel the growth of international arbitration. But when coupled
with the uncertainties and distrust of ‘foreign’ court systems and procedures, the stage was
set for a move to processes and institutions more suited to the resolution of a new world
of transborder disputes.
Not surprisingly, the concept and number of international commercial arbitrations have
grown enormously during the past 25 years. Bolstered by the advantages of party autonomy
(particularly over access to a neutral forum and the ability to choose expert arbitrators),
confidentiality, relative speed and cost-effectiveness, as well as near worldwide enforce-
ability of awards, the system is flourishing. And if a single industry sector can lay claim to
parental responsibility for the present universality of international arbitration as the go-to
choice for the resolution of commercial and investor-state disputes, it must be the energy
business. It is the poster boy of arbitral globalisation.
Led by oil and gas, the energy sector is marked by enormously complex, capital-intensive
international deals and projects, frequently involving prominent parties and state inter-
ests. Transactions and partnerships are often long-term and involve ‘foreign’ places and
players. Political instability and different cultural backgrounds characterise many of the
sector’s investments. In short, the energy sector is a natural incubator for disputes best
suited to resolution through international arbitrations. And despite recent international
trade disputes and the appearance earlier this year of the novel coronavirus, both of which
are leading to a degree of restructuring of cross-border investments and supply chains, there
is no sign that this will diminish the popularity of (and need for) international arbitration.

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 Preface

Indeed, in the past 50 years or so, following a rash of nationalisations in North Africa,
the Gulf States and parts of Latin America, and the lessons learned in ‘foreign courts’, there
is scarcely a major energy sector contract (whether oil, gas, electric, nuclear, wind or solar)
that does not call for disputes to be resolved before an independent and neutral arbitral
tribunal, seated, where possible, in a neutral, arbitration-friendly place.
The experience and statistics of the major arbitral institutions bear out the claim that
the energy sector has driven, and continues to account for, major growth in international
arbitration. ICSID is illustrative, where 42 per cent of its caseload in 2019 involved the
energy sector. At the LCIA, case statistics for 2019 revealed that the energy and resources
sector had the highest number of parties, both as claimants and respondents. Between
2014 and 2015, the Stockholm Chamber of Commerce Arbitration Institute saw a 100 per
cent increase in the number of its energy-related cases.
Although much of the evidence of the energy sector’s arbitral demand is anecdotal,
those arbitrators who are known in the field report growing demand and a steady increase
in enquiries as to availability. And having regard to the multifaceted fallout from the
oil price crash of earlier this year, a revival of resource nationalism (which exacerbates
the natural tension between energy investors and host states), with Russia’s continuing
economic difficulties and a world in which sanctions, as well as the covid-19 pandemic,
imperil contractual performance, the only realistic expectation is for further reliance on
arbitrators and arbitral institutions coping with the disputes that are surfacing daily.
Another driver towards arbitration of energy disputes is the fact that the number of
substantive players in the sector is relatively limited. These parties will invariably have
multiple agreements, partnerships and joint ventures with each other at the same time,
many of which are long-term. These dynamics call for disputes to be resolved by decision
makers who are known to and trusted by all, and whose decisions are final. The simple
fact about business is that the economic uncertainty associated with an unresolved dispute
overhanging a long-term partnership is often considered to be more problematic than
getting to its quick and definitive resolution, even if the resolution is unfavourable in the
context of the particular deal.
Against this backdrop, when Gordon Kaiser raised the question with me in the summer
of 2014 of producing a book that gathered together the thinking and recent experiences of
some of the leading counsel in the sector, it resonated immediately. Gordon was also more
than pleased when I suggested that we might try to interest Doak Bishop as a partner in the
project.With Doak’s acceptance of the challenge, we have tried, in the first three editions of
this guide, to produce coherent and comprehensive coverage of many of the most obvious,
recurring or new issues that are now faced by those who do business in the energy sector
and by their legal and expert advisers.
Before agreeing to take on the role of general editor and devoting serious time to the
project, we needed to find a publisher. Because of my long-standing relationship with Law
Business Research (LBR), the publisher of Global Arbitration Review (GAR), we decided
that I should discuss the concept and structure of our proposed work with David Samuels,
GAR’s publisher, and Richard Davey, then managing director of LBR. To our delight, the
shared view was that the work could prove to be a valuable addition to the resource mate-
rial available. On the assumption that we could persuade a sufficient number of those we
had provisionally identified as potential contributors, the project was under way.

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 Preface

Having taken on the task, my aim as general editor has been to achieve a substantive
quality consistent with The Guide to Energy Arbitrations being seen as an essential desktop
reference work in our field. To ensure the high quality of the content, I agreed to go
forward only if we could attract as contributors colleagues who were some of the interna-
tionally recognised leaders in the field. The guide is now in its fourth edition, and Doak,
Gordon and I feel blessed to have been able to enlist the support of such an extraordinarily
capable list of contributors over the years.
The fourth edition of The Guide to Energy Arbitrations has been expanded with a new
chapter on gas supply and LNG arbitrations.The remaining chapters have all been updated
to reflect developments since 2018.
In future editions, we hope to fill in important omissions, such as the changing dynamics
of investment cases under the Energy Charter Treaty, including the consequences of the
Achmea decision of the European Court of Justice; the contours of fair and equitable treat-
ment; injunctions against and the setting aside of awards; bribery and corruption; sovereign
immunity and enforcement issues; force majeure and contractual allocations; and intellectual
property and insurance disputes in the energy sector.
Without the tireless efforts of the GAR/LBR team, this work not would have been
completed within the very tight schedule we allowed ourselves. David Samuels and I are
greatly indebted to them. Finally, I am enormously grateful to Doris Hutton Smith (my
long-suffering PA), who has managed endless correspondence with our contributors with
skill, grace and patience.
I hope all my friends and colleagues who have helped with this project have saved us
from error – but it is I alone who should be charged with the responsibility for such errors
as may appear.
Although it should go without saying, this fourth edition will obviously benefit from
the thoughts and suggestions of our readers, for which we will be extremely grateful, on
how we might be able to improve the next edition.

J William Rowley QC
October 2020
London

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Overview

The Breadth and Complexity of the International Energy Industry

Doak Bishop, Eldy Quintanilla Roché and Sara McBrearty1

This chapter introduces the general nature and organisation of the international energy
industry, specifically as it relates to international arbitration practitioners. The interna-
tional energy industry is the single largest user of international arbitration, and thus it is
of particular interest to arbitral practitioners. Many arbitral advocates and arbitrators will
be involved at some point in their careers with the industry. For its part, given its breadth
and complexity and the size of many controversies, the industry has need of a truly inter­
national, neutral and tailored mechanism for resolving disputes, and that need is addressed
by international arbitration.
The breadth and complexity of the energy industry stems from its truly international
scope, the multitude of energy sources, transactions, actors and stakeholders, as well as from
its evolving nature.Traditional energy sources – oil, gas, coal and nuclear power – have been
complemented with the expanding field of alternative energy (e.g., solar, wind, geothermal,
biomass, hydrogen and hydropower). The transactions involved in the industry range from
bidding arrangements to exploration, drilling, exploitation, transportation, marketing and
many more.
Despite various mergers of private oil companies, the participants in the industry are
quite robust and diverse. The industry is no longer dominated by the ‘seven sisters’2 – the
original ‘major’ oil companies – but instead, independent and national oil companies are
strong players in the field. In fact, state oil companies today dominate the industry in terms
of reserves. Various oil-service companies are also important participants. Additionally, the
economic viability of certain projects has changed dramatically, given the level and vola-
tility of oil prices. In turn, this has led in great part to the increased need to carry out

1 Doak Bishop is a partner, and Eldy Quintanilla Roché and Sara McBrearty are senior associates, at King
& Spalding.
2 Anglo-Persian Oil Company, Gulf Oil, Standard Oil of California, Texaco, Royal Dutch Shell, Standard Oil of
New Jersey and Standard Oil Company of New York.

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 The Breadth and Complexity of the International Energy Industry

decommissioning activities.3 The availability of new technologies for exploration, exploita-

tion and transportation have also altered the global oil and gas market. All these develop-
ments have spurred new laws and environmental policies regulating the industry.
Although defining the breadth and complexity of the international energy industry is
difficult, this chapter outlines some general background and areas of focus, although one
should note that the industry will inevitably change in the coming years.

Oil and gas: overview of the traditional energy sector

It is estimated that US$48 trillion of investment will be required to supply the world’s
energy needs up to the year 2035.4 According to the International Energy Agency, nearly
two-thirds of this investment will take place in emerging economies.5 And while most
of the energy resources are state-owned, private sector investment is essential to meeting
energy investment needs.6 This in turn requires foreign direct investment and the participa-
tion of international petroleum companies.
The energy sector began to develop in the first half of the 20th century and grew rapidly.
In the early years, many governments granted generous concessions to international petro-
leum companies. Beginning in the 1950s and accelerating in the 1970s, numerous conces-
sions were expropriated or renegotiated, providing governments with a higher percentage
of the revenues and greater control over production.7 Some commentators have suggested
that modifications and renegotiations are inevitable given the lengthy lifespan of energy
investments, emerging laws and changing political climates.8 Nevertheless, the sanctity of
contractual commitments and legal security remain critical to energy investments.
Most countries follow the regalian or dominial systems regarding ownership of
subsurface minerals. Under these systems, subsurface minerals belong to, or are controlled
by, the sovereign.9 Thus, international petroleum companies need permission from the state

3 Decommissioning is the industry-preferred term for the work necessary to manage and dispose of oil and gas
infrastructure and to minimise or eliminate environmental footprint once a producing well or field is no longer
economically viable. The term ‘abandonment’ is also used to describe decommissioning activities. See Flávia
Kaczelnik Altit and Mark Osa Igiehon, 'Decommissioning of Upstream Oil and Gas Facilities', in Oil And Gas,
A Practical Handbook, Global Business Publishing (2009) at 257; Peter Cameron, Decommissioning of Oil & Gas
Installations: The Legal & Contractual Issues, Association of International Petroleum Negotiators (1998), p. 4.
4 International Energy Agency, ‘World Energy Outlook’, 11 (2014), available via
www.worldenergyoutlook.org/investment.
5 id.
6 See, e.g., id., at 11 to 12.
7 R Doak Bishop, International Arbitration of Petroleum Disputes: the Development of Lex Petrolea, XXIII YB Com. Arb.
1131, 1151 (1998).
8 See, e.g., Crina Baltag, The Energy Charter Treaty:The Notion of Investor, 25 Int’l Arbitration Law Library, 2 (2012)
(stating that ‘the life span of energy investments often forces the modification of the terms of the agreements
between investors and governments’) (internal citations omitted); David W Rivkin, Sophie J Lamb, Nicola
K Leslie, ‘The Future of Investor-State Dispute Settlement In The Energy Sector: Engaging With Climate
Change, Human Rights and The Rule Of Law’, Journal of World Energy Law and Business, 2 (2015) (stating that
investments in the energy industry are especially vulnerable to regulatory change and political interest).
9 Patrick Wieland, ‘Going Beyond Panaceas: Escaping Mining Conflicts In Resource-Rich Countries Through
Middle-Ground Policies’, 20 NYU Envtl LJ 199, 208 (2012–2014); Thomas W Merrill, Four Questions about
Fracking, 63 Case W Res L Rev 971, 977 (2012–2013).

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 The Breadth and Complexity of the International Energy Industry

to operate in these countries.10 States define the conditions for investors to carry out their
activities, and these are ultimately reflected in a granting agreement (i.e., a legal instrument
by which the government directly, or through a state-owned company, grants the private
oil company the right to certain interests in the hydrocarbons within the country, either in
place or after production).11 The types of granting agreements vary depending on the host
country’s laws, economy, and social and political policies.
Generally, but certainly not invariably, one could categorise the granting instruments
geographically by saying that international petroleum companies enter into production
sharing agreements with governments in Asia and Africa, licences with governments in
Europe and service agreements (or risk service agreements) with governments in South
America.12 However, these geographical categorisations are not invariable, and these
different types of agreements are adopted by some countries in the other geographical areas
as well. Moreover, various elements of each of these types of agreements may be combined
in a hybrid contract.
A production sharing agreement often requires the participation in drilling and produc-
tion activities of a local, government-owned company, often including a carried interest
for any exploratory wells. Through the government-owned company’s participation in the
project, as well as royalties, bonuses and taxes paid to the government, the government’s
percentage ‘take’ of the total revenues of a project is often substantial.13 The percentage of
government ‘take’ will vary from country to country, depending on many factors, such as
historical agreements, costs, and geological and financial risks. The government ‘take’ is an
important consideration for international oil companies in deciding whether to invest in
a given country, and at times it can be a matter of competition between governments for
hydrocarbon investments.
An international petroleum company entering into an agreement with a govern-
ment may act on behalf of a consortium of companies, which enter into a joint operating
agreement to define, among themselves, their rights and obligations in the venture. The
joint operating agreement will typically attach an accounting procedure to determine the
method of calculating the costs to be shared.14 The consortium usually acts through one of
its members, which serves as the operator, although the consortium’s decisions are usually
made by a committee, with the operator carrying out the decisions. To fund operations,
the operator issues cash calls to the members, the prompt payment of which is necessary
to ongoing operations.
The evaluation, bidding, negotiation and acquisition phases of a project may be
governed among the consortium members by a participation agreement, a study and
bidding agreement, or a confidentiality agreement.15 Companies may agree to areas of
mutual interest in which they bind themselves to participate only with one another in

10 Thomas W Merrill (footnote 9, above), 971, 977.

11 Claude Duval, et al, International Petroleum Exploration and Exploitation Agreements: Legal, Economic & Policy Aspects,
23 (2009).
12 R Doak Bishop (footnote 7, above), 1131, 1152.
13 id.
14 id.
15 id.

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acquiring future interests within a defined area. Drilling agreements must be negotiated
among oil companies and drilling companies. Many of these agreements now involve
expensive offshore drilling platforms or ships, and may involve extensive coordination
with other oil service companies. If the drilling is successful and production is economic
(commercial), offtake agreements will be entered into by the members of the consortium
to set out the method and procedure by which they will nominate and lift their share of
the production for shipping and export.16 If one consortium member takes more than its
share in a given period, balancing agreements may be necessary. Transportation agreements
of various types will also be necessary for shipment, generally by sea or by pipeline. Finally,
crude oil sales or exchange agreements will be negotiated by the companies to dispose of
their product. Each of these agreements, and each step of this chain, involves numerous
issues that may create a dispute and a need for international arbitration.17
International contracts not only deal with oil, but also with natural gas. Natural gas
is found in oil reservoirs (associated gas) or by itself (non-associated gas). The traditional
methods for natural gas exploration are the same as for oil.18 In the past, wells drilled for oil
that discovered only natural gas were often plugged because of the expense of transporting
the gas and the lack of a natural gas infrastructure in most countries.19 This has changed
because of innovations in extraction and transportation technologies, and the development
of gas infrastructures in many nations.These innovations have changed the landscape of the
oil and gas industry and created new international issues.
The increase in natural gas production has facilitated advancements in transportation
technology. In the past two decades, companies have become more willing to bear the
expense of facilities to transport natural gas by pipeline, to construct liquefied natural
gas (LNG) facilities, or to consume gas locally through power plants. Historically, many
contracts with host governments for oil exploration and production included only a short
provision stating that if non-associated natural gas was discovered in commercial quanti-
ties, then the parties would negotiate a new agreement for the exploitation of the gas. This
agreement to negotiate has raised challenges for the international petroleum industry.20
Horizontal drilling and hydraulic fracturing, or ‘fracking’, is yet another significant
technological advancement.21 Fracking allows access to oil and gas trapped in imperme-
able rock.22 It was pioneered in the United States and has returned the US to ‘the role
of energy-producing super-power’.23 Other countries are considering implementing this
technology, including China, Argentina, Australia, Canada, Mexico and South Africa.24 This

16 id.
17 R Doak Bishop (footnote 7, above), 1131, 1152.
18 Claude Duval, et al (footnote 11, above), 182.
19 R Doak Bishop (footnote 7, above), 1131, 1152.
20 id.
21 Thomas W Merrill (footnote 9, above), 971, 972; John M Golden, Hannah J Wiseman, The Fracking Revolution:
Shale Gas a Case Study in Innovation Policy, 64 Emory LJ 955, 957 (2014–2015).
22 Thomas W Merrill (footnote 9, above), 971, 972.
23 John M Golden, Hannah J Wiseman (footnote 21, above), 955, 957. See also Alexandra B Klass, Danielle
Meinhardl, ‘Transporting Oil and Gas: US Infrastructure Challenges’, 100 Iowa L Rev 947, 965 (2014–2015).
24 See, e.g., John M Golden, Hannah J Wiseman (footnote 21, above), 955, 1028; Michael Klare, ‘From Scarcity to
Abundance: The Changing Dynamics of Energy Conflict’, 3 Penn St JL & Int’l Aff 10, 22 (2014–2015).

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 The Breadth and Complexity of the International Energy Industry

is likely to require foreign investment and international partnerships between investors and
countries. Although fracking has proven successful for production, there are environmental
concerns that may slow down or prevent its implementation in several jurisdictions. Only
time will tell the scope and range of foreign investment that will take place in this area, but
a need for international arbitration is probable.
Other interests often intersect with the energy sector, such as environmental issues.
They have risen to prominence through efforts involving corporate responsibility, brand
management, environmental activism and changing regulations.25 Moreover, environ-
mental legal norms have become increasingly internationalised.26 Indeed, there are now
more than 20 multilateral environmental treaties relating to the environment and at
least the beginnings of the emergence of a customary international law on the subject.27
Environmental issues are increasingly involved in international arbitration, and are occa-
sionally raised as counterclaims by respondent states in investment arbitrations.

Upstream, downstream and midstream

The energy industry is essentially divided into three segments: upstream, downstream
and midstream. These segments basically represent four main activities necessary to the
energy industry: producing, transporting, refining and selling at retail.28 ‘Upstream’ refers to
exploring for oil and gas reservoirs, drilling wells and producing hydrocarbons, also known
as exploration and production.29 It is the largest segment of the industry.30 The downstream
segment entails refining, processing, distributing and marketing the oil and gas products.31
Midstream refers to the transportation of oil and gas in-between the initial production and
the end user of the hydrocarbons. Note that these three segments are governed by different
laws and are subject to different administrative and environmental regulations.32
Private energy companies are often classified as a ‘major’ or as an ‘independent’ company.
To be classified as a major, a company must be an ‘integrated’ oil company, taking part in
producing, transporting, refining, and selling oil and gas products at retail.33 Independent
companies are those that engage in fewer of these four main activities.34 Initially, the
industry was controlled by private international oil companies. However, in recent decades
they have taken a backseat to national or state-owned oil companies.

25 See, e.g., David W Rivkin, Sophie J Lamb, Nicola K Leslie (footnote 8, above), 3 to 4 (2015).
26 Tseming Yang, Robert V Percival, ‘The Emergence of Global Environmental Law’, 36 Ecology Law Quarterly 615
(2009).
27 David W Rivkin, Sophie J Lamb, Nicola K Leslie (footnote 8, above), 3.
28 Ernest E Smith, et al, International Petroleum Transactions, 54 (2nd edition).
29 John Schumacher, ‘A Primer on the Oil and Gas Industry’, available at www.nala.org/Upload/file/PDF-Files/
FactsFindings/art-Schumacher.pdf.
30 See Diagram by the American Petroleum Institute, available at www.americanpetroleuminstitute.com/
oil-and-natural-gas-overview/wells-to-consumer-interactive-diagram.
31 John Schumacher (footnote 29, above).
32 Claude Duval, et al (footnote 11, above), 176.
33 Ernest E Smith, et al (footnote 28, above), 54 (2nd edition).
34 id.

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The changing role of host states in the international energy industry

Oil and gas producing states are, of course, essential participants in the energy industry.The
energy sector has long been considered essential to security, geopolitical and vital national
economic interests.35 This makes investments in the energy sector especially vulnerable to
regulatory change and political risk.36
As the international energy industry developed, host states evolved from being a
‘passive’ business partner (e.g., old concession contracts) to being active and controlling
forces (e.g., nationalisation, production sharing agreements, state-owned oil companies and
regulation).37 States may participate in the energy industry through a national oil company
or through an energy ministry or other government agencies. This will vary depending on
the country’s national and legal culture. Many countries have hydrocarbon laws defining
government policies, organising the industry, and creating incentives and disincentives for
oil companies.
The position of a host state on various issues may shift over time, from imposing inflex-
ible contractual terms to promoting investment-friendly conditions,38 to changing their
laws and regulations, often depending on popular sentiment or the need for investments
depending on oil prices and whether reserves or production are declining.
Take the case of Mexico, for example. In 1938, the Mexican government confiscated
all foreign oil companies’ concession rights within the country.39 This was seen as a patri-
otic achievement and is still commemorated today.40 Since then, Mexico’s energy sector
has been monopolised by its national energy company, Petróleos Mexicanos (Pemex). But
in 2014, declining production and the need for new technology pushed Mexico towards
instituting energy reforms.41 Mexico will now allow private investors to enter its market
(especially offshore and unconventional fields) and is in the process of instituting more legal
reforms to facilitate the transition.42
Additionally, host states not only play the role of ‘business partner’, they also fulfil a
regulatory role because they decide the energy and environmental policies that an inter-
national petroleum company must follow, and they interpret and apply those regulations.

35 Michael Klare (footnote 24, above), 10, 11.

36 See e.g., David W Rivkin, Sophie J Lamb, Nicola K Leslie (footnote 8, above), 2.
37 Claude Duval, et al (footnote 11, above), Sections IV to V.
38 id., at page 7.
39 R Doak Bishop (footnote 7, above), 1131, 1151.
40 It is commemorated on 18 March, the anniversary of the issuance of the first order that expropriated the
assets of almost all the foreign companies operating in Mexico. The order was issued by Mexican President
Lazaro Cardenas.
41 See, e.g., Gaurav Sharma, ‘Mexico’s Energy Sector Reform Worth the 76-Year Wait’, Forbes (15 August 2014),
www.forbes.com/sites/gauravsharma/2014/08/15/mexicos-energy-sector-reform-worth-the-76-year-wait;
Gaurav Sharma, ‘Energy Market Reforms Keep Mexico’s Optimism High Despite Oil Price Slump’, Forbes
(11 March 2015), www.forbes.com/sites/gauravsharma/2015/03/11/energy-market-reforms-keep-mexicos-
optimism-high-despite-oil-price-slump.
42 See, e.g., id.

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Organization of the Petroleum Exporting Countries

The creation of the Organization of the Petroleum Exporting Countries (OPEC)
in 1960 was a pivotal development in the energy industry. OPEC is a permanent,
inter-government entity currently consisting of its five founding states – Iran, Iraq, Kuwait,
Saudi Arabia and Venezuela – and later joining members (to date, Qatar, Indonesia, Libya,
United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Angola, Equatorial Guinea and
Congo).43 It is based in Vienna, Austria.
OPEC was created to prevent a precipitous drop in crude oil prices then affected by the
discovery of huge new reserves.44 Over time, OPEC’s role became more prominent, and it
became a vehicle for states to challenge the stance of international oil companies regarding
ownership rights, to encourage the renegotiation of international oil agreements, and to
engage in cartel pricing of oil.45

National oil companies

Today, national oil companies have a fundamental role in the industry. Not only do they
own approximately 85 per cent of oil reserves,46 they also represent the majority of volume
growth in the industry.47 They were initially created in response to security and national-
istic concerns and as vehicles for state participation in the energy industry.48 But they are
now deemed by some to be the ‘true giants’ of the energy sector.49
Indeed, of the 20 companies ranked as the biggest in the industry in terms of owner-
ship of reserves of oil and gas, 16 are national oil companies.50 National oil companies are
usually created by statute or decree. Generally, all their ownership interest is held by the
state and they can vary in corporate form.51
National oil companies sometimes face issues that private companies do not necessarily
face. For example, national oil companies may be subject to heightened political and social
pressure, or they may be required to pay higher wages or adopt inefficient production
methods to favour employment.52 Notwithstanding, the role of national oil companies has
grown from local participants to international players, often investing in oil reserves located
in other countries.

43 List of OPEC member countries available at www.opec.org/opec_web/en/about_us/25.htm.

44 Claude Duval, et al (footnote 11, above), 48.
45 id.
46 id., at 101.
47 See Christopher Helman, ‘The World’s Biggest Oil and Gas Companies – 2015’, Forbes (19 March 2015),
www.forbes.com/sites/christopherhelman/2015/03/19/the-worlds-biggest-oil-and-gas-companies.
48 Ernest E Smith, et al (footnote 28, above), 58 to 59.
49 ‘National Oil Companies: Really Big Oil’, The Economist (10 August 2006), www.economist.com/
node/7276986.
50 id.; Christopher Helman, ‘The World’s Biggest Oil and Gas Companies – 2015’, Forbes (19 March 2015),
www.forbes.com/sites/christopherhelman/2015/03/19/the-worlds-biggest-oil-and-gas-companies.
51 Ernest E Smith, et al (footnote 28, above), 58 to 59.
52 id., at 62.

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Natural gas
Natural gas has received separate treatment in the energy industry owing to the difficulty
and expense associated with its transportation. For this reason, it has traditionally been
produced and marketed for domestic consumption,53 at least in those countries with a
developed infrastructure for using natural gas. Thus, cross-border transportation of natural
gas was once minimal in comparison with oil. But during the past few decades, the land-
scape has changed in response to energy demand, changes in oil prices, technological
advances and environmental considerations (since it is a cleaner form of energy).
Natural gas is abundant in comparison with other fossil fuels.54 However, it is difficult
to transport given its physical nature and volatility.55 These challenges led to the traditional
wasteful use of natural gas by flaring it (burning it) on-site.56
Many countries have now constructed a domestic infrastructure for using natural gas,
often by building gas-fired power plants. Thus, they make use of the natural gas locally
without having to transport it vast distances.
The most cost-effective way to transport natural gas is through high-pressure pipelines,57
but natural gas can also be transported in specialised ships once it has been liquefied (LNG).
This process requires the cooling of the gas to -160 degrees Celsius, storing it in insulated
tanks, transporting it in specialised ships and regasifying it at destination plants.58 This
requires the construction of multibillion-dollar LNG facilities. But the need for energy
sources and the desire to make use of natural gas discoveries have spawned a global market
for LNG.

The oil and gas contract

A granting contract typically forms the foundation of an international oil and gas project.59
These evolved from concession contracts to production-sharing agreements, risk service
contracts and licences.60
The oldest is the concession contract,61 which derived from the contracts used in the
United States’ mining industry.62 A concession may refer to various types of contracts,
permits, licences or instruments, depending on the applicable legal system.63 Under the

53 Thomas W Merrill (footnote 9, above), 971, 973.

54 Ernest E Smith, et al., International Petroleum Transactions, 1025 (3rd edition).
55 id., at 1032.
56 id., at 1027.
57 It is calculated that transporting natural gas is four to five times more expensive than transporting oil. See
Ernest E Smith, et al (footnote 54, above), 1028.
58 Claude Duval, et al (footnote 11, above), 182.
59 Paul Michael Blyschak, ‘Arbitrating Overseas Oil and Gas Disputes: Breaches of Contract Versus Breaches
of Treaty’, 27 Journal of Int’l Arbitration 6, 579 (2010).
60 Claude Duval, et al (footnote 11, above), Sections IV to V (2009). These are the main (but not all) types
of agreements in the energy industry.
61 id., at 41.
62 id.
63 id., at 58.

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early concession agreements, a host country would essentially concede control over its
energy resources to an international petroleum company.64 These early agreements had
certain common features:
• they granted title of the oil in place to the companies;
• the concession areas covered vast tracts of land;
• the term of the concession was often 60 years or more;
• the international oil company had control over the schedule and scale of operations
(exploration and production); and
• the government received a one-eighth royalty.65

Initially, concession agreements were negotiated on case by case,66 as international petro-

leum companies attempted to discover reserves and operate in new host states.
The industry has generally shifted away from concession contracts in favour of produc-
tion sharing agreements (PSAs). To a significant extent, PSAs are representative of the
changes that the petroleum industry has experienced since the 1970s.67 They were first
popularised in Indonesia, but were quickly adopted by other countries.68 Under a PSA, the
host country retains ownership and the right to exploit resources while the inter­national
petroleum company is more akin to a ‘contractor hired to perform the operations’,69
although this is not an entirely accurate analogy since under many PSAs, oil companies
can report in their public filings (e.g., Securities and Exchange Commission filings in the
United States) a percentage of the hydrocarbon reserves as their own.70 This is particularly
important to companies because their stock price may be driven, in part, by their reserve
profile.The contractor’s payment under a PSA involves an entitlement to recover costs once
operations are successful (commercial) and to a share of the production as profit during a
determined amount of time.71 If the area under contract is unproductive, the contractor
receives no profit.72 Thus, the financial and geological risk of finding oil in commercial
quantities falls on the private oil companies. Typically, the company has a certain number
of years to explore for oil in a defined geographical area and drill a minimum number of
wells, after which it must relinquish back to the state any area from which no production
is likely to occur expediently.
Some countries use risk service contracts, which are similar to PSAs. Under this type of
agreement, the contractor usually provides the funds required for exploring and developing
petroleum resources. The host state will allow the contractor to recover its costs through

64 Paul Michael Blyschak (footnote 59, above), 579, 581.

65 R Doak Bishop (footnote 7, above), 1131, 1151.
66 Paul Michael Blyschak (footnote 59, above), 579, 581.
67 R Doak Bishop, James Crawford, W Michael Reisman, Foreign Investment Disputes, Cases Materials and
Commentary, 219 (Kluwer Law) (internal citations omitted).
68 Claude Duval, et al (footnote 11, above), 69.
69 id. at 71.
70 Claude Duval, et al (footnote 11, above), 71.
71 id.
72 R Doak Bishop, James Crawford, W Michael Reisman (footnote 67, above), 216 (internal citations omitted).

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the sale of a certain percentage of the oil or gas once the project is successful.The host state
will also pay the contractor a fee based on a percentage of the revenues. The state retains
ownership of the resources and production.73
Other host countries – the United Kingdom, for example – use a licensing system.The
licences vary depending on the location (onshore, offshore) and the stage of the operation
(exploration or production).74 Licences essentially entitle a petroleum company to operate
in a specific geographical area in exchange for a royalty or fee.75 In general, the government
has ample policing powers over the licensee, and the licence can be revoked for a number
of reasons.76
The Association of International Petroleum Negotiators is a well-known, independent,
not-for-profit association for professionals involved in the energy industry.77 It has devel-
oped a robust collection of model contracts, including virtually all the categories mentioned
above, as well as certain commentaries. These can be found on its website and provide a
more detailed understanding of the various contracts’ clauses and differences.

Overview of energy-related investment disputes

A foreign investment dispute is a controversy between an investor from one state and a
foreign government relating to an investment in the host state.78 Foreign investment has
been given protection through international treaties, conventions and by customary inter-
national law, and over time a subset of international law regulating investment disputes has
emerged. Today, there is a sizeable number of international arbitral awards relating to the
petroleum industry.

Diplomatic protection
Under traditional international law, corporations and individuals did not have standing
to bring claims directly against governments. Diplomatic protection was the only remedy
available to a citizen of a state with a claim against a foreign government. Under this
regime, the foreign investor would bring grievances to the domestic courts of the host state
or to the officials of his or her own country. The investor’s government would then have
the discretion to espouse the claim against the foreign government and protect the inves-
tor’s rights through an exchange of diplomatic notes or, more recently, by bringing a claim
before the International Court of Justice.79
When the national governments of host states began to expropriate foreign-owned
projects in the 19th century, they purported to rely on the international law principle of
territorial sovereignty. Local courts were often viewed as unsympathetic to foreign inves-
tors or were required to give effect to the local expropriating decree, leading the investors

73 id. at 222.
74 id. at 220.
75 Paul Michael Blyschak (footnote 59, above), 579, 583.
76 R Doak Bishop, James Crawford, W Michael Reisman (footnote 67, above), 220 to 221 (internal
citations omitted).
77 For more about the Association of International Petroleum Negotiators, see https://www.aipn.org/about-aipn/.
78 R Doak Bishop, James Crawford, W Michael Reisman (footnote 67, above), 9.
79 id., at 1 to 3.

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to turn to their own governments for assistance. The investors’ governments, if they were
inclined to help their nationals, responded based on the international law principle of
nationality (in this context, the state’s interest in representing its nationals).80
Diplomatic protection proved inadequate for many reasons. For the investor, the avail-
ability of the remedy was unpredictable and subject to a government’s many other interests.
For the government, it was an unwieldy instrument for dealing with foreign investment
issues. The intervention of the investor’s government inevitably created conflicts with the
host state. It also had the potential to affect relationships with other states. As the problems
that governments faced became more complex and governments developed larger organi-
sations to handle them, it became clear that more economical alternatives to diplomatic
protection and intervention were necessary. But an analogue to national adjudication was
not feasible, for international law at that time did not recognise natural or juridical persons
as proper subjects. Thus, the international community looked for instruments that could
provide an adequate forum and remedy.81

ICSID Convention
In 1965, under the sponsorship of the International Bank on Reconstruction and
Development, the Convention on the Settlement of Investment Disputes between States
and Nationals of Other States was executed and came into effect in 1966 (the ICSID
Convention).The Convention created ICSID to administer arbitrations between contracting
governments and nationals of other contracting governments for disputes relating directly
to an investment. ICSID, in turn, promulgated sets of arbitral and conciliation rules. ICSID
was designed specifically to administer arbitrations of foreign investment disputes.82 Unlike
other major arbitral institutions, ICSID has jurisdictional requirements.83 At the time of
writing, 163 countries have ratified the ICSID Convention.84
Reports show that almost 40 per cent of all cases registered with ICSID (and its
Additional Facility) between 1972 and 2012 involved the energy sector, with oil, gas and
mining disputes representing 35 per cent of all ICSID claims in 2014.85

New York Convention

The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral
Awards (the New York Convention) was adopted on 10 June 1958 and entered into force
on 7 June 1959. This treaty is the most significant contemporary legislative instrument
relating to international commercial arbitration.86 It provides a universal constitutional
charter for the international arbitral process and has proven to be an effective framework

80 id., at 1 to 4.
81 R Doak Bishop, James Crawford, W Michael Reisman (footnote 67, above), 1 to 4.
82 id. at page 5.
83 id. at page 12.
84 See https://icsid.worldbank.org/about/member-states/database-of-member-states.
85 David W Rivkin, Sophie J Lamb, Nicola K Leslie (footnote 8, above), 1 (2015).
86 Gary B Born, International Arbitration: Cases and Materials, 32 (2nd edition, Kluwer, 2015).

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for enforcing international arbitration agreements and arbitral awards.87 It is of relevance

in enforcing all non-ICSID investment arbitral awards; ICSID cases exclusively involve the
ICSID Convention.

North American Free Trade Agreement

There are several regional trade agreements in place but the North American Free Trade
Agreement (NAFTA) is of particular importance. NAFTA was concluded by the govern-
ments of Canada, Mexico and the United States of America in 1992. It provides stand-
ards of treatment that governments must afford investors from other NAFTA states. As in
bilateral investment treaties, the governments consent to international arbitration of any
investment disputes with qualifying private investors from the other contracting states.
Since NAFTA entered into force, each of the contracting governments has been the target
of several NAFTA arbitrations.88
NAFTA has been replaced by the United States-Mexico-Canada Agreement as of
July 2020 (see Chapter 6).

The Energy Charter Treaty

The Energy Charter Treaty (ECT) came into effect in 1994. It now includes more than
50 Member States, mostly in eastern and central Europe, and the European Union and
the European Atomic Energy Community.89 It is the only multinational treaty specifi-
cally dealing with investment issues in the energy industry.90 Its introduction explains that
the ‘fundamental aim of the Energy Charter Treaty is to strengthen the rule of law on
energy issues, by creating a level playing field of rules to be observed by all participating
governments, thus minimising the risks associated with energy-related investments and
trade’.91 It ‘ensures the protection of foreign energy investments based on the principle of
non-discrimination’.92 The ECT also provides government consent to ad hoc international
arbitration to resolve disputes with foreign investors arising from their substantive obliga-
tions. More than 50 arbitrations have been brought under the ECT.

Bilateral investment treaties

Modern bilateral investment treaties (BITs) were first adopted in the 1960s by European
countries seeking to protect their nationals’ investments abroad.93 The United States then
followed suit in the 1970s. The proliferation of BITs signalled an important landmark in

87 id., at 27 to 35.
88 R Doak Bishop, James Crawford, W Michael Reisman (footnote 67, above), 1.
89 id.; The Energy Charter Treaty, available at www.energycharter.org/process/energy-charter-treaty-1994/
energy-charter-treaty/.
90 Crina Baltag, The Energy Charter Treaty:The Notion of Investor, 25 Int’l Arbitration Law Library, 8 (2012).
91 Introduction to the Energy Charter Treaty, available at www.encharter.org/fileadmin/user_upload/document/
EN.pdf.
92 id.
93 This occurred with the signing of the Germany–Pakistan bilateral investment treaty in 1959, which entered into
force in 1962. Rudolf Dolzer, Christopher, Schreuer, Principles of International Investment Law, 6 to 7 (Oxford
University Press, 2012).

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international relations and arbitration. To date, almost 3,000 BITs have been signed. They
contain similar provisions, leading some scholars to conclude that they may now express
the customary international law standards for foreign investment.94 These treaties create
actionable standards of conduct for governments in their treatment of foreign investment,
and typically provide for international arbitration to resolve disputes arising from allega-
tions of a violation of the treaty.

Conclusion
During the past few decades, international tribunals have addressed many of the issues
and facets of the energy industry. These have included claims under bilateral and regional
treaties as well as customary international law dealing with expropriations, unfair and
unequal treatment, and denial of justice. This guide addresses them by dividing them into
sections, each of which highlights a different facet of the international energy industry.
It is hoped the reader will find in these pages a useful introduction and worthwhile
information concerning the arbitration of international energy disputes.

94 R Doak Bishop, James Crawford, W Michael Reisman (footnote 67, above), 1.

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Part I
Investor-State Disputes in the Energy Sector

© Law Business Research 2020

1
The Energy Charter Treaty

Cyrus Benson, Charline Yim and Victoria R Orlowski1

Development of the Energy Charter Treaty

Disputes arising in the energy sector have long been the subject of international adjudica-
tion. As global demand for energy increased, foreign investment became crucial to allow
the exploration and development of energy resources in states that otherwise may have
lacked sufficient capital to do so. To encourage foreign investment, a stable framework
offering binding protections for foreign investors alongside a neutral system of adjudicating
disputes, as set out in bilateral and multilateral investment treaties, became essential.
After the end of the Cold War, motivated in part by the desire to facilitate the devel-
opment of energy resources, promote energy security and encourage economic integra-
tion in former Soviet Union countries, a collection of states met to establish a model for
energy cooperation.2 The result of these discussions was the European Energy Charter, a
non-binding declaration by which states confirmed their mutual objectives to cooperate
in energy-related trade, efficiency, environmental protection and other matters.3 The signa-
tories further agreed to negotiate in good faith a binding agreement to implement their
shared objectives.4
On this basis, states negotiated what would become the Energy Charter Treaty (ECT).
The ECT, which entered into force on 16 April 1998, is a multilateral treaty designed
to create a stable framework to stimulate economic growth and liberalise international

1 Cyrus Benson is a partner, and Charline Yim and Victoria R Orlowski are associates, at Gibson, Dunn
& Crutcher LLP.
2 See Thomas Roe & Mathew Happold, Settlement of Investment Disputes Under the Energy Charter Treaty (2011),
pp. 8 to 9.
3 European Energy Charter, Title 1 (Objectives).
4 European Energy Charter, Title 3 (Specific Agreements).

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investment and trade in the energy sector.5 At the time of writing, there are 53 signatories
and contracting parties to the ECT, including the European Union itself and every EU
Member State except Italy.6
The first international arbitration invoking the ECT, AES v. Hungary I,7 was registered
on 25 April 2001, three years after the ECT entered into force. The first award followed
in December 2003, in Nykomb v. Latvia.8 For several years the number of publicly known
arbitrations initiated under the ECT remained steadily within the range of one to four
per year.9 In 2013, however, the number of new arbitrations quadrupled to 16, and peaked
in 2015 with 25 cases.10 The ECT has remained the most frequently invoked investment
agreement in international arbitration cases.11 There are more than 130 publicly known
ECT proceedings.12
With the passage of time and the increased use of the ECT as the basis for international
arbitration, the parties to and the subject matter of ECT arbitrations have evolved. While
early cases frequently named central and eastern European states as respondents, more
recently the focus has shifted and a large number of cases have been initiated against western
European states.13 More recent cases have also tended to arise out of alleged defects in, or
changes to, regulatory frameworks encouraging the development of renewable energy.14
Consequently, there has been a parallel shift in the nature of the parties to the disputes and
the underlying resources at issue. The clearest representation of this trend can be seen with

5 See Preamble and Article 2 (Purpose of the Treaty) (‘This Treaty establishes a legal framework in order to
promote long-term cooperation in the energy field, based on complementaries and mutual benefits, in
accordance with the objectives and principles of the Charter.’).
6 See Energy Charter Treaty [ECT] website, available at https://energycharter.org/process/
energy-charter-treaty-1994/energy-charter-treaty/, last accessed 21 July 2020. Signatories to the ECT agree
in Article 45(1) to apply the treaty ‘provisionally pending its entry into force for such signatory in accordance
with Article 44, to the extent that such provisional application is not inconsistent with its constitution, laws or
regulations.’ However, a state may file a declaration if it is unable to accept the provisional application of the
ECT prior to ratification. This is addressed further later in the chapter.
7 AES Summit Generation Limited v.The Republic of Hungary, ICSID Case No. ARB/01/04.
8 Nykomb Synergetics Technology Holding AB v. Latvia, Stockholm Chamber of Commerce [SCC] Case
No. 118/2001, Arbitral Award, 16 December 2003 (Nykomb Arbitral Award). The parties in AES v.
Hungary entered into a settlement agreement and discontinued the arbitration proceedings. See generally
Graham Coop, ‘Energy Charter Treaty 20 Year Anniversary: 20 Years of the Energy Charter Treaty’, ICSID
Review, Vol. 29, No. 3 (2014), p. 516.
9 As reported by the United Nations Conference on Trade and Development [UNCTAD], and summarised
by the Energy Charter Secretariat: ‘International Energy Charter, Changing dynamics of investment cases
under Energy Charter Treaty (ECT)’ (updated as of 18 May 2018), available at https://energycharter.org/
what-we-do/dispute-settlement/cases-up-to-18-may-2018.
10 id.
11 id.
12 International Energy Charter, ‘List of all Investment Dispute Settlement Cases’,
https://www.energychartertreaty.org/cases/list-of-cases, last accessed on 21 July 2020.
13 See Graham Coop, ‘Energy Charter Treaty 20 Year Anniversary: 20 Years of the Energy Charter Treaty’, ICSID
Review, Vol. 29, No. 3 (2014), pp. 516 to 517.
14 See Charles A Patrizia, Joseph R Profaizer, Samuel W Cooper and Igor V Timofeyev, ‘Investment Disputes
Involving the Renewable Energy Industry Under the Energy Charter Treaty’, Global Arbitration Review,
2 October 2015.

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Spain, which has been named as a respondent in almost 50 ECT cases relating to renewable
energy, in particular arising from Spain’s reduction or elimination of incentives offered to
renewable energy producers.15
The aim of this chapter is to provide an overview of common elements and issues
raised in the course of ECT arbitrations. First is a basic overview of jurisdictional issues that
frequently arise in ECT arbitrations, followed by an outline of the substantive protections
the treaty affords to investors. The chapter concludes with trends and anticipated develop-
ments in ECT arbitration.

Jurisdiction of tribunals established pursuant to the ECT

Part V of the ECT addresses the resolution of ‘[d]isputes between a Contracting Party
and an Investor of another Contracting Party relating to an Investment of the latter in the
Area of the former, which concern an alleged breach of an obligation of the former under
Part III’.16 Pursuant to Article 26(1) of the ECT, the parties to the dispute shall, if possible,
settle a dispute amicably. If the dispute is not settled within three months of either party’s
request to settle a dispute amicably, the investor can choose between (1) the courts or an
administrative tribunal of the contracting party to the dispute, (2) any applicable, previ-
ously agreed dispute settlement procedure, or (3) international arbitration or conciliation
as specified in the ECT.17
The scope of an international arbitral tribunal’s jurisdiction derives from the parties’
consent to arbitrate. By signing the ECT, contracting parties (i.e., states or intergovern-
ment organisations party to the ECT) provide their ‘unconditional consent’ to submit
disputes arising between a contracting party and an investor of another contracting party
to international arbitration in accordance with the provisions of Article 26.18 This is subject
to potential limitations, including:
• contracting parties may exclude their unconditional consent if the investors had previ-
ously submitted their dispute to the courts of the contracting party or in accordance
with a previously agreed dispute settlement procedure;19 and
• contracting parties may further exclude from their consent disputes arising from the
final sentence of Article 10(1), the ‘umbrella clause’ (discussed further below).20

Arbitration relies on mutual consent and the ECT requires an investor to provide its
written consent to submit its dispute to arbitration, which typically occurs in its request for
arbitration.21 An investor electing to proceed with international arbitration can submit its

15 See International Energy Charter, ‘List of all Investment Dispute Settlement Cases’ (listing 47 cases with Spain
as respondent, three of which were filed in 2019), available at https://www.energychartertreaty.org/cases/
list-of-cases, last accessed 21 July 2020.
16 Article 26(1).
17 Article 26(2).
18 Article 26(3)(a).
19 Article 26(3)(b)(i).
20 Article 26(3)(c); Article 10(1) (‘Each Contracting Party shall observe any obligations it has entered into with
an Investor or an Investment of an Investor of any other Contracting Party.’).
21 Article 26(4). See, e.g., Limited Liability Company Amto v. Ukraine, SCC Case No. 080/2005, Final Award,
26 March 2008 (Amto Final Award), §§ 45 to 47.

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dispute to the International Centre for Settlement of Investment Disputes (ICSID),22 a sole
arbitrator or ad hoc tribunal established under the Arbitration Rules of the United Nations
Commission on International Trade Law (UNCITRAL),23 or an arbitral proceeding under
the Arbitration Institute of the Stockholm Chamber of Commerce.24
As is often the case with international arbitration proceedings brought against states,
issues relating to the proper jurisdiction of a tribunal have been some of the most heavily
contested and adjudicated in arbitrations based on the ECT. The ECT’s jurisprudence
reveals that objections to admissibility and jurisdiction, in many respects, parallel those
brought in the context of other bilateral and multilateral investment treaties. Below we
discuss some of the common objections to admissibility and jurisdiction in ECT cases.

Amicable settlement, ‘fork in the road’ and denial of benefits

The ECT contains several provisions that have been used as the basis of jurisdictional chal-
lenges. Three frequently adjudicated provisions relate to amicable settlement, ‘fork in the
road’ and denial of benefits. First, the ECT contains a standard cooling-off period of three
months before an investor can initiate international arbitration. Although respondents have
raised objections based on a claimant’s alleged failure to satisfy the three-month amicable
settlement period, these efforts have generally been unsuccessful.25
Second, the ECT contains a fork-in-the-road provision in Article 26(2), pursuant to
which the investor can elect only one avenue of dispute resolution, and is precluded from
arbitrating before multiple forums.26 To trigger this bar, tribunals have required respond-
ents to establish that the dispute that allegedly has been initiated elsewhere has the same
parties, causes of action and object (the triple identity test). Respondents’ objections on
this basis have largely been unsuccessful. For example, in Charanne v. Spain,27 Spain alleged
that the claimants had brought parallel proceedings before Spain’s Supreme Court and the

22 Article 26(4)(a).
23 Article 26(4)(b).
24 Article 26(4)(c).
25 RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of
Spain, ICSID Case No. ARB/13/30, Decision on Jurisdiction (redacted), 6 June 2016 [RREEF Decision
on Jurisdiction], ¶ 231; Amto Final Award, § 58; Gabriel Stati, Ascom Group S.A.,Terra Raf Trans Trading Ltd
v. Kazakhstan, SCC Case No. 116/2010, Award, 19 December 2013 [Stati Award], ¶¶ 828 to 830. See also
Mohammad Ammar Al-Bahloul v.Tajikistan, SCC Case No. V (064/2008), Partial Award on Jurisdiction and
Liability, 2 September 2009 [Al-Bahloul Partial Award], ¶¶ 155-56; Antin Infrastructure Services Luxembourg S.à.r.l.
and Antin Energia Termosolar B.V. v. Kingdom of Spain, ICSID Case No. ARB/13/31, Award, 15 June 2018
[Antin Award], ¶¶ 353 to 358; Antaris Solar GmbH and Dr. Michael Göde v. Czech Republic, Permanent Court of
Arbitration [PCA] Case No. 2014-01, Award, 2 May 2018 [Antaris Award], ¶ 260.
26 Article 26(3)(b)(i).
27 Charanne B.V. and Construction Investments S.A.R.L. v.The Kingdom of Spain, SCC Case No. 062/2012, Final
Award, 21 January 2016 [Charanne Final Award], ¶ 408; Hulley Enterprises Limited (Cyprus) v.The Russian
Federation, UNCITRAL, PCA Case No. AA 226, Interim Award on Jurisdiction and Admissibility,
30 November 2009 [Hulley Interim Award], ¶ 597; Yukos Universal Limited (Isle of Man) v.The Russian Federation,
UNCITRAL, PCA Case No. AA 227, Interim Award on Jurisdiction, 30 November 2009 [Yukos Universal
Interim Award], ¶ 598; Veteran Petroleum Trust (Cyprus) v.The Russian Federation, UNCITRAL, PCA Case
No. AA 228, Interim Award on Jurisdiction and Admissibility, 30 November 2009 [Veteran Petroleum Interim
Award], ¶ 609.

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European Court of Human Rights (ECHR) involving the same decrees that had given
rise to the arbitration.28 The tribunal rejected this challenge, observing that the claimants in
the Supreme Court and the ECHR proceedings were different from the claimants in the
arbitration – the fact that these companies were part of the same group was insufficient to
establish that there was a ‘substantial identity of the parties’ under the first part of the test.29
Finally, Article 17 of the ECT contains a ‘denial of benefits’ clause, which provides that
a contracting party ‘reserves the right to deny the advantages [of the protections contained
in Part III of the ECT] to . . . ​a legal entity if citizens or nationals of a third state own or
control such entity and if that entity has no substantial business activities in the Area of
the Contracting Party in which it is organised’.30 Tribunals have found that Article 17 does
not affect the dispute resolution provision contained in Article 26 and therefore does not
deprive a tribunal of jurisdiction pursuant to that Article.31 Several tribunals have also
examined how a contracting party may exercise its right to deny benefits under this Article
and whether the denial is retrospective or prospective.32 In Plama v. Bulgaria, the tribunal
considered that such a right must, in fact, be affirmatively exercised by the contracting party
(e.g., by notice),33 after which it has only prospective effect.34 A majority of the tribunal in
Masdar Solar & Wind v. Spain upheld this position, noting that ‘it would contradict the text
and the purposes of the ECT to say that a Contracting State may deny benefits retrospec-
tively’ since it would be ‘contrary to the transparency, co-operation and stability objectives
of the ECT’.35 Generally, jurisdictional objections based on this provision have met with
little success.

28 Charanne Final Award, ¶ 398.

29 id. ¶ 408. In addition, the tribunal found that the European Court of Human Rights was not a court of a
contracting party or an agreed process of dispute resolution under Article 26. id. ¶ 409.
30 Article 17(1).
31 Plama Consortium Ltd v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction,
8 February 2005 [Plama Decision on Jurisdiction], ¶ 149; Khan Resources Inc et al. v. Government of Mongolia
and MonAtom LLC, PCA Case No. 2011-09, Decision on Jurisdiction, 25 July 2012 [Khan Decision on
Jurisdiction], ¶¶ 411 to 412.
32 See, e.g., Libananco Holdings Co. Ltd v. Republic of Turkey, ICSID Case No. ARB/06/8, Award,
2 September 2011, ¶ 550.
33 Plama Decision on Jurisdiction, ¶¶ 155 to 165 (observing that ‘[b]y itself, Article 17(1) ECT is at best only half
a notice; without further reasonable notice of its exercise by the host state, its terms tell the investor little; and
for all practical purposes, something more is needed’). See also Hulley Interim Award, ¶ 455; Yukos Universal
Interim Award, ¶ 456; Veteran Petroleum Interim Award, ¶ 512; Caspian Oil BV and NCL Dutch Investment
BV v. Republic of Kazakhstan, ICSID Case No. ARB/07/14, Excerpts of Award, 22 June 2010 [Liman Award
Excerpts], ¶ 224.
34 Plama Decision on Jurisdiction,¶¶ 159 to 165. See also Khan Decision on Jurisdiction, ¶ 429; Hulley Interim
Award, ¶ 457; Yukos Universal Interim Award, ¶ 458; Veteran Petroleum Interim Award, ¶ 514; Liman Award
Excerpts, ¶ 225.
35 Masdar Solar & Wind Cooperatief UA v. Kingdom of Spain, ICSID Case No. ARB/14/1, Award, 16 May 2018
[Masdar Award], ¶ 239. Nevertheless, the tribunal in this case did not ultimately resolve this issue as it found,
unanimously, that the cumulative conditions to trigger the denial of benefits clause had not been met in this
case. id. ¶ 251.

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Protected investors and investments

A claimant’s qualification as a protected investor that has made a protected investment for the
purposes of the ECT has been contested frequently. The ECT’s definition of an ‘investor’
includes any natural person who is a citizen or permanently resides in a contracting party
in accordance with its applicable law, or a company or other organisation incorporated in
accordance with its applicable law.36 In the case of natural persons, tribunals have held that
citizenship, nationality and permanent residence are three independent avenues for estab-
lishing status as a covered investor.37 In the case of companies and organisations, several
tribunals have refused requests by states to look beyond incorporation to pierce the corpo-
rate veil in assessing investor status, and more generally to add requirements that go beyond
the wording of the ECT’s definition.38 For example, in Charanne, the tribunal rejected
Spain’s invitation to pierce the corporate veil to find that the investors incorporated in
the Netherlands and Luxembourg were in fact Spanish nationals.39 The tribunal found
that Article 1(7) requires only that the company be organised in accordance with the laws
of the applicable state, a condition that the claimants had satisfied.40 Moreover, Spain had
neither alleged nor proven that the claimants had structured their investments fraudulently
to justify piercing the corporate veil.41
The ECT’s definition of ‘investment’ covers ‘every kind of asset, owned or controlled
directly or indirectly by an Investor’ and enumerates several categories of investments
protected by the ECT, including:
• tangible and intangible property and property rights;
• a company or business enterprise, equity participation and debt in a company or
business enterprise;
• claims to money or contractual performance having an economic value and associated
with an investment;
• intellectual property;
• returns; and
• rights conferred by law or contract or by virtue of licences and permits.42

36 Article 1(7).
37 Cem Cengiz Uzan v. Republic of Turkey, SCC Case No. V 2014/023, Award on Respondent’s Bifurcated
Preliminary Objections, 20 April 2016, ¶ 139.
38 Energoalians v. Moldova, Award, 23 October 2013 [Energoalians Award], ¶ 145; Charanne Final Award,
¶¶ 414 to 418; Hulley Interim Award, ¶¶ 413 to 417; Yukos Universal Interim Award, ¶¶ 413 to 417; Veteran
Petroleum Interim Award, ¶¶ 413 to 417; Plama Decision on Jurisdiction, ¶ 128; RREEF Decision on
Jurisdiction, ¶¶ 143 to 147.
39 Charanne Final Award, ¶¶ 413 to 414.
40 id. ¶¶ 414 to 418.
41 id. ¶¶ 415 to 418.
42 Article 1(6). Tribunals have confirmed that the definition of investment includes the ownership of shares
(regardless of whether the investor was a beneficial owner or controller of the shares). See Hulley Interim
Award, ¶ 429; Veteran Petroleum Interim Award, ¶ 477; Yukos Universal Interim Award, ¶ 430; RREEF Decision
on Jurisdiction, ¶¶ 159 to 160.

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In addition, the final paragraph of Article 1(6), as explained by the tribunal in Electrabel
v. Hungary, imposes the overarching requirement that an investment must be ‘associated
with an Economic Activity in the Energy Sector’ (defined by Article 1(5)).43 The tribunal
in Amto v. Ukraine considered that the phrase ‘associated with’ demonstrates that ‘any
alleged investment must be energy related, without itself needing to satisfy the definition
of Article 1(5)’.44 Tribunals have taken note of the broad language of this definition, and
its non-exhaustive list of qualifying assets.45 In RREEF v. Spain, the tribunal described the
ECT’s definition of investment as ‘open, general and not restricted’, and rejected Spain’s
request to apply criteria ‘additional to the definition contained in the ECT’ to qualify as a
protected investment.46
The question of whether the criteria for an investment have been satisfied has been
challenged frequently. Some of the most contentious disputes arising in this context relate
to whether the right to be paid money qualifies as a protected investment. Article 1(6)(c)’s
subcategory of ‘claims to money and claims to performance pursuant to a contract . . . ​
associated with an Investment’ has been the subject of particular scrutiny, with tribunals
grappling with how to address the phrase ‘associated with an Investment’.47 In Electrabel
v. Hungary, the tribunal concluded that this phrase should be read to mean an investment
other than the one addressed in the same sub-paragraph,48 and therefore an investment
under this category ‘is dependent on the overall investment’.49 The tribunal concluded that
contractual rights under the agreement in question, including claims to money and perfor-
mance by a state-owned electricity supply company, qualified as protected investments.50
In Petrobart v. Kyrgyzstan, the tribunal explained that although a contract itself is merely
a legal document that does not qualify as an investment, it may contain legal rights that do.51
Observing that the ‘circular’ definition in Article 1(6)(c) created doubt as to its proper inter-
pretation, the tribunal instead relied on Article 1(6)(f )’s category of ‘any right conferred by
law or contract . . . ​to undertake any Economic Activity in the Energy Sector’.52 Noting
that the contract at issue conferred rights relating to the sale of gas condensate on Petrobart,
the tribunal found there was a qualifying investment.53

43 Article 1(4) to 1(6); Electrabel S.A. v. Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction,
Applicable Law and Liability, 30 November 2012 [Electrabel Decision on Jurisdiction], ¶ 5.47.
44 Amto Final Award, § 42.
45 Plama Decision on Jurisdiction, ¶ 125; RREEF Decision on Jurisdiction, ¶ 156; Stati Award, ¶ 806; Masdar
Award, ¶ 195.
46 RREEF Decision on Jurisdiction, ¶¶ 156 to 157. The tribunal further rejected the same argument with respect
to Article 25 of the ICSID Convention.
47 Electrabel Decision on Jurisdiction, ¶¶ 5.52-5.54; State Enterprise Energorynok v. Moldova, SCC Arbitration
No. V (2012/175), Final Award, 29 January 2015 [State Enterprise Final Award], ¶ 85; Petrobart Ltd. v.
Kyrgyzstan, SCC Case No. 126/2003, Arbitral Award, 29 March 2005 [Petrobart Arbitral Award], p. 72,
¶¶ VII.6.38 to VII.6.30.
48 Electrabel Decision on Jurisdiction, ¶¶ 5.52 to 5.53.
49 id. ¶ 5.53.
50 id. ¶¶ 5.39, 5.52 to 5.59.
51 Petrobart Arbitral Award, p. 71, ¶ VIII.6.21.
52 id. p. 72, ¶¶ VIII.6.28 to VIII.6.29.
53 id. pp. 71 to 72, ¶¶ VIII.6.29 to VIII.6.30.

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In State Enterprise Energorynok v. Moldova, the claimant alleged that its claim to money
arising from a court judgment awarding US$1.7 million against the Moldovan Ministry of
Energy was a qualifying investment in Moldova pursuant to the ECT.54 Observing that the
claimant was not a party to the underlying electricity supply agreement and did not play
any part in energy operations, the tribunal declined jurisdiction, stating that the claimant
failed to prove that it had any direct or indirect control over the underlying investment
to which its claim of money was related.55 The tribunal distinguished this situation from
Electrabel and Amto,56 noting that in those cases the claimant was a shareholder engaged in
economic activities constituting investments.57 The tribunal further distinguished Petrobart
on the basis that the claimant in that case delivered the gas condensate for which payment
was due and at all times had full control over its own sales and deliveries.58
The qualification of a debt arising from a commercial contract as an investment (rather
than an indebtedness represented by loans) will undoubtedly be the subject of further
scrutiny. In Energoalians v. Moldova, the majority of the tribunal found that the right to claim
money for an unpaid debt for the supply of electricity was an investment pursuant to the
ECT, citing what it found to be a relatively broad definition of investment in the ECT
and the ECT’s stated purpose to promote cooperation and development in the energy
sector.59 The tribunal’s chairperson disagreed with the co-arbitrators, considering that a
debt acquired under an electricity supply agreement was not a qualifying investment, and
issued a dissent, contending that the tribunal did not have jurisdiction.60 Concurring with
the chairperson’s reasoning, in April 2016 the Paris Court of Appeal set aside the award.61
In March 2018, the Court of Cassation overturned the Court of Appeal’s decision, taking
note of the ECT’s broad definition of investment and finding that the Court of Appeal
was incorrect to conclude that there must be a contribution to qualify as an ‘investment’.62
More generally, ECT cases have stimulated discussion on whether investments meeting
one or more of the definitions of investment in Article 1(7) must also satisfy independent
criteria such as contribution, substantial duration and risk. The weight of published awards
suggests that these independent criteria should not be read into the ECT.63 But this view
is not uniform. For example, Professor William Park, as president of the tribunal in Alapi
v. Turkey, expressed the view that to be ‘an investor a person must actually make an invest-
ment, in the sense of an active contribution’.64 Although his view was not adopted by the
other tribunal members, the majority declined jurisdiction.

54 State Enterprise Final Award, ¶¶ 26, 54, 63, 80.

55 id. ¶¶ 81 to 101.
56 In Amto, the claimant owned shares in a company that provided technical services to a company that produced
electrical energy. Amto Final Award, § 43.
57 State Enterprise Final Award, ¶ 86.
58 id. ¶¶ 83, 86 to 87.
59 Energoalians Award, ¶¶ 225 to 252.
60 See Energoalians Award, Dissenting Opinion of Dominic Pellew.
61 Paris Court of Appeal, 12 April 2016, 13/22531.
62 Court of Cassation, 28 March 2018, 16-16568.
63 See, e.g., Stati Award, ¶ 810; Hulley Interim Award, ¶ 431; Veteran Petroleum Interim Award, ¶ 488; Yukos
Universal Interim Award, ¶ 432.
64 Alapli Elektrik B.V. v.Turkey, ICSID Case No. ARB/08/13, Excerpts of Award, 16 July 2012 [Alapli Award],
¶ 350 – see also ¶¶ 349 to 361.

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Intra-EU disputes
A topic of prominence in ECT arbitration has been the exercise of tribunals’ jurisdiction
over intra-European Union (EU) disputes – namely claims brought by an investor of one
EU contracting party against another EU contracting party. The European Commission
(the Commission) has been vocal in its opposition to intra-EU investment treaties and
considers them to be contrary to EU law. Similarly, respondents from EU Member States
have raised a number of objections to ECT tribunals’ jurisdiction on the same basis.
On 6 March 2018, the European Court of Justice (ECJ) ruled that the arbitration clause
in the Netherlands–Slovakia BIT was incompatible with EU law.65 This decision is not
directly applicable to the ECT as it relates to a bilateral investment treaty (BIT) between
two EU Member States. However, EU Member States have (thus far without success)
sought to rely on this decision to object to jurisdiction under the ECT in cases where the
investor is also from an EU Member State. The case arose out of an ad hoc arbitration initi-
ated by the Dutch insurer Achmea BV against Slovakia in relation to Slovakia’s measures
reversing the liberalisation of its health insurance market.66 Achmea secured a damages
award in 2012, following which Slovakia brought set-aside proceedings in Germany.67
Slovakia argued, inter alia, that the arbitral tribunal lacked jurisdiction because the arbitra-
tion clause in the Netherlands–Slovakia BIT was incompatible with certain provisions of
the Treaty on the Functioning of the European Union (TFEU).68
The German court referred the question of compatibility to the ECJ for a preliminary
ruling. In relation to the ECJ proceedings, Advocate General Melchior Wathelet issued
an advisory opinion to the ECJ rejecting Slovakia’s arguments and finding, inter alia, that
the arbitration provision in the BIT was compatible with EU law since investor-state
disputes did not fall within the scope of Article 344 of the TFEU and, as such, did not
concern the interpretation or application of EU treaties.69 The ECJ disagreed. Relying
on Articles 344 and 267, the ECJ found that an arbitral tribunal established under the
Netherlands–Slovakia BIT may be called on to interpret or apply EU law even though it is
not a court or tribunal of an EU Member State, cannot invoke the ‘keystone’ preliminary
ruling procedure provided for in Article 267 of the TFEU and the arbitral decision is not
subject to review by a court of a Member State to ensure its compatibility with EU law.70

65 Slovak Republic v. Achmea BV, Case C-284/16, Judgment of the European Court of Justice, 6 March 2018
[Achmea ECJ Judgment].
66 id. ¶ 8.
67 id. ¶ 12.
68 Slovakia alleged that the arbitration clause in the bilateral investment treaty [BIT] was incompatible
with Treaty on the Functioning of the European Union [TFEU], Articles 18, 267 and 344. id. ¶ 14.
Article 18 prohibits discrimination on grounds of nationality and enables the European Parliament and
Council to adopt rules designed to prohibit such discrimination. Article 267 provides the Court of Justice of
the European Union with the jurisdiction to give preliminary rulings on ‘the interpretation of the Treaties
[Treaty on European Union and TFEU]’. Article 344 provides that ‘Members States undertake not to submit a
dispute concerning the interpretation or application of the Treaties [Treaty on European Union and TFEU] to
any method of settlement other than those provided for therein’.
69 Slovak Republic v. Achmea BV, Case C-284/16, Opinion of Advocate General Wathelet, 19 September 2017.
70 Achmea ECJ Judgment, ¶¶ 37 to 38.

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According to the ECJ, this ‘has an adverse effect on the autonomy of EU law.71 Accordingly,
the ECJ held that the ‘TFEU must be interpreted as precluding a provision in an inter-
national agreement concluded between Member States such as [the arbitration provision
in the Netherlands–Slovakia BIT]’.72 In light of the ECJ’s decision, the German Supreme
Court set aside the arbitral award in November 2018.73
Before the ECJ’s ruling in Achmea, arbitral tribunals established pursuant to both
intra-EU BITs and the ECT had largely rejected arguments from respondent states, often
supported by amici curiae from the Commission, that arbitral tribunals lacked the juris-
diction to hear intra-EU claims. For example, in Charanne, Spain argued that neither it
nor the investors’ home states (the Netherlands and Luxembourg) consented to submit
intra-EU disputes to international arbitration.74 First, Spain contested whether there
was ‘diversity of territories’ between the investor and the contracting party as required
under Article 26 of the ECT, arguing that both territories were the European Union.75 In
rejecting this argument, the tribunal emphasised that Spain’s position ignored that indi-
vidual EU Member States have their own legal standing in an action based on the ECT.76
Second, Spain advanced an argument made by the Commission that there was an ‘implicit
disconnection clause for intra-EU relations’.77 Dismissing this second defence, the tribunal
stated that the terms of the ECT are clear and contain no explicit or implied disconnection
clause to disassociate EU Member States from the terms of the ECT.78 Last, the tribunal
dismissed Spain’s contention that Article 344 of the TFEU prohibited the arbitration of
the dispute.79 In RREEF, the tribunal considered similar objections raised by Spain,80 and
in dismissing Spain’s objections was guided by the overarching conclusion that the ECT
is its ‘constitution’, which ‘prevails over any other norm . . . ​apart from those of ius cogens’,
including EU law.81 The RREEF tribunal observed that to the extent possible, where two
treaties are applicable, they must be interpreted in such a way as not to contradict each

71 id. ¶ 59. The ECJ found that it was unnecessary to reach the third question, which was posed in relation to
Article 18 of the TFEU. id. ¶ 61.
72 id. ¶ 60.
73 Luke E Peterson, ‘In Highly Anticipated Verdict, German Supreme Court Determines that Achmea v. Slovakia
Award Must be Set Aside in Light of the Recent European Court of Justice Findings on Intra-EU BIT
Arbitration’, IAReporter, 8 November 2018.
74 Charanne Final Award, ¶ 424.
75 id. ¶ 427.
76 id. ¶ 429.
77 id. ¶ 433.
78 id. ¶¶ 434 to 438.
79 id. ¶¶ 441 to 445.
80 RREEF Decision on Jurisdiction, ¶¶ 37 to 56.
81 id. ¶¶ 74 to 75. See also id. ¶¶ 76 to 90.

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other.82 Similarly, the tribunals in Eiser v. Spain,83 Isolux v. Spain,84 Blusun v. Italy,85 Novenergia
v. Spain86 and Antin v. Spain87 all rejected submissions by the respondent states that the
ECT’s dispute resolution provision cannot be applied on an intra-EU basis.
Achmea has not affected the views of ECT tribunals on this issue.88 In Masdar, the tribunal
found that the Achmea judgment had ‘no bearing upon the present case’ as it only applied
to BITs concluded between EU Member States, not multilateral treaties like the ECT, to
which the European Union itself is a party.89 The tribunal noted that Advocate General
Wathelet had explicitly drawn a distinction between BITs and the ECT in his opinion,
and since the ECJ had not disputed this position in its decision, the tribunal adopted his
reasoning.90 In a subsequent decision in Vattenfall v. Germany, the tribunal agreed with the
Masdar tribunal on this issue.91 In the Vattenfall tribunal’s 72-page decision addressing this
issue, it observed that a plain reading of Articles 1692 and 26 of the ECT demonstrated that

82 id. ¶ 76. The findings of the RREEF tribunal stand in contrast to those of the tribunal in Electrabel, which
found that there is no general principle under international law compelling the harmonious interpretation
of different treaties (although the tribunal found in the context of the ECT and EU law, various factors
compelled that these two legal orders be read in harmony). Electrabel Decision on Jurisdiction, ¶¶ 4.130,
4.146 to 4.167, 4.173. While the tribunal observed that the EU legal order and the ECT are not inconsistent
or contradictory, it nonetheless found that if there were material inconsistencies, EU law would prevail over
the ECT. id. ¶¶ 4.167, 4.172 to 4.189, 4.191, 4.196.
83 Eiser Award, ¶¶ 179 to 207 (subsequently annulled on other grounds).
84 Isolux Infrastructure Netherlands BV v. Kingdom of Spain, SCC Case No. 2013/153, Award, 6 July 2016 [Isolux
Award], ¶¶ 622 to 660.
85 Blusun SA, Jean-Pierre Lecorcier and Michael Stein v. Italian Republic, ICSID Case No. ARB/14/3, Award,
27 December 2016 [Blusun Award], ¶¶ 279 to 309.
86 Novenergia II – Energy & Environment (SCA) (Grand Duchy of Luxembourg), SICAR v. Kingdom of Spain, SCC
Case No. 2015/063, Award, 15 February 2018 [Novenergia Award], ¶¶ 449 to 466.
87 Antin Award, ¶¶ 204 to 230.
88 However, the first publicly known position by an arbitrator in support of an intra-EU jurisdictional objection
was taken in a BIT (non-ECT) arbitration in February 2020 in the dissenting opinion of Professor Marcelo
G Kohen in Theodoros Adamakopoulos and others v. Republic of Cyprus, ICSID Case No. ARB/15/49. Professor
Kohen argued that the subject-matter of the intra-EU BITs and EU treaties were incompatible and, in
such a circumstance, the EU treaties should prevail. Lisa Bohmer, ‘For the First Time, An Arbitrator Declines
Jurisdiction Under An Intra-EU BIT – But Majority Disagrees, IAReporter, 14 February 2020.
89 Masdar Award, ¶ 678. See also Antin Award, ¶ 679. The tribunals in Antaris and Antin declined to hear
additional briefings on the CJEU’s ruling in Achmea, which was issued after the close of the arbitral
proceedings but before the issuance of the final arbitral awards. Antaris Award, ¶ 73; Antin Award, ¶¶ 56 to 58.
90 Masdar Award, ¶¶ 680 to 683.
91 Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea
Issue, 31 August 2018 [Vattenfall Decision on Achmea], ¶ 163. (‘The Tribunal agrees with the conclusion
in Masdar v. Spain that the ECJ Judgment is silent on the compatibility of intra-EU investor-state dispute
settlement under the ECT with EU law.’).
92 Article 16 of the ECT, entitled ‘Relation to Other Agreements’, provides: ‘Where two or more Contracting
Parties have entered into a prior international agreement, or enter into a subsequent international agreement,
whose terms in either case concern the subject matter of Part III or V of this Treaty, (1) nothing in Part III
or V of this Treaty shall be construed to derogate from any provision of such terms of the other agreement or
from any right to dispute resolution with respect thereto under that agreement; and (2) nothing in such terms
of the other agreement shall be construed to derogate from any provision of Part III or V of this Treaty or
from any right to dispute resolution with respect thereto under this Treaty, where any such provision is more
favourable to the Investor or Investment.’

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the ECT did not bar intra-EU arbitrations.93 While the tribunal acknowledged that the
ECJ had interpreted the TFEU in a way that implied a conflict between the TFEU and
the Netherlands–Slovakia BIT, the ECJ ‘did not go so far as to pronounce upon intra-EU
investor-state arbitration under the ECT’ and, as such, ‘it is not for this Tribunal to assume
that the [ECJ’s] decision in relation to a bilateral investment treaty applies equally to a multi-
lateral treaty with both EU and non-EU parties, under which the EU itself has consented
to investor-state arbitration’.94 In at least 20 post-Vattenfall decisions in arbitrations invoking
the ECT, arbitral tribunals have rejected intra-EU based jurisdictional objections raised by
respondent states.95 The result did not differ when the Commission submitted amicus curiae
in support of the respondent states.96 Moreover, Spain also has raised the Achmea ruling in

93 Vattenfall Decision on Achmea, ¶¶ 187, 192 to 193, 207 to 208. The tribunal found it particularly persuasive
that the ECT, unlike other international agreements signed by EU Member States, does not contain a
‘disconnection clause’, which ensures that the provisions of a mixed agreement only apply with respect to
non-EU Member States. id. ¶¶ 201 to 206.
94 The EC has expressed its view that Achmea applies to disputes arising under the ECT that are brought by
investors from EU Member States against other EU Member States. European Commission, Press Release
of 19 July 2018, ‘Capital Markets Union: Commission provides guidance on protection of cross-border EU
investments’, http://europa.eu/rapid/press-release_IP-18-4528_en.htm, last accessed on 21 July 2020.
95 (1) Greentech Energy Systems A/S (now Athena Investments A/S), et al. v. Italian Republic, SCC Case
No. V (2015/095), Final Award, 23 December 2018; (2) CEF Energia BV v. Italian Republic, SCC
Case No. V2015/158, Award, 16 January 2019, ¶ 100; (3) Landesbank Baden-Württemberg and others v.
Kingdom of Spain, ICSID Case No. ARB/15/45, Decision on the Intra-EU Jurisdictional Objection,
25 February 2019, ¶¶ 194, 202 (invoking the ECT); (4) Eskosol S.p.A. in liquidazione v. Italian Republic,
ICSID Case No. ARB/15/10, Decision on Respondent Request for Immediate Termination and
Respondent Jurisdictional Objection based on Inapplicability of the Energy Charter Treaty to Intra-EU
Disputes, 7 May 2019; (5) WA Investments-Europa Nova Limited v. Czech Republic, PCA Case No. 2014-19,
Award, 15 May 2019, ¶ 438; (6) ICW Europe Investments Limited v. Czech Republic, PCA Case No. 2014-22,
Award, 15 May 2019, ¶ 418; (7) Voltaic Network GmbH v. Czech Republic, PCA Case No. 2014-20,
Award, 15 May 2019; (8) Photovoltaik KnopfBetriebs-GmbH v. Czech Republic, PCA Case No. 2104-21,
Award, 15 May 2019; (9) 9REN Holding S.a.r.l v. Kingdom of Spain, ICSID Case No. ARB/15/15, Award,
31 May 2019, ¶ 173; (10) Rockhopper Italia S.p.A., et al, v. Italian Republic, ICSID Case No. ARB/17/14,
Decision on the Intra-EU Jurisdictional Objection, 26 June 2019, ¶ 211; (11) InfraRed Environmental
Infrastructure GP Limited and others v. Kingdom of Spain, ICSID Case No. ARB/14/12, Award, 2 August 2019,
¶ 274; (12) SolEs Badajoz GmbH v. Kingdom of Spain, ICSID Case No. ARB/15/38, Award, 31 July 2019,
¶ 252; (13) Belenergia S.A. v. Italian Republic, ICSID Case No. ARB/15/40, Award, 6 August 2019,
¶ 340; (14) OperaFund Eco-Invest SICAV PLC and Schwab Holding AG v. Kingdom of Spain, ICSID Case
No. ARB/15/36, Award, 6 September 2019, ¶ 388; (15) Stadtwerke Munchen GmbH and others v. Kingdom of
Spain, ICSID Case No. ARB/15/1, Award, 2 December 2019, ¶ 146; (16) BayWa r.e. renewable energy GmbH
and BayWa r.e. Asset Holding GmbH v. Kingdom of Spain, ICSID Case No. Arb/15/16, Decision on Jurisdiction
and Directions on Quantum, 2 December 2019, ¶ 283; (17) RWE Innogy GmbH and RWE Innogy Aera S.A.U.
v. Kingdom of Spain, ICSID Case No. ARB/14/34, Decision on jurisdictional, liability and certain issues of
quantum, 30 December 2019, ¶ 373; (18) Watkins Holdings S.à r.l. and others v. Kingdom of Spain, ICSID Case
No. ARB/15/44, Award, 21 January 2020; (19) PV Investors v. Kingdom of Spain, PCA Case No 2012-14, Final
Award, 28 February 2020, ¶ 549; (20) SunReserve Luxco Holdings S.A.R.L, et al. v. Italian Republic, SCC Case
No. V2016/32, Final Award, 25 March 2020, ¶ 464.
96 See, e.g., Greentech Energy Systems A/S (now Athena Investments A/S), et al. v. Italian Republic, SCC Case No. V
(2015/095), Final Award, 23 December 2018; United Utilities (Tallinn) B.V. and Aktsiaselts Tallinna Vesi v. Republic
of Estonia, ICSID Case No. ARB/14/24, Award, 21 June 2019, ¶ 560; Belenergia S.A. v. Italian Republic, ICSID
Case No. ARB/15/40, Award, 6 August 2019; OperaFund Eco-Invest SICAV PLC and Schwab Holding AG v.
Kingdom of Spain, ICSID Case No. ARB/15/36, Award, 6 September 2019; see also Theodoros Adamakopoulos

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set-aside proceedings relating to ECT awards rendered against it. In a set-aside application
against the award in Novenergia, Spain asked the Svea Court of Appeal of Sweden, inter
alia, to seek the ECJ’s guidance on whether its decision in Achmea would also apply to
the ECT.97 On 25 April 2019, the Svea Court of Appeal refused to refer the matter to the
ECJ.98 Although the Supreme Court of Sweden requested a preliminary ruling from the
ECJ in February 2020 on whether Achmea requires it to set aside two intra-EU BIT awards
against Poland,99 on 27 May 2020, the Svea Court of Appeal refused another request from
Spain in Novenergia to refer those questions to the ECJ, indicating that it was not motivated
at that point to obtain a preliminary ruling from the ECJ.100 However, the Svea Court of
Appeal did allow the Commission to submit a statement on Spain’s annulment application,
which it submitted on 30 July 2020.101
Consistent with the position suggested by the decisions of the Swedish courts, some
EU Member States have suggested treating intra-EU BITS differently from the ECT. On
15 and 16 January 2019, EU Member States issued three separate declarations on the ‘legal
consequences’ of Achmea.102 The Member States agreed that, in light of Achmea, they would
take steps to terminate all BITs concluded between them. However, their views on Achmea’s

and others v. Republic of Cyprus, ICSID Case No. ARB/15/49, Decision on Jurisdiction, 7 February 2020;
Addiko Bank AG and Addiko Bank d.d. v. Republic of Croatia, ICSID Case No. ARB/17/37, Decision on
Croatia’s Jurisdictional Objection Related to the Alleged Incompatibility of the BIT with the EU Acquis,
12 June 2020.
97 Damien Charlotin, ‘Post-Achmea Developments: Spain Wants Court to Ask ECJ to Rule on Compatibility of
Energy Charter Treaty with EU Law; Achmea Ruling Also Touted by Poland as Reason for Discontinued BIT
Case’, IAReporter, 22 May 2018. See also Damien Charlotin, ‘Spain Secures Stay of Enforcement in Energy
Charter Treaty Award in Swedish Court’, IAReporter 18 May 2018. The Swedish Svea Court of Appeal decided
to grant Spain’s request for stay of enforcement but did not set out its reasons in any detail.
98 Tom Jones, ‘Swedish court won’t consult ECJ on ECT’, Global Arbitration Review, 26 April 2019, available at
https://globalarbitrationreview.com/article/1190620/swedish-court-won%E2%80%99t-consult-ecj-on-ect,
last accessed 21 July 2020.
99 See Case No. T 1569-19, available in unofficial translation at https://globalarbitrationreview.com/
digital_assets/5782b647-dfdd-43e4-acd2-24d014776508/2020-02-04---Swedish-Supreme-Court--
-Order-of-reference-to-the-ECJ.pdf, last accessed 21 July 2020.
100 See Case No. T 4658-18, Svea Court of Appeal, available in English translation at
https://globalarbitrationreview.com/digital_assets/1b6c5574-1981-4b23-a244-76e304858110/
D.D.C.-18-cv-01148-dckt-000049_001-filed-2020-06-01.pdf, last accessed 21 July 2020;
Cosmo Sanderson, ‘Spain denied ECJ referral over ECT award’, Global Arbitration Review, 2 June 2020,
https://globalarbitrationreview.com/article/1227417/spain-denied-ecj-referral-over-ect-award, last accessed
21 July 2020.
101 Novenergia II – Energy & Environment (SCA) v.The Kingdom of Spain, No. 1:18-cv-1148 (TSC) Doc. 56 (D.D.C.
3 September 2020).
102 Declaration of the Member States of 15 January 2019 on the legal consequences of the Achmea judgment and
on investment protection dated 15 January 2019, available at https://ec.europa.eu/info/publications/
190117-bilateral-investment-treaties_en, last accessed 21 July 2020; Declaration of five EU Member States
on the Enforcement of the Judgment of the Court of Justice in Achmea and on Investment Protection
in the European Union, 16 January 2019, available at https://www.regeringen.se/48ee19/contentassets/
d759689c0c804a9ea7af6b2de7320128/achmea-declaration.pdf, last accessed 21 July 2020; Declaration
of Hungary on the Legal Consequences of the Judgment of the Court of Justice in Achmea and on
Investment Protection in the European Union, 16 January 2019, available at https://www.kormany.hu/
download/5/1b/81000/Hungarys%20Declaration%20on%20Achmea.pdf, last accessed 21 July 2020.

