Types of Disputes in the Energy Business

By Tim Martin
Types of Disputes in the Energy Business

There are essentially four types of disputes found in the international energy business. They are:

  1. State vs. State Disputes

These are primarily boundary disputes concerning oil & gas and mineral fields that cross international borders, most of which are located in maritime waters. Strictly speaking, they only involve governments since only they are able to claim sovereign title and resolve boundaries with their neighboring states. However, energy companies get indirectly involved in these disputes when they are granted concessions that straddle disputed boundary lines. Companies are sometimes asked by developing nations to fund the dispute costs, and provide data and legal expertise to aid in resolving the boundary dispute. Companies therefore need to be familiar with these disputes and be able to manage them properly when they find themselves in the middle of one.

  • Company vs. State Disputes

These are often called investor-state or state investment disputes. They occur when governments significantly change the terms of the original deal or expropriate an investment. The investor (in this case an energy company or a consortium of such companies) can base its claim on its investment contract (e.g., a production sharing contract or risk service agreement) or an investment treaty, or possibly both. Most treaty claims are made under bilateral investment treaties (BITs), which are negotiated and ratified by two sovereign states. There are presently more than 2,900 BITs involving nearly 200 countries. There is one multilateral investment treaty of significance to the energy industry and that is the Energy Charter Treaty.

Companies should structure their investments and negotiate their host government contracts to take advantage of the investment protection provided by these treaties and to access the facilities of the International Centre for the Settlement of Investment Disputes (ICSID) as the forum of choice for any dispute with a sovereign state. That is essentially accomplished by incorporating their investing company and managing their business out of a jurisdiction that has a strong BIT with the host country and by including an ICSID dispute resolution clause in their host government contract.

These disputes do not often happen. But when they do occur, they involve large sums of money and therefore have a significant impact on a company’s bottom line. Companies should therefore seek qualified legal advice on how best to structure their investments and draft the dispute resolution clauses in their host government contracts.

  • Company vs. Company Disputes

These are usually called international commercial disputes. There are two subcategories of disputes occurring between energy companies. The first subcategory are joint venture disputes. The most comprehensive analysis of these joint venture disputes is provided in:

This book can be found at: https://global.oup.com/academic/product/joint-venture-disputes-in-the-energy-and-natural-resource-sectors-9780192859617?cc=gb&lang=en#

The second subcategory of disputes is between operators and service contractors or equipment providers. These disputes make up the majority of disputes in which energy companies find themselves. They run the full gamut of size, complexity and financial significance.

  • Individuals vs. Company Disputes

There are a number of situations where individuals initiate claims against energy companies. The first is when an individual suffers a personal injury and begins a tort claim against a company. This is common in U.S. jurisdictions but is increasingly happening in other countries. The second group of claims arise when promoters allege they have an interest in a deal, sometimes in the context of a claim of tortious interference by a third party. The next group of claims concerns agents or consultants who demand payment under their agent agreements for winning a government contract for a company. Finally, there has been a recent increase in climate litigation where individuals or communities claim they have been injured by the activities of fossil fuel companies. These claims are often started in local courts but are increasingly filed in foreign courts, such as the U.S., England, the Netherlands, etc.