Allen & Overy recently hosted a debate on the merits of gas price arbitrations to celebrate the launch of a new handbook — Gas Price Arbitrations — edited by partner Mark Levy. Gas Price Arbitrations: A Practical Handbook, published by Globe Law and Business, is available to purchase now.
The debate was chaired by Prof Jonathan Stern of the Oxford Institute for Energy Studies and saw Levy and White & Case’s Michael Polkinghorne propose the motion, ‘This house believes that international arbitration is wholly unsuited to resolving gas price disputes’.
Opposing the motion were Dr Wolfgang Peter of Python & Peter and Marnix Lijten of De Brauw.
Allen & Overy’s Levy was first to take the floor. He argued that gas price formulae should not be left in the hands of ‘innumerate’ lawyers and arbitrators, illustrating his argument with a slide showing examples of the complex equations used to compute gas prices in the kind of long-term contracts out of which gas price disputes arise. Counsel and arbitrators are, he suggested, not well placed to get to grips with these complex formulae.
Polkinghorne built upon this argument, saying that it is in any event inappropriate for arbitrators to embark on an exercise of rewriting gas price formulae as such an exercise may not give sufficient weight to the parties’ original intentions and the commercial considerations that led them to agree their contracts. A seller may, for example, decide to accept a lower price in return for more favourable provisions elsewhere in the contract, such as the ‘take or pay’ terms. Despite their protestations, however, both Polkinghorne and Levy accepted that it was difficult to find a more suitable forum than arbitration to address these disputes, with both acknowledging the limitations of mediation as an alternative. Levy argued that we should not look to limit the application of these clauses at all, but draft more flexible pricing provisions that can cope with the vagaries of a changing market.
Peter argued that lawyers are simply too modest about their own abilities and are in fact more than capable of dealing with complex disputes such as gas price reviews. He also argued that many of the issues are legal in nature. Lijten highlighted that despite the huge market turmoil recently, the market had continued to function and contracts to operate. This, he argued, was a testament to the efficacy of gas price review arbitrations.
The floor was then opened to questions from the audience, comprised mainly of arbitration counsel, arbitrators and expert witnesses. The audience was reluctant to be persuaded by the motion. Ultimately, when put to a vote, the house found unanimously against the motion before adjourning to continue the debate over cocktails and dinner.