Use of international commercial arbitration for project finance disputes: A new approach for drafting the arbitration clause

Abstract

International arbitration, as an alternative dispute method to traditional litigation, has gradually gained popularity for cross-border commercial disputes. On one hand, international commercial arbitration is one of the fastest growing sectors with an overwhelmingly increasing number of parties of any commercial transaction resorting to the arbitration route to resolve their disputes all around the world. The world has witnessed a considerable number of arbitral institutions being formed and providing guidance, setting out their own rules, putting a significant amount of effort into promoting the fundamentals of arbitration and its advantages. As a result, international commercial arbitration has been widely used by the parties of a transaction mainly due to its speed, neutrality, confidentiality, and the expertise offered by the arbitrators. On the other hand, despite the fact that several surveys and research reflect this rise of interest in using international commercial arbitration for many different sectors including construction and energy, international arbitration has failed to become as popular for financial disputes. The advantages and disadvantages regarding the use of international commercial arbitration have been analysed in a more comprehensive way within the last decade, with the financial arbitration institutions, financial dispute resolution centres and the commercial arbitration institutions have started addressing the main issues and been trying to shape their rules and approaches with the aim of improving the use of arbitration for financial disputes. Although the efforts are undeniably beneficial, this only solves one part of the problem: technicality. Some of the general disadvantages of international commercial arbitration compared with litigation have an elevated impact considering finance transactions and witnessing the institutions taking action is a massive improvement and surely will escalate the number of parties choosing alternative dispute resolution over litigation. However, there are certain problems evaluated in this research in a detailed way, which are mainly due to the nature of a project finance transaction, which cannot be solved just by improving general rules. There is a considerable amount of effort which is definitely in the right direction, just like the introduction of a ‘single dispute resolution scheme’, but it is time to take it to the next level, in terms of the content and mechanism of the proposed consolidated agreement, in order to make it more attractive to the financial institutions. This thesis proposes a mechanism where the parties can choose the specifics of their transaction, in terms of the jurisdictions involved, the location where the project is built, the nature and number of parties involved. Subsequently, a system which suggests specific clauses to be inserted in the model clauses and making the parties aware of the ‘red flags’ that needs to be paid attention to before drafting the clauses may significantly improve the use of arbitration. This thesis comprises two case studies and uses the UK and Turkey as case studies but aims to provide recommendations that can lead to a significant contribution for designing a future model for any jurisdiction. Based on the two jurisdictions, this research aims to demonstrate how the proposed system might work by pointing out the main jurisdictional challenges in the current environment through an analysis of two different countries.