Case closed? The finality of arbitrations in the gas and LNG Industry

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Jonathan Hew, Associate, Latham & Watkins
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Arbitration is frequently used as a means of dispute resolution in the global gas and LNG industry.  This is demonstrated not only by the caseloads of arbitral institutions but also the pervasiveness of arbitration clauses in various agreements including joint venture agreements, financing agreements, government contracts and supply and purchase contracts.

Public policy and the finality of arbitration: One of the main benefits of arbitration is its finality. Parties generally need not worry about protracted and costly appeals, and arbitral awards can be enforced with relative ease under the New York Convention.

However, most jurisdictions, including England, New York and Singapore, provide limited grounds upon which arbitral awards can be challenged or denied enforcement by the local courts.

In England, pursuant to the Arbitration Act 1996, an arbitral award may be challenged on the ground of serious irregularity that has caused or will cause substantial injustice to a party.  “Irregularity” encompasses an award which was procured by, or is itself contrary to, public policy.  Similarly, an award that is contrary to public policy may be denied enforcement.

In practice, it has been difficult to exhaustively define the considerations of public policy that matter for the purposes of the Act.  However, recent developments have highlighted two issues that members of the gas and LNG industry should be conscious of:

  • Corruption – English courts may intervene in cases of corruption in international commerce, although ascertaining the requisite degree of misconduct is not straightforward.  In a recent case, the English Commercial Court held that arbitral awards based on manifestly illegal contracts, such as a contract to bribe, will not be enforced.  In contrast, awards based on contracts merely tainted by failed bribery attempts will be enforceable.
  • Sanctions – English courts have yet to consider whether awards made on the basis of agreements that breach UN or EU sanctions would be open to challenge or denied enforcement.  Nevertheless, industry players should tread carefully given that sanctions have the potential to affect activities that are part of the value chain and the financing of those activities.

Practical takeaways: Arbitration’s finality makes it an attractive means of dispute resolution in the gas and LNG sector.  However, there are limited grounds upon which arbitral awards may be challenged or denied enforcement including incompatibility with public policy.  Parties should bear this in mind when considering the approach to take in a dispute.

Join in on the conversation: What is your experience in oil and gas industry arbitration? Leave a comment below.

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