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impact on intra-EU arbitration under the ECT differed: 22 of the 28 EU Member States
opined that were the ECT’s dispute resolution clause interpreted to authorise intra-EU
arbitration, it ‘would be incompatible with the [EU] Treaties and thus would have to be
disapplied’; five Member States, including Sweden, noted that Achmea is silent on the ECT
and given ‘the importance of allowing for due process’, it would be ‘inappropriate, in the
absence of a specific judgment on this matter, to express views as regards the compatibility’
of the ECT’s dispute resolution provision with EU law; and one Member State (Hungary)
declared that Achmea ‘does not concern’ arbitration under the ECT. The 22 Member States
that called for intra-EU application of the ECT’s dispute provision to be ‘disapplied’ did
not expressly commit to renegotiate or withdraw from the ECT. However, the tribunals
that have considered the effect of the 22 EU Member States’ declarations have continued
to find they have jurisdiction pursuant to the ECT and that the declarations have no
impact thereon. In particular, tribunals have flagged the lack of unanimity among the EU
Member States’ interpretations103 and the lack of clarity concerning their potential impact
on enforcement of any award rendered.104
On 5 May 2020, 23 EU Member States signed an agreement for the termination of
intra-EU BITs to implement the ruling in Achmea that arbitration clauses in intra-EU BITs
are incompatible with EU law.105 The agreement contains one annex with a list of approxi-
mately 125 intra-EU BITs currently in force that will be terminated upon entry into force
of the agreement for the relevant Member States and further states that their sunset clauses
will also be terminated. A second annex lists 11 already terminated intra-EU BITs whose
sunset clauses will also cease to produce legal effect upon entry into force of the agree-
ment for the relevant Member States. Notably, the agreement does not cover intra-EU
proceedings under the ECT, indicating that the EU and ECT Member States will address
this matter at a later stage.106 However, EU Member States and the Commission continue
to argue, inter alia, that (1) there is no diversity of territories as required by Article 26 of
the ECT since, in intra-EU disputes, both the investor’s home state and the contracting
party are members of the European Union, (2) there is an implicit disconnection clause for
intra-EU relations in the ECT (i.e., a clause providing that, in the case of conflict, EU rules
prevail), and (3) certain provisions relating to EU autonomy in the TFEU conflict with the
dispute resolution provision in the ECT.

103 Landesbank Baden-Württemberg v. Kingdom of Spain, ICSID Case No. ARB/15/45, Decision on the Intra-EU
Jurisdictional Objection, 25 February 2019.
104 See, e.g., RWE Innogy GmbH and RWE Innogy Aersa S.A.U. v. Kingdom of Spain, ICSID Case No. ARB/14/34,
Decision on Jurisdiction, Liability and Certain Issues of Quantum, 30 December 2019; Eskosol S.p.A. in
liquidazione v. Italian Republic, ICSID Case No. ARB/15/50, Decision on Italy’s Request for Immediate
Termination and Italy’s Jurisdictional Objection Based on Inapplicability of the Energy Charter Treaty
to Intra-EU Disputes, 7 May 2019; Rockhopper Italia S.p.A., Rockhopper Mediterranean Ltd and Rockhopper
Exploration Plc v. Italian Republic, ICSID Case No. ARB/17/14, Decision on the Intra-EU Jurisdictional
Objection, 26 June 2019.
105 EU Member States sign an agreement for the termination of intra-EU bilateral investment treaties,
5 May 2020, available at https://ec.europa.eu/info/publication/200505-bilateral-investment-treaties-
agreement_en, last accessed 21 July 2020.
106 id.

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Tax ‘carveout’
Article 21(1) of the ECT excludes bona fide taxation measures from the ambit of the ECT
by providing that nothing in the ECT ‘shall create rights or impose obligations with respect
to Taxation Measures of the Contracting Parties’.107 However, this tax carveout does not
apply to taxes amounting to expropriation, and sets forth a mechanism by which issues as to
‘whether a tax constitutes an expropriation or whether a tax alleged to constitute an expro-
priation is discriminatory’ can be referred to a competent tax authority for resolution.108
In Plama, the tribunal observed that the investor must first exhaust this mechanism by
referring the issue to the competent tax authority before submitting the issue to arbitra-
tion.109 However, the tribunal in the Yukos cases concluded that the referral mechanism in
Article 21(5) of the ECT is not compulsory where referral to relevant authorities would
be an exercise in futility;110 or the measures at issue are not a bona fide exercise of the state’s
tax powers, in which case Article 21(1) does not apply.111 The Yukos tribunal concluded
that the carveout did not apply to Russia’s measures as the tax assessments levied against
Yukos by Russia ‘were designed mainly to impose massive liabilities based on value added
tax and related fines, and were essentially aimed at paralyzing Yukos rather than collecting
taxes’.112 Subsequent jurisprudence has confirmed that Article 21 does not apply to mala fide
taxation measures.113

107 Article 21(1).

108 Article 21(5); Plama Consortium Ltd v. Bulgaria, ICSID Case No. ARB/03/24, Award, 27 August 2008 [Plama
Award], ¶ 266 (finding that Article 21 ‘specifically excludes from the scope of the ECT’s protections taxation
measures of a Contracting State, with certain exceptions, one of which is that, if a tax constitutes or is alleged
to constitute an expropriation or is discriminatory’).
109 Plama Award, ¶ 266.
110 Hulley Enterprises Ltd (Cyprus) v. Russian Federation, PCA Case No. AA 226, Final Award, 18 July 2014 [Hulley
Final Award], ¶¶ 1421 to 1429; Yukos Universal Final Award, Ltd (Isle of Man) v. Russian Federation, PCA Case
No. AA 227, Final Award, 18 July 2014 [Yukos Universal Final Award], ¶¶ 1421 to 1429; Veteran Petroleum Final
Award, Trust (Cyprus) v. Russian Federation, PCA Case No. AA 228, Final Award, 18 July 2014 (Veteran Petroleum
Final Award), ¶¶ 1421 to 1429 (together the Yukos cases).
111 Hulley Final Award, ¶¶ 1430 to 1444; Yukos Universal Final Award, ¶¶ 1430 to 1444; Veteran Petroleum Final
Award, ¶¶ 1430 to 1444.
112 Hulley Final Award, ¶ 1444; Yukos Universal Final Award, ¶ 1444; Veteran Petroleum Final Award, ¶ 1444.
The tribunal’s analysis that these tax measures constituted expropriation is discussed below.
113 See Antaris Award, ¶¶ 215 to 253. The tribunal in Natland and others v. Czech Republic also found that the solar
levy was not a tax for the purposes of the ECT’s exception. However, this award is not yet publicly available.
Damien Charlotin, Natland v. Czech Republic (Part 1 of 2): ‘Tribunal Finds Jurisdiction Over Claimants Under
Three out of Four Treaties and Declines to Apply ECT’s Tax Carve-Out to Contested Measure’, IAReporter,
26 July 2018. See also Novenergia Final Award, ¶¶ 521 to 524; Antin Award, ¶¶ 314, 317 to 322; Masdar Award,
¶ 291; Isolux Award, ¶ 740. In these cases, the tribunals also recognised that Article 21 did not apply to mala fide
measures but found that the claimants had not established that the renewable energy levy imposed by Spain
was, in fact, mala fide.

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The ECT’s substantive protections

The ECT provides several critical protections to investors of contracting parties. Below
we discuss some of the most prominent and frequently claimed protections enshrined in
the ECT:
• fair and equitable treatment (Article 10(1));
• full protection and security (Article 10(1));
• the prohibition against unreasonable and discriminatory measures (Article 10(1));
• the prohibition against unlawful expropriation (Article 13); and
• the umbrella clause (Article 10(1)).114

Fair and equitable treatment

Article 10(1) obliges the contracting parties to accord fair and equitable treatment (FET)
to protected investments. Specifically, it provides that:

Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and
create stable, equitable, favourable and transparent conditions for Investors of other Contracting
Parties to make Investments in its Area. Such conditions shall include a commitment to accord at
all times to Investments of Investors of other Contracting Parties fair and equitable treatment.115

While these two sentences may be read as separate provisions, tribunals have observed
that the standards of protection contained in Article 10(1) are closely related and manifest
different components of the FET standard.116
There is a well-trodden and extensive debate surrounding the content of the FET
standard in international arbitration, and ECT disputes have proven to be no exception.
In broad strokes, tribunals considering the ECT’s FET protection have recognised, among
other components, a contracting party’s obligations to act consistently and transparently,117

114 In addition to these protections, the ECT also provides protections related to national treatment
(Article 10(7)), most-favoured nation (Article 10(7)), and the free transfer of investments (Article 14(1)).
115 Article 10(1).
116 Al-Bahloul Partial Award, ¶¶ 175 to 179 (observing that these two ‘provisions of Article 10(1)’ can be treated
together as the bases for the ECT’s fair and equitable treatment standard). See also Petrobart Arbitral Award,
p. 76, ¶ VIII.8.20 (‘The Arbitral Tribunal does not find it necessary to analyse the Kyrgyz Republic’s action
in relation to the various specific elements in Article 10(1) of the Treaty but notes that this paragraph in its
entirety is intended to ensure a fair and equitable treatment of investments.’); Plama Award, ¶ 163; Amto Final
Award, § 74; Isolux Award, ¶¶ 764 to 766; Novenergia Final Award, ¶ 646; Antin Award, ¶ 533.
117 Electrabel Decision on Jurisdiction, ¶ 7.74; Plama Award, ¶ 178; Al-Bahloul Partial Award, ¶¶ 183 to 184;
Mamidoil Jetoil Greek Petroleum Products Société Anonyme S.A. v. Albania, ICSID Case No. ARB/11/24, Award,
30 March 2015 [Mamidoil Award], ¶ 616. The Electrabel tribunal stressed that ‘[t]he reference to transparency
can be read to indicate an obligation to be forthcoming with information about intended changes in policy
and regulations that may significantly affect investments, so that the investor can adequately plan its investment
and, if needed, engage the host State in dialogue about protecting its legitimate expectations.’ Electrabel
Decision on Jurisdiction, ¶ 7.79.

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accord due process,118 refrain from arbitrary119 or discriminatory measures,120 and ensure
stable and equitable conditions.121 Some tribunals have explained that to breach FET, the
state’s acts or omissions must be ‘manifestly unfair or unreasonable (such as would shock, or
at least surprise a sense of juridical propriety)’.122
Two common sets of FET claims that have been brought in the context of the ECT
are failure to provide a stable and transparent regulatory environment in light of the inves-
tor’s legitimate expectations, and denial of justice. These are discussed in more detail below.

Legitimate expectations
Several tribunals have considered the role and relevance of an investor’s legitimate expec-
tations at the time of investment in considering alleged breaches of FET. In Electrabel, the
tribunal observed that it is ‘widely accepted that the most important function of the fair
and equitable treatment standard is the protection of the investor’s reasonable and legiti-
mate expectations’.123 Other tribunals have also recognised the importance of legitimate
expectations. In Charanne, the tribunal considered an investor’s legitimate expectations to
be ‘a relevant factor’ to the determination of FET, linking this factor to good faith prin-
ciples under customary international law.124 The rationale, the tribunal explained, is ‘that
a State cannot induce an investor to make an investment, hereby generating legitimate
expectations, to later ignore the commitments that had generated such expectations’.125
To demonstrate that a breach of FET has arisen from an investor’s legitimate expectations,
tribunals have considered whether: (1) representations or assurances were given by the host
state to the investor at the time of investment; (2) the investor reasonably relied on these
representations and assurances in making its investment; and (3) the state’s conduct was
contrary to these representations or assurances.126
The degree to which such legitimate expectations must arise from explicit representa-
tions has been the source of debate.127 Although some tribunals have observed that legiti-
mate expectations can be based on the legal order or regulatory framework of the host state
or implicit assurances,128 others have looked for statements and commitments, potentially
in the form of a stabilisation clause, that a regulatory environment would not change.129

118 Mamidoil Award, ¶ 613; Electrabel Decision on Jurisdiction, ¶ 7.74.

119 A measure will not be arbitrary if it is reasonably related to a rational policy. See Electrabel S.A. v. Hungary,
ICSID Case No. ARB/07/19, Award, 25 November 2015 [Electrabel Award], ¶ 179; AES Summit Generation
Limited and AES-Tisza Erömü Kft. v.The Republic of Hungary, ICSID Case No. ARB/07/22, Award,
23 September 2010 [AES II Award], ¶¶ 10.3.7 to 10.3.9. This includes the requirement that the impact of the
measure on the investor be proportional to the policy objective sought. See Electrabel Award, ¶ 179.
120 Electrabel Decision on Jurisdiction, ¶ 7.74.
121 Plama Award, ¶ 173; Mamidoil Award, ¶ 616.
122 AES II Award, ¶ 9.3.40; The AES Corporation and Tau Power B.V. v. Republic of Kazakhstan, ICSID Case
No. ARB/10/16, Award, 1 November 2013, ¶ 314.
123 Electrabel Decision on Jurisdiction, ¶ 7.75.
124 Charanne Final Award, ¶ 486.
125 id.
126 AES II Award, ¶ 9.3.17; Plama Award, ¶ 176.
127 Masdar Award, ¶ 490.
128 Al-Bahloul Partial Award, ¶ 202; Mamidoil Award, ¶ 731; Antaris Award, ¶ 366.
129 Charanne Final Award, ¶ 490.

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However, the majority of ECT decisions follow the former approach. In Electrabel, for
example, the tribunal found that ‘[w]hile specific assurances given by the host State may
reinforce the investor’s expectations, such an assurance is not always indispensable’ and
rather will make a difference when assessing the investor’s knowledge, and of the reason-
ability and legitimacy of its expectations.130 The tribunal added that in the absence of such
a specific representation, ‘the investor must establish a relevant expectation based upon
reasonable grounds’.131
In this context, tribunals have also considered the stability of a state’s legal framework
as a component of the FET standard, although tribunals have balanced this element against
the state’s ‘legitimate right to regulate’.132 In other words, the state is not prohibited from
enacting any and all changes to its regulatory framework, and whether it has satisfied its
obligations to accord FET will depend on the circumstances of each case. In finding that
Hungary had not breached its obligation to provide a stable legal framework, the tribunal
in AES v. Hungary II observed that a ‘legal framework is by definition subject to change as
it adapts to new circumstances day by day and a state has the sovereign right to exercise its
powers which include legislative acts’.133 Further ‘any reasonably informed business person
or investor knows that laws can evolve in accordance with the perceived political or policy
dictates of the time’.134 In Mamidoil v. Albania, the tribunal explained that an assessment of
whether the state has satisfied its obligation to provide a stable and transparent framework
should be considered in the specific context of what can be expected in that individual
state,135 and placed a level of responsibility on the investor to complete its due diligence and
evaluate the circumstances of its investment.136
The stability and predictability of states’ regulatory regimes has taken centre stage in
more recent renewable energy cases. As noted above, these cases have arisen from reversals
made by states in the regulatory incentives offered to renewable energy investors. Several
tribunals have found these regulatory changes amount to violations of FET. For example,
the tribunal in Eiser found that although ‘investment treaties do not eliminate States’ right
to modify their regulatory regimes to meet evolving circumstances and public needs’,137 the
‘Respondent’s obligation under the ECT to afford investors fair and equitable treatment
does protect investors from a fundamental change to the regulatory regime in a manner
that does not take account of the circumstances of existing investments made in reliance on
the prior regime’.138 Similarly, the Novenergia tribunal held that the FET standard ‘protect[s]
investors from a radical or fundamental change to legislation’.139 The tribunal in Antin

130 Electrabel Decision on Jurisdiction, ¶ 7.78; Electrabel Award, ¶ 155.

131 Electrabel Award, ¶ 155.
132 Plama Award, ¶ 177. See also Mamidoil Award, ¶¶ 616, 621; Electrabel Decision on Jurisdiction, ¶ 7.77.
133 AES II Award, ¶ 9.3.29.
134 id. ¶ 9.3.34.
135 Mamidoil Award, ¶¶ 623 to 629.
136 id. ¶¶ 630 to 634. See also Antaris Award, ¶¶ 395, 397, 440; Masdar Award, ¶¶ 494 to 499.
137 Eiser Award, ¶ 362 (subsequently annulled on other grounds).
138 id. ¶ 363.
139 Novenergia Award, ¶ 654.

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found it instructive that the ECT ‘contains a specific obligation – as opposed to a mere
declaration in the preamble, and with language that suggests and [an] imperative and not
merely a recommendation – to encourage and create stable conditions for investments’.140

Denial of justice
ECT tribunals have also treated the denial of justice as a component of the FET stand-
ard.141 In Amto, the tribunal quoted the North American Free Trade Agreement tribunal
in Mondev v. USA to explain that when considering whether a denial of justice has taken
place, the question is whether, ‘at an international level and having regard to generally
accepted standards of the administration of justice, a tribunal can conclude in the light of all
the available facts that the impugned decision was clearly improper and discreditable, with
the result that the investment has been subjected to unfair and inequitable treatment’.142
The impugned treatment can be considered cumulatively and as a whole (e.g., relating to
various proceedings rather than a single decision or act).143
In Energoalians, the tribunal found that Moldova had breached FET when the Court of
Accounts, a ‘quasi-judicial’ financial oversight body,144 issued a decree that found, contrary
to clear evidence, that the investor had not supplied electricity pursuant to certain contracts
and ordered Energoalians to return money allegedly paid to it by Moldtranselectro (the
state-owned company responsible for the operation of Moldova’s power grids) when
there was no evidence that Energoalians had ever been paid.145 The tribunal observed that
this decree amounted to a denial of justice and a breach of Moldova’s obligations under
Article 10(1).146
Claims relating to denial of justice have also been linked to the protection provided
by Article 10(12),147 which provides that ‘[e]ach Contracting Party shall ensure that its
domestic law provides effective means for the assertion of claims and the enforcement
of rights with respect to Investments, investment agreements, and investment authorisa-
tions’.148 This provision has been interpreted to require ‘a legal framework that guarantees
effective remedies to investors for realisation and protection of their investments’.149 The
tribunal in Amto determined that this provision contains a dual requirement of law (legisla-
tion for the recognition and enforcement of property and contractual rights) and the rule

140 Antin Award, ¶ 533.

141 Amto Final Award, § 75.
142 id. § 76 (citing Mondev International Limited v. United States of America, ICSID Case No. ARB(AF)/99/2,
¶¶ 126 to 127).
143 id. § 78.
144 Energoalians Award, ¶ 356.
145 id. ¶¶ 350 to 355.
146 id. ¶ 356.
147 See, e.g., Amto Final Award, § 75 (observing that the denial of justice ‘is a manifestation of a breach of the
obligation of a State to provide fair and equitable treatment and the minimum standard of treatment required
by international law. Denial of justice relates to the administration of justice, and some understandings of the
concept include both judicial failure and also legislative failures relating to the administration of justice (for
example, denying access to the courts).’).
148 Article 10(12).
149 Charanne Final Award, ¶ 470.

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of law (rules of procedure that allow an investor effective action in domestic tribunals).150
In Petrobart, the Vice Prime Minister sent a letter to the Chairman of the Bishkek Court
requesting the postponement of the execution of a judgment entitling the claimant to
money from the state joint stock company KGM in payment for delivered gas condensate.
A few days later, KGM’s request for a stay was granted for three months and, before the stay
ended, KGM declared bankruptcy, making enforcement of the judgment impossible.151 The
tribunal concluded that this letter was an attempt by the government to influence a judicial
decision to Petrobart’s detriment, an intervention that failed to comport with the rule of
law in a democratic society, amounting to a violation of the Kyrgyz Republic’s obligation
to Petrobart under Article 10, (1) and (12).152

Constant protection and security

Article 10(1) further requires a contracting party to accord ‘the most constant protection
and security’ to an investor’s investment.153 ECT tribunals have observed that a key compo-
nent of this standard is an obligation of ‘due diligence’, which requires a state to create a
framework that provides security and protects the property of aliens from wrongful injury
or harassment.154 Further, ECT tribunals have recognised the potential for constant protec-
tion and security protection – often referred to as full protection and security (FPS) protec-
tion – to extend beyond physical security and include legal security.155 However, tribunals
considering alleged breaches of FPS have confirmed that this obligation does not impose
strict liability on the state to prevent all injury.156
To date, there is no publicly available decision in which a tribunal has found a breach
of FPS under the ECT.

Prohibition against unreasonable and discriminatory measures

While potentially overlapping with the obligation to accord FET, Article 10(1)’s prohibi-
tion on ‘unreasonable and discriminatory measures’ has been read as a unique and separate
protection under the ECT. Measures that breach this provision, as identified by the Plama

150 Amto Final Award, § 87. See also id. § 88.

151 Petrobart Arbitral Award, p. 75, ¶ VIII.8.11.
152 id. pp. 75 to 77, ¶¶ VIII.8.11 to VIII.8.13,VIII.8.20 to 8.22.
153 Article 10(1).
154 Electrabel Decision on Jurisdiction, ¶ 7.83 (citing El Paso Energy International Company v. The Argentine Republic,
ICSID Case No. ARB/03/15, Award, 31 October 2011, ¶¶ 522 to 523); Plama Award, ¶¶ 179 to 180; AES II
Award, ¶¶ 13.3.2 to 13.3.3; Mamidoil Award, ¶ 821.
155 Plama Award, ¶ 180; AES II Award, ¶ 13.3.2. However, in Liman, the tribunal emphasised that the purpose
of this provision is ‘to protect the integrity of an investment against interference by the use of force and
particularly physical damage.’ Liman Award Excerpts, ¶ 289. See also A.M.F. Airfraftleasing Final Award ¶ 661 (in
a non-ECT arbitration, ‘the FPS standard extends beyond physical protection to include (at least) the provision
of legal security, in the sense of a duty of due diligence in maintaining a functioning judicial system that is
available to foreign investors seeking redress’).
156 Electrabel Decision on Jurisdiction, ¶ 7.83; Plama Award, ¶ 181; AES II Award, ¶ 13.3.2; Mamidoil Award, ¶ 821.

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tribunal, are those that are ‘not founded in reason or fact but on caprice, prejudice or personal
preference’.157 The tribunal in Electrabel observed that ‘a breach of this standard requires the
impairment caused by the discriminatory or unreasonable measure to be significant’.158
Discriminatory treatment occurs where ‘like persons [are] treated in a different manner
in similar circumstances without reasonable or justifiable grounds’,159 although there need
not be discriminatory intent on the part of the host state.160 In AES v. Hungary II, the
tribunal identified two elements to determine whether a state’s acts are unreasonable:
the existence of a rational policy, and the reasonableness of the state’s act relating to that
policy.161 Reasonableness in this context requires ‘an appropriate correlation between the
state’s public policy objective and the measure adopted to achieve it’.162 In Greentech Energy
Systems A/S (now Athena Investments A/S), et al. v. Italian Republic, the tribunal addressed
the parties’ competing interpretations of ‘unreasonable . . . ​measures’.163 Italy argued that a
measure is not ‘unreasonable’ if there is a ‘rational public purpose for the measure, combined
with a reasonable manner of effecting that purpose’.164 Rejecting that view, the majority
of the tribunal adopted the investors’ position that ‘the inquiry should be more inclusive,
considering the perspective of the treaty parties or the investor as to whether a measure is
reasonable’.165 In light of that interpretation, a majority of the tribunal concluded that the
tariff reduction at issue was an ‘unreasonable measure’ that impaired the claimants’ invest-
ments and thus breached Article 10(1).166

Expropriation
The ECT’s prohibition against unlawful expropriation is contained in Article 13 and corre-
lates with the well-known standard for expropriation under international law; namely, it
provides that expropriation is unlawful unless the following four requirements are satisfied:
• it is done in the public interest;
• it is not discriminatory;
• it is carried out under due process of law; and
• it is accompanied by the payment of prompt, adequate and effective compensation.167

There have been only a handful of direct expropriation cases in the ECT context,
the majority of which have rejected claims for direct expropriation. For example, in
Kardassopoulous v. Georgia, the tribunal found that Georgia had committed ‘a classic case of

157 Plama Award, ¶ 184.

158 Electrabel Decision on Jurisdiction, ¶ 7.152.
159 Plama Award, ¶ 184; Nykomb Arbitral Award, ¶ 4.3.2.3.a.4; Electrabel Decision on Jurisdiction, ¶ 7.152; Mamidoil
Award, ¶ 788.
160 Electrabel Decision on Jurisdiction, ¶ 7.152.
161 AES II Award, ¶¶ 10.3.7 to 10.3.8.
162 id. ¶ 10.3.9.
163 Greentech Energy Systems A/S (now Athena Investments A/S), et al. v. Italian Republic, SCC Case No. V
(2015/095), Final Award, 23 December 2018, ¶ 462. See also id. ¶ 594(b).
164 id.
165 id.
166 id.
167 Article 13(1).

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direct expropriation’ by taking away the claimant’s concession to distribute oil and gas in
Georgia, transferring them to a state-owned entity, and failing to provide compensation or
due process of law.168
Article 13 of the ECT also covers indirect expropriation, including in its definition
‘a measure or measures having effect equivalent to nationalisation or expropriation’.169
Thus, indirect expropriation claims are frequently considered by ECT tribunals, who rely
heavily on the jurisprudence established by international arbitral tribunals considering
indirect expropriation claims arising from bilateral and other multilateral treaties. In some
of the most recent and well-known of these cases, controlling shareholders of OAO Yukos
Oil Company (Yukos) claimed that Russia breached Articles 10(1) and 13(1) of the ECT
by expropriating Yukos. They brought three related arbitrations that were submitted to the
same arbitral tribunal.170 The tribunal in the Yukos cases found that Russia’s primary objec-
tive regarding its tax treatment of Yukos was ‘not to collect taxes but rather to bankrupt
Yukos and appropriate its valuable assets’.171 Russia’s measures, the tribunal observed, were
‘in effect a devious and calculated expropriation’.172 The tribunal concluded that although
Russia had not ‘explicitly expropriated’ Yukos or the holdings of its shareholders, these
measures were ‘equivalent to nationalization or expropriation’ in breach of Article 13 of the
ECT.173 The tribunal awarded the former Yukos shareholders approximately US$50 billion
– the highest value in international arbitration awards known to date. Although The Hague
District Court overturned the awards on the basis of the tribunal’s decision on its jurisdic-
tion (and not on the merits of the tribunal’s finding that Russia breached Article 13 of
the ECT), The Hague Court of Appeals overturned the annulment on 18 February 2020,
reinstating the awards.174
In the ECT context, the standard for indirect expropriation has been articulated
in various ways. In Electrabel, the tribunal required the claimant to prove that the effect
of Hungary’s acts were ‘materially the same’ as if the investment had been directly
expropriated,175 observing that international law requires that the investor ‘establish the
substantial, radical, severe, devastating or fundamental deprivation of its rights or the virtual

168 Ioannis Kardassopoulos and Ron Fuchs v.The Republic of Georgia, ICSID Case Nos. ARB/05/18 and ARB/07/15,
Award, 3 March 2010, ¶¶ 387 to 408.
169 Article 13(1).
170 Hulley Enterprises Limited (Cyprus) v.The Russian Federation (PCA Case No. AA 226); Yukos Universal Limited
(Isle of Man) v. Russian Federation (PCA Case No. AA 227); and Veteran Petroleum Limited (Cyprus) v. Russian
Federation (PCA Case No. AA 228).
171 Hulley Final Award, ¶ 756; Yukos Universal Final Award, ¶ 756; Veteran Petroleum Final Award, ¶ 756. See also
Hulley Final Award, ¶¶ 757 to 759, 1579; Yukos Universal Final Award, ¶¶ 757 to 759, 1579; Veteran Petroleum
Final Award, ¶¶ 757 to 759, 1579.
172 Hulley Final Award, ¶ 1037; Yukos Universal Final Award, ¶ 1037; Veteran Petroleum Final Award, ¶ 1037.
173 Hulley Final Award, ¶¶ 1580 to 1585; Yukos Universal Final Award, ¶¶ 1580 to 1585; Veteran Petroleum Final
Award, ¶¶ 1580 to 1585. The tribunal did not go on to examine claims that Russia violated Article 10 of the
ECT. Hulley Final Award, ¶ 1449; Yukos Universal Final Award, ¶ 1449; Veteran Petroleum Final Award, ¶ 1449.
174 The Hague Court of Appeal, Judgment of 18 February 2020, available in unofficial English translation at
https://www.italaw.com/sites/default/files/case-documents/italaw11338_0.pdf, last accessed 21 July 2020,
Cosmo Sanderson, ‘Dutch appeal court reinstates US$50 billion Yukos awards’, Global Arbitration Review,
18 February 2020.
175 Electrabel Decision on Jurisdiction, ¶ 6.53.

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annihilation, effective neutralisation or factual destruction of its investment, its value or

enjoyment’.176 In Charanne, the tribunal explained that ‘indirect expropriation under inter-
national law implies a substantial effect on the property rights of the investor’, which
requires an effective deprivation of all or part of the assets constituting the investment or
a loss of value that could be equal in magnitude to a deprivation of the investment.177 In
finding that there was no indirect expropriation, the tribunal observed that while there was
a reduction in profitability as a result of Spain’s actions, the value of the investment was not
‘destroyed’.178 Consequently, the loss of value alone was insufficient to constitute indirect
expropriation. According to the tribunal in Mamidoil v. Albania, there must also be a loss of
an attribute of ownership.179

Umbrella clause
Article 10(1) of the ECT also contains an ‘umbrella clause’, which provides that ‘[e]ach
Contracting Party shall observe any obligations it has entered into with an Investor or
an Investment of an Investor of any other Contracting Party’.180 As referenced above,
contracting parties may withhold their unconditional consent to international arbitration
with respect to disputes arising out of this provision.181 In Khan v. Mongolia, the tribunal
found in its decision on jurisdiction that any violation of the domestic foreign investment
law would constitute a breach of the ECT’s umbrella clause.182 The tribunal found that
Mongolia had breached a provision of its foreign investment law prohibiting unlawful
expropriation, thereby breaching the umbrella clause in the ECT.183 In Greentech Energy
Systems, the majority of the tribunal found that Italy violated the umbrella clause. The
majority interpreted the ‘“obligations” referred to in the ECT’s umbrella clause as suffi-
ciently broad to encompass not only contractual duties but also certain legislative and
regulatory instruments that are specific enough to qualify as commitments to identifiable
instruments or investors’.184 The majority found that certain decrees, letters and agreements
amounted to such obligations because they were entered into with specific investors and
were ‘sufficiently specific’ because they set forth ‘specific tariff rates for a fixed duration of
twenty years’.185 Finding that those obligations should be considered together as a whole,
the majority rejected the dissenting arbitrator’s position that the umbrella clause could not
cover certain agreements that originally were entered into with Italian-owned operators
and later came into the possession of a foreign investor, finding that ‘no hint of such a
temporal dimension’ exists ‘in the plain wording of the ECT’s umbrella clause’.186

176 id. ¶ 6.62.

177 Charanne Final Award, ¶ 461. See also AES II Award, ¶ 14.3.1.
178 Charanne Final Award, ¶ 466.
179 Mamidoil Award, ¶¶ 566 to 572.
180 Article 10(1).
181 Article 26(3)(c).
182 Khan Decision on Jurisdiction, ¶ 438; Khan Resources Inc. et al. v.The Government of Mongolia & MonAtom LLC,
UNCITRAL, PCA Case No. 2011-09, Award on the Merits, 2 March 2015 [Khan Award], ¶¶ 295 to 296.
183 Khan Award, ¶ 366.
184 Greentech Energy Systems Final Award, ¶ 464.
185 id. ¶ 466.
186 id. ¶ 467.

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Trends in ECT arbitrations

Significant events that could have influenced the development of ECT jurisprudence –
namely a national court of first instance overturning the largest arbitral awards known to
date, states withdrawing from the ECT and the CJEU’s decision in Achmea – have not yet
proven to have a meaningful impact. Early in 2020, that national court decision was over-
turned, no additional states have withdrawn from the ECT and intra-EU disputes continue
to be brought under the ECT. However, new trends are emerging, including efforts to
modernise the ECT187 and attacks on the ECT because of its purported negative effect on
efforts to address climate change.188

The Yukos awards – provisional application of the ECT

In July 2014, an arbitral tribunal seated in The Hague rendered the Yukos awards, ordering
Russia to pay more than US$50 billion to former majority shareholders of Yukos. In line
with previous jurisprudence under the ECT, the arbitral tribunal found it had jurisdiction
based on Russia’s provisional application of the ECT, including the arbitration provisions
in Article 26.189 In 2016,The Hague District Court overturned the awards, finding that the
arbitral tribunal did not have jurisdiction because dispute resolution through arbitration
was at odds with the Russian Constitution and therefore was not part of Russia’s provi-
sional application of the ECT.190
In 2017, two arbitral tribunals seated outside the Netherlands (in Switzerland and
Canada) were not deterred by The Hague District Court’s decision (which had not yet been
overturned),191 each separately finding that it had jurisdiction under Article 45 of the ECT
and rejecting Russia’s jurisdictional objection, among others, that provisional application
of the arbitration provision in Article 26 is inconsistent with the Russian Constitution.192

187 Commission presents EU proposal for modernising energy Charter Treaty, 27 May 2020, available
at https://trade.ec.europa.eu/doclib/press/index.cfm?id=2148, last accessed 21 July 2020; Cosmo
Sanderson, ‘EU publishes proposals for ECT revamp’, Global Arbitration Review, 28 May 2020, available at
https://globalarbitrationreview.com/article/1227287/eu-publishes-proposals-for-ect-revamp, last accessed
21 July 2020; EU text proposal for the modernisation of the Energy Charter Treaty (ECT), available at
https://trade.ec.europa.eu/doclib/docs/2020/may/tradoc_158754.pdf, last accessed 21 July 2020.
188 See, e.g.,Von Bettina Müller, ‘Open Letter – Ending the Membership of the EU and its Member States in
the Energy Charter Treaty’, 24 September 2019, available at https://power-shift.de/open-letter-ending-the-
membership-of-the-eu-and-its-member-states-in-the-energy-charter-treaty, last accessed 21 July 2020.
189 Hulley Interim Award, ¶¶ 393 to 398; Yukos Universal Interim Award, ¶¶ 393 to 398; Veteran Petroleum Interim
Award, ¶¶ 393 to 398.
190 Daniella Strik, Georgios Fasfalis and Marc Krestin, ‘Yukos Awards Set Aside by The Hague District
Court’, Kluwer Arbitration Blog, 27 April 2016, available at http://arbitrationblog.kluwerarbitration.
com/2016/04/27/yukos-awards-set-aside-by-the-hague-district-court; Alison Ross, ‘Yukos Shareholders Seek
to Reinstate Award’, Global Arbitration Review, 19 July 2016; ‘The First Hearing in the Yukos Appeal – GAR
Reports Exclusively on the Arguments’, Global Arbitration Review, 18 January 2017; Alison Ross, ‘Hague Court
will Not Split Yukos Appeal’, Global Arbitration Review, 23 January 2017.
191 Alison Ross, ‘Second Wave Yukos Tribunal Rules on Provisional Application’, Global Arbitration Review,
16 February 2017.
192 id. These include cases brought by Yukos Capital and Luxtona against Russia for alleged violations of its
obligations under the ECT with tribunals seated in Geneva and Toronto respectively. Jarrod Hepburn, ‘Russia
Turns to Canadian and Swiss Courts Seeking to Set Aside a Pair of Yukos “Second-Wave” Energy Charter

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Russia subsequently challenged these interim decisions. Its challenge was rejected by the
Swiss Federal Supreme Court, which deemed it premature.193 That arbitration has continued
on the merits. Set-aside proceedings against the other tribunal’s jurisdictional decision
continue in Canada, where the Ontario Supreme Court held, on 13 December 2019, that
the new evidence Russia sought to admit in the set-aside proceeding was inadmissible.194
In a landmark decision of 18 February 2020, The Hague Court of Appeal set aside the
District Court’s decision, thereby reinstating and upholding the Yukos awards.195 The Hague
Court of Appeal concluded that Russia had undertaken to provisionally apply the ECT and
that there was ‘no question of conflict’ between the ECT’s investor-state arbitration provi-
sions and Russian law. On 15 May 2020, Russia appealed to the Dutch Supreme Court,
calling The Hague Court of Appeal’s decision ‘seriously flawed’ and arguing, for the first
time, that an issue of EU law is at stake that requires referral to the ECJ.196 The development
of this jurisprudence will be closely watched and is likely to have lasting effects.

No trend of withdrawal of states from the ECT and intra-EU disputes continue
Withdrawals from the ECT by Russia in 2009 and Italy in 2015 suggested that a trend
towards withdrawals would emerge, but no other states have withdrawn since 2015, nor has
the ECT lost its strategic importance. Following Italy’s announcement, several arbitration
claims were launched against Italy, including by Veolia Propreté SAS (in June 2018) and
by Hamburg Commercial Bank AG (in January 2020), both in relation to Italy’s measures
affecting the renewable energy sector.197
According to the United Nations Conference on Trade Development (UNCTAD), the
ECT remained the most frequently invoked international investment agreement in 2017 and
2018, accounting for six cases in 2017 and seven cases in 2018, including continuing claims

Rulings – But Swiss Bid is Deemed Premature’, IAReporter 10 August 2017; Jarrod Hepburn, ‘Interim Award
in Luxtona v. Russia Arbitration Comes to Light, Offering New Reasoning on Provisional Application of
Energy Charter Treaty and Russia’s Attempted Denial of Benefits to this Yukos Shareholder’, IAReporter
4 January 2018.
193 Jarrod Hepburn, ‘Russia Turns to Canadian and Swiss Courts Seeking to Set Aside a Pair of Yukos
“Second-Wave” Energy Charter Rulings But Swiss Bid is Deemed Premature’, IAReporter, 10 August 2017.
194 Damien Charlotin and Luke Eric Peterson, ‘Russia Set-Aside Round-Up: Swiss Court Rules that Russia
Does Not Need To Post Security For Costs As It Seeks To Set Aside Crimea Bit Award; Set-Aside Applications
Continue In First And Second Wave Yukos Cases’, IAReporter, 7 December 2017; Sebastian Perry, ‘Canadian
court bars new evidence in Yukos set-aside bid’, Global Arbitration Review, 31 January 2020, available at
https://globalarbitrationreview.com/article/1213707/canadian-court-bars-new-evidence-in-yukos-set-
aside-bid, last accessed 21 July 2020.
195 Judgment of The Hague District Court, Judgment of 20 April 2016, Case Nos. C/09/477160/HA
ZA 15-1, C/09/477162/HA ZA 15-2, C/09/481619/HA ZA 15-112, available in English translation at
https://www.italaw.com/sites/default/files/case-documents/italaw7258.pdf, last accessed 21 July 2020.
196 Alison Ross, ‘Will Yukos now go before the ECJ?’, Global Arbitration Review, 15 May 2020, available at
https://globalarbitrationreview.com/article/1226901/will-yukos-now-go-before-the-ecj, last accessed
21 July 2020.
197 The ECT has a 20-year sunset provision. See Veolia Propreté SAS v. Italian Republic, available at
https://energycharter.org/what-we-do/dispute-settlement/investment-dispute-settlement-cases/
117-veolia-proprete-sas-v-italian-republic, last accessed 21 July 2020; Hamburg Commercial Bank AG v. Italian
Republic, ICSID Case No. ARB/20/3, ICSID website, available at https://icsid.worldbank.org/en/Pages/
cases/casedetail.aspx?CaseNo=ARB/20/3, last accessed 21 July 2020.

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against EU Member States.198 That trend continued in 2019, with the ECT still the most
frequently invoked international investment agreement199 as the number of investor-state
dispute settlement cases passed 1,000.200 UNCTAD reports that approximately 15 per
cent of the 55 known investor-state dispute settlement cases filed in 2019 were intra-EU
disputes and five of those seven disputes were brought under the ECT, including against
Luxembourg, Austria, Germany and Belgium.201 Although not included on UNCTAD’s
list of cases, in 2019, according to the Energy Charter Treaty Secretariat, ECT cases were
also registered against Spain (three cases), Romania, Germany and Georgia.202 And, the
European Union faced its first ECT claim in 2019.203 As at 15 July 2020, at least three
ECT arbitrations have been registered in 2020, two of which involve intra-EU disputes
concerning renewable energy.204

Intra-EU disputes continue under the ECT

The impact of the ECJ’s decision in Achmea has also been limited so far. As noted above,
the tribunals in Masdar, Vattenfall and many other cases have refused to extend the decision
in Achmea to the ECT.205

Modernisation of the ECT and addressing climate change

In November 2017, the Energy Charter Conference (the Conference) confirmed the
launch of a discussion on the potential modernisation of the ECT.206 Changing the
ECT requires the unanimous backing of all signatories.207 On 27 November 2018, the

198 See UNCTAD, Investor-State Dispute Settlement: Review of Developments in 2017, June 2018; UNCTAD
Fact Sheet on Investor-State Dispute Settlement Caes in 2018, UNCTAD website, https://unctad.org/en/
PublicationsLibrary/diaepcbinf2019d4_en.pdf, last accessed 21 July 2020.
199 ‘Investor-State Dispute Settlement Cases Pass the 1,000 mark: Cases and Outcomes in 2019’, IIA Issues Note,
Issue 2 July 2020, available at https://unctad.org/en/PublicationsLibrary/diaepcbinf2020d6.pdf, last accessed
21 July 2020.
200 id.
201 id.
202 See https://www.energychartertreaty.org/cases/list-of-cases, last accessed 21 July 2020.
203 Cosmo Sanderson, ‘ECT claim against EU underway’, Global Arbitration Review, 26 May 2020, at
https://globalarbitrationreview.com/article/1227202/ect-claim-against-eu-underway, last accessed
21 July 2020.
204 Hamburg Commercial Bank AG v. Italy, ICSID Case No. ARB/20/3, registered 21 January 2020 (listing
renewable energy generation enterprise as the subject of the dispute), available at https://icsid.worldbank.org/
en/Pages/cases/casedetail.aspx?CaseNo=ARB/20/3, lasted accessed 21 July 2020; EP Wind Project (Rom) Six
Ltd. v. Romania, ICSID Case No. ARB/20/15, registered 19 May 2020 (listing renewable energy generation
enterprise as the subject of the dispute), available at https://icsid.worldbank.org/en/Pages/cases/casedetail.
aspx?CaseNo=ARB/20/15, last accessed 21 July 2020; Zaur Leshkasheli and Rosserland Consultants Limited
v. Azerbaijan, ICSID Case No. ARB/20/20, registered 25 June 2020 (listing hydrocarbon exploration and
production joint venture as the subject of the dispute), available at https://icsid.worldbank.org/en/Pages/
cases/casedetail.aspx?CaseNo=ARB/20/20, last accessed 21 July 2020; see Energy Charter Treaty website,
https://www.energychartertreaty.org/cases/list-of-cases, last accessed 21 July 2020.
205 See footnotes 89 to 95, above.
206 Approved topics for the modernisation of the Energy Charter Treaty, available at
https://www.energychartertreaty.org/modernisation-of-the-treaty/, last accessed 21 July 2020.
207 Article 36(a).

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Conference approved the list of topics for modernisation of the ECT, including the defini-
tions of FET, investment and investor, the most-favoured-nation clause, the umbrella clause
and denial of benefits, among other topics. On 6 October 2019, the Conference approved
some suggested policy options for the modernisation of the ECT.
In May 2019, the Commission sought a mandate to negotiate the modernisation of the
investment protection provisions of the ECT ‘with the aim of minimising the number of
investor claims over legitimate public policy measures’.208 The Commission published its
proposals in May 2020.209 Among the reforms the Commission seeks are clarification and
better definition of standards of protection, most-favoured nation treatment, the right to
regulate, FET and full protection of security, expropriation (including the nature of indirect
expropriation), the umbrella clause, transfers (including safeguards for financial crises) and
denial of benefits.210 Among the suggested ‘modernisations’ is an amendment to the FET
standard that would require a ‘denial of justice, fundamental breach of due process, manifest
arbitrariness, targeted discrimination on manifestly wrongful grounds, or abusive treatment
such as harassment, duress or coercion’.211 There is also a new suggested article on security
for costs empowering a tribunal to order an investor to post security for costs of the
proceedings ‘if there are reasonable grounds to believe that the Investor risks not being able
or willing to honour a possible decision on costs issued against it’.212 The Commission also
seeks to introduce new self-standing provisions on sustainable development and corporate
social responsibility. The first formal round of talks took place from 6 to 9 July 2020 by
videoconference. A second round was scheduled for 8 to 11 September 2020.
There are other calls for more radical reform to support anti-climate change policies,
including revoking the ECT or for states to withdraw.213 Reportedly, 260 civil society
organisations and trade unions from Europe and worldwide have written to the ECT

208 Sebastian Perry, ‘EU Commission seeks mandate to modernise ECT’, Global Arbitration Review, 15 May 2019,
available at https://globalarbitrationreview.com/article/1192941/eu-commission-seeks-mandate-to-
modernise-ect, last accessed 21 July 2020; Cosmo Sanderson, ‘EU publishes proposals for ECT revamp’,
Global Arbitration Review, 28 May 2020, available at https://globalarbitrationreview.com/article/1227287/
eu-publishes-proposals-for-ect-revamp, last accessed 22 July 2020.
209 ‘EU text proposal for the modernization of the Energy Charter Treaty (ECT)’, 27 May 2020, available at
https://trade.ec.europa.eu/doclib/docs/2020/may/tradoc_158754.pdf, last accessed 22 July 2020.
210 id.
211 id. ‘Commission presents EU proposal for modernising energy Charter Treaty’, 27 May 2020, available
at https://trade.ec.europa.eu/doclib/press/index.cfm?id=2148, last accessed 21 July 2020; Cosmo
Sanderson, ‘EU publishes proposals for ECT revamp’, Global Arbitration Review, 28 May 2020, available at
https://globalarbitrationreview.com/article/1227287/eu-publishes-proposals-for-ect-revamp, last accessed
21 July 2020.
212 ‘EU text proposal for the modernisation of the Energy Charter Treaty (ECT)’, available at
https://trade.ec.europa.eu/doclib/docs/2020/may/tradoc_158754.pdf, last accessed 21 July 2020.
213 See, e.g., David Keating, ‘A Little-Known EU Investor Dispute Treaty Could Kill The Paris Climate
Agreement’, Forbes, 5 September 2019, available at https://www.forbes.com/sites/davekeating/2019/09/05/
a-little-known-eu-investor-dispute-treaty-could-kill-the-paris-climate-agreement/#420269f54ecf,
last accessed 21 July 2020; David Keating, ‘EU Governments Under Pressure To Quit Energy Charter
Treaty’, Forbes, 10 December 2019, available at https://www.forbes.com/sites/davekeating/2019/12/10/
eu-governments-under-pressure-to-quit-energy-charter-treaty/#75c5871163ed, last accessed 21 July 2020.

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Member States demanding an end to the investor-state dispute mechanism in the ECT.214
They take the position that the ECT is incompatible with the Paris Agreement because
it will prevent countries from acting to lower their emissions by shutting down polluting
power plants.215 Other climate activists and non-governmental organisations have called on
the vice president of the Commission to seek more ambitious reform of the ECT during
the modernisation process, seeing it as a unique opportunity to promote clean energy tran-
sition.216 They argue that the current suggested changes to the ECT fall short of making
the ECT fit for purpose.
The ECT is evolving and remains in flux. We can expect the body of available juris­
prudence under the ECT to continue to grow and evolve.

214 David Keating, ‘EU Governments Under Pressure To Quit Energy Charter Treaty’, Forbes, 10 December 2019,
available at https://www.forbes.com/sites/davekeating/2019/12/10/eu-governments-under-pressure-to-quit-
energy-charter-treaty/#75c5871163ed, last accessed 21 July 2020.
215 id.
216 ‘Energy Charter Treaty Reform – a missed opportunity to support the EU’s climate action and the clean
energy transition’, 24 April 2019, available at https://www.clientearth.org/energy-charter-treaty-reform-
a-missed-opportunity-to-support-eus-climate-action-and-the-clean-energy-transition/, last accessed
21 July 2020.

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2
Investment Disputes Involving the Renewable Energy Industry
under the Energy Charter Treaty

Igor V Timofeyev, Joseph R Profaizer and Adam J Weiss1

The renewable energy sector often depends on large, up-front investments, which can only
be recouped over a long period. Given the substantial initial capital investment required,
many countries (particularly those in the European Union) have enacted schemes, such as
feed-in tariffs (FITs) or other special rates, to encourage long-term investment. Investors in
the renewable energy sector have a strong interest in the stability of this regulatory regime
– including, significantly, the continuity of any incentive schemes for renewable energy
during the period of expected recovery – and protection from unwarranted govern-
ment policy changes that could amount to expropriation or a denial of fair and equitable
treatment (FET).
In addition to the protection that bilateral investment treaties (BITs) and investment
chapters of free trade agreements offer to foreign investors, an important response to inves-
tors’ desire for assurances of stability is the Energy Charter Treaty (ECT).2 Originally
concluded in the aftermath of the Cold War to integrate the former Soviet Union’s
resource-rich energy sectors into the European market, the ECT now provides an inter­
national legal framework for energy cooperation, particularly in Europe.
There has been a significantly increased level of investment during the past decade or
so, including foreign investment, as a result of international initiatives designed to spawn the
development of alternative energy sources.3 Many countries have implemented govern-
ment subsidies and support schemes to encourage investment in the renewable energy

1 Igor V Timofeyev and Joseph R Profaizer are partners and Adam J Weiss is a senior associate at Paul
Hastings LLP. The authors are grateful to Brenda Freed, senior paralegal at Paul Hastings LLP, and Nafeesah
Attah, Scotty Schenck and Jay Schuffenhauer, Paul Hastings summer associates (2020), for their valuable
assistance in the research and preparation of this chapter.
2 Energy Charter Treaty, 17 December 1994, 2080 U.N.T.S. 95 (entered into force on 16 April 1998).
3 See, e.g., Kyoto Protocol of 11 December 1997 and Directive 2003/87/EC (establishing the EU Greenhouse
Gas Emissions Trading Scheme). Both entered into force in 2005. The European Union in particular has

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sector. These measures were designed to favour renewable resources over continued use
of fossil fuels and to account for the significant up-front expense associated with the
new technologies.4

Pending renewable energy arbitrations under the ECT

The favourable subsidies and support schemes that many European countries implemented
in the early and mid 2000s resulted in significant investment in renewable energy develop-
ment. Faced with a global financial crisis in 2008–2009, however, many of these countries
scaled back or eliminated altogether their original investment incentive frameworks. At
times, these changes resulted from those countries’ obligations under EU law.
These regulatory changes and the resulting effects on foreign investors’ investments,
in turn, have sparked a considerable number of legal disputes, including a number of
investor-state arbitrations under the ECT. Spain, the Czech Republic and Italy, in particular,
have faced numerous international arbitrations brought by aggrieved investors following
changes in those countries’ regulatory structures for renewable energy investment.5 The
investors’ arbitration claims brought under the ECT largely have focused on two protec-
tions and grounds for relief: (1) the requirement that the host state extend FET to foreign
investors; and (2) the prohibition on expropriation.

either required or encouraged its member states to set up support mechanisms for electricity generation
from renewable sources. See Kim Talus, ‘Introduction: Renewable Energy Disputes in Europe and Beyond:
An Overview of Current Cases’, 12 Transnat’l Disp. Mgmt, May 2015, at 3 to 4.
4 See Juan M Tirado, ‘Renewable Energy Claims under the Energy Charter Treaty: An Overview’, 12 Transnat’l
Disp. Mgmt, May 2015, at 4 to 5.
5 Since 2013, after Bulgaria imposed a 20 per cent tax on the sale of solar and wind power as well as a retroactive
reduction in feed-in tariffs [FITs] in those sectors, Bulgaria has faced four arbitration claims ‘similar to those
seen . . . a​ gainst Spain, Italy and the Czech Republic’. See ‘Bulgaria Faces its First Known Arbitration Claim
from a Foreign Investor in Renewable Energy Generation Section’, Inv. Arb. Rep., 14 February 2018; see also
Jarrod Hepburn, ‘Bulgaria May Face BIT and Human Rights Claims Over Renewable Energy Measures’, Inv.
Arb. Rep., 4 June 2014. One of these arbitrations has resulted in a final award. On 10 April 2019, a split ICSID
tribunal issued an award in EVN v. Bulgaria, which was initiated by two Austrian investors over the Bulgarian
renewable energy regulatory changes. The award is not public, but it was a victory for Bulgaria. See Damien
Charlotin, ‘Tribunal Members Diverge in Final Ruling in Intra-EU ECT Arbitration Against Bulgaria’, Inv. Arb.
Rep., 11 April 2019. In April 2020, the parties in another arbitration, ENERGO-PRO v. Bulgaria, ICSID/15/19 –
an ICSID proceeding initiated in 2015 by a Czech energy company that owns hydroelectric plants, distribution
and supply companies in Bulgaria – filed cost submissions following the merits phase of the proceeding. As at
August 2020, the final award remained pending.Vladislav Djanic, ‘Balkans Round-Up: An Update on Disputes
Against Albania, Bosnia, Greece, North Macedonia and Romania’, Inv. Arb. Rep., 15 May 2020.
In addition, since 2013, Romania has defended against three renewable energy arbitration claims. The first,
EDF (Services) Ltd. v. Romania, ICSID Case No. ARB05/13, resulted in a favourable award for Romania. The
other two arbitrations – LSG Building Solutions v. Romania, ICSID Case No. ARB/18/19 (commenced in 2018)
and Wind Project v. Romania (ICSID; commenced in May 2020), which both arise from changes to Romania’s
incentive scheme for renewable energy investments – remain pending. See Zoe Williams, ‘Romania is Hit with a
New Energy Charter Treaty Claim’, Inv. Arb. Rep., 13 June 2018; IAReporter, ‘Wind Farm Investor Initiates ECT
Arbitration Against Romania’, Inv. Arb. Rep., 19 May 2020.

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Spain
For more than a decade, Spain had laws subsidising new investments in wind energy, solar
(photovoltaic) energy and waste incineration. The Spanish Promotion Plan for Renewable
Energy, originally promulgated in 2000 and revised in 2005, provided for grants, tax incen-
tives, soft loans and loan guarantees. These incentives attracted tens of billions of euros in
investment in renewable energy assets from foreign investors.6 As a result of these policies,
Spain became one of the largest markets for investments in ‘green energy’, with an esti-
mated value of €13 billion in renewable energy assets.7 One incentive Spain offered was a
FIT, which permitted owners of renewable energy plants (particularly concentrated solar
power (CSP) plants) to sell electricity at a higher rate for the first 25 years and at a reduced
rate for the plant’s remaining lifetime.8
Beginning in 2008, the Spanish government began to reduce these incentives to address
a significant ‘tariff deficit’ – the difference between the amounts collected from regulated
FITs and those collected from access tariffs set on the open market – because revenue from
the state-subsidised prices failed to cover costs.9 By 2012, Spain had largely eliminated these
incentives for new solar facilities.10 The government also issued decrees imposing a tax on
power generation.11
In response to these regulatory changes and the potential financial effect on the
newly developed projects, numerous investors brought arbitration claims under the ECT.
As at August 2020, foreign investors had filed more than 30 arbitration claims against
Spain at the International Centre for Settlement of Industrial Disputes (ICSID),12 with

6 Arif Hyder Ali, ‘In the Eye of the Storm: Spain’s Nexus to Investment Disputes’, 18 Spain Arb. Rev.
5 to 36 (2013).
7 id.
8 See Juan M Tirado (footnote 4, above) at 5 to 6. See also Sebastian Mejia, ‘The Protection of Legitimate
Expectations and Regulatory Change: The Spanish Case’, Spain Arb. Rev. 113 to 132 (2014).
9 See Juan M Tirado (footnote 4, above) at 6 to 7.
10 Pablo del Rio and Pere Mir-Artigues, ‘A Cautionary Tale: Spain’s Solar PV Investment Bubble’, International
Institute for Sustainable Development (IISD) (February 2014); see also Juan M Tirado (footnote 4, above),
at 6 to 7 (discussing the Spanish Royal Decrees issued between 2008 and 2014, which ultimately abolished all
preferential tariffs and premiums for new projects and set a tax on the production and transfer of energy into
the grid).
11 Arif Hyder Ali (footnote 6, above), at 13 and n.35.
12 See Canepa Green Energy Opportunities I, S.á r.l. and Canepa Green Energy Opportunities II, S.á r.l. v. Spain (ICSID
Case No. ARB/19/4); European Solar Farms A/S v. Spain (ICSID Case No. ARB/18/45); EBL (Genossenschaft
Elektra Baselland) and Tubo Sol PE2 S.L. v. Spain (ICSID Case No. ARB/18/42); Itochu Corporation v. Spain
(ICSID Case No. ARB/18/25); DCM Energy GmbH & Co. Solar 1 KG and others v. Spain (ICSID Case
No. ARB/17/41); Portigon AG v. Spain (ICSID Case No. ARB/17/15); Sevilla Beheer B.V. and others v.
Spain (ICSID Case No. ARB/16/27); Infracapital F1 S.à r.l. and Infracapital Solar B.V. v. Spain (ICSID Case
No. ARB/16/18); Sun-Flower Olmeda GmbH & Co KG and others v. Spain (ICSID Case No. ARB/16/17); Eurus
Energy Holdings Corporation v. Spain (ICSID Case No. ARB/16/4); Landesbank Baden-Württemberg and others v.
Spain (ICSID Case No. ARB/15/45); Watkins Holdings S.à r.l. and others v. Spain (ICSID Case No. ARB/15/44);
Hydro Energy 1 S.à r.l. and Hydroxana Sweden AB v. Spain (ICSID Case No. ARB/15/42); SolEs Badajoz GmbH
v. Spain (ICSID Case No. ARB/15/38); OperaFund Eco-Invest SICAV PLC and Schwab Holding AG v. Spain
(ICSID Case No. Arb/15/36); E.ON SE, E.ON Finanzanlagen GmbH and E.ON Iberia Holding GmbH v. Spain
(ICSID Case No. ARB/15/35); Cavalum SGPS, S.A. v. Spain (ICSID Case No. ARB/15/34); JGC Corp. v. Spain
(ICSID Case No. ARB/15/27); KS Invest GmbH and TLS Invest GmbH v. Spain (ICSID Case No. ARB/15/25);

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other cases pending before tribunals constituted under the rules of the United Nations
Commission on International Trade Law (UNCITRAL) or the Stockholm Chamber of
Commerce (SCC).13
In one of the longest-pending renewable energy arbitrations, the PV Investors case (filed
in 2011), Spain allowed the claims made by investors in the photovoltaic sector to be deter-
mined by a single UNCITRAL arbitral tribunal.14 In 2014, that tribunal affirmed that it had
jurisdiction over the claims that Spain breached its obligations under the ECT – the first
jurisdictional ruling in any of the renewable energy arbitrations brought against Spain.15
In January 2016, in Charanne, another UNCITRAL tribunal rendered the first award
in these disputes.16 As in the PV Investors case, the tribunal rejected Spain’s jurisdictional
objections.17 In a divided award, the tribunal then dismissed the investors’ claims on the
merits, finding that Spain’s actions did not constitute indirect expropriation or deprive
investors of FET.18 The award only concerned Spain’s modifications to its renewable energy
investment regime enacted in 2010, and not the more significant changes enacted in 2013.

Matthias Kruck, et al. v. Spain (ICSID Case No. ARB/15/23); Cube Infrastructure Fund SICAV, et al. v. Spain (ICSID
Case No. ARB/15/20); BayWa r.e. Renewable Energy GmbH and BayWa r.e. Asset Holding GmbH v. Spain (ICSID
Case No. ARB/15/16); 9REN Holding S.à r.l. v. Spain (ICSID Case No. ARB/15/15); STEAG GmbH v. Spain
(ICSID Case No. ARB/15/4); Stadtwerke München GmbH, RWE Innogy GmbH, et al. v. Spain (ICSID Case
No. ARB/15/1); RWE Innogy GmbH and RWE Innogy Aersa S.A.U. v. Spain (ICSID Case No. ARB/14/34);
RENERGY S.à r.l. v. Spain (ICSID Case No. ARB/14/18); InfraRed Environmental Infrastructure GP Limited,
et al. v. Spain (ICSID Case No. ARB/14/12); NextEra Energy Global Holdings B.V. and NextEra Energy Spain
Holdings B.V. v. Spain (ICSID Case No. ARB/14/11); Masdar Solar & Wind Cooperatief U.A. v. Spain (ICSID
Case No. ARB/14/1); Eiser Infrastructure Ltd and Energia Solar Luxembourg S.à r.l. v. Spain (ICSID Case
No. ARB/13/36); Antin Infrastructure Services Luxembourg S.à r.l. and Antin Energia Termosolar B.V. v. Spain (ICSID
Case No. ARB/13/31); and RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux
S.à r.l. v. Spain (ICSID Case No. 13/30).
13 See PV Investors v. Spain (UNCITRAL; commenced in 2011); Charanne and Construction Investments, et al. v. Spain
(Stockholm Chamber of Commerce [SCC]; registered in 2013); Isolux Infrastructure Netherlands B.V. v. Spain; CSP
Equity Investment S.à r.l. v. Spain (SCC; registered in 2013); CSP Equity Investment S.à r.l. v. Spain (SCC; registered
in 2013); Novenergia II – Energy & Environment (SCA) v. Spain (SCC: registered in 2015); see also Kim Talus
(footnote 3, above), at 7; Juan M Tirado (footnote 4, above), at 15 to 17.
14 Luke Eric Peterson, ‘Following PCA Decision, Czech Republic Thwarts Move by Solar Investors to Sue in
Single Arbitral Proceeding; Meanwhile Spain Sees New Solar Claim at ICSID’, Inv. Arb. Rep., 1 January 2014.
Spain afterwards raised a jurisdictional objection to hearing claims that it considered to be unrelated in a
‘consolidated’ fashion.
15 Luke Eric Peterson, ‘Intra-EU Treaty Claims Controversy: New Decisions and Developments in Claims Brought
by EU Investors vs. Spain and Hungary’, Inv. Arb. Rep., 24 December 2014; see also PV Investors v. Spain, PCA
Case No. 2012-14, Final Award, 28 February 2020, para. 543.
16 Charanne and Construction Investments, et al. v. Spain (SCC; registered in 2013), Award, 21 January 2016.
17 id., at para. 450.
18 id., at para. 549. Arbitrator Guido Santiago Tawil dissented in part, and would have found that Spain’s
modification of its investment regime frustrated investors’ legitimate expectations and therefore breached
obligations of fair and equitable treatment.

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In February 2020, the PV Investors tribunal reached a different result when it issued
a final award in favour of the claimants.19 The tribunal found that although the claimant
investors did not possess any legitimate expectations that their investments would be
protected by an immutable regulatory framework, the investors did have legitimate expec-
tations to receive a ‘reasonable return’ on their investment, which the Spanish government
had violated.20 Using a detailed economic assessment to determine the effect of the Spanish
government’s regulatory changes on the claimants’ investments based on the expected life
cycle of the claimants’ investment, the tribunal awarded the claimants €90 million.21
A split ICSID tribunal in RREEF Infrastructure rendered a similar award in
November 2018 with respect to Spain’s 2013 regulatory regime change.That tribunal found
that Spain had not acted discriminatorily or dishonestly in enacting its policy amendments,
but that the government had breached its stability obligation encompassed under the ECT’s
FET requirement and therefore awarded the claimant investors €59.6 million in reasonable
and equitable compensation.22
Spain’s 2013 regulatory changes have been at issue in a number of other arbitration
proceedings as well. Most of these arbitrations have resulted in victories for the claimants,
which Spain has subsequently sought to annul. For example, in May 2017, the ICSID tribunal
in the Eiser arbitration rendered a unanimous award finding that Spain had failed to accord
FET to the claimant investors and awarded them €128 million.23 The same result followed
in the Novenergia arbitration, in which an SCC tribunal, in February 2018, also found that
Spain violated the ECT’s guarantee of FET.24 In May 2019, an ICSID tribunal in 9REN
Holding came to a similar conclusion in awarding the claimant investors €41.76 million plus
interest, after the tribunal determined that Spain’s regulatory reforms were neither fair nor

19 PV Investors v. Spain, PCA Case No. 2012-14, Final Award, 28 February 2020. The Tribunal only addressed the
claimants’ claim that Spain breached the fair and equitable treatment [FET] standard and declined to address the
merits of the claimants’ expropriation claim. id., at para. 691 n.877.
20 See PV Investors, Final Award, paras. 587 to 620, 638 to 640.
21 id., at para. 909.
22 See Lisa Bohmer, ‘A new Spain ruling surfaces, revealing that tribunal majority sees a more limited legitimate
expectation: to reasonable rate of return for energy investors, but not to broader regulatory stability’, Inv. Arb.
Rep., 17 March 2019; see also Lisa Bohmer, ‘In RREEF v. Spain, dissenting arbitrator Robert Volterra finds
ECT [Energy Charter Treaty] breaches beyond mere failure to provide a reasonable rate of return, and criticizes
majority’s support for tribunal-appointed damages expert’, Inv. Arb. Rep., 8 April 2019. In what has become
a consistent pattern following unfavourable arbitration awards, on 15 April 2020, Spain applied to annul the
majority’s award, although the specific grounds have not been publicly disclosed.
23 Eiser Infrastructure Ltd and Energia Solar Luxembourg S.à r.l. v. Spain, ICSID Case No. ARB/13/36; see also
Tom Jones,‘Spain Suffers Loss in Solar Power Case’, Global Arbitration Review, 5 May 2017. In June 2020, an
annulment committee granted Spain’s application to annul the award on the grounds that Eiser’s party-appointed
arbitrator failed to disclose a relationship with one of Eiser’s expert witnesses. On 31 July 2020, Eiser challenged
the annulment, via an application for supplementary decision, arguing that the annulment decision failed to
consider whether the asserted lack of disclosure actually constituted bias towards a party and materially affected
the award. Emphasising that Spain has lodged arbitrator challenges in 13 of the 15 awards issued against it by
ECT tribunals to date, Eiser’s application also warned that the annulment decision countenances Spain’s ‘strategy
of attacking jurists’. See Jack Ballantyne, ‘Solar Investor Seeks New Ruling After Award Annulment’, Global
Arbitration Review, 4 August 2020.
24 Novenergia II – Energy & Environment (SCA) v. Spain (SCC: registered in 2015); see also Tom Jones, ‘Second loss
for Spain over solar reforms’, Global Arbitration Review, 19 February 2018.

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equitable and that the new regime was, instead,‘fundamentally different from the framework
that Spain promised and that induced the Claimant to invest’.25 Likewise, in January 2020,
a split ICSID tribunal awarded €77 million to the claimants in the Watkins Holding arbitra-
tion, after the tribunal concluded that Spain’s regulatory amendments frustrated Watkins’
legitimate and reasonable expectations.26 Spain was also found liable for €64.5 million in
damages in the Masdar ICSID arbitration,27 €112 million in damages in the Antin ICSID
arbitration,28 €290.6 million in the NextEra ICSID arbitration,29 €40 million in the SolEs
Badajoz arbitration,30 €29.3 million in the OperaFund Eco-Invest arbitration,31 €33 million
in the Cube Infrastructure arbitration,32 and €28.2 million in the Infrared arbitration. Most
recently, on 31 August 2020, a divided ICSID tribunal in Cavalum v. Spain continued the
pro-claimant trend in renewable energy arbitrations under the ECT, ruling in favour of a
Portuguese investor and finding that Spain’s renewable energy subsidy reforms violated that
investor’s legitimate expectations of a reasonable return on its investment.33

25 Damien Charlotin, ‘Breaking: Spain ordered to pay $41.7 million in new ECT award, as tribunal of Binnie,
Haigh and Veeder reject intra-EU objection and deem Spanish renewables legislation to be a specific obligation
to investor; claimant 9Ren is subsidiary of US private equity fund first reserve,’ Inv. Arb. Rep., 2 June 2019; 9REN
Holding S.à.r.l v. Spain, ICSID Case No.ARB/15/15, Award, 31 May 2019.
26 See Lisa Bohmer, ‘Analysis: In Watkins v. Spain award, majority find that changes to Spain’s renewable energy
incentives trigger ECT violations; dissenter says majority decision lacks clarity’, Inv. Arb. Rep., 23 January 2020;
see also Watkins Holdings S.à r.l. and others v. Spain, ICSID Case No. ARB/15/44, Award, 21 January 2020,
para. 744.
27 See Tom Jones, ‘Spain Ordered To Pay After Another ECT Loss’, Global Arbitration Review, 15 November 2018.
After unsuccessfully applying for a supplementary decision from the tribunal and a stay of the final award in
November 2018, Spain filed an annulment application in April 2019, the results of which remain pending.
Masdar Solar & Wind Cooperatief U.A. v. Spain, ICSID Case No. ARB/14/1, Decision on the Respondent’s
Request for a Supplementary Decision, 29 November 2018, para. 66.
28 See Tom Jones, ‘Spain Ordered To Pay After Another ECT Loss’, Global Arbitration Review, 15 November 2018;
Antin v. Spain, ICSID Case No. ARB/13/36, Award, 15 June 2018, paras. 111 to 131. In 2019, Spain applied to
annul the Antin award on the grounds that the tribunal (1) had already been forced to reduce the original Award
by €11 million, thereby reflecting the award’s inherent flaw, (2) exceeded its jurisdiction under ECT and EU law
and acted outside the parties’ consent to arbitrate, (3) prevented the European Commission from intervening as
amicus curiae in the arbitration, and (4) failed to state the reasons why the tribunal failed to properly apply EU
law. In the meantime, the annulment committee has refused to stay the enforcement of the award. See Damien
Charlotin, ‘After Spain award is trimmed down by €11 million, annulment committee declines request to stay its
enforcement’, Inv. Arb. Rep., 31 October 2019.
29 See NextEra Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Spain, ICSID Case
No. ARB/14/11, Award, 31 May 2019, para. 37; Damien Charlotin, ‘Analysis: Newly divulged NextEra v. Spain
decisions reveal fault lines between solar dispute tribunals on legitimate expectations derived from legislation and
appropriateness of DCF’, Inv. Arb. Rep., 10 June 2019.
30 SolEs Badajoz GmbH v. Spain, ICSID Case No. ARB/15/38, Award, 31 July 2019, para. 576(3). The Tribunal
rendered a rectification award on 5 December 2019; currently, there is an annulment proceeding pending. Case
Details, SolEs Badajoz GmbH v. Spain, ICSID Case No. ARB/15/38.
31 OperaFund Eco-Invest and Schwab Holding v. Spain, ICSID Case No. ARB/15/36, Award, 6 September 2019,
para. 490; Lisa Bohmer, ‘In Operafund v. Spain Award, reasons emerge for split amongst arbitrators as to ‘express
stability commitment’ in Spanish renewables’, Inv. Arb. Rep., 27 September 2019. Spain’s annulment application
remains pending. Case Details, OperaFund Eco-Invest and Schwab Holding v. Spain, ICSID Case No. ARB/14/1.
32 IAReporter, ‘Spain Files for Annulment of €42 Million ECT Award’, Inv. Arb. Rep., 8 April 2020,
33 ‘Spain partially liable in solar case’, Global Arbitration Review, 1 September 2020; Cavalum SGPS, S.A. v. Spain
(ICSID Case No. ARB/15/34, Decision on Jurisdiction, Liability, and Direction on Quantum, 31 August 2020,

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Spain has prevailed, however, in a limited number of ECT renewable energy arbitra-
tions. For example, in Isolux,34 the tribunal found that the foreign investor, having begun
to invest after the 2010 reforms, could not have had any legitimate expectation that further
reforms would end, and therefore found that there was no violation of FET.35 Likewise, in
the Stadtwerke München arbitration, on 2 December 2019, a split ICSID tribunal rejected
claims by a group of German investors in several CSP plants, holding that Spain did not
breach the claimants’ legitimate expectations in amending its FITs in 2013.36

Czech Republic
In 2005, the Czech Republic introduced a FIT for solar-generated electricity sold directly
to electrical grid operators, and guaranteed that the tariff could not be decreased by more
than 5 per cent a year. Subsequently, however, the Czech Republic sought to roll back
the payments required under FIT, and in 2010 imposed a retroactive levy on revenues
from solar electricity, which was upheld by the Czech Constitutional Court.37 The Czech
government then passed legislation authorising faster reductions in the tariff rate.38
Foreign investors in the Czech photovoltaic power sector commenced several arbitra-
tion proceedings, arguing that the regulatory changes to the FIT violated the ECT and
various intra-EU BITs, and thereby breached investors’ legitimate expectations. In the first
of these disputes, in May 2013, a group of 10 German, UK and Cypriot investors, led by
Antaris Solar GmbH, commenced an UNCITRAL arbitration under the ECT and the
relevant BITs seeking damages of between €50 million and €70 million.39 Because the
Czech Republic objected to a consolidated proceeding, the arbitration continued before
six different tribunals, albeit with some overlap among the respective arbitrators.40

para. 706. The Tribunal deferred rendering an award on quantum and instead directed the parties to confer
and seek mutual agreement on what the claimant’s reasonable rate of return ought to have been but for Spain’s
regulatory reforms.
34 Isolux Infrastructure Netherlands B.V. v. Spain CSP Equity Investment S.à r.l. v. Spain (SCC; registered in 2013).
35 See Tom Jones, ‘Second loss for Spain over solar reforms’ (footnote 24, above).
36 Lisa Bohmer, ‘Analysis: majority in Stadtwerke Munchen v. Spain considers that investors in Spanish CSP
plants could not legitimately expect legislative stability; Kaj Hober disagrees’, Inv. Arb. Rep., 5 December 2019;
Stadtwerke München GmbH, RWE Innogy GmbH, et al. v. Spain, ICSID Case No. ARB/15/1, Award,
2 December 2019, para. 265. The claimant investors filed for annulment of the tribunal’s award on 6 April 2020.
Lisa Bohmer, ‘German CSP investors file for annulment of ICSID award which found that they could not
legitimately expect legal stability’, Inv. Arb. Rep., 7 April 2020.
37 Jarrod Hepburn, ‘Czech Solar Arbitrations Set To Proceed, as Constitutional Court Upholds Retroactive Levy’,
Inv. Arb. Rep., 13 June 2012.
38 Luke Eric Peterson, ‘Brussels’ latest intervention casts shadow over investment treaty arbitrations brought by
jilted solar energy investors’, Inv. Arb. Rep., 8 September 2014; see generally Juan M Tirado (footnote 4, above),
at 7 to 8 and nn.35 to 39 (discussing regulatory changes in the Czech Republic).
39 See Antaris Solar GmbH, et al. v. Czech Republic (UNCITRAL; registered in 2013); see also Luke Eric Peterson,
‘Solar investors file arbitration against Czech Republic, intra-EU BITs and Energy Charter Treaty at center of
dispute’, Inv. Arb. Rep., 15 May 2013.
40 id.

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As of August 2020, in addition to the Antaris Solar dispute, six other solar-related arbi-
trations have been filed against the Czech Republic.41 For example, JSW Solar, a German
company, commenced an UNCITRAL arbitration in the latter half of 2013 but alleged
only violations of the Germany–Czech Republic BIT, and eschewed invoking the ECT,
possibly because Article 21 of the ECT limits claims relating to taxation measures, such
as the Czech government’s retroactive levy.42 In October 2017, a divided UNCITRAL
tribunal ruled in favour of the Czech Republic, finding that the country’s measures intro-
duced in 2011 did not violate legitimate expectations and were reasonable, proportionate,
and non-arbitrary.43 In May 2018 and May 2019, the Czech Republic also prevailed in five
other arbitrations, four of which were decided by the same tribunal.44
By contrast, the Natland tribunal, in a 2017 partial award on jurisdiction and liability, found
that the Czech Republic breached the ECT’s FET standard.45 The Czech Republic subse-
quently sought to set aside the award in the Swiss courts, characterising it as a non-decisive
interim ruling with mixed findings on jurisdiction and the merits.46 In February 2020,
the Swiss Federal Supreme Court rejected the Czech Republic’s application to set aside
the award on both jurisdictional and merits grounds.47 The Court first rejected the Czech
Republic’s contention that its solar levy qualified as a tax that fell within the ECT’s juris-
dictional exception. On the merits, the Court also agreed with the arbitral tribunal that
the retroactive levy breached the ECT’s FET standard, as well as BITs with Cyprus and the

41 See Natland Investment Group NV, Natland Group Limited, G.I.H.G. Limited, and Radiance Energy Holding S.à r.l.
v. Czech Republic (UNCITRAL; commenced in 2013); Voltaic Network GmbH v. Czech Republic (UNCITRAL;
commenced in 2013); ICW Europe Investments Limited v. Czech Republic (UNCITRAL; commenced in 2013);
Photovoltaik Knopf Betriebs-GmbH v. Czech Republic (UNCITRAL; commenced in 2013); WA Investments-Europa
Nova Limited v. Czech Republic (UNCITRAL; commenced in 2013); Jürgen Wirtgen, Stefan Wirtgen & JSW Solar
GmbH & Co. KG v. Czech Republic (UNCITRAL; commenced in 2013).
42 See Jürgen Wirtgen, Stefan Wirtgen & JSW Solar GmbH & Co. KG v. Czech Republic (UNCITRAL; commenced in
2013); see also Luke Eric Peterson, ‘In shadow of mass solar claims, another UNCITRAL BIT arbitration quietly
moves forward against Czech Republic’, Inv. Arb. Rep., 10 January 2014; Sebastian Perry and Kyriaki Karadelis,
‘Sun rises on Czech Energy claims’, Global Arbitration Review, 19 February 2014.
43 See ‘Czech Republic wins first solar case’, Global Arbitration Review, 13 October 2017.
44 See ‘Czech Republic wins second solar case’, Global Arbitration Review, 4 May 2018 (describing the award
in the Antaris arbitration); Cosmo Sanderson, ‘Four more solar wins for Czech Republic’, Global Arbitration
Review, 17 May 2019 (describing the awards in the ICW Europe, Photovoltaik Knopf Betriebs, Voltaic Network and
WA Investments arbitrations).
45 See Natland Investment Group NV, Natland Group Limited, G.I.H.G. Limited, and Radiance Energy Holding S.à r.l.
v. Czech Republic (UNCITRAL; commenced in 2013); see also Cosmo Sanderson, ‘Four more solar wins for
Czech Republic’ (footnote 45, above).
46 id.; see also Tom Jones and Alison Ross, ‘Czech Republic hits back at reports of solar loss’, Global Arbitration
Review, 25 January 2018.
47 Sebastian Perry, ‘Czech challenge to solar award fails in Switzerland’, Global Arbitration Review, 14 February 2020;
see also Damien Charlotin, ‘Swiss federal tribunal sees no abuse of rights in corporate restructuring, and
Declines to set aside liability award in Czech renewables dispute’, Inv. Arb. Rep., 13 July 2020; Tribunal fédéral,
7 February 2020, 4A_80/2018 (Switz.)

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Netherlands.48 Although the Czech Republic had announced initial changes to its renewable
energy regulatory regime in 2009, the Court determined that there was no indication that
these changes would apply to existing investments, such as those belonging to claimants.49

Italy
A FIT was similarly at the heart of Italy’s support scheme for renewable energy sources.
The tariff was originally enacted in 2003 by Legislative Decree No. 387/2003.50 The FIT
contributed to a significant growth of the Italian renewable energy sector, and the photo-
voltaic market in particular.
This incentive system was costly, however, and eventually became unaffordable: the
three-year €6.7 billion scheme approved in June 2012 was completely exhausted by
July 2013.51 That same year, Italy ceased to grant incentives to new plants. Moreover, in 2014,
the Italian government adopted the ‘spalma incentive’ (incentive spreading) decree, which
retroactively mandated a reduction in the FIT for photovoltaic plants larger than 200kW.
Investors were required to select one of the following new incentive regimes: (1) tariffs
granted for 24 years instead of 20, but subject to gradual reductions throughout the term;
(2) reduced incentives for the initial period of the investment, in exchange for higher incen-
tives for the subsequent period on the basis of percentages established by the competent
authority; or (3) an annual decrease in the incentives by between 6 per cent and 8 per cent
(depending on a plant’s peak power) for the remainder of the duration of the incentives.52
On 7 December 2016, the Italian Constitutional Court upheld the government’s changes
to the incentive regime.The Court rejected investors’ arguments that the 2014 decree arbi-
trarily and unreasonably interfered with existing long-term contracts, in a breach of the
claimants’ legitimate expectations.53
Like the Spanish and Czech cases, foreign investors in Italy’s renewable energy sector
challenged the changes to the investment incentive regime in arbitration under the ECT.
The first of these arbitrations began in 2014. Since then, at least seven arbitrations have

48 id.
49 The Czech Republic is currently appealing the decision to the Court of Justice of the European Union. See
Sebastian Perry, ‘Czech challenge to solar award fails in Switzerland’ (footnote 48, above).
50 For a detailed analysis of the Italian renewable energy legal framework, see Zuzanna Brocka Balbi, ‘The rise and
fall of the Italian scheme of support for renewable energy from photovoltaic plants’, 12, Transnat’l Disp. Mgmt,
May 2015 and Saverio Francesco Massari, ‘The Italian photovoltaic sector in two practical cases: How to create
an unfavorable investment climate in renewables’, 12 Transnat’l Disp. Mgmt, May 2015.
51 See Saverio Francesco Massari, ‘The Italian photovoltaic sector in two practical cases’ (footnote 50, above).
52 Legislative Decree No. 91 of 24 June 2014, Article 26.
53 Italian Constitutional Court Judgment No. 16/2017, issued on 7 December 2016, published on 24 January 2017.

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been filed against Italy at ICSID,54 with multiple other cases pending before the SCC.55
In December 2016, the first award in these arbitrations – the Blusun ICSID arbitration –
rejected the investor’s claim against Italy.56 The tribunal concluded that Italy did not violate
the guarantee of FET or commit an indirect expropriation because it did not promise
investors that its regulatory framework would remain unchanged, nor did it modify that
framework in discriminatory ways.57 Likewise, the SCC tribunal in the Sun Reserve Luxco
Holdings arbitration determined that Italy did not violate the ECT’s FET standard – which
the tribunal noted was higher than that imposed under international law – because the
investors failed to demonstrate that they possessed a legitimate set of expectations that
protected their investments against subsequent changes in the regulatory regime.58 By
contrast, the SCC tribunal in the Greentech Energy arbitration issued a divided decision in
December 2018, in which the majority found that Italy violate the ECT’s FET standard
and awarded damages to the investors.59
On 31 December 2014, Italy announced its withdrawal from the ECT, effective
1 January 2016. Although the Italian government justified its decision by the desire to
reduce the costs of participating in international organisations, the risk of further disputes
under the ECT (and potential adverse decisions) may have influenced the decision to with-
draw.60 Nevertheless, pursuant to the ECT’s sunset clause in Article 47, the Treaty’s protec-
tions continue to apply to investments made before January 2016 for another 20 years.61

54 See Veolia Propreté SAS v. Italy, ICSID Case No. ARB/18/20; VC Holding II S.à r.l. and others v. Italy, ICSID
Case No. ARB/16/39; ESPF Beteilingungs GmbH, ESPF Nr. 2 Austria Beteilingungs GmbH, and InfraClass
Energie 5 GmbH & Co. KG v. Italy, ICSID Case No. ARB/16/5; Eskosol S.p.A. in Liquidazione v. Italy,
ICSID Case No. ARB/15/50; Belenergia S.A. v. Italy, ICSID Case No. ARB/15/40; Silver Ridge Power BV
v. Italy, ICSID Case No. ARB/15/37; Blusun SA, Jean-Pierre Lecorcier and Nichael Stein v. Italy, ICSID Case
No. ARB/14/03. Of these cases, two have concluded: Belenergia S.A. v. Italy and Blusun SA, Jean-Pierre Lecorcier
and Nichael Stein v. Italy.
55 See Sun Reserve Luxco Holdings SRL v. Italy, SCC Case No. 32/2016; CEF Energia BV v. Italy, SCC Case
No. 158/2015; Greentech Energy Systems A/S, et al v. Italy, SCC Case No. V 2015/095. For other cases filed at the
SCC, see Lacey Yong, ‘Italy faces another solar claim’, Global Arbitration Review, 13 December 2016.
56 See Tom Jones, ‘Light shed on Italy’s solar win’, Global Arbitration Review, 8 June 2017. The investor subsequently
filed for an annulment of the award. See Douglas Thomson, ‘Solar power investor seeks to annul ECT award in
favour of Italy’, Global Arbitration Review, 4 May 2017.
57 id.; see also Blusun SA, Jean-Pierre Lecorcier and Nichael Stein v. Italy, ICSID Case No. ARB/14/03, Award,
27 December 2016, paras. 374, 401, 407.
58 Damien Charlotin, ‘Breaking: SCC tribunal finds no breach of Energy Charter Treaty by Italy in latest award
to decide renewables claims’, Inv. Arb. Rep., 27 March 2020; Sun Reserve Luxco Holdings SRL v. Italy, SCC Case
No. 32/2016, Final Award, 25 March 2020, para. 1043.
59 See Greentech Energy Systems A/S, NovEnergia II Energy & Environment (SCA) SIGAR, and NovEnergia II Italian
Portfolio SA v. Italy, Final Award, 23 December 2018, para. 594; see also Tom Jones, ‘Italy suffers first loss in
solar claim’, Global Arbitration Review, 2 January 2019. Arbitrator Sacerdoti dissented and would have found no
violation of the FET standard. See Dissenting Opinion of Arbitrator Giorgio Sacerdoti, paras. 47 to 57.
60 Gaetano Iorio Fiorelli, ‘Italy withdraws from Energy Charter Treaty’, Global Arbitration Review, 6 May 2015;
Lorenzo Parola, Francesca Petronio and Fabio Cozzi, ‘Italy Withdraws from Energy Charter Treaty: What Next?’,
Law360, 30 April 2015.
61 Lorenzo Parola et al. (footnote 61, above).

