International Arbitration in the Energy Sector

Maxi SchererQueen Mary University of London &

WilmerHaleVilnius 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 StatesSource: 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

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Historical Background

European Energy Charter signed in 1991• 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• 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.The countries marked in blue are observers.  

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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:• 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• Disputes between Contracting States, Art 27

• Disputes between Investor and State, Art 26• Cooling-Off period: 3 months• Investor’s choice of forum:o National courtso Previously-agreed dispute settlement procedureo Treaty arbitration:

- ICSID - Stockholm Chamber of Commerce (SCC)- ad hoc arbitration under UNCITRAL Rules

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Decided & Pending Cases• 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

• 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 ---

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ECT Statistics (1)

• Total of 37 cases brought under ECT• 6 settlements• 15 final awards• 16 pending

• Claimant successful in approx. 20% of cases• Other cases:

• 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 14• Oil and gas exploration and production 10• Downstream petroleum industry 3• Nuclear energy 4• Mining 1• Others or not publicly available 5TOTAL 37

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ECT Statistics (3)

Red designates Claimants’ countries Blue designates Respondents’ countriesGreen 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, UKhttp://www.wilmerhale.com/maxi_scherer/

maxi.scherer@wilmerhale.com