The Future of Energy Disputes: Insights from the VanIAC and ICCA Joint Conference
by Özge Yazar (Miller Titerle + Company)
On an exceptionally sunny day in Vancouver, Vancouver International Arbitration Centre (VanIAC) and International Council for Commercial Arbitration (ICCA) hosted a joint conference entitled “Energy Infrastructure Disputes and Arbitration: Today and Tomorrow”. The one-day conference kicked off on the morning of June 2, 2023 with a traditional welcome by Wilson Williams (Sxwíxwtn) of the Squamish Nation. Sxwíxwtn’s message of “gathering” would set the tone for the conference, as local arbitration stars came together with Canadians practising arbitration abroad as well as distinguished guests from around the world to exchange ideas on the transformation of energy arbitrations in the face of climate change, and an increased demand for clean energy.
Vancouver-based arbitrator and disputes counsel Craig Chiasson (Borden Ladner Gervais) presented a history of VanIAC and British Columbia’s arbitration laws before introducing Lucy Reed (Arbitration Chambers, New York/London/Hong Kong)- eminent arbitrator and president of ICCA. After Ms. Reed’s presentation on ICCA and the official launch of the ICCA Awards Series, a publication devoted to arbitral awards and related decisions from institutions around the world, the first panel was underway.
Clean Energy and Climate Change are Transforming Construction Disputes
In the morning session moderated by Vancouver-based arbitration counsel Laura Cundari (Blakes), Dr. Patricia Galloway (Galloway Arbitration, Inc., Cle Elum, WA), Dr. Ezra Jampole (Exponent, New York), Doug Jones AO (Atkin Chambers, London/Sydney/Toronto), and Miguel López Forastier (Covington & Burlington, Washington, DC) identified the main features of disputes arising out of energy projects, discussed the effects of new regulations, new technologies and climate change in energy construction disputes, and addressed related trends in investor-state disputes.
Clean energy projects are often distinct from traditional construction projects. They are characterized by higher value (typically over $1 billion), longer duration (more than 4 years), the involvement of multi-national stakeholders, and complex engineered components. They operate in highly regulated environments in multiple jurisdictions, and are visible in the communities they operate in. Needless to say, clean energy projects come with a lot of potential for delay and scope changes. To complicate things, it can take up to 25 years for energy produced from green sources to be integrated into the main grid, which does not always occur to developers, financiers, or governments, and can generate disputes. Those involved in construction disputes will be familiar with ripple effects. Clean energy projects often come with ricochet effects, where an unexpected event exhibits itself in unexpected aspects of the project, making it virtually impossible to change even a single feature of the work.
The audience was intrigued to hear the unique fact patterns the speakers have encountered in clean energy disputes, many of them arising due to the conception of new technologies in this area. For example, the increased use of solar panels, which are prone to discoloration, cracks and water intrusion, has given rise to disputes concerning the impact of such defects on energy generation, as well as the unintended consequences of light reflection from solar panel fields to nearby buildings. Other disputes arise due to evolving science around the projects, such as developments in earthquake engineering. Contemporary research in this field requires a reevaluation of the seismic considerations for an entire generation of nuclear plants.
The panelists had a wealth of expertise in disputes that arise from evolving industry standards in clean energy projects. A fascinating example explained by Mr. Jones AO was the parallel arbitration and court proceedings in MT Højgaard A/S v E.On Climate & Renewables UK Robin Rigg East Limited and another, [2017] UKSC 59, where the parties had a dispute about, inter alia, whether a contractor for offshore wind turbines was liable for damages resulting from its reliance on international standards, which, over the years, turned out to be wrong. Despite the contractor’s position that it exercised reasonable skill and care as well as complied with all contractual requirements, the UK Supreme Court held it liable for defective works. Moving from the oceans to the North Pole, Dr. Jampole recounted a dispute involving a zinc mine in the Arctic Circle, where the roof collapsed because the mine’s design did not account for unprecedented amounts of snow the area started getting as a result of climate change.
As unexpected weather events, new contractual standards, new scientific research, and new regulations (including those for professionals such as architects and engineers) become common features of clean energy construction disputes, risk allocation between stakeholders becomes increasingly complex. According to Dr. Galloway, renewable energy projects are increasingly utilizing alliance-based contracts from the development stage, in order to allocate risk to the party in the best position to assume it. For the same reasons, Dispute Review Boards and Dispute Adjudication Boards are becoming increasingly popular methods of dispute resolution for energy disputes.
A significant portion of international arbitrations are investor-state disputes, and the discussion would have been incomplete without mentioning the clean energy trends in this area. Investor-state clean energy disputes generally arise from states failing to uphold their commitments made during the project’s design phase. Typically in these disputes, a state removes previously agreed fiscal incentives or tax breaks for the project, provides preferential treatment to local or state-owned projects to the detriment of foreign investors, or phases out certain sources of energy. Spain, for example, has been a defendant in many such disputes in the last decade. In the early 2000s, the country provided incentives to clean energy investors in the form of “feed-in-tariffs”, where the investors were guaranteed a price, typically above the market rate, for the energy generated from their projects, and that price would decrease over time. Spain’s policy was so attractive that the country achieved or surpassed its capacity goal within a few years. However, this success led to Spain owing over $4 billion to energy providers, rendering the system financially unsustainable. Spain’s eventual withdrawal of the incentive triggered the wave of disputes against the state. Mexico, Japan, and Czechia are among other states that, like Spain, are defendants in a series of disputes due to changes in their clean energy strategies.