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Key legal issues in renewable energy arbitrations

The ECT offers a variety of broad protections to foreign investors in the energy sector.
These are similar to protections typically found in BITs, such as FET, constant protection
and security, non-discrimination, most-favoured nation, fulfilment of commitments, prohi-
bition against expropriation and compensation for losses.62 Several key legal issues recur-
rently arise in these renewable energy arbitrations – these centre on whether the regulatory
and legislative changes to the renewable energy incentive regimes (1) breached the ECT’s
guarantee of FET or (2) constituted an indirect expropriation (or both).63

FET and investors’ reasonable expectations

Article 10(1) of the ECT contains the FET requirement, which is one of the most frequent
bases that claimants assert in investor-state disputes. Under Article 10(1), each ECT signa-
tory promises to:

encourage and create stable, equitable, favourable and transparent conditions for Investors of
other Contracting Parties to make Investments in its Area. Such conditions shall include a
commitment to accord at all times to Investments of Investors of other Contracting Parties fair
and equitable treatment. Such Investments shall also enjoy the most constant protection and
security and no Contracting Party shall in any way impair by unreasonable or discrimina-
tory measures their management, maintenance, use, enjoyment or disposal. In no case shall
such Investments be accorded treatment less favourable than that required by international law,
including treaty obligations.

62 One procedural issue deserves special mention. Spain, the Czech Republic and Italy have elected the exception
under ECT, Article 26(3)(b)(i), refusing their consent to international arbitration where the investor has
previously submitted the dispute to the host state’s courts or administrative tribunals, or to any previously agreed
dispute settlement procedure. See ECT, Annex ID. Arbitral tribunals, however, usually take a narrow view of
these ‘fork-in-the-road’ provisions, and strictly apply the ‘triple identity test’. Under this test, the fork-in-the-road
provision is triggered only when there is continuity in the identity of the parties, cause of action and object
of the dispute. See, e.g., Hulley Enterprise Ltd (Cyprus) v. Russian Federation, PCA Case No. AA 226, Award,
18 July 2014. For instance, the Charanne tribunal rejected Spain’s fork-in-the-road objection that was based on
prior unsuccessful challenges to the 2010 regulatory change brought before the Spanish Supreme Court and
the European Court of Human Rights (ECtHR). The tribunal held that, ‘even under a flexible interpretation
of the triple identity test’, Spain failed to demonstrate a ‘substantial identity’ between the arbitration claimants
and the prior challengers through evidence that claimants controlled the challengers’ decision-making or that
the corporate structure was designed to evade the ECT’s fork-in-the-road prohibition. Charanne (footnote 16,
above), paras. 405 to 408. The tribunal in Charanne also noted that proceedings before the ECtHR fall outside
the scope of ECT, Article 26.
63 In addition, the ECT contains an ‘umbrella clause’, which requires a host state to ‘observe any obligations it has
entered into with an Investor or an Investment of an Investor’ – ECT, Article 10(1).The clause serves to bring
any contractual agreements between the investor and the state under the ‘umbrella’ of the ECT, thus making
contractual rights enforceable under the Treaty. Depending on the specific agreement between the investor and
the host state, this clause may form the basis for additional claims. See Alexander Reuter, ‘Retroactive reduction
of support for renewable energy and investment treaty protection from the perspective of shareholders and
lenders’, 12 Transnat’l Disp. Mgmt, May 2015, at 42.

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The FET requirement is ‘one of the most actively debated concepts in investment protec-
tion law’,64 and arbitral tribunals and commentators have offered varied constructions of
its requirements.65 The FET requirement is part of most BITs and multilateral agreements
(such as the North American Free Trade Agreement (NAFTA)),66 and is regularly addressed
in investor-state arbitrations.
The FET standard frequently contains the following requirements:
• the host state must act in a transparent manner;
• the state is obliged to act in good faith;
• the state’s conduct cannot be arbitrary, grossly unfair, unjust, idiosyncratic, discrimina-
tory or lacking in due process; and
• the state must respect procedural propriety and due process.67

The analysis of whether the FET standard has been violated focuses on whether the host
state acted with consistency, transparency and reasonableness in modifying (or eliminating)
an existing incentive regime and, above all, whether investors had reasonable and legitimate
expectations that were breached as a result of the state’s actions. There is no universally
applicable test as to when investors’ expectations deserve treaty protection under the FET
requirement, and any evaluation regarding the degree of protection and the appropriate
remedy heavily depends on the particular facts.
There are two acknowledged approaches to determining when investor expectations
are sufficiently ‘legitimate and reasonable’ so as to warrant treaty protection. The first
approach requires the host state to have made clear assurances to the investor regarding the
specific business relationship. Under the second, more permissive approach, ‘expectations
could be created based on assurances provided in generally applicable laws of a country, and
more generally, upon the existing framework at the time of the investment’.68 Thus, as the
Tecmed arbitral tribunal explained, the host state should act ‘consistently, transparently, and
in a predictable and rational manner’, so as not to ‘affect the basic expectations that were
taken into account by the foreign investor to make the investment’.69 The tribunal in CMS
v. Argentina – an early and influential decision with respect to determining when a change

64 See Christopher F Dugan, Don Wallace Jr, Noah D Rubins, Borzu Sabahi, ‘Investor-State Arbitration’
502 (2008).
65 See, e.g., Rudolf Dolzer, ‘Fair and equitable treatment: today’s contours’, 12 Santa Clara J. Int’l L. 7, (2014);
Patrick Dumberry, ‘The protection of investors’ legitimate expectations and the fair and equitable treatment
standard under NAFTA Article 1105’, 31 J. Int’l Arb., 47 to 73 (2014); Christoph Schreuer, ‘The fair and
equitable treatment in arbitral practice’, 6 J.World Inv. and Trade 3 (June 2005); Christoph Schreuer, ‘Fair and
equitable treatment (FET): interactions with other standards’, in Graham Coop and Clarisse Ribeiro, Investment
Protection and the Energy Charter Treaty, 66 and ff (2008).
66 Effective as of 1 July 2020, the United States, Mexico and Canada entered into the United States-Mexico-
Canada Agreement (USMCA) as the successor to NAFTA. The USMCA retains the previous FET protections
for investors.
67 See, e.g., Rumeli Telekom A.S. and Telsim Mobil Telekomunikasyon Hizmetleri A.S. v. Kazakhstan, ICSID Case
No. ARB/05/16; see generally R Dolzer (footnote 66, above), at 17 to 19.
68 See Christopher F Dugan et al. (footnote 65, above), at 513.
69 See Tecnicas Medioambientales Tecmed S.A. v. Mexico, ICSID Case No. ARB (AF)/00/2. The Tribunal in RREEF
Infrastructure adopted similar reasoning, stating that the FET standard includes at least ‘the minimum standard as
applied traditionally in international law,’ including commitments on ‘(i) transparency, (ii) constant protection and

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in the host nation’s legal framework constitutes a breach of the FET – similarly observed
that the stability and predictability of the legal and regulatory environment is an impor-
tant component of FET.70 The RREEF Infrastructure tribunal confirmed that the stability
commitment is a separately enforceable obligation, but one that does not require ‘immuta-
bility’. Rather, ‘the obligation to create a stable environment’ merely excludes ‘unpredict-
able radical transformation’.71
The FET analysis balances numerous legal, economic and political considerations. This
includes, but is not limited to, the host state’s inherent right to regulate, which may involve
changing or eliminating previous regulations where necessary. As the tribunal in EDF
(Services) Limited v. Romania noted, the FET requirement cannot mean ‘the virtual freezing
of the legal regulation of economic activities, in contrast with the State’s normal regula-
tory power and the evolutionary character of economic life’.72 The tribunal in PV Investors
v. Spain likewise acknowledged that protecting investors’ legitimate expectations requires
balancing states’ sovereign rights over energy regulation and stressed that even if others
would disagree with a state’s decision, those states ‘enjoy a margin of appreciation in the
field of economic regulation’.73 Accordingly, in rejecting claims based on an alleged breach
of FET, arbitral tribunals have emphasised that ‘[n]o investor may reasonably expect that
the circumstances prevailing at the time the investment is made remain totally unchanged’;
rather, a determination ‘whether frustration of the foreign investor’s expectations was justi-
fied and reasonable’ requires consideration of ‘the Host State’s legitimate right subsequently
to regulate domestic matters in the public interest’.74 The tribunal in OperaFund Eco-Invest

security, (iii) non-impairment including (iv) non-discrimination[,] and (v) proportionality and reasonableness’.
RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Spain, ICSID Case
No. ARB/13/30, Decision on Responsibility and the Principles of Quantum, 30 November 2018, para. 260.
70 CMS Gas Transmission Company v. Argentina, ICSID Case No. ARB/01/8; see also Christopher F Dugan
et al. (footnote 65, above), at 516 (discussing the CMS tribunal’s analysis of the FET requirement); Occidental
Exploration & Production Co. v. Ecuador, LCIA Case No. UN3467, Final Award, 1 July 2004 (concluding that an
unforeseen change in the interpretation of existing laws constituted a breach of the FET standard).
71 RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Spain, ICSID Case
No. ARB/13/30, Decision on Responsibility and the Principles of Quantum, 30 November 2018, para. 315;
Lisa Bohmer, ‘A new Spain ruling surfaces, revealing that tribunal majority sees a more limited legitimate
expectation: to reasonable rate of return for energy investors, but not to broader regulatory stability,’ Inv. Arb. Rep.,
17 March 2019.
72 EDF (Services) Ltd v. Romania, ICSID Case No. ARB05/13, Award; see also Hydro Energy 1 S.à r.l. and Hydroxana
Sweden AB v. Spain, ICSID Case No. ARB/15/42, Award, 9 March 2020, para. 584 (stating that ‘without specific
promises, the investor may not rely on an investment treaty as a kind of insurance policy against the risk of any
changes in the host State’s legal and economic framework’).
73 PV Investors, Final Award (footnote 15, above), para. 583.
74 See, e.g., Saluka Investments B.V. v. Czech Republic, Permanent Court of Arbitration, Partial Award, 17 March 2006;
see also Parkerings-Compagniet AS v. Lithuania, ICSID Case No. ARB/05/8, Award,11 September 2007;
BG Group plc v. Argentina, Final Award, 24 December 2007; Plama Consortium Ltd v. Bulgaria, ICSID Case
No. ARB/03/24, Award, 27 Aug 2008; Continental Casualty Co. v. Argentina, ICSID Case No. ARB/03/9,
Award, 5 September 2008; El Paso Energy International Co. v. Argentina, ICSID Case No. ARB/03/15, Award,
31 October 2011. The legitimate expectations test, according to the RREEF Infrastructure tribunal, is an objective
standard that is ‘high, and only measures taken in clear violation of the FET will be declared unlawful and entail
responsibility of the State.’ RREEF Infrastructure, Decision on Responsibility (footnote 69, above), para. 262.

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likewise highlighted that the FET standard protects investors from modifications that alter
the ‘essential characteristics’ of the legislative scheme.75 Thus, although a state may make
regulatory changes, it cannot expressly change ‘the rules of the game it issued itself ’.76
An international arbitral tribunal is more likely to find a breach of the FET require-
ment where the host state, implicitly or explicitly, makes very specific representations,
commitments, assurances or promises on which the foreign investor relies in making the
investment.77 Absent a specific commitment from the host state, an investor faces a steeper
burden, especially when relying on ‘legislation or regulation of a unilateral and general
character’.78 As the tribunal in Total v. Argentina stressed, the investor is only entitled to the
host state’s ‘regulatory fairness’ or ‘regulatory certainty’, which provides limited protection
against regulatory changes that impair the recovery of operation costs, the amortisation of
investments and the achievement of a reasonable return.79 Unlike the France–Argentina
BIT, which was at issue in Total, Article 10(1) of the ECT expressly references the host
state’s duty to create ‘stable’ and ‘transparent’ conditions for foreign investments, as well as
a ‘commitment to accord at all times . . . ​fair and equitable treatment’ to such investments,
giving particular weight to long-term stability. As some commentators have suggested,
this provision could serve as the basis for affording the legitimate expectations of investors
operating in the energy field comparatively greater protection against regulatory changes.80

75 Lisa Bohmer, ‘In Operafund v. Spain award, reasons emerge for split amongst arbitrators as to ‘express stability
commitment’ in Spanish renewables,’ Inv. Arb. Rep., 27 September 2019; OperaFund Eco-Invest and Schwab Holding
v. Spain, ICSID Case No. ARB/15/36, Award, 6 September 2019, paras. 490, 549.
76 OperaFund, Award (footnote 75, above), para. 510. Using similar reasoning, the tribunal in Cube Infrastructure
concluded the claimants had legitimate expectations of regulatory stability with respect to their photovoltaic
investments because Spain’s revised incentive system, which was based on a reasonable rate of return, was a
‘radical and decisive break with the earlier regime’ that was in place when the claimants made their investment,
which explicitly stated that future tariff revisions would not have any retroactive effect. IAReporter, ‘Spain files
for annulment of €42 million ECT award’, Inv. Arb. Rep., 8 April 2020.
77 See, e.g., Watkins Holdings S.à r.l. and others v. Spain, ICSID Case No. ARB/15/44, Award, 21 January 2020,
para. 518 (concluding that the investors’ legitimate expectations can rest upon ‘any undertakings and
representations made explicitly or implicitly by the host State’); InfraRed Environmental Infrastructure GP Limited,
et al v. Spain, ICSID Case No. ARB/14/12 (finding that Spain’s communications with the investors created
legitimate expectations that their concentrated solar power plants would be shielded from future revisions to
the FIT system, which Spain then breached when it reformed that system in 2013). Arbitral tribunals applying
Article 1105 of NAFTA have generally followed this approach, enquiring whether the expectation is reasonable
and justifiable by considering the representations (or conduct) of the host state, whether the investor actually
relied on those representations, and whether the state failed to respect the expectations created. At times, as in
the Glamis case, tribunals have applied even stricter requirements, demanding that the investor’s expectations
be based on definitive, unambiguous and repeated specific commitments or assurances by the host state
that ‘purposely and specifically induced the investment’. See P Dumberry (footnote 66, above), at 43 to 47
(discussing Glamis Gold Ltd. v. United States, UNCITRAL, Award, 8 June 2009).
78 See Total S.A. v. Argentina, ICSID Case No. ARB/04/1, Decision on Liability, 27 December 2010.
79 id., at paras. 310 to 312; Alexander Reuter, ‘Retroactive reduction of support for renewable energy and
investment treaty protection’ (footnote 64, above), at 24.
80 See Alexander Reuter, ‘Retroactive reduction of support for renewable energy and investment treaty protection’
(footnote 64, above), 24, 30.

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The SCC tribunal in Sun Reserve Luxco Holdings SRL v. Italy observed that the threshold
for finding a violation of the FET standard ‘must be such as to shock judicial propriety’.81
According to the Sun Reserve tribunal, the FET analysis should focus on the level of
certainty at the time of the investment (or at each ‘decisive step’ towards furthering an
investment), and legitimate expectations should be ‘objectively knowable and certain, and
not based on subjective hopes or beliefs’.82 Further, although the FET standard includes a
duty to act transparently, consistently and in good faith, those are lower thresholds to meet,
and according to some tribunals may be violated only by ‘willfulness or intention on the
part of the host State’.83 As the Sun Reserve tribunal summarised:

To constitute a breach of the FET standard, it must be shown that the host State’s conduct was
manifestly or grossly unfair or unreasonable, was arbitrary or discriminatory, constituted a denial
of justice in national proceedings in the host State, or that the host State engaged in a wilful
neglect of duty or a wilful disregard of due process of law, or showed an extreme insufficiency of
action falling far below international standards.84

Recent international awards in the renewable energy sector confirm that changes in the
host state’s regulatory framework will not necessarily lead to a finding of a breach of
the FET standard. For example, in Charanne – the first renewable energy arbitration that
resulted in an award – the tribunal concluded that Spain did not breach its FET guarantee
under the ECT. As the tribunal noted, ‘in the absence of a specific commitment, an investor
cannot have a legitimate expectation that existing rules will not be modified’.85 The
tribunal then observed that Spanish law pre-dating the investment allowed Spain to modify
its solar energy regulations (and so such changes were objectively foreseeable), and that
Spain’s commitments to investors were not ‘sufficiently specific’ to create an expectation of
a frozen legal environment.86 The tribunal also rejected the investors’ claim (which relied
on CMS v. Argentina) that Spain’s regulatory changes operated retroactively and, therefore,
breached their acquired rights to operate under the initial incentive regime. Distinguishing
CMS as involving a specific contractual commitment, the tribunal viewed the retroactivity
argument as simply a restatement of the unsuccessful argument that investors had a legiti-
mate expectation in the original regulatory framework.87

81 Sun Reserve, Final Award (footnote 59, above), para. 688. See Damien Charlotin, ‘Breaking: SCC tribunal
finds no breach of Energy Charter Treaty by Italy, in latest award to decide renewables claims’, Inv. Arb. Rep.,
27 March 2020.
82 Sun Reserve, Final Award (footnote 59, above), para. 710. D Charlotin, ‘SCC tribunal finds no breach of Energy
Charter Treaty by Italy’ (footnote 59, above).
83 Sun Reserve, Final Award (footnote 59, above), para. 740. The tribunal also agreed with Italy that the relevant
date of investment was when the claimants acquired their relevant shareholding in the company developing and
operating the solar plants, and not when the plants started operating. id., at para. 753.
84 id., at para. 688.
85 Charanne (footnote 16, above), para. 499.
86 id., at paras. 497, 504 to 508. Arbitrator Professor Guido Santiago Tawil dissented on this point, viewing Spain’s
commitments as sufficiently specific and aimed at a limited number of potential investors to create an objective
legitimate expectation on the part of those investors that the regulatory regime would not be altered without
adequate compensation. Dissenting Opinion of Prof. Guido Santiago Tawil, paras. 5 to 12.
87 Charanne (footnote 16, above), paras. 545 to 546.

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Similarly, a split ICSID tribunal in Stadtwerke München GmbH v. Spain rejected the
claimants’ contention that the Spanish government created the expectation that its FITs
would be maintained through the lifespan of the plant’s construction, stating that ‘a prudent
investor would not have reasonably formed an expectation of a legally stable income stream
for the life of the . . . ​Plant’.88 The same analysis led the Blusun tribunal to reject a claim of
FET violation by Italy.That tribunal observed that Italy had made ‘no special commitment’
to the investors with respect to the extension and operation of FITs, ‘nor did it specifically
undertake that relevant Italian laws would remain unchanged’.89 The tribunal also pointed
out that the investors did not establish ‘that the Italian state’s measures were the operative
cause of the . . . ​[p]roject’s failure’.90
In examining the ECT’s guarantee of FET, other tribunals have arrived at a different
conclusion when assessing whether investors had legitimate expectations in the immuta-
bility of the state’s original incentive regime. For example, nearly a dozen tribunals have
already concluded that Spain failed to comply with its obligation to create stable, favourable
and transparent conditions for foreign investors when it amended its regulatory incen-
tive framework for solar power investments beginning in 2013.91 Notably, however, not
all these tribunals found that the investors had legitimate expectations that the existing
investment regime would remain completely unchanged.92 Rather, these tribunals appear

88 Lisa Bohmer, ‘Analysis: majority in Stadtwerke Munchen v. Spain (footnote 37, above); Stadtwerke München
GmbH, RWE Innogy GmbH, et al. v. Spain, ICSID Case No. ARB/15/1, Award, 2 December 2019,
paras. 265, 308. The German investors filed for annulment of the tribunal’s award on 6 April 2020. Lisa Bohmer,
‘German CSP investors file for annulment of ICSID award which found that they could not legitimately expect
legal stability’, Inv. Arb. Rep., 7 April 2020.
89 Blusun SA, Jean-Pierre Lecorcier and Nichael Stein v. Italy, ICSID Case No. ARB/14/03, Award, 27 December 2016,
para. 374.
90 id., at para. 394; see also Tom Jones, ‘Light shed on Italy’s solar win’ (footnote 57, above).
91 Antin Infrastructure Services Luxembourg S.à r.l. and Antin Energia Termosolar B.V. v. Spain, ICSID Case
No. ARB/13/31, Award, 15 June 2018; Masdar Solar & Wind Cooperatief U.A. v. Spain, ICSID Case
No. ARB/14/1, Award, 16 May 2018; PV Investors v. Spain, PCA Case No. 2012-14, Final Award,
28 February 2020; RREEF Infrastructure (G.P.) Limited and RREEF Pan-European Infrastructure Two Lux S.à r.l.
v. Spain, ICSID Case No. ARB/13/30, Decision on Responsibility, 30 November 2018; NextEra Energy
Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Spain, ICSID Case No. ARB/14/11, Award,
31 May 2019; 9REN Holding S.à r.l. v. Spain, ICSID Case No. ARB/15/15, Award, 31 May 2019; Watkins
Holdings S.à r.l. and others v. Spain, ICSID Case No. ARB/15/44, Award, 21 January 2020; Hydro Energy 1 S.à r.l.
and Hydroxana Sweden AB v. Spain, ICSID Case No. ARB/15/42, Award, 9 March 2020; SolEs Badajoz GmbH v.
Spain, ICSID Case No. ARB/15/38, 31 July 2019; Cavalum SGPS, S.A. v. Spain (ICSID Case No. ARB/15/34,
Decision on Jurisdiction, Liability, and Direction on Quantum, 31 August 2020, para. 706.
92 In awarding €90 million, €59.6 million and €290.6 million in damages to the claimant investors, respectively,
the PV Investors, RREEF Infrastructure and NextEra Energy tribunals considered the ‘reasonable return’ that the
investors expected to make at the time of their investment and calculated the difference between that reasonable
return and the return that the investors stood to make under the altered regulatory regime. PV Investors,
Final Award (footnote 15, above), paras. 638 to 640, 909; RREEF Infrastructure, Decision on Responsibility
(footnote 69, above), paras. 262 to 263 and RREEF Infrastructure, Award, 11 December 2019, para. 81; NextEra
Energy Global Holdings B.V. and NextEra Energy Spain Holdings B.V. v. Spain, ICSID Case No. ARB/14/11, Award,
31 May 2019, paras. 37, 31; see also Masdar Solar & Wind Cooperatief U.A. v. Spain, ICSID Case No. ARB/14/1,
Award, 16 May 2018, paras. 489 to 522; Hydro Energy 1 S.à r.l. and Hydroxana Sweden AB v. Spain, ICSID
Case No. ARB/15/42, Award, 9 March 2020, paras. 306 to 307; Cavalum SGPS, S.A. v. Spain (ICSID Case
No. ARB/15/34, Decision on Jurisdiction, Liability, and Direction on Quantum, 31 August 2020, para. 706.

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to have based their decisions to compensate investors for their legitimate expectations on
the reasonableness of those expectations, the investors’ due diligence, the specificity of
the state’s commitments regarding the investment and the foreseeability that the existing
regime may be altered.93

Indirect expropriation
Another basis for protection that claimants historically have invoked in renewable energy
arbitrations is expropriation – and indirect expropriation in particular. Although the ECT
does not have a specific provision addressing indirect expropriation, Article 13 prohibits
expropriation of investments unless ‘justified by public interest purposes, carried out under
due process of law and accompanied by a prompt, adequate and effective compensation’.
These claims, too, are highly fact intensive, but are rejected by arbitral tribunals barring
some highly unusual set of circumstances.
In Nykomb v. Latvia, the tribunal addressed claims of indirect expropriation under the
ECT, and construed that expropriation narrowly.94 In that arbitration, the investor entered
into an agreement with the Latvian state energy distributor to produce energy from a
cogeneration plant. According to the rules applicable at the time, the investor would have
received a double tariff for eight years. Just before the plan commenced operation, however,
Latvia revoked this favourable treatment and retroactively introduced a significantly lower
tariff.95 The investor argued that the withdrawal of the original tariff constituted ‘indirect’
or ‘creeping’ expropriation, because it rendered the enterprise not ‘economically viable’ and
the ‘investment worthless’.96 The arbitral tribunal disagreed, concluding that the loss of the
economic value of the investment did not, by itself, constitute an expropriation because the
state did not take possession of the enterprise or its assets, or interfere with the shareholders’
rights or management control.97

93 The analysis of the legitimacy of investors’ expectations may also be influenced by such issues as the impact,
if any, of the EU rules on state aid, which may require the EU Member State to terminate or adjust its
renewable energy incentive regime. See Alexander Reuter, ‘Retroactive reduction of support for renewable
energy and investment treaty protection’ (footnote 64, above), at 31 to 41; see section titled ‘The European
Commission’s role in ECT renewable energy arbitrations and jurisdictional considerations’, below; see also
Electrabel S.A. v. Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability,
30 November 2012, para. 7.75; El Paso Energy Int’l Co. v. Argentina, ICSID Case No. ARB 03/15, Award,
31 October 2011, para. 348.
94 Nykomb Synergetics Technology Holding AB (Sweden) v. Latvia, SCC – Case No. 118/2001, Arbitral Award,
16 December 2003.
95 id., at para. 1.2.
96 id., at para. 4.3.1.
97 id. The Nykomb decision has been questioned because it allegedly adopts an unjustifiably narrow view of indirect
expropriation and fails to consider the economic effects of the government’s actions. See R A Nathanson, ‘The
revocation of clean-energy investment economic-support systems as indirect expropriation post-Nykomb:
A Spanish case analysis’, 98 Iowa L. Rev. 863, 888, 889, 899 to 901 (2013). Tribunals that have addressed investors’
claims under NAFTA and BITs found indirect expropriation where ‘measures are taken by a State the effect of
which is to deprive the investor of the use and benefit of his investment even though he may retain nominal
ownership of the respective rights being the investment’. Middle East Cement Shipping & Handling Co. S.A. v.
Egypt, ICSID Case No. ARB/99/6, Award, 12 April 2002. These tribunals considered, among other factors,
whether the host state measures were proportional to the public interest; see Tecnicas Medioambientales Tecmed S.A.

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The Charanne tribunal likewise rejected the investors’ argument that Spain’s modifica-
tion of the incentive regime constituted an indirect expropriation because it affected their
returns on the investment. Adopting the standard articulated in such decisions as CMS and
Electrabel (and others in arbitrations brought under NAFTA or BITs), the Charanne tribunal
explained that indirect expropriation ‘implies a substantial effect on the property rights of
the investor’, including ‘a loss of value that could be equal by its magnitude to a depriva-
tion of the investment’.98 The tribunal observed, however, that the investors’ plant remained
operational and profitable, and held that,‘although the profitability of [the plant] could have
been seriously affected’, a reduction in profitability (and any resulting decrease in the value
of the shares) in itself does not amount to indirect expropriation.99
Although the Charanne tribunal rejected the expropriation claim, it adopted a broader
definition of indirect expropriation applied by tribunals that addressed investors’ claims
under NAFTA and BITs, rather than the more narrow definition of Nykomb. It remains
to be seen, therefore, what approach other arbitral tribunals will adopt when determining
whether the reductions of a FIT or, more broadly, the roll-back of the renewable energy
investment incentive regimes deprive investors of the use and benefit of their investment
to such an extent to constitute an indirect expropriation under the ECT. As the Charanne
award indicates, these decisions are likely to examine closely the specific facts and circum-
stances of each case. As with the question of whether a state’s action constitutes a breach
of the FET obligation, these tribunals are also likely to balance protection of investors’
expectations with the state’s right to change its legal framework and pursue new policies.
This analysis can lead arbitrators to different conclusions, as illustrated by the
duelling majority and dissenting opinions in the Blusun arbitration. There, the tribunal
majority rejected the claim of indirect expropriation on the basis that Italy had enacted
‘non-discriminatory laws ostensibly passed in the public interest’ and, therefore, was not
required to ‘pick up the tab for Blusun’s failures’.100 The dissenting arbitrator, however,
would have found that the investor could not have expected Italy to impose a restriction
on the use of the agricultural land, which the investor purchased at a premium specifically
expecting to construct solar plants, and, therefore, should have been compensated for the
lost incremental value of the land.101
In recently decided renewable energy arbitrations, especially those against Spain, indirect
expropriation has played a subordinate or non-existent role in resolving those disputes.
The lower standard for establishing liability under the FET standard has either (1) caused
claimant investors to refrain from raising indirect expropriation claims, or (2) rendered the
tribunal’s review and analysis of indirect expropriation issues moot.102

v. Mexico, ICSID Case No. Arb (AF)/00/2, Award, 29 May 2003, and whether the host state acted in the normal
exercise of its regulatory powers in a non-discriminatory manner; see Saluka Investments B.V. v. Czech Republic,
Permanent Court of Arbitration, Partial Award, 17 March 2006.
98 Charanne (footnote 16, above), para. 461 (citing arbitral decisions).
99 id., at paras. 462 to 465.
100 Blusun (footnote 58, above), paras. 401, 407.
101 id., at para. 409 n.659.
102 See, e.g., PV Investors, Final Award (footnote 15, above), para. 691 n.877 (The tribunal only addressed the
claimants’ claim that Spain breached the FET standard under the ECT and declined to address the merits of the
claimants’ expropriation claim).

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Role of the European Commission

ECT renewable energy arbitrations and jurisdictional considerations
Another significant issue in renewable energy arbitrations under the ECT is the European
Commission’s participation as amicus curiae.103 The Commission’s participation raises several
complex issues regarding the interaction between the ECT and EU law, including possible
defences based on EU state aid rules and jurisdictional objections based on intra-EU invest-
ment treaty considerations.
The Commission’s first involvement as amicus curiae in an ECT arbitration came in
Electrabel, in which the tribunal permitted the Commission to describe the relationship
between EU law and the ECT.104 Similarly, in Charanne, the tribunal acknowledged the
Commission’s amicus brief and, while specifying that only the arguments of the parties would
be addressed, noted that it will consider them in light of the Commission’s ‘reflection’.105
Since Charanne, the Commission has sought to submit amicus briefs in certain of the pending
renewable energy arbitrations against Spain; however, the tribunals rejected those requests,
viewing the Commission’s participation as premature (but leaving open the possibility of
the Commission’s participation in future stages of the proceedings).106 The Commission
similarly has sought to participate in some of the Czech renewable energy arbitrations.107
The Commission’s involvement in these arbitrations implicates two substantive issues.
The first involves a possible defence by the host state against investors’ claims based on EU
rules on state aid. For example, in the disputes against the Czech Republic, the Commission
has reportedly taken the position that some of the original solar investment incentives the
Czech Republic offered to investors contravened EU law and, therefore, were required to
be repealed.108 In Electrabel, the Commission argued that Hungary did not breach its treaty
obligations because the changes to Hungary’s regulatory regime were created to comply
with EU law.109

103 See, e.g., Eiser Infrastructure Ltd. and Energía Solar Luxembourg S.à r.l. v. Spain, ICSID Case No. ARB/13/36; Masdar
Solar & Wind Cooperatief U.A. v. Spain, ICSID Case No. ARB/14/1; NextEra Energy Global Holdings B.V. and
NextEra Energy Spain Holdings B.V. v. Spain, ICSID Case No. ARB/14/11; InfraRed Environmental Infrastructure
GP Ltd, et al. v. Spain, ICSID Case No. ARB/14/12; RENERGY S.à r.l. v. Spain, ICSID Case No. ARB/14/18.
104 Electrabel S.A. v. Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability,
30 November 2012; see also Carlos Gonzalez-Bueno and Laura Lozano, ‘More than a friend of the court: the
evolving role of the European Commission in investor-state arbitration’, 16 January 2015.
105 Charanne (footnote 16, above), para. 425.
106 See Carlos Gonzalez-Bueno and Laura Lozano (foonote 104, above); Luke Eric Peterson, ‘European
Commission wades into solar arbitrations against Spain, intervening in one case a week before final hearings’,
Inv. Arb. Rep., 17 November 2014; RREEF Infrastructure, Decision on Responsibility (footnote 69, above),
paras. 31 to 32; Antin v. Spain, ICSID Case No. ARB/13/36, Award, 15 June 2018.
107 Luke Eric Peterson, ‘European Commission wades into solar arbitrations against Spain’ (footnote 106, above);
Luke Eric Peterson, ‘Investigation: In recent briefs, European Commission casts doubt on application of Energy
Charter Treaty to any intra-EU dispute’, Inv. Arb. Rep., 8 September 2014.
108 id.; see also Kim Talus, ‘Introduction: Renewable Energy Disputes in Europe and Beyond’ (footnote 3, above),
at 10 to 13.
109 Electrabel S.A. v. Hungary, ICSID Case No. ARB/07/19 (footnote 93), at IV-27. The EC did not make this
argument in the Charanne arbitration, possibly because the European Commission’s review of whether Spain’s
original incentive regime for renewable energy complied with the state aid rules was still pending. Charanne
(footnote 16, above), paras. 448 to 449.

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The second issue is whether, given the Commission’s position that the ECT does not
apply to intra-EU disputes, the Treaty permits arbitration between EU-based investors and
EU Member States.110 The Charanne tribunal, for instance, rejected the Commission’s (and
Spain’s) argument that the European Union’s status as a signatory of the ECT destroyed
the diversity-of-nationality requirement under Article 26. The tribunal stressed that the
European Union’s status as a party to the ECT does not mean that EU Member States
‘ceased to be’ parties to the ECT as well.111 Applying a contextual inquiry, the tribunal
observed that the asserted claims were ‘not based on EU actions’ but on those of Spain, and
were directed against Spain, and not the European Union.112 Adopting a similar rationale,
the tribunal in Eskosol S.p.A. in Liquidazione v. Italy ruled that, through Article 26(3) of
the ECT, contracting states unconditionally agreed to arbitrate without any qualifica-
tions for intra-EU disputes.113 Therefore, even if the European Union is deemed a separate
contracting party to the ECT, so too are the individual Member States, each of which
possesses independent obligations to arbitrate under the ECT.114
In the Czech renewable energy arbitrations, the European Commission reportedly
argued that, although the ECT does not contain an explicit ‘disconnection’ clause that
would render it inapplicable in intra-EU disputes, that restriction should be inferred from
the Treaty’s context, purpose and drafting history.115 In 1998, in a statement submitted to
the Secretariat of the Energy Charter, the Commission invoked Article 26(3)(b)(ii) of the
ECT (which provides for the possibility of a partial disconnection clause) to argue that
the Commission has not assented to arbitration under the ECT with regard to any case
brought by EU nationals because (the Commission stated) ‘the Communities’ legal system
provides for means’ of resolving such disputes.116 It is unclear, however, whether this state-
ment (which was issued only on behalf of the Commission) creates international legal
obligations for the EU Member States, either by itself or by operation of EU law.117

110 Luke Eric Peterson, ‘European Commission wades into solar arbitrations against Spain’ (footnote 106, above).
111 Charanne (footnote note 16, above), para. 429. The tribunal in SolEs Badajoz GmbH v. Spain, ICSID Case
No. ARB/15/38 rejected Spain’s intra-EU objection that the ECT only allowed for arbitration of disputes
between a state party to the ECT and an investor from ‘another contracting party’. The tribunal found that if this
implied exception were adopted, it would effectively eliminate all arbitration agreements between EU investors
and other EU Member States under the ECT. See Damien Charlotin, ‘Analysis in previously confidential SolEs
Badajoz v. Spain Award, arbitrators lay out reasons for finding jurisdiction and awarding €40 million to investor
for breach of the ECT’, Inv. Arb. Rep., 4 September 2019.
112 Charanne (footnote note 16, above), para. 431.
113 See Eskosol S.p.A. in Liquidazione v. Italy, ICSID Case No. ARB/15/50, Decision on Italy’s request for
immediate termination and Italy’s jurisdictional objection based on inapplicability of the Energy Charter Treat
to intra-EU disputes, 19 May 2019.
114 id.
115 Charanne (footnote note 16, above), para. 431.
116 See Statement submitted by the European Communities to the Secretariat of the Energy Charter pursuant to
Article 26(3)(b)(ii) of the Energy Charter Treaty, 1998 O.J. (L 69) (115); see also Markus Burgstaller, ‘European
Law and Investment Treaties’, 26 J. Int’l Arb. 208 to 209 (2009).
117 Markus Burgstaller (footnote 116, above), at 208.

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A critical intervening development affecting the potential jurisdictional landscape

of renewable energy arbitrations in Europe was the European Court of Justice’s (ECJ)
decision in Slovak Republic v. Achmea.118 Issued in March 2018, that decision held that the
investor-state arbitration mechanism in a BIT between the Netherlands and Slovakia, both
EU Member States, was incompatible with EU law. In the aftermath of that decision, 22 EU
Member States issued a declaration in January 2019 stating that the Achmea decision applies
more broadly to intra-EU investor-state cases brought under the ECT.119 However, five
other EU Member States issued a separate declaration, observing that the ECJ’s decision
was silent on the matter.120
Unsurprisingly, respondent states in renewable energy arbitrations have sought to invoke
Achmea as a means of challenging jurisdiction and dismissing the proceedings.These efforts
have been successful, largely, with a number of tribunals ruling that, notwithstanding the
Achmea decision, EU law does not divest the arbitral tribunals of jurisdiction over intra-EU
disputes brought under the ECT.121 For example, in Eskosol S.p.A. in Liquidazione v. Italy,
the tribunal ruled that the Achmea judgment does not reach the ECT because (1) Achmea
only refers to bilateral treaties between EU Member States, not the ECT, (2) the language
in the Achmea decision suggests an intent not to address a situation in which the European
Union is a contracting party, (3) the ECJ emphasised that Achmea only applied to disputes
requiring application of EU law, and (4) the tribunal was composed of a different legal
order (general international law and not EU law).122 The Eskosol tribunal also found that

118 Slovak Republic v. Achmea B.V., ECJ Case No. C-284/16, Judgment, 6 March 2018.
119 See Tom Jones, ‘EU countries to cancel BITs post-Achmea’, Global Arbitration Review, 17 January 2019.
120 id.
121 See Tom Jones, ‘Achmea and the ECT: investor and state perspectives’, Global Arbitration Review, 17 May 2019; see
also Jack Ballantyne, ‘Italy obtains stay of enforcement of ECT awards’, Global Arbitration Review, 29 May 2019;
see also Lisa Bohmer, ‘Analysis: majority in Stadtwerke Munchen v. Spain (footnote 37, above). For example,
in October 2019, the ICSID tribunal in LSG Building Solutions GbmH v. Romania issued an order rejecting
several of Romania’s jurisdictional objections, including an objection based on Achmea, which Romania
argued rendered ECT, Article 26 inapplicable to intra-EU disputes. LSG Building Solutions GbmH and others v.
Romania, ICSID Case No. ARB/18/19, Procedural Order No. 3 – Decision on bifurcation, 9 October 2019.
Romania unsuccessfully challenged the tribunal’s jurisdiction based on (1) the multi-party objection, given that
10 claimant companies incorporated in five countries are attempting to adjudicate their claim jointly and (2) the
nationality objection under ECT, Articles 17 and 25, which do not permit arbitrations to be brought against an
investor’s own state.
122 See Eskosol (footnote 113, above). A number of tribunals have adopted similar reasoning in (1) rejecting intra-EU
jurisdictional challenges lodged by a respondent state and (2) determining that Achmea does not divest tribunals
of jurisdiction under ECT, Article 26. For instance, the Stockholm Chamber of Commerce [SCC] tribunal
in Sun Reserve noted that to the extent EU law was relevant in that case, it only affected substantive Swedish
law and did not impose any outer limits on the tribunal’s jurisdiction. See Damien Charlotin, ‘Breaking: SCC
tribunal finds no breach of Energy Charter Treaty by Italy, in latest award to decide renewables claims’, Inv. Arb.
Rep., 27 March 2020. The tribunal in Stadtwerke limited the application of Achmea to the Dutch–Slovak BIT
at issue in that case and therefore concluded that EU law posed no jurisdictional barriers to issuing an award.
See Lisa Bohmer, ‘Analysis: majority in Stadtwerke Munchen v. Spain (footnote 37, above). The tribunal in
9REN Holding also rejected similar arguments from Spain and held that (1) Achmea involved an intra-EU BIT,
rather than a multilateral international treaty, and (2) the European Union, by joining the ECT, had consented
to submit to the jurisdiction of international arbitral tribunals. 9REN Holding S.à r.l. v. Spain, ICSID Case
No. ARB/15/15, Award, 31 May 2019, paras. 141(a), 152. In addition, the tribunal in Hydro Energy found that
the Achmea ruling was a ‘decision on the constitutional order of the EU in support of the policy of European

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Italy’s declaration regarding the application of Achmea was neither binding nor appropriate
for the purposes of treaty interpretation because, inter alia, it was not made ‘in connection
with the conclusion of ’ the ECT and was not signed onto by all ECT Member States.123
Although the Achmea judgment has thus far not materially affected the progress and
resolution of renewable energy arbitrations brought under the ECT, tribunals and national
courts alike are keenly aware that the ECJ may, at some point, address directly whether EU
nationals remain eligible to bring claims under the ECT against EU Member States. Any
such decision is likely to affect both the tribunal’s jurisdiction to hear disputes under the
ECT and subsequent enforcement of awards in EU Member States. Some Swedish courts,
for example, have stayed the enforcement of SCC decisions while they consider whether to
consult the ECJ on the scope of Achmea and the ECT’s compatibility with EU law.124 The
Eskosol tribunal also expressly recognised the looming enforcement uncertainty associated
with the future interpretation and application of Achmea:

The CJEU has not yet clarified whether it considers the reasoning in that [Achmea] Judgment
to be applicable to the ECT, as a matter of EU law. If the CJEU ultimately finds the ECT
distinguishable from the intra-EU BIT that it discussed in the Achmea Judgment – for example,
because an ECT tribunal does not apply EU law to resolve the dispute, as this Tribunal has
found in interpreting ECT Article 26(6) – then ultimately no enforcement issue may arise
even within Europe. Nonetheless, the Tribunal accepts that if the Achmea Judgment ultimately
is determined to be applicable to the ECT, a court subject to the EU legal order could eventually
question the enforceability under EU law of an ECT award rendered in an intra-EU case.125

The current negotiations among EU Member States, as well as among ECT signatories,
may also affect arbitral tribunals’ jurisdiction over intra-EU disputes brought under the
ECT. On 5 May 2020, 23 EU Member States signed an agreement terminating BITs
between EU Member States.126 That agreement, however, expressly states that it ‘does not
cover intra-EU proceedings on the basis of Article 26 of the Energy Charter Treaty’ and that
‘[t]he European Union and its Member States will deal with this matter at a later stage’.127

integration, rather than an orthodox application of the rules of treaty interpretation’. Lisa Bohmer, ‘Analysis in
latest award against Spain, arbitrators decide that investors in small hydro plants could not reasonably expect
fixed incentives, but were entitled to a reasonable rate of return’, Inv. Arb. Rep., 13 March 2020. Likewise, the
ICSID tribunal in Cube Infrastructure Fund concluded that ‘within the system of international law, EU law does
not have supremacy . . . ​over rules of international law, including the ECT’ and declined to extend Achmea
because, unlike in Achmea, the tribunal’s jurisdiction was based on two multilateral treaties extending beyond
the European Union, namely the ECT and the ICSID Convention. IAReporter, ‘Spain files for annulment of
€42 million ECT award’, Inv. Arb. Rep., 8 April 2020.
123 See Eskosol (footnote 113, above), paras. 219 to 227.
124 See Jack Ballantyne, ‘Italy obtains stay of enforcement of ECT awards’ (footnote 121, above).
125 See Eskosol (footnote 113, above), paras. 230 to 231.
126 See Agreement for the Termination of Bilateral Investment Treaties between the Member States of the European
Union, available at https://ec.europa.eu/info/files/200505-bilateral-investment-treaties-agreement_en. Four EU
Member States (Austria, Finland, Ireland and Sweden) did not sign the agreement. The agreement entered into
force on 29 August 2020, but is subject to ratification by its signatories.
127 id., preamble.

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On 6 November 2019, the Energy Charter Conference established a Modernisation Group

to start negotiations on the modernisation of the ECT.128 Those negotiations may provide
another forum for addressing the intra-EU application of the Treaty.129

Conclusion
Because international arbitral tribunals tasked with adjudicating renewable energy invest-
ment disputes under the ECT historically began with little direct precedent to examine,
they understandably sought guidance in decisions rendered in other investor-state invest-
ment disputes. The Charanne decision – the first award rendered in these renewable energy
arbitrations – appropriately relied on the general principles of FET and the general prohi-
bition against indirect expropriation defined by previous international arbitral tribunals.
Since then, tribunals have increasingly focused on the contours and application of the
FET standard to determine whether claimant investors should be properly compensated,
based on subsequent regulatory changes implemented by host states. As increasing numbers
of renewable energy disputes progress through the system and reach a final award, those
awards, including the tribunals’ underlying analysis of these renewable energy investments,
will continue to define the parameters of the host states’ regulatory powers with respect
to renewable energy investments, as well as the intersection of the ECT with EU law.
Inevitably, these final awards have spawned a wave of annulment applications from unsuc-
cessful parties seeking to undermine and undo the tribunals’ decisions, and with them, a
host of additional issues that will require further monitoring and evaluation.

128 See Energy Charter Conference, Modernisation of the Energy Charter Treaty: Mandate, Procedural Issues and
Timeline for Negotiations, Decision No. CCDEC2019 10 (6 November 2019).
129 See, e.g., Energy Charter Conference, Modernisation of the Energy Charter Treaty, Decision
No. CCDEC2018 18 (27 November 2018) (list of broad topics for negotiations); Energy Charter Conference,
Policy Options for Modernisation of the ECT, Decision No. CCDEC2019 08 (6 October 2019) at 44
(comment by Kazakhstan).

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Part II
Commercial Disputes in the Energy Sector

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3
Construction Arbitrations Involving Energy Facilities

Doug Jones AO1

The mounting need for energy in a modern industrialised world has led to a rapid rise in
the construction of energy infrastructure. Between 1971 and 2017, total energy consump-
tion across the globe more than doubled.2 This was driven by both organic growth in
developed countries and new developments in emerging regions.3 Asia is one area that
has seen significant growth in demand and use, particularly given the industrial boom in
China since the turn of the 21st century.4 Indeed, between 1973 and 2017, the share of total
energy production from non-OECD Asia rose from 5.5 per cent to 13.4 per cent,5 while
total energy production from OECD Asia and Oceania increased by 5.4 per cent between
1973 and 2018.6 This reflects an increase in supply within the region alongside the surge
in demand. The relative use of different energy sources has also evolved, often cyclically,
but over the long term it has witnessed the primacy of oil, the rise of natural gas and the

1 Doug Jones AO is an independent international arbitrator. The author gratefully acknowledges the assistance
provided in the preparation of this chapter by his legal assistants, Rebecca Zhong and Brendan Ofner.
2 International Energy Agency, ‘Key World Energy Statistics’ (2019), at 34.
3 See, e.g., OECD and Internationals Energy Agency, ‘Comparative Study on Rural Electrification Policies in
Emerging Economies (2010), reporting at p. 11: ‘Since the G8 Gleneagles Summit in 2005, the International
Energy Agency’s (IEA) Networks of Expertise in Energy Technology (NEET) Initiative 1 has sought to
encourage further involvement of major emerging economies in the IEA Technology Network comprising
international energy technology and R&D collaborative programmes. Missions and workshops when
feasible have been organised in the so-called “Plus-Five” countries, namely Brazil, China, India, Mexico and
South Africa. These outreach efforts have been geared towards identifying areas of mutually desirable and
potential future collaboration between experts of these major emerging economies and the IEA Technology
Network, including the Committee on Energy Research and Technology (CERT), Working Parties (WP) and
Implementing Agreements (IA).’
4 International Energy Agency, ‘Key World Energy Statistics (2019)’, 36.
5 id., at 8.
6 id., at 11.

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stagnation and decline of coal. Regardless of which fuel source is used, there is a constant
need to construct new energy facilities capable of extracting fuel sources, converting them
into energy and distributing them to the end user. Recent times have seen the rise of
renewable energies and the construction of new types of solar, wind and hydropower
infrastructure. Much of this development has been seen in Asia, which in 2019 accounted
for close to two-thirds of the global growth in renewable energy capacity (with China
accounting for the lion’s share of that growth).7
There is no question that commercial arbitration has emerged as the primary forum for
the resolution of disputes in projects for the construction of energy facilities.8 International
enforceability provides a key advantage in an industry that frequently brings together for
each project a vendor and a range of specialist contractors from different parts of the world.
Procuring the expertise of an experienced energy industry practitioner to preside over a
dispute neutralises the risks associated with resolving highly technical disputes in fora that
are unsophisticated in international commercial matters. Its increased prevalence is also
due to the inclusion of arbitration clauses in leading standard form contracts, including
the International Federation of Consulting Engineers (FIDIC) Conditions of Contract for
Construction (Red Book), Contract for EPC/Turnkey Projects (Silver Book) and Contract
for Plant and Design-Build (Yellow Book) (parts of the 2017 FIDIC Suite),9 and the New
Engineering Contract, of which the fourth edition was published in 2017.10
There are unique commercial considerations that apply to energy projects. These
include pre-construction considerations and post-construction uses and demands that are
specific to energy facilities. These considerations also encompass political factors that can
influence legal and economic policy, such as terms of trade, subsidies and taxes. What these
projects all have in common, however, is the core need for the mobilisation of resources
and expertise for the design and construction of facilities, with risk-allocation provisions
that account for these additional risks.
Accordingly, when disputes arise, they are concerned with the usual array of contractual
clauses and legal principles that are common to construction disputes. The purpose of this
chapter is to provide a broad overview of these issues of risk, and the laws and issues of
contract that underline disputes between energy project participants when they do arise.
It is hoped that this will serve as a guide that familiarises readers with the landscape in
this area.
The issues that arise in construction arbitrations involving energy projects are explored
across five key themes: (1) time, (2) cost, (3) quality, (4) scope, and (5) political, economic
and social risk. For each theme, this chapter first explores issues of risk and the manner
in which they can be addressed through contract drafting, and then considers the issues
of legal and contractual principle that frequently arise in contentious arbitration disputes.

7 International Renewable Energy Agency, ‘Renewable Capacity Statistics’ (2020), 2 to 3.

8 School of International Arbitration, Queen Mary University of London, ‘2018 International Arbitration
Survey: The Evolution of International Arbitration’ (2018, Survey), at 30.
9 See Clause 21.6 of these contract forms.
10 See, e.g., Option W3 of the New Engineering Contract, 4th edition [NEC4] contract forms.

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This chapter is concerned with commercial arbitrations between participants in

construction projects for energy facilities, as opposed to investor-state claims arising from
such projects, which are covered comprehensively in other chapters in this book.

Time
Time-related risk
It is often said that time is everything in construction. The adverse effects and losses that
flow from delay in a project’s completion are often wide-ranging and severe. They can
include an increase in costs for the contractor; lost production and revenue for the owner;
adverse effects on the payback of loans to financiers; cash flow and subsequent solvency
issues of the project; knock-on delays in multi-phase projects; negative publicity, particu-
larly in government-funded public projects; and breaches of ancillary arrangements to
the original contract upon which the project’s viability depends (e.g., offtake agreements,
contracts for inputs). This final category is highly significant in construction projects for
energy facilities. Facility owners will more often than not have entered into a binding
offtake agreement to supply energy at a specified level to an offtake partner from the date
of project completion, and will become liable to liquidated damages and other claims in
the event that they are unable to meet this commitment in a timely manner. The resulting
liability is often sizeable.
Time-related risks are generally allocated to the contractor. A detailed project schedule
will establish the milestones that a contractor must meet (in addition to a more general
project schedule that is developed at an earlier stage of the project).11 The detailed project
schedule will encompass key milestones, including a ‘notice to proceed’ date, phase mile-
stones, a ‘practical completion’ date, dates and targets for commissioning activities, and ‘final
completion’. The critical path of activities will be evident from this schedule, as will be
the level of float available to absorb some delay in the project’s performance. When critical
delay to a project occurs, the contractor will find itself subject to an owner’s claim for
general and liquidated damages.
Despite this default position, delay to a project can equally be a result of neutral events
or events that are the responsibility of the owner. A contractor may find itself aggrieved,
and the project hindered, as a result of an owner’s acts of prevention, which may include
active obstruction of the site; failure to provide designs, materials or other obligations that
a contractor needs to perform its scope of works; or imposing contractually valid variations
or change orders on the contractor. The contractor may seek a range of remedies against
the owner, including extensions of time and damages.
Finally, neutral delays in the form of force majeure fall to the contract in accordance
with the default position under the common law. By contrast, the 2017 FIDIC Suite
confers upon the contractor a right to seek an extension of time in respect of neutral
delay events (Clause 19). The characterisation of an event as force majeure can form the
subject of heated contention. However, it must be noted that with the emergence of the

11 The International Federation of Consulting Engineers [FIDIC] 2017 Suite, Clauses 8.2 and 8.3; NEC4,
Clauses 30 and 31.

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covid-19 pandemic, new contracting parties are more cognisant of the reality of force majeure
events and may therefore seek to carefully address the risk allocation of this type of event
within their contracts.

Time-related disputes
Owner claim for liquidated delay damages
Construction contracts often include a liquidated damages clause as the principal (or exclu-
sive) remedy available to compensate an owner for a contractor’s failure to achieve timely
completion. This remedy levies from the contractor an agreed monetary sum that scales
per day or per week, subject to an agreed cap fixed at a percentage of the contract price
(often 10 per cent to 20 per cent). This sum represents a genuine pre-estimate of the losses
that an owner will suffer as a result of delayed completion, and is compensatory rather than
punitive in nature. The main rationale behind liquidated damages clauses is to avoid the
complex and costly task of proving losses resulting from delay individually in accordance
with general principles of contract recovery.
The categories of loss that may be compensable through a liquidated damages clause
include those listed in the immediately preceding section of this chapter. In a number of
recent landmark decisions, there has been judicial recognition of a broad range of losses,
both monetary and non-monetary in nature, that may be taken into account when calcu-
lating the rate of liquidated damages payable for delay. The concept of protectable ‘legitimate
interests’ was introduced by the UK Supreme Court in Cavendish.12 The approaches of the
Australian High Court in Paciocco13 and the New Zealand Supreme Court in 127 Hobson
Street Limited v. Honey Bees Preschool Ltd 14 were broadly consistent with this test of ‘legiti-
mate commercial interest’.15
However, claims for liquidated delay damages are subject to two key limitations; the
doctrine of penalties and the prevention principle.

The penalties doctrine

Under the common law, the doctrine of penalties dictates that where a liquidated damages
clause stipulates an amount wholly disproportionate to the value of the construction contract,
such that it takes the form of a payment in terrorem, courts will not enforce the clause.16
The test for what constitutes an in terrorem clause differs substantially in each common
law jurisdiction.17 The fundamental proposition of law is that a liquidated damages clause

12 Cavendish Square Holding BV v.Talal El Makdessi; ParkingEye Limited v. Beavis [2015] UKSC 67.
13 Paciocco & Anor v. Australia and New Zealand Banking Group Limited [2016] HCA 28 [Paciocco].
14 127 Hobson Street Limited v. Honey Bees Preschool Ltd [2020] NZSC 53.
15 Although, critically, Paciocco differed on the application of the penalties doctrine in equity to non-breaches
of contract. Paciocco followed the approach in Andrews v. Australia and New Zealand Banking Group Ltd [2012]
HCA 30, in which it was held that a breach of contract was not necessary to enliven the penalties doctrine,
diverging here from the English approach in Cavendish.
16 Clydebank Engineering and Shipbuilding Co v. Don Jose Ramos Yzquirdo y Castaneda [1905] AC 6; Dunlop
Pneumatic Tyre Co Ltd v. New Garage Motor Co Ltd [1915] AC 79.
17 For an in-depth consideration of the penalties doctrine across jurisdictions, see Doug Jones,‘Navigating
Penalties and Liquidated Damages across Common Law and Civil Law Jurisdictions’ (2019), at 36(4), in
The International Construction Law Review, 526.

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must be compensatory and not punitive. By contrast, in civil law jurisdictions, a liquidated
damages clause that is disproportionate to actual losses suffered is not struck out as void,
but rather civil courts will adjust the sum stipulated in the clause to accord with the actual
losses suffered. This position is perhaps less arbitrary, though it circumvents to some degree
the objective of liquidated damages clauses, being to avoid having to calculate actual losses.

The prevention principle

The prevention principle states that an owner will not be entitled to claim liquidated
damages against a contractor for a period of delay infected with delays that are the respon-
sibility of the owner. For instance, if a project falls 10 days behind schedule, seven of which
fall to causes that are the responsibility of the contractor and three to causes that are the
responsibility of the owner, the owner will lose altogether the right to claim liquidated
damages in respect of the full 10 days. The rationale behind this is that the owner can no
longer rely on the original date of completion and so there can be ‘no fixed date from
which the liquidated damages could run’.18 Any apportionment of this delay is inimical to
the common law prevention principle.The results of this principle may at times seem arbi-
trary and contrast with the approach taken by civil courts that apportion delay losses. The
severe consequences for an owner are further magnified if the parties’ agreement specifies
that liquidated damages are an exclusive remedy for delay, which may preclude a party from
claiming general damages in the alternative.19
This situation is frequently overcome by an owner by granting an ‘extension of time’
to the contractor in respect of periods of owner-caused delay. This extension must be
sourced within the contract documentation and will often involve a regime that requires a
contractor to give notice of owner-caused delays, often within specified time limits, which
are then assessed and granted or declined by the relevant umpire (either the project owner
or a site engineer). However, these extension of time provisions can create further issues
that may interfere with an owner’s right to claim liquidated damages.This particularly arises
when a contractor fails to comply with notice provisions that are a condition precedent
to the contractor’s extension of time claim. In situations of concurrent delay, authority has
been divided on whether the prevention principle will apply to prevent the owner from
claiming liquidated damages if the contractor has not complied with these notice require-
ments.20 In Australia, this has resulted in many contracts including provisions that allow
owners to unilaterally provide extensions of time, regardless of any compliance with notice
provisions by the contractor. In these circumstances, courts in Australia have held that when
such a unilateral extension of time clause exists, ‘there is an implied duty of good faith in

18 McAlpine Humberoak v. McDermott International (1992) 58 BLR 1, 21 (Lloyd LJ).

19 Baese Pty Ltd v. RA Bracken Building Pty Ltd (2989) 52 BLR 130, 139 (Giles J).
20 North Midland Building Ltd v. Cyden Homes Ltd [2018] EWCA Civ 1744; Multiplex Constructions (UK) Ltd
v. Honeywell Control Systems Ltd (No. 2) [2007] BLR 195; Gaymark Investments Pty Ltd v.Walter Construction
Group Ltd [1999] NTSC 143. For an in-depth consideration of these issues, see my article, Doug Jones,
‘Can Prevention Be Cured by Timebars’ (2009), International Construction Law Review, 57.

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exercising the discretion’ on the part of the owner.21 It therefore seems that in common law
jurisdictions where unilateral extension of time clauses are agreed, owners may be unable
to withhold extensions of time merely to invoke the operation of the prevention principle.
In civil law jurisdictions, there is no explicit equivalent of the prevention principle.
Instead civil courts rely on the principles of good faith and fair dealing to give effect to the
universal principle that one shall not benefit from their own wrongdoing.22 Some coun-
tries, such as China and South Korea, provide codified authority for courts to better appor-
tion any liquidated damages amounts between the loss caused by the owner’s preventing
conduct and the contractor’s delay.23 Others, such as Germany and France, provide
authority that a party will not be liable for non-performance or delay that has resulted
from an external cause not attributable to that party.24 Any failure to do so may disentitle
the contractor to an extension entirely or permit the contract administrator to reduce the
period of extension accordingly.25

Contractor’s claims for disruption

Disruption disputes are concerned with a contractor’s loss of productivity as a result of
some form of disturbance by the employer. These disputes will commonly centre around
the ‘uneconomic working’ of the contractor as a result of the employer’s conduct.26
A contractor will be entitled to claim damages only in respect of disruption caused by
the project owner.The right of claim may be defined by contract or, absent express contrac-
tual provisions, as a breach of an implied term of contract that the owner will not prevent
or hinder the contractor in the execution of its work.27 The Society of Construction Law’s
Delay and Disruption Protocol (the SCL Protocol) comments that ‘most standard forms
of contract do not expressly address recovery for disruption’;28 however, while limited in
number, there do exist standard form contracts setting out terms that oblige compensation
‘for specific events that could lead to disruption’.29
Contractors making disruption claims are required to demonstrate a connection
between the alleged disruptive event and the increased costs associated with their loss of
productivity or ‘uneconomic working’. This will generally require a comparison between
the tender schedule and delivery mechanisms, and the adapted schedule and mechanisms

21 Probuild Constructions (Aust) Pty Ltd v. DDI Group Pty Ltd [2017] NSWCA 151.
22 See Interfoto Library Ltd v. Stiletto Visual Programmes Ltd [1988] 1 All ER 348, 352 to 353 (Bingham LJ).
23 Contract Law of the People’s Republic of China (Adopted at the Second Session of the Ninth National
People’s Congress on 15 March 1999 and promulgated by Order No. 15 of the President of the People’s
Republic of China on 15 March 1999) Art. 114; Korean Civil Code Art. 398-2.
24 German Civil Code (BGB) s. 280(1); French Civil Code art. 1147.
25 Buildability Ltd v. O’Donnell Developments Ltd [2010] BLR 122; Ho Pak Kim realty Co Pte Ltd v. Revitech Pte Ltd
[2010] SGHC 106.
26 Baulderstone Hornibrook Pty Ltd v. Qantas Airways Ltd [2003] FCA 174, [100]; Kay Lim Construction & Trading
Pte Ltd v. Soon Douglas (Pte) Ltd [2012] SGHC 186, [72].
27 See Society of Construction Law, ‘Delay and Disruption Protocol’ (2nd ed, February 2017), at [18.3] to [18.4].
28 id., at [18.4].
29 id. See, e.g., NEC4, Clause 25.3.

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as a result of the disruption. There are a variety of methods by which disruption and
productivity costs can be calculated and the law is not prescriptive of any one method
over another.30
A common approach taken by contractors is the ‘measured mile’ approach, in which the
contractor will compare its rate of productivity in a part of the project that has not been
disrupted with the rate of productivity in the disrupted part of the project. Productivity in
this approach is measured by the number of hours taken to produce a unit of work. This
approach may be impracticable if a project has been disrupted from its inception, meaning
that there is no baseline productivity from which to measure the disruption. As an alterna-
tive, the tender will usually specify an expected level of productivity, and a loss of produc-
tivity is realised when the actual productivity rate is less than the planned productivity rate.
Claimants should also be wary that when selecting baseline periods of work that is not
disrupted to compare with disrupted work, there must be a reasonable degree of compara­
bility between the specific work and surrounding circumstances at both ends of the
project.31 The value of any comparison is otherwise substantially diminished. For example,
the laying of foundations that is free of disruption cannot be used a measurement for the
disrupted piping fabrication of a project.

Contractor’s claims for prolongation

Prolongation disputes involve contractor claims for costs associated with delay as a result of
owner-based action. They can comprise a broad range of overhead costs, opportunity costs
and additional direct costs incurred as a result of the delay. These are often determined by
reference to the tender schedule and, importantly, any express provisions contained in the
construction contract setting out terms of recovery of prolongation costs.
A contractor asserting a claim for prolongation costs will need to first prove the causa-
tion of delay and form of the prolongation. In arbitrations involving energy facilities, this
frequently requires the engagement of programming experts to analyse and identify the
delay (often through a schedules analysis approach), and then a quantum expert to particu-
larise the various cost items to substantiate the prolongation claim.
Cost items that are often claimed as prolongation costs include direct costs associated
with additional performance days, such as labour costs, utility expenses and security expense;
indirect home office overheads incurred by the contractor’s corporate management, job site
and engineering support personnel costs; idle equipment costs; and mitigation costs.32

30 See The Society of Construction Law, ‘Delay and Disruption Protocol’ (2nd ed, February 2017), at [18.12].
31 See Clark Concrete Contractors, Inc. v. General Services Administration, GSBCA 14340, 99–1, B.C.A. 30, 280,
1999 WL 143977 (1999), cited in Jeff Fuchs and Tong Zhao, ‘Disruption: Technical (Evaluation of Causation
and Quantification Methods’ in Kim Rosenberg, Erin Miller Rankin and Bryan Dayton (eds), Dealing with
Delay and Disruption (forthcoming, Sweet & Maxwell) 273, 287.
32 Wiley R Wright III and Mark Baker, ‘Damages in Construction Arbitrations’ in John A Trenor (ed), The Guide
to Damages in International Arbitration (Law Business Research, London, 2016).

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Suspension of work by contractor

Primacy is given to contract for matters concerning the suspension of work by a
contractor. The contractor’s right to suspend is generally tied to financial concerns, namely
non-payment or a failure by the owner to show evidence of its financial arrangements.33
A contractor has no common law right to suspend work.34 An exception occurs where
the non-payment may be characterised as repudiatory conduct or in breach of an essen-
tial term of the contract, in which case the contractor may accept the repudiation of the
contract and terminate.35
In the event of a dispute, there will often be allegations of ‘wrongful suspension’ and
claims for damages to compensate losses flowing therefrom. The liability that may follow
may be substantial and can include costs to complete (considered later in this chapter). A
contractual right to suspend work must therefore be exercised with caution.

Termination of contract and consequences

The right to terminate arises both contractually36 and at common law. In general, a party
may not unilaterally terminate without lawful reason. The main causes for termination
include repudiation, anticipated repudiation, serious breach, frustration, illegality, statutory
conferral of the right, or where contractually allowed.The burden of proving lawful termi-
nation lies on the party purporting to terminate the contract.37
The consequences of termination may be defined by the parties’ contract, but will
otherwise be subject to the common law principles described below.
When a contractor accepts termination at common law for the owner’s conduct,
for example by repudiation, non-payment or serious breach, there are three avenues of
recovery available: damages, quantum meruit and a debt action for amounts payable at the
time of termination. A contractor is entitled to recover losses flowing from termination
of the contract to put the contractor in the position it would be in had the contract been
performed, including reliance and expectation losses in accordance with general principles
of the recoverability of damages for breach of contract.
Alternatively, a contractor may seek to recover in quantum meruit, that is, on restitu-
tionary principles that a contractor is entitled to reasonable payment for work completed
to the point of termination.38 A quantum meruit claim, however, is subject to limitations

33 FIDIC Suite 2017, Clause 16.1.

34 Carillion Construction Ltd v. Felix (UK) Ltd [2001] BLR 1, [34]; Longyuan-Arrk (Macao) Pte Ltd v. Show and Tell
Productions Pte Ltd [2013] SGHC 160, [75].
35 Wui Fu Development Co Ltd v.Tak Yuen Construction Co Ltd [1999] HKCFI 93.
36 See FIDIC Suite 2017, Clause 15 (Termination by Employer) and Clause 16.2 (Termination by Contractor).
37 Urban I (Blonk Street) Ltd v. Ayres [2013] EWCA Civ 816, [55].
38 Heyman v. Darwins Ltd [1942] AC 356; Len Lichtnauer Developments Pty Ltd v. James Trowse Constructions Pty Ltd
[2005] QCA 214; Sopo v. Kane Constructions Pty Ltd (No. 2) [2009] VSCA 141, [5]; Mann v. Paterson [2019]
HCA 32.

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prescribed in the contractual agreement,39 relinquishes a contractor’s ability to claim loss of

profits on the remainder of work40 and requires the contractor to choose between making
a claim for damages or quantum meruit.41
When an owner accepts termination at common law for conduct of the contractor, it
is usually entitled to recover damages flowing from the termination. For example, if the
owner engages a new contractor to complete some work, the owner is generally able to
claim any increase in project costs associated with the new contractor against the defaulting
contractor by way of contractual rights, or first-limb damages under Hadley v. Baxendale.42
The owner is still under a duty to mitigate its losses. A contractual power to terminate will
usually dictate the rights of owners and contractors, or if a clause does not prescribe the
consequences of termination, claims for direct losses are usually implied into the contract.43
Insofar as liquidated damages, or second-limb Hadley v. Baxendale damages, are concerned,
an owner’s right to liquidated damages in general is valid until the point of termination.44
The parties may alter this right by agreement in the terms of the contract. On restitu-
tion grounds, and therefore separate to damages, an owner may be entitled to recover
over­payment to the contractor, provided the contractor has totally failed to deliver any
consideration for the overpayment.45 In Australia, however, the position is that the contract
price will generally operate as a ‘cap’ on the value, which can be recovered by a quantum
meruit claim.46
A contract may also be terminated on mutual terms, either by agreement or aban-
donment. If a contract is terminated by mutual agreement, the procedure for doing so is
dictated by the contractual terms; however, parties may need to evidence some form of
deed or consideration.47 If a contract is terminated by mutual abandonment, however, it
is necessary to show that one party has indicated it will not proceed with the contract (in
some cases, non-performance by both parties over a period is sufficient), with the consent
of the other.48
As the right to termination appears both in contract and in common law, it is critical
that the parties make clear which route of termination is being pursued. Although the broad
effect of termination under both routes will align, the legal consequences and procedures
that accompany the termination will invariably differ.

39 Mann v. Paterson [2019] HCA 32, [14]; Heyman v. Darwins Ltd [1942] AC 356.
40 As a quantum meruit claim acts as an alternative to a damages claim.
41 United Australia Ltd v. Barclays Bank Ltd [1941] AC 1, 29 to 30.
42 [1854] EWHC J70.
43 McNab NQ Pty Ltd v.Walkrete Pte Ltd [2013] QSC 128, [29].
44 Bluewater Energy services BV v. Mercon Steel Structures BV [2014] EWHC 2132 (TCC), [526].
45 DO Ferguson & Associates v. Sohl (1992) 62 BLR 95.
46 Mann v. Paterson [2019] HCA 32, [101], [205]. Nettle, Gordon and Edelman JJ refer to exceptional
circumstances in which it may be necessary or appropriate that the value of the work be determined without
reference to contract price, including when there is no expressly stipulated contract price: at [203].
47 Commodore Homes WA Pty Ltd v. Goldenland Australia Property Pty Ltd [2007] WASC 146 [32].
48 Eastgate Properties Pty Ltd v. J Hutchinson Pty Ltd [2005] QSC 196, [52]; Letizia Building Co Pty Ltd v. Redglow
Asset Pty Ltd [2013] WASC 171, [116].

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Relief for force majeure

A contractor may seek an extension of time on the grounds of force majeure under most
standard form contracts for major construction work.49 The term ‘force majeure’ is a label that
is used by contracting parties to refer to a supervening act or event beyond the control of
the parties, also referred to as an Act of God. However, this concept originates from French
civil law and is not a recognised doctrine in Australian or English law. In the common
law, it is a creature of contract and will be interpreted by the ordinary rules of contractual
interpretation. The elements for a successful claim for relief will typically include that an
event occurred that was unforeseeable and beyond the reasonable control of either party.
The threshold for a force majeure claim, however, will usually be lower than that required to
invoke the doctrine of frustration in common law. The party seeking relief will often be
required to comply with notice requirements and mitigate the effects of the neutral delay
events on the project.
Specific examples of force majeure events that may affect energy projects include sudden
shortages in the supply of labour or materials, labour strikes, weather conditions, economic
events and government actions. As mentioned earlier, a contractor’s entitlement to relief
for force majeure is founded solely in contract. The default allocation of neutral risks at
common law falls against the contractor.50 As previously mentioned, however, in light of
the covid-19 pandemic, later contracting parties are likely to be more wary of the risks of
force majeure events and should be careful to allocate risk expressly in the contract.

Cost
Cost-related risk
The need to complete work within budget is known as the cost risk. Projects for the
construction of energy facilities generally adopt a lump-sum fixed price contract structure,
which naturally places cost risk on the shoulders of the contractor. This fee will be based
on careful negotiation and cost assessment. Nonetheless, cost overruns will eat directly into
the contractor’s profit margin.
There are two categories of exceptions to this default position. The first comprises cost
overruns that the law mandates will not be borne by the contractor. These may include
costs overruns flowing from an owner’s acts of prevention or breach of contract.The second
category comprises cost overruns arising from neutral events for which the contractor is
not responsible according to the terms of the relevant contract. The parties are free during
the negotiation of the terms of the contract to allocate risk for neutral delays in whatever
manner they see fit.

49 See, e.g., JCT Design and Build Contract 2016, Clause 2.25.14; NEC4, Clauses 19, 60.1(19); FIDIC Red
Book 2017, Clauses 18.1 to 18.6.
50 See foundational case of Company of Proprietors of the Brecknock and Abergavenny Canal Navigation Co v. Pritchard
(1796) 6 TR 750.

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Additional costs incurred as a result of increases in the scope of work are dealt with
separately further below. Leaving scope changes aside, there are a multitude of issues that
can arise during the course of a project that result in inflated costs, some of which arise
from intentional conduct, others from factors that were completely unforeseeable. Explored
immediately below are some of the common claims and issues that arise in this context.

Cost-related disputes
General damages
General damages seek to restore an aggrieved contractual party to the position he or she
would have been in had the contract been properly performed.51 They are compensatory
in nature.
The seminal case of the modern understanding of general damages is the English High
Court case of Hadley v. Baxendale.52 So far as calculating damages is concerned, the Court
established what is today referred to as the ‘two limbs’ of damages; direct losses (those
that arise naturally out of the breach) and indirect losses (those that arise as a result of
breach and are said to be within the contemplation of both parties at the time of the
contract’s inception).
These foundational principles provide the basis for a range of claim types, including for
costs of disruption, acceleration or prolongation as well as costs to correct or complete the
work, or both. However, they are subject to the aggrieved party’s obligation to take reason-
able measures to mitigate its losses.53

Contractor’s global and total cost claims

A contractor who suffers cost overruns as a result of events that are the responsibility of the
owner may seek to recover these costs using the total cost method.54 This allows causation
of the various heads of loss to be proved collectively, when it would otherwise be imprac-
ticable to disentangle them.55 The principles of law governing total cost claims as espoused
by the courts are many.56 Four elements have emerged in Canadian jurisprudence:
• that the contractor’s tender was reasonable;
• that the actual cost is fair and reasonable;
• that the overruns resulted from changes or overruns; and
• the lack of another practical method available to quantify the damages.57

51 Robinson v. Harman (1848) 154 ER 363, 365; Clark v. Macourt [2013] HCA 56, [7]; Bunge SA v. Nidera BV
[2015] UKSC 43, [14]; MFM Restaurants Pte Ltd v. Fish & Co Restaurants Pte Ltd [2010] SGCA 36, [54] to [56].
52 [1854] EWHC J70.
53 Lagden v. O’Connor [2004] 1 AC 1067, 1077 to 1088.
54 For a detailed analysis of total cost claims, see Steven Stein and Yelena Archyan, ‘The Total Cost Method: Is it
Dead Yet? A Cross-Jurisdictional Comparative Analysis’ [2016], The International Construction Law Review, 430.
55 Golden Hill Ventures Ltd. v. Kemess Mines Inc. [2002] BCSC 1460.
56 Walter Lilly and Company Ltd v. Giles Patrick Cyril Mackay [2012] EWHC 1773 (TCC).
57 Eco-Zone Engineering Ltd v. Grand Falls-Windsor (Town) [2005] NLTD 197, [238].

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Formulations of the requirements in Australia,58 the United States59 and the United
Kingdom60 are broadly consistent with this position. In all these jurisdictions there is also
an extremely high threshold to be met before a total-cost claim will succeed.61 Accordingly,
it will be preferable in the majority of cases for a contractor to particularise and separately
prove its heads of loss.

Acceleration damages
Acceleration claims arise when a contractor has incurred additional costs for expediting
construction. A decision to accelerate may be made pursuant to the owner’s instruction or
as a commercial decision when the contractor has not been given an extension of time and
believes that the costs of acceleration will be less than the liquidated damages it must pay
for delayed completion. The question of whether the contractor is entitled to acceleration
costs is ultimately one of contract interpretation, and depends on whether the contractor
or the owner is responsible for the need to accelerate.
In general, acceleration costs are the total cost of performing the work in the ‘acceler-
ated’ manner, less the costs of performing the work at the rate specified in the contract. It
has been recognised that the specific costs that may be incurred by a contractor acceler-
ating construction may include premium pay, costs of additional tools, equipment, labour
and overtime.62 Therefore, it is critical that the contractor record all relevant costs incurred
during the ‘accelerated’ period, such as the cost of additional resources and the amount of
overtime worked.
There is currently no consensus among relevant consultants, contractors and employers
concerning how acceleration claims should be calculated. Possible methods include a
global-cost or total-cost approach, a time–impact methodology, and formulaic approaches
(as specified in the contract).63

Contractor’s claims for latent conditions

A range of neutral issues lead to cost overruns (and delay). A few include unforeseen
physical ground conditions that are common given the exotic locations where energy
facilities are often built. These are known as latent conditions.
The meaning of ‘latent condition’ and the availability of relief for the contractor will
differ between contracts. The time-risk and cost-risk associated with hidden ground
conditions will fall by default to the contractor, in the absence of contractual provisions

58 DM Drainage & Constructions Pty Ltd v. Karara Mining Ltd [2014] WASC 170, [99].
59 Baldi Bros Constructors v. United States, 50 Fed CL, 74 (2001).
60 Walter Lilly and Company Ltd v. Giles Patrick Cyril Mackay [2012] EWHC 1773 (TCC); William Clark
Partnership Ltd v. Dock St PCT Ltd [2015] EWHC 2923 (TCC).
61 See Mainteck Services Pty Ltd v. Stein Heurtey SA [2014] NSWCA 184, [191] to [192]; Neal & Co. v. U.S.,
36 Fed. Cl. 600 (1996), cited in John B Tieder Jr, ‘Total Cost and Modified Total Cost Claims in the United
States’ (Speech, DRBF 13th Annual International Conference & Training Workshop, 2 to 4 May 2013).
62 Overton Currie, ‘Avoiding, Managing and Winning Construction Disputes’ [1991], The International
Construction Law Review, 344, 369.
63 P R Davison, ‘Evaluating Contract Claims’, Oxford (Blackwell, 2008).

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stipulating otherwise.64 This is due to the assumption that a principal will select a contractor
on the basis of its expertise and, therefore, the contractor is better placed to assess the
ground conditions likely to be encountered. However, the allocation of risk for latent
defects under several standard forms, including the FIDIC Suite, is subject to an objective
test of whether the condition was reasonably foreseeable by an ‘experienced contractor’.65
This is a complex question for which a resolution may require the expertise of an arbiter
with an astute technical understanding.66

Limitation, exclusion and indemnity clauses

Limitation and exclusion of liability clauses are often featured in construction contracts
to protect a party from incurring excessive liability for delayed or defective performance.
A popular limitation or exclusion clause is one that limits or excludes the recoverability
of indirect or consequential losses.67 An aggrieved contractor may thereby be limited to
claiming direct losses.68 The characterisation of losses as ‘direct’ or ‘indirect’ will often be a
point of contention between disputing parties, and so astute contract drafters will often be
explicit in what type of loss is not recoverable, for example, by listing ‘loss of earnings’ as
an excluded or limited loss.
In a similar vein, construction contracts may also feature indemnity clauses that oblige
one party to reimburse another in circumstances in which the latter suffers losses arising
from a specific event, usually third-party actions. These indemnity clauses will often be
present in contracts between owner and contractor or in between a head contractor and
sub-contractors and, like limitation or exclusion clauses, assist with risk allocation in the
contract. For example, indemnity clauses may be used to indemnify the owner for claims
by third parties against the owner arising out of the contractor’s construction of the asset. It
follows that when designing indemnity clauses, it is crucial that the parties clearly stipulate
the scope and the extent of the indemnity that is intended.
Exclusion-of-liability and indemnity clauses will be given the ordinary meaning, but in
the event of ambiguity, will be interpreted contra proferentem.69

64 Thorn v. London Corporation (1876) 1 App Cas 120; Worksop Tarmacadam Co Ltd v. Hannaby (CA) (1995) 66 Con
LR 105; Thiess Services Pty Ltd v. Mirvac Queensland Pty Ltd (2006) 22 BCL 437.
65 For a detailed discussion of latent conditions, see Gordon Smith, ‘Latent Conditions and the Experienced
Contractor Test’ [2016], International Construction Law Review, 390.
66 UK cases on latent conditions include Obrascon Huate Lain SA v. Her Majesty’s Attorney General for Gibraltar
[2014] EWHC 1028 (TCC), and Van Oord UK Ltd and SICIM Roadbridge Ltd v. Allseas UK Ltd [2015]
EWHC 3074.
67 FIDIC Suite 2017, Clause 17.6.
68 Aquatec-Maxcon Pty Ltd v. Barwon Region Water Authority [2006] VSC 117 [103].
69 Elvanite Full Circle Ltd v. AMEC Earth & Environmental (UK) Ltd [2013] EWHC 1191 (TCC), [297];
Erect Scaffolding (Australia) Pty Ltd v. Sutton [2008] NSWCA 114, [87].

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Quality
Quality risk
A further fundamental risk in construction relates to defects in a contractor’s performance
or in the ultimate facility under construction. The risks associated with quality fall broadly
into two categories: (1) the risk that performance does not comply with express contractual
stipulations for materials and workmanship (commonly by reference to accepted industry
standards, for example the internationally recognised standards set by the International
Organization for Standardization); and (2) the risk that the ultimate facility is not fit for
purpose (i.e., suitable to meet targets and earn revenue upon completion). These involve
technical inquiries that are often within the purview of an independent project engineer.
Underlying these risks most commonly are issues in design, materials and work­manship.
More subtle factors that are also relevant to consider include the risk that a poorly conceived
delivery structure will cause challenges in delivering a compliant facility; as well as cultural
differences between the parties that can have an impact from the time of parties meeting
at the negotiating table, through to activities at the site and thereafter (such as language
barriers, business culture clashes, legal customs and heritage).
The adverse consequences of sub-quality construction of energy facilities are
wide-ranging. If defects lead to output falling short of production targets, this can result
in third-party liability on the part of the project owner to an offtake partner or financier.
When major projects for national infrastructure are involved, the risks can be magnified
and shortfalls in power or water supply may have repercussions for local industry and
communities. The owner may seek indemnities from the contractor, or otherwise pursue a
claim for damages against him or her in respect of third-party liabilities.

Quality-related disputes
Breach of contractual standards or ‘fitness for purpose’
If a contract includes a fitness-for-purpose obligation, the contractor must ensure that the
completed works will be fit for their intended purpose. In construction projects where the
contractor was also procured to undertake the design phase, this quality standard is usually
implied into the contract.70 To avoid ambiguity, best practice dictates that the owner should
specify expressly in clear terms the essential requirements for the ultimate project facility.
Some desired purposes are capable of definite assessment – examples being having a design
life of a certain number of years,71 or particular outputs from the construction of a power
plant. In other cases, however, the contract may require the project to have the capacity
to achieve certain results in a range of conditions. Determinations that materials or work-
manship breach specified contractual standards, on the other hand, entail a comparison
against a fixed baseline. This is a technical inquiry of fact in the first instance, but the issue
of remedies for breaches of building and design standards involves additional questions of
contract and law that are addressed below.

70 McKone v. Johnson [1966] 2 NSWR 471, 472 to 473; Jurong Towen Corp v. Sembcorp Engineers & Constructors
Pte Ltd [2009] SGHC 93, [7]. See FIDIC Suite 2017, Clause 4.1.
71 Although this has been interpreted as an approximate lifetime following MT Højgaard A/S v. E. On Climate &
Renewables UK Robin Rigg East Ltd [2015] EWCA Civ 407.

