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by Adrian Cop
25 October 2021
At the beginning of any collaboration, the parties to the contract are very enthusiastic and have the best of intentions to perform it. Depending on the type of the contract, disputes concerning its performance, obligations of the parties or deadlines may arise at any moment and for any reason.
In the case of RES contracts, but not exclusively, the “bumps on the road” may occur for various reasons, such as bad weather which prevents the timely laying of power cables in the ground, delays in supplies of PV panels or communication problems between the operator and the entity which wants to connect a PV power plant to the network.
In the case of a conflict and no chance of the parties’ reaching an agreement, a well-worded dispute resolution clause may turn out invaluable. Parties often skip that issue or devote minimum attention to it by copy-pasting template or previously used contractual provisions. Meanwhile, that clause may turn out the most important part of the contract.
Judges and arbitrators to which a dispute is submitted for resolution indicate that the key issue is how the clause/amicable resolution clause is worded. If, e.g. the arbitration clause is worded incorrectly, the dispute may not be recognised at all and the parties will need to seek their rights at court although that was not their intention.
Although arbitration is still not very popular in the RES sector, it may bring a lot of benefits. In particular, when time is of the essence for the contracting parties, when it is important for them to be able to influence the dispute resolution procedure, as well as when they want to have greater certainty in the dispute settlement where they jointly agree to limit or forfeit the right of appeal against the ruling.
The attractiveness of arbitration is even more apparent when the contracting parties have their registered offices in different jurisdictions – when they value neutrality and do not agree to the potential dispute being resolved in the other party’s jurisdiction. Arbitration is also beneficial in terms of the effectiveness of arbitration proceedings, their costs and time-efficiency in comparison with court proceedings.
Furthermore, as part of arbitration the parties can use the arbitrators of their choice, who have knowledge (especially technical) and experience in dispute resolution. This cannot be overestimated in the case of disputes related to renewable energy sources, where arbitrators who have the technical knowledge or who know the wind farm investment process inside out are worth their weight in gold.
The parties will not, however, experience the above benefits if they do not conclude an effective arbitration contract. The easiest way to do it is to draft an appropriate arbitration clause which will regulate all the necessary elements in case of a dispute between the parties. When drafting the arbitration clause, a number of basic issues must be taken into account:
Very often, when drafting contracts the parties reuse clauses from previous contracts or copy and paste template clauses from websites of arbitration entities, without reviewing their fitness for a given contract. This often happens at the final stage of contract drafting, which is when these provisions are added. It needs to be emphasised that template arbitration clauses published by such renowned arbitration entities as ICC, VIAC, UNCITRAL or LCIA are a very good basis to work on when drafting arbitration clauses. Nonetheless, in the author’s opinion, when drafting a clause, one should also take into account the specific nature of the contract and the expectations of the parties, and then modify the clause as appropriate. What is the most important is that the clauses should be worded clearly and include all the necessary elements so that there is no doubt as to their construction and effectiveness.
Another key issue related to drafting an arbitration clause is to clearly define the scope of arbitration, i.e. to indicate what types of disputes are subject to arbitration proceedings. It is particularly important when the parties submit just some of their issues to arbitration, and the remaining ones will be resolved in court. Arbitrators verifying the formal requirements of an arbitration clause should not have doubts as to the scope and character of the dispute which the parties have agreed to submit for arbitration. Otherwise, they can refuse to adjudicate in the case saying that they are not competent.
Due diligence must be exercised when the parties agree to amend the contract by concluding an annex or a number of annexes. An ill-considered introduction of arbitration clauses to the annexes, which are inconsistent with the clause included in the original contract, or submitting disputes arising from the annex performance for resolution to common courts, may result in the need to submit different parts of one dispute for resolution of different courts (common and arbitration courts or e.g. different arbitration courts).
It is important that the arbitration clause says explicitly that both parties agree to submit the dispute to arbitration. The words used must explicitly indicate the consent (e.g. “the parties submit”, “the parties undertake”).
When drafting the arbitration clause the parties may choose between ad hoc arbitration and institutional arbitration (selection of an arbitration entity). In institutional arbitration the parties select an arbitration institution which will help, against a fee, arrange the proceedings and monitor the dispute resolution in administrative terms. In the case of ad hoc arbitration this must usually be done by the parties in dispute. The rules of arbitration selected by the parties determine the procedures to follow. By selecting a ready-to-use rules of arbitration offered by the largest arbitration centres, the parties do not need to comprehensively agree the rules and terms of procedure by themselves because these are already there. Selecting “default” rules may streamline the proceedings and limit potential disputes as to the compliance with the established rules of procedure. Arbitration clause may additionally say whether the dispute should be resolved using the rules of arbitration of a given institution in force on the date of drafting the arbitration clause or on the proceedings start date.
When selecting the rules of arbitration, the nature of the future dispute should be taken into account. Lawyers drafting the arbitration clause must check the available decisions of the arbitration entities concerned (whether disputes of that category of cases have been processed by the institution), the adjudicatory and procedural practices of the entity concerned and the arbitrators who will decide on their case. In the case of the RES sector, the selection of an entity specialising in resolving such disputes, in particular the possibility to involve arbitrators who know the RES sector in practice, in accordance with the principle clara non sunt interpretanda, will not only speed up the dispute resolution, but also facilitate the processing of the case for the parties themselves and their attorneys.
The place of arbitration, unless the parties agree otherwise, is important because it determines the law governing the arbitration proceedings (lex arbitrii). The parties usually choose a neutral location taking into consideration the location of their registered office and the need to travel, the location of the investment project and the place where the local courts will efficiently enforce the contract performance and support the arbitration process.
In the arbitration clause the parties can decide about the number of arbitrators who will process the case. Most frequently, the number of arbitrators is odd to avoid a deadlock caused by the same number of votes “for” and “against”. The parties usually choose between one and three arbitrators.
If one or more arbitrators are chosen, the parties often indicate in the arbitration clause the procedure for their selection, e.g. each party selects one arbitrator and the selected two arbitrators select the third one or each party selects one arbitrator and then the parties must unanimously select the third arbitrator together.
The selection of language in the arbitration clause helps avoid further disputes and application of default rules included in the law applicable in the place of arbitration. Selection of the language of arbitration is important when the parties are from different countries. Remember that language selection concerns not only the language of the proceedings, but also the language to be used in documents, witness/expert testimonies and translations (if any).
The above-described elements of the contractual arbitration clause are key in the event of a major business conflict. A well-written arbitration clause will specify the method of resolving the problem and ensure that the rights and obligations of the parties are fully exercised and enforced.
Below you will find sample and basic elements which should be included in an arbitration clause. Additional elements may be added, depending on the intention and legal situation of the parties.
If you would like to know more about arbitration, including arbitration in the RES sector, you are welcome to contact our experts.
Anna Smagowicz-Tokarz
Attorney at law (Poland)
Associate Partner
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