Predicting the Future of Energy Arbitration
Canadian arbitrator and arbitration counsel Raëd Fathallah (Bredin Prat, Paris) moderated the second panel titled “Predicting the Future of Energy Arbitration”, which explored what types of disputes, arbitrators, and procedures awaited energy arbitration.
As for the types of disputes, Canadian arbitrator Jessica Crow (Arbitra, London/New York) predicted an increase in carbon pricing disputes, while Maria Chedid (Arnold & Porter, San Francisco) anticipated disputes arising from joint venture formations for the development of new technologies, as well as risk and revenue sharing arrangements after the these technologies are ready.
Will arbitration users start seeking increasingly tech-savvy arbitrators? Michelle MacPhee (BP International Disputes Team, London) admitted that while the arbitral tribunal’s technical skills may be more significant in energy disputes compared to traditional ones, her team will not be considering an entirely new set of factors when appointing arbitrators. She emphasized that arbitrators will learn relevant skills through expert evidence. Constantine Partasides KC (Three Crowns, London) agreed that despite new technologies and regulations, key issues in arbitrations will continue to be linked to contract interpretation or revenue sharing, so adjudicative experience and judgment will remain of paramount importance.
While traditional energy disputes will not die out anytime soon, the panel expected an increase in bespoke arrangements promoting sustainable business, like the Dutch government’s International Responsible Business Conduct (IRBC) Agreements- voluntary commitments to work with the government, unions, and NGOs to perform responsible and sustainable business conduct. IRBCs and similar agreements may become an advantage for parties after government contracts, and often have multi-tiered dispute resolution mechanisms that end in arbitration, which may become relevant for arbitration practitioners.
The panel agreed that energy disputes are likely to embrace procedural innovations in arbitration. While Ms. Chedid predicted that witness conferencing will become increasingly relevant in the face of expert intensive disputes, Mr. Partasides KC anticipated an increase in time-sensitive disputes that would utilize early disposition and summary judgment, such as section 21 of the VanIAC International Commercial Arbitration Rules.
How Critical are “Critical Minerals”?
Perhaps the most entertaining part of the day was when Mark A. Luz (Global Affairs Canada, Ottawa) and Jim Morrison (Peter & Kim, Sydney) debated whether “we should fuel our future through the extraction of critical minerals”, showcasing abundant data, futuristic design concepts, and photos of politicians holding coal.
When the audience heard the arguments in favour of the motion, they were optimistic that critical mineral mining can sustainably fuel the green energy transformation. It was compelling to hear that switching to green energy will offset the amount of carbon dioxide emissions from critical mineral mining, and that there are sufficient critical mineral reserves in the world to facilitate the green energy transformation.
Optimism waned, however, when the audience learned that the current reserves of critical minerals might not be sufficient to achieve a net-zero world. The speaker against the motion emphasized embracing the difficulty and awkwardness of the clean energy transition, comparing it to our teenage years. He argued that governments cannot be relied on to make consistent regulations on critical minerals, and warned of international block formation and trade conflicts.
Despite the moderator Alison Fitzgerald (Norton Rose Fulbright, Ottawa) pressing the debaters for more reflection on the equity concerns related to developing nations, the audience remained divided on their support of critical minerals mining.
Who Speaks for You, Me and the Trees?
The final panel, moderated by Canadian disputes lawyer Vasuda Sinha (Freshfields, Paris), discussed the role of third parties in arbitration, emphasizing the need for careful consideration of their inclusion while preserving the essential characteristics of arbitration.
Abby Cohen Smutny (White & Case, Washington, DC) highlighted the cost of disregarding third party interests in modern business, and suggested that the design phase is the ideal moment to incorporate their voices. Dr. Elizabeth Whitsitt (University of Calgary) pointed out that in certain jurisdictions, regulated industries already require third party intervention, or commercial parties voluntarily enter into benefit sharing agreements with stakeholders. However, both speakers were against imposing third-party intervention on commercial parties to preserve the fundamental aspects of arbitration, such as finality, confidentiality, efficiency, and consent.
The involvement of state parties in arbitration introduced a different perspective on the issue of consent. Dr. Whitsitt suggested that third-party intervention becomes more conceivable when a state’s (in)actions are directly challenged in investor-state arbitrations. Gabriela Alvarez-Avila (DLA Piper, Mexico City) pointed out that environmental, social and corporate governance may in some jurisdictions be considered public policy, hence raising questions about arbitrability and becoming relevant in set-aside or enforceability proceedings.
The panel also explored who should represent third parties. They referenced Milieudefensie et al. v. Royal Dutch Shell plc (HA ZA 19-379), where environmental groups took Shell to court over its contributions to climate change, which they alleged violated its duty of care under Dutch law and human rights obligations. The District Court of Hague found for the claimants, but first, it confirmed the standing of most of the claimant NGOs, including Milieudefensie, representing the Dutch public interest, but denied standing to another NGO, ActionAid, as it did not sufficiently promote the interests of Dutch residents. The panel also considered nature’s personhood, recognized in states such as Ecuador and New Zealand, but concluded that its application in arbitration would pose risks to the legitimacy of the process.
The VanIAC-ICCA Conference came to an end with closing remarks by Canadian arbitrator Tina Cicchetti (Vancouver Arbitration Chambers/Arbitration Place, Vancouver/Toronto/Florence) and Vancouver-based disputes lawyer Joe McArthur KC (Blakes), who thanked the distinguished delegates from around the world for their valuable contributions, and encouraged participants to consider using VanIAC International Commercial Arbitration Rules.