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A particular source of tension that may arise in this area is in the conflict between
design life and design standards where these two requirements are not strictly aligned (for
example, if the design life requirement obliges the contractor to go beyond the design
standards specifications).This is of pertinence in energy construction projects where design
requirements and specific purposes will often be stipulated. Indeed, a conflict between such
design specifications and design life provisions seemed to arise in MT Højgaard A/S v. E.ON
Climate & Renewables,72 wherein a specified design for the foundation of a wind turbine was
unable to fulfil (unbeknown to the contractor) a stipulated design life of 20 years. In that
case, it was held these requirements were not incompatible but additional. Nevertheless,
the interplay of design requirements and purpose obligations must be considered by parties
when allocating risk within the contract, bearing in mind that performance obligations will
often be prioritised in conflicts with design specification obligations.

Project engineer or contract administrator

The project engineer is frequently the neutral arbiter called upon to resolve disputes about
quality at the project site, armed with the power to issue certificates as to time, cost and
quality.The status of that certificate will be determined in the first instance by contract, but
also in accordance with applicable rules of law. Important aspects of the project engineer’s
role include the following:
• The duty of independence and impartiality. This manifests both in various standard
form contracts and at common law. It is a quintessential duty of a decision maker to
avoid conflicts of interest and associations that might give rise to bias or the appearance
of bias. A breach of these requirements can have the effect of invalidating certificates for
payments, certificates as to the achievement of milestones or certificates as to the quality
of work.
• Acting in accordance with procedural fairness, by affording due process and a right to
be heard to each party interested in the outcome of a decision. However, this right may
be curtailed or eliminated when the contract so provides.
• The potentially final and binding nature of certificates. The character of engineers’
certificates is a question of interpretation of the contract terms and, specifically, whether
the parties intended an engineer’s or administrator’s certification to be a final and
binding determination of quality of work (or other contractual milestone). If indeed
this is found to be the case, grounds for challenging the quality of work will depend
on a party’s ability to overturn the certificate on one of several narrow grounds of
appeal, which may include a manifest error, fraud, bad faith or gross negligence. Parties
may wish to specify in their contracts the grounds on which the certificate may be
revoked. When a final and binding certificate protects an engineer from challenge by
a contractor, the owner may still be entitled to claim damages against the engineer for
breach of contract or negligence for careless errors in the certification process.

72 MT Højgaard A/S v. E.ON Climate & Renewables [2017] UKSC 59. See also SSE Generation Ltd v. Hochtief
Solutions AG and Another (CSOH) [2016] CSOH 177 (CSIH); 125 OBS (Nominees 1) and Another v. Lend Lease
Construction (Europe) Ltd and Another (QBD (TCC)) [2017] EWHC 25 (TCC).

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The above three points provide fertile grounds for challenges to certificates as to the quality
of work.

Defects liability period

A common feature in construction contracts is a ‘defects liability/notification period’,73
within which an owner can direct a contractor to remedy any defects in the work brought
to the contractor’s attention. The contractor will need to comply with a properly made
request to avoid breaching the contract.
The right of an owner to have a contractor cure defects within this period is subject to
such notice requirements as may be specified in the contract, and to principles of waiver
and estoppel that may preclude an owner from directing the contractor to correct defects
to which the owner has previously, by words or conduct, acquiesced.

Latent defects
A latent defect, as the name suggests, is a hidden defect that could not have been discovered
at the time of the project’s handover with reasonable inspection. Such a defect may manifest
itself many years later and thus demonstrate an earlier breach of contract by the contractor.
A prominent example is combustible cladding, which caused the fire at Grenfell Tower in
London in 2017 and the Melbourne Lacrosse Building Fire in 2014.74 The key issue with
latent defects is that the defects liability period will most likely have concluded and so
the owner does not have a right to require the contractor to remedy the work under the
relevant contractual clause. The owner may pursue a claim for damages in tort or contract,
subject to potential time bars under statutes of limitations. However, some jurisdictions,
including Australia and the United Kingdom, do not recognise a common law duty of care
owed by builders to subsequent purchasers in pure economic loss cases, such as a claim for
the cost of rectifying the defect or for diminution in building value.75 In those circum-
stances, there may be statutory regulations that allocate liability.76

Overview of remedies for defective work

Subject to applicable terms of contract, the following remedies are available to an owner in
respect of defective construction services:
• Damages amounting to the cost of rectifying the defective work are the primary remedy
available to an owner. An important qualification of this remedy is that awarding damages
in the sum of rectification costs must not be unreasonable having regard to the cost
and benefit of undertaking the work. This inquiry into reasonableness involves a broad
discretion to take into account all relevant circumstances, but will require consideration
of whether the aggrieved party suffers real loss, and whether the cost of remedial work

73 See, e.g., FIDIC Suite 2017, Clause 11.

74 Matthew Bell, ‘“How is that Even Possible?” Raising Construction Regulation from the Ashes of Grenfell
Tower’ (2018), 35(3), The International Construction Law Review, 334.
75 Brookfield Multiplex Ltd v. Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; Woolcock Street
Investments Pty Ltd v. CDG Pty Ltd (2004) 216 CLR 515; Thomas & Anor v.Taylor Wimpey Developments Ltd
& Ors [2019] EWHC 1134 (Technology & Construction Court).
76 See, e.g., Building and Other Legislation (Cladding) Amendment Regulation 2018 (Qld).

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is disproportionately large compared to the cost of the original work.77 Importantly, it

requires an inquiry into ‘reasonableness in relation to the particular contract and not
at large’.78
• Specific performance, as a remedy reserved for the exceptional circumstances where
an award of damages would be inadequate (for example, when urgent repair work is
needed and the contractor is the only party capable of performing the work within the
required time).79
• Other categories of damages may be sought for losses and liabilities incurred as a result
of the contractor’s defective performance grounded in ordinary principles of recovery
for breach of contract. This may include delay claims and claims for additional costs, as
covered earlier in this chapter.

Also relevant are the laws of waiver and estoppel as they apply to potential acquiescence by
the owner to defects in the contractor’s work, by words or conduct.

Scope
Scope risk
The scope of work that the contractor is required to complete is generally conceived
prior to the bid phase of a project. At this stage, the task entails the selection of a procure-
ment methodology and the specification of core functions and performance criteria for
the end-use facility. In projects for the construction of energy facilities, this will gener-
ally require designation of a design and construct or turnkey methodology, identification
of the key features and layout, and specification of required output capacity (e.g., mega-
wattage generated by a power plant, or barrels produced by oil platforms and pipelines).
These criteria will then be formalised, in as much detail as the owner desires, in the final
contract documentation. In the FIDIC and ICC standard forms, these are known as the
‘employer’s requirements’.80
A risk trade-off occurs at this point: more detail in the employer’s requirements results
in less flexibility for the contractor in performance and therefore a greater risk of change
orders. The less detail in the employer’s requirements, the less likelihood of change orders
but the greater risk that the contractor in performing will produce an ultimate work that
does not quite fit the owner’s desired facility.81
To whom does the risk of changes in work scope fall? A perfunctory response might
be that the risk in a fixed-fee turnkey project lies entirely with the contractor to take
such steps as are necessary to complete the facility in a timely manner for the agreed sum.
That might be true in the hypothetical situation in which an employer perfectly defines

77 Scott Carver Pty Ltd v. SAS Trustee Corporations [2005] NSWCA 462, [46].
78 Ruxley Electronics Ltd v. Forsyth [1996] AC 344, per Lord Jauncey.
79 Taylor Woodrow Construction (Midlands) Ltd v. Charcon Structures Ltd (1982) 7 Con LR 1 (CA).
80 FIDIC Suites 2017, Clause 1.1.31.
81 For a discussion of the risk trade-off in defining the employer’s requirements, see Eric Eggink, ‘Correct
scoping of Employer’s Requirements: the Prevention of Change Orders?’ [2017], The International Construction
Law Review, 4.

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the scope of work in the technical documents. The position is complicated, however, if
there are inconsistencies, shortcomings or deficiencies in the designs or other specifications
provided by the owner, as is often the case.
These issues are addressed through risk-allocation provisions and contractual clauses
that facilitate ‘variations’ and ‘change orders’ where necessary. The risk of scope changes
arising from shortcomings in the technical information provided by the owner can be
allocated in one of three ways:
• strictly against the contractor, as occurs under the 2017 FIDIC Silver Book, which
requires the contractor to warrant that it has scrutinised the employer’s requirements
and is responsible for the accuracy of information in them (except for such information
as it is not possible for the contractor to verify) (Clause 5.1);
• strictly against the owner, who is held responsible for errors in design and data, there-
fore granting the contractor a right to added time and payment for the scope change
(as is the case under the JCT Design and Building Contract, Clause 2.1); or
• balanced so that a contractor may point out errors in the employer’s design and data and
will have a contractual mechanism to seek additional time and payment for additional
work (as is the case under the FIDIC Yellow Book, Clauses 5.1 and 13).82

Scope-related disputes
If an owner denies a proper claim by a contractor for additional time and payment for
out-of-scope work, an arbitrator may grant the following remedies in the context of a
later dispute:
• the contractor may claim sums for the cost of the work and an allowance for profit in
quantum meruit;83 and
• where the contract has an extension of time clause, the contractor will be granted
an extension in respect of the delay resulting from the out-of-scope work (thereby
reducing the contractor’s liability for delay-related damages); or
• where the contract does not have an extension of time clause, the variation may be
construed as an act of prevention by the owner that will disentitle it altogether from
claiming liquidated damages for delay (see earlier discussion regarding the operation of
the prevention principle).

The quantum of out-of-scope work and the amount of time required to complete such
work can be a source of contention in construction disputes. They often need to be
resolved with the assistance of evidence from experts in matters of quantum and construc-
tion scheduling. The pricing of additional out-of-scope work is generally done by refer-
ence to either the agreed rates for work used for tender pricing, or another schedule of
rates agreed between the parties for the work. Alternatively, the contractor may be entitled
to a ‘fair valuation’ of its costs ‘if reasonably and properly incurred’.84

82 A comprehensive work on variations to the scope of work is Michael Sergeant and Max Wieliczko,
Construction Contract Variations (Informa Law from Routledge, 2014).
83 See Miccon Hire Pty Ltd (in liquidation) v. Birla Mt Gordon Pty Ltd [2013] QSC 139, [32].
84 Weldon Plant Ltd v. Commission for the New Towns [2001] 1 All ER (Comm) 264, [15].

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Political, economic and social

Political, economic and social factors can have a financial impact on parties to energy
projects, owner and contractor alike. These factors are closely intertwined. Political deci-
sions are made based on economic and social considerations leading to legal changes.Three
manifestations of these risks that arise from time to time in energy projects, and are accord-
ingly considered, are:
• Risk 1 – changes in applicable laws: including changes in subsidies or tax arrangements,
local content requirements, local labour laws, tariffs and other terms of trade.
• Risk 2 – contractor price risk arising from changes in the market for supplies needed
for construction.
• Risk 3 – owner price risk arising from changes in the market price of the energy
commodity to be produced.

Recovery for losses flowing from these risks will only be possible if a contractual right of
recovery or contract price adjustment has been negotiated and agreed between the parties.
This requires a commercial decision by the parties: whether risk from political, economic
and social factors should be left to lie where it falls or be allocated between them.85
Turning to Risk 1, the parties’ interests are best served when the performance of the
project remains a viable and profitable endeavour for both. This ensures timely comple-
tion to the requisite standard. During the multiple years that a major project can run,
there is a substantial risk of adverse changes to local laws that may create an imbalance in
a contract.86 Often it will be the wish of the parties that such a risk not be left to chance.
The risk will be allocated so that a contractor will benefit from an increase in the contract
price to account for additional costs resulting from changes in applicable laws. In return, the
contractor will account for part of any windfall resulting from a beneficial change in the
law. Thus both parties’ interests are protected and the uncertainty associated with a change
of law is hedged. This same approach applies to risks of adverse changes in tax rates, tariffs
and subsidies.
This allocation can be achieved in two ways: through a general provision of risk transfer,
or a risk-specific clause.

85 The first and second of these risks arise from express policy decisions by the government of the jurisdiction
where the project is located. Accordingly, changes in policy that adversely affect project participants may be
the subject of an investor-state claim under an applicable investment treaty. As stated earlier, this chapter is not
concerned with the potential investor-state implications, but rather the significance of these issues between
contracting parties seeking to achieve an optimal allocation of risk between them.
86 For example, the recent decision of the Court of Justice of the European Union in Slovak Republic v.
Achmea BV, in which the Court held that the arbitration clause under a Netherlands-Slovakia bilateral
investment treaty, and implying that arbitrations under intra-EU bilateral investment treaties more generally,
were incompatible with EU law. This has led to concerns as to whether arbitral awards rendered under
the Energy Charter Treaty are also unenforceable: see J Robert Basedow, ‘The Achmea Judgment and the
Applicability of the Energy Charter Treaty in Intra-EU Investment Arbitration’ (2020) 23(1), Journal of
International Economic Law, 271.

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The first type is a general provision protecting against an adverse change in applicable
laws.87 This leaves open to potential dispute whether the change is a change of ‘applicable
law’, which will depend on the definition of ‘applicable law’. This often raises questions of
whether a change is a change of mere ‘policy’, a change in a private agreement between a
project party and a government agency, or a genuine change in the law. Another element
that can arise is whether the change in law was foreseeable and therefore expected by the
parties at the time the contract was negotiated and agreed.
The second type consists of specific provisions that protect against these risks. One
example is a change in local content requirements,88 which require international compa-
nies to use a minimum level of local labour (or otherwise no more than a maximum
percentage of foreign labour). This seeks to preserve local social standards and economies,
and achieve sustainability. Local content may be cheaper or more expensive than imported
labour.There are a multitude of other risks of legislative change that the parties may specifi-
cally wish to include in their allocation of risk.This avoids surprises at a later stage that may
jeopardise the financial viability of the project for one of the parties.
As to Risks 2 and 3, price risk will lie where it falls by default. Again, however, if the
parties wish to eliminate this element of uncertainty, they can hedge the risk through
contract drafting. Part of any windfall or loss to a party can be shifted to the other to
maintain a balanced final outcome in a multi-year project. The need for the parties to
manage this risk becomes more clearly pronounced in projects whose performance spans
many years. The volatility of market prices for materials, equipment and commodities, if
left unchecked, has the potential to throw the commercial terms of the negotiated contract
out of balance. There are a number of ways this can be addressed. A schedule of prices
may be set out in a contract with provision made for adjustments in the contract price for
movements in excess of a certain limit. Alternatively, a contract may make more general
provision for economic rebalancing of a contract at a later date.

Conclusion
As is clear, the issues that arise in construction arbitrations concerning energy facilities
consist of the same fundamental claims, contractual issues and legal principles as the broader
world of construction disputes.The energy industry brings with it additional complexity in
the form of international players and risks, economic and political forces at an international
level, and strict production-driven scheduling and performance. This chapter has sought to
provide a brief introduction to many of these issues and the associated commercial risks.

87 See, e.g., JCT Design and Build Contract 2016, Clause 2.26.12; NEC4 Option X2, Clause 17.2; FIDIC Red
Book 2017, Clause 18.6.
88 For a discussion of local content laws in Africa, see e.g., Ibironke T. Odumosu-Ayanu, ‘Foreign Direct
Investment Catalysts in West Africa: Interactions with Local Content Laws and Industry-Community
Agreements’ (2012) 35(1) North Carolina Central Law Review 65; Bartrand Montembault, ‘State Sovereignty
in International Projects Takes on a New Luster’ (2013) International Business Journal 288, 299 to 300.

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Offshore Vessel Construction Disputes

James Brown, William Cecil and Andreas Dracoulis1

It was not until the late 1970s that deep-water offshore oil and gas exploration became
significantly viable. The driver was the ever-increasing demand for oil and gas products,
which provided the opportunity to raise the capital necessary to design and then build the
incredibly complex floating assets needed to explore for, and then produce, oil and gas in
such hostile environments.
Today, it is not unusual for oil and gas drilling and production to be undertaken in
water to depths in excess of 10,000 feet. The units that undertake this work are incredibly
complex feats of engineering and may take up to three years to construct. Certainly at
the peak of the market, the most complex and technologically advanced units cost at least
US$1 billion to construct.
The offshore oil and gas industry today, however, requires more than merely the deploy-
ment of drilling units for its operation. The industry now requires a full range of vessels to
support it, including floating production storage offloading (FPSO), floating storage units
(FSUs), accommodation vessels (floatels), heavy-lift vessels, pipe-laying vessels and myriad
support vessels.
Perhaps unsurprisingly, it is the largest and most sophisticated commercial ship-
building yards that have moved into the construction of offshore oil and gas floating units.
Incentivised by the potentially lucrative nature of building these types of assets, in recent
years it has tended to be the shipyards of South Korea, China and Singapore that have been
the pre-eminent builders.
Being a development from commercial shipbuilding, the projects tend to be undertaken
on similar contractual terms and to incorporate aspects of both construction and sale of
goods contracts.

1 James Brown, William Cecil and Andreas Dracoulis are partners at Haynes and Boone CDG, LLP.

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Since the last edition of this guide, the market for the construction of these units has
remained significantly depressed.The days when oil traded at more than US$100 per barrel
and when the market for the employment of drilling rigs, for example, was such that daily
charter rates could be in excess of US$600,000 for semi-submersible rigs are now well in
the past. With oil trading at around US$40 per barrel at the time of writing, and with the
immense uncertainty as to future demand created by the continuing covid-19 pandemic,
the appetite for the construction of these types of units pursuant to newbuilding contracts
remains extremely limited.
Recent years, however, have continued to be characterised by the continued pursuit
of proceedings (usually arbitration) in respect of a wave of disputes arising from ongoing
projects for the construction of these types of vessels (typically, in respect of orders placed
before the oil price collapse for units nearing their delivery date). As detailed below, the
trend has been one of buyers seeking to exit their contracts lawfully because they expect
significantly reduced cash-generating potential in light of the significant fall in day rates in
recent years coupled with the chronic oversupply of offshore units in the market.
This chapter provides an overview as to why arbitration is the typical method of dispute
resolution relating to newbuilding projects, and the types of disputes that commonly arise
and how they are usually resolved, and it considers some common strategies for their
successful resolution by arbitration.

Why parties choose to arbitrate

Ease of enforcement
That disputes should be resolved by way of arbitration2 is usually a simple choice for
the parties.
With the builder and the buyer of the unit usually in separate countries, and agreeing
for their disputes to be resolved in the forum of a neutral third country, the ease of
enforcing a legal determination made in one country against the assets of the other party
in another will be at the forefront of the parties’ minds when negotiating their contract.
Arbitration will therefore usually be the preferred method of dispute resolution, given
the simplicity with which awards can be enforced between contracting states to the
UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958
(the New York Convention).

Confidentiality
A belief that arbitration provides for a confidential method of dispute resolution is usually
a further important factor in the parties’ decision to choose it. This is particularly relevant
when the matters in dispute are commercially sensitive, which is often the case in the
context of offshore construction disputes.
As a matter of English law, an English court will uphold the implied duty on the
parties to treat the arbitration as confidential, unless there are valid reasons not to, for
example, because disclosure is in the interests of justice. However, parties will often wish

2 The contract may sometimes specify, however, for preliminary steps of alternative dispute resolution, for
example, meetings of senior managers or mediation before arbitration.

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to make express provision for the extent to which the process is to be confidential, and
the circumstances in which the outcome of an arbitral process may be disclosed to others
(e.g., providing for the outcome of the proceedings to be disclosed to the parties’ bankers
or auditors).
Parties should recognise the limits on the confidentiality of the arbitral process. Failure
to adhere to the terms of an award will usually permit the other party to have the award
recognised as a court judgment, which will be a public document.

Ability to choose the members of the tribunal and the procedure

Specifying arbitration will also usually allow the parties to provide for the qualifications and
characteristics of the person or persons who will determine their disputes, and the manner
in which they will do so. We consider these issues below as part of our discussion of the
terms promulgated by the London Maritime Arbitrators Association (LMAA).
London arbitration (under the LMAA Terms) is the jurisdiction of choice, and English
law is often the governing law of choice for these types of disputes for a number of reasons,
best summarised as follows.
First, London is historically the pre-eminent forum for international maritime
(including shipbuilding) disputes and it has more recently developed a strong reputation
in international construction disputes. This is in no small part a result of the advent of the
Arbitration Act 1996, which provides an effective framework for the conduct of inter­
national arbitrations with limited scope for court interference. Second, there is a substantial
and very well advanced body of English contract law, much of which has developed in the
context of maritime and construction disputes, so English law is well suited to governing
these types of projects. Third, London has a number of specialist legal practitioners in the
field of shipbuilding. Finally, and perhaps of most significance to international parties with
acute concerns about the neutrality of the chosen jurisdiction, London arbitrators (and the
English courts) are held in high regard for their impartiality and integrity.

Arbitrating under the LMAA Terms

Although the LMAA is the most popular arbitration body for the determination of offshore
vessel construction disputes, it does not administer or supervise the conduct of its arbitra-
tions or provide institutional help in the traditional sense. Instead it provides a set of rules,
referred to as Terms, that the parties agree will govern any arbitration proceedings. LMAA
arbitrations are, therefore, not dissimilar to ad hoc arbitrations.
The current LMAA Terms are applicable to arbitrations commenced on or after
1 May 2017.3 However, they are very much a minor refinement of those previously in
place and provide, to use the LMAA’s own language,4 for a ‘light’ touch approach covering
key aspects of the arbitration but leaving considerable scope for the parties to adopt
procedures to suit the case.To some extent, the LMAA Terms do not add a great deal to the

3 For present purposes, the focus is purely on the main body of the LMAA Terms. Although the London
Maritime Arbitrators Association also has intermediate and small claims procedures, these are unlikely to ever
apply in an offshore vessel construction dispute.
4 Refer to the LMAA’s Explanatory Note (dated 1 February 2017) to the LMAA Terms 2017.

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structure already in place under the Arbitration Act 1996, but they do provide a tried and
tested framework for the resolution of disputes relating to shipbuilding (including offshore
vessel construction).
Therefore, procedures that require the input of the arbitration body (for example, emer-
gency arbitrator provisions as found in the rules of many of the major arbitral institu-
tions5 or the procedure for the scrutiny of awards as found in the International Chamber
of Commerce’s Arbitration Rules (the ICC Rules)) are absent from the LMAA Terms
precisely because they are not appropriate for the ad hoc style of the LMAA environment.

Establishment of the tribunal

The LMAA Terms provide for a simple mechanism for the establishment of the tribunal.
The default position is for a tribunal of three arbitrators, with each party choosing one
arbitrator at the outset of the arbitration and the two party-appointed arbitrators choosing
a chairperson. In practice, it is very often the case in LMAA arbitration that the preliminary
stages – up to, and occasionally beyond, any procedural hearings following the exchange
of initial written submissions – are conducted by the party-appointed arbitrators alone.
Provided that the two arbitrators can agree, the parties and their counsel are generally
content with this approach and it reflects the flexibility inherent in LMAA arbitrations.
This can be contrasted with the rules of some of the institutional arbitral bodies whereby
the parties, and their appointed arbitrators, have less autonomy.6
Although LMAA members are capable of hearing a broad range of disputes, including
offshore shipbuilding disputes, unless the parties agree otherwise in the arbitration clause
(which is rare in offshore construction projects), the LMAA Terms themselves place no
restrictions on the parties’ choices of arbitrator. Hence the expertise of the LMAA members
is supplemented by a number of senior English lawyers (including retired judges) with
significant experience of, and expertise in, arbitrating disputes in the offshore construction
sector and who are available for appointment as arbitrator whether or not they are members
of the LMAA. It is common, therefore, to find tribunals made up of at least two senior
English lawyers, with the third member sometimes having a technical industry background
depending on the nature of the dispute.That those involved in offshore vessel construction
arbitrations are comfortable with this position is a reflection of both the sophistication of
the parties and the reputation of English law and London arbitration.

Procedure
Following the constitution of the tribunal, the procedure in LMAA arbitrations tends
to follow that adopted in the English courts, with the exchange of written submissions
followed by disclosure and thereafter factual and expert evidence. Parties are not bound to a
particular approach and the procedural steps (such as disclosure and the provision of expert
evidence) can be tailored to the particular characteristics of the dispute. Furthermore, and
particularly in the context of the construction of a complex offshore vessel, which must

5 See, for example, LCIA Rules, 2014 edition (at Article 9B) and ICC Rules, 2017 edition (at Article 29).
6 See, for example, the LCIA Rules pursuant to which all appointments are made by the London Court of
International Arbitration.

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adhere in operation to stringent regulatory requirements, it is not unusual for parties to fall
into dispute (during the course of the project) about how the vessel is being constructed
in a specific respect. Resolving these issues at the time could be critical, depending on
the nature of the dispute and the extent to which adjustments to the construction of the
unit can be made at a later time. In this event, the parties are often assisted by the use of
an expedited procedure that, although not formally provided for in the LMAA Terms, can
be raised with the tribunal at the outset of the arbitration as soon as the party-appointed
arbitrators are chosen and, therefore, before any steps are taken.
In our experience, LMAA tribunals are always alive, and responsive, to the procedural
needs of the parties, a characteristic that has been highlighted during the covid-19 pandemic.
We have been involved in a number of LMAA arbitrations for which the hearings have
had to proceed on a remote or virtual basis, including one rig construction dispute that
was adjourned part heard at the outset of the pandemic but which was rescheduled on a
remote basis within weeks thereafter. The LMAA has also published guidelines for remote
hearings, which it rightly anticipates will be of assistance even after the effects of the
pandemic are behind us, given that parties and tribunals alike are now very much alive to
the potential benefits.

Related proceedings
Although the LMAA Terms set out no formal provisions for the consolidation of arbitra-
tions, this is rarely a consideration. In part because most offshore construction contracts
significantly restrict the post-delivery liability of the builder (as discussed below), and with
the possible exception of guarantee agreements (see below), invariably the only relevant
protagonists are the builder and its buyer. The LMAA Terms, however, expressly permit
the tribunal to deal with two or more arbitrations raising common issues of fact or law
concurrently (i.e., the proceedings are still separate), which can be helpful in offshore vessel
construction disputes in which sister units are under construction at the same shipyard.
Guarantee agreements between the buyer and the builder’s bank, providing for pre-paid
delivery instalments to be refunded in the event of cancellation of the shipbuilding contract
by the buyer, are often made subject to English law and English court jurisdiction. In
normal circumstances, this is of no consequence because these guarantees will not respond
until the arbitration between the buyer and the builder is concluded. In the event of related
guarantee proceedings taking place in the English courts at the same time as the underlying
arbitration, although this could lead to the risk of conflicting decisions, there may be scope
to stay the court proceedings pending the outcome of the arbitration.

The award
The LMAA Terms provide that the award should be available within six weeks. Although
this is rarely realistic in the case of a substantial rig delivery dispute, in our experience
LMAA arbitration tribunals are diligent in the production of their awards, and in all but the
most complex cases the award can be expected approximately three months following the
conclusion of the hearing.The pedigree of the tribunals appointed in these arbitrations also
maintains a high standard of awards, such that practitioners and parties involved in these
disputes have not sought to lobby for the introduction of a scrutiny process similar to that
found in the ICC Rules.

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Types of disputes arising from these projects

Disputes relating to offshore vessel construction projects can be divided broadly into two
groups: those relating to events before the vessel is delivered, and those relating to events
after delivery.
Dealing first with pre-delivery disputes, the type of dispute that is likely to arise is often
determined by the state of the market. The period between when the contract is signed
and the contractual date of delivery of the vessel is often in the region of two and a half to
three years. As has been only too clear in recent years, the state of the offshore market can
change dramatically during this amount of time. This will affect the market value of the
vessel at delivery and, therefore, whether the buyer is paying more or less than the current
market value.The state of the offshore market at delivery may also affect whether the buyer
has a drilling contract for the vessel after delivery.
These two factors may significantly cool the buyer’s enthusiasm for taking delivery of
the vessel. Further, as the financing for the delivery instalment of the contract price in the
construction contract is often secured against the income stream from the drilling contract
after delivery, the absence of a drilling contract may mean that the buyer is unable to pay
the delivery instalment, particularly if the contract price is significantly in excess of the then
market price of the vessel.

Likely pre-delivery disputes in a falling offshore market

So in a poor offshore market, the buyer may well be looking for a reason to cancel the
contract, rather than take delivery.
Normally, the construction contract will provide for a contractual delivery date. If
the builder does not deliver the vessel by that date, the builder will become liable, after a
few days of grace, for liquidated damages for delay. If the delay in delivery continues for
a specified period through the fault of the builder, normally between 180 and 210 days
(the cancelling date for builder delay), the buyer may cancel the construction contract and
obtain a refund of the pre-delivery instalments of the contract price, plus interest.
The buyer may also be entitled to claim damages for its losses, although these are
normally excluded under the terms of the contract.
Even without a claim for damages, however, in circumstances where the market value
of the vessel is substantially less than the contract price, a full refund of the pre-delivery
instalments plus interest will be an attractive option for the buyer.
In addition, if the total delay, including certain types of permissible delay such as force
majeure, exceeds a specified period (the drop-dead date), the buyer will normally have an
additional contractual right to cancel the contract.
The buyer’s remedy for cancellation on the drop-dead date is normally the same as
cancellation on the cancelling date for builder delay; namely, the buyer obtains a refund
of the pre-delivery instalments of the contract price, although the buyer normally only
receives interest at a lower rate, or even no interest at all.
The key issue in these cancellation disputes is generally whether the builder is entitled
to an extension of time, and therefore whether the relevant cancellation date had arisen
when the buyer purported to cancel.

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If the cancelling date had not yet arisen, then the purported cancellation by the buyer
is likely to be a repudiatory breach of contract, entitling the builder to accept that cancel-
lation as bringing the contract to an end, and to claim damages.
The circumstances under which the builder is entitled to an extension of time will vary,
depending on the terms of the contract and which cancellation right has been exercised
by the buyer. It is likely, though, that variations ordered by the buyer, or other delays for
which the buyer is responsible, will entitle the builder, in theory, to an extension of time.
Bearing in mind that these are highly complex construction projects spanning a number
of years, these disputes also can be complex and time-consuming, particularly if the builder
is adopting the approach of claiming every conceivable potential extension of time and
hoping that at least some of these claims will be upheld.
These types of disputes are likely to involve a substantial amount of factual evidence as
to the causes of the potential delay.They are also likely to require technical expert evidence
on, for example, whether the claimed causes of delay were the responsibility of the buyer, or
simply part of the builder’s scope of work in developing the design to produce a vessel that
complies with the contract. There is also likely to be expert evidence from delay experts
on whether the alleged causes of delay were on the critical path and, therefore, did result in
overall delay to the delivery of the vessel.
The complexity of the arbitration will be increased substantially if the builder purported
to tender the vessel for delivery before the buyer served its cancellation notice.
In offshore construction contracts, one of the most difficult issues is to determine
precisely when the vessel is in a deliverable condition and, therefore, can be tendered for
delivery by the builder. Normally, the contract does not require every minor defect in the
vessel to be rectified before delivery. This is because a delay in delivery of the vessel can
have significant financial consequences for the builder, not only as a result of its liability to
pay liquidated damages for delay under the contract, but also because of the delay to the
payment of the delivery instalment by the buyer. So the contract normally specifies that
the vessel can be delivered with minor defects, provided they do not affect the safety or
operability of the vessel and are remedied by the builder as soon as possible after delivery.
If the builder has purported to tender the vessel for delivery before the buyer tries to
cancel, then in addition to arguments as to whether the builder was entitled to an extension
of time, and therefore the buyer cancelled too early, there will also be an argument whether
the vessel was in a deliverable condition when tendered for delivery.
The deliverability issue will involve factual evidence as to the existence of the defects, as
well as expert evidence on the consequences of any such defects. Again, if the buyer adopts
a scattergun approach as to which defect or defects prevented the vessel from being in a
deliverable condition, this can greatly increase the time and cost involved in the arbitration.

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Likely pre-delivery disputes in a rising offshore market

In a rising market, it is very unlikely that a buyer will want to cancel a contract. In these
circumstances, it is often the case that the offshore construction market will also be over-
heating and the builder will have experienced significant cost overruns and delays. The
builder may therefore attempt to claim extensions of time to avoid liability for liquidated
damages for delay, or to claim an entitlement to additional payment in respect of alleged
variations to the work or for implementing measures to accelerate the project. These
disputes are generally less substantial than cancellation disputes.
This assumes, however, that the construction contract has limited the buyer’s claims for
damages for delay in delivery to a fixed amount of daily liquidated damages. In a rising
market, these are unlikely to compensate the buyer fully for its real losses flowing from
the delay in delivery, particularly if the buyer is not only losing out on revenue from the
vessel, but is also itself subject to liquidated damages for delay payable to its client under the
drilling contract. If the exclusion provisions in the contract are not watertight, the buyer
may well seek to bring a very significant claim for damages for delay.

Post-delivery warranty disputes

Given the complexity of construction projects for offshore vessels, it is inevitable that these
vessels will often not be built to the contractually required standards.Therefore, irrespective
of the oil price at any one time, disputes will arise after delivery in respect of perceived
construction defects.
Given the enormous revenue-earning capacity of these units, the financial conse-
quences for a buyer of a post-delivery defect may be severe. The buyer will wish to pass on
to the builder as much of its losses as possible. The builder, however, is invariably unwilling
to assume the full risk of the buyer’s losses.
The parties’ competing interests will typically be reconciled within the ‘warranty of
quality’ provision that can be found in almost all such construction contracts, and which
generally adopt a standard approach.

The warranty period

A warranty period will usually be provided for (often 12 months), typically running from
the date the unit is delivered to the buyer, during which, if a defect materialises, the builder’s
warranty obligations will be invoked.
The contract will specify what parts of the unit the builder warrants against defects
during the warranty period – typically the vessel and all parts, and the machinery and
equipment designed, manufactured or furnished by the builder.
The warranty will usually provide that these will be free of defects resulting from causes
such as defective materials, miscalculation, poor workmanship or failure to construct in
conformity with the contract, as well as specifying the types of defects that are not covered.
These may include defects arising from ‘perils of the sea, rivers or navigation’, normal wear
and tear, improper operation, or any alteration or addition by the buyer not previously
approved by the builder.
A great many arbitrations involve determining whether a defect falls within the
warranty provisions.

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Nature of the buyer’s and the builder’s obligations

The warranty provision will usually require the buyer to make prompt notification when a
defect is discovered. Depending on the clarity of the drafting, failure to do so may give rise
to a dispute about whether this sounds only in a claim for damages by the builder (i.e., in
the event that it has increased the builder’s ultimate cost of repair) or whether the buyer’s
right to a repair is lost.
There will usually be a longstop date (often a specified number of days beyond the end
of the warranty period) by which the occurrence of a defect must be notified. Failure to
do so will usually expressly absolve the builder of any responsibility. Given the contractual
significance of serving a valid defect notice, there are frequently disputes as to whether
the buyer served a valid notice in time and in compliance with all the requirements of
the contract.
Assuming that proper notice has been given, the builder’s primary obligation will
usually be to remedy at its shipyard and at its expense, whether by repair or replacement,
any defect against which the vessel is under warranty.
As it is very likely to be impractical for the vessel to return to the builder’s shipyard, the
contract will almost always entitle the buyer to have repairs undertaken elsewhere, subject
to the builder’s right to inspect the defect prior to repair. The builder will be obliged to
reimburse the buyer’s costs of carrying out the repair (or to pay some other measure of
reimbursement, such as the costs that would have been incurred if the work had been
undertaken at the builder’s yard).

Extent of the builder’s liability

The warranty provisions will typically seek to limit the entitlement of a buyer to recover
compensation in respect of losses suffered and costs incurred as a result of defects.
A critical issue is often whether the warranty provision should be construed as a
‘complete code’ of the parties’ obligations for post-delivery defects (i.e., setting out the
entire extent of the builder’s obligations (and buyer’s rights) with all obligations otherwise
arising excluded) or whether it is intended to provide additional rights to those arising
under common law for defects in the vessel.
As post-delivery defects may often result in significant financial consequences for a
buyer, the builder will wish to provide for the warranty provisions in the construction
contract to stand as a complete code of the parties’ rights and obligations, and to curtail any
entitlement of the buyer to recover financial losses resulting from post-delivery defects.The
builder will want to confine the buyer’s rights solely to rectification of the defect (whether
at the builder’s shipyard or elsewhere) but with no other compensation being payable.
Having positively defined its obligations in respect of defects, a builder will normally
seek to provide that all the buyer’s other rights, whether under the contract or other-
wise, will be excluded and that the buyer’s rights will be confined to those set out in the
warranty provision. The builder will wish, in particular, to ensure that any liability arising
by law as to the quality of the unit, in particular under the UK’s Sale of Goods Act 1979,
is excluded. Further, the builder will typically then seek to ensure that all other financial
consequences resulting from defects are accounted for by the buyer.

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In light of the frequent significant disparity between the cost of repairing a defect and a
buyer’s overall losses resulting from a defect, disputes often arise as to whether the builder’s
liability for the buyer’s losses over and above the cost of repairing the defect have been
effectively excluded.

Strategies for success in the arbitration of disputes

Only foolhardy practitioners would believe that they alone are able to determine the
outcome of an arbitral process. Rather, myriad decisions and factors will affect the outcome
of any arbitration. The experienced and pragmatic practitioner will recognise this and,
while ensuring that the client is always reminded of the risk inherent in the arbitral process,
will seek to minimise that risk as far as possible by the adoption of sensible strategies and
practices for the resolution by arbitration of the highly complex disputes that commonly
arise from these types of projects.
It is beyond the limits of this chapter to provide a full analysis of how best these
disputes may be resolved by way of arbitration.We highlight below some of the key ways in
which a party may be able to maximise its prospects of success in a complex offshore unit
construction-related arbitration.
In our experience, a primary strategic objective, whether pursuing or defending a claim,
is to identify as early as possible what will be the narrative of the case to be advanced on
behalf of the party in question. Doing so allows for effort and resources to be focused on
the pursuit of the party’s case through to the conclusion of the proceedings.
A number of steps can be taken to achieve this objective.
For example, a key early step in any arbitral process is to ensure that all potentially
relevant documents are gathered and collated as soon as possible. Any document destruc-
tion policies should be promptly suspended and a full and considered analysis undertaken
as to the location and nature of documents that may be held by the party relating to the
dispute. In an age of electronic documents, which has hugely increased the burden of
undertaking disclosure, the key is to ensure that all relevant material is captured. Failing
to do so will lead to failures to disclose relevant documentation and perhaps, in the worst
possible outcome, to an inability to do so if the material is subsequently lost or destroyed.
The resulting effect on a party’s credibility in the eyes of the tribunal may be sufficient to
turn the outcome of the arbitral process.
Care should be taken early to identify a party’s key factual witnesses, who should be
briefed on what is required of them, with resources being committed early to working
with the witnesses to ascertain and record the relevant facts. A case will often be won
or lost based on the performance of a party’s factual witnesses in cross-examination. It
is therefore always a sound investment of time and money to ensure that witnesses are
advised about the level of detail that they will be required to provide in their witness
evidence and the extent to which, ideally, they will need to substantiate their evidence with
contemporaneous documentation.
Similarly, early identification of the relevant expert issues that are at the core of the
dispute, and then the prompt and careful identification and appointment of appropriate
experts, can significantly enhance the prospects of success in arbitration. Further, the early
involvement of an expert allows for the prospect of it being determined earlier in the
process that the case is likely to turn on matters of expert evidence rather than the factual

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evidence. If so, the experts may be able to provide guidance as to the nature of the factual
evidence that is required, and so avoid a more extensive and costly process of gathering
factual evidence. The early appointment of experts may similarly allow for a ‘sense check’
to be performed in respect of the factual evidence provided by the witnesses and can be
a check against partisan factual witnesses, who would be susceptible to being discredited
during cross-examination at the final hearing.
In arbitrations as complex as those that often arise in these substantial construction
projects, organisation and the early determination of a party’s case will often be key. This
will also tend to be effective in giving rise to the possibility of exploring an early settlement
that would avoid the substantial costs involved in a full and final arbitral hearing.

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Disputes Involving Regulated Utilities

Gordon E Kaiser1

The oil and gas industry can be divided into two main segments: upstream and downstream.
Most of the writing about energy arbitration relates to the upstream, as that is where the
exploration and development takes place. This sector is dominated by governments that
control the rights to the assets in the ground, and the multinational oil companies that
extract the oil and move it to market. This is the world of investor-state arbitration.
The attention the segment receives is not surprising. Investor-state arbitrations are the
product of the rapid growth of treaties designed to protect the interests of investors – multi­
lateral treaties such as the Energy Charter Treaty and approved by the North American
Free Trade Agreement (NAFTA) – but also a wide array of bilateral treaties between
specific countries.
However, for every one of the investor-state cases, there are 10 significant commercial
arbitrations in the downstream energy sector. Here, the centre of gravity is not London,
Stockholm or Paris, but Houston or Calgary. More than 90 energy companies have head
offices in Calgary – and Houston has three times that number.
These are arbitrations between companies – commercial arbitrations but not necessarily
domestic arbitrations. They are often cross-border, involving US or Canadian companies
and foreign suppliers of technology.
This is a world that concerns the generation of electricity that moves constantly across
state, provincial and international boundaries. These generation facilities exist throughout
the world. Each generator needs a transmitter to transmit that electricity to various markets,
and within those markets, other companies distribute the electricity to the end user. Those
three classes of parties – generators, transmitters and distributors – are all public utilities.
Public utilities are regulated by the government, usually by an independent regulatory
commission. Within North America, that commission can be provincial, state or federal.

1 Gordon E Kaiser is an arbitrator practising at Energy Arbitration Chambers, Toronto and Washington, DC.

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These public utilities can be privately owned or government-owned. All are regulated,
regardless of ownership.That regulation includes the rates charged to customers, the quality
of service and investment in new assets. In addition there are regulatory rules preventing
market manipulation.2
The utility business also involves thousands of contracts with third parties for the
construction and operation of generating facilities, pipeline and transmission assets, as well
as the sale of electricity and gas. Many of those contracts have arbitration provisions. Often
disputes involving regulated utilities present special problems for arbitrators. There can be
conflicts in jurisdiction and parallel proceedings.
In the United States and Canada, the courts grant deference to arbitrators. Similarly,
in both countries, courts grant deference to regulators, particularly regulators involved in
regulating complex industries with substantial national importance.This deference includes
interpretation of the regulators’ home statute. That leaves potential conflicts between regu-
lators and arbitrators. Many regulated public utilities have arbitration clauses in contracts.
The interesting question, and the subject of this chapter, is whether disputes involving
regulated utilities present special problems for arbitrators. They do. There can be conflicts
in jurisdiction and parallel proceedings.

The regulatory principles

In North America, there is a long history of regulation of public utilities. It began with
railways, although it can be traced to common law restrictions defining canal operators as
common carriers. In 1917, the Supreme Court of the United States first described one of
the fundamental obligations of a public utility – the duty to serve – as follows:

Corporations which devote their property use may not pick and choose, serving only the portions
of the territory covered by their franchises which it is presently profitable for them to serve and
restricting the development of the remaining portions by leaving their inhabitants in discomfort
without the service which they alone can render.3

Certain rights and obligations soon became fundamental. They include the duty to serve,
the requirement to set rates that are just and reasonable and a requirement not to discrimi-
nate unjustly between customers. In the beginning, the courts set the rules, but this quickly
fell under the jurisdiction of independent regulators appointed by the government. They
included state regulators in the United States, provincial regulators in Canada and federal
regulators in both countries.
Not surprisingly, the statutes and the judicial decisions interpreting those statutes
are remarkably similar throughout North America. The decisions started in the railway
industry, moved to telegraph and telecommunications and then ultimately to energy. The
basic principles of energy regulation in terms of the fundamental obligations and rights of
a public utility are set out below.

2 See The Guide to Regulating Energy Manipulation (Gordon E Kaiser ed., Law Business Research, 2018).
3 New York & Queens Gas Co. v. McCall, 245 U.S. 345, 351 (1917).

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With changing technology and the growing economic importance of this sector, energy
regulators have been given broad power by governments with wide-ranging policy objec-
tives. These include promotion of conservation, energy efficiency and renewable energy.
The traditional obligations of a public utility flow from a combination of case law and
statutory provisions. A public utility must:
• set prices that are just and reasonable;4
• not discriminate unjustly between customers;5
• not set rates retroactively;6
• not refuse to serve a customer;7
• offer safe and reliable service;8
• offer access to essential facilities;9 and
• not contract for rates different from the tariff rate.10

A public utility has certain rights. Specifically a public utility is entitled to:
• a fair rate of return;11
• recover costs that are prudently incurred;12
• a fair rate of return on assets that are used and useful;13

4 Northwestern Utilities v. Edmonton [1929] SCR 186.

5 Red Deer v.Western General Electric (1910) 3 Alta L.R. 145; Bell Telephone v. Harding Communications [1979]
1 S.C.R. 395; St. Lawrence Redering v. Cornwell [1951] O.R. 669; Epcpr Generation Inc v. Alberta Utilities Board,
2003 ABCA 374; Energy Commission (1978) 87 D.R.L. (3rd) 727; Brant County Power v. Ontario Energy Board
EB-2009-0065 (10 August 2010); Apotex Inc. v. Canada (Attorney General) [1994] 3SCR 1100; Portland General
Exchange, Inc. 51 FERC ¶ 61,108, (1990); United States v. Ill.Cent. R.R. 263 U.S. 515,524 (1924).
6 Northwestern Utilities Ltd. v. Edmonton (City), [1979] 1SCR 684; Bell Canada v. Canada Radio Television and
Telecommunications Commission [1989] SCJ No. 68 at 708; Brosseau v. Alberta (Securities Commission) [1989] SCC;
EuroCan Pulp and Paper v. British Columbia Energy Commission (1978) 87 D.R.L. (3rd) 727; Brant County Power v.
Ontario Energy Board, EB-2009-0065 (10 August 2010); Apotex Inc. v. Canada (Attorney General) [1994] 3SCR
1100; Chastain v. British Columbia Hydro (1972) 32 DRL (3rd) 443; Challenge Communications Ltd. v. Bell Canada
[1979] IFC 857; Associated Gas Distribs. v. FERC, 898 F.2d 809 (D.C. Cir. 1990); San Diego Gas & Elect.Co. v.
Sellers of Energy, 127 FERC ¶ 61,037 (2009).
7 Chastain v. British Columbia Hydro (1972) 32 DRL (3rd) 443; Challenge Communications Ltd. v. Bell Canada [1979]
IFC 857; New York ex rel. N.Y. & Queens Gas Co. v. McCall, 245 U.S. 345 (1917) 35n62; Pennsylvania Water &
Power Co. v. Consolidated Gas, Elec.Light & Power Co. of Balt., 184 F.2d 552 (4th Cir. 1950).
8 Pennsylvania Water & Power Co. v. Consolidated Gas, Elec. Light & Power Co.of Balt., 184 F.2d 552 (4th Cir. 1950).
9 CNCP Telecommunications, Interconnection with Bell Canada,Telecom Decision, CRTC 79-11, 5 CRT 177 at 274
(17 May 1979); Otter Tail Power Co. v. US, 410 US 366 (1973); RE Canada Cable Television Assoc., OEB, RP
2003-0249 (7 March 2005).
10 Keogh v. Chicago & Northwestern Ry Co. 260 U.S. 156 (1922); Square D Co.v. Niagara Frontier Tariff Bureau, 446 U.S.
409 (1986).
11 Federal Power Commission v. Hope Natural Gas (1944) 320US 59; Northwestern Utilities v. Edmonton (1929) SCR
186; TransCanada Pipelines v. National Energy Board, 2004 FCA 149.
12 British Columbia Electric Railway v. Public Utilities Commission S.C.R. [1960] 837 at 848; Northwestern Utilities Ltd. v.
Edmonton (City), [1979] 1SCR 684; TransCanada Pipelines Ltd. v. National Energy Board, 2004 FCA 149; Union Gas
v. Ontario Energy Board, 43 OR (2nd) 489.
13 British Columbia Hydro v.West Coast Transmission [1981] 2 FC 646; Alberta Power Ltd. v. Alberta Public Utilities Board
(1990) AJ No. 147 (Alta CA).

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• be free from competition in a service area; and

• limited liability for negligence.14

Energy market manipulation

Traditional energy regulation involves the regulation of rates and conditions of service.The
rates are regulated because these are monopoly services and consumers are not protected by
competition. However, over time a number of energy markets have become more competi-
tive and the prospect of market manipulation led governments to develop market rules that
prohibit anticompetitive practice. This jurisdiction has been exercised since 2006 by the
Federal Energy Regulatory Commission (FERC) in the United States under Order 670.15
In the European Union, it has been exercised under REMIT (the EU Regulation on
energy market integrity and transparency)16 since 2011. In Canada, the jurisdiction is exer-
cised by Alberta and Ontario, the only two provinces that have competitive markets.
This is an increasingly important dimension of energy regulation and can affect arbitra-
tions under contracts between private parties engaged in these markets. Arbitrators will not
enforce contracts that are illegal or contrary to public policy.
In the United States, FERC has aggressively policed attempts to manipulate wholesale
energy markets for some time.This followed the restructuring of natural gas and electricity
markets in the 1980s when FERC began authorising the sale of electricity and natural gas
at market-based rates instead of cost-based rates. This brought many new participants into
US energy markets and contributed to what was known as the California Energy Crisis in
2001, led by the firm, Enron.
After this crisis, FERC promulgated six market behaviour rules that prohibited actions
that were without legitimate business purpose and that were intended to manipulate market
prices. In 2005, Congress enacted the Energy Policy Act, which established the current
anti-manipulation authority. The Act made it unlawful for any entity to use manipulation
or deception in connection with the purchase or sale of electricity or natural gas.
The Act gave FERC the express authority to prescribe rules and regulations necessary
to protect the public interest and ratepayers. The legislation provided civil penalties of up
to US$1 million a day. This was an increase from the previous civil penalty authority of
US$10,000 per day. The legislation also confirmed the earlier authority for disgorgement
of unjust profits. At the same time, the maximum criminal fine was raised to US$1 million.

14 Garrison v. Pacific Nw. Bell, 608 P.3d 1206 (Or. Ct. App. 1980); Transmission Access Policy Study Group v. FERC
225 F3d. 667 (D.C. Cir.2000), affd sub nom, New York v. FERC 535 U.S. 1 (2002); Strauss v. Belle Realty Co.,
482 N.E.2d 43 (N.Y. 1985); Gyimah v.Toronto Hydro Electric System Ltd., 2013 ONSC 2920.
15 Order No. 670, Prohibition of Energy Market Manipulation, FERC STATS and REGS. para. 31, 202,
71 Fed Reg. 4, 244 (2006) (codified at 18 CFR pt 1c).
16 Council Regulation (EU) No. 1227/2011 On Wholesale Energy Market Integrity and Transparency, at
Article 2(4)(a), 2011 OJ (L 326) 1, 6 (REMIT); Council Regulation (EC) No. 713/2009, Establishing an Agency
for the Corporation of Energy Regulators, art 1 (1/2), 2009,OJ (L 211) 1,4.

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On 19 January 2006, FERC issued Order 670, which prohibited market manipulation.
This established the new Rule 1c.2, now referred to as FERC’s Anti-Manipulation Rule.
This Rule made it unlawful for any entity, directly or indirectly, in connection with any
FERC jurisdictional transaction:

(1) To use or employ any device, scheme, or artifice to defraud,

(2) To make any untrue statement of a material fact, or to omit to state a material fact necessary
in order to make the statement made, in light of the circumstances under which they were made,
not misleading, or
(3) To engage in any act, practice, or course of business that operates or would operate as a fraud
or deceit upon any entity.17

Rule 1c.2 closely tracks the US Securities and Exchange Commission (the SEC) Rule
10b-5, which prohibits securities fraud.
Between 2010 and 2014, the SEC opened 35 investigations into market manipula-
tion. In 2013, the SEC obtained more than US$300 million in civil penalties and almost
US$150 million in disgorgement.
Significant penalties were handed down, starting in 2009 with the US$7.5 million fine
in Amaranth Advisors18 and US$30 million in Energy Transfer Partners.19 These were followed
by a penalty of US$245 million in Constellation Energy20 in 2012, while 2013 saw Deutsche
Energy pay US$1.7 million21 and JPMorgan issued with a record US$410 million fine.22
In 2014, Louis Dreyfus Energy23 paid a civil penalty of US$4.1 million and disgorged
US$3.3 million in profits, while Twin Cities paid US$2.5 million that year.24
In 2016, FERC opened 17 new investigations and obtained monetary penalties and
disgorgement of unjust profits totalling approximately US$18 million. With the pending
litigation in US federal district courts and before the SEC, FERC’s Office of Enforcement
is seeking to recover more than US$567 million in civil penalties and disgorge more than
US$45 million in allegedly unjust profits.
FERC’s Office of Enforcement also issued two white papers: one summarising recent
FERC and federal court case law regarding development of the SEC’s anti­manipulation
doctrine and identifying factors staff will investigate for indicia of fraudulent conduct;
and another explaining internal best practices for jurisdictional entities to prevent and
detect market manipulation and other violations.25 The US Commodity Futures Trading
Commission (CFTC) also continued to aggressively exercise its enforcement authority in

17 18 C.F. R. S.1c.2 (Prohibition of Electric Energy Market Manipulation); 18 SRR S.1c.1 (2014) (Prohibition of
Natural Gas Market Manipulation).
18 120 FERC 61,085 (2007).
19 128 FERC 61,269 (21 September 2009).
20 138 FERC 61,168 (2012).
21 142 FERC 61,056 (22 January 2013).
22 144 FERC 61,068 (30 July 2013).
23 146 FERC 61,072 (2014).
24 149 FERC 61,278 (2014).
25 Federal Energy Regulatory Commission, Anti-Market Manipulation Enforcement Efforts Ten Years After Epact 2005
(November 2016).

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2016, bringing 68 enforcement actions, resulting in more than US$1.2 billion in monetary
sanctions. A significant portion of the CFTC’s enforcement actions continue to involve the
energy sector.
In Canada, the only competitive wholesale electricity markets exist in Ontario and
Alberta. Both provincial governments have established agencies to guard against price
manipulation. In Alberta, a separate agency, the Market Surveillance Administrator, was
established to conduct investigations. Applications for enforcement and decisions on
penalties are made by the Alberta Utilities Commission.
In Ontario, initial investigations are conducted by the Market Surveillance Panel, a
panel of the Ontario Energy Board.The resulting reports are published.The actual enforce-
ment is carried out by a division of the Ontario Independent Electricity System Operator
(IESO). The IESO establishes the penalty, if necessary, following an arbitration process. The
market participant has the option of appealing that decision to the Ontario Energy Board.
FERC’s Order 670 approach was followed in Ontario in May 2014 when the IESO
enacted the General Conduct Rule to deal with similar conduct. The General Conduct
Rule was similar to a rule Alberta had enacted in 2009 (AR – 159-2009).
On 27 July 2015, the Alberta Commission handed down its first decision,26 which
found that TransAlta, a regulated utility, had intentionally removed its generating plants
from service for maintenance purposes in a manner that would increase the price in the
market. This was a landmark decision. In 200 pages, the Commission sets out in detail the
test for establishing market manipulation in Canada.
More recently, the Ontario Market Surveillance Panel released a report finding that
Resolute, a pulp and paper company, was manipulating markets to obtain unwarranted
payments in the form of constrained off and constrained on payments.27 The report recom-
mended that the IESO take all necessary steps to recover the C$26 million payment. In
August 2016, the parties settled on the basis of a voluntary repayment of C$10.6 million.
The increased enforcement of market rules in Canada has not yet reached the level
experienced in the United States. However, the trend in North American energy regu-
lation is clear. The regulation of conduct in the competitive segments market may soon
overshadow the regulation of utility rates in monopoly markets. This shift in regulatory
focus has implications for arbitrators.
To the extent that arbitrations involve disputes in these new competitive markets, the
enforcement of awards may become more difficult under the public policy defence.
We have seen the influence of serious quasi-criminal activity on arbitrations before.
This has occurred in enforcement activities under anti-bribery statutes, particularly by
the SEC in the United States and the Royal Canadian Mounted Police in Canada.28 Both
countries have aggressive legislation with serious criminal and civil penalties: in the United
States, there have been convictions against more than 30 energy companies; in Canada, two

26 Alberta Utilities Commission, Market Surveillance Administration allegation against TransAlta Corporation et al,
Decision 3110, 27 July 2015.
27 Market Surveillance Panel, Report on an Investigation into Possible Gaming Behavior related to Congestion Management
Credit Payments by Abitibi Consolidated and Bowater Canada Forest Products, February 2015.
28 Gordon Kaiser, ‘Corruption in the Energy Sector: Criminal Fines, Civil Judgments, and Lost Arbitrations’,
34 Energy L. J. (2013) at 193.

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energy companies have been convicted.29 In a number of arbitrations, parties have raised
bribery as a bar to the enforcement of awards.30 In fact, bribery has been raised in some
50 cases but has been successful in only four.

Divided jurisdiction
In the United States and Canada, the courts grant deference to arbitrators. Similarly, courts
in both countries grant deference to regulators, particularly those involved in regulating
complex industries with substantial national importance. This deference includes interpre-
tation of the regulators’ home statute.
That leaves potential conflicts between regulators and arbitrators. Many regulated public
utilities have arbitration clauses in contracts. Assume that a regulated utility has a contract
with a large commercial customer that has an arbitration clause with respect to price. And
assume there is a dispute with respect to that price. Would that be resolved before the arbi-
tration panel or before the regulator? If it is before an arbitration panel, will the principles
of public utility law apply?
In most cases, an energy regulator will have the jurisdiction to make sure that the price
set by the regulated utility is just and reasonable. There are very few cases across North
America where that is not the case.What happens if one party issues a notice of arbitration?

The regulator’s jurisdiction

A tribunal only has the powers stated in its governing statute or those that arise by ‘necessary
implication’ from the wording of the statute, its structure and its purpose.31 The Ontario
Board’s jurisdiction to fix ‘just and reasonable’ rates is found in Section 36(2) of the Ontario
Energy Board Act, 1998:

The Board may make orders approving or fixing just and reasonable rates for the sale of gas by
gas transmitters, gas distributors and storage companies, and for the transmission, distribution
and storage of gas.

This is standard language in all public utility legislation.

29 In 2011, Niko Resources, a Calgary oil and gas company, was charged with bribing the Bangladesh Ministry of
Energy and pleaded guilty and received a fine of C$9.5 million. In 2013, Griffiths Energy, a Calgary oil and gas
company, paid a C$10.3 million fine in connection with a bribe to obtain oil and gas concessions in Chad.
30 Methenex Corporation v. United States of America, NAFTA Award 3 of August 2005; Niko Resources v. Bangladesh,
ICSID Case No. ARB-1-18, Award of 19 August 2013; International Thunderbird Gaming Corporation v. Mexico,
NAFTA Award of 26 January 2006.
31 ACTO Gas and Pipelines Ltd. v. Alberta (Energy and Utilities Board), [2006] 1 S.C.R. 140, [2006] 2.C.J. 400 at
para. 38. See also Bell Canada v. Canada (Canadian Radio-Television and Telecommunications Commission), [1989]
1 S.C.R. 1722.

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It is generally accepted that an energy regulator’s jurisdiction is very broad. In Union

Gas Ltd v.Township of Dawn, the Ontario Divisional Court in 1977 stated:

this statute makes it crystal clear that all matters relating to or incidental to the production,
distribution, transmission or storage of natural gas, including the setting of rates, location of
lines and appurtenances, expropriation of necessary lands and easements, are under the exclu-
sive jurisdiction of the Ontario Energy Board and are not subject to legislative authority by
municipal courts under the Planning Act.
These are all matters that are to be considered in light of the general public interest and
not local or parochial interests. The words ‘in the public interest’ which appear, for example, in
s. 40(8), s. 41(3) and s. 43(3), which I have quoted, would seem to leave no room for doubt
that it is broad public interest that must be served.32

The same Court issued two important decisions in 2005. In the NRG case, the Court stated:

The Board’s mandate to fix just and reasonable rates under section 36(3) of the Ontario
Energy Board Act, 1998 is unconditioned by directed criteria and is broad; the Board is
expressly allowed to adopt any method it considers appropriate.33

The ruling in the Enbridge case decided that the Ontario Energy Board, in fixing just and
reasonable rates, can consider matters of ‘broad public policy’:

the expertise of the tribunal in regulatory matters is unquestioned. This is a highly specialized
and technical area of expertise. It is also recognized that the legislation involves economic regu-
lation of energy resources, including setting prices for energy which are fair to the distributors
and the suppliers, while at the same time are a reasonable cost for the consumer to pay. This
will frequently engage the balancing of competing interests, as well as consideration of broad
public policy.34

The arbitrator’s jurisdiction

Arbitrators take their jurisdiction from the agreement between the parties. Absent some
legislation, there is no inherent jurisdiction in the tribunal.
Depending on the scope of the arbitration agreement, the arbitrator is able to
decide matters of tort, contract or equity, and has any commercial remedy available at
law and equity or available to a court, including the power to declare any provision of
contract unconstitutional.
Under generally accepted principles, arbitrators have the power to rule on their own
jurisdiction.This is sometimes referred to as a gateway issue or the competence-competence
principle. A tribunal has the jurisdiction to determine its own jurisdiction.35 This is

32 (1977), 15 O.R. (2nd) 722, O.J. No.2223 at paras. 28 and 29.

33 Natural Resource Gas Ltd. v. Ontario Energy Board [2005], O.J. No. 1520 (Div. Ct.) at para. 13.
34 Enbridge Gas Distribution Inc. v. Ontario Energy Board (2005),75 O.R. (3rd) 72, [2005] O.J. No. 756 at para. 24.
35 Ontario Medical Association v. Willis Canada (2013) ONCA 745: BG Group PLC v. Republic of Argentina, 572 US
(2014); Dell Computer Corp. v. Union des Consommateurs [2007] 2 SCR 801.

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acknowledged by the statute governing most arbitrations as well as the arbitration rules used
by a number of institutions. In the Ontario Arbitration Act, it is provided in Section 17; in
the Alberta Arbitration Act, it is provided in Section 17.36
Not everything is subject to arbitration. Matters where there is a substantial public
interest component may be excluded. The strongest examples would be criminal statutes
or possibly fraud. Other areas such as competition law, intellectual property and securi-
ties law were originally held to be outside the ambit, but those restrictions have been
largely overcome.
This all comes into play not just in deciding arbitrability at the start, but also in
enforcing an award at the end.This principle, which flows from the New York Convention,
is contained in virtually every domestic statute.The principle is that courts will not enforce
arbitration awards where the enforcement is contrary to public policy. The next question
is: is public utility law public policy?

Primary jurisdiction
In dealing with arbitrators, FERC has developed the concept of primary jurisdiction and
exclusive jurisdiction. Unless the SEC is in a situation where it should exercise primary or
exclusive jurisdiction, it will defer to an arbitrator.
This question arose in the SEC’s 2007 decision regarding California Water Resources.37
The California Department of Water Resources (California Water) was involved in a
contract dispute with Sempra Generation relating to Sempra’s failure to perform under a
long-term energy purchase agreement. California Water claimed over US$100 million in
false charges.
The matter went to arbitration. Sempra moved to set aside the claim on the ground that
it was barred by federal pre-emption principles and the filed-rate doctrine.
The arbitration panel granted the Sempra motion to dismiss, concluding that the SEC
had exclusive jurisdiction over the California Water claim. The panel concluded there was
a conflict between California’s claim and the tariff approved by the SEC.The panel referred
to the filed-rate doctrine that holds that private agreements between utility customers
cannot change the terms or conditions of approved tariffs. California Water responded that
there was no conflict between its claims and the tariff.
In rendering its decision, the SEC stated first, at paragraph 32:

As an initial matter, we emphasize that in this order we do not make a finding as to the validity
of CDWR’s interpretation of the Agreement, i.e., that Sempra may not knowingly schedule
energy deliveries to CDWR at congested points. Both parties have agreed to binding arbitration
to resolve their dispute regarding the Agreement and we believe this is appropriate. CDWR
states that it does not, by the instant petition, seek to reverse or overturn the Panel’s decision,
nor is it the Commission’s intent to purport to do so in this order.

36 Suncor Energy Inc. v. Alberta, 2013 ABQB 728.

37 Re California Department of Water Resources, 121 FERC 61,191 (19 November 2007).

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The Commission further stated, at paragraphs 38 and 40:

CDWR argues that the Commission asserts exclusive jurisdiction notwithstanding a binding
arbitration in only two situations: (1) to ensure the rates are just and reasonable; and (2) to
ensure the rates are not unduly discriminatory. It argues that the dispute is over Sempra’s
compliance with the terms of the Agreement. And that it is not seeking to change the Agreement
or change the rate under the Agreement and that it is not attacking any CAISO Tariff provi-
sions.Thus, it argues, no exclusive Commission jurisdiction pre-empts the contract interpretation
from proceeding in a non-Commission forum, i.e., the agreed-upon arbitration proceeding.
...
Having made the declaration above that the CDWR’s interpretation of the Agreement is not
in conflict with the CAISO Tariff or Amendment No. 50, we now address the jurisdictional
question posed by CDWR’s petition. The Commission’s exclusive jurisdiction covers matters
that are clearly and solely within the Commission’s statutory grant of authority. The parties’
contractual dispute is not about the proper rate for service by Sempra to CDWR. Rather, it is
about what, if any, adjustment is contemplated by the parties under the agreement regarding
CDWR’s obligation for deliveries under the alleged circumstances. Such relief does not implicate
the setting of a new, just, and reasonable rate under the Agreement or the CAISO Tariff.Thus,
the parties’ contractual dispute does not fall within the Commission’s exclusive jurisdiction.

The Commission stated that it would not exercise primary jurisdiction over the dispute
between California Water and Sempra Generation. Sempra argued that even if the SEC
were to find exclusive jurisdiction, it should exercise primary jurisdiction because California
Water raised issues involving the SEC’s expertise relating to congestion management. The
SEC disagreed, stating at paragraphs 44 and 45:

The dispute between CDWR and Sempra presents a question of contract interpretation, which
we determined above is not within the Commission’s exclusive jurisdiction.The decision whether
to exercise the Commission’s concurrent jurisdiction is within the Commission’s discretion. As
the Commission has discussed in prior orders, in deciding whether or not to entertain such a
case, the commission usually considers the following three factors: (a) whether the commission
possesses some special expertise that makes the case particularly appropriate for Commission
decision; (b) whether there is a need for uniformity of interpretation of the type of question raised
by the dispute; and (c) whether the case is important in relation to the regulatory responsibilities
of the Commission. As discussed below, based on these three factors, we would not expect to
assert primary jurisdiction over such a dispute.

The facts in dispute are unique to parties. The resolution of this dispute is not important to
the regulatory responsibilities of the Commission. The Commission has not special expertise
in interpreting the Agreement or in divining how CDWP and Sempra intends to address
dec’d generation. The ascertainment of parties’ intent when they execute a contract is a matter
of case-by-case adjudication that does not involve the considerations of uniformity or tech-
nical expertise that, in other circumstances, might call for the assertion of this Commission’s
jurisdiction. Further, the Commission’s consistent policy has been to encourage arbitration
when appropriate.38

38 See, e.g., Indiana Michigan Power Co. and Ohio Power Co. 64 FERC ¶61, 184 (1993).

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This decision is a well-reasoned and clear description of the principles that US regulators
consider in determining whether they should take jurisdiction from an arbitration panel
or step aside.
It turns out things are not much different in Canada. In Storm Capital,39 a decision
of the Ontario Superior Court of Justice, two companies had submitted an investment
dispute to an arbitration panel. The matter dealt with the calculation of a finder’s fee.
The agreement provided that the finder should be registered with the Ontario Securities
Commission (OSC).
The arbitrator found that Storm Capital was entitled to compensation. The opposing
party brought an application to set aside the arbitration award, claiming that the arbitrator
made unreasonable errors of law and had decided matters beyond the scope of the arbitra-
tion agreement. The contract required that Storm Capital representative should be regis-
tered under the Ontario Securities Act. The arbitrator decided that issue. The applicant
claimed the arbitrator lacked jurisdiction to rule on that issue because it was a matter of
securities law under exclusive jurisdiction of the OSC.
The Court stated in its ruling:

A privately appointed arbitrator has no inherent jurisdiction. His or her jurisdiction comes only
from the parties’ agreement. ‘The parties to an arbitration agreement have virtually unfettered
autonomy in identifying the disputes that may be the subject of the arbitration proceeding.’ An
arbitrator has the authority to decide not just the disputes that the parties submit to it, but also
those matters that are closely or intrinsically related to the disputes.

Public policy in Ontario favours respect for the parties’ decision to arbitrate. The Arbitration
Act, 1991 is ‘designed . . . ​to encourage parties to resort to arbitration as a method of resolving
their disputes in commercial and other matters, and to require them to hold to that course once
they have agreed to do so’. As a result, the Act restricts the power of a court to interfere with the
arbitration process or result.40

The Court further stated at paragraph 61 that if the legislature wishes to preclude an issue
from being subject to arbitration, it must expressly state this intention. It is not enough that
the subject matter on which the arbitration is sought is subject to regulation or concerns
the public order. The Court relied on the decision of the Supreme Court of Canada in
Desputeaux41 for the principle that courts must be careful not to broadly construe areas as
exempt from arbitration simply because they concern public order, as this would under-
mine the legislative policy of encouraging arbitration. The Ontario Court further noted
that no provision in the Ontario Securities Act or any other statute was referred to that
expressly precludes arbitration on matters of securities law.

39 Advanced Explorations Inc. v. Storm Capital Association, 2014 ONSC 3918.

40 id., at paras. 57 to 58 (citations omitted).
41 Desputeaux v. Editions Chouette Inc. (2003) 1SCR 178 at para. 52.

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The Court in Storm Capital also refused to follow the Ontario Divisional Court’s
decision in Manning42 that the OSC has exclusive jurisdiction in some matters. That case
involved the authority to remove an individual’s exemption under the Securities Act.
The Court in Storm Capital distinguished the Manning case because Storm Capital did not
involve any exercise of the Commission’s enforcement power. The Storm Capital arbitra-
tion involved a private dispute and was not binding on any third party, including the SEC.
Accordingly, the Court refused to set aside the arbitration.
The decision is a careful outline of the principles the Canadian courts will follow when
there is an apparent conflict between the jurisdiction of an arbitration panel and the juris-
diction of the regulatory commission. The decision does not use the same terminology as
the US cases, but it does come close to it in terms of principles. For example, the decision
recognises that there are certain areas where the regulator would have primary jurisdiction,
such as the case where an individual was subject to disbarment by the SEC.
On the other hand, in cases of purely private contractual matters, the arbitration panel
is not infringing a commission’s jurisdiction. Moreover, the Storm Capital decision makes it
clear that if a regulator’s jurisdiction is to be preferred to an arbitrator’s jurisdiction, there
must be explicit legislative authority for that exclusive jurisdiction.This is an important point.

Deference to regulators
The concept of deference to regulators is well understood. For years, courts in Canada43 and
the United States44 have ruled that antitrust and competition laws should not be enforced
in regulated industries where that regulation is being carried out by lawful government
authority. In part the rationale was constitutional, but it also reflected the courts’ policy of
deferring to expert tribunals. More recently this approach has come under attack by courts
in both Canada45 and the United States.46
In 2013, the Supreme Court of Canada, in a case involving the British Columbia
Securities Commission, highlighted the deference that courts should grant to
expert tribunals:

The bottom line here, then, is that the Commission holds the interpretative upper hand: under
reasonableness review, we defer to any reasonable interpretation adopted by an administrative
decision maker, even if other reasonable interpretations may exist. Because the legislature charged
the administrative decision maker rather than the courts with ‘administer[ing] and apply[ing]’
its home statute, it is the decision maker, first and foremost, that has the discretion to resolve a
statutory uncertainty by adopting any interpretation that the statutory language can reasonably
bear. Judicial deference in such instances is itself a principle of modern statutory interpretation.

42 Manning v. Ontario Securities Commission (1996) 94 OAC 15.

43 Canada (Attorney General) v. Law Society of Upper Canada [1982] SCJ No. 70, [1982] S W.W.R. 289 (SCC)
44 Verizon Communications Inc. v. Law Offices of Curtis V.Trinko, 540 U.S. (2004); Credit Suisse Sec. (USA) L.L.C. v.
Billing, 551 U.S. 264 (2007).
45 Canada (Minister of Citizenship and Immigration) v.Vavilov, 2019 S.C.C. 65 (Can); Bell Canada v. Canada (Attorney
General), 2019 S.C.C. 66 (Can)
46 Chevron v. Natural Resources Def. Counsel, 467 US 837.

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Accordingly, the appellant’s burden here is not only to show that her interpretation is reasonable,
but also that the Commission’s interpretation is unreasonable. And that she has not done. Here,
the Commission, with the benefit of its expertise, chose the interpretation it did. And because
that interpretation has not been shown to be an unreasonable one, there is no basis for us to
interfere on judicial review – even in the face of a competing reasonable interpretation.47

The following year, the Alberta Court of Appeal made a similar point with respect to the
Alberta Securities Commission:

The Commission is an expert tribunal, charged with the administration of the Act.The standard
of review of its decisions is presumptively reasonableness, particularly where the question relates
to the interpretation of its enabling (or ‘home’) statute. Its findings of fact, findings of mixed
fact and law, and credibility findings are also entitled to deference, and will not be overruled on
appeal unless they demonstrate palpable and overriding error.48

The principle that antitrust authorities in North America will defer to regulators is a
long-standing one, but the most recent decision in Trinko is stark. The US Supreme Court
said it doubted whether it had ever recognised the essential facilities doctrine in antitrust
law, but in any case it should not be applicable where a regulatory body could mandate and
control the terms and conditions of market entrance.
That case involved a public utility, Verizon Communications.While the case concerned
deference to a sector-specific regulator, a similar principle may well apply to a sector-specific
adjudicator. In North America, all electricity public utilities are subject to a sector-specific
regulator. That regulator licenses every generator, transmitter and distributor of electricity.
In short, the regulator mandates and controls the terms and conditions of market entrance.
The situation is similar in Europe but more complicated. There, utilities face not only
domestic regulation but international regulation under the European Union. To compli-
cate matters, there are also sector-specific treaties such as the Energy Charter Treaty. In
the European Union, the issues are usually competition law issues involving mergers and
third-party access. There are three major decisions.49 Deference is generally granted to the
sector-specific regulator.
In the United States, the concept of deference to administrative tribunals and regula-
tors really began with the 1984 decision of the United States Supreme Court in Chevron.50
That case established the principle that when courts review actions by regulatory agencies,
they must allow those agencies to determine the meaning of ambiguous terms in their
governing statutes as long as they are reasonable. For more than 30 years, Chevron has been

47 McLean v. British Columbia Securities Commission, 2013 SCC 67 at paras. 40 to 41 (original emphasis)
(citation omitted).
48 Walton v. Alberta Securities Commission, 2014 ABCA 273 at para. 17 (citation omitted).
49 Case COMP/39.388 – German Electricity Wholesale Market and COMP/39.389 – German Electricity Balancing
Market; Case COMP/39.402 – RWE Gas Foreclosure; Case COMP/C-1/37.451,37.578,37.579 – Deutsche
Telekom and Case T-271/03 – Deutsche Telekom v. Commission.
50 Chevron v. Natural Resources Def Council. 467 US 837.

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instrumental in a number of energy cases51 in granting deference to the statutory interpre-

tations by energy regulators. This lasted until May 2018, when the Supreme Court issued
its decision in Epic Systems Corporation.52
What Epic Systems did was essentially to restrict the deference that the courts grant to
regulators to the interpretation of their ‘home’ statute, a concept that has been relied on
by Canadian courts. Before Epic Systems, the circuit courts in the United States were split
on the interpretation of arbitration agreements that contained provisions that restrict an
employee’s right to pursue class or collective actions under Section 7 of the National Labor
Relations Act (NLRA). Certain courts held that class actions were permissible while others
held that employers could require individual action.
This was resolved in the Epic Systems decision when the Supreme Court upheld the
enforceability of arbitration agreements that contain class action or collective waivers. The
majority of the court in an opinion authored by Justice Neil Gorsuch held that the right
to pursue class or collective relief is not protected activity under Section 7 of the NLRA.
The Chevron deference concept according to Gorsuch J is premised on delegation
of interpretive policymaking authority to the agency. Accordingly, the National Labour
Relations Board may be entitled to deference in interpreting a statute it administers, such
as the NLRA, but could not claim a similar deference with respect to a statute it does not
administer, such as the Federal Arbitration Act. Gorsuch J also ruled that, under Chevron, the
task of reconciling potentially conflicting statutes was a matter for the courts not the agency.
Courts in the United States and Canada are increasingly showing less deference to
energy regulators. In the United States, this was evident in the Chevron decision.53 In
Canada, it was the recent Supreme Court of Canada decision in Vavilov.
Two decisions of the Supreme Court of Canada in December 2019 have signifi-
cantly changed the manner in which Canadian courts will review decisions by regulatory
agencies.54 On the front line are federal and provincial energy regulators. As indicated, it
has long been the case that courts have granted considerable deference to regulators when
the issues concern interpretation of their home statutes. The Supreme Court of Canada
heard Vavilov55 and Bell Canada56 together when the parties were seeking leave to appeal
earlier decisions.

51 Cajun Electric Power Coop v. FERC, 1924 F. 2d 1132 (DC Cir. 1991); Koch Gateway Pipeline v. FERC, 135 F. 2d
810 (DC Cir. 1998); California Independent System Operator Inc. v. FERC, 372 F. 3d 395 (DC Cir. 2004);
Massachusetts v. Environmental Protection Agency, 549 US 497 (2007); Assn. of Public Agency Customers v. Bonnebille
Power Admin. 126 F. 3d 1158 (2009); Michigan v. Environmental Protection Agency, 576 US 1 (2015); FERC v. Electric
Power Supply Association, 577 US 1 (2016); Next Era Desert Centre Blythe v. FERC, 852 F. 3d 1118 (DC Cir. 2017).
52 Epic Systems Corp. v. Lewis, 584 US 1 (2018).
53 Chevron v. Natural Resource Defense Council, 467 US 837 (1984).
54 Canada (Minister of Citizenship and Immigration) v.Vavilov, 2019 S.C.C. 65 (Can.); Bell Canada v. Canada (Attorney
General), 2019 S.C.C. 66 (Can.).
55 Canada (Minister of Citizenship and Immigration) v.Vavilov, 2019 S.C.C. 65 (Can.).
56 Bell Canada v. Canada (Attorney General), 2019 S.C.C. 66 (Can.).

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The Court invited the parties to review the standard in Dunsmuir,57 which had become
the national standard for the judicial review of administrative action since 2008. Prior
to Dunsmuir, there were three standards of review: correctness, reasonableness and patent
unreasonableness. The Dunsmuir court reduced this to two standards: reasonableness
and correctness.
Reasonableness was a deferential review where the court granted deference to specialist
tribunals. Correctness was different; there would be no deference.58 From the outset the
reviewing court would ask whether the decision was right, given the facts and the law. In
short it would state (and substitute if necessary) its own view on the matter. The Dunsmuir
court identified the circumstances in which correctness should apply, namely constitutional
questions, questions of true jurisdiction, questions of law of general application to the legal
system, and questions regarding jurisdiction between competing regulatory agencies.
Vavilov concerned a revocation of Canadian citizenship that turned on an interpreta-
tion of the Citizenship Act.59 Bell Canada (also known as the Super Bowl case) involved the
decision by the Canadian Radio-Television Communications Commission, the national
telecommunications regulator, to exempt the broadcast of the Super Bowl game from an
order requiring the simultaneous substitution of American commercials from the Canadian
feed of the American broadcast.60
The court’s decision in Bell Canada dealt strictly with those cases that came to the
courts by way of statutory appeal as opposed to a common law or statutory application
for judicial review. That is not unusual in energy regulation. Energy regulation in Alberta,
Ontario and Nova Scotia provides that right,61 as does federal regulation.62 In some cases
leave is required and in some cases it is not.63 Both Vavilov and Bell Canada stated clearly
that instead of the deference standard of reasonableness, the non-deference of correctness
would apply going forward.64
The underlying principle established in Vavilov and Bell Canada was that in the case of
a statutory appeal, the court should use the same test as it would in the case of an appeal
from a lower court.65 Put differently, unless the legislature had specified an exception, the
courts hearing such appeals were to apply the Houston66 principles. The Houston rules are
simple enough; there are two principles. When the appeal from a lower court is based on a

57 Dunsmuir v. New Brunswick, 2008 S.C.C. 9 (Can.).

58 id., at para. 21.
59 Canada (Minister of Citizenship and Immigration) v.Vavilov, 2019 S.C.C. 65 (Can.).
60 Bell Canada v. Canada (Attorney General), 2019 S.C.C. 66 (Can.).
61 See, e.g., Alberta Util. Comm’n Act, S.A. 2007, c. A-37.2, sec. 29(1)-(2) (Can. Alta.).; Responsible Energy
Development Act, S.A. 2012 c. R-17.3, sec. 45(1)-(2) (Can. Alta.); Ontario Energy Board Act, S.O. 1998,
c. 15, Sched. B, sec. 33(2) (Can. Ont.) (not requiring leave); Utility and Review Board Act, S.N.S. 1992, c. 11,
sec. 30(1) (Can. N.S.) (not requiring leave).
62 Canadian Energy Regulator Act, S.C. 2019, c. 28, ss. 72(1)-(2) (Can.).
63 Leave is not required in Nova Scotia and Ontario. Ontario Energy Board Act, S.O. 1998, c. 15, Sched. B,
sec. 33(2) (Can. Ont.) (not requiring leave); Utility and Review Board Act, S.N.S. 1992, c. 11, sec. 30(1)
(Can. N.S.) (not requiring leave).
64 Canada (Minister of Citizenship and Immigration) v.Vavilov, 2019 S.C.C. 65 (Can.); Bell Canada v. Canada (Attorney
General), 2019 S.C.C. 66 (Can.).
65 id.
66 Houston v. Nikolaisen [2002] 2 SCR 235 (Can.).

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question of law, the test is correctness. That includes matters of statutory interpretation or
the jurisdiction or authority of the regulatory agency. If it is a question of fact, the appellate
standard of review for those questions is palpable and overriding error.There is no question
that in the 12 years since the Dunsmuir decision, courts have shown increasingly more
deference to regulatory agencies. That movement has now stopped.
The standard is now to be correctness on pure questions of law.67 On questions of fact
and law, the standard of review would be that of palpable and overriding error.68 This was a
big change. Prior to those decisions, energy regulators on pure questions of law enjoyed a
strong presumption of reasonableness review when interpreting their home statute.
Outside this narrow circumstance, the court reaffirmed that in most cases the standard
of review was reasonableness, subject to well-known exceptions such as where the legisla-
ture had indicated a different standard, constitutional questions, questions of law important
to the legal system, and jurisdictional disputes between regulatory agencies.
While these decisions created a general presumption of reasonableness review for most
decisions, where the issue is one of law, mixed law or fact, the decisions became a textbook
of the decision-making principles that justified this strong commitment to deference. The
court re-emphasised the necessity of providing reasons but cautioned that the burden of
establishing unreasonableness rests with the challenger.69 The Dunsmuir principles were
reinforced. Not only were reasons important, they required justification, transparency and
intelligibility. Decisions must be justified, not just justifiable.
The court went on to identify two fundamental flaws that are to be avoided. A decision
must have internally coherent reasons and will not be considered reasonable of the decision
reached does not follow from the analysis undertaken.70 The second fundamental flaw
relates to the requirement that the decision must be justified in light of the legal and factual
constraints that bear on it. Finally, decisions must avoid persistently discordant or contra-
dictory legal interpretations and departures from long-standing practices or established
internal authority without satisfactory explanations for the departure. Without a credible
explanation of its failure to follow precedence, a decision will be considered unreasonable.
Canadian energy regulators have long believed that they were not bound by precedent
or stare decisis. That remains the case, but this decision is the first decision by the Supreme
Court of Canada that raises a red flag on that point.
In summary, to a degree these important decisions reinforce and preserve the deferential
review in the case of statutory interpretation, which come to the courts by way of judicial
review as opposed to a statutory appeal. Where this will all end up is hard to say. In 2020,
both the Manitoba and Ontario courts have applied Vavivlov to limit the jurisdiction of
their energy regulators.71

67 Bell Canada v. Canada (Attorney General), 2019 S.C.C. 66, para. 4 (Can.); Canada (Minister of Citizenship and
Immigration) v.Vavilov, 2019 S.C.C. 65, para. 7 (Can.).
68 Canada (Minister of Citizenship and Immigration) v.Vavilov, 2019 S.C.C. 65, para. 37 (Can.).
69 id., at para. 84.
70 id., at para. 103.
71 Manitoba Hydro v. Manitoba Public Utilities Board, 20 MBCA 60; Enbridge Gas Inc. v. Ontario Energy Board,
2020 ONSC, 3616; Nation Rise Wind Farm Limited v. Minister of the Environment, 2020, ONSC 2984.

