Dispute Resolution in the Global Economy
April 1, 2010
Senior Managing Director
Global investment trends are causing a significant rise in international arbitration cases. FTI looks at the factors that contribute to success in this little known world.
When ConocoPhillips invested in major heavy-crude projects in the Orinoco basin, no one expected that Venezuela would subsequently restructure its entire energy sector, nationalising the assets and denying the company its anticipated return. Nor could they have predicted the protracted dispute that ensued, a complex arbitration with a $30 billion claim at stake.
The confidential nature of arbitration means its practices are not widely known.
This may be a striking example of international investment gone wrong, but three factors are contributing to an increasing number of companies having to engage in disputes abroad. First, today’s global economy demands greater participation in foreign markets, sometimes involving investment into those markets; second, these foreign markets often have dispute resolution processes and practices unlike those that companies are familiar with in their domestic markets; and third, many cross-border investments are protected by international treaties that stipulate that any associated disputes will be resolved via a particular form of international arbitration.
Success or failure – should arbitration be required – depends on a number of factors: the governing law, the seat of arbitration, and the legal precedent or contractual mechanisms for defining and calculating damages specified in the arbitration clauses of contracts or investment treaties. Company executives and boards of directors would be advised to treat arbitration clauses that establish the protocols for resolving commercial disputes as key business terms and to familiarize themselves with processes of international arbitration.