International Arbitration
in the Energy Sector
Maxi Scherer
Queen Mary University of London &
WilmerHale
Vilnius 21 November 2013
Overview
I.
Importance of Energy Disputes
II. Specificities of Energy Disputes
III. Energy Charter Treaty Disputes
I. IMPORTANCE OF ENERGY
DISPUTES
Why is Energy Arbitration Important ?
• Energy is one of the most important sectors in
International Arbitration in terms of
− number of disputes
− amounts in dispute
• Complex Issues
• High-profile disputes
• Growing sector
Number of Disputes (1)
• Institutional Caseloads:
• ICC: 13% (2010), 12.5% (2011), 15% (2012)
• ICSID: 37% of all cases ever (2013); 30% of new cases
(2013)
• UNCTAD: Energy Charter Treaty (ECT) second most used
investment treaty in Investor-State Dispute Settlement
• Investment treaty arbitration: 9% of all new cases yearly
over the last decade concern energy
Number of Disputes (2)
Percentage of cases involving States
Source: ICC Statistical Report 2010
Number of Disputes (3)
Source: ICSID Statistical Report 2013
Amounts in Dispute
• AAA: 600% increase in largest energy claim in just
three years, from $60 million (2008) to $360 million
(2011)
• Mega Cases:
- $100 billion: The “Yukos Cases”
- $10 billion: Libananco Holdings Co. Ltd. v. Turkey
- €1.4 billion: Vattenfall v. Germany
Satisfaction of Users
• How well adapted is arbitration to the energy sector?
− 78% well-suited
− 56% preferred dispute resolution mechanism
“Construction and Energy are industries where arbitration is
perceived as the preferred mechanism of dispute resolution. It
is often said that the enhanced technical nature of disputes in
these sectors favours a process where the parties can select
the person who will decide the claims.”
Source: Corporate Choices in International Arbitration, Queen Mary / PWC 2013
Survey http://www.arbitrationonline.org/research/2013/
Satisfaction of Users
Source: Corporate Choices in International Arbitration, Queen Mary / PWC
2013 Survey http://www.arbitrationonline.org/research/2013/
II. SPECIFICITIES OF ENERGY
DISPUTES
Common Features of Energy Disputes
• Large amount in dispute
• Complex legal and factual issues
• Long-term contracts (heavy investment in capital and
technology)
• Highly political (sovereignty of national resources)
• Cyclical market-dependent environment
• Role of the State in ownership and regulation of
natural resources
Typology of Energy Disputes
• State v State: boundary disputes (maritime and land)
• Company v State: investment disputes
• Company v Company: commercial disputes
• Individual v Company: tort, negligence, etc in
particular human / environmental rights
III. ENERGY CHARTER
TREATY DISPUTES
Historical Background
European Energy Charter signed in 1991
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Sets out principles and objectives to govern East/West
negotiations on energy issue
Political declaration
Context: End of Cold War
Originally European focus but now global interest
Currently 58 signatory parties
Energy Charter Treaty (ECT) signed in 1994
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Entry into force 16 April 1998
Currently 53 signatory parties
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Purpose of ECT
• One of the most significant multilateral
investment treaties in force
• Economically important industry sector
• Politically sensitive area
• Purpose:
Article 2: “to establish a legal framework in order to promote long-term
cooperation in the energy field.”
Preamble: encourage economic growth through the adoption of
“measures to liberalise investment and trade in energy.”
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Signatories / Observers of the ECT
Countries marked in green are signatories to the Energy Charter Treaty, and members of the Energy
Charter Conference.
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The countries marked in blue are observers.
Structure ECT (1)
“Untidy, user-unfriendly package”
• Treaty: Preamble, 8 Parts, 14 Annexes
• 5 Decisions, 22 Understandings, 8 Declarations (adopted
at the same time than the Treaty to assist in its
interpretation and application)
Institutional Structure
• Energy Charter Conference
• Energy Charter Process
• Energy Charter Secretariat
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Structure ECT (2)
• Trade Provisions (Part II)
• Develop open and competitive international market
• Transit (Art 7)
• Investment Promotion and Protection (Part III)
• Pre-Investment: best endeavour
• Post-Investment: enforceable obligations including:
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Fair-equitable treatment (Art 10(1))
Non-discriminatory treatment (Art 10(1))
Umbrella Clause (Art 10(1))
Full compensation following expropriation (Art 13)
• Dispute Settlement (Part V)
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Dispute Settlement Options
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Disputes between Contracting States, Art 27
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Disputes between Investor and State, Art 26
• Cooling-Off period: 3 months
• Investor’s choice of forum:
o National courts
o Previously-agreed dispute settlement procedure
o Treaty arbitration:
- ICSID
- Stockholm Chamber of Commerce (SCC)
- ad hoc arbitration under UNCITRAL Rules
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Decided & Pending Cases
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AES Summit Generation Ltd. (UK subsidiary of US-based AES
Corporation) v. Hungary
Nykomb Synergetics Technology Holding AB (Sweden) v.