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Deference to legislators
Deference is an important concept. In Canada and the United States, courts routinely grant
deference to both arbitrators72 and regulators.73 In investor-state arbitrations, arbitrators
grant deference to governments, particularly when those governments are carrying out a
regulatory function where the public interest is the dominant test.
In Mesa Power,74 the tribunal pointed to the deference that NAFTA Chapter 11 tribunals
usually grant to governments when it comes to assessing how governments regulate and
manage their affairs. The tribunal stated:

In reviewing this alleged breach, the Tribunal must bear in mind the deference which NAFTA
Chapter 11 tribunals owe a state when it comes to assessing how to regulate and manage its
affairs. This deference notably applies to the decision to enter into investment agreements. As
noted by the S.D. Myers tribunal, ‘[w]hen interpreting and applying the “minimum standard”,
a Chapter Eleven tribunal does not have an open-ended mandate to second-guess government
decision-making.’ The tribunal in Bilcon, a case which the Claimant has cited with approval,
also held that ‘[t]he imprudent exercise of discretion or even outright mistakes do not, as a rule,
lead to a breach of the international minimum standard.’

In addition to the references in SD Myers and Bilcon pointed out by the Mesa Power tribunal,
we can add the tribunal’s comments in Thunderbird that the state ‘has a wide discretion with
respect to how it carries out such policies by regulation and administrative conduct’.75
There are two subcategories of the deference principle when it comes to inter­national
arbitration. First, tribunals have taken the position that they should defer to scientific
findings that states make on a non-discriminatory and non-arbitrary basis in accordance
with due process. The conflict between the rights of investors and states often arises in
the context of environmental issues. A number of those cases have been referred to in this
chapter. Environmental cases invariably turn on scientific evidence.
In Chemtura, the tribunal noted that it is ‘not within the scope of its task to second-guess
the correctness of the science-based decision-making of highly specialised national regula-
tory agencies’.76 This is identical to the principle that US and Canadian courts apply when
they defer to government regulators.77

72 Moses H Cane Memorial Hospital v. Mercury Construction, 460 US 1(1983) at 24; Dell Computer Corp v. Union des
consommateurs, 2007 SCC 34, [2007] 2 SCR 801; Ontario Hydro v. Dominion Mines Ltd (1992 OJ 2848).
73 Mclean v. British Columbia Securities Commission, 2013 SCC 67, [2013] 3 SCR 895; Chevron v. Natural Resource Def
Council, 467 US 837; Walton v. Alberta Securities Commission, 2014 ABCA 273 at para. 17.
74 Mesa Power Group LLC v. Government of Canada, PCA Case No. 2012-17, 24 March 2016.
75 International Thunderbird Gaming Corp v. United Mexican States, at para. 127, Award, (UNCITRAL
26 January 2006).
76 Cemtura Corp v. Canada, at para. 134, Award, (UNCITRAL 2 August 2010); Mclean v. British Columbia Securities
Commission, 2013 SCC 67, [2013] 3 SCR 895; Chevron v. Natural Resource Def Council, 467 US 837; Walton v.
Alberta Securities Commission, 2014 ABCA 273 at para. 17.
77 Mclean v. British Columbia Securities Commission, 2013 SCC 67, [2013] 3 SCR 895; Chevron v. Natural Resource Def
Council, 467 US 837; Walton v. Alberta Securities Commission, 2014 ABCA 273 at para. 17.

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The second subcategory of the deference principle is a long-standing international

law principle called ‘police powers’. The principle is that certain state action is beyond
compensation for expropriation under international law because states enjoy wide latitude
to regulate within the realm of their police powers.
Police powers are often defined to include municipal planning, safety, health and
environ­mental issues, as well as areas involving serious fines and penalties. In Chemtura, the
tribunal held that Canada’s regulations phasing out the use of lindane constituted a valid
exercise of Canada’s police powers and did not constitute expropriation.78 In summary,
the deference principle routinely used by NAFTA arbitrators is not unique. It parallels the
deference courts use in deferring to regulators. Deference is particularly appropriate where
the regulatory agency is a specialist one with particular expertise in dealing with complex
evidence of a scientific nature.

The right to regulate

Much of the analysis in international arbitrations centres on the rights of the investor, the
definitions of legitimate expectations and indirect expropriation. But what about the state’s
right to regulate? The state must have a right to regulate; it certainly has responsibilities
to regulate. The difference is that the scope of this right is greater in the case of domestic
investors than for foreign investors protected by investment treaties.
One thing is clear: states cannot discriminate against foreign investors. They must be
treated the same as domestic investors. That means the law must be general in application
and there must be a level playing field. Once legislation targets specific parties, there is a
problem.That problem exists even in the case of domestic investors. It is also widely recog-
nised that the new regulations and legislation cannot be arbitrary or developed without due
process. That principle applies to domestic investors as well.
There is nothing wrong with states giving additional protections to foreign investors
as compared to domestic investors. That goes to the heart of investor-state treaties. The
purpose of the treaty is to attract investment.
It is generally recognised that states enjoy police powers to provide essential services
necessary to protect the public interest. These would include matters relating to security,
the environment and public health. Few would object to states exercising this jurisdic-
tion provided the states act in good faith, and do not discriminate or expropriate private
property without fair compensation. The NAFTA decisions in Methanex79 and Chemtura80
seem to support this proposition. In Chemtura, a US manufacturer of lindane, an agricultural
insecticide moderately hazardous to human health and the environment, claimed a breach
of NAFTA by Canada’s prohibition of its sale. The tribunal rejected the claim, stating:

Irrespective of the existence of a contractual deprivation, the Tribunal considers in any event that
the measures challenged by the Claimant constituted a valid exercise of the Respondent’s police
powers. As discussed in detail in connection with Article 1105 of NAFTA, the PMRA [Pest

78 Cemtura Corp v. Canada, at para. 266, Award (UNCITRAL 2 August 2010).

79 Methanex Corp v. United States, Decision as amici curiae, 15 January 2001; UPS v. Canada, Decision as amici curiae,
17 October 2001.
80 Chemtura Corporation v. Canada, Award (UNCITRAL, 2 August 2010).

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Management Regulatory Agency] took measures within its mandate, in a non-discriminatory

manner, motivated by the increasing awareness of the dangers presented by lindane for human
health and the environment. A measure adopted under such circumstances is a valid exercise of
the State’s police powers and, as a result, does not constitute an expropriation.81

A state runs into problems under NAFTA when a specific promise is made to a specific
investor, the investor relies on the promised undertakings as a condition of making the
investment, and then the state rescinds the promise. However, to qualify for this rule, the
promise must usually be made to a specific investor. Legislation is always changing. Very
few pieces of legislation have sunset clauses that declare when they end, and no legislation
or set of regulations lasts forever. Laws necessarily change with changing circumstances.
These concepts are not unique to NAFTA. Set out below are a number of decisions under
different treaties that set out these same principles.
In Continental Casualty,82 the tribunal stated:

It would be unconscionable for a country to promise not to change its legislation as time and
needs change, or even more to tie its hands by such a kind of stipulation in case of crisis of any
type or origin arose. Such an implication as to stability in the BIT’s Preamble would be contrary
to an effective interpretation of the Treaty; reliance on such an implication by a foreign investor
would be misplaced and, indeed, unreasonable.

Similarly in EDF v. Romania,83 the tribunal held:

The idea that legitimate expectations, and therefore FET [fair and equitable treatment], imply
the stability of the legal and business framework, may not be correct if stated in an overly broad
and unqualified formulation.The FET might mean the virtual freezing of the legal regulation
of economic activities, in contrast with the State’s normal regulatory power and the evolutionary
character of economic life. Except where specific promises or representation are made by the State
to the investor, the latter may not rely on a bilateral investment treaty as a kind of insurance
policy against the risk of any changes in the host State’s legal and economic framework. Such
expectation would be neither legitimate nor reasonable.

In Total v. Argentina,84 the tribunal stated:

In the absence of some ‘promise’ by the host State or a specific provision in the bilateral invest-
ment treaty itself, the legal regime in force in the host country at the time of making the invest-
ment is not automatically subject to a ‘guarantee’ of stability merely because the host country
entered into a bilateral investment treaty with the country of the foreign investor.

81 id., at para. 266.

82 Continental Casualty v. Argentine Republic, ICSID Case No. ARB/03/9, Award (5 September 2008), para. 258.
83 EDF (Services) Limited v. Romania, ICSID Case No. ARB/05/13, Award (8 October 2009), para. 217.
84 Total SA v. Argentine Republic, ICSID Case No. ARB/04/01, Decision on Liability (27 December 2010),
paras. 128 to 130.

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And in El Paso v. Argentina,85 the tribunal reminded us:

Under a FET clause, a foreign investor can expect that the rules will not be changed without
justification of an economic, social or other nature. Conversely, it is unthinkable that a State
could make a general commitment to all foreign investors never to change its legislation whatever
the circumstances and it would be unreasonable for an investor to rely on such a freeze.

The problem is that, ultimately, these things may come down to what is fair or reasonable.
There is no clear distinction but arbitrators will look for red flags; for example, giving
under­takings that investors rely on and later rescinding them, obvious breaches of due
process or situations where states claim that the new regulatory policies are for one purpose,
such as the need for more scientific research, when that is not the real purpose. That situ-
ation has emerged in the renewable energy cases discussed in the concluding section of
this chapter.

The decisions
The conflict between the financial interests of foreign investors and government energy
policy has become very evident in Spain and Canada. Spain has faced almost 50 arbitrations
claiming damages resulting from the Spanish government’s decision to reduce the incen-
tives it originally created to promote investment in wind and solar energy generation.86
In Canada, the conflicts related to a wider range of energy policy initiatives by provin-
cial governments and their energy regulators.
In Mobil Investments,87 two American companies questioned a decision of the
Newfoundland and Labrador Offshore Petroleum Board. Mobil first went to the Canadian
courts.88 When that failed, they brought a NAFTA claim, which succeeded, and received
a C$132 million award. It turned out that Canada decided to continue to enforce the
research and development expenditures after the decision had been issued. Mobile came
back for a second bite at the apple, seeking damages for a later period, which also proved to
be successful when the parties entered into a consent award of C$35 million.
In Mesa Power,89 a well-known American investor, T Boone Pickens, claimed that the
Ontario Power Authority had discriminated against his company in awarding 20-year
power purchase agreements for wind energy.

85 El Paso Energy International Company v. Argentine Republic, ICSID Case No. ARB/03/15, Award
(31 October 2011), para. 372.
86 See Charles Patrizia, ‘Investment Disputes involving the Renewable Energy Industry under the Energy Charter
Treaty’ in The Guide to Energy Arbitration (J William Rowley ed., 3rd edition), page 57.
87 Mobile Investment Canada Inc. and Murphy Oil Corp. v. Canada, ICSID Case No. ARB (AF)/07/4, (NAFTA
22 May 2012).
88 Hibernia Management and Development Co. v. Canada Newfoundland Offshore Board [2007] NJ No. 168; Hibernia
Management and Development Co. v. Canada Newfoundland Offshore Board [2008] NJ No. 310.
89 Mesa Power Group LLC v. Government of Canada, PCA Case No. 2012-17, 24 March 2016.

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In Windstream Energy,90 American investors challenged the Ontario government’s

decision to cancel all offshore wind projects. That resulted in a NAFTA award of
C$26 million. In Mercer International,91 a US company filed a C$250 million NAFTA claim
against Canada based on the decision by the British Columbia Utilities Commission to
change the electricity rates charged to industrial customers operating sawmills. The inves-
tors went to the Commission first. When that failed,92 they went to NAFTA where they
were again unsuccessful.
In Lone Pine Resources,93 a US-based exploration company launched a claim against the
province of Quebec’s decision to suspend fracking under the St Lawrence River. That case
is still before the tribunal.
Another case still before a tribunal is Westmoreland Mining.94 A US company brought a
C$470 million claim related to the Alberta government’s decision to eliminate the genera-
tion of electricity by coal. The Alberta government had already enacted legislation to end
all electricity generation using coal by 2030. The Alberta government agreed to pay three
companies generating electricity in that fashion C$97 million a year for 14 years, bringing
the total compensation to C$1.36 billion. All of the generators also owned a coal mine
next to their generation station.Westmoreland owned a coal mine supplying the electricity
generators but did not operate a generation facility. Westmoreland received no payment
under the programme. The Alberta government’s rationale was that none of the payments
to the three generators related to the value of their coal mines.
The most recent energy arbitration against Canada under NAFTA is Tennant Energy.95
This is a follow-on case to Mesa Power and relies on much of the evidence in that case.
Tennant Energy, based in Napa, California, filed a claim in June 2017 against Canada for
C$116 million relating to a breach of Article 1105 of NAFTA. As in Mesa Power, the claim
related to the actions of the Province of Ontario in awarding feed-in tariff contracts under
the Green Energy Act.96 Tennant argued that the government failed to release information
that would put all parties on a level playing field and manipulated access to the electricity
transmission grid. The damages sought had a unique twist. Of the C$116 million claimed,
C$35 million related to ‘moral damages’ resulting from unconscionable conduct, including
the destruction of documents. This case is also still before a tribunal.

Parallel proceedings
The FERC decision in California Water makes it clear that regulators will defer to arbitra-
tors unless the matter falls within the FERC’s exclusive jurisdiction. In the Alberta Utilities
Commission decision in Central Alberta Rural Electrification discussed in the next section, the

90 Windstream Energy LLC v. Government of Canada, PCA Case No. 2013-22, 27 September 2016.
91 Mercer International Inc. v. Government of Canada, ICSID Case No. ARB (AF) 12/3, paras. 2.6 to 2.7
(6 March 2018).
92 In the Matter the Utilities Commission Act, R.S.B.C. 1996, Chapter 473 and ‘An Application by British Columbia
Hydro and Power Authority to Amend Section 2.1 of Rate Schedule 3808 (RS 3808) Power Purchase
Agreement’, Order No. G-48-09 (British Columbia Util. Comm’n 6 May 2009).
93 Lone Pine Resources Inc. v. Gov’t of Canada, No. UNCT/15/2 (NAFTA 6 September 2013).
94 Westmoreland Mining Holdings v. Government of Canada (NAFTA 12 April 2019).
95 Tennant Energy LLC v. Government of Canada, Notice of Arbitration, 1 June 2017.
96 Green Energy and Green Economy Act, 2019, SO 2019 C12

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Commission exercised jurisdiction, notwithstanding the fact that an arbitration decision

had been issued. However, there the Commission concluded that the arbitrator had not
addressed the impact of the legislation but only the terms of the contract.
In the previous section, we outlined the jurisdiction of both arbitrators and regulators.
Both have substantial jurisdiction and considerable flexibility. There are cases that proceed
at the same time before arbitrators and regulators, with both dealing with substantially the
same issues.
In some cases, one proceeding will commence first and the second panel will have to
consider res judicata and sometimes deal with anti-suit or anti-arbitration injunctions.
As indicated earlier, courts have over the years developed a body of law that clearly
establishes as a matter of public policy that they will defer to arbitrators wherever that is
possible. And to a slightly lesser degree, courts have developed a policy during the past
10 years of deferring to regulators with expertise in technical matters.
The two decisions examined below indicate that regulators have also developed a policy
of deferring to arbitrators wherever possible.

Different procedures
The potential for parallel proceedings will be influenced by the differences in the proce-
dures used by arbitrators compared to regulators. In many respects, the two tribunals
operate in a similar fashion. Neither tribunal is bound by the rules of evidence. The main
difference is that the regulatory tribunal receives its jurisdiction from legislation while the
arbitral tribunal receives its jurisdiction from a contract.
The remedies both tribunals can offer are similar; the main difference is that an arbitral
tribunal cannot award fines. Another major difference is the ability of third parties to inter-
vene. In arbitrations, these are primarily amicus briefs, which we have seen in a number
of NAFTA tribunals.97 These are largely limited to written submissions. Receipt of oral
submissions and access to documents is not permitted. In regulatory hearings, the situa-
tion is very different. Third parties can successfully intervene if they can establish they are
directly affected.98 In rare cases, the scope of intervention may be limited,99 but generally
all parties are treated the same.
A related difference is the scope of disclosure. It is very wide in the case of regulatory
hearings and limited in the case of arbitrations. Also, arbitrations are by their nature private
and confidential. On the other hand, regulatory hearings are public and usually initiated
by public notices in newspapers.100 A regulator also has the ability to consolidate different
proceedings, something that is not available to arbitrators.
All these factors may create an incentive for parties in arbitrations to move their dispute
to the regulator if they do not get the result they like in the arbitration. That leads to the
question in the next section, as to whether regulators are bound by res judicata.

97 Bywater v.Tanzania.
98 Kelly v. Alberta Energy Resources Conservation Board, 2009 ABCA 349; Power Workers Union v. Ontario Energy Board
(2006) OJ No. 2997.
99 Ontario Energy Board Re Toronto Hydro Electric System, EB – 2009 – 0308 (27 January 2010).
100 Ontario Energy Board Re Hydro One Networks Inc., EB 2009 – 0096 (19 January 2010).

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Res judicata
It is now accepted that arbitration awards have res judicata effect.The same is true of regulatory
decisions.101 In the United States, arbitral awards have res judicata effect, including collateral
estoppel.102 The binding effect of arbitral awards is provided for in a number of institu-
tional rules, including Article 28(6) of the International Chamber of Commerce Rules,
Article 26.9 of the London Court of International Arbitration Rules and Article 32(2) of
the UNCITRAL Rules, as well as Article III of the New York Convention.
An arbitrator who renders an award in violation of res judicata may run the risk of
the award being set aside because the arbitrator exceeded the mandate, having become
functus officio upon rendering the first award, or because the reasons contradict those of the
first award.
This possibility was considered in the 2012 decision of the Alberta Utilities Commission
in Central Alberta Rural Electrification,103 in which two parties claimed the right to serve
electricity customers in the same geographical territory. The two parties had a contract
that contained an arbitration clause and began an arbitration pursuant to that agreement.
The arbitration was heard and the tribunal released its decision, finding in favour of one
of the parties. The losing party then brought a court application for leave to appeal the
arbitration award.
The other party commenced an application before the Utilities Commission, asking it
to rule on the matter. By the time the Commission came to release its decision, the court
had heard the motion for leave to appeal but had not released any decision.
In the circumstances, the Alberta Commission considered whether res judicata or issue
estoppel prevented it from releasing its decision.
The Commission noted that the Supreme Court of Canada in Danyluk104 held that
res judicata may apply to administrative matters. The Commission went on to analyse the
preconditions to the operation of issue estoppel, namely that the same issue is to be decided;
that the decision that created estoppel was final; and that the parties in the two proceedings
are the same parties. The Commission noted that the decision of whether to apply issue
estoppel is always a matter of discretion, citing the Supreme Court in Danyluk:

The rules governing issue estoppel should not be mechanically applied.The underlying purpose
is to balance the public interest in the finality of litigation with the public interest in ensuring
that justice is done on the facts of a particular case. (There are corresponding private interests.)
The first step is to determine whether the moving party (in this case the respondent) has estab-
lished the preconditions to the operation of issue estoppel set out by Dickson J. in Angle. . . . ​If
successful, the court must still determine whether, as a matter of discretion, issue estoppel ought
to be applied.105

101 Danyluk v. Ainsworth Technologies Inc. (2001) 2 SCR 12 at paras. 20 to 22.

102 Chiron Corporation v. Ortho Diagnostics Systems, Inc., 207F, 3d 1/26 (9th Cir. 2000); John Hancock Mutual Life
Insurance Co. v. Belco Petroleum Corp., 88F. 3d. 129 (2nd Cir. 1996).
103 Alberta Utilities Commission, Central Alberta Rural Electrification, Decision 2012-181, 4 July 2012.
104 Danyluk v. Ainsworth Technology (2001) 2 SCR 22.
105 id., at para. 33 (original emphasis) (citation omitted).

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The Alberta Commission concluded that the first two preconditions had not been satis-
fied. It was clear that the arbitrators, in determining the matter, did not focus on legislative
scheme. Rather, the Commission concluded that the arbitrators had focused entirely on the
interpretation of the agreement. Accordingly, the Commission ruled that the issue before it
had not been determined by the arbitrators and that res judicata did not apply.
Res judicata in arbitrations was addressed by the Alberta courts in both Transa Generation
Partnership v. Capital Power106 and Enmax Energy Corporation v.Transalta.107
In Transalta, the Chief Justice of Alberta faced a situation where two parties,Transalta and
Capital Power, had participated in an arbitration under a power purchase agreement. Under
that agreement Transalta purchased power from Capital Power under a 20-year agreement
during which the generator was entitled to recover its operating and capital costs.
To allow for inflation, certain government statistical indices were used to update the
values for the purpose of calculating the payment amounts. That arbitration involved
a dispute regarding the application of the indices and the arbitration panel made a
specific ruling.
A few years later, the same parties faced another dispute under the same agreement.
However, the second dispute related to a different price index. Trans Alta took the position
that the earlier 2011 award was binding on the parties because of the doctrine of res judicata
and issue estoppel, and accordingly Capital Power was barred from taking positions that
were inconsistent with the determinations made in the prior arbitration.
The Chief Justice made three rulings:
• as a matter of law, res judicata and issue estoppel apply to arbitration awards between the
same parties under the same power purchase agreement;
• both Transalta and Capital Power are estopped or barred by res judicata from taking posi-
tions in the current arbitration that are inconsistent with the determinations made in
the previous arbitration; and
• the 2011 award is binding on the parties in the current arbitration to the extent that the
requisite elements of res judicata and issue estoppel are found to exist by the arbitral panel.

The court also ruled that having found that, the doctrine of res judicata applied to arbi-
trations, the question of whether res judicata existed in the facts of the second arbitration
should be determined by the arbitration panel appointed in that hearing. As it happened,
the parties agreed to the same three arbitrators that had heard the first arbitration. Those
arbitrators in the second arbitration agreed that res judicata applied but found that the facts
in the second arbitration were different and accordingly res judicata did not apply in the
second arbitration.
The application of the res judicata doctrine in a NAFTA case was decided for the
first time in Apotex Holdings.108 Apotex Holdings was a Canadian company that produced
generic drugs in Canada while Apotex Inc was a Delaware company that distributed drugs
in the United States produced by Apotex Holdings.

106 Transa Generation Partnership v. Capital Power PPA Management Inc., 2015 ABQB 793.
107 Enmax Energy Corporation v.Transalta Generation Partnership, 2015 ABCA 383.
108 Apotex Holdings Inc. and Apotex Inc. v. United States, ICSID Case No. ARB (AF) /12/1, 25 April 2014.

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For the purpose of selling drugs in the United States, Apotex obtained ‘quasi-import
licences’ called abbreviated new drug applications (ANDAs), which were approved by
the Food and Drug Administration (FDA) in the United States. There were two versions,
however: tentatively approved ANDAs and finally approved ANDAs. The first version had
been considered in an earlier Apotex arbitration. There the tribunal ruled that the tenta-
tively approved ANDAs were not investments for the purpose of NAFTA, and Apotex
therefore did not have a valid NAFTA claim.
The FDA had issued import alerts relating to concerns about the quality of drugs
produced at two Apotex manufacturing plants in Canada. As a result, there were no sales of
Apotex drugs in the United States for two years.
Apotex filed a claim under NAFTA, alleging that the import alerts issued by the
FDA infringed certain protections guaranteed to Apotex under NAFTA by way of the
most-favoured nation provisions of Article 1103.
The United States objected to the application on the ground that Apotex’s finally
approved ANDAs were not within the definition of investment as set out in Article 1139 of
NAFTA. This position was based on a previous arbitration decision in which the tribunal
found that tentatively approved ANDAs were not investments for the purpose of NAFTA
Chapter 11 claims.
The tribunal found that the doctrine of res judicata did applym referring to Grynberg v.
Grenada109 and other authorities. However, arbitrator J William Rowley, appointed by the
claimants, dissented on the basis that there is a difference between the two arbitrations.
Although the parties were the same, the first Apotex award did not decide, and did not need
to decide, whether Apotex’s finally approved ANDAs were to be characterised as property
for the purpose of Article 1139 of NAFTA.
Arbitrator Rowley concluded that a finally approved ANDA could properly be char-
acterised as an investment and was different from a tentatively approved ANDA. A more
recent Rowley decision in Mobile Oil110 held that res judicata did not prevent a claimant
from bringing a second application for further damages.

Disallowance
Energy regulators have additional tools. A regulator is not bound by an arbitration decision
and will often apply a different test – a public interest test. For example, in determining
costs, a regulator will consider the effect on ratepayers. An arbitration, on the other hand,
would probably only consider the effect on the parties.
The best examples of this principle are two decisions – one from Ontario111 and one
from Alberta112 – in which the regulator refused to accept the decision of an independent
arbitrator as a cost for rate-making purposes.

109 Grynberg v. Grenada, ICSID Case No. ARB 10/16 Award, 10 December 2010.
110 Mobile Investment Canada Inc. and Murphy Oil Corp. v. Canada, ICSID Case No. ARB (AF)/07/4, (NAFTA
22 May 2012).
111 Power Workers Union v. Ontario Energy Board, 2013 ONCA 359, 116 OR (3rd) 793.
112 ATCO Gas Ltd and ATCO Electric v. Alberta Utilities Commission, 2013 ABCA 310.

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In Power Workers, the Ontario Energy Board denied Ontario Power Generation (OPG)
recovery of C$145 million of labour costs. Those costs were driven by a collective agree-
ment the utility had entered into with the union two years earlier. In reaching that agree-
ment, the parties had involved an independent arbitrator.
The union and the utility argued that the Ontario Energy Board was required to
presume the compensation costs were prudent. The Board disagreed and found it could
rely on benchmarking studies comparing the OPG labour costs with the costs at other
utilities. The benchmarking studies had been ordered by the Board in an earlier rate case.
As a result of this analysis, the Board disallowed C$145 million of labour costs.
The Ontario Energy Board recognised the constraints on OPG but nonetheless held
that ratepayers were only required to bear reasonable costs. An appeal to the Ontario
Divisional Court upheld the C$145 million reduction, stating that the Board must have the
freedom to reconsider current compensation arrangements to protect the public interest.
That decision was overturned by the Ontario Court of Appeal, which held that the costs
were committed costs fixed by collective agreements and that the Board had violated a
fundamental principle of the prudence test, namely whether an investment or expenditure
decision is prudent must be based on the facts available at the time. The Board cannot
use hindsight.
The ATCO case in Alberta is similar to the Power Workers case. In the former, ATCO
had asked the Utilities Commission to approve a special charge to ratepayers that would
cover an unfunded pension liability of C$157 million. Those costs included a cost-of-
living allowance that was set in advance each year by an independent administrator. The
allowance was set at 100 percent of the consumer price index. As in Power Workers, ATCO
argued that this was a committed cost set by an independent authority and, therefore, was
a prudent expenditure by the utility. The Alberta Commission disagreed and reduced the
cost-of-living allowance to 50 per cent of the consumer price index (CPI).
In disallowing part of the expense, the Commission relied on evidence that an escalator
equal to 100 per cent of the CPI was high by industry standards. ATCO appealed to the
Alberta Court of Appeal, which upheld the Commission’s decision.
The ATCO decision and the Power Workers decision were both appealed to the Supreme
Court of Canada. They were heard jointly in 2015 and the Court upheld the regulator.
There is one ground of non-enforcement that is important in this area: there is a body
of public utility law that governs much of what regulated utilities do. It can be argued that
arbitrators should apply that law. If arbitrators do not apply that law, is it ‘manifest disregard’
for the law? That is a concept more common in the United States than in Canada.
The 2008 decision of the US Supreme Court in Hall Street Associates113 suggests that the
doctrine of manifest disregard is no longer relevant, even in the United States.The question
of whether courts will review an arbitrator’s award because the arbitrator failed to analyse
the proper law has risen in competition law cases. At one time, courts were prepared to
engage in the exercise; however, other cases, such as Baxter International114 and Union Pacific

113 Hall Street Assoc v. Mattell Inc. (2008) 128 S Ct 1396.

114 Baxter International v. Abbott Laboratories, 315 F. 3rd 829 (7th Cir. 2003).

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Resources,115 suggest that is unlikely unless there is an obvious error or an arbitrary or capri-
cious decision. In Canada, the decision of the Supreme Court of Canada in Sattva Capital 116
drastically limits the appeals of arbitral awards in general.
However, the concern remains.There may be a special category of cases, such as arbitra-
tions involving regulated utilities that require special attention by courts. The general rule
may not apply in all cases.
The situation is not unlike that which faced the Federal Power Commission in Gulf
States,117 which involved a utility financing. The intervenors claimed that the financing
would have an anticompetitive effect and the Commission should apply the antitrust laws.
The Commission refused, saying that those laws were irrelevant.
The US Supreme Court reversed, stating that the Federal Power Commission could
not deem those laws irrelevant because the Commission had broad authority to consider
anticompetitive conduct if that touched on the public interest.That case concerned a regu-
lator, but there is no reason why the same principle would not apply to an arbitrator faced
with a similar situation.
Similarly, the European Court of Justice in Eco Swiss118 ruled that a national court
must grant an application for annulment if it finds that an award is contrary to European
competition law.This case is interpreted as meaning that arbitral tribunal is obliged to apply
competition law, and that non-application can be regarded as a breach of public policy
and grounds for non-enforcement. A similar approach was followed by the English courts
in ET Plus SA v.Welter.119 Arbitrations involving regulated public utilities arguably fall into
this category. Even if the courts will not intervene, the regulators may.

Conclusion
The main question this chapter raises is whether disputes involving a regulated utility
should be subject to arbitration and, if so, to what degree? Is there a dividing line?
During at least the past 10 years, courts throughout North America have consist-
ently ruled that they should defer to both regulators and arbitrators. The rationale in both
instances was increased efficiency.
Courts recognise that legislatures have established regulators with special expertise to
adjudicate on a narrow range of matters. The highest courts in Canada and the United
States have consistently stated that, wherever possible, a court should defer to these regula-
tors, not just on matters of fact, but also on the interpretation of their home statute.
At the same time, courts in Canada and the United States have established that, as a
matter of public policy, courts should defer to arbitrators wherever possible.
The challenge we face in energy disputes in the choice between energy regulators and
arbitrators is that we have two specialised adjudicators, both with a high level of expertise.
In the energy world, the rationale for arbitration is different from in the downstream sector.

115 American Gas Eastern Central Texas v. Union Pacific Resources, 93 Fed App1 (5th Cir. 2004).
116 Sattva Capital Corp v. Creston Moly Corp, 2014 SCC 53.
117 Gulf States Utils Co. v. FPC, 411 US 747 (1973).
118 Eco Swiss China Time Limited v. Benetton International NV [1999] ECR 1-3055.
119 ET Plus SA v.Welter (2005) EWHC 2115 (Comm).

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In international arbitrations, parties are driven to arbitration because they are looking
for a neutral court and the ability to enforce an order worldwide; in the downstream
market, that is not the case. These are largely domestic cases. Parties are not concerned
about the lack of a neutral court or the inability to enforce an award.What they do hope to
gain from arbitration is an expertise that they would not get from the court. Most arbitra-
tion panels consist of very seasoned energy counsel and former regulators.
We have an interesting dilemma. We have two adjudicators: both have a high level of
expertise, but we cannot say that one should defer to the other because of expertise, nor
can we really say that one is more efficient than the other.
Arbitration and regulation involve different procedures. Regulation is more lengthy but
is tailored to meet the requirements of energy regulation in terms of obtaining a public
interest viewpoint from different parties. That is not the case in arbitration. Arbitrations
are essentially private disputes using a more streamlined process, with little ability for third
parties to intervene.
Nevertheless, everyone recognises that parallel proceedings are not in the public interest
– they simply increase delay and produce conflicting decisions.
We have faced this matter before. For years, courts have struggled with the question of
whether arbitration should be permitted in competition law, securities law and intellectual
property. The competition law issue was resolved by the US Supreme Court in Mitsubishi.
Subsequent courts have applied the principle to securities and intellectual property.
These are all specialist areas of law with a substantial public interest component.
Initially it was the public interest component that led the courts to take the view that these
matters should not be subject to arbitration. That position has been set aside throughout
North America.
It would be easy to say that if arbitration is possible in competition law, then why
not in energy regulation. However, there is an important difference between the two
legislative schemes.
Competition law is a law of general application. It applies to all companies in the
market­place, and was designed to eliminate monopoly power, whether that results from
mergers, price-fixing or other practices.
Regulated companies are different. They are monopolies, but they are exempt from
competition law. Yet there is a trade-off: they become subject to special legislation and a
special regulator. Of all the regulated segments in the economy today, energy has the most
extensive regulation. It is a very important sector; there are a lot of players and it involves
a lot of regulators.
There are very few subject matters that arbitrators are prohibited from dealing with –
criminal law might be one. But there are areas where arbitrators should step carefully. In the
United States, the federal energy regulator has taken the position that it has exclusive juris-
diction in certain areas and primary jurisdiction in others.There is a related question: where
the jurisdiction is not exclusive, is the arbitrator under a special obligation to consider a
particular body of law? In this case, it would be public utility law.
This question is more complicated in energy than in competition law. In energy regula-
tion, it is clear that there are certain matters that should not be subject to arbitration.

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US courts and regulators talk about the exclusive or primary jurisdiction of energy
regulators. In US energy regulation, this relates to the concept of the filed-rate doctrine,
which we examined earlier in California Water.The doctrine simply means that if a commis-
sion has approved a rate, then the utility cannot create another rate by private agreement.
That is, a utility cannot contract out of regulation. In California Water, the SEC stepped
aside in favour of the arbitrator, having concluded that the matter before the SEC was a
private contract dispute that did not involve an approved tariff. But had there been a tariff,
the result would have been different. The matter would have come within the exclusive
jurisdiction of the regulator.
Every energy regulator in North America has, as a basic statutory mandate, the respon-
sibility to set just and reasonable rates. These are government agencies carrying out a legis-
lative mandate. Once that is done, private parties in arbitrations cannot set them aside. This
principle applies even if a regulated public utility is not one of the parties to the arbitration.
On this question, the Canadian cases reach a slightly different result. In Storm Capital,
the Ontario decision considered above, the court stated that the regulator would have
exclusive jurisdiction only if the legislation specifically provided for that. The Supreme
Court of Canada took this position in Desputeaux, in which the defendant argued that
the Copyright Act gave the Court exclusive power to decide copyright issues. The Court
rejected that argument on the ground that there were no specific statutory words to that
effect. The Alberta Commission in Rural Electrification held that the regulator could decide
the matter notwithstanding the existence of an arbitration decision. The rationale was that
the issue before the regulator was the interpretation of the regulatory statute.That issue was
not before the arbitrator.
This really is just a reformulation of the US primary jurisdiction or exclusive juris-
diction rule. A regulatory statute is different from other statutes because a regulator has
been specifically authorised by the legislature to enforce that particular statute. That is also
the situation in competition law. But there is a difference: energy regulators have specific
jurisdiction over specific companies. In most cases, the regulators license those companies
to operate and their continuing operations are subject to the regulators’ oversight. In most
cases the regulators will also establish, by franchise agreement, the exclusive territory in
which the monopoly can operate. That is not the situation in competition law.
What, then, are the areas that fall under the exclusive jurisdiction of an energy regu-
lator? The short answer might be that it would be those areas for which the regulator has
issued a specific order. That would involve the rates or the prices the utility can charge.
The dividing line is never clear and it requires case-by-case analysis. One example
is access to essential facilities. This is a basic principle of public utility law and a clear
obligation of a regulated utility. But it is also a general principle of competition law. The
issue often arises in merger cases in competition proceedings. In fact, in settling those
cases by consent orders, the competition authorities have often provided for arbitration in
the settlement agreement where there is a dispute as to whether access is being properly
granted. The American antitrust authorities did this in the El Paso Energy and DTE Energy

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merger cases.120 The Canadian authorities did it in the Air Canada and the United Grain
Growers merger cases.121 There is no reason why those disputes would not be within an
arbitrator’s jurisdiction.
One area in which arbitrators are likely to be offside concerns disputes with respect
to franchise agreements. These are often awarded by municipalities and approved by the
regulator. Usually they have a 20-year term, but regulators can and have reduced the term
when they felt the utility was not performing in terms of service quality. An arbitrator
would have no authority to modify a franchise agreement, given that it is subject to a
specific order of the regulator unless the regulator had authorised arbitration as part of the
approved agreement.
The second question is whether, if arbitrators exercise jurisdiction, they have an obliga-
tion to apply the principles of public utility or regulatory law – and what happens if they
do not apply those principles.
The short answer is that if arbitrators are going to deal with disputes involving regulated
utilities, they have to apply the law that applies to those utilities.Those utilities have obliga-
tions established under legislation and court decisions interpreting that legislation.They are
required to meet those standards.
Those standards will affect the manner in which an arbitrator deals with the parties. For
example, under public utility law, regulated utilities have a duty to serve and an obligation
not to discriminate between customers and competitors. Public utilities also have special
rights. In most jurisdictions, regulated public utilities are not subject to the laws of negli-
gence except to the extent of gross negligence.
The gross negligence provision is particularly interesting. Although this was initially a
common law rule, most utilities now have it in their governing statute or regulations. In
Kristian v. Comcast,122 the US Court of Appeals held that the provisions in an arbitration
decision that prevent the exercise of statutory rights under federal or state law are invalid.
Earlier in this chapter, we noted that even if courts elect not to review arbitration
decisions involving regulated public utilities, the regulators may. If a public utility does not
like an arbitration award, the first authority they will run to is not a court but the energy
regulator that controls most of its actions.This is particularly the case in two sets of circum-
stances. First, if the dispute involves the interpretation of a regulatory statute or regulatory
principle; and second, if the arbitrators have failed to consider those laws and jurisprudence.
This is what happened in Central Alberta Rural Electrification, in which the arbitration
award had been issued. One of the parties went to the regulator, which decided the issue,
stating that the regulator was not bound by res judicata because the arbitrator had not
considered the regulatory statute, which was the issue before the regulator.

120 In re. El Paso Energy Corp. No.C-3915, 2000 FTC LEXIS 7 (FTC, 6 January 2000) (decision and order);
In re. DTE Energy Co. [2001] 131 FTC 962 (decision and order).
121 Canada (Director of Investigations and Research) v. Air Canada [1989], 27 CPR (3d) 476 (Competition Tribunal);
Canada (Commissioner of Competition) v. United Grain Growers Limited, Competition Tribunal, CT-2002/01,
Consent Order (17 October 2002).
122 Kristiana v. Comcast Corp, 446 F 3rd 25 (1st Cir. 2006).

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Next, an application was made to the court for leave to appeal the arbitration award.
The court refused to grant leave because it recognised that the regulator had intervened
and deference should be accorded. It was pretty clear that the Canadian court was deferring
to the regulator and had essentially adopted a US primary jurisdiction rule.
There is no reason why the arbitrator could not have dealt with the regulatory legisla-
tion.The arbitrator did not and the regulator moved in.The interesting question is whether
regulators will insist that they have exclusive jurisdiction.
It is likely that regulators will defer to arbitrators on public policy grounds. However, it
will be a more cautious deference than courts grant, particularly if their home statute is at
issue. And if it is, and the arbitrators have not considered the legislation or have considered
it wrongly, the regulator is likely to exercise primary jurisdiction.
In the end, this simply means that where arbitrators move into areas of public law,
particularly regulatory law, and one of the parties before them is a regulated utility, then
they should be aware of the special laws that apply to the industry and to publicly regulated
utilities in particular. It also means that this type of arbitration is more reviewable than most
– if not by the court, then certainly by the regulator. And if a court has to choose between
an arbitrator and a regulator in these cases, the regulator will probably get the nod.
There is no clear distinction, but if the subject is an area in which the regulator has a
record of exercising jurisdiction and has issued orders directed at the utility in question, a
red light should flash.

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6
NAFTA Energy Arbitrations

Gordon E Kaiser1

The North American Free Trade Agreement (NAFTA) came to an end on 1 July 2020.After
24 years, it has been replaced by a new agreement called the Canada-United States-Mexico
Agreement.2 The main impact as far as the energy sector is concerned was elimination of
the famous Chapter 11 dispute resolution provision. Chapter 11 of NAFTA gave private
investors the right to bring claims directly and unilaterally in the host country. This was
unique at the time when the arbitration world was dominated by state-to-state proceeding.
Chapter 11 requires that the host:
• must treat the foreign investor and its investments with ‘treatment no less favorable than
it accords, in like circumstances, to its own investors’(Article 1102) or ‘to investors of
any other Party’(Article 1103);
• must provide investments with the better of the treatment accorded to its own investors
or to the investors of any other Party (Article 1104);
• must provide investments of investors with ‘fair and equitable treatment and full protec-
tion and security’ (Article 1105);
• is prohibited from imposing certain trade-distorting performance requirements, such as
requiring a given level of domestic content (Article 1106); and
• must not directly or indirectly nationalise or expropriate an investment or take measures
tantamount to nationalisation or expropriation, subject to various exceptions requiring
fair market value compensation (Article 1110).

The state-to-state proceedings continue under the new agreement. The private action,
however, is gone, although there are transition provisions. Investors harmed prior to
1 July 2020 have three years to bring the claim.

1 Gordon E Kaiser is an arbitrator practising at Energy Arbitration Chambers, Toronto and Washington, DC.
2 Also called the United States-Mexico-Canada Agreement (30 November 2018).

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Chapter 11 has had a major impact on the energy sector in Canada. To put things in
perspective, there have been 40 NAFTA decisions to date. Of those, 17 were against Canada,
11 were against the United States and 12 were against Mexico. Canada has managed to lose
nine cases, Mexico has lost five, while the United States has lost none.
Of the 17 cases against Canada, the energy sector accounts for four,3 and three more are
currently before tribunals.4 The purpose of NAFTA was to promote foreign investment.
Certainly the Canadian energy sector was a major beneficiary. Canadian oil and gas explo-
ration and pipelines are dominated by US investment.
The original NAFTA agreement was negotiated over five years. An agreement in prin-
ciple was signed by President Reagan and Prime Minister Mulroney at the Shamrock
Summit in Quebec City in 1985. It was called the Shamrock Summit because the two
Irishmen treated their dinner guests to a fine rendition of the song, ‘When Irish Eyes
are Smiling’. Twenty-four years later, when Prime Minister Trudeau and President Trump
signed the new agreement in Buenos Aires, no one was singing.
One thing the Canadians and the Americans agreed on was that the Chapter 11 should
be scrapped. Canada believed that it had lost too many NAFTA arbitrations. But both coun-
tries disliked the fact that foreign investors could use NAFTA to override domestic legisla-
tion that both governments believed was in the public interest. In October 2017, 230 law
and economics professors asked President Trump to remove the Chapter 11 dispute resolu-
tion provision from NAFTA. That letter referred to Chief Justice John Roberts’ dissent in
BG Group v. Republic of Argentina,5 claiming that NAFTA arbitration panels held alarming
powers to review the laws and ‘effectively annul the acts of its legislature and judiciary’.
NAFTA arbitrators, the Chief Justice said, ‘can meet literally anywhere in the world and sit
in judgment on the nation’s sovereign acts’. The October 2017 letter reveals the concern.6
Nowhere was this policy conflict clearer than in the Canadian energy sector, where the
decisions of Canadian energy regulators and legislation enacted by provincial governments
was constantly challenged by US investors.
In Mobil Oil,7 two American companies questioned a decision of the Canadian
Newfoundland Offshore Board. Mobile first went to the Canadian courts.8 When that
failed, they brought a NAFTA claim, in which they succeeded. In Mesa Power9 and
Windstream Energy,10 American investors challenged the Ontario government’s admin-

3 Mobile Investment Canada Inc. and Murphy Oil Corp. v. Canada, ICSID Case No. ARB (AF)/107/4, (NAFTA
20 Feb 2015); Mesa Power Group LLC v. Government of Canada, PCA Case No. 2012-17, 24 Mar 2016;
Windstream Energy LLC v. Government of Canada, PCA Case No. 2013-22, 27 Sep 2016; Mercer International Inc.
v. Government of Canada, ICSID Case No. ARB (AF) 12/3 paras. 2.6 to 2.7 (6 Mar 2018).
4 Lone Pine Resources Inc. v. Gov’t of Canada, No. UNCT/15/2, para. 14 (NAFTA 6 Sep 2013); Westmoreland
Mining Holdings v. Government of Canada (NAFTA 12 Apr 2019); Tennant Energy LLC v. Government of Canada,
Notice of Arbitration 1 Jun 2017.
5 512 US 2014.
6 See https://www8.gsb.columbia.edu/faculty/jstiglitz/sites/jstiglitz/files/2017%20Letter%20to%20Pres.pdf.
7 Mobile Investment Canada Inc. and Murphy Oil Corp. v. Canada, ICSID Case No. ARB (AF)/07/4, (NAFTA
22 May 2012).
8 Hibernia Management and Development Co. v. Canada Newfoundland Offshore Board [2007] NJ No. 168; Hibernia
Management and Development Co. v. Canada Newfoundland Offshore Board [2008] NJ No. 310.
9 Mesa Power Group LLC v. Government of Canada, PCA Case No. 2012-17, 24 Mar 2016.
10 Windstream Energy LLC v. Government of Canada, PCA Case No. 2013-22, 27 Sep 2016.

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istration of its feed-in tariff (FIT) programme, which was to used promote renewable
energy. That resulted in the largest NAFTA award against Canada. In Mercer International,11
a US company filed a C$250 million NAFTA claim against Canada based on the actions
of the British Columbia Utilities Commission and BC Hydro, a government-owned utility
serving the entire province. Again the investors went to the Commission first. When that
failed, they went to NAFTA and ended up with an award.12
In Lone Pine Resources,13 a US-based exploration company launched a claim against the
province of Quebec’s decision to suspend oil and gas exploration under the St Lawrence
River.This case is still before the tribunal. Another case still before a tribunal is Westmoreland
Coal.14 Here a US company brought a C$470 million claim relating to the Alberta govern-
ment’s decision to eliminate the generation of electricity by coal. The investor is not ques-
tioning the legislation but the lack of compensation it received.
Canadians have also used the NAFTA Chapter 11 provisions to advance their own
interests. The most famous claim and the largest in history was the C$15 billion claim
TransCanada brought against the United States when former President Barack Obama
refused to grant TransCanada a permit to build the Keystone XL pipeline.15 That claim was
withdrawn when President Trump was elected. In his first day on the job, President Trump
granted the essential presidential permit to TransCanada. A Presidential permit was required
for Keystone XL because the pipeline crossed an international boundary. That challenge is
not over.There is a presidential election coming in November.The front runner, Joe Biden,
has indicated he will cancel Keystone XL if elected. Stay tuned.
Ultimately, the question is whether the removal of Chapter 11 creates problems for the
Canadian energy industry.This important question is addressed in the Conclusion.There is
good news and bad news. It depends on what kind of investor is involved. Is it a Canadian
investor or a US investor? Is the investment in Canada or the United States? Before turning
to these questions, it is useful to review the NAFTA arbitrations in the Canadian energy
sector to date.

The energy arbitrations

There have been four NAFTA decisions dealing with the Canadian energy sector to date,
and three more are under way. They all involve claims by US investors challenging the
decisions of Canadian energy regulators or energy legislation enacted by provincial govern-
ments. They include decisions by the Canada Newfoundland Offshore Petroleum Board
to change its regulations, the British Columbia Utilities Commission to set electricity
pricing, an Ontario government decision not to grant onshore wind contracts, an Ontario
government decision to suspend offshore wind programmes, a decision by the Quebec
government to ban fracking under the St Lawrence River and a decision by the Alberta

11 Mercer International Inc. v. Government of Canada, ICSID Case No. ARB (AF) 12/3 paras. 2.6 to 2.7
(6 Mar 2018).
12 Mobile Investment Canada Inc. and Murphy Oil Corp. v. Canada, ICSID Case No. ARB (AF)/07/4, (NAFTA
22 May 2012).
13 Lone Pine Resources Inc. v. Gov’t of Canada, No. UNCT/15/2 (NAFTA 6 Sep 2013).
14 Westmoreland Mining Holdings v. Government of Canada (NAFTA 12 Apr 2019).
15 TransCanada Corporation v.TransCanada Pipelines Limited, Notice of Intent (6 Jan 2016).

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government to eliminate the generation of electricity by coal. These are all decisions by
provincial governments or their energy regulators. Under NAFTA, the government of
Canada is required to defend. If Canada loses, Canada sends the bill to the province.

Mobil Oil Corporation

In August 2007, two US companies, Mobile Investment Canada and Murphy Oil
Corporation, filed a NAFTA claim for C$60 million against Canada.16 The two
US companies were partners in an offshore drilling project off the coast of Newfoundland,
which was regulated jointly by the federal government and the province through the
Canada Newfoundland Offshore Petroleum Board.
To obtain a licence to drill, the companies had been required to submit proposals to
the Board to approve their development plan. That plan included commitments regarding
research and development.The Board provided guidelines, none of which required specific
expenditure amounts. The Board had changed this practice in 2004 and introduced new
guidelines with specific expenditure targets. The claimants objected to the new guidelines,
arguing that they represented a fundamental shift in regulation that undermined the project.
Mobile first went to the courts.17 When that failed, Mobile brought a NAFTA claim.18 In
May 2012, a tribunal majority found that Canada had violated NAFTA Article 1106.19
Three years later, the tribunal ordered damages of C$132 million.20 A set-aside application
by Canada was dismissed by the courts.21
Mobile brought a second claim for future damages relating to the 2012–2015 period,
which was not covered in the original award.22 Despite Canada’s objections that the second
claim was barred by the three-year time limit under NAFTA and the doctrine of res judicata,
the panel allowed the claim to proceed.23 The parties subsequently extended the damage
period to 2036, the date when the Mobile Oil projects in Canada would end. The parties
then reached a settlement. It was incorporated into a consent order issued by the tribunal
on 4 February 2020, granting further damages of C$35 million.24

16 Mobil Investments Inc. and Murphy Oil Corporation v. Government of Canada (19 Dec 2017)
17 Hibernia Management and Development Co. v. Canada Newfoundland Offshore Board [2007] NJ No. 168; Hibernia
Management and Development Co. v. Canada Newfoundland Offshore Board [2008] NJ No. 310.
18 Request for Arbitration, Mobile Investment Canada Inc. and Murphy Oil Corp. v. Canada, ICSID Case No. ARB
(AF)/07/4 para. 3 (NAFTA 1 Nov 2007).
19 Mobile Investment Canada Inc. and Murphy Oil Corp. v. Canada, ICSID Case No. ARB (AF)/07/4, (NAFTA
22 May 2012).
20 Mobile Investment Canada Inc. and Murphy Oil Corp. v. Canada, ICSID Case No. ARB (AF)/107/4, (NAFTA
20 Feb 2015).
21 Attorney General of Canada v. Mobile Investment Canada Inc., 2016 ONSC 790 (Can.).
22 Mobile Investment Canada Inc. v. Canada, ICSID Case No. ARB/15/6 (NAFTA 16 Oct 2014).
23 Decision on Jurisdiction and Admissibility, Mobile Investment Canada Inc. v. Government of Canada, ICSID Case
No. ARB/15/6 para. 100 (NAFTA 13 Jul 2018).
24 Mobile Investment Canada Inc. v. Government of Canada, ICSID Case No. ARB/15/6 para. 6 (NAFTA
4 Feb. 2020).

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Mesa Power Group

The decision of the NAFTA panel in Mesa Power involved claims under Article 1105 of
NAFTA. In September 2009, the Ontario Minister of Energy directed the Ontario Power
Authority (OPA) to create the FIT programme, which established the eligibility criteria,
the criteria for evaluating applications, the deadlines for commercial operation and the
domestic content requirements.Those were originally set at 25 per cent but were increased
later to 50 per cent. The domestic content requirements were subsequently challenged
under another regulatory regime.
The FIT programme offered 20-year power purchase agreements with the OPA, under
which the generator was a guaranteed a fixed price per kilowatt hour for electricity deliv-
ered to the Ontario grid. Contracts were available for projects located in Ontario that
generated electricity exclusively from renewable energy. Applicants also had to establish
that the project could be connected to the electricity grid through a distribution system or
transmission system. That proved to be a particular problem for Mesa Power.
In 2011, Mesa Power Group, a US corporation owned by Texas oil tycoon T Boone
Pickens, filed a C$775 million claim against Canada relating to the province of Ontario’s
policy of awarding power purchase agreements under the Ontario FIT programme for the
supply of renewable energy. Mesa claimed that Canada adopted discriminatory measures,
imposed minimum domestic content requirements and failed to provide Mesa with the
minimum standard treatment, in violation of NAFTA’s investment provisions. In the end,
the tribunal dismissed all of Mesa’s claims and ordered Mesa to bear the cost of the arbitra-
tion and a portion of Canada’s legal costs of nearly C$3 million.
Mesa argued that the reason it did not receive any FIT contracts was that the programme
was mismanaged and Mesa was discriminated against when Ontario granted unwarranted
preferences to two other applicants. Windstream turned on the legitimacy of the mora-
torium issued by Ontario to defer all offshore wind generation and the conduct of the
Ontario government following the announcement of that moratorium.
The OPA launched the FIT programme in October 2009. During the first round of
contracting, it reviewed 337 applications and granted 184 contracts for a total of 2,500MW
of capacity. The second round took place in February 2011. Forty FIT contracts for a total
of 872MW were issued. The third round took place in July 2011, resulting in 14 contracts
totalling 749MW.
Mesa Power filed six applications under the FIT programme but was unsuccessful in
all three rounds of contracting. The problem was that all the MESA projects were located
in Bruce County. To obtain a contract, all applicants had to demonstrate that they had
the right to connect to the transmission system. Mesa was unable to obtain transmission
connection because of the transmission constraints in Bruce County.
Mesa argued that the failure to acquire transmission access was because of flaws in
the contracting process and preferences granted to two other parties, namely NextEra
Energy, Inc (an affiliate of Florida Light and Power) and a Korean consortium led by
Samsung. Mesa argued that this conduct amounted to a breach of Article 1105(1) of NAFTA.

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Before the tribunal could determine whether Canada had failed to grant Mesa Power
fair and equitable treatment, the tribunal had to define that term. The panel relied on the
often quoted standard set out in Waste Management:

the minimum standard of treatment of fair and equitable treatment is infringed by conduct
attributable to the State and harmful to the claimant if the conduct is arbitrary, grossly unfair,
unjust or idiosyncratic, is discriminatory and exposes the claimant to sectional or racial prejudice,
or involves a lack of due process leading to an outcome which offends judicial propriety – as
might be the case with a manifest failure of natural justice in judicial proceedings or a complete
lack of transparency and candour in an administrative process. In applying this standard it is
relevant that the treatment is in breach of representations made by the host State which were
reasonably relied on by the claimant.

The tribunal in Mesa Power went further, stating:

On this basis, the Tribunal considers that the following components can be said to form part
of Article 1105: arbitrariness; ‘gross’ unfairness; discrimination; ‘complete’ lack of transparency
and candor in an administrative process; lack of due process ‘leading to an outcome which offends
judicial propriety’; and ‘manifest failure’ of natural justice in judicial proceedings. Further, the
Tribunal shares the view held by a majority of NAFTA tribunals that the failure to respect an
investor’s legitimate expectations in and of itself does not constitute a breach of Article 1105,
but is an element to take into account when assessing whether other components of the standard
are breached.

The tribunal rejected all three claims by Mesa that Canada had breached the fair and
equitable treatment provisions of Article 1105 of NAFTA. The tribunal also rejected the
allegation that the OPA had mismanaged the programme and did not treat all appli-
cants fairly, noting that the OPA had retained an independent monitor to administer the
FIT programme.
The tribunal next discounted the charge that NextEra had met with government offi-
cials, noting that this was common practice in the industry and there was no evidence of
any preference. NextEra was given access to transmission facilities in Bruce County at one
point, but apparently Mesa was also offered the opportunity.
The most contentious part of the Mesa allegations were related to the Korean consor-
tium agreement. Mesa had argued that the agreement between Ontario and the Korean
consortium unfairly diminished the prospects for other investors, including Mesa, that were
already participating in the renewable energy programme by setting aside transmission
capacity for the Korean consortium that was intended for FIT applicants. Mesa also argued
that Ontario was less than transparent in negotiating the agreement, and issued inaccurate
and incomplete information. Canada responded that there was nothing manifestly arbitrary
or unfair when a government enters into an investment agreement that grants advantages
to an investor in exchange for investment commitments.
There were two points of dissent in Mesa made by the Honourable Charles N Brower.
Canada had argued that its obligations under Articles 1102 and 1106 of NAFTA did
not apply because the investment under the FIT programme was procurement under

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Article 1108.The majority concluded that the FIT programme did constitute procurement
and dismissed the claims under Article 1102. Judge Brower dissented from the finding that
the FIT agreement constituted procurement.
Judge Brower did agree with the majority that any breach of Article 1105 should be
defined by the test in Waste Management, which required a finding of gross unfairness,
complete lack of transparency and lack of due process leading to an outcome that offends
judicial propriety. The majority, however, did not believe that the evidence supported that
conclusion. In addition, the majority found that states should be given a high level of defer-
ence in deciding how to regulate their affairs. Judge Brower dissented from that finding,
stating that Canada had breached Article 1105 by the ‘grotesque’ preference given to the
Korean consortium:

The nub of what I see as Ontario’s, hence Canada’s, violation of Article 1105 is that it torpe-
doed the Feed-In Tariff (‘FIT’) program as offered at large, including in relation to Claimant’s
Arran and TTD projects, to the extent of the 500 megawatts (‘MW’) committed to the Korean
Consortium on 17 September 2010 in implementation of the Green Energy Investment
Agreement. . . . ​Up until then Claimant’s projects, as well as all other FIT applicants, had
been competing for capacity that had been 500 MW or greater. Moreover, – and this can only
be characterized as grotesque – as it actually happened, the Korean Consortium was thereby
enabled to acquire low-ranked FIT applicants in order to fill its allotted 500 MW, thereby
jumping clear losers in the FIT Program over higher-ranked, but ultimately unsuccessful FIT
applicants, due to the reduced available megawattage. This effectively stood the FIT Program
on its head, turned it upside down. Thus the Government of Ontario acted arbitrarily, grossly
unfairly, unjustly, idiosyncratically, discriminated against the FIT applicants and in favor of the
Korean Consortium, and acted with a complete lack of transparency and candor.

Windstream Energy
In October 2012, Windstream Energy filed a claim against the government of Canada
in the amount of C$475 million. Following a 10-day hearing in February 2016, a panel
of three arbitrators issued an award of C$26 million, resulting from Ontario’s decision in
2011 to suspend all offshore wind development.
The panel accepted Windstream’s argument that the government’s decision frustrated
Windstream’s ability to obtain the benefits of the 2010 contract it had signed with the OPA.
In November 2009, Windstream had submitted 11 FIT applications for wind power
projects, including an application for a 300MW 130-turbine offshore wind project near
Wolfe Island in Lake Ontario. The OPA offered Windstream a FIT contract in May 2010,
which Windstream signed in August of that year. Under the contract, the OPA would
pay Windstream a fixed price for power for 20 years. In total, the contract was worth
C$5.2 billion.
During this period, the Ontario government was conducting a policy review to develop
the regulatory framework for offshore wind projects, including a proposed 5km shore-
line exclusion zone. The policy review ceased on 11 February 2011, when the govern-
ment of Ontario decided to suspend all offshore wind development until further research
was completed.

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The main ground for the Windstream claim was that the Ontario decision was arbi-
trary and was based on political concerns that the wind contracts would increase elec-
tricity rates. Windstream argued that the government really had no intention of pursuing
scientific research. Canada, in response, said that Ontario was entitled to proceed with
caution on offshore wind development and that NAFTA does not prohibit reasonable
regulatory delays.
Windstream made a number of claims under NAFTA. The most important (and the
only one that succeeded) was a breach of Article 1105(1) (the minimum standard of treat-
ment provision), which reads: ‘Each Party shall accord to investments of another Party
treatment in accordance with international law, including fair and equitable treatment and
full protection and security.’
In finding that there was a breach, the tribunal questioned whether the real rationale
for the moratorium was the need for more scientific research. Just as important was the
tribunal finding that Ontario made little, if any, efforts to accommodate Windstream, and
seemed to deliberately keep Windstream in the dark. This is best set out in the decision at
paragraphs 366 and 367:

The Tribunal notes that following the signing of the FIT Contract on 20 August 2010,
the position of the Government of Ontario grew gradually more ambiguous towards the
development of offshore wind. Thus, while the Government appears to have envisaged still
in August 2010 that the relevant regulatory framework, including the setback requirements,
would be in place possibly . . . ​its position started changing in the fall of 2010. This change
appears to have coincided with the receipt and analysis of the information generated through
the EBR posting of 25 June 2010, which indicated an increasing resistance to the develop-
ment of offshore wind. . . . ​It does not appear from the evidence that the various options that
were being considered and the related concerns were communicated to Windstream, either at
the meetings between the government officials and Windstream representatives or otherwise.
On 10 December 2010, Windstream delivered a force majeure notice to the OPA, effective
from 22 November 2010, stating that MNR’s failure to proceed with the permitting process,
in particular the site release process, and MOE’s failure to take steps to implement its policy
proposal to create an exclusion zone, had prevented Windstream from progressing the Project in
accordance with the FIT Contract.

The tribunal concluded at paragraph 380:

The Tribunal concludes that the failure of the Government of Ontario to take the necessary
measures, including when necessary by way of directing the OPA, within a reasonable period
of time after the imposition of the moratorium to bring clarity to the regulatory uncertainty
surrounding the status and the development of the Project created by the moratorium, consti-
tutes a breach of Article 1105(1) of NAFTA. It was indeed the Government of Ontario that
imposed the moratorium, not the OPA, so it cannot be said that the resulting regulatory and
contractual limbo was a result of the Claimant’s own failure to negotiate a reasonable settlement
with the OPA. The regulatory and contractual limbo in which the Claimant found itself in
the years following the imposition of the moratorium was a result of acts and omissions of the
Government of Ontario, and as such is attributable to the Respondent. The Tribunal therefore
need not consider whether the conduct of the OPA during the relevant period must also be
considered attributable to the Respondent.

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There was a further claim by Windstream that Ontario had violated Article 1102 of NAFTA
by granting Windstream less favourable treatment than was accorded to other entities in
similar circumstances. It was argued that the treatment of Windstream was less favourable
than the treatment Ontario granted to TransCanada.
Both TransCanada and Windstream were parties to power purchase agreements with the
OPA that guaranteed a fixed price for electricity. Both contracts were terminated. However,
when Ontario terminated the TransCanada contract, Ontario awarded TransCanada a new
project and compensated it for the costs of the cancellation. In contrast, Ontario failed to
do the same for Windstream following the offshore moratorium.
The tribunal rejected Windstream’s argument, noting that Article 1102 deals with
national treatment and most-favoured nation treatment. However, the tribunal concluded
that TransCanada was not in like circumstances. Unlike TransCanada, Windstream had a
FIT contract for offshore wind.
There is no question that the TransCanada project was different from the Windstream
project. TransCanada had a contract with the OPA to build a gas generation plant in
Mississauga, near Toronto. The local residents were not happy with this, and the Liberal
government cancelled the project in the heat of the provincial election.To keep TransCanada
happy, the OPA negotiated an agreement that reimbursed TransCanada for its costs and
issued a new contract in another area.
The circumstances were different and so was the government’s response. In TransCanada,
there was extensive negotiation, whereas in Windstream there was none. The tribunal
concluded that the two projects were totally different and, therefore, did not result in like
circumstances. TransCanada does not even provide renewable energy, which is the basis of
all FIT contracts.
Accordingly, the tribunal ruled that the moratorium and related measures did not apply
to TransCanada in the first place. TransCanada was not affected by the moratorium on
offshore wind. Moreover, the tribunal ruled that the moratorium was not applied in a
discriminatory manner because it resulted in the cancellation of all offshore wind projects.
Windstream had the only contract for offshore wind and, therefore, the tribunal concluded
that it could not agree that Windstream had been treated less favourably than other devel-
opers of offshore wind.

Mercer International
In 2012, Mercer International, a US company, filed a C$250 million NAFTA claim against
Canada.25 The claim related to the company’s investment in a pulp mill located in Castlegar,
British Columbia. The mill also operated an energy generation facility fuelled by biomass,
which qualified as renewable energy under British Columbia regulation.
The claim related to actions by BC Hydro, a government-owned utility, that provided
electricity to most of British Columbia and that regulated the distribution of electricity in
that province. A second utility, Fortis, provided electricity to a small portion of the province,
including the Mercer pulp mill in Castlegar.

25 Notice of intent to submit a claim to arbitration under Chapter Eleven and Articles 1503(2) And 1502(3)(A)
of the North American Free Trade Agreement, Mercer International Inc. v. Government of Canada, ICSID Case
No. ARB (AF) 12/3 (NAFTA 26 Jan 2012).

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The central issue was that Mercer was engaged in the arbitrage of power and BC Hydro
and the British Columbia Utilities Commission (BCUC) took steps to prevent it.26 Mercer
required a significant amount of electricity for its own use at its mill. For some time, Mercer
was allowed to purchase that electricity from Fortis at low cost-based rates. At the same
time, Mercer was able to sell the renewable electricity generated at its facility using biomass
at market rates.
Mercer alleged that BC Hydro and the BCUC through their joint action had a created
new regulatory regime that required Mercer to use its own self-generated electricity
first before selling electricity to the grid at market prices.27 This removed the arbitrage
profit. Mercer argued that the other pulp mills in British Columbia were doing the same
thing and it was being discriminated against, contrary to Articles 1102, 1103 and 1503 of
NAFTA. The tribunal ruled against Mercer and ordered Mercer to pay Canada’s costs of
C$9 million.
There were a number of complexities in this case. First, Canada argued that the BC Hydro
conduct was shielded by the government procurement protections in Article 1108(7) of
NAFTA.The panel also questioned whether the BCUC ruling was discriminatory, contrary
to Articles 1102, 1103 and 1503 of NAFTA.28 It turned out that Mercer was the only pulp
mill buying electricity from Fortis – the others were being served by BC Hydro and, there-
fore, they were not on the same footing or subject to the same regulatory ruling.
There was also a question of whether Mercer was late filing its claim and violated the
three-year time limit under Articles 1116 and 1117 of NAFTA. The limitation period
involved a review of the earlier NAFTA decision in Grand River.29 The question was about
the date on which the investor first acquired or should have acquired knowledge of the
alleged breach and the resulting damage. The panel ultimately found that some of the
claims were time barred.30
It should be noted that Mercer first raised this complaint before the BCUC, which
ruled against it.31 The BCUC decision effectively ruled that self-generating customers had
to first supply their requirements from their own production before they could purchase
embedded low-cost power from Fortis.
Mercer was the only pulp mill buying electricity from Fortis.32 The other pulp mills
were purchasing from BC Hydro under a different regulatory regime. The panel ruled that
the facts did not support a finding of discriminatory treatment, dismissing the application
and awarding costs against Mercer.

26 Mercer International Inc. v. Government of Canada, ICSID Case No. ARB (AF) 12/3 paras. 2.6 to 2.7
(6 Mar 2018).
27 id., at para. 7.53.
28 id., at para. 7.40.
29 Grand River Enterprises Six Nations Ltd. v. United States of America, UNCITRAL (20 Jul 2006).
30 Mercer International Inc. v. Government of Canada, ICSID Case No. ARB (AF) 12/3 para. 8.3 (6 Mar 2018).
31 In the Matter the Utilities Commission Act, R.S.B.C. 1996, Chapter 473 and An Application by British
Columbia Hydro and Power Authority to Amend Section 2.1 of Rate Schedule 3808 (RS 3808) Power
Purchase Agreement, Order No. G-48-09 (British Columbia Util. Comm’n, 6 May 2009).
32 Mercer International Inc. v. Government of Canada, ICSID Case No. ARB (AF) 12/3 para. 2.31 (6 Mar 2018).

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Lone Pine Resources

In September 2013, Lone Pine Resources, a US-based gas and exploration company,
launched a C$119 million challenge against Canada under NAFTA.33 The claim related
to the Province of Quebec’s suspension of oil and gas exploration under the St Lawrence
River.The moratorium was part of a wider Quebec suspension of fracking, a form of hori-
zontal drilling that has already been suspended in other US states and Canadian provinces.
Quebec declared the moratorium in 2011, to conduct environmental impact studies
concerning the use of the chemicals involved and the effects on groundwater. This was of
particular concern given that the permits that Lone Pine had acquired cover land directly
under the St Lawrence River.
Lone Pine alleged that the moratorium contravenes Articles 1105 (minimum standard
of treatment) and 1110 (expropriation) of NAFTA.34 More specifically, the claimant alleged
that the passing of the legislation that created the moratorium was arbitrary, unfair and
inequitable, and was based on political and populist grounds rather than actual environ-
mental research. The claimant alleged that the revocation of the licence expropriated its
investment without compensation.
The government of Canada responded that the action was a legitimate measure in
the public interest that applied indiscriminately to all holders of exploration licences that
are located under or near the St Lawrence River.35 Canada argued that the legislation
was enacted by a fundamental democratic institution in Quebec and was preceded by
numerous studies that established the need to achieve an important public policy objective,
namely the protection of the St Lawrence River.
Canada argued that the minimum standard treatment guaranteed in Article 1105 of
NAFTA does not protect investors’ legitimate expectations. Even if this were the case,
Canada said no representative of the government of Quebec communicated to the
claimant any guarantee, promise or specific assurance that could create legitimate expecta-
tions relating to the development of hydrocarbon reserves and resources that may be found
beneath the St Lawrence River.
Canada has also argued that the disputed measure does not substantially deprive Lone
Pine of its investment because the legislation only revokes one of five exploration licences
granted. Finally, Canada pointed out that the act is a legitimate exercise of the government
of Quebec’s police power and, accordingly, the measure cannot constitute expropriation.36

33 Lone Pine Resources Inc. v. Gov’t of Canada, No. UNCT/15/2 (NAFTA 6 Sep 2013).
34 id., at para. 14.
35 Arbitration Under Chapter Eleven of the North American Free Trade Agreement and the UNCITRAL
Arbitration Rules, Lone Pine Resources Inc. v. Gov’t of Canada, No. UNCT/15/2 (NAFTA 27 Feb 2015).
36 id.

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Keystone XL
In most of the NAFTA energy arbitrations, the United States is the claimant and Canada
is playing defence. The one exception took place in 2016 when TransCanada, a company
based in Calgary, Alberta, filed a C$15 billion NAFTA investor claim against the United
States after former President Barack Obama rejected its application for a presidential permit
to approve the construction of the Keystone XL pipeline.37
In January 2015, both the House and the Senate passed legislation that approved
Keystone XL, but failed to get the two-thirds majority required to override a presidential
veto.38 When President Obama exercised his veto,TransCanada filed a claim under NAFTA
arguing that the denial of the presidential permit for Keystone XL was arbitrary, unjusti-
fied, and breached the US administration’s NAFTA obligations. A presidential permit was
required for Keystone XL because the pipeline crossed an international boundary.
This all turned around when Donald J Trump won the next election and moved into
the White House. One of the first acts by the new president was to sign an Executive Order
approving the 1179-mile line.39 Two days later, TransCanada withdrew the NAFTA claim.

Westmoreland Coal
In August 2019, Westmoreland Mining, a US company, filed a C$470 million damages
claim against the government of Canada for breaches by the province of Alberta of
Articles 1102 and 1105 of NAFTA.40 In 2013, Westmoreland acquired a number of
coal mines, including the ‘mine-mouth’ operations in Alberta at issue in this dispute.
Mine-mouth coal operations are coal mines located adjacent to power plants so that the
coal can be delivered to the power plant economically.
The value of Westmoreland’s investment was threatened in November 2015 when a
new Alberta provincial government announced its Climate Leadership Plan. Alberta, which
historically had relied primarily on its abundant coal supply to fuel its power plants, decided
that it wanted to eliminate all power emanating from coal by 2030. Alberta agreed to
pay out nearly C$1.4 billion to three coal-consuming power utilities, all of which were
Albertan companies. Two of the three, TransAlta and Capital Power, also owned interests in
mine-mouth coal mines, and the compensation valued those assets. Westmoreland, unlike
the three Alberta companies, was not compensated for the early closure of its mines.
When the coal payouts were issued to the companies, Alberta’s Minister of Energy
stated that they were intended to compensate for the ‘economic disruption to their capital
investments’ caused by the sudden policy shift and to ‘provide investor confidence and
encourage them to participate in Alberta’s transition from coal’. Westmoreland argued that
Alberta’s plan to ‘compensate Albertan coal mine operators for the loss of their investments,
to the exclusion of the only American coal mine operator, denied Westmoreland national
treatment under Article 1102 and treated the company unfairly and inequitably, in violation
of NAFTA Article 1105’.41

37 TransCanada Corporation v.TransCanada Pipelines Limited, Notice of Intent (6 Jan 2016).

38 S. Doc. No. 114-2 (24 Feb 2015).
39 Donald J Trump, Office of the President, Presidential Permit, Energy & Environment (29 Mar 2019).
40 Westmoreland Mining Holdings v. Government of Canada (NAFTA 12 Apr 2019).
41 id., at para. 13.

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Canada, in its defence, disputes the claimant’s allegation that Alberta coal mine opera-
tors were paid millions of dollars for the economic disruption to their operations when
none was paid to the only American coal mine operator. Canada claims that no company
or individual received any payment from the government of Alberta with respect to any
interest in a mine under the government’s 2015 Climate Leadership Plan, designed in part
to eliminate the generation of electricity by coal.
Canada further claims that the plan took no policy stance on continued coal mining in
the province. Rather Canada argues that the payments in question were voluntary payments
that the government of Alberta undertook in 2016 to provide the owners of six coal-fired
generating units in the province with an incentive to reduce carbon emissions by moving
from generating electricity by coal to generation by natural gas. Canada argues that the
payments had two objectives. The first was to reduce emissions from electricity generation.
The second goal was to ensure that the generating plants would continue operating and
provide electricity to the Alberta grid. The province believed that this could be achieved
by converting the coal plants to gas-fired generation plants. Put simply, Canada says that
Westmoreland was not a generating unit and did not qualify. In short, Westmoreland was
not ‘similarly situated’ to the electricity generators that received the payments.
This is similar to the argument that Canada made in Windstream.42 Windstream had
argued that Canada treated TransCanada more favourably when Ontario made signifi-
cant payments to encourage TransCanada to terminate operations when at the same time
no payments were made to Windstream. Canada pointed out that TransCanada was very
different from Windstream. Windstream was a wind generator, whereas TransCanada was
a gas plant. They were entirely different operations and the rationale for the payments was
entirely different. The tribunal in Windstream accepted the distinction. This argument will
no doubt be central in Westmoreland.

Tennant Energy
The most recent energy arbitration against Canada under NAFTA is Tennant Energy.43 This
is a follow-on case to Mesa Power and relies on much of the evidence developed in that
case. Tennant Energy, based in Napa, California, filed a claim in June 2017 against Canada
for C$116 million relating to a breach of Article 1105 of NAFTA.
As in Mesa Power, the claim related to the actions of the province of Ontario in awarding
contracts under the FIT contracts developed under the Green Energy Act.44 Like Mesa
Power, Tennant claims that the FIT contracting process was unfairly manipulated to favour
the Korean consortium to the detriment of all the other applicants.

42 Windstream Energy LLC v. Government of Canada, PCA Case No. 2013-22, 27 Sep 2016.
43 Tennant Energy LLC v. Government of Canada, Notice of Arbitration 1 Jun 2017.
44 Green Energy and Green Economy Act, 2009, SO 2009, C12.

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Tennant argues that not only was there unfair manipulation, the province also delib-
erately failed to release information that would put all parties on a level playing field.
These steps, Tennant argues, were inconsistent with Canada’s obligations under NAFTA,
including Article 1105 of Chapter 11. Tennant claimed for the following wrongful actions:
• Ontario unfairly manipulated the award of access to the electricity transmission grid,
resulting in unfair treatment to the investors.
• Ontario unfairly manipulated the dissemination of programme information under the
FIT programme.
• Ontario unfairly manipulated the awarding of contracts under the FIT programme.
• Senior officials improperly destroyed necessary and material evidence of their inter­
nationally unlawful actions in an attempt to avoid liability for their wrongfulness.

The damages sought had a unique twist. Of the C$116 million claimed, C$35 million
relating to ‘moral damages’ that the investor suffered from ‘the improper actions of the
Respondent, including improper measures to suppress its wrongful conduct and for
the gross unconscionable conduct of Ontario in the maladministration of the program
resulting in the abuse of process and detriment to the Investment and the Investor’. This
is the first NAFTA case claiming moral damages, which appears to be the arbitration
version of punitive damages. Not only does this case borrow on the evidence from Mesa
Power, it also relies on evidence from Trillium Wind,45 a common law tort case discussed in
the next section. Trillium Wind, Mesa Power and Tennant are all in the same boat. They are
challenging arbitrary acts of the Ontario government in connection with wind projects.
Of particular interest is the fact that in Trillium Wind, the plaintiff brought an action for
spoliation claiming that senior Ontario government officials destroyed documents relevant
to the case. Tennant also relies on that evidence to support its claim of wrongful conduct
and abuse of process. The matter is currently proceeding before the tribunal.

Going forward
The original NAFTA agreement really began with the Canada–US Free Trade Agreement
that came into force on 1 January 1989. However, shortly after, President Bush – anxious
to increase American investment in Mexico but worried about Mexican nation-
alisation – started negotiations with Mexico. That was really the origin of the famous
Chapter 11 provision granting unusual rights to private investors. The Canadians then
joined in and NAFTA resulted.
Negotiations of the new NAFTA agreement were not easy. Like the first version, it
took almost four years. The US administration wanted more US steel in automobiles
and access to Canadian poultry and dairy markets, which had long been protected by
marketing boards.

45 Trillium Power Wind Corp. v. Ontario ,2013 ONCA 6083.

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Both Canada and the United States wanted out of the Chapter 11 process.The Canadians
believed that they had lost too many NAFTA arbitrations.46 The US administration was
not crazy about Chapter 11 either. The latter was not particularly interested in promoting
foreign investment.47 It was more interested in building a wall along the Mexican border,
increasing tariffs on Chinese imports and withdrawing from the Paris Climate Accord.48
It is worth seeing where we ended up. Chapter 11 is history, but no one is crying about
that. In fact, a remedy created by the Supreme Court of Canada in 2018 may give inves-
tors even greater protection than Chapter 11 provided. In Lorraine v. Quebec, the Supreme
Court of Canada created a common law remedy for de facto expropriation.49 Unlike the
Chapter 11 remedy, this can be used by both foreign and domestic investors.
It is important, however, that the state-to-state dispute settlement process in
Chapter 20 has been maintained. In fact, the parties made an improvement to this provision.
The dispute provisions in the original Chapter 20 had a major flaw. That Chapter
allowed either party to block the formation of a panel in a state-to-state dispute settlement
case by either not engaging in the meeting of the Free Trade Commission of Ministers,
which was required to be approved the panel, or by refusing to agree to the proposed roster
of panellists from which the panellists were required to be selected.
The updated dispute settlement provision solves this problem. In the new provision,
panels are automatically established upon request, bypassing the Commission of Ministers.
Going forward, if the government parties cannot reach consensus agreement on the roster
of panellists within one month, the roster will be formed automatically from the individuals
proposed by each government.
The difficulty under the former Chapter 20 explains why no dispute settlement panel
has been formed under NAFTA Chapter 20 since 2000, when the United States blocked
the establishment of a panel in the US-Mexico sugar dispute.
Another important point is that the new NAFTA has a sunset clause promoted by the
United States. However, it was increased from the five years originally proposed by the
United States to 16 years. There is, however, an automatic review of the agreement every
six years. During those reviews, the agreement can be extended for another 16 years.

Common law remedies

Under the new agreement, American investors in Canada and Canadian investors in
the United States will have to rely on common law. Due to recent developments, those
remedies are fairly robust in Canada. US law does not appear to be as strong. The good
news for American investors is that common law remedies, such as disguised expropriation

46 Jessica Vomiero, ‘Why some experts say scrapping part of NAFTA’s Ch. 11 is Canada’s biggest win with
USMCA’, GlobalNews (5 Oct 2018), at https://globalnews.ca/news/4519161/usmca-chapter-11-investo
r-state-dispute-settlement/.
47 id.
48 Kimberly Amadeo, ‘President Donald Trump’s Policies and Economic Plan’, The Balance (13 Apr 2020), at
https://www.thebalance.com/donald-trump-economic-plan-3994106.
49 Lorraine (Ville) v. 2646-8926 Québec Inc., 2018 SCC 35 (Can.).

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and good faith in contract performance, may give investors almost as much security as
they had before. In fact, their remedies may be greater. And unlike NAFTA, both domestic
investors and foreign investors can take advantage of them.

Disguised expropriation
As discussed above, the Supreme Court of Canada created a common law remedy for de
facto or disguised expropriation in Lorraine v. Quebec.50 In fact, the first application is an
energy case in which LGX Oil and Gas brought a C$60 million claim against Canada
on the basis that an order two years earlier by Environment Canada had devalued its oil
and gas wells in southern Alberta. That order prohibited construction and noise activities
in April and May of each year, which was the mating season for the greater sage-grouse,
which has been recognised as threatened or near threatened by several national and inter-
national organisations.
The concept of expropriation deals with the power of a public authority to deprive a
property owner of his or her property and the benefits from that property. In the Lorraine
case, the Supreme Court Canada defined in some detail what it called ‘disguised expro-
priation’ or ‘de facto expropriation’. Essentially, disguised expropriation involves an abuse
of power. That occurs when a public authority exercises its regulatory power unlawfully
in a manner inconsistent with the purpose of the legislation under which it is acting.
Ultimately, the court must assess the reason why the government acted in the way it did. In
that sense, the court is exercising a function similar to an arbitrator in a NAFTA case. Recall
that in Windstream the tribunal questioned whether the real rationale for the moratorium
the province placed on offshore wind projects was the need for more scientific research. It
was significant, the tribunal found, that Ontario made little if any effort to accommodate
Windstream and seemed to deliberately keep Windstream in the dark.The word ‘deliberate’
is important.
In the case of disguised expropriation, the court must determine whether the act is
discriminatory or unjust. In short, there must be a finding of abuse of power and or bad
faith. In the Lorraine case, the Supreme Court considered whether the environmental regu-
lation at issue was legitimate. The plaintiff had purchased a lot in a residential area in the
town of Lorraine in Quebec with the intention to subdivide the property for residential
construction. A few years later, the town adopted a bylaw that turned half the property
into a conservation area, preventing the plaintiff from constructing residential properties.
The court indicated that the plaintiff had two remedies confirming an earlier decision of
the Supreme Court in Canadian Pacific Railway.51 The railway was unsuccessful because the
Court found that the City of Vancouver had not acted in bad faith, but had acted within its
authority. The result in Lorraine was different, however. The Supreme Court did find that
the town had acted in bad faith and stated that the plaintiff could either seek a declaration
that the town had acted outside its authority, or could claim an indemnity or payment to
reflect the value it had lost.There was a problem, however, in that the plaintiff had missed a
limitation period but nonetheless the Court’s statement in respect to the law and the rights

50 id.
51 Canadian Pacific Railway v.Vancouver [2006] 1 SCR 227.

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of plaintiffs in the case of disguised expropriation is very clear. The rights under common
law are just as strong as the rights that foreign investors have, or had, under NAFTA. The
difference here, however, is that they are available to both foreign and domestic investors.

