Lex Petrolea, Arbitration and other Alternative Dispute Resolution Mechanisms in oil and gas investment contracts: a critical analysis

Abstract

The oil and gas industry is one of the most investor-State dispute intensive. Numerous disputes necessarily entail a dispute resolution mechanism. In oil and gas investment contracts, parties provide for arbitration, in order to avoid risks pertaining to national courts. Arbitration is an ADRM, and arbitral awards benefit from international recognition and enforcement before national courts. Arbitration is however a last resort mechanism: parties refer their dispute to arbitration when their relationship is severed without hope to mend it. It has become a heavy dispute resolution mechanism, whose procedure generally lasts years and generates high costs. Considering the long span of oil and gas investment contracts, preserving the relationship between the investor and the Host State is crucial, and arbitration does not appear as the best solution. Disputes should therefore be evacuated as swiftly as possible, resorting to arbitration as a last chance mechanism. Yet, the large number of arbitrations demonstrates that oil and gas investment contracts do not present the necessary and efficient mechanisms to solve the disputes before the contractual relationship is ruined. The insertion of an efficient MTDR clause, with well-interacting ADRMs, would provide the parties with the means to solve their disputes early, protect their relationship and filter disputes as to granting access to arbitration to the most complex disputes only. The MTDR clause proposed will comprise ADRMs already existing in actual contracts and therefore supported by practice. The clause will be supplemented by a DB clause, an ADRM borrowed from the construction industry which has a proven efficacy. Finally, the clause will not be complete without inserting and recognising specific contract clauses, force majeure and stabilisation clauses, which are not ADRMs per se but have been elevated to a dispute prevention and resolution level by industry and arbitral practice, i.e. lex petrolea.