Latvia
Plama Consortium Ltd. (Cyprus) v. Bulgaria
Petrobart Ltd. (Gibraltar) v. Kyrgyzstan
Alstom Power Italia SpA, Alstom SpA (Italy) v. Mongolia
Yukos Universal Ltd. (UK – Isle of Man) v. Russian Federation
Hulley Enterprises Ltd. (Cyprus) v. Russian Federation
Veteran Petroleum Trust (Cyprus) v. Russian Federation
Ioannis Kardassopoulos (Greece) v. Georgia
Amto (Latvia) v. Ukraine
Hrvatska Elektropriveda d.d. (HEP) (Croatia) v. Republic of
Slovenia
Libananco Holdings Co. Limited (Cyprus) v. Republic of Turkey
Azpetrol International Holdings B.V., Azpetrol Group B.V. and
Azpetrol Oil Services Group B.V. (the Netherlands) v.
Azerbaijan
Barmek Holding A.S. (Turkey) v. Azerbaijan
Cementownia "Nowa Huta" S.A. (Poland) v. Republic of
Turkey
Europe Cement Investment and Trade S.A. (Poland) v.
Republic of Turkey
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Liman Caspian Oil B.V. (the Netherlands) v. Republic of Kazakhstan
Electrabel S.A. (Belgium) v. Republic of Hungary
AES Summit Generation Limited and AES-Tisza Erőmű Kft. (UK) v.
Republic of Hungary
Mohammad Ammar Al-Bahloul (Austria) v. Tajikistan
Mercuria Energy Group Ltd. (Cyprus) v. Republic of Poland
Alapli Elektrik B.V. (the Netherlands) v. Republic of Turkey
Remington Worldwide Limited (UK) v. Ukraine
Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation
AG & Co. KG (Sweden) v. Federal Republic of Germany
EDF International S.A. (France) v. Republic of Hungary
EVN AG (Austria) v. The Former Yugoslav Republic of Macedonia
AES Corporation and Tau Power B.V. (the Netherlands) v.
Kazakhstan
Ascom S.A. (Moldova) v. Kazakhstan
Khan Resources B.V. (the Netherlands) v. Mongolia
Türkiye Petrolleri Anonim Ortaklığı (Turkey) v. Kazakhstan
The PV Investors v. Spain
Slovak Gas Holding B.V. (the Netherlands) et al v. Slovak Republic
Vattenfall AB (Sweden) et al v. Germanyan Caspian Oil B.V. (the
Netherlands) and NCL Dutch Investment --21
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ECT Statistics (1)
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Total of 37 cases brought under ECT
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6 settlements
15 final awards
16 pending
• Claimant successful in approx. 20% of cases
• Other cases:
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Settlement (approx. 30%)
Denied on jurisdiction
Denied on the merits
• Clear preference for ICSID (> 50%)
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ECT Statistics (2)
Cases according to industry sectors:
• Generation and sale of electricity
• Oil and gas exploration and production
• Downstream petroleum industry
• Nuclear energy
• Mining
• Others or not publicly available
TOTAL
14
10
3
4
1
5
37
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ECT Statistics (3)
Red designates Claimants’ countries
Blue designates Respondents’ countries
Green designates countries that are both Claimant and Respondent
Many thanks !
Dr Maxi Scherer
PhD (Sorbonne), LLM (Cologne), MA (Sorbonne) (Hons)
Senior Lecturer in International Arbitration and Energy
Director Paris LLM
Queen Mary, University of London
67-69 Lincoln's Inn Fields, London WC2A 3JB, UK
http://www.ccls.qmul.ac.uk/staff/scherer.html
Wilmer Cutler Pickering Hale and Dorr LLP
49 Park Lane, London W1K 1PS, UK
http://www.wilmerhale.com/maxi_scherer/
maxi.scherer@wilmerhale.com