Good faith in contract performance

In 2014, the Supreme Court of Canada released its decision in Bhasin,52 a pioneering
decision that recognised a common law duty of good faith in the performance of contracts.
Five years later, on 19 December 2019, the same court heard two appeals together on the
same issue – one from British Columbia53 and one from Ontario.54 The decision has yet to
be released but the general view is that it will move this important area of the law forward.
The Court noted that the duty of honesty does not require a party to disclose material to
the contracting parties, but a party cannot actively mislead or deceive the other contracting
party in relation to the performance of the contract. As Justice Cromwell explained:

This means simply that parties must not lie or otherwise knowingly mislead each other about
matters directly linked to the performance of the contract.This does not impose a duty of loyalty
or of disclosure or require a party to forego advantages flowing from the contract; it is a simple
requirement not to lie or mislead the other party about one’s contractual performance.

The Supreme Court decision in Bhasin is novel. It recognised a new common law duty,
applicable to all contracts, of honest performance, which means the parties must not lie or
knowingly mislead each other about matters linked to the performance of a contract. The
court did recognise that common law is not permitted to override express contract terms.
Put differently, defendants cannot be faulted under the good faith doctrine for performing
in a manner that is entirely consistent with a contract’s express terms. The law in this area
in Canada is moving forward.The concept is not as strong in US law, where good faith and
implied obligations are restricted to filling in contractual gaps.55

Misfeasance in public office

During the past decade, the tort of misfeasance in public office has become commonplace.
In Canada, this cause of action dates back to 1959 and the famous Roncarelli decision by
the Supreme Court of Canada.56 There the Premier of Quebec improperly ordered the
manager of the Quebec Liquor Commission to revoke Roncarelli’s liquor licence because
Roncarelli had provided bail money to several Jehovah’s Witnesses arrested by the Premier.
The Supreme Court of Canada found that the Premier had no grounds for ordering this
and had acted with malice.

52 Bhasin v. Hrynew, 2014 SCC 71.

53 Wastech Services Ltd. v. Greater Vancouver Sewage and Drainage District, 2019, BCCC 66.
54 CM Callow Inc. v. Zollinger, 2018, ONCA 896.
55 Stephen Burton, ‘Breach of Contract and Common Law Duty to Perform in Good Faith’ (1980) 94 Harv. L.
Rev. 369.
56 Roncarelli v. Duplessis, [1959] SCR121.

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Not much happened until the House of Lords decided in Three Rivers,57 in 2001, and
the Supreme Court of Canada followed suit in Odhavji Estate58 two years later.
The plaintiffs in Three Rivers were 6,000 depositors at the Bank of Credit and Commerce
International (BCCI) in London, who had suffered economic losses due to the fraud and
eventual liquidation of BCCI. The depositors brought a claim for misfeasance against the
senior officials of the Bank of England, who they claimed had acted in bad faith in licensing
BCCI as a deposit-taking institution. The creditors complained that the Bank of England
officials should have taken steps to close down the BCCI given that ‘known facts cried out
for action’.
The main issue in Three Rivers was the required state of mind of the defendant or what
is typically described as malice. The general view was that malice required some degree
of bias or personal ill-will against the plaintiff, or something that came to be known as
targeted malice. In Roncarelli, for example, the plaintiff had established that the defendant,
the Premier of Quebec, had a deliberate intention to harm the plaintiff restaurant owner
for his involvement with the Jehovah’s Witnesses. He specifically ordered the revocation of
the plaintiff ’s liquor licence to cause the plaintiff financial harm.
In Odhavji Estate, the Ontario Court of Appeal was divided on whether mere breach
of the statute was sufficient to ground a claim for misfeasance in public office or whether
the tort required abuse of power or authority The majority concluded the mere breach of
statutory obligation was not sufficient for the claim and struck out the claim.The Supreme
Court of Canada reversed and restored the claim. Justice Iacobucci writing for a unani-
mous court concluded that the tort is not limited to abuse of statutory power and was
‘more broadly based on unlawful conduct in the exercise of public functions’. He stated
that the tort ‘could be included in a broad range of misconduct’ and the essential question
was whether ‘the alleged misconduct is deliberate and unlawful’. In addition, he stressed the
public author’s disregard for the plaintiff ’s interest, stating:

Liability does not attach to each officer who blatantly disregards his or her official duty, but only
to a public officer who, in addition, demonstrates a conscious disregard for the interest of those
who will be affected by the misconduct in question. This requirement establishes the required
nexus between the parties.59

Around the same time, another important decision was released in England. In 2004,
in Watkins,60 the House of Lords established that misfeasance in public office was not
actionable unless there is damage. In 2008, another important decision of the Court of
Appeal in Ontario was released in O’Dwyer.61 Justice Rouleau writing for the Court found
for the plaintiff, stating that the Commission had engaged in ‘unhelpful and misleading

57 Three Rivers District Council v. Bank of England [2000] 2 WLR 1220 (HL).
58 Odhavji Estate v.Woodhouse.
59 id., at page 285.
60 Watkins v. Home Office [2004] 4 All E.R. 1158.
61 O’Dwyer v. Ontario Racing Commission (2008) 293 DLR (4th) 559 (Ont CA) at para. 42.

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correspondence with the plaintiff ’ and Commission officials were ‘reckless, indifferent or
willfully blind to the illegality of their actions and the potential harm to the plaintiff ’. This
type of language is remarkably similar to what the NAFTA panel found in Windstream.
The tort of misfeasance in public office has also been used in a number of Canadian
energy cases. In Granite Power,62 the Ontario Court of Appeal allowed the plaintiff to
proceed with a misfeasance claim against the Ontario government for acts it took in the
privatisation of the Ontario power industry.The plaintiff, Granite Power, was a small private
utility company located in Gananoque, Ontario. Since 1885, Granite Power had supplied
electricity to Gananoque.The company had an exclusive agreement to supply power to the
town from 1994 to 2014. However, in 1997, the Ontario government changed the provin-
cial energy policy to allow new competition. The statute that created that regime allowed
the province to grant exemptions to allow private suppliers such as Granite to continue
their exclusive agreements with small municipalities. Granite Power applied to the govern-
ment for such an exemption.
Ontario granted the requested exemption in 2002. However, between 1998 and 2002,
the government’s communication had been noncommittal and ambiguous. The govern-
ment allowed advertising that suggested that Granite Power’s monopoly to serve the town
was likely to disappear. Further, the town used the new provincial policy to challenge the
exclusive agreement it had with Granite Power. Granite Power argued that the govern-
ment’s delay and lack of candour had caused its supply agreement to become worthless and
claimed damages from the provincial government for that loss.
The Ontario Court of Appeal allowed Granite Power to claim for misfeasance in public
office, finding that there were sufficient allegations that the province acted maliciously
and in bad faith. Specifically it was alleged that the province had deliberately delayed its
decision whether to grant an exemption to Granite Power.This made it difficult for Granite
to make critical business decisions. The province was also accused of promoting its new
energy policy in a fashion that allowed new retailers to get a foothold in the community.
The Court of Appeal concluded that these allegations, if proved, would support a successful
claim for misfeasance in public office.
The next energy decision involving this cause of action was Saskatchewan Power in
2006.63 The plaintiff complained that Saskatchewan Power, a state-owned utility, had used
its monopoly position to engage in predatory pricing and had amended the terms of
service in its supply contract unilaterally.The plaintiff argued that this amounted to misfea-
sance in public office.
The defendant brought a motion to strike the claim on the basis that the plaintiff had
not identified any human being as having the requisite bad faith or malice to make up the
tort. The defendant argued that Saskatchewan Power Corporation was incapable of having
the necessary malice or intent. The Saskatchewan Court of Appeal held that this was not

62 Granite Power Corp. v. Ontario (2004) 72 OR 3d 194 (CA).

63 City of Swift Current v. Saskatchewan Power Corp. (2006) 293 Sask. R. 6 (CA)

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fatal to the claim. The Court interpreted ‘public office’, broadly stating that there was no
reason to distinguish between the officeholder and the office itself.64 The claim was allowed
to proceed.
The Trillium Wind case in Ontario65 is close to the fact situations in the NAFTA arbitra-
tions in Mesa Power and Windstream Energy.
Trillium Power Wind Corporation, a Toronto-based developer building offshore
wind turbines in Lake Ontario, applied to lease provincial land under Ontario’s wind
power policy and had been granted applicant-of-record status by the Ministry of Natural
Resources. That status gave Trillium three years to test the wind power. After that, the
company could proceed with an environmental assessment and obtain authorisation to
operate the wind farm.
Trillium subsequently notified the Ontario Ministry of Natural Resources that the
company intended to close a C$26 million financing for the project. On the same day, the
government of Ontario issued a moratorium on offshore wind development, including by
developers like Trillium that had applicant-of-record status. The government issued a press
release stating that the projects were cancelled pending further scientific research.
Trillium brought a number of claims against the Ontario government, seeking
C$2 billion in damages. The claims included breach of contract, unjust enrichment, negli-
gent misrepresentation, misfeasance in public office and intentional infliction of economic
harm.The province brought a motion to strike the Trillium statement of claim on the basis
that it did not disclose a reasonable cause of action.The motion was successful.The motion
judge found that the government decision to close the wind farms was a policy decision
and therefore immune from suit.
The motion judge also found that the fact that Trillium had been granted applicant-of-
record status did not amount to a contractual relationship between Trillium and the govern-
ment.The motion judge concluded that the claim should be struck because it was plain and
obvious that the claim could not succeed at trial.
Trillium appealed on two grounds: first, misfeasance in public office was a tenable
claim as a matter of law; and second, the claim had been adequately pleaded. The Ontario
Court of Appeal agreed. It was not clear that the claim of misfeasance in public office
would necessarily fail. Moreover, Trillium had properly pleaded that the province’s actions
were taken in bad faith for improper purpose. The Court also found that the government’s
decision was made to harm Trillium specifically. Although the Court of Appeal did agree
with the motions judge that a government decision involving political factors was not the
basis for a cause of action, there was an exception for irrational acts of bad faith.The facts in
this case were unique. It was clear that Trillium’s announcement disclosing new financing

64 See also Georgian Glen Development v. Barrie (2005) 13 MPLR (4th) 194 (ONT. SCJ), in which the Court
found that a municipality could be a public officer for the purpose of the tort.
65 2013 ONCA 683,117 OR (3d) 721.

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triggered the government action. And, as the Court concluded, the government specifically
targeted Trillium. The Court was clear that decisions motivated by political expediency do
not constitute bad faith for the purpose of a tort claim, stating as follows:

Ministerial policy decisions made on the basis of political expediency are part and parcel
of the policy-making process and, without more, there is nothing unlawful or in the nature
of bad faith about a government taking into account public response to a policy matter and
reacting accordingly.

The Court found that to make out ‘bad faith’ for the purpose of the tort of misfeasance in a
public office, Ontario must have acted deliberately in a manner that was ‘inconsistent with
the obligations of its office’.
Trillium never found its way to trial but Capital Power Solar 66did. The plaintiff, Capital
Solar Power, was a small business that submitted applications to the microfit programme
operated by the OPA, an agency of the Ontario government. These applications were
submitted on behalf of their customers. In submitting these applications, Capital Solar
Power relied on the microfit rules and pricing schedule provided by the OPA.
On 31 October 2011, the OPA announced a new pricing schedule. The rules required
that the OPA provide 90 days’ notice of any changes.The OPA did not provide that notice.
As result of the new price changes, Capital Solar Power lost all its potential customers.
Capital Solar Power then filed a claim against the OPA for misfeasance in public office
because the OPA had amended the microfit programme without 90 days’ notice.
The court rejected the claim, finding that it was not issued for any improper purpose
and there was no element of bad faith or dishonesty in the OPA’s actions. The court found
the OPA made the changes in accordance with the direction from the Minister of Energy
and was attempting to achieve a balance among common interests.
There was also some discussion of damages.The court reduced the damages claim from
C$3 million to C$450,000. In the end, the court did not award any damages because the
plaintiff has failed to establish liability against the OPA with respect to misfeasance in public
office.The case reinforces the importance of the proposition that when it comes to the tort
of misfeasance in public office, an essential component is that the plaintiff must establish a
clear intent on the part of the public official to harm the defendant, or at least that she or
he should have known that harm would result. That is known as ‘reckless disregard’.

State-to-state claims
There is no question that NAFTA has had a significant impact on the Canadian energy
sector. It certainly has stimulated investment in the sector. And American investors have
taken advantage of Chapter 11 to question the energy policy and regulatory decisions
made in British Columbia, Alberta, Ontario, Quebec and Newfoundland. Ontario has been
the main offender, with three cases to date questioning the province’s management of the
FIT contract programme under the Green Energy Act.

66 Capital Solar Power v. Ontario Power Authority, 2019 ONCA 1137.

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Going forward, things will be different. Private investors from the United States no
longer have any right to bring a NAFTA action on their own volition in Canada. Canadian
investors have lost a similar right in the United States. The loss affects US investors most,
and it is they who have been most active under Chapter 11 of NAFTA. Although the
right to bring a private action is gone, the state-to-state action continues. This requires the
investor to convince the relevant government to bring an action, which is not always easy.
The regime under the new Agreement is complicated in that it creates two classes of
investors: priority investors and non-priority investors. The priority investors are investors
that are parties to a government contractor in one of five sectors: oil and gas, power genera-
tion, telecommunications and infrastructure. The protection available to priority investors
under the new Agreement is largely the same as under the old NAFTA.
For non-priority investors, the new Agreement it is not nearly as attractive as the old
NAFTA. First, there is a requirement that those investors must exhaust all legal remedies
in the local courts before they can bring a claim under the new Agreement. They cannot
make an application until they have a final decision from the local courts or 30 months
have passed. This may be of little concern to the energy sector, however. Investors in oil
and gas and power generation qualify as priority investors and will not face this limitation.

Conclusion
The fact that Chapter 11 dispute resolutions have been abolished between Canada and the
United States may not turn out to be that significant. The common law cases under the
misfeasance in public office tort have not been that successful. But it looks like the cases
under the new common law actions – disguised expropriation and good faith in contract
performance – are much more promising. There is no reason to believe that US inves-
tors will not take advantage of this developing law. In fact, non-priority investors will be
required to. As far as the Canadian regulators and governments are concerned, they should
pay attention to the fact that these new causes of action, unlike NAFTA, are not limited to
foreign investors and include domestic investors. While the publicity surrounding NAFTA
has focused on foreign investors because they were the only ones that could exercise that
remedy, the fact is just as much investment in renewable energy throughout Canada comes
from domestic investors as foreign investors. Put differently, the surveillance and policing
of dubious policy decisions that discriminate against particular parties is not going away. If
anything, it will increase.
One last comment may be in order. Although investors may continue to have protec-
tion through common law remedies, a treaty is a treaty. Government liability is clear.
Common law remedies, however, are still subject to legislation and most jurisdictions have
some form of legislation setting out various forms of crown immunity. That argument is
being raised in the Trillium case before the Ontario courts. It will be an important decision.

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7
Gas Supply and LNG Arbitrations

Hagit Elul, James H Boykin and Malik Havalic1

Introduction
The natural gas and liquefied natural gas (LNG) markets are in a state of flux. Even prior to
the covid-19 pandemic, the evolution of the natural gas markets was sufficiently rapid so as
to disrupt existing long-term supply contracts and result in waves of gas price review arbi-
tration, predominantly in Europe. Since these initial arbitrations, attention has also turned
to Asia, where the LNG market accounts for 68 per cent of global imports.2 Asia was spared
Europe’s arbitration wave, thanks in large part to the systemic differences between the Asian
and European gas markets – but that may be about to change.
In the first half of 2020, the gas and LNG markets have been confronted by not only
a collapse in prices, but also the covid-19 pandemic and its economic repercussions.
Combined with the increasing willingness of Asian businesses to arbitrate disputes, gas and
LNG disputes may be right around the corner as risk and uncertainty increase.
This chapter offers a survey of the legal and practical considerations of which businesses
and lawyers facing gas and LNG arbitration in Asia may have to take account. It begins with
some relevant industry background, including the growth of the LNG market in Asia. The
following sections summarise salient features of gas and LNG supply contracts, and then
discuss the instructive experience of the European price review arbitrations of recent years.
The chapter concludes with a discussion of the most likely legal issues to arise in LNG
arbitrations in Asia, including price review and force majeure disputes, that may emerge from
the current economic crisis.

1 Hagit Elul and James H Boykin are partners and Malik Havalic is an associate at Hughes, Hubbard
& Reed LLP. Shigeki Obi, an associate at Hughes, Hubbard & Reed, also provided valuable assistance in the
preparation of this chapter.
2 Gillian Boccara, Mateusz Czajkowski and Neil Hamzaoui, ‘Reflecting on 2019 LNG flows’, McKinsey
& Company (2 March 2020), available at https://www.mckinsey.com/industries/oil-and-gas/our-insights/
petroleum-blog/reflecting-on-2019-lng-flows.

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Industry background
Traditional gas supply and pipelines
Natural gas is the fastest-growing fossil fuel in the world, representing nearly a quarter of
global primary energy demand and electricity generation.3
Like other resource projects, the upstream stage of natural gas production is notable
for large up-front capital costs (and financing requirements) associated with geological
exploration, drilling and extraction. But at the midstream stage, natural gas becomes even
more challenging: efficient transportation of natural gas must almost always rely on expen-
sive pipeline networks. These networks – sometimes crossing multiple borders – will then
deliver the gas to buyers, usually utilities that use the gas to generate electricity, or pass it
on to smaller regional or municipal distribution networks providing natural gas for heating
or cooking.
Historically, these buyers have been state-owned, quasi-state-owned or formerly
state-owned monopolists.4 The involvement of public utilities also means that the down-
stream market remains particularly exposed to government regulation of electricity and
gas provision.

Growth of LNG and the Asian market

By cooling natural gas to its liquid form (i.e., liquefaction), producers can store and trans-
port significantly higher volumes of the resulting LNG (nearly 400 times more than natural
gas) in specialised containers and seaborne vessels, thereby alleviating some of the distri-
bution challenges noted above. This process implicates additional capital and financing
requirements in the form of liquefaction facilities found at pipeline terminals – usually
ports – where gas is received from production fields, liquefied and loaded onto tankers or
stored. On the buyer side, regasification facilities are required to receive LNG ships, convert
the cargo back into gas, and then inject it into local gas distribution systems for consumers.
Technological developments in this type of shipping capacity, combined with
burgeoning demand, have resulted in an explosion of the LNG market in Asia. With little
domestic production and limited pipeline access to natural gas production from Russia,
Central Asia and the Middle East, the largest Asian economies have begun to rely on
imported LNG to provide a cheaper and cleaner alternative to coal.
Asia now represents 68 per cent of all global LNG imports.5 Since receiving its first
transpacific shipment of LNG from the United States in 1969, Japan has remained the
leader of LNG imports and consumption, importing 76.9 million tons in 2019 – 22 per

3 See International Energy Agency, IEA.com, at https://www.iea.org/fuels-and-technologies/gas.

4 See Stephen P Anway, George M von Mehren, ‘The Evolution of Natural Gas Price Review Arbitrations’,
The Guide to Energy Arbitrations (2019, 3d ed), available at https://globalarbitrationreview.com/
chapter/1178846/the-evolution-of-natural-gas-price-review-arbitrations.
5 Boccara, Czajkowski and Hamzaoui (see footnote 2, above).

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cent of the global market.6 Perhaps not surprisingly, Chinese demand and imports have
rapidly grown to second place during the past two decades, with some projecting China to
overtake Japan by 2024.7 Other major importers include South Korea, India and Taiwan.8
On the production side, Australia is the dominant exporter to Asian markets, particu-
larly to Japan and China, followed by Qatar. And just as LNG methods enabled Asian buyers
to access gas supply without transnational pipelines, so too have they enabled island nations
such as Malaysia and Indonesia to tap offshore gas fields to become the third and fourth
largest exporters of LNG, respectively, to other Asian countries. Despite being the third
largest global exporter of LNG, the United States is only the sixth largest exporter to Asia,
behind Russia.9

Long-term contract characteristics

Owing to the capital intensive nature of the market, agreements for the purchase and sale
of natural gas (including LNG) have been dominated by long-term contracts, covering the
sale of gas for at least 20 years. As buyers, utilities require a stable, predictable and secure gas
supply for the long-term provision of vital electricity and power. As sellers, producers need
a secure revenue stream that can cover the initial sunk costs of exploration and extraction
and generate future profits. Lenders will moreover require that producers present a guaran-
teed revenue stream to ensure that the lender can recoup its investment in the underlying
project.This need in particular gave rise to take-or-pay obligations in long-term contracts.10
Take-or-pay provisions oblige buyers to either accept delivery of a set volume of gas per
period (usually a year), or pay some minimum amount if delivery is not accepted. However,
imposing this type of obligation on buyers for 20 or more years requires a counterbalance
against unpredictable market forces, including seasonal variation in energy demand. Hence,
long-term agreements use flexible pricing formulas that react to market indices and, in
theory, assure buyers that they will not be stuck with long-term, large-scale uneconomical
purchase obligations.11

6 2020 World LNG Report, International Gas Union (2020), at p. 18, available at https://igu.org/resources/
2020-world-lng-report/; see also Steven P Finizio, John A Trenor and Jaren Tan, ‘Trends in LNG Supply
Contracts and Pricing Disputes in the Asia Pacific Region’, OGEL Vol. 18, Issue 3 (May 2020), at p. 18,
available at https://www.wilmerhale.com/-/media/files/shared_content/editorial/publications/documents/
20200501-ogelintelligence-trends-in-lng-supply-contracts-and-pricing.pdf.
7 Finizio, Trenor and Tan (see footnote 6, above), at pp. 18 to 19.
8 id., at pp. 8 to 13.
9 id., at pp. 15 to 16; see, generally, 2020 World LNG Report, International Gas Union (2020), at pp. 15 to 21.
10 See, generally, Stephen P Anway and George M von Mehren, ‘The Evolution of Natural Gas Price Review
Arbitrations’, The Guide to Energy Arbitrations (2019, 3rd ed), available at https://globalarbitrationreview.com/
chapter/1178846/the-evolution-of-natural-gas-price-review-arbitrations.
11 id.

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Historically, gas pricing was benchmarked to the price of oil. Thus, as explained in
Chapter 8 of this guide:

buyers and sellers often agreed to a contract price with two fundamental components: first, a
fixed base value referred to as ‘P0’; and second, an indexation component tied to the evolution
of oil-derived products. This latter component, called an ‘escalator clause’, is a multiplier to the
base value that allows the contract price to fluctuate during the term of the contract in accordance
with the price movement of the oil products.12

Yet the fixed base value, with any upper and lower limits to the escalation factor, still anchor
the ultimate payment price despite more aggressive market movement. Specifically, the
escalation formulas typically resulted in an ‘S-curve’, meaning that outlying high or low
price movements would have a more limited effect on the final price.13
Parties also realised that the use of oil pricing as a benchmark was not a perfect corol-
lary to the natural gas market. Therefore, long-term contracts generally also incorporated
price review clauses.14 Price review clauses enable parties to revisit their price formulas
and renegotiate new pricing terms either periodically or based on trigger events such as
‘substantially changed’ economic circumstances.15

Gas price review arbitrations: the European experience

Disputes in the gas sector may arise from a variety of issues, ranging from delays in
the construction of upstream facilities to the quality of gas delivered. One survey in
2016 reported 72 known disputes in the LNG sector. Most were between buyers and sellers
but many involved governments, ship owners and financing parties.16
In the early 2000s, the European gas sector began to experience a surge in disputes
about price review clauses. Not only do these arbitrations present a unique category of
dispute in and of themselves, they also highlight how broader market changes, such as the
changes currently brought about by the covid-19 pandemic, can trigger a wave of arbitra-
tions across an entire sector. It is worth taking a closer look, therefore, at what we can learn
from these arbitrations.

12 id., at section titled ‘The price review clause’.

13 Finizio, Trenor and Tan (see footnote 6, above), at p. 18.
14 Anway and von Mehren (see footnote 10, above).
15 For a discussion of various trigger provisions, see Mark Levy, ‘Gas Price Review Arbitrations:
Certain Distinctive Characteristics’, The Guide to Energy Arbitrations (2019, 3d ed), available at
https://globalarbitrationreview.com/chapter/1178847/gas-price-review-arbitrations-certain-
distinctive-characteristics.
16 Phillip Weems, ‘LNG Disputes on the Rise’, King & Spalding (3 August 2016), available at
https://www.kslaw.com/blog-posts/lng-disputes-rise.

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Market shifts created price imbalances

In the simplest terms, price review arbitrations emerged because, over time, the pricing
provisions of long-term contracts stopped making economic sense for one of the parties.
Price escalators in these contracts historically had been indexed to the price of oil because
a reliable European gas reference price did not exist at the time of contracting. During the
2000s, a series of developments began to create problems with using oil as a price reference.
The first development was the European Union’s gas market liberalisation scheme,
particularly its 1998 Directive 98/30/EC.17 Prior to this, European vertically integrated gas
monopolies controlled national or regional pipeline distribution networks, and consumer
supply (i.e., the utilities selling gas or electricity to end users).18 The EU Directive initi-
ated a process of ‘unbundling’ these incumbents’ supply and distribution functions to allow
third-party suppliers access to their distribution networks on a non-discriminatory basis.
This change allowed European consumers to have a choice of utility companies, which
could compete with each other, including by negotiating purchase agreements directly
with gas producers. This dynamic created a downward pressure on gas prices disconnected
from oil price movements.19
The European liberalisation project was gradual, involving a series of Directives between
1998 and 2010, with each Member State enacting its own implementing legislation.20 In
the meanwhile, a storm of market forces exerted additional downward pressure on price.
The 2008 financial crisis and subsequent recession tightened consumer demand, leaving
importers with take-or-pay obligations scrambling to sell volume. By 2011, the ‘shale revo-
lution’ had begun in the United States, further contributing to an oversupply.
Aided by the European liberalisation programme and the increase in supply, Europe
saw the emergence of gas trading hubs that offered reliable gas reference prices for the
European market. Gas trading hubs can be either (1) physical destinations where multiple
pipelines interconnect, such as Austria’s Baumgarten (now known as the Central European
Gas Hub) or the US’s Henry Hub in Louisiana, or (2) non-physical ‘virtual trading hubs’,
where inter-dealer brokers facilitate trades, akin to an exchange. The most important of
these was a virtual trading hub, the Dutch Title Transfer Facility (TTF). By the 2010s,
trading at the TTF was sufficiently liquid and transparent that the Dutch TTF price began

17 Directive 98/30/EC of the European Parliament and of the Council of 22 June 1998 concerning common
rules for the internal market in natural gas, O.J. (L 204) 21.7.1998.
18 See, generally, Philip Lowe et al., ‘Effective unbundling of energy transmission networks: lessons from
the Energy Sector Inquiry’, European Commission, Competition Policy Newsletter (2007), available at
https://ec.europa.eu/competition/publications/cpn/2007_1_23.pdf.
19 Anway and von Mehren (see footnote 10, above); see also European Commission, ‘Progress towards
completing the Internal Energy Market’, COM(2014) (13 October 2014), available at https://ec.europa.eu/
energy/sites/ener/files/documents/2014_iem_communication.pdf
20 See, generally, European Commission, ‘Questions and Answers on the third legislative package for an
internal EU gas and electricity market’, MEMO/11/125 (2 March 2011), available at https://ec.europa.eu/
commission/presscorner/detail/en/MEMO_11_125.

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to serve as a continent-wide benchmark. Natural gas prices in Europe, which had histori-
cally been indexed to global oil prices, became decoupled from oil prices so that supply and
demand in the gas market itself determined prices.21

Arbitrator intervention and interpretation of economic conditions

As a result, European gas became available for purchase at spot prices well below the prices
fixed by long-term contracts with prices indexed to oil. It is no surprise that European gas
buyers began to trigger the price review provisions of their supply contracts.
Buyers and sellers were forced to resort to arbitration when they could not agree on a
new price through the price review mechanisms. Most resulting arbitration awards are not
public. However, some notable decisions in the public domain offer insight:
• Edison arbitrations: from 2011 to 2013, Italian importer Edison prevailed in a series of
price review arbitrations against Russian Gazprom, Qatari RasGas, Algerian Sonantrach,
and Eni, another Italian gas company, securing substantial price reductions in each case.22
• RWE v. Gazprom (RWE): in 2013, German utility RWE prevailed in a price review
dispute with Gazprom. Most notably, the tribunal adjusted the gas purchase price
formula to incorporate gas market indexation, whereas the contract’s formula was
previously benchmarked to oil.23
• BOTAŞ v. National Iranian Gas Company (NIGC): In 2016,Turkish national oil company
BOTAŞ won an arbitration by the International Chamber of Commerce (ICC) in
which the Iranian supplier was ordered to grant a 13.3 per cent cut in the price of gas
under a 25-year supply agreement. The tribunal also applied the discount retroactively,
forcing NIGC to give BOTAŞ free gas worth US$1.9 billion as compensation for
overpayment. BOTAŞ had initially sought a 37.5 per cent discount based on changes in
Turkey’s domestic gas market and, in a related claim that the tribunal rejected, asked for
a remedy of specific performance obliging NIGC to upgrade its distribution network,
which BOTAŞ claimed was unreliable.24

21 See, generally, Patrick Heather, ‘The evolution of European traded gas hubs’, Oxford Institute for Energy
Studies (December 2015), available at https://www.oxfordenergy.org/wpcms/wp-content/uploads/2016/02/
NG-104.pdf; see also Anway and von Mehren (see footnote 10, above).
22 Kyriaki Karadelis, ‘Edison awarded gas price discount’, Global Arbitration Review (13 September 2012), available
at https://globalarbitrationreview.com/article/1031603/edison-awarded-gas-price-discount; Kyriaki Karadelis,
‘Third time still lucky for Edison in gas price reviews’, Global Arbitration Review (8 May 2013), available at
https://globalarbitrationreview.com/article/1032326/third-time-still-lucky-for-edison-in-gas-price-reviews;
Douglas Thomson, ‘Edison wins €1 billion in gas price review’, Global Arbitration Review (30 November 2015),
available at https://globalarbitrationreview.com/article/1034967/edison-wins-eur1-billion-in-gas-
price-review.
23 Christoph Steitz and Vera Eckert, ‘UPDATE 2-Gazprom dealt pricing blow as loses court case to RWE’,
Reuters (27 June 2013), available at https://www.reuters.com/article/rwe-gazprom-dispute/update-
2-gazprom-dealt-pricing-blow-as-loses-court-case-to-rwe-idUSL5N0F32ZZ20130627.
24 Cosmo Sanderson, ‘Iran honours ICC award with free gas deliveries to Turkey’, Global Arbitration Review
(6 February 2018), available at https://globalarbitrationreview.com/article/1153405/iran-honours-icc-
award-with-free-gas-deliveries-to-turkey.

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Perhaps the most well-known price review dispute comes from a 2005 ICC arbitration:
Gas Natural Aprovisionamientos SDG v. Atlantic LNG Company of Trinidad and Tobago (Atlantic
LNG). In this case, the buyer, a Spanish utility, was obligated to pay for LNG deliveries
under a 20-year sale and purchase agreement. The contract allowed the buyer to accept
deliveries either in Spain or to divert them to a receiving terminal in New England. When
the resale price of gas in the United States became more favourable, the buyer began
directing all delivery of LNG cargoes to New England. This allowed the buyer to resell the
gas in the US market, where it had a higher resale value, rather than the European market.
Yet the price that the buyer was obliged to pay under the contract remained indexed to
European oil products, allowing the buyer to pay a lower price based on the European
market, rather than on the higher price prevailing in the North American market, where
the buyer ultimately accepted delivery and resold the product. Not surprisingly, the seller
initiated a price review under a provision of the contract that provided:

If at any time either Party considers that economic circumstances in Spain beyond the control
of the Parties, while exercising due diligence, have substantially changed as compared what it
reasonably expected when entering into this Contract . . . ​and the Contract Price . . . ​does
not reflect the value of Natural Gas in the Buyer’s end user market, then such Party may, by
notifying the other Party in writing and giving with such notice information supporting its
belief, request that the Parties should forthwith enter into negotiations to determine whether
or not such changed circumstances exist and justify a revision of the Contract Price provisions
and, if so, to seek agreement on a fair and equitable revision of the above-mentioned Contract
Price provisions.25

With the parties unable to reach a negotiated agreement, an ICC tribunal was asked to
resolve the dispute, including by interpreting the rather ambiguous references to ‘economic
circumstances’, ‘substantial[ ] change[ ]’ and ‘fair and equitable revision’. The tribunal’s reso-
lution of the dispute ultimately imposed a remedy neither party requested: (1) it adjusted
the Spanish price formula with some modifications to the base price; and (2) it added new
pricing parameters that would apply when a certain percentage of gas was diverted to
New England.

Arbitration heads to Asia?

Market forces in the LNG sector suggest an increase in disputes
Like Europe, the Asian market is largely dominated by long-term supply agreements.
Though recent trends suggest that medium-term contracts and spot purchases are growing,
long-term agreements still make up approximately 70 per cent of Asian LNG volume.26
These agreements likewise contain price review provisions and price formulas linked to

25 The award became publicly available as a result of those proceedings. Gas Nat. Aprovisionamientos, SDG, S.A. v.
A. LNG Co. of Trinidad and Tobago, 08 CIV. 1109 (DLC), 2008 WL 4344525, at *1 (S.D.N.Y. Sep. 16, 2008).
26 Tom Fotheringham, Pat Baisden and Jack Brumpton, ‘The changing face of the Asia Pacific LNG market:
Trending away from oil linked pricing and long-term contracts’, DLA Piper (15 December 2019), available
at https://www.dlapiper.com/en/us/insights/publications/2020/04/projects-global-insight-issue-3/the-
changing-face-of-the-asia-pacific-lng-market/.

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the price of oil, usually the Japanese crude cocktail index (JCC) or Brent, although some
notable agreements coinciding with the US shale boom are indexed to the US Henry Hub
gas price.27
Despite this similarity with Europe, market forces played out differently in Asia. Unlike
in Europe, Asian gas demand surged through the 2010s, spurred by Chinese growth and
the 2011 Fukushima accident, Japan’s subsequent shutdown of nuclear reactors, and the
corresponding flight to LNG energy.28 Asian LNG prices increased and by 2014, sellers, not
just buyers, initiated price reviews to increase prices.29
Although from 2014 to 2018 a number of price reviews took place, there was no
discernible wave of arbitrations in the Asian market. Several factors probably explain why.
Oil prices collapsed in the third quarter of 2014, meaning that buyers received some relief
under oil-indexed contracts. Further, Asian markets did not undergo the same gas market
liberalisation transition as Europe, thereby permitting price insensitivity by monopolists
who could pass on any increases to end users.30 Some commentators have also referenced
the unwillingness of Asian companies – especially state-owned entities – to let disputes
reach litigation or arbitration, though any such hesitation has evidently diminished in
recent years.31

27 Agnieszka Ason, Price reviews and arbitrations in Asian LNG markets, at pp. 2 to 5, The Oxford Institute
for Energy Studies (April 2019), available at https://www.oxfordenergy.org/wpcms/wp-content/
uploads/2019/03/Price-reviews-and-arbitrations-in-Asian-LNG-markets-NG144.pdf; see also
LNG Sale and Purchase Agreement between Sabine Pass Liquefaction, LLC and GAIL (India) Limited
(11 December 2011), Section 9.1 (indexed to Henry Hub), available at https://www.sec.gov/Archives/edgar/
data/1383650/000138365011000083/exhibit101gaillngsaleandpu.htm; LNG Sale and Purchase Agreement
between Sabine Pass Liquefaction, LLC and Korea Gas Corporation (30 January 2012), Section 9.1 (indexed
to Henry Hub), available at https://www.sec.gov/Archives/edgar/data/1383650/000138365012000009/
exhibit101kogasspa.htm#s671EEA45F47AFA1D374924E5655ECA2E.
28 See, generally, Howard V Rogers, Asian LNG Demand: Key Drivers and Outlook, The Oxford Institute
for Energy Studies (April 2016), available at https://www.oxfordenergy.org/wpcms/wp-content/
uploads/2016/04/Asian-LNG-Demand-NG-106.pdf; see also Finizio, Trenor and Tan (see footnote 6, above),
at pp. 1 and 2.
29 See, e.g., Rebekah Kebede and Oleg Vukmanovic, ‘Analysis - LNG producers seize upper hand in global
contract reviews’, Reuters (21 January 2014), available at https://uk.reuters.com/article/uk-lng-prices-analysis/
analysis-lng-producers-seize-upper-hand-in-global-contract-reviews-idUKBREA0K0ZV20140121;
‘Statement in response to incorrect information about Yemen LNG Company’,Yemen LNG Co.
(9 February 2014) (press release discussing negotiations with various buyers, including KOGAS), available
at http://www.yemenlng.com/ws/en/Articles/ShowArt.aspx?cmd=showone&at=news&artid=000178;
Wilda Asmarini, ‘UPDATE 1-Indonesia more than doubles LNG price at Tangguh for 2014’, Reuters
(1 July 2014), available at https://uk.reuters.com/article/indonesia-gas-china/update-1-indonesia-more-than-
doubles-lng-price-at-tangguh-for-2014-idUKL4N0PC1BY20140701; Credit Suisse, LNG Pricing in Japan
(29 January 2014) (discussing KOGAS and MLNG Tiga negotiations), available at https://research-doc.
credit-suisse.com/docView?language=ENG&source=emfromsendlink&format=PDF&document_id=
1028581401&extdocid=1028581401_1_eng_pdf&serialid=fw0k6qTkwKDBfB5OHr7a78EiVoUg7w0BsVx
urxkJ3EM%3d.
30 Agnieszka Ason (see footnote 27, above), at p. 7; see also Joaquin Terceño, David Phua and Emily Stennet,
‘The LNG View: Gas-Pricing Disputes Coming to Asia’, at pp. 4 and 5, TDM 7 (December 2018), available
at https://www.transnational-dispute-management.com/article.asp?key=2616.
31 Agnieszka Ason (see footnote 27, above), at p. 12; Oxford Energy Forum, ‘LNG in Transition: from uncertainty to
uncertainty’, at p. 35 (September 2019) (‘industry evidence suggests that some parties to Asian LNG contracts,

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In any case, the respite from arbitration may now be coming to an end. Japan – the
largest consumer and importer of LNG – has taken significant steps to liberalise its energy
markets in the past five years.The retail electricity market was fully liberalised in April 2016,
as was the retail gas market a year later. In April 2020, Japan unbundled the distribution and
supply functions of electricity providers, and is planning to implement unbundling in the
gas sector in 2022.32 China has witnessed some market liberalisation too, with roughly 7 per
cent of LNG imports now sourced by non-national companies and additional measures
being developed to allow market-based access to state-owned distribution infrastructure.33
The third-largest importer, South Korea, is well behind Japan in this regard but has
deregulatory plans as well. The Korean LNG sector is comprehensively dominated by
state-owned KOGAS – private companies are permitted to import LNG only if it is
intended for their own use (i.e., not resold) and if purchased at prices lower than KOGAS’s
long-term contracts – but Korea has plans to liberalise the market by 2025 so that third
parties can import and resell LNG in competition with KOGAS.34 And other Asian coun-
tries have liberalisation plans in place as well. India has announced its intent to implement
unbundling and, in 2018, GAIL – India’s state-owned gas distributor – allowed third-party
access to its network. Thailand enacted a third-party access scheme in 2018, though it
has not yet issued any actual licences permitting access to the state-owned monopolist’s
pipeline network.35
Asian demand tapered off sufficiently in the second half of the 2010s, such that over-
supply contributed to a drop in gas price.36 In fact, both oil and gas have more recently
continued a downward trend, which has begun to create circumstances mirroring the
European experience.

especially state-owned companies, will never allow a dispute to reach the arbitration stage’), available at
https://www.oxfordenergy.org/wpcms/wp-content/uploads/2019/09/OEF-119.pdf. But see Andre Yeap SC
and Kelvin Poon, ‘The rise of arbitration in the Asia-Pacific’, Global Arbitration Review (11 June 2020), available
at https://globalarbitrationreview.com/benchmarking/the-asia-pacific-arbitration-review-2021/1227827/
the-rise-of-arbitration-in-the-asia-pacific.
32 Finizio, Trenor and Tan (see footnote 6, above), at p. 4; see also Agency for Natural Resources and Energy,
‘What Has Changed in the First Year Since Implementation? Changes Seen as the Key Points of Gas Reform’,
(15 February 2018) (stating that, as of April 2017, the retail of town gas was fully liberalised, and that, as of
April 2022, businesses will be prohibited from engaging in both (1) gas production business or gas retail
business, and (2) gas supply-line business), available (in Japanese) at https://www.enecho.meti.go.jp/about/
special/tokushu/denryokugaskaikaku/gaskaikaku.html.
33 Michal Meidan, ‘China Day 2020 summary: Geopolitical shifts and China’s energy policy priorities’, at p. 7,
The Oxford Institute for Energy Studies (March 2020), available at https://www.oxfordenergy.org/wpcms/
wp-content/uploads/2020/03/Geopolitical-shifts-and-Chinas-energy-policy-priorities.pdf; Finizio, Trenor
and Tan (see footnote 6, above), at pp. 5 to 8.
34 U.S. Energy Information Administration, South Korea: Analysis (16 July 2018), available at
https://www.eia.gov/international/analysis/country/KOR.
35 Finizio, Trenor and Tan (see footnote 6, above), at pp. 8 to 14.
36 See, e.g., Sambit Mohanty, ‘Twin woes for Asia gas demand – slowing economies, plenty of fuel oil’,
S&P Global (20 November 2019), available at https://www.spglobal.com/platts/en/market-insights/
latest-news/natural-gas/112019-commodities-2020-twin-woes-for-asia-gas-demand-slowing-economies-
plenty-of-fuel-oil.

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Now, in another echo of the European market, the first arbitrations have also begun.
In February 2018, KOGAS filed the first known Asian price review arbitration involving
Australia’s North West export project and a failed mid-term contract price review negotia-
tion.37 In 2019, Osaka Gas, one of Japan’s incumbent importers, initiated arbitration against
Exxon Mobil’s Papua New Guinea vehicle. Under Osaka Gas’s long-term agreement, it
was obliged to purchase LNG indexed to JCC prices at a time when the gas spot market
price was nearly half the contract price.With price negotiations evidently failing, observers
witnessing a traditional Japanese gas buyer initiate arbitration declared the case a potential
‘bellwether’ of things to come.38
More recently, the covid-19 epidemic has prompted further market upheaval, the
scale of which remains to be seen. Since the beginning of 2020, the pandemic and
government-mandated lockdowns have contributed to a drop in Asian demand and a
corresponding drop in price.39 Compounding this trend, in March 2020, oil prices were
battered when Russia and Saudi Arabia entered into a price war after Russia refused to cut
production in response to the covid-19 pandemic.40 The price war peaked in April when
US oil prices reached negative levels, resulting in the offloading of oil tankers and shut-
downs in production.41
Since then, LNG prices also have fallen to record lows. Analysts are struggling to predict
the direction in which the gas (and oil) markets will trend. Demand in Asia remains stagnant
and subject to oversupply. Some think demand will slowly recover, while supply dwindles
as low prices make export unprofitable, especially from North America.42 Indeed, produc-
tion projects in the United States, and elsewhere, are already being delayed because of the
broader financial pressure brought about by the covid-19 crisis.The potential delay, or even
cancellation, of these production projects will have knock-on effects in other parts of the
supply chain, including shipyards and regasification facilities.

37 Jane Chung, Henning Gloystein and Jessica Jaganathan, ‘South Korea’s KOGAS in LNG arbitration with
Australia’s North West Shelf Gas’, Reuters (12 Feb. 2018), available at https://www.reuters.com/article/
us-southkorea-kogas-north-west-shelf/south-koreas-kogas-in-lng-arbitration-with-australias-north-
west-shelf-gas-idUSKBN1FW0DU.
38 Finizio, Trenor and Tan (see footnote 6, above), at p. 37; ‘Japanese LNG buyer seeking price arbitration in
possible “bellwether”’, Euromena Energy (30 July 2019), available at https://euromenaenergy.com/japanese-
lng-buyer-seeking-price-arbitration-in-possible-bellwether/.
39 See, e.g., Nana Shibata, CK Tan and Jim Jaewon, ‘Coronavirus curbs LNG demand in China, Japan
and South Korea’, Nikkei Asian Review (6 May 2020), available at https://asia.nikkei.com/Business/
Energy/Coronavirus-curbs-LNG-demand-in-China-Japan-and-South-Korea; Clyde Russel, ‘Column:
Asian LNG prices take bigger coronavirus hit than Brent crude’, Reuters (27 April 2020), available at
https://www.reuters.com/article/us-column-russell-lng-asia/column-asian-lng-prices-take-bigger-
coronavirus-hit-than-brent-crude-russell-idUSKCN2290D9.
40 Derek Brower et al., ‘Eight days that shook the oil market — and the world’, Financial Times (13 March 2020),
available at https://www.ft.com/content/c9c3f8ac-64a4-11ea-a6cd-df28cc3c6a68.
41 Neil Irwin, ‘What the Negative Price of Oil is Telling Us’, New York Times (21 April 2020), available
at https://www.nytimes.com/2020/04/21/upshot/negative-oil-price.html; Oil Market Report –
April 2020, International Energy Agency (April 2020), available at https://www.iea.org/reports/
oil-market-report-april-2020.
42 Erin Blanton, ‘The Impact of COVID-19 on LNG Supplies’, Columbia/SIPA – Center on Global
Energy Policy (May 2020), available at https://www.energypolicy.columbia.edu/research/commentary/
impact-covid-19-lng-supplies.

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And other unknown factors linger: the covid-19 pandemic persists; China continues to
develop pipeline access to Russian and central Asian gas supply; Japan’s gradual reactivation
of its nuclear reactors following the Fukushima disaster will eat into LNG demand; while
the continuing US-China trade war may further contribute to volatility in supply and
demand in the Asia-Pacific region.

Arbitrating Asian commercial disputes

With the market landscape shifting rapidly, the risk of disputes reaching arbitral tribunals
will only increase. While each case will ultimately turn on the language of its underlying
contract, below we identify some germane considerations for businesses and practitioners.
Furthermore, since parties to long-term LNG contracts most commonly select New York
or English law to govern their dispute, special reference is made to those jurisdictions’
doctrines where relevant.

Arbitral institutions and seats

A contract’s dispute resolution clause will usually provide for arbitration under the relevant
rules of an arbitral institution. These institutions are responsible for the orderly administra-
tion of the dispute and provide for key procedural mechanisms, such as the appointment
of arbitrators, the taking of evidence and exchanges of documents, particularly when the
contract itself is silent on such issues. A series of long-term contracts between US sellers
and Asian buyers, for example, provide for arbitration in Houston under the international
rules of the American Arbitration Association.43 There is also a growing number of such
institutions in the Asia-Pacific region, in particular, the Singapore International Arbitration
Centre (SIAC), the Asian International Arbitration Center in Kuala Lumpur, the Hong
Kong International Arbitration Centre and the Shanghai International Arbitration Center.
Other contracts, such as a publicly available agreement between Qatargas and Pakistani State
Oil, provide for ad hoc arbitration (i.e., self-administered arbitration) under the arbitration
rules of the United Nations Commission on International Trade Law (UNCITRAL).44
The actual place of arbitration can be set by the parties irrespective of the institutional
rules they have selected. For instance, the Qatargas-Pakistan contract calls for UNCITRAL
arbitration in London.45 Parties may further agree to hold sessions, including hearings, in
multiple locations for the convenience of witnesses, or even through videoconferencing.
While party convenience and the ability to set hearings in ‘neutral’ locations is an attrac-
tive aspect of arbitration, parties must be aware of where they are legally ‘seating’ the arbi-
tration. An arbitration can have only one geographical seat or legal place of arbitration.This
location is critical because the laws of that seat’s jurisdiction will govern key aspects of the
arbitration, including, perhaps most importantly, the ultimate validity of any award. Under

43 LNG Sale and Purchase Agreement between Sabine Pass Liquefaction, LLC and GAIL (India) Limited, dated
11 December 2011, Section 21.1; LNG Sale and Purchase Agreement between Sabine Pass Liquefaction, LLC
and Korea Gas Corporation, dated 30 January 2012, Section 21.1.
44 Long Term LNG Sale and Purchase Agreement between Qatar Liquified Gas Company Limited and Pakistan
State Oil Company Limited, dated 8 February 2016, Section 23.2, available at https://psopk.com/files/home/
use_full_links/qg_executed_redacted_version.pdf.
45 id., at Section 23.2.1

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the UN Convention on the Recognition and Enforcement of Arbitral Awards (known as

the New York Convention), to which most key Asian jurisdictions are signatories, only
the courts of the arbitral seat have the power to vacate or set aside an award.46 This vacatur
may in turn frustrate parties’ abilities to enforce the award, including in the jurisdiction
where the non-prevailing party has its assets.47 While an arbitration taking place entirely
in Singapore under the SIAC rules is thus unambiguously seated in Singapore, parties may
find themselves in strange waters if, for example, an ad hoc arbitration is fragmented across
different jurisdictions. Parties could risk ending up in ancillary litigation in potentially
undesirable national courts to determine the seat or defend the validity of an award in
courts that may be less hospitable to arbitration.

Legal issues in LNG arbitrations

Revisions to price formulas
As suggested above, an Asian wave of price review arbitrations may already be beginning.
These arbitrations present a unique circumstance because, unlike most contract disputes,
the arbitrators are not simply adjudicating whether a breach has occurred and how the
non-breaching party should be compensated. Rather, arbitrators must develop a compre-
hensive understanding of the parties’ business and market and then interpret whether
(1) the conditions for price review had been met, and (2) come up with an appropriate
revision of the contract’s price formula. In other words, arbitrators are being tasked with
setting forth the terms of the parties’ future contractual relationship when the parties them-
selves were not able to do so.48
Arbitrators evaluating economic circumstances may have to contend with contractual
limitations on how the relevant market is defined, for example, whether it is strictly limited
to the buyer’s market or a broader region. That analysis will be further complicated by any
resale or diversion restrictions, as evidenced in the Atlantic LNG dispute, discussed above.
Further, a revision to the price formula itself may entail anything from revising a base
price or escalation parameters, or, as was the case in the Atlantic LNG and RWE arbitra-
tions, introducing a gas index in an otherwise oil-indexed formula. The current economic
turmoil has not only shown gas price delink from oil, but also Asian spot gas prices reaching
parity with the US Henry Hub price, which does not take into account the cost of trans-
port to Asia.49 If a meaningful disconnect develops between Asia and US spot prices,
parties could argue for replacing Henry Hub indices with Asian spot prices. That task
becomes complicated by the lack of a truly liquid Asian hub like TFF or Henry Hub. In
fact, Singapore abandoned its four-year effort to develop a hub-based spot price index (the

46 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Articles V(1)(e),VI.
47 id., at Article V(1)(e) (permitting a court to refuse recognition and enforcement of an award if it has been ‘set
aside by a competent authority of the country in which, or under the law of which, that award was made’
i.e., the law of the seat).
48 See also Mark Levy (footnote 15, above).
49 Ekaterina Kravtsova and Jessica Jaganathan, ‘Price agency Platts says JKM LNG price falls to record low’,
Reuters (23 April 2020), available at https://www.reuters.com/article/us-asia-lng-prices/price-agency-platts-
says-jkm-lng-price-falls-to-record-low-idUSKCN2252CL; Clyde Russel (see footnote 39, above).

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‘Sling’ price) in late 2019.50 However, use of Platt’s Japan Korea Marker – a reported spot
price taken by surveying market participants – has become more widespread.51 Disputes
could turn on whether such a survey-based price – a method used to set prices in other
resource industries such as uranium – truly reflects a market price for natural gas.

Force majeure
The scale of market disruption caused by the covid-19 pandemic, and particularly the
government measures requiring lockdowns and quarantines, has given rise to the addi-
tional possibility of force majeure disputes. Force majeure clauses vary by contract but will
typically excuse contract performance resulting from the occurrence of some enumerated
event that renders performance by one party impossible. In March 2020, China’s largest
LNG importer, CNOOC, refused LNG cargo from major suppliers including Total, Shell
and Qatargas on the grounds that logistical challenges at ports caused by the response to
the pandemic constituted an event of force majeure. With all known sellers having rejected
CNOOC’s notice of force majeure, observers are now waiting to see how a dispute may
develop and whether other market participants will follow CNOOC’s example.52
Arbitrating force majeure disputes involves careful navigation of the events giving rise to
the invoking party’s claim of a force majeure event, the language of the contract and broader
market forces at play. For instance, agreements between a major US seller and both KOGAS
and India’s GAIL contain clauses that include epidemics as force majeure events, but exclude
‘the ability of Seller or Buyer to obtain better economic terms for LNG or Gas from an
alternative supplier or buyer’ from the definition.53 Another force majeure provision between
Qatargas and Pakistan State Oil specifically includes ‘epidemics and quarantine restrictions’
but excludes ‘financial hardship or the inability of a Party . . . ​to make a profit or achieve
a satisfactory rate of return’ from the definition of a force majeure event.54 Thus, intercon-
nected events (e.g., pandemics and government responses) and their ultimate effect on
contract economics must be disentangled; the very same circumstances that trigger a price
review may also foreclose a force majeure claim.

50 Jessica Jaganathan, ‘Singapore to stop “Sling” LNG indices, sheds hopes of main price hub’, Reuters
(29 July 2019), available at https://www.reuters.com/article/us-singapore-lng-prices/singapore-to-stop-
sling-lng-indices-sheds-hopes-of-main-price-hub-idUSKCN1UP052/.
51 See Peter Ramsay, ‘JKM comes of age’, Petroleum Economist (16 April 2019), available at
https://www.petroleum-economist.com/articles/markets/trends/2019/jkm-comes-of-age; Tom
Fotheringham, Pat Baisden and Jack Brumpton, ‘The changing face of the Asia Pacific LNG market: Trending
away from oil linked pricing and long-term contracts’, DLA Piper (15 December 2019).
52 See Agnieszka Ason and Michal Meidan, ‘Force majeure notices from Chinese LNG buyers:
prelude to a negotiation?’, The Oxford Institute for Energy Studies (March 2020), available at
https://www.oxfordenergy.org/wpcms/wp-content/uploads/2020/03/Force-majeur-notices-
from-Chinese-LNG-buyers-prelude-to-a-renegotiation.pdf.
53 Compare LNG Sale and Purchase Agreement between Sabine Pass Liquefaction, LLC and GAIL (India)
Limited, dated 11 December 2011, Section 14.1.1(b); LNG Sale and Purchase Agreement between Sabine
Pass Liquefaction, LLC and Korea Gas Corporation, dated 30 January 2012, Section 14.1.1(b) with id., at
Section 14.2.2(c).
54 Long Term LNG Sale and Purchase Agreement between Qatar Liquefied Gas Company Limited and
Pakistan State Oil Company Limited, dated 8 February 2016, Sections 18.2.1(a), 18.2.2(a), 18.2.3(a), 18.2.4(a)
(emphasis added).

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New York and English law both defer to party autonomy in contracting and will respect
the parties’ intent with respect to force majeure clauses. New York law, however, will construe
them narrowly.55 Typically, a clause must not only provide for the specific type of event
that prevents performance (e.g., natural disaster or government regulation), but the event
itself must have been unforeseeable.56 And, if performance is still possible in some way, even
if imposing considerable hardship, New York courts may avoid a finding of force majeure.57
For instance, in two New York cases, a state regulation prohibiting fracking did not excuse
a production company from performance under an oil and gas lease, despite the fact that
the parties specifically intended to utilise fracking when contracting, because other drilling
methods were still available.58 So, as a hypothetical, even if a buyer’s regasification facilities
were temporarily inoperative because of quarantine restrictions, but the buyer could still
accept and place LNG cargos into storage for later regasification, the buyer could face an
uphill battle when invoking force majeure based on the regasification facilities being shut
down. Indeed, most force majeure provisions will in any case require the invoking party to
take commercially reasonable measures to overcome the force majeure event. What consti-
tutes commercially reasonable measures in an ongoing pandemic remains to be seen.

Damages issues
A party claiming a breach of contract from refusal to receive and pay (or process and
deliver) cargo, or even outright termination, must also think about how to argue and prove
its compensable damages to a tribunal.This often overlooked element of an arbitration may
have very serious consequences for a party who might prevail on liability, but recover little
in a pyrrhic victory.
Here again, English and New York law are in significant conformity. A contract for
the sale of LNG will fall under the UK’s Sale of Goods Act and New York’s Uniform
Commercial Code (UCC).59 Both statutes impose somewhat proscriptive methodologies
for proving damages, which should studied in advance of a claim.
For instance, in the case of a seller who is damaged by a buyer’s improper refusal to
accept deliveries, under both statutes, the seller’s default remedy is usually based on the
difference between the contract price and the market price of LNG on the date of the

55 Kel Kim Corp. v. C. Markets, Inc., 519 N.E.2d 295, 902-903 (N.Y. 1987) (‘contractual force majeure clauses
– or clauses excusing nonperformance due to circumstances beyond the control of the parties – under the
common law provide a similarly narrow defense. Ordinarily, only if the force majeure clause specifically
includes the event that actually prevents a party’s performance will that party be excused’).
56 id.; Phibro Energy, Inc. v. Empresa De Polimeros De Sines Sarl, 720 F. Supp. 312, 318 (S.D.N.Y. 1989) (‘New York
law provides that ordinarily, a force majeure clause must include the specific event that is claimed to have
prevented performance. Moreover, the Supreme Court has held that the event must not only be one included
in the force majeure clause, but must be unforeseeable as well.’) (internal citation omitted).
57 Phibro Energy, 720 F. Supp. at 312 (‘Mere impracticality or unanticipated difficulty is not enough to
excuse performance.’).
58 Beardslee v. Inflection Energy, LLC, 904 F. Supp. 2d 213, 220 (N.D.N.Y. 2012), aff ’d on other grounds, 798 F.3d
90 (2d Cir. 2015); Aukema v. Chesapeake Appalachia, LLC, 904 F. Supp. 2d 199, 210 (N.D.N.Y. 2012).
59 Depending on the nationality of the contract parties, they may also fall under the terms of the United Nations
Convention on Contracts for the International Sale of Goods.

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breach.60 Given the fragmented nature of the Asian LNG market, the buyer and seller will
thus have the opportunity to present the tribunal with competing arguments as to the
appropriate index or proxy that reflects the LNG market price. As discussed above, this may
prove challenging in the absence of a dominant Asian gas hub and the confidential nature
of long-term contract pricing provisions.
Sellers may also be frustrated if the difference between the market price and contract
price was minimal on the date of the breach, but the market price is expected to dete-
riorate. The UCC provides for the possibility of recovering lost profit damages when the
above methodology is ‘inadequate’ to properly compensate the seller.61 But a seller may be
hard pressed to prove such ‘inadequacy’, while a lost profit analysis will involve yet more
complex evidence and discounted cash-flow modelling, taking into account country and
project risks. Furthermore, contracts may expressly foreclose lost profit damages, leaving
aggrieved sellers limited to unsatisfying market-price differentials as a remedy.

Practical considerations in Asian arbitration

The above analysis warrants a few practical observations about arbitration in Asia or with
Asian parties.
In almost all the dispute contexts described above, parties can expect to retain expert
witnesses – often both economic experts and industry specialists – to opine on everything
from market conditions, applicable market prices, fair price alternatives and commercially
reasonable mitigation measures. In price review arbitrations especially, first-hand witnesses
may even take a back seat in the arbitration unless they were personally involved in the
negotiations over the contract and can assist the tribunal with resolving any ambiguity
about party intent.
Further, while it is conventional wisdom that document discovery is anathema to inter-
national arbitration, the reality is that almost every international arbitration will involve
some level of document disclosure and exchange, usually under the International Bar
Association’s Model Rules on the Taking of Evidence, unless the parties specifically agree
otherwise. Furthermore, since Asian business norms lean towards negotiated resolution as
opposed to defaulting towards litigation, an Asian business may not involve attorneys in
its internal deliberation until far later in the dispute process. Even then, in part because
of managerial styles and because attorney–client privilege is not robust in Asian jurisdic-
tions, documents recording these deliberations may be widely circulated within a company.
Therefore, an Asian client’s documents that common law counsel would expect to be privi-
leged, including sensitive internal memoranda or even settlement offers, might not carry
the protections of privilege, whereas the US or Australian adversary’s analogous documents
might remain shielded, resulting in an informational asymmetry.
Finally, the LNG context merits a parting comment on the issue of enforceability of
awards. As previewed above, an award is subject to attacks for vacatur (i.e., set-aside) in the
country where the arbitration was formally seated. In most jurisdictions, following the
UNCITRAL model law, the grounds for vacatur are quite limited, typically encompassing

60 UK Sale of Goods Act, Section 50(3); New York Uniform Commercial Code [UCC] Section 2-708
(specifying further that the relevant market price is as of the date the seller learned of the breach).
61 UCC, Section 2-708(2).

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misconduct such as fraud or fundamental failures of process.62 However, an award, even if

valid and not subject to vacatur, may still have to be enforced against a recalcitrant debtor.
This may require going to various courts where a party has its assets, including its home
courts. Here, even under the New York Convention, the courts in which enforcement is
sought may refuse to enforce an award if it would conflict with the public policy of the
enforcing state.
Given the presence of state-owned participants in often highly regulated markets
involving energy supply, parties should be mindful of this public policy enforcement risk.
Notably, Japanese regulators have followed the lead of European competition authorities in
concluding that destination restriction clauses may be anticompetitive in some contexts.63
A victorious party should take note of any potential argument by a party seeking to block
enforcement that the ultimate award violates public policy to the extent that it relies on the
enforcement of any such restrictions.
Some remedies may likewise prove problematic. For instance, in a case in which the
authors represented a foreign investor, an award rendered against India and GAIL ordered
the return to the investor of an exploration licence for natural gas that India had improperly
revoked.When the investor sought to enforce the award in the United States, a district court
judge ruled that enforcing the award would violate US public policy against ordering the
remedy of specific performance against a sovereign.64 As the covid-19 crisis continues, and
states are compelled to take on more interventionist measures, parties should be mindful of
how they phrase both their arguments and their remedies, to avoid the risk of conflict with
public policy in such a vital sector, even in the most pro-arbitration environments.

62 See UNCITRAL Model Law on International Commercial Arbitration, Article 36.

63 Konstantin Christie, Mino Han and Leonid Shmatenko, ‘LNG Contract Adjustments in Difficult Times:
The Interplay between Force Majeure, Change of Circumstances, Hardship, and Price Review Clauses’,
at pp. 6 to 8, OGEL (March 2020), available at https://www.ogel.org/journal-advance-publication-article.
asp?key=641.
64 Hardy Expl. & Prod. (India), Inc. v. Govt. of India, Ministry of Petroleum & Nat. Gas, 314 F. Supp. 3d 95, 115
(D.D.C. 2018)

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Contractual Terms

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8
The Evolution of Natural Gas Price Review Arbitrations

Stephen P Anway and George M von Mehren1

Price review arbitrations are, as a collection of cases, the highest-value commercial disputes
in the world today. The amounts at stake begin in the hundreds of millions of dollars and
often climb into the billions. Yet despite the staggering amounts that hang in the balance,
price review arbitration has only recently emerged from relative obscurity to become the
subject of disputation in the wider energy arbitration arena.
The authors of this chapter have been involved in price review arbitrations since their
inception. During this time, the field has evolved in exciting and unexpected ways. This
chapter seeks to map that evolution by providing an overview of the past, the present and
the future of price review arbitration.
As this chapter makes clear, the twists and turns in the evolution of price review arbitra-
tions have generally not been driven by changes in contractual provisions, legal rights or
the acts or omissions of the parties involved. Rather, it has been external events – such as
the liberalisation of national gas markets, the global economic crisis and the maturation of
certain gas hubs – that have paved the evolutionary path.
Parties to long-term gas supply contracts have therefore been forced to react – availing
themselves of the ‘price review’ provisions in long-term contracts to recalibrate their price
formulas to reflect changed market conditions.The margin for error, however, is razor thin.
Changing just a few cents per unit of gas can shift hundreds of millions of dollars between
the parties because of the very substantial volumes delivered during the life of a long-term
gas contract.

1 Stephen P Anway and George M von Mehren are partners at Squire Patton Boggs (US) LLP. The authors
thank Douglas Pilawa, associate at Squire Patton Boggs, for his assistance with this edition of the chapter.

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Arbitrators deciding these disputes therefore have a weighty and difficult task. Price
revision provisions imbue the arbitrators with exceedingly broad authority to modify the
pricing formula with strangely little direction on how to do so. Yet despite this awesome
power and frequent lack of direction, arbitrators have – by and large – done a laudable job
of getting it right.
As discussed below, the story of natural gas price reviews has been, until recently, largely
a European one.While this chapter starts at the beginning of that story, it is by looking back
that we see the positive and important role that international arbitration has played in the
development of gas pricing during the past 20 years or so in Europe. And it is by reflecting
on the past that we are able to make predictions for the future.
Those predictions are particularly important for Asia, where the gas markets today
largely resemble the European ones of two decades ago: markets in transition, where pricing
is still largely tied to oil products. Earlier editions of this chapter predicted that, just as price
review arbitrations emerged in Europe to address changes in the gas markets not reflected
in contract prices, Asia would soon experience its first wave of price review arbitrations.
As this article explains, those predictions, while slow to be realised, have now proven true.

The dramatis personæ

The parties to price review arbitrations tend to be repeat players. The sellers are typi-
cally the producers of natural gas and entities that are government-owned, or formerly
government-owned, with strong state participation. For example, there are only a handful
of producers around the world who regularly sell to the continental European markets:
Gazprom (Russia), Sonatrach (Algeria), Qatargas and RasGas (Qatar), Nigeria LNG
(Nigeria), Statoil (Norway), and Atlantic LNG (Trinidad and Tobago).
The buyers, by contrast, are often formerly state-owned companies in countries that
do not produce significant gas domestically, but have the infrastructure in their coun-
tries to accept delivery of the gas, transport it through an existing transmission network
and distribute it to wholesalers or end-user consumers in the downstream market. Before
the liberalisation of the European gas markets, these companies were predominantly
state-owned monopolists, which purchased from the suppliers and had the pipeline infra-
structure to deliver the gas to end users.
Examples of former state-owned monopolists include Eni in Italy, Enagas in Spain and
Geoplin in Slovenia. When the European gas markets were liberalised during the 2000s,
competitors entered these markets and the list of buyers grew. Edison in Italy, for example,
was not a market incumbent but has become a major buyer in the liberalised Italian market.
These, then, were historically the usual parties to gas price review arbitrations. They
signed with each other a very particular type of contract: a long-term,‘take-or-pay’ contract
for pipeline gas or liquefied natural gas (LNG). And it is in this type of contract that the
price review clause is typically found.

The price review clause

The history of the price review clause can be traced back to the early days of the North
Sea gas industry. The upstream suppliers – the sellers under long-term contracts – often
needed financing for the investment necessary to bring the gas to commercial production.

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To ensure that the producers would be able to repay the money borrowed, the sources of
financing required the producers to obtain a guaranteed, long-term revenue stream from
downstream buyers.
Producers did so by signing long-term, ‘take-or-pay’ contracts with buyers, which
obliged the buyers to pay for a pre-determined volume of natural gas, whether or not the
buyers actually take that volume. This volume commitment – often worth tens of billions
of dollars over the life of the contract – gives the sellers the guaranteed revenue stream,
providing long-term cash flow to support the project economics even at a relatively low
contract price.
The buyers were willing to undertake the volume commitment, but they needed to
be assured that the price paid to the sellers would remain viable in the long term – even
as changed market conditions affect the price that they can obtain when on-selling down-
stream in the end-user markets.
The problem is simple: if, for example, the price that the buyer is paying upstream to the
supplier is more than the price that the buyer can receive downstream from the end users,
then a price decrease is required because otherwise there is no margin, there are losses and
the buyer will quickly go out of business. Conversely, if the price that the buyer is paying
upstream to the supplier is sufficiently lower than the price that the buyer can receive
downstream from end users, the seller may not be enjoying the benefit of its bargain.
The parties, therefore, must reach a balance.That balance is achieved when the contract
price is defined by reference to the price that end users pay for natural gas in the market
where the gas is delivered. The objective is that the contract price the buyers pay to the
sellers will self-adjust, according to a formula, as end-user prices evolve over time.
And here is the crux of the issue: how do sellers and buyers arrive at a contract price,
which will govern for decades to come, such that it will adequately track the changing value
of gas in the end-user market? The answer, in general terms, is through a netback formula.
A netback formula references a reliable natural gas price marker (such as a hub price, a
reliable published price, or a portfolio evaluation) and then deducts certain costs and allows
for a margin. For example, gas sold to the US gas market has been sold at a price tied to US
traded gas prices – such as Henry Hub – thereby ensuring that the price remains aligned
with the conditions under which the gas can be sold into the downstream market.
Historically, however, this option was not available in many gas markets. When
European and Asian importers began contracting for natural gas supplies, there were no
developed natural gas markets in their countries. The importers – the buyers (typically
government-owned monopolists) – were creating demand downstream by importing gas
and selling it to consumers in competition not with other natural gas (because they were
the monopolist gas companies and there was no gas-to-gas competition) but, rather, with
other competing fuel products – primarily oil products.
To gain market share, therefore, gas needed to be priced at a discount to those competing
fuels. Prices for gas were commonly defined by the government on the basis of supply
costs – that is, the price that the buyers paid the sellers under long-term contracts. As a
result, there was no independent gas price reference in the destination market. When the
buyer and the seller were at the negotiation table discussing what price the buyer would
pay to the seller during the life of the contract, they could not simply put into the price

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formula a gas price reference; there was none. Instead, they often included a reference to
the price of competing oil products. In this monopolist market, displacement of oil and
other competing fuels would allow the monopolist to sell the gas downstream.
In short, pricing by reference to these competing fuels was the best option to track the
competitive dynamics of the downstream natural gas market. As reflected in these contract
price formulas, oil and oil-derived products served as a proxy for the ‘value’ of natural gas.
To establish this proxy pricing, buyers and sellers often agreed to a contract price with
two fundamental components: first, a fixed base value referred to as ‘P0’; and second, an
indexation component tied to the evolution of oil-derived products. This latter compo-
nent, called an ‘escalator clause’, is a multiplier to the base value that allows the contract
price to fluctuate during the term of the contract in accordance with the price movement
of the oil products.
Proxies, however, are necessarily imperfect. Commodity markets do not remain static,
and there will be changes in the gas market that will not be reflected in, and therefore not
captured by, the imperfect oil proxy in the price formula.
Thus was born the price review clause. It allows either party to seek revision of the
contract price if the conditions underlying the commercial bargain significantly change
over time. This is the fundamental trade-off between the take-or-pay commitment of
the buyer and the right to realign the contract price periodically to conditions in the
destination market.
Although the terms of specific price review clauses differ, they often:
• specify a certain number of regular price reviews, which can be initiated at the request
of either party on specified dates;
• specify a certain number of ‘wildcard’ price reviews, which can be initiated by either
party at any time;
• require that a price review be initiated by filing a price review notice with the
other party;
• provide that the price review notice starts a mandatory negotiation period (usually
three, four or six months);
• impose certain requirements that must be satisfied before the price formula can be
modified, often a significant change in the market of the buyer that occurred since the
current price formula last became effective and that:
• affects the value of natural gas;
• is non-temporary in nature; and
• requires an adjustment to the contract price (i.e., the economic effect of the change
is not already reflected in the current price formula);
• if these preconditions are satisfied, specify that the price formula should be revised in
accordance with certain requirements, namely the revision:
• should take into account the economic effect of the changes that gave rise to the
price review;
• must allow the gas to be sold competitively in the market, at a reasonable marketing
margin, or such that the buyer may market the gas economically in its end-user
market; and
• should assume sound marketing and efficient management by the buyer;
• specify that the revision is retroactive to the date of the price review notice;

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• specify that the parties must calculate the difference between the revision and the
former price (already paid by the buyer) for that period;
• if the revision results in a price reduction, provide that the seller owes the difference to
the buyer for that period;
• if the revision results in a price increase, provide that the buyer owes the difference to
the seller for that period; and
• if the parties cannot reach agreement within the mandatory negotiation period, provide
that either party may submit the matter to international arbitration.

Contracts that include price review clauses typically include arbitration provisions of the
International Chamber of Commerce, the Arbitration Institute of the Stockholm Chamber
of Commerce or the United Nations Commission on International Trade Law, and provide
for three arbitrators. The seat of arbitration is often New York, London, Geneva, Paris,
Stockholm or Singapore. Arbitral awards revising a contract price or rejecting a request for
revision are enforceable under the New York Convention – although enforcement is rarely
required because of the parties’ ongoing commercial relationship.2
These price review clauses started to become standardised in the 1980s, when contracts
were signed concerning the Norwegian Troll gas field. These ‘Troll contracts’ were organ-
ised through a centralised process, by which all producers (and the Norwegian govern-
ment) and all the buyers (which operated through a consortium) were involved in the
negotiations. As a result, a standardised agreement was used, which included the price
review language. In the decade that followed, other buyers and sellers adopted the same or
similar language in other long-term supply contracts – and the price review clause became
more or less an industry standard in Europe.
These price review clauses – now in place in long-term gas contracts across Europe –
set the stage for what happened next.

The first wave of price reviews

On 22 June 1998, the European Commission – following years of preparation – promul-
gated Directive 98/30/EC relating to the liberalisation and deregulation of the natural gas
markets of EU Member States.The Directive sought to encourage competition in the then
largely monopolistic European gas markets. It sought to do so by (1) allowing third parties
open access to natural gas transmission facilities, and (2) permitting consumers to choose
their natural gas supplier and to negotiate prices.The European Commission stated that the
liberalisation of the European natural gas markets would lead to increased competition and
that, ‘[a]s competition increases with the progressive development of the internal market
for gas, prices are expected to fall’.3
In the years that followed, Member States took a variety of measures in their national
legal orders to implement the Directive. In many countries, the national legislation sought to
achieve ‘unbundling’ – the process of functionally segregating gas marketers from operators

2 One notable exception is Gas Natural Aprovisionamientos, SDG, S.A. v. Atlantiz LNG Company of Trinidad and
Tobago [2008 WL 4344525 S.D.N.Y.], in which the authors successfully represented the enforcing party.
3 European Commission, Opening Up to Choice: Launching the Single European Gas Market, p. 17.

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of gas delivery and storage facilities, which enabled competition by giving competitors
non-discriminatory access to the gas system. Liberalisation proceeded at a different pace in
each Member State.
Change was afoot. The liberalisation efforts started to move the EU gas markets from
a system with only one monopolistic buyer in each country selling downstream, to a
system in which numerous competitors would participate in the market, sign contracts
with suppliers such as Gazprom and Sonatrach, and compete with other buyers to sell to
the downstream market, underbidding each other to gain market share. The aim was that
the downstream price paid by the end users would not be set by the supply price but,
rather, by the competitive dynamics in the end-user market itself.
There also was another, more subtle change. Whereas buyers had previously sold
gas downstream in the competition with oil-based fuel products, they were now selling
the same gas downstream in competition with other natural gas suppliers (i.e., gas-to-
gas competition). This caused a problem for the buyers. With the barriers to competition
crumbling, competitors could enter the market for the first time and offer prices at a
discount on what the monopolist incumbent had been charging. At the same time, the
price that buyers were paying to sellers under the long-term contracts were still tied to oil
prices set at a level before gas-to-gas competition existed. This disconnect between what
the buyers were paying upstream and what the buyers were receiving downstream created
the archetypical situation that the price review provisions were intended to address.
Arbitration commenced. The authors represented the winning party in the first price
review arbitration in the world. Filed in the early 2000s, the claim was that the liberalisa-
tion of the relevant European gas market broke up the importer’s monopoly and, for the
first time, created gas-to-gas competition when new competitors entered the market and
began offering prices at a discount to the previously prevailing prices. We therefore sought
the addition of a new component to the pricing formula to reflect the development of
competition in the relevant gas market.
The tribunal agreed. It significantly lowered the contract price formula by introducing
a ‘correction’ factor, to correct for the decrease in the market gas price that the oil-linked
contract price did not track. Importantly, however, the tribunal left the pricing formula
tied to oil products because, at that time, there was still no liquid gas index in the relevant
market that could reliably represent the price for natural gas. The tribunal therefore left
the price formula tied to oil products, but changed the price level to reflect the gas-to-gas
competition price in the market.
Other arbitrations followed, most resulting in significant price decreases for the buyer.

The second wave of price reviews

A second wave of price reviews was initiated – again primarily by buyers – in the wake
of what many described as a ‘perfect storm’ of price-depressing events that occurred from
2008 to 2010. Two events in particular converged to create this situation.
First, the sudden impact of the global economic crisis swept across Europe and was fully
brought to bear on the gas markets.The economic effects of the crisis caused gas demand to
decline relative to projected growth and expanded import capacity, leaving gas companies
under take-or-pay obligations to compete fiercely with each other in a desperate attempt
to sell their volumes.

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Second, new and unexpected volumes flooded the European market. One of the key
contributors to this increased supply was the US shale gas boom, which resulted in LNG
destined for the US market being diverted to Europe. Based on higher prices in Europe and
transportation limitations, companies – under take-or-pay obligations – began unloading
volumes in Europe, which became a ‘sink’ market. This supply–demand imbalance led to
a gas glut.
These market changes had an important effect. The influx of new quantities of natural
gas being unloaded in Europe increased liquidity in the European natural gas hubs. And
with the influx of gas being traded at these European hubs, the hubs began to mature rapidly.
Despite this increasing maturation of European gas hubs, the market prices in many
European markets still remained largely tied to oil products. As a result, most (although not
all) of the price reviews in this second wave resulted in a decrease in the contract prices to
reflect the reduced level of gas prices, but still left the prices tied to oil products.
This was no small event. The buyers that achieved downward revisions to their supply
prices included Bulgargaz (Bulgaria), Centrex (Austria), Conef Energy (Romania), DONG
(Denmark), EconGas (Austria), Edison (Italy), Eni (Italy), E-On (Italy), Gas Natural (Spain),
GasTerra (Netherlands), GDF Suez (France), PGNiG (Poland), RWE (Germany), Shell
Energy (Netherlands), WIEH (Germany) and WINGAS (Germany).
Each of these buyers obtained price reductions in their long-term contracts based on
the evolution of the European markets. The prices paid by end users were now no longer
set by supply costs. Rather, the reserve had happened: the supply costs were set by the
end-user prices through the price reviews.

The third wave of price reviews

Several years later, the buyers argued that the gas hubs had developed and matured in much
of Europe to the point that they had significant traded volumes and transparent prices.
This allowed several European hubs to act as a price-setting mechanism in the markets that
they serve.
As a general principle, the more significant the volumes traded on a hub, the more
‘liquid’ – and reliable and transparent – its price reference becomes. A ‘liquid’ price is
one that is not easily influenced by a small number of trades because of the large overall
volumes traded. An ‘illiquid’ hub, by contrast, is more prone to price volatility because of
the ability of a small number of trades to influence the average price more quickly. The
growth of liquidity at a trading hub also facilitates increasingly transparent prices because
of the higher number of trades made at the hub.
The Title Transfer Facility (TTF) in the Netherlands became the most liquid conti-
nental European hub during this period. By 2009, traded volumes at the TTF had grown
to the extent that the TTF was regarded as an open and liquid gas trading hub. Since 2012,
the price formation mechanism for many gas contracts in the Netherlands and elsewhere
has been the TTF price.
Many buyers in this third wave of price reviews therefore asked for the proxy of oil
products in the formulas to be replaced by gas hub indexation. It is a matter of public
record that suppliers such as the Norwegian producer Statoil and Gazprom have increas-
ingly agreed to include gas hub indexation or reflect gas hub price levels in their supply

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contracts.4 Indeed, the two largest supply contracts into Europe – which are contracts that
Eni and E-On have with Gazprom – were revised to include gas hub indexation (it is public
information that the Eni contract is now 100 per cent hub-indexed). Further, 100 per cent
of Statoil’s contracts to north-west Europe have some level of hub indexation.5
The result of this third wave of price reviews was that, in many cases, parties and tribunals
either partially or entirely replaced oil indexation with hub indexation in the pricing
formulas. Most western European gas contracts are now partially or entirely hub-indexed.

New European pricing trends

As the foregoing shows, the evolutionary path of price review arbitration has been marked
by three epochs. During this time, the European gas markets have experienced growing
pains, and players in the field have struggled to cope with the evolving energy landscape.
International arbitration has played an important part in that evolution.
Focus now turns to the future. Perhaps the most interesting question is whether price
review arbitrations in Europe will continue or will slowly die out (which would be sad
news for price review lawyers). As European hubs continue to mature, hub indexation will
be, through party agreement or arbitral awards, increasingly substituted for the proxy of oil
products. And that means that, as a general rule, the supply price formulas will better react
in real time to natural gas prices in downstream markets, and capture market changes in a
way that the oil prices could not, and the need for price reviews will be reduced. In other
words, hub indexation will significantly diminish the need for the very mechanism that
played an important part in the emergence of hub indexation in the first place: the price
review clause.
In these circumstances, the question must be asked: is there still a reason to include a
price review clause if the formula is wholly tied to a gas hub index? Those who say ‘no’
believe that the hub indexation is the cure for everything – and that the market prices will
stay in alignment with contract prices that are tied exclusively to hub indexation. There is,
however, a more nuanced view: price review clauses may still be important because there
is no guarantee that hub pricing will reflect market prices – particularly if the destination
market is different from the hub reference.
A simple hypothetical illustrates the point. Suppose companies contracting for the
German market wish to include in the contract price a 100 per cent hub reference to the
TTF in the Netherlands. They wish to do so because they believe the TTF is sending the
price signal for market prices in Germany. The parties may therefore change the contract
price formula to include 100 per cent TTF hub indexation.
Is there a need for a price review clause in this hypothetical? The answer may be ‘yes’,
because the TTF may not always remain a reasonable measure of market prices in Germany.
Rather, it may be that the TTF ceases being a price signal for market prices in Germany

4 Jason Bordoff and Trevor Houser, ‘American gas to the rescue? The impact of us LNG exports on
European security and Russian foreign policy’, Columbia SIPA, Center on Global Energy Policy
(September 2014), p. 17.
5 Gazprom, ‘Management Report: OAO Gazprom, 2012’; Jonathan Stern, ‘The Dynamics of a Liberalised
European Gas Market – Key determinants of hub prices, and roles and risks of major players’, The Oxford
Institute for Energy Studies (December 2014), p. 19; Bordoff and Houser (footnote 4, above), p. 17.

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at some point in the future and that the German hub becomes the new sender of the
price signal. In that case, the parties would be wise to have the contractual mechanism – a
price review provision, albeit perhaps worded differently – to deal with this change in
market conditions.
In any event, the European price review story is far from over. Price reviews under
the remaining fully or partially oil-linked contracts continue – particularly in central and
eastern Europe, which are often overlooked in the price review discourse (and, in limited
circumstances, still in western Europe as well). The most recent example is an award issued
in March 2020, in which PGNiG, the Polish state gas utility, was awarded US$1.5 billion
in a price review arbitration against Gazprom.6 International arbitration thus will continue
to play an important part in the evolution of the central and eastern European gas markets.
More generally, the traditional European pricing model described above – which gave
rise to the three waves of price reviews – is changing. Those changes are being caused by
different global LNG contracting practices, and they will affect the future evolution of
price review disputes in Europe.
First, the United States – as a relatively new exporter of gas – is now offering significant
destination flexibility, with few, if any, restrictions on where the gas can be delivered. As a
result, it is increasingly difficult for traditional suppliers for delivery to Europe to continue
to demand destination restrictions. It is also increasingly difficult for suppliers to demand
destination restrictions because government bodies, such as the European Commission,
have stated that destination restrictions violate applicable competition law. In addition,
liberalisation efforts in markets around the world, which make re-gas facilities more acces-
sible, mean that the buyer now has more options for where the gas can be delivered.
Second, and equally important, is the corollary pricing implication. With the United
States now exporting LNG, European buyers are now contracting with US suppliers,
with the price tied to Henry Hub. Notice the change. It is no longer the traditional
European approach, which was to set the price based on destination. Rather, in these
new contracts, the price is now set by point of origin. This dynamic puts pressure on the
traditional suppliers to rethink the traditional European models, because now European
buyers purchase LNG from the United States and have greater freedom in the destination
to which they will deliver the gas, paying a US price.
Third, certain European contracts are now being signed with 100 per cent volume
flexibility (although there is still a take-or-pay obligation for the liquefaction fee). This
dramatic reduction in take-or-pay liability offers significantly more flexibility than the
traditional models.
Fourth, much like the US practice, there is a move towards shorter-term and more
flexible contract structures. For example, Europe has seen an increase in portfolio sales,
rather than anchor contracts, for location-specific sources. Traditional European contracts
often specify the exact gas field from which the gas must be supplied. Many of the newer
contracts, by contrast, impose no requirement concerning the source of supply. Under these
portfolio contracts, the sellers simply commit to deliver X quantities of gas to Y location,
without specifying the source. This, too, differs from the traditional European model.

