Protections in international projects

Ryan Lax (00:06): Hi everyone. Welcome back to Torys’ video series on project related disputes. In previous videos, we've been discussing some of the key tensions that are giving rise to disputes around developing projects in Canada. And in these next two videos, we're going to turn our attention to issues related to resolving disputes when developing a project abroad.

Emily Sherkey (00:25): There are some important trends currently driving significant investment in projects located in international jurisdictions. Trends like the green energy transition, international project development often involves more legal and political complexity. When disputes arise, project proponents find themselves asking whether they should look to local courts, whether a different decision maker is more desirable and available to them. Today we're going to be discussing key considerations applicable to dispute resolution among contractual parties in connection with project development abroad.

Ryan Lax (01:02): So, Emily, if you're developing a project abroad with a group of partners, some of them are from the host country and some foreign, one might assume that you're going to be working in the host country’s laws and legal system, court system. But that's not necessarily the case, right?

Emily Sherkey (01:20): That's right. Project permitting and regulation is going to take place under local law where the project is based. But the law governing the contractual rights and the form of dispute resolution is the party's choice. We often see parties inserting both governing law clauses and arbitration clauses in project related agreements, and to take dispute resolution out of the hands of the national courts.

Ryan Lax (01:46): Point to keep in mind is that this choice should be made at the time of contract negotiation. If you wait for when a dispute arises, in most cases it will be too late for the parties to agree on a dispute resolution forum. The defendant can use this ambiguity to cause delay, and the default will be to national courts in that circumstance.

What this means is that the drafting and negotiation of an arbitration clause is a key step to protecting yourself in respect of potential project-related disputes with your contractual counterparties, particularly when working in foreign jurisdictions. So, Emily, what are the key aspects of an arbitration clause that parties should pay attention to in this context?

Emily Sherkey (02:24): We're going to discuss three key elements that parties will want to consider in negotiating arbitration clauses. The first is what we've just been discussing, the law of the contract or the governing law clause. These clauses set out what law will govern the interpretation of the construction contract or the project agreement. This ability of the parties to choose what law will govern their contractual rights and obligations is important.

Parties may wish to avoid local laws in the host country. They may wish to choose a legal framework that they're more familiar with, or they may wish to choose a law that is substantial and more beneficial to them on key issues that generally arise in these types of contracts. And these are all important. And these reasons underscore that care should be taken in negotiating these contracts to select the right governing law.

Ryan Lax (03:19): So, from governing law we move to our second key consideration. And that is the seat to the arbitration. One of the key benefits of arbitration, particularly for international construction and project agreements, is that it creates a means to have disputes settled in a neutral forum, independent of local decision makers. And that may be particularly important if the counterparty is a local entity or a state-owned entity.

The seat of arbitration is not necessarily the location where the hearing will be held. A hearing venue can be anywhere, but the seat is the jurisdiction whose arbitral laws and courts will be in charge of enforcing the arbitration process, and that is important in two contexts. First, in the event a dispute arises in connection with constituting the tribunal, you want efficient access to courts that respect the arbitration process, and you want them to act quickly to help appoint the tribunal.

The second important context is in seeking recognition and enforcement of the arbitral award after the conclusion of the arbitration. Parties generally want a jurisdiction that will respect the finality of the award, absent some gross miscarriage of justice or procedural fairness issue, and a jurisdiction whose recognition and enforcement will be respected by courts of other countries. And that means you probably want a seat of arbitration in a country that is a party to the New York Convention on the Recognition and Enforcement of Arbitration Awards.

Emily Sherkey (04:46): And the third key consideration of an arbitration agreement is the selection of the arbitral rules and institution. We often recommend agreeing upfront, in an arbitration clause, on a set of rules and in administering institution, in order to minimize a potential for delay while the parties try to sort this out after a dispute arises. You do not necessarily have to agree on a set of rules or to using an institution, but we often recommend doing so as it creates certainty about the arbitral process and the steps in the arbitration, avoiding further procedural disputes between the parties.

Some common rules and institutions we see in international disputes are the use of the UNCITRAL rules, often administered by the Permanent Court of Arbitration or the ICC Rules and Institution. These are two options with universal international recognition. The LCIA is often used and well-known in English-speaking Commonwealth jurisdictions, and arbitrations in the Middle East and Hong Kong.

The Singapore International Arbitration Centre is the leading regional forum for private dispute resolution in East Asia, and the Stockholm Chamber of Commerce is a leading forum for private dispute resolution in Central and Eastern Europe.

Ryan Lax (06:08): So, Emily, with those three key pointers in mind, are there any final thoughts you'd like to flag for our audience?

Emily Sherkey (06:15): Yeah, dispute resolution is often not the highest priority at the time you're negotiating a contract. But what we hope we illustrated is that it's essential for you to think through these key elements to protect against the downside risk. In the event that development of your project abroad encounters some unanticipated bumps, appropriate thought upfront can ensure a fair, smooth, and neutral process for resolution, allowing you and your arbitration to focus on the substance of the dispute and hopefully providing for a resolution that enables the project to proceed.