International Arbitration in Latin America: Energy and Natural Resources Disputes, is a remarkable effort in compiling experts’ views over the last two decades of transnational energy-related arbitration cases and regulation throughout Latin America.
The decision to focus on Latin America was not a coincidence. Latin America’s economic growth still relies mostly on the development of its massive natural resource reserves, many of them used for the generation of different types of energies produced from hydrocarbons, mining, and renewables. To improve investment conditions and attract foreign investment for the development of these resources, Latin American nations have integrated the transnational law system that governs transnational dispute resolution, including substantive rules such as investment treaties and the major international arbitration conventions such as the New York Convention of 1958, the ICSID Convention of 1965, and the Panama Convention of 1975.
This law, a bit dormant until the end of the last century, has not been without use in the last 20 years. According to ICSID’s caseload report of 2010, which covers only investor-state arbitrations, at the end of the first decade of the 21st century, Latin America led the number of known arbitrations with approximately 30% of cases.1INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES, THE ICSID CASE LOAD—STATISTICS (ISSUE 2010-2) 12 (2010), https://icsid.worldbank.org/sites/default/files/publications/Caseload%20Statistics/en/ICSID%20Statistics%202010-2%20 English%20Final.pdf.1 This was particularly boosted by cases arising from economic crisis and the resource nationalism of Argentina, Ecuador, and Venezuela. Today, the region is second to only Eastern Europe & Central Asia with approximately 22% of the ISDS market.2INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES, THE ICSID CASE LOAD—STATISTICS (ISSUE 2021-1) 11 (2021), https://icsid.worldbank.org/sites/default/files/publications/The%20ICSID%20Caseload%20Statistics%20%282021-1%20 Edition%29%20ENG.pdf.2 Notably, energy-related disputes comprise 46% of ICSID’s cases.3Id. at 12. Energy-related disputes refer to Oil, Gas and Mining sectors (26%), as well as Electric Power & Other Energy (13%), and Construction (7%). Id.3
Likewise, according to the 2020 ICC arbitration case report, Latin America is second with approximately 15% of commercial cases, mainly led by the frequent use of arbitration by Brazilian and Mexican parties.4INTERNATIONAL CHAMBER OF COMMERCE, ICC DISPUTE RESOLUTION 2020 STATISTICS 10 (2020), https://iccwbo.org/ publication/icc-dispute-resolution-statistics-2020/.4 This reflects the parties’ preferences in the region for resolving disputes via arbitration in lieu of national legal systems. Also, the trend repeats and the highest demand for arbitration services at the ICC arose from the construction and energy sectors, comprising 38% of all cases.5Id.5
The high number of Latin American cases contributes to arbitration jurisprudence that will be widely used by arbitrators, and practitioners representing individuals, corporations, and governments. This is at the core of the contribution that the book provides.
The book is presented in VII parts, with 21 chapters by 39 contributors. It analyzes substantive and procedural arbitration issues, and in particular, standard clauses and practices involving cases related to energy generation from different sources, including hydrocarbons and renewables. It further references the more recent trends on climate change, corruption, and environmental protection. The authors succeeded in documenting current trends starting from the more general topics to the more particular and specific cases providing lessons for the transnational dispute resolution community.
Parts I, II, and III analyze issues on the integration of Latin America to the transnational arbitration system (including commercial and investment arbitration law), issues on the arbitrability and admissibility of disputes, and the problems arising from enforcing arbitration awards dealing with issues of public policy. Although chapter 2 highlights an arbitrator’s risk in rendering decisions based on sound commercial judgments that could create conflicts with national court systems,1An arbitrator’s power to decide cases based on trade usages is one of the common standards of applicable law that the transitional community recognizes arbitrators as having and is codified in Article 21.2 of the ICC Arbitration Rules, Article 35.3 of the UNCITRAL Arbitration rules, and any other modern set of rules that has incorporated this time-honored rule. Also on this issue, see Charles Jarrosson, L’acceptabilité de la sentence, 4 REV. ARB. 793, 804 (2012) (“En définitive, rendre une sentence acceptable est plus qu’une mission juridique, c’est tout un art qui requiert de l’arbitre non seulement des connaissances et un bon raisonnement juridiques, mais aussi de la psychologie, un sens des réalités pratiques, une bonne anticipation de l’effet concret de sa décision au moment où elle sera reçue et devra être exécutée: la somme de tous ces éléments pourrait bien s’appeler expérience.”).1 it is also true that depending on the facts of the case, the New York Convention and the Washington Convention offer a multi-jurisdictional enforcement system. This concept can be found in the post-award enforcement actions in the case Pemex v. Commisa, which the book addresses.2See Corporación Mexicana De Mantenimiento Integral, S. De R.L. De C.V. v. Pemex-Exploración y Producción, 832 F.3d 92 (2d Cir. 2016).2
Part II of the book provides studies from different energy sectors, showing their similarities and specificities. As the standardization of petroleum contracts and the transnationalization of disputes are consolidated, the concept of a lex petrolea appears to overcome past criticism and confirm the common transnational legal practice in the oil industry in the 21st Century. This same approach is applicable to the gas, power, and renewable energy sectors, which also follow specific standard clauses and industry practices adapted to commercial and investment transactions. The approach taken by the editors and authors is useful for those who specialize in any of these sectors.