6 ‘Polish-Russian gas pricing dispute reaches award’, Global Arbitration Review, Cosmo Sanderson
(31 March 2020).

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These shorter contracts reduce, or may altogether eliminate, the need for price reviews.
Under the traditional European model, price reviews often were available every three years.
Under the new paradigm, however, if gas contracts are for only three years (or shorter), the
interval during which the parties will be ‘stuck’ with the contract price is roughly the same
(or less) – and the parties may not need a price review clause at all.
In conclusion, these changes in global LNG contracting practices, primarily from
the United States, are having a significant effect on the traditional European model that
spawned the three waves of price reviews. Certain elements of the traditional risk-reward
balance are changing, because the contracts on which that risk-reward balance is based are
changing. Nevertheless, while there are new contracts that have these new features, there
are many historical European contracts that do not. Indeed, the International Gas Union
reports that, while 41 per cent of LNG global pricing is now ‘gas-on-gas’, the remaining
59 per cent remains oil-based.7 Those oil-based contracts, signed years ago, live on and are
still being performed. If history is our guide, price reviews under these legacy contracts will
continue for many years to come.

Asia: the future is now

In earlier editions of this chapter, the authors had predicted that Asia would be the next
battleground for LNG price review arbitrations.Asia is home to the world’s largest importers
of LNG and natural gas. The region includes China, Japan and South Korea, which are the
world’s three largest LNG importers.
The history of LNG imports into Asia began in the late 1960s and 1970s, when importers
signed long-term contracts for delivery of LNG into Japan. China and South Korea first
entered the market in the late 1980s and early 1990s. From the outset, oil-indexed pricing
was, and remains, the dominant pricing model for LNG in Asia.
When we wrote the first edition of this article, it was our belief that, although the
number of European price reviews was diminishing, all hope for price reviews was not lost
– because Asia would become the next Europe. Our prediction was borne of good reason:
the Asian markets today are where European markets were two decades ago – markets in
transition, where pricing is still largely tied to oil products. For this reason, we predicted
that the next major battleground in price review arbitration would be Asia, which was and
remains largely unliberalised and where end-user prices are largely set by the supply costs.
In the years following our initial prediction, however, price reviews in Asia failed to
take off. Only a small handful of buyers commenced arbitrations, rather than the droves
that many expected. Some speculated that the lack of new cases was borne of a business
culture that eschewed contentious dispute resolution. Others explained the inactivity by
noting that some Asian gas contracts do not contain a price review clause, and those that
do provide for price reviews less frequently (for example, once every five years, rather than
once every three years as typically seen in European contracts). Subsequent editions of
this chapter nonetheless continued to make the same prediction that, while price reviews

7 International Gas Union, ‘Wholesale Gas Price Survey’, 2020 Edition, p. 16.

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in Asia were slowly advancing in fits and starts, at some point the price review revolution
would begin in full force.We are happy to report in this fourth edition that the price review
revolution in Asia has now commenced.
At the time of writing, price review arbitrations have officially launched in Asia – not
just one case, but an entire collection of cases. From Japan to China to South Korea, many
buyers under long-term, take-or-pay contracts are now moving forward with price reviews
in arbitration – just as the early European pioneers did in the early 2000s. The authors are
now involved in several of these new arbitrations.These new price reviews sit at the crest of
a new wave of arbitrations in Asia. And, indeed, if the Asian gas markets are to progress and
mature as the European markets have done in the past two decades, international arbitra-
tion must again play an important role.

Conclusion
Although the evolution of price review arbitration in Europe has been marked by three
periods of increased activity, it has been – with the exception of a few twists and turns – a
more or less linear evolution, as gas markets have matured away from oil indexation and
towards hub indexation. International arbitration has been one of the primary vehicles by
which pricing disputes have followed that evolutionary path. Now, a new frontier for price
reviews has emerged in Asia. As we reflect on the European journey and make predic-
tions for the future in Asia, the road forward appears to be one of similar battles but with
new challenges.

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9
Gas Price Review Disputes: Key Insights for a Successful Resolution

Devika Khanna1

Much of the world’s pipeline gas and liquefied natural gas (LNG) is traded on hubs and
therefore bought and sold as a spot commodity. However, long-term contracted supply
remains important and contracts may have a duration of 20 years or more. The rationale
for long-term supply for sellers, who are often (but not always) producers, is the benefit of
committed offtake to set against their fixed capital costs of supplying the gas, while buyers
seek security of supply and a varied portfolio of sources to ensure that domestic energy
demands are met. The classic risk allocation in a long-term gas supply agreement (GSA)
involves the seller assuming the ‘price risk’, committing to sell certain volumes at a set
price for a certain period, while the buyer takes the ‘volume risk’, committing to offtake
certain volumes, or pay for them, in any event (‘take or pay’). Thus a balance is struck and
contractual equilibrium is achieved.
To set the price of gas supplied under a long-term GSA, parties historically pegged
the price to competing fuel products, the logic being that the buyer required a price that
would allow it to sell the gas in its home market where gas would be competing with other
fuels, such as oil and coal. Given that there were established markets for oil and coal, these
were used as proxies for the value of gas in the indexation element of the pricing formulas.
However, contracting parties foresaw that, in the long term, such a contract price might fall
out of line with the market and require adjustment to protect the buyer or the seller (or
both) and maintain the agreed contractual equilibrium. The answer was the price review
clause, which would allow periodic readjustment of the contract price, within the param-
eters agreed by the parties. Most such clauses provide for the parties to attempt to agree a
negotiated solution, failing which there is generally a reference to international arbitration.

1 Devika Khanna is a partner at Clyde & Co LLP.

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There are several distinctive aspects of gas pricing arbitrations that require specialist
knowledge and handling. They are not typical, adversarial commercial arbitrations before
tribunals that follow a claim for damages based on an alleged breach of contract or some
other legal wrong. In gas pricing disputes there is generally no suggestion that a wrong has
been committed. Instead, the parties are following the agreed process to vary one element
of the contract – the price – to allow the contract to remain balanced for both parties for
the long term.
The process is typically started by a party asserting that a trigger event has occurred.
If the parties cannot agree on a price adjustment, an arbitral tribunal evaluates whether a
trigger event has indeed occurred and, if so, it effectively steps into the shoes of the parties
and adjusts the contract price on their behalf.The tribunal has a mandate, circumscribed by
the precise terms of the price review clause and applicable law, to revise the contract price
for the future. In so doing, it has to grapple with a number of complex (and often diverging)
economic factors, including market changes, pricing metrics, transportation costs and the
margins of the buyer and seller, while applying these factors in the context - and within the
limits - of the relevant contractual provisions and applicable law. For that reason, the expert
evidence presented by both sides is critical in almost all aspects of a price review: from the
fundamentals of the parties’ original bargain to satisfying the required threshold factors and
guiding the tribunal as to the appropriate level of price adjustment, and how this can be
formulated in the contract.
This chapter addresses some of the main issues that arise in relation to gas pricing
disputes and offers insights that can assist their successful resolution. It looks first at the
anatomy of a price review clause, then at the negotiation phase that usually takes place
once a review is requested, and finally at the arbitration that generally results if those nego-
tiations are unsuccessful. It concludes with a few words about the outlook for gas price
review disputes.

Price review clauses – typical features

The wording of a price review clause is critical, since it sets the ground rules for what
follows. It invariably deals with such basic matters as the frequency of price reviews, what
is required by way of notice, the documentation that must be provided, the length of nego-
tiations between the parties, and the consequences of failing to reach an agreed solution.
Although some GSAs provide for termination if a negotiated solution cannot be achieved,
this is unusual. Typically a price review clause will provide for an expert or (more usually)
an arbitral tribunal to rule on the matter. International arbitration has the benefit of privacy
and confidentiality, which are important given the sensitivities around the commercial
information at play in such cases. For that reason, very few details of past cases have
emerged, except occasionally where challenges to awards have resulted in national courts
revealing certain aspects.
Price review clauses come in different shapes and sizes. The precise language chosen
has at the same time to be as precise as possible to avoid endless arguments between the
parties as to how to interpret the provision, while being flexible enough to cater for the
unpredictable future.

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Price review clauses typically require the requesting party to show that certain qualita-
tive changes have occurred that necessitate an adjustment to the contract price, namely
a change of a certain significance, by the relevant time (the review date), beyond the
requesting party’s control, which has affected the market value of gas in the reference
market. In addition to the trigger event, a price review clause will frequently stipulate addi-
tional criteria to be factored in at the adjustment stage; for example, that the contract price
must allow the buyer to economically market the gas or that the price under comparable
contracts shall be used as a reference. All such terms and criteria inevitably become the
source of debate between disputing parties. It is therefore important that a requesting party
pays heed to the temporal and notice requirements and then to the various factors stipu-
lated in the clause in question.
These factors are considered in more detail below.

Temporal limitations
Some GSAs entitle parties to seek a review at certain periodic dates (e.g., at three-year
intervals),2 while others allow an initial review at the mid-point of supply and then possibly
again if the contract is extended. Occasionally, a GSA will allow parties to use a certain
number of ‘joker’ (also known as ‘wildcard’) price reviews that can be requested for any
reason and at any time (i.e., outside the prescribed price review windows). Whatever is
provided in the GSA, it is incumbent on the requesting party to ensure that its request is
brought within the prescribed time limits, otherwise the counterparty may argue that the
review should not proceed. Tribunals may consider compliance with temporal conditions
essential and reject a request that is made out of time.

Notice requirements
A price revision clause will typically require the requesting party to serve a contractual
notice on the counterparty. It may also require it to propose a specific change to the price
formula and to explain and substantiate the reasons for the requested adjustment. These
particulars will, to a certain extent, determine the scope of the price review, should it go
ahead, and they should therefore be drafted with care.
Compliance with notice requirements is important as it may constitute a condition
precedent to the commencement of the price revision process. It also determines the date
on which the price revision takes effect, also known as the price review date.
It is important for the requesting party to bear in mind that once it triggers a price
review by issuing a valid notice, it may open up the process and thus the likelihood of
receiving a formal claim from its counterparty. The question of whether the party receiving

2 For instance, the gas supply agreement [GSA] between Sonatrach and Distrigas stipulated that the parties will
meet ‘every four (4) years’ while the Atlantic liquefied natural gas [LNG] contract allowed price revision requests
on a triennial basis. The Sonatrach–Distrigas GSA (1976) is available at https://fossil.energy.gov/ng_regulation/
sites/default/files/programs/gasregulation/authorizations/1988/applications/88_37_LNG1.pdf. The terms
of the Atlantic LNG GSA are known because the award was challenged in the US courts. See Atlantic LNG
Company of Trinidad & Tobago v. Gas Natural Aprovisionamientos SDG SA, UNCITRAL, Final Award dated
17 January 2008.

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a notice must also serve its own notice has been debated and so it is generally advisable
(even if not always strictly necessary) to err on the side of caution and for the receiving
party to also serve notice of its own.
Another question that may arise in practice is whether it is open to a party requesting
a price review to subsequently withdraw its request, by claiming ownership of the process
as the party that initiated it. Advice on this point will turn on the wording of the review
clause and the applicable law. In certain jurisdictions for example, the right to a price review
constitutes a formative right, such that once exercised, the process is in principle irrevocable
unless the parties both agree to terminate it. In these circumstances, the requesting party
may lose the ability to discontinue the process unilaterally at a later stage.

Price review parameters

In addition to complying with any temporal and notice requirements, the requesting party
must provide evidence of a certain level of change in the ‘reference market’.3 Below are
some of the factors that may be referenced in the relevant clause:
• Change is outside the parties’ control or unforeseeable (or both): it is generally not possible
for a party to rely on a change in circumstances that it has caused or contributed to.
Certain clauses may also introduce an element of unforeseeability to prevent parties
from relying on changes that were expected at the time of signing and already catered
for in the contract price. However, even if a certain event is foreseen, it may not be
possible to predict accurately how it will unfold and the effect that it may have on the
value of gas sold in a specific market.
• A significant or substantial change affecting gas prices: this is a common formulation and
essentially requires the change to have a meaningful effect on the value of gas in the
reference market. However, what constitutes a ‘significant’ or ‘substantial’ change is not a
simple matter and requires expert evidence in support.To clarify the issue, some clauses
require a requesting party to demonstrate a minimum divergence from the prevailing
market price.4
• Of a certain duration: some clauses require the change to have a certain duration or be
of a structural nature. Consequently, temporary market shocks may not be relevant. In
such cases, parties may seek to rely on other contractual provisions, such as those dealing
with force majeure or hardship, which cater for extreme events in a different way.
• Having occurred within the relevant reference period: the effect of the invoked market change
must usually have been felt before the review date, and where a price review has already
taken place, the new change must have occurred after the effective date of that price
revision and before the date of the new request. If a particular event has occurred
within the reference period but its effects have not yet been felt, the market change
relied upon may not be deemed a sufficient basis for a price review.

3 A frequently cited example is the shift that the European gas market began to experience in 2008, moving from
oil indexation to indexation of the price of gas quoted at markets or hubs. See Anthony J Melling, Natural Gas
Pricing and its Future: Europe as the Battleground (2010), available at https://carnegieendowment.org/2010/10/12/
natural-gas-pricing-and-its-future-europe-as-battleground-pub-41716.
4 See Esso Petroleum & Production UK Limited v. Electricity Supply Board, in which the GSA provided that the
contract price must deviate from the market price by a fixed percentage ([2004] EWHC 723 (Comm)).

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• Within the reference market: price review clauses require a change to have occurred in (or
affected) the stipulated reference market. This will typically be the market of the buyer,
although it may be a wider geographical region (such as western Europe). Although the
clause may set certain parameters, ambiguities may still arise in practice. For example,
the reference market may be defined as comprising a number of countries with diverse
characteristics. The invoked change may therefore not be experienced to the same
extent, or at the same pace, in all these countries. There may also be debate as to
whether the change should be assessed by reference to the market as a whole or be
limited to certain elements of it.

As well as demonstrating that a market change with the above characteristics has occurred,
the requesting party must also establish that the proposed price adjustment is appropriate
and in accordance with the terms of the GSA. To help parties (and the tribunal) calculate
a new price, most GSAs set out criteria that the adjustment must fulfil. These may include
the following:
• Fair and equitable standard: most GSAs require a price revision to be fair and equi-
table. What that means in the context of a specific contract – especially one that has
been in place for some time and has survived a number of market movements – can
be difficult to ascertain. To assess what is ‘fair and equitable’ in any given situation, a
tribunal might consider industry practice as well as all other circumstances, including
the parties’ pre-contractual negotiations and conduct, as evidenced in witness testimony
and contemporaneous documents.
• Benchmarks and other comparators: some GSAs stipulate that the price adjustment
should be made by reference to other prices as comparators, such as gas prices at hubs
(e.g., National Balancing Point (NBP) in the United Kingdom, Title Transfer Facility
(TTF) in the Netherlands), prices under comparable contracts or on the basis of the
price level at the point of import. In such cases, issues may arise if the relevant data is
not readily available because of the confidential nature of LNG and pipeline GSAs.
• Economic marketing: certain clauses may require the revised contract price to be set at a
level that allows the gas to be economically or competitively marketed in the buyer’s
market, assuming the buyer engages in sound marketing practices and efficient opera-
tions. Whether this type of clause effectively guarantees the buyer a margin (and how
that margin might be calculated) is a further source of debate.

Negotiation period
Following service of a price review notice, GSAs usually provide for a period of negotia-
tion, during which the parties seek to agree a revised contract price.
While intended to facilitate the process, pre-arbitration steps may pose certain chal-
lenges. First, price revision clauses do not always stipulate the duration of negotiations or
the precise steps that each party is expected to take. In other cases, it is not clear whether
pre-arbitration negotiations are mandatory (i.e., whether they constitute a condition prec-
edent to subsequent arbitration proceedings). It may be uncertain, therefore, what the
implications are if, for instance, the requesting party fails to enter into negotiations or the
counterparty wilfully obstructs discussions. Is the requesting party obliged to wait for the
prescribed negotiation period to expire? Can it commence arbitration proceedings at an

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earlier date if negotiations appear to be futile? The answers to these questions will turn on
the exact wording of the clause, the applicable law and the parties’ overall conduct. When
the clause provides that negotiations must take place, a tribunal will exercise caution before
assuming jurisdiction, for fear of exposing itself, or its award, to legal challenges down the
line. Parties should thus generally err on the side of caution when a negotiation period is
referred to in the contract in mandatory terms.
Within the confines of the relevant clause, parties are advised to seek sufficient early
input from their chosen counsel and expert team to guide their negotiations in an attempt
to arrive at a negotiated solution. Although on occasion there may be reason for a party
to keep its powder dry, if for instance there is little chance of a successful negotiation, the
best chance of a ‘win-win’ outcome will be a negotiated result, appropriately guided by
counsel and experts. Such a solution remains in the hands of the parties who are best able
to judge the equilibrium of their contract, the markets in which they operate, and what is
therefore required by way of adjustment going forward. Therefore, it is recommended that
parties give negotiation a proper chance and invest in the process, subject to safeguarding
their position in case the matter does ultimately proceed to arbitration.
At the negotiation stage, parties can confer and share views and information on various
questions, including the relevant trigger events and the appropriate price adjustment. The
scope of these discussions will usually be guided by the price revision clause, but may also
be determined by the parties on an ad hoc basis. Given the sensitive nature of the informa-
tion being exchanged, it is important that the discussions are conducted without prejudice5
and that an appropriate confidentiality agreement is in place (in the form of a confidenti-
ality provision within the GSA or as a separate stand-alone agreement). This will prevent
parties from seeking to rely on information exchanged during discussions in the course of
any subsequent proceedings.

Dispute resolution
If negotiations prove unsuccessful, parties may resort to the contractually stipulated
dispute resolution mechanism (usually international arbitration).6 The matter will then be
submitted to a tribunal, which will be tasked with determining whether a price adjustment
is required and, if so, how the contract price or price formula should be revised.

Selecting the tribunal

To fulfil its role, the tribunal must assess a number of complex economic factors (market
changes, pricing metrics, transportation costs and the parties’ margins) and apply these
in the context of the particular contract and the particular governing law. The outcome
of a gas pricing arbitration inevitably depends on the tribunal’s ability to grasp relevant
legal principles and – potentially even more significantly – the economics of the case. In
such cases, legal submissions and witness evidence often have a more limited role than the
economic expert evidence.

5 Whether or not ‘without prejudice’ privilege applies will depend on the applicable law.
6 Some GSAs set out a two-tiered procedure, whereby parties first refer the issue to an expert, and then to
arbitration. Others provide for expert determination alone.

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It is essential, therefore, that the parties select properly qualified and sufficiently
experienced tribunal members who are able to grapple with the evidence and answer
industry-specific questions to determine whether the invoked change qualifies as a trigger
event and, if so, what the appropriate price adjustment should be.

The role of the tribunal

As mentioned above, the tribunal’s role is not to address an alleged breach of contract but to
step into the shoes of the parties and adjust the contract price or price formula if necessary.
It will be guided by the relevant contractual provisions, the applicable law and all relevant
factual circumstances. Its first task is to check that the requesting party has complied with
all formal requirements, including any timing and notice conditions, and to establish that
a trigger event has occurred. The tribunal then has to revise the contract price in such a
way as to reflect the parties’ original bargain (and any prior res judicata decisions). In some
cases, these steps will be separated and proceedings bifurcated, first to rule on the threshold
issues and then, only if fulfilled, to move on to determine the substantive question of the
necessary adjustment to the contract price.

Limits on the tribunal’s mandate

As with any commercial arbitration, the tribunal derives its jurisdiction from the parties’
arbitration agreement, which is usually embedded in the contract in the form of an arbi-
tration clause. Therefore, the extent of the tribunal’s powers depends, to a large extent, on
what is set out in the contract.
However, contracts vary considerably in the amount of detail they include regarding
the tribunal’s powers and responsibilities. Some GSAs seek expressly to limit the tribunal’s
power, for instance by stipulating that it be allowed to deal only with the revision of the
contract price, and that other contractual provisions must not be affected. In this case,
provisions regarding volume, flexibility, diversion rights, and others, cannot be altered.

Successive price reviews

Given the long duration of GSAs and the periodic nature of price revision clauses, parties
may be repeat participants, finding themselves arguing about the same provisions of the
same GSA before more than one arbitral tribunal at different times.
Special considerations arise in these situations, the most basic being the need for
consistency with previously stated positions that have been accepted and adopted by earlier
tribunals. Deviating from previous positions or determinations within prior awards may
not be legally possible, since to do so risks contravening the principles of preclusion (or
issue estoppel) and res judicata. The latter prevents parties (and tribunals) from relitigating
issues, claims and defences that have already been heard and decided in previous awards.
The scope and effect of these principles differs from one jurisdiction to another.
Tribunals will therefore need to have regard to the position under the applicable law7 in
order to determine what (if any) limitations may apply by virtue of prior submissions or
awards (e.g., regarding issues of contractual interpretation).

7 This is usually the law of the seat, since these are issues of procedure rather than substance.

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In gas pricing disputes, the main challenge is usually to decide whether an issue being
raised in later proceedings is in fact identical to the one that has previously been decided.
Parties may argue that the factual and economic circumstances have shifted to such an
extent that a previous determination on, for example, what constitutes an appropriate price
benchmark, may no longer be relevant and so cannot be binding. However, decisions on
certain issues (e.g., regarding contractual interpretation) are more likely to be considered
binding for the life of the contract. So, for example, it would generally not be considered
acceptable to argue that a contract provides for market-based pricing in one price review
process, and then later to argue that the same contract provides for cost plus pricing. Buyers
and sellers might be well advised, therefore, to take a long-term view of their contractual
relations rather than being opportunistic and obtaining decisions that, while advantageous
in the short term, could prove less so in the future.

Expert witnesses
Gas pricing disputes are by their nature expert evidence intensive, as they require extensive
market and pricing analysis. It is usual, therefore, for parties to instruct specialist economic
experts at the outset of the price review process. The requesting party will seek expert
advice to establish that a trigger event has occurred and to help it present an appropriate,
well-reasoned request for a price adjustment. The party receiving a request, in turn, will
instruct an expert in most cases to examine the requested price revision, identify any weak-
nesses or ambiguities and assist generally in devising effective defences. If market funda-
mentals permit, the expert may also recommend that the receiving party makes its own
request for an antithetical price revision.
If the matter is not resolved by negotiation, expert advice will inevitably feed into the
parties’ submissions to the tribunal. Expert evidence is usually adduced to demonstrate
what the contractual bargain entails, explain whether the trigger event has indeed occurred
and whether a price adjustment is required and, if so, at what level. Experts will prepare
their own independent reports, to be submitted alongside, and to guide, the parties’ submis-
sions. As the review progresses, the experts will exchange views on particular issues (usually
in the form of reply expert reports) and will ultimately be questioned orally at a hearing
by counsel and the tribunal.

Witnesses of fact
In gas pricing disputes, factual witness evidence generally has a lesser role than expert
evidence. Witness statements tend to be short accounts of pre-contractual negotiations,
enabling a party to comment on the circumstances in which the GSA was concluded.
Factual witness evidence may also be adduced to attest to market conditions, including
competition in the reference market and sound marketing practices.

Future outlook
The above insights are the result of practical experience in advising both buyers and sellers
of gas during the myriad gas price reviews that have taken place in Europe in the past
20 years. Global gas markets have undergone major changes during this time and liquid
hubs are now well established, at least in Europe and the United States. The spate of gas

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price review arbitrations seen in Europe during this transition period of decoupling of
oil and gas prices and continuing market liberalisation is likely to be coming to its natural
conclusion. Indeed, some commentators have argued that the end of price review arbitra-
tion is nigh. In Europe at least, where contract prices are now widely referenced to hub
prices (whether TTF or NBP), one would expect that further disputes should largely be
avoided given that such contract prices now track the market.
Asia, however, is predicted to witness an increase in gas pricing disputes given that
pricing remains largely oil-indexed, while Asian markets are gradually being liberalised and
international participants are gaining market share. This is leading to wider reliance on gas
price review clauses contemplating formal dispute resolution proceedings.This is welcomed
by many Asian buyers, who are aware of the European experience and of the benefits that
price reviews can bring. While disputes in Asia are indeed beginning to materialise, one
could reasonably expect that fewer of them will ultimately be decided by arbitral tribunals
as parties, their chosen counsel and expert teams can utilise the European experience to
guide their negotiations and seek to recalibrate the contract price for the future.

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10
Gas Price Review Arbitrations

Marco Lorefice1

Introduction
Gas price review proceedings may appear, at first, less complicated than they really are.
The disputes generally concern the interpretation of a single clause in a contract, which is
traditionally written with extremely vague language. It is not just a legal dispute. Rather,
a significant part of the dispute – indeed, the most relevant part – is based on market
economics, algebra and sophisticated calculations. This is what makes disputes arising from
the interpretation of price review clauses so fascinating. It is not common to find cases in
which so few legal terms have given rise to so many different contractual interpretations
and economic analyses. And it is on the basis of this simple, vague clause that counsel and
experts write thousands of pages in their respective submissions.
The scope of this chapter, based on the personal experience of its author in price review
arbitrations and long-term gas sales and purchase contracts, is to identify and address the
main issues that represent the ‘crossroads’ of price review proceedings (i.e., the inflection
points in the analyses of price review tribunals that drive the outcome of these extremely
important cases).
Gas price review proceedings have some peculiarities linked to the right of either party
to a long-term gas sale and purchase contract to request, periodically, a price review – often
every three years. Res judicata and venire contra factum proprium are principles that arbitrators
often have to address in these proceedings, as it is entirely possible that during the life of
these types of contracts there will be a number of awards interpreting the same contractual
clause, and the buyer and seller can change sides as claimant and respondent.
At the outset, it is useful to provide some preliminary explanations to fully appreciate
the nature of price review disputes.

1 Marco Lorefice is a senior lawyer at Edison SpA.

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Gas price review provisions are traditionally incorporated in long-term gas sales and
purchase agreements in which the contract sales price is fully or partially linked to oil
products and, therefore, can become disconnected from gas market prices. This discon-
nect occurs because the oil-linked contract sales price does not automatically adapt to the
reality of the gas market. The price review clause thus allows the parties – or, failing their
agreement, an arbitral tribunal – to realign the contract price to gas market conditions at
periodic intervals during the life of the contract.
Traditional long-term gas contracts that contain a price review clause are thus based
on a certain risk allocation. Under this risk allocation, the seller takes the price risk (peri-
odically) through the price review clause, while the buyer takes the volume risk (yearly)
through the take-or-pay provisions. Few buyers would enter into a long-term contract
with a minimum take obligation close to the entire contractual volume when the contract
price is not directly linked to gas market prices. This risk allocation is widely accepted in
the industry.2
Currently, the long-term gas sales and purchase contracts that are oil linked are gener-
ally limited to specific geographical areas, such as parts of continental Europe and Asia
(although this may change in the future). In other parts of the world, such as the United
States and the United Kingdom, the contract sales price is generally linked to hub prices
with an adaptation to market prices. These contracts generally do not require a price
review process.3
Long-term contracts with a delivery point in Europe have also begun to change index-
ation from a fully or partially oil-linked price to a hub-indexed one. This historic change
in continental Europe is discussed further in this chapter. The main reasons for this shift to
hub indexation are (1) the role of liquefied natural gas (LNG) and shell gas produced in the
United States, (2) the impact of several arbitral awards issued in the period 2010–2015 that
highlighted the diminishing appropriateness of oil indexation, and (3) the problems arising
from the decoupling of oil-linked prices to gas market prices. These changes have affected
both existing contracts and new contracts.
The reasons behind the historic approach of oil indexation relate to the liberalisation
of the gas markets in Europe. At the outset of the natural gas industry in Europe, countries
needed to meet rising energy demands and provide security of supply. Gas-producing
companies needed to construct production infrastructure and were to find a mechanism
to provide a return on their investments. This was possible through the long-term gas sales

2 Ana Stanič and Graham Weale, ‘Changes in the European Gas Market and Price Review Arbitrations’, p. 325,
Journal of Energy and Natural Resources Law,Vol. 25, No. 3 (2007); Anthony J Melling, ‘Natural Gas Pricing and its
Future: Europe as the battleground’ (October 2010); Morten Frisch, ‘Current European Gas Pricing Problems:
Solutions Based on Price Review and Price Re-Opener Provisions’, p. 17, International Energy Law and Policy
Research Paper Series, Working Research Paper Series No. 2010/03, Centre for Energy, Petroleum and Mineral
Law and Policy, University of Dundee (24 February 2010); Jonathan Stern, ‘Continental European Long-Term
Gas Contracts: is a transition away from oil product-linked pricing inevitable and imminent?’, p. 16, Oxford
Institute for Energy Studies (September 2009).
3 George von Mehren, Gas Price Arbitrations: A Practical Handbook (1st edition, ed M Levy, Global Law and Business,
2014) at p. 91.

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and purchase contracts in which the seller undertook to sell a certain quantity of gas to
buyers, and the buyers committed to take delivery and pay for, or pay for if not taken, the
vast majority of gas. These are known as take-or-pay contracts.
When these take-or-pay contracts were signed, no real market for gas existed in Europe
and, therefore, no transparent reference price could be used to determine the gas price
delivered under any such contract. As a consequence, gas sold under these contracts was
linked to the price of competing fuels in the relevant energy market, such as oil and
oil products.
During the past decade, however, liberalisation of the gas markets in Europe has resulted
in the establishment of a number of liquid gas trading hubs, which transparently and
reliably publish the prices at which gas is traded. Thus, contract sales prices of long-term,
take-or-pay contracts have begun indexing to prices at gas hubs rather than to the price
of oil products.
The result was a decoupling of the contract sales price under the traditional contracts
linked to oil products and the prices of gas traded at the hubs. This triggered price reviews
under many European long-term gas sales and purchase contracts.
Starting in 2008, a ‘perfect storm’4 of price depressing events occurred. The global
economic crisis, the fall in oil prices, the increase in shale gas, and other factors5 ‘resulted
in events never seen before in international gas commerce with virtually all buyers seeking
radical renegotiation of prices and a major increase in international arbitration’.6 As
commentators observed, ‘gas supply agreements that link the contract price to oil prices
risk departing significantly from the real market conditions affecting the parties’. As a result,
when this storm of events broke,‘an increasing number of buyers . . . ​triggered price review
mechanisms in their gas supply agreements’.7
Since 2008, gas price reviews have become frequent, and there has been an increased
interest within the energy industry among practitioners and commentators alike. Only
more recently, however, have publications addressed this process in a complete and
comprehensive way.8
Against this backdrop, the following sections of the chapter provide further insights,
based on real cases within the price review mechanism.

4 B Holland and P Spencer Ashley, ‘Natural Gas Price Reviews: Past, Present and Future’, Journal of Energy
& Natural Resources Law, Vol. 30 No. 1, 2012, p. 35.
5 For a more detailed analysis, see Professor J Stern, Gas Price Arbitrations: A Practical Handbook (1st edition,
ed M Levy, Global Law and Business, 2014), at p. 5; Anthony J Melling, ‘Natural Gas Pricing and its Future:
Europe as the Battleground’ (October 2010).
6 Prof J Stern (footnote 5, above), at 6.
7 R Power, ‘Gas price review: is arbitration the problem?’, Global Arbitration Review (6 March 2014), with reference
to price review cases.
8 M Levy, Gas Price Arbitrations: A Practical Handbook (2nd edition, eds J Freeman, M Levy, Global Law and Business,
2020); A Ason, ‘Price reviews and arbitrations in Asian LNG Markets’, OIES Paper: NG 144, April 2019.

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Price review process

Each of the Parties shall be entitled to request a revision of the applicable Contract Sales Price,
provided that the market of the country of final destination of the Natural gas shall undergo
changes of such nature and extent that would justify a revision of the Contract Sales Price to
enable the Buyer to maintain a reasonable marketing margin assuming the application of the
principles of sound marketing practices and efficient management by the Buyer.

This is a typical price review clause that can be found in long-term gas and LNG sales
and purchase contracts in which the contract sales price is determined by a formula that
indexes the price of gas, totally or partially, to the price of oil or oil products. While many
price review clauses are similar, the wording of each clause can differ – and sometimes in
important ways.9
Some clauses may incorporate different or more explicit terms than those included
in the above clause, such as ‘value of gas’, ‘market the gas competitively’ or ‘market the
gas economically’. They may also refer to specific markets or changes in circumstances
that would or would not trigger a price review (for example, by excluding changes in tax
law). Other clauses are, to some extent, more sophisticated, providing precise directions to
the parties – and to the arbitrators, in the event of a dispute – on the methodology to be
followed in determining the new contract sales price. And still others include an ‘in any
case’ provision.10
Nevertheless, the following sections assess a ‘typical’ price review clause and analyse the
new trends relating to the contracts that contain a hub-indexed price.
Price review clauses are the result of negotiations between sophisticated parties. The
fact that these parties deliberately decide to have a vague price review clause is primarily
due to the fact that neither party wanted to restrict itself in a long-term contract to provi-
sions that one day may become outdated. This is the reason why, in price review arbitra-
tions, counsel to both parties sometimes rely heavily on the applicable law’s principles of
contract interpretation.
The reality, however, is that the outcomes of most price reviews do not turn on intrica-
cies of applicable law; they are more often driven by a very specific, commercially based
step-by-step procedure. If the claimant fails to pass any of the steps, then the claim fails and
no price adjustment is justified. If all the steps are satisfied, however, then the contract price
will be adjusted in accordance with the standards of the price review clause.
Generally, the four-step procedure is as follows:
• to determine whether market conditions changed during the relevant time (the review
period) in the relevant market;
• to evaluate whether those changes have had lasting effects and were not temporary
in nature;
• to ascertain whether those changes affected the market value of gas; and

9 B Holland and P Spencer Ashley, ‘Natural Gas Price Reviews: Past, Present and Future’, Journal of Energy
& Natural Resources Law, Vol. 30 No. 1, 2012, at 34.
10 ibid., at 32 for different price review clause models.

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• to adjust the contract sales price in such a way that the new price would meet the
criteria set forth in the clause (e.g., the new price must allow the buyer to market the
gas ‘economically’ or ‘competitively’), also known as the ‘market test’.

Together, the first three steps constitute the ‘triggers’ and pertain to the analysis of whether
the contract sales price should be revised either upwards or downwards. Put simply, the
tribunal should first verify if there were long-lasting changes in the market that affected
the market value at the end of the review period. If the answer is yes, only then should the
tribunal proceed to the final step: the revision of the contract sales price.
The application of this step-by-step procedure will vary depending on the particular
wording and context of each price review clause. In virtually all cases, however, this exercise
is more complicated than it appears. As discussed below, there are particular inflection
points – or ‘crossroads’ – in the step-by-step analysis that often have a direct effect on the
ultimate result of the proceeding.
Before addressing these issues, however, five overarching points bear a mention.
First, the price review request is not necessarily only for the benefit of the party that
initiated the process. The respondent, with a counterclaim, may seek a change to the price
but in the opposite direction of that requested by the claimant. Under most contracts, if the
buyer has initiated a price review arbitration to decrease the contract sales price, the seller
may request an increase to the price without previously notifying the buyer. The reverse
is true as well. Some have questioned the admissibility of such a counterclaim based on
the lack of a written price review request or that the mandatory negotiation period, often
required by the contract, was not respected. Certain arbitral tribunals have held, however,
that a change to the contract sales price, up or down, can be granted irrespective of which
party issued the price review notice. Indeed, in the famous Atlantic LNG v. Gas Natural
arbitration,11 the tribunal granted the respondent’s counterclaim for a price decrease, even
though the claimant that initiated the arbitration had sought a price increase.
Second, there is a concern that a party may use a price review request as a tactic to
prevent the other from submitting its own price review notice. Suppose, for example, that a
request can be notified by one party to the other three years from the date of the previous
price review request, or, in the case there was none, from the date of entering into the
contract or the date on which deliveries commenced. Some have argued that, if the first
party initiates the process – regardless of whether it pursues the claim – the second party
cannot initiate a second process before the expiry of the three-year period. Others have
argued, however, that the first price review request was abandoned when it was not pursued
and that the inactivity of the first party could be a breach of the principle of fair dealing
and of good faith, which can be found in most legal systems and is often a contractual
requirement in these long-term gas contracts. In any event, the first party has the burden
of proving that its request is justified and that the triggers were satisfied.12 If this tactic were

11 Gas Natural Aprovisionamientos, SDG, S.A. v. Atlantic LNG Company of Trinidad and Tobago (2008 WL 4344525
(S.D.N.Y.))
12 D Milton QC, Gas Pricing Disputes, ICC/AIPN Joint conference on Dispute Resolution in the International
Oil and Gas Business, Paris, 3 October 2011, Para. 14, p. 4.

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permitted, it would block the price review process for a minimum of three years. In the
author’s opinion, this tactic runs counter to the intention of the parties when they entered
into their long-term gas sale and purchase contract and should not be permitted.
Third, a price review is distinct from a force majeure or economic hardship claim. To be
sure, a price review claim and a force majeure or hardship claim may coexist.13 Nevertheless,
they are different, and one common distinction between them is foreseeability. Generally,
force majeure and hardship require that the trigger event be unforeseeable. By contrast,
unforeseeability is generally not a requirement in a price review.
This distinction is important. Unforeseeability is more difficult to prove as it contains
a higher threshold – this brings with it a more dramatic remedy. A good example is the
bouleversement14 provision found in Algerian long-term contracts. This provision, similar to
hardship, accords the affected party the right to have the sales price adjusted to capture the
event that caused the bouleversement. Such an event, however, does not need to be unfore-
seeable. By contrast, hardship claims under the Algerian Civil Code15 require unforesee-
ability as a precondition. But hardship under Algerian law, where proven, also allows for a
more dramatic remedy: it provides the affected party the right not just to review the price
but to review any term of the contract, such as the take-or-pay provision. By contrast, most
price review clauses do not contain a foreseeability requirement, but they also provide that
the remedies available to the affected party would be limited to the revision of the price on
a prospective basis (generally, from the date of the price review notice).
The lack of a foreseeability requirement can be decisive. Some respondents have argued
that the effects of a given trigger were already foreseen when the contract sales price was last
set by the parties or by the arbitral tribunal and, therefore, have already been incorporated
in the previous review. Or the respondent may argue that the requesting party should have
requested that adjustment to include the already foreseen effects of the trigger and that, by
not having done so, it waived its rights. This defence should not stand. It would disrupt the
price review process, which has, as discussed below, an inherent forward-looking approach.
If the requesting party were required to include in its request the effect of a foreseeable
trigger that occurs even after the review date, such a requirement would be unworkable
because the specific quantitative impact of the future event is not known at the time of the
request. Moreover, extending the effects of a trigger beyond the review date would render
the next price review meaningless for triggers that were foreseeable. If the requesting party
elects not to put forward a specific trigger that is foreseeable (but has not yet occurred) in
one price review, this decision does not constitute a waiver to introduce that trigger in a
subsequent price review. The contract sales price should be reviewed based on the triggers
– and on the effects of those triggers – that actually occurred since the last revision to the
contract sales price.

13 M Polkinghorne, Gas Price Arbitrations: A Practical Handbook (1st edition, ed M Levy, Global Law and Business,
2014), at 63.
14 A standard bouleversement clause provides that:
In the event that economic conditions and/or the conditions of the energy market and the natural gas market that
served as the basis for the definition of the economics of the present contract were to significantly change [in the
original French, ‘bouleversement’] to the point that they cause hardship to one of the parties and such change
cannot be considered temporary in nature, then that party can request the other party to revise the price.
15 See Algerian Civil Code, Article 107.

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Fourth, as commentators have observed,16 it is not feasible to allocate a precise value

against each single change, unless there is only one. The non-requesting party may argue
that if a trigger claimed by the requesting party would not pass the relevant test and there-
fore should be disregarded, that part of the requested adjustment that is associated with the
trigger should be ignored by the arbitral tribunal. Generally, however, if the application of
the delta methodology has demonstrated that the contract sales price and the market value
of gas has decoupled, the decoupling has occurred after all the amalgamated changes that
took place in the market of reference are taken into account. It is sufficient to demonstrate
that the delta has been caused by even a single change, because it is virtually impossible to
claim that there is a cause-and-effect relationship between a single market event and the
needed adjustment to the contract sales price. Rather, the economic value of the impact
of the triggers determined by the tribunal should be considered in terms of direction and
magnitude when the market test is performed, and the contract sales price should then be
revised according to the market test. In other words, the first three steps will determine
whether there is a relevant market change and, if so, the direction and magnitude of the
required revision to the price. The tribunal should then proceed to the fourth step, which
is to take the given change in the market gas value and translate it into an adjustment to the
contract sales price according to the market test (i.e., that the adjusted contract sales price
enables the buyer to market the gas economically and competitively).
Finally, the most important consideration is the authority of the arbitrators to set the
new contract sales price. Generally, oil-linked prices are the result of a formula formed by a
‘P sub-zero’ (or P0) component and an indexation component. Arbitrators can revise both
components of the formula, unless explicitly prohibited by the wording of the contract.
Whether arbitrators have the authority to change the indexation from oil to hub, however,
is a different question – and one addressed below.

The timing crossroads: looking backwards and looking forwards

Timing is one of the essential elements in the price review process. Despite this, a typical
price review clause usually gives very little direction on how the parties and the arbitra-
tors should deal with this important issue. In fact, the wording typically used in a price
review clause refers to the time element only to make clear that a price review request can
be requested at specific intervals (or a limited number of ‘wild card’ price reviews, which
usually can be invoked at any time) and the effective date of the new contract sales price.
It was the parties, the practitioners and the arbitrators that developed certain terms –
particularly those relating to timing – that are commonly used in the price review process,
though they are not expressly mentioned in the relevant contractual provisions. These
include the reference date, the review date, the review period and the new price period.
These temporal terms are key.

16 M Levy, Gas Price Arbitrations: A Practical Handbook (1st edition, ed M Levy, Global Law and Business, 2014),
at p. 16.

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The reference date is when the price was last set by the parties or by the arbitrators. It
often corresponds to the date when the previous price review was requested or, in the event
that there has been no previous price review, when the contract was signed or deliveries
of gas commenced. The reference date is also typically the start date of the review period.
The review date is generally the first date of effect of any new revised contract price. It
typically corresponds to the date on which the claimant sent the price review notice that
commenced the current price review.The review date is the last day of the review period.17
The review period is the period between the reference date and the review date, which
is often three years. In general, it is during the review period that any trigger criteria must
occur. In this sense, the review period is backward-looking, whereas any new contract sales
price – based on past changes that occurred during the review period – is forward-looking.
The new price period is looks to the future and refers to the time from the review date
to the date when a new price review will be requested. It could potentially extend until
the expiry of the contract.
The correct application of these periods is the first set of crossroads reached by
the arbitrators.
First, losses or excessive gains incurred by either party during the review period gener-
ally cannot be compensated in a price review; rather, losses are to be incurred by the party
who has sustained them and cannot be recovered. In general, if the contract sales price
on the reference date and on the review date is fully aligned with the market value of
gas (i.e., the delta is zero), the contract sales price should not be changed and whatever
happened during the review period becomes irrelevant.This is because, whether or not the
lasting changes occurred during the review period, they did not have a positive or negative
effect on the market value of gas as compared to the contract sales price measured at the
reference and review dates. To this extent, the price review process is forward-looking; its
purpose is to set a new contract sales price going forwards and not for the past.
Second, the review period is a backward-looking exercise to the extent that the tribunal
must determine whether the events claimed to constitute the triggers have occurred and
qualify as the relevant changes for adjusting the price.
Third, to assess the lasting effect of a trigger, one must consider if this is a backward-looking
or a forward-looking exercise – and if a trigger can be considered as such no matter when
it occurs during the review period.This issue is commonly debated in price review arbitra-
tions. Importantly, the event that constitutes the trigger can happen at any time during the
review period. The precise point during the review period is not relevant per se, but some
have argued that particular attention is sometimes given to lasting changes that occurred at
the end of a review period and are therefore more likely to endure into a new price period.
More complicated is the issue of determining the lasting effects of a trigger. For any
event to qualify as a trigger, it must meet certain criteria, which may vary depending on the
wording of the contract. Nevertheless, it is widely accepted that temporary events cannot
be considered for purposes of a trigger. What is ‘temporary’ is often disputed, as this issue
often is not addressed in the contract.

17 There are contracts that postpone the effective date of the new price to the date of the notification of the
request, but only for a short period, e.g., 30 days to deal with specific seasonality issues.

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Some have argued that the ‘lasting’ requirement means no more than the time within
(and not beyond) the review period (i.e., if price reviews are permitted every three years
under the contract, then the ‘lasting’ requirement cannot refer to a duration of more than
three years). Others have argued that this period of evaluation should be extended beyond
the review date. And still others have suggested that the long-lasting effect should be
extended until the review date of the following price review.
It is reasonable to assume, however, that because the price can be reset at periodic inter-
vals (again, typically every three years), then the contract mechanics dictate that a ‘lasting’
effect does not have to persist longer than the contractually mandated period (i.e., the
‘lasting effect’ requirement mandates something less than three years). This is consistent
with the logic of the price review exercise and its overall mechanics. However, it also
appears that limiting the assessment of the lasting effect to only a snippet of the review
period would not be appropriate, especially given the forward-looking nature of the new
contract sales price.
The correct answer depends on the wording of the contract and the facts of the case.
Some have argued that, if the price review provisions are silent on this issue, as they usually
are, the assessment should be extended to a limited period beyond the review date because
in arbitration there must be some flexibility regarding permissible data to allow for a
reasonable inquiry into the durability of the alleged changes going forward.
Fourth, as explained above, the purpose of the price review is to set a new contract sales
price for the future, typically effective on the review date, until the next price review date,
if any. The methodology to be followed by arbitrators in dealing with these timing issues
should be considered in light of the practical circumstances of the proceedings and of the
fact that the arbitration usually begins well after the review date, with an award rendered
by the arbitrators years after the review date, and in some cases close to the new possible
date for requesting a new price review. New data, after the review date and during the
proceedings, could be available for assessing the triggers and the effects of the triggers on
the contract sales price and on the market value of gas.
Arbitrators are often requested to ignore or to take into consideration such post-review
date data. This, too, is another inflection point in the price review price. By improperly
taking into consideration the data affecting the market value of gas or the contract sales
price well after the review date, the tribunal would disrupt the risk allocation under
long-term, take-or-pay contracts. The more widely held view is that some data can indeed
be taken into consideration after the review date (though for a limited time) but for the
sole purpose of assessing the durability of the effects of the triggers and their effect on the
market value of gas or on the contract sales price during the review period.
This is the essence of the price review. There must be a specific timeframe within
which the parties and the tribunal determine whether the trigger criteria are satisfied and
the period during which the new contract sales price will apply.

Which gas market value?

The second key element in price reviews is the market value of gas. It has a twofold scope:
first, to determine whether the requesting party is entitled to an adjustment of the contract
sales price; and second, to determine the amount of the adjustment.

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In general, the contract sales price must be compared with the market value of the gas at
the beginning and the end of the review period. This is the so-called ‘delta methodology’.
To evaluate the market value of gas can be an extremely complex exercise and may vary
depending on the wording of the price review clause. If the clause is vague in addressing
this issue, its interpretation will become more controversial.
In general terms, the issue of the market value of gas requires an answer from the arbi-
trators to the following questions:What is the market value of gas? What are the data points
that should be used to assess it? At what time should this data be assessed? And where in the
marketplace should this value be measured?
These questions often arise in price review arbitrations, and their resolution may well
affect the ultimate outcome of the case.
In most circumstances, the value of gas is the price of gas obtained in the relevant
market in arm’s length transactions at a certain point in time. To determine the market
value of gas, certain data (e.g., prices) must be considered. The type of data that should be
considered by the arbitrators is one of the major battlefields in price review arbitrations.
Usually, buyers rely on their own data relating to their own sales and based on their
own market segmentation to demonstrate that the contract sales price is above the market
value. Buyers might also rely on other available data, such as that published by the energy
regulators of the given country.
For their part, sellers often rely on other methodologies, including statistical data (such
as Eurostat) or other benchmarks derived from the available sales data of other sellers in the
same or other markets and other segmentations or, in some instances, from the hub prices.
Some have characterised this approach as the ‘obtainability’ test – that is, to determine
market value by what is obtainable to the buyer, as distinct from the prices the buyer
actually obtains. This issue is of particular importance in price review disputes.18
In the author’s opinion, real data should be preferred, provided that it can be verified.
When verified real data is available, there is no need for the arbitrators to consider statistical
data, which by its very nature serves other purposes, is not complete, often does not refer to
the same period, and typically requires the use of proxies created by extrapolating the data
from the balance sheets of competitors. For the same reasons, the market data available from
the hub might distort the assessment of the market value of gas because the price levels do
not consider the fact that the buyer or the seller may sell or purchase the gas at the hub
price plus or minus a premium.
Moreover, buyers often insist on using not only their own data but also their own
market segmentation (i.e., the percentage of gas that a buyer sells to power generators,
industrial plants, commercial and residential customers – all of which pay different prices).
The debate focuses on the issue of whether the market value should be calculated on the
basis of the segmentation of the market as a whole, or the segment of the market to which
the buyer sells gas under the contract. For example, the buyer in a price review may sell a
greater percentage of gas into the power generation segment than the ‘average’ buyer in the
market sells into that segment. In this situation, should the tribunal weight the price in the
power segment according to the market average or to the percentage specific to the buyer

18 M Leijten and M de Vries Lentsch, Gas Price Arbitrations: A Practical Handbook (1st edition, ed M Levy, Global Law
and Business, 2014), at p. 42.

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in the price review? The wording of most price review clauses does not address this issue.
Some have argued that it could be helpful to analyse the negotiation history of the contract
itself to find the solution. For example, if a buyer had sold most of its gas to thermo­electric
customers and the seller was aware of it, it is reasonable to assume that when the seller was
entering into the contract, it was taking the price risk related to the prices in the thermo­
electric segment.
The final issue is the period for assessing the market data. In general, market data should
be analysed to determine whether changes occurring during the review period caused the
contract sales price to disconnect from the gas market as of the review date. But how should
the tribunal calculate the market price? In markets where gas is contracted on the basis of
a thermal year, agreements for the sale of gas are signed in advance of the commencement
of that thermal year – sometimes many months in advance. In Italy, for example, the nego-
tiation period for gas contracts for the forthcoming thermal year is called the ‘commercial
campaign’. In markets selling gas on a thermal year basis, it is important for arbitrators to
consider the average price agreed during the commercial campaign. This is the reason
why it may be risky to request a price review too far in advance of the beginning of the
thermal year.
Another debate that may arise in the proceedings is whether the data should be examined
as of the date when the gas is sold (the date when a willing buyer and a willing seller
agree the price, also called the ‘fair value approach’) or the date when the same gas is later
delivered to the customers. The fair market value has been held to be an acceptable meth-
odology to determine the market value of gas using real data in price review arbitrations.
Finally, the gas value is fundamental not only to verify whether the triggers have been
satisfied, but also to assess the direction and general magnitude of the tribunal’s application
of the final step of the price review analysis: the market test. That is, if the gas value has
decreased during the review period, the contract sales price should be decreased in the next
step of the analysis: applying the market test and setting the new price.

The market test: setting the new price

Having found that there are lasting changed market conditions and that the changed market
conditions are not reflected in the contract sales price as of the review date (i.e., the first
three steps), the arbitrators then have to quantify the level of the price adjustment (i.e., the
fourth step). At that point in the analysis, part of the outcome has already been decided. At
this stage, the arbitrators are convinced that there is a delta between the contract sales price
and the market value of gas at the end of the review period that needs to be addressed,
having already established the level of the delta in step three.
The tribunal must then run the market test by taking the economic value of the change
in the value of gas and assess whether it meets the market test set forth in the contract for
revising the contract sales price.The market test is expressly provided for in many contracts
by language such as: ‘the new price should enable the buyer to economically market the
gas’. The words may vary – such as ‘competitively market the gas’ or ‘providing the buyer a
reasonable margin’ – but the concept is generally the same. In some contracts, the wording
could even be stronger, using the so called ‘in any case’ clause.

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This step in the analysis is perhaps the most important inflection point in the case.
A proper analysis of this part of the analytic framework requires consideration of the
following factors.
First, it is not correct to say that the market test applies only to claims filed by buyers
for a price reduction. Rather, this test also applies to cases in which the seller has requested
a price increase.
Second, the market test, when correctly applied, means that the revised contract sales
price should, in any case, allow the buyer to sell the gas at a profit as of the review date,
assuming prudent operations.
Third, under the market test, the market value of gas into the next review period is not
relevant per se, as this will be taken into consideration for the following price review, except
in the situations explained above, when the arbitral tribunal has decided, for various reasons,
to consider data beyond the review date.
After these preliminary considerations, the ultimate question is whether the market test
is the controlling factor in price reviews. Put simply: if the other provisions of the price
review clause would otherwise lead the arbitrators to do so, can the arbitrators fix a new
price that would leave the buyer without a reasonable margin or even in a loss situation
notwithstanding the market test (and even more so with the ‘in any case’ provision)? In
principle, the answer is no: the market test generally requires that, regardless of the other
provisions in the price review clause, the arbitral tribunal cannot revise the contract sales
price in a manner that would put the buyer in a loss-making position. Any other result
would be commercially unreasonable.
There are at least three approaches that could be applied to determine an appropriate
margin for the buyer:
• The margin restoration approach would have the effect of restoring the margin granted
to the buyer by the seller when entering into the contract. It would refer to the buyer’s
market prices and market segmentation.
• The reasonable margin approach would calculate the margin by taking into considera-
tion a number of factors, such as the net profit element to be calculated on the basis of
an average net return for these types of transactions using the buyer’s prices and market
segmentation, the costs for marketing the gas, the logistics and delivery costs, and by
assessing the risk undertaken by the buyer under the contract.
• The equitable margin approach may be feasible – particularly when, in the contract
sales price formula, there is a proviso for a price floor. In this situation, the difference
between the floor price and the contract sales price can be assumed to be the margin
for the seller. Having determined the margin of the seller, the arbitrators could be in a
position to determine an equitable margin for the buyer.

As discussed above, the result of the market test should enable the buyer to market the
gas with a gross margin (profit). One of the most debated issues is whether the gross
margin should be calculated on the buyer’s prices and market segmentation or on that of
a hypothetical buyer. As shown above, the gross margin in most cases should be calculated
on the buyer’s market prices and segmentation. This solution would be the most logical
consequence of the application of the risk allocation and contractual-balance principles

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embedded in the contract. Indeed, by assuming the price risk, the seller takes the risk of
ensuring a price that, as of the review date, will enable the buyer to obtain a margin in its
own market – a risk the seller accepted when entering into the contract with the buyer.
In summary, the market test represents the final check on all decisions made by the
arbitrators in the proceedings. This suggests that arbitrators should not decide a fortiori the
consequences of its analysis but, rather, consider and apply the market test at the very end
of the process as the point of convergence of all decisions made.

Changing the indexation formula

Perhaps the most important recent change in the natural gas industry in Europe has been
the change from oil indexation to hub indexation. As explained above, historically parties
linked their gas contract sales prices to competing fuels because of the absence of liquid
gas hub prices. Recently, however, market liberalisation and the subsequent maturation of
several gas hubs in Europe have made oil-linked contracts a fading feature of the Europe
gas industry. As a result, parties are now increasingly incorporating gas hub indexation in
their pricing formulas instead of oil indexation. This development has been recognised in
the industry19 and by regulatory bodies.20 It is also reflected in the new era of hub-linked,
long-term gas sales and purchase contracts, executed in recent years, in which the price
review clauses are not as relevant as they were in the oil-linked contracts.21
This development has implications for the arbitral tribunals that have to decide on the
proper methodology to change the contract sales price. In particular, tribunals may decide
whether to change the indexation component of the price formula or the P0 component.
If a party has requested to change the indexation component, the arbitrators are brought
to a new crossroads in the price review analysis. It is not an easy task for the arbitrators to
deliberate on whether they should change oil indexation in a price formula to hub indexa-
tion. In this regard, arbitrators may consider seeking the assistance of the parties when
considering this thorny issue.
As explained above, it is widely accepted in the gas industry that a price review is based
on a four-step process, whereby the failure of the claimant to satisfy any of the steps brings
the case to an end. Often, the most hotly debated step is the last one, when the arbitrators
and the parties have to run the market test to determine the manner in which to revise
the contract sales price. This is the step at which the tribunal will determine how to revise
the contract sales price to take into account the significant changes, but always providing
that the buyer is able to sell the gas in the market economically and competitively (i.e., at
a reasonable margin).

19 For example in Italy, Eni SpA has stated that, as at the end of 2015, approximately 70 per cent of its portfolio
(22.46 Bcm) is hub-linked: Eni, ‘Relazione Finanziaria Semestrale Consolidata’, 30 June 2016, at p. 51.
20 According to the Italian electricity, gas and water regulator (AEEGSI), approximately 50 per cent of the gas
imported in Italy on a long-term basis (over five years) was hub-indexed in 2015: ‘Relazione Annuale sullo Stato
dei Servizi e sull’Attività Svolta’, 31 March 2016, at p. 126.
21 The gas to be imported into Italy from Azerbaijan through the Tap pipeline has been negotiated at hub prices:
see Il sole 24ore, ‘Gas azero a prezzi sganciati dal petrolio’, 11 April 2014.

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A 100 per cent change in the indexation component of a gas price formula requires
deletion of the oil basket indexation, the introduction of hub indexation and potentially
(but not necessarily) deletion of the P0 element:

Contract sales price (US$/MMBtu) = P0 + (G-G0)+(LSFO–LSFO0) + (GR-GR0)+

(HSFO-HSFO0) – BR

and replacing it as follows:

Contract sales price = TTF – D

Where:
TTF is for each month of delivery the arithmetic average of the ‘Heren Price’, expressed in
€/MWh, for all days of the relevant month.
Each day, the ‘Heren Price’ shall be the arithmetic average of the ‘bid’ and ‘offer’ prices under the
title ‘TTF Price Assessment’, as published in the ‘ICIS Heren European Spot Gas Markets’ of
the closest previous London business day, for the following trading products:
• ‘Day ahead’, if the concerned day is a London business day; or
• ‘Weekend’, if the concerned day is not a London business day.
and
D is the x.y euro/MWh converted monthly from euro to US dollar

The gas hub reference generally used in Europe is the title transfer facility (TTF) in the
Netherlands, although in some countries the increasing liquidity of the gas markets has
caused parties to incorporate into their price formulas country-specific hub prices (for
example, the punto di scambio virtuale (PSV) in Italy).
While some sellers have argued that referring to a hypothetical buyer’s market prices
and market mix should be considered in the context of hub indexation, the buyer’s actual
sales and market mix still remain paramount. As explained above, when the tribunal runs
the market test, it must ensure that the contract sales price always entitles the buyer to
obtain a reasonable margin on its own sales.
The final question is how the tribunal should determine the revised contract sales price.
Tribunals have taken a variety of approaches.Without commenting on the validity of them,
two are of particular note, given the recent move to hub indexation.
The first is to determine a sort of ‘fixed’ price by taking the hub reference price and
adjusting it by adding or deducting a value expressed in the currency of the contract, and
eliminating the P0 component. The final result should be a contract sales price that would
allow the buyer to sell the gas economically in the relevant market, taking into considera-
tion its own market segmentation.
While some sellers have argued that the end result would be a major change in the
structure of the gas sales and purchase contract (because, they argue, it would embed a
potential guaranteed margin to the buyer), this methodology is frequently used today for
the sale of gas into the end markets, and it is also frequently used in the gas industry when
sellers and buyers agree to revise the contract sales price by changing indexation or when
they enter into a new sale and purchase contract. Indeed, it could be said that this is the
new trend in the industry.

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The second methodology is to change the indexation from oil to hub prices but to
maintain the P0 element. In this situation, the tribunal should change the P0 element
to arrive at the result it has in mind. The P0 element relates to the contract sales price
level, whereas the indexation formula relates to the movement of the contract sales price.
Changing only the indexation formula to the hub prices would have the effect of locking
the contract sales price into a fixed relationship with the hub prices but would not neces-
sarily enable the seller to obtain the margin it deserves under the contract. This would be
the same as pretending that hedging the oil indexation would be the solution to every
price revision and to the fluctuation of the relationship between the contract sales price
and market prices. Obviously, that is not the case. This second methodology relates to the
situation where the parties or the tribunal arrive at the decision only to partially change the
indexation formula from oil-linked products to hub prices. In these cases, the P0 compo-
nent must be retained.
In summary, tribunals thus face a difficult task in determining if and how to change
the indexation in a gas pricing formula. Where possible, this task should be done in close
consultation with the parties and their experts, which is critically important in a price
review.The tribunal may also consider appointing its own expert to assist with this difficult
task.With an appropriate change to hub-priced indexation, the contract price should auto-
matically adjust, such that it could be defined as an automatic adaptation clause.
In any given price review, either party may request the switch from oil indexation to
hub indexation, unless the contract prohibits such a change. If the contract provides for
the right of either party to request a review of the contract sales price, it can be assumed
that the tribunal has the authority to change or eliminate the P0 or change the indexation
formula. Some contracts, however, expressly limit the arbitrators’ review to the P0 compo-
nent. Under those contracts, the authority of the tribunal is limited to change only that
element of the formula.
In Atlantic LNG v. Gas Natural,22 the tribunal went even further. It decided to change
the indexation formula even though neither party had requested it (but the end result
represented a significant victory for Gas Natural). Although some have argued that this
approach has raised questions of ultra petita, others disagree. The other factors that should
be considered in determining the authority of the tribunal to change the indexation are
the governing laws of the contract, the lex arbitri, and the terms of reference agreed by
the parties.
The switch to 100 per cent gas hub indexation has the effect of reducing the impor-
tance of the traditional price review clause. Because hub indexation generally reacts auto-
matically in real time to changes in the price of gas sold at the hub – rather than through
the proxy of oil and oil products – the notion that the oil-indexed price will decouple from
gas prices, and thus require a revision to the contract price in a price review, is diminished.
Nevertheless, there may still be a need for a price review clause for situations where, for
example, the gas is sold in one market (e.g., Italy) but its price is indexed to a hub in a

22 Gas Natural Aprovisionamientos, SDG, S.A. v. Atlantic LNG Company of Trinidad and Tobago (2008 WL 4344525
(S.D.N.Y.)).

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different geographical location (e.g., the TFF in the Netherlands).23 Some have argued that,
if the local hub starts sending the price signal to the market where the gas is delivered rather
than the distant hub to which the price of the gas is indexed, the price review clause could
prove to be an important way to change the indexation to the appropriate hub.24
Finally, parties may attempt to seek a price review if the margins of wholesalers change
during the review period. Assuming that the formula is hub price minus a certain value,
if that value becomes out of sync with the market, the question is whether a price review
could be requested to change such a deduction from the hub price and align the contract
sales price to the market value – in other words, whether the possibility of the buyer to
market the gas economically would be assessed against the general trend of the other
market players.

Review of gas price formulas with hub indexation

As has been explained, many long-term gas and LNG contracts are transitioning from oil
indexation to hub indexation. The transition process has involved both the ‘old’ existing
contracts, made through agreement of the parties or arbitral awards, and the ‘new’ contracts
entered into more recently, in which the indexation of the contract sales price to oil prices
has been replaced by indexation to hub prices, namely to TTF in the Netherlands and to
Henry Hub25 in the United States. As commentators have recognised, these more recent
long-term contracts generally do not include the traditional price review clause.26
Attention now turns to how arbitral tribunals will treat price review clauses in ‘old’
contracts that are now hub-indexed.The first decision that those arbitral tribunals must face
in proceedings regarding a contract price 100 per cent indexed to hub prices, where the
price review clause is still incorporated in the contract, is whether the widely recognised
four-step procedure, applicable to previous price reviews, should still be followed. The
arbitrators are likely to be asked to adapt the ‘old’ price review formula agreed at the time
of oil-linked prices to the new reality of hub-linked prices.
It has been argued that in a price review under a contract with 100 per cent hub index-
ation, there is no need to run the entire four-step process: rather, according to these sources,
it would suffice to move directly to the third and fourth steps. The arguments in favour
of such an approach are that, where the formula is hub-indexed, the existence of market
changes during the review period (step one) and their long-lasting nature (step two) need

23 Stephen P Anway and George von Mehren, ‘Evolution of Natural Gas Price Review Arbitrations’, The Guide
to Energy Arbitrations (3rd ed, Global Arbitration Review), p. 207.
24 id.
25 The pricing point for natural gas contracts futures traded on the New York Mercantile Exchange and the
over-the-counter swaps traded on Intercontinental Exchange.
26 Dr V Nemov, ‘Gas Hub and Oil-indexed Prices: Still Bound Together’, Institute of Energy for South-East
Europe (2018); H Rogers, ‘Does the Portfolio Business Model Spell the End of Long Term Oil -Indexed LNG
Contracts?’, April 2017; Luca Franza, ‘Long-Term Gas Import Contracts in Europe: The Evolution in Pricing
Mechanisms’, Clingendael International Energy Programme, CIEP Paper 2014/08; G Cervigni, ‘Oil indexation
versus hub based gas pricing’, Regional Centre for Energy Policy Research, National Conference,Visegrád,
8-9 March 2018.

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not be considered. Instead, these sources argue that the changes in the relationship between
the market prices and the contract sales price (step three) would represent per se a change
that would trigger the gas price review without the need for any further evidence.
This approach, however, would mark a significant departure from the traditional price
review process under take-or-pay contracts. It would run counter to the language of the
‘old’ contracts, which requires the satisfaction of each of the four steps of analysis. It would
also run counter to the reasoning behind the change in indexation, which was introduced
to establish a new way of price formation – not to set a new standard for evaluating
whether the formula should be changed as market conditions evolve.
For that reason, the first two steps of this process (i.e., to determine whether durable,
significant changes have occurred during the review period) generally should remain the
same, as it should not be affected by the price formula indexation of the contract. The
burden of proof should always fall on the claimant to demonstrate that a change to the
market conditions has occurred. Hence, this first step should, in practice, remain unchanged.
The golden rule of price reviews is: no change, no revision. There is no reason to modify
that rule because of a change in indexation.
As explained above, the third step of the price review analysis is to determine whether
such changes are not reflected in the contract sales price, and the fourth step is to revise
the contract sales price in a manner that allows the buyer to economically market the gas.
Both these steps take place as of the review date.These two steps generally are not rendered
obsolete by the fact that hub indexation has replaced oil indexation in the contract price
formula. They are necessary to determine the need to revise the contract price (step three
requires a comparison between the contract sales price and the margin made by the buyer
and the market prices at the beginning and at the end of the review period) and to ensure
that the revised contract sales price is set at an appropriate level (step four requires the
revision to enable the buyer to earn a reasonable margin), regardless of whether the contract
price is oil-indexed or hub-indexed.
In theory, the result of the delta-to-delta methodology of a contract price indexed to
the hub prices generally will be zero. Indeed, the margin of the buyer will, in principle,
remain the same if the formula provides for a hub price minus a certain value. For instance,
if the formula at the beginning of the review period is TTF-2 €/c, then at the end of that
period the margin of the buyer should still be €/c 2 per scm. If the formula were TTF or
TTF plus a value, the same would follow, with the delta-to-delta result being equal to zero.
In such a situation, the question would be whether the request of a price review should
then be dismissed, or if the arbitrators should find a different approach that is an alternative
to the four-step process described above. In theory, one alternative approach could be based
on the principle of a guaranteed margin in favour of the buyer.This principle is particularly
relevant to – and, indeed, embedded within – the new generation of contracts in which the
structure is that of a take-and-pay contract rather than that of a take-or-pay. In that situa-
tion, the tribunal may be asked to take into consideration changes in the buyer’s structure
of marketing costs and the risks relating to the contract.
Traditionally, in cases involving contracts with full oil indexation, arbitral tribunals have
concluded that a guaranteed margin (i.e., to last until the next review period) generally is
not justified. Matters may be different, however, in hub-indexed contracts. Arbitral tribu-
nals may be asked to decide whether the value deducted or added to the hub price is still

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reflecting the market conditions at the time it was agreed by the parties. In those circum-
stances, the tribunal may be asked to decide how the value should be ‘updated’. In essence,
the arbitrators will have to decide the methodology that should be applied to run the tests
otherwise required by steps three and four. This will present a new crossroads for arbitra-
tors in price review arbitrations. It may require the tribunal to adopt a new methodology
which, as yet, is an unknown.
One further attempt to resolve the dilemma concerning the use of an ‘old’ price
review clause to reopen a hub-indexed price is to argue that the margins of the buyer
are higher than those made by the other players in the market at the end of the review
period, compared to those made by the same players at the beginning of the review period.
Assuming that the arbitral tribunal has decided, ignoring the four-step methodology and
the issue of the guaranteed margin, to run a different process that would take into consid-
eration the margins of the buyer only (not per se, but in relation to the margins of the other
comparable buyers), how this process should be run is unclear. The process to be followed
under these circumstances by the arbitrators is unknown territory. Nevertheless, the result
may be that the arbitral tribunal would limit its analysis of the price review process to the
market test (i.e., the step four).
This would represent a deviation from the language of the price review clause in ‘old’
contracts, which would inevitably result in a new interpretation of the price review clause
for four reasons. First, the arbitrators would not follow the prevailing interpretation of the
criteria in typical price review clauses, ignoring the requirement of a lasting, significant
market change. Arbitrators may struggle to find a different interpretation than that found
in the ‘old’ price review clauses.
Second, the risk allocation agreed between the parties to the contract may be altered.
With oil indexation, the buyer takes the volume risk through the take-or-pay provisions
and the seller takes the price through the price review clause – such that, typically every
three years, the contract price can be revised to ensure, among other things, that the buyer
earns a reasonable margin when selling on the gas purchased under the contract. In a
contract where the price is indexed to the hub prices, by contrast, the buyer’s risk has not
changed, while the seller’s price risk is not in between price reviews, but rather monthly
as the indexation to the hub is calculated based on the average month-ahead price of the
delivery of the gas.
Third, taking into consideration only the comparison of the margins made by the
buyers and the other players on the market at the beginning and at the end of the review
period, it would require few decisions on further points on the comparability between the
buyer and the other players (e.g., their customers, prices and costs).
A different case is presented by a take-or-pay contract whereby the parties have agreed
to change the indexation formula only partially; for instance, to split the indexation into
oil and hub. This is the case for many existing contracts in Europe. It has been argued that
this situation should be analysed under the traditional four-step process described above. It
remains to be seen how tribunals will address this hybrid situation.

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Consecutive price review requests

Traditionally, long-term natural gas contracts have a term of at least 20 years. As such, it is
entirely possible that a contract sale price in a contract has been subject to multiple requests
for revision and therefore to multiple proceedings and arbitral awards. This is one of the
legal issues that is often debated in a price review arbitration: what role should a previous
award play in a new price review?
The doctrine of issue estoppel – or collateral estoppel, as it is known in the United
States – has an important role in answering this question. This doctrine should not be
confused with the principle of ne bis in idem or action estoppel (the strict form of res
judicata), whereby a party is prevented from bringing the same action against the same party
twice. With regard to gas price reviews, the contracts provide for multiple and potentially
consecutive proceedings between the same parties, under the same contract and on the same
subject matter – revision of the contract sales price.The issue is not whether the dispositive
motion of an earlier award is binding in a later arbitration; rather, the issue is whether the
first tribunal’s interpretation of the contract is binding in the second proceeding.
Resolution of this question may depend on the law that governs the issue. In many
jurisdictions, the doctrine is effectively the same but known by different terminology: in
the United States, collateral estoppel; in the United Kingdom, issue estoppel; and in some
parts of Europe, res judicata.
Applying these principles, it is necessary to run an analysis on the boundaries of the
application of the doctrine, which is to say which parts of an award are binding on future
arbitral tribunals. Indeed, this principle constitutes, when and to the extent applicable, a
limit on the arbitrators’ authority in a subsequent proceeding.
The answer is typically found in the applicable law. The first question is whether issue
estoppel should be governed by the lex arbitri, the substantive law governing the contract,
or international principles.27
As described above, the issue estoppel principle is widely recognised in many jurisdic-
tions and applies to the proceedings between the same parties, on the same contract and
involving the same issues. It also applies to both court and arbitral proceedings.
In the United Kingdom, res judicata includes both issue estoppel and action estoppel.
The principal difference is that cause of action estoppel applies where the cause of action in
the later proceedings is identical to that in the earlier proceedings, whereas in issue estoppel
the estoppel applies to a wider category of issues that form a necessary ingredient in a cause
of action. An issue forms a necessary ingredient of the previous decision if it is fundamental
or essential to the decision.28 This means that issue estoppel applies not only to the disposi-
tive part of an award, but also to the decisions made by the tribunal that were necessary and
fundamental to arrive at that conclusion.
In the United States, the doctrine is known as collateral estoppel (e.g., in New York
courts) and bars further litigation of specific issues that were determined in an earlier case
between the same parties, even when a new and different claim is being asserted in a subse-
quent proceeding. The application of collateral estoppel requires that the issue in the prior

27 See also Regulation (EC) No. 44/2001, Sections 32 and 33.

28 Penn-Texas Corporation v. Murat Anstalt (No. 2) [1964] 2 QB 647, 660; Mills v. Cooper [1967] 2 QB 459, 468; and
Re State of Norway Application (No. 2) [1990] 1 AC 723, 743.

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proceedings was identical; that the issue was actually litigated and decided; that there was a
full and fair opportunity to litigate in the prior proceedings; and that the issue previously
litigated was necessary to support a valid and final judgment on the merits.29
The application of this principle in continental Europe is more nuanced. In Italy, for
example, it is expressly regulated by Section 2909 of the Civil Code,30 which sets out the
principle according to which a final judgment prevents the matter forming the essential
basis of a previous decision from being called into question in subsequent proceedings.
Case law31 and Italian scholars32 have confirmed that res judicata covers not only the disposi-
tive part of the award, but also includes the necessary and logical findings underpinning the
first tribunal’s decision.
In Switzerland33 and in Germany, the res judicata principle applies to the operative
part of the award only, following the principle of ne bis in idem denying any effect to the
doctrine of issue or collateral estoppel.
It has been argued that the tribunal ‘should remain at liberty to depart from findings of
fact and law if they are no longer adapted to the economic context’. While it is true that
the economic findings of a first tribunal should not be binding in a subsequent proceeding
that involves different economics, the first tribunal’s interpretation of the meaning of the
contractual language should indeed be binding on a subsequent tribunal.
In conclusion, in consecutive gas price review proceedings, res judicata in the form
of collateral or issue estoppel represents an important decision for the arbitrators as their
decisions on the matter may result in a setting-aside action before the competent local courts.

29 See also Ryan v. New York Telephone Co., 62 N.Y.2d 494, 500 (1984) (‘collateral estoppel allows “the determination
of an issue of fact or law raised in a subsequent action by reference to a previous judgment on a different cause
of action in which the same issues was necessarily raised and decided” . . . W ​ hat is controlling is the identity
of the issue which has necessarily been decided in the prior action or proceeding. Of course, the issue must
have been material to the first action or proceeding and essential to the decision rendered therein’.); The
Restatement (Second) of Judgments, § 27,‘When an issue of fact or law is actually litigated and determined
by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive
in a subsequent action between the parties, whether on the same or different claim.’
30 Italian Civil Code, Section 2909: ‘Findings made in judgments that have acquired the force of res judicata shall be
binding in all respects on the parties, their lawful successors or assignees’.
31 ‘Where two sets of proceedings between the same parties are concerned with the same legal relationship,
and one of those sets of proceedings has culminated in a judgment that has acquired the force of res judicata,
the findings thus made concerning that [omissis] resolution of points of fact or of law on a fundamental issue
common to both cases – and thus constituting the logical premise underpinning the decision in the operative
part – preclude that same issue of law, now settled, from being re-examined’, Court of Cassation, Decision
No. 5478, 5 March 2013; Court of Cassation, Decision No. 11660, 11 July 2012 stated that ‘concerning legal
relations, the duration and periodic obligations that [could eventually] constitute the contents . . . t​he court
future . . . t​he authority of the judgment inhibits the re-examination of and the drawing of conclusions from
issues that would tend towards a new decision on issues already settled by final measure, the effectiveness of such
measure remaining valid also after its pronouncement’. See also Luca Franza, ‘Long-Term Gas Import Contracts
in Europe: The Evolution in Pricing Mechanisms’, Clingendael International Energy Programme, CIEP
Paper 2014/08, at p. 11.
32 Satta, in Enc. Dir., I, Milan 1958, pp. 244 to 245; Montesano, in Riv. Dir. Proc., 1951, I, pp. 337 to 338; Proto
Pisani, Lezioni di Dir. Proc. Civ., Napoli (2006), p. 69; Luiso, Dir. Proc: Civ., I, Milan (2013), p. 167; Consolo, in
Riv. Trim. Dir. Proc. Civ. (1991), pp. 594 to 596.
33 See BGE 128 III 191 and BGE 140 III 278 (Swiss Federal Court).

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Conclusions
After two decades of gas price reviews, the contractual framework of long-term gas and
LNG sales and purchase contracts in Europe are evolving from the system created more
than 50 years ago when there was no comparable commodity to gas other than oil. The
arbitral awards rendered during the last decade have demonstrated that historical oil index-
ation is giving way to gas hub indexation.
The drafters of new, long-term gas sales and purchase contracts have thus recognised the
need to implement a different contractual framework by introducing a price formula that is
fully or partially indexed to gas hub prices.34 In some instances, these drafters have omitted
price review and flexibility clauses. In so doing, they have changed the nature of these
contracts from take-or-pay to take-and-pay by changing the price formation mechanism.
Nevertheless, many take-or-pay contracts will still be subject to gas price reviews,
particularly those that remain unchanged and unaffected by the ongoing transition process.
It is for those contracts that the price review process will remain the same as in the past.
For those take-or-pay contracts in which the parties have agreed to introduce a total or
partial indexation to hub prices, the situation will be more complex. Indeed, arbitrators will
have to cope with new issues and problems, the most important of which will surround the
methodology to be followed when reviewing the contract price.
Ultimately, this potential new approach is difficult to predict. The current landscape is
taking arbitrators into unknown territories. For the time being, however, with the increasing
transition from oil indexation to hub indexation in the price formation mechanism, price
review disputes seem to have calmed in continental Europe.

34 German Code of Civil Procedure, Section 322 provides that only the operative part of the award has the effect
of res judicata (‘Urteilstenor’).

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Part IV
Procedural Issues in Energy Arbitrations

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11
When Consolidation Fails: The Challenges of Parallel
Arbitral Proceedings

Vasilis Pappas, Romeo Rojas and Gita Keshava1

Introduction
Parallel proceedings arise when two or more disputes involving the same or overlap-
ping parties, contractual agreements or issues in dispute are adjudicated in more than one
forum.2 They arise through one or a combination of the following factors: multiple actors,
multiple legal sources for the same claims, or multiple forums to resolve the disputes.3
Parallel proceedings are often inevitable on projects in which several interrelated agree-
ments are awarded to subcontractors and are exacerbated when the parties are unable to
join a third party to an arbitration.4
Although the challenge of parallel or multiple proceedings can arise in all industries,
it is even more pronounced and frequently encountered in the energy industry because
of the frequency of multi-party and multi-contract transactions – particularly in complex
construction projects and joint venture agreements5 – and the potential for overlapping
claims arising under state contracts and investment treaties. In these types of projects, it is
not uncommon for various combinations of parties to commence multiple dispute reso-
lution proceedings involving the same or similar facts, issues and law under the various
contracts or treaties applicable to the project.

1 Vasilis Pappas and Romeo Rojas are partners and Gita Keshava is an associate at Bennett Jones LLP.
The authors extend their gratitude to Stephanie Gagne and Zakariya Chatur for their assistance in the
preparation of this chapter.
2 Jamie Shookman, ‘Too Many Forums for Investment Disputes? ICSID Illustrations of Parallel Proceedings and
Analysis’ (2010) 27:4 J Intl Arb 361.
3 Gabrielle Kauffmann-Kohler, ‘Multiple Proceedings – New Challenges for the Settlement of Investment
Disputes’ in Arthur W Rovine (ed), Contemporary Issues In International Arbitration and Mediation:The Fordham
Papers 2013, (Brill Nijhoff, 2014) at 4.
4 Lawrence E Thacker, ‘Arbitration procedures and practice in Canada: Overview’ (2013), Thomson Reuters.
5 Gary B Born, International Commercial Arbitration, Vol. 2 (The Netherlands: Kluwer Law International, 2009)
at 2068.

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For instance, parallel proceedings may arise from a dispute between a project owner
and multiple contractors and subcontractors in a chain of contracts, some or all of which
contain different dispute resolution clauses. While the facts, issues, and law that give rise to
the disputes may be the same, the dispute resolution procedures will often be incompat-
ible, which could prevent the issues between the various parties from being heard in the
same forum.
Parallel proceedings may also arise when an international investor has commercial
claims against a state entity pursuant to a commercial agreement – such as an exploration
or concession agreement – and an investor-state claim against that same state pursuant to an
investment treaty that arises from the same state conduct. A classic example of this is SGS
v. Pakistan,6 in which a tribunal at the International Centre for Settlement of Investment
Disputes (ICSID) was faced with competing arbitrations between the same parties: an
international arbitration seated in Pakistan arising out of the commercial agreement
between the parties, and an investor-state claim under the Switzerland–Pakistan bilateral
investment treaty (BIT) that was before the ICSID tribunal (among other related court
cases). The tribunal was called on to determine, among other things, whether a stay of one
of the arbitrations would be appropriate to address issues arising from parallel arbitrations.7
Finally, parallel proceedings can arise when several international investors of different
nationalities participate, directly or indirectly, in the same foreign investment,8 or several
international investors have made separate foreign investments in the same sector,9 which
are affected by the same host-state measure. In this type of case, each investor may separately
initiate proceedings seeking protection under its respective BIT.
This chapter explores the challenges that parties and arbitrators face when they are
involved in an arbitration in which there are parallel arbitration or court proceedings
with overlapping legal and factual elements that cannot be consolidated. It first examines
how various domestic legal systems approach consolidation. It then examines how invest-
ment treaties and international investment law address parallel proceedings, and provides
examples of how investor-state tribunals have addressed the challenges that arise when
arbitrations cannot be consolidated. The chapter then considers how transactional lawyers

6 SGS Société Générale de Surveillance SA v. Islamic Republic of Pakistan, International Centre for Settlement of
Investment Disputes [ICSID] Case No. ARB/01/13.
7 id., Decision on Jurisdiction (6 August 2003).
8 For example, in CME v. Czech Republic [CME] and Ronald Lauder v. Czech Republic [Lauder], Mr Lauder, a US
citizen, invested in a Czech broadcasting company, CET, through the intermediary of his Netherlands-based
company, CME. When Czech government measures allegedly affected this investment, Mr Lauder personally
commenced an arbitration under the US–Czech Republic bilateral investment treaty [BIT], and his company
commenced an arbitration under the Netherlands–Czech Republic BIT. See also CME (Final Award dated
14 March 2003); Lauder (Final Award dated 3 September 2001).
9 The HFCS arbitrations against Mexico (See Corn Products International, Inc v. United Mexican States and Archer
Daniels Midland Company, ICSID Case No. ARB(AF)/04/1 and Tate and Lyle Ingredients Americas, Inc v. United
Mexican States, ICSID Case No. ARB (AF)/04/5, Order of the Consolidation Tribunal, 20 May 2005) and
the softwood lumber cases against the United States (See Canfor Corp v. United States of America, Terminal Forest
Products Ltd v. United States of America and Tembec Inc et al v. United States of America, Order of the Consolidation
Tribunal, 7 September 2005, at para. 158) under the North American Free Trade Agreement are among the
leading examples of parallel disputes arising from multiple investors holding separate international investments
in the same economic sector.

