Survey of international energy firms reveals 'surprising' support for online dispute resolution, says expert

Out-Law News | 20 May 2015 | 4:12 pm | 3 min. read

Industry-wide research by the International Centre for Energy Arbitration (ICEA) has revealed growing support for the use of online dispute resolution, even for higher value and more complex claims.

The ICEA's report forms part of a project to identify the dispute resolution preferences of energy firms, and ultimately to draft dispute resolution rules tailored to the industry's needs. Its research, conducted via an online questionnaire and face to face discussion and debate, showed very strong support for "mandatory high level negotiation" as early as possible in any dispute, and a preference for dispute resolution through arbitration.

"The report contains interesting findings on the ideal features of dispute resolution mechanisms for the energy industry," said energy arbitration specialist John Gilbert of Pinsent Masons, the law firm behind "Although it quite rightly acknowledges that one size will never fit all, the preference expressed for arbitration and for senior level negotiation and mediation before proceedings are commenced comes across strongly. It reflects the approach of many in the industry to encourage attempts to resolve disputes at an early stage."

"The most surprising result is that nearly half of those surveyed expressed support for parallel online blind bidding. Online dispute resolution has been used with great success for small, low value disputes but the growing support for it in connection with more complex, higher value disputes perhaps points to where the future lies," he said.

Parallel online blind bidding (POBB) systems allow parties in dispute to indicate the figure they would be willing to pay or receive to settle the claim using an online platform. If the amounts come within a certain percentage of each other, the computer will split the difference and the parties are deemed to have settled. Although various free-standing online blind bidding systems exist, they tend not to be used for complex commercial matters. However, the ICEA said that these systems had the potential to get around the "fear of showing one's hand", which it said was one of the "major road blocks on the path to a settlement".

During its research, the ICEA found that a "very sizeable minority" of respondents, or 46%, thought that a POBB system could be an attractive method of resolving disputes. The ICEA said that there would be "some merit" in making such a system available, particularly as those that did not like it would not be compelled to use it. POBB had "the potential to lead to significant savings and to result in early settlement of a large number of disputes", the ICEA said.

Formally inaugurated in 2013, the ICEA is a joint venture between the Scottish Arbitration Centre and the Centre for Energy, Petroleum and Mineral Law and Policy at the University of Dundee (CEPMLP). Its initial report was presented to the Global Forum on Dispute Resolution for Oil and Gas Industry at an event in Amsterdam.

The report indicated strong support for early dispute resolution procedures, with over 80% of respondents in favour of mandatory high level negotiation and a high number also in favour of sanctions for failure to comply with early dispute settlement. Overall, respondents were against the introduction of mandatory 'cooling-off' periods, although a narrow majority of respondents working as in-house counsel within energy firms were in favour.

Arbitration was the preferred dispute resolution method "by a clear margin"; especially when 'hybrid' arbitration processes including mediation or conciliation were included in the figures. However, mediation also ranked well. Very few respondents ranked litigation as their first choice. The most important factor for parties when considering a dispute resolution process was the expertise of the decision maker, closely followed by neutrality. Confidentiality of proceedings was also an important factor to respondents, while just under half of those surveyed were also in favour of 'enhanced' confidentiality and anonymity offered by certain jurisdictions.

The single most important factor for most respondents when choosing a seat of arbitration was that the seat nation was a signatory of the New York Convention on recognition and enforcement of awards, followed by the reputation of the local courts for probity. The ability to nominate arbitrators, closely followed by confidentiality, was seen as the most important procedural rule, with the nationality of the arbitrators ranked as least important.

The ICEA is now seeking feedback from the industry on its report and findings.

"It will be interesting to see whether the rules that are drafted following these findings are sufficiently attractive to those in the industry that they are widely adopted," said energy arbitration specialist John Gilbert.