Part III expands on corruption cases and concerns affecting international arbitration. As the sector evolves, targeting corruption is crucial because the system relies on the parties’ belief, including corporations and governments, that the system does not contribute to or legitimize sophisticated corruption practices. Therefore, chapter 8 refers to relevant questions faced by tribunals when deciding the legitimacy of transactions in the energy sector when corruption allegations are present.
On a different issue, damages also create concerns in the arbitration community given that it is the most common remedy provided by arbitral tribunals in energy-related disputes.3Given the impossibility of the challenges to award remedies based on restitutio in integrum.3 The material differences among methodologies and parameters make clear that we are far from standardizing the awarding of compensation in the energy sector. These sophisticated practices continue to evolve as more detailed and specialized cases reach final decisions and a new generation of practitioners contribute with solutions. In the end, the acceptability of the arbitration award and the perception of fairness should remain at the core of these calculations to meet the legitimate expectations of both states and investors towards the certainty of the rule of law.
Finally, chapter 10 illustrates the multi-jurisdictional enforcement regulations provided by the New York Convention, the Washington Convention, and the Panama Convention, and the challenges that can be exercised against an arbitration award. The chapter also highlights the risks faced by governments deciding to ignore compliance with arbitral awards. Such risks include deterring new investment and inhibiting access to international funding. The chapter further explores the litigation saga countries can face, for instance, in the case of an Argentinean warship ARA Libertad detained in Ghana,4Sam Jones & Jude Webber, Argentine navy ship seized in asset fight, FINANCIAL TIMES (Oct. 3, 2021), https://www.ft.com/content/edb12a4e-0d92-11e2-97a1-00144feabdc0.4 or the Crystallex case against Venezuela.5Caroline Simson, Crystallex Pushes To Keep Citgo Sale Moving Ahead, LAW360 (March 1, 2021), https://www.law360.com/articles/1359975/crystallex-pushes-to-keep-citgo-sale-moving-ahead.5
Parts IV, V, VI, and VII focus on specific cases, starting with a chapter discussing the Brazilian experience with energy arbitration disputes and regulation (Chapters 11 to 13). Part IV provides specific references on the electricity market and gas supply contracts in Brazil. Part V analyzes social justice issues in natural resources disputes, stabilization clauses in the context of human rights, local communities’ participation in investment projects and the disputes that can arise from their intervention over extractive industry projects, and the expansion of sustainable development clauses included in transnational investment law regulation, particularly in bilateral and multilateral investment treaties.
This section also includes chapter 14, which focuses on relevant issues arising from ISDS litigation against Venezuela. These issues include the admissibility of claims by dual nationals and the effects of the denunciation of the Washington Convention for investment disputes. This chapter also discusses recent challenges related to the Venezuelan government’s representation given the dispute between competing state representation before arbitral tribunals, and how ICSID and ICSID tribunals have dealt with this question.
The relevance of energy transition and climate change developments are explored in Part VI, highlighting future trends in transnational litigation and arbitration practice in the energy sector.
The final chapter is on mediation in the energy sector. Mediation could reduce the number of claims that reach arbitration. As such, it would serve as a filter to the best interest of the parties and the arbitration community.
International Arbitration in Latin America: Energy and Natural Resources Disputes is a useful and practical resource that provides readers an overview of transnational arbitration practice in Latin America. Moreover, the importance of all major case studies highlighted by the authors rely on the fact that those cases can contribute to create arbitration practices or become arbitration precedent which can be argued or applied by practitioners and arbitrators in other regions of the world, particularly dealing, but not limited, to energy-related arbitration cases. Based on the major investment required by upstream and downstream energy projects, and the importance of the commercialization of its products, energy-related cases will continue to provide the lessons over complex disputes and transactions, that will contribute with the construction of the law that governs transnational investment projects and commercial transactions. Undoubtedly, this book provides a contribution towards that aim.