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can prevent or mitigate the risks associated with parallel arbitration or court proceedings
when drafting dispute resolution provisions. Finally, the chapter provides recommendations
for arbitration practitioners to mitigate the risks associated with parallel arbitration or court
proceedings once disputes have arisen.

Challenges associated with parallel arbitral proceedings

With the increasing number of parties involved in complex projects and the globalisation
of investment, there is an increasing number of instances in which disputes with overlap-
ping legal and factual elements result in parallel proceedings. In certain circumstances,
consolidation of these parallel proceedings into a single arbitration proceeding may be
possible. However, consolidation typically requires the consent of all the parties to all the
related arbitrations, which can be difficult to obtain in multi-party, multi-contract trans­
actions associated with large capital projects. Failure to obtain the consent of all parties may
result in an inability to consolidate parallel proceedings.
The most frequently encountered examples of parallel proceedings in commercial arbi-
tration practice arise from complex construction projects in the energy sector. In such
projects, owners will often negotiate multiple contracts with contractors, who in turn
negotiate subcontracts with various subcontractors to carry out discrete aspects of the
work. Each of the agreements in these chains of contracts may have different arbitra-
tion clauses, or some may have arbitration clauses while others do not. If the arbitration
clauses in chains of contracts are not coordinated, those clauses may contain different rules,
tribunal appointment processes, languages and seats. In other words, the parties’ consent
to arbitration may have been based on significantly different arbitral procedures. In other
contracts for the same project, the parties may not have consented to refer their disputes to
arbitration at all, but rather to litigate their disputes in domestic courts. And even when the
parallel proceedings would otherwise be technically capable, all parties still may not consent
to consolidation, which could make consolidation difficult or impossible.
As a result, it is not uncommon for the prospect of consolidating parallel arbitration
or court proceedings with an existing arbitration to be but a faint hope. When attempts
to consolidate fail – or consolidation is not attempted for other reasons – parties and their
legal counsel have to navigate and mitigate the challenges of parallel proceedings that may
involve the same facts, issues, and law.
The risks associated with parallel proceedings are numerous.
First, as occurred in CME v. Czech Republic (CME) and Ronald Lauder v. Czech Republic,
(Lauder) parallel arbitral proceedings may result in inconsistent findings of fact or law,
and thus inconsistent findings on liability and damages.10 The challenging nature of these
circumstances should be obvious. For instance, a situation could emerge in which two
arbitral tribunals are interpreting the same provisions of the same agreement, and arrive at
divergent interpretations. On an ongoing project, this could present considerable difficulties.

10 Kauffman-Kohler (footnote 3, above), at 6; CME (Final Award dated 14 March 2003); Lauder (Final Award
dated 3 September 2001).

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Likewise, a situation could emerge in which one arbitral tribunal awards damages to a party
for claims that another tribunal determines do not have merit. In those circumstances, it
may be unclear which award is enforceable.
Second, parallel proceedings create the need for the same parties – or at least a party
involved in more than one dispute – to expend time and resources to arbitrate or litigate
the same or related disputes in different forums. While this may seem like a minor incon-
venience, the reality is that the party involved in multiple related disputes is likely to spend
significantly more time and incur significantly higher legal fees to resolve these disputes,
particularly in construction projects with voluminous document production and complex
and technical factual issues.11
Third, inconsistent findings on damages in parallel proceedings create the risk of windfalls
and double (if not triple or quadruple) recovery by one party.12 For instance, consider a case
involving a construction project, in which the owner has engaged a contractor under one
agreement to engineer, procure and construct the project, and the contractor has engaged a
subcontractor under a subcontract agreement to undertake a discrete scope of the contrac-
tor’s work. In the event that the owner were to delay the project, the subcontractor might
commence an arbitration against the contractor for the damage it incurs, and the contractor
in turn might commence an arbitration against the owner for the damage asserted against it
by its subcontractor. It is entirely possible in these circumstances that the contractor would
succeed in its claims against the owner, thereby recovering damages for the delays, but that
the subcontractor would be unsuccessful, leading to a windfall for the contractor.
Likewise, consider a case in which the owner procures a piece of equipment to upgrade
its facility pursuant to an agreement containing an International Chamber of Commerce
(ICC) arbitration clause. The owner then engages a contractor to instal and commission
the equipment pursuant to a separate agreement containing an arbitration clause under
the London Court of International Arbitration (LCIA). A month after the equipment is
installed and commissioned, a fire originating in or around the newly installed equipment
destroys the entire facility. The owner commences an ICC arbitration against the equip-
ment manufacturer, alleging the fire was caused by faulty equipment, and a parallel LCIA
arbitration against the installer alleging that the fire was caused by improper installation. In
both cases, it seeks the cost to rebuild its facility and lost profits. In these circumstances, one
can see how conflicting findings of fact with respect to the cause of the fire in the parallel
arbitrations could result in the potential for double recovery or overlapping recovery.
The foregoing risk is further exacerbated by the fact that most commercial arbitral
proceedings are confidential, and therefore a tribunal in one dispute may not be aware
of the findings of fact, law, liability or quantum of damages that may have been awarded
by another tribunal. This can give rise to the related risk that aversion to issuing an award
that will potentially result in a windfall or double recovery will incentivise tribunals to
be cautious as to an award of damages that are otherwise recoverable and meritorious,
potentially discounting the successful party’s damages to offset the real or perceived risk of
double recovery in another forum.

11 Kauffman-Kohler (footnote 3, above), at 6.

12 id.

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Challenges of consolidation without unanimous consent and

subsequent treatment of parallel proceedings
In the following sections, we give a brief overview of how domestic legal systems approach
consolidation to identify guidance that they can provide with respect to drafting agreements
to mitigate the possibility of parallel arbitrations. We then turn to the international invest-
ment law setting to examine what further guidance the findings of investor-state tribunals
can provide to transactional lawyers drafting agreements, and to arbitration lawyers faced
with parallel proceedings.

Consolidation in the domestic legal context

As a result of the United Nations Commission on International Trade Law’s Model
Law on International Commercial Arbitration (the UNCITRAL Model Law) and the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New
York Convention), most countries have a generally uniform approach to addressing
parallel court and arbitration proceedings between the same parties under the same
arbitration agreement.
With respect to parallel court and arbitration proceedings, Article 8(1) of the
UNCITRAL Model Law states:

A court before which an action is brought in a matter which is the subject of an arbitration
agreement shall, if a party so requests not later than when submitting his first statement on the
substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null
and void, inoperative or incapable of being performed.13

Likewise, Article II(3) of the New York Convention provides:

The court of a Contracting State, when seized of an action in a matter in respect of which the
parties have made an agreement within the meaning of this article, shall, at the request of one
of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and
void, inoperative or incapable of being performed.14

Thus, under the UNCITRAL Model Law and the New York Convention, when faced
with parallel court and arbitration proceedings between the same parties under the same
arbitration agreement, courts are directed to avoid parallel proceedings by staying the matter
before it and refer the parties to arbitration. Nevertheless, both are silent on what courts are
directed to do in circumstances when there are parallel court and arbitration proceedings
relating to the same facts, law and issues arising under separate agreements.

13 Angus M Gunn, ‘Stays of Canadian Court Proceedings in Favour of International Commercial Arbitration:
Recent Trends’, ADR Institute of Canada, at https://adric.ca/adr-perspectives/stays-of-canadian-court-
proceedings-in-favour-of-international-commercial-arbitration-recent-trends.
14 Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 10 June 1958 (the
New York Convention).

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Further, the approach to consolidating parallel arbitrations varies by jurisdiction – and

even between courts in the same jurisdiction. In some jurisdictions, the prevailing view is
that multiple arbitration proceedings can only be consolidated with the consent of all the
parties to each of the arbitration proceedings. In other jurisdictions, the prevailing view
is that multiple arbitrations can be consolidated on the order of a court, and without the
consent of all the parties.
At present, it appears that only the Netherlands, Hong Kong and Colombia provide
for court-ordered consolidation of arbitrations without the consent of all parties. In the
Netherlands, the court can order consolidation of arbitrations if all arbitrations have their seats
in the Netherlands and the parties have not opted out of the provision of the Netherlands’
arbitration law that permits the consolidation. In Hong Kong, the court’s power to consoli-
date arbitrations without consent of all parties only applies to domestic arbitrations, but
international parties may opt in to the domestic regime. Finally, in Colombia, a 1989 decree
on arbitration renders invalid an arbitration agreement between two parties that will affect
any non-party to the arbitration agreement who refuses to be joined. In such cases, the
arbitration proceedings are joined with any related court proceedings.15
The situation in Canada is mixed. The international arbitration legislation in the prov-
inces of Ontario and British Columbia allows the courts to order consolidation only if ‘all
parties to two or more arbitral proceedings have agreed to consolidate those proceedings’.
Thus, it appears that absent consent of all parties to all arbitrations that are proposed to be
consolidated, courts may not order consolidation in those jurisdictions.16 However, the legis-
lation in other provinces, including Alberta, Saskatchewan and Manitoba, allows courts to
consolidate international arbitral proceedings ‘on the application of the parties’.17 Although
this language is ambiguous, some courts have held that it allows courts in those jurisdictions
to order consolidation on the application of a single party (i.e., not all parties to all arbitra-
tions that are being consolidated must consent to consolidation being ordered).18 While
this potentially allows those courts more leeway to order consolidation, and thereby avoid
the risks of parallel arbitral proceedings, the outcome of such an application is uncertain.
For instance, in 2004, the Alberta Court of Queen’s Bench held that the consent of all the
parties was required to consolidate the arbitral proceedings at issue.19 However, in 2016, the
same court in Priscapian Development Corporation v. BG International Ltd held that it had the

15 Organisation for Economic Co-operation and Development [OECD], Investment Division, Consolidation
of Claims: A Promising Avenue for Investment Arbitration?, International Investment Perspectives (Paris: OECD
Publishing, 2006) at 229.
16 International Commercial Arbitration Act, SO 2017, c. 2, Sched 5, Article 8; International Commercial
Arbitration Act, RSBC 1996, c. 233, Article 27.01.
17 International Commercial Arbitration Act, REA 2000, c. I-5, Article 8; International Commercial Arbitration
Act, CCSM c. C151, Article 8; International Commercial Arbitration Act, SS 1988-89, c. I-10.2, Article 7.
18 The situation is clearer with respect to domestic arbitration in Canada. Under the domestic arbitration
legislation of most provinces, the courts can only order consolidation on the application of all the parties to
more than one arbitration. See, e.g., Arbitration Act, RSBC 1996, c. 55, s. 21; Arbitration Act, RSA 2000,
c. A-43, s. 8(4); Arbitration Act, SS 1992, c. A-24.1, s. 9(4); Arbitration Act, 1991, SO 1991, c. 17, s. 8(4);
Arbitration Act, SNB 1992, c. A-10, s. 8(4).
19 Western Oil Sands Inc v. Allianz Insurance Co of Canada, 2004 ABQB 79.

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power to order consolidation of parallel proceedings without the consent of all the parties
to both arbitrations as a result of its supervisory jurisdiction over international arbitrations
seated in Alberta.20
The approach to consolidation in the United States differs at state level, but also at
federal level. Given the silence of the Federal Arbitration Act (FAA), requests for consoli-
dation must be based on the language of the parties’ arbitration agreement. Most federal
courts have supported the position that consolidation requires an express provision in
the contract, and thus the consent of all the parties.21 There are a number of cases in
which federal courts interpreted the FAA liberally to give it the power to consolidate
arbitral proceedings without the consent of parties, if it involved the same questions of law
and fact.22 However, it seems that this position has been overruled subsequently and that
consent of the parties is now required for federal courts to consolidate arbitral proceed-
ings.23 Nevertheless, there remains uncertainty as to how federal courts interpret the exist-
ence of consent of the parties.24
The same uncertainty exists at state level. For instance, in New York, there is no consol-
idation provision in its arbitration legislation,25 yet courts have alluded to their power
to consolidate absent the parties’ consent.26 Consolidation has also been denied in New
York when ‘two proceedings differ technically and procedurally’ and would go against
the parties’ agreements.27 To add to the uncertainty, a state court in Ohio confirmed in
Parker v. Dimension Service Corporation that arbitrators have the power – at least in that state
– to consolidate multiple arbitrations brought by six different claimants against the same
respondent for purposes of discovery and motions practice without unanimous consent of
the parties because the separate agreements under which the disputes arose were identical.28
In the United Kingdom, it is generally accepted that consolidation of parallel proceed-
ings is not possible without the parties’ consent according to the Arbitration Act 1996,
Section 23.29 To cite but one example, in Guidant LLC v. Swiss Re International SE and

20 Priscapian Development Corp v. BG International Ltd, 2016 ABQB 611.

21 Protective Life Ins Corp v. Lincoln Nat’l Life Ins Corp, 873 F (2d) 281, 282 (11th Cir 1989).
22 Compania Espanola de Petroleos, SA v. Nereus Shipping SA, 527 F (2d) 966 (2d Cir 1975). See also
Sociedad Anonima De Navegacion Petrolera v. CIA De Petroleos De Chile SA, 634 F Supp 805, 809.
23 UK v. Boeing 998 F(2d) 68, 72 (2d Cir 1993); Philadelphia Reinsurance Corp v. Employers Ins of Wausau, 61 Fed
Appx 816 (3rd Cir 2003) at footnote 3; BP Exploration Libya Ltd v. ExxonMobil Libya Ltd, 689 F(3d) 481
(5th Cir 2012); Anwar v. Fairfield Greenwich Ltd, 728 F Supp (2d) 372 (SDNY 2010) at 476; Rolls-Royce Indus
Power Inc v. Zurn EPC Services Inc, 2001 WL 1397881 at 4.
24 Connecticut General Life Ins Co v. Sun Life Assurance Co of Canada, 210 F (3d) 771 (7th Cir 2000) at 774;
Rolls-Royce Indus Power Inc v. Zurn EPC Services Inc, 2001 WL 1397881 at 4; Maxum Foundations, Inc v. Salus
Corp, 817 F (2d) 1086, 1087 (4th Cir 1987).
25 New York Consolidated Laws 2012, Civil Practice Law & Rules, Article 75 (§§ 7501 to 7514).
26 Steward M Muller Construction Co v. Clement Ferdinand & Co, 36 AD (2d) 814 (1971).
27 Matter of East Coast Services, Inc (Silverite Const Co, Inc), 623 NYS (2d) 1020, 1022 (NY Sup Ct 1995).
28 Parker v. Dimension Serv Corp., 2018-Ohio-5248 (Ct App 2018); James Reiman and Megan Smith
Richardson, ‘Consolidation and Joinder in Arbitration’ (24 April 2019), American Bar Association, at
https://www.americanbar.org/groups/litigation/committees/alternative-dispute-resolution/practice/2019/
consolidation-and-joinder-in-arbitration.
29 Arbitration Act 1996, c 23, Section 35.

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Another,30 the court was confronted with a case in which two arbitrations were commenced
under insurance policies with the same arbitration clause and addressed the question of
consolidation without the parties’ consent.The court acknowledged the desirability of effi-
ciency and consistency of results, but emphasised that in arbitration, ‘party choice, privacy
and confidentiality are relevant and important’. Ultimately, the court found that neither the
courts nor an arbitral tribunal has the power under the UK Arbitration Act to consolidate
two arbitral proceedings absent the parties’ consent.
The take-away is that while court-ordered consolidation of parallel arbitration proceed-
ings without the consent of all parties to the arbitrations being consolidated may be possible
in certain jurisdictions, the predominant trend appears to be that consent of all parties to all
arbitrations is required. As such, if parties are of the view that consolidation is an attractive
option to avoid parallel arbitration proceedings, the safest approach is to provide for consol-
idation in the dispute resolution provisions of agreements where they wish to consolidate
disputes from the outset.

Consolidation under arbitration rules

In recognition of the challenges associated with consolidating arbitrations, a number of
arbitration institutions in recent years have sought to remedy the situation by introducing
procedures for consolidation. However, many arbitration rules still do not contain any
procedures for consolidation without the consent of the parties, and those that do have
developed imperfect procedures that may not be effective in many actual circumstances.
For instance, the UNCITRAL Arbitration Rules – probably the most widely used set
of ad hoc rules in international arbitration – do not contain any provisions on the consolida-
tion of multiple arbitrations with or without the consent of the parties. Accordingly, under
the UNCITRAL Arbitration Rules, consolidation without the consent of the parties is
a challenge.
Likewise, the American Arbitration Association (AAA) Commercial Arbitration Rules
do not contain any provisions on the consolidation of multiple arbitrations. Thus, under
the AAA Rules as well, consolidation without the consent of the parties is a challenge.31
By contrast, the LCIA Arbitration Rules include provisions relating to the consolida-
tion of multiple arbitration proceedings. However, these Rules only allow for consolidation
when all the parties to the arbitrations consent,32 or not all the parties to the arbitration
consent but all the following criteria exist:
• the arbitrations to be consolidated are under the same arbitration agreement or compat-
ible arbitration agreements;

30 [2016] EWHC 1201 (Comm).

31 American Arbitration Association, Commercial Arbitration Rules and Mediation Procedures (New York:
2013) [Commercial Arbitration Rules], at https://www.adr.org/sites/default/files/Commercial%20Rules.pdf.
Note, however, that Section P-2(vi)(c) of the Commercial Arbitration Rules provides that the preliminary
hearing procedures should include a consideration of ‘consolidation of the claims or counterclaims with
another arbitration’. However, there are no procedures in the Commercial Arbitration Rules to effect such
a consolidation.
32 The London Court of International Arbitration, Rules of Arbitration (London: 2014) [LCIA Rules], at
www.lcia.org//Dispute_Resolution_Services/lcia-arbitration-rules-2014.aspx, Article 22.1(ix).

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• the arbitrations to be consolidated are between the same disputing parties; and
• no tribunals have been formed for any of the arbitrations to be consolidated.33

Although this may be of some assistance, it only applies to a very narrow set of circum-
stances and would not be of assistance in multi-contract transactions involving multiple
different parties.
The ICC Arbitration Rules provide similar provisions for consolidation. In particular,
they state that the ICC Court may consolidate two or more arbitrations pending under
the ICC Rules if the parties have agreed to consolidation; all the claims in the arbitrations
are made under the same arbitration agreement; or when the claims in the arbitrations are
made under more than one arbitration agreement, the arbitrations are between the same
parties, the disputes in the arbitrations arise in connection with the same legal relationship,
and the ICC Court finds the arbitration agreements to be compatible.34
Again, however, in a multi-contract situation where all the parties do not consent to
arbitration, this would only allow for consolidation in very narrow circumstances: namely,
when all the arbitrations are pending under the ICC Rules, the arbitrations are between the
same parties and the arbitration agreements are compatible.This would not be of assistance
in many circumstances in which consolidation of arbitrations might be beneficial.
The International Centre for Dispute Resolution (ICDR) Rules likewise provide
similar provisions for consolidation. They state that, where requested, the ICDR may
appoint a consolidation arbitrator, who will have the power to consolidate two or more
arbitrations pending under the ICDR Rules (or other arbitration rules administered by
the ICDR or AAA) in which the parties have agreed to consolidation; all the claims are
made under the same arbitration agreement; or the arbitrations involve the same parties,
the disputes arise in connection with the same legal relationship, and the arbitration agree-
ments are compatible.35
Again, in a multi-contract situation where all the parties do not consent to arbitration,
this would only allow for consolidation in narrow circumstances: where the arbitrations are
between the same parties and the arbitration agreements are compatible.
The Rules of the Hong Kong International Arbitration Centre (HKIAC) and the
Singapore International Arbitration Centre (SIAC) have the most robust sets of consolida-
tion provisions, and allow for the consolidation of arbitrations under multiple contracts
involving multiple different parties without the consent of the parties. In particular, both
allow for consolidation of arbitrations where the parties agree to consolidate; all the claims
are made under the same arbitration agreement; or the claims are made under more than

33 ibid., at Articles 22.1(x) and 22.6. The LCIA Rules recognise that arbitrations can be consolidated where
tribunals have been formed, but only if those tribunals are the same.
34 International Chamber of Commerce, Arbitration Rules (Paris: 2018), at https://cdn.iccwbo.org/content/
uploads/sites/3/2017/01/ICC-2017-Arbitration-and-2014-Mediation-Rules-english-version.pdf, Article 9.
35 International Centre for Dispute Resolution, International Dispute Resolution Procedures (2018), at
https://www.icdr.org/sites/default/files/document_repository/ICDR_Rules.pdf, Article 8.

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one arbitration agreement but a common question of law or fact arises in both arbitrations,
the rights to relief claimed are in respect of or arise out of the same transaction or series of
transactions, and the arbitration agreements are found to be compatible.36
Nevertheless, even the HKIAC Rules and the SIAC Rules are imperfect. In particular,
each only provides for the consolidation of arbitrations pending under their own Rules.
They do not allow for consolidation of arbitrations under multiple contracts among
multiple different parties pending under other sets of arbitration rules.
In summary, although many different sets of arbitration rules have endeavoured to
provide a remedy for the difficulties associated with the consolidation of arbitrations, not
all have done so. Even those that have will typically only apply to a narrow set of circum-
stances and will not enable consolidation in many circumstances in which consolidation
would be beneficial.

How to deal with parallel proceedings when consolidation is not possible

Guidance from the investor-state context
Given the difficulties associated with consolidating parallel arbitration proceedings high-
lighted above, many investment treaties contain specific rules intended to eliminate or
reduce the possibility of parallel proceedings, either by striking or staying parallel proceed-
ings or consolidating claims by multiple investors.
For example, many investment treaties require that claimants waive their right to initiate
or continue proceedings before other tribunals and courts to advance an investment treaty
claim. For instance, Article 1121 of the North American Free Trade Agreement (NAFTA)
Chapter 11 provides that as a condition precedent to the submission of a claim to arbi-
tration, a claimant must waive its right ‘to initiate or continue before any administrative
tribunal or court under the law of any Party, or other dispute settlement procedures, any
proceedings with respect to the measure of the disputing Party that is alleged to be a breach’
of Chapter 11.
In Detroit International Bridge Company v. Government of Canada, the tribunal held that for
a NAFTA tribunal to have jurisdiction to hear a claim, the investor must comply with the
waiver requirement set forth in Article 1121 of NAFTA.37 The investor’s failure to comply
with the waiver requirement rendered the state party’s consent to arbitrate without effect.
Similarly, the tribunal in Commerce Group Corporation & others v. Republic of El Salvador held
that when a BIT contains a waiver clause, the investor must waive any rights to initiate or
continue any proceedings to proceed with an investor-state arbitration.38 In addition, the
tribunal in Quiborax SA, Non Metallic Minerals SA and Allan Fosk Kaplún v. Plurinational State

36 Hong Kong International Arbitration Centre, Administered Arbitration Rules (Hong Kong: 2013), at
www.hkiac.org/images/stories/arbitration/2013_hkiac_rules.pdf, Article 28; Singapore International
Arbitration Centre, Arbitration Rules, 6th ed (Singapore: 2016), at www.siac.org.sg/our-rules/rules/
siac-rules-2016, Rule 8.
37 Detroit International Bridge Company v. Government of Canada, PCA Case No. 2012-25.
38 Commerce Group Corp & others v. Republic of El Salvador, ICSID Case No. ARB/09/17.

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of Bolivia expressly held that Article 26 of the ICSID Convention – which provides that the
consent of the parties to an arbitration under the Convention is deemed to be consent to
the arbitration ‘to the exclusion of any other remedy’39 – prohibits parallel proceedings.40
When a treaty does not contain express waiver provisions, there are several other mech-
anisms that parties (primarily state parties) can invoke to attempt to avoid parallel proceed-
ings in the investor-state setting:
• First, a party may seek a stay on the ground of lis pendens when the disputes relate
to the same parties, the same cause of action and the same legal grounds pending in
two jurisdictions.41 However, the tribunal in SGS v. Pakistan held that international
tribunals are not subject to lis pendens when the parallel proceedings are pending in a
domestic forum.42
• Second, parties wishing to avoid parallel proceedings may also consider obtaining an
anti-suit injunction. Anti-suit injunctions effectively restrain a party from pursuing
parallel court or arbitration proceedings in another forum. This option may be suitable
when a treaty does not already contain a waiver.43
• Finally, the tribunal in Orascom TMT Investments Sàrl v. People’s Democratic Republic of
Algeria held that in extraordinary circumstances, the doctrine of abuse of rights may
justify the denial of a party’s right to arbitrate under an investment treaty if it is main-
taining parallel proceedings in another forum.44

Another way of avoiding parallel investor-state arbitrations is through consolidation. When

the applicable investment treaty contains consolidation provisions, arbitrations may be
consolidated in accordance with the provisions of the treaty.45 If the treaty does not contain
consolidation provisions, the applicable consolidation rules, if any, will be determined by
the arbitration rules selected by the parties or – if the rules do not contain consolida-
tion provisions – the law of the seat of the arbitration. That said, obtaining the consent
of the parties to consolidate is generally a requirement for consolidation, whether set out
in the applicable arbitral rules or the law of the seat of the arbitration. As an example, in

39 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States
(International Centre for Settlement of Investment Disputes [ICSID]) 575 UNTS 159.
40 Quiborax SA, Non Metallic Minerals SA and Allan Fosk Kaplún v. Plurinational State of Bolivia, ICSID Case
No. ARB/06/2.
41 Nadja Erk-Kubat, Parallel Proceedings in International Arbitration: A Comparative European Perspective, International
Arbitration Law Library,Volume 30 (Kluwer Law International, 2014) at 107 to 108.
42 SGS Société Générale de Surveillance SA v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13.
43 Nexteer v. KDAC, SIAC Case No. ARB/105/13/SL, Procedural Order No. 3 dated 29 January 2014
(Decision on an Anti-Suit Injunction), paras. 62, 65(i).
44 Orascom TMT Investments Sàrl v. People’s Democratic Republic of Algeria, ICSID Case No. ARB/12/35.
45 See, e.g., Corn Products International, Inc v. United Mexican States and Archer Daniels Midland Company, ICSID
Case No. ARB(AF)/04/1 and Tate and Lyle Ingredients Americas, Inc v. United Mexican States, ICSID Case
No. ARB (AF)/04/5, Order of the Consolidation Tribunal, 20 May 2005. See Canfor Corp v. United States
of America, Terminal Forest Products Ltd v. United States of America and Tembec Inc et al v. United States of America,
Order of the Consolidation Tribunal, 7 September 2007, at para. 158.

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CME and Lauder, the claimants proposed to consolidate the two arbitral proceedings, but
the respondent state, the Czech Republic, refused and therefore the proceedings were
not consolidated.46
Other methods of avoiding parallel proceedings include staying related arbitrations. For
example, in SGS v. Pakistan, the tribunal recommended that a parallel arbitration between
the parties be stayed ‘until such time, if any, as [the] Tribunal . . . ​issued an award declining
jurisdiction over the . . . ​dispute, and that award is no longer capable of being interpreted,
revised or annulled pursuant to the ICSID Convention’.47 Another method is to stay all
claims apart from one test case so that the issue of liability could be resolved in one case to
serve as guidance in the others.
When it is not possible to avoid parallel proceedings, tribunals have sometimes consid-
ered the award from their sister tribunals when issuing their awards. This was the case
in Ambiente Ufficio SpA and others v. Argentine Republic.48 The tribunal acknowledged that
although it recognised that it is called to decide the case on its own needs and merits, it
would have been artificial to ignore the decision taken by its sister tribunal. Investor-state
tribunals will also consider the effect of the other proceedings at the damages phase of
the proceedings to avoid the risk of double recovery. This was recognised by the tribunals
in Lauder and CME. The tribunal in Lauder acknowledged the risk of double recovery in
parallel proceedings,and held that in cases where damages are granted concurrently by
two or more tribunals or courts, ‘the amount of damages granted by the second deciding
court or arbitral tribunal could take this fact into consideration when assessing the final
damages’.49 This approach was endorsed by the tribunal in CME.50

Practical guidelines
As has been discussed, the potential of parallel arbitral proceedings is increasing as disputes
become more globalised, with a number of forums to adjudicate disputes and with multiple
parties involved in complex projects. As set out above, most jurisdictions do not allow for
consolidation without the consent of the all parties to both proceedings. In those juris-
dictions that allow for consolidation absent the consent of the parties, it is often at the
discretion of the court, and the case law is inconsistent – even within the same jurisdiction.
Decisions often turn on case-particular factors and outcomes are difficult to predict. As
such, both transactional lawyers and arbitration practitioners must be mindful of strategies
to mitigate the risk of parallel proceedings, both when drafting dispute resolution agree-
ments and after disputes arise.

46 CME Czech Republic B.V. (The Netherlands) v. Czech Republic (Partial Award dated 13 September 2001)
at para. 412; CME Czech Republic B.V. (The Netherlands) v. Czech Republic (Final Award dated 14 March 2003)
at paras. 426 to 430; Lauder v.v. Czech Republic (Final Award dated 3 September 2001) at para 16.
47 SGS Société Générale de Surveillance SA v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Procedural
Order No. 2, at 13.
48 Ambiente Ufficio SpA and others v. Argentine Republic, ICSID Case No. ARB/08/9.
49 Lauder v. Czech Republic (Final Award dated 3 September 2001) at para. 172.
50 CME Czech Republic B.V. (The Netherlands) v. Czech Republic (Final Award dated 14 March 2003) at para. 434.

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Transactional lawyers
The following strategies should be considered by transactional lawyers when negotiating
contracts to decrease the risk of parallel arbitration proceedings should disputes subse-
quently arise:
Consideration must be given to whether consolidation of arbitrations makes sense in
the commercial context. While consolidation is often the most efficient and cost-effective
outcome for the client, there are situations in which consolidation of arbitrations does
not make commercial sense and the benefits of maintaining multiple parallel proceedings
outweigh the additional costs. The following strategies apply when it is determined that a
parallel proceeding should be avoided.
When negotiating a number of contracts between a number of parties for the same
project, it is important to ensure that the arbitration clause included in all the contracts is
identical in all respects. This is a basic requirement to preserve the ability to consolidate
disputes in the future. Differences in the applicable arbitration rules, the number of arbi-
trators and the method of appointing them, and the seat of the arbitration can be fatal
to future consolidation. For more complex commercial arrangements, it is often more
efficient to include summary language in the body of the various contracts that refers
to a separate dispute resolution procedure that can be attached or incorporated by refer-
ence into all contracts relating to the particular project, such as through the use of an
umbrella arbitration agreement that would apply to all contracts that are part of the larger
global transaction.
The arbitration provisions in each contract must expressly provide consent to consoli-
dation of disputes arising from related contracts (to the extent that the parties want consoli-
dation). As a best practice, the parties must not only consent to consolidation, but the
procedures for consolidation should also be agreed. Similarly, consent to joinder or inter-
vention may also be considered and provided for as alternative means to ensure that all
related disputes are heard together by one tribunal.
In some cases, it may be unknown at the time of entering into a contract who may
be engaged by a party as a subcontractor. In such cases the head contract should provide
that the parties to it cannot enter into any subcontract that does not contain an identical
arbitration clause and procedure, and does not contain an express consent to consolidation.
Drafters should also consider how to mitigate risks that will arise if related arbitra-
tions cannot be consolidated, either because the parties do not consent to consolidation,
arbitration agreements are incompatible, or for some other reason. It may be the case that
parties do not want to consent to all disputes under all related agreements being eligible for
consolidation. Similarly, a party may commence a related arbitration when it is too late to
consolidate – either practically or because the parties agreed that consolidations, interven-
tions or joinders must take place within a certain time of the first dispute arising, which has
already expired. In such cases, it is important to consider whether to include provisions that
would automatically stay the latter arbitrations. It is also important to consider whether and
to what extent confidentiality provisions in the related contracts should provide carveouts
permitting the existence of a parallel arbitration, its pleadings, or the resulting awards to
be disclosed in a related arbitration as a means to address different findings of fact, law and
liability, and to assuage tribunals’ concerns regarding windfalls or double recovery.

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Related to this, because arbitral awards are only binding on the parties to the arbitration,
it is often appropriate to include opt-in or opt-out provisions by which parties are provided
notice of an arbitration and given the ability to opt in (typically through intervention) or
to opt out (i.e., decide not to participate in the arbitration), while acknowledging that the
party that opts out agrees to be bound by the tribunal’s decision regardless of its participa-
tion in the arbitration. This will prevent the same issue being re-argued by multiple parties,
with potentially different results.
Where arbitrations under multiple agreements cannot be consolidated because they
are governed by different legislation (e.g., where one arbitration would be domestic and
governed by domestic arbitration legislation while another is international and would be
governed by international arbitration legislation), the applicable agreements could expressly
provide that when consolidation is not legally possible, those arbitrations will instead be
heard concurrently before the same tribunal, which will issue two separate awards in
respect of the two arbitrations. This will ensure that, for all practical purposes, the arbitra-
tions are effectively consolidated, while maintaining the legal distinction between the two
arbitration proceedings.

Arbitration practitioners
Depending on the jurisdiction in which the parties are located or the disputes are being
arbitrated, arbitration practitioners should consider the following strategies to mitigate the
risk of parallel arbitral proceedings:
For disputes between the same parties, under the same agreement containing an arbitra-
tion clause, if a party attempts to initiate court proceedings, the party wishing to preserve
its right to arbitrate should consider immediately bringing an application before that court
to stay those proceedings.
The situation is more difficult if a parallel court or arbitration proceeding cannot be
partially or entirely stayed or consolidated because (1) in the case of parallel court proceed-
ings, one or more parties to the proceedings is not party to the arbitration agreement
with the other parties, or (2) in the case of parallel arbitration proceedings, the arbitration
clauses are not compatible or the parties have not consented to consolidation. In the former
case, the parties subject to the arbitration agreement should consider whether it is more
economical and efficient to waive their right to arbitrate and to participate in the court
proceedings. Similarly, all parties to the court proceedings may wish to consider whether
the parties could agree to enter into an arbitration agreement that includes all the parties to
the court proceedings so that the court proceedings are stayed. In the case of parallel arbi-
trations, the parties may wish to consider whether they should agree to consolidate under
a single arbitration agreement.
If consolidation is impossible, a party should consider whether it wishes to apply for a
temporary stay of one of the parallel proceedings until a final award has been issued in the
other proceeding. Such stays are particularly advisable if the outcome of one proceeding
depends in whole or in part on the outcome of the other, such as could be the case if
the related contracts included indemnity or flow-through provisions (where relief in one
contract is dependent on a party being granted certain relief in another contract).

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It is not uncommon for a disputing party to seek disclosure of pleadings, witness state-
ments, expert reports, and awards submitted or issued in a parallel proceeding. If the parallel
proceeding is in court, these documents are often matters of public record, and they are
easily obtained and disclosed. However, in most arbitrations, they are subject to confidenti-
ality obligations.While the production of such documents can often be resisted on the basis
of confidentiality, the party to whom the request was made may wish for strategic reasons
to seek the consent of its counterparty or the tribunal in the parallel arbitration to disclose
the information. Alternatively, it may be ordered to.
Counsel should therefore plan parallel proceedings on the assumption that they may
want to disclose, or be ordered to disclose, information from one proceeding in another
proceeding. As such, they should have a single theory for both arbitrations that reconciles
the claims in each so that, to the extent possible, the claims, positions taken and damages
sought in one proceeding do not undermine the claims in the other.
When a party wishes to disclose information in one proceeding that is subject to a
confidentiality agreement or order in another proceeding, is asked for such information in
the course of document production, or anticipates that it will be ordered to produce such
information, it should address the matter as early as possible. If a party wishes to disclose the
information voluntarily, the opposing party in the parallel arbitration should be approached
to obtain its consent. Alternatively, at the document production phase of an arbitration, a
party receiving such a request for documents from a parallel arbitration, and is not averse
to producing them but for its confidentiality obligations, may choose to object to produc-
tion but volunteer to approach the opposing party, or apply to the tribunal in the parallel
arbitration to seek consent for disclosure.51 Finally, a tribunal may order a party to produce
such documents, in which case it will have to determine whether to (1) seek consent
from the party or tribunal in the other arbitration, (2) comply with the order without the
consent of the other party and risk a claim for breach of confidentiality, or (3) refuse to
produce documents in response to the tribunal’s order and risk an adverse inference. In all
these contexts, all attempts to obtain consent to disclose documents from a parallel arbi-
tration should be done in writing so that the requesting party has evidence of its efforts
to obtain that consent (even though the correspondence relating to the other arbitration
may itself be confidential). Given the potential confidentiality of the written requests to
another arbitral tribunal, counsel should also evidence their attempts to obtain consent
from another tribunal by contemporaneously writing to the tribunal in the arbitration that
is seeking disclosure, informing it of its attempts. Although there may be cases in which
there are compelling grounds to maintain the confidentiality of a parallel proceeding, in
our experience the more transparency that is possible between proceedings, the more likely
that a tribunal can be satisfied that its award will not result in a windfall or double recovery,
and therefore will not discount its award to account for that potential, thereby mitigating
this significant risk that arises from parallel proceedings.

51 In our experience, since confidentiality obligations typically arise from an agreement between the parties,
tribunals in this position are generally reluctant to order production of documents in the face of an objection.

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Finally, once an award is rendered in a parallel arbitration, a party may wish to consider
applying for recognition and enforcement of the award at the earliest opportunity. The
award must be attached to such an application, and doing so is in most cases an exception
to the parties’ confidentiality obligations. Once the award is in the public domain, it may
then be made available to the tribunals, or tribunals, in ongoing parallel proceedings.

Conclusion
As investment becomes even more globalised and energy projects involve numerous parties
from various jurisdictions entering into overlapping and related contractual agreements, the
likelihood of parallel arbitral proceedings is likely to increase when disputes arise. Although
consolidation of arbitral proceedings is often the most efficient outcome, successful and
predictable consolidation requires significant forethought at the beginning of a project.
However, even when consolidation was not provided for at the outset, there are a number of
techniques that can be used to mitigate the risks of parallel proceedings: by (1) subsequent
consolidation, (2) staying one of the proceedings until a parallel proceeding can be
completed, the findings of which are necessary to the second proceeding, or (3) attempting
to establish transparency between the tribunals, to the extent possible, particularly with
respect to damages. As such, the risks of parallel dispute resolution proceedings should be
considered at all phases of investments and projects in the energy sector, and counsel should
take care in both negotiating and drafting contracts and in arbitrating disputes in which
there are parallel proceedings to mitigate these risks for their clients. Although there are
many variables at play and each situation has to be considered on its own merits, giving
early thought to these issues can go a long way to avoiding unwanted parallel proceedings
before they arise, or mitigating the associated risks if they cannot be avoided.

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Conclusion

The Challenges Going Forward

Gordon E Kaiser1

In the foreword to the first edition of this book, Andrew Clarke of ExxonMobil
International sets out the costs and benefits of arbitration in the oil and gas world. It is
worth repeating:

While it is by no means perfect, international arbitration has become the primary mechanism by
which disputes are resolved in the oil and gas industry. For cross-border transactions involving
parties from a broad range of jurisdictions, or disputes between an investor and a state, there is no
practical alternative. It provides the opportunity for an impartial, independent determination of
a dispute with an established mechanism for the enforcement of awards in most jurisdictions in
the world under the auspices of the New York Arbitration Convention of 1958. Unfortunately,
the dispute resolution process itself is becoming increasingly complex and uncertain, adding a
further layer of difficulty to the parties finding solutions to their disputes. The time and cost
associated with international arbitration now compares unfavourably with litigation (which was
never a good benchmark in the first place). Extended document disclosure requests and the
willingness of arbitrators to accede to them is burying the process in indiscriminate evidence.
And, despite the inherent flexibility and the discretion vested in the arbitrators, first procedural
orders are not always designed to meet the specific needs of the parties or the dispute, nor do
they provide for an efficient and cost-effective process.This fourth perspective is a cause of concern
as uncertainty over the outcome of dispute resolution process only creates additional work and
delay, benefiting the international arbitration industry and not the parties it is designed to serve.

1 Gordon E Kaiser is an arbitrator practising at Energy Arbitration Chambers, Toronto and Washington, DC.

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Andrew Clarke looks at arbitration as a user, rather than a supplier. In his foreword, he is
quite critical of some of the practices that have developed in oil and gas arbitration. But as
he notes, in that world (i.e., the investor-state world), there is no practical alternative: arbi-
tration is the only game in town. The parties need a neutral adjudicator, and they need the
ability to enforce that award around the world. Only arbitration can provide that.
Andrew Clarke notes that the time and cost associated with international arbitra-
tion no longer compares favourably with litigation. He points to the extended disclosure
requirements and the willingness of arbitrators to accede to them in burying the process
in indiscriminate evidence. There is no doubt that this happens. But it gets worse: there is
also unnecessary duplication of proceedings and bifurcation of issues. To some extent the
energy sector is the poster child of this abuse.

Duplicate proceedings
Duplicate proceedings are a good example. Spain now faces 40 arbitrations dealing with the
same issue, namely whether the Spanish government was entitled to change the incentive
plans to attract new investment in solar energy. It may be surprising to some that there has
been so little success in consolidating the claims.
This practice is not unique to Spain or the Energy Charter Treaty. In the Canadian
province of Alberta, the government created power purchase agreements by which
12 generators would sell electricity to contracting parties. The agreements are virtually
identical and were created by regulation and approved by the Alberta regulator. All the
agreements have identical arbitration provisions.
Every one of these agreements has been subject to an arbitration under the Alberta
Rules. The issue is virtually the same in each case: what is the proper treatment of infla-
tionary indices to adjust the costs the generators are entitled to recover? These arbitrations
are all confidential, with the result that common issues are constantly being relitigated.This
is no one’s fault, but it does point to costly inefficiency.
The other unfortunate development is the increasingly common practice to bifurcate
issues. This started with preliminary objections to jurisdiction. (It is not unusual for those
to last two years.) More recently we have developed a tendency to bifurcate the liability
and damage phases of the arbitration. In Mobil Investments,2 the majority delivered its award
on liability in May 2012. The final award on damages was delivered in February 2015.
The same thing happened in Bilcon.3 The majority delivered its award in March 2015. The
damages proceedings took more than two years.

The public policy conflict

Arbitration in the energy sector today faces a full-blown public policy conflict. Private
parties are exercising their rights to attack legislation enacted by the host country to address
domestic public policy concerns. The rationale for the claimants is that the change in

2 Mobil Investments Canada Inc and Murphy’s Oil Corp v. Canada, ICSID Case No. ARB (AF) 107/4 Award,
(22 May 2012).
3 Bilcon of Delaware Inc v. Canada, Award on Jurisdiction and Liability (10 March 2015), UNCITRAL.

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government policy has a negative effect on their business and investment opportunities.
This raises the fundamental question of whether host countries can regulate in the public
interest or whether regulations and legislation must be frozen in time.
Although the North American Free Trade Agreement (NAFTA) has been a major
focus, these issues are not limited to Canada, the United States and Mexico. The German
government was not amused when a private party questioned the country’s ability to phase
out nuclear power4 any more than the US government was happy when Canadian compa-
nies attempted to derail regulations designed to protect Californian drinking water.5 Nor
were Canadians happy when US companies attempted to strike down Canadian bans on
fracking,6 pesticides7 or offshore wind development.8
Governments were quick to respond that private corporations were using NAFTA to
curtail the right of governments to regulate in the public interest.This debate soon became
worldwide, driven by leading academics and arbitrators.9 This debate is not limited to
NAFTA.The same issue arose under the Energy Charter Treaty. which followed NAFTA in
1994.There are currently more than 30 arbitration claims under that Treaty challenging the
legislation by four different European governments to change their incentive programmes
for renewable energy without notice.
The real concern may be that we have inadvertently created an ‘appeal court of last
resort’. In most cases, NAFTA parties first litigate in domestic courts and then appeal to
NAFTA. NAFTA offers definite advantages. Damages are available under NAFTA, some-
thing that does not always exist under domestic administrative law. In Apotex10 and Eli
Lilly,11 both companies first went to the Canadian Federal Court to contest patent rulings.
When they failed,12 they went to NAFTA. Bilcon appealed the ruling of the Nova Scotia
Environmental Commission to a local court. When that failed, they went to NAFTA,
where they succeeded.
Mercer International13 went first to the British Columbia Utility Commission.14
When that did not work out, they went to NAFTA. Mobil Investments15 first appealed the
Newfoundland Board R&D directive to the local courts.16 When the company lost, it went
to NAFTA, where it succeeded.

4 Vattenfall v. Germany, ICSID Case No. ARB /12/12.

5 Methanex Corp v. United States, 44 I.L.M. 1345 (NAFTA Chap. 11 Arb. Trib. 3 August 2015) (Final Award).
6 Lone Pine Resources Inc v. Government of Canada, Notice of Arbitration, 6 September 2013.
7 Dow Agro Sciences v. Canada, Settlement Agreement (UNCITRAL, 2011).
8 Windstream Energy LLC v. Government of Canada, PCA Case No. 2013-22, 27 September 2016.
9 Jose Alvarez, ‘Is Investor-State Arbitration “Public”?’, Journal of International Dispute Settlement, 2016, 7,534-576;
Stephen M Schwebel, ‘The Outlook for the Continued Vitality or lack there of in Investor-State Arbitration’,
Arbitration International, 2016, 32, pp. 1 to 15.
10 Apotex v. United States of America, ICSID Case No. ARB (AF) 12/1 (25 August 2014).
11 Eli Lilly and Company v. Government of Canada, Award (UNCITRAL, 16 March 2017).
12 Eli Lilly Canada Inc v. Novapharm Ltd, 2011 FC 1288; Novapharm v. Eli Lilly & Co, 2010 FC 915.
13 Mercer International Inc v. Canada, 16 May 2014 (ICSID).
14 Fortis BC – Application for Approval of Stepped and Stand-By Rates Decision Stage II (24 March 2015).
15 Mobil Investments Canada Inc and Murphy’s Oil Corp v. Canada, ICSID Case No. ARB (AF) 107/4 Award,
(22 May 2012).
16 Hibernia Management and Development Co v. Canada Newfoundland Offshore Petroleum Board [2007] NJ No. 168;
Hibernia Management and Development Co v. Canada Newfoundland Offshore Petroleum Board [2008] NJ No. 310.

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To make matters worse, NAFTA is a unique appeal court. Only foreign investors
can bring cases. Consider the cases involving the Ontario ban on wind generation. An
American company, Windstream, obtained a C$28 million judgment from a NAFTA
panel17 when Ontario cancelled the programme.Trillium Power, a Canadian company with
the same complaint, was out of luck in the Ontario courts.18 The same thing happened in
SkyPower.19 There the judge remarked: ‘While it may sometimes seem unfair when rules are
changed in the middle of a game, that is the nature of the game when one is dealing with
government programs.’

Arbitration under attack

The next group of opponents are those that just do not like arbitrators.This group believes
there should be an investment court with appeal procedures. It is an open question whether
a multinational investment court will give us better decisions than arbitration panels.There
is also a question of whether the Americans would buy into that concept, given the isola-
tionist tendencies of the new administration. The Canadians seem to have bought into
the concept. Courts have replaced arbitrators in the recently signed EU–Canada Trade
Agreement (CETA).
Much of the analysis in NAFTA cases centres on the rights of the investor, the defi-
nitions of legitimate expectations and indirect expropriation. But what about the state’s
rights? The state must have a right to regulate; it certainly has responsibilities to do so.
Few would object to states exercising this jurisdiction provided they act in good faith,
and do not discriminate or expropriate private property without fair compensation. The
NAFTA decisions in Methanex20 and Chemtura21 seem to support this proposition.
In Chemtura, a US manufacturer of lindane (an agricultural insecticide moderately
hazardous to human health and the environment) claimed a breach of NAFTA by Canada’s
prohibition of its sale. The tribunal rejected the claim, stating:

Irrespective of the existence of a contractual deprivation, the Tribunal considers in any event
that the measures challenged by the Claimant constituted a valid exercise of the Respondent’s
police powers. As discussed in detail in connection with Article 1105 of NAFTA, the PMRA
took measures within its mandate, in a non-discriminatory manner, motivated by the increasing
awareness of the dangers presented by lindane for human health and the environment. A
measure adopted under such circumstances is a valid exercise of the State’s police powers and, as
a result, does not constitute an expropriation.

In investor-state arbitrations, arbitrators grant deference to governments, particularly when

those governments are carrying out a regulatory function for which the public interest is
the dominant test.

17 Windstream Energy v. Canada, PCA Case No. 2013-22, 27 September 2016.

18 2013 ONCA 683, 117, OR (3d) 721.
19 SkyPower v. Ministry of Energy [2012] OJ No. 4458 at para. 84.
20 Methanex Corp v. United States, Decision on amici curiae 15 January 2001; UPS v. Canada, Decision on amici
curiae, 17 October 2001.
21 Chemtura Corporation v. Canada, Award (UNCITRAL, 2 August 2010).

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In Mesa Power,22 the tribunal pointed to the deference that NAFTA Chapter 11 tribu-
nals usually grant to governments when it comes to assessing how they regulate and manage
their affairs. The tribunal stated:

In reviewing this alleged breach, the Tribunal must bear in mind the deference which NAFTA
Chapter 11 tribunals owe a state when it comes to assessing how to regulate and manage its
affairs. This deference notably applies to the decision to enter into investment agreements. As
noted by the S.D. Myers tribunal, ‘[w]hen interpreting and applying the “minimum standard”,
a Chapter Eleven tribunal does not have an open-ended mandate to second-guess government
decision-making.’ The tribunal in Bilcon, a case which the Claimant has cited with approval,
also held that ‘[t]he imprudent exercise of discretion or even outright mistakes do not, as a rule,
lead to a breach of the international minimum standard.’23

In addition to the references in SD Myers24 and Bilcon pointed out by the Mesa Power
tribunal, we can add the tribunal’s comments in Thunderbird that the state ‘has a wide
discretion with respect to how it carries out such policies by regulation and administrative
conduct’.25

Every country has its team

Arbitration has its imperfections and many are referred to above. Energy arbitration, and
particularly renewable energy arbitration, has created a unique challenge. When a country
like Spain faces 40 claims on essentially the same issue within a short time, strange things
happen. Other countries face the same situation. All these claims worldwide are driven by
ambitious incentive programmes to reduce carbon consumption.
Increasingly, each country has its unique team composed of the same law firms and, in
many cases, the same arbitrators. Partisan dissents are becoming commonplace26 as are arbi-
trator challenges. It is not clear what the solution is but there certainly is a growing problem.
There is widespread agreement that the investor-state dispute resolution process
requires serious reform. This is particularly true in the energy sector. There is a clear conflict
between the interests of private corporations and the public interest mandate of states. The
process as currently structured is not capable of balancing these competing interests in a
meaningful and predictable fashion. It is likely to be a long and challenging discussion.

A new arbitration landscape

The foregoing was written in September 2018, when the third edition was published. At
that time we were trying to forecast the future for energy arbitration. It turns out we were
right on most points. Renewable energy has dramatically changed energy markets and
energy policy. It also promises to change the face of arbitration.

22 Mesa Power Group LLC v. Government of Canada, PCA Case No. 2012-17, 24 March, 2016.
23 id. at para. 553 (footnote omitted).
24 S.D. Myers v. Canada (NAFTA/UNCITRAL), First Partial Award, 13 November 2000.
25 International Thunderbird Gaming Corp v. United Mexican States, at para. 127, Award (UNCITRAL
26 January 2006).
26 See Judge Brower’s colourful dissent in Mesa Power, discussed in Chapter 6.

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In 2019, two-thirds of new global electricity generation came from wind and solar.The
threat of climate change affected governments around the world. Many established incen-
tives to attract new green energy. Spain, Czechoslovakia, Italy and Canada were the leaders.
Many of the new incentive programmes were not clearly thought out. It turned out that
green energy was more expensive than forecast. At the same time the demand for electricity
began to decline as a result of broad-based conservation efforts.
Governments attempted to eliminate the programmes or least reduce their commit-
ments. A wave of arbitrations resulted. At last count, more than 100 arbitrations dealing
with renewable energy were on the table. Some were new, some started years ago. In some
cases, the investors won; in others, they lost. But there was collateral damage.
The collateral damage was a huge increase in the number of attempts to disqualify arbi-
trators and set aside awards. This development has affected arbitration practice and proce-
dure. As investors attempted to protect their investments, it created a major conflict with
states attempting to protect their energy policy. This is now known as the right to regulate.
To make matters worse, it was pointed out that when the investor was a domestic party, it
could not challenge the government’s right to legislate or regulate. But if that investor was
foreign, it was a different story.
In 2009, the Honourable Charles Brower set out the advantages of investor-state dispute
resolution, stating:

The investors right to initiate arbitration enables the host state to make credible the commit-
ments it has made under its investment treaties.This, in turn, reduces the political risk of foreign
investment, lowers the risk premium connected to it, and therefore makes investor projects more
cost-efficient.This increase in efficiency benefits not only investors, but also the host state, as the
products and services that a foreign investor offers becomes cheaper.27

Others, including Chief Justice John Roberts of the US Supreme Court, are more critical
of the right of private arbitrators to challenge states’ right to regulate. He commented that
NAFTA arbitration panels hold alarming power to review the laws and ‘effectively annul
the authoritative acts of its legislature, executive, and judiciary’. They ‘can meet literally
anywhere in the world’ and ‘sit in judgment on its sovereign acts’.28
The NAFTA renegotiation became the poster child for this debate. In the end Canada
and the United States agreed to eliminate investor-state arbitration entirely. The bad news
does not end there. While state-to-state arbitration was preserved, the ability of private
parties to appoint private arbitrators is also gone. Now arbitrators are appointed by the state.
There is a standing panel and the arbitration process looks very much like a court proceeding.
The negotiators in NAFTA also decided to reform the arbitration process. They incor-
porated in the new United States-Mexico-Canada Agreement (USMCA) the Conflict of
Interest Guidelines established by the International Bar Association (IBA). The negotiators

27 Charles N Brower and Stephan W Schill, ‘Is Arbitration a Threat or a Boon to the Legitimacy of International
Investment Law?’ (2009) 9, Chicago Journal of International Law, 471 to 477.
28 BG Group v. Republic of Argentina, 572 US 25 (2014).

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and the countries they acted for clearly felt that the IBA Guidelines were not being
enforced. They were no doubt influenced by the large number of attempts to disqualify
arbitrators in the renewable energy cases during the past two years.
The movement to state-appointed arbitration panels is not unique to the new USMCA.
The European Commission has long been on this path and has established bilateral invest-
ment courts in agreements with both Canada and Mexico. New Zealand and South Africa
are also headed down the same path.

The backlash
The past 10 years have seen enormous growth in the amount of arbitration worldwide.
The energy sector has been leading that charge. The basic concerns were set out by
200 US economists in a letter to President Trump in October 2017, asking him to remove
investor-state dispute settlement (ISDS) from NAFTA and to leave ISDS out of any other
future trade agreement:

ISDS grants foreign corporations and investors rights to skirt domestic courts and instead
initiate proceedings against sovereign governments before tribunals of three private sector lawyers.
In those proceedings, foreign investors can demand taxpayer compensation for laws, court rulings
and other government actions that the investors claim violate loosely defined rights provided in
a trade agreement or investment treaty.The merits of those rulings are not subject to appeal, but
are fully enforceable against the US government in US courts.

The problem with ISDS is not that it allows private corporations to sue the government for
conduct that harms the corporations’ economic interests. Indeed, US domestic law already recog-
nizes the importance of granting private citizens and entities (including foreign corporations) the
power to take legal action against the government in order to help promote effective implementa-
tion of the law and adherence to the Constitution.

However, through ISDS, the federal government grants foreign investors ‒ and foreign investors
alone ‒ the ability to bypass the robust, nuanced, and democratically responsive US legal frame-
work. Foreign investors are able to frame questions of domestic constitutional and administrative
law as treaty claims and take those claims to a panel of private international arbitrators, circum-
venting local, state or federal domestic administrative bodies and courts. ISDS thus undermines
the important roles of our domestic and democratic institutions, threatens domestic sovereignty
and weakens the rule of law.

In addition to the central problem of establishing a parallel and privileged set of legal rights
and recourse for foreign economic actors operating here, ISDS proceedings lack many of the
basic protections and procedures normally available in a court of law. There are no mechanisms
for domestic citizens or entities affected by ISDS cases to intervene or meaningfully participate
in the disputes; there is no appeals process and therefore no way of addressing errors of law or

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fact made in arbitral decisions; and there is no oversight or accountability of the private lawyers
who serve as arbitrators, many of whom rotate between being arbitrators and bringing cases for
corporations against governments.

The United States has typically agreed to supranational adjudication only in exceptional cases
and after resolving a range of complex considerations about the scope and depth of supranational
authority over domestic policies and the available remedies to aggrieved parties. The inclusion
of ISDS in US trade and investment deals brushes aside these complex concerns and threatens
to dilute constitutional protections, weaken the judicial branch, and outsource our domestic legal
system to a system of private arbitration that is isolated from essential checks and balances.

For these reasons, we urge you to stop any expansion of ISDS – namely through the China BIT
and the TTIP – and to eliminate ISDS from past US trade deals, beginning with NAFTA.29

What’s next?
The avalanche of renewable energy cases created a perfect storm. When 100 cases land in
two years on the same issue strange things can happen.Two years ago in this Conclusion, we
noted that each party had its own team.This has proven to be the case.This is not restricted
to counsel – it includes favourite arbitrators and experts. The result was an unprecedented
increase in applications to disqualify arbitrators and to annul decisions.
The changing face of arbitration may prove to be unfortunate. Twenty-five years ago
when NAFTA was first implemented, the energy sector welcomed investor-state dispute
resolution. Energy companies searching for oil and gas in foreign countries did not trust the
local courts to sort out disputes. Arbitration was seen as a way to guarantee a neutral judge.
The move to state-appointed panels takes that away.
The loss of the right to appoint arbitrators is one thing – the loss of the right to initiate
an arbitration claim is another. It may be more important.
During the first 25 years of NAFTA, 97 disputes were initiated. It is a good bet that
fewer than half of that number will be initiated under the USMCA. It is an even better bet
that the new Agreement will not last 25 years.
The USMCA contains a sunset clause in Chapter 34 and has a 16-year term. More
importantly, every six years the United States, Canada and Mexico will conduct a joint
review to decide whether to extend the term of the Agreement for another 16 years. We
forget that the purpose of international trade agreements is to increase foreign investment
by decreasing investor risk. Trade agreements with indefinite terms are not a step in the
right direction.

The new rules

The six-year review will have further implications for international arbitration. States are
starting to micromanage the arbitration process. Reference has already been made to the
IBA Guidelines on Conflict of Interest. The USMCA also provides new and fundamental
changes to arbitration rules.

29 For the full letter, see https://www8.gsb.columbia.edu/faculty/jstiglitz/sites/jstiglitz/files/2017%20Letter%20

to%20Pres.pdf.

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Disputing parties are now given the right to review and comment on a tribunal’s
award and liability prior to its issuance. The new Agreement also provides for an expedited
hearing procedure for objections to jurisdiction or claims without legal merit.
A number of ambiguities that have developed under international arbitration law are
clarified.The USMCA limits the types of claims that can be brought compared to NAFTA.
Two of the most common claims under NAFTA – indirect expropriation and breach of
the minimum standard of treatment – are no longer covered. The USMCA also limits the
scope of fair and equitable treatment and full protection and security by giving these terms
specific definitions.
The most dramatic change is the provision that the most-favoured nation clause
(Article 14.5) cannot be used to import standards and jurisprudence from other treaties. So
much for the concept of international arbitration law and stare decisis.
The NAFTA renegotiation is leading the charge to greater state control over the arbi-
tration process. This includes micromanaging arbitration rules, practice and procedure.
There will be no shortage of rules in this new world.
There will be the rules of private institutions such as the American Arbitration
Association, JAMS, the Chartered Institute of Arbitrators and the London Court of
International Arbitration. Then there will be the rules of government institutions such
United Nations Commission on International Trade Law and the International Chamber of
Commerce. Last but not least there will be the procedural rules embedded in new treaties.
The USMCA will be reviewed every six years. The first question will be whether it
should be extended. The second question will be whether the rules should be amended.
The new arbitration landscape will become much more complicated.

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 Appendix 1

About the Authors

Stephen P Anway
Squire Patton Boggs (US) LLP
Stephen Anway is global co-chair of the firm’s international dispute resolution practice
and a partner in the firm’s New York office. In that role, he leads a team of more than
140 lawyers across 25 offices in North America, Europe, the Middle East and Asia Pacific.
Mr Anway has represented the winning party in many of the largest international arbitra-
tions in the world in the past 15 years. He has worked in more than 40 countries and has
represented clients in some 100 international arbitration proceedings. He is also an adjunct
professor of law at Case Western Reserve University, where he teaches a full doctrinal
course every year on international arbitration.

Cyrus Benson
Gibson, Dunn & Crutcher LLP
Cyrus Benson is a US- and English-qualified partner in the London office of Gibson, Dunn
& Crutcher and serves as co-chair of the firm’s international arbitration practice group. Cy
Benson represents clients in commercial and investment treaty arbitrations under all major
institutional rules arising from a wide variety of industry sectors, with particular emphasis
in oil and gas, mining and minerals, and infrastructure. He is experienced in complex litiga-
tion and has significant trial and appellate experience in US federal and state courts.

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Doak Bishop
King & Spalding
Doak Bishop is co-head of King & Spalding’s international arbitration practice group and
a member of the firm’s Latin American Practice Group. Mr Bishop has more than 38 years’
experience in focusing on international arbitration and litigation of oil and gas, energy,
construction, environmental and foreign investment disputes. He has developed a national
reputation for his experience in international arbitration, serving both as an arbitrator and
counsel in large business disputes.
Mr Bishop is Board Certified in civil trial law by the Texas Board of Legal Specialization.
He served as chairman of the Institute of Transnational Arbitration (2012–2015) and on
the board of directors of the American Arbitration Association (ABA). He also serves as a
member of the US delegation to the NAFTA Advisory Committee on Private Commercial
Disputes. He has previously served as chairman of the litigation section of the State Bar of
Texas (1998) and co-chair of the ABA International Litigation Committee (1998-1999).
Mr Bishop received his BA degree, with high honours, and departmental distinction
from Southern Methodist University in 1973, and his JD degree, with honours, from The
University of Texas Law School in 1976, where he served as research editor of the Texas
Law Review.
Mr Bishop is a member of the Texas State Bar.

James H Boykin
Hughes, Hubbard & Reed LLP
James H Boykin is chair of Hughes Hubbard’s investment treaty arbitration group and a
partner in the arbitration practice group at the Washington, DC, office. His practice focuses
on international arbitration and includes state-to-state and investor-state arbitration as well
as commercial disputes.

James Brown
Haynes and Boone CDG, LLP
James Brown, a partner in the dispute resolution team in London, has more than 18 years
of experience as a disputes lawyer.
His primary focus is litigating and arbitrating complex, high-value engineering and
construction disputes for international clients operating in the shipping and offshore oil
and gas sectors.
The Legal 500, the international directory of law firms, has reported that he ‘provides
tremendous attention to detail in high-value technical disputes’ and currently reports that
he is ‘approachable, pragmatic and responsive to client needs’.
James regularly writes and provides seminars on current dispute resolution issues.

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William Cecil
Haynes and Boone CDG, LLP
William Cecil is a partner and head of the dispute resolution team in London, with exten-
sive arbitration experience in offshore oil and gas and energy.
William is a co-author of the fifth edition of the Law of Shipbuilding Contracts,The other
co-authors of this edition are Simon Curtis and Ian Gaunt, the President of the London
Maritime Arbitrators Association 2017–2020.
William is a recommended lawyer in the international arbitration, oil and gas, and ship-
ping sections of the 2020 UK edition of The Legal 500, Legalease, the international direc-
tory of law firms. The Legal 500 reports that ‘Will Cecil . . . ​is particularly notable’.
Chambers UK 2020 ranks William in the shipping category UK-wide as a notable prac-
titioner, commenting that ‘the very knowledgeable William Cecil assists clients with litiga-
tion and arbitration, including disputes related to shipbuilding contracts. He is experienced
in oil and gas-related mandates’.
Previously Chambers UK has also noted that William is an ‘experienced shipping lawyer
who routinely acts for clients in litigation and arbitration . . . ​[and] in the negotiation and
drafting of offshore contracts’.

Andreas Dracoulis
Haynes and Boone CDG, LLP
Andreas Dracoulis is a partner and disputes lawyer helping clients resolve problems in the
energy, shipping and construction sectors. Andreas mostly advises on international projects
ranging between the construction of offshore units and ships, upstream exploration and
production, and major infrastructure works.
Andreas is a recommended and ‘key lawyer’ in the international arbitration and ship-
ping sections of the 2020 edition of The Legal 500 UK, Legalease. Previously, The Legal
500 has reported that Andreas is a ‘key name’ in international arbitration and is ‘building an
excellent reputation for careful case management’ in shipping.
In addition to a degree in law, Andreas holds a postgraduate master’s degree in construc-
tion law and dispute resolution from King’s College, London. Andreas regularly writes and
lectures on industry-specific and international arbitration-related topics. His most recent
speaking engagement was at the Subsea Expo 2020.

Hagit Elul
Hughes, Hubbard & Reed LLP
Hagit Muriel Elul is co-chair of Hughes Hubbard’s arbitration practice group and is a
New York-based partner practising in the fields of business dispute resolution. She handles
high-stakes international arbitration and cross-border litigation involving pharmaceutical,
intellectual property, energy, construction and commercial contracts. Her clients are based
globally in Asia, Europe and Latin America.

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Malik Havalic
Hughes, Hubbard & Reed LLP
Malik Havalic is an associate in the firm’s litigation department and a member of the
firm’s arbitration and antitrust practice groups. Malik has worked on complex commercial
disputes, with a focus on international investment arbitration. He has experience with the
oil and gas, aerospace and defence, life science, pharmaceuticals, financial services, and news
media industries, among others.

Doug Jones AO
Professor Doug Jones AO is a leading independent international commercial and
investor-state arbitrator. Doug is also an inter­national judge of the Singapore International
Commercial Court.
The arbitrations in which he has been involved include infrastructure, energy, commod-
ities, intellectual property, commercial and joint venture, and investor-state disputes span-
ning more than 30 jurisdictions around the world.
Doug is an arbitrator member at Arbitration Place in Toronto and is a door tenant at
Atkin Chambers in London. He has an office in Sydney, Australia.
Prior to his full time practice as an arbitrator, Doug had 40 years’ experience as an
international transactional and disputes projects lawyer.
Doug is acknowledged as a leading arbitrator and is highly ranked in a number of
leading publications. Most recently, in 2020, Chambers Asia-Pacific recognised Doug as a
‘superb chairman – very decisive and authoritative’ who commands a ‘worldwide repu-
tation’ as an arbitrator of construction-related disputes. Doug maintained his Band One
ranking in the international arbitration category for a tenth consecutive year.
Doug has published and presented extensively, and holds professorial appointments at
Queen Mary College, University of London, and Melbourne University Law School.
Doug is an officer of the Order of Australia, and one of only four Companions of the
Chartered Institute of Arbitrators.

Gordon E Kaiser
Energy Arbitration Chambers
Gordon Kaiser is an arbitrator practising at Energy Arbitration Chambers in Toronto and
Washington, DC. His practice involves domestic and international disputes in energy and
telecommunications. He served as vice chairman of the Ontario Energy Board for six
years and served as Market Surveillance Administrator in the Province of Alberta. Prior to
that he was a partner in a national law firm, during which time he appeared in the courts
and regulatory agencies across the country as well as the Federal Court of Appeal and the
Supreme Court of Canada.
He has advised the Ontario Energy Board, the Alberta Utilities Commission, the
Commissioner of Competition, the Ontario Independent Electricity System Operator
(IESO) and the Competition Tribunal.

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Mr Kaiser has mediated disputes on multi-year rate plans between public utilities and
their major customers and long-term contracts for the pricing of gas, electricity and wire-
less data. He has advised the Alberta’s Utility Commission and the Ontario IESO on settle-
ments under the Market Rules and the Attorney General Canada on settlements under the
Competition Act. He has arbitrated disputes dealing with the construction of transmission
and pipeline facilities, power purchase agreements, gas supply contracts, the construction of
power plants, and wind and solar interconnection.
Mr Kaiser is an adjunct professor at the Osgoode Hall Law School, co-chair of the
Canadian Energy Law Forum, President of the Canadian chapter of the Energy Bar
Association, and editor of Energy Regulation Quarterly. He is recognised as one of Canada’s
leading arbitrators by Chambers Global.

Gita Keshava
Bennett Jones LLP
Gita Keshava is an associate at Bennett Jones LLP, with a practice in international commer-
cial and investor-state arbitration, as well as domestic commercial litigation. In particular,
she appears as arbitration counsel under the world’s leading international arbitration rule
systems, including ICC, LCIA and UNCITRAL. In addition, she has experience in repre-
senting multinational companies in investor-state disputes under NAFTA Chapter 11.
Prior to joining Bennett Jones, Gita completed her Masters in Law, with a focus on
international dispute settlement, at Oxford University, and subsequently worked at the
International Court of Justice, the World Food Programme and the Supreme Court of
Namibia. Currently, Gita works out of Bennett Jones’  Vancouver and Calgary offices.

Devika Khanna
Clyde & Co LLP
Devika Khanna is a partner in the international arbitration group of Clyde & Co LLP.
She has successfully assisted numerous buyers and sellers of gas in resolving price review
disputes over the past 15 years.
Devika acts as counsel and sits as arbitrator in cases across a range of sectors, under the
auspices of a variety of rules (ICC, ICSID, LCIA, SCC and UNCITRAL). She has consid-
erable experience of both commercial and investment treaty cases, advising multinationals
and sovereign states.
Devika joined Clyde & Co as a partner in 2012. Before joining the firm, she was part of
Freshfields Bruckhaus Deringer’s international arbitration group (2006–2012) and previ-
ously trained and worked at Slaughter and May (2002–2006).

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Marco Lorefice
Edison SpA
Marco Lorefice is a senior lawyer with Edison SpA, where he is lead counsel responsible for
oil and gas. Marco has spent most of his career as in-house counsel in the energy industry,
in which he has been working for almost 20 years. He developed the legal framework for
both the Egyptian LNG Project and the Adriatic LNG Project. Marco also has worked on
the development of new structures for long-term gas sales and purchase agreements.
Marco is an experienced litigator and has worked on numerous energy cases, mainly
gas price review arbitrations. He has represented Edison in some of the most important,
well-known and highly valued price review arbitrations in the world in the past decade.
Marco has published the leading Italian publication on take-or-pay contracts (and the
price review process), Le Clausole di Take or Pay nei contratti di compravendita di idrocarburi
(Giuffrè Editore 2013).
Marco has an LLB from the Trieste University Faculty of Law (Italy, 1987) and a
diploma in international trade law from the Monash University School of Law (Melbourne,
Australia, 1990).
He has been an expatriate in Australia and Egypt and is regularly invited to be a speaker
at international gas conferences around the world.

Sara McBrearty
King & Spalding
Sara McBrearty is a senior associate in King & Spalding’s international arbitration prac-
tice group in the Houston office, with a particular focus on international arbitration in
the traditional and renewable energy industries. Her experience ranges from the initial
stages of drafting arbitration agreements and maximising investment protections to the
final phases of award recognition, enforcement and set-aside. She has represented and
advised corporate clients in investor-state and commercial arbitrations under the ICC,
SCC, ICSID, UNCITRAL, AAA and CRCICA Arbitration Rules, and in ancillary litiga-
tion in US federal and state courts.
She is a member of the Texas State Bar and a certified mediator in the state of Texas.
Ms McBrearty holds a JD from the University of Texas School of Law and a BA from
Baylor University. Prior to joining King & Spalding, she interned for the Honourable Judge
Andrew Austin in the Western District of Texas.

Victoria R Orlowski
Gibson, Dunn & Crutcher LLP
Victoria Orlowski is an associate in the New York office of Gibson, Dunn & Crutcher,
and a member of the litigation, international arbitration and enforcement practice groups.

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 About the Authors

Vasilis Pappas
Bennett Jones LLP
Vasilis Pappas is the head of international arbitration at Bennett Jones LLP. He is a recog-
nised leader in the fields of international commercial and investor-state arbitration. Vasilis
represents multinational companies all over the world in complex commercial disputes
in a diverse range of sectors, including construction, energy, mining, banking, insurance,
telecommunications and pharmaceuticals.Vasilis also represents sovereign states and multi-
national companies worldwide in investor-state disputes under NAFTA Chapter 11, the
ICSID Convention, and other bilateral and multilateral investment treaties.
Prior to joining Bennett Jones, Vasilis practised for eight years in New York City
with a leading international law firm. He also practised with the Trade Law Bureau at
Global Affairs Canada, representing Canada in investor-state arbitrations and investment
treaty negotiations.
Vasilis now works out of Bennett Jones’  Vancouver and Calgary offices. He is an
adjunct professor at the University of Calgary’s Faculty of Law in the field of inter­national
commercial arbitration and investor-state arbitration, is on the Canadian roster of arbi-
trators of the ICC International Court of Arbitration, and is a Fellow of the Chartered
Institute of Arbitrators.

Joseph R Profaizer
Paul Hastings LLP
Joseph R Profaizer is a partner in the Washington, DC, office of Paul Hastings LLP. He is the
chair of the firm’s international arbitration practice, a former vice chair of its Washington,
DC, office, and an adjunct professor of international arbitration and litigation at Georgetown
University. He has been recognised repeatedly by Chambers Global, Chambers USA, Global
Arbitration Review, Who’s Who Legal:Arbitration and The Legal 500 (United States) as a leading
attorney in international arbitration. He is a US-qualified attorney and English-qualified
solicitor, and has practised in both the United States and England. Mr Profaizer has served
as counsel in threatened or actual litigation or arbitration in more than 50 countries, and in
more than 70 arbitrations under the rules of the ICC, AAA/ICDR, LCIA, SIAC, HKIAC,
ICSID, JAMS and UNCITRAL. He is the author and co-author of numerous articles on
international arbitration and a frequent speaker on international arbitration and inter­
national legal issues. He is a graduate of the University of Texas at Austin, the University of
Texas School of Law and the London School of Economics. He is a former law clerk to the
Honourable George P Kazen at the US District Court for the Southern District of Texas.

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 About the Authors

Eldy Quintanilla Roché

King & Spalding
Eldy Quintanilla Roché is a senior associate in King & Spalding’s international arbitration
practice group in the Houston office.
Ms Roché holds a law degree from the Catholic University of Honduras and a
juris doctor degree from Gonzaga University School of Law. She also holds a master’s
in comparative law from the University of Miami. Her experience includes representing
corporate clients in investor-state arbitration, commercial arbitration, tort litigation and
foreign enforcement of judgments. Ms Roché has significant experience in advising clients
on issues of civil law and international law with a particular focus in South America.
Before joining King & Spalding, she was a member of the global disputes practice
group at a large international law firm. She also served as a law extern for the US District
Court for the Eastern District of Washington (2009) and worked as an escribiente at the
Court of Appeals in San Pedro Sula, Honduras (2002–2005).
Ms Roché is a member of the Honduran Bar, the Florida State Bar, the Washington DC
Bar and the Texas State Bar.

Romeo Rojas
Bennett Jones LLP
Romeo Rojas is a partner at Bennett Jones LLP’s Calgary office, with a practice focused
on international commercial arbitration and investor–state arbitration. He acts as counsel in
ad hoc domestic and international arbitrations, as well as arbitrations under the ICC, LCIA
and ADRIC Rules, among others. Romeo also has experience in advising both states and
investors with respect to disputes under bilateral and multilateral investment treaties.
Before joining Bennett Jones, Romeo practised for nine years with a leading Calgary
law firm. Prior to that, he served for seven years as a trade commissioner with the
Government of Canada’s Department of Foreign Affairs and International Trade (DFAIT),
where his assignments included postings to the Consulate of Canada in Dubai, the Embassy
of Canada in Abu Dhabi and DFAIT’s Trade Law Bureau in Ottawa. Romeo regularly
publishes and speaks on international and investor-state arbitration topics, and is adjunct
faculty at the University of Calgary Faculty of Law, where he teaches commercial arbitra-
tion law. He is a member of the bars of Alberta and British Columbia.

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 About the Authors

J William Rowley QC
Twenty Essex
J William Rowley QC has chaired or participated as a tribunal member or counsel in more
than 200 international arbitrations, involving more than 50 national or state laws or treaty
systems. He is described as ‘one of the elite international arbitrators’ (The New Peace Keepers),
a ‘Star Performer’ (Legal Business Arbitration Report), one of London’s ‘Super-Arbitrators’
(Global Arbitration Review), ‘exceptional’, ‘Olympian’, ‘no one ever leaves the chamber with
a sense of injustice’, a ‘big character on the scene’ (Chambers UK) and an ‘extremely strong’
arbitrator and a ‘sensible chairman’ (Chambers Global 2013’s Most In Demand Arbitrators).
He served as board chairman of the LCIA from 2013 to 2017 and is a former member
of the LCIA Court. He is a member of the ICSID Panel of Arbitrators, the ICC Canadian
Panel and multiple regional panels (such as AAA/ICDR, SCC, DIAC, KLRC, SIAC and
HKIAC). He is a past member of the NAFTA 2022 Committee.
He was general editor of Arbitration World from 2004 to 2012. He is the chair of the
editorial board of Global Arbitration Review, a past chair of the IBA Business Section
and IBA Antitrust Committee, and co-author of Rowley & Baker: International Mergers –
the Antitrust Process. He served as chairman at McMillan LLP from 1996 to 2009, and as
chairman emeritus and special counsel from 2009 to 2014.

Igor V Timofeyev
Paul Hastings LLP
Igor V Timofeyev is a partner in the Washington, DC, office of Paul Hastings LLP. His
practice focuses on appellate and international litigation, as well as international arbitration.
Mr Timofeyev has represented both corporations and foreign governments in investor-state
arbitration, ad hoc international commercial arbitration,World Trade Organization disputes
and a variety of appellate, trial and regulatory proceedings. In addition, he has advised
clients on issues concerning investment treaties and free trade agreements. Mr Timofeyev
previously served as Director of Immigration Policy and Special Advisor for Refugee
and Asylum Affairs at the US Department of Homeland Security, and as associate legal
officer to the President of the International Criminal Tribunal for the Former Yugoslavia.
Mr Timofeyev is a former clerk to Justice Anthony M Kennedy of the US Supreme Court
and Judge Alex Kozinski of the US Court of Appeals for the Ninth Circuit. He is a grad-
uate of Yale Law School, Oxford University and Williams College.

George M von Mehren

Squire Patton Boggs (US) LLP
George von Mehren is global co-chair of the firm’s international dispute resolution prac-
tice and a partner in the firm’s London office. With more than 40 years of experience in
complex adversarial proceedings, Mr von Mehren spends 100 per cent of his time repre-
senting clients in international arbitrations.

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Adam J Weiss
Paul Hastings LLP
Adam Weiss is a senior associate in the Washington, DC, office of Paul Hastings LLP. His
practice focuses on international arbitration and complex commercial litigation. Mr Weiss
has successfully represented clients in a variety of contexts and industries, including complex
breach of contract disputes, trade credit insurance coverage disputes, project construction
disputes, media and entertainment disputes, intellectual property disputes and appellate
litigation matters. Mr Weiss has handled international arbitration matters under the major
international arbitration rules (ICC, AAA/ICDR, HKIAC, UNCITRAL, SIAC, CEPANI)
in a number of jurisdictions around the world, including the United States, Belgium, the
Philippines, Indonesia, China, Singapore and Hong Kong. Mr Weiss has also represented
clients in domestic litigation matters before US state and federal courts. Mr Weiss’s practice
also includes counselling clients on US law and regulatory matters, including transporta-
tion and logistics, customs compliance and maritime issues. He is a graduate of Tulane
University Law School (Order of the Coif ) and Duke University.

Charline Yim
Gibson, Dunn & Crutcher LLP
Charline Yim is an associate in the New York office of Gibson, Dunn & Crutcher, and a
member of the litigation and international arbitration practice groups.

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 Appendix 2

Contributors’ Contact Details

Bennett Jones LLP Edison SpA

4500 Bankers Hall East Foro Buonaparte 31
855 2nd Street SW Milan 20121
Calgary Italy
Alberta, T2P 4K7 Tel: +39 02 6222 7330
Canada Fax: +39 02 6222 7841
Tel: +1 403 298 3100 marco.lorefice@edison.it
Fax: +1 403 265 7219 www.edison.it
pappasv@bennettjones.com
rojasr@bennettjones.com
Gibson, Dunn & Crutcher LLP
keshavag@bennettjones.com
Telephone House
www.bennettjones.com
2-4 Temple Avenue
London, EC4Y 0HB
Clyde & Co LLP United Kingdom
St Botolph Building Tel: +44 20 7071 4239
138 Houndsditch Fax: +44 20 7070 9239
London, EC3A 7AR cbenson@gibsondunn.com
United Kingdom
Tel: +44 20 7876 4737 200 Park Avenue
Mobile: +44 7766 285 949 New York, NY 10166-0193
Fax: +44 20 7876 5111 United States
devika.khanna@clydeco.com Tel: +1 212 351 4000
www.clydeco.com Fax: +1 212 351 4035
cyim@gibsondunn.com
vorlowski@gibsondunn.com

www.gibsondunn.com

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 Contributors’ Contact Details

Haynes and Boone CDG, LLP Gordon E Kaiser

1 New Fetter Lane Energy Arbitration Chambers
London, EC4A 1AN Toronto Dominion Center
United Kingdom 77 King Street West, Suite 2020
Tel: +44 20 8734 2800 Toronto
Fax: +44 20 8734 2820 Ontario, M5K 1A1
james.brown@haynesboone.com Canada
william.cecil@haynesboone.com Tel: +1 855 736 4608
andreas.dracoulis@haynesboone.com gkaiser@energyarbitration.ca
www.haynesboone.com energyarbitration.ca

Hughes, Hubbard & Reed LLP King & Spalding

One Battery Park Plaza 1100 Louisiana
New York, NY 10004-1482 Suite 4100
United States Houston, TX 77002
Tel: +1 212 837 6000 United States
hagitmuriel.elul@hugheshubbard.com Tel: +1 713 751 3200
malik.havalic@hugheshubbard.com dbishop@kslaw.com
eroche@kslaw.com
1775 I Street, NW smcbrearty@kslaw.com
Washington, DC 20006-2401 www.kslaw.com
United States
Tel: +1 202 721 4600
james.boykin@hugheshubbard.com Paul Hastings LLP
2050 M Street, NW
www.hugheshubbard.com Washington, DC 20036
United States
Tel: +1 202 551 1700
Doug Jones AO
Fax: +1 202 551 1705
Suite 1B, Level 3
igortimofeyev@paulhastings.com
139 Macquarie Street
joeprofaizer@paulhastings.com
Sydney
adamweiss@paulhastings.com
NSW 2000
www.paulhastings.com
Australia
Tel: +61 2 9137 6650
dougjones@dougjones.info
www.dougjones.info

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 Contributors’ Contact Details

Squire Patton Boggs (US) LLP Twenty Essex

7 Devonshire Square 20 Essex Street
London, EC2M 4YH London, WC2R 3AL
United Kingdom Tel: +44 20 7842 1200
Tel: +44 20 7655 1395 Fax: +44 20 7842 1270
Fax: +44 20 7655 1001 wrowley@twentyessex.com
george.vonmehren@squirepb.com www.twentyessex.com

1211 Avenue of the Americas, 26th Floor

New York, NY 10036
United States
Tel: +1 212 407 0146
Fax: +1 212 872 9815
stephen.anway@squirepb.com

www.squirepattonboggs.com

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The energy industry nurtured and shaped what we now know as
international arbitration and, for a host of reasons – resource nationalism,
oil price drops, geopolitics, climate change, sanctions and pandemics
among them – it has remained one of the discipline’s biggest clients.
The Guide to Energy Arbitrations, published by Global Arbitration
Review, provides coherent and comprehensive coverage of the most
common, difficult and unusual issues faced by energy firms, from
some of the world’s leading authorities. The book has been edited by
J William Rowley QC, Doak Bishop and Gordon E Kaiser.
The Fourth Edition is fully updated and has new chapters on gas
supply and LNG arbitrations.

Visit globalarbitrationreview.com
Follow @garalerts on Twitter
Find us on LinkedIn

ISBN 978-1-83862-253-4

© Law Business Research 2020