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Mediation/Alternative Dispute Resolution in Oil, Gas and Energy Transactions:
Superior to Arbitration/Litigation from a Commercial and Management Perspective
by Thomas W. Wälde
The final version of this paper will be published in OGEL : www.gasandoil.com/ogel
Introduction and Abstract
The normal way for Western lawyers, and perhaps all modern lawyers, to settle a dispute is by litigation. In international business transactions, the role of litigation before courts has been largely replaced by litigation before international arbitral tribunals relying on such institutions and procedural rules as provided by the Parisbased International Chamber of Commerce, UNCITRAL, the Stockholm Chamber of Commerce, the London Court of International Arbitration or the World Banks International Centre for the Settlement of Investment Disputes (ICSID) plus a host of smaller, emerging arbitral institutions. The advantages of such arbitral litigation have been said to include greater neutrality (as compared to domestic courts), expertise, lesser cost, greater confidentiality, more expeditious settlement and helping parties to avoid confrontational and relationship-destroying litigation. A considerable arbitration service industry has emerged in the main arbitration centres. It is in the interest of this industry to maintain arbitral litigation as the preferred form of dealing with disputes between commercial companies and between companies and governments. This note suggests that arbitral litigation indicates a serious failure of management within the organisation and in the management of inter-company or company-state relationships. It is a very high-cost and high-risk activity which in many cases is inferior in terms of cost, risk, efficiency, management time or relationship nurturing and reputation to alternative systems of dispute settlement, mainly mediation and related methods (e.g. sole-expert adjudication). Modern management and financial analysis methods are rarely applied to litigation in practice. Litigation reflects a break-down of relationships within a company and with an external partner, often resulting from a break-down of a personal relationship. It also reflects a breakdown of the hold of management over the dispute and very often indicates managerial failure. It is turned over to the corporate law departments. The dispute then and there triggers the normal lawyers reaction: Sue the bastards. In most scenarios, it would be much more efficient to analyse the dispute as a management problem and apply managerial decision-making to decide on the main options: give in, continue to negotiate, litigate or use lowprofile mediation. But intra-corporate, intra-governmental and inter-personal dynamics plus the emotional need for assertiveness in the face of conflict, tends to lead to the often sub-optimal strategy of litigation.
Thomas W. Wälde
CEPMLP
(added 02 April 2003)
