Planning For Disputes

By Tim Martin

There are several key junctures in any transaction where companies can have a significant impact on how their disputes will be managed and ultimately resolved. Those turning points are 1) when parties first make a deal and draft a dispute resolution clause into their agreement; and 2) when parties have an actual dispute and select their dispute counsel and the arbitrators, mediators or other dispute resolution facilitators. Companies need to plan and implement their dispute resolution strategy at these key junctures to maximize their potential benefits and to minimize their potential losses.

Nobody likes discussing potential future disputes when making a deal. It is a bit like discussing how you want to handle your divorce at the time you make your marriage proposal. So, it is often the last item negotiated in an agreement. However, the dispute resolution clause should not be an afterthought. It is a very significant clause in any international agreement since it is the ultimate determinant of how the agreement will be interpreted, applied and enforced. Unlike domestic projects, a big risk in international energy projects is that a dispute will be submitted for resolution in a hostile forum using an unfavorable law and process. Companies need to ensure where and how they want it resolved, and who will resolve it. That usually does not include the local courts in many developing countries where energy companies make their investments. Companies therefore need to give a great deal of thought to how they want any future dispute dealt with and how they can incorporate those processes into their agreements.